(Translation from the Italian original which remains the definitive

version)

ANNUAL REPORT

ATM Group

2016

ATM has been a leading transport provider in Milan for over 85

years, transporting millions of people around the city every

day. Consolidated experience, investment capacity and

technological innovation are the foundations of its work.

Contents

Consolidated financial statements

of ATM group

48 Consolidated financial statements

62 Notes to the consolidated financial statements

104 Annexes

I

ATM Group

Highlights

2016 2015 2014

Production revenues 996.8 1,056.3 961.9

Operating costs (832.7) (892.9) (841.7)

Gross operating profit 164.1 163.4 120.2

% of production revenues 16.5% 15.5% 12.5%

Operating profit 34.0 20.7 8.5

% of production revenues 3.4% 2.0% 0.9%

Net profit for the year 38.9 25.8 5.6

% of production revenues 3.9% 2.4% 0.6%

2016 2015 2014

Fixed assets (tangible and intangible) 1,005.7 1,101.7 1,081.3

Net equity 966.6 929.3 900.1

Net financial position (247.1) (217.8) (234.3)

Investments 76.8 190.0 195.8

2016 2015 2014

ROI 2.2% 1.3% 0.5%Net invested capital 1,581.2 1,614.1 1,573.6

Operating profit 34.0 20.7 8.5

ROE 4.0% 2.8% 0.6%Net equity 966.6 929.3 900.1

Net profit for the year 38.9 25.8 5.6

Profit and loss account highlights (millions of Euros)

2016 revenues - by type and geographical segment

Balance sheet highlights (millions of Euros)

Performance highlights (millions of Euros)

LPT 77.68%

On-street parking, car parks, towing away service

3.14%

Other revenues19.18%

Abroad4.68%

Italy95.32%

II

Operating ratios - ITALY

T OT AL NET WORK 1

Area covered (km²) 1 ,083 Passengers (mln) 7 28.3

Municipalities covered 96 Km travelled (mln) 162.8

MET RO NET WORK

Number of lines 4 Fleet (engines and carriages) 4 1 ,014

Nework length (km) 2 96.8

Sy stem length (km) 3 215.9

ROAD NET WORK

Number of lines 157 Fleet4 1 ,420

Nework length (km) 2 1 ,562.0 Average age of fleet (years) 9.7

T RAM NET WORK5

Number of lines 20 Fleet4 493

Nework length (km) 2 181.8

Sy stem length (km) 3 282.1

T ROLLEYBUS NET WORK

Number of lines 4 Fleet4 137

Nework length (km) 2 38.8

Sy stem length (km) 3 85.8

1 F igures re fe r to the s e rvice pro vided by ATM in the Metro po litan c ity o f Milan, with the funicula r ra ilway in Co mo and pro vided by NET in the

Metro po litan c ity o f Milan and in the pro vinces o f Mo nza and Brianza , Bergamo and Lecco

2 Length o f ne two rk re fe rs to the s um o f a ll o f the lengths o f each line

3 Line s upers truc tures and o verhead lines in km are inc luded

4 Owned vehic les

5 This a ls o inc ludes the Milan-Des io inte rc ity tram line , which has tempo rarily been s us pended (replaced by a bus s ince 1 Octo ber 2011)

III

Operating ratios – ITALY

Area covered (km²) 662.7 Number of lines 27

Municipalities covered 59 Network length (km) 400.1

Passengers (mln) 10.5 Fleet 86

Km travelled (mln) 8.0

CAR PARKS AND ON-ST REET PARKING

Car parks 7 On-street parking

Number 22 Spaces 85,331

Spaces 18,635

Entrances 5,7 42,47 5

COMO - BRUNAT E FUNICULAR RAILWAY

Network length (km) 1.1 Km travelled 49,37 8

Passengers (mln) 1 .0

CASCINA GOBBA - H. SAN RAFFAELE MINI MET RO

Network length (km) 0.7

Km travelled 86,896

6 Service o pera ted by NET. F igures a ls o inc luded in "Who le ne two rk"

7 This inc ludes the No vara-Trenno car park, which has 1,613 s paces

SERVICES PROVIDED IN T HE MET ROPOLIT AN CIT Y OF MILAN AND PROVINCES OF MONZA AND

BRIANZA, BERGAMO AND LECCO 6

IV

Operating ratios - ABROAD

COPENHAGEN MET RO

Area covered (km²) 162 Number of lines 2

Municipalities covered 3 Network length (km) 21

Passengers (mln) 60.9 Fleet 34

Km travelled ( mln ) 14.9

V

Company bodies

Board of directors1

Chairman Bruno Rota

Directors Nunzio Domenico Paolo Dragonetti

Carmela Francesca

Alessandra Perrazzelli

Paolo Simonetti

Board of statutory auditors 2

Chairman Stefano Poggi Longostrevi

Statutory auditors Gaetano Frigerio

Maria Luisa Mosconi

Alternate statutory auditors Monica Bellini

Domenico Salerno

Independent auditors 3 KPMG S.p.A.

1. The board of directors was elected by the shareholder on 22 April 2014 with a term of office that ends with the

approval of the 2016 financial statements.

2. The board of statutory auditors was elected by the shareholder on 29 April 2016 with a term of office that ends with

the approval the 2018 financial statements.

3. The independent auditors were engaged with the resolution passed by the shareholder on 29 April 2016 proposed by

the board of statutory auditors, their term of office expires with approval of the financial statements for 2018.

VI

Group structure at 31 December 2016

Companies included in the consolidation scope

ATM S.p.A. : a company limited by shares since 2001, wholly owned by the Milan

municipality. It is the parent and carries out management and coordination activities

pursuant to article 2497 and subsequent articles of the Italian Civil Code. The company

manages the transport systems, structures and infrastructure, and the mobility of people,

goods and information.

ATM Servizi S.p.A. : set up on 22 September 2006, and wholly owned by ATM S.p.A..

The company manages all transport services, including railway services, as well as services

related to the transport of people, goods and information, and mobility, including on-street

parking and car parks. It has a service contract with the Milan municipality for local public

transport and related and ancillary services.

ATM Servizi Diversificati S.r.l. : set up on 9 September 2010, and wholly owned

by ATM S.p.A.. The company manages services for the transport of people and goods both by

road and by rail in the rentals sector as well as diversified service sectors such as the tram

restaurant and tourist services.

GeSAM S.r.l. : established on 22 December 2005, it is wholly owned by ATM S.p.A..

The company carries out consultancy activities in the insurance sector, including all the

related specialist assistance, aimed at the preparation and settling of claims, with the

exception of insurance mediation activities.

International Metro Service S.r.l. : established on 12 April 2007, it is 51%

controlled by ATM S.p.A.. The company provides services for the transport of people and

goods, with related programming and operational organisation activities, all with a view to

implementing contracts for the operating and maintenance of metro systems.

The company controls 100% of Metro Service A/S , the company that manages the

metro in Copenhagen.

Nord Est Trasporti S.r.l. : established on 5 December 2007, it is fully owned by ATM

S.p.A.. The company manages transport services for people, goods and information, with the

related programming activities and operational organisation as well as services connected to

transport and mobility around the Metropolitan city of Milan, the Monza and Brianza

province and the Monza municipality.

Rail Diagnostics S.p.A. : established on 31 October 2006, and 97.27% controlled by

ATM S.p.A.. The company focuses on the design, construction, maintenance and integrated

diagnostics of the metro and tram equipment and control systems.

Hereinafter in this annual report, ATM refers to all of the group companies included in the

consolidation scope.

VII

Description of the business

of ATM S.p.A. and the group companies

Directors’ report

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ATM in 2016

During the year, ATM S.p.A. once again significantly improved all its operating parameters. Net profit

rose to over €19.7 million compared to €10.8 million in the previous year, a growth of over 80%. Gross

operating profit, an indicator of its core business, further increased over the net improvement of 2015

to top €130 million. This increase was the result of the careful monitoring of all costs, which saw

operating costs decrease at a rate more than proportional to the contraction in revenues following the

end of the Expo-related activities and related increased passenger numbers.

The consolidated economic equilibrium now achieved by all the investees who have overcome the

highly critical situation of just a few years ago, along with the excellent performance of the Danish

investee, Metro Service A/S, which continues to successfully operate the metro network in

Copenhagen, which will soon see ATM’s role grow, contributed to the strong results of the parent. At a

consolidated level, the Group’s net profit was €38.8 million, including minority interests. This

excellent result, with a further increase on the €25.8 million achieved in the previous year (which itself

represented a strong increase), thus continues the results of the Expo year. Meanwhile, the group’s

gross operating profit reached €164 million.

From the beginning of 2016, the entire Group was aware of the importance of showing that the results

of the previous year were not due solely to Expo-related activities, but were the result of an effective

and consolidated transparent management model, and that its strong performance can cover the costs

associated with the jump in employee numbers in 2015 (most of whom were kept on in 2016).

ATM is robust and efficient, but it must continue to develop its productive factors in order to

successfully meet its ambitious and inevitable challenges. The only way to guarantee stability and

safety is through the ability to invest heavily in modernisation. The determination to follow through

with it will allow the group to keep pace with the times and meet the growing expectations of

customers to maintain and expand its presence in the panorama of public transport.

In this regard, the purchase plan for sixty new metro trains has been finalised. After the final order for

fifteen new metro trains for lines M1 and M2, this ambitious project will mean that ATM has one of the

newest metro train fleets in Europe and will benefit daily transport services for hundreds of thousands

of passengers.

The average age of the metro line M1 trains decreased from 41.1 years in 2011 to the present 15.7 and

the overall average age of ATM’s metro trains decreased from 34.6 in 2011 to the current 18.6 years

and is destined to fall further.

The strategic decision to roll out new trains together with an increased focus on maintenance meant

that reliability improved further in 2016. The drop in breakdowns (systems and rolling stock) per

kilometre travelled is undeniable.

This indicator reflects breakdowns with an impact on operations of more than five minutes. Between

2012 and 2015, it improved by over 50%, translating into over 98% regularity on the ATM-managed

Milan metro lines, which is at the top of international best practices for lines of this type.

Last but not least, in 2016, as a provider of travel tickets, ATM generated proceeds of more than €412

million, down slightly on those of 2015 when millions of Expo visitors used the ATM lines. This

excellent result covers over 55% of the service contract costs of €740.5 million (gross of VAT), covering

more than in previous years (it was 54% in 2015, 53% in 2014 and 48% in 2011). The grants of €267.4

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5

million that the Milan municipality received from the Lombardy region using the national transport

fund, as well as minor grants from other bodies and proceeds from Area C, from parking fees and other

proceeds related to the same activity transferred by ATM, contributed to covering the remainder of the

contract costs.

The group is exceptionally sound financially. Net equity attributable to the Group is €961 million and

net financial debt decreased from €711 million to €545 million, no less than €166 million.

The Group’s core business in 2017 will be mainly focussed on ensuring high service levels for

customers, despite the reduction in the service contract fees applied by the Milan municipality.

The first buses purchased after the completion of the public tender procedure will be rolled out early in

the year.

After the completion of investments to upgrade the bus fleet - made possible thanks to the release of

the long-awaited contributions which had been frozen for more than one year for reasons not

attributable to the Group, as well as additional financial commitments of the group - the Group will

have around 250 new surface vehicles which will bring the fleet’s average age into line with its usual

excellent levels.

ATM’s plans have been heavily affected by the delay in the disbursement of state and regional grants to

co-finance the upgrade of the bus fleet, which were only received towards the end of 2016. This meant

the Group had to postpone the calls for tenders for the vehicles’ purchase, which took place when the

albeit limited public grants were disbursed. Conversely, as it could no longer put off upgrading the

metro rolling stock, the group had to use large amounts of own funds for its upgrade, given the

absence of funding.

Consequently, ATM’s commitment to the renovation of the fleet of metro and surface vehicles, with the

objective of providing the city with ever more innovative public transport in terms of environmental

sustainability, performance, safety, accessibility and comfort, has never wavered. In addition to the

investments (the new metro line 2 trains will also be delivered starting from June), the Group will have

to ensure an effective purchasing policy, increasing its use of competitive and open procedures.

It will also be possible to know the competitive panorama for the awarding of future service tenders.

The Group is ready to effectively rise to this challenge in all aspects, given its strong service results, its

experience, also in an international context, the professionalism of its employees and the significant

financial resources that it has accumulated (the Group has a net financial position of approximately

€250 million at 31 December 2016, which represents a further increase on the previous year end’s

€217 million, thanks to the significant self-financing generated by operations (€164 thousand) and the

decrease in financial debt which decreased to €148 million from €164 million at 31 December 2015.

With all these financial and professional resources, ATM feels confident about the tender to award the

new service contract.

The term of office and operation of the current board of directors terminates with the approval of the

2016 financial statements and an entirely new board will be appointed. Legislative changes mean that

managers from the Milan municipality will no longer be able to act as directors. The remaining two

directors, including the chairman, were not able to stand for another term as the regulations of the

Milan municipality prohibit running for a third term in the same Group after holding the position of

director for two consecutive terms, although this rule is not enshrined in national legislation. We wish

the new board and the shareholder all the best and hand over a Group that is strong, competitive,

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profitable and able to provide Milan, Milanese residents and the increasing number of even occasional

passengers that rely on ATM.

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Corporate governance report

Keeping in mind the fact that the ATM Group is state-owned, and considering the role that it performs

for a wide range of stakeholders, it has a voluntary governance structure in line with best market

practice.

The preparation of the following report on ATM’s corporate governance system also complies with the

provisions of article 6 of Legislative decree no. 175/2016 (Consolidated act on companies in which a

state body has an investment).

Principles and values. The code of ethics

ATM is committed to contributing to the well-being, quality of life and growth of the community in

which it operates by providing efficient, technologically-advanced services, paying close attention to

social implications, community needs and the environment.

The principles and values underpinning ATM’s operations and shared at all levels of the organisation

are set out in the Code of ethics introduced in 2007. The code was most recently reviewed and updated

on 17 November 2016 to acknowledge the civic access and whistleblowing provisions contained in the

Three-year corruption prevention plan.

The code of ethics applies to the parent, ATM S.p.A., and all the group companies managed and

coordinated by the parent. It forms an integral part of the organisational model pursuant to Legislative

decree no. 231 (the “231 model”).

Company bodies and everyone operating within the Group, as well as external stakeholders that have

relationships with group companies, are required to comply with the principles of the code of ethics.

The code of ethics establishes ethical guidelines and sets concrete rules of conduct and ethical/social

responsibility policies, thereby representing the first point of reference for Group operations.

The code of ethics ensures the fair and effective management of stakeholder relations and has the aim

of consolidating the Group’s reputation and trust in the corporate organisation. Among other things, it

makes reference to the measures of the three-year corruption prevention plan adopted by the parent,

ATM S.p.A., and all group companies, published before 31 January 2017, as required by legislation,

and available to all stakeholders in the “transparent company” section of the group’s website.

The code of ethics is supplemented by the code of conduct pursuant to Legislative decree no. 231,

which takes the ethical principles and values underpinning the corporate culture as its starting point to

define the rules governing conduct and behaviour of those who operate on behalf of ATM, both

internal and external to the corporate organisation, in order to prevent the commission of crimes, the

cornerstone of administrative liability pursuant to Legislative decree no. 231/2001.

The corporate governance model

ATM’s corporate governance model is of the traditional format which allocates strategic management

to the board of directors, with the exception of those duties reserved to the shareholder.

The board of directors has delegated part of its management responsibilities to the general manager

and has set up four internal committees, with advisory and guidance responsibilities: the internal

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control committee, the remuneration committee, the ethics committee and the financial assistance and

development committee.

The internal control committee has advisory and guidance responsibilities in relation to the

supervisory of the general trend of operations. It checks compliance with internal procedures and the

effectiveness and efficiency of the risk monitoring, management and control processes.

The remuneration committee monitors all issues that have a significant effect on the structure of

personnel expenses, examines the remuneration structure for all the managers and in particular key

management personnel. These remuneration guidelines must be approved by the board of directors.

The ethics committee is a body with advisory and guidance responsibilities in charge of evaluating

possible situations that go against the code of ethics bringing any necessary disciplinary action to the

attention of the senior members of the group companies.

The financial assistance and development committee is responsible for the evaluation of the initiatives

aimed at supporting and assisting people through the management of the welfare system.

The board of statutory auditors is responsible for monitoring compliance with the law and by-laws and

correct management practices and that its organisational structure is appropriate.

To comply with legislative requirements, the control system includes the engagement of independent

auditors registered in the relevant register to carry out the legally-required audit. They are appointed

by the shareholder on the reasoned proposal of the board of statutory auditors

The legally-required audit was conferred on KPMG S.p.A. by the shareholder on 29 April 2016. Their

engagement ends with the approval of the 2018 financial statements.

The internal regulatory system

The parent, ATM S.p.A., carries out management and coordination activities pursuant to article 2497

of the Italian Civil Code. While respecting the operational independence of the individual companies, it

pursues a policy aimed at the group’s common management, through the full application and

integration of the principles and values that underpin the group.

ATM has a system of internal rules and regulations. These are based on the integrity and transparency

regulations established by the code of ethics and the code of conduct pursuant to Legislative decree no.

231 and are designed to ensure the full compliance of the parent’s and group’s operations with ruling

legislation governing corruption and transparency, antitrust, industrial or intellectual property, and

the protection of the rights of legitimate stakeholders of group companies.

The main internal regulations have been approved by the parent’s board of directors and recognised by

the boards of directors of all group companies. The organisation, management and control model

pursuant to Legislative decree no. 231/2001 was adopted by the parent in 2008 and later in the same

year by the subsidiaries ATM Servizi S.p.A. and Rail Diagnostics S.p.A., and by NET S.r.l. and Gesam

S.r.l. in 2011. The aim of adopting the model is to ensure compliance with the provisions of Legislative

decree no. 231/2001, bolstering the internal control system to improve effectiveness and transparency

in company activities and to make parties that work with ATM in any capacity whatsoever aware of the

principles of transparency and correctness.

The model approved by the board of directors of each company is comprised of the following elements:

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procedures to identify the company activities in which the crimes referred to in Legislative

decree no. 231/2001 could be committed;

control standards for the sensitive activities identified;

procedures to identify the most suitable manner in which to manage financial resources such

to prevent the commission of crimes;

information flows to and from the Supervisory body and specific disclosure requirements in

relation to the Supervisory body;

a disciplinary system penalising the violation of the provisions of the model;

training and communication plans for employees and others that interact with the group

company;

criteria for the updating of the 231 model to adapt it to changes in legislation and in line with

the organisational changes;

the code of ethics;

the code of conduct pursuant to Legislative decree no. 231.

All employees are required to notify the Supervisory body of conduct or events that could lead to the

violation of the 231 model or, more generally, that are relevant for the purposes of Legislative decree

no. 231/2001.

The group adopted the three-year corruption prevention plan pursuant to Law no. 190/2012 in 2014

and the three-year programme for transparency and integrity pursuant to Legislative decree no.

33/2013 in 2015. They are available to all stakeholders in the “transparent company” section of the

group’s website. In compliance with ruling anti-corruption and transparency regulations, ATM has

voluntarily adopted an internal regulation for an anonymous whistleblowing procedure, in line with

guidelines set out by ANAC (national anti-corruption authority) for companies in which a state body

has an investment.

ATM’s regulatory system is also comprised of:

the group regulation, which governs how the group works and intercompany relations, in

view of the parent’s role and its management and coordination activities. In 2016, following

the evolution of the organisational structure and changes to anti-corruption and transparency

legislation, the board of directors approved an update of the group’s regulation.

the contract awarding regulation, which governs the procedures for awarding works

contracts, purchases of goods and services contracts for all group companies. In 2016,

following the enactment of the Procurement code (Legislative decree no. 50/2016), the board

of directors approved an update of the regulation.

the sales regulation, which governs the procedures for the sale of goods, materials and

services and the awarding of contracts for the commercial use of areas ensure the best

economic return through the streamlined and efficient management of group financial and

economic resources.

Group processes are described and governed by specific operating procedures and instructions which,

inter alia, ensure the working of the quality and environment management system, in accordance with

the UNI EN ISO 9001 and 14001 standards.

The above standards and regulations are published on the group’s intranet.

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Risk monitoring and the internal control system

ATM has a risk monitoring and management system and an internal control system of regulatory,

organisational and IT tools to properly identify risk factors, from the prevention of fraud and

corruption through to those related to health, safety, the environment and quality, as well as their

measurement, management and monitoring. These tools are designed to ensure full compliance with

laws and regulations, the by-laws, group policy, protect the group’s assets, and ensure the effectiveness

and efficiency of group processes.

ATM has a dedicated risk management department to monitor and manage company risks. Its aim is

to implement and support strategies, policies and operating plans to prevent events of a malicious,

negligent or accidental nature that could damage property, plant and equipment and intangible assets

or organisational resources.

Based on its work to date, ATM has adopted a system whereby the department managers are the “risk

owner” or “risk manager” of certain functions. The aim is to regularly update the risk register and

related management plans.

The group’s risk register is currently undergoing its third update.

The risks identified are evaluated in terms of potential impact and probability of occurrence, using

quantitative and qualitative parameters. The activities designed to mitigate their effects and ensure

their proper management are also identified.

Reference should be made to “Risks and uncertainties” in the directors’ report for a brief description of

the main types of risks ATM faces.

In order to evaluate the risk the group will face a crisis, the trend of the main indicators of profitability,

equity soundness and the balance of sources and use of funds is monitored, together with the

application of scoring techniques normally used for unlisted companies. Specifically, the z-score,

evaluated considering factors specific to the local public transport sector, which has low margins, and

the parent’s sound financial position and the steady improvement of the indicators over the years.

The positive evaluation by the European Investment Bank, which granted a twenty-five year €250

million financing in 2012, further confirms ATM’s robust position. This contract requires that ATM

comply with stringent covenants regarding its financial position, results of operations and cash flow

(based on its net equity and financial debt, its ability to generate cash flows to service its debt, and its

ability to issue guarantees), evaluated every six months based on the audited financial statements.

ATM is also required to notify any events that could lead to a significant deterioration in its financial

position, results of operations, cash flows or operating outlook.

Management is responsible for the implementation of the control system, as the control activities are

an integral part of management processes.

The boards of directors and statutory auditors set up pursuant to the by-laws are supported by the

Supervisory body, which is comprised of a single member in certain cases, set up pursuant to

Legislative decree no. 231/2001 by every group company that applies the 231 model, and by the

parent’s audit, transparency and anti-corruption department. The audit department is responsible for

checking the effectiveness and adequacy of company internal control system processes. The

independence and objectiveness of internal audit activities are ensured by its placement in the

organisational structure and by the absence of ties/interference in the performance of the work and

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the reporting of findings. Indeed, the head of the audit department reports directly to the chairman

and the general manager, the internal control committee and the boards of directors and statutory

auditors.

The annual audit plan for the parent, ATM S.p.A., and for the group companies coordinated and

managed thereby is prepared by the manager in charge of the audit department, based on the

indications prepared by the group companies’ boards of directors and statutory auditors in line with

the parent’s guidelines. The plan identifies the areas and activities to be audited and considers any

critical issues arising in the company processes and in previous audits. The plan is approved by the

parent’s board of directors and applies to the entire group.

The members of the Supervisory body, external to the company, are identified from among academics

and professionals with recognised expertise and experience in the areas of economics, business

organisation and administrative liability (the presence of the manager in charge of the audit

department is always required).

