Using the present to build for the future.

Transcription

1 Annual Report 2011

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3 Annual Report 2011

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5 Using the present to build for the future.

6 People

7 Annual Report Contents 7 Message from the Founder 9 Message from the Chairman 11 A great international group 21 Technological excellence 25 Power, Control & Green Solutions 29 Major works 39 Helping to build the future 41 Financial Highlights 49 Management Report 53 Consolidated Financial Statement for the year ending 31 st December Notes to the consolidated financial statements 99 Independent Auditors Report

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9 Annual Report Message from the Founder. The photo to the left shows Clementino Bonfiglioli, Founder of Bonfiglioli ( ). I must admit that we have made great progress in just fifty years. Our company has seen impressive growth and our products have won recognition for their quality worldwide. If I had to do it all again, I d do it exactly as I did the first time round, because I had the full backing of management, my employees and my family. My wife and my children have always given me their full support, even in the most difficult times. They have always encouraged me to carry on. I have built up this company not just for my own satisfaction but for the future, for my family and for my employees, and to see our name, our brand, succeeding. So it s still full speed ahead! Clementino Bonfiglioli April 2006 on the occasion of company s Fiftieth Anniversary.

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11 Annual Report Message from the Chairman. The photo to the right shows Sonia Bonfiglioli, Chairman and Managing Director. Sincere greetings to you all! Last year, in these same pages, I announced a thorough re-engineering of the company founded by my father, along with far-reaching changes designed to maintain our leadership of a wider and turbulent market. Today, one year later, our ability to renew and to innovate has been rewarded: this report presents our achievements. Our commitment, however, must remain the same, because change is a strategic necessity on today s highly competitive and rapidly evolving market. Change is not a betrayal of our identity: on the contrary it is the way of strengthening it and ensuring future prosperity. Even continuous renewal, however, needs a fixed focus, a guiding star : for us that star is our customers, who are central to our way of thinking and doing. It is essential for us to offer our customers valid, lean solutions, with no fat attached, and the same lean concepts need to be applied to our production and management processes if we are to focus on what really creates added value for our customers. I am sure that I can rely on the same support you gave me during the renewal of our company for the ambitious task that is facing us now, a task that will require all our perseverance and determination. Let me express my sincere gratitude to you all, and to everybody who has given preference to Bonfiglioli around the world. Thanks, and full speed ahead! Sonia Bonfiglioli

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13 Annual Report A great international group. Today, Bonfiglioli is a great international group and is recognised and appreciated by a constantly growing number of customers around the world for top quality products, innovative technology and complete service delivered everywhere with competence and passion. Bonfiglioli is present in 84 countries on 5 continents. Wherever it operates, Bonfiglioli offers competent, effective and sustainable solutions for a wide range of industrial applications, and dialogues with customers in real time using the latest communication channels and digital tools. This dialogue allows Bonfiglioli to build close relationships that are beneficial on the local level and support the group s strategic vision on the global level. Customer focus is the keystone of a powerful but streamlined organisation that is able to exploit strategic global synergies and solid local partnerships. This gives the Bonfiglioli Group the ability to improve the quality of work and of life today without losing sight of the broader picture and of long term prospects.

14 Annual Report Worldwide Production facilities Bonfiglioli Riduttori S.p.A (Lippo di Calderara - Headquarter) Bonfiglioli Riduttori S.p.A (Vignola - Italy) Bonfiglioli Riduttori S.p.A (Calderara di Reno - Italy) Bonfiglioli Riduttori S.p.A (Calderara di Reno - Italy) Bonfiglioli Riduttori S.p.A (Forlì - Italy) Bonfiglioli Mechatronic Research S.p.A. (Rovereto - Italy) Bonfiglioli Vectron GmbH (Germany) Bonfiglioli Slovakia s.r.o (Slovakia) Bonfiglioli Vietnam Ltd. (Vietnam) Bonfiglioli Transmission PVT. Ltd. (India)

15 A great international group 13 Subsidiaries Bonfiglioli Transmission PVT. Ltd. (India) Bonfiglioli Transmission Australia PTY Ltd. (Australia) Bonfiglioli Transmission Australia PTY Ltd. (New Zealand) Bonfiglioli do Brasil Ltda. (Brazil) Bonfiglioli Canada Inc. (Canada) Bonfiglioli USA Inc. (USA) Bonfiglioli Drives (Shanghai) Co.Ltd. (China) Bonfiglioli Transmissions France S.A. (France) Bonfiglioli Deutschland GmbH (Germany) Bonfiglioli Österreich GmbH (Austria) Bonfiglioli UK Ltd. (United Kingdom) Bonfiglioli Italia S.p.A. (Italy) Bonfiglioli South Africa PTY. Ltd. (South Africa) Bonfiglioli Turkey Jsc. (Turkey) Bonfiglioli Vietnam Ltd. (Vietnam) Bonfiglioli South East Asia (Singapore) Tecnotrans Bonfiglioli S.A. (Spain)

16 Annual Report Business Wind Solutions Mobile Solutions Industrial Solutions Regenerative & Photovoltaic Solutions

17 A great international group 15 Brands

18 Annual Report Bonfiglioli Group as of December 31, 2011

19 A great international group 17

20 Annual Report Organization chart as of December 31, 2011

21 A great international group 19 Board of Directors Sonia Bonfiglioli Chairman Luisa Lusardi Vice Chairman Luciano Bonfiglioli Director Roberto Megna Director Tommaso Tomba Director Siegfried Stadtfeld Director Statutory Auditors Monica Marisaldi Alessandro Gualtieri Giacomo Iannelli Independent Auditors PriceWaterhouseCoopers S.p.A. Executive committee Sonia Bonfiglioli CEO Fausto Carboni BUMWS General Manager Giovanni Scarlini BUInS General Manager Massimo Sarti BURePvS General Manager Tiziano Pacetti CFO Eric Cremer Marketing & Communication General Manager Local Management Olaf Donner, Frank Schramm Bonfiglioli Vectron GmbH (Germany) Andrea Genuini, K. Kennady, M. Ganesh Bonfiglioli Transmission PVT. Ltd. (India) Marek Kolarik Bonfiglioli Slovakia s.r.o (Slovakia) Stefano Callegati Bonfiglioli Vietnam Ltd. (Vietnam) Sonia Bonfiglioli Bonfiglioli Mechatronic Research S.p.A. (Italy) Malcolm Lewis Bonfiglioli Transmission Australia PTY Ltd. (Australia) Manfredi Ucelli Di Nemi Bonfiglioli do Brasil Ltda. (Brazil) Greg Schulte Bonfiglioli Canada Inc. (Canada) Greg Schulte Bonfiglioli USA Inc. (USA) Saverio Gaggero, Fabrizio Paterlini, Jason Wang Bonfiglioli Drives (Shanghai) Co.Ltd. (China) Gilbert Khawam Bonfiglioli Transmissions France S.A. (France) Giorgio Bombarda, Jürgen Weber Bonfiglioli Deutschland GmbH (Germany) Giorgio Bombarda Bonfiglioli Österreich GmbH (Austria) Mike McCann, John Adair Bonfiglioli UK Ltd. (United Kingdom) Andrea Pecorai, Pietro Gintoli Bonfiglioli Italia S.p.A. (Italy) Robert Rohman Bonfiglioli South Africa PTY. Ltd. (South Africa) Murat Güracar Bonfiglioli Turkey Jsc. (Turkey) David Bassas Tecnotrans Bonfiglioli S.A. (Spain)

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23 Annual Report Technological excellence. Left: the inside of a Bonfiglioli RPS Compact Outdoor inverter, a perfect example of how advanced technology can be used to achieve excellent performance. The capacity for innovation is, perhaps, nowadays the only asset a company possesses that is capable of ensuring a long term competitive advantage. The ability to change is largely the result of extensive research, and this demands a high level of school and university education. In 2011, Bonfiglioli instituted a number of initiatives to encourage technical and scientific education of a type that will facilitate employment, especially in our group s Italian heartlands. For example, we introduced the Clementino Bonfiglioli Degree Prize ( Premio di Laurea Clementino Bonfiglioli ) under the umbrella of the Leonardo awards. Named after the founder of the Bonfiglioli Group, a true industrial pioneer, the prize will be awarded annually to engineering graduates who have chosen to specialise in mechatronic research and design. This year it went to a student from Milan Polytechnic, Ilmas Andrea Bayati, for a degree thesis on the automatic control of a hydraulic movement system. The prize was given by the President of the Republic, Giorgio Napolitano, during the ceremony for the Leonardo Awards for Italian innovation and excellence. Bonfiglioli also gave its support to another prize, this time in conjunction with ASSIOT, the Association of Italian Transmission and Gearbox Manufacturers. This year s prize was awarded to Benedetta Bellizzotti, a student from Turin Polytechnic for her degree thesis on hybrid technologies in mobile machines. Bonfiglioli sees these prizes as small but important contributions to promoting excellence as a tool for success. Research Innovation Training

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25 Technological excellence 23 Laying the foundations for innovation. Below: the headquarters of Bonfiglioli. Left: Bonfiglioli s production lines, where manual skills produce excellent results. Throughout 2011, the Bonfiglioli Group tenaciously pursued its objective of setting new standards for technical excellence by investing heavily in research and development in its member companies, often in partnership with prestigious education institutes. In Germany, the group promoted ongoing research into photovoltaics and regenerative technology in conjunction with various research centres specialising in applied electronics and industrial automation. Bonfiglioli Vectron played a fundamental role in these activities. In Italy, the group focused primarily on mechatronic research for industrial automation and mobile machines, without forgetting the need for progress in traditional mechanical applications too. Bonfiglioli Mechatronics Research, the group s new centre of applied mechatronic research in Rovereto, developed new permanent magnet brushless motors which were presented as preview at the 2012 edition of the Hanover exhibition. In 2011, among many other excellent achievements at group level, the Bologna and Forlì plant made great progress in the development of important new mechatronic and electromobility solutions.

26 Power, control and green solutions

27 Annual Report Sustainable power control solutions for mankind. Power Bonfiglioli has been using its experience, competence and professionalism to develop excellent new solutions for integrating electronic, hydraulic and mechanical technology around the world since Bonfiglioli is an international leader in power transmission and control, and boasts a complete range of gearmotors, drive systems and planetary gearboxes. The group offers high value solutions for industry, mobile and construction machinery and renewable energy, and improves the quality of work and life in general through a vast range of applications.

28 Annual Report Control At Bonfiglioli, everybody is committed to the highest standards of efficiency and precision in power control through the design, development and engineering of excellent solutions for a wide range of applications. From heavy industry to renewable energy, from large earth moving machines to precision electronics and motors for the latest generation of electric cars, Bonfiglioli solutions are the result of competence, specialisation and experience built up over more than 50 years of activity. Today Bonfiglioli is a great international and multicultural team, committed to producing real benefits for customers, and to helping them create new wealth and wellbeing. Details of Bonfiglioli production plants and some of their products.

29 Power, control and green solutions 27 Green Solutions Today, given the world growing demand for energy and dwindling reserves of fossil fuels, commitment to renewable energy is essential as well as strategic. Our group assumed this commitment many years ago and directed its research efforts towards the three great natural resources: sun, wind, and tides. We are also busy developing intelligent waste management solutions and advanced systems for recovering energy from biomass. Every aspect of our group s work is now governed by policies of sustainability, as can be seen from our strict new international quality certificates, the high level of automation in our factories and our adoption of energy saving policies. Today, our capacity for design and production enables us to serve all areas of renewable energy systems, from design to the supply of energy to the network, and allows us to act as a reliable and expert partner in the development of international green economy projects.

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31 Annual Report In 2011, our ability to diversify our activities and to exploit transversal synergies allowed the Bonfiglioli Group to complete a number of major works of international importance and absolute excellence. An intelligent giant. Among the major works Bonfiglioli completed in 2011, we can include the world s largest rolling machine, developed in conjunction with Walter Tosto, the Italian specialists in plant construction for high pressure processes, and global market leaders in large metal tanks. In their search for a partner able to push forward the boundaries of current technology, Walter Tosto found in Bonfiglioli the design and production capacity they were looking for. The result is the DINO rolling machine, an amazing concentration of technology and power weighing 1200 tons, capable of producing 1200 kw from a hydraulic system containing 1900 litres of oil. This giant machine rises 12.5 metres above floor level and has a base reaching 9 metres below floor level. It can roll plate of over 400 mm in thickness thanks to a roller downforce of 98,100 N (equivalent to 10,000 tons) and a torque of 12.8 MNm generated by a hydraulic circuit pressurised to 250 bar. The metal plate is bent by the combined action of thrust and rotation. The immense upper roller is driven by ten size 318 planetary gearboxes, each delivering 233 knm of torque, while the bottom roller is driven by two size 315 planetary gearboxes. The DINO is a successful example of true excellence, developed through quality, commitment and teamwork.

