Signalling and Transportation Solutions Annual Report Lead With Values. Innovation and Excellence. Customer Focus

Transcription

1 Signalling and Transportation Solutions Annual Report 2009 Lead With Values Team Spirit Innovation and Excellence People Integrity Customer Focus

2 OVERVIEW Highlights Mission 3 CEO s Report 5 GROUP PROFILE Who We Are and Where We Come From 10 Business Areas 12 Organisation by Regions 14 Management Team 16 THE BUSINESS Report on Operations for 2009 and the Business Environment 20 - Signalling Unit 20 - Transportation Solutions Unit 23 Principal Orders 25 Strategies and business prospects 26 Analysis of the Income Statement, the Balance Sheet and the Financial Position 30 Risks and Uncertainties 36 Corporate Governance and Governing Bodies 44 Human Resources 48 Corporate Social Responsibility and Sustainability 50 parent COMPANY ACCOUNTS 57 Parent Company Financial Statements 58 CONSOLIDATED ACCOUNTS 63 Consolidated Financial Statements 64 Notes 68 EXTERNAL AUDITORS REPORT 124 SHAREHOLDER INFORMATION 128

3 Signalling and Transportation Solutions Annual Report 2009 WELCOME TO ANSALDO STS, a company limited by shares, listed since 2006, leader in Signalling and Rail and Subway Transport Systems, through its Signalling* and Transportation Solutions* Business Units, operating in over 30 countries worldwide. Highlights 2009 (IAS-compliant amounts in million) Orders Order-book Revenue , , , , , ,175.6 EBIT ROS Net Profit % 10.6% Net Working Capital Net Cash Tax rate (187.1) (166.3) (195.9) (278.9) % 36.4% (*) Starting from the 30 June 2009 first-half report, the Segnalamento and Sistemi di Trasporto Business Units were renamed the Signalling and Transportation Solutions Business Units with no change to their respective businesses. The change was purely terminological: accordingly, all the Group s profit and loss and financial disclosures by Business Unit made to date (prior periods and comparative periods), including the values given in the IPO prospectus of March 2006, are fully comparable. 1

4 Mission 2

5 Signalling and Transportation Solutions Annual Report 2009 MISSION We combine our experience and technological, financial and human resources to supply innovative solutions for the design and production of equipment and systems used in signalling and the automation of subway networks and conventional and high-speed railway lines. Our objective is threefold: \ to realise ever more advanced and reliable products leading to the development of the most environment-friendly transport system currently available \ to create value for all our stakeholders, by responding efficiently to a continually increasing demand for mobility \ to become world leader in our industry by promoting a culture of quality, safety and responsibility. Everything we do is guided by five key VALUES, symbolised by a diamond to emphasize solidity and transparency. Team Spirit Innovation and Excellence People Integrity Customer Focus 33

6 sergio de luca CEO Ansaldo STS Group 4

7 Signalling and Transportation Solutions Annual Report 2009 THE CEO S REPORT Growth and Change. These are the two words that best describe the way our Group developed in All the main corporate figures profitability, capital and finance are once more very gratifying, despite the tough world economic situation. In 2009 we also completed Fast Forward Driven by Business, our internal reorganisation programme, which has transformed Ansaldo STS from a federation of companies into an integrated Group based on two global businesses - Signalling and Transportation Solutions and a corporate centre which manages R&D, Manufacturing and procurement, known as Standard Products and Platforms (SPP). In 2009, in a complex stock-market situation, the Ansaldo STS share performed better than the market average and once more rewarded its investors, not least with an increase in the pershare dividend. These facts are a solid base on which we can consolidate a positive medium-term cycle. For the next three years the forecast performance of the control, signalling and transport systems industry continues to be positive. The world economic and financial crisis which damaged almost all productive industries did not change our industry s long-term growth factors, although in some cases it made it more difficult to find the necessary finance for the construction of civil works. Berkshire Hathaway s 2009 acquisition for $44 billion of the entire capital of Burlington Northern one of North America s foremost rail operators - indicated the strength of the interest in the rail transport sector and confirmed the way these growth factors should be interpreted over the long term. >>> 5

8 The Ceo s Report A complete analysis of the figures shows that growth rates differ markedly in the markets in which Ansaldo STS operates. On the one hand the more developed countries have seen slower growth due to the nearing of completion of the cycle of investment in High-Speed Trains, in emerging countries the demand for transport systems continues to grow strongly and steadily. Ansaldo STS s business successes in these markets in 2009 testify to its ability to adapt to changing competitive environments. The scenarios in which Ansaldo STS competes today offer differing growth rates, an international competitive environment based mainly on the ability to innovate in technology and a business largely dominated by a few large industrial groups. This is why three factors are essential to our competitive position: recognised technological leadership, the ability to adapt to changing market conditions and overall profitability and a solid balance sheet. In 2009 we won some significant orders and these are a solid basis for growth in the coming years. Orders acquired rose by 38%; at 31 December 2009 our backlog was 3,760 million as a result of the new orders acquired and was up by 19.9% over that of end 2008, which was 3,136 million. Our Transportation Solutions Unit acquired important contracts in emerging countries, such as the construction of the Circular Line of the Taipei (Taiwan) subway which is worth million and the construction of a subway line for the Women s University in Ryad (Saudi Arabia) worth million. The Signalling Unit won a contract with the Libyan Railways worth 541 million, the largest ever in Ansaldo STS s history, as well as the Italian High-Speed variants, a maintenance contract for the Madrid-Lerida high-speed line in Spain and many other contracts won in Germany, Italy, the UK, the US, Brazil, the PRC and Australia. Our 2009 profit figures show that it was a year of satisfactory growth, profitability, financial solidity and capitalisation. Revenue and operating profit grew by 6%, Net cash grew by 42%. Our R&D sector continued to contribute significantly to the Group. In this area Ansaldo STS continued to invest in the products and technologies that can give it an enduring competitive advantage. In 2009 Ansaldo STS continued to invest in the level 2 ERTMS / ECTS systems for high-speed lines, as well as innovative solutions like Communication Based Train Control (CBTC), critical part monitoring and protection and the new TCCS system for risk reduction. The action taken and the results achieved in the year are an important basis for the continuation of the Group s favourable results. The company s good general performance was reflected in the positive performance of the Ansaldo STS share which again this year outperformed the market. In 2009 the Ansaldo STS share price rose by 32.6%, as against the FTSE MIB rise of 19.5% and FTSE Italy STAR s 31.5%. 6

9 Signalling and Transportation Solutions Annual Report 2009 With regard to human resources, in 2009 Ansaldo STS continued its policy of developing and growing its staff, not least and above all looking ahead to the company s increasing penetration of international markets and the adoption of its new organisational model, which encourages ever-increasing interaction between the various local contexts in which the Group operates. In 2009 the Parent Company, Ansaldo STS, changed from being a holding company to an operating company with two business units: Signalling and Transportation Solutions as well as a corporate centre charged with R&D, Manufacturing and Standard Products and Platforms (SPP), our procurement area. The strategic idea behind this internal reorganisation known as Fast Forward Driven by Business was to transform the Group from being a federation of local concerns to a global organisation built on global businesses under the guidance of a Strategic Centre, which manages business operations and contract execution through its local representatives. As part of our business we strive to contribute to the development of environmental and energy policies: the intrinsic ability of rail transport to reduce traffic, capture more and more the preference of travellers and forwarders which usually travel by road or air, and being able to present impeccable credentials in terms of environment sustainability these are efforts that correspond both to global needs and to our environmental policies, which inform the totality of our production, with the aim of creating the most advanced transportation systems in terms of safety, reliability and eco-compatibility. In this regard, in 2010 we will publish a Sustainability Report for the first time; this will comply with the international requisites for the certification of social reports. This new publication is an important step forward in the effort to prepare increasingly complete and transparent corporate information and above all a spur for our Group and all its stakeholders to progress together on the road of continuous improvement, to create an increasingly sustainable business. Our business acts as a link, an engine that brings people and nations together, promoting the exchange of ideas and resources that are essential to global development and growth. This is a great responsibility, since it is based on the awareness that the speed at which the world economy recovers will at least partly depend on the effectiveness of our actions. Sergio De Luca CEO Ansaldo STS Group 7

10 Freccia Rossa, High Speed Train - Rome (Italy) 8

11 Signalling and Transportation Solutions Annual Report 2009 integrity For people to work together effectively they have to trust each other and this is possible only if they all behave transparently, fairly, honestly and properly. In the same way our clients, too, must be absolutely certain that their supplier of safety- critical products acts with integrity. Lead with values 9

12 Who We Are and Where We Come From WHO WE ARE AND WHERE WE COME FROM Our Parent Company Ansaldo STS is based in Genoa and is the only company listed both on the main board of the Italian stock exchange, FTSE MIB (which includes Italy s most highly capitalised concerns) and in the Star segment, which groups companies of excellence according to specific requisites, viz. liquidity, corporate governance and transparent disclosure. Forty per cent of company capital is held by Finmeccanica, which is therefore the company s principal shareholder. The Group is an industry leader in signalling and rail transport systems. The Group is headquartered in Genoa and operates through four main operating companies: \ Ansaldo STS S.p.A. which has facilities in Genoa, Naples, Piossasco (Turin Province) and Tito Scalo (Potenza), in Italy \ Ansaldo STS USA, which has facilities in Pittsburgh, Pennsylvania and Batesburg, South Carolina, in the US \ Ansaldo STS France, which has facilities in Paris and Riom, in France and \ Ansaldo STS Australia which is based in Eagle Farm, Queensland. We also own smaller operating companies in Germany, Sweden, Finland, Ireland, the UK, Spain, the PRC, India, Malaysia, South Africa, Botswana and Brazil, as well as numerous stable organisations and co operations in other countries such as South Korea, Brazil and Turkey. We operate throughout the world as lead contractors, system integrators and turnkey suppliers of the largest railway and subway mass transit projects. Group companies provide traffic management. train control. production of signalling systems and maintenance services. all aiming to achieve the greatest possible efficiency and safety for both clients and end-users. Effective January 2010 the organisation created by the Fast Forward Driven By Business project became operational. Ansaldo STS thereby concluded a significant reorganisation and became a Group with strong central governance focussing on two business units Signalling and Transportation Solutions and SPP, i.e. unified development, platforms and standard products. The four pillars of this cultural and organisational change in our Group are: \ business-led organisation \ a strategic centre \ efficiency and \ globalisation Our origins lie in signalling and transport systems. which until the mid-1990s were carried on by Ansaldo Trasporti, a company that pioneered many innovations in its over 150 years of history, such as the design and management of over half the high-speed train systems running in the world. as well as the design of the first driverless subway train This year saw the formation of Ansaldo Signal and subsequently Ansaldo Trasporti Sistemi Ferroviari. together with Ansaldo Breda in the rolling stock industry, all wholly owned by Finmeccanica, which led to a reorganisation of the whole transportation sector Finmeccanica floated the signalling and transport systems businesses on the stock exchange after bringing them under a model of unitary management in order to optimise industrial and commercial synergies. 10

13 Signalling and Transportation Solutions Annual Report The reorganisation was completed when Ansaldo STS was formed specifically for the purpose of acquiring from Finmeccanica its entire stake in both Ansaldo Signal (which controlled all the Group s signalling businesses) and Ansaldo Trasporti Sistemi Ferroviari (in which the transport systems businesses were concentrated). As of 31 March 2006 Ansaldo STS was listed in the STAR segment on the Milan stock exchange. To realise greater synergy and fully coordinate the various businesses by increasing its size and overall profitability, further expanding in its markets and entering new product segments a further reorganisation process was set in train in 2006 through which the Group aimed to: \ include in the mission of the signalling businesses came to include the development of a transportation solutions unit, using shared know-how and experience, \ rebrand the Group s subsidiaries under the Ansaldo STS name and uniform the brand. as well as increasing the sense of belonging to a single entity. \ place the Dutch sub-holding. Ansaldo Signal NV in liquidation and transfer the Group s equity interests and legal obligations to Ansaldo STS by means of absorption. \ merge the two Italian subsidiaries Ansaldo Signalling Ferroviario and Ansaldo Trasporti Sistemi Ferroviari into the holding company Ansaldo STS which took on certain operating functions Effective 1 January, the subsidiaries Ansaldo Segnalamento Ferroviario S.p.A. and Ansaldo Trasporti Sistemi Ferroviari S.p.A. were merged into Ansaldo STS S.p.A., approved on 20 June 2008 and signed on 26 September The US subsidiaries were renamed as follows: \ Union Switch and Signal Inc. became Ansaldo STS USA Inc. \ Union Switch and Signal International Co. became Ansaldo STS USA International Co. \ Union Switch and Signal International Projects Co. became Ansaldo STS USA International Projects Co. \ Transcontrol Corporation became Union Switch and Signal Inc. From 29 March Ansaldo STS was listed on FTSE MIB. Starting from the 30 June 2009 first-half report, the Segnalamento and Sistemi di Trasporto Business Units were renamed the Signalling and Transportation Solutions Business Units with no change to their respective businesses. This change was purely terminological: accordingly, all the Group s profit and loss and financial disclosures by Business Unit made to date (prior periods and comparative periods), including the values given in the IPO prospectus of March 2006, are fully comparable. On 1 October the merger of the Dutch subsidiary Ansaldo Signal N.V. into Ansaldo STS S.p.A. became effective. In December a new company was formed in Brazil under the name Ansaldo STS Sistemas de Transporte e Sinalização Ltda. Our Chinese subsidiary, Ansaldo Railway System Technical Service (Beijing) Ltd, was renamed Ansaldo Railway System Trading (Beijing) Ltd. Our business approach includes a commitment to analyse each individual project in a forward-looking manner, while assigning due importance to all the spheres with which we interact: social, economic, logistical, architectural, infrastructural, environmental and cultural. We may then be the preferred interlocutor for governmental institutions. municipalities and private-sector firms for all urban and interurban transport needs. We can currently count on over 4,300 specialist employees around the world, a network rich in skills, passion and dedication, able to channel the advantages of our global capability and make it available and concretely applicable in the local context. 11

14 Business segments BUSINESS SEGMENTS The SIGNALLING Unit operates around the world designing and building rail and subway signalling systems and components through four operating companies: \ Ansaldo Signalling Ferroviario SpA (Italy) with offices in Genoa. Naples. Turin and Tito \ Ansaldo STS USA with offices in Pittsburgh, PA and Batesburg, SC \ Ansaldo STS France, which has offices in Paris and Riom and \ Ansaldo STS Australia which has its offices in Eagle Farm, Queensland. The Group also owns some small and medium-size operating companies in Germany, Sweden, Finland, Ireland, the UK, Spain, China, India, Malaysia, South Africa and Botswana, as well as several permanent establishments and cooperation agreements including South Korea, Brazil and Turkey. Most of the Group s business is carried on by the Italian, US, French and Australian companies, which account for some 96% of the Unit s revenue. The larger projects carried out by the Unit include: \ the installation of computer-based interlocking systems in Rome Termini station. Manchester South and the Sandbach-Wilmslow junctions (UK); \ signalling systems supplied to the automated mass transit systems in Copenhagen and Brescia as well as the subways of New York, Los Angeles Green Line, Shanghai Line 2 and Tianjin-Binhai, PRC; \ electro-rail systems for Metro line 3 in Milan and complete signalling installations and systems on the railway lines of Rawang Ipoh, Malaysia, and Hammersley Iron, Australia; \ signalling systems for high-speed trains in France (TGV), the Spanish Madrid-Lerida line, the South Korean Seoul-Taegu line, and the Chinese Qinhuangdao-Shenyang line, while in Italy the Group is involved in the high-speed trains programme (Milan-Bologna and Turin-Novara sections) supplying signalling systems through the Saturno consortium \ supplying the signalling systems, telecommunications, security and power supply for 541 million for the Ras Ajdir-Sirt (circa 650 km) and Al Hishah-Sabha (circa 800 km) sections in Libya. The TRANSPORTATION SOLUTIONS Unit designs and produces integrated transport systems, i.e. it studies. designs and plans the integration of the design and construction of the technological elements that make up the transport system, including equipment, signalling, power supply, telecommunications and rolling-stock (whether for railway or metro trains), as well as any other technical items that, together with the foregoing, constitute an integrated transport system. The end product, i.e. an integrated transport system, whether railway line or metro line, is then delivered to the principal on a turnkey basis. The Group is also able to offer Signalling and Transportation Systems competencies separately according to the client s needs. The Unit s larger projects include: \ automated metro systems in Copenhagen, Brescia and Salonika; \ the Naples 1 and Rome A/B/C metro lines; \ metropolitan light railways in Genoa, Naples 6 (for these two projects the Group as sub-contractor. is responsible for the whole construction including civil works) and Lima; \ tramways in Florence, Sassari, Birmingham (Midland Metro), Manchester (Metrolink) and Dublin (A, B and C lines); \ part of the electro-rail installations for Milan s line 1; \ production, installation, testing and commissioning of signalling, telecommunications and electrification for 330km of the two-track line between Ipoh and Padang Besar, Malaysia and \ taking part in the realisation of high-speed railways in Italy through the Iricav Uno (responsible for the realisation of the Rome-Naples section), Iricav Due (responsible for the realisation of the Verona-Padua section), and Saturno consortia. 12

15 Signalling and Transportation Solutions Annual Report Production Revenue: 805 ME 824 ME (2%) Order Backlog: 1,980 ME 1,526 ME +30% Headcount: 3,821 3,901 (2%) Production Revenue: 417 ME 302 ME +38% Order Backlog: 2,048 ME 1,844 ME +11% Headcount: % 13

16 Geographical structure Group HQ (Genoa) Regional Branches or Offices Ongoing Projects in these Countries Regions Orders * (me) Revenue * (me) Headcount 2009 Central and Eastern Europe 1, ,523 Western Europe. North Africa and Middle East The Americas Asia Pacific , Central and Eastern Europe ,461 Western Europe. North Africa and Middle East The Americas Asia Pacific ,132 (*) Including business between Regions. 14

17 Signalling and Transportation Solutions Annual Report 2009 In ANSALDO STS we use our worldwide experience on every design feature and every specific technical solution to meet every need of our principal. Orders Revenue Headcount % % % Central and Eastern Europe Western Europe, North Africa and Middle East % % % The Americas Asia Pacific 15

18 Management Team 16

19 Signalling and Transportation Solutions Annual Report 2009 CORPORATE MANAGEMENT ROLES Emmanuel Viollet - President Signalling Alberto Milvio - Chief Financial Officer Roberto Passalacqua - Vice President of Risk Management Alan E. Calegari - CEO Ansaldo STS USA Lyle Jackson - President Transportation Solutions Carlo Cremona - Senior Vice President Human Resources Sergio De Luca - Chief Executive Officer Giuseppe Spezzi - Vice President HSE and Facility Management Mario Orlando - Company Secretary & General Counsel Davide Cucino - Country Representative Officer Mauro Giganti - Senior Vice President Internal Audit Giovanni Bocchetti - Senior Vice President Innovation & Competitiveness Maurizio Manfellotto - President Standard Products & Platform Unit Christian Andi - Senior Vice President Std. Process, Quality & IT Services 17

20 customer focus We exist solely thanks to our clients. Our first task is therefore to understand and satisfy their needs and expectations by helping them to solve their mobility problems as they arise. Lead with values 18

21 Signalling and Transportation Solutions Annual Report 2009 Red KL Monorail - Kuala Lumpur (Malaysia) 19

22 Report on Operations for 2009 The Business Environment REPORT ON OPERATIONS FOR 2009 THE BUSINESS ENVIRONMENT The year was satisfactory in all respects: the work done and the results achieved enabled the Group to brilliantly negotiate another extremely tough period for the world economy: the Signalling Unit generated only slightly lower production revenue and the Transportation Solutions Unit returned good results on all fronts. The Signalling Unit In 2009 the Signalling Unit considerably expanded its market in geographical terms. This has already brought an increased orders in particularly important countries and business segments. The two important technologies on which the Unit bases its business and which are increasingly widely used are CBTC and ERTMS. CBTC (Communication-Based Train Control) is a completely integrated system which provides high-speed two-way radio communication between land and train equipment and can be installed on single subway lines or on a whole subway network. The main advantages include: a large capacity increase in terms of the higher number of trains in circulation thanks to the reduction of distancing between trains; shorter stopping times; fewer signals along the line resulting in lower supply costs as well as lower maintenance and spare parts costs later; the possibility of superimposing this technology on existing technology, so that existing infrastructure can be kept in use while the various installations and tests of the new product are carried out (both in the field and in the vehicles) and thus mixed traffic (i.e. parallel running of trains already equipped with CBTC and others not yet fitted with it) may be run simultaneously and all the trains can be updated at different stages, avoiding a complete standstill until the upgrade is completed; scalability, which makes possible future extensions or modifications; the improvement of performance; and finally, greater versatility. ERTMS (European Railway Traffic Management System) is an advanced interoperable signalling system, based on specifications that are now recognised and accepted throughout the world, which combines automatic control and train protection functions with the possibility of achieving higher network capacity through more efficient traffic management. A train properly equipped with ERTMS may therefore travel in any network equipped with a similar system, regardless of the signalling system in use, the country and the legislation the infrastructure manager is required to comply with. The main advantages include: the system is suitable for networks running at speeds of up to 500 kph ( 300 mph); rail network interoperability is ensured; rail traffic safety and efficiency are increased; network capacity and performance are augmented and production and management costs are reduced. The Unit operates with its systems based on this technology in over 50% of all the high-speed networks constructed throughout the world (except Japan) and is therefore the undisputed leader in level 2 ERTMS, the most advanced railway control system ever produced. In 2009 the Unit implemented several projects on time and on budget: \ ERTMS 2 for the Milan-Bologna high-speed line \ on-board ERTMS equipment on the Paris-Amsterdam line \ the first CBTC line in the RATP Ouragan Line 3 \ Hitachi switching for high-speed trains on the London- St. Pancras / Kent line 20

23 Signalling and Transportation Solutions Annual Report 2009 \ the first ERTMS 2 in the UK, on the Cambrian line \ the new CTCS 2standard, based on the ERTMS, on the ShiTai dedicated passenger line (250 kph/155mph) \ the new CTCS 3, based on the ERTMS on the ZhengXi line in the PRC (300 kph/187 mph); \ the pilot project for the Train Protection and Warning System in India, again based on the ERTMS. At the same time new opportunities were created in the PRC, Brazil, Turkey, Libya and, on a smaller scale, in Russia and South Korea. New contracts were signed in the main markets and emerging markets as well, viz.: \ in Italy, for the maintenance of on-board equipment \ in Spain, renewal of maintenance activity on the Madrid-Lerida line \ in Germany, for the installation of ERTMS 2 on-board systems in Siemens Velaro trains \ in Libya, request for ERTMS-based technology for over 1,450 km (906 miles) of lines \ in the PRC, installation of CBTC technology on the Xi an subway \ in India, ATP signalling systems for the Mumbai monorail \ in Brazil, on-board equipment for CPTM. Penetration of new markets is certainly the best way to achieve better results in terms of cash flow, even if project completion is sometimes deferred over time. In 2009 Ansaldo STS USA reached a backlog of $522.7 million, the highest in its 128 years. A total of 57 projects were completed, with a 55% increase in orders over 2008 and an improvement in the EBIT margin up to 7.7%, laying the foundations for continuing progress and improvement in The main activities of 2009 concerned subway signalling projects, in particular in the US and the PRC. The vitality of this business helped to reduce the gap in sales caused by the general reduction in purchases of components by freight train operators, but the recent decisions taken by the US Federal Government made a strong impact. First, the implementation of PTC (Positive Train Control) on railways and suburban commuter lines was approved, which benefited the development of the family of VitalNet certified products, which gave us a strategic position for obtaining significant market share. Additionally, the reality of a US high-speed rail network is increasingly likely: thanks to federal subsidies of $8 billion for selected corridors such as California, Florida and the Midwest (where Ansaldo STS USA already operates) this sector has undergone rapid acceleration. These factors give Ansaldo STS USA a valuable opportunity to use the Group s global experience in ERTMS signalling technology, which may be easily adapted for use in the US. Ansaldo STS Australia maintained a strong flow of new contracts, among which Alliance AANSCA in partnership with ARTC in Australia stands out worth AUS$100 million and the update programme for the Indian railway stations, where its current market share is 80%. The main successes of 2009 included: \ two contracts awarded by BHP Billiton RGP5 Communication System worth AUS$13.4 and AUS$6.4 million respectively \ an AUS$21.4 million contract for the TIDC (Clearway 3) from Kingsgrove to Revesby, an interesting opportunity looking ahead to the future quadrupling of Sydney s suburban corridor lines \ an AUS$10.6 million contract for signalling works for the Fortescue Metals Group \ an AUS$14.3 million contract awarded by Rio Tinto for security, asset protection and data communications on the Deepdale line in north-western Australia \ an AUS$35.2 million contract for designing, supplying and bringing into service a control and signalling system with spare parts for the Scomi-Mumbai monorail, the contract being won by Ansaldo STS Malaysia (nearly 30 million Ringgit) and Ansaldo STS India (Rs90 million). The ATMS (Advanced Train Management System) project main significant progress in 2009, in which ARTC and Lockheed Martin cooperate to develop the necessary technology for significant expansion of the capacity of the Australian railways and an increase in rail traffic, operating flexibility, availability of passenger services, a reduction in journey times, railway safety and the reliability of the systems in use. At 31 December 2009 the order book was AUS$371.2 million (105% of the annual budget of AUS$351.9 million). The drop in demand for raw materials, especially coal and iron, had a negative effect on Australia s export market starting towards the end of 2008 but did not impact order acquisition in This was largely due to the measures taken by the Federal Government and the States after the world financial crisis arose to support investment in infrastructure in the railway sector, and to ASTS Australia s previous strategic decision to maintain its business in a number of markets. The incentives paid to stimulate the region s economy are beginning to have an effect on the railway and subway sectors as well, as the first signs of recovery in the resources market seen at the end of 2009 show. 21

24 Report on Operations for 2009 The Business Environment In conclusion, we foresee that the urgency of the need for metropolitan transportation throughout the region, the expansion of the TPWS programme for the Indian railways and the recovery of the raw material market Australia may bring new business opportunities for ASTS over the next three years. The signalling market is therefore strategic for Ansaldo STS: it is expected to grow by between 5% and 6% in and opportunities in infrastructure will significantly benefit from the incentives created by governments to counter the crisis. Our sustainable long-term growth will be assisted by important global drivers, such as: - Safety, the foremost need to be met, in combination with new legislation and regulations requiring the adoption of certain standards.. - interoperability, through the ERTMS which is now a world standard. - Efficiency, since making better use of existing infrastructure, as well as saving energy, is a priority in both economic and environmental terms. - Technology, which is the factor most likely to make the difference and ensure exponential development over time. - Outsourcing, since the global recession encourages synergy and a demand for ready-to-use technology. In non-domestic already covered markets, we plan to extend the availability of the product range to new regions, in addition to those already served, by: personalising and certifying and stronger local presence achieved by improved regional organisation, jointventures, acquisitions and partnerships. In Northern Europe one of the main markets is Sweden, where important projects are underway involving ERTMS, interlocking and CBTC technology. Denmark will shortly be replacing all its signalling systems, along its lines and on board its trains. Several important projects in various fields will be developed the UK, Spain, in Portugal, the PRC (including Hong Kong) and Turkey. In the new markets chosen for development we will concentrate on adapting existing solutions for low-cost applications, strengthening our local presence by means of regional offices, joint-ventures, acquisitions and partnerships, personalising already available platforms and improving the product management capability. In the PRC we will strive to increase local production expand the business in other countries under Chinese influence. In Russia, where the crisis has had a rather severe impact, on finalising the first ERTMS contract we will begin execution. In domestic markets, as well as the natural maintenance of acquired positions, the strategy is: \ in Italy: to strengthen the re-signalling business (including level crossings) on the main railway lines. \ in France: to extend operations to the regional lines and persuade the banks, the government and stakeholders to obtain co-financing of future projects. \ in South-East Asia: to expand with ERTMS technology. \ in India: to strengthen the business in the subway and freight sectors. 22

