Group 2009/2010 INTERIM CONSOLIDATED FINANCIAL STATEMENTS. Contents /2010 Interim Operating Report p.1

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1 Group 2009/2010 INTERIM CONSOLIDATED FINANCIAL STATEMENTS Contents /2010 Interim Operating Report p.1 2 Consolidated financial statements at 30 September 2009 p.9 3 Other information p.50 4 Statutory Auditors Report on the 2009/2010 half year financial information p.53

2 1. Interim Operating Report of the Management Board to Faiveley SA s Supervisory Board s meeting of 27 November 2009 A. COMMENTARY ON FIRST HALF 2009/2010 Group key results 2009/2010 HY1 2008/2009 HY1 31 March 2009 IFRS Sales 414, , ,024 Profit from operations 52,077 47, ,498 Operating profit 51,694 46, ,787 Profit from continuing operations 32,641 30,157 71,247 Profit from discontinued operations Net profit (Group share) 30,549 18,260 51,483 Share capital 14,073 12,199 14,073 Equity - Group share 312, , ,072 Net borrowings 307,196 83, ,645 Total assets 1,202, ,848 1,219,906 Sales order backlog ( millions) 1,195 1,055 1,139 Workforce at end of period 4,722 4,536 4,619 1/ Significant events of the first 6 months of the 2009/2010 financial year Change of company name: The Combined General Meeting held on 22 September 2009 endorsed the change of company name of Faiveley S.A. to Faiveley Transport, the Group s commercial identity worldwide. Changes in Group governance: - Following the Combined General Meeting of 22 September 2009, the Supervisory Board elected a new Chairman, with François Faiveley giving up his position to Philippe Alfroid. Mr. Faiveley considered that this choice would improve the company s governance and submitted it for approval by other Supervisory Board members, who endorsed it. Mr. Faiveley was elected Vice-Chairman of the Supervisory Board. - The Supervisory Board also appointed Thierry Barel as member of the Management Board. Mr. Barel joined the Group last July as Chief Operating Officer. The Management Board now comprises four members: Robert Joyeux, Chairman and Chief Executive Officer, Thierry Barel, Chief Operating Officer, Erwan Faiveley and Etienne Haumont, Chief Financial Officer of the Group. 2009/2010 half-year report - 1

3 The Combined General Meeting of 22 September 2009 delegated to the Management Board its powers in relation to: - granting share subscription and/or purchase options; - issuing shares or marketable securities giving right to new or existing shares of the Company, with, in cases new shares are granted, the cancellation of the preemption right. The Management Board had not used these delegations at 30 September The Group continued the legal proceedings initiated during the previous financial year against Wabtec, for unfair competition and breach of contractual obligations related to a now expired licensing agreement for braking system components. The proceedings are ongoing both in the US, where a summary procedure has been initiated to end such unfair competition, and in Sweden, as part of an ICC (International Chamber of Commerce) arbitration procedure seeking compensation for the damage suffered. Preliminary findings in the US were favourable to Faiveley Transport Group. Wabtec lodged an appeal against this decision before the American jurisdiction. On 9 March 2009, the Second Circuit Court of New York suspended the preliminary injunctive relief, considering that Faiveley Transport Malmö had insufficiently proven the urgency of a serious and imminent risk of spreading of its industrial expertise and secrets. However, Faiveley Transport Malmö s right of action, as well as the merit of the proceedings it had instituted were confirmed by the judges, as was the fact that Wabtec had illegally used Faiveley Transport Malmö s intellectual property. The latter was called to appear again before the same judge to have its preliminary injunctive relief application re-examined. This request was turned down on 31 August 2009, as the judge considered that the defendant was no longer at any imminent risk of damage. Faiveley Transport appealed this decision. Moreover, Faiveley Group is claiming, as part of the arbitration process, damages for the misappropriation by Wabtec, since 1 January 2006, of the intellectual property of the BFC TBU brakes and actuators PB and PBA. Faiveley Group seeks damages and interest totalling USD 100 million as part of this arbitration procedure. The arbitration ruling is expected by the end of Note: in May 2008, the US company Wabtec Corporation issued a writ against Faiveley Transport USA in the Pennsylvania courts for unfair competition in the US territory. This proceeding is in response to the above-described two procedures, launched on the initiative of the Faiveley Group. Defence conclusions were filed on behalf of Faiveley Transport USA on 22 October 2008, rejecting Wabtec s demands in full and highlighting the close connection with the above-described procedures. Two mergers were carried out over the first half-year 2009/2010. On the one hand, FAIVELEY TRANSPORT LEIPZIG GmbH & Co.KG was merged into FAIVELEY BETEILIGUNGS GmbH (subsequently renamed FAIVELEY TRANSPORT LEIPZIG GmbH) and on the other hand, SAB IBERICA S.A was merged into FAIVELEY TRANSPORT IBERICA S.A. These two mergers took effect retroactively from 1 April 2009 for accounting and tax purposes. 2009/2010 half-year report - 2