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33 Major works 31 Advanced packaging technology. ULMA is an international player in many sectors, including automatic packaging machines. The company s main products include high speed, single roll, horizontal, flow pack machines for food and non-food applications. The Atlanta Hi-Tech is ULMA s most advanced flow pack wrapper, and is equipped with a multi-axis electronic controller to synchronise all the movements of the machine s three main axes. Electronic control gives the Atlanta Hi-Tech a high level of versatility, great flexibility for product changes and excellent movement dynamics. On top of the robustness, reliability, ergonomic design, easy cleaning and high level of hygiene typical of all the machines in the Atlanta range, advanced control technology has allowed ULMA to guarantee the high performance demanded by their automatic and manual packaging line customers. Bonfiglioli partnered ULMA in the design of the Atlanta Hi-Tech by supplying a multi-axis drive and control solution capable of exploiting the full potential of Bonfiglioli servomotors and Active Cube servo-inverters.

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35 Major works 33 The world s biggest wind turbine. The German industrial giant, Siemens, chose Bonfiglioli s technology and knowhow to control nacelle yaw in the world s largest wind turbine, a monster capable of generating 6 MW of power. Bonfiglioli designed and developed a special drive solution for this application, meeting actual system needs and Siemens own technical specifications. Thanks to our vast experience in wind generation, Bonfiglioli was able to complete this prestigious but challenging project successfully, while also catering for key factors such as compact dimensions, reduced weight, maintainability and reliability for the components.

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37 Major works 35 The giants of construction. In the field of mobile machinery, Bonfiglioli has developed a travel drive for large excavators (120 to 150 tons), large drilling machines (180 to 230 tons) and crawler cranes (180 to 230 tons) for leading Italian and international manufacturers including Hyundai and Soilmec. With the rapid development of emerging markets, demand for technology capable of satisfying the needs of ever larger and more powerful machines has increased dramatically. Bonfiglioli s 720C and 722C drives were developed for this specific purpose. These jewels of technology are robust and efficient enough to deliver up to 330,000 Nm of torque.

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39 Major works 37 One third of India s photovoltaic market. Details of photovoltaic parks in India. In 2011, Bonfiglioli delivered photovoltaic equipment for 185 MW to India. Considering that the entire Indian market took little more than 600 MW, Bonfiglioli s market share is around 30%. Installations were completed in various Indian states: 11 parks producing 141 MW were installed in Gujarat, 10 parks producing 44 MW in Rajasthan, and 20 MW parks in Tamil Nadu, Orissa, Andhra Pradesh, and Karnataka. The Indian market has clearly appreciated Bonfiglioli PV technology for its profitability, efficiency and reliability, as typified by the 99.7% availability achieved by most inverters.

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41 Annual Report Helping to build the future. Left: the new Home For Children in Arakkonam. Children are a direct path to the future and Bonfiglioli sees helping children as a great way to build that future. This was our conviction when we set up the Cheerfutureland project back in Cheerfutureland is a community for homeless and partly disabled children in Arakkonam, two hours outside Chennai, in India, where one of Bonfiglioli s key production plants, employing a workforce of 370 employees, is located. Through the Indian Prema Vasam association, founded by child psychologist Anto Selvyn Roy, Bonfiglioli supports around 150 boys and girls of all ages, including a number of disabled youngsters. Since Anto Selvyn Roy rescued his first homeless child from the streets of Chennai, his adventure has been able to continue thanks to aid provided by Bonfiglioli, who owe so much to the people of India. Thanks to generous contributions from friends and other companies, we have been able to open the new Home for Children, a modern and practical residential centre for Prema Vasam s children. This is just the first step in an ambitious long term project that aims to build a number of residential, recreational, medical and teaching centres and to generate new job opportunities. Cheerfutureland is a tangible sign of Bonfiglioli s determination to share in all aspects of social, economic and cultural life in the countries that host its operations, and to lay foundations for a future of universal growth and development.

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43 Annual Report Financial Highlights Despite the continuing International crisis, the Bonfiglioli Group had a positive trend in 2011, and recorded a consolidated turnover of M, up on 2010 and even beating the pre-crisis record of The group s organisational and strategic choices have evidently been rewarded. This can only encourage us to renew our efforts for further growth in the current year.

44 Annual Report Group Sales (euro / million) The Bonfiglioli Group has been active in power transmission for industrial and mobile machine applications for over 50 years. More recently the group has also developed specific competences in areas of the green economy. Sales by Geographical area (euro / million)

45 Financial Highlights 43 Net Sales Business Unit (euro / million) Industrial Solutions Mobile Wind Solutions Regenerative & Photovoltaic Solutions

46 Annual Report EBITDA (euro / million) Net Investments (euro / million)

47 Financial Highlights Group Share of Shareholders Equity (euro / million) 45 Number of employees

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49 We turn the most critical situations into the best possible solutions.

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51 Annual Report Management Report Contradicting the cautious optimism of late 2010, 2011 saw a general deterioration in market conditions, and current forecasts are suggesting further downtrend. The turndown is the result of the sovereign debt crisis afflicting the EU, weakness in the US economy and the slowing pace of growth in Asia nations, especially in China. The Draconian policies recently introduced in the EU have done little to improve the overall picture, which remains critical. Italy in particular cannot expect to see signs of recovery before (This section has been translated into the English language solely for the convenience of international readers)

52 Annual Report Management report 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 Chartered Accountants) accounting principles, updated by the OIC (Italian Accounting Authority), is submitted as a comment on the results recorded in the consolidated financial statement of the Bonfiglioli Group. Unless otherwise indicated, data are shown in Euro/millions. Reference economic situation The year 2011 was marked by two conflicting trends. The economic revival during the early months of the year fuelled a hope that the critical world economic crisis, triggered by the explosion of the U.S. real estate and financial bubble in the fall of 2008, was by now finally behind us. As the months went by in 2011, it proved to be gradually more problematic, mostly due to two factors. On the one hand, the crisis of the sovereign debts intensified in Europe and progressively spread to Spain and Italy as well. On the other, the picture of the current economic situation resulting from concerns for public finances and the equity balances of the banks worsened at a fast pace, with a clear reduction of the growth estimates of the European countries and the United States. The loss of vigour of Europe s recovery and the weakness of the U.S. economy then summed up to a certain slowdown of other important countries such as China, which in recent years had played the role of the world economy s locomotive. Indeed, if during the first quarter of the year the gross domestic product of the Chinese giant seemed to still ride the wave of the strong growth enjoyed in 2010, Beijing experienced the materialisation of a slowdown in its pace in the following months due to the fall in export and a cooling off of its domestic economy dictated by inflationary fears. Moreover, the repercussions of the devastating earthquake in Japan and a certain braking of India s economy during the second half of the year are not to be forgotten. Therefore, generally speaking the world economy very noticeably slowed down in 2011 and at year-end the growth rate settled at +3.8% (+5.2% in 2010). With regard to the single geographic areas, the picture of the economic situation had worsened in the Eurozone at the end of the summer, and this reflected the slowdown of the world economic cycle and the worsening of the crisis of sovereign debts. Despite the decisions that European leaders took, the strains on Eurozone debt sharpened as they were affected by the deterioration of the macroeconomic picture, the repeated downclassing of the government bonds and banks of several European countries by a few international rating agencies, and the doubts of traders regarding the adequacy of the mechanisms provided by the European authorities to be used to manage the crisis. Ten Eurozone countries were declassed by one or more leading rating agencies since the end of September, including France, Spain and Italy. The growth rate of the Eurozone at the end of 2011 was 1.6% (growth was 1.7% in 2010). What particularly weigh on the picture of the Italian economic situation are the slowdown of world trade and the worsening of the sovereign debt crisis, which forced lending costs to rise, and the effect on disposable income following corrective public finance manoeuvres, which nevertheless avoided more serious consequences on the real economy. As already occurred in 2009, Italy proves to be harder hit than the average Eurozone, with 0.4% total GDP growth in 2011 (growth in 2010 was 1.5%). The U.S. GDP recorded 1.8% growth in 2011 (growth was 3% in 2010). The United States still has numerous domestic economic problems, including the considerable rise in public debt, which then adds to the already high private debt, a heavy trade deficit and a real estate market that is still having difficulty in picking up. The major economies of BRIC (Brazil, Russia, India and China) continued to sustain world growth. Growth rates are positive, even if down compared to 2010: China (+9.2% versus +10.4% in 2010), India (+7.4% versus +9.9% in 2010), Russia (+4.1%, same as 2010) and Brazil (+2.9% versus 7.5% in 2010). Early 2012 was marked by worsened trends worldwide. The International Monetary Fund (IMF) estimated 3.3% growth of world economy for 2012, prefiguring an additional +3.9% for 2013, both dropping compared to the 2011 figure.

53 Management Report 51 U.S. growth will remain at a feeble though constant pace: +1.8% in 2012 and +2.2% in That of the emerging markets is changing gear: +5.4% next year, +5.9% in the year that follows, from +7.3% in 2010 and from +6.2% in IMF forecasts specifically assign 2012 as a year of growth for China (+8.2%), India (+7%), Russia (+3.3%) and Brazil (+3%), and confirm the same trend for Recession for the Eurozone is being hinted at for the first time, with a negative growth forecast for 2012 (-0.5%). The set-back that started during fourth quarter 2011 became accentuated during the first half of 2012, and will affect all economies although it will be more moderate in Germany and France. The impact on Italy is worse than average in the Eurozone. IMF forecasts prefigure a negative GDP of -2.2% for Italy in Actually, 2012 is heavily compromised in Italy and the Eurozone due to the negative trend recorded in recent months and the inertia that will weigh on the first half of The challenge is to prepare the conditions today so as to be able start off again six months from now, in this way making the positive sign in the change of GDP return in Policy in Europe and Italy as well has started to give adequate answers. IMF forecasts are taking on an international context in which starting off a new in third quarter 2012 will enable a 0.8% increase in GDP in the Eurozone to be achieved and recession in Italy to be limited to 0.6%. Area of consolidation The area of consolidation as at 31st December 2011 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, the South African company that has a 75% majority holding in the local subsidiary. The only associated company of the Bonfiglioli Group is a sales office that has been operating on the Spanish market for more than 40 years, Tecnotrans Bonfiglioli S.A., in which the Group holds a 33.33% stake. With reference to the changes that took place during the year, please note the merger by incorporation of the company Tecnoingranaggi Riduttori S.r.l. Unipersonale and the set-up of the company Bonfiglioli Mechatronic Research S.p.A., both with registered offices in Italy.