25 Signalling and Transportation Solutions Annual Report 2009 The Transportation Solutions Unit In 2009 Ansaldo STS maintained its strong position in the transportation solutions market, consolidating its technological and competitive leadership in the driverless subway segment. Demand for driverless subway technology was a feature of the urban mass transit market in While remaining stable in Europe, it grew rapidly in markets such as South-East Asia, the PRC, India and Brazil, and had a strong impact on the sector. New orders acquired in 2009 were million, an increase of 84.7% over At 31 December 2009 the backlog was 2,048,073 thousand, 11% over the 31 December 2008 backlog of 1,843,542 thousand. The most important order is for Stage 1 of the Taipei Circular Line automatic subway project in Taiwan, for which a consortium formed by Ansaldo STS and Ansaldo Breda will supply the system, including technologies and rolling stock. This is our first turnkey project in this new area of the market and has the potential to activate several other opportunities for similar systems, also in Taiwan. Among the other driverless subway orders won during 2009, the automatic system for the Princess Noura Bint Abdulrahman University for Women in Ryad, Saudi Arabia, with a length of 11.3 km (7 miles) and 17 stations plus a deposit, and the extension of Line C of the automatic subway in Rome in Italy are noteworthy. Our leadership in the transportation solutions market received significant support from Italy, where orders for both a conventional subway (extension of Line 1 in Naples) and high-speed trains (Section 2 of the Rome- Naples line) arrived. The gratifying new orders won in the Asia-Pacific area further strengthened our position. In 2009 we continued to develop and test new technologies to increase our competitive advantage in the urban transport market. In partnership with Ansaldo Breda, we have successfully brought into service, at our Naples facility, a test section which uses the new technology of ground level power supply without overhead lines, called Tramwave. By June 2010 this will come into use for passengers on a first section of the line in Naples. The Driven by Business business strategy has also given a great push to our Unit by enabling it to evolve from a highly successful European concern to a global supplier of competitive and sustainable transportation systems worldwide. 23

26 Report on Operations for 2009 The Business Environment In Italy plans to expand urban transport and highspeed trains have been confirmed, although in several cases their completion has been significantly postponed due to financial pressures. In European regions Denmark is a highly strategic market, not least on account of our Group s longstanding presence there: Copenhagen s driverless subway where ASTS is also the operator is one of the most useful references for the Transportation Solutions Unit. In the rest of Europe, too, the macroeconomic situation has caused a slowdown in several projects (mainly in the regions of Eastern Europe, where the European Community s development plans do not cover all local needs). In contrast to Europe, the transportation solutions market is expanding rapidly in North Africa and the Middle East, thanks to openings in Libya, Qatar, Saudi Arabia, Abu Dhabi, Tunisia, Algeria and Morocco. Elsewhere growth expectations for the Asia Pacific region have been confirmed. In India and Thailand several projects are planned in the short-medium term, both for urban transport and railways. India in particular appears to be one of the areas with the greatest potential, thanks to expected projects both in the mass-transit segment and in that of rail freight. In 2010, there will be tenders for the driverless Taichung subway Taiwan and for Stage 2 of the Circular Line and a new subway line in Taipei. In Malaysia, the extension of the contract for the Kuala Lumpur LRT system and the realisation of a new urban mass transit project are expected. In Australia marketing activity begun in 2009 will focus on the Gold Coast RTP system and the expansion of the Rio Tinto project in In North and South America a number of high-speed train and urban transport projects are expected, such as the Honolulu driverless subway, the Desert Express (connecting Los Angeles and Las Vegas), California Corridor and São Paulo-Rio de Janeiro high-speed train projects and Line 5 of the conventional subway in São Paulo and the driverless subways of Panama and Bogotá. The first success of 2010, the result of a tender offer made in 2009, is the award of an operating and maintenance contract for the Copenhagen subway ( 180 million) made at the end of January. The tender for Copenhagen s City Ring driverless subway which we are optimistic about should be awarded in the last quarter of the year. We expect that the contract for the Tripoli driverless subway for which the Ansaldo STS consortium submitted a tender in 2009 will be awarded by the end of the first half of In Italy we expect substantial extensions of the orders for the existing concessions for the Milan, Genoa, Rome and Naples subways. Certain developments are also expected in the driverless train field in connection with Line D in Rome and Line 4 in Milan. There are some interesting business opportunities originating as follow-ups to business already being done in Honolulu and Panama are currently under examination. 24

27 Signalling and Transportation Solutions Annual Report 2009 MAIN ORDERS Signalling Unit Country Project Customer Value (EUR mln) Libya Ras Ajdir Sirt / Al Isha Sabha lines Libyan Railways Italy HSL To-Mi, Rm-Na, Bo-Fi variations Saturno 47.2 United States Total Components / Service & Maintenance Various 36.0 France Total Other Components / Service & Maintenance Various 34.6 Spain Maintenance HSL Madrid Lerida ADIF 31.3 Italy Total Components / Service & Maintenance Various 29.6 Australia Various ARTC Projects (11 orders) ARTC 22.1 United States LIRR Harold Interlocking LIRR 19.4 India Mumbai Monorail (3 Orders) SCOMI 19.1 Italy ACS Palermo RFI 19.0 United States PATH Control Center PATH 18.3 United States NYCT Lexington and 5th Avenue NYCT 17.9 Germany ATC On Board n.30 Velaro Train Siemens 16.8 United Kingdom Cambrian Line NR 13.0 Australia Maitland to Branxton BiDirectional Construction ARTC 12.5 Italy SCMT Service & Maintenance SSB ETR 500 Trenitalia 12.1 Australia Richmond Line Alliance TIDC 11.6 Australia Clearways 3 Kingsgrove to Revensby TIDC 11.4 China Hangzhou Line 1 Insigma 11.1 United States PAAC North Shore Connector PAAC 9.8 Transportation Solutions Unit Country Project Customer Value (EUR mln) Taiwan Taipei Circular Line - phase 1 SEMPO Saudi Arabia Riyadh Women's University Min Finance Saudi Arabia Italy Naples Metro L1: Dante - Garibaldi Naples Municipality 59.6 Italy HSL Italy Variation Iricav/Saturno 38.6 Denmark Copenhagen variation Orestadsselskabet 10.0 Italy Metro Roma Linea C(T2 Section) Roma Metropolitane 30.0 Malaysia North extension variation MMC Garuda 28.8 Italy Vesuviane - variations Circumvesuviana 25.9 Greece Thessaloniki - variation Attico Metro 10.0 Australia RGPS Communication Transmission System BHP Billiton 7.0 Orders ( M) and the Units contributions 1,786 1, % 67 December 31, % 74 December 31, 2008 Signalling Unit Transportation Solutions Unit 25

28 Strategies and business prospects STRATEGIES AND BUSINESS PROSPECTS The Group is fully capable of maintaining higher organic growth than that of its market. Thanks to the cultural change brought about by means of the new Fast Forward Driven by Business model, we have changed our strategic position with aim of taking full advantage of the many and varied market opportunities, both present and future. Analysis By adopting the Fast Forward Driven by Business model we have transformed the previous federated structure originally made up of four companies into a single global concern, which is at once integrated and flexible, and able to set the rules of the game worldwide and compete for the sole leadership in both its business areas, Signalling and Transportation Solutions. Thanks to unified management of our resources and knowledge, combined with operations that respond fully to local needs, we can share best practice across all our countries of operation with greater efficiency, capitalise on our know-how and supply services as a local player. The results achieved in 2009 were the first results of this great change, solid growth being highlighted by an average EBIT margin of 10.6%. Despite its being a tough year we managed to attain our objective of adding opportunities from around the world to the business we already had in our established markets. We successfully exploited our technological leadership to penetrate emerging markets aiming for lasting growth, as is shown by the fact that most of the new orders (over 70%) did not originate in Europe but in Taiwan, Libya, Saudi Arabia, the PRC and Brazil. We managed to take advantage of the new upswing in the US market, taking orders worth more than 100 million. Additionally, we are investing heavily in new products for the future: despite the contraction of the world market, our R&D spend increased, mainly due to the realisation of standardised flexible global platforms to meet our clients local needs, using technologies such as level 2 ERMTS, CBTC, PTC, ARTC, Tramwave and TCCS. Continuing to follow the guidelines laid down in our five-year strategic plan for , which aimed to strengthen our market leadership, we broadly confirm our ambitions: the fundamental strategic objective is to continue to grow profitability at a faster rate than the market. Prospects The forecast indicate that the market will continue to grow at an average rate of 7% per annum, somewhat faster in the Transportation Solutions area than in Signalling. The differences are however most marked in terms of geographical area: emerging countries (like the PRC and Brazil, where we are marketing intensively) are expected to grow much faster than Europe while the important US market is expected to be reborn. Ansaldo STS will continue to add value to its products in the future thanks to its technological leadership and know-how, as is shown by the orders arriving from markets outside Italy. Technological evolution is an important driver to satisfying global requirements: in this sense key select investments have to be made both to support operations and consolidate the level of excellence already attained. Several socio-economic macrotrends are having a fundamental impact on our sector, for which the medium-term outlook is exciting: 26

29 Signalling and Transportation Solutions Annual Report 2009 \ World population growth, the consequent expansion of towns and cities and increasingly unmanageable road traffic congestion stimulate demand for urban and suburban mass transit systems. \ The authorities place great emphasis on issues such as safety, reliability and efficiency and this indicates that investment in the signalling business a decisive factor for improvement in these fields will be amply rewarded. \ Deregulation and liberalisation of the industry still underway in various areas are opening the way to a form of intermodal competition, which, chiefly at a regional level, made excellent results achievable both for freight and for passenger traffic: it may be predicted that there will be a similar evolution over longer distances and that the liberalisation of passenger transport will increase the demand for suppliers offerings. \ Anxiety about and interest in protection of the environment and efficient energy use generate on the one hand a growing trend in civil societies to rail transport, which is not only the most ecological but also the least costly; on the other hand they require the industry to allow for ever greater investment in R&D. \ The competitiveness of high-speed trains as compared to air travel will produce increasing demand for train services from the end user or consumer in the short term in Europe, but in other areas in the future. \ Emerging economies will, it is predicted, lead world GDP growth in coming years: this will mean growing demand in these countries for new infrastructure to support economic growth, not least railways. \ At the same time, changes in the world s trade in raw materials mainly located in the US, the PRC, Russia, India and Australia will require adequate transport infrastructure to support trade in great quantities of bulk commodities. \ Lastly, the requirement of interoperability will encourage adoption of the ERMTS technological standards not only in Europe but throughout the world, first and foremost in the PRC. In general, the continuing need for innovation and at the same time cost optimisation are factors that compel the industry to offer standardised platforms that are capable of meeting many different clients needs around the world. The adoption of European standards in the rest of the world should therefore stimulate growth despite the world economic recession. For example, although we are aware that the PRC, Russia and India are building railways to domestic design, they will most probably have to outsource procurement of signalling systems and transport system components. Our Commitment In the coming year we intend to continue growing organically in both business areas, differentiating the offering in our core business and aiming to activate new channels, by anticipating the needs of the market and exploiting opportunities as they arise, where our competitors leave openings. It will be equally important to intensify our offering of services in emerging markets by adding widespread promotion of Service and Maintenance support to our products technological leadership. We would also like to assist clients and suppliers with economic limitations by financing projects where possible and supporting innovation. Lastly we will not fail to seek out joint ventures and strategic alliances where possible to stimulate market demand and consequently our penetration of high-potential areas. Our business model is ready to meet new challenges. 27

30 people To meet our clients requirements and develop new products, dedicated professionals are needed. People for whom we create an ideal work environment, where everyone can learn, achieve success and suitably celebrate the achievement. lead with values 28

31 Signalling and Transportation Solutions Annual Report 2009 Work on Subway Line 6 - Naples (Italy) 29

32 Analysis of the income statement, the balance sheet and the financial position ANALYSIS OF THE INCOME STATEMENT, THE BALANCE SHEET AND THE FINANCIAL POSITION In 2009 the Ansaldo STS Group achieved gratifying results in a continuing tough environment which made it possible to consolidate our financial and capital structure. Specifically, the Group showed that it could grow in an increasingly competitive environment while maintaining its operating margins and increasing cash flow generation and net profit. The market rewarded this good performance overall with a 32% increase in our share price, more than the Mibtel average for our segment. In 2009 new business reached 1,786 million, an increase of 38% over 2008, mainly thanks to extensive geographical diversification whereby Ansaldo STS acquired significant market share in emerging countries. Our backlog (the order book less completed production) reached 3,760 million at 31 December 2009, up by 20% over the 3,136 million at 31 December Production revenue increased by 6% over 2008 to 1,176 million. This increase was principally due to an increase in business volume in the Transportation Solutions Unit, which grew from 302 million in 2008 to 417 million in 2009 an increase of 38%. The Signalling Unit achieved production revenue of 805 million, slightly down on 2008 (-2%), due to a lower volume of business in the Asia-Pacific Area. R&D cost was 41 million in % of production revenue, which is a measure of the Group s commitment in 2009 to maintaining its technological leadership in the industry. It is important to note that in 2009 the operating margin at 10.6% was in line with that of 2008, despite the increasingly competitive business environment in which the Group operates and the costs borne for the reorganisation project, Fast Forward Driven by Business. In 2009 the ASTS Group generated more net cash than in 2008, thanks inter alia to careful management of working capital and to the advance payments received during the year for a number of jobs acquired outside Italy. In 2009 the Group s free operating cash flow was 114 million (up by 165% over the 31 December 2008 amount) net profit was 88 million, 13% higher than in This notable increase was due 30

33 Signalling and Transportation Solutions Annual Report 2009 to the good performance of ongoing operations and also to a reduction in tax for the year. Our consolidated tax rate was 29.6% as against 36.4% in 2008, thanks to non-italian subsidiaries paying less tax and to some non-recurring items such as the release of provisions and the use of tax losses following the entry into force of new IRES (corporate tax) rules for companies that have adopted IFRSs. Our positive overall performance and strong cash flow generation also contributed to a significant strengthening of the Company s capitalisation. The Group s net cash was 279 million at 31 December 2009, an increase of 83 million over The good performance of 2009 is summed up in the increase in EVA (Economic Value Added) which was 84,553 million, up by 19% over At the end of 2009 our earnings per share (EPS) were 0.88 ( 0.78 at 31 December 2008). The Ansaldo STS Group therefore demonstrated its ability to grow and create value for its shareholders once again in 2009, even in the difficult world situation of the entire industry, continuing the growth trend that characterised recent years. In order to reach these goals while maintaining constant risk and operational control in all its countries of operation, the Group has set up a monthly assessment of profit and financial performance by monitoring key indicators and continuous checking against budget, which makes it possible to intervene rapidly where corrections are required. The Consolidated Accounts of Ansaldo STS have been prepared in accordance with the IFRSs and are certified up to 2014 by the auditing firm PricewaterhouseCoopers. As required by Article 23.2 of the By-Laws, pursuant to 154-bis Law 58/1998 as amended, on 28 July 2009 the Board of Directors appointed Chief Financial Officer Alberto Milvio as the Nominated Officer responsible for the Company s accounts. Mr Milvio performs this role for the first time in 2010 in place of Jean Paul Giani. Lastly, we state that the Ansaldo STS Group holds no listed derivatives and that, though exposed to interest-rate risk, it does not have recourse to interest-rate risk hedges. Currency hedges are entered into primarily with the banks as counterparties. 31

34 Analysis of the income statement, the balance sheet and the financial position Income Statement Income Statement (EUR 000) Revenue (*) 1,175,640 1,105,515 Production revenues 1,175,640 1,105,515 Raw materials and consumables used and personnel costs (**) (1,041,400) (976,050) Amortisation and depreciation (11,825) (10,505) Impairment (1,819) (3,728) Other net operating income (expenses) (***) 5,701 6,543 Change in inventories of work in progress, semi-finished and finished goods 250 (2,578) Adjusted EBITA 126, ,197 Restructuring costs (1,495) (1,635) EBIT 125, ,562 Net finance income (costs) (259) 4,465 Income taxes (36,993) (44,428) Net Profit (Loss) 87,800 77,599 Equity holders of the Company 87,756 77,544 Minority interests Earnings per share Basic and Diluted Notes for reconciling the reclassified Income Statement and the Income Statement: (*) Includes Revenue and Revenue from related parties. (**) Includes Costs from related parties, Raw materials and consumables used, Purchase of services and Cost of labour, less Work performed by the Group and capitalised. (***) Includes the net amount of Other operating income, Other operating income from related parties, Other operating expenses and Other operating expenses from related parties. 32

35 Signalling and Transportation Solutions Annual Report 2009 Balance Sheet Balance Sheet (EUR 000) Non-current assets 252, ,051 Non-current liabilities (42,217) (44,847) 209, ,204 Inventories 99,178 92,874 Contract work in progress 151, ,681 Trade receivables 526, ,014 Trade payables (248,168) (213,501) Advances from customers (651,950) (502,405) Working capital (123,294) (107,337) Provisions for short-term risks and charges (27,726) (28,541) Other net assets (liabilities) (*) (36,098) (30,444) Net working capital (187,118) (166,322) Net invested capital 22,675 42,882 Capital and reserves attributable to equity holders of the Company 300, ,259 Minority interests in equity Shareholders equity 301, ,752 Net financial debt (liquidity) (278,861) (195,870) Notes for reconciling the reclassified Balance Sheet and the Balance Sheet: (*) Includes Income tax receivables, other current receivables from related parties (carried under Current receivables from related parties ) and Other current assets, less Income tax payables, other current payables from related parties (carried under Current payables from related parties ), Other current liabilities except for financial receivables from related parties (carried under Current receivables from related parties ). 33

36 Analysis of the income statement, the balance sheet and the financial position Financial situation (EUR 000) Short-term borrowings 12,187 8,713 Medium- and long-term borrowings 2,881 3,315 Cash and cash equivalents (128,541) (71,536) BANK DEBT (113,473) (59,508) Financial receivables from related parties (152,792) (139,509) Other financial receivables (14,100) - FINANCIAL RECEIVABLES (166,892) (139,509) Borrowings from related parties Other short-term borrowings Other medium- and long-term borrowings 1,151 2,432 OTHER BORROWINGS 1,504 3,147 NET FINANCIAL DEBT (LIQUIDITY) (278,861) (195,870) 34

37 Signalling and Transportation Solutions Annual Report 2009 Statement of Cash Flows (EUR 000) Cash and cash equivalents - opening balance 71,536 63,385 Gross cash flow from operating activities 145, ,484 Changes in other operating assets and liabilities (35,044) (58,638) Fund From Operations 110,754 72,846 Change in working capital 12,203 (19,621) Cash flow from (used in) operating activities 122,957 53,225 Cash flow from ordinary investing activities (8,529) (9,983) Free Operating Cash Flow 114,428 43,242 Strategic investments (3,210) (2,075) Other changes in investing activities - - Cash flow from (used in) investing activities (11,739) (12,058) Dividends paid (26,971) (19,992) Cash flow from (used in) financing activities (26,894) (13,486) Cash flow from (used in) financing activities (53,865) (33,478) Translation differences (348) 462 Cash and cash equivalents - closing balance 128,541 71,536 35

38 Risks and uncertainties Risks and uncertainties The risks described below stem from the consideration of the features of the market and business of the Ansaldo STS Group, together with the main results of a Risk Assessment activity, carried out in 2009, involving the process owners with a view to the new more integrated organisation effective from 1 January This Risk Assessment activity is part of a project that aims at making Process Risk Management an integral part of management processes. The Risk Assessment was carried out using the approach of the Enterprise Risk Management del Committee of Sponsoring Organisations of the Treadway Commission (COSO report) in the version updated September The main risks and uncertainties of the Ansaldo STS Group are presented below according to the classification adopted by the Group (strategic, operating, financial and disclosure risks). There may be risks that are unidentified or that have not been considered as being significantly material at the moment but which should however have an impact on the Group s business. Strategic risks Competition in an international market, with high levels of technology innovation, with a small number of operators The businesses where the Group operates transportation solutions and signalling are marked by an international competitive scenario, based on technological innovation and where a small number of industrial groups are operating. This competitive scenario puts on the Group a constant commitment to technological innovation in pursuing efficiency and new market penetration. It is therefore paramount that Ansaldo STS Group has the ability to support the present investment policy and to evaluate in an appropriate manner innovative solutions, which were one of the Group s success factor in the last few years and allowed the Group to be successfully competitive with bigger operators which had more investment abilities. Over the last few years the Group has successfully achieved important commercial goals in new markets. The new market penetration policy, especially for higher developed markets, exposes the Group to these risks: The risk of political, social and economic instability, of an incorrect evaluation of local regulations (business, tax, signalling system validation regulations), the difficulty of protecting intellectual property, the fluctuation of exchange rates and the credit standing of the counterparties. The internationalisation policy also exposes the Group to a bigger risk of not considering in an appropriate manner the market opportunities and positioning of competitors. Said risks might lead to weakening the Group s competitive position, the loss of commercial opportunities, the waste of resources in investments with low economic return and a negative impact on the order backlog and the Group s financial condition. To mitigate these risks the Group has prepared a new five-year Strategic Plan ( ) focused on greater selectivity in choosing the markets in which to operate and on technological innovation. The Group also defined a new organisation and operational structure creating the conditions for greater commercial efficiency, more careful intelligence marketing and innovation activities and greater operational efficiency. Changes in the macroeconomic scenario The Ansaldo STS Group, as said above, operates in an international market and is therefore exposed to risks resulting from changes in the global macroeconomic scenario and in the markets in which it operates or is willing to operate. Various macroeconomic factors may have an impact on Group activities, such as growth rates in reference markets and public programmes of infrastructure investments. Considering the development of these macroeconomic factors in an non-appropriate manner may compromise the Group s competitive ability. The present economic recession period could have a negative impact on Group performance in the event of annulment or delays of contracts, delays in payments, less favourable conditions in new contracts. 36

39 Signalling and Transportation Solutions Annual Report 2009 To mitigate these risks, the Group has prepared an assessment of the development trend in markets in the Strategic Plan and a country risk assessment. Moreover, the Group has a strong financial condition and a significant order backlog (orders for three years) which allow to address the present recession period. The Group also adopts processes for evaluating offers and for negotiating new contracts in order to maintain the reference parameters to create order value. Finally, the economy supporting policies developed by many countries may become an opportunity for the Group in the medium- and long-term, since significant investments in infrastructures are embedded. Acquisitions and other external growth operations As part of its development strategy, the Group may consider opportunities for purchases or other external growth operations, such as Joint Ventures. The Group may be exposed to the risk of analysing in an inadequate manner potential opportunities or the risks resulting from the difficulty in evaluating other companies assets and liabilities, and the risks deriving from the integration of people, activities, technologies, products. To mitigate this risk, the Group follows strict processes for the assessment of these operations with specific relevant functions. Operating risks Public administration companies and contracts lasting several years The Group s business mostly depends on public administration companies and, in particular in the transportation solution business, on significant contract lasting several years. Any delays, changes, reviews or cancellation of one or more acquired relevant contracts lasting several years may adversely affect business and the economic and financial condition of the Group. Moreover, the evaluation of the contracts lasting several years is based on the state-of-completion method and therefore uses estimates of the costs to be incurred in order to complete activities, of the project risks (technical, legal, tax and commercial) and of the state of completion of the activities. To mitigate these risks, the following should be noted: \ market diversification and monitoring of country and regulation risk; \ adoption of Risk Management processes at the offer stage and during the project implementation, and adoption of Lifecycle Management processes based on the constant comparison of physical and accounting progress and phase review processes. Third parties (sub-contractors, sub-suppliers and partners) In both the business in which the Group operates sub-contractors are widely used to supply sub-systems or assembling and installation services and sub-suppliers of goods or services. The Group s ability to meet its obligations to the customers is then subject to the good performance of the contractual obligations on part of both sub-contractors and sub-suppliers. Their non-performance may cause AnsaldoSTS non-performance, with negative impacts on reputation and, unless compensation is possibly sought through remedy actions against subcontractors and sub-suppliers, on the Group s financial condition. The Group also completes some orders in partnership with other operators, especially in the transportation solution business. In these forms of partnership, generally each partner is jointly liable to the customer for the construction of the entire work. In case of breach or of damage caused to the customer by one associated operator, AnsaldoSTS may have to replace the breaching or damaging party and to fully repay the damage caused to the customer, without prejudice to the right of recourse against the defaulting partner. Any inefficiency or continuation of actions of recourse against the defaulting partners liable for any damages might adversely affect the Group s business and financial condition. 37

40 Risks and uncertainties Moreover, as part of the Group s internationalisation strategy, the preliminary assessment of partners, subcontractors and sub-suppliers in new markets might be inefficient, with negative impacts on orders, reputation, financial condition and efficacy of partnership governance (such as difference of partners opinions, misalignments of risks and costs/benefits for partners individually). To mitigate this risk, there are processes for selecting and qualifying sub-contractors and sub-suppliers, collaboration with known partners of proven standing, the definition, execution and management of adequate contractual and grouping clauses, risk management processes and the demand, where applicable, of specific guarantees. In selecting sub-contractors and partners in foreign markets, these processes are followed with even greater attention, and the commercial function is also involved in the partners selection. Adequacy of product portfolio and technical references The Group may not assess in an appropriate manner the innovation and development priorities, defining an inadequate product portfolio with the risk of not being in line with market needs, of a low economic return on the investment in innovation and on the project and the loss of commercial opportunities. Under certain circumstances, the Group could not be able to have adequate references for some new products, with the risk of losing commercial opportunities or incur in non-compliance in performing the project, with negative effects on the project s profitability and Group s reputation. To mitigate these risks, there are corporate processes for the definition of the product portfolio that have been recently strengthened and rationalised. The risk of not having adequate references for some new products is carefully assessed during the offer and managed with recovery plans during the construction phase. Customer or third party liability for defects in the products sold or delays in delivery The technological complexity and the close times for the delivery of Group products and systems might expose the Group to liability for delayed or lack of supply of products or services in the contract, for their non-compliance with customer requests (for example due to defects in the designing and construction), to defaults and/or delays in marketing, after-sale services and product maintenance and review. The supply of defective products might require additional activities or the recall of such products. This may occur in particular with new products for which the Group has not acquired significant operational experience yet. These liabilities may depend on causes that are directly attributable to the Group or third parties, such as subsuppliers or sub-contractors. In the event that these risks may occur, there could be negative effects on the business and the economic and financial condition and reputation of the Group. In the event of product defects, even in the case where specific insurance coverage is applicable, the limit of liability might be exceeded or, when claim occurs, insurance premiums might be increased, with a negative impact on the Group s financial condition. To mitigate these risks, the Group takes out specific insurance coverage, carefully oversees the engineering, validation and monitoring of returns, in concert with the Risk Management process, identifies mitigation actions for each project and includes appropriate contingencies in the order estimate. Legal disputes The complexity of the relations with third parties (customers, sub-contractors/sub-suppliers and partners), of the content of the systems and products made, and the risks inherent in the business expose the Group to a significant risk of legal disputes. The legal dispute may also concern the tender awards. The definition of disputes might be complex and be completed in the long-term, causing delays in the implementation of projects with negative effects on the business and the economic and financial condition of the Group. To mitigate this risk, there risk management processes during the offer and during the management phase, contractual clauses are carefully checked with the support of the legal function and a prudential approach is taken when recognising specific items as a cost of orders and a provision for risks. 38

41 Signalling and Transportation Solutions Annual Report 2009 Human resources management The Group provides products and systems with high technological content. To build them, it is necessary to use human resources with specific preparation that is hard to gather from the market. The success of the business development plans, in particular in new markets, also depends on the ability to attract, retain and develop the expertise of human resources, especially in order to operate in an international scenario. To mitigate this risk, human resources management policies are defined that are strictly related with the business needs, in particular at the present stage of business integrated management and expansion in new markets. Health, safety and environment compliance The Group is subject to health, safety and environment regulations in the various countries in which it operates. The non-compliance with these rules as a result of operating processes that are not adequately monitored or, in particular in new markets, of a non-adequate evaluation of these compliance requirements might expose the Group to risks with significant impacts on the business, the economic and financial condition and the reputation of the Group. To mitigate this risk, the Group adopts health, safety and environment management systems aiming at ensuring the stringent compliance with rules in accordance with best practices and subject to internal and external monitoring. These management systems are certified in compliance with the OHSAS standard on work safety and the ISO14001 standard on environment in the main companies of the Group. A specific structure aiming at the integrated management of these requirements was recently introduced. This will ensure a more efficient assessment of compliance requirements in new markets. Financial risks Ability to finance a high level of current assets and to obtain guarantees To perform contracts the Group requires: \ the financing of an adequate level of current assets; \ the issue of bank and/or insurance guarantees in favour of the customer during the various stages of the projects (bid bond, advance payment bond, performance bond, retention money bond, warranty bond) and/or guarantees issued by the Parent Company (parent company guarantee). Current assets are normally financed using the sums paid by the customer as advance and payment related with the state of progress of works. The ability to obtain guarantees in cheap conditions depends on the economic and financial assessment of the Group. This is generally linked to various assessment indices including the analysis of the balance sheet, the income statement and the cash flow statement of the Group, the analysis of the risk of the order, the expertise and competitive positioning in the business. Ansaldo STS believes it can comply with the relevant assessment indices. At 31 December 2009 the Group s exposure for guarantees stood at EUR 1,462,258 thousand (EUR 1,212,191 thousand at 31 December 2008). In the case of difficulties in negotiating adequate financial conditions, delays and/or interruptions in payments and the worsening of the terms of payment agreed, or if the ability of the company to obtain guarantees should cease to obtain or be reduced in cheap conditions, the Group s business and economic and financial condition would be adversely affected. To mitigate these risks, there are order commercial and management policies dealing with financial aspects, treasury centralised management allowing the optimisation of the financial flows of the various companies of the Group, the economic and financial standing of the Group and the monitoring of the indices assessing the order. These policies are applied from the offer stage. 39

