italferr s.p.a. annual report at 31 december 2014...italferr: annual report 2014 2 financial...

Italferr S.p.A.

Italferr: Annual report 2014 1

Italferr S.p.A.

ANNUAL REPORT AT 31 DECEMBER 2014

Italferr S.p.A.


FINANCIAL STATEMENTS 2014

Italferr S.p.A.

A single-member company subject to the management and coordination of Ferrovie dello Stato Italiane S.p.A.

Share Capital: 14,186,000.00 Euros

Registered Office: Via Vito Giuseppe Galati 71, 00155 Rome

Tax Code and company registration no.: 06770620588

REA: 541241

VAT No: 01612901007

Web: www.italferr.it

Italferr S.p.A.


CORPORATE MISSION STATEMENT

Italferr is the engineering Company of Gruppo Ferrovie dello Stato Italiane.

Built in 1984, the Company is assigned with the task of design, undertaking calls to tender, management and

supervision of works and project management of all the large infrastructural investments of the Group.

In addition, Italferr is committed to disseminating its engineering know-how through the promotion and

marketing of its own services in markets other than the market in which the Group is represented, both

abroad and in Italy.

Italferr operates all over the country and overseas in the sector of traditional railway transport, high speed

railways and underground railways. Its activity also extends to the other transport systems and to all

complementary engineering sectors.

The Company moreover, is intensely engaged in the design and realisation of works compatible with the

protection of the environment. From this viewpoint, it has established an integrated Management System for

Quality, the Environment, Health and Safety, obtaining the related certifications; this places Italferr among the

small number of companies able to provide Clients with high level services in accordance with international

standards and requirements.

Italferr, lastly, is one of the first companies in Italy to have achieved accreditation as an Inspection

Organisation for the validation of projects, in conformity with standard ISO /IEC 17020.

Italferr S.p.A.


CORPORATE BODIES AND INDEPENDENT AUDITORS

Board of Directors:

Chairman Francesco ROSSI

Managing Director Matteo Maria TRIGLIA

Directors Francesco CASTANÒ

Elisabetta SCOSCERIA

Paolo Emilio SIGNORINI

Board of statutory Auditors:

Chairwoman Ines RUSSO

Statutory Auditors Giuseppe FARNETI

Lelio FORNABAIO

Substitute Auditors Guglielmo MARENGO

Sergio GEMMA

Independent auditors:

KPMG S.p.A.

Italferr S.p.A.


CONTENTS

Letter from the Chairman 8

Management report 9

Main results achieved in 2014 10

Main events for the year 11

Human resources 15

Environmental policy 18

Clients 20

Macro-economic overview 22

Trend in the reference markets 26

Economic performance and equity-related - financial situation 30

Risk factors 35

Investments 35

Economic performance of subsidiaries 36

Own shares 36

OTHER INFORMATION: 37

Secondary branches 37

Investigations and judicial proceedings in progress 37

Legislative Decree 231/2001 38

Disclosure required by article 2497 sub-section three 38

Significant events after the end of the financial year 39

Foreseeable evolution of management 39

Proposal for destination of the net profit for the period 40

Financial Statements

Statement of financial position 42

Income Statement 43

Statement of Comprehensive Income 43

Changes in equity statement 44

Statement of Cash Flow 45

Italferr S.p.A.


Explanatory notes to the statutory financial statements 46

1: Preamble 46

2: Company 46

3: Basis of preparation 46

4: Applied accounting standard 47

5: Management of financial and operational risks 60

6: Property, plant and equipment 69

7: Intangible assets

70

8 Deferred tax assets and liabilities

71

9: Equity investments

71

10: Current and non-current Financial assets (including derivatives)

73

11: Other current and non-current assets

73

12: Construction contracts

74

13: Current trade receivables

75

14: Cash and cash equivalents

76

15: Tax assets 76

16: Equity

77

17: Post-employment benefits and other employee benefits

78

18: Risks and charges provision

81

19: Non-current and current financial liabilities (including derivatives)

82

20: Other non-current and current liabilities

82

21: Current trade payables 83

22: Turnover from sales and services 84

23: Other income 85

24: Personnel costs 85

25: Raw materials, consumables supplies and goods 86

26: Costs for services 86

27: Use of third part assets

87

28: Other operating costs 88

29: Cost for internal work 89

Italferr S.p.A.


30: Amortisation and depreciation 89

31: Impairment losses/reversals of impairment losses 90

32: Net Financial expense 90

33: Income taxes current and deferred 92

34: Audit fees 93

35: Directors’ and statutory Auditors’ fees 93

36: Management and coordination 94

37: Related Parties 95

38: Guarantees and commitments 98

39: Events after the reporting date

98

Italferr S.p.A.


LETTER FROM THE CHAIRMAN

Dear Shareholder,

The Company ended the year of its thirtieth anniversary having achieved important results: the growth and

consolidation of its presence abroad and, in Italy, its success crowned by being awarded the contract for Expo

2015.

Its consolidation in foreign markets allowed Italferr to compensate for the downturn in the captive market:

the latter, in fact, has continued to suffer from the effects of the reduction in public investment stemming

from the austerity measures in the Eurozone and only reversed the trend in the last quarter thanks to the

Decree ‘Sblocca Italia’ and the Stability Law 2015 which set aside huge resources for the development of

railway infrastructure.

It was precisely the reduction in investments in the captive market, already reflected in the Business Plan

2014 – 2017, that led the Company to launch a series of initiatives aimed at filling order books abroad: a new

commercial organisation focussing on three areas of geographical interest, a customer loyalty initiative vis-à-

vis established customers, implemented by demonstrating the Company’s own professionalism and reliability,

the creation of alliances with major operators in the sector and the extension of the services offered to the

fields of Design & Build, consultancy and Project Management.

The growth in non-captive production, in 2014, shows that the actions taken are already producing excellent

results.

With its expansion abroad and the intensification of its commercial activities, Italferr has seen its own

operating costs increase but the profitability of the orders already placed and the positive evolution of the

exchange rates of the currencies in which the amounts due for the main contracts already placed are

denominated have allowed the Company to maintain its financial results in line with expectations.

The time required, often extensive, to get foreign subsidiaries up and running and the persistence of

considerable slowdowns at most Italian construction sites have continued to give rise to delays in invoicing

work already completed. This influenced the net capital invested by the company which, in any case, had

fallen by the end of the year with respect to the previous year and the Budget, above all through the invoicing

and collection during the year of large orders placed in the autumn and the elimination of circumstances that

had prevented invoicing for certain services already provided to the related company Rete Ferroviaria Italiana

(RFI). The measures taken by Italferr to collect past due invoices generated cash flow enabling its net

financial position to return to positive figures at the end of the financial year.

With its operations this year, the Company has shown that it is capable of meeting the objectives of

internationalisation, growth and maintenance of the income and financial targets that it had set itself in the

Business Plan and that, accordingly, it is well placed to meet the challenges, ever more demanding, made by

a market undergoing continual change affected as it is by political instability and the global economy.

Italferr S.p.A.


Management report

Italferr S.p.A.


MAIN RESULTS ACHIEVED IN 2014

2014 closed positively for Italferr, not only because its financial results (EBITDA and profit for the year)

confirmed the Budget projections but because the Company managed to reduce its own invested capital and,

consequently, to bring its financial position back into the black.

Moreover, the year just ended, in fact, was the first one in which the efforts made and which continue to be

made by the Company to consolidate its position in external markets, above all the international market, have

borne fruit, not only in terms of production, but also in terms of margins: in fact, one quarter of production in

2014 was in relation to the non-captive market with average profit margins of 25%.

The main performance indicators are reproduced below in order to provide further tools for the analysis of the

Company’s economic and financial evolution above and beyond those deriving from the financial statements.

For the sake of completeness, the indicators, determined by referring to the results for 2014, have been

compared with those from the previous year.

2014 2013

ROE RN/MP* 8.8% 7.1%

ROI RO/CI* 17.5% 16.0%

ROS (EBIT MARGIN) RO/RIC 7.0% 7.8%

Level of financial indebtedness DF/MP n.v. 83.7%

DSO (CRED*/RIC)X360 137.8 109.0

Average profitability of contracts-group 22% 25%

Average profitability of contracts- market 25% 20%

Internal hours per (no. hours/000) 1,641 1,644

Productivity per employee (hours) 1,717 1,705

KEY

CI*: Average net invested capital (between the start and the end of the financial year)

DF: Financial debts

MP : Average own funds (between the start and end of the year)

MP*: Average own funds (between the start and end of the year) net of the profitt/loss for the year

RIC: Operating revenue

RN: Profit/(loss) for the year

RO: Operating profit/(loss) Cred*: Average trade receivables (between the start and the end of the year), gross of the allowance or impairment provision

Italferr S.p.A.


MAIN EVENTS FOR THE YEAR

January

• On 14 January, in Addis Ababa, Italferr and the Ethiopian railways (Ethiopian Railway Corporation) signed

an agreement for consultancy services, maintenance and operation for the new railway line joining the

city of Addis Ababa with the port of Djibouti and for the new light railway in the Ethiopian capital. The

contract, worth 1.2 million Euros, was awarded to a group made up of Italferr, as the head of the group,

and RFI, Technital and Metropolitana Milanese.

• Railway completed during the year, between 19 and 20 January, approximately nine kilometres of new

track between the stations of Fiumetorto and Lascari, on the Palermo – Messina line.

The work represents an important stage in the construction of the double track between Fiumetorto and

Ogliastrillo.

February

• The contract entrusting Italferr with the preliminary design of the new railway network in the Sultanate of

Oman which will extend to approx. 2,244 km was signed on 5 February in Muscat at Omani Ministry of

Transport and Communications.

The assignment, worth around 26 million Euros, will last 25 months and is regarded as the most

important project undertaken in Oman both due to its impact on the Country and the strategic relevance

attributed to it.

• The contract for the completion of the preliminary planning for the ‘MEP’ (Mechanical, Electrical &

Planning) plants between the Joint Venture, of which Italferr is a partner, and the Consortium ISG

(Impregilo SK Galfar) for the Doha Metro has been signed. The contract comes on top of the contracts for

civil engineering work already secured in Qatar in 2013.

• On 14 February Italferr delivered the work to the Contractor for the civil engineering project for the

doubling of the track Lunghezza-Guidonia worth over 46 million Euros.

The work, extending to a total of 9.8 km, also envisages the completion of two significant items of work:

the new stop at Bagni di Tivoli and the new station Guidonia Collefiorito.

March

• Awarded, by the Brazilian company Triunfo, the contract for technical assistance for the stretch of railway

Acailandia – Barcarena.

April

• On 7 April, the Shareholders’ Meeting of Italferr approved the 2013 Financial Statements 2013 and

resolved to pay out dividends totalling 3,610 thousand Euros and to allocate the remaining portion of the

profit for the year (7 thousand Euros) to the extraordinary reserve.

Italferr S.p.A.


At the same session, the Shareholders’ Meeting also renewed the Board of Statutory Auditors, which

expired upon approval of the 2012 Financial Statements, confirming the chairmanship of Ines Russo and

appointing Giuseppe Farneti and Lelio Fornabaio as the acting auditors.

Guglielmo Marengo and Sergio Gemma were also confirmed in their posts as alternate auditors.

The new Board of Statutory Auditors will remain in office for three financial years, until approval of the

2016 financial statements.

May

• On 12 May, Italferr, the leader of a consortium with the Turkish company Altinok, secured the contract

worth 5.3 million dollars for the supervision of the work and review of the project for the Eurasia Tunnel

in Turkey.

The tunnel, 15 km long, of which 3.4 km at a depth of 35 metres below sea level, will cross the

Bosphorus Strait parallel to the Marmaray railway tunnel and will join the European shore of the city of

Istanbul with the Asian shore enabling travel between the two continents in around 15 minutes.

• On 28 May, at its Rome office, Italferr received the delegation from Oman headed by the Ministry of

Transport and Communications, together with the Director of the railway project in the Sultanate.

The visit by the delegation highlights the importance of the projects awarded to Italferr in Oman and has

enabled the promotion of commercial relations between Oman and other companies in the FS Group.

June

• A training programme at the Company’s registered office directed at nine young new engineers from the

King Saud University in Riyadh was held between 11 June and the end of the month.

The training initiative, aimed at introducing some of the most recent and significant Italian achievements

in the field of railway engineering to foreign audiences, is part of the series of training courses designed

and implemented by Italferr in response to requests by international clients eager to acquire technical

skills and know-how.

July

• On 13 July, within the context of the projects relating to the ‘Institutional Development Contracts (CIS)’,

new technological systems were inaugurated on the Naples – Bari – Lecce – Taranto main line. In

particular, the Command and Control System (SCC) at Bari Lamasinata which will manage seven

peripheral locations. In addition, the new Train Spacing System with an Axis-Counting Blocking System

(BCA) was put into service designed to detect the position of trains on stretches of track, thus

contributing to the safe movement of trains.

• On 16 July, Italferr was assigned the task by the Swiss Federal Railways of providing support and design

services in the field of electrical traction and in relation to the environmental impact of Chiasso Station. It

is an important assignment, which will enable the company to operate in an elitist market, currently

awash with excitement in anticipation of the imminent opening of the Gotthard Tunnel, a project that will

require the enhancement and modernisation of railway lines and stations.

Italferr S.p.A.


• On 29 July, Italferr concluded its first contract on behalf of and for the account of Trenitalia with Vianini

Lavori. The contract regards the executive design and implementation of the new Trenitalia Running

Maintenance Plant (IMC) located at Torino Smistamento and which will be used for the maintenance of

high-speed trains and regional transport.

August

• The single underground track between the stations of Isola delle Femmine and Capaci extending to 4 km,

of which 2 km in a tunnel, was inaugurated on 4 August.

• Following the agreement signed on 6 August between FS Italiane and the Sole Commissioner for Expo

Milan 2015, Italferr was awarded the contract by the company Expo 2015 for the overall supervision and

coordination of the works management departments for the completion of the infrastructure for Expo

2015.

Under the terms of the assignment, of international importance and extremely complex because of its

problematic context characterised by the high-profile legal disputes on the tenders for the work at the

site and the inviolable deadline for delivery to the exhibitors, Italferr has the task of providing support to

the Commissioning Body and Sole Manager of the Procedure chosen by Expo, from a technical, legal and

administrative point of view, in order to ensure that the work is completed on time and in compliance

with statutory provisions.

In the same month, August, the Expo construction sites were visited by the Prime Minister Matteo Renzi

to whom the Managing Director of Italferr showed the company’s organisation in the field.

• Contract awarded by the Joint Venture Impregilo – Nesma for the execution of the prebidding project for

the Mecca underground, of which Italferr is the main designer.

September

• On 16 September work began on the new Multistation Command and Control System (SCC-M) for the

Rome hub.

The work, set to last around three years, is part of the programme for the modernisation of the

infrastructure of the Rome hub; since it involves the main railway hub in Italy, the work is particularly

complex.

Its completion will guarantee an improvement in the management of the systems involved and will

enable the frequency of metropolitan and regional trains to be increased.

October

• Italferr held its thirtieth anniversary on 24 October. To celebrate the event, the Company organised a

series of initiatives culminating in a ceremony held at the Vittoriano Complex in Rome attended by

national and international guests and by the top managers of FS Italiane.

Major achievements by the Company were recalled during the ceremony.

Italferr S.p.A.


November

• The new Command and Control System (SCC), which enables trains travelling between the stations of

Bitetto and Taranto on the Bari – Taranto line to be monitored and managed from the Control Centre at

Bari Lamasinata, began operating on 30 November.

The new section of track between the stations of Modena and Rubiera on the conventional track Bologna

– Piacenza was put into service on the same day.

The new section, measuring some 9 km, of which 2 km inside an artificial tunnel, was constructed further

north than the actual line and will enable the opening of the new Marzaglia freight terminal, set to take

place during 2015, and its direct connection with the Modena – Verona railway line.

Finally, the double track section on the Pontremolese line between Solignano and Osteriazza, on the

Parma – La Spezia line, was also inaugurated on 30 November.

The new section measures some 12 km, of which 7 have been laid alongside the existing line and almost

five kilometres on an alternative route, on a new track bed running for the most part through a tunnel.

December

• On 8 December, the New ‘Cattolica’ Tunnel was inaugurated for use by trains on the Bologna – Lecce line

in the section between the stations of Cattolica and Pesaro.

The tunnel was designed by Italferr, also responsible for supervising the work, and is strategic for the

development of the Adriatic railway since it will also enable the transit of container trains.

• On 10 December, work began on the double track section between Cefalù, Ogliastrillo and Castelbuono

on the Palermo – Messina line.

The work will involve the construction of a new section of track, measuring around 13 km, along a

completely different route with respect to the existing line. The project also envisages the construction of

a new station at Cefalù, underground, and will enhance the rail link with the international airport Falcone-

Borsellino.

• The Kiss & Ride facility at the Bologna high-speed station, a new infrastructure seven metres deep

allowing travellers to reach trains comfortably by car, was inaugurated on 22 December.

The Kiss & Ride facility is fitted with an equipment complex, geared to the innovative and advanced high-

speed station in Bologna, featuring systems aimed at ensuring the comfort and safety of passengers.

Italferr S.p.A.


HUMAN RESOURCES

Composition and evolution of consistency

The Company has continued with the process of rationalising its staff structure in 2014, adapting it to the new

reference scenarios.

At the end of the year, the permanent staff decreased by 11 units and recourse to flexible forms of work

decreased by 5 units, following the dynamics represented hereunder.

Units 31.12.2013 Incomin

gs Outgoin

gs

Promotions Total Chang

es 31.12.2014 Incomin

gs Outgoi

ngs

Managers 65 1 (4) (3) 62

Executives 640 1 (21) 13 (7) 633

Employees 445 32 (20) (13) (1) 444

Total permanent staff 1,150 34 (45) 13 (13) (11) 1,139

Seconded at other Organisations (3) (1) (1) (4)

Seconded from other Organisations and interns 4 (4) (4) 0

Temporary workers 64 14 (12) 2 66

Contract workers 13 (2) (2) 11

TOTAL 1,228 47 (63) 13 (13) (16) 1,212

The flexible component of the staff structure (Temporary workers and Contract workers

) has continued to represent the main area of open-ended recruitments, giving priority in the selection criteria

not only to the possession of technical competencies, but mainly of managerial competencies and knowledge

of foreign languages, essential in the international market.

The objective of Change Management, in support of the process of internationalisation underway, was a

major topic during the year through various projects and initiatives, such as a plan for international selection,

internal job rotation, specific projects for developing skills and targeted communications events in Italy and

abroad. This is the context in which the plan for the professional certification PMP-PMI of Project Managers

should be seen, through which the company wants to consolidate and certify the technical-managerial skills of

its own project managers in accorde with to international standards.

Particular emphasis was then placed on systematic – railway skills, strategic for the development of the

business, through the levers of selection, training, development and organisation.

Organisation

2014 was characterised by a ‘growth’ in the organisational structure dedicated to the development of the non-

captive market due, on the one hand, to the increase in orders placed abroad and, on the other hand, in line

with the Business Plan 2014-2017 which envisages more emphasis on commercial activities.

Against this backdrop, Areas responsible, on a territorial level, for both the development of the business and

the management of the contracts awarded were created. The coverage of almost the entire global market by

these Areas and the experience garnered by them, even during the commercial phase, has led to the

elimination of the former centralised structures.

Italferr S.p.A.


The Operations Department, towards the end of 2014, also saw a reorganisation of its activities regarding the

project portfolios assigned to its territorial structures and the project teams responsible for managing them.

The criteria that led to this reorganisation are related to an analysis of the workloads, the territorial factor and

the technical and regulatory characteristics of the projects.

Internal communication

All types of communication methods were used during 2014 to promote the company’s projects for

internationalisation such as the organisation of a training programme for 10 Omani engineers, the updating of

the company’s website and the production of promotional videos and brochures.

The materials were also used when receiving foreign delegations visiting the Company.

A celebratory event was organised by the Company at the Vittoriano Complex in Rome to celebrate Italferr’s

thirtieth anniversary to which enterprises, partner companies, customers and representatives from the

institutional, academic and diplomatic worlds and from home and abroad were invited. A celebratory

photographic book on 30 years of activities was prepared in collaboration with supervisory Holding structures

and an institutional video was shown on the evening of the event.

Within the context of its participation in promotional events, Italferr was present at the ‘ExpoTunnel 2014’ and

‘Ecomondo’ trade fairs.

Numerous awareness-raising activities were organised in relation to the subject of solidarity through the

collection of funds organised in collaboration with the main medical research and voluntary associations.

Training

Over the year training activities have been realised which have involved about 500 corporate resources, for a

total of approximately 6,700 training hours, mainly addressed to technical and foreign languages training.

The Company has also invested in the training of managers through individual coaching for employees within

the context of developing human resources.

With regard to financed training, plans were drafted and a procedure was put in place for implementing

training plans capable of being financed through interprofessional funds.

In addition, some training plans for international customers were drawn up and are being implemented. In

particular:

• a training course for 10 engineers with a classroom stage and project work which ended in June was

designed for the Omani Ministry of Transport and Communications (MOCT) and on-the-job training

lasting 18 months got underway at the branch in Oman;

• further specialised technical training programmes were initiated on behalf of ANESRIF in Algeria;

• a Study Tour through Italy, Switzerland, France and Germany was organised for middle management at

the Ethiopian railway company ‘Ethiopian Railways Corporation’ to demonstrate the excellence of railway

engineering and intermodal transportation in Europe;

Italferr S.p.A.


• a new design for the training initiative set to take place as part of the Landbridge contract was drafted on

behalf of Saudi Railways Company (SAR).

Finally, during the year, Italferr organised two training courses for RFI, each of which ran to five versions, on

technical subject matter related to the management and coordination of work.

Industrial relations

During 2014 participation by employees in employee absenteeism initiatives due to strikes was in line with the

previous year’s figure and on average, therefore, was insignificant.

The National Trade Unions were shown the actions taken and which must be taken and the evolution of these

actions last year, above all those related to foreign projects.

Safety Legislative Decree 81/2008

The periodic activities of the Prevention and Protection Service have continued during the year, concerning

the management of medical visits, supply of Personal Protective Equipment (PPE) and training which is

mandatory for persons involved in the protection of health and safety in the work place.

The year’s training activities were directed at employees in charge of safety (site engineers and construction

supervisors) with nine courses in Rome and on the ground, for a total of approx. 100 persons.

Four sessions of the course on the Management of Automatic Track Warning Systems (ATWS) with teachers

from RFI were held for employees working at the construction sites and involved in operations.

The Safety Database continued to be used and its implementation based on the requests by the Prevention

and Protection Service (SPP) was initiated.