54 Annual Report Analysis of 2011 results In keeping with art 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 layouts presented hereunder show the figures in millions of Euros and in percentage, as well as the main economic-financial indicators. Values Reclassified income statement TURNOVER Cost of sales (556.9) (469.3) (335.3) (513.2) (464.6) GROSS MARGIN Structure and operating expenses (112.2) (103.2) (84.5) (103.1) (94.4) EBIT (20.0) Financial income and charges (11.8) (11.4) (9.5) (10.9) (7.3) Exchange rate differences (1.8) 0.5 (1.2) (1.8) (0.2) Associated companies result (0.4) Extraordinary income and expenses (4.2) (5.3) (7.3) (1.8) 1.8 EBT 23, (38.4) Current taxes (12.0) (11.0) (3.3) (16.5) (20.8) Prepaid and deferred taxes CONSOLIDATED PROFIT / LOSS (31.8) Minority (1.0) (0.8) (0.2) (1.3) (0.7) NET GROUP PROFIT / LOSS (32.0) In details: AMORT./DEP., WRITE-DOWNS AND PROVISIONS (34.4) (32.2) (29.1) (25.7) (23.4) EBITDA PERSONNEL COSTS (114.6) (108.8) (88.0) (101.6) (91.9)

55 Management Report 53 % of Turnover Reclassified income statement TURNOVER 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales (78.4%) (78.2%) (83.9%) (77.3%) (76.2%) GROSS MARGIN 21.6% 21.8% 16.1% 22.7% 23.8% Structure and operating expenses (15.8%) (17.2%) (21.1%) (15.5%) (15.5%) EBIT 5.8% 4.6% (5.0%) 7.1% 8.3% Financial income and charges (1.7%) (1.9%) (2.4%) (1.6%) (1.2%) Exchange rate differences (0.3%) 0.1% (0.3%) (0.3%) 0.0% Associated companies result 0.0% 0.0% (0.1%) 0.1% 0.1% Extraordinary income and expenses (0.6%) (0.9%) (1.8%) (0.3%) 0.3% EBT 3.3% 1.9% (9.6%) 5.1% 7.5% Current taxes (1.7%) (1.8%) (0.8%) (2.5%) (3.4%) Prepaid and deferred taxes 0.2% 0.9% 2.5% 0.8% 0.2% CONSOLIDATED PROFIT / LOSS 1.8% 0.8% (7.9%) 3.3% 4.3% Minority (0.1%) (0.1%) (0.1%) (0.2%) (0.1%) NET GROUP PROFIT / LOSS 1.7% 0.7% (8.0%) 3.2% 4.2% In details: AMORT./DEP., WRITE-DOWNS AND PROVISIONS (4.8%) (5.4%) (7.3%) (3.9%) (3.8%) EBITDA 10.6% 10.0% 2.3% 11.0% 12.2% PERSONNEL COSTS (16.1%) (18.1%) (22.0%) (15.3%) (15.1%)

56 Annual Report Values Reclassified balance sheet Net Working Capital Fixed assets Other invested capital (33.2) (14.6) (12.5) (23.1) (28.1) Minority (4.9) (5.1) (4.,0) (4.1) (2.2) CAPITAL EMPLOYED Group shareholders' equity Net Cash Position FUNDS average rotation days (base 360) Reclassified balance sheet Net Working Capital Fixed assets Other invested capital (17) (9) (11) (13) (17) Minority (2) (3) (4) (2) (1) CAPITAL EMPLOYED Group shareholders' equity Net Cash Position FUNDS Values Turnover by geographical area Italy Europe Overseas TOTAL TURNOVER % of Turnover Turnover by geographical area Italy 20.4% 19.4% 18.5% 25.1% 27.0% Europe 36.6% 36.8% 38.0% 42.8% 44.3% Overseas 43.0% 43.8% 43.5% 32.1% 28.7% TOTAL TURNOVER 100.0% 100.0% 100.0% 100.0% 100.0%

57 Management Report 55 Indicators Description Economic Net ROE 5.3% 2.0% (15.8%) 9.0% 14.5% (Net profit / Shareholders equity) ROI 10.6% 7.1% (5.4%) 11.5% 16.0% (EBIT / Lending) ROS 5.8% 4.6% (5.0%) 7.1% 8.3% (EBIT / Turnover) EBITDA / Turnover 10.6% 10.0% 2.3% 11.0% 12.2% EBITDA / Net Financial income and charges Incidence of employment costs 16.1% 18.1% 22.0% 15.3% 15.1% Incidence of financial area 1.7% 1.9% 2.4% 1.6% 1.2% Employment costs / Turnover Financial income and charges / Turnover Equity and structural Primary structural balance ratio Financial indebtedness ratio (Shareholders equity / Fixed assets) (NCP / Shareholders equity) NCP / EBITDA ratio (NCP / EBITDA) Shareholders equity tangibility ratio (Equity-Intangible assets / Equity) Other Average number of employees 3,182 2,980 2,787 2,668 2,364 Annual mean Turnover per employee Net Working Capital Rotation Data expressed in millions of Euro Average no. of days (base 360)

58 Annual Report To better meet the needs of the various markets, since 2009 the Group has adopted a Business Unit organisation and the organisational set-up has gradually been structured so as to reach the one that today is based on three Business Units. One is devoted to wind turbine power generation and mobile applications (gear units and gearmotors for earth moving machinery, excavators, agricultural machines), one to the industrial sectors (gear units, gearmotors and inverters for industrial applications), and the third to the photovoltaic sector and regenerative solutions. The latter was formed in early 2011 in consideration of the size of the turnover/profits made and the growth potential that it can represent for the Group over the mid/long-term. General Group performance in 2011 was positive and recorded consolidated turnover of M 710.3, higher than the M in absolute value and +18.4% in percentage recorded in 2010, arriving at a value higher than more than M 46 compared to the last pre-crisis record posted at year-end In terms of geographic distribution of sales, the Group s global international commitment is confirmed, even if a certain recovery of turnover in Italy is also recorded. It is 24.5% higher than 2010, but still lower than the pre-crisis figures. Turning to an analysis of the main figures in the Income Statement, on a consolidated level, Group gross operating margin (EBITDA) stood at M 75.6, accounting for 10.6% of sales. Please also note that: the cost of sales at year-end 2011 had a 78.4% incidence on turnover, in line with the percentages of last year (78.2%). This result emerges from a 1.6 percentage point worsening of the incidence of consumption caused by the negative price trend of raw materials and a handicapping mix of products sold that was compensated by a certain recovery of industrial efficiency due to the higher production volumes achieved (1.4 percentage points of fewer overheads). Thus the gross margin was kept at 21.6% (21.8% in 2010); the structural operating costs increased in absolute value by M 9, but are reduced in terms of percentage impact on the turnover compared to 2010 (15.8% vs 17.2%); the total cost of labour went up from M to M 114.6, with a percentage impact on turnover that drops from 18.1% to 16.1%; depreciation, amortisation, write-downs and other allocations increased in absolute value by approximately M 3.9 and their incidence on turnover fell from 5.1% in 2010 to 4.8% at year-end 2011; net financial expenses and income decreased in terms of incidence on turnover, dropping from 19% in 2010 to 1.7% in In terms of absolute value net financial charges increased by M 0.4; the downward trend taken by the exchange rates on the currencies of some countries (above all India, Turkey and Vietnam) took the losses on exchange rates to M 1.8 in absolute value, with -0.3% incidence on consolidated turnover (+0.1% in 2010); extraordinary income and expenses recorded a negative balance of M 4.2 with incidence equal to -0.6% on the turnover, compared to -0.9% of last year. With regard to the Group s asset and liability structure, Net Working Capital increased in absolute value compared to 2010, rising from M to M in connection with the increase in turnover volumes. Average rotation improved in line with this increase in terms of absolute

59 Management Report 57 value of M 27.7, dropping from 118 to 114 average days. Net Financial Position recorded a limited increase from M to M 166.2, a positive sign of a good generation of cash by current economic performance. Net investments amount to M 20.5 with details given below: NET INVESTMENTS Values in Euro/millions Land and buildings Plant and machinery Equipment Other assets Assets in progress (0.1) (3.2) (3.1) (4.3) 4.6 Tangible fixed assets Software, trademarks, patents Goodwill Other Intangible fixed assets Total Investments

60 Annual Report With reference to the year 2011, the principle investments made by the Group are set out below, involving an overall net outlay of M 20.5: investments in plants, machinery and equipment related to the Parent Company, which strengthened its production with new investments totalling M 4.9, and the Indian (M 6.6), Chinese (M 1.7) and Slovak (M 1.6) companies; investments in intangible fixed assets refer mainly to the purchase and implementation of application software in relation to the development of the SAP project throughout the group. To the investments already made, investments in progress on 31/12/2011 and involving a total of M 2.6 divided between the various group companies must be added. They mainly regard renewals and replacements of machinery and plants. Risk management An analysis is set out below of the main 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 conditions The 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, currency and interest rate fluctuations, the cost of raw materials and the unemployment rate, etc. Risks connected with the market sectors served As previously explained, the Group operates based on a structure of three Business Units: Industrial, Mobile & Wind, Photovoltaic & Regenerative, each responsible for its own sectors. The wide range of outlet markets and applications supplied has always provided refuge from economic slumps, by allowing the Group to shift the product offering from sectors in decline to those in growth. The Group is still exposed to financial and systemic crises, such as the world economic crisis of Risks connected with financial resource requirements Future Group performance will depend among other things on its ability to meet the needs arising from maturing debts and the investments scheduled through the cash flows coming from operations, available liquidity, the renewal or refinancing of bank loans and the possible necessary recourse to other sources of funds. In order to keep the Net Financial Position under constant check and to monitor the business short-term capacity to meet its commitments, short-term cash flow estimates were drawn up in order to make the most appropriate decisions. Credit risk Credit 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 assessment procedures and this type of risk has historically had very little physiological scope. Risks connected with exchange and interest rate fluctuations Operating in more than one market at a worldwide level, the Group is naturally exposed to 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 import/export flows in foreign currency different from that of the

61 Management Report 59 production countries. In particular, the Group is exposed through its exports from Italy to the USA, Great Britain and Australia. Whereas on the level of incoming flows, risks concern imports from Japan in Yen and, for those production companies based in India and Vietnam, imports of goods from countries having strong currencies. In keeping with its risk management policies, the Group tries to tackle risks relating to exchange and interest rate fluctuations with the use of short-term hedging financial instruments. Risks connected with the use of derivative financial instruments The Group uses financial instruments to hedge the interest/exchange rate risk as pointed out in the foregoing section for minimising the import-export operational risks. The companies in the Group do not use speculative-type derivative financial instruments. Risks connected with employment relations In the various countries in which the Group operates, employees are protected by various laws and by 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 competition The macroeconomic crisis has had the effect of reducing consumption in almost all sectors in which Group products are used (manufacturing and building in particular) thereby changing 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 market share, perhaps expanding into new sectors and emerging countries.

62 Annual Report Information regarding the environment The Group conducts its activities in accordance with the most highly developed environment protection regulations, and however in full compliance with the rules 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 responsible, nor have any definitive sanctions or penalties been imposed on companies in the Group for environmental offences or damage. Human resources The industrial plan and management of renewal of the parent company s supplementary contract were the main elements of Industrial Relations for The trade union organisations presented the renewal platform in December 2010 and presentation of the new Industrial Plan of the Italian factories grew intertwined with this matter to entail a significant redesign of activities, with the creation of 3 centres of excellence in Italy: 2 for the Industrial BU at the Vignola and Calderara sites, and 1 for the Mobile & Wind BU with the Forlì factory. Among other things, the industrial plan was aimed at the further advancement of lining up processes with the lean manufacturing logics worldwide. The merger of Tecnoingranaggi Riduttori Srl into Bonfiglioli Riduttori SpA also falls within this design, with the concomitant transfer of the industrial activities from the San Giovanni in Persiceto (BO) site to the Vignola (MO) site. Union negotiations continued throughout 2011 with the aim to single out solutions adequate for both the production reorganisation outlined in the industrial plan and the company s supplementary contract. Negotiations came to an end in March 2012 in so far as adequate solutions were found, in agreement with the trade union representatives, for both the requests put forward concerning the company s supplementary contract and the transfer of some of the workers from the Lippo di Calderara factory to the Vignola site (45 operators of the motors department). BMR (Bonfiglioli Mechatronic Research) was also formed in the summer of It is located in Rovereto (TN) and its purpose is to bring the mechatronics culture to Italy to back up research activities. It proves to be as strategic as it is critical for developing Group activities. The first employees were hired in the fall of 2011 as part of the start-up of this innovative Group project. Recruiting activities revealed a growth trend during 2011, which confirms the 2010 recovery. The areas mostly affected were the lean and quality projects. Recourse continued to be made to postgraduate internships, which made it possible to make the acquaintance of many valid engineers hired with overall satisfaction. As for the training activities carried out in 2011, a number of courses in the operations area were held to support the lean production projects and the intensive processes of change and on-going improvement started up at all factories. Activities focussing on Human Resources were aimed at supporting the growth and continuous change processes at other foreign companies as well. They represent an important incentive for development of Group activities, also in light of the recent corporate reorganisation by Business Units that contributed to creating strong focus of all company resources on precise goals and renewal projects.

