Salini S.p.A. Group SALINI S.P.A. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 JUNE 2012 (ITA GAAP)

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1 SALINI S.P.A. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 JUNE 2012 (ITA GAAP)

2 MISSION The Salini Group is a general contractor specialising in the construction of major, complex works throughout the world. Inspired by the principles of sustainable development, the Group uses technological and organisational innovation as well as its extraordinary human and professional resources to develop construction solutions capable of enhancing the resources of communities and contributing to the economic and social improvement of nations. 2

3 TABLE OF CONTENTS INTERIM DIRECTORS' REPORT... 4 CORPORATE BODIES... 5 FINANCIAL HIGHLIGHTS... 8 FINANCIAL HIGHLIGHTS... 9 SUSTAINABLE DEVELOPMENT QUALITY, SAFETY AND ENVIRONMENT CORPORATE GOVERNANCE HUMAN RESOURCES CREATING A NATIONAL CHAMPION RESEARCH AND DEVELOPMENT OPERATING PERFORMANCE ANALYSIS OF INCOME, FINANCIAL POSITION AND CASH FLOW Summary of consolidated financial information Economic and operating performance Financial results Reclassified consolidated statements Financial risk management ORDER BOOK BUSINESS PERFORMANCE BY GEOGRAPHICAL AREA Abroad Italy MAIN COMPANIES OF SALINI S.P.A. GROUP Todini Costruzioni Generali S.p.A OTHER INFORMATION TREASURY SHARES MANAGEMENT AND COORDINATION STATUTORY AUDIT INFORMATION ON RELATED-PARTY TRANSACTIONS EXERCISE OF THE TAX CONSOLIDATION OPTION FOR IRES (CORPORATE INCOME TAX) SUBSEQUENT EVENTS OUTLOOK CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS ANNEXES TO THE NOTES TO THE FINANCIAL STATEMENTS

4 INTERIM DIRECTORS' REPORT Interim directors' report Interim Consolidated financial statements as at 30 June

5 CORPORATE BODIES Interim directors' report Interim Consolidated financial statements as at 30 June

6 Corporate bodies (As at 30 June 2012) BOARD OF DIRECTORS Chairman CEO Directors Simonpietro Salini Pietro Salini Simon Pietro Salini Luisa Todini David Morganti* Roberto Cera* Gianluca Piredda* *Independent EXECUTIVE COMMITTEE Committee Members Simonpietro Salini Pietro Salini Simon Pietro Salini INTERNAL CONTROL AND CORPORATE GOVERNANCE COMMITTEE Committee Members David Morganti Roberto Cera Gianluca Piredda Interim directors' report Interim Consolidated financial statements as at 30 June

7 REMUNERATION COMMITTEE Committee Members David Morganti Roberto Cera Gianluca Piredda BOARD OF STATUTORY AUDITORS Chairman Statutory Auditors Roberto Parasassi Claudio Volponi Federico Parasassi Alternate Auditors Roberto Melluso Francesco Farina INDEPENDENT AUDITORS Independent Auditors Reconta Ernst & Young Interim directors' report Interim Consolidated financial statements as at 30 June

8 FINANCIAL HIGHLIGHTS Interim directors' report Interim Consolidated financial statements as at 30 June

9 Financial highlights ( /000) JUN 2012 VALUE OF PRODUCTION 818,639 EBITDA 93,518 EBITDA Margin 11.4% EBIT 46,731 EBIT Margin 5.7% EBT 39,054 EBT Margin 4.8% NET PROFIT 19,119 TOTAL FIXED ASSETS 631,232 OPERATING WORKING CAPITAL (45,140) RESERVES (50,589) Net invested capital 535,503 SHAREHOLDERS EQUITY 290,804 NET FINANCIAL DEBT (244,699) Funding 535,503 Interim directors' report Interim Consolidated financial statements as at 30 June

10 ORDER BOOK BY SECTOR ( /000) JUN 2012 DEC 2011 Dams and hydroelectric plants 51.0% 5,187, % 5,019,590 Railways and metro systems 31.1% 3,165, % 3,227,770 Civil buildings 10.5% 1,063, % 1,086,278 Roads and motorways 7.4% 756, % 1,047,483 10,171,918 10,381, % 10.5% % 31.1% Dams Dighe and e impianti hydroelectric idroelettrici plants Civil Edilizia buildings civile Railways Ferrovie e and metropolitane systems Roads Strade and e autostrade motorways ORDER BOOK BY GEOGRAPHICAL AREA ( /000) JUN 2012 DEC 2011 Africa 58.1% 5,908, % 5,735,072 EU 30.7% 3,123, % 3,230,291 Asia 9.0% 918, % 999,517 Non-EU Europe 2.2% 221, % 416,241 10,171,918 10,381, % 2.2% 30.7% % Africa EU UE Asia Extra Non-EU UE Interim directors' report Interim Consolidated financial statements as at 30 June

11 OPERATING INCOME BY SECTOR ( /000) JUN 2012 Dams and hydroelectric plants 32.2% 263,279 Railways and metro systems 16.0% 130,682 Civil buildings 3.2% 26,550 Roads and motorways 48.6% 396, , % 48.6% % 16.0% Dams Dighe and e impianti hydroelectric idroelettrici plants Railways Ferrovie e and metropolitane systems Edilizia Civil buildings civile Roads Strade and e autostrade motorways OPERATING INCOME BY GEOGRAPHICAL AREA ( /000) JUN 2012 EU 22.0% 180,396 Non-EU Europe 22.5% 183,917 Asia 20.0% 163,162 Africa 35.5% 290,015 America 0.0% - 817, % 22.1% % 20.0% UE EU Extra Non-EU UE Asia Africa Interim directors' report Interim Consolidated financial statements as at 30 June

