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

ANNUAL REPORT

ATM Group 2016

ATM has been a leading transport provider in Milan for over 85 years, transporting millions of people around the city every day. Consolidated experience, investment capacity and technological innovation are the foundations of its work.

Contents

Consolidated financial statements of ATM group

48 Consolidated financial statements 62 Notes to the consolidated financial statements 104 Annexes

ATM Group

Highlights

Profit and loss account highlights (millions of Euros)

2016 2015 2014

Production revenues 996.8 1,056.3 961.9

Operating costs (832.7) (892.9) (841.7)

Gross operating profit 164.1 163.4 120.2 % of production revenues 16.5% 15.5% 12.5%

Operating profit 34.0 20.7 8.5 % of production revenues 3.4% 2.0% 0.9%

Net profit for the year 38.9 25.8 5.6 % of production revenues 3.9% 2.4% 0.6%

2016 revenues - by type and geographical segment

Other revenues Abroad 19.18% 4.68%

On-street parking, car parks, towing away service 3.14% Italy LPT 95.32% 77.68%

Balance sheet highlights (millions of Euros)

2016 2015 2014

Fixed assets (tangible and intangible) 1,005.7 1,101.7 1,081.3

Net equity 966.6 929.3 900.1

Net financial position (247.1) (217.8) (234.3)

Investments 76.8 190.0 195.8

Performance highlights (millions of Euros)

2016 2015 2014

ROI 2.2% 1.3% 0.5% Net invested capital 1,581.2 1,614.1 1,573.6 Operating profit 34.0 20.7 8.5

ROE 4.0% 2.8% 0.6% Net equity 966.6 929.3 900.1 Net profit for the year 38.9 25.8 5.6

I

Operating ratios - ITALY

TOTAL NETWORK 1 Area covered (km²) 1,083 Passengers (mln) 7 28.3

Municipalities covered 96 Km travelled (mln) 162.8

MET RO NET WORK

Number of lines 4 Fleet (engines and carriages) 4 1,014

Nework length (km) 2 96.8

System length (km) 3 215.9

ROAD NET WORK

Number of lines 157 Fleet4 1,420 Nework length (km) 2 1,562.0 Average age of fleet (years) 9.7

T RAM NET WORK5

Number of lines 20 Fleet4 493

Nework length (km) 2 181.8

System length (km) 3 282.1

TROLLEYBUS NETWORK

Number of lines 4 Fleet4 137

Nework length (km) 2 38.8

System length (km) 3 85.8

1 Figures refer to the s ervice pro vided by ATM in the Metro po litan city o f Milan, with the funicular railway in Co mo and pro vided by NET in the Metro po litan city o f Milan and in the pro vinces o f Mo nza and Brianza, Bergamo and Lecco 2 Length o f netwo rk refers to the s um o f all o f the lengths o f each line 3 Line superstructures and overhead lines in km are included 4 Owned vehicles 5 This als o includes the Milan-Des io intercity tram line, which has tempo rarily been s us pended (replaced by a bus s ince 1 Octo ber 2011)

II

Operating ratios – ITALY

SERVICES PROVIDED IN THE METROPOLITAN CITY OF MILAN AND PROVINCES OF MONZA AND BRIANZA, BERGAMO AND LECCO 6 Area covered (km²) 662.7 Number of lines 27 Municipalities covered 59 Network length (km) 400.1 Passengers (mln) 10.5 Fleet 86 Km travelled (mln) 8.0

CAR PARKS AND ON-ST REET PARKING

Car parks 7 On-street parking Number 22 Spaces 85,331 Spaces 18,635 Entrances 5,7 42,47 5

COMO - BRUNATE FUNICULAR RAILWAY Network length (km) 1.1 Km travelled 49,37 8 Passengers (mln) 1.0

CASCINA GOBBA - H. SAN RAFFAELE MINI METRO Network length (km) 0.7 Km travelled 86,896

6 Service o perated by NET. Figures als o included in "Who le netwo rk"

7 This includes the Novara-Trenno car park, which has 1,613 spaces

III

Operating ratios - ABROAD

COPENHAGEN MET RO

Area covered (km²) 162 Number of lines 2

Municipalities covered 3 Network length (km) 21

Passengers (mln) 60.9 Fleet 34

Km travelled ( mln ) 14.9

IV

Company bodies

Board of directors1

Chairman Bruno Rota

Directors Nunzio Domenico Paolo Dragonetti

Carmela Francesca

Alessandra Perrazzelli

Paolo Simonetti

Board of statutory auditors 2

Chairman Stefano Poggi Longostrevi

Statutory auditors Gaetano Frigerio

Maria Luisa Mosconi

Alternate statutory auditors Monica Bellini

Domenico Salerno

Independent auditors 3 KPMG S.p.A.

1. The board of directors was elected by the shareholder on 22 April 2014 with a term of office that ends with the approval of the 2016 financial statements.

2. The board of statutory auditors was elected by the shareholder on 29 April 2016 with a term of office that ends with the approval the 2018 financial statements.

3. The independent auditors were engaged with the resolution passed by the shareholder on 29 April 2016 proposed by the board of statutory auditors, their term of office expires with approval of the financial statements for 2018.

V

Group structure at 31 December 2016

Companies included in the consolidation scope

ATM S.p.A.: a company limited by shares since 2001, wholly owned by the Milan

municipality. It is the parent and carries out management and coordination activities pursuant to article 2497 and subsequent articles of the Italian Civil Code. The company manages the transport systems, structures and infrastructure, and the mobility of people, goods and information.

ATM Servizi S.p.A.: set up on 22 September 2006, and wholly owned by ATM S.p.A.. The company manages all transport services, including railway services, as well as services related to the transport of people, goods and information, and mobility, including on-street parking and car parks. It has a service contract with the Milan municipality for local public transport and related and ancillary services.

ATM Servizi Diversificati S.r.l. : set up on 9 September 2010, and wholly owned by ATM S.p.A.. The company manages services for the transport of people and goods both by road and by rail in the rentals sector as well as diversified service sectors such as the tram restaurant and tourist services.

GeSAM S.r.l.: established on 22 December 2005, it is wholly owned by ATM S.p.A.. The company carries out consultancy activities in the insurance sector, including all the related specialist assistance, aimed at the preparation and settling of claims, with the exception of insurance mediation activities.

International Metro Service S.r.l.: established on 12 April 2007, it is 51% controlled by ATM S.p.A.. The company provides services for the transport of people and goods, with related programming and operational organisation activities, all with a view to implementing contracts for the operating and maintenance of metro systems. The company controls 100% of Metro Service A/S, the company that manages the metro in Copenhagen.

Nord Est Trasporti S.r.l. : established on 5 December 2007, it is fully owned by ATM S.p.A.. The company manages transport services for people, goods and information, with the related programming activities and operational organisation as well as services connected to transport and mobility around the Metropolitan city of Milan, the Monza and Brianza province and the Monza municipality.

Rail Diagnostics S.p.A.: established on 31 October 2006, and 97.27% controlled by ATM S.p.A.. The company focuses on the design, construction, maintenance and integrated diagnostics of the metro and tram equipment and control systems.

Hereinafter in this annual report, ATM refers to all of the group companies included in the consolidation scope.

VI

Description of the business of ATM S.p.A. and the group companies

VII

Directors’ report

Directors’ report

3 Directors’ report

ATM in 2016

During the year, ATM S.p.A. once again significantly improved all its operating parameters. Net profit rose to over €19.7 million compared to €10.8 million in the previous year, a growth of over 80%. Gross operating profit, an indicator of its core business, further increased over the net improvement of 2015 to top €130 million. This increase was the result of the careful monitoring of all costs, which saw operating costs decrease at a rate more than proportional to the contraction in revenues following the end of the Expo-related activities and related increased passenger numbers.

The consolidated economic equilibrium now achieved by all the investees who have overcome the highly critical situation of just a few years ago, along with the excellent performance of the Danish investee, Metro Service A/S, which continues to successfully operate the metro network in Copenhagen, which will soon see ATM’s role grow, contributed to the strong results of the parent. At a consolidated level, the Group’s net profit was €38.8 million, including minority interests. This excellent result, with a further increase on the €25.8 million achieved in the previous year (which itself represented a strong increase), thus continues the results of the Expo year. Meanwhile, the group’s gross operating profit reached €164 million.

From the beginning of 2016, the entire Group was aware of the importance of showing that the results of the previous year were not due solely to Expo-related activities, but were the result of an effective and consolidated transparent management model, and that its strong performance can cover the costs associated with the jump in employee numbers in 2015 (most of whom were kept on in 2016).

ATM is robust and efficient, but it must continue to develop its productive factors in order to successfully meet its ambitious and inevitable challenges. The only way to guarantee stability and safety is through the ability to invest heavily in modernisation. 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.

In this regard, the purchase plan for sixty new metro trains has been finalised. After the final order for fifteen new metro trains for lines M1 and M2, this ambitious project will mean that ATM has one of the newest metro train fleets in Europe and will benefit daily transport services for hundreds of thousands of passengers.

The average age of the metro line M1 trains decreased from 41.1 years in 2011 to the present 15.7 and the overall average age of ATM’s metro trains decreased from 34.6 in 2011 to the current 18.6 years and is destined to fall further.

The strategic decision to roll out new trains together with an increased focus on maintenance meant that reliability improved further in 2016. The drop in breakdowns (systems and rolling stock) per kilometre travelled is undeniable.

This indicator reflects breakdowns with an impact on operations of more than five minutes. Between 2012 and 2015, it improved by over 50%, translating into over 98% regularity on the ATM-managed Milan metro lines, which is at the top of international best practices for lines of this type.

Last but not least, in 2016, as a provider of travel tickets, ATM generated proceeds of more than €412 million, down slightly on those of 2015 when millions of Expo visitors used the ATM lines. This excellent result covers over 55% of the service contract costs of €740.5 million (gross of VAT), covering more than in previous years (it was 54% in 2015, 53% in 2014 and 48% in 2011). The grants of €267.4

4 Directors’ report

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.

The group is exceptionally sound financially. Net equity attributable to the Group is €961 million and net financial debt decreased from €711 million to €545 million, no less than €166 million.

The Group’s core business in 2017 will be mainly focussed on ensuring high service levels for customers, despite the reduction in the service contract fees applied by the Milan municipality.

The first buses purchased after the completion of the public tender procedure will be rolled out early in the year.

After the completion of investments to upgrade the bus fleet - made possible thanks to the release of the long-awaited contributions which had been frozen for more than one year for reasons not attributable to the Group, as well as additional financial commitments of the group - the Group will have around 250 new surface vehicles which will bring the fleet’s average age into line with its usual excellent levels.

ATM’s plans have been heavily affected by the delay in the disbursement of state and regional grants to co-finance the upgrade of the bus fleet, which were only received towards the end of 2016. This meant the Group had to postpone the calls for tenders for the vehicles’ purchase, which took place when the albeit limited public grants were disbursed. Conversely, as it could no longer put off upgrading the metro rolling stock, the group had to use large amounts of own funds for its upgrade, given the absence of funding.

Consequently, ATM’s commitment to the renovation of the fleet of metro and surface vehicles, with the objective of providing the city with ever more innovative public transport in terms of environmental sustainability, performance, safety, accessibility and comfort, has never wavered. In addition to the investments (the new metro line 2 trains will also be delivered starting from June), the Group will have to ensure an effective purchasing policy, increasing its use of competitive and open procedures.

It will also be possible to know the competitive panorama for the awarding of future service tenders. The Group is ready to effectively rise to this challenge in all aspects, given its strong service results, its experience, also in an international context, the professionalism of its employees and the significant financial resources that it has accumulated (the Group has a net financial position of approximately €250 million at 31 December 2016, which represents a further increase on the previous year end’s €217 million, thanks to the significant self-financing generated by operations (€164 thousand) and the decrease in financial debt which decreased to €148 million from €164 million at 31 December 2015. With all these financial and professional resources, ATM feels confident about the tender to award the new service contract.

The term of office and operation of the current board of directors terminates with the approval of the 2016 financial statements and an entirely new board will be appointed. Legislative changes mean that managers from the Milan municipality will no longer be able to act as directors. The remaining two directors, including the chairman, were not able to stand for another term as the regulations of the Milan municipality prohibit running for a third term in the same Group after holding the position of director for two consecutive terms, although this rule is not enshrined in national legislation. We wish the new board and the shareholder all the best and hand over a Group that is strong, competitive,

5 Directors’ report

profitable and able to provide Milan, Milanese residents and the increasing number of even occasional passengers that rely on ATM.

6 Directors’ report

7 Directors’ report

Corporate governance report

Keeping in mind the fact that the ATM Group is state-owned, and considering the role that it performs for a wide range of stakeholders, it has a voluntary governance structure in line with best market practice.

The preparation of the following report on ATM’s corporate governance system also complies with the provisions of article 6 of Legislative decree no. 175/2016 (Consolidated act on companies in which a state body has an investment).

Principles and values. The code of ethics

ATM is committed to contributing to the well-being, quality of life and growth of the community in which it operates by providing efficient, technologically-advanced services, paying close attention to social implications, community needs and the environment.

The principles and values underpinning ATM’s operations and shared at all levels of the organisation are set out in the Code of ethics introduced in 2007. The code was most recently reviewed and updated on 17 November 2016 to acknowledge the civic access and whistleblowing provisions contained in the Three-year corruption prevention plan.

The code of ethics applies to the parent, ATM S.p.A., and all the group companies managed and coordinated by the parent. It forms an integral part of the organisational model pursuant to Legislative decree no. 231 (the “231 model”).

Company bodies and everyone operating within the Group, as well as external stakeholders that have relationships with group companies, are required to comply with the principles of the code of ethics.

The code of ethics establishes ethical guidelines and sets concrete rules of conduct and ethical/social responsibility policies, thereby representing the first point of reference for Group operations.

The code of ethics ensures the fair and effective management of stakeholder relations and has the aim of consolidating the Group’s reputation and trust in the corporate organisation. Among other things, it makes reference to the measures of the three-year corruption prevention plan adopted by the parent, ATM S.p.A., and all group companies, published before 31 January 2017, as required by legislation, and available to all stakeholders in the “transparent company” section of the group’s website.

The code of ethics is supplemented by the code of conduct pursuant to Legislative decree no. 231, which takes the ethical principles and values underpinning the corporate culture as its starting point to define the rules governing conduct and behaviour of those who operate on behalf of ATM, both internal and external to the corporate organisation, in order to prevent the commission of crimes, the cornerstone of administrative liability pursuant to Legislative decree no. 231/2001.

The corporate governance model

ATM’s corporate governance model is of the traditional format which allocates strategic management to the board of directors, with the exception of those duties reserved to the shareholder.

The board of directors has delegated part of its management responsibilities to the general manager and has set up four internal committees, with advisory and guidance responsibilities: the internal

8 Directors’ report

control committee, the remuneration committee, the ethics committee and the financial assistance and development committee.

The internal control committee has advisory and guidance responsibilities in relation to the supervisory of the general trend of operations. It checks compliance with internal procedures and the effectiveness and efficiency of the risk monitoring, management and control processes.

The remuneration committee monitors all issues that have a significant effect on the structure of personnel expenses, examines the remuneration structure for all the managers and in particular key management personnel. These remuneration guidelines must be approved by the board of directors.

The ethics committee is a body with advisory and guidance responsibilities in charge of evaluating possible situations that go against the code of ethics bringing any necessary disciplinary action to the attention of the senior members of the group companies.

The financial assistance and development committee is responsible for the evaluation of the initiatives aimed at supporting and assisting people through the management of the welfare system.

The board of statutory auditors is responsible for monitoring compliance with the law and by-laws and correct management practices and that its organisational structure is appropriate.

To comply with legislative requirements, the control system includes the engagement of independent auditors registered in the relevant register to carry out the legally-required audit. They are appointed by the shareholder on the reasoned proposal of the board of statutory auditors

The legally-required audit was conferred on KPMG S.p.A. by the shareholder on 29 April 2016. Their engagement ends with the approval of the 2018 financial statements.

The internal regulatory system

The parent, ATM S.p.A., carries out management and coordination activities pursuant to article 2497 of the Italian Civil Code. While respecting the operational independence of the individual companies, it pursues a policy aimed at the group’s common management, through the full application and integration of the principles and values that underpin the group.

ATM has a system of internal rules and regulations. These are based on the integrity and transparency regulations established by the code of ethics and the code of conduct pursuant to Legislative decree no. 231 and are designed to ensure the full compliance of the parent’s and group’s operations with ruling legislation governing corruption and transparency, antitrust, industrial or intellectual property, and the protection of the rights of legitimate stakeholders of group companies.

The main internal regulations have been approved by the parent’s board of directors and recognised by the boards of directors of all group companies. The organisation, management and control model pursuant to Legislative decree no. 231/2001 was adopted by the parent in 2008 and later in the same year by the subsidiaries ATM Servizi S.p.A. and Rail Diagnostics S.p.A., and by NET S.r.l. and Gesam S.r.l. in 2011. The aim of adopting the model is to ensure compliance with the provisions of Legislative decree no. 231/2001, bolstering the internal control system to improve effectiveness and transparency in company activities and to make parties that work with ATM in any capacity whatsoever aware of the principles of transparency and correctness.

The model approved by the board of directors of each company is comprised of the following elements:

9 Directors’ report

 procedures to identify the company activities in which the crimes referred to in Legislative decree no. 231/2001 could be committed;  control standards for the sensitive activities identified;  procedures to identify the most suitable manner in which to manage financial resources such to prevent the commission of crimes;  information flows to and from the Supervisory body and specific disclosure requirements in relation to the Supervisory body;  a disciplinary system penalising the violation of the provisions of the model;  training and communication plans for employees and others that interact with the group company;  criteria for the updating of the 231 model to adapt it to changes in legislation and in line with the organisational changes;  the code of ethics;  the code of conduct pursuant to Legislative decree no. 231.

All employees are required to notify the Supervisory body of conduct or events that could lead to the violation of the 231 model or, more generally, that are relevant for the purposes of Legislative decree no. 231/2001.

The group adopted the three-year corruption prevention plan pursuant to Law no. 190/2012 in 2014 and the three-year programme for transparency and integrity pursuant to Legislative decree no. 33/2013 in 2015. They are available to all stakeholders in the “transparent company” section of the group’s website. In compliance with ruling anti-corruption and transparency regulations, ATM has voluntarily adopted an internal regulation for an anonymous whistleblowing procedure, in line with guidelines set out by ANAC (national anti-corruption authority) for companies in which a state body has an investment.

ATM’s regulatory system is also comprised of:

 the group regulation, which governs how the group works and intercompany relations, in view of the parent’s role and its management and coordination activities. In 2016, following the evolution of the organisational structure and changes to anti-corruption and transparency legislation, the board of directors approved an update of the group’s regulation.  the contract awarding regulation, which governs the procedures for awarding works contracts, purchases of goods and services contracts for all group companies. In 2016, following the enactment of the Procurement code (Legislative decree no. 50/2016), the board of directors approved an update of the regulation.  the sales regulation, which governs the procedures for the sale of goods, materials and services and the awarding of contracts for the commercial use of areas ensure the best economic return through the streamlined and efficient management of group financial and economic resources.

Group processes are described and governed by specific operating procedures and instructions which, inter alia, ensure the working of the quality and environment management system, in accordance with the UNI EN ISO 9001 and 14001 standards.

The above standards and regulations are published on the group’s intranet.

10 Directors’ report

Risk monitoring and the internal control system

ATM has a risk monitoring and management system and an internal control system of regulatory, organisational and IT tools to properly identify risk factors, from the prevention of fraud and corruption through to those related to health, safety, the environment and quality, as well as their measurement, management and monitoring. These tools are designed to ensure full compliance with laws and regulations, the by-laws, group policy, protect the group’s assets, and ensure the effectiveness and efficiency of group processes.

ATM has a dedicated risk management department to monitor and manage company risks. Its aim is to implement and support strategies, policies and operating plans to prevent events of a malicious, negligent or accidental nature that could damage property, plant and equipment and intangible assets or organisational resources.

Based on its work to date, ATM has adopted a system whereby the department managers are the “risk owner” or “risk manager” of certain functions. The aim is to regularly update the risk register and related management plans.

The group’s risk register is currently undergoing its third update.

The risks identified are evaluated in terms of potential impact and probability of occurrence, using quantitative and qualitative parameters. The activities designed to mitigate their effects and ensure their proper management are also identified.

Reference should be made to “Risks and uncertainties” in the directors’ report for a brief description of the main types of risks ATM faces.

In order to evaluate the risk the group will face a crisis, the trend of the main indicators of profitability, equity soundness and the balance of sources and use of funds is monitored, together with the application of scoring techniques normally used for unlisted companies. Specifically, the z-score, evaluated considering factors specific to the local public transport sector, which has low margins, and the parent’s sound financial position and the steady improvement of the indicators over the years.

The positive evaluation by the European Investment Bank, which granted a twenty-five year €250 million financing in 2012, further confirms ATM’s robust position. This contract requires that ATM comply with stringent covenants regarding its financial position, results of operations and cash flow (based on its net equity and financial debt, its ability to generate cash flows to service its debt, and its ability to issue guarantees), evaluated every six months based on the audited financial statements. ATM is also required to notify any events that could lead to a significant deterioration in its financial position, results of operations, cash flows or operating outlook.

Management is responsible for the implementation of the control system, as the control activities are an integral part of management processes.

The boards of directors and statutory auditors set up pursuant to the by-laws are supported by the Supervisory body, which is comprised of a single member in certain cases, set up pursuant to Legislative decree no. 231/2001 by every group company that applies the 231 model, and by the parent’s audit, transparency and anti-corruption department. The audit department is responsible for checking the effectiveness and adequacy of company internal control system processes. The independence and objectiveness of internal audit activities are ensured by its placement in the organisational structure and by the absence of ties/interference in the performance of the work and

11 Directors’ report

the reporting of findings. Indeed, the head of the audit department reports directly to the chairman and the general manager, the internal control committee and the boards of directors and statutory auditors.

The annual audit plan for the parent, ATM S.p.A., and for the group companies coordinated and managed thereby is prepared by the manager in charge of the audit department, based on the indications prepared by the group companies’ boards of directors and statutory auditors in line with the parent’s guidelines. The plan identifies the areas and activities to be audited and considers any critical issues arising in the company processes and in previous audits. The plan is approved by the parent’s board of directors and applies to the entire group.

The members of the Supervisory body, external to the company, are identified from among academics and professionals with recognised expertise and experience in the areas of economics, business organisation and administrative liability (the presence of the manager in charge of the audit department is always required).

The body’s main function is the monitoring of the application of ATM’s 231 model and the manner in which it is implemented and updated. It also approves the annual schedule of monitoring activities.

Supervisory activities are scheduled based on a three-year plan that ensures each sensitive activity identified in the 231 model is checked at least once. For some areas - “Cash flow management” and “Goods and services procurement” - the checks take place annually, whereas they take place quarterly for others - “Health and safety at work” and the “Environment”.