63 Management Report 61 Research and development Expenditure pertaining to the Research and Development area incurred during 2011 amount to about M 9.5 on the Group level. A summary of the major product development projects of the Business Units is provided below. Business Unit Industrial Solutions (BUInS) Revision of the technical documentation regarding gearmotors was completed in 2011 after new high-performance motors, the BE (standardised version) and ME (integrated version) series were introduced. The offer of the A, C, F, S, W/VF series is not totally adequate for the requirements set out in Directive EuP and in agreement with the regulatory limitations on energy efficiency established in the various international standards (Brazil, Australia, USA). Worthy of note amongst the gearmotor R&D activities are completion of the technical files for upgrading the A and F series in ATEX version, cost-cutting activities and the preparation of new versions with low backlash. Involvement of the R&D function in research programmes saw collaboration with BIC (Bonfiglioli Innovation Center) on a number of interesting topics: alternative materials, new production processes and performance analyses. These initiatives took shape in many testing activities carried out in-house at the Test Department and outside at specialist laboratories. These research topics preceded technical analyses that will be further studied in-depth as part of the Nanostrata programme, and that will concern testing validation of the improvements resulting from the introduction of innovative coatings or alternative hardening heat treatments. Completion of the design activity made it possible to extend the product range up to 200 knm, in this way expanding the commercial offer. The technical documentation in support of assembly and assistance at Group branches was also processed. The consequent reduction of the finished product lead-time and adequate local technical support will considerably improve Customer service. The performance data for these gearboxes were also updated following a review of the calculation criteria and the thermal capacity estimate. On this latter issue, testing and design were undertaken to adjust an analytical calculation to determine thermal limitations of the gearbox in its various configurations and when there are auxiliary cooling systems. The series of high-performance motors was completed in 2011 with test validation of the 2- and 6-pole versions and the resulting issue of technical and sales documentation.

64 Annual Report Business Unit Mobile & Wind Solutions (BUMWS) Products for mobile machines - Gearboxes for wheel drives Many activities are under development and many projects were completed in this sector. One of the most important ones is completion of the study of the initial sizes of wheel gearboxes with dynamic brakes for operating and emergency braking with positive control that are pedal operated and modulated. Following this study, requested by a number of manufacturer customers and considering the success on the market, the solution is now also being extended to other sizes. Other development activities worthy of note are being defined on other products with the aim of improving their efficiency by reducing losses due to thermal dissipation. Last to be mentioned are the solutions for centralised control of the tyre inflation pressure, which are now being studied. Gearboxes for tracked crawlers Consequent to the construction of prototypes and completion of the top of the range gearbox validation process last year (on drilling rigs weighing 200 tonnes), setup activities were started to develop further sizes larger than those currently available. A special version dedicated to the skid steer loaders with new-generation hydraulic motors that provides greater machine efficiency and an increasingly better response to Customer needs has also been developed. Wind turbine products To be able to meet the continuous needs for development posed by the market, after the projects and development of gearboxes suited to wind turbines of classes higher than 4 MW now the study of gearboxes suited to turbines of new sizes - up to 7 MW - is in progress. At the same time improvement activities aimed at making the products more industrialisable continue, including the perfection of several elements on the functional and construction level that make these products stand out in terms of both their high performance to size ratio and their construction form, which envisages a new simplified solution for installation on the turbine. Full integration of the electric motor and brake was also achieved with reduced height and improved protection. The aim of all this is to reduce their costs, in addition to their dimensions, in order to maintain a satisfactory level of competitiveness in light of the market pressures that are ripening and to become increasingly competitive, above all by virtue of the new turbine manufacturers in Asia. Electromobility products Several integrated solutions for electric drive trains for material handling and agricultural machine applications are under study. There are also some opportunities for analysis in the Construction and Automotive sectors that will demand a study extending over the next few years in consideration of the continuous evolution of the technologies that require more time for analyses. The time frame required for these studies is also dictated by the need, and not only our wish, to collaborate with outside organisations in order to develop targeted and specific solutions that can satisfy the customers involved as much as possible.

65 Management Report 63 Activities indirectly affecting the Testing and Experiments production and activities To be able to totally support our customers, we are continuing with design and testing activities to test materials, thermal treatments, and construction solutions alternative to those that exist or are in use, mostly for the purpose of cutting costs, simplifying the production processes and making assembly in the plants close to the outlet markets (local for local) easier. At the same time we are continuing to carry forward the bench testing activities of the Experience Department to test the creation of prototypes of new models and new versions with the aim of not only validating them in-house, but also of meeting the demands of customers to type-approve the products for new applications on various types of machines. Specifically, of significant note are the functional low-temperature tests carried out for applications on wind turbines according to specific sector and proprietary standards of certain manufacturers. Product and process development A market like the one we work in, which demands more and more competitiveness and flexibility, forces us to have at our disposal tools that quickly and efficiently generate new products to get solutions for the market that are always targeted and successful so that we can continue to be a point of reference within the various sectors where we operate. In this context, an in-depth analysis of the flow of activities became necessary. It led to its marked improvement through a number of internal steps that redefine the various stages, simplifying them where possible while eliminating superfluous and/or obsolete procedures, or studying them in-depth in other directions where there were shortcomings and a more detailed study became necessary. This let us find a more effective approach and optimise everything valid already within our processes, and at the same time make the picture of the project s organisation clearer.

66 Annual Report Business Unit Regenerative & Photovoltaic Solutions (BURePvS) The RePvS Business Unit focuses on the conversion inverter product development activities for the Photovoltaic sector, for those segments that today are segments of reference with the aims of: increasing the efficiency of the products and productivity of the photovoltaic systems rationalising product costs creating and revising product characteristics that lead to lowering the system cost increasing product reliability over the years. The development product areas are particularly connected with the new software functions in order to adopt the latest grid standards. Bonfiglioli Innovation Center Development and expansion of the first Bonfiglioli research centre called BIC (Bonfiglioli Innovation Center) continued in The process model that outlines the decision-taking structures and product development and product management interfaces of the Bonfiglioli Group was defined in the first quarter of The first Permanent magnet motor technology research group started its tasks at the end of the second quarter of Despite the difficult human resources market in Germany, in particular for highly skilled engineers, a team of professionals with outstanding expertise and experience was created. The first research projects were started during the third quarter of Emphasis was placed on short and mid-term projects in order to assess the process model and intensify cooperation with the product development departments of the Business Unit competency centres. One of the first project was that of investigating where to locate centres of excellence that see to important technologies for the Group. The results of these studies are the Research & Scientific Landscape which became part of Technology Radar. BIC received its first approval of a research project funded by the German federal Ministry of Education and Research in the fourth quarter of Various universities and industrial firms are taking part in the project. Other project goals are to develop grinding processes, surface treatment, calculation tools and testing methods. In 2011 BIC also became a member of the German Research Association FVA, an association in which the world s leading companies in the field of electromechanical drive technology are working together on pre-competitive research.

67 Management Report 65 Quality With reference to Quality, the Bonfiglioli Group in 2011 continued to keep its commitment to supporting continuous improvement and keeping the satisfaction of its customers and all of its stakeholders high. Stakeholders are all those involved with the company in some way: shareholders, customers, suppliers, employees, the environment and the society in which the company operates. The elements to highlight of the year that has just gone by are: creation of a new organisation called Total Quality and Continuous Process Development ; continuation of the group ISO 9001:2008 Certification project; SQEP Caterpillar certification; Customer Satisfaction project. Creation of the new Total Quality and Continuous Process Development organisation The Corporate Management System officially announced in early 2011 is an important step taken towards the evolution that Bonfiglioli decided to promote with the change from a more classic Quality concept to the more evolved Total Quality concept. To best support this change, the Corporate Quality organisation evolved into a new organisation called Total Quality and Continuous Process Development (TQ&CPD). The mission of the TQ&CPD organisation is to support the Group s progress towards industrial excellence or business excellence (business excellence means creating, supporting and improving corporate processes able to ensure performance within the range of 10% higher than industry). Its origins are in the quality culture and extends its scope toward improving all corporate processes. It is responsible for verifying the effectiveness and adequacy of the corporate processes and performances of the BUs by measuring Customer Satisfaction and by standardising and certifying quality KPIs. Another key function of the TQ&CPD organisation is that of verifying conformity of the processes with respect to the ISO 9001 requirements and of formally qualifying the production processes of all sites (plants and branches). Continuation of the group ISO 9001:2008 Certification project Certification to ISO 9001:2008 continues to represent one of the most important objectives for the business standard reached at Bonfiglioli. The Quality Management System at the Bonfiglioli Group is applied at all the factories and branches with the aim of guaranteeing that quality standards are improved continuously, as well as the careful rationalisation and integration of internal processes in order to best satisfy the requirements of the customers and all the stakeholders. Another two branches were certified during 2011, which are on top of those organisations already certified, represented by all Group production plants (Italian and foreign) and all Bonfiglioli branches around the world that have reconfirmed their certification in SQEP Caterpillar certification confirmation Bonfiglioli received Caterpillar s confirmation that SQEP certification will be maintained in October SQEP stands for Supplier Quality Excellence Program. Bonfiglioli Riduttori has been a Caterpillar Group supplier for years, and it is a very important customer. Relations between the two companies have been consolidated over the years and are based on mutual faith and a genuine desire to tackle the latest challenges presented by increasingly

68 Annual Report complex and varied needs. CAT developed its SQEP quality certificate to select, evaluate and certify partners. Bonfiglioli, already one of the CAT Group s most strategic suppliers, is one of the companies to have been awarded certification. SQEP certification represents prestigious recognition by Caterpillar that Bonfiglioli s performance in the fields of sales, manufacturing, design, logistics and quality has achieved the highest level of excellence. SQEP certification has been achieved thanks to a thorough process of analysis and improvement of the internal processes. The success of this process also demonstrates that Bonfiglioli is able to cater for customer requirements and turn their needs into new opportunities for growth for the entire group. The best way to succeed in a changing market is to grow with customers, to understand their changing needs and to find ways to improve accordingly. We are proud to be one of Caterpillar s elite suppliers. We are, however, well aware that we must not only maintain our current high standards, but strive to improve them as part of a process of continuous refinement of our organisation and our production. It is important to emphasise here that the journey that leads to complete customer satisfaction is long and filled with obstacles, so it demands enormous commitment and enthusiasm on the part of everyone. However, results like this one prove that the direction undertaken is the right one, and must give us enormous motivation and pride to successfully continue down this path. Customer Satisfaction project To support the goals of continuous improvement and full customer satisfaction, and to carry out the mission of the TQ&CPD organisation, i.e. supporting the Group s journey toward Business Excellence, the Customer Satisfaction project was started during The project s goal is to start a process for measuring the real satisfaction of our customers that lets us guide and control the corporate improvement programmes in order to maximise the performance levels and consequent satisfaction of the customers. Significant events after year end In the aftermath of changing top management in the Industrial Solution Business Unit, some internal organisational changes necessary for giving this Business Unit greater stabilisation were made in recent weeks. The business unit is highly involved in an important phase of cultural change focussed on lean thinking. These changes lead it to be increasingly focussed on customer service through the implementation of new processes along the entire supply chain (so-called Customer to Customer ) also in order to at the same time reduce utilisation of working capital. In the past few weeks several contractual clauses were amended with the eight major banks that had taken part in the Rescheduling Agreement signed in March 2010 in order to consider the improved economicfinancial performance of the Bonfiglioli Group compared to Industrial Plans presented at the time in the same rescheduling agreement. Specifically, the possibility to increase the amount of the investments on the consolidated level (CapEx), in addition to other smaller changes reflecting the Group s improved ability to generate cash from the current economic performance, was defined. Moreover, and in order to follow the important and ever faster changes on the global economic scene with reactivity, Bonfiglioli is continuing to constantly update its Business Plans. Presently it is working on the plan, which will be completed shortly and which serves to ensure that consistency and focalisation of purposes necessary in order to be able to successfully compete in today s quickly evolving and changing markets, where the old paradigms of the past by now have been surpassed and abandoned.