42 Risks and uncertainties Disclosure risks Management of information systems Information systems represent an essential component of the company operating structure and are required to be managed in line with the Group s strategic objectives. IT solutions that do not meet the business needs, in particular in the present stage of change of the operational model, based on a more integrated management of the business, or delayed upgrades of these IT solutions, as well as a non-efficient system management might impair the efficient performance of the Group s business. Moreover, the non-availability or interruption of IT services, the loss of data due to intentional and non-intentional actions, disasters, system failure, etc, might adversely affect the Group s business. To mitigate this risk, IT policies are defined in correlation with change management initiatives and the group has a governance system that is based on best practices and follows structured and monitored processes for the management of the infrastructure and the applications. 40

43 Signalling and Transportation Solutions Annual Report

44 TEAM SPIRIT None of our ambitious business goals can be attained by individuals working alone. This is why we turn to dedicated professionals who are capable and desirous of working together with their colleagues in a global organisation. Lead with values 42

45 Signalling and Transportation Solutions Annual Report 2009 Saturno Consortium Control Centre - Rome (Italy) 43

46 Corporate Governance and Governing Bodies Corporate Governance and Governing Bodies Ansaldo STS is subject to direction and coordination by Finmeccanica SpA, which is the leading shareholder with 40% of company capital, the remaining 60% being floating and held by a large number of international investors. Most of the members of the Board of Directors are independent. Since 29 March 2006 the Ansaldo STS share has been listed in the Star segment of the organised markets managed by Borsa Italiana. On 19 December 2006 Ansaldo STS s Board of Directors resolved to adhere to the Corporate Governance Code adopted by Borsa Italiana S.p.A. in March 2006 (the CGC ). In 2007 the Company completed alignment with the rules of the CGC, taking the view that they decisively contribute to realisation of the central points of its corporate governance policy. The main objective of the corporate governance system we intended to realise was the creation of shareholder value, in full awareness of the importance of the transparency of decisions and decision-making processes in the Company, as well as the need to set up an effective internal control system. As part of the continuous alignment of the Company s governance system with the most recent legislative and regulatory developments and legal interpretations, on 1 April 2008 the Shareholders Meeting of Ansaldo STS S.p.A. changed certain by-laws in order to: \ align the by-laws with judgment of the Court of Cassation (Supreme Court) dated 13 September 2007, which concerned the by-laws of another listed company, with reference to the chairmanship of the Shareholders Meeting, and the ability of the retiring Board of Directors to present its own list of candidates, and removed, on the one hand, the possibility that should the Board of Directors be without either a Chairman or a Deputy Chairman the chairmanship of the Shareholders Meeting be assumed by a person delegated by the Board of Directors and, on the other, the concession to the Board of Directors to present its own list of candidates for election as Directors; \ coordinate certain by-laws with the 2007 amendments to the TUF (Consolidated Finance Act) pursuant to EU Directive 2004/109/CE (the Transparency Directive ) and Consob resolution 11971/99 as supplemented and amended (the Issuers Regulations ); and \ make the process of appointment of the Board of Statutory Auditors more readily comprehensible, by reordering the relevant provisions. At the Ansaldo STS Shareholders Meeting held on 1 April 2008, the term of office of the Board of 44

47 Signalling and Transportation Solutions Annual Report 2009 Directors and Board of Statutory Auditors expired; the Shareholders Meeting therefore appointed: \ the new Board of Directors, whose members are: Alessandro Pansa (Chairman), Sante Roberti, Sergio De Luca, Maurizio Cereda, Gerlando Genuardi, Gregorio Gitti, Francesco Lalli, Eugenio Pinto and Attilio Salvetti. The Board s term of office will run for three financial years, i.e. up to the date of the Shareholders Meeting that will called to approve the Accounts for 2010; \ the new Board of Statutory Auditors, whose members are: Giacinto Sarubbi (Chairman), Massimo Scotton and Francesca Tripodi; the following were appointed alternate auditors: Bruno Borgia and Pietro Cerasoli. The new Board of Directors met on 1 April 2008 and re-elected Sante Roberti as Deputy Chairman, Sergio De Luca as CEO and Mario Orlando, Company Secretary, as Board Secretary. The Board then appointed the members of the Internal Control Committee (Gregorio Gitti - Chairman, Maurizio Cereda, Eugenio Pinto and Attilio Salvetti), the Remuneration Committee (Maurizio Cereda - Chairman, Gerlando Genuardi and Francesco Lalli) e and Nominated Officer responsible for drawing up the Company s accounts in the person of Jean Paul Giani, Chief Financial Officer of the Company. Jean Paul Giani held the office of Chief Financial Officer and Nominated Officer responsible for drawing up the accounts of Ansaldo STS up to 31 July As from 1 August 2009, the office of Chief Financial Officer of the Company has been held by Alberto Milvio who, with effect from the same date, was appointed Nominated Officer responsible for drawing up the Company accounts of Ansaldo STS pursuant to 154-bis of the TUF. The Directors Maurizio Cereda, Gerlando Genuardi, Gregorio Gitti, Eugenio Pinto and Attilio Salvetti have attested that they possessed the requisites of independence required by regulations and the CGC. Thus the current Board has five independent Directors out of a total of nine. On 14 October 2008, Ansaldo STS s Board, having noted the Board of Statutory Auditors favourable opinion in the matter, stated that Ansaldo STS was compliant with 36 and 37 the Regulation containing enabling rules for Law 58/98 on markets (Consob resolution dated 29 October 2007 as supplemented and amended). On the same day the market was informed of this by means of a press release. The following is a list of the main instruments of governance currently in use by the Company: \ By-Laws \ Code of Conduct \ the Organisational, Managerial and Control Model prescribed by Law 231/2001 \ Board of Directors Regulations \ Internal Control Committee Regulations \ Compensation Committee Regulations \ Guidelines and Criteria for the identification of significant transactions with Related Parties Principles of Conduct \ Regulations for the management of Privileged Information and the maintenance of a Register of persons having access to such information \ Internal Dealing Code \ Regulations for Shareholders Meetings. In 2009 activity was concentrated on the maintenance and fine-tuning of the tools of governance, in particular the area of the control systems. Special attention was paid to the development of all those activities needed to ensure compliance with Law 262/05; the scope of controls was steadily extended to cover the main subsidiaries. For further information on the corporate governance of the Company, reference should be made to the Corporate Governance Report, which inter alia contains the information prescribed by 123-bis TUF; this can be found in the Company website at 45

48 Corporate Governance and Governing Bodies 46

49 Signalling and Transportation Solutions Annual Report 2009 Boards and Committees BOARD OF DIRECTORS (for the 2008/2010 three-year period) ALESSANDRO PANSA Chairman SANTE ROBERTI Deputy Chairman SERGIO DE LUCA Chief Executive Officer MAURIZIO CEREDA 1 2 GERLANDO GENUARDI 2 GREGORIO GITTI 1 FRANCESCO LALLI 2 BOARD OF STATUTORY AUDITORS (for the 2008/2010 three-year period) GIACINTO SARUBBI Presidente MASSIMO SCOTTON FRANCESCA TRIPODI ALTERNATE AUDITORS (for the 2008/2010 three-year period) BRUNO BORGIA PIETRO CERASOLI EUGENIO PINTO 1 ATTILIO SALVETTI 1 MARIO ORLANDO Secretary of the Board of Directors INDEPENDENT AUDITORS (for the 2006/2014 period) PRICEWATERHOUSECOOPERS S.p.A. 1. Member of Internal Audit Committee. 2. Member of Remuneration Committee. 47

50 Human resources HUMAN RESOURCES Our Group s headcount at 31 December 2009 was 4,339 people, virtually unchanged from the 4,352 reported at 31 December COMPANIES/REGIONS Change ASTS Italy* 1,523 1, ASTS France ASTS USA ASTS APAC 1,124 1,132-8 ASTS China * Including the employees of ASTS Germany. Including the employees of ASTS UK, ASTS Ireland, ASTS Sweden, ASNV. 1,523 1,461 1,124 1, ASTS Italy ASTS France ASTS USA ASTS AP AC ASTS China A comparative analysis of the headcount over the last two years shows that there was a sharp staff reduction in ASTS USA, due to the ongoing reorganisation of our US subsidiary. By contrast there was an increase in staff numbers in ASTS Italy, since all the staff of the Italian subsidiaries Ansaldo Segnalamento Ferroviario and Ansaldo Trasporti e Sistemi Ferroviari were transferred into ASTS Italy in Also worthy of mention was the setting up of the first significant body of employees in our Chinese subsidiary. Ansaldo STS successfully dealt with a year in which the difficult economic situation caused a crisis in many markets and companies around the world. The public funds that governments provided to deal with the recession showed that there is space for the development of the rail and subway transport business provided that the industry is capable of operating throughout the world at competitive prices. The reorganisation resulting from the Fast Forward Driven by Business project originated in the need to ensure that the Company was able to manage these critical factors for the wellbeing and growth of Ansaldo STS. Our Human Resources and Organisation department was well aware of the strategic importance of the FFDB project for the Company. Together with the Standard Processes, Quality and Services department, our department vigorously and enthusiastically supported senior management in the hard task of transforming Ansaldo STS and its subsidiaries into a single global organisation guided by business prospects and not just by geographical presence. To this end, a significant number of members of staff worked for most of 2009 to carry out the many and varied 48

51 Signalling and Transportation Solutions Annual Report 2009 activities required by FFDB, thus ensuring that the project was completed on time. The framework of the future global organisation was built up through a process of delayering and compiling roles and mandates for the new managerial positions that had been identified. Both activities were organised top-down, which ensured that all the staff affected by the changes were directly involved, coordinated by a change team made up solely of internal staff. On completion of the delayering process, whereby the leaders of the future organisation were able to design the structure of their function and choose their staff, the new global organisational model was formally defined and all the Company s employees found their place within the organisation. Once roles and mandates had been defined, additionally, all functions were given clear responsibilities and powers, so that the whole organisational project was consistent with corporate strategy, consistent internationally and ready to come into force at the beginning of A team focussing on processes lastly assisted the future heads within the new organisational structure in designing before the go-live the main interfunctional processes that are required to support business as from next year. This was the first significant opportunity that the Group s management had to discuss and agree objectives. Great importance was assigned to communication in the execution of the FFDB project numerous initiatives marked the various milestones set for 2009, with a view to involving all Ansaldo STS staff as much as possible in the change taking place. The communication strategy drawn up by Human Resources was based on a twofold programme. 1. Listening. For this exercise four questionnaires were used for the Group s people to say how much they appreciated the change which was underway and to make suggestions to senior management. On average more than half of staff responded. The results of these surveys made it possible to measure the involvement of staff in the project and to take incisive corrective measures of the actions undertaken. 2. Active Communication. For this exercise the Group CEO took part in person in the initiatives that were in progress. Fourteen Town Hall Meetings were organised in all the regions in which Ansaldo STS is present. At these meetings the CEO with the help of some other members of senior management described to staff the reasons for the change and the Company s future strategies. Over 4,000 employees around the world were thus able to put their questions about the Fast Forward Driven by Business project, directly to top management. A number of motivational videos again with the direct involvement of the CEO - were sent out to staff during the year to strengthen staff knowledge of Group values (Customer Focus, Innovation and Excellence, People, Team Spirit and Integrity) and the mission of Ansaldo STS in the global market. The heads of the future organisational structure were also directly involved: they were asked to organise meetings with their staff as part of an initiative known as Cascading Communication. The goal of these meetings was to strengthen the leadership of the new heads, making them agents of corporate change, and to organise the first structured meeting for the members of the new functional teams. An internal multilingual newsletter called ASTS News was created for monthly electronic distribution to all staff, with the aim of informing them of the main activities, decisions and strategies concerning the Group. Support for the process of change underway in the Group was not concluded in Significant challenges await the Human Resources department in 2010 as well, when the organisation built up in the preceding 12 months will have to demonstrate that it is working. From the Human Resources standpoint, this assumption will take shape in the need to redesign functional processes internationally, ensuring at the same time a global approach and compliance with local rules and regulations. To this end, a number of international work groups have been set up within Human Resources to draw up Group policies in line with the new needs of business. 49

52 Corporate Social Responsibility and Sustainability CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY This section contains a summary of the economic aspects of CSR and Sustainability. For a complete picture please see our Sustainability Report 2009, of which hard copies may be obtained from Investor Relations or downloaded from our website Ansaldo STS SpA directs and coordinates companies operating on the international markets as suppliers of complete rail transport systems and the related auxiliary systems for signalling, control and security. As such, Ansaldo STS SpA is committed to environmental protection on two fronts: 1) the Company pursues a policy for continuously improving the environmental performance of its processes; 2) the Company markets increasingly sophisticated, secure and reliable transport systems, in order to provide incentives for their use. Strategic guidelines and management approach For this purpose, the Company has adopted an environmental policy and implemented an environmental management system, defining the organisation, the responsibilities, the operating means and the investments necessary, thereby committing itself to the achievement of the following objectives: \ ensuring compliance with regulations applicable to its processes, in the various countries where the subsidiaries operate, by formalizing procedures that facilitate the awareness of the regulatory framework of reference; \ identifying direct and indirect environmental aspects significant for the reduction and the control of the related environmental impact, both its own and that of its suppliers and partners; \ defining key indicators for easily checking the performance. The ISO standard and the EMAS Regulation represent the model indicated by Ansaldo STS to its subsidiaries to develop management systems whose certification is the tool used to develop a durable environmental conscience with its own people and with sub-contractors. Innovation and disclosure of best practices Market requirements and the resulting expertise for some of the subsidiaries led to the development of environmental management systems, with the subsequent achievement of the ISO certification, which Ansaldo STS is committing to extend to all the Group companies. The possibility to extend the EMAS regulation to the other production facilities is still being assessed. The statement below provides the present status of the certifications obtained or to be obtained: France Italy Pacific Spain Sweden UK USA The company formalised the environmental policy Yes Yes Yes Yes Yes Yes Yes The company formalised an environmental management system Yes Yes Yes Yes Yes Yes Yes The environmental management system is ISO certified Yes Yes No Yes Yes Yes No The environmental management system is EMAS certified No Yes No No No No No The company intends to certify the management system Yes Yes Yes Yes Yes Yes Yes Date set for certification

53 Signalling and Transportation Solutions Annual Report 2009 Communication, education and training All employees and external associates (suppliers/contractors) involved in operations at the head offices of the Ansaldo STS subsidiaries are required to participate in a training/information programme about environmental management when they become affiliated with the Company. Depending on the specific processes of each company and the related environmental aspects, subsequent training sessions are conducted in order to instruct the personnel in relation to the environmental management system requisites applicable to their activity. The Company holds a register of all training programmes administered to the personnel operating at the various companies. The training sessions are held by personnel knowledgeable in the field involved, and are documented by the personnel responsible for their execution. General environmental information The activities performed at the offices of the subsidiaries of Ansaldo STS mainly include office business, for which Ansaldo STS ensures total control, including environmental issues. There is a number of production sites managed in full harmony with the environmental protection concepts. These sites fall within the scope of application of the certifications obtained and to be obtained. The Italian production site is also EMAS (Environmental Management and Audit Scheme) certified. Water resources management The consumption of water resources is exclusively linked to sanitary use, and is controlled. Production and management of special wastes The activity carried out at the offices is not the type that generates special waste materials. Photocopiers and office machines under lease require the owner to provide for the management of the waste materials (toner, broken or obsolete equipment, spare parts). In addition, the service maintenance is contracted to an external company that operates with its own stable personnel, and provides for the disposal of substitute components (e.g. neon tubes). Energy consumption, CO 2 emissions, emissions trading and other emissions Essentially related to heating, lighting and electric motive force, the consumption of energy is controlled and is in line with the levels of consumption registered for similar activities. Management of hazardous substances The hazardous substances used in the process management are environmentally friendly, by taking all the possible precautions envisaged by technical casebooks, and are used in compliance with the REACH Community Regulation. Ozone depleting substances Dismissal plans are envisaged for R22 conditioning facilities at the offices. 51

54 Driverless Metro - Copenaghen (Denmark) 52

55 Signalling and Transportation Solutions Annual Report 2009 innovation and excellence Innovation and excellence are at the centre of our work. Our shared commitment is to continue to strive to supply our clients with advanced, high-quality products, which give us a competitive edge in the market. lead with values 53

56 Contents Annual Report 2009 Parent Company Accounts 1. Parent Company FINANCIAL STATEMENTS Income Statement Statement of Comprehensive Income Balance Sheet Statement of Cash Flows Statement of changes in equity Reconciliation of net profit and shareholders equity of the Group Parent with the consolidated figures at 31 December Consolidated Accounts 2. CONSOLIDATED FINANCIAL STATEMENTS Income Statement Statement of comprehensive income Balance Sheet Statement of Cash Flows Statement of changes in equity notes Notes to the consolidated Financial Statements at 31 December General information Form, content and applicable accounting standards Accounting policies adopted Effects of changes in accounting policies adopted Segment information Notes to the Balance Sheet Transactions with related parties Intangible assets Property, plant and equipment Equity investments Receivables and other non-current assets Inventories Contract work in progress and advances from customers Trade and financial receivables Income tax receivables and payables Other current assets Cash and cash equivalents Share capital Retained earnings /(losses) carried forward Other reserves Minority interests in equity 95 54

57 Signalling and Transportation Solutions Annual Report Borrowings Provisions for risks and charges and contingent current liabilities Severance pay and other employee liabilities Other current and non-current liabilities Trade payables Derivatives Guarantees and other commitments Notes to the Income Statement Transactions with related parties Revenue Other operating income Raw materials and consumables used and purchase of services Personnel costs Amortisation, depreciation and impairment Other operating expenses Work performed by the Group and capitalised Net finance income/(costs) Share of profit (loss) of equity accounted investments Income taxes Earning per share Cash flow from operating activities Management of financial risks Remuneration to key management personnel Outlook List of significant equity investments under article 125 of consob resolution no Information pursuant to article 149-duodecies of the consob issuer regulation Attestation of the consolidated financial statements pursuant to art. 81-ter of the Consob regulation no of 14 May 1999 and amendments and integration thereof and to art. 154-bis, para. 2 of legislative decree no. 58 of 24 February 1998 and amendments and integration thereof 123 EXTERNAL AUDITORS REPORT 124 SHAREHOLDER INFORMATION

58 56

59 Signalling and Transportation Solutions Annual Report 2009 Parent Company Accounts 1. Parent Company FINANCIAL STATEMENTS at 31 December

60 Parent Company accounts Parent Company Financial Statements 1. Parent company financial statements 1.1 Income statement (Euro unit) 31 December 2009 of which from related parties 31 December 2008 Pro-forma¹ of which from related parties 31 December 2008 of which from related parties Revenue 716,816, ,522, ,142, ,338,649 18,265,965 18,265,965 Other operating income 13,930,906 7,687,786 18,226,130 10,021,208 1,830,063 1,825,237 Raw materials and consumable used (137,116,194) (41,312,298) (130,302,119) (26,818,922) (38,928) - Purchase of services (395,651,697) (82,664,985) (305,040,483) (78,768,701) (12,955,111) (2,353,001) Personnel costs (106,782,496) - (101,465,144) - (8,789,957) - Amortisation, depreciation and impairment (6,748,130) - (5,422,934) - (1,883,573) - Other operating expenses (3,208,146) (17,209) (6,330,856) (3,521) (3,916,175) 5,308 Changes in inventories of work in progress, semi-finished and finished goods 1,503,896 - (1,754,033) EBIT 82,744,996-89,053,443 - (7,487,716) - Finance income 23,949,024 4,009,263 17,359,968 9,509,232 21,065,711 14,934,961 Finance costs (21,488,408) (461,798) (8,290,722) (560,448) (7,525,890) (1,057,152) Profit before taxes and the effect of discontinued operations 85,205,612-98,122,689-6,052,105 - Income taxes (28,420,327) - (34,179,032) - 1,549,163 - (Loss) Profit from discontinued operations Net Profit (loss) 56,785,285-63,943,656-7,601, pro-forma data includes ASF and ATSF, merged through incorporation since 1 January Statement of comprehensive income (Euro unit) Pro-forma¹ Retained earnings (losses) recognised in equity Financial assets available for sale Actuarial gains (losses) on defined-benefit plans 1,253,396 (1,981,990) (134,887) - Changes in cash-flow hedges Tax on expense/(income) recognised in equity (344,684) 545,047 37,094 Gains/(losses) recognised in equity 908,712 (1,436,943) (97,793) Profit (loss) for the year 56,785,285 63,943,656 7,601,268 Total comprehensive income (expense) for the year 57,693,997 62,506,713 7,503, pro-forma figures for 2008 include ASF and ATSF, which were merged with date of efficacy 1 January

61 Signalling and Transportation Solutions Annual Report Balance Sheet (Euro unit) of which with related parties Pro-forma¹ of which with related parties of which with related parties Non-current assets Intangible assets 2,511,994-2,235, ,331 - Property, plant and equipment 74,462,498-75,504, ,539 - Investment properties ,624,680 - Equity investments 144,148,123-78,964,032-87,103,974 - Receivables 3,078,690-3,150, Deferred tax assets 15,246,761-16,849,108-2,124,759 - Other assets 25,227,416-25,868,870-25,831, ,675, ,572, ,335,427 - Current assets Inventories 67,267,016-52,770, Contract work in progress 66,684,383-87,664, Trade receivables 443,455, ,489, ,631,414 92,722,526 4,391,094 4,388,290 Income tax receivables 1,323,166-6,722,060-5,701,788 - Financial receivables 190,765, ,765, ,061, ,061, ,061, ,061,288 Derivatives 10,042, , ,167 - Other assets 19,936,952 1,755,177 20,499,327 3,280,462 3,983,020 1,062,564 Cash and cash equivalents 105,615,361-57,254,706-5,155, ,090, ,376, ,065,427 - Total assets 1,169,766, ,949, ,400,854 - Shareholders equity Share capital 49,193,946-49,256,884-49,256,884 - Other reserves 125,077, ,138,606-52,635,785 - Profit (Losses) carried forward, including net profit for the year 75,661,714-44,974,166-46,070,125 - Total shareholders' equity 249,933, ,369, ,962,794 - Non-current liabilities Borrowings 4,031,884-5,746, Severance pay and other employee liabilities 21,039,638-23,043,174-1,155,245 - Deferred tax liabilities 2,201,510-2,244,053-47,583 - Other liabilities 2,536,579-2,465, ,017-29,809,610-33,499,267-1,358,845 - Current liabilities Advances from customers 513,216, ,318, Trade payables 218,138,012 42,279, ,873,543 39,010,042 6,934,956 1,658,698 Borrowings 93,007,733 90,163,713 77,682,529 75,303, ,052, ,037,290 Income tax payables 1,451,915-1,172, ,514 - Provisions for risks and charges 8,165,753-5,347,075-2,130,000 - Derivatives 8,902, , ,263 - Other liabilities 47,140, ,857 49,347,222 3,979,674 10,782,449 4,956, ,023, ,080, ,079,215 - Total liabilities 919,833, ,579, ,438,060 - Total liabilities and shareholders equity 1,169,766, ,949, ,400, pro-forma figures for 2008 include ASF and ATSF, which were merged with date of efficacy 1 January

62 Parent Company accounts Parent Company Financial Statements 1.4 Statement of Cash Flows (Euro units) of which from related parties Pro-forma¹ of which from related parties of which from related parties Cash flow from operating activities: Gross cash flow from operating activities 94,368,074-95,980,615 - (5,022,171) - Change in operating working capital (178,149) (37,498,293) (25,389,142) (20,315,739) 1,314,184 (3,392,547) Changes in other operating assets and liabilities (10,524,014) (2,013,532) 361,138 (6,649,387) 8,897,522 (3,806,652) Net finance costs paid 9,634,339 3,547,465 11,232,278 9,281, Income taxes paid (20,434,792) - (46,264,418) Cash flow generated from (used in) operating activities 72,865,458-35,920,471-5,189,535 - Cash flow from investing activities: Acquisitions of companies, net of cash acquired (5,025,403) - (28,047,103) - (25,583,630) - Purchase of property, plant and equipment and intangible assets (4,024,356) - (4,352,596) - (255,829) - Proceeds from sale of property, plant and equipment and intangible assets Dividends received ,544,000 14,544,000 Purchases of treasury shares (112,937) - (411,032) - (411,032) - Other investing activities (246,580) - 5,876,720-1,006,283 - Cash flow generated from (used in) investing activities (9,409,276) - (26,934,011) - (10,700,208) - Cash flow from financing activities: Net change in borrowings and financial receivables 88,906,589 90,156,709 23,840, ,271,262 30,025, ,246,840 Effect of merger of Ansaldo Signal N.V. in liquidation (77,031,045) (77,031,045) Share capital increases Loss coverage Dividends paid (26,971,070) (26,971,070) (19,991,826) (19,991,826) (19,991,826) (19,991,826) Change in reserves ,577-95,577 - Net change in other financing activities Net cash used in financing activities (15,095,526) - 3,944,725-10,128,930 - Net increase (decrease) in cash and cash equivalents 48,360,656-12,931,185-4,618,257 - Translation differences Cash and cash equivalents at 1 January² 57,254,705-44,323, ,813 - Cash and cash equivalents at period-end 105,615,361-57,254,705-5,155, Pro-forma figures for 2008 include ASF and ATSF, which were merged with date of efficacy 1 January Pro-forma amounts include cash and cash equivalents of ASF and ATSF of EUR 43,786,707 thousand. 60

63 Signalling and Transportation Solutions Annual Report Statement of changes in equity (Euro units) Share capital Retained earnings/ losses carried forward Reserve for stock grant plans Other reserves Total shareholders equity Shareholders equity at 1 January ,667,916 60,487,339 3,097,490 48,628, ,881,632 Repurchase of treasury shares, net of the amount delivered (411,032) (411,032) Change in reserves for Ansaldo STS SpA SGP (206,541) (206,541) Change in reserves for SGPs of other companies (1,006,283) (1,006,283) Change in reserve from delivery of SGP shares (96,502) (96,502) Changes in the reserve for the stock grant plan of prior years 94,285 94,285 Dividends (99,961,215 x 0.20) (19,992,243) (19,992,243) Net profit (loss) 31 December ,601,268 7,601,268 Other items of Statement of Comprehensive Income less taxes 134,887 (37,094) 97,793 Allocation of profit to the legal reserve (2,161,126) 2,161,126 - Other changes Shareholders equity at 31 December ,256,884 46,070,123 1,882,449 50,753, ,962,792 Formation of revaluation reserve under Law 413/91 (formerly of ASF) 832, ,179 Formation of reserve under Law 488/92 1st call for PIA (Integrated Package of facilities) (formerly of ASF) 854, ,000 Formation of reserve under Law 488/92 2nd call for PIA (Integrated Package of facilities) (formerly of ASF) 145, ,000 Formation of reserve for ministerial grant under Law 219/81 (formerly of ASF) 208, ,828 Deferred taxes recognized in equity (formerly of ASF and ATSF) 301, ,388 Change in reserves for SGPs (formerly of ASF and ATSF) 566, ,268 Change in reserve from delivery of SGP shares (formerly of ASF and ATSF) (262,760) (262,760) Change in the reserve for the stock grant plan of prior years (formerly of ASF and ATSF) 187, ,234 Severance pay provision for actuarial gains (losses) (Equity method) (formerly of ASF and ATSF) (1,095,958) (1,095,958) Surplus from merger of ASF and ATSF 83,236,951 83,236,951 Adjustments for surplus from merger of ASF and ATSF (566,268) (566,268) Shareholders equity at 01 January 2009 after the merger of ASF and ATSF 49,256,884 44,974,165 1,806, ,331, ,369,654 Repurchase of treasury shares, net of the amount delivered (112,938) (112,938) Reclassification of costs for share capital increase 50,000 (50,000) - Other items of Statement of Comprehensive Income less taxes 1,253,396 (344,684) 908,712 Change in reserves for Ansaldo STS SpA SGP (340,523) (340,523) Change in reserves for SGPs of other companies 943, ,028 Dividends (99,892,850 x 0.27) (26,971,070) (26,971,070) Allocation of profit to the legal reserve (380,063) 380,063 - Deficit from the merger of ASNV with efficacy 01 October 2009 (13,649,137) (13,649,137) Net profit (loss) at 31 December ,785,285 56,785,285 Shareholders equity at 31 December ,193,946 75,661,714 1,466, ,610, ,933, Reconciliation of net profit and shareholders equity of the Group Parent with the consolidated figures at 31 December 2009 (EUR 000) Shareholders equity of which: Net profit for the year Group Parent shareholders equity and net profit at 31 December ,933 56,785 - excess of shareholders equities in the financial statements compared with the carrying amounts of the equity investments in consolidated companies 50,964 30,971 - Other adjustments Minority interests Total Shareholders Equity and Net Profit at 31 December ,536 87,800 61

