2014 Annual Report Asts Group

Connecting Pieces of Your World 2014 ANNUAL REPORT ANSALDO STS GROUP 2014 Annual Report Ansaldo STS Group (Translation from the Italian original which remains the definitive version) Contents 1 Company bodies and committees 4 Directors’ report at 31 December 2014 2 Financial position and results of operations of the Group 6 2.1 Introduction 6 2.2 Key performance indicators 7 2.3 Net financial position 10 2.4 Non-IFRS alternative performance indicators 12 2.5 Related party transactions 13 2.6 Performance 14 2.6.1 The market and commercial situation 14 2.6.2 Sales information 15 2.6.3 Business performance 16 2.7 Reconciliation between the profit for the year and equity of the parent and the group at 31 December 2014 18 3 Key events of and after the reporting period 19 4 Risks and uncertainties 21 4.1 Strategic risks 21 4.1.1 Changes in the macroeconomic and market context and streamlining programmes 21 4.1.2 Innovation: a competitive factor 22 4.2 Operational risks 22 4.2.1 Country risk for new markets 22 4.2.2 Reliance on public customers and long-term contracts 22 4.2.3 Budgeting and risk management project planning 23 4.2.4 Third parties (subcontractors, sub-suppliers and partners) 23 4.2.5 Efficient technical operations and relevant technical references 23 4.2.6 Liability to customers or third parties for product defects or delivery delays 24 4.2.7 Legal disputes 24 4.2.8 Human resource management 24 4.2.9 Health, safety and environmental compliance 24 4.3 Financial risks 25 4.3.1 Ability to finance a high level of current assets and obtain guarantees 25 4.3.2 Project Financing and PPP (Public and Private Partnership) transactions 25 4.4 IT risks 26 4.4.1 IT system management 26 5 The environment 27 6 Research and development 31 7 Human resources and organisation 33 7.1.1 Ansaldo STS 33 7.1.2 Subsidiaries 34 7.1.3 Headcount at 31 December 2014 34 7.2 Incentive plans 34 7.2.1 Stock grant plans 34 7.2.2 LTIPs 35 7.3 Investments held by directors 35 8 Financial disclosure 36 9 Corporate Governance and ownership structure pursuant to article 123-bis of Legislative decree no. 58 of 24 February 1998 and subsequent amendments and integrations (the Consolidated Finance Act) 38 Consolidated financial statements at 31 December 2014 and notes thereto 10 Consolidated financial statements 42 10.1 Income statement 42 10.2 Statement of comprehensive income 42 10.3 Statement of financial position 43 2 10.4 Statement of cash flows 44 10.5 Statement of changes in equity 45 11 Notes to the consolidated financial statements at 31 December 2014 46 11.1 General information 46 11.2 Basis of preparation 46 11.2.1 Accounting policies 47 11.2.2 Effects of amendments to the IFRS 58 12 Segment reporting 61 13 Notes to the statement of financial position 62 13.1 Related party assets and liabilities 62 13.2 Intangible assets 66 13.3 Property, plant and equipment 67 13.4 Equity investments 68 13.5 Loans and receivables and other non-current assets 70 13.6 Inventories 70 13.7 Contract work in progress and progress payments and advances from customers 71 13.8 Trade receivables and loan assets 71 13.9 Financial assets measured at fair value through profit or loss 72 13.10 Tax assets and liabilities 72 13.11 Other current assets 73 13.12 Cash and cash equivalents 73 13.13 Share capital 74 13.14 Retained earnings 75 13.15 Other reserves 75 13.16 Equity attributable to non-controlling interests 77 13.17 Loans and borrowings 77 13.18 Provisions for risks and charges and contingent liabilities 78 13.19 Employee benefits 79 13.20 Other current and non-current liabilities 80 13.21 Trade payables 80 13.22 Derivatives 81 13.23 Guarantees and other commitments 81 14 Notes to the income statement 84 14.1 Impact of related party transactions on profit or loss 84 14.2 Revenue 86 14.3 Other operating income 86 14.4 Purchases and services 87 14.5 Personnel expense 87 14.6 Amortisation, depreciation and impairment losses 88 14.7 Other operating expense 89 14.8 Internal work capitalised 89 14.9 Net financial income/(expense) 89 14.10 Share of profits (losses) of equity-accounted investees 90 14.11 Income taxes 90 15 Earnings per share 92 16 Cash flows from operating activities 93 17 Financial risk management 94 18 Key managers’ remuneration 102 19 Outlook 104 20 Information pursuant to article 149-duodecies of CONSOB Issuer regulation 104 Statement on the consolidated financial statements 21 Statement on the consolidated financial statements pursuant to article 81-ter of Consob regulation no. 11971 of 14 May 1999 and subsequent amendments and integrations and article 154-bis.2 of Legislative decree no. 58 of 24 February 1998 and subsequent amendments