The body’s main function is the monitoring of the application of ATM’s 231 model and the manner in

which it is implemented and updated. It also approves the annual schedule of monitoring activities.

Supervisory activities are scheduled based on a three-year plan that ensures each sensitive activity

identified in the 231 model is checked at least once. For some areas - “Cash flow management” and

“Goods and services procurement” - the checks take place annually, whereas they take place quarterly

for others - “Health and safety at work” and the “Environment”.

The supervisory bodies of the group companies are required by regulation to provide a half-yearly

report on their work to the respective boards of directors.

During 2016, the supervisory bodies of the group companies continued their work of the previous

three-year period, checking and supervising the effective functioning of, and compliance with, the 231

organisational models adopted by the parent and the group companies. They liaised regularly with the

audit department and also met with the boards of directors and statutory auditors during the year.

The regular supervisory activities were undertaken with the assistance of external experts appointed to

carry out specific analytical checks of sensitive processes, identify any gaps with respect to the 231

model and draw up corrective plans agreed with the company departments and subject to regular

monitoring during the meetings of the supervisory bodies.

The parent’s board of directors approved the new 231 organisational model in April 2016, updated to

include certain crimes recently introduced into the relevant legislation (self-laundering, new

environmental crimes, false accounting, coinage offences, etc.). These updates were made on the basis

of a risk assessment carried out in 2015. The 231 model was also regularly updated to reflect

organisational changes during 2016.

Employee training on the 231 model continued in 2016. Classroom-style training of top management

included the contribution of external experts and focussed on those areas most relevant to the 231

model, as well as the most recent case law.

Social responsibility

Social responsibility and a focus on the well-being of the community are integral to the group’s culture

and corporate governance system.

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Social responsibility is one of the factors with the greatest effect on the organisation, and the business

and social policies of ATM, which are designed with reference to the model and the specific

recommendations of the European Union and with a view to their ongoing improvement.

For ATM to be socially responsible, it must do more than just satisfy its legal obligations, it must also

invest in human capital, in knowledge, in the environment and in its relationships with the

community, adopting adequate ethical behaviour and participating in the public life of the city. For

this reason, ATM is committed to developing a quality service for the community, through actions

aimed at enhancing the skills of the people who work for the group, choices that respect the

environment and investments that improve performance.

The SA 8000 standard, which has been the reference tool for the management of the Group’s social

responsibility since 2012, is applied by all the ATM group companies. ATM S.p.A., ATM Servizi S.p.A.,

ATM Servizi Diversificati S.r.l. and Nord Est Trasporti S.r.l. are certified. The compliance with the

principles sanctioned by the SA 8000 translates into the values and commitments that ATM makes

clear in its code of ethics and the quality environmental and social responsibility policy, as well as in

the welfare and diversity management policies communicated to all employees and available to all

stakeholders in the dedicated section of the group’s website.

Training of personnel on the provisions of the SA 8000 certification was completed in 2016, including

all operating personnel, and an audit commenced of the supply chain which will continue in coming

years.

The new European regulation on personal data protection came into force on 24 May 2016. ATM

began the activities to make its organisation compliant with the rules contained in such regulation.

As part of its policy for the enhancement of its employees and its social responsibility, ATM took part

in the “Family Audit” certification promoted by the Prime Minister’s Office, to become one of the first

Italian companies to achieve the basic certification of corporate social policies aimed at the ongoing

improvement of work/life balance services, after a procedure that commenced in 2013.

These policies are part of a broader welfare system developed in close synergy and in conjunction with

Fondazione ATM, which has the aim of improving the individual well-being and organisation of group

employees.

ATM’s welfare system is the result of a long tradition of attention to the individual and is constantly

developing in line with best market practice. It is made up of three areas: welfare for the individual

and the family, health welfare and social welfare, and its aim is to provide concrete responses to the

needs of the various different segments of the group’s employees, providing financial support,

initiatives and services.

ATM is also involved in social activities benefiting the community. For the sixth year in a row, it has

sponsored the City Angels volunteers association in a project to help homeless people in Milan during

the winter months. It also sponsored the “Ospedale Sacco obiettivo sangue” campaign to raise public

awareness of blood donation and the “International Day to End Violence Against Women” campaign

promoted by the Milan municipality’s Equal Opportunity Commission to raise public awareness of the

phenomenon of violence against women.

Finally, it offered its support alongside the Milan municipality to help the people hit by earthquakes in

central Italy.

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14

Responsible management of relationships with stakeholders

ATM group’s mission

Our ambition is to make ATM:

“Admired for the excellence of its customer mobility services, its environmental and energy

sustainability leadership, its dynamic operating model, the quality of its professional resources and

its culture of innovation”

(the code of ethics)

ATM is committed to building fair, well managed and transparent relationships with its stakeholders

in order to pursue shared and feasible sustainable development objectives and to contribute to the

well-being, quality of life and growth of the community in which it works.

It also promotes internal awareness of the culture and principles of sustainable development,

continuously transmitting and sharing its principles and values with institutions, partners, suppliers

and customers, with whom it has relationships built on transparency, fairness and loyalty.

All group sectors are involved and they shape internal and external activities to comply with the

principles and values.

Customers

“The relationship with the clientèle must be continually reinforced through the quality, reliability and

efficiency of the service, as well as through timely, precise, clear, easily accessible and truthful

information about the services and features offered.”

The code of ethics effectively summarises ATM’s philosophy in its relationship with its customers, who

represent an asset to be enhanced and whose needs and expectations should be met.

ATM manages the sale and distribution of travel tickets on behalf of the Milan municipality and it pays

close attention to the expansion and update of sales channels in line with the most recent technological

evolutions. Customers can purchase their tickets through a number of sales points throughout the

surface and underground network (shops, ATM points, automatic ticket machines, parking meters)

and virtual purchase and payment channels (mobile ticketing systems).

The evaluation of the customer care and assistance system in 2016 again reflected ATM’s constant

commitment to ensuring an efficient and high quality service in compliance with its contractual

obligations to the Milan municipality. The annual customer satisfaction survey carried out on a sample

of 3,300 customers in April 2016 showed generally very high levels of satisfaction with ATM’s service.

The average score (from 1 to 10) was 7.3 and the area of satisfaction (i.e., the percentage of customers

surveyed that gave a score of between 6 and 10) was 94%.

With a view to further improving customer information, the Mobility Charter was updated and all

brochures on the services available at the ATM points and on the ATM website were reviewed. The

website was upgraded to improve access and make it more user-friendly.

One of the most important customer-oriented initiatives was the campaign to support disabled

passengers, which resulted in a significant improvement in the quality of information in the metro

stations, on the website and on the ATM app.

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Safety campaigns and campaigns against fraud were also run in 2016, with the “Closed turnstiles”

project on the metro and the “Do not leave items unattended in metro stations or buses” campaign.

Campaigns were also run to promote ticket purchases through the new digital channels and to increase

awareness of the ATM app. Suppliers

As stated in ATM’s code of ethics, every group company “guarantees a true and fair competition

between suppliers”.

In turn, the “quality, environmental and social responsibility policy” specifies that the group’s

sustainable development strategies hinge on, among other things, the commitment to continually

improve aspects regarding the environment, health and safety in the workplace, also through the

constant monitoring of relationships with suppliers/subcontractors and subsuppliers.

The procurement processes and partnerships with suppliers are centrally managed by the purchasing

department of the parent, ATM S.p.A..

In 2016, 1,850 calls for tender were made, in line with 2015 numbers, despite the effect of the

uncertainty of the legislative framework on activities of the year. Indeed, the enactment of the new

public contracts code (Legislative decree no. 50/2016) led to an extensive review of the deeds for all

purchasing areas (works, supplies and services), as well as the review of the contract awarding

regulation approved by the parent’s board of directors.

With regard to the relationship with current and potential suppliers, great attention is paid to

communication, which aims at maximum clarity and information regarding values, guidelines and

standards adopted by ATM.

At an internal level, in conformity with the lines imposed by the group companies, in 2016, in full

compliance with the principles of transparency and competitiveness, all individuals involved in the

procurement process were provided with training in order to ensure that they operate in full

compliance with the laws and regulations for work, supply and service contracts, and with group

regulations.

The IT platforms created for full traceability of the authorisation process for the selection of

contractors and for the subsequent administrative management, which are regularly updated in line

with regulatory changes, efficiently support the whole procurement process.

Human resources and organisation

Workforce

ATM’s workforce at 31 December 2016 totalled 9,588 members (9,695 at 31 December 2015).

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Contract 31.12.2015 Incoming employees

Outgoing employees

Other changes

31.12.2016

Managers 34 (2) (1) 31

Public transport workers 9,322 152 (259) (3) 9,212

Others 339 31 (25) 345

Total 9,695 183 (286) (4) 9,588

Employee numbers decreased by an overall 107 members in 2016 as a result of the policy of selective

reintegration of resources to cover turnover, with targeted interventions in the operations and

maintenance areas. During 2015, ATM hired 558 resources in anticipation of its 2016 requirements.

Almost all the incoming employees were hired with fixed-term contracts, either full-time or part-time.

Specifically, the partial working week contracts have working hours concentrated mainly during

weekends offering greater organisational flexibility to ensure optimal coverage of services scheduled

for Saturday and Sunday.

Moreover, the gradual transformation of contracts nearing expiry into open-ended contracts meant the

group was able to benefit from the relief from social security contributions and employment incentives

provided for by law.

More than 98% of ATM employees have an open-ended contract. Female employees mainly worked in

staff positions and accounted for over 7% of the total.

Industrial relations

The industrial relations system focuses on consultation policies, which constitute the primary tool for

the promotion of employee participation through their representatives, in the pursuit of strategic

objectives and for the prevention and resolution of possible conflicts.

ATM protects employees’ freedom of association. The rate of union membership is around 63.5% and,

as well as the trade unions that signed the Industrial relations protocol, there are also other smaller

trade unions.

The agreement governing the bonus for the 2016 results was signed, which confirms the previous

model, after presenting it to the trade unions as a tool involving workers in achieving productivity and

quality increases.

An agreement was signed with the trade unions towards the end of 2016 designed to meet the needs of

the city and residents’ transport requirements in different time brackets, bringing forward the start of

the metro’s operation to the early hours of the morning. The effects of the detailed trade union

agreement will be rolled out from January 2017.

Human capital: a resource and boost to development

A focus on the individual is an important value of ATM as the quality of the service provided largely

depends on the quality and motivation of the people that work for the group.

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Every employee that holds a position of responsibility is assigned precise goals and the results

achieved are evaluated in a transparent manner.

The performance of all group employees is evaluated on the basis of the internal system of professional

and managerial competencies.

Internal communication is one of the main drivers of involvement in the life of the company. The

group’s intranet is a dynamic information tool aimed at all ATM personnel, which not only makes

available all documentation for the correct performance of business activities, but features regular

updates on operational changes and the main events affecting the group, providing further

information on particularly important issues. This communication tool is supplemented by paper-

based publications, especially the house organ “NOI ATM”, in order to involve people that are hard to

reach through the IT network.

Moreover, aware of the close relationship between individual well-being and the Group’s well-being,

ATM has confirmed its financial and organisational commitment to maintaining and improving its

welfare system for 2016.

The most important services provided in 2016 were: 90 places in company crèches, 256 counselling

sessions, 928 study grants to the children of employees, as well as targeted interventions to support

people and for professional requalification.

Within the context of personnel development paths, training is considered a strategic lever and the

parent has a dedicated structure to set guidelines and for its management. Further training on issues

related to health and safety at work was provided in 2016 and front line employees and line managers

received specific training on behavioural and management techniques to enable them to deal

competently and confidently with complex situations that arise in the everyday management of

transport.

In 2016, 340 training courses took place, involving 11,000 participants for a total of 120,000 hours, of

which over 65,000 hours (more than 54%) of training mandatory under national and contractual

legislation. Specifically, the mandatory training related to health and safety at work involved 3,255

participants for a total of over 32,000 hours.

Classroom-based learning was accompanied by targeted coaching and counselling for individuals. One

of the drivers in 2016 was the development of a structured age management plan. Training to face the

issue of an ageing population, which is radically changing the landscape of the Group’s needs and

tools, was extended to cover healthy eating and lifestyle, postural education and ergonomics in the

workplace, sport and movement, first aid, motivational counselling, training on active ageing and

updating technical skills.

Protection of group assets and safety of individuals

The safeguarding of group assets and the protection of employees and passenger safety are guaranteed

by the security sector, in collaboration with law enforcement (local police, tax police, military police,

state police), with particular attention to highly-used lines of transport and car parks managed by ATM

as well as park-and-rides. Security activities are planned in relation to the need to protect the assets

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and sometimes to the needs connected to particular events (concerts, trade shows or sporting events),

always bearing in mind the change to the external context and national and international events.

There was a significant increase in surveillance in the interchange stations and those with heavy

passenger traffic, as well roving surveillance of both the “outlying” stations and surface vehicles. A new

project has also been rolled out involving most of the group’s roving personnel (operational control

staff, customer assistance staff and, from 2017, metro staff), resulting in a more widespread internal

system to report situations where group assets may be at risk. Since the project’s launch on 15 March

2016, 2,161 reports have been received and over half have resulted in interventions in critical

situations to protect the group’s assets and image.

The experience of 2016 led to the definition of new procedures and the implementation of new control

methods in collaboration with law enforcement.

The number of aggressions towards ATM personnel dropped sharply (-22% over 2015), as did the

number of acts of defacing of metro trains (-19% on 2015), with more than double the number of

writers detained.

The profitable relationship with law enforcement was further confirmed by their active participation at

the ATM safety committee for all institutional safety components (police, military police, local police)

working on the ground. The committee has analysed the issues arising from the different experiences

and reports coming from the various group sectors and plans the deployment of additional resources

for special safeguarding and protection interventions.

Pursuant to enacted legislation, training and qualification activities have commenced for armed

security guards.

Health, safety and the environment

Pursuant to the requirements of the “quality, environmental and social responsibility policy”, ATM

continued to act to protect the environment and the health and safety of its employees in 2016, also

with reference to company crimes against safety at work or the environment included in Legislative

decree no. 231/01, with the key aim of the ongoing improvement of its management systems and to

raise the level of environmental and social responsibility.

Activities to protect the environment and health and safety at work are managed in line with the

Group’s values and policy objectives, with close attention to the implementation of the process and

strategies aimed at improving health and safety at work and environmental sustainability.

To pursue these objectives, activities continued in 2016 to:

identify and assess any risks to health and safety in the workplace and take appropriate

preventative measures;

ramp up safety training programmes to include all personnel at every level, ensuring that

responsibilities and operating procedures are precisely defined and effectively communicated;

disseminate information on health and safety at work and the environment to internal and

external stakeholders;

optimise the consumption of energy resources in order to prevent pollution, monitoring and

minimising the environmental impact of the processes.

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In this regard the proxy system in the area of safety and the environment was redefined in 2016, with

the roles of employer reallocated pursuant to current legislation governing company liability in

relation to health and safety at work, pursuant to article 2 of Legislative decree no. 81 of 9 April 2008.

Likewise, the environmental manager roles were redefined pursuant to enacted legislation governing

environmental protection, including the requirements of Legislative decree no. 152/2006.

Both appointments took into account the personnel, operating facilities and operations, in relation to

the relevant structure and management.

There were visits to certify conformity with voluntary international standards; audits carried out by the

certification body acknowledged that the group knew how to respond to the needs of the situation and

of the stakeholders, as well as during all related extraordinary events, carrying out a strategic plan with

precise monitoring, and guaranteeing contractually established quality parameters, even in

exceptional situations.

The certified group companies operated in compliance with ISO 9001 and 14001 standards.

The updating of fire safety projects continued during the year. With regard to the update of the fire

safety measures for the metro, ATM has implemented the organisational measures planned and agreed

with the Milan municipality (review of emergency plans and new specific personnel training) and to

certify the compliance of its main systems.

To limit the impact on the soil and subsoil, activities continued to upgrade the underground diesel

tanks that fuel the vehicles and to resurface parts of the yards of some depots.

Numerous activities were carried out on trams and metro carriages to minimise their vibro-acoustic

impact. The anti-friction systems on the trams underwent regular maintenance and new systems have

been designed and will be installed during 2017.

A single database cataloguing the main environmental risks has been created to collect and file

information relating to the various company departments.

The 2016 figures on the number and seriousness of workplace accidents basically confirmed the

gradual improvement of recent years. Operating incidents decreased, while the number of incidents

occurring travelling to or from work remained basically unchanged. All occupational illness-related

information requested by the relevant bodies was provided during the year within the appropriate

timeframes. Health monitoring was carried out in accordance with the programmes established by the

appointed doctors and no critical issues were reported.

The review of the risk assessment document included the update of the relevant improvement plans

which have the common goal of reducing the risk of falling (reduction of the maintenance pits at

depots and yard resurfacing) and the improvement/upgrade of systems (fire, fume extraction and air

conditioning).

Health monitoring was carried out as scheduled.

Anti-corruption, transparency and administrative liability

In accordance with the parent’s guidelines on anti-corruption and transparency, the subsidiaries ATM

Servizi Diversificati S.r.l., Gesam S.r.l. and Rail Diagnostics S.p.A. appointed a manager for the

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prevention of corruption and transparency, as a further guarantee of the gradual strengthening of the

control system.

Pursuant to legislative requirements, the three-year corruption prevention and transparency plans

adopted by the parent and the group companies were published before 31 January 2017 and are

available to all stakeholders in the “transparent company” section of the group’s website. They are

promptly updated in compliance with ruling anti-corruption and transparency regulations and

publication requirements. Mandatory training sessions were also held for employees operating in the

areas at the highest risk of corruption.

With regard to the companies’ compliance with the requirements concerning administrative liability,

as discussed in the corporate governance report, ATM has a system of regulations and bodies and

departments dedicated to safeguarding against risks and to control, in order to fully satisfy legislative

requirements.

Operating context

ATM has developed distinctive skills that characterise it within the national panorama, for its range of

land-based mobility services.

The metro and surface transport network managed by ATM guarantees extensive coverage of the city

of Milan and the surrounding urban areas.

At 31 December 2016, Milan’s metro network was made up of four lines, with a total length of around

97 km and 113 stations.

Line Route Inauguration Length Stations

Sesto I Maggio ↔ Rho Fiera / Bisceglie 1964 26.70 km 38

Abbiategrasso/Assago Milanofiori Forum ↔ Cologno

Nord / Gessate 1969 39.88 km 35

San Donato ↔ Comasina 1990 17.31 km 21

Bignami ↔ San Siro Stadio 2013 12.88 km 19

TOTAL 96.77

km 113

The current configuration of the surface network is as follows:

road network: 78 urban lines (including the district radiobus services and night services), of

which three have a night service that replaces the metro service, 52 are suburban lines and 27

are provincial lines. The district radiobus service operates in 14 districts of Milan;

tram network: 18 urban lines and two intercity lines, one of which has been suspended and

replaced by a bus;

trolleybus network: four urban lines.

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The structure of the metro network was strengthened during 2016, with the continuation of the

upgrading of metro services in line with that of the six months of Expo. The surface network

underwent changes imposed by the Milan municipality aimed at resolving problems of a local nature

and to adapt the network to the detours due to the building sites for the M4 lines.

Going-concern and the reference contractual framework

The services ATM provides for the Milan municipality through the subsidiary ATM Servizi S.p.A. are

regulated by “contract for local public transport service and connected and ancillary services”.

The current contract expires on 30 April 2017. However, with resolution no. 219 of 17 February 2017, –

Instructions for the continuation of activities during calls for tender to award the Local Public

Transport services and connected and ancillary services, as well as the paid parking services in the

Milan municipality and towing away and impounding of vehicles services – the Milan council

instructed the relevant departments to extend the local public transport contract in line with the

tender documents and the existing contracts and to take the appropriate managerial steps to extend

each service – referred to above – by one year, in line with the tender documents and the existing

contracts. Accordingly, based on the above, the current terms of the contract may be extended to at

least 30 April 2018.

The directors of the subsidiary ATM Servizi S.p.A. deem the going-concern assumption exists, as there

are no elements indicating the current scenario will not continue at the same contractual conditions, as

indeed provided for by the council resolution which refers to article 3.2 of the Service agreement, for a

period of more than twelve months from the reporting date. Based on this evaluation, the directors of

ATM S.p.A. also requested some time ago that the Milan municipality, the ultimate parent (including

through formal communications filed with the company’s books), define the future plans and to

promptly sign the extension to the contract.

***

Institutions assign LPT operation contracts and related and ancillary activities using two types of

contract:

Gross Cost: the operator bears the industrial risk, while the commercial risk is borne by the grantor,

which is the beneficiary of revenue deriving from the sale of travel tickets.

The operator receives an amount proportional to the service it provides, re-evaluated each year based

on inflation.

The amount is not in any way influenced by the trend in revenue from the sale of travel tickets, the

effects of any tariff changes or change in demand.

It is, therefore, necessary for the operator to continue to strive for operating efficiency objectives,

mainly by controlling costs.

Net Cost: the operator bears both the industrial and commercial risks. It is a beneficiary of revenues

deriving from the sale of travel tickets and receives a sum calculated to cover theoretical production

costs from the grantor.

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***

The services subject to “gross cost” in the Service agreement with the Milan municipality are the

intermodal operation of local public transport (metro, trams, buses and trolley buses), demand

responsive transport, related activities such as distribution of travel tickets and related information to

customers and controlling fare evasion.

The contract governs the duties and responsibilities of ATM and the Milan municipality.

ATM is responsible for the operation of transport services and ancillary services based on the

directions and directives of the Milan municipality, which is responsible for planning.

The municipality is a beneficiary of proceeds deriving from the sale of travel tickets and can define the

tariff system. ATM, however, performs a strategic role as operator of the sales network on behalf of the

municipality.

Investments for the development and maintenance of the public transport network and related

infrastructures are the responsibility of the owner, the Milan municipality.

In addition to the transport services operated by ATM, by virtue of the same contract, it is also

responsible for ancillary services to local public transport, such as on and off-street parking and the

towing away and impounding of vehicles pursuant to the highway code. The municipality decides the

tariff policy related to on-street parking, while the proceeds are recognised by ATM, which pays the

municipality a set fee.

As part of their contractual relations, other than those that have already been mentioned, those of

particular relevance are:

the single operation contract for metro line 5 between ATM S.p.A. and the operator, Metro 5

S.p.A.. The contract regulates the operation and related activities for the entire duration of the

concession until 2040;

the service contracts under the “net cost” regime, between the subsidiary NET S.r.l., the

Metropolitan city of Milan, the Monza municipality and the Monza-Brianza province, for the

management of the public suburban automotive transport. These contracts are subject to

extension by the grantor or the local public transport agency of the Metropolitan city of Milan,

Monza, Brianza, Lodi and Pavia, until such time as the related tender procedures are finalised and

awarded, expected to be in 2018;

the “gross cost regime” service contract for the management through the Danish subsidiary Metro

Service A/S for the operation and maintenance of the Copenhagen metro. The contract expires on

31 December 2018.

***

In 2016, as an operator of the sales network that sells travel tickets, ATM earned €412.1 million,

covering more than 55% of the payment of the service contract equal to €740.5 million, gross of VAT,

a further increase compared to 2015. In 2011, the coverage percentage was 48%.