The supervisory bodies of the group companies are required by regulation to provide a half-yearly report on their work to the respective boards of directors.

During 2016, the supervisory bodies of the group companies continued their work of the previous three-year period, checking and supervising the effective functioning of, and compliance with, the 231 organisational models adopted by the parent and the group companies. They liaised regularly with the audit department and also met with the boards of directors and statutory auditors during the year.

The regular supervisory activities were undertaken with the assistance of external experts appointed to carry out specific analytical checks of sensitive processes, identify any gaps with respect to the 231 model and draw up corrective plans agreed with the company departments and subject to regular monitoring during the meetings of the supervisory bodies.

The parent’s board of directors approved the new 231 organisational model in April 2016, updated to include certain crimes recently introduced into the relevant legislation (self-laundering, new environmental crimes, false accounting, coinage offences, etc.). These updates were made on the basis of a risk assessment carried out in 2015. The 231 model was also regularly updated to reflect organisational changes during 2016.

Employee training on the 231 model continued in 2016. Classroom-style training of top management included the contribution of external experts and focussed on those areas most relevant to the 231 model, as well as the most recent case law.

Social responsibility

Social responsibility and a focus on the well-being of the community are integral to the group’s culture and corporate governance system.

12 Directors’ report

Social responsibility is one of the factors with the greatest effect on the organisation, and the business and social policies of ATM, which are designed with reference to the model and the specific recommendations of the European Union and with a view to their ongoing improvement.

For ATM to be socially responsible, it must do more than just satisfy its legal obligations, it must also invest in human capital, in knowledge, in the environment and in its relationships with the community, adopting adequate ethical behaviour and participating in the public life of the city. For this reason, ATM is committed to developing a quality service for the community, through actions aimed at enhancing the skills of the people who work for the group, choices that respect the environment and investments that improve performance.

The SA 8000 standard, which has been the reference tool for the management of the Group’s social responsibility since 2012, is applied by all the ATM group companies. ATM S.p.A., ATM Servizi S.p.A., ATM Servizi Diversificati S.r.l. and Nord Est Trasporti S.r.l. are certified. The compliance with the principles sanctioned by the SA 8000 translates into the values and commitments that ATM makes clear in its code of ethics and the quality environmental and social responsibility policy, as well as in the welfare and diversity management policies communicated to all employees and available to all stakeholders in the dedicated section of the group’s website.

Training of personnel on the provisions of the SA 8000 certification was completed in 2016, including all operating personnel, and an audit commenced of the supply chain which will continue in coming years.

The new European regulation on personal data protection came into force on 24 May 2016. ATM began the activities to make its organisation compliant with the rules contained in such regulation.

As part of its policy for the enhancement of its employees and its social responsibility, ATM took part in the “Family Audit” certification promoted by the Prime Minister’s Office, to become one of the first Italian companies to achieve the basic certification of corporate social policies aimed at the ongoing improvement of work/life balance services, after a procedure that commenced in 2013.

These policies are part of a broader welfare system developed in close synergy and in conjunction with Fondazione ATM, which has the aim of improving the individual well-being and organisation of group employees.

ATM’s welfare system is the result of a long tradition of attention to the individual and is constantly developing in line with best market practice. It is made up of three areas: welfare for the individual and the family, health welfare and social welfare, and its aim is to provide concrete responses to the needs of the various different segments of the group’s employees, providing financial support, initiatives and services.

ATM is also involved in social activities benefiting the community. For the sixth year in a row, it has sponsored the City Angels volunteers association in a project to help homeless people in Milan during the winter months. It also sponsored the “Ospedale Sacco obiettivo sangue” campaign to raise public awareness of blood donation and the “International Day to End Violence Against Women” campaign promoted by the Milan municipality’s Equal Opportunity Commission to raise public awareness of the phenomenon of violence against women.

Finally, it offered its support alongside the Milan municipality to help the people hit by earthquakes in central Italy.

13 Directors’ report

Responsible management of relationships with stakeholders

ATM group’s mission

Our ambition is to make ATM: “Admired for the excellence of its customer mobility services, its environmental and energy sustainability leadership, its dynamic operating model, the quality of its professional resources and its culture of innovation”

(the code of ethics)

ATM is committed to building fair, well managed and transparent relationships with its stakeholders in order to pursue shared and feasible sustainable development objectives and to contribute to the well-being, quality of life and growth of the community in which it works.

It also promotes internal awareness of the culture and principles of sustainable development, continuously transmitting and sharing its principles and values with institutions, partners, suppliers and customers, with whom it has relationships built on transparency, fairness and loyalty.

All group sectors are involved and they shape internal and external activities to comply with the principles and values.

Customers

“The relationship with the clientèle must be continually reinforced through the quality, reliability and efficiency of the service, as well as through timely, precise, clear, easily accessible and truthful information about the services and features offered.”

The code of ethics effectively summarises ATM’s philosophy in its relationship with its customers, who represent an asset to be enhanced and whose needs and expectations should be met.

ATM manages the sale and distribution of travel tickets on behalf of the Milan municipality and it pays close attention to the expansion and update of sales channels in line with the most recent technological evolutions. Customers can purchase their tickets through a number of sales points throughout the surface and underground network (shops, ATM points, automatic ticket machines, parking meters) and virtual purchase and payment channels (mobile ticketing systems).

The evaluation of the customer care and assistance system in 2016 again reflected ATM’s constant commitment to ensuring an efficient and high quality service in compliance with its contractual obligations to the Milan municipality. The annual customer satisfaction survey carried out on a sample of 3,300 customers in April 2016 showed generally very high levels of satisfaction with ATM’s service. The average score (from 1 to 10) was 7.3 and the area of satisfaction (i.e., the percentage of customers surveyed that gave a score of between 6 and 10) was 94%.

With a view to further improving customer information, the Mobility Charter was updated and all brochures on the services available at the ATM points and on the ATM website were reviewed. The website was upgraded to improve access and make it more user-friendly.

One of the most important customer-oriented initiatives was the campaign to support disabled passengers, which resulted in a significant improvement in the quality of information in the metro stations, on the website and on the ATM app.

14 Directors’ report

Safety campaigns and campaigns against fraud were also run in 2016, with the “Closed turnstiles” project on the metro and the “Do not leave items unattended in metro stations or buses” campaign.

Campaigns were also run to promote ticket purchases through the new digital channels and to increase awareness of the ATM app. Suppliers

As stated in ATM’s code of ethics, every group company “guarantees a true and fair competition between suppliers”.

In turn, the “quality, environmental and social responsibility policy” specifies that the group’s sustainable development strategies hinge on, among other things, the commitment to continually improve aspects regarding the environment, health and safety in the workplace, also through the constant monitoring of relationships with suppliers/subcontractors and subsuppliers.

The procurement processes and partnerships with suppliers are centrally managed by the purchasing department of the parent, ATM S.p.A..

In 2016, 1,850 calls for tender were made, in line with 2015 numbers, despite the effect of the uncertainty of the legislative framework on activities of the year. Indeed, the enactment of the new public contracts code (Legislative decree no. 50/2016) led to an extensive review of the deeds for all purchasing areas (works, supplies and services), as well as the review of the contract awarding regulation approved by the parent’s board of directors.

With regard to the relationship with current and potential suppliers, great attention is paid to communication, which aims at maximum clarity and information regarding values, guidelines and standards adopted by ATM.

At an internal level, in conformity with the lines imposed by the group companies, in 2016, in full compliance with the principles of transparency and competitiveness, all individuals involved in the procurement process were provided with training in order to ensure that they operate in full compliance with the laws and regulations for work, supply and service contracts, and with group regulations.

The IT platforms created for full traceability of the authorisation process for the selection of contractors and for the subsequent administrative management, which are regularly updated in line with regulatory changes, efficiently support the whole procurement process.

Human resources and organisation

Workforce

ATM’s workforce at 31 December 2016 totalled 9,588 members (9,695 at 31 December 2015).

15 Directors’ report

Incoming Outgoing Other Contract 31.12.2015 31.12.2016 employees employees changes

Managers 34 (2) (1) 31

Public transport workers 9,322 152 (259) (3) 9,212

Others 339 31 (25) 345

Total 9,695 183 (286) (4) 9,588

Employee numbers decreased by an overall 107 members in 2016 as a result of the policy of selective reintegration of resources to cover turnover, with targeted interventions in the operations and maintenance areas. During 2015, ATM hired 558 resources in anticipation of its 2016 requirements.

Almost all the incoming employees were hired with fixed-term contracts, either full-time or part-time. Specifically, the partial working week contracts have working hours concentrated mainly during weekends offering greater organisational flexibility to ensure optimal coverage of services scheduled for Saturday and Sunday.

Moreover, the gradual transformation of contracts nearing expiry into open-ended contracts meant the group was able to benefit from the relief from social security contributions and employment incentives provided for by law.

More than 98% of ATM employees have an open-ended contract. Female employees mainly worked in staff positions and accounted for over 7% of the total.

Industrial relations

The industrial relations system focuses on consultation policies, which constitute the primary tool for the promotion of employee participation through their representatives, in the pursuit of strategic objectives and for the prevention and resolution of possible conflicts.

ATM protects employees’ freedom of association. The rate of union membership is around 63.5% and, as well as the trade unions that signed the Industrial relations protocol, there are also other smaller trade unions.

The agreement governing the bonus for the 2016 results was signed, which confirms the previous model, after presenting it to the trade unions as a tool involving workers in achieving productivity and quality increases.

An agreement was signed with the trade unions towards the end of 2016 designed to meet the needs of the city and residents’ transport requirements in different time brackets, bringing forward the start of the metro’s operation to the early hours of the morning. The effects of the detailed trade union agreement will be rolled out from January 2017.

Human capital: a resource and boost to development

A focus on the individual is an important value of ATM as the quality of the service provided largely depends on the quality and motivation of the people that work for the group.

16 Directors’ report

Every employee that holds a position of responsibility is assigned precise goals and the results achieved are evaluated in a transparent manner.

The performance of all group employees is evaluated on the basis of the internal system of professional and managerial competencies.

Internal communication is one of the main drivers of involvement in the life of the company. The group’s intranet is a dynamic information tool aimed at all ATM personnel, which not only makes available all documentation for the correct performance of business activities, but features regular updates on operational changes and the main events affecting the group, providing further information on particularly important issues. This communication tool is supplemented by paper- based publications, especially the house organ “NOI ATM”, in order to involve people that are hard to reach through the IT network.

Moreover, aware of the close relationship between individual well-being and the Group’s well-being, ATM has confirmed its financial and organisational commitment to maintaining and improving its welfare system for 2016.

The most important services provided in 2016 were: 90 places in company crèches, 256 counselling sessions, 928 study grants to the children of employees, as well as targeted interventions to support people and for professional requalification.

Within the context of personnel development paths, training is considered a strategic lever and the parent has a dedicated structure to set guidelines and for its management. Further training on issues related to health and safety at work was provided in 2016 and front line employees and line managers received specific training on behavioural and management techniques to enable them to deal competently and confidently with complex situations that arise in the everyday management of transport.

In 2016, 340 training courses took place, involving 11,000 participants for a total of 120,000 hours, of which over 65,000 hours (more than 54%) of training mandatory under national and contractual legislation. Specifically, the mandatory training related to health and safety at work involved 3,255 participants for a total of over 32,000 hours.

Classroom-based learning was accompanied by targeted coaching and counselling for individuals. One of the drivers in 2016 was the development of a structured age management plan. Training to face the issue of an ageing population, which is radically changing the landscape of the Group’s needs and tools, was extended to cover healthy eating and lifestyle, postural education and ergonomics in the workplace, sport and movement, first aid, motivational counselling, training on active ageing and updating technical skills.

Protection of group assets and safety of individuals

The safeguarding of group assets and the protection of employees and passenger safety are guaranteed by the security sector, in collaboration with law enforcement (local police, tax police, military police, state police), with particular attention to highly-used lines of transport and car parks managed by ATM as well as park-and-rides. Security activities are planned in relation to the need to protect the assets

17 Directors’ report

and sometimes to the needs connected to particular events (concerts, trade shows or sporting events), always bearing in mind the change to the external context and national and international events.

There was a significant increase in surveillance in the interchange stations and those with heavy passenger traffic, as well roving surveillance of both the “outlying” stations and surface vehicles. A new project has also been rolled out involving most of the group’s roving personnel (operational control staff, customer assistance staff and, from 2017, metro staff), resulting in a more widespread internal system to report situations where group assets may be at risk. Since the project’s launch on 15 March 2016, 2,161 reports have been received and over half have resulted in interventions in critical situations to protect the group’s assets and image.

The experience of 2016 led to the definition of new procedures and the implementation of new control methods in collaboration with law enforcement.

The number of aggressions towards ATM personnel dropped sharply (-22% over 2015), as did the number of acts of defacing of metro trains (-19% on 2015), with more than double the number of writers detained.

The profitable relationship with law enforcement was further confirmed by their active participation at the ATM safety committee for all institutional safety components (police, military police, local police) working on the ground. The committee has analysed the issues arising from the different experiences and reports coming from the various group sectors and plans the deployment of additional resources for special safeguarding and protection interventions.

Pursuant to enacted legislation, training and qualification activities have commenced for armed security guards.

Health, safety and the environment

Pursuant to the requirements of the “quality, environmental and social responsibility policy”, ATM continued to act to protect the environment and the health and safety of its employees in 2016, also with reference to company crimes against safety at work or the environment included in Legislative decree no. 231/01, with the key aim of the ongoing improvement of its management systems and to raise the level of environmental and social responsibility.

Activities to protect the environment and health and safety at work are managed in line with the Group’s values and policy objectives, with close attention to the implementation of the process and strategies aimed at improving health and safety at work and environmental sustainability.

To pursue these objectives, activities continued in 2016 to:

 identify and assess any risks to health and safety in the workplace and take appropriate preventative measures;  ramp up safety training programmes to include all personnel at every level, ensuring that responsibilities and operating procedures are precisely defined and effectively communicated;  disseminate information on health and safety at work and the environment to internal and external stakeholders;  optimise the consumption of energy resources in order to prevent pollution, monitoring and minimising the environmental impact of the processes.

18 Directors’ report

In this regard the proxy system in the area of safety and the environment was redefined in 2016, with the roles of employer reallocated pursuant to current legislation governing company liability in relation to health and safety at work, pursuant to article 2 of Legislative decree no. 81 of 9 April 2008. Likewise, the environmental manager roles were redefined pursuant to enacted legislation governing environmental protection, including the requirements of Legislative decree no. 152/2006.

Both appointments took into account the personnel, operating facilities and operations, in relation to the relevant structure and management.

There were visits to certify conformity with voluntary international standards; audits carried out by the certification body acknowledged that the group knew how to respond to the needs of the situation and of the stakeholders, as well as during all related extraordinary events, carrying out a strategic plan with precise monitoring, and guaranteeing contractually established quality parameters, even in exceptional situations.

The certified group companies operated in compliance with ISO 9001 and 14001 standards.

The updating of fire safety projects continued during the year. With regard to the update of the fire safety measures for the metro, ATM has implemented the organisational measures planned and agreed with the Milan municipality (review of emergency plans and new specific personnel training) and to certify the compliance of its main systems.

To limit the impact on the soil and subsoil, activities continued to upgrade the underground diesel tanks that fuel the vehicles and to resurface parts of the yards of some depots.

Numerous activities were carried out on trams and metro carriages to minimise their vibro-acoustic impact. The anti-friction systems on the trams underwent regular maintenance and new systems have been designed and will be installed during 2017.

A single database cataloguing the main environmental risks has been created to collect and file information relating to the various company departments.

The 2016 figures on the number and seriousness of workplace accidents basically confirmed the gradual improvement of recent years. Operating incidents decreased, while the number of incidents occurring travelling to or from work remained basically unchanged. All occupational illness-related information requested by the relevant bodies was provided during the year within the appropriate timeframes. Health monitoring was carried out in accordance with the programmes established by the appointed doctors and no critical issues were reported.

The review of the risk assessment document included the update of the relevant improvement plans which have the common goal of reducing the risk of falling (reduction of the maintenance pits at depots and yard resurfacing) and the improvement/upgrade of systems (fire, fume extraction and air conditioning).

Health monitoring was carried out as scheduled.

Anti-corruption, transparency and administrative liability

In accordance with the parent’s guidelines on anti-corruption and transparency, the subsidiaries ATM Servizi Diversificati S.r.l., Gesam S.r.l. and Rail Diagnostics S.p.A. appointed a manager for the

19 Directors’ report

prevention of corruption and transparency, as a further guarantee of the gradual strengthening of the control system.

Pursuant to legislative requirements, the three-year corruption prevention and transparency plans adopted by the parent and the group companies were published before 31 January 2017 and are available to all stakeholders in the “transparent company” section of the group’s website. They are promptly updated in compliance with ruling anti-corruption and transparency regulations and publication requirements. Mandatory training sessions were also held for employees operating in the areas at the highest risk of corruption.

With regard to the companies’ compliance with the requirements concerning administrative liability, as discussed in the corporate governance report, ATM has a system of regulations and bodies and departments dedicated to safeguarding against risks and to control, in order to fully satisfy legislative requirements.

Operating context

ATM has developed distinctive skills that characterise it within the national panorama, for its range of land-based mobility services.

The metro and surface transport network managed by ATM guarantees extensive coverage of the city of Milan and the surrounding urban areas.

At 31 December 2016, Milan’s metro network was made up of four lines, with a total length of around 97 km and 113 stations.

Line Route Inauguration Length Stations

Sesto I Maggio ↔ Rho Fiera / Bisceglie 1964 26.70 km 38

Abbiategrasso/Assago Milanofiori Forum ↔ Cologno

1969 39.88 km 35 Nord / Gessate

San Donato ↔ Comasina 1990 17.31 km 21

Bignami ↔ San Siro Stadio 2013 12.88 km 19

96.77 TOTAL 113 km

The current configuration of the surface network is as follows:

 road network: 78 urban lines (including the district radiobus services and night services), of which three have a night service that replaces the metro service, 52 are suburban lines and 27 are provincial lines. The district radiobus service operates in 14 districts of Milan;  tram network: 18 urban lines and two intercity lines, one of which has been suspended and replaced by a bus;  trolleybus network: four urban lines.

20 Directors’ report

The structure of the metro network was strengthened during 2016, with the continuation of the upgrading of metro services in line with that of the six months of Expo. The surface network underwent changes imposed by the Milan municipality aimed at resolving problems of a local nature and to adapt the network to the detours due to the building sites for the M4 lines.

Going-concern and the reference contractual framework

The services ATM provides for the Milan municipality through the subsidiary ATM Servizi S.p.A. are regulated by “contract for local public transport service and connected and ancillary services”.

The current contract expires on 30 April 2017. However, with resolution no. 219 of 17 February 2017, – Instructions for the continuation of activities during calls for tender to award the Local Public Transport services and connected and ancillary services, as well as the paid parking services in the Milan municipality and towing away and impounding of vehicles services – the Milan council instructed the relevant departments to extend the local public transport contract in line with the tender documents and the existing contracts and to take the appropriate managerial steps to extend each service – referred to above – by one year, in line with the tender documents and the existing contracts. Accordingly, based on the above, the current terms of the contract may be extended to at least 30 April 2018.

The directors of the subsidiary ATM Servizi S.p.A. deem the going-concern assumption exists, as there are no elements indicating the current scenario will not continue at the same contractual conditions, as indeed provided for by the council resolution which refers to article 3.2 of the Service agreement, for a period of more than twelve months from the reporting date. Based on this evaluation, the directors of ATM S.p.A. also requested some time ago that the Milan municipality, the ultimate parent (including through formal communications filed with the company’s books), define the future plans and to promptly sign the extension to the contract.

*** Institutions assign LPT operation contracts and related and ancillary activities using two types of contract:

Gross Cost: the operator bears the industrial risk, while the commercial risk is borne by the grantor, which is the beneficiary of revenue deriving from the sale of travel tickets.

The operator receives an amount proportional to the service it provides, re-evaluated each year based on inflation.

The amount is not in any way influenced by the trend in revenue from the sale of travel tickets, the effects of any tariff changes or change in demand.

It is, therefore, necessary for the operator to continue to strive for operating efficiency objectives, mainly by controlling costs.

Net Cost: the operator bears both the industrial and commercial risks. It is a beneficiary of revenues deriving from the sale of travel tickets and receives a sum calculated to cover theoretical production costs from the grantor.

21 Directors’ report

*** The services subject to “gross cost” in the Service agreement with the Milan municipality are the intermodal operation of local public transport (metro, trams, buses and trolley buses), demand responsive transport, related activities such as distribution of travel tickets and related information to customers and controlling fare evasion.

The contract governs the duties and responsibilities of ATM and the Milan municipality.

ATM is responsible for the operation of transport services and ancillary services based on the directions and directives of the Milan municipality, which is responsible for planning.

The municipality is a beneficiary of proceeds deriving from the sale of travel tickets and can define the tariff system. ATM, however, performs a strategic role as operator of the sales network on behalf of the municipality.

Investments for the development and maintenance of the public transport network and related infrastructures are the responsibility of the owner, the Milan municipality.

In addition to the transport services operated by ATM, by virtue of the same contract, it is also responsible for ancillary services to local public transport, such as on and off-street parking and the towing away and impounding of vehicles pursuant to the highway code. The municipality decides the tariff policy related to on-street parking, while the proceeds are recognised by ATM, which pays the municipality a set fee.

As part of their contractual relations, other than those that have already been mentioned, those of particular relevance are:

 the single operation contract for metro line 5 between ATM S.p.A. and the operator, Metro 5 S.p.A.. The contract regulates the operation and related activities for the entire duration of the concession until 2040;  the service contracts under the “net cost” regime, between the subsidiary NET S.r.l., the Metropolitan city of Milan, the Monza municipality and the Monza-Brianza province, for the management of the public suburban automotive transport. These contracts are subject to extension by the grantor or the local public transport agency of the Metropolitan city of Milan, Monza, Brianza, Lodi and Pavia, until such time as the related tender procedures are finalised and awarded, expected to be in 2018;  the “gross cost regime” service contract for the management through the Danish subsidiary Metro Service A/S for the operation and maintenance of the Copenhagen metro. The contract expires on 31 December 2018.

***

In 2016, as an operator of the sales network that sells travel tickets, ATM earned €412.1 million, covering more than 55% of the payment of the service contract equal to €740.5 million, gross of VAT, a further increase compared to 2015. In 2011, the coverage percentage was 48%.

In general, the remainder is covered by the following:

 the grants that the Milan municipality receives from the Lombardy region using the national transport fund (€267.4 million), as well as smaller grants from bodies;  proceeds from Area C, from parking fees and other proceeds related to the same activity

22 Directors’ report

transferred by ATM.

