annualreport2007 - bonfiglioli · taiwan, vietnam north america canada, united states latin america...

Cod. 4000 - R3

Bonfiglioli Worldwide

EuropeAlbania, Austria, Belgium, Bielorussia,

Bulgaria, Cyprus, Croatia,

Czech Republic, Denmark, Estonia,

Finland, France, Holland, Hungary,

Germany, Great Britain, Greece, Ireland,

Italy, Lettonia, Lituania, Luxemburg,

Malta, Montenegro, Norway, Poland,

Portugal, Romania, Russia, Slovakian

Republic, Serbia, Slovenia, Spain,

Switzerland, Turkey, Ucraina

AfricaAlgeria, Egypt, Kenya, Morocco,

South Africa, Tunisia

AsiaBahrain, China, Emirates, Japan,

Jordan, Hong Kong, India, Indonesia,

Iran, Israel, Kuwait, Malaysia, Oman,

Pakistan, Philippine, Qatar, Saudi Arabia,

Singapore, South Korea, Syria, Thailand,

Taiwan, Vietnam

North AmericaCanada, United States

Latin AmericaArgentine, Bolivia, Brasil, Chile,

Colombia, Costa Rica, Ecuador,

Guatemala, Honduras, Mexico, Perù,

Uruguay, Venezuela

OceaniaAustralia, New Zealand

AnnualReport2007

Bonfiglioli Riduttori SpA

Via Giovanni XXIII, 7/A40012 Lippo di Calderara di Reno - Bologna - ItalyTel (+39) 051 6473111 - Fax (+39) 051 6473126E-mail: [email protected]

www.bonfiglioli.com

Annual Report 2007

Cod. 4001 - R3



















Taiwan, Vietnam





Uruguay, Venezuela


“At times when I think back on how much

our Group has grown in fifty years,

I realise that our future goals will always be within reach

as long as we continue to build on the same resources of hard work,

professional integrity and competence.”

The Chairman, Clementino Bonfiglioli

Bonfiglioli I Annual Report 2007 I

Bonfiglioli I Annual Report 2007 I Contents I

5 Company Profile

23 Financial Highlights

31 Reclassified financial statementsand consolidated cash flow statements

37 Management Report

61 Consolidated financial statements as of December 31, 2007

69 Notes to consolidated financial statements

105 Independent Auditors’ Report

Contents

4 5

Bonfiglioli I Annual Report 2007 I Company Profile I

Company Profile

6 7


Board of Directors

Clementino Bonfiglioli (Chairman)

Sonia Bonfiglioli (Vice Chairman and CEO)

Luisa Lusardi(CEO)

Marino Battini(CEO)

Luciano Bonfiglioli(Director)

Statutory Auditors

Giovanni Biagi

Monica Marisaldi

Giovanni Errico

Independent Auditors

PricewaterhouseCoopers

The increase in production and the positive returns achieved over this last year

are the result of Bonfiglioli’s penetration into new sectors, substantial

investments and expansion into global markets.

The challenges to be met and the corresponding choices to be made, today more

than ever require the effort and support of a real team. Only a unified and

motivated group of people can make the difference in implementing successful

strategies for innovation and development.

We design and manufacture solutions and components for power transmission and control

1956Bonfiglioli is founded in Bologna

by Clementino Bonfiglioli,the company’s current Chairman.

1964The RAE series dual-stage

planetary gear unitis designed and patented.

1975Acquisition of Trasmital,

a manufacturer of planetary gear unitsfor diggers, road pavers and

wind turbines.

1982Bonfiglioli starts its

internationalisation strategy,leading to the opening

of branch offices worldwide.

2001Through the acquisition of Vectron,

Bonfiglioli gains a foothold in the electronics sector

for motion control systems.

2002Bonfiglioli sets up a network

of qualified distributorsin Italy and abroad with the Best brand.

2003Acquisition of Tecnoingranaggi,

a manufacturer of low backlash gear units.

2004Dun&Bradstreet award Rating 1in recognition of the high level

of reliability achieved by Bonfiglioli.


1995The innovative modular C-A-F series

are showcased at Hannover, which speeds up the programto decentralise production

to local branches.

1993Bonfiglioli obtainsboth DNV and TÜV

Quality System Certification.

1999The Bonfiglioli Transmission Pvt Ltd. factory is opened in Chennai, India.

2000Launch of Mosaico,

Bonfiglioli’s innovativee-commerce portal.

2005Construction of the first of three factories begins in the Slovak Republic.

2006Bonfiglioli celebrates its 50th anniversary:confirmation of the company’s success.

2007Bonfiglioli Italia SpA assumes

direct control of the Italian market.

The milestones that have marked the continous growth of Bonfiglioli

8 9


Three distinct product lines to meet the challenges of global markets and specific applications

10 11


The Bonfiglioli Group offers the power transmission market

three distinct brands:

The strength of these brands lies in the high technology content of each product

and the careful integration of different technologies to provide an exclusive and

synergic solution. Quite uniquely, Bonfiglioli has the core capabilities to develop

systems which integrate electronic, hydraulic and mechanical engineering.

These solutions represent choices of excellence for industrial systems and mobile

machinery as well as innovative renewable energy applications in the wind

turbine, solar panel and bio fuel sectors.

Hi-tech industries and complex applications increasingly call for the ability to

provide solutions and not just products. This can only be achieved with the

appropriate expertise.

And we are convinced that this is our unique selling point which we must foster

and invest in our drive to promote innovation.


BonfiglioliIndustrial Solutions

Main applications

- Air conditioning plants

- Aerospace plants

- Automation plants

- Bio fuel energy

- Bottling lines

- Ceramics industry

- Port machinery

- Conveyors

- Conveyor belts

- Chemical and Pharmaceutical

- Dosing systems

- Food industry

- Foundries and forgeries

- Packaging lines

- Painting plants

- Palletisers

- Plastic and rubber processing

- Printing industry

- Solar energy

- Textile industry

- Treatment plants

- Wood processing


Bonfiglioli Riduttori and Bonfiglioli Vectroncreate innovative solutions for the industrial sector

Bonfiglioli Riduttori today is one of the top brands in the power

transmission industry. The company's success is the result of a business

strategy that relies on three fundamental factors: know-how, innovation and quality.

All the brand’s gearmotors offer excellent technical characteristics and guarantee the

highest performance. Substantial investment and technical expertise have enabled the

company to achieve an annual production output of 1600,000 units, using

completely automated processes. Certification of the company’s Quality System by

DNV and TÜV is proof of the high quality standards achieved.

With the acquisition of the Vectron brand, Bonfiglioli is now established

as leader of the industrial automation sector. Bonfiglioli Vectron

delivers products and services for completely integrated inverter solutions.

These solutions complement Bonfiglioli’s power transmission and control offering to

the industrial sector.

• Helical in-line gearboxes • Bevel gearmotors• Worm gears • Shaft mounted gearmotors

• Heavy duty gearboxes• Mechanical variators• Three phase asynchronous motors• Single phase motors

• Open loop inverters • Closed loop inverters • Servo motors and drives• Solar systems

Bonfiglioli Riduttori and Bonfiglioli Vectron’s offering

12 13


BonfiglioliMobile Solutions

Main applications

- Agricultural machinery

- Hydraulic winches

- Cement mixers

- Cement mixer trucks

- Construction cranes

- Drilling machinery

- Excavators

- Extractive industry

- Hydrostatic machinery

- Lifting platforms

- Mini excavators

- Mobile cranes

- Port equipment

- Tyred wheel loaders

- Wind turbines

Bonfiglioli Trasmital: solutions and special productsfor the wind turbine and mobile machinery sector


Since 1976, Bonfiglioli Trasmital’s know-how in the power

transmission industry has focused on special applications offering

100% reliability and in particular, on the manufacture of gearmotors for mobile

machinery translation, slew and wheel drive applications, and gearboxes for

wind turbine nacelle and blade rotation.

Today Bonfiglioli Trasmital stands at the forefront of the industry as a key

partner to top manufacturers worldwide. The 85,000 square metre production

facility in Forlì accommodates product development and all phases of

manufacture, including quality control and testing. An extensive sales network

ensures prompt customer care and works closely with customers to develop

tailored applications.

Bonfiglioli Trasmital uses its flexibility in development and production to deliver

competitive advantages and interacts with customers as a supplier of reliable,

superior performance components and solutions.

• General purpose gearboxes • Wheel hub gearboxes• Track drive gearboxes

• Slew gearboxes• Winch gearboxes• Gearboxes for cement mixer trucks

Bonfiglioli Trasmital’s offering

14 15


Bonfiglioli Vectron GmbHInverter plant Krefeld - Germany

Bonfiglioli Slovakia SroLarge gearboxes manufacturing plantPovazska Bystrica - Slovak Republic

Tecnoingranaggi Riduttori Srl Precision gearbox manufacturing and assembly plantSan Giovanni in PersicetoBologna - Italy

Bonfiglioli Riduttori SpA Gearmotor assembly plant Vignola - Modena - Italy

Bonfiglioli Riduttori SpACasting and gear-cutting plantCalderara di Reno - Bologna - Italy

Bonfiglioli Riduttori SpAPlanetary gearbox manufacturing and assembly plant Forlì - Italy

Bonfiglioli Transmission Pvt LtdGearmotor manufacturing and assembly plant Chennai - India

Bonfiglioli Riduttori SpAElectric motor plantCalderara d i Reno - Bologna - Italy

Bonfiglioli Riduttori SpAGearmotor assembly and shipment plantLippo di Calderara - Bologna Italy

Forlì

BolognaVignola

Krefeld

PovazskaBystrica


The sustained growth achieved by Bonfiglioli in the past few years is the result of

a strategic choice to self-finance major investments and initiatives aimed at

expanding and building new production facilities and automating industrial

processes.

In particular, investments have focused on major structural improvements, the

optimisation and rationalisation of production lines and the installation of next

generation robot-operated machines, capable of accelerating output and

working night and day without operator supervision.

This strategy has enhanced the Group's reputation both at home and abroad,

making Bonfiglioli an industry leader capable of adapting effectively to real

market conditions and the growing demand for superior quality solutions

and products.

Production always looks to the future in all Bonfiglioli plants

Chennai

16 17


Tecnotrans Bonfiglioli SABarcelona - Spain

Countries with Bonfiglioli branch offices

Bonfiglioli Power Transmissions & Automation Technologies Jsc Izmir -Turkey

Bonfiglioli Canada Inc. Toronto - Canada

Bonfiglioli USA Inc.Hebron - USA

Bonfiglioli Drives (Shanghai) Co. Ltd Shanghai - China

Bonfiglioli Power Transmission Pty LtdJohannesburg - South Africa

Bonfiglioli Transmission (Aust.) Pty LtdSidney - Australia

Bonfiglioli Transmission Pvt LtdChennai - India

Bonfiglioli Skandinavien ABMalmö - Sweden

Bonfiglioli Deutschland GmbH Neuss - Germany


Bonfiglioli Italia SpA Sole Shareholder companyCarpiano - Milan - Italy

Bonfiglioli Transmissions SA Paris - France

Bonfiglioli UK Ltd (Mobile equipment)Warrington - England

Bonfiglioli UK Ltd (Industrial equipment) Redditch - England


The globalisation of sales activities has without doubt been one of the key factors

in determining Bonfiglioli's success.

A sales strategy focused on customer satisfaction has led to major growth in

market share through enhanced pre and post sales services and prompt deliveries

guaranteed by local assembly and warehouses.

Today Bonfiglioli sales branches operate in 13 countries outside Italy.

Sales and assistance centres in other countries are managed through authorised

resellers. All over the world, Bonfiglioli’s renowned know-how and customer care

is a calling card for customers who demand reliability from their partner.

Customers can count on the presence of Bonfiglioli subsidiaries all over the world

18 19

20 21


Sustainable progress: the driving force behind company strategy

VisionWe develop solutions, we disseminate knowledge, and share experience

on the world stage.

MissionWe focus our decision-making process on our customer’s requirements.

We foster the awareness that every action reflects our collective effort

and commitment.

We always seek to play an active role in the development of our industrial

environment, working in compliance with ethically sustainable values.

In our work we transform the drive to build value into a diffused catalyst for

wellbeing, with the company forming the hub around which families,

communities, and industry can grow.

We strive to ensure that each goal we achieve offers the opportunity

for future development, leading to renewed excellence in all our results.

ValueConsistency. Determination. Transparency. Team Spirit.

