ANNU A L REPO R T 2008 BREMBO IN THE WORLD Brembo North America Inc. Brembo North America Homer Inc. Brembo Spolka Zo.o. Brembo China Brembo Poland Spolka Zo.o. Brake Systems Co. Ltd. Nanjing Yuejin Automotive Brake System Co. Ltd. Brembo Scandinavia A.B. Brembo Deutschland GmbH Brembo S.p.A. Marchesini S.p.A. Ap Racing Ltd. Softia S.r.l. Brembo UK Ltd. Brembo Ceramic Brake Systems S.p.A. International Sport Brembo Performance S.p.A. Automobile S.a.r.l. Petroceramics S.r.l. Corporacion Upwards 98 S.A. Fuji Co. Brembo Japan Co. Ltd. Brembo Rassini S.A. de CV. Fundimak S.A. de CV. Brembo Mexico Apodaca SA de CV. KBX Motorbike Products Private Ltd. Brembo do Brasil Ltda. TECHNICAL & SALES DEPT. PLANTS ANNUAL REPORT 2008 CALL TO SHAREHOLDERS’ MEETING The Shareholders are convened to the Ordinary Shareholders’ Meeting to be held at the Company offices at Viale Europa 2, 24040 Stezzano (Bergamo) on 24 April 2009 at 11:00 a.m. CET (first call) or, if necessary, on 27 April 2009, at the same place and time (second call), to resolve on the following AGENDA 1. Presentation of the Financial Statements of Brembo S.p.A. for the year ended 31 December 2008, with the Directors’ Report on Operations, the Report of the Board of Statutory Auditors, the Report of the Independent Auditors and additional documents as requested by law; ensuing resolutions. 2. Presentation of the Consolidated Financial Statements of the Brembo Group for the year ended 31 December 2008, with the Directors’ Report on Operations, the Report of the Board of Statutory Auditors and the Report of the Independent Auditors. 3. Recalculation of the total amount of the Directors’ remuneration pursuant to Article 21 of the By-laws of Brembo S.p.A.; ensuing resolutions. 4. Approval of additional services and related fees to be assigned to the appointed independent auditors PricewaterhouseCoopers S.p.A., in charge of auditing and certifying the annual financial statements of Brembo S.p.A. and the 2008 consolidated financial statements for the Group; ensuing resolutions. 5. Approval of the “Ponte” 2009 incentives plan; ensuing resolutions. Entitlement to attend General Meetings resides with shareholders in relation to which the Company receives at least 2 (two) business days prior to the scheduled date of the General Meeting, of the notice issued by the authorised intermediary pursuant to section 2370, paragraph 2, of the Italian Civil Code, certifying their share ownership. ON BEHALF OF THE BOARD OF DIRECTORS The Chairman Alberto Bombassei The documentation concerning the items on the agenda will be filed at the registered office and at Borsa Italiana S.p.A. It will be published on the Corporate website, within the terms and according to the procedures provided for by current regulations. Shareholders have the right to request a copy. ANNUAL REPORT 3 2008 CONTENTS Letter from the Chairman 6 Company Officers 8 Brembo: Summary of Group Results 10 DIRECTORS’ REPORT ON OPERATIONS 13 Brembo and the Market 14 Macroeconomic Context and Currency Markets 14 Group Activities and Reference Market 16 Sales Breakdown by Application and Geographical Area 19 Research and Development 20 Investments 22 Risk Management Policy 24 Human Resources and Organisation 29 Environment, Safety and Health 31 Brembo Structure 32 Brembo’s Consolidated Performance 34 Performance of Brembo Companies 40 Transactions with Related Parties 49 Further Information 49 Buy-back Plan for Brembo S.p.A. Shares 50 Three-Year Incentive Plan 50 Reconciliation Statement of Parent Company’s Equity/Net Income With Consolidated Equity/Net Income 51 4 Significant Events After 31 December 2008 52 Foreseeable Evolution 53 Corporate Governance 54 Principles, Sources and Company Macrostructure 54 Implementation of Corporate Governance 56 Movements in Brembo’s Shares Held by Members of the Management and Control Boards 66 Information Concerning the Brembo S.p.A. Dividend Proposal 67 Brembo S.p.A. Stock Performance 68 Palmares 2008 71 CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2008 77 Brembo: Consolidated Financial Statements at 31 December 2008 78 Explanatory Notes to the Consolidated Financial Statements at 31 December 2008 84 Annexes to the Consolidated Financial Statements 154 Statutory Auditors’ Report 160 Independent Auditors’ Report 162 Attestation of the Consolidated Annual Report Pursuant to Article 154-bis of Legislative Decree 58/98 164 SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2008 167 Brembo S.p.A. Separate Financial Statements at 31 December 2008 168 Statutory Auditors’ Report 174 ANNUAL REPORT 5 2008 LETTER FROM THE CHAIRMAN Shareholders, We are leaving behind a year, 2008, that, mainly in the last quarter, showed early but strong signs of a recessionary crisis that has hit the entire global economic system. According to the latest estimates, global