ANNUAL REPORT AT DECEMBER 31st 2008 - … · landi group – annual report at 31st december 2008...

ANNUAL REPORT AT DECEMBER 31st 2008

LANDI GROUP – ANNUAL REPORT AT 31st DECEMBER 2008

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ANNUAL REPORT AT 31st DECEMBER 2008

(Translation of the Italian original which remains the definitive version)


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LETTER TO THE SHAREHOLDERS

Dear Shareholder, 2008 was an extraordinary year of growth for Landi Renzo. Last year not only we reach and exceed the operational and financial objectives that were set but, with the acquisition of Lovato Gas, in fact the third reference player, we further consolidated our international leadership. In a world-wide market context that is witnessing a clear tendency towards the increasing use of eco-compatible fuels, Landi Renzo presents itself as a point of reference and excellence in the development of LPG and CNG systems, with a low environmental impact, for the automotive industry. Our strategic distribution allows us to be present in the main markets of reference in Europe, Asia and Latin America and also enables us to boost development in the supply relationships both with car manufacturers (OEM) and with local retailers in the After Market. Landi Renzo, in fact, sells its systems in more than 50 countries around the world, with many of the main car manufacturers among its customers including Volkswagen, Renault, General Motors, Suzuki, etc.. Another important commercial agreement was signed in 2008: an understanding with Fiat Group Automobiles was formalized for the supply of LPG systems for a wide range of cars. As regards the trade channels, excellent growth was registered in Italy, Europe and in Latin America, in particular in Venezuela where the expansion phase initiated at the end of 2007 was pursued. These successes are driven by the great capacity of Landi Renzo to produce innovative LPG and CNG systems, thanks also to strong investments in the Research and Development of new solutions, which has always distinguished the company. During the year, the collaborative relationship with GM for the development of components for “zero impact” cars was pursued, while the application solution with RFID (Radio Frequency Identification) for product traceability achieved significant success. In the Headquarters of Cavriago (RE), the center of experimentation activities, we employ approximately one hundred persons including engineers, technicians and researchers and we collaborate with important university institutes and centers of specialization. We are also working intensively on the completion, expected for the end of 2010, of the new Research and Development center also dedicated to the development of applications relating to hydrogen as an auto fuel. The great dynamism of Landi Renzo, combined with the considerable reorganization effort that the company has profitably carried out in recent years, have had a decidedly positive effect on the economic-financial reported in 2008, with record increases both for sales, which increased by more than 31% to € 216.2 million, and for net profit, which increased by more than 35% to € 26.7 million. The credit for these results must be given to all those who work and collaborate in the Landi Renzo Group: more than 550 persons, of whom 20% are employed in research and development activities who contribute daily with great enthusiasm and ability to the success of Landi Renzo in the world. The year 2009, which we are about to face, presents us with an economic and financial situation of deep recession in almost all sectors world-wide. Our primary characteristic of being an extremely flexible and extraordinarily solid company allows us to face this particular moment with moderate optimism, aware of our value. The Chief Executive Officer Stefano Landi


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REPORT ON OPERATING PERFORMANCE FOR THE YEAR 2008

1. CONTENTS

Corporate Officers Group structure at 31st December 2008 Financial Highlights Landi Renzo S.p.A. and the financial markets Significant events occurred during the year

2. DIRECTORS' REPORT

Macroeconomic reference context Activities of the company Strategy Acquisition of Lovato Gas S.p.A. Innovation, industrial research and development Quality Human resources Training Health, safety and environment Operating performance Reconciliation statement between the Equity of the Parent Company and Consolidated Equity The companies of the Landi Group Other information Significant events after closing of the period and forecast for operations Proposal for approval of the consolidated financial statements and allocation of profits for the period

Appendix A Foreign Companies Balance Sheet pursuant to art.36-39 Market Regulation Appendix B Statement pursuant to art. 2.6.2, point 12 and 15 under Regulations of the Markets Organized and Managed by Borsa Italiana S.p.A.. Appendix C Report on Corporate Governance

3. LANDI GROUP – Consolidated Financial Statements at 31st December 2008

Balance sheet Income statement Cash flow statement Table of Changes in Consolidated Equity Explanatory notes

Appendix A Statement pursuant to art.81-ter of CONSOB Regulation n.11971/99 Appendix B Auditor’s report on consolidated financial statements

4. LANDI RENZO S.p.A. – Financial statements for the year at 31st December 2008

Balance sheet Income statement Cash flow statement Table of Changes in Equity Explanatory notes

Appendix A Statement pursuant to art.81-ter of CONSOB Regulation n.11971/99 Appendix B Auditor’s report on separate financial statements

5. LANDI RENZO S.p.A. – Report of the Statutory Auditors at 31st December 2008


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1.1. CORPORATE OFFICERS Board of directors Chairperson of the board of directors Giovannina Domenichini Chief Executive Officer Stefano Landi Director Paolo Gabbi Executive director Carlo Alberto Pedroni Independent director Alessandro Ovi Independent director Tomaso Tommasi di Vignano Board of statutory auditors Chairman of the Board of Statutory Auditors Luca Gaiani Standing auditor Massimiliano Folloni Standing auditor Marina Torelli Alternate auditor Filippo Nicola Fontanesi Alternate auditor Filomena Napolitano Independent auditors KPMG S.p.A. Committee for Internal Control Chairman Paolo Gabbi Member of the committee Member of the committee

Alessandro Ovi Tomaso Tommasi di Vignano

Committee for Remuneration Chairman Paolo Gabbi Member of the committee Member of the committee

Alessandro Ovi Tomaso Tommasi di Vignano

Registered office and parent details Landi Renzo S.p.A. Via Nobel 2/4 42025 Corte Tegge – Cavriago (RE) – Italia Tel. +39 0522 9433 Fax +39 0522 944044 Share Capital: Euro 11,250,000 Tax Code and VAT No. IT00523300358 www.landi.it


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1.2. GROUP STRUCTURE AT 31st DECEMBER 2008

Company name Registered Office

Fully paid-up share capital

Direct investment

Indirect investment

Landi Renzo S.p.A. Cavriago (RE) EUR 11,250,000 Parent Company

Med S.p.A. Reggio Emilia EUR 2,000,000 100.00%

LR Industria e Commercio Ltda Espirito Santo (Brazil) BRL 4,320,000 96.00%

Landi International B.V. Utrecht (The Netherlands) EUR 18,151 100.00%

Beijing Landi Renzo Autogas System Co. Ltd Beijing (China) USD 2,600,000 100.00%

Eurogas Utrecht B.V. Utrecht (The Netherlands) EUR 36,800 100.00% (*)

Landi Renzo Polska Sp.Zo.O. Warsaw (Poland) PLN 50,000 100.00% (*)

L.R. Pak (Pvt) Limited Karachi (Pakistan) PKR 75,000,000 70.00%

Landi Renzo Pars Private Joint Stock Company Teheran (Iran) IRR 3,164,173,611 100.00%

Lovato Gas S.p.A. Vicenza EUR 120,000 100.00%

Lovato do Brasil Ind Com de Equipamentos para Gas Ltda Curitiba (Brazil) BRL 100,000 85.00% (#)

Officine Lovato Private Limited Chennai (India) INR 20,000,000 100.00% (#)

Detailed notes on investments: (*) held by Landi International B.V. (#) held by Lovato Gas S.p.A. and not consolidated because deemed insignificant


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1.3 LANDI GROUP FINANCIAL HIGHLIGHTS

SALES REVENUESThousands of EURO

92.287

138.689

163.886

216.198

2005 2006 2007 2008

GROSS OPERATING PROFITThousands of EURO

19.350

30.340

35.076

46.760

2005 2006 2007 2008

NET PROFITThousands of EURO

11.133

16.680

19.660

26.706

2005 2006 2007 2008

EQUITYThousands of EURO

32.99243.554

105.401

125.400

2005 2006 2007 2008


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(Amounts in thousands of Euros) 2005 2006 2007 2008 INCOME STATEMENT Net Revenues 92,287 138,689 163,886 216,198 Gross Operating Profit 19,350 30,340 35,076 46,760 Operating Profit 16,901 27,455 31,210 40,728 Result before tax 17,033 26,876 31,508 39,669 Net result 11,133 16,680 19,660 26,706 Gross Operating Profit/Net Revenues 21.0% 21.9% 21.4% 21.6%Operating Profit/Net Revenues 18.3% 19.8% 19.0% 18.8%Net Result/Net Revenues 12.1% 12.0% 12.0% 12.4% CONSOLIDATED BALANCE SHEET INVESTED CAPITAL Net tangible and other non-current assets 24,677 31,475 22,970 102,923 Working capital ** 15,855 25,832 35,699 39,030 Non-current liabilities** (5,221) (6,349) (3,870) (10,049)NET INVESTED CAPITAL 35,311 50,958 54,799 131,904 SOURCES Net financial position (Opening cash) 2,319 7,404 (50,602) 6,504 Equity 32,992 43,554 105,401 125,400 BORROWINGS 35,311 50,958 54,799 131,904 CHANGE IN NET FINANCIAL POSITION Opening cash and cash equivalents* 1,238 8,093 6,564 53,368Opening cash and cash equivalents (Lovato Gas)* (1,118)Cash flow from operating activities 16,861 11,068 13,666 23,242Cash flow used in investment activities (3,547) (10,017) (7,330) (14,292)Outlay for acquisition of Lovato Gas (58,231)Cash flow used in financing activities (6,459) (2,579) 40,468 18,839Total cash flow 6,855 (1,528) 46,804 (30,443)Closing cash and cash equivalents* 8,093 6,564 53,368 21,807 * Opening and closing cash and cash equivalents are given by the difference between "cash and cash equivalents" and "bank overdrafts and short-term loans" ** For Working Capital and Non-current Liabilities definitions as well as for references with Consolidated Balance sheet, please refers to par. 2.10 “operating performance”


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1.4 LANDI RENZO AND THE FINANCIAL MARKETS

In June 2007, the Global Offer for Subscription and Sale of the shares of Landi Renzo S.p.A. was concluded

successfully registering an overall demand exceeding the offer nine times. In particular, within the context of the

institutional offer, the demand came from primary Italian and foreign investors. From 26th June 2007, the

company's shares are listed on the STAR segment of Borsa Italiana (Italian Stock Exchange). The price of the

Public Subscription and Sale Offer was fixed at € 4 per share, within an expected range of € 3.5 and € 4.4

corresponding to a capitalization of € 450 million. The Global Offer therefore involved 46,000,000 ordinary

shares, including 27,500,000 for sale, 12,500,000 newly issued and 6,000,000 in greenshoe equal to 40.89% of the

post-offer share capital.

The following is a graphical representation of the trend of the share price during the year 2008.

Year 2008 : Landi Renzo dominates Borsa Italiana for the highest price increase achieved + 45.58% (source Italian Stock Exchange). During the year 2008 the official share price increased from € 2.260 to € 3.290 with an increase record of 45.58%

registering the best performance among the shares listed on the Italian Stock Exchange. The value increase was

achieved in an extremely volatile and particularly difficult market situation, highlighting how investors knew to

reward the Landi Renzo share both because of the potential of the reference sector and management’s ability to

develop winning strategies. At 30th December 2008 (last dealing day of 2008) the Landi Renzo share registered a

reference price of € 3.290; the related stock market capitalization was equal to € 370,125,000.00.

The following table summarizes the main share and stock market data for 2008.


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Share Price and Stock Market Information (source Borsa Italiana S.p.A.) year 2008 year 2007 Share capital (Euros) 11,250,000 11,250,000No. ordinary shares 112,500,000 112,500,000Equity (Euros) 125,110,145 105,266,493Net Profit for the Period (Euros) 26,705,806 19,660,675Earnings per share 0.2374 0.1748Gross unit dividend (*) 0.0750 0.0550 (*) to be deliberated in the Shareholders' Meeting Placement price - 26th June 2007 4.000Closing price 3.290 2.272Maximum price 4.9675 4.365Minimum price 2.215 2.120Closing stock market capitalization 370,125,000 255,600,000

The Landi Group maintains a constant dialog with its Shareholders and Investors through a communication

activity performed by the Investor Relations office, which is assigned the task of organizing presentations and

events that require communications addressed to the market. In addition, meetings and “Roadshows” are

organized that allow a direct relationship between the financial community and the Top Management of the

Group. For further information please visit the web site www.landi.it and refer to the Investor relations section.

At 11th March 2009, the holders of ordinary shares in a quantity greater than 2%, as provided for by the

CONSOB regulations, are the following:

Shareholder 11th March 2009

Girefin S.p.A. 54.667%

Gireimm S.r.l. 4.444%

UBS (LUX) Equity Fund Management Company SA 2.311%

Royce & Associates LLC 5.062%

Others – Market 33.516%

The share capital is made up of 112,500,000 shares with a nominal value of € 0.10 per share, for a total of €

11,250,000.00.


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1.5 SIGNIFICANT EVENTS DURING THE YEAR January 2008 Incorporation and registration under the Companies Register of Tehran (Iran) of the

subsidiary “Landi Renzo Pars”, assigned to the manufacture and sale of CNG systems,

in particular on the OEM channel, in the Iranian market.

In Italy, in the context of the “1000 extensions” Decree, the incentives for conversion of

all categories of vehicles to LPG and CNG are confirmed for the years 2008 and 2009,

with a total endowment fund equal € 52 million for the year 2008 and € 102 million for

the year 2009.

February 2008 In Venezuela, Landi Renzo wins the second order for the supply of fuel supply systems

for CNG motor vehicles for an amount of € 12.2 million.

April 2008 The Landi Renzo project for product traceability using radio frequency technology wins

the “RFID AWARD 2008” organized by the Carlo Cattaneo University – the LIUC of

Castellanza and the Credites study centre.

Landi Renzo wins the Mediobanca prize, dynamic medium companies, for the junior

class (50-499 employees and € 50-290 million of turnover). The assignment of the award

is based on an examination of the results and the profiles of the companies, processed by

the Research and Development department of Mediobanca, which further investigated

the organizational and governance situation of the companies, their market position and

competitive advantages.

On 1st April 2008 the merger of Landi S.r.l. into Landi Renzo S.p.A. became operational,

with legal effect on the same date.

On 23rd April 2008 the Shareholders' Meeting of Landi Renzo S.p.A. approved:

• the consolidated financial statements and financial statements for the period for the

year 2007;

• the appointment of Carlo Alberto Pedroni Executive Director replacing Board

Member Silvia Landi;

• the authorization for the purchase of treasury shares of the company for a

maximum number of shares whose nominal value does not exceed one tenth of the

share capital;


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• the distribution of dividends for € 0.055 per share for a total amount of €

6,187,500.00 with payment date from 8th May 2008.

June 2008 Dacia launches Petrol-LPG Dual Fuel vehicles on the market equipped with Landi

Renzo systems.

July 2008 Agreement signed for the acquisition of 100% of the shares of Lovato Gas S.p.A., the

third operator world wide in the market of LPG and CNG fuel supply components and

systems for the automotive sector.

October 2008 Completion of the acquisition of Lovato Gas S.p.A.; the total value of the transaction

(“Enterprise Value”) was equal to € 63 million.

November 2008 Agreement signed with Nissan Italia for the supply of sequential electronic injection

LPG systems for the Micra and Note models.

December 2008 Agreement signed with Fiat Group Automobiles for the supply of LPG systems.


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2 DIRECTORS' REPORT

Dear Shareholders,

The consolidated financial statements of the Landi Group at 31st December 2008 closes with a net profit for the

Group of € 26,706 thousands, compared to € 19,660 in 2007, an increase of 35,8%.

Revenues (goods and services) amounted to € 216,198 thousands up by 31.9% compared to 2007. The acquisition

of Lovato Gas, consolidated fully only in the last quarter of 2008, contributed to an increase in revenues of

approximately € 10 million (+25.8% with the same perimeter).

The gross operating profit (EBITDA) is equal to € 46,760 thousands, compared to € 35,076 in 2007, an increase of

33.3%.

The operating profit (EBIT) is equal to € 40,728 thousands compared to € 31,210 in 2007, an increase of 30.5%.

The net financial position at 31st December 2008 is negative for € 6,504 thousands.

The Financial Statements of the Parent company Landi Renzo S.p.A. close with a net profit of € 20,248 thousands

compared to € 13,167 thousands in 2007, an increase of 53.7%.

2.1 Macroeconomic context and reference market

A judgment on the performance achieved by Landi Renzo in the course of 2008 must take account of the

macroeconomic context, with particular reference to the market in which the Group operates.

The international context remains characterized by great uncertainty after the crisis that originated in the

summer of 2007 in the American real estate quickly spread to all finance sectors and which, in the final months

of 2008, also hit the real economy, influencing choices on consumption, investment and production. Almost all

the main developed economies have registered a contraction in GDP (Gross Domestic Product), while emerging

economies have been impacted by the crisis also through an outflow of foreign capital. As regards the

automobile market, it registered a heavy drop in sales world-wide; in the year 2008 car market in Europe

dropped by 7.8% compared to 2007, while in the United States sales of new cars turned out to the lowest for 16

years, in other words, since the recession of 1992.

In this context, the governments of the main developed economies have launched measures to support the

automotive sector providing incentives, in a particular way, for the development of eco-compatible solutions. In

addition, the general trend towards the widespread use of alternative fuels that are less polluting than

traditional fuels is increasingly supported with targeted policies at both national and local level, such as:

• economic incentives for the installation of LPG or CNG systems;

• imposition of minimal quotas for the production of new motor vehicles consuming eco-compatible fuels;


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• closure of town and city historical centers to traditional petrol or diesel vehicles (in Italy and in the other

countries of the European Union);

• favorable fiscal and customs policies.

These conditions have created fertile ground for the strong increase in the registration and transformation of

cars powered by alternative fuels, especially LPG and CNG. According to the data disclosed by the ECOGAS

Consortium, in Italy, compared to an overall decrease of new car registrations by 13.4% in the year 2008, the

increase registered for first-time registration and transformation of cars with eco-compatible Bifuel (petrol/LPG

and petrol/CNG) fuel supply systems was higher than 41% compared to the corresponding data for 2007,

exceeding a total of 400,000 units, of which about 150,000 were for initial registrations.

2.2 Company activities

For more than 50 years the story of Landi Renzo has been the story of sustainable mobility. A path of research

and productive excellence targeted at a single objective: to plan and implement the technologies that have

allowed the spread of eco-compatible vehicles powered by CNG and LPG, becoming a point of reference for the

market over time. With a direct presence in the main reference markets and an indirect presence in more than 50

countries across the 5 continents, the Group has conquered a primary position at a global level through constant

attention to environmental problems, continuous technological and qualitative development of its products and

a flexible customer approach.

In the years closed at 31st December 2006, 2007 and 2008, the Landi Group achieved consolidated revenues

equal, respectively, to € 138.7 million, € 163.9 million and € 216.2 million, registering a CAGR equal to 24.9%.

Landi Renzo sells its products and systems in various geographical areas from Italy to Asia, to Western and

Eastern Europe, from Africa to South America, and as far as Australia.

The Landi Group sells both to the main car manufacturers at a world-wide level (Original Equipment

Manufacturing or “OEM” customers) and to independent retailers and importers (After Market customers). The

following two tables provide details of revenues divided by sector and by geographical area respectively.

Distribution of revenues per area of activity

(thousands of Euros) At

31/12/2008% of

revenueAt

31/12/2007% of

revenue change % Gas sector - LPG line 122,628 56.7% 73,278 44.7% 49,350 67.3%

Gas sector - CNG line 88,510 40.9% 85,725 52.3% 2,785 3.2%

Total revenues - GAS sector 211,138 97.7% 159,003 97.0% 52,135 32.8%

Alarm systems 5,060 2.3% 4,883 3.0% 177 3.6%

Total revenues 216,198 100.0% 163,886 100.0% 52,312 31.9%


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Geographical distribution of revenues


31/12/2008% of

revenueAt

31/12/2007% of

revenue

changes % Italy 68,254 31.6% 43,835 26.7% 24,419 55.7%

Europe (excluding Italy) 58,470 27.0% 32,852 20.0% 25,618 78.0%

South West Asia 35,676 16.5% 60,333 36.8% -24,657 -40.9%

Americas 23,368 10.8% 10,610 6.5% 12,758 120.2%

Rest of the World 30,430 14.1% 16,256 9.9% 14,174 87.2%

Total revenues 216,198 100.0% 163,886 100.0% 52,312 31.9%

The Landi Group boasts a series of strengths that can be summarized as follows:

• leadership in the design and manufacture of eco-compatible LPG and CNG supply systems, favored by a

strong international vocation;

• excellence in technological innovation aimed at the development of innovative products for the use it of

energy sources with a lower environmental impact for powering motor vehicles;

• flexible and efficient business model capable of dealing with market changes while maintaining constant

supervision over the critical phases of the production process;

• quality and versatility of the products, which allows us to meet the requirements of the demand and

regulations in each reference market;

• detailed knowledge of distribution channels, through consolidated relationships with leading customers in

the OEM channel and an extensive presence in the After Market sector.

2.3 Strategy

The entrepreneurial philosophy of the Landi Group is based on continuous technological innovation, aimed at

researching solutions characterized by ever-increasing eco-compatibility, on high qualitative standards and on a

flexible and efficient business model.

The strategy of the Group is also characterized by a strong international vocation, demonstrated by penetration

of the markets considered most interesting which has been achieved by proposing the types of products

required by local demand.

Such guidelines are the basis of the growth achieved and the main driver for the development that the Group

intends to pursue in the future through the following strategic directives:

• continuing in the implementation of innovative solutions and expansion of the range of systems and

products, aimed at maintaining technical leadership;


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• strengthening of position in markets with a current presence and further geographical expansion;

• increase of world-wide market shares, also for external lines through acquisitions;

• expansion of the commercial activities in the OEM channel;

• geographical expansion in the After Market channel

• improvement of operational efficiency and increase in profit.

2.4 Acquisition of Lovato Gas S.p.A.

On 13th October 2008 the contract for the purchase of 100% of the shares of Lovato Gas S.p.A. was completed;

the agreed value of the transaction (enterprise value) was calculated at € 63,000 thousands while the value

effectively paid, including the additional charges, was equal to € 58.231 thousands and, as provided for

contractually, is still in the final definition phase. The acquisition was in part financed with the granting of two

unsecured loans by Credito Emiliano S.p.A. and Abaxbank S.p.A., for a total of € 30 million at a variable rate

without issue of guarantees.

Lovato Gas S.p.A. it is one of the main operators in the world in the sector of LPG and CNG fuel supply

components and systems for the automotive sector with an estimated share of approximately 10% of the market.

With this transaction the growth strategy of the Landi Group, also specified at the moment of quotation, is

perfected by consolidating its position as leader of the market for alternative LPG and CNG automotive

components and systems, with an estimated world-wide share of more than 30% and with significant expansion

into the Eastern European and Asian markets.

Lovato Gas S.p.A. has been operating for more than 50 years in the design, manufacture and sale of eco-

sustainable LPG and CNG components and systems for the automotive sector. The financial statements for the

full year 2008, prepared according to the Italian accounting policies and approved by the Board of Directors,

show a turnover of € 47,533 thousands, with an increase of 21.5% compared to the same data for the year 2007.

More than 90% of sales are carried out abroad, in particular in the countries of Eastern Europe and Asia. The

Operating Profit was equal to € 3.961 thousands (€ 5,123 thousands in 2007) after amortizations for 3,053 and

extraordinary write-downs for uncollectable receivables for € 1,348 thousands. In addition, after a thorough

qualitative analysis, € 600 thousands were set aside for the provision for obsolete stock. The year 2008 closes

with a pre-tax profit equal to € 3,177 thousands and a net profit equal to € 909 thousands. The number of

employees at the end of 2008 was 107 units, of whom approximately half are blue collar workers with

productive functions.

Regarding the financial situation, Lovato Gas S.p.A., because of the good operating performance, generated

positive cash flows, reducing its own negative net financial position from € 7.964 thousands in the year 2007 to €

2.411 thousands in 2008.


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As provided for by the international accounting principles the complete consolidation of the results reported by

Lovato Gas S.p.A. into the Consolidated Financial Statements of the Landi Group took place from the date of

acquisition of the holding and, therefore, only in the fourth quarter of 2008. The effects related to the acquisition

of Lovato Gas S.p.A. on the assets and liabilities of the Consolidated Financial Statements 2008 of the Landi

Group, recognized according to the acquisition method as provided for by IFRS3, are stated below:

Net assets of the acquired company on the acquisition date (values expressed in thousands of €) - Values at 13/10/2008

Values as in the IFRS company balance sheet

Fair Value adjustments

Carrying values

Property, plant and equipment 2,522 0 2,522Development expenditure 645 0 645Goodwill 14,758 0 14,758Trademark 0 16,900 16,900Other intangible assets with finite useful lives 41 395 436Other non-current assets 601 0 601Trade receivables 4,453 0 4,453Inventories 6,555 473 7,029Other receivables and current assets 586 0 586Cash and cash equivalents 11,144 0 11,144Provisions for risks and charges -150 0 -150Defined benefit plans -631 0 -631Deferred tax liabilities -178 -5,579 -5,757Bank overdrafts and short-term loans -12,262 0 -12,262Trade payables -12,677 0 -12,677Tax liabilities -1,908 0 -1,908Other current liabilities -1,672 0 -1,672

Net assets acquired 11,828 12,189 24,017

Goodwill relating to the acquisition 34,215

Total cost of the acquisition 58,231

Total cost of the acquisition * 58,231* the amount includes € 1,561 thousands of Legal expenses, Success Fees and Due Diligence The fair value of the brand was evaluated by means of an experts' report prepared by independent professionals; the associated useful life was estimated in 18 years. The fair value of the Other intangible assets with finite useful lives was evaluated in relation to the market value of the existing sales orders (backlog) on the date of the transaction. The fair value of the inventories was estimated in relation to the sale prices for finished and semi-finished products and to the replacement cost for raw materials. In accordance with the IFRS reference principles, the related fiscal effect for all the adjustments in question was stated.

As regards the main consolidated economic values, after adoption of the international accounting principles and

after application of the “Purchase Price Allocation (PPA)”, the integration involved an increase in sales for € 9,992

thousands and an increase of the gross operating profit for € 589 thousands.

The acquisition of Lovato Gas S.p.A. will bring the Landi Group important productive synergies and greater

technical-commercial opportunities that will enable the market position to be strengthened, also through the


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offer of a more varied range of components and systems.

2.5 Innovation, industrial research and development

Research and Development activity during 2008 maintained the standards and the qualitative level typical of the

Landi Group, characterized by continuous innovations both on the technological level and in the improvement

of the product range. Product innovation remains the determining factor for improvement of the competitive

position and is divided between the following activities: development of new products, improvement of the

existing range and technological research for future products. In its headquarters at Cavriago, in the province of

Reggio Emilia, the center of experimentation activities, the Landi Group mainly employs technicians, engineers

and researchers pursuing constant collaboration with the most important university institutes as well as

activities in partnership with the main auto manufacturers; in addition, the attention that the Landi Group

dedicates to development activities, also at its foreign branches, is aimed at meeting the requirements of its

customers, in the best possible manner, in the main reference markets, in terms of product, assistance and

quality standards.

During this year too, research activity continued for the development of components and systems for the use of

hydrogen in the automotive context with a work group consisting of engineers dedicated exclusively to this type

of activity; furthermore, the collaborative relationship with General Motors was continued for the development

of a mechatronic component capable of providing the exact quantity of hydrogen for a system supplied by Fuel

Cells. The development costs stated under intangible assets that comply with requirements set out by IAS 38,

relating to projects implemented in 2008, amount to a total of € 1,994 thousands (€ 1,277 thousands in 2007). The

new center for research, innovation and development, planned in the last two months of 2007, is under

construction and an investment of approximately € 10,000 thousands is estimated over the next two years. This

investment will allow the Landi Group to increase its research and development activities with a high

technological content that are necessary in order to maintain its leadership position for technology and

innovation.

2.6 Quality

The Quality System of Landi Renzo has been certified since 1996 according to the ISO 9001 standard. In 2001

Landi Renzo was the first company in the sector to obtain ISO/TS 16949 certification, a standard that establishes

the requirements for company Quality Systems in the automotive sector that are higher than those required for

ISO 9001 certification. Designed as an instrument for continuous improvement of Quality Systems, on the basis

of the document produced by the IAFT (International Automotive Task Force), an association that brings

together the representatives of the various national automotive industry groups, the ISO/TS 16949 technical

specification also places a greater emphasis on aspects relating to the prevention of possible defects, starting


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from the design stage and, above all, on aspects of planning and integration in order to obtain full compliance

with customer requirements. In 2006, the ISO 9001 Quality System was extended to the Authorized Workshops

and to Resellers of the Landi Renzo Italian network, in order to guarantee the quality standards already adopted

by the company, the first in the world to reach this important goal. The certifications were issued by the Bureau

Veritas Quality International, an authoritative international body founded in 1828 and active in more than 140

countries world wide, a leader in Certification Services.

2.7 Human Resources

The total number of employees of the Landi Group at 31st December 2008 was 614 units compared to 453 at 31st

December 2007, with a total increase of 161 units. This significant increase is mainly attributable to the

consolidation of the holding in Lovato Gas, which had 107 employees at 31st December. The increase in the

personnel of the Parent Company is due to the placement of technical qualified and production personnel. The

following table shows the number of employees by individual company.

Company 2008 2007

Landi Renzo S.p.A. (includes Landi S.r.l.) 220 187

MED S.p.A. 114 101

Lovato Gas S.p.A. 107 -

Foreign companies 173 165

Total 614 453

In the year closed at 31st December 2008, personnel expenses were equal to € 20,279 thousands with an increase

of more than 41% (+ € 5,950 thousands) compared to the year closed at 31st December 2007. This increase is due

to an increase in staff numbers related to the reinforcement policy that the Landi Group is pursuing in order to

accompany and manage the growth of the business. It can also be seen that the hires concern, for the most part,

professional figures with high levels of qualifications and skills. The increase relating to the consolidation of the

holding in Lovato Gas S.p.A. was equal to € 1,225 thousands. In addition, some companies of the Group have

relied more on temporary work in order to deal with increased production needs.

2.8 Training

Landi Renzo maintains that the training of human resources represents a fundamental investment for the

development of company activities. To this end, in the course of 2008, the activity of the “LANDIRENZO

Corporate University” was intensified.

LANDIRENZO Corporate University is a high profile company school that concentrates its attention primarily

on the area of research and the technological innovation, but also on market strategies, management and


_______________________________________________________________________________________________________19

communication. Through its own Corporate University, Landi Renzo S.p.A. plans and organizes a wide range of

activities and operations aimed at maximizing the potential of internal skills as well as research and promotion

of development of skills and capabilities in the automotive area. Amongst the projects consolidated, particular

attention is deserved by the design of the annual training plan for company employees, the initiation and

consolidation of partnerships with nationally and internationally accredited research centers and universities

both in the automotive sector and in business management, and the research and development of new talents

through the promotion of training internships for university and post-university students.

The 2008 training plan was spread over more than 110 specific learning paths for the development,

strengthening and specialization of technical and managerial skills, as well as for the updating and qualification

of the company human resources. Overall, more than 3,000 hours of training were provided, favoring, where

possible, the planning and the internal organization of the training paths in order to guarantee the maximum

personalization. As regards the activity of research and enhancement of new talents, in 2008 Landi Renzo S.p.A.

hosted 15 students from university and post-university specialization courses in a series of internships, with a

duration between 3 and 6 months: in particular, the collaboration and agreements established by the Italian

company involved Italian Universities, as well as foreign Universities and Centers of Excellence in an

international context.

The internship projects designed and implemented in 2008 mainly involved the area of Research and

Development, as well as Commercial, Quality and Business Development areas.

2.9 Health, safety and environment

During 2008, activities were carried out aimed at defining the Organizational Model introduced by Legislative

Decree 231/2001, regarding the responsibility of legal entities for offences against the Italian Public

Administration, corporate crime and the other crimes provided for by the various supplementary provisions.

As a result, the parent company Landi Renzo S.p.A. and the Italian subsidiaries adopted the Organizational

Model ex. Law 231/2001 and the Group Code of Ethics and carried out staff training activities regarding the

new regulatory frameworks by introducing systems of prevention and continuous improvement of health and

safety in the workplace.

2.10 Operating performance

Consolidated results

Also in this year, in the context of a favorable market that has shown a constant growth in demand for LPG and

CNG systems, the results are satisfactory with revenues of € 216,198 thousands achieved (+31.9% in comparison

to 2007), together with a gross operating profit of € 46,760 (+33.3% in comparison to 2007) and net profit for the

group of € 26,706 thousands (+35.8% compared to the year 2007).


_______________________________________________________________________________________________________20

The main consolidated economic and financial results are shown below, supplemented by a number of

alternative performance indicators.

Economic result

(thousands of Euros) Year 2008 total

% of revenue 2007 % of

revenue Variation %

Revenues (goods and services) 216,198 100.0% 163,886 100.0% 52,312 31.9%Other revenue and income 652 1,046 -394 -37.7%

Operating costs (170,090) 78.7% (129,856) 79.2% (40,234) 31.0%Gross Operating Profit 46,760 21.6% 35,076 21.4% 11,684 33.3%Amortization, depreciation and impairment losses (6,032) 2.8% (3,866) 2.4% (2,166) 56.0%Operating Profit 40,728 18.8% 31,210 19.0% 9,518 30.5%Financial income 1,907 0.9% 1,406 -0.9% 501 35.6%

Financial expenses (1,425) 0.7% (998) 0.6% (427) 42.8%

Exchange rate gains (losses) (1,541) -0.7% (111) 0.1% (1,430) 1288.3%Profit Before Tax 39,669 18.3% 31,507 19.2% 8,162 25.9%Income tax expense (12,867) 6.0% (12,010) 7.3% (857) 7.1%

Net profit for the Group and minority interests, including: 26,802 12.4% 19,497 11.9% 7,305 37.5%Minority interests 96 0.0% -163 -0.1% 259 n/a

Net Profit of the Group 26,706 12.4% 19,660 12.0% 7,046 35.8%

The consolidated revenues achieved in 2008 are equal to € 216,198 thousands compared to € 163,886 thousands

in 2007, showing an increase of 31.9%.

This increase is due to the increase of sales volumes in the main reference markets as a result of the following

actions undertaken by the Group:

• new trade agreements with car manufacturing companies;

• expansion of the range of products offered and development of existing products through the application of

new technological solutions;

• high versatility of the products, characterized by qualitative standards capable of satisfying the strict

requirements of the main automobile manufacturers with which the Landi Group has established

consolidated relationships;

• thorough knowledge of the distribution channels in the After Market segment, thanks to an extensive

presence in the reference markets;

• efficient post-sales assistance model, also through the constant attention of technical-commercial personnel.

Breakdown of sales by business segment


_______________________________________________________________________________________________________21


31/12/2008 % of revenueAt

31/12/2007 % of revenue change % Gas sector - LPG line 122,628 56.7% 73,278 44.7% 49,350 67.3%



Alarm systems 5,060 2.3% 4,883 3.0% 177 3.6%

Total revenues 216,198 100.0% 163,886 100.0% 52,312 31.9%

Revenues from the sales of products in the GAS sector rise overall from € 159,003 thousands in 2007 to € 211,138

thousands, recording an increase of 32.8%. In the GAS sector, revenues from the sale of LPG systems increased

by 67.3% from € 73,278 thousands to € 122,628 thousands in the third quarter of 2008. On the other hand,

revenues from the sale of CNG systems increased by 3.2% from € 85,725 thousands to € 88,510 thousands. The

growth of the LPG line (+€ 49,350 thousands) is particularly important, and was registered also thanks to the

new supply agreements signed with OEM customers over the last two years. The revenues from the sales of

products for the alarms sector, a sector not considered as strategic, increased by 3.6% from € 4.883 thousands to €

5.060 thousands.

Geographical distribution of sales



31/12/2007 % of revenue change % Italy 68,254 31.6% 43,835 26.7% 24,419 55.7%


South West Asia (*) 35,676 16.5% 60,333 36.8% -24,657 -40.9%

Americas 23,368 10.8% 10,610 6.5% 12,758 120.2%

Rest of the World 30,430 14.1% 16,256 9.9% 14,174 87.2%

Total revenues 216,198 100.0% 163,886 100.0% 52,312 31.9%

As regards the analysis of the geographical distribution of revenues, the international vocation of the Landi

Group is confirmed, having realized 68.4% of consolidated turnover abroad (27.0% in Europe and 41.4% in

outside Europe).

The Italian market grew by 55.7% compared to the previous year and the turnover stands at € 68,254 thousands.

This rise was driven by an increase in sales of LPG injection systems, to both the OEM and After Market

channels. Furthermore, the data from the Ministry of Transport and processed by the ECOGAS Consortium

indicate that in 2008 the Landi Group increased market penetration in the LPG testing segment from 35% in 2007

to the current 36.9%.

The revenue trend in Europe, after a downturn in 2007, recorded an increase of 78% with significant growth


_______________________________________________________________________________________________________22

both in Western Europe, especially Germany and Holland, and in Eastern Europe.

The South-West Asian market recorded a decrease of 40.9% compared to 2007, primarily due to a significant

slow-down of sales in the Iranian market.

The strong increase of the American market (+ 120.2% compared to 2007) is largely attributable to the national

CNG conversion plan in Venezuela, a country in which, at the end of February 2008, Landi Renzo won a

substantial share of the second order for the supply of CNG systems for the automotive sector.

The increase in the Rest of World (+ 87.2% compared to 2007) was led by increased sales in Thailand, India,

China and Australia.

The Gross Operating Profit (GOP) of the Group was positive for € 46,760 thousands (21.6% of turnover), a clear

increase (+ € 11,684 thousands) compared to the GOP of € 35,076 thousands (21.4% of turnover) in 2007.

The Operating Profit was equal to € 40,728 thousands, compared to € 31,210 thousands in 2007, after taking

account of the depreciation and amortization of tangible and intangible fixed assets for € 6,032 thousands,

compared to depreciation and amortization of € 3,866 thousands in 2007. The increase in this item can be mainly

attributed to greater depreciation and amortization linked to the substantial investments in specific machinery,

to development expenditure as well as to the first portion of the amortization of the Lovato trademark.

Profit before tax for the period was € 39,669 thousands compared to a pre-tax profit of € 31,507 thousands

recorded in the previous year. The increase of € 8,162 thousands primarily reflects the increase in the gross

operating result.

The Net Result of the group for the full year 2008 showed a profit of € 26,706 thousands, up by € 7,046 thousands

compared to the net result for the year 2007 (+35.8%)

Net financial position Economic and financial situation (Thousands of €) 31/12/2008 31/12/2007Trade Receivables 49,563 41,856Inventories 68,163 33,091Trade Payables (76,991) (42,435)Other current (1,705) 3,186Net operating capital 39,030 35,698 Property, plant and equipment; 25,106 14,926Intangible assets 73,685 6,122Other fixed assets 4,132 1,921Fixed Capital 102,923 22,969 Provision for TFR and other (10,049) (3,869)Net capital employed 131,904 54,798 FINANCED BY Net Financial Position 6,504 (50,602)


_______________________________________________________________________________________________________23

Equity attributable to the shareholders of the parent 125,110 105,266Minority interests 290 134 Total Borrowings 131,904 54,798 Key ratios 31/12/2008 31/12/2007ROI (EBIT / Average net capital employed for the period) 49.11% 60.90%ROE (Group Net Profit / Group Net Equity) 21.35% 18.68%Net operating capital 39,030 35,698Net operating capital/Turnover 18.05% 21.78%Net capital employed 131,904 54,798Net capital employed/Turnover 61.01% 33.44% Net Financial Position (thousands of Euros) 31/12/2008 31/12/2007Cash and cash equivalents 30,272 58,055Bank overdrafts and short-term loans -8,465 -4,687Short-term loans -167 -163

Net short-term financial resources 21,641 53,205

Long-term loans -28,144 -2,603Bonds 0 0

Net long term indebtedness -28,144 -2,603

NET FINANCIAL POSITION -6,504 50,602

The net financial position at December 31st 2008 is negative for the amount of € 6,504 thousands compared to a

positive net financial position at December 31st 2007 (equal to € 50,602 thousands), primarily due to a decrease

in cash and cash equivalents as a result of the acquisition of Lovato Gas S.p.A.. An analysis of the cash flow

statement shows the ability to the Landi Group to generate positive cash flows. During 2008, the cash flow

generated by operational activities was equal to € 23,242 thousands; investment activities absorbed total

resources of € 72,523 thousands, including € 58,231 thousands for the acquisition of Lovato Gas S.p.A. while the

payment of dividends to shareholders absorbed resources of € 6,188 thousands.

The net working capital was recorded at € 39,030 thousands with a percentage on the sales of 18.1%, a clear

improvement compared to the 21.8% of the previous year, a further demonstration of the profitable activity

carried out in containing current assets. At the end of December 2008, the invested capital was equal to €

131,904 thousands with an increase of € 77,106 thousands, primarily due to the effect of an increase in intangible

assets (goodwill and trademark) as a result of the consolidation of the holding in Lovato Gas S.p.A..

Investments

Investments in property, plant and equipment were equal to € 11,770 thousands (€ 5,712 thousands in 2007) and

relate both to the purchase of machinery and production equipment and electronic office machines, in order to

deal with the new production and business needs, and to the refurbishment and modernization of existing

machinery and equipment.


_______________________________________________________________________________________________________24

The increases in intangible assets were equal to € 2,854 thousands (€ 2,633 thousands in 2007) and are related,

primarily, to capitalized costs for the development of new products and investments for the purchase of software

licenses.

2.11 Statement of reconciliation between the data of the Parent Company's financial statements and the

data of the consolidated financial statements

The following is a reconciliation table between the result for the period and the capital and reserves of the Group

with the corresponding values of the Parent Company.

RECONCILIATION STATEMENT (in thousands of €) Equity 2008 Result 2008

Equity and result for the year of the Parent Company 106,849 20,248Difference in value between carrying value ad pro-quota value of the accounting equity of the consolidated companies 21,866 -1,902

Pro-quota results achieved by Subsidiaries 0 11,555

Elimination of intercompany dividends 0 -1,150

Elimination of the effects of intercompany commercial transactions -3,531 -2,040

Elimination of the effects of intercompany sales of assets -84 0

Accounting for financial leasing operations 10 -5

Equity and result for the year from Consolidated Financial Statements 125,110 26,706

Equity and result for the year of minority interests 290 96

Equity and result for the year of the Group 125,400 26,802

2.12 The companies of the Landi Group

The Landi Group is organized in a structure at the top of which is the Parent company Landi Renzo S.p.A., with

headquarters in Cavriago (RE), which owns direct and indirect controlling shareholdings in the capital of 11

companies operating in the activities of the “Gas Sector (LPG and CNG)”. The main data on these companies

are provided in the following table. The commercial dealings between the companies of the Landi Group are

performed at normal market conditions. The following table provides the main economic information on the

companies of the Group as based on the data of the Financial Statements prepared according to local

regulations.