Bonfiglioli I Annual Report 2007 IBonfiglioli I Annual Report 2007 I

22 23

Bonfiglioli I Annual Report 2007 I Financial Highlights I

Financial Highlights


0

6

12

18

24

30

36

42

48

54

2005 2006 200720042003

37,8

11,2

24,7

37,3

54,0

Group sales

(Euro/Million)

Net investments

(Euro/Million)

200

250

300

350

400

450

500

550

600

650

2005 2006 200720042003

387,8

338,9

498,6

610,8

+14,4%

+14,7%

295,3+4,5%

+28,6%

+22,5%

Financial Highlights

24 25


0

6

12

18

24

30

36

42

48

54

2005 2006 200720042003

24,1

19,9

11,0

38,1

50,9

90

100

110

120

130

140

150

160

170

180

2005 2006 200720042003

138,5

128,3123,9

153,7

177,1

Group share of shareholders’ equity

(Euro/Million)

EBIT

(Euro/Million)


162

144

126

108

90

72

54

36

18

0

2005 2006 200720042003

-36,1

-95,0

-140,3

-65,3

-29,6

0

30

60

90

120

150

180

210

240

270

2005 2006 200720042003

270,0

165,5

229,0

124,4

145,2

175,3

120,3

153,3

114,0

71,6

142,4

106,3

46,6

92,2

175,3

Sales by geographical area

(Euro/Million)

Net cash position

(Euro/Million)

Italy

Europe

Overseas

460

690

920

1.150

1.380

1.610

1.840

2.070

2.300

2.530

2005 2006 200720042003

1.919

1.7121.606

2.226

2.501

1095

1406

860

1366

673

1246

600

1112

497

1109

150

160

170

180

190

200

210

220

230

240

2005 2006 200720042003

202198

184

224

244

Number of employees

Sales per employee

(Euro/Thousands)

Parent Company

Subsidiaries

26 27



Bonfiglioli Canada Inc.Canada

Bonfiglioli USA Inc.United States

Bonfiglioli Power Transmissions Pty LtdSouth Africa

Bonfiglioli Transmissions Pvt LtdIndia

100%

100%

67%

100%

100%

100%

100%

75%

100%

100%

100%100%

33,33%

100%

97%

67%


Bonfiglioli Transmissions SAFrance

Bonfiglioli UK LtdUnited Kingdom

Bonfiglioli Skandinavien ABSweden

Tecnoingranaggi Riduttori Srl Sole Shareholder - Italy

Bonfiglioli Slovakia SroSlovak Republic

Bonfiglioli Italia SpASole Shareholder - Italy

Bonfiglioli Power Transmissions JSCTurkey

Tecnotrans Bonfiglioli SASpain

Bonfiglioli Deutschland GmbHGermany

Bonfiglioli Vectron GmbHGermany

Bonfiglioli Group as of December 31, 2007

Bonfiglioli Transmission (Aust.) Pty LtdAustralia

Bonfiglioli Drives (Shanghai) Co. LtdChina

Bonfiglioli I Annual Report 2007 I Reclassified financial statements and consolidated cash flow statements I

30 31

Reclassified financial statementsand consolidated cash flow statements


Assets (Euro Thousand)

2007 2006 2005 2004 2003

Current assets

Cash and Banks 16,309 13,505 12,749 8,660 10,357

Inventory 173,065 154,505 122,669 96,388 82,655

Trade receivables 145,466 130,659 99,666 90,140 81,728

Receivables from associated companies 9,577 9,311 4,978 4,729 4,108

Deferred tax assets 7,105 6,433 4,616 3,057 3,073

Other current assets 16,804 11,054 5,939 5,970 6,181

Total current assets 368,326 325,467 250,617 208,944 188,102

Non current assets

Investments in associated and other companies 3,369 2,961 2,778 2,762 2,674

Intangible assets (net of cumulated depreciation) 7,602 9,340 10,465 9,612 11,955

Tangible assets (net of cumulated depreciation) 146,605 110,631 89,248 67,896 70,981

Deferred tax assets 5,513 3,970 2,941 3,036 2,217

Other long term assets 2,132 1,598 1,557 1,550 1,446

Total non current assets 165,221 128,500 106,989 84,856 89,273

Total assets 533,547 453,967 357,606 293,800 277,375

Reclassified consolidated balance sheet

32 33


Liabilities (Euro Thousand)

2007 2006 2005 2004 2003

Current liabilities

Banks, other financial institutions and bonds 65,575 34,543 17,260 19,606 17,890

Trade payables 136,202 128,780 87,509 75,600 62,677

Payables to associated companies 27 29 20 24 4

Other current liabilities 26,926 26,576 20,379 19,958 15,162

Total current liabilities 228,730 189,928 125,168 115,188 95,733

Non current liabilities

Banks, other financial institutions and bonds 90,989 74,002 60,741 18,658 28,566

Deferred taxes 7,215 6,523 5,793 5,330 4,315

Severance indemnity, other reserves for risks 24,572 22,987 21,070 19,464 18,733

Other long term liabilities 2,748 — 32 699 463

Total non current liabilities 125,524 103,512 87,636 44,151 52,077

Total liabilities 354,254 293,440 212,804 159,339 147,810

Shareholders’ equity2007 2006 2005 2004 2003

Share capital 30,000 15,000 15,000 15,000 15,000

Revaluation reserves 20,847 35,847 35.914 35,914 35,847

Other reserves 100,566 85,702 77,962 71,285 71,206

Net income of the Group 25,645 17,193 9,649 6,145 1,876

Group share of shareholders’ equity 177,058 153,742 138,525 128,344 123,929

Minority interest 2,235 6,785 6,277 6,117 5,636

Consolidated shareholders’ equity 179,293 160,527 144,802 134,461 129,565

Total liabilities and shareholders’ equity 533,547 453,967 357,606 293,800 277,375


(Euro Thousand)

2007 2006 2005 2004 2003

Sales 610,772 498,635 387,799 338,913 295,284

Other operating income 5,629 3,900 2,796 2,188 2,061

Consumption of materials and external operations (374,372) (298,209) (223,312) (191,152) (158,510)

Personnel costs (91,898) (83,596) (72,231) (64,846) (56,904)

Services and use of third party assets (71,482) (59,845) (50,905) (42,838) (47,255)

Other operating expenses (6,423) (4,738) (4,125) (5,735) (6,842)

EBITDA 72,226 56,147 40,022 36,530 27,834

Depreciation, amortisation and write-downs (21,321) (18,032) (15,891) (16,615) (16,841)

EBIT 50,905 38,115 24,131 19,915 10,993

Depreciation on revalued assets ex L. 342/2000 — (311) (777) (925) (2,378)

Financial income and (expenses) (7,348) (4,224) (2,060) (1,550) (1,408)

Exchange gains and (losses) (194) (318) (103) (202) 257

Share of results of associated companies 540 277 155 225 252

Extraordinary items 1,753 (284) 218 9 (580)

EBT 45,656 33,255 21,564 17,472 7,136

Current taxes (20,827) (17,178) (12,050) (10,150) (4,667)

Deferred taxes 1,513 2,156 996 (167) 171

Consolidated net income 26,342 18,233 10,510 7,155 2,640

Minority interest income (697) (1,040) (861) (1,010) (764)

Net income of the Group 25,645 17,193 9,649 6,145 1,876

Reclassified consolidated income statement

34 35


(Euro Thousand)

2007 2006 2005 2004 2003

A. Opening Net Cash Position (95,040) (65,252) (29,604) (36,099) (25,364)

B.OPERATING ACTIVITIES

Net income of the group 25,645 17,193 9,649 6,145 1,876

Minority interest income 697 1,040 861 1,010 764

Depreciation and write-downs 21,321 18,343 16,668 17,540 19,219

Provisions for employee indemnity and other reserves 3,605 5,207 4,470 3,905 3,961

Share of results of associated companies (540) (277) (155) (225) (252)

First Level Cash Flow 50,728 41,506 31,493 28,375 25,568

Decrease (Increase) in trade receivables (16,600) (36,596) (10,832) (9,927) (2,404)

Decrease (Increase) in inventory (18,560) (31,836) (26,281) (13,733) (6,334)

Decrease (Increase) in other assets (8,499) (8,002) (1,440) (696) (1,806)

(Decrease) Increase in trade payables 7,420 41,280 11,905 12,943 361

(Decrease) Increase in other liabilities 232 6,795 217 6,047 2,881

(Payments) of employee indemnity and other reserves (2,020) (3,190) (2,864) (3,174) (1,613)

B. Cash flow from (for) operating activities 12,701 9,957 2,198 19,835 16,653

C. INVESTING ACTIVITIES

Net investments in tangible and intangible assets (54,030) (37,331) (37,816) (11,152) (24,704)

Decrease (Increase) in other long term assets 132 94 139 138 120

C. Cash flow from (for) investing activities (53,898) (37,237) (37,677) (11,014) (24,584)

D. FINANCING ACTIVITIES

Dividends (1,500) — (1,500) (1,500) (1,500)

Net effect of exchange rate change (829) (1,976) 2,032 (297) (779)

Change in minority interests (1,689) (532) (701) (529) (525)

D. Cash flow from (for) financing activities (4,018) (2,508) (169) (2,326) (2,804)

E. CASH FLOW FOR THE YEAR (B+C+D) (45,215) (29,788) (35,648) 6,495 (10,735)

F. Closing Net Cash Position (A+E) (140,255) (95,040) (65,252) (29,604) (36,099)

Statement of consolidated cash flow

Bonfiglioli I Annual Report 2007 I Management Report I

Management Report(The Management Report has been translated into the English language

solely for the convenience of international readers)

36 37

Management Report

ForewordThis 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 Certified Public Accountants) and OIC (Italian Accounting Authority)

accounting principles, is submitted as a comment on the results recorded in the con-

solidated financial statement of the Bonfiglioli Group.

Unless otherwise indicated, data are shown in Euro/millions.

Reference economic situationDuring 2007, the world economy, while still expanding as a whole at a rapid pace

(4.9% compared to 5.1% in 2006), nevertheless felt the effects of the US sub-prime

mortgage crisis which started last summer and the implications this slump is having

on financial markets and economic growth.

These financial upheavals made themselves felt in a generally positive worldwide

economic climate. In the first half of 2007, expansion in fact proceeded at a steady rate

in all the major economies, recording a further acceleration in emerging nations. The

fact that 2007 saw the world’s economic engine slow down from the rate it had

reached in the recent past was no surprise to many: the signs of a slowdown were fair-

ly evident, not least of all the fact that the expansion stage – the strongest and longest

lasting recorded over the last thirty years – in actual fact, brought with it a series of

imbalances capable of compromising stability. What no one expected was that the cri-

sis would come with such lightening speed and hit the financial system as hard as it

did. Uncertainty surrounding the scope and distribution of individual broker’s expo-

sure to credit products linked, even indirectly, to United States mortgages has influ-

enced market trends and there is still a very real risk that the losses incurred by bank

brokers could result in a significant reduction in credit offered to families and busi-

nesses.

The sharp increase in the price of raw energy materials and foodstuffs represents

another key element in the international scenario. As regards the oil market, the price

of crude oil in 2007 recorded considerably higher average values than in 2006, rising

from 64.3 to 71.1 Dollars a barrel (+11%), reaching a peak of 92.5 Dollars per barrel

in November 2007, only to rise even further, well exceeding 130 Dollars a barrel, in

recent weeks.

The cause of these price rises, whose effects have been offset in the Euro nations by

38 39


the corresponding devaluation of the US Dollar, is linked to the considerable growth

in world demand for oil, which in 2007 exceeded supply, thereby significantly reduc-

ing the private reserves of major nations (primarily the United States). Factors con-

tributing to this growth in demand consisted, firstly, in the role played by emerging

economies whose energy demand far exceeds that of more developed nations. A fur-

ther cause of tension is the limited flexibility characterising supply, caused, on the one

hand, by the production policies and objectives set by OPEC and, on the other, by the

difficulties experienced by non-cartel producers in increasing output, when faced

with extremely high research and development costs and lengthy periods of time

involved in constructing new plants.

The rise in international prices of raw foodstuffs (+14% since 2006), another

important economic factor affecting inflationary dynamics, started at the beginning

of this decade and is the result of structural factors such as growing consumption in

emerging nations and the incentive to produce biofuels to counter increases in the

price of oil.

An analysis based on individual geographical areas reveals that growth in the Unit-

ed States’ GDP almost came to a halt in the fourth quarter of 2007 (0.6% compared

to 4.9% in the third quarter), reflecting a drastic fall in housing investments, a drop

in reserves and a fall in family consumption and non-housing investments. The crisis

in the sub-prime lending sector and the subsequent impoverishment of bank assets

and liquidity have further contributed to the slowdown. In order to combat the

increased risk of recession, the Federal Reserve reacted by making further cuts in

interest rates. At the end of 2007, Fed Fund rates were recorded at 4.25%, falling by

one percentage point from 2006. The continuing depreciation of the Dollar compared

to the Euro has facilitated exports, allowing the United States to reduce the balance of

payments, although the deficit remains high. The year 2007 closed with an average

USA GDP expansion rate of 2.2%.

In the United Kingdom, economic business continued to grow at a fairly consis-

tent rate, propelled by strong growth in consumption and investments made by busi-

nesses. Despite the first signs of a slowdown in the last quarter of the year, the GDP

growth rate was 3.1% at the end of 2007 (2.9% at the end of 2006).

In Japan economic activities were characterised by an unexpected acceleration in

the fourth quarter of 2007, upheld by exports, particularly towards other Asian

economies, leading to a growth rate of 2.1% by the end of 2007 (2.4% at the end of

2006).

2007 also witnessed steady growth in emerging markets. The Chinese economy

grew by 11.4% (11.1% in 2006), India confirmed a positive trend with an expansion

rate of 9.2% (9.8% in 2006), while Brazil and Russia improved on 2006, recording

growth rates of 5.4% and 8.1% respectively.

Within the Euro zone, the fear of a slowdown caused by high oil prices, apprecia-


tion of the Euro and the difficulties experienced by the United States’ economy, did

not materialise, probably in part due to the strength of the world cycle. Driving fac-

tors in growth were investments, strong employment recovery over the previous two

years, greater trust shown by families and further positive growth in financial and real

estate markets. Net exports made a positive contribution, notwithstanding the

strengthening of the Euro. Total growth for the year 2007 was 2.6%, dropping slight-

ly from the 2.8% recorded in 2006. Employment grew by around 1.5% (0.2% in 2006)

and the unemployment rate for 2007 fell to 7.4% (8.3% in 2006), the lowest rate

recorded over the last fifteen years.

Economic activities in Italy grew by approximately 1.5% (1.8% in 2006). Expan-

sion was sustained by domestic consumption and exports. Family consumption

rates rose notably, by approximately 2.5%. The growth of investments, on the other

hand, fell in line with the GDP. Employment resumed an upward trend and the

unemployment rate fell to 6.0%, as opposed to 6.8% in 2006. The increase in the

number of jobs affected mainly the Centre/North of the country where the

employment rate dropped to very low levels.

Price dynamics in 2007 remained at around 2%, limited by restricted develop-

ments in internal costs, by weak pressure from the demand side and by the apprecia-

tion of the Euro.

During the first few months of 2008 tension in the financial market sharpened and

the worldwide economic situation worsened as a whole. In the United States econom-

ic growth slowed down considerably: the effects of the housing market crisis have

been accompanied by those stemming from the increasingly restrictive financial con-

ditions in which families and business now find themselves. Share quotations in the

leading world markets fell by between 7% and 15%, and generally were felt most

strongly in the banking and finance sectors. Energy and foodstuff prices recorded

new, significant increases. These increases fuelled inflation in importing nations,

adversely affecting available income and consumption and determined the direction

of monetary policies. World trade is in any event growing at a steady rate thanks to

the continuous robust expansion of emerging economies.

