ansaldo sts s.p.a

ANSALDO STS S.p.A.Registered Offi ce:16151 GenoaVia Paolo Mantovani, 3 - 5Paid-in Share Capital Euro 80,000,000R.E.A. n. 421689Register of Enterprises of GenoaTax Code 01371160662

www.ansaldo-sts.com

A Finmeccanica Company

ANSALDO STS S.P.A. 2012 ANNUAL REPORT

Ansaldo sTs s.p.A. 2012 Annual Report

(Translation from the Italian original which remains the defi nitive version)

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Contents

Company Bodies and Committees 4

Directors’ Report at 31 December 2012Directors’ Report at 31 December 2012 6 Key events of the year 6

Key performance indicators 6

Non-ifRs alternative performance indicators 11

sales performance 11

Revenue 13

investments 16

Key risks and uncertainties 17

Research and development 20

Human resources 22

investments held by directors 24

Company offices 24

financial disclosure 24

Litigation 25

Corporate governance and ownership structure pursuant to article 123-bis of Legislative Decree no. 58 of 24 february 1998 and subsequent amendments (the Consolidated finance Act) 29

statement pursuant to article 2.6.2.12/13 of the regulations for markets organised and managed by Borsa italiana s.p.A. 30

Data protection document 31

The environment 31

Disclosure on management and coordination and related party transactions 32

Disclosure on financial risk management and financial instruments 35

Events after the reporting date 35

Outlook 35

Proposal to the shareholders 36

Separate Financial Statements at 31 December 2012separate financial statements at 31 December 2012 and notes thereto 40 income statement 40

statement of comprehensive income 40

statement of financial position 41

statement of cash flows 42

statement of changes in equity 43

Notes to the separate financial statements at 31 December 2012 44 1. General information 44

2. Basis of preparation 45

3. Accounting policies 45

4. significant accounting policies 51

5. Effects of changes to the ifRs 51

6. segment reporting 51

7. intangible assets 54

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8. Property, plant and equipment 55

9. Equity investments 56

10. Related party assets and liabilities 59

11. Loans and receivables and other non-current financial assets 63

12. inventories 63

13. Work in progress and progress payments and advances from customers 64

14. Trade receivables and loan assets 65

15. financial assets measured at fair value through profit or loss 65

16. Tax assets and liabilities 65

17. Derivatives 66

18. Other current assets 66

19. Cash and cash equivalents 67

20. Equity 67

21. Loans and borrowings 71

22. Provisions for risks and charges and contingent liabilities 72

23. Employee benefits 73

24. Other current and non-current liabilities 74

25. Trade payables 74

26. Leases, guarantees and other commitments 75

27. Related party transactions 77

28. Revenue 79

29. Other operating income and expense 79

30. Purchases and services 80

31. Personnel expense 81

32. Changes in finished goods, work-in-progress and semi-finished products 82

33. Amortisation, depreciation and impairment losses 82

34. Net financial income/(expense) 82

35. income taxes 83

36. Earnings per share 85

37. Cash flows from operating activities 86

38. financial risk management 86

39. Key managers’ remuneration and directors’ and statutory auditors’ fees 91

40. Highlights at 31 December 2011 of the company that carries out management and coordination activities (article 2497-bis of the italian Civil Code) 93

41. information pursuant to article 149-duodecies of the issuer regulation 94

Statement on the separate financial statements 42. statement on the separate financial statements pursuant to article 81-ter

of Consob regulation no. 11971 of 14 May 1999 and subsequent amendments and integrations and article 154-bis.2 of Legislative decree no. 58 of 24 february 1998 and subsequent amendments and integrations 95

External Auditors’ Report 96

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Company Bodies and Committees

BOARD OF DIRECTORS(for the 2011 - 2013 three-year period)

ALEssANDRO PANsAChairman

GiANCARLO GRAssODeputy chairman

sERGiO DE LUCAChief executive offi cer

GiOVANNi CAVALLiNi2

MAURiZiO CEREDA1 2

PAOLA GiRDiNiO1

BRUNO PAVEsi2

TATiANA RiZZANTE

ATTiLiO sALVETTi1

GRAZiA GUAZZiBoard secretary

1. Member of the risk and control committee.

2. Member of the appointments and remuneration committee.

BOARD OF STATUTORY AUDITORS (for the 2011 - 2013 three-year period)

GiACiNTO sARUBBi Chairman

RENATO RiGHETTi

MAssiMO sCOTTON

SUBSTITUTE STATUTORY AUDITORS(for the 2011 - 2013 three-year period)

BRUNO BORGiA

PiETRO CERAsOLi

INDEPENDENT AUDITORS(for the 2012 - 2020 period)

KPMG s.p.A.

Company Bodies and Committees

Signalling and Transportation Solutions | Ansaldo sTs s.p.A. 2012 Annual Report

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Directors’ Report at31 December 2012

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Directors’ Report at 31 December 2012 | Key performance indicators

Directors’ Report at 31 December 2012

Dear shareholders,

Profit for 2012 totalled €50.7 million, compared to €53.3 million in 2011, and equity came to €344.4 million (2011: €321.9 million).

in the broader context of the global financial crisis, the company’s 2012 performance was positive and in line with forecasts. The delivery of systems in Riyadh and Genoa and of the Milan Line 5 and Brescia underground (in early 2013) represent technological successes and the achievement of targets.

Despite the serious financial and economic crisis, the company’s reference market is generally solid, with international growth rates of 2-3% p.a.. Competition between key international players has however dramatically intensified in recent years, leading to falling unit prices. The company is responding to this issue by introducing plans to contain production and operating costs.

With respect to corporate structure, in March 2012, Ansaldo sTs s.p.A.’s board of directors approved the closure of the subsidiary, Ansaldo sTs sistemas de Trasporte e sinalização Limitada, with registered office in Brazil. The decision was based on an in-depth analysis of the Brazilian market and AsTs’s position within it. The closure took effect from 23 May 2012.Any commercial opportunities arising in this country will be pursued in partnership with local operators or other legal entities of the group.

Key events of the year

2012 performance was satisfactory and in line with forecasts. The financial indicators are vastly positive, despite the fall on 2011 levels, mainly due to the completion of certain important projects and the start-up stage of new ones.

New orders totalled €531 million (2011: €1,499 million); the order backlog therefore totalled €4,342 million 31 December 2012 (31 December 2011: €4,471 million).

Revenue came to €657.4 million, down on the €722.4 million recognised in 2011. This trend was also reflected in operating profit, which came to €71.4 million, compared to €88.5 million in 2011. The company’s net financial position was €183.9 million (31 December 2011: €238.2 million) and net cash flows for the year came to a negative €54.4 million (2011: a negative €21.5 million), after the granting of dividends of €28 million (2011: €33.6 million).

On 9 July 2012, as approved by the board of directors on 23 May 2012, the company carried out the third instalment of the bonus issue approved by the shareholders in their extraordinary meeting of 23 April 2010.following the issue of this third instalment, the parent’s share capital now equals €80,000,000, comprising 160,000,000 ordinary shares of a nominal amount of €0.50 each.

Key performance indicators

The key performance indicators table below presents the key data relating to the company’s financial position and results of operations.

(€’000) 31.12.2012 31.12.2011

New orders 530,821 1,499,352Order backlog 4,341,713 4,471,099Revenue 657,426 722,368Turnover 591,143 627,757Gross profit 135,278 159,933Gross profit (%) 20.6% 22.1%Operating profit (EBIT) 71,427 88,494Adjusted EBIT 77,352 88,494ROS 10.9% 12.3%Profit for the year 50,738 53,286Net financial position (183,851) (238,235)Net cash flows (54,384) (21,464)EVA 37,495 49,693Headcount 1,526 1,570Research and development 15,347 15,592


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The above table shows a large order backlog and a drop in new orders in 2012. This is partly due to maxi contract to build the Honolulu underground acquired in 2011; the decrease in revenue is reflected in the operating profit and the different mix of contracts in the two years.Cash flows are impacted by the general economic crisis, which has made trade receivables collection more difficult. However, a significant €35 million was recognised at the beginning of 2013.The key financial indicators are presented below for the two business units, before eliminations:

Transportation Solutions (€’000) 31.12.2012 31.12.2011

New orders 234,465 1,104,639

Order backlog 3,068,631 3,220,447

Revenue 383,626 412,698

Turnover 356,737 379,859

Gross profit 63,746 66,113

Gross profit (%) 16.6% 16.0%

Operating profit (EBIT) 47,367 46,447

ROS 12.3% 11.3%

Operating working capital (124,986) (170,332)

Headcount 371 356

Research and development 1,695 1,425

The considerable drop in new orders in the Transportation solution business unit is partly due to the acquisition of the Honolulu contract in 2011.Revenue was down; some projects are nearing completion, such as the high-speed project, while the procurement stage has almost been completed for others which are now in the commissioning stage (Riyadh underground, Milan Line 5 and the Brescia underground).

Signalling (€’000) 31.12.2012 31.12.2011

New orders 318,654 450,707

Order backlog 1,456,141 1,428,920

Revenue 283,658 316,895

Turnover 244,710 256,223

Gross profit 71,086 92,720

Gross profit (%) 25.1% 29.3%


ROS 13.6% 17.5%

Operating working capital 53,393 34,663

Headcount 1,006 1,051

Research and development 13,653 14,167

Like revenue, new orders are down on 2011, due to the completion of projects related to High-speed railways and the set-up of rolling stock with the ATCs system.Note 6 “segment reporting” includes a reconciliation and the eliminations for the two business units.

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Reclassified income statement

Reclassified schedules are presented by nature and function for 2012 and the previous year, in order to provide full disclosure on Ansaldo sTs s.p.A.’s (“AsTs” or “Ansaldo sTs”) financial position and results of operations.

(€’000) 31.12.2012 31.12.2011

Revenue 657,426 722,368

Purchases and personnel expense (*) (585,649) (634,797)

Change in work-in-progress, semi-finished products and finished goods (229) (3,054)

Amortisation, depreciation and impairment losses (12,570) (5,258)

Other net operating income (**) 18,373 9,235

Adjusted EBIT 77,352 88,494

Restructuring costs (5,925) -


Net financial income (expense) 175 (3,282)

income taxes (20,865) (31,925)

Profit for the year before discontinued operations 50,738 53,286

Profit (loss) from discontinued operations - -

Profit for the year 50,738 53,286

Earnings per share (basic and diluted) 0.34 0.35(***)

Notes to the reconciliation between the reclassified income statement and the income statement included in the financial statements:(*) includes the captions “Purchases”, “services”, “Personnel expense” and “Accrual to (use of) the provision for expected losses to complete contracts” (net of

“Restructuring costs”), and net of “internal work capitalised”.(**) includes the net amount of “Other operating income” and “Other operating expense” (net of restructuring costs and impairment losses and Accrual to (use of)

the provision for expected losses to complete contracts). (***) Recalculated following the bonus issue of 9 July 2012.

2012 revenue totalled €657,426 thousand, down €64,942 thousand (-9%) on 2011, due to the completion of projects which were not matched in terms of volumes and profits by the projects started up in recent years (the Libyan contracts are also suspended, despite being recognised under the order backlog); revenue recognised on the italian market totalled €446,344 thousand (2011: €482,592 thousand) and €211,082 thousand on the foreign market (2011: €239,776 thousand).Total purchases and personnel expense decreased €49,148 thousand, due to the reduced production activities, and are 89.1% as a percentage of revenue (2011: 87.9%).EBiT came to €71,427 thousand (10.9% as a percentage of revenue,), compared to €88,494 thousand (12.3% as a percentage of revenue) in 2011.Adjusted EBiT totalled €77,352 thousand and the €5,925 thousand difference from the EBiT is due to the restructuring costs incurred as a result of the streamlining projects underway. Net financial income (expense) rose from an expense of €3,282 thousand (-0.5% as a percentage of revenue) in 2011 to income of €175 thousand (0.03% as a percentage of revenue) in 2012, mainly due to the dividends collected from the associate, international Metro services s.r.l. (€3,592 thousand). income taxes equalled €20,865 thousand (3.2% as a percentage of revenue), compared to €31,925 thousand (4.4% as a percentage of revenue) in 2011; as a percentage of pre-tax profit, they came to 29.1% (2011: 37.5%). This 8.4% decrease is mainly due to a tax credit which came into effect from 2012 represented by the lower iREs due for the years from 2007 to 2011 following the deductibility of iRAP on personnel expense (4.96%), as well as the increase in iRAP deductions (1.33%) and dividends from the associate, international Metro service s.r.l. (1.31%). Profit for the year totalled €50,738 thousand (7.7% as a percentage of revenue), compared to €53,286 thousand (7.4% as a percentage of revenue) in 2011.The income statement reclassified by function is as follows:

(€’000) 31.12.2012 31.12.2011

Revenue 657,426 722,368

Operating expense (522,148) (562,435)

Gross operating profit 135,278 159,933

Gross operating profit as a percentage of revenue 20,6% 22,1%

Overheads (62,642) (69,283)

Net operating expense (1,209) (2,156)



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The decrease in revenue over 2011 is due to both the Transportation solutions and signalling business units, particularly as a result of the decreased activities for Line 6 and the Riyadh underground, and on the ACC (central automated system) and trackside and on-board ATCs technology. Total average profitability was down 1.5% on last year, with signalling recognising a decrease and Transportation solutions an increase, due to the different mix of contracts in the two years.Overheads decreased €6,641 thousand, including €2,567 thousand due to savings in administrative overheads and €3,828 thousand to lower sales overheads.Net operating expense amounts to €1,209 thousand (2011: €2,156 thousand).

Reclassified statement of financial position

The group’s reclassified statement of financial position as at 31 December 2012 and corresponding previous year figures are set out below:

(€’000) 31.12.2012 31.12.2011

Non-current assets 279,635 273,674

Non-current liabilities (29,268) (24,997)

250,367 248,677

inventories 94,452 84,023

Contract work in progress (net) 178,390 144,528

Trade receivables 634,989 565,403

Trade payables (458,317) (374,517)

Progress payments and advances from customers (net) (529,911) (563,802)

Working capital (80,396) (144,366)

Provisions for risks and charges - current portion (5,569) (7,753)

Other current liabilities, net (*) (3,858) (12,855)

Net working capital (89,822) (164,973)

Net invested capital 160,545 83,704

Equity 344,396 321,939

Net financial position (183,851) (238,235)

Notes to the reconciliation between the reclassified statement of financial position and the statement of financial position included in the financial statements:(*) includes “Tax assets” and “Other current assets”, net of “Tax liabilities” and “Other current liabilities”.

The net amount of non-current assets and liabilities increased by €1,690 thousand, mainly due to the advances granted to the investees, Metro 5 s.p.A. and Metro Brescia s.r.l., totalling €3,832 thousand, which was only partially offset by the increase in deferred tax liabilities of €2,734 thousand; the latter was largely due to default interest income for 2012.

Net working capital was a negative €89,822 thousand, compared to a negative €164,973 thousand in 2011.The overall €75,151 thousand decrease is mainly due to the increase in work in progress and the decrease in progress payments and advances from customers due to the lower turnover of the year. Other current liabilities, net, improved following the recognition of a VAT receivable totalling €10,520 thousand, compared to €5,544 thousand in 2011. The increase in trade receivables (largely related to customers in the Campania region, Metro C and the Danish customer) and the increase in inventories due to advances paid to suppliers for the Taipei contract, are almost completely offset by the rise in trade payables for the Line 6 and Metro C projects. The €22,457 thousand rise in equity follows the recognition of profit for the year of €50,738 thousand and the payment of €28,000 thousand in dividends for 2011.

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Net financial position

The company’s net financial position at 31 December 2012 and 2011 is set out below:

(€’000) 31.12.2012 31.12.2011

Current loans and borrowings 271 852

Non-current loans and borrowings - 269

Cash and cash equivalents (73,771) (106,894)

Bank loans and borrowings (73,501) (105,773)

Related party loan assets (166,968) (61,313)

Other loan assets (28,443) (103,596)

Loan assets (195,411) (164,909)

Related party loans and borrowings 84,891 31,931

Other loans and borrowings 169 516

Loans and borrowings 85,061 32,447


The company’s net financial position of a positive €183,851 thousand at 31 December 2012 compares with a positive €238,235 thousand at prior year end. The €54,384 thousand decrease is mainly due to the net outflows of the year. specifically, loan assets of €195,411 thousand at 31 December 2012 (31 December 2011: €164,909 thousand) are comprised of two short-term deposits with the parent, finmeccanica, joint current accounts with the subsidiaries, Ansaldo sTs Usa inc., Ansaldo sTs UK and Ansaldo sTs Malaysia, and the joint current account with finmeccanica. Loans assets also include the euro equivalent amount of the Libyan dinar advance on the first of the two contracts in Libya and deposited in a local bank (€28,443 thousand).Net financial position includes the €70,643 thousand advance received from the Russian customer, Zarubezhstroytechnology (ZsT), for the project signed in August 2010 and suspended as from 21 february 2011, for the development of signalling, automation, telecommunication, power supply, security and ticketing systems on the sirth to Benghazi section in Libya. Discussions on how to handle the extension to the contract’s suspension period are underway with ZsT. The company’s reclassified statement of cash flows for 2012 is presented below, with corresponding prior year figures.

(€’000) 31.12.2012 31.12.2011

Opening cash and cash equivalents 106,894 115,500

Gross cash flows generated by operating activities 87,277 101,580

Changes in other operating assets and liabilities (42,813) (60,381)

Funds from operations 44,464 41,199

Change in working capital (63,969) (11,901)

Cash flows from (used in) operating activities (19,505) 29,298

Cash flows used in ordinary investing activities (10,255) (10,869)

Free operating cash flow (29,760) 18,429

strategic transactions (216) (6,301)

Dividends from consolidated companies 3,592 -

Cash flows used in investing activities (6,879) (17,170)

Dividends paid (28,000) (33,592)

Cash flows generated by other financing activities 21,261 12,858

Cash flows used in financing activities (6,739) (20,734)

Net decrease in cash and cash equivalents (33,123) (8,606)

Closing cash and cash equivalents 73,771 106,894

free operating cash flow decreased as a result of the need to fund working capital during the year, due both to contracts generating very positive cash flows in previous years and the more modest contribution of the new contracts.


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Non-IFRS alternative performance indicators

Ansaldo sTs’s management also assesses the performance of the group and the business units using certain indicators that are not defined by the ifRs.The components of each indicator are described below as required by CEsR/05 - 178b Communication:• EBIT: earnings before interest and taxes, before any adjustment. • Adjusted EBIT (Adj): is the EBiT as described above, net of the following items (where applicable): - any impairment of goodwill; - amortisation of the portion of purchase price allocated to intangible assets acquired as part of business combinations, pursuant to

ifRs 3; - restructuring costs in relation to defined and significant plans; - other income or expense not of an ordinary nature, i.e., related to particularly significant events unrelated to ordinary activities.• Free operating cash flow (FOCF): this indicator is the sum of cash flows from (used in) operating activities and cash flows from (used

in) investing and disinvesting in property, plant and equipment, intangible assets and equity investments, net of cash flows from acquisitions or sales of equity investments which are deemed “strategic” due to their nature or importance. The reclassified statement of cash flows set out in the paragraph entitled “Net financial position” shows how fOCf is arrived at for the current and previous years.

• Funds from operations (FFO): this indicator is the cash flows from (used in) operating activities, net of changes in working capital. The reclassified statement of cash flows set out in the paragraph entitled “financial position” shows how ffO is arrived at for the current and previous years.

• Economic value added (EVA): is the difference between EBiT, net of income taxes and the cost of the average invested capital of the current and previous years measured on the basis of the weighted average cost of capital (WACC).

• Working capital: comprises trade receivables and payables, work in progress and progress payments and advances from customers.• Net working capital: is working capital less provisions for current risks and other current assets and liabilities.• Net invested capital: is the sum of non-current assets, non-current liabilities and net working capital.• Net cash flows: are represented by the change in the statement of cash flows for the current and previous years.• Net financial position or debt: the calculation method used complies with paragraph 127 of the CEsR/05-054b recommendations

implementing Regulation (EC) no. 809/2004.• New orders: the sum of the contracts agreed with customers during the year that meet the contractual requirements to be recorded in

the orders book.• Order backlog: is the difference between new orders and revenue for the year (less the change in contract work in progress).

This difference is added to the backlog for the previous year.• Headcount: is the number of employees recorded in the relevant register on the reporting date.• Return on Sales (ROS): is the ratio of EBiT to revenue.• Research and development expense: total expense incurred for research and development, both expensed and sold. Research expense

taken to profit or loss usually relates to “general technology”, i.e., aimed at gaining scientific knowledge and/or techniques applicable to various new products and/or services. sold research expense represents that commissioned by customers and for which there is a specific sales order and it is treated exactly like an ordinary order (sales contract, profitability, invoicing, advances, etc.) in accounting and management terms. These types of costs are generally not capitalised given the fast-changing nature of the production sector in which Ansaldo sTs operates.

Sales performance

New orders acquired in 2012 totalled €530.8 million (2011: €1,499.4 million). The significant drop over 2011 is partly explained by the exceptional performance in 2011 due to the acquisition of the Honolulu contract.The results of the two business units are presented below:

Transportation SolutionsNew orders acquired during 2012 totalled €234.5 million, compared to €1,104.6 million in the previous year.

ITALY New orders totalled €98 million and comprise orders and variations related to: Line 1 of the Naples underground as part of activities on the Dante-Garibaldi section for the development of the temporary operating control room (shuttle); the upgrade of the definitive operating control room and for the safety project for the entire line for a total of €23.2 million; the settlement agreement for Line C of the Rome underground (€36 million) and the extension of Line B1 Conca d’oro-ionio (€2.5 million). in relation to the italian high-speed railway, orders for the Brescia-Treviglio contract (€12 million) and the Rome-Naples line (€11 million) were also acquired and there was also a variation, partly due to the price revision, related to the Genoa underground (€10 million).

With respect to the contract won for Line 4 (s. Cristoforo-Linate) of the Milan underground, the financing agreements for the joint venture comprising impregilo (lead contractor), Astaldi, AnsaldosTs, AnsaldoBreda, sirti and ATM Milano have not yet become effective but are expected to in the first half of 2013. However, based on the obligations taken on as part of the ancillary agreement and its appendices, the joint venture commenced the relevant activities.

REST OF EUROPEin Denmark, new orders totalled €120 million in relation to variations and price revisions on existing contracts. Ansaldo sTs was short-listed for the construction of the city of Aarhus’ first urban tram system; the tender is expected to be announced before the end of 2013.

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Directors’ Report at 31 December 2012 | sales performance

NORTH AFRICA AND THE MIDDLE EASTA €16 million order was acquired for the operation and maintenance of the APM Princess Noura University driverless underground in Riyadh, constructed and rolled out this year. Ansaldo sTs was successfully short-listed for the Riyadh driverless underground. The winner is expected to be announced in the first half of 2013.The offer for the Lusail tramway has been submitted, featuring the “Tramwave” overhead line-free solution. The winner is expected to be announced in early 2013.

ASIA PACIFICTenders are expected in Taiwan in the medium term for the extension of the Taipei Circular Line (driverless underground currently under construction by Ansaldo sTs), for Taipei’s driverless Wanda shulin Line, and to build a tramway system using the overhead line-free solution in Danhai.

SOUTH AMERICAActivities are underway in relation to the development of underground projects in santiago, Bogotà, Lima and Quito, as well as railway projects for which the best competitive approach is being put together.

CHINAinterest in the company’s innovative overhead line-free “Tramwave” solution is strong in China. A strategic agreement was reached in July with the China-based CNR Dalian and the Taiwan-based General Resources Company, licensing the TramWave® technology to the joint venture that will be formed by CNR Dalian and General Resources Company. The innovative TramWave® solution offers overhead line-free electric power supply and was developed and patented by Ansaldo sTs for use in urban transport systems, eliminating the visual impact of traditional overhead lines. it is hoped that this agreement will lead to a profitable and long-term collaboration so that the many opportunities offered by the Chinese tram market can be exploited.This agreement is also an ideal starting point for more far-reaching collaboration in the mass transit sector with the same partner companies.

SignallingNew orders in the signalling business unit for 2012 totalled €318.7 million (€450.7 million for 2011).

ITALYNew orders totalled approximately €206 million. Key new orders included the contract for the Brescia-Treviglio high-speed section (57 kms) for roughly €70 million, which includes the design, construction, installation and roll-out of the signalling (level 2 and multistation ERTMs (European Rail Traffic Management system/ETCs (European Train Control system)) and automation systems, and the €34 million order to overhaul the Brescia central automated system (ACC) which, due to the complexity of movements within the station areas, also requires the installation of a movement supervision system (ssA-CR).Other important new orders include those for the sale of components and maintenance of rail and on-board equipment for approximately €37 million, as well as several works on the existing high-speed line, such as those related to the completion and technological improvements on the Milan-Bologna and Rome-Naples sections for a total of €17 million.

NORTH AFRICA AND THE MIDDLE EASTin the United Arab Emirates, via the italo-indian joint venture comprising saipem-Tecnimont-Dodsal, the company won a contract (approximating €59 million) for the first line of the new shah-Habshan-Ruwais line under construction, owned by Etihad Rail (the United Arab Emirates railways). Under the agreement, signalling, automation and telecommunication systems and other minor systems for passenger and freight traffic management and control will be supplied for the line of some 260 kms, which will connect the shah industrial complex with the Ruwais port.

New orders were also acquired in South Korea during the year for the supply of on-board equipment to the Korean multinational Hyundai-Rotem for 80 locomotives of the Turkish Railways (TCDD) to upgrade the fleet to European ERTMs/ETCs standards (approximately €10 million) and for the supply of points machines for the Mersin-Toprakkale line in Turkey (more than €3 million).

Order backlog The company’s order backlog at 31 December 2012 totalled €4,342 thousand, compared to €4,471 thousand at the previous year end. specifically:- it amounted to €3,069 million at 31 December 2012 (31 December 2011: €3,220 million) in the Transportation solutions business unit and mainly related to: the Honolulu underground (around 27.2%); the Copenhagen underground (approximately 27.3%); the concessions to build the Naples and Genoa undergrounds (around 15.0%); the Taipei underground (6.2%); the Brescia and Milan automatic undergrounds (around 4.6%) and the construction of the Line C of the Rome underground (4.7%);

- it amounted to €1,456 million at 31 December 2012 (31 December 2011: €1,429 million) in the signalling business unit and mainly related to: the ACs-related projects both in italy and abroad (for around 64.7%, which includes the Libyan projects which are currently halted), the underground projects (around 14.4%), on-board and trackside ATCs (9.1%), high-speed railways (6.6%) and components and services (around 1.9%).


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Revenue

Revenue totalled €657.4 million (2011: €722.4 million), down €65 million, due mainly to the completion of important projects in italy and abroad. The results of the two business units are presented below:

Transportation SolutionsRevenue for 2012 came to €383.6 million (2011: €412.7 million). Volumes generated in italy accounted for 64% and those generated abroad for 36%. Production mainly related to the following projects: Line C of the Rome underground, high-speed railways, Copenhagen, the Milan underground Line 5, the Genoa underground, Alifana, Line 6 and Line 1 of the Naples underground, the Brescia underground, Riyadh underground, Honolulu underground and the Australian Rio Tinto project.

The key production activities are summarised below.

ITALY

HiGH-sPEED RAiLWAYs:interconnections continued to be rolled out and works performed under warranty on those lines already in operation in the high-speed line. With respect to the Rome-Naples section, arbitration between TAV and iRiCAV UNO consortium was concluded in June, with the award in favour of iRiCAV UNO. The customer has stated its intention to appeal against the award. Negotiations are underway for a settlement to finalise the outstanding litigation.The arbitration between Rfi/TAV and the iRiCAV DUE consortium was also concluded in March for the Verona-Padua section; under the award, Rfi/TAV shall partially compensate iRiCAV DUE and the 1992 Agreement is still valid and in effect.Rfi has already paid iRiCAV DUE the amount set in the award but has not yet forwarded iRiCAV DUE the definitive project for the section in order to commence the execution plan.

GENOA UNDERGROUND:The De ferrari/Brignole functional section was opened to the public in December.A variation enabling the conclusion of works in May 2014 is under approval by the Genoa municipality.

ALifANA REGiONAL LiNE:following the halt of all activities related to the Piscinola-Aversa section, it was deemed necessary to redetermine and agree a suspension of the physical activities so as not to incur extra costs. With reference to the Piscinola-Capodichino section, as the customer failed to fulfil its commitments, a review of the claims was commenced and there is a court order imposing the customer to pay outstanding receivables.

NAPLEs UNDERGROUND LiNE 6:The progress of works for the year was in line with the schedule; it mainly comprised the continuation of civil works on the sites related to the sixth Rider (Mergellina-Municipio functional section) and progress on the testing of the signalling system’s trackside equipment.specifically, the civil works on the stations A. Mirelli and s. Pasquale are at an advanced stage (the excavation has reached the bottom and construction has commenced of the internal structures), while the Chiaia and Municipio stations are still subject to various issues compromising the normal progress of the executive stage.The contract manager delivered the works for the technological systems in November, thus enabling the commencement of the procurement process which will take place in the first few months of 2013 with a view to having the main systems ready for testing by year end.

ROME UNDERGROUND LiNE C:in 2012, CiPE (interministerial economic planning committee) approved funding for the settlement agreement between the parties and the T3 section for which the contractual formalisation is yet to take place. With reference to the progress of on-site activities, testing (including integrated system testing) is substantially complete on the Pantano-Torre Gaia section. integrated system testing is underway for the Torre Gaia-Centocelle tunnel section, which is the first to be rolled out. Certain variations have become necessary for Metro C, reducing work shifts dedicated to testing and pre-operational activities. Consequently, Roma Metropolitane and Metro C are working on a new roll-out plan which foresees the above activities and which provides for the launch of the pre-operational stage by the general contractor in the first part of 2013 directly on the Pantano-Centocelle section, to avoid efficiency losses.

MiLAN UNDERGROUND LiNE 5:Assembly activities have been completed for the functional section from Bignami to Zara and the systems rolled out. The ATC proof tests and final integrated system testing have been completed. The functional section will be rolled out in february 2013. No particular issues have arisen in relation to the activities to complete the Zara to Garibaldi section and its roll-out is slated for the end of 2013.With reference to the line’s extension from Garibaldi (excluded) to the san siro station, the executive design is substantially complete and orders for all main supplies have been issued. Testing of the signalling and telecommunications materials is nearing completion. Due to delays in delivery from the municipality, there is presently a difference between the final date for the work compared to the contractually-agreed programme. An agreement has been reached with the Milan municipality for a situation that, although on a smaller scale (skipping some stations), will allow the partial opening of the Garibaldi to san siro line by the contractually-agreed date of April 2015 (in time for EXPO 2015) and the completion of all works and the opening of the complete line by October 2015.

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Directors’ Report at 31 December 2012 | Revenue

NAPLEs UNDERGROUND LiNE 1:During the year, the technological works were completed in relation to the Toledo station opened in september.Activities are also underway on the other sites that will lead to the completion of the Dante-Garibaldi section in its final configuration, except for the Municipio and Duomo stations, by the end of 2013.

BREsCiA UNDERGROUND:The procurement and assembly activities have been completed and the integrated system testing for the start-up (first year of commercial operation) configuration is substantially complete. Performance testing, which involves a greater number of vehicles, is yet to be completed. The system is at a pre-operational stage and ministerial approval for the start-up of commercial operations will be received in March 2013.

REST OF EUROPETHEssALONiKi UNDERGROUND:Technical meetings continued with the customer, Attiko Metro, to formalise the technical acceptance of the compliance matrix of the CBTC signalling system, and concluded positively in December. With respect to the general final design, the customer has officially approved the Greek version of the Telecom system and partially approved that of the security Management system (sMs); the English version for the third rail system has been partially approved and the approval procedure for depot equipment is almost complete. A remedy of petition was formally brought before the Greek court at the end of November, representing the parent’ s claim for damage incurred during the design stage. Moreover, an official claim was lodged in October with the joint venture for the ATC signalling system proposed during the bidding stage and never accepted by the customer. internal consultations and analyses also continued with a view to agreeing new timelines between the members of the joint venture.

COPENHAGEN:All detailed design documentation (“DD”) was issued in the fourth quarter of 2012. DD milestones for the CMC (civil works for the depot) and passenger vehicles subsystems have been reached. The supplier of civil works for the depot has completed the activities related to the foundations of buildings E (internal washing) and f (external washing). Activities are underway for the construction of buildings A, B, C and D (electricity substation, offices and depot workshop), cable laying and piping.The first factory-based testing of power supply and depot workshop equipment has been successfully completed.

NORTH AFRICA AND THE MIDDLE EASTRiYADH AUTOMATED PEOPLE MOVER sYsTEM (APM):The building design activities have been completed, as have the interfacing activities with the civil works. All monitoring activities have also been completed, as well as the key activities for roll-out. The system has been running automatically since september 2012; at such time, following the signing of the contract, AsTs commenced operation and maintenance activities. As well as activities necessary to consolidate system performances, the roll-out of the automated depot equipment (AMR: automatic meter reading, MMis: man-machine interface systems and the washing plant), the roll-out of the automatic operation of some vehicles (five vehicles were not available for the implementation) and integrated system testing are yet to be completed.Once these pending issues have been resolved and system performance established, system demonstration activities necessary for the system’s handover can commence by mid 2013.

AMERICAHONOLULU RAiL TRANsiT PROJECT:Approval of the first of three planning stages (definitive design) is underway and activities related to the second stage (interim design) are commencing).The customer officially approved the works schedule in November 2012. subcontract agreements between Ansaldo Honolulu JV and key electrical traction, telecommunications and security and fire prevention sub-suppliers have been signed in recent months.

ASIA PACIFICTAiPEi UNDERGROUND CiRCULAR LiNE:The customer divided the last civil works package, which had not yet been awarded, into two contracts; only the first of these has been awarded.An extension of time was agreed with the customer at the end of 2012 and a new CBs (contract baseline schedule) will be drawn up in the first few months of 2013. DDR (definitive design review) activities are being completed, which should be approved by the end of 2013, after which manufacturing activities can commence.

SignallingRevenue totalled €283.7 million for 2012 (2011: €316.9 million). Production activities in italy accounted for €205.8 million (2011: €209.3 million) and abroad for €77.9 million (2011: €107.6 million).in italy, volumes in the ACC (central automated system) sector in particular increased due to the project for the technological upgrade of the Turin-Padua section and the Genoa junction, while activities on the original high-speed sections were completed with the finalisation of the related interconnections and the activities related to the set-up of the rolling stock with the on-board ATCs system. While ACC production increased in italy, it decreased abroad, due to the interruption of the Libya 1 and Libya 2 contracts and the lower volumes in Turkey, which were offset only partly by increases in the United Arab Emirates project.


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ITALYHiGH-sPEED RAiLWAYs:The high-speed programme for the original sections (Turin-Milan-Bologna-florence-Rome-Naples) is largely complete. Works continue on systems to resolve minor issues that do not compromise the safety of train operations. simultaneously, the activities necessary for the complex technical/administrative testing procedure continue for each section.Two separate upgrades closely related to the activation of other systems on the Turin junction were successfully commenced on the Milan-Turin high-speed section. The second and final stage of the Bologna connector was also commenced, where AsTs is involved on an ad hoc basis.financing for the new Treviglio-Brescia high-speed section was also finalised in December, making the contract operational to all effects. Engineering activities were ramped up significantly in December in order to meet the initial tight deadlines.

CENTRAL AUTOMATED sYsTEM (ACC):in the station equipment line, activities continued on several projects, including: the final stage of the Mestre ACC, Trento – Malé ACC, Tel station (Merano-Malles) ACC, Rebaudengo ACC (system delivered to the customer and rolled out in December 2012), Palermo Centrale ACC (finalisation of cabin installation and related power supply), the Genoa junction ACC (materials supply) and the upgrade of the Voghera ACC. The ACC in Chieri was rolled out. The works for the Brescia ACC were also delivered in December 2012 and design activities commenced. following the customer’s clarifications while work was in progress, a variation still has not been finalised for the Turin-Padua section. Delivery of the executive plan for the first variation enabled the resumption of the detailed execution planning.

