Italferr S.P.A

(Translation from the Italian original which remains the definitive version) Italferr S.p.A. Financial statements as at and for the year ended 31 December 2016 (with report of the auditors thereon) KPMG S.p.A. 10 April 2017 Italferr S.p.A. (Translation from the Italian original which remains the definitive version) Italferr S.p.A. 2016 ANNUAL REPORT 2016 Annual Report 1 Italferr S.p.A. Italferr S.p.A. Single-member company managed and coordinated by Ferrovie dello Stato Italiane S.p.A. Share capital: €14,186,000, fully paid up Registered office: Via Vito Giuseppe Galati 71, 00155 Rome Tax code and company registration no.: 06770620588 REA no.: 541241 VAT number: 01612901007 Website: www.italferr.it 2016 Annual Report 2 Italferr S.p.A. MISSION Italferr is the Ferrovie dello Stato Italiane group’s engineering company with over 30 years of consolidated experience in large infrastructural projects for traditional and high-speed railways, underground and road transport and the design of ports and stations in Italy and abroad. Its mission is to build infrastructure in accordance with high quality standards, deadlines and the budget, covering all technical and management activities for the planning, design, execution, inspection and commissioning of the works. Italferr offers innovative, high-tech services ranging from design to contracting, works management and supervision, inspection and commissioning of lines, stations and intermodal and interport hubs, project management, organisational consultancy, training and the transfer of specialised, avant-garde know-how. 2016 Annual Report 3 Italferr S.p.A. COMPANY OFFICERS Board of directors: (*) Chairman Riccardo Maria Monti CEO Carlo Carganico Director Elisabetta Scosceria Board of statutory auditors: Chairwoman Ines Russo Standing statutory auditor Giuseppe Farneti Standing statutory auditor Lelio Fornabaio Alternate statutory auditor Silvana Amadori Alternate statutory auditor Guglielmo Marengo INDEPENDENT AUDITORS KPMG S.p.A. (engagement assigned by Italferr’s shareholders on 16 December 2014 for the 2014-2016 three-year period) (*) Appointed on 27 July 2016 2016 Annual Report 4 Italferr S.p.A. Contents LETTER FROM THE CHAIRMAN 7 Directors' report 8 Key and glossary 9 2016 results 11 Main events of the year 12 Human resources 15 The environment 17 Customers 18 Macroeconomic context 19 Market performance 22 Performance of operations and financial position 26 Risk factors 31 Investments 32 Performance of subsidiaries 33 Treasury shares 34 Related party transactions 34 Other information 34 Outlook 36 Proposed allocation of the profit for the year 37 Financial statements as at and for the year ended 31 December 2016 38 Financial statements 39 Statement of financial position 40 Income statement 41 Statement of comprehensive income 42 Statement of changes in equity 43 Statement of cash flows 44 Notes to the financial statements 45 1: Introduction 45 2: Basis of preparation 45 3: Accounting policies 46 4: New standards 55 5: Financial risk management 60 6: Property, plant and equipment 66 7: Intangible assets 67 2016 Annual Report 5 Italferr S.p.A. 8: Deferred tax assets and liabilities 68 9: Equity investments 69 10: Current and non-current financial assets 70 11: Other current and non-current assets 70 12: Construction contracts 71 13: Current trade receivables 72 14: Cash and cash equivalents 73 15: Tax assets 74 16: Equity 74 17: Post-employment benefits and other employee benefits 75 18: Provisions for risks and charges 77 19: Other current and non-current liabilities 78 20: Current trade payables 79 21: Tax liabilities 79 22: Current and non-current financial liabilities (including derivatives) 80 23: Revenue from sales and services 80 24: Other income 80 25: Personnel expense 81 26: Raw materials, consumables, supplies and goods 82 27: Services 82 28: Use of third-party assets 83 29: Other operating costs 83 30: Amortisation and depreciation 84 31: Impairment losses/(reversals of impairment losses) 84 32: Financial income 84 33: Financial expense 85 34: Income taxes 85 35: Contingent assets and liabilities 86 36: Independent auditors' fees 87 37: Directors' and statutory auditors' fees 87 38: Management and coordination 88 39: Related parties 88 40: Guarantees and commitments 91 41: Events after the reporting period 92 42: Proposed allocation of the profit for the year 92 2016 Annual Report 6 Italferr S.p.A. LETTER FROM THE CHAIRMAN Dear Shareholder, Italferr performed well in the year just ended, fully achieving - even exceeding - the financial and performance targets in its budget. Revenue from the company’s core services grew by a total of 4% on 2015, as its international business continued to expand and business with FS Italiane group remained substantially steady, while non-group revenue generated on the domestic market fell. Although the geopolitical context is still particularly complex, with the cost of oil and raw materials low and the global threat of terrorism, production on the international market grew (revenue +23% on 2015) thanks to the prestigious contracts, like those in Iran, India, Qatar and Uzbekistan, acquired in the year. These new contracts have ensured the diversification of Italferr’s backlog into more profitable areas and led to more comprehensive risk management. Intragroup revenue has remained steady (+1% on 2015) as publicly funded infrastructural investments have recovered under the 2016 Stability Act, the “Get Italy Moving” decree and the flexibility clause approved by the European Union. Finally, the company had forecast the drop in revenue in the non-captive Italian market and, accordingly, is not particularly concerned since in 2015 this market enjoyed exceptional growth because of the works supervision contract that Italferr acquired for EXPO2015. To bolster international growth and consolidate it, Italferr has driven sales activities and international relationships on one hand, while on the other, it has continued developing its resources to expand the internal expertise needed to ensure that the company can compete in the complex global context. While the company’s efforts for these initiatives reduced the gross operating profit, in the light of the targets set and the results achieved, it proved to be a factor for success. 2016 was a positive year in terms of the net financial position as well, as the company strengthened its financial structure as it significantly contained invested capital. Finally, the year just ended lays the groundwork for the company’s ambitious ten-year plan, which provides for considerable expansion in size and an overall 76% increase in revenue over the ten years covered by the plan, with international business more than doubling. Italferr is poised to face new, complex challenges, and the path it has taken so far bears witness to the company’s ability and expertise in achieving its targets in the short and long term. 2016 Annual Report 7 Italferr S.p.A. Directors’ report 2016 Annual Report 8 Italferr S.p.A. KEY AND GLOSSARY NON-GAAP PERFORMANCE INDICATORS Below is a description of the criteria used to determine the most frequently used non-GAAP performance indicators in this report, which differ from the criteria applied to the financial statements and which management finds useful in monitoring the company’s and the group’s performance and believes reflect the results of operations and financial trends of its business segments: Gross operating profit: this is an indicator of the performance of operations and reflects the company’s core business only. It is calculated as the difference between revenue and operating costs, as shown in the reclassified statement of financial position and the reclassified income statement. Operating profit: this is an indicator of the performance of operations and is calculated as the algebraic sum of gross operating profit and amortisation and depreciation, write-downs, impairment losses (reversals of impairment losses) and provisions. Net operating working capital: this is the algebraic sum of inventories, construction contracts, current and non- current trade receivables and current and non-current trade payables. Other assets, net: these reflect the sum of receivables and advances from the Ministry of the Economy and Finance for grants, deferred tax assets, other current and non-current assets and other current and non-current liabilities. Working capital: this is the sum of net operating working capital and other assets, net. Net non-current assets: these reflect the sum of property, plant and equipment, investment property, intangible assets and equity investments. Other provisions: these reflect the sum of post-employment benefits and other employee benefits, the tax provision, the bilateral fund for income assistance, the provision for litigation with employees and third parties, the provisions for other sundry risks and deferred tax liabilities. Net invested capital (NIC): this is the algebraic sum of working capital, net non-current assets, other provisions and net assets held for sale. Net financial debt (NFD): this is a financial indicator calculated as the algebraic sum of bonds, non-current bank loans and borrowings and the current portion thereof, current bank loans and borrowings, current and non-current loans and borrowings from other financial backers, financial assets with the Ministry of the Economy and Finance for current fifteen-year grants, cash and cash equivalents and current and non-current loan assets. Equity (E): this is a financial statements

Load more