In relation to activities related to the service agreement for the management of TPL and related and ancillary services, around 48.8% of operating costs are covered by ticket proceeds.

Macroeconomic context

1. Macroeconomic situation

The United States and the other developed economies continued to grow, albeit at different rates and times. OECD forecasts released before the Brexit vote in late June confirmed an overall forecast GDP growth for 2016 in line with that of the previous year (3%).

The election of the new president of the United States and economic policy indications triggered expansionary budget measures in the subsequent months and generally higher inflation in the United States.

Growth in the Eurozone was moderate (forecast GDP growth of around 1.7% for 2016) and the widespread deflation risk seems to have decreased in response to the expansionary monetary policies. Inflation forecasts for the medium term (1.2% in two years and 1.8% between five and ten years) are gradually moving towards the ECB’s definition of “price stability”.

The most significant economic and social event of the first half of 2016 was undoubtedly the outcome of the Brexit referendum held on 23 June in the United Kingdom.

In Italy, after a small uptick in the early part of the year, manufacturing and business and consumer confidence indicators recorded a moderate expansion in summer and autumn to put estimated GDP growth for the year at 0.9%.

Employment levels stabilised during the year, with a further small growth towards the end of the year as a result of companies taking advantage of the relief available on social security contributions before its expiry on 1 January 2017. Preliminary figures put the employment rate for 2016 at 11.9%.

2. The LPT (local public transport) sector and the raw materials market

The recovery of the national economy has had a positive effect on the transport sector, with increases in passenger and cargo transport across all the various transport segments (air, road and sea). However, in terms of operating performance, neither public or private local public transport companies posted an improvement. After an uptick in 2014, public transport lost around 3% of motorised transport in the subsequent two years to then recover slightly in 2016, mainly replacing what was previously motorcycle and scooter traffic. The total number of passengers/km has grown (more than 1.5 billion kilometres travelled), indicating a significant increase in the average length travelled.

The average price trend of petroleum in 2016 was lower than that of 2015 (USD43.5/barrel, compared to USD49), with an overall positive effect on ATM, albeit less than proportional to the decrease in raw materials prices due to the structural effect of the fixed governmental component (excise duty), on average over 50% of the final price of diesel.

23 Directors’ report

Similarly, the price of electrical energy includes a portion of non-negotiable charges that are defined by the authorities and account for over 60% of the total amount.

The trend of operations

The positive metro and surface performance of 2015 was repeated in 2016. The frequency rate of the metro lines was around 99% and 82% of the surface routes met their scheduled regularity despite the detours and difficulties caused by the building sites for the M4 metro line.

During the year, ATM and the Milan municipality finalised the reorganisation of the surface routes to improve services to outlying areas of the city and neighbouring municipalities, and adapted the transport network for the detours caused by the building sites for the metro M4 line. The sites are being opened since May 2016 and will be in place for several years. They affect several areas of the city and have an extremely significant impact both on the road network and on various major transport routes, requiring constant, prompt changes to routes and adjustment of services.

As shown by the passenger numbers of the year, the transport network in its new configuration and the high service levels have made the use of public transport increasingly attractive, indicating that the positive trend triggered by Expo continues.

ATM has also increased services at the municipal authorities’ request for important events, such as the final of the 2016 Champions League and the reopening to the public of part of the Expo site at weekends for the Triennale Internazionale event.

In order to further curb fare evasion, the requirement to validate tickets also when passing through the exit turnstiles was extended to the whole metro network from February and ATM was heavily involved in customer assistance.

The “Buongiorno Milano” project was launched on 9 January 2017, with ATM preparing for its roll out during the last few months of 2016. The project sees services on all metro lines starting half an hour earlier in the morning in order to improve transport services and to meet customers’ changing transport needs.

The first departures from the outlying urban terminals have been brought forward from between 6:00 to 6:15 to between 5:40 and 5:45 and are scheduled to coincide with connections to the city centre and to optimise train changes in the main interchange stations.

Bringing forward the starting time entailed the reorganisation of shifts, synchronising service times and, in particular, rescheduling maintenance given the shorter time available during the night hours. The public’s reaction to the new service was very positive from the start, and the number of passengers using the extra earlier services continues to grow.

The new centralised control room underwent a technological upgrade to improve its operation. Since 2016, control of all three original metro lines has been centralised in one control room, using advanced technology for communication, data processing and the representation of the status of the metro network.

This has a positive effect on operations and on the punctuality of services.

Maintenance on infrastructure, rolling stock and systems resumed as normal after being rescheduled during Expo.

24 Directors’ report

ATM continued its commitment to improving access within the metro stations, pursuing its escalator replacement programme (76 between 2013 and today) and installing eight new lifts on the M1 and M2 lines to overcome architectural barriers. The project to replace all the stair lifts on the M1 and M2 lines with systems compliant with new legislative requirements has been completed. Planning activities to overcome the architectural barriers also involved ten stops of the outer section of the M2 line.

The project funded by the Ministry for the Environment to replace traditional lighting systems with new, low energy and CO2 emission LED lighting systems in the main stations of the M1 line has commenced.

In 2016, the first stage also commenced of the three-year project to upgrade and modernise the M2 line of the metro, involving the renewal of the traction and lighting systems.

The engineering works brought significant changes to the management of maintenance processes, along with the gradual renewal of the fleet and the roll out of technologically more advanced trains than the traditional trains dating back to the first supply batches of the 1960s.

The maintenance of the 46 trains of the “Meneghino” fleet was insourced in May, entailing the overhaul of the maintenance schedules, the upskilling of internal personnel, investments in specific equipment and software and the hiring of expert workers. The aim is to retain strategic activities in- house, building on the fleet maintenance know-how developed over the years by the ATM workshops and to involve third parties only in those activities related to patented technologies and mechanical or structural works on the vehicle frames. The latter activities are not deemed to offer particular returns in terms of experience in the company’s core business.

The programme for the total overhaul of the 4900 trams continued.

ATM continued its work on points and switches on the tram network in 2016, with the aim of rolling out a remote monitoring and ongoing preventative maintenance system for the entire system so as to contain noise emissions and reduce wear and tear. Also in this activity the group relies mostly on internal resources.

Operating activities abroad

The Danish subsidiary, Metro Service A/S, performed positively in 2016, improving on the previous year. Average frequency (service availability) for 2016 increased over that of 2015 to reach all-time highs of 99.2% and passenger numbers topped 61 million, also thanks to the increase in the number of trains running during peak hours and the increase in the number of trains travelling daily.

Customer satisfaction surveys for 2016 again gave excellent results, with 96.1% of respondents satisfied with their last trip.

The installation of 54 digital screens in the underground stations led to an increase in sales of advertising space, introducing a new information tool for passengers.

25 Directors’ report

As regards business development, a contract was signed in 2016 for the operation and maintenance of the new City Ring metro line and the pre-mobilisation stage commenced. It is expected to become operative in 2019, with expected annual passenger volumes of approximately 70 million.

Key events in 2016

> On 18 January, Metro Service A/S agreed a contract for the operation and maintenance of the new Copenhagen City Ring metro, expiring in 2024, with an option for an additional three years. This contract confirms Metro Service A/S as the sole operator of Copenhagen’s driverless metro network. The sale of the non-operating building in Via Ricasoli, Milan, was completed on 28 January. > This is the first transaction of a larger property-streamlining project to raise additional funds to be used to strengthen and improve service quality through investments.

> The obligation to validate tickets also when leaving metro stations was introduced on 15 February in almost all stations to further bolster the fight against fare evasion. > The supply contract for an additional 15 “Leonardo” trains for the M2 metro line was signed on 29 March. The new trains were purchased with own funds and will become operational in late 2017. > The re-qualification and removal of the architectural barriers along the route of tram line 12 in Via Mac Mahon was completed on 21 May. > ATM signed a technical consulting agreement with Transdev on 31 May to participate in the tender called by the Metropolitan city of Lille for LPT management for 2018-2024. > The delivery of the last five trains for the M1 metro line on 9 June completed the supply of the 30 new “Leonardo” trains for the M1 and M2 metro lines. The first stage of the strategic project to upgrade and modernise the electricity supply and > traction systems of the M2 metro line commenced in the second half of the year, with the aim of improving the performance of the line. > On 22 September, ATM S.p.A.’s board of directors approved a bond issue on regulated markets to fund the fleet’s renewal. The shareholders approved the main features of the transaction on 18 November. > ATM celebrated 85 years of operation on 17 and 18 December with the “Porte Aperte” event at the San Donato depot, which attracted over 20,000 visitors. > The contract for the supply of a further 15 “Leonardo” trains was signed on 19 December, taking the number of new trains in the metro fleet to 60.

Investments

In 2016, ATM made investments of around €76.8 million, including €60 million for the renewal of the fleet.

The amount of investments decreased during the year but, if considered outside of the past and future context, this does not fully represent ATM’s actual commitment. Indeed, the most important projects commenced in previous years were completed in 2016 and the foundations were laid for a new cycle of

26 Directors’ report

significant investments which will have an impact on the group’s financial position and results of operation in the 2017 - 2019 three-year period.

ATM’s plans have been affected by the delay in the disbursement of state and regional grants to co- finance the upgrade of the bus fleet, which were only received towards the end of 2016. Indeed, while the Group could no longer put off the decision to renew the metro’s rolling stock using large amounts of own funds, given the absence of funding, the Group renewed the bus fleet in line with the timeframe of the disbursement of the albeit limited public grants.

Consequently, ATM’s commitment to the renovation of the fleet of metro and surface vehicles, with the objective of providing the city with ever more innovative public transport in terms of performance, safety, accessibility and comfort, has never wavered, despite having to cope with the timing of the disbursement of public funds in the second case:

 contracts were agreed for the purchase of a further 30 trains for a total of €215 million, doubling the investments for the renewal of the train fleet, fully covered by own funds and the loan from the European Investment Bank. The new trains will become operational from the end of 2017 and will result in a 20-year decrease in the average age of the M2 fleet;  a framework agreement was signed for the supply of 125 traditional 12 metre-long motorised Euro 6 city buses, worth €38.1 million;  the tender procedure for the supply of 120 hybrid buses commenced and was awarded in early 2017;  the tender procedure for the supply of 25 electric buses commenced.

The project to extend line 2 of the metro also commenced in 2016. The project is 60% government funded, with ATM replacing the Milan municipality in funding the remaining portion for the upgrade of the traction and supply systems. The project’s second stage will be implemented in 2018-2019, and CIPE (Interministerial Economic Planning Committee) funding was definitively allocated in the second half of 2016.

These investments comprise a significant part of the investment plan for the 2017-2019 three-year period approved on 17 November by the parent’s board of directors

It is predicted that total investments will be equal to €606.7 million for the three-year period, of which:

- €412.2 million will be used to renovate rolling stock, in particular, trains and buses, with the launch of pilot projects such as the acquisition of the first electric buses and the creation of the related refuelling infrastructures; - €50.0 million for building works. These include the strategically-important first phase of the expansion of the Gallaratese depot, with a view to developing depots for the fleet; - €68.8 million for works on systems and equipment, over half of which for the previously described project to extend line 2; - €75.7 million for the development of technologies, including the project for the new ticketing system designed for the efficient integrated management of the fare system and the possibility of applying innovating fare policies.

A fundamental requirement for the effective completion of the plan is ATM’s ability to generate an adequate volume of self-financing in order to cover the costs.

27 Directors’ report

In that regard, it is estimated that for the next three years, ATM will have to finance over 90% of the plan using its own resources, to make up for the limited public resources, as it has done in the past.

Technological innovation

ATM is always committed to experimenting with new technologies for mobility services and in this way it has developed strong distinctive competencies when it comes to creating platforms for the management of integrated mobility information.

Many technologically innovative projects aimed at both internal and external customers were carried out in 2016.

In the customer service area, the investments of previous years in “mobile ticketing” were received positively by customers, as shown by the volumes recorded in 2016:

 ATM app downloads over 2,000,000;  Tickets sold via SMS and the app over 3,700,000;  Parking managed through the app around 2,050,000;  QR code validation over 3,300,000.

LPT fines are now in digital form so they can be paid at post offices using a QR code. A new application has also been introduced on the website enabling users to report claims involving vehicles pertaining to the group’s fleet online.

New payment methods for the supply of tickets for resale have been introduced and the graphics of the “Atmosphere” site have been renewed, introducing new payments and booking methods.

The main internal projects related to:

 the roll out of the new control room for line 3 which has enabled operators to work in the new centralised metro control room thanks to new systems integrated with those of the new control room for line 1;  the development of the automated data generation system for the National anti-corruption agency in relation to tender management;  the implementation of the RTT (land-train radio) project which involves upgrading systems to enable high-performing communication between the control room, driver and passengers. The new centralised RTT control room was completed and rolled out in 2016;  the in-house development of the SCADA system to monitor and remotely control the metro power supply boxes, offering economic savings and faster development and the addition of components.

New technologies have also been implemented to support and strengthen internal processes, bringing benefits in terms of standardisation, improved control systems and cost containment. The innovations principally concerned maintenance and operations.

28 Directors’ report

Financial highlights of ATM group

The analysis of the Group’s financial position and results of operations for 2016 and comparison with the previous year took into account that 2015 was affected by Expo, an exceptional event which not only required more frequent and longer services but also affected operations and maintenance of the year, with impacts on the results of operations. ATM’s 2016 results are particularly strong and confirm the soundness of the Group.

Gross operating profit amounts to €164,056 thousand and was substantially unchanged from > that of 2015. > Net profit for the year of €38,884 thousand (€25,813 thousand in 2015) increased strongly (+50.6%). The results reflects the effects of the lower amortisation, depreciation and write- downs of the year, lower financial and extraordinary income and the lower tax expense.

Net equity rose from €923,658 thousand at 31 December 2015 to €961,133 thousand at 31 > December 2016. > Receivables deceased sharply (€99,251 thousand) from €400,877 thousand to €301,626 thousand (-21%) thanks to the close monitoring of counterparties, including the Milan municipality, to contain trade receivables. > Payables decreased sharply (€166,377 thousand) from €711,231 thousand to €544,854 thousand (-23.3%) due to the expiry of the contractual supply milestones related to the investment plan and of the payments made to the Milan municipality for reserves distributed and parking payments related to the years from 2010 to 2015.

The net financial position improved substantially (from €-217,773 thousand at 31 December > 2015 to €-247,081 thousand at 31 December 2016), as a result of the combined effect of the significant self-financing generated by operations and the decrease in indebtedness.

Net invested capital rose from €1,614,131 thousand at 31 December 2015 to €1,581,173 > thousand and is 60.8% covered by net equity.

Results of operations

The reclassified profit and loss account differs from that provided for by the Italian Civil Code in the captions “Consumables”, which is determined as the sum of the purchases of materials and changes in inventory, “Extraordinary income and expense”, which is shown separately, and in the calculation of gross operating profit.

29 Directors’ report

2016 2015 ∆ ∆ % OPERATING REVENUES 996,792 1,056,382 (59,590) (5.6) % Revenues from the LPT 774,365 803,944 (29,579) (3.7) % Revenues from on-street parking, car parks, 31,344 28,944 2,400 8.3 % towing away service National labour contract grants 50,190 50,299 (109) (0.2) % Internal work capitalised 17,002 39,360 (22,358) (56.8) % Other revenues 123,891 133,835 (9,944) (7.4) %

OPERATING COSTS 832,736 892,936 (60,200) (6.7) % Consumables 76,442 81,273 (4,831) (5.9) % Services 219,206 234,697 (15,491) (6.6) % Use of third party assets 6,078 5,832 246 4.2 % Personnel expenses 498,161 510,778 (12,617) (2.5) % Others 32,849 60,356 (27,507) (45.6) % GROSS OPERATING PROFIT 164,056 163,446 610 0.4 %

Amortisation, depreciation and write-downs 130,007 142,717 (12,710) (8.9) % OPERATING PROFIT 34,049 20,729 13,320 64.3 % Net financial income 3,807 6,842 (3,035) (44.4) % Net extraordinary income 4,299 7,255 (2,956) (40.7) %

PRE-TAX PROFIT 42,155 34,826 7,329 21.0 % Income taxes (3,271) (9,013) 5,742 63.7 % NET PROFIT FOR THE YEAR 38,884 25,813 13,071 50.6 %

NET PROFIT FOR THE YEAR ATTRIBUTABLE TO THE GROUP 36,725 23,779 12,946 54.4 %

Net profit for the year attributable to minority interests 2,159 2,034 125 6.1 %

Operating revenues

“Operating revenues” of 2016 came to €996,792 thousand, down by €59,590 thousand (- 5.6%) compared to 2015.

“Revenues from the LPT” for 2016 (€774,365 thousand) for LPT service/management contracts in Italy and abroad were down by €29,579 thousand on those of 2015 (-3.7%). This is mainly a result of the €34,970 thousand decrease in fees from the service agreement with the Milan municipality, due to the smaller amount of services provided compared to those of 2015, mainly related to Expo. This decrease was partly offset by the greater management fees for Copenhagen’s metro network (+ €4,021 thousand) and the greater management fees for the M5 metro line (+ €3,973 thousand), due to the operation of the entire line for the full year.

30 Directors’ report

2016 2015 Change Δ % change Revenues from the local public transport service, of which: Fees as per the service agreement with the 669,461 704,431 (34,970) (5.0) % Milan municipality Fees as per the service agreement - 46,670 42,649 4,021 9.4 % Copenhagen Fees as per the service agreement - intercity 19,565 19,919 (354) (1.8) % area Fees as per the service agreement - line 5 22,987 19,014 3,973 20.9 % Proceeds from tariffs - intercity area 11,665 11,599 66 0.6 % Special/dedicated transport services 4,017 6,332 (2,315) (36.6) % Total 774,365 803,944 (29,579) (3.7) %

Revenues from the management of on-street parking, car parks and the towing away service increased from €28,944 thousand in 2015 to €31,344 thousand in 2016 (+8.3%) as a consequence of new parking areas, the ongoing monitoring activities in the area, the increase in sales via innovative payment channels and parking meters and the full reopening of the San Donato park-and-ride carpark.

“Internal work capitalised”, of €17,002 thousand, mainly include the extraordinary maintenance carried out on the metro train and tram fleets.

“Operating revenues”, of 123,891 thousand, decreased by €9,944 thousand (- 7.4%) compared to 2015, mainly as a result of the lower amount of infrastructure-related works carried out for the Milan Municipality. This caption includes advertising income, revenues from passenger fines, penalties for supply contracts, LPT ancillary services and increases to provisions in relation to the review of estimates based on new information not available at the time the original estimates were made and in relation to the events of the year.

Operating costs

“Operating costs” came to €832,736 thousand, down by €60,200 thousand (- 6.7%) compared to 2015.

“Consumables”, related to raw materials, consumables, supplies and goods, decreased by €4,831 thousand (-5.9%) compared to 2015, as a result of the fall in oil prices and lower consumption of diesel for buses, as well as the smaller consumption of metro and tram materials.

“Services” decreased from €234,697 thousand to €219,206 thousand (-6.6%), due to the lower consumption of traction power, lower costs related to the LPT ancillary services carried out for third parties, less outsourcing of services and lower insurance costs.

“Personnel expenses” of €498,161 thousand decreased by €12,617 thousand on 2015. The decrease is the net effect of the higher costs related to the increase in the average workforce and those related to the renewal of the national labour contract, and to the absence of the large charges related to the management of the Expo period.

“Other costs” of €32,849 thousand decreased by €27,507 thousand on 2015, mainly as a result of the lower accruals for risks and litigation made based on the events of the year.

“Amortisation, depreciation and write-downs” decreased from €142,717 thousand to €130,007 thousand (-8.9%). The change is mainly due to the different impact compared to 2015 of the write-

31 Directors’ report

downs of the fleet which will be progressively sold in the next three years in line with the purchase contracts for the 30 “Leonardo” trains signed during the year.

“Net financial income” of €3,807 thousand decreased by €3,035 thousand due to the lower returns on deposits as a result of market interest rates being close to zero.

“Net extraordinary income” includes the gain on the sale of the non-operating building in Via Ricasoli (net extraordinary income of €7,255 thousand in 2015), mainly due to compensation received in relation to the 2010 flooding of the Seveso river and to contributions for sickness benefits for 2011.

“Income taxes” relate to IRAP and IRES calculated on the taxable income for the year, based on ruling legislation.

The net profit for the year amounts to €38,884 thousand, gross of minority interests of €2,159 thousand. The foreign subsidiary Metro Service A/S’s contribution to the net profit for the year amounts to €4,165 thousand.

32 Directors’ report

Financial position and cash flows

At 31 December 2016, “net invested capital” amounted to €1,581,173 thousand, down by €32,958 thousand on 31 December 2015.

“Fixed capital” at 31 December 2016, including grants, comes to €1,587,250 thousand. The decrease on the previous year is largely due to the amortisation, depreciation and write-downs of the year, which was only partly offset by the investments of the year.

At 31 December 2016, “working capital” was of a positive €6,077 thousand, decreasing by €70,858 thousand compared to 31 December 2015, mainly as a result of the decrease in payables, particularly for investments.

31.12.2016 31.12.2015 Change NET INVESTED CAPITAL

Tangible fixed assets 1,509,381 1,595,369 (85,988) Intangible fixed assets 42,745 63,778 (21,033) Financial fixed assets 35,124 31,919 3,205

A. FIXED ASSETS 1,587,250 1,691,066 (103,816)

Trade receivables 158,501 210,940 (52,439) From others 108,341 86,826 21,515 Net inventory 74,102 70,124 3,978 Prepayments and accrued income 2,816 2,841 (25)

B. CURRENT ASSETS 343,760 370,731 (26,971)

Trade payables 225,651 311,337 (85,686) Other payables 136,621 159,912 (23,291) Accrued expenses and deferred income 3,342 3,788 (446)

C. CURRENT LIABILITIES 365,614 475,037 (109,423)

D. RECEIVABLES FOR GRANTS RELATED TO PLANT 15,777 27,371 (11,594)

E. NET WORKING CAPITAL (E=B-C+D) (6,077) (76,935) 70,858

F. NET INVESTED CAPITAL (F=A+E) 1,581,173 1,614,131 (32,958)

The “net financial position” at 31 December 2016 is -€247,081 thousand, with an improvement on the previous year almost fully due to the part repayment of the Cassa Depositi e Prestiti loan for €6,154 thousand and the payment of €15,000 thousand to the Milan municipality of reserves whose distribution was approved in prior years.

33 Directors’ report

At 31 December 2016, “net equity attributable to the group” amounted to €961,133 thousand, up by €37,475 thousand.

Net invested capital not covered by the above captions is covered by other non-current liabilities, particularly the grants related to plant received by the group over the years.

31.12.2016 31.12.2015 Change

SOURCES OF FINANCING

Financial payables 182,563 204,384 (21,821) Financial receivables (33,988) (40,142) 6,154 Liquid funds and securities (395,656) (382,015) (13,641)

G. NET FINANCIAL POSITION (247,081) (217,773) (29,308)

Employees’ leaving entitlement 143,956 150,580 (6,624) Other provisions 150,312 162,036 (11,724) Grants related to plant 567,408 590,034 (22,626)

H. NON-CURRENT LIABILITIES 861,676 902,650 (40,974)

I. NET EQUITY 961,133 923,658 37,475

- Share capital 700,000 700,000 - - Reserves 165,460 165,452 8 - Retained earnings 95,673 58,206 37,467

L. PROFITS AND RESERVES ATTRIBUTABLE TO 5,445 5,596 (151) MINORITY INTERESTS

M. SOURCES OF FINANCING (M=G+H+I+L) 1,581,173 1,614,131 (32,958)

34 Directors’ report

“Cash flows generated by operating activities” for 2016 came to €88,752 thousand. These are lower than in 2015 mainly due to the decrease in trade payables following the expiry of the contractual supply milestones related to the investment plan. These flows fully coverage the requirements investment activities (€76,792 thousand, net of sales).

The “net cash flows of the year” of €13,641 thousand led to an increase in liquid funds and securities to €395,656 thousand (31 December 2015: €382,015 thousand).

2016 2015 Change

Net profit for the year 38,884 25,813 13,071 Adjustments to align the net profit for the year with the net cash flows from operating activities: - amortisation/depreciation and adjustments to fixed 128,299 141,559 (13,260) assets and goodwill arising on consolidation - net gains from the sale of assets (4,296) 1,971 (6,267)

- income taxes, interest, dividends (3,198) (4,085) 887

Change in net working capital (56,597) (28,492) (28,105) Non-current liabilities (change in provisions for risks (18,348) 27,569 (45,917) and employees’ leaving entitlement) Taxes paid, interest (paid) received, dividends 4,008 3,882 126 received Cash flows generated by operating activities 88,752 168,217 (79,465)

Capital expenditure

Net capital expenditure (60,538) (183,890) 123,352 Net investments in equity investments, consolidated (3,205) (2,217) (988) companies and business units Other changes related to investing activities 4,299 1,386 2,913

Free cash flows 29,308 (16,504) 45,812

Change in current and non-current financial payables (667) 54,723 (55,390) Cash outflows related to using own funds (dividends (15,000) (20,000) 5,000 paid) Net cash flows for the year 13,641 18,219 (4,578) *** At 31 December 2016, the Group’s workforce numbered 9,588 compared to 9,695 at 31 December 2015, partly due to the conclusion of certain fixed-term contracts agreed for Expo-related activities.

Contract 31.12.2016 % 31.12.2015 % Managers 31 0.32% 34 0.35% Public transport workers 9,212 96.08% 9,322 96.15% Others 345 3.60% 339 3.50% Total 9,588 100% 9,695 100%

35 Directors’ report

ATM S.p.A.’s performance

The following reclassified profit and loss account for ATM S.p.A. differs from that provided for by the Italian Civil Code in the captions “Consumables”, which is determined as the sum of the purchases of materials and changes in inventory, “Extraordinary income and expense”, which is shown separately, and in the calculation of gross operating profit.

2016 2015 Δ Δ %

OPERATING REVENUES 572,213 581,294 (9,081) (1.6%) Revenues from core business 468,284 464,208 4,076 0.9% Internal work capitalised 16,942 32,416 (15,474) (47.7%) Other revenues 86,987 84,670 2,317 2.7% OPERATING COSTS 440,934 455,079 (14,145) (3.1%) Consumables 75,027 80,457 (5,430) (6.7%) Services 188,357 196,165 (7,808) (4.0%) Use of third party assets 4,256 4,134 122 3.0% Personnel expenses 150,329 152,217 (1,888) (1.2%) Other costs 22,965 22,106 859 3.9% GROSS OPERATING PROFIT 131,279 126,214 5,065 4.0% Amortisation, depreciation and write-downs 120,050 135,888 (15,838) (11.7%) OPERATING PROFIT 11,229 (9,674) 20,903 216.1% Net financial income 5,488 7,615 (2,127) (27.9%) Net extraordinary income 4,299 2,737 1,562 57.1% PRE-TAX PROFIT 21,016 678 20,338 n.a. Income taxes (1,246) 10,165 (11,411) (112.3%) NET PROFIT FOR THE YEAR 19,770 10,844 8,926 82.3%

Operating revenues

“Operating revenues” for 2016 amount to €572,213 thousand, compared to €581,294 thousand in the previous year (a decrease of 1.6%).

“Revenues from the core business” amount to €468,284 thousand in 2016, up by €4,076 thousand on 2015 (+0.9%) mainly as a result of the increase in the contractual fees to manage line 5 of the metro, due to the operation of the entire line for the full year.

“Internal work capitalised”, of €16,942 thousand, mainly include the extraordinary maintenance carried out on the metro train and tram fleets.

The increase in “other revenues” (up by €2,317 thousand or 2.7%) is the net effect of higher penalties applied on supply contracts, adjustments to the provisions for risks following the review of estimates due to events of the year and lower revenues generated by seconded personnel following the Group’s internal reorganisation.

36 Directors’ report

Operating costs

“Operating costs” came to €440,934 thousand, down by €14,145 thousand (-3.1%) compared to 2015, which was more than proportional to the drop in revenues.

“Consumables”, related to raw materials, consumables, supplies and goods, decreased by €5,430 thousand (-6.7%) compared to 2015, as a result of the fall in oil prices and lower consumption of diesel for buses, as well as the smaller consumption of metro and tram materials.

“Services” decreased by €196,165 thousand to €188,357 thousand (-4.0%), due to the lower consumption of traction power, fewer outsourced services, lower insurance costs and lower clothing costs as new uniforms were introduced to coincide with Expo.

“Personnel expenses” of €150,329 thousand decreased by €1,888 thousand on 2015. The decrease is the net effect of the higher costs related to the increase in the average workforce and those related to the renewal of the national labour contract, and to the absence of the costs related to the Expo period.

“Amortisation, depreciation and write-downs” decreased by €135,888 thousand to €120,050 thousand (-11.7%). The change is mainly due to the different impact compared to 2015 of the write- downs of the fleet which will be progressively sold in the next three years in line with the purchase contracts for the 30 “Leonardo” trains signed during the year.

“Net financial income” of €5,488 thousand decreased by €2,127 thousand due to the lower returns on deposits as a result of market interest rates being close to zero. The balance includes the dividends distributed by the subsidiary International Metro Service S.r.l. of €1,632 thousand for 2016. The 2015 dividend distribution was €3,060 thousand.

“Net extraordinary income” of €4,299 thousand includes the gain on the sale of the non-operating building in Via Ricasoli, compared to net extraordinary income of €2,737 thousand in the previous year, which mainly related to the repayment of sickness benefits for 2011 and the gain on the sale of an equity investment.

“Income taxes” relate to IRAP and IRES calculated on the taxable income for the year, based on ruling legislation.

IRAP is calculated solely in relation to the parent, while IRES is calculated on the sum of the taxable incomes of the consolidated companies.

The “net profit for the year” amounts to €19,770 thousand, and increased by €8,926 thousand (82.3%) over 2015.

37 Directors’ report

Risks and uncertainties

ATM regularly monitors its complex management processes and the developments of the legislative, operational and financial context in order to provide the board of directors with every tool necessary and useful for a correct assessment of the related risks and to facilitate the preparation of the related action plans.

External risks

The local public transport sector is still undergoing great change in terms of liberalisation and the definition of fee calculation and methodologies which the granting bodies must implement in the service agreements.

This development, the content and outcome of which is not yet known, will considerably affect operating management decisions in view of the full liberalisation of the market which will take place in 2019 under the European legislation. Legislation governing companies in which a state body has an investment is also undergoing changes.

Another complication is the uncertainty related to the amount of the increasingly limited government grant to cover infrastructure projects and to upgrade the fleet.

A specific uncertainty is the expiry on 30 April 2017 of the “Contract for local transport service and connected and ancillary services” between the subsidiary ATM Servizi S.p.A. and the Milan municipality. The contract provides for the possibility of its extension.

Under ruling regional legislation (regional law no. 6 of 4 April 2012 “Transport sector regulations”), the next tenders for the awarding of local public transport services are to be called by local agencies specifically set up for this purpose.

The local public transport agency of the Metropolitan city of Milan, Monza, Brianza, Lodi and Pavia, which will take over the planning and organisational of these services from the Milan municipality, was set up in April 2016. It does not yet have adequate structures and resources such to be fully operative.

Moreover, as stated, national legislation is still undergoing change and review.

With the council resolution of 17 February 2017, in order to ensure service continuity, the Milan municipality resolved to extend the local public transport contract in line with the tender documents and the existing contracts.

Given the above, and considering the time needed for the tender to award the new LPT contract and the contents of the above-mentioned resolution, it is deemed appropriate to apply the going-concern assumption in preparing the financial statements, while bearing in mind the uncertainties detailed under “Going-concern and the reference contractual framework”.

Group management will monitor the situation as it develops over the next few months.

38 Directors’ report

Operational risks

Operational risks mainly relate to malfunctions and unforeseen service interruptions due to accidental and extraordinary events. These events can cause damage to people and lead to a decrease in revenues. Generally speaking, internal controls and the action plans implemented by the group ensure service continuity and the safeguarding of company assets in compliance with the laws and regulations.

ATM’s operations are increasingly dependent on the smooth and uninterrupted operation of the information systems and the network infrastructures supporting operations and maintenance. In this regard, the roll out of a new disaster recovery solution is almost complete and is aimed at ensuring the continuity of the systems supporting the Group’s operations.

There are no particular issues related to data protection, also thanks to ATM’s active collaboration with the police’s national centre for the prevention of cybercrime (Centro Nazionale Anticrimine Informatico della Polizia di Stato).

Environmental risks and risks related to the health and safety of employees

The historical context of certain group depots and legislative developments make it necessary to closely and effectively check the environmental risk factors, particularly as relates to the soil and subsoil.

In line with applicable legislation, ATM carefully monitors the environmental risk factors typical of each process, in order to prevent and respond rapidly to any event that may have a significant effect internally and externally.

Accidents and occupational illness are the main risk factors. Investments are of prime importance to ensuring operations continue to improve, for the prevention of accidents and to maintain suitable standards.

As part of its current operations, ATM bears the costs and charges related to the preventative measures in compliance with applicable regulations governing health and safety in the workplace.

The issue of new provisions or changes to ruling legislation could require ATM to adopt even more stringent standards, incurring costs to adapt the group organisation, IT systems and production sites.

Specific operational risks

In relation to specific risks on the line 5 of the Milan metro, in line with the instructions of the safety commission, ATM also carried out additional extraordinary maintenance in 2016 compared to the basic maintenance plans for the still unresolved unusual instances of wear and tear of tracks and train wheels detected in 2014. This activity is shared with the operator, Metro 5 S.p.A., and the related costs are periodically recharged thereto.

This premature wear and tear of rolling stock required additional scheduled extraordinary works which ATM has quantified and detailed to Metro 5 S.p.A. as part of the out-of-court settlement procedure commenced pursuant to article 28 of the management contract.

Moreover, in terms of infrastructure, there were various cases of the malfunctioning of the escalators of the extension and of steps breaking. In this regard, ATM has asked Metro 5 S.p.A. to immediately carry out checks and repairs, which have commenced for 20 of the 55 escalators of the extension.

39 Directors’ report

Legal and non-compliance risks

Legal and non-compliance risks arise from full or partial non-compliance with ruling legislation, entailing risks of penalties and reputation and/or financial damage.

The 231 model is drawn up on the basis of “sensitive” or “at risk” activities, that is, those business activities in which there is a risk that one of the crimes identified in Legislative decree no. 231/2001 could arise. The analysis of business processes and the related risk assessment are carried out whenever there are organisational or legislative changes, to identify the activities in which the crimes referred to in the legislation could be committed.

Moreover, with the approval of the “three-year corruption prevention plan”, the actions were defined such to prevent the risk of corruption that could be committed contrary to the provisions of the Anti- corruption law of the legislation on transparency and the ANAC directives.

Financial risks

Liquidity risk

The liquidity risk does not pose any issues. Indeed, through its regular scheduling and monitoring activities, ATM ensures an adequate level of liquid funds and/or short-term monetisable securities to promptly meet its commitments vis-à-vis its commercial and financial counterparts.

Interest rate risk

Interest rate fluctuations may affect the market value of the Group’s financial assets and liabilities and its net financial income and charges.

ATM regularly monitors receivables and payables and implements all actions necessary to maintain a contained financial risk profile.

Credit risk

Credit risk reflects the Group’s exposure to the potential losses arising from non-compliance with obligations vis-à-vis commercial and financial counterparts.

The Group carefully monitors receivables and promptly chases up amounts when they fall due.

In regard of the default risk of trading counterparties, receivables management is assigned to the relevant departments and the legal department for credit recovery and the management of litigation of the group companies.

40 Directors’ report

Post-balance sheet events

The “Buongiorno Milano” project was launched on 9 January 2017, bringing forward the > starting time of four metro lines by half an hour. Significant passenger numbers were recorded on the earlier trains within weeks and numbers continue to rise. On 17 February 2017, the Milan municipality, with council resolution no. 219, – Instructions > for the continuation of activities during calls for tender to award the Local Public Transport services and connected and ancillary services, as well as the paid parking services in the Milan municipality and towing away and impounding of vehicles services – instructed the relevant departments to extend the local public transport contract in line with the tender documents and the existing contracts and to take the appropriate managerial steps to extend each service – referred to above – by one year, in line with the tender documents and the existing contracts, as described more fully under “Going-concern and the reference contractual framework”. The sale of the non-operating building in Via Verona, Milan, was completed on 3 March 2017. > This is the second transaction which forms part of a wider property-enhancing project in order to raise additional funds to be used to strengthen and improve service quality through investments. The winding up of Mipark S.r.l. was approved by the quotaholders on 14 March 2017. >

41 Directors’ report

Outlook

The Group’s core business in 2017 will be mainly focussed on ensuring high service levels for customers and on reducing the service contract costs applied by the Milan municipality.

The first buses purchased after the completion of the public tender procedure will be rolled out early in the year.

After these investments, made possible thanks to the release of the long-awaited contributions which had been frozen for more than one year for reasons not attributable to the Group, as well as additional financial commitments of the group, the Group will have around 250 new surface vehicles, bringing the fleet’s average age into line with its usual excellent levels.

In addition to the investments (the new metro line 2 trains will also be delivered starting from June), the Group will have to ensure an effective purchasing policy, increasing its use of competitive and open procedures.

It will also be possible to know the competitive panorama for the awarding of future service tenders. The Group is ready to effectively rise to this challenge in all aspects, given its strong service results, its experience, also in an international context, the professionalism of its employees and the significant financial resources that it has accumulated, despite its significant investments of recent years, thanks to the increasingly careful control of costs and the corresponding increase in profitability, resources

that are ready to be deployed in competition.

Other information

The City council’s resolution no. 70 of 23 January 2015 directs the companies in which the Milan municipality has an interest to the «principle of the containment of personnel expenses».

During 2016, ATM Group has implemented rigorous controls of personnel expenses, through actions such as:

. limiting new hires, only partially and selectively replacing outgoing employees and increasing personnel numbers only in those areas with the greatest operating requirements; . taking on new resources benefiting from the relief from social security contributions offered by ruling legislation, as well as young resources, which reduced the average cost per capita; . the adoption of remuneration policies focussed on cost control, in line with the guidelines issued by the Remuneration committee in the budget, which include: o overall accruals for discretional interventions (one-off increases) of less than 0.1% of personnel expenses; o decrease in the amounts accrued for the MBO programme for managers, officers and sales personnel compared to the targets. In recruiting new resources, the Group ensures compliance with the indications contained in the above-mentioned resolution - as integrated by the subsequent resolution no. 943/16 - and it complies with the disclosure requirements to the ultimate parent as per such legislation.

These policies resulted in the containment of personnel expenses which, net of the adjustments provided for by point 3 of the council resolution no. 70 of 23 January 2015 on the change in the scope

42 Directors’ report

of Group activities, is reflected in the gradual reduction in both overall personnel expenses and of such costs as a proportion of the overall Group operating costs, which also decreased this year.

Other disclosure pursuant to article 40 of Legislative decree no. 127/91

The following is noted pursuant to article 40 of Legislative decree no. 127/91:

- in 2016, the Group did not carry out any research or development activities; - no ATM group company holds or purchased or sold own shares or shares of the parent, including through trustees or nominees; - again in 2016, the Group did not trade in any derivatives to determine its financial position and results of operations.

43 Directors’ report

Related party transactions

Most of the transactions carried out by ATM S.p.A., as the parent, with its subsidiaries refer to services and funding and lending activities. Transactions are strictly of a financial and commercial nature and, consequently, do not include atypical and/or unusual transactions and are regulated by contracts agreed in line with market conditions.

ATM S.p.A. participates in the tax consolidation scheme with the following subsidiaries: ATM Servizi S.p.A., ATM Servizi Diversificati S.r.l., GeSAM S.r.l., Inmetro S.r.l., NET S.r.l. and Rail Diagnostics S.p.A..

Under the relevant contract, when a positive tax base is transferred, the consolidated company recognises a payable to the consolidating company equal to the amount resulting from application of the IRES rate to the transferred profit. Conversely, when a tax loss is transferred, the consolidating company will recognise a payable to the consolidated company equal to the amount resulting from the application of the IRES rate to the transferred tax loss.

ATM also set up a VAT scheme together with the following subsidiaries: ATM Servizi S.p.A., ATM Servizi Diversificati S.r.l., GeSAM S.r.l., NET S.r.l., and Rail Diagnostics S.p.A..

Under this scheme, the VAT balance is transferred monthly to the ultimate parent which, accordingly, is the only company with tax payables, while the subsidiaries recognise receivables from/payables to the parent.

The annexes to the notes to the financial statements of ATM S.p.A. summarise related party transactions based on the nature of the services provided.

Milan, 21 March 2017

On behalf of the board of directors The chairman Bruno Rota (signed on the original)

44 Directors’ report

45

Consolidated financial statements

46

Consolidated financial statements

49 Consolidated financial statements

BALANCE SHEET

50 Consolidated financial statements

€/000 31.12.2016 31.12.2015 A) Share capital proceeds to be received - - B) Fixed assets

I - Intangible fixed assets 32,572 50,974 4) Concessions, licences, trademarks and similar rights 2,401 2,582 5) Goodwill - 472 6) Assets under development and payments on account 6,089 3,764 7) Other 24,082 44,156 II. Tangible fixed assets 973,160 1,050,746 1) Land and buildings 230,262 239,090 2) Plant and machinery 678,755 694,994 3) Industrial and commercial equipment 20,047 21,862 4) Other assets 4,254 7,876 5) Assets under construction and payments on account 39,842 86,924 III. Financial fixed assets 35,124 31,919 1) Equity investments: 14,009 13,112 b) associates 10,679 10,679 d) subsidiaries of the parent 3,257 2,408 d-bis) other 73 25 Financial receivables: 21,115 18,807 b) from associates 18,330 16,865 Due after one year 18,330 16,865 d) from subsidiaries of the parent 1,051 - Due after one year 1,051 - d-bis) from others 1,734 1,942 Due within one year 202 310 Due after one year 1,532 1,632 Total fixed assets (B) 1,040,856 1,133,639 C) Current assets

I - Inventory 74,102 70,124 1) Raw materials, consumables and supplies 71,052 65,704 4) Finished goods 1,327 2,992 5) Payments on account 1,723 1,428 II - Receivables 316,626 400,877 1) Trade receivables 38,488 40,497 Due within one year 38,488 40,497 3) From associates 3,145 4,543 Due within one year 3,145 4,543 4) From ultimate parent 122,108 207,748 Due within one year 122,108 207,748 5) From subsidiaries of the parent 2,382 3,475 Due within one year 2,382 3,475 5-bis) Tax receivables 91,352 74,313 Due within one year 60,554 25,923 Due after one year 30,798 48,390 5-ter) Deferred tax assets 1,415 1,086 Due within one year 1,415 1,086 5-quater) From others 57,736 69,215 Due within one year 57,736 69,215 III - Current financial assets 293,796 217,674 6) Other securities 293,796 217,674 IV. Liquid funds 101,860 164,341 1) Bank and postal accounts 100,846 163,318 3) Cash-in-hand and cash equivalents 1,014 1,023 Total current assets (C) 786,384 853,016 D) Prepayments and accrued income 2,816 2,841 Total assets 1,830,056 1,989,496

51 Consolidated financial statements

€/000 31.12.2016 31.12.2015

A) Net equity

I - Share capital 700,000 700,000 IV - Legal reserve 140,000 140,000 VI - Other reserves, shown separately: 25,460 25,452 - contribution reserve 19,690 19,690 - extraordinary reserve 5,764 5,764 - translation reserve 6 (2) VIII - Retained earnings 58,948 34,427 IX - Net profit for the year 36,725 23,779 Net equity attributable to the Group 961,133 923,658 A2.I - Minority interests in share capital and reserves 3,286 3,562 A2.II - Profit for the year attributable to minority interests 2,159 2,034 Net equity attributable to minority interests 5,445 5,596

Total net equity 966,578 929,254

B) Provisions for risks and charges

2) Tax provision, including deferred tax liabilities 771 817 Other revenues and income 149,541 161,219 4.a) Provisions for risks 135,568 140,654 4.b) Provisions for charges 13,973 20,565

Total provisions for risks and charges (B) 150,312 162,036

C) Employees’ leaving entitlement 143,956 150,580 D) Payables

4) Bank loans and borrowings: 143,988 150,809 Due within one year 6,359 6,821 Due after one year 137,629 143,988 7) Trade payables 181,980 261,415 Due within one year 181,980 261,415 10) Payables to associates 761 675 Due within one year 761 675 11) Payables to ultimate parent 79,609 137,061 Due within one year 79,609 137,061 11-bis) Payables to subsidiaries of the parent 1,876 1,358 Due within one year 1,876 1,358 12) Tax payables 13,982 18,891 Due within one year 13,982 18,891 13) Social security charges payable 38,548 43,759 Due within one year 38,548 43,759 14) Other payables 84,110 97,263 Due within one year 84,110 97,263

Total payables (D) 544,854 711,231

E) Accrued expenses and deferred income 24,356 36,395

Total liabilities 1,830,056 1,989,496

52 Consolidated financial statements

53 Consolidated financial statements

PROFIT AND LOSS ACCOUNT

54 Consolidated financial statements

€/000 2016 2015

A) Production revenues

1) Turnover from sales and services 805,746 833,844 4) Internal work capitalised 17,002 39,360 5) Other revenues and income 178,343 190,433 Other revenues and income 127,305 138,182 Grants related to income 51,038 52,251

Total production revenues (A) 1,001,091 1,063,637

B) Production cost

6) Raw materials, consumables, supplies and goods 81,778 89,841 7) Services 219,206 234,697 8) Use of third party assets 6,078 5,832 9) Personnel expenses: 498,161 510,778 a) Wages and salaries 364,401 371,737 b) Social security contributions 99,061 105,258 c) Employees’ leaving entitlement 25,083 24,388 d) Pension and similar costs 4,223 3,980 e) Other costs 5,393 5,415 10) Amortisation, depreciation and write-downs: 130,007 142,717 a) Amortisation of intangible fixed assets 22,814 23,265 b) Depreciation of tangible fixed assets 72,634 77,544 c) Other write-downs of fixed assets 33,348 41,273 d) Write-downs of current receivables and liquid funds 1,211 635 11) Change in raw materials, consumables, supplies and goods (5,336) (8,568) 12) Provisions for risks 12,401 43,575 13) Other provisions 2,057 2,488 14) Other operating costs 18,391 14,293

Total production cost (B) 962,743 1,035,653

Operating profit (A-B) 38,348 27,984

C) Financial income and charges

15) Income from investments - - 16) Other financial income: 6,982 12,264 a) From financial receivables classified as fixed assets 1,127 1,028 From associates 1,039 897 From subsidiaries of the parent 56 - From others 32 131 c) From securities classified as current assets which are not equity investments 5,366 10,363 d) Other income 489 873 From others 489 873 17) Interest and other financial charges (2,129) (2,053) Other (2,129) (2,053) 17-bis) Net exchange rate gains (losses) 48 (53) a) Gains 47 22 b) Losses 1 (75)

Net financial income (15+16-17+-17-bis) 4,901 10,158

55 Consolidated financial statements

€/000 2016 2015

D) Adjustments to financial assets

18) Write-backs: 483 103

c) Securities classified as current assets which are not equity investments 483 103

19) Write-downs: (1,577) (3,419)

c) Securities classified as current assets which are not equity investments (1,577) (3,419)

Total adjustments (18-19) (1,094) (3,316)

Pre-tax profit (A-B+-C+-D+-) 42,155 34,826

20) Income taxes, current and deferred (3,271) (9,013)

Current taxes (4,336) (21,111)

Change in deferred tax assets 320 (22)

Change in deferred tax liabilities 51 136

Income from participation in the tax consolidation/transparency scheme 694 11,984 21) Net profit for the year before the portion attributable to minority 38,884 25,813 interests

Net profit for the year attributable to minority interests 2,159 2,034

Net profit for the year 36,725 23,779

56 Consolidated financial statements

57 Consolidated financial statements

CASH FLOW STATEMENT

58 Consolidated financial statements

€/000 2016 2015

A. Cash flows from operating activities

Net profit for the year 38,884 25,813

income taxes 3,271 9,013

net interest income (4,901) (10,158)

dividends (1,568) (2,940)

net losses from the sale of assets 3 3,357

net extraordinary gains from the sale of assets (4,299) (1,386)

1. Net profit for the year before income taxes, interest, dividends and losses on the sale of 31,390 23,699

assets

Adjustments for non-monetary items with no balancing entry in net working capital

change in provisions for risks and charges (7,363) 37,264

change in employees’ leaving entitlement 2,830 2,758

amortisation/depreciation 94,943 100,582

adjustments to fixed assets 33,348 41,273

goodwill arising on consolidation 8 (296)

Total adjustments for non-monetary items 123,766 181,581

2. Cash flows before changes in NWC 155,156 205,280

Change in net working capital: (56,597) (28,492)

inventory (3,978) (8,514)

trade receivables 52,439 (9,098)

other receivables (22,628) (31,924)

prepayments and accrued income 635 1,020

trade payables (85,686) 11,181

other payables (25,166) (10,708)

accrued expenses and deferred income (446) 1,933

change in grants related to plant 28,233 17,618

3. Cash flows after changes in NWC 98,559 176,788

Other adjustments (9,807) (8,571)

net interest received 4,291 9,501

income taxes paid (283) (5,619)

utilisation of the provision for risks and charges (4,361) (3,065)

utilisation of employees’ leaving entitlement (9,454) (9,388)

Cash flows generated by operating activities (A) 88,752 168,217

59 Consolidated financial statements

€/000 2016 2015

B. Cash flows from investing/divesting activities

Tangible fixed assets

(Investments) (72,396) (184,437)

Proceeds on divestments 15,993 6,026

Intangible fixed assets

(Investments) (4,396) (5,516)

Proceeds on divestments 261 37

Financial fixed assets

(Investments) (3,413) (6,377)

Proceeds on divestments 208 4,160

Current financial assets

Proceeds on divestments 4,299 1,386

Acquisition or sale of subsidiaries or business units, net of liquid funds

Cash flows used in investing/divesting activities (B) (59,444) (184,721)

C. Cash flows from financing activities

Third party funds

New loans - 55,367

Loans repaid (667) (644)

Own funds

Dividends (and interim dividends) paid (15,000) (20,000)

Cash flows generated by/(used in) financing (15,667) 34,723 activities (C)

Increase in liquid funds and current securities 13,641 18,219

Opening liquid funds and cash equivalents * 382,015 363,796

Closing liquid funds and cash equivalents ** 395,656 382,015

* - of which at the beginning of the year 164,341 137,170

** - of which at year end 101,860 164,341

60 Consolidated financial statements

61 Consolidated financial statements

1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes to the consolidated financial

statements

62

63 Notes to the consolidated financial statements

Basis of preparation

The consolidated financial statements as at and for the year ended 31 December 2016 have been prepared in accordance with the provisions of articles 29 and 38 of Legislative decree no. 127/1991, integrated by the reporting standards promulgated by the Italian Accounting Standard Setter (OIC). They consist of a balance sheet, a profit and loss account, a cash flow statement and these notes.

They are accompanied by a directors’ report that provides information on the nature and business of the group companies and transactions with group companies.

The consolidated financial statements are prepared taking into consideration the legislative amendments introduced by Legislative decree no. 139/2015 applicable from 2016 and the consequent updating of the OIC. The application of the new OIC has not had a significant effect on the captions of the balance sheet, profit and loss account and cash flow statement for the current and previous years. Reference should be made to the “Application of the new OIC” section of these notes for details of the related effects.

The amounts presented in the balance sheet, profit and loss account, cash flow statement, as well as in these notes are expressed in thousands of Euros. Captions with nil balances in both this and the previous year are not shown in the consolidated financial statements.

Reference should be made to the directors’ report on these consolidated financial statements for information on Group operations and related party transactions.

Starting from these consolidated financial statements, post-balance sheet events and the proposal for the allocation of the net profit or loss for the year are set out in the relevant paragraphs of these notes. Moreover, following the amendments made to the consolidated financial statements with the removal of the Memorandum and contingency accounts from the balance sheet, the total amount of commitments, guarantees and contingent liabilities not shown in the balance sheet are discussed in the relevant section of these notes.

Basis of consolidation

Companies directly controlled by the parent are consolidated in accordance with the line-by-line consolidation method.

Accordingly, assets and liabilities and revenues and costs are consolidated on a line-by-line basis, eliminating all amounts related to transactions among consolidated companies and allocating the relevant portion of net equity and net profit (loss) for the year to minority interests.

The carrying amount of the investments included in the consolidation scope is eliminated against the related net equity. Upon acquisition or first consolidation, the difference between the acquisition cost and the related portion of net equity is recognised in the consolidated financial statements, where possible, under the assets and liabilities of the consolidated companies. Any residual negative difference is recognised in net equity, under the “Consolidation reserve” or, when due to expected unfavourable results, in the “Provision for risks and charges”. Conversely, any residual positive difference is recognised as “Goodwill arising on consolidation” under assets, when the higher amount meets the requirements for the recognition of goodwill under OIC 24 “Intangible fixed assets”.

When the higher amount does not reflect the real greater carrying amount of the investment, but is due to a bad deal or decisions that are not directly attributable to the operating performance of the

64 Notes to the consolidated financial statements

investee, it is recognised as a decrease of the consolidation reserve or, alternatively, is taken to the profit and loss account.

Investments in companies controlled by the parent ATM S.p.A. of negligible significance or which are no longer strategic are measured at cost, adjusted to reflect impairment losses.

Investment of between 20% and 50% in associates over which the parent ATM S.p.A. has direct or indirect significant influence are measured at cost.

Investments of less than 20% in companies classify as financial fixed assets and are measured at cost.

Unless otherwise stated, the information provided in the financial statements at 31 December 2016 submitted to the boards of directors of each investee is described in the notes.

Translation of foreign currency financial statements

The financial statements of investees operating in a currency other than the Euro are translated into Euro by applying closing exchange rates to assets and liabilities, the historical exchange rates to net equity captions and the average exchange rates of the year to profit and loss account captions. The difference between the two calculations using the average rate and the closing rate is taken to the “Translation reserve”.

The exchange rates applied to translate foreign currency financial statements are as follows (foreign currency unit = €1):

Currency

Danish krone (DKK)

Historical exchange rate at 31 December 2008 applied to net equity figures

€1 = DKK 7.4428

Spot rate at 31 December 2016 applied to assets and liabilities

€1 = DKK 7.4344

2016 average exchange rate applied to profit and loss account figures

€1 = DKK 7.4362

65 Notes to the consolidated financial statements

Accounting policies

The consolidated financial statements comprise the financial statements of the parent ATM S.p.A. and those prepared by the directors of the consolidated companies, approved by the relevant share/quotaholders.

The reporting date of the consolidated financial statements is 31 December 2016, which coincides with that of the parent.

The individual financial statements, including those of foreign companies, have been adjusted to comply with the Group’s accounting policies as defined by the parent ATM S.p.A., which prepares consolidated financial statements. Hence, they are consistent with the structure and the accounting policies set out in the Italian Civil Code and applicable to consolidated financial statements.

These policies are the same as those used to prepare the consolidated financial statements of the prior year and have been applied on a going concern basis.

Basis of preparation

The financial statements captions have been measured in accordance with the general principles of prudence and accruals on a going-concern basis. Although the local public transport service contracts are nearing their expiry date, the directors deem the going-concern assumption to exist, considering the time needed to award the new contracts, which will take place after the tender procedures called by the local public transport agency of the Metropolitan city of Milan, Monza, Brianza, Lodi and Pavia. This agency was set up in April 2016 and still does not have adequate structures and resources such to be fully operative. At the reporting date, moreover, there may be uncertainties as detailed under “External risks”.

To ensure service continuity, with council resolution no. 219 of 17 February 2017, the Milan Municipality instructed the relevant departments to extend the local public transport contract in line with the tender documents and the existing contracts, as described more fully under “The reference contractual framework”.

Captions have been recognised and are shown based on the substance of a transaction or contract, where consistent with the provisions of the Italian Civil Code and the OIC.

Under the prudence principle, the company measures the individual assets and liabilities separately, in order to avoid offsetting losses that should be recognised against unrealised profits that should not be recognised. Specifically, the company recognises profits only if realised before the reporting date, whereas it considers risks and losses on an accruals basis, even when they become known after the reporting date.

In accordance with accruals-based accounting, the company recognises the effects of transactions in the year to which the transaction relates rather than that in which the related collections and payments occur.

The accounting policies have not changed compared to those applied in the previous year for comparative purposes.

No exceptional events took place during the year, which would have led the company to depart from the accounting policies, as permitted by article 2423.4 of the Italian Civil Code, in order to give a true

66 Notes to the consolidated financial statements

and fair view of its financial positions and results of operations. Moreover, the company did not make any revaluations under specific laws.

The following section describes the accounting policies applied by the company based on the criteria and models provided for by the OIC in line with the principle of materiality.

The preparation of financial statements requires making estimates that affect the carrying amount of assets and liabilities and the related disclosures. Actual results may differ. Estimates are revised regularly and the effect of any changes, if not related to errors, are recognised in the profit and loss account when they become necessary and appropriate, if they affect just one year, and also in the following years, if they affect both the current and following years.

Application of the new OIC

The application of the legislative amendments introduced by Legislative decree no. 139/2015 and the new OIC entailed changes in classification due to new or eliminated financial statements captions and changes to the accounting policies.

The effects of such changes have been recognised retroactively, also adjusting previous year balances for comparative purposes.

As permitted by article 12.2 of Legislative decree no. 139/2015, the Group has opted not to apply the amortised cost criterion and discount the receivables and payables arising before 1 January 2016.

The effects of the amendments on the captions of the balance sheet, profit and loss account and cash flow statement and on the corresponding prior year figures are summarised in the following tables:

67 Notes to the consolidated financial statements

Reconciliation of the balance sheet

Assets Prepayments Financial Fixed assets Inventory Receivables Liquid funds and accrued assets income Balance at 31 December 2015 based on the previous 1,133,639 70,124 400,877 217,674 164,341 2,841 OIC

Trade receivables (3,475)

Receivables due from 3,475 subsidiaries of the parent Balance at 31 December 1,133,639 70,124 400,877 217,674 164,341 2,841 2015 based on the new OIC

Liabilities Accrued Provisions for Employees' expenses and Net equity risks and leaving Payables deferred charges entlement income Balance at 31 December 2015 based on the previous 929,254 162,036 150,580 711,231 36,395 OIC

Trade payables (1,358)

Payables due to subsidiaries of 1,358 the parent Balance at 31 December 929,254 162,036 150,580 711,231 36,395 2015 based on the new OIC

***

Reconciliation of the profit and loss account

Caption C) Caption D) Caption E) Caption 22) Operating Adjustments Net Net profit for Net financial Income profit (A-B) to financial extraordinary the year income taxes assets income Balances at 31 December 2015 as 20,729 10,158 (3,316) 7,255 (9,013) 25,813 per previous financial statements

Reclassification of extraordinary income 7,255 (7,255)

Reclassification of extraordinary expense

Balances at 31 December 2015 27,984 10,158 (3,316) - (9,013) 25,813 restated under the new OIC

***

Reconciliation of the cash flow statement

Cash flows Cash flows Change in Cash flows used in Net profit for generated by generated by liquid funds investing/divesting the year operating financing and cash activities activities activities equivalents Balance at 31 December 2015 25,813 168,217 (184,721) 34,723 18,219 based on the previous OIC

No change - - - - -

Balance at 31 December 2015 25,813 168,217 (184,721) 34,723 18,219 based on the new OIC

68 Notes to the consolidated financial statements

Accounting policies

INTANGIBLE FIXED ASSE TS

Intangible fixed assets are recognised at contribution, acquisition or production cost, with the prior consent of the board of statutory auditors, where required, net of accumulated amortisation.

The acquisition cost includes the related transaction costs. The production cost includes all directly attributable costs and the reasonably attributable portion of other costs incurred from production up to when the asset is available for use.

Concessions, licences, trademarks and similar rights are recognised in the balance sheet only if they may be identified individually, if the Group acquires the power to use them to generate future economic benefits and if it can limit the access of third parties to such benefits and if their cost may be estimated with adequate reliability.

Leasehold improvements and costs to improve third-party assets are only recognised as intangible fixed assets if they cannot be separated from the assets themselves. Otherwise, they are recognised under the relevant tangible fixed asset captions.

Advances to suppliers for the purchase of intangible fixed assets are recognised as assets on the date the obligation to pay the related amount arises. Assets under development are recognised when the first costs to develop the asset are incurred and include the internal and external costs incurred for its development.

Intangible fixed assets are amortised systematically and amortisation expensed each year reflects the allocation of the cost incurred over their entire useful life. Amortisation begins when the asset is available for use. The amortisation pattern depends on how the expected benefits are expected to flow to the Group. Leasehold improvements are amortised over their useful life.

Amortisation is charged using the rates held to reflect the asset’s estimated useful life (Annex 4).

When, regardless of the amortisation already charged, an impairment loss is identified, the asset is written down accordingly. If the reasons therefor cease to exist in subsequent years, the write-down is reversed up to the original amount of the asset, net of the amortisation that would have been recognised in the absence of the write-down.

TANGIBLE FIXED ASSETS

Tangible fixed assets are recognised at contribution, acquisition or production cost, adjusted by accumulated depreciation and any write-downs.

The acquisition cost includes the related transaction costs. The production cost includes all directly attributable charges and the reasonably attributable portion of other costs incurred from production up to when the asset is available for use.

The costs incurred to expand, modernise or improve the structural elements of a tangible fixed asset, including changes made to make it more compliant with its intended use, are capitalised if they result in a significant and measurable increase in its production capacity, safety or useful life. If not, they are treated as ordinary maintenance costs and are expensed.

69 Notes to the consolidated financial statements

Depreciation is calculated systematically, using the rates held to reflect the asset’s estimated useful life. Such rates are halved in the first year in which the asset is available for use, in order to reflect the shorter period in which the asset has been used. Unused assets are also depreciated.

Reference should be made to Annex 4 for information about the depreciation rates applied.

Assets under construction are recognised when the first costs to build the asset are incurred and include the internal and external costs incurred for its construction.

Tangible fixed assets held for sale are reclassified to current assets only if they can be sold at their present conditions, their sale is highly probable and it is expected to be completed in the short term.

When, regardless of the amortisation already charged, an impairment loss is identified, the asset is written down accordingly. If the reasons therefor cease to exist in subsequent years, the write-down is reversed up to the original amount of the asset, net of the amortisation that would have been recognised in the absence of the write-down.

No discretionary or voluntary revaluations were made.

GRANTS FOR INVESTMENT S

Grants for investments are recognised under receivables with a balancing entry under deferred income in the year they are applied for. Upon collection and when the asset to which they refer becomes operative, they are recognised as a reduction in fixed assets and taken to the profit and loss account in proportion to the depreciation charged.

ASSETS UNDER FINANCE LEASE

Assets under finance leases are recognised in accordance with IAS 17.

FINANCIAL FIXED ASSET S

Equity investments and debt instruments which the Group intends and has the capacity to hold in the long term are recognised under financial fixed assets. Otherwise, they are recognised under current assets.

Transfers in or out of the two categories are recognised in accordance with the accounting policies applicable to the portfolio which the asset comes from.

Receivables are recognised under fixed or current assets depending on their intended use in relation to the Group’s ordinary activities that generate them. Accordingly, financial receivables are recognised under financial fixed assets, whereas trade receivables are recognised under current assets, regardless of their due date. They are measured as detailed in the relevant section.

EQUITY INVESTMENTS

Investments in subsidiaries and associates are measured at cost.

They are initially recognised at acquisition or incorporation cost, including the related transaction costs. The latter comprise costs that are directly attributable to the transaction such as, for example, bank and financial brokerage fees, commissions, expenses and taxes.

70 Notes to the consolidated financial statements

The carrying amount of investments rises as a result of capital increases against consideration or waivers of repayment of receivables by the investor. Any bonus issue does not increase the investments’ carrying amount.

They are written down for impairment, when their carrying amount decreases to below their recoverable amount at the reporting date. The recoverable amount is calculated based on the economic benefits the Group expects to receive from the investment. They are written down to the extent of the carrying amount. If the investor has an obligation to cover an investee’s losses, it sets up a provision under liabilities to cover its share of the investee’s deficit.

Equity investments are written back up to their original cost if the reasons for the write-downs cease to exist.

INVENTOR Y

Inventory is initially recognised at purchase or production cost and subsequently measured at the lower of cost and estimated realisable value based on market trends.

Purchase cost is the actual cost paid upon purchase including related charges, less borrowing costs.

The purchase cost of materials includes their price, transport costs, customs and other duties and other directly attributable costs. Returns, commercial discounts, rebates and bonuses are deducted from costs.

Production cost is the purchase cost plus industrial production costs. It includes all direct costs and the reasonably attributable portion of indirect costs incurred from production up to when the asset is available for use, based on normal production capacity. Production cost excludes general and administrative costs, distribution costs and research and development costs.

The Group has adopted the weighted average cost model.

The estimated realisable value based on market trends of raw materials and supplies used in the production of finished products is the replacement cost, while that of goods, finished goods, semi- finished products and work in progress is the net realisable value. Obsolete and slow-moving items are also taken into account.

Inventory items whose estimated realisable value based on market trends is lower than their carrying amount are written down. Obsolete and slow-moving items are written down through provisions that reduce their carrying amounts.

Should the reasons for the write-down applied as an adjustment to the realisable value based on market trends cease to exist, the write-down is reversed in subsequent years and the closing carrying amount is increased, on a prudent basis, only if its recovery through the sale of the inventory is certain in the short term.

FINA NCIA L RECEIVABLES

Receivables are rights to receive liquid funds from customers or other third parties at a certain or identifiable date. Receivables generated by the sale of goods or the provision of services are recognised as described in the note to revenues.

71 Notes to the consolidated financial statements

Receivables are initially recognised at their nominal amount and measured at their estimated realisable value to reflect irrecoverable amounts, invoicing adjustments, discounts, allowances and other reasons leading to a lower realisation.

The Group has not applied the amortised cost criterion as all receivables are due within one year and the difference between their initial amount and at expiry is immaterial.

When the Group identifies expected losses for irrecoverable amounts, it writes down the receivable’s nominal amount through the provision for bad debts, in order to account for the possibility that a debtor may partially default. The write-downs are estimated on an individual basis, by calculating the expected loss for each irregular position already existing or reasonably foreseeable at the reporting date, based on past trends and any other useful information about expected additional losses at the reporting date. The write-downs recognised in the provision for bad debts for receivables covered by guarantees consider the effects of enforcing the guarantees.

Invoicing adjustments are considered on an accruals and prudent basis, by providing for credit notes to be issued and adjusting receivables and related revenues accordingly.

CURREN T FINANCIAL ASSETS

Equity investments are initially recognised at acquisition cost, including the related transaction costs, and are subsequently measured individually at the lower of acquisition cost and estimated realisable value based on market trends. When the reasons for previous write-downs entirely or partially cease to exist due to a recovery in market value, the investments are written back up to their original cost.

Debt instruments are initially recognised at acquisition cost, including the related transaction costs, and are subsequently measured at the lower of acquisition cost and estimated realisable value based on market trends.

Any resulting write-down is recognised individually for each type of instrument.

When the reasons for previous write-downs entirely or partially cease to exist due to a recovery in market value, the debt instruments are written back up to their original cost.

LIQUID FUNDS

These are the positive balances of bank and postal accounts, as well as the cash-in-hand and cash equivalents at year end.

Bank and postal account deposits are recognised at their estimated realisable value and cash and revenue stamps at their nominal amount at the closing rate.

PREPAYMENTS AND ACCRU ED INCOME AND ACCRUE D EXPENSES AND DEFER RED INCOME

Accrued income and expense are respectively portions of income and expenses pertaining to the year but that will be collected/paid in subsequent years.

Prepayments and deferred income are respectively portions of expenses and income collected/paid during the year or in previous years but pertaining to one or more subsequent years.

Accordingly, these captions comprise only portions of expense and income relating to two or more years, whose amount varies on a time or economic accruals basis.