UNDERGROUND RAiLWAYs:Production in italy related mainly to the roll-out of the De ferrari-Brognole section of the Genoa underground and Line B1 of the Rome underground and the extension of Line 1 of the Naples underground.

TRACKsiDE ATCsAs reported previously, the set-up related to the Automatic Train Control system (ATCs) for Rete ferroviaria italiana (Rfi) is coming to a close.

ON-BOARD ATCs:in the On-board systems line, production mainly related to the supply of new rolling stock to AnsaldoBreda s.p.A., stadler (flirt train ATCs set-up for strutture Trasporto Alto Adige and set-up options for other flirt trains for ferrovie Nord Milano and Ticino-Lombardia consortium), Vossloh and siemens. specifically, the company continued to supply Vivalto double-decker carriages to Trenitalia for high-frequency trains (TAf) and Electric Multiple Unit (EMU) bidirectional trains.Activities also continued for the development of ERTMs systems for the new Zefiro V300 high-speed trains for the Trenitalia fleet.finally, negotiations were finalised with Trenitalia for the contract to upgrade the ETR 500 fleet and establishing the fees for additional services requested under the ATCs master agreement.

sCC (WAYsiDE sYsTEMs):The contracts for sCC systems are being completed in the order established in the riders and the analytical accounts has been finalised. significant volumes were generated by the Palermo sCC alone. Reconfigurations of systems already rolled out continue, as do the revamping/consolidation under Rfi’s CTC (central traffic control) upgrade programme.

MAiNTENANCE AND sERViCE AND COMPONENTs:Despite the slight decrease in volumes, increased component sales volumes were recognised during the year due to progress on orders with Rfi and AnsaldoBreda, as well as assistance and maintenance mostly on on-board maintenance systems of Trenitalia rolling stock (both ETR 500 and traditional) and Rfi’s high-speed, ACC, ATCs and sCC systems.

REST OF EUROPEHiGH-sPEED RAiLWAYs:Activities in Germany were cut to a minimum in relation to both the POs (Paris-Ostfrankreich-südwestdeutchland) project and the set-up of the Rostock-Berlin line, pending the customer’s review of the project inputs.The customer has requested an extension to the scope of work for the on-board project to supply 30 multistandard facilities for 15 Velaro high-speed trains. Train delivery, certification and component activities proceeded.

in sochi, Russia, assistance was provided in assembling itarus RBC (radio block centre) and power supply systems for the roll-out of the ERTMs standard in Russia and the communication protocol testing stage is progressing.

UNDERGROUND RAiLWAYs: in respect of activities related to underground systems, production carried out abroad mainly related to the Ankara underground contracts, comprising design activities and the continuation of on-site installation for the first lot.

ACs - CENTRAL sTATiC sYsTEM:in Turkey, in-depth design activities continued for the Mersin-Toprakkale line, as did on-site installation.

ON-BOARD ATCs:Activities necessary to open the building site commenced for the contract with the Greek railways following the resumption of works ordered by the customer.

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Directors’ Report at 31 December 2012 | investments

NORTH AFRICA AND THE MIDDLE EASTACs:in Libya, activities for the project to develop the signalling, telecommunications, security and power supply systems for the Ras Ajdir–sirth and Al Hisha–sabha sections were suspended straight after the upheaval started, and they have not yet recommenced.in a letter dated 21 february 2011, the customer, a construction company of the Russian railways, Zarubezhstroytechnology (ZsT), also suspended a project to develop a similar system for the sirth–Benghazi section. Negotiations are underway with this company to agree an extension to the period of the contract’s suspension. it is presently difficult to say when production for these contracts will start up again, given the situation in the country. As previously reported, the currently recognised asset is more than offset by the amount of progress payments and no probable risks are deemed to exist that could compromise the company’s present financial position and results of operations (reference should be made to note 13 for details on the related accounting impacts). Works in Tunisia are almost complete and negotiations are underway with the customer for the partial extension of the work schedule so as to avoid the application of penalties. in the United Arab Emirates initial activities linked to preliminary design were completed and interim design and procurement activities are underway for the Abu Dhabi project (shah-Habshan-Ruwais Line). initial fAT certifications were successful for the RBC buoys and cabinets.

ASIA PACIFICHiGH-sPEED RAiLWAYs:in China, the ZhengXi Line project is almost complete, with activities relating to the transfer of technology (ToT) to the local partner, Hollysys, which is subject to final approval by MOR (the Ministry of Railways of China).On-board systems issues have been resolved and laboratory and on-site testing carried out together with the partner, Hollysys. This entailed the release of a new version of the on-board software featuring a safety case, which has already been installed on the trains. Certain cabling hardware modifications necessary to resolve the issues are currently being defined in conjunction with MOR.

UNDERGROUND RAiLWAYs:The Calcutta underground project is still in its early stages with the start-up of engineering, procurement and contract management activities.

Investments

investments in property, plant and equipment and intangible assets and deferred expense recognised in 2012 approximated €5.2 million.

They may be analysed as follows:•Buildings €0.2 million•Plant €0.7 million•Equipment €0.8 million•Otherassets €0.6 million•Licencesandsoftware €1.2 million•Capitaliseddevelopmentexpense €0.4 million•Assetsunderconstruction €0.3 million•Assetsunderdevelopment €1.0 million

The satellite and Rail Telecom project was launched in 2012. This is a development plan to include satellite technologies in the new railway signalling systems. Costs of €819 thousand were incurred in 2012 and capitalised as development expense, net of grants received of €453 thousand. The project is co-financed by the European space Agency and the Galileo supervisory Authority.Assets under development reflect progress on the CMMi (Capability Maturity Model integration) project launched in 2011, consisting of an improvement initiative aimed at software development within the sPP segment and which increased €0.9 million in 2012.


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Key risks and uncertainties

The risks described below stem from a consideration of the features of Ansaldo sTs group’s market and business, together with the key findings of the updated risk process assessment. Risk assessment aims at identifying the main risks for those processes identified as relevant, and the related mitigating actions, as well as defining additional actions to be taken to further reduce the risk or improve process performance.

Ansaldo sTs’s risk assessment process is based on the Committee of sponsoring Organisations of the Treadway Commission’s (COsO) internationally-recognised Enterprise Risk Management framework and seeks to integrate risk assessment into the processes of planning, pursuing corporate targets and internal control in order to create value while properly managing risks and exploiting opportunities.

The key risks and uncertainties faced by Ansaldo sTs and the group are outlined below following the classification adopted by the group (strategic, operational, financial and iT risks). Risks may exist that have not yet been identified or that are deemed immaterial but which could nonetheless impact group operations.

Reference should be made to the notes to the financial statements for information on the management of financial risks (market, liquidity and credit).

Strategic risksA) Changes in the macroeconomic and market context and streamlining programmesAnsaldo sTs group operates internationally and is exposed to risks arising from macroeconomic changes and a reference market presenting the greatest opportunities in emerging nations and those with the highest growth rates. Projects are also tending to grow in size and scope and there is an increasingly consolidated trend towards the standardisation of products and technological solutions, especially in the signalling business segment. Although overall market volumes are growing strongly, competition is more intense, pushing down prices, and this market situation could negatively impact Ansaldo sTs group’s competitive edge and performance. further market consolidation following siemens’ purchase of invensys’ signalling business unit and ongoing uncertainty as to the ownership and operating structure of AnsaldoBreda (the key partner in the vehicles business segment) could also have a further negative impact on the group’s competitive position.

Macroeconomic factors that could impact the group’s operations include the growth rate in the reference countries and public spending on infrastructure. The present uncertainty in financial markets, the slowdown in international economic growth and the sovereign debt crisis and consequent plans to reduce public debt (both underway or announced) in various countries could generate delays or reductions in new orders, delays in payments and less favourable financial terms on new contracts, having a negative impact on group performance.

Given the many variables in the macroeconomic and market context, the group’s strategy may not be fully up to date and adjusted, with a negative impact on Ansaldo sTs group’s competitiveness and performance.

A key element of the company’s strategy is to optimise its operating structure by standardising the solutions and products offered and greater resource use efficiency/optimisation in project implementation. streamlining projects commenced in 2010 to reduce both external and internal costs via operating process optimisation. The anticipated benefits have been partly seen, especially in administrative and sales overheads. further benefits are expected from the projects commencing or currently being rolled out to give the company’s operating procedures an interfunctional focus.

Progress is subject to ongoing and structured monitoring given the risk that plans to streamline the company’s operating structure may not be implemented as planned or that their results are weaker than expected or take longer than expected, thus negatively affecting the company’s profits.

B) Innovation: a competitive factorThe group’s business units of transport and signalling solutions feature a high level of technological innovation and this represents an important competitive factor.

Ansaldo sTs group’s ability to anticipate technological changes and implement an efficient investment policy is therefore paramount. if it fails to accurately assess innovation requirements, the contents of innovation and development projects, their benefits and related priority, the group runs the risk of not responding to market needs, a low return on investments in innovation/the project, and lost sales.

Processes to determine the product portfolio and the regular assessment of products’ technical competitiveness are in place to mitigate these risks.

The features and degree of technological innovation of the group’s products and technical solutions generate a risk of obsolescence. There are specific processes in place to ensure its effective management.

Operational risksC) Country risk for new marketsThe group’s policy of penetrating new markets, particularly those with the highest rates of development, expose it to risks such as: political, social and economic instability, not accurately evaluating local legislation (as applies to companies, tax and signalling system validation), the challenge of protecting intellectual property, exchange rate fluctuations, as well as the creditworthiness of counterparties, which can negatively impact the group’s financial position and results of operations. Country risk is assessed when the group decides which offers and bids to make. How to mitigate the risk and the formalisation of any mitigating actions are also contemplated at the time the proposals are prepared.

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Directors’ Report at 31 December 2012 | Key risks and uncertainties

Reference should be made to the paragraph of this report covering the halt of the contracts in Libya due to the riots in that country and the accumulated delays on the Greek contract which are exacerbated by Greece’s current economic woes.

D) Reliance on public customers and construction contractsGroup operations are highly dependent on public customers and, particularly in the transportation solutions business unit, on construction contracts of a significant amount.

Delays, amendments, revisions or cancellations of one or more significant contracts acquired could negatively impact the group’s operations and its financial position and results of operations.

Assessing contract contracts using the percentage of completion method requires the estimates of costs to complete the activities, project risks (technical, legal, tax and commercial) and contract progress. These estimates are based on assumptions related to the impact of future events which, by their very nature and given the complexity of the projects underway, may not occur as envisaged, thus negatively impacting the project’s financial and economic performance.

The following factors mitigate such risks:- market diversification and monitoring of country and compliance risk;- structured project review processes involving senior management;- the regular review and adjustment of contract estimates;- the adoption of risk management processes both at the time the offer is made and throughout project implementation, as well as lifecycle management processes involving the regular comparison of physical and accounting progress and phase review processes.

E) Budgeting and risk management project planningineffective project control processes could mean the project team cannot implement the project within the set budget and timeframes, especially complex projects. Likewise, risk management may not be effective if based on incomplete or inaccurate information, or if it is not adequately defined and monitored. These risks could cause delays in identifying issues during project roll-out and inaccurate reporting and planning, with a consequent negative impact on the group’s financial position and results of operations.

To mitigate this risk, there are formalised and monitored processes to check physical and accounting progress and risk management, clear allocation of responsibilities within the project team, managerial review of project performance, review of the estimates at the time the bid is made and an independent review carried out by the risk management department. specific initiatives are underway to improve the design of the group’s control processes.

F) Third parties (subcontractors, sub-suppliers and partners)The group makes considerable use of subcontractors to supply subsystems or assembly and installation services and of subsuppliers for goods or services in both its business units. The group’s ability to fulfil its obligations to customers therefore relies on both subcontractors and subsuppliers properly fulfilling their contractual obligations. A breach thereby could in turn cause a breach by Ansaldo sTs, negatively impacting its reputation and, unless it is possible to obtain compensation from the subcontractors and subsuppliers, the group’s financial position and results of operations.

Moreover, particularly in the transportation solutions business unit, the group also carries out contracts in conjunction with other operators. in these cases, each operator generally has joint and several liability vis-a-vis the customer for the completion of the entire contract. in the event of a breach or damage caused to the customer by an operator, Ansaldo sTs could be called on to replace the operator causing the breach or damage, and to compensate the damage caused to the customer in full, without prejudice to the group’s right of recourse vis-a-vis the defaulting operator. if the right of recourse against the operator responsible for the breach or damage is ineffective or protracted, this could negatively impact the group’s operations as well as its financial position and results of operations.

Moreover, the preliminary assessment and consequent selection of partners, subcontractors and subsuppliers in new markets may be inadequate, with negative impacts on the group’s order backlog, reputation, financial position and results of operations and on the effectiveness of partnership governance (for instance, differences of opinion between the partners, misalignment of risks and costs/benefits for the individual partners).

To mitigate these risks, the group has processes in place to select and evaluate subcontractors and subsuppliers, it works with known and reliable partners, it defines, agrees and manages appropriate contractual and JV clauses, it has risk management processes, and it requests adequate guarantees, where applicable. These processes involve specific scouting and assessment activities when choosing subcontractors and partners in new markets. initiatives are underway to improve the identification and evaluation of subcontractors and subsuppliers in the bid stage.

G) Adequacy of and efficiency in developments and technical referencesDevelopment projects that do not come in on time and on budget or that do not clearly understand and identify the requirements could negatively impact profits, delivery times and customer satisfaction. Moreover, if the group does not have adequate market and operating references for products, this could lead to lost sales and non-compliant project implementation, negatively impacting the group’s competitiveness and its financial position and results of operations.

Planning and control processes are in place for development activities to ensure proper priority is given, and timing and cost controls. The risk that the group may not have adequate references for new products is carefully assessed at the time the bid is considered and managed through recovery plans monitored by senior management during project roll-out.


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H) Liability to customers or third parties for product defects or delivery delaysTechnological complexity and tight delivery times for group products and systems could leave the group liable for delays in or failure to supply contractually-agreed products or services, for their non-compliance with customer requirements (for instance, due to design or construction faults) and for breaches of and/or delays in marketing, the provision of post-sales services and product maintenance and servicing. Moreover, many products and systems supplied by the group are subject to certifications and approval, including by third-party bodies.

such liability could be directly attributable to the group or to third-party operators such as subsuppliers or subcontractors. These risks could negatively impact the group’s operations, its financial position and results of operations and its reputation, and could also result in the group incurring costs to repair faulty products or their withdrawal from the market in extreme cases. Even if adequate insurance is in place, the sum insured could be exceeded or the premiums could be raised following a claim, negatively impacting the group’s financial position and results of operations.

To mitigate these risks, the group agrees specific insurance coverage, carefully supervises its engineering, validation and returns monitoring processes and identifies mitigating actions and provides for contingencies in the bid quote in conjunction with the risk management process.

I) Legal disputesThe complexity of dealings with third parties (customers, subcontractors/subsuppliers and partners), the content of systems and products developed, as well as specific business risks expose the group to a significant risk of legal disputes. Legal disputes could also relate to the awarding of bids. The settlement of disputes could be complex and take a long time, leading to delays in completing projects and negative impacts on the group’s operations and its financial position and results of operations.

To mitigate this risk, there are risk management processes in place during both the bid and management stages, contractual clauses are examined carefully in conjunction with the legal department, and a prudent approach is adopted in recognising specific items under contract costs and provisions for risks.

J) Human resource managementThe group supplies products and systems featuring cutting-edge technology on a global scale and to do so, it requires human resources with specific expertise, which can be difficult to procure on the labour market. The success of the business development plans, especially in new markets, also depends on the group’s ability to attract, retain and develop the skills of its human resources, particularly in order to operate in a context of a global market and company.

To mitigate this risk, human resource management policies reflect the business needs. The group also has an integrated human resource management and development system under which regular checks of expertise and performance are carried out and relevant training initiatives identified, as well as enabling the best possible allocation of resources. Processes are also in place to identify the most talented resources and plot career paths for them.

The “future leaders” programme was launched in 2012 to promote the growth of human resources showing the greatest potential (for further information reference should be made to the section on human resources). There are critical issues in relation to the adequacy of certain organisational roles of the work groups which could compromise the achievement of some of the benefits expected from the organisation by bid and project team. specific initiatives are underway to strengthen these roles. specific training plans are also being finalised for managers and talented human resources.

K) Health, safety and environmental complianceThe group has to comply with health, safety and environmental legislation in the various countries in which it operates.

failure to comply with such legislation as a result of operating processes which are not adequately monitored or, especially in new markets, due to an inadequate evaluation of such requirements could expose the group to risks having significant impacts on the group’s operations, its financial position and results of operations and its reputation.

To mitigate this risk, the group adopts health, safety and environmental management systems ensuring rigorous compliance with legislation in accordance with best practices and subject to internal and external monitoring. These management systems are certified (to OHsAs 18001 standard for workplace safety and isO14001 for the environment) in most of the group’s key companies.

Requirements in new markets are evaluated at the time the bid is prepared and the assistance of external consultants is also sought. Policies and procedures have also been set to ensure a consistent approach throughout the group’s various companies while still allowing for specific local legislation.

Financial risksL) Ability to finance a high level of current assets and obtain guaranteesTo carry out contracts the group requires:- adequate financing of current assets;- bank and/or insurance guarantees issued to the customer in the various project stages (bid bond, advance payment bond, performance bond, retention money bond and warranty bond) and/or guarantees issued by the parent (parent company guarantees).

Current assets are usually funded by customer advances and progress payments.

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Directors’ Report at 31 December 2012 | Research and development

The group’s ability to obtain guarantees at good rates depends on the evaluation of the group’s financial position and results of operations, which is usually based on various indices including the group’s own analysis of its financial position, analysis of the contract risk and experience and competitive positioning in the reference sector. Ansaldo sTs believes it complies with the relevant parameters. At 31 December 2012, Ansaldo sTs had guarantees of €3,579,737 thousand (€2,846,206 thousand at 31 December 2011).

Difficulty in negotiating suitable financial terms for new contracts, payment delays and/or suspension and deterioration of existing terms of payments, or the group’s inability or greater difficulty in obtaining guarantees at good rates, would negatively impact the company and group’s operations and their financial position and results of operations.

To mitigate these risks, the group has commercial and contract management policies focussed on financial aspects, centralised treasury management which optimises the cash flows of the various group companies, the group’s financial position is solid and the contract parameters are assessed right from the time of the bid stage.

Although still negative, working capital is improving in the present economic and market context and cash flows are down, due to delays in collections and a corresponding increase in overdue positions due to delays in public funding of projects underway in both italy and abroad. As stated, these positions are monitored closely and specific initiatives are in place to mitigate their impact.

IT risksM) IT system managementiT systems are a vital part of the company’s operating structure and their management must be in line with the group’s strategic objectives. iT solutions that do not match business needs, or upgrades thereof that do not meet users’ needs, or inefficient system management, could compromise the efficiency and effectiveness of group operations.

Moreover, the unavailability of interruption of iT services or data loss or damage (including as a result of hacking) could compromise group operations.

To mitigate this risk, the iT policies were set in consideration of the organisational and process change initiatives. Moreover, the group has a governance system based on best practices and follows structured and monitored processes for hardware and software management.

Research and development

The centrally-coordinated research and development expense generated by the signalling and Transportation solutions business units and taken directly to profit and loss totalled €18.2 million in 2012 (2011: €19.3 million), against grants and services approximating €2.9 million (2011: €3.7 million).

Key activities of the year are described below:

Transportation SolutionsResearch and development expense for the Transportation solutions business unit totalled €2.2 million in 2012 (31: €1.7 million), against grants of €0.5 million (2011: €0.3 million).

The following financed projects are underway:• siTRAM: the project is funded by the Ministry of Economic Development (MED) using the industria 2015 scheme. it comprises the

design and piloting of cutting-edge technological solutions for energy captation without overhead lines (TramWave®) and increased efficiency of the energy cycle and security. The modular TramWave® solution was developed and industrialised in this context, and a 600-metre section of the Naples-Poggioreale line was equipped for system functionality and safety testing. Given the delayed issue of the definitive decree, an 18-month extension was requested and approved, taking the project end date to June 2013.

• PiEZORAiL: this project is funded by the Ministry for the Environment; its scope is to design and pilot innovative solutions to produce electrical energy with the passing of trains by putting piezoelectric pads under tramway and underground rail tracks. importantly, a testing site is being set up in the Naples facilities. The project was completed in January 2013 with the testing and field trials of the results offered by adopting these solutions.

• The sfERE research and development project funded by the Ministry for University and Research commenced in the last quarter of 2012. its aim is to develop solutions to control energy flows and to pilot integrated solutions involving the installation of supercapacitators.

• The MBAT project funded by the Artemis JV (a public-private player that grants European Commission funding the innovation of embedded systems) and the Ministry for University and Research was launched in early 2012. its scope is to improve the efficiency and effectiveness of embedded systems development and testing with a view to greater rail system safety and availability.


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SignallingResearch and development expense totalled €16.0 million in 2012 (2011: €17.5 million), against grants of €2.4 million (2011: €3.4 million).

in respect of externally-funded projects, the following projects funded by the Ministry of Production Activities (industria 2015 - sustainable Mobility) for “intermodality” are drawing to a close:• SISTEMA - involving the study of railway movement at ports. The project will be completed in early 2013 with a demonstration in the Port

of Genoa.• SLIMPORT - a project coordinated by selexElsag within which the group coordinates the slim Rail sub-project, involving the design of a

rail-based port-inner harbour container transfer system. The project was completed in 2012.

As part of the National Operational Programmes, the following activities were carried out using the Campania region funds:• SICURFER - development and piloting of technologies to monitor railway infrastructures in order to raise safety and security levels. • DIGITAL PATTERN DEVELOPMENT - a project coordinated by fiat for the development of simulation systems used in the design and

production of road and rail transport systems and components; the company is involved in developing the rail traffic simulation systems. Activities commenced in early 2012.

• VERO (Virtual Engineering for Railways and automotive) - the project supports the construction of simulators to determine the optimal size of signalling systems. The project will commence in early 2013 following a delay in funding approval which has now been obtained.

EU-funded projects include those related to signalling (iNEss), infrastructure monitoring (ALARP, REsTRAiL and MAXBE), safety (CEsAR and EXCROss) and security (PROTECTRAiL, sECUR-ED and EXCETERA).

The developments concerning the use of satellite technologies in signalling systems which commenced during the year played a central role.

Activities commenced in the second half of 2012 related to satellite positioning and the ERTMs (European Rail Traffic Management system) satellite system (which will use the RBCs), following increasing demand in the rail market, particularly as relates to freight; specifically:• The type of satellite receiver to be used in the positioning component (“localisation device system” or “LDs”) has been identified.• The precise functional requirements of the satellite positioning system are being finalised under the “virtual buoy” principle. This work

will also represent a reference point for the European standardisation of the new ERTMs satellite system, in which Ansaldo is WP leader within Unisig.

• field testing is scheduled (and the related architecture identified) to take place in an actual railway context to compare the coordinates obtained from the existing system (ATCs), which are known to be accurate, with those calculated based on satellite data. The aim of this testing is to evaluate positioning accuracy, improve the precision algorithms if necessary, and enable them to be reproduced in the laboratory as part of the integration of the system comprising LDs, on-board and trackside application simulation. fine-tuning the positioning function will also represent a starting point for the integration of the ERTMs satellite system, for which the feasibility of a pilot site in sardinia is under consideration.

• funding (3iNsAT) has been obtained from the European space Agency (EsA) for these development activities: Ansaldo sTs heads up a business consortium which includes Rfi and the German research centre, DLR. The project will also include the study and a pilot in sardinia of the possibility of using communication networks other than GsMR (such as public GsM and TETRA) in railway signalling; these activities will support the developments stated above in point 4 for the recently acquired Rio Rinto AutoHaul contract.

in June, Ansaldo sTs was awarded the overall prize of the “Premi per l’innovazione 2012” (2012 Awards for innovation). This prestigious italian award is open to companies, public bodies or individuals that have received innovation awards each year nationally, awarded in the presence of the President of the senate and the Minister for Education, University and Research.The award was received for the “Global Navigation satellite system selective Accuracy Enhancer for Train Control system” (G-sAE) innovation: this device uses satellite signals to locate a train with such accuracy that it can replace the devices installed along the railway line.satellite positioning represents a new technological frontier in the development of more inexpensive train control systems that are simpler to implement on low-traffic and regional lines, and for the expanding market of freight railways for mines. The advantages are magnified when environmental conditions make it difficult to implement and maintain traditional circuits along the lines. These low-traffic lines have a unique market potential and represent a complementary sector to the high-speed market. satellite technology is already available as an alternative means of locating trains, but the precision offered by and the reliance on the GPs satellite system alone could jeopardise all the advantages offered by satellite positioning. The innovation lies in the use of electronic communication to safely determine the train’s position by processing information obtained from different satellite constellations - GPs, GLONAss and GALiLEO - rather than the GPs constellation alone, which does not always ensure signal quality. Development activities also took place on the following projects which do not receive external funding:• Standard RBC/ERTMS;• Standard BALISE;• Reduced-size BALISE;• SIGNAL ENCODER; • ON BOARD;• CBTC (COMMUNICATION BASED TRAIN CONTROL); • INTERLOCKING;• MULTIFUNCTION PORTAL.

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Directors’ Report at 31 December 2012 | Human resources

Human resources

HeadcountThe headcount at 31 December 2012 numbered 1,526 (including 68 at foreign branches). There were 71 managers, 308 junior managers, 1,089 white collars and 58 blue collars.The headcount at 31 December 2011 numbered 1,570 (including 52 at foreign operations). There were 78 managers, 312 junior managers, 1,119 white collars and 61 blue collars.The 44 employee decrease was a result of 50 new hires and 94 employees leaving the company.

Of the new employees, 45 have a university degree and five have a high-school diploma. specifically:• 26 new employees were hired from outside the group, on open-ended contracts;• one employee was hired with a fixed-term contract;• 23 employees were employed at other branches, considering the new orders of the year.

Outgoing personnel was as follows:• 61 employees as a result of voluntary lay-off/redundancy schemes;• 10 resignations;• one employee was fired;• one employee whose fixed-term contract expired;• two employees passed away;• 11 employees were transferred to other group/finmeccanica companies• eight employees of other branches which were closed.

Training1,562 employees took part in training courses in 2012, for a total of 15,710 hours, equal to an average per-capita of approximately 10 hours.The key initiatives were as follows:

Technical-specialist training• Work Package leader• satellite navigation technologies• specialist courses in railway techniques.

Managerial training• Effective people skills• Working with diversity• Managing and remote teams

Compliance training• safety training courses (the “365 safetyDays 365 safetYes” campaigns) for building site personnel;• fire fighting courses (medium-high risk)• specific risks course as per article 37 for the Turin-Padua contract.

Language training• English language project offering traditional classroom (individual) or blended (a mix between classroom and online) learning;

The future Leaders plan launched in 2012 deserves special mention. it forms part of the Talent Management process and its scope is to identify, develop and encourage those individuals demonstrating the distinctive characteristics necessary for the leaders of Ansaldo sTs group. The future leaders must be real agents of change, encourage team spirit, be internationally-minded and be prepared to work with dedication and commitment anywhere in the world, while taking on increasing responsibility.The initiative is open to all group employees.The selection process is based on increasingly complex objective testing, the results of the candidates’ most recent performance reviews, as well as personal motivation as expressed in a covering letter.The final stage of the future Leaders programme involved individual interviews with senior management and was completed in December 2012. Twenty top talents were subsequently identified and assigned to work on strategic projects in the near future.

Industrial relationsThe redundancy schemes commenced with the trade union agreements signed on 11 and 12 March 2010 were completed in March 2012. Redundancies under the plan period (March 2010 to March 2012) totalled 84.The company met with trade union representatives in May to provide greater disclosure on the company’s position. The CEO was present at the meeting, during which the current situation, company performance, the outlook considering market trends and the streamlining projects underway were presented.A meeting with trade union representatives was held in June for the decisions about the 2011 Performance bonus and to set the efficiency and profitability targets for the 2012 Performance bonus.


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in July, a meeting was held to inform the trade unions of the progress on those contracts pegged to the 2012 Performance bonus and related effectiveness and profitability parameters used to calculate it. in December, the trade unions were asked to attend a meeting to be held before the end of January 2013 to assess the achievement of the targets of the 2012 Performance bonus and to extend the 2nd level contract (which expires at the end of 2012) to 2013.

As disclosed last year, the company has participated in the project to reform higher technical institutes agreed by finmeccanica and the Minister for Education with a memorandum of understanding signed in November 2009. finmeccanica group companies will take part in the project by helping set up foundations in their local area, offering two-year, post-secondary school courses to students at technical institutes providing more challenging and in-depth training sought by companies dealing with leading-edge technology. Approximately 25 Ansaldo sTs employees held teaching roles in 2012. Courses end in April 2013, and are followed by a further three-month internship at Ansaldo sTs and its branches.

Incentive plans Ansaldo sTs has developed and approved:- a medium-term stock grant plan;- a long-term cash incentive plan.

These plans form part of a series of short-, medium- and long-term incentive plans, and represent a considerable portion of group management’s total remuneration.They are also designed to link a significant portion of managers’ remuneration to the achievement and improvement of financial ratios, as well as strategic objectives that are especially important for the group’s creation of value.

Moreover, on 23 April 2010, the shareholders of Ansaldo sTs approved an additional stock plan for 2010-2012 for a maximum of 50 employees that are key to particularly strategic projects for the group, which are fundamental to achieving the company’s financial targets. The plan is mainly targeted at middle management and is designed to foster a sense of belonging to the company, strengthen the concept of performance/remuneration, and encourage the retention of resources deemed key to achieving ambitious company objectives.

STOCK GRANT PLANS On 1 March 2012 a two-year stock grant plan for a maximum of 56 employees plus the CEO and key management personnel was approved by the appointments and remuneration committee and subsequently ratified by the shareholders in their meeting of 7 May 2012. The plan’s vesting conditions are the same as those of the 2011 plan (EVA, fOCf and the share performance against the fTsE italia All-share). The 2012-2013 stock grant plan differs from previous plans as it complies with the recommendations of article 7 of the Code of conduct, as modified in March 2010 by Borsa italiana s.p.A.’s corporate governance committee, and of the current article 6 of such code, as amended in December 2011. The main changes represent the introduction of:•athree-yearvestingperiodforallbeneficiaries;•atwo-yearlock-upperiodfor20%ofthesharesduetotheCEOandkeymanagers;•averythin(2.5%)toleranceband,withinwhichaproportionalamountoftheshareswillvestonalinearbasis,foreachobjective.

The company calculated the shares due for 2011 under the 2010-2012 stock grant plan based on the achievement of the relevant vesting conditions.The total shares due numbered 10,640; 8,206 shares were actually made available to the beneficiaries on 3 December 2012 after the relevant amounts were withheld for italian participants under applicable tax laws.The company checked that the vesting conditions for the 2011 stock grant plan were achieved and calculated the shares due.The total shares due numbered 69,243; 47,912 shares were actually handed over to the beneficiaries on 3 December 2012 after the relevant amounts were withheld for italian participants under applicable tax laws.

Cash plansThere was no outlay in 2012 in relation to the 2009-2011 and 2010-2012 cash plans for the CEO and the eligible key managers, as the related vesting conditions were not achieved. Likewise, no amount is expected to be paid out in 2013 as the vesting conditions included in the 2011-2013 plan for 2012 were not achieved.

24

Directors’ Report at 31 December 2012 | financial disclosure

Investments held by directors

following the amendments made by CONsOB (the italian commission for listed companies and the stock exchange) with resolution no. 18049 of 23 December 2011 to the Regulation adopted with resolution no. 11971 of 14 May 1999 (the “issuer Regulation”), information on investments held in the issuer or companies controlled thereby by members of management bodies, general managers and key managers, as well as their spouses, unless legally separated, and minor children, directly or via subsidiaries, trustees or nominees referred to in the repealed article 79 of such regulation are now presented in compliance with the provisions of article 84-quater.4 of the regulation, in the remuneration report prepared pursuant to article 123-ter of Legislative decree no. 58/98 and in compliance with schedule 7-bis of annex 3 to the issuer Regulation. The remuneration report is made available to the public as provided for by law and regulations.

Company offices

The company’s offices are located as follows:

GENOA ViA MANTOVANi 3-5 - 16151 Registered offices

NAPLEs ViA ARGiNE 425 - 80147 Branch

The company has permanent foreign establishments in Prague (Czech Republic), Bucharest (Romania), Athens and Thessaloniki (Greece), Tunis (Tunisia), Copenhagen (Denmark), Taipei (Taiwan), Ankara (Turkey), Riyadh (saudi Arabia), Tripoli (Libya) and Calcutta (india).The company also forms part of a joint venture with AnsaldoBreda s.p.A. in Honolulu (Hawaii).

Financial disclosure

Financial market transactionsThe investor relations department liaises constantly with analysts and investors in order to grasp market disclosure requirements and accurately target communications from senior management. The aim is to ensure the company, in terms of its business model and strategies, is accurately evaluated by the financial market.A relationship of trust has to be built up and maintained to ensure information is properly disclosed. financial analysts are viewed as important reference points to understanding the company, its business and the strategies adopted by management.Total actual coverage fell to 15 investment banks in 2012, compared to 17 in the previous year, due to changes within the brokers’ internal organisation. some of these investment banks provide regular sector research and competition analyses, which the investor relations department collects, examines and discloses internally, together with official market communications.investor relations activities are planned and implemented on the basis of the annual communication plan.Road shows, conferences and events numbered 26 in 2012 (35 in 2011 and 42 in 2010); market analyses, policies and strategies underlying the group’s business operations were presented at these events.An investor day is held to update the financial community, in order to facilitate an accurate evaluation of Ansaldo sTs’s share and its operating sector; preliminary reporting date figures, an orientation for the coming year and future objectives are also disclosed at this time. The website is another vital tool for communication and relations with investors, institutions and the market (and, more generally, the public).Winning the Best improver 2012 award awarded by KWD Webranking (an agency that monitors and evaluates the quality of websites of listed companies and prepares an annual ranking) for the second year running confirmed the success of this tool. The criteria followed to determine the ranking are broken down for each aspect of corporate communication, relations with investors and with the media, the use of social networks and the transparent handling of governance information. in recent months, Ansaldo sTs has risen to 14th position from its previous 26th (40th in 2010).The 2012 sustainability report, which is subject to review, will be presented to the shareholders in their 2013 meeting.

Share performanceThe official share price in the 31 December 2011 to 28 December 2012 period went from €6.44 (calculated on a like-for-like basis following the bonus issue of 9 July 2012) to €7.07, representing an annual increase of around 9.8%.The third instalment of the bonus issue was carried out on 9 July 2011 with the issue of a further 20,000,000 new shares, distributed to eligible shareholders in the ratio of one share to every seven held. The share’s high for the year of €7.07 was recorded on 28 December 2012 and its low of €4.47 on 1 June 2012.

An average 903,015 shares were traded daily in the year.The share’s performance did not follow the reference indices, with the fTsE italia All-share up 8.4% in 2012, while the fTsE italia sTAR rose 16.6%.


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The average of analysts’ guide prices at the end of 2012 was €7.56; those of the latter part of the year in particular are similar to the year-end market price.The share’s performance in the second half of the year was impacted by news of a possible sale by the majority interest and even more so since the consolidation process got underway within the group’s reference sector, with the purchase of a competitor (invensys PLC) by another large player (siemens AG). This news generated increased speculation on the share but no high speculative funds bought shares.

16.59%

9.55%8.36%

Italy FTSE Italia StarAnsaldo STS S.p.A. Italy FTSE Italia All-Share130

120

110

100

90

80

70Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12

Key shareholders at 31 December 2012Shareholder No. of shares % held

finmeccanica spA 64,104,865 40.066

UBs AG 4,315,487 2.697

Altrinsic Global Advisors LLC 3,347,200 2.092

Key data per shareTotal earnings and dividend per share 2012 2011**

Basic and diluted EPs 0.34 0.35

Dividend per share 0.18* 0.175

* Proposed to the shareholders ** Recalculated following the bonus issue of 9 July 2012

The company distributed dividends for the first time in 2007, one year after its stock market listing on 29 March 2006. The amount proposed to the shareholders to be distributed as dividends totalled €28,800 thousand, compared to €28,000 for 2011.