Company name

Registered Office


Investment

Turnover €/thousands

31/12/2008 (**)

Turnover €/thousands

31/12/2007

Net result €/thousands

31/12/2008

Net result €/thousands

31/12/2007

Landi Renzo S.p.A.

Cavriago (RE)

EUR 11,250,000 Parent

Company 178,233 131,085 20,248 13,167

Med S.p.A. Reggio Emilia

EUR 2,000,000 100.00% 56,011 38,310 7,354 4,174


_______________________________________________________________________________________________________25

LR Industria e Commercio Ltda

Espirito Santo (Brazil)

BRL 4,320,000 96.00% 11,283 12,188 862 878

Landi International B.V. (Holding)

Utrecht (The Netherlands)

EUR 18,151 100.00% - 0 (7) 15

Beijing Landi Renzo Autogas System Co. Ltd

Beijing (China)

USD 2,600,000 100.00% 6,088 4,688 267 (25)

Eurogas Utrecht B.V.

Utrecht (The Netherlands)

EUR 36,800 100.00%

(*) 8,728 5,824 1,304 813

Landi Renzo Polska Sp.Zo.O.

Warsaw (Poland)

PLN 50,000 100.00%

(*) 5,723 4,720 564 404

L.R. Pak (Pvt) Limited

Karachi (Pakistan)

PKR 75,000,000 70.00% 13,449 1,655 206 (264)

Landi Renzo Pars Private Joint Stock Company

Teheran (Iran) IRR 3,164,173,611 100.00% 644 - (468) 0

Lovato Gas S.p.A. Vicenza

EUR 120,000 100.00% Consolidated since 13th October 2008

(*) owned through Landi International B.V. (**) Turnover referred to foreign Subsidiaries has been converted in Euro at the average exchange rate of the year as applied to the Reporting packages Landi Renzo S.p.A. (parent company)

The Financial Statements at 31st December 2008, after the absorption merger of Landi S.r.l., already controlled

100%, with effect from 1st January 2008, concluded with a net profit of € 20,248 thousands (compared to € 13,167

thousands for the year 2007) after amortization and depreciation for € 3,092 thousands, impairment losses and

accruals for € 765 thousands and taxes for the year of € 8,798 thousands. Net sales revenues increased from €

131,085 thousands to € 178,233 (+35.9%) as a result of the favorable market situation that has allowed constant

growth in the demand for CNG and LPG systems. Personnel expenses were € 10,589 thousands and increased, in

absolute terms, by € 2,808 thousands as a result of an increase in the number of employees. The percentage

incidence of personnel expenses on total revenues remains unchanged compared to the previous year and

amounts to 5.9%. The gross operating profit was € 30,117 thousands with a percentage increase of 40.9% and the

operating profit was € 27,025 thousands with a percentage increase of 42.8%. The balance of financial

transactions was positive for € 2,021 thousands and includes € 1,150 thousands for dividends distributed by the

subsidiary Landi International BV. The pre-tax result is positive for € 29,046 thousands compared to € 20,652 in

2007 and the net result for the year, as a result of accrual of current and deferred taxes, is € 20,248 thousands

compared to € 13,167 thousands in the previous year.

Med S.p.A.

The financial statements at 31st December 2008 closed with a profit of € 7,354 thousands after ordinary

depreciation/amortization for € 1,990 thousands, accruals and impairment losses for € 26 thousands and taxes


_______________________________________________________________________________________________________26

for the year of € 3,603 thousands. The total turnover was of € 56,011 thousands compared to € 38,310 in 2007, an

increase of 46.2%, generated mainly by the increase in revenues in the mechanical equipment sector. The

mechanical division, in fact, achieved total turnover of € 43,516 thousands compared to € 27,815 in 2007, as a

result of the production of greater quantities of injectors and solenoid valves for the gas sector. The electronic

division achieved a turnover of € 12,494 thousands compared to € 10,495 in 2007 as a result of increased demand

for electronic components both for the gas sector and the antitheft sector. The latter sector, despite a continuing

weak demand, achieved a turnover of € 5,060 thousands, recording an increase of 3.6%. Personnel expenses

amount overall to € 5,854 thousands with an incidence on total revenues equal to 10.4% (11% in 2007) and the

operating result is positive at € 11,123 thousands, equal to 19.8% of revenues. The pre-tax result was positive for

€ 10,958 thousands (19.6% of total revenues) compared to € 7,010 in 2007 (18.3% of revenues in 2007).

Eurogas Utrecht b.v.

The company, held since 1995, sells LPG fuel supply systems for motor vehicles under the “Eurogas” brand in

Northern Europe. The year closed with a profit of € 1,304 thousands compared to a profit of € 813 thousands in

2007, after depreciation/amortization of € 65 thousands. The total turnover was € 8,728 thousands, an increase of

more than 49% due to the favorable trend of the reference market.

Landi Renzo Polska Sp.zo.o.

This company, operational since 1998, sells LPG fuel supply systems for motor vehicles, mainly in Poland. The

year closed with a profit of € 564 thousands compared to a profit of € 404 thousands in 2007, after

depreciation/amortization and impairment losses of € 26 thousands. Revenues (goods and services) were equal

to € 5,723 thousands, compared to € 4.720 in 2007, with a percentage increase of 21.2% as a result of the

resumption of demand of LPG systems in the local market and the consolidation of collaboration with OEM

customers. The operating result increased from € 442 thousands in 2007 to € 773 thousands, primarily due to the

increase in sales revenues.

Landi International b.v.

The Dutch holding company, a parent holding 100% of Landi Polska Sp.zo.o. and of Eurogas Utrecht B.v., did not

achieve any revenues.

LR Industria e Comercio Ltda

The Brazilian company, in which a share has been held since 2003, produces and sells CNG fuel supply systems

for motor vehicles in South America. The year 2008 closed with a profit of € 862 thousands, in line with the result

achieved in 2007 equal to € 878 thousands. Revenues decreased from € 12,188 thousands to € 11,282 thousands

with a percentage decrease of 7.4%, while the operational result stood at € 1,245 thousands.


_______________________________________________________________________________________________________27

Beijing Landi Renzo Autogas System Co. Ltd

The company formed in December 2005 carries out trading activities for LPG and CNG systems in the Chinese

market and has an internal structure for research and development focused on the post-sales assistance. The year

2008 closed with a profit of € 267 thousands compared to a loss recorded in the year 2007 of € 25 thousands and

with revenues of € 6,087 thousands achieved compared to € 4,688 thousands in the previous year ( +29.8%).

L.R. Pak (Private) Limited

The company, in which a stake of 70% is held, was formed in November 2006 with the purpose of producing and

selling CNG fuel supply systems for the main Pakistani OEM customers. The year 2008 closed with a net profit

of € 206 thousands compared to a net loss of € 264 thousands registered in 2007. Revenues (goods and services)

were equal to € 13,449 thousands and the operational result was € 1,607 thousands. Financial section, due to

losses on exchange rates, is negative for € 1,327 thousands.

Landi Renzo Pars Private Joint Stock Company

In January 2008, the company “Landi Renzo Pars” was formed and entered into the Companies' Register of

Teheran (Iran) with the purpose of manufacturing and selling CNG systems in the Iranian market, in particular

on the OEM channel. Landi Renzo Pars received protection of its invested capital on the basis of the “FIPPA”

(Foreign Investment Protection and Promotion Act) regulations. The year 2008 closed with a loss of € 468

thousands due to a lengthy production start-up phase.

Lovato Gas S.p.A.

For the main economic and financial information of the company, please refer to paragraph 2.4 of this report.

2.13 OTHER INFORMATION

Transactions with related parties

The creditor/debtor relationships and economic transactions with related companies are the subject of a specific

analysis in “Supplementary Notes to the Consolidated Financial Statements” as well as in the explanatory notes

to financial statements for the year in question. Note also that sales and purchases between the parties are

performed at normal market values.

Positions or transactions deriving from atypical and/or unusual transactions

Pursuant to CONSOB communication no. 6064293 of July 28th 2006, note that during the year 2008 no atypical

and/or unusual transactions occurred outside the normal operation of the company that could give rise to

doubts regarding the correctness and completeness of the information in the financial statements, conflicts of

interest, protection of company assets, safeguarding the minority stockholders.

Security and protection of personal data


_______________________________________________________________________________________________________28

The programmatic document on security is prescribed by article 34 of Legislative Decree no. 196/2003. Landi

Renzo S.p.A. uses electronic tools to process sensitive (and/or legal) data relating to employees. Therefore,

through those assigned to the processing, the company has updated the aforementioned Document within the

prescribed time frames.

Treasury shares and shares of parent companies

In compliance with the provisions of article 2428 of the Italian Civil Code, it is confirmed that during the year

2008 the Parent company did not negotiate any treasury shares or shares of parent companies and does not at

present hold any treasury shares or shares of parent companies.

Risk factors associated with the activities of the Landi Renzo Group:

Risk analysis

Those in charge of the various branches of company management identify and assess the risks within their

jurisdiction and identify actions to limit and reduce them.

The results of the risk identification procedures are reported and discussed at the Top Management level of the

Group in order to create the prerequisites for their cover, insurance and for the assessment of the residual risk.

• Risks relating to the macroeconomic and sector situation.

The activity of the Group is influenced by the general conditions of the economy in various markets where it

operates. An economic crisis phase, with a consequent slow-down in consumption, can have a negative impact

on the sales trends of the Group. In order to mitigate the possible negative impact that a downturn in demand

could have on company profits, the Landi Group has adopted a flexible structure, outsourcing part of

production to third-party suppliers and using fixed-term contracts when necessary. These factors allow

production capacity to be sized in relation to the market requirements.

• Risks connected with the international expansion strategy

The Group sells its products in more than 50 countries, in 7 of which it operates directly, including through its

own companies. In the year 2008 the group achieved nearly 70% of consolidated revenues abroad. In pursuing

its expansion strategy, the Landi Group has invested, and may invest more in the future, in countries

characterized by a recent past with considerable instability of their political institutions and/or at the center of

situations of international tension. The above-mentioned strategy could expose the Landi Group to various risks

of a macroeconomic nature, arising, for example, from changes in the political, social, economic and regulatory

systems of such countries or from extraordinary events such as acts of terrorism, civil disorder, restrictions on

trade, sanctions, limitation on foreign investment, nationalization and inadequate protection of intellectual

property rights. The probability of the events described above actually taking place varies from country to

country and is difficult to predict. However, a constant monitoring activity is carried out by company Top


_______________________________________________________________________________________________________29

Management in order to become aware of any changes as early as possible, so as to minimize any economic

impact that may ensue.

• Risks connected to relationships with OEM customers

The Landi Group distributes and sells its systems and components to the main automobile manufactures at a

world-wide level (OEM customers). In the year closed on 31st December 2008 the sales of systems and

components made by the Landi Group to OEM customers represented 43% of the total sales of such products.

The Group boasts long-standing relationships with the main world-wide automobile manufacturers. The ability

to the group to strengthen the existing relationships with such customers, or to establish new relationships, is a

determining factor in order to consolidate the leadership position that Landi Group holds in the market. The

relationships with OEM customers are typically governed by agreements that do not require minimum purchase

quantities. Therefore the demand for predefined quantities of Landi Group products from such customers

cannot be guaranteed. In order to meet the requirements of various customers to its best ability, the Landi Group

has over the last few years initiated a policy of delocalization of part of its production in countries where it

already has a number of customers and is attempting to gain others. For these reasons, we believe that we are

not subject to a risk of dependency on OEM customers; however, we cannot exclude the possibility that any loss

of important customers or a reduction in the orders received from them or a delay in collecting the contractually

agreed amounts could produce negative effects denied on the economic-financial results of the Group.

• Risks connected to the highly competitive markets in which the Landi Group operates

The markets in which the Landi Group operates are highly competitive in terms of quality, innovation, economic

conditions, as well as reliability and security. The success of the activity will depend on the ability to maintain

and increase market shares and to expand through new innovative solutions. The Group constantly monitors

the market in order to identify as quickly as possible the introduction of any new or alternative fuel supply

systems for motor vehicles by competitors and car manufacturers, and consequently manages the risk by

pursuing a policy of progressive diversification and enrichment of its product portfolio in order to minimize any

possible economic impact.

• Product liability risks

Any possible defects in planning and production of the products of the Landi Group could generate product

liability in relation to third parties. In addition, should the Group's products turn out to be defective or fail to

comply with technical and legal specifications, the Landi Group, also at the request of its customers, could be

obliged to withdraw such products from the market while incurring the related costs. For this reason, insurance

policies have been stipulated to protect the companies of the Group against such risk and provisions are made to

appropriate funds determined on the basis of past negative events.

• Interest rate risk


_______________________________________________________________________________________________________30

The Landi Group is exposed to the interest rate risk associated with both cash at hand and with medium to long

term financing. The exposure refers mainly to the Euro zone. As regards exposure to the risk of interest rate

volatility, note that the financial indebtedness is regulated primarily by variable interest rates. Therefore, the

financial management of the Group remains exposed to fluctuations in interest rates, not having, at the date of

the present financial statements, subscribed to instruments covering the variability of the interest rates on loans

contracted with the banks.

Interest rate risks were measured using a sensitivity analysis and the potential impacts of Euribor interest rate

fluctuations on the consolidated financial statements at 31st December 2008 were analyzed with particular

reference to cash and cash equivalents and to financing. The increase of 50 basis points on the Euribor, like all the

other variables, would have produced an increase in financial costs for the Group of € 57 thousands in

comparison to an increase of financial income equal to € 248 thousands. It can be logically assumed that a

decrease of 50 basis points will produce the same effect, but with the opposite sign, both on financial costs and

financial income.

• Exchange risk

The Landi Group sells part of its production and, although to much lesser degree, also purchases some

components also in Countries outside the Euro zone. In relation to the exchange risk, note that the amount of the

consolidated equity balances expressed in currency other than the functional currency is to be considered as

insignificant. The Group has not subscribed to any instruments to cover exchange rate fluctuations and, in

accordance with the Group’s policy up to this moment this moment, no speculative derivatives have been

subscribed.

• Credit risk

The Group normally deals with known and reliable customers. It is the Landi Group's policy to subject

customers requesting extended payment conditions to procedures for checking their credit rating. In addition,

the balance of the receivables is monitored on a fortnightly basis over the period, in order to minimize exposure

to the risk of losses. Finally, regarding the new customers and those not operating in EU countries, a letter of

credit to guarantee successful collection is normally used. The parent company has also subscribed to an

insurance policy for foreign receivables with a leading Insurance Company.

The credit risk regarding the other financial assets of the Group, including cash and cash equivalents, presents a

maximum risk equal to the book value of these assets in the case of insolvency of the counterpart.

• Liquidity risk

The Landi Group manages the liquidity risk by maintaining an adequate level of available financial resources

and bank credit granted by the main credit institutions, in order to satisfy the finance requirements of the

operational activity.


_______________________________________________________________________________________________________31

The Group has not adopted a specific policy for management of the centralized treasury. In particular, the

management of the ordinary treasury is delegated locally to the individual companies of the Group, while the

extraordinary treasury is subject to the decision-making process of the Parent company.

Conditions for listing of particular companies (articles 36 – 39 Market Regulations)

In applying the provisions of Article 39 of the Market Regulations issued by CONSOB in relation to the

“Conditions for the listing of companies controlling companies formed and regulated under the law of States

outside the European Union” pursuant to article 36 of the previously mentioned Regulations, the following is

pointed out:

- At 31st December 2008 there are, among the companies controlled by Landi Renzo S.p.A. three that fall

under the regulatory provision, namely: LR Industria and Comercio Ltda (Brazil), Beijing Landi Renzo

Autogas System Co. Ltd (China) and LR Pak (Pvt) Limited (Pakistan);

- The procedures necessary to guarantee the conditions required by the aforesaid regulation have been

adopted.

It is confirmed, pursuant to Article 2.6.2. paragraph 12 of the Regulations of the Markets Organized and

Managed by Borsa Italiana S.p.A., that the Company has complied with the provisions of article 36 of CONSOB

Regulation n. 16191/2007.

2.14 Significant events after closing of the period and forecast for operations.

No significant events have taken place after the closing of the financial year and up to the present. As regards

the foreseeable future development of operations, although there is a marked worsening of the general economic

and financial situation world wide, our financial solidity and the progress of the strategic programs undertaken

allow us to predict that the year 2009 will see a substantial confirmation, in comparative terms, of the results

achieved in 2008.


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2.15 PROPOSAL FOR APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS AND ALLOCATION OF PROFITS FOR THE PERIOD

Dear Shareholders,

in concluding our report we propose that you:

• approve the yearly Financial Statements at 31st December 2008;

• distribute the net profit of Landi Renzo S.p.A. equal to € 20,248,112.82 as follows:

1) € 1,012,405.64 equal to 5% of the Profit for the Year to the Legal Reserve;

2) € 10,798,207.18 for the Extraordinary Reserve.

3) a dividend to the shareholders of € 0.075 for each of the 112,500,000 shares in circulation, for a total amount equal to € 8,437,500.00;

Cavriago (RE), 12th March 2009 For the Board of Directors The Chairperson Giovannina Domenichini

LR PAK LR BRASIL LR CHINA LR PAK LR BRASIL LR CHINAPakistan Rupees Real Renminbi Euro Euro Euro

HIERARCHY 31/12/2008 31/12/2008 31/12/2008 31/12/2008 31/12/2008 31/12/2008ASSETS 1.349.973.644 24.655.298 52.935.491 12.270.145 7.601.214 5.574.739 Non-current assetsProperty, plant and equipmnet 99.685.044 1.535.109 20.076.673 906.055 473.273 2.114.313 LandBuildings 126.823 17.774.686 39.099 1.871.887 Plant and machinery 65.006.468 711.083 590.855 219.226 Industrial and commercial equipment 4.788.381 541.178 43.522 166.845 Other assets 29.243.397 156.025 2.301.987 265.798 48.102 242.427 Assets under construction and advances 646.798 5.879 Investment property - - Investment propertyDevelopment expenditure - - Development expenditureCapital costsOther intangible assets with finite useful lives 16.192.850 200.080 1.209.612 147.180 61.685 127.387 Industrial patents and softwareLicences, trademarks and similar rights 16.192.850 200.080 1.209.612 147.180 61.685 127.387 Assets under construction and advancesOther assetsOther non-current assets - - Tax receivablesOther receivablesDeferred tax assets 6.209.402 848.306 41.445 56.438 261.532 4.365 Deferred tax assets 6.209.402 848.306 41.445 56.438 261.532 4.365 Current assetsTrade receivables 50.675.134 6.080.330 12.975.233 460.595 1.874.562 1.366.447 Trade receivables 50.675.134 6.080.330 12.975.233 460.595 1.874.562 1.366.447 Depreciation fundTrade receivables - related parties - - Trade receivables - related partiesInventories 1.053.930.562 10.399.869 12.690.283 9.579.358 3.206.274 1.336.438 Raw materials, supplies and consumables 944.963.874 6.092.667 8.588.941 1.878.366 Work in progress and semi-finished products - 2.948.069 - 908.888 Finished goods and merchandises 108.966.688 1.359.133 12.690.283 990.417 419.020 1.336.438 Payments on accountOther receivables and current assets 90.185.439 5.274.198 1.956.785 819.711 1.626.032 206.073 Amounts receivable from subsidiary companiesAmounts receivable from parent companies 487.968 942.446 150.440 99.251 Amounts receivable from affiliated companiesAmounts receivable from associated companies 11.403.993 2.712.246 87.302 103.653 836.184 9.194 Tax receivables 1.642.358 506.338 Other receivables 3.037.929 427.606 802.337 27.612 131.831 84.496 Non-trade receivables - due to otherAccrued incomeOther prepayments 75.743.517 4.020 124.700 688.446 1.239 13.132 Other current assets - related parties - - Other current assets - related partiesCurrent financial assets 537.764 19.848 - 4.888 6.119 - Shareholdings in subsidiary companiesShareholdings in associated companiesShareholdings in parent companiesOther shareholdingsOwn sharesOther securities 537.764 19.848 4.888 6.119 Cash and cash equivalents 32.557.449 297.558 3.985.460 295.920 91.737 419.717 Bank and postal accounts 32.400.819 294.628 3.967.235 294.497 90.834 417.797 Cash-on-hand and cash equivalents 156.630 2.930 18.225 1.424 903 1.919

Landi Group - foreign companies BS pursuant to art. 36 - 39 Market regualtion


31/12/2008 31/12/2008 31/12/2008 31/12/2008 31/12/2008 31/12/2008EQUITY AND LIABILITIES 1.349.973.644 24.655.298 52.935.491 12.270.145 7.601.214 5.574.739 Group equityShare capital 75.000.000 4.320.000 20.854.030 911.681 1.501.788 2.043.206 Share capital 75.000.000 4.320.000 20.854.030 911.681 1.501.788 2.043.206 IFRS Conversion reserve - - IFRS Conversion reserveOther reserves - 190.921- 481.969- 201.322 Own sharesLegal reserveStatutory reservesReserve for purchase of own sharesExtraordinary reserveExchange rate reserve 190.921- 481.969- 201.322 Other reservesRetained earnings reserve 24.880.410- 1.125.622 573.112 277.489- 504.684 32.484 Consolidation reserveRetained earnings reserve 24.880.410- 1.125.622 573.112 277.489- 504.684 32.484 Profit (Loss) for the period 21.352.085 2.296.619 2.726.893 206.347 862.442 266.697 Profit (Loss) for the period 21.352.085 2.296.619 2.726.893 206.347 862.442 266.697 Third parties' shareholders' equity - - Third parties' share capital and reserves Minority interestsNon-current liabilitiesNon-current bank loans - - Bank loansOther non-current financial liabilities - - BondsPayables due to other financial institutionsProvisions for risks and charges 6.266.785 556.755 62.282 56.960 171.647 6.559 Pension and other similar provisionsManagement retirement benefit fundOther provisions 6.266.785 556.755 62.282 56.960 171.647 6.559 Defined benefit plans - - Defined benefit plansDeferred tax liabilities - - Tax fundTax liabilities - - Current liabilitiesBank overdradfts and short term loans - 10.500.000 - 1.105.775 Bank loans 10.500.000 1.105.775 Other current financial liabilities - - BondsPayables due to other financial institutionsTrade payables 13.848.063 1.752.599 8.046.107 125.867 540.325 847.351 Trade payables 13.848.063 1.752.599 8.046.107 125.867 540.325 847.351 Trade payables - related parties - - Trade payables - related partiesTax liabilities 510.636 600.692 1.181.332 4.641 185.193 124.408 Tax liabilities 510.636 600.692 1.181.332 4.641 185.193 124.408 Other current liabilities 1.257.876.485 14.003.011 8.991.735 11.433.058 4.317.103 946.937 Amounts payable to parent companies 837.842.037 13.512.173 3.180.015 7.615.292 4.165.795 334.894 Amounts payable to subsidiariesAmounts payable to affiliated companiesAmounts payable to associated companies 395.177.556 100.954 3.395.994 3.591.838 31.124 357.639 Payments on accountSocial security charges payable 288.179 88.845 Other liabilities 22.608.795 30.970 1.392.558 205.495 9.531 146.653 Other accrued expenses 2.248.097 70.736 1.023.168 20.433 21.808 107.752 Deferred income - Other current liabilities - related parties - - Other current liabilities - related parties


31/12/2008 31/12/2008 31/12/2008 31/12/2008 31/12/2008 31/12/2008PROFIT AND LOSSRevenue (goods and services) 1.393.434.717 30.725.171 66.483.100 13.466.208 11.488.193 6.502.205 Revenue (goods and services) 1.391.705.330 30.175.365 62.246.602 13.449.495 11.282.620 6.087.866 Other revenue 1.729.387 549.806 4.236.498 16.713 205.573 414.340 Other revenue and income - - - - - - Government grants of an income natureProfit on disposal of assetsOther non-recurring incomeCost for raw materials, consumables and goods and change in inventories (1.171.466.728) (21.521.697) (45.330.535) (11.321.101) (8.046.998) (4.433.434) Variation in inventories, work in progress, semi-finished products and finished goodsRaw materials and supplies (1.167.908.428) (21.521.697) (11.286.713) (8.046.998) Finished products (45.330.535) (4.433.434) Packaging material Advertising materialOther material and consumables (3.558.300) (34.388) Variation in raw materials, supplies and consumablesCost for raw materials - related parties - - Cost for raw materials - related partiesCost for services and use of third party assets (16.151.646) (2.710.145) (6.956.285) (156.090) (1.013.328) (680.341) External manufacturing (498.516) (186.405) Maintenance (5.167.220) (22.342) (2.072.083) (49.936) (8.353) (202.655) Management, law and technical consulting (1.265.512) (444.236) (12.230) (166.099) Travel expenses (3.029.066) (299.611) (1.124.326) (29.273) (112.024) (109.962) Transport costs and customs duties (51.954) (264.935) (812.951) (502) (99.058) (79.509) Advertsing expenses (933.790) (527.735) (9.024) - (51.614) Utilities (2.010.782) (1.031.992) (19.432) - (100.931) Insurances (1.641.648) (9.934) (156.813) (15.865) (3.714) (15.337) Commissions (221.349) (82.762) Statutory auditors payment (723.852) (120.165) (6.995) (44.930) Cost for use of third party assets (990.000) (151.051) (408.428) (9.567) (56.478) (39.945) Other expenses (337.823) (678.006) (821.957) (3.265) (253.505) (80.389) Cost for services - related parties - - Cost for services - related partiesPersonnel expense (20.281.064) (2.462.334) (5.935.114) (195.997) (920.671) (580.468) Salaries (20.281.064) (1.424.612) (4.808.958) (195.997) (532.670) (470.328) Wages (922.044) (90.178) Bonus to employeesSocial security contributions (635.551) (237.631) Employees' leaving entitlementsManaging payment (402.171) (150.371) Management retirement benefit costsCost of temporary workers Other personnel expenses (204.112) (19.963) Accruals, impairment losses and other operating expenses (10.683.508) (344.087) (2.246.795) (103.246) (128.655) (219.742) Write-downs of receivables and liquid assetsProvision for contingenciesOther operating expenses (10.683.508) (344.087) (2.246.795) (103.246) (128.655) (219.742) Loss on disposal of assetsOther non-recurring expensesAmortisation, depreciation and impairment losses (8.518.687) (372.004) (1.802.662) (82.325) (133.156) (176.305) Amortisation of intangible fixed assets (205.137) (129.363) (307.713) (1.982) (42.433) (30.095) Depreciation of tangible fixed assets (8.313.550) (242.641) (1.494.949) (80.342) (90.723) (146.210) Other write-downs of fixed assetsFinancial income 488.673 - 21.470 4.723 - 2.100 Income from shareholdings - associated companiesIncome from shareholdings - other companiesFrom securities included under assets forming part of working capitalInterest on bank accountsShareholdings revaluationsOther financial income 488.673 21.470 4.723 2.100 Financial expenses - (454.366) (843.018) - (169.880) (82.449) Other expensesShareholdings write-downsCommissions and other banking costsInterest on bondsInterest on bank loans and other financial institutions (454.366) (843.018) (169.880) (82.449) Exchange rate gains (losses) (137.831.814) 304.592 686.107 (1.332.012) 113.887 67.103 Exchange rate gains (losses) (137.831.814) 304.592 686.107 (1.332.012) 113.887 67.103 Income tax expense (7.637.859) (868.511) (1.349.375) (73.813) (326.949) (131.972) Current taxes (7.637.859) (868.511) (1.349.375) (73.813) (326.949) (131.972) Deferred taxesProfit (Loss) for the period 21.352.085 2.296.619 2.726.893 206.347 862.442 266.697 Profit (Loss) for the period

Statement pursuant to art. 2.6.2, paragraph 12 and 15 under Regulations of the Markets Organized and

Managed by Borsa Italiana S.p.A.

The Board of Directors of Landi Renzo S.p.A., state, having regard also to the provisions of art. 2.6.2, paragraphs 12 and 15, of Regulations of the Markets Organized and Managed by Borsa Italiana S.p.A., the adequacy in relation to the provisions pursuant to article 36 of Consob regulation no. 16191/2007.

Yours faithfully, On behalf of the Board of Directors The Managing Director Stefano Landi (signed on the original)

LANDI GROUP – Corporate Governance Report at 31st December 2008

.

LANDI RENZO S.P.A.

CORPORATE GOVERNANCE

REPORT under Articles 124 bis of the Consob Issuers’ Regulations and IA2.6 of the

Instructions to the Italian Stock Market Regulations

Issuer: Landi Renzo S.p.A.

Web site: www.landi.it

Financial period covered by the Report: 31 December 2008

Date of approval of the Report: 12 March 2009


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GLOSSARY

Self-Regulatory Code: the Self-Regulatory Code for listed companies approved by the Corporate Governance Committee in March 2006 and promoted by Borsa Italiana S.p.A.

Board: the Issuer’s Board of Directors.

Issuer, Landi Renzo or the Company: Landi Renzo S.p.A..

Period: the financial period covered by the Report refers.

Instructions to the Stock Market Regulations: the Instructions to the Regulations of the Stock Markets organised and managed by Borsa Italiana S.p.A..

Stock Market Regulations: the Regulations of the Stock Markets organised and managed by Borsa Italiana S.p.A.

Consob Issuers’ Regulations: the Regulations issued by Consob by virtue of Resolution 11971/1999 regarding issuers.

Consob Stock Market Regulations: the Regulations issued by Consob by virtue of Resolution 16191/2007 regarding Stock Markets.

Report: the Corporate Governance Report that companies are obliged to prepare in accordance with Articles 124 bis of the Italian Financial Services Law, 89 bis of the Consob Issuers’ Regulations and IA2.6 of the Instructions to the Stock Market Regulations.

Consolidated Text: Legislative Decree 58 of 24 February 1998 (the Italian Consolidated Financial Services Text ).


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1. ISSUER PROFILE

The Issuer has adopted a traditional system of governance based on the presence of three bodies: the Shareholders’ Meeting, the Board of Directors and the Board of Auditors. The auditing of the accounts is entrusted by law to an auditing firm. The Issuer adheres to the Self-Regulatory Code in accordance with the method described below.

The following Sections provide information regarding the ownership structure and describe the relative and actual methods of implementation that the Company has already adopted, namely the changes that the Company is pursuing with respect to the compliance model outlined in the Self-Regulatory Code.

This Report, prepared in accordance with the legal obligations laid down for companies listed on the screen-based equity market (Mercato Telematico Azionario) organised and managed by Borsa Italiana S.p.A., and all the documents referred to herein, may be downloaded from the Company’s website, www.landi.it, Investor Relations section.

2. OWNERSHIP STRUCTURE

This Section 2 has been prepared also pursuant to the terms and effects of Article 123 bis of the Consolidated Text. Any information required by the aforesaid Article 123 bis that is not mentioned in this Section 2 is to be understood as not applicable to the Company.

2.1 Shareholding structure

Landi Renzo’s share capital is equal to Euro 11,250,000, fully subscribed and paid up, and consists of 112,500,000 ordinary shares with a nominal value of Euro 0.10 each (the “Shares”).

As of the date of this Report, no special classes of shares have been issued, such as shares without voting rights or with limited voting rights, nor other securities granting the right to subscribe newly issued shares.

2.2 Restrictions on the transfer of securities

As of the date of this Report, the Shares are freely transferable by deed inter vivos and/or by succession mortis causa and are subject to the circulation regime envisaged for shares issued by listed companies registered under Italian law.

2.3 Significant shareholdings

As of the date of this Report, on the basis of the records in the Shareholders’ Book and in the light of the notifications received under Article 120 of the Consolidated Text, the following parties, directly or indirectly, own more than 2% of the Company shares.

Declarer Direct shareholder % of ordinary share capital

% of shares with voting rights

Stefano Landi Girefin S.p.A. 54,667 54,667

Gireimm S.r.l. 4,444 4,444


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UBS (LUX) Equity Fund Management Company SA (as manager of the UBS (LUX) Equity Fund - Global Innovators B, which holds the equity)

UBS (LUX) Equity Fund Management Company SA

2,311 2,311

Royce & Associates LLC in its capacity as manager, inter alia, of the Royce Low Priced Stock Fund, which holds 3.325%

Royce & Associates LLC 5,062 5,062

2.4 Securities to which special rights are attached

As of the date of this Report, all the Company’s shares are registered, freely transferable and indivisible, and each of them entitles the holder to cast one vote in Ordinary and Extraordinary Company Shareholders’ Meetings. Each share confers the same proprietary and administrative rights in accordance with the applicable provisions of law and of the Articles of Association.

Therefore, as of the date of this Report, the Company has not issued any securities conferring special controlling rights.

2.5 Employees’ shareholdings: mechanism for the exercise of voting rights

As of the date of this Report, there are no arrangements for employees to hold shares in the Company.

Please note that, as set forth by Section Two, Chapter 5, paragraph 5.2.3, letter D, of the prospectus concerning the public offering for the sale and subscription (the "Public Offer") and admission to trading on the screen-based equity market (Mercato Telematico Azionario) managed by Borsa Italiana - Star Segment - of Renzo Landi S.p.A. ordinary shares (the "Prospectus"), Employees (as defined in the Prospectus) holding Renzo Landi S.p.A. ordinary shares (the "Shares") who would maintain full and continuing ownership of their entire shareholding for twelve months starting from 26 June 2007, provided that such Shares are deposited with a distributor or any other institution member of Monte Titoli, would be entitled to the free assignment of 1 Renzo Landi S.p.A. ordinary share for each 20 Shares allocated to them by the Public Offering. In this regard, it should be noted that on 8 August 2008, Girefin S.p.A. allocated no. 4,870,000 Shares to its Employees holding shares.

2.6 Restrictions on voting rights

As of the date of this Report, there are no restrictions on voting rights.

2.7 Shareholders’ agreements


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As of the date of this Report, the Company is not aware of any agreements among shareholders as per Article 122 of the Consolidated Text.

2.8 Appointment and replacement of Directors and amendments to the Articles of Association

The Shareholders’ Meeting decides the number of the members of the Board of Directors at the time of their appointment, within the limits set out in paragraph 5.1 below. Directors serve for a period of not more than three financial periods and may be re-elected.

Article 14 of the Issuer’s Articles of Association, regarding the appointment and replacement of the Board of Directors and/or of its members, provides that Directors are elected from lists of candidates in accordance with the following procedures. Shareholders holding, even jointly, at least 2.5% of the share capital representing shares listed in Italian regulated markets or the regulated markets of other European Union countries that confer voting rights at shareholders’ meetings held to deliberate the appointment of members of the governing body, or that hold such other proportion of the share capital as may be determined by Consob from time to time, may present a list of candidates whose number must not exceed the number of Directors to elect, arranged in order of progression.

Each shareholder, the shareholders adhering to a shareholders’ agreement relevant under Article 122 of the Consolidated Text, the parent company, the subsidiary companies and companies subject to joint control may not present or join in the presentation of more than one list, not even through a third party or a trust company, nor may they vote for different lists, and each candidate may only stand in one list, on pain of ineligibility. Candidatures and votes expressed in breach of this prohibition shall not be attributed to any list.

Lists must be deposited at the Company’s registered office at least 15 (fifteen) days prior to the date scheduled for the Meeting in first call, without prejudice to any additional forms of publicity prescribed by law, including regulatory provisions, applicable at the time. The documents specified in Article 14 of the Issuer’s Articles of Association must also be deposited together with each list and within the term specified above. The Meeting notice may specify the filing of further documents. Lists presented that do not comply with these provisions shall be deemed as not having been presented.

Each shareholder is entitled to vote for only one list. At the end of the ballot, the candidates in the two lists that have obtained the highest number of votes shall be elected, in accordance with the following criteria:

(a) from the list that has obtained the highest number of votes (the “Majority List”), a number of Directors shall be taken that correspond to the total number of members of the Board, as previously decided by the Meeting, minus one; the candidates in the order of progression set down in the list are elected, within this numerical limitation;

(b) from the list that has obtained the second highest number of votes, provided that it is not connected in any manner, even indirectly, with the shareholders that presented or voted for the Majority List (the “Minority List”), one Director shall be taken, in the person of the candidate numbered one in said list.


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The candidate elected in first place from the Majority List is appointed as the Chairman of the Board of Directors.

Unless otherwise stipulated, if the voting is even, the older candidate shall be elected.

If, as a result of the procedures specified above, the number of Independent Directors, as defined in the current provisions of law for Auditors, corresponding to the minimum required in law, as against the total number of Directors, is not appointed, the last-placed non-independent candidate elected from the Majority List will be replaced by the next-placed non-elected independent candidate in the Majority List, or, failing this, by the first-placed non-elected independent candidate from the other lists, according to the number of votes obtained by each. This replacement procedure shall be applied until the Board of Directors is composed of a number of Independent Directors that satisfies the provisions of law applying to Auditors, corresponding to the legal minimum. Finally, should this procedure not give rise to the result specified above, the necessary replacement will take place by virtue of a resolution adopted by the Shareholders’ Meeting by a relative majority, after candidates satisfying the said requirements have been presented.

If the first two, or more than two, lists obtain an equal number of votes, a further ballot by the Shareholders’ Meeting will take place, whereby only such lists will be voted for. The same rule applies in the event of an equal number of votes being cast for lists in second place, provided that they are not connected, even indirectly, with the shareholders that presented or voted for the competing list.

In the event that the lists continue to obtain an equal number of votes, the list presented by the shareholders with more equity in the company will prevail, or, subordinately, the list that is presented by the greater number of shareholders.

If only one list is presented, or if no list is presented, the Shareholders’ Meeting resolves by the statutory majority without complying with the procedure described above.

For the purposes of the distribution of the Directors to be elected, lists that do not obtain a percentage of votes amounting to at least half that required by the Articles of Association or by Consob for their presentation will not be taken into consideration.

If one or more Directors leave office during the period, provided that the majority remains composed of Directors appointed by the Shareholders’ Meeting, action is taken in accordance with Article 2386 of the Italian Civil Code as follows:

(a) the Board of Directors fills the vacancy from the same list as that to which the Director that has left belonged and the Shareholders’ Meeting resolves, by the statutory majority, following the same criterion;

(b) should said list not hold any remaining not previously elected candidates, or candidates with the necessary requirements, or in any event should for any reason not be possible to comply with the provisions of point (a) above, the Board of Directors arranges for the replacement as the Shareholders’ Meeting subsequently resolves, by the statutory majority without list voting.


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In all cases the Board of Directors and the Shareholders’ Meeting appoint members of the Board in such a way as to ensure that the total number of Independent Directors corresponds to the minimum number required by the law applicable at the time.

Moreover, when the majority of Directors leaves office, the entire Board must be considered as having stood down with effect from the moment when it is reconstituted.

At least one of the members of the Board of Directors, or two if the Board is composed of more than seven members (or such other minimum number required by the legislation current at the time) must satisfy the independence criteria for Auditors laid down under prevailing legislation.

Under prevailing legislation applicable to Auditors, an independent Director that after his appointment, no longer satisfies the independence criteria, must inform the Board of Directors of this immediately, and loses office. Failure on the part of a Director to meet the aforementioned independence criteria does not entail his losing office if there remains a minimum number of Directors satisfying these requirements as required under prevailing legislation or in accordance with codes of conduct to which the Company has declared to abide.

Furthermore, under Article 18 of the Articles of Association, in addition to the widest powers for the day-to-day and extraordinary management of the Company, the Board of Directors is vested with the following responsibilities:

(i) merger resolutions in the cases contemplated in Articles 2505 and 2505 bis of the Italian Civil Code, including those mentioned in connection with demergers in Article 2506 of the Italian Civil Code;

(ii) opening and closing of secondary offices;

(iii) reducing the share capital in the event of the withdrawal of a shareholder;

(iv) amending the Articles of Association in accordance with new provisions of law;

(v) identifying the Directors with the power to represent the Company;

(vi) moving the registered office within the country;

(vii) appointing and discharging the executive responsible for the preparation of the corporate accounting records.

The Board of Directors must also ensure that the executive responsible for the preparation of the corporate accounting records has sufficient powers and resources to perform the duties assigned to him by law and that administrative and accounting procedures are observed in actual practice.

2.9 Delegated powers to increase share capital and acquire treasury shares

The Company’s Ordinary Shareholders’ Meeting of 23 April 2008 authorised the Board of Directors and, on behalf of the Board, its Managing Director, also acting through his specially appointed attorneys, in accordance with and to the effects of Article 2357 of the Italian Civil


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Code, to buy Company’s treasury shares in the quantities, at the price, on the terms and in the manner specified below:

− the purchase may be carried out on one or more occasions, within 18 months from the Shareholders’ Meeting resolution concerned pursuant to the provisions contemplated in Articles 132 of the Consolidated Text and 144 bis, paragraph 1, of the Consob Issuers’ Regulations;

− the purchase price of each share may not be lower or higher than 20% of the reference price recorded by the security on the Stock Market in the session preceding each transaction;

− the maximum number of shares purchased may not have an aggregate nominal value, including any shares held by the subsidiaries, higher than one-tenth of the share capital.

On the same occasion the Shareholders’ Meeting also resolved:

− under Article 2357 ter, paragraph 1, of the Italian Civil Code, to authorise the Board of Directors to dispose, in whole or in part, without any time limits, of treasury shares purchased even before having completed the purchases; shares may be sold, even before having completed the purchases, on one or more occasions, on the Stock Market and/or off the Stock Market, on the block trading market, also by offering them to the public and/or to shareholders, by institutional placement, placement of purchase coupons and/or warrants or as a consideration for acquisitions or public swap offers at a price that must not be 20% lower or higher than the reference price recorded by the security on the Stock Market in the session preceding each transaction; nevertheless, these price limits will not apply if the shares are sold to employees, including executives, Executive Directors and collaborators of Landi Renzo and its subsidiaries within the framework of stock option incentive plans intended for such persons;

− under Article 2357 ter of the Italian Civil Code, to authorise the Board of Directors to make all the accounting entries necessary or expedient, as regards transactions involving treasury shares, in compliance with prevailing legal provisions and the applicable accounting principles.