4 2/ Interim financial statements Half year sales Sales contribution 2009/2010 HY1 2008/2009 HY1 2008/2009 France 103, , ,684 Europe (excluding France) 204, , ,905 Americas 29,881 25,069 58,704 Asia Pacific 76,582 46, ,732 TOTAL GROUP 414, , ,024 Faiveley Transport recorded sales of million over the second quarter of its 2008/2009 financial year, in line with the second quarter of the previous year that had experience strong 29.1% growth. Over the first half of the 2009/2010 financial year, Group sales totalled million, up 8% compared to the same period of the previous year, being 6% on a like-for-like basis. The sales order backlog reported further growth to 1,195 million, an increase of 4.9% compared to 31 March 2009 and 13.3% compared to 30 September Sales by division 2009/ /2009 HY1 Air conditioning 18% 18% Couplers 1% 2% Customer Services 32% 31% Electromechanical systems 3% 3% Electronics 6% 6% Brakes 23% 24% On-board doors 13% 12% Platform screen doors 4% 4% The changes observed were primarily due to the planning of contracts. 2009/2010 half-year report - 3

5 Income statement 2009/2010 HY1 2008/2009 HY1 2008/2009 Sales 414, , ,024 EBITDA (*) Profit from operations Operating profit as a % of sales as a % of sales as a % of sales 59, % 52, % 51, % 53, % 47, % 46, % 129, % 114, % 113, % Net finance cost (8,065) (4,140) (14,445) Share of profit of associates Income tax (10,988) (12,618) (28,095) Profit from continuing operations as a % of sales 32, % 30, % 71, % Profit from discontinued operations Net profit 32,641 30,157 71,247 Minority interests (2,092) (11,897) (19,764) Net profit - Group share 30,549 18,260 51,483 (*) Operating profit plus amortisation and depreciation. - Operating profit The Group s 2008/2009 HY1 operating profit totalled 51.7 million (12.5% of sales), compared to 46.9 million in 2008/2009 HY1 (12.2% of sales), resulting in a 0.3 percentage point rise in EBIT as a percentage of sales. Gross profit (sales less cost of goods sold) was million (28.2% of sales), compared to million (28.3% of sales) over the previous period. The Group s research and development costs, recognised as overheads, totalled 6.8 million over the first half year 2009/2010, being 1.6% of sales, compared to 6.8 million and 1.8% of sales in the first half year 2008/2009. Most of the railway business research and development effort came within the framework of engineering included in contracts. General, selling and administrative costs amounted to 56.1 million in the first half year 2009/2010 being 13.5% of sales, a modest decline compared to the 13.8% reported for the first half year 2008/2009. Other operating income and expenses was a net charge of 2 million at 30 September 2009, compared to a net charge of 1.7 million at 30 September Consequently, profit from operations increased by 0.3% compared to the 2008/2009 first half year to 52.1 million (12.6% of sales), compared to 47.3 million at 30 September 2008 (12.3% of sales). 2009/2010 half-year report - 4

6 Most other non-current income and expenses resulted from restructuring costs and gains and losses from the sale of property, plant and equipment and intangible asset items. Restructuring costs amounted to 0.2 million over the period, compared to 0.5 million at 30 September These restructuring costs were primarily due to the merger of the Sab Iberica into the Faiveley Transport Iberica subsidiary. - Net profit Consolidated net profit amounted to 32.6 million, compared to 30.2 million at 30 September Net profit was affected by the following items: Net borrowing costs grew from 4.5 million at 30 September 2008 to 6.4 million at 30 September This increase essentially resulted from the interest expense relating to the implementation of new financial debt contracted on 23 December 2008 when the Sagard investment fund exited the share capital. Net finance cost analysis shows a net cash charge of 8 million, as well as unrealised foreign exchange losses and deferred non-cash charges of 0.1 million, resulting in a net finance cost of 8.1 million. The income tax charge was 11 million at 30 September 2009, compared to 12.6 million for the previous period. The effective tax rate was 25.2%, compared to 29.5% at 30 September 2008, resulting from the tax rates of the countries in which profits are generated. - Minority interests: Minority shareholders are the following: ( millions) 30 Sept Sept / % held by Sagard in Faiveley Transport (1) % held by the management in Faiveley Transport (1) Other minority interests (2) Total (1) Share of profit attributable to Sagard and management at 23 December 2008, the date their investments were purchased. (2) Other minority interests relate to the portion attributable to minority interests in Lekov a.s. (75%- owned), Nowe GmbH (75%-owned) and Shanghai Faiveley Railway Technology (51%-owned). - Net profit Group share Taking the above mentioned items into account, the Group s consolidated net profit for the period was 30.5 million, compared to 18.3 million at 30 September Net earnings per share was 2.17, compared to 1.50 at 30 September 2008, being an increase of 45%, of which 29% was due to the earnings-enhancing effect of the Company s shareholding reorganisation transactions. Net earnings per share calculation takes account of the deduction of the 343,124 treasury shares held by Faiveley Transport. 2009/2010 half-year report - 5

