The Chairman, Clementino Bonfiglioli · · 2015-11-02North America Canada, United States Latin...

Annual R

eport 2008

Bonfiglioli Worldwide

EuropeAlbania, Austria, Belgium, Bielorussia, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Holland, Hungary, Germany, Great Britain, Greece, Ireland, Italy, Lettonia, Lituania, Luxemburg, Malta, Montenegro, Norway, Poland, Portugal, Romania, Russia, Slovakian Republic, Serbia, Slovenia, Spain, Switzerland, Turkey, Ucraina

AfricaAlgeria, Egypt, Kenya, Morocco, South Africa, Tunisia

AsiaBahrain, China, Emirates, Japan, Jordan, Hong Kong, India, Indonesia, Iran, Israel, Kuwait, Malaysia, Oman, Pakistan, Philippine, Qatar, Saudi Arabia, Singapore, South Korea, Syria, Thailand, Taiwan, Vietnam

North AmericaCanada, United States

Latin AmericaArgentine, Bolivia, Brasil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Perù, Uruguay, Venezuela

OceaniaAustralia, New Zealand

BONFIGLIOLI RIDUTTORI S.p.A.Via Giovanni XXIII, 7/A40012 Lippo di Calderara di Reno - Bologna (Italy)Tel. (+39) 051 6473111 - Fax (+39) 051 [email protected]

www.bonfiglioli.com

Cod. 4001 R4 Annual Report 2008

How many storms and droughtsdoes a mighty sequoia withstand?The rings in its trunk will surely showthe signs of many a difficult day,punctuating the times of plenty.But in those seasons of ease, the mighty tree put downroots to resist the strongest tempest.A solid company is like a tree:if its roots are strong it need not fearthe wait for better days,for the sun will shine again and the leaves of plenty return.

The Chairman, Clementino Bonfiglioli

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Annual Report 2008

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Contents

7 Financial Highlights

15 Management Report

39 Consolidated Financial Statement as of December 31, 2008

47 Notes to the consolidated financial statement

85 Independent Auditors’ Report

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Financial Highlights

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200

250

300

350

400

450

500

550

600

650

700

2004

338,9+14,7%

Group sales

(Euro/Million)

387,8+14,4%

498,6+28,6%

609,9+22,3%

663,5+8,8%

2005 2006 2007 2008

0

6

12

18

24

30

36

42

48

54

60

2004

11,2

Net investments

(Euro/Million)

37,8 37,3

54,8

48,4

2005 2006 2007 2008

Financial Highlights

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48

54

60

2004

19,9

EBIT

(Euro/Million)

24,1

38,1

50,9

47,3

2005 2006 2007 2008

40

60

80

100

120

140

160

180

200

220

240

2004

128,3138,5

153,7

177,1

233,2

2005 2006 2007 2008

Group shareof shareholders’ equity

(Euro/Million)

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150

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400

450

500

Salesby geographical area

(Euro/Million)

450,4

213,1

2008

267,3

71,6

2004

295,6

92,2

2005

374,2

124,4

2006

434,6

175,3

2007

Euro

pe

Ove

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Ove

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Ove

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Ove

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Ove

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sEuro

pe

Euro

pe Euro

pe

Euro

pe

Number of employees500

750

1000

1250

1500

1750

2000

2250

2500

2750

2800

2004

1712

1919

2226

2501

2812

2005 2006 2007 2008

1112

600

1246

673

1366

860

1406

1095

1525

1287

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Pare

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Board of Directors

Clementino Bonfiglioli

(Chairman)

Luisa Luisardi

(Vice Chairman)

Sonia Bonfiglioli

(CEO)

Luciano Bonfiglioli

(Director)

Statutory Auditors

Giovanni Biagi

Monica Marisaldi

Giovanni Errico

Independent Auditors

PricewaterhouseCoopers

Corporate bodies

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1%

Bonfiglioli Vectron GmbHGermany

80%

97%

100%

74%

100%

67%

100%

100%

100%

100%

100%

Bonfiglioli Vietnam LtdVietnam

Bonfiglioli Slovakia sroSlovak Republic

Tecnoingranaggi Riduttori srlItaly

Bonfiglioli Transmission PVT LtdIndia

Bonfiglioli Riduttori SpA

Bonfiglioli Transmissions SAFrance

Bonfiglioli UK LtdUnited Kingdom

Bonfiglioli Skandinavien ABSweden

Bonfiglioli Italia SpAItaly

Bonfiglioli Transmissions &Automation Technologies Jsc

Turkey

Bonfiglioli Deutschland GmbHGermany

Bonfiglioli Group as of December 31, 2008

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100%

70%

75%

75%

10%

15%

33,33%

100%

100%

100%Bonfiglioli Canada Inc

Canada

Bonfiglioli USA IncUSA

Bonfiglioli Drives(Shanghai) Co Ltd

China

Bonfiglioli Transmission(Aust.) PTY Ltd

Australia

Bonfiglioli Reductores do BrasilIndustria e Comercio Ltda

Brazil

Bonfiglioli South AfricaPTY Ltd

South Africa

Bonfiglioli Power TransmissionPTY Ltd

South Africa

Tecnotrans Bonfiglioli SASpain

Omega Endustriel LimitedTurkey

B.E.S.T. Hellas SAGreece

Production Plants

Commercial Subsidiaries Europe

Commercial Subsidiaries Overseas

Other Companies

Associated Companies

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Management Report

(The Management Report has been translated into the English language

solely for the convenience of international readers)

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2008 Foreword

This management report, drawn up in compliance with the provisions of Legislative Decree

127/1991, integrated and interpreted on the basis of CNDC (Italian National Councils of

Certified Public Accountants) and OIC (Italian Accounting Authority) accounting princi-

ples, is submitted as a comment on the results recorded in the consolidated financial state-

ment of the Bonfiglioli Group.

Unless otherwise indicated, data are shown in Euro/millions.

Reference economic situationIn 2008 the world economy expanded at an overall rate of 3.2%, compared with 5.2% in

2007, returning to growth levels lower than those recorded in 2003. The crisis, first striking

the American real estate lending market in the summer of 2007, and then rapidly expanding

to every area of world finance, and peaking last September with the bankruptcy of the bank

Lehman Brothers, struck the real economy towards the end of 2008, influencing consumer,

investment and production choices. Almost all the most advanced economies recorded falls

in GDP in the second half of 2008 (at an aggregate level the decline was 7.5% in the last

quarter of 2008 alone), as a knock on effect of the sharp drop in investment prices, reduced

availability of credit, diminishing consumer and business confidence, and the continuing

slump in the real estate market. Emerging economies were hit by the crisis through the out-

flow of foreign capital following investment payouts by banks and international investment

funds, registering a reduction in GDP of 4% at an aggregate level.

Oil prices continued to drop in the second half of 2008 in response to the current and fore-

cast lower demand for crude oil, which was only partly offset by the reduction in output

by countries belonging to the OPEC cartel. At the end of December, the average price of

crude oil had settled at around 35 USD a barrel, dropping from a peak of 145 USD in July.

During the first few months of 2009 prices have fluctuated between 40 and 50 USD a barrel.

Analysts estimate a progressive rise in prices reaching 60 USD a barrel by the close of 2009.

The price of other major raw materials also fell considerably in the second half of 2008,

remaining almost unaltered during the first few months of 2009.

Examining the analysis based on individual geographical areas, the United States GDP

recorded a 6.3% annual drop in the fourth quarter of 2008. The marked acceleration with

which the GDP fell from the third quarter was the result of the sharp drop in manufactur-

ing investments and exports; private consumption levels, first dropping in the third quarter,

also continued to fall, as did property investments, now in decline for three years. In order to

tackle the worst financial crisis of our time since the Great Depression, the Federal Reserve

rapidly proceeded with a series of interest rate cut, setting an end-of-year interval-target

at between nought and 0.25% (as opposed to 4.25% at the end of 2007) and confirmed its

intention to keep rates at this level for an extended period. 2008 closed with an average USA

GDP growth rate of 1.1%, compared with 2% in 2007.

The economic slump also accelerated in the United Kingdom during the final quarter of

2008 (-6.1% for year) as it felt the effects of a more rapid drop in consumption and a con-

Management report

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2008sistent reduction of stock. Consumption figures were affected by the drop in net financial

wealth and an increased reduction in family cash flows. The Bank of England tackled the

worsening crisis by reducing the monetary policy rate by 1 percentage point, bringing rates

to 0.5%. At the end of 2008 the average British GDP growth rate had reached 0.7% (3.0%

at the end of 2007).

In Japan, the economy recorded a reduction in GDP growth of -0.6% at the end of 2008

(2.4% at the end of 2007).

The fall in world demand and the reduced flow of foreign capital, attributable to the re-

duction in credit offered by the international banking system, also slowed down the main

emerging economies. Expansion rates are nevertheless still positive: China closed 2008 with

a growth of 9% (13% in 2007), India grew in 2008 at an expansion rate of 7.3% (9.3% in

2007), Brazil and Russia, expanded with growth rates of 5.1% and 5.6% respectively.

In the Euro zone, the slowdown in foreign demand and the crisis hitting financial markets

had repercussions on the investment policy adopted by businesses. In 2008 GDP in the area

grew by 0.9% as opposed to 2.7% in 2007. The economic situation rapidly worsened during

the course of the year. The export and investment collapse which had started in the third

quarter of 2008 led to a reduction in output rates which are estimated to drop further in

2009.

Family spending is also on a downward trend, despite the considerable fall in inflation, re-

flecting the climate of uncertainty surrounding the duration and intensity of the recession

which weighs heavily on employment prospects (the unemployment rate in the Euro area

has in fact been rising at an increasing rate since the beginning of 2008). The accumulation

of stock of finished products has intensified, reaching levels at the end of 2008 considerably

higher than those normally recorded. Amongst the leading nations in the area, the eco-

nomic slump has hit Italy, France and Germany in particular.

The Central European Bank has adopted a policy aimed at sustaining the economy, whereby

official rates have progressively been reduced since the autumn of 2008 reaching the current

1%. Despite this, bank loans continue to slow down due to factors linked to a poor offering,

particularly in the case of credit to businesses.

In Italy, the downward trend of the GDP rate which had started in the spring of 2008,

continued into the last quarter of the year, with a drop of 1.9% compared to the previ-

ous quarter, the worst fall recorded since 1974. In 2008 the Italian economy, the only one

amongst the Euro zone leaders, recorded a drop of 1%, compared with the 1.6% growth fig-

ure recorded in 2007. During the year the GDP rate fell even further, reflecting the growing

tension in the financial markets. The reduction in exports and investments contributed to

this downward spiral. Employment continued to fall as more and more businesses resorted

to the Layoff Benefits Fund (Cassa Integrazione Guadagni). Regardless of economic factors,

the number of unemployed in Italy appears to have been in steady growth since the third

quarter of 2007. Uncertainty surrounding job prospects has offset the encouraging effects

on consumption produced by the fall in inflation. The recession was also detrimental to

public accounts dynamics. In 2008 the deficit started to rise again, reaching 2.7% of the Man

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2008 GDP, returning to levels recorded in 2005. The growth in primary spending, increasing to

an average level exceeding that recorded over the previous two years, and the sharp decel-

eration in revenues, contributed to this situation.

The world recession has continued into the first quarter of 2009. Even though the slow-

down is likely to ease off by the second quarter, the International Monetary Fund (IMF) has

estimated a drop in the world economy in 2009 of 1.3%, predicting that recovery will not

commence before 2010, the year in which output is estimated to grow by 1.9%.

In the United States, the economy continued to contract in the first few months of 2009.

Despite state intervention to support the economy and consumers, the employment rate

continued to fall (it is estimated that 5.1 million jobs have been lost since December 2007),

bringing the unemployment rate to 8.5% in March 2009. IMF estimates for the US econo-

my point to a decrease in GDP of 2.8% in 2009 and zero growth in 2010. Prospects depend

critically on the political measures taken to mitigate the effects of the recession, strengthen-

ing the transparency of the banking system and stimulating the consumption of the private

sector at the same time.

Economic indicators also point to a downturn for Japan and the United Kingdom at the be-

ginning of the year. Estimates therefore point to a downward trend with decreases in GDP

in 2009 of 6.2% and 4.1% respectively.

The estimates for growth in emerging economies are negative too. According to the IMF’s

most recent assessments, China and India will record growth rates in 2009 of 6.5% and 4.5%

respectively whilst Brazil and Russia will record decreases of 1.3% and 6%. The prospect of

continued growth in China and India is based on the fact that they depend less heavily on

bank credit flows and, in the case of China, on the adoption of more actively anti-cyclic

monetary and tax policies. In Russia and Brazil, on the other hand, economic activity is af-

fected by worsening trade terms resulting from the drop in the price of raw materials.

The Euro zone economy continued to suffer in the first months of 2009. A further slow-

down in production, against a backdrop in which output is already to a large extent not

exploited, and tense financial conditions, have prompted the IMF to predict a fall in GDP

in the area in 2009 of 4.2%.

As regards estimates for Italy, indicators available also predict that 2009 will be marked by a

decrease in economic activity. During periods of recession in the past, exports had rapidly

injected new life into the economy, benefiting from both the resumption of international

trade and the depreciation of the exchange rate. The global nature of this recession however

makes it difficult to estimate when growth is likely to return to a steady pace. IMF estimates

point to a 4.4% decrease for Italy in 2009 and 0.4% in 2010.

Consolidation principlesWith reference to the scope of the consolidation area, the changes which took place during

the year 2008 are described below:

incorporation of the company “Bonfiglioli Vietnam Ltd” whose registered office is situ-•ated in Ho Chi Minh, Vietnam, with share capital of 10 MUSD. The Group has an 80% M

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2008holding in the company, whose purpose is the production of electric motors for the

supply of complete solutions, whilst SIMEST (a state-controlled company created to

support Italian investments abroad) holds the remaining 20%.

purchase of a 70% holding in “Bonfiglioli Redutores Do Brasil Ltda”, a company that •distributes the Group’s products in Brazil and Latin America, whose registered office is

situated in San Paulo, Brazil.

acquisition of a further shareholding representing 8% of the share capital of the Turkish •subsidiary “Bonfiglioli Power Transmission & Automation Technologies JSC”.

admission of new local black partners to the South African company “Bonfiglioli South •Africa Pty Ltd” in keeping with regulations regarding the “Black Empowerment Equity

Program” (BEE). At the end of 2008 the Group directly possesses a 75% holding in “Bon-

figlioli Power Transmission Pty Ltd” and indirectly through this company, a 75% hold-

ing in “Bonfiglioli South Africa Pty Ltd”, a company that assembles and distributes the

Group’s products in South Africa.