In terms of the energy market, an increase in the worldwide consumption of oil is

also expected in 2008, at a rate of around 2 per cent, which can almost entirely be

attributed to emerging economies, whilst an increase in supply depends entirely on

the non-OPEC producers. This situation has left the oil market even more vulnerable

to geopolitical tension and the risk of temporary interruptions in supplies, thus

encouraging price fluctuations. Since the beginning of 2008 markets have posted

record figures, reaching 137 Dollars a barrel over the last few days. Estimates from the

International Monetary Fund offer some hope however of a moderate drop in prices

during the course of the year, with the average price set to fall to 100 Dollars a barrel

in 2008.

40 41


Taking raw foodstuffs, the price of cereals has continued to rise over the last few

months, a result of high demand and dwindling reserves. At the end of the first quar-

ter, wheat and rice prices were around double the figures recorded the previous year,

whilst maize prices had increased by more than a third. Uncertainty surrounding the

ability to increase worldwide supply in order to satisfy growing demand in develop-

ing nations could contribute to the continuing tension felt in the market and force up

inflation rates.

In the exchange markets, the economic indications and consensus indices relating

to the American economy have worsened. In a particularly hostile climate the Dollar

continued to weaken reaching an all-time low of 1.59 to the Euro. The expected

improvement in the balance of trade, the moderate fall in the price of crude oil and

the results of the presidential elections should help the US economy to recover and

the Dollar to gain ground, estimated to reach 1.40 to the Euro by the end of the year.

Against the background described above, the International Monetary Fund recent-

ly estimated expansion to fall in 2008, setting the growth target for the world econo-

my at 3.7%. The emerging nations continue to make their contribution towards world

growth: the Chinese GDP should record an increase of 9.3%, with India’s GDP esti-

mated at around 7.9%, whilst Russia and Brazil should record levels of growth of

6.8% and 4.8% respectively.

Concern regarding recession in the USA is demonstrated by the approach taken by

the Federal Reserve, which since the beginning of the year has lowered Fed Fund rates

by two percentage points, bringing them down to the current 2.25%. Analysts and

international organisations have cut back growth forecasts for the US economy, esti-

mating expansion to barely 0.4% for 2008.

Economic indicators also point to a downturn for Japan and the United Kingdom

at the beginning of the year. Consequently, growth estimates have been revised down-

wards to 1.4% and 1.6% respectively.

The economy in the Euro zone is starting to suffer, as a result both of the slow-

down in overseas demand, heightened by the strong Euro exchange rate, and the

repercussions on domestic demand resulting from a rise in interest rates. Estimates

indicate growth for 2008 at 1.4%.

As regards estimates for Italy, analysts generally share the fear that 2008 will wit-

ness almost zero growth (IMF estimate 0.17%). A number of factors contribute to the

deceleration of our economy, such as the trend characterising international demand,

weighed down by the sudden American standstill, the appreciation of the Euro over

the Dollar which has a major effect on the capacity of businesses to export and the

rise in inflation, caused by increases in the prices of energy and foodstuffs.

Consolidation areaWe point out, first of all, that in 2007 the Group transferred a majority holding in


the company “Bonfiglioli Hellas S.A.” retaining a 10% minority interest. Following the

transfer, the company changed its business name to “BEST Hellas S.A.” continuing

nevertheless to distribute the Group’s products in its area.

Furthermore, in 2007 the Group completed the acquisition of a further 50% hold-

ing in the share capital of the subsidiary “Bonfiglioli Transmission France S.A.” and as

at December 31, 2007, possesses a 100% stake.

It is also pointed out that a new company was incorporated in South Africa named

“Bonfiglioli South Africa Pty Ltd” whose object is to develop business in this nation

with the inclusion of new local black partners in line with regulations regarding the

“Black Empowerment Equity Program” (BEE). At the end of 2007 the company “Bon-

figlioli South Africa Pty Ltd” was not in operation and has therefore been excluded

from the consolidation area.

In relation to consolidation area, at December 31, 2007 Group had a total of fif-

teen subsidiaries:

• four manufacturing companies (located in Italy, India, Germany and Slovakia),

which handle the various products in Bonfiglioli's extensive range;

• eleven commercial subsidiaries, engaged in promotion, sales, pre and after-sales

service, logistics, customisation and final assembly of Group products.

The only associated company of the Bonfiglioli Group is a commercial branch that

has been operating on the Spanish market for almost 40 years, Tecnotrans Bonfiglioli

S.A., in which the Group holds a 33.33% stake.

We also point out that, with effect from September 1st, 2007, the parent company

assigned to the subsidiary Bonfiglioli Italia SpA business branches set up to deal with

the “marketing of Bonfiglioli products on the Italian market” and “storage, logistics

and programming relating to sales in Italy”. This transaction, though not influencing

the consolidated profit/loss figure, is nevertheless important to the Group from a

strategic/managerial point of view, representing the conclusion of an initiative to

improve the service offered to the Italian market started at the end of 2005.

42 43


Analysis of 2007 results

Economic results

A summary of the economic results recorded over the last five years is set out below.

2007 2006 2005 2004 2003

Values

Turnover 610.8 498.6 387.8 338.9 295.3

EBITDA 72.2 56.1 40.0 36.5 27.8

EBIT 50.9 38.1 24.1 19.9 11.0

Group Net Income 25.6 17.2 9.6 6.1 1.9

% of turnover

EBITDA 11.8% 11.3% 10.3% 10.8% 9.4%

EBIT 8.3% 7.6% 6.0% 5.6% 2.9%

Group Net Income 4.2% 3.4% 2.5% 1.8% 0.6%

Changes %

Turnover +22.5% +28.6% +14.4% +14.8% +4.5%

EBITDA +28.7% +40.3% +9.6% +31.3% -20.2%

EBIT +33.6% +58.1% +21.1% +80.9% -46.3%

Group Net Income +48.8% +79.2% +57.4% +221.1% -66.1%

Sales’ breakdown by geographical area:

2007 2006 2005 2004 2003

Values

Italy 165.5 145.2 120.3 114.0 106.3

Europe 270.0 229.0 175.3 153.3 142.4

Overseas 175.3 124.4 92.2 71.6 46.6

Total 610.8 498.6 387.8 338.9 295.3

% of total turnover

Italy 27.1% 29.1% 31.0% 33.7% 36.0%

Europe 44.2% 45.9% 45.2% 45.2% 48.2%

Overseas 28.7% 25.0% 23.8% 21.1% 15.8%

Changes %

Italy +14.0% +20.7% +5.5% +7.2% -1.4%

Europe +17.9% +30.6% +14.3% +7.6% +8.4%

Overseas +40.9% +34.9% +28.8% +53.6% +7.6%


The consolidated turnover figure increased by 22.5% from the previous year, con-

firming the positive trend characterising the last five years, with sales more than dou-

bling since 2003.

Analysing the results according to geographical area, group sales continue to

record significant growth in overseas markets whose incidence on overall turnover

rose from 15.7% in 2003 to 28.7% in 2007, evidence of the effort made by the Group

over the last few years to penetrate overseas markets. Growth on the Asian markets

where the Group is taking more far-reaching action to tackle the enormous potential

for development in the local catchment area, was significant, as well as in North

America and Australia. Growth in the domestic and European markets was also con-

firmed, with improved figures compared to those recorded the previous year.

Turning to an analysis of the main figures in the Income Statement, on the consol-

idated level, group EBITDA stood at 72.2 million Euro, amounting to 11.8% of sales,

with an absolute increase exceeding 28.7%.

More precisely, we point out the following:

• the consumption area (including costs of external operations) recorded an

increase of 1.5 percentage points, rising from 59.8% to 61.3% in terms of inci-

dence on overall turnover. The higher incidence, though falling compared to 2006

when the impact on turnover recorded an increase of 2.2 percentage points, con-

tinues to be linked to the dynamics connected with the change in the mix of arti-

cles sold, with increasing emphasis on the “Mobile” sector, on the one hand, and

the negative trend characterising the principal foreign invoicing currencies, led by

the US Dollar, which continue to depreciate with respect to the Euro, on the other.

The tensions felt on the raw materials and oil markets also had considerable

impact on consumption figures, partly eased by the Group’s continuing efforts to

cut costs;

• costs for services and leased assets, after removing costs relating to external works,

maintained their incidence on turnover at almost the same level (11.7% compared

with 12.0% in 2006);

• payroll costs increased by 9.9%, rising from 83.6 to 91.9 million Euro;

• the overall incidence of depreciation, amortisation and provision for bad debts

remained almost constant (3.5% compared with 3.7% in 2006), even though in

absolute terms the figure rose by approximately 3.3 million Euro;

• the incidence of other operating costs and provisions to various funds, totalling

6.4 million Euro, remained fairly constant at around 1.0% of turnover;

• financial expenses and income increased in terms of incidence on turnover, rising

from 0.9% in 2006 to 1.2% in 2007, following the rise in group net indebtedness

required to sustain growth in Net Working Capital and the significant volume of

investments made over the last few years;

• extraordinary income and charges recorded a positive figure for 2007, with an

44 45


incidence of 0.3% on turnover, thanks to the extraordinary capital gains recorded

following the transfer of a 60% stake in Bonfiglioli Hellas and the sale of an Ital-

ian factory premises, which permitted extraordinary charges linked to the change

of registered office of the German and American subsidiaries to be off set, as dis-

cussed in further detail below.

Assets/liabilities and investments

A summary of the last five years is given in the table below.

2007 2006 2005 2004 2003

Values

Fixed assets 157.6 122.9 102.5 80.3 85.7

Net Working Capital 193.8 162.1 134.5 108.5 102.9

Severance indemnity and others (31.8) (29.5) (26.9) (24.8) (23.0)

Minority interests (2.2) (6.8) (6.3) (6.1) (5.6)

Capital employed 317.4 248.7 203.8 157.9 160.0

Group shareholders' equity 177.1 153.7 138.5 128.3 123.9

Net Cash Position 140.3 95.0 65.3 29.6 36.1

Funds 317.4 248.7 203.8 157.9 160.0

Changes %

Fixed assets +28.2% +19.9% +27.6% -6.3% +8.4%

Working capital +19.6% +20.5% +23.9% +5.4% +11.4%

Severance indemnity and others +7.8% +9.7% +8.5% +7.8% +40.4%

Minority interests -67.6% +7.9% +3.2% +8.9% +3.7%

Capital employed +27.6% +22.0% +29.1% -1.3% +6.9%

Group shareholders' equity +15.2% +10.9% +7.9% +3.5% -0.3%

Net Cash Position +47.7% +45.5% +120.6% -18.0% +42.6%

Funds +27.6% +22.0% +29.1% -1.3% +6.9%

Rotation (days average)

Fixed assets 93 89 95 85 104

Working capital 114 117 125 115 125

Severance indemnity and others -19 -21 -25 -26 -28

Minority interests -1 -5 -6 -6 -7

Capital employed 187 180 189 168 195

Group shareholders' equity 104 111 129 136 151

Net Cash Position 83 69 61 31 44

Funds 187 180 189 168 195


The asset and liability structure of the Group, in terms of both absolute and per-

centage values also records in 2007, an increase in capital used to tackle the extensive

investments made in Italy and abroad, as evidenced below in this report, and the

increase in Net Working Capital (NWC) required to support the growth in sales.

NWC weighs less heavily however compared with 2006, both in terms of incidence on

turnover and on total lending, as demonstrated also by the improvement noted in the

average number of days’ rotation (dropping from 117 in 2006 to 114), and thereby

confirming the trend that started last year in response to efforts made to reduce stock

and Working Capital in general. The efforts made by the Group to maintain invest-

ments also contributed to further absorption of financial resources with the relative

effect on the net cash position, with a net consolidated debt of 95.0 million Euro

in 2006 rising to the figure of 140.3 million Euro in December 2007.

A breakdown of the Group’s net investments over the last five years is given below

(figures expressed in thousands of Euros):

Values in €/000 2007 2006 2005 2004 2003

Land and buildings 16,296 11,726 13,696 991 3,102

Plant and machinery 22,299 17,753 8,892 3,857 5,267

Trade and industrial fixtures 7,733 5,461 2,978 2,920 3,323

Other tangible assets 1,994 995 1,852 1,191 864

Construction in progress/advances 3,733 (471) 6,991 1,066 534

Tangible assets 52,055 35,464 34,409 10,025 13,090

Software, trademarks, patents 1,864 1,538 1,161 1,076 635

Consolidation differences 103 97 1,779 — 10,952

Other intangible assets 8 231 467 51 27

Intangible assets 1,975 1,867 3,407 1,127 11,614

Total Net Investments 54,030 37,331 37,816 11,152 24,704

As shown in the table above, the Group has concentrated its efforts continuously on

investment over the last five years resulting in a total outlay of 164.8 million Euro.

Most of the capital invested related to plants, machinery and equipment for produc-

tion, even though major investments were also made in land and buildings in Italy

and abroad, which were necessary to ensure that the companies in the Group bene-

fit from the most suitable structures for production and sales activities and con-

firmed the Group’s commitment to obtain a firm foothold in the areas in which it

operates.

46 47


With reference to the year 2007, the principle investments made by the Group are set

out below, involving an overall outlay of 54 million Euro:

• investments in intangible fixed assets were largely referred to the purchase and

implementation of application software in relation to the development of the SAP

project in Italy and in the main overseas sites;

• the sum of K€ 103, relating to the increase in goodwill arising upon consolidation,

stems from the acquisition of a further 50% stake in the company “Bonfiglioli

Transmission France S.A”;

• the investments in land and buildings relate mainly to the purchase of premises

under lease by the parent company intended as an extension of the factory in

Vignola for the total sum of 3.8 million Euro, the extension of the factory in Forlì

by the parent company for a total of 3.9 million Euro, the purchase of a new head

office for the subsidiary Bonfiglioli Deutschland GmbH in Neuss (8,500 square

metres) for a total of 6.4 million Euro, completion of the new head office by the

American subsidiary for the total sum of 2.6 million Euro and the purchase of a

parcel of land adjacent to the factory premises owned by the Indian company for

a total of 1.2 million Euro. As regards disinvestments, we draw attention to the dis-

posal of the factory owned by the parent company situated in San Lazzaro, whose

net book value at the date of sale was 1.5 million Euro and which produced a cap-

ital gain totalling 2.1 million Euro;

• the investments in plants, machinery and equipment related mainly to the produc-

tion companies; only the parent company strengthened production with purchas-

es amounting to 16.1 million Euro to which 6.4 million Euro of leasing

investments must be added; there were also considerable increases to the machine

inventory at the factories situated in Slovakia (2.0 M€), India (3.0 M€) and Italy

(Tecnoingranaggi 0.8 M€).