69 Management Report 67 Business outlook The consolidated turnover realised in the first 12 weeks of financial year 2012 (as at 25 March) amounts to approximately M 152 versus the about M 170 realised in the same period of 2011, with a total decrease of 10.5%. The collection of orders in these early months of 2012 point to a downward trend compared to the same months of 2011, which were still affected by the 2010 expansion phase. This decrease is highly significant in the Photovoltaic & Regenerative BU, as it is heavily conditioned by the government incentive cuts made in almost all European countries during However, at the same time the business unit is laying the foundations and already attaining some success in terms of incoming orders overseas, in countries such as India, China, the USA and South Africa. The other two business units are also recording some slowdown in collecting orders compared to the same period of 2011, and this is more accentuated in Europe and China than in other areas where the Group is active. It is believed that a general slowdown might still continue over the upcoming quarters, whereas some signals of recovery are expected starting in the latter part of the year. Also as a result of the uncertainty that is running through the global economic-financial world, Bonfiglioli is continuing its rationalisation and reorganisation activities started as early as 2009 in order to recover in terms of profitability and optimisation of the use of the capital employed, mainly in its working capital, to improve the overall financial indebtedness. Financial year 2012 will therefore be another important year for further fine-tuning of the Business Unit organisation according to strategic lines that refer to lean thinking processes and principles. Following the good result of the year that has just ended, which surpassed even the best initial expectations of last year and that went back to pre-crisis percentage levels with substantial and absolute improvements in turnover and EBITDA, 2012 should be a year with still uncertain economic results and probably slightly in decline compared to Further information Equity shares The parent company does not hold and has never held treasury shares, nor does it hold stakes or shares in controlling companies inasmuch as there is no legal entity that holds a controlling stake in Bonfiglioli Riduttori S.p.A. stock. Calderara di Reno (Bo), 30 st March 2012 for The Board of Directors The Chairman Sonia Bonfiglioli

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71 Annual Report Consolidated Financial Statement for the year ending 31 st December 2011 Despite a negative climate characterised by social unease and a weak economy, the Bonfiglioli Group s Consolidated Financial Statement for 2011 is extremely encouraging. The year s positive results are due to a more efficient corporate structure, increased internationalisation, especially in the emerging countries, and excellent performance in the renewable energy sector. If we can pursue these objectives with renewed energy in 2012, the future will look a lot more hopeful. (This section has been translated into the English language solely for the convenience of international readers)

72 Annual Report Consolidated Financial Statement as of December 31, 2011 CONSOLIDATED BALANCE SHEET ASSETS (Euro Thousand) B) Fixed assets (net of cumulated depreciation) I. Intangible fixed assets 1) Start up costs ) Patents and rights for the use of intellectual properties ) Concession, licenses, trademarks and similar rights ) Goodwill 5b) Consolidation differences 1,120 2,202 6) Assets in progress and advances ) Other intangible fixed assets 3,106 3,310 Total Intangible fixed assets 5,701 6,625 II. Tangible fixed assets 1) Land and buildings 118, ,649 2) Plant and machinery 51,837 56,843 3) Trade and industrial fixtures 13,604 13,280 4) Other tangible fixed assets 5,009 4,939 5) Construction in progress and advances 2,557 2,803 Total Tangible fixed assets 191, ,514 III. Financial fixed assets 1) Investments b) associated companies 3,627 3,660 d) other companies sub total 3,681 3,714 Total Financial fixed assets 3,681 3,714 B) TOTAL FIXED ASSETS (NET OF CUMULATED DEPRECIATION) 200, ,853 C) CURRENT ASSETS I. Inventory 1) Raw materials, supplies and consumables 35,073 33,789 2) Work in progress and semifinished goods 77,377 67,438 4) Finished goods and goods for resale 100,247 92,922 5) Advances Total Inventory 213, ,716

73 Consolidated Financial Statement for the year ending 31 st December (Euro Thousand) II. Receivables 1) Trade receivables - due within 12 months 166, ,326 3) Receivables from associated companies - due within 12 months 8,425 8,410 4bis) Tax receivables - due within 12 months 5,054 12,945 - due after 12 months 6,962 7,416 sub total 12,016 20,361 4ter) Deferred tax assets - due within 12 months 13,666 11,788 - due after 12 months 18,852 19,174 sub total 32,518 30,962 5) Other receivables - due within 12 months 2,111 3,456 - due after 12 months 2,825 2,139 sub total 4,936 5,595 Total Receivables LE DEBITI 224, ,654 IV. Cash at bank and on hand 1) Banks 32,107 19,566 3) Cash on hand Total Cash at bank and on hand 32,214 19,674 C) TOTAL CURRENT ASSETS 470, ,044 D) Prepaid expenses and accrued income - Other prepaid expenses and accrued income 1,720 2,113 D) TOTAL PREPAID EXPENSES AND ACCRUED INCOME 1,720 2,113 TOTAL ASSETS 672, ,010

74 Annual Report CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS EQUITY (Euro Thousand) A) Shareholders equity I. Share capital 30,000 30,000 III. Revaluation reserves 60,195 60,195 IV. Legal reserve 4,240 4,240 VII. Other reserves - Extraordinary reserve 54,669 60,146 - Consolidation reserve 16,965 16,965 - Foreign exchange currency conversion reserve (289) Other reserves 5,451 5,451 sub total 76,796 83,042 VIII. Retained earnings (losses) carried forward 38,372 28,768 IX. Net income (loss) of the Group 11,796 4,247 Group shareholders equity 221, ,492 Minority interests share capital and reserves 3,901 4,354 Minority interests net income(loss) Minority interests 4,857 5,142 A) CONSOLIDATED SHAREHOLDERS EQUITY 226, ,634 B) Reserves for risks and charges 1) Termination indemnity and similar liabilities 1,733 1,974 2) Taxes and deferred taxes liabilities 10,613 10,615 3) Other reserves 19,156 12,312 B) TOTAL RESERVES FOR RISKS AND CHARGES 31,502 24,901 C) EMPLOYEE SEVERANCE INDEMNITY RESERVE 16,076 16,632 D) PAYABLES 1) Bonds - due within 12 months due after 12 months 5,273 5,433 sub total 5,520 5,665 3) Payables to shareholders for financing - due within 12 months

75 Consolidated Financial Statement for the year ending 31 st December (Euro Thousand) ) Banks - due within 12 months 68,214 42,720 - due after 12 months 110, ,792 sub total 178, ,512 5) Other financial institutions - due within 12 months 3,828 4,471 - due after 12 months 10,163 13,355 sub total 13,991 17,826 6) Advances - due within 12 months 3,948 2,671 7) Trade payables - due within 12 months 159, ,614 10) Payables to associated companies - due within 12 months ) Tax payables - due within 12 months 10,812 7,044 - due after 12 months sub total 10,812 7,173 13) Social security - due within 12 months 6,645 6,454 14) Other payables - due within 12 months 18,155 17,581 - due after 12 months sub total 18,527 18,075 D) TOTAL PAYABLES 397, ,484 E) ACCRUED EXPENSES AND DEFERRED INCOME - Other accrued expenses and deferred income E) TOTAL ACCRUED EXPENSES AND DEFERRED INCOME TOTAL LIABILITIES AND SHAREholders EQUITY 672, ,010 Memorandum accounts Guarantees given from third parties in own favour 24,720 23,954 Commitments on investments purchase 1,337 1,379 TOTAL MEMORANDUM ACCOUNTS 26,057 25,333

76 Annual Report CONSOLIDATED STATEMENT OF INCOME (Euro Thousand) A) Production value 1) Net revenue from sales and services 710, ,056 2) Change in work in progress, semi-finished and finished goods 16,231 30,024 5) Other revenues and incomes - others 8,156 5,728 A) TOTAL PRODUCTION VALUE 734, ,808 B) Production costs 6) Raw materials, supplies, consumables & goods for resale 422, ,682 7) Services 112, ,929 8) Use of third party assets 6,716 5,690 9) Personnel a) Wages and salaries 86,707 82,173 b) Social contributions 23,462 22,306 c) Severance indemnity 4,398 4,364 sub total 114, ,843 10) Depreciation, amortization and write-downs a) Amortization of intangible fixed assets 2,600 2,160 b) Depreciation of tangible fixed assets 24,124 24,558 d) Provision for doubtful account 3,292 2,891 sub total 30,016 29,609 11) Change in raw materials, supplies, consumables & goods for resale (2,178) (12,441) 13) Other provisions 4,361 2,647 14) Other operating expenses 4,864 4,263 B) TOTAL PRODUCTION COSTS 693, ,222 DIFFERENCE BETWEEN PRODUCTION VALUE AND COSTS (A B) 41,201 27,586

77 Consolidated Financial Statement for the year ending 31 st December (Euro Thousand) C) Financial income and expenses 16) Other financial income - from associated companies other 933 1,496 17) Interest expenses and other financial charges - other (12,763) (12,905) 17bis) Exchange rate gains and losses, net (1,802) 503 C) TOTAL FINANCIAL INCOME AND EXPENSES (13,614) (10,900) D) Adjustments to financial assets 18) Revaluations a) investments D) TOTAL ADJUSTMENTS TO FINANCIAL ASSETS E) Extraordinary income and expenses 20) Income - other ) Expenses - other (4,640) (5,894) E) TOTAL EXTRAORDINARY ITEMS (4,205) (5,361) INCOME BEFORE TAXES (A B±C±D±E) 23,424 11,457 22) Income taxes - current (11,978) (10,992) - deferred 1,306 4,570 TOTAL INCOME TAXES (10,672) (6,422) 23) NET INCOME (LOSS) INCLUDING MINORITY INTEREST 12,752 5,035 Minority interest income (956) (788) NET INCOME (LOSS) OF THE GROUP 11,796 4,247

78

79 Annual Report Notes to the consolidated financial statements The following additional notes complement the Consolidated Financial Statement for 2011, and comment and explain the individual items of that statement, including the Consolidated Cash-Flow Statement and the Statement of Reconciliation between shareholders equity and the net income of the Parent company. (This section has been translated into the English language solely for the convenience of international readers)

80 Annual Report Notes to the consolidated financial statements as at 31 December 2011 Foreword The consolidated financial statements have been prepared in compliance with Italian Legislative Decree no. 127 dated 9 th April 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 statements; 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 the consolidated financial statements, reference is made to the contents of the Management Report. All figures in the financial statements and the relative Notes are expressed in thousands of Euros (K ), unless otherwise indicated. Form and contents of the consolidated financial statements The consolidated financial statements include 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 agreements to this effect. The financial statements of the Group Companies utilised for the integral consolidation were approved by the shareholders meetings of the individual companies concerned, suitably modified wherever necessary to unify them 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 st December, interim financial statements were drawn up at 31 st December utilising the Group accounting principles. The Group companies operate exclusively in the manufacture and sale of gear motors, speed variators and drive transmission components in general.

81 Notes to the consolidated financial statements 79 The subsidiary companies included in the consolidation area at 31 st December 2011 are as follows: Denomination Country Currency Share Capital Shareholding 31/12/11 31/12/10 Bonfiglioli Riduttori SpA Italy 30,000,000 Parent Company Bonfiglioli Italia Spa Unipersonale Italy 16,000, % 100% Tecnoingranaggi Srl Unipersonale Italy 96,900 Incorporated 100% Bonfiglioli Canada Inc. Canada CAD 4,000, % 100% Bonfiglioli U.S.A. Inc. U.S.A. USD 4,000, % 100% Bonfiglioli Deutschland GmbH Germany 3,000, % 100% Bonfiglioli Transmissions SA France 1,900, % 100% Bonfiglioli Transmission (Aust) Pty Ltd. Australia AUD 7,500, % 100% Bonfiglioli U.K. Ltd Great Britain GBP 200, % 100% Bonfiglioli Power Transmissions Pty Ltd. South Africa ZAR 64,000 75% 75% Bonfiglioli South Africa Pty Ltd (*) South Africa ZAR 8,000, % 56.25% Bonfiglioli Transmission Pvt Ltd. India INR 800,000, % 100% Bonfiglioli Drives (Shanghai) Co. Ltd China USD 6,000, % 100% Bonfiglioli Vectron Gmbh (**) Germany 500, % 100% Bonfiglioli Slovakia Sro Slovakia 14,937, % 100% Bonfiglioli Power Transmission Jsc Turkey TRY 7,000, % 98.1% Bonfiglioli Vietnam Ltd Vietnam USD 10,000,000 80% 80% Bonfiglioli Redutores do Brasil Brazil BRL 6,000,000 90% 70% Bonfiglioli Osterreich GmbH (**) Austria 35, % 100% Bonfiglioli Mechatronic Research SpA Italy 750, % -- (*) Subsidiary indirectly controlled through Bonfiglioli Power Transmission Pty Ltd (**) Subsidiary indirectly controlled through Bonfiglioli Deutschland GmbH

82 Annual Report With reference to the changes made during the year, we draw your attention to the following matters: a share capital increase without consideration in the Chinese subsidiary Bonfiglioli Drives Shanghai Co. Ltd, from MUSD 1 to MUSD 6, was completed in April. The foregoing increase, equal to approximately M 3.6 and finalised by transferring reserves to capital, did not entail changes in the company structure as the company is already wholly owned; a reserved share capital increase in the Brazilian subsidiary Bonfiglioli Redutores do Brasil Ltda, from MBRL 2 to MBRL 6, was completed in June. The foregoing increase, equal to about M 1.7 and not subscribed by the minority shareholders, increased the Group s stake from 70% to 90%; the company Bonfiglioli Mechatronic Research S.p.A., with registered office in Rovereto (TN) and share capital of K 750, was formed in June. The company is wholly owned by the Group; acquisition of another 0.9% of the share capital of the Turkish subsidiary Bonfiglioli Power Transmission & Automation Technologies JSC for the total amount of KTRY 50 (about K 30) was finalised in July. The transaction in question involved increasing the Group s stake from 98.1% to 99%;

83 Notes to the consolidated financial statements 81 share capital in the Indian subsidiary Bonfiglioli Transmission Pvt Ltd was increased in September from MINR 400 to MINR 800. The foregoing increase, equal to roughly M 6, did not entail changes in the company structure as the company is already wholly owned; the deed of merger by incorporation of the subsidiary Tecnoingranaggi Riduttori Srl Unipersonale into the Parent Company was signed in September. The transaction, with accounting and fiscal effects backdated to 1 January 2011, took effect on 1 October 2011 and involved recording goodwill of M 1.9 and cancellation deficit of M 2.4 on the Parent Company. The effects of this transaction were eliminated in the consolidated financial statements since the company had already been fully consolidated in previous years; in December the reserved share capital in the Turkish subsidiary Bonfiglioli Power Transmission & Automation Technologies JSC was increased from MTRY 4.5 to MTRY 7. The foregoing increase, equal to about M 1 and not subscribed by the minority shareholders, increased the Group s stake from 99% to 99.4%.

