DIRECTORS’ REPORT AND FINANCIAL STATEMENTS as at 31 December 2017 DIRECTORS' REPORT 1. SHAREHOLDERS' MEETING 1st call: 30 April 2018 2nd call: 18 May 2018 2. AGENDA Financial Statements as at 31 December 207 SAGAT S.p.A. Società Azionaria Gestione Aeroporto Torino Strada San Maurizio 12 10072 Caselle Torinese (TO) www.aeroportoditorino.it Share capital € 12,911,481 fully paid in Company subject to the management and coordination of the company 2i Aeroporti S.p.A. Economic Administrative Register (R.E.A.) no. 270127 Register of Companies of Turin, Tax ID and VAT no. 00505180018 GENERAL CONTENTS 1. DIRECTORS’ REPORT FOR THE COMPANY as at 31/12/2017 Page 15 2. FINANCIAL STATEMENTS OF THE COMPANY as at 31/12/2017 Page 79 3. DIRECTORS’ REPORT FOR THE GROUP as at 31/12/2017 Page 145 4. CONSOLIDATED FINANCIAL STATEMENTS as at 31/12/2017 Page 167 5. ANNEXES Page 219 CONTENTS SHAREHOLDING STRUCTURE AS AT 31/12/2017 11 GOVERNANCE BODIES 13 1. DIRECTORS’ REPORT FOR THE COMPANY 15 as at 31/12/2017 SAGAT S.p.A. Highlights 2017 17 1.1 Report on the financial position and performance 18 1.2 The shareholder structure 25 1.3 The regulatory framework 25 1.4 Traffic 26 1.5 Analysis of the income statement 33 1.6 Analysis of the balance sheet 37 1.7 Analysis of the cash flow 41 1.8 Evolution of the main financial ratios 43 1.9 Aviation services 47 1.10 Retail services 47 1.11 Quality 48 1.12 Public relations and communication 53 1.13 The environment 58 1.14 Staff and organisation 61 1.15 Investments 66 1.16 Litigation 69 1.17 Privacy 72 1.18 Risk factors 73 1.19 Financial instruments 73 1.20 Equity investments 73 SAGAT Handling S.p.A. 74 Aeroporti Holding S.r.l. 75 1.21 Information on the management and coordination of companies 76 1.22 Relations with subsidiaries, associated enterprises, parent companies 76 and other enterprises subject to the control of the parent companies 1.23 Own shares and shares of the parent company 77 1.24 Research and development activities 77 1.25 Secondary offices 77 1.26 Foreseeable developments for 2018 77 1.27 Proposals of the allocation of the year-end result 78 CONTENTS 2. FINANCIAL STATEMENTS OF THE COMPANY 79 as at 31/12/2017 2.1 BALANCE SHEET AND INCOME STATEMENT OF SAGAT S.p.A. 81 2.1.1 Balance sheet of assets 81 2.1.2 Balance sheet of liabilities 85 2.1.3 Income statement 88 2.1.4 Statement of cash flow of SAGAT S.p.A. 91 2.2 NOTES TO THE FINANCIAL STATEMENTS OF SAGAT S.p.A. 93 2.2.1 Introduction 93 2.2.2 General principles 93 2.2.3 Drafting principles 93 2.2.4 Criteria followed in item valuation, value adjustment 94 and foreign currency translation 2.2.5 Balance sheet details 100 Balance sheet – Assets 100 Balance sheet – Liabilities and equity 114 2.2.6 Information on the income statement 125 2.2.7 Other information 132 2.3 REPORT OF THE STATUTORY AUDITORS OF SAGAT S.p.A. 137 2.4 INDEPENDENT AUDITORS’ REPORT ON THE FINANCIAL 141 STATEMENTS OF SAGAT S.p.A 3. DIRECTORS’ REPORT FOR THE GROUP 145 as at 31/12/2017 SAGAT Group Highlights 2017 147 3.1 Report on consolidated financial position and performance 148 3.2 Traffic 148 3.3 Analysis of the income statement 148 3.4 Analysis of the balance sheet 148 3.5 Analysis of the cash flow 153 3.6 Evolution of the main financial ratios 155 3.7 Aviation services 157 3.8 Retail services 160 3.9 Quality 160 CONTENTS 3.10 Staff and organisation 160 3.11 Investments 165 3.12 Equity investments 165 3.13 Litigation 165 3.14 Privacy 165 3.15 Risk factors 165 3.16 Own shares and shares of the parent company 165 3.17 Research and development activities 165 3.18 Financial instruments 165 3.19 Foreseeable developments for 2018 165 4. CONSOLIDATED FINANCIAL STATEMENTS 167 as at 31/12/2017 4.1 CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT 169 4.1.1 Consolidated balance sheet: assets 169 4.1.2 Consolidated balance sheet: liabilities 173 4.1.3 Consolidated income statement 176 4.1.4 Statement of cash flow of SAGAT Group 179 4.2 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 181 4.2.1 General principles and drafting principles for the consolidated 181 financial statements 4.2.2 Criteria applied in item valuation, value adjustment and foreign 183 currency translations in the consolidated financial statements 4.2.3 Details of the most significant items of the consolidated financial 189 statements 4.2.4 Other information 211 4.3 INDEPENDENT AUDITORS’ REPORT ON THE 215 CONSOLIDATED FINANCIAL STATEMENTS 5. ANNEXES 219 BALANCE SHEET AND INCOME STATEMENT OF 221 SAGAT HANDLING S.p.A. BALANCE SHEET AND INCOME STATEMENT OF 227 AEROPORTI HOLDING S.R.L 10 SHAREHOLDING STRUCTURE AS AT 31/12/2017 2i Aeroporti S.p.A. 75.28% FCT Holding S.p.A. 10.00% Tecno Holding