In relation to safety abroad, criteria were laid down governing periodic medical visits in view of the specific

activities carried out abroad (e.g. inspections in desert areas).

In addition, in Oman and Saudi Arabia, the audits on some service providers continued in order to ascertain

the correct application and efficiency of the Occupational Health and Safety Management System

(OHSAS:18001).

Italferr S.p.A.


ENVIRONMENTAL POLICY

Italferr, in compliance with the environmental policy defined by the Parent, has continued to be involved in

the development of concrete actions aimed at guaranteeing higher energy efficiency in corporate activities, a

constantly more rational use of resources used and the elimination of improper consumptions of energy and

raw materials.

In addition, the Company laid down strategic objectives based on the development of ecologically sustainable

designs that respect the environment and on the consideration of each of its components.

In pursuing these objectives, Italferr increased its commitment to the ongoing development of environmental

analyses right from the initial design phases so as to encourage the availability of alternative designs that also

take into account the environmental factor and anticipate any issues right from the initial phases of the design

‘concept’.

The actions taken concerned the following issues:

• Environmental management system: in June 2014, Italferr was certified as complying with the

standard for environmental management UNI EN ISO 14001 following an audit conducted by the

certification body ICIM - KIWA.

In addition, the company’s Integrated Management System was reviewed to enable the transposition of

the Guidelines from the Model for the Environmental Management System of the FS Group.

• Evaluation of the Ecological Footprint of the projects: the application of the ‘carbon footprint’

method to various railway infrastructure projects was re-examined and revealed that the main

contribution to the emission of CO2 during the completion of works is attributable to the production of the

main construction materials used (cement and steel). To this end, Italferr laid down the contractual

specifications that will apply to the most important tender contracts in order to ensure that contractors

make a specific commitment to reducing emissions of greenhouse gases.

• Reduction in the consumption of electricity and paper: in order to reduce consumption at its own

plants, Italferr has implemented certain plans amongst which the most important are the Energy Saving

plan at data centres which envisages remotely shutting down data centres and workplaces and Zero

Paper aimed at reducing paper reproductions of project documentation, envisaging smaller formats for

the monitoring phases and the gradual transfer of paper files to digital files.

• Training initiatives and environmental information: Italferr has encouraged information exchanges

on environmental topics involving internal and external personnel such as representatives of the Ministry

for the Environment and the Protection of Land and Sea and from universities, enterprises, engineering

companies, superintendencies and professional associations.

• Environmental monitoring: the criteria and formalities that are due to be adopted within the context

of the Environmental Monitoring Plan (PMA) including those required for compliance with Legislative

Decree no. 163/2006 were laid down. The PMA stipulates the objectives, requirements and

methodological criteria for monitoring before work is carried out (AO), during the work (CO) and following

completion (PO) while taking into account the territorial and environmental circumstances in which the

work takes place and the potential impacts caused thereby both in positive and in negative terms. In

particular, five PMAs were drafted in 2014 for the same number of railway projects.

Italferr S.p.A.


• Environmental database: 2014 also witnessed the strengthening of SIGMAP (Environmental

Geographic Monitoring Information System and Projects), a company tool enabling more efficient

management of the environmental data gathered in the course of the various monitoring activities carried

out on projects. The System, apart from the recent sections ‘Reclamations’ and ‘Design’, was enriched

with the additions requested by the Florence Environmental Observatory. The new interactive section

dedicated to the Valico dei Giovi railway line currently under construction was also incorporated into the

homepage of Osservatori Ambientali (Environmental Observatories).

• Archaeology: Italferr conducts preventative archaeological studies and investigations during the

planning phase with a view to identifying and resolving archaeological issues before work commences. In

particular, it carried out 18 archaeological studies during 2014 in order to secure the opinion of the

regional archaeological departments with responsibility for such matters as well as planning and

executing other archaeological investigations/excavations. With regard to the contracts currently being

executed where the archaeological investigations were carried out by the General Contractor or by the

Contractor, Italferr has continued to guarantee its unswerving support to the Works Management/Overall

Supervision departments, carrying out periodic checks on the progress of the operations, identifying the

best solutions for managing the excavations and managing relations with the Superintendencies.

• Environmental planning: This type of planning was implemented with the aid of an analysis carried

out in collaboration with the competent regional Entities in order to identify any significant environmental

aspects, natural existing constraints and aspects of historic interest in order to guarantee the protection,

to monitor and ensure the optimal use of the territory during the construction work and the operation of

the line. In addition, environmental surveys and prospective studies were carried out aimed both at

identifying potentially contaminated sites and at defining the quality of the materials due for management

as waste in order to furnish an estimate in economic terms of the disposal activities.

The environmental plans, following Ministerial Decree no. 161/2012, were accompanied by the usage

Plan for the management of excavated materials.

• Environmental Impact Studies: numerous environmental studies were carried out during 2014, the

most significant of which concerned the doubling of the section of track Giampilieri – Fiumefreddo, the

environmental prefeasibility of the Fabriano power transmission line, the environmental impact of the

preliminary design for the Brenner Base Tunnel, for the Verona railway hub and for the link from Genoa

Airport to the ‘Gate’ railway.

CUSTOMERS

Italferr S.p.A.


CLIENTS

Captive market

During 2014, the parent y has undertaken assignments for a total of 91.14 million Euros. Approximately 85%

of such assignments were acquired by RFI.

The following table shows a summary of the amounts for orders completed in 2014, separated by customer

and type of service.

(Amounts in millions of Euros)

Customer

Type of Service

Total Consultancy Design

Works Management

RFI 19.01 27.55 31.27 77.83

Trenitalia 0.16 0.83 12.26 13.25

Ferservizi 0.01 0.01

Grandi Stazioni 0.01 0.01

Sistemi Urbani 0.04 0.04

Total 19.23 28.38 43.53 91.14

At the end of the year, the contract negotiations for assignments totalling approx. 126.63 million Euros had

got underway; the contract documentation for 84% of these orders has already been sent to customers and

their confirmation is awaited.

The assignments, which should be finalised during 2015, are divided up in terms of customer and type of

service.

(Amounts in millions of Euros)

Customer

Type of Service

Total Consultancy Design

Works Management

RFI 22.96 63.04 38.60 124.60

Ferservizi 0.15 1.88 2.03

TOTAL 23.11 63.04 40.48 126.63

Non-captive market

2014 was a positive year in terms of Italferr’s activities in the Group’s external market: the Company, in fact,

was able to benefit from the ongoing growth, in most parts of the world, of the global market for engineering

services in the railway sector.

Italferr S.p.A.


The concentration of populations in large urban areas, above all in developing countries, has given rise and

continues to give rise to a large demand for infrastructure, above all in the metropolitan transport sector.

Mexico City, Istanbul, Cairo are just some of the cities where the explosion in population growth has

generated the need for large and complex metropolitan rail networks.

As far as the railway transportation market is concerned, Italferr’s activities were mainly concentrated in the

Gulf States which, with the exception of Kuwait, behind with respect to the other countries in the Gulf

Cooperation Council (GCC), are providing a major impetus for the investment plans in the railway sector.

In this respect, the plans for the Omani railway network, initiated by Italferr at the beginning of the year, are

proceeding rapidly and should conclude by the end of 2015.

The situation in the United Arab Emirates, although there has been a pause in the process of railway

investments, currently seems to favour Italferr which, once the awaited resumption of the process of

awarding contracts for work becomes a reality, could receive assignments directly from Etihad or through

construction consortia.

In Saudi Arabia, where Italferr secured an important contact for the preliminary and final design of the

Jeddah-Riyadh railway line (Landbridge) in 2013, the Saudi railways which commissioned the work have

questioned the planned route and asked Italferr to study the possibility of an important variant linking Jeddah

with Al Jubail, on the Arab Gulf: the variant could significantly increase the costs under the current contract.

Negotiations are ongoing in this respect.

In Qatar, the Government is proceeding with its plans to construct the metro rail network with investments

totalling tens of billions of dollars. Against this backdrop, Italferr has sharply increased its activities vis-à-vis

the consortium led by Salini Impregilo, securing a new contract for the design of the technical plant and

systems at the underground stations which will total around 20 million Euros once the project is completed.

Apart from the Middle East, the Turkish market has continued to be of great interest for Italferr since it still

offers numerous opportunities, both in the railway sector and in the metropolitan and road building sectors

and, in fact, during the year, Italferr secured the contract for the supervision of the construction work for the

motorway tunnel under the Bosphorus.

The probable end of the embargo means that Iran has once again become one of the main markets both in

the railway sector and in the sector of metropolitan transport. In 2014, Italferr resumed its commercial

activities in the Country, which immediately showed a strong interest in the Company.

During 2014, the company also decisively engaged in commercial activities in Africa and North America,

markets with certain potential, even though with very different characteristics.

In particular, some African countries such as Ethiopia, Kenya, Tanzania, Mozambique and South Africa are in

the process of acquiring significant railway infrastructures.

Italferr, after securing the contract for technical assistance in Ethiopia, has laid the basis for its future

expansion in East Africa while consolidating its presence in North Africa following the contract awarded for the

detailed design of a motorway, in Algeria, and the agreement reached for the work supervision contract for

the stretch of line Behna – Zagaziz in Egypt.

Italferr S.p.A.


Italferr’s efforts at penetrating the non-captive market in 2014 have resulted in the submission of 64 offers

and the award of 16 new contracts worth a total of 38.9 million Euros, to which should be added the contract

for the supervision of the works for EXPO 2015 worth 7.5 million Euros, approximately.

The value of the portfolio of offers went up from 188 million Euros at 31 December 2013 to 215 million Euros

at the end of 2014.

MACRO-ECONOMIC OVERVIEW

The global macroeconomic picture in 2014, overall, was characterised by a slow and irregular evolution: the

acceleration in some countries compensated the slowdown in others, limiting the reduction in the rate of

general growth.

Following a gradual deceleration during the initial months of the year, global economic activity slowly picked

in part due to the positive evolution of the US economy, already on its way to recovery.

The emerging economies, however, remain weak and their rate of growth experienced a further drop with

respect to the levels attained in the last few years, although they still continue to contribute significantly to

the global economy. According to the latest projections by Prometeia (January 2015), global GDP grew at a

rate of 3.1%, unchanged with respect to the previous year and below expectations.

Amongst the advanced economies, GDP in the US in 2014, following the contraction during the first part of

the year due in large measure to the wave of bad weather, started growing again benefitting from the

accommodative monetary policy, an increase in consumption and productive investments and an

unemployment rate in sharp decline. The average rate of growth for the year (+2.5%) shows that the US

economy expanded at a greater rate than the beginning of the crisis.

In Japan, the economic growth rate of 0.2%, although positive, was below expectations. Following the

encouraging performance in the first few months of 2014, when the forecast increase in indirect taxes led to a

jump in demand, the economic cycle slowed down in the second half of the year due to a fall in investments,

only partially compensated by a modest recovery in consumption.

In the Emerging Economies, the pace of economic growth slowed down slightly with a mixed picture in

different zones. The fall in prices of raw materials and high inflation were an obstacle to the development of

Latin American Countries, in particular Brazil.

Against a backdrop of a deteriorating geopolitical situation, the application of the consequent sanctions and

counter-sanctions contributed to a weakening of the Russian economy, with important repercussions for the

countries in the Eurozone.

In the emerging Asian economies, growth was mainly sustained by internal demand and by the reformist

policies of certain governments, for example in India.

In China, gross domestic product grew by 7.4%, one tenth of a percentage point below the objectives laid

down by the government authorities committed, amongst other things, to carving out a path of sustainable

and balanced growth, implemented by means of certain structural reforms based on increasing public

investments (high-speed railways, motorways, metro systems) and internal consumption rather than

traditional exports.

Italferr S.p.A.


Global economic data 2013 2014

(% changes on previous year)

GDP

World 3.1 3.1

Advanced countries 1.3 1.7

USA 2.2 2.5

Japan 1.6 0.2

Euro Area -0.4 0.8

Emerging countries 4.7 4.4

China 7.7 7.4

India 4.7 5.8

Latin America 2.5 0.6

Oil (Brent $ per barrel) 108.6 99.4

World Trade 2.7 2.4

Source of data: Prometeia Forecast Report January 2015

The growth in international trade, notwithstanding the recovery of the global economic cycle in the second

half of the year, was weak (+2.4%) and was less than the growth in GDP.

As far as the price of crude oil is concerned, following a long period of high prices, the fall in its price in the

second half of 2014 was quicker and more clear-cut as opposed to other raw materials. The factors leading to

this abrupt fall included, on the one hand, the continuing increase in the supply of crude oil from Arab

countries coinciding with the increase of over 50% in the production of crude oil in the United States and, on

the other hand, a fall in demand as a result of disappointing growth in Japan and the Eurozone and the

economic slowdown in China.

Growth in the Eurozone was extremely moderate, discontinuous and with marked differences between the

various countries due to the weakness of internal demand, in particular investments, the low inflation rate and

a high unemployment rate.

In order to counter this evolution and, above all, the risks of a deflationary spiral, the Central European Bank

took a series of extraordinary measures during the year aimed at encouraging the input of credit into the real

economy so as to stimulate a recovery in investments, consumption and exports.

Italferr S.p.A.


Euro area economic data 2013 2014

(% changes on previous year)

GDP

Euro Area -0.4 0.8

Germany 0.2 1.4

France 0.4 0.4

Italy -1.9 -0.4

Spain -1.3 1.4

Inflation

Euro Area 1.3 0.4

Germany 1.6 0.8

France 1 0.6

Italy 1.2 0.22

Spain 1.5 -0.2

Internal Demand

Euro Area -0.9 0,8

Germany 0.8 1.6

France 0.3 0.5

Italy -2.9 -0.9

Spain -2.7 2.2


Based on the latest cyclical results, growth in GDP in the Eurozone averaged 0.8% over the year, but with

unequal contributions from the different Member States: the downturn in the large economies (France and

Italy) was in contrast to a positive evolution in the peripheral countries including Spain.

Growth in Germany experienced a variation in GDP of 1.4%, two tenths of a percentage point higher than the

government’s estimates. Even though it was affected to a greater extent than expected by the Russia –

Ukraine crisis, the German economy was able to benefit from a strong increase in internal demand and the

favourable evolution of exports. Following the initial dynamic performance in the first few months of the year

(0.8% in the 1st quarter) and an ensuing period of weakness during the summer months (-0.1% in the 2nd

quarter), growth stabilised positively in the second half of 2014 (+0.1% in the 3rd and 4th quarters).

Whereas a modest recovery is underway in the Eurozone, in Italy economic activity remains stagnant, albeit

with timid signs of growth towards the end of the year mainly due to the sharp fall in the price of crude oil

(which is gradually being passed on to production costs and, ultimately, to the final prices of energy

products), the depreciation in the euro (with its hoped-for positive effects on the growth of exports) and an

expansive monetary policy.

During 2014, the cyclical phase was characterised by an increase in GDP hovering around zero in the 1st and

4th quarters, with negative variations in the quarters in between (2nd and 3rd), which was influenced by the

intensification of geopolitical tensions.

Italferr S.p.A.


On a year-on-year basis, GDP fell by 0.4% due to a combination of negative internal demand (-0.9%)

aggravated by the abrupt fall in investments (-1.1%) and a modest increase in external demand (exports

+2%; imports +0.5%).

GDP and main components 1st

quarter 2nd

quarter 3rd

quarter 4th

quarter

GDP 0 -0.2 -0.1 0

Internal Demand -0.3 -0.4 -0.3 0

Household spending and ISP 0.1 0.2 0.1 0.1

AP spending -0.3 0.1 -0.3 -0.3

Gross fixed investments -1.1 -0.8 -1 -0.5

constructions -1.1 -1.1 -0.9 -0.7

other investment assets -1.1 -0.5 -1.1 -0.3

Import of goods and services -0.7 0.9 -0.3 0.9

Export of goods and services 0.2 1.3 0.2 1.1


Industrial production registered an average annual contraction of 0.9%; the growth rates of consumer prices

reached historic minimums (year-on-year inflation settled in the vicinity of zero); the job market continued its

negative phase of deterioration with an unemployment rate which, by the end of 2014, had risen to 12.8%; in

brief, the prospects for the Italian economy in the coming years are for a slow and uncertain recovery, held

back by the weak evolution of investments and modest growth prospects in the Eurozone.

According to estimates, economic activity will be driven by the expansive orientation of monetary policy and

by the measures in the Stability Law 2015 which will reduce the tax wedge; this could benefit, in addition,

from the gradual acceleration in international trade, the effects stemming from the depreciation in the euro

and the fall in the price of crude oil.

Overall, it is estimated that GDP will return to modest growth during 2015 and then accelerate its pace in

2016.

Italferr S.p.A.


TREND IN THE REFERENCE MARKETS

Europe

In 2014, the infrastructure investments sector in which Italferr operates continued to show signs of weakness

in all the countries in the Eurozone albeit with varying degrees of intensity from country to country.

In particular, the level of public investments in Italy experienced a further fall in comparison with previous

years and continued to be strongly conditioned by the constraints imposed by public finances.

As opposed to the cyclical phenomena that marked the infrastructures as a whole, the more limited

phenomenon represented by the public market for engineering services and architecture in Italy experienced

an improvement with respect to 2013.

In fact, the number of calls for tender was 3,829 (+4.2% when compared with 2013) and reached the total

figure of 511.7 million Euros, an increase of 16.9% with respect to 2013.

The Italian figure for the number of invitations to tender for engineering and architectural services even went

against the trend in all the other countries in the European Union: in the latter case, in fact, it fell by 1.4%

with respect to the previous year.

However, when compared with the total number of invitations to tender in European countries, the figure for

Italy was still very modest (2.3% of the total) and much lower than the figure in countries of comparable

economic importance such as France (33.9%), Germany (18.4%), Poland (8.4%), Sweden (5.3%) and Great

Britain (5.0%).

Turkey

The GDP growth rate slowed down with respect to the past: in fact, in 2014, Turkish GDP ended the year with

an increase of approx. 3% as opposed to 4.4% in 2013 in the wake of the effects of US tapering and internal

and regional tensions. The main risk factors are linked to the balance of trade deficit and to the dependency

on short-term foreign capital.

The restrictive monetary policy adopted at the beginning of 2014 to contain the depreciation of the lira was

subsequently relaxed while inflation continues to hover around 9% as opposed to the target of 5%.

Despite the social and political tensions and the unsatisfactory performance of the key macroeconomic

indicators, Turkey remains attractive to foreign investors above all in the sectors of energy, road and port

infrastructures. This has led the Turkish government to predict real growth in the construction sector of 5.4%

in 2015 and an average annual rate of 5% for the rest of the period covered by the projection until 2023.

Middle East

The six countries in the Gulf Cooperation Council (Saudi Arabia, Bahrain, United Arab Emirates, Kuwait, Oman

and Qatar – GCC) registered an average growth in GDP of 4.2% in 2014; the same rate of growth is expected

for 2015 even though this projection should be taken with a pinch of salt in view of the fast-moving regional

and international developments and, in particular, the fall in the price of crude oil which has begun to have an

impact on the public finances of the Member States of the GCC.

Italferr S.p.A.


In general, the countries in the GCC benefit from the solidity of their key financial indicators and, above all,

from important assets in terms of sovereign funds and external surpluses which have allowed them to drive

forward huge investment plans aimed at rapid growth in their economies and infrastructures.

In particular, Saudi Arabia estimates that real GDP will grow by 3.6% in 2015, a reduction with respect to the

4.3% registered in 2014, following the fall in the price of crude oil. However, the Saudi government has

declared that public spending will continue to sustain both private consumption and fixed capital investments

and stands by the projections in its most recent five-year plan in which it envisaged investments totalling

almost 300 billion Euros.

In Oman, it is estimated that strong internal demand, an expansive fiscal policy and the profits expected in

the non-oil sectors will be capable of guaranteeing economic growth averaging 3.8% in the period 2015 –

2019 even though there remains the risk of a sharper decline in the price of crude oil. Based on these

considerations, the Omani Budget Law 2015, recently ratified, has projected growth in public spending of

around 4.5% when compared with 2014. The expenditure in terms of investments is mainly earmarked for

financing infrastructure projects (including an enhancement in the national railway network and the expansion

of Muscat and Salalah Airports) and the oil and gas sector.

Third in the world in terms of reserves of natural gas, the Emirate of Qatar has an economy that is not based

on proceeds from the sale of crude oil and, therefore, it is less dependent than the economies of the other

countries in the GCC on the evolution of the price of crude oil. This situation has allowed the Qatari

government to estimate the projected growth in GDP for 2015 at 7.7% thus confirming the trend in recent

years and to push ahead with its huge investment plans, totalling 200 billion dollars, aimed at consolidating

welfare and strengthening infrastructures, also with an eye to the Football World Cup in 2022.

The international rating agencies estimate that the real GDP of the United Arab Emirates will slow down to

less than 3% as opposed to 4.1% in 2014 and that the government could end the year with a budget deficit

of 1.1% of GDP in 2015.

Nevertheless, the funds accumulated during years of high crude oil prices and the signs of recovery in the

non-oil sectors such as tourism, the property and construction sectors lead the government of the UAE to

confirm the investments due to be made between now and 2016 amounting to 1,630 million Euros, of which

816 are related to projects already underway.

Latin America

Following a decade of great hopes for the future, the new global context has led to more modest growth rates

for the countries in Latin America.

Although the overall situation of the subcontinent has deteriorated with respect to initial expectations, the

financial situation shows signs of improvement: in fact, the tightening of the supervision of banking systems

has strengthened the banks operating in Latin America enabling them to deal with the increase in interest

rates, the depreciation of currencies and growth rates lower than in previous years.

The picture is patchier and less rosy in the case of inflation and budgetary prospects. From this point of view,

Latin American countries can be divided up into three groups: the first group, made up of Chile, Colombia,

Peru and Mexico, is characterised by full access to the international financial markets, by strong

Italferr S.p.A.


macroeconomic indicators and by positive prospects as regards inflation. Amongst the countries in this group,

Peru, during the last decade, is one of the economies with the higher rate of growth with an annual average

of 6.3%. However, if reference is made to infrastructures, it ranks 111th and this effectively means that Peru

loses out in terms of relative competitiveness.

This is the reason that has led the Government, in recent years, to approve a series of investments amounting

to around 18 billion dollars which should rise to 26 billion by the end of 2016.

The second group, made up of Argentina and Venezuela, has limited access to the international financial

markets and weak macroeconomic fundamentals pointing to vulnerable liquidity and a negative outlook for

inflation.

Finally, Brazil may be classified in the third group since it has full access to the international financial markets

albeit with certain vulnerable areas in terms of macroeconomic dimensions. In fact, the slight recovery that

the Country experienced in 2013 seems to have run its course, with GDP growth below 1% in 2014.

