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International operations and Core Markets International presence The Sabaf Group is one of the world’s leading manufacturers of components for household gas cooking appliances, with a market share of around 50% in Europe and a global share of about 10%. Its core market consists of manufacturers of household appliances, particularly cookers, hobs, and ovens. The majority of Sabaf’s sales consist of the supply of original equipment, whereas sales of spare parts are negligible.

A market share of around 50% in Europe and a global share of about 10%.

sales DEPT.

HEAD OFFICE

productive units

Main production lines Valves and thermostats

Burners

Hinges

Accessories

These components regulate the flow of gas to covered burners (in the oven or grill) or exposed burners; thermostats are characterised by the presence of a thermal regulator device to maintain a constant pre-set temperature.

These components, via the mixing of gas with air and combustion of the gas used, produce one or more rings of flame.

These components allow a smooth and balanced movement of oven, washing-machine or dishwasher doors when they are opened or closed.

The Group also produces and markets an extensive range of accessories, which supplement the offering of the main product lines.


SABAF - 2013 ANNUAL REPORT

INTERNATIONAL OPERATIONS AND CORE MARKETS

Sales by product line

IN thousands of euro

0

year

5,000

10,000

15,000

20,000

25,000

30,000

38,222 18,943

Special burners 11,571

Accessories and other revenues 6,650

18,601

Brass valves

23,524

Light alloy valves 13,074

Thermostats

39,337

Standard burners 18,850

Special burners 11,226

Accessories and other revenues Hinges

6,121

26,537

Brass valves 23,265

Light alloy valves 14,560

Thermostats

2011

42,631

Standard burners 22,210

Special burners 10,598

Accessories and other revenues Hinges

8,782

31,788

Brass valves 20,027

Light alloy valves 14,829

Thermostats

2010

41,405

Standard burners 21,097

Special burners Accessories and other revenues Hinges

10,959 10,792

26,928

Brass valves 15,276

Light alloy valves

13,746

Thermostats

2009

45,000

27,618

Standard burners

2012

40,000

13,350

Thermostats

Hinges

35,000

14,613

Brass valves Light alloy valves

2013

25

36,358

Standard burners 17,173

Special burners Accessories and other revenues Hinges

9,089 8,518

T O TA L

130,967

130,733

148,583

150,897

127,088


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Sabaf’s international growth: challenges and opportunities Revenue (in thousands of Euro) and incidence % of the total

Sales by geographical area

Performance data

Italy Italy – traditionally Europe’s leading producer of household appliances – is losing its position to a certain extent. Some customers have scaled back their activities in Italy, others have abandoned the country altogether or have suspended activities due to financial difficulties. However, producers of cooking appliances focused on the high end of the market and export continue to post excellent results. Sabaf offers Italian customers extremely high quality and a differentiated range of components which help them to promote the “made in Italy” reputation on international markets.

42,662 32.6%

45,597 34.9%

40.8%

52,654 41.4%

61,648

56,321

37.9%

11,215

7.5%

Performance data

Western Europe In line with the trends on the Italian market, Western European countries present risks relating to the emergence of competitors from low-cost countries. Also in this case, Sabaf intends to focus on the quality and innovation of its products in order to consolidate its customer base.

7,465

5.7%

7,337

5.6%

11,561

7.6%

10,233 8.1%

Performance data

Eastern Europe and Turkey Sabaf intends to benefit from the expansion in Eastern Europe and Turkey. Turkey is now Europe’s biggest producer of household appliances. In this regard, the opening of a production facility in Turkey in 2012 and the development of new trade relations are key to growth.

Key

29,300 22.4%

33,236 25.4%

21.6%

27,978 22.0%

32,553

2013

2012

2011

37,459 25.2%

2010

2009


SABAF - 2013 ANNUAL REPORT

INTERNATIONAL OPERATIONS AND CORE MARKETS

27

Performance data

Asia and Oceania Asian markets are marked by the emergence of consumption patterns similar to those of the West. The expansion of the gas cooking appliance industry, together with the possible tightening of safety standards, represents a growth opportunity for Sabaf, which can count on the strength of its brand and the “made in Italy” reputation. However, difficulties in relations with some Middle Eastern countries mean it is not yet possible to fully capitalise on the potential of these markets.

11,864

9.1%

12,306 9.4%

15,476

10.3%

13,295 10.5%

13,328

9.0%

19,838

13.4%

6,524

4.4%

3,898

2.6%

Performance data

Central and South America Sabaf now has a consolidated presence, also in production, on which to base future growth (a facility in Brazil has been operational since 2001 and in recent years production levels have constantly increased). Growth possibilities in Brazil, South America and Central America are related to the large size of the market and sustained growth trends.

24,375 18.6%

21,895 16.8%

17,467 11.6%

13,473 10.6%

Performance data

Africa Sabaf is increasing its presence in the area by leveraging on the brand’s strong reputation, its geographical proximity and its longstanding presence. City expansion plans in North Africa represent a driver for possible market opportunities, despite the difficulties connected with the current political situation in some of the bigger countries.

10,410 7.9%

6,950

5.3%

4.7%

6,107

4.8%

7,056

Performance data

US, Canada & Mexico Its wide range of innovative and efficient products, together with relations with the main producers and its good technical reputation, provide the Group with new opportunities. Sabaf’s market share is constantly gowing in the premium segment.

4,891

3.7%

3,412

2.6%

5,136

3.4%

3,348

2.6%


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Trends in the cooking appliance manufacturing sector For years now the sector has tended to outsource component design and production to highly specialised suppliers, who, like Sabaf, are active in the world’s main markets and are able to supply a range of products tailored to the specific requirements of individual markets. In addition, the trend to internationalize production is becoming more accentuated, with production increasingly shifting to countries with low-cost labour and lower levels of saturation.

Moreover, the emergence of new players at the international level is causing over-supply. This in turn leads to pressure from competition and is bringing about greater concentration in the sector. However, this trend is less evident in cooking appliances than for other domestic appliances: in the cooking segment, design and aesthetics on the one hand and less intensive investment on the other mean that small, highly innovative producers can also prosper.

Core markets In Western Europe, which accounts for about half of the end-user market for Sabaf products, the level of saturation reached by cooking appliances (i.e. the number of households owning such appliances) is close to 100%. Purchases of new appliances are therefore mainly replacement purchases. Moving house or the purchase or refurbishment of a home are often occasions for the purchase of a new cooking appliance. The market trend is therefore directly influenced by the general economic trend and, in particular, by households’ disposable income, consumer confidence and housing market trends. In this

context, demand in the household appliances sector has been stagnating for years, with the situation more marked in the peripheral countries. Conversely, in other markets the saturation level is often much lower. Faster economic growth rates and a more favourable demographic trend than in Western Europe create huge opportunities for groups such as Sabaf that are able to work both with multinational household appliance manufacturers and with local manufacturers.

A varied landscape Manufacturers of gas cooking appliances – Sabaf’s core market – consist of: • large multinational groups with a well-established international presence in sales and production and possessing strong brands; • manufacturers located in countries with low-cost labour that aim both to exploit opportunities in their home markets and to grow fast globally; • manufacturers focused on specific markets in which they are the market leader; • manufacturers (mainly Italian export firms) occupying segments featuring greater product differentiation (for example, built-in hobs and ovens, or large, free-standing cookers).

SABAF S.P.A. ANNUAL REPORT 2013 - CHAPTER 2