2013 ANNUAL FINANCIAL REPORT Disclaimer This Annual Report 2013 has been translated into English solely for the convenience of the international reader. In the event of conflict or inconsistency between the terms used in the Italian version of the report and the English version, the Italian version shall prevail, as the Italian version constitutes the sole official document. Corporate bodies of Ferrovie dello Stato Italiane SpA and Independent Auditors Board of Directors Chairman Lamberto Cardia CEO Mauro Moretti Directors Antimo Prosperi Mauro Coletta* Maria Teresa Di Matteo* Board of Statutory Auditors Chairman Alessandra dal Verme Regular members Tiziano Onesti** Claudia Cattani** Substitute members Paolo Castaldi Cinzia Simeone Member of the Court of Auditors responsible for control over Ferrovie dello Stato Italiane SpA Antonio Ciaramella 1 Ernesto Basile2 Manager in charge of the company’s Accounting documents preparation Vittorio de Silvio3 Roberto Mannozzi4 Independent Auditors PRICEWATERHOUSECOOPERS SpA *:Appointed to the position by the Shareholders’ Meeting of 9 August 2013, to replace Alberto Brandani and Stefano Zaninelli **: Appointed to the position by the Shareholders’ Meeting of 9 August 2013, to replace Giuseppe Di Giovanni and Giancarlo Filocamo 1 Holding office until 11 February 2013 2 Holding office from 12 February 2013 3 Holding office until 31 July 2013 4 Holding office from 1 August 2013 Ferrovie dello Stato Italiane Group 2 TABLE OF CONTENTS - Annual Financial Report 1 Letter of the Chairman 4 REPORT ON OPERATIONS 8 Corporate Governance 9 2013 consolidated results 24 Main events in the financial year 26 Sustainability 39 Human resources 40 Industrial relations 41 Environment 44 Safety 48 Macro-economic scenario 49 Customers 53 Performance of the relevant markets and of the national railway traffic 57 The traffic results of the main European Railway companies 61 The Group’s income statement and statement of financial position 63 Risk factors 71 Income statement and statement of financial position of Ferrovie dello Stato Italiane SpA 75 Relations with related parties 79 Investments 80 Research and development activity 89 Own shares of the Parent Company 89 Other Information 90 Judicial investigations and proceedings (arbitration, antitrust proceedings and proceedings before the public contracts supervisory authority, administrative proceedings) 90 Measures/transfers of public resources for the Group accrued in 2013 105 Significant events after the year-end 119 Outlook 120 Proposed allocation of the result for the year of Ferrovie dello Stato Italiane SpA 126 Consolidated financial statements 127 Notes to the consolidated financial statements 133 Annexes 222 Financial statements of Ferrovie dello Stato Italiane SpA at 31 December 2013 228 Separate financial statements 229 Notes to the separate financial statements 235 2013 Report on Operations 3 Letter of the Chairman Dear Shareholder, In 2013, the Ferrovie dello Stato Italiane Group also confirmed the strong growth in margins started in 2007, as well as, for the sixth consecutive year, the positive trend in the net profit for the year, which increased by more than 20% compared to 2012 (Euro 460 million against Euro 381 million). Continuing on the path that has been pursued in recent years, the Group has reported sharp improvements in all the interim margins. In particular, EBITDA showed an increase of Euro 112 million, equal to about +5.8%, compared to 2012, exceeding Euro 2 billion for the first time; EBIT showed an increase of Euro 99 million, equal to about 13.8%, compared to 2012, exceeding Euro 800 million for the first time, while the Profit before tax amounted to Euro 584 million, showing an increase of Euro 155 million, equal to 36.1%, compared to 2012. The enhanced soundness of the Ferrovie dello Stato Italiane Group, which is represented in the results reported above, is the essential prerequisite for setting prospective targets that are even more challenging and that are adequately described in the Group’s 2014-2017 Business Plan. In fact, the Plan, which was approved by the Board of Directors of Ferrovie dello Stato Italiane Spa on 19 February 2014 and was presented to the financial community on 25 March 2014, provides for an increase in revenues of up to Euro 9.5 billion (Euro 8.2 billion in 2012) in the four-year period. One of its main targets is an average 3.5% rate of growth in revenues per year, an increase which should be driven in particular by revenues from transport services, both by rail and road, which are expected to exceed Euro 7 billion in 2017; in its turn, EBITDA is expected to achieve Euro 2.5 billion (Euro 1.9 billion in 2012). Another feature of the Plan is a thorough review of business models, with a clearer-cut specialisation in market and universal services and of governance in the cargo sector, in which business units will be formed corresponding to the European corridors. It is also planned to develop transportation services strongly on foreign markets, in particular through the companies owned in Europe (Netinera group and TX Logistik group) and the engineering and certification companies (Italferr and Italcertifer). Strategies and objectives have been placed in a macroeconomic scenario in which the first weak signs of recovery are being glimpsed and which, in spite of the difficulties that persist, also offer concrete opportunities both for the whole country, such as EXPO 2015, and for the Group, such as the entry into service of the new Frecciarossa 1000 trains. As regards the performance of the offer, one feature of 2013 was the boosting of the “Market” segment and the gradual completion of service level diversification; the offer in said segment reported +13% compared to 2012. 