In general, the remainder is covered by the following:

the grants that the Milan municipality receives from the Lombardy region using the

national transport fund (€267.4 million), as well as smaller grants from bodies;

proceeds from Area C, from parking fees and other proceeds related to the same activity

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transferred by ATM.

In relation to activities related to the service agreement for the management of TPL and related and

ancillary services, around 48.8% of operating costs are covered by ticket proceeds.

Macroeconomic context

1. Macroeconomic situation

The United States and the other developed economies continued to grow, albeit at different rates

and times. OECD forecasts released before the Brexit vote in late June confirmed an overall

forecast GDP growth for 2016 in line with that of the previous year (3%).

The election of the new president of the United States and economic policy indications triggered

expansionary budget measures in the subsequent months and generally higher inflation in the

United States.

Growth in the Eurozone was moderate (forecast GDP growth of around 1.7% for 2016) and the

widespread deflation risk seems to have decreased in response to the expansionary monetary

policies. Inflation forecasts for the medium term (1.2% in two years and 1.8% between five and ten

years) are gradually moving towards the ECB’s definition of “price stability”.

The most significant economic and social event of the first half of 2016 was undoubtedly the

outcome of the Brexit referendum held on 23 June in the United Kingdom.

In Italy, after a small uptick in the early part of the year, manufacturing and business and

consumer confidence indicators recorded a moderate expansion in summer and autumn to put

estimated GDP growth for the year at 0.9%.

Employment levels stabilised during the year, with a further small growth towards the end of the

year as a result of companies taking advantage of the relief available on social security

contributions before its expiry on 1 January 2017. Preliminary figures put the employment rate

for 2016 at 11.9%.

2. The LPT (local public transport) sector and the raw materials market

The recovery of the national economy has had a positive effect on the transport sector, with

increases in passenger and cargo transport across all the various transport segments (air, road

and sea). However, in terms of operating performance, neither public or private local public

transport companies posted an improvement. After an uptick in 2014, public transport lost

around 3% of motorised transport in the subsequent two years to then recover slightly in 2016,

mainly replacing what was previously motorcycle and scooter traffic. The total number of

passengers/km has grown (more than 1.5 billion kilometres travelled), indicating a significant

increase in the average length travelled.

The average price trend of petroleum in 2016 was lower than that of 2015 (USD43.5/barrel,

compared to USD49), with an overall positive effect on ATM, albeit less than proportional to the

decrease in raw materials prices due to the structural effect of the fixed governmental component

(excise duty), on average over 50% of the final price of diesel.

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Similarly, the price of electrical energy includes a portion of non-negotiable charges that are

defined by the authorities and account for over 60% of the total amount.

The trend of operations

The positive metro and surface performance of 2015 was repeated in 2016. The frequency rate of the

metro lines was around 99% and 82% of the surface routes met their scheduled regularity despite the

detours and difficulties caused by the building sites for the M4 metro line.

During the year, ATM and the Milan municipality finalised the reorganisation of the surface routes to

improve services to outlying areas of the city and neighbouring municipalities, and adapted the

transport network for the detours caused by the building sites for the metro M4 line. The sites are

being opened since May 2016 and will be in place for several years. They affect several areas of the city

and have an extremely significant impact both on the road network and on various major transport

routes, requiring constant, prompt changes to routes and adjustment of services.

As shown by the passenger numbers of the year, the transport network in its new configuration and the

high service levels have made the use of public transport increasingly attractive, indicating that the

positive trend triggered by Expo continues.

ATM has also increased services at the municipal authorities’ request for important events, such as the

final of the 2016 Champions League and the reopening to the public of part of the Expo site at

weekends for the Triennale Internazionale event.

In order to further curb fare evasion, the requirement to validate tickets also when passing through the

exit turnstiles was extended to the whole metro network from February and ATM was heavily involved

in customer assistance.

The “Buongiorno Milano” project was launched on 9 January 2017, with ATM preparing for its roll out

during the last few months of 2016. The project sees services on all metro lines starting half an hour

earlier in the morning in order to improve transport services and to meet customers’ changing

transport needs.

The first departures from the outlying urban terminals have been brought forward from between 6:00

to 6:15 to between 5:40 and 5:45 and are scheduled to coincide with connections to the city centre and

to optimise train changes in the main interchange stations.

Bringing forward the starting time entailed the reorganisation of shifts, synchronising service times

and, in particular, rescheduling maintenance given the shorter time available during the night hours.

The public’s reaction to the new service was very positive from the start, and the number of passengers

using the extra earlier services continues to grow.

The new centralised control room underwent a technological upgrade to improve its operation. Since

2016, control of all three original metro lines has been centralised in one control room, using advanced

technology for communication, data processing and the representation of the status of the metro

network.

This has a positive effect on operations and on the punctuality of services.

Maintenance on infrastructure, rolling stock and systems resumed as normal after being rescheduled

during Expo.

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ATM continued its commitment to improving access within the metro stations, pursuing its escalator

replacement programme (76 between 2013 and today) and installing eight new lifts on the M1 and M2

lines to overcome architectural barriers. The project to replace all the stair lifts on the M1 and M2 lines

with systems compliant with new legislative requirements has been completed. Planning activities to

overcome the architectural barriers also involved ten stops of the outer section of the M2 line.

The project funded by the Ministry for the Environment to replace traditional lighting systems with

new, low energy and CO2 emission LED lighting systems in the main stations of the M1 line has

commenced.

In 2016, the first stage also commenced of the three-year project to upgrade and modernise the M2

line of the metro, involving the renewal of the traction and lighting systems.

The engineering works brought significant changes to the management of maintenance processes,

along with the gradual renewal of the fleet and the roll out of technologically more advanced trains

than the traditional trains dating back to the first supply batches of the 1960s.

The maintenance of the 46 trains of the “Meneghino” fleet was insourced in May, entailing the

overhaul of the maintenance schedules, the upskilling of internal personnel, investments in specific

equipment and software and the hiring of expert workers. The aim is to retain strategic activities in-

house, building on the fleet maintenance know-how developed over the years by the ATM workshops

and to involve third parties only in those activities related to patented technologies and mechanical or

structural works on the vehicle frames. The latter activities are not deemed to offer particular returns

in terms of experience in the company’s core business.

The programme for the total overhaul of the 4900 trams continued.

ATM continued its work on points and switches on the tram network in 2016, with the aim of rolling

out a remote monitoring and ongoing preventative maintenance system for the entire system so as to

contain noise emissions and reduce wear and tear. Also in this activity the group relies mostly on

internal resources.

Operating activities abroad

The Danish subsidiary, Metro Service A/S, performed positively in 2016, improving on the previous

year. Average frequency (service availability) for 2016 increased over that of 2015 to reach all-time

highs of 99.2% and passenger numbers topped 61 million, also thanks to the increase in the number of

trains running during peak hours and the increase in the number of trains travelling daily.

Customer satisfaction surveys for 2016 again gave excellent results, with 96.1% of respondents

satisfied with their last trip.

The installation of 54 digital screens in the underground stations led to an increase in sales of

advertising space, introducing a new information tool for passengers.

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As regards business development, a contract was signed in 2016 for the operation and maintenance of

the new City Ring metro line and the pre-mobilisation stage commenced. It is expected to become

operative in 2019, with expected annual passenger volumes of approximately 70 million.

Key events in 2016

> On 18 January, Metro Service A/S agreed a contract for the operation and maintenance of the

new Copenhagen City Ring metro, expiring in 2024, with an option for an additional three

years. This contract confirms Metro Service A/S as the sole operator of Copenhagen’s driverless

metro network.

> The sale of the non-operating building in Via Ricasoli, Milan, was completed on 28 January.

This is the first transaction of a larger property-streamlining project to raise additional funds to

be used to strengthen and improve service quality through investments.

> The obligation to validate tickets also when leaving metro stations was introduced on 15

February in almost all stations to further bolster the fight against fare evasion.

> The supply contract for an additional 15 “Leonardo” trains for the M2 metro line was signed on

29 March. The new trains were purchased with own funds and will become operational in late

2017.

> The re-qualification and removal of the architectural barriers along the route of tram line 12 in

Via Mac Mahon was completed on 21 May.

> ATM signed a technical consulting agreement with Transdev on 31 May to participate in the

tender called by the Metropolitan city of Lille for LPT management for 2018-2024.

> The delivery of the last five trains for the M1 metro line on 9 June completed the supply of the

30 new “Leonardo” trains for the M1 and M2 metro lines.

> The first stage of the strategic project to upgrade and modernise the electricity supply and

traction systems of the M2 metro line commenced in the second half of the year, with the

aim of improving the performance of the line.

> On 22 September, ATM S.p.A.’s board of directors approved a bond issue on regulated

markets to fund the fleet’s renewal. The shareholders approved the main features of the

transaction on 18 November.

> ATM celebrated 85 years of operation on 17 and 18 December with the “Porte Aperte” event

at the San Donato depot, which attracted over 20,000 visitors.

> The contract for the supply of a further 15 “Leonardo” trains was signed on 19 December,

taking the number of new trains in the metro fleet to 60.

Investments

In 2016, ATM made investments of around €76.8 million, including €60 million for the renewal of the

fleet.

The amount of investments decreased during the year but, if considered outside of the past and future

context, this does not fully represent ATM’s actual commitment. Indeed, the most important projects

commenced in previous years were completed in 2016 and the foundations were laid for a new cycle of

Directors’ report

27

significant investments which will have an impact on the group’s financial position and results of

operation in the 2017 - 2019 three-year period.

ATM’s plans have been affected by the delay in the disbursement of state and regional grants to co-

finance the upgrade of the bus fleet, which were only received towards the end of 2016. Indeed, while

the Group could no longer put off the decision to renew the metro’s rolling stock using large amounts

of own funds, given the absence of funding, the Group renewed the bus fleet in line with the timeframe

of the disbursement of the albeit limited public grants.

Consequently, ATM’s commitment to the renovation of the fleet of metro and surface vehicles, with the

objective of providing the city with ever more innovative public transport in terms of performance,

safety, accessibility and comfort, has never wavered, despite having to cope with the timing of the

disbursement of public funds in the second case:

contracts were agreed for the purchase of a further 30 trains for a total of €215 million,

doubling the investments for the renewal of the train fleet, fully covered by own funds and the

loan from the European Investment Bank. The new trains will become operational from the

end of 2017 and will result in a 20-year decrease in the average age of the M2 fleet;

a framework agreement was signed for the supply of 125 traditional 12 metre-long motorised

Euro 6 city buses, worth €38.1 million;

the tender procedure for the supply of 120 hybrid buses commenced and was awarded in early

2017;

the tender procedure for the supply of 25 electric buses commenced.

The project to extend line 2 of the metro also commenced in 2016. The project is 60% government

funded, with ATM replacing the Milan municipality in funding the remaining portion for the upgrade

of the traction and supply systems. The project’s second stage will be implemented in 2018-2019, and

CIPE (Interministerial Economic Planning Committee) funding was definitively allocated in the

second half of 2016.

These investments comprise a significant part of the investment plan for the 2017-2019 three-year

period approved on 17 November by the parent’s board of directors

It is predicted that total investments will be equal to €606.7 million for the three-year period, of

which:

- €412.2 million will be used to renovate rolling stock, in particular, trains and buses, with the

launch of pilot projects such as the acquisition of the first electric buses and the creation of the

related refuelling infrastructures;

- €50.0 million for building works. These include the strategically-important first phase of the

expansion of the Gallaratese depot, with a view to developing depots for the fleet;

- €68.8 million for works on systems and equipment, over half of which for the previously

described project to extend line 2;

- €75.7 million for the development of technologies, including the project for the new ticketing

system designed for the efficient integrated management of the fare system and the possibility of

applying innovating fare policies.

A fundamental requirement for the effective completion of the plan is ATM’s ability to generate an

adequate volume of self-financing in order to cover the costs.

Directors’ report

28

In that regard, it is estimated that for the next three years, ATM will have to finance over 90% of the

plan using its own resources, to make up for the limited public resources, as it has done in the past.

Technological innovation

ATM is always committed to experimenting with new technologies for mobility services and in this way

it has developed strong distinctive competencies when it comes to creating platforms for the

management of integrated mobility information.

Many technologically innovative projects aimed at both internal and external customers were carried

out in 2016.

In the customer service area, the investments of previous years in “mobile ticketing” were received

positively by customers, as shown by the volumes recorded in 2016:

ATM app downloads over 2,000,000;

Tickets sold via SMS and the app over 3,700,000;

Parking managed through the app around 2,050,000;

QR code validation over 3,300,000.

LPT fines are now in digital form so they can be paid at post offices using a QR code. A new application

has also been introduced on the website enabling users to report claims involving vehicles pertaining

to the group’s fleet online.

New payment methods for the supply of tickets for resale have been introduced and the graphics of the

“Atmosphere” site have been renewed, introducing new payments and booking methods.

The main internal projects related to:

the roll out of the new control room for line 3 which has enabled operators to work in the new

centralised metro control room thanks to new systems integrated with those of the new control

room for line 1;

the development of the automated data generation system for the National anti-corruption

agency in relation to tender management;

the implementation of the RTT (land-train radio) project which involves upgrading systems to

enable high-performing communication between the control room, driver and passengers. The

new centralised RTT control room was completed and rolled out in 2016;

the in-house development of the SCADA system to monitor and remotely control the metro

power supply boxes, offering economic savings and faster development and the addition of

components.

New technologies have also been implemented to support and strengthen internal processes, bringing

benefits in terms of standardisation, improved control systems and cost containment. The innovations

principally concerned maintenance and operations.

Directors’ report

29

Financial highlights of ATM group

The analysis of the Group’s financial position and results of operations for 2016 and comparison with

the previous year took into account that 2015 was affected by Expo, an exceptional event which not

only required more frequent and longer services but also affected operations and maintenance of the

year, with impacts on the results of operations. ATM’s 2016 results are particularly strong and confirm

the soundness of the Group.

> Gross operating profit amounts to €164,056 thousand and was substantially unchanged from

that of 2015.

> Net profit for the year of €38,884 thousand (€25,813 thousand in 2015) increased strongly

(+50.6%). The results reflects the effects of the lower amortisation, depreciation and write-

downs of the year, lower financial and extraordinary income and the lower tax expense.

> Net equity rose from €923,658 thousand at 31 December 2015 to €961,133 thousand at 31

December 2016.

> Receivables deceased sharply (€99,251 thousand) from €400,877 thousand to €301,626

thousand (-21%) thanks to the close monitoring of counterparties, including the Milan

municipality, to contain trade receivables.

> Payables decreased sharply (€166,377 thousand) from €711,231 thousand to €544,854

thousand (-23.3%) due to the expiry of the contractual supply milestones related to the

investment plan and of the payments made to the Milan municipality for reserves distributed

and parking payments related to the years from 2010 to 2015.

> The net financial position improved substantially (from €-217,773 thousand at 31 December

2015 to €-247,081 thousand at 31 December 2016), as a result of the combined effect of the

significant self-financing generated by operations and the decrease in indebtedness.

> Net invested capital rose from €1,614,131 thousand at 31 December 2015 to €1,581,173

thousand and is 60.8% covered by net equity.

Results of operations

The reclassified profit and loss account differs from that provided for by the Italian Civil Code in the

captions “Consumables”, which is determined as the sum of the purchases of materials and changes in

inventory, “Extraordinary income and expense”, which is shown separately, and in the calculation of

gross operating profit.

Directors’ report

30

2016 2015 ∆ ∆ %

OPERATING REVENUES 996,792 1,056,382 (59,590) (5.6) %

Revenues from the LPT 774,365 803,944 (29,579) (3.7) %

Revenues from on-street parking, car parks, towing away service

31,344 28,944 2,400 8.3 %

National labour contract grants 50,190 50,299 (109) (0.2) %

Internal work capitalised 17,002 39,360 (22,358) (56.8) %

Other revenues 123,891 133,835 (9,944) (7.4) %

OPERATING COSTS 832,736 892,936 (60,200) (6.7) %

Consumables 76,442 81,273 (4,831) (5.9) %

Services 219,206 234,697 (15,491) (6.6) %

Use of third party assets 6,078 5,832 246 4.2 %

Personnel expenses 498,161 510,778 (12,617) (2.5) %

Others 32,849 60,356 (27,507) (45.6) %

GROSS OPERATING PROFIT 164,056 163,446 610 0.4 %

Amortisation, depreciation and write-downs 130,007 142,717 (12,710) (8.9) %

OPERATING PROFIT 34,049 20,729 13,320 64.3 %

Net financial income 3,807 6,842 (3,035) (44.4) %

Net extraordinary income 4,299 7,255 (2,956) (40.7) %

PRE-TAX PROFIT 42,155 34,826 7,329 21.0 %

Income taxes (3,271) (9,013) 5,742 63.7 %

NET PROFIT FOR THE YEAR 38,884 25,813 13,071 50.6 %

NET PROFIT FOR THE YEAR ATTRIBUTABLE TO THE GROUP 36,725 23,779 12,946 54.4 %

Net profit for the year attributable to minority interests 2,159 2,034 125 6.1 %

Operating revenues

“Operating revenues” of 2016 came to €996,792 thousand, down by €59,590 thousand (- 5.6%)

compared to 2015.

“Revenues from the LPT” for 2016 (€774,365 thousand) for LPT service/management contracts in

Italy and abroad were down by €29,579 thousand on those of 2015 (-3.7%). This is mainly a result of

the €34,970 thousand decrease in fees from the service agreement with the Milan municipality, due to

the smaller amount of services provided compared to those of 2015, mainly related to Expo. This

decrease was partly offset by the greater management fees for Copenhagen’s metro network (+ €4,021

thousand) and the greater management fees for the M5 metro line (+ €3,973 thousand), due to the

operation of the entire line for the full year.

Directors’ report

31

2016 2015 Change Δ % change

Revenues from the local public transport service, of which: Fees as per the service agreement with the Milan municipality

669,461 704,431 (34,970) (5.0) %

Fees as per the service agreement - Copenhagen

46,670 42,649 4,021 9.4 %

Fees as per the service agreement - intercity area

19,565 19,919 (354) (1.8) %

Fees as per the service agreement - line 5 22,987 19,014 3,973 20.9 %

Proceeds from tariffs - intercity area 11,665 11,599 66 0.6 %

Special/dedicated transport services 4,017 6,332 (2,315) (36.6) %

Total 774,365 803,944 (29,579) (3.7) %

Revenues from the management of on-street parking, car parks and the towing away service increased

from €28,944 thousand in 2015 to €31,344 thousand in 2016 (+8.3%) as a consequence of new

parking areas, the ongoing monitoring activities in the area, the increase in sales via innovative

payment channels and parking meters and the full reopening of the San Donato park-and-ride

carpark.

“Internal work capitalised”, of €17,002 thousand, mainly include the extraordinary maintenance

carried out on the metro train and tram fleets.

“Operating revenues”, of 123,891 thousand, decreased by €9,944 thousand (- 7.4%) compared to 2015,

mainly as a result of the lower amount of infrastructure-related works carried out for the Milan

Municipality. This caption includes advertising income, revenues from passenger fines, penalties for

supply contracts, LPT ancillary services and increases to provisions in relation to the review of

estimates based on new information not available at the time the original estimates were made and in

relation to the events of the year.

Operating costs

“Operating costs” came to €832,736 thousand, down by €60,200 thousand (- 6.7%) compared to 2015.

“Consumables”, related to raw materials, consumables, supplies and goods, decreased by €4,831

thousand (-5.9%) compared to 2015, as a result of the fall in oil prices and lower consumption of diesel

for buses, as well as the smaller consumption of metro and tram materials.

“Services” decreased from €234,697 thousand to €219,206 thousand (-6.6%), due to the lower

consumption of traction power, lower costs related to the LPT ancillary services carried out for third

parties, less outsourcing of services and lower insurance costs.

“Personnel expenses” of €498,161 thousand decreased by €12,617 thousand on 2015. The decrease is

the net effect of the higher costs related to the increase in the average workforce and those related to

the renewal of the national labour contract, and to the absence of the large charges related to the

management of the Expo period.

“Other costs” of €32,849 thousand decreased by €27,507 thousand on 2015, mainly as a result of the

lower accruals for risks and litigation made based on the events of the year.

“Amortisation, depreciation and write-downs” decreased from €142,717 thousand to €130,007

thousand (-8.9%). The change is mainly due to the different impact compared to 2015 of the write-

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32

downs of the fleet which will be progressively sold in the next three years in line with the purchase

contracts for the 30 “Leonardo” trains signed during the year.

“Net financial income” of €3,807 thousand decreased by €3,035 thousand due to the lower returns on

deposits as a result of market interest rates being close to zero.

“Net extraordinary income” includes the gain on the sale of the non-operating building in Via Ricasoli

(net extraordinary income of €7,255 thousand in 2015), mainly due to compensation received in

relation to the 2010 flooding of the Seveso river and to contributions for sickness benefits for 2011.

“Income taxes” relate to IRAP and IRES calculated on the taxable income for the year, based on ruling

legislation.

The net profit for the year amounts to €38,884 thousand, gross of minority interests of €2,159

thousand. The foreign subsidiary Metro Service A/S’s contribution to the net profit for the year

amounts to €4,165 thousand.

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33

Financial position and cash flows

At 31 December 2016, “net invested capital” amounted to €1,581,173 thousand, down by €32,958

thousand on 31 December 2015.

“Fixed capital” at 31 December 2016, including grants, comes to €1,587,250 thousand. The decrease

on the previous year is largely due to the amortisation, depreciation and write-downs of the year,

which was only partly offset by the investments of the year.

At 31 December 2016, “working capital” was of a positive €6,077 thousand, decreasing by €70,858

thousand compared to 31 December 2015, mainly as a result of the decrease in payables, particularly

for investments.

31.12.2016 31.12.2015 Change

NET INVESTED CAPITAL

Tangible fixed assets 1,509,381 1,595,369 (85,988)

Intangible fixed assets 42,745 63,778 (21,033)

Financial fixed assets 35,124 31,919 3,205

A. FIXED ASSETS 1,587,250 1,691,066 (103,816)

Trade receivables 158,501 210,940 (52,439)

From others 108,341 86,826 21,515

Net inventory 74,102 70,124 3,978

Prepayments and accrued income 2,816 2,841 (25)

B. CURRENT ASSETS 343,760 370,731 (26,971)

Trade payables 225,651 311,337 (85,686)

Other payables 136,621 159,912 (23,291)

Accrued expenses and deferred income 3,342 3,788 (446)

C. CURRENT LIABILITIES 365,614 475,037 (109,423)

D. RECEIVABLES FOR GRANTS RELATED TO PLANT 15,777 27,371 (11,594)

E. NET WORKING CAPITAL (E=B-C+D) (6,077) (76,935) 70,858

F. NET INVESTED CAPITAL (F=A+E) 1,581,173 1,614,131 (32,958)

The “net financial position” at 31 December 2016 is -€247,081 thousand, with an improvement on the

previous year almost fully due to the part repayment of the Cassa Depositi e Prestiti loan for €6,154

thousand and the payment of €15,000 thousand to the Milan municipality of reserves whose

distribution was approved in prior years.

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34

At 31 December 2016, “net equity attributable to the group” amounted to €961,133 thousand, up by

€37,475 thousand.

Net invested capital not covered by the above captions is covered by other non-current liabilities,

particularly the grants related to plant received by the group over the years.

