BREMBO BREMBO The results for the year just ended are ANNUAL driving the Company forward, into a REPORT ANNUAL 2016 future marked by strong geographical REPORT consolidation and a growing dynamic 2016 dialogue with its customers worldwide. Although its heart remains in Italy, the major successes achieved by Brembo are the outcome of a company that continues to invest and produce over four continents, fully exploiting its competitive strengths. In fact, in its pursuit of an effective global expansion strategy, the Group has boosted growth, consolidating its presence both in fast-developing markets, such as China and India, and in Brembo’s key markets, such as North America and Europe. The expansion of the Polish plant in Dabrowa, the inauguration in record times of the new Mexican plant in Escobedo together with the start of works on the adjoining cast-iron foundry, the completion of the new Homer plant in the USA — which is running at full production — and the start-up of works on a new plant to produce aluminium calipers in Nanjing in China: all this not only represents the tangible signs of Brembo’s determination to develop these markets even more, but are also major projects that demonstrate the Group’s commitment to combining global vision and local presence, to support its customers in whichever country they may be located. Research and development are key to Brembo’s success, together with its substantial capacity to achieve ever more ambitious objectives and the dynamic and reactive way it is preparing to tackle future BEING AT THE FOREFRONT, FOREFRONT, THE AT BEING CUSTOMERS OUR TO NEXT technological and market challenges. The results for the year just ended are driving the Company forward, into a future marked by strong geographical consolidation and a growing dynamic dialogue with its customers worldwide. Although its heart remains in Italy, the major successes achieved by Brembo are the outcome of a company that continues to invest and produce over four continents, fully exploiting its competitive strengths. In fact, in its pursuit of an effective global expansion strategy, the Group has boosted growth, consolidating its presence both in fast-developing markets, such as China and India, and in Brembo’s key markets, such as North America and Europe. The expansion of the Polish plant in Dabrowa, the inauguration in record times of the new Mexican plant in Escobedo together with the start of works on the adjoining cast-iron foundry, the completion of the new Homer plant in the USA — which is running at full production — and the start-up of works on a new plant to produce aluminium calipers in Nanjing in China: all this not only represents the tangible signs of Brembo’s determination to develop these markets even more, but are also major projects that demonstrate the Group’s commitment to combining global vision and local presence, to support its customers in whichever country they may be located. Research and development are key to Brembo’s success, together with its substantial capacity to achieve ever more ambitious objectives and the dynamic and reactive way it is preparing to tackle future technological and market challenges. BREMBO ANNUAL REPORT 2016 The expansion of the new Polish foundry in Dabrowa. CALLING OF THE GENERAL SHAREHOLDERS’ MEETING The Shareholders are convened to the Ordinary and Extraordinary Shareholders’ Meetings to be held at the Company offices at Viale Europa 2, 24040 Stezzano (Bergamo) on 20 April 2017 at 10:30a.m. CET (single call) to resolve on the following AGENDA Ordinary Meeting 1. Presentation of the Financial Statements of Brembo S.p.A. for the year ended 31 December 2016, 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. Ensuing resolutions. 2. Proposal for distribution of net income for the year. Ensuing resolutions. 3. Presentation of the Consolidated Financial Statements of the Brembo Group for the year ended 31 December 2016, 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. 4. Authorisation for the buy-back and disposal of own shares. Ensuing resolutions. 5. Appointment of the Board of Directors: 5.1. determination of the number of its members and the duration of their term of office; 5.2. appointment of Directors; 5.3. appointment of the Chairman and Deputy Chairman of the Board of Directors; 5.4. definition of total remuneration of the members of the Board of Directors for each year of service. Ensuing resolutions. 6. Appointment of the Board of Statutory Auditors: 6.1. appointment of three Acting Auditors and two Alternate Auditors; 6.2. appointment of the Chairman of the Board of Statutory Auditors; 6.3. Definition of total remuneration of the members of the Board of Statutory Auditors for each year of service. Ensuing resolutions. 