Litigation

in general, the following should be noted:

1. Pomigliano-S.Vitaliano railway litigation: ASTS versus Ministry of Transport Gestione Governativa della Circumvesuviana, now Circumvesuviana S.r.l.

The award handed down in 1998, following the arbitration commenced by Ansaldo Trasporti s.p.A. requesting compensation for additional expense and damage, gave the claimant the amount of €18.1 million; in 2011, following the unfavourable sentence handed down by the Naples Court of Appeals, the findings of the court-appointed expert reduced this amount to €15.5 million. in 2003, the same Court of Appeals awarded the company €0.6 million, plus interest, justifying its decision with the late and inadequate quantification of the claims recognised.Together with finmeccanica, the company then appealed to the Court of Cassation. in its counter appeal, Circumvesuviana s.r.l. requested the company’s appeal be rejected and that the judgement handed down by the Naples Court of Appeals be upheld. With its ruling of March 2009 filed in July 2009, the Court of Cassation allowed the appeal lodged by Ansaldo sTs and finmeccanica, repealing the ruling of the Naples Court of Appeals and remitting the judgement, including as relates to court fees, to the Naples Court of Appeals. The application for the reinstatement of proceedings was served in september 2010 before the Naples Court of Appeals, requesting an overall amount of €18.0 million, plus interest and cost-of-living adjustments. The next hearing is scheduled to take place in the first half of 2013.

2. Arbitration proceedings: ICLA versus Iricav Uno consortium (investee of Ansaldo STS)in December 2004, the arbitration panel issued a final award about the appeal brought by iCLA Costruzioni Generali s.p.A. (in liquidation) against iricav Uno consortium (in which Ansaldo sTs s.p.A. has a 17.44% stake), for the measure excluding iCLA, while stating it did not have jurisdiction in relation to certain claims of the parties. iCLA challenged this award on the grounds of partial invalidity before the Rome Court of Appeals, and iricav Uno consortium in turn, brought an action.

26

Directors’ Report at 31 December 2012 | Litigation

in October 2005, iCLA therefore commenced a new arbitration procedure against iricav Uno in relation to these claims. in turn, the consortium claimed damages from iCLA, again in relation to the claims over which the previous arbitration panel stated it did not have jurisdiction. The mutual claims of the parties are equal, and approximate €50 million. The arbitration panel was set up on 19 January 2006 and issued a partial, non-final award in June 2007, recognising the grounds for iCLA’s claims, remitting both the financial amount due to iCLA and any further decisions in relation to the other claims of the parties, to the future final award, deeming a more in-depth investigation to be necessary.

The panel issued its final award in 2008, in which it awarded iCLA (in brief):• €10.9 million, plus interest and cost-of-living adjustments, as the portion due to iCLA of the claims settled between the consortium and TAV;• €3.2 million, as compensation for damage arising from delayed testing of the works conferred on iCLA, due to the negligence of the

consortium;• €0.6 million, as compensation for damage and/or reimbursement related to the failure to release and/or reduce the sureties relating to

the consortium relationship.

With a claim form served to iCLA in July 2008, iRiCAV UNO consortium challenged both the partial award and the final award (issued in 2007 and 2008, respectively), on the grounds of invalidity and requested annulment and/or radical reform subject to suspension of enforceability.The related ruling was lodged with the Rome Court of Appeals (sez. ii, R.G. 8922/2008). in the hearing of 21 January 2009, the arbitration panel allowed iRiCAV Uno consortium’s request to suspend the award’s enforceability.

Meanwhile, in the hearing of 18 february 2011 related to the challenge of the award of 21 December 2004, the case was left open and in a partial ruling handed down on 1 December 2011, the Court of Appeals allowed one of iCLA’s challenges to the award and some of those proposed by the consortium and issued a separate order to continue the proceedings in order to settle, at a later stage of the proceedings, the claims in relation to the arbitration award cancelled; this order was deposited in December 2011.With the partial ruling of 20 september 2012, the Rome Court of Appeals allowed the consortium’s request to annul the 2007 and 2008 awards on the grounds that the arbitration panel did not have jurisdiction, ordering the proceedings for the settlement of the annulment stage to continue. The next hearing filing the technical appraisal of the court-appointed expert and the admission of the fact is set for mid-2013.

3. Litigation with Azienda Consorziale Trasporti Triestein 2002, Azienda Consorziale Trasporti di Trieste (“A.C.T.”, now ATM) notified its intention to withdraw from a contract agreed with Ansaldo Trasporti s.p.A. in 1998 for the supply and installation of an innovative electrified transport system, known as sTREAM, due to subsequent impossibility of carrying out the services.following unsuccessful attempts to settle the matter out of court, the company commenced legal proceedings, requesting compensation for the services performed, as well as damages. The ruling was handed down in september 2007, in which the Trieste Court, as civil section single judge, allowing the counterclaim proposed by the counterparty, ACT:• rejected the claims of the claimant, Ansaldo Trasporti sistemi ferroviari (now Ansaldo sTs s.p.A.), for the payment of the services

performed and not paid, as well as for compensation for damage following withdrawal from the tender procedure;• allowed the main counterclaim proposed by ACT, whereby the tender procedure was dissolved due to the subsequent impossibility of

fulfilling the contract agreed between the parties in March 2008;• ordered the claimant, Ansaldo Trasporti sistemi ferroviari (now Ansaldo sTs s.p.A), to repay the amount paid to date by ACT for the part

of the works carried out under the contract, plus legal interest; • ordered Ansaldo to pay court fees.Ansaldo sTs appealed the september 2007 ruling of the Trieste Court and the first hearing was set for february 2008.Meanwhile, ACT, in its request of October 2007, asked the Trieste Court change its first-level ruling, in respect of the part in which the amount (€3.1 million) that Ansaldo Trasporti sistemi ferroviari (now Ansaldo sTs s.p.A.) would have to repay was not clarified.in its order of December 2007, the Trieste Court allowed ACT’s request and amended the ruling. Ansaldo presented a new appeal against the amended first-level ruling. The two proceedings before the Court of Appeals were joined and the first hearing was set for february 2008.in this hearing, the Court of Appeals ruled that the parties should proceed to the admission of the facts, postponing the proceedings to July 2009. This was deferred on the court’s own motion to mid-2010 and subsequently to January 2011.

in its ruling of 24 May 2011, the Trieste Court of Appeals rejected AsTs’s appeal, ordering the company to pay €3.1 million, plus legal interest. following an agreement between the parties, AsTs paid a €0.2 thousand advance in 2011 and the remainder in January 2012, net of the costs to remove the ditch in Trieste, as per the agreement between the parties. AsTs nevertheless plans to appeal this ruling before the Court of Cassation.

Meanwhile, Ansaldo sTs had commenced new legal proceedings against ACT, again before the Trieste Court, in January 2008, requesting a check that the contract was actually terminated due to ACT’s impossibility of carrying out its part due to the decision taken by ACT in July 2002.These proceedings were commenced with the aim of dating the termination for reasons attributable to ACT to before the ruling with which, in february 2006, the Trieste municipal council reconfirmed the resolution of september 2002, which had meanwhile been cancelled by the regional administrative court. Naturally, the claim was proposed subordinately to the appeal not being allowed.


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The closing briefs and replies have been lodged and the issue of the ruling is pending. Meanwhile, Ansaldo sTs summonsed the Trieste municipality for unlawful conduct following the claim lodged before the Trieste Court to check the contract’s termination for subsequent impossibility due to ACT not being allowed.The first hearing was held in 2008. During the preliminary investigation, at the November 2009 hearing, the parties requested a deferral pending negotiations and the court reserved its judgment on the proceedings initiated by the parties. following the ruling on the November 2009 hearing, the Trieste Court suspended the civil proceedings between Ansaldo sTs and the Trieste municipality, pending the resolution of the proceedings between the company and Azienda Consorziale Trasporti – A.C.T. of Trieste.The proceedings are still suspended pending the outcome of the proceedings between AsTs and AMT at the Court of Cassation. finally, Ansaldo sTs lodged an appeal in April 2008 before the friuli Venezia Giulia regional administrative court to determine Ansaldo sTs’s right to compensation for damage suffered following and as a result of the Trieste municipality’s resolution, requesting: (i) the determination of AsTs’s right to compensation for damage suffered following and as a result of municipal resolution no. 28 of 20 february 2006 in which the Trieste municipality indicated it no longer wished to continue the project to build the sTREAM electrical traction system and (ii) the Trieste municipality be ordered to pay compensation of not less than €25.0 million.

4. Litigation: Tecnocostruzioni Costruzioni Generali S.p.A. versus Ansaldo STS S.p.A.Tecnocostruzioni s.p.A, as a member of the joint venture engaged by Ansaldo Trasporti s.p.A. (now Ansaldo sTs) to carry out the civil works for line 6 of the Naples underground (formerly “L.T.R.”), initiated legal proceedings to confirm an alleged breach by the company of a commitment undertaken in 1998, vis-a-vis the joint venture, to terminate the agreement entered into with ANM and the Naples municipality due to the delayed payment of the final agreed instalment. The compensation claimed equals €17.4 million, plus interest and cost-of-living adjustments. The Naples Court’s ruling was published in October 2006, rejecting Tecnocostruzioni’s claim and dividing court fees between the parties.Tecnocostruzioni appealed this ruling before the Naples Court of Appeals with a claim form served to Ansaldo Trasporti sistemi ferroviari s.p.A. (now Ansaldo sTs) in December 2007. in October 2011, the Naples Court of Appeals disallowed Tecnocostruzioni’s appeal, handing down its ruling in December; Tecnocostruzioni appealed to the Court of Cassation in february 2012.Ansaldo sTs appeared before the court. The date for the hearing has not yet been set.

5. Litigation: Iricav Due consortium versus TAV- Treno Alta Velocità S.p.A. The concessions issued by ferrovie dello stato to TAV for general contractors of the Milan-Verona, Verona-Padua and Milan-Genoa sections were terminated by the italian government at the beginning of 2007.Under the decree, following the termination of the contractual relationship, the parties shall receive consequential damages only. following the termination, iricav Due consortium, which had already commenced arbitration proceedings to terminate the Agreement on the grounds of TAV’s serious breach, claiming the failure to cooperate, including the development of the preliminary project and the acquisition of financial resources, lodged an appeal before the Latium regional administrative court.its aim was to obtain the annulment of the orders of the Ministry for Transport and Rfi s.p.A. and the submission of a request for preliminary ruling to the European Court of Justice. indeed, in April 2007, TAV s.p.A. had already formally presented a request to the consortium to return the advance paid, plus interest accrued to the date of payment, and to hand over all project documentation presented during the period of the agreement. The Latium regional administrative court suspended the application of the orders, following the law, with which Rfi s.p.A. terminated the concession and with which TAV s.p.A. terminated the contracts with the three general contractors. it also referred the issue to the European Court of Justice for its assessment of the alleged non-compliance with EU laws, as requested by the claimant companies. TAV s.p.A. appealed this ruling before the Council of state, requesting the repeal of the suspension of the first-level ruling, without prejudice to the merits of the case pending, following the European Court of Justice’s ruling.in 2007, the Ministry for infrastructure proposed the parties set up specific technical panels in order to reach a settlement. such panels were never set up.Meanwhile, in its order dated 10 October 2007, the Council of state allowed the appeals lodged by the President of the Council of Ministers and by the Minister for Transport, TAV s.p.A. and Rfi s.p.A. reforming the Latium regional administrative court judgment, confirming the legitimacy of the referral to the European Court of Justice of the evaluation of the compliance of the withdrawal order with EU legislation.in september 2008, the Advocate General at the European Court of Justice handed down their conclusions and recognised the legitimacy of the orders to terminate the concessions. Consequently, iricav Due consortium waived the continuation of the suspended administrative proceedings, pending the ruling of the European Court of Justice.As a consequence, the Latium regional administrative court handed down a ruling acknowledging the consortium’s waiver of the continuation of the administrative proceedings.This ruling was notified to the European Court of Justice, which should also cancel the preliminary ruling pending before it, and therefore without ruling on the issue of EU-legislative compliance. Law no. 133 of 6 August 2008 was published on 21 August 2008, converting Decree law no. 112 of 25 June 2008 which repealed article 13 of Decree law no. 7 of 31 January 2007 converting Law no. 40 of 2 April 2007, which, with effect from 1 January 2009, terminated the concessions (agreements) entered into in 1991-94 between TAV and the respective general contractors.iricav Due consortium, however, did not avail itself of article 12 of Law no. 133 of 6 August 2008, which converted Decree law no. 122 of 25 June 2008, which restored the concessions. indeed, it continued the arbitration proceedings, also because in the event it abandoned them, it would no longer have been able to resume them in the future for the same grounds for which the resolution against TAV was requested.

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Directors’ Report at 31 December 2012 | Litigation

The arbitration panel appointed an expert in 2009.Briefly, the expert partly allowed the claims of iricav Due consortium, confirming the costs incurred, the design activities carried out and damage suffered.in its brief, TAV challenged the contents of the expert’s appraisal, requesting a new appraisal; in its reply, the consortium set out its criticisms. in february 2011, the arbitrators met to reconstitute the panel after the death of one of its members.The arbitration was concluded in March; under the award, Rfi/TAV shall partially compensate iRiCAV DUE and the 2012 agreement is still valid and in effect.Rfi has already paid iRiCAV DUE the amount set in the award but has not yet forwarded iRiCAV DUE the definitive project for the section in order to commence the execution plan.

6. Metro C Società Consortile per Azioni versus Roma Metropolitane S.r.l. in October 2007, the contractor of the works, design and construction of the new line “C” of the Rome underground (Metro C consortium, 14% held by Ansaldo sTs s.p.A.), served the customer (Roma Metropolitane s.r.l.), with a request for arbitration concerning the additional fees and time required following delays in validating the T4 and T5 section final design. in the 2009 hearings, the parties agreed on a request to issue a partial award subsequently repeatedly deferred; pending the conclusion of the arbitration, a compromise committee was set up, which at the end of 2011, proposed an outline agreement whereby the work plan would be redesigned and the claims reformulated on a lump-sum, all-inclusive basis, in the amount of €230 million. The arbitration panel issued a partial award in september 2012, ordering Roma Metropolitane to pay Metro C around €16 million for expenses incurred to 31 December 2008; at the end of 2012, Metro C served Roma Metropolitane a new arbitration claim concerning general contractor expenses also for the period after 31 December 2008. in December 2012, Roma Metropolitane lodged an appeal against this award before the Rome Court of Appeals.in December 2012, CiPE (interministerial economic planning committee) granted Roma Metropolitane the amounts necessary to financially cover the september 2011 settlement agreement between Roma Metropolitane and Metro C; this resolution will take effect and come into operation subject to its publication on the italian Official Journal, after being recorded with the Court of Auditors.

7. ASTS versus Metro Campania Nord Estin April 2011, Ansaldo sTs obtained an order of the court against Metro Campania Nord Est (MCNE), as part of Alifana project, for unpaid invoices totalling €31 million. MCNE challenged the decree, regarding AsTs’s receivable to be dependent on Campania region making financial resources available (which are unavailable).in september 2011, the Judge rejected the request to suspend enforceability and AsTs received a partial collection of €3.7 million in December.Meanwhile, contacts with the Campania Region continued with a view to agreeing a mutually satisfying solution.Moreover, in respect of AsTs’s contract to supply MCNE with on-board technological systems, AsTs also obtained an order of the court for MCNE to pay €4.8 million, in relation to which MCNE’s appeal is pending.

8. ASTS versus Naples municipalityin March 2011, AsTs lodged an appeal with the Genoa Court requesting an order of the court against the Naples municipality for the collection of certain receivables related to the contract to build line 6 of the Naples underground. The Genoa Court issued the requested order for an amount of €106 million, which was served to the Naples municipal authorities, which challenged it.following the Naples municipality’s opposition to the order of the court, the Genoa Court held that it had no jurisdiction and the proceedings were then continued before the Naples Court, with the first hearing set for early 2012. Part of the amounts referred to in the order of the court shall be paid to the companies that carried out the civil works that AsTs had back-to-back contracts with.following the Naples Court’s rejection of the first order of the court, a technical appraisal by an expert appointed by the court was subsequently lodged in July 2012.The court replied to the new order of the court formulated by Ansaldo sTs, issuing an enforceable decision which, in October 2012, ordered the Naples municipality to pay the receivables, plus court fees; there have been no further updates to date.

The benefits of any litigation in which the company is involved which have not yet been settled, and are therefore not virtually certain, were not considered in the financial statements. Only possible liabilities have been disclosed.

9. Other minor legal proceedingsThe company has accrued a provision for risks to cover any minor liabilities arising from legal proceedings underway related to contracts performed. The provision which reflects the risks and charges of legal proceedings underway approximated €0.7 million. At the reporting date, the company believes the amounts accrued in the provision for risks and charges and those accrued for each contract within the relevant allowance to cover any liabilities generated by pending or potential litigation are adequate on the whole.


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Corporate Governance and ownership structure pursuant to article 123-bis of Legislative Decree no. 58 Of 24 February 1998 and subsequent amendments (the Consolidated Finance Act)

The Ansaldo sTs shares have been listed on the star segment of the markets organised and managed by Borsa italia s.p.A. since 29 March 2006 and have been included on the fTsE MiB index since 23 March 2009.With the approval of the board of directors given on 19 December 2006, Ansaldo sTs adopted the Code of conduct endorsed by Borsa italiana s.p.A. in March 2006 and came into line with its requirements during 2007. Borsa italiana s.p.A.’s corporate governance committee adopted a new Code of conduct in December 2011. On 18 December 2012, Ansaldo sTs’s board of directors’ resolved to comply with the principles of this new code and to update its own governance systems to reflect them. Detailed disclosure on the parent’s corporate governance structure and the measures taken following the adoption of the 2011 Code of conduct is provided in the section of the directors’ report covering corporate governance and the adoption of the Code of conduct for listed companies related to 2012, published together with this annual report.

After setting the number of directors at nine, the shareholders appointed the parent’s new board of directors for 2011-2013 on 5 April 2011: Alessandro Pansa (Chairman), Giancarlo Grasso, sergio De Luca, Maurizio Cereda, Attilio salvetti, Paola Girdinio, Tatiana Rizzante, Giovanni Cavallini and filippo Giuseppe Maria Milone. Mr. Milone subsequently resigned from the board of directors effective 13 December 2011. To replace Mr. Milone, the board of directors co-opted Bruno Pavesi as director, on 30 March 2012. Mr. Pavesi’s appointment as a director was approved by the shareholders in their meeting of 7 May 2012. At the same meeting of 5 April 2011, the shareholders also appointed the board of statutory auditors for 2011-2013, comprising Giacinto sarubbi (Chairman), Renato Righetti and Massimo scotton, and appointing Bruno Borgia and Pietro Cerasoli as substitute auditors. The board of directors also appointed the members of the current internal control committee (now the risk and control committee) on 5 April 2011 (Attilio salvetti – Chairman, Maurizio Cereda and Paola Girdinio), the remuneration committee (now the appointments and remuneration committee) (Maurizio Cereda – chairman, Giovanni Cavallini and filippo G. M. Milone); following the resignation of Mr. Milone and his replacement with Mr. Pavesi, the latter was also appointed to the remuneration committee with effect from 30 March 2012. The company’s Chief financial officer, Alberto Milvio, was appointed manager in charge of financial reporting.

Also on 5 April 2011, the board of directors appointed sergio De Luca as CEO, Giancarlo Grasso as deputy chairman of the board of directors and Mario Orlando, the company’s general secretary, as board secretary. This position was subsequently conferred on Mauro Gigante, by the board of directors on 22 september 2011, as the company’s new general secretary, replacing Mario Orlando, who became finmeccanica’s Group General Counsel. finally, on 27 september 2012, the board of directors appointed Grazia Guazzi (in charge of the company’s Corporate Affairs & Group insurances department) as the new secretary to the board of directors, to replace Mauro Gigante who ceased to hold any role within Ansaldo sTs group from 1 October 2012.

The company’s directors also appointed Christian Andi as the company’s new chief financial officer, with effect from 1 september 2012, and, subject to the board of statutory auditors’ approval, as manager in charge of financial reporting pursuant to article 154-bis of Legislative decree no. 58/1998, replacing Alberto Milvio.

On their appointment and/or cooptation, the directors, Giovanni Cavallini, Maurizio Cereda, Paola Girdinio, Tatiana Rizzante, Attilio salvetti and Bruno Pavesi, confirmed they meet the requirements for independence of current legislation and the Code of conduct. The board of directors also assessed these requirements and the board of statutory auditors, in turn, checked the criteria adopted by the board were properly applied. The board then subsequently checked the independence requirements were still complied with in their meetings of 13 December 2011 and 18 December 2012, during which the board (i) examined the results of the regular surveys carried out on company directors’ positions as directors or statutory auditors in other listed, financial, banking, insurance or large-sized companies, as notified by each director; (ii) acknowledged the statements made by the independent directors and confirmed they continue to meet the independence requirements required by current legislation and the Code of conduct.

Also in the meeting of 5 April 2011, pursuant to the requirements of the 2006 Code of conduct, after discussion with the internal control committee (now the risk and control committee), the company’s board of directors also appointed the CEO, sergio De Luca, as executive director in charge of supervising the operation of the internal control system and Mauro Giganti, who heads up the company’s internal audit department, as the internal control manager. On 18 December 2012, Ansaldo sTs’s board of directors, pursuant to article 7 of the new Code of conduct approved by Borsa italiana s.p.A.’s corporate governance committee in December 2011, confirmed the CEO, sergio De Luca - formerly “executive director in charge of supervising the operation of the internal control system” under article 8.C.5 of the 2006 Code of conduct - as “director in charge of the internal control and risk management system” under article 7.C.4 of the new Code of conduct; moreover, on Mr. De Luca’s proposal, with the approval of the internal control committee and having consulted the board of statutory auditors, the directors confirmed Mauro Giganti - formerly “in charge of internal control” under article 8.C.6 of the 2006 Code of conduct - as manager of the internal audit department under article 7.C.5 of the new Code of conduct.

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Directors’ Report at 31 December 2012 | statement

Pursuant to the Code of conduct, during the first meeting of the board of statutory auditors, also held on 5 April 2011, the statutory auditors, Giacinto sarubbi, Renato Righetti and Massimo scotton, also confirmed they meet the independence requirements of current legislation and stated thereby at the time of their appointment. Possession of the independence requirements was subsequently checked and confirmed by the members of the board of statutory auditors also during the meetings held on 27 January 2012 and 18 December 2012.

During the first half of the year, a specialised company completed its assessment of the operation of the board of directors and its internal committees. The findings of this assessment showed that Ansaldo sTs’s board of directors fully complies with the requirements of the Code of conduct and its operation compares favourably with international Corporate Governance best practices. On 29 October 2012, the company’s directors engaged a specialised company to evaluate the board of directors and its internal committees for 2013.

The company also published its 2011 sustainability report in the first half of 2012. such report was reviewed by PricewaterhouseCoopers. With respect to the independent auditors appointed to perform the legally-required audit of Ansaldo sTs s.p.A.’s financial statements, in their meeting of 7 May 2012, the shareholders awarded the new audit engagement for the 2012-2020 period to KPMG s.p.A..for the reasons extensively described in the documentation prepared pursuant to current legislation for such meeting and available at the following website: http://www.ansaldo-sts.com/it/governance/assemblea-azionisti/documenti-assembleari, the shareholders approved this appointment following the termination for just cause, by the shareholders in the same meeting of 7 May 2012, of the previous independent audit engagement assigned to PricewaterhouseCoopers.This was decided in order to avoid differences between the company and Ansaldo sTs group’s audit engagements, after the expiry (at the meeting of the shareholders called to approve the 2011 financial statements) of the legally-required audit engagement of the parent, finmeccanica, which was also performed by PricewaterhouseCoopers. Accordingly, the shareholders decided to appoint the same independent auditors for its legally-required audit for 2012-2020 as the parent, finmeccanica, had appointed through its relevant procedure, i.e., KPMG. This meant the company was able to draft, also for the future, a group-level work plan offering streamlined and optimised costs for the company and greater efficiency in audit activities.

finally, on 5 March 2012, the board of directors approved the parent’s 2012 remuneration policy, in compliance with the recommendations of article 7 of the 2006 Code of conduct (as amended in March 2010), on the basis of the proposal prepared by the appointments and remuneration committee dated 1 March 2012.After discussion with the appointments and remuneration committee, the board of directors subsequently approved the remuneration report prepared by the company pursuant to article 123-ter of the Consolidated finance act and article 84-quater of the issuer regulation, in its meeting of 30 March 2012. finally, pursuant to article 123-ter.6 of the Consolidated finance act, in their meeting of 7 May 2012, the shareholders approved the first part of the above-mentioned report required by article 123-ter.3 of the Consolidated finance act, which describes the company’s remuneration policy for its officers and key managers, and the procedure followed to implement and describe this policy.Pursuant to article 70.8 of the issuer regulation, we note that, in their meeting of 28 January 2013 and as permitted by articles 70.8 and 71.1-bis of the issuer regulation, the company’s directors resolved to opt-out of the requirement to prepare the required documents at the time of significant transactions such as mergers, demergers, share capital increases via contributions in kind, acquisitions and sales.

The key corporate governance tools the company has implemented in compliance with the most recent legislative and regulatory requirements, those required by the Code of conduct and national and international best practices, are as follows:• By-laws;• Code of ethics;• Organisational, management and control model pursuant to Legislative decree no. 231/01;• shareholders’ meeting regulations;• Board of directors’ regulations;• Risk and control committee;• Appointments and remuneration committee;• Related party transactions - Procedure adopted pursuant to article 4 of Consob regulation no. 17221 of 12 March 2010;• Procedure for the handling of privileged information;• internal dealing code of conduct.

for further details on the company’s corporate governance, reference should be made to the “Corporate governance report”, comprising all disclosure required by article 123-bis of the Consolidated finance act, available on the company’s website www.ansaldo-sts.com.

Statement pursuant to article 2.6.2.12/13 of the regulations for markets organised and managed by Borsa Italiana S.p.A.

The company’s board of directors confirms the compliance with the conditions referred to in articles 36, letters a), b) and c), point i) and 37 of the Regulation implementing Legislative decree no. 58 of 24 february 2998 on markets, adopted by Consob with resolution no. 16191 of 29 October 2007 and subsequent amendments.


31

Data protection document

Pursuant to paragraph 26 of the Technical requirements governing minimum security measures, which forms Annex B to Legislative decree no. 196 of 30 June 2003 (personal data protection code), the Data protection document for the processing of personal data was updated in 2012.

This document contains the information required by paragraph 19 of Annex B and describes the security measures implemented by the company to minimise the risk of destruction or loss, including accidental, of personal data, unauthorised access or unapproved processing, or processing that does not comply with the purposes for which it was gathered.

The environment

Ansaldo sTs s.p.A. has pursued sustainability in recent years in the belief that respecting environmental and social values leads to the creation of long-term value for the business. With the publication of the group’s sustainability report, it transparently discloses its values, strategies, policies and decisions in terms of economic, environmental and social sustainability. from an environmental point of view, Ansaldo sTs is involved:• as a producer, committed to pursuing environmental protection policies not only by just complying with existing laws, legislation and

directives but by pursuing ongoing improvement in the environmental impact of its products and production processes;• as a supplier of railway operators, in the knowledge that offering increasingly evolved, safe and reliable railway traffic control and

automation products promotes the rapid development of the most environmentally-friendly transport system available today, thus attracting ever-greater numbers of freight and passenger transport service users.

Strategic orientation and management approachThe company has implemented an integrated Management system (iMs) for environment, safety and quality issues. At corporate level, it set policies and procedures to ensure the controlled management of the processes and workplace safety and environmental protection activities.Each group company subsequently set local policies in relation to the environment, safety and instructions, based on the framework of legislative requirements and corporate policies and procedures, in order to achieve the following objectives:• ensuring compliance with legal requirements applicable to its processes in the various countries in which its subsidiaries operate, by

formalising procedures that increase awareness of the applicable legislative framework;• identifying significant direct and indirect environmental issues in order to reduce and control the related impact, both as relates to the

companies and its suppliers and partners;• defining key indicators with a view to facilitating the assessment of performance.

Ansaldo sTs s.p.A. recommends its subsidiaries follow the isO 14001 framework and EMAs (Eco-Management and Audit scheme) regulation in developing their management systems and certification is regarded as key to developing an ingrained environmental awareness both among company personnel and suppliers and subcontractors.

Innovation and the diffusion of good practicesThe demands of the market and the experience that some subsidiaries have consequently gained have led to the development of environmental management systems and subsequent isO 14001 certification, which Ansaldo sTs is extending to all group companies; the possibility of extending the EMAs regulation to the other production facilities is still under consideration.The environmental management system is applied to the following:• production facilities for products used in safety, control and monitoring systems supplied by Ansaldo sTs group;• non-production facilities, mainly in the following activities: signalling system design; safety, reliability and availability analysis; lab testing;

contract management and control; research and development; procurement and; prevention and protection;• activities carried out directly by Ansaldo sTs in building sites, regarding management and coordination, the supervision and checking

of works, systems roll-out and start-up, and their delivery to customers. in dealing with environmental issues related to these activities, Ansaldo sTs follows a “Building site environmental management” procedure, starting with an environmental analysis of the works to be carried out, which is drawn up and agreed with subcontractors. This is followed by environmental monitoring which ensures ongoing legal compliance and enables the company to exploit all opportunities while limiting the inevitable environmental impacts associated with opening a building site.

The company is also committed to supplying the best products, offering maximum safety, the best system solutions, use of the best methodologies and design procedures and the best available production methods and processes, while upholding its commitment to reducing energy consumption and direct and indirect environmental impacts.Ansaldo sTs achieves this commitment and related outcomes by:• reducing costs and system integration;• reducing energy consumption;• optimal service, reliability and availability levels for group products and solutions;• developing products and operating production plant in line with the most recent and stringent standards.

Commitment to fight climate changeAnsaldo sTs has developed a carbon management strategy and is committed to the fight against climate change, in the belief that improving environmental performance will contribute to protecting the planet and offering the company the opportunity to create value.

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Directors’ Report at 31 December 2012 | Disclosure on management and coordination and related party transactions

The following principles underpin Ansaldo sTs’s climate strategy:1. A global approach in developing mechanisms that take into account the commitment of all Ansaldo sTs facilities.2. Reasonable and achievable long-term targets in order to give a clear and realistic view of the actions to be taken.3. support in developing advanced technological solutions.Consolidating the carbon management strategy involves defining an overall target for emissions reduction.

Communication, training and educationAnsaldo sTs is increasingly focussed on training related to environmental issues.its specific training programme is fundamental to fostering a sense of environmental responsibility and constructive environment-related dialogue among employees and suppliers/contractors.Ansaldo sTs’s training and educational programmes are designed to increase awareness of:• the importance of complying with the environmental policy and the environmental management system procedures and requirements;• actual or potential significant environmental impacts of activities and the environmental benefits that each individual can pursue;• roles and responsibilities in order to comply with the environmental policy and environmental management system procedures and

requirements, including the preparation of contingency and response plans;• the potential consequences of deviating from the operating procedures;• the potential offered by the effective implementation of a combined quality, environment and safety policy for Ansaldo sTs’s business

development and for the development of railway transport.subsequent environmental management system training sessions are held for personnel based on the specific corporate processes and related environmental aspects relevant to their activity.Records are kept of all training provided to personnel in its facilities. Training and educational sessions are coordinated by experts, who also produce relevant documentation.

General environment-related informationThe operations of Ansaldo sTs s.p.A.’s subsidiaries mainly comprise office-based activities; Ansaldo sTs s.p.A. has full responsibility therefor in terms of direct and indirect environmental aspects.The operations of several production facilities are fully compliant with the concepts of environmental protection and are among those which have been certified or for which the certification process is underway. The italian production facility (Tito-PZ) is also EMAs-certified.

Management of water resourcesWater consumption is purely for sanitary uses, except for at the Batesburg facilities, and is monitored and subject to regular sampling. Ansaldo sTs has rolled out water-saving initiatives in recent years, such as the installation of automatic sensor taps.

Generation and management of special wasteThe activities carried out at the facilities involve the generation of non-toxic special waste, mainly paper and cardboard packaging and plastic packaging. This is handled by companies authorised for its transport and recycling. Hazardous special waste generated by maintenance activities are disposed of by the global service companies contracted by AsTs.

Energy consumption, CO2 emissions, emission trading and other emissionsEnergy consumption mainly stems from heating, lighting and utility power; it is monitored and is in line with consumption levels reported for similar businesses. Ansaldo sTs has obtained RECs (Renewable Energy Certificate system) certification for the consumption of electrical energy at its italian facilities.RECs certificates (issued for every 1MWh) attest to the use of renewable energy sources.Through the purchase and subsequent withdrawal of the certificate from the market, Ansaldo sTs demonstrates its environmental commitment as it pays a higher amount than it would for electricity from conventional sources.

Management of dangerous substances Dangerous substances used in group processes are handled in full respect of the environment by adopting all possible precautions set out in technical literature and in compliance with REACH (EU) regulations.

Disclosure on management and coordination and related party transactions

Pursuant to article 2497-bis of the italian Civil Code, we note the company is managed and coordinated by finmeccanica s.p.A.. Key figures from the most recently-approved financial statements of finmeccanica s.p.A. are presented in the table under note 40. Pursuant to article 2497-bis, last point, of the italian Civil Code, the following tables present the relationships between the company exercising management and coordination activity and the other companies subject to such activity in 2012 and the previous year.The other companies subject to management and coordination by finmeccanica s.p.A. are those included in the consolidated financial statements of finmeccanica s.p.A., pursuant to article 2497-sexies of the italian Civil Code. Accordingly, as well as finmeccanica itself, these include all subsidiaries of Ansaldo sTs s.p.A. and finmeccanica. This disclosure is also required by article 2428.2 of the italian Civil Code, together with that related to the subsidiaries and associates and companies subject to the control thereof. With effect from 2011, the only impact of the application of iAs 24 (revised) related to disclosure requirements with reference to related parties, entailing the restatement of comparative figures shown in the schedules to consider as related parties those entities under the control or significant influence of the Ministry of Economy and finance (“MEf). The tables presented in notes 10 and 27 to the financial statements also disclose details of the amounts of the related party transactions in finmeccanica s.p.A.’s consolidated financial statements to the extent of finmeccanica group’s investment therein. Moreover, note 39 presents total and individual directors’ and statutory auditors’ fees and key managers’ remuneration.


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Disclosure on transactions with the company exercising management and coordination activities and other companies subject thereto, together with disclosure on the amount of related party transactions in finmeccanica’s consolidated financial statements and directors and statutory auditors’ fees and key managers’ remuneration, represent the related party disclosure required by iAs 24 “Related party disclosures”.