12 Summary personnel figures JUN 2012 PERSONNEL COSTS 96,269 NUMBER OF EMPLOYEES 18,656 HUMAN RESOURCES 1% 1% 14% % Managers DIRIGENTI Middle QUADRI IMPIEGATI Office OPERAI Operatives managers workers Interim directors' report Interim Consolidated financial statements as at 30 June

13 Macroeconomic scenario and reference markets The construction market has experienced very high levels of uncertainty in recent years, despite the global demand for infrastructure remaining high on account of urbanisation in emerging economies and developing countries. The prolonged volatility of the global economy has severely affected certain segments of the construction sector, such as residential and commercial construction, forcing leading firms to shift their focus to energy, transport and communications projects. It should be noted that an increasing demand for infrastructure, particularly complex and large-scale infrastructure, is encouraging consolidation among engineering and construction firms, resulting in companies that are increasingly larger and more diversified, with specific skills for executing more technologically complex and higher-value-added projects. Competition among the main market players increasingly hinges on testimonials, expertise and adequate funding. The ability to attract new resources and talent, through acquisitions if necessary, is therefore becoming a critical factor for success. In the current economic situation, the Italian government has focused on measures to stimulate sustainable growth and, specifically in relation to the construction industry, plans to close the infrastructure gap which still exists in our country. We hope that the government's commitment, in the form of the Infrastructure Annex to the April 2012 Document on the Economy and Finance, remains a driving force behind the most important civil works for the country, setting up new construction sites and creating jobs in the sector. Outside Italy, the best opportunities for large-scale growth can be found in places such as India, the Far East and Latin America. That is why scale and a global presence are becoming increasingly crucial factors when acquiring new projects. The bigger they get, the more problems the world's leading construction companies will have to face, given the various political, commercial, regulatory and governance situations in different countries. Mega projects undoubtedly offer more attractive profit margins for general contractors, especially given the high level of complexity involved in the design and execution phases for these works. This is why they are excellent opportunities for those industry players that have become experts in detecting, analysing and managing risks. Salini Group anticipated the signs of a change in the market (the shift towards higher-valueadded business segments), consolidating its position in countries where it has managed to establish a clear competitive advantage over the last few decades (Africa, Asia and Italy) and simultaneously expanding into new markets with promising potential for growth (Denmark and Latin America). This strategy included greater investment in the first half of 2012 in Impregilo, which is pursuing its objective to create a national champion and world leader with the expertise, skills, track record and scale required to compete in the global construction industry through more efficient and effective corporate governance. This initiative will help to create a Group characterised by: a global presence with greater commercial strength; the scale of a market leader, due partly to significant foreseeable commercial and cost synergies; Interim directors' report Interim Consolidated financial statements as at 30 June

14 the combination and optimisation of the existing managerial skills of the two groups by creating an integrated management team with the determination and experience required to compete in large-scale and complex infrastructure projects; a solid financial structure supported by a healthy credit standing. Salini Group focuses closely on risk assessment from the acquisition of a project through to completion and delivery, using a thorough process that monitors and manages the various aspects of country risk, particularly political, economic and financial risks, but also operational risks such as the safety of its personnel. As well as Italy, the Group works in politically stable and economically sound areas and countries, where it broadly enjoys good relations with local administrations and on-site management and is not particularly affected by late-payment issues. Africa accounted for 35% of business in the first half of 2012, compared with 23% for Non- EU Europe and 20% for Asia. The value of the order book as at 30 June 2012 was 10.2 billion, distributed in European, Asian and African areas and countries with high expected growth rates. Hydroelectric plants and dams accounted for 51% of these projects, metro systems and railways for 31.1%, roads, motorways and bridges for 7.4% and other industrial and civil infrastructure for the remaining 10.5%. In Sub-Saharan Africa, which represents 53.4% of the Group s portfolio, there has been a steady and general improvement in many economic and socio-political indicators. The region's GDP is still expected to grow by 5.4% in In Ethiopia, the political situation is stable and the economy is recovering, thanks in particular to the energy sector where the Group is making a significant contribution to developing investments in production from renewable sources and to agriculture. The Ethiopian economy is predicted to grow by 5%, and the World Bank has 25 projects in the country with a total commitment value of $3.6 billion. Following the April 2011 elections in Nigeria, which saw the incumbent president re-elected, political stability has had a positive impact on the economy, which is expected to grow by more than 7% thanks to oil exports. The authorities have restructured the banking industry and begun to invest in transport and energy infrastructure, sectors in which the World Bank is financing over 20 projects. The Group has a widespread presence in the CIS region, and the country where the most significant projects are located is Kazakhstan, which is rich in gas and hydrocarbons and has an expected growth rate of 5.9%. The World Bank, the European Bank for Reconstruction and Development (EBRD) and the Asian Development Bank (ADB) are active there in the transport, energy and environmental sectors. Steel exports are the basis of predicted growth of 3% in Ukraine, which is benefiting from investment as a result of the European Football Championship as well as the presence of the World Bank and the EBRD. In Azerbaijan, which connects Europe and Asia through oil and gas pipelines, the construction and infrastructure sectors are expanding thanks to the government's publicinvestment programme and predicted GDP growth of 3.1%. In Malaysia, investment projects are progressing steadily as part of the government's economic transformation programme, with strong support from the private sector, and there is also a solid banking system and high levels of trade openness. Growth of 4.4% is forecast. In Turkey, which is an important new market for the Group, significant investment is planned in transport and energy infrastructure, supported partly by an efficient banking system. The government recently approved a new investment incentive scheme. GDP growth is forecast at 2.3%. Interim directors' report Interim Consolidated financial statements as at 30 June