As of the date of this Report, the Company has neither purchased nor disposed of any treasury shares.

The Board of Directors of 12 March 2009 resolved to submit to the Shareholders' Meeting a proposal to extend the power to purchase and dispose of treasury shares under the same terms and conditions as approved by the previous shareholders' meeting.

2.10 Change of control clauses

As of the date of this Report, neither the Company nor its subsidiaries has entered into any significant agreements that become effective, modified or dissolved in the event of a change in the Issuer’s majority shareholder, except for two loan agreements having both a duration of 5 years and 2.5 months starting from 13 October 2008, entered into for a total amount of Euro 30,000,000.00 intended for the acquisition of the entire equity stake of Lovato Gas S.p.A. Both loan agreements contain a clause providing for full repayment of the loan in case Girefin S.p.A.


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and Gireimm S.r.l. reduce their stake in the Company to below 50,1%, unless preliminary consent thereto is given by the lender; in such event, should the Company fail to comply with its repayment obligation, banks will be also entitled to terminate the relevant agreements within the meaning of article 1456 of the Italian Civil Code.

2.11 Directors’ severance pay in the event of resignation, dismissal or termination of appointment as a result of a public acquisition offer

As of the date of this Report, no agreements exist between the Company and members of its Board of Directors contemplating the payment of severance pay in the event of resignation, dismissal and/or discharge without just cause or in any case of the termination of the appointment as a result of a public purchase offer.

3. COMPLIANCE

The Company has complied with the provisions and recommendations of the Self-Regulatory Code.

Neither the Issuer nor its subsidiaries of strategic importance are subject to provisions of any laws other than Italian law affecting the Issuer’s corporate governance structure.

4. MANAGEMENT AND COORDINATION ACTIVITIES

Landi Renzo does not consider that Girefin S.p.A. exercises any function of management and coordination, as it operates in conditions of corporate and entrepreneurial independence of said parent company. Specifically and by way of example, Landi Renzo manages treasury services and trade relations with its customers and suppliers autonomously and also autonomously decides its business plans and/or budget.

5. BOARD OF DIRECTORS

5.1 Composition

Under Article 14 of the Articles of Association, the Company is governed by a Board of Directors composed of from 5 (five) to 9 (nine) members, who need not be shareholders, as previously decided by the Shareholders’ Meeting at the times of the appointment of the Board.

On 16 May 2007 the Shareholders’ Meeting appointed the Board of Directors, setting the number of its members at 6 (six). The Directors will serve until the approval of the financial statements at 31 December 2009. On 7 January 2008 Silvia Landi resigned as a Director; on the same date the Board appointed her replacement, co-opting Carlo Alberto Pedroni, subsequently appointed as new member of the Board of Directors by the Shareholders Meeting of 23 April 2008. The meeting of the Board of Directors of 23 April 2008 granted the incoming Director operational powers for the management of the production, procurement, logistics and human resources areas.

Directors Alessandro Ovi and Tomaso Tommasi di Vignano stated that they met the qualifications required for Independent Directors at the time of their appointment in accordance with Article 148 of the Consolidated Text and Article 3 of the Self-Regulatory Code.


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The Board of Directors is obliged, on a yearly basis, to consider whether Directors described as “independent” at the time of their appointment still satisfy the independence criteria laid down in the laws and regulations applicable at the time.

The purpose of the presence of two Independent Directors is to provide further safeguards of good corporate governance by means of discussion and debate among all the Directors. The contribution made by the Independent Directors also allows the Board to verify that cases of potential conflict between the interests of the Company and its majority shareholder are evaluated with an appropriate degree of independent judgment.

The members of the Board of Directors serving as of the date of this Report are shown in the table below.


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Forename and surname

Position Place and date of birth

Type of Director

Internal Control Committee

Remuneration Committee

Giovannina Domenichini

Chairman Casina (Reggio Emilia), 6 August 1934

Non-Executive

Stefano Landi Managing Director

Reggio Emilia, 30 June 1958

Executive

Paolo Gabbi Director Casina (Reggio Emilia), 17 January 1937

Non-Executive Chairman Chairman

Alessandro Ovi Director Carpineti (Reggio Emilia), 14 January 1944

Non-Executive and Independent1

Member Member

Tommaso Tomasi di Vignano

Director Brescia, 14 July 1947

Non-Executive and Independent

Member Member

Carlo Alberto Pedroni

Director Reggio Emilia, 28 December 1948

Executive

The addresses of all the members of the Board of Directors are, by virtue of their positions, care of the Company’s registered office. There is a family relationship between Directors Giovannina Domenichini and Stefano Landi, in that Stefano Landi is Giovannina Domenichini’s son.

Each Director’s personal and professional characteristics are briefly set out below in accordance with Article 144 decies of the Consob Issuers’ Regulations.

Giovannina Domenichini. In 1954 Giovannina Domenichini founded Officine Renzo Landi together with her husband. Subsequently, following the Issuer’s incorporation, she took on the position of Sole Director and in 1987 became, and to date still is, the Chairman of the Board of Directors, In 1990 she was awarded the honour of Commendatore dell’ordine al merito della Repubblica Italiana.

Stefano Landi. A founder member of the Issuer, he has been Managing Director since 1987, a position he continues to hold at present in additions to having positions in other Group companies. In 2006 the specialised press included Landi among the top ten managers in the automotive sector.

1 Independent as per Article 148 of the Consolidated Text and Article 3 of the Self-Regulatory Code.


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Paolo Gabbi. A graduate in Economics and Commerce at Parma University, Paolo Gabbi started his working life as Administrative Manager at the Cantine Cooperative Unite in 1965. He has been the Head of the Financial Studies office of the Cooperative League Federation since 1972 and Chairman of the Board of Directors of ABAX Informatica S.c.r.l. since 1977. He joined Landi Renzo in 1985 and was the Executive Manager of the Administration and Finance Department until 1995, when he became a member of the Board of Directors.

Alessandro Ovi. A graduate in Nuclear Engineering at the Milan Polytechnic, Alessandro Ovi continued his academic career as a researcher at the Massachusets Institute of Technology, Cambridge, Massachusets. He has served as Managing Director of Tecnitel, in the Telecom Group, as Central Manager in IRI for the internationalisation of the Group and as Special Advisor to the Chairman of the European Committee for Innovation. He is a Life Trustee of Carnegie Mellon University and a member of the Advisory Board of the MIT Media Lab. Finally, he is a member of the Boards of Directors of various listed companies.

Tomaso Tommasi di Vignano. A graduate in law, Tomaso Tommasi di Vignano began his working life with SIP S.p.A. in Human Resources in 1989, acting as the Manager of the Group Human Resources Department. He was Managing Director of Iritel S.p.A. from 1992 to 1994, and in this capacity he led the transformation of the company during the process of its merger with Telecom Italia S.p.A. From 1994 to 1997 he was a General Manager of Telecom Italia S.p.A. as Manager of the International Division, the Business Customer Division and the Residential Customer Division. Subsequently he became the Managing Director of STET and of Telecom Italia S.p.A. From 1999 to 2002 he was Managing Director of ACEGAS S.p.A. He has been at the head of the Hera Group since November 2002, acting as Chairman of the Board of Directors.

Carlo Alberto Pedroni. A graduate in Economics and Business, Carlo Alberto Pedroni began his working life with Istituto Bancario Banca Agricola Commerciale, acquiring skills in several fields. After experiences with companies such as Apple and Cantieri Navali Ferretti, he has been a partner in Mai-Pedroni Consulting since 1994; in 2007 he became the Managing Director of the Berloni Group.

The table below shows the managerial and auditing positions held in listed and unlisted companies by member of the Company’s Board of Directors as of 31 December 2008.

Forename and surname

Company in which an external position is held Position


Girefin S.p.A. Immobiliare L.D. Parma S.r.l.

Chairman of the Board of Directors Sole Director

MED S.p.A. Director Stefano Landi Girefin S.p.A. Managing Director Gireimm S.r.l. Sole Director Pallacanestro Reggiana S.r.l. Chairman of the Board of Directors Reggio Emilia Innovazione S.c.a r.l. Chairman of the Board of Directors Med S.p.A. Chairman of the Board of Directors Lovato Gas S.p.A. Chairman of the Board of Directors Paolo Gabbi - - Alessandro Ovi Telecom Italia Media S.p.A. Director Enìa S.p.A. Director Guala Closures S.p.A. Director


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Almaviva S.p.A. Director Kedrion S.p.A. Director STMicroelectronics Director Tech Rev S.r.l. Sole Director Tomaso Tommasi di Vignano

Hera S.p.A. Chairman of the Board of Directors

Hera Comm S.r.l. Director Hera Trading S.r.l. Director Carlo Alberto Pedroni VO2 Max Team S.r.l.

Mobirolo S.p.A. Chairman of the Board of Directors Director

It should be noted that the Board decided not to comply with paragraph I.C.3 of the Self-Regulatory Code, which provides for the Board of Directors to issue guidance regarding the maximum number of positions as Director and Auditor in listed companies, finance, banking and insurance houses or large-size companies.

5.2 Role of the Board of Directors

The Board of Directors is the corporate body responsible for the governance of the Company and has the powers assigned to it by law and by the Articles of Association. It is organised and operates in such a way as to ensure the effective and efficient performance of its functions. Its Directors act and adopt resolutions knowledgeably and autonomously, pursing the objective of creating value for the Company’s shareholders and reporting management performance at Shareholders’ Meetings.

The Board of Directors is vested with the widest powers for the day-to-day and extraordinary management of the Company and has the power to carry out all the acts it considers expedient or helpful for the achievement of its corporate purpose, only excluding those for which the Shareholders’ Meeting is solely responsible by law or under the Articles of Association.

The Board of Directors is also vested with responsibility for the following:

(i) merger resolutions in the cases contemplated in Articles 2505 and 2505 bis of the Italian Civil Code, including those mentioned for demergers in Article 2506 of the Italian Civil Code;

(ii) opening and closing secondary offices;

(iii) reducing the share capital in the event of the withdrawal of a shareholder;

(iv) adapting the Articles of Association in accordance with new provisions of law;

(v) identifying the Directors with the power to represent the Company;

(vi) moving the registered office within the country;

(vii) appointing and discharging the executive responsible for the preparation of the corporate accounting records.

The Board of Directors must ensure that the executive responsible for the preparation of the corporate accounting records has sufficient powers and resources to perform the duties assigned


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to him by law and that administrative and accounting procedures are observed in actual practice.

Although the Articles of Association do not stipulate a minimum number of meetings, it is now the practice for the Board to meet at least once a quarter on the occasion of the approval of the interim financial statements. Board Meetings are scheduled on the basis of a calendar approved at the beginning of the year in order to help to ensure that as many members as possible attend. The corporate calendar may be consulted on the Company’s website, in the Investor Relations section.

During the last financial period, the Board of Directors held 8 meetings, duly attended by its members (overall attendance was in fact 91.67 %). The percentage of the attendance of Independent Directors was 75 %. At least 4 meetings are scheduled for the current financial period. Board Meetings lasted an average of 59 minutes in the last financial period.

Directors and Auditors receive the papers and information necessary to enable them to express themselves knowledgeably on the subjects submitted for their examination and approval, with a suitable amount of time in advance of the meeting,.

For matters specified in paragraph I.C.1 of the Self-Regulatory Code no powers have been granted to the Managing Director and they must therefore be considered to be the sole responsibility of the Board of Directors. For example, it must be deemed that the Board is responsible for considering and approving:

(a) the Issuer’s strategic, business and financial plans;

(b) the strategic, business and financial plans of the Group that the Issuer leads;

(c) the Issuer’s system of corporate governance;

(d) the structure of its Group.

In carrying out their duties, Directors examine the information they receive from the delegated bodies, also asking these bodies for clarification, further details or additional data that they consider necessary or appropriate. To this end, at least quarterly, the Managing Director provides the Board of Directors with adequate information regarding general management performance and its foreseeable prospects and on the most significant transactions carried out by the Company or its subsidiaries.

In order to implement paragraph 1 and the relative criteria for the application of the Self-Regulatory Code, the Board of Directors has approved the Company’s overall system of governance. In addition to the delegation of powers and functions, including provision for the formation of committees within the Board, of which further mention will be made below, this system also includes rules of procedure governing transactions with related parties and transactions in which a Director has an interest.

The Board of Directors evaluated the general performance of management, particularly considering the information received from the Company’s delegated bodies and periodically comparing the results achieved with those forecasted.


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The Board examined and approved in advance the transactions of significant strategic, economic and financial importance to the Issuer carried out by the Issuer and its subsidiaries’

Section 11 below should be referred to for information regarding the procedure followed by the Board in carrying out intra-group transactions and transactions with other related parties.

Article 14 of the Articles of Association states that the Directors are subject to the non-competition rule laid down in Article 2390 of the Italian Civil Code unless they are exonerated from this rule by the Shareholders’ Meeting. As of the date of this Report, the Shareholders’ Meeting has not given permission for any exceptions to the non-competition rule.

5.3 Delegated bodies

5.3.1 Managing Director

The Board of Directors has vested the Managing Director, Stefano Landi, with the powers necessary for the day-to-day management of the Company. Some of the delegated operational powers vested in the Managing Director are subjected to ceilings for the amounts involved in the exercise of such powers.

The Chairman of the Board of Directors, the Managing Directors, if any have been appointed, and the attorneys that have been delegated by the Board, within the limits of the delegation, are the Company’s authorised representatives, both actively and passively, in judicial and out-of-court proceedings and with regard to any authority and/or third party and for any act.

5.3.2 Chairman of the Board of Directors

The Chairman of the Board of Directors, Giovannina Domenichini, has not been vested with any management powers and does not act as an Executive Director.

5.3.3 Reporting to the Board of Directors

At least every quarter, the Managing Director provides the Board of Directors with adequate information regarding general management performance and its foreseeable prospects, as well as regarding the transactions carried out by the Company and its subsidiaries that are of the greatest importance by size and characteristics.

The Directors report to the Board of Auditors in good time, and in any event at least every quarter, at Board of Directors’ Meetings or meetings of the Executive Committee, if one has been appointed, or also in the form of a written memorandum to the Chairman of the Board of Auditors, on the activities performed and the transactions carried out by the Company and its subsidiaries that are of the greatest economic and financial importance and of the greatest significance for the Company’s assets, in order to enable the Landi Renzo Board of Auditors to assess whether the transactions that have been resolved and implemented comply with the law and the Articles of Association or are not, on the other hand, clearly imprudent and in conflict with the resolutions passed by the Shareholders’ Meeting, or are such as to impair the integrity of the Company’s assets.


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In particular, Directors report on transactions in which they have an interest, either on their own account or on behalf of third parties, and on any atypical or unusual transactions or any transactions with related parties.

5.4 Directors with delegated powers

On 23 April 2008 the Board of Directors appointed Carlo Alberto Pedroni to the Board, vesting him with some delegated powers in the production, procurement, logistics and human resources areas.

5.5 Independent Directors

At the meeting held immediately after the Shareholders’ Meeting that appointed the Board itself on 16 May 2007, the Board of Directors assessed whether Directors Alessandro Ovi and Tomaso Tommasi di Vignano satisfied the criteria of independence prescribed in Article 148 of the Consolidated Text and Article 3 of the Self-Regulatory Code. On this occasion, the Board of Auditors verified and reached a favourable conclusion on the correct application of the criteria and the inquiry procedures adopted by the Board of Directors in assessing the independence of its members.

In the course of the financial year, they hold one meeting without others Directors.

The Board of Directors of 12 March 2009, based on the information provided to it by the independent directors and on information available, verified that independence requirements were met in respect of directors Alessandro Ovi and Tomaso Tommasi di Vignano as recommended by article 3 of the Self-Regulatory Code.

5.6 Lead Independent Director

The Company has not designated a Lead Independent Director.

6. HANDLING OF CORPORATE INFORMATION

During the Period, the Company launched a procedure for the internal management and the public disclosure of inside information, implementing the provisions laid down in new legislation on market abuse, also establishing procedures for the registration of persons with access to inside information.

In general terms, the procedure vests the Managing Director, with the support of the executive in charge of the preparation of the corporate accounting records and of the Investor Relations Manager, with responsibility for the internal handling and the public disclosure of inside information, the methods of handling inside information, the methods of handling market rumours, disciplinary action in the event of delayed disclosure to the market, the procedures governing the registration of persons with access to inside information, the persons authorised to conduct relations with the public and the persons bound by confidentiality obligations.

In conformity to the provisions of market abuse law, the Company has adopted the Internal Dealing Code, which was drafted in accordance with Article 152 sexies ff of Consob Regulations 11971/99 as subsequently amended and supplemented. In accordance with this Code, a number of key personnel, understood as those with normal access to inside information


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and with the power to take management decisions that may affect the Company’s trend and prospects, as well as the persons closely connected to them, are under an obligation to make disclosures to the market regarding transactions carried out on the listed securities issued by the Company.

The Internal Dealing Code provides for ceilings and deadlines for market disclosures, with relative sanctions in line with the relevant Consob provisions. Said Code also contains clauses governing the black-out period.

During the Period, the Company circulated notices regarding insider trading as necessary.

7. REMUNERATION COMMITTEE

The duty of the Remuneration Committee is to formulate proposals to the Board of Directors, in the absence of those directly concerned if these are members of the Committee, regarding the remuneration of the Managing Director and those Directors who hold particular positions; it also periodically appraises the criteria adopted for the remuneration of key executives, supervising their application and making general recommendations on the matter.

As of the date of this Report, the Remuneration Committee is composed of three Directors: Paolo Gabbi as Chairman, Alessandro Ovi and Tomaso Tommasi di Vignano, all Non-Executive Directors, two of whom are independent. The members of the Remuneration Committee receive an annual gross remuneration sum for their work, as resolved by the Shareholders’ Meeting on 16 May 2007.

The Remuneration Committee has approved its own internal rules, which provide, among other things, for the Managing Director to attend Committee Meetings without the right to vote, provided that the discussions and relative resolutions do not involve proposals concerning his own remuneration.

The Remuneration Committee met twice during the Period. The meeting of 20 March 2008 was attended, without voting rights, by the Managing Director and Mr Fiorenzo Oliva, in his capacity as Company advisor. Mr Fiorenzo Oliva also attended the meeting of the Remuneration Committee of 23 April 2008, without voting right.

8. DIRECTORS’ REMUNERATION

As regards remuneration, under the Articles of Association the Shareholders’ Meeting assigns the Board of Directors emoluments that may consist of a fixed and a variable portion throughout the term of its mandate. The variable portion is commensurate to the achievement of certain objectives and/or to the economic results attained by the Company.

While the Board of Directors retains the power to pay Directors vested with particular duties additional emoluments in accordance with Article 2389, paragraph 3, of the Italian Civil Code, the fixed portion of the remuneration was set by the Shareholders’ Meeting on 16 May 2007, which decided on a total gross annual sum to be divided among the members of the Board and on the payment of an attendance fee for each time they took part in a Board Meeting.

As regards the variable portion of the remuneration, at the time when the Company was listed, under Italian Stock Market Regulations, in order to enter the STAR segment, a company was


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required to appoint an internal Remuneration Committee and to provide that a significant part of the remuneration of Executive Directors and other top executives be calculated on an incentive basis.

Consequently, at the Board Meeting concerned, the Remuneration Committee informed the Board of Directors that it considered it advisable that the variable portion of the remuneration of Executive Directors and key executives should be determined on the basis of the attainment of particularly challenging objectives, in order to satisfy this additional requirement. The Committee proposed that these objectives should be selected taking into account, among other aspects, the role of the executive directors and the top executives and the commitment expected of them in order to carry out their duties, in addition to the Company’s market position, its size and its growth prospects.

Accordingly, the Shareholders' Meeting of 23 April 2008 set the maximum amount of the variable portion of the remuneration payable to executive directors for 2008; payment of this variable portion is conditional upon attainment of the specific objectives set by the Board of Directors of 20 March 2008 in terms of Group turnover and EBITDA as recorded in the business plan of the Company for the period 2008.

The Non-Executive Directors’ gross annual remuneration is not related to the Company’s achievement of particular economic results, but proportionate to the commitment requested of each of them in the fulfilment of their duties. .

It should be noted that a significant portion of key executives’ remuneration is linked to the economic results achieved by the Issuer and/or the attainment of specific objectives previously set by the Managing Director.

As of the date of this Report, there are no incentive plans based on stock options for Executive or Non-Executive Directors or key executives.

9. INTERNAL AUDIT COMMITTEE

The internal audit system is the combination of rules, procedures and organisational structures whose purpose is to identify, measure, manage and monitor the main risks and a correct business conduct consistent with the preset targets by means of an appropriate identification process.

The Board of Directors assesses the adequacy of the internal audit system in light of the characteristics of the Company.

The Board of Directors ensures that its appraisals and decisions with regard to the internal audit system, the approval of the financial statements and half-year reports and the relations between the Issuer and the auditing firm are supported by satisfactory preliminary work. To this end, the Board of Directors sets up an Internal Audit Committee composed of Non-Executive Directors, the majority of whom are Independent Directors. At least one member of the Internal Audit Committee should have satisfactory experience in accounting and financial matters, to be assessed by the Board of Directors at the time of his appointment.

With the help of the Internal Audit Committee, the Board of Directors:


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(a) sets down the guidelines for the internal audit system so that the main risks faced by the Issuer and its subsidiaries are correctly identified and properly measured, managed and monitored, also deciding on criteria to assess the compatibility of these risks with sound business management;

(b) selects an Executive Director (normally one of the Managing Directors) who is instructed to superintend the functioning of the internal audit system;

(c) at least once a year assesses the adequacy, efficacy and actual functioning of the internal audit system;

(d) in its corporate governance report, describes the essential features of the internal audit system, expressing its opinion regarding its overall suitability.

Moreover, the Board of Directors, in consultation with the Internal Audit Committee and at the proposal of the Executive Director responsible for superintending the functioning of the internal audit system, has the power to appoint or discharge one or more persons in charge of internal auditing and sets their remuneration consistently with Company policy.

In addition to assisting the Board of Directors in the performance of the above duties, the Internal Audit Committee:

(a) with the executive in charge of the preparation of the corporate accounting records and the auditing firm, verifies that accounting principles have been correctly followed and, in the case of groups, that they are homogeneous for the purposes of the consolidated financial statements;

(b) at the request of the Executive Director specifically appointed, expresses opinions regarding specific aspects involving the identification of the main corporate risks and the planning, creation and management of the internal audit system;

(c) examines the working plan drafted by those responsible for internal auditing and the periodic reports prepared by them;

(d) evaluates the offers of the auditing firms that wish to be awarded the assignment, the working plan drawn up for audits and the results set forth in the auditing firm’s report and in any letter of recommendations;

(e) monitors the efficacy of the accounts audit process;

(f) performs any additional duties assigned to it by the Board of Directors;

(g) reports to the Board at least every six months on the occasions of the approval of the annual financial statements and the half-year report regarding the activities carried out and the adequacy of the internal audit system.

As of the date of this Report, the Internal Audit Committee is composed of 3 (three) Directors: Paolo Gabbi as Chairman, Alessandro Ovi and Tomaso Tommasi di Vignano, all Non-Executive Directors, two of whom are independent.


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The members of the Internal Audit Committee receive an annual gross remuneration for their work, as resolved by the Board of Directors of 16 May 2007.

The Internal Audit Committee met 5 times during the period ended on 31 December 2008. Attendance at the Committee meetings was 80%.

The Chairman of the Board of Auditors, Luca Gaiani, and the Auditors as designated on each occasion attended the Internal Audit Committee Meetings, without voting rights. The meetings were also attended by Paolo Cilloni in his capacity as the executive responsible for the Finance and Audit areas, Enrico Gardani in his capacity as member of the Supervisory Board, and Carlo Lubrano and Fiorenzo Oliva in their capacity as Company advisors.

During the Period, the Committee examined the activities involved in the implementation of the internal audit system and the compliance model contemplated in Legislative Decree 231/01 and assisted the Board of Directors as necessary. The Committee also approved its own internal working rules.

10. INTERNAL AUDIT SYSTEM

10.1 Executive Director responsible for the supervision of the functioning of the internal audit system

The Board of Directors, with the approval of the Internal Audit Committee, selected Managing Director Stefano Landi as the Executive Director responsible for the functioning of the internal audit system.

10.2 Internal Audit Manager

The Board of Directors, at the proposal of the Executive Director responsible for the functioning of the internal audit system, in consultation with the Internal Audit Committee, appointed Enrico Gardani as the Internal Audit Manager, stating that Gardani is not responsible for any area of operations and is not hierarchically under any operations area manager, including the Administration and Finance area.

The Internal Audit Manager has, among other things, the duty to verify that the internal audit system is always adequate, fully operational and functional and reports on his work to the Internal Audit Committee, the Board of Auditors and the Executive Director responsible for superintending the functioning of the internal audit system.

The Issuer has formed an internal audit office entirely composed of in-house personnel, headed by the Internal Audit Manager.

10.3 Compliance model under Legislative Decree 231/2001

The Board of Directors, in compliance with the terms laid down in Article 2.2.3, paragraph 3 (k) of the Stock Market Regulations, approved its Corporate Ethics and Compliance Model in accordance with Article 6 of Legislative Decree 231/2001 (the “Model”), as subsequently amended. The Model was drafted on the basis of the guidelines of the Italian Confederation of Industrialists’ and in compliance with applicable legislation.


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With the adoption and effective implementation of the Model, the Company won't be liable for offences committed by "top" managers and persons subject to their supervision and instructions.

The Model lays down a series of rules of conduct, procedures and control activities as well as a system of powers and delegated responsibilities whose purpose is to prevent the occurrence of the criminal offences expressly listed in Legislative Decree 231/2001. A disciplinary system has also been introduced to be applied in the event of breaches of the provisions of the Model.

In order to implement the Model, a Supervisory Body was set up, with the functions contemplated in Article 6 (b) of Legislative Decree 231/2001. The Supervisory Body is composed of Messrs Enrico Gardani, Domenico Aiello and Daniele Ripamonti, who will serve for three years with effect from 20 March 2008.

Every six months, the Supervisory Body will inform the Board of Directors in writing on the implementation and actual awareness of the Corporate Ethics and Compliance Model within each Company department.

The Model has been published and circulated to all personnel, outside collaborators, customers, suppliers and partners in the form required by law.

Finally, again in the framework of the activities to be carried out in order to implement the Model, the Board of Directors adopted the Company’s Code of Ethics. In fact, as specified in the Italian Confederation of Industries guidelines, the adoption of ethical principles that have a role to play in the prevention of criminal offences is an essential element in a preventive control system. Specifically, the Landi Renzo Code of Ethics sets out corporate values and the combination of rights, duties and responsibilities of its addressees and provides for the imposing of sanctions, independently and autonomously of those laid down in the national collective labour agreement.

During 2008, the Supervisory Body met 6 times.

10.4 Auditing firm

On 7 March 2007, at the reasoned proposal of the Board of Auditors, the Shareholders’ Meeting appointed the KPMG S.p.A. firm of auditors, with head office at Via Vittor Pisani 25, Milan, as the Company’s auditors of the statutory and consolidated financial statements for the period 2007-2015 and to carry out limited audits of the Group’s consolidated half-year reports during the same period.

10.5 Executive responsible for the preparation of corporate accounting records

Paolo Cilloni, the executive Manager of the Issuer’s Administration and Finance area, has been appointed by the Board of Directors, with the approval of the Board of Auditors, as the Executive responsible for the preparation of the corporate accounting records in conformity to the requirements of Article 24 of the Articles of Association.

This Article states that the person in question should have proven experience in accounting and finance.


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The Board has delegated Managing Director Stefano Landi to equip the Executive responsible for the preparation of the corporate accounting records, Paolo Cilloni, with sufficient resources and powers for him to perform his assigned duties, it being understood that the Managing Director is obliged to report on the matter to the Board of Directors and to ensure that such means and resources are provided and that administrative and accounting procedures are actually observed. Managing Director Stefano Landi has also been delegated by the Board to decide what remuneration, if any, the Executive concerned should receive for the performance of these duties.

11. DIRECTORS’ INTERESTS AND TRANSACTIONS WITH RELATED PARTIES

The Board of Directors has adopted a procedure for the approval and performance of transactions entered into by the Issuer or its subsidiaries with related parties, on the basis of which, if Directors, either on their own account or on behalf of third parties, have an interest, even a potential or indirect interest, in transactions with related parties, they are bound to inform the Board accordingly and leave the meeting, if requested to do so by the other Directors, when the motion concerned is considered. Furthermore, in accordance with this procedure, the Board’s prior permission is required for the carrying out of substantial transactions with related parties (transactions affecting the stability of corporate assets or the completeness and accuracy of disclosures, including accounts disclosures, regarding the Issuer).

The procedure for carrying out intra-group transactions and transactions with other related parties adopted by the Board of Directors states that transactions with related parties are deemed not to be significant if (i) they cannot affect the stability of the Company’s assets or the completeness and accuracy of disclosures, including accounting disclosures, regarding the Company; (ii) are intra-group transactions that are not atypical, unusual or carried out on terms other than those of the market and, individually, have a value not higher than Euro 1,500,000. As regards type (ii) transactions, intra-group transactions that fall under the category of Landi Renzo’s core business and are regulated on conditions and terms and/or according to methods that do not significantly depart from those of the market and that are normal and/or usually practised in dealings with entities that cannot be described as related parties, are dispensed from the obligations involving authorisation and notification to the Board of Directors.

In cases in which the nature, value or other features of a transaction with related parties so require, in order to prevent the transaction from being carried out on conditions other than those that would be likely to be negotiated between unrelated parties, the Board of Directors requests (i) assistance in the discussions from one or more independent experts, who express their opinion regarding the economic conditions and/or lawfulness and/or the technical aspects of the transaction; and (ii) a prior opinion on the part of the Internal Audit Committee. The Independent Executives must choose the experts whose services are to be used from among persons of acknowledged professionalism and expertise, whose independence and freedom from conflicts of interest with regard to the transaction must also be evaluated.

If Directors have, either on their own account or on behalf of third parties, an interest in transactions with related parties, even a potential or indirect interest, they are obliged (i) to give the Board of Directors prompt and full information regarding the existence of the interest, its nature, terms and scope; and (ii) to leave the meeting, if requested to do so by a majority of the Directors in attendance, when the motion concerned is considered. Should the transaction not


- 23 - .

be subject to the Board’s prior approval, but fall under the powers delegated to the Director in question, even by means of the exercise of the special power of attorney issued to him, the Director refrains from carrying out the transaction and provides the Board of Directors with prompt and full information regarding the matter.

12. APPOINTMENT OF STATUTORY AUDITORS

Under Article 22 of the Company’s Articles of Association, the Board of Auditors is composed of two Statutory and two Alternate Auditors, who can be re-elected.

The Board’s functions, duties and term are as laid down by law. When the members of the Board are appointed, the Shareholders’ Meeting determines their remuneration, also in the light of their participation in any internal committees. Auditors are entitled to the refund of the expenses they incur in the exercise of their functions.

The members of the Board of Auditors are elected from lists presented by the shareholders, in which the candidates must be listed in progressive number order, so that the minority is assured the appointment of one Statutory and one Alternate Auditor. The lists must not contain a higher number of candidates than those to be elected.

Shareholders holding, even jointly, at least 2.5% of the share capital representing shares listed in Italian regulated markets or the regulated markets of other European Union countries that confer voting rights at shareholders’ meetings held to deliberate the appointment of the members of the governing body, or such other proportion of the share capital as may be determined from time to time by Consob, in accordance with the rules applicable to the Company, may present a list of candidates.

Each shareholder, the shareholders adhering to a shareholders’ agreement relevant under Article 122 of the Consolidated Text, the parent company, the subsidiary companies and companies subject to joint control may not present or join in the presentation of more than one list, not even through a third party or a trust company, nor may they vote for different lists, and each candidate may only stand in one list, on pain of ineligibility. Candidatures and votes expressed in breach of this prohibition shall not be attributed to any list.

Lists must be deposited at the Company’s registered office at least 15 (fifteen) days prior to the date scheduled as prescribed by law, including regulatory provisions, applicable at the time .

In the event of only one list having been presented within the above term of 15 (fifteen) days, or only lists presented by shareholders connected with each other in accordance with the laws and regulations in force, lists may be presented until the tenth day before the date scheduled for the Meeting in first call. In this case, shareholders that, alone or with other shareholders, in all own shares representing half of the share capital threshold specified in the preceding paragraph may present lists.

If no list is presented, the Shareholders’ Meeting resolves by the statutory majority without observing the procedure described below.

In all cases, the following documents must be deposited together with each list and within the times specified above: (i) information regarding the shareholders presenting the list and the total number of shares they hold; (ii) the certificate envisaged for this purpose issued by the


- 24 - .

legally authorised intermediary proving title to the number of shares necessary for the presentation of the list; (iii) declarations from the individual candidates to the effect that they agree to stand for election and that they certify, on their own responsibility, that there are no causes of their incompatibility or ineligibility, including the accumulation of positions in accordance with the applicable laws and regulations, and also that they satisfy any requirements that may be laid down for the positions involved; and (iv) CVs with full information regarding the personal and professional characteristics of each candidate, specifying the administration and auditing functions exercised in other companies. Lists presented by shareholders other than those holding, even jointly, a controlling or relative majority shareholding must also attach a certificate to the effect that there are no relationships connecting them with controlling or relative majority shareholders in accordance with the regulation in force. The Meeting notice may specify any additional information, if appropriate, to be deposited. Lists presented that do not comply with these provisions shall be considered as not having been presented.

The procedure for the election of the Auditors is as follows:

(a) from the list that has obtained the highest number of votes (the “Majority List”), two Statutory and one Alternate Auditor are taken on the basis of the numerical order in which they appear in the list;

(b) from the list that has obtained the second highest number of votes, provided that it is not connected in any manner, even indirectly, in accordance with the applicable laws and regulations, with the shareholders that presented or voted for the Majority List (the “Minority List”), the remaining Statutory and the other Alternate Auditor are taken on the basis of the numerical order in which they appear in the list.

If the first two, or more than two, lists obtain an equal number of votes, a further ballot by the Shareholders’ Meeting will take place, whereby only such lists will be voted for. The same rule applies in the event of an equal number of votes being cast for lists in second place, provided that they are not connected, even indirectly, in accordance with the laws and regulations in force.

In the event that the lists continue to obtain an equal number of votes, the list will prevail that is presented by the shareholders with more equity in the company, or, subordinately, the list that is presented by the greater number of shareholders.

The candidate elected in first place in the Minority List is appointed as the Chairman of the Board of Auditors.

Auditors lose office if they cease to satisfy the requirements laid down by law and in the Articles of Association.

In the event of the replacement of an Auditor elected from the Majority List, his place is taken by the first Alternate Auditor belonging to the same list as the replaced Auditor.

If Statutory and/or Alternate Auditors need to be appointed to make up the number of members of the Board after the replacement of a Statutory and/or Alternate Auditor elected in the Majority List, the Shareholders’ Meeting adopts a resolution by the statutory majority, should


- 25 - .

the application of the criteria set out in the preceding paragraph not result in the integration of the number of members of the Board.

In the event of the replacement of an Auditor elected from the Minority List, his place is taken by the alternate auditor belonging to the same list of the replaced Auditor, or subordinately, by the candidate immediately following in the same list as that of the replaced Auditor, or. again subordinately, by the first candidate in the minority list that obtained the second highest number of votes. This does not affect the fact that the Chairman of the Board of Auditors remains the Auditor from the Minority List.

If Statutory and/or Alternate Auditors need to be appointed to make up the number of members of the Board after the replacement of a Statutory and/or Alternate Auditor elected in the Minority List, the Shareholders’ Meeting adopts a resolution by the statutory relative majority, choosing from the candidates appearing in the list to which the Auditor to be replaced belonged, or appearing in the minority list that obtained the second highest number of votes.

When the Shareholders’ Meeting is called upon, in accordance with Article 2401, paragraph 1, of the Italian Civil Code, to appoint or replace one of the Auditors elected from the Minority List, any votes cast by shareholders that hold a controlling or relative majority interest, even jointly, are not taken into consideration.

13. STATUTORY AUDITORS

The Company’s Board of Auditors, appointed by the Ordinary Shareholders’ Meeting on 16 May 2007, whose term will expire on the approval of the financial statements at 31 December 2009, is composed as follows.

Forename and Surname

Position Serving since % attendance at Board of Auditors’ Meetings

Luca Gaiani Chairman of the Board of Auditors

16 May 2007 100%

Massimiliano Folloni

Statutory Auditor 16 May 2007 100%

Marina Torelli Statutory Auditor 16 May 2007 100% Filippo Nicola Fontanesi

Alternate Auditor 16 May 2007 -

Filomena Napolitano

Alternate Auditor 16 May 2007 -

The personal and professional characteristics of each Auditor are briefly set out below, in accordance with Article 144 decies of the Consob Issuers’ Regulations.

Luca Gaiani. A graduate in Economics and Commerce at the University of Modena, Gaiani has been a chartered accountant (CPA) and enrolled as external auditor since 1984. He at present practises in Modena. He cooperates for the Il Sole 24Ore daily newspaper, and other several professional magazines and newspapers and he teaches in certain courses for the training of chartered accountants and officers of the Financial Administration.


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Massimiliano Folloni. Folloni has been a qualified accountant since 1981 and was appointed as an Official Auditor in 1992. He has been included in the Register of Auditors since 1995, and acts as Auditor for some industrial and commercial companies.

Marina Torelli. Marina Torelli has been on the Reggio Emilia Register of Accountants since 1989 and in the Register of Auditors since 1995. She acts as Auditor in some industrial and commercial companies and is a Director of an industrial company in Reggio Emilia; she is also a partner in an agricultural firm.

Filippo Nicola Fontanesi. Fontanesi qualified as an accountant in 1994, has been on the Reggio Emilia Register of Accountants since 1995 and the Register of Auditors since 1999. He is a member of the Reggio Emilia Accountants’ Association, and is an Auditor for some industrial and commercial companies in Reggio Emilia.

Filomena Napoletano. Filomena Napoletano has been on the Reggio Emilia Register of Accountants since 1998 and on the Register of Auditors since 1999. She has performed institutional assignments for the Court of Reggio Emilia as a Receiver in Bankruptcy. She is an Auditor in some industrial and commercial companies.

The table below shoes the administrative and auditing positions held in listed and unlisted companies by members of the Company’s Board of Auditors as of 31 December 2008.

Forename and surname Company for which the external work is carried out

Position

Luca Gaiani Kerakoll S.p.A. Chairman of the Board of Auditors Cittanova 2000 S.p.A. Chairman of the Board of Auditors Parco Ottavi S.p.A. Chairman of the Board of Auditors Modena Aceti S.r.l. Chairman of the Board of Auditors Tonnies Fleisch Italia S.r.l. Chairman of the Board of Auditors Fin Firel S.p.A. Chairman of the Board of Auditors F.lli Parmigiani S.p.A. Chairman of the Board of Auditors Pallacanestro Olimpia Milano S.r.l. Chairman of the Board of Auditors CMB Cooperativa Muratori Braccianti Chairman of the Board of Auditors Grandi Salumifici Italiani S.p.A. Chairman of the Board of Auditors I.S. Holding S.p.A. Statutory Auditor G.B. Belgium S.p.A. Statutory Auditor Autostrada Estense S.c.p.A. Statutory Auditor La Ciminiera S.p.A. Statutory Auditor Fritz Hansberg S.p.A. Statutory Auditor IMAF S.p.A. Statutory Auditor Fin Maletti S.p.A. Statutory Auditor Montecarlo S.p.A. Statutory Auditor West S.r.l. Statutory Auditor Gruppo Alimentare in Toscana S.p.A. Statutory Auditor Ospedale di Sassuolo S.p.A. Statutory Auditor Tellure Rota S.p.A. Alternate Auditor U.T.I.T. S.p.A. Alternate Auditor Mario Neri S.p.A. Alternate Auditor Graziosi Containers S.r.l. Alternate Auditor L.M. S.p.A. Alternate Auditor Unibon S.p.A. Alternate Auditor Immobiliare Montecchi S.p.A. Alternate Auditor Stinfalio di Novarese C. & C. S.a.p.A. Alternate Auditor


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Donelli Vini S.p.A. Alternate Auditor Quadrifglio Modena S.p.A. Alternate Auditor Profassmo.it S.r.l. Director Massimiliano Folloni T.I.E. S.p.A. Chairman of the Board of Auditors Girefin S.p.A. Statutory Auditor Immobiliare Suzzarese S.p.A. Statutory Auditor A.E.B. S.r.l. Chairman of the Board of Auditors MED S.p.A. Statutory Auditor Parco Ottavi S.p.A. Statutory Auditor Consorzio Agrario Provinciale di Reggio

Emilia S.c.r.l. Statutory Auditor

Nuova Mini-Mec S.r.l. Alternate Auditor Nuova Loschi S.r.l. Alternate Auditor Tecnove S.r.l. Alternate Auditor I.R.S. S.p.A. Alternate Auditor Lodi Luigi e Figli - S.r.l. - Società a

responsabilità limitata Alternate Auditor

Marina Torelli T.I.E. S.p.A. Statutory Auditor Girefin S.p.A. Statutory Auditor Lodi Luigi e Figli - S.r.l. - Società a

responsabilità limitata Statutory Auditor

Società Italiana Costruzioni Elettromeccaniche - S.I.C.E. - S.p.A.