31.12.2016 31.12.2015 Change

SOURCES OF FINANCING

Financial payables 182,563 204,384 (21,821)

Financial receivables (33,988) (40,142) 6,154

Liquid funds and securities (395,656) (382,015) (13,641)

G. NET FINANCIAL POSITION (247,081) (217,773) (29,308)

Employees’ leaving entitlement 143,956 150,580 (6,624)

Other provisions 150,312 162,036 (11,724)

Grants related to plant 567,408 590,034 (22,626)

H. NON-CURRENT LIABILITIES 861,676 902,650 (40,974)

I. NET EQUITY 961,133 923,658 37,475

- Share capital 700,000 700,000 -

- Reserves 165,460 165,452 8

- Retained earnings 95,673 58,206 37,467

L. PROFITS AND RESERVES ATTRIBUTABLE TO MINORITY INTERESTS

5,445 5,596 (151)

M. SOURCES OF FINANCING (M=G+H+I+L) 1,581,173 1,614,131 (32,958)

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35

“Cash flows generated by operating activities” for 2016 came to €88,752 thousand. These are lower

than in 2015 mainly due to the decrease in trade payables following the expiry of the contractual

supply milestones related to the investment plan. These flows fully coverage the requirements

investment activities (€76,792 thousand, net of sales).

The “net cash flows of the year” of €13,641 thousand led to an increase in liquid funds and securities to

€395,656 thousand (31 December 2015: €382,015 thousand).

***

At 31 December 2016, the Group’s workforce numbered 9,588 compared to 9,695 at 31 December

2015, partly due to the conclusion of certain fixed-term contracts agreed for Expo-related activities.

Contract 31.12.2016 % 31.12.2015 %

Managers 31 0.32% 34 0.35%

Public transport workers 9,212 96.08% 9,322 96.15%

Others 345 3.60% 339 3.50%

Total 9,588 100% 9,695 100%

2016 2015 Change

Net profit for the year 38,884 25,813 13,071

Adjustments to align the net profit for the year with

the net cash flows from operating activities:

- amortisation/depreciation and adjustments to fixed

assets and goodwill arising on consolidation 128,299 141,559 (13,260)

- net gains from the sale of assets (4,296) 1,971 (6,267)

- income taxes, interest, dividends (3,198) (4,085) 887

Change in net working capital (56,597) (28,492) (28,105)

Non-current liabilities (change in provisions for risks and employees’ leaving entitlement)

(18,348) 27,569 (45,917)

Taxes paid, interest (paid) received, dividends received

4,008 3,882 126

Cash flows generated by operating activities 88,752 168,217 (79,465)

Capital expenditure

Net capital expenditure (60,538) (183,890) 123,352

Net investments in equity investments, consolidated companies and business units

(3,205) (2,217) (988)

Other changes related to investing activities 4,299 1,386 2,913

Free cash flows 29,308 (16,504) 45,812

Change in current and non-current financial payables (667) 54,723 (55,390)

Cash outflows related to using own funds (dividends paid)

(15,000) (20,000) 5,000

Net cash flows for the year 13,641 18,219 (4,578)

Directors’ report

36

ATM S.p.A.’s performance

The following reclassified profit and loss account for ATM S.p.A. differs from that provided for by the

Italian Civil Code in the captions “Consumables”, which is determined as the sum of the purchases of

materials and changes in inventory, “Extraordinary income and expense”, which is shown separately,

and in the calculation of gross operating profit.

2016 2015 Δ Δ %

OPERATING REVENUES 572,213 581,294 (9,081) (1.6%)

Revenues from core business 468,284 464,208 4,076 0.9%

Internal work capitalised 16,942 32,416 (15,474) (47.7%)

Other revenues 86,987 84,670 2,317 2.7%

OPERATING COSTS 440,934 455,079 (14,145) (3.1%)

Consumables 75,027 80,457 (5,430) (6.7%)

Services 188,357 196,165 (7,808) (4.0%)

Use of third party assets 4,256 4,134 122 3.0%

Personnel expenses 150,329 152,217 (1,888) (1.2%)

Other costs 22,965 22,106 859 3.9%

GROSS OPERATING PROFIT 131,279 126,214 5,065 4.0%

Amortisation, depreciation and write-downs 120,050 135,888 (15,838) (11.7%)

OPERATING PROFIT 11,229 (9,674) 20,903 216.1%

Net financial income 5,488 7,615 (2,127) (27.9%)

Net extraordinary income 4,299 2,737 1,562 57.1%

PRE-TAX PROFIT 21,016 678 20,338 n.a.

Income taxes (1,246) 10,165 (11,411) (112.3%)

NET PROFIT FOR THE YEAR 19,770 10,844 8,926 82.3%

Operating revenues

“Operating revenues” for 2016 amount to €572,213 thousand, compared to €581,294 thousand in the

previous year (a decrease of 1.6%).

“Revenues from the core business” amount to €468,284 thousand in 2016, up by €4,076 thousand on

2015 (+0.9%) mainly as a result of the increase in the contractual fees to manage line 5 of the metro,

due to the operation of the entire line for the full year.

“Internal work capitalised”, of €16,942 thousand, mainly include the extraordinary maintenance

carried out on the metro train and tram fleets.

The increase in “other revenues” (up by €2,317 thousand or 2.7%) is the net effect of higher penalties

applied on supply contracts, adjustments to the provisions for risks following the review of estimates

due to events of the year and lower revenues generated by seconded personnel following the Group’s

internal reorganisation.

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37

Operating costs

“Operating costs” came to €440,934 thousand, down by €14,145 thousand (-3.1%) compared to 2015,

which was more than proportional to the drop in revenues.

“Consumables”, related to raw materials, consumables, supplies and goods, decreased by €5,430

thousand (-6.7%) compared to 2015, as a result of the fall in oil prices and lower consumption of diesel

for buses, as well as the smaller consumption of metro and tram materials.

“Services” decreased by €196,165 thousand to €188,357 thousand (-4.0%), due to the lower

consumption of traction power, fewer outsourced services, lower insurance costs and lower clothing

costs as new uniforms were introduced to coincide with Expo.

“Personnel expenses” of €150,329 thousand decreased by €1,888 thousand on 2015. The decrease is

the net effect of the higher costs related to the increase in the average workforce and those related to

the renewal of the national labour contract, and to the absence of the costs related to the Expo period.

“Amortisation, depreciation and write-downs” decreased by €135,888 thousand to €120,050

thousand (-11.7%). The change is mainly due to the different impact compared to 2015 of the write-

downs of the fleet which will be progressively sold in the next three years in line with the purchase

contracts for the 30 “Leonardo” trains signed during the year.

“Net financial income” of €5,488 thousand decreased by €2,127 thousand due to the lower returns on

deposits as a result of market interest rates being close to zero. The balance includes the dividends

distributed by the subsidiary International Metro Service S.r.l. of €1,632 thousand for 2016. The 2015

dividend distribution was €3,060 thousand.

“Net extraordinary income” of €4,299 thousand includes the gain on the sale of the non-operating

building in Via Ricasoli, compared to net extraordinary income of €2,737 thousand in the previous

year, which mainly related to the repayment of sickness benefits for 2011 and the gain on the sale of an

equity investment.

“Income taxes” relate to IRAP and IRES calculated on the taxable income for the year, based on ruling

legislation.

IRAP is calculated solely in relation to the parent, while IRES is calculated on the sum of the taxable

incomes of the consolidated companies.

The “net profit for the year” amounts to €19,770 thousand, and increased by €8,926 thousand (82.3%)

over 2015.

Directors’ report

38

Risks and uncertainties

ATM regularly monitors its complex management processes and the developments of the legislative,

operational and financial context in order to provide the board of directors with every tool necessary

and useful for a correct assessment of the related risks and to facilitate the preparation of the related

action plans.

External risks

The local public transport sector is still undergoing great change in terms of liberalisation and the

definition of fee calculation and methodologies which the granting bodies must implement in the

service agreements.

This development, the content and outcome of which is not yet known, will considerably affect

operating management decisions in view of the full liberalisation of the market which will take place in

2019 under the European legislation. Legislation governing companies in which a state body has an

investment is also undergoing changes.

Another complication is the uncertainty related to the amount of the increasingly limited government

grant to cover infrastructure projects and to upgrade the fleet.

A specific uncertainty is the expiry on 30 April 2017 of the “Contract for local transport service and

connected and ancillary services” between the subsidiary ATM Servizi S.p.A. and the Milan

municipality. The contract provides for the possibility of its extension.

Under ruling regional legislation (regional law no. 6 of 4 April 2012 “Transport sector regulations”),

the next tenders for the awarding of local public transport services are to be called by local agencies

specifically set up for this purpose.

The local public transport agency of the Metropolitan city of Milan, Monza, Brianza, Lodi and Pavia,

which will take over the planning and organisational of these services from the Milan municipality,

was set up in April 2016. It does not yet have adequate structures and resources such to be fully

operative.

Moreover, as stated, national legislation is still undergoing change and review.

With the council resolution of 17 February 2017, in order to ensure service continuity, the Milan

municipality resolved to extend the local public transport contract in line with the tender documents

and the existing contracts.

Given the above, and considering the time needed for the tender to award the new LPT contract and

the contents of the above-mentioned resolution, it is deemed appropriate to apply the going-concern

assumption in preparing the financial statements, while bearing in mind the uncertainties detailed

under “Going-concern and the reference contractual framework”.

Group management will monitor the situation as it develops over the next few months.

Directors’ report

39

Operational risks

Operational risks mainly relate to malfunctions and unforeseen service interruptions due to accidental

and extraordinary events. These events can cause damage to people and lead to a decrease in revenues.

Generally speaking, internal controls and the action plans implemented by the group ensure service

continuity and the safeguarding of company assets in compliance with the laws and regulations.

ATM’s operations are increasingly dependent on the smooth and uninterrupted operation of the

information systems and the network infrastructures supporting operations and maintenance. In this

regard, the roll out of a new disaster recovery solution is almost complete and is aimed at ensuring the

continuity of the systems supporting the Group’s operations.

There are no particular issues related to data protection, also thanks to ATM’s active collaboration

with the police’s national centre for the prevention of cybercrime (Centro Nazionale Anticrimine

Informatico della Polizia di Stato).

Environmental risks and risks related to the health and safety of employees

The historical context of certain group depots and legislative developments make it necessary to

closely and effectively check the environmental risk factors, particularly as relates to the soil and

subsoil.

In line with applicable legislation, ATM carefully monitors the environmental risk factors typical of

each process, in order to prevent and respond rapidly to any event that may have a significant effect

internally and externally.

Accidents and occupational illness are the main risk factors. Investments are of prime importance to

ensuring operations continue to improve, for the prevention of accidents and to maintain suitable

standards.

As part of its current operations, ATM bears the costs and charges related to the preventative measures

in compliance with applicable regulations governing health and safety in the workplace.

The issue of new provisions or changes to ruling legislation could require ATM to adopt even more

stringent standards, incurring costs to adapt the group organisation, IT systems and production sites.

Specific operational risks

In relation to specific risks on the line 5 of the Milan metro, in line with the instructions of the safety

commission, ATM also carried out additional extraordinary maintenance in 2016 compared to the

basic maintenance plans for the still unresolved unusual instances of wear and tear of tracks and train

wheels detected in 2014. This activity is shared with the operator, Metro 5 S.p.A., and the related costs

are periodically recharged thereto.

This premature wear and tear of rolling stock required additional scheduled extraordinary works

which ATM has quantified and detailed to Metro 5 S.p.A. as part of the out-of-court settlement

procedure commenced pursuant to article 28 of the management contract.

Moreover, in terms of infrastructure, there were various cases of the malfunctioning of the escalators

of the extension and of steps breaking. In this regard, ATM has asked Metro 5 S.p.A. to immediately

carry out checks and repairs, which have commenced for 20 of the 55 escalators of the extension.

Directors’ report

40

Legal and non-compliance risks

Legal and non-compliance risks arise from full or partial non-compliance with ruling legislation,

entailing risks of penalties and reputation and/or financial damage.

The 231 model is drawn up on the basis of “sensitive” or “at risk” activities, that is, those business

activities in which there is a risk that one of the crimes identified in Legislative decree no. 231/2001

could arise. The analysis of business processes and the related risk assessment are carried out

whenever there are organisational or legislative changes, to identify the activities in which the crimes

referred to in the legislation could be committed.

Moreover, with the approval of the “three-year corruption prevention plan”, the actions were defined

such to prevent the risk of corruption that could be committed contrary to the provisions of the Anti-

corruption law of the legislation on transparency and the ANAC directives.

Financial risks

Liquidity risk

The liquidity risk does not pose any issues. Indeed, through its regular scheduling and monitoring

activities, ATM ensures an adequate level of liquid funds and/or short-term monetisable securities to

promptly meet its commitments vis-à-vis its commercial and financial counterparts.

Interest rate risk

Interest rate fluctuations may affect the market value of the Group’s financial assets and liabilities and

its net financial income and charges.

ATM regularly monitors receivables and payables and implements all actions necessary to maintain a

contained financial risk profile.

Credit risk

Credit risk reflects the Group’s exposure to the potential losses arising from non-compliance with

obligations vis-à-vis commercial and financial counterparts.

The Group carefully monitors receivables and promptly chases up amounts when they fall due.

In regard of the default risk of trading counterparties, receivables management is assigned to the

relevant departments and the legal department for credit recovery and the management of litigation of

the group companies.

Directors’ report

41

Post-balance sheet events

> The “Buongiorno Milano” project was launched on 9 January 2017, bringing forward the

starting time of four metro lines by half an hour. Significant passenger numbers were recorded on

the earlier trains within weeks and numbers continue to rise.

> On 17 February 2017, the Milan municipality, with council resolution no. 219, – Instructions

for the continuation of activities during calls for tender to award the Local Public Transport

services and connected and ancillary services, as well as the paid parking services in the Milan

municipality and towing away and impounding of vehicles services – instructed the relevant

departments to extend the local public transport contract in line with the tender documents and

the existing contracts and to take the appropriate managerial steps to extend each service –

referred to above – by one year, in line with the tender documents and the existing contracts, as

described more fully under “Going-concern and the reference contractual framework”.

> The sale of the non-operating building in Via Verona, Milan, was completed on 3 March 2017.

This is the second transaction which forms part of a wider property-enhancing project in order to

raise additional funds to be used to strengthen and improve service quality through investments.

> The winding up of Mipark S.r.l. was approved by the quotaholders on 14 March 2017.

Directors’ report

42

Outlook

The Group’s core business in 2017 will be mainly focussed on ensuring high service levels for

customers and on reducing the service contract costs applied by the Milan municipality.

The first buses purchased after the completion of the public tender procedure will be rolled out early in

the year.

After these investments, made possible thanks to the release of the long-awaited contributions which

had been frozen for more than one year for reasons not attributable to the Group, as well as additional

financial commitments of the group, the Group will have around 250 new surface vehicles, bringing

the fleet’s average age into line with its usual excellent levels.

In addition to the investments (the new metro line 2 trains will also be delivered starting from June),

the Group will have to ensure an effective purchasing policy, increasing its use of competitive and open

procedures.

It will also be possible to know the competitive panorama for the awarding of future service tenders.

The Group is ready to effectively rise to this challenge in all aspects, given its strong service results, its

experience, also in an international context, the professionalism of its employees and the significant

financial resources that it has accumulated, despite its significant investments of recent years, thanks

to the increasingly careful control of costs and the corresponding increase in profitability, resources

that are ready to be deployed in competition.

Other information

The City council’s resolution no. 70 of 23 January 2015 directs the companies in which the Milan

municipality has an interest to the «principle of the containment of personnel expenses».

During 2016, ATM Group has implemented rigorous controls of personnel expenses, through actions

such as:

limiting new hires, only partially and selectively replacing outgoing employees and increasing

personnel numbers only in those areas with the greatest operating requirements;

taking on new resources benefiting from the relief from social security contributions offered by

ruling legislation, as well as young resources, which reduced the average cost per capita;

the adoption of remuneration policies focussed on cost control, in line with the guidelines issued

by the Remuneration committee in the budget, which include:

o overall accruals for discretional interventions (one-off increases) of less than 0.1% of

personnel expenses;

o decrease in the amounts accrued for the MBO programme for managers, officers and sales

personnel compared to the targets.

In recruiting new resources, the Group ensures compliance with the indications contained in the

above-mentioned resolution - as integrated by the subsequent resolution no. 943/16 - and it complies

with the disclosure requirements to the ultimate parent as per such legislation.

These policies resulted in the containment of personnel expenses which, net of the adjustments

provided for by point 3 of the council resolution no. 70 of 23 January 2015 on the change in the scope

Directors’ report

43

of Group activities, is reflected in the gradual reduction in both overall personnel expenses and of such

costs as a proportion of the overall Group operating costs, which also decreased this year.

Other disclosure pursuant to article 40 of Legislative decree no. 127/91

The following is noted pursuant to article 40 of Legislative decree no. 127/91:

- in 2016, the Group did not carry out any research or development activities;

- no ATM group company holds or purchased or sold own shares or shares of the parent, including

through trustees or nominees;

- again in 2016, the Group did not trade in any derivatives to determine its financial position and

results of operations.

Directors’ report

44

Related party transactions

Most of the transactions carried out by ATM S.p.A., as the parent, with its subsidiaries refer to services

and funding and lending activities. Transactions are strictly of a financial and commercial nature and,

consequently, do not include atypical and/or unusual transactions and are regulated by contracts

agreed in line with market conditions.

ATM S.p.A. participates in the tax consolidation scheme with the following subsidiaries: ATM Servizi

S.p.A., ATM Servizi Diversificati S.r.l., GeSAM S.r.l., Inmetro S.r.l., NET S.r.l. and Rail Diagnostics

S.p.A..

Under the relevant contract, when a positive tax base is transferred, the consolidated company

recognises a payable to the consolidating company equal to the amount resulting from application of

the IRES rate to the transferred profit. Conversely, when a tax loss is transferred, the consolidating

company will recognise a payable to the consolidated company equal to the amount resulting from the

application of the IRES rate to the transferred tax loss.

ATM also set up a VAT scheme together with the following subsidiaries: ATM Servizi S.p.A., ATM

Servizi Diversificati S.r.l., GeSAM S.r.l., NET S.r.l., and Rail Diagnostics S.p.A..

Under this scheme, the VAT balance is transferred monthly to the ultimate parent which, accordingly,

is the only company with tax payables, while the subsidiaries recognise receivables from/payables to

the parent.

The annexes to the notes to the financial statements of ATM S.p.A. summarise related party

transactions based on the nature of the services provided.

Milan, 21 March 2017

On behalf of the board of directors

The chairman

Bruno Rota

(signed on the original)

Directors’ report

45

46

Consolidated financial statements

Consolidated financial statements

49

Consolidated financial statements

50

BALANCE SHEET

Consolidated financial statements

51

€/000 31.12.2016 31.12.2015

A) Share capital proceeds to be received - -

B) Fixed assets

I - Intangible fixed assets 32,572 50,974

4) Concessions, licences, trademarks and similar rights 2,401 2,582

5) Goodwill - 472

6) Assets under development and payments on account 6,089 3,764

7) Other 24,082 44,156

II. Tangible fixed assets 973,160 1,050,746

1) Land and buildings 230,262 239,090

2) Plant and machinery 678,755 694,994

3) Industrial and commercial equipment 20,047 21,862

4) Other assets 4,254 7,876

5) Assets under construction and payments on account 39,842 86,924

III. Financial fixed assets 35,124 31,919

1) Equity investments: 14,009 13,112

b) associates 10,679 10,679

d) subsidiaries of the parent 3,257 2,408

d-bis) other 73 25

Financial receivables: 21,115 18,807

b) from associates 18,330 16,865

Due after one year 18,330 16,865

d) from subsidiaries of the parent 1,051 -

Due after one year 1,051 -

d-bis) from others 1,734 1,942

Due within one year 202 310

Due after one year 1,532 1,632

Total fixed assets (B) 1,040,856 1,133,639

C) Current assets

I - Inventory 74,102 70,124

1) Raw materials, consumables and supplies 71,052 65,704

4) Finished goods 1,327 2,992

5) Payments on account 1,723 1,428

II - Receivables 316,626 400,877

1) Trade receivables 38,488 40,497

Due within one year 38,488 40,497

3) From associates 3,145 4,543

Due within one year 3,145 4,543

4) From ultimate parent 122,108 207,748

Due within one year 122,108 207,748

5) From subsidiaries of the parent 2,382 3,475

Due within one year 2,382 3,475

5-bis) Tax receivables 91,352 74,313

Due within one year 60,554 25,923

Due after one year 30,798 48,390

5-ter) Deferred tax assets 1,415 1,086

Due within one year 1,415 1,086

5-quater) From others 57,736 69,215

Due within one year 57,736 69,215

III - Current financial assets 293,796 217,674

6) Other securities 293,796 217,674

IV. Liquid funds 101,860 164,341

1) Bank and postal accounts 100,846 163,318

3) Cash-in-hand and cash equivalents 1,014 1,023

Total current assets (C) 786,384 853,016

D) Prepayments and accrued income 2,816 2,841

Total assets 1,830,056 1,989,496

Consolidated financial statements

52

€/000 31.12.2016 31.12.2015

A) Net equity

I - Share capital 700,000 700,000

IV - Legal reserve 140,000 140,000

VI - Other reserves, shown separately: 25,460 25,452

- contribution reserve 19,690 19,690

- extraordinary reserve 5,764 5,764

- translation reserve 6 (2)

VIII - Retained earnings 58,948 34,427

IX - Net profit for the year 36,725 23,779

Net equity attributable to the Group 961,133 923,658

A2.I - Minority interests in share capital and reserves 3,286 3,562

A2.II - Profit for the year attributable to minority interests 2,159 2,034

Net equity attributable to minority interests 5,445 5,596

Total net equity 966,578 929,254

B) Provisions for risks and charges

2) Tax provision, including deferred tax liabilities 771 817

Other revenues and income 149,541 161,219

4.a) Provisions for risks 135,568 140,654

4.b) Provisions for charges 13,973 20,565

Total provisions for risks and charges (B) 150,312 162,036

C) Employees’ leaving entitlement 143,956 150,580

D) Payables

4) Bank loans and borrowings: 143,988 150,809

Due within one year 6,359 6,821

Due after one year 137,629 143,988

7) Trade payables 181,980 261,415

Due within one year 181,980 261,415

10) Payables to associates 761 675

Due within one year 761 675

11) Payables to ultimate parent 79,609 137,061

Due within one year 79,609 137,061

11-bis) Payables to subsidiaries of the parent 1,876 1,358

Due within one year 1,876 1,358

12) Tax payables 13,982 18,891

Due within one year 13,982 18,891

13) Social security charges payable 38,548 43,759

Due within one year 38,548 43,759

14) Other payables 84,110 97,263

Due within one year 84,110 97,263

Total payables (D) 544,854 711,231

E) Accrued expenses and deferred income 24,356 36,395

Total liabilities 1,830,056 1,989,496

Consolidated financial statements

53

Consolidated financial statements

54

PROFIT AND LOSS ACCOUNT

Consolidated financial statements

55

€/000 2016 2015

A) Production revenues

1) Turnover from sales and services 805,746 833,844

4) Internal work capitalised 17,002 39,360

5) Other revenues and income 178,343 190,433

Other revenues and income 127,305 138,182

Grants related to income 51,038 52,251

Total production revenues (A) 1,001,091 1,063,637

B) Production cost

6) Raw materials, consumables, supplies and goods 81,778 89,841

7) Services 219,206 234,697

8) Use of third party assets 6,078 5,832

9) Personnel expenses: 498,161 510,778

a) Wages and salaries 364,401 371,737

b) Social security contributions 99,061 105,258

c) Employees’ leaving entitlement 25,083 24,388

d) Pension and similar costs 4,223 3,980

e) Other costs 5,393 5,415

10) Amortisation, depreciation and write-downs: 130,007 142,717

a) Amortisation of intangible fixed assets 22,814 23,265

b) Depreciation of tangible fixed assets 72,634 77,544

c) Other write-downs of fixed assets 33,348 41,273

d) Write-downs of current receivables and liquid funds 1,211 635

11) Change in raw materials, consumables, supplies and goods (5,336) (8,568)

