2012 ANNUAL REPORT ANSALDO STS GROUP

Transcription

1 2012 ANNUAL REPORT ANSALDO STS GROUP

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3 2012 Annual Report Ansaldo STS Group (Translation from the Italian original which remains the defi nitive version)

4 Contents 1 Company Bodies and Committees 4 Directors report at 31 December Financial position and results of operations of the Group Introduction Key performance indicators Net financial position Non-IFRS alternative performance indicators Related party transactions Performance The market and commercial situation Sales information Signalling - performance by Business Unit Performance of the Transportation Solutions Business Unit Reconciliation between the profit for the year and equity of the parent and the group at 31 December Key events of and after the reporting period 20 4 Risks and uncertainties Strategic risks Changes in the macroeconomic and market context and streamlining programmes Innovation: a competitive factor Operational risks Country risk for new markets Reliance on public customers and construction contracts Budgeting and risk management project planning Third parties (subcontractors, sub-suppliers and partners) Adequacy of and efficiency in developments and technical references Liability to customers or third parties for product defects or delivery delays Legal disputes Human resource management Health, safety and environmental compliance Financial risks Ability to finance a high level of current assets and obtain guarantees IT risks IT system management 25 5 The environment 26 6 Research and development 29 7 Human resources and organisation The parent Ansaldo STS Subsidiaries Headcount at 31 December Data protection document Incentive plans The stock grant plan Cash plans Investments held by directors 34 8 Financial disclosure 35 9 Corporate Governance and ownership structure pursuant to Article 123-bis of Legislative decree no. 58 of 24 February 1998 and subsequent amendments (the Consolidated Finance Act) 37 Consolidated Financial Statements at 31 December 2012 and notes thereto 10 Consolidated financial statements Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity 43 2

5 11 Notes to the consolidated financial statements at 31 December General information Basis of preparation Accounting policies Effects of amendments to the IFRS Segment reporting Notes to the statement of financial position Related party assets and liabilities Intangible assets Property, plant and equipment Equity investments Loans and receivables and other non-current financial assets Inventories Work in progress and progress payments and advances from customers Trade receivables and loan assets Financial assets measured at fair value through profit or loss Tax assets and liabilities Other current financial assets Cash and cash equivalents Share capital Retained earnings or losses carried forward, including profit for the year and consolidation reserves Other reserves Equity attributable to non-controlling interests Loans and borrowings Provisions for risks and charges and contingent liabilities Employee benefits Other current and non-current liabilities Trade payables Derivatives Guarantees and other commitments Notes to the income statement Impact of related party transactions on profit or loss Revenue Other operating income Purchases and services Personnel expense Amortisation, depreciation and impairment losses Other operating expense Internal work capitalised Net financial expense Share of profits of equity-accounted investees Income taxes Earning per share Cash flows from operating activities Financial risk management Key managers remuneration Outlook Information pursuant to article 149-duodecies of Consob Issuer regulation 92 Statement on the Consolidated Financial Statements 21 Statement on the Consolidated Financial Statements pursuant to article 81-ter of Consob regulation no of 14 May 1999 and subsequent amendments and integrations and article 154-bis.2 of Legislative Decree no. 58 of 24 February 1998 and subsequent aendments and integrations 93 External Auditors Report 94 3

6 Company Bodies and Committees 1 Company Bodies and Committees BOARD OF DIRECTORS (for the three-year period) ALESSANDRO PANSA Chairman GIANCARLO GRASSO Deputy chairman SERGIO DE LUCA Chief executive offi cer GIOVANNI CAVALLINI 2 MAURIZIO CEREDA 1 2 PAOLA GIRDINIO 1 BRUNO PAVESI 2 BOARD OF STATUTORY AUDITORS (for the three-year period) GIACINTO SARUBBI Chairman RENATO RIGHETTI MASSIMO SCOTTON SUBSTITUTE STATUTORY AUDITORS (for the three-year period) BRUNO BORGIA PIETRO CERASOLI TATIANA RIZZANTE ATTILIO SALVETTI 1 GRAZIA GUAZZI Board secretary INDEPENDENT AUDITORS (for the period) KPMG S.p.A. 1. Member of the risk and control committee. 2. Member of the appointments and remuneration committee. 4