and integrations 105 External Auditors’ Report 106 3 Company bodies and committees 1 Company bodies and committees BOARD OF DIRECTORS BOARD OF STATUTORY AUDITORS (for the 2014 - 2016 three-year period) (for the 2014 - 2016 three-year period) SERGIO DE LUCA GIACINTO SARUBBI Chairman Chairman DOMENICO BRACCIALARGHE RENATO RIGHETTI Deputy chairman *1 MARIA ENRICA SPINARDI STEFANO SIRAGUSA Chief executive officer GIOVANNI CAVALLINI (1) (2) SUBSTITUTE STATUTORY AUDITORS GIULIO GALLAZZI (2) (for the 2014 - 2016 three-year period) ALESSANDRA GENCO FABRIZIO RICCARDO DI GIUSTO BRUNO PAVESI (2) GIORGIO MOSCI PAOLA PIERRI (1) DANIELA ROSINA BARBARA POGGIALI (1) INDEPENDENT AUDITORS (for the 2012 - 2020 period) GRAZIA GUAZZI KPMG S.p.A. Board secretary 1. Member of the risk and control committee. 2. Member of the appointments and remuneration committee. * 1 Position held by Luigi Calabria from 15 April 2014 to 1 October 2014. Appointed by the board of directors as of 1 October 2014 pursuant to article 2386 of the Italian Civil Code, Domenico Braccialarghe will remain in office until the next shareholders’ meeting. 4 Directors’ report at 31 December 2014 Financial position and results of operations of the Group | Introduction 2 Financial position and results of operations of the Group 2.1 Introduction Ansaldo STS group recognised a profit of €80.7 million for 2014, compared to €74.8 million for the previous year. Revenue came to €1,303.5 million, up 6% on the previous year (€1,229.8 million) and the ROS was 9.6%, compared with 9.5% in the previous year. The group achieved significant and widely satisfactory results in such a complex and increasingly more competitive market, in line with the 2014 forecasts provided to the market and showing particular improvements in orders, order backlog and ROS. The group’s challenge on the global markets resulted in it obtaining orders worth €1,825.0 million (2013: €1,483.6 million), including the Lima metro (approximately €513.0 million), signing the agreement and funding contract for Line 4 of the Milan metro for an additional amount to the ancillary agreement signed in 2013 (roughly €215.8 million), the turn-key project for the construction of the Aarhus tramway in Denmark (approximately €128.5 million) and the contract for the construction of the Navi Mumbai metro in India (€78.4 million). The overall positive operating performance of the group is confirmed by the on-site installations on some lines of the national railways, particularly for the contract related to the Turin-Padua line, the roll-out of some stations completing the first section of Line 5 of the Milan metro, the opening of the first section of Line C of the Rome metro, activations related to the Ankara metro in Turkey and the deliveries and installations carried out for the AutoHaul project related to the master agreement with Rio Tinto, Australia. Within the group, management implemented and pursued with renewed determination increased levels of operating efficiency and effectiveness through specific action plans. Similarly, on the one hand, in order to create a more efficient corporate and organisational structure for the group, and thus cutting costs also associated with a more effective presence on the global markets, we note the following: • on 18 December 2012, the board of directors authorised the sale of the parent’s investment held through its direct subsidiary Ansaldo STS France S.A.S. in the Venezuelan-based ECOSEN CA. Ansaldo STS France S.A.S. signed a preliminary sales agreement for this investment with an independent party. The transaction is still underway; • in its meeting of 26 June 2013, Ansaldo STS’s board of directors approved the dissolution of the JV in Kazakhstan with JSC Remlokomotiv and authorised the early closure and liquidation of Kazakhstan TZ-Ansaldo STS Italy LLP. The liquidation process is presently underway; • in order to seize the strong sales opportunities arising in the Mass Transit sector, in their meeting of 16 December 2013, the directors resolved to set up a new company in Brazil. Ansaldo STS do Brasil Sistemas de Trasporte Ferroviario e Metropolitano LTDA was thus set up on 5 February 2014, with registered office in Fortaleza, in the state of Ceará; • with regard to that already resolved by the board of directors on 27 September 2013 related to the sale to a local operator of 31% of the shares currently held by the parent via its direct subsidiary, Ansaldo STS Australia PTY Ltd, in the subsidiary Ansaldo STS – Sinosa Rail Solutions South Africa (Pty) Ltd, representing 51% of the entire share capital, the sale took place on 18 August 2014.

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