2012 ANNUAL REPORT PRYSMIAN GROUP CONTENTS CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 7 DIRECTORS’ REPORT 149 CONSOLIDATED FINANCIAL 10 Letter to stakeholders STATEMENTS AND 14 Prysmian Group EXPLANATORY NOTES 30 Directors and auditors 152 Consolidated statement of financial 33 Organisational structure position 37 Development strategies and objectives 153 Consolidated income statement 40 Prysmian and the financial markets 154 Consolidated statement of 50 Significant events during the year comprehensive income 54 Reference scenario 155 Consolidated statement of changes in 56 Group performance and results equity 60 Segment performance Energy business 156 Consolidated statement of cash flows 76 Segment performance Telecom business 82 Group statement of financial position 158 Explanatory notes 88 Alternative performance indicators 252 Scope of consolidation – Appendix A 94 Risk factors 260 List of investments pursuant to 108 Human resources art. 126 of Consob Regulation 11971 112 Research and development 261 Certification of the consolidated 116 An integrated supply chain financial statements pursuant to 128 Prysmian for the environment art. 81-ter of Consob Regulation 11971 130 Information systems dated 14 May 1999 and subsequent 132 Prysmian and sustainability amendments and additions 134 Corporate governance 142 Incentive plans 263 AUDIT REPORT 145 Significant events after the reporting period 145 Business outlook 146 Other information 147 Certification pursuant to art. 2.6.2 of the Italian Stockmarket Regulations regarding the conditions contained in art. 36 of the Market Regulations PARENT COMPANY 267 PARENT COMPANY 289 PARENT COMPANY FINANCIAL DIRECTORS’ REPORT STATEMENTS AND 270 Significant events during the year EXPLANATORY NOTES 272 Financial performance of Prysmian S.p.A. 292 Statement of financial position 276 Key results of the principal subsidiaries 293 Income statement 276 Research and development 293 Statement of comprehensive income 276 Environment and safety 294 Statement of changes in equity 277 Human resources 295 Statement of cash flow 277 Direction and coordination 278 Intercompany and related party 296 Explanatory notes transactions 344 List of equity investments in 280 Atypical and/or unusual transactions subsidiaries at 31 December 2012 280 Secondary offices 345 Certification of the Parent Company 280 Corporate governance financial statements pursuant to 280 Ownership structure art. 81-ter of Consob Regulation 11971 281 Incentive plans dated 14 May 1999 and subsequent 284 Risk factors amendments and additions 285 Financial risk management policies 285 Significant events after the reporting 347 AUDIT REPORT period and business outlook 286 Proposal to approve the financial 351 REPORT BY THE BOARD statements and to allocate net profit OF STATUTORY AUDITORS for 2012 DISCLAIMER This document contains forward-looking statements, specifically in the sections entitled “Significant events after the reporting period” and “Business outlook”, that relate to future events and the operating, economic and financial results of the Prysmian Group. By their nature, forward-looking statements involve risk and uncertainty because they depend on the occurrence of future events and circumstances. Therefore, actual future results may differ materially from what is expressed in forward-looking statements as a result of a variety of factors. 3 CONSOLIDATED FINANCIAL STATEMENTS > DIRECTORS’ REPORT 2012 milestones index Hunterston Edinburgh Manchester Connor’s Quay London WESTERN HVDC LINK, PRYSMIAN GROUP FOCUSES SUBMARINE, A RECORD PROJECT ON SMART GRIDS A GLOBAL BUSINESS 600 kV voltage, the highest ever for From Scotland to Turkey, from Vietnam From Scotland to Turkey, from Vietnam an insulated cable to Montenegro, Prysmian is a leader to Montenegro, Prysmian is a leader P. 27 P. 3 9 P. 49 AT THE HEART OF NEW YORK’S PRYSMIAN BRINGS FIBRE OFFSHORE OIL & GAS CONNECTIONS NEW WORLD TRADE CENTER TO BUENOS AIRES HOMES IN THE MIDDLE EAST High-tech elevator solutions with Selected by Telecom Argentina after Barzan project strengthens Prysmian Draka Elevator a tender attracting global interest Group’s penetration of a strategic market P. 7 5 P. 81 P. 87 4 | 2012 ANNUAL REPORT PRYSMIAN GROUP PRYSMIAN GROUP ACQUIRES UNDERGROUND CONNECTIONS FP TECHNOLOGY IN THE WORLD’S GLOBAL MARINE ENERGY IN THE MEDITERRANEAN MOST IMPORTANT BUILDINGS Enhanced submarine power cable Major role in reconstruction of Libya; Prysmian cables match construction installation capability contract with Maltese utility company excellence with excellence in safety P. 53 P. 67 P. 7 1 AT THE CENTRE OF THE EUROPEAN PIKKALA, NEW SUBMARINE PRYSMIAN GROUP AMONG TLC MARKET WITH SLATINA CABLE PLANT THE FOUNDERS OF NORSTEC Optical fibre cable production starts