2012

Financial assets at 31 December 2012 (€’000)Loan

assetsTrade

receivables

Other current

financial assets Total

Parent 120,534 426 145 121,105subsidiaries 46,434 25,318 - 71,752Related companies - 136,182 45 136,227Consortia - 21,956 1,365 23,321

Total 166,968 183,882 1,555 352,405

Percentage of the total at the reporting date 85% 29% 4%

Financial liabilities at 31 December 2012 (€’000)Loans and

borrowingsTrade

payables

Other current

financial liabilities Total

Parent - 281 - 281subsidiaries 84,891 38,244 3 123,138Related companies - 56,161 371 56,532Consortia - 1,015 23 1,038

Total 84,891 95,701 397 180,989

Percentage of the total at the reporting date 99% 21% 0.8%

At 31 December 2012 (€’000) Revenue

Other operating

income ExpenseRecovery of

expense

Other operating expense

Financial income

Financial expense

Parent - 67 4,350 2 20 152 111

subsidiaries 22,160 9,469 42,163 3,156 - 1,476 3,665

Related companies 206,598 106 71,544 973 61 3,592 -

Consortia 9,770 1,458 2,393 34 35 - -

Total 238,528 11,099 120,450 4,165 116 5,219 3,776

Percentage of the total for the year 36% 44% 25% 1% 30% 22%

2011

financial assets at 31 December 2011 (€’000)Loan

assetsTrade

receivables

Other current


Parent 2,531 365 145 3,041

subsidiaries 58,782 24,768 - 83,550

Related companies - 77,584 - 77,584

Consortia - 32,594 1,364 33,959

Total 61,313 135,311 1,510 198,134

Percentage of the total at the reporting date 44% 24% 6%

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Directors’ Report at 31 December 2012 | Disclosure on management and coordination and related party transactions

financial liabilities at 31 December 2011 (€’000)Loan

assetsTrade

receivables

Other current financial

assets Total

Parent - 470 70 540subsidiaries 31,931 20,850 3 52,784Related companies - 42,427 - 42,427Consortia - 974 24 998

Total 31,931 64,722 96 96,749

Percentage of the total at the reporting date 96% 17% 0.2%

At 31 December 2011 (€’000) Revenue

Other operating

income ExpenseRecovery of

expense


financial income

financial expense

Parent - - 3,218 - - 7 105

subsidiaries 21,106 8,704 33,931 3,192 - 1,591 4,102Related companies 179,985 103 79,073 627 100 641 -Consortia 13,760 49 2,754 - - - -

Total 214,851 8,856 118,976 3,819 100 2,239 4,207

Percentage of the total for the year 30% 49% 22% 1% 12% 19%

Transactions with finmeccanica s.p.A. mainly relate to:- two deposits totalling €120,000 thousand at 31 December 2012; the first (€80,000 thousand) expired on 7 January 2013 and bore a fixed rate of 0.80% agreed by the parties; the second (€40,000 thousand) expired on 17 January 2013 and bore a fixed rate of 1.31%;

- a joint current account (€533 thousand at 31 December 2012) used to settle trading items with finmeccanica s.p.A. and finmeccanica group companies. The financial income generated by this transaction totalled €152 thousand for 2012;

- a current receivable arising from the application for refund of the iREs tax for the 10% flat deduction of the iRAP tax paid between 2004 and 2007 pursuant to Decree Law no. 185/2008 (the “Anti-crisis decree”) and subsequently discussed by the Tax authorities with circular no. 16/E of 14 April 2009. The receivable due from finmeccanica relates to 2004 (€145 thousand) when the merged companies, Ansaldo segnalamento ferroviario and Ansaldo Trasporti sistemi ferroviari, took part in the tax consolidation scheme with their parent, finmeccanica;

- current payables related to services provided to the company and not yet settled (€281 thousand at 31 December 2012);- expense totalling €4,350 thousand, related mainly to the recharge of commissions on sureties for €2,225 thousand and the licence to use the “Ansaldo” trademark for a period of 20 years (€1,611 thousand). Current and non-current prepayments of €1,610 thousand and €19,311 thousand respectively, relate to this transaction.

Transactions with subsidiaries are as follows:

financialAnsaldo sTs s.p.A. has joint current accounts with its subsidiaries to settle trading items with Ansaldo sTs and finmeccanica group companies. financial income and expense presented in the table arise from such transactions.The balance of the joint current accounts with the subsidiaries at 31 December 2012 are credit balances due from Ansaldo sTs UsA (€35,313 thousand), Ansaldo sTs Malaysia (€10,905 thousand), Ansaldo sTs UK (€7,693 thousand) and debit balances due to Ansaldo sTs france (€16,721 thousand), Ansaldo sTs Australia (€39,211 thousand), Ansaldo signal ireland (€3,601 thousand) and AsTs sweden (€25,359 thousand). The terms applied to the current accounts with Ansaldo sTs group companies are presented below.for those contracts expressed in Euros (france and ireland):• the debit interest rate applied by the parent to the subsidiary on each debit balance on the current account is the 1-month Euribor +

100 basis points.• the credit interest rate applied by the parent to the subsidiary on each credit balance on the current account is the 1-month Euribor - 25

basis points. for contracts expressed in foreign currency: • the debit interest rate applied by the parent to the subsidiary on each debit balance on the current account is the 1-month Libor for the

relevant currency + 100 basis points.• the credit interest rate applied by the parent to the subsidiary on each credit balance on the current account is the 1-month Libor for the

relevant currency - 25 basis points.

trading and other• Trading transactions with subsidiaries include the supply of spare parts to the subsidiary Ansaldo sTs france (€1,404 thousand);• important contracts are in place with the subsidiary Ansaldo sTs UsA international Co. for the Brescia, Rome, Milan and Riyadh projects;• other operating income mainly relates to recharges for services provided by the parent Ansaldo sTs s.p.A. to all AsTs group companies

under the general service agreement for a total of €8,722 thousand;• expense recovery mainly relates to the recharge of insurance costs of €1,585 thousand for policies where the premium was paid in

advance by Ansaldo sTs s.p.A. under advantageous agreements finmeccanica has with insurance companies, and the recharge of costs of €533 thousand related to the supply of an international centralised videoconference service.

Transactions with other related companies mainly relate to trading activities, for sales of systems, components or spare parts and to purchase materials. These include the contracts with Metro service As for the Copenhagen contract and with AnsaldoBreda for the new Copenhagen Ring contract.


35

With effect from 2011, the only impact of the application of iAs 24 (revised) related to disclosure requirements with reference to related parties, entailing the restatement of comparative figures shown in the schedules to consider as related parties those entities under the control or significant influence of the Ministry of Economy and finance (“MEf”). Revenue from ferrovia dello stato group companies totalled €146,859 thousand in 2012 (2011: €149,363 thousand) and €9,478 thousand from Eni group. Expense includes that due to the companies of Enel, Eni and ferrovie dello stato groups.

The following were the most significant of the non-trading transactions with related parties:• the lease instalment and recharge for management and use of common services in the Naples facilities via-a-vis AnsaldoBreda.

The 2012 lease instalment equalled €874 thousand (2011: €885 thousand) and the recharge for services was €1,954 thousand (2011: €1,885 thousand);

• the recharge from selex Elsag, mainly for the supply of iTC services under the contract for ordinary activities for €3,838 thousand (2011: €4,199 thousand). Moreover, we note the contract with selex Elsag for the implementation of the group’s new controlling model on the new sAP ECC 6.0 transnational platform for €959 thousand (2011: €4,279 thousand). implementation of the NCM is complete and has been in operation since January 2012 within Ansado sTs sweden;

• the “shared services Company” contract with the related company, finmeccanica Group service, for €850 thousand (2011: €870 thousand);• the cost from fata Logistic system relates to inventory management services.

Consortia are set up to carry out works; specifically, saturno consortium was set up to carry out works related to the high-speed railway. Other current financial assets of €1,360 thousand due from saturno consortium relate to the recharge of a disputed penalty, subsequently paid, related to delays claimed by TAV for certain activities covered by the Rider for the Rome-Naples section. An award was handed down in 2012 which also ordered the repayment of this penalty as it was improperly deducted.

Related party transactions between the parent and related parties take place on an arm’s length basis.

Disclosure on financial risk management and financial instruments

Reference should be made to the relevant section of the notes to the financial statements for disclosure on financial instruments and financial risks pursuant to article 2428.2.6-bis of the italian Civil Code, which also complies with the requirements of ifRs 7 “financial instruments: disclosures”.

Events after the reporting date

The company collected around €35 million from the Naples municipality at the beginning of January 2013 in relation to works to build Line 6 of the underground.

in february 2013, the Ansaldo sTs investee, Metro 5 s.p.A., completed the first section of Milan’s automatic light rail (“Line M5”) from Bignami to Zara.The project received project financing and was carried out by the operator Metro 5 s.p.A., which is owned by Ansaldo sTs s.p.A., AnsaldoBreda, Astaldi and Alstrom. The operator is in charge of its operation and maintenance for the next 30 years through the operations and experience of ATM, which also manages Milan’s other underground lines. The current route covers seven stations, from Bignami in the fulvio Testi area to Zara. it is slated to reach Garibaldi station by the end of 2013 and as far as san siro in 2015, offering passengers a line almost 13 kms long and taking 26 minutes, with 19 stations integrated with Milan’s other public transport systems. Ansaldo sTs group is a key player in Milan’s new automatic light rail system, having designed, supplied and implemented the nerve centre of the underground, i.e., the signalling system featuring driverless technology and requiring neither a driver on board the trains or personnel at the stations.

The fully automated driverless Brescia underground was handed over at the beginning of March 2013, a result of the partnership between Ansaldo sTs, Ansaldobreda and Astaldi.

in february, a pre-trial detention order was issued against the chairman and the CEO of the parent, finmeccanica, as part of investigations relating to transactions carried out by the finmeccanica group company, Agusta Westland, with the indian government, for crimes allegedly committed in the years he was CEO of that company. To the extent of our knowledge and based on the information we have, the events under investigation, which led to this order, are completely unrelated to finmeccanica’s transport business and, specifically, to Ansaldo sTs. Therefore, at present, these events are unlikely to cause interruptions or risks to Ansaldo sTs group’s contracts in india that could have a significant effect on the financial position and results of operations of the company and the group.

On 4 March 2013, in Naples, part of a building collapsed in Riviera di Chiaia, near the building site for Line 6 of the underground, for which the company is the operator. The causes of the collapse are not yet known and all relevant investigations are being carried out. The building site has been seized and operating activities will be carried out in conjunction with the relevant authorities. Based on available information, this event is not expected to have a significant impact on the company’s financial position and results of operations.

Outlook

Ansaldo sTs’s market has an estimated 3% growth rate p.a. and its entrenched presence in countries which are expected to grow at above-average rates (Asia, the Middle East, North America and Australia), together with the group’s consolidated technological leadership, underpin the strong expectations for the future.

2012 volumes are expected to be repeated in 2013, with a different mix due to the closure of the old more profitable contracts.

36

Proposal to the shareholders

Proposal to the shareholders

Dear shareholders,The 2012 financial statements, which we present for your approval, show a profit for the year of €50,737,997.69.

We propose you approve: (i) the distribution an €0.18 dividend, gross of withholdings, to shareholders, for each of the shares with a nominal amount of €0.50, outstanding today and bearing the right to dividends; (ii) the carry forward of the remaining amount.

Our proposal does not provide for any accrual to the legal reserve as it amounts to €16,000,000.00, equal to 20% of the share capital, which represents the maximum amount provided for by article 2430 of the italian Civil Code.

We note:• the shareholders accrued €6,549,322.77 to the legal reserve in their meeting of 23 April 2010; the amount of this reserve was later

increased to €10,000,000.00, equal to 20% of the then share capital amount of €50,000,000.00.• Also on 23 April 2010, the company accrued €10,000,000.00 in a new reserve (the “Reserve for legal reserve adjustments”), which

will automatically convert to the legal reserve to service the bonus issue, also approved on 23 April 2010; the transaction provides for a share capital increase totalling €50,000,000.00 (from the original €50,000,000.00 to €100,000,000.00), using available equity reserves, to be carried out between 2010 and up to 31 December 2014 via the issue of a total 100,000,000 ordinary shares of the company of a nominal amount of €0.50 each, divided into five annual instalments of 20,000,000 newly-issued ordinary shares each, for an amount of €10,000,000.00 for each instalment.

• The board of directors carried out the third instalment of the bonus issue on 9 July 2012, increasing the company’s share capital by €10,000,000.00 via the issue of 20,000,000 ordinary shares of a nominal amount of €0.50 each. following the issue of this third instalment, the company’s share capital now equals €80,000,000.00, comprising 160,000,000 ordinary shares of a nominal amount of €0.50 each. An amount of €2,000,000.00 was therefore simultaneously automatically transferred from the “Reserve for legal reserve adjustments”, which therefore reduced from €6,000,000.00 to €4,000,000.00, to the “Legal reserve”, which therefore increased from €14,000,000.00 to €16,000,000.00.

We therefore propose the following allocation of the profit for the year:• €28,799,864.64 to be recognised to the shareholders in the form of a dividend of €0.18, gross of withholdings, for each of the

159,999,248 shares currently outstanding and bearing the right to dividends, excluding 752 treasury shares from the calculation, with coupon date of 20 May 2013 and payable from 23 May 2013. Pursuant to article 83-terdecies of Legislative decree no. 58 of 24 february 1998, the right to receive the dividend was determined with reference to broker information, pursuant to article 83-quater.3 of the same Legislative decree no. 58/98, at the close of business on 22 May 2013 (the record date);

• carry forward €21,938,133.05.

The total amount of the dividend proposed for distribution corresponds to 36% of the share capital, to around 57% of Ansaldo sTs s.p.A.’s profit for 2012 and to around 38% of the group’s profit for 2012, which amounts to €75,664,823.74.


37

Dear shareholders,if you agree, we invite you to approve the following resolution:In their ordinary meeting, the shareholders of Ansaldo STS S.p.A.,- having read the directors’ report;- the report of the board of statutory auditors;- the financial statements at 31 December 2012;- and having acknowledged the report of the independent auditors, KPMG S.p.A.

resolve

A) to approve the directors’ report and the financial statements at 31 December 2012;B) to approve the proposal of the board of directors to allocate the profit of €50,737,997.69 as follows: •€28,799,864.64 to be recognised to the shareholders in the form of a dividend of €0.18, gross of withholdings, for each of the

159,999,248 shares currently outstanding and bearing the right to dividends, excluding 752 treasury shares from the calculation, with coupon date of 20 May 2013 and payable from 23 May 2013. Pursuant to article 83-terdecies of Legislative decree no. 58 of 24 February 1998, the right to receive the dividend was determined with reference to broker information, pursuant to article 83-quater.3 of the same Legislative decree no. 58/98, at the close of business on 22 May 2013 (the record date);

•carryforward€21,938,133.05.C) to separately authorise the chairman of the board of directors and the CEO, in the event purchases or sales of treasury shares take

place before the detachment date, to allocate and/or withdraw the amount of the ordinary dividend borne by such shares to/from retained earnings.

Genoa, 5 March 2013

On behalf of the board of directors The Chairman Alessandro Pansa (signed on the original)

38

Proposte alla assemblea


39

separate financial statements at 31 December 2012 and notes thereto

40

Separate Financial Statements at 31 December 2012 and notes thereto


Income Statement (in Euros) Note 31.12.2012of which,

related parties 31.12.2011of which,

related parties

Revenue 28 657,426,083 238,527,513 722,367,553 214,850,632

Other operating income 29 25,067,645 11,099,410 17,914,753 8,855,526

Purchases 30 (139,982,213) (42,237,993) (165,146,134) (49,177,468)

Services 30 (330,880,368) (74,047,162) (354,776,796) (65,979,322)

Personnel expense 31 (118,685,961) - (114,873,784) -

Amortisation, depreciation and impairment losses 33 (12,569,505) - (5,257,791) -

Other operating expense 29 (9,538,240) (115,703) (8,679,857) (99,696)

Changes in finished goods, work-in-progress and semi-finished products 32 (228,826) - (3,054,394) -

(-) Internal work capitalised 7 818,676 - - -

Operating profit 71,427,291 - 88,493,550 -

Financial income 34 17,410,363 5,219,447 18,669,444 2,238,968

Financial expense 34 (17,234,926) (3,776,325) (21,951,166) (4,207,285)

Profit before taxes and discontinued operations 71,602,728 - 85,211,828 -

Income taxes 35 (20,864,730) - (31,925,441) -

Profit/(loss) from discontinued operations - - - -

Profit for the year 50,737,998 - 53,286,387 -

Earnings per share (basic and diluted) 0.34 - 0.35* -

*recalculated following the bonus issue of 9 July 2012.

Statement of Comprehensive Income (in Euros) 31.12.2012 31.12.2011

Profit for the year 50,737,998 53,286,387

- Available-for-sale financial assets - -

- Actuarial gains (losses) on defined benefit plans (2,416,362) 1,328,687

- Net change in fair value of cash flow hedges 26,272 -

Income tax on other comprehensive income (expense) 657,275 (365,389)

Other comprehensive income/(expense), net of taxes (1,732,815) 963,298

Total comprehensive income for the year 49,005,183 54,249,685

41

Signalling and Transportation Solutions | Ansaldo STS S.p.A. 2012 Annual Report

Statement of Financial Position (in Euros) Note 31.12.2012of which,


related parties

Non-current assetsIntangible assets 7 12,553,542 - 13,031,349 -

Property, plant and equipment 8 67,415,945 - 69,038,125 -

Equity investments 9 143,960,628 - 143,413,088 -

Loans and receivables 11 11,324,416 7,955,310 7,127,849 3,941,322

Deferred tax assets 16 19,752,570 - 17,252,049 -

Other non-current assets 11 24,628,358 19,310,910 23,811,058 20,921,560

279,635,459 - 273,673,518 -

Current assetsInventories 12 94,452,439 - 84,022,909 -

Contract work in progress 13 178,389,916 - 144,528,230 -

Trade receivables 14 634,989,019 183,881,784 565,403,292 135,310,784

Current financial assets measured at fair value through profit or loss - - 24,742,500 -

Tax assets 16 10,493,157 - 8,674,928 -

Loan assets 14 195,410,790 166,967,786 140,166,992 61,313,371

Derivatives 17 8,200,350 - 9,578,819 -

Other current assets 18 37,554,179 1,555,374 26,338,153 1,510,065

Cash and cash equivalents 19 73,771,010 - 106,894,102 -

1,233,260,860 - 1,110,349,925 -

Total assets 1,512,896,319 - 1,384,023,443 -

EquityShare capital 20 79,998,308 - 69,998,175 -

Other reserves 20 111,526,551 - 119,391,962 -

Retained earnings, including the profit for the year 20 152,871,038 - 132,549,309 -

Total equity 344,395,897 - 321,939,446 -

Non-current liabilitiesLoans and borrowings - - 437,850 -

Employee benefits 23 19,263,157 - 18,380,164 -

Deferred tax liabilities 16 6,912,880 - 4,178,619 -

Other non-current liabilities 24 3,092,191 - 2,437,758 -

29,268,228 - 25,434,391 -

Current liabilitiesProgress payments and advances from customers 13 529,910,994 - 563,801,901 -

Trade payables 25 458,316,608 95,701,319 374,517,371 64,721,902

Loans and borrowings 21 85,330,833 84,891,185 33,130,618 31,931,113

Tax liabilities 16 560,818 - - -

Provisions for risks and charges 22 5,568,560 - 7,753,029 -

Derivatives 17 6,853,261 - 10,100,676 -

Other current liabilities 24 52,691,120 396,944 47,346,011 96,133

1,139,232,194 - 1,036,649,606 -

Total liabilities 1,168,500,422 - 1,062,083,997 -

Total liabilities and equity 1,512,896,319 - 1,384,023,443 -

42


Statement of cash flows (in Euros) Note 31.12.2012of which,


related parties

Cash flows from operating activities:Gross cash flows from operating activities 37 87,276,630 - 101,580,601 -

Change in working capital 37 (63,968,615) (17,591,583) (11,900,993) (15,929,786)

Changes in other operating assets and liabilities 37 (22,419,405) 255,502 (18,712,318) 123,867

Net interest paid 37 (2,712,473) (1,443,122) 1,636,780 1,968,317

Income taxes paid 37 (17,681,717) - (43,306,138) -

Cash flows from/(used in) operating activities (19,505,580) - 29,297,932 -

Cash flows from investing activities:Acquisitions of companies, net of cash acquired (216,300) - (6,301,500) -

Investments in property, plant and equipment and intangible assets (5,240,869) - (7,493,304) -

Sales of property, plant and equipment and intangible assets - - - -

Dividends received 3,592,018 - - -

Issue (repurchase) of treasury shares - - 290,586 -

Other investing activities (5,013,867) (4,013,988) (3,665,704) (2,935,682)

Cash flows used in investing activities (6,879,018) - (17,169,922) -

Cash flows from financing activities:Net change in loan assets and loans and borrowings 21,261,413 (158,614,487) 12,857,947 113,058,932

Share capital increase - - - -

Coverage of losses - - - -

Dividends paid (27,999,907) 11,218,351 (33,592,384) 13,462,022

Change in reserves - - - -

Net change from other financing activities - - - -

Cash flows used in financing activities (6,738,494) - (20,734,437) -

Net decrease in cash and cash equivalents (33,123,092) - (8,606,427) -

Exchange rate gains (losses) - - - -

Opening cash and cash equivalents 106,894,102 - 115,500,529 -

Closing cash and cash equivalents 73,771,010 - 106,894,102 -

43


Statement of changes in equity (in Euros)Share

capitalRetained earnings

Stock grant reserve

Hedging reserve

Other reserves

Total equity

Equity at 1 January 2011 59,707,589 111,526,619 2,124,474 - 131,148,620 304,507,302

Use of treasury shares for SGP 290,586 - - - - 290,586

Bonus issue of 20,000,000 shares 10,000,000 - - - (10,000,000) -

Other comprehensive income/(expense), net of taxes - 1,328,687 - - (365,389) 963,298

Change in SGP reserves - Ansaldo STS S.p.A. - - (2,017,192) - - (2,017,192)

Change in SGP reserves - other companies - - - - (1,498,551) (1,498,551)

Dividends (119,972,800 x 0.28) - (33,592,384) - - - (33,592,384)

Profit for the year ended 31 December 2011 - 53,286,387 - - - 53,286,387

Equity at 31 December 2011 69,998,175 132,549,309 107,282 - 119,284,680 321,939,446

Use of treasury shares for SGP 133 - - - - 133

Bonus issue of 20,000,000 shares 10,000,000 - - - (10,000,000) -

Other comprehensive income/(expense), net of taxes - (2,416,362) - 26,272 657,275 (1,732,815)

Change in SGP reserves - Ansaldo STS S.p.A. - - 1,095,456 - - 1,095,456

Change in SGP reserves - other companies - - - - 355,586 355,586

Dividends (139,999,537 x 0.20) - (27,999,907) - - - (27,999,907)

Profit for the year ended 31 December 2012 - 50,737,998 - - - 50,737,998

Equity at 31 December 2012 79,998,308 152,871,038 1,202,738 26,272 110,297,541 344,395,897

44

Separate Financial Statements at 31 December 2012 and notes thereto | Notes to the Separate Financial Statements at 31 December 2012

Notes to the Separate Financial Statements at 31 December 2012

1. General informationAnsaldo STS is a company limited by shares with its registered office in Via Paolo Mantovani 3-5, Genoa, and a branch in Via Argine 425, Naples. It has been listed on the Star segment of the stock exchange managed by Borsa Italiana S.p.A. since 29 March 2006 and included in the FTSE MIB index since 23 March 2009. Ansaldo STS S.p.A. is a subsidiary of Finmeccanica S.p.A., with its registered office in Piazza Monte Grappa 4, Rome, which manages and coordinates the company.

On 9 July 2012, as approved by the board of directors on 23 May 2012, the company carried out the third instalment of the bonus issue approved by the shareholders in their extraordinary meeting of 23 April 2010.Following the issue of this third instalment, the company’s share capital now equals €80,000,000, comprising 160,000,000 ordinary shares of a nominal amount of €0.50 each.

Ansaldo STS group operates internationally in the design, construction, marketing and sales of solutions, systems, products, components and services in the above-ground and underground railway Signalling and Transportation Solutions business units.Ansaldo STS S.p.A., as parent, also exercises industrial and strategic guidance and control, coordinating the activities of its operating subsidiaries (together, “Ansaldo STS group” or the “group”), which operate in the above industrial sectors.Ansaldo STS group’s origins lie in transport signalling and system activities, which were carried out by Ansaldo Transporti (Finmeccanica group) until the second half of the 1990s. The incorporation of Ansaldo Signal N.V. in 1996 and Ansaldo Trasporti Sistemi Ferroviari S.p.A. in 2000 (along with the incorporation of AnsaldoBreda S.p.A. for the vehicles sector in the same year) entailed a reorganisation of the entire transport sector, whereby Finmeccanica gained full control of Ansaldo Signal N.V., Ansaldo Trasporti Sistemi Ferroviari S.p.A. and AnsaldoBreda S.p.A..Meanwhile, Finmeccanica S.p.A. acquired S.I.C. Società Italiana Comunicazioni S.r.l. in 1996, and the latter’s name was changed to EuroSkyway S.r.l. in 1997. It went into liquidation in April 2005.To implement the strategic decision taken by Finmeccanica S.p.A. in the second half of 2005 to list the signalling and transportation solutions operations on the stock market, after having standardised these activities using a single management model with a view to exploiting industrial and commercial synergies, at the end of 2005, the sole quotaholder of EuroSkyway S.r.l. (Finmeccanica S.p.A.) resolved to reverse the company’s liquidation and then transform it into a company limited by shares, change the company’s name to Ansaldo STS and change its business object to above-ground and underground railway signalling and transportation systems.After this transaction was completed, as previously discussed, in February 2006, Ansaldo STS acquired 100% of Ansaldo Signal N.V. and Ansaldo Trasporti Sistemi Ferroviari S.p.A. from Finmeccanica S.p.A.. Ansaldo STS has been listed on the stock exchange since 29 March 2006. Specifically, Finmeccanica S.p.A. sold 60 million shares of the company (equal to 60% of the share capital) to the market at the price of €7.80 per share, retaining the remaining 40 million shares (equal to 40% of the share capital).

At the time the investments in Ansaldo Signal N.V. and Ansaldo Trasporti Sistemi Ferroviari S.p.A. were acquired (24 February 2006), all companies operating globally in the signalling activities were owned by Ansaldo Signal N.V., while the transportation solution companies were held by Ansaldo Trasporti Sistemi Ferroviari S.p.A..Later on, in order to improve the synergies and the coordination between the two activities, Ansaldo STS launched a reorganisation of the group whereby each company operating in the signalling segment set up a Transportation Solutions business unit based on Ansaldo Trasporti Sistemi Ferroviari S.p.A.’s know how, skills and experience.In Italy, the two operating companies active, respectively, in the Signalling and Transportation Solutions business units, Ansaldo Segnalamento Ferroviario S.p.A. and Ansaldo Trasporti Sistemi Ferroviari S.p.A., were merged into the parent, Ansaldo STS S.p.A., listed on the stock exchange, pursuant to article 2505 of the Italian Civil Code. The merger took effect for legal, accounting and tax purposes on 1 January 2009.As part of this complex company reorganisation, the Dutch sub-holding company, Ansaldo Signal N.V., was also merged into Ansaldo STS. This transaction entailed the cancellation of all the shares making up the entire share capital of Ansaldo Signal N.V.. The share capital of Ansaldo STS was not increased as the company is wholly owned by the latter.The merger took effect for legal, accounting and tax purposes on 1 October 2009. This transaction entailed the transfer of all investments held by Ansaldo Signal N.V. to Ansaldo STS.

As stated, Ansaldo STS has two business units: Signalling and Transportation Solutions.

Signalling comprises the design, production, management and maintenance of signalling systems, subsystems and components for above-ground and underground railway transport. The key operating companies in this business unit are the parent Ansaldo STS S.p.A. (as a result of the merger of Ansaldo Segnalamento Ferroviario S.p.A.) in Italy, Ansaldo STS France S.A.S. in France, Ansaldo STS Australia PTY Ltd. in Asia/Pacific and Ansaldo STS USA Inc. in America.Transportation Solutions comprises the design and development of integrated transport systems, of which signalling is an essential part. More specifically, it involves designing and planning ways to integrate design and development activities for the technological components of the system, i.e., the track, signalling, power supply, telecommunications and vehicles (for both above-ground and underground trains), as well as any other technological works that, as a whole, represent an integrated transport system. The finished integrated transport system product, whether for above-ground or underground railways, is then delivered on a “turnkey” basis to the customer. The group can also offer signalling and transportation systems services separately, tailored to customer’s specific needs.The key core expertise for these activities is centralised in Italy at the parent, Ansaldo STS S.p.A., following the merger of the subsidiary, Ansaldo Trasporti Sistemi Ferroviari S.p.A., which was focused exclusively on this sector. All foreign group companies originally active in the Signalling field are now honing their expertise and increasing their commercial foothold also in the Transportation Solutions sector.

45


2. Basis of preparationAnsaldo STS S.p.A.’s separate financial statements at 31 December 2012 are drafted in accordance with the International Financial Reporting standards (IFRS) endorsed by the European Commission pursuant to EC regulation no. 1606/2002 of 19 July 2002, integrated by the interpretations of the Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC) issued by the International Accounting Standard Board (IASB).

These separate financial statements have been prepared on a cost basis, except for derivative financial instruments and assets measured at fair value as permitted by IAS 39.

As permitted by IAS 1, assets and liabilities are presented in the statement of financial position as current and non-current, while income statement captions are shown by nature. The statement of cash flows was prepared using the direct method.

Amounts are shown in thousands of euros (€’000) unless stated otherwise.The separate financial statements of Ansaldo STS S.p.A. at 31 December 2012 were approved and authorised for publication by the board of directors in accordance with ruling legislation on 5 March 2013.

These financial statements have been prepared in accordance with the IFRS and audited by KPMG S.p.A..

Preparation of the separate financial statements required management to make estimates. Reference should be made to note 4 for information on the main areas which entailed particularly significant measurements and assumptions, along with those having a significant effect on the financial statements.

3. Accounting policiesFunctional currency: these separate financial statements are presented in euros, which is the company’s functional currency.

Foreign currency transactions: Foreign currency monetary items (cash and cash equivalents, assets and liabilities to be received or settled in established or determinable monetary amounts, etc.), as well as non-monetary items (advances to suppliers of goods and/or services, etc.), are initially recognised at the exchange rate ruling when the transaction is performed. Subsequently, monetary items are translated into the functional currency at the closing rate and any exchange rate gains or losses are taken to profit or loss. Non-monetary items are maintained at the exchange rate ruling at the transaction date, unless continuing adverse economic trends affect the rate, in which case exchange rate differences are taken to profit or loss.

Intangible assetsIntangible assets are identifiable non-monetary assets without physical substance that generate future economic benefits for the company. They are recognised at purchase and/or production cost, including directly related charges incurred to prepare them for use, net of accumulated amortisation, except for assets with an indefinite useful life, and any impairment losses. Amortisation begins when the asset becomes available for use and is calculated systematically over the residual useful life of each asset. Amortisation is calculated considering the actual use of the asset in the year in which an intangible asset is initially recognised.

(i) Concessions, licences and trademarksThese include trademarks identifying the origin of products or goods from a specific company and licences to use know-how, software or the property of others. The costs, including direct and indirect expenses incurred to obtain these rights, are capitalised after the rights have been acquired and are amortised systematically over the shorter of the period of expected use and the period for which the right has been acquired.

(ii) Research and development expenseResearch expense is taken to profit or loss when incurred. Internally generated intangible assets and the related development expense are recognised only when all the following conditions exist simultaneously:• the asset can be identified;• the asset may generate future economic benefits;• the cost to develop the asset can be measured reliably; • there is a reference market for the product generated by the development activity.

When these conditions are not met, development expense is recognised in profit or loss when incurred. This expense, which is capitalised only when the four above conditions are met, is amortised on a straight-line basis over the asset’s useful life.

46


Leased assetsAssets held under finance lease, whereby the risks and rewards of ownership are substantially transferred to the company, are recognised as assets at their present value or, if lower, at the present value of minimum lease payments. The corresponding liability to the lessor is recognised under loans and borrowings. These assets are depreciated using the above criterion and rates described in the section about property, plant and equipment. Leases whereby the lessor substantially retains the risks and rewards of ownership are classified as operating leases. Costs related to operating leases are recognised in profit or loss on a straight-line basis over the lease term.

Property, plant and equipmentProperty, plant and equipment are measured at purchase or production cost, net of accumulated depreciation and any impairment losses. Cost includes direct charges incurred to prepare assets for use and any disposal and removal costs that will be incurred to restore the site to its original conditions in line with contractual terms.

Costs for ordinary and/or routine maintenance and repairs are taken directly to profit or loss when incurred. Costs to expand, upgrade or improve owned or leased assets are capitalised only to the extent they meet the requirements to be classified separately as assets or part of an asset. Grants related to assets are taken as a direct decrease in the cost of the asset to which they relate.

The carrying amount of each asset is depreciated on a systematic basis. Depreciation is calculated on a straight-line basis each year over the residual useful lives of assets. Depreciation is calculated considering the actual use of the asset in the year in which an item of property, plant and equipment is initially recognised. The following table lists depreciation periods for each item of property, plant and equipment:

Years

Land indefinite useful life

Buildings 33.33

Plant and machinery 6.45 – 10

Industrial equipment 4

Other assets 4 – 8.33

If a depreciable asset is comprised of separately identifiable components with useful lives that differ significantly from the other components comprising the asset, depreciation is calculated separately for each component, using the component approach.

Profits and losses on the sale of assets are measured by comparing the selling price with the related carrying amount.

Impairment lossesAssets with an indefinite useful life are not depreciated/amortised, but are tested for impairment annually. Depreciable assets are tested to check whether there is any indication that they may be impaired. If any such indication exists, the recoverable amount of the asset is estimated and any excess thereof is recognised in profit or loss. When the reasons underlying a previously recognised impairment loss no longer exist, the carrying amount of the asset is restored to the extent of its original carrying amount. Reversals of impairment losses are also recognised in profit or loss. Conversely, reversals of impairment losses are never applied to goodwill.

Equity investmentsThe company classifies its equity investments as follows:• “subsidiaries”, in which the investor has the power to govern the financial and operating policies so as to obtain benefits from its

activities;• “associates”, in which the investor has significant influence (at least 20% of the voting rights in ordinary shareholders’ meetings).

Jointly controlled entities (e.g., joint ventures) are included in this category;• “parents”, when the investor holds shares of its parent;• “other companies” that do not fall into either of the above categories.

Any equity investments held for sale, such as those that are acquired solely for the purpose of disposal within twelve months, are classified separately as “assets held for sale”.

Subsidiaries, including jointly-controlled subsidiaries, associates and other entities, with the exception of those that are classified as “assets held for sale”, are measured at acquisition or incorporation cost. This cost remains in subsequent financial statements unless there are impairment losses or reversals of impairment losses following a variation in the purpose of the company or equity transactions.

The table in note 9 “Equity investments” summarises equity investments. Figures about subsidiaries are taken from the respective draft financial statements at 31 December 2012 approved by the relevant board of directors, while the carrying amounts of associates and other companies were compared with the equity of investees, as per the most recently approved financial statements.

InventoriesInventories are measured at the lower of purchase/production cost and net realisable value. Cost is calculated using the weighted average cost method. Finished goods and semi-finished products include costs for raw materials, direct labour costs and indirect costs allocated considering an ordinary production capacity.

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Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The carrying amount of inventories is adjusted through a specific allowance to consider slow-moving or obsolete items.

Contract work in progressContract work in progress is recognised in accordance with the percentage of completion method whereby contract cost, revenue and contract profits (losses) are recognised using the percentage of completion method. The company elected to use the cost-to-cost percentage of completion method.The measurement reflects the best estimate of the stage of completion at the reporting date. The company periodically updates the assumptions underlying these measurements. Any profits or losses are recognised in the year in which the adjustments are made. The expected loss on a contract is recognised entirely under operating costs when it becomes reasonably foreseeable, along with an accrual to the provision for expected losses to complete contracts.Contract work in progress is recognised net of any allowances, expected losses and progress payments and advances relating to contracts in progress. This analysis is performed individually for each contract, recognising the positive difference (work in progress in excess of progress payments and advances) under contract work in progress and the negative difference under “progress billings”. If the amount recognised under progress billings is not collected at the preparation date of the annual and/or interim financial statements, a balancing entry is recognised under trade receivables.Contracts with consideration in a currency other than the functional currency are measured by translating the portion of consideration accrued, as per the percentage of completion method, at the closing rate. However, under the company’s policy governing currency risk, all contracts whose cash inflows and outflows are significantly exposed to exchange rate fluctuations are adequately hedged.

Financial instrumentsFinancial instruments include financial assets and financial liabilities which are classified upon initial recognition based on the reason for which they were purchased. Purchases and sales of financial instruments are recognised on the date the transaction took place, being the date on which the company undertakes to purchase or sell the asset.

Financial assetsFinancial assets are initially recognised in one of the following categories:

(i) Loans and receivables: these are non-derivative financial instruments, mainly related to trade receivables, with fixed or determinable payments that are not quoted on an active market. They are included in the current section, except for those which are due after more than twelve months after the reporting date which are therefore included under the non-current section. They are initially recognised at fair value, adjusted to reflect any transaction costs, and subsequently measured at amortised cost using the effective interest method. If there is objective evidence of impairment, the carrying amount of the asset is discounted to the estimated future cash flows. Impairment losses are recognised in profit or loss. If, in subsequent years, the reasons underlying the previous impairment losses no longer exist, the carrying amount of the asset is restored to the extent of the carrying amount that would have been obtained had the impairment not been recognised.