15 Finally, Denmark, where the Group has the privilege of executing one of the largest urban transport projects in Europe as leader of the Copenhagen Metro Team, has one of the most stable and solid economies, and one of the lowest public debts, in the EU, which will help the government to make future public investments. Sustainable development Working in numerous and diversified environments means interpreting and respecting the expectations of institutions, clients, local communities, consumers and technical and operating counterparties with different histories and cultures. The Company has translated these requirements into a vision and style of work based on the value of people, attention to the environment, the principles of social responsibility and corporate citizenship. This choice gives rise to our commitment to a broad notion of sustainable development, which is a key aspect of our business. The projects we carry out energy from renewable sources, infrastructures to reduce urban traffic congestion, public metro systems with a low environmental impact, development and upgrading of regional infrastructures to boost regional development create lasting value for the communities involved and are a catalyst for further growth. The Group has formalised its working philosophy in a coordinated set of policies, procedures and organisational structures aligned with major international benchmark standards. In particular, since 2010, we have been a member of the United Nations Global Compact, a worldwide initiative for sustainable development, which requires a commitment to aligning our strategies and operations with ten universal principles relating to human rights, labour, the environment and the fight against corruption. At a national level, we are also part of the Global Compact Network Italy, and work together with other member organisations and businesses to execute specific projects and initiatives aimed at advancing the priorities set forth in the Global Compact. The Group s sustainability strategy is implemented by maximising the benefits generated in the areas in which it works, benefiting local stakeholders. Our priorities include creating new jobs, using on-site suppliers, investing and engaging in initiatives in favour of local communities, and conforming rigorously to high environmental standards. The commitment to use local workers and suppliers has a positive impact on the development of national economies, especially in emerging markets, by increasing workers skill levels and suppliers qualitative standards, while at the same time improving infrastructure and environmental conditions in the areas where we execute our projects. Our complete dedication to human resources is especially concentrated in the areas of health, safety and human rights, through the adoption of widely shared standards and codes of conduct that are supported by a commitment to training and regular dialogue with over 18,650 employees of 80 different nationalities. The Company s commitment is also characterised by thorough consideration of the needs of local communities. The Head Office divisions, as well as on-site management, analyse and assess community requirements and, often in partnership with institutions and other Interim directors' report Interim Consolidated financial statements as at 30 June

16 organisations, develop investment projects in the areas of education, health, culture and recreation. In recent years, significant resources have been allocated to construct buildings, schools, hospitals and roads. Furthermore, energy and water distribution as well as health care have been provided for local communities. During projects, these local communities have been granted access to some work site facilities, such as medical clinics, classrooms, wells, roads and bridges, which are often turned over to the communities and institutions when the project is complete. Our daily commitment extends from people to the conservation of the environment and natural resources, which are crucial aspects of our business model. For this purpose, the Company structures and conducts its work while guaranteeing the best possible environmental protection, and is committed to continuously improving environmental services, considered an integral part of the Company s financial and operating performance. Our work sites are focused on reducing energy and water consumption by developing innovative projects to re-use and recycle natural resources and scrap generated while works are being conducted. Mitigating the impacts of work site activities on communities is another priority to which the Salini Group dedicates the utmost attention, by monitoring and closely managing aspects relating to noise, vibrations, dust and road conditions. Since the environmental aspect includes strategic objectives within a globalised and extremely competitive market, besides human resources and in-house professionals, clients, suppliers, authorities and other stakeholders are invited to take part in environmental processes and initiatives. The commitment to constantly maintaining an open dialogue with stakeholders, in order to understand their legitimate expectations and create opportunities for involvement and cooperation, is implemented through tools and highly diversified methods both at central level and at the individual work site, generating positive interactions with increasingly broader groups of internal and external stakeholders. Interim directors' report Interim Consolidated financial statements as at 30 June

17 Quality, safety and environment Senior management created the Quality, Health & Safety and Environment (QHSE) System to ensure that relevant activities are planned, developed and improved consistently and to the full satisfaction of all stakeholders. The review of the QHSE System, which was carried out during the first half of 2012 on the basis of the 2011 results of Salini Costruttori Group, identified quantifiable goals to be pursued with the help of central and on-site Business Units. Key personnel, notably managers and executives, received the required training, organised by the Health, Safety and Environment (HSE) Department together with Human Resources, in compliance with applicable regulations. The performance of the QHSE System was assessed through internal checks and by analysing site reports, and it was found to have been applied satisfactorily. The QHSE System of the newly formed Salini S.p.A. complies with the highest international standards. Finally, there are plans to develop and integrate certain operating procedures, with the dual aim of standardising certain executive aspects of projects and further improving the overall service of the QHSE System. Interim directors' report Interim Consolidated financial statements as at 30 June