The area of consolidation as at 31 December 2008 covers a total of eighteen subsidiaries,

including:

five manufacturing companies (located in Italy, India, Germany, Slovakia and Vietnam), •which produce the various products in Bonfiglioli’s extensive range.

twelve sales subsidiaries that manage promotion, sales, pre- and after-sales assistance, •logistics and customisation, and final assembly of the Group’s products, together with

“Bonfiglioli Power Transmission Pty Ltd” that has a 75% majority holding in the South

African subsidiary.

The only associated company of the Bonfiglioli Group is a commercial branch that has

been operating on the Spanish market for 40 years, Tecnotrans Bonfiglioli S.A., in which the

Group holds a 33.33% stake.

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2008 Analysis of 2008 results

In keeping with the amended provisions of art. 2428 of the Italian Civil Code, the layouts

for the Balance Sheet and Income Statement are set out below, reclassified with regard to

the last five years’ operations conducted by the Group. The schemes set out below contain

absolute data and percentage data, as well as the principle financial and non-financial result

indicators.

Values

Reclassified income statement 2008 2007 2006 2005 2004

TURNOVER 663.5 609.9 498.6 387.8 338.9

Cost of sales (513.2) (464.6) (379.5) (293.4) (255.9)

GROSS MARGIN 150.3 145.3 119.1 94.4 83.0

Structure and operating expenses (103.1) (94.4) (81.3) (71.0) (64.0)

EBIT 47.3 50.9 37.8 23.4 19.0

Financial income and charges (10.9) (7.3) (4.2) (2.1) (1.6)

Exchange rate differences (1.8) (0.2) (0.3) (0.1) (0.2)

Associated companies’ result 0.9 0.5 0.3 0.2 0.2

Extraordinary income and expenses (1.8) 1.8 (0.3) 0.2 0.0

EBT 33.7 45.7 33.3 21.6 17.5

Current taxes (16.5) (20.8) (17.2) (12.1) (10.2)

Prepaid and deferred taxes 5.1 1.5 2.2 1.0 (0.2)

CONSOLIDATED PROFIT 22.2 26.3 18.2 10.5 7.2

Minority (1.3) (0.7) (1.0) (0.9) (1.0)

NET GROUP PROFIT 20.9 25.6 17.2 9.6 6.1

Personnel costs (101.6) (91.9) (83.6) (72.2) (64.8)

Amortisation/depreciation and write-downs (24.7) (21.3) (18.3) (16.7) (17.5)

EBITDA 72.0 72.2 56.1 40.0 36.5

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% of Turnover

Reclassified income statement 2008 2007 2006 2005 2004

TURNOVER 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of sales (77.3)% (76.2)% (76.1)% (75.7)% (75.5)%

GROSS MARGIN 22.7% 23.8% 23.9% 24.3% 24.5%

Structure and operating expenses (15.5)% (15.5)% (16.3)% (18.3)% (18.9)%

EBIT 7.1% 8.3% 7.6% 6.0% 5.6%

Financial income and charges (1.6)% (1.2)% (0.8)% (0.5)% (0.5)%

Exchange rate differences (0.3)% 0.0% (0.1)% 0.0% (0.1)%

Associated companies’ result 0.1% 0.1% 0.1% 0.0% 0.1%

Extraordinary income and expenses (0.3)% 0.3% (0.1)% 0.1% 0.0%

EBT 5.1% 7.5% 6.7% 5.6% 5.2%

Current taxes (2.5)% (3.4)% (3.4)% (3.1)% (3.0)%

Prepaid and deferred taxes 0.8% 0.2% 0.4% 0.3% 0.0%

CONSOLIDATED PROFIT 3.3% 4.3% 3.7% 2.7% 2.1%

Minority (0.2)% (0.1)% (0.2)% (0.2)% (0.3)%

NET GROUP PROFIT 3.2% 4.2% 3.4% 2.5% 1.8%

Personnel costs (15.3)% (15.1)% (16.8)% (18.6)% (19.1)%

Amortisation/depreciation and write-downs (3.7)% (3.5)% (3.7)% (4.3)% (5.2)%

EBITDA 10.8% 11.8% 11.3% 10.3% 10.8%

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Values

Turnover by geographical area 2008 2007 2006 2005 2004

Italy 166.6 164.6 145.2 120.3 114.0

Europe 283.8 270.0 229.0 175.3 153.3

Overseas 213.1 175.3 124.4 71.6 71.6

Total turnover 663.5 609.9 498.6 367.2 338.9

% of Turnover

Turnover by geographical area 2008 2007 2006 2005 2004

Italy 25.1% 27.0% 29.1% 32.8% 33.6%

Europe 42.8% 44.3% 45.9% 47.7% 45.2%

Overseas 32.1% 28.7% 24.9% 19.5% 21.1%

Values

Reclassified balance sheet 2008 2007 2006 2005 2004

Net Working Capital 209.2 189.4 164.9 139.1 115.6

Fixed assets 229.2 158.3 122.9 102.5 80.3

Other invested capital (23.1) (28.1) (32.2) (31.5) (31.8)

Minority (4.1) (2.2) (6.8) (6.3) (6.1)

Capital employed 411.1 317.3 248.8 203.8 157.9

Group shareholders' equity 233.2 177.1 153.7 138.5 128.3

Net cash position 177.9 140.3 95.0 65.3 29.6

Funds 411.1 317.3 248.8 203.8 157.9

Average no. of rotation days (base 360)

Reclassified balance sheet 2008 2007 2006 2005 2004

Net Working Capital 113.5 111.8 119.0 129.1 122.8

Fixed assets 124.3 93.5 88.8 95.1 85.3

Other invested capital (12.6) (16.6) (23.3) (29.3) (33.8)

Minority (2.2) (1.3) (4.9) (5.8) (6.5)

Capital employed 223.1 187.3 179.6 189.2 167.8

Group shareholders' equity 126.5 104.5 111.0 128.6 136.3

Net cash position 96.5 82.8 68.6 60.6 31.4

Funds 223.1 187.3 179.6 189.2 167.8

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2008

The Group, which manufactures and sells its products worldwide, has felt the effects of

the general economic decline that started in the second half of 2008, as the consolidated

turnover figure demonstrates, increasing by just 8.8% compared to 2007, which indicates

a slowdown from the positive trend characterising the last five years marked by continuing

double-figure growth rates.

A geographical breakdown reveals that group sales continue to grow significantly in over-

seas markets, their incidence on overall turnover increasing from 21.1% in 2004 to 32.1% in

2008, thus confirming the Group’s constant and continuing penetration of foreign markets,

as further demonstrated in 2008 with the setting-up of new companies in Brazil and Viet-

nam. Growth in the domestic and European markets is also confirmed.

Indicators 2008 2007 2006 2005 2004 Description

Economic

Net ROE 9.0% 14.5% 11.2% 7.0% 4.8% (Net profit/Shareholders’ equity)

ROI 11.5% 16.0% 15.2% 11.5% 12.0% (EBIT/Lending)

ROS 7.1% 8.3% 7.6% 6.0% 5.6% (EBIT/Turnover)

EBITDA/Turnover 10.8% 11.8% 11.3% 10.3% 10.8%

Incidence of employment costs 15.3% 15.1% 16.8% 18.6% 19.1% Employment costs/Turnover

Incidence of financial area 1.6% 1.2% 0.8% 0.5% 0.5% Financial income and charges/Turnover

Equity and structural

Primary structural balance ratio 1.0 1.1 1.3 1.4 1.6 (Shareholders’ equity/Fixed assets)

Financial indebtness ratio 0.8 0.8 0.6 0.5 0.2 (NCP/Shareholders’ equity)

NCP/EBITDA ratio 2.5 1.9 1.7 1.6 0.8 (NCP/EBITDA)

Shareholders’ equity tangibility ratio 1.0 1.0 0.9 0.9 0.9 (Equity-Intangible assets / Equity)

Other

Average number of employees 2668 2364 2226 1816 1588 Annual mean

Turnover per employee 0.249 0.258 0.224 0.214 0.213 Data expressed in millions of Euro

Net Working Capital Rotation 113.5 111.8 119.0 129.1 122.8 Average no. of days (base 360)

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2008 Turning to an analysis of the main figures in the Income Statement, on a consolidated level,

the Group gross operating margin (EBITDA) stood at 72 million Euros, accounting for

10.8% of sales, dropping by one percentage point from 2007.

More precisely, we point out the following:

the cost of sales recorded a 1.1 percentage point increase, the incidence on turnover •rising from 76.2% to 77.3%. The impact of seesawing fluctuations in the raw materials

market and oil market, in particular, was notable where prices rose exponentially up

until July and then dropped at an equally rapid rate in the second half of 2008, which

was partly offset by the Group’s ongoing efforts to reduce costs. The higher proportion

of costs from sales is also linked to the downward trend characterising the main foreign

currencies in which transactions are made, which have continued to depreciate with

respect to the Euro for most of the year, and to dynamics related to a change in the sales

mix, with an ever-increasing incidence of sales in the “mobile” sector;

the structural costs to turnover ratio remained almost unchanged (15.5%) even though •the figure rose in absolute terms by 8.7 M€ (from 94.4 to 103.1 M€);

personnel costs increased by 9.5 M• €, nevertheless maintaining their incidence on turn-

over at a constant level (15.3% as opposed to 15.1% in 2007);

the overall incidence of depreciation, amortisation and provision for bad debts re-•mained constant (3.7% compared with 3.5% in 2007), even though in absolute terms

the figure rose by approximately 3.3 million Euro;

financial expenses and income increased in terms of incidence on turnover, rising from •1.2% in 2007 to 1.6% in 2008, following the rise in group net indebtedness required to

sustain growth in Net Working Capital and the significant investments made over the

last few years;

extraordinary income and charges had a debit balance for 2008, their incidence on •turnover standing at 0.3% as a result of provisions for future charges of other than an

ordinary nature (allocations made by the Parent company and the United States sub-

sidiary, in particular).

The asset and liability structure of the Group, in terms of both absolute and percentage

values, also records in 2008 an increase in capital used to finance the extensive investments

made in Italy and abroad, as evidenced below in this report, and in the increase in Net

Working Capital (NWC) required to support the growth in sales. The weight of NWC was

nevertheless in line with 2007 figures, both in terms of incidence on turnover and the aver-

age number of days of rotation, hence confirming a trend initiated in the previous year that

was characterised by a widespread effort to reduce stock and Working Capital in general,

despite the fact that the reduction in turnover recorded for the second half of 2008 limited

the stock reduction results that had been hoped for.

The efforts made by the Group to carry out investments also contributed to further ab-

sorption of financial resources with the relative effect on the net cash position, with a net

consolidated debt of 140.3 million Euro in 2007 rising to 177.9 million Euro in December

2008. Man

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2008Details of the Group’s net investments made over the last five years are set out below:

Values in Euro/millions 2008 2007 2006 2005 2004

Land and buildings 15.1 16.3 11.7 13.7 1.0

Plants and machinery 22.3 22.3 17.8 8.8 3.8

Equipment 8.0 7.7 5.4 3.0 2.9

Other assets 2.9 2.0 1.0 1.9 1.2

Assets in progress and advances (3.7) 4.8 (0.5) 7.0 1.1

Tangible fixed assets 44.6 52.8 35.4 34.4 10.0

Software, trademarks, patents 0.5 1.9 1.6 1.1 1.1

Consolidation goodwill 0.2 0.1 0.1 1.8 –

Other 3.2 – 0.2 0.5 –

Intangible fixed assets 3.9 2.0 1.9 3.4 1.1

Total investments 48.4 54.8 37.3 37.8 11.2

It is pointed out that the Parent company and the subsidiary Tecnoingranaggi exercised

the right to revaluate immovable property owned conferred by Law 2/2009. The monetary

revaluation recorded to increase the value of land and buildings totals 45.7 M€. The invest-

ments shown in the table set out above are net of the effects of the monetary revaluation

carried out.

As shown in the table above and by the Tangible Shareholders’ Equity indicators, the Group

has concentrated its efforts continuously on investment over the last five years resulting in a

total outlay of more than 189 million Euro. Most of the capital invested related to plants, ma-

chinery and equipment for production, even though major investments were also made in

land and buildings in Italy and abroad, which were necessary to ensure that the subsidiaries

benefit from the most suitable structures for production and sales activities, and confirmed

the Group’s commitment to obtain a firm foothold in the areas in which it operates.

With reference to the year 2008, the largest investments made by the Group are set out be-

low, involving an overall outlay of 48 million Euro:

investments in intangible fixed assets refer mainly to the purchase and implementation •

of application software related to the development of the SAP project in Italy and in the

main overseas sites; The increase in “other intangible fixed assets” is attributable mainly

to the capitalisation by the Vietnamese company of the right to use land on which the

factory premises stand (94,000 sq. m.) for forty-nine years (1.7 M€). The rest of the in-

crease is connected to improvements to third party rented premises made mainly by the

Parent company and by the German company Bonfiglioli Vectron; Man

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2008 the increase in consolidation goodwill of 0.2 M• € originates from the purchase of a 70%

holding in the company “Bonfiglioli do Brasil Ltda”;

investments in land and buildings relate principally to completion of the construction •

of the second factory run by the Slovakian subsidiary totalling 7.9 M€, the expansion of

the factory in Forlì and Lippo by the Parent company involving the sum of 5 M€ and the

construction of a new head office for the subsidiary “Bonfiglioli Vietnam Ltd” totalling

2.6 M€;

investments in plants, machinery and equipment related mainly to the production com-•

panies; only the parent company strengthened production with purchases amounting to

15 million Euro of which 4.5 million Euro relates to leasing investments; there were also

considerable increases to the machine inventory at the factories situated in Slovakia (4.5

M€), Vietnam (1.5 M€) and Italy (Tecnoingranaggi 0.5 M€).

To the investments already made, investments underway on 31.12.2008 and involving a

total of 8.6 M€ must be added; these investments relate mainly to works on the building

owned by the Vietnamese subsidiary and advances paid for the purchase of new machinery

by the Parent company and by the Indian subsidiary.

Risk managementAn analysis is set out below of the principle risks to which the Group is exposed, these risks

being represented by events capable of producing negative effects on the pursuit of the

company’s objectives and which therefore restrict the creation of value.