Statutory Auditor

Nuova Mini-Mec S.r.l. Statutory Auditor Nuova Loschi - S.r.l. Statutory Auditor A.E.B. S.r.l. Statutory Auditor I.R.S. S.p.A. Chairman of the Board of Auditors Tecnove S.r.l. Statutory Auditor Med S.p.A. Statutory Auditor Cooperativa Muratori Reggiolo Società

Cooperativa Alternate Auditor

Parco Ottavi S.p.A. Alternate Auditor Tulipani S.r.l. Alternate Auditor Azienda Agricola Garfagnana S.s. di

Bertellini e Torelli Partner and Director

Immobiliare Secchia S.r.l. Chairman of the Board of Auditors C.M.E. S.r.l. Director Filippo Nicola Fontanesi Casa di Cura Villa Verde S.r.l. Statutory Auditor Archimede S.p.A. Statutory Auditor Coalpi S.C. Chairman of the Board of Auditors O.M.S.A. S.r.l. Liquidator Mirco Landini S.p.A. Chairman of the Board of Auditors G.Guerra Group S.p.A. Statutory Auditor Olvega S.p.A. Alternate Auditor K Nord soc. consortile a r.l. Statutory Auditor RE EL Toys S.p.A. Alternate Auditor Torreggiani & C. S.p.A. Alternate Auditor Ceramica Grand Prix S.p.A. Assignee in bankruptcy Bertani S.p.A. Alternate Auditor Coopservice Soc. coop. per azioni Alternate Auditor Prefabbricati Canossa S.r.l. Alternate Auditor Intesa S.r.l. Alternate Auditor Distribuzione Moderna soc. consortile a r.l. Statutory Auditor Med S.p.A. Alternate Auditor Aeterna S.r.l. Assignee in bankruptcy Art Mosaico Greificato S.p.A. Liquidator


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Codes cooperativa distribuzione e servizi soc. coop.

Liquidator

Sisma S.p.A. Alternate Auditor Il girasole sociale soc. coop. Alternate Auditor Effemme Data Service di Fontanesi, Manni

& C. Unlimited partner

Filomena Napolitano T.I.E. S.p.A. Alternate Auditor Girefin S.p.A. Alternate Auditor Cooperativa Muratori Reggiolo Società

Cooperativa Chairman of the Board of Auditors

Med S.p.A. Alternate Auditor Giesse S.p.A. Alternate Auditor Nuova Mini-Mec S.r.l. Alternate Auditor Tulipani S.r.l. Statutory Auditor Albacem S.r.l. Alternate Auditor Nuova Loschi S.r.l. Alternate Auditor I.R.S. S.p.A. Statutory Auditor Lodi Luigi e Figli S.r.l. Alternate Auditor Tecnove S.r.l. Alternate Auditor Premax S.r.l. Receiver

8 meetings of the Board of Auditors were held during the Period.

On being appointed, the members of the Board of Auditors declared, on their own responsibility, that they satisfied the independence criteria laid down in applicable laws and regulations.

Under paragraph 10.C.4 of the Self-Regulatory Code, Auditors that have an interest, either on their own account or on behalf of third parties, in a certain transaction to be carried out by the Issuer must give the other Auditors and the Chairman of the Board of Directors prompt and full information regarding the nature, the terms, the origin and the scope of their interest.

The Board of Auditors satisfied itself concerning the independence of the auditing firm, verifying both compliance with the regulatory provisions governing the matter and the nature and extent of the services other than accounts audit provided to the Issuer and its subsidiaries by the auditing firm and the offices belonging to its network.

14. RELATIONS WITH SHAREHOLDERS

The Issuer has set up a special section in its website, easily identifiable and accessible, which provides the information regarding the Issuer that is of importance to its shareholders in order to enable them to exercise their rights knowledgeably.

Mr Pierpaolo Marziali has been made responsible for the management of relations with shareholders, acting as Investor Relations Manager.

In view of the Issuer’s organisational structure, it was decided not to set up a Company office for the management of relations with shareholders.

15. SHAREHOLDERS’ MEETINGS

With regard to shareholders’ participation in Shareholders’ Meetings, Article 11 of the Issuer’s Articles of Association states: “Shareholders with voting rights may take part in Shareholders’


- 29 - .

Meetings if a communication attesting the equity that they hold, issued in accordance with the law by the appointed intermediaries, reaches the Company within two business days prior to the Shareholders’ Meeting in question and provided they have a satisfactory certificate. All shareholders may be represented at Shareholders’ Meetings by third parties by issuing a written proxy in conformity to and within the limits laid down by law”.

The Company has decided not to adopt rules for Shareholders’ Meetings since it considers that the powers vested by the Articles of Association in the Chairman of the Meeting, who is responsible for directing the proceedings, including the determination of the order and system of voting, enable the Chairman to ensure that the meeting takes place in an orderly manner, moreover averting the risks and problems that could arise from a failure on the part of the Meeting to comply with regulatory provisions.

The Board of Directors calls an Ordinary Shareholders’ Meeting at least once a year within 120 days after the end of the financial period. Providing the provisions of law are satisfied, the governing body may extend this term up to 180 days if the Company has to prepare consolidated financial statements or if particular needs related to the Company’s structure and business purpose so require.

The governing body also calls a Shareholders’ Meeting, either Ordinary or Extraordinary, whenever it deems it appropriate to do so or as required by law, or at the request of at least two members of the Board of Auditors in accordance with the provisions of current legislation.

Shareholders’ Meetings are called by means of a notice specifying the day, hour and venue of the meeting and a list of the items on the agenda. The meeting notice must be published, within the times laid down by the provisions of the applicable legislation, in the Official Gazette of the Italian Republic, or, alternatively and at the choice of the governing body, in one of the following daily newspapers: Il Sole24 Ore or Il Corriere della Sera.

The same notice may also specify another day for a possible second call and, if necessary, a third call meeting should the first or the second not be attended.

Within five days after the publication of the notice of the meeting, shareholders that, even jointly, represent at least one-fortieth of the share capital may request items to be added to the agenda, specifying in their request the additional subjects that they propose. The further subjects to be discussed at the Shareholders’ Meeting as a result of the request for them to be added to the agenda referred to herein, are announced in the same form as that laid down for the meeting notice at least ten days before the date scheduled for the meeting. Requests to add items to the agenda as per this paragraph, however, are not allowed with regard to matters on which the Shareholders’ Meeting, by law, deliberates at the request of the Company Directors or on the basis of a project or report prepared by same.

Both Ordinary and Extraordinary Shareholders’ Meetings are constituted and adopt valid resolutions by the statutory majorities.


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TABLE 1: STRUCTURE OF THE BOARD OF DIRECTORS AND OF THE COMMITTEES

Position Members’ names Executive Non-Executive

Independent Number of other positions

Internal Audit Committee


*** * ** *** ** *** Chairman Giovannina

Domenichini x 100% 3

Managing Director Stefano Landi x 100% 6 Director Carlo Alberto

Pedroni x 100% 2

Director Paolo Gabbi x 100% - x 100% x 100% Director Alessandro Ovi x X 75% 7 x 60% x 50% Director Tomaso Tommasi

di Vignano x X 75% 3 x 80% x 100%

Board of Directors Internal Audit Committee


Number of meetings held during the 2008 period**** 8 5 2 NOTE * This column shows the number of positions in other companies held by the person concerned. ** An “X” in this column shows that the person concerned is a member of the Board of Directors Committee *** This column shows the percentage of attendances of the various Directors at Board of Directors’ and Committee Meetings. **** The figure given is the number of meetings of the Board of Directors, of the Remuneration Committee and of the Internal Audit Committee that were held after listing.


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TABLE 2: BOARD OF AUDITORS

Position Members’ names Percentage of attendance at Board Meetings

Number of other positions

* Chairman Luca Gaiani 100% 32 Statutory Auditor Massimiliano Folloni 100% 12 Statutory Auditor Marina Torelli 100% 16 Alternate Auditor Filippo Nicola Fontanesi N/A 23 Alternate Auditor Filomena Napolitano N/A 13 Number of meetings held during the 2008 period: 8 NOTES * This column shows the number of positions in other companies held by the person concerned. ** Including two listed companies. *** Including one listed company.


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TABLE 3: OTHER SELF-REGULATORY CODE PROVISIONS

YES NO Summary of justification for any departure from the

recommendations of the Code System of delegated powers and transactions with related parties

Has the Board of Directors granted delegated powers laying down:

a) their limits X b) the methods according to which they are exercised X c) reporting frequency? X Has the Board of Directors kept the responsibility for scrutinising and approving transactions of particular economic and financial importance, and transactions materially affecting the Company’s assets (including transactions with related parties)?

X

Has the Board of Directors laid down guidelines and criteria for the identification of “significant” transactions?

X

Are the above guidelines and criteria described in the report? X Has the Board of Directors laid down special procedures for the scrutiny and approval of transactions with related parties?

X

Are the procedures for the approval of transactions with related parties described in the report? X Procedures adopted for the latest appointment of Directors and Auditors Were details of the candidates for positions as Directors deposited at least ten days in advance? N/A* Were details of the candidates for positions as Directors accompanied by full information? X Were details of the candidates for positions as Directors accompanied by information regarding their suitability to be described as Independent Directors?

X

Were details of the candidates for positions as Auditors deposited at least ten days in advance? N/A* Were details of the candidates for positions as Auditors accompanied by full information? X Shareholders’ Meetings


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Has the Company approved Shareholders’ Meeting Rules? X The Company has not adopted rules for Shareholders’ Meetings since it considers that the powers vested by the Articles of Association in the Chairman of the Meeting, who is responsible for directing the proceedings, including the determination of the order and system of voting, enable the Chairman to ensure that the meeting takes place in an orderly manner, moreover averting any inconvenience that could arise from a failure on the part of the Meeting to comply with regulatory provisions.

Are the Rules attached to the report (or is it specified where they can be obtained/downloaded)? N/A

Internal auditing Has the Company appointed persons responsible for internal auditing? X Are the persons responsible independent of managers of operations areas? X Organisational unit responsible for internal auditing (under Article 9.3 of the Code) X Investor Relations Has the Company appointed an Investor Relations Manager? X


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Organisational unit and contacts (address, telephone, fax and e-mail) of the Investor Relations Manager Investor Relations: Pier Paolo Marziali, Investor Relations Manager Ufficio Investor Relations Landi Renzo S.p.A. Via Nobel, 2/4 Cavriago Reggio Emilia Tel: + 39 0522 9433 E-mail: [email protected]

NOTE * The corporate bodies currently serving were appointed on the basis of the statutory majorities, inasmuch

as (i) they were appointed when the Company was still unlisted; and (ii) the Articles containing the provisions envisaged for listed companies came into effect when Borsa Italiana granted permission for listing. The list voting mechanism, therefore, will be applied when it becomes necessary to renew the corporate bodies.


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ANNEX 1

In compliance with the provisions of Consob Regulations 11971, the following table shows the data regarding share movements during the Period on the part of Directors and Auditors compared with the holding as of 31 December 2007.

Shares purchased Shares sold Number of shares as at 31 December 2008

Number of shares at 31 December 2007

Type of title Method of ownership

Stefano Landi 0 4,870** 66,495,130* 66,500,000* Owned Indirect


0 0 * * - -

Carlo Alberto Pedroni 0 0 3,000 *** Owned Direct

Paolo Gabbi 0 2,000 0 2,000 Owned Direct

Alessandro Ovi 0 0 0 0 - -

Tomaso Tommasi di Vignano

0 0 0 0 - -

Luca Gaiani 0 0 0 0 - -

Massimiliano Folloni 0 0 0 0 - -

Marina Torelli 0 0 0 0 - -

Filomena Napoletano 0 0 0 0 - -

Nicola Filippo Fontanesi

0 0 2,500 2,500 Owned Direct

* Owned indirectly through Girefin S.p.A. and Gireimm S.r.l.. Please note that Stefano Landi owns 34,610,715 shares and Giovannina Domenichini owns 18,858,019 shares.

** Shares allocated by Girefin S.p.A. to Employees holding shares pursuant to the Public Offering of Renzo Landi S.p.A. ordinary shares.

*** Data as at 31 December 2007 not available since he was co-opted as a director on 7 January 2008.

LANDI GROUP – CONSOLIDATED FINANCIAL STATEMENTS AT 31st DECEMBER 2008

___________________________________________________________________________________________________________1

CONSOLIDATED FINANCIAL STATEMENTS

AT 31st DECEMBER 2008

LANDI RENZO GROUP



___________________________________________________________________________________________________________2

ASSETS (thousands of Euros) Notes 31-Dec-08 31-Dec-07

Non-current assets Property, plant and equipment 3 25,106 14,926Development expenditure 4 3,661 1,844Goodwill 5 51,961 2,988Other intangible assets with finite useful lives 6 18,063 1,290Other non-current financial assets 7 73 80Deferred tax assets 8 4,059 1,841

Total non-current assets 102,923 22,970 Current assets Trade receivables 9 48,977 41,856Trade receivables - related parties 10 586 0 Inventories 11 68,163 33,091Other receivables and current assets 12 7,425 8,870Other receivables and current assets - related parties 0 88Current financial assets 13 156 205Cash and cash equivalents 14 30,272 58,055

Total current assets 155,579 142,164

TOTAL ASSETS 258,502 165,134

EQUITY AND LIABILITIES (thousands of Euros) 31-Dec-08 31-Dec-07

Equity attributable to the shareholders of the parent Share capital 15 11,250 11,250Other reserves 87,154 74,356Profit (loss) for the period 26,706 19,661

Total equity attributable to the shareholders of the parent 125,110 105,266

Minority interests 290 134 TOTAL EQUITY 125,400 105,401 Non-current liabilities Bank loans 16 27,679 1,971Other non-current financial liabilities 17 465 632Provisions for risks and charges 18 495 246Defined benefit plans 19 2,579 1,948Deferred tax liabilities 20 6,975 1,675

Total non-current liabilities 38,193 6,473Current liabilities Bank overdrafts and short-term loans 21 8,465 4,687Other current financial liabilities 22 167 163Trade payables 23 66,641 39,655Trade payables - related parties 24 10,350 2,780Tax liabilities 25 3,581 2,467Other current liabilities 26 5,705 3,198Other current liabilities - related parties 27 0 312

Total current liabilities 94,909 53,261

TOTAL LIABILITIES AND EQUITY 258,502 165,134


___________________________________________________________________________________________________________3

INCOME STATEMENT (thousands of Euros) Notes 31-Dec-08 31-Dec-07

Revenues (goods and services) 28 214,100 163,886Revenues (goods and services) - related parties 29 2,098 0 Other revenue and income 30 652 1,046Cost of raw materials, consumables and goods and change in inventories 31 -76,967 -66,011Cost of raw materials - related parties 32 -18,907 -12,292Cost for services and use of third party assets 33 -51,520 -35,956Cost for services and use of third party assets - related parties 34 -853 -531Personnel expenses 35 -20,279 -14,329Accruals, impairment losses and other operating expenses 36 -1,564 -737Gross Operating Profit 46,760 35,076Amortization, depreciation and impairment losses 37 -6,032 -3,866Operating Profit 40,728 31,210Financial income 38 1,907 1,406Financial expenses 39 -1,425 -998Exchange rate gains (losses) 40 -1,541 -111Profit Before Tax 39,669 31,508Income tax expense 41 -12,867 -12,010

Net profit for the Group and minority interests, including: 26,802 19,497Minority interests 96 -163Net Profit of the Group 26,706 19,660 Basic earnings per share (calculated on 112,500,000 shares) 42 0.2374 0.1748 Diluted earnings per share 0.2374 0.1748


___________________________________________________________________________________________________________4

CASH FLOW STATEMENT (thousands of Euros) 31-Dec-08 31-Dec-07

Opening cash and cash equivalents 53,368 6,564Opening cash and cash equivalents Lovato Gas -1,118 Profit before tax (less minority interests) 39,573 31,671Amortization, depreciation and impairment losses 6,032 3,866Accruals to provisions for employee benefits 661 606Utilization of provisions for employee benefits -661 -1,077Other accruals less utilization 98 -365Net change in deferred taxes -494 257Current taxes paid -14,448 -11,425(Increase) decrease in current assets: inventories -28,044 -930trade receivables -2,668 -20,485trade receivables - related parties -586 0receivables due from others and other assets 2,080 -1,519receivables due from others and other assets - related parties 88 -88(Increase) decrease in current liabilities: trade payables 14,314 15,208trade payables - related parties 7,566 -398payables to others and other liabilities -269 -1,654

Cash flow from (for) operating activities 23,242 13,666

Changes in non-current assets: Investments in intangible assets -2,854 -2,663Investments in tangible fixed assets -11,770 -5,712Disposals of property, plant and equipment 325 1,023

Disposals of other non-current financial assets 7 22

Cash flow used in investing activities -14,292 -7,330Outlay for acquisition of Lovato Gas SpA net of liquidity -58,231 Dividends paid in the period -6,188 0Change in equity attributable to the shareholders of the parent and minority interests -518 -135Proceeds from floatation (**) 0 46,863

Loans obtained from banks and other financial backers during the period/year 25,544 -6,260

Cash flow from (used in) financing activities 18,839 40,468

Total cash flow -30,443 46,804

Closing cash and cash equivalents 21,807 53,368

(**) The proceeds from floatation are net of the transactions costs directly attributable to the share capital increase that followed the floatation. (#) The opening and closing cash and cash equivalents reflect the difference between cash and cash equivalents and bank overdrafts and short-term loans.


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STATEMENT OF CHANGES IN CONSOLIDATED EQUITY (in thousands of Euros)

Share capital

Legal reserve

Statutory reserve

Extraordinary and other reserves

Share premium reserve

Profit for the period

Equity attributable

to the shareholders of the parent

Profit (Loss)

attributable to minority interests

Share capital and reserves

attributable to minority interests

Total equity

Balance at December 31, 2006 2,500 500 1,822 21,891 0 16,680 43,394 13 148 43,554

Allocation of profit 562 16,118 (16,680) 0 (13) 13 0

Bonus issue 7,500 (7,500) 0 0Change in consolidation scope: purchase of interests from third parties

0 (31) (31)

Change in consolidation scope: spin-off

(5,695) (5,695) (5,695)

Translation difference 26 26 (13) 13

Reclassification of reserves 2,385 2,385 2,385

Other changes (2,385) 33 (2,352) 1 (2,350)Share capital increase following floatation 1,250 48,750 50,000 50,000Other share capital increases 0 179 179

Floatation costs (*) (2,152) (2,152) (2,152)

Profit for the period 19,661 19,661 (163) 19,497Balance at December 31st 2007 11,250 500 0 27,258 46,598 19,661 105,266 (163) 297 105,401

Balance at December 31st 2007 11,250 500 0 27,258 46,598 19,661 105,266 (163) 297 105,401

Allocation of profit 658 19,002 (19,661) 0 163 (163) 0

Translation difference (569) (569) (59) (628)

Distribution of reserves (6,188) (6,188) (6,188)

Other changes (105) (105) 119 14

Profit for the period 26,706 26,706 96 26,802Balance at December 31, 2008 11,250 1,158 0 39,398 46,598 26,706 125,110 96 194 125,400

(*) Pursuant to IAS 32, floating costs (net of the tax effect) directly attributable to the share capital increase following the floatation have been recognized as a reduction in equity.


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EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AT 31st DECEMBER 2008

LANDI RENZO GROUP

A) GENERAL INFORMATION LANDI RENZO group has been active in the motor propulsion fuel supply system sector for more than fifty years, designing, producing and selling eco-compatible LPG and CNG fuel supply systems (“LPG line ” and “CNG line respectively”), as well as, to a much lesser extent, alarm systems through the subsidiary MED S.p.A.. The Group manages all the phases of the process that leads to the production and sale of fuel supply systems for the automotive sector. The Group sells both to the main car manufacturers at a world-wide level (OEM customers) and to independent retailers and importers (After Market customers). Changes in the consolidation scope with respect to 31 December 2007 are as follows: - On 5 January 2008, the company LR Pars was entered into the Companies' Register of Teheran (Iran). It will

manufacture and sell CNG systems in Iran in particular to the OEM channel. At the same time Landi Renzo S.p.A. paid up the quota of recalled share capital.

- On 1st April 2008 the absorption merger of Landi S.r.l. into Landi Renzo S.p.A. was registered in the Companies' Register of Reggio Emilia.

- On 13th October 2008 the contract for the purchase of 100% of Lovato Gas S.p.A. was completed.; the total value of the transaction (enterprise value) was equal to € 63,000 thousands, while the cost paid by the Landi Group for the same is equal to € 58,231 thousands, because – as provided for contractually – the balance of the price has still to be defined. Lovato Gas S.p.A. is one of main the operators in the world in the sector of LPG and CNG fuel supply components and systems for motor vehicles. At the end of the year closed at 31st December 2008, the Financial Statements for the year of Lovato Gas S.p.A., prepared according to the application of the Italian accounting principles, showed a turnover of € 47,533 thousands with an Operating Profit equal to € 3,961 thousands.

The parent company of the LANDI RENZO Group is Landi Renzo S.p.A. with its registered office in Cavriago (RE). The consolidated financial statements at 31st December 2008 were approved today, on 12th March 2009, by the Board of Directors of Landi Renzo S.p.A. These Financial Statements are submitted to the auditing of by KPMG S.p.A..


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B) GENERAL CRITERIA FOR PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS European companies whose shares are dealt on a regulated market are required, in compliance with EC Regulation no. 1606/2002, to adopt the international accounting principles, International Financial Reporting Standards (IFRS), beginning from the preparation of Consolidated Financial Statements 2005. The Italian Government, in application the Regulation in question, issued Legislative Decree no. the 38 dated 28th February 2005 containing the options specified for the optional application for 2005 and mandatory application from 2006 of the new international standards to individual statements. The Landi Renzo Group adopted the international accounting principles, starting from the year 2006, with date of transition to the IFRS at 1st January 2005. The last the consolidated financial statements prepared according to the Italian accounting policies relates to the year closed at 31st December 2005. The consolidated financial statements at 31st December 2008 were prepared in compliance with the International Financial Reporting Standards currently in force, including the IFRS recently adopted by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC). The consolidated financial statements were prepared according to the general criterion of historical cost, except for business combination operations stated according to the provisions of IFRS 3 and for the securities classified under Other Current Financial Assets which have been evaluated at the fair value since 1st January 2005, and on the assumption of business continuity. Despite a difficult economic and financial context, the Group has in fact assessed that there are no significant uncertainties regarding continuity of business (as defined by paragraph 23 of the Principle IAS 1), also by virtues of the actions already identified in order to deal with the altered levels of demand, and thanks to the industrial and financial flexibility of the Group itself. The accounting policies described below were applied consistently in all the periods included in these consolidated financial statements. In relation to the presentation of the Financial Statements the Company operated as follows:

- for the balance sheet, the current and non-current assets are shown separately, as are the current and non-current liabilities. Current assets, which include cash and cash equivalents, are those intended to be produced, sold or consumed in the normal operational cycle of the Group, and in any case within the twelve months following the closure of the period; current liabilities are those that are intended to be settled in the normal operational cycle of the Group, and in any case within the twelve months following the closure of the period;

- for the income statement, the costs are analyzed according to their nature; - the cash flow statement uses the indirect method.

The data contained in the Consolidated Financial Statements at December 31st 2008, consisting of the Balance Sheet, the Income Statement, the Cash Flow Statement, the Table of Changes in Equity and these Explanatory


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Notes, are expressed in thousands of Euros, since the Euro is the current currency in the economy in which the Parent Company and the main companies of the Group operate.


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C) CONSOLIDATION PRINCIPLES AND VALUATION CRITERIA

Subsidiary companies Companies are defined as subsidiaries, as defined by IAS 27 - Consolidated Financial Statements and Separate Financial Statements - when the Parent company has the power, directly or indirectly, to exercise management in such a way that it obtains the benefits of carrying on the activity in question. Control is presumed to exist when the Group holds the majority of voting rights. In the definition of control, potential voting rights that are currently exercisable or convertible are also taken into account. The Financial Statements of the subsidiary companies are consolidated according to global integration method from the moment that control is acquired until the date of its cessation. According to the provisions of IFRS 3, the subsidiary companies acquired by the Group are accounted for using the purchase method, according to which:

- the purchase cost consists of the fair value of the assets sold, considering the possible issue of any equity instruments as well as the liabilities assumed, plus the costs directly related to the purchase;

- the greater value between the purchase cost and the market value of the share owned by the Group in the net assets is accounted for as goodwill;

- if the purchase cost is lower than the fair value of the share owned by the Group in the net assets of the acquired subsidiary, the difference is recognized directly in the income statement.

In the case of purchase of further shareholdings in companies in which the Group has already assumed control, if the value of the cost is greater than the book value of the share acquired, the difference is attributed to equity; considering that the purchase of additional shares after control has been gained is not specifically governed by IFRS 3, an accounting policy has been defined on the basis of which such transactions are dealt with as “equity transactions”. Investments in subsidiary companies that have not been consolidated due to their limited significance, are valued at the fair value, represented substantially by the value obtained using the Equity Method. If, at the balance sheet date, losses in value are found compared with the amount determined using the aforesaid methodology, the same investment is written down as a result.

Associated companies and Joint Ventures Associated companies are those companies over which the Group exercises a considerable influence, but for which it does not maintain control over management, as defined by IAS 28 - Investments in Associates. Such influence is presumed to exist when the Group holds a share of between 20% and 50% of the voting rights. Investments in associates must be measured using the equity method. IAS 31 – Investments in Joint Ventures defines a joint venture as a contractual agreement under which two or more parties undertake an economic activity subject to joint control and imposes proportional consolidation as an accounting principle. Note that the Parent Company Landi Renzo S.p.A. at 31st December 2008 it does not hold any investments in associated companies or in joint ventures.

Transactions eliminated in the consolidation process


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The mutual relationships of debit and credit and cost and revenue, between companies falling within the consolidation area, as well as the effects of all the transactions of significant importance taking place between them, were eliminated. In particular, profits not yet realized with third parties deriving from transactions between companies of the Group, including those deriving from the valuation of inventories at the date of the Financial Statements, were eliminated. The share of equity relating to minority stockholders is presented in the relevant item, while the share of the result for the year belonging to third parties is presented separately in the consolidated income statement.

Foreign currency transactions Transactions in foreign currency are adjusted to the exchange rate in force on the date of the transaction. The monetary assets and liabilities in foreign currency at the balance sheet date are converted at the exchange rate in place on that date. The income statement includes the exchange rate differences generated by the extinction of monetary items or by their conversion at exchange rates different to those at which they were converted when they were initially recognized in the period or in earlier Financial Statements. Conversion of the financial statements of foreign group companies The foreign currency financial statements are translated into the presentation currency using the closing rate for the balance sheet and the average annual rate for the income statement. Translation differences deriving from the adjustment of opening equity using the period-end spot rates and those due to different methods used to translate the profit for the period are taken to equity under other reserves. The following table shows the exchange rates used to translate the foreign currency financial statements.

Exchange rate (Value against €) At 31/12/2008 Average 2008 At 31/12/2007 Average 2007

Real – Brazil 3.2436 2.6745 2.6108 2.6638

Renminbi – China 9.4956 10.2247 10.7524 10.4178

Iranian Rial 13,701.3000 13,868.7167 13,664.0000 12,719.5000

Pakistani Rupee 110.0210 103.4764 91.0805 83.2468

Zloty – Poland 4.1535 3.5151 3.5935 3.7837

US Dollar 1.3917 1.4706 1.4721 1.3705

PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at purchase or production cost including charges that are directly related and necessary for the assets start-up costs and, when relevant and in the presence of contractual obligations, the current value of the estimated cost for the dismantling and removal of such fixed assets. These assets are systematically depreciated on a straight-line basis according to their estimated useful life, using the following rates, which have not changed since the previous year, deemed consistent with their actual economic-technical use:

Categories Depreciation period Depreciation rates


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Land Indefinite useful life

Buildings Straight-line basis 3 – 10%

Plant and machinery Straight-line basis 10 – 20%

Industrial and commercial equipment Straight-line basis 10 – 25%

Other assets Straight-line basis 12 – 33%

The residual value and the useful life of a tangible asset are reviewed at least at the closing of each period. Land, because of its indefinite useful life, is not depreciated. The routine maintenance costs are charged entirely to the income statement. Maintenance costs having an incremental nature are attributed to the tangible assets to which they refer and amortized in relation to the remaining useful life of the assets or, if less, until the moments at which a subsequent extraordinary maintenance operation becomes necessary. The financial expenses directly attributable to the acquisition, construction or production of property, plant or equipment are recognized in the income statement at the moment at which they are incurred in accordance with the appropriate accounting treatment provided for by IAS 23. The book value of the property, plant and equipment is subjected to verification in order to discover any possible losses in value, using the methods described in the paragraph “Impairment Losses”. At the moment of the sale or when no future economic benefits expected from the use of an asset exits, it is eliminated from the financial statements and any loss or profit (calculated as the difference between the sale value and the carrying value) is recognized in the income statement in the year of the aforementioned elimination. INVESTMENT PROPERTY In conformity with what is permitted precisely by IAS 40, investment property is measured at purchase or construction cost increased by directly attributable ancillary charges; this property is systematically depreciated on a straight-line basis over its estimated useful life, using a rate equal to 3%, considered as representative of the actual economic-technical use of the assets. In accordance with the provisions of IAS 40, the notes to the Financial Statements provide information relating to the fair value of the property at year end, determined reliably on the basis of reports prepared by independent third parties. It is specified that at 31st December 2008 the Group did not hold any Property classified in such a category. LEASING Financial leasing contracts are accounted for according to the provisions of IAS 17. This accounting treatment implies that:

- the cost of the assets that are the subject of the financial leasing is entered under property, plant and equipment and amortized on a straight line basis according to the estimated useful life; a financial debt to the lessor for an amount equal to the value of the leased asset is entered in a matching entry;

- the leasing fees are accounted for in such a way as to separate the financial element from the capital portion, to be considered as a repayment of the recorded debt to the lessor.


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Those leasing contracts in which the lessor substantially maintains all the risks and benefits of ownership are classified as operational leasing and the corresponding fees are recorded in the income statement in constant installments distributed according to the duration of the contract. GOODWILL The goodwill deriving from business combination transactions subsequent to 1st January 2005, is initially entered at cost, and represents the excess of the purchase cost over the purchaser's share of the net fair value referring to the identifiable values of existing and potential assets and liabilities. After the initial recognition, since goodwill is regarded as an intangible asset with an indefinite life, it is no longer amortized and is decreased by any accumulated losses in value, determined as described below. The goodwill deriving from acquisitions made prior to 1st January 2005 is entered at the value recorded for that purpose in the last Financial Statements prepared according to the previous accounting policies (31st December 2004), subject to verification and recognition of any possible losses of value. When the IFRS were initially adopted, as permitted by IFRS 1, acquisition transactions performed prior to 1st January 2005 were not reconsidered. Goodwill is subjected to an analysis of recoverability on annual basis or even more frequently if events or changes in circumstances arise that could result in possible losses of value. At the acquisition date, any goodwill emerging is allocated to each of the financial flow generating units that are expected to benefit from the synergistic effects deriving from the acquisition. Any loss in value is identified through valuations that take as a reference the ability to each unit to produce financial flows capable of recovering the portion of goodwill allocated to it. If the value recoverable by a financial flow generating unit is less than the carrying value attributed, the corresponding loss in value is recognized. Such loss of value is restored if the reasons that generated it cease to exit. DEVELOPMENT EXPENDITURE An intangible asset, generated in the development phase of an internal project, which satisfies the definition of development, as specified by IAS 38, is entered as an intangible asset if the following conditions are satisfied:

- it is likely that the company will enjoy future benefits attributable to the asset; - the cost of the asset can be reliably evaluated; - the technical feasibility of the product is demonstrated; - there is evidence of the company’s intention to complete the development project; - there is a reliable determination of the costs incurred for the project; - the recoverability of the values entered is demonstrated with the future economic benefits expected

from the result of the development project. No cost incurred in the research phase is recorded as an intangible asset. The amortization period begins when the development phased is closed. The amortization of development expenditure is 3 years, on the basis of the estimated duration of the benefits associated with the product developed. OTHER INTANGIBLE FIXED ASSETS


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Other intangible assets with finite useful life, acquired or self-created, are capitalized when it is probable that the asset use will generate future economic benefits and its cost can be measured reliably. These assets are stated at purchase or development cost. Intangible assets with finite useful life are amortized on a straight-line basis over the estimated useful life as follows:

- Industrial patents and rights to use intellectual property: from 3 to 10 years; - Software, licenses and others: from 3 to 5 years; - Trademarks: from 10 to 18 years.

Costs incurred subsequently relating to intangible assets are capitalized only if they increase the future economic benefits of the specific asset capitalized and they are amortized on the basis of the aforementioned criteria according to the assets to which they refer; otherwise they are recorded in the income statement when incurred. IMPAIRMENT LOSSES A tangible or intangible asset suffers a reduction in value if it is not possible to recover the book value at which said asset is stated in the financial statements is registered, through either use or sale. The aim of the test (impairment test) provided for by IAS 36 it is to assure that the tangible and intangible fixed assets are not entered at a value greater than their recoverable value, which is the greater of the net sale price and the value of use. The value of use is the current value of future financial flows that are expected to be generated by the asset or by the unit generating financial flows to which the asset belongs. The expected financial flows are discounted using a pre-tax discount rate that reflects the current estimate of the market of reference referring to the cost of the money in proportion to the time and risks specific to the asset. If the book value exceeds the recovery value, the assets or the units generating financial flows to which they belong are written down until they reflect the recovery value. Such losses are accounted for in the income statement. The impairment is carried out when conditions occur inside or outside the company that suggest that the assets have suffered a reduction in value. In the case of the goodwill or other intangible assets with an indefinite useful life the impairment test is carried out at least annually. If the conditions that resulted in the loss of value no more exist, the same value is restored proportionally on the previously devalued assets until it reaches, at most, the value that such goods would have had, net of amortization calculated on the historical cost, in the absence of prior loss of value. Restorations of value are recognized in the income statement. The value of previously devalued goodwill is not restored, as provided for by the international accounting policies.

FINANCIAL ASSETS Financial assets are initially measured at cost, which corresponds to their fair value increased by ancillary charges. After the initial recognition, assets held for trading are classified under current financial assets and measured at fair value; gains or losses from this measurement are taken to income statement. Assets possessed with the intention to keep them until expiry are classified among the current financial assets if the expiration is less than a year, and non-current if greater, and are subsequently valued with the principle of amortized cost. Consequently, the initial value is then adjusted to take into account repayments of principal, any


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write-downs and the amortization of the difference between repayment amount and initial carrying value. Amortization is made on the basis of the internal effective interest rate, represented by the interest rate that aligns, on initial recognition, the present value of expected cash flows and the initial value (so-called amortization cost method). If there is objective evidence indicating impairment, the asset value is decreased to the discounted value of the future flows obtainable from it. Such losses are recognized in the income statement. If, in subsequent periods, the reasons for the preceding impairment losses no more exist, the asset value is increased to the amount that would have derived by applying the amortized cost without recognizing the impairment loss. INVENTORIES Inventories of raw materials, components, semi-finished and finished products are stated at the lower of purchase or production cost, increased by ancillary charges, measured according to the FIFO method, and the estimated realizable value based on market trends. Obsolete and slow-moving items are written down in accordance with their possibility of use or realization. More precisely, purchase cost was used for purchased products to be resold and for materials of direct or indirect use, purchased and consumed during the production cycle. Production cost was used, instead, for finished products and work in progress. To determine purchase cost, reference was made to the price actually paid, net of any commercial discounts. Cost of production includes, besides the cost of the materials used, as previously defined, directly and indirectly attributable manufacturing overheads. TRADE RECEIVABLES AND OTHER RECEIVABLES Receivables are initially recognized at fair value. The initial value is subsequently adjusted to take into account repayments of principal, any write-downs and the amortization of the difference between repayment amount and initial value. Amortization is made on the basis of the internal effective interest rate, represented by the interest rate that aligns, on initial recognition, the present value of expected cash flows and the initial value (so-called amortization cost method). If there is objective evidence indicating impairment, the asset value is decreased to the discounted value of the future flows obtainable from it. Such losses are recognized in the income statement. If, in subsequent periods, the reasons for the preceding impairment losses no more exist, the asset value is increased to the amount that would have derived by applying the amortized cost without recognizing the impairment loss. Provision for bad debts, set up in order to measure receivables at the lower of their realization value, includes impairment losses recognized to take account of objective indications that trade receivables are impaired. Impairment losses, which are based on the most recent information available and management's best estimate, are recognized in such a way as to decrease impaired assets to the present value of future cash flows obtainable from them. The provision for bad debts is classified in the reduction of the item “Trade receivables”. Allocations made to the provision for bad debts are classified in the Income Statement under the item “Accruals, impairment losses and other operating expenses”; the same classification was used for any utilizations and for write-downs of trade receivables. CASH AND CASH EQUIVALENTS


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Cash and cash equivalents includes principally cash, bank deposits repayable on demand and other short-term investments that are highly convertible (convertible into cash and cash equivalents within ninety days). These items are measured at fair value and the related changes are taken to Income Statement. Current account overdraft, if utilized, is shown among the “Short-term financial liabilities”. For the purposes representing cash flows for the period, when completing the Cash Flow Statement, short term bank debts are represented among the cash flows of the financing activities, since they are for the most part attributable to bank advances and short term bank loans. SHARE CAPITAL AND OTHER EQUITY ITEMS The share capital is made up of the ordinary shares of the Parent Company in circulation. The costs relating to the issue of new shares or options are classified in Equity (net of the associated tax benefit) as a deduction of the income deriving from the issue of such instruments. As provided for by IAS 32, if equity instruments are repurchased, such instruments (treasury shares) are recognized as a deduction from Equity under the item Other Reserves. Gains or losses are not recognized in the income statement when treasury shares are purchased, sold or cancelled. The consideration paid or received, including any cost directly incurred and attributable to the capital transaction, net of any related tax benefit, is directly recognized as an Equity movement. PROVISIONS FOR RISKS AND CHARGES Provisions for risks and charges are set up to face present, legal or implicit, obligations deriving from past events, for which a reliable estimate of the amount required to settle the obligation can be made at the balance sheet date. If a liability is regarded as just potential, no allocation to provisions for risk and charges is made and proper information is provided in the notes to the financial statements. When the time value of money is material and the date of cash outflows associated with the obligation can be reliably determined, the estimated cost is discounted to present value using a rate reflecting the cost of money and the specific risks connected to the liability. After discounting, the increase in the provision due to the passage of time is recognized as an interest expense. DEFINED BENEFIT PLANS Employee benefits substantially include the defined benefit plans (TFR) of the group's Italian companies. They fall under the post-employment benefit plans classified as "defined benefit plans" and are valued in accordance with IAS 19 by independent actuaries, using the projected unit funding method. This calculation consists in estimating the amount of benefit that an employee will receive at the expected retirement date using demographic assumptions (as, for example, death rate and personnel turnover rate) and financial assumptions (as, for example, discount rate and future salary increases). The amount so determined is discounted to present value and re-proportioned based on the accrued length of service compared to the total length of service and represents a reasonable estimate of the benefits that each employee has already accrued because of his/her service. The actuarial gains and losses deriving from the related calculation are taken to Income Statement as revenue or expense when the cumulative net amount of the unrecognized actuarial gains and losses for each plan at the end


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of the previous year exceeds the higher of the obligations for the defined benefit plans and fair value of plan assets at that date by more than 10% (the so-called corridor approach). Regarding the TFR fund, recognized as a “defined benefit plan” until 31st December 2006, Law no.296 of 27th December 2006 and the subsequent Decrees and Regulations issued in the course of 2007 introduced, as part of the reform of the social security system, significant changes regarding allocation of TFR contributions that are to mature. In particular, new TFR flows can be directed by the worker to forms of pension supplements or be kept within the company (in the case of companies with less than 50 employees) or transferred to the INPS (in the case of companies with more than 50 employees). On the basis of such regulations, the Landi Group, also on the basis of the generally accepted interpretation, has decided that:

- For TFR contributions matured on December 31st 2006 (and not yet liquidated to the date of the Financial Statements), the fund in question constitutes a defined benefit plan, to be evaluated according to the actuarial rules no longer including, however, the element relating to future pay increases.

- For subsequent TFR contributions, whether in the case of opting for the complementary social security or in the case of allocation to the INPS Treasury Fund, the nature of the contributions is based on the case of defined contribution plans, with the exclusion of actuarial estimate elements, in determining the associated cost.

TRADE PAYABLES Trade payables are stated at the fair value of the initial consideration received in exchange and subsequently measured at amortized cost, using the effective interest method. Trade payables with due dates that fall under normal sales terms are not discounted at present value. FINANCIAL LIABILITIES Financial liabilities are initially recognized at cost, equal to the fair value of the liabilities net of the transaction costs which are directly related to their issue. Financial liabilities are subsequently measured at amortized cost, using the effective interest method. RECOGNIZING REVENUES Revenues are recognized to the extent that it is probable that the economic benefits are achieved and the relative amount can be reliably determined. Revenues and income are entered in the financial statements net of returns, allowances, discounts and premiums, as well as the taxes directly connected with the sale of products or performance of services. Revenues are recorded in the income statement only if it is likely that the Group will benefit from the cash flows associated with the transaction. Revenues from the sale of the products are recognized when the risks and benefits connected with ownership of the assets are transferred to the purchaser; this moment generally coincides with the shipment date. Revenues from services rendered (technical consultancy services rendered to third parties) are accounted for in the income statement on the basis of the percentage of completion at the balance sheet date. GRANTS


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Grants from public and private bodies are recognized at fair value when it is reasonably certain that they will be received and the conditions for their receipt will be met. Grants related to income (provided as immediate financial assistance to an entity or to cover expenses and losses incurred in a previous year) are fully recognized in Income Statement when the above-mentioned conditions for their recognition are met. No capital contributions were obtained in the year in question. COSTS Costs are recognized in so far as it is possible to reliably determine that economic benefits will flow to the Group. Costs for services are recognized for the year in question according to the moment that they are received. For accounting purposes, leases and hire contracts are classified as operating if:

- the lessor retains a significant share of the risks and the benefits associated with the property, - there are no purchase options at prices that do not reflect the presumable market value of the rented

asset at the end of the period, - the duration of the contract does not represent the greater part of the useful life of the leased or hired

asset. The related charges are taken to Income statement on a straight line basis distributed according to the duration of the underlying contracts. DIVIDENDS Dividends payable by the Group are shown as changes in equity in the year in which they are approved by the shareholders. FINANCIAL INCOME AND CHARGES Financial income and charges are recognized on an accrual basis on the basis of the interest accrued on the net value of the related financial assets and liabilities using the effective interest method, as set forth by paragraph 9 of IAS 39. TAXES Income taxes include current and deferred taxes. Income taxes are generally taken to income statement, save when they refer to items directly accounted for in equity. In this case also income taxes are directly taken to equity. Current taxes are income taxes expected to be paid and calculated by applying the rate applicable at the balance sheet date to the taxable income for the year in the systems of the respective countries in which the Group operates. Deferred taxes are calculated using the so-called liability method on the temporary differences, for the individual consolidated companies, between the carrying amount of assets and liabilities in the financial statements and their corresponding tax values. Deferred taxes are calculated on the basis of the tax rate that is expected to be in force when the asset is realized or the liability is settled. Deferred tax assets are recognized only when it is probable the generation in future years of taxable profits sufficient to realize these assets. Deferred tax assets and


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liabilities are offset only for homogeneous expiry dates, when there is a legal right to offset and when they refer to recoverable taxes due by the same tax authority. EARNINGS PER SHARE The “base” earnings per share are calculated by relating the net profit of the Group to the weighted average number of ordinary shares in circulation in the period. SEGMENT REPORTING The activity sector is a distinctly identifiable group of activities and operations that provides a set of related products and services, subject to risks and benefits different to those of the Group's other activity sectors. The geographical sector is a distinctly identifiable component of the Group dedicated to the supply of related products and services in a particular economic environment, subject to risks and benefits different to those of components that operate in other economic environments. The primary reporting of the Group is by activity sector and is divided as follows:

- gas systems for automobiles sector; - alarm systems and other sector.

The secondary reporting of the Group is by geographical area. Note that for the year 2008, the Group has adopted Accounting Principle IFRS 8 in regard to the segment reporting. COMMUNICATION ON FINANCIAL INSTRUMENTS In accordance with the provisions of Accounting Principle IFRS 7, supplementary information is supplied on the financial instruments in order to evaluate:

- The impact of the financial instruments on the capital-financial situation, on the economic result and on the financial flows of the company;

- the nature and size of the risks deriving from financial instruments to which the company is exposed, as well as the methodologies with which such risks are managed.

USE OF ESTIMATES The preparation of Financial Statements in accordance with the IFRS (International Financial Reporting Standards) requires the directors to apply accounting standards and methods that are sometimes based on difficult and subjective assessments and estimates based, in turn, on past experience and assumptions that are considered reasonable and realistic given the circumstances. Application of these estimates and assumptions affects the amounts presented in the balance sheet, income statement and cash flow statement and disclosures. The final results of the balance sheet items for which the above-mentioned estimates and assumptions were used may differ from those reported in the financial statements because of the uncertainty that characterizes the assumptions and conditions on which the estimates are based. The balance sheet items that most require greater subjectivity on the part of the directors in producing the estimates and for which a change in the conditions underlying the assumptions used can have a significant impact on the consolidated financial statements of the Group are listed below:


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- Goodwill; - Depreciation of fixed assets; - Development expenditure; - Deferred tax assets and deferred tax liabilities; - Provisions for bad debts and obsolete inventories; - Employee benefits; - Provision for risks and charges.

Estimates are used in recognizing goodwill, impairment of non current assets, development expenditure, taxes, provisions for bad debts and inventories, employee benefits and other accruals and provisions. MOST IMPORTANT ACCOUNTING POLICIES THAT REQUIRE A GREATER DEGREE OF SUBJECTIVITY A description is provided below of the most significant accounting policies that require, more than the others, greater subjectivity on the part of the directors in producing the estimates and for which a change in the conditions underlying the assumption used may have a significant impact on the re-stated aggregate financial data. Evaluation of receivables Trade receivables are adjusted with the relevant depreciation fund in order to take account of their effective recoverable value. The determination of the amount of depreciation carried out requires the directors to make subjective evaluations based on the documentation and on the information available also in relation to the solvency of the customer, as well as on experience and the historical trends. Evaluation of goodwill and the intangible assets in progress In accordance with the accounting policies applied by the Group, goodwill and the intangible assets in progress are subjected to annual verification (impairment test) in order to assess whether they have suffered a reduction in value, which is established by means of an impairment test, when the accounting net value of the unit generating the cash flow to which these items are allocated appears to be greater than its recoverable value (defined as the greater value between the value of use and the fair value of the same). The above mentioned value confirmation check requires the directors to make subjective evaluations based on the information available within the Group and from the market, as well as from historical experience. In addition, whenever it is established that a potential reduction in value could be generated, the Group proceeds to determination said reduction using those evaluation techniques considered suitable. The same value tests and evaluation techniques are applied to the intangible and tangible assets with a defined useful life when indicators exist that predict difficulties in recovering the corresponding net book value. The correct identification of elements indicative of the existence of a potential reduction in value as well as the estimates for determination the reduction depend on factors that can vary over time, influencing the evaluations and estimates made by the directors. Provisions for risks Establishing whether or not a current obligation (legal or implied) exists is in some cases difficult to determine. The directors assess such phenomena on a case by case basis, together with an estimate of the amount of the economic resources required in order to meet that obligation. When the directors consider that is merely


___________________________________________________________________________________________________________20

possible that liabilities may arise, the risks are indicated in the appropriate information section on commitments and risks, without resulting in an actual allocation. Evaluation of closing inventories Closing inventories of products with characteristics of obsolescence or slow turnaround are periodically subjected to evaluation tests and written down where the recoverable value thereof is less than the book value. The write-downs carried out are based on assumptions and estimates of management, deriving from its experience and the historical results achieved. Evaluation of deferred tax assets The evaluation of deferred tax assets is made on the basis of the taxable income expected in future years and expected future taxes. The measurement of such expected profits depends on factors that may change in time and have a significant impact on the valuation of deferred tax assets. Transactions with related parties The Group deals with related parties at market conditions considered to be normal in the markets in question, taking account of the characteristics of the goods and the services supplied and received. ACCOUNTING POLICIES, AMENDMENTS AND INTERPRETATIONS APPLIED IN 2008 In these financial statements the Landi Group has opted for early adoption of accounting policy IFRS 8 – Operating Segments, which must be applied starting from 1st January 2009 replacing IAS 14 - Segment Reporting. The new accounting principle requires companies to base the information provided in the segment report on elements that Top Management uses in making their operational decisions. The adoption of this principle has not produced any effect from the point of view of valuation of the items in the financial statements. The amendment to IAS 19 - Financial Instruments: Recognition and Measurement and to IFRS 7 - Financial Instruments: Supplementary Information, applicable from 1st July 2008, allows, in certain specific cases, the reclassification of financial assets outside the fair value category recognized in the income statement. In addition, the amendment makes it possible to transfer loans and receivables from the accounting category “available for sale” to the accounting category “held until expiry”, if the company has the intention and the capacity to hold such instruments for a determined future period. The adoption of this amendment has not involved any impacts for the Landi Group. ACCOUNTING POLICIES, AMENDMENTS AND INTERPRETATIONS NOT YET APPLICABLE AND NOT YET ADOPTED IN ADVANCE BY THE GROUP OR NOT APPLICABLE Over the last few months, the IASB (International Standard Accounting Board) and IFRIC (International Financial Reporting Interpretation Committee) have published new Principles and Interpretations, some of which have not yet been approved by the community legislator or have been approved but will be applicable starting from years subsequent to 31st December 2008:

- revision of IAS 1 – Presentation of Financial Statements; - update to IFRS 3 – Business Combinations; - amendment to IAS 27 – Consolidated and Separate Financial Statements; - revision of IAS 23 – Borrowing Costs;


___________________________________________________________________________________________________________21

- interpretation IFRIC 14 on IAS 19 – Activities for Defined Benefit Plans and Minimum Criteria for Cover;

- IFRIC 11 – Transactions with Treasury Shares and Group Shares. Note, finally, that the following accounting principles, amendments and interpretations have been issued which govern scenarios and cases that do not exist inside the Group:

- IFRIC 12 – Licensed Service Contracts; - IFRIC 13 – Customer Loyalty Programmes; - IFRC 15 – Contracts for the Construction of Immovable Assets; - IFRC 16 – Cover of an Investment in a Foreign Company; - IFRC 17 – Distribution of Dividends in Assets other than Money to the Owners of Capital; - IFRS 2 – Remuneration Instruments based on Shares: Conditions for Maturity and Cancellation; - IAS 32 – Financial Instruments: Presentation and IAS 1 – Presentation of Financial Statements: Financial

Instruments with Option to Sell and Bonds in the event of Liquidation.


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D) RISK ANALYSIS In accordance with the requirements of Accounting Principle IFRS 7, the following analysis is provided regarding the nature and extent of risks deriving from financial instruments to which the Group is exposed, as well as the methodologies with which such risks are managed. The main risks are reported and discussed at the Top Management level of the Group in order to create the prerequisites for their cover, insurance and for the assessment of the residual risk. Interest rate risk The Group is exposed to the interest rate risk associated both with cash on hand and with medium to long term financing. The exposure refers mainly to the Euro zone. As regards exposure to the risk of interest rate volatility, note that the financial indebtedness is regulated primarily by variable interest rates. Therefore, the financial management of the Group remains exposed to fluctuations in interest rates, not having, at the date of the present financial statements, subscribed to instruments covering the variability of the interest rates on loans contracted with the banks. Interest rate risks were measured using sensitivity analysis and the potential impacts of Euribor interest rate fluctuations on the consolidated financial statements at 31st December 2008 were analyzed with particular reference to cash and cash equivalents and to financing. The increase of 50 basis points on the Euribor, like all the other variables, would have produced an increase in financial costs for the Group of € 57 thousands in comparison to an increase of financial income equal to € 248 thousands. It can be logically assumed that a decrease of 50 basis points will produce the same effect, but with the opposite sign, both on financial costs and financial income. Exchange risk The Landi Group sells part of its production and, although to much lesser degree, also purchases some components also in Countries outside the Euro zone. In relation to the exchange risk, note that the amount of the consolidated equity balances expressed in currency other than the functional currency is to be considered as insignificant. The Group has not subscribed to any instruments to cover exchange rate fluctuations and, in accordance with the Group’s policy up to this moment this moment, no speculative derivatives have been subscribed; therefore the Group remains exposed to exchange rate risk on the balances of the assets and liabilities in foreign currency at year end which, in any case, as mentioned, are not to be considered as significant. Credit risk The Group deals mainly with known and reliable customers. It is the Landi Group's policy to subject customers requesting extended payment conditions to procedures for checking their credit rating. In addition, the balance of the receivables is monitored on a fortnightly basis over the period, in order to minimize exposure to the risk of losses. Finally, regarding the new customers and those not operating in EU countries, a letter of credit to guarantee successful collection is normally used. As of March 2008 the Company has subscribed an insurance policy with a primary Insurance Company on foreign receivables not covered by credit letter


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The credit risk regarding the other financial assets of the Group, including cash and cash equivalents, presents a maximum risk equal to the book value of these assets in the case of insolvency of the counterpart. Liquidity risk The Group manages the liquidity risk by maintaining an adequate level of available financial resources and bank credit granted by the main credit institutions, in order to satisfy the finance requirements of the operational activity. The Group has not adopted a specific policy for management of the centralized treasury. In particular, the management of the ordinary treasury is delegated locally to the individual companies of the Group, while the extraordinary treasury is subject to the decision-making process of the Parent company.


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E) CONSOLIDATION SCOPE The consolidated financial statements at 31st December 2008 include the economic and equity data of Landi Renzo S.p.A. (Parent Company) and of all the companies over which it exercises control directly or indirectly.

Companies consolidated with the global consolidation method The consolidated financial statements at 31st December 2008 include the financial statements of the Parent Company Landi Renzo S.p.A. and the companies, over which it exercises direct and indirect control, holding the majority of the votes that can be cast in the ordinary shareholders' meeting. The Landi Renzo Group at 31st December 2008 is made up of the following companies:

Company name Registered Office


Direct investment

Indirect investment

Landi Renzo S.p.A. Cavriago (RE) EUR 11,250,000 Parent Company

Med S.p.A. Reggio Emilia EUR 2,000,000 100.00%

LR Industria e Comercio Ltda Espirito Santo (Brazil) BRL 4,320,000 96.00%

Landi International B.V. Utrecht (The Netherlands) EUR 18,151 100.00%

Beijing Landi Renzo Autogas System Co. Ltd Beijing (China) USD 2,600,000 100.00%

Eurogas Utrecht B.V. Utrecht (The Netherlands) EUR 36,800 100.00% (*)

Landi Renzo Polska Sp.Zo.O. Warsaw (Poland) PLN 50,000 100.00% (*)

L.R. Pak (Pvt) Limited Karachi (Pakistan) PKR 75,000,000 70.00%

Landi Renzo Pars Private Joint Stock Company Teheran (Iran) IRR 3,164,173,611 100.00%

Lovato Gas S.p.A. (§) Vicenza EUR 120,000 100.00%

Lovato do Brasil Ind Com de Equipamentos para Gas Ltda Curitiba (Brazil) BRL 100,000 85.00% (#)

Officine Lovato Private Limited Chennai (India) INR 20,000,000 100.00% (#)

(*) held by Landi International B.V. (#) held by Lovato Gas S.p.A. and not consolidated, given the insignificance of amounts involved (§) consolidated since 13th October 2008 Changes in the consolidation scope with respect to 31 December 2007 are as follows:

- On 5 January 2008, the company Landi Renzo Pars was entered into the Companies' Register of Teheran (Iran). It will manufacture and sell CNG systems in Iran in particular to the OEM channel. At the same time Landi Renzo S.p.A. paid up the quota of recalled share capital.

- On 1st April 2008 the merger of Landi S.r.l. into Landi Renzo S.p.A. became operational, with accounting and fiscal effect from January 1. The company was already fully consolidated in previous periods, and therefore the aforesaid merger operation has had no effect on the group’s consolidation area.

- On 13th October 2008 the contract for the purchase of 100% of Lovato Gas S.p.A. was completed and therefore it was consolidated from that date. The companies controlled by Lovato Gas S.p.A., Lovato do Brasil and Officine Lovato (India), have not been consolidated since they are considered non-significant


___________________________________________________________________________________________________________25

pursuant to IAS 1 because their incidence is insignificant regarding assets, liabilities, financial position and economic result of the Group. For the purposes of comparison with the previous year, the effects of the inclusion of Lovato Gas S.p.A. are adequately commented.

With reference to L.R. Pak Ltd. currently controlled by 70% through subscription of the share capital at the moment of its formation, note that the Parent company Landi Renzo S.p.A. has obtained a right of option for the purchase of these remaining shares in the subsidiary company from the Pakistani shareholders, owners of the remaining 30%. This right may be exercised from 7th November 2011 to 6th November 2013, at a price corresponding to the fraction of equity at the option year, increased by the average of the EBIT of the 5 years preceding the option year, multiplied by three, again referring to the fraction of capital to be purchased. Since no premium for this option has been paid to date, it was not considered appropriate to make any valuation of the financial instrument held. Note in addition that the fair value valuation of said option does not have to be made since the financial instrument is representative of capital and therefore falls within the exceptions to application of IAS 39 provided for in the same international principle.

Companies consolidated using the proportional method There are no companies belonging to the Group included in the consolidated financial statements with the proportional method.

Companies consolidated using the equity method Investments in subsidiary companies that are consolidated due to their limited significance, are valued at the fair value, represented substantially by the value determined using the Equity Method.


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F) EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The changes set out below have been calculated on the balances of the previous year as for balance sheet items and as for income statement items because they are fully comparable for content and duration with the balances at 31st December 2008. 1. SEGMENT REPORTING The Group has opted for early adoption of the Accounting Principle IFRS 8 – Operational Segments. This Principle replaces IAS 14 - Segment Reporting and introduces an approach according to which the segments must be identified using the same procedures with which the internal management reporting is prepared for Top Management. The adoption of this Principle has not produced any effect on the valuation of the items in the Financial Statements. Information is provided below by activity sector (primary reporting) and by geographical area (secondary reporting). The following table provides a breakdown of consolidated revenues in comparison to the year 2007:



31/12/2007 % of revenue change % Gas sector - LPG line 122,628 56.7% 73,278 44.7% 49,350 67.3%



Alarm systems 5,060 2.3% 4,883 3.0% 177 3.6%

Total revenues 216,198 100.0% 163,886 100.0% 52,312 31.9%

Based on these figures and given the little materiality of the sales of alarm systems, the group’s sole business segment can be said to be the production of LPG and CNG fuel supply systems. Considering that the principal source of risks and benefits is connected with the activity carried out and that the structure of the internal reporting uses a single activity sector, it is not considered necessary to provide further specifications regarding the Gas Sector since it coincides substantially with those of the entire company. The acquisition of Lovato Gas S.p.A., consolidated fully in the last quarter of 2008, contributed to an increase in revenues of approximately € 9,992 thousands (+25.8% with the same perimeter). Group revenues are broken down by geographical segment, based on the end customer’ location, while the value of the assets and investments is broken down by geographical area based on location of the actual assets. Consolidated revenues recorded in the year 2008 by the Landi Renzo Group are analysed by geographical area as follows:



31/12/2007 % of revenue change % Italy 68,254 31.6% 43,835 26.7% 24,419 55.7%



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South West Asia (*) 35,676 16.5% 60,333 36.8% -24,657 -40.9%

Americas 23,368 10.8% 10,610 6.5% 12,758 120.2%

Rest of the World 30,430 14.1% 16,256 9.9% 14,174 87.2%

Total revenues 216,198 100.0% 163,886 100.0% 52,312 31.9%

(*) Note that the revenues of South-West Asia consist of the sales realized in the following countries: Pakistan, Iran, Turkey. Regarding geographical distribution of revenues analysis, the international vocation of the Group is confirmed, having realized 68.4% of consolidated turnover abroad (27.0% in Europe and 41.4% outside Europe). Compared with the year 2007, it emerges that 73.3% of revenues were abroad (20.0% in Europe and 53.3% outside Europe). The Italian market grew by 55.7% compared to previous year and the turnover stands at € 68,254 thousands. This rise was driven by an increase in sales of LPG injection systems, to both the OEM and After Market channels. Furthermore, the data from the Ministry of Transport and processed by the ECOGAS Consortium indicate that in 2008 the Landi Group increased market penetration in the LPG testing segment from 35% in 2007 to the current 36.9%. The revenue trend in Europe, after a downturn in 2007, recorded an increase of 78% with significant growth both in Western Europe, especially Germany and Holland, and in Eastern Europe. The South-West Asian market recorded a decrease of 40.9% compared with 2007, primarily due to a significant slow-down of sales in the Iranian market. The strong increase of American market (+ 120.2% compared with 2007) is largely attributable to the national CNG conversion plan in Venezuela, a country in which, at the end of March, Landi Renzo won a substantial share of the second tender to supply with CNG systems the automotive sector. The increase in the Rest of World (+ 87.2% compared with 2007) was led by increased sales in Thailand, India, China and Australia. A breakdown of assets by geographical segment is provided in the following table (in thousands of Euros):

Total Assets 31/12/2008 31/12/2007 Change

Italy 227,625 142,198 85,427

Western Europe (excluding Italy) 3,361 2,627 733

Eastern Europe 1,931 1,808 123

South-west Asia 13,821 4,400 9,420

Rest of Asia 5,226 4,664 562

Americas 6,540 9,437 -2,897

Total ASSETS 258,503 165,134 93,369

The values (in thousands of €) relating to investments are provided below, net of disposals, broken down by geographical area of origin:


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Total Investments in Fixed Assets 31/12/2008 31/12/2007 Variation

Italy 12,829 5,888 6,941

Western Europe (excluding Italy) 74 125 -51

Eastern Europe 123 33 90

South-west Asia 1,102 689 413

Rest of Asia 106 129 -23

Americas 58 466 -408

Total INVESTMENTS IN FIXED ASSETS 14,292 7,330 -6,962

2. ACQUISITION OF A GROUP On 13th October 2008 the Landi Group acquired 100% of the shares of Lovato Gas S.p.A. The total value of transaction (enterprise value) was equal to € 63,000 thousands, while the cost paid by the Landi Group for the same is equal to € 58,231 thousands, because – as provided contractually – the balance of the price has still to be defined. The acquisition, recognized according to the purchase method as provided by IFRS 3, had the following effects on the assets and liabilities of the Landi Group at the date of the transaction: Net assets of the acquired company on the acquisition date (values expressed in thousands of €) - Values at 13/10/2008

Values as in the IFRS company balance sheet

Fair Value adjustments

Carrying values

Property, plant and equipment 2,522 0 2,522Development expenditure 645 0 645Goodwill 14,758 0 14,758Trademark 0 16,900 16,900Other intangible assets with finite useful lives 41 395 436Other non-current assets 601 0 601Trade receivables 4,453 0 4,453Inventories 6,555 473 7,029Other receivables and current assets 586 0 586Cash and cash equivalents 11,144 0 11,144Provisions for risks and charges -150 0 -150Defined benefit plans -631 0 -631Deferred tax liabilities -178 -5,579 -5,757Bank overdrafts and short-term loans -12,262 0 -12,262Trade payables -12,677 0 -12,677Tax liabilities -1,908 0 -1,908Other current liabilities -1,672 0 -1,672

Net assets acquired 11,828 12,189 24,017

Goodwill relating to the acquisition 34,215

Total cost of the acquisition 58,231

Total cost of the acquisition * 58,231* the amount includes € 1,561 thousands of Legal expenses, Success Fees and Due Diligence


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The fair value of the brand was evaluated through of an experts' report prepared by independent professionals; the associated useful life was estimated in 18 years. The fair value of Other intangible assets with definite useful life was evaluated in relation to the market value of the existing sales orders (backlog) at the date of transaction. The fair value of the inventories was estimated in relation to the sale prices for finished and semi-finished products and to the replacement cost for raw materials. In accordance to IFRS reference principles, the related fiscal effect for all the considered adjustments was recognized. NON-CURRENT ASSETS 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment show a net increase of € 10,179 thousands, increasing from € 14,926 thousands at 31st December 2007 to € 25,106 thousands at 31st December 2008. The net increase which is related to the change in the consolidation area is equal to € 2,522 thousands and reflects the values coming from the consolidation of the company Lovato Gas S.p.A.. The following is an analysis of changes in the historical costs of property, plant and equipment during the period (thousands of Euros):

Property, plant and equipment HISTORICAL COST 31/12/2007

Change in consolidation

scope: Acquisitions (Disposals) Other

changes

Conversion exchange

rate differences

31/12/2008

Land and buildings 2,220 153 54 0 0 230 2,657

Plant and machinery 8,944 2,424 2,922 -113 92 -129 14,141

Production and commercial equipment 11,342 4,032 2,420 -575 -301 -76 16,842

Other material assets 5,149 1,335 1,349 -719 47 -36 7,124

Intangible assets in progress and payments on account 125 65 5,025 -161 -89 0 4,965

Total 27,780 8,009 11,770 -1,568 -252 -11 45,729

The following is an analysis of changes in provisions for depreciation of property, plant and equipment during the period (thousands of Euros):

DEPRECIATION FUNDS 31/12/2007 Change in

consolidation scope:

Depreciation rates (Disposals) Other

changes

Conversion exchange

rate differences

31/12/2008

Land and buildings 275 33 142 0 0 11 461

Plant and machinery 2,122 1,478 1,426 -97 -119 -21 4,789

Production and commercial equipment 7,839 3,006 1,339 -501 -106 -14 11,564

Other material assets 2,617 971 865 -645 3 -2 3,809

Total 12,854 5,487 3,773 -1,243 -222 -26 20,623

The following is the overall analysis of changes of net property, plant and equipment during the period (thousands of Euros):


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NET VALUE 31/12/2007 Change in


Acquisitions (Disposals)(Amort./Depr.

and Impairment

Losses)

Other changes

Conversion exchange

rate differences

31/12/2008

Land and buildings 1,944 120 54 0 -142 0 219 2,196

Plant and machinery 6,822 946 2,922 -16 -1,426 211 -108 9,352

Ind. and commercial equipment 3,503 1,026 2,420 -74 -1,339 -196 -62 5,278

Other material assets 2,532 364 1,349 -74 -865 44 -35 3,315

Intangible assets in progress and payments on account 125 65 5,025 -161 0 -89 0 4,965

Net value - Total 14,926 2,522 11,770 -325 -3,773 -30 15 25,106

The Buildings item mainly includes the property in China owned by Beijing Landi Renzo Autogas, acquired in 2006. The item Plant and Machinery includes machinery used for production owned by the companies of the Group. The item Industrial and Commercial Equipment includes moulds, testing and control tools. The item Other Tangible Assets is made up mostly of electronic processors, motor vehicles, internal transport vehicles and furniture. The main increases in property, plant and equipment during 2008 are related to:

- Purchase of automatic machinery for the production of electronic and mechanical components for € 1,119 thousands by the subsidiary MED S.p.A.;

- Purchase of moulds, dies and templates for € 906 thousands and of testing and control tools for € 935 thousands by Landi Renzo S.p.A.;

- Purchase of electronic processors (personal computers), motor vehicles, internal transport vehicles and furnishings;

- Payments on account to suppliers and assets under construction for € 4,450 thousands for the creation of a new production line for injectors and electronic power units by the subsidiary MED S.p.A.

The main decreases in property, plant and equipment during 2008 relate to:

- Sale of industrial and commercial equipment by the various companies of the Group; - Sale of motors vehicle and transport vehicles by the various companies of the Group.

No significant capital gains/losses were recognized. The following are the net accounting values of assets purchased under finance lease contracts, divided by category (thousands of €):

ASSETS ACQUIRED WITH FINANCIAL LEASING

31/12/2007 Carrying value

Carrying Value depreciation fund Acquisitions 31/12/2008

Plant and machinery 50 -37 0 13

Production and commercial equipment 129 -129 0 0

Other material assets 204 -183 0 20

Total 383 -349 0 33


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4. DEVELOPMENT EXPENDITURE The following is an analysis of changes in development expenditure during the year (thousands of Euros):

Development expenditure 31/12/2007 Acquisitions Change in


Amortization 31/12/2008

Research and Development Expenditure 1,844 1,994 645 -822 3,661

Development expenditure, equal to € 3,661 thousands (€ 1,844 thousands at 31st December 2007), includes costs incurred by the Parent Company, and by the subsidiaries MED S.p.A. and Lovato Gas S.p.A., related both to internal personnel expenses and to costs for services rendered by third parties, for projects meeting the requirements imposed by IAS 38 in order to be stated under the net assets. In particular, projects capitalized during the year 2008 refer to innovative projects, not available previously, aimed at new market segments, capable of expanding and optimizing the product range, the value of which will be recovered through revenue flows generated in future years, such as:

- design and development of innovative applications for gas control units with a sequential gas injection system;

- design and the prototyping activity for LPG conversion kits for petrol powered vehicles directly at the end of the production line;

- design and prototyping activity for CNG conversion kits for petrol powered vehicles, in the Asian and South American markets;

- the development of new applications for low-cost mixers. It is expected that new product development activities will continue during the year 2009. 5. GOODWILL This Goodwill item can be broken down as follows (thousands of Euros):

Goodwill 31/12/2007 Acquisitions Change in


Amortization 31/12/2008

Goodwill 2,988 0 48,972 0 51,961

The goodwill paid by the subsidiary MED S.p.A. for the acquisition of two business units was allocated to the cash flow generating units (CGU) of the Group that are subjected to an impairment test. The increases for the period are related to the acquisition of Lovato Gas S.p.A. (see Note 2). It can be seen that on the date of transaction the company had already entered goodwill equal to € 14,758 thousands. In accordance with the provisions of IAS 36, this goodwill was submitted to the impairment test at the end of the period in which the transaction took place (31st December 2008). In compliance with procedures outlined in principle IAS 36, any particular situations that could indicate the need for impairment losses emerged during the year 2008. For the impairment test calculation, we used a projection of the cash flows contained in the financial plan prepared by Top Management for a time frame of


___________________________________________________________________________________________________________32

five years. The actualization rate applied to prospective cash flows is equal to 7.5% and corresponds to the weighted average cost of the capital calculated according to the economic and financial structure. Profit 6. OTHER INTANGIBLE ASSETS WITH DEFINITE USEFUL LIFE

Other intangible assets with finite useful lives 31/12/2007 Acquisitions Other changes

Change in consolidation

scope: Amortization 31/12/2008

Rights to use intellectual property 1,100 832 93 41 -790 1,276

Concessions and trademarks 9 6 0 16,900 -237 16,678

Intangible assets in progress and payments on account 180 22 -93 0 0 109

Other intangible fixed assets 0 0 0 395 -395 0

Total 1,290 860 0 17,336 -1,420 18,063

This item, equal to € 18,063 thousands at 31st December 2008 (€ 1,290 thousands at 31st December 2007), essentially includes, under intellectual property rights, the purchase of licenses for managerial applications and software to support research and development activities. With the acquisition of Lovato Gas S.p.A., part of the price paid for the purchase of the Company was then allocated to the LOVATO trademark. The fair value valuation of the trademark was performed by an independent professional. The LOVATO trademark is amortized in 18 years, the period being considered representative of its useful life. Under the item “Other intangible assets” part of the price paid for the shareholding in Lovato Gas S.p.A. was allocated to the orders portfolio, not covered by the inventories, present at the moment of the purchase as provided for by Accounting Principle IFRS 3 (Business Combination). This orders portfolio was completely fulfilled during the fourth quarter 2008. 7. OTHER NON-CURRENT FINANCIAL ASSETS

Other non-current financial assets 31/12/2008 31/12/2007 Variation

Investments in other companies 2 0 2

Amounts due from others 71 80 -9

Total 73 80 -7

The item Amounts Due from Others includes, primarily, the guarantee deposits. These items were not actualized since the impact is not significant. 8. DEFERRED TAX ASSETS

Deferred tax assets 31/12/2008 31/12/2007 Variation

Deferred tax assets 4,059 1,841 2,218

At December 31st 2008 the prepaid tax receivables, equal to € 4,059 thousands (€ 1,841 thousands at December 31st 2007), relate primarily to temporary differences coming from asset adjustment funds entered by the Italian


___________________________________________________________________________________________________________33

companies of the Group. The increase compared with 31st December 2007 is due essentially to the fiscal effect associated with the elision of the margins on intercompany stock at 31st December 2008 and to the consolidation of Lovato Gas S.p.A. The following are the main elements that make up the prepaid tax credits and the breakdown thereof at the end of the current and previous year (thousands of Euros): December 31, 2008 December 31, 2007

Deferred tax assets Amount Tax rate Deferred

tax assets

Amount Tax rate Deferred

tax assets

Provision for inventories 2,230 31.40% 652 1,470 31.40% 462

Provision for investment and securities 19 27.50% 5 18 27.50% 5

Provision for product warranties 383 27.50% 108

Entertainment expenses 153 31.40% 45 205 31.40% 64

Provision for agents’ termination indemnities 77 31.40% 24 72 31.40% 23

Non-deductible goodwill depreciation fund 884 31.40% 278 663 31.40% 208

Non deductible amortization 364 31.40% 91 159 31.40% 50

Non-deductible personnel expenses - 27.50% - 3 27.50% 1

Loss on exchange rates from valuation 163 27.50% 45 16 27.50% 4

Consolidation adjustments 5,094 31.40% 1,609 145 31.40% 36

Other deferred deductibility costs: Italian companies 221 27.50% 61 99 27.50% 27

Other deferred deductibility costs: foreign companies 1,060 19.0% - 35.0% 362 486 19.0% - 35.0% 173

Floatation costs 1,882 31.40% 591 2,510 31.40% 788

Reversal of non-IFRS plant costs – Lovato Gas 515 31.40% 188 31.40% -

Total deferred tax assets 4,059 1,841

Note furthermore that utilization of the deferred tax assets in the year is classified under current taxes in the income statement. No deferred tax assets were calculated on the provisions for inventories of the foreign subsidiaries (a total of € 196 thousands) since it was not considered likely that they would be recoverable through future taxable amounts. CURRENT ASSETS 9. TRADE RECEIVABLES (including related parties) Trade receivables (including trade receivables due from related parties), stated net of the related depreciation fund, are broken down as follows, by geographical areas (thousands of Euros):

Trade receivables per geographical area 31/12/2008 31/12/2007 Change

Italy 17,771 9,371 8,400

Europe (excluding Italy) 8,561 5,775 2,786

South-west Asia 14,977 17,668 -2,691


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Americas 3,499 5,975 -2,476

Rest of the World 6,951 3,941 3,010

Provision for bad debts -2,195 -874 -1,321

Total 49,563 41,856 7,708

Trade receivables at December 31st 2008 amount to € 49,563 thousands, net of the Provision for bad debts equal to € 2,195 thousands. Note that there are any non-current trade receivables or receivables secured by collateral guarantees. The provision for bad debts changed as follows:

Provision for bad debts 31/12/2007 Change in


Provision Utilization Other changes 31/12/2008

Provision for bad debts 874 1,284 350 -17 -296 2,195

The allocations made during the period, equal to € 350 thousands, are in order to adjust the receivables to their assumed recovery value. The utilizations, equal to € 17 thousands, refer primarily to the Polish subsidiary in response to positions considered no longer collectable. The other movements refer mainly to exchange rate variations. In accordance to the requirements of Accounting Principle IFRS 7, the following table provides information on the maximum credit risk divided by expiry classes, gross of the Provision for Bad Debts:

Past due

(thousands of Euros) Total Not past due 0-30 days 30-60 days 60 and beyond

Trade receivables (gross of the Provision) 51,758 33,319 3,019 1,998 13,422

It is considered that the book value of the Trade receivables approximates their fair value. The amount ”Past due 60 days and beyond” includes trade receivables in the Asian area for € 9,567 thousands. The controls performed by Group companies on these customers did not reveal any solvency risks. 10. TRADE RECEIVABLES - RELATED PARTIES Trade receivables - related parties amount to € 586 thousands and regard the receivables due from the Pakistani company AutoFuels (a company held 100% by a minority shareholder in LR Pak and operating in the Pakistani market on the After Market channel). For a breakdown of receivables from related parties, see the relevant table in the final notes to this document. 11. INVENTORIES This item can be broken down as follows (thousands of Euros):


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Inventories 31/12/2008 31/12/2007 Variation

Raw materials and parts 40,398 20,190 20,207

Work in progress and semi-finished products 8,914 8,036 878

Finished products 21,278 6,475 14,803

(Provision for inventories) -2,426 -1,610 -816

Total 68,163 33,091 35,072

Closing inventories at 31st December 2008 amount to € 68,163 thousands, net of the Provision for Inventories equal to € 2,426 thousands. At 31st December 2007 these amounted to € 33,091 thousands, net of a Provision equal to € 1,610 thousands. The table shows an increase in inventories equal to € 35,072 thousands compared to 31st December 2007 and this is due primarily to the requirements of the Group to adequately support the strong trend of growth in demand and the increase in market shares. The net increase of the inventories due to change in the consolidation area was equal to € 7,376 thousands. The company estimated the size of provision for inventories in order to take account of the risks for technical obsolescence of inventories and to align the book value to their assumed recovery value. At 31st December 2008 this item, equal to € 2,426 thousands, was not subject to significant changes compared with its value at 31st December 2007, apart from the increase due to the change in the consolidation area as a result of the acquisition of the shareholding in Lovato Gas S.p.A.

Provision for inventories 31/12/2007 Change in



Provision for Inventories (raw. materials) 1,030 554 0 0 0 1,584

Provision for Inventories (work in progress) 210 78 0 0 0 288

Provision for Inventories (finished products) 370 48 139 0 -2 554

Provision for Inventories - total 1,610 680 139 0 -2 2,426

The accruals, equal to € 139 thousands, refer mainly to the foreign subsidiaries of the Group. 12. OTHER RECEIVABLES AND CURRENT ASSETS This item can be broken down as follows (thousands of Euros):

Other receivables and current assets 31/12/2008 31/12/2007 Variation

Tax assets 5,482 7,783 -2,302

Amounts due from others 856 473 383

Accruals and prepayments 1,087 614 473

Total 7,425 8,870 -1,445

It is considered that the book value of the Other receivables and Current assets approximates their fair value. Tax assets


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The tax assets are represented mainly by receivables due from Inland Revenue for VAT and, for the main part, refer to the Italian companies of the Group. Amounts due from others At December 31st 2008 they refer to payments on account granted, credit notes to be received and other receivables, mainly from the Parent Company. Prepayments This item includes primarily prepaid insurance premiums, membership contributions and hardware and software maintenance fees paid in advance. 13. CURRENT FINANCIAL ASSETS This item can be broken down as follows (thousands of Euros):

Current financial assets 31/12/2008 31/12/2007 Change

Investment in Deutsche Telekom 156 205 -48

The investment in Deutsche Telekom, stated as €156 thousands, corresponds to a valuation on the basis of the stock market share price at year end. The decrease was recognized in the Income statement under the item “Accruals, impairment losses and other operating expenses”. 14. CASH AND CASH EQUIVALENTS This item, consisting of the active balances of bank current accounts and cash on hand both in Euros and foreign currency, can be broken down as follows (thousands of Euros):

Cash and cash equivalents 31/12/2008 31/12/2007 Change

Bank and post office accounts 30,255 58,026 -27,771

Cash 17 28 -11

Total 30,272 58,055 -27,783

Cash and cash equivalents at December 31st 2008 amount to € 30,272 thousands (€ 58,055 thousands at December 31st 2007), showing a decrease in availability of € 27,783 thousands due primarily to cash payment for the shareholding in Lovato Gas S.p.A. The rate of interest on bank deposits was during the year on average parameterized to the Euribor reduced by the spread granted to the Group by main Credit Institutions. For generation and absorption analysis of cash during the year, please refer to the cash flow statement. The values stated can be promptly converted into cash and are subject to an insignificant risk of change in value. It is considered that the carrying value of Cash and cash equivalents is aligned with their fair value at the balance sheet date.


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The credit risk related to Cash and cash equivalents is limited since the deposits are split over primary national and international banking institutions. 15. EQUITY The following table provides a breakdown on the items of consolidated net equity at 31st December 2008 (in thousands of Euros):

Equity 31/12/2008 31/12/2007 Variation

Share capital 11,250 11,250 0

Other reserves 87,154 74,356 12,799

Profit (loss) for the period 26,706 19,661 7,045

Total equity attributable to the shareholders of the parent 125,110 105,266 19,844 Share Capital and Reserves attributable to minority interests 194 297 -103

Profit (Loss) attributable to minority interests 96 -163 260

Total Minority Interests 290 134 156 Total consolidated equity 125,400 105,401 19,999

The share capital stated in the Financial Statements for the year at December 31st 2008 represents the share capital issued (fully subscribed and paid-up) by the company Landi Renzo S.p.A. which is equal to nominal € 11,250 thousands divided into a total of 112,500,000 shares, with a nominal value equal to € 0.10 each. The positive change in the Consolidated Equity can be attributed to the effect of profit for the period equal to € 26,802 thousands, to the distribution of dividends equal to € 6,188 thousands and to the changes in the exchange rate conversion reserves in the Financial Statements of foreign subsidiaries in currencies other than the Euro. The other reserves can be broken down as follows:

Other reserves 31/12/2008 31/12/2007 Change

Legal reserve 1,158 500 658

Extraordinary and Other reserves 39,398 27,258 12,140

Share premium reserve 46,598 46,598 0

Total equity attributable to the shareholders of the parent 87,154 74,356 12,799

The Extraordinary Reserve and the other reserves refer to profits achieved by the Parent Company and by the subsidiary companies in the preceding years and have increased by € 12,140 thousands as an effect of previous year result net of dividends distributed and of translation reserve movements. There are any profit reserves at the foreign subsidiaries entailing a significant tax burden in case of possible distribution to the Parent Company.


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The Share Premium Reserve originated as a result of the floatation operation for an amount equal to € 46,598 thousands net of the expenses relating to that process, which amount to € 2,152 thousands (net of the related tax effect, equal to € 985 thousands, stated in a matching entry under deferred tax assets). The minority interests represent the share of equity and year's profit of those foreign subsidiaries not owned in full. NON-CURRENT LIABILITIES 16. BANK LOANS Bank loans 31/12/2008 31/12/2007 Variation

Loans and financing 27,679 1,971 25,708

This item includes medium/long term portion of the bank debts for loans and financing. Note that financing is not secured by guarantees. The increase for the year can be attributed to the loan taken out by the Parent Company in October for the purchase of the shareholding in Lovato Gas S.p.A.. The following table provides a breakdown of medium-long term finance and of related interest rates (thousands of Euros):

Type Lender Company Due date Rate Balance at 31/12/2008

Non-current portion

Bank Loan BancaIntesa Landi Renzo S.p.A. 30/09/2010 Euribor 3m + 0.600% 1,190 518

Bank Loan Credem S.p.A. Landi Renzo S.p.A. 31/12/2013 Euribor 6m + 0.700% 14,947 12,179

Bank Loan Abaxbank S.p.A. Landi Renzo S.p.A. 31/12/2013 Euribor 6m + 0.700% 14,947 12,179

Loan Unicredit MED S.p.A. 30/10/2010 Euribor 3m + 0.800% 418 212

Loan BPVN MED S.p.A. 31/03/2011 Euribor 3m + 0.700% 336 190

Loan Credem S.p.A. MED S.p.A. 31/12/2009 Euribor 3m + 0.425% 3,200 2,400

Loan Basic People's Bank of China Beijing Landi Renzo 30/09/2009 7.290% 1,106 0

TOTAL 36,144 27,679

It is considered that the carrying value of bank loans is aligned with their fair value at the balance sheet date. At 31st December 2008 the Group had the following lines of credit available and not used: Line of credit (thousands of Euros) 2008 2007

Cash facility 5,100 2,842

Facility for various uses 63,945 43,195

Unsecured finance 8,750 15,627

Total 77,795 61,664

17. OTHER NON-CURRENT FINANCIAL ASSETS


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Other non-current financial liabilities 31/12/2008 31/12/2007 Change Payables to other financial backers 465 632 -167

At December 31st 2008 this item includes only the long term portions, equal to € 465 thousands, of the facilitated loans obtained from the Italian Trade and Industry Department on the basis of specific regulations.


Non-current portion

Loan Min.Trade & Industry Landi Renzo S.p.A. 15/12/2014 3.08% 138 117

Loan Min.Trade & Industry MED S.p.A. 31/12/2010 2.00% 101 51


TOTAL 632 465

It is considered that the carrying value of the other financial liabilities is aligned with their fair value at the balance sheet date. 18. PROVISIONS FOR RISKS AND CHARGES The changes and breakdown of this item are as follows (thousands of €):

Provisions for risks and charges 31/12/2007 Change in


Provision Utilization 31/12/2008

Provision for pensions and similar obligations 31 0 5 0 36

Provision for product warranties 216 150 296 -203 459

Total 246 150 301 -203 495

The item Provision for Product Warranties includes the best estimate for commitments that the Group companies have taken on under contract or the Law, in relation to the expenses connected with providing product guarantees for a fixed period of time starting from the sale thereof to the end customer. This estimate was calculated referring to the experience of the Group and specific contractual content. At 31st December 2008 this provision was equal to € 459 thousands. The provision was recognized in the Income statement under the item “Accruals, impairment losses and other operating expenses”. 19. DEFINED BENEFIT PLANS This item includes exclusively employee severance indemnity funds set up by the Italian companies in compliance with the regulations in force. The following is the overall change in defined benefit plans for employees (thousands of Euros):

Defined benefit plans 31/12/2007 Change in



Employee termination indemnities 1,948 631 188 -189 1 2,579


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The TFR (employee termination indemnities) flows for 2008, equal to € 188 thousands, refer to the employees who have decided to keep the TFR with the company (for companies with less than 50 employees), and, lastly, to those who have chosen to allocate TFR to the Treasury Fund set up by the INPS (for companies with more of 50 employees). The utilizations, totaling € 189 thousands, refer to the amounts paid out to employees who ceased to work for the Italian companies of the Group. The main economic-financial assumptions used by the actuary charged with the estimates are: Actuarial assumptions used for evaluations 31/12/2008

Demographic table SIMF99

Actualization rate CURVE of GOVERNMENT RATES at 31.12.2008

Probability of request for advance 3%

Expected % of employees who will resign before pension 5%

% of TFR requested in advance 70%

Annual cost of living increase rate

2009 2.60% 2010 2.40% 2011 2.20%

from 2012 2.00%

20. DEFERRED TAX LIABILITIES

Deferred tax liabilities 31/12/2008 Change in


31/12/2007 Change

Provision for taxation, including deferred 6,975 5,757 1,675 5,300

At December 31st 2008 deferred tax liabilities amount to € 6,975 thousands (€ 1,675 thousands at December 31st 2007) with an increase equal to € 5,300thousands, and are primarily related to temporary differences between the book values of certain tangible and intangible assets and the values recognized for tax purposes. Note that the utilization of deferred tax liabilities within the year is classified under current taxes in the Income statement. The following are the main elements that make up the deferred tax liabilities and the breakdown thereof at the end of the current and previous years (in thousands of €): December 31, 2008 December 31, 2007

Deferred tax liabilities Amount Tax rate Deferred taxes Amount Tax rate Deferred

taxes

Tax depreciation 377 31.4%-34.0% 123 2,633 31.4%-34.0% 843

Profits on exchange rates from valuation 2 27.50% 1 63 27.50% 17

Adjustments for consolidation and IFRS compliance 1,069 27.5%-31.4% 261 -734 27.5%-31.4% -202

Reversal of goodwill amortization 1,992 31.40% 626

Lovato trademark 16,665 31.40% 5,233

Capitalization of development expenditure 1,083 31.40% 340 1,844 27.5%-31.4% 614

TFR fund actuarial calculation 404 27.50% 108 373 27.50% 103


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Allocation in previous years 0 283 300

Total deferred tax liabilities 6,975 1,675

The increase of this item is attributable primarily to the effect relating to the valuation of the Lovato trademark determined during the acquisition of the Company. For the purposes of comparison with the previous year, a number of reclassifications were made to the data at 31st December 2007 in order to provide a better representation. These reclassifications did not have any effects on the net result and on the equity. CURRENT LIABILITIES 21. BANK OVERDRAFTS AND SHORT-TERM LOANS Bank overdrafts and short-term loans 31/12/2008 31/12/2007 Change

Loans and financing 8,465 4,687 3,778

Total 8,465 4,687 3,778

This item at December 31st 2008, equal to a total of € 8,465 thousands, compared to € 4,687 thousands in 2007, is made up exclusively of the current portion loans and financing. Note that the above-mentioned financing is not secured by guarantees.


Current portion

Bank Loan BancaIntesa Landi Renzo S.p.A. 30/09/2010 Euribor 3m + 0.600% 1,190 672

Bank Loan Credem S.p.A. Landi Renzo S.p.A. 31/12/2013 Euribor 6m + 0.700% 14,947 2,768

Bank Loan Abaxbank S.p.A. Landi Renzo S.p.A. 31/12/2013 Euribor 6m + 0.700% 14,947 2,768

Loan Unicredit MED S.p.A. 30/10/2010 Euribor 3m + 0.800% 418 206

Loan BPVN MED S.p.A. 31/03/2011 Euribor 3m + 0.700% 336 145

Loan Credem S.p.A. MED S.p.A. 31/12/2009 Euribor 3m + 0.425% 3,200 800

Loan Basic People's Bank of China Beijing Landi Renzo 30/09/2009 7.290% 1,106 1,106

TOTAL 36,144 8,465

A breakdown of the net financial position of the Group is provided below (thousands of Euros): Net Financial Position (thousands of Euros) 31/12/2008 31/12/2007

Cash and cash equivalents 30,272 58,055

Bank overdrafts and short-term loans -8,465 -4,687

Short-term loans -167 -163

Net short-term financial resources 21,641 53,205

Long-term loans -28,144 -2,603

Bonds 0 0

Net long term indebtedness -28,144 -2,603

NET FINANCIAL POSITION -6,504 50,602


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The net financial position at December 31st 2008 is negative for the amount of € 6,504 thousands compared to a positive net financial position at December 31st 2007 (equal to € 50,602 thousands), primarily due to a decrease in cash and cash equivalents in the Parent Company as a result of the acquisition of the company Lovato Gas S.p.A. and due to the distribution of dividends that took place during the first six-month period. Note that the short-term net financial position also includes the current portion of the other financial liabilities, which are not included, however, not in the analytical structure of the table relating to the cash flow statement. 22. OTHER CURRENT FINANCIAL LIABILITIES Other current financial liabilities 31/12/2008 31/12/2007 Change

Payables to other financial providers 167 163 3

At December 31st 2008 this item, equal to € 167 thousands, concerns the short-term portions of the facilitated loans provided by the Ministry for Production Activities on the basis of specific regulations. At December 31st 2007 the other current financial liabilities amounted to € 163 thousands. The following table shows the breakdown of payables to other financial providers (current portion) and the corresponding interest rates (thousands of Euros):


Current portion

Loan Min.Trade & Industry Landi Renzo S.p.A. 15/12/2014 3.08% 138 21



TOTAL 632 167

23. TRADE PAYABLES (including related parties) The changes in this item are as follows (thousands of Euros): Trade payables 31/12/2008 31/12/2007 Change

Trade payables 76,991 42,435 34,556

The increase in the balance, equal to € 34,556 thousands, is due both to the greater purchases related to the increase in Group revenue and to the favorable improvement of payment conditions. Trade payables (including trade payables to related parties), in reference to geographical areas, can be broken down as follows (thousands of Euros):

Trade payables by geographical area 31/12/2008 31/12/2007 Change

Italy 71,646 39,386 32,260

Europe (excluding Italy) 1,914 1,706 208

South-west Asia 2,118 93 2,025


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Americas 612 828 -216

Rest of the World 701 421 280

Total 76,991 42,435 34,556

It is considered that the book value of trade payables at the balance sheet date approximates their fair value. 24. TRADE PAYABLES - RELATED PARTIES The trade payables to related parties refer to payables for purchases of electronic components from the company A.E.B. S.r.l. (an associate of the ultimate parent company Girefin S.p.A.) that amount to € 10,350 thousands (€ 2,780 at 31st December 2007). All the related transactions are carried out at normal market conditions. For further details see the next chapter OTHER INFORMATION – paragraph TRANSACTIONS WITH RELATED PARTIES. 25. TAX LIABILITIES Tax liabilities 31/12/2008 31/12/2007 Variation

Tax liabilities 3,581 2,467 1,114

The tax liabilities consist of the total of amounts due to Tax Authorities of the individual States in which the companies of the Group are located. 26. OTHER CURRENT LIABILITIES Other current liabilities 31/12/2008 31/12/2007 Variation

Payments on account 0 49 -49

Payables due to pension and social security institutions 1,306 1,001 306

Other creditors (amounts due to employees / other…) 3,835 1,899 1,936

Accrued expenses and deferred income 565 249 316

Total 5,706 3,198 2,509

The item “Other creditors” amounting to € 2,486 thousands, refers to current pay and deferred pay to be settled for employees. The increase in this item compared with the amount at 31st December 2007 mainly reflects the amounts due to employees because of an increase in their numbers during 2008. 27. OTHER CURRENT LIABILITIES - RELATED PARTIES The payables to related parties are eliminated at December 31st 2008. At December 31st 2007 they amounted to € 312 thousands and concerned the amounts owed by Landi Renzo S.p.A. to the ultimate parent Girefin S.p.A., in the context of the national consolidated tax return. INCOME STATEMENT


___________________________________________________________________________________________________________44

28. REVENUES (including related parties) Revenues (goods and services) 31/12/2008 31/12/2007 Change

Revenues (goods) 215,460 162,133 53,327

Revenues (services and other) 738 1,752 -1,014

Total 216,198 163,886 52,313

In the year closed at 31st December 2008, the consolidated revenues increased by 31.9% compared with the year closed at 31st December 2007. This increase was first of all supported by an increase in sales volumes, a consequence both of the increase in demand for LPG�and CNG fuel supply systems in the markets where the Group operates and of the expansion strategy initiated by the Group. With the same perimeter, revenues would have increased by 25.8%. The item “Revenues (services and other)” includes reimbursements of transport costs, revenues for services rendered and revenues for technical consultancy supplied to third parties by the companies of the Group. The Group has implemented a strategy of international expansion in the markets characterized by a significant demand for CNG and LPG fuel supply systems. In the period 2003-2008, the Group decided, in order to strengthen its presence in the main markets, to set up companies in Brazil, China, Pakistan and Iran. External growth in 2008 involved the purchase of the shareholding in Lovato Gas S.p.A. which realizes more than 90% of its turnover abroad, in particular in the LPG segment. In addition, the Group has undertaken a policy of expansion and optimization of the product offering. Finally, in the last four years, the Group has been increasingly able to accompany its traditional distribution on the After Market channel with distribution on the OEM channel, for installations both in the assembly lines of car manufacturers and among their authorized dealers (so called “Km. 0”). 29. REVENUES FROM RELATED PARTIES Revenues from related parties refer to revenues from the Company A.E.B. S.r.l. for € 184 thousands and from the Pakistani Company AutoFuels totaling € 1,914 thousands. All the related transactions are carried out at normal market conditions. For further details see the next chapter OTHER INFORMATION – paragraph TRANSACTIONS WITH RELATED PARTIES. 30. OTHER REVENUE AND INCOME Other revenue and income 31/12/2008 31/12/2007 Variation

Grants 0 165 -165

Extraordinary income 652 880 -228

Total 652 1,046 -394

Other revenues and income at 31st December 2008 amount to € 652 thousands compared with € 1,046 thousands at 31st December 2007. The extraordinary income at December 31st 2008 refers mostly to capital gains on the sale of fixed assets and to non-operating profits recognized in particular by the Parent Company.


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31. COST OF RAW MATERIALS, CONSUMABLES AND GOODS AND CHANGE IN INVENTORIES This item can be broken down as follows (thousands of Euros):

Cost of raw materials, consumables and goods and change in inventories 31/12/2008 31/12/2007 Variation


Finished products intended for sale 32,734 30,386 2,348

Other materials and equipment for use and consumption 2,717 3,059 -342

Total 95,874 78,303 17,571

The total costs (included those relating to related parties) for consumption of raw materials, consumables and goods (including change in the inventories) increased from € 78,303 thousands at 31st December 2007 to € 95,874 thousands at 31st December 2008, mainly as a result of the increase in sales volumes and the consolidation of the shareholding in Lovato Gas S.p.A. for the fourth quarter. For the purposes of comparison with the previous year, a number of reclassifications were made among the items in question regarding the data at 31st December 2007 in order to provide a better representation. These reclassifications did not have any effects on the net result and on equity. 32. COST OF RAW MATERIALS, CONSUMABLES - RELATED PARTIES The costs of the raw materials and consumables relating to related parties refer to purchases of electronic components made by the Group from the supplier A.E.B. S.r.l., an associate of the ultimate parent company Girefin S.p.A., and amount to € 18,906 thousands at 31st December 2008 (€ 12,292 thousands at 31st December 2007). 33. COST FOR SERVICES AND USE OF THIRD PARTY ASSETS (including related parties) This item can be broken down as follows (thousands of Euros): Cost for services and use of third party assets 31/12/2008 31/12/2007 Variation

Industrial and technical services 35,610 24,797 10,812

Commercial services 6,534 4,523 2,011

Administrative services 8,626 5,904 2,722

Cost for use of third party assets 1,602 1,263 339

Total 52,373 36,487 15,886

Costs for services and the use of third party assets at December 31st 2008 amounts to € 52,373 thousands, compared with € 36,487 thousands at December 31st 2007, with an increase of € 15,886 thousands. The total cost for external manufacturing (included in the Industrial and Technical Services) increased from € 21,357 thousands at 31st December 2007 to € 31,054 thousands at 31st December 2008, with an increase of € 9,697 thousands mainly due to the growth in sales volumes.


___________________________________________________________________________________________________________46

The increase in Commercial Services can be attributed mainly to an increase in variable costs for transports and commissions as well as increased use of advertising services. The increase in General and Administrative Services can be ascribed primarily to an increase in the use of IT consultancies, an increase in insurance costs and also to an increase in corporate consultancies. 34. COST FOR SERVICES AND USE OF THIRD PARTY ASSETS - RELATED PARTIES The costs for services and use of third party assets that refer to related parties amount, at 31st December 2008, to € 853 thousands compared with € 531 thousands at 31st December 2007; they refer to the rental charges for the industrial property in Cavriago, headquarters of the Parent Company, paid to the Gireimm S.r.l., a subsidiary of the ultimate parent company Girefin S.p.A.. Note that in 2007 the rental fee was for a period of about 8 months.

35. PERSONNEL EXPENSES Personnel expenses can be broken down as follows (thousands of Euros): Personnel expenses 31/12/2008 31/12/2007 Changes

Wages and salaries 11,624 9,242 2,382

Social security contributions 3,577 2,786 791

Expenses for defined benefit plans 688 606 81

Curtailment effect -493 493

Temporary work 3,071 1,369 1,702

Directors' fees 1,319 696 623

Other costs 0 123 -123

Total 20,279 14,329 5,950

In the year closed at 31st December 2008, personnel expenses were equal to € 20,279 thousands compared with personnel expenses of € 14,822 thousands at 31st December 2007. This increase is due to an increase in staff numbers related to the reinforcement policy that the Group is pursuing in order to accompany and manage the growth of the business. It can also be seen that the hires concern, for the main part, professionals with high levels of qualifications and skills. The increase relating to the consolidation of the shareholding in Lovato Gas S.p.A. for the fourth quarter of the year was equal to € 1,255 thousands. To deal with increased production needs, the Group also relied to a greater extent on temporary work, the cost of which increased from € 1,369 thousands in 2007 to € 3,071 thousands in 2008. For the purposes of comparison with the previous year, a number of reclassifications were made among the items ”Wages and Salaries” and “Directors' Fees” in order to provide a better representation. These reclassifications did not have any effects on the net result and on equity. The table below shows the group’s average and at year-end workforce in the last two reporting years, broken down by qualification:


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Average (*) At year end

Number of employees 31/12/2008 31/12/2007 Change 31/12/2008 31/12/2007 Change

Executives and Clerical Staff 269 237 32 362 262 100

Blue-collar workers 179 171 8 247 188 59

Fixed Contract Collaborators 3 2 1 5 3 2

Total 451 410 41 614 453 161

(*) Note that these values do not include temporary workers or the directors.

The increase in the Groups' personnel attributable to the acquisition of the shareholding in Lovato Gas S.p.A. is equal to 107 employees. 36. ACCRUALS, IMPAIRMENT LOSSES AND OTHER OPERATING EXPENSES This item can be broken down as follows (thousands of Euros):

Accruals, impairment losses and other operating expenses 31/12/2008 31/12/2007 Variation

Other taxes and duties 160 88 72

Other operating expenses 758 75 683

Provision for product warranties 296 0 296

Bad debts 350 574 -224

Total 1,564 737 827

The costs included in this item amount to € 1,564 thousands at 31st December 2008 compared with € 737 thousands at 31st December 2007, with an increase of € 827 thousands. During 2008 the Group allocated a provision for product warranties, which amounted to € 296 thousands at 31st December 2008. The other operating expenses at 31st December 2008 refer mostly to non-operating losses recognized in particular for the Parent Company. 37. AMORTIZATION, DEPRECIATION AND IMPAIRMENT LOSSES Amortization, depreciation and impairment losses 31/12/2008 31/12/2007 Change

Amortization of intangible assets 2,244 1,160 1,084

Depreciation of property, plant and equipment 3,788 2,705 1,082

Total 6,032 3,866 2,167

The amortization of intangible assets refers primarily to the amortization of development and design costs incurred by the Group in previous years and to amortization of the costs for the purchase of the licenses and software (applications and management) acquired over time. Depreciation of property, plant and equipment refers primarily to property, plant and machinery for production, assembly and running-in of the products, to industrial and commercial equipment for the purchase of moulds, to testing and control tools and to electronic processors.


___________________________________________________________________________________________________________48

Depreciation at 31st December 2008 amounts to € 6,032 thousands, compared with € 3,866 thousands at 31st December 2007; this increase is mostly due to the roll-out, during the year, of the automated production line for injectors (on the subsidiary MED S.p.A.) and to the increased investments made in plant and machinery by the Group (in particular in Brazil and Pakistan), as well as to investments in management software made by various companies of the Group and to development costs that meet the requirements of IAS 38 and which were capitalized in previous years. Following the acquisition of the shareholding in Lovato Gas S.p.A. in fourth quarter 2008, the amortization of the LOVATO trademark was entered in the accounts. 38. FINANCIAL INCOME This item can be broken down as follows (thousands of Euros): Financial income 31/12/2008 31/12/2007 Change

Interest income on bank deposits 1,776 1,210 566

Other income 131 196 -65

Total 1,907 1,406 501

Financial income includes, primarily, bank interest income and interest income on other financial assets. Financial income at 31st December 2008 amounts to € 1,907 thousands, compared with € 1,406 thousands at 31st December 2007, with an increase of € 501 thousands, attributable essentially to greater liquidity following the collection of the proceeds from the share capital increase in connection with the listing of the parent’s ordinary shares in June 2007. 39. FINANCIAL EXPENSES This item can be broken down as follows (thousands of Euros): Financial expenses 31/12/2008 31/12/2007 Variation

Interest on bank overdrafts and loans and loans from other financial backers 977 529 448

Interest on bonds 0 52 -52

Bank charges and commissions 331 281 50

Other expenses 117 137 -19

Total 1,425 998 427

Financial expenses include, primarily, bank commission and bank interest charges and actuarial losses deriving from discounting of post-employment benefits. Financial expenses at December 31st 2008 amount to € 1,425 thousands compared with € 998 thousands at December 31st 2007, with an increase of € 427 thousands, due primarily to the subscription of unsecured loans for the acquisition of Lovato Gas S.p.A. by the Parent Company. 40. EXCHANGE RATE GAINS (LOSSES) Exchange rate gains (losses) 31/12/2008 31/12/2007 Variation

Positive exchange rate differences 2,520 719 1,801

Negative exchange rate differences -4,061 -830 -3,231


___________________________________________________________________________________________________________49

Total -1,541 -111 -1,430

The Group realizes its revenues mainly in Euros. The impact of the exchange rate differences over the year, generated in the foreign subsidiaries, was negative and equal to € 1,541 thousands, compared with losses on exchange rates equal to € 111 thousands in the year 2007, primarily as a result of the devaluation of the Pakistani Rupee. At December 31st 2008 the Group does not have any financial instruments to cover of the variability of exchange rates. In accordance with the requirements of Accounting Principle IFRS 7, a breakdown is provided below of financial income and expenses ascribed to income statement by individual financial instruments category:

December 31, 2008 December 31, 2007

in thousands of Euros Book value Book value

Interest income on cash and cash equivalents 1,776 1,210

Interest income on loans and receivables 18 51

Dividends from financial assets held for purposes of trading 11 10

Change in fair value from financial assets held for purposes of trading -48 16

Interest expenses from financial liabilities valued at the amortized cost -977 -529

Interest expenses on bonds 0 -52

Net losses on currency exchange -1,541 -111

Total -761 595

41. TAXES The theoretical rate used for the calculation of taxes on the income of Italian companies is 31.40% of the taxable income for the year. The taxes of the foreign companies are calculated according to the rates applicable in the respective countries. A breakdown of the income taxes is provided below (thousands of €): Income tax expense 31/12/2008 31/12/2007 Change

Current taxes 14,448 11,425 3,024

Deferred and prepaid taxes -1,582 585 -2,167

Total 12,867 12,010 857

Taxes at 31st December 2008 amounts to € 12,867 thousands, compared with € 12,010 thousands at 31st December 2007, with an increase of € 857 thousands. The following table provides a detailed breakdown of current taxes: Current taxes 31/12/2008 31/12/2007 Change

IRES (corporate income tax) 11,309 9,004 2,305

IRAP 2,026 1,541 485


___________________________________________________________________________________________________________50

Current taxes of foreign companies 1,113 880 233

Total 14,448 11,425 3,024

42. EARNINGS PER SHARE The “base” earnings per share were calculated by relating the net profit of the Group to the weighted average number of ordinary shares in circulation in the period (112,500,000). The “base” earnings per share, which correspond to the “diluted” earnings per share since there are no convertible bonds, are equal to € 0.2374 at 31st December 2008 compared with € 0.1748 at 31st December 2007 The result and the number of ordinary shares used for the purposes of calculating basic earnings per share, determined according to the methodology specified by IAS 33, a provided below.

Consolidated earnings per share 2008 2007

Consolidated profit for the period attributable to the shareholders of the Parent Company (€/thousands) 26,706 19,661

Average number of shares in circulation 112,500,000 112,500,000

Basic earnings per share for the period 0.2374 0.1748

OTHER INFORMATION 43. INFORMATION ON THE FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES As required by IFRS 7 – Financial Instruments, the attached table provides a comparison between the book value and the fair value of all the financial assets and liabilities, divided according to the categories identified by the above-mentioned accounting principle.

31st December, 2008 31st December, 2007

in thousands of Euros Book value Fair value Book value Fair value

Loans and Receivables 55,315 55,315 50,200 50,200

Financial assets held for purposes of trading 156 156 205 205

Cash and cash equivalents 30,272 30,272 58,055 58,055

Trade payables -82,131 -82,131 -45,696 -45,696

Financial liabilities valued at the amortized cost - non-current portion -28,144 -28,144 -2,603 -2,603

Financial liabilities valued at the amortized cost - current portion -8,632 -8,632 -4,850 -4,850

Total -33,164 -33,164 55,311 55,311

Note that the book value of bank overdrafts and short-term loans and loans and financing approximates the fair value of these at December 31st 2008, since such classes of financial instruments are indexed at the Euribor market rate. 44. GUARANTEES PROVIDED


___________________________________________________________________________________________________________51

At 31st December 2008, the Group includes guarantees given in favor of third parties in the financial statements amounting to € 9 thousands (at 31st December 2007 they amounted to € 134 thousands). 45. COMMITMENTS Note that at 31st December 2008 the only existing commitments are for lease payments. The related details are provided below in thousands of €:

Commitments for rental within 12 months from 1 to 5 years

Year 2007 582 1,544

Year 2008 1,024 2,250 There are no commitments for lease payments greater than 5 years. The increase is due essentially to the assumption of contracts in existence at Lovato Gas S.p.A. at the moment of acquisition of the shareholding.

46. OPERATING LEASES For accounting purposes, leases and hire contracts are classified as operating if:

- the lessor retains a significant share of the risks and the benefits associated with the property, - there are no purchase options at prices that do not reflect the presumable market value of the rented

asset at the end of the period, - the duration of the contract does not represent the greater part of the useful life of the leased or hired

asset. Payments of operating lease charges are ascribed to the Income Statement in line with the underlying contracts. The main operational leasing stipulated by the Group refers to a contract stipulated by the Parent Company with Gireimm S.r.l. (see transactions with related parties) for rental of the Operating Headquarters situated in Cavriago (RE). The contract expires on May 10th 2013 and the remaining installments amount to € 3,726 thousands, of which € 855 thousands within a year. No sureties were provided for said contract and there are no kinds of restrictions associated with the lease.

47. ANALYSIS OF THE MAIN DISPUTES IN PROGRESS The group is involved in litigation for immaterial amounts. Based on the opinions of the lawyers, the parent’s directors did not deem it necessary to provide for litigation in the balance sheet as they hold the claims made to be ungrounded and the existence of any contingent liabilities deriving from settlement of the litigation to be remote. The group is not involved in litigation with the taxation authorities. 48. TRANSACTIONS WITH RELATED PARTIES


___________________________________________________________________________________________________________52

The Landi Group deals with related parties at market conditions considered to be normal in the markets in question, taking account of the characteristics of the goods and the services supplied. Transactions with related parties listed below include:

- relationships for the supply of goods (electronic components) by A.E.B. S.r.l., an associated company of the ultimate parent Girefin S.p.A.

- the relationships for supply of services between Gireimm S.r.l. and Landi Renzo S.p.A. for rent of the property used as the operational headquarters of the Parent Company,

- relationships for supply of goods to the company A.E.B. S.r.l. and the Pakistani company AutoFuels (held by a director of the Pakistani subsidiary LR PAK).

The following table summarizes the relationships with related parties (thousands of Euros):

Incidence of Transactions with Related Parties Total item Absolute value related parties % Related party

a) incidence of the transactions or positions with related parties on balance sheet items Other receivables and current assets 49,563 586 1% Autofuels

Trade payables 76,992 10,350 13% A.E.B. S.r.l. Gireimm S.r.l.

b) incidence of the transactions or positions with related parties on income statement items Cost of raw materials, consumables and goods 95,874 18,907 20% A.E.B. S.r.l. Cost for services and use of third party assets 52,372 853 2% Gireimm S.r.l.

Revenues (goods and services) 216,198 2,098 1% A.E.B. S.r.l. Autofuels

49. NON-RECURRING SIGNIFICANT EVENTS AND OPERATIONS Pursuant to CONSOB communication no. 6064293 of 28th July 2006, it is stated that during 2008 no non-recurring significant events or operations took place. 50. POSITIONS OR TRANSACTIONS DERIVING FROM ATYPICAL AND/OR UNUSUAL TRANSACTIONS Pursuant to CONSOB communication no. 6064293 of July 28th 2006, note that during the year 2008 no atypical and/or unusual transactions occurred outside the normal operation of the company that could give rise to doubts regarding the correctness and completeness of the information in the financial statements, conflicts of interest, protection of company assets, safeguarding the minority stockholders. 51. SIGNIFICANT EVENTS OCCURRING AFTER THE CLOSE OF THE FINANCIAL YEAR Please refer to the analysis provided in the Directors' Report.


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G) COMMUNICATION REQUIRED BY CONSOB RESOLUTION No. 11971 OF 14/05/1999 In compliance with the express provisions of said resolution, a breakdown of remuneration paid for any reason and in any form, by the Company and by other companies of the group, to Directors, Auditors and Chief Executives is provided below. TABLE OF REMUNERATION PAID TO DIRECTORS AND AUDITORS Subject Description of the office Remuneration

Name and Surname Company Office held

Period for which the office was held

Expiry of the office

Emoluments for the office

Remuneration from other companies of the Group

Bonuses and other incentives

(in thousands of Euros) Giovannina Domenichini

Landi Renzo S.p.A.

Chairperson of the Board of Directors

01/01/08-31/12/08

Financial Statements 31/12/09

34 10

Stefano Landi Landi Renzo S.p.A.

Chief Executive Officer/Member of the Board of Directors

01/01/08-31/12/08


169 10 60

Carlo Alberto Pedroni

Landi Renzo S.p.A.

Executive director 07/01/08-31/12/08


309 119

Paolo Gabbi Landi Renzo S.p.A.

Member of the Board of Directors Chairman of Committee for Internal Control and Remuneration

01/01/08-31/12/08


19 10

Alessandro Ovi Landi Renzo S.p.A.

Member of the Board of Directors Member of Committee for Internal Control and Remuneration

01/01/08-31/12/08


18 10


Landi Renzo S.p.A.

Member of the Board of Directors Member of Committee for Internal Control and Remuneration

01/01/08-31/12/08


18 10

Luca Gaiani Landi Renzo S.p.A.

Chairman of the Board of Statutory Auditors

01/01/08-31/12/08


26


Landi Renzo S.p.A.

Statutory Auditor 01/01/08-31/12/08


15 8

Marina Torelli Landi Renzo S.p.A.

Statutory Auditor 01/01/08-31/12/08


15 8


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H) INFORMATION PURSUANT TO ART. 149-duodecies OF THE CONSOB ISSUER REGULATIONS In compliance with the express provisions of the CONSOB Issuer Regulations - Art.149-duodecies - payments made for services rendered by auditing firms to the companies belonging to the Group for the year 2008 are listed below.

Type of Services Subject who provided the service Recipient Remuneration

(in thousands of Euros)

Auditing KPMG Parent Company 160

Certification services KPMG Parent Company 2

Other services: transfer pricing tax analysis Network of the Auditor of the Parent Company Parent Company 31

Auditing KPMG Subsidiary companies 160

Statement on the consolidated financial statements for 2008 pursuant to art. 81-ter of Consob Regulation

No. 11971 of 14 May 1999, as amended

1. The undersigned Stefano Landi, Managing Director, and Paolo Cilloni, Officer in charge of preparing the corporate financial statements of Landi Renzo Group, state, having regard also to the provisions of art. 154-bis, paragraphs 3 and 4, of legislative decree No. 58 dated 24th February 1998: - the adequacy of consolidated financial statements in relation to the relative corporate characteristics,

and - the effective application of the administrative and accounting procedures for the preparation of the

consolidated financial statements at 31st December 2008. 2. In this respect are not emerged aspects of relief from consolidated financial statements. 3. In addition, the undersigned state that:

a) the consolidated financial statements: - agree with the accounting books and records; - are prepared in accordance with the international accounting standards (IFRS) and in their

opinion they give a true and fair view of the Group’s state of affairs and of its result for the year.

b) the report on operating performance for the year 2008 includes a reliable analysis on trends and performance, on Company’s financial situation and on Group Companies included in the consolidation, together with a description of the main risks and uncertainties which are exposed.

Cavriago, 12th march 2009 On behalf of the Board of Directors The Managing Director Stefano Landi (signed on the original) The Officer in Charge Paolo Cilloni (signed on the original)

LANDI GROUP – Company Financial Statements at 31st December 2008

______________________________________________________________________________________1

COMPANY FINANCIAL STATEMENTS AT DECEMBER 31st 2008

LANDI RENZO S.p.A.



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2

LANDI RENZO S.p.A.

ASSETS (thousands of Euros) Notes 31/12/2008 31/12/2007

Non-current assets Property, plant and equipment 2 7,118,877 4,355,999Development expenditure 3 2,910,923 1,844,343

Other intangible assets with finite useful lives 4 886,672 917,570

Investments in subsidiaries 5 65,321,478 7,229,841Other non-current financial assets 6 600,758 426Deferred tax assets 7 1,171,465 1,191,125

Total non-current assets 78,010,173 15,539,304Current assets Trade receivables 8 39,243,726 28,852,066Trade receivables – related parties 9 585,540 0Receivables from subsidiaries 10 13,828,373 11,585,897Inventories 11 36,210,384 18,803,637Other receivables and current assets 12 2,918,790 4,554,578Current financial assets 13 6,156,400 204,680

Cash and cash equivalents 14 22,766,913 50,823,198

Total current assets 121,710,126 114,824,056TOTAL ASSETS 199,720,299 130,363,360

EQUITY AND LIABILITIES (thousands of Euros) Notes 31/12/2008 31/12/2007

Equity Share capital 15 11,250,000 11,250,000Other reserves 15 75,350,562 64,506,260Profit (loss) for the period 15 20,248,113 13,166,618

Total Equity 106,848,675 88,922,877Non-current liabilities Bank loans 16 24,876,178 1,189,676Other non-current financial liabilities 17 116,874 138,199Provisions for risks and charges 18 207,078 20,448Defined benefit plans 19 1,386,447 1,279,715Deferred tax liabilities 20 733,721 1,456,736

Total non-current liabilities 27,320,298 4,084,774Current liabilities Bank overdraft and short-term loans 21 6,207,538 2,395,405Other current financial liabilities 22 21,325 20,689Trade payables 23 36,471,933 25,623,963Trade payables – related parties 24 6,067,546 1,733,402Payables to subsidiaries 25 12,236,431 5,190,365Tax liabilities 26 1,858,820 436,205Other current liabilities 27 2,687,734 1,643,216Other current liabilities – related parties 28 0 312,163

Total current liabilities 65,551,326 37,355,708TOTAL LIABILITIES AND EQUITY 199,720,299 130,363,360 For the purposes of comparison with the previous year, the items relating to relationships with related parties from the data at December 31st 2007 have been incorporated into the corresponding item.


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3

LANDI RENZO S.p.A.

INCOME STATEMENT (thousands of Euros) Notes 31/12/2008 31/12/2007

Revenues (goods and services) 29 176,958,795 131,085,059

Revenues (goods and services) – related parties 30 1,274,430 0

Other revenue and income 31 241,275 542,426Cost of raw materials, consumables and goods and change in inventories 32 -87,909,988 -70,194,300Cost of raw materials – related parties 33 -13,297,486 -7,970564Cost for services and use of third party assets 34 -34,943,095 -23,407,842Cost for services and use of third party assets – related parties 35 -852,558 -531,016Personnel expenses 36 -10,589,405 -7,781,469Accruals, impairment losses and other operating expenses 37 -764,638 -377,051Gross Operating Profit 30,117,330 21,365,243Amortization, depreciation and impairment losses 38 -3,092,458 -2,446,381Operating Profit 27,024,872 18,918,862Financial income 39 1,831,927 1,122,263Income from investments 40 1,150,000 1,050,000Financial expenses 41 -836,967 -512,511Exchange rate gains (losses) 42 -123,980 72,964Profit Before Tax 29,045,852 20,651,578Income tax expense 43 -8,797,739 -7,484,960

Net profit for the period 20,248,113 13,166,618

Basic earnings per share (in Euro units) 44

0.1800

0.1170

Diluted earnings per share (in Euro units) 44

0.1800

0.1170

For the purposes of comparison with the previous year, the items relating to relationships with related parties from the data at December 31st 2007 have been incorporated into the corresponding item.


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4

LANDI RENZO S.p.A.

CASH FLOW STATEMENT (thousands of Euros) 31/12/2008 31/12/2007

Opening cash and cash equivalents (#) 49,554 4,482Profit for the period before tax 29,046 20,652Amortisation, depreciation and impairment losses 3,092 2,446Accruals to provisions for employee benefits 457 410Other accruals less utilisation 258 -402Current taxes -9,573 -6,728Utilisation of provisions for employee benefits -351 -715(Increase) decrease in current assets: Inventories -15,165 454trade receivables -8,002 -12,471trade receivables – related parties -586 0receivables from subsidiaries -2,242 -7,464receivables due from others and other assets 2,233 -858(Increase) decrease in current liabilities: trade payables 8,584 12,000trade payables – related parties 4,334 12,000payables to subsidiaries 7,046 -1,347payables to others and other liabilities 2,223 306payables to others and other liabilities – related parties -312 -2,276

Cash flow from (for) operating activities 21,044 4,008Changes in non-current assets: Investments in intangible assets -2,449 -2,195Investments in tangible fixed assets -4,163 -2,435Disposals of property, plant and equipment 169 964Investments in financial assets - subsidiaries -58,462 -450

Cash flow used in investing activities -64,906 -4,116Dividends paid in the period -6,188 0Proceeds from floatation 0 46,863Loans to subsidiaries -6,600 0Loans obtained/repaid to/from banks and other financial backers during the period 23,666 -2,809

Cash flow from (used in) financing activities 10,878 44,053

Total cash flow -32,984 43,945

Closing cash and cash equivalents (#) 16,559 48,428

(#) The opening and closing cash and cash equivalents reflect the difference between cash and cash equivalents and bank overdrafts and short-term loans. For the purposes of comparison with the previous year, the items relating to relationships with related parties from the data at December 31st 2007 have been incorporated into the corresponding item


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5

LANDI RENZO S.p.A. (thousands of Euros)

STATEMENT OF CHANGES IN EQUITY Share capital

Legal reserve

Statutory reserve

Extraordinary and other reserves

Share premium reserve

Profit for the

period Equity

Balance at December 31st, 2006 2,500 500 1,822 16,683 0 12,098 33,604

Allocation of profit 562 11,536 -12,098 0

Bonus issue 7,500 -7,500 0

Change due to spin-off -5,695 -5,695

Distribution of dividends 0

Share capital increase following floatation 1,250 48,750 50,000

Floatation costs -2,152 -2,152

Reclassification of reserve -2,385 2,385 0

Profit for the period 13,167 13,167

Balance at December 31st, 2007 11,250 500 0 17,409 46,598 13,167 88,923

Allocation of profit 658 12,509 -13,167 0

Contribution from absorption merger of Landi S.rl. 3,865 3,865

Distribution of dividends -6,188 -6,188

Profit for the period 20,248 20,248

Balance at December 31st, 2008 11,250 1,158 0 27,595 46,598 20,248 106,849

.


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6

NOTES TO THE FINANCIAL STATEMENTS AT December 31st, 2008

A) GENERAL INFORMATION The Explanatory Notes accompany the Financial Statements at December 31st 2008 approved by the Board of Directors of the company on March 12th 2008. LANDI RENZO S.p.A. has been active for more than fifty years in the automotive fuel supply systems sector designing, manufacturing and selling eco-compatible LPG and CNG fuel supply systems (the “LPG line” and “CNG line” respectively). The Company manages all the phases of the process that leads to the production and sale of automotive fuel supply systems; it sells both to the principal automobile manufacturers at a world-wide level (OEM customers) and to independent retailers and importers (After Market customers). Landi Renzo S.p.A., Parent Company of the LANDI RENZO Group, has its registered office in Cavriago (RE). These Financial Statements are submitted to the auditing of KPMG S.P.A. Events that took place during the year 2008 The following occurrences took place during the year 2008: - The company “Landi Renzo Pars Private Joint Stock Company” was entered into the Companies' Register of

Teheran (Iran). It will manufacture and sell CNG systems in Iran in particular to the OEM channel. At the same time Landi Renzo S.p.A. paid up the quota of recalled share capital.

- On 1st April 2008 the merger of Landi S.r.l. into Landi Renzo S.p.A. was registered in the Companies' Register of Reggio Emilia.

- On 13th October 2008 the contract for the purchase of 100% of Lovato Gas S.p.A. was completed.; the total value of the transaction (enterprise value) was equal to € 63,000 thousand, while the cost paid by the Landi Group for the same is equal to € 58,231 thousand, because – as provided contractually – the balance of the price has still to be defined. Lovato Gas S.p.A. is one of main the operators in the world in the sector of LPG and CNG fuel supply components and systems for motor vehicles. At the end of the year closed at 31st December 2008, the Financial Statements for the year of Lovato Gas S.p.A., prepared according to the application of the Italian accounting principles, showed a turnover of € 47,533 thousand with an Operating Profit equal to € 3,961 thousand.

B) GENERAL CRITERIA FOR PREPARATION OF THE FINANCIAL STATEMENTS FOR THE PERIOD The financial statements at December 31st 2008 were prepared in accordance with International Accounting Standards (IAS/IFRS). The data contained in the Financial Statements for the year at December 31st 2008, consisting of the Balance Sheet, the Income Statement for the period, the Cash Flow Statement, the Table of Changes in Equity and these Explanatory Notes, are expressed in thousands of Euros, since the Euro is current currency in the economy in which the Company operates. In relation to the presentation of the Financial Statements the Company operated as follows: - for the balance sheet, to the current and non-current assets are shown separately, as are current and the non-

current liabilities. Current assets, which include cash and cash equivalents, are those intended to be


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7

produced, sold or consumed in the normal operational cycle of the Company, and in any case within the twelve months following the closure of the period; current liabilities are those that are intended to be settled in the normal operational cycle of the Company, and in any case within the twelve months following the closure of the period;

- for the income statement, the costs are analysed according to their nature; - the cash flow statement uses the indirect method. Regarding the incorporation of fully owned company Landi S.r.l., with accounting and fiscal effect from January 1st 2008, the accounting values incorporated of assets, liabilities and equity are provided below. This operation produced an increase of Equity up to Euro 3,865 thousands. This increase is due from net assets of Landi S.r.l. (Euro 4,236 thousands) less the value of holding equal to Euro 371 thousands. The Explanatory Notes to the financial statements indicate the changes deriving from the incorporation in the following items:

- Property, plant and equipment; - Investments; - Equity; - Provisions for risks and charges; - Defined benefit plans.

LANDI S.r.l. LANDI S.r.l.

ASSETS (thousands of Euro) 31/12/2007 EQUITY AND LIABILITIES (thousands of Euros) 31/12/2007 Non-current assets Equity Property, plant and equipment 444,782 Share capital 500,000Development expenditure 0 Other reserves 2,176,631

Other intangible assets with finite useful lives 0 Profit (loss) for the period 1,559,142

Investments in subsidiaries 0 Total Equity 4,235,772Other non-current financial assets 311 Non-current liabilities Deferred tax assets 58,009 Bank loans 0

Total non-current assets 503,102 Other non-current financial liabilities 0 Provisions for risks and charges 6,887 Defined benefit plans 81,604

Deferred tax liabilities 150,397

Total non-current liabilities 238,888Current assets Current liabilities Trade receivables 2,030,341 Bank overdrafts and short-term loans 0

Receivables from associated companies 70,135 Other current financial liabilities 0

Receivables from subsidiaries 289,136 Trade payables 1,199,653Inventories 2,242,246 Amounts owed to the parent company 747,319Other receivables and current assets 548,504 Payables to associated companies 316,756Current financial assets 0 Tax liabilities 7,174

Cash and cash equivalents 1,115,796 Other current liabilities 53,698

Total current assets 6,296,158 Total current liabilities 2,324,600

TOTAL ASSETS 6,799,260 TOTAL LIABILITIES AND EQUITY 6,799,260 The Financial Statements have been prepared state applying the cost method, except for those items classified under Other Current Financial Assets, which have been valued at fair value. The preparation of the financial statements in compliance with the IFRS requires judgments, estimates and assumptions that have an effect on the assets, liabilities, costs and revenues, and the final results may be different to those obtained through these estimates.


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8

C) ACCOUNTING POLICIES AND VALUATION CRITERIA ACCOUNTING POLICIES AND VALUATION CRITERIA As regards the IFRS that allow options in their application, we list below the main choices operated by the Company in the preparation of the reconciliation schedules.

• IAS 1 – Presentation of Financial Statements: for the Balance Sheet, current and non-current assets as well as current and non-current liabilities have been stated separately for the income statement, the costs are analysed according to their nature;

• IAS 2 – Inventories: the cost of the inventories is attributed by adopting the FIFO method; • IAS 16 – Property, Plant and Equipment: valuation subsequent to initial accounting recording is

performed using the cost method (cost model) after deduction of amortizations and impairment losses; • IAS 40 – Investment Property: after initial accounting recording, the valuation of real estate held for

investment purposes is performed using the cost method (cost model); the fair value of such investments is indicated in the notes to the Financial Statements.

• IAS 23 – Borrowing Costs: financial expenses, although attributable to the acquisition, construction or production of an asset, are recorded as a cost in the year in which they are incurred.

• IAS 27 – Investments in Subsidiaries: these are accounted for according to the cost criterion. The most important accounting policies and valuation criteria used in the preparation of the financial statements for the year to December 31st 2008 are set out below. CONVERSION OF ENTRIES INTO FOREIGN CURRENCY The functional and presentation currency adopted by Landi Renzo S.p.A. is the Euro (€). As required by IAS 21, transactions in foreign currency are initially recognised at the exchange rate in place on the date of the transaction. Monetary assets and liabilities in foreign currency are reconverted to the functional currency at the exchange rate in place on the closing date of the Financial Statements. Non-monetary items valued at historical cost in foreign currency are converted using the exchange rate in force on the initial date that the transaction was recognised. Non-monetary items recorded at fair value are converted using the exchange rate on the date that such value was determined. The exchange rate differences realised at the time of collecting from debtors and paying creditors in foreign currency are entered in the income statement. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at purchase or production cost including charges that are directly related and necessary for the assets start-up costs and, when relevant and in the presence of contractual obligations, the current value of the estimated cost for the dismantling and removal of such fixed assets. These assets are systematically depreciated on a straight-line basis according to their estimated useful life, using the following rates, which have not changed since the previous year, deemed consistent with their actual economic-technical use:

Categories Depreciation period Depreciation rates

Leasehold improvements – buildings

The lower between the residual economic usefulness of the improvement and the residual duration of the underlying contract 16.67- 20%

Plant and machinery Straight-line basis 10% Industrial and commercial equipment Straight-line basis 17.5 – 25%

Other assets Straight-line basis 12 – 20 – 25%


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9

The residual value and the useful life of a tangible asset are reviewed at least at the closing of each period. Land, because of its indefinite useful life, is not depreciated. The routine maintenance costs are charged entirely to the income statement. Maintenance costs having an incremental nature are attributed to the tangible assets to which they refer and amortised in relation to the remaining useful life of the assets or, if less, until the moments at which a subsequent extraordinary maintenance operation becomes necessary. The financial expenses directly attributable to the acquisition, construction or production of property, plant or equipment are recognised in the income statement at the moment at which they are incurred in accordance with the appropriate accounting treatment provided by IAS 23. The book value of the property, plant and equipment is subjected to verification in order to discover any possible losses in value, using the methods described in the paragraph “Impairment Losses”. At the moment of the sale or when no future economic benefits expected from the use of an asset exits, it is eliminated from the financial statements and any loss or profit (calculated as the difference between the sale value and the carrying value) is recognised in the income statement in the year of the aforementioned elimination. Capitalized costs for improvements on leased buildings are classified between “Buildings” items and depreciated at lower between remaining life of renting contract or remaining useful life of improvement. LEASING Financial leasing contracts are accounted for according to the provisions of IAS 17. This accounting treatment implies that:

• the cost of the assets that are the subject of the financial leasing is entered under property, plant and equipment and amortised on a straight line basis according to the estimated useful life; a financial debt to the lessor for an amount equal to the value of the leased asset is entered in a matching entry;

• the leasing fees are accounted for in such a way as to separate the financial element from the capital portion, to be considered as a repayment of the recorded debt to the lessor.

Those leasing contracts in which the lessor substantially maintains all the risks and benefits of ownership are classified as operational leasing and the corresponding fees are recorded in the income statement in constant instalments distributed according to the duration of the contract. DEVELOPMENT EXPENDITURE An intangible asset, generated in the development phase of an internal project, which satisfies the definition of development, as specified by IAS 38, is entered as an intangible asset if the following conditions are satisfied:

• it is likely that the company will enjoy future benefits attributable to the asset; • the cost of the asset can be reliably evaluated; • the technical feasibility of the product is demonstrated; • there is evidence of the company’s intention to complete the development project; • there is a reliable determination of the costs incurred for the project; • the recoverability of the values entered is demonstrated with the future economic benefits expected

from the result of the development project. No cost incurred in the research phase is recorded as an intangible asset. The amortisation period begins when the development phased is closed. The amortization of development expenditure is 3 years, on the basis of the estimated duration of the benefits associated with the product developed. OTHER INTANGIBLE FIXED ASSETS


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Other intangible assets with finite useful life, acquired or self-created, are capitalised when it is probable that the asset use will generate future economic benefits and its cost can be measured reliably. These assets are stated at purchase or development cost. Intangible assets with finite useful life are amortised on a straight-line basis over the estimated useful life as follows:

• Industrial patents and rights to use intellectual property: from 3 to 10 years • Software, licences and others: from 3 to 5 years; • Trademarks: 10 years.

Costs incurred subsequently relating to intangible assets are capitalized only if they increase the future economic benefits of the specific asset capitalized and they are amortised on the basis of the aforementioned criteria according to the assets to which they refer; otherwise they are recorded in the income statement when incurred. IMPAIRMENT LOSSES A tangible or intangible asset suffers a reduction in value if it is not possible to recover the book value at which said asset is stated in the financial statements is registered, through either use or sale. The aim of the test (impairment test) provided for by IAS 36 it is to assure that the tangible and intangible fixed assets are not entered at a value greater than their recoverable value, which is the greater of the net sale price and the value of use. The value of use is the current value of future financial flows that are expected to be generated by the asset or by the unit generating financial flows to which the asset belongs. The expected financial flows are discounted using a pre-tax discount rate that reflects the current estimate of the market of reference referring to the cost of the money in proportion to the time and risks specific to the asset. If the book value exceeds the recovery value, the assets or the units generating financial flows to which they belong are written down until they reflect the recovery value. Such losses are accounted for in the income statement. The impairment test is carried out when conditions occur inside or outside the company that suggest that the assets have suffered a reduction in value. In the case of the goodwill or other intangible assets with an indefinite useful life the impairment test is carried out at least annually. If the conditions that resulted in the loss of value cease to exist, the same value is restored proportionally on the previously devalued assets until it reaches, at most, the value that such goods would have had, net of amortisation calculated on the historical cost, in the absence of prior loss of value. Restorations of value are recognised in the income statement. The value of previously devalued goodwill is not restored, as provided for by the international accounting policies. INVESTMENTS Investments in subsidiary companies are evaluated using the cost method including directly related costs, adjusted according to impairment losses, in accordance with the provisions of IAS 27. Applying the cost method, the investor states the income deriving from the investment only to the extent to which dividends were decided by the subsidiary and on the condition that the profits distributed were generated after the acquisition date. FINANCIAL ASSETS Financial assets are initially measured at cost, which corresponds to their fair value increased by ancillary charges. After the initial recognition, assets held for trading are classified under current financial assets and measured at fair value; gains or losses from this measurement are taken to income statement. Assets possessed with the intention to keep them until expiry are classified among the current financial assets if the expiration is less than a year, and non-current if greater, and are subsequently valued with the principle of amortised cost. Consequently, the initial value is then adjusted to take into account repayments of principal, any


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write-downs and the amortisation of the difference between repayment amount and initial carrying value. Amortisation is made on the basis of the internal effective interest rate, represented by the interest rate that aligns, on initial recognition, the present value of expected cash flows and the initial value (so-called amortisation cost method). If there is objective evidence indicating impairment, the asset value is decreased to the discounted value of the future flows obtainable from it. Such losses are recognised in the income statement. If, in subsequent periods, the reasons for the preceding impairment losses no more exist, the asset value is increased to the amount that would have derived by applying the amortised cost without recognising the impairment loss. INVENTORIES Inventories of raw materials, components, semi-finished and finished products are stated at the lower of purchase or production cost, increased by ancillary charges, measured according to the FIFO method, and the estimated realisable value based on market trends. Obsolete and slow-moving items are written down in accordance with their possibility of use or realisation. More precisely, purchase cost was used for purchased products to be resold and for materials of direct or indirect use, purchased and consumed during the production cycle. Production cost was used, instead, for finished products and work in progress. To determine purchase cost, reference was made to the price actually paid, net of any commercial discounts. Cost of production includes, besides the cost of the materials used, as previously defined, directly and indirectly attributable manufacturing overheads. TRADE RECEIVABLES AND OTHER RECEIVABLES Receivables are initially recognised at fair value. The initial value is subsequently adjusted to take into account repayments of principal, any write-downs and the amortisation of the difference between repayment amount and initial value. Amortisation is made on the basis of the internal effective interest rate, represented by the interest rate that aligns, on initial recognition, the present value of expected cash flows and the initial value (so-called amortisation cost method). If there is objective evidence indicating impairment, the asset value is decreased to the discounted value of the future flows obtainable from it. Such losses are recognised in the income statement. If, in subsequent periods, the reasons for the preceding impairment losses no more exist, the asset value is increased to the amount that would have derived by applying the amortised cost without recognising the impairment loss. Provision for bad debts, set up in order to measure receivables at the lower of their realisation value, includes impairment losses recognised to take account of objective indications that trade receivables are impaired. Impairment losses, which are based on the most recent information available and management's best estimate, are recognised in such a way as to decrease impaired assets to the present value of future cash flows obtainable from them. The provision for bad debts is classified in the reduction of the item “Trade receivables”. Allocations made to the provision for bad debts are classified in the Income Statement under the item “Accruals, impairment losses and other operating expenses”; the same classification was used for any utilizations and for write-downs of trade receivables. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes principally cash, bank deposits repayable on demand and other short-term investments that are highly convertible (convertible into cash and cash equivalents within ninety days). These items are measured at fair value and the related changes are taken to Income Statement. Current account overdraft, if utilised, is shown among the “Short-term financial liabilities”. For the purposes representing cash flows for the period, when completing the Cash Flow Statement, short term bank debts are represented among the cash flows of the financing activities, since they are for the most part attributable to bank advances and short term bank loans. SHARE CAPITAL AND OTHER EQUITY ITEMS


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The share capital is made up of the ordinary shares in circulation. The costs relating to the issue of new shares or options are classified in Equity (net of the associated tax benefit) as a deduction of the income deriving from the issue of such instruments. As provided by IAS 32, if equity instruments are repurchased, such instruments (treasury shares) are recognised as a deduction from Equity under the item Other Reserves. Gains or losses are not recognised in the income statement when treasury shares are purchased, sold or cancelled. The consideration paid or received, including any cost directly incurred and attributable to the capital transaction, net of any related tax benefit, is directly recognised as an Equity movement. PROVISIONS FOR RISKS AND CHARGES Provisions for risks and charges are set up to face present, legal or implicit, obligations deriving from past events, for which a reliable estimate of the amount required to settle the obligation can be made at the balance sheet date. If a liability is regarded as just potential, no allocation to provisions for risk and charges is made and proper information is provided in the notes to the financial statements. When the time value of money is material and the date of cash outflows associated with the obligation can be reliably determined, the estimated cost is discounted to present value using a rate reflecting the cost of money and the specific risks connected to the liability. After discounting, the increase in the provision due to the passage of time is recognised as an interest expense. DEFINED BENEFIT PLANS The defined benefit plans for employees essentially include TFR (employee severance indemnities). They fall under the post-employment benefit plans classified as "defined benefit plans" and are valued in accordance with IAS 19 by independent actuaries, using the projected unit funding method. This calculation consists in estimating the amount of benefit that an employee will receive at the expected retirement date using demographic assumptions (as, for example, death rate and personnel turnover rate) and financial assumptions (as, for example, discount rate and future salary increases). The amount so determined is discounted to present value and re-proportioned based on the accrued length of service compared to the total length of service and represents a reasonable estimate of the benefits that each employee has already accrued because of his/her service. The actuarial gains and losses deriving from the related calculation are taken to Income Statement as revenue or expense when the cumulative net amount of the unrecognised actuarial gains and losses for each plan at the end of the previous year exceeds the higher of the obligations for the defined benefit plans and fair value of plan assets at that date by more than 10% (the so-called corridor approach). Regarding the TFR fund, recognised as a “defined benefit plan” until December 31st 2006, Law no.296 of December 27th 2006 and the subsequent Decrees and Regulations issued in the course of 2007 introduced, as part of the reform of the social security system, significant changes regarding allocation of TFR contributions that are to mature. In particular, new TFR flows can be directed by the worker to forms of pension supplements or be kept within the company (in the case of companies with less than 50 employees) or transferred to the INPS (in the case of companies with more than 50 employees). On the basis of such regulations, the company, also on the basis of the generally accepted interpretation, has decided that:

• For TFR contributions matured on December 31st 2006 (and not yet liquidated to the date of the Financial Statements), the fund in question constitutes a defined benefit plan, to be evaluated according to the actuarial rules no longer including, however, the element relating to future pay increases.

• For subsequent TFR contributions, whether in the case of opting for the complementary social security or in the case of allocation to the INPS Treasury Fund, the nature of the contributions is based on the


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case of defined contribution plans, with the exclusion of actuarial estimate elements, in determining the associated cost.

TRADE PAYABLES Trade payables are stated at the fair value of the initial consideration received in exchange and subsequently measured at amortized cost, using the effective interest method. Trade payables with due dates that fall under normal sales terms are not discounted at present value. FINANCIAL LIABILITIES Financial liabilities are initially recognised at cost, equal to the fair value of the liabilities net of the transaction costs which are directly related to their issue. Financial liabilities are subsequently measured at amortised cost, using the effective interest method. RECOGNIZING REVENUES Revenues are recognized to the extent that it is probable that the economic benefits are achieved and the relative amount can be reliably determined. Revenues and income are entered in the financial statements net of returns, allowances, discounts and premiums, as well as the taxes directly connected with the sale of products or performance of services. Revenues are recorded in the income statement only if it is likely that the company will benefit from the cash flows associated with the transaction. Revenues from the sale of the products are recognized when the risks and benefits connected with ownership of the assets are transferred to the purchaser; this moment generally coincides with the shipment date. Revenues from services rendered (technical consultancy services rendered to third parties) are accounted for in the income statement on the basis of the percentage of completion at the balance sheet date. GRANTS Grants from public and private bodies are recognised at fair value when it is reasonably certain that they will be received and the conditions for their receipt will be met. Grants related to income (provided as immediate financial assistance to an entity or to cover expenses and losses incurred in a previous year) are fully recognised in Income Statement when the above-mentioned conditions for their recognition are met. No capital contributions were obtained in the year in question. COSTS Costs are recognised in so far as it is possible to reliably determine that economic benefits will flow to the company. Costs for services are recognized for the year in question according to the moment that they are received. For accounting purposes, leases and hire contracts are classified as operating if:

• the lessor retains a significant share of the risks and the benefits associated with the property, • there are no purchase options at prices that do not reflect the presumable market value of the rented

asset at the end of the period, • the duration of the contract does not represent the greater part of the useful life of the leased or hired

asset. The related charges are taken to Income statement on a straight line basis distributed according to the duration of the underlying contracts. DIVIDENDS


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Dividends payable by the Company are shown as changes in equity in the year in which they are approved by the shareholders. The dividends to be received by the Company are recognized in the income statement on the date on which the right to receive them matures. FINANCIAL INCOME AND CHARGES Financial income and charges are recognised on an accrual basis on the basis of the interest accrued on the net value of the related financial assets and liabilities using the effective interest method, as set forth by paragraph 9 of IAS 39. TAXES Income taxes include current and deferred taxes. Income taxes are generally taken to income statement, save when they refer to items directly accounted for in equity. In this case also income taxes are directly taken to equity. Current taxes are those expected to be paid and calculated by applying the rate applicable at the balance sheet date to the taxable income for the year. Deferred taxes are calculated using the so-called liability method n the temporary differences between the carrying amount of assets and liabilities in the financial statements and their corresponding tax values. Deferred taxes are calculated on the basis of the tax rate that is expected to be in force when the asset is realised or the liability is settled. Deferred tax assets are recognised only when it is probable the generation in future years of taxable profits sufficient to realise these assets. Deferred tax assets and liabilities are offset only for homogeneous expiry dates, when there is a legal right to offset and when they refer to recoverable taxes due by the same tax authority. With effect from the tax year 2008, decided not to renew membership of the National Consolidated Tax pursuant to articles 117 to 129 of the TUIR (consolidated law on income tax) for which the consolidator in the three year period from 2005 to 2007 was the ultimate parent company Girefin S.p.A. EARNINGS PER SHARE The “base” earnings per share are calculated by relating the net profit of the Group to the weighted average number of ordinary shares in circulation in the period. COMMUNICATION ON FINANCIAL INSTRUMENTS In accordance with the provisions of Accounting Principle IFRS 7, supplementary information is supplied on the financial instruments in order to evaluate:

• The impact of the financial instruments on the capital-financial situation, on the economic result and on the financial flows of the company;

• the nature and size of the risks deriving from financial instruments to which the company is exposed, as well as the methodologies with which such risks are managed.

USE OF ESTIMATES The preparation of Financial Statements in accordance with the IFRS (International Financial Reporting Standards) requires the directors to apply accounting standards and methods that are sometimes based on difficult and subjective assessments and estimates based, in turn, on past experience and assumptions that are considered reasonable and realistic given the circumstances. Application of these estimates and assumptions affects the amounts presented in the balance sheet, income statement and cash flow statement and disclosures. The final results of the balance sheet items for which the above-mentioned estimates and assumptions were used may differ from those reported in the financial statements because of the uncertainty that characterizes the assumptions and conditions on which the estimates are based. The balance sheet items that most require greater


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subjectivity on the part of the directors in producing the estimates and for which a change in the conditions underlying the assumptions used can have a significant impact on the financial statements are listed below:

• Depreciation of fixed assets; • Development expenditure; • Deferred tax assets and deferred tax liabilities; • Provisions for bad debts and obsolete inventories; • Employee benefits; • Provision for risks and charges

Estimates are used in recognising goodwill, impairment of non current assets, development expenditure, taxes, provisions for bad debts and inventories, employee benefits and other accruals and provisions. MOST IMPORTANT ACCOUNTING POLICIES THAT REQUIRE A GREATER DEGREE OF SUBJECTIVITY A description is provided below of the most significant accounting policies that require, more than the others, greater subjectivity on the part of the directors in producing the estimates and for which a change in the conditions underlying the assumption used may have a significant impact on the re-stated aggregate financial data. Evaluation of receivables Trade receivables are adjusted with the relevant depreciation fund in order to take account of their effective recoverable value. The determination of the amount of depreciation carried out requires the directors to make subjective evaluations based on the documentation and on the information available also in relation to the solvency of the customer, as well as on experience and the historical trends. Evaluation of goodwill and the intangible assets in progress In accordance with the accounting policies applied by the Group, goodwill and the intangible assets in progress are subjected to annual verification (impairment test) in order to assess whether they have suffered a reduction in value, which is established by means of an impairment test, when the accounting net value of the unit generating the cash flow to which these items are allocated appears to be greater than its recoverable value (defined as the greater value between the value of use and the fair value of the same). The above mentioned value confirmation check requires the directors to make subjective evaluations based on the information available within the Group and from the market, as well as from historical experience. In addition, whenever it is established that a potential reduction in value could be generated, the Group proceeds to determination said reduction using those evaluation techniques considered suitable. The same value tests and evaluation techniques are applied to the intangible and tangible assets with a defined useful life when indicators exist that predict difficulties in recovering the corresponding net book value. The correct identification of elements indicative of the existence of a potential reduction in value as well as the estimates for determination the reduction depend on factors that can vary over time, influencing the evaluations and estimates made by the directors. Provisions for risks Establishing whether or not a current obligation (legal or implied) exists is in some cases difficult to determine. The directors assess such phenomena on a case by case basis, together with an estimate of the amount of the economic resources required in order to meet that obligation. When the directors consider that is merely possible that liabilities may arise, the risks are indicated in the appropriate information section on commitments and risks, without resulting in an actual allocation. Evaluation of closing inventories Closing inventories of products with characteristics of obsolescence or slow turnaround are periodically subjected to evaluation tests and written down where the recoverable value thereof is less than the book value. The write-downs carried out are based on assumptions and estimates of management, deriving from its experience and the historical results achieved.


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Evaluation of deferred tax assets The evaluation of deferred tax assets is made on the basis of the taxable income expected in future years and expected future taxes. The measurement of such expected profits depends on factors that may change in time and have a significant impact on the valuation of deferred tax assets. Transactions with related parties The company deals with related and controlled parties at market conditions considered to be normal in the markets in question, taking account of the characteristics of the goods and the services supplied and received. ACCOUNTING POLICIES, AMENDMENTS AND INTERPRETATIONS NOT YET APPLICABLE AND NOT YET ADOPTED IN ADVANCE BY THE GROUP Over the last few months, the IASB (International Standard Accounting Board) and IFRIC (International Financial Reporting Interpretation Committee) have published new Principles and Interpretations, some of which have not yet been approved by the community legislator or have been approved but will be applicable starting from years subsequent to 31st December 2008:

- revision of IAS 1 – Presentation of Financial Statements; - update to IFRS 3 – Business Combinations; - amendment to IAS 27 – Consolidated and Separate Financial Statements; - revision of IAS 23 – Borrowing Costs; - interpretation IFRIC 14 on IAS 19 – Activities for Defined Benefit Plans and Minimum Criteria for

Cover; - IFRIC 11 – Transactions with Treasury Shares and Group Shares.

Note, finally, that the following accounting principles, amendments and interpretations have been issued which govern scenarios and cases that do not exist inside the Group:

- IFRIC 12 – Licensed Service Contracts; - IFRIC 13 – Customer Loyalty Plans; - IFRC 15 – Contracts for the Construction of Immovable Assets; - IFRC 16 – Cover of an Investment in a Foreign Company; - IFRC 17 – Distribution of Dividends in Assets other than Money to the Owners of Capital; - IFRS 2 – Remuneration Instruments based on Shares: Conditions for Maturity and Cancellation; - IAS 32 – Financial Instruments: Presentation and IAS 1 – Presentation of Financial Statements: Financial

Instruments with Option to Sell and Bonds in the event of Liquidation. RISK ANALYSIS In accordance with the requirements of Accounting Principle IFRS 7, the following analysis is provided regarding the nature and extent of risks deriving from financial instruments to which the company is exposed, as well as the methodologies with which such risks are managed. The main risks are reported and discussed at the Top Management level of the company in order to create the prerequisites for their cover, insurance and for the assessment of the residual risk. Interest rate risk Landi Renzo is exposed to the interest rate risk associated with both cash at hand and with medium to long term financing. The exposure refers mainly to the Euro zone. As regards exposure to the risk of interest rate volatility, note that the financial indebtedness is regulated primarily by variable interest rates. Therefore, the financial management of the company remains exposed to fluctuations in interest rates, not having, at the date of the present financial statements, subscribed to instruments covering the variability of the interest rates on loans contracted with the banks.


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Interest rate risks were measured using sensitivity analysis and the potential impacts of Euribor interest rate fluctuations on the financial statements at December 31st 2008 were analysed with particular reference to cash and cash equivalents and to financing. The increase of 50 basis points on the Euribor, like all the other variables, would have produced an increase in financial costs for the company of € 46 thousand in comparison to an increase of financial income equal to € 209 thousand. It can be logically assumed that a decrease of 50 basis points will produce the same effect, but with the opposite sign, both on financial costs and financial income. Exchange risk The company sells part of its production and, although to much lesser degree, also purchases some components also in Countries outside the Euro zone. In relation to the exchange risk, note that the amount of equity balances expressed in currency other than the functional currency is to be considered as insignificant. The company has not subscribed to instruments to cover exchange rate fluctuations and, in accordance with the company's policy up to this moment this moment, no derivatives are subscribed solely for trading purposes. Credit risk The company does not have a significant concentration of credit risk and only deals with well-known and reliable customers. It is company policy to subject customers requesting extended payment conditions to procedures for checking their credit class. In addition, the balance of the receivables is monitored on a fortnightly basis over the period, in order to minimize exposure to the risk of losses. Finally, regarding the new customers and those not operating in EU countries, a letter of credit to guarantee successful collection is normally used. As of March 2008 the Company has subscribed an insurance policy on foreign receivables not covered by credit letter. The credit risk regarding other financial assets, including cash and cash equivalents, presents a maximum risk equal to the book value of these assets in the case of insolvency of the counterpart. Liquidity risk The company manages the liquidity risk by maintaining an adequate level of available financial resources and bank credit granted by the main credit institutions, in order to satisfy the finance requirements of the operational activity.


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D) EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS 1. SEGMENT REPORTING Please refer, as provided for by IAS 14 paragraph 6, to the analysis provided in the consolidated financial statements. NON-CURRENT ASSETS 2. PROPERTY, PLANT AND EQUIPMENT Net property, plant and equipment shows a net increase of € 2,763 thousand, up from € 4,356 thousand at December 31st 2007 to € 7,119 thousand at December 31st 2008, with a contribution of assets from the absorbed company Landi S.r.l. equal to € 448 thousand. The following is an analysis of changes in the historical costs of property, plant and equipment during the period (thousands of Euros):

Property, plant and equipment HISTORICAL COST 31/12/07

Increase due to

merger of Landi S.r.l.

Acquisitions (Disposals) Other changes 31/12/08

Land and buildings 0 228 0 0 0 228

Plant and machinery 1,343 119 797 0 9 2,267

Production and commercial equipment 7,496 1,034 1,998 -4 22 10,545

Other tangible assets 3,132 337 780 -467 0 3,783

Intangible assets in progress and payments on account 30 0 588 -161 -30 427

Total 12,002 1,717 4,163 -632 0 17,250

The following is an analysis of changes in provisions for depreciation of property, plant and equipment during the period (thousands of Euros):

DEPRECIATION FUNDS 31/12/07 Increase due to merger of Landi S.r.l

Depreciation rates (Disposals)

Other

changes

31/12/08

Land and buildings 0 92 30 0 0 122

Plant and machinery 712 55 160 0 0 927

Production and commercial equipment 5,183 879 961 0 0 7,023

Other tangible assets 1,751 243 528 -463 0 2,060

Intangible assets in progress and payments on account 0 0 0 0 0 0

Total 7,646 1,269 1,679 -463 0 10,131

The following is the overall analysis of changes of net property, plant and equipment during the period (thousands of Euros):

NET VALUE 31/12/07

Increase due to merger

of Landi S.r.l.

Acquisitions (Disposals) (Depreciation

and impairment

losses)

Other changes 31/12/08

Land and buildings 0 136 0 0 -30 0 106

Plant and machinery 631 63 797 0 -160 9 1,341

Production and commercial equipment 2,314 154 1,998 -4 -961 22 3,522


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Other tangible assets 1,381 94 780 -4 -528 0 1,723

Intangible assets in progress and payments on account 30 0 588 -161 0 -30 427

Net value - Total 4,356 448 4,163 -169 -1,679 0 7,119 The item Plant and Machinery includes machinery used for production owned by the company. The item Industrial and Commercial Equipment includes moulds, testing tools and control tools. The item Other Tangible Assets is made up mostly of electronic processors, motor vehicles, internal transport vehicles and furnishings. The main increases in property, plant and equipment during the period in question relate to:

• Purchases of generic and specific plant and machinery for € 797 thousand • Purchase of moulds and templates for € 906 thousand • Purchase of test and control tools for € 935 thousand • Purchase of electronic office machines for € 384 thousand

The decreases related to the disposals and in particular to test benches for the systems and to the elimination of obsolete electronic machines. 3. DEVELOPMENT EXPENDITURE The following is an analysis of changes in development expenditure during the period (thousands of Euros):

Development expenditure 31/12/07 Acquisitions Decreases Other changes (Amortisation) 31/12/08

Development expenditure 1,844 1,828 0 0 -761 2,911

Development expenditure, equal to € 2,911 thousand (€ 1,844 thousand at December 31st 2007), includes the costs incurred by the Parent company both for internal personnel expenses and costs for services rendered by third parties for projects having the requirements specified by IAS 38 in order to be recognised in net assets. In particular, projects capitalized during the year 2008 refer to innovative projects, not available previously, aimed at new market segments, capable of expanding and optimizing the product range, the value of which will be recovered through revenue flows generated in future years, such as: • design and development of innovative applications of gas control units with a sequential gas injection

system: LC02 control unit; • design and prototyping activities for LPG conversion kits for petrol powered vehicles directly at the end of

the production line; • design and prototyping activities for CNG conversion kits for petrol powered vehicles, in the Asian and

South American markets. It is expect that new product development activities will continue during the year 2009. 4. OTHER INTANGIBLE ASSETS WITH FINITE USEFUL LIVES

Other intangible assets with finite useful lives 31/12/07 Acquisitions Decreases Other changes (Amortisation) 31/12/08

Patents and intellectual property rights 728 598 0 93 -649 770

Concessions and trademarks 9 6 0 0 -3 12

Intangible assets in progress and payments on account 180 18 0 -93 0 104

Total 918 621 0 0 -652 887 This item, equal to € 887 thousand at December 31st 2008 (€ 918 thousand at December 31st 2007), essentially includes, under intellectual property rights, the purchase of licences for managerial applications.


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The item Intangible assets in progress and payments on account, equal to € 104 thousand (€ 180 thousand at December 31st 2007), refers mainly to the advance payments made in order to obtain or extend trademarks and patents. 5. INVESTMENTS IN SUBSIDIARIES

Investments in subsidiaries 31/12/07 Increases Decreases Landi S.r.l. merger

Impairment losses 31/12/07

Equity investments 7,230 58,462 -371 0 65,321 The following are the changes in equity investments :

Thousands of Euro Initial value Increases Landi S.r.l. merger Final value Investment

Landi S.r.l. 371 -371 0

Med S.p.A. 2,003 2,003 100.00%

LR Industria e Comercio Ltda 2,143 2,143 96.00%

Landi International B.V. 18 18 100.00%

Beijing Landi Renzo Autogas System Co. Ltd 2,057 2,057 100.00%

L.R. Pak (Pvt) Limited 638 638 70.00%

Landi Renzo Pars Private Joint Stock Company 0 231 231 100.00%

Lovato Gas S.p.A. 0 58,231 58,231 100.00%

Total equity investments 7,230 58,462 -371 65,321

At the bottom of these Explanatory Notes there is a specific table summarising the companies in which an investment is held which contains the information required by the Italian Civil Code. The negative difference between book value and corresponding Equity of the Iranian subsidiary LR Pars is due to the loss of the period, equal to Euro 468 thousands, considered as no durable because the Company is in a start up phase. The company started during second half of 2008 with sales started in last quarter of 2009. Considering budget for 2009 as well as sales portfolio for first months of 2009, the Management considers totally recoverable the book value of the subsidiary. The following changes occurred during the period in question:

• On January 5th 2008, the company Landi Renzo Pars Private Joint Stock Company was entered into the Companies' Register of Teheran (Iran). It will manufacture and sell CNG systems in Iran, in particular to the OEM channel. At the same time, Landi Renzo Spa paid up the quota of recalled share capital.

• On 1st April 2008 the merger of Landi S.r.l. into Landi Renzo S.p.A. was registered in the Companies' Register of Reggio Emilia.

• On 13th October 2008 the purchase of 100% shares of Lovato Gas S.p.A. was completed.; the cost paid cash has been equal to € 58,231 thousands. The book value of the Company includes Euro 1,561 thousands for due diligence consulting and success fees as well as Euro 49,000 thousands of Goodwill considered totally recoverable. This goodwill was submitted to the impairment test at the end of the period in which the transaction took place (31st December 2008).

6. OTHER NON-CURRENT FINANCIAL ASSETS Other non-current financial assets 31/12/08 31/12/07 Change


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21

Loan to Landi Renzo Pars 600 0 600

Investments in other companies 1 0 1

Total loans to subsidiaries 601 0 601 At December 31st 2008 the other non-current financial assets amounted to € 601 thousand and relate primarily to a medium-term loan (fixed rate) granted to the company Landi Renzo Pars at market rates expiring end December 2013. 7. DEFERRED TAX ASSETS

Deferred tax assets 31/12/08 31/12/07 Change

Deferred tax assets 1,171 1,191 -20 At December 31st 2008 the prepaid tax credits, equal to € 1,171 thousand (€ 1,191 thousand at December 31st 2007), relate primarily to temporary differences deriving from provisions entered by the company. The following are the main elements that make up the prepaid tax credits and the breakdown thereof at the end of the current and previous years (thousands of Euros):

31-Dec-08 31-Dec-07

Deferred tax assets Amount Tax rate Deferred tax

assets Amount Tax rate Deferred tax

assets

Provision for inventories 970 31.40% 305 800 31.40% 251

Provision for investment and securities 19 27.50% 5 18 27.50% 5

Provision for product warranties 177 27.50% 49 27.50%

Entertainment expenses 127 31.40% 40 202 31.40% 63

Provision for agents’ termination indemnities 73 31.40% 23 63 31.40% 20

Non deductible amortisation 187 31.40% 59 135 31.40% 42

Loss on exchange rates from valuation 160 27.50% 44 11 27.50% 3

Other deferred deductibility costs 204 27.50% 56 65 31.40% 18

Floatation costs 1882 31.40% 591 2,510 31.40% 788

Total deferred tax assets 1,171 1,191 Note that utilization of the deferred tax assets in the year is classified under current taxes in the income statement. CURRENT ASSETS 8. TRADE RECEIVABLES INCLUDING RECEIVABLES FROM RELATED PARTIES The trade receivables, stated net of the related depreciation fund, are broken down as follows, in reference to the geographical areas (thousands of Euros):

Trade receivables per geographical area 31/12/2008 31/12/2007 Change

Italy 15,963 7,259 8,704Europe (excluding Italy) 6,210 3,552 2,658South-west Asia 13,026 15,647 -2,621Americas 458 202 256


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Rest of the World 4,566 2,419 2,147Provision for bad debts -393 -227 -166Total 39,829 28,852 10,977 Trade receivables at December 31st 2008 amount to € 39,829 thousand, net of the Provision for bad debts equal to € 393 thousand. Note that there are no non-current trade receivables or receivables secured by collateral guarantees. The provision for bad debts changed as follows:

Provision for bad debts 31/12/2007 Provision Utilization Landi S.r.l. merger 31/12/2007

Provision for bad debts 227 156 0 10 393 The allocations made during the period, equal to € 156 thousand, are in order to adjust the receivables to their assumed recovery value. In accordance with the requirements of Accounting Principle IFR7, the following table provides information on the maximum credit risk divided by expiry classes, gross of the Provision for Bad Debts:

Aging table of trade receivables 2008 Total Not past due Past due

(thousands of Euros) 0-30 days 30-60 days 60 and aboveReceivables at 31/12/2008 (gross of Provision) 40,222 26,749 1,783 1,176 10,514 It is considered that the book value of the Trade receivables approximates their fair value. The amount ”Past due 60 days and above” includes trade receivables in the Asian area for € 9,567 thousand. The controls performed by the company on these customers did not reveal any solvency risks. 9. TRADE RECEIVABLES - RELATED PARTIES The receivables from related parties, which amount to € 586 thousand, refer to amounts owed to the Pakistani related company Auto Fuels (company held 100% by a minority shareholder (at 15%) of LR Pak and which operates in the Pakistani market in the After Market channel). For a breakdown of receivables from related parties, see the relevant table in the final notes to this document. 10. RECEIVABLES FROM SUBSIDIARIES Receivables from subsidiaries amount to € 13,828 thousand at the end of the period compared with to € 11,586 thousand for the previous year. For a breakdown, see the appropriate final chapter relating to “Other information”. 11. INVENTORIES This item can be broken down as follows (thousands of Euros):

Inventories 31/12/2008 31/12/2007 Change Raw materials and parts 17,365 10,631 6,734Work in progress and semi-finished products 6,803 4,294 2,509Finished products 13,012 4,678 8,333(Provision for inventories) -970 -800 -170Total 36,210 18,804 17,407


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The table shows an increase in inventories equal to € 17,407 thousand compared to 31st December 2007 and this is due primarily to the requirements of the Company to adequately support the strong trend of growth in demand and the increase in market shares. The company estimated the size of the provision for inventories so as to take account of the risks of technical obsolescence of inventories and to align the book value with their assumed recovery value. At December 31st 2008 this item, equal to € 970 thousand was increased by € 170 thousand as a result of the merger with Landi S.r.l..

Provision for inventories 31/12/2007 Provision Utilization Landi S.r.l. merger 31/12/2008

Raw materials and parts 600 0 0 130 730Work in progress 60 0 0 0 60Finished products 140 0 0 40 180Provision for inventories - total 800 0 0 170 970

12. OTHER RECEIVABLES AND CURRENT ASSETS This item can be broken down as follows (thousands of Euros):

Other receivables and current assets 31/12/2008 31/12/2007 Change Tax assets 1,835 3,959 -2,124Amounts due from others 484 258 226Accruals and deferrals 600 338 262Total 2,919 4,555 -1,636 Tax assets Tax assets consist of VAT recoverable from the tax authorities. Amounts due from others At December 31st 2008 they refer to payments on account granted, credit notes to be received and other receivables. Deferrals This item includes primarily prepaid insurance premiums, rental, membership contributions, and for hardware and software maintenance fees paid in advance. 13. CURRENT FINANCIAL ASSETS This item can be broken down as follows (thousands of Euros):

Current financial assets 31/12/2008 31/12/2007 Change Investment in Deutsche Telekom 156 205 -48Loan to Lovato Gas S.p.A. 6,000 0 6,000Total 6,156 205 5,952 At December 31st 2008 the other current financial assets amounted to € 6,156 thousand and relate primarily to a short-term loan granted to the company Lovato Gas S.p.A. at market rates. The item also includes the investment in Deutsche Telekom, an asset held for trading and entered for € 156 thousand, corresponding to a valuation on the basis of the value of the stock market quotation at the end of the year. The decrease, equal to € 48 thousands, was recognized in the Income statement under the item “Accruals, impairment losses and other operating expenses”.


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14. CASH AND CASH EQUIVALENTS This item, consisting of the active balances of bank current accounts and cash in hand in both Euros and foreign currency, can be broken down as follows (thousands of Euros):

Cash and cash equivalents 31/12/2008 31/12/2007 Change

Bank and post office accounts 22,762 50,811 -28,049Cash in hand 5 12 -7Total 22,767 50,823 -28,056 Cash and cash equivalents at December 31st 2008 amount to € 22,767 thousand (€ 50,823 thousand at December 31st 2007), showing a decrease of € 28,056 thousand due primarily to the purchase of the company Lovato Gas S.p.A. The rate of interest on the bank deposits during the year was on average the Euribor reduced by the spread granted to the Group by the main Credit Institutions. For an analysis relating to the generation and absorption of cash during the year, please refer to the cash flow statement. The values stated can be promptly converted into cash and are subject to an insignificant risk of change in value. It is considered that the carrying value of Cash and cash equivalents is aligned with their fair value at the balance sheet date. The credit risk related to Cash and cash equivalents is limited since the deposits are split over primary national and international banking institutions. 15. EQUITY The following table provides a breakdown of the items of equity (in thousands of Euros): Equity 31/12/08 31/12/07 Change

Share capital 11,250 11,250 0

Other reserves 75,351 64,506 10,844

Profit (loss) for the period 20,248 13,167 7,081

Total Equity 106,849 88,923 17,926 The share capital stated in the Financial Statements for the year at December 31st 2008 represents the share capital issued and fully subscribed and paid-up. The nominal share capital at December 31st 2008 is equal to € 11,250 thousand divided into a total of 112,500,000 shares, with a nominal value equal to € 0.10. The other reserves can be broken down as follows: Other reserves 31/12/08 31/12/07 Change

Legal reserve 1,158 500 658

Other reserves 27,594 17,409 10,186

Share premium reserve 46,598 46,598 0

Total Equity 75,351 64,506 10,844


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The Extraordinary Reserves and other reserves increased overall by € 10,186 thousand and include the profits achieved by the company in the previous year reduced by utilization for allocation to the legal reserve and for the distribution of dividends as well as the merger goodwill surplus in the merger operation with the company Landi S.r.l. for € 3,865 thousand. Pursuant to article 2426 of the Italian Civil Code, point 5, equity is not available for the value of development expenditure still to be amortised and from the profits on exchange rates from valuation which at December 31st 2008 amount overall to € 2,924 thousand. The following table provides an analysis of the individual Equity items, distinguishing them according to origin, availability and their utilization the three previous years.

Nature and description Amount Possibility of utilization (*) Portion available

Summary of utilizations carried out in the three previous

years Share capital 11,250 - Reserves Share premium (****) 46,598 A,B,C 46,598 Legal reserve 1,158 B Extraordinary reserve 23,419 A,B,C 23,419 (***) 11,187 FTA reserve 310 A,B,C 310 Landi S.r.l. merger goodwill surplus 3,865 A,B,C 3,865 Profit for the year 2008 20,248 A,B,C 20,248 Total 106,849 94,440 Non-distributable share (**) 2,924 Residual distributable share 91,516 (*) Possibility of utilization : A - for increase in share capital B - for covering losses C - for distribution to shareholders (**) Non-amortised development expenditure and profits on exchange rates from valuation (***) for distribution of dividends (****) fully available for increase in share capital and to cover losses. For other utilizations the legal reserve must be brought up to one fifth of the share capital. NON-CURRENT LIABILITIES 16. BANK LOANS Bank loans 31/12/2008 31/12/2007 Change Loans and financing 24,876 1,190 23,686 This item includes medium/long term portion of the bank debts for loans and financing. Note that financing is not secured by guarantees. The following table provides a breakdown of medium-long term finance and the corresponding interest rates (thousands of Euros):

Type Lender Due date Rate Balance at 31/12/2008

Non-current portion

Bank loan Credem 31/12/2013 Euribor 6m + 0.70% 14,947 12,179Bank loan Abaxbank S.p.A. 31/12/2013 Euribor 6m + 0.70% 14,947 12,179Bank loan Banca Intesa 30/09/2010 Euribor 3m + 0.60% 1,190 518

TOTAL 31,084 24,876 It is considered that the carrying value of bank loans is aligned with their fair value at the balance sheet date. At December 31st 2008 the Company had the following lines of credit available and not used:


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Line of credit (thousands of Euros) 2008

Cash facility 2,000 Facility for various uses 44,495Unsecured finance and loans 7,750Total 54,245 17. OTHER NON-CURRENT FINANCIAL ASSETS Other non-current financial liabilities 31/12/2008 31/12/2007 Change Payables to other financial backers 117 138 -21 At December 31st 2008 this item includes only the long term portions, equal to € 117 thousand, of the facilitated loans obtained from the Italian Trade and Industry Department on the basis of specific regulations. It is considered that the carrying value of bank loans is aligned with their fair value at the balance sheet date. 18. PROVISIONS FOR RISKS AND CHARGES These provisions can be broken down as follows (thousands of Euros):

Provisions for risks and charges 31/12/2007 Provision Utilization Landi S.r.l.

merger 31/12/2008 Provision for pensions and similar obligations 20 3 0 7 30Provision for product warranty risks 0 177 0 0 177Total 20 180 0 7 207 The provisions for risks are made up of the provision for pensions, relating to the provision matured for agents' termination indemnities, and the provision for product warranty risks. The item Provision for Product Warranties includes the best estimate for commitments that the Company has taken on under contract or the Law, in relation to the expenses connected with providing product guarantees for a fixed period of time starting from the sale thereof to the end customer. This estimate was calculated referring to the experience of the Company and specific contractual content. The provision was recognized in the Income statement under the item “Accruals, impairment losses and other operating expenses”. 19. DEFINED BENEFIT PLANS The following is the overall change in defined benefit plans for employees (thousands of Euros): Defined benefit plans 31/12/2007 Provision Utilization Landi S.r.l.

merger 31/12/2008

Employee termination indemnities 1,280 93 -64 77 1,386

The TFR (employee termination indemnities) flows for 2008, equal to € 93 thousand, refer both to the employees who have joined supplementary sector funds, and to those who have decided to keep them with the company (for companies with less than 50 employees), and, lastly, to those who have chosen to allocate TFR to the Treasury Fund set up by the INPS (for companies with more of 50 employees). The utilizations, at € 64 thousand, refer to the amounts liquidated to employees who have stopped working. The main economic-financial assumptions used by the actuary charged with the estimates are:


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Actuarial assumptions used for evaluations 31/12/2008 Demographic table SIMF99

Discounting rate (euro Swap) Curve of Government rates at 31.12.2008 Probability of request for advance 3% Expected % of employees who will resign before pension 5% Maximum % of TFR requested in advance 70% Annual cost of living increase rate 2009 2.60%; 2010 2.40%;2011 2.20%; from 2012 2%

20. DEFERRED TAX LIABILITIES Deferred tax liabilities 31/12/2007 31/12/2007 Change Provision for taxation, including deferred 734 1,457 -723 At December 31st 2008 deferred tax liabilities amount to € 734 thousand (€ 1,457 thousand at December 31st 2007) with a decrease equal to € 723 thousand, and are primarily related to temporary differences between the book values of certain tangible and intangible assets and the values recognized for tax purposes. Note that the utilisation of deferred tax liabilities within the year is classified under current taxes in the Income statement. The following are the main elements that make up the deferred tax liabilities (in thousands of Euros): 31-Dec-08 31-Dec-07

Deferred tax liabilities Amount Tax rate Deferred

taxes Amount Tax rate Deferred

taxes

Tax depreciation 31.40% - 1,810 31.40% 568

Leasing 179 31.40% 56 37 31.40% 12

Profits on exchange rates from valuation 2 27.50% 1 62 27.50% 17

Capitalization of development expenditure 1083 31.40% 340 1,844 27.5%-37.25% 614

TFR fund actuarial calculation 198 27.50% 54 240 27.50% 66

Estimated tax to be paid 283 180

Total deferred tax liabilities 734 1,457 For the analysis of deferred tax liabilities over “tax depreciation” please refers to point 37 TAXES. CURRENT LIABILITIES 21. BANK OVERDRAFTS AND SHORT-TERM LOANS This item at December 31st 2008, equal to a total of € 6,208 thousand, compared with € 2,395 thousand in 2007, is made up exclusively of the current portion loans and financing. Note that the above-mentioned loans are not backed by guarantees.


Current portion

Bank loan Credem 31/12/2013 Euribor 6m + 0.70% 14,947 2,768

Bank loan Abaxbank S.p.A. 31/12/2013 Euribor 6m + 0.70% 14,947 2,768

Bank loan Banca Intesa 30/09/2010 Euribor 3m + 0.60% 1,190 672

TOTAL 31,084 6,208


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A breakdown of the net financial position of the Company is provided below (thousands of Euros): 31/12/2008 31/12/2007Cash and cash equivalents 22,767 50,823Short term loans to subsidiaries 6,000 0Bank overdrafts and short-term loans -6,208 -2,395Short-term loans -21 -21Net short-term financial resources 22,538 48,407Long-term loans to Subsidiaries 600 0Long-term loans -24,993 -1,328Net long term indebtedness -24,393 -1,328NET FINANCIAL POSITION -1,855 47,079 The net financial position at December 31st 2008 is negative for the amount of € 1,855 thousands compared with a net financial position at December 31st 2007 (equal to € 47,079 thousand), primarily due to a decrease in cash and cash equivalents as a result of the acquisition of the company Lovato Gas S.p.A. and due to the distribution of dividends that took place during the first six-month period. Note that the short-term net financial position also includes the current portion of the other financial liabilities, which are not included, however, not in the analytical structure of the table relating to the cash flow statement. 22. OTHER CURRENT FINANCIAL LIABILITIES At December 31st 2008 this item, equal to € 21 thousand, concerns the short-term portions of the facilitated loans provided by the Italian Trade and Industry Department on the basis of specific regulations. At December 31st 2007 the other current financial liabilities amounted likewise to € 21 thousand. The following table shows the breakdown of the payables to other financial backers (current portion) and the corresponding interest rates (thousands of Euros):


Current portion

Loan Min.Trade & Industry 15/12/2014 3.08% 138 21

23. TRADE PAYABLES INCLUDING PAYABLES TO RELATED PARTIES The changes in this item are as follows (thousands of Euros): Trade payables 31/12/2008 31/12/2007 Change Trade payables 42,539 27,357 15,182 The increase in the balance, equal to € 15,182 thousand, is due primarily to the greater purchases related to the increase in revenue as well as the favourable improvement of payment conditions. Trade payables (including trade payables to related parties), in reference to geographical areas, can be broken down as follows (thousands of Euros):

Trade payables per geographical area 31/12/2008 31/12/2007 Change

Italy 41,559 26,417 15,142Europe (excluding Italy) 580 572 8South-west Asia 284 86 198Americas 72 68 4


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Rest of the World 44 214 -170Total 42,539 27,357 15,182 It is considered that the book value of trade payables at the balance sheet date approximates their fair value. 24. TRADE PAYABLES - RELATED PARTIES The trade payables to related parties refer to payables for purchases of electronic components from the company A.E.B. S.r.l. (an associated company of the parent company Girefin S.p.A.) that amount to € 6,063 thousand (€ 1,733 at December 31st 2007) as well as payables for leasing to the company Gireimm S.r.l. totalling € 5 thousand. All the related transactions are carried out at normal market conditions. For further details see the next chapter OTHER INFORMATION – paragraph TRANSACTIONS WITH RELATED PARTIES. 25. PAYABLES TO SUBSIDIARIES The trade payables due to subsidiaries refer to the payables for purchase of components and finished products from the companies of the Group and amount to € 12,236 thousand (€ 5,190 at December 31st 2007). All the related transactions are carried out at normal market conditions. For details of the payables due to companies of the Group see the relevant table in the final chapter “Other information”. 26. TAX LIABILITIES Tax liabilities 31/12/2008 31/12/2007 Change For accrued IRES (corporate income tax) 932 0 932for accrued IRAP (regional tax on production activities) 250 19 231for employee IRPEF (personal income tax) deductions 375 317 58for self-employed workers' IRPEF (personal income tax) deductions 26 7 19for collaborators' IRPEF (personal income tax) deductions 116 91 25for other tax liabilities 160 2 158Total 1,859 436 1,423 The increase in the balance, compared with previous year, is due primarily to the tax liabilities for IRES. Starting from fiscal period 2008 the Company has not yet renewed national consolidated tax return as per articles from 117 to 129 of Testo Unico delle Imposte sui Redditi (T.U.I.R.). During past three years this has been made by ultimate parent company Girefin S.p.A.. 27. OTHER CURRENT LIABILITIES Other current liabilities 31/12/2008 31/12/2007 Change Payments on account 14 24 -10Payables due to pension and social security institutions 655 582 73Amounts due to employees 1,199 901 298Payables to customers for credit notes to be issued 2 34 -32Other payables 498 35 463Accrued expenses and deferred income 320 67 253Payables to parent company for national consolidated tax return 0 312 -312Total 2,688 1,956 732 28. OTHER CURRENT LIABILITIES - RELATED PARTIES The payables to related parties are eliminated at December 31st 2008. At December 31st 2007 they amounted to € 312 thousand and concerned the amounts owed by Landi Renzo S.p.A. to the ultimate parent Girefin S.p.A., in the context of the national consolidated tax return.


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INCOME STATEMENT The relationships with parent companies, subsidiaries and associated companies, with the related equity and economic balances are provided below in note no. 49. 29. REVENUES INCLUDING REVENUES FROM ASSOCIATED COMPANIES Revenues (goods and services) 31/12/2008 31/12/2007 Change

Revenues related to the sale of assets 176,514 128,773 47,741

Revenues for services and other revenues 1,719 2,312 -593

Total 178,233 131,085 47,148 In the period closed at December 31st 2008, revenues increased by 36% compared with 2007. This increase was first of all supported by an increase in sales volumes, a consequence both of the increase in demand for LPG and CNG fuel supply systems in the markets where the company operates and of the expansion strategy initiated by Landi Renzo S.P.A. The Revenues for services and other revenues cab be broken down as follows (thousands of Euros): Revenues for services and other revenues 31/12/2008 31/12/2007 Change

Services rendered 80 493 -413

Technical advice 130 159 -29

Intercompany services rendered 1,004 1,376 -372

Rental income 0 15 -15

Reimbursement of transport expenses 265 136 129

Reimbursement of other costs 62 8 54

Reimbursement of employee canteen costs 32 31 1

Other income 146 94 52

Total 1,719 2,312 -593

The intercompany services rendered refer to services of an administrative, commercial and technical nature charged to the subsidiary companies and regulated under conditions deemed as normal. 30. REVENUES FROM RELATED PARTIES Revenues from related parties refer to revenues from the Company A.E.B. S.p.A. for € 61 thousand and from the Pakistani Company Auto Fuels totalling € 1,213 thousand. All the related transactions are carried out at normal market conditions. For further details see the next chapter OTHER INFORMATION – paragraph TRANSACTIONS WITH RELATED PARTIES. 31. OTHER REVENUE AND INCOME Other revenues and income at December 31st 2008 amount to € 241 thousand compared with € 542 thousand at December 31st 2007 and can be broken down as follows (thousands of Euros): Other revenue and income 31/12/2008 31/12/2007 Change

Grants 0 165 -165


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Extraordinary income 241 377 -136

Total 241 542 -301 The extraordinary income at December 31st 2008 refers mostly to capital gains on the sale of fixed assets and to non-operating profits. 32. COST OF RAW MATERIALS, CONSUMABLES AND GOODS AND CHANGE IN INVENTORIES Cost of raw materials, consumables and goods and change in inventories 31/12/2008 31/12/2007 Change


Finished products intended for sale 54,089 34,578 19,511

Other materials 1,297 802 495

Change in inventories -15,165 454 -15,619

Total 101,207 78,165 23,042 The total costs (included those relating to related parties) for consumption of raw materials, consumables and goods (including change in the inventories) increased from € 78,165 thousand at December 31st 2007 to € 101,207 thousand at December 31st 2008, mainly as a result of the increase in sales volumes. For an analysis of the increase of changes in inventories, refer to the paragraph on inventories. 33. COST OF RAW MATERIALS, CONSUMABLES AND GOODS AND CHANGE IN INVENTORIES - RELATED PARTIES The costs of the raw materials and electronic consumables relating to related parties refer to purchases of components made by the supplier A.E.B. S.r.l., an associated company of the parent Girefin S.p.A. and amount to € 13,297 thousand at December 31st 2008 (€ 7,971 thousand at December 31st 2007). 34. COST FOR SERVICES AND USE OF THIRD PARTY ASSETS This item can be broken down as follows (thousands of Euros): Cost for services and use of third party assets 31/12/2008 31/12/2007 Change

Industrial and technical services 23,993 16,433 7,560

Commercial services 4,968 3,084 1,884

General and administrative services 5,776 3,859 1,917

Costs for use of third party assets 206 32 174

Total 34,943 23,408 11,535 The item industrial and technical services includes the costs for outsourced production that amount to € 20,818 thousand for the year 2008 and € 13,863 thousand for the previous year. The increase in Commercial Services can be attributed mainly to an increase in variable costs for transports and commissions as well as increased use of advertising services. The increase in General and Administrative Services can be ascribed primarily to an increase in the use of IT consultancy, an increase in insurance costs and also to an increase in corporate consultancy. 35. COST FOR SERVICES AND USE OF THIRD PARTY ASSETS - RELATED PARTIES Costs for services and use of third party assets relating to related parties, equal to € 853 thousand, refer to the rental cost of the industrial property in Cavriago paid to Gireimm S.rl., a subsidiary of the parent company Girefin S.p.A.


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36. PERSONNEL EXPENSES Personnel expenses can be broken down as follows (thousands of Euros): Personnel expenses 31/12/2008 31/12/2007 Change Wages and salaries 6,100 5,206 894Social security contributions 1,822 1,540 282Expenses for defined benefit plans 457 410 47Effect of reform (Curtailment) 0 -293 293Temporary work 1,437 680 757Directors' fees 774 239 535Total 10,589 7,781 2,808

In the year closed at December 31st 2008, personnel expenses increased by 36% (in absolute value) compared with the year closed at December 31st 2007. This increase is due to an increase in staff numbers related to the reinforcement policy that the Company is pursuing in order to accompany and manage the growth of the business. It can also be seen that the hires concern, for the most part, professional figures with high levels of qualifications and skills. Note that the TFR allocation, equal to € 457 thousand, including the allocation for the year totalling € 18 thousand, the portion paid into the Treasury Fund set up with the INPS (national social safety institute) amounting to € 320 thousand, and € 119 thousand for the portion paid into the Supplementary Social Security funds. To deal with increased production needs the company also relied on temporary work, the cost of which increased from € 680 thousand in 2007 to € 1,437 thousand in 2008. The average number of employees in the Company workforce, divided by qualification in the two years analysed follows: Average (*) Year End

Number of employees 31/12/2008 31/12/2007 Change 31/12/2008 31/12/2007 Change

Executives and Clerical Staff 140 124 16 153 128 25

Blue-collar workers 59 50 9 64 50 14

Fixed Contract Collaborators 2 1 1 3 1 2

Total 201 175 26 220 179 41

(*) Note that these values do not include temporary workers or the directors. 37. ACCRUALS, IMPAIRMENT LOSSES AND OTHER OPERATING EXPENSES This item can be broken down as follows (thousands of Euros): Accruals, impairment losses and other operating expenses 31/12/2008 31/12/2007 Change Other taxes and duties 140 115 25Other operating expenses 285 134 151Losses on receivables 7 5 2Provision for product warranties 177 0 177Bad debts 156 123 33 Total 765 377 388

The costs included in this item amount to € 765 thousand at December 31st 2008 compared with € 377 thousand at December 31st 2007, with an increase of € 388 thousand.


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38. AMORTIZATION, DEPRECIATION AND IMPAIRMENT LOSSES Amortization, depreciation and impairment losses 31/12/2008 31/12/2007 Change

Amortization of intangible assets 1,413 1,022 391

Depreciation of property, plant and equipment 1,679 1,424 255

Total 3,092 2,446 646 The amortization of intangible assets refers primarily to the amortization of development and design costs incurred by the company as well as the costs for the purchase of the software (applications and management) acquired over time. Depreciation of property, plant and equipment refers primarily to plant and machinery for production, assembly and running-in of the products, to industrial and commercial equipment for the purchase of moulds, to testing and control tools and to electronic processors. 39. FINANCIAL INCOME This item can be broken down as follows (thousands of Euros): Financial income 31/12/2008 31/12/2007 Change

Interest income on bank deposits 1,701 1,068 633

Other income 131 54 77

Total 1,832 1,122 710 Financial income includes, primarily, bank interest income as well as interest from intercompany loans totalling € 102 thousand from the company Lovato Gas S.p.A and € 2 thousand from the company Landi Renzo Pars. Financial income at December 31st 2008 amounts to € 1,832 thousand, compared with € 1,122 thousand at December 31st 2007, with an increase of € 710 thousand, attributable essentially to greater liquidity following the collection of the proceeds from the share capital increase in connection with the listing of the parent’s ordinary shares in June 2007. 40. INCOME FROM INVESTMENTS At December 31st 2008 they amount to € 1,150 thousand as a result of distribution of dividends by the subsidiary Landi International BV, compared with € 1,050 thousand in 2007. 41. FINANCIAL EXPENSES This item can be broken down as follows (thousands of Euros): Financial expenses 31/12/2008 31/12/2007 Change

Interest on bank overdrafts and loans and loans from other financial backers 639 325 314

Bank charges and commissions 198 187 11

Total 837 513 324 Financial expenses include, primarily, bank commission and bank interest charges and actuarial expenses deriving from discounting of TFR. Financial expenses at December 31st 2008 amount to € 837 thousand compared with € 513 thousand at December 31st 2007, with an increase of € 324 thousand, due primarily to the subscription of unsecured loans with Credem and Abaxbank S.P.A. for the purchase of the company Lovato Gas S.p.A..


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At December 31st 2008 the Company does not have any derivative instruments to cover of the variability of interest rates. 42. EXCHANGE RATE GAINS (LOSSES) Exchange rate gains (losses) 31/12/2008 31/12/2007 Change Positive exchange rate differences realised 54 53 1 Positive exchange rate differences from valuation 13 64 -51 Negative exchange rate differences realised -31 -30 -1 Negative exchange rate differences from valuation -160 -14 -146 Total -124 73 -197

The company realizes its revenues mainly in Euros. Note that more than 99.3% of purchases of raw materials and consumables are made in Euros. At December 31st 2008 the company does not have any financial instruments to cover of the variability of exchange rates. In accordance with the requirements of Accounting Principle IFRS7, a breakdown is provided below of financial income and expenses ascribed to income statement by individual financial instruments category: December 31, 2008 December 31, 2007

In thousands of Euros Book value Book value

Interest income on cash and cash equivalents 1,701 1,068Interest income on loans and receivables 14 28Interest income on loans to subsidiaries 104 0 Dividends from financial assets held for purposes of trading 11 10Change in fair value from financial assets held for purposes of trading -48 16Net profits on currency exchange 73Interest expenses from financial liabilities valued at the amortised cost -555 -268Net losses on currency exchange -124 0Total 1,103 927 43. TAXES The theoretical rate used for the calculation of taxes on the income of Italian companies is 31.40% of the taxable income for the year. A breakdown of the income taxes is provided below (thousands of Euro): Income tax expense 31/12/2008 30/09/2007 Change

Current taxes 9,573 6,728 2,845

Deferred and prepaid taxes -775 757 -1,532

Total 8,798 7,485 1,313 Taxes at December 31st 2008 amounts to € 8,798 thousand, compared with € 7,485 thousand at December 31st 2007, with an increase of € 1,313 thousand. Note that both the company Landi Renzo S.p.A. and the absorbed company Landi S.r.l. availed of the right to fiscally remit the excesses deducted off-balance sheet in previous years in the EC Framework (pursuant to Article 109, paragraphs 4, letter b) of the TUIR, the consolidated law on income tax). This remission concerned only the tax depreciation carried out in previous years. The total amount of remitted excesses was equal to € 1,906 thousand, resulting in payment of the flat-rate tax, equal to 12%, for a total amount of € 229 thousand classified under the item Current Taxes. In addition, this operation involved cancellation of the deferred taxes


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35

relating to the accelerated tax depreciation recognised up to December 31st 2007, the effect of which, equal to € 599 thousand, was entered as income under the item “Deferred and Prepaid Taxes” of the income statement. The reconciliation between the theoretical and actual tax burdens is proposed in a limited way only for IRES, the structure of which presents the characteristics typical of income tax on companies, considering the rate applicable to the Company. For IRAP (regional tax on production activities) no reconciliation between theoretical and actual tax burden has been prepared in view of the different basis of calculation for the tax. The following are the summarised data: 2008

(thousands of €) Taxable Taxed %

Result before tax 29,046

Taxes calculated at the tax rate in force 7,988 27.50%

Permanent differences

- disallowed costs 556 153 0.53%

- share of dividends not taxed -1,092 -300 -1.03%

- other non-taxable income -142 -39 -0.13%

- benefit for remission of tax differences -370 -1.27%

IRAP calculated on a different basis from the pre-tax result 1,365 4.70%

Total effective taxes in income statement 8,798 30.28% 44. EARNINGS PER SHARE The “base” earnings per share were calculated by relating the net profit of the Company to the weighted average number of ordinary shares in circulation in the period (from 112,500,000 at June 26th 2007 compared with 250,000 in circulation previously). The “base” earnings per share, which correspond to the “diluted” earnings per share since there are no convertible bonds, are equal to € 0.1800 at December 31st 2008. For comparative purposes, relating it to the number of shares in circulation at present, the earnings per share in 2007 are € 0.1170. OTHER INFORMATION 45. INFORMATION ON THE FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES As required by IFRS 7 – Financial Instruments, the attached table provides a comparison between the book value and the fair value of all the financial assets and liabilities, divided according to the categories identified by the above-mentioned accounting principle. December 31, 2008 December 31, 2007

In thousands of Euros Book value Fair value Book value Fair value

Loans and Receivables 55,977 55,977 44,655 44,655Financial assets held for purposes of trading 156 156 205 205Cash and cash equivalents 22,767 22,767 50,823 50,823Trade payables -57,144 -57,144 -34,435 -34,435Financial liabilities valued at the amortised cost - non-current portion -24,993 24,993 -1,328 -1,328


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36

Financial liabilities valued at the amortised cost - current portion -6,229 6,229 -2,416 -2,416Total -9,466 -9,466 57,504 57,504

Note that the book value of the loans and financing approximates the fair value of these at December 31st 2008, since such classes of financial instruments are indexed at the Euribor market rate. 46. GUARANTEES PROVIDED At December 31st 2008 the company does not show any guarantees provided for third parties in the financial statements. 47. OPERATING LEASES For accounting purposes, leases and hire contracts are classified as operating if:

• the lessor retains a significant share of the risks and the benefits associated with the property, • there are no purchase options at prices that do not reflect the presumable market value of the rented

asset at the end of the period, • the duration of the contract does not represent the greater part of the useful life of the leased or hired

asset. Payments of operating lease charges are ascribed to the Income Statement in line with the underlying contracts. The main operating lease stipulated by Landi Renzo S.p.A. refers to a contract stipulated with Gireimm S.r.l. (see transactions with related parties) for rental of the Operating Headquarters situated in Cavriago (RE). The contract expires on May 10 2013 and the remaining instalments amount to € 3,726 thousand, of which € 855 thousand within a year. No sureties were provided for said contract and there are no kinds of restrictions associated with the lease. 48. ANALYSIS OF THE MAIN DISPUTES IN PROGRESS The Company is involved in proceedings, for both assets and liabilities, for non-significant amounts. The directors of the company, supported by the opinion its lawyers, did not consider it necessary to include any provision in the financial statements since it considers the requests put forward to be unfounded the existence of any potential liabilities connected with the settlement of said proceedings to be highly unlikely. There are currently no disputes with the Tax Authority. 49. TRANSACTIONS WITH RELATED PARTIES AND SUBSIDIARIES Transactions with related parties include:

• relationships for the supply of goods (components) by A.E.B. S.r.l., an associated company of the parent Girefin S.p.A.

• the amounts owed by Landi Renzo S.p.A. to Gireimm S.r.l. for rent of the property used as the operational headquarters and spun-off,

• The relationships for supply of goods to the company A.E.B. S.r.l and to the Pakistani company Auto Fuels,

The following table summarises the relationships with related parties and intercompany relationships (thousands of Euros) :

Company Sales revenues

Charges for interco. services

Interest on loans

Sale of assets

Purchase of finished products

Costs for use of third party assets

Purchase of assets

Costs for services Receivables Payables


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37

Girefin S.p.A. 0

Gireimm S.r.l. 853 5

A E B S.r.l. 62 13,297 6,063

Auto Fuels 1,213 586

Total related parties 1,275 0 0 0 13,297 853 0 0 586 6,068

Med SpA 122 672 41,258 42 40 564 11,970

Lovato Gas S.p.A. 0 28 102 130

Landi Renzo Polska 1,012 121 272 20

Eurogas Autogas System BV 877 22 14 59 3

Landi International BV

Beijing Landi Renzo China 1,549 39 130 115 115 386 98

LR Industria e comercio Ltda 6,128 110 734 213 213 3,535 149

Landi Renzo Pars 651 50 2 713

LR PAK Pakistan 12,007 82 211 7,533

Total subsidiaries 22,346 1,003 104 211 42,257 - 42 368 13,192 12,240

Total 23,621 1,003

104

211 55,554

853

42

368

13,778 18,308

Incidence of Transactions with Related Parties Total item Absolute value related parties

% Related party

a) incidence of the transactions or positions with related parties on balance sheet items

Trade receivables 39,829 586 1%

Auto Fuels

Trade payables 42,539 6,068 14%

A.E.B. S.r.l. – Gireimm S.r.l.

b) incidence of the transactions or positions with related parties on income statement items

Revenues (goods and services) 178,233 1,274 1%

A.E.B. S.r.l. – Auto Fuels

Cost of raw materials, consumables and goods 101,207 13,297 13%

A.E.B. S.r.l.

Cost for services and use of third party assets 35,796 853 2%

Gireimm S.r.l.

50. POSITIONS OR TRANSACTIONS DERIVING FROM ATYPICAL AND/OR UNUSUAL TRANSACTIONS Pursuant to CONSOB communication no. 6064293 of July 28th 2006, note that during the year 2008 no atypical and/or unusual transactions occurred outside the normal operation of the company that could give rise to doubts regarding the correctness and completeness of the information in the financial statements, conflicts of interest, protection of company assets, safeguarding the minority stockholders. 51. NON-RECURRENT SIGNIFICANT EVENTS AND OPERATIONS Pursuant to CONSOB communication no. 6064293 of July 28th 2006, regarding non-recurrent significant events or operations occurring during 2008, refer to the information provided above in the comment to the item “Taxes” regarding the decision to fiscally remit the excess amounts deducted off-balance sheet in previous years in the EC Framework (pursuant to Article 109, paragraph 4, letter b) of the TUIR, the consolidated law on income tax). The effect of this operation produced a net tax benefit equal to € 370 thousand. 52. SIGNIFICANT EVENTS OCCURRING AFTER THE CLOSE OF THE FINANCIAL YEAR Please refer to the analysis provided in the Directors' Report. Cavriago, 12th March 2009


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LIST OF EQUITY HOLDINGS IN SUBSIDIARIES AT 31/12/2008

Company name Registered Office Currency

Fully paid-up

share capital

Amount of the equity in

Euros

Result for the year in

Euros

Direct investment

Indirect investm

ent

Carrying value in

Euros

Med S.p.A. Reggio Emilia EUR 2,000,000 19,339,448 7,354,376 100.00% 2,003,000

LR Industria e Comercio Ltda Espirito Santo (Brazil) BRL 4,320,000 2,386,935 862,442 96.00% 2,142,798

Landi International B.V. Utrecht (The Netherlands) EUR 18,151 3,664,254 1,775,524 100.00% 17,972

Beijing Landi Renzo Autogas System Co. Ltd Beijing (China) USD 2,600,000 2,543,710 266,696 100.00% 2,057,305

Eurogas Utrecht B.V. Utrecht (The Netherlands) EUR 36,800 2,202,818 1,303,711 100%*

Landi Renzo Polska Sp.Zo.O. Warsaw (Poland) PLN 50,000 1,442,274 563,793 100%*

L.R. Pak (Pvt) Limited Karachi (Pakistan) PKR 75,000,000 649,619 206,348 70.00% 638,177 Landi Renzo Pars Private Joint Stock Company Teheran (Iran) IRR 3,164,173,611 -242,954 -468,173 230,869

Lovato Gas S.p.A. Vicenza EUR 120,000 11,849,275 837,852 100.00% 58,231,356

Lovato do Brasil Ind Com Curitiba (Brazil) BRL 100,000 -962,379 -966,168 85%**

Officine Lovato Private Ltd Chennai (India) INR 20,000,000 2,967 -1,050 100%** 58,231,356

Lovat (*) owned through Landi International B.V. (**) owned through Lovato Gas S.p.A.


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39

COMMUNICATION REQUIRED BY CONSOB RESOLUTION No. 11971 OF 14/05/1999 In compliance with the express provisions of said resolution, a breakdown of remuneration paid for any reason and in any form by the company to Directors, Auditors and Chief Executives is provided below. TABLE OF REMUNERATION PAID TO DIRECTORS AND AUDITORS

Name and Surname Office held Period for which the office was held

Expiry of the office

Emoluments for office

in the company

that prepares

the Financial

Statements

Non-monetary

benefits

Bonuses and other

incentives

Domenichini Giovannina Chairman of the Board of Directors 01/01/08-31/12/08

Financial Statements 31/12/09 34

Landi Stefano Chief Executive Officer 01/01/08-31/12/08

Financial Statements 31/12/09 169 60

Pedroni Carlo Alberto Executive director 07/01/08-31/12/08

Financial Statements 31/12/09 309 3 116

Paolo Gabbi

Director Chairman of Committee for Internal Control and Remuneration 01/01/08-31/12/08


19

10

Alessandro Maria Ovi

Director Member of Committee for Internal Control and Remuneration 01/01/08-31/12/08


18

10


Director Member of Committee for Internal Control and Remuneration 01/01/08-31/12/08


18

10 Luca Gaiani Chairman of the Board of

Statutory Auditors

01/01/08-31/12/08Financial Statements 31/12/09

26

Massimiliano Folloni Statutory auditor

01/01/08-31/12/08Financial Statements 31/12/09

17

Marina Torelli Statutory auditor

01/01/08-31/12/08


17

Romano Merlatti Chairman of the Board of Statutory Auditors Landi S.r.l.

01/01/08-31/03/08

2

Note that the remuneration for auditors M.Folloni and M.Torelli also includes their remuneration as statutory auditors of the absorbed company Landi S.r.l. from January 1st 2008 to March 31st 2008 for the amount of € 2 thousand.


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40

INFORMATION PURSUANT TO ART. 149-duodecies OF THE CONSOB ISSUER REGULATIONS In compliance with the express provisions of the CONSOB Issuer Regulations - Art.149 duodecies - payments made for services rendered by auditing firms to the company for the year 2008 are listed below.

Type of Services Subject who provided the service Remuneration 2008 Remuneration 2007

(in thousands of Euros)

Auditing KPMG SpA 160 157

Certification services KPMG SpA 2 121

Other services: tax due diligence & tax comfort letters for IPO, transfer pricing tax analysis

KPMG SpA 31 104

Total 193 382

Statement on the annual financial statements for 2008 pursuant to art. 81-ter of Consob Regulation No.

11971 of 14 May 1999, as amended

1. The undersigned Stefano Landi, Managing Director, and Paolo Cilloni, Officer in charge of preparing the corporate financial statements of Landi Renzo S.p.A., state, having regard also to the provisions of art. 154-bis, paragraphs 3 and 4, of legislative decree No. 58 dated 24th February 1998: - the adequacy of financial statements in relation to the company’s characteristics, and - the effective application of the administrative and accounting procedures for the preparation of the

financial statements at 31st December 2008. 2. In this respect are not emerged aspects of relief from annual financial statements. 3. In addition, the undersigned state that:

a) the annual financial statements: - agree with the accounting books and records; - are prepared in accordance with the international accounting standards (IFRS) and in their

opinion they give a true and fair view of the Company’s state of affairs and of its result for the year.

b) the report on operating performance for the year 2008 includes a reliable analysis on trends and performance, on Company’s financial situation and on Group Companies included in the consolidation, together with a description of the main risks and uncertainties which are exposed.

Cavriago, 12th march 2009 On behalf of the Board of Directors The Managing Director Stefano Landi (signed on the original) The Officer in Charge Paolo Cilloni (signed on the original)

1

Landi Renzo Spa

Report of the Board of Statutory Auditors to the Shareholders' Meeting

Year closed at 31/12/2008

(Art. 153 of Legislative Decree 58/1998)

Dear Shareholders,

Pursuant to article 153 of Legislative Decree 58/1998 (“TUF” - the Italian Consolidated

Law on Finance), we hereby provide you with a report on the activities carried out by the

Board of Statutory Auditors during the year closed at 31st December 2008.

We remind you that the Company's shares are listed on the telematic stock market of

Borsa Italiana - STAR segment.

The auditing activity is entrusted to the company KPMG Spa.

Activity carried out We performed the supervisory activities provide for by article 149 of the TUF and by other

applicable legal and regulatory provisions, while also taking account of the principles of

conduct recommended by the National Council of Professional and Chartered

Accountants.

We attended all meetings of the Board of Directors, during which we were informed, as

frequently as required by law and by the articles of association, of the activity carried out

by the Directors and also regarding the most significant operations carried out by the

Company and its subsidiaries.

On such occasions we made sure that the resolutions adopted and the operations actually

carried out were compliant with the law and the articles of association, as well as with the

principles of correct administration.

We issued opinions required by the applicable legal or regulatory standards.

We monitored the appropriateness of the organizational and administrative-accounting

structure as well as the internal control system, through meetings with the persons in

charge of the various company functions. We operated a constant flow of information with

the managers of the Auditing Firm, both through common meetings and through informal

contacts.

We attended the meetings of the Internal Control and Remuneration Committees set up by

the Company. We also met with the members of the Supervisory Vigilance Committee set

up pursuant to Legislative Decree 231/2001.

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We made sure that the corporate governance rules specified by the Self-discipline Code

for companies listed on Borsa Italiana (“Self-discipline Code”), and with which the

company is obliged to comply since it is listed in the STAR segment, were in fact enforced.

We monitored the suitability of the instructions given to the subsidiary companies pursuant

to Article 114, paragraph 2, of the TUF.

Indications and information On the basis of the activity summarized in the previous paragraph, we can declare the

following.

1. The most important economic, financial and capital operations carried out by the

Company, illustrated exhaustively in the Directors' Report, are in fact compliant with

the law, the company articles of association and the resolutions adopted by the

shareholders' meeting. They are not imprudent, risky or such that they could

compromise the integrity of the corporate assets.

We draw your attention in particular to the following.

• On 1st April 2008 the absorption merger of Landi Srl, a fully controlled

subsidiary, took effect, the accounting and fiscal effects of which begin from

1st January 2008; we already mentioned this operation in last year's report.

• On 13th October 2008, the purchase contract for 100% of the shares of the

company Lovato Gas Spa was completed, an operation described in detail in

the Directors' Report, also as regards the methods of financing.

2. The Board of Statutory Auditors did not find any atypical or unusual transactions

performed with third parties, with companies of the Group or with related parties.

Ordinary intercompany transactions and those with related parties are set forth in

the Supplementary Notes to the Consolidated Financial Statements and in the

Supplementary Notes to the Separate Financial Statements, to which the reader is

referred.

3. The information on intercompany transactions and those with related parties in the

financial statements is found to be adequate.

The Company has instituted an appropriate procedure for the management of

transactions with related parties, put into effect by the same Company and by its

bodies, also through its subsidiaries, in order to guarantee adherence to criteria of

substantial and procedural correctness in compliance with the regulations in force

and the recommendations in the Self-discipline Code. The Board maintains that the

3

aforementioned procedure is adequate pursuant to the provisions of point 9.C.1 of

the aforesaid Self-discipline Code.

4. On 6th April 2009, the Auditing Firm KPMG Spa issued the reports on the

consolidated financial statements and the separate financial statements, without

any important declarations or significant information.

5.-6. The Board did not receive any declarations ex article 2408 of the Civil Code or

reports of any type.

7. During the year, the Company charged KPMG Spa with a further assignment,

separate from its auditing activity, relating to verification of the opening balances for

the acquisition of Lovato Gas Spa, with total remuneration of € 20,500; KPMG Spa

also verified the Single Form 2008 and Form 770/2008, with remuneration of €

2,100.

8. During the year, the Company allocated an assignment to subjects belonging to

KPMG Spa network (KStudio) for assistance regarding transfer prices with

remuneration of € 30,900 for 2008.

9. During the year 2008, we issued the following opinion required by law:

• On 23rd April 2008, regarding allocation of remuneration to a director who has

been charged with particular assignments pursuant to article 2389 of the Civil

Code.

10. The Board of Directors met eight times during 2008.

Also during 2008, the Board of Statutory Auditors met 8 times, attended all the

meetings of the Board of Directors, and all the meetings of the Internal Control

Committee and the Remuneration Committee.

11. The Board maintained constant contact with the managers of the Auditing Firm and

with the members of the control bodies of the Italian subsidiaries. In the contacts

and exchanges of information with the aforesaid bodies, no important aspects

emerged that would require communication to the shareholders.

The Board also met with the Supervisory Vigilance Committee, instituted pursuant

to Legislative Decree 231/2001, regarding the progress of the various supervisory

activities.

12. Our control and supervisory activity showed that there was compliance with the

principles of correct administration.

4

13. We consider that the organizational structure of the company is adequate for its size

and for the activity carried out.

14. During 2008, the company further developed the internal control system, also on the

basis of recommendations from the Internal Control Committee and the Supervisory

Vigilance Committee.

Even taking account of the activities carried out by the company in this regard,

which are summarized above, we consider that the internal control system of Landi

Renzo SpA is appropriate for the size and activity of the Company.

During the current year 2009, we shall continue our activity of verification of the

constant implementation of the control system according to the plan prepared and

approved by the Internal Control Committee.

15. We have taken note of the contents of the Half-yearly Reports prepared by the

Supervisory Vigilance Committee, which do not mention any censurable acts or any

violations of the Organizational Model ex Legislative Decree 231/2001.

16. During 2008, the Company further developed the plan for analysis and compliance

of the administrative and accounting procedures in order to verify that they are

reliable in representing operational facts accurately. The Board of Statutory Auditors

verified this activity, through exchange of information with the Manager in charge of

preparing the accounting documents, with the other function managers, and with

the Auditing Firm. We consider that the administrative-accounting system is

adequate and reliable in order to represent operational facts accurately.

17. The Company, as the Board was able to verify, has complied in fulfilling the

requirements of article 36 of CONSOB Regulation 16191/2007, as modified by

Resolution 6530/2008, concerning accounting documentation relating to non-EU

subsidiaries included in the consolidated financial statements that are particularly

important.

18. The Company has appropriate procedures in place, which the Board considers

adequate, for collecting information from subsidiaries that must be communicated to

public pursuant to Article 114 of the TUF.

19. As regards the Self-discipline Code, the company has complied with the rules on

the number of independent directors, and has set up the Internal Control Committee

and the Remuneration Committee, both consisting of a non-executive director and

two independent directors. During 2008, the Internal Control Committee met 5 times

5

and the Remuneration Committee on 2 occasions. Both bodies carried out the

functions specified by the Self-discipline Code.

The Board, in compliance with the guidelines of the Self-discipline Code, examined

the procedures adopted by the Board of Directors in order to verify the ongoing

existence of the necessary requirements for the two independent Board Members,

and considers them to be correct. We also verified the existence and permanence

of the same requirements regarding the members of the Board of Statutory

Auditors, as well as the independence of the Auditing Firm.

20. The supervisory activities did not discover any facts that require a mention in our

Report to the Shareholders’ Meeting.

21. All the members of the Board respect the guidelines on accumulation of roles

contained in Article 148-bis, paragraph 2, of the TUF and in articles144-duodecies

et seq. of the CONSOB Issuer Regulations, and issued the communications

provided for therein.

22. Having taken account of the conclusions of the Auditing Firm's report, the Board of

Statutory Auditors has no objections or observations to be formulated regarding the

draft separate financial statements at 31st December 2008, prepared by the Board

of Directors within the terms established by law. The Internal Control Committee

adopted the resolutions required by the Self-discipline Code regarding the

accounting principles used for the preparation of the financial statements.

We agree with the content of the Directors' Report, which meets the requirements of

article 2428 of the Civil Code and is consistent with the data in the financial

statements; we also agree with the proposed allocation of the profit for the year.

Consolidated financial statements The Company prepared the consolidated financial statements for the year 2008, which

was made available to us within the terms established by law.

The consolidated financial statements, prepared according to the international IFRS

accounting principles adopted by the European Union, are submitted to the auditing of

KPMG Spa, which, in its report issued on 6th April 2009, provided an opinion without

any significant facts or required communication.

We therefore refer to the conclusions of the aforementioned report, in compliance with

the provisions of article 41 of Legislative Decree 127/91, since the Board did not

perform any specific checks on the consolidated financial statements.

6

Changes to the Articles of Association Dear Shareholders,

you are also called to attend an extraordinary meeting to deliberate on a proposed

modification to article 10 of the company articles of association regarding the terms of

approval of the financial statements, a modification necessary in order to adapt the

Articles of Association to the regulations currently in force (article 154-ter of the TUF

introduced by Legislative Decree 195/2007 - the so-called Transparency Directive)

which no longer allows the financial statements of listed companies to be approved

beyond 120 days from year end.

A further change (article 15 of the Articles of Association) concerns the introduction of

the right to nominate a vice-chairperson of the Board of Directors as well as an

honorary chairperson The Board considers that the proposed modifications are

consistent with the regulations in force.

Cavriago, 6th April 2009

Board of Statutory Auditors Luca Gaiani


Marina Torelli

ANNUAL REPORT AT DECEMBER 31st 2008 - … · landi group – annual report at 31st december 2008...

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