72 Notes to the consolidated financial statements

At each year end, the Group analyses the conditions underlying their initial recognition and makes any necessary adjustments. Specifically, the balance of accrued income varies not only over time, but also based on its expected realisable value, whereas that of prepayments is based on the existence of future economic benefits matching the deferred costs.

PROVISIONS FOR RISKS AND CHARGES

Provisions for risks and charges are recognised to cover specific liabilities that are certain or probable, but whose amount or due date is unknown at the reporting date. Specifically, provisions for risks relate to specific liabilities whose occurrence is probable and amount estimated, while provisions for charges relate to specific liabilities, whose occurrence is certain and amount or due date estimated, that arise from obligations already taken on at the reporting date but which will be paid in subsequent years.

Accruals to provisions for risks and charges are first recognised in the profit and loss account section to which the transaction relates.

The amount of the accruals to the provisions is based on the best estimate of costs, including the legal expenses, at each reporting date and is not discounted. If the measurement of the accruals gives a range of values, the accrual represents the best possible estimate between the upper and lower thresholds of the range.

The provisions are subsequently used directly and solely for those costs and liabilities for which they were originally set up. If they are not sufficient or are redundant, the shortfall or surplus is recognised in the profit and loss account in line with the original accrual.

EMPLOYEES ’ LEAVING ENTITLEMENT

The Italian employees’ leaving entitlement (TFR) is the benefit to which employees are entitled in any case of termination of employment pursuant to article 2120 of the Italian Civil Code and considering the changes in legislation introduced by Law no. 296 of 27 December 2006. The overall accrued benefit considers any type of continuous remuneration and is net of any payments on account and partial advances paid by virtue of national or individual labour contracts or company agreements which are not required to be repaid. The related liability is the amount that the Group would have paid had all employees left at the reporting date. The amount due to employees who had already left the Group at the reporting date but that will be paid in the following year is reclassified to payables.

PAYABLES

Payables are recognised at their nominal amount and represent liabilities of a certain nature to pay liquid funds of a fixed or determinable amount to financial backers, suppliers and others.

The Group has not applied the amortised cost criterion as all payables are due within one year and the difference between their initial amount and at expiry is immaterial.

Trade payables are initially recognised when the significant risks, charges and benefits relating to ownership have been transferred. Payables relating to services are recognised once the services have been provided.

Loans and borrowings and payables unrelated to the procurement of goods and services are recognised when the company has an obligation vis-a-vis the counterparty.

73 Notes to the consolidated financial statements

In the event of early settlement, the difference between the residual outstanding amount and the overall outlay to settle the obligation is recognised as financial income or charges.

REVENUES AND COSTS

Revenues and income, costs and charges are stated net of returns, allowances, discounts and premiums, in compliance with the accruals and prudence concepts.

Revenues from the sale of goods or provision of services are recognised when the production process of goods or services has been completed and the exchange has already taken place i.e., upon the substantial rather than formal transfer of title.

GRANTS RE LATED TO INCOME AND FOR THE RENEWAL OF T HE NATIONAL LABOUR C ONTRACT

They are allocated to the profit and loss account of the year they pertain to and recognised in accordance with the amount paid pursuant to the relevant disbursement measures.

INCO ME TAXE S

Current income taxes for the year are calculated on the basis of a realistic forecast of the taxable profit under the relevant tax legislation and applying the enacted tax rates at the reporting date.

The related tax payable is stated at its nominal amount in the balance sheet, net of payments on account, withholding taxes and tax receivables which may be offset and have been not claimed for reimbursement. A tax asset is recognised for payments on account, withholdings and receivables exceeding the taxes payable. Tax assets and liabilities are not recognised at amortised cost as they are due within one year.

The Group adheres to the domestic tax consolidation scheme for IRES purposes, whereby IRES is calculated on the algebraic sum of the taxable base of each participating company.

The transactions, responsibilities and mutual obligations between the consolidating company and the consolidated company are governed by the “Agreement on the joint exercise of the tax consolidation option by ATM Group companies”. When a positive tax base is transferred, the consolidated company recognises a payable to the consolidating company equal to the IRES calculated on the consolidated company’s taxable base. Conversely, when a tax loss is transferred, the consolidating company will recognise a payable to the consolidated company equal to the amount resulting from the application of the IRES rate to the transferred tax loss.

IRAP is calculated exclusively for the parent.

DEFERRED TAX ASSETS A ND LIABILITIES

In accordance with OIC 25, deferred tax assets and liabilities are usually recognised on the temporary differences between the carrying amounts of assets and liabilities and their tax base. The Group does not recognise deferred tax assets in these consolidated financial statements as the availability of future taxable profits is not reasonably certain.

POST-BALANCE SHEET EVENTS

These events modify conditions existing at the reporting date. They require adjustments to the carrying amounts of recognised assets and liabilities in accordance with the relevant accounting policy.

74 Notes to the consolidated financial statements

They are recognised on an accruals basis to present their reporting-date effect on the Group’s financial position and results of operations.

The post-balance sheet events that modify situations existing at the reporting date but do not require adjustments to the carrying amounts under the relevant accounting policy as they relate to the subsequent year are not recognised but are disclosed in the notes if necessary to give a more complete view of the Group’s position.

The date within which an event shall be considered a post-balance sheet event is the date on which the directors prepare the draft financial statements, unless events that require adjustments to the draft financial statements take place during the period from such date and the date on which the financial statements are expected to be approved by the shareholders.

75 Notes to the consolidated financial statements

Workforce

The average workforce rose from 9,563 in 2015 to 9,637 in 2016.

International Metro Service S.r.l. has no employees as it avails of its parent’s personnel.

Changes of the year may be analysed as follows:

Incoming Outgoing Other Intragroup 2015 employees employees 2016 changes transfers ( + ) ( - ) ATM S.p.A. 2,899 38 (86) 2 (20) 2,833 ATM Servizi S.p.A. 6,146 101 (165) (6) 23 6,099 ATM Servizi 48 2 (4) - (2) 44 Diversificati S.r.l. GeSAM S.r.l. 16 1 (1) - - 16 Metro Service A/S 292 29 (24) - - 297 NET S.r.l. 263 11 (6) - (1) 267 Rail Diagnostics 31 1 - - - 32 S.p.A. Total 9,695 183 (286) (4) - 9,588

At 31 December 2016, employees numbered 9,588 compared to 9,695 at 31 December 2015. The net decrease is mainly the sum of 183 incoming and 286 outgoing employees. Outgoing employee figures are in line with the past few years and mainly refer to employees who retire or resign voluntarily.

76 Notes to the consolidated financial statements

Notes to the balance sheet captions

B) Fixed assets

Fixed assets, caption B, amount to €1,040,856 thousand, net of grants related to plant and write- downs.

I. Intangible fixed assets

Changes of the year are shown in the tables included in Annex 1. The balance of this caption at 31 December 2016 is €32,572 thousand.

The caption may be analysed as follows:

- software of €2,401 thousand related to operational management systems, classified under “concessions, licences, trademarks and similar rights”; - “assets under development and payments on account” of €6,089 thousand to purchase software and for works on assets owned by the Milan municipality (tram points, branches and superstructure); - “other” of €24,082 thousand related to works on assets owned by the Milan municipality.

Amortisation charged to the profit and loss account is adjusted by the portion of grants received to finance the investments of the year (€2,632 thousand).

The main changes of the year refer to:

 purchases of software;  works on third party assets: . Milan metro line 2 – upgrade of the electricity supply and traction systems; . extension of the CCTV system on the Milan metro lines 1 and 2 and remote control of alarms.

Grants related to plant may be broken down by financing body as follows:

- €1,354 thousand from the state; - €1,245 thousand from the Milan municipality; - €33 thousand from private bodies.

II. Tangible fixed assets

Changes of the year are shown in the tables included in Annex 1. The balance of this caption at 31 December 2016 is €973,160 thousand.

The caption may be analysed as follows:

- “land and buildings” of €230,262 thousand; - “plant and machinery” of €678,755 thousand; - “industrial and commercial equipment” of €20,047 thousand; - “other assets” of €4,254 thousand; - “assets under construction and payments on account” of €39,842 thousand.

77 Notes to the consolidated financial statements

The main investments of the year related to:

- the purchase of “Leonardo” trains for metro lines 1 and 2; - the overhaul and replacement of metro bogies; - the overhaul of tram vehicles and bogies; - the installation of parking metres; - extraordinary maintenance work on depots.

Assets under lease were recognised in this caption for consolidation purposes in accordance with IAS 17. They refer to the buildings in via Monte Rosa and those in Binasco held by the parent ATM S.p.A. and the machinery of the subsidiary Rail Diagnostics S.p.A..

The carrying amount of tangible fixed assets is shown net of the write-downs recognised at 31 December 2016 on the residual value of the metro rolling stock which is expected to exit the production process earlier than originally forecast following the progressive replacement of trains due to the additional supply contracts for “Leonardo” trains signed in 2016, and on the residual value of some buildings which, due to technical reasons, are no longer used in production. The economic impact of said write-downs totals €33,348 thousand.

Depreciation charged to the profit and loss account is adjusted by the portion of grants received to finance the investments of the year (€36,633 thousand).

Grants related to plant may be broken down by financing body as follows:

- €9,053 thousand from the state; - €15,748 thousand from the Lombardy region; - €731 thousand from the Metropolitan city; - €10,392 thousand from the Milan municipality; - €709 thousand from private bodies.

No fixed assets were revalued during this or previous years.

The carrying amount of a non-operating building held for sale (historical cost at 31 December 2016: €2,004 thousand) was reclassified to current assets. The related accumulated depreciation amounts to €677 thousand.

78 Notes to the consolidated financial statements

Grants for investments

Grants for investments in tangible and intangible fixed assets may be analysed as follows:

Summary of grants New Grants Utilisation 31.12.2015 Decreases 31.12.2016 applications collected 2016 Government grants - Receivables for applications lodged 9,287 14,146 ( 17,389 ) - - 6,045 - Collected and not allocated to assets 3,151 - - - - 3,151 - Collected and allocated to assets 212,715 - 17,389 - ( 10,407 ) 219,696 Regional grants - Receivables for applications lodged 10,467 7 ( 6,254 ) - - 4,220 - Collected and allocated to assets 167,518 - 6,254 ( 230 ) ( 15,748 ) 157,794 Metropolitan city grants - Collected and allocated to assets 3,902 - - - ( 731 ) 3,170 Municipal grants - Receivables for applications lodged 9,702 3,041 ( 5,145 ) - - 7,598 - Collected and allocated to assets 172,523 - 5,145 ( 329 ) ( 11,637 ) 165,702 Private body grants - Collected and allocated to assets 774 - - - ( 741 ) 33

Total receivables for applications 29,456 17,194 (28,787) - - 17,863 lodged Total grants collected 3,151 - - - - 3,151 and not allocated to assets

Total grants collected 557,431 - 28,787 (559) (39,265) 546,395 and allocated to assets

Assets purchased with regional co-financing are subject to restrictions on sale pursuant to Regional council decree no. 14795/2003 as subsequently amended and supplemented. The time restrictions provided for under the above decree are as follows:

- city buses: 8 years; - intercity and suburban buses: 10 years; - trolley buses: 15 years; - metro trains and trams: 30 years; - technologies: 7 years; - infrastructures: 30 years.

The restrictions on sale applicable to the roadway rolling stock co-financed by the Lombardy region under the 2009 allocation plan, pursuant to Laws nos. 296/2006 and 133/2008, cover the buses’ entire useful life set at 15 years as per the Regional council decree no. IX/4619 of 28 December 2012, unless otherwise agreed in the service agreements.

79 Notes to the consolidated financial statements

III. Financial fixed assets

“Financial fixed assets” amount to €35,124 thousand and may be analysed as follows:

31.12.2016 31.12.2015 Change

Equity investments

From associates 10,679 10,679 - Subsidiaries of the parent 3,257 2,408 849 Other 73 25 48 Financial receivables

From associates 18,330 16,865 1,465 From subsidiaries of the parent 1,051 - 1,051 From others 1,734 1,942 (208)

Total 35,124 31,919 3,205

Equity investments

They amount to €14,009 thousand as follows:

31.12.2015 Change 31.12.2016

Subsidiaries and unconsolidated subsidiaries

Mipark S.r.l. (wound up on 14.03.2017) - - - Associates

Brianza Trasporti S.c.a.r.l. 15 - 15 CO.MO Fun&Bus S.c.a.r.l. 4 - 4 Metro 5 S.p.A. 10,660 - 10,660 Movibus S.r.l - - - Total associates 10,679 - 10,679

Subsidiaries of the parent

SPV Linea M4 S.p.A. 2,408 849 3,257 Total subsidiaries of the parent 2,408 849 3,257

Other

Consorzio SBE - 48 48 Guidami S.r.l. - - - Metrofil S.c.a.r.l. - - - SPM 4 S.c.p.A. in liquidation 25 - 25 Total other 25 48 73 Total 13,112 897 14,009

The increase in “equity investments” is due to SPV Linea M4 S.p.A.’s share capital subscription of €849 thousand. During the year, pursuant to the provisions of the new OIC 12, “Presentation of financial statements”, the equity investment in SPV Linea M4 S.p.A. was reclassified from “equity

80 Notes to the consolidated financial statements

investments in other” to “equity investments in subsidiaries of the parent”, also reclassifying the amount at 31 December 2015.

Following the payment of ATM Group’s portion of the consortium fund of Consorzio SBE, an amount of €48 thousand was recognised under “other”.

Subsidiaries measured at cost - (€/000 at 31 December 2016) N et equity N et Quo ta attributable C arrying Registered office N et equity lo ss fo r investment capital to the amo unt the year % Gro up M ipark S.r.l. (wound up)* M ilan, Via M onte Rosa 89 100 112 ( 2 ) 51.00 57 -

(*) wound up on 14 M arch 2017

Investees measured at cost - (€/000 at 31 December 2015) N et equity Share/ Net profit attributable C arrying Registered office quo ta N et equity (loss) for investment to the amo unt capital the year % Gro up Brianza Trasporti S.c.a.r.l. M ilan, Via Quintiliano, 18 50 50 - 30.00 15 15 Co.M o. Fun&Bus S.c.a r.l.** Como, Via Asiago 16/18 20 20 - 20.00 4 4 Consorzio SBE M ilan, Piazzale Cadorna, 14 100 100 - 48.00 48 48 Guidami S.r.l. M ilan, Viale Sarca, 336 100 ( 93 ) ( 248 ) 1.00 ( 1 ) - M etro 5 S.p.A. M ilan, Via Adige 19 53,300 56,694 ( 4,304 ) 20.00 11,339 10,660 M etrofil S.c.a r.l. Rome, Via Genova 23 10 10 - 24.08 2 - M ovibus S.r.l. M ilan, P.zza Castello 1 780 3,034 1,390 26.18 794 - SPM 4 S.c.p.A. in liquidation M ilan, Via dei M issaglia 97 360 360 - 7.00 25 25 SPV Line M 4 S.p.A. M ilan, Piazza Castello 3 37,795 102,897 ( 303 ) 2.33 2,401 3,257

(**) 2016 financial statements figures

Financial receivables

31.12.2015 Repayments Increases 31.12.2016

From associates

Metro 5 S.p.A. 16,865 1,465 18,330

Receivables due from subsidiaries of the

parent SPV Linea M4 S.p.A. 1,051 1,051

From others

SPM 4 S.c.p.A. in liquidation 210 (108) 102

Coop S.E.D. ATM/ S.C.C.A.T.I. 1,732 (100) 1,632

Total 18,807 (208) 2,516 21,115

This caption includes:

- the subordinated shareholder loan of €18,330 thousand disbursed to Metro 5 S.p.A. (principal €15,271 thousand and interest €3,059 thousand). As provided for contractually, interest on the subordinated loan is collected as set out in the budget;

81 Notes to the consolidated financial statements

- the subordinated shareholder loan of €1,051 thousand disbursed to SPV Linea M4 S.p.A. (principal €995 thousand and interest €56 thousand). As provided for contractually, interest on the subordinated loan is collected as set out in the budget; - the loan granted to the investee SPM 4 S.c.p.A. in liquidation for the shareholder loan of €102 thousand. Interest of €268 thousand accrued at 31 December 2016 was written off; - the loan granted to the SED-ATM and SCCATI building cooperatives for the €1,632 thousand for social housing projects.

C) Current assets

I. Inventory

This caption at 31 December 2016 may be analysed as follows:

31.12.2016 31.12.2015 Change

Tickets 634 648 (14) Tickets - Area C 20 22 (2) Car park tickets 17 40 (23) Tracks 2,752 3,344 (592) Personal protective equipment 70 84 (14) Consumables supply office 40 44 (4) Heating oil 11 5 6 Diesel fuel 687 657 30 Automotive materials 6,395 6,269 126 Common materials 1,510 1,287 223 Electric/electronic materials 12,293 9,849 2,444 Trolley-bus materials 3,094 2,872 222 Materials for superstructure maintenance 2,486 2,057 429 Metro-tram materials 71,397 65,849 5,548 Consumables not for maintenance 5 5 - Materials for building maintenance 84 84 - Metro service materials 3,250 3,028 222 Tyres 420 490 (70)

Sub total 105,165 96,634 8,531 Advances to suppliers 1,723 1,428 295 Buildings held for sale 1,327 2,992 (1,665) Provision for obsolete inventory (34,113) (30,930) (3,183) Total inventory 74,102 70,124 3,978

Inventory, gross of “advances to suppliers” and the “provision for obsolete inventory”, rose by €8,531 thousand on the previous year end. The increase is mainly due to the increase in stocks of electric/electronic and metro-tram materials.

82 Notes to the consolidated financial statements

Following the sale of obsolete goods, the related provision was used for €360 thousand. The provision was brought into line with the new inventory balance by accruing €3,543 thousand, reflecting slow- moving goods and the analysis of obsolete materials in inventory to be sold.

31.12.2015 Increases Decreases 31.12.2016

Provision for obsolete inventory 30,930 3,543 (360) 34,113 Total 30,930 3,543 (360) 34,113

“Buildings held for sale” of €1,327 thousand comprise the carrying amount of a non-operating building whose sale was completed in 2017. The decrease in “advances to suppliers” is due to the pattern of the delivery plan of wheelsets and bogies that began in 2012.

II. Receivables

At 31 December 2016, they amount to €316,626 thousand and may be analysed as follows:

31.12.2016 31.12.2015 Change

Trade receivables 38,488 40,497 (2,009) From associates 3,145 4,543 (1,398) From ultimate parent 122,108 207,748 (85,640) From subsidiaries of the parent 2,382 3,475 (1,093) Tax receivables 91,352 74,313 17,039 Deferred tax assets 1,415 1,086 329 From others 57,736 69,215 (11,479) Total 316,626 400,877 (84,251)

Receivables are mainly due from Italian and EU counterparties and are due within one year, except for the VAT assets for which reference should be made to the note to “tax assets”.

At 31 December 2016, “trade receivables” amount to €38,488 thousand, net of the specific provision for bad debts of €13,170 thousand at the reporting date, accrued to cover, specifically, doubtful receivables and receivables in respect of which legal actions have been taken.

The provision for bad debts changed as follows:

31.12.2015 Utilisation Release 31.12.2016

Provision for bad debts 13,690 (364) (155) 13,170 Total 13,690 (364) (155) 13,170

“Receivables from associates” of €3,145 thousand refer to services provided to associates as per the agreements in place. They are shown net of the specific provision for bad debts which was adjusted during the year to take into account the non-recoverability of the receivables, as shown below:

83 Notes to the consolidated financial statements

31.12.2016 31.12.2015 Change

Brianza Trasporti S.c.a.r.l. 123 358 (235) Co.Mo. Fun&Bus S.c.a.r.l. 298 282 16 Metro 5 S.p.A. 2,722 4,020 (1,298) Movibus S.r.l. 1,877 2,313 (436) Total 5,020 6,973 (1,953)

Provision for bad debts (1,875) (2,430) 555 Total receivables from associates 3,145 4,543 (1,398)

“Receivables from ultimate parent” relate to the amounts due from the Milan municipality for invoices issued or to be issued, including the fee for the local public transport service agreement. Invoices to be issued include the related retentions, equal to 5% of the annual consideration, which is invoiced on a deferred basis pursuant to the agreement.

The decrease in the balance is mainly due to one month’s worth of the 2015 service agreement fees which was collected in January 2016, the residual 2015 amounts due as a result of the Expo-related services and to the compensation received in relation to the 2010 Seveso floods.

“Receivables due from subsidiaries of the parent” of €2,382 thousand relates to turnover for services rendered and for the ticket sales.

“Tax receivables” amount to €91,352 thousand at 31 December 2016, as follows:

31.12.2016 31.12.2015 Change

VAT claimed for reimbursement 71,826 43,797 28,029 IRAP from IRES Leg. decree no. 201/2011 762 762 - Payments on account (IRAP) 1,651 2,746 (1,095) Withholding taxes to be used for offsetting 1,047 1,958 (911) Group VAT 5,181 13,538 (8,357) Consolidated withholdings 6,711 9,830 (3,119) Excise duty on diesel fuel 4,174 1,682 2,492 Total 91,352 74,313 17,039

The main item making up the balance is the VAT requested for reimbursement totalling €71,826 thousand, comprised of €41,028 thousand due within one year and €30,798 thousand due after one year, as the receivable originated before joining the Group’s VAT scheme, which the tax authorities currently suspended as a guarantee for the 2004-2005 IRAP disputes still in progress. No deferred tax assets were recognised for IRES purposes on deductible temporary differences, specifically on prior year losses as, pursuant to OIC 25, there is no reasonable certainty that positive taxable income will be generated in a foreseeable future tax year.

The IRES tax losses incurred prior to opting for the tax consolidation scheme in 2007 amount to €864,383 thousand, fully deductible, and €132,402 thousand deductible to a limited extent. The related unrecognised deferred tax assets would amount to approximately €239 million, estimated using the 24% IRES rate, based on the modification introduced by the 2016 stability law.

84 Notes to the consolidated financial statements

“Receivables from others” of €57,736 thousand may be analysed as follows:

31.12.2016 31.12.2015 Change

From public bodies 56,696 67,850 (11,154) From employees 207 215 (8) From others 833 1,150 (317) Total 57,736 69,215 (11,479)

Receivables “from public bodies” include:

 grants for plant, which originate from requests related to subsidised investments, of which €33,988 thousand for government grants related to the purchase of the metro line 1 trains as part of the “Accessing Fiera Milano” project; €3,959 thousand related to government grants for works to increase safety in the metro; €4,220 thousand related to residual regional grants for rolling stock and signalling equipment;  grants financing the reimbursement of the national labour contract renewal pursuant to Laws nos. 47/2004, 58/2005 and 296/2006 of €14,529 thousand.