Risks connected with general economic conditionsThe economic and financial standing of the Group, as well as its assets and liabilities, are

influenced by a number of factors that make up the macro-economic picture in the various

countries in which the Group operates: increase or decrease in GDP, consumer and business

confidence, interest rate fluctuations, the cost of raw materials and the unemployment rate.

As things currently stand, the world cycle may have hit rock bottom in the worst recession

to arise since the Second World War. Macroeconomic indicators signal a stabilisation/decel-

eration in the decline witnessed in many areas. The IMF estimates a recovery driven by the

emerging economies in 2010. Recovery will however be slow and will leave industrialised

countries with a difficult legacy. The adjustment of consumption and investment levels

and the necessary correction of public finances imply a sub-standard rate of growth for a

prolonged period. If this situation persists significantly, the Group’s activities, strategies and

prospects could be adversely affected, with reduced performance and a negative trend for

the Group’s economic, proprietary and financial indicators.

Risks connected with the market sectors servedThe Group manufactures and distributes complete solutions for both the “industrial” sector

(gearboxes and gearmotors for industrial and photovoltaic applications) and the “mobile”

sector (gearboxes and gearmotors for earth-moving machinery, excavators, agricultural ma-

chinery and wind turbines). The wide range of applications supplied has always provided

shelter from economic slumps by allowing the Group to shift the product offering from sec-Man

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2008tors in decline to those in growth. The extraordinary nature of the current economic crisis,

which has hit almost all economic sectors without distinction, does not however allow reli-

able forecasts to be made regarding the time necessary for the market to return to normal

conditions, despite the fact that investments in renewable energy sectors should reduce the

effects of the crisis.

Risks connected with financial resource requirements The companies in the Group draw up three-monthly cash flow estimates in order to keep

the Net Financial Position under constant check and to monitor their ability in the short-

term to meet commitments and therefore make the most appropriate decisions.

In 2008 the Group’s Net Financial Indebtedness increased by 37.6 M€ following invest-

ments made and an increase in Net Working Capital, as already examined in full. The im-

provement of the Group’s financial situation depends on numerous conditions, including

the achievement of the targets set, as well as general developments affecting the economy,

financial markets and the sectors in which the Group operates. In the current market cli-

mate, the Group predicts that its capacity to generate financial resources through ongoing

operations will diminish. Measures taken to reduce production should allow the Group to

reduce stock gradually down to levels compatible with current sales, thereby permitting the

re-absorption of operating capital requirements arising at the end of 2008 and at the begin-

ning of 2009. Yet a further reduction in sales volumes could adversely affect the ability to

generate cash through the Group’s ongoing operations.

Credit riskBad debt risk is represented by the Group’s exposure to potential losses that may stem from

the failure by customers to meet their obligations.

Customer credit risk is constantly monitored with the use of information and customer as-

sessment procedures and this type of risk has historically had very little scope.

Risks connected with exchange and interest rate fluctuationsOperating in more than one market at a worldwide level, the Group is naturally exposed

to market risks connected with exchange rate and interest rate fluctuations. Exposure to

exchange rate fluctuations is linked mainly to the geographical distribution of production

and sales activities which generate export flows in foreign currency different to the pro-

duction currency. In particular, the Group is exposed through its exports from Italy to the

USA, Great Britain and Australia. As regards inflows, on the other hand, the risk relates to

imports from Japan, in the currency Yen.

The Group also uses various forms of financing aimed at satisfying the requirements of

its production and sales operations. Variations in interest rate levels may result in either

increases or decreases in the cost of loans.

In keeping with its risk management policies, the Group tries to tackle risks relating to ex-

change and interest rate fluctuations with the use of hedging financial instruments.

Risks connected with the use of derivative financial instrumentsThe Group uses the interest/exchange rate hedging financial instruments referred to in the

previous section. The companies in the Group do not use speculative-type derivative finan- Man

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2008 cial instruments.

Risks connected with employment relationsIn the various countries in which the Group operates, employees are protected by various

laws and/or collective labour contracts which provide them with guarantees through local

and national representatives. Employees are entitled to be consulted on specific matters,

including the reduction in size or closure of departments or reductions in work force. These

laws and collective labour contracts applicable to the Group could affect the flexibility with

which it redefines or strategically repositions its activities.

Risks connected with competitionThe current economic recession has reduced consumption levels in almost all sectors in

which the products distributed by the company are used (manufacturing, building and

agriculture industries in particular) thereby gradually reducing the overall value of the

available market and increasing competition. The success of the Group will therefore also

depend on its ability to maintain and increase its share of the markets in which it currently

operates, perhaps expanding into new sectors.

Information regarding the environmentThe Group conducts its activities in accordance with environment protection regulations

currently in force in the various countries in which the Group operates.

In any event we can confirm that no damage has been caused to the environment for which

companies in the Group have been declared definitively responsible, nor have any definitive

sanctions or penalties been imposed on companies in the Group for environmental offences

or damage.

Human resources2008 was characterised by a further increase in the headcount at Group level with an in-

crease of 311 employees (overall number including interim and temporary staff), up from

2501 in December 2007 to 2812 at the end of 2008. This increase was necessary to meet

growing, challenging market demands, particularly in the “Mobile Solutions” area and to

cover a further considerable increase in orders acquired between the end of 2007 and the

beginning of 2008, orders whose “scope” extended well into 2009 and therefore gave the

Group confidence to consider the investments to be made to accompany this stage of devel-

opment, including investments directed at its work force.

In May 2008 the Group’s new management structure was presented, based on a Business

Unit approach (Industrial and Mobile Wind) under a new, unified figurehead, namely the

Managing Director, Sonia Bonfiglioli. The new structure is designed to focus efforts on the

final customer and on improving customer satisfaction, at the same time trying to maintain

and develop all the synergies and levels of efficiency that the vision of an integrated Group

can bring together.

In particular, the creation of a Corporate level Quality Control structure has relaunched the

theme of total quality standards applying to all company systems, renewing interest in this Man

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2008topic and focusing the attention of everyone, starting with the production structures, on

more challenging, incisive and modern approaches geared to improving the means used up

to now by the company.

With regard to factories, it is pointed out that a new plant for the production of electric mo-

tors was opened in Vietnam, and by the end of 2008 it already employed a workforce of 86.

The most important sales subsidiaries continued to expand their organisations and a new

branch was purchased in Brazil.

As regards the central production structures, investments in sales training continued, an

area in which the company now operates using a “permanent training” method in order to

guarantee a sales structure that is capable of adapting to changing market demands. Enrol-

ment in the Business Administration Masters for young high flyers is proving to be popular.

Language training activities continued and an important pilot project for the training of

Key Users for Office Automation applications was launched.

With reference to the Italian factories, negotiations went ahead with trade unions through

the Bilateral Technical Committees to define a number of prototype sites as assembly units

operating time-bound working cycles. Through closer dialogue of a more technical na-

ture with trade union organisations, these activities have led to important results in terms

of ergonomic improvements to work stations (also with the use of OCRA certification, a

method recognised at European level to guarantee that the risk of complaints effecting the

arms stemming from repetitive movements is reduced to a minimum), higher safety stand-

ards and a significant increase in industrial efficiency levels (around 30%).

The lean-manufacturing initiatives continued, helping to define important levels of pro-

duction efficiency and creating a new, more complete professional role for the machine tool

operator.

The first half of 2008 was characterised by the same growth rate that had been seen in previ-

ous years. Up until August, all the Italian factories used overtime, in an attempt to deal with

the steady flow of incoming orders.

After the summer break, the Industrial BU started to feel the first clear signals of a slow-

down, which gradually led to the elimination of overtime and the total reduction of shift

work at the assembly plants. Since November the BU has used the Ordinary Layoff Ben-

efits Fund (Cassa Integrazione Ordinaria) at all the Bologna and Vignola-based plants, even

closing down for a few days in December just before Christmas.

The Mobile Wind BU also suffered a slowdown during the second half of 2008, though

less obvious as that affecting the Industrial BU thanks to the company’s existing full order

portfolio, and it therefore managed to avoid use of the Layoff Benefits Fund for the rest of

the year. The progressive decrease in orders will inevitably force the company to use the

Ordinary Fund during 2009 for the Mobile Wind BU as well.

This sudden change in market conditions, resulting from the expanding crisis hitting the

world economy in the second half of 2008, opened up a negotiating table with trade union

organisations with the aim of defining the most appropriate measures to be taken to tackle

the crisis and examining the consequences it is likely to have on the overall employment Man

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2008 situation in the Italian factories. In particular the negotiation with the trade unions is focus-

ing on the so-called “irregular” (precario) staff (part-time and fixed term) with a view to

also safeguarding this category.

Negotiations led to a number of mediated solutions including termination of employment

of supply staff and a few open-ended contracts confirmed for young workers. Discussions

with trade unions continued into 2009 with a view to monitoring the crisis and the effects

on employment and income levels.

To conclude, it is confirmed that none of the following events occurred at any of the com-

panies in the Group:

death at work place of any member of staff entered in the company’s employee register;•

charges connected with professional illness to employees or former employees as a result •

of mobbing.

It is reported that a serious accident did occur at the Forlì plant on 17th October 2008 when a

worker suffered injury to his hand which, thanks to the timely intervention of medical staff,

was curbed and the injured employee is currently undergoing rehabilitation which should

take less than a year from the date of the accident.

Research and developmentResearch and development activities are performed for “Bonfiglioli Riduttori” brand gear-

boxes and electric motors at the Lippo di Calderara (BO) site, for “Trasmital” planetary

gearboxes at the Forlì site and for “Vectron” electronic inverters at the Kreferld site in Dus-

seldorf of the subsidiary Bonfiglioli Vectron GmbH.

As confirmation of the importance assumed by R&D we draw your attention to the fact that

overall R&D expenditure in 2008 was in excess of 8 million Euro for the Bonfiglioli Group.

The following section contains an overview of the main development projects in relation to the

three product brands (Bonfiglioli Riduttori, Bonfiglioli Trasmital and Bonfiglioli Vectron).

Bonfiglioli RiduttoriA - F Series upgrade(New sizes and new variants in existing sizes - low backlash and servomotors)

In 2008 the design team was involved in the completion of the F Series upgrade (sizes 10-

60) and definition of an additional size (F25) in the 400 Nm torque range. The upgrade in-

creased the output torque rates on all the ratios, with more significant increases in the short

ratios where more critical duration factors notoriously come into play due to the rotation

speed of the bearings.

A number of new catalogue variants have been introduced to the A Series gearbox range,

which has increased its market potential.

An important new feature is the addition of conical adapter bushings on the output shaft in

the A Series (also to be extended to the F Series); this item is covered by a Bonfiglioli Ridut-

tori patent.

A “free wheel” device was applied to the various sizes in the A and F Series to complete the Man

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2008range of models requested.

Development of HDP heavy-duty range(Completion of range segment - development of extruder models - formulating block project)

Operations to complete the HDP-HDO Series continued in 2008, proceeding with the de-

velopment of all the variants to accompany the basic models, in both the HDP and the

HDO series. Parallel with this, a number of important personalised features were added to

the product in order to meet certain specific applications requested by the market.

The basic development of the range continued, leading to the introduction of the additional

sizes in the HDP/HDO 150 - 160 high-level range.

At the same time, technical data were released for the catalogues, as well as the product

designation control rules required for management of the Series utilising the Product Con-

figurator.

Feasibility studies on the extruder model were completed, extending it to all existing sizes

and putting together a pre-catalogue for internal use providing documentation to accom-

pany the product.

At the end of 2008, and continuing into 2009, a motor block feasibility study was put into

motion, for application on all HDO sizes; the design of these devices is running into dif-

ficulties that differ from those normally encountered in the design of gear motors and de-

velopment, calculation and project drafting operations will therefore continue throughout

2009.

Electric MotorsDuring the year we continued to develop several special products for dedicated applica-

tions, in particular the wind turbine and goods handling sectors.

The electric motor design department also worked throughout 2008 to support the start-up

of the production plant in Vietnam.

Tecnoingranaggi low backlash high-precision gearboxesThe development of Tecnoingranaggi products as a principle line of business, led to the

complete design of the LCK range (right-angle model to complete the existing LC Series)

in 2008. This new project is linked to the previously launched KR Series and the TQ Series

to be launched in the future. Operations were therefore concluded in 2008, the range being

completed with the sizes requested and with a full set of catalogue technical data.

Many of the new development operations for Tecnoingranaggi were carried out jointly with

the subsidiary Bonfiglioli Vectron GmbH.

Bonfiglioli TrasmitalGearboxes for machine tool wheel drivesStarting with the standard range of gearboxes for wheel drives, new models were developed

for harvesting machinery wheel drives: one for combine harvesters and others for sugar beet

harvesting machines, all for leading industrial groups in the sector, for their machines built

in America.

These products have a number of special features called for by individual applications which Man

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2008 stem from the individual characteristics of the machines themselves.

Gearbox with 2-speed transmission to drive large crane winches in the building sectorThe characteristics required for winches fitted onto large cranes of this kind, in terms of

both lifting capacity (100 kW) and high conversion ratio: max rope pull (12 tonnes) and

extended speed variation range, cannot be obtained solely by a gearbox driven by a variable

speed electric motor controlled by an inverter.

A 2-speed transmission controlled by inverter was therefore designed, fitted downstream

from the electric motor and upstream from the final gearbox, thereby producing 2 discreet

power speed ranges, the first to hoist heavy loads and to manoeuvre them with precision,

and the second for manoeuvres with light loads and rapid descent without load.

The transmission is of a planetary type, with speed selection controlled by 2 multiple disk

clutches, electro-hydraulically driven by means of an electronically controlled hydraulic

power unit with electric motor drive and safety device control. The final gearbox, a right-

angle model, forms part of the standard HDO range, appropriately modified to interface

with the transmission and form a single unit.

Development of gear units for wind turbinesIn order to satisfy market demands from both consolidated customers, following the de-

velopment of their generators, and new customers, located mainly in the Far East, namely

China and Korea, a number of gearbox models have been developed for both generator

direction drive and blade pitch control. The various models derive from our basic sizes

designed for generators with an average capacity of 2 to 5 MWatt and are characterised by

different construction forms capable of interfacing with the different sizes of the machines

produced by various constructors, with different gearbox casing and pinion shaft.

In addition to this, development activities were continued in order to keep pace with chang-

es made to technical specifications issued by the various constructors in order to comply

with regulations laid down by quality and reliability certification bodies, such as German

Lloyd, and to allow the gearboxes to operate in conditions characterised by low tempera-

tures: -30 - 40 °C.

