SABAF SpA

Via dei Carpini 1 – Ospitaletto (BS) -

Share capital: EUR 11,533,450 fully paid in

Brescia Companies Register and Tax Code no. 03244470179

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BOARD OF STATUTORY AUDITORS’ REPORT ON

FINANCIAL STATEMENTS FOR THE YEAR ENDING ON

DECEMBER 31st 2006

To the Shareholders

Sabaf SpA is a company listed on the .

Consequently, by virtue of Italian Legislative Decree no. 58 of February

24th 1998 and of the current Articles of Association, all controls concerning accounting and financial reporting are attributed to the independent auditor.

The Board of Statutory Auditors’ report has therefore been prepared reflecting the requirements indicated above as well as those of

CONSOB (Italian securities & exchange commission) communications relating to listed companies.

We have also overseen the overall approach applied to year-end financial statements and their general legal compliance as regards formation and structure, giving our consent to recognition among intangible assets of research and development costs of € 444,000 gross.

The financial statements relating to the financial year (FY) ending on December 31st 2006 show a net profit of € 14,241,149 after expensing current, deferred and advance income tax totalling € 9,977.569.

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Having specified this, we inform you of what follows:

We recall the fact that Sabaf SpA has accepted the Italian

Corporate Governance Code drawn up by the Italian Corporate

Governance Committee for Listed Companies. The Code expresses and regulates some important aspects of operation of the Board of Directors and of its members. [Sabaf has accordingly] appointed an Internal Control

& Audit Committee and also a Compensation Committee.

The Board of Directors’ membership is balanced, including an adequate number of “independent” directors, some of whom take part in the Internal Control & Audit and Compensation Committees.

The Board of Statutory Auditors was properly informed of the most important business transactions undertaken by Sabaf SpA’s Board of

Directors in the past financial year, view news and data reported during meetings of the Board of Directors – which the Board of Statutory

Auditors always attended – as well as on occasion of direct meetings with the Chief Financial Officer and Relator.

The Board of Statutory Auditors has not found evidence of any atypical and/or unusual transactions undertaken either with third parties, related parties or on an infragroup basis.

Ordinary related-party and infragroup transactions are indicated in the Report on Operations as per Article 2301/2 of the Italian Civil Code and in the Explanatory Notes to Accounts also as regards their characteristics and economic effects.

We recall the fact that Giuseppe Saleri SapA, the ultimate parent

2 company of Sabaf does not performance any activity of direction and co- ordination vis-à-vis Sabaf.

Conversely, Sabaf SpA, in its capacity as direct parent company, has performed activities of direction and co-ordination vis-à-vis its subsidiaries.

Specifically, in determining infragroup transfer prices, the

Company has stipulated specific agreements with the subsidiaries, based on criteria that appear correct and such as to respect each company’s economic needs and autonomy.

The independent auditor AGN Serca Snc has completed its report on the individual year-end financial statements pursuant to Article 156 of

Italian Legislative Decree 58/1998. The Board of Statutory Auditors herewith formally notes that the said report, dated March 30th 2007, did not contain any qualifying elements or reiteration of disclosure.

The Board of Statutory Auditors did not receive any complaints during the financial year under Article 2408 of the Italian Civil Code.

The Board of Directors did not receive any statements of complaint.

The independent auditor AGN Serca received the auditing assignment as defined by Article 154 of Italian Legislative Decree

58/1998, for which the contractual fee was paid.

AGN Serca thus received € 24,200 for auditing of individual annual financial statements and € 4,000 for consolidated annual financial statements, € 5,900 per periodical checks, € 7,700 for the midyear interim audit and report, and € 11,500 per quarterly auditing, for a total of €

3 53,500, with this all being besides out-of-pocket expenses and VAT.

During 2006 the Board of Statutory Auditors’ activity involved 6 meetings of the Board of Statutory Auditors, of which 4 after appointment of the undersigned statutory auditors on April 24th 2006 and 2 previously.