Other receivables refer, in particular, to advances on behalf of INAIL (Italy’s institute for insurance against accidents at work) to employees who suffered an accident, a receivable due from the Ministry of Infrastructure for instalments paid for the radio-relay systems and deposits to sundry bodies. They are recognised net of the specific provision for bad debts of €202 thousand.

III. Current financial assets

“Current financial assets” include government securities, other bonds and units of UCITS denominated in Euro and to a limited extent, in currencies other than the Euro (USD – TRY – AUD), for a total of €293,796 thousand.

They may be analysed as follows:

31.12.2016 31.12.2015 Change

Government securities 19,433 13,375 6,058 Other bonds 152,295 72,477 79,818 UCITS 115,068 95,822 19,246 Overnight and time deposits 7,000 36,000 (29,000) Total 293,796 217,674 76,122

Under the Italian reporting standards, items were measured at the lower of the price as per the financial statements at 31 December 2015, or the purchase price for transactions carried out in 2016, and the market value at 31 December 2016. Market value is equal to the average prices recorded in the last month of the year. Securities whose average market price is higher than the reference one were written back to their purchase price. Write-backs and write-downs arising from the adjustment of securities are taken to the profit and loss account caption D) “Adjustments to financial assets” for a net write-down of €1,094 thousand.

Term deposits which can be monetised with a notice of at least 48 hours were recognised for €7,000 thousand.

85 Notes to the consolidated financial statements

IV. Liquid funds

31.12.2016 31.12.2015 Change

Bank accounts 100,178 161,432 (61,254) Postal accounts 668 1,886 (1,218) Cash-in-hand and cash equivalents 1,014 1,023 (9) Total 101,860 164,341 (62,481)

This caption includes liquid funds with banks and Poste Italiane at the reporting date, petty cash and cash held by the ticket counter staff and change dispensers of ticketing machines.

All accounts are in Euro, except for one current account expressed in Danish krone held by the subsidiary Metro Service A/S, equal to €6,528 thousand.

D) Prepayments and accrued income

This caption may be analysed as follows:

31.12.2016 31.12.2015 Change

Accrued income 610 657 (47) Prepayments 2,206 2,184 22 Total 2,816 2,841 (25)

There are no prepayments or accrued income due after more than five years.

86 Notes to the consolidated financial statements

A) Net equity

31.12.2016 31.12.2015 Change

Share capital 700,000 700,000 - Legal reserve 140,000 140,000 - Other reserves, shown separately

- contribution reserve 19,690 19,690 - - extraordinary reserve 5,764 5,764 - - translation reserve 6 (2) 8 Retained earnings 58,948 34,427 24,521 Net profit for the year 36,725 23,779 12,946 Net equity attributable to the Group 961,133 923,658 37,475 Share capital and reserves attributable to minority 3,286 3,562 (276) interests Net profit for the year attributable to minority interests 2,159 2,034 125 Net equity attributable to minority interests 5,445 5,596 (151) Total net equity 966,578 929,254 37,324

Annexes 2 and 3 include a statement of changes in net equity and a reconciliation between the net profit for the year and net equity of the parent and the net profit for the year and net equity as per the consolidated financial statements.

Share capital amounts to €700,000 thousand and consists of 70,000,000 shares of a nominal amount of €10 each. It is fully subscribed and paid up and did not change during the year. The Milan municipality is the sole shareholder.

The contribution reserve of €19,690 thousand has been recognised since 2002 following the transformation into a company limited by shares, following the final calculation of share capital as per the appraisal issued pursuant to article 2343 of the Italian Civil Code.

87 Notes to the consolidated financial statements

B) Provisions for risks and charges

Caption B)2) “Tax provision, including deferred tax liabilities” includes €771 thousand related to the deferred taxes arising from consolidation transactions following the application of IAS 17 to finance leases.

“Other provisions” may be analysed as follows:

31.12.2016 31.12.2015 Change

Provisions for risks:

To cover future losses 1,056 1,070 (14) For damages, towing away and impounding 268 233 35 IRAP 37,714 37,003 711 Claims settlement 16,375 14,978 1,397 Early retirement, Law no. 11/96 119 119 - Sundry risks 58,686 57,787 899 Labour disputes 21,350 29,464 (8,114) Provisions for charges:

Indemnity for war veterans 1,996 2,172 (176) Extraordinary maintenance 11,956 18,302 (6,346) Future expenses 21 91 (70) Total 149,541 161,219 (11,678)

The main items making up the caption balance are:

- the provision “to cover future losses”, of €1,056 thousand, accrued at the time of the contribution of the Trasporti Pubblici Monzesi S.p.A. business unit to NET S.r.l. in 2009; - the provision “for damages, towing away and impounding” of €268 thousand, equal to estimated damages to be paid in the next few years for the damage caused by towing away and on-street parking services, to the extent of the risk bracket not covered by insurance policies; - the provision for “IRAP” of €37,714 thousand, already accrued in prior years in respect of a dispute with the tax authorities about the failure to levy IRAP on employees’ contributions. The provision was adjusted to reflect the default interest that the parent ATM S.p.A. may be asked to pay if its application to the tax authorities is not successful; - the provision for “claims settlement” of €16,375 thousand reflects the estimated compensation to be paid in the next few years for damage/accidents related to the circulation of regular service vehicles, to the extent not covered by the insurance policies agreed with the various insurance companies. Doubtful claims were estimated based on an analysis of the individual dossiers outstanding at 31 December 2016; - the provision for “sundry risks” of €58,686 thousand related to the contingent liabilities vis-à-vis suppliers, customers, third and related parties arising from the Group’s ordinary operations. The balance is mainly comprised of the updated calculation of the risks on outstanding and contingent tax disputes and, particularly, on the disputes with the Milan Municipality for parking area waste levies, local ICI/IMU on commercial premises in metro stations and waste levies for the metro line 5, for which total accruals of €36,236 thousand have been made, including those of previous years; - the provision for “labour disputes” of €21,350 thousand comprises the amounts accrued over the years in relation to labour disputes, either potential or underway. During the year, the provision

88 Notes to the consolidated financial statements

was updated on the basis of the expected outcome of ongoing disputes and of those already concluded; - the provision for “indemnity for war veterans” of €1,996 thousand was recognised by the parent ATM S.p.A. and refers to pensions for each two years of war service; - the provision for “extraordinary maintenance” of €11,956 thousand, which may be analysed as follows:

 €5,500 thousand related to the planned maintenance to be carried out in future years on metro trains, and works to bring the Group’s structures into line with ruling safety regulations. The provision was updated to reflect the reviewed maintenance plans and utilisation for activities undertaken;  €6,456 thousand related to the costs to be incurred by Metro Service A/S for the assets received upon the launch of the Copenhagen metro to be returned as contractually agreed. The provision was reviewed to reflect the contractual provisions.

€21,773 thousand was released to caption A5) “Other revenues and income” in relation to the review of estimates based on new and more complete information not available at the time the original estimates were made.

The accruals of €14,456 thousand mainly refer to the updating of the existing amounts for 2016 costs.

Changes in the provisions for risks and charges are as follows:

31.12.2015 Increases Utilisation Release 31.12.2016

Provisions for risks:

To cover future losses 1,070 - (14) - 1,056 For damages, towing away 233 41 (6) - 268 and impounding IRAP 37,003 711 - - 37,714 Claims settlement 14,978 2,963 (1,566) - 16,375 Early retirement, Law no. 119 - - - 119 11/96 Sundry risks 57,787 8,397 (1,022) (6,476) 58,686 Labour disputes 29,464 289 (84) (8,319) 21,350 Provisions for charges:

Indemnity for war veterans 2,172 - (176) - 1,996 Extraordinary maintenance 18,302 2,055 (1,457) (6,944) 11,956 Future expenses 91 - (36) (34) 21 Total 161,219 14,456 (4,361) (21,773) 149,541

89 Notes to the consolidated financial statements

C) Employees’ leaving entitlement

This caption is the actual amount due by the Group at 31 December 2016 to its employees in force on said date. It was calculated for all employees in accordance with current employment regulations and contracts.

Changes of the year are as follows:

Change Opening balance 150,580

Accruals of the year 25,082 17% substitute tax as per Leg. decree no. 47/2000 (437) Other changes 18 Utilisation for departures and advances (9,454) INPS treasury fund (11,898) Supplementary pension funds (9,935)

Closing balance 143,956

The accruals of the year were recognised in accordance with article 2120 of the Italian Civil Code. Specifically, an amount equal to 1/13.5 of remuneration and the revaluation of principal to the extent required by the law was accrued.

The liability is shown net of the tax advance equal to 17% of the annual revaluation pursuant to Law no. 47/2000.

D) Payables

Payables, net of intragroup balances, are measured at their nominal amount and mainly relate to Italian and EU counterparties. They may be analysed as follows:

31.12.2016 31.12.2015 Change

Bank loans and borrowings 143,988 150,809 (6,821) Trade payables 181,980 261,415 (79,435) Payables to associates 761 675 86 Payables to ultimate parent 79,609 137,061 (57,452) Payables to subsidiaries of the parent 1,876 1,358 518 Tax payables 13,982 18,891 (4,909) Social security charges payable 38,548 43,759 (5,211) Other payables 84,110 97,263 (13,153) Total 544,854 711,231 (166,377)

90 Notes to the consolidated financial statements

Payables may be broken down by due date as follows:

Due within Due after Due after Total one year one year five years Bank loans and borrowings 6,360 50,752 86,876 143,988 Trade payables 181,980 - - 181,980 Payables to associates 761 - - 761 Payables to ultimate parent 79,609 - - 79,609 Payables to subsidiaries of the parent 1,876 - - 1,876 Tax payables 13,982 - - 13,982 Social security charges payable 38,548 - - 38,548 Other payables 84,110 - - 84,110 Total 407,226 50,752 86,876 544,854

“Bank loans and borrowings” of €143,988 thousand can be analysed as follows:

 €110,000 thousand related to the instalments of the €220,000 thousand loan agreed with the EIB to finance the new metro trains of lines 1 and 2. Borrowing costs total €1,442 thousand. Under the loan agreement, ATM is required to comply with financial covenants which it fully met again in 2016; - €33,988 thousand related to the bank loan agreed with Cassa Depositi e Prestiti to purchase the metro trains for line 1, for the Accessing Fiera Milano project. The loan, which will expire in 2021, is entirely secured by the state. Consequently, a receivable of the same amount was recognised under “receivables from others”.

“Trade payables” of €181,980 thousand include outstanding invoices and invoices to be received related to the purchase of materials, services and capitalised assets, mainly due to Italian and EU counterparties. The €79,435 thousand decrease is mainly due to the contractual milestones reached in relation to the investments for the renewal of the fleet.

“Payables to associates” of €761 thousand at 31 December 2016 may be analysed as follows:

31.12.2016 31.12.2015 Change

Co.Mo. Fun&Bus S.c.a.r.l. 18 35 (17) Metro 5 S.p.A. 114 85 29 Movibus S.r.l. 629 555 74 Total 761 675 86

At 31 December 2016, “payables to ultimate parent” amount to €79,609 thousand and are entirely due to the Milan municipality. They may be analysed as follows:

- ticket sales proceeds of €39,152 thousand to be transferred and €1,387 thousand for fees from management of on-street parking for 2016; - €38,575 thousand of reserves whose distribution was approved in prior years; - €1,882 thousand related to the transfer of the amounts collected from Area C management.

91 Notes to the consolidated financial statements

The decrease in the balance is mainly due to the January 2016 transfer of the proceeds from ticket sales, together with one month’s worth of the 2015 service agreement fees which was collected in the same month.

“Tax payables” of €13,982 thousand mainly refer to:

- the IRES tax; - the IRAP tax; - the tax payable by Metro Service A/S; - local taxes; - the deferred VAT liability pursuant to article 6.5 of Presidential decree no. 633/1972; - taxes withheld as withholding agent to be transferred to the tax authorities.

“Social security charges payable” of €38,548 thousand relate to the amounts due to INPS, Previndai, INAIL and pension funds of the relevant sector.

“Other payables” of €84,110 thousand may be analysed as follows:

- €50,173 thousand due to employees; - €21,976 thousand related to untaken holidays and overtime which may be used as paid leave, still to be used; - €11,961 thousand related to sundry payables, including the amount due to Fondazione ATM in relation to the amounts withheld on employees’ remuneration, as the withholding agent, for contributions and payments for the services provided.

E) Accrued expenses and deferred income

They may be analysed as follows:

31.12.2016 31.12.2015 Change

Grants related to plant 21,014 32,607 (11,593) Accrued expenses and deferred income 3,342 3,788 (446) Total 24,356 36,395 (12,039)

Grants are recognised in the year they are applied for as a receivable, with a balancing entry under deferred income. Once the asset to which they relate becomes operative, grants are recognised as a decrease in fixed assets to the extent of the collected amount and taken to the profit and loss account, proportionally decreasing the related depreciation.

This caption comprises:

- €9,196 thousand related to government grants to finance works to increase safety in the metro and to purchase rolling stock; - €4,220 thousand related to residual regional grants for rolling stock and signalling equipment; - €7,598 thousand related to municipal grants for waterproofing works at metro stations and to implement the on-board signalling system.

Accrued expenses mainly refer to insurance premiums, while deferred income refers to membership fees and receivables from building cooperatives.

92 Notes to the consolidated financial statements

Notes to profit and loss account captions

Reference should be made to the directors’ report for information about the general trend of costs and revenues pursuant to article 2428.1 of the Italian Civil Code.

Based on the breakdown of positive and negative income components in the profit and loss account and the previous notes to the balance sheet, the following notes are limited to the main captions detailed below.

A) Production revenues

2016 2015 Change

Turnover from sales and services 805,746 833,844 (28,098) Internal work capitalised 17,002 39,360 (22,358) Other revenues and income 178,343 190,433 (12,090) Total 1,001,091 1,063,637 (62,546)

“Production revenues” include revenues from the Group’s core business and from management of ancillary and accessory activities.

“Turnover from sales and services” includes €774,365 thousand for revenues from the local public transport service and €31,344 thousand for revenues from management of on-street parking and car parks and the towing away service.

Revenues from the local public transport service may be analysed as follows:

2016 2015 Change Revenues from the local public transport service, of which: Fees as per the service agreement with the Milan 669,461 704,431 (34,970) municipality Fees as per the service agreement - Copenhagen 46,670 42,649 4,021 Fees as per the service agreement - intercity area 19,565 19,919 (354) Fees as per the service agreement - line 5 22,987 19,014 3,973 Proceeds from tariffs - intercity area 11,665 11,599 66 Special/dedicated transport services 4,017 6,332 (2,315) Total 774,365 803,944 (29,579)

“Revenues from the LPT” for 2016 (€774,365 thousand) for LPT service/management contracts in Italy and abroad were down by €29,579 thousand on those of 2015 (-3.7%). This is mainly a result of the €34,970 thousand decrease in fees from the service agreement with the Milan municipality, due to the smaller amount of services provided compared to those of 2015, mainly related to Expo. This decrease was partly offset by the greater management fees for Copenhagen’s metro network (+ €4,021 thousand) and the greater management fees for the M5 metro line (+ €3,973 thousand), due to the operation of the entire line for the full year.

Revenues from the management of on-street parking and car parks increased as a consequence of new parking areas, the ongoing monitoring activities in the area, the increase in sales via innovative

93 Notes to the consolidated financial statements

payment channels and parking meters and the full reopening of the San Donato park-and-ride carpark.

“Internal work capitalised”, of €17,002 thousand, mainly include the extraordinary maintenance carried out on the metro train and tram fleets.

“Other revenues and income” may be analysed as follows:

2016 2015 Change

National labour contract grants 50,190 50,299 (109) Sundry grants 848 1,952 (1,104) Other 127,305 138,182 (10,877)

Total 178,343 190,433 (12,090)

“National labour contract grants”, of €50,190 thousand, refer to the grants of the year disbursed under Law no. 47 of 27 February 2004 to cover the charges from the renewal of the collective bargaining agreement for the two year-period 2002/2003, under Law no. 58 of 22 April 2005 to cover the charges from the renewal of the collective bargaining agreement for the two year-period 2004/2005 and under Law no. 296 of 27 December 2006 (2007 finance act) to cover the charges from the renewal of the collective bargaining agreement for the two year-period 2006/2007.

“Sundry grants”, of €848 thousand, refer to the grants disbursed for the installation of photovoltaic systems at the San Donato and Precotto warehouses and for European projects.

“Other” includes revenues from non-core businesses and the change on 2015 is mainly due to the decrease in services provided for maintenance of assets of the Milan Municipality. They mainly relate to:

 maintenance work on municipal infrastructure, the implementation and management of Area C payment systems and the system monitoring traffic and the area, unforeseen maintenance on metro line 5 and services provided to other parties totalling €27,924 thousand;  advertising revenues (€17,923 thousand);  insurance compensation and the repayment of advances for €16,196 thousand;  revenue from the lease of metro commercial premises (€6,519 thousand);  passenger fines (€6,252 thousand);  penalties invoiced to suppliers for contractual breaches (€4,956 thousand);  gains on the sale of the property in Via Ricasoli (€4,300 thousand).

During the year, €36,584 thousand of the accruals made in previous years was released following the review of estimates based on new and more complete information not available at the time the original estimates were made, and in relation to the events of the year.

B) Production cost

“Production cost” includes costs related to operations. It may be analysed as follows:

94 Notes to the consolidated financial statements

2016 2015 Change

Raw materials, consumables, supplies and goods 81,778 89,841 (8,063) Services 219,206 234,697 (15,491) Use of third party assets 6,078 5,832 246 Personnel expenses 498,161 510,778 (12,617) Amortisation, depreciation and write-downs 130,007 142,717 (12,710) Change in raw materials, consumables, supplies and (5,336) (8,568) 3,232 goods Provision for risks 12,401 43,575 (31,174) Other provisions 2,057 2,488 (431) Other operating costs 18,391 14,293 4,098 Total 962,743 1,035,653 (72,910)

“Raw materials, consumables, supplies and goods” of €81,778 thousand refer to the purchase of materials used in vehicle and plant maintenance, diesel fuel and travel and on-street parking documents.

The €8,063 thousand decrease on the previous year is largely a result of the fall in oil prices and lower purchase of metro and tram materials.

“Services” of €219,206 thousand may be analysed as follows:

2016 2015 Change

Insurance 8,224 9,652 (1,428) Electric traction power 46,652 47,933 (1,281) Maintenance, cleaning and security 88,455 95,203 (6,748) Professional services 3,468 3,863 (395) Production and distribution of travel tickets 12,258 12,807 (549) Services for employees 9,893 12,370 (2,477) Customer services, advertising and marketing 6,288 6,552 (264) Subcontracting 24,935 24,529 406 Sundry and administrative services 1,209 1,340 (131) Utilities 17,824 20,448 (2,624) Total 219,206 234,697 (15,491)

95 Notes to the consolidated financial statements

The most significant changes relate to:

 maintenance, cleaning and security, down by €6,748 thousand on the previous year, mainly as a result of the decrease in outsourcing, as well as the rescheduling of the fleet maintenance carried out by the group companies following the roll out of new vehicles;  utilities decreased by €2,624 thousand, mainly in respect of electricity, gas and district heating;  services for employees decreased by €2,477 thousand. The decrease is due to the decrease in clothing costs for personnel as new uniforms were distributed to employees during Expo.

“Use of third party assets” may be analysed as follows:

2016 2015 Change

Rentals 3,096 3,373 (277) - Plant and equipment 1,333 1,236 97 - Vehicles 1,763 2,137 (374) Leases and instalments 2,982 2,459 523 - Leases 606 447 159 - Instalments 2,376 2,012 364 Total 6,078 5,832 246

“Personnel expenses” of €498,161 thousand include remuneration and social security contribution costs, accruals required by the law and bargaining agreements as well as costs related to untaken accrued holidays and paid leave:

2016 2015 Change

Wages and salaries 364,401 371,737 (7,336) Social security contributions 99,061 105,258 (6,197) Employees’ leaving entitlement 25,083 24,388 695 Pension and similar costs 4,223 3,980 243 Other costs 5,393 5,415 (22) Total 498,161 510,778 (12,617)

The €12,617 thousand decrease is the net effect of the higher costs related to the increase in the average workforce and those related to the renewal of the national labour contract, and to the absence of the large charges related to the management of the Expo period.

“Amortisation, depreciation and write-downs” amount to €130,007 thousand, adjusted to reflect the portion of the year (€39,265 thousand) related to the grants for investments. Write-downs of fixed assets amount to €33,348 thousand and refer to the residual value of the metro rolling stock which is expected to exit the production process early following the progressive replacement of trains for lines 1 and 2 following the supply contracts for additional “Leonardo” trains signed in 2016, and the residual value of some buildings which, due to technical reasons, are no longer used in production.

96 Notes to the consolidated financial statements

2016 2015 Change

Amortisation of intangible fixed assets 22,814 23,265 (451) - Concessions, licences, trademarks and similar rights 1,211 1,324 (113) - Goodwill 472 472 - - Other 23,763 24,101 (338) - Grants related to plant - current portion (2,632) (2,632) -

Depreciation of tangible fixed assets 72,634 77,544 (4,910) - Land and buildings 5,724 5,790 (66) - Plant and machinery 96,735 101,148 (4,413) - Industrial and commercial equipment 3,596 3,614 (18) - Other assets 3,212 3,457 (245) - Grants related to plant - current portion (36,633) (36,465) (168)

Other write-downs of fixed assets 33,348 41,273 (7,925) Total 128,796 142,082 (13,286)

“Provisions for risks” of €12,401 thousand mainly refer to the updating of the existing provision for claims settlement and other provisions in relation to ongoing or potential disputes of 2016.

“Other provisions” of €2,057 thousand include the expected costs for the assets received upon the launch of the Copenhagen metro to be returned as contractually agreed.

“Other operating costs” of €18,391 thousand mainly refer to sundry and local taxes. They also include prior year expenses related to the review of some assets leading to their reclassification under inventory, as well as the reclassification of previous capitalised maintenance activities. They may be analysed as follows:

2016 2015 Change

Prior year and inexistent costs 10,445 7,916 2,529 - Losses and inexistent costs 4 4,006 (4,002) - Prior year costs 10,441 3,910 6,531 Penalties and fines 387 155 232 Sundry taxes 6,431 5,038 1,393 - Municipal taxes 5,120 4,167 953 - Sundry taxes 1,311 871 440 Other costs 1,128 1,184 (56) Total 18,391 14,293 4,098

C) Financial income and charges

“Net financial income” amounts to €4,901 thousand in 2016 and may be analysed as follows:

97 Notes to the consolidated financial statements

Financial income 2016 2015 Change From financial receivables classified as fixed assets 1,127 1,028 99 From securities classified as current assets which are 5,366 10,363 (4,997) not equity investments Other income 489 873 (384) Total 6,982 12,264 (5,282)

Financial charges 2016 2015 Change Other (2,129) (2,053) (76) Total (2,129) (2,053) (76) Net exchange rate gains (losses) 48 (53) 101 Net financial income 4,901 10,158 (5,257)

Financial income from “financial receivables classified as fixed assets” amounts to €1,127 thousand and refers to interest accrued on the loans granted to Metro 5 S.p.A. and SPM 4 S.c.p.A. in liquidation and the implicit interest accrued on the loans to the building cooperatives SED-ATM and SCCATI.

