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BREMBO ANNUAL REPORT 2014 1975-2015: Brembo’s 40 years in racing The technical team at work during a F1 Grand Prix. BREMBO CALLING OF THE ORDINARY 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 23 April 2015 at 10:30 a.m. CET (first call) or, if necessary, on 24 April 2015 (second call), at the same place and time, to resolve on the following. AGENDA 1. Presentation of the Financial Statements of Brembo S.p.A. for the year ended 31 December 2014, with the Directors’ Report on Operations, the Statutory Auditors’ Report, the Independent Auditors’ Report and the Attestation of the Manager in Charge of the Company’s Financial Reports. Allocation of profit for the year and ordinary dividend distribution. Ensuing resolutions. 2. Presentation of the Consolidated Financial Statements of the Brembo Group for the year ended 31 December 2014, with the Directors’ Report on Operations, the Statutory Auditors’ Report, the Independent Auditors’ Report and the Attestation of the Manager in Charge of Company’s Financial Reports. 3. Proposal of extraordinary dividend distribution upon the 20th anniversary of the listing of Brembo S.p.A. Ensuing resolutions. 4. Authorisation for the buy-back and disposal of own shares. Ensuing resolutions. 5. Presentation of the Remuneration Report of Brembo S.p.A. Resolutions pursuant to Article 123-ter of TUF. Stezzano, 5 March 2015 On behalf of the Board of Directors The Chairman Alberto Bombassei 5 BREMBO ANNUAL REPORT 2014 CONTENTS Letter from the Chairman 8 Company Officers 10 Summary of Group Results 12 DIRECTORS’ REPORT ON OPERATIONS 15 Brembo and the Market 16 Sales Breakdown by Geographical Area and Application 24 Brembo’s Consolidated Results 26 Group Structure 34 Brembo Worldwide 36 Performance of Brembo Companies 38 Research and Development 46 Investments 52 Risk Management Policy 54 Human Resources and Organisation 61 Environment, Safety and Health 64 Related Party Transactions 68 Further Information 69 Significant Events After 31 December 2014 72 Foreseeable Evolution 72 Corporate Governance and Ownership Structure Report 74 Information About the Brembo S.p.A. Dividend Proposal 75 Brembo S.p.A. Stock Performance 76 PALMARES 2014 79 6 BREMBO CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2014 89 Consolidated Financial Statements at 31 December 2014 90 Explanatory Notes to the Consolidated Financial Statements at 31 December 2014 100 Statutory Auditors’ Report 170 Independent Auditors’ Report Pursuant to Articles 14 and 16 of Legislative Decree No. 39 of 27 January 2010 172 Attestation of the Consolidated Financial Statements Pursuant to Article 154-bis of Legislative Decree No. 58/98 174 SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2014 177 Separate Financial Statements of Brembo S.p.A. at 31 December 2014 178 Statutory Auditors’ Report 188 Attestation of the Separate Financial Statements Pursuant to Article 154-bis of Legislative Decree No. 58/98 196 7 BREMBO ANNUAL REPORT 2014 LETTER FROM THE CHAIRMAN Shareholders, not only in Italy, but also in Poland, the Czech Although the year that has just come to an end — the seventh since Republic, China, India, Mexico, Brazil and the the global economic crisis began — did not yield the turnaround someone United States. expected, it nonetheless showed many signs of improvement. Among the world’s major economies, Europe remained in slow motion, with Germany Our investment policy continued in 2014 and in recovery but Italy still struggling. On the other hand, the United States will move forward in the coming years. In Italy, appears to be well on the way to regaining strength. It intends to resume significant modernisation work was done on its previous role as the driving force behind global growth, after having the Mapello cast-iron foundry, in the province ceded that same role to emerging economies in recent years. In South of Bergamo, which is now among the best in America, Brazil lost essentially all of the momentum that it had built up its class in Europe in terms of efficiency and in previous years. In the Far East, where Japan has yet to regain its environmental respect. stride, China, along with India, continued to expand at GDP growth rates In Eastern Europe, investments aimed at inconceivable for Western economies, despite having slowed its pace compared to previous years. increasing production capacity are still underway in the integrated industrial hubs in Poland and Within this scenario, the automotive market showed encouraging signs, the Czech Republic, devoted respectively to growing by 3.5% at the global level. The main drivers of this result were the the casting and processing of brake discs for United States, Western Europe and China. In the USA — which in 2014 cars and commercial vehicles, and the casting, became Brembo’s top market, exceeding Germany by share of sales processing and assembly of brake calipers and — the increase