18 Corporate governance The Salini Group has approached the issue of corporate governance with a wide-ranging vision and scope. Although it is unlisted, it has adopted a dynamic model compliant with the principles enshrined in the Code of Conduct for Listed Companies, CONSOB recommendations and best practice at national and international level. Its corporate governance policies are therefore continually updated and documented in its Annual Corporate Governance Report. That document describes the corporate governance model in detail. It defines the Company s organisation, specifying the roles and responsibilities of each Corporate Body and of senior management, and provides information on the implementation of the provisions of the Code of Conduct. The Internal Control System monitors the practical implementation of governance policies and works effectively to promote their actual and constant execution. The Board of Directors of parent company Salini S.p.A. was appointed on 6 December On the same date, the term of the company was established at up to 31 December 2050 and its share capital at 120,000. It was decided there would be seven Board members, of whom three would have specific roles and four would serve as non-executive directors (including three independent directors). The Board's term of office expires upon approval of the financial statements as at 31 December The Company's first financial year closes on 31 December The Board met three times during the first half of 2012, and its major deliberations concerned the examination and/or approval of: the Company s or the Group s interim reports; the acquisition of strategic equity investments; the senior management s pay policies; economic forecasts. With regard to the Internal Control System, the Internal Audit Department conducted the audits set forth in the Audit Plan defined at the beginning of the year in order to monitor the suitability of the applicable procedures, as well as the compliance of processes with local and international regulations. During the first half of 2012, the inspections requested by the Supervisory Body at Italian and foreign operating divisions were conducted with the aim of assessing the effectiveness of the Organisation, Management and Control Model. Following the incorporation of Salini S.p.A. on 6 December 2011, the new Company's Supervisory Body (comprising two independent directors and an external professional) was appointed and the relative Code of Ethics and Organisational, Management and Control Model were drawn up pursuant to Legislative Decree 231/2001. The Board of Directors approved the documents on 21 December Regular training activities pursuant to Legislative Decree 231/2001 continued for all Group personnel. Interim directors' report Interim Consolidated financial statements as at 30 June

19 During the period, the Company aligned itself with the regulations in force on IT data security (pursuant to Legislative Decree 196/2003) and updated its Data Security Policy as required by the regulations in force. Interim directors' report Interim Consolidated financial statements as at 30 June

20 Human resources As at 30 June 2012, Salini Group has 18,656 employees, of whom 3% are located in Italy and the remaining 97% abroad. The Company s multinational and multi-ethnic characteristics are emphasised by its presence in 40 countries and its employment of 80 different nationalities, distributed as follows based on continent of origin: Africa 12,811 (68.67%) Asia 3,698 (19.82%) Europe 2,097 (11.24%) Americas 49 (0.26%) Oceania 1 (0.001%) Origin of workforce 2,097 3, ,811 Africa Asia Europe Europa Altro Others The workforce increased by 20.29% (+3,148) during the first half of 2012, boosted in particular by the consolidation of Ethiopian projects and the Ulu Jelai project in Malaysia becoming fully operational. The number of female employees continues to grow, rising by 29% compared with 1 January 2012, and women now represent 8.52% of the total workforce. In the first half of 2012, the process of recruiting and hiring resources with advanced professional qualifications continued, with a view to both reinforcing the quality of noncentral offices and guaranteeing suitable and gradual generational turnover. Interim directors' report Interim Consolidated financial statements as at 30 June

21 The breakdown of employees by age range is as follows: <30 years old 8,052 (43.13%) years old 8,660 (46.39%) >50 years old 1,956 (10.48%) Personnel by age bracket < 30 years years > 50 years Age bracket Interim directors' report Interim Consolidated financial statements as at 30 June

22 Creating a national champion During the first half of 2012, Salini Group increased its strategic investment in Impregilo S.p.A., a company listed on the Italian stock exchange, reaching a stake of about 28.1% in its share capital. This transaction is part of the plan to create a national champion, i.e. a world leader with the expertise, skills, track record and scale required to compete in the global construction industry through more efficient and effective business management. The project is a unique opportunity for both Salini and Impregilo to increase their scale and get the most out of their complementary specific areas of expertise and reputations acquired by building complex, large-scale works in their respective geographical markets. Although prolonged global economic instability is severely affecting some segments of the construction industry (particularly residential and commercial construction), large-scale infrastructure continues to be a priority for the growth of national economies, especially in high-growth areas. Competition among the main market players increasingly hinges on testimonials, qualified expertise and adequate funding. The ability to attract new resources and talent, through acquisitions if necessary, is therefore becoming a critical factor for success. In such an environment, creating a national champion (Impregilo and Salini) would add more value in the form of significant additional advantages such as: a broader geographical presence, founded on expert knowledge of the individual countries where the two groups have been successfully operating for decades; scale on a par with global industry leaders, providing possible access to large-scale and technologically complex infrastructure projects; a solid financial structure supported by a healthy credit standing; commercial and cost synergies that can be achieved by pooling specific expertise and reputations acquired in other market segments, and by striving for greater efficiency through integrated resource management; the creation of value for all shareholders and stakeholders by significantly increasing value of production and operating margins. Interim directors' report Interim Consolidated financial statements as at 30 June