Together with concluded investments, a number of investments underway as at

December 31, 2007 should also be considered, making a total of 11.7 million Euro and

relating mainly to the completion of the second factory in Slovakia, a further exten-

sion to the factory in Forlì, as well as down payments for the purchase of new machin-

ery by the parent company.

Human resources2007 was characterised by a further substantial increase in the headcount at Group

level with the influx of 275 new employees (overall number including interim and

temporary staff), up from 2226 in December 2006 to 2501 at the end of 2007. This

increase was necessary to meet growing, challenging market demands, particularly in

the “Mobile Solutions” area and to cover consignments of orders already acquired up

to March 2009. Development also continued at an international level with increases

in the employed work force at the factories in Slovakia and India, as well as at the


main sales branches which continued to expand their management structure in order

to penetrate overseas markets and tackle rising turnover volumes (USA, China and

Germany amongst others).

With regard more specifically to the parent company, the transfer to Bonfiglioli

Italia SpA of the sales structure covering the Italian market was completed during the

year. Since September 1st, 2007, as already mentioned, Bonfiglioli Italia has been fully

responsible for the Italian market from every point of view, with a sales, logistics and

assembly structure capable of performing this important function on the main his-

torical market, that is Italy.

Considerable emphasis on the central production structures led to the implemen-

tation of an improvement project and lean manufacturing practices with the assis-

tance of external consultants with whom a great number of training schemes were put

into effect, including that relating to the role of “kaizen engineer”

Investments in training in the sales area continued, an area in which the company

now operates using a “permanent training” method in order to guarantee a sales

structure that is capable of adapting to changing market demands. The participation

of Managers in a Business Administration Masters was also intensified as a means of

developing young Managers with high potential.

In order to guarantee training schemes geared to the structures it operates direct-

ly and indirectly throughout the world, Bonfiglioli set up a Tele-Training initiative via

an Internet e-learning portal which, by definition, grants controlled access to student

users, free of all geographical and time constraints. A number of on-line study paths

have been created, varying according to the training objectives identified. Some of

these courses include online intermediate and final examinations, specially designed

to more accurately map the levels of knowledge reached and identify any necessary

corrective measures.

Turning to the Italian factories, it is pointed out that the use of overtime played an

important role up to July 2007. In the second half of the year negotiations for the

renewal of the National Collective Labour Agreement did not allow the same levels of

overtime to be used and this unfortunately slowed down the company’s production

growth. The particularly complex nature of the agreement renewal also weighed heav-

ily in terms of strike hours, which accounted for an average of 44 hours for each fac-

tory. Commencing from the first quarter of 2008, following the renewal of the

National Collective Labour Agreement, the use of overtime was resumed and this is

proving a considerable help to the company in reducing some of the delivery delays

that have accumulated in previous months.

48 49


Research and developmentResearch and development activities are performed for “Bonfiglioli Riduttori” brand

gearboxes and electric motors at the Lippo di Calderara (BO) site, for “Trasmital”

planetary gearboxes at the Forlì site and for “Vectron” electronic converters at the

Krefeld site in Düsseldorf of the subsidiary Bonfiglioli Vectron GmbH.

As confirmation of the importance assumed by R&D we draw your attention to the

fact that overall R&D expenditure in 2007 was in excess of 9 million Euro for the Bon-

figlioli Group.

The following section contains an overview of the main development projects in

relation to the three product brands (Bonfiglioli Riduttori, Bonfiglioli Trasmital and

Bonfiglioli Vectron).

Bonfiglioli RiduttoriSeries A upgrade (New sizes and variants for existing size range)

Work on the design of the Series A right angle shaft units Series A proceeded in 2007,

with the duel aim of completing the new larger sizes requested (sizes 05-35-55) and

introducing new variants and options to the existing size range (10-20-20-41-50-60).

The new sizes have been studied to guarantee the attainment of the design spec-

ifications but without losing the product’s modularity. The variants added to the

existing sizes also required a great deal of effort in terms of design, given the need to

respect the overall dimensions already established and also being designed for use in

the parallel shaft series (Series C, F and S).

Production of the pre-series was started in 2007, with the Design workgroup

directly involved in the technical support process for the resolution of initial prob-

lems (approval of models, new tools, dies and samples).

At the same time, technical data were released for the catalogues, as well as the

product designation control rules required for management of the Series utilising

the Product Configurator. At this time we also started processing the product config-

uration matrices needed to generate the assembly bill of materials automatically

(these operations will continue into 2008).

Operations relating to the three-dimensional drawings simplified for download-

ing via the Internet, with overall dimension parameters and completion of the data-

bases to check the working life of the new gearboxes, will continue in 2008.

Development of HDP heavy-duty range(Completion of range segment – development of extruder models)

Operations to complete the HDP-HDO Series continued in 2007, proceeding with the

development of all the variants to accompany the basic models, in both the HDP and


the HDO series. Parallel with this, a number of important personalised features were

added to the product in order to meet certain specific applications requested by the

market.

The basic development of the range proceeded, involving the processing of feasi-

bility studies on the extruder model which was applied to all existing sizes. Prototypes

of a number of the sizes with extruder output were prototyped and tested in the

“Experience room”

Electric motors

During the year we continued to develop several special products for dedicated appli-

cations, in particular the wind turbine and goods handling sectors. Existing solutions

were optimised and new projects developed to adapt products to new specifications

(brakes with extensive voltage range, bus DC power supply, PWM modulation, etc.).

With a view to improving decentralised assemblies, various initiatives aimed at

optimising the management of configurable products and defining the rules for

transformation units were re-examined. Several schemes for the management of

products by means of multi-level configuration bills of materials were also developed.

A design research programme was initiated in collaboration with an important

designer with the aim of renovating the motor range. Various concepts have been

developed, product specifications defined and pre-feasibility studies completed.

With the aim of producing the entire range of basic components directly (lamina-

tions, die-castings, windings, etc.) drawings were issued for the construction of all the

dies, models and tools for the construction of parts and components currently pur-

chased to a large extent externally.

Tecnoingranaggi low backlash high-precision gearboxes

The development of Tecnoingranaggi products during 2007 completed the integra-

tion of the range with the larger sizes requested and all the documents containing

technical data for the catalogues.

Particular attention and emphasis were placed on development and validation,

through targeted testing, of a new range of low backlash right-angle shaft units (KR

series) developed both as an independent series and as an angular transmission

applied to the input in the LC range, already featured in the Tecnoingranaggi Cata-

logue.

All the new development operations were carried out jointly with the subsidiary

Bonfiglioli Vectron GmbH. In view of the launch of the new ranges estimated for

2008, extensive prototyping and experimental procedures have been put into oper-

ation at a preliminary stage.

Testing carried out relate to technical solutions and innovative technological

processes, which are to be applied to the new low backlash gearbox models

50 51


Bonfiglioli TrasmitalGearboxes and gear motor range for crawler and wheel drives

Operations involving redesigning medium sizes in the range continued through to

the final stages, on the basis of the goals initially set to improve the competitiveness

of the products while maintaining performance and reliability at their current levels.

The design initiatives involved the larger sizes in the product category under exami-

nation.

As well as design aspects, operations also included the development of prototypes

as part of a new project, with various tests carried out in the Experience Department.

Tests were carried out to check reliability with reference to the same established per-

formance standards already applying to the corresponding products in the current

range, which are to be gradually phased out by the newly designed models. Tests were

also carried out for the same reasons to provide a direct comparison between the cur-

rent products and the new models. Tests and experiments took more than 8,000 hours

of bench testing and involved around 300 units covering both prototypes and stan-

dard gearboxes.

Within the sphere of gearboxes for crawlers and wheel drives, other versions for

specific applications and for large machine manufacturers were also developed

including: compact crawler blades and forage and sugar beet harvesters for North and

South American manufacturers.

A new wheel gearbox was designed and developed for 1.5-2.0 ton electric lift truck

wheel drives.

Project for development of gearbox for offshore platform lift drive

A gearbox for this type of application was designed for an industry leader. The

gearbox with high transmission torque capacity and reducing ratio, is fitted, in out-

put integral to the shaft, with a pinion that is coupled directly to the rack mounted on

the leg structure of the platform.

Due to the special nature of the application sector, the project was tested and cer-

tified by the supervisory body monitoring the safety of marine vessels, the American

Shipping Bureau.

Development of gear units for wind turbines

The wind turbine sector has always been of vital importance, both in terms of the

number of units produced and their technical advancement. In order to keep up with

this development and tackle increasing competition, new gear unit models have been

developed to satisfy new requirements for new generator models, as well as for new

manufacturers, some operating in emerging markets (India and China) and therefore

offering new commercial openings. Particular emphasis was placed during the design

stage on the technical specifications regulating the definition of the gear units, such as


compliance with the standards laid down by quality certification bodies and guaran-

teeing the fitness of the units for use in environments characterised by low tempera-

tures: - 30/- 40 °C.

Development of products and components to meet new, changing demandscreated by industrialisation of production and external purchasing sources

Work focused on modifying and developing products to meet new production needs

proved demanding yet has continued uninterruptedly. Examples of these new

requirements is the need to adapt products for semi-automatic mounting on robot-

operated plants, or the need to standardise and unify gear teeth in the planetary

stages, basic elements characterising our products, in order to produce an increasing

number of toothed ring gears, by means of broaching rather than the traditional

method using a gear-cutting machine.

In addition to these operations, experiments have been carried out to standardise

components purchased from new suppliers and constructed with new materials. The

aim is to expand the supply base and thereby tackle increasing production volumes

and maintain and improve the competitive content of our products.

Bonfiglioli VectronActive Cube

During the first half of 2007, the R&D department at Bonfiglioli Vectron concentrat-

ed on the definition and subsequent development of a new series of drives known as:

Active Cube.

Active Cube, which was launched on the market in November 2007, extends Bon-

figlioli’s “technology” drives portfolio with its high functional content and superior

performance levels exceeding those of other products in the range.

Efforts focused, in particular, on improving the control unit’s response times

(through the design of a new control hardware platform) and on implementing soft-

ware dedicated to “servo” applications, such as the built-in positioner or homing pro-

cedure control.

With Active Cube, Bonfiglioli has set itself the objective of expanding Active’s

application range to satisfy the requirements of the most sophisticated plants and at

the same time exploring the “Motion Control” segment.

BTD/BCR Servomotors

Coinciding with the launch of Active Cube, Vectron made available two series of per-

manent magnet synchronous servomotors: BTD and BCR. The new servomotors

include 43 models with stall torque of between 0.2 Nm and 115 Nm, overload up to

400% of the rated torque and speed range from 3000 to 4500 rpm.

Research and Development at Vectron has worked on defining and implementing

52 53


the measures necessary to guarantee compatibility and harmonisation between the

Active Cube drive and the servomotors. The combination of the two series produce a

“servo package” comprising the BTD/BCR servomotor and Active Cube servo drive.

Expansion of the “Active 401" and "Active 201" series

The Active power range was increased further through two operations. The first, car-

ried out halfway through 2007, allowed 4 new power sizes to be introduced to the

Active 201 series: 4 kW, 5.5 kW, 7.5 kW and 9.2 kW. These are available with a 230 V

three-phase power supply and guarantee the normal 150% overload in rated operat-

ing conditions.

The second operation carried out on the range was the subsequent launch of 4

additional Active 401 models in a new size (“Size 7”). With the new power rates 75

kW, 90 kW, 110 kW and 132 kW, the 400 V three-phase Active series offers, amongst

other things, good cover and synergy with the Bonfiglioli gearboxes in the HDP and

HDO series for use in high torque applications.

Braking Resistors

Once analysis and selection operations had been completed by the DSC team at Bon-

figlioli Vectron, the new series of BR braking resistors was launched in June 2007. The

BR resistors are compatible with the most important drive series produced by Bon-

figlioli Vectron: Active, VCB, Synplus thereby simplifying and rationalising the range

of accessories available: the large number of braking resistors (each dedicated to a sin-

gle converter series) was replaced by 11 BR codes, applying to all the series mentioned.

The analysis also produced a number of tables illustrating drive-resistor combina-

tions, which are included in the catalogue and are of assistance when selecting the cor-

rect resistor size for most applications.

Product personalisation initiatives

Extensive research and development activities also focused on the customisation of

products in 2007, with the completion of around ten projects made to customer spec-

ifications. Amongst these, the diameter “servo” function for wrapping devices on

packaging machines is worthy of mention, as is the development of “Motion” control

blocks with position synchronisation, for the plastics industry.

Renewable energy

A special mention must go to activities focused on the configuration of products

for renewable energy plants, an area of business of particular interest, both in terms

of the excellent growth rates recorded and the strong position held by Bonfiglioli and

Vectron in this market. In 2007 various customisation initiatives were completed,

focused on the effective application of regeneration units in the VER series to convert


electrical energy from photovoltaic panels for a power network. Research was also car-

ried out on systemic aspects, which produced an electrical panel with MPP Tracker

control suitable for modular photovoltaic plants.

In the wind turbine sector, the Active series was used to control the rotation of the

nacelle (combined with planetary drives from the 300 Series).

Biofuels

The biofuel industry is increasingly becoming an important sector for planetary

drives in the 300 Series, which are used to transform primary or waste materials into

fuels for the production of energy in conjunction with converters from the Active

series. In particular, Active constantly controls the mass mixing process, to optimize

the energy balance between what is used for the transformation process and what is

generated in terms of energy-based power.

Training activities

The development of the drive and motor range into products and applications of

higher technological content, combined with the growth of the Drive Service Center

(DSC) at branch offices and BEST distributors, has led to an increasing need for

training of resources responsible for providing local technical support for electronic

products.

In response to these needs, the DSC at the Competence Centre has intensified the

standard product course programme and introduced a number of specialisation

courses, aimed at an in-depth analysis of important topics common to several prod-

ucts (e.g. field bus communication).