12) Provisions for risks 12,401 43,575

13) Other provisions 2,057 2,488

14) Other operating costs 18,391 14,293

Total production cost (B) 962,743 1,035,653

Operating profit (A-B) 38,348 27,984

C) Financial income and charges

15) Income from investments - -

16) Other financial income: 6,982 12,264

a) From financial receivables classified as fixed assets 1,127 1,028

From associates 1,039 897

From subsidiaries of the parent 56 -

From others 32 131

c) From securities classified as current assets which are not equity investments 5,366 10,363

d) Other income 489 873

From others 489 873

17) Interest and other financial charges (2,129) (2,053)

Other (2,129) (2,053)

17-bis) Net exchange rate gains (losses) 48 (53)

a) Gains 47 22

b) Losses 1 (75)

Net financial income (15+16-17+-17-bis) 4,901 10,158

Consolidated financial statements

56

€/000 2016 2015

D) Adjustments to financial assets

18) Write-backs: 483 103

c) Securities classified as current assets which are not equity investments 483 103

19) Write-downs: (1,577) (3,419)

c) Securities classified as current assets which are not equity investments (1,577) (3,419)

Total adjustments (18-19) (1,094) (3,316)

Pre-tax profit (A-B+-C+-D+-) 42,155 34,826

20) Income taxes, current and deferred (3,271) (9,013)

Current taxes (4,336) (21,111)

Change in deferred tax assets 320 (22)

Change in deferred tax liabilities 51 136

Income from participation in the tax consolidation/transparency scheme 694 11,984

21) Net profit for the year before the portion attributable to minority

interests 38,884 25,813

Net profit for the year attributable to minority interests 2,159 2,034

Net profit for the year 36,725 23,779

Consolidated financial statements

57

Consolidated financial statements

58

CASH FLOW STATEMENT

Consolidated financial statements

59

€/000 2016 2015

A. Cash flows from operating activities

Net profit for the year

38,884

25,813

income taxes 3,271

9,013

net interest income (4,901)

(10,158)

dividends (1,568)

(2,940)

net losses from the sale of assets 3

3,357

net extraordinary gains from the sale of assets (4,299)

(1,386)

1. Net profit for the year before income taxes,

interest, dividends and losses on the sale of

assets

31,390

23,699

Adjustments for non-monetary items with no balancing

entry in net working capital

change in provisions for risks and charges (7,363)

37,264

change in employees’ leaving entitlement 2,830

2,758

amortisation/depreciation 94,943

100,582

adjustments to fixed assets 33,348

41,273

goodwill arising on consolidation 8

(296)

Total adjustments for non-monetary items

123,766

181,581

2. Cash flows before changes in NWC

155,156

205,280

Change in net working capital:

(56,597)

(28,492)

inventory (3,978)

(8,514)

trade receivables 52,439

(9,098)

other receivables (22,628)

(31,924)

prepayments and accrued income 635

1,020

trade payables (85,686)

11,181

other payables (25,166)

(10,708)

accrued expenses and deferred income (446)

1,933

change in grants related to plant 28,233

17,618

3. Cash flows after changes in NWC

98,559

176,788

Other adjustments

(9,807)

(8,571)

net interest received 4,291

9,501

income taxes paid (283)

(5,619)

utilisation of the provision for risks and charges (4,361)

(3,065)

utilisation of employees’ leaving entitlement (9,454)

(9,388)

Cash flows generated by operating activities (A)

88,752

168,217

Consolidated financial statements

60

€/000 2016 2015

B. Cash flows from investing/divesting activities

Tangible fixed assets

(Investments) (72,396)

(184,437)

Proceeds on divestments 15,993

6,026

Intangible fixed assets

(Investments) (4,396)

(5,516)

Proceeds on divestments 261

37

Financial fixed assets

(Investments) (3,413)

(6,377)

Proceeds on divestments 208

4,160

Current financial assets

Proceeds on divestments 4,299

1,386

Acquisition or sale of subsidiaries or business units, net of

liquid funds

Cash flows used in investing/divesting activities (B)

(59,444)

(184,721)

C. Cash flows from financing activities

Third party funds

New loans -

55,367

Loans repaid (667)

(644)

Own funds

Dividends (and interim dividends) paid (15,000)

(20,000)

Cash flows generated by/(used in) financing

activities (C) (15,667)

34,723

Increase in liquid funds and current securities

13,641

18,219

Opening liquid funds and cash equivalents *

382,015

363,796

Closing liquid funds and cash equivalents **

395,656

382,015

* - of which at the beginning of the year 164,341

137,170

** - of which at year end 101,860

164,341

Consolidated financial statements

61

Consolidated financial statements

62

1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes to the consolidated financial

statements

63

Notes to the consolidated financial statements

64

Basis of preparation

The consolidated financial statements as at and for the year ended 31 December 2016 have been

prepared in accordance with the provisions of articles 29 and 38 of Legislative decree no. 127/1991,

integrated by the reporting standards promulgated by the Italian Accounting Standard Setter (OIC).

They consist of a balance sheet, a profit and loss account, a cash flow statement and these notes.

They are accompanied by a directors’ report that provides information on the nature and business of

the group companies and transactions with group companies.

The consolidated financial statements are prepared taking into consideration the legislative

amendments introduced by Legislative decree no. 139/2015 applicable from 2016 and the consequent

updating of the OIC. The application of the new OIC has not had a significant effect on the captions of

the balance sheet, profit and loss account and cash flow statement for the current and previous years.

Reference should be made to the “Application of the new OIC” section of these notes for details of the

related effects.

The amounts presented in the balance sheet, profit and loss account, cash flow statement, as well as in

these notes are expressed in thousands of Euros. Captions with nil balances in both this and the

previous year are not shown in the consolidated financial statements.

Reference should be made to the directors’ report on these consolidated financial statements for

information on Group operations and related party transactions.

Starting from these consolidated financial statements, post-balance sheet events and the proposal for

the allocation of the net profit or loss for the year are set out in the relevant paragraphs of these notes.

Moreover, following the amendments made to the consolidated financial statements with the removal

of the Memorandum and contingency accounts from the balance sheet, the total amount of

commitments, guarantees and contingent liabilities not shown in the balance sheet are discussed in

the relevant section of these notes.

Basis of consolidation

Companies directly controlled by the parent are consolidated in accordance with the line-by-line

consolidation method.

Accordingly, assets and liabilities and revenues and costs are consolidated on a line-by-line basis,

eliminating all amounts related to transactions among consolidated companies and allocating the

relevant portion of net equity and net profit (loss) for the year to minority interests.

The carrying amount of the investments included in the consolidation scope is eliminated against the

related net equity. Upon acquisition or first consolidation, the difference between the acquisition cost

and the related portion of net equity is recognised in the consolidated financial statements, where

possible, under the assets and liabilities of the consolidated companies. Any residual negative

difference is recognised in net equity, under the “Consolidation reserve” or, when due to expected

unfavourable results, in the “Provision for risks and charges”. Conversely, any residual positive

difference is recognised as “Goodwill arising on consolidation” under assets, when the higher amount

meets the requirements for the recognition of goodwill under OIC 24 “Intangible fixed assets”.

When the higher amount does not reflect the real greater carrying amount of the investment, but is

due to a bad deal or decisions that are not directly attributable to the operating performance of the

Notes to the consolidated financial statements

65

investee, it is recognised as a decrease of the consolidation reserve or, alternatively, is taken to the

profit and loss account.

Investments in companies controlled by the parent ATM S.p.A. of negligible significance or which are

no longer strategic are measured at cost, adjusted to reflect impairment losses.

Investment of between 20% and 50% in associates over which the parent ATM S.p.A. has direct or

indirect significant influence are measured at cost.

Investments of less than 20% in companies classify as financial fixed assets and are measured at cost.

Unless otherwise stated, the information provided in the financial statements at 31 December 2016

submitted to the boards of directors of each investee is described in the notes.

Translation of foreign currency financial statements

The financial statements of investees operating in a currency other than the Euro are translated into

Euro by applying closing exchange rates to assets and liabilities, the historical exchange rates to net

equity captions and the average exchange rates of the year to profit and loss account captions. The

difference between the two calculations using the average rate and the closing rate is taken to the

“Translation reserve”.

The exchange rates applied to translate foreign currency financial statements are as follows (foreign

currency unit = €1):

Currency

Danish krone (DKK)

Historical exchange rate at 31 December 2008 applied to net equity figures

€1 = DKK 7.4428

Spot rate at 31 December 2016 applied to assets and liabilities

€1 = DKK 7.4344

2016 average exchange rate applied to profit and loss account figures

€1 = DKK 7.4362

Notes to the consolidated financial statements

66

Accounting policies

The consolidated financial statements comprise the financial statements of the parent ATM S.p.A. and

those prepared by the directors of the consolidated companies, approved by the relevant

share/quotaholders.

The reporting date of the consolidated financial statements is 31 December 2016, which coincides with

that of the parent.

The individual financial statements, including those of foreign companies, have been adjusted to

comply with the Group’s accounting policies as defined by the parent ATM S.p.A., which prepares

consolidated financial statements. Hence, they are consistent with the structure and the accounting

policies set out in the Italian Civil Code and applicable to consolidated financial statements.

These policies are the same as those used to prepare the consolidated financial statements of the prior

year and have been applied on a going concern basis.

Basis of preparation

The financial statements captions have been measured in accordance with the general principles of

prudence and accruals on a going-concern basis. Although the local public transport service contracts

are nearing their expiry date, the directors deem the going-concern assumption to exist, considering

the time needed to award the new contracts, which will take place after the tender procedures called by

the local public transport agency of the Metropolitan city of Milan, Monza, Brianza, Lodi and Pavia.

This agency was set up in April 2016 and still does not have adequate structures and resources such to

be fully operative. At the reporting date, moreover, there may be uncertainties as detailed under

“External risks”.

To ensure service continuity, with council resolution no. 219 of 17 February 2017, the Milan

Municipality instructed the relevant departments to extend the local public transport contract in line

with the tender documents and the existing contracts, as described more fully under “The reference

contractual framework”.

Captions have been recognised and are shown based on the substance of a transaction or contract,

where consistent with the provisions of the Italian Civil Code and the OIC.

Under the prudence principle, the company measures the individual assets and liabilities separately, in

order to avoid offsetting losses that should be recognised against unrealised profits that should not be

recognised. Specifically, the company recognises profits only if realised before the reporting date,

whereas it considers risks and losses on an accruals basis, even when they become known after the

reporting date.

In accordance with accruals-based accounting, the company recognises the effects of transactions in

the year to which the transaction relates rather than that in which the related collections and payments

occur.

The accounting policies have not changed compared to those applied in the previous year for

comparative purposes.

No exceptional events took place during the year, which would have led the company to depart from

the accounting policies, as permitted by article 2423.4 of the Italian Civil Code, in order to give a true

Notes to the consolidated financial statements

67

and fair view of its financial positions and results of operations. Moreover, the company did not make

any revaluations under specific laws.

The following section describes the accounting policies applied by the company based on the criteria

and models provided for by the OIC in line with the principle of materiality.

The preparation of financial statements requires making estimates that affect the carrying amount of

assets and liabilities and the related disclosures. Actual results may differ. Estimates are revised

regularly and the effect of any changes, if not related to errors, are recognised in the profit and loss

account when they become necessary and appropriate, if they affect just one year, and also in the

following years, if they affect both the current and following years.

Application of the new OIC

The application of the legislative amendments introduced by Legislative decree no. 139/2015 and the

new OIC entailed changes in classification due to new or eliminated financial statements captions and

changes to the accounting policies.

The effects of such changes have been recognised retroactively, also adjusting previous year balances

for comparative purposes.

As permitted by article 12.2 of Legislative decree no. 139/2015, the Group has opted not to apply the

amortised cost criterion and discount the receivables and payables arising before 1 January 2016.

The effects of the amendments on the captions of the balance sheet, profit and loss account and cash

flow statement and on the corresponding prior year figures are summarised in the following tables:

Notes to the consolidated financial statements

68

Reconciliation of the balance sheet

***

Reconciliation of the profit and loss account

***

Reconciliation of the cash flow statement

Fixed assets Inventory ReceivablesFinancial

assetsLiquid funds

Prepayments

and accrued

income

Balance at 31 December

2015 based on the previous

OIC

1,133,639 70,124 400,877 217,674 164,341 2,841

Trade receivables (3,475)

Receivables due from

subsidiaries of the parent3,475

Balance at 31 December

2015 based on the new OIC1,133,639 70,124 400,877 217,674 164,341 2,841

Net equity

Provisions for

risks and

charges

Employees'

leaving

entlement

Payables

Accrued

expenses and

deferred

income

Balance at 31 December

2015 based on the previous

OIC

929,254 162,036 150,580 711,231 36,395

Trade payables (1,358)

Payables due to subsidiaries of

the parent1,358

Balance at 31 December

2015 based on the new OIC929,254 162,036 150,580 711,231 36,395

Assets

Liabilities

Caption C) Caption D) Caption E) Caption 22)

Net financial

income

Adjustments

to financial

assets

Net

extraordinary

income

Income

taxes

Balances at 31 December 2015 as

per previous financial statements20,729 10,158 (3,316) 7,255 (9,013) 25,813

Reclassification of extraordinary income 7,255 (7,255)

Reclassification of extraordinary expense

Balances at 31 December 2015

restated under the new OIC27,984 10,158 (3,316) - (9,013) 25,813

Operating

profit (A-B)

Net profit for

the year

Net profit for

the year

Cash flows

generated by

operating

activities

Cash flows used in

investing/divesting

activities

Cash flows

generated by

financing

activities

Change in

liquid funds

and cash

equivalents

Balance at 31 December 2015

based on the previous OIC25,813 168,217 (184,721) 34,723 18,219

No change - - - - -

Balance at 31 December 2015

based on the new OIC25,813 168,217 (184,721) 34,723 18,219

Notes to the consolidated financial statements

69

Accounting policies

IN TANG IB LE F IX E D AS S E TS

Intangible fixed assets are recognised at contribution, acquisition or production cost, with the prior

consent of the board of statutory auditors, where required, net of accumulated amortisation.

The acquisition cost includes the related transaction costs. The production cost includes all directly

attributable costs and the reasonably attributable portion of other costs incurred from production up

to when the asset is available for use.

Concessions, licences, trademarks and similar rights are recognised in the balance sheet only if they

may be identified individually, if the Group acquires the power to use them to generate future

economic benefits and if it can limit the access of third parties to such benefits and if their cost may be

estimated with adequate reliability.

Leasehold improvements and costs to improve third-party assets are only recognised as intangible

fixed assets if they cannot be separated from the assets themselves. Otherwise, they are recognised

under the relevant tangible fixed asset captions.

Advances to suppliers for the purchase of intangible fixed assets are recognised as assets on the date

the obligation to pay the related amount arises. Assets under development are recognised when the

first costs to develop the asset are incurred and include the internal and external costs incurred for its

development.

Intangible fixed assets are amortised systematically and amortisation expensed each year reflects the

allocation of the cost incurred over their entire useful life. Amortisation begins when the asset is

available for use. The amortisation pattern depends on how the expected benefits are expected to flow

to the Group. Leasehold improvements are amortised over their useful life.

Amortisation is charged using the rates held to reflect the asset’s estimated useful life (Annex 4).

When, regardless of the amortisation already charged, an impairment loss is identified, the asset is

written down accordingly. If the reasons therefor cease to exist in subsequent years, the write-down is

reversed up to the original amount of the asset, net of the amortisation that would have been

recognised in the absence of the write-down.

TANG IB LE FIX E D AS S E TS

Tangible fixed assets are recognised at contribution, acquisition or production cost, adjusted by

accumulated depreciation and any write-downs.

The acquisition cost includes the related transaction costs. The production cost includes all directly

attributable charges and the reasonably attributable portion of other costs incurred from production

up to when the asset is available for use.

The costs incurred to expand, modernise or improve the structural elements of a tangible fixed asset,

including changes made to make it more compliant with its intended use, are capitalised if they result

in a significant and measurable increase in its production capacity, safety or useful life. If not, they are

treated as ordinary maintenance costs and are expensed.

Notes to the consolidated financial statements

70

Depreciation is calculated systematically, using the rates held to reflect the asset’s estimated useful life.

Such rates are halved in the first year in which the asset is available for use, in order to reflect the

shorter period in which the asset has been used. Unused assets are also depreciated.

Reference should be made to Annex 4 for information about the depreciation rates applied.

Assets under construction are recognised when the first costs to build the asset are incurred and

include the internal and external costs incurred for its construction.

Tangible fixed assets held for sale are reclassified to current assets only if they can be sold at their

present conditions, their sale is highly probable and it is expected to be completed in the short term.

When, regardless of the amortisation already charged, an impairment loss is identified, the asset is

written down accordingly. If the reasons therefor cease to exist in subsequent years, the write-down is

reversed up to the original amount of the asset, net of the amortisation that would have been

recognised in the absence of the write-down.

No discretionary or voluntary revaluations were made.

GRAN TS FO R I NV E S TME N T S

Grants for investments are recognised under receivables with a balancing entry under deferred income

in the year they are applied for. Upon collection and when the asset to which they refer becomes

operative, they are recognised as a reduction in fixed assets and taken to the profit and loss account in

proportion to the depreciation charged.

AS S E TS U NDE R FINA NCE LE AS E

Assets under finance leases are recognised in accordance with IAS 17.

F INA NCIA L F IX E D AS S E T S

Equity investments and debt instruments which the Group intends and has the capacity to hold in the

long term are recognised under financial fixed assets. Otherwise, they are recognised under current

assets.

Transfers in or out of the two categories are recognised in accordance with the accounting policies

applicable to the portfolio which the asset comes from.

Receivables are recognised under fixed or current assets depending on their intended use in relation to

the Group’s ordinary activities that generate them. Accordingly, financial receivables are recognised

under financial fixed assets, whereas trade receivables are recognised under current assets, regardless

of their due date. They are measured as detailed in the relevant section.

EQU IT Y INV E S TME NTS

Investments in subsidiaries and associates are measured at cost.

They are initially recognised at acquisition or incorporation cost, including the related transaction

costs. The latter comprise costs that are directly attributable to the transaction such as, for example,

bank and financial brokerage fees, commissions, expenses and taxes.

Notes to the consolidated financial statements

71

The carrying amount of investments rises as a result of capital increases against consideration or

waivers of repayment of receivables by the investor. Any bonus issue does not increase the

investments’ carrying amount.

They are written down for impairment, when their carrying amount decreases to below their

recoverable amount at the reporting date. The recoverable amount is calculated based on the economic

benefits the Group expects to receive from the investment. They are written down to the extent of the

carrying amount. If the investor has an obligation to cover an investee’s losses, it sets up a provision

under liabilities to cover its share of the investee’s deficit.

Equity investments are written back up to their original cost if the reasons for the write-downs cease to

exist.

INV E N TOR Y

Inventory is initially recognised at purchase or production cost and subsequently measured at the

lower of cost and estimated realisable value based on market trends.

Purchase cost is the actual cost paid upon purchase including related charges, less borrowing costs.

The purchase cost of materials includes their price, transport costs, customs and other duties and

other directly attributable costs. Returns, commercial discounts, rebates and bonuses are deducted

from costs.

Production cost is the purchase cost plus industrial production costs. It includes all direct costs and

the reasonably attributable portion of indirect costs incurred from production up to when the asset is

available for use, based on normal production capacity. Production cost excludes general and

administrative costs, distribution costs and research and development costs.

The Group has adopted the weighted average cost model.

The estimated realisable value based on market trends of raw materials and supplies used in the

production of finished products is the replacement cost, while that of goods, finished goods, semi-

finished products and work in progress is the net realisable value. Obsolete and slow-moving items are

also taken into account.

Inventory items whose estimated realisable value based on market trends is lower than their carrying

amount are written down. Obsolete and slow-moving items are written down through provisions that

reduce their carrying amounts.

Should the reasons for the write-down applied as an adjustment to the realisable value based on

market trends cease to exist, the write-down is reversed in subsequent years and the closing carrying

amount is increased, on a prudent basis, only if its recovery through the sale of the inventory is certain

in the short term.

F INA NCIA L R E CE IV AB LE S

Receivables are rights to receive liquid funds from customers or other third parties at a certain or

identifiable date. Receivables generated by the sale of goods or the provision of services are recognised

as described in the note to revenues.

Notes to the consolidated financial statements

72

Receivables are initially recognised at their nominal amount and measured at their estimated

realisable value to reflect irrecoverable amounts, invoicing adjustments, discounts, allowances and

other reasons leading to a lower realisation.

The Group has not applied the amortised cost criterion as all receivables are due within one year and

the difference between their initial amount and at expiry is immaterial.

When the Group identifies expected losses for irrecoverable amounts, it writes down the receivable’s

nominal amount through the provision for bad debts, in order to account for the possibility that a

debtor may partially default. The write-downs are estimated on an individual basis, by calculating the

expected loss for each irregular position already existing or reasonably foreseeable at the reporting

date, based on past trends and any other useful information about expected additional losses at the

reporting date. The write-downs recognised in the provision for bad debts for receivables covered by

guarantees consider the effects of enforcing the guarantees.

Invoicing adjustments are considered on an accruals and prudent basis, by providing for credit notes

to be issued and adjusting receivables and related revenues accordingly.

CU RRE N T F INA NCIA L AS S E TS

Equity investments are initially recognised at acquisition cost, including the related transaction costs,

and are subsequently measured individually at the lower of acquisition cost and estimated realisable

value based on market trends. When the reasons for previous write-downs entirely or partially cease to

exist due to a recovery in market value, the investments are written back up to their original cost.

Debt instruments are initially recognised at acquisition cost, including the related transaction costs,

and are subsequently measured at the lower of acquisition cost and estimated realisable value based

on market trends.

Any resulting write-down is recognised individually for each type of instrument.

When the reasons for previous write-downs entirely or partially cease to exist due to a recovery in

market value, the debt instruments are written back up to their original cost.

L IQU ID FU N DS

These are the positive balances of bank and postal accounts, as well as the cash-in-hand and cash

equivalents at year end.

Bank and postal account deposits are recognised at their estimated realisable value and cash and

revenue stamps at their nominal amount at the closing rate.

PRE PAYME N TS AN D ACC RU E D INCO ME AN D ACC R U E D E X PE NS E S AND DE F E R RE D IN COM E

Accrued income and expense are respectively portions of income and expenses pertaining to the year

but that will be collected/paid in subsequent years.

Prepayments and deferred income are respectively portions of expenses and income collected/paid

during the year or in previous years but pertaining to one or more subsequent years.