7 Financial position - Consolidated cash flow statement 2009/2010 HY1 2008/2009 HY1 2008/2009 Net profit 32,641 30,157 71,247 + Movements in amortisation, depreciation and provision charges and others 11,986 7,521 6,537 Self-financing capacity 44,627 37,678 77,784 + Changes in working capital requirements (36,185) (45,470) 28,757 Net cash generated from operating activities 8,442 (7,792) 106,541 Purchase of PPE and intangible assets (6,536) (6,767) (15,863) Movement in other financial assets (253) Net cash from acquisitions/sales of subsidiaries - (69,873) (457,607) Net cash generated from/(used in) investing activities (6,789) (76,379) (473,252) Proceeds from issuance of share capital ,875 Treasury shares (30) (223) (43) Movement in issue and merger premiums ,244 Other movements (cash flow hedge) (1,103) (1,374) (1,257) Cash dividends paid (14,043) (4,860) (4,859) Proceeds from new borrowings/(repayments) (6,337) 60, ,946 Net cash generated from /(used in) financing activities (21,513) 54, ,906 Net foreign exchange difference 11,659 (9,855) (30,961) Impact of increase/(decrease) in value of cash equivalents (4,072) 5,937 4,256 Cash and cash equivalents at start of period 145, , ,690 Cash and cash equivalents at end of period 132,907 77, ,180 The cash position decreased by 12.3 million over the first half year 2009/2010. The 8.4 million net cash generated from operating activities was affected by the cyclical reduction in the receivable deconsolidation programme for 24.5 million (excluding this movement, net cash generated from operating activities would have been 32.9 million). Other movements included the 14 million dividend distribution, negative net cash flow from financing and investing activities of 13.2 million, a 1.1 million decrease in other equity, foreign exchange differences and a 7.6 million increase in cash equivalents. At 30 September 2009, the Group s net financial debt amounted to million, compared to million at 31 March From a financial point of view, Group equity includes treasury shares, which are intended to be sold as part of the share purchase option plan. The exercise of these options (295,880 at end September 2009) would generate a 9.2 million increase in the Group s 2009/2010 half-year report - 6

8 cash position. Unallocated treasury shares were valued at 2.8 million at the 30 September 2009 share price. - Summary balance sheet 30 September /2009 Published Acquisition goodwill 534, ,871 Non-current assets 122, ,551 Deferred tax assets 29,187 28,845 Current assets 373, ,562 Cash 143, ,077 Assets used in operations to be discontinued - - Total ASSETS 1,202,545 1,219,906 Equity 321, ,921 Current and non-current provisions 106, ,305 Deferred tax liabilities 22,869 19,745 Current and non-current borrowings 462, ,403 Other current liabilities 289, ,532 Liabilities associated with operations to be discontinued - Total EQUITY and LIABILITIES 1,202,545 1,219,906 Acquisition goodwill fell by 1.9 million. This decline was due to the foreign exchange difference measured on Ellcon s goodwill, which was valued in USD on the first consolidation of the Ellcon company. This 2.7 million decline was offset by the 0.8 million restatement of the same goodwill during its allocation period. Non-current assets also decreased by 2.9 million. This reduction was primarily due to: million in amortisation and depreciation charges for the period; million in non-current asset purchases; million negative foreign exchange differences on opening balances, measured on the basis of existing non-current assets at 1 April 2009; Deferred tax assets were stable at 29.2 million at 30 September 2009, compared to 28.8 million at 31 March Current assets increased by 7.6 million over the period, primarily relating to inventories, which totalled million at 30 September 2009, compared to million at 31 March Current provision charges remained stable, being 106 million at 30 September 2009, compared to million at 31 March Financial liabilities posted to the balance sheet (before adding back cash and marketable securities) decreased by 16.9 million over the period. This reduction was primarily due to the repayment of the senior debt and other borrowings for 2009/2010 half-year report - 7

9 3.2 million, the valuation of the USD-denominated loan which decreased by 3.2 million given the more favourable USD/EUR rate at 30 September 2009, the 1.7 million fall in value of liability fair value derivatives and the 8.3 million decrease in the bank overdraft. Current liabilities totalled million at 30 September 2009, compared to million at 31 March This 28.7 million decline was analysed as follows: - A 4.9 million reduction in customer prepayments; - A 27.7 million decrease in trade, tax and social contribution payables; - A 3.9 million increase in other operating expenses. 3/ Major related party transactions At 30 September 2009, the nature of transactions with related parties, proportionally consolidated and equity accounted companies did not vary from the description provided in the notes to the consolidated financial statements at 31 March The service provision agreement entered into with François Faiveley Participations continued. 182,500 before tax was billed to Faiveley SA over the period. B. OUTLOOK FOR THE SECOND HALF OF 2009/2010 1/ Sales and net profit Sales for the second half of this financial year should be in line with the same period of the previous financial year (in which growth of 24.5% was reported), resulting in further sales growth over the full financial year. 2/ Cash generation The Group will continue its efforts to control working capital requirements. 3/ Description of major risks and uncertainties of the next 6 months A number of major deals are subject to tenders with train manufacturers, which should subsequently generate contracts for prime equipment manufacturers over the next twelve months. 2009/2010 half-year report - 8

10 2. Faiveley Group consolidated financial statements at 30 September 2009 (IFRS) 2.1 Statement of financial position 2.2 Condensed consolidated income statement 2.3 Statement of comprehensive income 2.4 Condensed consolidated cash flow statement 2.5 Consolidated statement of changes in equity 2.6 Notes to the consolidated financial statements Rapport semestriel 2009/2010-9

11 2. Faiveley Group consolidated financial statements at 30 September 2009 (IFRS) 2.1 Statement of financial position 30 September March March 2009 ASSETS Net Net Notes Gross Amort.deprec. Net Restated (*) Published ( thousands) and prov. charges Subscribed uncalled share capital (1) Acquisition goodwill Intangible assets Other 2 & Property, plant and equipment 3 & 4 Land Buildings Plant and machinery Other Financial investments 5 Shareholding in unconsolidated subsidiaries Shareholding in associates Other Deferred tax assets TOTAL NON-CURRENT ASSETS (II) Inventories Advances to suppliers Trade receivables Other operating receivables Other receivables Taxation receivable Current financial assets Current investments Cash Assets of discontinued operations/held for sale TOTAL CURRENT ASSETS (III) TOTAL ASSETS (I + II + III) (*) Restated for the adjustment of the Ellcon acquisition goodwill in the year of allocation (see Note D4 of the notes to the consolidated financial statements The attached notes are an integral part of the consolidated financial statements Rapport semestriel 2009/