54 55


Quality (UNI EN ISO standards)With reference to the Quality area, certification to UNI EN ISO 9001:2000 continues

to constitute one of the most important standard references for the Bonfiglioli organ-

isation. The Quality Control system is applied at all the Bonfiglioli factories with the

aim of maintaining and implementing the quality standard improvement process in

order to rationalise and integrate internal processes continuously, thereby satisfying

the demands of both internal and external customers. This continuous improvement

process is supported by constant analysis of a series of KPI’s, which are fundamental

to maintaining set standards at high levels, in accordance with the strategic and mar-

ket requirements defined by top management.

Constantly committed to the maintenance of these quality standards, the compa-

ny has set itself the task of safeguarding the environment and obtained the

environmental certification UNI EN ISO 14001:2004, an important starting point for

maximising use of existing resources and minimising their impact on the environ-

ment. As part of this process dedicated to safeguarding the environment, in 2007

Bonfiglioli chose to comply with the “RoHS” EC Directive 2002/95 for the restriction-

elimination of hazardous substances contained in its products, which marked anoth-

er step towards better environmental quality standards.

Sustaining the results achieved in previous years and much to the company’s sat-

isfaction, in 2007 the three-year certification of our 94/9/EC (“ATEX”) system was

renewed. It was also decided, during the first few months of 2008, to take steps

towards the adoption of the new Machine Directive 2006/42 in order to be ready in

advance, by the beginning of 2009, for the coming into force of this Directive, envis-

aged for December 2009.

Significant events after year end As already mentioned in the section relating to the consolidation area, during the first

few months of 2008, the Group transferred business from the subsidiary “Bonfiglioli

Power Transmission Pty Ltd” to the indirect subsidiary “Bonfiglioli South Africa Pty

Ltd.” incorporated at the end of 2007 in order to comply with regulations laid down

by the “Black Empowerment Equity Program” (BEE). Agreements with our black

partners were formalised a few days ago, with the taking-up on their part of a 25%

stake in the share capital of the newly incorporated company.

It is also pointed out that, on January 3, 2008 the incorporation of the company

“Bonfiglioli Vietnam LLC” was completed, with an initial share capital of 10 million

USD and registered office in the province of Binh Duong (industrial area of Ho Chi

Minh). This investment, whereby the institutional partner SIMEST SpA gained a 20%

stake, is aimed at setting up a new factory premises. On the date on which this report

was drawn up, construction works on the factory had already commenced, on a site


covering 94,000 square metres let for a 49-year term to the company by the Viet-

namese government. The first stage involves the construction of a factory covering

18,000 square metres with annexed offices and common parts occupying 1,400 square

metres.

The go-ahead has also been given for a feasibility study to be carried out to assess

the scope for expanding the Group’s business to South America through the creation

of a direct presence set to commence at the end of 2008.

Business outlookConsolidated turnover as at April 2008 was around 20% higher than that recorded in

the previous period, rising from 199 to approximately 240 million Euros. The strong

growth of the planetary drive market for the "mobile" sector (+32.6%) shows no signs

of letting up and the growth characterising the “industrial” sector (+21.9%) also

appears to be a continuing trend.

2008 will see the Group committed, as in the past, to consolidating investments it

has already made and expanding business. The completion of the second Povaska

Bystrica factory in Slovakia will allow production to expand and provide scope for

the direct handling of deliveries to the final customer, thereby improving current

logistics management. Investments in the Forlì factory will also be completed, fur-

ther strengthening the overall production output of planetary gearboxes for excava-

tors and road pavers, gearboxes for wind turbines and aerial platforms.

The new automation plant for the assembly of gearboxes in the C – A – F – S series

also started up at the factory in Vignola (MO). This major investment will allow daily

production output for these gearboxes to far exceed that recorded in 2007, at the

same time providing high production flexibility and anticipated reduction in pro-

duction costs.

2008 will also represent an important year for the production and sale of the

heavy-duty HDP – HDO ranges, as testified by the start-up phase for assembly

machines at the branches in South Africa and Australia and a new factory in Italy ded-

icated to these products, which will go into operation next September.

Work is as intense as ever in the information technology area with a number of

projects being implemented, the most important of which relating to: the creation of

new support structure for worldwide projects based in India (Business Process Serv-

ice – BPS) and the development of SAP implementation in all the foreign companies

according to a new standard model, in which various Bonfiglioli work groups have

been involved through the mixed participation of staff from various parts of the

world.

An important new strategic planning initiative has been set up in response to the

robust development and growth in turnover recorded by the Group over the last few

years. Under this initiative, the first task will be to review and implement a new organ-

56 57


isational model more in keeping with the size of the business, followed by the estab-

lishment of guidelines and strategic plans for the next 3-5 years.

Further information

Equity shares

The parent company does not hold and has never held equity 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 SpA stock.

Financial risk management

The following information is provided pursuant to the provisions of art. 40, para-

graph 2, letter d-bis of Legislative Decree 127/91 concerning the financial risk faced

by the Group with reference to the particular sector in which it operates and to the

specific procedures it adopts to conduct its business activities.

Magnitude of financial risk

The Group is not unduly exposed to the financial risk that is present in all industrial

and commercial activities under the following captions of the financial statements:

a) Trade receivablesAppropriate internal control procedures for the management of bad debt risks have

been implemented. Amounts due in foreign currency are normally hedged utilising

adequate non-speculative hedging policies. As specified in the Explanatory Notes,

risks of insolvency are fully covered by the doubtful receivables provisions.

b) Trade payables denominated in currencies other than the EuroAlso for this type of risk the considerations of the previous heading are applicable

because the company and group apply systematic exchange risk hedging policies on

balance sheet items with matching offset entries without the use of speculative instru-

ments.

c) Loans obtained in Euro and/or other currenciesThe parent company has no outstanding medium-/long-term loans in currencies

other than the Euro. Temporary export advances may be made against exchange

hedging operations managed in accordance with the hedging policies indicated in

the above points.

Loans and indebtedness of foreign subsidiaries are normally denominated in the

local currency and/or anyway in the currency in which the main sales flows are gen-

erated in such a way as to minimise the risks associated with fluctuation of the cur-


rencies in question. A change in interest rates leads to an economic effect that is pro-

portional to the level of group indebtedness, which is still lower overall than own

equity and is well below average levels in the sector.

Financial risk management

The parent company normally draws up monthly treasury forecasts in order to ensure

constant monitoring of the level of utilisation of financial instruments, financial

exposure, and the short-term capacity to meet its commitments and make the most

appropriate decisions on that basis.

The company also engages in exchange risk hedging operations in relation to both

sales and purchases made in foreign currencies. Full disclosure of the foregoing oper-

ations is provided in the Explanatory Notes to the financial statements, which we

invite you to consult for further details.

May 28, 2008

Board of Directors’ Chairman

Clementino Bonfiglioli58 59


60 61

Bonfiglioli I Annual Report 2007 I Consolidated financial statements as of December 31, 2007 I

Consolidated financial statementsas of December 31, 2007

(The consolidated financial statements have been translated into the English language solely for the convenience of international readers)


Consolidated financial statements as of December 31, 2007

Consolidated balance sheet

Assets (Euro Thousand)

2007 2006

B) Fixed assets (net of cumulated depreciation)

I. Intangible fixed assets

1) Start up costs 46 6

3) Patents and rights for the use of intellectual properties 1,179 1,281

4) Concession, licenses, trademarks and similar rights 78 106

5) Goodwill

5b) Consolidation differences 5,842 7,329

6) Assets in progress and advances 55 361

7) Other intangible fixed assets 402 257

Total Intangible fixed assets 7,602 9,340

II. Tangible fixed assets

1) Land and buildings 69,126 54,833

2) Plant and machinery 48,796 35,475

3) Trade and industrial fixtures 12,651 8,854

4) Other tangible fixed assets 4,266 3,436

5) Construction in progress and advances 11,766 8,033

Total Tangible fixed assets 146,605 110,631

III. Financial fixed assets

1) Investments

b) associated companies 3,341 2,951

d) other companies 28 10

sub total 3,369 2,961

Total Financial fixed assets 3,369 2,961

B) TOTAL FIXED ASSETS (NET OF CUMULATED DEPRECIATION) 157,576 122,932

C) Current assets

I. Inventory

1) Raw materials, supplies and consumables 32,543 27,654

2) Work in progress and semifinished goods 73,624 61,914

4) Finished goods and goods for resale 66,749 64,633

5) Advances 149 304

Total Inventory 173,065 154,505

(Euro Thousand)

2007 2006

II. Receivables

1) Trade receivables

- due within 12 months 145,466 130,659

3) Receivables from associated companies


4bis) Tax receivables


- due after 12 months 488 337

sub total 12,907 9,062

4ter) Deferred tax assets


- due after 12 months 5,513 3,970

sub total 12,618 10,403

5) Other receivables



sub total 5,388 3,070

Total Receivables 185,956 162,505

IV. Cash at bank and on hand

1) Banks 16,262 13,445

2) Cheques — 14

3) Cash on hand 47 46

Total Cash at bank and on hand 16,309 13,505

C) CASH AT BANK AND ON HAND 375,330 330,515

D) Prepaid expenses and accrued income

- Other prepaid expenses and accrued income 641 520

D) TOTAL PREPAID EXPENSES AND ACCRUED INCOME 641 520

TOTAL ASSETS 533,547 453,967

62 63



Liabilities and shareholders’ equity (Euro Thousand)

2007 2006

A) Shareholders' equity

I. Share capital 30,000 15,000

III. Revaluation reserves 20,847 35,847

IV. Legal reserve 3,000 3,000

VII. Other reserves

-) Extraordinary reserve 66,112 52,425

-) Consolidation reserve 16,263 16,395

-) Foreign exchange currency conversion reserve (4,087) (3,314)

-) Other reserves 5,451 5,451

sub total 83,739 70,957

VIII. Retained earnings (losses) carried forward 13,827 11,745

IX. Net income (loss) of the Group 25,645 17,193

Group share of shareholders' equity 177,058 153,742

Minority interests share capital and reserves 1,538 5,745

Minority interests net income (loss) 697 1,040

Minority interests 2,235 6,785

A) CONSOLIDATED SHAREHOLDERS' EQUITY 179,293 160,527

B) Reserves for risks and charges

1) Termination indemnity and similar liabilities 1,787 1,563

2) Taxes and deferred taxes liabilities 7,215 6,523

3) Other reserves 5,594 3,390

B) TOTAL RESERVES FOR RISKS AND CHARGES 14,596 11,476

C) EMPLOYEE SEVERANCE INDEMNITY RESERVE 17,191 18,034

D) Payables

1) Bonds

- due within 12 months 440 459


sub total 6,460 7,296

4) Banks



sub total 127,717 85,958

64 65


(Euro Thousand)

2007 2006

5) Other financial institutions



sub total 22,387 15,291

6) Advances

- due within 12 months 2,526 798

7) Trade payables


10) Payables to associated companies

- due within 12 months 27 29

12) Tax payables


13) Social security


14) Other payables


- due after 12 months 2,748 —

sub total 15,154 11,057

D) TOTAL PAYABLES 321,492 263,402

E) Accrued expenses and deferred income

- Other accrued expenses and deferred income 975 528

E) TOTAL ACCRUED EXPENSES AND DEFERRED INCOME 975 528

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 533,547 453,967

Memorandum accounts

Guarantees given from third parties in own favour 6,168 4,652

TOTAL MEMORANDUM ACCOUNTS 6,168 4,652


(Euro Thousand)

2007 2006

A) Production value

1) Net revenue from sales and services 610,772 498,635

2) Change in work in progress, semi-finished and finished goods 16,228 27,998

5) Other revenues and incomes

- others 5,629 3,900

A) TOTAL PRODUCTION VALUE 632,629 530,533

B) Production costs

6) Raw materials, supplies, consumables & goods for resale 326,302 270,809

7) Services 137,667 117,751

8) Use of third party assets 4,052 3,893

9) Personnel

a) Wages and salaries 69,208 63,387

b) Social contributions 18,474 16,652

c) Severance indemnity 4,135 3,431

e) Other costs 81 126

sub total 91,898 83,596

10) Depreciation, amortization and write-downs

a) Amortization of intangible fixed assets 3,713 2,992

b) Depreciation of tangible fixed assets 16,081 14,081

d) Bad debt provision 1,527 1,270

sub total 21,321 18,343

11) Change in raw materials, supplies, consumables & goods for resale (5,939) (6,401)

13) Other provisions 2,041 649

14) Other operating expenses 4,382 4,089

B) TOTAL PRODUCTION COSTS 581,724 492,729

DIFFERENCE BETWEEN PRODUCTION VALUE AND COSTS (A–B) 50,905 37,804

C) Financial income and expenses

16) Other financial income

- other 453 296

Consolidated statement of income

66 67


(Euro Thousand)

2007 2006

17) Interest expenses and other financial charges

- other (7,801) (4,520)

17bis) Exchange rate gains and losses, net (194) (318)

C) TOTAL FINANCIAL INCOME AND EXPENSES (7,542) (4,542)

D) Adjustments to financial assets

18) Revaluations

a) investments 540 277

D) TOTAL ADJUSTMENTS TO FINANCIAL ASSETS 540 277

E) Extraordinary income and expenses

20) Income

- gains on disposal 2,450 —

- other 737 619

sub total 3,187 619

21) Expenses

- other (1,434) (903)

E) TOTAL EXTRAORDINARY ITEMS 1,753 (284)

INCOME BEFORE TAXES (A–B±C±D±E) 45,656 33,255

22) Income taxes

- current (20,827) (17,178)

- deferred 1,513 2,156

TOTAL INCOME TAXES (19,314) (15,022)

23) NET INCOME (LOSS) INCLUDING MINORITY INTEREST 26,342 18,233

Minority interest income (697) (1,040)

NET INCOME (LOSS) OF THE GROUP 25,645 17,193

68 69

Bonfiglioli I Annual Report 2007 I Notes to consolidated financial statements I

Notes to consolidated financial statements(The notes to the consolidated financial statements have been translated into the English language

solely for the convenience of international readers)

Notes to consolidated financial statements

Foreword

The consolidated financial statement was drafted in compliance with Legislative

Decree no.127/1991.