64 62

65 Signalling and Transportation Solutions Annual Report 2009 Consolidated Accounts 2. consolidated FINANCIAL STATEMENTS 3. NOTES 4. EXTERNAL AUDITORS REPORT 5. SHAREHOLDER INFORMATION at 31 December

66 Consolidated Accounts Consolidated Financial Statements 2. CONSOLIDATED Financial Statements 2.1 Income Statement (EUR 000) Note of which from related parties of which from related parties Revenue ,175, ,946 1,105, ,683 Other operating income , , Raw materials and consumables used (205,983) (6,291) (247,572) (8,889) Purchase of services (557,401) (81,831) (464,368) (80,131) Personnel costs (280,643) (266,608) Amortisation, depreciation and impairment (13,644) (14,233) Other operating expenses (15,960) (17) (15,146) (4) Changes in inventories of work in progress, semi-finished and finished goods 250 (2,578) (-) Work performed by the Group and capitalised , EBIT 125, ,562 Finance income ,557 1,938 22,938 4,903 Finance costs (40,836) (59) (18,323) (321) Share of profit (loss) of equity accounted investments ,020 (150) Profit (loss) before taxes 124, ,027 Income taxes (36,993) (44,428) Net Profit (loss) 87,800 77,599 Equity holders of the Company 87,756 77,544 Minority interests Earnings per share Basic and diluted Statement of comprehensive income (EUR 000) Profit (loss) for the year 87,800 77,599 Other comprehensive income - Actuarial gains (losses) on defined-benefit plans 436 (1,476) - Changes in Cash Flow Hedges (7,420) 13,831 - Tax on expense/(income) recognised in equity 635 (3,920) - Translation differences 8,743 (4,644) Other comprehensive income, net of tax 2,394 3,791 Total comprehensive income (expense) for the year 90,194 81,390 Attributable to: - Equity holders of the Company 90,173 81,281 - Minority interests

67 Signalling and Transportation Solutions Annual Report Balance Sheet (EUR 000) Note of which from related parties of which from related parties Non-current assets Intangible assets ,636 48,922 Property, plant and equipment ,993 97,155 Equity investments ,254 30,037 Receivables ,778 11,517 Deferred tax assets ,138 40,400 Other assets ,211 26, , ,051 Current assets Inventories ,178 92,874 Contract work in progress , ,681 Trade receivables , , ,014 88,609 Income tax receivables ,029 14,081 Financial receivables , , , ,509 Derivatives ,449 7,922 Other assets ,124 1,754 36,782 2,232 Cash and cash equivalents ,541 71,536 1,122, ,399 Total assets 1,374,869 1,132,450 Shareholders equity Share capital ,194 49,257 Reserves , ,002 Capital and reserves attributable to equity holders of the Company 300, ,259 Minority interests in equity Total Shareholders equity 301, ,752 Non-current liabilities Borrowings ,032 5,747 Severance pay and other employee liabilities ,753 31,505 Deferred tax liabilities ,810 4,740 Other liabilities ,654 8,602 46,249 50,594 Current liabilities Advances from customers , ,405 Trade payables ,168 20, ,501 23,523 Borrowings ,540-9, Income tax payables ,667 7,247 Provisions for risks and charges ,726 28,541 Derivatives , Other liabilities , ,231 3,979 1,027, ,104 Total liabilities 1,073, ,698 Total liabilities and Shareholders equity 1,374,869 1,132,450 65

68 Consolidated Accounts Consolidated Financial Statements 2.4 Statement of Cash Flows (EUR 000) of which from related parties of which from related parties Cash flow from operating activities: Gross cash flow from operating activities 145, ,484 Change in working capital 12,203 (44,967) (19,621) (28,528) Changes in other operating assets and liabilities (1,125) 150 (11,407) (706) Net finance costs paid 4,819 1,997 6,540 4,249 Income taxes paid (38,738) (53,771) Net cash generated from operating activities 122,957 53,225 Cash flow from investing activities: Acquisitions of subsidiaries, net of cash acquired Purchase of property, plant and equipment and intangible assets (9,500) (11,033) Proceeds from sale of property, plant and equipment and intangible assets Dividends received Other investing activities (3,210) (2,075) Net cash used in investing activities (11,739) (12,058) Cash flow from financing activities: Net change in other financing activities (53,865) (13,435) (33,478) 1,348 Share capital increases Dividends paid to minority interests Net cash used in financing activities (53,865) (33,478) Net increase (decrease) in cash and cash equivalents 57,353 7,689 Translation differences (348) 462 Cash and cash equivalents at 1 January 71,536 63,385 Cash and cash equivalents at 31 December 128,541 71,536 66

69 Signalling and Transportation Solutions Annual Report Statement of changes in equity (EUR 000) Share capital Retained earnings/losses carried forward Other reserves Total capital and reserves attributable to equity holders of the Company Minority interests in equity Total shareholders equity Shareholders equity at 1 January , ,026 (30,379) 177, ,701 Change in consolidation reserves - - 1,235 1,235 (2) 1,233 Translation differences Net change in Cash Flow Hedge reserve Profit at 31 December ,544-77, ,599 Net change in the reserve for stock grant plans - - (1,282) (1,282) - (1,282) Other comprehensive income, net of tax - (1,688) 5,425 3, ,791 Actuarial gain related to defined-benefit plans Allocation of the period result to legal reserve - (2,161) 2, Dividends - (19,992) - (19,992) - (19,992) Deferred taxes recognised in equity Net change in treasury shares (411) - - (411) - (411) Shareholders equity at 1 January , ,729 (22,727) 238, ,752 Reclassification of actuarial reserve related to defined-benefit plans (577) Change in scope of consolidation - - (1,181) (1,181) - (1,181) Change in consolidation reserves - - (1,366) (1,366) 125 (1,241) Translation differences Net change in Cash Flow Hedge reserve Profit at 31 December ,756 87, ,800 Net change in the reserve for stock grant plans - - (428) (428) - (428) Other comprehensive income, net of tax - - 2,417 2,417 (23) 2,394 Actuarial gain related to defined-benefit plans Allocation of the period result to legal reserve - (380) Dividends - (26,971) - (26,971) - (26,971) Deferred taxes recognised in equity Net change in treasury shares (113) - - (113) - (113) Other movements ,312-1,312 Shareholders equity at 31 December , ,219 (21,516) 300, ,536 67

70 Consolidated Accounts Notes 3. Notes 3.1 Notes to the Consolidated Financial Statements at 31 December General information Ansaldo STS is a company limited by shares based in Genoa, Via Paolo Mantovani 3/5 with a branch establishment in Naples, Via Argine 425; it has been listed on the Italian stock exchange (Star segment) since 29 March 2006 and has been included on the FTSE MIB index since 23 March Ansaldo STS SpA is a subsidiary of Finmeccanica SpA - whose headquarters are in Rome, Piazza Monte Grappa 4 - which manages and co-ordinates the activities of Ansaldo STS SpA. The Ansaldo STS Group operates on a worldwide scale in the design, creation, marketing and sale of solutions, systems, products, components and services in the Signalling and Transportation Solutions sectors for inter-city and urban railways. Ansaldo STS SpA, as Parent company, carries out the functions of business and strategic management, coordinating the operations of its subsidiaries (together known as the Ansaldo STS Group or the Group ), which operate in the above-mentioned sectors. The Ansaldo STS Group grew out of the transport signalling and systems operations which, until the second half of the 1990s, were carried out by Ansaldo Trasporti within the Finmeccanica Group. The formation of Ansaldo Signal NV in 1996 and of Ansaldo Trasporti Sistemi Ferroviari SpA in 2000 (together with the formation of AnsaldoBreda, for the vehicles segment, the same year) produced a reorganisation of the entire transport sector, as a result of which Finmeccanica held a 100% stake in Ansaldo Signal NV, Ansaldo Trasporti Sistemi Ferroviari SpA and AnsaldoBreda SpA. Meanwhile, in 1996 Finmeccanica SpA had acquired S.I.C. Società Italiana Comunicazioni Srl, renamed EuroSkyway Srl in 1997; the company was put into liquidation in April Following Finmeccanica SpA s strategic decision in the second half of 2005 to list its signalling and transport systems companies on the stock exchange (having previously put in place a unitary management structure to enhance their business and commercial synergies) the EuroSkyway Srl shareholders meeting, through its sole shareholder, Finmeccanica SpA, decided at the end of 2005 to revoke the company s state of liquidation and transform it into a company limited by shares, to change its own name to Ansaldo STS SpA, and to change its business object, focusing on signalling and transport systems for inter-city and urban rail systems. To complete the above reorganisation, in February 2006 Ansaldo STS SpA, as already stated, acquired from Finmeccanica SpA the entire share capital of Ansaldo Signal NV and of Ansaldo Trasporti Sistemi Ferroviari SpA and since 29 March 2006 Ansaldo STS SpA has been listed on the stock exchange. Specifically, Finmeccanica SpA placed on the market 60 million shares of the Company, equal to 60% of its share capital, at EUR 7.80 per share, retaining the remaining 40 million, equal to 40% of the share capital. Upon the acquisition of stakes in Ansaldo Signal NV and in Ansaldo Trasporti Sistemi Ferroviari SpA (24 February 2006), all the companies operating worldwide for the Signalling-related activities were headed by Ansaldo Signal NV; while the Transport Systems activities were centred on Ansaldo Trasporti Sistemi Ferroviari SpA. After the listing, a process for the corporate reorganisation of the Group was put into action in order to rationalise the current control chain of the subsidiaries and reduce the costs connected with the Group s corporate structure. This reorganisation led in the years to the finalisation of these main transactions: 1. In the Asia Pacific region, the reallocation of a few equity investments in Group companies, in consideration of the ever-increasing importance that those markets are assuming for the Group and of the close industrial and commercial interaction among these companies. Consequently, since 1 January 2008 Ansaldo STS Australia PTY Ltd, which is the most significant presence of the Group in the Asia Pacific region, has been controlling the Indian and Malaysian operating companies and has been put under the direct control of the Group parent Ansaldo STS SpA. Furthermore, two other companies were established: Ansaldo STS Southern Africa (Botswana) and Ansaldo STS InfraDEV South Africa, which, under the control of Ansaldo STS Australia PTY Ltd, operate on the expanding markets of Southern Africa. 2. In Italy, Ansaldo Segnalamento Ferroviario SpA and Ansaldo Trasporti Sistemi Ferroviari SpA, the two companies that operated in the two different business units (Signalling and Transportation Solutions respectively) have been merged through incorporation into the listed Group parent Ansaldo STS SpA. The merger through incorporation, as set forth in the merger deed stipulated by Ansaldo STS SpA, Ansaldo Trasporti Sistemi Ferroviari SpA and Ansaldo Segnalamento Ferroviario SpA on 26 September 2008, has had legal, accounting and tax effective date since 1 January the Dutch sub-holding Ansaldo Signal NV was merged through incorporation into Ansaldo STS SpA. Since this is a cross-border merger, the same was executed in accordance with directive 2005/56/EC relating to the cross-border mergers of stock companies so as it is implemented in Italy through Legislative Decree no. 108/2008 and in Holland through Legislative Deed no. 260/261 of 27 June 2008, as well as with the related national regulations. In compliance with the merger deed stipulated by Ansaldo STS SpA and Ansaldo Signal NV in liquidation on 10 September 2009, the merger has had legal, accounting and tax effective date since 1 October As a result of this transaction, all the equity investments held by Ansaldo Signal NV in liquidation were transferred to Ansaldo STS SpA. 4. In order to support the development of the Group business in South America, a new company Ansaldo STS Sistemas de Transporte e Sinalização Limitada was formed, in which Ansaldo STS SpA has an interest of 99.99% and Ansaldo STS USA International Co. an interest of 0.01%. As already said, the Ansaldo STS Group operates in the inter-city and urban railway sector through two business units: Signalling and Transportation Solutions. 68

71 Signalling and Transportation Solutions Annual Report 2009 The Signalling Business Unit carries out the following activities: design, production, management and maintenance of systems, subsystems and components of signalling for inter-city and urban rail transport; the reference main operating companies are the Group parent Ansaldo STS SpA in Italy (as a result of the incorporation of Ansaldo Segnalamento Ferroviario SpA), Ansaldo STS France SA in France, Ansaldo STS Australia PTY Ltd in the Asia Pacific region and Ansaldo STS USA Inc. in America. The Transportation Solutions Business Unit carries out the following activities: design and creation of integrated transport systems, of which signalling is an essential part. In more detail, this activity studies, designs and plans how to integrate the activities of designing and building the technological equipment that goes to make up a system - that is, the track, signalling, power supply, telecommunications, and vehicles (whether for inter-city or urban railways) as well as any other technological works which, collectively, constitute an integrated transport system. The final product - an integrated transport system, whether an inter-city line or an urban one - is then delivered as a turnkey project to the customer. However, the Group can also offer the expertise of Signalling or Transport Systems separately, according to specific customer needs. The core competences of these activities are concentrated in Italy in the Group parent Ansaldo STS SpA, following the incorporation of the subsidiary Ansaldo Trasporti Sistemi Ferroviari SpA, which was the company dedicated exclusively to this sector; all the Group companies that operate abroad, born as Signalling-related companies, have undertaken to develop their competences and their commercial presence in the Transportation Solutions sector as well Form, content and applicable accounting standards In application of EC Regulation 1606/2002 of 19 July 2002, the Financial Statements at 31 December 2009 were prepared in accordance with the IAS/IFRS international accounting standards (hereinafter IFRSs) endorsed by the European Commission, supplemented by the relevant interpretations (Standing Interpretations Committee - SIC and International Financial Reporting Interpretations Committee - IFRIC) issued by the International Accounting Standard Board (IASB). The IFRSs used in the preparation of these Financial Statements are the same as those used in the preparation of the Consolidated Financial Statements as at 31 December 2008 except for the application of the revised versions of IAS 1 Presentation of Financial Statements and IAS 23 Borrowing costs and IFRS 8 Operating segments, supplemented with the IFRIC interpretations in force at the date of preparation of the Consolidated Financial Statements themselves. The general principle used in preparing these Consolidated Financial Statements is the cost method, except for the recognition of derivative instruments and of a few financial assets, for which IAS 39 obliges or limited to financial assets allows the valuation with the fair value method. All figures are in units or thousands of euros or foreign currency unless otherwise indicated. The Consolidated Financial Statements, prepared in accordance with IFRS, were audited by independent auditors PricewaterhouseCoopers SpA. Preparation of the Financial Statements required Management to make certain estimates Accounting policies adopted Standards scope of consolidation These Consolidated Financial Statements include the accounts at 31 December 2009 of the companies/entities included in the scope of consolidation ( consolidated entities ), which have been prepared in accordance with the IFRSs adopted by the Ansaldo STS Group. Below is a list of the consolidated entities included in the scope of consolidation and the relevant Group ownership percentage (direct or indirect): 69

72 Consolidated Accounts Notes List of companies consolidated on a line-by-line basis COMPANY DIRECT/ INDIRECT CONTROL REGISTERED OFFICE SHARE CAPITAL (/000) CURRENCY SHARE OWNED % ANSALDO STS AUSTRALIA PTY LTD Direct Eagle Farm (Australia) 5,026 $AUS 100 ANSALDO STS SWEDEN AB Direct Solna (Sweden) 4,000 SEK 100 ANSALDO STS FINLAND OY Indirect Helsinki (Finland) 10 EURO 100 ANSALDO STS UK LTD Direct London (United Kingdom) 1,000 GBP 100 ANSALDO STS IRELAND LTD Direct Tralee (Ireland) 100 EURO 100 ACELEC SA Indirect Les Ulis (France) 168 EURO 100 ANSALDO STS ESPANA SAU Indirect Madrid (Spain) 1,500 EURO 100 ANSALDO STS BEIJING LTD Indirect Beijing (China) 837 EURO 80 ANSALDO STS HONG KONG LTD Indirect Hong Kong (China) 100 $ HK 100 ANSALDO STS FRANCE SA Direct Les Ulis (France) 5,000 EURO 100 UNION SWITCH & SIGNAL INC Indirect Greenville (Delaware USA) 1 $ 100 ANSALDO STS MALAYSIA SDN BHD Indirect Kuala Lumpur (Malaysia) 3,000 RM 100 ANSALDO STS CANADA INC Indirect Kingston (Ontario, Canada) 0 $CAN 100 ANSALDO STS USA INC Direct Wilmington (Delaware USA) 0.1 $ 100 ANSALDO STS USA INTERNATIONAL CO Indirect Wilmington (Delaware USA) 1 $ 100 ANSALDO STS USA INT.PROJECTS CO Indirect Wilmington (Delaware USA) 25 $ 100 ANSALDO STS TRANSPORTATION SYSTEMS INDIA PVT LTD Indirect Bangalore (India) 12,915 RUPIA 100 ANSALDO STS DEUTSCHLAND GmbH Direct Berlin (Germany) 26 EURO 100 ANSALDO RAILWAY SYSTEM TRADING (BEIJING) Ltd Direct Beijing (China) 1,500 $ 100 ANSALDO STS INFRA DEV SOUTH AFRICA (PTY) LTD Indirect Johannesburg (South Africa) 2 ZAR 50.7 ANSALDO STS SOUTHERN AFRICA (PTY) LTD Indirect Gaborone (Botswana) 0.1 BWP 100 List of companies consolidated by proportionate method COMPANY DIRECT/ INDIRECT CONTROL REGISTERED OFFICE SHARE CAPITAL (/000) CURRENCY SHARE OWNED % BALFOUR BEATTY ANSALDO SYSTEMS JV SDN BHD Indirect Selangor Darul Ehsan (Malaysia) 6,000 MYR 40 List of companies accounted for using the equity method COMPANY DIRECT/ INDIRECT CONTROL REGISTERED OFFICE SHARE CAPITAL (/000) CURRENCY SHARE OWNED % ECOSEN CA (VENEZUELA) Indirect Caracas (Venezuela) 1,310 VBF 48 ALIFANA SCARL Direct Naples (Italy) 26 EURO ALIFANA DUE SCARL Direct Naples (Italy) 26 EURO PEGASO SCARL Direct Rome (Italy) 260 EURO METRO 5 SpA Direct Milan (Italy) 25,000 EURO 24.6 INTERNATIONAL METRO SERVICE SRL Direct Milan (Italy) 700 EURO 49 List of companies accounted for at cost COMPANY DIRECT/ INDIRECT CONTROL REGISTERED OFFICE SHARE CAPITAL (/000) CURRENCY SHARE OWNED % I.M. INTERMETRO SPA Direct Rome (Italy) 2,461 EURO TRAM DI FIRENZE SPA Direct Florence (Italy) 7,000 EURO 3.8 ANSALDO STS Sistemas de Transporte e Sinalização Limitada Direct Rio de Janeiro (Brazil) 1,000 REAL 100 METRO C ScpA Direct Rome (Italy) 150,000 EURO 14 70

73 Signalling and Transportation Solutions Annual Report 2009 For a better comprehension and comparability of the figures, it is necessary to outline the main changes in the scope of consolidation occurred in the course of 2009: the companies Ansaldo Segnalamento Ferroviario SpA, Ansaldo Trasporti Sistemi Ferroviari SpA with accounting date 1 January 2009 were merged through incorporation into Ansaldo STS SpA; the company Ansaldo Signal NV with accounting date 1 October 2009 was merged through incorporation into Ansaldo STS SpA. Subsidiaries and entities controlled jointly In particular, the entities over which Ansaldo STS Group exercises a controlling power, either by directly or indirectly holding a majority of shares with voting rights or by exercising a dominant influence through the power to govern the financial and operating policies of an entity and obtain the related benefits regardless of the nature of the shareholding, have been consolidated on a line-by-line basis. Not consolidated on a line-by-line basis are those entities which, because of the dynamics of their operations (e.g. consortia without shares and controlling interests in equity consortia which, by charging costs to their members, do not have their own financial results and the financial statements of which do not, net of intercompany assets and liabilities, have material balances) or their current status (e.g. companies that are no longer operational, have no assets or personnel, or for which the liquidation process appears to be essentially concluded), would be immaterial to the Group s situation in both quantitative and qualitative terms. These holdings have been consolidated using the equity method. Participating interests in entities (including special-purpose entities) over which control is exercised jointly with other parties are consolidated proportionally (so as to incorporate only the value of the assets, liabilities, costs and income proportional to the percentage held without, therefore, including the holdings of the other parties). All controlled entities are consolidated at the date on which control was acquired by the Group. The entities are removed from the scope of consolidation at the date on which the Group relinquishes control. Business combinations are recognised using the purchase method, whereby the acquirer purchases the equity and recognises all assets and liabilities, even if merely potential, of the acquired company. The cost of the transaction includes the fair value at the date of purchase of the assets sold, the liabilities assumed, the capital instruments issued, and all other incidental charges. Any difference between the cost of the transaction and the fair value at the date of purchase of the assets and liabilities is allocated to goodwill. In the event the process of allocating the purchase price should result in a negative difference, this difference is recorded as an expense immediately at the purchase date. In the case of purchase of controlling stakes other than 100% stakes, goodwill is recognised only to the extent of the portion attributable to the Group parent. Amounts resulting from transactions with consolidated entities have been eliminated, particularly where related to receivables and payables outstanding at the end of the period, as well as interest and other income and expenses recorded on the Income Statements of these enterprises. Also eliminated are the net profits or losses posted between the consolidated entities along with their related tax adjustments. The consolidated entities all close their financial years on 31 December. The Group Consolidated Financial Statements have been prepared based on the ending balances at 31 December. Other equity investments Investments in entities over which significant influence is exercised, which generally corresponds to a holding of between 20% (10% if listed) and 50% (equity investments in associates), are accounted for using the equity method. In the case of the equity method, the value of the investment is in line with shareholders equity adjusted, when necessary, to reflect the application of IFRSs, and includes the recognition of goodwill (net of impairments) calculated at the time of purchase, and to account for the adjustments required by the standards governing the preparation of Consolidated Financial Statements. Gains and losses realised between the entities consolidated using the equity method and other Group s entities consolidated also on a line-by-line basis are eliminated. Any value losses in excess of book value are recorded in the provision for risks on equity investments. The fair value of equity investments, in the event this method applies, is calculated based on the bid price of the last trading day of the month for which the IFRS report was prepared (in this case 31 December 2009), or based on financial valuation techniques for not listed instruments. Investments available for sale, like those acquired with the sole purpose of being disposed within the subsequent twelve months, are classified separately within Assets held for sale. Segment information In accordance with the compliance model followed, Management has adopted operating segments that correspond to the business sectors in which the Group operates (Signalling and Transportation Solutions). Identification of the functional currency The balances included in the Financial Statements of each Group entity are presented in the currency of the primary economy in which each enterprise operates (the functional currency). The Consolidated Financial Statements for the Ansaldo STS Group have been prepared in euros, which is the functional currency of the Group parent. Translation of items denominated in a foreign currency Items expressed in a currency other than the functional currency, whether monetary (cash and cash equivalents, receivables or payables due in pre-set or measurable amounts, etc.) or non-monetary (advances to suppliers of goods and services, goodwill, 71

74 Consolidated Accounts Notes intangible assets, etc.), are initially recognised at the exchange rate prevailing at the date on which the transaction takes place. Subsequently, the monetary items are translated into the functional currency based on the exchange rate at the reporting date, and any differences resulting from this conversion are recognised in the Income Statement. Non-monetary items continue to be carried at the exchange rate on the date of the transaction, except in situations where there is a persistent unfavourable trend in the exchange rate concerned. If this is the case, exchange differences are recognised in the Income Statement. Translation of financial statements expressed in a currency other than the functional currency The rules for translating financial statements expressed in a foreign currency into the functional currency (except where the currency is that of a hyper-inflationary economy a situation not applicable to the Group) are as follows: the assets and liabilities presented, even if solely for comparative purposes, are translated at the end-of-period exchange rate; costs and revenues, charges and income presented, even if solely for comparative purposes, are translated at the average exchange rate for the period in question, or at the exchange rate on the date of the transaction in the event this is significantly different from the average rate; the translation reserve covers exchange rate differences generated by both the translation of operating results at an exchange rate different from the closing exchange rate and the translation of opening shareholders equity at an exchange rate different from the exchange rate prevailing at the closing of the reporting period. goodwill and adjustments deriving from fair value relating to the acquisition of a foreign company are treated as assets and liabilities of the foreign company, and converted at the closing exchange rate for the period. The exchange rates applied in the translation of financial statements and balances in currencies other than the euro at 31 December 2009 and 2008 were as follows: At 31/12/2009 At 31/12/ month average at 31/12/ month average at 31/12/2008 US$ CAD GBP HK$ SEK AU$ INR MYR BRL CNY VBF BWP ZAR Intangible assets These are made up of non-monetary elements without physical form, clearly identifiable and which are capable of generating future economic benefits. These elements are entered at their cost of acquisition and/or production, including expenses directly attributable to preparing the asset for operations, net of accumulated amortisation (with the exception of intangibles with an indefinite useful life) and any loss of value. Amortisation begins when the asset is available for use and is recognised systematically over its remaining useful life. In the period in which the intangible asset has been recognised for the first time, the amortisation rate applied takes into account the period of actual use of the asset. Finance costs attributable to the acquisition, construction or production of specific assets taking a substantial period of time to get ready for their intended use or sale (qualifying assets) are capitalised together with the related asset. 72

75 Signalling and Transportation Solutions Annual Report 2009 (i) Goodwill Goodwill posted as intangible assets relates to business combinations and represents the difference between the cost of acquisition of a company or a going concern and the algebraic sum of the values assigned, based on the values at the date of purchase, to each asset and liability of that company or going concern. Since goodwill has an indefinite useful life, it is not subject to amortisation, and is tested for impairment at least annually, except where the market and management indicators indicated by the Company show that goodwill should be tested for impairment in interim accounts as well. In order to conduct the impairment test, goodwill is allocated to individual cash generating units (CGUs), that is, to the smallest financially independent business units through which the Company operates in its various market segments. Goodwill related to the acquisition of consolidated companies is recognised under intangible assets. Goodwill related to unconsolidated associates or subsidiaries is included in the value of equity investments. (ii) Licenses and similar rights For licenses and similar rights amortisation is calculated on a straight-line basis, so that the cost borne in acquiring a right is allocated over the shorter between the period of expected use and the duration of the relevant contracts, starting from the time the acquired right can be exercised. Licenses that are acquired and relate to software are capitalised on the basis of the costs sustained in acquiring them. Amortisation is calculated on a straight-line basis over their expected useful life of 3 years. (iii) Software costs The costs related to the development and maintenance of software programs are recognised as costs when incurred. Costs that are directly connected with the production of unique, identifiable software controlled by the Company and that generate future financial benefits over a period exceeding one year are entered as intangible assets. Direct costs include the costs related to employees who develop the software as well as any appropriate share of the general costs. Amortisation is calculated on a straight-line basis over the expected useful life of the software (3 years) beginning when the asset is available and ready for use. (iv) Research and development costs Research costs are charged to the Income Statement for the year in which they are incurred. An intangible fixed asset that is generated internally and relates to development costs is entered in the accounts only if all the following requirements are simultaneously met: the asset can be identified; it is capable of generating future economic benefits; its development cost can be reliably measured; there is a market for the product generated by such development. If these requirements are not met, development costs are expensed as incurred. Development costs are capitalised only when the four conditions listed above are met and are amortised on a straight-line basis over their entire useful life. Leased assets (i) Group entities as lessees in a finance lease At the date on which a lease is first recognised, the lessee records a non-current asset and a financial liability at the lower of the fair value of the asset and the present value of the minimum lease payments at the date of the inception of the lease, using the implicit interest rate in the lease or the incremental borrowing rate. Subsequently, an amount equal to the depreciation expense for the asset and the finance charge separated from principal component of the lease payment made in the period is recognised in the Income Statement. (ii) Group entities as lessors in a finance lease At the date on which a lease is first recognised, the value of the leased asset is eliminated from the Balance Sheet and a receivable equal to the net investment in the lease is recognised. The net investment is the sum of the minimum payments plus the residual unguaranteed value discounted at the interest rate implicit in the lease contract. Subsequently, finance income is recognised in the Income Statement for the duration of the contract in an amount providing a constant periodic rate of return on the lessor s net investment. The unsecured residual value is reviewed periodically for possible impairment. (iii) Operating leases Receipts and payments in respect of contracts qualifying as operating leases are recognised in the Income Statement over the duration of the contract on a straight-line basis. 73