12 EQUITY AND LIABILITIES Notes 30 septembre March March 2009 Restated (*) Published ( thousands) EQUITY ATTRIBUTABLE TO HOLDERS OF PARENT COMPANY EQUITY Share capital Share premium Translation differences (28 616) (36 034) (36 034) Reserves Net profit- Group share TOTAL MINORITY INTERESTS Share of subsidiaries' equity Share of subsidiaries' profit for the year TOTAL TOTAL EQUITY (I) Provisions for liabilities and charges 13.1 & Deferred tax liabilities Non-current borrowings TOTAL NON-CURRENT LIABILITIES (II) LIABILITIES Current provisions for liabilities and charges Current borrowings Advances and prepayments received from customers Operating liabilities Tax payable Other liabilities Liabilities of discontinued operations/held for sale TOTAL (III) TOTAL EQUITY AND LIABILITIES (I + II + III) (*) Restated for the adjustment of the Ellcon acquisition goodwill in the year of allocation (see Note D4 of the notes to the consolidated financial statements) The attached notes are an integral part of the consolidated financial statements Rapport semestriel 2009/

13 2.2 Condensed consolidated income statement Notes Half year 2008/ Sept Sept FY ( thousands) IFRS IFRS SALES Cost of sales 20 ( ) ( ) ( ) GROSS PROFIT Administrative costs (34 706) (34 303) (73 938) Selling costs (21 375) (18 483) (38 451) Research and development costs (6 799) (6 799) (12 864) Other operating income/(expenses) Other operating costs 21 (3 412) (3 780) (5 135) PROFIT FROM OPERATIONS Restructuring costs (173) (467) (455) Gain/(Loss) on disposal of property, plant and equipment and intangible asse 22 (210) 40 (256) Other non-operating income/(expenses) OPERATING PROFIT profit Operating profit and amortisation and depreciation charges Net finance income cost (6 417) (4 497) (17 685) Other finance income Other finance costs (22 387) (7 621) (38 941) NET FINANCE COST 23 (8 065) (4 140) (14 445) PROFIT BEFORE TAX Income tax 24 (10 988) (12 618) (28 095) PROFIT FOR THE PERIOD FROM CONSOLIDATED OPERATIONS Share of profit of associates PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS Profit/(loss) for the period of discontinued activities 25 NET PROFIT FOR THE PERIOD Minority interests NET PROFIT- GROUP SHARE Number of shares Earnings per share, in Earnings per share 2,17 1,50 4,06 Diluted earnings per share 2,17 1,50 4,06 Net earnings per share, in - continuing operations Earnings per share 2,17 1,50 4,06 Diluted earnings per share 2,17 1,50 4,06 Net earnings per share, in - discontinued operations Earnings per share 0,00 0,00 0,00 Diluted earnings per share 0,00 0,00 0,00 The attached notes are an integral part of the consolidated financial statements Rapport semestriel 2009/

14 2.3 Statement of comprehensive income Half year 2008/ Sept Sept FY ( thousands) IFRS IFRS Net profit for the period Translation adjustment (4 007) (20 957) Financial assets held for disposal Gains (losses) on hedging financial instruments (1 116) (1 256) Actuarial gains Share of profit and losses directly recognised in the equity of equityaccounted companies Movement in non-current asset revaluation reserve Other adjustments (43) (319) 645 Income tax on other items of comprehensive income net other items of comprehensive income (4 326) (21 568) Total comprehensive income Group share attributable to minority interests Rapport semestriel 2009/

15 2.4 Condensed consolidated cash flow statement ( thousands) Notes 2009/ / /2009 HY 1 HY 1 FY Cash flow from operating activities Profit for the period Minority interests stake in subsidiaries' profit for the period Adjustments for non-cash flow items: - Depreciation and amortisation charges Goodwill impairment charge Net movements in provisions (492) (7 406) - Depreciation and amortisation charges (1 565) - Goodwill impairment charge 209 (40) Net movements in provisions (56) (32) (112) - Share of profit/(loss) from associates Dilution profit Self-financing capacity Changes in working capital 11 (36 185) (45 470) Net cash generated from/(used in) operating activities (7 792) Cash flows from investing activities Purchase of intangible assets (3 159) (1 936) (6 397) Purchase of property, plant and equipment (3 443) (4 893) (9 741) Proceeds from grants Proceeds from disposal of PPE and intangible assets Purchase of financial assets (338) (1 425) (1 073) Proceeds from sale of financial assets Cash and cash equivalent of acquired subsidiaries 0 (69 873) ( ) Cash and cash equivalent of disposed subsidiaries 0-0 Cash flow used in investing activities (6 789) (76 379) ( ) Proceeds from issuance of share capital Buyback of treasury shares (30) (223) (43) Movement in issue and merger premiums Other movements (cash-flow hedge) (1 103) (1 374) (1 257) Cash dividends paid to equity holders of parent company (14 043) (4 270) (4 269) Cash dividends paid to minority interests 0 (590) (590) Proceeds from new borrowings Repayment of borrowings (7 403) (19 925) (46 980) Net cash generated from/(used in) financing activities (21 513) Net foreign exchange difference (9 855) (30 961) Impact of increase/(decrease) in value of cash equivalents (1) (4 072) Net increase/(decrease) in cash and cash equivalents (12 273) (33 706) Cash and cash equivalents at start of period Cash and cash equivalents at end of period (1) The cash equivalents include the fair value of hedging instruments The attached notes are an integral part of the consolidated financial statements Rapport semestriel 2009/