GDP grew by 3.3% in 2008, compared to an average of 5% between 2004 and 2007. In the euro-zone countries, the annualised growth rate was 0.7%, while it was 0.9% for the entire European Union; both areas recorded a 1.5% drop in GDP in the fourth quarter compared to the third quarter. In the United States, GDP grew by 1.1%, but in the fourth quarter it fell at an annualised 6.2%, the deepest decrease since 1982. Japan entered a recessionary phase during the year, recording a 0.7% drop in GDP. Even the most dynamic of the emerging countries suffered a sharp slowdown in growth. Economists are not expecting an improvement in 2009. On the contrary, the International Monetary Fund estimates a fall in global GDP of between 0.5% and 1%. If this happens, it will be the first time since 1945. The difficult economic situation has had a strong impact on the automotive industry. Despite continued growth in some of the emerging markets, new car, motorbike and commercial vehicle registrations fell sharply at the global level, mainly in the last quarter. In this difficult and uncertain environment, 2008 was, for Brembo, a year of consolidation and further growth. In recent years, we have been implementing an extensive growth, reorganisation and renewal plan that is providing the results we expected and allowed us to increase revenues substantially again this year. For the first time ever, our revenues exceeded one billion euro. We earned a profit as well, despite making the highest amount of investments in the company’s history. 6 We made investments to increase the production At the same time, Brembo began pursuing a strategy capacity of some of our plants (mainly in Italy, Poland aimed at diversifying and seeking sales and production and Brazil) to meet the needs of our long-time customers synergies with the aim of broadening the scope of its and customers with which we have been working for business. As part of this strategy, Brembo acquired a certain time. But our main focus was the pursuit of a controlling interest in Italy’s Sabelt, a leading our strategy of strengthening Brembo’s presence in manufacturer of racing seatbelts and infant-safety emerging markets and in areas where the automotive products, through a joint venture established for that industry is experiencing the strongest growth. purpose in February 2008. Then, in January 2009, Through our subsidiary Brembo China Brake Systems, through our subsidiary Brembo do Brasil we acquired we acquired a majority stake in China-based Nanjing the division of Brazil-based Sawem Industrial that Yuejin Automotive Brake System, a company in specialises in the manufacture and sale of flywheels which we already held a minority interest and that for the car industry. manufactures and sells braking systems for cars and As you can surmise from this brief summary, and commercial vehicles. In India, we acquired 50% of even better from the pages that follow, 2008 was an KBX Motorbike Products from Bosch, bringing our important year for Brembo. ownership to 100%. In January 2009, we opened a It was a year that allowed our Group, which for many new plant that manufactures disc-braking systems for years has been at the forefront of its industry, to India’s scooter and motorbike market. continue along its path of economic consolidation We also invested in high technology; in addition to and technological development. For this reason as strengthening our research and experimentation well, despite a climate of strong uncertainty, Brembo efforts aimed at developing highly innovative solutions continues to believe in its ability, in the talent and for our products, in September 2008 Brembo reached skill of its people, in the automotive market and in an agreement with Daimler AG for the acquisition the opportunity to continue growing in the medium- of 50% of Brembo Ceramic Brake Systems, a joint- long term. The year ahead is sure to be more difficult venture operation that, until that date, had been than the one we just left behind, but the will and owned in equal shares by both companies. Brembo commitment of Brembo’s management and more Ceramic Brake Systems is a leader in the development than 5,800 employees are, as in the past, our best and manufacture of high-performance carbon-ceramic certainty. brake discs that were previously used almost exclusively The Chairman in braking systems for aerospace vehicles. Alberto Bombassei 7 COMPANY OFFICERS The Shareholders’ Meeting of the Parent Company Brembo S.p.A., held on 29 April 2008, passed a resolution in favour of the reappointment of Company Officers for the following three-year period (2008-2010). On 18 December 2008, the General Shareholders’ Meeting appointed Mauro Pessi as Director, after his co-option by the Board of Directors on 6 June 2008 to replace Stefano Monetini to the position of Managing Director.