7 Signalling and Transportation Solutions 2012 Annual Report Ansaldo STS Group Directors report at 31 December

8 Financial position and results of operations of the Group Key performance indicators 2 Financial position and results of operations of the Group 2.1 Introduction Ansaldo STS group recognised a profit of 75,696 thousand for the year ended 31 December 2012, compared to 73,056 thousand for the previous year. Revenue came to 1,247,849 thousand, compared to 1,211,944 thousand and the ROS was 9.4%, compared to 9.6% in the previous year. New orders totalled 1,492,346 thousand, compared to 2,163,745 thousand in 2011 (which included the maxi contract to build the Honolulu underground). Specifically: new orders of 642,712 thousand for the Transportation Solutions business unit, mainly related to contracts under the master agreement with Rio Tinto in Australia; New orders of 893,197 thousand in the Signalling business unit include the order for technological systems for the Brescia-Treviglio high-speed section in Italy, the contract with Southeastern Pennsylvania Transportation Authority (SEPTA) to supply the Positive Train Control (PTC) integrated signalling system in the USA, the Roy Hill project in Australia for the development of systems for a mining transport railway line featuring innovative satellite technology to pinpoint the train s location, a contract in the United Arab Emirates for the new Shah-Habshan-Ruswais line and the contract related to the Honam high-speed line in South Korea. The order backlog at 31 December 2012 totalled 5,683,253 thousand, compared to 5,452,770 thousand at 31 December In the broader context of the global financial crisis, the group s 2012 performance was positive and in line with forecasts. The delivery of systems in Riyadh and Genoa, the CBTC (Communication Based Train Control) signalling system in Chengdu (China) and of the Milan Line 5 and Brescia underground (in early 2013) represent technological successes and the achievement of targets. Despite the serious financial and economic crisis, the group s reference market is generally solid, with international growth rates of 2-3% p.a.. Competition between key international players has however dramatically intensified in recent years, leading to falling unit prices. The group is responding to this issue by introducing plans to contain production and operating costs. With reference to the group s corporate and governance structure: in March 2012, Ansaldo STS S.p.A. s board of directors approved the closure of the subsidiary, Ansaldo STS Sistemas de Transporte e Sinalização Limitada, with registered office in Brazil. The decision was based on an in-depth analysis of the Brazilian market and ASTS group s position within it. The closure took effect from 23 May 2012; in September 2012, the dormant indirect subsidiary, Ansaldo STS Finland OY, was put into liquidation. The liquidation process will be completed within the first half of Any commercial opportunities arising in these countries will be pursued in partnership with local operators or other legal entities of the group. 2.2 Key performance indicators ( 000) Change New orders 1,492,346 2,163,745 (671,399) Order backlog 5,683,253 5,452, ,483 Revenue 1,247,849 1,211,944 35,905 Operating profit (EBIT) 117, , Adjusted EBIT 123, ,459 5,067 Profit for the year 75,696 73,056 2,640 Net working capital (48,147) (89,031) 40,884 Net invested capital 167, ,462 32,722 Net financial position (301,982) (289,674) (12,308) Free operating cash flow 37,569 7,219 30,350 ROS 9.4% 9.6% -0.2 p.p. ROE 17.0% 18.1% -1.1 p.p. EVA 62,514 63,243 (729) Research and development 32,260 33,900 (1,640) Headcount (no.) 3,991 4,100 (109) Consolidated profit for 2012 totalled 75,696 thousand, compared to 73,056 thousand in Revenue came to 1,247,849 thousand, up 35,905 thousand over the previous year ( 1,211,944 thousand). The increase is largely due to the Transportation Solutions business unit for works carried out under the master agreement with Rio Tinto (RAFA). The Signalling business unit recognised revenue of 725,588 thousand, including amounts with other business segments, substantially in line (down 2,787 thousand) with the previous year ( 728,375 thousand). The Transportation Solutions business unit recognised revenue of 564,853, up 52,586 thousand over the previous year ( 512,267 thousand). This figure also includes amounts with other business segments. Compared to 2011, eliminations between the two business units were up 13,894 thousand (see paragraph 12). 6