The recent elections in Brazil have prevented the approval of the structural reforms that the Country needs to

recover it competitiveness in the markets.

In addition, the inflation rate at the end of 2014 was 6.4% and the projections are that it will not fall to 5.7%

before 2016.

According to the most recent study conducted by the Central Bank, there will be an expansion in real terms of

0.4% in 2015 and growth is predicted to accelerate up to 1.8% in 2016.

In order to sustain economic growth, Brazil has encouraged a marked increase in investments in large

infrastructures which began with the investments made for the world football championship in 2014.

Rail transport, which is inadequate and inefficient to sustain economic growth, is amongst the sectors on

whose expansion much emphasis has been placed. In this respect, it is estimated that the market for railway

infrastructures, in Brazil, will grow at a compound annual growth rate (CAGR) of 1.44% in the period 2014 –

2019.

Africa

According to the Report on the World Economic Situation and Prospects 2015 (WESP) GDP in Africa should

accelerate in the next two years rising from 3.5% in 2014 to 4.6% in 2015 and 4.9% in 2016.

However, the economic growth expected is not without risks: the fall in the price of crude oil, lower prices for

raw materials and the continuing political instability in some areas could represent sources of discontinuity

and halt the growth tendency observed in recent years.

Given its enormous size, the African continent registers growth rates that vary in speed in the macro-regions

that make it up: on the one hand, sub-Saharan Africa which, starting out from situations of extreme

backwardness, has seen vertiginous growth in GDP in the last few years, even attaining double figures in

some countries; on the other hand, Mediterranean Africa, weighed down by political uncertainty and the fall in

the price of crude oil.

As far as sub-Saharan Africa is concerned, this is an area of enormous interest for foreign investors: the

latter, in fact, make a decisive contribution to the growth of real GDP and their numbers continue to increase.

Recent studies by the World Bank indicate that Kenya, Uganda and Tanzania are top of the class when it

comes to economic growth in the region.

Italferr S.p.A.


These countries, in fact, have an expected rate of growth for both 2015 and 2016 amply exceeding 6%,

clearly higher than the rate projected for all the African countries in the sub-Saharan belt (4.6% in 2015).

Ethiopia has also registered a high rate of growth in recent years since it has been able to draw on its

considerable wealth of resources in the agricultural, energy and mineral sectors.

The Ethiopian government is committed to sustaining and accelerating growth through investment plans, in

particular for infrastructures, co-financed by foreign countries.

With regard to the North African countries facing the Mediterranean, a distinction should be drawn between

Egypt, Tunisia and Morocco, which have diversified economies because they are not linked to the proceeds of

the sale of hydrocarbons, and Algeria and Libya.

The first three countries have similar characteristics, continue to show signs of a willingness to open up their

relations with the West and are strongly committed to policies capable of attracting foreign investment.

In 2014, economic growth in Egypt was adversely affected by the instable political situation. However, the

reduction in western investments was countered by an aid plan worth 18 billion dollars financed by the

countries in the GCC.

Economic activity in Tunisia was adversely affected by the weakness in the international recovery and, in

particular, by the EU on which Tunisia depends in terms of exports, income from tourism, remittance and

investment flows. The deficit affecting current account items continued to increase causing pressures on

foreign currency reserves and on the local currency.

The country’s prospects are weighed down by the acute political uncertainty and the transitional government’s

inability to carry out the reforms that are required to relaunch growth.

Of the three countries with a diversified economy, Morocco is the one that has the most stable political

panorama. On the international front, its relations with the EU, the country’s main commercial partner,

continue to be stable and positive.

Amongst the oil-producing countries in Africa, Algeria has maintained its growth at positive levels albeit

modest when compared with the past (+3% projected in 2014) due to its weak performance in the

hydrocarbon sector; in the next few years, it will be sustained by the sectors benefitting from the Programme

of Public Investments, focused on the process of diversifying oil and gas and on the development of

infrastructures.

Libya, in contrast, is feeling the effects of the fall in oil prices and political instability which are throwing its

economy into a negative spiral.

In addition, the balance account once again registered a deficit in 2013 due to the sustained reduction in oil

exports. The fading hopes of a return to normality weigh on the outlook for 2015.

ECONOMIC PERFORMANCE AND EQUITY-RELATED-FINANCIAL SITUATION

2014, with a net profit of 3,802 thousand Euros, closes with a year-on-year increase (+5%) and in line with

the Budget (+1%).

The Company’s financial performance in 2014 was characterised by growth in the provision of engineering

services destined for the non-captive market: this phenomenon, albeit included in the annual Budget

projections, generated results that were better than expected both in terms of volumes (+10% with respect

Italferr S.p.A.


to the Budget) and margins (+20.5% compared to the Budget) hence managing to compensate for the

reduction in services provided to the Group with respect to the projected figure (-5.4% in terms of volume

and -1.7% in terms of margin).

The variation in the mix of the orders in the portfolio managed during the year with respect to the initial

estimates produced an EBITDA figure that was close to the budget estimate (-1%).

Finally, the favourable evolution of the exchange rate of the currencies in which the main foreign contracts

are denominated was the factor that most contributed to the improvement in the items below EBITDA,

enabling the net result to exceed projections.

Economic performance and equity-related – financial situation

In order to allow an immediate comparison, shown below is the 2014 Income Statement with the shifts

compared to the previous year, whereas in the following paragraphs there is an analysis of the single

components of the Income Statement which have led to the profit for the year compared to 2013.

2014 2013 Changes

Revenue from sales and services 152,826 137,684 15,142

Revenue from engineering services 152,423 135,966 16,457

Change in provision for contractual risks 403 1,718 (1,315)

Other income 229 205 24

Revenues and income 153,055 137,889 15,166

Cost for staff (84,326) (83,789) (537)

Other net costs (53,934) (39,864) (14,071)

Consumables (347) (284) (63)

Cost of services (47,265) (34,384) (12,881)

Costs for use of third party assets (4,923) (3,907) (1,016)

Other operating costs (1,400) (1,289) (111)

Costs for capitalized internal work 22 51 (29)

Operating costs (138,238) (123,601) (14,637)

EBITDA 14,817 14,288 529

Amortisation and depreciation (3,771) (3,467) (304)

Impairment losses (reversal of impairment losses)

(338) (54) (284)

(EBIT) Operating profit 10,708 10,767 (58)

Net financial expense (551) (1,235) 684

Income taxes (6,355) (5,915) (440)

Profit for the year 3,802 3,617 186

Italferr S.p.A.


Revenues from engineering services

Overall, they register a balance that rose by 12% with respect to the previous year, the result, as can be seen

in the statement below, of non-captive production, mostly foreign, which increased threefold with respect to

2013, accompanied by a fall in production for the Group.

The growth in non-captive production is the result of the important contracts secured in 2013 (Saudi

Landbridge and Metro Doha) and those secured abroad in the current year (Oman Rail, Eurasia Tunnel below

the Bosphorus, Addis Ababa – Djibouti link) and in Italy (EXPO 2015).

Activities for the in-house market were affected by the constraints of public finances which for most of 2014

continued to limit investments in infrastructures and by the persistence of delays at some of the main railway

construction sites. The result is that production in relation to this market fell when compared with the

previous year (-8%).

The measures that the Government has taken now and those due at the end of the year (‘Sblocca Italia’

Decree and Stability Law 2015) are enabling a recovery in investments in the railway sector: therefore,

captive production is expected to show an opposing trend in 2015 as compared to 2014, which should

represent the minimum level on the horizon of the Business Plan 2014 – 2017.

2014 2013 Changes

Values % of total

Values % of total

Values %

RFI 109,239 72% 117,991 87% (8,752) -7%

Trenitalia 3,884 3% 4,535 3% (651) -14%

Other Group 342 0% 348 0% (6) -2%

Total Captive Market 113,465 75% 122,874 90% (9,409) -8%

Overseas 36,680 24% 11,689 9% 24,991 214%

Italy 2,278 1% 1,403 1% 875 62%

Total Non-Captive Market 38,958 25% 13,092 10% 25,866 198%

Revenue from engineering services

152,423 100% 135,966 100% 16,457 12%

The total number of hours worked on executive contracts was 1,641 thousand, by and large in line with 2013

(-0.2%) thanks to the increase in pro capita productivity (+12 hours when compared with 2013) which

compensated for the reduction in operational staff (approx. 15 employees on average) during the year.

Operating costs

Cost for staff

Although the average number of persons employed by the Company fell with respect to the previous year by

approx. 3%, the relative cost rose, albeit moderately (+1%).

The main reasons for this differing evolution can be found in the increase in internationalisation which led to

an increase in the costs for assignments abroad and the higher unit productive capacity which was followed

by an increase in the overtime paid out.

Italferr S.p.A.


The personnel costs in the two financial years compared with one another and the relative number of

employees, expressed in average units full time equivalent (FTE), are shown in the tables below.

2014 2013 Changes

Values %

Permanent staff 78,475 77,673 802 1%

Flexible workers 4,515 4,819 (304) -6%

Other costs 1,381 1,297 84 6%

Additions to (releases of) provisions (45) 0 (45) n.v.

Cost for staff 84,326 83,789 537 1%

(Average FTE units) 2014 2013 Changes

Values %

Total permanent staff 1,133 1,164 (31) -3%

Total flexible workers 83 90 (7) -8%

TOTAL 1,216 1,254 (38) -3%

Other net costs

Overall, they increased by 35% with respect to the previous year and break down as follows:

2014 2013 Changes

Values %

Consumables 347 284 63 22%

Services 47,265 34,384 12,881 37%

Use of third-party assets 4,923 3,907 1,016 26%

Other operating costs 1,400 1,289 111 9%

Other net costs 53,934 39,864 14,071 35%

The items that had the greatest impact on the increase in operating costs were those for services and use of

third-party assets:

The former, which increased with respect to 2013 by approx. 37%, were influenced above all by:

• engineering services contracted out to third parties related to contracts awarded abroad (+10,311

thousand Euros as compared to 2013). In order to meet the significant increase in operations in the non-

captive market, Italferr turned to external service providers in order to obtain the double advantage of

maintaining a streamlined organisational structure right at its own offices abroad and to avail itself,

wherever possible, of local, cheaper professionals.

• the increase in IT services following the increase in remuneration costs coinciding with the renewal of

expiring agreements and the large volume of services requested both with regard to the new applications

in use at the Company and to the IT equipment at foreign sites (+689 thousand Euros with respect to

2013);

Italferr S.p.A.


• the increase in insurance premiums due to the policy for professional civil liability concluded specifically

for the Landbridge contract based on the customer’s requests (618 thousand Euros);

• travel and accommodation (+464 thousand Euros) which grew following the increase in the number of

trips abroad both for operational purposes and for commercial purposes;

• professional services (+244 thousand Euros) whose increase was mainly due to legal and administrative

services and services in the field of labour law which the Company engaged both when new sites abroad

were opened and for their management.

Use of third-party assets grew by 26% as compared to the previous year, above all for the leases abroad

linked to the need to open new sites and extend the existing ones, in relation to the volume of business

generated.

The evolution of revenue and operating costs resulted in an EBITDA of 14,817 thousand Euros, an increase of

4% with respect to 2013.

Under EBITDA, the increase with respect to the previous year in amortisation/depreciation following the new

investments in 2014 (3,788 thousand Euros invested which generated 398 thousand Euros in

amortisation/depreciation) and impairment losses caused by the adjustment of the receivables to their

estimable realisable value resulted in a figure for EBIT that was the same as in 2013.

The appreciation of the dollar – and of the currencies linked to it – in the last part of 2014 enabled the

generation of considerable exchange rate gains more than offsetting the losses incurred (exchange rate gain

amounting to 654 thousand Euros). This phenomenon coincided with another event which, however, had a

less significant impact: the reduction in the imputed interest on post-employment benefits caused by the low

inflation rate (-148 thousand Euros as compared with 2013). These two favourable events more than

compensated for the growth in interest expense (+342 thousand Euros of net interest charges) caused by the

evolution during the year of financial exposure vis-à-vis the Parent.

The positive evolution of the financial items, after discounting the effects of taxes, resulted in an improvement

in the profit for the year when compared to 2013.

Reclassified statement of financial position

Considered as a whole, the statement of financial position registered a sharp decrease in working capital (-

57% as compared to 2013) which led to a notable improvement in the Company’s financial position.

Italferr S.p.A.


31.12.2014

31.12.2013

Changes

ASSETS

Net operating working capital 72,030 110,278 (38,248)

Other net assets (32,165) (17,914) (14,251)

Working capital 39,865 92,364 (52,499)

Property, plant and equipment 30,069 30,053 16

Equity investments 357 357 0

Net non-current assets 30,426 30,410 16

Post-employment benefits (31,529) (30,188) (1,341)

Other provisions (4,312) (4,202) (110)

Post-employment benefits and other provisions

(35,841) (34,390) (1,451)

NET INVESTED CAPITAL 34,450 88,384 (53,934)

Net financial position (12,213) 40,269 (52,482)

Own funds 46,663 48,115 (1,452)

COVERAGE 34,450 88,384 (53,934)

At the end of the year, Italferr reached an agreement with RFI for the payment of services rendered in

addition to those envisaged under contracts and for advance payment for the services contemplated in the

contract, deferring, however, the collection of the receivables in relation to certain events that the progress of

the work, for reasons not attributable to Italferr, was delaying indefinitely (e.g. payments for greater charges

incurred in relation to the extension in the time required to carry out work which the contract only envisaged

upon conclusion of the work itself).

The agreement concluded has entailed invoicing and collecting approx. 27 million Euros. This operation,

together with the collection of the invoiced payments on account in relation to contracts with a considerable

value secured in the last quarter of 2014 has enabled a reduction in net operating working capital with

respect to the previous year and the closure with a net financial position.

The change in Other net assets is mainly due to the increase in VAT and Inarcassa payables linked to the high

volume invoiced to RFI in the 4th quarter of the year which has been discussed in previous paragraphs. This

phenomenon was compounded by the reduction in the tax credit for advance payments of Ires (corporate

income tax) due to the fact that the advances for 2013 had acquired values higher than average because they

were calculated by referring to the 2012 income, a much more favourable result due to one-off exceptional

events.

Italferr S.p.A.


RISK FACTORS

Other risk factors

The operational and business risks are illustrated in this section, whereas risk related to credit, liquidity and

the market (meant as interest and exchange rate risks as a whole) are explained in the Notes to the financial

statements to which reference is made.

Operational risks

The operational risk is defined as a risk of losses caused by inadequate or dysfunctional procedures, human

resources and internal systems, or by exogenous events. In order to limit the occurrence of internal

operational risks as much as possible, Italferr has completed in 2012 a Risk Management system which has

defined the map of corporate processes and assessed the effectiveness of the controls regulating such

processes and divulging remaining risks.

The system is continually monitored and updated in line with the instructions from the Parent. In particular, in

2014 following the modifications introduced by FS Italiane to the Group model, Italferr set up the

organisational post of Risk Officer requiring him, starting from 2015, to report directly to the Managing

Director.

The Risk Officer is charged with the task of coordinating a systematic and structured process of identification

and assessment of risks at least once a year, supporting the company’s Process Owners; he also has to assist

the internal audit department in identifying and monitoring the areas at most risk and to prepare general

assessments of the Company’s internal control system and, finally, to submit a periodic report both to the

managers and board of directors and to the Group’s Risk Officer.

For the sake of completeness, it should be said that the internal audits conducted during the year showed

that the internal control system at Italferr was adequate.

Business risks

The policy of penetration in new markets which the Company is pursuing at an increasing rhythm exposes it

to risks such as the risk of political, social and economic instability, counterparty’s’ credit reliability and

protectionist and currency-related barriers: in other words, country risk. This specific risk is assessed during

the process of selection of offers and tenders, using the classification in the three categories of the SACE

[Italian Institute for Foreign Trade Insurance Services] (no restriction, opening with restriction and

suspensive) and verifying the solidity of financing sources for projects put to tender.

INVESTMENTS

During the course of 2014 the company has made investments of 3,785 thousand Euros which have

essentially concerned:

Italferr S.p.A.


• the development and evolutionary maintenance of software, performed internally or contracted out, by

way of support to the technical, administrative and purchasing departments, totalling 1,866 thousand

Euros (of which 416 thousand Euros is currently being implemented);

• the purchase of user licences and software packages, available on the market (586 thousand Euros);

• the purchase of hardware for new equipment in Italy and abroad to replace the existing equipment which

had become obsolete (951 thousand Euros);

• the completion of a mobile equipped laboratory on a van, the outfitting for which began at the end of last

year (149 thousand Euros);

• work at the sites in Rome, Verona and Palermo totalling 186 thousand Euros some of which is still

underway (127 thousand Euros for Verona and Palermo);

• furnishings, equipment and facilities amounting to 47 thousand Euros.

ECONOMIC PERFORMANCE OF SUBSIDIARIES

Infrastrucuture Engineering Services d.o.o. (I.E.S.)

The Serbian company, incorporated in Belgrade in 2012 and in which Italferr holds a 100% stake, provides

design services, above all structural and mechanical, consultancy services and technical assistance.

The company’s workforce, totalling 12 employees, is almost entirely made up of Serbian engineers trained by

experts from Italferr who transferred their specialist knowledge and know-how; professionalism and cost

containment are the strong points of I.E.S. and allowed the company to close 2014 with a net profit higher

than the budgeted figure (138 thousand Euros, +43.8%) albeit with lower production volumes (427 thousand

Euros, -15%).

Production during the year was entirely dedicated to the Company’s captive market and involved the orders

won by Trenitalia for design activities carried out in partnership with Italferr relating to the strengthening of

the rolling stock maintenance plants in Savona, Naples and Milan Martesana and support activities for civil

engineering design work carried out on behalf of Italferr and regarding the stretch of line Hrvatski Leskovac

Karlovac in Croatia and segments 1 and 2 of the preliminary design for Oman National Railway.

With its completely captive production and production volumes, high when compared with the company’s size,

I.E.S. has shown that it is capable of meeting the assumptions in the Business Plan 2014 – 2017: said plan, in

fact, precisely in order to take into account the uncertainties regarding the growth of the Serbian economy,

had indicated that the company’s immediate core area for development was the internal market within the

Group FS.

OWN SHARES

The Company does not possess, nor has it transferred during the course of the financial year, own shares, or

shares of the parent FS Italiane S.p.A, neither directly nor by means of other subjects.

Italferr S.p.A.


OTHER INFORMATION

Secondary branches

In Italy, Italferr exercises its territorial activity at the Local Units of Bari, Bologna, Florence, Foggia,

Genoa, Milan, Naples, Palermo, Reggio Calabria, Rome, Turin and Verona.

Overseas the Company has secondary sites located in Abu Dhabi (United Arab Emirates), Bucharest

(Rumania), Doha (Qatar), Istanbul (Turkey), Muscat (Oman Sultanate) and San Diego (Venezuela) and

three offices in Addis Abeba (Ethiopia), Algiers (Algeria) and Riyhad (Saudi Arabia).

Investigations and judicial proceedings in progress

On 17 January 2013, the pro tempore Chairman, the pro tempore Managing Director, certain employees of

Italferr and one RFI employee, together with personnel from other administrations and executive companies,

received notices of guarantee in relation to the investigations ordered by the Public Prosecutor of the Republic

in Florence in criminal proceedings no. 25816/10 General Criminal Records Register, having as subject matter

the tender contract of the General Contractor for the design and execution of the station and HS pass in the

Florence hub.

The investigative hypotheses substantially refer to the following macro issues:

• executive deformity in the management of the tender;

• qualification of the waste materials from the excavation works and waste management;

• validity of the landscaping permit;

• initiation of a procedure of amicable agreement for settling the reserves submitted during works;

• method of accounting for works progress.

In relation to preliminary investigations, on 16 September 2013, an order applying precautionary measures

was notified, received by Italferr personnel, the Chairman, the Managing Director and an Italferr executive.

The aforesaid measures were revoked in the period between 30 September and 3 October 2013. In the

meantime, Italferr’s Managing Director and its Chairman had resigned from office; the area manager, project

manager and works supervisor on behalf of the company were allocated to other positions as from January

2013.

Furthermore, the Order at issue stressed the existence of an investigation for administrative offence pursuant

to Legislative Decree 231/2001 against Italferr as well as other companies involved in the realisation of the

works.

The Public Prosecutor asked Italferr to apply the precautionary measure of interdiction to carry out activities

related to the realisation of the new HS station in Florence and the HS pass of the Florence hub.

The Preliminary Investigations Judge, upholding the arguments brought by Italferr’s defence, rejected the

Public Prosecutor’s claim, deeming the elements adopted by the latter in support of their request as

groundless.

Italferr S.p.A.


On 26 January 2015, the Public Prosecutor’s Office in Florence committed all the persons and companies

under investigation, including Italferr, for trial.

The preliminary hearing due to take a decision in this matter has been set for 13 May 2015.

At present, given that the legal proceedings have only just got underway, it is not possible to draw any useful

conclusions regarding its possible outcome.

It should be said however that the Judge charged with the preliminary investigations, wherever he addressed

this issue, either when applying the precautionary measures, rejected the request by the Public Prosecutor

considering, inter alia, that Model 231 adopted by Italferr was proper and that the requirement of benefits for

the company deriving from alleged offences, as required under the decree, has not been satisfied.

It should also be noted than the documentation incorporated into the investigation’s files when the decision

on the precautionary measure was taken is the same as the documentation in support of the commitment for

trial.

Having said that, and in view of the considerable complexity of the case given the number of legal persons

(individuals and legal entities) involved and the alleged offences, the risk of a negative outcome must be

regarded as a possibility.

Legislative Decree 231/2001

In February 2004, the Company adopted the “Model for Organisation, Management and Control” as

envisaged by art. 6 of Legislative Decree 231/2001, in accordance with the guidelines of Confindustria

and approved on 7 March 2002 and a Supervisory Body operating as an unified bench since 2009, which

controls the observance and correct operation of such Model.

Over time the Model has been updated and integrated in light of legislative interventions occurring over the

years, which have extended the category of offences contemplated by the legislative decree.

The last update, in order of time, was brought by the Company’s Board of Directors in the session of 18

February 2014 mainly to include new offences envisaged by the norm into the Model (illegal immigration,

undue induction to give or promise utilities by corruption between private parties).

Furthermore, the regulation of the Supervisory body was detached from the Model and a specific statute

adopted, the composition of such Body was adapted to the directives of the Parent on the matter of

requirements of autonomy, independence, professionalism and continuous action. In particular, such

directives recently established that in Group companies having a multi-subject Supervisory body, the latter

has an external professional as Chairman, vested with competencies on the matter.