84 Annual Report Drafting principles The structure of the balance sheet and the income statement are as required by Italian Legislative Decree 127/91. Items preceded by Arabic numerals having zero contents have been omitted both in the current and in previous financial statements. The balance sheet provides separate indication of shareholders equity and the minority interests share of profits. No items of assets and liabilities are recorded under more than one caption of the tables. Consolidation principles A. In preparing the financial statements for the consolidated companies, the net assets method is used (line-by-line), consisting in recording all the captions under assets and liabilities and in the income statement in their entirety. B. The book value of consolidated equity investments was written off against the related 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 recorded in the consolidated financial statements, where possible, under the items of assets of the companies included in the consolidation area, or under the assets caption Consolidation differences for differences that, despite their characteristics of deferment 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. C. The positive differences recorded were amortised in accordance with the rates utilised for the assets to which they refer; the consolidation difference is amortised throughout the estimated future working life of the assets in question. D. The results achieved, following initial consolidation, were entered under a specific caption of consolidated equity denominated Retained earnings and losses carried forward. E. Any profits and losses that have yet to be realised in relation to third parties deriving from transactions between Group companies were eliminated, as were the items that give rise to payables, receivables, costs and revenues. F. The dividends distributed by the Companies within the Group were cancelled. G. The portions of shareholders equity and profit due to minority shareholders of the consolidated subsidiaries were deducted from the Group portions and recorded separately under specific captions of consolidated equity and in the income statement. H. The financial statements of foreign companies were converted to Euro, applying the year-end exchange rate for all assets and liabilities and the average exchange rate calculated 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 effective at that date, while subsequent changes are converted at the historic exchange rates effective at 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.

85 Notes to the consolidated financial statements 83 The exchange rates utilised for companies operating outside the Euro area are as follows: Company Currency B.S. exchange rate 2011 P.L. exchange rate 2011 B.S. exchange rate 2010 P.L. exchange rate 2010 Bonfiglioli U.K. Ltd GBP Bonfiglioli Canada Inc. CAD Bonfiglioli USA Inc. USD Bonfiglioli Transmission (Aust) Pty Ltd. AUD Bonfiglioli Power Transmissions Pty Ltd. ZAR Bonfiglioli Transmission Pvt Ltd. INR Bonfiglioli Drives (Shanghai) Co. Ltd. CNY Bonfiglioli Power Transmission JSC TRY Bonfiglioli Redutores Do Brasil Ltda BRL Bonfiglioli Vietnam Ltd VND 27, , , , I. The following company is consolidated using the net equity method: Denomination Headquarters Share capital % stake Tecnotrans Bonfiglioli Sa Barcelona (Spain) 2,175, %

86 Annual Report Valuation criteria The accounting principles and valuation criteria adopted in drafting the financial statements are in compliance with the principles of the Italian Civil Code and the accounting standards prescribed by the Italian National Council of Chartered Accountants as updated by the Italian Accounting Authority (O.I.C.). Where such principles are lacking or insufficient, the point of reference is provided by international accounting standards (IAS/IFRS) where these latter are in compliance with Italian legal requirements. The consolidated financial statements were prepared in accordance with the general principles of clarity, truthfulness and fairness; specifically: valuation of the items of the financial statements was carried out in accordance with the general principles of prudence and economic competence in a prospective of on-going business; account was taken of the risks and losses relating to the year, even when such risks and losses became known after the end of the 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 principles are unchanged with respect to those utilised in the previous year; no exceptional cases occurred that justified a departure from the provisions of legislative enactments. Specifically, the valuation criteria adopted in the preparation of the financial statements are as specified below. Intangible fixed assets Intangible fixed assets are recorded at purchasing 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 revaluated 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:

87 Notes to the consolidated financial statements 85 Tangible fixed assets Plant and equipment are recorded in the financial statement at purchasing cost or construction cost, inclusive of all directly connected ancillary expenses and adjusted in the event that specific laws allow assets value to be adapted to the changes occurred in the buying power of the currency. 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 reference to its sale value. Assets acquired by means of leasing contracts are recorded in accordance with the requirements of international accounting standard IAS no. 17 which is, in turn, implemented by the accounting principle set down by the National Council of Chartered Accountants with reference to the consolidated 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 statement. 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. Ordinary costs for maintenance and repair are treated as operating costs; while extraordinary costs that extend the useful life are added to the value of the asset. The ordinary annual rates utilised for the depreciation of tangible assets are as follows:

88 Annual Report Equity investments held as fixed assets The 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 adjusted, when necessary, for lasting loss in value. Inventories Inventories are valued in accordance with the general principle of the lower between purchasing 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 eliminated. Receivables Receivables are entered at their presumed realisation value through direct write-down of bad debts and entry of write-down provisions. Cash at banks and on hand Cash at banks and on hand is entered at nominal value, considered to represent the presumed realisation value. Accruals and deferments For multi-year transactions, accruals and deferments are calculated on a pro tempore basis, so as to enter the relevant cost and revenue portion shared by two or more years. Specifically, accrued income and deferred charges refer to revenues and costs of the year, although formally recorded in the following year; prepaid expenses and deferred income refer to expenses and income materially occurred during the current year, but that relate to future years. Reserves for risks and charges Reserves for risks and charges consider the provisions allocated to cover losses, or debts of a given nature and certain or probable existence, for which however the exact amount or contingency date was not known at year-end. The allocations reflect the best possible estimation of the relative amounts based on available information. Risks for which a liability is only possible and not certain are illustrated in the Notes to the financial statements, without allocating a specific risks and charges provision. Employees severance indemnity reserve The severance indemnity reserve is commensurate with the amounts payable to the employees on the workforce at the closing date of the year, in compliance with statutory legislation and the applicable collective employment contracts.

89 Notes to the consolidated financial statements 87 Payables Payables 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 accrual principle if not yet due. Cost and revenue recognition Sales revenues and purchasing costs are recognised at the time of transfer of ownership, which generally occurs at the time of shipment or at the time of receiving respectively, 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 eliminated. Taxes Income taxes are recorded based on the estimated 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 currency Transactions in foreign currency are converted into Euro at the historic exchange rates on the transaction dates. Exchange rate gains and losses incurred at the time of collection of receivables and settlement of payables in foreign currency are recorded in the income statement under financial income and expenses. Receivables and payables existing at year-end expressed in currencies other than Euro were converted at the exchange rates effective at year-end, also considering existing hedging contracts. The difference arising from these transactions (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 were taken out to hedge against the relative exchange risk, the following valuation principle was adopted: the 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 entered 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. Derivatives Contracts taken out to cover exchange risks are valued consistent with the underlying financial transactions 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 statements 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 the same manner as the hedged asset or liability or as 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 insufficiently 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.

90 Annual Report Commitments and guarantees Contractual commitments and guarantees are entered under commitments at the value resulting from the contractual undertaking after deducting any liabilities that have already been recorded. Significant events occurring after the closing of the year Please refer to the Management Report for information about the significant events that occurred after the closing of the year.

91 Notes to the consolidated financial statements 89 Comments on the single captions of the financial statements BALANCE SHEET FIXED ASSETS Intangible fixed assets Description: Opening balance Increases Decreases Other changes Closing balance Historic cost Start-up and expansion costs Patents & rights to use intellectual property 15, ,312 Concessions, licences & trademarks 2, (267) 2,329 Consolidation differences 20, (9,841) 10,302 Assets in progress and advances (437) 398 Other 4, (20) (95) 4,937 Total (A) 43,619 1,774 (20) (10,011) 35,362 Accumulated amortisation Start-up and expansion costs Patents & rights to use intellectual property 15, ,628 Concessions, licences & trademarks 2, (267) 1,955 Consolidation differences 17,941 1,082 - (9,841) 9,182 Other 1, (4) (32) 1,831 Total (B) 36,994 2,600 (4) (9,929) 29,661 Net values Start-up and expansion costs Patents & rights to use intellectual property Concessions, licences & trademarks 427 (53) Consolidation differences 2,202 (1,082) - - 1,120 Assets in progress and advances (437) 398 Other 3,310 (125) (16) (63) 3,106 Total (A-B) 6,625 (826) (16) (82) 5,701 The other changes column includes cancellations of the fully amortised items and the effect of the exchange rate fluctuation as well as reclassifications made for a more homogeneous presentation of various items.

92 Annual Report Start-up and expansion costs These cover start-up costs and expenses incurred when amending the articles of association, were recorded in the financial statements with the consent of the Panel of Auditors. The increase of the year concerns the set-up of the company Bonfiglioli Mechatronic Research S.p.A. and the previously mentioned merger by incorporation. Industrial patent rights and utilisation of intellectual property rights This 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. In keeping with art. 10 of Italian Law 72/83 the values resulting from monetary revaluation are indicated below: Description: Riv. L. 342/2000 Patent rights and utilisation of intellectual property rights 5,547 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 rights In the most part these costs are constituted by trademark registration charges. Goodwill and consolidation differences The 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 Tecnoingranaggi Srl % Bonfiglioli Redutores Do Brasil Ltda 34 20% Bonfiglioli Vectron GmbH 88 20% TOTAL 1,120 Assets in progress and advances The decrease in the year in assets in progress and advances is mainly due to completion of new software implementation. The increase in the year is tied to software licences acquired from the Parent Company but not yet used. Other In the most part these costs are composed of maintenance increases in the value of third parties assets.

93 Notes to the consolidated financial statements 91 Tangible fixed assets Description: Opening balance Increases Decreases Other changes Closing balance Historic cost Land and buildings 135, (259) (726) 135,306 Plant and machinery 192,512 9,956 (6,395) (2,495) 193,578 Industrial and commercial equipment 66,122 6,867 (1,973) (297) 70,719 Other assets 17,969 1,966 (328) (74) 19,533 Assets in progress and advances 2,803 1,942 (1,068) (1,120) 2,557 TOTAL (A) 414,949 21,479 (10,023) (4,712) 421,693 Accumulated depreciation Land and buildings 13,894 3,054 (14) (113) 16,821 Plant and machinery 135,669 13,123 (5,799) (1,252) 141,741 Industrial and commercial equipment 52,842 6,174 (1,719) (182) 57,115 Other assets 13,030 1,773 (301) 22 14,524 TOTAL (B) 215,435 24,124 (7,833) (1,525) 230,201 Net values Land and buildings 121,649 (2,306) (245) (613) 118,485 Plant and machinery 56,843 (3,167) (596) (1,243) 51,837 Industrial and commercial equipment 13, (254) (115) 13,604 Other assets 4, (27) (96) 5,009 Assets in progress and advances 2,803 1,942 (1,068) (1,120) 2,557 TOTAL (A-B) 199,514 (2,645) (2,190) (3,187) 191,492 The column other changes includes exchange rate differences and reclassification of individual captions. 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 Italian Law no. 72/83 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 net amounts: Description: Rev. L. 72/83 Rev. L. 413/91 Rev. L. 342/00 Rev. L. 2/09 Other Total Land and buildings 406 2,264-45, ,088 Plant and machinery , ,412 Industrial / commercial equipment Other assets TOTAL 1,041 2,264 17,005 45, ,883 It is clarified that the revaluation pursuant to Italian Law 2/2009 has led to a K 289 increase in depreciation on the 2011 income statement.