76 Consolidated Accounts Notes Property, plant and equipment These are valued at purchase or production cost, net of accumulated depreciation and any impairment. The cost includes every charge directly incurred in using them, as well as any charges relating to decommissioning or removal that will be sustained to return the site to its original state and of finance costs attributable to the acquisition, construction or production of specific assets taking a substantial period of time to get ready for their intended use or sale (qualifying assets). Charges incurred for routine and/or regular maintenance and repair are directly entered in the Income Statement for the year when they were incurred. Capitalisation of the costs relating to expansion, modernization, or improvement of elements owned or leased by the Group is carried out only in so far as these meet the requirements for being classified separately as assets or parts of assets. Any capital grants relating to property, plant and equipment are entered as a direct deduction from the asset to which they relate. The value of an asset is adjusted by systematic depreciation calculated based on the residual useful life of the asset itself. In the period in which the asset has been recognised for the first time, the depreciation rate applied takes into account the date in which the asset is ready for use. The estimated useful lives adopted by the Group for the various asset classes are as follows: Buildings: Plant and machinery: Equipment: Other assets: years 5-10 years 3-7 years 3-8 years The estimate of the useful life and of the residual value is reviewed periodically. Depreciation terminates at the date on which the asset is sold or the same is reclassified to asset held for sale. If an asset to which depreciation is applied is made up of identifiable elements whose useful life is significantly different from that of other parts that make up the asset, depreciation is calculated separately for each part that makes up the asset, in keeping with the component approach. Profits and losses deriving from the sale or disposal of assets are calculated as the difference between the proceeds from the sale and the net accounting value. Finance costs attributable to the acquisition, construction or production of specific assets taking a substantial period of time to get ready for their intended use or sale (qualifying assets) are capitalised together with the related asset. Investment properties Properties held to earn rentals or for capital appreciation are carried under Investment properties ; they are valued at purchase or production cost plus any related charges, net of accumulated depreciation and impairment, if any. Impairment of intangible assets and property, plant and equipment Assets with indefinite useful life are not depreciated or amortised, but are rather subject to impairment tests at least once a year to ascertain the recoverability of their book value. For assets that are depreciated or amortised, an assessment is made to determine whether there is any indication of a loss in value. If so, the recoverable value of the asset is estimated, with any excess being recognised in the Income Statement. The recoverable value is the greater of two figures: either its market value minus sales costs, or its value in use determined on the basis of a model of discounted cash flows. The discount rate incorporates the assets specific risks which have not been considered yet in the expected cash flows. For an asset that does not generate independent cash flows, the value is calculated in relation to the cash-generating unit to which such asset belongs. If the conditions for a previous write-down no longer apply, the asset s accounting value is reinstated provided that such reinstated value does not exceed the net book value that the asset would have had if it had not been impaired in the preceding years. The reinstatement is recorded in the Income Statement. In no case, instead, the value of previously written-down goodwill is reinstated. Inventories Inventories are recorded at the lower of cost, calculated with reference to the weighted average cost, and net realisable value. They do not include finance costs and overheads. The net realisable value is the sales price in the course of normal operations, net of estimated costs to finish the goods and those needed to make the sale. Finance costs attributable to the acquisition, construction or production of specific assets taking a substantial period of time to get ready for their intended use or sale (qualifying assets) are capitalised together with the related asset. Contact work in progress Contract work in progress is entered using the degree of completion (or percentage of completion) method, in which costs, revenue and margins are recognised on the basis of how far advanced work is. The state of completion is determined on the basis of the ratio between the costs incurred at the measurement date and the total costs expected according to the programme or based on the productions units delivered. The valuation reflects the best estimate of work programmes carried out at the reporting date. The assumptions on which the valuations are based are updated periodically. Any economic effects are entered into the accounts for the period in which the updating takes place. 74

77 Signalling and Transportation Solutions Annual Report 2009 If it is felt that completion of an order may lead to a loss that affects operating margins, this is entered in its entirety in the year in which it can reasonably be foreseen to happen. Work in progress under contract is shown net of any write-down provision, as well as of any advances and instalments paid relating to such contract work. This analysis is carried out contract by contract: when the value of the work in progress exceeds that of the advances paid, the positive difference is shown on the asset side; negative differences are reported as liabilities, in the entry advances from customers. Any amount entered in the advances still uncollected at the time the accounts (or interim reports) are drawn up, is offset by an entry under trade receivables. Contracts for which payment is in foreign currency are valued by converting the portion that has been paid, determined using the percentage of completion method and the exchange rate at the end of the period. However, the Group s policy for exchange-rate risk calls for all contracts in which cash inflows and outflows are significantly exposed to exchange rate fluctuations to be hedged specifically: in such cases, the recognition methods described in Hedging long-term contracts against foreign exchange risk are applied. Finance costs attributable to the acquisition, construction or production of specific assets taking a substantial period of time to get ready for their intended use or sale (qualifying assets) are capitalised together with the related asset. Receivables and financial assets The Group classifies its financial assets into the following categories: financial assets at fair value through profit or loss; loans and receivables; financial assets held to maturity; financial assets available for sale. Management classifies assets at the time they are first recognised. (i) Financial assets at fair value through profit or loss This category includes financial assets acquired for short-term trading purposes, as well as derivatives, which are discussed in the next section. The fair value of these instruments is determined with reference to their end-of-period bid price. For unlisted instruments, the fair value is calculated using commonly adopted valuation techniques. Changes in the fair value of instruments belonging to this category are recognised immediately in the Income Statement. The classification of assets as current or non-current reflects management expectations regarding their trading. Current assets include those that are planned to be sold within 12 months or those designated as held for trading purposes. (ii) Loans and receivables This category includes the assets not represented by derivative instruments and not listed on an active exchange, from which fixed or measurable payments are expected. Such assets are valued at amortised cost on the basis of the effective interest rate method. Should objective evidence of impairment emerge, the value of the asset is reduced to the value obtained by discounting the expected cash flows from the asset: the losses, determined through the impairment test, are entered in the Income Statement. If in succeeding years the reasons for previous write-downs no longer apply, the value of such assets is restored up to the amortised cost value it would have if no impairment had been recognised. These assets are reported as current assets, with the exception of those due beyond 12 months, which are classified as non-current assets. (iii) Financial assets held to maturity These are non-derivative assets with pre-set maturities that the Group has the intention and ability to hold to maturity. Those maturing within 12 months are carried under current assets. Should objective evidence of impairment emerge, the value of the asset is reduced to the value obtained by discounting the expected cash flows from the asset: the losses, determined through the impairment test, are entered in the Income Statement. If in succeeding years the reasons for previous write-downs no longer apply, the value of such assets is restored up to the amortised cost value it would have if no impairment had been recognised. (iv) Investments available for sale This category encompasses non-derivative financial assets specifically designated as available for sale or not classified in any of the previous items. These are recognised at fair value, which is calculated with reference to their market price at the reporting date or using financial valuation techniques and models. Changes in value are recognised in a specific equity item ( Reserve for assets available for sale ). The reserve is reversed to Income Statement only when the financial asset is effectively sold or, in the event of cumulative negative change, when it is clear that the loss of value already entered in the equity reserve cannot be recovered. Whether such assets are classified as current or non-current depends on the management s intentions and on the effective marketability of the security itself: assets that are expected to be sold within 12 months are reported as current. Should objective evidence of impairment emerge, the value of the asset is reduced to the value obtained by discounting the expected cash flows from the asset: reductions in value previously recognised in equity are reversed to the Income Statement. 75

78 Consolidated Accounts Notes The impairment value previously recognised is restored up if the reasons, that entailed the recognition applicable only to debt financial instruments, no longer apply. Derivative instruments Derivatives are still regarded as assets held for trading and stated at Fair value through the Income Statement unless they are deemed eligible for hedge accounting and effective in offsetting the risk in respect of underlying assets, liabilities or obligations undertaken by the Group. In particular, the Group uses derivative instruments as part of hedging strategies to neutralize the risk of variations in the Fair value of assets or liabilities recognised or arising from contractually-defined obligations (Fair Value Hedge) or the risk of expected cash flow variations relating to contractually-defined or highly probably operations (Cash Flow Hedge). For details regarding the methodology for recognising hedges of the exchange rate risk on long-term contracts, see paragraph Hedging of exchange rate risk. The effectiveness of hedging operations is recorded at the start of the operation and regularly thereafter (at a minimum on the date of publication of the annual or interim financial statements) and is measured by comparing the changes in Fair value of the hedging instrument with those of the underlying (dollar offset ratio) or, in the case of more complex instruments, through a statistical analysis based on variation of risk. (i) Fair Value Hedge The changes in the fair value of derivatives identified and qualifying as Fair Value Hedges are recognised in the Income Statement, as are changes in the fair value of the underlying assets or liabilities attributable to the risk neutralized through the use of hedging. (ii) Cash Flow Hedge The changes in the fair value of derivatives identified and qualifying as Cash Flow Hedges are recognised, to the extent of the effective portion, in a specific equity reserve (the Cash Flow Hedge reserve ). This reserve is released to the Income Statement when the economic effects of the underlying materialise. The change in fair value relating to the ineffective portion is immediately recognised in the Income Statement for the period. If the underlying operation is no longer considered highly probable, the related portion of the Cash Flow Hedge reserve is immediately released to the Income Statement. Otherwise, if the derivative instrument is sold or no longer qualifies as an effective hedge against the relevant risk, the relative portion of the Cash Flow Hedge reserve is kept until when the underlying contract does not materialise. (iii) Determining fair value of financial instruments The fair value of instruments listed on public markets is determined with reference to the bid price for the instrument in question at the reference date. The fair value of non-listed derivative instruments is measured with reference to financial valuation techniques: specifically the fair value of interest rate swaps is measured by discounting the expected cash flows, while the fair value of foreign exchange forwards is calculated based on the market exchange rates at the reference date and the rate differentials between the relevant currencies. Cash and cash equivalents The item includes cash, deposits with banks or other institutions providing current account services, post office accounts and other cash equivalents, as well as investments maturing in less than three months from the date of acquisition. Cash and cash equivalents are recognised at their fair value. Shareholders equity (i) Share capital The share capital is represented by capital subscribed and paid-in by the Group parent. Costs closely connected with the issue of shares are classified so as to decrease share capital, if they are directly attributable to capital transactions, net of any deferred taxes. (ii) Treasury shares These are shown as a decrease in the Group s net equity. Gains or losses on the purchase, sale, issue or cancellation of own shares are not recognised in the Income Statement. (iii) Retained earnings/(losses) carried forward These include earnings and losses for the period and the previous years in respect of the portion that has not been distributed nor accrued to a reserve (in the case of profits) or that is to be made good (in the case of losses). This also includes transfers from other equity reserves when the underlying obligation is discharged, as well as the effects of the recognition of changes in accounting standards and material errors. (iv) Other reserves These also include the Fair value reserve in respect of items accounted for at fair value through equity, the Cash Flow Hedge reserve regarding the recognition of the effective portion of hedges, the stock option /grant reserve in respect of the recognition of definedbenefit plans as holdings of capital and the reserve of actuarial effects on defined-benefit plans recognised directly in equity. 76

79 Signalling and Transportation Solutions Annual Report 2009 Payables and other liabilities Payables and other liabilities are initially recognised at fair value net of transaction costs. They are subsequently valued at their amortised cost using the effective interest rate method. Payables and other liabilities are defined as current liabilities unless the Group has the contractual right to settle its debts at least 12 months after the date of the annual or interim financial statements. Deferred tax assets and liabilities Deferred tax assets and liabilities are calculated based on the temporary differences arising between the taxable amount of an asset or liability and its book value. Deferred tax assets and liabilities are calculated by applying the tax rate in force at the time the temporary differences will be reversed. Deferred tax assets are recognised to the extent that it is probable the company will post taxable income at least equal to the temporary differences in the financial periods in which such assets will be reversed. Employee benefits (i) Post-employment benefits plans: The Group companies use a variety of retirement (or supplementary) pension schemes that may be classified as follows: Defined-contribution plans in which the company pays a set amount to a separate entity (e.g. a fund) and has no legal or constructive obligation to pay additional contributions in the event the appointed entity has insufficient assets to pay the benefits relating to the service rendered during the period of employment. The company only recognises the contributions to the plan once the employees have rendered their services in exchange for these contributions; Defined-benefit plans in which the company is required to provide agreed benefits for current and former employees and to assume the actuarial and investments risks related to the plan. Therefore, the cost of the plan cannot be determined based on the contributions owed in exchange for work, but rather is recalculated based on demographic, statistical assumptions and on the salaries dynamics. The projected unit credit method is used. For the recognition of defined-benefit plans, the Group has adopted the recognition method, known as equity method. As a result of this option, the value of the liability recorded in the Financial Statements is aligned with that resulting from the actuarial valuation of the same, with full and prompt recognition of the actuarial gains and losses in the period in which they emerge, with direct counterpart in a specific reserve of the shareholders equity ( reserve for actuarial gains (losses) in equity ). (ii) Other long-term benefits and post-employment benefits The Group companies grant employees with other benefits (such as seniority bonuses after a given period of service with the company) that, in some cases, continue to be provided after retirement (for example, medical care). These receive the same accounting treatment as defined-benefit plans, using the projected unit credit method. However, in case of other long-term benefits, any actuarial gains or losses are recognised in the Income Statement both immediately and in full as they occur. (iii) Benefits payable for the termination of employment and incentive plans Termination benefits are recognised as liabilities and expenses when the enterprise is demonstrably committed to terminating the employment of an employee or group of employees before the normal retirement date or to providing termination benefits as a result of an offer made in order to encourage voluntary redundancy. The benefits payable to employees for the termination of employment do not bring any future economic benefits to the enterprise and are therefore recognised immediately as expenses. (iv) Equity compensation benefits The Group compensates its Top Managers through stock options and stock grant plans as well. In these cases, the theoretical benefit of the persons concerned is charged to the Income Statement for the years of the plan through an equity reserve. This benefit is quantified by measuring at the assignment date the Fair value of the awarded instrument also through financial valuation techniques, including market conditions, if necessary, and adjusting the number of rights that are expected to be awarded at each reporting date. Provisions for risks and charges These are entered as a result of losses and charges of a particular type. These are either certain or probable but cannot, at the reporting date, be quantified, and/or their timing cannot be foreseen. These are entered only when there is a current obligation (legal or implicit) for future cash outlays as a result of past events and it is likely that such outlays will be demanded in fulfilment of the obligation. This amount represents the best estimate of the present value of the expenditure required to meet the obligation. The discount rate used in setting the present value of the liability reflects current market values and includes the further effects of the specific risk associated with each liability. Risks for which a liability is only a possibility are mentioned in the relevant information section on commitments and risks. No provision is made for these. Revenue Revenue generated by an operation is recognised at the fair value of the payment received, taking account of any discounts and reductions connected with quantity. Revenue also includes changes to work in progress, the accounting policies for which are described in the preceding section Contract work in progress. Revenue generated from the sale of goods is recognised when the enterprise has transferred to the buyer substantially all of the significant risks and rewards of ownership of the goods, which in many cases coincides with the transfer of title or ownership to the buyer, or when the value of the revenue can be reliably determined. 77

80 Consolidated Accounts Notes Revenue from services rendered is entered, when it can be reliably estimated, on the basis of the percentage of completion. Grants If there is a formal document of attribution, grants are recognised on the basis of the matching principle, in direct correlation with the costs incurred. Specifically, capital grants are entered in the Income Statement in direct correlation to the depreciation process to which the goods or projects refer, and are recognised as a direct reduction in the value of the depreciation expense. In Balance Sheet, grants are recognised as a direct reduction of the related assets, for the amount not yet recognised to profit or loss. Finance income and costs Interest income and expense are recognised on the accrual basis of accounting using the effective interest method, i.e. using the interest rate through which all the inflows and outflows (including any income, unamortised discounts, commissions, etc.) of a given transaction are made financially equivalent. Finance costs attributable to the acquisition, construction or production of specific assets taking a substantial period of time to get ready for their intended use or sale (qualifying assets) are capitalised together with the related asset. Dividends These are recognised when the shareholders right to receive payment is established; this normally happens when the shareholders meeting authorises the distribution of dividends. Distribution of dividends to Finmeccanica s shareholders is thus entered as a liability in the period in which it is approved by the shareholders meeting. Transactions with related parties Related party transactions are made at arm s length. Costs Costs are recorded in compliance with the matching and accruals principle. Taxes Income taxes are recognised based on estimated taxable income in accordance with applicable provisions, taking into account applicable exemptions, if any, and the relevant tax receivables. Current taxes are entered in the Income Statement, with the exception of those relating to accounting entries that are directly debited or credited to equity, in which case the tax effect is applied directly to shareholders equity. Current taxes are offset when the income tax is applied by the same tax authority, there is a legal set-off right and the net balance is expected to be collected. 78

81 Signalling and Transportation Solutions Annual Report 2009 New IFRSs and IFRIC interpretations At the date of preparation of this report, the European Commission has endorsed certain standards and interpretations that are not compulsory which will be applied by the Group in the following financial periods. The amendments and potential effects for the Group are summarised below: IFRS IFRIC interpretation IAS 32 Amendments Financial instruments: classification and presentation Effects for the Group The standard allows for the treatment as equity of rights issues on the occasion of a capital increase. The Group will apply such standard starting from 1 January No effects are expected for the Group. IFRS1 Revised First time adoption of IFRS Not applicable to the Group. IAS 27 Revised Consolidated and separate financial statements As of today the Group applies the Parent company approach, which is no longer in the scope of amended IAS 27. Due to such new standard, transactions with minority interests will not imply in the future the recognition of gains, nor any additional goodwill. The Group expects to apply such amendment starting from 1 January IFRS 3 Revised Business combinations The new version of IFRS 3 provides: (i) that transaction costs are recognised in the income statement; (ii) it is no longer compulsory to measure the assets and liability of the subsidiary at fair value in the acquisitions achieved in stages (step acquisitions); (iii) and the recognition at the acquisition date of the liabilities for conditional payments. The Group expects to apply these changes from 1 January IFRIC 13 Customer loyalty programmes The Group will apply such change starting from 1 January No significant effects are expected for the Group. IFRIC 16 Hedges on a net investment in a foreign operation The Group will apply such change starting from 1 January No significant effects are expected for the Group. IFRIC 17 Distributions of non-cash assets to owners The Group will apply such change starting from 1 January No significant effects are expected for the Group. IFRIC 18 Transfers of assets from customers The Group will apply such change starting from 1 January No significant effects are expected for the Group. There are a number of standards or amendments to existing principles issued by the IASB or new interpretations of the International Financial Reporting Interpretations Committee (IFRIC) for which the revision and approval project is still under way. Among these, we note: IFRS9 by this standard the IASB intends to amend significantly the treatment of financial instruments. During 2009 the IASB issued the first part of the new standard, which exclusively modifies the requirements for the classification and measurement of financial assets that are currently in the scope of IAS39. Still in 2009 the IASB published a document on the principles for the measurement of the amortised cost of financial instruments and for recognising impairment, if any. The new overall approach to financial instruments is currently under discussion by the various competent bodies and for the time being the date of adoption is not foreseeable; IFRIC14 Amendment (minimum contributions to pension funds) no significant effects are expected for the Group; IFRIC19 (extinguishing financial liabilities with equity instruments) - no significant effects are expected for the Group; IFRS2 Amendment (Group share-based payments) - no significant effects are expected for the Group; IFRS1 Amendment (additional exemptions for first-time adopters of IFRS, also in relation to the application of IFRS7) not applicable to the Group; IAS24 Revised (related party transactions) the standard only relates to the disclosures to provide for related party transactions. This will have no effects on the Balance Sheet, Income Statement and Statement of Cash Flows. Critical accounting estimates and assumptions Described below are the accounting principles that demand greater judgement on the part of the directors in making estimates. For these principles a change in the principles underlying the assumptions made could have a significant impact on Consolidated Financial Statements: Risk provisions and estimates of final costs of long-term contracts: the Group operates in business segments with especially complex contractual frameworks, which are entered in the accounts via the percentage of completion method. The operating margins in the Income Statement are a function both of the progress on a particular contract and of the operating margins that are expected to be recognised once the whole project is complete. Therefore, the correct assessment of work in progress and the operating margins expected from unfinished work requires a correct estimate on the part of management of the final costs and the estimated increases, as well as of the delays, cost overruns, and penalties that may reduce the expected operating margins. To provide a sounder basis for management estimates, the Group has equipped itself with procedures for managing and analysing contract risks, which aim to identify, monitor, and quantify the risks relating to the carrying out of these contracts. The figures entered in the accounts are management s best estimate at the time, made with the help of the above-mentioned procedures. Moreover, the Group operates in segments and markets where many problems are resolved only after a significant time-lag, especially in cases where the customer is a public body, 79

82 Consolidated Accounts Notes which obliges management to forecast the results of such disputes. The main potential loss situations classified as probable or possible (no provision is recognised for the latter) are discussed below. Goodwill: in accordance with the accounting standards adopted for the consolidated accounts, directors test goodwill annually, to establish whether there are any impairments to be entered in the Income Statement. Most importantly, this test includes the allocation of goodwill to cash generating units, and the subsequent determination of the relative fair value. If fair value is lower than the book value of the cash generating units, the value of goodwill allocated is brought into line with the recoverable value. The allocation of goodwill to cash generating units and the determination of the fair value of such CGUs involves making estimates that depend on factors that may change over time and which could therefore produce a significantly different outcome from that expected by directors at the time the Consolidated Financial Statements are drawn up. Impairment of assets: Group assets are tested for impairment at least annually if their lives are indefinite, or more often if there are indications of impairment. Similarly, impairment tests are conducted on all the assets showing signs of impairment, even if the amortisation already commenced. Impairment tests are generally conducted using the discounted cash flow method: however, this method is highly sensitive to the assumptions contained in the estimate of future cash flows and interest rates applied. For these valuations, the Group uses plans that have been approved by corporate bodies and financial parameters that are in line with those resulting from the current performance of reference markets. Hedging long-term contracts against foreign exchange risk: in order to hedge exposure to changes in flows of receipts and payments associated with long-term construction contracts denominated in currencies other than the functional currency, the Group enters into specific hedges for the expected individual cash flows in respect of the contracts. The hedges are entered into at the moment the contracts are finalised. Exchange-rate risk is normally hedged with plain vanilla instruments (forward contracts). In all cases where hedges prove to be ineffective, changes in the Fair value of such instruments are taken immediately to the Income Statement as financial items, while the underlying is valued as if it were exposed to exchange rate variations. The effects of this recognition policy are reported in the section Finance income and costs. Hedges in the former case are reported as Cash Flow Hedges, considering as ineffective the part relating to the premium or discount in the case of forwards or the time value in the case of options, which is recognised under financial items Effects of changes in accounting policies adopted The amendments to IAS 1 and the introduction of IFRS 8 only entail different disclosures. In particular, IAS 1 revised requires that entities present in the Statement of changes in equity exclusively the changes deriving from transactions with owners. The Group opted for presenting movements from transactions with non-owners in two separate statements, i.e. the Income Statement and the Statement of comprehensive income. IFRS 8 affects, on the one hand, segment information to provide, and, on the other, requires that this information is consistent with that adopted by management for operating decisions. More specifically, the amendments to IAS 23 eliminated the option of recognising in the Income Statement finance costs attributable to the acquisition, construction or production of a certain asset taking a substantial period of time to get ready for its intended use or sale (qualifying assets). The Group exercised the right to apply the new standard prospectively starting from 1 January 2009, without significant effects in the period. The other changes to the accounting standards and interpretations applicable since 1 January 2009 had no effect on these Consolidated Financial Statements. 80

83 Signalling and Transportation Solutions Annual Report Segment information With regard to the indicators used by the management to assess the Group s financial performance, please refer to paragraph 2.5 of the Report on operations. The Group operates in two different segments: signalling, for inter-city and urban railways, through the Signalling Business Unit and transport systems through the Transportation Solutions Business Unit. For more detailed analysis of the main programmes, outlook, and management indicators for each unit, see the Report on operations by segment. The results of the business units in the 2009 financial year, compared with those for the same period of the previous year, are as follows: EBIT by Business Unit Signalling Business Unit Transportation Solutions Business Unit Other operations Eliminations Total Revenue 804, ,130 - (46,468) 1,175,640 Other operating income 19,486 1,773 16,270 (15,868) 21,661 Raw materials and consumables used (164,523) (85,369) - 43,909 (205,983) Purchase of services (300,742) (254,759) (19,083) 17,183 (557,401) Personnel costs (236,321) (32,643) (11,679) - (280,643) Changes in inventories of work in progress, semi-finished and finished goods Amortisation, depreciation and impairment (11,416) (1,858) (370) - (13,644) Other operating expenses (13,852) (1,163) (1,124) 179 (15,960) (-) Work performed by the Group and capitalised 1, ,132 EBIT 98,992 43,111 (15,986) (1,065) 125,052 EBIT by Business Unit Signalling Business Unit Transportation Solutions Business Unit Other operations Eliminations Total Revenue 824, ,583 18,266 (38,831) 1,105,515 Other operating income 18,803 8,157 1,830 (7,101) 21,689 Raw materials and consumables used (205,691) (58,481) (39) 16,639 (247,572) Purchase of services (289,691) (192,963) (12,955) 31,241 (464,368) Personnel costs (227,312) (28,542) (8,790) (1,964) (266,608) Amortisation, depreciation and impairment (11,615) (734) (1,884) - (14,233) Other operating expenses (10,296) (950) (3,916) 16 (15,146) Changes in inventories of work in progress, semi-finished and finished goods (2,578) (2,578) (-) Work performed by the Group and capitalised EBIT 96,980 28,070 (7,488) - 117,562 81

84 Consolidated Accounts Notes Working capital by Business Unit Signalling Business Unit Transportation Solutions Business Unit Other operations Eliminations Total Inventories 94,686 15,557 - (11,065) 99,178 Contract work in progress, net (303,314) (210,693) - 13,203 (500,804) Trade receivables 292, ,119 6,408 (50,638) 526,500 Trade payables (108,491) (180,044) (7,957) 48,324 (248,168) Working capital (24,508) (97,061) (1,549) (176) (123,294) Provisions for risks and charges (24,690) (906) (2,130) - (27,726) Other net assets (liabilities) (17,514) (15,767) (2,993) 176 (36,098) Net working capital (66,712) (113,734) (6,672) - (187,118) Working capital by Business Unit Signalling Business Unit Transportation Solutions Business Unit Other operations Eliminations Total Inventories 74,581 18,877 - (584) 92,874 Contract work in progress, net (211,945) (145,364) (356,724) Trade receivables 250, ,700 4,391 (29,472) 370,014 Trade payables (114,643) (121,396) (6,935) 29,473 (213,501) Working capital (1,612) (103,183) (2,544) 2 (107,337) Provisions for risks and charges (25,541) (872) (2,130) 2 (28,541) Other net assets (liabilities) (10,063) (18,875) (1,504) (2) (30,444) Net working capital (37,216) (122,930) (6,178) 2 (166,322) 82

85 Signalling and Transportation Solutions Annual Report 2009 As a result of the merger through incorporation between Ansaldo STS SpA and its subsidiaries Ansaldo Segnalamento Ferroviario SpA and Ansaldo Trasporti Sistemi Ferroviari SpA effective from 1 January 2009 and in consideration of the Group s current restructuring, the Group has presented itself since the first quarter of 2009 in the segment reporting with an Income Statement targeted to EBIT and, where necessary, Adjusted EBIT, and with a Balance Sheet that lays emphasis on the working capital, with full details of all its components. The break-down by geographical area is the following: Revenue (EUR 000) Italy 560, ,665 Rest of Western Europe 222, ,422 North America 74,796 87,005 Asia Pacific 256, ,709 Others 61,060 19,714 Total 1,175,640 1,105,515 Fixed assets (EUR 000) Italy 111, ,132 Rest of Western Europe 11,075 9,253 North America 15,066 16,639 Asia Pacific 6,841 4,052 Others Total 144, ,076 83