Disclosure required by article 2497 sub-section three

In relation to ordinary management and in observance of the activity of management and coordination of FS

S.p.A, the decisions undertaken during 2014 by the Board of Directors and the Managing Director have been

taken autonomously and therefore the specific cases envisaged by art. 2497 sub-section three of the civil

code did not apply.

Italferr S.p.A.


SIGNIFICANT EVENTS AFTER THE END OF THE FINANCIAL YEAR

The significant events which took place after the end of the financial year and before approval thereof are

shown in the dedicated section of the notes to the financial statements to which reference is made.

FORESEEABLE EVOLUTION OF MANAGEMENT

The projections on the performance of the global economy for 2015 are negative: in fact, various risk factors

persist amongst which are the potential volatility of the financial markets, the negative impact of low oil prices

on the economies of the oil-producing countries and a sustained period of stagnation and deflation in the

Eurozone and in Japan.

Nevertheless, despite this disheartening backdrop, Italferr has some cards up its sleeve: the investments in

national infrastructure envisaged in the 2015 Stability Law and in the ‘Sblocca Italia’ Decree lead it to project

growth in production for the captive market in comparison with 2014.

Even with regard to the foreign market, the Company expects a positive evolution: in fact, the conclusion of

the negotiations with Saudi Arabian Railways is imminent and should increase the value of the contract

secured in Saudi Arabia by around 75%.

Furthermore, the consolidation of its presence in sub-Sahara Africa will allow the Company to take better

advantage of the business opportunities offered by this part of the world, which will also be characterised by a

growth trend in 2015.

Finally, the trade alliances that Italferr has begun to conclude with major companies in the sector will enable

it to promote its own products and services vis-à-vis the international railway markets more effectively.

In order to meet the expected rise in production, both in the internal market and abroad, Italferr will have to

grow by opening new sites abroad and by increasing the number of highly qualified professionals. This will

immediately entail absorbing cash flow and a consequent trend reversal for the net financial position.

Maintaining profits and the capital invested in line with the Business Plan while at the same time pursuing the

objectives of growth and internationalisation which it has set itself are the challenges that Italferr will have to

face in the immediate future. In addition, in view of the instability of the context in which it is operating, the

Company will have to exercise strict control over external risk factors, reconcile the need for expansion with

the need to reduce operating costs and select customers with a view to avoiding insolvency risks.

Hence the path that awaits Italferr in 2015 is anything but easy but the Company’s current performance and

the progress it has made to date allow one to conclude that it is reliable and that it will also be able to stick to

the route outlined in the Business Plan in the future.

Italferr S.p.A.


PROPOSAL FOR ALLOCATION OF THE PROFIT FOR THE YEAR

The financial statements at 31 December 2014 show a profit of 3,802,170 Euros the allocation of which we

propose as follows:

• distribution by way of dividend of 3,759,290 Euros corresponding to 265 Euros for each of the 14,186

shares;

• allocation of 42,203 Euros to the exchange rate gains reserve in order to adjust the total value of the

reserve to the net gains on exchange rate due to the translation of foreign currency receivables and

payables recognised using rates;

• allocation of the remaining amount to the extraordinary reserve (677 Euros).

Rome, 11 March 2015

The Board of Directors

The Chairman

Italferr S.p.A.


Financial statements and notes thereto

Italferr S.p.A.


Statement of financial position

(Amounts in Euro) Notes 31.12.2014 31.12.2013

Assets

Property, plant and equipment (6) 26,382,337 27,324,659

Intangible assets (7) 3,687,106 2,728,076

Deferred tax assets (8) 3,813,253 2,717,014

Equity investments (9) 356,592 356,592

Other non-current financial assets (inclusive of derivatives) (10) 600 42,433

Other non-current assets (11) 120,727 106,182

Total non-current assets 34,360,615 33,274,956

Construction contracts (12) 109,107,778 139,637,765

Current trade receivables and service contracts (13) 61,986,407 55,205,819

Current financial assets (inclusive of derivatives) (10) 6,477,832 0

Cash and cash equivalents (14) 5,734,757 5,326,432

Tax assets (15) 33,960 542,292

Other current assets (11) 3,784,444 4,709,928

Total current assets 187,125,178 205,422,236

Total assets 221,485,793 238,697,192

Equity

Share capital (16) 14,186,000 14,186,000

Reserves (16) 24,277,266 26,717,850

Retained earnings (16) 3,593,884 3,593,885

Profit for the year (16) 3,802,170 3,617,189

Total equity 45,859,320 48,114,924

Liabilities

Post-employment benefits (17) 31,528,766 30,188,067

Provisions for risks and charges (18) 4,103,063 4,046,572

Deferred tax liabilities (8) 209,174 155,206

Non-current financial liabilities (inclusive of derivatives) (19) 346,020 0

Other non-current liabilities (20) 115,005 114,938

Total non-current liabilities 36,302,028 34,504,783

Construction contracts (12) 56,281,835 46,796,176

Current trade payables (21) 44,341,477 38,602,567

Other current liabilities (20) 38,243,185 25,041,174

Current financial liabilities (inclusive of derivatives) (19) 457,948 45,637,568

Total current liabilities 139,324,445 156,077,485

Total liabilities 175,626,473 190,582,268

Total equity and liabilities 221,485,793 238,697,192

Italferr S.p.A.


Income Statement

(Amounts in Euro) Notes 2014 2013

Revenue 153,054,666 137,889,215

Turnover from sales and services (22) 152,825,551 137,684,155

Other income (23) 229,115 205,060

Operating costs 138,237,638 123,601,578

Personnel costs (24) 84,325,698 83,789,223

Raw materials, consumable supplies and goods (25) 346,791 283,959

Services (26) 47,264,830 34,384,319

Use of third-party assets (27) 4,922,814 3,906,781

Other operating costs (28) 1,399,945 1,288,528

Cost for internal work (29) (22,440) (51,232)

Amortisation/depreciation (30) 3,771,199 3,466,686

Impairment losses (reversal of impairment losses) (31) 337,841 54,129

Operating profit 10,707,988 10,766,822

Financial expense (32) 550,554 1,234,722

Net Financial income (32) 1,145,199 106,371

Financial expense (32) 1,695,753 1,341,093

Profit before taxes 10,157,434 9,532,100

Income taxes (33) 6,355,263 5,914,910

Profit from continuing operations 3,802,170 3,617,189

Profit for the year 3,802,170 3,617,189

Statement of comprehensive income

(Euros) 2014 2013


Items that will never be reclassified to profit or loss:

Gains (losses) on actuarial gains (2,571,805) 532,776

Tax effects gain (losses) on actuarial gains 707,246 (146,514)

Items that are or may be reclassified to profit/or loss) subject to the occurrence of certain conditions:

Effective portion of fair value changes of cash flow hedges (803,968) 0

Tax effect of the effective portion of fair value changes of cash flow hedges 221,092 0

Other components of comprehensive income (expense), net of tax effects

(2,447,435) 386,262

Total Comprehensive income 1,354,735 4,003,451

Italferr S.p.A.


Changes in equity Statement

Euros Share capital

Reserves

Cumulative retained earnings

Profit for the year

Total Equity

Reserves Revaluation reserves

Total Reserves Legal

Reserve Extraordinary

Reserve Translation

reserve Other

Reserves Hedging reserve

Reserve for actuarial

gains (losses) for employees

benefits

Equity at 1 January 2013 14,186,000 2,837,200 26,737,826 3,636 32,607 0 (3,280,043) 26,331,226 3,593,884 12,966,365 57,077,475

Dividends paid (12,966,004) (12,966,004)

Previous year profit allocation 361 361 (361) 0

Total comprehensive income, of which:

Profits recognised directly in Equity 386,262 386,262 386,262


Equity at 31 December 2013 14,186,000 2,837,200 26,738,187 3,636 32,607 0 (2,893,781) 26,717,849 3,593,884 3,617,189 48,114,922

Dividends paid (3,610,337) (3,610,337)

Previous year profit allocation 6,852 6,852 (6,852) 0

Total comprehensive income:

Losses recognised directly in equity (582,877) (1,864,558) (2,447,435) (2,447,435)


Equity at 31 December 2014 14,186,000 2,837,200 26,745,039 3,636 32,607 (582,877) (4,758,339) 24,277,266 3,593,884 3,802,170 45,859,320

Italferr S.p.A.

Italferr: Annual Report 2014 45

Statement of cash flows

(Amounts in Euros) Notes 2014 2013


Income tax (33) 6,355,263 5,914,910

Net financial income/expense (32) (79,802) 1,234,722

Amortisation/depreciation (30) 3,771,199 3,466,685

Impairment losses on non-current assets (31) 0 (16,374)

Gains / Losses from sale of assets (28) (6,513) (9,820)

Provision for risks and charges (18) 773,489 808,544

Provision for employee benefits (32) 637,254 785,652

Variations in inventories (12) 40,015,646 (16,616,168)

Variations in trade receivables (13) (6,780,588) (26,892,241)

Variations in trade payables (21) 5,738,910 3,696,082

Variations in other assets (8); (11) 1,982,301 1,799,547

Variations in other liabilities (20) 13,202,078 99,510

Use of the provision for risks and charge (18) (716,998) (1,173,284)

Payment of employee benefits (17) (1,868,360) (4,016,912)

Variation in tax assets and liabilities which do not generate cash flows (15); (33) (6,261,461) (6,614,297)

Cash flows generated by (used in operating activities 60,564,588 (33,916,255)

Investments in:

- Intangible assets (7) (1,335,771) (1,600,830)

- Property, plant and equipment (6) (2,452,136) (1,502,273)

- Investments (9) 0 (79,991)

Variation in the non-current assets (10) (41,834) (42,434)

Cash flows generated by (used in) investing activities (3,829,741) (3,225,528)

Variations in equity (16) (3,617,189) (12,966,005)

Financial expense which does not generate cash flows (32) (593,933) (890,125)

Cash flow generated by (used in) financing activities (4,211,122) (13,856,130)

Total cash flows generated by /(used in) in the year 52,523,725 (50,997,913)

Opening cash and cash equivalents (40,311,136) 10,686,777

Closing cash and cash equivalents 12,212,589 (40,311,136)

of which: balance in inter-company account: 6,477,832 (45,637,568)

Italferr S.p.A.


EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS

1 Preamble

These financial statements at31 December 2014 were compiled in conformity with the International Financial

Reporting Standards, issued by the International Accounting Standards Board, endorsedby the European

Union (“IFRS”). It is, in particular, necessary to report that Italferr S.p.a. has availed of the faculty envisaged

by Legislative Decree 28 February 2005, no. 38, which governs the exercise of the options envisaged by

article 5 of European Regulation no. 1606/2002 on the matter of international accounting standards.

Specifically, pursuant to articles 3 and 4 of such legislative decree, the Company has applied the IFRS for

preparing the financial statements starting from the financial year closed on 31 December 2010.

2 Company

Italferr S.p.A is a company established and domiciled in Italy and organised under to the legal system of the

Republic of Italy. The Company headquarters are in Rome.

The company is subject to the management and coordination of Ferrovie dello stato Italiane S.p.A.

On 11 March 2015 the Directors approved the draft Financial Statements at 31 December 2014 and their

submission to the Shareholders as set out in art. 2429 Civil Code. These financial statements shall be

submitted for the approval of the Shareholdes’’ Meeting within the terms envisaged by art. 2364 Civil Code

and shall be filed within the terms envisaged by art. 2435 Civil Code.

The Shareholders’ Meeting has the power to bring changes to these financial statements. For the purposes of

the provisions of IAS 10.17, the date of authorisation by the Directors to publish the financial statements is

11 March 2015, date of approval of the financial statements by the Board of Directors.

The company, although it does hold controlling interests, availed itself of the exemption under art. 27 of

Legislative Decree no. 127 of 9 April 1991 and provided for in paragraph 4(a) of IFRS 10 of drawing up

consolidated financial statements The highlights of the latest financial statements approved by the parent

Ferrovie dello Stato S.p.A. are provided at the end of these note. The consolidated financial statements for

public use are drawn up by Ferrovie dello Stato Italiane S.p.A., which directly controls Italferr.

The parent, responsible for management and coordination vis-à-vis Italferr S.p.A., has its registered office in

Rome in Piazza della Croce Rossa 1, the place where the aforementioned document can be obtained within

the period and in accordance with the formalities envisaged under current rules and regulations.

KPMG S.p.Acarried the legally-required audit of the financial statements, pursuant to article 14 of Legislative

Decree 39/2010.

3 Basis of preparation

As indicated previously, the financial statements have been drawn up in conformity with the EU-IFRS, which

include all the “International Financial Reporting Standards”, all the International Accounting Standards (IAS),

all interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly known

as the Standing Interpretations Committee (SIC) endorsed by the European Union and contained in the

related E.U. Regulations, and in force at yearend.

Italferr S.p.A.


In particular, the IFRS were coherently applied to all the periods presented in this document. We would point

out, furthermore, that these financial statements have been prepared according to the best knowledge of the

IFRS and considering the best doctrine on the matter; any future guidelines and interpretative updates shall

be reflected in the successive financial years, according to the methods envisaged from time to time by the

accounting standards of reference.

The financial statements are prepared and submitted in Euros, which represents the Company’s functional

currency, that is to say, the currency of the countries in which the Company mainly operates; all the amounts

included in the tables of the following notes are expressed in thousands of Euros unless indicated otherwise.

Shown below are the financial statements and the related of classification criteria adopted by the Company, in

relation to the options envisaged by IAS 1 “Presentation of financial statements”:

• The Statement of Financial Position was drawn up classifying assets and liabilities according to the

“current/non-current” criterion;

• The Income Statement was drawn up classifying operating costs by nature;

• The Statement of Comprehensive Income includes, as well as the profit/(loss)for the year, the other

changes in the equity items tributable to transactions adder than with owner of the Company;

furthermore, following the amendment to IAS 1 - Presentation of Financial Statements - the company

recognised all the components shown between the Other comprehensive income) separately, according

to whether or not they can be reclassified afterward to profit or loss.

• The Statement of Cash Flowswas drawn up showing cost l flows from operating activities the “indirect

method”.

These financial statements were prepared on a going concern basis, inasmuch as the directors have verified

the inexistence of financial or operation or other indicators, which could reveal criticalities regarding the

Company’s ability to meetits obligations in the foreseeable future and, in particular, in the next 12 months. A

description of the methods according to which the Company manages financial risks is contained in note 5 -

Management of financial risks.

The financial statements have been prepared using the historical cost apart from the cases in which

application of the criterion of fair value is mandatory.

4 Applied accounting standard

The most important accounting indices and measurement criteria used for preparing the financial statements

are shown briefly below.

Property, plant and equipment

Property, plant and equipment are entered at purchase or production cost, net of accumulated depreciation

and any impairment losses. The purchase or production cost includes charges incurred directly for preparing

the assets for their use, as well as any expenses for dismantling or removal which shall be incurred

consequent to contractual obligations requiring that the asset is returned in its original condition. The financial

expenses directly attributable to the acquisition, construction or production of qualified assets are capitalised

Italferr S.p.A.


and depreciated according to the useful life of the asset to which they refer. Costs for improvements,

modernisation and transformation of an increasing nature in the assets are shown in the statement of

financial position assets.

The expenses incurred for maintenance and repairs of an ordinary nature are directly attributable to the profit

or loss when incurred. The capitalisation of costs inherent to expansion, modernisation and improvement of

the structural elements owned or in use by third parties is carried out within the limits in which they respond

to the requisites to be separately classified as an asset or part of an asset, applying the criterion of

“component approach”, according to which each component susceptible to an independent valuation of the

useful life and related value must be treated individually.

Depreciation is calculated in a systematic and constant manner based on the rates which are considered to be

representative of the estimated economic-technical useful life of the assets.

The useful life of the tangible fixed assets and their residual amount are reviewed and updated, where

necessary, at least at each reporting date. Land is not depreciated.

The rates of depreciation used and the useful life are as follows:

Category Depreciation

rates Useful life

Land 0% ∞

Owner- occupied building 3% 33

Improvements on third party leased assets Remaining duration of lease

Remaining duration of lease

Light structures 10% 10

Ordinary office furniture and machinery 12% 8

Furnishings 15% 7

Miscellaneous machinery, equipment and sundry devices

15% 7

Electro-mechanical and electronic machinery 40% 2.5

Mobile telephones 40% 2.5

Cars, motor vehicles and similar 25% 4

Intangible assets

Intangible assets are formed of non-monetary elements, which can be identified and are absent of physical

consistency, controllable and aimed at generating future economic benefits. Such elements are reported at

purchase and/or production cost, including expenses that are directly attributable for preparing the asset to its

use, net of accumulated amortisation and of any impairment losses . Any interest payable accrued during and

for the development of the intangible fixd assets are considered as part of the purchase cost.

Amortisation begins once the asset is available for use and is systematically charged in relation to the

remaining possibility to use it, therefore based on its estimated useful life.

In particular, the following main classes of intangible assets can be identified:

(a) Concessions, licences and trademarks

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The concessions, licences and trademarks are subject to straight-line amortisation based on their relative

duration.

The costs of the software licences, including the expenses incurred to ensure that the software is ready for

use, are subject to straight-line amortisation based on their relative duration.

The costs relating to the maintenance of software programs are recognised when they are incurred.

(b) Industrial Patents and intellectual property rights

Patents and intellectual property rights are subject to straight-line amortisation based on their useful life.

The gains and losses deriving from the sale of an intangible asset are determined as the difference between

the sale value less the selling costs and the asset’s carrying amount and are recognised in the profit or loss

when the sale takes place.

Impairment losses

(a) Assets property, plants and equipment and intangible assets with a finite useful life

A check is carried out on each reporting date to ascertain whether there are indications that the assets may

be impaired. For this purpose, reference is made both to internal and to external sources of information. As

regards the former (internal sources), the following factors are considered: obsolescence or the physical

deterioration of the asset, any significant changes in the use of the asset and the economic performance of

the asset as compared to the projection. With regard to the external sources, the following aspects are

considered: the evolution of the asset’s market prices, any technological, market-related or regulatory

discontinuities and the evolution of market interest rates or of the cost of the capital used to value the

investments.

If the presence of such indicators is detected, an estimate of the recoverable amount of the asset in question

is performed, recognising any impairment with respect to the corresponding carrying amount in profi or loss.

The recoverable amount of an asset consists of the fair value less any ancillary selling costs or its

corresponding value in use, whichever is higher, with the understanding that the value in use refers to the

value of the future cash flows expected for the asset in question. When determining its value in use, expected

future cash flows are discounted using a pre-tax discount rate that reflects the current market valuations of

the cost of money, adjusted to the investment period and to the asset’s specific risks. In the case of an asset

that does not generate any substantially independent cash flows, the recoverable amount is determined by

referring to the cash generating unit to which the asset belongs.

An impairment loss is recognised in profit or loss if the carrying amount of the asset or of the relative cash

generating unit to which it has been allocated is higher than its recoverable amount. Impairment losses

oncash generating units are initially used to reduce the carrying amount of any goodwill attributed it asset

and, thereafter, to reduce other assets, in proportion to their carrying amounts and without exceeding the

corresponding recoverable amount. If the conditions which led to the recognition no longer exist, the asset’s

carryingamount is restored through profit or loss, within the limits of the carrying amount that the asset

would have had had no impairment loss been recognised and the corresponding amortisation/depreciation

been carried out.

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Equity investments in subsidiaries, associates, jointly controlled companies and other companies

Equity investments in subsidiaries, associates and jointly controlled companies are measured at cost adjusted

for impairment losses.

When the reasons that have caused the impairment loss do not apply, the caryng amount of the equity

investment is increased until the related original cost is reached. Such reversal is recognised through profit or

lossstatement.

Financial instruments

(a) Financial assets and trade receivables

Financial assets are initially recorded at their fair value and classified under loans and receivables, available-

for-sale assets or financial assets at fair value through profit or loss statement, depending on their nature and

on the purpose for which they were acquired.

Financial assets are accounted for on the date on which the purchase/sale operation is completed and are

when the right to receive the corresponding cash flows has extinguished and the company has essentially

transferred all risks and rewards associated with the financial instrument and its control.

(b) Loans and receivables

Assets from loans and receivables refer to non-derivative financial instruments not listed on an active market

from which fixed or determinable payments are expected. In particular, the following items in the statement

of financial position are included in this category: ‘Non-current financial assets (including derivatives)’,

‘Current financial assets (including derivatives)’ and ‘Current trade receivables’.

Losses on loans and receivables are accounted for in the financial statements if there are objective indications

that the company will not be able to recover the receivable due from the counterparty on the basis of the

contractual terms and conditions. Objective indications include events such as:

• significant financial difficulties experienced by the issuer or by the debtor;

• ongoing legal disputes with the debtor relating to receivables;

• the probability that the debtor will file for bankruptcy or that other financial restructuring procedures will

be initiated.

The amount of the impairment is measured as to the difference between the asset’s carrying amount and

the present value of the cash flows expected in the future and is recognised in the income statement under

the item ‘Impairments losses (reversal of impairment losses)’. Non-recoverable loans and receivables are

shown in the statement of financial position less, net of the allowance for impairment. If the reasons the

previously recognised impairment loss for no longer exist in subsequent periods, the asset’s carrying amount

is restored until it reaches the value that would have been obtained through application of the amortised cost

method.

At each reporting sheet date, the company assesses whether there are objective indications of an impairment

loss on financial assets.

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Cash and cash equivalents

Cash and cash equivalents include cash and bank deposits available and other forms of short-term

investment, with the original due date equal to or shorter than three months. At the reporting date, current

account overdrafts are classified among financial liabilities under current liabilities in the statement of financial

position.

Loans and borrowings, trade payables and other financial liabilities

Loans and borrowings, trade payables and other financial liabilities are initially carried at their fair value, less

any directly attributable additional costs and subsequently measuredat amortised cost, applying the criterion

of the effective interest rate . If there is a change in estimated cash flows, the liability carrying amount is

recalculated in order to reflect this change based on the present value of the new estimated cash flows and

the effective internal interest rate initially determined. Loans and borrowings, trade payables and other

financial liabilities are classified under current liabilities, except for those due after one year and those in

respect of which the Company has an unconditional right to defer payment for at least twelve months

following the reporting date. Loans and borrowings, trade payables and other financial liabilities are

derecognised when they are settled and when the company has transferred all the risks and charges

pertaining to the instrument itself.

Derivative financial instruments

The derivative financial instruments entered into by the Company are designed to manage exposure to

currency risks and to diversify the parameters of the debt in a way that enables a reduction in costs and

volatility. When the contract is concluded the derivative instruments are initially accounted for at their fair

value and if the derivative instruments are not accounted for as hedging instruments, any subsequent

variations in the fair value are treated as components of the income statement.

