2017 Annual Report(.Pdf — 6403

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2017 Annual Report(.Pdf — 6403 (Translation from the Italian original which remains the definitive version) 2017 ANNUAL REPORT CONTENTS 2017 ANNUAL REPORT 1 Chairwoman’s letter 1 Group highlights 8 DIRECTORS’ REPORT 15 Non-financial information – Methodology for reporting non-financial information 16 The group’s financial position and performance 18 Business model 27 Segment reporting 29 FS Italiane S.p.A.’s financial position and performance 40 Investments 44 Research, development and innovation 53 Context and focus on FS Italiane group 55 Report on corporate governance and the ownership structure 82 Sustainability in the group 102 Stakeholders 117 Main events of the year 136 Risk factors 145 Travel safety 151 Other information 152 The parent’s treasury shares 159 Related party transactions 160 Outlook 161 Consolidated financial statements of Ferrovie dello Stato Italiane group as at and for the year ended 31 December 2017 162 Consolidated financial statements 163 Notes to the consolidated financial statements 169 Annexes 263 Separate financial statements of Ferrovie dello Stato Italiane S.p.A. as at and for the year ended 31 December 2017 276 Financial statements 277 Notes to the separate financial statements 283 Proposed allocation of the profit for the year of Ferrovie dello Stato Italiane S.p.A. 345 Ferrovie dello Stato Italiane group 2 Chairwoman’s letter Dear Shareholder, Ferrovie dello Stato Italiane group posted excellent results for 2017, in line with the challenging 2017-2026 business plan approved by the board of directors in September 2016. In their collective pursuit of the objectives set forth in this business plan, the group companies are highly focused on protecting their businesses and satisfying their stakeholders, with a strong sense of belonging and shared accountability for the achievement of their common strategic goals. A crucial project with government ministries and institutional bodies in 2017 led to the contribution of ANAS, the major Italian road builder and operator, to FS Italiane group, which was formalised in the first few weeks of 2018. The company will therefore be consolidated in the 2018 financial statements. The contribution of ANAS to FS Italiane group marks a historic step for Italy, as it creates Europe’s largest integrated rail and road hub by both the number of residents served and investment volumes. At the same time, to support our business plan, which will see substantial growth for the group in size and complexity, we have significantly strengthened our corporate governance system, embracing Italian and international best practices, and we have implemented, even where not specifically required to by law, all the tools that we believe may help reinforce the internal control and risk management system and uphold the high ethical standards for which our group is known. In particular, we have signed the United Nations Global Compact, demonstrating our formal commitment to respecting human rights, protecting workers, safeguarding the environment and fighting corruption; established an intragroup antitrust compliance committee to oversee antitrust issues and prevent unfair business practices; formally introduced, on a voluntary basis, a unified anti-corruption framework up to the highest international quality standards, which has made our pre-existing prevention measures and controls systematic and even more effective; introduced a new regulation for the management and communication of insider and confidential information; reinforced the Risk Management Department and created a new organisational and functional structure for the group’s Internal Audit Department; voluntarily joined the cooperative compliance programme with the tax authorities for ongoing, fruitful collaboration in the joint consideration of situations that could generate tax risks. In light of the foregoing, I would like to briefly discuss the following four key aspects: results; investments; the pursuit of the strategic goals in the 2017-2026 business plan, based on five fundamental pillars: integrated passenger mobility, integrated logistics, infrastructure, international development, digital & customer centricity; sustainability. Results The group results are described in great detail in the directors’ report and executive summary. I would like to take this opportunity to emphasise the significance of the rise in revenue (+9%) - which underscores how the group is growing in its core business - and the highest normalised profit for the year in recent years (€424 million). The group has also expanded through a few large M&As completed in 2017, in line with the strategies of its business plan, which provide for growth in both modal services, by expanding road transport services and in metropolitan areas, and through geographical expansion, particularly in the European market. These strategies have entailed the acquisition of UK- based Trenitalia C2C, a company that manages connections between London-South Essex and boasts excellent levels of punctuality and customer satisfaction in the UK market, as well as the acquisition of TrainOSE, which manages railway 2017 Annual Report 1 transport on the Athens-Thessaloniki line in Greece, and Qbuzz, Holland’s third largest local public transport service provider. In Italy, the group acquired Simet-Busitalia, which launched the long-haul road transport service named “Busitalia Fast”. In the meanwhile, the group has maintained its sound financial structure. With net invested capital of €46 billion (+1.5%), mainly directed towards infrastructure (€33.5 billion, +1%), the ratio of net financial debt (€7.3 billion) to equity (€38.7 billion) has remained substantially steady since 2016 (19%, +1%). Sound confidence in financial markets, which is reflected in our credit ratings (BBB, in line with the country’s rating), has enabled us to place additional bonds of €1.7 billion, bringing our listed placements to a total of €3.8 billion and reducing the cost of debt, while further improving the matching of sources of funding with applications. In November, we issued our first green bond (with a nominal amount of €0.6 billion, six-year maturity and minimum spread) and received the initial recognition for our decision to fully integrate economic, social and environmental sustainability in FS Italiane group’s business strategies. Investments For the third consecutive year, FS Italiane group’s capital expenditure exceeded €5 billion (€5.6 billion in 2017, 99% of which was invested in Italy), as it largely benefited from public policies prioritising investments in the country’s key infrastructure, which made it possible for us to confirm our extraordinary investment commitments in the business plan up to 2026. In this way, FS Italiane group remains Italy’s largest investor among industrial groups, fuelling growth and creating jobs throughout the country. Applying the indicators published by ISTAT (national statistics institute) to investment volumes, in the past year, FS Italiane group has created jobs for nearly 100,000 workers, in addition to our 74,436 employees. Not only are these investments significant in terms of their amount, but they are of the highest quality as well, and substantially boost the capacity, safety, efficiency and sustainability of the country’s transport infrastructure. As we continue our vital, ongoing dialogue with the Ministry of Infrastructure and Transport (“MIT”) and other institutional stakeholders, we were thrilled to see the deep commitment to creating more sophisticated planning and assessment tools that are better structured from a methodological standpoint, increasingly sensitive to our reciprocal roles and more highly focused on measuring the utility of investments and how well they respond to the country’s general needs. We are well aware of our role as Italy’s largest contracting party (with published tenders for infrastructure projects worth a combined total of €7.5 billion in 2017 alone), and we control supplier vetting and evaluation processes with procedures that go beyond mere compliance with the applicable legislation and are aimed at becoming the benchmark for Italian and international best practices. In 2017, in addition to updating the general contractual terms for supply and works contracts, we have established specific prevention controls for purchases and the assignment of contracts within the new unified anti- corruption framework. In addition, we have introduced specific criteria and mechanisms in the supplier vetting and evaluation processes of our tender procedures that reward suppliers for their sustainability practices, such as their labour conditions and environmental impact. Our commitment to achieving the objectives in the 2017-2026 business plan Integrated passenger mobility We firmly believe in the urgent need to shift towards sustainable mobility and zero emissions. We are convinced that the improvements in our punctuality, service quality and our ability to satisfy passengers – the achievement of which may include integrating our services with those of other mobility providers – are absolutely essential if we are to show Ferrovie dello Stato Italiane group 2 increasingly more residents that there are more comfortable and safer travel solutions than their car. This change in mobility, and culture, is the number one objective in our business plan and the foundation on which we base all our operations in all passenger transport service segments. In particular, by understanding that each of our customers’ journeys is multi-modal, we have made “integrated mobility”
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