Accordingly, these captions comprise only portions of expense and income relating to two or more

years, whose amount varies on a time or economic accruals basis.

Notes to the consolidated financial statements

73

At each year end, the Group analyses the conditions underlying their initial recognition and makes any

necessary adjustments. Specifically, the balance of accrued income varies not only over time, but also

based on its expected realisable value, whereas that of prepayments is based on the existence of future

economic benefits matching the deferred costs.

PROV IS IONS FO R RIS K S A ND CH ARG E S

Provisions for risks and charges are recognised to cover specific liabilities that are certain or probable,

but whose amount or due date is unknown at the reporting date. Specifically, provisions for risks relate

to specific liabilities whose occurrence is probable and amount estimated, while provisions for charges

relate to specific liabilities, whose occurrence is certain and amount or due date estimated, that arise

from obligations already taken on at the reporting date but which will be paid in subsequent years.

Accruals to provisions for risks and charges are first recognised in the profit and loss account section

to which the transaction relates.

The amount of the accruals to the provisions is based on the best estimate of costs, including the legal

expenses, at each reporting date and is not discounted. If the measurement of the accruals gives a

range of values, the accrual represents the best possible estimate between the upper and lower

thresholds of the range.

The provisions are subsequently used directly and solely for those costs and liabilities for which they

were originally set up. If they are not sufficient or are redundant, the shortfall or surplus is recognised

in the profit and loss account in line with the original accrual.

EMP LOYE E S ’ LE AV I NG E NTI T LE ME N T

The Italian employees’ leaving entitlement (TFR) is the benefit to which employees are entitled in any

case of termination of employment pursuant to article 2120 of the Italian Civil Code and considering

the changes in legislation introduced by Law no. 296 of 27 December 2006. The overall accrued

benefit considers any type of continuous remuneration and is net of any payments on account and

partial advances paid by virtue of national or individual labour contracts or company agreements

which are not required to be repaid. The related liability is the amount that the Group would have paid

had all employees left at the reporting date. The amount due to employees who had already left the

Group at the reporting date but that will be paid in the following year is reclassified to payables.

PAYAB LE S

Payables are recognised at their nominal amount and represent liabilities of a certain nature to pay

liquid funds of a fixed or determinable amount to financial backers, suppliers and others.

The Group has not applied the amortised cost criterion as all payables are due within one year and the

difference between their initial amount and at expiry is immaterial.

Trade payables are initially recognised when the significant risks, charges and benefits relating to

ownership have been transferred. Payables relating to services are recognised once the services have

been provided.

Loans and borrowings and payables unrelated to the procurement of goods and services are recognised

when the company has an obligation vis-a-vis the counterparty.

Notes to the consolidated financial statements

74

In the event of early settlement, the difference between the residual outstanding amount and the

overall outlay to settle the obligation is recognised as financial income or charges.

RE V E NU E S AND COS TS

Revenues and income, costs and charges are stated net of returns, allowances, discounts and

premiums, in compliance with the accruals and prudence concepts.

Revenues from the sale of goods or provision of services are recognised when the production process of

goods or services has been completed and the exchange has already taken place i.e., upon the

substantial rather than formal transfer of title.

GRAN TS RE LATE D TO I N COME AND FOR TH E RE N E WAL O F T H E NA TIO NAL LAB OU R C O NTRAC T

They are allocated to the profit and loss account of the year they pertain to and recognised in

accordance with the amount paid pursuant to the relevant disbursement measures.

INCO ME TAX E S

Current income taxes for the year are calculated on the basis of a realistic forecast of the taxable profit

under the relevant tax legislation and applying the enacted tax rates at the reporting date.

The related tax payable is stated at its nominal amount in the balance sheet, net of payments on

account, withholding taxes and tax receivables which may be offset and have been not claimed for

reimbursement. A tax asset is recognised for payments on account, withholdings and receivables

exceeding the taxes payable. Tax assets and liabilities are not recognised at amortised cost as they are

due within one year.

The Group adheres to the domestic tax consolidation scheme for IRES purposes, whereby IRES is

calculated on the algebraic sum of the taxable base of each participating company.

The transactions, responsibilities and mutual obligations between the consolidating company and the

consolidated company are governed by the “Agreement on the joint exercise of the tax consolidation

option by ATM Group companies”. When a positive tax base is transferred, the consolidated company

recognises a payable to the consolidating company equal to the IRES calculated on the consolidated

company’s taxable base. Conversely, when a tax loss is transferred, the consolidating company will

recognise a payable to the consolidated company equal to the amount resulting from the application of

the IRES rate to the transferred tax loss.

IRAP is calculated exclusively for the parent.

DE FE RRE D TAX AS S E TS A ND LIAB I LI TIE S

In accordance with OIC 25, deferred tax assets and liabilities are usually recognised on the temporary

differences between the carrying amounts of assets and liabilities and their tax base. The Group does

not recognise deferred tax assets in these consolidated financial statements as the availability of future

taxable profits is not reasonably certain.

POS T-B A LANCE S H E E T E V E NTS

These events modify conditions existing at the reporting date. They require adjustments to the

carrying amounts of recognised assets and liabilities in accordance with the relevant accounting policy.

Notes to the consolidated financial statements

75

They are recognised on an accruals basis to present their reporting-date effect on the Group’s financial

position and results of operations.

The post-balance sheet events that modify situations existing at the reporting date but do not require

adjustments to the carrying amounts under the relevant accounting policy as they relate to the

subsequent year are not recognised but are disclosed in the notes if necessary to give a more complete

view of the Group’s position.

The date within which an event shall be considered a post-balance sheet event is the date on which the

directors prepare the draft financial statements, unless events that require adjustments to the draft

financial statements take place during the period from such date and the date on which the financial

statements are expected to be approved by the shareholders.

Notes to the consolidated financial statements

76

Workforce

The average workforce rose from 9,563 in 2015 to 9,637 in 2016.

International Metro Service S.r.l. has no employees as it avails of its parent’s personnel.

Changes of the year may be analysed as follows:

2015 Incoming employees

( + )

Outgoing employees

( - )

Other changes

Intragroup transfers

2016

ATM S.p.A. 2,899 38 (86) 2 (20) 2,833

ATM Servizi S.p.A. 6,146 101 (165) (6) 23 6,099

ATM Servizi Diversificati S.r.l.

48 2 (4) - (2) 44

GeSAM S.r.l. 16 1 (1) - - 16

Metro Service A/S 292 29 (24) - - 297

NET S.r.l. 263 11 (6) - (1) 267

Rail Diagnostics S.p.A.

31 1 - - - 32

Total 9,695 183 (286) (4) - 9,588

At 31 December 2016, employees numbered 9,588 compared to 9,695 at 31 December 2015. The net

decrease is mainly the sum of 183 incoming and 286 outgoing employees. Outgoing employee figures

are in line with the past few years and mainly refer to employees who retire or resign voluntarily.

Notes to the consolidated financial statements

77

Notes to the balance sheet captions

B) Fixed assets

Fixed assets, caption B, amount to €1,040,856 thousand, net of grants related to plant and write-

downs.

I. Intangible fixed assets

Changes of the year are shown in the tables included in Annex 1. The balance of this caption at 31

December 2016 is €32,572 thousand.

The caption may be analysed as follows:

- software of €2,401 thousand related to operational management systems, classified under

“concessions, licences, trademarks and similar rights”;

- “assets under development and payments on account” of €6,089 thousand to purchase software

and for works on assets owned by the Milan municipality (tram points, branches and

superstructure);

- “other” of €24,082 thousand related to works on assets owned by the Milan municipality.

Amortisation charged to the profit and loss account is adjusted by the portion of grants received to

finance the investments of the year (€2,632 thousand).

The main changes of the year refer to:

purchases of software;

works on third party assets:

Milan metro line 2 – upgrade of the electricity supply and traction systems;

extension of the CCTV system on the Milan metro lines 1 and 2 and remote control of

alarms.

Grants related to plant may be broken down by financing body as follows:

- €1,354 thousand from the state;

- €1,245 thousand from the Milan municipality;

- €33 thousand from private bodies.

II. Tangible fixed assets

Changes of the year are shown in the tables included in Annex 1. The balance of this caption at 31

December 2016 is €973,160 thousand.

The caption may be analysed as follows:

- “land and buildings” of €230,262 thousand;

- “plant and machinery” of €678,755 thousand;

- “industrial and commercial equipment” of €20,047 thousand;

- “other assets” of €4,254 thousand;

- “assets under construction and payments on account” of €39,842 thousand.

Notes to the consolidated financial statements

78

The main investments of the year related to:

- the purchase of “Leonardo” trains for metro lines 1 and 2;

- the overhaul and replacement of metro bogies;

- the overhaul of tram vehicles and bogies;

- the installation of parking metres;

- extraordinary maintenance work on depots.

Assets under lease were recognised in this caption for consolidation purposes in accordance with IAS

17. They refer to the buildings in via Monte Rosa and those in Binasco held by the parent ATM S.p.A.

and the machinery of the subsidiary Rail Diagnostics S.p.A..

The carrying amount of tangible fixed assets is shown net of the write-downs recognised at 31

December 2016 on the residual value of the metro rolling stock which is expected to exit the

production process earlier than originally forecast following the progressive replacement of trains due

to the additional supply contracts for “Leonardo” trains signed in 2016, and on the residual value of

some buildings which, due to technical reasons, are no longer used in production. The economic

impact of said write-downs totals €33,348 thousand.

Depreciation charged to the profit and loss account is adjusted by the portion of grants received to

finance the investments of the year (€36,633 thousand).

Grants related to plant may be broken down by financing body as follows:

- €9,053 thousand from the state;

- €15,748 thousand from the Lombardy region;

- €731 thousand from the Metropolitan city;

- €10,392 thousand from the Milan municipality;

- €709 thousand from private bodies.

No fixed assets were revalued during this or previous years.

The carrying amount of a non-operating building held for sale (historical cost at 31 December 2016:

€2,004 thousand) was reclassified to current assets. The related accumulated depreciation amounts to

€677 thousand.

Notes to the consolidated financial statements

79

Grants for investments

Grants for investments in tangible and intangible fixed assets may be analysed as follows:

Assets purchased with regional co-financing are subject to restrictions on sale pursuant to Regional

council decree no. 14795/2003 as subsequently amended and supplemented. The time restrictions

provided for under the above decree are as follows:

- city buses: 8 years;

- intercity and suburban buses: 10 years;

- trolley buses: 15 years;

- metro trains and trams: 30 years;

- technologies: 7 years;

- infrastructures: 30 years.

The restrictions on sale applicable to the roadway rolling stock co-financed by the Lombardy region

under the 2009 allocation plan, pursuant to Laws nos. 296/2006 and 133/2008, cover the buses’

entire useful life set at 15 years as per the Regional council decree no. IX/4619 of 28 December 2012,

unless otherwise agreed in the service agreements.

Summary of grants

31.12.2015New

applications

Grants

collectedDecreases

Utilisation

201631.12.2016

Government grants

- Receivables for applications lodged 9,287 14,146 ( 17,389 ) - - 6,045

- Collected and not allocated to assets 3,151 - - - - 3,151

- Collected and allocated to assets 212,715 - 17,389 - ( 10,407 ) 219,696

Regional grants

- Receivables for applications lodged 10,467 7 ( 6,254 ) - - 4,220

- Collected and allocated to assets 167,518 - 6,254 ( 230 ) ( 15,748 ) 157,794

Metropolitan city grants

- Collected and allocated to assets 3,902 - - - ( 731 ) 3,170

Municipal grants

- Receivables for applications lodged 9,702 3,041 ( 5,145 ) - - 7,598

- Collected and allocated to assets 172,523 - 5,145 ( 329 ) ( 11,637 ) 165,702

Private body grants

- Collected and allocated to assets 774 - - - ( 741 ) 33

Total receivables for applications

lodged29,456 17,194 (28,787) - - 17,863

Total grants collected

and not allocated to assets3,151 - - - - 3,151

Total grants collected

and allocated to assets557,431 - 28,787 (559) (39,265) 546,395

Notes to the consolidated financial statements

80

III. Financial fixed assets

“Financial fixed assets” amount to €35,124 thousand and may be analysed as follows:

31.12.2016 31.12.2015 Change

Equity investments

From associates 10,679 10,679 -

Subsidiaries of the parent 3,257 2,408 849

Other 73 25 48

Financial receivables

From associates 18,330 16,865 1,465

From subsidiaries of the parent 1,051 - 1,051

From others 1,734 1,942 (208)

Total 35,124 31,919 3,205

Equity investments

They amount to €14,009 thousand as follows:

31.12.2015 Change 31.12.2016

Subsidiaries and unconsolidated subsidiaries

Mipark S.r.l. (wound up on 14.03.2017) - - -

Associates

Brianza Trasporti S.c.a.r.l. 15 - 15

CO.MO Fun&Bus S.c.a.r.l. 4 - 4

Metro 5 S.p.A. 10,660 - 10,660

Movibus S.r.l - - -

Total associates 10,679 - 10,679

Subsidiaries of the parent

SPV Linea M4 S.p.A. 2,408 849 3,257

Total subsidiaries of the parent 2,408 849 3,257

Other

Consorzio SBE - 48 48

Guidami S.r.l. - - -

Metrofil S.c.a.r.l. - - -

SPM 4 S.c.p.A. in liquidation 25 - 25

Total other 25 48 73

Total 13,112 897 14,009

The increase in “equity investments” is due to SPV Linea M4 S.p.A.’s share capital subscription of

€849 thousand. During the year, pursuant to the provisions of the new OIC 12, “Presentation of

financial statements”, the equity investment in SPV Linea M4 S.p.A. was reclassified from “equity

Notes to the consolidated financial statements

81

investments in other” to “equity investments in subsidiaries of the parent”, also reclassifying the

amount at 31 December 2015.

Following the payment of ATM Group’s portion of the consortium fund of Consorzio SBE, an amount

of €48 thousand was recognised under “other”.

Financial receivables

31.12.2015 Repayments Increases 31.12.2016

From associates

Metro 5 S.p.A. 16,865

1,465 18,330

Receivables due from subsidiaries of the parent

SPV Linea M4 S.p.A.

1,051 1,051

From others

SPM 4 S.c.p.A. in liquidation 210 (108)

102

Coop S.E.D. ATM/ S.C.C.A.T.I. 1,732 (100)

1,632

Total 18,807 (208) 2,516 21,115

This caption includes:

- the subordinated shareholder loan of €18,330 thousand disbursed to Metro 5 S.p.A. (principal

€15,271 thousand and interest €3,059 thousand). As provided for contractually, interest on the

subordinated loan is collected as set out in the budget;

Subsidiaries measured at co st - (€/000 at 31 December 2016)

R egistered o ff iceQuo ta

capitalN et equity

N et

lo ss fo r

the year

investment

%

N et equity

attributable

to the

Gro up

C arrying

amo unt

M ipark S.r.l. (wound up)* M ilan, Via M onte Rosa 89 100 112 ( 2 ) 51.00 57 -

Investees measured at co st - (€/000 at 31 December 2015)

R egistered o ff ice

Share/

quo ta

capital

N et equity

N et pro f it

( lo ss) fo r

the year

investment

%

N et equity

attributable

to the

Gro up

C arrying

amo unt

Brianza Trasporti S.c.a.r.l. M ilan, Via Quintiliano, 18 50 50 - 30.00 15 15

Co.M o. Fun&Bus S.c.a r.l.** Como, Via Asiago 16/18 20 20 - 20.00 4 4

Consorzio SBE M ilan, Piazzale Cadorna, 14 100 100 - 48.00 48 48

Guidami S.r.l. M ilan, Viale Sarca, 336 100 ( 93 ) ( 248 ) 1.00 ( 1 ) -

M etro 5 S.p.A. M ilan, Via Adige 19 53,300 56,694 ( 4,304 ) 20.00 11,339 10,660

M etrofil S.c.a r.l. Rome, Via Genova 23 10 10 - 24.08 2 -

M ovibus S.r.l. M ilan, P.zza Castello 1 780 3,034 1,390 26.18 794 -

SPM 4 S.c.p.A. in liquidation M ilan, Via dei M issaglia 97 360 360 - 7.00 25 25

SPV Line M 4 S.p.A. M ilan, Piazza Castello 3 37,795 102,897 ( 303 ) 2.33 2,401 3,257

(*) wound up on 14 M arch 2017

(**) 2016 financial statements figures

Notes to the consolidated financial statements

82

- the subordinated shareholder loan of €1,051 thousand disbursed to SPV Linea M4 S.p.A. (principal

€995 thousand and interest €56 thousand). As provided for contractually, interest on the

subordinated loan is collected as set out in the budget;

- the loan granted to the investee SPM 4 S.c.p.A. in liquidation for the shareholder loan of €102

thousand. Interest of €268 thousand accrued at 31 December 2016 was written off;

- the loan granted to the SED-ATM and SCCATI building cooperatives for the €1,632 thousand for

social housing projects.

C) Current assets

I. Inventory

This caption at 31 December 2016 may be analysed as follows:

31.12.2016 31.12.2015 Change

Tickets 634 648 (14)

Tickets - Area C 20 22 (2)

Car park tickets 17 40 (23)

Tracks 2,752 3,344 (592)

Personal protective equipment 70 84 (14)

Consumables supply office 40 44 (4)

Heating oil 11 5 6

Diesel fuel 687 657 30

Automotive materials 6,395 6,269 126

Common materials 1,510 1,287 223

Electric/electronic materials 12,293 9,849 2,444

Trolley-bus materials 3,094 2,872 222

Materials for superstructure maintenance 2,486 2,057 429

Metro-tram materials 71,397 65,849 5,548

Consumables not for maintenance 5 5 -

Materials for building maintenance 84 84 -

Metro service materials 3,250 3,028 222

Tyres 420 490 (70)

Sub total 105,165 96,634 8,531

Advances to suppliers 1,723 1,428 295

Buildings held for sale 1,327 2,992 (1,665)

Provision for obsolete inventory (34,113) (30,930) (3,183)

Total inventory 74,102 70,124 3,978

Inventory, gross of “advances to suppliers” and the “provision for obsolete inventory”, rose by €8,531

thousand on the previous year end. The increase is mainly due to the increase in stocks of

electric/electronic and metro-tram materials.

Notes to the consolidated financial statements

83

Following the sale of obsolete goods, the related provision was used for €360 thousand. The provision

was brought into line with the new inventory balance by accruing €3,543 thousand, reflecting slow-

moving goods and the analysis of obsolete materials in inventory to be sold.

31.12.2015 Increases Decreases 31.12.2016

Provision for obsolete inventory 30,930 3,543 (360) 34,113

Total 30,930 3,543 (360) 34,113

“Buildings held for sale” of €1,327 thousand comprise the carrying amount of a non-operating

building whose sale was completed in 2017. The decrease in “advances to suppliers” is due to the

pattern of the delivery plan of wheelsets and bogies that began in 2012.

II. Receivables

At 31 December 2016, they amount to €316,626 thousand and may be analysed as follows:

31.12.2016 31.12.2015 Change

Trade receivables 38,488 40,497 (2,009)

From associates 3,145 4,543 (1,398)

From ultimate parent 122,108 207,748 (85,640)

From subsidiaries of the parent 2,382 3,475 (1,093)

Tax receivables 91,352 74,313 17,039

Deferred tax assets 1,415 1,086 329

From others 57,736 69,215 (11,479)

Total 316,626 400,877 (84,251)

Receivables are mainly due from Italian and EU counterparties and are due within one year, except for

the VAT assets for which reference should be made to the note to “tax assets”.

At 31 December 2016, “trade receivables” amount to €38,488 thousand, net of the specific provision

for bad debts of €13,170 thousand at the reporting date, accrued to cover, specifically, doubtful

receivables and receivables in respect of which legal actions have been taken.

The provision for bad debts changed as follows:

31.12.2015 Utilisation Release 31.12.2016

Provision for bad debts 13,690 (364) (155) 13,170

Total 13,690 (364) (155) 13,170

“Receivables from associates” of €3,145 thousand refer to services provided to associates as per the

agreements in place. They are shown net of the specific provision for bad debts which was adjusted

during the year to take into account the non-recoverability of the receivables, as shown below:

Notes to the consolidated financial statements

84

31.12.2016 31.12.2015 Change

Brianza Trasporti S.c.a.r.l. 123 358 (235)

Co.Mo. Fun&Bus S.c.a.r.l. 298 282 16

Metro 5 S.p.A. 2,722 4,020 (1,298)

Movibus S.r.l. 1,877 2,313 (436)

Total 5,020 6,973 (1,953)

Provision for bad debts (1,875) (2,430) 555

Total receivables from associates 3,145 4,543 (1,398)

“Receivables from ultimate parent” relate to the amounts due from the Milan municipality for invoices

issued or to be issued, including the fee for the local public transport service agreement. Invoices to be

issued include the related retentions, equal to 5% of the annual consideration, which is invoiced on a

deferred basis pursuant to the agreement.

The decrease in the balance is mainly due to one month’s worth of the 2015 service agreement fees

which was collected in January 2016, the residual 2015 amounts due as a result of the Expo-related

services and to the compensation received in relation to the 2010 Seveso floods.

“Receivables due from subsidiaries of the parent” of €2,382 thousand relates to turnover for services

rendered and for the ticket sales.

“Tax receivables” amount to €91,352 thousand at 31 December 2016, as follows:

31.12.2016 31.12.2015 Change

VAT claimed for reimbursement 71,826 43,797 28,029

IRAP from IRES Leg. decree no. 201/2011 762 762 -

Payments on account (IRAP) 1,651 2,746 (1,095)

Withholding taxes to be used for offsetting 1,047 1,958 (911)

Group VAT 5,181 13,538 (8,357)

Consolidated withholdings 6,711 9,830 (3,119)

Excise duty on diesel fuel 4,174 1,682 2,492

Total 91,352 74,313 17,039

The main item making up the balance is the VAT requested for reimbursement totalling €71,826

thousand, comprised of €41,028 thousand due within one year and €30,798 thousand due after one

year, as the receivable originated before joining the Group’s VAT scheme, which the tax authorities

currently suspended as a guarantee for the 2004-2005 IRAP disputes still in progress.

No deferred tax assets were recognised for IRES purposes on deductible temporary differences,

specifically on prior year losses as, pursuant to OIC 25, there is no reasonable certainty that positive

taxable income will be generated in a foreseeable future tax year.

The IRES tax losses incurred prior to opting for the tax consolidation scheme in 2007 amount to

€864,383 thousand, fully deductible, and €132,402 thousand deductible to a limited extent. The

related unrecognised deferred tax assets would amount to approximately €239 million, estimated

using the 24% IRES rate, based on the modification introduced by the 2016 stability law.

Notes to the consolidated financial statements

85

“Receivables from others” of €57,736 thousand may be analysed as follows:

31.12.2016 31.12.2015 Change

From public bodies 56,696 67,850 (11,154)

From employees 207 215 (8)

From others 833 1,150 (317)

Total 57,736 69,215 (11,479)

Receivables “from public bodies” include:

grants for plant, which originate from requests related to subsidised investments, of which

€33,988 thousand for government grants related to the purchase of the metro line 1 trains as

part of the “Accessing Fiera Milano” project; €3,959 thousand related to government grants

for works to increase safety in the metro; €4,220 thousand related to residual regional grants

for rolling stock and signalling equipment;

grants financing the reimbursement of the national labour contract renewal pursuant to Laws

nos. 47/2004, 58/2005 and 296/2006 of €14,529 thousand.