16 2.5 Consolidated statements of changes in equity ( thousands) Share Share Translation Profit for Group Minority capital premium Reserves differences the period total interests TOTAL Balance at 31 March (8 117) Allocation of 20007/08 net profit (36 316) 0 0 Cash dividends (2 060) (2 209) (4 269) (590) (4 859) Issue of shares (stock options) Treasury shares (216) (216) (216) Change in Group structure 0 (591) (591) Net profit for the year Other items of comprehensive income (221) (2 805) (3 026) (1 299) (4 326) Total income and expense recognised 0 0 (221) (2 805) Balance at 30 September (10 922) Balance at 31 March (8 117) Allocation of 2007/08 net profit (36 316) 0 0 Cash dividends (2 060) (2 209) (4 269) (590) (4 859) Issue of shares (stock options) Treasury shares (229) (229) (229) Change in Group structure (14 991) ( ) (34 621) Net profit for the year Other items of comprehensive income (1 198) (12 926) (14 124) (7 444) (21 568) Total income and expense recognised 0 0 (1 198) (12 926) Balance at 31 March (36 034) Allocation of 2008/09 net profit (51 483) 0 0 Cash dividends (14 042) (14 042) (14 042) Issue of shares (stock options) 0 0 Treasury shares (29) (29) (29) Change in Group structure 0 0 Net profit for the year Other items of comprehensive income (1 123) (455) Total income and expense recognised 0 0 (1 123) Balance at 30 September (28 616) At 30 September 2009, Faiveley S.A. held 343,124 treasury shares, being 2.4 % of share capital

17 2.6 Notes to the interim consolidated financial statements A. ACCOUNTING INFORMATION Faiveley S.A. is a French limited liability company (société anonyme) with a Management Board and a Supervisory Board. Its registered office is at 143, boulevard Anatole France, Carrefour Pleyel, Saint Denis, France. The interim financial statements were approved by the Management Board on 27 November They were presented to and reviewed by the Supervisory Board at its meeting on 27 November The financial statements have been prepared on the basis that the Faiveley Group is a going concern. The Group s functional and presentation currency is the euro. Figures are expressed in thousands of euros unless indicated otherwise. B. HIGHLIGHTS Change of company name: The Combined General Meeting held on 22 September 2009 endorsed the change of company name of Faiveley S.A. to Faiveley Transport, the Group s commercial identity worldwide. Changes in Group governance: - Following the Combined General Meeting of 22 September 2009, the Supervisory Board elected a new Chairman, with François Faiveley giving up his position to Philippe Alfroid. Mr. Faiveley considered that this choice would improve the company s governance and submitted it for approval by other Supervisory Board members, who endorsed it. Mr. Faiveley was elected Vice-Chairman of the Supervisory Board. - The Supervisory Board also appointed Thierry Barel as member of the Management Board. Mr. Barel joined the Group last July as Chief Operating Officer. The Management Board now comprises four members: Robert Joyeux, Chairman and Chief Executive Officer, Thierry Barel, Chief Operating Officer, Erwan Faiveley and Etienne Haumont, Chief Financial Officer of the Group. The Combined General Meeting of 22 September 2009 delegated to the Management Board its powers in relation to: - Granting share subscription and/or purchase options; - Issuing shares or marketable securities giving right to new or existing shares of the Company, with, in cases new shares are granted, the cancellation of the pre-emption right. The Management Board had not used these delegations at 30 September The Group continued the legal proceedings initiated during the previous financial year against Wabtec, for unfair competition and breach of contractual obligations related to a now expired licensing agreement for braking system components. The proceedings are ongoing both in the US, where a summary procedure has been initiated to end such unfair competition, and in Sweden, as part of an ICC (International Chamber of Commerce) arbitration procedure seeking compensation for the damage suffered. Preliminary findings Rapport semestriel 2009/