Another development occurring at the design stage was the modification of existing prod-

ucts to allow them to be produced more easily using different processes geared towards

larger quantities and, at the same time, reduce costs.

A new gearbox model was developed featuring a torque-limiting unit. This is designed to

avoid overstress caused by unusually severe working conditions, thereby reducing safety fac-

tors at a design stage with advantages regarding: size, weight, costs, and increased reliability.

Bonfiglioli VectronExpansion of Active Cube series rangeResearch and development in the Motion Control segment led to the launch of 4 new servo

drive sizes in the Active Cube series which complete the range of lower capacity models,

corresponding to 0.25kW and 0.37kW. These are part of the Active Cube offering: ACU Man

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2008201-01 and ACU 201-03, powered at 230V, and ACU 401-01 and ACU 401-03, powered

at 400V. The new models, available from the second half of 2008, are characterised by an

extremely high overcharge capacity (200% of the rated value), which brings them closer in

line with performance requirements for motion control applications. The small ACU sizes

also guarantee better matching with Bonfiglioli BTD and BCR servomotors, thus complet-

ing the overlap between the ranges.

Regenerative systems for photovoltaic plantsThroughout 2008, a team of significant size and experience was committed to creating a

range of energy conversion systems, specifically designed for industrial photovoltaic plants.

The result of these efforts was the launch in the second half of 2008 of the RPS range, a 30

to 170kWp regenerative system for medium and large-sized photovoltaic farms. The RPS

series is an outline solution that covers all accessories to be incorporated in a photovoltaic

plant, such as: multi-string connecting devices, production measuring and recording sys-

tems, and monitoring systems.

Applications have been made for certification of the product under local regulations in

force in the most important countries in and outside Europe, with positive results already

obtained in Germany, Italy and Spain.

Finally it should be pointed out that considerable efforts have been made to house two real

“test plants” (120kW and 800kW) at the new Krefeld site, thus allowing the RPS systems to

be both tested and inspected, and the operating conditions for a photovoltaic installation

simulated for customers.

Technical trainingThe DSC (Drive Service Centre) at the Bonfiglioli Vectron “Competence Centre” once again

supplied the Bonfiglioli network with technical-applicative training in 2008. The now tra-

ditional programme of courses divided into “Basic”, “Advanced” and “Expert” sessions, each

lasting one week, was accompanied by a specific training program focusing on photovolta-

ics: and so a new course has been introduced, the “Photovoltaic Product Training Course”,

also lasting one week, which is aimed at presenting the fundamental principles of solar

technology and supplies information on the characteristics of functional hardware oper-

ated by RPS units.

Also worthy of mention was the launch of a technical newsletter during the first quarter of

the year, providing the Bonfiglioli network with a timely, punctual up-date on the availabil-

ity of new software versions and/or minor measures to improve the standard product.

Innovation and new products During 2008, certain resources originating from various offices at Bonfiglioli Vectron were

involved in a project to define the concept of a new electronic product to be constructed

next year. This experience is part of an extensive scheme to organise the system managing

innovation of the Bonfiglioli range, which has set itself the task of developing and validating

a process whereby customers’ needs can be identified and technical innovation is generated,

based on a response to those needs.

The definition and application of structured techniques and processes used to create and Man

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2008 measure the degree of innovation characterising new products will contribute to increasing

the efficiency of the Bonfiglioli range and increasingly offering added value to its users.

Custom projectsThe development of personalised inverter projects to meet specific customer requirements is

an element of flexibility for Bonfiglioli Vectron, which again in 2008 focused a large number

of resources. The 26 active projects to personalise the standard product, or to develop dedi-

cated products from scratch, involved more than 50% of the technical office’s resources.

The principle applications served by custom products belong to various industrial sectors,

ranging from lifting to wood processing and wind turbines.

BiofuelsThe biofuel industry is increasingly becoming an important sector for planetary drives in the

300 Series, which are used to transform primary or waste materials into fuels for the pro-

duction of energy in conjunction with inverters from the Active series. In particular, Active

constantly controls the mass mixing process, to optimise the energy balance between what is

used for the transformation process and what is generated in terms of energy-based power.

Quality control With reference to the Quality Control area, certification to UNI EN ISO 9001:2008 contin-

ues to constitute one of the most important standard references for the Bonfiglioli organi-

sation. The Quality Control system is applied at all the Bonfiglioli factories with the aim

of maintaining and implementing the quality standard improvement process in order to

rationalise and integrate internal processes continuously, thereby satisfying the demands of

both internal and external customers. This continuous improvement process is supported

by constant analysis of a series of KPI’s, which are fundamental to maintaining set standards

at high levels, in accordance with the strategic and market requirements defined by upper

management.

To back up all of the above and in accordance with important organisational changes at

Bonfiglioli, in July 2008, the Quality Control body was reorganised and strengthened by

means of a new “Corporate identity” (Quality Control management now reports directly

to the Managing Director and no longer to Industrial Management) and new “Corporate”

figures (Head of Corporate Quality Control System and Head of Corporate Supplier De-

velopment) were introduced, and will contribute, even more enthusiastically to support the

continuous development and fulfilment of our customers’ needs.

In the second half of 2008 the foundations were laid for a action plan that will accompany

the Bonfiglioli Group over the next three years to ISO 9001:2008 certification as a single

entity.

The first step in this plan is to verify Ri-Certification with the TUV body scheduled for

May 2009, an appointment that will see the B2, Tecnoingranaggi, Bonfiglioli Slovacchia and

Bonfiglioli Italia plants achieve ISO 9001:2008 Certification, the latter representing the first

sales subsidiary to be involved in the Group Certification programme.Man

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2008This is a fundamental step, seeing that it will help branches integrate even further in Bonfig-

lioli business processes, thus allowing us to become even more “Customer Focused”.

Another point to be borne in mind is the reassessment of the Bonfiglioli Quality Control

Policy. The Quality Control Policy is a fundamental element in the Quality Control Man-

agement System, and its objective is to establish the bases for the Quality Control Objec-

tives, Continuous Improvement and Customer Satisfaction.

The new Quality Control Policy adopted by the Bonfiglioli Group is based on the following

principles:

Bonfiglioli: a passion for QualityEach of us is committed, at all times, to development, production and the supply of highly

innovative products and services, which are safe, efficient and reliable, our objective being

to make them a point of reference for the market. We are dedicated to guaranteeing con-

formity to every cogent requisite applicable to Bonfiglioli. Each of us is focused on doing

things right the first time.

Bonfiglioli: a Passion for Continuous ImprovementEach of us is committed to guaranteeing that our activities and processes are efficiently con-

ducted and run on the basis of clear objectives and significant performance indicators, each

of us dedicates our efforts to improving continuously our processes, products and services

and to satisfying our customers.

Bonfiglioli: a Passion for ExcellenceEach of us has set as our objective the task of meeting and exceeding the expectations of

our customers and of becoming the most sought-after supplier in the power transmission

market.

Significant events after year end No significant events arose after the close of the financial year. The Group is currently in-

volved in drawing up a three-year industrial plan, which will be discussed later.

Business outlookConsolidated turnover as at April 2009 stood at 148.2 M€ compared with the 238.4 M€

figure recorded in April 2008, falling by 37.8%. Orders collected during the first few months

of 2009 also fell considerably, even though the downward trend seems to have levelled off

over the last few weeks. This means that the 1st Quarter of 2009 should record the worst

recorded developments in order intake by the Group, which are also related to the cancel-

lation of registered orders in previous months due to adjustments and revisions to produc-

tion programmes operated by a number of important customers in the Mobile sector. The

drop in turnover and orders affects both the Industrial BU and Mobile Wind BU, in line

with the general picture characterising the market sectors served, heavily hit by the current

recession (the construction sector above all).

In order to tackle the current crisis, the Group is involved in defining and drawing up a

three-year financial economic plan that will lay the strategic foundations for the necessary Man

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2008 reorganisation measures to be taken both in Italy and abroad. The Group has in fact invest-

ed heavily over the last few years in order to satisfy the sharply rising demand recorded in

all the main markets, both in the Industrial and Mobile Wind Turbine areas, in Europe and

also Overseas. This, if on the one hand generating a significant increase in Group turnover

(rising from 295M€ in 2003 to 664M€ in 2008, namely 125%), on the other, has neces-

sarily increased overall indebtedness resulting from the heavy investments made and the

need to fund the growth in Working Capital. Now, in the light of the fall in world demand

resulting from the present global financial crisis, turnover volumes forecast for 2009 and

subsequent years will be considerably lower (dropping from 20 to 25%) than those that

could be achieved with the production capacity currently available. It is therefore clear that

the financial plans already established will have to be revised, also to provide the Group with

a new, appropriate financial structure that ensures that the targets set in the industrial plan

are achieved, providing for a series of cost saving and stock reducing measures, as well as a

reduction in cash requirements and the planning of the net financial position for the next

three years.

All the main projects and sales development plans will be brought forward, tackling not

only new products but also markets with potential growth, investing in new resources in

countries in which Bonfiglioli’s share of the market can be increased (see China, South

America etc..). Operating in a large number of industrial sectors, the Bonfiglioli Group has

the opportunity to successfully follow the intensification of new business openings in sec-

tors, such as Renewable Energy, for which it has all the know-how necessary to offer com-

plete, innovative solutions. In this regard, developments in the wind turbine, photovoltaic

and biofuels sector are being followed with interest.

Work is intense as always in the computer technology area and new projects are currently

being implemented in Italy and at the principle foreign subsidiaries.

Further informationEquity sharesThe parent company does not hold and has never held equity shares, nor does it hold stakes

or shares in controlling companies inasmuch as there is no legal entity that holds a control-

ling stake in Bonfiglioli Riduttori SpA stock.

Calderara di Reno (Bo), 3 June 2009

Board of Directors’ Chairman


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Consolidated Financial Statement as of December 31, 2008

(The consolidated financial statements have been translated into the English language


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Consolidated Financial Statement as of December 31, 2008

Consolidated balance sheet(Euro Thousand)

2008 2007

B) FIXED ASSETS (NET OF CUMULATED DEPRECIATION)

I. Intangible fixed assets

1) Start up costs 33 46

3) Patents and rights for the use of intellectual properties 444 1,179

4) Concession, licenses, trademarks and similar rights 91 78

5) Goodwill

5b) Consolidation differences 4,587 5,842

6) Assets in progress and advances 123 55

7) Other intangible fixed assets 3,298 402

Total Intangible fixed assets 8,576 7,602

II. Tangible fixed assets

1) Land and buildings 126,218 69,126

2) Plant and machinery 60,224 48,796

3) Trade and industrial fixtures 15,673 12,651

4) Other tangible fixed assets 5,651 4,266

5) Construction in progress and advances 8,798 12,522

Total Tangible fixed assets 216,564 147,361

III. Financial fixed assets

1) Investments:

b) associated companies 3,957 3,341

d) other companies 56 28

sub total 4,013 3,369

Total Financial fixed assets 4,013 3,369

B) TOTAL FIXED ASSETS (NET OF CUMULATED DEPRECIATION) 229,153 158,332

C) CURRENT ASSETS

I. Inventory

1) Raw materials, supplies and consumables 33,677 32,543

2) Work in progress and semifinished goods 74,807 73,624

4) Finished goods and goods for resale 95,449 66,749

5) Advances 114 149

Total Inventory 204,047 173,065

Assets

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2008 2007

II. Receivables

1) Trade receivables

- due within 12 months 136,291 145,466

3) Receivables from associated companies


4bis) Tax receivables


- due after 12 months 6,720 488

sub total 22,288 12,907

4ter) Deferred tax assets


- due after 12 months 6,361 5,513

sub total 15,122 12,618

5) Other receivables



sub total 4,989 4,632

Total Receivables 190,450 185,200

IV. Cash at bank and on hand

1) Banks 18,076 16,262

2) Cheques – –

3) Cash on hand 38 47

Total Cash at bank and on hand 18,114 16,309

C) TOTAL CURRENT ASSETS 412,611 374,574

D) PREPAID EXPENSES AND ACCRUED INCOME

- Other prepaid expenses and accrued income 1,049 641

D) TOTAL PREPAID EXPENSES AND ACCRUED INCOME 1,049 641

TOTALE ASSETS 642,813 533,547 Con

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2008 2007

A) Shareholders’ equity

I. Share capital 30,000 30,000

III. Revaluation reserves 60,195 20,847

IV. Legal reserve 3,891 3,000

VII. Other reserves

-) Extraordinary reserve 83,046 66,112

-) Consolidation reserve 16,263 16,263

-) Foreign exchange currency conversion reserve (6,945) (4,087)

-) Other reserves 5,451 5,451

sub total 97,815 83,739

VIII. Retained earnings (losses) carried forward 20,383 13,827

IX. Net income (loss) of the Group 20,917 25,645

Group share of shareholders’ equity 233,201 177,058

Minority interests share capital and reserves 2,849 1,538

Minority interests net income (loss) 1,282 697

Minority interests 4,131 2,235

A) CONSOLIDATED SHAREHOLDERS’ EQUITY 237,332 179,293

B) RESERVES FOR RISKS AND CHARGES

1) Termination indemnity and similar liabilities 1,801 1,787

2) Taxes and deferred taxes liabilities 10,170 7,215

3) Other reserves 8,085 5,594

B) TOTAL RESERVES FOR RISKS AND CHARGES 20,056 14,596

C) EMPLOYEE SEVERANCE INDEMNITY RESERVE 16,902 17,191

D) PAYABLES

1) Bonds

- due within 12 months 569 440


sub total 6,319 6,460

4) Banks


- due after 12 months 104,000 65,878

sub total 167,304 127,717

Liabilities and shareholders’ equity

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2008 2007

5) Other financial institutions



sub total 22,403 22,387

6) Advances


7) Trade payables


10) Payables to associated companies

- due within 12 months 16 27

12) Tax payables


- due after 12 months 715 –

sub total 5,878 5,696

13) Social security


14) Other payables



sub total 16,673 15,154

D) TOTAL PAYABLES 367,169 321,492

E) ACCRUED EXPENSES AND DEFERRED INCOME

- Other accrued expenses and deferred income 1,354 975

E) TOTAL ACCRUED EXPENSES AND DEFERRED INCOME 1,354 975

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 642,813 533,547

Memorandum accounts 2008 2007

Guarantees given from third parties in own favour 5,147 6,168

Commitments on investments’ purchase 1,379 –

TOTAL MEMORANDUM ACCOUNTS 6,526 6,168 Con

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2008 2007

A) PRODUCTION VALUE

1) Net revenue from sales and services 663,497 609,911

2) Change in work in progress, semi-finished and finished goods 33,451 16,228

5) Other revenues and incomes:

- others 6,709 6,489

A) TOTAL PRODUCTION VALUE 703,657 632,628

B) PRODUCTION COSTS

6) Raw materials, supplies, consumables & goods for resale 372,315 328,746

7) Services 150,659 135,520

8) Use of third party assets 4,421 4,052

9) Personnel

a) Wages and salaries 76,595 69,208

b) Social contributions 20,705 18,474

c) Severance indemnity 4,171 4,135

e) Other costs 92 81

sub total 101,563 91,898

10) Depreciation, amortization and write-downs

a) Amortization of intangible fixed assets 2,895 3,713

b) Depreciation of tangible fixed assets 19,840 16,081

d) Provision for doubtful account 1,971 1,527

sub total 24,706 21,321

11) Change in raw materials, supplies, consumables & goods for resale (2,861) (5,939)

13) Other provisions 1,000 2,041

14) Other operating expenses 4,601 4,084

B) TOTAL PRODUCTION COSTS 656,404 581,723

DIFFERENCE BETWEEN PRODUCTION VALUE AND COSTS (A–B) 47,253 50,905

C) FINANCIAL INCOME AND EXPENSES

15) Income form investments

- other investments 19 –

Consolidated statement of income

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2008 2007

16) Other financial income:

- other 648 453

17) Interest expenses and other financial charges:

- other (11,514) (7,801)

17bis) Exchange, rate gains and losses, net (1,800) (194)

C) TOTAL FINANCIAL INCOME AND EXPENSES (12,647) (7,542)

D) ADJUSTMENTS TO FINANCIAL ASSETS

18) Revaluations

a) investments 891 540

D) TOTAL ADJUSTMENTS TO FINANCIAL ASSETS 891 540

E) EXTRAORDINARY INCOME AND EXPENSES

20) Income:

- gains on disposal – 2,450

- other 516 737

sub total 516 3,187

21) Expenses:

- other (2,331) (1,434)

E) TOTAL EXTRAORDINARY ITEMS (1,815) 1,753

INCOME BEFORE TAXES (A–B±C±D±E) 33,682 45,656

22) Income taxes

- current (16,544) (20,827)

- deferred 5,061 1,513

TOTAL INCOME TAXES (11,483) (19,314)

23) NET INCOME (LOSS) INCLUDING MINORITY INTEREST 22,199 26,342

Minority interest income (1,282) (697)

NET INCOME (LOSS) OF THE GROUP 20,917 25,645

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Notes to the consolidated financial statement

(The notes to the consolidated financial statements have been translated into the English language


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Notes to the consolidated financial statement

ForewordThe consolidated financial statement was drafted in compliance with Legislative Decree no.

127 dated 9 April 1991.

The Notes include the reconciliation statement between shareholders’ equity and the net

income of the Parent company and the same items in the consolidated financial statement;

in addition, the consolidated cash-flow statement has been annexed to the Notes.

As regards the nature of the activities conducted by the Group and developments occurring,

as well as events arising after the date of this financial statement, reference is made to the

contents of the Management Report.

All figures in this financial statement and the relative Notes are expressed in thousands of

Euros (K€), unless otherwise indicated.

Form and contents of the consolidated financial statementThe consolidated financial statement includes the financial statements of companies within

the Bonfiglioli Group, namely the parent company Bonfiglioli Riduttori Spa and the Italian

and foreign subsidiaries in which the company holds more than 50% of the capital, either

directly or indirectly, or exercises management and control in relation to specific agree-

ments to this effect.

The financial statements of the Group Companies utilised for the integral consolidation

were approved at general meetings held by the individual companies concerned, suitably

modified wherever necessary to bring them in line with the accounting principles adopted

by the Group, which comply with the financial principles imposed by law. If the relative

financial statements had not yet been approved by the respective general meetings when the

consolidated financial statement was drawn up, the draft financial statements prepared for

approval by the respective Boards of Directors were utilised.

If the financial year of companies closes on a date other than 31 December, interim financial

statements were drawn up at 31 December utilising the Group accounting principles.

The Group companies operate exclusively in the manufacture and sale of gearmotors, speed

variators, and drive transmission components in general.

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2008The subsidiary companies included in the consolidation area at 31 December 2008 are as

follows:

Denomination Country Currency Share Capital

Shareholding

2008 2007

Bonfiglioli Riduttori SpA Italy € 30,000,000 Parent Company

Bonfiglioli Canada Inc. Canada CAD 4,000,000 100% 100%

Bonfiglioli USA Inc. U.S.A. USD 4,000,000 100% 100%

Bonfiglioli Deutschland GmbH Germany € 3,000,000 100% 100%

Bonfiglioli Skandinavien AB Sweden SEK 2,985,000 67% 67%

Bonfiglioli Transmissions SA France € 1,900,000 100% 100%

Bonfiglioli Transmission (Aust) Pty Ltd Australia AUD 7,500,004 100% 100%

Bonfiglioli U.K. Ltd Great Britain GBP 200,000 100% 100%

Bonfiglioli Power Transmission Pty Ltd South Africa ZAR 64,000 75% 75%

Bonfiglioli South Africa Pty Ltd (*) South Africa ZAR 10,000,000 56.25% –

Bonfiglioli Transmission Pvt Ltd India INR 400,000,000 100% 100%

Bonfiglioli Drives (Shanghai) Co. Ltd China USD 1,000,000 100% 100%

Bonfiglioli Vectron GmbH (**) Germany € 500,000 97% 97%

Tecnoingranaggi Riduttori Srl Italy € 96,900 100% 100%

Bonfiglioli Italia SpA Italy € 16,000,000 100% 100%

Bonfiglioli Slovakia Sro Slovakia SKK 450,000,000 100% 100%

Bonfiglioli Power Transmission Jsc Turkey TRY 500,000 75% 67%

Bonfiglioli Vietnam Ltd Vietnam USD 10,000,000 80% –

Bonfiglioli Redutores do Brasil Brazil BRL 2,000,000 70% –

(*) Subsidiary indirectly controlled through Bonfiglioli Power Transmission Pty Ltd

(**) Subsidiary indirectly controlled through Bonfiglioli Deutschland GmbH

With reference to the area of consolidation and changes made from the previous year, we

draw your attention to the following matters:

in January, the production unit “Bonfiglioli Vietnam Ltd.” whose registered office is situ-•

ated in Ho Chi Minh, Vietnam, was incorporated, with a share capital of 10 MUSD. The

Group has an 80% holding in the company, whose object is the production of electric

motors for the supply of complete solutions, whilst SIMEST (a state-controlled com-

pany set up to back Italian investments abroad) holds the remaining 20%;

in January, the admission of new local black partners to the South African company •

“Bonfiglioli South Africa Pty Ltd.” was finalised in keeping with regulations regarding Not

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2008 the “Black Empowerment Equity Program” (BEE). At the end of 2008, the Group di-

rectly possessed a 75% holding in “Bonfiglioli Power Transmission Pty Ltd., and through

the latter, indirectly possessed a 75% holding in Bonfiglioli South Africa Pty Ltd.”, a com-

pany that assembles and distributes Group products in South Africa;

in July the share capital of the Slovakian subsidiary “Bonfiglioli Slovakia S.r.o.” was in-•

creased against payment from 350 MSKK to 450 MSKK, paid up by means of cash pay-

ments by the parent company;

October marked the completion of the purchase of a 70% shareholding in the company •

“Eurotex Comercio e Importacao Ltda” which then changed its status from Distributor

to “Sales branch” for the Bonfiglioli Group. On the same date, the company changed its

name to “Bonfiglioli Redutores do Brasil Industria e Comercio Ltda”. The purchase was

completed at the price of 1.4 MBRL (490 K€);

in December another shareholding was purchased, namely 8% of the share capital of the •

Turkish subsidiary “Bonfiglioli Power Transmission & Automation Technologies JSC”.

The transaction was completed at a total price of 340 KTRY (158 K€).

Drafting principlesThe structure of the balance sheet and the income statement are as required by Italian Leg-

islative Decree 127/91.

Items preceded by Arabic numerals having zero contents have been omitted both in the cur-

rent and in previous financial statements.

The balance sheet provides separate indication of shareholders’ equity and the minority

interests share of profits. No asset or liability items are recorded under more than one cap-

tion in the layout.

Reclassification of financial statement captionsThe captions in the income statement for the year drawn up by the Parent company were

subject to several reclassifications.

More precisely, in order to provide more information, captions relating to revenues from

non-core sales, transportation costs stemming from purchases and purchases of expendable

materials connected with the administrative area, have been classified in a manner more in

keeping with national accounting principles.

The effects of these reclassifications on the income statement are as follows:

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20082008 2007

reclassified2007

A1) Revenues from sales and services 663,497 609,911 610,772

A5) Other revenues and income: different revenues and income 6,709 6,489 5,629

Total production value (A) 703,657 632,628 632,629

B6) Costs for raw, subsidiary and expendable materials and goods

372,315 328,746 326,302

B7) Costs for services 150,659 135,520 137,667

B14) Production costs: charges other than running costs 4,601 4,084 4,382

Total production costs (B) 656,404 581,723 581,724

Difference between production value and costs (A-B) 47,253 50,905 50,905

Consolidation principlesIn drawing up the financial statements for the consolidated companies, the net assets A.

method is used (line-by-line), consisting in recording all the captions under assets and

liabilities and in the income statement in their entirety.

The book value of consolidated equity investments was written off against the related B.

equity at the time of first consolidation and the resulting differences, if negative, were

recognised under a specific item of consolidated equity denominated “Consolidation

Reserve”. Any positive differences existing at the time of first consolidation were re-

corded in the consolidated financial statement, where possible, under the items of as-

sets of the companies included in the consolidation area, or under the assets caption

“Consolidation differences” for differences that, despite their characteristics of defer-

ment affecting more than one year, could not be allocated to specific items under assets.

In contrast, if these items were not considered to be deferred to more than one year,

they were deducted from the consolidation reserve. For companies that were already

controlled at 1/1/1994 this date was considered as the moment of initial consolidation,

since 1994 was the year in which it became mandatory to draw up a consolidated finan-

cial statement.

The positive differences recorded were amortised in accordance with the rates utilised C.

for the assets to which they refer; the consolidation difference is amortised throughout

the estimated future working life of the assets in question.

The results achieved, following initial consolidation, were subsequently entered under D.

a specific caption of consolidated equity denominated “Profits and losses carried for-

ward”.

Any profits and losses that have yet to be realised in relation to third parties deriving E.

from transactions between Group companies were eliminated, as were the items that

give rise to payables, receivables, costs and revenues. Not

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2008 The dividends distributed by consolidated Companies within the Group were properly F.

eliminated.

The portions of shareholders’ equity and profit due to minority shareholders of the con-G.

solidated subsidiaries were deducted from the Group portions and recorded separately

under specific captions of consolidated equity and in the income statement.

The financial statements of foreign companies were converted to Euro, applying the H.

year-end exchange rate for all assets and liabilities and the average exchange rate cal-

culated over the full twelve months for captions in the income statement. The items of

equity, existing at the date of initial consolidation, are converted at the exchange rates

in force on said date, while subsequent changes are converted at the historic exchange

rates in force on the date of the relative transactions. Conversion differences arising

both from the conversion of equity captions to the year-end rates with respect to the

historic rates, and existing between the average exchange rates and year-end exchange

rates for the income statement, are recorded under a specific caption of consolidated

equity denominated “Currency conversion reserve”.

The exchange rates utilised for companies operating outside the Euro area are as follows:

Company Currency B.S. exchange rate 2008

P.L. exchange rate 2008

B.S. exchange rate 2007

P.L. exchange rate 2007

Bonfiglioli U.K. Ltd GBP 0.952 0.796 0.733 0.684

Bonfiglioli Canada Inc. CAD 1.699 1.559 1.445 1.468

Bonfiglioli Skandinavien Ab SEK 10.87 9.615 9.441 9.250

Bonfiglioli USA Inc. USD 1.392 1.471 1.472 1.370

Bonfiglioli Transmission (Aust) Pty Ltd AUD 2.027 1.742 1.676 1.635

Bonfiglioli Power Transmission Pty Ltd ZAR 13.067 12.059 10.030 9.660

Bonfiglioli Transmission Pvt Ltd INR 67.636 63.734 58.021 56.572

Bonfiglioli Drives (Shanghai) Co. Ltd CNY 9.496 10.224 10.752 10.418

Bonfiglioli Slovakia Sro SKK 30.126 31.262 33.583 33.774

Bonfiglioli Power Transmission JSC TRY 2.149 1.906 1.717 1.786

Bonfiglioli Redutores Do Brasil Ltda BRL 3.244 2.674 N/A N/A

Bonfiglioli Vietnam Ltd VND 24,321.8 24,177.2 N/A N/A

The following company is consolidated using the net equity method:I.

Denomination Head office Share Capital % stake

Tecnotrans Bonfiglioli Sa Barcelona (Spain) € 2,175,000 33.33%

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2008Valuation criteria

The accounting principles and valuation criteria adopted in drafting the financial statement

are in compliance with the principles of the Italian Civil Code and the accounting standards

prescribed by the National Council of Chartered Accountants (O.I.C.) Where such princi-

ples are lacking or insufficient, the point of reference is provided by international account-

ing standards (IAS/IFRS) where these are compatible with Italian legal requirements.

The consolidated financial statement was prepared in accordance with the general princi-

ples of clarity, truthfulness and fairness; specifically:

the items in the financial statement were valued in accordance with the general principle •

of prudence and on an accrual basis, applied in expectation that activities will continue;

account is taken of the risks and losses relating to the year, even when such risks and •

losses became known after the end of that year;

the statements refer exclusively to profits realised at the closing date of the financial •

year;

income and expenses are considered to be relative to the year irrespective of the effective •

collection or payment dates;

dissimilar components covered by single captions have been valued separately;•

the valuation criteria did not change from those adopted in the previous year, apart from •

immovable assets which, in compliance with Legislative Decree 185/2008, were revalued

on the basis of the market value appraised in a technical report drawn up by an external

expert, whenever other objective factors on which a calculation could be based were not

available;

no exceptional cases occurred that justified a departure from the provisions of legislative •

enactments.

Specifically, the valuation criteria adopted in drawing up the financial statement are as spec-

ified below.

Intangible fixed assetsIntangible fixed assets are recorded at purchase cost increased by ancillary expenses or, if the

assets were internally constructed, on the basis of the costs sustained directly or indirectly,

entered in respect of the attributable portion.

