(Translation from the Italian original which remains the definitive version) ANNUAL REPORT ATM has been a leading transport provider in Milan for 85 years, transporting millions of people around the city every day. Consolidated experience, investment capacity and technological innovation are the foundations of its work. Letter to the shareholder Dear shareholder During the year, ATM S.p.A. significantly improved all its operating parameters. Net profit rose to over €10.8 million compared to €3.08 million in the previous year. Gross operating profit, an indicator of its core business, increased by 25%, reaching over €126 million after having exceeded €100 million in 2014. This increase was the result of the careful monitoring of all costs, which kept cost increases at levels less than proportional to the strong growth of revenues, which came from activities related to Expo and the parent’s overall higher number of passengers and mileage. The substantial economic equilibrium now achieved by all of the investees who have overcome the very critical situation of just a few years ago, along with the excellent performance of the Danish investee, Metro Service A/S, which operates the metro network in Copenhagen very successfully, contributed significantly to the parent’s net profit. At a consolidated level, the Group’s net profit was €25.8 million, including minority interests. An excellent result, with a strong increase compared to the €5.6 million achieved in the previous year. At the same time, the Group’s gross operating profit reached €163 million, a 36% increase compared to €120 million in 2014. From the beginning of 2015 (and in previous years), the whole Group worked towards following goals, fully aware of the complexities involved: the most well known and obvious was to ensure the continuity of an excellent service for visitors during the six months of Expo. Another objective was to balance the accounts in order to ensure the Group’s financial solidity. As these consolidated financial statements show, the Group succeeded in overcoming its challenges on many fronts, simultaneously paving the way for new scenarios in the coming year and the years that follow. The Group took on an exceptional workload for Expo and with a sense of responsibility, dedication and professionalism it transported over 26 million extra passengers, managing extraordinary flows and successfully adapting organisational and maintenance processes. It absorbed the enormous impact of 184 consecutive days of the exhibition without disturbing the balance of the city and ATM’s regular customers, citizens of Milan. The unanimously acknowledged high quality of the service provided for Expo and the perfect organisation shown during the IUTP World Congress & Exhibition 2015 in Milan both gave ATM the possibility to offer a tangible testimony to its abilities. The Group was under close scrutiny in those six months but is now regarded with admiration. ATM has recently received invitations to participate in tenders to manage local public transport (LPT) services in foreign cities. These initiatives outside Italy will naturally be evaluated with a lot of care and caution, rigorously verifying that they are, in fact, viable opportunities. ATM is healthy and efficient, but must continue to develop its productive elements as this is necessary in order to overcome ambitious and essential challenges. The only way to guarantee stability and safety is through the ability to organise an important investment plan for modernisation works. The determination to follow through with it will allow the Group to keep pace with the times and meet the growing expectations of customers to maintain and expand its presence in the panorama of public transport. Next year there may also be the question of a new service contract, which as other national experiences have shown, may not be the only feasible solution, owing to the ongoing legislative uncertainty. With all the variables that this circumstance brings, (also considering legitimate interests that are already showing themselves to be interested in taking over the management of the networks or part of them), it is a procedure that, in addition to generating an extraordinary workload in order to prepare the terms of the bid, will inevitably create turbulence in the performance of the Group’s core business. It will be crucial to safeguard the unity of the Group and its organisational model, as these are the elements that produced results. In 2015, the Group accomplished two other very important objectives. The implementation of an impressive investment programme (93% of which was carried out using the Group’s own funds, a percentage that was equal to 56.5% in 2010) and the hiring of 558 new employees. The decision to pay for the investments with its own resources was a virtuous choice, although it was also an obligation, due to the difficulty that the national authorities and regional institutions have in effectively assisting investments in the local public transport sector. These grants have dropped significantly in recent times and despite hoping that as a sector that is strategic for the development of the country, the flow of incentives will recover quickly, it is inevitable that a Group that intends to guarantee a satisfactory supply of its services must know to use its own resources. While waiting to secure greater support in terms of public grants to the investments made by the sector companies, it is essential that companies are able to generate funds through their operations. With this is mind, ATM implemented a huge investment plan for €626.6 million over three years, which was used for, amongst other things, the acquisition of metro trains for line 2, electric buses and 18 metre-long buses and the modernisation of systems on the green line. The figures related to the percentage of breakdowns (of all systems and rolling stock) on the metro lines, or rather the “major lines” on which Milan’s public transport network is based, are important. During 2015, the figures regarding these breakdowns (reported per kilometre travelled) improved by 13.8% compared to 2014, despite the increased services for Expo and the greater concentration during the summer period. The figures are even more significant when considering the fact that since 2012, improvements have always been visible and significant, in particular, they improved by over 50% from 2012 to 2015. Over the six months of Expo, this helped to guarantee a punctuality rate of over 98% on the metro lines, an outstanding performance, superior to the European benchmarks for lines of the same structure and age. Last but not least, in 2015, as a provider of travel tickets, ATM generated proceeds of €423 million, covering over 54% of the service contract costs of €779.7 million (gross of VAT), covering more than in previous years (it was 53% in 2014 and 48% in 2011). According to reliable estimates, this increase of around €37 million, was largely due to the flow of visitors to Expo (about 80%) as well as the strong impact generated by the overall increase of passengers using the network (nearly 34 million). The grants of €267.4 million that the Milan municipality received from the Lombardy region using the national transport fund, as well as minor grants from other bodies and proceeds from Area C, from parking fees and other proceeds related to the same activity transferred by ATM contributed to covering the remainder of the contract costs. In 2016, the Group will have to try to repeat the previous year’s successful results even though many positive factors that contributed to the 2015 net profit will not be repeated. There are many challenges that must be overcome. Firstly, the Group’s accounts must be able to absorb the growing personnel expenses related to the 558 new employees taken on in the last few months. It is essential that the successful recovery of productivity that started in recent years continues to grow, in order to generate the resources required to cover the investments and implement a group-level agreement for all the areas in which the workers and managers could use their ability to provide an organisational and economic development that is always closer to the service needs. Issues regarding the investee, Metro 5, will have a strong impact on the Group’s performance. ATM holds a minority investment in said investee, which prevents it from participating directly in the management of the many issues, which, since the beginning, have affected Metro 5. However, under the operation contract which entrusted ATM with the operation of the metro line, the ATM Group is identified, not only by the public, as the main body that can resolve the technical problems which still affect the line. Despite reiterating the specific limits of its role, the ATM Group, as a whole, shall be clearly committed to participating in the resolution of the above issues. Indeed, it is well aware that the “method” used to deal with and successfully overcome the challenges it has faced in the past, will need to be applied also to Metro 5 which needs to urgently resolve its problems. On behalf of the board of directors chairman Bruno Rota 3 Directors’ report 55 Consolidated financial statements 57 Financial statements 67 Notes 107 Annexes Directors’ report Directors’ report 3 4 COMPANY BODIES ........................................................................................................................................... 7 GOVERNANCE AND GROUP STRUCTURE .........................................................................................................