(ii) Available-for-sale financial assets: these are non-derivative financial assets that are designated as available for sale or are not classified under any of the above categories. They are measured at fair value and fair value gains or losses are taken to an equity reserve which is released to profit or loss only when the financial asset is actually sold or, in the case of cumulative losses, when the impairment loss recognised in equity will not be recovered. Classification under current or non-current assets depends on strategic choices about the term of ownership of the asset and its actual trading possibilities. Assets that are expected to be realised within twelve months are recognised as current assets.

(iii) Financial assets at fair value through profit or lossThis category includes financial assets acquired for the purpose of trading in the short term or designated as such by management, in addition to derivative instruments, in relation to which reference should be made to the paragraph below. The fair value of these instruments is based on the bid price at the reporting date: the fair value of unquoted instruments is determined using generally accepted financial valuation techniques. Fair value gains or losses of the financial instruments included in this category are recognised immediately in profit or loss.Classification as current or non-current reflects management expectations about trading: they are included under current assets when they are expected to be traded within twelve months of the reporting date or when they are recognised as held for trading.

(iv) Held-to-maturity investmentsThese are non-derivative financial assets with fixed maturity that the company has the positive intention and ability to hold to maturity. They are measured at amortised cost, using the effective interest method. They are initially recognised at fair value on the trade date, inclusive of any transaction costs and subsequently classified under current assets when their contractual maturity is within twelve months. If there is objective evidence of impairment, the carrying amount of the asset is reduced to that of discounted future cash flows: impairment losses identified by means of impairment tests are recognised in profit or loss. If, in subsequent years, the reasons underlying the impairment loss cease to exist, the impairment loss is reversed to the extent of the carrying amount the asset would have had based on amortised cost had the impairment not been recognised.Financial assets are derecognised when the company’s right to receive cash flows from the instrument no longer exists and the company has transferred all risks and rewards of the instrument and control thereof.

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Financial liabilitiesFinancial liabilities relate to loans, trade payables and other payment obligations. They are initially recognised at fair value, less any transaction costs, and subsequently measured at amortised cost, using the effective interest method. If changes in expected cash flows can be estimated reliably, the carrying amount of loans is recalculated to reflect the change based on the present value of the new expected cash flows and the initially determined internal rate of return. Financial liabilities are classified under current liabilities, unless the company has the unconditional right to defer payment by at least twelve months of the reporting date.

Financial liabilities are derecognised upon settlement and when the company has transferred all the risks and charges related to the instrument.

DerivativesDerivatives are always classified as assets held for trading and measured at fair value through profit or loss, unless they qualify for hedge accounting and are effective in hedging the underlying assets, liabilities or commitments of the company.Specifically, the company uses derivatives exclusively as part of its strategies of hedging the risk of fluctuations in the fair value of recognised assets or liabilities or due to contractual commitments (fair value hedges), using the so-called forward instruments which, sometimes, despite a substantial and operating hedging effect, do not qualify for hedge accounting under IAS 39. Specifically, fluctuations in the fair value of these instruments and the related underlying items are recognised immediately in profit or loss, under financial items.

The effectiveness of hedges is documented at the inception of the transaction, as well as periodically at each annual or interim reporting date. Hedge effectiveness is measured by comparing the variations in the fair value of the hedging instrument with those of the hedged item (dollar offset ratio), or, for more complex instruments, using statistical analysis based on risk variations.Fair value hedges: changes in the fair value of derivatives designated as fair value hedges and which qualify as such are recognised in profit or loss, as are changes in the fair value of the underlying assets or liabilities attributable to the risk eliminated by the hedging transaction.Cash flow hedges: changes in the fair value of derivatives designated as cash flow hedges and which qualify as such are recognised to the extent of the portion determined to be “effective”, in a specific equity reserve (“hedging reserve”). This is subsequently reclassified to profit or loss when the forecast transaction affects profit or losses. The change in the fair value of the ineffective portion is recognised immediately in profit or loss. If the hedging instrument is sold or no longer effectively hedges the risk for which it was agreed, the relevant portion of the “hedging reserve” is released immediately to profit or loss.Determining the fair value of financial instruments: the fair value of financial instruments quoted on active markets is calculated using the bid price at the reporting date. In the absence of an active market, fair value is calculated based on the prices provided by external operators and using models which are mainly based on objective financial variables considering, where possible, the recent prices of actual transactions and the quotations of similar financial instruments.

Financial assets and financial liabilities carried at fair value are classified based on the three following hierarchy levels which reflect the significance of the inputs used in measuring fair value. Specifically:• Level 1: financial assets and financial liabilities whose fair value is calculated based on quoted prices (unadjusted) in active markets for

identical assets or liabilities;• Level 2: financial assets and financial liabilities whose fair value is calculated based on inputs other than the quoted prices referred to

in level 1 that may be observed either directly or indirectly;• Level 3: financial assets and financial liabilities whose fair value is calculated based on unobservable market data.

Cash and cash equivalentsCash and cash equivalents comprise cash balances, call deposits with banks, other highly liquid short-term investments and current account overdrafts (the latter are recognised under current liabilities). They are recognised at fair value.

EquityShare capital: Share capital is fully subscribed and paid-up. Costs which are strictly related to share issues are recognised as a reduction of share capital, net of any deferred tax effect, if directly attributable to equity transactions.

(i) Retained earnings or losses carried forward: they include current and previous years profit or loss to the extent of the portion which was not distributed or taken to reserves (earnings) or which is to be covered (losses). This caption also includes transfers from other equity reserves when they are released and the effects of changes in accounting policies and errors.

(ii) Other reserves: they include, inter alia, the stock grant reserve and that related to defined benefit plans as share-based payments as well as the reserve for actuarial components on defined benefit plans recognised directly in equity.

Deferred taxesDeferred taxes are recognised in respect of temporary differences between the carrying amounts of assets and liabilities and their tax base. Deferred tax assets and liabilities are measured at the tax rates that are expected to be enacted when realising assets and settling liabilities, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable profits will be available in the years the related temporary differences reverse against which the deductible temporary differences can be utilised.

Employee benefits(i) Post-employment benefits: several pension (or supplementary) schemes are in place. They can be analysed as follows:• Defined contribution plans under which the company pays fixed contributions into a separate entity (e.g. a fund) and has no legal or

constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay employees benefits relating to employee service. Contributions payable to a defined contribution plan are recognised only when employees have rendered service in exchange for such contributions.

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• Defined benefit plans whereby the company has an obligation to provide the agreed benefits to current and former employees and bears the actuarial and investment risks of the plan. Consequently, the cost of this plan is not calculated based on the contributions of the year, rather, actuarial and financial assumptions are applied using the projected unit credit method.

Defined benefit plans are recognised using the so-called equity method whereby the actuarial gains and losses of all plans are recognised directly in equity when they take place.With respect to the classification of costs related to defined benefit plans, current and past service costs and curtailment (where applicable) are recognised under “Personnel expense”. Conversely, interest costs, net of the expected return on any plan assets, are classified under “financial interest”. Moreover, costs related to defined contribution plans are recognised under “personnel expense”.

(ii) Other long-term employee benefitsSome employees are granted certain benefits such as jubilee benefits and seniority bonuses. The accounting treatment is the same as that applied to defined benefit plans, hence the “projected unit credit method” is used and any actuarial gains and losses are recognised immediately and entirely when they arise.

(iii) Termination benefits Termination benefits are recognised as a liability and an expense when the company is demonstrably committed to terminating the employment of an employee or group of employees before the normal retirement date or providing termination benefits as a result of an offer made in order to encourage voluntary redundancy. Termination benefits do not generate future economic benefits for the company and, accordingly, are immediately expensed.

(iv) Stock grant plans Stock grant plans are in place for the company’s senior management. In this case, the theoretical benefits granted to the beneficiaries are recognised in profit or loss for the years covered by the plan, with a balancing entry in equity. These benefits are calculated by measuring the fair value of the relevant instrument using valuation techniques which include market conditions, if any, and by adjusting the number of options that are expected to be granted at each annual or interim reporting date.

Provisions for risks and chargesThe provisions for risks and charges are recognised against certain or probable losses and expenses for which the company is uncertain of the timing and/or amount at the reporting date.Provisions for risks and charges are recognised if, at the reporting date, as a result of a past event, the company has a legal or constructive obligation that will lead to an outflow of resources which can be estimated reliably. The amount recognised as a provision is the best estimate of the discounted outlay required to settle the obligation. The discount rate used reflects current market assessments and the additional effects of the risk specific to the liability. Changes in estimates are recognised in profit or loss when they take place.Risks for which liabilities are only possible are disclosed in a specific section of the notes on commitments and risks. They are not provided for.

Recognition of revenueRevenue is measured at the fair value of the consideration received, net of value added tax, any discounts and volume rebates. Revenue also includes work in progress.Revenue relating to the sale of goods is recognised when the company has transferred to the buyer the significant risks and rewards of ownership of the goods which generally coincides with transfer of title or possession to the buyer, or when the revenue can be measured reliably. Revenue from the rendering of services is recognised based on the percentage of completion method, provided that it can be estimated reliably.

GrantsGovernment grants, including non monetary grants at fair value, are only recognised when there is reasonable assurance that the company will comply with the conditions attaching to them and that the grants will be received. Grants related to income are recognised on an accruals basis and in direct correlation with costs incurred when their allocation has been formally approved. Grants related to assets are recognised in profit or loss directly in line with the depreciation/amortisation of the assets/projects to which they relate and are recognised as a direct reduction in depreciation/amortisation.

CostsCosts are recognised if they are pertinent to the company’s business and on an accruals basis.

Financial income and expenseInterest income and expense are recognised on an accruals basis using the effective interest method, i.e., at the interest rate that makes all cash inflows and outflows (including any premiums, discounts, commissions, etc.) comprising the transaction financially equivalent. Financial expense is not capitalised under assets as it does not meet the requirements set out in IAS 23 revised.

DividendsDividends are recognised when the right to receive payment is established. This usually coincides with the shareholders’ resolution approving their distribution.Dividends paid to the shareholders of Ansaldo STS are considered as a change in equity and recognised as a liability in the year in which the distribution was approved by the company’s shareholders.

Income taxesIncome taxes are recognised based on an estimate of taxable income in accordance with ruling legislation, taking into account any applicable exemptions and tax assets.

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Current taxes are recognised in profit or loss, except for those related to captions that are directly taken to equity or comprehensive income, in which case the tax effect is recognised directly in equity or comprehensive income. They are offset when they are levied by the same taxation authority, there is a legally enforceable right to set off the recognised amounts and settlement on a net basis is expected.

Related party transactionsAll related party transactions take place on an arm’s length basis.

Other informationAs the company owns investments in subsidiaries, it is required to prepare group consolidated financial statements.

New reporting standards (IFRS) and interpretations (IFRIC)At the preparation date of these financial statements, the EU has endorsed several standards and interpretations which are not yet mandatory and which the company will apply in the next few years. The main changes and potential impacts on the company are as follows:

IFRS - IFRIC Impacts on the companyIAS 1 Amendment Presentation of financial

statementsThe amendments to this standard are intended to improve the presentation of items in other comprehensive income, facilitating the distinction between captions that may or may not be reclassified to the income statement.The company will apply this standard starting from 1 January 2013.

IFRS 7 Amendment Financial instruments - Disclosures

This standard requires disclosure about the effects or the potential effects of offsetting financial assets against financial liabilities on the statement of financial position.Application of this amendment is not expected to have any significant effect on the company’s financial statements.The company will apply this standard starting from 1 January 2013.

IAS 27 Revised Separate financial statements The revision of this standard coincided with the approval of IFRS 10, limiting the scope of application to separate financial statements only.Given the nature of the amendment, its application is not expected to have any significant effect on the company’s financial statements.The company will apply this standard starting from 1 January 2014.

IAS 28 Revised Investments in associates and joint ventures

This standard was amended, specifying how to apply the equity method.Application of this amendment will have no effect on the company’s financial statements as this standard only applies to separate financial statements.The company will apply this standard starting from 1 January 2014.

IAS 32 Amendment Financial instruments - Presentation

This standard clarifies when financial assets can be offset against financial liabilities.Application of this amendment is not expected to have any significant effect on the company’s financial statements.The company will apply this standard starting from 1 January 2014.

IFRS 11 Joint arrangements This standards eliminates the possibility of using the proportionate consolidation method for joint arrangements, which will qualify as joint ventures as per IFRS 11. The consolidated financial statements will include the relevant portion of revenue, expense, assets and liabilities of the joint operations. The group currently consolidates its joint ventures using the proportionate consolidation method, consolidating the figures shown in note 41. Following the application of the new standard, profit or loss figures will be grouped into one caption, including the relevant portion of profits or losses of the joint ventures, while, in the statement of financial position, figures will be presented under equity investments, without any impact on the group’s equity.The group will apply this standard starting from 1 January 2014.

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4. Significant accounting policiesThe most significant accounting policies which require that directors prepare estimates based on a greater degree of subjectivity and for which a change in one of the underlying conditions would have a significant impact on financial statements are described below:

(i) Provisions for risks and expected losses to complete construction contracts: the company operates in extremely complex business segments and with complex contractual arrangements which are recognised using the percentage of completion method. Profits or losses recognised in profit or loss reflect contract progress and the profits or losses which will be recognised for the entire contract once it is completed. Consequently, for the purposes of correctly recognising work in progress and profits related to works yet to be completed, management is required to make an accurate estimate of expected costs to complete, expected increases and delays, additional costs and penalties which could have an impact on the expected profit. In order to better assist management’s estimates, the company has adopted contract risk management and analysis procedures which identify, monitor and quantify the risks related to contract performance. Carrying amounts reflect management’s best estimate at that time, assisted by the above procedural tools. Moreover, the company’s business activities cover segments and markets in which disputes (both where the company is claimant and defendant) are generally only settled after a significant time lapse, especially in cases where the counterparty is a state body. This requires that management predicts the outcome of such disputes which will then be considered in the assessment of the contract. Estimating expected losses entails the assumption of estimates which depend on factors that can change over time and that could have a significant effect on directors’ current estimates made to prepare financial statements.

(ii) Impairment losses: the group’s assets with an indefinite useful life are tested for impairment at least once each year or more often if there is evidence of impairment. Likewise, all assets showing evidence of impairment are tested, also when depreciation/amortisation has already begun.Impairment tests are usually performed using the discounted cash flow method; however, this method is considered highly sensitive to the assumptions included in the estimate of future cash flows and of the interest rates applied.For the purposes of these valuations, the group uses the plans approved by company bodies and financial parameters which are in line with those reflecting the current trend of reference markets.

5. Effects of amendments to the IFRSThe company has adopted IFRS 7 Financial instruments: disclosures - amendment with effect from 1 January 2012.This amendment establishes additional disclosures to be provided about transfers of financial assets that are not derecognised or in the event of any continuing involvement in transferred financial assets. It only affects the disclosure provided in financial statements.

6. Segment reportingThe company operates in two business units: via the Signalling business unit, in the above-ground and underground railways segment and, via the Transportation Solutions business unit, in the design and construction of integrated transportation systems. Reference should be made to the directors’ report for a more in-depth analysis of the main programs, outlook and revenue and adjusted gross operating profit (loss) for each business unit. The results of the business units for 2012, compared with those of the previous year, are as follows:

Operating profit (loss) by Business Unit

31.12.2012 (€’000) SignallingTransportation

SolutionsOther

activities Eliminations Total

Revenue 283,658 383,626 - (9,858) 657,426Other operating income 4,502 11,636 17,970 (9,041) 25,067Purchases (62,648) (77,334) - - (139,982)Services (115,595) (228,509) (6,122) 19,346 (330,880)Personnel expense (66,562) (31,641) (20,483) - (118,686)Amortisation, depreciation and impairment losses (1,777) (5,411) (5,382) - (12,570)Other operating expense (3,487) (5,000) (1,051) - (9,538)Changes in finished goods, work-in-progress and semi-finished products (229) - - - (229)(-) Internal work capitalised 819 - - - 819

Operating profit (loss) 38,681 47,367 (15,068) 447 71,427

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SolutionsOther


Revenue 316,895 412,698 - (7,226) 722,368

Other operating income 4,812 4,198 17,301 (8,396) 17,915

Purchases (72,747) (92,399) - (165,146)

Services (117,345) (241,831) (12,323) 16,722 (354,777)

Personnel expense (70,693) (29,012) (15,169) - (114,874)

Amortisation, depreciation and impairment losses (1,687) (252) (3,318) - (5,257)

Other operating expense (739) (6,955) (986) - (8,680)

Changes in finished goods, work-in-progress and semi-finished products (3,054) - - - (3,054)

(-) Internal work capitalised - - - - -

Operating profit (loss) 55,442 46,447 (14,495) 1,100 88,494

Working capital by Business Unit


SolutionsOther


Inventories 71,492 45,740 525 (23,304) 94,453Contract work in progress (net) 115,069 63,321 - - 178,390Trade receivables 267,414 387,742 8,156 (28,323) 634,989Trade payables (133,905) (335,251) (17,482) 28,323 (458,315)Progress payments and advances from customers (net) (266,677) (286,538) - 23,304 (529,911)

Working capital 53,393 (124,986) (8,801) - (80,394)

Provisions for risks and charges - current portion (485) (3,846) (1,237) - (5,568)Other current assets/(liabilities), net 2,754 (33,835) 27,221 - (3,860)

Net working capital 55,662 (162,667) 17,183 - (89,822)


SolutionsOther


Inventories 75,174 31,576 577 (23,304) 84,023

Contract work in progress (net) 96,086 48,442 - - 144,528

Trade receivables 251,589 339,930 8,668 (34,784) 565,403

Trade payables (109,927) (281,433) (17,941) 34,784 (374,517)

Progress payments and advances from customers (net) (278,259) (308,847) - 23,304 (563,802)

Working capital 34,663 (170,332) (8,696) - (144,366)

Provisions for risks and charges - current portion (2,600) (3,869) (1,284) - (7,753)

Other current assets/(liabilities), net 1,077 (37,589) 23,658 - (12,854)

Net working capital 33,140 (211,790) 13,678 - (164,973)

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Revenue, assets and investments are shown below by geographical segment.

A breakdown of revenue by geographical segments is as follows:

(€’000) 31.12.2012 31.12.2011

Revenue:Italy 229,173 283,728

Rest of western Europe 108,130 91,392

North America 8,150 -

Asia/Pacific 33,216 56,942

Other 40,229 75,455

Total revenue 418,898 507,517

Related party revenue:Italy 217,171 198,863

Rest of western Europe 5,116 3,662

North America 947 984

Asia/Pacific 15,293 11,342

Other - -

Total related party revenue: 238,528 214,851

Total 657,426 722,368

Assets are considered based on the area where they are located:

(€’000) 31.12.2012 31.12.2011

Assets:Italy 1,254,418 892,998

Rest of Western Europe 41,174 157,559

North America 43,445 87,557

Asia/Pacific 107,741 155,704

Other (*) 66,119 90,205

Total 1,512,896 1,384,023

A breakdown of investments (in property, plant and equipment and intangible assets) by geographical segment is as follows:

(€’000) 31.12.2012 31.12.2011

Investments:

Italy 5,585 7,425

Rest of Western Europe 5 6

North America 34 17

Asia/Pacific 5 41

Other (*) 84 4

Total 5,713 7,493

(*) Africa, South America, Eastern Europe.


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7. Intangible assets

(€’000)Development

expense

Patent and similar rights

Concessions, licences and

trademarks and other similar rights Other

Assets under

development Total

At 31 December 2011Cost 10,324 1,366 3,845 2,977 11,643 30,155

Grants - - (9) - - (9)

Amortisation and impairment losses (10,324) (1,044) (2,832) (2,915) - (17,115)

Carrying amount - 322 1,004 62 11,643 13,031

Investments 819 1,274 76 14 976 3,159

Transfers from assets under development 10,946 - - (10,946) -

Grants (453) - - - - (453)

Amortisation (73) (2,477) (586) (47) - (3,183)

At 31 December 2012Cost 11,143 13,586 3,921 2,991 1,673 33,314

Grants (453) - (9) - - (462)

Amortisation and impairment losses (10,397) (3,521) (3,418) (2,962) - (20,298)

Carrying amount 293 10,065 494 29 1,673 12,554

Intangible assets totalled €12,554 thousand, down by €447 thousand on €13,031 thousand at 31 December 2011. They can be analysed as follows:

“Development expense” relates to the Stream project (Transportation Solution business unit), which was fully amortised in the past few years, and the Satellite and Rail Telecom project to develop satellite technologies for new railway signalling systems. This caption rose €819 thousand, net of the €453 thousand grant and amortisation of €73 thousand. This project is co-financed with the European Space Agency and the Galileo Supervisory Authority.

“Patent and similar rights” (€10,065 thousand) rose €9,743 thousand, net of accumulated amortisation.Specifically, the increase is due to the New Controlling Model (NCM) (€928 thousand) and the Product Data Management (PDM) projects (€290 thousand), the development of several technical tools for the Tito plant, such as the APO tool (€10 thousand), which enables the traceability of new productions, the AFR tool (€10 thousand) for new functions of the Mantis &TRP software to manage the Repair centre of the Industrialisation body, and the FABMASTER Upgrade tool (€10 thousand), which enables the Tito prototype area to optimise and standardise the programming of the machinery necessary to assemble and check prototypes. “Transfers from assets under development” of €10,946 thousand relate to the NCM and the PDM projects (€8,502 thousand and €2,352 thousand, respectively), as described above, and to the SUDA project for the implementation of a global supplier database (€92 thousand).

“Concessions, licences and trademarks and other similar rights” (€494 thousand) relate to software licences. Investments of the year amount to €76 thousand and mainly relate to software purchased for RAMS-SPP personnel to perform checks and validate the new ASTS-developed products and the Obsolescence Management Monitoring software. As a consequence of the grants received, these assets cannot be sold before five years. The carrying amount of concessions, licences, trademarks and other similar rights subject to this limitation amounts to €21 thousand.

“Assets under development” (€1,673 thousand) rose by €976 thousand and are mainly related to the projects launched as part of a major worldwide reorganisation process (Fast Forward Driven by Business).Specifically, this caption is comprised of the following projects:- CMMI (Capability Maturity Model Integration), to improve the software development process of the SPP (standard solutions, platforms and products) business unit (€917 thousand);

- Life Cycle Management (LCM), to integrate SAP and Primavera (€59 thousand); The €10,946 thousand decrease is due to the reclassification of items pertaining to the NCM, PDM and SUDA projects, which were described earlier.

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8. Property, plant and equipment

(€’000)Land and buildings

Plant and machinery Equipment

Other assets

Assets under

construction Total

At 31 December 2011 Cost 80,086 12,133 8,656 8,698 137 109,710

Grants (171) (885) (406) - - (1,462)

Depreciation and impairment losses (17,233) (8,604) (6,944) (6,429) - (39,210)

Carrying amount 62,682 2,645 1,306 2,269 137 69,038

Investments 189 675 795 643 252 2,554

Transfers from assets under construction 137 - - - (137) -

Write-offs - - - (1) - (1)

Depreciation (2,014) (649) (712) (801) - (4,176)

At 31 December 2012 Cost 80,412 12,809 9,451 9,339 252 112,264

Grants (171) (885) (406) - - (1,462)

Depreciation and impairment losses (19,247) (9,252) (7,657) (7,230) - (43,386)

Carrying amount 60,994 2,672 1,389 2,109 252 67,416

“Property, plant and equipment”, net of accumulated depreciation amount to €67,416 thousand (31 December 2001: €69,038 thousand).

“Land and buildings” of €60,994 thousand (net of accumulated depreciation) relate to the real estate complex in Salita della Grotta, Naples (€1,851 thousand), the industrial buildings in Turin and Tito (€7,886 thousand) and the property purchased in via Paolo Mantovani 3/5, Genoa (€62,378 thousand). The change of the year is due to depreciation (€2,014 thousand) and new investments (€189 thousand) into the maintenance of the Turin facilities.

“Plant and machinery” amount to €2,672 thousand, net of accumulated depreciation (31 December 2011: €2,645 thousand).Changes of the year are due to depreciation (€649 thousand) and increases (€675 thousand) which can be analysed as follows: Tito production unit (€570 thousand), Turin facilities (€95 thousand) and Naples offices (€10 thousand). “Equipment” (€1,389 thousand) rose as a consequence of investments of the year (€795 thousand) and fell as a result of depreciation (€712 thousand). Investments relate to the new equipment of the Tito (€662 thousand), Genoa (€35 thousand) and Naples (€98 thousand) facilities.

“Other assets” (€2,109 thousand) rose as a consequence of investments of the year (€643 thousand). They relate to the purchase of furniture and fittings (€51 thousand) and IT upgrades (€472 thousand). The residual €120 thousand relates to the capitalisation of branch costs. The €801 thousand decrease is due to depreciation of the year.

The historical cost of “Land and buildings”, “Plant and machinery” and “Equipment” is reduced by the grants received pursuant to Law no. 488/92, applications 8 and 11, first and second application of the PIA Innovazione (Integrated Aids Package), totalling €1,462 thousand.As a consequence, the assets covered by the above grants cannot be sold before five years. The historical cost of these assets is equal to €340 thousand for “Land and buildings”, €2,189 thousand for “Plant and machinery” and €946 thousand for “Equipment”.

“Assets under construction” amount to €252 thousand and reflects the replacement of hoisting appliances in accordance with applicable safety regulations (€124 thousand) at the Genoa offices and the upgrade of the Tito power station (€128 thousand).The €137 thousand decrease is due to the completion of the restructuring and the reconstruction of the roof (waterproofing and insulation) of the Piossasco (Turin) facilities.

The company did not enter into any finance leases.

Finally, in 2004, a restriction concerning the use of the company parking lot by third parties was granted in favour of the Municipality of Piossasco (Turin). Based on the above restriction, in 2007, said Municipality approved the zoning of part of the area used as a parking lot, allowing the construction of a company canteen.The Municipality of Piossasco placed a restriction on such area that the canteen may also be used by third parties.


56

9. Equity investmentsAt 31 December 2012, equity investments amounted to €143,961 thousand, up by €548 thousand on the previous year.The increase is mainly due to the subscription of MetroB S.r.l. (€494 thousand) and MM4 consortium (€36 thousand) quotas/units in connection with the completion of the assigned work.

(€’000) 31 December 2012 31 December 2011

Opening balance 143,413 139,323

Acquisitions/subscriptions and quota capital /consortium fund increases 592 6,352

Reversals of impairment losses/impairment losses (58) (774)

Principal repayment (343) -

Other changes 356 (1,488)

Closing balance 143,961 143,413

The table below lists equity investments at 31 December 2012 and provides the additional disclosures required by CONSOB communication no. DEM/6064293 of 28 July 2006:

Name (€’000)Registered office

Reporting date

Share/quota

capitalFunctional

currency Equity

Profit/(loss) for the year

Total assets

Total liabilities

% of investment

Measured using the equity

methodCarrying amount

Investments in subsidiariesAlifana S.c.r.l. Naples (Italy) 31.12.2012 26 EUR 26 - 328 302 65.85% 17 17

Alifana Due S.c.a.r.l. Naples (Italy) 31.12.2012 26 EUR 26 - 1,092 1,066 53.34% 14 14

Ansaldo STS Sweden ABSolna (Sweden) 31.12.2012 466 SEK 13,514 3,568 46,918 33,404 100.00% 13,514 240

Ansaldo STS France S.A.Les Ulis (France) 31.12.2012 5,000 EUR 18,057 1,347 148,364 130,307 100.00% 18,057 22,234

Ansaldo STS Ireland LTDTralee (Ireland) 31.12.2012 100 EUR 3,228 (53) 3,809 581 100.00% 3,228 1,475

Ansaldo STS USA Inc.

Wilmington (Delaware USA) 31.12.2012 - USD 70,685 5,192 164,506 93,821 100.00% 70,685 55,274

Ansaldo STS UK Ltd.

London (United Kingdom) 31.12.2012 1,225 GBP (9,664) (750) 1,164 10,828 100.00% (9,664) -

Ansaldo STS Australia PTY Ltd.

Eagle Farm (Australia) 31.12.2012 3,954 AUD 71,231 (69) 150,758 79,527 100.00% 71,231 25,704

Ansaldo STS Transportation Systems India Private Limited

Bangalore (India) 31.12.2012 18,094 INR (19,096) (22,234) 31,283 50,379 0.0001% - 0,01

Ansaldo STS Deutschland GmbH

Berlin (Germany) 31.12.2012 26 EUR 1,781 268 14,311 12,530 100.00% 1,781 2,176

KazakhstanTz- AnsaldoSTS ltaly LLP

Astana (Kazakhstan) 31.12.2012 111 KZT 121 - 11,859 11,738 49.00% 59 57

Ansaldo Railway System Trading (Beijing) Ltd

Beijing (China) 31.12.2012 1,247 USD 3,158 694 8,694 5,536 100.00% 3,158 1,078

108,268

Investments in associatesInternational Metro Service S.r.l. Milan (Italy) 31.12.2011 700 EUR 12,158 7,331 17,935 5,777 49.00% 5,957 343

MetroBrescia Srl Brescia (Italy) 31.12.2011 500 EUR 500 - 565 65 40.4% 202 202

Metro 5 S.p.A. Milan (Italy) 31.12.2011 50,000 EUR 49,956 (17) 302,491 252,535 24.60% 12,289 12,300

Pegaso S.c.r.l. (in liquidation) Rome (Italy) 31.12.2011 260 EUR 260 - 6,183 5,923 46.87% 122 122

12,967

Follows

57


Investments in jointly-controlled entitiesConsortia

Consorzio SATURNO Rome (Italy) 31.12.2012 31 EUR 31 - 2,362,270 2,362,239 33.34% 10 10

Consorzio ASCOSA QUATTRO Rome (Italy) 31.12.2011 57 EUR 57 - 61,697 61,640 25.00% 14 14

Consorzio San Giorgio Volla Due Naples (Italy) 31.12.2012 71 EUR 72 - 51,022 50,950 25.00% 18 18

Consorzio CRIS Naples (Italy) 31.12.2011 2,377 EUR 2,445 - 3,821 1,376 1.00% 24 24

Consorzio CESIT Naples (Italy) 31.12.2012 83 EUR 83 - 139 56 25.00% 21 21

Consorzio COSILA Naples (Italy) 31.12.2011 114 EUR 114 - 163 49 0.92% 1 1

Consorzio ISICT Genoa (Italy) 31.12.2011 37 EUR 44 5 390 346 10.00% 4 4

Consorzio TRAIN Rome (Italy) 31.12.2011 120 EUR 1,180 - 33,231 32,051 4.55% 54 5

Consorzio San Giorgio Volla Naples (Italy) 31.12.2012 71 EUR 72 - 6,174 6,102 25.00% 18 18

Consorzio Ferroviario Vesuviano Naples (Italy) 31.12.2011 153 EUR 155 - 236,344 236,189 25.00% 39 39

Consorzio IRICAV Uno Rome (Italy) 31.12.2011 520 EUR 520 - 3,469,206 3,468,686 17.44% 91 91

MetroB srl Rome (Italy) n.a. n.a. EUR n.a. n.a. n.a. n.a. 2.47% n.a. 494

Consorzio MM4 Milan (Italy) n.a. n.a. EUR n.a. n.a. n.a. n.a. 18.20% n.a. 36

D.I.T.S. srl Rome (Italy) n.a. n.a. EUR n.a. n.a. n.a. n.a. 12.00% n.a. 5

Consorzio RadioLabs Rome (Italy) 31.12.2012 207 EUR 165 2 1,577 1,412 25.00% 41 52

Consorzio IRICAV Due Rome (Italy) 31.12.2011 510 EUR 516 - 50,677 50,161 17.05% 88 88

920

Other companiesI.M. Intermetro S.p.A. in liquidazione Rome (Italy) 31.12.2011 2,461 EUR 2,640 -1,915 161,999 159,359 16.67% 440 523

Metro C S.c.p.A. Rome (Italy) 31.12.2011 150,000 EUR 149,518 - 454,042 304,524 14.00% 20,933 21,000

SESAMO Security and Safety Mobility S.c.a.r.l. Naples (Italy) 31.12.2011 100 EUR 100 - 942 842 2.00% 2 2

SIIT S.c.p.a. Genoa (Italy) 31.12.2010 600 EUR 603 2 781 178 2.30% 14 14

Tram di Firenze S.p.A. Florence (Italy) 31.12.2011 7,000 EUR 5,116 -1,558 80,337 75,221 3.80% 194 266

21,805

TOTAL EQUITY INVESTMENTS at 31.12.2012 143,961

Changes of the year are as follows:

1. €494 thousand increase for the acquisition of 2.47% of MetroB S.r.l., a company set up to extend Line B of the Rome underground (Rebibbia – Casal Monastero section);

2. €52 thousand increase to join the Radiolabs consortium set up in 2010 to carry out scientific and technological research in the wireless sector;

3. €36 thousand increase to subscribe 18.2% of the MM4 consortium. This consortium, which was set up in March 2012 with a fund of €200 thousand, will be the operating tool of the company limited by shares which will be incorporated by the Municipality of Milan and private shareholders, for the works and the supplies related to the construction of Line 4 of the Milan underground;

4. €5 thousand increase to subscribe the investment in Development & Innovation In Transport Systems S.r.l. (D.I.T.S. S.r.l.), as part of a project in collaboration with the La Sapienza University of Rome;

5. €356 thousand increase due to the adjustment of carrying amounts of the investments in Ansaldo STS USA Inc, Ansaldo STS France S.A. and Ansaldo STS Australia Pty Ltd following the granting of the 2011 shares as per the “Stock grant plan 2010-2012” to managers other than top managers and the “Stock grant plan 2011”, and the 2012 granting as per the “Stock grant plan 2010-2012” to managers other than top managers and the “Stock grant plan 2012-2013”;

6. €5 thousand increase due to the allocation of the consortium fund among the remaining members of ISICT (€1 thousand), Train (€1 thousand) and CESIT consortia (€3 thousand) following the withdrawal of some consortium members;

7. €400 thousand decrease following the closure of the Brazilian-based Ansaldo STS Sistemas de Transporte e Sinalização Limitada in May 2012. This transaction is part of wider assessments made by the company to identify strategic countries for the signalling business with the aim of achieving optimal efficiency standards, while reducing operating costs.

Name (€’000)Registered office

Reporting date

Share/quota

capitalFunctional

currency Equity

Profit/(loss) for the year

Total assets

Total liabilities

% of investment

Measured using the equity

methodCarrying amount


58

The Pegaso consortium went into voluntary liquidation in December 2012 following the substantial completion of the works on the Rome - Naples high-speed railway section.

Based on the Liquidation plan approved by the consortium members in December 2012, there are no elements which may trigger an impairment loss on the investment.

The carrying amount of the investment in Metro C reflects the 25% subscribed quota capital. Consequently, with respect to the carrying amount of the investment equal to €21,000 thousand, the residual portion still unpaid (€15,750 thousand) was recognised under other current liabilities.

Together with the other shareholders, the company undertook to increase the contribution to Metro 5 S.p.A., partly as equity and partly as shareholders’ loan. During the year, as described later on, a shareholders’ loan of €2,116 thousand was disbursed, bringing the total amount of loans granted in the previous year to €3,827 thousand, including interest.

Metro 5 S.p.A. shares were pledged to guarantee the contractual obligations to the other financing bodies involved in the project financing to build Line 5 of the Milan underground under concession.

The shares of the Florence-based Tram were also pledged as agreed with the bodies financing the works. The same guarantee was given on the financing granted to the investee (see the note on “Receivables and other non-current assets”).

In accordance with group policies, impairment testing is conducted when annual financial statements are prepared. Each subsidiary is tested by comparing their carrying amount with their recoverable amount, using the discounted cash flow and the multiple method. The cash flows used are those generated by company assets, in their present conditions, before financial expense and taxes. They include capital expenditure and monetary changes in working capital and exclude cash flows from financing activities, non-recurring events or dividend distribution.These cash flows are discounted using the WACC (Weighted Average Cost of Capital) method which is calculated based on the Capital Asset Pricing Model. Average WACC at 31 December 2012 (8.26%) was down on that of the previous year (9.50%).The impairment test carried out at 31 December 2012 on the basis on the Five-year strategic plan (2013-2017) approved by the company’s board of directors had a positive outcome, except for the subsidiary Ansaldo STS UK Ltd. As the carrying amount of the investment is already written off (€12,000 thousand), the total carrying amount of the asset was further reduced, decreasing loan assets by €3,837 thousand. Consequently, the caption fell by a total of €7,477 thousand, including the impairment loss recognised in 2011. The British subsidiary was also tested for impairment based on the Five-year strategic plan (2013-2017). No other risks should be reflected in the financial statements, in addition to the above impairment.The basic assumptions underlying the projected cash flows for the five-year plans approved by management are described in detail in the directors’ report.