Financial derivative hedging instruments are only accounted for according to the methods laid down for hedge

accounting if:

• upon inception, there is a formal designation and documentation relating to the hedging relationship

itself;

• the expectations are that the hedge will be higly effective;

• the effectiveness of the hedge can be reliably measured;

• the hedge itself is highly effective during the different accounting periods for which it was designated.

If the derivative financial instruments qualify for hedge accounting, the following accounting treatments are

applied:

Cash flow hedge

If a derivative financial instrument is designated as a hedge against exposure to fluctuations in the cash flows

of a recognised asset or liability t or an operation regarded as highly probable, the effective portion of the

gain or loss deriving from the change in the fair value of the derivative instrument is recognised in a specific

equity reserve. The accumulated gains or losses are transferred from the equity reserve and recognised in the

income statement in the same financial years in which the effects of the operation which was hedged are

recognised in the income statement. The gains or losses associated with the ineffective portion of the hedge

are immediately recorded in profit or loss. If the operation in respect of which the hedging operation was

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performed is no longer regarded as probable, the gains or losses not yet realised and accounted for in the

equity reserve are immediately recorded in profit or loss .

Derivative financial instruments are accounted for on the trade date.Fair value estimation

The fair value of financial instruments listed on an active market is based on the market prices at the

reporting date . In contrast, the fair value of financial instruments not listed on an active market is determined

using valuation techniques based on a series of methods and assumptions linked to the market conditions at

the reporting date. Given the short-term characteristics of trade receivables and payables, it is held that the

carrying amounts represent a good approximation of the fair value.

The classification of the fair values of financial instruments based on the following hierarchical levels is

provided below:

Level 1: fair value determined by referring to listed prices (not adjusted) on active markets for identical

financial instruments;

Level 2: fair value determined using valuation techniques with reference to observable variables on active

markets;

Level 3: fair value determined using valuation techniques with reference to non-observable market variables.

Construction contracts

Construction contracts (hereinafter also referred to as contracts) are entered at the value of the agreed

contractual considerations, reasonably accrued, according to the method of percentage of completion,

considering the state of progress reached and the expected contractual risks. The state of works progress is

measured by referring to the contract costs incurred at the reporting date in relation to the total estimated

costs for each single contract.

If the result of a contract cannot be adeguately estimated, contract revenue is only recognised to the extent

that it is likely that the costs incurred will be recovered. If the result of a contract can be estimated correctly

and it is likely that the contract will generate a profit, the contract revenue is recognised over the term of the

contract. If it is probable that the total costs of the contract will exceed the total contract revenue, the

potential loss is immediately shown in profit or loss.

The company records the gross amount due from customers for contracts related to contract in progress in

respect of which the costs incurred, plus the profit margins recognised (less the recognised losses) exceed the

amounts invoiced for works progress as an asset whereas it records the gross amount due to customers for all

those contracts in progress in respect of which the amounts invoiced for works progress exceed the costs

incurred, including the recognised profit margins (less the recognised losses), as a liability.

Employee benefits

Short-term benefits refer to salaries, wages, related social security charges , indemnities in lieu of holidays

and incentives paid in the form of bonuses payable during the twelve months after the reporting date . Such

benefits are accounted for as components of the cost of personnel during the period in which the work

activity was supplied.

Post employment benefits and other employee benefits

The company has both defined contribution plans and defined benefit plans. The defined contribution plans

are managed by third-party fund managers in respect of which there are no legal obligations or of any other

Italferr S.p.A.


nature to pay further contributions should the fund lack sufficient assets to fulfil the commitments undertaken

with regard to employees. As regards the defined contribution plans, the Company pays contributions,

voluntary or established by contract, to public and private insurance pension funds. Such contributions are

entered as personal costs on an accrual’s basis . Pre-paid contributions are entered as assets which will be

refunded or carried forward for setoff against future payments, should such payments become due.

In defined benefit plans, the total amount of benefit due to be paid out to the employee can only be

quantified after the working relationship has terminated and is associated with one or more factors such as

age, years of service or salary. The obligations for defined benefit plans are therefore determined by an

independent actuary using the ‘projected unit credit method’’. The present value of the defined benefits plan

is determined by discounting future cash flows at an interest rate equal to that of bonds (high-quality

corporate) issued in the currency in which the liability is settled and which takes into account the duration of

the related pension plan. The gains and losses deriving from the actuarial calculation are entirely attributed to

the equity for the year of reference while taking into account the related deferred tax effect.

In particular, it should be made clear that the Company manages a defined benefits plan, the TFR [post-

employment benefit]. The TFR is mandatory for Italian companies under art. 2120 of the Civil Code. Its

nature is that of a deferred remuneration and it is correlated to the duration of the employee’s working life

and to the salary received during the period of service rendered. Starting from 1 January 2007, Law 27

December 2006, no. 296 ‘Finance Law 2007’ and subsequent Decrees and Regulations introduced important

amendments in the rules governing TFR including the employee’s choice with regard to the possible allocation

of his or her TFR, either accruing in complementary pension schemes funds or in the “Treasury Fund”

managed by the INPS. The result of this is that the obligation vis-à-vis the INPS and the contributions to

complementary pension schemes have taken on the form, in line with IAS 19 ‘Employees benefits ’, of defined

contribution plans whereas the contributions allocated to the TFR as of 1 January 2007 will maintain their

nature of defined benefit plans.

The company also has a pension plan with defined benefits, the Free Circulation Card (CLC), which

guarantees employees, even retired employees and their families, the right to free travel or, in some cases,

by means of paying a right of admission, to travel on trains operated by the FS Italiane Group.

Therefore, a provision recording the updated charges relating to retired employees with rights to benefits and

the benefits accrued for employees who are still active and which will be paid out when their employment

relationship ends and based on the aforementioned actuarial methods is recognised i. The accounting

treatment of the benefits deriving from the CLC and the effects deriving from the actuarial valuation are the

same as those envisaged for the TFR.

Provisions fo risks and charges provisions

They are entered against losses and charges of a determined nature, of certain or probable existence, of

which, nonetheless, the amount and/or date of occurrence cannot be determined. Registration is only shown

when there is a current obligation (legal or implicit) for a future outgoing of economic resources as a result of

past events and it is likely that such outgoing is required in order to fulfil the obligation. Such amount

represents the best estimate of the charge in order to extinguish the obligation. The rate used when

determining the present value of the liabilities reflects the current market values and considers the specific

risk which can be associated to each liability.

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When the time value of money is significant and the payment dates of the obligations can be reliably

estimated, the provisions are assessed at the present value of the expected disbursement using a rate which

reflects market conditions, variation of the time value of money and the specific risk linked to the obligation.

The increase in the provision determined by variations in time value of money is accounted for as interest

expense.

Risks for which the a liability is only possible are disclosed a specific note in to contingent liabilities and no

accruals are recognised.

Revenue

Revenue is recognised when it is probable that economic benefits shall converge into the Company and their

total can be defined in a reliable manner, considering the value of any yields, allowances, commercial

discounts and bonuses pertaining to quantity.

Revenue from the supply of services is recognised in profit or loss with reference to the stage of completion

of the service and only for the amount at which the result of the service can be reliably estimated.

Revenue from contract work in progress is recognised, consistent with that described in the previous

paragraph, with reference to the status of progress (method of percentage of completion).

Revenue from the sale of goods is measured at the fair value of the received or due consideration. Revenue

from the sale of goods is recognised when significant risks and rewards associated to the ownership of the

goods are transferred to the purchaser and the related costs can be reliably estimated.

Interest income is recognised in profit or loss at the effective rate of return..

Government grants

Government grants, if there exists a formal resolution governing their recognition and, in any case, if the right

to grant them is deemed to be final because there is reasonable certainty that the Company will abide by the

conditions for receiving the grants and the grants will be collected, are recognised on an accrual basis and

directly matched to the costs incurred.

Recognition of expense

Expense is recognised if it relates to goods and services purchased or used during the year or systematically.

Income taxes

They are calculated based on an estimate of the Corporate taxable income and in compliance with the tax

legislation in force. Deferred tax assets related to previous tax losses are recognised to the extent that it is

likely that future taxable income will be available to enable the recovery of the deferred tax assets. Deferred

taxes are determined by using tax rates that are expected to apply in the financial years in which the

differences are realised or extinguished.

Current and deferred taxes are shown in the income statement, with the exception of those related to entries

shown among other comprehensive income or directly debited or credited to equity In these cases, the

deferred taxes are recognised in the item ‘Tax effect’ relating to the other comprehensive income and directly

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in net equity. Deferred taxes are offset if they are applied by the same tax authority, there is a legal right of

setoff and the settlementof the net balance is expected.

Other non income-related taxes, such as indirect duties and taxes are included in the income statement item

“Other operating costs”.

Recently issued accounting standards

Accounting standards, amendments and interpretations adopted for the first time

The new /IFR that have applied since 1 January 2014 are described below.

IFRS 10 – Consolidated Financial Statements

On 12 May 2011 the IASB issued IFRS 10 – ‘Consolidated Financial Statements’ replacing the interpretation

SIC-12 ‘Consolidation – Special Purpose Entities’ and IAS 27 – ‘Consolidated and Separate Financial

Statements’, which was renamed ‘Separate Financial Statements’ and governs the accounting treatment of

investments in the separate financial statements. The new standard defines a single control model applicable

to all companies.

It should be recalled that Italferr, availing itself of the right under art. 27 of Legislative Decree no. 127/1991,

does not prepare consolidated financial statements.

IFRS 11 – Joint Arrangements

On 12 May 2011 the IASB issued IFRS 11 – ‘Joint Arrangements’ superseding SIC-13 – ‘Jointly Controlled

Entities – Non-Monetary Contributions by Venturers’ and IAS 31 – ‘Interests in Joint Ventures’.

Following the publication of IFRS 11, IAS 28 – ‘Investments in Associated and Joint Ventures’ was amended to

include interests in jointly controlled entities within the scope of its application from the date the standard

came into force. IFRS 11, notwithstanding the criteria for identifying the existence of joint control, envisages

that the joint arrangements based on which the control over an asset is jointly assigned to two or more

operators are classified as Joint Operation (JO) or Joint Venture (JV) on the basis of an analysis of the

underlying contractual rights and obligations. In particular, a JV is a Joint Arrangement in which the

participants, even though they have control over the main strategic and financial decisions through voting

mechanisms envisaging unanimous decisions, do not have legally significant rights over the individual assets

and liabilities of the Joint Venture. In this case, the joint control is exercised in respect of the net assets of the

JV. This type of control is recognised in the separate financial statements using the cost method and in the

consolidated financial statements using the equity method. In contrast, Joint Operations are Joint

Arrangements in which the participants have rights to the assets and have direct obligations for the liabilities.

In this case, the individual assets and liabilities and the corresponding costs and revenue are shown in the

financial statements including separate ones, even separately, of the participant on the basis of the rights and

obligations of each of them, regardless of the participating interest held. Following the initial recognition, the

assets, liabilities and corresponding costs are measured in accordance with the relevant accounting applicable

to each type of asset/liability. According to IFRS 11 the existence of a separate vehicle is not a sufficient

condition for a joint arrangement to be considered a joint venture.

IFRS 12 – Disclosure of Interests in Other Entities

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On 12 May 2011 the IASB issued t IFRS 12 – ‘Disclosure of Interests in Other Entities’ which is a new and

complete standard concerning the additional disclosures that must be included in the financial statements for

all types of investment, including those in subsidiaries , jointly controlled companies, associates, special

purpose entities and other non-consolidated vehicles. The Group adopted this new standard retrospectively

from 1 January 2014.

IAS 32 – Financial Instruments – Presentation

On 16 December 2011 the IASB issued certain amendments to IAS 32 – ‘Financial Instruments: Presentation’

in order to clarify the application of certain criteria for offsetting the financial assets and liabilities found in IAS

32. Italferr adopted these amendments retrospectively from 1 January 2014.

IFRS 10 IFRS 11 IFRS 12 – Amendments: Transition Guidance

On 28 June 2012 the IASB published certain amendments to IFRS 10 – ‘Consolidated Financial Statements’,

IFRS 11 – ‘Joint Arrangements’ and IFRS 12 – ‘Disclosure of Interests in Other Entities’ stemming from the

proposals contained in the ‘Exposure Draft – Transition Guidance’ published in December 2011. The

amendments basically envisage relaxing the requirements during the transition phase to the new standards,

limiting the obligation to provide adjusted comparative information to the previous comparative financial year.

IFRS 10 IFRS 12 IAS 27 IAS 28 – Investment entity

On 31 October 2012 the IASB published some amendments to IFRS 10 – ‘Consolidated Financial Statements’,

IFRS 12 – ‘Disclosure of Interests in Other Entities’ and IAS 27 – ‘Separate Financial Statements’. The

aforesaid amendments clarify the definition of ‘investment entity’ and introduce an exception to the

application of the principle of consolidation for such entities, allowing them to measure their subsidiaries at

fair value. Furthermore, some of the disclosure requirements which the ‘investment entities’ must provide in

the notes are defined more accurately. The standard is applicable to the financial years starting from 1

January or at a later date.

IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets

On 29 May 2013 the IASB issued an amendment to IAS 36 – ‘Recoverable Amount Disclosures for Non-

Financial Assets’. The amendment governs the information that must be disclosed on the recoverable amount

of assets that have undergone an impairment loss if the amount in question is based on the fair value less

costs to sell.

The amendment is applicable from financial years starting on 1 January 2014.

IAS 39 – Financial Instruments: Recognition and Measurement

On 27 June 2013 the IASB issued some amendments to IAS 39 – ‘Financial Instruments: Recognition and

Measurement’ entitled ‘Novation of Derivatives and Continuation of Hedge Accounting’. The changes allow

hedge accounting to be continued in the event that a derivative financial instrument designated as a hedging

instrument is novated following the application of laws or regulations in order to replace the original

counterparty for the purpose of guaranteeing the successful outcome of the obligation entered into and

provided certain conditions are met.

The same amendment will be included in IFRS 9 – ‘Financial Instruments’. These amendments will apply from

financial years starting on 1 January 2014.

Italferr S.p.A.


Accounting standards, amendments and interpretations endorsed by the European Union, but

not yet applied and not adopted in advance by FS Italiane group

IFRIC 21 – Levies

On 20 May 2013 the IASB issued interpretation IFRIC 21 – ‘Levies’ which constitutes an interpretation of IAS

37 – ‘Provisions, Contingent Liabilities and Contingent Assets’. This document was endorsed by the European

Union in Regulation No 634 of 13 June 2014. IFRIC 21 clarifies when an entity must report a liability due to

payment of a levy imposed by the government, with the exception of those already governed by other

standards (e.g. IAS 12 - Income Tax). One of the requirements under IAS 37 for recognising a liability is the

existence of a current obligation incumbent upon the company arising from a past event (obligating event).

The interpretation clarifies that the obligating event that gives rise to a liability for payment of the levy resides

in the relevant legislation triggering payment of the levy.

IFRIC 21 is applicable from financial years starting on 17 June 2014 or thereafter.

Annual Improvements to IFRS: 2011-2013 Cycle

On 12 December 2013 the IASB published the document ‘Annual Improvements to IFRSs: 2011-2013 Cycle’

which transposes the amendments to the main accounting standards carried out as part of the normal task of

rationalisation and clarification of such standards. This document was endorsed by the European Union in

Regulation No 1361 of 18 December 2014. The standards addressed under the Regulation are: IFRS 3

‘Business Combinations’, IFRS 13 ‘Fair Value Measurement’ and IAS 40 ‘Investment Property’. The amendment

to IFRS 3 clarified that this standard is not applicable to the financial statements of a joint arrangement (joint

venture or joint operation) when it is entered into. This exclusion, before the amendment, was limited to the

establishment of joint ventures. The amendment to IFRS 13 clarified that the ‘portfolio exception’ is applicable

to the financial assets and liabilities governed on the basis of the net exposure to the market risk and to the

credit risk provided such financial instruments, despite not falling under the definition of IAS 32, fall within the

scope of IAS 39. The amendments to IAS 40 clarified that an entity must assess whether the property

purchased is an investment property or a property for use by the owner in line with IAS 40 and then

separately assess whether the purchase of an investment property represents the purchase of a business or a

group of operations.

These amendments are applicable from 1st January 2015 or thereafter.


On 12 December 2013 the IASB published the document ‘Annual Improvements to IFRSs: 2010-2012 Cycle’

which transposes the amendments to the main accounting standards carried out as part of the normal tasks

of rationalisation and clarification of such standards. This document was endorsed by the European Union in

Regulation No 2015/28 of 17 December 2014. The standards addressed under the Regulation are: IFRS 2

‘Share-Based Payment’, IFRS 3 ‘Business Combinations’, IFRS 8 ‘Operating Segments’, IAS 16 ‘Property, Plant

and Equipment’, IAS 24 ‘Related Party Disclosures’, IAS 38 ‘Intangible Assets’ and, following the amendments

to IFRS 3, IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ and IAS 39 ‘Financial Instruments:

Recognition and Measurement’. The amendment to IFRS 2 clarified the definition of ‘vesting condition’ by

separately defining the concepts of ‘performance condition’ and ‘service condition’. The amendments to IFRS

3 clarify that the classification of an obligation to pay a contingent consideration as a financial liability ort

equity must take place in accordance with the definitions of financial liability and equity instrument found in

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IAS 32 ‘Financial Instruments: Presentation’; and that the changes in the fair value of a contingent

consideration that does not represent a ‘measurement period adjustment’ and has not been classified as

equity must be recognised in the profit or loss for the year. In the amendments to IFRS 8, the IASB

introduced a new disclosure obligation in relation to valuations performed by a company’s managers when

applying the aggregation criteria set out in paragraph 12. In particular, an entity is required to provide a brief

description of the operating segments that have been aggregated, the criteria referred to and the economic

indicators assessed when deciding whether the operating segments aggregated have similar economic

characteristics. The amendment to IAS 24 modifies the definition of ‘related party’ to include ‘management

entities’, i.e. those entities (or any member of a group to which it belongs) providing management services

with strategic responsibility to the entity preparing the financial statements or to its Parent. With regard to

‘management entities’, the entity preparing the financial statements must indicate the amount incurred in

expenses for the provision of management services with strategic responsibilities but, however, it is not

obliged to indicate the consideration paid or due from the ‘management entity’ to its own managers or

employees, which would be requested under IAS 24.17. The amendments to IAS 16 and 38 clarify that in the

event of the application of the revaluation model, the adjustments to the accumulated depreciation are not

always proportional to the adjustment to the gross carrying amount. In particular, on the date that the

amount is revalued, the adjustmentof the asset’s carrying amount to the re-assessed amount may take place

in one of the following manners: a) the asset’s gross amount is adjusted to ensure that it is coherent with the

revaluation and the accumulated depreciation is adjusted so that it is equal to the difference between the

gross carrying amount and the asset’s carrying amount after taking into account the accumulated impairment

losses; b) the accumulated depreciation is eliminated vis-à-vis the asset’s gross carrying amount.

These amendments will apply from 1st February 2015 or thereafter.

IAS 19 – Employee Benefits

On 21 November 2013 the IASB issued some amendments to IAS 19 – ‘Employee Benefits’ entitled ‘Defined

Benefit Plans: Employee Contributions’. These documents were endorsed by the European Union in Regulation

No 2015/29 of 17 December 2014 with the aim of simplifying the task of accounting for contributions by

employees or third parties linked to defined benefit plans.

These amendments will apply from 1 February 2015 or thereafter.

Accounting standards, amendments and interpretations not yet endorsed by the European Union

On the date of this report, the competent bodies of the European Union had not yet concluded the necessary

endorsment process for the adoption of the following accounting standards and amendments.

IFRS 14 - Regulatory Deferral Accounts

On 30 January 2014 the IASB published IFRS 14 ‘Regulatory Deferral Accounts’, the interim standard related

to the Rate-regulated activities project. IFRS 14 only allows those who adopt the IFRS for the first time to

continue tothe amounts relating to rate regulation in accordance with previously adopted accounting

standards. With a view to improving comparability with entities that already apply the IFRS and which do not

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recognise such amounts, the standard stipulates that the effect of the rate regulation should be shown

separately from the other items.

IFRS 11 – Amendments

On 6 May 2014 the IASB published ‘Accounting for Acquisitions of Interests in Joint Operations (Amendments

to IFRS 11)’. The amendments published provide a new guide on how to account for the acquisition of an

interest in a joint operation, specifying the appropriate accounting treatment of such acquisitions.

IAS 16 IAS 38 - Amendments

On 12 May 2014 the IASB published ‘Clarification of Acceptable Methods of Depreciation and Amortisation’

(Amendments to IAS 16 and IAS 38) with the aim of clarifying that a depreciation method based on the

revenues generated by an asset (known as the revenue-based method) is regarded as inappropriate since it

only reflects the flow of proceeds generated by such an asset but not the method whereby consumption of

the economic benefits embodied in the asset takes place.

IAS 16 IAS 41 – Amendments

On 30 June 2014 the IASB published some amendments to IAS 16 and to IAS 41 concerning plants (Bearer

Plants). According to these amendments, the plants may be recognised based on a cost model instead of their

fair value. In contrast, harvested plants continue to be recognised at fair value.

IFRS 15 - Revenue from Contracts with Customers

On 28 May 2014 the IASB and the FASB, within the context of the convergence programme IFRS-US GAAP,

published the standard Revenue from Contracts with Customers. The standard represents a unique and

complete framework for recognising revenue and lays down the rules that should apply to all contracts with

customers (with the exception of contracts falling under the scope of standards on leases, insurance contracts

and financial instruments). IFRS 15 replaces the previous standards on revenue: IAS 18 Revenue and IAS 11

Construction Contracts as well as the interpretations IFRIC 13 Customer Loyalty Programmes, IFRIC 15

Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31

Revenue—Barter Transactions Involving Advertising Services.

IFRS 9 – Financial Instruments

On 24 July 2014 the IASB published the final version of IFRS 9 ‘Financial Instruments’. The document contains

the results of the phases of the IASB project relating to classification and measurement, derecognition,

impairment and hedge accounting which will replace IAS 39. The new standard replaces the previous versions

of IFRS 9. As is well known, the IASB initiated the project in 2008 with the aim of replacing IFRS 9 and has

advanced by stages. In 2009 it published the first version of IFRS 9 dealing with the measurement and

classification of financial assets; subsequently, in 2010, the rules relating to financial liabilities and

derecognition were published. In 2013 IFRS 9 was amended to include the general model of hedge

accounting. Following the current publication, IFRS 9 should be regarded as complete.

IAS 27 – Amendments

On 12 August 2014 the IASB published the document Equity Method in Separate Financial Statements

(Amendments to IAS 27)’. The amendments will allow entities to use the equity method when accounting for

interests in subsidiaries, joint ventures and associates in separate financial statements.