Income from “securities classified as current assets which are not equity investments” refers to interest on government securities and bonds (€1,813 thousand) and to gains on the sale of securities (€3,553 thousand).

“Other income” of €489 thousand refers to interest on bank deposits, term and other deposits, including, inter alia, default interest and discounts to suppliers.

Interest and financial charges mainly comprise “interest expense” on bank loans and borrowings recognised under payables for €1,482 thousand and “losses on securities” of €434 thousand due to the difference between the sale price of securities and their carrying amount at 31 December 2015 or, for those purchased during the year, at the acquisition date.

D) Adjustments to financial assets

“Adjustments to financial assets” of €1,094 thousand includes write-downs of securities/UCITS units recognised under current assets (€1,577 thousand), net of write-backs of €483 thousand.

In accordance with applicable reporting standards, items were measured at the lower of the price as per the financial statements at 31 December 2015, or the purchase price for transactions carried out in 2016, and market value. Market value is equal to the average prices recorded in the last month of the year. Securities whose average market price is greater than the reference one were written back to their purchase price.

Securities/UCITS units expressed in a currency other than the Euro were translated at the closing rate.

98 Notes to the consolidated financial statements

Income taxes

2016 2015 Change

Current taxes:

- IRES (1,351) (15,527) 14,176 - IRAP (1,964) (4,184) 2,220 - Taxes relative to prior years 515 - 515 - Foreign taxes (1,536) (1,400) (136) Change in deferred tax assets 320 (22) 342 Change in deferred tax liabilities 51 136 (85) Net benefit from the tax consolidation scheme 694 11,984 (11,290) Total income taxes (3,271) (9,013) 5,742

The Group companies opted to join the tax consolidation scheme. Consequently, the Group’s taxable profit is the algebraic sum of the taxable profit of each participating company, less the tax losses carried forward, up to 80%.

“Benefit from participation in the tax consolidation scheme” refers to the transfer of the IRES tax of each participating company to the consolidating company, up to 80%.

The difference between the income and expense arising from the tax consolidation scheme of €11.3 million arises from the change in taxable income produced in the two years, mainly by the subsidiary ATM Servizi S.p.A..

Comparing 2016 with the previous year shows that operating profit dropped by €9.6 million, which affected the tax base, together with the amount of the provisions accrued in the financial statements in 2015 with an increase in the tax base for that year.

99 Notes to the consolidated financial statements

Relationships with directors and statutory auditors

As required by the law, the fees paid to directors and statutory auditors are given below.

2016 2015 Change Fees to directors 130 130 - Fees to statutory auditors 274 278 (4)

Total 404 408 (4)

The fees due to the independent auditor engaged to perform the legally-required audit of the 2016 financial statements total €200 thousand. €96 thousand was also recognised for the audit of the financial statements of Metro Service A/S. Off-balance sheet commitments, guarantees and contingent liabilities pursuant to article 2427.1.9 of the Italian Civil Code

At 31 December 2016, they amount to €5,216,239 thousand and may be analysed as follows:

31.12.2016 31.12.2015 Change

1) Third party assets 4,848,084 4,843,223 4,861 2) Guarantees, of which: 368,155 338,106 30,049 - To third parties 91,620 74,614 17,006 - From third parties 238,456 225,612 12,844 - To associates 38,079 37,880 199 Total 5,216,239 5,181,329 34,910

This caption shows the Group’s guarantees and commitments, third party assets with the Group and group assets with third parties. It does not include items that have already been recognised in the balance sheet or profit and loss account, such as group assets with third parties.

Guarantees are included at their value or, if this has not been calculated, using the best estimate of the risk taken on given the situation at that time. Commitments are recognised at their nominal amount, while unquantifiable commitments are commented on in the notes to the financial statements. Third party assets with the Group are presented at their nominal amount, market value or the value obtained from the existing documentation, depending on the type of asset.

The amounts recognised for commitments and guarantees in the notes to the consolidated financial statements are reviewed at each reporting date. The €4,848,084 thousand related to “third party assets” mainly comprises:

 €4,709,585 thousand, being the value of the assets of the Milan municipality to operate the local public transport service and €131,368, being the value of on-street parking and car parks (as per the Service agreements);  €5,619 thousand related to the materials owned by Metro 5 S.p.A. and received for maintenance work under warranty;  €1,302 thousand, being the value of the assets used to operate the people mover service that links the Cascina Gobba station on line 2 of the metro to San Raffaele hospital.

100 Notes to the consolidated financial statements

Guarantees “to third parties” of €91,620 thousand refer to sureties and commitments given in favour of third parties.

Guarantees “from third parties” of €238,456 thousand refer to sureties or guarantee deposits issued by third parties in favour of the Group. They amounted to €225,612 thousand at 31 December 2015.

Guarantees “given to associates” of €38,079 thousand may be analysed as follows:

 a total of €11,495 thousand related to the pledge on 106,600 shares of Metro 5 S.p.A. and 8,352 shares of SPV Linea M4 S.p.A. in favour of a bank syndicate that granted financing for the construction and management project for the new metro lines 5 and 4;

 €26,584 thousand related to co-obligations and guarantees given in favour of the associate Metro 5 S.p.A. and SPV Linea M4 S.p.A..

Financial instruments (fair value)- Article 2427 bis of the Italian Civil Code

There are no derivatives at 31 December 2016.

Dividend-right shares, convertible bonds, securities or similar issued by group companies - Article 2427.18 of the Italian Civil Code

The group companies have not issued securities of this type.

Other financial instruments issued by group companies - Article 2427.19 of the Italian Civil Code

The group companies have not issued any of the financial instruments referred to in articles 2346.6 and 2349.2 of the Italian Civil Code.

Share/quotaholder loans - Article 2427.19 bis of the Italian Civil Code

The group companies have not received any type of loans from their share/quotaholders.

Assets earmarked for a specific transaction - Article 2427.20 of the Italian Civil Code

The group companies have not availed of the option to earmark assets for a specific transaction pursuant to article 2447 bis and following articles of the Italian Civil Code.

Loans earmarked for a specific transaction - Article 2427.21 of the Italian Civil Code

The group companies have not availed of the option to agree loans for a specific transaction pursuant to article 2447 bis and following articles of the Italian Civil Code.

Finance leases - Article 2427.22 of the Italian Civil Code

The group companies do not have any finance lease contracts.

Post-balance sheet events - Article 2427.22-quater of the Italian Civil Code There were no post-balance sheet events that modify conditions existing at the reporting date and which would require adjustments to the carrying amounts of recognised assets and liabilities at the reporting date. Reference should be made to the relevant paragraph of the directors’ report for

101 Notes to the consolidated financial statements

information on post-balance sheet events that did not have an impact on the Group’s financial position, results of operations and cash flows.

Number and nominal value of own shares and shares of the ultimate parent held, including indirectly, and purchased and/or sold during the year - Article 2428.3/4 of the Italian Civil Code Nothing to report.

Receivables and payables related to transactions with a repurchase agreement - Article 2427.6 ter of the Italian Civil Code The group companies do not have any forward contracts.

Loans to the parent from shareholders, grouped by due date and stating any subordination clauses There are no payables related to loans received from shareholders.

Milan, 21 March 2017

On behalf of the board of directors chairman Bruno Rota (signed on the original)

102 Notes to the consolidated financial statements

103 Annexes

2. ANNEXES

Annexes

104 Annexes

Annex 1 a) Changes in fixed assets

337

971

677

-

-

-

-

-

-

3,444

1,363

4,807

17,987

24,779

19,972

Reclassifications

Sales/Disposals/

.

-

-

-

-

-

( ( 472 )

depr

( ( 3,212 )

( ( 3,594 )

( ( 5,727 )

( ( 1,211 )

./

( 98,952 ( 98,952 )

( 23,763 ( 23,763 )

( ( 25,446 )

( ( 136,931 )

( ( 111,485 )

Amortisation/depreciation

Amort

-

-

-

-

-

-

( ( 342 )

( ( 970 )

( ( 2,004 )

( ( 3,701 )

( ( 1,367 )

( ( 5,068 )

( 33,006 ( 33,006 )

( ( 41,390 )

( ( 36,322 )

Changes of the year

Reclassifications

Sales/Disposals/

-

938

-

-

-

-

-

277

1,980

2,178

1,034

plant

( ( 277 )

114,543

( ( 1,695 )

( 118,978 ( ) 118,978

Historical cost

Transfers to

finished

376

-

-

-

-

-

-

-

-

-

4,020

4,396

72,396

76,792

72,396

and

acquisitions

Investments

472

-

-

-

7,876

3,764

2,582

86,924

21,862

44,156

50,974

694,994

239,090

1,101,720

1,050,746

amount

Carrying

-

-

-

-

-

-

-

-

-

( ( 460 )

( ( 1,500 )

( ( 2,938 )

( 42,087 ( 42,087 )

( ( 46,985 )

( ( 46,985 )

Write-downs

-

-

-

-

-

-

-

-

( ( 4,580 )

( 19,580 ( 19,580 )

( 12,805 ( 12,805 )

( 520,466 ( ) 520,466

( ( 12,805 )

( ( 557,431 )

( ( 544,626 )

Grants for

investments

. .

Opening balance

-

-

-

-

( ( 43 )

. .

( ( 5,496 )

( ( 5,321 )

deprec

( 27,001 ( 27,001 )

( 50,946 ( 50,946 )

( 88,938 ( 88,938 )

( 96,250 ( 96,250 )

./

( ( 107,110 )

( 1,306,010 ( ) 1,306,010

Accum

( ( 1,580,005 )

( ( 1,472,895 )

amort

43

-

-

3,764

5,968

7,903

88,424

39,457

73,268

350,546

153,211

170,889

2,563,557

3,286,141

3,115,252

Historical cost

Fixed assets

Total

payments on account

5) 5) Assets under construction and

4) 4) Other assets

3) 3) Industrial and commercial equipment

2) 2) Plant and machinery

1) 1) Land and buildings

II. Tangible fixed assets

7) 7) Other

payments on account

6) 6) Assets under development and

5) 5) Goodwill arising on consolidation

and similar rights

4) 4) Concessions, licences, trademarks

intellectual property rights

3) 3) Industrial patents and

advertising costs

2) 2) Research, development and 1) 1) Start-up and capital costs I. Intangible fixed assets

105 Annexes

Annex 1 b) Changes in fixed assets

106 Annexes

Annex 2 a) Changes in net equity

Allocation of Net profit Balance at the net Dividend Balance at NET EQUITY Reclassification Increases for the 31.12.2014 profit for the distribution 31.12.2015 year year Net equity attributable to the Group 900,110 ( 219 ) ( 12 ) - - 23,779 923,658 I - Share capital 700,000 700,000 IV - Legal reserve 140,000 140,000 B VI - Other reserves, shown separately 25,464 ( 12 ) 25,452 - contribution reserve 19,690 19,690 A, B, C - extraordinary reserve 5,764 5,764 A, B, C - translation reserve 10 ( 12 ) ( 2 ) B VIII - Retained earnings 31,578 ( 219 ) 3,068 34,427 A, B, C IX - Net profit for the year 3,068 ( 3,068 ) 23,779 23,779 Net equity attributable to minority interests 6,567 ( 65 ) - - ( 2,940 ) 2,034 5,596 A2.I - Minority interests in share capital and reserves 4,001 ( 65 ) - 2,566 ( 2,940 ) - 3,562 A, B, C A2.II - Profit for the year attributable to minority interests 2,566 ( 2,566 ) 2,034 2,034 Total net equity 906,677 ( 284 ) ( 12 ) - ( 2,940 ) 25,813 929,254

(*) A = share capital increase B = to cover losses C = dividends

Allocation of Net profit Balance at the net Dividend Balance at NET EQUITY Reclassification Increases for the 31.12.2015 profit for the distribution 31.12.2016 year year Net equity attributable to the Group 923,658 742 8 - - 36,725 961,133 I - Share capital 700,000 700,000 IV - Legal reserve 140,000 140,000 B VI - Other reserves, shown separately 25,452 8 25,460 - contribution reserve 19,690 19,690 A, B, C - extraordinary reserve 5,764 5,764 A, B, C - translation reserve ( 2 ) 8 6 B VIII - Retained earnings 34,427 742 23,779 58,948 A, B, C IX - Net profit for the year 23,779 ( 23,779 ) 36,725 36,725 Net equity attributable to minority interests 5,596 ( 742 ) - - ( 1,568 ) 2,159 5,445 A2.I - Minority interests in share capital and reserves 3,562 ( 742 ) - 2,034 ( 1,568 ) - 3,286 A, B, C A2.II - Profit for the year attributable to minority interests 2,034 ( 2,034 ) 2,159 2,159 Total net equity 929,254 - 8 - ( 1,568 ) 38,884 966,578 (*) A = share capital increase B = to cover losses C = dividends

107 Annexes

Annex 2 b) Net equity

Possibility of Available Distributable NET EQUITY Amount use portion portion Net equity attributable to the Group 961,133 961,133 84,402 I - Share capital 700,000 700,000 IV - Legal reserve 140,000 B 140,000 VI - Other reserves, shown separately - contribution reserve 19,690 A,B,C 19,690 19,690 - extraordinary reserve 5,764 A,B,C 5,764 5,764 - translation reserve 6 B 6 VIII - Retained earnings 58,948 A,B,C 58,948 58,948 IX - Net profit for the year 36,725 36,725

Net equity attributable to minority interests 5,445 4,873 2,714 A2.I - Minority interests in share capital and reserves 3,286 - Share capital 572 - - Share premium reserve 229 A,B,C 229 229 - Retained earnings 2,485 A,B,C 2,485 2,485 A2.II - Profit for the year attributable to minority interests 2,159 2,159

Total net equity 966,578 966,006 87,116

A = share capital increase B = to cover losses C = dividends

108 Annexes

Annex 3 Reconciliation between the parent’s and consolidated net equity

Share capital and Net profit for reserves at 2016 31.12.2016 ATM S.p.A 19,770 907,572

Write-downs: NET S.r.l. 2013 44 NET S.r.l. 2012 753 NET S.r.l. 2011 1,311 NET S.r.l. 2010 3,275 NET S.r.l. 2009 3,098 NET S.r.l. 2008 521 Allocation of Rail Diagnostics S.p.A.'s goodwill ( 471 ) - Elimination of the write-down of Rail Diagnostics S.p.A.'s goodwill 2,481 Write-down of consolidated fixed assets ( 534 ) ( 2,174 ) Contributions from consolidated companies ATM Servizi S.p.A. 17,713 39,845 ATM Servizi Diversificati S.r.l. ( 60 ) 421 GeSAM S.r.l. 74 356 International Metro Service S.r.l. 99 19,144 Elimination of International Metro Service S.r.l.'s dividend ( 1,632 ) ( 14,200 ) Metro Service A/S 4,158 23,262 Elimination of Metro Service A/S's dividend ( 268 ) ( 13,596 ) Adjustment of amortisation/depreciation rates 146 525 Adjustment to income from investments 41 NET S.r.l. 399 2,981 Rail Diagnostics S.p.A. 62 10,280 Adjustments to leased assets as per IAS 17 ( 567 ) 12,340 Other adjustments ( 5 ) ( 9 ) Elimination of investments Elimination of the investment in ATM Servizi S.p.A. ( 1,756 ) Elimination of the investment in ATM Servizi Diversificati S.r.l. ( 100 ) Elimination of the investment in GeSAM S.r.l. ( 20 ) Elimination of the investment in International Metro Service S.r.l. ( 357 ) Elimination of the investment in Metro Service A/S ( 4,261 ) Elimination of the investment in NET S.r.l. ( 6,500 ) Elimination of Capitale NET S.r.l.'s 2010 quota capital increase ( 3,132 ) Elimination of the acquisition of NET's minority interests ( 86 ) Elimination of the investment in Rail Diagnostics S.p.A. ( 11,481 ) Elimination of Capitale Rail Diagnostics S.p.A.'s 2014 share capital increase ( 4,000 )

CAPITAL/RESERVES AND NET PROFIT FOR THE YEAR AS PER 38,884 966,578 THE CONSOLIDATED FINANCIAL STATEMENTS

of which: attributable to the Group 36,725 961,133

attributable to minority interests 2,159 5,445

109 Annexes

Annex 4 Amortisation and depreciation rates

RATE % B I Intangible fixed assets

4 Concessions, licences, trademarks and similar rights

- Software 20 7 Other

- Leasehold improvements from 10 to 50 - Long-term charges 20

B II TANGIBLE FIXED ASSETS

1 Land and buildings 2

2 Plant and machinery - Lineside equipment

- Refuelling facilities 31.42 - Control rooms 5.75 - Line systems and technologies 10 - Power substations 5.75 - Self tracking 5.75 - Workshop fixed installations 5 - Strategic spare parts for electrical installation 5.75 - Magnetic and electronic ticketing system 10-20-6.67 - Building systems 5.75 - Signalling systems 4 - Line rolling stock

- Metro engines 3.33 - Metro carriages 3.33 - Strategic spare parts for metro drawing vehicles 3.33 - Trams 3.33 - Strategic spare parts for trams 3.33 - Buses 8.33 - Strategic spare parts for buses 8.33 - Special buses 8.33 - Hydrogen powered buses 15 - Electric buses 25 - Trolleybuses 7.50 - Strategic spare parts for trolleybuses 7.50 - Discontinued vehicles 100

3 Industrial and commercial equipment

- Trucks 20 - Scaffolding 20 - Service engines 10 - Transport carriages 7.5 - Trailers 10 - Sundry equipment 10 - Ticket stamping and validating machines 12 - Phone networks/Badges 20 - Circulation equipment/collection and parking metres 20-10 - Vehicles for sundry services 20

4) Other assets

- Furniture and fittings 12 - Office equipment 20 - Hardware 20 - Air conditioning systems 20 - Domestic appliances 20 - Phone equipment 20 - Audio/video systems 20 - Bike sharing scheme 12-20

110 Annexes

Annex 5 Related party transactions

Receivables Trade Grants 31.12.2016

- From ultimate parent Milan municipality 114,510 7,598 122,108

- From associates Brianza Trasporti S.c.a.r.l. 123 123 Co.Mo. Fun&Bus S.c.a.r.l. 298 298 Metro 5 S.p.A. 2,722 2,722 Movibus S.r.l. 1,877 1,877

- From subsidiaries of the parent A2A S.p.A. 71 71 Agenzia Mobilità Ambiente e Territorio S.r.l. 4 4 Fondazione Milano - Scuole Civiche 9 9 Fondazione Piccolo Teatro di Milano 98 98 Fondazione Teatro alla Scala 35 35 Metropolitana Milanese S.p.A. 2,130 2,130 SEA S.p.A. 7 7 SPV Linea M4 S.p.A. 85 85

Payables Trade Financial* 31.12.2016

- To ultimate parent Milan municipality 41,034 38,575 79,609

- To associates Co.Mo. Fun&Bus S.c.a.r.l. 18 18 Metro 5 S.p.A. 114 114 Movibus S.r.l. 629 629

- To subsidiaries of the ultimate parent A2A S.p.A. 560 560 Agenzia Mobilità Ambiente e Territorio S.r.l. 30 30 Fondazione Piccolo Teatro di Milano 98 98 Metropolitana Milanese S.p.A. 1,142 1,142 SPV Linea M4 S.p.A. 46 46

* Reserves whose distribution was approved in prior years

111 Annexes

Revenues as Other Use of Other Net financial per the TRANSACTIONS revenues and Services third party operating income service income assets costs (expense) agreement

- With parent

Milan municipality 669,461 21,365 17 1,387 603

- With associates

Co.Mo. Fun&Bus S.c.a.r.l. 590 196 3

Metro 5 S.p.A. 25,615 235 1,039

Movibus S.r.l. 525 263 20

- With subsidiaries of the parent

A2A S.p.A. 1,241

Fondazione Teatro alla Scala 2

Metropolitana Milanese S.p.A. 38 1,656 (64) SPV Linea M4 S.p.A. 141 56

112 Annexes

113 Annexes

114

(Translation from the Italian original which remains the definitive version) Azienda Trasporti Mi anesi Group

Consolidated financial statements as at and for the year ended 31 December 2016 (with independent auditors' report thereon)

KPMG S.p.A. 29 March 2017 KPMG S.p.A. Revisione e organizzazione cantabile Via Vittor Pisani, 25 20124 MILANO Ml Telefono +39 02 6763.1 Email [email protected] PEC [email protected]

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

Independent auditors' report pursuant to article 14 of Legislative decree no. 39 of 27 January 2010

To the sole shareholder of Azienda Trasporti Milanesi S.p.A.

Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of the Azienda Trasporti Milanesi Group (the "group"), which comprise the balance sheet as at 31 December 2016, the profit and loss account and cash flow statement for the year then ended and notes thereto.

Directors' responsibility for the consolidated financial statements The parent's directors are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with the Italian regulations governing their preparation.

Independent auditors' responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing (ISA Italia) promulgated pursuant to article 11 of Legislative decree no. 39/10. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and

Societa per aziani Capitale soclale Euro 9.525 650,00 i v Ancona Aosta Bari Bergamo Registro lmprese Milano e Bologna Bolzano Brnscia Codice Flscale N 00709600159 Catania Como Firenze Genova R E.A Milano N. 512867 Lecce Milano Napoli Novara Partita IVA00709600159 KPMG S p A 8 una societa per azioni di diritto italiano e fa parte ciel Padova Palermo Pmma Perugia VAT number ITD0709600159 network KPMG di enlil;':i indipendenti affiliate a KPMG Jnterm1tional Pescara Roma Torino Treviso Sede legf'.lle: Via Vittor Pisani, 25 Cooperative ("KPMG International"), entila di diritlo svizzero Triesle Varese Verona 20124 Milano Ml ITALIA Azienda Trasporti Milanesi Group Independent auditors' report 31December2016

the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements give a true and fair view of the group's financial position as at 31 December 2016 and of its financial performance and cash flows for the year then ended in accordance with the Italian regulations governing their preparation.

Report on other legal and regulatory requirements

Opinion on the consistency of the directors' report with the consolidated financial statements We have performed the procedures required by Standard on Auditing (SA Italia) 7208 in order to express an opinion, as required by the law, on the consistency of the directors' report, which is the responsibility of the parent's directors, with the consolidated financial statements. In our opinion, the directors' report is consistent with the consolidated financial statements of the Azienda Trasporti Milanesi Group as at and for the year ended 31 December 2016.

Milan, 29 March 2017

KPMG S.p.A.

(signed on the original)

Claudio Mariani Director of Audit

2