94 Annual Report Financial fixed assets Investments The following table provides a breakdown of the Investments item and the changes that occurred during the year: Description: Opening balance Increases Decreases Other changes Closing balance INVESTMENTS in associated companies 3, (33) 3,627 in other companies TOTAL 3, (33) 3,681 The other changes entry refers to the portion of profit for the year, net of distributed dividends, attributable to the associated company Tecnotrans Bonfiglioli SA, an investment valued using the net equity method. The following table gives details of the associated shareholding: Società Company Tecnotrans Bonfiglioli SA Headquarters Barcelona (Spain) Share capital K 2,175 Share held 33.33% Shareholders' equity at 31/12/2011 K 10,881 Profit at 31/12/2011 K 99 Book value K 3,627

95 Notes to the consolidated financial statements 93 Working capital Inventory 31/12/ /12/2010 Changes Raw, subsidiary and expendable materials 35,073 33,789 1,284 Work in progress and semi-finished goods 77,377 67,438 9,939 Finished goods and goods for resale 100,247 92,922 7,325 Advances TOTAL 213, ,716 18,597 The foregoing amounts are net of obsolescence reserve, made up as follows: 31/12/ /12/2010 Changes Raw and expendable materials 7,237 5,663 1,574 Semi-finished products 11,558 10,206 1,352 Finished goods 9,325 7,864 1,461 TOTAL 28,120 23,733 4,387 Changes in the provision are shown below: Provision for inventory obsolescence Opening value 23,733 20,986 Increases 4,774 3,095 Decreases (167) (1,226) Change in consolidation area - (22) Other changes (220) 900 CLOSING VALUE 28,120 23,733 The increase in stocks generated in 2011 and arising from increased sales (+18.4%) however did not penalise rotation, which improved during the year, dropping from 117 to 108 average days.

96 Annual Report Receivables Trade receivables 31/12/ /12/2010 Changes Trade receivables from customers 179, ,379 18,390 Receivables from associated companies 8,425 8, (minus) Bad debt reserve (13,176) (11,053) (2,123) TOTAL 175, ,736 16,282 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. As explained in the previous section, the increase in trade receivables is also to be attributed to the increased Group sales. In this case as well days of average rotation improved over last year (88 average days in 2011 versus 95 in 2010). Receivables from customers are recorded net of provision for bad debts, a breakdown of which is given below: Provision for bad debts Opening value 11,053 8,955 Provisions 3,292 2,891 Applications (1,150) (907) Other changes (19) 114 CLOSING VALUE 13,176 11,053 Breakdown of trade receivables by geographical area: Trade receivables Italy 52,597 54,923 Europe 59,696 47,991 Overseas 62,725 55,822 TOTAL 175, ,736

97 Notes to the consolidated financial statements 95 Other receivables 31/12/ /12/2010 Changes Tax receivables 12,016 20,361 (8,345) Prepaid taxes 32,518 30,962 1,556 Receivables from others 4,936 5,595 (659) TOTAL 49,470 56,918 (7,448) Tax receivables can be broken down as follows: Tax Receivables Short-term receivables VAT credits 4,799 12,922 Other Total short-term tax credits 5,054 12,945 Mid-long-term receivables VAT refunds 6,857 7,299 Direct tax refunds Total mid-long-term tax credits 6,962 7,416 Total 12,016 20,361 The decrease in short-term VAT receivables is to be attributed to the VAT receivables of the Parent Company and Italian subsidiary Bonfiglioli Italia S.p.A., refunded during The VAT refunds under mid-long-term receivables entry is attributable to the 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: Opening balance 30,962 25,574 Provisions 7,335 7,628 Applications (5,863) (2,443) Other changes CLOSING BALANCE 32,518 30,962

98 Annual Report Other receivables can be broken down as follows: Other receivables Short-term receivables Receivables from employees Advances to suppliers 1,014 1,602 Deposits - 1,230 Receivables for customs duties Receivables from social security institutions Other Total other short-term receivables 2,111 3,456 Mid-long-term receivables Receivables for pensions fund insurance 2,465 1,986 Guarantee deposits Other - 2 Total other mid-long-term receivables 2,825 2,139 TOTAL 4,936 5,595 The decrease in deposits is to be attributed to the return which took place during the year. The increase in receivables for customs duties for the most part is generated by advances paid for customs clearance by the Indian branch. There are no receivables due in a period beyond five years. Cash at banks and on hand 31/12/ /12/2010 Changes Bank and post office deposits 32,107 19,566 12,541 Cash and cash equivalents (1) TOTAL 32,214 19,674 12,540 For a comprehensive evaluation 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 statement. Accrued income and deferred charges 31/12/ /12/2010 Changes TOTAL 1,720 2,113 (393)

99 Notes to the consolidated financial statements 97 Breakdown: Advertising Insurance policies Bank commissions re-scheduling 1,063 1,418 Hire charges and rentals Other TOTAL 1,720 2,113 Shareholders equity At 31/12/2011 the overall share capital of 30,000,000 was represented by 30,000,000 ordinary shares with par value of 1 each. RECONCILIATION STATEMENT BETWEEN NET EQUITY AND INCOME FOR THE YEAR AT 31 DECEMBER 2011 OF PARENT COMPANY BONFIGLIOLI RIDUTTORI S.p.A. Result for the year Net equity Bonfiglioli Riduttori S.p.A. statutory financial statement (1,118) 171,255 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 16,387 80,832 Shareholders equity and profit attributable to minority interests (956) (4,857) Elimination of infragroup profits on stock (4,121) (30,005) Reversal of infragroup contribution 437 (1,933) Leasing agreements recorded using financial method 1,028 6,055 Other Consolidated Group financial statement 11, ,399

100 Annual Report Statement of changes in consolidated shareholders equity as at 31 st December 2011 Share capital Legal reserve Revaluation reserve Balance as at 31/12/ ,000 3,891 60,195 Allocation of 2008 profit Currency conversion differences Net income (Loss) of the Group for Balance as at 31/12/ ,000 4,240 60,195 Allocation of 2009 profit Currency conversion differences Other changes Net income (Loss) of the Group for Balance as at 31/12/ ,000 4,240 60,195 Allocation of 2010 profit Currency conversion differences Other changes Net income (Loss) of the Group for Balance as at 31/12/ ,000 4,240 60,195 The change in the currency conversion provision is mainly due to the strengthening of all the major currencies against the Euro.

101 Notes to the consolidated financial statements 99 Consolidation reserve Other reserves Currency conversion reserve Other Retained earnings carried forward Net income (Net loss) TOTAL 16,263 (6,945) 88,497 20,383 20, , ,623 13,945 (20,917) - - 1, , (31,970) (31,970) 16,263 (5,214) 95,120 34,328 (31,970) 202, (29,523) (2,447) 31, , , (3,113) - (2,385) ,247 4,247 16, ,597 28,768 4, , (5,477) 9,724 (4,247) - - (769) (769) (120) - (120) ,796 11,796 16,965 (289) 60,120 38,372 11, ,399 The change in profits and losses carried forward is due to the taxes paid on the increase in share capital on the Chinese subsidiary (K 100) and the salutary effect on third parties of the capital increases subscribed by the Parent Company only on the Turkish and Brazilian branches.

102 Annual Report Minority shareholders equity Minority profit/loss Minority capital and reserves Minority interests shareholders equity Balance as at 31/12/ ,354 5,142 Allocation of net income for 2010 (788) Distribution of dividends - (768) (768) Currency conversion differences - (486) (486) Other changes Net income for 2011 attributable to minority interests Balance as at 31/12/ ,901 4,857 Amongst the other changes, the effects of the acquisition on the Turkish subsidiary (K -7) and the increase in share capital subscribed by the Parent Company only on the Turkish and Brazilian branches (K +20) were allocated. 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: Profit Capital and Total Profit Capital and Total Company reserves reserves Bonfiglioli Power Transmission Pty Ltd (*) 953 2,315 3, ,629 3,064 Bonfiglioli Power Transmission JSC (3) 10 7 (2) Bonfiglioli Do Brasil Ltda Bonfiglioli Vietnam Ltd - 1,337 1,337-1,337 1,337 TOTAL 956 3,901 4, ,354 5,142 (*) also includes the results recorded by Bonfiglioli South Africa Pty Ltd.

103 Notes to the consolidated financial statements 101 Reserves for risks and charges 31/12/ /12/2010 Changes Statutory retirement pay fund and similar obligations 1,733 1,974 (241) Deferred Tax Liabilities 10,613 10,615 (2) Other provisions 19,156 12,312 6,844 TOTAL 31,502 24,901 6,601 Statutory retirement pay fund and similar obligations This is the sales agents indemnity reserve, which saw the following changes during the year: Opening value 1,974 1,723 Provisions Applications (294) (15) CLOSING VALUE 1,733 1,974 Deferred Tax Liabilities With reference to the deferred tax provision, changes in the year are broken down as follows: Opening value 10,615 10,629 Provision for deferred taxation 1,142 1,354 Applications/releases (976) (739) Other changes (168) (629) CLOSING VALUE 10,613 10,615

104 Annual Report Other reserves for risks and charges This caption can be broken down as follows: Description Opening balance Provisions Applications Other changes Balance closing Product warranties 7,325 3,808 (236) 78 10,975 Legal risks Other 4,487 4,774 (1,648) (32) 7,581 Total 12,312 8,682 (1,884) 46 19,156 The item Other mainly includes the business reorganisation fund set up by the Parent Company totalling M 6, the losses on returns fund of the Parent Company of M 0.5 and other provisions allocated by the South African and German branches. The decreases of the year refer to utilisation of the restructuring fund by the Parent Company and of the provisions allocated by the South African, French and U.S. branches. Employees severance indemnity reserve Changes in the severance indemnity fund in 2011 were as follows: Opening balance 16,632 16,738 Provisions 4,398 4,364 Applications (4,572) (5,232) Other changes (382) 762 CLOSING BALANCE 16,076 16,632 The number of employees in the workforce during the year was as follows (spot and average data): 31/12/ /12/2010 Media 2011 Media 2010 Executives and managers White collar and middle management 1,264 1,207 1,206 1,164 Direct and indirect blue collar 1,756 1,705 1,734 1,638 Temporary staff Total 3,266 3,113 3,182 2,980

105 Notes to the consolidated financial statements 103 Payables Bonds 31/12/ /12/2010 Changes Bonds 5,520 5,665 (145) 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 1.63%. The foregoing loan, issued for a total of K 3,750, is recorded in the financial statements as at the end of 2011 for K 2,750. The entire amount of the remaining debt recorded is collectable in full after five years; a bond issued by the subsidiary Bonfiglioli USA Inc. for a total of KUSD 5,000 to support the investment made for the construction of the factory premises. At the end of 2011 the residual value recorded for the loan is KUSD 3,585. The amount due next year totals KUSD 320 (K 247), the debt falling due beyond next year but within a period of 5 years is KUSD 825 (K 638) while the portion due beyond five years totals KUSD 2,440 (K 1,885). It is pointed out that the loan issued by Bonfiglioli USA Inc. is secured by a mortgage on the company s assets. Amounts due to shareholders for financing 31/12/ /12/2010 Changes Amounts due to shareholders This item concerns a short-term financing granted to the Brazilian branch by the minority shareholder. This debt, which is interest-bearing at Brazilian market rates, is repayable upon revocation. The increases of the year refer to a new disbursement of KBRL 500 (K 207) net of K 35 connected with the negative change of the exchange rate delta.