The company participates in the foreign joint venture set up to construct the Thessaloniki underground and in that set up to build the Dublin tramway. With respect to the latter, in 2012, in order to speed up the process to end this joint venture, a request to close the bank account still in place with the Bank of Ireland was made.

The Ansaldo Honolulu joint venture became operative in 2012. In November 2011, the consortium set up by Ansaldo STS and AnsaldoBreda entered into an agreement with HART (Honolulu Authority for Rapid Transportation) to construct the technological part and the vehicles of the new driverless underground line in Honolulu (Hawaii).

59


10. Related party assets and liabilities

Related party assets and liabilities at 31 December 2012 and 2011 are shown below:

Financial assets at 31 December 2012 (€’000)Loan

assetsTrade

receivablesOther current


ParentFINMECCANICA S.p.A. 120,533 426 145 121,105AssociatesInternational Metro Service S.r.l. - 2,112 - 2,112AnsaldoBreda S.p.A. - 3,150 3 3,153Selex Elsag S.p.A. - 93 - 93Gruppo Ferrovie dello Stato - 86,880 - 86,880MetroBrescia s.r.l. - 196 - 196Consorzio MM4 - 245 - 245Metro 5 S.p.A. - 8,800 - 8,800Metro 5 LILLA S.r.l. - 28,473 - 28,473I.M. Intermetro S.p.A. - 331 - 331Metro Service AS - 1,892 - 1,892Selex Sistemi Integrati S.p.A. - - 42 42Ansaldo Energia S.p.A. - 53 - 53Gruppo ENI - 3,956 - 3,956SubsidiariesAnsaldo STS Transportation Systems India Private Limited - 7,311 - 7,311Ansaldo STS Australia PTY Ltd. - 664 - 664Ansaldo STS Deutschland GmbH - 189 - 189Ansaldo STS France S.A. - 1,681 - 1,681Ansaldo Railway System Trading (Beijing) Ltd - 3,237 - 3,237Kazakhstan TZ Ansaldo STS Italy LLP - 3,781 - 3,781Ansaldo STS UK Ltd. 216 138 - 354Ansaldo STS Ireland Ltd - (17) - (17)Balfour Beatty Ansaldo Systems JV SDN BHD - 40 - 40Ansaldo STS Sweden AB - 3,929 - 3,929Ansaldo STS Southern Africa Pty Ltd - BOTSWANA - 57 - 57Ansaldo STS South Africa Pty Ltd - 1 - 1Ansaldo STS España S.A. - 22 - 22Ansaldo STS USA Inc. 35,313 1,769 - 37,082Ansaldo STS Canada Inc - 3 - 3Ansaldo STS USA International CO. - 2,129 - 2,129Ansaldo STS Malaysia SDN BHD 10,905 95 - 11,000Alifana Due S.c.r.l. - 167 - 167Alifana S.c.a.r.l. - 123 - 123Consortia SATURNO consortium - 3,640 1,360 5,000San Giorgio Volla Due consortium - 1,625 4 1,629San Giorgio Volla consortium - 1,421 - 1,421Ascosa Quattro consortium - 1,157 - 1,157Ferroviario Vesuviano consortium - 14,113 - 14,113

Total 166,968 183,882 1,555 352,405

% of the total at the reporting date 85% 29% 4%


60

Financial liabilities at 31 December 2012 (€’000)Loans and

borrowingsTrade

payables

Other current financial liabilities Total

ParentFINMECCANICA S.p.A. - 281 - 281Associates Metro Service AS - 10,441 - 10,441Metro 5 S.p.A. - 114 - 114Gruppo ENEL - 8 - 8Gruppo Ferrovie dello Stato - 1,695 - 1,695Consorzio MM4 - 201 - 201Electron Italia S.r.l. - 24 - 24MetroB s.r.l. - - 371 371E-Geos S.p.A. - 73 - 73Finmeccanica Group Service S.p.A. - 573 - 573Fata Logistic System S.p.A. - 184 - 184Fata S.p.A. - 65 - 65Pegaso S.c.r.l. (in liquidation) - 18 - 18AnsaldoBreda S.p.A. - 3,377 - 3,377Selex Elsag S.p.A. - 39,388 - 39,388Subsidiaries Ansaldo STS Australia PTY Ltd. 39,211 145 - 39,356Ansaldo STS Southern Africa Pty Ltd - BOTSWANA - 15 - 15Ansaldo STS España S.A. - 656 - 656Ansaldo STS Malaysia SDN BHD - 41 - 41Ansaldo STS USA Inc. - 1,678 - 1,678Ansaldo STS France S.A. 16,721 3,808 - 20,529Ansaldo STS Ireland Ltd 3,601 - - 3,601Ansaldo Railway System Trading (Beijing) Ltd - 189 - 189Ansaldo STS UK Ltd. - 76 - 76Ansaldo STS Transportation Systems India Private Limited - 5 - 5Ansaldo STS Sweden AB 25,359 7 - 25,366Ansaldo STS Deutschland GmbH - 529 - 529Ansaldo STS USA International CO. - 30,835 - 30,835Alifana Due S.c.r.l. - 157 - 157Alifana S.c.a.r.l. - 104 3 107Consortia SATURNO consortium - 483 - 483CESIT consortium - 24 - 24CRIS consortium - 1 - 1San Giorgio Volla Due consortium - 92 - 92San Giorgio Volla consortium - 6 8 14Ascosa Quattro consortium - 46 8 53Ferroviario Vesuviano consortium - 363 8 370

Total 84,891 95,701 397 180,989

% of the total at the reporting date 99% 21% 0.8%

61


Financial assets at 31 December 2011 (K€)Loan

assetsTrade

receivablesOther current


ParentFINMECCANICA S.p.A. 2,531 365 145 3,041AssociatesInternational Metro Service S.r.l. - 5 - 5Selex Galileo S.p.A. - 8 - 8AnsaldoBreda S.p.A. - 7,095 - 7,095Selex Elsag S.p.A.- ex Selex Comms S.p.A. - 37 - 37Gruppo Ferrovie dello Stato - 56,773 - 56,773Metro 5 S.p.A. - 6,548 - 6,548Metro 5 LILLA S.r.l. - 5,434 - 5,434AgustaWestland S.p.A. - 23 - 23I.M. Intermetro S.p.A. - 42 - 42Metro Service AS - 1,606 - 1,606Pegaso S.c.r.l. (in liquidation) - 13 - 13SubsidiariesAnsaldo STS Transportation Systems India Private Limited - 4,798 - 4,798Ansaldo STS Australia PTY Ltd. 10,424 2,033 - 12,457Ansaldo STS Deutschland GmbH - 157 - 157Ansaldo STS France S.A. - 1,143 - 1,143Ansaldo Railway System Trading (Beijing) Ltd - 5,981 - 5,981Kazakhstan TZ Ansaldo STS Italy LLP - 3,781 - 3,781Ansaldo STS UK Ltd. 7,466 140 - 7,606Ansaldo STS Ireland Ltd - (21) - (21)Balfour Beatty Ansaldo Systems JV SDN BHD - 47 - 47Ansaldo STS Sweden AB - 723 - 723Ansaldo STS Southern Africa Pty Ltd - BOTSWANA - 43 - 43Ansaldo STS South Africa Pty Ltd - 31 - 31Ansaldo STS España S.A. - 255 - 255Ansaldo STS USA Inc. 31,019 1,355 - 32,374Ansaldo STS Canada Inc - 8 - 8Ansaldo STS USA International CO. - 2,867 - 2,867Ansaldo STS Malaysia SDN BHD 9,873 191 - 10,064Alifana Due S.c.r.l. - 1,114 - 1,114Alifana S.c.a.r.l. - 123 - 123Consortia SATURNO consortium - 14,085 1,360 15,445San Giorgio Volla Due consortium - 1,982 4 1,986San Giorgio Volla consortium - 1,421 - 1,421Ascosa Quattro consortium - 1,110 - 1,110Ferroviario Vesuviano consortium - 13,997 - 13,997

61,313 135,311 1,510 198,134

% of the total at the reporting date 44% 24% 6%


62

Financial liabilities at 31 December 2011 (€’000)Loans and borrowings

Trade payables

Other current financial liabilities Total

ParentFINMECCANICA S.p.A. - 470 70 540Associates Metro Service AS - 5,968 - 5,968Telespazio S.p.A. - 1 - 1Gruppo ENI - 3 - 3Gruppo Ferrovie dello Stato - 401 - 401Electron Italia S.r.l. - 11 - 11Finmeccanica Consulting Srl - (2) - (2)Finmeccanica Group Service S.p.A. - 568 - 568Elsag Datamat S.p.A. - 1,671 - 1,671Fata Logistic System S.p.A. - 190 - 190Fata S.p.A. - 65 - 65AnsaldoBreda S.p.A. - 356 - 356Selex Elsag S.p.A.- ex Selex Comms S.p.A. - 33,194 - 33,194Subsidiaries Ansaldo STS Australia PTY Ltd. - 591 - 591Ansaldo STS Southern Africa Pty Ltd - BOTSWANA - 17 - 17Ansaldo STS USA Inc. - 314 - 314Ansaldo STS France S.A. 8,032 2,751 - 10,783Ansaldo STS Ireland Ltd 3,816 - - 3,816Ansaldo Railway System Trading (Beijing) Ltd - 459 - 459Ansaldo STS UK Ltd. - 135 - 135Ansaldo STS Transportation Systems India Private Limited - 75 - 75Ansaldo STS Sweden AB 20,083 2 - 20,085Ansaldo STS Deutschland GmbH - 1,124 - 1,124Ansaldo STS USA International CO. - 14,653 - 14,653Alifana Due S.c.r.l. - 587 - 587Alifana S.c.a.r.l. - 142 3 145ConsortiaSATURNO consortium - 150 - 150CESIT consortium - 24 - 24CRIS consortium - 35 - 35San Giorgio Volla Due consortium - 144 - 144San Giorgio Volla consortium - 24 8 32Ascosa Quattro consortium - 68 8 76Ferroviario Vesuviano consortium - 529 8 537

Total 31,931 64,722 96 96,749

% of the total at the reporting date 96% 17% 0.2%

Total related party assets amount to €352,405 thousand (31 December 2011: €198,134 thousand). The increase is attributable to loan assets (€166,968 thousand at 31 December 2012; €61,313 thousand at 31 December 2011), following the agreement of two short-term deposits with the parent Finmeccanica; trade receivables of €183,882 thousand (31 December 2011: €135,311 thousand) rose as a consequence of the amounts due from Ferrovie dello Stato and Metro 5 Lilla.

Other current financial assets mainly relate to amounts due from the parent Finmeccanica with respect to the IRES tax asset (€145 thousand) which arose following the application for refund filed as described in the directors’ report (section “Disclosure on management and coordination and related party transactions”) and to a €1,360 thousand disputed withholding charged by the Saturno consortium (which was charged in turn by the Iricav Uno consortium) following the delays noted by TAV in some of the activities covered by the amending/supplementing deed in the Rome-Naples section. In this respect, in 2012, an award was issued establishing, inter alia, that the above penalty be repaid to the company. Repayment is expected to take place next year.

Total related party liabilities amount to €180,989 thousand (31 December 2011: €96,749 thousand). The €30,979 thousand increase in this caption is mainly attributable to amounts payable to the subsidiary Ansaldo STS USA International Co. and the associate Selex Elsag S.p.A. given the higher volume of activities performed during the year.

63


Other related party liabilities rose by €301 thousand mainly because of the amount due to the associate MetroBrescia S.r.l. and related to quota capital subscription.

For additional information about related party transactions, reference should be made to the directors’ report (section “Disclosure on management and coordination and related party transactions”) and to note 39 (“Key managers’ remuneration and directors’ and statutory auditors’ fees”).

11. Loans and receivables and other non-current financial assets


Guarantee deposits 753 684

Other 10,571 6,444

Non-current loans and receivables 11,324 7,128

Other prepayments - non-current portion 5,317 2,889

Other prepayments - Finmeccanica 19,311 20,922

Other non-current assets 24,628 23,811

Non-current loans and receivables at 31 December 2012 amounted to €11,324 thousand (31 December 2011: €7,128 thousand). They may be analysed as follows:- €3,827 thousand related to the shareholder loan and future capital increase (principal of €2,730 thousand, accrued interest of €285 thousand and future capital increase of €812 thousand) of Metro 5 S.p.A. following the agreements to construct the related section of the Milan underground;

- €2,401 thousand paid in advance to the Kazakhstan joint venture;- €2,285 thousand (31 December 2011: €2,285 thousand) related to the advance paid by the partners to the Thessaloniki underground joint venture which was contracted to construct this underground. The company also participates in the expenses that the joint venture has incurred and will incur to start-up the contract. The advance will be paid as per the agreements which are currently being discussed by the partners;

- €218 thousand (31 December 2011: €218 thousand) related to a loan granted to the Florence-based Tram as part of the agreements with the bodies which finance the work. This amount was pledged in favour of said bodies. The same guarantee was used in respect of the investment held therein;

- €1,545 thousand paid as an advance of an interest-bearing loan to the associate MetroBrescia S.r.l. to commence operations. The loan was allocated among the quotaholders in proportion to the quotas held;

- €113 thousand paid as an advance to the joint venture Metro Milano Linea 4 and €182 thousand paid to the MM4 consortium to cover the costs necessary to start operations;

- €753 thousand (31 December 2011: €684 thousand) related to guarantee deposits for premises and areas leased after the opening of working sites.

At 31 December 2012, there are no receivables due after more than five years.

Other non-current assets amount to €24,628 thousand (31 December 2011: €23,811 thousand). They can be analysed as follows:- €5,317 thousand (31 December 2011: €2,889 thousand) related to prepaid insurance which rose by €2,428 thousand during the year following the early payment of premiums.

- €19,311 thousand (31 December 2011: €20,922 thousand) related to the deferred income on the “Ansaldo” trademark which fell by €1,611 thousand, with respect to the portion of the year. With reference to the trademark, Ansaldo STS agreed a contract with Finmeccanica on 27 December 2005 allowing the latter to use the “Ansaldo” trademark on the market. Against the advance payment of a consideration of €32,213 thousand, this contract gives Finmeccanica the exclusive right to use this trademark for twenty years within the group’s business segments.

12. Inventories


Raw materials, consumables and supplies 7,536 8,690

Work-in-progress and semi-finished products 8,283 8,649

Finished goods 1,705 1,568

Advances to suppliers 76,928 65,116

Total 94,452 84,023

Net inventories amount to €94,452 thousand, compared to €84,023 thousand at 31 December 2011.The €10,429 thousand increase is mainly due to the increase in advances to suppliers, specifically for the Taipei contract.At year end, advances to suppliers of the Signalling business unit amount to €30,663 thousand (31 December 2011: €32,963 thousand), while those of the Transportation Solutions business unit are equal to €45,740 thousand (31 December 2011: €31,576 thousand), totalling €76,403 thousand (31 December 2011: €64,539 thousand). The carrying amount of raw materials fell by €1,154 thousand on the previous year. They were recognised in the allowance for inventory


64

write-down (€1,592 thousand; 31 December 2011: €1,956 thousand). The decrease (€364 thousand) is due to the accrual recognised in respect of additional obsolete codes (€638 thousand) and the €1,002 thousand used in the second half of the year to scrap obsolete codes which could no longer be used.

Third party assets with the company amount to €3 thousand (31 December 2011: €3 thousand), while the company’s assets with third parties total €14,067 thousand (31 December 2011: €15,979 thousand).The carrying amount of the company’s assets with third parties is due to the fact that warehouses are entirely managed by the service company, Fata Logistic System, (a related party as it belongs to the Finmeccanica group).

13. Work in progress and progress payments and advances from customers


Work in progress (gross) 1,789,629 1,369,908

Provision for expected losses to complete contracts (2,730) -

Allowance for write-down (11,538) (10,028)

Progress payments and advances from customers (1,596,972) (1,215,352)

Work in progress (net) 178,390 144,528

Progress payments and advances from customers (gross) (3,847,656) (4,231,522)

Provision for expected losses to complete contracts (114) -

Allowance for write-down (15,394) (13,910)

Work in progress 3,333,253 3,681,630

Progress payments and advances from customers (net) (529,911) (563,802)

Work in progress, net of progress payments and advances from customers (351,521) (419,274)

Work in progress, net of progress payments and advances from customers, is a negative €351,521 thousand, improving €67,753 thousand on the €419,274 thousand of the previous year. This is mainly due to the smaller turnover of the year, compared to production volume. The net balance of work in progress includes net advances of €182,797 thousand related to the contracts in Libya, which are currently halted given the well-known events which have affected this country over the past few years.As described in the directors’ report, these advances largely cover the works performed to date which are yet to be invoiced. As a consequence, at the reporting date, there are no probable risks which would require any accrual.

Specifically, contract work in progress rose from €144,528 thousand at 31 December 2011 to €178,390 thousand at 31 December 2012, while progress payments and advances from customers increased from €563,802 thousand at 31 December 2011 to €529,911 thousand at 31 December 2012. The latter caption includes advances from customers of €370,176 thousand (31 December 2011: €374,490 thousand).

Work in progress in the Transportation Solutions business unit amounted to €972,051 thousand (31 December 2011: €584,296 thousand) and included costs of €1,481,143 thousand (31 December 2011: €1,171,695 thousand) and profit of €105,860 thousand (31 December 2011: €80,218 thousand), gross of final billing. Work in progress under liabilities amounted to €1,984,562 thousand (31 December 2011: €2,227,452 thousand) and included costs of €1,504,545 thousand (31 December 2011: €1,510,300 thousand) and profit of €334,505 thousand (31 December 2011: €292,009 thousand), gross of final billing.

Work in progress in the Signalling business unit amounted to €817,578 thousand (31 December 2011: €785,612 thousand) and included costs of €888,702 thousand (31 December 2011: €738,660 thousand) and profit of €183,076 thousand (31 December 2011: €180,762 thousand), gross of final billing. Work in progress under liabilities amounted to €1,348,691 thousand (31 December 2011: €1,454,178 thousand) and included costs of €1,270,200 thousand (31 December 2011: €1,294,844 thousand) and profit of €518,451 thousand (31 December 2011: €493,676 thousand), gross of final billing.

Similarly to inventories, contract work in progress and progress payments and advances from customers are shown net of the allowance for write-down which, at 31 December 2012, amounted to €26,932 thousand (31 December 2011: €23,938 thousand).The allowance for write-down refers to the relevant contracts. Specifically, €11,538 thousand reflects the decrease in “contract work in progress” and €15,394 thousand that of “progress payments and advances from customers”.This allowance is adequate for the possible liabilities which may arise from critical issues and risks on existing contracts, which were also assessed based on the risk management procedure recommended by Finmeccanica.The allowance for write-down covers the following risks:• contractual risks: penalties for late delivery of contracted works or significant parts thereof at final or interim dates; performance

penalties for failure to comply with functional requirements or the specified RAM parameters;• technological risks, mainly with respect to foreign projects.The above risks are typical of all construction contracts and increase when contracts have a complex contractual and highly technical structure which could give rise to contractual changes or risks at any stage of the projects, including, sometimes, after the delivery of works and their roll out. Consequently, many risks cease to exist only once the contract is terminated.

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Starting from 2012, the provision for expected losses to complete contracts is shown separately. This provision reflects losses not yet incurred but for which a provision was accrued on a prudent basis when the contract budget corresponds to a loss. The provision refers to the relevant contracts. Specifically, €2,730 thousand reflects the decrease in “contract work in progress” and €114 thousand that of “progress payments and advances from customers”. 14. Trade receivables and loan assets

31 December 2012 31 December 2011

(€’000)Trade

receivablesLoan

assetsTrade

receivablesLoan

assets

Third parties 451,107 28,443 430,092 78,854

Related parties 183,882 166,968 135,311 61,313

Total 634,989 195,411 565,403 140,167

Trade receivables amount to €634,989 thousand and are greater than the €565,403 thousand at 31 December 2011. The increase in third party trade receivables relate to the receivables from the Naples Municipality, Metro C S.c.p.A. and the Danish customer Metroselskabet I/S. The increase in the amount due from the Naples Municipality (a total of approximately €175 million at 31 December 2012) reflects the roughly €35 million recognised in the first few days in January 2013, while the increase in the Danish contract is due to the greater turnover, having reached the contractual milestones in terms of collections of the year. Related party trade receivables increased €48,571 thousand, due mainly to the amounts due from Rete Ferroviaria Italiana and Metro 5 Lilla.Trade receivables are shown net of the allowance for impairment of €15,737 thousand (31 December 2011: €11,142 thousand). Of this amount, €1,739 thousand is due from related parties. The increase of the year is due to the collection risk of receivables for interest in arrears and late payment. The €4,785 thousand allowance relates to the impairment of the Firema receivable following the latter’s company extraordinary administration which began on 2 August 2010, as per the decree of the Ministry of Economic Development.

Loan assets of €55,244 thousand rose mainly following a time deposit of €120,000 thousand made with the parent Finmeccanica (31 December 2011: €50,000 thousand with banks).This caption also includes the euro equivalent amount of the Libyan dinar advance on the first of the two contracts in Lybia and deposited in a local bank. This amount (€28,443 thousand) is tied up pending the resumption of activities.

15. Financial assets measured at fair value through profit or lossAt 31 December 2012, there are no financial assets measured at fair value through profit or loss (31 December 2011: €24,743 thousand). In January 2011, the company acquired short-term Eurobonds of a nominal amount of €25,000 thousand, bearing a fixed rate of 4.5%. These bonds are quoted on the Luxembourg stock exchange and are classified as “Current financial assets measured at fair value” through profit or loss. In August 2012, the second interest coupon was paid at the time of the expiry and repayment of the residual invested capital. For information on the effect of this investment on profit or loss, reference should be made to the section “Financial income and expense”.

16. Tax assets and liabilities


(€’000) Assets Liabilities Assets Liabilities

Taxes assets 10,493 561 8,675 -

Total 10,493 561 8,675 -

Tax assets equalled €10,493 thousand, up on the €8,675 thousand at 31 December 2011. The increase on 2011 is due to a tax asset recognised in December 2012 related to the application for refund filed pursuant to article 2.1-quater of Decree Law no. 201/2011, in connection with the lower IRES tax for the period 2007-2011 based on the deductibility of the IRAP tax related to personnel expense (€3,555 thousand).

The current IRAP credit amounts to €274 thousand, while the IRES tax is equal to €561 thousand (€3,501 thousand as total IRES and IRAP credit at 31 December 2011). The IRAP credit and the IRES tax balances originate from the payments on account made in June and November, net of taxes of the year.Tax assets at 31 December 2012 are mainly comprised of foreign tax assets of €5,899 thousand (31 December 2011: €4,417 thousand) and an IRES tax credit of €548 thousand which refers to the 10% flat deduction of the IRAP tax paid in 2006 and 2007 pursuant to Decree Law no. 185/2008 (the so-called Anti-Crisis Decree) and discussed by the Tax authorities with circular 16/E of 14 April 2009. Other receivables include the IRES tax assets pertaining to 2004 (€145 thousand) for which Finmeccanica has filed an application for refund.Foreign tax assets include the amount paid by Ansaldo Segnalamento Ferroviario in the UK in previous years (€921 thousand). This amount was fully impaired by means of a specific allowance covering the risk that the caption fails to be recovered in the future as a consequence of the effective tax rate applied to income generated in the UK, as per the recoverability rules set out in article 165 of the Consolidated text of direct taxes.


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17. DerivativesDerivative assets and liabilities may be analysed as follows.


(€’000) Assets Liabilities Assets Liabilities

Fair value hedges 7,439 6,853 9,579 10,101

Currency hedges

Cash flow hedges 761 - - -

Currency hedges

8,200 6,853 9,579 10,101

The company uses derivatives to hedge the currency risk (fair value hedges) for subsidiaries. This risk arises from the exposure to cash flows in currencies other than the functional currency. These are back-to-back transactions as the currency risk is hedged by identifying the exposure to the bank issuing the hedging instrument, while recognising a balancing entry with respect to the subsidiary. At 31 December 2012, the fair value of these transactions amounted to €6,664 thousand (31 December 2011: €9,241 thousand). The related effects are netted in financial income and expense. At 31 December 2012, the company had derivatives hedging foreign currency joint accounts with the aim of hedging the company against year-end currency risk. At the reporting date, these derivatives were recognised under assets and liabilities at €775 thousand (31 December 2011: €338 thousand) and €184 thousand (31 December 2011: 647 thousand), respectively.Finally, the company entered into a discounted currency swap hedging a receivable from the Tralima consortium (USD1,725 thousand). The company recognised these derivatives and the hedged receivable as fair value hedges thorough profit or loss. Consequently, the receivable from the Tralima consortium was adjusted to its fair value, recognising the related exchange difference. Moreover, the derivative of €5 thousand was recognised at fair value under liabilities (31 December 2011: €213 thousand), taking the difference to net financial expense.At the reporting date, a cash flow hedge was also in place to cover the cash flows of the Abu Dhabi contract (€761 thousand).

18. Other current assets


Prepayments - current portion 9,894 9,381

Grants 10,155 7,605

Employees 604 840

Social security institutions 58 168

Other tax assets 10,925 5,926

Other 4,363 908

Total third party current assets 35,999 24,828

Total related party current assets 1,555 1,510

Total 37,554 26,338

Other current assets amounted to €37,554 thousand at 31 December 2012 (31 December 2011: €26,338 thousand). The increase on the previous year is mainly due to grants and tax assets.At the reporting date, grants amounted to €10,155 thousand (31 December 2011: €7,605 thousand). They can be analysed as follows:• grants for projects financed by the European Community or the Ministry for education and research (€9,578 thousand);• grants pursuant to Law no. 488, first application, PIA, (€229 thousand);• grants related to assets pursuant to Law no. 488, eleventh application, 2011 (€226 thousand);• grants related to assets pursuant to Law no. 488, second application, PIA (€122 thousand).For additional information reference should be made to the “Research and development” section of the directors’ report.

Other tax assets amount to €10,925 thousand (31 December 2011: €5,926 thousand) and are mainly related to the VAT credit in Italy of €7,454 thousand and the branches of €3,039 thousand, net, and a receivable for undeducted VAT on the use of vehicles, reimbursement of which was claimed for €345 thousand.

Prepayments amount to €9,894 thousand (31 December 2011: €9,381 thousand) and mainly relate to insurance premiums pertaining to subsequent years (€3,535 thousand), fees on sureties paid early (€3,727 thousand), a contractual advance for the international videoconference service (€400 thousand) and the current portion (€1,610 thousand) to purchase the right to use the “Ansaldo” trademark.

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19. Cash and cash equivalents


Cash-in-hand 51 59

Bank accounts 73,720 106,835

Total 73,771 106,894

The balance is made up of cash-in-hand and bank account balances.

Moreover, it includes the advances (€3,881 thousand) received from the customer Iricav Uno consortium through the investee Pegaso S.c.r.l., which constructs the high-speed railway Rome-Naples section on behalf of the company (31 December 2011: €4,844 thousand) and advances of €559 thousand (31 December 2011: €1,326 thousand) received from the customer Metro Campania NordEst through the Alifana Due consortium which constructs the Piscinola-Aversa railway section on behalf of the company. These advances are allocated to specific current accounts held by the company which are used exclusively to support the future costs of the works to be performed by the company.

20. EquityAt 31 December 2012, equity amounted to €344,396 thousand, up by a net €22,457 thousand on 31 December 2011 (€321,939 thousand).The increase is mainly due to the dividend distribution approved by the shareholders in their meeting to approve the 2011 financial statements, and to the profit for the year.

Equity can be analysed as follows:

Share capital Share capital Nominal amount Treasury shares Total

Outstanding shares 100,000,000 50,000,000 (806,054) 49,193,946

31 December 2009 100,000,000 50,000,000 (806,054) 49,193,946

Bonus issue of 5 July 2010 as per the minutes of the extraordinary shareholders’ meeting of 23 April 2010 20,000,000 10,000,000 - 10,000,000

Use of treasury shares for SGP 513,643 513,643

31 December 2010 120,000,000 60,000,000 (292,411) 59,707,589

Bonus issue on 4 July 2011 as per the minutes of the extraordinary shareholders’ meeting of 23 April 2010 20,000,000 10,000,000 - 10,000,000

Use of treasury shares for SGP 290,586 290,586

31 December 2011 140,000,000 70,000,000 (1,825) 69,998,175

Bonus issue on 9 July 2012 as per the minutes of the extraordinary shareholders’ meeting of 23 April 2010 20,000,000 10,000,000 - 10,000,000

Use of treasury shares for SGP 133 133

31 December 2012 160,000,000 80,000,000 (1,692) 79,998,308

The fully paid-up share capital amounts to €80,000,000 and is comprised of 160,000,000 ordinary shares with a nominal amount of €0.50 each. On 9 July 2012, as resolved by the shareholders in their extraordinary meeting of 23 April 2010, the company carried out the third instalment of the bonus issue (€10,000,000), issuing 20,000,000 ordinary shares with a nominal amount of €0.50 each. During the above meeting, pursuant to article 2442 of the Italian Civil Code, the shareholders approved a bonus issue of €50,000,000, to be carried out using available reserves: specifically €47,678,624.34 from the reserve “Capital injection”, which will be consequently zeroed, and €2,321,375.66 from the reserve for “Negative goodwill” which will be decreased by the same amount. The share capital increase will be carried out by 31 December 2014, with the issue of 100,000,000 ordinary shares of a nominal amount of €0.50 each, in five equal instalments of €10,000,000 each, consisting of 20,000,000 newly-issued ordinary shares with a nominal amount of €0.50 each.

Treasury shares are equal to €1.7 thousand and relate to the 3,383 residual shares following the completion of the process to purchase and grant shares to the company managers who are part of the Stock Grant Plan (“SGP”).


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At 31 December 2012, share capital was as follows:

Shareholder % held

Finmeccanica SpA 40.066

UBS AG 2.697

Altrinsic Global Advisors LLC 2.092

Other shareholders with an investment of less than 2% 55.145

Retained earnings, including the profit for the year (€’000)Retained earnings

Actuarial reserve for

defined benefit plans

Profit for the year Total

31 December 2011 78,252 1,011 53,286 132,549

Allocation of profit for the year:

- dividends - - (28,000) (28,000)

- legal reserve - - - -

- reserve for legal reserve adjustments - - - -

- retained earnings 25,286 - (25,286) -

Profit for the year - - 50,738 50,738

2012 actuarial loss on defined benefit plans - (2,416) - (2,416)

31 December 2012 103,538 (1,405) 50,738 152,871

Retained earnings, including the profit for the year, may be analysed as follows:• “Retained earnings” rose from €78,252 thousand at 31 December 2011 to €103,538 thousand at 31 December 2012, following the

decision of the shareholders who approved the 2011 financial statements, to allocate €25,286 thousand of the 2011 profit thereto;• the actuarial reserve for defined benefit plans arising from application of the equity method to recognise the actuarial gains/losses of

Italian post-employment benefits fell following the actuarial loss of €2,416 thousand, as per the actuarial appraisal of Italian post-employment benefits at 31 December 2012 (the related tax effect of €664 thousand is recognised in “other reserves”);

• the profit for the year of €50,738 thousand (€53,286 thousand in 2011).

Other reserves

(€’000)Legal

reserve

Reserve for legal reserve adjustments

Negative goodwill

Reserve as per

Law no. 413/91

Reserve as per Law no.

488/92, second

application, PIA

Reserve for 50% grant as

per article 55 of Law no. 219/81 TUIR (Consolidated

income tax act)

Reserve as per Law no.

488/92, first

application, PIA

Stock grant

reserve

Deferred tax

reserveHedging reserve

Capital injections

Coverage of losses Total

31 December 2011 14,000 6,000 69,538 832 145 209 854 377 (278) - 27,678 37 119,392

Stock grant plans:

- 2012 Stock grant plan allocation - ASTS - - - - - - - 1,436 - - - - 1,436

- 2011 Stock grant plan disbursement - ASTS - - - - - - - (341) - - - - (341)

- SGP reserve - other companies - - - - - - - 356 - - - - 356

Other changes:

- transfer of the reserve for legal reserve adjustments following the third instalment of the share capital increase 2,000 (2,000) - - - - - - - - - - -

- allocation of available reserves to share capital - - - - - - - - - - (10,000) - (10,000)

- deferred taxes on equity items - - - - - - - - 658 - - - 658

- hedging - - - - - - - - - 26 - - 26

31 December 2012 16,000 4,000 69,538 832 145 209 854 1,828 380 26 17,678 37 111,527

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The Legal reserve amounts to €16,000 thousand (31 December 2011: €14,000 thousand). The €2,000 thousand increase is a consequence of the shareholders’ decision taken during their meeting to approve the 2009 financial statements to increase share capital by €50,000 thousand in five equal annual instalments in order to ensure that this reserve is always equal to 20% of share capital. The reserve for legal reserve adjustments is converted automatically into a legal reserve when the bonus issue becomes effective. During the year, as resolved by the shareholders, following the third instalment of the share capital increase, €2,000 thousand was transferred from the reserve for legal reserve adjustments to the legal reserve. Negative goodwill recognised in the 2009 financial statements amounted to €69,538 thousand.Of this amount, €83,237 thousand arose from the merger of Ansaldo Segnalamento Ferroviario and Ansaldo Trasporti Sistemi Ferroviari on 1 January 2009, specifically:• €93,094 thousand representing the difference between the carrying amounts of the investments in Ansaldo Segnalamento Ferroviario

(€76,298 thousand), wholly owned by Ansaldo Trasporti Sistemi Ferroviari, Ansaldo Trasporti Sistemi Ferroviari (€38,123 thousand), wholly owned by Ansaldo STS, and the equity of the merged companies. The difference is substantially attributable to the 2008 profit of the merged companies (€94,376 thousand);

• €9,857 thousand reflecting the elimination of net goodwill included in the financial statements of Ansaldo Segnalamento Ferroviario (€1,825 at 31 December 2008) and Ansaldo Trasporti Sistemi Ferroviari (€12,687 thousand at 31 December 2008), net of deferred taxes of €4,655 thousand. The above goodwill was eliminated as it pertained to prior year infragroup non-recurring transactions; specifically: ASF residual goodwill of €1,825 thousand relates to the contribution of the “Signalling” business unit by Ansaldo Trasporti S.p.A. in 1996 and ATSF’s residual amount (€12,687 thousand) refers to the contribution of the “Systems” business unit by Ansaldo Trasporti S.p.A. in 2001;

• €13,649 thousand relating to goodwill arising from the merger of Ansaldo Signal N.V. in liquidation which took place on 1 October 2009. It arises from the elimination of the investment in Ansaldo Signal N.V. in liquidation (€21,946 thousand), which was wholly owned by Ansaldo STS S.p.A.;

• €50 thousand was used following the reclassification of the 2005 costs for the share capital increase. The amount was reclassified by allocating the above costs to an available equity reserve as permitted by IAS 32.

The Revaluation reserve as per Law no. 413/91 amounts to €832 thousand. It was already present in Ansaldo Segnalamento Ferroviario’s equity and, therefore, was recognised in Ansaldo STS S.p.A. following the merger, as it was taxable on distribution.

The Reserve as per Law no. 488/92 second application, PIA, amounted to €145 thousand. It was already present in Ansaldo Segnalamento Ferroviario’s equity and, therefore, was recognised in Ansaldo STS S.p.A. after the merger. This reserve, which was set up as resolved by the shareholders during the meeting called to approve the 2006 financial statements, is subject to the limitations established by the temporary licence decree issued by the Ministry of Production Activities on the second application, PIA, in accordance with the above law.

