KEOLIS S.A. FINANCIAL REPORT 2018 CONTENTS 1. MANAGEMENT REPORT ...................................................... 3 Management Report of the Board of Directors at the Annual General Meeting on 14 May 2019 ................................................................4 Appendix 1 ...................................................................... 10 Appendix 2 ...................................................................... 12 Appendix 3 ...................................................................... 44 2. CONSOLIDATED FINANCIAL STATEMENTS ..............45 Key figures for the Group ............................................ 46 Consolidated financial statements ........................... 47 Notes to the consolidated financial statements ... 52 Statutory auditors’ report on the consolidated financial statements.............105 3. ANNUAL FINANCIAL STATEMENTS .......................... 108 Annual financial statements at 31 december 2018 ................................................109 Notes to Annual Financial Statements .................113 Information on subsidiaries and non-consolidated investments .......................128 Statutory auditors’ report ..........................................................................................142 1. MANAGEMENT REPORT | KEOLIS S.A. 2018 1. MANAGEMENT REPORT A. MANAGEMENT REPORT OF THE BOARD C. APPENDIX 2 OF DIRECTORS AT THE ANNUAL GENERAL STATEMENT OF NON-FINANCIAL PERFORMANCE . 12 MEETING ON 14 MAY 2019 . 4 1 n INTRODUCTION . 12 n ACTIVITY . 4 1.1. Business model . 12 n CONSOLIDATED FINANCIAL STATEMENTS . 6 1.2. Organisation . 14 1.3 Materiality of issues . 14 n ANNUAL FINANCIAL STATEMENTS . 6 2 n OUR MAIN ISSUES, n SUBSIDIARIES AND HOLDINGS . 6 POLICIES AND RESULTS . 15 n NOTIFICATION OF MAJOR HOLDINGS 2.1. Principle 1: Human Rights AND ACQUISITIONS OF CONTROL . 6 and fundamental freedoms . 15 n RESEARCH AND DEVELOPMENT ACTIVITY . 7 2.2. Principle 2: Fair business practices . .. 15 n FORESEEABLE TRENDS AND FUTURE OUTLOOK . 7 2.3. Principle 3: Dialogue with our public transport authorities and other stakeholders . 17 n SIGNIFICANT EVENTS SINCE 2.4. Commitment for our PASSENGERS . 19 THE END OF THE YEAR . 7 2.5. Commitment for our EMPLOYEES: . 28 n NON-FINANCIAL INFORMATION . 7 2.6. Commitment for the ENVIRONMENT . 33 n INFORMATION ON SUPPLIER 2.7. Commitment for COMMUNITIES . .. 37 PAYMENT DEADLINES . 8 2.8. Sustainable procurement . 38 n ALLOCATION OF PROFIT . 9 3 n CONCLUSION AND OUTLOOK . .. 41 n SHAREHOLDINGS . 9 4 n METHODE . 41 4.1. Correlation with regulatory obligations n EMPLOYEE SHARES IN COMPANY CAPITAL . 9 and international reference frames . 41 n AGREEMENTS COVERED BY ARTICLE L.225-38 4.2. Scope and period . 41 OF THE COMMERCIAL CODE . 9 4.3. List of quantitative information, performance n DIRECTORS AND CONTROL OF THE COMPANY . 9 indicators and definitions . 42 B. APPENDIX 1 D. APPENDIX 3 REPORT ON COMPANY GOVERNANCE . 10 TABLE OF EARNINGS FOR THE PAST FIVE FINANCIAL YEARS . 44 3 1. MANAGEMENT REPORT | KEOLIS S.A. 2018 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS A AT THE ANNUAL GENERAL MEETING ON 14 MAY 2019 Ladies and Gentlemen, (Norway), the win of Greensboro and the extension of Las Vegas (KTA, United States), mobilisation in Doha (metro and tram, Qatar) and the offensive win of Odense (tram, We have convened this Ordinary Annual General Meeting, in Denmark). accordance with legal, regulatory and statutory requirements to n■ The year was also marked by the continued turnaround of report to you on the activities of our Company during the year the Boston contract, and fragile results in Continental ended 31st December 2018 and submit for your approval the Europe. annual and consolidated accounts of that year. Acquisitions and investments In addition, your Auditors will also read their reports to you. In France, the Group acquired the Péglion transport group in the For our part, we are at your disposal to provide any clarification Alpes-Maritimes department and disposed of its shares in the and further information that you might find desirable. companies SEM VFD and Millau Cars. We will review below, successively, the various items of informa- Internationally the Group purchased the group Open Tours tion as required by applicable regulations. (school buses). The company’s financial position n ACTIVITY At 31 December 2018, the Group had net financial debt of €89.1 Business activity and development million, chiefly comprising external borrowings contracted in France and other countries which mature between now and France 2025. n■ The Group recorded solid commercial results, with an addi- tional €616 million of full-year contract revenue won on bids To manage its liquidity risk, the Group uses bank overdrafts, registered