86 Consolidated Accounts Notes 3.3 Notes to the Balance Sheet Transactions with related parties Transactions with related parties are conducted at arm s length. Interest-bearing receivables and payables that are not governed by specific contractual conditions are treated in the same manner. Below are provided the amounts relating to the earnings and financial performance. The incidence on the financial flows of related-party transactions is instead reported directly in the Statement of Cash Flows. Receivables at (EUR 000) Non-current financial receivables Other non-current receivables Current financial receivables Trade receivables Other current receivables Total Parent company Finmeccanica S.p.A , ,618 Subsidiaries Alifana S.c.r.l Alifana Due S.c.r.l ,769-3,769 Associates International Metro Service S.r.l Metro 5 S.p.A ,770-33,770 Pegaso S.c.r.l Metro Service Ecosen Joint Ventures (*) Balfour Beatty Ansaldo Syst. JV SDN BHD Consortiums Consortium Saturno ,515 1,360 68,875 Consortium Ascosa quattro ,111-1,111 Consortium Ferroviario Vesuviano ,711-13,711 Consortium San Giorgio Volla Due Consortium San Giorgio Volla ,421-1,421 Other Group companies AnsaldoBreda S.p.A ,613-6,613 Finmeccanica Finance S.A. 151, ,510 Elsag Datamat S.p.A Selex Communication S.p.A Galileo Avionica S.p.A I.M. Intermetro S.p.A AnsaldoBreda Inc. ex Breda Transp Inc Westland Industries Ltd Electron Italia S.r.l Total , ,654 1, ,200 % on the total for the year % 25% 4% - (*) Amounts refer to the portion not eliminated for proportionate consolidation. 84

87 Signalling and Transportation Solutions Annual Report 2009 Receivables at (EUR 000) Non-current financial receivables Other non-current receivables Current financial receivables Trade receivables Other current receivables Total Parent company Finmeccanica S.p.A Subsidiaries Alifana S.c.r.l Alifana Due S.c.r.l ,014-5,014 Associates International Metro Service S.r.l Metro 5 S.p.A ,845-18,845 Pegaso S.c.r.l Consortiums Consortium Saturno ,636 1,360 50,996 Consortium Ascosa quattro Consortium Ferroviario Vesuviano ,485-3,485 Consortium San Giorgio Volla Due ,768-3,768 Consortium San Giorgio Volla ,421-1,421 Other Group companies AnsaldoBreda S.p.A , ,464 Finmeccanica Finance S.A , ,509 Elsag Datamat S.p.A Selex Communication S.p.A. 1 1 Galileo Avionica S.p.A I.M. Intermetro S.p.A Total ,509 88,609 2, ,350 % on the total for the year % 24% 6% - 85

88 Consolidated Accounts Notes Payables at (EUR 000) Non-current borrowings Other non-current payables Current borrowings Trade payables Other current payables Total Parent company Finmeccanica Sede S.p.A Subsidiaries Alifana S.c.r.l Alifana Due S.c.r.l ,601-2,601 Associates Metro Service Metro 5 S.p.A Pegaso S.c.r.l ,983-1,983 Joint Ventures (*) Balfour Beatty Ansaldo Syst. JV SDN BHD ,687-1,687 Consortiums Consortium Saturno Consortium Ascosa Quattro Consortium Team Consortium San Giorgio Volla Due Consortium Ferroviario Vesuviano Consortium San Giorgio Volla Consortium Cesit Other Group companies Finmeccanica Group Service S.p.A AnsaldoBreda S.p.A ,429-1,429 Finmeccanica Finance S.A Elsag Datamat S.p.A ,233-3,233 Selex Communication S.p.A ,578-4,578 Selex Service Management S.p.A Finmeccanica North America Inc Fata Logistic System S.p.A Electron Italia S.r.l Hr Gest S.p.A Galileo Avionica S.p.A I.M. Intermetro S.p.A Other , ,338 Total , ,965 % on the total for the year 8% 1% (*) Amounts refer to the portion not eliminated for proportionate consolidation. 86

89 Signalling and Transportation Solutions Annual Report 2009 Payables at (EUR 000) Non-current borrowings Other non-current payables Current borrowings Trade payables Other current payables Total Parent company Finmeccanica Sede S.p.A Subsidiaries Alifana S.c.r.l Alifana Due S.c.r.l ,021-5,021 Ansaldo Railway System Technical Service (Beijing) Ltd Associates Metro Service Metro 5 S.p.A ,210 3,210 Pegaso S.c.r.l ,055-4,055 Consortiums Consortium Saturno Consortium Ascosa Quattro Consortium Team Consortium San Giorgio Volla Consortium Ferroviario Vesuviano Consortium San Giorgio Volla Consortium Cesit Other Group companies Finmeccanica Group Service S.p.A AnsaldoBreda S.p.A ,119-3,119 Finmeccanica Finance S.A Elsag Datamat S.p.A ,633-1,633 Selex Communication S.p.A ,280-6,280 Fata Logistic System S.p.A Electron Italia S.r.l Hr Gest S.p.A Galileo Avionica S.p.A I.M. Intermetro S.p.A Other Total ,523 3,979 27,654 % on the total for the year - - 2% 11% 5% Intangible assets (EUR 000) Goodwill Patents & similar rights Concessions, licenses and trademarks Assets under development Other Total Balance at 31 December , ,305 48,922 Change in scope of consolidation Acquisitions ,277 Capitalisations Disposals Amortisation and impairment - (206) (457) - (2,125) (2,788) Other movements (3,822) (3,822) Opening/closing foreign exchange rate differences (16) Transfer account from work in progress Reclassifications (203) 84 - Balance at 31 December , ,030 7,203 44,636 87

90 Consolidated Accounts Notes Investments for the period came to EUR 2,315 thousand and mainly regarded the following companies: ansaldo STS SpA (EUR 1,333 thousand), ascribable to the implementation of a new release of the SAP information system in harmony with the new control model of the Group based on new integration and standardisation logics within the Fast Forward Driven by Business project, to the new Teamcenter document management system and to the purchase of software licenses in support of design activities. ansaldo STS Australia PTY Ltd and subsidiaries thereof (EUR 469 thousand) mainly for long-term costs linked to software development projects. ansaldo STS France SA (EUR 435 thousand) mainly for acquisitions of software licenses. ansaldo STS USA Inc. (EUR 76 thousand) mainly for long-term costs linked to software development projects. Amortisation for the period amounted to EUR 2,781 thousand and foreign exchange rate differences were positive for EUR 9 thousand. With regard to goodwill, included in the equity investments acquired on 24 February 2006 (as reported above), the breakdown by sector is as follows: (EUR 000) Signalling 35,017 38,855 Transportation Solutions ,017 38,855 The value of goodwill showed a decrease of EUR 3,838 thousand, due to the accounting effects of the mergers through incorporation occurred in the financial year, that led to the writing-off - using a portion of the merger surplus - of the goodwill carried by Ansaldo Seganalmento Ferroviario equal to EUR 1,825 thousand and by Ansaldo Signal NV equal to EUR 1,997 thousand, formed by the previous acquisitions of business concerns no longer existing, and for EUR (16) thousand to exchange differences. The impairment test, in application of the Group procedures, is carried out upon the preparation of the Annual Report. The test is conducted on the reference cash generating units (CGUs), Signalling and Transportation Solutions, by comparing the carrying amount with the greater of the value in use of the CGU and the amount recoverable by sale. In particular, the value in use is measured by discounting the cash flows of the five-year plans approved by management with reference to the years hypothesising a growth rate of 8%, projected beyond the explicit time horizon covered by the plan using growth rates no greater than those forecast for the market in which the given CGUs operate Property, plant and equipment (EUR 000) Land and buildings Plant and machinery Equipment Assets under construction Other Leased assets Advances to suppliersthird parties materials Total Balance at 31 December ,598 5,605 5,655 2,912 12, ,155 Acquisitions 419 2,979 1,502 2,612 3, ,048 Capitalisations , ,094 Sales (26) (98) (37) (88) (194) (26) - (469) Depreciation and impairment (2,298) (1,628) (1,614) (3,381) (123) - (9,044) Opening/closing foreign exchange rate differences (34) 12 (25) (68) Reclassifications (2,602) (5) Balance at 31 December ,889 7,319 6,376 3,766 13, ,993 Property, plant and equipment include the value of the premises owned by the Parent company, Ansaldo STS SpA, located in Genoa, Via Mantovani 3/ and purchased in December 2005 from its parent Finmeccanica SpA for EUR 62,378 thousand. In accordance with IAS 16, the component approach was applied to the above amount and therefore the amount of EUR 9,353 thousand was reclassified among the item Land. 88

91 Signalling and Transportation Solutions Annual Report 2009 Investments for the period came to EUR 12,142 thousand and are detailed by company: eur 3,450 thousand - Ansaldo STS SpA: mainly relative to renovation works and to the instrumentation acquired for the Tito factory, for the Naples engineerings and software maintenance for production in the sites where the company operates. eur 3,140 thousand Ansaldo STS France: mainly relating to the purchase of furniture, fittings and equipment for technical labs, to the extension of the French and Spanish offices and to the maintenance of the Riom plants. eur 1,717 thousand Ansaldo STS USA: mainly relative to the maintenance of the plants in the Batesburg factory. eur 2,190 thousand Ansaldo System Trading (Beijing) Ltd relating to the project for the establishment of two technical labs; eur 1400 thousand Asia Pacific area companies (Australia, India, Malaysia): mainly attributable to the expansion and reorganisation of the sites to support the growth of production and of personnel. eur 245 thousand other European companies (Ansaldo STS Sweden, Ansaldo STS U.K., Ansaldo STS Ireland and Ansaldo STS Deutschland). Depreciation for the period amounted to EUR 9,044 thousand and foreign exchange differences were positive for EUR 214 thousand Equity investments (EUR 000) Balance at 31 December ,320 Change in scope of consolidation (1,181) Acquisitions/subscriptions and capital increases 400 Revaluations/impairment Disposals/repayments (21) Balance at 31 December ,518 Equity investments 7,736 Total equity investments 30,254 89

92 Consolidated Accounts Notes List of equity investments with values in thousands of euros: Name Ownership % Total assets Total liabilities data Currency Value /000 Metro 5 S.p.A. (**) 24.60% 271, ,613 2 Euro 6,145 International Metro Service S.r.l. (**) 49.00% 4,718 1,821 2 Euro 1,420 Pegaso S.c.r.l. (**) 46.87% 14,911 14,651 2 Euro 122 Ecosen C.A. (**) 48.00% 3,033,684 2,788,291 2 Vbf 18 Alifana S.c.a.r.l. (**) 65.85% 1,047 1,021 2 Euro 17 Alifana Due S.c.r.l. (**) 53.34% 12,149 12,103 2 Euro 14 Metro C S.c.p.A % 366, ,990 3 Euro 21,000 Ansaldo STS Sistemas de Transporte e Sinalizacao LTDA % Euro 400 I.M. Intermetro S.p.A % 1,538,743 1,532,832 2 Euro 523 Società Tram di Firenze S.p.A. 3.80% 25,208 18,663 1 Euro 266 Iricav uno 17.44% 3,473,968 3,473,448 2 Euro 91 Iricav % 52,679 52,162 2 Euro 77 Cons. ferroviario vesuviano 25.00% 235, ,054 2 Euro 39 S. Giorgio Volla % 26,033 25,961 2 Euro 18 Cris 1.00% 4,603 2,164 2 Euro 24 S. Giorgio Volla 25.00% 6,236 6,163 2 Euro 18 Ascosa Quattro 25.00% 79,818 79,761 3 Euro 14 Siit 2.30% Euro 14 Cesit 16.67% Euro 14 Saturno 33.34% 2,381,575 2,381,544 2 Euro 10 Cons. Train 3.76% 38,023 37,291 2 Euro 4 Sesamo S.c.a.r.l. 2.00% Euro 2 Isict 6.67% Euro 2 Cosila 0.90% Euro 1 Filobus Vesuvio 1.00% 2,760 2,709 2 Euro 1 (**) Investments at equity 1 data refers to financial year data refers to financial year data refers to financial year Equity investments at 31 December 2009 amounted to EUR 30,254 thousand, of which EUR 7,736 thousand valued with the net equity method and EUR 22,518 thousand valued at cost. The equity investments valued with the net equity method showed a positive variation of EUR 1,019 thousand due to: the positive result of International Metro Service Srl for EUR 1,076 thousand, the loss of Metro 5 SpA for EUR 3 thousand, the impairment of the Venezuelan company Ecosen for EUR 53 thousand and to foreign exchange rate difference for EUR (1) thousand. The investments valued at cost recorded at 31 December 2009 the formation of a new company in Brazil, Ansaldo STS Sistemas de Transporte e Sinalizacao LTDA for EUR 400 thousand and a decrease of EUR 1,202 thousand. This decrease is mainly attributable to the change in the consolidation method occurred in the first semester of 2009, according to which the following companies have been consolidated on a line-by-line basis: Ansaldo System Trading (Beijing) Ltd acquired in the course of 2008 for EUR 1,078 thousand; Ansaldo STS Infradev South Africa Pty Ltd acquired for EUR 103 thousand; And for the remaining portion is attributable to: Consortium Team as a result of the closing-down for EUR 10 thousand; Consortium San Giorgio Volla as a result of the adjustment due to the new distribution of quotas for EUR 11 thousand. 90

93 Signalling and Transportation Solutions Annual Report Receivables and other non-current assets (EUR 000) Loans to third parties - - Receivables from employees - 4 Security deposits 2,150 1,622 Receivables for finance lease sales - - Personal Income Tax receivables on severance pay Other 11,434 9,350 Non-current receivables 13,778 11,517 Financial prepaid expenses - non-current portion - - Other prepaid expenses - Finmeccanica 26,211 26,020 Other non-current assets - - Other non-current assets 26,211 26,020 Non-current receivables at 31 December 2009 came to EUR 13,778 thousand rising by EUR 2,261 thousand mainly for the increase in security deposits of the Italian and foreign subsidiaries; other receivables mainly refer to the American subsidiary Ansaldo STS USA in relation to the Pittsburgh facilities lease receivable for EUR 8,955 thousand and to the Group parent Ansaldo STS for EUR 2,176 thousand attributable to the portion paid by the partners to the Joint Venture Thessaloniki metro - assignee of the contract for the construction of the said underground and for which the Group shares the expenses that the Joint Venture has been incurring - in the initial phase of the development of the contract. The advance will be paid back under the terms of the agreement reached by the partners. Other non-current assets amounted to EUR 26,211 thousand and refer to the non-current portion of the long-term costs incurred to purchase the right to use the Ansaldo trademark for 20 years. Specifically, on 27 December 2005, Ansaldo STS SpA entered into a licensing agreement with Finmeccanica SpA to use the Ansaldo trademark under which the Company is known in the market. This agreement gives the Company exclusive use of the trademark up to 27 December 2025 in the sectors the Group does business, in exchange for an up-front payment of EUR 32,213 thousand Inventories (EUR 000) Raw materials, supplies and consumables 35,951 39,365 Work in progress and semi-finished goods 17,452 16,948 Finished goods and merchandise 10,653 11,697 Advances to suppliers 35,122 24,864 Total 99,178 92,874 Inventories are stated net of write-down provisions totalling EUR 5,255 thousand (EUR 4,340 thousand at 31 December 2008) Contract work in progress and advances from customers (EUR 000) Advances from customers (13,390) (21,910) Invoices of instalments (653,687) (750,469) Work in progress 818, ,060 Work in progress (net) 151, ,681 Advances from customers 259,329 55,403 Invoices of instalments 4,267,530 3,788,137 Work in progress (3,874,909) (3,341,135) Advances from customers (net) 651, ,405 Work in progress is recognised as an asset if a contract-by-contract analysis reveals that the gross value of the work in progress is higher than the advances from customers. It is recognised as a liability if the advances from customers exceed the value of the related work in progress. The increase in advances from customers is due to the advances received in the course of the financial year. 91

94 Consolidated Accounts Notes Trade and financial receivables (EUR 000) Trade Financial Trade Financial Receivables from third parties 395,846 14, ,405 - Total receivables from third parties 395,846 14, ,405 - Receivables from related parties 130, ,792 88, ,509 Total 526, , , ,509 Trade receivables from third parties came to EUR 395,846 thousand at 31 December 2009 rising by EUR 114,441 thousand over 31 December 2008 (EUR 281,405 thousand) mainly due to higher receivables of the Group parent Ansaldo STS SpA as a result of the increased number of invoices made in the last part of the year. Trade receivables from related parties showed an increase of EUR 42,045 thousand mainly attributable to the Group parent Ansaldo STS SpA as a result of the invoices made in 2009 to Metro 5 SpA and Consortium Saturno. Financial receivables from third parties at 31 December 2009 amounted to EUR 14,100 thousand and are essentially attributable to the Australian subsidiary as a result of short-term deposits with local bank institutes. Financial receivables from related parties amounted to EUR 152,792 thousand and are referable for EUR 151,510 thousand to relationships with Finmeccanica Finance SA and EUR 1,282 thousand with Finmeccanica Spa. With regard to CONSOB communication no. DAC/RM/ of 9 April 1997, the Group reports that during the financial year ended 31 December 2009 it did not assign any recourse and non-recourse receivables Income tax receivables and payables (EUR 000) Assets Liabilities Assets Liabilities For direct taxes 7,029 3,667 14,081 7,247 Total 7,029 3,667 14,081 7,247 It should be reported that following the merger through incorporation between Ansaldo STS SpA and its subsidiaries Ansaldo Segnalamento Ferroviario SpA and Ansaldo Trasporti Sistemi Ferroviari SpA, the utilisation of the Consolidated Taxation Mechanism for the purposes of the IRES application - whose option had been exercised on 15 June 2007 has been suspended since 1 January Income tax receivables amounted to EUR 7,029 thousand at 31 December 2009 compared with EUR 14,081 thousand at 31 December 2008, with a decrease of EUR 7,052 thousand. This decrease is attributable to the Group parent Ansaldo STS SpA for EUR 5,399 thousand, as a result of the IRES and IRAP tax receivables for greater advances paid in 2008 by ASF, ASTS and used in June with the full settlement of the taxes relating to the 2008 taxable period and to the French subsidiary Ansaldo STS France for EUR 2,584 thousand, in consequence of the reimbursement obtained in relation to the R&D activities carried out. Income tax receivables mainly refer to the Group parent Ansaldo STS SpA for EUR 1,323 thousand, to the French companies of the Group for EUR 3,547 thousand, to the Australian companies of the Group for EUR 1,693 thousand and to the American companies of the Group for EUR 466 thousand. Income tax payables amounted to EUR 3,667 thousand at 31 December 2009 with a decrease of EUR 3,580 thousand compared with 31 December 2008 (EUR 7,247 thousand). Income tax payables are mainly referable to the Group parent Ansaldo STS SpA for EUR 1,452 thousand, to the French subsidiaries for EUR 685 thousand, to the subsidiaries of the Asia Pacific area for EUR 1,440 thousand and to Ansaldo STS Irlanda for EUR 8 thousand. Income tax payables of the Group parent Ansaldo STS refer to IRES for EUR 1,386 thousand and to IRAP for EUR 66 thousand; both values are net of the advance payments. 92

95 Signalling and Transportation Solutions Annual Report Other current assets (EUR 000) Current portions of prepaid expenses 13,502 16,968 Research subsidies 2,903 3,278 Receivables from employees Receivables from social security institutions Receivables for security deposits Receivables for indirect taxes and other amounts due from tax authorities 4,995 6,989 Other 11,818 5,257 Total other assets 38,370 34,550 Other assets from related parties 1,754 2,232 Total 40,124 36,782 Other current assets from third parties at 31 December 2009 came to EUR 38,370 thousand with an increase of EUR 3,820 thousand compared with the figures as at 31 December 2008 (EUR 34,550 thousand); this change is mainly attributable to the increase in other assets pertaining to the subsidiaries of the Asia Pacific area. Other assets from related parties at 31 December 2009 amounted to EUR 1,754 thousand and showed a decrease of EUR 478 thousand compared with the amounts recorded at 31 December 2008 (EUR 2,232 thousand) Cash and cash equivalents (EUR 000) Cash Bank deposits 128,452 71,493 Total 128,541 71,536 The balance of cash and cash equivalents at 31 December 2009 amounted to EUR 128,541 thousand and mainly refer to Ansaldo STS SpA for EUR 105,615 thousand, Ansaldo STS USA for EUR 14,036 thousand and Ansaldo STS France for EUR 3,146 thousand. Compared with 31 December 2008 cash and cash equivalents rose by EUR 57,005 thousand, due to the greater liquidity of the Group parent Ansaldo STS SpA. For comments on the variations, please refer to paragraph 2.4 relative to the financial position of the Group Share capital Number of shares Par value Treasury shares Total Outstanding shares 100,000,000 e 50,000, e 50,000, Charges for share capital increase in e 50, Buy-back of treasury shares, net of shares sold e 693, e 693, December ,000,000 e 50,000, e 693, e 49,256, Buy-back of treasury shares, net of shares sold e 112, e 112, Reclassifications e 50, December ,000,000 e 50,000, e 806, e 49,193, The share capital of EUR 50,000, is fully paid-up and divided into 100,000,000 ordinary shares with a par value of EUR 0.50 each. 93

96 Consolidated Accounts Notes The main shareholders are: Investor Position Finmeccanica S.p.A. 40,000,000 FIL Investments International Ltd. 4,863,659 Altrinsic Global Advisors LLC 2,092,442 Threadneedle Asset Management Ltd. 2,069,710 William Blair Capital Management LLC 2,034,601 Following the mergers made in the financial year, which resulted in the creation of sufficient reserves, the amount relating to the charges attributable to the 2005 capital increase has been reclassified to the reserves. The amount relating to treasury shares (no. 59,171 shares) refers, almost entirely, to shares held by the Group parent Ansaldo STS Spa, at the instructions of the beneficiaries, to meet their tax obligations in its capacity as tax collection agent for Italian employees who are beneficiaries of the Stock Grant Plan Retained earnings /(losses) carried forward Retained earnings/ (losses) carried forward: (EUR 000) Balance at 31 December ,729 Reclassification of actuarial reserve related to defined-benefit plans 577 Allocation of the period result to legal reserve (380) Actuarial gain (loss) related to defined-benefit plans - Net Profit (Loss) for the period 87,756 Dividends (26,971) Other movements 508 Share capital increase/capital contributions - Balance at 31 December ,219 Retained earnings/(losses) carried forward at 31 December 2009 amounted to EUR 273,219 thousand with an increase of EUR 61,490 thousand, mainly attributable to the Group s result accrued in the period for EUR 87,756 thousand, to the distribution of dividends for EUR 26,971 thousand and to the reclassification to other reserves of actuarial reserves related to defined-benefit plans. The item other movements mainly refers to the subsidiary Ansaldo Signal NV in liquidation as a result of valuation adjustments of derivatives occurred after the closing of the 2008 Consolidated Financial Statements Other reserves (EUR 000) Legal reserve Cash Flow Hedge reserve Stock grant reserve Reserve for deferred taxes relating to items posted to shareholders equity Translation reserve Other Total 31 December ,070 3,338 2,225 (52) (24,767) (6,541) (22,727) Reclassification of actuarial reserve related to defined-benefit plans (577) (577) Change in scope of consolidation (1,181) (1,181) Charge to Income Statement ,212 Translation differences ,766-8,766 Increase/Decrease (428) - - (930) (978) Valuations posted to shareholders equity - (7,420) (6,785) Other movements - (30) 15 (222) (40) 1, December ,450 (3,763) 1,812 1,224 (16,041) (8,198) (21,516) 94

97 Signalling and Transportation Solutions Annual Report 2009 Legal reserve The legal reserve amounted in the period under review to EUR 3,450 thousand with an increase of EUR 380 thousand equal to 5% of the net profit realised by Ansaldo STS SpA in the financial year 2008 and allocated to legal reserve as decided by the Shareholders Meeting in the course of approving the 2008 Financial Statements. Cash flow hedge reserve This reserve includes the fair value of derivatives used by the Group to hedge its exposure to currency or interest rate risk, net of the effects of deferred taxes, until the moment in which the underlying position is recognised in the Income Statement. When this condition is met, the reserve is recognised in the Income Statement to offset the economic effects of the hedged transaction. Stock grant reserve The stock grant reserve came to EUR 1,812 thousand, a decrease of EUR 413 thousand over the preceding year. The Stock grant reserve is composed of as follows: eur (186) thousand reserve created at the end of the financial year 2007, 2008 and 2009 following the delivery of shares, whose value had been set aside in the previous financial years. eur 1,998 thousand allocation of the Stock Grant plan relative to 2009 (delivery: December 2010). Reserve for deferred taxes relating to items posted to shareholders equity The reserve for deferred taxes relating to items posted to shareholders equity was equal to EUR 1,224 thousand and was created to recognise the deferred tax assets arising from actuarial gains/losses resulting from the adoption of the equity method for definedbenefit plans and from Cash Flow Hedges. Translation reserve This reserve is used to recognise the exchange rate differences resulting from the translation of the financial statements of consolidated companies. The most significant amounts were the result of the consolidation of the American subsidiary Ansaldo STS USA. Other reserves Other reserves relate to the consolidation reserves, to the unrecoverable capital contribution received from the Parent Finmeccanica SpA on 23 February 2006, to the revaluation reserves, and other reserves related to the subsidiaries incorporated through the merger in force since 1 January 2009; actuarial reserves related to defined-benefit plans are also included. It should be reported that following the merger, the consolidation reserve showed increases as a result of the utilization of the merger surplus emerged for the recording of deferred tax assets and for the writing-off of the goodwill carried by the merged Ansaldo Segnalamento Ferroviario ascribable to the previous acquisitions of business concerns no longer existing Minority interests in equity Minority interests in equity: (EUR 000) Balance at 31 December Change in scope of consolidation - Profits attributable to minority interests 44 Consolidation reserve attributable to minority interests 125 Translation reserve attributable to minority interests (23) Balance at 31 December This refers to the minority interests equal to 20% of Ansaldo STS Beijing Ltd having its registered office in Beijing (China) held by the French subsidiary Ansaldo STS France and to the minority interests equal to 49.30% of Ansaldo STS InfraDEV South Africa Pty Ltd having its registered office in Johannesburg (South Africa) held by the Australian subsidiary Ansaldo STS Australia PTY Ltd. 95

98 Consolidated Accounts Notes Borrowings (EUR 000) Current Non-current Total Current Non-current Total Bank borrowings 12,187 2,881 15,068 8,713 3,315 12,028 Finance lease payables Other borrowings 340 1,151 1, ,432 2,968 Total 12,540 4,032 16,572 9,276 5,747 15,023 Changes during the period were as follows: (EUR 000) New positions New positions Reclassifications Altri movimenti Bank borrowings 12,028 2,784 (434) ,068 Finance lease payables 27 - (18) Other borrowings 2, (1,757) (536) 476 1,491 Total 15,023 3,124 (2,209) ,572 Bank borrowings Bank borrowings, equal to EUR 15,068 thousand, are mainly attributable to the subsidiaries of the Asia Pacific area for EUR 9,621 thousand and to the Group parent Ansaldo STS SpA for EUR 5,428 thousand and refer to facilitated loans obtained in relation to research programs. Finance lease payables These payables refer to the tangible assets held by the Group under finance lease contracts. The amount at 31 December 2009 was equal to EUR 13 thousand and refers to the finance lease of automobiles by the subsidiaries of the Asia Pacific area. Due to other lenders This item showed a negative variation of EUR 1,477 thousand mainly due to the reclassification of the payable towards Mediocredito Centrale from other borrowings to bank borrowings and refers more widely to the Train and Simest projects. Financial debt The Group s financial liabilities are subject to the following repayment schedules and exposures to interest rate risk: 31 December 2009 Bank borrowings Bonds Related parties Other Total Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Within 1 year 11,009 1, ,009 1,531 2 to 5 years - 2, ,151-4,032 Beyond 5 years Total 11,009 4, ,504 11,009 5, December 2008 Bank borrowings Bonds Related parties Other Total Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Within 1 year 7,154 1, ,154 2,122 2 to 5 years - 3, ,432-5,747 Beyond 5 years Totale 7,154 4, ,995 7,154 7,869 96