Inaugurated in Finland with an investment The association of leading infrastructure at the Romanian factory in Slatina of approximately Euro 40 million providers for wind power transmission P. 115 P. 127 P. 133 5 CONSOLIDATED FINANCIAL STATEMENTS > DIRECTORS’ REPORT 6 | 2012 ANNUAL REPORT PRYSMIAN GROUP CONSOLIDATED FINANCIAL STATEMENTS DIRECTORS’ REPORT 7 CONSOLIDATED FINANCIAL STATEMENTS > DIRECTORS’ REPORT 8 | 2012 ANNUAL REPORT PRYSMIAN GROUP CONSOLIDATED FINANCIAL STATEMENTS 7 DIRECTORS’ REPORT 122 Industrial activities 10 Letter to stakeholders 125 Quality 14 Prysmian Group 126 Logistics 18 Market approach 128 Prysmian for the environment 20 Global presence 130 Information systems 22 Vision, mission, values 130 Applications 24 Main financial and operating data 131 Infrastructure 26 Key financials 132 Prysmian and sustainability 28 Corporate structure 134 Corporate governance 30 Directors and auditors 134 Introduction 33 Organisational structure 136 Company organisational structure 34 Top manager 137 Board of directors 37 Development strategies and objectives 138 Board of statutory auditors 40 Prysmian and the financial markets 139 Organisational model (legislative decree 40 Ownership structure 231/2001) 42 Shareholder’s meetings 140 The risk management and internal 44 Financial market performance control systems relevant to the financial 48 Investor relations reporting process 50 Significant events during the year 142 Incentive plans 50 Principal projects acquired 142 Stock option plan 2007-2012 and commercial initiatives in the period 144 Long-term incentive plan 2011-2013 52 Finance and m&a activities 145 Significant events after the reporting 54 Reference scenario period 54 Macroeconomic scenario 145 Business outlook 55 Cable industry context 146 Other information 56 Group performance and results 147 Certification pursuant to art. 2.6.2 58 Income statement Of the Italian stockmarket regulations 60 Segment performance Energy business regarding the conditions contained 62 Energy business in art. 36 Of the market regulations 64 Utilities 68 Trade & installers 72 Industrial 149 CONSOLIDATED FINANCIAL 74 Other STATEMENTS AND 76 Segment performance Telecom business EXPLANATORY NOTES 78 Telecom business 82 Group statement of financial position 263 AUDIT REPORT 82 Reclassified statement of financial position 83 Equity 267 PARENT COMPANY 84 Net working capital DIRECTORS’ REPORT 85 Net financial position 86 Statement of cash flows 88 Alternative performance indicators 289 PARENT COMPANY FINANCIAL 94 Risk factors STATEMENTS AND 96 External risks EXPLANATORY NOTES 100 Internal risks 108 Human resources 347 AUDIT REPORT 112 Research and development 116 An integrated supply chain 351 REPORT BY THE BOARD 118 Sourcing OF STATUTORY AUDITORS 9 CONSOLIDATED FINANCIAL STATEMents > Directors’ Report LETTER TO staKEHOLDERS The Group fully achieved its EBITDA target, despite the still negative environment, with the Draka integration making an important contribution. Increased profitability and positive cash flow. These are the main drivers of our Group’s 2012 financial results. In a market troubled by continuing crises in some of the world’s major economies, Prysmian has achieved a positive performance in operating earnings, particularly in its high-tech value-added businesses. This result, combined with synergies from the integration with Draka, achieved faster than expected, has allowed us to fully reach the targets announced to the market. Market scenario The world cable market experienced a slowing in growth in 2012, reflecting the uncertainty of the macroeconomic environment and the reduction in investments primarily in Europe. As a whole, the entire industry saw major differences both between geographical regions and the various market segments. In geographical terms, a slight increase in demand was recorded in areas such as the Middle East, Asia and, to a lesser extent, South America. North America reported a moderate recovery in demand, while persistent recession in Europe affected investment, generating a consequent reduction in cable demand. Such sharp contrasts were also evident in the Group’s various market segments. Growth was reported by submarine cables and systems, thanks to development of offshore wind energy generation, by high voltage underground cables, by cables for the Oil & Gas industry driven by the recovery in oil prices, and by optical telecom cables, particularly in China. Conversely, there was stable or declining demand for power distribution cables and building wires, especially in Central and Southern Europe. Business performance Group Sales amounted to Euro 7,848 million compared with the 2011 pro-forma figure of Euro 7,973 million. Assuming the same group perimeter and excluding metal price and exchange