18 in the US were favourable to Faiveley Transport Group. Wabtec lodged an appeal against this decision before the American jurisdiction. On 9 March 2009, the Second Circuit Court of New York suspended the preliminary injunctive relief, considering that Faiveley Transport Malmö had insufficiently proven the urgency of a serious and imminent risk of spreading of its industrial expertise and secrets. However, Faiveley Transport Malmö s right of action, as well as the merit of the proceedings it had instituted were confirmed by the judges, as was the fact that Wabtec had illegally used Faiveley Transport Malmö s intellectual property. The latter was called to appear again before the same judge to have its preliminary injunctive relief application re-examined. This request was turned down on 31 August 2009, as the judge considered that the defendant was no longer at any imminent risk of damage. Faiveley Transport appealed this decision. Moreover, Faiveley Group is claiming, as part of the arbitration process, damages for the misappropriation by Wabtec, since 1 January 2006, of the intellectual property of the BFC TBU brakes and actuators PB and PBA. Faiveley Group seeks damages and interest totalling USD 100 million as part of this arbitration procedure. The arbitration ruling is expected by the end of Note: in May 2008, the US company Wabtec Corporation issued a writ against Faiveley Transport USA in the Pennsylvania courts for unfair competition in the US territory. No figure has been put on their claim to date. This proceeding is in response to the abovedescribed two procedures, launched on the initiative of the Faiveley Group. Defence conclusions were filed on behalf of Faiveley Transport USA on 22 October 2008, rejecting Wabtec s demands in full and highlighting the close connection with the above-described procedures. C. CONSOLIDATION PRINCIPLES AND METHODS 1. Basis of preparation The Group prepared its full-year consolidated financial statements at 31 March 2009 in accordance with IFRS (International Financial Reporting Standards), as adopted by the European Union. Condensed interim financial statements at 30 September 2009 were prepared in accordance with IAS 34 Interim financial reporting, which allows the presentation of selected notes. Condensed financial statements thus must be read in conjunction with the Group s consolidated financial statements for the financial year ended 31 March Changes in accounting policies and presentation: The interim financial statements were prepared in accordance with the same accounting principles and policies as were applied by the Group to its financial statements for the financial year ended 31 March 2009, except for the following standards and amendments to standards applicable from 1 January Presentation changes: Revised IAS 1 Presentation of financial statements. The Group applies revised IAS 1 (2007) Presentation of financial statements which came into force on 1 January Consequently, the Group presents all changes in equity relating to the Company s shareholders in the Statement of Changes in Equity, whereas equity movements that do not relate to the owners are presented in the Statement of Comprehensive Income. This presentation was used for the preparation of the condensed consolidated financial statements for the period from 1 April to 30 September Comparative data was restated to comply with the revised standard. Accounting policy changes: Rapport semestriel 2009/

19 Revised IAS 23 Borrowing costs : Prior to 1 January 2009, the Group recognised directly as an expense all borrowing costs. From 1 January 2009 and in application of revised IAS 23, the Group capitalises borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset in the cost of this asset, providing the starting date for the capitalisation of the borrowing costs to the cost of the said asset is 1 January 2009 or later. The adoption of this change of accounting policy had no effect on the condensed consolidated financial statements. IFRS 8 Operating segments, which replaced IAS 14 Segment reporting : The new IFRS 8 standard on segment reporting defines an operating segment as a component of an entity: - that engages in business activities from which it may earn revenues and incur expenses - whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and - for which discrete financial information is available. In light of these criteria, the Group confirms the segmentation selected or IAS 14. As a result, the application of the standard had no impact on the information disclosed at 30 September 2009 by the Group. Other standards and interpretations applicable from 1 January 2009: The other amendments to standards and interpretations applicable from 1 January 2009 do not apply to the Group and had no significant impact on the condensed consolidated financial statements prepared at 30 September 2009: Amended IAS 1 and IAS 32 Puttable instruments and obligations arising on liquidation, Amended IFRS 2 Share-based payments - Vesting Conditions and Cancellations, Amended IFRS 7 Fair value and liquidity risk, not adopted by the European Union, IFRIC 11 Group and Treasury Share Transactions, applicable from 2009 according to the European Union, IFRIC 13 Customer Loyalty Programmes, IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, applicable from 2009 according to the European Union, IFRIC 15 Agreements for the Construction of Real Estate, not adopted by the European Union, IFRIC 16 Hedges of a Net Investment in a Foreign Operation, Other amendments of the annual IFRS improvement procedure, published in May The new standards and interpretations or which the application will be compulsory from 2010 were not adopted early by the Group at 30 September Seasonality The Group experiences a seasonality effect due to the summer holidays, which have an adverse impact on 1 st half year sales. 3. Balance sheet date All companies are consolidated on the basis of financial statements as of 30 September Translation exchange rates used on consolidation Rapport semestriel 2009/

20 Closing rates Average rates 30 Sept March Sept Sept March Sept Thai Bath Swedish Krona Czech Koruna US Dollar Australian Dollar Hong Kong Dollar Pound Sterling Brazilian Real Chinese Yuan Indian Rupee Korean Won Polish Zloty D. CHANGES IN CONSOLIDATION SCOPE 1. Company formations None. 2. Acquisitions None. 3. Disposals None. 4. Goodwill movements within the allocation timeframe Faiveley Transport purchase of minority interests On 23 December 2008, The Annual General Meeting of shareholders approved the purchase by Faiveley S.A. of all minority interests (direct and indirect) in its Faiveley Transport subsidiary. Summary calculation of the goodwill arising on the acquisition of the minority interests: thousands at 31 March 2009 Restatements within allocation deadlines thousands at 30 September 2009 Acquisition price of the shares: 383, ,767 Acquisition expenses (professional fees): 2, ,084 Share of equity acquired: (121,148) - (121,148) Goodwill 265, ,704 Impact of Ellcon s consolidation: Rapport semestriel 2009/