The cost, calculated as illustrated above, may be written back in certain cases if this action

is permitted by the relative laws.

Intangible fixed assets were systematically amortised on the basis of the following rates:

Start-up and expansion costs 20%

Patent rights and utilisation of intellectual property rights 33.33% - 50%

Concessions, licences, trademarks and similar rights 33.33%

Goodwill 10 - 20%

Other 20% Not

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2008 Tangible fixed assets

Plant and equipment are recorded in the financial statement at purchase cost or construc-

tion cost, inclusive of all directly connected ancillary expenses and adjusted in the event that

specific laws allow assets to be written back in order to adapt them, even only partially, to

changes in the purchasing power of the currency.

The value of immovables was increased using the revaluation powers conferred by Italian

Legislative Decree 185/2008 (converted by Law 2/2009).

Buildings were revalued for civil purposes and the underlying sites also for tax purposes.

The effect produced on the balance sheet figures is an increase in the historical cost of im-

movable property, amounting to 45.7 M€, a deferred tax provision was recorded at 6 M and

tax liabilities at 0.4 M€.

The credit revaluation balance of 39.3 M€ was attributed to a reserve created for this pur-

pose.

This has no economic effect on the year 2008 seeing that, in keeping with customary ac-

counting practice, the higher value entered is taken into account when calculating deprecia-

tion rates to be applied in the following accounting year.

As regards the method used, it was decided that the depreciation provision should be re-

duced to capacity and that the historic cost should then be revalued, thereby reflecting the

company’s actual position more faithfully.

The relevant figures are shown in the table set out in the paragraph to which they refer.

The revaluation figure for an asset does not exceed the value actually attributable to it with

reference to its likely economic use by the company or, if it does exceed this level, with refer-

ence to its sale value .

Assets acquired through leasing contracts are recorded in accordance with the requirements

of international accounting standard IAS no. 17 which is, in turn, implemented by the ac-

counting principle set down by the Italian Consigli Nazionale dei Dottori e dei Ragionieri

Commercialisti (National Council of Chartered Accountants) with reference to consolidat-

ed financial statements. The financial method is therefore applied, involving the attribution

of the historic cost of the relative goods under assets, recording of the debt under liabilities,

and entry of the relative financial expenses and depreciation amounts in the income state-

ment.

Provisions made in lieu of depreciation are systematically allocated by the application of

rates that are considered to accurately reflect the residual useful working life of the assets to

which they refer.

Maintenance and repair costs of an ordinary nature are directly attributed to operating

costs, while extraordinary costs that increase the useful life or production capacity of the

relative asset are added to the value of the asset.

The ordinary annual rates utilised for the depreciation of tangible assets are as follows:

Not

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2008Land and buildings 2% to 10%

Plant and machinery 10% to 25%

Industrial / commercial equipment 10% to 30%

Other assets 10% to 30%

Equity investments held as fixed assetsThe equity investment in the associated company Tecnotrans Bonfiglioli SA is entered on

the basis of the net equity criterion, i.e. for an amount equivalent to the corresponding

portion of shareholders’ equity resulting from the latest financial statement of the company

after deducting dividends and after recording any further consolidation adjustments having

a significant impact.

The other investments are recorded at their purchase cost.

InventoriesInventories are valued in accordance with the general principle of the lower of purchase cost

and market value:

raw materials are valued adopting the FIFO method;•

work in progress is valued according to the stage of completion reached on the basis of •

the cost of materials, labour, industrial depreciation and indirect production costs;

semi-finished and finished products are valued adopting the FIFO method, on the basis •

of the cost of materials, labour, industrial depreciation and other production costs;

obsolete or slow-moving materials and products are valued according to their estimated •

useful life or future market value, by means of an entry under write-down provisions.

Infra-group profits present within the inventories of the consolidated companies are elimi-

nated.

ReceivablesReceivables are entered at their presumed realisation value through direct provision for bad

debts and entry of a provision for bad debts fund.

Cash at banks and on handCash at banks and on hand is entered at nominal value, considered to represent the pre-

sumed realisation value.

Accruals and deferments Accruals and deferments are calculated in such a way as to attribute during the year the

competent portions of costs and revenues common to two or more years, in accordance

with the pro tempore competence of the relative transactions.

Specifically, accrued income and deferred charges refer to revenues and costs accruing dur-

ing the year, although formally recorded in the following year; prepaid expenses and de-

ferred income concern costs and revenues arising during the year despite the fact that they

relate to future years.

Reserves for risks and chargesReserves for risks and charges consider the provisions allocated to cover losses, or debts of a N

otes

to

the

cons

olid

ated

fina

ncia

l sta

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ent

56

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A

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2008 given nature and certain or probable existence, for which the exact amount or contingency

date was not known at year-end. The allocations reflect the best possible estimate of the

relative amounts on the basis of the information available. Risks for which a liability is only

possible and not certain are illustrated in the Notes to the financial statements, without al-

locating a specific risks and charges provision.

Employees severance indemnityThe severance indemnity reserve is commensurate with the amounts payable to the em-

ployees in the workforce at the closing date of the year, in compliance with statutory legisla-

tion and applicable collective labour contracts.

PayablesPayables are entered at their nominal value with regard to the principal, while interest is

entered under payables if already due, and under accruals, according to the competence

principle if not yet due.

Recognition of costs and revenuesSales revenues and purchase costs are recognised at the time of transfer of ownership, which

generally occurs respectively at the time of shipment or at the time of reception, net of

returns, discounts, allowances and premiums; the other revenues and costs (supplies of

services, financial, etc.) are recorded in accordance with the accrual principle.

Costs and revenues arising between Group companies and infra-group dividends are elimi-

nated.

TaxesIncome taxes are recorded on the basis of a forecast of the tax burden for the year with

reference to statutory tax regulations and taking account of exemptions and concessions

applicable.

Deferred and pre-paid taxes are recorded to take account of the fiscal effects both in relation

to items of income or costs that concur in forming the profit for the year other than the year

in which they contribute to forming the taxable income and in order to reflect the deferred

fiscal effects relative to the consolidation adjustments.

Captions stated in foreign currencyTransactions in foreign currency are converted into Euro at the historic exchange rates ap-

plying on the transaction dates. Exchange rate gains and losses incurred at the time of col-

lection of receivables and settlement of payables in foreign currency are recorded in the

income statement as specific items under financial income and expenses.

Receivables and payables existing at year-end expressed in the currency of non-euro coun-

tries were converted at the exchange rates in force at year-end, taking account of existing

hedging contracts.

The difference arising from this operation (gain or loss) was verified and reflected in the

income statement for the year, with the matching receivable or payable entry.

Specifically, with regard to captions in foreign currency for which forward contracts in for-

eign currency were taken out to hedge against the relative exchange risk, the following valu-

ation principle was adopted:Not

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2008the difference generated between the value in Euro determined by the adoption of the •

historic exchange rate at the time of registration of the transaction and the amount in

Euro determined on the basis of the contractual spot exchange rate established was en-

tered in the income statement with a matching trade receivable or payable entry;

the discount or premium involved in the transaction was recorded on an accrual basis •

with respect to its duration.

DerivativesContracts taken out to hedge exchange risks are measured in relation to the receivable or

payable to which they refer.

Exchange rate or interest rate swap contracts that are not correlated to the receivables and/

or payables entered at the reference date of the financial statement are valued separately. If,

in relation to the separate valuation, losses are predicted, these are recognised in the income

statement and reflected in a specific risks reserve; if the valuation points to the likelihood of

profits, these are deferred to the moment of their effective realisation.

Derivative contracts are valued in keeping with the hedged asset or liability or with the

contractual undertaking assumed at the date of the financial statements. If the existence of

a hedging relationship with the underlying financial transactions is not proven or is insuf-

ficiently documented, a fair value assessment is made of said financial instruments and,

also on the basis of this latter valuation, any possible latent losses are estimated, making a

commensurate allocation to the risks and charges reserve.

Commitments and guaranteesContractual commitments and guarantees are entered under commitments at the value

resulting from the contractual undertaking after deducting any liabilities that have already

been recorded.

Comments on the individual captions of the financial statementIn the tables below, the column “change in consolidation area” reflects the balance as at

1st January 2008 of the Brazilian company that entered the Group following a third party

purchase.N

otes

to

the

cons

olid

ated

fina

ncia

l sta

tem

ent

58

Bon

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ioli

A

nnua

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2008 Fixed assets

Intangible fixed assets

The “other changes” column includes cancellations of the fully amortised items and the ef-

fect of the exchange rate fluctuation.

Balance sheet

Description Opening balance

Increases Decreases Otherchanges

Closing balance

Historic cost

- Start-up and expansion costs 62 – – – 62

- Industrial patent rights and utilisation of intellectual property rights

15,025 362 – 95 15,482

- Concessions, licences, trademarks and similar rights

1,279 112 – (104) 1,287

- Consolidation differences 19,821 174 – – 19,995

- Assets in progress and advances 55 123 – (55) 123

- Other 839 3,131 (50) (30) 3,890

Total (A) 37,081 3,902 (50) (94) 40,839

Accumulated amortisation

- Start-up and expansion costs 16 13 – – 29


13,846 1,127 – 65 15,038


1,201 91 – (96) 1,196

- Consolidation differences 13,979 1,429 – – 15,408

- Other 437 235 (50) (30) 592

Total (B) 29,479 2,895 (50) (61) 32,263

Net values

- Start-up and expansion costs 46 (13) – – 33


1,179 (765) – 30 444


78 21 – (8) 91

- Consolidation differences 5,842 (1,255) – – 4,587

- Assets in progress and advances 55 123 – (55) 123

- Other 402 2,896 – – 3,298

Total (A-B) 7,602 1,007 – (33) 8,576

Not

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figl

ioli

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2008Start-up and expansion costs

These cover start-up costs and expenses incurred in amending the articles of association of

the company Bonfiglioli Italia SPA, recorded in the statement with the consent of the Panel

of Auditors.

Industrial patent rights and utilisation of intellectual property rightsThis caption includes deferred expenses sustained for the registration of industrial patents

and the costs sustained for application software purchased outright and/or under open-

term license.

The increase in the year is mainly due to the purchase and implementation of software for

IT resource planning of the companies.

A number of patent rights were revalued pursuant to Law 342/00.

In keeping with art. 10 of Law 72/83 the values resulting from monetary revaluation are

indicated below:

Description Rev. L. 342/2000

- Start-up and expansion costs –

- Industrial patent rights and utilisation of intellectual property rights 5,547

- Concessions, licences, trademarks and similar rights –

- Consolidation differences –

- Assets in progress and advances –

- Other –

Total (A) 5,547

This revaluation had no effect on the income statement for the year since it had already

been fully amortised.

Concessions, licences, trademarks and similar rightsIn the most part these costs are constituted by trademark registration charges.

Goodwill and consolidation differencesThe value recorded stems from differences upon consolidation, amounting to goodwill,

recorded in the financial statement with the consent of the Panel of Auditors, namely:

Company Goodwill Amortisation

Bonfiglioli Vectron GmbH 355 20%

Tecnoingranaggi Srl 3,992 10%

Bonfiglioli Power Transmission JSC 40 20%

Bonfiglioli Transmission SA (France) 61 20%

Bonfiglioli Redutores Do Brasil Ltda 139 20%

Total 4,587 Not

es t

o th

e co

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idat

ed fi

nanc

ial s

tate

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60

Bon

figl

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ort

2008 The consolidation difference relative to the investment in the Brazilian subsidiary was rec-

ognised with an original value of K€ 174.

Tangible fixed assets

The column “other changes” includes exchange rate differences and reclassification of indi-

vidual captions, as well as the effects of monetary revaluation carried out pursuant to Law

2/2009 by the Parent company and by the subsidiary Tecnoingranaggi. The overall effect of

revaluation of land and buildings recorded is 45.7 M€.

For an analysis of the investments made during the year we refer you to the Management

report.

Within the meaning and for the purposes envisaged in article 10 of Law no. 72 dated


Increases Decreases Changes in consolidation

area

Other changes

Closing balance

Historic cost

- Land and buildings 89,285 9,301 (262) – 35,999 134,323

- Plant and machinery 169,766 21,696 (7,369) 9 1,153 188,255

- Industrial and commercial equipment 52,303 8,082 (1,779) 1 350 58,957

- Other tangible assets 13,613 3,364 (648) 44 (653) 15,720

- Assets in progress and advances 12,522 5,787 (4) – (9,507) 8,798

Total (A) 337,489 48,230 (10,062) 54 27,342 403,053

Accumulated amortisation

- Land and buildings 20,159 2,503 (171) – (14,386) 8,105

- Plant and machinery 120,970 10,847 (5,903) 3 (886) 125,031

- Industrial and commercial equipment 39,652 5,010 (1,287) – (91) 43,284


Total (B) 190,128 19,840 (7,882) 25 (15,622) 186,849

Net values

- Land and buildings 69,126 6,798 (91) – 50,385 126,218

- Plant and machinery 48,796 10,849 (1,466) 6 2,039 60,224

- Industrial and commercial equipment 12,651 3,072 (492) 1 441 15,673


- Assets in progress and advances 12,522 5,787 (4) – (9,507) 8,798

Totale (A-B) 147,361 28,930 (2,180) 29 42,964 216,564

Not

es t

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idat

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ial s

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200819/03/1983 and subsequent amendments and additions thereto, an indication is provided

of assets still recognised in equity for which monetary revaluation has been carried out,

specifying the relative amounts:

Description Rev. L.72/83

Rev. L. 413/91

Rev. L. 342/2000

Rev. L. 2/2009

Other Total

- Land and buildings 406 2,264 – 45,733 686 49,089

- Plant and machinery 355 – 22,756 – 310 23,421

- Industrial and commercial equipment 407 – – – – 407

- Other tangible assets 33 – – – – 33

- Assets in progress and advances – – – – – –

Total (A) 1,201 2,264 22,756 45,733 996 72,950

Apart from the revaluation made pursuant to Law 2/2009, those referred to in the table

above did not have any effect on the income statement as they were already fully depreci-

ated. With reference to the revaluation made pursuant to Law 2/2009, the depreciation rates

applied had already been recorded in keeping with the aforementioned legal provision. The

economic effects will therefore be recorded in the accounts with effect from the accounting

year 2009.