Other receivables refer, in particular, to advances on behalf of INAIL (Italy’s institute for insurance

against accidents at work) to employees who suffered an accident, a receivable due from the Ministry

of Infrastructure for instalments paid for the radio-relay systems and deposits to sundry bodies. They

are recognised net of the specific provision for bad debts of €202 thousand.

III. Current financial assets

“Current financial assets” include government securities, other bonds and units of UCITS

denominated in Euro and to a limited extent, in currencies other than the Euro (USD – TRY – AUD),

for a total of €293,796 thousand.

They may be analysed as follows:

31.12.2016 31.12.2015 Change

Government securities 19,433 13,375 6,058

Other bonds 152,295 72,477 79,818

UCITS 115,068 95,822 19,246

Overnight and time deposits 7,000 36,000 (29,000)

Total 293,796 217,674 76,122

Under the Italian reporting standards, items were measured at the lower of the price as per the

financial statements at 31 December 2015, or the purchase price for transactions carried out in 2016,

and the market value at 31 December 2016. Market value is equal to the average prices recorded in the

last month of the year. Securities whose average market price is higher than the reference one were

written back to their purchase price. Write-backs and write-downs arising from the adjustment of

securities are taken to the profit and loss account caption D) “Adjustments to financial assets” for a net

write-down of €1,094 thousand.

Term deposits which can be monetised with a notice of at least 48 hours were recognised for €7,000

thousand.

Notes to the consolidated financial statements

86

IV. Liquid funds

31.12.2016 31.12.2015 Change

Bank accounts 100,178 161,432 (61,254)

Postal accounts 668 1,886 (1,218)

Cash-in-hand and cash equivalents 1,014 1,023 (9)

Total 101,860 164,341 (62,481)

This caption includes liquid funds with banks and Poste Italiane at the reporting date, petty cash and

cash held by the ticket counter staff and change dispensers of ticketing machines.

All accounts are in Euro, except for one current account expressed in Danish krone held by the

subsidiary Metro Service A/S, equal to €6,528 thousand.

D) Prepayments and accrued income

This caption may be analysed as follows:

31.12.2016 31.12.2015 Change

Accrued income 610 657 (47)

Prepayments 2,206 2,184 22

Total 2,816 2,841 (25)

There are no prepayments or accrued income due after more than five years.

Notes to the consolidated financial statements

87

A) Net equity

31.12.2016 31.12.2015 Change

Share capital 700,000 700,000 -

Legal reserve 140,000 140,000 -

Other reserves, shown separately

- contribution reserve 19,690 19,690 -

- extraordinary reserve 5,764 5,764 -

- translation reserve 6 (2) 8

Retained earnings 58,948 34,427 24,521

Net profit for the year 36,725 23,779 12,946

Net equity attributable to the Group 961,133 923,658 37,475

Share capital and reserves attributable to minority interests

3,286 3,562 (276)

Net profit for the year attributable to minority interests 2,159 2,034 125

Net equity attributable to minority interests 5,445 5,596 (151)

Total net equity 966,578 929,254 37,324

Annexes 2 and 3 include a statement of changes in net equity and a reconciliation between the net

profit for the year and net equity of the parent and the net profit for the year and net equity as per the

consolidated financial statements.

Share capital amounts to €700,000 thousand and consists of 70,000,000 shares of a nominal amount

of €10 each. It is fully subscribed and paid up and did not change during the year. The Milan

municipality is the sole shareholder.

The contribution reserve of €19,690 thousand has been recognised since 2002 following the

transformation into a company limited by shares, following the final calculation of share capital as per

the appraisal issued pursuant to article 2343 of the Italian Civil Code.

Notes to the consolidated financial statements

88

B) Provisions for risks and charges

Caption B)2) “Tax provision, including deferred tax liabilities” includes €771 thousand related to the

deferred taxes arising from consolidation transactions following the application of IAS 17 to finance

leases.

“Other provisions” may be analysed as follows:

31.12.2016 31.12.2015 Change

Provisions for risks:

To cover future losses 1,056 1,070 (14)

For damages, towing away and impounding 268 233 35

IRAP 37,714 37,003 711

Claims settlement 16,375 14,978 1,397

Early retirement, Law no. 11/96 119 119 -

Sundry risks 58,686 57,787 899

Labour disputes 21,350 29,464 (8,114)

Provisions for charges:

Indemnity for war veterans 1,996 2,172 (176)

Extraordinary maintenance 11,956 18,302 (6,346)

Future expenses 21 91 (70)

Total 149,541 161,219 (11,678)

The main items making up the caption balance are:

- the provision “to cover future losses”, of €1,056 thousand, accrued at the time of the contribution

of the Trasporti Pubblici Monzesi S.p.A. business unit to NET S.r.l. in 2009;

- the provision “for damages, towing away and impounding” of €268 thousand, equal to estimated

damages to be paid in the next few years for the damage caused by towing away and on-street

parking services, to the extent of the risk bracket not covered by insurance policies;

- the provision for “IRAP” of €37,714 thousand, already accrued in prior years in respect of a

dispute with the tax authorities about the failure to levy IRAP on employees’ contributions. The

provision was adjusted to reflect the default interest that the parent ATM S.p.A. may be asked to

pay if its application to the tax authorities is not successful;

- the provision for “claims settlement” of €16,375 thousand reflects the estimated compensation to

be paid in the next few years for damage/accidents related to the circulation of regular service

vehicles, to the extent not covered by the insurance policies agreed with the various insurance

companies. Doubtful claims were estimated based on an analysis of the individual dossiers

outstanding at 31 December 2016;

- the provision for “sundry risks” of €58,686 thousand related to the contingent liabilities vis-à-vis

suppliers, customers, third and related parties arising from the Group’s ordinary operations. The

balance is mainly comprised of the updated calculation of the risks on outstanding and contingent

tax disputes and, particularly, on the disputes with the Milan Municipality for parking area waste

levies, local ICI/IMU on commercial premises in metro stations and waste levies for the metro line

5, for which total accruals of €36,236 thousand have been made, including those of previous years;

- the provision for “labour disputes” of €21,350 thousand comprises the amounts accrued over the

years in relation to labour disputes, either potential or underway. During the year, the provision

Notes to the consolidated financial statements

89

was updated on the basis of the expected outcome of ongoing disputes and of those already

concluded;

- the provision for “indemnity for war veterans” of €1,996 thousand was recognised by the parent

ATM S.p.A. and refers to pensions for each two years of war service;

- the provision for “extraordinary maintenance” of €11,956 thousand, which may be analysed as

follows:

€5,500 thousand related to the planned maintenance to be carried out in future years on

metro trains, and works to bring the Group’s structures into line with ruling safety

regulations. The provision was updated to reflect the reviewed maintenance plans and

utilisation for activities undertaken;

€6,456 thousand related to the costs to be incurred by Metro Service A/S for the assets

received upon the launch of the Copenhagen metro to be returned as contractually agreed.

The provision was reviewed to reflect the contractual provisions.

€21,773 thousand was released to caption A5) “Other revenues and income” in relation to the review of

estimates based on new and more complete information not available at the time the original estimates

were made.

The accruals of €14,456 thousand mainly refer to the updating of the existing amounts for 2016 costs.

Changes in the provisions for risks and charges are as follows:

31.12.2015 Increases Utilisation Release 31.12.2016

Provisions for risks:

To cover future losses 1,070 - (14) - 1,056

For damages, towing away and impounding

233 41 (6) - 268

IRAP 37,003 711 - - 37,714

Claims settlement 14,978 2,963 (1,566) - 16,375

Early retirement, Law no. 11/96

119 - - - 119

Sundry risks 57,787 8,397 (1,022) (6,476) 58,686

Labour disputes 29,464 289 (84) (8,319) 21,350

Provisions for charges:

Indemnity for war veterans 2,172 - (176) - 1,996

Extraordinary maintenance 18,302 2,055 (1,457) (6,944) 11,956

Future expenses 91 - (36) (34) 21

Total 161,219 14,456 (4,361) (21,773) 149,541

Notes to the consolidated financial statements

90

C) Employees’ leaving entitlement

This caption is the actual amount due by the Group at 31 December 2016 to its employees in force on

said date. It was calculated for all employees in accordance with current employment regulations and

contracts.

Changes of the year are as follows:

Change

Opening balance 150,580

Accruals of the year 25,082

17% substitute tax as per Leg. decree no. 47/2000 (437)

Other changes 18

Utilisation for departures and advances (9,454)

INPS treasury fund (11,898)

Supplementary pension funds (9,935)

Closing balance 143,956

The accruals of the year were recognised in accordance with article 2120 of the Italian Civil Code.

Specifically, an amount equal to 1/13.5 of remuneration and the revaluation of principal to the extent

required by the law was accrued.

The liability is shown net of the tax advance equal to 17% of the annual revaluation pursuant to Law no. 47/2000.

D) Payables

Payables, net of intragroup balances, are measured at their nominal amount and mainly relate to

Italian and EU counterparties. They may be analysed as follows:

31.12.2016 31.12.2015 Change

Bank loans and borrowings 143,988 150,809 (6,821)

Trade payables 181,980 261,415 (79,435)

Payables to associates 761 675 86

Payables to ultimate parent 79,609 137,061 (57,452)

Payables to subsidiaries of the parent 1,876 1,358 518

Tax payables 13,982 18,891 (4,909)

Social security charges payable 38,548 43,759 (5,211)

Other payables 84,110 97,263 (13,153)

Total 544,854 711,231 (166,377)

Notes to the consolidated financial statements

91

Payables may be broken down by due date as follows:

Due within one year

Due after one year

Due after five years

Total

Bank loans and borrowings 6,360 50,752 86,876 143,988

Trade payables 181,980 - - 181,980

Payables to associates 761 - - 761

Payables to ultimate parent 79,609 - - 79,609

Payables to subsidiaries of the parent 1,876 - - 1,876

Tax payables 13,982 - - 13,982

Social security charges payable 38,548 - - 38,548

Other payables 84,110 - - 84,110

Total 407,226 50,752 86,876 544,854

“Bank loans and borrowings” of €143,988 thousand can be analysed as follows:

€110,000 thousand related to the instalments of the €220,000 thousand loan agreed with the EIB

to finance the new metro trains of lines 1 and 2. Borrowing costs total €1,442 thousand. Under the

loan agreement, ATM is required to comply with financial covenants which it fully met again in

2016;

- €33,988 thousand related to the bank loan agreed with Cassa Depositi e Prestiti to purchase the

metro trains for line 1, for the Accessing Fiera Milano project. The loan, which will expire in 2021,

is entirely secured by the state. Consequently, a receivable of the same amount was recognised

under “receivables from others”.

“Trade payables” of €181,980 thousand include outstanding invoices and invoices to be received

related to the purchase of materials, services and capitalised assets, mainly due to Italian and EU

counterparties. The €79,435 thousand decrease is mainly due to the contractual milestones reached in

relation to the investments for the renewal of the fleet.

“Payables to associates” of €761 thousand at 31 December 2016 may be analysed as follows:

31.12.2016 31.12.2015 Change

Co.Mo. Fun&Bus S.c.a.r.l. 18 35 (17)

Metro 5 S.p.A. 114 85 29

Movibus S.r.l. 629 555 74

Total 761 675 86

At 31 December 2016, “payables to ultimate parent” amount to €79,609 thousand and are entirely

due to the Milan municipality. They may be analysed as follows:

- ticket sales proceeds of €39,152 thousand to be transferred and €1,387 thousand for fees from

management of on-street parking for 2016;

- €38,575 thousand of reserves whose distribution was approved in prior years;

- €1,882 thousand related to the transfer of the amounts collected from Area C management.

Notes to the consolidated financial statements

92

The decrease in the balance is mainly due to the January 2016 transfer of the proceeds from ticket

sales, together with one month’s worth of the 2015 service agreement fees which was collected in the

same month.

“Tax payables” of €13,982 thousand mainly refer to:

- the IRES tax;

- the IRAP tax;

- the tax payable by Metro Service A/S;

- local taxes;

- the deferred VAT liability pursuant to article 6.5 of Presidential decree no. 633/1972;

- taxes withheld as withholding agent to be transferred to the tax authorities.

“Social security charges payable” of €38,548 thousand relate to the amounts due to INPS, Previndai,

INAIL and pension funds of the relevant sector.

“Other payables” of €84,110 thousand may be analysed as follows:

- €50,173 thousand due to employees;

- €21,976 thousand related to untaken holidays and overtime which may be used as paid leave, still

to be used;

- €11,961 thousand related to sundry payables, including the amount due to Fondazione ATM in

relation to the amounts withheld on employees’ remuneration, as the withholding agent, for

contributions and payments for the services provided.

E) Accrued expenses and deferred income

They may be analysed as follows:

31.12.2016 31.12.2015 Change

Grants related to plant 21,014 32,607 (11,593)

Accrued expenses and deferred income 3,342 3,788 (446)

Total 24,356 36,395 (12,039)

Grants are recognised in the year they are applied for as a receivable, with a balancing entry under

deferred income. Once the asset to which they relate becomes operative, grants are recognised as a

decrease in fixed assets to the extent of the collected amount and taken to the profit and loss account,

proportionally decreasing the related depreciation.

This caption comprises:

- €9,196 thousand related to government grants to finance works to increase safety in the metro

and to purchase rolling stock;

- €4,220 thousand related to residual regional grants for rolling stock and signalling equipment;

- €7,598 thousand related to municipal grants for waterproofing works at metro stations and to

implement the on-board signalling system.

Accrued expenses mainly refer to insurance premiums, while deferred income refers to membership

fees and receivables from building cooperatives.

Notes to the consolidated financial statements

93

Notes to profit and loss account captions Reference should be made to the directors’ report for information about the general trend of costs and

revenues pursuant to article 2428.1 of the Italian Civil Code.

Based on the breakdown of positive and negative income components in the profit and loss account

and the previous notes to the balance sheet, the following notes are limited to the main captions

detailed below.

A) Production revenues

2016 2015 Change

Turnover from sales and services 805,746 833,844 (28,098)

Internal work capitalised 17,002 39,360 (22,358)

Other revenues and income 178,343 190,433 (12,090)

Total 1,001,091 1,063,637 (62,546)

“Production revenues” include revenues from the Group’s core business and from management of

ancillary and accessory activities.

“Turnover from sales and services” includes €774,365 thousand for revenues from the local public

transport service and €31,344 thousand for revenues from management of on-street parking and car

parks and the towing away service.

Revenues from the local public transport service may be analysed as follows:

2016 2015 Change

Revenues from the local public transport service, of which:

Fees as per the service agreement with the Milan municipality

669,461 704,431 (34,970)

Fees as per the service agreement - Copenhagen 46,670 42,649 4,021

Fees as per the service agreement - intercity area 19,565 19,919 (354)

Fees as per the service agreement - line 5 22,987 19,014 3,973

Proceeds from tariffs - intercity area 11,665 11,599 66

Special/dedicated transport services 4,017 6,332 (2,315)

Total 774,365 803,944 (29,579)

“Revenues from the LPT” for 2016 (€774,365 thousand) for LPT service/management contracts in

Italy and abroad were down by €29,579 thousand on those of 2015 (-3.7%). This is mainly a result of

the €34,970 thousand decrease in fees from the service agreement with the Milan municipality, due to

the smaller amount of services provided compared to those of 2015, mainly related to Expo. This

decrease was partly offset by the greater management fees for Copenhagen’s metro network (+ €4,021

thousand) and the greater management fees for the M5 metro line (+ €3,973 thousand), due to the

operation of the entire line for the full year.

Revenues from the management of on-street parking and car parks increased as a consequence of new

parking areas, the ongoing monitoring activities in the area, the increase in sales via innovative

Notes to the consolidated financial statements

94

payment channels and parking meters and the full reopening of the San Donato park-and-ride

carpark.

“Internal work capitalised”, of €17,002 thousand, mainly include the extraordinary maintenance

carried out on the metro train and tram fleets.

“Other revenues and income” may be analysed as follows:

2016 2015 Change

National labour contract grants 50,190 50,299 (109)

Sundry grants 848 1,952 (1,104)

Other 127,305 138,182 (10,877)

Total 178,343 190,433 (12,090)

“National labour contract grants”, of €50,190 thousand, refer to the grants of the year disbursed

under Law no. 47 of 27 February 2004 to cover the charges from the renewal of the collective

bargaining agreement for the two year-period 2002/2003, under Law no. 58 of 22 April 2005 to cover

the charges from the renewal of the collective bargaining agreement for the two year-period

2004/2005 and under Law no. 296 of 27 December 2006 (2007 finance act) to cover the charges from

the renewal of the collective bargaining agreement for the two year-period 2006/2007.

“Sundry grants”, of €848 thousand, refer to the grants disbursed for the installation of photovoltaic

systems at the San Donato and Precotto warehouses and for European projects.

“Other” includes revenues from non-core businesses and the change on 2015 is mainly due to the

decrease in services provided for maintenance of assets of the Milan Municipality. They mainly relate

to:

maintenance work on municipal infrastructure, the implementation and management of Area C

payment systems and the system monitoring traffic and the area, unforeseen maintenance on

metro line 5 and services provided to other parties totalling €27,924 thousand;

advertising revenues (€17,923 thousand);

insurance compensation and the repayment of advances for €16,196 thousand;

revenue from the lease of metro commercial premises (€6,519 thousand);

passenger fines (€6,252 thousand);

penalties invoiced to suppliers for contractual breaches (€4,956 thousand);

gains on the sale of the property in Via Ricasoli (€4,300 thousand).

During the year, €36,584 thousand of the accruals made in previous years was released following the

review of estimates based on new and more complete information not available at the time the original

estimates were made, and in relation to the events of the year.

B) Production cost

“Production cost” includes costs related to operations. It may be analysed as follows:

Notes to the consolidated financial statements

95

2016 2015 Change

Raw materials, consumables, supplies and goods 81,778 89,841 (8,063)

Services 219,206 234,697 (15,491)

Use of third party assets 6,078 5,832 246

Personnel expenses 498,161 510,778 (12,617)

Amortisation, depreciation and write-downs 130,007 142,717 (12,710)

Change in raw materials, consumables, supplies and goods

(5,336) (8,568) 3,232

Provision for risks 12,401 43,575 (31,174)

Other provisions 2,057 2,488 (431)

Other operating costs 18,391 14,293 4,098

Total 962,743 1,035,653 (72,910)

“Raw materials, consumables, supplies and goods” of €81,778 thousand refer to the purchase of

materials used in vehicle and plant maintenance, diesel fuel and travel and on-street parking

documents.

The €8,063 thousand decrease on the previous year is largely a result of the fall in oil prices and lower

purchase of metro and tram materials.

“Services” of €219,206 thousand may be analysed as follows:

2016 2015 Change

Insurance 8,224 9,652 (1,428)

Electric traction power 46,652 47,933 (1,281)

Maintenance, cleaning and security 88,455 95,203 (6,748)

Professional services 3,468 3,863 (395)

Production and distribution of travel tickets 12,258 12,807 (549)

Services for employees 9,893 12,370 (2,477)

Customer services, advertising and marketing 6,288 6,552 (264)

Subcontracting 24,935 24,529 406

Sundry and administrative services 1,209 1,340 (131)

Utilities 17,824 20,448 (2,624)

Total 219,206 234,697 (15,491)

Notes to the consolidated financial statements

96

The most significant changes relate to:

maintenance, cleaning and security, down by €6,748 thousand on the previous year, mainly as a

result of the decrease in outsourcing, as well as the rescheduling of the fleet maintenance carried

out by the group companies following the roll out of new vehicles;

utilities decreased by €2,624 thousand, mainly in respect of electricity, gas and district heating;

services for employees decreased by €2,477 thousand. The decrease is due to the decrease in

clothing costs for personnel as new uniforms were distributed to employees during Expo.

“Use of third party assets” may be analysed as follows:

2016 2015 Change

Rentals 3,096 3,373 (277)

- Plant and equipment 1,333 1,236 97

- Vehicles 1,763 2,137 (374)

Leases and instalments 2,982 2,459 523

- Leases 606 447 159

- Instalments 2,376 2,012 364

Total 6,078 5,832 246

“Personnel expenses” of €498,161 thousand include remuneration and social security contribution

costs, accruals required by the law and bargaining agreements as well as costs related to untaken

accrued holidays and paid leave:

2016 2015 Change

Wages and salaries 364,401 371,737 (7,336)

Social security contributions 99,061 105,258 (6,197)

Employees’ leaving entitlement 25,083 24,388 695

Pension and similar costs 4,223 3,980 243

Other costs 5,393 5,415 (22)

Total 498,161 510,778 (12,617)

The €12,617 thousand decrease is the net effect of the higher costs related to the increase in the

average workforce and those related to the renewal of the national labour contract, and to the absence

of the large charges related to the management of the Expo period.

“Amortisation, depreciation and write-downs” amount to €130,007 thousand, adjusted to reflect the

portion of the year (€39,265 thousand) related to the grants for investments. Write-downs of fixed

assets amount to €33,348 thousand and refer to the residual value of the metro rolling stock which is

expected to exit the production process early following the progressive replacement of trains for lines 1

and 2 following the supply contracts for additional “Leonardo” trains signed in 2016, and the residual

value of some buildings which, due to technical reasons, are no longer used in production.

Notes to the consolidated financial statements

97

2016 2015 Change

Amortisation of intangible fixed assets 22,814 23,265 (451)

- Concessions, licences, trademarks and similar rights 1,211 1,324 (113)

- Goodwill 472 472 -

- Other 23,763 24,101 (338)

- Grants related to plant - current portion (2,632) (2,632) -

Depreciation of tangible fixed assets 72,634 77,544 (4,910)

- Land and buildings 5,724 5,790 (66)

- Plant and machinery 96,735 101,148 (4,413)

- Industrial and commercial equipment 3,596 3,614 (18)

- Other assets 3,212 3,457 (245)

- Grants related to plant - current portion (36,633) (36,465) (168)

Other write-downs of fixed assets 33,348 41,273 (7,925)

Total 128,796 142,082 (13,286)

“Provisions for risks” of €12,401 thousand mainly refer to the updating of the existing provision for

claims settlement and other provisions in relation to ongoing or potential disputes of 2016.

“Other provisions” of €2,057 thousand include the expected costs for the assets received upon the

launch of the Copenhagen metro to be returned as contractually agreed.

“Other operating costs” of €18,391 thousand mainly refer to sundry and local taxes. They also include

prior year expenses related to the review of some assets leading to their reclassification under

inventory, as well as the reclassification of previous capitalised maintenance activities. They may be

analysed as follows:

2016 2015 Change

Prior year and inexistent costs 10,445 7,916 2,529

- Losses and inexistent costs 4 4,006 (4,002)

- Prior year costs 10,441 3,910 6,531

Penalties and fines 387 155 232

Sundry taxes 6,431 5,038 1,393

- Municipal taxes 5,120 4,167 953

- Sundry taxes 1,311 871 440

Other costs 1,128 1,184 (56)

Total 18,391 14,293 4,098

C) Financial income and charges

“Net financial income” amounts to €4,901 thousand in 2016 and may be analysed as follows:

Notes to the consolidated financial statements

98

Financial income 2016 2015 Change

From financial receivables classified as fixed assets 1,127 1,028 99

From securities classified as current assets which are not equity investments

5,366 10,363 (4,997)

Other income 489 873 (384)

Total 6,982 12,264 (5,282)

Financial charges 2016 2015 Change

Other (2,129) (2,053) (76)

Total (2,129) (2,053) (76)

Net exchange rate gains (losses) 48 (53) 101

Net financial income 4,901 10,158 (5,257)

Financial income from “financial receivables classified as fixed assets” amounts to €1,127 thousand

and refers to interest accrued on the loans granted to Metro 5 S.p.A. and SPM 4 S.c.p.A. in liquidation

and the implicit interest accrued on the loans to the building cooperatives SED-ATM and SCCATI.