In addition, the Board of Statutory Auditors attended Ordinary Shareholder

Meetings in the past financial year and was always present at the 8 meetings of the Board of Directors. In addition, it attended 3 of the 3 meetings of the Internal Control & Audit Committee, as well as a meeting of the Compensation Committee.

In performing its mandate, the Board of Statutory Auditors gained knowledge of, and oversaw, for matters for which it is responsibility, observance of principles of proper management, via direct observation, gathering of information from the heads of the administrative function and from managers of specific functional areas, as well as via meetings with the officially appointed independent auditor, with the latter having the purpose of reciprocal exchange of relevant data and information. From its activity the Board of Statutory Auditors received confirmation of observance of principles of proper management.

The Board of Statutory Auditors gained knowledge of and oversaw the adequacy of the Company’s organisational structure, also in relation to the programme of ongoing harmonisation with other Group companies.

The Board of Statutory Auditors assessed and oversaw the adequacy of the internal control system, gathering information via meetings with the person responsible.

4 The adequacy of the administrative and accounting system was assessed, with special reference to the latter’s reliability and ability to represent operating events correctly. This was done by obtaining information from the heads of the respective functions, review of company documents, and analysis of the results of the work done by the independent auditor.

During meetings held with the independent auditors, no relevant aspects emerged under Aticle 150, paragraph 2, of Italian Legislative

Decree 58/1998.

Because of what has been described above, the Board of Statutory

Auditors is able to attest that, during its oversight and control activities, no significant facts emerged such as to require reporting or mention in this report.

The Board of Statutory Auditors notes that, in execution of the option plan approved by the Extraordinary Shareholders’ Meeting on

May 6th 2003, 199,950 shares were subscribed, with the share premium envisaged. therefore increase to € 11,533,450.

At year-end Sabaf did not hold any treasury shares, contrary to the situation as at December 31st 2005. Treasury shares existing at the end of 2005, together with the 38,826 shares acquired during 2006, were sold during the year.

The individual financial statements as at December 31st 2006 are governed by EC regulation 1606/2002 concerning application of international accounting and financial reporting standards (IASs/IFRSs), as was already the case in the previous financial statements.

5 We officially note that the Company has approved the

Organisational, Operating & Control Model and set up the Supervisory

Committee envisaged by Italian Legislative Decree 231/2001, also making use of outside staff members.

The Security Policy Document – required under Italian

Legislative Decree 196/2003 – was updated for 2006 to reflect new regulatory requirements.

With reference to the regulation concerning privileged information, better known as the market abuse regulation, the Company has set up the instruments required, in accordance with Article 115/2 of

Italian Legislative Decree 58/1998, which requires a register to be kept of persons having access to privileged information.

The Company has adopted an Internal Dealing Regulation, for the purposes indicated in Article 114, paragraph VII, of Italian Legislative

Decree 58/1998.

Sabaf has also prepared a “comprehensive annual report”, containing social and environmental performance, as well as economic performance. The Board of Statutory Auditors expresses a positive opinion on this supplementing of the traditional individual annual report & accounts, in the perspective of Company operations based on observance of sustainable growth.

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Following the work done, the Board of Statutory Auditors, having ascertained respect of principles of proper management and observance of the law and Articles of Association, expresses an opinion in favour of

6 approval of individual annual financial statements accompanied by the

Report on Operations.

We recall the fact that, during 2006, Sabaf decided to pay an extraordinary of € 1.00 per share, withdrawing resources from the extraordinary reserve.

Considering 2006 net profit of € 14,241,149, after having allocated € 39,990 to top up the legal reserve, which thereby reaches the legal limit, the Board of Directors proposes allocating € 8,073,415 as dividend, corresponding to € 0.70 per share, and allocating the remainder to the extraordinary reserve.

The Board of Statutory Auditors, having taken note of this proposal, judges it to be compatible with the results achieved, with balance-sheet and financial status, and with the prospects of the Company and Group.

Ospitaletto, April 5th 2007

The Board of Statutory Auditors

(Italo Lucchini)

(Eugenio Ballerio)

(Giovanni Maria Seccamani Mazzoli)

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