23 Research and development Research, development and technological innovation have always been essential to the Company s success in the realisation of large-scale projects. If, today, the Group is one of the most advanced in terms of technologies used, project and work site management procedures and security measures adopted, it is thanks to the continuous and increasing commitment of the economic and human resources invested in research and development. In close partnership with qualified professionals and engineering companies at an international level, highly innovative techniques and solutions have been developed to be used on projects of any type, size and complexity. This approach is one of the strengths that make the Group competitive worldwide, even in the most demanding working conditions. The constant bid for innovation has made a significant contribution to the evolution of the entire construction and plant engineering sector, with the Fast Track Implementation method specifically designed to construct large-scale turnkey hydroelectric power plants. The method, based on the simultaneous launch of all critical operational phases, helps to dramatically reduce project timescales by at least 50%. Therefore, a hydroelectric plant begins to generate benefits and revenue streams much sooner than it would with a traditional organisation, delivering a faster return on investment. The Fast Track Implementation method, which Salini has already successfully applied to three large-scale hydroelectric plants, can be used for many project types that require swift completion times, anywhere in the world. Interim directors' report Interim Consolidated financial statements as at 30 June

24 OPERATING PERFORMANCE Interim directors' report Interim Consolidated financial statements as at 30 June

25 Analysis of income, financial position and cash flow Summary of consolidated financial information On 30 November 2011, the Board of Directors of parent company Salini Costruttori S.p.A. resolved to establish a wholly owned joint-stock company named Salini S.p.A., the purpose of which would be to design and build infrastructural works. The same meeting also approved the contribution in kind by the sole shareholder Salini Costruttori S.p.A. effective as of 1 January 2012 to the aforementioned Salini S.p.A. of the infrastructure construction business unit, inclusive of all associated contracts undertaken directly or indirectly in Italy and abroad. That transaction, to be considered an essential component of the Parent Company s corporate reorganisation project, was completed through the establishment of Salini S.p.A. on 6 December 2011 and the subsequent contribution of the business unit, including its equity, assets and liabilities, examined in the report of the independent expert, appointed pursuant to the procedure set forth in Article 2343-ter, paragraph 2, letter b), of the Italian Civil Code. More details on the effects of this contribution on the statement of financial position and income statement can be found in the relevant sections of the notes to the financial statements. Pursuant to letter G) of the Company's deed of incorporation, the first financial year closes on 31 December 2012; the summary tables therefore cannot show a comparison with the previous year. For the purpose of understanding the dynamics of the operating results, however, the comments shall make reference to the previous year's results of Salini Costruttori S.p.A.'s infrastructure construction business unit, which, being the subject of the contribution in kind, had the same structure as Salini S.p.A. Salini S.p.A.'s first consolidated half-year accounts show pre-tax profit of 39.1 million and value of production of million. Comparison with the consolidated income statement as at 30 June 2011 of Salini Costruttori's infrastructure construction business unit shows an increase of 32.2% in total revenue and significant growth in EBITDA ( million) and EBIT ( million). The significant improvements in half-yearly profit margins are proof of the Company's ability and efficiency in building complex works, maximising cost synergies and using advanced technical skills. The pre-tax profit reflects the performance of the non-core business, where the depreciation of the euro produced foreign-exchange losses that were offset only partly by profits from other areas of financial management. The order book of 10.2 billion is proof of the quality of the Group's commercial activities, which aim to seize opportunities in markets that are less susceptible to the current economic slowdown. Finally, the expansion of industrial activities also boosted Group employment levels, with the workforce increasing by 3,159 (+20.37%) in the first half of Interim directors' report Interim Consolidated financial statements as at 30 June

26 Economic and operating performance Key consolidated income figures /000 JUN 2012 Total Income 818,639 EBITDA 93,518 EBIT 46,731 EBT 39,054 Production Salini S.p.A.'s total consolidated revenue at 30 June 2012 was million, up by million compared with the same period of the previous year (based on the consolidated income statement of Salini Costruttori S.p.A.'s infrastructure construction business unit, which was the subject of the contribution in kind mentioned in the opening paragraph). Foreign projects accounted for 87% of the total. Operating income amounted to million, accounting for 99.8% of turnover. There was a significant contribution from the Gibe III and Grand Ethiopian Renaissance Dam (GERD) hydroelectric projects in Ethiopia, the Zhytomyr and Kyzylorda road projects in Ukraine and Kazakhstan respectively, and the Copenhagen metro system project in Denmark. Operating income by geographical area ( /000) JUN 2012 % Italy 105,363 13% EU (excluding Italy) 75,033 9% Non-EU Europe 183,917 23% Asia 163,162 20% Africa 290,015 35% TOTAL OPERATING INCOME 817, % The biggest contribution, with 49% of operating income for the period, came from roads and motorways, owing mainly to works on stretches of road as part of the reconstruction of the Western Europe - Western China International Transit Corridor in Kazakhstan and the reconstruction of the Kiev-Zhytomyr motorway section of the Kiev-Chop route in Ukraine. Operating income by sector ( /000) JUN 2012 % Dams and hydroelectric plants 263,279 32% Railways and metro systems 130,682 16% Civil buildings 26,550 3% Roads and motorways 396,979 49% TOTAL OPERATING INCOME 817, % Interim directors' report Interim Consolidated financial statements as at 30 June