The Reserve for Ministerial grants as per Law no. 219/81 amounts to €209 thousand. It was already present in Ansaldo Segnalamento Ferroviario’s equity and, therefore, was recognised in Ansaldo STS S.p.A. after the merger, as it was taxable on distribution. This reserve became unavailable when the company received the grants related to assets in prior years. The Reserve as per Law no. 488/92 first application, PIA, amounts to €854 thousand. It was already present in Ansaldo Segnalamento Ferroviario’s equity and, therefore, was recognised in Ansaldo STS S.p.A. after the merger. This reserve, which was set up as resolved by the shareholders during the meeting called to approve the 2004 financial statements, is subject to the limitations established by the temporary licence decree issued by the Ministry of Production Activities on the first application, PIA, in accordance with the above law.

The Stock grant reserve amounted to €1,828 thousand (31 December 2011: €377 thousand). It was set up in 2007 following Ansaldo STS board of directors’ approval of the Stock Grant Plan (SGP) under which Ansaldo STS shares are awarded to “strategic” and “key” resources and managers with a high potential upon reaching the agreed targets, based on general criteria set by the parent’s board of directors for 2006 and 2007. In 2010, a stock grant plan was approved for managers other than top managers for the period 2010-2012 and, finally, in 2011, a stock grant plan 2011 was passed for the company’s managers. On 1 March 2012, the appointments and remuneration committee approved a two-year (2012-2013) stock grant plan which was subsequently passed by the shareholders on 7 May 2012. The plan, which applies to a maximum of 56 employees plus the CEO and key managers, has the same vesting conditions as the 2011 plan (EVA, FOCF and share performance against the FTSE Italia All-Share). For additional information, reference should be made the section on “Human resources” in the directors’ report.

The €1,451 thousand decrease is due to the following factors:• the decrease due to the 2011 awarding of shares related to the 2010-2012 plans for managers other than top managers and the 2011

plan. As only some vesting conditions were met, not all the relevant shares were awarded (for additional information see the section on “Human resources” in the directors’ report). The Stock grant reserve of €548 thousand was entirely used. An €83 thousand difference was recognised in respect of the unallocated portion, while €77 thousand was recognised in respect of the awarded portion, reflecting the price difference between the time of allocation and the awarding of the shares. Finally, €47 thousand was recognised as the differential between the nominal amount of treasury shares at 31 December 2012 and the purchase price;

• the €356 thousand increase due to the 2011 awarding of shares to the subsidiaries’ managers and other eligible parties and the recognition of the new 2012 shares assigned to them.

• the €1,436 thousand increase attributable to the shares related to 2012 vesting conditions for the company’s managers and other eligible parties. These shares were recognised at the grant date (€7.420 per share at 2 March 2012 for the 2012-2013 plan). Following the bonus issue of 9 July 2012, the unit value was re-calculated as €6.492 per share, i.e., €14.37 per share at 27 May 2010 for the 2010-2012 plan. Following the bonus issues of 5 July 2010, 4 July 2011 and 9 July 2012, it was re-calculated as €8.98 per share.

The Deferred tax reserve amounts to €380 thousand. Changes therein may be analysed as follows:- deferred taxes on the 2012 actuarial loss on Italian post-employment benefits (€2,416 thousand), to be allocated to “Retained earnings or losses carried forward” using the equity method (see also note 23);

- deferred taxes on the cash flow hedges recognised in equity during the year.


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The Reserve for capital injections amounts to €17,678 thousand. It was set up in 2006 following the capital injection received from the parent Finmeccanica.The €10,000 thousand decrease refers to the shareholders’ approval of the 2009 financial statements and the bonus issue. In their meeting, the shareholders decided to allocate the entire reserve for “capital injections” and that for “negative goodwill” (€2,321 thousand) to the bonus issue. On 9 July 2012, following the issue of the third of the five instalments of the bonus issue, €10,000 of the reserve for capital injections was allocated to share capital.

The Reserve for legal reserve adjustments amounts to €4,000 thousand. It was set up in 2010 for an amount of €10,000 thousand when allocating the 2009 profit as resolved by the shareholders in their meeting called to approve the 2009 financial statements and the bonus issue. Based on the above resolution, on 9 July 2012, following the €10,000 thousand bonus issue, the legal reserve was adjusted to 20% of share capital using €2,000 thousand of the legal adjustment reserve.

The table below shows the origin, possible use, distribution and actual use of reserves in the past three years.

Name Amount Possible useAvailable

portion

Use in 2011 Use in 2010 Use in 2009to cover

lossesother

reasonsto cover

lossesother

reasonsto cover

lossesother

reasons

Share capital Outstanding shares 80,000 - - - - - - - -

Treasury shares -2 - - - - - - - -

Equity-related reserves: Revaluation reserve as per Law no. 413/91 832 A - B - C 832 - - - - - -

Capital injections 17,678 A - B 17,678 - 10,000 - 10,000 - -

Coverage of losses 37 B - - - - - - -

Negative goodwill 69,538 A - B - C 69,538 - - - - - 50

Income-related reserves: Legal reserve 16,000 B - - - - - - -

Reserve for legal reserve adjustments 4,000 B - - - - - - -

Reserve for Ministerial grants as per Law no. 219/81 article 55 of the Consolidated income tax act 209 A - B - C 209 - - - - - -

Reserve as per Law no. 488/92, application 11, 2001 - - - - - - - -

Reserve as per Law no. 488/92, application 14, 2002 - - - - - - - -

Reserve as per Law no. 488/92, application 1, PIA, 2003 854 A - B - C 854 - - - - - -

Reserve as per Law no. 488/92, application 2, PIA, 2003 145 A - B - C 145 - - - - - -

Stock grant reserve:

- allocation 2,061 B - - - - - - -

- disbursement -233 n,a, - - - - - - -

Hedging reserve 26 - - - - - - -

Reserve for actuarial gains/losses (IAS 19) -1,405 n,a, - - - - - - -

Deferred tax reserve 380 n,a, - - - - - - -

Retained earnings or losses carried forward 103,538 A - B - C 103,538

Total 293,658 - 192,794 - 10,000 - 10,000 - 50

Undistributable portion - - 20,000 - - - - - -

Residual distributable portion - - 172,794 - - - - - -

Key:A : for share capital increaseB : to cover lossesC : dividends

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21. Loans and borrowings


(€’000) Current Non-current Total Current Non-current Total

Bank loans and borrowings 271 - 271 852 269 1,121

Loans and borrowings due to others 169 - 169 348 169 517

Total loans and borrowings 440 - 440 1,200 438 1,638

Related party loans and borrowings 84,891 - 84,891 31,931 - 31,931

Total 85,331 - 85,331 33,131 438 33,569

Total loans and borrowings amount to €440 thousand at 31 December 2012. They may be analysed as follows:- €271 thousand (entirely classified under current bank loans and borrowing) related to a subsidised loan obtained for pre-competitive industrial research and development on the Caraibi project, carried out in prior years. An instalment was repaid during the year. The next and final instalment will expire in March 2013. The interest rate is 0.74% p.a.;

- €169 thousand (entirely classified under other bank loans and borrowings) related to the portion pertaining to the company of a subsidised loan obtained in connection with the SITI (Safety in Intelligent Tunnels) research project submitted to the TRAIN consortium, of which the company is a member. Following the extension of the term of the project, repayment of the loan (slated for June 2008) was postponed to 2009 subject to the final expiry date of the loan, set for June 2013. During the year, two instalments (€337 thousand) were repaid. Interest accrues on a half-yearly basis at 0.25%.

The balance at 31 December 2012, broken down by current and non-current portion, the latter including the year of expiry, is given below:

Lending bank (program) 2013 2014

Total non-current

portionCurrent portion Total

San Paolo IMI (Caraibi) - - - 269 269

Train (Siti) - - - 169 169

Total - - - 438 438

Accrued interest - - - 2 2

Total subsidised loans - - - 440 440

Loans and borrowings may be analysed as follows:

(€’000)31 December

2011 Increases DecreasesChanges in

scopeOther

changes31 December

2012

Bank loans and borrowings 1,121 - 850 - - 271

Loans and borrowings due to others 517 - 348 - - 169

Other loans and borrowings - - - - - -

Total 1,638 - 1,198 - - 440

At 31 December 2012, the company’s credit line amounted to €76,000 thousand and is to be used mainly for overdrafts.


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Financial positionThe following disclosure is presented in accordance with the format required by CONSOB communication no. DEM/6064293 of 28 July 2006:


Cash-in-hand 51 59

Bank accounts 73,720 106,835

Securities held for trading - 24,743

Cash and cash equivalents 73,771 131,637

Third party loan assets 28,443 78,854

Related party loan assets 166,968 61,313

Current loan assets 195,411 140,167

Current bank loans and borrowings 271 852

Current portion of non-current loans and borrowings 169 348

Other current loans and borrowings 84,891 31,931

Current financial debt 85,331 33,131

Net current financial position (183,851) (238,673)

Non-current bank loans and borrowings - 269

Loans and borrowings due to others - 169

Bonds issued - -

Other non-current loans and borrowings - -

Non-current financial debt - 438


There are no collateral on company’s assets.

22. Provisions for risks and charges and contingent liabilities

(€’000)Disputes with

employeesCompleted contracts Other Total

At 1 January 2011 383 747 4,879 6,009

Broken down as follows:Current 383 747 4,879 6,009

Non-current - - - -

383 747 4,879 6,009

Accruals 78 200 7,030 7,308

Utilisation 29 735 4,800 5,564

Releases - - - -

Other changes - - - -

At 31 December 2011 432 212 7,109 7,753

Broken down as follows:

Current 432 212 7,109 7,753

Non-current - - - -

432 212 7,109 7,753

At 1 January 2012 432 212 7,109 7,753

Accruals 300 350 300 950

Utilisation 212 212 2,707 3,132

Releases - - 3 3

Other changes - - - -

At 31 December 2012 519 350 4,700 5,569

Broken down as follows:Current 519 350 4,700 5,569

Non-current - - - -

519 350 4,700 5,569

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At 31 December 2012, the provision for risks and charges reflects probable and quantifiable risks in accordance with relevant accounting principles.

They amounted to €5,569 thousand (31 December 2012: €7,753 thousand). The overall decrease is mainly due to the €2,402 thousand used for lay-offs.

The provision for disputes with employees reflects the assessment of disputes with a probably unfavourable outcome for the company. In 2012, this provision was used by €212 thousand for settled disputes and rose €300 thousand to consider the risk of paying additional incentives to employees who, despite having already been laid off, may obtain additional amounts given the uncertainty inherent in applicable legislation.

The provision for completed contracts was accrued in respect of contractually mandatory obligations to update product technologies and documentation and implement changes to equipment and facilities related to completed contracts. In 2012, this provision was used by €212 thousand, accruing €350 thousand for contractually-established works which will be performed in the next few years.

Other provisions cover minor disputes currently underway (€702 thousand) and the dispute with Azienda Consorziale Trasporti Trieste, now “AMT” (€3,998 thousand), as described in the section on “Litigation”. €305 thousand was used to settle minor disputes during the year, while €300 thousand was accrued following the new estimate of probable risks at the reporting date. 23. Employee benefitsItalian post-employment benefits can be analysed as follows:


Italian post-employment benefits 19,263 18,380

Defined benefit pension plans - -

Other provisions for personnel - -

Total 19,263 18,380

Pursuant to article 2120 of the Italian Civil Code, Italian post-employment benefits provide for the payment of the amount accrued by employees until the date they leave the company. Law no. 296 (2007 Finance act) of 27 December 2006 and the subsequent decrees and regulations issued in early 2007 as part of the reform of supplementary pension, considerably changed the structure of Italian post-employment benefits. Indeed, for companies with more than 50 employees, the portion of post-employment benefits accrued after the date of the reform must be transferred to supplementary pension schemes or the Treasury funds managed by INPS (the Italian social security institute). The tables below show changes in the Italian post-employment benefits and the amounts recognised in profit or loss:


Opening balance 18,380 20,774

Current service costs 239 223

Interest expense 657 681

Actuarial (gains)/losses taken to equity 2,416 (1,329)

Benefits paid (2,430) (1,969)

Intra-group transfers - -

Other changes - -

Closing balance 19,263 18,380

Italian post-employment benefits(€’000) 31 December 2012 31 December 2011

Current service costs 239 223

Curtailment - -

Personnel expense 239 223Interest expense 657 681

Total 896 904


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The following main actuarial assumptions were used in measuring Italian post-employment benefits at year end:

Italian post-employment benefits31 December 2012 31 December 2011

Discount rate 2.58% 4.14%

Salary increase rate N.A. N.A.

Turnover rate 4.36% - 9.24% 4.36% - 9.24%

24. Other current and non-current liabilities

Non-current Current

(€’000)31 December

201231 December

201131 December

201231 December

2011

Employees 3,092 2,438 15,398 12,506

Supplementary pension schemes and INPS Treasury fund - - 1,020 1,042

Amounts due to social security institutions - - 7,428 7,309

R&D grants - - 6,065 2,742

Other tax liabilities - - 4,533 5,854

Deferred income - - 1,179 774

Other - - 16,671 17,023

Total other current and non-current third party liabilities 3,092 2,438 52,294 47,250

Total other related party liabilities - - 397 96

Total 3,092 2,438 52,691 47,346

Other non-current liabilities relate to other long-term benefits, specifically employees’ jubilee bonuses.

The following main actuarial assumptions were used in measurements at year end:

Long-term benefits31 December 2012 31 December 2011

Discount rate (p.a.) 2.58% 4.14%

Salary increase rate 2.47% - 3.58% 2.47% - 3.58%

Turnover rate 4.36% - 9.24% 4.36% - 9.24%

At 31 December 2012, other current liabilities amounted to €52,691 thousand, compared to €47,346 thousand at 31 December 2011. The increase is mainly due to the rise in payables to employees and the collection of advances for research and development projects. Other tax liabilities of €4,533 thousand mainly relate to withholding taxes on employees’ remuneration to be paid as withholding agent. Other includes the residual unpaid 75% of the subscribed share capital of Metro C S.c.p.A. (€15,750 thousand).

25. Trade payables


Trade payables 362,616 309,795

Total trade payables 362,616 309,795

Related party trade payables 95,701 64,722

Total 458,317 374,517

Total trade payables rose from €374,517 thousand at 31 December 2011 to €458,317 thousand at 31 December 2012. The increase is attributable to third party trade payables (€52,821 thousand) and related party trade payables (€30,979 thousand).

The increase in third party trade payables is mainly due to suppliers with whom back-to-back contracts were entered into in respect of the credit position with the end customer of the Naples underground Line 6 and Metro C projects.The increase in related party trade payables is mainly attributable to the subsidiaries Ansaldo STS USA International CO.; indeed, the related projects are undergoing a period of intense activity, also in view of their completion.

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Third party trade payables include maturity factoring for €16,445 thousand. This tool enables the company’s suppliers to carry out factoring transactions which entail the transfer and collection of amounts due from the company for the supply of goods and/or services, allowing the company to further extend settlement of trade payables, bearing the related interest.

There are no trade payables due after five years.

26. Leases, guarantees and other commitmentsLeasesThe company is party to certain operating leases mainly for use of properties, IT equipment and cars. Minimum future non-cancellable repayments related to operating leases amount to €3,898 thousand for properties (31 December 2011: €4,933 thousand) and €4,535 thousand for cars (31 December 2011: €1,291 thousand).They may be analysed as follows:


(€’000)Operating

leasesFinance

leasesOperating

leasesFinance leases

Within one year 2,869 - 2,086 -

Between two and five years 5,557 - 4,138 -

After five years 7 - - -

Total 8,433 - 6,224 -

Reference should be made to note 30 for detailed information about the amounts recognised in profit or loss in respect of operating leases of properties, IT equipment and cars.Operating leases of properties mainly relate to the Naples offices (Via Nuova delle Brecce 260) and were entered into with the related company AnsaldoBreda, as the lessor. The property houses the company’s administrative and branch offices.

Car leases, which usually have a four-year term, provide for price revisions based on the consumer price index, motor third-party insurance increases, car property tax increases and price increases as per car manufacturers’ official lists.

Guarantees and other commitmentsThe company had the following guarantees at 31 December 2012:

(€’000) 2012 2011

Related party sureties 1,534,408 830,123

Third party sureties 2,045,329 2,016,083

Third party endorsements - -

Other personal guarantees given to third parties - -

Personal guarantees given - -

Total 3,579,737 2,846,206

Personal guarantees given - -

Guarantees received 190,591 143,481

Guarantees received from related parties 946,183 364,914

Total 1,136,774 508,395

Total 4,716,511 3,354,601

Guarantees given total €3,579,737 thousand (31 December 2011: €2,846,206 thousand). They are comprised of bank and insurance sureties given to Italian and foreign customers to guarantee participation in tenders, correct performance of orders, advances and early payments of guarantee withholdings. The increase on the previous year is due to the new guarantees given for new orders, including the issue of guarantees for the Gebze Turkey project, the Abu Dhabi project and the Cityringen in Copenhagen.

Commitments include related party guarantees of €1,534,408 thousand (31 December 2011: €830,123 thousand), which can be analysed as follows:

• €530,721 thousand related to guarantees and commitments for Finmeccanica concerning orders and contracts pertaining to former subsidiaries (Ansaldo Segnalamento Ferroviario and Ansaldo Trasporti Sistemi Ferroviari) in favour of Italian and foreign customers;

• €1,825 thousand related to guarantees and commitments for Finmeccanica Finance;• €1,001,861 thousand which can be broken down as follows: - €897,033 thousand related to parent company guarantees and bank guarantees applicable to the company’s credit lines, given in

favour of customers on behalf of subsidiaries - €104,828 thousand related to counter guarantees for the use of the company’s bank lines for unsecured transactions, given in favour

of subsidiaries.


76

The increase of sureties in favour of related parties on the €704,285 thousand at 31 December 2011 is almost entirely due to the release of the parent company guarantee related to the Rafa project (€547,705 thousand).

Sureties in favour of third parties include the counter guarantees given in favour of banks for the relevant portion of sureties and credit lines to sundry customers of €277,074 thousand (mainly in relation to the High-speed project in favour of the Saturno consortium).

Guarantees received by the company total €1,136,774 thousand (31 December 2011: €508,395 thousand). They can be analysed as follows: • €190,591 thousand related to guarantees given by the company’s suppliers or subcontractors for the proper fulfilment of contractual

commitments with the company;• €946,183 thousand related to company guarantees given by subsidiaries or related parties.

The €628,379 thousand increase on the previous year is almost entirely due to the release of the company guarantee by the Australian subsidiary in favour the company as part of the Rafa project.

During the year, the company carried out direct negotiations with banks to obtain unsecured credit lines and subsequently used them in favour of the Ansaldo STS group for €32,800 thousand at the end of 2012.

At 31 December 2012, the company’s bank lines for current account overdrafts totalled €76,000 thousand.

Purchase and sale commitmentsAt 31 December 2012, the following purchase and sale commitments were in place:

(€’000) 2012 2011

Third party customers order backlog 3,677,845 3,855,457

Related party customers order backlog 663,868 615,642

Third party suppliers order backlog 776,615 766,280

Related party suppliers order backlog 387,378 366,873

Total 5,505,706 5,604,252

These amounts include commitments to purchase property, plant and equipment and intangible assets of €1,845 thousand and €1,190 thousand, respectively.

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27. Related party transactionsThe impact of related party transactions on profit or loss for 2012 and 2011 is shown below:

31.12.2012 (€’000) Revenue

Other operating

income ExpenseExpense recovery


Financial income

Financial expense

ParentFINMECCANICA S.p.A. - 67 4,350 2 20 152 111

AssociatesInternational Metro Service S.r.l. 1,701 5 (131) - - 3,592 -

Metro 5 S.p.A. 16,819 79 1,186 - - - -

Metro 5 LILLA S.r.l. 19,325 - 580 - - - -

MetroBrescia S.r.l. 125 5 (39) - - - -

Metro Service AS 704 - 43,607 - - - -

Ansaldo Energia S.p.A. - - 1 1 - - -

Fata S.p.A. - - 215 - - - -

Fata Logistic System S.p.A. - - 1,885 - - - -

Gruppo Ferrovie dello Stato 146,859 - 1,567 - - - -

Gruppo ENI 9,478 - 98 - - - -

Gruppo Enel - - 30 - - - -

I.M. Intermetro S.p.A. 164 - - - - - -

Electron Italia s.r.l. 128 - 29 - - - -

E-Geos S.p.A. - - 61 - - - -

Finmeccanica Group Service S.p.A. - 16 946 - 61 - -

Pegaso S.c.r.l. (in liquidation) - - 712 - - - -

AnsaldoBreda S.p.A. 11,294 - 7,664 879 - - -

Selex Elsag S.p.A. - 13,133 93 - - -

SubsidiariesAnsaldo STS Transportation Systems India Private Limited 1,112 654 1,169 51 - - (268)

Ansaldo STS Australia PTY Ltd. 4,525 2,570 531 962 - 768 (77)

Ansaldo STS UK Ltd. 389 2 222 53 - 129 3,837

Ansaldo STS Ireland Ltd - - - 4 - - 6

Ansaldo STS Sweden AB 4,536 387 7 110 - - 255

Ansaldo STS Deutschland GmbH 1,513 - 529 28 - - -

Ansaldo STS France S.A. 2,235 2,633 6,251 678 - - 1

Ansaldo STS Espana S.A. 26 - 656 49 - - -

Ansaldo STS USA Inc. 947 3,221 2,860 1,148 - 455 -

Ansaldo STS South Africa Pty Ltd - - - 4 - -

Balfour Beatty Ansaldo Systems JV SDN BHD - - - - - - (82)

Ansaldo STS Southern Africa Pty Ltd - BOTSWANA - - - 4 - - (3)

Ansaldo STS Canada Inc - - - 19 - - (3)

Ansaldo STS USA International CO. 6,430 - 28,849 - - - -

Ansaldo STS Malaysia SDN BHD 118 - 41 38 - 123 -

Ansaldo Railway System Trading (Beijing) Ltd 60 - 213 3 - - -

Alifana Due S.c.r.l. 245 3 836 5 - - -

Alifana S.c.a.r.l. 25 - - 2 - - -

ConsortiaSATURNO consortium 8,832 - 1,655 - - - -

San Giorgio Volla Due consortium 746 - 42 - - - -

MM4 consortium - - 455 34 - - -

San Giorgio Volla consortium 30 - 10 - - - -

SESM consortium - - 15 - - - -

CRIS consortium - - 50 - - - -

Ascosa Quattro consortium 151 - 23 - - - -

CESIT consortium - - - - 35 - -

Ferroviario Vesuviano consortium 11 1,458 143 - - - -

Total 238,528 11,099 120,450 4,165 116 5,219 3,776

% of the total for the year 36% 44% 25% 1% 30% 22%


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31.12.2011 (€’000) Revenue

Other operating

income ExpenseExpense recovery


Financial income

Financial expense

ParentFINMECCANICA S.p.A. - - 3,218 - - 7 105AssociatesSelex Service Managment S.p.A. - - 176 - - - -Finmeccanica Finance S.A. - - - - - 641 -International Metro Service S.r.l. 1,200 11 - - - - -Metro 5 S.p.A. 11,191 92 818 - - - -Metro 5 LILLA S.r.l. 3,662 - - - - - -MetroBrescia S.r.l. - - 156 - - - -Metro Service AS - - 38,673 - - - -Ansaldo Energia S.p.A. - - - 2 - - -Fata S.p.A. - - 215 - - - -Fata Logistic System S.p.A. - - 2,212 1 - - -Gruppo Ferrovie dello Stato 149,363 - 921 - - - -Gruppo ENI - - 858 - - - -Gruppo Enel - - 85 - - - -I.M. Intermetro S.p.A. 5 - - - - - -Selex Galileo S.p.A. - - - - - - -Electron Italia s.r.l. 155 - 18 - - - -Finmeccanica Consultino Srl - - 29 - - - -Finmeccanica Group Service S.p.A. - - 1,500 - 100 - -OTO Melara S.p.A. - - - 2 - - -Alenia Aermacchi S.p.A. - - - 2 - - -Telespazio S.p.A. - - 5 - - - -Pegaso S.c.r.l. (in liquidation) 42 - 1,841 - - - -Elsag Datamat S.p.A. - - 6,651 - - - -AnsaldoBreda S.p.A. 14,366 - 20,246 618 - - -Selex Elsag S.p.A.- ex Selex Comms S.p.A. - - 4,668 2 - - -SubsidiariesAnsaldo STS Transportation Systems India Private Limited 1,430 362 75 53 - - (356)Ansaldo STS Australia PTY Ltd. - 2,273 1,897 925 - 849 (55)Ansaldo STS UK Ltd. 453 86 142 50 - 146 4,414Ansaldo STS Ireland Ltd - (27) - 6 - - 35Ansaldo STS Sweden AB 873 325 2 85 - - 268Ansaldo STS Deutschland GmbH 403 - 3,223 43 - - -Ansaldo STS France S.A. 1,633 2,191 3,944 662 - 211 5Ansaldo STS Espana S.A. 305 - 413 64 - - -Ansaldo STS USA Inc. 984 3,494 216 1,192 - 316 (1)Ansaldo STS South Africa Pty Ltd - - - 4 - - -KazakhstanTz-AnsaldoSTS ltaly LLP 3,915 - - - - - -Balfour Beatty Ansaldo Systems JV SDN BHD - - - - - - (175)Ansaldo STS Southern Africa Pty Ltd - BOTSWANA - - 17 5 - - (28)Ansaldo STS Canada Inc. - - - 20 - - (3)Ansaldo STS USA International CO. 4,350 - 21,289 - - - -Ansaldo STS Malaysia SDN BHD 145 - - 80 - 69 -Ansaldo Railway System Trading (Beijing) Ltd 5,852 - 764 - - - -Alifana Due S.c.r.l. 738 - 1,807 2 - - -Alifana S.c.a.r.l. 25 - 142 2 - - -ConsortiaSATURNO consortium 11,442 49 2,242 - - - -San Giorgio Volla Due consortium 1,863 - 110 - - - -San Giorgio Volla consortium 45 - 23 - - - -SESM consortium - - 30 - - - -CRIS consortium - - 116 - - - -Ascosa Quattro consortium 219 - 67 - - - -CESIT consortium - - 41 - - - -Ferroviario Vesuviano consortium 191 - 125 - - - -

Total 214,851 8,856 118,976 3,819 100 2,239 4,207

% of the total for the year 30% 49% 22% 1% 12% 19%

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The increase in revenue from related parties (€238,528 thousand) on the previous year (€214,851 thousand) is mainly attributable to the increased work of Metro 5 and Metro 5 Lilla in view of the launch of the first section of the “Linea M5” automatic driverless light underground line in Milan between Bignami and Zara which is expected to take place at the beginning of 2013 (for additional information see the note on events after the reporting date).2012 expense is substantially in line with 2011 (up from €115,157 thousand in 2011 to €116,285 thousand in 2012). Production rose for the associate Metro Service AS (€43,607 thousand in 2012 compared to €38,673 thousand in 2011) and the subsidiary Ansaldo STS USA International Co. (€28,849 thousand in 2012 compared to €21,289 thousand in 2011) with respect to the Brescia, Rome and Milan projects. Other operating income mainly related to services (€8,722 thousand) provided to other group companies under the general service agreement.

Financial income included the dividend paid by the associate International Metro Service S.r.l. (€3,592 thousand), interest on the joint current accounts with subsidiaries which, during the year, had a debit position (€1,475 thousand) and deposits and the joint current account with the parent Finmeccanica (€152 thousand). Financial expense, net of recharges, amounted to €3,776 thousand and mainly relates to the impairment loss recognised on the investment in Ansaldo STS UK (€3,837 thousand).

28. Revenue

(€’000) 31.12.2012 31.12.2011

Sales - third parties 174,060 102,494

Sales - related parties 367,741 184,135

Total revenue from sales 541,800 286,629

Services - third parties 3,156 3,844

Services - related parties 44,119 38,395

Total revenue from services 47,275 42,239

Change in work in progress - third parties 241,683 401,179

Change in work in progress - related parties (173,332) (7,679)

Total change in work in progress 68,351 393,500

Total revenue 657,426 722,368

Total revenue fell from €722,368 thousand in 2011 to €657,426 thousand in 2012. The €64,942 thousand decrease is due to projects which are nearing completion, such as ACC (computer Based Interlocking), high-speed railways and the Riyadh project, which was not offset by new contracts.Italian and foreign production amounted to €446,344 thousand (2011: €482,592 thousand) and €211,082 thousand (2011: €239,776 thousand), respectively.

During the year, revenue of €421,349 thousand was allocated to the recognition of the progress of final works for the ATCS (advanced train control system) project, the Turin-Novara high-speed railways project, managed through the Saturno consortium, and the Riyadh and Rome Line A underground projects.

29. Other operating income and expense

31.12.2012 31.12.2011

(€’000) Revenue Expense Revenue Expense

R&D grants 2,888 - 3,664 -

Gains on sales of property, plant and equipment and intangible assets 34 - - -

Accruals/Releases of provisions for risks and charges - 650 - 4,200

Accruals for expected losses - 2,844 - -

Royalties 984 - 1,441 -

Net exchange rate gains 7 42 41 101

Prior year items 242 45 822 177

Insurance compensation - - 83 -

Indirect taxes - 784 - 369

Interest on trade receivables/payables 9,569 3,776 3,008 2,501

Other net operating income 245 1,282 - 1,232

Total other third party operating income 13,969 9,422 9,059 8,580

Total other third party operating income 11,099 116 8,856 100

Total 25,068 9,538 17,915 8,680


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Other operating income from companies which are not part of the Ansaldo STS or the Finmeccanica groups amounted to €13,969 thousand in 2012 (2011: €9,059 thousand). The increase is mainly due to greater default and legal interest accrued on a contractual and non-contractual basis on trade receivables. Other revenue is mainly comprised as follows:• royalties on hardware licences of €984 thousand (2011: €1,441 thousand);• operating interest on trade receivables of €9,569 thousand (2011: €3,008 thousand); • prior year debit items of €242 thousand (2011: €822 thousand);• exchange rate gains on non-financial items of €7 thousand (2011: €41 thousand);• R&D grants of €2,888 thousand (2011: €3,664 thousand). Of this amount: €508 thousand (2001: €313 thousand) related to projects

managed by the Transportation Solutions business unit and €2,379 thousand (2011: €3,351 thousand) to the Signalling business unit. For additional information about the amount and a breakdown of the research and development expense recognised in profit or loss, reference should be made to the relevant section of the directors’ report.

Other operating expense related to companies which are not part of the Ansaldo STS or the Finmeccanica groups amounted to €9,422 thousand (2011: €8,580 thousand). They are comprised of indirect taxes of €784 thousand, other operating expense of €1,282 thousand, exchange rate losses on non-financial items of €42 thousand, prior year credit items of €45 thousand, accruals to the provisions for risks and charges of €650 thousand, operating expense on trade payables of €3,776 thousand and expected losses to complete contracts of €2,844 thousand. With respect to the latter point, as indicated in the section on “Accounting policies”, starting from 2012, expected losses to complete contracts are no longer recognised against revenue, rather under “Other operating expense”. Indirect taxes of €784 thousand are comprised of IMU (property tax) of €339 thousand, TARSU (municipal solid waste collection tax) of €338 thousand and other indirect taxes of €107 thousand.Other operating expense of €1,282 thousand related to membership fees of €581 thousand, donations of €321 thousand, gifts and entertainment expenses of €254 thousand and sundry expenses of €126 thousand.

For a breakdown of other revenue and related party operating expense, reference should be made to note 27 on related parties and the directors’ report (“Disclosure on management and coordination and related party transactions” section).

30. Purchases and services

(€’000) 31.12.2012 31.12.2011

Materials from third parties 96,591 109,337

Change in raw materials 1,153 6,632

Total purchases from third parties 97,744 115,969

Purchases from related parties 42,238 49,177

Total purchases 139,982 165,146

Total purchases from third parties 248,964 280,973

Purchases from related parties 3,947 3,618

Total purchases 3,922 4,207

Total services from third parties 256,833 288,798

Services from related parties 74,047 65,979

Total services 330,880 354,777

Total 470,862 519,923

Total purchases and services for 2012 decreased by €49,061 thousand following the lower production volume of the year. Purchases of raw materials, consumables, supplies and goods amounted to €139,982 thousand (2011: €165,146 thousand), down €25,164 thousand.Services amounted to €330,880 thousand (2011: €354,777 thousand), down €23,897 thousand.

Rentals and operating leases mainly relate to long-term rentals of company cars, software licences and the lease of the premises housing the Naples offices from the associate AnsaldoBreda.

For a breakdown of costs for purchases and services from related parties, reference should be made to note 27 on related parties and the directors’ report (“Disclosure on management and coordination and related party transactions” section).

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31. Personnel expense

(€’000) 31.12.2012 31.12.2011

Wages and salaries 84,951 83,881

Stock grant plans 1,436 548

Social security and pension contributions 23,777 24,487

Italian post-employment benefits 239 223

Other defined benefit plans 654 (250)

Defined contribution plans 4,001 4,066

Disputes with personnel - 78

Restructuring costs 5,925 -

Recharge of personnel expense (2,704) (1,573)

Other costs 405 3,414

Total 118,686 114,874

Personnel expense for 2012 amounted to €118,686 thousand (2011: €114,874 thousand). The €3,812 thousand increase is mainly due to restructuring costs (€5,925 thousand) following the plan implemented in 2012. Recharge of personnel expense relates to personnel seconded to “related” companies as follows: €1,631 thousand related to Ansaldo STS group companies, €170 thousand to Metro Service AS, €191 thousand to MM4 consortium, €34 thousand to Ansaldo Energia, €127 thousand to Ansaldo Breda and €542 thousand to Finmeccanica.

The headcount at 31 December 2012 numbered 1,515, compared to 1,566 employees in the previous year.

The table below shows employees by category and average number:

31.12.2012 31.12.2011

Managers 74 76

Junior managers 303 291

White collars 1,079 1,131

Blue collars 59 68

Total 1,515 1,566

On 1 March 2012, the appointments and remuneration committee approved a two-year stock grant plan which was subsequently passed by the shareholders on 7 May 2012. The plan, which applies to a maximum of 56 employees plus the CEO and key managers, has the same vesting conditions as the 2011 plan (EVA, FOCF and share performance against the FTSE Italia All-Share).

In its meeting of 1 March 2012, the appointments and remuneration committee of Ansaldo STS approved a stock grant plan for 2012 and 2013. This plan, which applies to a maximum of 56 employees plus the CEO and key managers, has the same vesting conditions as the 2011 plan (EVA, FOCF and share performance against the FTSE Italia All-Share). Moreover, in 2010, in its meeting of 1 March 2010, the above committee approved an additional stock plan for the three-year period 2010-2012 for a maximum of 50 employees that are key to particularly strategic projects for the group, which are fundamental to achieving the company’s financial targets.The stock grant plan cost is recognised on an accruals basis in the reporting period in which the services are rendered. The amount therefore relates to the portion pertaining to the year of the shares related to the 2012 vesting conditions, which will be allocated in 2013 after checking they have been met. The cost is determined on the basis of the estimated number of shares to be allocated and their fair value at the date the related parameters were approved by the appointments and remuneration committee (1 March 2012 for the 2012-2013 plan and 1 March 2010 for the 2010-2012 plan, i.e., the grant date).

In accordance with IFRS 2 “Share-based payment” and IFRIC 11 “Group and treasury share transactions”) and their current interpretations, the cost for the 2012 stock grant plan, equal to €1,436 thousand (2011: €548 thousand), was recognised with a balancing entry in an equity reserve.

In December 2012, the shares pertaining to 2011 vesting conditions were awarded, using the reserve set up in the previous year. Reference should be made to note 20 on Equity for a breakdown of changes in reserves following the share allocation of the year.


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32. Changes in finished goods, work-in-progress and semi-finished products

(€’000) 31.12.2012 31.12.2011

Changes in finished goods, work-in-progress and semi-finished products (229) (3,054)

This caption improved by €2,825 thousand, from a negative €3,054 thousand in 2011 to a negative €229 thousand in 2012.