Italferr S.p.A.


IFRS 10 IAS 28 – Amendments

On 11 September 2014 the IASB published the document ‘Sales or Contribution of Assets between an Investor

and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) with the aim of resolving a

contradiction between IAS 28 and IFRS 10. According to IAS 28, the gain or loss resulting from the sale or

contribution of a non-monetary asset to a joint venture or associate in exchange for an interest in the share

capital of the latter is limited to the interest held by unrelated investors not involved in the transaction. On the

contrary, IFRS 10 provides for the recognition of the entire gain or loss in the event of a loss of control, even

if the entity continues to hold a non-controlling interest in the company, and includes the sale or contribution

of a controlled entity to a joint venture or associate within the scope of this definition. The amendments

introduced envisage that if a sale/contribution of assets or of a controlled entity to a joint venture or associate

takes place, the measurement of the gain or loss that must be recognised in the financial statements of the

seller/contributor depends on whether the assets or the controlled entity sold/contributed constitute(s) a

business as defined in IFRS 3. In the event that the assets or the controlled entity sold/contributed represent

a business, the entity must report the gain or loss for the entire participating interest previously held;

whereas, if the opposite is true, it must report the share of the gain or loss relating to the interest still held by

the entity.


On 25 September 2014 the IASB published the document’Annual Improvements to IFRS: 2012-2014 Cycle’.

The amendments introduced concern the following standards: IFRS 5 Non-current Assets Held for Sale and

Discontinued Operations, IFRS 7 Financial Instruments: Disclosure, IAS 19 Employee Benefits, IAS 34 Interim

Financial Reporting.

IFRS 10 IFRS 12 IAS 28 – Amendments

On 18 December 2014 the IASB published the document Investment Entities: Applying the Consolidation

Exception (Amendments to IFRS 10, IFRS 12 and IAS 28). The amendment clarifies three questions linked to

the consolidation of an investment entity.

IAS 1 – Amendments

On 18 December 2014 the IASB published some amendments to IAS 1 Presentation of Financial Statements

with the aim of clarifying some aspects regarding disclosure. The initiative falls under the scope of the project

Disclosure Initiative which is aimed at improving the presentation and disclosure of financial information in

financial relationships and resolving some of the issues highlighted by operators.

5 Management of financial and operational risks

Given the nature of its business, Italferr is exposed to various types of risk, in particular, risks associated with

the use of estimates, credit, liquidity and market risks. In order to limit exposure to such risks, the company

carries out a series of activities of monitoring, measurement and management thereof, in coherence with the

guidelines emanated by the Parent, which are described in the following paragraphs.

Use of estimates and assessments

Italferr S.p.A.


The preparation of the Annual Report requires the application by the directors of accounting standards and

methods which, in certain circumstances, rely on difficult and subjective assessments and estimates based on

past experience and on assumptions which are deemed to be reasonable and realistic at any given time

depending on the particular circumstances.

The final results of financial statements caption for the current determination of which such estimates and

assumptions have been used may therefore differ, even significantly, from those shown in the financial

statements, due to the uncertainty characterising the assumptions and conditions upon which such estimates

are based.

The estimates and assumptions are reviewed periodically and the effects of each variation are reflected in

profit or loss wherever they only affect the current financial year. If the review involves both current and

future financial years, the change is shown in the financial year in which the review is carried out and in the

related future financial years.

Therefore the final balances calculated may differ, even significantly, from such estimates following changes

in the factors taken into account when making such estimates.

The accounting principles that require a more subjective appraisal by the directors than others when

preparing the estimates and for which a change in the conditions underlying the assumptions made could

have a significant effect on the financial statements are briefly described below:

i. Impairment of assets

In accordance with the groups’ accounting policies, property, plant and equipment and intangible assets with

a finite life are checked to ascertain whether an impairment has taken place, which must be recognised by

recognised an impairment loss when there are indicators suggesting that there will be difficulties in recovering

the related carrying amount through use. The ascertainment of the existence of such indicators requires

subjective evaluations to be made by the managers based on the information available within the Company

and in the market as well as past experience. Furthermore, if it is concluded that impairment may have taken

place, the company proceeds to determine the impairment by using assessment methods that are deemed

appropriate. The correct identification of elements indicating the existence of potential impairment as well as

estimates for determining the latter depend on factors that may vary over time, influencing the assessments

and estimates carried out by the directors.

ii. Depreciation and amortisation

The cost of property, plant and equipment and intangible assets is depreciated/amortised over the estimated

useful life of the relative assets. The useful economic life of the company’s assets is determined by the

directors when the asset is purchased; this is based on past experience relating to similar assets, the market

conditions and the forecasts regarding any events in the future that could have an impact on the asset’s

useful life. Therefore, the actual useful life may differ from the estimated useful life. The company assesses

the technological changes and those in the sector that have taken place from time to time in order to update

the remaining useful life. This periodic adjustment may entail a change in the depreciation/amortisation period

and therefore, also, in the depreciation/amortisation charge for future financial years.

iii. Provisions for risks and charges provisions

Provisions are made representing the risk of a negative outcome in order to counter legal and tax risks. The

amount of the recognised provisions in relation to such risks represents the best possible estimate carried out

Italferr S.p.A.


on the date by the managers. This estimate involves assumptions that depend on factors which may change

over time and which may therefore have a significant impact on the current estimates made by the managers

for the purpose of preparing the Company’s financial statements.

iv. Taxes

Deferred tax assets are recognised according to the expected income forecast for future years. The

assessment of expected income for the purpose of accounting for deferred taxes depends on factors which

may vary over time and have a significant impact on the assessment of deferred tax assets.

Credit risk

The credit risk is the risk that a customer or one of the counterparties to a financial instrument will cause a

financial loss by failing to fulfil an obligation. From the point of view of Italferr, the credit risk stems mainly

from trade receivables, receivables related to derivative financial instruments and from cash and cash

equivalents. For financial institutions and banks, only counterparties with an independent rating are accepted.

As far as the assessment of the credit risk of customers is concerned, the Company is responsible for

managing and analysing the risk represented by every new and important customer, constantly monitors its

own commercial and financial exposure and monitors the collection of receivables within the deadlines laid

down in contracts. The analysis of the credit risk includes an independent rating, if available, and an

examination of the counterparty’ s financial position as well as past experience.

The following table summarises the Company’s exposure to credit risk:

31.12.2014 31.12.2013

Current trade receivables 63,991 57,142

Allowance for impairment (2,005) (1,936)

Current trade receivables net of the allowance for impairment 61,986 55,206

Other current assets 3,995 4,894

Allowance for impairment provision (211) (184)

Other current assets net of the allowance for impairment 3,784 4,710

Non-current financial assets (including derivatives) 1 42

Other non-current assets 121 106

Cash and cash equivalents 5,735 5,326

Current financial assets (including derivatives) 6,478 0

Construction contracts 110,131 141,047

Contractual risks provision (1,023) (1,409)

Construction contracts net of the allowance for impairment 109,108 139,638

Total exposure net of the allowance for impairment 187,213 205,028

Italferr S.p.A.


In terms of the type of counterparty, the exposure to credit risk, in figures and percentage terms, breaks

down as follows:

31.12.2014 31.12.2013

Ordinary customers 17,306 9.2% 13,388 6.5%

FSI Group companies 44,680 23.9% 41,818 20.4%

Other Group creditors 860 0.5% 3,013 1.5%

Other Third Party creditors 2,924 1.6% 1,697 0.8%

Financial institutes 5,735 3.1% 5,326 2.6%

Non-current financial assets (including derivatives) 1 0.0% 42 0.0%

Current financial assets (including derivatives) 6,478 3.5% 0 0.0%

Third party construction contracts 18,339 9.8% 10,568 5.2%

Group construction contracts 90,769 48.5% 129,070 63.0%

Other non-current Group assets 8 0.0% 8 0.0%

Other non-current Third Party assets 113 0.1% 98 0.0%

Total exposure gross of the allowance for mpairment

187,213 100.0% 205,028 100.0%

With regard to the overall exposure to credit risk, approx. 76% thereof is made up of receivables from the

Group whereas the remaining amount, 44,418 thousand euros, corresponds to receivables from third parties.

The latter includes invoiced receivables, included in the item ‘Ordinary customers’ and amounts to 18,932

thousand euros, approx. 56% of which were not yet due at the reporting date.

With regard to credit exposure at 31 December 2014 vis-à-vis third parties, it should be noted that after the

end of the financial year, 7.5 million euros was collected for invoices issued before the end of the previous

financial year.

Given that the invoiced receivables are those characterised by a higher credit risk, Italferr constantly monitors

their status by means of an ageing analysis and initiates procedures in good time for claiming any receivables

not collected within the contractually agreed deadlines.

The following tables provide an overview of the current trade receivables at 31 December 2014 and 2013

grouped according to maturity, excluding the allowance for impairment.

Italferr S.p.A.


31.12.2014 Not yet

past due Total not yet and past due 0-180

180-360

360-720

more than 720

total past due

Ordinary customers (gross) 10,554 1,540 0 5,245 507 7,292 17,846

Allowance for impairment (247) (1,332) (367) (1,946) (1,946)

Ordinary customers(net) 10,554 1,293 0 3,913 140 5,346 15,900

Public Administration (gross) 68 905 91 4 18 1,018 1,086

Allowance for impairment (37) (3) (18) (58) (58)

Public Administration (net) 68 905 54 1 0 960 1,028

Group Receivables (gross) 41,790 967 322 0 44 1,333 43,123

Allowance for impairment provision

Group Receivables (net) 41,790 967 322 0 44 1,333 43,123

Total receivables net of the Allowance for impairment

52,412 3,165 376 3,914 184 7,639 60,051

Invoices to be issued and other 1,935 0 1,935

Total net trade receivables 54,347 3,165 376 3,914 184 7,639 61,986

31.12.2013 Not yet

past due Total not yet and past due 0-180

180-360

360-720

more than 720

total past due

Ordinary customers (gross) 2,331 4,700 1,581 5,988 359 12,628 14,959

Allowance for impairment 156 690 344 357 359 1,750 1,906

Ordinary customers (net) 2,175 4,010 1,237 5,631 0 10,878 13,053

Public Administration (gross) 7 50 0 34 3 87 94

Allowance for impairment 27 3 30 30

Public Administration (net) 7 50 0 7 0 57 64

Group Receivables (gross) 30,210 10,446 242 40 10,728 40,938

Allowance for impairment 0 0

Group Receivables (net) 30,210 10,446 242 0 40 10,728 40,938

Total receivables net of the allowance for impairment

32,392 14,506 1,479 5,638 40 21,663 54,055

Invoices to be issued and other 1,151 1,151

Total net trade receivables 33,543 14,506 1,479 5,638 40 21,663 55,206

Italferr S.p.A.


Liquidity risk

The liquidity risk is the risk that an entity will experience difficulties in fulfilling obligations associated with

financial liabilities due to be settled through liquid funds or another financial asset.

For Italferr this risk is reduced to the minimum inasmuch as it is part of a cash pooling system managed by

the Parent which provides for the Company needs for liquidity through cash flows generated by ordinary

operations.

In this area, the cash flow, financing needs and liquidity of Italferr are monitored and managed centrally

under the supervision of the Finances section in the Central Finances, Control and Capital Department at the

Parent with a view to guaranteeing the effective and efficient management of the financial resources.

At the end of 2014 Italferr had open credit lines amounting to 27.5 million euros of which 8.4 million had

been drawn down.

The contractual terms to maturity of the financial liabilities, including interest expense, are shown in the

following table:

31.12.2014 Carrying amount

contractual cash flows

6 month

s or less

6 - 12 month

s

1 - 2 years

2 - 5 years

More than

5 years

Non-derivative financial liabilities

Financial liabilities to Group companies

Trade payables 44,341 44,341

Total 44,341 0 44,341 0 0 0 0

FX Forward Hedge 804 804 23 435 346

Cash Flow Hedge 804 804 23 435 346

Derivative financial liabilities 804 804 23 435 346 0 0

31.12.2013 Carrying amount

contractual cash flows

6 month

s or less

6 - 12 month

s

1 - 2 years

2 - 5 years

More than

5 years

Non-derivative financial liabilities

Financial liabilities to Group companies 45,638 45,638

Trade payables 38,603 38,603

Total 84,241 0 84,241 0 0 0 0

FX Forward Hedge

Cash Flow Hedge

Derivative financial liabilities 0 0 0 0 0 0 0

Italferr S.p.A.


Market risk

When carrying out its operational activity, Italferr is potentially exposed to the risk of oscillations in interest

rates and exchange rates. The Company uses hedging transactions to manage the volatility of results.

Interest rate risk

The financial exposure that Italferr can have during its operation concerns entirely the parent and it is

associated with commercial reasons, so it has a short-term nature. The Company is not therefore exposed to

the risk of interest rate related to medium/long-term funding.

In addition, the extraordinary measure approved by the ECB (known as ‘quantitative easing’) with the aim of

relaunching the economies in the Eurozone has maintained debt costs and interest rates at minimum levels

and the outlook for 2015 confirms that interest rates will remain at exceptionally low levels for a long time.

This is the reason why the Company’s short-term exposure is also not subject to the interest rate risk.

Currency

Although Italferr mainly operates in the Italian market, the growth in the share of the non-captive market,

with important contracts secured by the company and denominated in foreign currencies, exposes the

Company to the currency risk.

Currently, the main foreign contracts in Italferr’s portfolio are those secured in Saudi Arabia, Oman and Qatar;

the currencies in these countries, still linked to the US dollar, have appreciated since the summer of 2014

benefitting from the sharp rise in the dollar. The market expectations on the evolution of these currencies

reveal different trends from country to country: in particular, Oman is amongst those Gulf States with the

lowest foreign currency reserves; this could limit the country’s ability to defend its exchange rate if crude oil

prices remain at low levels.

In order to combat fluctuations in the exchange rate of the euro and the Omani rial (OMR) Italferr has

concluded specific hedging derivatives consisting of cash flow hedges: these hedges mean that the Company

is perfectly protected against the risk since it has opted for forward contracts directly linked to the EUR/OMR

exchange rate and to the USD/EUR exchange rate by way of a proxy hedge to protect against the risk.

The Saudi riyal and the Qatari riyal, albeit to a lesser extent than the Omani rial, are also affected by the

uncertainty surrounding the possibility of maintaining their currencies pegged to the dollar.

However, Italferr has not yet concluded hedging instruments for these currencies similar to those used for the

Omani rial because local administrative problems have meant that up to now, Italferr has collected the

amounts due in Italy, directly converted into euros.

The positive evolution of the exchange rates of the currencies in question generated net exchange rate gains

in 2014 amounting to 654 thousand euros.

In conclusion of this disclosure, shown below in the following table is Italferr’s exposure to the currency risk,

at the end of 2014 according to notional amount.

Italferr S.p.A.


31.12.2014

Currency units to EUR

Currency balances in thousands

Countervalue in thousands of EUR

Currency

Average exchange

End of year

exchange

Trade receivabl

es

Allowanc

e for impairme

nt

Trade payables

Net exposure (currency)

Trade receivables net of allowance for

impairment

Trade payables

AED Dirham EAU 4.88 4.46 (14) (14) (3)

BRL Brazilian Real 3.12 3.22 (7) (7) (2)

DZD Algerian Dinar 106.87 106.61 5,683 (1,968) 3,715 53 (18)

ETB Ethiopian Birr 23.90 24.53 1,676 (603) 1,074 68 (25)

EUR Euro 58,379 (1,838) (40,330) 16,211 56,541 (40,330)

INR Indian Rupi 81.04 76.72 (225) (225) (3)

OMR Oman Rial 0.51 0.47 37 (613) (576) 80 (1,312)

QAR Qatar Riyal

4.84 4.42 (30) (30) (7)

RON New Rumanian Leu

4.44 4.48 797 (750) (3,968) (3,921) 11 (885)

SAR Saudi Arabian Riyal

4.98 4.56 20,595 (7,379) 13,216 4,519 (1,619)

SYP Syrian Pound 203.69 218.89 (1) (1) (0)

TRY Turkish Lira

2.91 2.83 (40) (40) (14)

USD US Dollar 1.33 1.21 866 (146) 720 713 (120)

VEF Venezuelan Bolivar 8.33 7.64 (16) (16) (2)

61,986 (44,341)

Management of own founds

The Company’s aim is mainly that of safeguarding its ability to continue as a going concern, ensuring returns

for shareholders and benefits to other stakeholders. The company has also set itself the task of maintaining

an optimal capital structure so as to reduce the cost of debt.

Financial assets and liabilities by category

To complete disclosure about financial risks, the table below shows reconciliation between financial assets and

liabilities as shown in the statement of financial position and category of financial assets and liabilities

identified on the basis of the requirements of IFRS 7:

Italferr S.p.A.


31.12.2014 Loans and receivables

Loans and borrowing

of which hedging

derivatives

Non-current financial assets (including derivatives) 1

Other non-current assets 121

Construction contracts 109,108

Current trade receivables 61,986

Current financial assets (including derivatives) 6,478

Cash and cash equivalents 5,734

Tax assets 34

Other current assets 3,784

Non-current financial liabilities (including derivatives) 346 346

Other non-current liabilities 115

Current trade payables 44,341


Current financial liabilities (including derivatives) 458 458

Other current liabilities 38,243

31.12.2013 Loans and receivables

Loans and borrowing

of which hedging

derivatives

Non-current financial assets (including derivatives) 42

Other non-current assets 106


Current trade receivables 55,206

Current financial assets (including derivatives) 0

Cash and cash equivalents 5,326

Tax assets 542

Other current assets 4,710

Non-current financial liabilities (including derivatives) 0

Other non-current liabilities 115

Current trade payables 38,603

Tax payables 537


Current financial liabilities (including derivatives) 45,638

Other current liabilities 25,256

Italferr S.p.A.


6 Property, plant and equipment

With a carrying amount of 26,382 thousand euros at the end of 2014, in property, plant and equipment fell by

946 thousand euros with respect to the previous year. The change is due to the new investments made

during 2014, amounting to 1,333 thousand euros, excluding depreciation for the year (2,278 thousand euros).

More details of the changes that occurred during 2014 are shown in the following table.

Land and buildings

Other assets

Assets under construction

and payments on

account

Total

Opening balance as at 01.01.2013

24,076 3,805 215 28,096

Investments 327 1,138 37 1,502

Roll-out 177 21 (198) 0

Amortisation (650) (1,586) (2,236)

Sales and divestments (20) (16) (36)

Total changes (146) (447) (177) (770)

Historical cost 25,436 26,217 37 51,690

Depreciation and impairment losses (1,505) (22,860) (24,366)

Closing balance as at 31.12.2013

23,931 3,357 37 27,325

Investments 59 1,149 127 1,335

Roll-out 37 (37) 0

Amortisation (661) (1,617) (2,278)

Sales and divestments

Total changes (602) (431) 90 (943)

Historical cost 25,495 26,596 127 52,218

Depreciation and impairment losses (2,166) (23,670) 0 (25,836)


23,329 2,926 127 26,382

The increase in “Land and buildings” refer entirely (59 thousand euros) to maintenance operations increasing

the carrying amount of assets carried out at the Rome site.

Investments in “Other assets”, amounting to a total of 1,151 thousand Euros, concerned:

• purchase of furniture and fittings (28 thousand euros, of which 11 thousand for the Riyadh and Muscat

sites);

• purchase of hardware, totalling 951 thousand euros, to replace obsolete office equipment (257 thousand

euros), upgrading of Wi-Fi infrastructure (66 thousand euros), new equipment (plotters, graphical

workstations, notebooks, videoconference systems etc. totalling 569 thousand euros) and for the Riyadh

and Muscat sites (59 thousand euros);

• complete outfitting for a mobile laboratory for environmental monitoring due to be used for the

operations envisaged under the contract concluded by Italferr with Autovie Venete (149 thousand euros),

to which 37 thousand euros for work already begun in 2013 and concluded in the current financial year

should be added;

• purchase of small items of equipment (16 thousand euros);

• cabling at the Riyadh and Muscat sites (7 thousand euros).

Italferr S.p.A.


Finally, the investments not yet completed, indicated in the item ‘Assets under construction and payments on

account’ refer to the maintenance operations increasing the carrying amount of assets at the Palermo (62

thousand euros) and Verona (65 thousand euros) sites.

The depreciation for the year was calculated systematically and consistently since there were no changes in

the estimated useful lives of assets during 2014.

“Sales and divestments” concern:

• scrapping of hardware, furniture and fittings which are either obsolete or no longer useable from the

original value of 655 thousand euros, fully depreciated;

• the sale of hardware, furniture, fittings and a vehicle (the last item at the site in Romania) no longer

suitable for the company’s needs, with a total historical cost of 154 thousand euros, also fully

depreciated. The sale generated proceeds of 7 thousand euros.

All recognised property, plant and are owned by Italferr and used in corporate operations. Furthermore, there

are no encumbrances of any kind on the latter.

7 Intangible assets

Industrial patents and intellectual

property rights

Assets under development

and payments on

account

Other Total

Opening balance at 1.1.2013 800 226 1,331 2,357

Investments 125 243 1,232 1,600

Roll-out (135) 135 0

Amortisation (400) (830) (1,230)

Total changes (275) 108 537 370

Historical cost 8,746 335 15,503 24,584

Amortisation and impairments losses (8,221) (13,635) (21,856)


525 335 1,868 2,728

Investments 586 416 1,450 2,452

Roll-out 0 (335) 335 0

Amortisation (414) (1,079) (1,493)

Total changes 172 81 706 959

Historical cost 9,332 416 17,288 27,036

Amortisation and impairments losses

(8,635) (14,714) (23,349)


697 416 2,574 3,687

The investments for the year, totalling an amount equal to 2,452 thousand Euros, concerned the development

and evolutionary maintenance of software, realised internally or outsourced, in support of the technical and

administrative structures and procurement for a total of 1,866 thousand Euros (416 thousand Euros of which

are still to be realised and 1,450 thousand Euros shown in “Other” intangibleassets).

Italferr S.p.A.


Furthermore, user licences and software packages have been acquired, available on the market which Italferr

uses in its normal activity (586 thousand Euros).

There are no lienss on the company’s intangible assets either, nor were they used in guarantee of liabilities.

8 Deferred tax assets and liabilities

The following table of shows deferred tax assets and liabilities, as well as the movement which took place in

2014 on the deferred taxation registered for the main temporary differences between the carrying amount

and the corresponding tax amounts.