27 Other non-operating income, amounting to 1.1 million, relates essentially to the provision of goods and services which, by their very nature, are not part of the core business (e.g. technical and administrative services provided to third parties, disposals of materials). Costs Direct costs of production amount to 76.8% of total revenue and are broadly in line with the ratios posted by the Group in previous years. Personnel costs of 96.3 million amount to 11.8% of the value of production. This is down from 12.5% when compared with the same cost figure for the infrastructure construction unit of Salini Costruttori S.p.A. as at 30 June Non-core business The non-core business was affected by 6.4 million of foreign-exchange losses, attributable mainly to fluctuations in the Nigerian naira and in certain currencies of the CIS area. Results of operations EBITDA was 93.5 million in the first half of 2012, giving an EBITDA margin of 11.4%. Compared with the income statement of Salini Costruttori S.p.A.'s infrastructure construction unit as at 30 June 2011, EBITDA rose by 15.8 million. EBIT of 46.7 million represents an EBIT margin of 5.7% and an increase of 10.6 million when compared with Salini Costruttori S.p.A.'s infrastructure construction unit. Period results EBT (pre-tax profit) amounted to 39.1 million, or 4.8% of total revenue. Current and deferred taxes for the period are estimated in accordance with applicable tax legislation. For additional information on the calculation of taxes, please see the details in the dedicated paragraph Income taxes E22 of the notes to the financial statements. Financial results Key consolidated financial position figures ( /000) JUN 2012 Fixed assets 631,232 Operating working capital (45,140) Reserves (50,589) Net invested capital 535,503 Shareholders equity 290,804 Net financial position (244,699) The statement of financial position at 30 June 2012 reflects the significant growth in production volumes supported by the necessary scheduled investments and commitments. Fixed assets of million consist mainly of technical equipment at operational sites and the value of the equity investment in Impregilo S.p.A. (around 269 million). Interim directors' report Interim Consolidated financial statements as at 30 June

28 Tangible fixed assets, which include leased machinery, amounted to million. ( /000) JUN 2012 NET INVESTMENTS 321,845 Plant and equipment 640,641 Accumulated depreciation (318,795) Net invested capital, amounting to million, reflects the positive trend in production during the period, which had a balanced effect on the Company's capital structure. Net financial position The net financial position at 30 June 2012 was million. In line with management's expectations at this stage of the financial year, it reflects scheduled investments in support of growing production volumes and new orders, as well as investment of around 269 million in shares of Impregilo S.p.A. The forecasts outlined in the five-year business plan, which were confirmed and in some cases improved upon by the positive performance during the period under review, lead us reasonably to believe that net debt may fall by the end of Financial structure ratios, notably concerning leverage, remain balanced. ( /000) JUN 2012 Cash and cash equivalents 285,286 Financial receivables 10,114 Payables to shareholders for loans (184) Payables to banks (367,959) Payables to other lenders (62,037) Total current position (134,780) Payables to shareholders for loans (2,890) Payables to banks (25,228) Payables to other lenders (81,801) Total non-current position (109,919) Net financial position (244,699) NFP/Equity 0.84 Guarantees given directly Total guarantees given of 2,513.6 million relate mainly to sureties for credit lines issued to subsidiaries and associates, sureties for works issued to the Group by banks and insurance companies in favour of various customers, and other various sureties issued (financial administration, corporate guarantees). Guarantees and sureties given by third parties in favour of the Company Guarantees given indirectly and those given by banks and insurance companies to Italian and foreign suppliers and sub-contractors or in favour of other foreign financial institutions in relation to their contractual obligations to the Group total million. Interim directors' report Interim Consolidated financial statements as at 30 June

29 Cash flow statement ( /000) JUN 2012 Net financial position at the start of the period 33,935 + EBITDA 93,518 +/- change in provision for risks and termination benefits (TFR) 19,082 GROSS CASH FLOW 112,600 change in working capital (139,491) CURRENT CASH FLOW (26,891) investments in intangible fixed assets (2,272) investments in tangible fixed assets (101,444) CASH FLOW GENERATED BY OPERATIONS (130,607) long-term investments (143,198) financial income (loss) (4,122) extraordinary operations (3,554) taxes (11,135) changes in shareholders' equity 13,983 CASH FLOW FOR THE FINANCIAL YEAR (278,633) Net financial position at the end of the period (244,698) Interim directors' report Interim Consolidated financial statements as at 30 June

30 Reclassified consolidated statements Reclassified income statement ( /000) JUN 2012 Value of production 818, % Purchases for the period (214,278) 26.2% Cost of services (384,696) 47.0% Lease and rental expense (27,113) 3.3% Misc. operating expenses (2,765) 0.3% Value added 189, % Personnel costs (96,269) 11.8% EBITDA 93, % Amortisation, depreciation and write-downs (46,787) 5.7% EBIT 46, % Financial income (loss) 2, % Exchange rate gains/losses (6,417) -0.8% Income (loss) on equity investments (620) 0.1% Non-operating income (loss) (2,934) 0.4% EBT 39, % Taxes (11,135) -1.4% Minority interests (8,800) -1.1% NET PROFIT 19, % Interim directors' report Interim Consolidated financial statements as at 30 June

31 6.5% Reclassified statement of financial position 5.4% ( /000) JUN 2012 Intangible fixed assets 17,142 Tangible fixed assets 321,845 Equity investments 277,544 Other net fixed assets 14,701 Total fixed assets (a) 631,232 Inventories 172,781 Pending contracts 440,392 Advances from clients (1,038,730) Trade receivables 641,380 Tax receivables 95,024 Other assets 273,031 subtotal 583,878 Trade payables (483,000) Other liabilities (146,018) subtotal (629,018) Operating working capital (b) (45,140) Provisions for risks and charges (47,189) TFR (termination benefits) (3,400) Total reserves (c) (50,589) Net invested capital (d) = (a) + (b) + (c) 535,503 Cash and cash equivalents 285,286 Financial receivables 10,114 Current financial liabilities (430,180) Non-current financial liabilities (109,919) Net financial payables/receivables (e) (244,699) Shareholders' equity 255,697 Minority interests 35,107 Shareholders' equity (f) = (d) + (e) 290,804 Funding (g) = (f) - (e) 535,503 Interim directors' report Interim Consolidated financial statements as at 30 June