33. Amortisation, depreciation and impairment losses

(€’000) 31.12.2012 31.12.2011

Amortisation and depreciation:

- Intangible assets 3,183 1,049

- Property, plant and equipment 4,175 4,209

7,358 5,258

Impairment losses:

- current loans and receivables 5,211 -

- other assets - -

5,211 -

Total amortisation, depreciation and impairment losses 12,570 5,258

Amortisation and depreciation amounted to €7,358 thousand, up by €2,100 thousand on 2011. The increase is mainly due to the closing and subsequent transfer of the assets under development pertaining to the New Controlling Model (NCM) and Product Data Management (PDM) projects, as described in note 7 “Intangible assets”. Specifically, €3,183 thousand relates to Intangible assets and €4,175 thousand to Property, plant and equipment. The balance is shown net of deferred income of €109 thousand for grants related to assets (Law no. 488/92) and for the satellite project.Impairment losses on current loans and receivables mainly related to the impairment of the receivable from Firema (€4,785 thousand) following the commencement of the extraordinary administration procedure on 2 August 2010, as per the decree of the Ministry of Economic Development.

34. Net financial income/(expense)

31.12.2012 31.12.2011

(€’000) Income Expense Net Income Expense Net

Interest and fees 1,014 44 970 1,687 119 1,568

Interest on Italian post-employment benefits - 657 (657) - 681 (681)

Exchange rate gains and losses 9,283 11,337 (2,054) 13,389 13,421 (32)

Fair value gains and losses 1,636 527 1,109 1,354 1,605 (251)

Fair value gains and losses - financial assets 258 - 258 - 945 (945)

Impairment losses on equity investments - 58 (58) - - -

Other financial income and expense - 836 (836) - 973 (973)

Total net financial income (expense) 12,191 13,459 (1,268) 16,430 17,744 (1,314)

Dividends 3,592 - 3,592 - - -

Impairment losses on loan assets - 3,837 (3,837) - 4,414 (4,414)

Interest and other financial income/(expense) 1,627 (61) 1,688 2,239 (207) 2,446

Net related party financial income/(expense) 5,219 3,776 1,443 2,239 4,207 (1,968)

Total 17,410 17,235 175 18,669 21,951 (3,282)

Net financial income for 2012 amounted to €175 thousand compared to an expense of €3,282 thousand in 2011. The increase is mainly due to the dividends paid by the associate International Metro Service S.r.l. (€3,592 thousand). Related party financial income of €1,475 thousand (2011: €1,590 thousand) relates to interest on joint current accounts with the subsidiaries which, during the year, showed debit positions of €152 thousand (2011: €641 thousand) and to deposits and joint current accounts with the parent Finmeccanica. Related party financial expense includes the impairment loss of almost the entire amount of the receivable from the joint current account with the subsidiary Ansaldo STS UK (€3,837 thousand).

83


Third party income and expense can be analysed as follows: • interest income on the company’s current accounts of €278 thousand (2011: €611 thousand). Interest expense of €44 thousand

(2011: €119 thousand) is mainly comprised of interest accruing on medium-/long-term financing and is equal to €23 thousand (2011: €101 thousand), and other current accounts (€21 thousand; 2011: €18 thousand);

• other interest income of €734 thousand relates to securities purchased in 2011 (Eurobonds) with a nominal amount of €25,000 thousand and a fixed interest rate of 4.5% which were repaid in August 2012. Following the fair value recognition at 31 December 2011, interest income generated financial income from fair value measurement of €258 thousand, being the difference between the nominal amount and transfer of fair value;

• interest cost on Italian post-employment benefits of €657 thousand (2011: €681 thousand) arises from the actuarial calculation carried out in accordance with IAS 19;

• exchange rate gains of €9,283 thousand (2011: €13,389 thousand) and exchange rate losses of €11,337 thousand (2011: €13,421 thousand) which include exchange rate gains/losses from both currency risk hedging transactions and translation of current account balances in foreign currency using closing rates;

• the positive effects of currency risk hedging transactions on profit or loss in place at 31 December 2012, equal to €1,636 thousand (2011: €1,354 thousand) and the negative effects of €527 thousand at year end (€1,605 thousand);

• finally, sundry financial expense of €836 thousand related to fees on the sureties (€439 thousand) agreed by the company on behalf of its foreign subsidiaries and recharged (to “related party income”) and of €397 thousand related to banking fees and commissions.

For a breakdown of related party financial income and expense, reference should be made to note 27 on related parties and the directors’ report (“Disclosure on management and coordination and related party transactions” section).

35. Income taxesIncome taxes for 2012 amounted to €20,865 thousand and may be analysed as follows:

(€’000) 31.12.2012 31.12.2011

IRES 17,953 23,615

IRAP 6,099 7,010

Income from tax consolidation scheme - -

Other foreign taxes - -

Prior year taxes (4,063) 42

Provisions for tax risks - -

Net deferred tax expense 876 1,258

Total 20,865 31,925

The difference between the theoretical and effective tax rates is analysed below:

31.12.2012 31.12.2011

(€’000)Taxable

amountsIncome

taxes %Taxable

amountsIncome

taxes %

Pre-tax profit 71,603 - - 85,212 - -

Taxes calculated at ruling tax rates - 19,691 27.50% - 23,433 27.50%

Deferred tax assets recoverable during the year - - - - - -

Permanent differences - - - - - -

- non-deductible expense 7,574 2,083 2.91% 7,387 2,031 2.38%

- taxable infragroup dividends (merged companies) (5%) - - - - - -

- tax-exempt dividends (95%) (3412) (938) -1.31% - - -

- tax benefit (ACE) (2,271) (625) -0.87% (1,512) (416) -0.49%

- IRAP deduction - personnel expense (3,458) (951) -1.33% - - -

- tax-exempt income (902) (248) -0.35% (1,095) (301) -0.35%

- losses carried forward for which deferred taxes were not accrued - - - - - -

Profit net of permanent differences 69,134 19,012 26.55% 89,992 24,748 29.04%

Effect of adjusting nominal rates on temporary differences which arose/were transferred during the year - - - - - -

Effective IRES recognised in profit or loss and effective tax rate - 19,012 26.55% - 24,748 29.04%

IRAP - 5,916 8.26% - 7,136 8.37%

Prior year taxes - (4,063) -5.67% - 41 0.05%

Adjustment to new nominal rates - - - - - -

Total effective taxes recognised in profit or loss and related rate - 20,865 29.14% - 31,925 37.47%


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At 31 December 2012, the effective tax rate was equal to 29.14%, compared to 37.47% in 2011. The 8.33% decrease is mainly due to the following factors:a) the “new deduction” of IRAP on employee expense and similar from IRES taxable income, introduced by article 2 of Decree Law

no. 201/2011 (the “Monti decree”) which came into force for the 2012 tax year (effect equal to 1.33% of pre-tax profit/(loss));b) the dividends paid by the associate International Metro Service S.r.l. (€3,592 thousand) in 2012 on which IRES is applied only to the

extent of 5% (effect equal to 1.31% of pre-tax profit/(loss));c) the effect of recognising the receivable covered by the application for refund pursuant to article 2.1-quater of Decree Law

no. 201/2011, related to the smaller IRES due for the 2007-2011 period as a result of the IRAP deductibility on personnel expense (€3,555 thousand, with an effect equal to 4.96% of pre-tax profit/(loss).

The following table shows temporary differences and related balances:

(€’000)


Temporary differences

Tax rate

Deferred tax assets/

liabilitiesEquity effect Reclassification

Financial effect (+income/

-expenses), net of reclassif.


Tax rate


liabilitiesRiclassif./

Equity effect

Financial effect

(+income/ -expenses),

net of reclassif.

Deferred tax assetsWrite-downs of work in progress (IRES only) 26,932 27.50% 7,406 - - 823 23,938 27.50% 6,583 920 (530)Write-downs of work in progress (only IRAP) 26,595 4.18% 1,112 - - 124 23,637 4.18% 988 140 (80)Write-down of inventories (IRES) 1,592 27.50% 438 - - (100) 1,956 27.50% 538 - 229Write-down of inventories (IRAP) - 4.18% - - - (26) 621 4.18% 26 - -Provisions for risks and charges 5,218 27.50% 1,435 - 39 (666) 7,497 27.50% 2,062 5 621Provisions for completed contracts and warranty provision (IRES/IRAP) 350 31.68% 111 - - 44 212 31.68% 67 (18) (151)Non-deductible amortisation/depreciation (IRES/IRAP) 944 31.68% 299 - - 26 863 31.68% 273 - 27Non-deductible amortisation/depreciation (IRES) 142 27.50% 39 - - - 142 27.50% 39 - -Translation differences -branch 443 27.50% 122 - - - 443 27.50% 122 - (19)Costs deductible in subsequent years (IRES/IRAP) 139 31.68% 44 - - (11) 173 31.68% 55 - (26)Loss-making contracts (IRES) 2,844 27.50% 782 - - 12 2,800 27.50% 770 86 (214)Loss-making contracts (IRAP) 2,844 4.18% 119 - - 89 704 4.18% 29 12 (30)Seniority bonus (IAS 19) 2,011 27.50% 553 - (55) - 2,210 27.50% 608 - -Goodwill amortisation (IRES/IRAP) 5,390 31.68% 1,707 - - (263) 6,219 31.68% 1,970 - (263)Goodwill amortisation (IRAP) 2,348 4.18% 98 - - 20 1,878 4.18% 79 - 20Non-deductible Italian post-employment benefits 82 27.50% 22 - - 22 - 27.50% - (596) -Allowance for impairment 6,192 27.50% 1,703 - - 1,342 1,311 27.50% 361 - -Exchange rate losses 464 27.50% 128 - - - 464 27.50% 128 (27) (6)Firema loss 4,760 27.50% 1,309 - - - 4,760 27.50% 1,309 (7) -Interest in arrears 5,870 27.50% 1,614 - - 852 2,770 27.50% 762 - 421Research grants - 31.68% - - (54) - 172 31.68% 54 - -Research grants (only for IRES purposes) 1,610 27.50% 443 - (146) 333 930 27.50% 256 - (149)

Follows

85


(€’000)



Tax rate


liabilitiesEquity effect Reclassification

Financial effect (+income/

-expenses), net of reclassif,


Tax rate


liabilitiesRiclassif,/

Equity effect

Financial effect

(+income/ -expenses),

net of reclassif,

Costs deductible in subsequent years (IRES) 618 27.50% 170 - - 90 292 27.50% 80 (22) 15Stock grant 305 27.50% 84 - - - 305 27.50% 84 - -

Other 42 27.50% 15 - - 5 42 27.50% 10 17 (19)

Total 97,734 19,752 - (216) 2,717 84,340 17,252 510 (155)

Deferred tax liabilitiesResearch grants (IRES/IRAP) 300 31.68% 95 - (54) (9) 499 31.68% 158 - -Research grants(IRES) 5480 27.50% 1,507 - (146) 197 5,295 27.50% 1,456 - 711Allowance for impairment (EC framework) 2313 27.50% 636 - - - 2,313 27.50% 636 - -Uncollected interest in arrears 16469 27.50% 4,527 - - 2,918 5,852 27.50% 1,609 - 783Italian post-employment benefits (IAS 19) - 27.50% - (665) - 487 649 27.50% 178 365 (377)Translation differences branch 91 27.50% 25 - - - 91 27.50% 25 - -Hedging reserve 25 27.50% 7 7 - - - 27.50% - - -Exchange rate gains 421 27.50% 116 - - 421 27.50% 116 - -

Total 25,099 6,913 -658 (200) 3,592 15,120 4,179 365 1,117

The IRES and IRAP rates used for deferred taxes are those estimated when temporary differences will reverse, specifically, 27.5% and 4.18%, respectively. The IRAP nominal rate rose from 3.9% to 4.97% as a consequence of the increase in the regions’ health care deficit based on a local allocation (up 1.07% in Campania and 0.92% in Lazio).With respect to the above temporary differences, the write-down of work in progress led to deferred tax assets of €8,518 thousand – related to the fully taxed allowance for write-down of €26,932 thousand: indeed, following the legislative changes introduced as of 2005, accruals to the allowance for write-down are entirely undeductible.

Net deferred tax assets of €380 thousand recognised against equity in 2012 arose from the allocation of actuarial gains/losses on Italian post-employment benefits to equity (deferred tax assets of €386 thousand against actuarial losses of €1,405 thousand) using the equity method as per IAS 19, in addition to the tax effect (deferred tax liabilities of €6 thousand) on the recognition of the hedging reserve (equity reserve of a positive €26 thousand).

36. Earnings per shareEarnings per share (“EPS”) are calculated by:• dividing the profit for the year attributable to holders of ordinary shares by the average number of ordinary shares outstanding in the

year, net of treasury shares (basic EPS);• dividing the profit for the year by the average number of ordinary shares and those that could arise from the exercise of all options under

stock option plans, net of treasury shares (diluted EPS).


Average shares outstanding during the year 149,612,942 151,208,985

Profit for the year (€’000) 50,738 53,286

Basic and diluted EPS 0.34 0.35*

*Recalculated following the bonus issue of 9 July 2012.

For comparative purposes, the EPS was recalculated for 2011. Specifically, the average number of shares outstanding in the year was recounted.This was necessary following the third instalment of the bonus issue on 9 July 2012, when 20,000,000 newly-issued shares with a nominal amount of €0.50 each were freely allocated to the existing shareholders at that date, in the ratio of one new share for every seven shares held.


86

37. Cash flows from operating activities

(€’000) 31.12.2012 31.12.2011

Profit for the year 50,738 53,286

Amortisation, depreciation and impairment losses 12,569 5,258

Income taxes 20,865 31,925

Accruals to/reversals of provisions 950 7,308

Italian post-employment benefits 239 223

Defined benefit plans and stock grant plans 2,091 298

Dividends received - -

Losses on sale of assets - -

Impairment losses on equity investments measured at cost - -

Financial income/(expense), net of impairment losses on equity investments measured at cost (175) 3,282

Gross cash flows from operating activities 87,277 101,580

(€’000) 31.12.2012 31.12.2011

Inventories (10,429) 2,278

Work in progress and progress payments and advances from customers (67,753) 17,198

Trade receivables and payables 14,213 (31,377)

Changes in working capital (63,969) (11,901)

(€’000) 31.12.2012 31.12.2011

Payment of Italian and other post-employment benefits and stock grants (2,430) (4,387)

Utilisation of the provisions for risks (3,132) (5,564)

Changes in other operating items (37,251) (50,430)

Total changes in other operating assets/liabilities and net financial expense and taxes paid (42,813) (60,381)

The change in working capital reflects the progress of contracts which generated significantly positive cash flows in prior years and the less dynamic progress of new contracts.

38. Financial risk managementThe following disclosure about financial risks and financial instruments is given as required by IFRS 7 “Financial instruments: disclosures” and article 2428.2.6-bis of the Italian Civil Code.

The company’s operations expose it to the following financial risks:• market risks, related to the company’s exposure to interest-bearing financial instruments (interest rate risks) and to operations in areas

that use currencies other than the company’s functional currency (currency risk);• liquidity risks, related to the availability of financial resources and access to the credit market;• credit risk, arising from normal trading transactions or financing activities.

The company specifically monitors each of these financial risks and acts promptly to minimise them via specific risk management policies and hedging derivatives.

The potential impact of hypothetical fluctuations in the reference parameters on actual results is described below using sensitivity analyses. As set out in IFRS 7, these analyses are based on simplified scenarios applied to the actual figures of the reference years. However, because of their nature, they cannot be considered as indicators of the real effects of future changes in reference parameters when a different financial position and results of operations and different market conditions are considered. Moreover, they do not reflect the interrelations and complexities of the reference markets.

Interest rate riskAs described in the “treasury management” policy, the aim of interest rate risk management is to reduce the negative effects of interest rate fluctuations on the company’s financial position, results of operations and weighted average cost of capital.

87


Ansaldo STS manages interest rate risk to pursue the following objectives:• stabilising the weighted average cost of capital;• minimising Ansaldo STS’ medium- and long-term weighted average cost of capital by focusing on the effects of interest rates on debt

funding and equity funding;• optimising the return on financial investments within a general risk/return trade-off;• limiting costs related to the implementation of interest rate management policies, including direct costs related to the use of specific

instruments and indirect costs linked to the internal structure needed to manage the risk.

Excess liquidity is invested in the short term. Consequently, financial indebtedness is mainly of a short-term nature. Thanks to joint short-term management of assets and liabilities, the company’s exposure to interest rate fluctuations in the long term is relatively neutral. Also in 2012, the company managed this risk without the use of derivatives.

Cash flows from operations are deposited in a current account held with the parent, setting up from time to time short-term time deposits (not more than three months) for amounts in excess of operating requirements, which are remunerated with greater interest rates. The company uses third party financial resources: specifically it applies for fixed-rate subsidised loans when the interest payable is lower than the interest receivable on available financial resources.

At year end, the loan asset from the parent Finmeccanica in respect of the joint current account amounted to €533 thousand. In 2012, the interest rate applied was the Euribor 1-month, plus a spread calculated monthly. As mentioned earlier, at 31 December 2012, deposits with the parent Finmeccanica amount to €120,000 thousand and bear a fixed interest rate agreed by the parties (for additional information, reference should be made to the section on “Disclosure on management and coordination and related party transactions”). In the past, in addition to outright grants, the company received some subsidised loans totalling €438 thousand at 31 December 2012 (31 December 2011: €1,624 thousand). They expire in June 2013 and bear fixed interest rates ranging between 0.50% and 0.74% (for additional information see note 21).

Sensitivity analysis of interest ratesInterest rate risks are measured using sensitivity analyses in accordance with IFRS 7. With respect to the floating rate asset position, assuming a change (increase or decrease) of 50 basis points in interest rates at year end, profit for the year, (gross of the tax effect), and equity would have been greater (smaller) by €1,401 thousand and €1,401 thousand, respectively.

31 December 2011

31 December 2012

31 December 2012

31 December 2012

(€’000)Value at Floating

Rate Value at

Floating Rate AverageAssumption 1

50,00Assumption 2

-50,00

Non-current related party loans and receivables 1,540 3,827 2,683 13 (13)

Trade receivables 160,893 175,476 168,184 841 (841)

Assets at fair value 24,743 - 12,371 62 (62)

Third party loan assets 78,854 28,443 53,648 268 (268)

Related party loan assets 61,313 166,968 114,141 571 (571)

Derivative assets - FV hedges (no back to back) 338 775 557 3 (3)

Cash and cash equivalents 106,894 73,771 90,333 452 (452)

Assets 434,575 449,260 441,917 2,210 (2,210)

Third party trade payables 46,671 131,098 88,884 444 (444)

Third party financial liabilities - - - - -

Related party financial liabilities 31,931 84,891 58,411 292 (292)

Derivative liabilities - FV Hedge (no back to back) 860 189 524 3 (3)

Liabilities 79,462 216,178 147,820 739 (739)

Total 355,113 233,082 294,097 1,470 (1,470)

Currency risk As described in the above directive, the company manages currency risk by pursuing the following objectives:• limiting potential losses generated by unfavourable exchange rate fluctuations against the currencies used by Ansaldo STS and its

subsidiaries. Losses are defined in cash flows rather than accounting terms;• limiting forecast or actual costs related to the implementation of currency risk management policies.

Currency risk shall only be hedged if it has a material impact on cash flows, compared to the functional currency.Costs and risks related to a hedging policy (hedge, no hedge or partial hedge) must be acceptable in both financial and commercial terms.


88

Currency risk may be hedged using the following tools:• purchase and sale of currency forwards: these are the most commonly used cash flows hedges;• currency/cross currency swaps: used in conjunction with currency forwards to dynamically hedge currency risks represented by the early

or deferred impact of future cash flows in currencies other than the functional currency;• funding/lending in foreign currency: used to reduce the currency risk related to similar receivable and payable positions with banks or

group companies.

The use of funding and lending in foreign currency as a hedging instrument shall only take place when consistent with the company’s overall treasury management and financial position (both long- and short-term). The purchase and sale of foreign currency is generally the hedging tool used when foreign markets are not sufficiently liquid or when it is the most cost effective method of hedging.

Currency risk hedgingThere are three main types of currency risk:1. Economic risk: - is the impact exchange rate fluctuations can have on capital budgeting decisions (investments, the location of production facilities and

supply markets).2. Transaction risk: - is the possibility that exchange rates may fluctuate between the time a commitment is undertaken to make future collections or

payments in foreign currency (price list, budgets, orders preparation and invoicing) and when the actual collection or payment takes place, generating either exchange rate gains or losses.

3. Translation risk: - is the effect on the financial statements of multinational companies of translating dividends, or of consolidating assets and liabilities

when exchange rates adopted for consolidation purposes differ from one reporting period to the next.

The company hedges the transaction risk in line with the “Foreign Exchange Risk management policy”, i.e., via the systematic hedge of cash flows generated by firm contractual commitments to buy and sell, in order to fix the exchange rates at the date the construction contracts are agreed, thereby neutralising the effects of exchange rate fluctuations.

Fair value hedgesThese hedge fair value changes in a recognised asset or liability, an unrecognised firm commitment, an identified portion of this asset, liability or irrevocable commitment, related to a particular risk and that could impact profit or loss.The company hedges fair value gains or losses related to the currency risk on recognised assets and liabilities.

Hedges are mainly undertaken with banks. The company has contracts in place for the following notional foreign currency amounts at the reporting date:

(local currency ‘000) Sell112 Buy12 31.12.2012 Sell11 Buy11 31.12.2011

US dollar 69,624 7,000 76,624 60,909 5,000 65,909

Pound sterling 7,220 850 8,070 9,242 - 9,242

Swedish krona 26,300 244,100 270,400 - 178,214 178,214

Australian dollar - 50,000 50,000 17,343 5,000 22,343

Abu Dhabi Dirham 95,000 - 95,000 - - -

Total in €’000 84,284 74,123 158,407 71,769 27,791 99,560

The net fair value of the derivatives in place at 31 December 2012 was a positive €1,347 thousand (31 December 2011: a negative €522 thousand). The balance includes back-to-back contracts (see note 17).

During the year, no significant forward sale transactions of foreign currency took place against trade collections in foreign currency. The currency risk relates to foreign currency receivables and payables and the balances of the company’s permanent establishments. Exchange rate gains and losses arise from the adoption of the local currency in preparing the financial position of permanent establishments. No hedging transactions were carried out with respect to the exchange rate differences related to foreign permanent establishments as the cost of the transaction would have exceeded the expected benefits.

Sensitivity analysis of exchange ratesFor the purposes of the presentation of market risks, IFRS 7 requires a sensitivity analysis that shows the effects of the assumed changes in the most relevant market variables on profit or loss and equity.Currency risks arise from recognised financial instruments (including trade receivables and payables) or highly probable cash flows denominated in a currency other than the functional currency. Since the US dollar is the primary foreign currency used by the company, a sensitivity analysis was performed on financial instruments denominated in dollars in place at 31 December 2012, assuming a 5% appreciation (depreciation) of the euro against the US dollar.

89


This analysis showed that an appreciation or depreciation of the euro against the US dollar would have the following impact on the company’s financial statements:


(€’000)

+5% - appreciation of

the euro against the US dollar

-5% - depreciation of


+5% - appreciation of


-5% - depreciation of


Income statement 710 (702) 964 (1,066)

Liquidity riskLiquidity risk can result in the inability to efficiently manage ordinary business and investment operations and to repay the amounts due at their expiry date. The company has rolled out a series of tools to optimise treasury management with a view to the efficient management of cash and cash equivalents and to help its business grow. This was achieved by centralising the treasury function and an active presence on financial markets to obtain short- and medium-term credit lines. In this scenario, the company obtained short- and long-term non-revolving cash and unsecured credit lines to meet the group’s needs.It had a net financial position of €183,851 thousand at 31 December 2012 (31 December 2011: €238,235 thousand). Considering the positive net financial position, comprised of on-demand liquidity and current account overdrafts of €76,000 thousand, management believes the company can meet its needs for investing activities, working capital management and payable repayment at their expiry dates.

31 December 2012

Liquidity analysis (€’000)Within

one yearBetween one

and three yearsAfter

five years

A – Financial liabilities excluding derivativesNon-current liabilitiesThird party loans and borrowings - - -

Related party loans and borrowings - - -

Other non-current financial liabilities - - -

Current liabilitiesRelated party trade payables 95,670 31 -

Third party trade payables 361,787 828 -

Related party financial liabilities 84,891 - -

Third party financial liabilities 440 - -

Other current financial liabilities - - -

Total A 542,788 859 -

B – Negative value of derivativesHedging derivatives (including back-to-back derivatives) 6,853 - -

Trading derivatives (hedging) - - -

Total B 6,853 - -

Total A + B 549,641 859 -

The following financial assets are recognised against financial liabilities for a total amount of €550,500 thousand:

C - Financial assets

Securities held for trading -

Cash and cash equivalents 73,771

Third party trade receivables 451,107

Related party trade receivables 183,882

Third party loan assets 28,443

Related party loan assets 166,968

Positive value of derivatives (including back to back) 8,200

TOTAL FINANCIAL ASSETS 912,371

D – Credit lines 76,000

TOTAL C + D 988,371

C+D-(A+B) 437,871

The company has a net credit position and has available liquidity to self-finance and does not have to use banks to finance its operations. Consequently, it has relatively limited exposure to the liquidity market tensions seen in the last part of the year.


90

Credit risk The company does not have significant credit risks, either in terms of its trading counterparties or its financing and investing activities.

With respect to commercial transactions, its main customers are public entities or related to public bodies, mostly in the Eurozone. With respect to counterparty risks, for contracts with countries with which the company does not have regular trading transactions, solvency is analysed at the time the offer is placed, in order to avoid future credit risks. The nature of the company’s customers is a guarantee of solvency; however, collection times (particularly in certain countries) may be significantly longer than those typical of other businesses, with sometimes considerable overdue amounts which may also trigger disposal transactions. As described below, this situation is particularly marked during this period of crisis.

At 31 December 2012, third party trade receivables amounted to €451,107 thousand (31 December 2011: €430,092 thousand) and were overdue for €278,753 thousand, of which €162,015 thousand by more than 12 months. With respect to the concentration of third party trade receivables at year end, the following table gives a breakdown of trade receivables by public body and other customers, geographical area and overdue bracket.

Public body Other customers(€’000) Europe US Other Europe US Other Total

Retentions 9,311 633 10,857 820 - 268 21,890Not overdue 48,709 926 20,848 77,455 - 2,526 150,464Overdue by less than one year 71,441 1,263 402 25,715 - 17,917 116,738Overdue between one and five years 66,925 - 49,908 44,178 - 1,004 162,015Overdue by more than five years - - - - - - -

Total 196,386 2,822 82,015 148,169 - 21,716 451,107

Classification of financial assets and liabilitiesThe table below gives a breakdown of the company financial assets and liabilities by measurement category. Financial liabilities are all recognised using the amortised cost method.

(€’000)

Fair value through profit or

lossLoans and

receivablesHeld to

maturityAvailable

for sale TotalFair

Value

Non-current assetsLoans and receivables - 3,369 - - 3,369 3,369

Related party loan assets - 7,955 - - 7,955 7,955

Current assetsThird party assets at fair value - - - - - -

Third party trade receivables - 451,107 - - 451,107 451,107

Related party trade receivables - 183,882 - - 183,882 183,882

Third party loan assets - 28,443 - - 28,443 28,443

Related party loan assets - 166,968 - - 166,968 166,968

IFRS 7 requires the classification of the fair value of derivatives on the basis of reference parameters that can be inferred from the market or from other financial indicators (for example: exchange rates, interest rate curve, etc.). Financial derivatives on currencies to hedge the currency risk fall within Level 2 of hierarchy since the fair value of these instruments is determined by recalculating the present value through official fixing of year-end exchange and interest rates listed on the market.

91


The table below shows the fair values of financial instruments in portfolio, excluding back-to-back instruments.

(€’000) Fair value hierarchy at the reporting date

Fair value at31.12.2012

Level 2

Fair value at31.12.2011

Level 2

Assets

Interest rate swap

Trading - -

Fair value hedges - -

Cash flow hedges - -

Currency forwards/swaps/options

Trading

Fair value hedges 775 338

Cash flow hedges 761 -

Equity instruments (trading) - -

Embedded derivatives (trading) - -

Liabilities

Interest rate swaps

Trading - -

Fair value hedges - -

Cash flow hedges - -

Currency forwards/swaps/options

Trading - -

Fair value hedges 189 860

Cash flow hedges

Equity instruments (trading) - -

Embedded derivatives (trading) - -

39. Key managers’ remuneration and directors’ and statutory auditors’ feesFees and remuneration paid to those who have the power to plan, manage and control the company, including executive and non-executive directors, amount to €1,897 thousand (31 December 2011: €1,959 thousand).


Fees 1,842 1,640

Stock grants 55 319

Total 1,897 1,959

Fees and remuneration include those paid to the members of the board of directors and the supervisory bodies. In order to implement an incentive and loyalty scheme for the group’s employees and consultants, the company has launched several incentive plans which, upon reaching set vesting conditions, provide for the awarding of Ansaldo STS shares.

Stock grants awarded in December 2012 relate to the 2011 vesting conditions achieved.

The value of the shares awarded to the subsidiaries’ personnel involved in the plan was recognised directly as an equity transaction. Differentials in terms of both fair value (the difference between the time of awarding and delivery) and percentage of awarded shares were recognised in a specific equity reserve (see note 20).

Stock grants awarded to members of the board of directors and key managers are as follows:

Name and surname Position

No. of shares held at the end of the previous

yearIncrease for bonus issue

No. of shares

awarded

No. of shares

purchased

No. of shares

sold

No. of shares held at the end of the

year

Sergio De Luca Chief executive officer 69,060 9,865 3,508 - - 82,433

Giuseppe Gaudiello Key manager - - 1,347 - 1,347 -


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Annual fees paid to directors and statutory auditors are as follows:

(in Euros)

POSITION Fees for the position held in the reporting

company for 2012

Non-monetary

benefits

Bonuses and other

incentivesOther feesName and surname Position

Date of appointment End of term

Pansa AlessandroChairman of the BoD 21/11/2005

Approval of 2013 financial statements 75,000 (1)

Grasso Giancarlo Deputy chairman 05/04/2011Approval of 2013 financial statements 50,000 (3)

De Luca SergioChief executive officer 14/06/2007

Approval of 2013 financial statements 50,000 (2) 66,699 666,787*

Cavallini Giovanni (b) Director 05/04/2011Approval of 2013 financial statements 70,000 (4)

Cereda Maurizio (a) (d) Director 14/06/2006Approval of 2013 financial statements 95,000 (5)

Girdinio Paola (d) Director 05/04/2011Approval of 2013 financial statements 70,000 (6)

Pavesi Bruno (b) Director 30/03/2012Approval of 2013 financial statements 52,500 (4)

Rizzante Tatiana (e) Director 05/04/2011Approval of 2013 financial statements 75,000 (7)

Salvetti Attilio ( c) Director 24/03/2006Approval of 2013 financial statements 75,000 (8)

Sarubbi Giacinto

Chairman of the board of statutory auditors 01/04/2008

Approval of 2013 financial statements 75,000 15,000**

Scotton Massimo Statutory auditor 01/04/2008Approval of 2013 financial statements 50,000 10,000**

Righetti Renato Statutory auditor 05/04/2011Approval of 2013 financial statements 50,000 10,000**

(*) of which €426,795 as fixed remuneration for the position of CEO in 2012 and €239,992 for variable remuneration paid for the same position in 2011

(**) fees for positions on committees

(a) Chairman of the appointments and remuneration committee (1) 12 months chairman and BoD fees waived (b) Member of the appointments and remuneration committee (2) 12 months BoD - Fees transferred back to Ansaldo STS S.p.A. (c) Chairman of the risk and control committee (3) 12 months BoD (d) Member of the risk and control committee (4) 9 months BoD + 9 months appoint. and rem. commit. (e) Chairman of the supervisory body (5) 12 months BoD + 12 RCC +12 months chair. appoint. and rem. commit. (6) 12 months BoD + 12 months appoint. and rem. commit. (7) 12 months BoD and 12 months chair. superv. body (8) 12 months BoD + 12 months chair. RCC

in Euros Annual unit fees Chairman of the board of directors 75,000Member of the board of directors 50,000Chairman of the supervisory body 25,000Member of the supervisory body n.a.Chairman of the appointments and remuneration committee 25,000Member of the appointments and remuneration committee 20,000Chairman of the risk and control committee 25,000Member of the risk and control committee 20,000

93


40. Highlights at 31 December 2011 of the Company that carries out management and coordination activities (article 2497-bis of the Italian Civil Code)The highlights of the parent Finmeccanica S.p.A., shown in the summary schedule as required by article 2497-bis of the Italian Civil Code, were taken from the financial statements at 31 December 2011.For an adequate and comprehensive picture of Finmeccanica S.p.A.’s financial position and results of operations as at and for the year ended 31 December 2011, reference should be made to Finmeccanica’s financial statements, which are available as required by law along with the report of the independent auditors.

FINMECCANICA SPA (€’000)

STATEMENT OF FINANCIAL POSITIONASSETSNON-CURRENT ASSETS 8,930,842

CURRENT ASSETS 3,677,654

NON-CURRENT ASSETS HELD FOR SALE -

TOTAL ASSETS 12,608,496

LIABILITIESEQUITY:

- Share capital 2,524,859

- Reserves and retained earnings 3,781,767

- Profit for the year (1,375,551)

4,931,075

NON-CURRENT LIABILITIES 3,538,124

CURRENT LIABILITIES 4,139,297

LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE -

TOTAL LIABILITIES 12,608,496

INCOME STATEMENTREVENUE 109,181

EXPENSE (230,567)

NET FINANCIAL EXPENSE (1,249,300)

INCOME TAXES (4,865)

PROFIT (LOSS) FROM DISCONTINUED OPERATIONS -

PROFIT FOR THE YEAR (1,375,551)

FINMECCANICA S.p.A. prepares Consolidated Financial Statements.


94

41. Information pursuant to article 149-duodecies of the issuer regulationThe following schedule was prepared in accordance with article 149-duodecies of Consob regulation no. 11971/1999 and subsequent amendments (Issuer regulation) and shows the fees for 2012 related to audit and non-audit services provided by the audit company or entities belonging to its network.

(€’000) Service provider 2012 fees

Audit PricewaterhouseCoopers S.p.A. -

KPMG S.p.A. 226

Attestation services PricewaterhouseCoopers S.p.A. 59

KPMG S.p.A. -

Tax consultancy services PricewaterhouseCoopers S.p.A. -

KPMG S.p.A. -

Other services PricewaterhouseCoopers S.p.A. 6

KPMG S.p.A. 86

377

Genoa, 5 March 2013

On behalf of the board of directors The Chairman

Alessandro Pansa (signed on the original)

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42. Statement on the Separate Financial Statements pursuant to article 81-ter of Consob regulation no. 11971 of 14 May 1999 and subsequent amendments and integrations and article 154-bis.2 of Legislative Decree no. 58 of 24 February 1998 and subsequent amendments and integrations

1. The undersigned, Sergio De Luca, as CEO, and Christian Andi as Manager in charge of financial reporting for Ansaldo STS S.p.A., also considering the provisions of article 154-bis.3/4 of Legislative decree no. 58 of 24 February 1998 and subsequent amendments and integrations, state that the administrative and accounting procedures used to draft the separate financial statements at 31 December 2012:

• are appropriate in relation to the nature of the business and • have been effectively applied.2. There is nothing to report in this regard. 3. Moreover: 3.1 the separate financial statements: a) are drafted in compliance with the IFRS endorsed by the European Community, pursuant to EC regulation no. 1606/2002 issued

by the European Parliament and Council on 19 July 2002; b) are consistent with the accounting ledgers and accounting entries; c) give a true and fair view of the issuer’s financial position and results of operations. 3.2 The directors’ report accompanying the separate financial statements provides a reliable analysis of the important events taking

place in the year, together with a description of the key risks and uncertainties.

Genoa, 5 March 2013

The CEO The manager in charge of financial reporting

Sergio De Luca Christian Andi (signed on the original) (signed on the original)

Strategic Concept, Copywriting, Graphic Design and Execution by:

www.mercuriogp.eu

ANSALDO STS S.p.A.Registered Offi ce:16151 GenoaVia Paolo Mantovani, 3 - 5Paid-in Share Capital Euro 80,000,000R.E.A. n. 421689Register of Enterprises of GenoaTax Code 01371160662

www.ansaldo-sts.com

A Finmeccanica Company

ANSALDO STS S.P.A. 2012 ANNUAL REPORT

ansaldo sts s.p.a

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