The Notes include the reconciliation statement between shareholders' equity and

the net income of the Parent company and the same items in the consolidated finan-

cial statements. In addition, the consolidated cash-flow statement has been annexed

to the Notes.

All figures in this financial statement and the relative Notes are expressed in thou-

sands of euro (K€).

Form and contents of the consolidated financial statements

The consolidated financial statement includes 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 control in rela-

tion to specific agreements to this effect.

The financial statements of the Group Companies utilised for the integral consol-

idation 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 shareholders' meetings at the time of preparation of the consolidated

financial statements, 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 December 31, inter-

im financial statements were drawn up at December 31 utilising the Group account-

ing principles.

The Group companies operate exclusively in the industrial production and sale of

gearmotors, speed variators, and drive transmission components in general.

70 71


The subsidiary companies included in the consolidation area at December 31, 2007

are as follows:

With reference to the parent company “Bonfiglioli Riduttori SpA” it is pointed out

that on August 28, 2007, by operation of a deed drawn up by Notary Public Palmeri

Roll no. 4132/860, the company passed a resolution in a general meeting to increase

the share capital without consideration from 15.0 M€ to 30.0 M€ paid up by trans-

ferring part of revaluation reserves recorded under shareholders equity to capital.

With reference to the area of consolidation and changes made from previous year,

we draw your attention to the following matters:

• in March, an agreement was entered into for the transfer of 60% of the share cap-

ital of the subsidiary “Bonfiglioli Hellas SA” to the minority. The transaction took

the company out of the consolidation area. The effects of this deconsolidation are

recorded under extraordinary income. The Group retained a 10% minority hold-

ing in the company, which became the Group’s distributor for the area and

changed its name to “BEST Hellas SA;

• in May the purchase of the remaining 50% of the share capital of the French sub-

sidiary “Bonfiglioli Transmission France Sa” was completed by paying the outgo-

ing Members the sum of 4.9 M€;

• in May the share capital of the Slovakian subsidiary “Bonfiglioli Slovakia S.r.o.”

was increased against payment from 150.0 MSKK to 350.0 MSKK, paid up by


Denomination Country Currency Share Capital Shareholding

2007 2006

Bonfiglioli Riduttori SpA Italy € 30,000,000 Parent Company

Bonfiglioli Canada Inc. Canada CAD 4,000,000 100% 100%

Bonfiglioli USA Inc. USA USD 4,000,000 100% 100%

Bonfiglioli Deutschland GmbH Germany € 3,000,000 100% 100%

Bonfiglioli Skandinavien AB Sweden SEK 2,985,000 67% 67%

Bonfiglioli Transmissions Sa France € 1,900,000 100% 50%

Bonfiglioli Transmission (Aust) Pty Ltd Australia AUD 7,500,004 100% 100%

Bonfiglioli UK Ltd Great Britain GBP 200,000 100% 100%

Bonfiglioli Power Transmission Pty Ltd South Africa ZAR 64,000 75% 75%

Bonfiglioli Transmission Pvt Ltd India INR 400,000,000 100% 100%

Bonfiglioli Drives (Shanghai) Co. Ltd China USD 1,000,000 100% 100%

Bonfiglioli Vectron GmbH Germany € 500,000 97% 97%

Tecnoingranaggi Riduttori Srl (Sole Shareholder) Italy € 96,900 100% 100%

Bonfiglioli Italia Spa (Sole Shareholder) Italy € 16,000,000 100% 100%

Bonfiglioli Slovakia Sro Slovakia SKK 350,000,000 100% 100%

Bonfiglioli Power Trasmission Jsc Turkey TRY 500,000 67% 67%

means of cash payments by the parent company;

• on August 28, 2007, by operation of a deed drawn up by Notary Public Palmeri

Roll no. 4130/858 with effect from 1st September 2007, the parent company com-

pleted a transaction increasing the share capital of the subsidiary “Bonfiglioli Italia

S.r.l.” from 0.1 M€ to 16.0 M€, paid up by means of conferments in kind of busi-

ness branches set up to deal with the “marketing of Bonfiglioli products on the

Italian market” and “storage, logistics and programming relating to sales in Italy”.

On September 3, 2007, by operation of a deed drawn up by Notary Public Palmeri

Roll no. 4138/866 the company was transformed into a company limited by shares

(SpA);

• in October the share capital of the Canadian subsidiary “Bonfiglioli Canada Inc.”

was increased against payment from 2.3 MCAD to 4.0 MCAD, paid up by trans-

ferring payables due to the parent company to capital.

It is also pointed out that, following approval in South Africa of the law known as the

“Black Empowerment Equity Program” (BEE), the company “Bonfiglioli South

Africa Pty Ltd” (a 100% subsidiary of the South African branch) was incorporated

with a view to initiating negotiations with a number of important partners belong-

ing to the BEE categories and to helping them participate in business activities, as

laid down by local legislation. At the end of 2007 the company “Bonfiglioli South

Africa Pty Ltd.” was no longer in operation and was therefore excluded from the con-

solidation area.

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 the 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. Consolidation is carried out on a line-by-line basis, 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 denomi-

nated "Consolidation Reserve". Any positive differences existing at the time of

first consolidation were recorded in the consolidated financial statements, where

72 73


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. For companies that were already controlled at January 1st,

1994 this date was considered as the moment of initial consolidation, since 1994

was the year in which it became mandatory to draw up consolidated financial

statements.

C. The positive differences recorded were amortised in accordance with the rates

utilised for the assets to which they refer; the consolidation difference is amor-

tised throughout the estimated future working life of the assets in question.

D. The results achieved, following initial consolidation, were subsequently 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 consolidated Companies within the Group were

properly eliminated.

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 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 in force on said date, while subsequent changes are converted

at the historic exchange rates in force on 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, were

recorded under a specific caption of consolidated equity denominated "Currency

conversion reserve”.

The exchange rates utilised for companies operating outside the euro area are as

follows:


I. The following company is consolidated with the net equity method:

Denomination Location Share %Capital Stake

Tecnotrans Bonfiglioli Sa Barcelona (Spain) € 2,175,000 33.33%

Valuation criteria

The accounting principles and valuation criteria adopted in drafting the financial

statement are in compliance with the principles of the Italian Civil Code and the

accounting standards prescribed by the National Council of Chartered Accountants

(OIC). 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 annual financial statement was prepared in accordance with the general prin-

ciples of clarity, truthfulness and fairness; specifically:

• items in the financial statement were valued in accordance with the general prin-

ciple of prudence and on an accrual basis, applied in expectation that activities

will continue;

• account is taken of the risks and losses relating to the year, even when such risks

and losses became known after the end of that year;

• the statements refer exclusively to profits realised at the closing date of the finan-

cial 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;

74 75


Company Currency B.S. exchange P.L. exchange B.S. exchange P.L. exchangerate 2007 rate 2007 rate 2006 rate 2006

Bonfiglioli UK Ltd Pound Sterling 0,733 0,684 0,672 0,682

Bonfiglioli Canada Inc. Canadian Dollar 1,445 1,468 1,528 1,424

Bonfiglioli Skandinavien Ab Swedish Kroner 9,441 9,250 9,040 9,254

Bonfiglioli USA Inc. US Dollar 1,472 1,370 1,317 1,256

Bonfiglioli Transmission (Aust) Pty Ltd Australian Dollar 1,676 1,635 1,669 1,667

Bonfiglioli Power Transmissions Pty Ltd South African Rand 10,030 9,660 9,212 8,531

Bonfiglioli Transmissions Pvt Ltd Indian Rupee 58,021 56,572 58,297 56,910

Bonfiglioli Drives (Shanghai) Co. Ltd Chinese Yuan 10,752 10,418 10,279 10,010

Bonfiglioli Slovakia Sro Slovakian Koruna 33,583 33,774 34,435 37,234

Bonfiglioli Power Transmissions Jsc Turkish Lira 1,7107 1,786 1,864 1,809

• the valuation principles are unchanged with respect to those utilised in the pre-

vious year, unless specified below;

• no exceptional cases occurred the justified a departure from the provisions of leg-

islative enactments.

During the year dealt with in these Notes the cost of inventory is calculated adopt-

ing the FIFO method and not with reference to the mean weighted cost figure.

In keeping with principle no. 29 laid down by the National Council of Chartered

Accountants (OIC), it is pointed out that the effects of the alteration of the account-

ing principle may be considered as insignificant, given the size of the Group, and it

is not therefore considered necessary to record in the accounts the effects referred to

in the aforementioned principle no. 29.

Specifically, the valuation criteria adopted in drawing up the financial statement

are as specified below.

Intangible fixed assets

Intangible fixed assets are recorded at purchase cost increased by ancillary expenses

or, if the assets were internally constructed, on the basis of the costs sustained direct-

ly or indirectly, entered in respect of the attributable portion.

The cost, calculated as illustrated above, may be written back 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:

Start-up and expansion costs 20%

Patent rights and utilisation of intellectual property rights 33.33% - 50%

Concessions, licences, trademarks and similar rights 33.33%

Consolidation differences 10 – 20%

Other 20%

Tangible fixed assets

Plant and equipment are recorded in the financial statements at purchase cost or con-

struction cost, inclusive of all directly connected ancillary expenses and adjusted in

the event that specific laws allow the write-back of assets in order to adjust them, even

only partially, to the changed purchasing power of the currency.

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 Italian Consiglio Nazionale

dei Dottori e dei Ragionieri Commercialisti (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 state-

ment.

Provisions made in lieu of depreciation are systematically allocated by the applica-

tion of rates that are considered to accurately reflect the residual useful working life

of the assets to which they refer.

Maintenance and repair costs of an ordinary nature are directly attributed to oper-

ating costs, while extraordinary costs that increase the useful life or production capac-

ity of the relative asset are added to the value of the asset.

The ordinary annual rates utilised for the depreciation of tangible assets are as fol-

lows:

Land and buildings 2% to 10%

Plant and machinery 10% to 25%

Industrial / trade fixtures 10% to 30%

Other 10% to 30%

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

statements 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.

Inventories

Inventories are valued in accordance with the general principle of the lower of pur-

chase cost and market cost:

• 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 produc-

tion costs;

• semi-finished and finished products are valued adopting the FIFO method, tak-

ing 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.

76 77


Receivables

Receivables are entered at their presumed realisation value through direct provision

for bad debts and entry of a provision for bad debts.

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

Accruals and deferments are calculated in such a way as to attribute during the year

the competent portions of costs and revenues relative to two or more years, in accor-

dance with the pro tempore competence of the relative transactions.

Specifically, accrued income and accrued expenses refer to revenues and costs rel-

ative to the year, although formally recorded in the following year; prepaid expenses

and deferred income concern costs and revenues arising during the year despite the

fact that they 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 the exact amount

or contingency date was not known at year-end.

The allocations reflect the best possible estimate of the relative amounts on the

basis of the information available.

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 pro-

vision.

Employees severance indemnity

The severance indemnity reserve is commensurate with the amounts payable to the

employees in the workforce at the closing date of the year, in compliance with statu-

tory legislation and applicable collective labour contracts.

Payables

Payables are entered at their nominal value with regard to the principal, while inter-

est is entered under payables if already due, and under accruals, according to the

accrual principle if not yet due.

Recognition of costs and revenues

Sales revenues and purchase costs are recognised at the time of transfer of owner-

ship, which generally occurs respectively at the time of shipment or at the time of


reception, 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 on the basis of a forecast of the tax burden for the year

with reference to statutory tax regulations and taking account of the applicable

exemptions and facilitations.

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.

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 the currency of non-euro countries were

converted at the exchange rates in force at year-end, taking account of the existing

hedging contracts.

The difference arising from this operation (gain or loss) was verified and reflect-

ed in the income statement for the year, with a matching entry of the relative receiv-

able or payable.

Specifically, with regard to captions in foreign currency for which forward con-

tracts in foreign currency 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 into the income statement with a matching entry of the

relative trade receivable or payable;

• the discount or premium of the transaction was recorded by competence with

respect to the relative duration.

Derivatives

Contracts taken out to hedge exchange risks are measured in relation to the receiv-

able or payable to which they refer.

78 79


Exchange rate or interest rate swap contracts that are not correlated to the receiv-

ables and/or payables entered at the reference date of the financial statements are val-

ued 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 val-

uation 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 liabil-

ity or as the contractual undertaking assumed at the date of the financial statements.

If the existence of a hedging relationship with the underlying financial transac-

tions 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.

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.

Comments on the individual captions of the financial statementIn the following tables the "consolidation area changes" heading reflects the balances

as at December 31, 2006 of the Greek company leaving the consolidation area fol-

lowing the transfer of the majority shareholding.


Balance sheet

Fixed assets

Intangible fixed assets

The "other changes" column includes cancellations of the fully amortised items and

the effect of the exchange rate fluctuation.

Start-up and expansion costs

This caption refers to start-up costs and costs associated with amendments to the

80 81


Description Opening Increases Decreases Consolidation Other Closing balance area changes changes balance

HISTORICAL COST

- Start-up and expansion costs 10 52 — — — 62

- Patent rights and intellect. property rights utilis. 13,213 1,542 — — 270 15,025

- Concessions, licences, trademarks, similar rights 1,283 48 (34) (19) 1 1,279

- Consolidation differences 19,718 103 — — — 19,821

- Assets under construction and advances 361 55 (92) — (269) 55

- Other 719 273 (82) — (71) 839

Total (A) 35,304 2,073 (208) (19) (69) 37,081

CUMULATED AMORTISATION


- Patent rights and intellect. property rights utilis. 11,932 1,917 — — (3) 13,846

- Concessions, licences, trademarks, similar rights 1,177 77 (34) (19) — 1,201

- Consolidation differences 12,389 1,590 — — — 13,979

- Other 462 117 (49) — (93) 437

Total (B) 25,964 3,713 (83) (19) (96) 29,479

NET VALUES


- Patent rights and intellect. property rights utilis. 1,281 (375) — — 273 1,179

- Concessions, licences, trademarks, similar rights 106 (29) — — 1 78

- Consolidation differences 7,329 (1,487) — — — 5,842

- Assets under construction and advances 361 55 (92) — (269) 55

- Other 257 156 (33) — 22 402

Total (A-B) 9,340 (1,640) (125) — 27 7,602

articles of association of the company Bonfiglioli Italia SPA, which increased during

the year as a result of expenses incurred by the company in transferring business

branches and the subsequent transformation of the company into a company limit-

ed by shares (SpA), entered in the accounts with the approval of the Statutory

Auditors.