32 Financial risk management Interest rate risk The Group uses various external sources of financing in the form of both short-term and medium-/long-term debt. It was necessary to strike an optimum balance between fixed- and variable-rate debt, in order to reduce borrowing costs and related volatility. Accordingly, hedging transactions were implemented in the form of simple derivative instruments which involve converting the variable rate into a fixed rate (interest rate swap - IRS). Six derivative contracts were in place with leading banks at 30 June 2012, entered into originally by Todini Costruzioni Generali and then transferred to associate Co.Ge.Fin. S.r.l. as part of the demerger process that began at the end of December The table below summarises the main characteristics of those contracts. Co.Ge.Fin. Co.Ge.Fin. Co.Ge.Fin. Banking institution Centrobanca Banca Pop. Vicenza Banca Carige Contract date 30/09/ /09/ /09/2009 Maturity date 31/07/ /07/ /07/2014 Type IRS IRS IRS Purpose Hedging Hedging Hedging Notional value ( /thousand) 2,500 2,500 2,500 Underlying financial risk interest rate interest rate interest rate Fair value of derivatives ( /thousand) (60) (60) (55) Liability hedged variable-rate loan variable-rate loan variable-rate loan Co.Ge.Fin. Co.Ge.Fin. Co.Ge.Fin. Banking institution Banca Intesa Banca Pop. di Sondrio Banca Etruria Contract date 30/09/ /10/ /09/2009 Maturity date 31/07/ /07/ /07/2014 Type IRS IRS IRS Purpose Hedging Hedging Hedging Notional value ( /thousand) 12,500 2,500 2,500 Underlying financial risk interest rate interest rate interest rate Fair value of derivatives ( /thousand) (304) (55) (58) Liability hedged variable-rate loan variable-rate loan variable-rate loan Exchange rate risk The Group currently works with contracts that tend to provide for payment in two currencies: a significant percentage (70% on average) in euros and the remainder in local currency, which is used by subsidiaries to meet local commitments. This policy neutralises the exchange rate risk since debts accrued in the local currency are settled directly in that currency. For this reason, it was not deemed necessary to hedge exchange rate risk. Interim directors' report Interim Consolidated financial statements as at 30 June

33 Liquidity risk The Group dedicates special attention to managing the resources generated or absorbed by operating and/or investment activities and the characteristics of the debt in terms of maturity and renewal in order to ensure effective and efficient cash flow management. Therefore, a series of policies and processes has been adopted which is aimed at optimising financial resource trends, with the goal of managing and mitigating liquidity risk. The policies and processes adopted are outlined below: tendency towards centralised management of collection and payment flows; monitoring the available liquidity level; optimising the lines of credit; monitoring the forecast liquidity. Credit risk As at 30 June 2012, trade receivables amount to million due within 12 months and 12.3 million due beyond 12 months. During the first half of the year, the Group worked successfully on the domestic market as well as in politically stable and economically sound areas, and there were no specific issues either regarding economic and financial aspects or in terms of collecting receivables. The Group's current risk position is further strengthened by the financial structure of the contracts, most of which are financed by supranational bodies. Interim directors' report Interim Consolidated financial statements as at 30 June

34 Order book The order book as at 30 June 2012 stood at around 10.2 billion, a figure that reflects the Group's excellent capacity for commercial penetration. Most of the 856 million of new business secured in the last 12 months came from the Roads and motorways and Hydroelectric plants segments. The size and trends of the order book confirm the high growth potential of the value of production expected in the coming years, as well as the Group s strategic ability to operate in markets which are less exposed to the economic downturn, by dedicating itself to competitive sectors of excellence such as dams, hydroelectric plants and transport infrastructures. Overall, 16% of the order book refers to domestic projects ( 1.7 billion) and the remaining 84% is from initiatives abroad, with Europe representing 17% ( 1.7 billion), Africa 58% ( 5.9 billion) and Asia 9% ( 0.9 billion). Led by Ethiopia and Nigeria, Africa posted growth of 5% compared with June 2011, confirming its rapid rise in recent years and establishing itself as the Group's major market, particularly for dams and hydroelectric plants. The growth of the European business is also of considerable interest, with new acquisitions representing 36% of orders generated in the last 12 months. 9.0% 2.2% 30.7% % Africa UE EU Asia Extra Non-EU UE Interim directors' report Interim Consolidated financial statements as at 30 June

35 The dams and hydroelectric plants sector ( 5,187 million) accounts for 51% of the order book and is therefore the Group s core business, although the impact of railway and metro system initiatives is increasing: 3,165 million represents 31.1% of the total work to be executed. 10.5% 7.4% % 31.1% Dams Dighe and e impianti hydroelectric idroelettrici plants Edilizia Civil buildings civile Ferrovie Railways e and metropolitane systems Strade Roads e and autostrade motorways Business performance by geographical area Abroad The Group s global mission is particularly apparent from its presence in foreign countries through permanent offices, branches and local companies which, due to their integration within the various markets, are ready to take advantage of the strategic potential and business opportunities to be found there. Within the order book, the value of international business ( 8,498 million) accounts for 84% of the total. The sectors concerned are summarised below ( /million): Dams and hydroelectric plants 5, % Railways and metro systems 1, % Civil buildings % Roads and motorways % 8, % International market activity, totalling million, represents 87% of the value of production as at 30 June Interim directors' report Interim Consolidated financial statements as at 30 June