99 Signalling and Transportation Solutions Annual Report 2009 Below is the financial information required under CONSOB communication no. DEM/ of 28 July 2006: (EUR 000) A. Cash B. Other cash equivalents (bank accounts) 128,452 71,493 C. Securities held for trading - - D. LIQUIDITY (A+B+C) 128,541 71,536 E. CURRENT FINANCIAL RECEIVABLES 166, ,509 F. Current bank borrowings 12,187 8,713 G. Current portion of non-current debt - - H. Other current borrowings I. CURRENT FINANCIAL DEBT (F+G+H) 12,540 9,428 J. CURRENT FINANCIAL DEBT, NET (I-E-D) (282,893) (201,617) K. Non-current bank borrowings 2,881 3,315 L. Bonds issued - - M. Other non-current payables 1,151 2,432 N. NON-CURRENT FINANCIAL DEBT (K+L+M) 4,032 5,747 O. NET FINANCIAL DEBT (LIQUIDITY) (J+N) (278,861) (195,870) Provisions for risks and charges and contingent current liabilities (EUR 000) Penalties Product warranties Labour disputes Provision for taxes Contractual risks and charges Disputes with third parties Provision for restructuring Other Total Balance at 31 December , ,034 4, ,757 28,541 Reclassifications ,900 2,900 Allocations - 3, ,367-1, ,438 Reversals (1) (2,815) (60) (992) (1,329) - - (952) (6,149) Uses - (208) (15) (43) (33) - (1,824) (1,895) (4,018) Other changes - (15) (12) Balance at 31 December , (1) 4, ,916 27,726 Current 90 14, ,034 4, ,757 28,541 Non-current Balance at 31 December , ,034 4, ,757 28,541 Current 89 15, (1) 4, ,916 27,726 Non-current Balance at 31 December , (1) 4, ,916 27,726 The risk provisions at 31 December 2009 amounted to EUR 27,726 thousand decreasing by EUR 815 thousand compared with 31 December In relation to the risk provisions, it should be reported that the companies of the Ansaldo STS Group operate in sectors and markets where many issues - both those initiated by the Group or those initiated by third parties against the Group - are resolved only after a considerable time-lag, especially where the party being dealt with is a government body. To the best of our current knowledge, the various disputes that could give rise to a liability on the part of the Group that are not covered by a specific provision can be resolved in a satisfactory manner without a significant impact on results. Provisions have been made for any quantifiable liability that is likely to arise. 97

100 Consolidated Accounts Notes As to litigation, the following is noted: with regard to Ansaldo STS SpA there are no disputes that are so significant or risky as to require specific disclosure, except for what herein described; none of the subsidiaries of the Transportation Solutions Business Unit or Signalling Business Unit is involved in litigation that is so significant or risky as to require specific further disclosure; for litigation in which, on the basis of a prudent evaluation, an adverse outcome is likely, the relevant companies have established provisions to cover such eventuality. The Concessions released to TAV by the Ente Ferrovie dello Stato for the Milan-Verona, Verona-Padua and Milan-Genoa lines and to the General Contractors were revoked at the beginning of 2007 by the Italian Government. The decree also establishes that, with respect to the termination of contract, the General Contractors will be entitled to compensation to the extent of the actual loss. The Iricav Due Consortium, which had already initiated arbitration proceedings to obtain the termination of the Convention for TAV s failure to perform its obligations - complaining specifically about the failure to perform acts of co-operation, including the development of the preliminary design and the raising of financial resources - following the revocation of the concession, has served notice of an appeal filed to the Lazio Regional Administrative Court (TAR). The aim was to obtain the cancellation of the orders of the Ministry of Transportation and RFI SpA and the submission of the demand for a preliminary ruling to the Court of Justice of the European Communities. In fact, in April 2007 TAV SpA had already formally presented to the Consortium a claim for the repayment of the advance and the related interest accrued to the date of payment and for the delivery of all project documents presented during the concession period. The Lazio TAR suspended the effectiveness of the orders, subsequent to the law, with which RFI SpA revoked the concession and with which TAV SpA terminated contracts with the three General Contractors. The Lazio TAR also transferred the case to the European Court of Justice to verify, as requested by the appellant firms, the alleged incompatibility with European regulations. TAV SpA appealed against this ruling to the Council of State to obtain the revocation of the suspension of the ruling of the court of first instance, without prejudice to the ruling on the main issue expected following the ruling of the European Court of Justice. In 2007 the Ministry of Infrastructures proposed to the plaintiffs the formation of ad-hoc technical workshops to come to an agreement. Such workshops have never been formed. In the meanwhile, the Council of State with Order dated 10 October 2007 upheld the appeals made by the Office of the Prime Minister and the Ministry of Transportation, by TAV SpA and by R.F.I. SpA amending the Lazio TAR order, confirming the legitimacy of the submission to the European Court of Justice in relation to the evaluation of the compatibility of the revocation order with the EC regulations. In September 2008 the Advocate General of the European Court of Justice deposited its opinions and acknowledged the legitimacy of the issued orders of revocation of the Convention. As a consequence, the Iricav Due Consortium notified the discontinuance of the administrative case, in abeyance, while awaiting the pronunciation of the European Court of Justice. Following the discontinuance of the administrative case submitted by the Iricav Due Consortium, the Lazio TAR delivered a judgement which takes note of the discontinuance of the administrative action presented by the Consortium. This sentence was notified to the European Court of Justice, which should also quash the preliminary ruling pending before the same, without thus pronouncing a judgement in relation to the compatibility with the EC regulations. On 21 August 2008, Law no. 133 of 6 August 2008 was published being converted from Legislative Decree no.112 of 25 June 2008, which repealed Art. 13 of Legislative Decree no.7 of 31 January 2007 converted into Law no. 40 of 2 April 2007, which since 1 January 2009 has cancelled concessions (conventions) stipulated in between TAV and their respective General Contractors. Iricav Due Consortium decided not to avail itself of Art. 12 of Law no.133 dated 6 August 2008 converted into Legislative Decree no. 112 of 25 June 2008, that brought into force the Concessions again, but in its own interest to continue the arbitration proceedings also because in the event of abandonment, it could no longer be initiated afterwards for the same reasons for which the termination to the detriment of TAV has been requested. In the course of 2009 the Arbitration Board decided that it was necessary to have a court-appointed expert s report; the related surveying operations should end in

101 Signalling and Transportation Solutions Annual Report Severance pay and other employee liabilities The amount and the changes in the severance pay provision and in the defined-benefit pension plans are reported below: (EUR 000) Severance pay provision 21,040 23,043 Defined-benefit pension plans 9,713 8,462 Total 30,753 31,505 (EUR 000) Severance pay provision Defined-benefit plans Present value of obligations Fair value of the plan assets 21,040 23,043 9,713 8,462 Unrecognised actuarial gains/(losses) Total 21,040 23,043 9,713 8,462 (EUR 000) Severance pay provision Defined-benefit plans Balance at 31 December ,043 8,462 Change in the scope of consolidation - - Costs for the period Contributions paid (1,611) (286) Other movements - (7) Actuarial (gains)/losses in equity (1,253) 817 Balance at 31 December ,040 9,713 The amount recognised in the Income Statement breaks down as follows: (EUR 000) Severance pay provision Defined-benefit plans Costs of benefits paid Interest costs Actuarial (gains)/losses recognised during the period (1,253) 1, (236) Total (392) 2,514 1, The main actuarial assumptions are as follows: Severance pay provision Defined-benefit plans Discount rate (annual) 3.5% 3.4% 4.1% 4.8% Rate of salary increases N.A. 5% - 6% 2% - 2.5% 2% - 2.5% Rate of turnover 3.8% - 7.7% 1.0% 4.2% 4.1% 99

102 Consolidated Accounts Notes Other current and non-current liabilities (EUR 000) Current Non-current Current Non-current Due to employees 28,531 4,632 29,608 4,583 Deferred income 895-1,816 - Payables for indirect taxes and other amounts due to tax authorities 13,564-11,039 - Payables to social security institutions 14,904-14,318 - Other payables to other third parties 21,882 4,022 20,471 4,019 Total other liabilities to third parties 79,776 8,654 77,252 8,602 Other liabilities to related parties 441-3,979 - Total 80,217 8,654 81,231 8,602 Other current and non-current liabilities towards third parties came to EUR 88,430 thousand, an increase of EUR 2,576 thousand (EUR 85,854 thousand at 31 December 2008), as detailed in the table. Other current and non-current liabilities towards related parties amounted to EUR 441 thousand, a decrease of EUR 3,538 thousand compared with 31 December 2008, ascribable to the extinction of the debt for amounts to be paid-in in relation to Metro 5 SpA Trade payables (EUR 000) Due to suppliers 227, ,978 Total due to suppliers 227, ,978 Due to related parties 20,524 23,523 Total 248, ,501 Trade payables to third parties rose by EUR 37,666 thousand: this change is attributable to the increase in production obtained in the period under review. Trade payables to related parties decreased by EUR 2,999 thousand and refer to the payments made in the period towards Pegaso and Alifana Due consortia Derivatives The table below details the asset and liability positions related to derivative instruments. (EUR 000) Derivative assets Derivative liabilities Derivative assets Derivative liabilities Trading Fair Value Hedge 2, Cash Flow Hedge 802 2,680 7, Instruments to hedge exchange rate risk 3,449 2,816 7, Derivative assets showed a net decrease of EUR 4,473 thousand. These changes are mainly attributable to the American subsidiary Ansaldo STS USA as a result of the variation in the fair value on hedging transactions. Derivative liabilities recorded an increase of EUR 2,065 thousand due to the variation in the fair value of the transactions made by the subsidiaries of the Asia Pacific area and of the American subsidiary Ansaldo STS USA. Determination of fair value At 31 December 2009, the Ansaldo STS Group did not hold listed derivative instruments. The fair value of non-listed derivative instruments is measured with reference to the financial valuation techniques. Specifically, the fair value of exchange rate futures contracts is calculated based on the market exchange rate at the reference date and the rate differentials between the relevant currencies. The fair value of swaps is calculated by discounting future cash flows using market parameters. 100

103 Signalling and Transportation Solutions Annual Report 2009 Hedging transactions are carried out predominantly with the banking system. At 31 December 2009, the Group had contracts referring to various currencies in the following notional amounts: (EUR 000) Euro 200, ,924 US dollar 52,835 68,660 GBP 5,649 5,788 Swedish krona 20,185 5,415 Canadian dollar 12,873 10,985 Australian dollar 41,281 34,072 Hong Kong dollar The Group, though exposed to the risk linked to the trend of interest rates, does not make use of policies to hedge the risk connected with the rate variability Guarantees and other commitments Leases The Group holds a number of operating leases for the purposes of acquiring the use of property, plant and equipment. The minimum future payments are as follows: (EUR 000) Operating leases Finance leases Within 1 year 6, to 5 years 16,281 3 Beyond 5 years 4,509-26, Guarantees At 31 December 2009, the Group had the following outstanding guarantees: Direct guarantees and indemnities issued by third parties on behalf of the Group in favour of customers and other third parties (EUR 000) Signalling Business Unit Transportation Solutions Business Unit Unsecured guarantees issued by Finmeccanica (Parent Company Guarantees) and Finmeccanica Finance SA (advance payment bonds, performance bonds, retention money bonds) in favour of customers for commercial transactions , ,519.1 Unsecured guarantees issued by Ansaldo STS (Parent Company Guarantees), in favour of customers for commercial transactions 72, ,264.2 Sureties and bonds (advance payment bonds, performance bonds, bid bonds, retention bonds) issued by credit institutions or insurance companies in favour of customers for commercial transactions 662, , ,280,703.0 of which: counter-guaranteed by Finmeccanica 28, , ,513.2 of which: counter-guaranteed by Ansaldo STS 614, , ,076,939.2 Direct guarantees and indemnities by Finmeccanica and Ansaldo STS, credit institutions or insurance companies in favour of other third parties for noncontractual/commercial guarantees (financial, fiscal transaction) 23, , ,771.4 of which: counter-guaranteed by Finmeccanica 13, , ,018.2 of which: counter-guaranteed by Ansaldo STS 10, ,753.2 Total 758, , ,463,257.6 Total 101

104 Consolidated Accounts Notes 3.4 Notes to the Income Statement Transactions with related parties (EUR 000) 31 December 2009 Revenue Other operating income Costs Finance income Finance costs Other operating expenses Parent company Finmeccanica S.p.A , Subsidiaries Alifana S.c.r.l Alifana Due S.c.r.l. 10,115-10, Associates International Metro Service S.r.l Metro 5 S.p.A. 26,605-1, Pegaso S.c.r.l , Metro Service A.S , Ecosen S.A. - - (4) Joint Ventures (*) Balfour Beatty Ansaldo Syst. JV SDN BHD 2,668 - (368) - (237) - Consortiums Consortium Saturno 75,723-3, Consortium Ascosa quattro Consortium Team in liq Consortium San Giorgio Volla Due 2, Consortium Ferroviario Vesuviano 7, Consortium Cesit Consortium San Giorgio Volla Other Group companies Ansaldo Energia S.p.A AnsaldoBreda S.p.A. 10, , Fata Logistic System S.p.A , Finmeccanica Finance S.A ,937 Finmeccanica Group Service S.p.A , Elsag Datamat S.p.A , Hr Gest S.p.A Selex Communication S.p.A , Galileo Avionica S.p.A Electron Italia S.r.l Oto Melara S.p.A. - - (1) Fata Group SpA I.M. Intermetro S.p.A Selex Service Management S.p.A Westland Industries Ltd Other Total 136, ,122 1,938 (59) 17 % on the total for the year 12% N.S. 12% 5% N.S. N.S. (*) Amounts refer to the portion not eliminated for proportionate consolidation. 102

105 Signalling and Transportation Solutions Annual Report 2009 (EUR 000) Revenue Other operating income Costs Finance income Finance costs Other operating expenses Parent company Finmeccanica S.p.A , Subsidiaries Alifana S.c.r.l Alifana Due S.c.r.l. 10, , Associates International Metro Service S.r.l Metro 5 S.p.A. 13, Pegaso S.c.r.l , Metro Service A.S , Consortiums Consortium Saturno 103,522-4, Consortium Ascosa quattro Consortium Team Consortium San Giorgio Volla Due 4, Consortium Ferroviario Vesuviano 3, Consortium Cesit Consortium San Giorgio Volla Other Group companies Ansaldo Energia S.p.A AnsaldoBreda S.p.A. 12, , Fata Logistic System S.p.A , Finmeccanica Finance S.A , Finmeccanica Group Service S.p.A , Elsag Datamat S.p.A , HR Gest S.p.A Selex Communication S.p.A , Electron Italia S.r.l Oto Melara S.p.A Fata S.p.A I.M. Intermetro S.p.A. 1, Galileo Avionica S.p.A Total 151, ,020 4, % on the total for the year 14% 1% 13% 21% 2% N.S. 103

106 Consolidated Accounts Notes Revenue (EUR 000) Revenue from sales 684, ,195 Revenue from services 79,184 78, , ,715 Change in contract work in progress 275, ,117 Revenue from third parties 1,038, ,832 Revenue from related parties 136, ,683 Total revenue 1,175,640 1,105,515 Revenue from third parties amounted to EUR 1,038,694 thousand at 31 December 2009 over EUR 953,832 thousand at 31 December 2008, with an increase of EUR 84,862 thousand (+8.9%). Revenue from related parties fell by EUR 14,737 thousand over the previous period, mainly attributable to a decrease in revenue in relation to AnsaldoBreda and Consortium Saturno. The trend of revenue detailed by business sector is commented in the previous notes Other operating income (EUR 000) Grants for research and development costs 730 1,498 Gains on disposal of property, plant and equipment and intangible fixed assets 1 10 Reversals to provision for doubtful accounts 1,115 1,351 Reversals to provisions for risks and charges 5,085 4,369 Insurance reimbursements Royalties 2,901 3,059 Finance income and foreign-exchange gains on operating items 2,320 2,107 Tax receivable for R&D 5,305 5,366 Other operating income 4,111 2,879 Other operating income from third parties 21,568 21,407 Other operating income from related parties Total 21,661 21,689 Other operating income from third parties amounted to EUR 21,568 thousand, as shown in the table above, substantially in line with the figures reported in the previous financial year. Other operating income from related parties decreased by EUR 189 thousand compared with the previous year mainly due to income, occasional in nature, received from Elsag Datamat in the financial year

107 Signalling and Transportation Solutions Annual Report Raw materials and consumables used and purchase of services (EUR 000) Purchase of materials 196, ,865 Change in inventories 2,808 3,818 Purchase of services 457, ,775 Rent and operating leases 18,405 17,462 Total raw materials and consumables used and purchase of services from third parties 675, ,920 Total raw materials and consumables used and purchase of services from related parties 88,122 89,020 Total raw materials and consumables used and purchase of services 763, ,940 Raw materials and consumables used and purchase of services showed an increase of EUR 52,342 thousand (+8.4%) compared with the previous financial year due to higher service, rental and leasing costs incurred by the Group during the period. These increases are in any case related to the increase of Group s revenue in the period under review. Raw materials and consumables used from related parties showed a decrease of EUR 898 thousand Personnel costs (EUR 000) Wages and salaries 215, ,173 Costs for stock grant plans 1,998 1,829 Pension and social security 47,516 48,647 Severance pay provision costs Costs related to other defined-benefit plans Costs related to other defined-contribution plans 3,916 6,647 Recovery of personnel costs (476) (116) Employee disputes (19) 66 Restructuring costs 1,495 1,635 Other costs 9,915 8,505 Total personnel costs 280, ,608 The workforce at 31 December 2009 came to 4,339 resources with a decrease of 13 units compared with the 4,352 units reported at the end of the previous year; this item is broken down as follows: Signalling: 3,821 employees Transportation Solutions: 442 employees Corporate: 76 employees The average size of the Group workforce employed in 2009 was equal to 4,289 resources against 4,243 resources reported in Personnel costs (inclusive of restructuring costs) for the year 2009 totalled EUR 280,643 thousand compared with EUR 266,608 thousand in The increase of EUR 14,035 thousand (+5.3%) is partly due to the higher average workforce employed (+46 resources) equal to EUR 2,900 thousand, and (EUR 11,135 thousand) to the increase in per capita cost, which went from EUR 62.9 thousand in 2008 to EUR 65.4 thousand in The stock grant cost is recognised in the year when the services are rendered, therefore it relates to shares attached to objectives for the year 2009 to be delivered in December 2010 after these objectives are achieved. This cost is determined on the basis of the estimated number of shares to be granted and the fair value at the date of approval by the Remuneration Committee; on 13 February 2008, this value was equal to EUR per share. Severance pay provision costs and costs relating to other defined-benefit plans relate to the service cost only, since, as a result of the adoption of the equity method, interest costs are now classified under finance costs. As shown in the table relating to the personnel costs, we should report that the restructuring costs recorded at 31 December 2009 and at 31 December 2008 refer to the existing reorganisation plan of the American subsidiary Ansaldo STS USA, which aims at a rationalization of the production structure in the Batesburg factory. 105

108 Consolidated Accounts Notes Amortisation, depreciation and impairment (EUR 000) Amortisation/Depreciation: - intangible assets 2,781 2,544 - property, plant and equipment 9,044 7,961 11,825 10,505 Impairment: - operating receivables 1,812 3,728 - other assets 7-1,819 3,728 Total amortisation, depreciation and impairment 13,644 14,233 Amortisation and Depreciation increased in the period by EUR 1,320 thousand compared with the corresponding period in the previous financial year. Amortisation and depreciation are detailed in the schedules on property, plant and equipment and intangible fixed assets. The impairment charges, equal to EUR 1,819 thousand, refer to trade receivables and are mainly ascribable to the Group parent Ansaldo STS and to the subsidiaries of the Asia Pacific area Other operating expenses (EUR 000) Allocations to provisions for risks and charges Losses on disposal of receivables - - Association dues Capital loss on the disposal of property, plant and equipment and intangible assets Foreign exchange charges on realization of operating items Exchange rate alignment on operating items Interest and other operating expenses Indirect taxes Other operating expenses Total other operating expenses from third parties Total other operating expenses from related parties 17 4 Total other operating expenses Other operating expenses from third parties increased by EUR 801 thousand going from EUR 15,142 thousand at 31 December 2008 to EUR 15,943 thousand at 31 December The most substantial amount is attributable to the higher finance costs on operating items emerged in the subsidiaries of the Asia Pacific area Work performed by the Group and capitalised (EUR 000) Work performed by the Group and capitalised (1,132) (863) Capitalised costs are substantially attributable to the French subsidiary Ansaldo STS France and relate to costs for internally produced tangible and intangible assets (staff, materials, services). 106

109 Signalling and Transportation Solutions Annual Report Net finance income/(costs) (EUR 000) Income Cost Net Income Cost Net Interest and commissions 1,094 3,899 (2,805) 2,960 2, Exchange-rate differences 32,249 32,282 (33) 14,054 14,393 (339) Income from fair-value measurement recognised in Income Statement 4,035 3, Interest on severance pay provision (784) (676) Interest on other defined-benefit plans (386) (383) Other finance income (costs) Total net finance income and costs 37,619 40,895 (3,276) 18,035 18, Total finance income and costs from related parties 1,938 (59) 1,997 4, ,582 Total 39,557 40,836 (1,279) 22,938 18,323 4,615 At 31 December 2009, net finance costs from third parties totalled EUR 3,276 thousand compared with EUR 33 thousand recorded at 31 December The negative change of EUR 3,198 thousand is attributable to: decrease in interest income as a result of the reduction in the average rate from 3.6% in 2008 to 1.1% in 2009, notwithstanding the clear increase in the average deposits; increase in interest expense as a result of the increase in the average rate, mainly in relation to the payable of EUR 9,393 thousand with HBSC of the Indian subsidiary of the Asia Pacific area; increased commissions for guarantees. Net finance income from related parties at 31 December 2009 totalled EUR 1,997 thousand with a decrease of EUR 2,585 thousand compared with 31 December 2008 (EUR 4,582 thousand). This change is ascribable, notwithstanding an average deposit higher than 2008, to the decrease in average rates that went from 4.4% in 2008 to 1.4% in As shown in the table, due to the adoption of the equity method in recognising defined-benefit plans, interest costs are now classified under net finance income (costs) and no longer under personnel costs Share of profit (loss) of equity accounted investments (EUR 000) Income Cost Net Income Cost Net Share of profit (loss) of equity accounted investments 1,020-1, (150) Total 1,020-1, (150) The share of profit of equity accounted investments amounted to EUR 1,020 thousand and reflected the positive result of International Metro service Srl for EUR 1,076 thousand, the impairment of the Venezuelan investee company Ecosen for EUR 53 thousand and the impairment of Metro 5 SpA for EUR 3 thousand Income taxes Income taxes break down as follows: (EUR 000) IRES (corporate income tax) 24,804 28,883 IRAP (regional tax on productive activities) 6,816 6,882 Income from consolidation - (641) Other taxes on profit (foreign companies) 7,809 10,575 Taxes relating to previous years (1,261) 365 Provisions for disputes over taxes (992) 37 Net deferred taxes (183) (1,673) Total 36,993 44,

110 Consolidated Accounts Notes Income taxes decreased by EUR 7,435 thousand compared with the same period in the previous financial year. Specifically, this change is attributable to: the decrease in the IRES and IRAP charge for the period (EUR 4,079 thousand and EUR 66 thousand respectively); lower taxes due by foreign companies (EUR 2,766 thousand); the recovery of prior years taxes, mainly referable (EUR 884 thousand) to the lower IRES charge due in relation to the taxable periods , following the partial deductibility of IRAP, pursuant to Art. 6 of Legislative Decree no. 185/2008; and to the release of provisions for disputes over taxes (that in the absence of allocations in the year entailed a total variation of EUR 1,029 thousand). These decreases are offset by a lower provision for net deferred tax assets (EUR 1,490 thousand) and the absence of the income from consolidation resulting from the non-adoption of the Consolidated Taxation Mechanism following the merger between the Italian companies. Below is the analysis of the difference between the theoretical tax rate and the effective tax rate: (EUR 000) Amount % Amount % Result before taxes 124, ,026 Tax calculated at the applicable tax rate 34, % 33, % Permanent differences (6,015) (1,653) -1.3% 1, % 118,778 32, % 123,124 33, % Rate differential on foreign taxes % 3, % IRAP and other taxes calculated on a basis other than the result before taxes 5, % 7, % Prior years taxes (1,120) -0.90% % Provisions for disputes over taxes (992) -0.80% % Total effective taxes carried to Income Statement 36, % 44, % The effective tax rate moved from 36.41% in 2008 to 29.64% in The above-mentioned improvement is mainly due to the coming into force of the new IRES-related regulations established for those subjects adopting the international accounting standards, to the release of provisions for disputes over taxes and of prior years taxes. Deferred taxes and the related receivables and payables at 31 December 2009 were generated by the following temporary differences: (EUR 000) Income Statement Balance Sheet Assets Liabilities Assets Liabilities Severance pay provision, pension funds 151 (345) 4, Remuneration Goodwill (263) - 2,535 - Property, plant and equipment and intangible assets (805) (537) Provisions for risks and charges 1,464-16,067 - Research subsidies Inventory write-down 46-1,551 - Cash Flow Hedge - defined-benefit plans Past losses (142) - 4,937 - Stock grants Other (1,315) (237) 6,250 1,275 Total (864) (1,047) 37,138 2,810 Deferred tax assets deriving from the recognition of Provisions for risks and charges are mainly attributable to the Group parent Ansaldo STS SpA (EUR 9,075 thousand) and to the subsidiary Ansaldo STS USA (EUR 6,992 thousand). The recognition of deferred tax assets on past losses mainly derives from the subsidiaries Ansaldo STS France (EUR 2,381 thousand) and Ansaldo STS Australia (EUR 2,556 thousand). Deferred tax assets relating to the inventory write-down mainly refer to the subsidiary Ansaldo STS USA (EUR 1,217 thousand), and for a small part (EUR 334 thousand) to the Group parent Ansaldo STS SpA. The item Other mainly refers to the Group parent Ansaldo STS (EUR 4,732 thousand), to the subsidiary Ansaldo STS Australia (EUR 488 thousand) and to the subsidiary Ansaldo STS USA (EUR 981 thousand). 108

111 Signalling and Transportation Solutions Annual Report 2009 It should be reported that the Group parent Ansaldo STS SpA has used a portion of the surplus from the merger occurred on 1 January 2009 to write-off the goodwill value carried by the merged subsidiary Ansaldo Segnalamento Ferroviario SpA. This value was referable to the acquisitions of business concerns no longer existing; at the same time, the related recorded deferred tax liabilities were eliminated (IRES for EUR 1,596 thousand and IRAP for EUR 260 thousand) and deferred tax assets were recognized (IRES for EUR 2,394 thousand and IRAP for EUR 404 thousand). The total amount of deferred taxes recognised in net equity in relation to the merger operation is equal to EUR 4,655 thousand. Deferred tax assets and liabilities include deferred taxes accounted for, with direct counterpart in equity, on derivative instruments recognised with the cash flow hedge method and on actuarial losses/gains as a result of the adoption of the equity method for defined-benefit plans. The movement for the period of this equity item is as follows: Reversal to the Income Statement Fair value adjustments Other changes Deferred taxes recognised directly in equity (52) ,

112 Consolidated Accounts Notes 3.5 Earning per share Earnings per share (EPS) are calculated: by dividing the net profit attributable to the holders of ordinary shares by the average number of ordinary shares for the period, less treasury shares (basic EPS); by dividing the net result by the average number of ordinary shares and the shares that potentially result from the exercise of all the options under stock option plans, less treasury shares (diluted EPS). Basic EPS Average shares during the period 99,882,682 99,892,850 Net profit 87,800 77,599 Profit from continuing operations - - Basic EPS and diluted EPS

113 Signalling and Transportation Solutions Annual Report Cash Flow from operating activities The cash flow from operating activities is shown in the table below: (EUR 000) Profit 87,800 77,599 Share of profit (loss) of equity accounted investments (1,020) 150 Income taxes 36,993 44,428 Costs of severance pay provision and other benefits Costs for stock grant plans 2,475 2,196 Capital gains (losses) on disposals of real estate assets Net finance income (costs) 1,279 (4,615) Restructuring costs 1,495 1,635 Amortisation, depreciation and impairment 13,644 14,233 Allocation/Reversal to provisions for risks (215) 2,245 Other operating income/expenses (1,115) (1,351) Allocations /Reversal of inventories and work in progress write-down 3,907 (5,274) Total 145, ,484 Changes in working capital, net of the effects deriving from the acquisitions and disposals of consolidated companies and translation differences, break down as follows: (EUR 000) Inventories (7,048) 5,976 Contract work in progress and advances from customers 144,981 12,921 Trade receivables and payables (125,730) (38,518) Total 12,203 (19,621) Changes in other operating items, net of the effects deriving from the acquisitions and disposals of consolidated companies and translation differences, break down as follows: (EUR 000) Payment of the provision for severance pay and other defined-benefit plans (1,897) (2,163) Taxes paid (38,738) (53,771) Changes in other operating items 5,591 (2,704) Total (35,044) (58,638) For information on changes in the Statement of Cash Flows, please refer to paragraph 2.4 relative to the Groups financial position. 111