21 Ellcon National (*) Book value Restatements Fair value Restatements within the goodwill allocation deadline Fair value at 1 April 2009 Non-current assets: Property, plant and equipment and intangible 7,190 5,120 12,310 12,310 assets Deferred tax assets 511 3,562 4, ,127 Current assets: Inventories 7, ,431 (231) 7,200 Trade receivables 6,669-6,669 6,669 Other receivables 892 (362) Cash 1,146-1,146 1,146 Non-current liabilities: Non-current provisions Deferred tax liabilities 0 (2,599) (2,599) (324) (2,923) Long-term borrowings (1,559) - (1,559) (1,559) Current liabilities: 0 Current provisions (430) (5,544) (5,974) 81 (5,893) Short-term financial debt (429) (10) (438) (438) Trade payables (2,200) 51 (2,149) (2,149) Other liabilities Total 19, ,440 (420) 19,020 Acquisition expenses (972) (972) Goodwill 24, ,179 Total acquisition cost 42, ,227 (*) amounts in thousands, converted at the acquisition date conversion rate (31 July 2008): These financial statements were prepared in accordance with IFRS. We have not identified any significant discrepancies on the fair value of the above-listed items. Change in Ellcon s goodwill: The goodwill arising on the acquisition of Ellcon increased from 24,393 thousand at 31 March 2009 to 25,179 thousand at 1 April This increase was due to the following: - Inventories: ( 231 thousand) - Provisions for warrantees 81 thousand - Deferred taxation: ( 270 thousand) E. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING TABLES ( THOUSANDS) Rapport semestriel 2009/

22 1. Goodwill To expand its product range, the Faiveley Group has acquired specialised companies. The main acquisitions include the Sab Wabco Group (acquired in 2004), which focuses on brake products and couplers, Faiveley Transport NSF (acquired in 2005), which specialises in air-conditioning equipment, Espas (acquired in 2006), which specialises in electronic products, Nowe GmbH (acquired in 2008), which designs sanding systems, Shijiazhuang Jiaxiang Precision Machinery Co. Ltd (of which 50% was acquired in 2007), which develops and manufactures compressors, Ellcon National Inc. (acquired in 2008), which specialises in brake components for the rail freight market and the purchase of Carbone Lorraine s sintered brake pads activity on 1 April When it acquired these companies, the Group allocated the goodwill and intangible assets with indefinite useful lives to the Groups of companies concerned. The allocation of these goodwill amounts has not subsequently been amended. Goodwill was recognised in the financial statements of Faiveley S.A. following its purchase of all direct and indirect minority interests in its Faiveley Transport subsidiary. The following table provides details of the unallocated goodwill as at 30 September 2009: Gross Accumulated impairment Net 30 September 2009 Net 31 March 2009 Sab Wabco Group 219, , ,997 Faiveley Transport minority interests 265, , ,583 Faiveley Transport NSF 10,057-10,057 10,057 Ellcon National Inc. 26,843-26,843 28,614 Espas Group 6,061-6,061 6,061 Nowe GmbH 1,978-1,978 1,978 Faiveley Transport Gennevilliers 1,013-1,013 1,013 Shijiazhuang Jiaxiang Precision Machinery Co. Ltd Others 2,466-2,466 2,466 Total 534, , ,871 Gross 1 April 2009 Restatemen t of opening goodwill Acquisitions Disposals Impairment Other Movements Gross 30 Sept Sab Wabco Group 219,997 (203) (1) 219,794 Faiveley Transport minority interests 265, ,704 Faiveley Transport NSF 10,057 10,057 Ellcon National Inc. 28, (2,693) (2) 26,843 Espas Group 6,061 6,061 Nowe GmbH 1,978 1,978 Faiveley Transport Gennevilliers 1,013 1,013 Shijiazhuang Jiaxiang Precision Machinery Co. Ltd Others 2,466 2,466 Total 535,871 1, (2,896) 534,018 (1) This movement is due to the recognition as a reduction of the SAB Wabco acquisition goodwill of the tax saving generated during the financial year in relation to the Faiveley Transport do Brazil and Sab Wabco Investments Ltd. subsidiaries (former Sab Wabco group structure), which had tax loss carry forwards at the time of its acquisition by Faiveley Transport Group. (2) Foreign exchange difference on Ellcon s goodwill (USD 39,307). Rapport semestriel 2009/

23 Unallocated goodwill is tested on an annual basis at the 31 March balance sheet date. No impairment indication was identified at 30 September Other intangible assets Gross 1 April 2009 Amortisation Net 30 September 2009 Net 31 March 2009 Incorporation and development costs 11,832 6,266 5,566 5,043 Franchises, patents, licences 40,927 15,676 25,251 25,949 Business goodwill 12,482 12,482 12,483 Other intangible assets 8,531 1,669 6,862 5,491 Total 73,772 23,611 50,161 48,966 Movements over the period: Gross 1 April 2009 Change in group structure Acquisitions Disposals Other Movements Gross 30 Sept Incorporation and development costs Franchises, patents, licences 10,601-1,219 (1) ,832 40, ,927 Goodwill 12, (1) 12,482 Other intangible assets 7,107-1,618 (195) 1 8,531 Total 70,792-3,159 (195) 16 (2) 73,772 (3) (1) Development costs capitalised over the period (2) Including impact of exchange differences of 16 thousand. (3) Of which allocated acquisition goodwill: - Brands and patents: 20,000 thousand - Development costs: 962 thousand At 30 September 2009, intangible assets were broken down as follows: - Incorporation and development costs: only include development costs incurred as part of research programmes and that comply with the IFRS capitalisation criteria. These costs are amortised over a maximum of 3 years. - Franchises, patents, licences: primarily includes the Sab Wabco brand, which was valued at 31 March 2005, on the acquisition of the Sab Wabco Group ( 20,000 thousand), patents acquired on the take over of Carbone Loraine s sintered brake business ( 4,000 thousand), and computer software amortised over a maximum of 5 years. - Goodwill: comprises the goodwill generated by the acquisition of Carbone Loraine s sintered brake business ( 12,457 thousand). - Other intangible assets: primarily includes the 6,664 thousand in costs already incurred on the implementation of the Moving Forward project, a significant IT system integration programme, launched in 2009, whose objective is to optimise our organisations, industrial processes, equipment and the sharing of technical data within the Faiveley Group. Rapport semestriel 2009/