36 The sectors that contributed to operating income abroad are Roads and Motorways (48.7%), Dams and Hydroelectric Plants (37.0%), Railways and Metro Systems (11.5%) and Civil Buildings (2.8%). Below is a brief description of the key events relating to the main projects during the first six months of AFRICA Ethiopia Work on the Gibe III project continues. The contract for this work, signed on 19 July 2006 and with a value of 1,470 million, involves building a hydroelectric plant with a capacity of 1,870 MW, consisting of an RCC (roller-compacted concrete) dam which is 243 metres high, with a surface powerhouse. Other permanent works include a total of 75 km of access roads, a new bridge over the Omo river and camps and facilities for the client. In 2010, an agreement was signed with the client for the construction of a 66 kv power line from the Wolayta Sodo substation to the Gibe III site. This line and the relative substations will remain the property of the client, EEPCo (Ethiopian Electric Power Corporation), but in exchange Salini will be supplied with discounted electricity. On 30 December 2010, Salini Costruttori and EEPCo entered into an agreement to construct the GERD, which will be the largest dam in Africa (1,800 m long, 170 m high and with an overall volume of 10 million cubic metres), along with two powerhouses located on the banks of the Blue Nile, equipped with a total of 16 turbines each with installed capacity of 375 MW. The project is valued at over 3.3 billion. Currently, excavations are being carried out for the main dam, the bridge is being built over the Nile, work is being done to divert the river, and roads and work site installations are being built. On 12 March 2012, a second addendum was signed to formalise the request to increase the voltage of the power line between Beles and the GERD from 132 kv to 400 kv. This change increased the value of the contract by 42 million, taking the total value of the works to 3,377 million. The Gibe II (420 MW) and Beles (460 MW) hydroelectric projects, with contractual values of 397 million and 467 million respectively, were completed and the relevant taking-over certificate issued. The contracts are in the defect liability period, awaiting final certification. Nigeria The work relating to the Gurara Dam and Water Transfer Project, Lot A Dam and Associated Works project is in progress. The current value of the job, inclusive of the various contract addenda issued over the years (the contract was signed on 30 January 2001) is approximately 545 million. The 9-million m 3 earth and rockfill dam, the intake structure and the 30 MW hydroelectric plant are complete; the power transmission line, the irrigation perimeter and some road works still need to be finished. The project should be completed within two years. Work continues on the Development of Idu Industrial Area Engineering Infrastructure project (the contract is worth around 237 million), involving the primary urbanisation of a new district in the capital, Abuja, destined for industrial use. The sewage and drainage systems are complete, the road network (including four viaducts) is 60% tarmacked and the construction of water and power supply networks is under way. Interim directors' report Interim Consolidated financial statements as at 30 June

37 Work is also continuing on the design and execution of the Nigeria Cultural Centre and Millennium Tower (the contract is worth around 421 million). The tower has reached 110 m (its final height will be 170 m), the car park underneath the square is complete, the man-made tunnel linking the two plots is in place and two of the seven buildings that will make up the Cultural Centre are at an advanced stage of construction. The section of urban motorway pertaining to the Extension of Inner Southern Expressway (ISEX), a project with a value of around 65 million awarded by the Federal Capital Development Authority on 13 January 2010, is at an advanced stage of construction. Two of the four main viaducts are complete, drainage works are nearing completion and part of the road section has been tarmacked. The Dualisation of Suleja Minna Road in Niger State project acquired in November 2010, worth approximately 50 million, is currently under way. The earth-moving process and the drainage works are ongoing, and the construction of two bridges is now under way. Similarly, the Development of District 1 Abuja North Phase IV West project is being developed. This project s overall value is approximately 250 million, and the awarding process was carried out in two steps (phase 1 on 30 December 2010 and phase 2 on 5 March 2012). The mobilisation of the site is ongoing, and the construction of one of the project's main viaducts is under way. Sierra Leone Activities relating to the management and maintenance of the Bumbuna hydroelectric power plant and the related transmission line are progressing steadily. Power generation takes place in coordination with the National Power Authority, which is responsible for the country s electricity distribution. The contract value, originally 10.2 million, was increased to 22.3 million as a result of an addendum signed on 18 November The same applies to the Rehabilitation of 21.2 km of urban town roads project for the rehabilitation of several sections of main roads located in the four main cities of Sierra Leone. When three new contract addenda were signed, in June and October 2011 and March 2012, the project s value increased from the original 10.3 million to 23.4 million. On 16 March 2010, work on the Rehabilitation of the Masiaka-Bo highway (164 km) contract was completed. The final acceptance certificate was issued on 9 August Uganda The fifth and final turbine of the Bujagali Hydroelectric Power Project was fully commissioned in June Civil works have been completed, and all that remains is some finishing and environmentalrestoration works. The Bujagali project to build a dam with a 255-MW hydroelectric station on the White Nile, with a total value of around US$284 million, has considerably increased the amount of energy available in Uganda, satisfying domestic demand and ending a long and troublesome energy shortage, while also contributing to sharp growth in the local economy. A clause for extension of time and additional costs was also negotiated with the client, which, together with the completion certificate, resulted in a bonus of around US$17 million. Interim directors' report Interim Consolidated financial statements as at 30 June