Income from “securities classified as current assets which are not equity investments” refers to

interest on government securities and bonds (€1,813 thousand) and to gains on the sale of securities

(€3,553 thousand).

“Other income” of €489 thousand refers to interest on bank deposits, term and other deposits,

including, inter alia, default interest and discounts to suppliers.

Interest and financial charges mainly comprise “interest expense” on bank loans and borrowings

recognised under payables for €1,482 thousand and “losses on securities” of €434 thousand due to the

difference between the sale price of securities and their carrying amount at 31 December 2015 or, for

those purchased during the year, at the acquisition date.

D) Adjustments to financial assets

“Adjustments to financial assets” of €1,094 thousand includes write-downs of securities/UCITS units

recognised under current assets (€1,577 thousand), net of write-backs of €483 thousand.

In accordance with applicable reporting standards, items were measured at the lower of the price as

per the financial statements at 31 December 2015, or the purchase price for transactions carried out in

2016, and market value. Market value is equal to the average prices recorded in the last month of the

year. Securities whose average market price is greater than the reference one were written back to their

purchase price.

Securities/UCITS units expressed in a currency other than the Euro were translated at the closing rate.

Notes to the consolidated financial statements

99

Income taxes

2016 2015 Change

Current taxes:

- IRES (1,351) (15,527) 14,176

- IRAP (1,964) (4,184) 2,220

- Taxes relative to prior years 515 - 515

- Foreign taxes (1,536) (1,400) (136)

Change in deferred tax assets 320 (22) 342

Change in deferred tax liabilities 51 136 (85)

Net benefit from the tax consolidation scheme 694 11,984 (11,290)

Total income taxes (3,271) (9,013) 5,742

The Group companies opted to join the tax consolidation scheme. Consequently, the Group’s taxable

profit is the algebraic sum of the taxable profit of each participating company, less the tax losses

carried forward, up to 80%.

“Benefit from participation in the tax consolidation scheme” refers to the transfer of the IRES tax of

each participating company to the consolidating company, up to 80%.

The difference between the income and expense arising from the tax consolidation scheme of €11.3

million arises from the change in taxable income produced in the two years, mainly by the subsidiary

ATM Servizi S.p.A..

Comparing 2016 with the previous year shows that operating profit dropped by €9.6 million, which

affected the tax base, together with the amount of the provisions accrued in the financial statements in

2015 with an increase in the tax base for that year.

Notes to the consolidated financial statements

100

Relationships with directors and statutory auditors

As required by the law, the fees paid to directors and statutory auditors are given below.

2016 2015 Change

Fees to directors 130 130 -

Fees to statutory auditors 274 278 (4)

Total 404 408 (4)

The fees due to the independent auditor engaged to perform the legally-required audit of the 2016

financial statements total €200 thousand. €96 thousand was also recognised for the audit of the

financial statements of Metro Service A/S.

Off-balance sheet commitments, guarantees and contingent liabilities

pursuant to article 2427.1.9 of the Italian Civil Code

At 31 December 2016, they amount to €5,216,239 thousand and may be analysed as follows:

31.12.2016 31.12.2015 Change

1) Third party assets 4,848,084 4,843,223 4,861

2) Guarantees, of which: 368,155 338,106 30,049

- To third parties 91,620 74,614 17,006

- From third parties 238,456 225,612 12,844

- To associates 38,079 37,880 199

Total 5,216,239 5,181,329 34,910

This caption shows the Group’s guarantees and commitments, third party assets with the Group and

group assets with third parties. It does not include items that have already been recognised in the

balance sheet or profit and loss account, such as group assets with third parties.

Guarantees are included at their value or, if this has not been calculated, using the best estimate of the

risk taken on given the situation at that time. Commitments are recognised at their nominal amount,

while unquantifiable commitments are commented on in the notes to the financial statements. Third

party assets with the Group are presented at their nominal amount, market value or the value obtained

from the existing documentation, depending on the type of asset.

The amounts recognised for commitments and guarantees in the notes to the consolidated financial

statements are reviewed at each reporting date. The €4,848,084 thousand related to “third party

assets” mainly comprises:

€4,709,585 thousand, being the value of the assets of the Milan municipality to operate the local

public transport service and €131,368, being the value of on-street parking and car parks (as per

the Service agreements);

€5,619 thousand related to the materials owned by Metro 5 S.p.A. and received for maintenance

work under warranty;

€1,302 thousand, being the value of the assets used to operate the people mover service that links

the Cascina Gobba station on line 2 of the metro to San Raffaele hospital.

Notes to the consolidated financial statements

101

Guarantees “to third parties” of €91,620 thousand refer to sureties and commitments given in favour

of third parties.

Guarantees “from third parties” of €238,456 thousand refer to sureties or guarantee deposits issued

by third parties in favour of the Group. They amounted to €225,612 thousand at 31 December 2015.

Guarantees “given to associates” of €38,079 thousand may be analysed as follows:

a total of €11,495 thousand related to the pledge on 106,600 shares of Metro 5 S.p.A. and 8,352

shares of SPV Linea M4 S.p.A. in favour of a bank syndicate that granted financing for the

construction and management project for the new metro lines 5 and 4;

€26,584 thousand related to co-obligations and guarantees given in favour of the associate Metro

5 S.p.A. and SPV Linea M4 S.p.A..

Financial instruments (fair value)- Article 2427 bis of the Italian Civil Code

There are no derivatives at 31 December 2016.

Dividend-right shares, convertible bonds, securities or similar issued by group

companies - Article 2427.18 of the Italian Civil Code

The group companies have not issued securities of this type.

Other financial instruments issued by group companies - Article 2427.19 of the Italian

Civil Code

The group companies have not issued any of the financial instruments referred to in articles 2346.6

and 2349.2 of the Italian Civil Code.

Share/quotaholder loans - Article 2427.19 bis of the Italian Civil Code

The group companies have not received any type of loans from their share/quotaholders.

Assets earmarked for a specific transaction - Article 2427.20 of the Italian Civil Code

The group companies have not availed of the option to earmark assets for a specific transaction

pursuant to article 2447 bis and following articles of the Italian Civil Code.

Loans earmarked for a specific transaction - Article 2427.21 of the Italian Civil Code

The group companies have not availed of the option to agree loans for a specific transaction pursuant

to article 2447 bis and following articles of the Italian Civil Code.

Finance leases - Article 2427.22 of the Italian Civil Code

The group companies do not have any finance lease contracts.

Post-balance sheet events - Article 2427.22-quater of the Italian Civil Code

There were no post-balance sheet events that modify conditions existing at the reporting date and

which would require adjustments to the carrying amounts of recognised assets and liabilities at the

reporting date. Reference should be made to the relevant paragraph of the directors’ report for

Notes to the consolidated financial statements

102

information on post-balance sheet events that did not have an impact on the Group’s financial

position, results of operations and cash flows.

Number and nominal value of own shares and shares of the ultimate parent held,

including indirectly, and purchased and/or sold during the year - Article 2428.3/4 of the

Italian Civil Code

Nothing to report.

Receivables and payables related to transactions with a repurchase agreement - Article

2427.6 ter of the Italian Civil Code

The group companies do not have any forward contracts.

Loans to the parent from shareholders, grouped by due date and stating any

subordination clauses

There are no payables related to loans received from shareholders.

Milan, 21 March 2017

On behalf of the board of directors

chairman

Bruno Rota

(signed on the original)

Notes to the consolidated financial statements

103

Annexes

104

2. ANNEXES

Annexes

Annexes

105

Annex 1 a) Changes in fixed assets

His

tori

ca

l co

st

Accu

m.

am

ort

./d

ep

rec.

Gra

nts

fo

r

inv

estm

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rite

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s

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rry

ing

am

ou

nt

Inv

estm

en

ts

an

d

acq

uis

itio

ns

Tra

nsfe

rs t

o

fin

ish

ed

pla

nt

Sa

les/

Dis

po

sa

ls/

Re

cla

ssif

ica

tio

ns

Am

ort

./d

ep

r.S

ale

s/

Dis

po

sa

ls/

Re

cla

ssif

ica

tio

ns

I.

Inta

ng

ible

fix

ed

asse

ts1

70

,88

9(

10

7,1

10

)(

12

,80

5 )

-

50

,97

44

,39

62

77

( 5

,06

8 )

( 2

5,4

46

)4

,80

7

1)

Sta

rt-u

p a

nd c

apital co

sts

43

( 43 )

-

-

-

-

-

-

-

-

2)

Rese

arc

h,

develo

pm

ent

and

advert

isin

g c

ost

s-

-

-

-

-

-

-

-

-

-

3)

Indust

rial pate

nts

and

inte

llect

ual pro

pert

y r

ights

-

-

-

-

-

-

-

-

-

-

4)

Conce

ssio

ns,

lic

ence

s, t

radem

ark

s

and s

imila

r ri

ghts

7,9

03

( 5,3

21 )

-

-

2,5

82

-

1,0

34

(

1,3

67 )

( 1,2

11 )

1,3

63

5)

Goodw

ill a

risi

ng o

n c

onso

lidation

5,9

68

( 5,4

96 )

-

-

472

-

-

-

(

472 )

-

6)

Ass

ets

under

develo

pm

ent

and

paym

ents

on a

ccount

3,7

64

-

-

-

3,7

64

4,0

20

(

1,6

95 )

-

-

-

7)

Oth

er

153,2

11

( 96,2

50 )

( 12,8

05 )

-

44,1

56

376

938

( 3,7

01 )

( 23,7

63 )

3,4

44

II.

Ta

ng

ible

fix

ed

asse

ts3

,11

5,2

52

( 1

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2,8

95

)(

54

4,6

26

)(

46

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5 )

1,0

50

,74

67

2,3

96

( 2

77

)(

36

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2 )

( 1

11

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5 )

19

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2

1)

Land a

nd b

uild

ings

350,5

46

( 88,9

38 )

( 19,5

80 )

( 2,9

38 )

239,0

90

-

-

(

2,0

04 )

( 5,7

27 )

677

2)

Pla

nt

and m

ach

inery

2,5

63,5

57

(

1,3

06,0

10 )

( 520,4

66 )

( 42,0

87 )

694,9

94

-

114,5

43

(

33,0

06 )

( 98,9

52 )

17,9

87

3)

Indust

rial and c

om

merc

ial equip

ment

73,2

68

(

50,9

46 )

-

( 460 )

21,8

62

-

2,1

78

(

970 )

( 3,5

94 )

971

4)

Oth

er

ass

ets

39,4

57

(

27,0

01 )

( 4,5

80 )

-

7,8

76

-

1,9

80

(

342 )

( 3,2

12 )

337

5)

Ass

ets

under

const

ruct

ion a

nd

paym

ents

on a

ccount

88,4

24

-

-

( 1,5

00 )

86,9

24

72,3

96

( 118,9

78 )

-

-

-

To

tal

3,2

86

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1(

1,5

80

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5 )

( 5

57

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1 )

( 4

6,9

85

)1

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1,7

20

76

,79

2-

(

41

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0 )

( 1

36

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9

His

tori

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st

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r

Annexes

106

Annex 1 b) Changes in fixed assets

Annexes

107

Annex 2 a) Changes in net equity

NET EQUITYBalance at

31.12.2014Reclassification Increases

Allocation of

the net

profit for the

year

Dividend

distribution

Net profit

for the

year

Balance at

31.12.2015

Net equity attributable to the Group 900,110 ( 219 ) ( 12 ) - - 23,779 923,658

I - Share capital 700,000 700,000

IV - Legal reserve 140,000 140,000 B

VI - Other reserves, shown separately 25,464 ( 12 ) 25,452

- contribution reserve 19,690 19,690 A, B, C

- extraordinary reserve 5,764 5,764 A, B, C

- translation reserve 10 ( 12 ) ( 2 ) B

VIII - Retained earnings 31,578 ( 219 ) 3,068 34,427 A, B, C

IX - Net profit for the year 3,068 ( 3,068 ) 23,779 23,779

Net equity attributable to minority interests 6,567 ( 65 ) - - ( 2,940 ) 2,034 5,596

A2.I - Minority interests in share capital and reserves 4,001 ( 65 ) - 2,566 ( 2,940 ) - 3,562 A, B, C

A2.II - Profit for the year attributable to minority interests 2,566 ( 2,566 ) 2,034 2,034

Total net equity 906,677 ( 284 ) ( 12 ) - ( 2,940 ) 25,813 929,254

(*) A = share capital increase B = to cover losses C = dividends

NET EQUITYBalance at

31.12.2015Reclassification Increases

Allocation of

the net

profit for the

year

Dividend

distribution

Net profit

for the

year

Balance at

31.12.2016

Net equity attributable to the Group 923,658 742 8 - - 36,725 961,133

I - Share capital 700,000 700,000

IV - Legal reserve 140,000 140,000 B

VI - Other reserves, shown separately 25,452 8 25,460

- contribution reserve 19,690 19,690 A, B, C

- extraordinary reserve 5,764 5,764 A, B, C

- translation reserve ( 2 ) 8 6 B

VIII - Retained earnings 34,427 742 23,779 58,948 A, B, C

IX - Net profit for the year 23,779 ( 23,779 ) 36,725 36,725

Net equity attributable to minority interests 5,596 ( 742 ) - - ( 1,568 ) 2,159 5,445

A2.I - Minority interests in share capital and reserves 3,562 ( 742 ) - 2,034 ( 1,568 ) - 3,286 A, B, C

A2.II - Profit for the year attributable to minority interests 2,034 ( 2,034 ) 2,159 2,159

Total net equity 929,254 - 8 - ( 1,568 ) 38,884 966,578

(*) A = share capital increase B = to cover losses C = dividends

Annexes

108

Annex 2 b) Net equity

NET EQUITY Amount Possibility of

use

Available

portion

Distributable

portion

Net equity attributable to the Group 961,133 961,133 84,402

I - Share capital 700,000 700,000

IV - Legal reserve 140,000 B 140,000

VI - Other reserves, shown separately

- contribution reserve 19,690 A,B,C 19,690 19,690

- extraordinary reserve 5,764 A,B,C 5,764 5,764

- translation reserve 6 B 6

VIII - Retained earnings 58,948 A,B,C 58,948 58,948

IX - Net profit for the year 36,725 36,725

Net equity attributable to minority interests 5,445 4,873 2,714

A2.I - Minority interests in share capital and reserves 3,286

- Share capital 572 -

- Share premium reserve 229 A,B,C 229 229

- Retained earnings 2,485 A,B,C 2,485 2,485

A2.II - Profit for the year attributable to minority interests 2,159 2,159

Total net equity 966,578 966,006 87,116

A = share capital increase B = to cover losses C = dividends

Annexes

109

Annex 3 Reconciliation between the parent’s and consolidated net equity

Net profit for

2016

Share capital and

reserves at

31.12.2016

ATM S.p.A 19,770 907,572

Write-downs:

NET S.r.l. 2013 44

NET S.r.l. 2012 753

NET S.r.l. 2011 1,311

NET S.r.l. 2010 3,275

NET S.r.l. 2009 3,098

NET S.r.l. 2008 521

Allocation of Rail Diagnostics S.p.A.'s goodwill ( 471 ) -

Elimination of the write-down of Rail Diagnostics S.p.A.'s goodwill 2,481

Write-down of consolidated fixed assets ( 534 ) ( 2,174 )

Contributions from consolidated companies

ATM Servizi S.p.A. 17,713 39,845

ATM Servizi Diversificati S.r.l. ( 60 ) 421

GeSAM S.r.l. 74 356

International Metro Service S.r.l. 99 19,144

Elimination of International Metro Service S.r.l.'s dividend ( 1,632 ) ( 14,200 )

Metro Service A/S 4,158 23,262

Elimination of Metro Service A/S's dividend ( 268 ) ( 13,596 )

Adjustment of amortisation/depreciation rates 146 525

Adjustment to income from investments 41

NET S.r.l. 399 2,981

Rail Diagnostics S.p.A. 62 10,280

Adjustments to leased assets as per IAS 17 ( 567 ) 12,340

Other adjustments ( 5 ) ( 9 )

Elimination of investments

Elimination of the investment in ATM Servizi S.p.A. ( 1,756 )

Elimination of the investment in ATM Servizi Diversificati S.r.l. ( 100 )

Elimination of the investment in GeSAM S.r.l. ( 20 )

Elimination of the investment in International Metro Service S.r.l. ( 357 )

Elimination of the investment in Metro Service A/S ( 4,261 )

Elimination of the investment in NET S.r.l. ( 6,500 )

Elimination of Capitale NET S.r.l.'s 2010 quota capital increase ( 3,132 )

Elimination of the acquisition of NET's minority interests ( 86 )

Elimination of the investment in Rail Diagnostics S.p.A. ( 11,481 )

Elimination of Capitale Rail Diagnostics S.p.A.'s 2014 share capital increase ( 4,000 )

CAPITAL/RESERVES AND NET PROFIT FOR THE YEAR AS PER

THE CONSOLIDATED FINANCIAL STATEMENTS 38,884 966,578

of which:

attributable to the Group 36,725 961,133

attributable to minority interests 2,159 5,445

Annexes

110

Annex 4 Amortisation and depreciation rates

RATE

%

B I Intangible fixed assets

4 Concessions, licences, trademarks and similar rights

- Software 20

7 Other

- Leasehold improvements from 10 to 50

- Long-term charges 20

B II TANGIBLE FIXED ASSETS

1 Land and buildings 2

2 Plant and machinery

- Lineside equipment

- Refuelling facilities 31.42

- Control rooms 5.75

- Line systems and technologies 10

- Power substations 5.75

- Self tracking 5.75

- Workshop fixed installations 5

- Strategic spare parts for electrical installation 5.75

- Magnetic and electronic ticketing system 10-20-6.67

- Building systems 5.75

- Signalling systems 4

- Line rolling stock

- Metro engines 3.33

- Metro carriages 3.33

- Strategic spare parts for metro drawing vehicles 3.33

- Trams 3.33

- Strategic spare parts for trams 3.33

- Buses 8.33

- Strategic spare parts for buses 8.33

- Special buses 8.33

- Hydrogen powered buses 15

- Electric buses 25

- Trolleybuses 7.50

- Strategic spare parts for trolleybuses 7.50

- Discontinued vehicles 100

3 Industrial and commercial equipment

- Trucks 20

- Scaffolding 20

- Service engines 10

- Transport carriages 7.5

- Trailers 10

- Sundry equipment 10

- Ticket stamping and validating machines 12

- Phone networks/Badges 20

- Circulation equipment/collection and parking metres 20-10

- Vehicles for sundry services 20

4) Other assets

- Furniture and fittings 12

- Office equipment 20

- Hardware 20

- Air conditioning systems 20

- Domestic appliances 20

- Phone equipment 20

- Audio/video systems 20

- Bike sharing scheme 12-20

Annexes

111

Annex 5 Related party transactions

Receivables Trade Grants 31.12.2016

- From ultimate parent

Milan municipality 114,510 7,598 122,108

- From associates

Brianza Trasporti S.c.a.r.l. 123 123

Co.Mo. Fun&Bus S.c.a.r.l. 298 298

Metro 5 S.p.A. 2,722 2,722

Movibus S.r.l. 1,877 1,877

- From subsidiaries of the parent

A2A S.p.A. 71 71

Agenzia Mobilità Ambiente e Territorio S.r.l. 4 4

Fondazione Milano - Scuole Civiche 9 9

Fondazione Piccolo Teatro di Milano 98 98

Fondazione Teatro alla Scala 35 35

Metropolitana Milanese S.p.A. 2,130 2,130

SEA S.p.A. 7 7

SPV Linea M4 S.p.A. 85 85

Payables Trade Financial* 31.12.2016

- To ultimate parent

Milan municipality 41,034 38,575 79,609

- To associates

Co.Mo. Fun&Bus S.c.a.r.l. 18 18

Metro 5 S.p.A. 114 114

Movibus S.r.l. 629 629

- To subsidiaries of the ultimate parent

A2A S.p.A. 560 560

Agenzia Mobilità Ambiente e Territorio S.r.l. 30 30

Fondazione Piccolo Teatro di Milano 98 98

Metropolitana Milanese S.p.A. 1,142 1,142

SPV Linea M4 S.p.A. 46 46

* Reserves whose distribution was approved in prior years

Annexes

112

TRANSACTIONS

Revenues as

per the

service

agreement

Other

revenues and

income

Services

Use of

third party

assets

Other

operating

costs

Net financial

income

(expense)

- With parent

Milan municipality 669,461 21,365 17 1,387 603

- With associates

Co.Mo. Fun&Bus S.c.a.r.l. 590 196 3

Metro 5 S.p.A. 25,615 235 1,039

Movibus S.r.l. 525 263 20

- With subsidiaries of the parent

A2A S.p.A. 1,241

Fondazione Teatro alla Scala 2

Metropolitana Milanese S.p.A. 38 1,656 (64)

SPV Linea M4 S.p.A. 141 56

Annexes

113

Annexes

114

(Translation from the Italian original which remains the definitive version)

Azienda T rasporti Mi anesi Group Consolidated financial statements as at and for the year ended 31 December 2016

(with independent auditors' report thereon)

KPMG S.p.A.

29 March 2017

KPMG S.p.A. Revisione e organizzazione cantabile Via Vittor Pisani, 25 20124 MILANO Ml Telefono +39 02 6763.1 Email it-fmauditaly@kpmg.it PEC kpmgspa@pec.kpmg.it

(Translation from the Italian original which remains the definitive version)

Independent auditors' report pursuant to article 14 of Legislative decree no. 39 of 27 January 2010

To the sole shareholder of Azienda Trasporti Milanesi S.p.A.

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of the Azienda Trasporti Milanesi Group (the "group"), which comprise the balance sheet as at 31 December 2016, the profit and loss account and cash flow statement for the year then ended and notes thereto.

Directors' responsibility for the consolidated financial statements

The parent's directors are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with the Italian regulations governing their preparation.

Independent auditors' responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing (ISA Italia) promulgated pursuant to article 11 of Legislative decree no. 39/10. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and

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Azienda Trasporti Milanesi Group Independent auditors' report 31December2016

the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the group's financial position as at 31 December 2016 and of its financial performance and cash flows for the year then ended in accordance with the Italian regulations governing their preparation.

Report on other legal and regulatory requirements

Opinion on the consistency of the directors' report with the consolidated financial statements

We have performed the procedures required by Standard on Auditing (SA Italia) 7208 in order to express an opinion, as required by the law, on the consistency of the directors' report, which is the responsibility of the parent's directors, with the consolidated financial statements. In our opinion, the directors' report is consistent with the consolidated financial statements of the Azienda Trasporti Milanesi Group as at and for the year ended 31 December 2016.

Milan, 29 March 2017

KPMG S.p.A.

(signed on the original)

Claudio Mariani Director of Audit

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