Financial fixed assets

InvestmentsThe following table provides a breakdown of the “Equity investments” item and the changes

that occurred during the year:


Increases Decreases Other changes

Closing balance

INVESTMENTS

- in associated companies 3,341 – – 616 3,957

- in other companies 28 28 – – 56

Total 3,369 28 – 616 4,013

Increases during the year refer to the acquisition of a 15% shareholding in the Turkish com-

pany “Omega Endustiel Ltd.”, a company that in turn has an interest in the share capital of

the Turkish subsidiary “Bonfiglioli Power Transmission JSC”. The investment in question

is recorded in the financial statement at a value of 60 KTRY (28K€), namely its purchase

cost. Not

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Bon

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2008 The “other changes” entry refers to the portion of profit for the year attributable to the asso-

ciated company Tecnotrans Bonfiglioli SA (K€ 891), net of dividends received (K€ 275).

The following table gives details of the associated shareholding:

Company Tecnotrans Bonfiglioli SA

Head office Barcelona (Spain)

Share Capital 2,175 K€

Share held 33,33%

Shareholders' equity at 31/12/2008 11,870 K€

Profit at 31/12/2008 2,627 K€

Book value 3,957 K€

Working capital

Inventory

2008 2007 Changes

Raw, subsidiary and expendable materials 33,677 32,543 1,134

Work in progress and semi-finished goods 74,807 73,624 1,183

Finished goods and goods for resale 95,449 66,749 28,700

Advances 114 149 (35)

Total 204,047 173,065 30,982

The foregoing amounts are net of obsolescence reserve, made up as follows:

2008 2007 Changes

Raw, subsidiary and expendable materials 3,829 2,679 1,150

Semi-finished products 7,066 6,201 865

Finished goods 3,937 4,458 (521)

Total 14,832 13,338 1,494

Changes in the provision are shown below:

Provision for inventory obsolescence 2008 2007

Opening value 13,338 9,080

Increases 1,752 4,527

Decreases – (125)

Other changes (258) (144)

Closing value 14,832 13,338Not

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ial s

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63

Bon

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2008The increase in stock reflects the reduction in turnover recorded since the last quarter of the

year. The number of stock rotation days with respect to turnover in fact increased (from an

average of 102 days in 2007 to an average of 111 days in 2008).

Receivables

Trade receivables

2008 2007 Changes

Trade receivables from customers 143,137 150,978 (7,841)

Receivables from associated companies 11,760 9,577 2,183

(minus) Bad debt reserve (6,846) (5,512) (1,334)

Total 148,051 155,043 (6,992)

The reduction in trade receivables is attributable mainly to reduced growth in turnover,

increasing from last year’s figure by 8.8% (in 2007 the increase had been 22.5%).

Receivables from the associated company Tecnotrans Bonfiglioli SA relate to amounts due

from the sale of goods and services, which was conducted at arm’s length conditions.

Receivables from customers are recorded net of provision for bad debts, a breakdown of

which is given below:

Provision for bad debts 2008 2007


Provisions 1,971 1,527

Applications (622) (278)

Change in consolidation area 12 (34)


Closing value 6,846 5,512

Breakdown of trade receivables by geographical area:

Trade receivables 2008 2007

Italy 58,112 65,924

European Union 51,209 53,635

Other 38,730 35,484

Total 148,051 155,043

Not

es t

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e co

nsol

idat

ed fi

nanc

ial s

tate

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t

64

Bon

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2008 Other receivables

2008 2007 Changes

Tax receivables 22,288 12,907 9,381

Prepaid taxes 15,122 12,618 2,504

Receivables from others 4,989 4,632 357

Total 42,339 30,157 12,242

Tax receivables can be broken down as follows:

Tax receivables 2008 2007

Short-term receivables

VAT credits 15,442 12,404

Other 126 15

Total short-term tax credits 15,568 12,419

Mid-long-term receivables

VAT refunds 6,438 193

Direct tax refunds 282 295

Total mid-long-term tax credits 6,720 488

Total 22,288 12,907

The increase in VAT refunds under mid-long-term receivables is attributable to a VAT credit

in favour of the Indian branch, which is to be refunded over the next five years.

Changes in pre-paid taxes are as follows:

2008 2007

Opening balance 12,618 10,403



Change in mean share – (463)


Closing balance 15,122 12,618

Not

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65

Bon

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2008Other receivables can be broken down as follows:

Other receivables 2008 2007

Short-term receivables

Receivables from employees 102 114

Advances to suppliers 779 1,068

Deposits – 346

Receivables for customs duties 161 334

Short-term receivables from social security institutions 142 106

Currency exchange gains 1,440 366

Other 344 654

Total other short-term receivables 3,028 2,988

Mid-long-term receivables

Receivables for pensions fund insurance 1,608 1,419

Guarantee deposits 323 193

Other 30 32

Total other mid-long-term receivables 1,961 1,644

Total 4,989 4,632

No receivables having a term exceeding five years were recorded.

Cash at banks and on hand

2008 2007 Changes

Bank and post office deposits 18,076 16,262 1,814

Cash and cash equivalents 38 47 (9)

Total 18,114 16,309 1,805

For a comprehensive appraisal of the change in the Group net cash position we invite you

to refer to the section in which the company’s debts are analysed, and to the cash-flow state-

ment.

Not

es t

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e co

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idat

ed fi

nanc

ial s

tate

men

t

66

Bon

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A

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2008 Accrued income and deferred charges

2008 2007 Changes

Total 1,049 641 379

Breakdown:

2008 2007

Advertising 17 71

Insurance policies 67 66

Hire charges and rentals 191 294

Non competition outgoing shareholder Turkey 335 –

Other 439 210

Total 1,049 641

Shareholders’ equity

As at 31/12/2008 the overall share capital of € 30,000,000.00 was represented by 30,000,000

ordinary shares with par value of € 1.00 each.

Reconciliation statement between shareholders equity and income for the yearat 31 December 2008 of Parent Company Bonfiglioli Riduttori S.p.A.

Net income Shareholders’equity

Bonfiglioli Riduttori S.p.A. statutory financial statement 6,972 209,772

Accounting of the shareholders’ equity and results of

consolidated and associated equity investments to replace book

value in the financial statement of the Parent company, net of

infra-group dividends

16,990 44,837

Shareholders’ equity and profit attributable to minority interests (1,282) (4,131)

Elimination of infragroup profits on stock (3,477) (19,020)

Reversal of infragroup contribution 363 (3,096)

Leasing agreement recorded using financial method 841 4,359

Other minor items 510 480

Consolidated Group financial statement 20,917 233,201Not

es t

o th

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idat

ed fi

nanc

ial s

tate

men

t

67

Bon

figl

ioli

A

nnua

l Rep

ort

2008

Shar

e C

apit

alLe

gal

rese

rve

Rev

alua

tion

re

serv

e

Oth

er r

eser

ves

Ret

aine

d ea

rnin

gs

carr

ied

forw

ard

Net

in

com

eTo

tal

Con

solid

atio

n re

serv

eC

urre

ncy

conv

ersi

on

rese

rve

Oth

er

Bal

ance

at

31/1

2/20

0515

,000

3,00

035

,914

16,3

95(1

,338

)48

,573

11,3

329,

649

138,

525

Allo

catio

n of

net

inco

me

for

2005

––

––

–9,

303

346

(9,6

49)

–

Cur

renc

y co

nver

sion

diff

eren

ces

––

––

(1,9

76)

––

–(1

,976

)

Bonfi

glio

li H

ella

s SA

rev

alua

tion

rese

rve

––

(67)

––

–67

––

Net

inco

me

for

2006

––

––

––

–17

,193

17,1

93

Bal

ance

as

at 3

1/12

/200

615

,000

3,00

035

,847

16,3

95(3

,314

)57

,876

11,7

4517

,193

153,

742

Allo

catio

n of

net

inco

me

for

2006

––

––

–15

,187

2,00

6(1

7,19

3)–

Incr

ease

in s

hare

cap

ital o

f Pa

rent

com

pany

15,0

00–

(15,

000)

––

––

––

Dis

trib

utio

n of

Par

ent

com

pany

div

iden

ds–

––

––

(1,5

00)

––

(1,5

00)

Dec

onso

lidat

ion

of B

onfig

lioli

Hel

las

SA–

––

(132

)56

–76

––

Cur

renc

y co

nver

sion

diff

eren

ces

––

––

(829

)–

––

(829

)

Net

inco

me

for

2007

––

––

––

–25

,645

25,6

45

Bal

ance

as

at 3

1/12

/200

730

,000

3,00

020

,847

16,2

63(4

,087

)71

,563

13,8

2725

,645

177,

058

Allo

catio

n of

net

inco

me

for

2007

–89

1–

––

16,9

347,

820

(25,

645)

–

Mon

etar

y re

valu

atio

n pu

rsua

nt t

o La

w 2

/200

9–

–39

,348

––

–(1

,264

)–

38,0

84

Cur

renc

y co

nver

sion

diff

eren

ces

––

––

(2,8

58)

––

–(2

,858

)

Net

inco

me

for

2008

––

––

––

–20

,917

20,9

17

Bal

ance

as

at 3

1/12

/200

830

,000

3,89

160

,195

16,2

63(6

,945

)88

,497

20,3

8320

,917

233,

201

Stat

emen

t of

cha

nges

in c

onso

lidat

ed s

hare

hold

ers’

equ

ity

as a

t 31

Dec

embe

r 20

08

Th

e ch

ange

in

th

e cu

rren

cy c

onve

rsio

n p

rovi

sion

is

due

mai

nly

to

the

deva

luat

ion

of

the

Bri

tish

Pou

nd,

In

dian

Ru

pee

, Au

stra

lian

Dol

lar

and

Sou

th A

fric

an R

and

wit

h

resp

ect

to t

he

Eu

ro.

Not

es t

o th

e co

nsol

idat

ed fi

nanc

ial s

tate

men

t

68

Bon

figl

ioli

A

nnua

l Rep

ort

2008 Minority shareholders’ equity

Minority profit/loss

Minority capital and

reserves

Minorityinterests

shareholders' equity

Balance as at December 31, 2007 697 1,538 2,235

Allocation of net income for 2007 (697) 697 –

Distribution of dividends – (388) (388)

Currency conversion differences – (530) (530)

Incorporation of Bonfiglioli Vietnam – 1,337 1,337

Consolidation of Bonfiglioli South Africa – 145 145

Consolidation of Bonfiglioli Do Brasil – 136 136

Purchase by Group of 8% in Bonfiglioli Turkey – (86) (86)

Net income for 2008 attributable to minority interests 1,282 – 1,282

Balance as at December 31, 2008 1,282 2,849 4,131

The caption originates from the attribution to minority shareholders of the portion of

shareholders’ equity and net income deriving from the full consolidation of the following

companies:

Company

2008 2007

Profit Capital and

reserves

Total Profit Capital and

reserves

Total

Bonfiglioli Vectron GmbH – 172 172 39 133 172

Bonfiglioli Power Transmission Pty Ltd (*) 499 1,041 1,540 584 998 1,582

Bonfiglioli Skandinavien AB (29) 112 83 (1) 127 126

Bonfiglioli Power Transmission JSC (90) 225 135 75 280 355

Bonfiglioli Do Brasil Ltda 902 (38) 864 – – –

Bonfiglioli Vietnam Ltd – 1,337 1,337 – – –

Total 1,282 2,849 4,131 697 1,538 2,235

(*) Since 2008 also includes the results recorded by Bonfiglioli South Africa Pty Ltd.

Not

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idat

ed fi

nanc

ial s

tate

men

t

69

Bon

figl

ioli

A

nnua

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ort

2008Reserves for risks and charges

2008 2007 Changes

Statutory retirement pay fund and similar obligations 1,801 1,787 14

Tax fund 10,170 7,215 2,955

Other provisions 8,085 5,594 2,491

Total 20,056 14,596 5,460

Statutory retirement pay fund and similar obligationsThis item shows the sales agents’ indemnity reserve, which saw the following changes:

2008 2007


Provisions 153 269


Other changes – –

Closing value 1,801 1,787

Taxes and deferred taxesThis caption can be broken down as follows:

Description 2008 2007 Changes

Deferred tax provision 10,170 7,115 3,055

Inland Revenue assessment risks provision – 100 (100)

Total 10,170 7,215 2,955

With reference to the deferred taxation provision, changes in the year are broken down as

follows:

Deferred tax provision 2008 2007


Provisions for deferred taxation 1,300 2,483

Applications/releases (3,970) (1,100)

Change in mean share – (638)

Change in consolidation area – (47)

Other changes 5,725 (6)

Closing value 10,170 7,115 Not

es t

o th

e co

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idat

ed fi

nanc

ial s

tate

men

t

70

Bon

figl

ioli

A

nnua

l Rep

ort

2008 The caption “other changes” refers to exchange rate differences and the application by the

Parent company of Deferred taxes to the monetary revaluation carried out (5.9 M€).

Other reserves for risks and charges

This caption can be broken down as follows:


Provisions Applications Other changes

Closing Balance

Productwarranties 3,860 977 (342) (14) 4,481

Legalrisks 568 – (34) 2 536

Other 1,166 2,124 (279) 57 3,068

Total 5,594 3,101 (655) 45 8,085

The item “Other” includes a “Business reorganisation fund” set up by the Parent company

and totalling 1 M€ and a customs duties fund created by the American subsidiary for a total

of 1 M€, with allocations recorded under extraordinary items.

Employees severance indemnity reserve

Changes in the severance indemnity fund in 2008 were as follows:

2008 2007

Opening balance 17,191 18,034


Dept. of Health & Social Sec. (INPS) fund and other funds (3,186) (3,410)

Applications (1,205) (1,555)


Closing balance 16,902 17,191

In keeping with the provisions of Italian legislation relating to companies with an employed

work force exceeding fifty, with effect from January 1 2007, sums allocated to the sever-

ance indemnity reserve are paid by the company into the individual pension funds held by

the organisations indicated by each employee or by welfare bodies; the provisions caption

therefore reflects increases in the severance indemnity reserve relating to members of the

group for which a reserve of this kind is still held by the company.