31.12.2013 Incr./Decr.

through profit or loss

Incr./decr. to

equity 31.12.2014

Deferred tax assets: 2,717 168 928 3,813

Mesurement of financial instruments 221 221

Accruals for risks and charges and impairment losses in value with deferred tax deductibility

1,903 161 0 2,064

Other items 814 7 707 1,528

Deferred tax liabilities (155) (54) 0 (209)

on post-employment benefit’s actuarial profit (149) (149)

on exchange rate gains (6) (54) (60)

Net balance 2,562 114 928 3,604

Deferred tax assets refer almost exclusively to the amounts to be recovered on accruals to the contractual

risks provision and the provisions for risks and charges provision. Out of the total balance of deferred tax

assets , 1,702 thousand Euros shall be recovered after twelve months whereas the remaining part shall be

recovered within 2015.

9 Equity investments

As can be seen from the comparison of figures in the table below, the Company’s equity investments did not

change in 2014.

Carrying amount

31.12.2013

Carrying amount

31.12.2014

Allowance for

impairment

inequity investments: 357 357 0

Subsidiaries 350 350 0

Other companies 7 7 0

The changes occurred during the previous financial year are indicated in the table below.

Italferr S.p.A.


Carrying amount 31.12.20

12

Movements during the year Carrying amount 31.12.20

13

Accumulated

allowance for

impairment

Acquisitions/

subscriptions

Sales/ reimburseme

nts

Other moveme

nts

Equity investment in subsidiaries

270 80 350 0

Infrastructure Engineering Services (I.E.S) 270 80 350

Other companies 7 7 0

Consorzio Brennero Ingegneria 7 7

With regard to I.E.S., the comparison between the carrying amount and the corresponding share in equity is

shown below.

Equity investments in subsidiaries

Site

Share capit

al

Profit for the year

Equity at 31.12.201

4

% of holdin

g

Share of equity

(a)

Carryng amount

at 31.12.201

4 (b)

Difference (b) - (a)

I.E.S Belgrade - Serbia 350 138 440 100% 440 350 90

Finally, an overview of the main financial statements items of the balance sheet and income statement of the

subsidiary I.E.S. is provided below.

Financial statements

highlights at 31.12.2014

Current

assets

Non-curren

t assets

Total asset

s

Current liabilitie

s

Non-current liabilitie

s

Total liabilitie

s

Revenues

Costs

Profit for the

year

I.E.S 464 39 503 (62) (62) 427 (289) 138

For the sake of completeness, it should be noted that in order to win the bid for supervising the work on the

road tunnel under the Bosphorus, Italferr formed a joint venture with the Turkish company Altinok. Since

there are no indications that said joint venture constitutes a ‘separate vehicle’ as defined in IFRS 11, the costs

and revenues from the joint venture under Italferr’s responsibility have been shown in the Company’s profit

or loss.

The figures recorded are as follows:

2014

Revenue 206

Personnel costs (187)

Other costs (18)

Amortisation/depreciations (1)

Net financial income 3

Difference Revenue/ (Costs) 3

Italferr S.p.A.


10 Current and non-current financial assets (including derivatives)

The following table shows the composition of the financial assets:

Carrying amount

Financial assets 31.12.2014 31.12.2013

current non-current current non-current

Held-to-maturity financial assets until expiry:

Seized founds 1 42

Other financial assets

intercompany c/c 6,478

6,478 1 0 42

The seized founds, which amounted to 42 thousand euros in 2013, were almost entirely released (the

remaining amount at 31 December 2014 is 0.6 thousand euros) and are once again fully at the Company’s

disposal.

11 Other current and non-current assets

The item is as follows:

31.12.2014 31.12.2013 Changes

current non-

current current

non-current

current non-

current

Receivables due from the Parent for tax consolidation 510 2,552 (2,042) 0

Other receivables from Group companies 350 8 461 8 (111) 0

VAT assets 65 65 0 0

Sundry debtors 620 113 475 98 145 15

Advances to suppliers 1,559 833 726 0

Other tax credits 0 10 (10) 0

Prepayment and accrued income 891 498 393 0

Total 3,995 121 4,894 106 (899) 15

Allowance for impairment (211) (184) (27)

Total net allowance for impairment

3,784 121 4,710 106 (926) 15

Receivables from tax consolidation (510 thousand Euros) represent the amount paid to the Inland Revenue as

advance IRES 2014 taxation, net of the current tax. The reduction in this item between the two financial years

when compared is due to the fact that the payments on account in 2013 were higher than the average

amounts s because they were calculated based on income for 2012, which turned out to be extremely positive

due to exceptional one-off events.

Italferr S.p.A.


The other receivables from Group companies mainly refer to receivables for amounts paid by Italferr to settle

the related party’s payable to personnel transferred by this company to Italferr.

The item sundry Debtors (620 thousand Euros) is mainly formed of amounts due to employees and social

security (211 thousand Euros) and VAT credits of the Venezuela branch (211 thousand Euros). As recovery of

the latter is unlikely, given that the branch activity has been completed and therefore the possibility to recover

the amounts in subsequent tax returns no longer applies, their amount has been fully accrued in the relevant

allowance for impairment.

Down advances to suppliers (1,559 thousand Euros) concern advance payments against outsourced

engineering services and not yet finished.

Non-current receivables (121 thousand Euros) mainly concern guarantee deposits (105 thousand Euros)

against lease payments.

“Prepayments and accrued income” increased with respect to the previous year mainly due to prepayments

expenses relating to the insurance premiums for the professional third-party insurance policy associated with

the contracts secured in Saudi Arabia and Oman and also due to the increase in prepaid expenses relating to

lease payments due to the increase in the number of offices leased abroad.

The maximum exposure to credit risk, divided by geographical region, is as follows: 31.12.2014 31.12.2013 Changes

current non-

current current

non-current

current non-

current

National 3,330 69 4,542 76 (1,212) (7)

Other European countries (EU not Euro) 15 1 7 1 8 0

Other countries 650 51 345 29 305 22

Total 3,995 121 4,894 106 (899) 15

12 Construction contracts

Receivables for construction contracts represent the gross amount due from customers for contract work in

progress for which the costs, plus recognised profit margins (less recognised losses), exceed invoicing for

work progress.

Payables for construction contracts, vice versa, represent the total of the amount due to customers, for all

contract work in progress for which the invoiced amounts for works progress exceed the costs incurred,

including recognised profit margins (less recognised losses).

The following table shows the work in progress separately, being the amount of costs incurred and the profit

margins recognised, those of the payments for an account/advances and those of the write-down allowance

which represents an estimate of expected future losses on negative margin contracts.

Italferr S.p.A.


Receivables and Payables for Construction Contracts

31.12.2014 31.12.2013

Receivables

Payables Total Receivabl

es Payables Total

Contract work in progress 819,163 468,367 1,287,530 882,440 286,746 1,169,186

Allowance for write-down (1,023) (2,030) (3,053) (1,409) (2,046) (3,455)

Payments on account (708,583) (522,618) (1,231,201) (741,191) (331,279) (1,072,470)

Advances from customers (449)

(449) (202) (217) (419)

Total 109,108 (56,281) 52,827 139,638 (46,796) 92,842

The following tables show, respectively, the division of work progress and that of payments on account and

advances from customers by counterparty.

31.12.2014 31.12.2013 Changes

RFI 1,179,535 1,100,284 79,251

Other Group 16,931 14,825 2,106

Other customers 91,064 54,077 36,987

Total 1,287,530 1,169,186 118,344

31.12.2014 31.12.2013 Changes

Payments on account 1,231,201 1,072,470 158,731

RFI 1,140,983 1,015,770 125,213

Other Group 16,256 11,330 4,926

Other customers 73,962 45,370 28,592

Advances 449 419 30

RFI 118 176 (58)

Other customers 331 243 88

Total 1,231,650 1,072,889 158,761

13 Current trade receivables

This item is only formed of current receivables. With a balance of 61,986 thousand it increased compared to

the end of 2013 by 6,780 thousand Euros. It breaks down by the type of counterparty as follows they are

formed thus:

31.12.2014 31.12.2013 Changes

Ordinary customers 18,225 15,231 2,994

State Administrations and other Public Administrations 1,085 94 991

Receivables due from Group companies 44,681 41,818 2,863

Total 63,991 57,143 6,848

Allowance for impairment (2,005) (1,937) (68)

Total Receivables net of the allowance for impairment 61,986 55,206 6,780

Italferr S.p.A.


The increase in trade receivables from the Group is mainly due to the high volume of invoicing to RFI in the

last quarter of the year.

The trade receivables from the non-captive market also increased with respect to the previous year since they

were affected by the invoices issued towards the end of the year, especially those issued to customers in

Saudi Arabia and Qatar following the important orders won in these countries.

The allowance for impairment increased by 68 thousand Euros with respect to the previous year following the

provision made to cover the risk of the inability to collect trade receivables at 31 December 2014 (338

thousand Euros), net of the uses corresponding to the interest in arrears invoiced in 2013 which was waived

by Italferr in return for partially settling the receivables claimed (total uses 270 thousand Euros).

The receivables from third-party customers are divided up as follows per geographical region:

31.12.2014 31.12.2013 Changes

National 2,988 826 2,162

Other European countries (EU non Euro) 5,680 11,791 (6,111)

Other non EU European countries 28 1,306 (1,278)

Other countries 9,529 1,308 8,221

Total 18,225 15,231 2,994

14 Cash and cash equivalents

This item, equal to 5,735 thousand Euros, is detailed thus:

31.12.2014 31.12.2013 Changes

Bank and postal accounts 5,722 5,310 412

Cash in hand 13 16 (3)

Total 5,735 5,326 409

The balance of the item “bank and postal accounts” contains the availability held in the current accounts

which is not part of the netting management of the Parent. At 31 December 2014 this balance is affected by

the collection of receivables from the Ministry of Transport of Oman in the final months of the year (2,496

thousand Euros).

15 Tax assets

31.12.2014 31.12.2013 Changes

IRAP 34 540 (506)

Others 2 (2)

Total 34 542 (508)

Italferr S.p.A.


Tax assets for IRAP have arisen against advance payments to the Inland Revenue net of current tax.

16 Equity

The changes which took place in financial years 2013 and 2014 for the main items of equity are shown

analytically in the statement which follows the income statement.

Share capital

At the end of the year the share capital, fully subscribed and paid-up and held 100% by FS Italiane, is formed

of 14,186 ordinary shares of the nominal amounts of 1,000 Euros each, for a total of 14,186 thousand Euros.

Reserves

The item Reserves, which amounts to 24,277 thousand Euros, is detailed as follows:

• Legal Reserve: this does not undergo changes, having already reached 20% of the value of the share

capital in 2007 and it totals 2,837 thousand Euros;

• Extraordinary reserve: it amounts to 26,745 thousand Euros and shows a slight increase due to the quota

the of profit for 2013 not distributed as a dividend;

• Reserve as per art. 13 Legislative Decree 124/93: this reserve, which shows a balance of 32 thousand

Euros at 31 December 2014, unchanged as compared to the previous year, is taxable when used for

purposes other than covering losses for the year;

• Reserve for exchange rate gains: the reserve (4 thousand Euros) remained unchanged compared to 2013

inasmuch as the net balance of the gains/losses on unrealised exchange rates, obtained by adjusting the

entries in foreign currency to closing rates, is negative;

• IFRS reserve for fair value gains/losses: it has a negative balance of 4,758 thousand Euros and includes

the actuarial losses on employee benefits recognised directly in Equity, net of the tax effect equal to 1,691

thousand Euros.

• Hedging reserve for derivates: this reserve includes the effective share of the accumulated net change in

the fair value of the hedging instruments related to operations that have not yet taken place. At 31

December 2014, the balance is negative for 538 thousand Euros net of the tax effect amounting to 221

thousand Euros.

Shown below is the statement related to the availability of the reserves and their possibility of distribution.

Over the last 3 years, the Company has not made distributions of reserves.

Italferr S.p.A.


Origin

Amounts as at

31.12.2014 (a+b)

Quota unavailable

(a)

Quota available

(b)

Distributable quota of (b)

Share Capital 14,186 14,186

Income-releted reserves:

Legal reserve 2,837 2,837

Extraordinary reserve 26,745 26,745 26,745

Reserve as per art. 13 Legislative Decree 124/93 32 32 32

Reserve for exchange rate gains 4 4

IFRS reserve for fair value gains/losses (4,758) (4,758)

Hedging reserve for derivatives (CFH) (583) (583)

Retained earnings 3,594 3,594

TOTAL 42,057 15,276 26,781 26,777

Origin

Amounts as at 31.12.2013 (a+b)

Quota unavailable

(a)

Quota available

(b)

Distributable quota of (b)

Share Capital 14,186 14,186

Income-releted reserves:

Legal reserves 2,837 2,837

Extraordinary reserve 26,738 26,738 26,738

Reserve as per art. 13 Legislative Decree 124/93 32 32 32

Reserve for exchange rate gains 4 4 4

IFRS reserve for fair value gains/losses (2,894) (2,894)

Retained earnings 3,594 3,594

TOTAL 44,497 17,723 26,774 26,774

Profit for the year

The profit for 2014 from continuing operations amounts to 3,802 thousand Euros.

17 Post-employment benefits and other employee benefits

The following table illustrates the changes that have taken place in the present value of liabilities due to

defined benefit obligations.

Italferr S.p.A.


31.12.2014 31.12.2013

Post-employment benefits and severance bonus 31,246 29,946

Other 283 242

Total present value of obligations 31,529 30,188

The payables for Post-employment benefits /Severance bonus and for the CLCs was calculated in the manner

explained in the following table:

Post-employment benefits and CLC 31.12.2014 31.12.2013

Post-employment benefits and Severance Bonus at 1 January

29,946 33,191

Interest cost (1) 623 772

Actuarial gains (losses) recognised in the equity 2,535 (542)

Advance payments and uses (1,858) (3,475)

Post-employment benefits liabilities as at 31 December

31,246 29,946

Present CLC value at 1 January 242 228

Service cost (2) 7 6

Interest cost (1) 7 7

Actuarial gains (losses) recognised in the equity 36 9

Uses (3) (9) (8)

CLC liabilities at 31 December 283 242

Total liabilities for defined benefits obligations

31,529 30,188

(1) Interest on the provided appropriated at the start of the period and on corresponding movements referred to the same observed year. (2) expected present value of services payable in the future. (3) as this concerns the use of services for which a consideration is paid to Trenitalia, the uses are shown by direct reduction of the costs recognised during the year.

The actuarial losses (2,535 thousand Euros) the balancing entry of which is shown in Equity, derive from an

actuarial measurement of the post- employment benefits which is carried out by closed group and is realised

according to the methodology of “accrued benefits” by means of the “Projected Unit Credit” (PUC) criterion as

envisaged by paragraphs 67-69 of IAS 19.

The methodology used envisages:

• A projection to the time of payment of the post- employment benefits for each employee, provided for at

31.12.2006 and revalued at the date of valuation for each employee;

• The determination, for each employee, of the probable payments of post- employment benefits pursuant

to the above which shall be carried out by the Company in the case that an employee leaves due to

dismissal, resignation, disability, death and retirement, as well as in relation to requests for advance

payments;

Italferr S.p.A.


• Discounting, at the date of measurement, of each probable payment. This year the yearly implementation

rate used was determined with reference to the “IBOXX Eurozone Coporates AA” index with a 7-10 year

duration.

The total use of the provision, equal to 1,858 thousand Euros, was generated by paymentsissued to personnel

leaving during the year, advance payments and transfer of employees to other Group companies.

Actuarial assumptions

Summarised below are the main assumptions carried out for the actuarial estimate process:

31.12.2014 31.12.2013

Annual post-employment benefits discount rate 0.91% 2.50%

Annual CLC discount rate 1.49% 3.17%

Annual post-employment benefits rate of increase 1.95% 3.00%

Rate of inflation 0.60% 2.00%

Expected rate of staff turnover 3.00% 3.00%

Expected rate of advance payments 2.00% 2.00%

death RG48 mortality table published by the RGS

Incapacity INPS tables by age and sex

Retirement age 100% when the Mandatory General Insurance requirements are reached

Shown below is a sensitivity analysis which outlines the effects which would have been recorded in terms of

change in the present value of liabilities for defined benefit obligations, following variations in the reasonably

possible actuarial assumptions.

Values in units of Euro

Turnover rate +1% 31,049,943

2.50%

Turnover rate -1% 31,461,857

Inflation rate + 0,25% 31,613,728

3.17%

Inflation rate - 0,25% 30,883,603 3.00%

Discount rate + 0,25% 30,662,695 2.00%

Discount rate - 0,25% 31,847,258 3.00%

The following tables provide an indication of the contribution envisaged for the following financial year, the

average duration of the defined plan obligation and benefits and the distributions envisaged by the plan.

Service Cost 2014 -

Duration of the plan 8.1

Italferr S.p.A.


Year Amounts in Euros

1 2,154,136.00

2 1,861,435.00

3 1,998,559.00

4 2,253,717.00

5 2,111,203.00

18 Provisions for risk and charges

The following table shows the amount at the start and end of the year and the movements in the provisions

for risks and charges for 2014.

Description 31.12.2013 Appropriations Uses

Release of

surplus funds

31.12.2014

Personnel dispute 1,401 (171) (45) 1,185

Third party dispute 1,836 (466) (34) 1,336

Amounts due to be defined personnel 809 773 1,582

Total non-current 4,046 773 (637) (79) 4,103

The variation in item “Amounts due to personnel to be defined” is due to the accrual for the year of the

production bonus, but not Paid at the reporting date.

The provision for personnel and third-party disputes is used for any legal disputes lost (for unforeseen events,

procedural expenses and legal expenses) and for any payouts agreed upon out of court with the other parties.

As explained in section “Judicial investigations in progress” of the Management Report, the Public Prosecutor

of Florence is conducting investigations with regard to a possible administrative offence committed by Italferr

pursuant to Legislative Decree 231/2001.

For the time being, since the legal proceedings have only just got under way, it is not possible to draw any

useful conclusions regarding its possible outcome.

It should be noted, however, that the Judge charged with the preliminary investigations, wherever he

addressed this issue, even when applying the precautionary measures, rejected the request by the Public

Prosecutor considering, inter alia, that Model 231 adopted by Italferr was proper and that the requirement of

benefits for the company deriving from alleged offences, as required under the decree, had not been

satisfied.

It should also be noted than the documentation incorporated into the investigation’s files when the decision

on the precautionary measure was taken is the same as the documentation in support of the commitment for

trial.

Italferr S.p.A.


Having said that, and in view of the considerable complexity of the case given the number of legal persons

(individuals and legal entities) involved and the alleged offences, the risk of a negative outcome must be

regarded as a possibility, as a consequence no accruals have been made to the provisions for risks, nor have

reductions to the expected profitability been made on the contract involved by the investigations in progress.

19 Non-current and current financial liabilities (including derivatives)

During the year, Italferr entered into 11 currency forward transactions (Omani rial versus euro) with the aim

of neutralising the effects of exchange rate fluctuations on the cash flows expected under the contract won

from the Omani Ministry of Transport.

All the operations concluded, which have terms to maturity ranging from 1 December 2014 to 31 March 2016

so as to perfectly mirror the characteristics of the hedged item, are Foreign exchange forward (FX Forward)

derivative contracts falling under the category of Over The Counter (OTC) transactions, i.e. those negotiated

individually between two counterparties and not executed on regulated markets.

In order to correctly report them in the financial statements, Italferr, in line with IFRS 13, ensured that the FX

forward derivatives in its portfolio at the end of the financial year underwent an assessment of their fair value

and effectiveness testing.

Given that they are OTC instruments for which there are no official lists, the measurement of fair value was

the one corresponding to ‘level 2’ described in IFRS 13 (based on the prices of similar assets and liabilities in

active or inactive markets). The method adopted was based on financial models regarded as standard market

models (OVML tool by Bloomberg).

The results of the effectiveness testing showed that the instruments employed by Italferr are highly effective

hedging derivatives for cash flow hedging purposes.

The total fair value, amounting to 804 thousand Euros, was recorded in equity with a balancing in entry

financial liabilities. The current portion and the portion with a term to maturity of more than 12 months are

shown in the following overview.

Book value

31.12.2014 31.12.2013 Differences

current non-

current Total current

non- current

Total current non-

current Total

Financial liabilities 0

Hedging derivatives 458 346 804 0 0 0 458 346 804

Total 458 346 804 0 0 0 458 346 804

20 Other non-current and current liabilities

Italferr S.p.A.


31.12.2014 31.12.2013 Differences

current non-

current

Total current non-

current

Total current non-

current

Total

Other tax liabilities 2,519 2,519 2,474 2,474 45 45

Social security charges payable 10,932 10,932 9,132 9,132 1,800 1,800

liabilities 16,498 16,498 6,753 6,753 9,745 9,745

Other liabilities due to Group companies 0 267 267 (267) (267)

Other liabilities 8,173 115 8,288 6,297 115 6,412 1,876 0 1,876

Accrued expenses and deferred income 121 121 118 118 3 3

38,243 115 38,358 25,041 115 25,156 13,202 0 13,202

The item “Other tax liabilities” for (2,519 thousand Euros), contains the debt due to Inland Revenue for

withholding tax.

The item “Social security charges payable”equal to 10,932 thousand Euros includes the accrued expense on

for the 14th month pay and accrued holidays not yet paid and liabilities due to Inarcassa (6,272 thousand

Euros).

VAT liabilities, equal to 16,498 thousand Euros, is the result of monthly payments in the last quarter of 2014;

its increase is to be attributed to the higher turnover concentrated into the last quarter of 2014 compared to

what happened last year.

Amongst the “Other liabilities”, equal to 8,173 thousand Euros, are payables due to personnel for amounts

accrued and not yet paid (4,889 thousand Euros) and for holidays accrued and not yet taken at 31 December

2014 (2,156 thousand Euros).

The Other non-current liabilities, equal to 115 thousand Euros, represent Italferr’s quota to be paid for

financing the provision for solidarity extraordinary services.

21 Current trade payables

This item, composed exclusively of current payables, is divided as follows by type of counterparty:

31.12.2014 31.12.2013 Change

Trade payables 26,597 21,911 4,686

Trade payables due to Group companies 17,699 16,670 1,029

Trade payables due to subsidiaries 45 22 23

Total 44,341 38,603 5,738

The increase in trade payables to suppliers is attributable to the larger volumes of outsourced engineering

services above all following the growth in the Company’s operations in foreign markets.

Payables due to the Group companies are detailed as follows:

Italferr S.p.A.