114 Consolidated Accounts Notes 3.7 Management of Financial Risks The Group is exposed to financial risks associated with its operations, specifically related to these types of risks: market risks, relating to exchange rate risk (operativity in foreign currencies other than the functional currency) and interest rate risk; liquidity risks, relating to the availability of financial resources and access to the credit market; credit risks, resulting from normal commercial transactions or financing activities. The Group specifically monitors each of these financial risks, with the objective of promptly minimising them, also through hedging derivatives. Below is an explanation of how the Ansaldo STS Group, based on its in-house directives, manages these types of risk. Exchange rate risk management As indicated in the directive Treasury management, the exchange rate risk management of the Ansaldo STS Group focuses on the achievement of these objectives: limiting potential losses due to adverse fluctuations in the exchange rate as compared with the reporting currency of Ansaldo STS SpA and its subsidiaries. In this case losses are defined in terms of cash flow rather in accounting terms; limiting estimated or real costs connected to the implementation of exchange rate risk management policies. The exchange rate risk should be hedged only if it has a relevant impact on cash flow as compared with the reporting currency. The costs and risks connected with a hedging policy (hedge, no hedge, or partial hedge) should be acceptable both financially and commercially. These instruments may be used to hedge exchange rate risk: forward foreign exchange purchases and sales: exchange rate forwards are the most widely used instruments for cash flow hedges; Currency Swaps / Cross Currency Swaps: used together with exchange rate forwards, they are used to manage hedging dynamically by reducing the exchange rate risks of when cash flows occur earlier or later than expected in a currency other than the functional currency; Foreign currency funding/lending: foreign currency funding and lending is used to mitigate the exchange rate risk associated with the relevant credit or debit positions with bank counterparties or Group companies. Using funding and lending in foreign currency as a hedging instrument must always be aligned with the overall treasury management and with the overall financial position of Ansaldo STS SpA (long and short term). Generally, the purchase and sale of foreign currency is used in the case of exotic currencies where the capital market is not considered liquid or where alternative hedging instruments are not available or are only available at high cost. Hedging of exchange rate risk There are three types of exchange rate risk: 1. economic risk: represented by the impact that currency fluctuations may have on capital budgeting decisions (investments, location of plants, procurement markets). 2. transaction risk: the possibility that exchange rates could change during the period between the time at which a commitment to collect or pay in foreign currency at a future date (setting price lists, establishing budgets, preparing orders, invoicing) arises and the time at which such collection or payment occurs, thereby having a positive or negative impact on the exchange rate delta. 3. translation risk: this relates to the impact that the translation of dividends or the consolidation of recognised assets and liabilities has on the financial statements of multinational companies whenever the consolidation exchange rates change from year to year. The Ansaldo STS Group hedges transaction risks in accordance with the Treasury Management directive, which provides for the systematic hedging of commercial cash flows resulting from the assumption of contractual commitments of a specific nature as either buyer or seller, in order to ensure current exchange rates at the date of acquisition of long-term contracts and neutralising the effects of fluctuations in the reference exchange rates. Cash Flow Hedge Hedges are made at the time commercial contracts are finalised through plain vanilla instruments (swaps and forwards on foreign currencies) qualifying for hedge accounting under IAS 39. These hedges are carried as cash flow hedges. Accordingly, the changes in fair value of the hedging derivatives are recognised in a special cash flow hedge reserve once the effectiveness of the hedge is demonstrated. Should the hedges prove to be ineffective, i.e. they do not fall within the effective range between %, changes in the fair value of the hedging instruments are immediately recognised in the Income Statement as financial items and the cash flow hedge reserve accumulated up until the date of the last successful effectiveness test is reversed to profit and loss. 112

115 Signalling and Transportation Solutions Annual Report 2009 Fair Value Hedges A fair value hedge involves the hedging of an exposure to changes in the fair value of a recognised asset or liability, an irrevocable unrecognised commitment or an identified portion of such asset, liability or irrevocable commitment, attributable to a specific risk and that could affect the Income Statement. The Group hedges against changes in fair value with regard to the exchange rate risk for assets and liabilities. Hedging transactions are carried out predominantly with the banking system. At 31 December 2009 the Group had contracts referring to various currencies in the following notional amounts: (local currency in thousands) Sell 09 Buy Sell 08 Buy Euro 144,545 55, , ,488 29, ,924 US dollar 49,097 3,738 52,835 54,131 14,529 68,660 GBP 176 5,473 5, ,032 5,788 Swedish krona - 20,185 20,185-5,415 5,415 Canadian dollar 11,403 1,470 12,873 10,985-10,985 Australian dollar 3,637 37,644 41,281-34,072 34,072 Hong Kong Dollar At 31 December 2009, the net fair value of derivative financial instruments was positive in the amount of about EUR 633 thousand. Sensitivity analysis on exchange rates For 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 the Income Statement and equity. Exchange rate risks arise from financial instruments (including trade receivables and payables) recorded in the Financial Statements or from 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 Group, sensitivity analysis was performed on financial instruments denominated in dollars existing at 31 December 2009, assuming a 5% appreciation (depreciation) of the euro against the US dollar. This analysis showed that an appreciation or depreciation of the euro against the US dollar would have the following impact on the Group s Financial Statements: (EUR 000) +5% - appreciation of euro against the US dollar % - depreciation of euro against the US dollar +5% - appreciation of euro against the US dollar -5% - depreciation of euro against the US dollar Income Statement (58) 65 (157) 174 Cash Flow Reserve (5,619) 5,634 (6,566) 6,564 Translation Reserve Compared with the same analysis performed in 2008, it results a lower exposure of the Income Statement in relation to the euro/dollar exchange rate variations, as well as a lower impact on equity. This situation is referable to the lower use of project Cash Flow hedges as a result of a reduction in the currency exposure towards the US Dollar by the Group companies. Management of interest rate risk The aforementioned directive states that the goal of the management of interest rate risk is to lessen the negative impact of changes in interest rates, which may affect the Company s Income Statement, the Balance Sheet and the weighted average cost of capital. Interest rate risk management by Ansaldo STS is designed to achieve the following objectives: to stabilise the weighted average cost of capital; to minimise the weighted average cost of capital of Ansaldo STS over the medium to long term. To achieve this objective, interest rate risk management will focus on the impact of interest rates on debt funding and equity funding; to optimise the profit on financial investments within a general profit-risk trade-off; to limit the costs relating to the execution of interest rate risk management policies, including the direct costs tied to the use of specific instruments and indirect costs relating to the internal organisation needed to manage such risk. In order to allow future acquisition transactions, the Group invests excess liquidity in the short term. At the same time, financial debt is mainly in the short term. The common management of short-term assets and liabilities makes the Group relatively neutral to changes in long-term interest rates. In 2009 as well interest rate risk was managed without the use of interest rate derivatives. 113

116 Consolidated Accounts Notes Sensitivity analysis on interest rates Sensitivity analysis was performed on the assets and liabilities exposed to interest rate risk, assuming a parallel and symmetric 50 basis point rise (fall) in interest rates at 31 December The impact of these scenarios on the Group s Financial Statements at 31 December 2009 is summarised below: (EUR 000) bps -50 bps +50 bps -50 bps Income Statement 1,090 (1,090) 604 (604) Reserves These impacts are the result of greater interest income that would be produced by floating rate net financial debt, in the case of interest rates greater or lower than 50 basis points respectively. The change in interest rates would have no impact on the valuation of financial instruments in the Financial Statements, except for amortised cost, as there are no financial assets or liabilities (not derivative) recognised at fair value through profit or loss. The derivatives subscribed by the Group are exclusively exchange rate derivatives and a change in the interest rates of the various currencies would have non-relevant impacts on the year-end Fair Value. There are no impacts on equity, as the company has no cash flow hedges on the interest rate risk. The results achieved at 31 December 2009 showed a considerable increase compared with 31 December 2008; this effects has arisen from the significant increase in variable-rate assets. At 31 December 2008 a simulation of a +(-) 50 basis point change shows an impact of about +(-) EUR 604 thousand on the Income Statement. Management of liquidity risk In order to support efficient management of liquidity and contribute to the growth in its businesses, the Ansaldo STS Group has established a set of tools to optimise the management of financial resources. This objective was achieved by centralising treasury operations (cash pooling contracts with Group companies) and maintaining an active presence on financial markets to obtain adequate short and medium-term credit lines. Within this context Ansaldo STS has obtained short and long-term credit lines for endorsement facilities and for cash sufficient to meet the Group s needs. At 31 December 2009, the Group shows a net financial liquidity of EUR 278,861 thousand recording an improvement over 31 December 2008, when the net financial position was equal to EUR 195,870 thousand. Liquidity analysis (amounts in thousands of euros figures at 31 December 2009) A Financial liabilities less derivatives Less than 1 year 1 to 5 years More than 5 years Non-current liabilities Borrowings from third parties - 4,032 - Borrowings from related parties Other non-current liabilities Current liabilities Trade payables to related parties 7, Trade payables to third parties 228, Financial liabilities to third parties 2,905 9,634 - Other financial liabilities Total A 239,774 14,462 B Negative value of derivatives Hedge derivatives 2, Trading derivatives (economic hedge) Total B 2, Total A + B 242,590 14,

117 Signalling and Transportation Solutions Annual Report 2009 Against borrowings for EUR 257,052 thousand financial assets are posted in these amounts: C - Financial assets Cash and cash equivalents 128,541 Trade receivables third parties 395,846 Trade receivables related parties 130,654 Financial receivables 166,892 Positive value of derivatives 3,449 TOTAL FINANCIAL ASSETS 825,382 D Credit lines 29,720 TOTAL C + D 855,102 C+D-(A+B) 612,512 The Group has a net credit position and has available liquidity to self-finance and does not have to use banks to finance its own activity. The Group has a relatively little exposure to the tensions of the liquidity market which marked the final part of the year. Credit risk management The Group is not exposed to significant credit risk, both as regards the counterparties of its commercial transactions and for financing and investing activities. Its primary customers are, in fact, government entities or off-shoots of such entities, concentrated in the euro area, the United States and Southeast Asia. The typical customer rating of the Ansaldo STS Group is therefore medium/high. Despite this, in the case of contracts with customers/counterparties with which the Group does not ordinarily do business, the customers solvency is assessed at the time of the offer to highlight any future credit risks. The nature of Ansaldo s customers means that collection times are longer (in some countries significantly longer) than in other businesses, creating significant outstanding past due positions. The following table shows the composition of receivables: at 31 December 2009 operativity with European and non-european Government entities significantly increased. We report an increase in past-due receivables attributable to the greater volume of receivables and relating to receivables past due within one year. Government entities Other customers (EUR 000) European Area American Area Other European Area American Area Other Total - Held as guarantees 115-2,241 13,768 2,952 13,637 32,713 - Receivables not past due 39,584-26, ,989 5,982 13, ,410 - receivables past due less than 6 months 21,163-1,049 19,300 1,525 3,678 46,715 - receivables past due between 6 months and 1 year 51,725-8,275 12, ,144 - receivables past due between 1 and 5 years 3, , ,864 - receivables past due more than 5 years Total 115,638-37, ,115 10,459 31, ,846 Movements in the provision for doubtful accounts of Group trade receivables are as follows: (EUR 000) January 7,127 6,832 Allocations 1,812 3,728 Reversals/Uses (1,106) (3,356) Other changes 78 (77) 31 December 7,911 7,127 Other changes include the exchange rate differences generated upon the consolidation of foreign subsidiaries. 115

118 Consolidated Accounts Notes In relation with the credit risk originated from the positive value of derivatives, the counterparties of derivative contracts are mainly financial institutions. The table below breaks down the positive value of derivatives by the counterparty s rating class. The ratings below were provided by S&P. Rating class Positive fair value AA 34.69% A+ 1.41% A 63.73% A- 0.17% Total positive fair value 100% Classification and fair value of financial assets and liabilities The table below gives a breakdown of the Group financial assets and liabilities by the accounting categories under IAS 39. Financial liabilities are all recognised on the amortised cost method, since the Group did not use the Fair Value Option. Derivatives are analysed separately (EUR 000) Fair value through profit or loss Loans and receivables Held to maturity Available for sale Total Fair Value Non-current assets Non-current receivables from related parties Financial assets at fair value Receivables - 13, ,778 13,778 Current assets Current receivables from related parties - 130, , ,654 Trade receivables - 395, , ,846 Financial assets at fair value Financial receivables - 166, , ,891 Other current assets - 3, ,868 3, (EUR 000) Fair value through profit or loss Amortised Cost Total Fair Value Non-current liabilities Non-current payables to related parties Non-current borrowings - 4,032 4,032 4,032 Other non-current liabilities Current liabilities Current payables to related parties - 7,477 7,477 7,477 Trade payables - 229, , ,395 Borrowings - 12,539 12,539 12,539 Other current liabilities For short-term financial instruments, such as trade receivables and payables, the book value represents a fair approximation of fair value. 116

119 Signalling and Transportation Solutions Annual Report (EUR 000) Fair value through profit or loss Loans and receivables Held to maturity Available for sale Non-current assets Non-current receivables from related parties Financial assets at fair value Receivables - 11, ,517 11,517 Current assets Current receivables from related parties 230, , ,350 Trade receivables 281, , ,405 Financial assets at fair value Financial receivables Other current assets 2, ,882 2,882 Total Fair Value (EUR 000) Fair value through profit or loss Amortised Cost Total Fair Value Non-current liabilities Non-current payables to related parties Non-current borrowings - 5,747 5,747 5,747 Other non-current liabilities - 1,356 1,356 1,356 Current liabilities Current payables to related parties - 27,654 27,654 27,654 Trade payables - 189, , ,978 Borrowings - 9,276 9,276 9,276 Other current liabilities - 77,252 77,252 77,252 Derivatives The table below provides the fair values of derivative instruments: Fair value hierarchy at the reporting date Fair Value at Level 2 Fair Value at Level 2 Assets Interest rate swap trading - - Fair value hedge - - Cash flow hedge - - Currency forward/swap/option trading - - Fair value hedge 2, Cash flow hedge 802 7,149 Strumenti di equity (trading) - - Embedded derivatives (trading) - - Liabilities Interest rate Swap trading - - Fair value hedge - - Cash flow hedge - - Currency forward/swap/option trading (121) (72) Fair value hedge (15) (412) Cash flow hedge (2,680) (267) Equity instruments (trading) - - Embedded derivatives (trading)

120 Consolidated Accounts Notes The Group uses cash flow hedge derivatives hedging the exchange rate risk exposure for expected future transactions that are highly probable and fair value hedge derivatives hedging the exchange rate risk exposure of financial assets/liabilities recognised in the Financial Statements. With reference to derivatives hedging exchange rate risk, the Group hedges both future receipts and payments. The table below provides the maturities of these hedged payments, for the USD currency. Maturity Notional amount (in thousands of USD) Notional amount (in thousands of USD) Receipts Payments Receipts Payments Within 1 year 11,578 2,642 2,672 3,320 2 to 3 years - 2,407 7,393-4 to 9 years More than 9 years Total 11,578 5,385 10,065 3,

121 Signalling and Transportation Solutions Annual Report Remuneration to key management personnel Remuneration paid to persons who have power and responsibility over the planning, management and control of the Group, including executive and non-executive Directors, is as follows: (EUR 000) Compensation 6,006 5,344 Post-employment benefits Other long-term benefits - - Severance pay - - Stock Grants Total 6,728 5,894 Directors fees amounted to EUR 6,728 thousand in 2009, EUR 5,894 thousand in Statutory Auditors fees amounted to EUR 140 thousand in 2009, EUR 229 thousand in These fees include emoluments and any other sum paid as compensation and social security for the office of Director or Statutory Auditor in the Group parent and in the other companies included in the scope of consolidation, that represented a cost for the Group. The detail of compensation paid to the Directors, Statutory Auditors and General Managers of the Group parent is reported in the following table (*): Person Description of position Emoluments by position in the Name Position Office term Term of office expiring reporting Company Non-cash benefits Bonuses and other incentives Other remunerations Pansa Alessandro Chairman of BoD 21/11/ Financial Statements 60,000 (1) Roberti Sante (a) Deputy Chairman of BoD 21/11/ Financial Statements 40,000 (2) 19, ,856 Sergio De Luca Chief Executive Officer 14/06/ Financial Statements 40,000 (2) 102, ,000 1,144,313 Lalli Francesco (b) Director 21/11/ Financial Statements 55,000 (3) Salvetti Attilio (c) Director 24/03/ Financial Statements 55,000 (4) Cereda Maurizio (e) (d) Director 14/06/ Financial Statements 75,000 (5) Genuardi Gerlando (f) Director 27/09/ Financial Statements 55,000 (6) ,000 Pinto Eugenio (g) (h) Director 01/04/ Financial Statements 75,000 (7) Gitti Gregorio (i) Director 01/04/ Financial Statements 60,000 (8) Tripodi Francesca Statutory Auditor 21/11/ Financial Statements 40, Sarubbi Giacinto Chairman of BoSA 01/04/ Financial Statements 60, Scotton Massimo Statutory Auditor 01/04/ Financial Statements 60,000 (1) (*): data extracted from the 2009 Financial Statements of Ansaldo STS SpA (a) Deputy Chairman of BoD - appointed 24/02/2006 (1) 12 months Chairman of BoD Remuneration renounced since (b) Member of Remuneration Committee - appointed 27/06/2006 (2) 12 months BoD - Remuneration retroceded to Ansaldo STS SpA (c) Member of Internal Audit Committee - appointed 24/03/2006 (3) 12 months BoD + 12 months RC - Remuneration renounced since (d) Member of Internal Audit Committee - appointed 27/06/2006 (4) 12 months BoD + 12 months ICC (e) Chairman of Remuneration Committee - appointed 27/06/2006 (5) 12 months BoD +12 months RC and ICC Chairman (f) Member of Remuneration Committee - appointed 01/04/2008 (6) 12 months BoD + 12 months RC (g) Member of Internal Audit Committee - appointed 01/04/2008 (7) 12 months BoD + 12 months SB and ICC Chairman (h) Chairman of Supervisory Board - appointed 01/04/2008 (8) 12 months BoD + 12 months ICC Chairman (i) Chairman of Internal Audit Committee - appointed 01/04/2008 (1) 12 months Chairman of BoD Remuneration renounced since The Group Parent, Ansaldo STS SpA, in order to create an incentive and retention system for Group employees and consultants, implemented incentive plans providing for the granting of Ansaldo STS SpA shares, subject to the attainment of specific objectives. With regard to the Stock Grant item, the shares relating to the 2008 objectives were granted in December 2009 since all the targets were achieved; consequently the reserve recognised in the previous financial year was used. The counter-value of the shares granted to employees participating in the plan was charged by the Group parent to the subsidiaries as an equity transaction without affecting the Income Statement. The differentials relating to the fair value (difference between assignment and delivery) and to the percentage of granted shares were recorded in a special equity reserve (please refer to section ). 119

122 Consolidated Accounts Notes 3.9 Outlook The Group s order backlog at 31 December 2009 has expanded compared with the same period of the previous year, thanks to the good performance in the acquisition of new orders in both the Transportation Solutions sector and the Signalling Business sector. Actions oriented to improve efficiency will continue in order to further increase profitability on revenue, already greater than the 2008 one. Since 1 January 2010 the Group has availed itself of the new organisational structure through the project of internal reorganisation called Fast Forward Driven By Business (FFDB). This reorganisation is directed to recover industrial and commercial efficiency, and therefore additional margins of profitability, through a more rational and centralised organisation of activities related to R&D, production, procurement, presence on the markets, management of job-orders. With regard to the reference markets, the Signalling and Transportation Solutions sectors in both the inter-city and urban railway context are still marked by growth. The Group still follows with particular attention the markets with high economic growth and high capacity of investment in infrastructures (such as China, North Africa, the Middle East, Eastern Europe, Pacific Asia, South America), where Group commercial activities have been converged and important acquisitions of new contracts have been obtained. The remaining part of this year and the years to come will also be characterised by the search for opportunities in the transportation solutions business worldwide. This will be possible by joining the Italian expertise in the systems business with the industrial and commercial presence of our subsidiaries in the various markets. The Group is also paying particular attention to managing the complexity of certain contracts of Ansaldo STS USA Inc., deemed strategic for their technological content, and to the growth potential of the US market in relation to both investment programmes in the sector of the high-speed railway links announced by President Obama and the need of modernisation overbearingly emerged in several underground lines of important American cities. The Group s positive financial situation allows us to closely monitor happenings in the sector in order to search for and select any investment opportunities in support of growth. This takes place by: (i) analysing possible acquisitions or equity investments in companies that show industrial and/or commercial complementarities able to expand the products portfolio and the Group s ability to compete, (ii) proposing and taking part in project-financing solutions for the execution of those urban and inter-city railway projects, usually of great importance, that may encounter financial difficulties, in a moment in which the resources of many countries are mainly utilised to face the crisis that has affected the world economy since mid Genoa, 1 March 2010 on behalf of the Board of Directors the Chairman Dott. Alessandro Pansa 120

123 Signalling and Transportation Solutions Annual Report List of significant equity investments under article 125 of Consob resolution no Subsidiary (name and legal form) State % of total % Indirect control % Direct control Through Alifana - Limited-liability consortium Italy 65,850% 65,850% 1 Alifana due - Limited-liability consortium Italy 53,340% 53,340% 1 France Automatismes Contrôles et Etudes Electroniques Acelec S.A. 99,999% Type of ownership (see key) 99,994% Ansaldo STS France S.A. 1 0,004% Ansaldo STS France S.A. 9 0,001% Ansaldo STS Hong Kong Ltd. 1 Ansaldo Railway System Trading (Beijing) Ltd. [1] China 100,000% 100,000% 1 Ansaldo STS Australia PTY Ltd. Australia 100,000% 100,000% 1 Ansaldo STS Beijing Ltd. China 80,000% 80,000% Ansaldo STS France S.A. 1 Ansaldo STS Canada Inc. [2] Ontario Canada 100,000% 100,000% Ansaldo STS USA Inc. 1 Ansaldo STS Deutschland GmbH Germany 100,000% 100,000% 1 Ansaldo STS Espana S.A. Spain 100,000% 100,000% Ansaldo STS France S.A. 1 Ansaldo STS Finland OY Finland 100,000% 100,000% Ansaldo STS Sweden AB 1 Ansaldo STS France S.A. France 99,999% 1 100,000% 0,001% 9 Ansaldo STS Hong Kong Ltd. China 99,999% Ansaldo STS France S.A ,000% 0,001% Ansaldo STS France S.A. 9 Ansaldo STS Infradev South Africa Ltd. South Africa 50,700% 50,700% Ansaldo STS Australia PTY ltd 1 Ansaldo STS Ireland Ltd. Ireland 100,000% 99,999% 1 0,001% Ansaldo STS USA Inc. 1 Ansaldo STS Malaysia SDN BHD Malaysia 100,000% 100,000% Ansaldo STS Australia PTY Ltd. 1 Ansaldo STS Sistemas de Transporte Brazil 99,99% 1 100,000% e Sinalização Limitada Ansaldo STS USA International 0,01% 1 Co. Ansaldo STS Southern Africa Pty Ltd. Botswana 100,000% 100,000% Ansaldo STS Australia Pty Ltd 1 Ansaldo STS Sweden AB Sweden 100,000% 100,000% 1 Ansaldo STS Transportation Systems India Private Limited. India 100,000% 99,9999% Ansaldo STS Australia PTY Ltd. 1 0,0001% 1 Ansaldo STS UK Ltd. England 100,000% 100,000% 1 Ansaldo STS USA Inc. Delaware USA 100,000% 100,000% 1 Ansaldo STS USA International Co. Delaware USA 100,000% 100,000% Ansaldo STS USA Inc. 1 Ansaldo STS USA International Projects Co. Delaware -USA 100,000% 100,000% Ansaldo STS USA Inc. 1 Balfour Beatty Ansaldo Systems Jv Sdn Bhd Malaysia 40,000% Ansaldo STS Malaysia Sdn Bhd 1 50,000% 10,000% Ansaldo STS Malaysia Sdn Bhd 9 Ecosen S.A. Venezuela 48,000% 48,000% Ansaldo STS France S.A. 1 I.M. Intermetro S.p.A. Italy 16,666% 16,666% 1 International Metro Service S.r.l. Italy 49,000% 49,000% 1 Metro 5 S.p.A. Italy 24,600% 24,600% 1 Metro C. S.c.p.a. Italy 14,000% 14,000% 1 Pegaso - Limited-liability consortium Italy 46,870% 46,870% 1 Transit Safety Research Alliance (no profit corporation) USA 100,000% 100,000% Ansaldo STS USA Inc. 1 Union Switch & Signal Inc. USA 100,000% 100,000% Ansaldo STS USA Inc. 1 Key: Types of share ownership or voting rights 1 Owned 2 Securities lender 3 Securities borrower 4 Registered owner on behalf of third party 5 Asset management 6 Pledge 7 Usufruct 8 Deposit 9 Voting rights under contractual agreements [1] the company called Ansaldo Railway System Technical Service (Beijing) Ltd in the course of 2009 changed its corporate name to Ansaldo Railway System Trading (Beijing) Ltd. [2] the company called Union Switch & Signal Inc. (Canada) in the course of 2009 changed its corporate name to Ansaldo STS Canada Inc.. 121

124 Consolidated Accounts Notes 3.11 Information pursuant to article 149-duodecies of the consob issuer regulation The following statement was prepared in accordance with Article 149-duodecies of the Consob Issuer Regulation and reports the fees for the year 2009 related to auditing services and services other than auditing provided by the same auditing firm and entities belonging to the auditing firm s network. (EUR 000) Entity providing the service To Fees for the year 2009 for the engagement Auditing services PricewaterhouseCoopers S.p.A. Group parent 430 (1) PricewaterhouseCoopers S.p.A. Subsidiaries 788 Rete PricewaterhouseCoopers Subsidiaries - Attestation services PricewaterhouseCoopers S.p.A. Group parent 32 PricewaterhouseCoopers S.p.A. Subsidiaries - Rete PricewaterhouseCoopers Subsidiaries - Tax consulting services PricewaterhouseCoopers S.p.A. Group parent 90 PricewaterhouseCoopers S.p.A. Subsidiaries 185 (2) Rete PricewaterhouseCoopers Subsidiaries - Other services PricewaterhouseCoopers S.p.A. Group parent 46 (1) PricewaterhouseCoopers S.p.A. Subsidiaries 124 Rete PricewaterhouseCoopers Subsidiaries - 1,695 (1) See statement attached to the Financial Statements of Ansaldo STS SpA. (2) Tax assistance services related to expatriates. 122

125 Signalling and Transportation Solutions Annual Report attestation of the consolidated financial statements pursuant to art. 81-ter of the Consob regulation no of 14 May 1999 and amendments and integration thereof and to art. 154-bis, para. 2 of legislative decree no. 58 of 24 February 1998 and amendments and integration thereof 1. the undersigned Sergio De Luca, Chief Executive Officer and Alberto Milvio, the Manager in charge of the preparation of the company accounting documents of Ansaldo STS SpA certify, in accordance with Art. 154-bis, paragraphs 3 and 4 of Legislative Decree no. 58 of 24 February 1998 and amendments and integrations there of: the appropriateness of the Financial Statements with regard to the nature of the business and the effective application of administrative and accounting procedures in preparing the Consolidated Financial Statements for the period 1 January December No significant issues have arisen in this regard. 2.1 alberto Milvio has been appointed Manager in charge of the preparation of the company accounting documents of ANSALDO STS SpA since 1 August It is also certified that: 3.1 the Consolidated Financial Statements: a) are prepared in accordance with the International Accounting Standards recognised by the European Community pursuant to (EC) Regulation no. 1606/2002 of the European Parliament and of the Council of 19 July 2002; b) correspond to the entries in the documents, books and accounting records; c) provide a true and fair view of the performance and financial position of the issuer and all the companies included in the scope of consolidation the Report on operations includes a reliable analysis of the performance and the operating result, as well as the position of the issuer and all the companies included in the scope of consolidation, together with a description of the main risks and uncertainties they are exposed to. 4. This attestation is made pursuant to and for the purposes of Art. 154-bis, paragraph 2, of Legislative Decree no. 58 of Genoa, 1 March 2010 Signature of the Chief Executive Officer Sergio De Luca signature of the Manager in charge of the preparation of company accounting documents Alberto Milvio 123

126 In attesa della relazione UK

127 In attesa della relazione UK

128

129