The number of employees in the workforce during the year was as follows (spot and average

data):Not

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20082008 yearend 2007 yearend 2006 average 2007 average

- executives and managers 116 93 105 97

- white collar and middle management 1,016 948 994 835

- direct and indirect blue collar 1,572 1,358 1,465 1,306

- temporary staff 108 102 105 127

Total 2,812 2,501 2,668 2,364

Payables

Bonds2008 2007 Changes

Bonds 6,319 6,460 (141)

This item shows the following payables:

a debenture loan issued by the Parent Company on 8 September 2005 maturing on 31 •

December 2020, which is liable to interest at an annual rate of 3.2%. The foregoing loan,

issued for a total of K€ 3,750, is recorded in the financial statement as at end of 2008 for

K€ 3,125 of which K€ 375 matures next year; the portion of the debt maturing beyond

the next year although within a period of five years totals K€ 1,000, while the portion

beyond five years totals K€ 1,750;

a bond issued by the subsidiary “Bonfiglioli USA Inc.” for a total of KUSD 5,000 to sup-•

port the investment made for the construction of the new factory premises completed

during the year. At the end of 2008 the residual value recorded for the loan is KUSD

4,445. The amount due next year totals KUSD 270 (K€ 194), the debt falling due beyond

next year but within a period of 5 years is KUSD 1,255 (K€ 902), while the portion due

beyond five years totals KUSD 2,920 (K€ 2,098). It is pointed out that the loan issued by

“Bonfiglioli USA Inc.” is secured by a mortgage on the company’s principle assets.

Short-term borrowings

2008 2007 Changes

Amounts due to banks - current account overdrafts and advances subject to collection

28,033 28,614 (581)

Amounts due to banks - mortgages and loans 139271 99,103 40,168

Total due to banks 167,304 127,717 39,587

Amounts due to other financial institutions 22,403 22,387 16

Bonds 6,319 6,460 (141)

(minus) Cash at banks and on hand (18,114) (16,309) (1,805)

Net Cash Position 177,912 140,255 37,657

Not

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Bon

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ort

2008 As shown also by the cash-flow statement, to which we invite you to refer, the increase in

short-term borrowings (Net Cash Position) is mainly attributable to the liquidity absorbed

by the significant investments made during the year (M€ 48) and the increase in net work-

ing capital.

Amounts due to banks include openings of credit regulated by current account transac-

tions, advances subject to collection, and import-export financing.

The caption Due to other financial institutions includes both the medium/long-term loans

received from institutions other than banks (Ministry of Industry pursuant to Law 46 -

SIMEST Law 394) and also the residual portions of capital of leasing contracts recorded in

accordance with IAS no. 17. The figure is recorded at face value with regard to the principal,

whilst the interest due at the end of the year is recorded on an accrual basis.

Changes occurring during the year with reference to bank loans and amounts due to other

financial institutions are detailed in the following table:

Not

es t

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idat

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nanc

ial s

tate

men

t

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Bon

figl

ioli

A

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ort

2008

Com

pany

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2008

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72,2

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Bonfi

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VT

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SpA

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(347

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485

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Par

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2008 Trade payables

2008 2007 Changes

Advances 1,630 2,526 (896)

Trade payables due to suppliers 141,215 136,202 5,013

Amounts due to associated companies 16 27 (11)

Total 142,861 138,755 4,106

Breakdown of trade payables by geographical area:

2008 2007

Italy 108,733 115,525

European Union 17,107 14,173

Other 17,021 9,057

Total 142,861 138,755

Other payables

2008 2007 Changes

Tax payables 5,878 5,696 182

Amounts due to welfare and social security institutions 5,731 5,323 408

Other payables 16,673 15,154 1,519

Total 28,282 26,173 2,109

Tax payables include the following items:

Tax payables 2008 2007

Short-term payables

Direct taxes payable 2,211 3,291

Employees’ taxes 1,735 1,800

Substitution tax 726 –

Other 491 605

Total short-term tax payables 5,163 5,696

Mid-long-term payables

Substitution tax 715 –

Total mid-long-term tax payables 715 –

Total 5,878 5,696Not

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2008“Other payables” can be broken down as follows:

Other payables 2008 2007

Short-term payables

Amounts due on acquisition of shareholdings 2,034 815

Amounts due to employees 10,358 10,693

Right to use land - Vietnam 419 –

Other 1,269 898

Total other short-term payables 14,080 12,406

Mid-long-term payables

Amount due on acquisition of shareholdings 1,876 2,744

Right to use land - Vietnam 642 –

Other 75 4

Total other mid-long-term liabilities 2,593 2,748

Total 16,673 15,154

Accrued expenses and deferred income

2008 2007 Changes

Total 1,354 975 379

This item can be broken down as follows:

2008 2007

Interest payable on loans 1,110 782

Insurance policies 89 64

Exchange rate fluctuations 108 83

Other 47 46

TOTAL 1,354 975

Memorandum accounts

The following memorandum accounts of the consolidated companies are included at the

foot of the balance sheet:

2008 2007 Changes

Total 6,526 6,168 358

Guarantees granted by third parties refer to sureties issued on behalf of the Group by banks Not

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2008 for tax rebate applications, medium/long-term guarantees in favour of banks for the con-

cession of loans, and in favour of third parties in relation to contractual undertakings or

debts. To this 1.4 M€ is added, representing commitments for the acquisition of sharehold-

ings (Vietnam) taken up by the Parent company.

Income statement

Net revenues from sales and services

2008 2007 Changes

Total 663,497 609,911 53,586

Sales, which were up by 8.8% compared to the previous year, were made in the following

geographical areas:

Valori in M€ 2008 % 2007 %

Italy 166,6 25,1 164,6 27,0

Europe 283,8 42,8 270,0 44,3

Overseas 213,1 32,1 175,3 28,7

Total 663,5 100,0 609,9 100,0

Other revenues and income

2008 2007 Changes

Total 6,709 6,489 220

This item can be broken down as follows:

2008 2007

Refund for packing and transport costs 2,215 2,249

Refunds for defective processing/material 1,341 894

Sale of machining swarf and scrap 1,349 1,321

Minor sales 682 860

Capital gains and contingent assets 826 830

Other 296 335

Total 6,709 6,489

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idat

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ort

2008Costs for raw materials, supplies, consumables and goods for resale

2008 2007 Changes

Total 372,315 328,746 43,569

Costs for services

2008 2007 Changes

Total 150,659 135,520 15,139

This caption includes outsourced processes totalling K€ 75,602 (K€ 70,237 in 2007), costs

for commission, transport, advertising and other commercial services, remuneration of the

Board of Directors and auditing bodies, insurance policies, consultancy, bank charges, elec-

trical power, external labour, logistics and security services, travel expenses and other minor

items.

Costs for third parties assets use

2008 2007 Changes

Total 4,421 4,052 369

This item mainly concerns the hiring of IT systems and motor vehicles, rentals for the lease

of industrial plants and external depots, and royalties paid to third parties.

Personnel costs

Personnel costs can be broken down as follows:

2008 2007 Changes

Salaries and wages 76,595 69,208 7,387

Social security contributions 20,705 18,474 2,231

Employees severance indemnity 4,171 4,135 36

Other costs 92 81 11

Total 101,563 91,898 9,665

The increase in personnel costs is linked both to the strengthening of the workforce, with an

increase of more than 300 staff during the year, and increases in the cost of labour recorded

following contractual renewals and the normal dynamics of company salaries. Not

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2008 Amortisation/depreciation and write-downs

2008 2007 Changes

Amortisation of intangible fixed assets 2,895 3,713 (818)

Depreciation of tangible fixed assets 19,840 16,081 3,759

Bad debts provision 1,971 1,527 444

Total 24,706 21,321 3,385

Other provisions

2008 2007 Changes

Total 1,000 2,041 (1,041)

This mainly reflects allocations made during the year to product warranty provisions.

Other operating costs

2008 2007 Changes

Total 4,601 4,084 517

This caption is a residual item and includes expenses and charges that cannot be classi-

fied under the previous headings. It relates to local taxes, general production, commercial,

and minor administrative expenses, capital losses of an ordinary nature, and other minor

items.

Interest receivable and financial income

2008 2007 Changes

Total 667 453 214


2008 2007

Dividends from BEST Hellas SA 19 –

Bank interest receivable 483 435

Financial income from hedging transactions 62 –

Commercial and other interest receivable 103 18

Total 667 453

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2008Interest payable and financial expenses

2008 2007 Changes

Total 11,514 7,801 3,713


2008 2007

Interest on amounts due to banks 2,040 1,741

Interest payable on mortgages and loans 7,931 4,518

Interest payable on leasing/business contracts 873 665

Interest payable on bonds 102 189

Discounts, premiums and expenses on derivatives(IRS and forward contracts)

525 527

Other 43 161

Total 11,514 7,801

The increase recorded during the year is accounted for by the increase in mid-term debts

(in terms of Net Cash Position).

Exchange rate gains/losses

2008 2007 Changes

Total (1,800) (194) (1,606)

This amount can be broken down as follows:

2008 2007

Currency exchange gains 3,469 2,174

Currency exchange losses (5,269) (2,368)

Total (1,800) (194)

Adjustments to financial assets

2008 2007 Changes

Total 891 540 351

This caption concerns the portion of profit for the year attributable to the associated com-

pany “Tecnotrans Bonfiglioli SA”. Not

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2008 Extraordinary income and expenses

2008 2007 Changes

Net total (1,815) 1,753 (3,568)

Extraordinary income and expenses includes, in particular, the following items:

2008 2007

Capital gains – 2,450

Contingent assets 516 737

Contingent liabilities (88) (872)

Taxes from past years (160) –

Provision to funds (2,083) (562)

Total (1,815) 1,753

Current, deferred and prepaid taxes

2008 2007 Changes

Current taxes (16,544) (20,827) 4,283

Deferred taxes 2,670 (745) 3,415

Prepaid taxes 2,391 2,258 133

Total (11,483) (19,314) 7,831

Further informationBefore closing this report, in order to complete the information required by article 38 of

Legislative Decree 127/1991 and other provisions of the Italian Civil Code, the following

further information is set out below:

Remuneration paid to directors and statutory auditors

During the year the following amounts were paid out as remuneration to Group Directors

and auditing bodies:

2008 2007

Directors 1,357 1,586

Auditors 415 355

Total 1,772 1,941Not

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81

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2008Operation with correlated parties

The Group has business relations with B.R.T. S.p.A., owned by shareholders and Directors

of Bonfiglioli Riduttori S.p.A..

The company B.R.T. S.p.A. supplies spare parts in Italy on behalf of Bonfiglioli Riduttori

S.p.A. and, partly, abroad.

The business relations relate to the sale of components produced by Bonfiglioli Riduttori

S.p.A. under normal market conditions and, taken as a whole, do not account for a signifi-

cant figure, considering the size of the Group.

It is also pointed out that B.R.T. S.p.A. rents out 2 factory premises adjacent to the main fac-

tory premises to Bonfiglioli Riduttori S.p.A., all under normal market conditions.

Derivative financial instrumentsDerivative contracts In the drive to hedge financial risks the Group has entered into the following derivative

contracts:

Underlying Exchange rates

Type of transactionNotional

value /000Fair value

Pos. Neg

Unlisted financial derivatives

- Forward contracts

Sale of USD 11,678 n/a n/a

Sale of GBP 2,660 n/a n/a

Sale of AUD 8,459 n/a n/a

Purchase of Yen 1,104,539 n/a n/a

Total n/a n/a

The exchange rate hedging operations relate exclusively to ordinary non-speculative hedg-

ing management operations involving credits and debits expressed in foreign currency.

Calderara di Reno (Bo), 3 June 2009

Board of Directors’ Chairman


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2008 (in K€)

2008 2007

A. OPENING NET CASH POSITION (140,255) (95,040)

B. OPERATING ACTIVITIES

Net income of the group 20,917 25,645

Minority interest income 1,282 697

Depreciation and write-downs 24,706 21,321

Provisions for employee severance indemnity reserve and other reserves 4,239 3,605

Share of results of associated companies (891) (540)

Cash flow from operating activities before changes in working capital 50,253 50,728

Decrease (Increase) in trade receivables 5,021 (16,600)

Decrease (Increase) in inventory (30,982) (18,560)

Decrease (Increase) in other assets (12,650) (7,743)

(Decrease) Increase in trade payables 5,002 7,420

(Decrease) Increase in other liabilities (*) (2,189) 232

(Payments) of employee severance indemnity and other reserves (2,023) (2,020)

B. Cash flow from (for) operating activities 12,432 12,701

C. INVESTING ACTIVITIES

Net investments in tangible and intangible assets (*) (48,443) (54,786)

Decrease (Increase) in other long term assets 247 132

C. Cash flow from (for) investing activities (48,196) (54,654)

D. FINANCING ACTIVITIES

Dividends – (1,500)

Exchange rate reserve change (2,858) (829)

Change in minority interests 965 (1,689)

D. Cash flow from (for) financing activities (1,893) (4,018)

E. CASH FLOW FOR THE YEAR (B+C+D) (37,657) (45,215)

F. CLOSING NET CASH POSITION (A+E) (177,912) (140,255)

(*) Net of effects of monetary revaluations carried out pursuant to Law 2/2009

Consolidated cash-flow statement

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2008

Independent Auditors’ Report

Inde

pend

ent

Aud

itors

’ Rep

ort

86

Bon

figl

ioli

A

nnua

l Rep

ort

2008

Independent Auditors’ Report

Inde

pend

ent

Aud

itors

’ Rep

ort

87

Bon

figl

ioli

A

nnua

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ort

2008

Inde

pend

ent

Aud

itors

’ Rep

ort

Bonfiglioli, in its commitment to environmental preservation,have printed these pages on recycled paper.

Annual R

eport 2008

Bonfiglioli Worldwide

EuropeAlbania, Austria, Belgium, Bielorussia, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Holland, Hungary, Germany, Great Britain, Greece, Ireland, Italy, Lettonia, Lituania, Luxemburg, Malta, Montenegro, Norway, Poland, Portugal, Romania, Russia, Slovakian Republic, Serbia, Slovenia, Spain, Switzerland, Turkey, Ucraina

AfricaAlgeria, Egypt, Kenya, Morocco, South Africa, Tunisia

AsiaBahrain, China, Emirates, Japan, Jordan, Hong Kong, India, Indonesia, Iran, Israel, Kuwait, Malaysia, Oman, Pakistan, Philippine, Qatar, Saudi Arabia, Singapore, South Korea, Syria, Thailand, Taiwan, Vietnam

North AmericaCanada, United States

Latin AmericaArgentine, Bolivia, Brasil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Perù, Uruguay, Venezuela

OceaniaAustralia, New Zealand

BONFIGLIOLI RIDUTTORI S.p.A.Via Giovanni XXIII, 7/A40012 Lippo di Calderara di Reno - Bologna (Italy)Tel. (+39) 051 6473111 - Fax (+39) 051 [email protected]

www.bonfiglioli.com

Cod. 4001 R4 Annual Report 2008

The Chairman, Clementino Bonfiglioli · · 2015-11-02North America Canada, United States Latin...

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