in 2018. The economic performance of all major short term financing facilities and daily liquid investments. networks recovered in the wake of the latest contract renewals in 2017. Keolis had its contract renewed in Tours, The Group manages its counterparty risk by only borrowing from Orleans, Arras, Saintes, Montargis and for the Rennes, Metz banks falling within the “Authorised” bank category. This cate- and Caen charters, also winning new contract bids in gory is defined according the banks’ ratings and their participa- Nancy, Chambéry, Bourg-en-Bresse and Charles de Gaulle tion towards the financing of the Group. Express (with RATP Dev). The urban contract tenders in Angers, Brest and Aix-en-Provence are still in progress and As a result of its operational, financial and investment activities, will be awarded in 2019. Commercial performance in Île-de- the Group is exposed to the following financial market risks: France was good, but French regions are experiencing n■ Interest rate risk; difficulties in renewing their contracts, in particular in the n■ Foreign exchange risk; South East due to high competition and pressure on the n■ Commodities risk. budgets of public transport authorities. n■ Measured by value, the offensive bids won by the Group To manage this exposure, the Group uses standard, liquid and compensated the defensive contracts that were lost. market-available derivative financial instruments: n■ Passenger revenue on urban contracts grew sharply by n■ forward and futures sales and purchases; 7.9% compared to 2017 across Keolis’ 15 largest urban n■ swaps; transport networks. n■ call options; n■ put options used in combination with call options to provide International symmetric or asymmetric collars. n■ Outside France, the Group’s business grew significantly, with the carryover effect of contracts that had started in The Group’s interest rate risk exposure results from its financial 2017: Manchester (tram, UK), Aarhus (tram, Denmark), debt, part of which is subject to variable interest rates. It is the- TWN (passenger rail, Germany), Zwenzwoka and Almere refore exposed to rate rises. The objective of risk management (passenger rail and bus, Netherlands) Foothill (bus, United is to protect the Group’s financial income/expense from an States), and Newcastle (multimodal, Australia). The Group increase in interest rates, while taking advantage of any decrease also won and took over the Wales & Borders contract (UK). in rates to the greatest possible extent. We can also note the renewal of the Bergen tram contract 4 1. MANAGEMENT REPORT | KEOLIS S.A. 2018 The Group also makes investments in foreign entities. To cover The consolidation scope effect is positive at +€28.6 million, the foreign exchange risks engendered by these investments, including including €16.5 million in France (Péglion +€16.1 mil- the Group uses derivative financial instruments to maintain a lion, Les Coccinelles and Les Kangourous 2 +€1.6 million, coun- reference exchange rate defined for the year. terbalanced by the disposal of Millau Cars for €(1.1)million), and +€12.1 million internationally (Open Tours in Belgium +€10.2 mil- The Group is exposed to the risk of the fluctuation of the price lion, Goolwa in Australia + €1.9 million) of diesel. This risk is partially hedged in the concession contracts signed with public transport authorities. For the remaining expo- The portfolio impact of contracts won and lost stands at sure, the Group implements a hedging policy using derivative +€262.4 million, comprising €(2.8) million in France (losses of financial instruments whose objective is to minimise the volatility Lorient €(30.8) million and Montbéliard €(9.2) million, compen- of Group profits. sated by the win of Besançon +€37.1 million) and + €265.2 mil- lion internationally: United Kingdom +€131.7 million (the start of Main risks and uncertainties the Manchester contract in the third quarter 2017+€39.8 million, Wales & Borders +€92.0 million), Germany +€55.1 million (TWN), The Group conducts its business in a constantly-evolving eco- the Netherlands +€51.5 million (Almere and Zwenzwoka), nomic, competitive and technical environment. Identifying and Sweden €(8.0) million (termination of Värmland), Belgium anticipating risks and finding ways of controlling them lie at the +€2.5 million, KTA +€13.0 million (start of Foothill in July 2017) heart of its concerns. and Australia +€19.4 million (start of Newcastle in July 2017 and DRT). The Group’s geographical footprint, its status as a market leader and key player in different modes of transport, and the nature of Organic growth within existing contracts stands at +€248.3 mil- the passenger transportation business all entail both intrinsic and lion or +4.8%, comprising +€97.7 million in France