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

with 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.

Certain patent rights were revalued in compliance with L.342/00. Pursuant to the

provisions of art. 10 of L. 72/83 the value of the monetary revaluations applied is

indicated below:

Description Original Revaluation Net bookcost L. 342/2000 value

Start-up and expansion costs 62 — 62

Patent rights and intellectual property rights utilisation 9,478 5,547 15,025

Concessions, licences, trademarks and similar rights 1,279 — 1,279

Consolidation differences 19,821 — 19,821

Assets under construction and advances 55 — 55

Other 839 — 839

Total (A) 31,534 5,547 37,081

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.

Good will and consolidation differences

The value recorded arises from consolidation differences in the form of goodwill,

specifically:

• K€ 711 referred to the acquisition of the equity investments in Bonfiglioli

Vectron GmbH;

• K€ 4,990 referred to the acquisition of the equity investment in Tecnoingranaggi

Riduttori Srl Sole Shareholder;

• K€ 59 referred to the acquisition of the equity investment in the Turkish company

“Bonfiglioli Power Transmission and Automation Technologies Industry and


Commerce JSC”;

• K€ 82 referred to the acquisition of the equity investment in the company

“Bonfiglioli Transmission France SA”. The consolidation difference relative to the

foregoing investment was recognised for an original value of K€ 103.

Amortisation is executed, with the approval of the Statutory Auditors, in accordance

with a five-year plan for Bonfiglioli Vectron GmbH, Bonfiglioli Power Trasmission &

Automation Jsc and Bonfiglioli Transmission France SA and in accordance with a

ten-year plan for Tecnoingranaggi Riduttori Srl, in consideration of the

medium/long-term return on the investment plan.

Tangible fixed assets

82 83


Description Opening Increases Decreases Consolidation Other Closingbalance area change changes balance

HISTORICAL COST

- Land and buildings 75,788 17,230 (5,079) (639) 1,985 89,285

- Plant and machinery 152,701 20,193 (5,558) (3) 2,433 169,766

- Trade and industrial fixtures 47,489 8,422 (3,640) (7) 39 52,303

- Other tangible assets 12,375 2,034 (662) (220) 86 13,613

- Assets under construction and advances 8,033 8,362 (5) (5) (4,619) 11,766

Total (A) 296,386 56,241 (14,944) (874) (76) 336,733

CUMULATED DEPRECIATION

- Land and buildings 20,955 2,003 (2,767) (120) 88 20,159

- Plant and machinery 117,226 8,978 (5,198) (3) (33) 120,970

- Trade and industrial fixtures 38,635 3,936 (2,886) (7) (26) 39,652

- Other tangible assets 8,939 1,164 (547) (201) (8) 9,347

Total (B) 185,755 16,081 (11,398) (331) 21 190,128

NET VALUES

- Land and buildings 54,833 15,227 (2,312) (519) 1,897 69,126

- Plant and machinery 35,475 11,215 (360) — 2,466 48,796

- Trade and industrial fixtures 8,854 4,486 (754) — 65 12,651

- Other tangible assets 3,436 870 (115) (19) 94 4,266

- Assets under construction and advances 8,033 8,362 (5) (5) (4,619) 11,766

Total (A-B) 110,631 40,160 (3,546) (543) (97) 146,605

The "other changes" column includes exchange rate differences and reclassifications

of the individual items.

For an analysis of the investments in the year we refer you to the Management

report. Within the meaning and for the purposes envisaged in article 10 of Law

72/1983 and subsequent amendments and additions thereto, an indication is provid-

ed of assets still recognised in equity for which monetary revaluation has been car-

ried out, specifying the relative amounts:

The revaluations indicated in the table above had no effect on the income statement

for the year since they had already been fully amortised.

Financial fixed assets

Investments

The following table provides a breakdown of the "Equity investments" item and the

changes that occurred during the year:

The increases for the year refer to the 10% minority stake in the company “BEST

Hellas SA”, as referred to above. The decreases refer to shares in consortia no longer

held by the Group.

The "other changes" entry refers to the portion of profit for the year attributable to

the associated company Tecnotrans Bonfiglioli SA (K€ 540), net of dividends

received (K€ 150). The following table gives details of the associated company:


Description Original Rev. Rev. Rev. Other Netcost L. 72/83 L. 413/91 L. 342/2000 Rev. book

Land and buildings 85,929 406 2,264 — 686 89,285

Plant and machinery 144,039 357 — 25,061 309 169,766

Trade and industrial fixtures 51,895 408 — — — 52,303

Other tangible assets 13,580 33 — — — 13,613

Assets under construction and advances 11,766 — — — — 11,766

Total 307,209 1,204 2,264 25,061 995 336,733

Description Opening Increases Decreases Other Closingbalance changes balance

INVESTMENTS

- in associated companies 2,951 — — 390 3,341

- in other companies 10 19 (1) — 28

Total 2,961 19 (1) 390 3,369

Company Tecnotrans Bonfiglioli SA

Location Barcelona (Spain)

Share Capital 2,175 K€

Share held 33.33%

Shareholders' equity at December 31, 2007 10,023 K€

Net Income at December 31, 2007 1,621 K€

Book value 3,341 K€

Current assets

Inventory

2007 2006 Changes

Raw materials, supplies and consumables 32,543 27,654 4,889

Work in progress and semi-finished goods 73,624 61,914 11,710

Finished goods and goods for resale 66,749 64,633 2,116

Advances 149 304 (155)

Total 173,065 154,505 18,560

The foregoing amounts are net of obsolescence reserve, made up as follows:

2007 2006 Changes

Raw materials and consumables 2,679 1,700 979

Semi-finished products 6,201 3,500 2,701

Finished goods 4,458 3,880 578

Total 13,338 9,080 4,258

Changes in the provision are shown below:

2007 2006

Opening value 9,080 7,233

Increases 4,527 2,190

Decreases (125) (111)

Other changes (144) (232)

Closing value 13,338 9,080

The increase in stock on hand is associated with the higher sales volumes and sales

forecasts for the first months of 2008.

84 85


Receivables

Trade receivables

2007 2006 Changes

Trade receivables from customers 150,978 134,971 16,007

Receivables from associated companies 9,577 9,311 266

(minus) Bad debt reserve (5,512) (4,312) (1,200)

Total 155,043 139,970 15,073

The increase in receivables is mainly due to the increase in sales volumes, up by

22.5% with respect to the previous year.

Receivables from the associated company Tecnotrans Bonfiglioli SA are relative to

amounts due for the sale of goods and services, which was conducted at arm's length

conditions. Receivables from customers are recorded net of the bad debt reserve, a

breakdown of which is given below:

2007 2006


Provisions 1,527 1,270

Utilizations (278) (458)

Change in consolidation area (34) 21



Breakdown of trade receivables by geographical area:

2007 2006

Italy 65,924 60,193

European Union 53,635 55,465

Other 35,484 24,312

Total 155,043 139,970

Other receivables

2007 2006 Changes

Tax receivables 12,907 9,062 3,845

Deferred tax assets 12,618 10,403 2,215

Receivables from others 5,388 3,070 2,318

Total 30,913 22,535 8,378


Tax receivables can be broken down as follows:

2007 2006

Inland Revenue for VAT 12,404 8,449

Inland revenue for direct taxation — 276

Inland revenue for taxation subject to long-term refund 488 297

Other short-term receivables 15 —

Other long-term receivables — 40

Total 12,907 9,062

Changes in deferred tax assets were as follows:

2007 2006

Opening balance 10,403 7,557

Provisions 3,331 3,668

Utilizations (610) (817)

Change in consolidation area (463) —


Closing balance 12,618 10,403

Other receivables can be broken down as follows:

2007 2006

Receivables from employees 114 56

Advances to suppliers 1,068 676

Deposits 1,102 37

Receivables for pensions fund insurance 1,419 1,106

Receivables for customs duties 334 587

Short-term receivables from social security institutions 106 42

Currency exchange gains 366 —

Guarantee deposits 193 152

Other short-term receivables 654 411

Other long-term receivables 32 3

Total 5,388 3,070

No receivables having a term exceeding five years were recorded.

Cash at banks and on hand

2007 2006 Changes

Bank and post office deposits 16,262 13,445 2,817

Cheques — 14 (14)

Cash and cash equivalents 47 46 1

Total 16,309 13,505 2,804

86 87


For a comprehensive appraisal of the change in the Group net cash position we

invite you to refer to the section in which amounts due to banks are analysed, and

to the cash-flow statement.

Accrued income and prepaid expenses

2007 2006 Changes

Total 641 520 121

Breakdown:

2007 2006

Advertising 71 52

Insurance policies 66 106

Hire charges and rentals 294 171

Other 210 191

Total 641 520

Shareholders’ equity

At December 31, 2007 the overall share capital of € 30,000,000,00 was represented

by 30,000,000 ordinary shares with par value of € 1 each.

Reconciliation statement between net equity and income for the yearat December 31, 2007 of Parent Company Bonfiglioli Riduttori SpA

Net income Shareholders' equity

Bonfiglioli Riduttori SpA statutory accounts 17,825 164,263

Accounting of the shareholders' equity and results of consolidated equity investments and associated companies instead of the book value in the financial statements of the Parent company, net of infra-group dividends 16,090 30,544

Bonfiglioli Hellas SA deconsolidation (301) —

Shareholders' equity and profit attributable to minority interests (697) (2,235)

Elimination of infra group transactions (4,493) (15,543)

Reversal of infra group contribution (3,459) (3,459)

Leasing agreement with financial method 671 3,518

Other minor items 9 (30)

Consolidated financial statements 25,645 177,058


88 89


Share

Legal

RevaluationConsolidation

Currency

Other

Retained

Net

Total

Capital

reserve

reserve

reserve

conversion

reserve

earning

income

reserve

carried fw.

Balance at December 31, 2004

15,000

3,000

35,914

16,395

(3,370)

44,294

10,966

6,145

128,344

2004

Net In

come allocatio

n—

——

——

5,77

936

6(6,145

)—

Parent com

pany

dividen

ds—

——

——

(1,500

)—

—(1,500

)

Currenc

y co

nversio

n differen

ces

——

——

2,03

2—

——

2,03

2

Net in

come for 20

05—

——

——

——

9,64

99,64

9


15,000

3,000

35,914

16,395

(1,338)

48,573

11,332

9,649

138,525

2005

Net In

come allocatio

n—

——

——

9,30

334

6(9,649

)—

Currenc

y co

nversio

n differen

ces

——

——

(1,976

)—

——

(1,976

)

Bonfiglio

li Hellas SA

rev

alua

tion reserve *

——

(67)

——

—67

——

Net in

come for 20

06—

——

——

——

17,193

17,193


15,000

3,000

35,847

16,395

(3,314)

57,876

11,745

17,193

153,742

2006

Net In

come allocatio

n—

——

——

15,187

2,00

6(17,19

3)—

Parent Com

pany

sha

re cap

ital inc

rease

15,000

—(15,00

0)—

——

——

—

Parent com

pany

dividen

ds—

——

——

(1,500

)—

—(1,500

)

Decon

solidation Bo

nfiglioli Hellas SA

——

—(132

)56

—76

——

Currenc

y co

nversio

n differen

ces

——

——

(829

)—

——

(829

)

Net in

come for 20

07—

——

——

——

—25

,645


30,000

3,000

20,847

16,263

(4,087)

71,563

13,827

25,645

177,058

Statement of changes of consolidated equity at December 31, 2007

(*) tran

sfer to share capital

The chan

ge in

the

currency conv

ersion

provision

is due

mainly to the

devalua

tion of the

US Dollar, Po

und Sterlin

g, Sou

th African

Ran

d an

d Chine

se Yua

n with

respe

ct to the Eu

ro.

Minority interests

Minority Minority capital Minority profit/loss and reserves interests

Balance at December 31, 2006 1,040 5,745 6,785

2006 Net Income allocation (1,040) 1,040 —

Dividends’ distribution — (676) (676)

Currency conversion differences — (80) (80)

Acquisition of 50% in Bonfiglioli Transm. France SA — (4,336) (4,336)

Deconsolidation of Bonfiglioli Hellas SA — (155) (155)

Net income 2007 to minority interests 697 — 697

Balance at December 31, 2007 697 1,538 2,235

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:

Reserves for risks and charges

Pensions and similar liabilities

2007 2006 Change

Total 1,787 1,563 224

This item shows the sales agents' indemnity reserve, which saw the following

changes:


Company 2007 2006

Income Capital Total Income Capital Totaland reserves and reserves

Bonfiglioli Vectron GmbH 39 133 172 36 97 133

Bonfiglioli Hellas SA — — — 27 128 155

Bonfiglioli Power Transmission Pty Ltd 584 998 1,582 399 874 1,273

Bonfiglioli Transmissions SA — — — 591 4,245 4,836

Bonfiglioli Skandinavien AB (1) 127 126 (7) 140 133

Bonfiglioli Power Transmission JSC 75 280 355 (6) 261 255

Total 697 1,538 2,235 1,040 5,745 6,785

2007 2006


Provisions 269 441

Applications for payments to agents terminated during the year (45) (159)

Other changes — (8)


Taxes and deferred taxes

2007 2006 Changes

Total 7,215 6,523 692

This caption can be broken down as follows:

Description 2007 2006 Changes

Deferred tax provision 7,115 6,423 692

Inland Revenue assessment risks provision 100 100 —

Total 7.215 6,523 692

With reference to the deferred taxation provision, changes in the year are broken

down as follows:

2007 2006


Provisions for deferred taxation 2,483 1,708

Utilizations (1,100) (885)

Change in mean share (638) —

Change in consolidation area (47) —



The Inland Revenue assessment risks provision refers to the potential risk stemming

from a tax assessment of the parent company carried out at the end of 2006.

90 91


Other reserves for risks and charges

2007 2006 Changes

Total 5,594 3,390 2,204


Description Opening Provisions Utilizations Other Closingbalance changes balance

Product warranties 2,323 1,661 (95) (29) 3,860

Legal risks 200 373 — (5) 568

Other 867 576 (291) 14 1,166

Total 3,390 2,610 (386) (20) 5,594

The "Other" caption includes a "Company restructuring provision" allocated in the

amount of K€ 750 by the Parent Company at the end of 2007.