24 3. Property, plant and equipment Gross Accumulated depreciation Net 30 September 2009 Net 31 March 2009 Land 5, ,283 5,331 Buildings 75,547 47,134 28,413 30,493 Plant and machinery 121, ,108 21,117 22,553 Other 39,310 30,428 8,882 9,454 Under construction 1,202 1,202 1,049 Total 242, ,896 64,897 68,880 Movements over the period: Gross 1 April 2009 Restatement of opening goodwill Change in group structure Acquisitions Disposals Other Movements Gross 30 Sept Land 5, (47) 5,509 Buildings 76, (7) (906) 75,547 Plant and machinery 120, ,678 (140) (415) 121,225 Other 38, (223) 13 39,310 Under construction 1, (116) (236) 1,202 Total 241, ,408 (486) (1,591) (1) 242,793 (2) (1) Including impact of exchange differences of 1,591 thousand. (2) Of which valuation differences ( thousands): - Land 1,427 - Buildings 5,278 - Constructions 2,818 - Plant and machinery 1, ,542 Generally speaking, the Group s business model focuses on engineering, upstream from contracts, followed by purchasing and project management at the implementation phase, equipment integration and testing before delivery to the customer. Therefore, there is very little manufacturing involved in the processes and as a result little investments are employed. Major increases in property, plant and equipment items were due to the acquisitions made over the period, for a total of 3.4 million. Property, plant and equipment acquired under finance leases Details of property, plant and equipment acquired under finance leases are as follows: Gross Accumulated depreciation Net 30 September 2009 Net 31 March 2009 Software licences 1,079-1,079 1,079 Land Buildings 9,070 5,670 3,400 3,467 Plant and machinery Total 11,536 6,223 5,313 5,587 Rapport semestriel 2009/

25 4. Accumulated depreciation, amortisation and provisions Value at 1 April 2009 Change in group structure Additions Disposals / other movements Value at 30 Sept Acquisition goodwill Incorporation and development costs 5, ,266 Franchises, patents, licences 14,652-1, ,676 Business goodwill Other intangible assets 1, (35) 1,669 Land (1) 226 Buildings 45,720-1,503 (89) 47,134 Plant and machinery 97,549-3,036 (477) 100,108 Other property, plant and equipment 29,088-1,561 (221) 30,428 Total 194,408-7,901 (802) (1) 201,507 (1) including (400) thousand in translation differences and (402) thousand in asset disposals 5. Financial assets Gross Writedowns Net 30 September 2009 Net 31 March 2009 Investments in unconsolidated subsidiaries (1) Investments in associates Other 7, ,346 7,494 Total 8,771 1,204 7,567 7,705 (1) Unconsolidated companies are listed in note G.2. Movements over the period: Investments in unconsolidated subsidiaries Gross 1 April 2009 Restatement of opening goodwill Changes in group structure Acquisitions Disposals Other movements Gross 30 Sept Investments in associates Other 8,112 (430) (19) 31 7,959 Total 8,875 (430) (19) 80 (1) 8,771 (1) Including 40 thousand in exchange differences and 40 thousand in reclassifications. Rapport semestriel 2009/

26 Financial asset writedowns: Writedowns at 1 April Change in group structure Additions Reversals Other movements Writedowns at end of period 30 September , (77) 111 1, March , (285) (142) 1,170 Maturity date of other financial investments: 1 to 5 years More than 5 years TOTAL 30 Sept TOTAL 31 March 2009 Other fixed investments Loans ,228 1,286 Guaranteed deposits and securities 1, ,459 1,415 Other financial receivables (1) 4, ,265 5,404 Total 6,572 1,387 7,959 8,112 (1) Breakdown of other financial receivables: - Balance of sale financing on sale of KP SW GmbH Liability guarantee on TMB risk (Ellcon National Inc subsidiary) 2,403 3,073 - Receivable re sale of land to Cyrela (Brazil) 2,220 1,679 - Others TOTAL 5,265 5, Inventories Inventories and work-in-progress include raw materials, work-in-progress and finished products. They are stated at the lower of production cost and estimated net realisable value. Raw materials are measured using the weighted average cost method. Work-in-progress and finished products are measured at their production cost. The cost of inventories includes the direct raw material costs and, where relevant, the direct labour costs as well as overheads incurred in bringing the inventories to their present location and condition. Writedowns are recorded to take into account the risk of obsolescence. Gross Writedowns Net 30 September 2009 Net 31 March 2009 Raw materials 92,043 12,204 79,839 77,967 Work-in-process 25, ,911 25,382 Finished products 27, ,290 25,637 Merchandise 11,477 1,105 10,372 7,106 Total excluding building contracts 155,903 14, , ,092 Work-in-progress on contracts (1) 42,578-42,578 38,988 Total 198,481 14, , ,080 (1) Included in amounts due by/to customers in construction contracts (see note E.7) Rapport semestriel 2009/