2013 also saw the new competitor in the High Speed traffic segment fully operational. There were far-reaching changes in our pricing policy for all national and international passenger sector products (Frecce Trains and Basic Services), which involved the full review of the price structure proposed to our customers with a mixture of flexibility and low-cost: Base, Economy and Super-Economy fares. Furthermore, starting from April 2013, the Economy fares were also extended to the Executive service level, in order to harmonise the range and expand the potential market. The number of customers with the Cartafreccia loyalty card passed the 2.5 million mark during the year. This scheme was enriched with exclusive services, such as the possibility of buying fares at advantageous prices. Ferrovie dello Stato Italiane Group 4 At the end of the year, customer satisfaction data reported a level of overall travel satisfaction equal to 93.6%, showing an improvement, albeit slight, compared to the results recorded at the end of 2012, while the percentage of medium/long-distance trains in the “Market” segment arriving at destination on time or, in any case, in the band of 0–15 minutes of delay remained stable at a percentage over 96%. As regards Regional Transport, 2013 saw a 3.3% increase in traffic revenues compared to 2012. This change was mainly due to increased fares applied by the Regional Governments in order to setoff, albeit partially, the reduction in fees in some cases. Regional transport customer satisfaction data showed an improvement. Specifically, overall customer satisfaction passed from 71.9% in 2012 to 73.8% in 2013; on the other hand, there was a substantial improvement in the perceived quality of the cleaning services on regional trains compared to 2012, passing from 50.2% in 2012 to 54.8% in 2013 compared to 33% reported a few years ago. This result was achieved after a complete revision of the entire cleaning cycle and the numerous changes of contractors made in previous years. In the Cargo sector, railway traffic was affected by the difficult economic situation in the Italian market, reporting a decline in international traffic from and to Germany, Austria, France, Poland, Slovenia and Hungary, while domestic railway transport remained practically stable or slightly lower. As regards investments, the FS Italiane Group managed to give continuity to the measures scheduled in its Investment Plan, confirming its position as one of the major investors in the country, both with respect to its direct competitors and with respect to Italian companies operating in different sectors, even if it had to operate in a macroeconomic scenario 1 that was still unfavourable, with investment levels more than a quarter below those of 2007 . The Group’s Investment Plan, a fundamental element in the wider ranging recently approved 2014-2017 Business Plan, as we have already mentioned, aims at enhancing the country’s system of infrastructures, keeping them efficient and providing increasingly higher quality transport services, thus creating value to the benefit of the Italian business and production system. The total amount invested by the Ferrovie dello Stato Italiane Group in 2013 (Euro 3,895 million) continued the targeted trend of recent years, showing a slight growth (+0.1%) compared to the volume of accounting carried out in the previous year. The total amount of the FS Italiane Group’s investments are a part of the challenging programme of works with a value of about Euro 24 billion envisaged in the already mentioned 2014-2017 Business Plan. About Euro 15 billion of this sum is related to the Programme Contract between the State and RFI whose purpose is to maintain safety standards and improve the traditional railway network. Confirmation of this sum is subject to the decisions that the Government will take during the years to come on the basis of the financial resources available and the order of priority of the works that are to be completed in order to develop the country’s railway infrastructures. The remaining sum of over Euro 9 billion was found by self-financing/borrowing (of which an amount of Euro 6.4 million is intended for trains and technology serving the business, to improve customer experience, while an amount of Euro 1.7 million is intended for the High Speed/High Capacity network), i.e.