S.p.A. 6.76% Metropolitan City of Turin 5.00% Own shares 2.96% Total 100% 11 12 GOVERNANCE BODIES BOARD OF DIRECTORS Giuseppe DONATO Chairman Roberto BARBIERI Chief Executive Officer Rosaria CALABRESE Director Rita CICCONE Director Jean Jacques DAYRIES Director Rosario MAZZA Director Paolo MIGNONE Director Elisabetta OLIVERI Director Laura PASCOTTO Director Daniele RIZZOLINI Director BOARD OF AUDITORS Roberto NICOLO’ Chairman of the Board of Auditors Ernesto CARRERA Standing Auditor Edoardo FEA Standing Auditor Lorenzo GINISIO Standing Auditor Renato STRADELLA Standing Auditor Alessandro COTTO Alternate Auditor Maddalena COSTA Alternate Auditor SECRETARY Dario MAFFEO 13 14 1. DIRECTORS’ REPORT FOR THE COMPANY AS AT 31/12/17 15 16 SAGAT S.p.A. HIGHLIGHTS 2017 TRAFFIC Torino Airport has recorded an unprecedented passenger traffic volume in one year, surpassing its previous record struck in 2016. In 2017 there have been 4,176,556 passengers in transit, corresponding to a 5.7% growth. INCOME RESULT The most relevant income components for the year 2017 are shown below, providing their comparison with the figures from the preceding year. The value of production, net of grants, amounts to €62,128 thousand and has increased by 9.6%, compared to €56,695 thousand recorded in 2016. The GOM amounts to €19,053 thousand (31% of the billing volume) and has increased by 23.9%, compared to €13,379 thousand recorded in 2016. The EBITDA amounts to €17,479 thousand and has increased by 16%, compared to €15,070 thousand recorded in 2016. The EBIT amounts to €12,421 thousand and has increased by 32.4%, compared to €9,380 thousand recorded in 2016. The EBT amounts to €14,535 thousand and has increased by 58.1%, compared to €9,195 thousand recorded in 2016. Net earnings amount to €11,087 thousand and have increased by 71.8%, compared to €6,453 thousand recorded in 2016. The net financial position is positive by €14,520 thousand and has decreased by €3,003 thousand compared to €17,523 thousand as at 31 December 2016. INVESTMENTS IN 2017 During the year about €6.4 million on aggregate were invested in infrastructures and systems that allowed the Company to improve the quality of the services provided and maintain high airport safety standards. SIGNIFICANT EVENTS OCCURRED AFTER 31 DECEMBER 2017 Passenger traffic data at Torino Airport showed, in the first two months of 2018, a slight decrease, owing exclusively to the elimination of the twice-daily low-cost flight between Turin and Rome. DEVELOPMENTS In a year when the concurrence of multiple causes not attributable to the Company is bound to curb any further growth potential for the traffic performance of Torino Airport (reduction in the number of passengers on the Turin-Rome route due to the exit of a low-cost carrier, failed growth of Alitalia due to continuing uncertainties about its future, uncertainties in ski charter flights from Great Britain after the Brexit, lower traffic potential of Turin's catchment area due to the conspicuous regaining of competitiveness of the nearby airport of Milan Malpensa), SAGAT's efforts will focus on increasing its network further, improving its commercial policies in support of carriers and its marketing initiatives to promote Torino Airport's services and flights offer, through the allocation of more resources to those budget items. Additional efforts will focus on improving the quality of the services offered to passengers to increase their loyalty to the airport and on detecting new sources of earning and growth, that might come, for instance, from turning the airport digital, through e-commerce platforms, to set the Company's commercial course towards a more effective and widespread economic exploitation of the retail areas inside the terminal. 17 1.1 REPORT ON THE FINANCIAL POSITION AND PERFORMANCE Dear Shareholders: further on in this report, the gratifying results recorded by the Airport in 2017 for growth in passenger traffic shall be examined in detail. As is known, this marks the continuation of a growth trend that, having begun in 2014, has continued in the four years since, making possible an increase of more than one million in the annual number of passengers served, for a total that now exceeds four million, representing overall growth of 32% for the four-year period. This rapid and significant growth in aviation operations, the result of a refocussing of the Company’s marketing strategy to increase domestic flights, as well as those to hub destinations and along new international point-to-point routes, has been accompanied by improved performance of the non-aviation retail sector, plus an exemplary attention to containing costs.