31.12.2014 31.12.2013 Changes

Bus Italia - Sita Nord 45 67 (22)

Centostazioni 28 31 (3)

Fercredit 0 209 (209)

Ferservizi 3,545 5,569 (2,024)

FS 6,321 4,079 2,242

FS Logistica 15 10 5

Fs Sistemi Urbani 95 52 43

Grandi Stazioni 572 242 330

Italcertifer 0 36 (36)

Metropark 13 7 6

RFI 4,596 3,912 684

Trenitalia 2,469 2,456 13

Total 17,699 16,670 1,029

22 Turnover from sales and services

The details of the items which constitute turnover from sales and services are explained in the table shown

below:

Production 2014 Production 2013

Engineering services

Revenues WIP

Change

Provision for contractual

lists Total (a)

Revenues WIP

Change

Provision for

contractual lists

Total (b) Changes

(a-b)

30,105 79,134 (783) 108,456 17,544 100,447 688 118,679 (10,223)

Others Group 2,851 1,375 0 4,226 3,648 1,235 0 4,883 (657)

Group 32,956 80,509 (783) 112,682 21,192 101,682 688 123,562 (10,880)

Abroad 968 35,712 1,183 37,863 3,485 8,204 1,013 12,702 25,161

Italy 156 2,122 3 2,281 45 1,358 17 1,420 861

Third parties

1,124 37,834 1,186 40,144 3,530 9,562 1,030 14,122 26,022

Total 34,080 118,343 403 152,826 24,722 111,244 1,718 137,684 15,142

In comparison with the previous year, revenue from engineering services provided to Group companies

decreased following the fall in production volumes and in average contract profitability.

The fall in production volumes depends on the slowdown of activities regarding RFI, due both to the effect of

the public funding situation on volumes of investments initiated during the year and delays and stoppages in

works in the main work sites.

Against a reduction in activity with regard to the Group, that concerning third parties has grown, positively

influenced by the start of the contracts acquired during the year (Oman, Qatar and Ethiopia) and the

continuation of the work already in portfolio (Saudi Arabia and Croatia).

Italferr S.p.A.


The movement of the allowance for impairment for future losses on contracts is by direct change in revenue

from engineering services. The allowance for impairment is fed by the estimate of expected future losses on

negative contracts and is released according to the realisation of the originally estimated losses.

23 Other income

Details of the other income are shown in the following table:

2014 2013 Changes

Training activities 34 0 34

Capital gains 7 10 (3)

Fines for third-party defaulting 5 9 (4)

Balance of prior year income adjusting revenue 12 0 12

Sundry revenue and income 171 186 (15)

Total Other Income 229 205 24

Revenue from training activities (34 thousand Euros) refers to training programmes organised by Italferr and

sold to third parties and to the related company RFI.

Capital gains originate from the sale of office equipment and hardware which is obsolete or no longer usable

in the Rome office, and from the sale of hardware equipment, furniture, furnishings and a vehicle of the

Romanian branch.

Sundry revenues and income include 100 thousand Euros of prior year income due to the late reversal of

revenue for Italferr by the Consortium Brennero Ingegneria.

24 Personnel costs

The breakdown of personnel costs is shown in the following table:

2014 2013 Change

Permanent staff 78,475 77,673 802

· Salaries and wages 54,041 53,815 226

· Social security contributions 15,224 14,940 284

· Other costs for permanent staff 5,376 5,033 343

· Post-employment benefits 3,834 3,885 (51)

Appropriations/releases (45) 0 (45)

Self-employed workers and collaborations

1,215 1,320 (105)

Temporary workers, secondment and internships

3,300 3,499 (199)

Other costs 1,381 1,297 84

Total 84,326 83,789 537

Italferr S.p.A.


The following table shows the average number of FTE units of the workforce which, in comparison with 2013,

fell by an average of 38 units.

(Average FTE units) 2014 2013 Change

Managers 63 64 (1)

Junior managers 623 629 (6)

White collars 447 471 (24)

Total permanent personnel 1,133 1,164 (31)

Temp. workers 68 68 0

Contract workers 12 15 (3)

Seconded from FS 3 7 (4)

Total flexible personnel 83 90 (7)

Total 1,216 1,254 (38)

Although the average number of people employed by the Company fell with respect to the previous financial

year by around 3%, the relative costs increased, albeit moderately (+1%).

The main reasons for this change can be found in the increase in internationalisation, which led to an increase

in the costs for assignments abroad, and the higher unit productive capacity, which was followed by an

increase in the overtime paid out.

It should be noted that the cost of permanent staff includes the share borne by Italferr (187 thousand Euros)

of the cost of staff for the Joint Operation that the Company has set up in Turkey with a local engineering

company.

Finally, following the favourable conclusion from Italferr’s point of view of certain labour disputes, the

assessment of the risks of losing ongoing legal disputes was updated releasing amounts from the provision

that were no longer deemed necessary (45 thousand Euros).

25 Raw materials, consumables supplies and goods

This item amounts to 347 thousand Euros (284 thousand Euros as at 31 December 2013) and includes costs

for the purchase of consumables, office equipment, minor fittings and computer material of a negligible

amount.

26 Costs for services

The balance is detailed in the following table:

Italferr S.p.A.


2014 2013 Change

Engineering services 25,512 15,201 10,311

Travel and accommodation 5,649 5,185 464

Computer services 5,411 4,722 689

Facilities 4,001 4,147 (146)

Utilities 1,779 1,101 678

Insurance 1,261 655 606

Professional services 901 657 244

Administrative services 348 357 (9)

Consultancies 54 42 12

Procurement from agencies 50 62 (12)

Other 2,299 2,255 44

Total 47,265 34,384 12,881

The increase in the engineering services contracted out to third parties, when compared with the previous

year, is attributable to the significant increase in operations in the non-captive market.

The costs of travel and accommodation also increased with respect to 2013 (+464 thousand Euros) following

the increase in the number of assignments abroad both for operational purposes and for commercial

purposes.

Computer services increased by 689 thousand Euros following the increase in tariffs coinciding with the

renewal of expiring agreements and also because of the larger volume of services requested both with regard

to the new applications in use at the Company and the IT equipment at foreign sites.

The insurance premiums for 2014 include the costs of the professional third-party liability policy taken out

specifically for the Landbridge contract in line with the customer’s needs (618 thousand Euros).

The professional services mainly consist of legal and administrative services and services in the field of labour

law; the item increased with respect to 2013 following the requirements in terms of professional support that

the Company was faced with both when new sites abroad were opened and for their management.

Finally, the item ‘Other’ includes the costs of services received from the Parent in relation to administrative,

tax-related and legal support, auditing and financial services, external communications and support for

international and institutional affairs (1,115 thousand Euros), the charges for waste disposal (378 thousand

Euros), the costs related to typographic and cartographic services (242 thousand Euros) and the costs

recharged by the Consortium Brennero Ingegneria to Italferr (134 thousand Euros).

27 Use of third part assets

This item can be analysed as follows:

Italferr S.p.A.


2014 2013 Change

Lease payments and Group charges 1,144 837 307

Lease payments and third party charges 1,791 1,410 381

Fees payable for brand 475 440 35

Rentals 1,392 1,106 286

Other 121 114 7

Total 4,923 3,907 1,016

The lease payments and associated condominium expenses borne by the Group increased by 307 thousand

Euros on a year-on-year basis essentially attributable to the fact that Italferr left the premises leased from

third parties in relation to the Bologna site in order to relocate to a property owned by RFI. This entailed an

increase, between 2014 and 2013, of 315 thousand Euros in the lease payments and charges borne by the

Group and the concurrent reduction of 393 thousand Euros in the costs of leasing third-party premises.

Despite the considerable reduction in the lease payments for the Bologna site, the amount spent in leasing

third-party properties went up compared with the previous year because of the leases abroad linked to the

need to set up new offices and extend those already existing, in relation to the volume of business won.

The fees payable for using the Brand correspond to the royalties paid to FS Italiane in return for a licence to

use, on a non-exclusive basis, the Parent ’s Brand in Italy and abroad.

Indeed, FS Italiane is the proprietor of a registered brand in Italy and in the European Community and is well

known and enjoys a high reputation both domestically and internationally.

The contract concluded between the parties envisages consideration amounting to 0.3% calculated by

referring to the main items in Revenues and Income, with a guaranteed minimum and a CAP of 530 thousand

Euros.

The item ‘Rentals’, which refers to the car fleer used by the Company for operations and site surveillance,

increased with respect to the previous year after the new contract, concluded in 2013, fully came into force.

In this respect, last year, the costs of hiring vehicles was moderate because the change of contract entailed

the gradual return of the vehicles hired.

28 Other operating costs

They amount to 1,400 thousand Euros and are as follows:

Italferr S.p.A.


2014 2013 Change

CLC contribution 765 765 0

IMU 276 276 0

Membership fees 117 119 (2)

Entertainment expenses 64 26 38

TASI 23 0 23

Other taxes 20 8 12

Release of the provision for the risk of disputes/third parties (35) 0 (35)

Other 170 95 75

Total 1,400 1,289 111

The IMU, equal to 276 thousand Euros, wholly refers to the owned building in Via Galati in Rome.

29 Cost for internal work

This item amounts to 22 thousand Euros (51 thousand Euros at 31 December 2013) and concerns activities

carried out internally for the extraordinary maintenance of properties owned and under lease in which Italferr

carries out its activities.

30 Amortisation and depreciation

With a total balance of 3,771 thousand Euros, this item shows an increase of 305 thousand Euros compared

to 2013, as shown hereunder.

2014 2013 Change

Depreciation of property, plant and equipment 2,278 2,236 42

Amortisation of other intangible assets 1,493 1,230 263

Total 3,771 3,466 305

For further information concerning the rates of amortisation and depreciation adopted and the variations

which assets have had in 2014 with consequent effect on amortisation and depreciation, reference is made to

the previous notes 6 and 7 to the financial statements.

Italferr S.p.A.


31 Impairment losses/reversals of impairment losses

The item is as follows:

Description 31.12.2014 31.12.2013 Change

Impairment losses or non-current assets 0 16 (16)

Impairment losses receivables 338 38 300

Total 338 54 284

Impairment losses receivables concern theadjustment of the allowance for impairment carried out at the end

of the year based on the estimated collectability of doubtful loans .

32 Net financial expense

As a whole, the item displays net financial expenses for 551 thousand Euros, 684 thousand Euros lower

compared to the previous year.

Details of the financial income and charges it are shown in the following table.

2014 2013 Change

Financial income: 1,145 106 1,039

Financial income from receivables classified under non-current assets 1 2 (1)

Sundry financial income 4 2 2

Financial income from parents 24 1 23

Exchange rate gains 1,116 101 1,015

Financial expense: (1,696) (1,341) (355)

Financial expense to Post-employment benefit and CLC (630) (779) 149

Financial expenses to parents (584) (220) (364)

Financial expenses for derivatives (16) 0 (16)

Sundry financial expense (4) (14) 10

Exchange rate losses (462) (328) (134)

Total (551) (1,235) 684

Overall, the item improved by 684 thousand Euros with respect to the previous year.

This improvement was attributable to the exchange rate gains bank account in foreign currencies held by the

Company and on the receivables and payables denominated in foreign currencies at the end of the year.

The positive impact of exchange rate differences was somewhat mitigated by the evolution of the financial

expense borne by the Parent. In fact, above all in relation to constraints when invoicing for services already

rendered on behalf of RFI, which were only removed at the end of the year following an agreement by both

parties, the intercompany current account held with the Parent recorded a considerable negative balance for

Italferr S.p.A.


most of 2014 entailing an increase in the interest expense accrued during the financial year when compared

with the previous year.

However, the interest cost related to the post-employment benefit and the CLCs improved with respect to

2013 thanks to the fall in the capitalisation rate employed for the calculation following the downward revision

of the estimated increase in the inflation rate published by the Ministry of the Economy and Finance.

With regard to exchange rate gains and losses, shown hereunder is the trend in exchange rates, detail by

currency with an indication of the fact that they have effectively been realised or are the effect of end of year

valuations.

2014 2013 Change

Exchange rate gains 1,116 101 1,015

- realised 897 78 819

USD 48 12 36

SAR 429 429

OMR 312 312

AED 37 37

RON 33 39 (6)

TRY 26 0 26

VEF 5 2 3

DZD 5 17 (12)

Other 2 8 (6)

-unrealised 219 23 196

RON 5 13 (8)

SAR 133 8 125

OMR 3 3

DZD 4 1 3

USD 30 30

TRY 8 8

VEF 33 33

Other 3 1 2

Exchange rate losses (462) (328) (134)

- realised (289) (203) (86)

SAR (144) (144)

OMR (84) (84)

USD (16) (80) 64

VEF (8) (44) 36

TRY (22) (38) 16

DZD (7) (9) 2

RON (6) (10) 4

Altre (2) (22) 20

-unrealised (173) (125) (48)

SAR (143) (143)

OMR (16) (16)

VEF (99) 99

Italferr S.p.A.


USD (6) (20) 14

RON (2) (1) (1)

DZD (1) (4) 3

Other (5) (1) (4)

Total 654 (227) 881

33 Income taxes current and deferred

The following table shows details of income taxes:

2014 2013 Change

Current Taxes 6,777 5,890 887

IRES 2,789 2,051 738

IRAP 3,235 3,228 7

Income tax paid abroad 753 611 142

Deferred taxes (114) 377 (491)

Adjustments for prior year income taxes

(308) (352) 44

Total 6,355 5,915 440

The income tax paid abroad mainly refers to the substitute tax applied to the amounts collected by Italferr in

Algeria and Saudi Arabia, in respect of which it is estimated that it will not be recoverable from future taxable

income.

Italferr S.p.A.


Reconciliation of the effective tax rate

2014 2013

Values

%

Values

%

Profit for the year 3,802 3,617

Total income tax 6,355 5,915

Pre-tax profit 10,157 9,532

Theoretical IRES tax (national tax rate) 2,793 27.50% 2,621 27.50%

Lower taxes:

Other decreases (1,546) -15.22% (1,856) -19.47%

Higher taxes:

accrual to provisions 765 7.53% 410 4.30%

prior year expense 101 0.99% 129 1.35%

Other in increases 676 6.66% 747 7.84%

Total current income tax (IRES) 2,789 27.46% 2,051 21.52%

IRAP 3,235 31.85% 3,228 33.86%

Income tax paid abroad 753 7.41% 611 6.41%

Difference on estimate of prior taxes year (308) -3.03% (352) -3.69%

Total deferred taxes (114) -1.12% 377 3.96%

TOTAL INCOME TAX 6,355 62.57% 5,915 62.06%

34 Audit fees

Pursuant to art. 37, paragraph 16 of Legislative Decree no. 39/2010 and letter 16 sub-section two of art. 2427

Italian Civil Code, it is noted that the total amount of the fees due to the independent auditors for 2014 is

equal to 50 thousand Euros.

35 Directors’ and statutory Auditors’ fees

RECIPIENTS 2014 2013 Change

Directors (*) 84 426 (342)

Statutory Auditors 39 39 0

Supervisory Board 30 7 23

TOTAL 153 472 (319)

(*) The amount for 2014 is the cost incurred by Italferr for the office positions, since the remuneration due to the Managing Director has been recharged by the latter to the Company

Italferr S.p.A.


At the meetings held on 8 April 2014 and 11 March 2015, the Company’s Board of Directors recalculated the

fees payable to the Chairman and the Managing Director so that they were equal to 75% of the fees paid for

the same posts during the previous terms of office pursuant to art. 2389 paragraph 3 of the Italian Civil Code

to ensure that they were in line with the provisions of paragraph 5 quater of art. 23 bis of Law no. 214/2011.

The fees agreed upon will take effect from the date of appointment (8 October 2013).

36 Management and coordination

The highlights of the parent Ferrovie dello Stato Italiane S.p.A. provided in the summary statement required

by article 2497 sub-section two of the Italian Civil Code have been extracted from the related financial

statements at on 31 December 2013. For sufficient and complete understanding of the financial position and

results of operations of Ferrovie dello Stato Italiane S.p.A. at 31 December 2013, as reference should be

made to the financial statements which, are available in the forms and formats provided for by law,

accompanied by the report of the auditors

amounts in thousands of

Euros

(Thousands of Euros) 31.12.2013 31.12.2012

Assets

Total non-current assets 42,713,900 41,342,070

Total current assets 2,647,881 3,664,642

Total assets 45,361,781 45,006,712

Equity

Share capital 38,790,425 38,790,425

Reserves 302,603 298,488

Losses carried forward (2,917,869) (2,987,495)


Total Equity 36,251,930 36,174,709

Liabilities

Total non-current liabilities 6,998,251 5,663,086

Total current liabilities 2,111,600 3,168,917

Total liabilities 9,109,851 8,832,003

Total equity and liabilities 45,361,781 45,006,712

2013 2012

Revenue 160,410 157,257

Operating Costs 181,233 146,360

Amortisation and depreciation 22,112 21,474

Impairment losses and reversableof impairment losses 21,878 1,323

Net Financial income 109,270 72,769

Income tax (32,313) (12,422)


Italferr S.p.A.


37 Related parties

Transactions with key managers

The remuneration for key managers are as follows:

2014 2013

Short-term benefits (1) 1,244 1,185

Termination Benefits 0 352

Post-employment benefits 96 64

1,340 1,601

(1) A variable part must be added to the 2014 amount, to paid in 2015, for an amount no higher than 300 thousand Euros.

During the year, the Company has not carried out transactions with key directors

Other transactions with related parties

Shown below are the main transactions with by Italferr’s related parties

Receivables Payables

Parents

Ferrovie dello Stato Italiane

Tradel and other: seconded staff; funds for training

Trade and other: supply of services and use of brand: group VAT; guarantees

Financial: intercompany c/c Financial: intercompany c/c

Subsidiaries

I.E.S. d.o.o. Seconded staff Trade and other: supply of services

Receivables Payables

Other related companies

BBT Trade and other: supply of services

Busitalia Rail Service Tradel and other: supply of services

Busitalia Sita Nord Trade and other: supply of services

Centostazioni Tradel and other: leases

Ferservizi Trade and other: leases and supply of services

FS JIT Italia S.r.l. Trade and other: supply of services

FS Logistica Trade and other: supply of services

FS Sistemi Urbani Trade and other: supply of engineering services Trade and other: leases

Financial: guarantee deposits

Grandi Stazioni Tradel and other: supply of engineering services Trade and other: leases

Italcertifer Tradel and other: supply of engineering services

LTF Trade and other: supply of services and seconded staff

Metropark Trade and other: supply of services

RFI Trade and other: supply of engineering services, lease payments

Tradel and other: leases supply of services and seconded personnel

Italferr S.p.A.


Financial: guarantee deposits

Trenitalia Trade l and other: supply of engineering services Tradel and other: supply of services

Name Receivables Payables

Other related parties

Alleanza Assicurazioni Tradel and other: employee benefits

Ansaldo STS Tradel and other: sale of tender material

Consorzio Brennero Ingegneria

Tradel l and other: reversal of consortium revenues. Participation in Consortium

Tradel l and other: reversal of condominium expense.

Dopolavoro Ferroviario - DLF Insurance quotas

ENI Tradel and other: supply of services

Eurofer Tradel and other: employee benefits

Expo 2015 Commercial and other: supply of engineering services

Enel group Tradel and other: supply of services

HDI Assicurazioni Tradel and other: employee benefits

Mediolanum vita Tradel and other: employee benefits

Pionerr Invest. Tradel l and other: employee benefits

Poste Italiane Tradel and other: supply of services

Previndai Tradel and other: employee benefits

Transactions carried out with the group companies and other related parties refer to activities which concern

ordinary operations and are regulated at normal market conditions.

Italferr has renewed its participation in the tax consolidation scheme for the three-year period 2013-2015,

relations with the parent FS Italiane, regulated by contract, are also of a tax nature.

FS Italiane, lastly, has given sureties on behalf of Italferr to TAV (now RFI) for advances on contracts related

to HS/HC lines and to Centostazioni to guarantee of leases. Furthermore, a guarantee was also given on

behalf of Italferr for transactions on derivative financial instruments hedging the currency risk on activities

carried out in Oman.

Italferr S.p.A.


The following table summarises the financial statements at 31 December 2014 for the transactions with

related parties.

Amounts in

thousands of Euros

Name

31.12.2014 2014

Receivables Payables Costs

Revenues

Parents

Ferrovie dello Stato Italiane 1,055 (6,321) (1,924) 320

Subsidiaries

I.E.S. doo 43 (45) (4) 51


BBT 67 Busitalia Rail Service (45) (41) Bustitalia Sita Nord 0 0 (23) Centostazioni (27) (35) Ferservizi (3,545) (4,684) FS JIT Italia S.r.l. 0 0 FS Logistica 29 (15) (2) FS Sistemi Urbani

(95) (35)

Grandi Stazioni 30 (584) (696) 22

LTF 126 18

Metropark 0 (13) (5) RFI 130,375 (58,286) (671) 109,266

Trenitalia 3,723 (3,384) (1,339) 3,884

TOTAL 134,393 (66,039) (7,535) 113,241

Other related parties

Alleanza Assicurazioni (1) Ansaldo STS 1

Consorzio Brennero Ingegneria 223 (216) (490) 624

Dopolavoro Ferroviario - DLF (57) ENI (2) (15) Eurofer (192) EXPO 2015 655 1,814

Gruppo ENEL (14) (26) HDI Assicurazioni (8) Mediolanum vita (1) Pionerr Invest.

(1)

Poste Italiane

(6)

Previndai (300) TOTAL 878 (798) (531) 2,439

Italferr S.p.A.


Name

31.12.2014 2014

Receivables Payables Guarantees Commitments Charges Income

Parents

Ferrovie dello Stato Italiane 6,478 (10,368) (584) 24


RFI 10,353

FS Sistemi Urbani 8

Centostazioni 15

TOTAL 6,486 0 0 (584) 24

38 Guarantees and commitments

The Company has not issued nor holds collateral; it has, however, issued guarantees in favour of group

companies and third parties, specifically:

• Sureties for 10,368 thousand Euros, of which 353 thousand Euros granted by the Parent to RFI (formerly

TAV) against advances received on HS/HC contracts and 10,000 thousand Euros as a guarantee of

currency risk hedging transactions for the derivatives contract. Instead, 15 thousand Euros have been

granted to Centostazioni and ENPAIA as a guarantee of leases;

• Bank sureties for the amount of 17,115 thousand Euros issued to other parties for participating in tenders

(Bid Bond) or against advances and the good performance of contracts.

Italferr, in turn, has received sureties for 15,542 thousand Euros, against the good performance of assigned

contracts.

39 Events after the reporting date

February

• Signature in Milan of the cooperation agreement between Italferr and Metropolitana Milanese aimed at

increasing the presence of these two companies in the international railway and metropolitan markets

and promoting their own products and services.

• The Consortium Metro Lima 2 awarded Italferr the contract for the coordination of two underground lines

in Lima, Peru during the design, construction and testing phases.

italferr s.p.a. annual report at 31 december 2014...italferr: annual report 2014 2 financial...

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