in light vehicle sales reached nearly 6%. The European other aluminium components. A new investment market grew by nearly 5% in Western Europe, after six years of constant plan of several tens of millions of euro was decline, and by over 14% in Eastern Europe, except for Russia, where launched, which is set to be completed in 2017 the downtrend exceeded 10%, mirroring the negative performance of the and is aimed at further reinforcing Brembo’s previous year. Brazil and Argentina also declined. In Asia, Japan achieved industrial presence in this area. moderate growth and China, while slowing, closed the year with a growth rate of over 8%, thus remaining the world’s number-one car market by In the USA, we inaugurated our new plant in volume. Homer, Michigan, in May. The plant manufactures brake systems for our major automotive clients In a changing marketplace, Brembo continued to perform very strongly on the North American market. The construction in 2014, as in the previous four years, when the Group demonstrated of a cast-iron foundry in an adjacent area has also that it was able to effectively navigate even the height of the economic crisis. Revenues exceeded €1,800 million, up by over 15% compared to been announced. The project aims to achieve the previous year. Gross operating income reached nearly €280 million vertical integration of our production capacity at (+31.1%) and net income nearly €130 million (+45%). This was the result this facility as well, thereby enhancing process of the bold strategic decisions made by Brembo in previous years, even efficiency. Works will begin in 2015 and conclude in the midst of the market crisis. These choices have proven — and in 2017, entailing an investment of €74 million. continue to prove — effective in ensuring the Group a strong presence in During the same three-year period, the Group the most rapidly growing areas and a leading position at the global level. will invest €32 million in Mexico to build a foundry Today, we are present in 17 countries worldwide, and in recent years we and a new aluminium caliper production facility, have consolidated our industrial presence through extensive investments planned to start operations as early as 2016. 8 BREMBO The key to Brembo’s success has always been its strong ability to innovate, which translates into our high technological level and the reliability of our products. In this regard, it is with pleasure and pride that I point out that 2015 will mark 40 years from Brembo’s beginnings in the racing sector in 1975, when it first supplied Ferrari with brake discs for its F1 vehicles. Since then, everyone at Brembo has remained committed to maintaining that level of excellence for which we have long been famous worldwide. To continue in this tra dition of excellence, in 2014 the Group invested significant resources — 5% of turnover — in research and development projects with international universities and research centres, with the goal of continuing to develop new solutions, in terms of both materials and technologies, that will allow us to produce increasingly high-performance and eco-compatible brake systems. Brembo is dedicating considerable attention and resources to respecting the environment, with the aim of contributing to reducing vehicle consumption, and thus achieving lower CO2 emissions, through its brake systems. We have thus closed a year of excellent results, in which our company headcount also grew. In three years we have increased the number of our employees worldwide by more than 10% — they now number nearly 7,700 — and we have resumed hiring also in Italy. I wish to express my thanks to each and every one of them for the expertise, dedication and intelligence they devote to their work every day. This is yet another reason for us to look to the future with optimism. The Chairman Alberto Bombassei 9 BREMBO ANNUAL REPORT 2014 COMPANY OFFICERS The General Shareholders’ Meeting of the Parent Company Brembo S.p.A. held on 29 April 2014 appointed the Board of Directors for the three-year period 2014–2016, i.e., until the General Shareholders’ Meeting held to approve the Financial Statements for the year ending 31 December 2016. The election was based on the two lists submitted respectively by the majority shareholder Nuova FourB S.r.l. and a group of Asset Management Companies and other institutional investors (holding 2.11% of the share capital, overall). At 31 December 2014, Company Officers were as follows: BOARD OF DIRECTORS Chairman Alberto Bombassei (1) (8) Executive Deputy Chairman Matteo Tiraboschi (2) (8) Chief Executive Officer and General Manager Andrea Abbati Marescotti (3) (8) Directors Cristina Bombassei (4) (8) Barbara Borra (5) Giovanni Cavallini (5) Giancarlo Dallera (5) Bianca Maria Martinelli (5) (6) Umberto Nicodano (7) Pasquale Pistorio (5) (9) Gianfelice Rocca (5) BOARD OF STATUTORY AUDITORS (10) Chairwoman Raffaella Pagani (6) Acting Auditors Sergio Pivato Milena T.