106 Annual Report Financial borrowings 31/12/ /12/2010 Changes Overdraft, financing < 12 months 47,163 38,404 8,759 Financing > 12 months 131, ,108 (2,941) Total due to banks ,818 Amounts due to shareholders Amounts due to other financial institutions 13,991 17,826 (3,835) Bonds 5,520 5,665 (145) (minus) Cash at banks and on hand (32,214) (19,674) (12,540) NET CASH POSITION 166, ,757 (10,530) 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 accounting standard 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 with a term of over 12 months and amounts due to other financial institutions are detailed in the following table (see page 106):

107 Notes to the consolidated financial statements 105

108 Annual Report Company Balance as at 31/12/2010 Amounts loaned Amounts repaid Financing with term > 12 months Bonfiglioli Riduttori SpA 109,002 - (743) Bonfiglioli Trans. (Aust.) Pty Ltd 2,621 - (47) Bonfiglioli Deutschland GmbH 4,935 - (305) Bonfiglioli Transmission France Sa Bonfiglioli Transmission PVT LTD 5,304 2,207 (2,088) Bonfiglioli Slovakia Sro 6,256 - (872) Bonfiglioli Power Transmission JSC 3, (210) Bonfiglioli Vietnam Ltd 1,653 - (463) Bonfiglioli Power Transmissions Pty Ltd (15) TOTAL FINANCING WITH TERM > 12 MONTHS 134,108 2,709 (4,743) Amounts due to other financial institutions Bonfiglioli Riduttori Spa 14, (4,195) Bonfiglioli Italia Spa (116) Bonfiglioli Transmission PVT Ltd 2,299 - (69) Bonfiglioli USA Inc (54) Bonfiglioli Slovakia sro 15 - (4) Bonfiglioli Deutschland GmbH (125) TOTAL DUE TO OTHER FINANCIAL INSTITUTIONS 17,826 1,016 (4,563) (*) Parent Company Guarantees (**) Loan secured by pledge on owned factory premises (***) Credit lines (short- and M/L-term) secured by pledge on assets of the company (****) The opening balance includes the results of the incorporated Tecnoingranaggi Riduttori Srl Unipersonale

109 Notes to the consolidated financial statements 107 Exchange rate variation Balance as at 31/12/2011 Within 12 months Beyond 12 months Beyond 5 years Guarantees - 108,259 17,871 90,388 - (****) 84 2, ,196 - (*) - 4, ,481 2,826 (*)(**) (*) (421) 5,002 2,041 2,961 - (*)(***) - 5,384 1,031 4,353 - (*) (518) 3, ,668 - (*) (51) 1, (*) (1) (907) 131,167 23, ,247 2,826-11,496 3,473 6,523 1,500 (****) (292) 1, , (288) 13,991 3,828 8,663 1,500

110 Annual Report Trade payables 31/12/ /12/2010 Changes Advances 3,948 2,671 1,277 Trade payables due to suppliers 159, ,614 5,950 Amounts due to associated companies (48) Total 163, ,351 7,179 Breakdown of trade payables by geographical area: Italy 113, ,209 Europe 22,321 22,217 Overseas 27,453 24,925 TOTAL 163, ,351 The increase in trade payables is attributed to the increased volumes tied to the growth in Group sales during Other payables 31/12/ /12/2010 Changes Tax payables 10,812 7,173 3,639 Amounts due to social security 6,645 6, Other payables 18,527 18, Total 35,984 31,702 4,282

111 Notes to the consolidated financial statements 109 The following table provides a breakdown of the Tax payables : Short-term tax payables Direct taxes payable 7,927 4,884 Employees taxes 2,097 1,940 Withholding tax Other Total short-term tax payables 10,812 7,044 Mid/long-term tax payables Substitution tax Total mid-long-term tax payables Total 10,812 7,173 The following table provides a breakdown of the Other payables : Other short-term payables Amounts due on acquisition of shareholdings 1,000 1,960 Amounts due to employees 14,644 13,500 Right to use land - Vietnam Currency exchange losses 1, Other 530 1,181 Total other short-term payables 18,155 17,581 Other mid/long-term payables Right to use land - Vietnam Other Total other mid-long-term payables Total 18,527 18,075

112 Annual Report Accrued expenses and deferred income 31/12/ /12/2010 Changes TOTAL Breakdown: Interest payable on loans Insurance policies Exchange rate fluctuations Contribution of capital Other TOTAL The increases in the year are mostly attributable to the unearned income on the European Contribution received by the Slovak branch on investments in machinery that will be issued as revenue in proportion to the amounts of depreciation of the machinery on which it was granted. Memorandum accounts The following memorandum accounts are included at the foot of the balance sheet: 31/12/ /12/2010 Changes TOTAL 26,057 25, Guarantees granted by third parties refer to sureties issued on behalf of the Group by banks in favour of banks for tax rebate applications, medium-/long-term guarantees in favour of banks for the concession of loans, and in favour of third parties in relation to contractual undertakings or debts. To this M 1.4 is added, representing commitments for the acquisition of shareholdings (Vietnam) taken up by the Parent company. Income statement Net revenues from sales and services 31/12/ /12/2010 Changes TOTAL 710, , ,240

113 Notes to the consolidated financial statements 111 Sales were made in the following geographic areas: Values in M 2011 % 2010 % Italy Europe Overseas TOTAL For more details on the trend of the Group, we refer you to the Management report. Other revenues and income 31/12/ /12/2010 Changes TOTAL 8,156 5,728 2,428 This item can be broken down as follows: Refund for packaging and transport costs 2,328 2,362 Refunds for defective processing/material Sales and minor services 3,625 1,361 Capital gains and contingent assets Capital contribution Other TOTAL 8,156 5,728 Costs for raw materials, supplies, consumables and goods 31/12/ /12/2010 Changes TOTAL 422, ,682 67,217 Costs for services 31/12/ /12/2010 Changes TOTAL 112, ,929 (1,692)

114 Annual Report This caption includes outsourced processes in the amount of K 37,332 (K 47,142 in 2010), costs for commission, transport, advertising and other commercial services, remuneration of the Board of Directors and auditing bodies, insurance policies, consultancy, bank charges, electrical power, external labour, logistics and security services, travel expenses and other minor items. Costs for leased assets 31/12/ /12/2010 Changes TOTAL 6,716 5,690 1,026 This item mainly concerns the lease of IT systems, motor vehicles, rentals for the lease of plants and external depots and royalties paid to third parties. Personnel costs 31/12/ /12/2010 Changes Salaries and wages 86,707 82,173 4,534 Social security contributions 23,462 22,306 1,156 Employees severance indemnity 4,398 4, Total 114, ,843 5,724 Amortisation/depreciation and write-downs 31/12/ /12/2010 Changes Amortisation of intangible fixed assets 2,600 2, Depreciation of tangible fixed assets 24,124 24,558 (434) Bad debts provision 3,292 2, Total 30,016 29,

115 Notes to the consolidated financial statements 113 Other provisions 31/12/ /12/2010 Changes TOTAL 4,361 2,647 1,714 Mainly reflects allocations made in the year to product warranty provisions. Other operating costs 31/12/ /12/2010 Changes TOTAL 4,864 4, This caption is a residual item and it includes expenses and charges that cannot be classified under the previous headings. It relates to local duties, general production, commercial, and minor administrative expenses, capital losses of an ordinary nature, and other minor items. Interest receivable and financial income 31/12/ /12/2010 Changes TOTAL 951 1,502 (551) This caption can be broken down as follows: Interest receivable from associated companies 18 6 Bank interest receivable Leasing rentals indexation Financial income from hedging transactions - 19 Cash discounts received Commercial and other interest receivable TOTAL 951 1,502 Interest payable and financial expenses 31/12/ /12/2010 Changes TOTAL 12,763 12,905 (142)

116 Annual Report This caption can be broken down as follows: Interest on amounts due to banks 2,290 1,416 Interest payable on loans 7,906 7,338 Interest payable on leasing/business contracts Interest payable on bonds Premiums and expenses on derivatives (IRS and forward contracts) 1,012 2,162 Cash discounts distributed Other TOTAL 12,763 12,905 Exchange rate gains/losses 31/12/ /12/2010 Changes TOTAL (1,802) 503 (2,305) This amount can be broken down as follows: Currency exchange gains 11,198 12,598 Currency exchange losses (13,000) (12,095) TOTAL (1,802) 503 Adjustments of financial assets 31/12/ /12/2010 Changes TOTAL (90) The item entirely refers to the share of result of the associated company Tecnotrans Bonfiglioli SA.

117 Notes to the consolidated financial statements 115 Extraordinary income and expenses 31/12/ /12/2010 Changes NET TOTAL (4,205) (5,361) 1,156 This caption includes, in particular, the following items: Insurance refunds Tax refunds from past years Contingent assets Contingent liabilities (228) (682) Taxes from past years (91) (225) Extraordinary restructuring expenses (3,577) (3,444) Provision to funds (744) (1,543) TOTAL (4,205) (5,361) Current, deferred and prepaid taxes 31/12/ /12/2010 Changes Current taxes (11,978) (10,992) (986) Deferred taxes (166) (615) 449 Prepaid taxes 1,472 5,185 (3,713) Total (10,672) (6,422) (4,250) Further information In order to complete the information required by article 38 of Italian 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: Directors Auditors TOTAL 1,131 1,326

118 Annual Report Operations with related 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 Bonfiglioli components and products under normal market conditions and, taken as a whole, do not account for significant figures, considering the size of the Group. Please also note that B.R.T. S.p.A. rents a factory to Bonfiglioli Riduttori S.p.A. under normal market conditions. Derivative financial instruments Derivatives In the drive to hedge financial risks the Group has entered into the following derivative contracts: Underlying Type of transaction Interest rates and debt instruments Exchange rates Notional value Fair value Notional value Fair value Pos. Neg Pos. Neg Unlisted financial derivatives - Forward contracts Sale of USD MUSD 16.3 N/A N/A Sale of GBP MGBP 1 N/A N/A Sale of AUD MAUD 19.3 N/A N/A Purchase of JPY MJPY 958 N/A N/A Purchase of USD MUSD 1.4 N/A N/A Purchase of EUR MEUR 10.2 N/A N/A IRS MEUR 42.5 MEUR 0.8 COLLAR MEUR 35 KEUR 9 The exchange rate hedging operations relate exclusively to ordinary non-speculative hedging management operations carried out by the Parent Company and the Chinese branch involving credits and debts expressed in foreign currency. Calderara di Reno (Bo), 30 March 2012 for THE BOARD OF DIRECTORS THE CHAIRMAN Sonia Bonfiglioli

119 Notes to the consolidated financial statements 117 Consolidated cash-flow statement (in K ) A) OPENING NET CASH POSITION (176,757) (170,893) B) OPERATING ACTIVITIES Group profit (loss) 11,796 4,247 Minority interest income Depreciation, amortisation and write-down 30,016 29,609 Provision to severance indemnity fund and other funds 8,759 7,011 Associated companies result 33 (132) First level Cash Flow 51,560 41,523 Decrease (Increase) in trade receivables (19,574) (60,594) Decrease (Increase) in inventory (18,597) (49,440) Decrease (Increase) in other assets 7,841 (9,051) Decrease (Increase) in trade payables 5,902 76,035 Decrease (Increase) in other liabilities 6,980 13,450 Utilization of severance indemnity fund and other funds (2,714) (6,174) B) Cash flow originating from (used for) operating activities 31,398 5,749 C) INVESTING ACTIVITIES Net investments in tangible and intangible fixed assets (20,529) (12,954) (Increase) of share investments and change in value of fixed assets C) Cash flow originating from (used for) investing activities (20,529) (12,080) D) FINANCING ACTIVITIES Variation in minority shareholders equity (2,201) (608) Change in Currency conversion reserve (769) 5,668 (Profits) Losses on exchange rates on tangible and intangible fixed assets 2,751 (4,189) Other (120) (404) D) Cash flow originating from (used for) financing activities (339) 467 E) CASH FLOW FOR THE YEAR (B+C+D) 10,530 (5,864) F) CLOSING NET CASH POSITION (A+E) (166,227) (176,757)

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121 Annual Report Independent Auditors Report (This section has been translated into the English language solely for the convenience of international readers)

122 Annual Report Independent Auditors Report

123 Independent Auditors Report 121

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125 Full speed ahead!

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132 Bonfiglioli has been designing and developing innovative and reliable power transmission and control solutions for industry, mobile machinery and renewable energy applications since Bonfiglioli Riduttori S.p.A. Via Giovanni XXIII, 7/A Lippo di Calderara di Reno Bologna (Italy) tel: fax: