Sustainability Report 2016 - 9th edition
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By Florim Ceramiche s.p.a Financial Department - supervision Communications Department - editorial coordination Our thanks to all contributing staff members. Fiorano Modenese (MO) - ITALY, May 2017
Contents Letter to Stakeholders 5 Environmental Responsibility 21 Our Sustainability Report 6 Certifications 22 Environmental Management 22 MADE IN FLORIM Energy Management 24 Our History 8 Social Responsibility 27 Our Locations 9 Employees & Corporate Welfare 27 Our Brands 9 Local Community & Culture 30 Our Design Service 10 Product Responsibility 32 Our 2016 11 Quality System 33 GOVERNANCE OUR COMMITMENTS Code of Ethics 13 The promises we kept 35 Management System Policy 13 The targets we set for ourselves 36 Corporate Bodies 14 Corporate Structure 14 FLORIM USA Stakeholders 15 Profile and Economic Responsibility 37 Materiality approach 16 Environmental Responsibility 38 Social Responsibility 40 REPORTING Quality System 43 In brief 17 Other Activities 43 Economic Responsibility 18 Comments on the Economic Data 18 GRI International Sustainability Indicators / SDGs 44 Value Generated 19
Letter to stakeholders Welcome to the ninth edition of our Sustainability Report, a document which is gaining wider and wider appreciation amongst those who follow the Florim Group’s performance, for its synthesis of the company’s many activities in Corporate Social Responsibilities. During the last year we have once again shown a strong commitment to a business approach which goes beyond the achievement of economic results alone and involves social projects intended to last over time, with the secondary benefit of enhancing the image of the Florim name. I believe this document is a true confirmation that, despite uncontrollable global environmental uncertainties, there are multiple opportunities to keep the high-quality levels that Florim has always achieved. We have made further large investments in our factories in Italy and in the USA and we will continue to invest in the years to come. We have given the same level of importance to investments in our image, adding new showrooms to those already established in Milan to give visibility to CEDIT, the brand which has been rediscovered and relaunched this year with a specific, exclusive product range. The “Gallery” and the “Health&Training” Center continue to be hives of activity, the company continues to hold its doors wide open to young people, with the “Master in Florim” program, and the “Fondazione Ing. Giovanni Lucchese” continues to engage in important charitable work. I am very proud to state that all Florim’s employees, in Italy and abroad, are the company’s greatest resource. So I would like to say a well-deserved “thank you” to all those whose constant hard work, sense of belonging and mutual cooperation represent a priceless assets that consolidate over time. Enjoy the report and thank you, Claudio Lucchese 2016 Sustainability Report 5
Our Sustainability Report Methodological Framework and Reporting Perimeter Writing and distributing its Sustainability Report enables Florim to communicate with its stakeholders with transparency, describe the results achieved and set our future goals, in an approach based on engagement and continual improvement. Drawn up annually in accordance with the GRI-G4 Guidelines for Sustainability Reports (the G4 edition of the Global Reporting Initiative guidelines), the report, issued for the ninth time this year, aims to report on the economic, environmental and social aspects of the company's operations from a point of view more oriented towards the shared value produced for its stakeholders. The reporting process, with "in accordance-core" compliance level, is co-ordinated by Florim’s communications department and supervised by the Finance Department, with the invaluable assistance of many colleagues, especially the staff of the management accounting, technical, human resources and administration departments. The data and information it contains are obtained from the company's IT systems and databases. The Report refers to all the companies in the Florim group, on the same principle as the Group's consolidated financial statements. The figures provided in the reporting section refer to our Italian location, while the fourth section contains a brief Sustainability Report for Florim USA. As already stated, this Report is intended as an aid to dialogue, and therefore the language used is plain and to the point. The 2016 Sustainability Report, also published in English, will be distributed as follows: - provision of a copy to all employees at the Italian and American sites, enclosed with their pay stubs - publication of the PDF file on the corporate Intranet and the florim.it website - distribution to member companies of the new “Aziende Modenesi per la RSI” (Modena companies for social responsibility) association - mailing to local institutions and the relevant trade union representatives - distribution to the local press and to the specialist press during exhibitions and site visits - distribution to key clients and architects - mailing to the main domestic agencies/authorities/associations involved in issues related to sustainability and the environment. Florim produciont plant (Fiorano Modenese - MO) 6 2016 Sustainability Report
CEDIT - Storie Collection | Giorgia Zanellato & Daniele Bortotto. Named as Best of the Best at the 2017 Red Dot Design Award 2016 Sustainability Report 7
MADE IN FLORIM Over 50 years of history Over 1,300 employees worldwide Watch the Florim institutional video 27 million square meters produced every year 406 million Euro turnover 1,424 tons of CO 2 not emitted in 2015 thanks to the photovoltaic system It takes more than figures to define a company. Today, passion, innovation, a constant commitment to improvement and corporate social responsibility are the core values of a new way of doing business: the MADE IN FLORIM way. Our History 1962 Giovanni Lucchese pioneers the production of extruded clinker tiles and Floor Gres is founded in the heart of the Sassuolo production district 1967 Floor Gres is the first Italian manufacturer to produce single-fired white body tiles 1976 The Swimming Pool Division is established within Floor Gres 1981 Floor Gres is one of the first companies in the world to start the manufacture of porcelain stoneware tiles 1984 Claudio Lucchese, son of the founder, takes over the reins at Floor Gres after his father's untimely death 1990 Floor Gres acquires Cerim Ceramiche 1992 Floor Gres and Cerim merge to create Florim 1994 Florim acquires Rex Ceramiche Artistiche 1995 The Project Division, forerunner of today's Florim Solutions, is created 2000 Incorporation of Florim USA, a production and distribution company destined to become a leader on the American market 2005 Florim acquires Casa dolce casa 2006 The Casamood brand is born 2011 A logistics hub is opened in Brazil 2013 The new multifunctional Florim Gallery is opened and the Florim Logistics area is completed at the Florim headquarters. The Fondazione Ing. Giovanni Lucchese foundation is established 2014 The first Flagship Store is opened in Moscow 2015 The Milan Flagship Store moves to a location in the very heart of the city. A new Flagship Store opens in the center of New York 2016 Florim relaunches the historic CEDIT - Ceramiche d’Italia brand (which opens its first flagship space in Milan) and FLORIM stone, the Group's first brand focusing on the interior design sector 8 2016 Sustainability Report
Our Locations The map shows the group’s headquarters, showrooms, production plants and logistic hubs. Florim brand products are available from top international customers and importers. Site, production plant and logistics hub Fiorano Modenese (Modena, ITALY) FLORIM USA Production plant Mordano (Bologna, ITALY) Site, production plant and Flagship Store logistics hub New York, NY (USA) Clarksville, TN (USA) Flagship Store Moscow (RUSSIA) - Flagship Store Logistics hub - Spazio CEDIT Paranà (BRAZIL) Milan (ITALY) Office Singapore (SINGAPORE) Our Brands Floor Gres is the brand specifically for innovative architectural projects. The Floor Gres product range meets all the many and varied needs of contemporary architecture in terms of design and technical capabilities and environmental standards. Rex is the brand which denotes stylistic excellence, with products inspired by precious natural materials (wood, marble, and stone); coordinated floor and wall coverings in which the surfaces interact to generate a new language in home design. Cerim is the brand that focuses primarily on color and on decoration. Coverings designed on an integral basis, to make the most of all parts of the home and offer solutions that adapt to the most diverse interior design contexts. Casa dolce casa and Casamood is the brand intended for high-end architecture and interior design and offers attractively blended colours and surfaces drawn from nature for the creation of warm interiors. A range of matching colours and surfaces that combines porcelain stoneware with other types of materials. Architectural design effects are blended with the language of interior decoration to create new types of relationships. CEDIT - Ceramiche d’Italia embodies the dialogue between art, craftsmanship and technology. The brand that shapes ceramic matter in the service of creativity, allowing leading names of our time to express themselves to their full potential. Large designer slabs that renew the concept of architectural space. FLORIM stone is the brand that combines performance and practicality with the utmost personalization of spaces. Large porcelain stoneware slabs at the service of interior design professionals, delivering creative flexibility with outstanding technical performances and appearance values. Florim USA is the brand of the American subsidiary; its porcelain stoneware tiles for residential and commercial use, manufactured in the plant at Clarksville (Tennessee), are tailored to suit the tastes of the largest possible segment of the North American market. 2016 Sustainability Report 9
Our Design Service As well as the product itself, Florim offers a unique level of technical support throughout the various design phases. From the feasibility study to the final installation, Florim Solutions works side by side with the architect, providing skills and experience whenever the style and performance of porcelain tiles become fundamental to the project. In the age of speed and the digital revolution, the company has also created an integrated web platform to give its professional partners unbeatable service. Exclusive events, visibility for projects, free training meetings and specific competitions are just some of the services offered by Florim4Architects.com. Expo Azerbajan Pavilion: winner of the Florim4Architects “Project of the Year” competition 10 2016 Sustainability Report
Our 2016 In this section, we focus on the latest news from the Group, covering a wide variety of aspects but all confirming the importance of Florim's large slabs and once again underlining the centrality of innovation for the company's business. New brands In April, Florim chose the Salone Internazionale del Mobile, a major event for the global design community, for the relaunch of the CEDIT - Ceramiche d’Italia brand. The brand, which has always had links with leading artists, designers and architects, has achieved a superlative creative standard Learn more over more than fifty years of experimentation with materials and stylistic research in ceramic design. about CEDIT CEDIT is returning to the forefront of Italian manufacturing, in partnership with some of contemporary Italy's top creative names. Its new identity is a fine blend of Craftsmanship and Innovation, expressed on the large slabs produced by Florim technology. December saw the official opening - in the heart of Milan - of the first Spazio CEDIT, the tangible expression of an innovative display concept, created to convey the brand's philosophy to the world. The brand created to explore new application solutions reaching beyond the conventional construction concept is called FLORIM stone. Launched at Cersaie - the biggest ceramics industry show - this brand combines the outstanding performances of porcelain stoneware with the utmost personalisation Learn more of spaces. The dimensional and functional plus factors of latest-generation large slabs allow stoneware about FLORIM stone to be used in a versatile, customized way; not just as a wall and floor covering but also for tops and furnishings (tables, kitchen worktops and bathroom counters, doors and fireplaces are just some of the possible applications). New look A busy year, partly due to the refurbishment of the Fiorano Modenese headquarters. As well as the new gatehouse, the façade of the office building was also restyled, bringing it up to date with an all-white look. An innovative modification at the technological state of the art was made to the raw material shed, with a ventilated façade of almost 1,900 m² of Magnum Oversize large slabs. The installation reproduces the “Archeologie” collection (designed by artist Franco Guerzoni for CEDIT) and the lake of Vernago in Italy's Alto Adige region (photo by Vanni Borghi). A latest-generation project, leading the way in technology, safety and maintenance. Last but not least, a new barrier was also designed and constructed to separate the Florim property from the S.Francesco road. It took 3 months to erect a boundary fence of about 340 meters of double-sided porcelain stoneware slabs 180 cm high and 26.5 cm wide, supported by a steel frame. With a total of 1,122 slabs, the fence was designed to withstand weather, earthquakes and the forces generated by traffic passing at high speeds. Installed at different angles, the slabs create attractive effects with light and shade, demonstrating the importance of sophisticated aesthetics to the company's identity. New Awards Florim's large slabs are the featured products in the various awards received, and have been assigned one of the most important accolades in the design world with an Honourable Mention at the XXIV edition of the ADI Compasso d’Oro awards. Just a few months after its launch, the CEDIT brand also received major awards at the global level: the NYCxDESIGN Award in New York, the Hospitality Design Awards in New York, “100 Best of 2016” at the Archiproducts Design Awards 2016 and the Best of the Best (April 2017) in the "Design Product" category at the coveted German Red Dot Design Award. More recognition came from the Emilia-Romagna Region's 2016 awards for Corporate Social Responsibility projects run in the local community. A prize in the “Business and Education” category was assigned to the Master in Florim project, which aims to give young people the skills required for sustainable development. 2016 Sustainability Report 11
A year of Florim events In the age of digital transformation, Florim still believes in the importance of creating opportunities for meeting and exchanging ideas, and in 2016 more than 12,000 people came to the Florim Gallery (a multi-purpose space of 9,000 m² at the Fiorano headquarters). Events of social usefulness, workshops, community projects and business occasions: our training, events and hospitality staff were busy on many different fronts. It was also a major year for off-site events. The Florim Flagship Store in Milan and the just-opened New York Flagship Store hosted more than 3,200 people at events for architects and designers, supported with important partnerships with POLI.design and leading publishers. Florim also chose the world-famous Peggy Guggenheim Collection in Venice as the location for two exclusive events to highlight the partnership agreement signed with Guggenheim Intrapresæ. A dinner in the wonderful setting of the museum's panoramic terrace followed speeches by distinguished guests: Ettore Mocchetti, Martino Gamper, Domitilla Dardi, Giorgia Zanellato, Daniele Bortotto, Franco Guerzoni and Benedetto Fasciana. The final event of the year was held for the employees, with a “White Christmas Party” evening at a Florim Gallery decorated for the festive season. View the Florim event at the Guggenheim L’Arte del Design - Florim event at the Peggy Guggenheim Collection (Venice) 12 2016 2016 Sustainability Sustainability Report Report
GOVERNANCE Code of Ethics The group's governance plays a central role in the responsible development of its business, ensuring ethical, transparent management of its operations with its stakeholders' interests always in mind. After approving the Governance Model compliant with the provisions of Italian Legislative Decree 231/2001, the Florim Board of Directors signed and promoted the corporate Code of Ethics (revised in June 2016), which has become an integral part of Florim's business and is accepted by every new employee, supplier and agent. To guarantee the application of and compliance with its contents, a Supervisory Board was established to detect any breaches of its provisions. All stakeholders can also contact the Supervisory Board, (organismodivigilanza@ florim.it) for further explanations regarding the interpretation and application of the corporate Code of Ethics, as described on the corporate website. The following is an extract from the rules of conduct which govern the way we do business: Our mission To manufacture ceramic tiles and materials for multiple uses and offer the most appropriate solutions for both interior design and architecture. To constantly prioritise environmental sustainability, attempting to satisfy the needs of customers and to create value for shareholders, employees and the local community, in compliance with the ethical principles and rules of conduct set out in the Code of Ethics. Our vision To be at the cutting edge of technical and design innovation in ceramics, by developing materials and production methods that position us as a constant benchmark for customers, architects and competitors. Our values Honesty and Respect: all internal and external relationships must be based on honesty and respect for rules and dignity of the individual. Corporate Social Responsibility: corporate social responsibility must be promoted through measures and practices adopted to support the local environment and community. Individual Responsibility: everyone must be aware of the worth and consequences of their own actions. Quality and Innovation: excellence must be pursued by improving products, processes and skills to promote corporate success. Transparency: intentions and positions must be expressed openly and clearly, without misunderstandings or misrepresentation, to build lasting relationships based on trust both inside and outside the company. Courage: a moral strength which enables us to undertake and deal with changes, difficulties and challenges to benefit from all the opportunities they offer. Feeling of Belonging: feeling proud to be a part of one big team, made up of the company, associates, customers and suppliers. Management System Policy To achieve greater and greater transparency in its reporting, the company has drawn up guidelines for its quality, environment, safety, and energy management system. Read more 2016 Sustainability Report 13
Corporate Bodies Florim Ceramiche s.p.a. is a family-run business with fully subscribed, paid-up share capital consisting of 50,000,000 ordinary shares with a face value of 1 Euro each. The capital is 100% owned by the holding company FinFloor s.p.a., with registered office in Fiorano Modenese, which is in turn indirectly owned by the Lucchese family through Fin-Twin s.p.a. The Board of Directors has 11 members: CLAUDIO LUCCHESE Chairman DONATO BRUNI Deputy Chairman ERMES GIUSEPPE FERRARI Managing Director MARIADELE LUCCHESE Director GIOVANNI GROSSI Managing Director ANNA LUCCHESE Director OSCAR ISEPPI Managing Director FRANCESCA LUCCHESE Director DORVAN SAZZI Managing Director GIOVANNI LUCCHESE Director STEFANO TORRENTI Managing Director The Board of Directors has a mandate of one year and new elections will coincide with the approval of the financial statements. The Board of Statutory Auditors is composed of three members whose term of office is three years, from their appointment on 12/5/2016 until approval of the 2018 financial statements. The financial statements of Florim s.p.a., and the consolidated financial statements of FinFloor s.p.a. and Fin-Twin s.p.a., are audited and certified by Deloitte s.p.a. Corporate Structure The changes to be noted since the previous financial statements include the incorporation of “Mordano 4 s.r.l.” and amalgamation by acquisition of Maker s.r.l. in Florim Ceramiche s.p.a. FIN TWIN s.p.a Share capital € 540,800 85% 54.2810% MORDANO 4 s.r.l. Share capital € 100,000 FINFLOOR s.p.a. Share capital € 10,500,000 100% FLORIM CERAMICHE s.p.a. single shareholder company Share capital € 50,000,000 EDIL FLOOR s.u.r.l. 100% Share capital € 98,126.81 FLORIM BRASIL Ltda 1% 99% DISTRIBUIÇÃO DE CERÂMICAS Ltda Share capital R$ 461,000.00 30% KRONOS 2 CERAMICHE s.p.a. ISABELLA s.r.l. 10% Share capital € 1,646,799 1% FLORIM RUS 99% Share capital € 100,000 Share Capital 100,000 Roubles FI HOLDING, Inc. 100% 96.67% FLORIM USA, inc. 100% Fondazione Ing. G. Lucchese Share capital USD 50,000 Share capital USD 51,865,541 Endowment € 60,000 100% FLORIM SOLUTION Inc. Share capital USD 845,943 100% FABBRICA delle MATERIE s.r.l. Share capital € 10,000 FLORIM FAR EAST PTE Ltd. 100% Share capital S$ 10,000 14 2016 Sustainability Report
Stakeholders Stakeholders are all individuals and groups who may influence or be influenced by a company's operations in terms of policies, products and working processes: shareholders, employees, customers and consumers, suppliers, local government, the local community, banks and trade unions. Employees and Trade Unions Florim makes the following commitments to its employees: • to guarantee equal opportunities, fair pay and professional growth • to reward its human resources on the basis of transparent, meritocratic criteria • to create safe working environments and processes • to guarantee transparency and clarity in contract conditions • to encourage dialogue and internal communications Customers and Consumers In dealing with its (retail) customers, Florim is committed to: • creating a relationship of trust as a stable basis for business • guaranteeing clarity in contracts and prices • guaranteeing the reliability of its products and developing customer service • offering, innovative, safe, environmentally sustainable products • providing a diversified offering with services with high value added The overall aim is also to satisfy the expectations and demands of the final consumer Developers, Architects and Interior Designers To meet the needs of developers, Florim is committed to: • offering state-of-the-art solutions in terms of environmentally sustainability technology and design • establishing and fostering relationships with partner professionals • providing consulting and technical experience from the project concept through to installation • supplying turnkey solutions Local Communities and Local Government In its relationships with local communities and local institutions, Florim is committed to: • guaranteeing dialogue, cooperation and transparency • giving value back to the local communities in the areas where it operates • continually improving the environmental performances of processes • researching, developing and using the most sustainable technologies • making an economic contribution to local sporting and social projects for children and young people Suppliers When selecting its suppliers Florim pays close attention to companies’ CSR practices. Florim's relationships with its suppliers are based on compliance with the values of its code of ethics; otherwise, contracts are automatically terminated. Florim also guarantees certainty in payment times and compliance with contract terms provided the goods and services contracted are delivered as agreed. 2016 Sustainability Report 15
Materiality Approach In 2015, the company began an internal analysis process based on the materiality principle, in order to identify the sustainability issues of relevance both for the Group (including Florim USA) and for all stakeholders. Materiality is the threshold above which a topic becomes sufficiently important to be included in the report. In fact, organizations are faced with a large number of topics on which they could report. Relevant topics and indicators are those considered important for reflecting the organization's economic, environmental and social impacts, or which influence the decisions of its stakeholder, and which therefore potentially merit inclusion in the report. In accordance with the GRI – G4 Guidelines, Florim has analyzed and identified "relevant" topics, which were assessed by the working team which drafted the Sustainability Report, on the basis of discussion with the main stakeholders. The findings which emerged were supported by a qualitative survey external to the company's context, examining: an analysis of the press gallery (more than 650 articles), competitors' Sustainability Reports, the Emas Study of the Fiorano and Sassuolo Ceramics District and the GRI document – “Sustainability Topics for Sector: What do Stakeholders want to know?”. In the chart below, the aspects found to be most important appear in the top right-hand corner and constitute a strategic priority for the Group. The topics in the bottom left-hand corner, such as biodiversity, prevention of corruption and absence of discrimination, are less relevant because they are easy for both the organization and stakeholders to manage and no problems have ever been reported over the years. Similarly, the protection of human rights is now taken for granted, since Florim complies strictly with all the provisions of the National Employment Contract. Importance for stakeholders low medium high Economic performance Development of Regulatory human resources compliance Environment Quality of products and training and safety offered to customers Transparency of financial and other Green information products and services Energy Investments in Market share Raw materials efficiency the local community and social welfare Water saving Ethical Direct and indirect supplier environmental Indirect economic management impacts impacts Sustainable transport Diversity and equal management opportunities Prevention of Biodiversity corruption Absence of discrimination Protection of Human Rights low medium high Importance for Florim spa ENVIRONMENT EMPLOYEES/ASSOCIATES PRODUCT RESPONSIBILITY COMMUNITY ECONOMIC PERFORMANCE HUMAN RIGHTS 16 2016 Sustainability Report
REPORTING In brief Economic Profile FinFloor consolidated (in thousands of Euro) 2012 2013 2014 2015 2016 Net earnings 315,344 325,853 329,533 374,094 406,759 EBIDTA 59,608 72,986 84,395 98,115 107,186 Operating result 35,717 50,996 58,508 66,255 71,028 Gross cash flow 52,710 68,312 83,274 97,268 109,148 Net profit 26,103 35,732 36,433 43,324 49,347 Net financial indebtedness (127,730) (96,500) (54,524) (27,326) (12,508) Final inventory 95,514 84,432 90,283 92,795 96,721 Net shareholders' equity 186,905 218,847 276,916 332,721 369,937 Total investments 32,572 48,780 41,584 34,215 53,531 Environmental Profile 2012 2013 2014 2015 2016 Waste produced (t) 30,228 21,170 22,300 30,862 34,423 Recycled third-party waste (t) 4,028 4,190 1,721 2,570 5,627 Total water consumption (m³) / finished product (t) 0.75 0.75 0.78 0.69 0.71 Recycled water percentage 100% 100% 100% 100% 100% Self-generated energy in relation to consumption 67% 68% 62% 65% 75% Investments in environmental management (€,000) 13,617 2,493 1,995 465 6,400 Social Profile 2012 2013 2014 2015 2016 Number of employees at 31/12 1,037 992 984 982 987 Total number of training hours 14,690 9,124 9,056 7,176 10,606 Number of training hours on environment and safety 7,572 4,514 4,200 3,008 2,489 Number of workplace injuries 63 62 74 56 43 Environmental and social profile figures refer to Florim Italy; for Florim USA please see the relevant section (from page 37). 2016 Sustainability Report 17
Economic Responsibility Comments on 2016 Economic Data The Group's 2016 results were again good from every point of view. Compared to the previous year, turnover increased by 8.7%, leading, thanks to careful management of production costs, to an EBITDA of Euro 107.1 million, equivalent to 26.3% of turnover and a profit, after tax, of Euro 49.3 million. The company's financial data also significantly improved, with a net financial position of Euro 12.5 million compared to Euro 27.3 million at the end of 2015, in spite of record technical investments of Euro 53.5 million and financial investments of Euro 11 million. Once again, underlying the results achieved were large investments in latest-generation machinery and technologies, painstaking research to develop materials with exceptionally high technical and design content, human resources, and projects for the increasingly direct promotion of Florim's image and quality standard. Investments The technical investments made in 2016 amount to Euro 53.5 million, while Euro 11 million was spent on reacquiring 100% ownership of Maker s.r.l., followed by its amalgamation with Florim s.p.a. on 31 December. The most important industrial projects included the continuation of the work on the Mordano plant, which involved investments of Euro 26 million for the restructuring of the raw material preparation area and the doubling of production capacity for traditional porcelain stoneware. The investments of US$ 18 million at Florim USA were utilised to complete the renewal of the raw material preparation area and construct a new building for the technical organization. Finally, about 9 million Euro was invested at Fiorano on various production line modernization projects. Spazio CEDIT Watch the inauguration video A creative hub for design, style and new trends, Milan once again confirms that it is the ideal setting for Florim's investments, and the opening of the all-new “Spazio CEDIT” confirms the company's determination to strengthen its bonds with design professionals working in high-end interior design. The culture of beauty, art, architecture and design are all integral to the genetic make-up of CEDIT – the historic Italian brand relaunched by Florim in 2016 – and dominate the display areas and the first six ceramic covering collections styled by famous names on the contemporary creative scene. On two levels with a total floor area of more than 200 m², the space maintains the same stylistic identity as the one at Fiorano Modenese, since they are both constructed to an architectural design intended to be replicated in CEDIT customers' showrooms worldwide. 18 2016 Sustainability Report
Economic Value Generated and Distributed The figures for the economic value generated and distributed provide a simple, clear explanation of how Florim has created wealth and redistributed it to its stakeholders. The table below contains the data from Florim's 2016 financial statements, approved by the Board of Directors on 30 March and certified by external auditors. The economic value directly generated is represented by the total earnings for 2016, while the economic value distributed includes the costs incurred for suppliers and employees, payments to the state (taxes) and the donations which had positive repercussions for the community to which Florim s.p.a. belongs. Heading 2014 2015 2016 Revenues 253,125 269,855 302,521 Direct economic value generated 253,125 269,855 302,521 Operating costs 135,735 150,951 168,809 Employee wages and benefits 56,985 58,149 62,418 Payments to providers of capital 7,413 6,399 11,903 Payments to government 15,738 13,162 15,382 Community investments 221 212 240 Economic value distributed 216,092 228,873 258,752 Economic value retained 37,033 40,982 43,769 The data in the table are in thousands of Euro and refer to the consolidated financial statements of the Italian companies only. Key Revenues: net sales plus revenues from financial investments and sale of assets Operating Costs: payments to suppliers, non-strategic investments, royalties, payment facilitations Employee wages and benefits: employee wages and benefits per employees (current payments) Payments to providers of capital: all payments to the organization's providers of capital Payments to government: gross taxes and duties Community investments: voluntary donations and investments in the community Economic value retained: calculated as economic value generated less economic value distributed KBIS (USA) - detail of the stand created with “I Classici di Rex” 2016 Sustainability Report 19
Casa dolce casa – Argille 2.0 Collection 20 2016 Sustainability Report
Environmental Responsibility Effective environmental policy management, energy saving and emissions reduction are amongst Florim's strategic sustainability objectives. Our "green" projects in figures 2 highly-regarded 16,000 m² process certifications: 4 latest-generation of photovoltaic panels covering ISO 14001 (ENVIRONMENT) industrial kilns installed in an area of 30,000 m² and ISO 50001 (ENERGY) the last 3 years CO2 1 laboratory for the development of 8,462 tons contemporary design projects with a 2 departments of CO2 NOT emitted specific focus on the materials' green (marketing and communications) content engaged on digitizing advertising tools 75% is the percentage of the 2 cogeneration plants electricity consumed which is 100% is the percentage of to increase energy saving produced in-house wastewater recycled and efficiency 84,987.3 MWh 4 different types of 100% is the amount of electricity the environmental product company succeeded in producing certification is the percentage recycling of in-house during 2016 industrial greenware waste in the production process 2016 Sustainability Report 21
Certifications System and process certifications: UNI EN ISO 14001 TÜV has awarded Florim the highly-regarded UNI EN ISO 14001 voluntary certification, which confirms its compliance with a series of internally certified procedures intended to improve the internal environmental management system. The decision to seek this certification springs from the desire to reconcile quality with efficiency and productivity while protecting the environment and community in which the company operates. UNI EN ISO 50001 Thanks to a careful energy management policy and aided by the latest investments in the production area also intended to improve energy efficiency, Florim was the world's first ceramics manufacturer to obtain ISO 50001 certification of its Energy Management System. In addition to its environmental certifications, Florim has also been awarded prestigious AEO (Authorized Economic Operator) status. Further to a lengthy and demanding audit process by the Customs Authorities, in 2016 Florim was awarded AEO certification, the first company in the Province of Modena to receive this major form of approval. Authorised Economic Operator status guarantees the company's absolute compliance with customs and security requirements in its foreign trade. Environmental Management Florim's operations have always been oriented towards optimization of impact on the local community and environment. Thanks to the work of its research laboratories, the support of all staff and the recent investment plans, tangible results have been achieved. The data provided below reveal that in spite of an increase in production of 8% compared to the previous year, consumption remains low. The company's commitment to environmental protection is all-inclusive, and also comprises a focus on the district within which it operates. One example is the total removal of all asbestos cement from the Fiorano Modenese plant and the creation of the new recycling station, opened in 2015 and donated to the Local Authority as a public service. As in previous years, during 2016 Florim was not fined for any breaches of environmental regulations or laws. Waste Management Florim recycles and optimises, within the production process, all greenware scraps, dust residues from filters and sludge from the process and rectification wastewater treatment system. The waste produced is detailed in the table; the significant differences between years are due mainly to the major demolition and subsequent reconstruction works undertaken at the Italian plants. Waste 2012 2013 2014 2015 2016 Total waste produced (t) 30,228 21,170 22,300 30,862 34,423 Non-dangerous recyclable waste (such as paper and 98.9 98.2 98.5 99.1 98.9 cardboard, fired scraps, plastic, glass and wood) (%) Non-dangerous disposed-of waste 0.2 0.4 0.2 0.2 0.2 (such as the waste picked up by the motor sweepers) (%) Dangerous recyclable waste (such as spent oil, batteries and 0.0 0.1 0.1 0.1 0.0 monitors) (%) Dangerous disposed-of waste (such as spent lime) (%) 0.1 1.3 1.2 0.7 0.9 Third-party waste recycled within the production process (t) (%) 4,028 4,190 1,721 2,570 5,627 * Besides recycling greenware waste from its own production cycle (not included in the table because the amount cannot be calculated), Florim also recycles third party waste. 22 2016 Sustainability Report
Water Resources No environmental impact of wastewater discharges is specified since all the water from the production cycle is completely reused (100%). All other effluents comply with legal requirements. WATER USE 0.8 0.8 0.8 0.7 0.7 Total water consumption (m³) / finished product (t) 2012 2013 2014 2015 2016 The figure states the total cubic meters of water used per ton of finished product. The water used in the Fiorano production process is drawn from private, company-owned wells, with water from the public main only used for non-industrial purposes. The Mordano plant is supplied by an industrial water main. Water use is measured by means of meter readings. Four highly innovative dry rectifying plants have gone into production at Mordano since 2015, enabling the company to eliminate the physical/chemical treatment of the water used in the rectification process. Raw Materials and Biodiversity As the materiality assessment states, Florim has no significant impacts on the biodiversity of its local area since the company is located inside the Fiorano Modenese ceramics manufacturing district, at least 5 Km from the nearest nature reserve at Salse di Nirano. Florim takes special care over the choice of the raw materials used for its tile body mixes, of which it is required to provide documentation guaranteeing compliance with the European Directives protecting wild birds (EU Dir. 79/409/EEC) and habitats (EU Dir. 92/43/EEC) and the United Nations Convention on the protection of biodiversity. It has also introduced a software program - used at the 3 production plants (Italy and the USA) - for the management of data on the origin of raw materials, such as quarry location, distance from the factory, recycled content declaration, technical, safety and radioactive content data sheets and the expiry of the quarrying permit issued by the government. Packaging and Coverings All packaging used for Florim materials is made from recycled paper and parts of the coverings used to protect pallets of finished products consist of recycled plastic. What's more, all the packaging used (boxes, cardboard, shrink wraps, pallets, etc.) can be completely recycled by the end user. The latest investments made include new eco-friendly packaging machines, increasing the number of these machines installed to 15. These plants completely eliminate waste due to leftover inventory, saving significant amounts of cardboard. 2016 Sustainability Report 23
Energy Management There is no disputing that large amounts of energy are required to power the production processes of ceramic tile plants, with consequent direct and indirect impacts on the local area and the environment. The main indicator used to measure plants' energy performance is the mean specific total energy consumption (TEJ) measured in GJ/t of product transferred to stock. As the table below shows, this figure is obtained by adding together heat consumption (NGJ) and electricity used (EEJ). Parameter – Definition Unit of 2012 2013 2014 2015 2016 measurement NGJ Mean specific natural gas consumption GJ/t 5.57 5.71 5.76 5.78 5.98 in relation to the unit of weight of finished product transferred to stock EEJ Mean specific electricity consumption in GJ/t 1.11 1.08 1.11 1.08 1.07 relation to the unit of weight of product transferred to stock TEJ Mean total specific energy consumption in relation to the unit of weight of product GJ/t 6.68 6.79 6.86 6.85 7.05 transferred to stock % Self-generated electricity as a proportion of % 67 68 62 65 75 consumption With two cogeneration plants (for the combined in-house production of heat and electricity) and 16,000 m² of photovoltaic panels, the company certainly sets a new benchmark for the entire ceramic tile industry. 2016 saw the replacement of the Fiorano turbine set (the main component of the cogeneration plant) while the one in Mordano was kept in operation 24/7, factors which led to a 10% increase in in-house electricity production in relation to consumption. To provide a clearer idea of the scale of the achievement, the amount of electricity the company generated in-house in 2016 (84,987.3 MWh) would cover the average annual consumption of about 37,000 households. (With consumption per household of 2.29 MWh - data from the latest ISTAT survey in 2012– calculated on the Italian average). Photovoltaic Plant The 16,000 square meter photovoltaic plant received recognition from GSE (Energy Management Services) as one of the most innovative installations of its type, and from its commissioning (October 2011) up to December 2016 it produced the following results: kWp kWh produced kg of CO2 not emitted 2,700.21 15,937,250 8,462,680 Good Practice The head office organizations are also optimizing paper and energy consumption. In addition to issuing and distributing the energy saving handbook for its offices, the company is also trying to maximize savings on the raw material used, and specifically the use of paper. Internally, the company only purchases reams of paper which carry environmental certification and the paper used in offices is collected separately for proper disposal. Externally, the company distributes a system of merchandising products made mainly from recycled paper and encourages the gradual digitization of its marketing tools: as well as publishing all its catalogues in digital format on its Internet sites, Florim offers its distributor companies an innovative digital touch screen tool with the pdf versions of the catalogues and other tools for the final consumer. In 2016 Florim decided to adopt a new payslip distribution procedure, introducing an online processing system. As well as providing employees with new functions and greater operating flexibility, thanks to this system the company no longer prints out the monthly payslips, saving paper, ink and energy. The scheme, initially involving all office workers, has the ambitious target of also including the staff of the Fiorano and Mordano plants. 24 2016 Sustainability Report
Transport The materiality study reveals that transport is a significant factor for both stakeholders and Florim itself. The company is not able to measure the impact of transportation of finished product on the local area since all shipments are ex-works. However Florim, which has been introducing electric vehicles to replace its oldest, most obsolete unleaded petrol forklifts for years now, has further optimized the handling of materials thanks to the new, highly-automated logistics hub created at the via Canaletto location. In 2016 about 53% of the vehicles used on the company's premises were electric, with no direct greenhouse gas emissions. Atmospheric Emissions The industrial facility emits greenhouse gases, basically CO2, from the following main sources: • combustion, from the burning of fossil fuels (such as natural gas) • processes, from the minerals in the raw materials, any organic matter in the clays used, and any organic additives in tile body mixes. In order to comply with Directive 2003/87/EC (ETS - Emission Trading Scheme), Florim has been reporting and certifying its CO2 emissions since 2013. CO2 emissions 2013 2014 2015 2016 CO2 emissions (t) 102,728 103,462 111,862 132,960 CO2 emissions (t) / Finished product (t) 0.33 0.33 0.33 0.35 Emissions from the production cycle 2013 2014 2015 2016 Particulate material (g/m² finished product) 2.23 1.30 0.98 1.18 Lead (g/m² finished product) 0.00 0.00 0.00 0.00 Fluorine (g/m² finished product) 0.14 0.18 0.13 0.12 The increase in CO2 is due mainly to the large increase in the square meters produced (+ 8%) and the 24/7 use of the cogeneration plant. However, it should be noted that the cogeneration plant provided a 10% increase in in-house electricity generation, with lower CO2 emissions than electricity purchased from the grid, produced mainly using fossil fuels (source: ISPRA, Fattori di emissione atmosferica di CO2 e sviluppo delle fonti rinnovabili nel settore elettrico, Rapporti, [Atmospheric CO2 Emission Factors and Development of Renewables in the Electricity Sector, Reports] 212/2015). The ratio between CO2 emissions and tons of finished product produced increased because in 2016 the sale of spray-dried material to other companies rose compared to the previous year (emissions from this phase are included in the emissions count but there is no corresponding output of finished product). In a change from previous years, the new GRI-G4 guidelines also require reporting of nitrogen oxide and sulphur oxide emissions. Nitrogen oxide (NOx) emissions are within the limits permitted under the integrated environmental authorisation. Sulphur oxide (SOx) emissions are not reported here since this figure is not required by the IEA. 2016 Sustainability Report 25
CEDIT – Creative Composition 26 2016 Sustainability Report
Social Responsibility Employees & Corporate welfare Its employees are the heart and soul of Florim; they provide its character and its DNA. Since 2009, when the current major economic crisis began, Florim has undertaken a number of income support programs for its workforce. Below we summarise some of the ongoing programmes and others run in 2016. • Ending of the Income Support Program for the Mordano plant • Agreement with Sassuolo Hospital under which Florim employees and their family members enjoy discounts and shorter waiting times for specialist examinations and outpatient diagnostic tests performed on a private basis • Special agreements with local health facilities • Tax advice at special rates • Special terms for banking services, with financial consultants on-site • Discounts on the purchase of Florim products for employees' homes • Free entry to the Peggy Guggenheim Collection in Venice for employees and concessions for family members • Free provision of water and mineral salts in the plants during the summer • Distribution of fuel vouchers to employees for the Christmas holidays. Workforce Composition Manager Executive Office worker 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 Women 2 3 3 3 3 1 1 1 137 142 133 149 Men 18 21 20 18 21 24 25 28 127 132 128 132 Total 20 24 23 21 24 25 26 29 264 274 261 281 Office ancillary Blue-collar worker Total 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 Women 18 16 25 19 226 219 212 196 385 381 375 368 Men 64 68 79 64 376 358 356 377 607 603 607 619 Total 82 84 104 83 602 577 568 573 992 984 982 987 In 2016 the workforce included 27 people with disabilities, 6 women and 21 men. Bearing in mind the job descriptions arising from the specific industrial sector, the breakdown between men and women is in line with the industry average. Male office workers and executives earn an average of 10% more than women for jobs of equal responsibility. Among blue-collar workers, the difference is 7%. The company had a total of 29 foreign employees: 24 at Fiorano and 5 at Mordano. Summer Play Schemes and Crèches In 2016 the summer play schemes for the children of employees at Fiorano and Mordano were continued for the fifth year in succession. Seven different centers, across the area between Modena and Bologna, hosted 85 children (twice the number of the previous year); the company paid the fee for two weeks' attendance. What's more, since 2013 the company has negotiated special terms with local crèches, which now offer a number of places for employees’ children at a reduced fee. 2016 Sustainability Report 27
Human Resources Management Policies In July 2015, on renewal of the in-house supplement to the national employment contract, the Management introduced a new phase in its relations with the Trade Unions, with the aim of continuing and improving the good relationships enjoyed for decades. The new company contract, applied for all employees at the Fiorano headquarters, includes more facilitations for part-time working the willingness to allow flexitime where feasible and the commitment to invest in staff training in order to generate full benefits from intellectual capital. The company and the trades unions agreed on a plan to improve efficiency, fundamental for maintaining the current level of competitiveness, by establishing improvement in Production Efficiency and EBITDA as criteria for the payment of the new Performance Bonus. The individual Attendance Score is considered together with these parameters. The 2016 Performance Bonus, in its first year of application, was 20% higher than that paid in 2015. In addition, in response to employees' requests, the Company increased the number of approved canteens, extending the choice available, and also introduced weekly laundering of work clothing for all production workers. With regard to applications for severance pay advances, the Company confirms its commitment to continuing the policy implemented so far. Training Florim believes that in-house training plays a key role in the company’s development, and provides a tool for stimulating and fulfilling the potential of its human resources. More than 10,600 training hours were provided in 2016 to 847 people, with an average of more than 11 hours of training per employee. New projects included a 6-month on-line English language course, which attracted a large number of participants, and two highly structured training courses for the sales division and the communication department. A retraining program for workers at the Mordano plant was also completed; it comprised 4 technical courses attended by 31 people, for an average of 13 hours per person. Another new entry for 2016 was an innovative procedure for acquiring information about training needs, using an on-line questionnaire available to all employees as well as line managers' specific recommendations. The Master in Florim project is discussed in depth in the specific section. Health and Safety Florim was the first Italian ceramics manufacturer to receive BS OHSAS 18001 (Occupational Health & Safety Assessment Series) certification from TÜV; this international standard certifies the implementation of an internal management system oriented towards occupational health and safety. This major award confirms the company's constant commitment to the well-being of its employees. Every year, in addition to engineering inspections and machinery maintenance, a number of hours of safety training are organised to raise awareness among workers and supervisors. Specifically, in 2016, 2,849 hours were dedicated to safety training and a significant reduction in injury rates was recorded. Moreover, BLSD refresher courses are continuously held for the team of Florim employees trained in first-aid operations and the use of the defibrillators available on site. 2012 2013 2014 2015 2016 Number of workplace injuries 63 62 74 56 43 28 2016 Sustainability Report
Master in Florim Watch the video of the 4th edition The Master in Florim, organized for the fourth time in 2016, is a vocational training project which aims to bridge the gap between education (high school or university) and the world of work. The program, which is one of the company's Social Responsibility projects, sets out to help young people to get to know the company through a well structured work experience plan. It offers a distinctively northern European approach, with a method which alternates classroom teaching with internships in the various areas of the company. Participants, new university or high school graduates specialising in various subjects, all below 30 years of age, are therefore able to gain hands-on experience of all Florim departments, from R&D to the production process and product distribution, for an all-inclusive vision. The MASTER course's ambitious aim is to match the individual participants' talents with the company's real needs. At the end of each edition, the company hires all or some of the selected candidates, enabling it to acquire new skills, new experiences and new energy. Master 4.0 in figures 20 young people taking part 6 months of training 13 external lecturers 264 hours of classroom teaching 392 hours of practical training 4 company visits (Ferrari, Tetrapak, Cremonini and Ducati) 50 days of work experience on rotation, involving 15 departments 1 month of project work The project's prestige is enhanced by its economic context, since Florim pays the young participants for the entire period, and its aim is to deal with the thorny problem of youth unemployment. The Master has won approval from various faculties at major Italian universities. The project was also a winner in the Emilia-Romagna Region's 2016 awards for Corporate Social Responsibility projects run in the local community. A prize in the “Business and Education” category was assigned to the Master project, which aims to give young people the skills required for sustainable development. 2016 Sustainability Report 29
Local Community & Culture This chapter describes a number of programs Florim runs for the local community in the area where it originated and where it has been working for more than 50 years. Fondazione Ing. Giovanni Lucchese More than thirty years after the untimely death of Giovanni Lucchese – founder of what was then Floor Gres, currently Florim – in 2013 his family established a Foundation in his name, which since then has funded organizations and associations that support families in need in the ceramics district. The Foundation also supports a variety of projects such as the summer play scheme for employees' children, the Premio Lucchese and the Florim Health&Training Center, described in more detail below. The main projects undertaken in 2016 include the funding of the purchase of 10 defibrillators for the Municipality of Fiorano and the contributions made to the purchase of paediatric ambulances for the local area and to support the Parish charitable organizations and social services in the district. Aziende modenesi per la RSI “Aziende Modenesi per la RSI”, an independent, open, inclusive association of companies in the Modena area which believe in the principles and values of Corporate Social Responsibility, was established by public deed on 30 September 2014, with Florim as a founding member. Florim hosts the association's member companies every year to discuss the various topics proposed. Premio Lucchese The Premio Lucchese, presented for the twenty-ninth time in 2016, was established in memory of Giovanni Lucchese, and consists of scholarships awarded to students at the “Alessandro Volta” Technical High School in Sassuolo who graduate with full marks. The award ceremony, held Watch the every year at the Florim Gallery in association with Società Ceramica Italiana of Bologna, includes Premio a talk given by a leading personality on a topic of current interest to an audience of eager young Lucchese video listeners. Politecnico di Milano Since the 2005/2006 academic year Florim has been a partner sponsor of a large number of Postgraduate Courses run by POLI.Design, the Politecnico di Milano consortium which organizes its Master Degree courses. Also in association with POLI.Design, since 2012 Florim's Milan showroom has hosted several design events for architects and designers of every nationality. Intrapresæ Collezione Guggenheim As befits a company that combines the values of its local community and historic and artistic heritage with a flair for research and innovation, Florim recently launched a partnership with the Peggy Guggenheim Collection. Since its foundation, Florim has always had a unique ability to incorporate the true cultural significance of its industry in its business model, and by this project once again confirms its commitment to promoting art by supporting a collection of extraordinary beauty. 30 2016 Sustainability Report
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