Employees severance indemnity reserve

2007 2006 Changes

Total 17,191 18,034 (843)

Changes in the severance indemnity fund in 2007 were as follows:

2007 2006

Opening balance 18,034 16,864

Provisions 725 3,431

Applications (1,555) (2,235)


Closing balance 17,191 18,034

With reference to the parent company, in keeping with the provisions of Italian leg-

islation relating to companies with an employed work force exceeding fifty, with

effect from January 1st, 2007, sums allocated to the severance indemnity reserve are

paid by the company into the individual pension funds held by the organisations

indicated by each employee or by welfare bodies; the provisions caption therefore

reflects increases in the severance indemnity reserve relating to members of the

group for which a reserve of this kind is still held by the company.

The number of employees in the workforce during the year was as follows (spot


and average data):

2007 2006 2007 2006 average average

Executives and managers 93 100 97 92

White collar and middle 948 722 835 701

Direct and indirect blue collar 1,358 1,253 1,306 1,136

Temporary staff 102 151 127 154

Total 2,501 2,226 2,364 2,083

Payables

Bonds

2007 2006 Changes

Bonds 6,460 7,296 835

This item shows the following payables:

• bond issued by the Parent Company on September 8, 2005 maturing on

December 31, 2020, which is liable to interest at an annual rate of 3.2%. The fore-

going loan, issued for a total of K€ 3,750, is recorded in the financial statements

at December 2007 for K€ 3,250 of which K€ 250 matures next year; the portion

of the debt maturing beyond the next year although within a period of five years

totals K€ 1,000, while the portion beyond five years totals K€ 2,000;

• bond issued by the subsidiary “Bonfiglioli USA Inc.” for a total of KUSD 5,000 to

back up the investment made in the construction of the new factory premises

completed during the year. At the end of 2007 the residual value recorded for the

loan is KUSD 4,725. The amount due next year totals KUSD 280 (K€ 109), the

debt falling due beyond next year but within a period of 5 years is KUSD 1,180

(K€ 802) while the portion due beyond five years totals KUSD 3,265 (K€ 2,218).

It is pointed out that the loan issued by “Bonfiglioli USA Inc.” is secured by the

company’s real estate.

92 93


Borrowings

2007 2006 Changes

Amounts due to banks - current account overdrafts and advances subject to collection 28,614 21,830 6,784

Amounts due to banks - loans 99,103 64,128 34,975

Total amounts due to banks 127,717 85,958 41,759

Due to other financial institutions 22,387 15,291 7,096

Total 150,104 101,249 48,855

(minus) Cash at banks and on hand (16,309) (13,505) (2,804)

Bonds 6,460 7,296 (836)

Net Cash Position 140,255 95,040 45,215

As shown also by the cash-flow statement, to which we invite you to refer, the

increase in short-term borrowings (Net Cash Position) is mainly attributable to the

liquidity absorbed by the significant investments made during the year (M€ 54) and

the increase in net working capital, both caused by the major increase in sales record-

ed in recent years.

Amounts due to banks include openings of credit regulated by current account

relationships, advances subject to collection, and import-export financing.

The caption Due to other financial institutions includes both the medium/long-

term loans received from institutions other than banks (Ministry of Industry pur-

suant to Law 46 – SIMEST Law 394) and also the residual portions of capital of leas-

ing contracts recorded in accordance with IAS no. 17.

The figure is recorded at face value with regard to the principal, whilst the inter-

est due at the end of the year is recorded on an accrual basis.

Changes occurring during the year with reference to bank loans and amounts due

to other financial institutions are detailed in the following table:


94 95


Company

Opening balance

Disbursal

Repayments

Exchange

Closing

Within

Beyond

Beyond

Guarantees

rate delta

balance

12 months

12 months

5 months

DUE TO BANKS

Current accou

nts/ad

vanc

es21

,830

25,957

(19,31

2)13

928

,614

28,614

——

Bonfiglioli Ridu

ttori S

pA48

,443

32,000

(9,166

)—

72,277

23,765

42,082

6,43

0

Tecnoing

rana

ggi R

iduttori Srl

6579

0(107

)—

748

8638

527

7(*)

Bonfiglioli Tran

s. (Aust.) Pty Ltd

4,49

4—

(210

)(17)

4,26

71,91

02,35

7—

(*)

Bonfiglioli USA

Inc.

2,23

9—

—(235

)2,00

42,00

4—

—(*)

Bonfiglioli Deu

tsch

land

GmbH

1,25

05,80

0(42)

—7,00

81,48

91,53

13,98

8(*)

Bonfiglioli Ve

ctron GmbH

175

—(140

)—

3535

——

Bonfiglioli Tran

smission Pv

t Ltd

2,75

42,61

5(686

)11

4,69

42,59

02,10

4—

(*)

Bonfiglioli Driv

es (Sh

angh

ai) Co. Ltd

460

219

(473

)—

206

206

——

(*)

Bonfiglioli Slov

akia Sro

2,51

03,70

5(558

)49

5,70

650

14,77

243

3(*)

Bonfiglioli Po

wer Transmission JSC

1,73

899

6(668

)92

2,15

863

91,51

9—

(*)

Total due to banks

85,958

73,082

(31,362)

39127,717

61,839

54,750

11,128

DUE TO OTHER FINANCIAL INSTITUTIONS

Bonfiglioli Ridu

ttori S

pa13

,398

9,75

5(4,314

)—

18,839

2,94

012

,471

3,42

8

Bonfiglioli Ita

lia Spa

—1,33

3(143

)—

1,19

034

784

3—

Bonfiglioli Tran

smission Pv

t Ltd

1,67

766

4—

82,34

9—

575

1,77

4

Bonfiglioli Tran

s. (Aust.) Pty Ltd

30—

(21)

—9

9—

—

Bonfiglioli Tran

smission SA

186

—(186

)—

——

——

Total due to other financial institutions

15,291

11,752

(4,664)

822,387

3,296

13,889

5,202

TOTAL

101,249

84,834

(36,026)

47150,104

65,135

68,639

16,330

(*) Pa

rent Com

pany

gua

rantees

Trade payables

2007 2006 Changes

Advances 2,526 798 1,728

Trade payables due to suppliers 136,202 128,780 7,422

Amounts due to associated companies 27 29 (2)

Total 138,755 129,607 9,148

Breakdown of trade payables by geographical area:

2007 2006

Italy 115,525 103,379

European Union 14,173 14,320

Other 9,057 11,908

Total 138,755 129,607

Other payables

2007 2006 Changes

Tax payables 5,696 9,785 (4,089)

Amounts due to welfare and social security 5,323 4,408 915

Other payables 15,154 11,057 4,097

Total 26,173 25,250 923

Tax payables include the following items:

2007 2006

Direct taxes 3,291 6,244

Withholding tax and other 2,405 3,541

Total 5,696 9,785

"Other payables" can be broken down as follows:

2007 2006

Amounts due to employees 10,693 9,372

Deposits — 500

Payables from acquisition shareholding France 3,559 —

Other 902 1,185

Total 15,154 11,057


Deferred income and accrued liabilities

2007 2006 Changes

Total 975 528 447

This item can be broken down as follows:

2007 2006

Interest payable on loans 782 225

Insurance policies 64 128

Exchange rate fluctuations 83 73

Other 46 102

Total 975 528

Memorandum accountsThe following memorandum accounts of the consolidated companies are included

at the foot of the balance sheet:

2007 2006 Changes

Total 6,168 4,652 1,516

Guarantees granted by third parties refer to sureties issued on behalf of the Group

by 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 con-

tractual undertakings or debts.

96 97


Income statement

Net revenues from sales and services

2007 2006 Changes

Total 610,772 498,635 112,137

Sales, which were up by 22.5% compared to the previous year, were made in the fol-

lowing geographical areas:

2007 % 2006 %

Italy 165,583 27.11 144,893 29.06

Europe 253,486 41.50 213,788 42.88

Overseas 191,703 31.39 139,954 28.06

Total 610,772 100.00 498,635 100.00

Other revenues and income

2007 2006 Changes

Total 5,629 3,900 1,729

This item can be broken down as follows::

2007 2006

Refund for packing and transport costs 2,249 1,798

Refunds for defective processing/material 894 62

Capital gains 470 213

Sale of machining swarf and scrap 1,321 790

Other 695 1,037

Total 5,629 3,900

Raw materials, supplies, consumables and goods for resale

2007 2006 Changes

Total 326,302 270,809 55,493

The increase in costs for purchases, when considered alongside the change in

inventories and the increase in outsourced processes, reflects the normal increase

in consumption associated with the significant rise in sales and changes in the mix

of products sold.


Services

2007 2006 Changes

Total 137,667 117,751 19,916

This caption includes outsourced processes in the amount of K€ 70,237 (K€ 61,799

in 2006), costs for commission, transport, advertising and other commercial servic-

es, 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.

Use of third party assets

2007 2006 Changes

Total 4,052 3,893 159

This item mainly concerns the lease of IT systems and motor vehicles, rentals for the

lease of industrial plants and external depots, and royalties paid to third parties.

Personnel

Personnel costs can be broken down as follows:

2007 2006 Changes

Salaries and wages 69,208 63,387 5,821

Social security contributions 18,474 16,652 1,822

Employees severance indemnity 4,135 3,431 704

Other costs 81 126 (45)

Total 91,898 83,596 8,302

The increase in personnel costs is linked both to the strengthening of the workforce,

with an increase of more than 300 staff during the year, and increases in the cost of

labour recorded following contractual renewals and the normal dynamics of compa-

ny salaries.

98 99


Depreciation, amortisation and write-downs

2007 2006 Changes

Amortisation of intangible fixed assets 3,713 2,992 721

Depreciation of tangible fixed assets 16,081 14,081 2,000

Provision for bad debts 1,527 1,270 257

Total 21,321 18,343 2,978

Other provisions

2007 2006 Changes

Total 2,041 649 1,392

Mainly reflects allocations made in the year to product warranty and legal risk provi-

sions.

Other operating expenses

2007 2006 Changes

Total 4,382 4,089 293

This caption is a residual item and it includes expenses and charges that cannot be

classified under the previous headings. It relates to general production, commercial,

and minor administrative expenses, capital losses of an ordinary nature, and other

minor items.

Financial income

2007 2006 Changes

Total 453 296 157


2007 2006

Bank interest receivable 435 287

Commercial and other interest receivable 18 9

Total 453 296

Interest payable and financial expenses

2007 2006 Changes

Total 7,801 4,520 3,281



2007 2006

Interest on amounts due to banks 1,741 684

Interest payable on loans 4,518 2,885

Interest payable on leasing contracts 665 377

Interest payable on bonds 189 118

Discounts, premiums & expenses on derivatives (IRS & forward contracts) 527 444

Other 161 12

Total 7,801 4,520

The increase recorded during the year is mainly attributable to the following reasons:

• negative trend of market interest rates: 3M Euribor rate up from 3.7% in January

2007 to 4.8% in December 2007 (+29%);

• increase in average indebtedness (in terms of Net Financial Position).

Exchange rate gains/losses

2007 2006 Changes

Total (194) (318) 124

This amount can be broken down as follows:

2007 2006

Currency exchange gains 2,174 2,650

Currency exchange losses (2,368) (2,968)

Total (194) (318)

Adjustments of financial assets

2007 2006 Changes

Total 540 277 264

This caption concerns the portion of profit for the year attributable to the associat-

ed company "Tecnotrans Bonfiglioli SA".

100 101


Extraordinary income and expenses

2007 2006 Changes

Net Total 1,753 (284) 2,037

Extraordinary income and expenses includes, in particular, the following items:

2007 2006

Capital gains 2,450 —

Contingent assets 737 619

Contingent liabilities (872) (394)

Taxes from past years — (9)

Provision for tax risks — (100)

Provision to funds (562) (400)

Total 1,753 (284)

The extraordinary capital gains relate to the sale by the parent company of the fac-

tory premises situated in San Lazzaro (BO) for 2.1 M€ and the sale of the sharehold-

ing in the Greek company that left the consolidation area for 0.3 M€.

Contingent assets mainly concern insurance refunds and tax rebates.

Current, deferred and prepaid taxes

2007 2006 Changes

Current taxes (20,827) (17,178) (5,128)

Deferred taxes (745) (684) (280)

Prepaid taxes 2,258 2,840 1,440

Total (19,314) (15,022) (3,968)

Further information

Before closing this report, in completion of the information required by article 38 of

Legislative Decree 127/1991 and other provisions of the Italian Civil Code, we here-

by provide the following further information:

Remuneration paid to Directors and Statutory Auditors

During the year the following amounts were disbursed by way of remuneration for

the Group Directors and Statutory Auditors:


2007 2006

Directors 1,586 1,596

Statutory Auditors 355 263

Total 1,941 1,859

Derivative financial instruments

In the drive to hedge financial risks the Group has entered into the following deriv-

ative contracts:

Underlying Interest rates and debt securities Exchange rates

Notional value Fair value Notional value Fair valueType of transaction /000 /000

Pos. Neg. Pos. Neg.

Unlisted financial derivatives

Forward contracts

Sale of USD 21,000 n/a n/a

Sale of GBP 2,000 n/a n/a

Sale of AUD 3,250 n/a n/a

Purchase of Yen 500,000 n/a n/a

Interest rates swap (Euro) 26,000 63

Total 63 n/a n/a

Exchange risk hedging operations are exclusively related to ordinary non-speculative

hedge management in relation to receivables and payables stated in foreign curren-

cy, as described in the specific section of the Management Report to which we invite

you to refer for more information.

Likewise, interest rate swaps were performed in relation to medium-/long-term

floating rate loans in order to hedge partly against predicted increases in the market

lending interest rate.

May 28, 2008

Board of Directors’ Chairman

Clementino Bonfiglioli

102 103


Bonfiglioli I Annual Report 2007 I Independent Auditors’ Report I

Independent Auditors’ Report

104 105

106 107

Bonfiglioli I Annual Report 2007 I Independent Auditors’ Report I

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