7. Presentation of the Remuneration Report of Brembo S.p.A. Resolutions pursuant to Article 123-ter of TUF. 8. Proposal for voluntary withdrawal of the shares of Brembo S.p.A. from the STAR segment pursuant to Article 2.5.8 of the Rules of Borsa Italiana S.p.A. Related and ensuing resolutions. Extraordinary Meeting 1. Increase in the total number of shares through a stock split, without any change in the amount of share capital, to be executed by the cancellation of the existing ordinary shares in issue and assigning five newly issued shares per each ordinary share withdrawn and cancelled. Amendment to Article 5 of the By-laws. Ensuing resolutions. Stezzano, 3 March 2017 On behalf of the Board of Directors The Chairman Alberto Bombassei 5 BREMBO ANNUAL REPORT 2016 CONTENTS LETTER FROM THE CHAIRMAN 8 Company Officers 12 Summary of Group Results 14 DIRECTORS’ REPORT ON OPERATIONS 17 Brembo and the Market 18 Sales Breakdown by Geographical Area and Application 24 Brembo’s Consolidated Results 26 Group Structure 32 Brembo Worldwide 34 Performance of Brembo Companies 36 Investments 42 Research and Development 46 Risk Management Policy 52 Human Resources and Organisation 60 Environment, Safety and Health 62 Related Party Transactions 64 Further Information 66 Foreseeable Evolution 69 Corporate Governance and Ownership Structure Report 70 Information About the Brembo S.p.A. Dividend Proposal 71 BREMBO S.P.A. STOCK PERFORMANCE 74 PALMARES 2016 77 6 CONSOLIDATED FINANCIAL STATEMENTS 2016 85 Consolidated Financial Statements at 31 December 2016 86 Explanatory Notes to the Consolidated Financial Statements at 31 December 2016 96 Statutory Auditors’ Report 168 Independent Auditor’s Report in Accordance with Articles 14 and 16 of Legislative Decree No. 39, dated 27 January 2010 170 Attestation of the Consolidated Financial Statements Pursuant to Article 154-bis of Legislative Decree No. 58/98 172 SEPARATE FINANCIAL STATEMENTS 2016 175 Financial Statements of Brembo S.p.A. at 31 December 2016 176 Statutory Auditors’ Report 186 Attestation of Financial Statements of Brembo S.p.A. Pursuant to Article 154-bis of Legislative Decree No. 58/98 194 7 BREMBO ANNUAL REPORT 2016 LETTER FROM THE CHAIRMAN Shareholders, At geographical level, the increase Worldwide economic activity, which Brembo must look at with in revenues related to all the areas in ever increasing interest due its growing globalisation, performed which the Group operates, with the better than expected in the second half of 2016, after a rather sole exception of South America, which disappointing start, and, according to the IMF, should continue to continued to fall but reported a 23.8% strengthen, albeit at a slower pace than before the crisis. Italy also rise in the fourth quarter, thus pointing to reported more encouraging growth than that predicted, although a possible reversal of trend. In Europe, still a long way from the results recorded in the main European Germany, which is Brembo’s second top countries. The economy in the Eurozone is accelerating and market at 23.2% of sales, rose by 9.7%. companies are expanding at the fastest rate for almost six years. There were also good results in the However, uncertainties remain about whether the problems United Kingdom, Italy and France. North that the most advanced countries have been experiencing for America (USA, Mexico and Canada), a decade have actually been resolved: growth in Europe is Brembo’s number-one market with 28% still considered to be fragile; Japan is struggling to get started of sales, reported a 5.9% increase. In the again; in the United States, despite a burst of activity in the third Far East, the positive increase in sales quarter, 2016 saw an unexpected slowdown and the election of in India and Japan was accompanied the new President has created fresh uncertainty on the world by record growth in China where stage. As far as the main developing countries are concerned, turnover rose by 67.9%, also thanks to the BRIC countries (Brazil, Russia, India and China) have been the contribution of the newly acquired facing difficulties for some time: Brazil and Russia have stopped Asimco Meilian Braking Systems (the growing and fallen into recession; China continues to drive the increase in revenues was 29.7% on a world economy but has slowed its course and only India seems like-for-like consolidation basis). to be proceeding at a brisk pace. In addition to the excellent results, In this scenario, the global light vehicle market, which generates 2016 marked a turning point in the more than three quarters of Brembo’s turnover, reported 4.6% extent of Brembo’s industrial expansion, growth in 2016, more than double the previous year, due primarily focused on its geographical location to China and, surprisingly, to Europe.