9 Signalling and Transportation Solutions 2012 Annual Report Ansaldo Sts Group Revenue for ( m) and contribution of the business units 1,248 1, December % % December 2011 Signalling Business Unit Transportation Solutions Business Unit Operating profit (EBIT) came to 117,073 thousand, up 953 thousand over 2011 ( 116,120 thousand). ROS was 9.4%, compared to 9.6% in the previous year, including additional non-recurring expense, especially in relation to restructuring. Specifically: the Signalling business unit recognised operating profit of 62,530 thousand, compared to 75,079 thousand, with a 12,549 thousand decrease due to the different mix and profitability of the projects in the two years; the Transportation Solutions business unit recognised operating profit of 69,130 thousand, up 14,121 thousand on the previous year ( 55,009 thousand), due to greater volumes and the different mix and profitability of the contracts in the two years. EBIT and ROS for ( m) December December % 9.6% A reclassified income statement, reclassified statement of financial position, the net financial position and a reclassified statement of cash flows follow to provide further disclosure on the group s financial position, results of operations and cash flows. Reclassified income statement ( 000) Revenue 1,247,849 1,211,944 Purchases and personnel expense (*) (1,122,374) (1,075,627) Amortisation, depreciation and impairment losses (20,768) (13,410) Other net operating income (expense) (**) 17,922 (533) Change in work-in-progress, semi-finished products and finished goods 897 (3,915) Adjusted EBIT 123, ,459 Restructuring costs (6,453) (2,339) Operating profit (EBIT) 117, ,120 Net financial expense (2,956) (768) Income taxes (38,421) (42,296) Profit for the year 75,696 73,056 attributable to the owners of the parent 75,665 72,956 attributable to non-controlling interests Earnings per share Basic and diluted ¹ 1. Recalculated following the bonus issue of 9 July Notes to the reconciliation between the reclassified income statement and the income statement included in the consolidated financial statements: (*) Includes the captions Purchases, Services, Personnel expense and Accrual to (use of) the provision for expected losses to complete contracts (net of Restructuring costs ), and net of Internal work capitalised. (**) Includes the net amount of Other operating income and Other operating expense (net of restructuring costs and impairment losses and Accrual to (use of) the provision for expected losses to complete contracts). 7

10 Financial position and results of operations of the Group Key performance indicators Briefly: Revenue totalled 1,247,849 thousand and increased 35,905 thousand over the previous year. Overall expense rose due to the increase in activities. Adjusted EBIT was 123,526 thousand, up 5,067 thousand over The operating profit of 117,073 thousand was 953 thousand higher than that of Profit for the year increased by 2,640 thousand to 75,696 thousand, mainly due to the combined impact of greater financial expense and lower taxes. Reclassified statement of financial position ( 000) Non-current assets 264, ,047 Non-current liabilities (49,665) (46,554) 215, ,493 Inventories 131, ,936 Contract work in progress 313, ,302 Trade receivables 748, ,069 Trade payables (500,563) (431,851) Progress payments and advances from customers (710,720) (706,735) Working capital (17,856) (45,279) Provisions for risks and charges (15,842) (23,136) Other liabilities, net (*) (14,449) (20,616) Net working capital (48,147) (89,031) Net invested capital 167, ,462 Equity attributable to the owners of the parent 468, ,014 Equity attributable to non-controlling interests 427 1,122 Equity 469, ,136 Net financial position (301,982) (289,674) Notes to the reconciliation between the reclassified statement of financial position and the statement of financial position included in the consolidated financial statements: (*) Includes Tax assets and Other current assets, net of Tax liabilities and Other current liabilities. Net invested capital totalled 167,184 thousand, compared to 134,462 thousand in The 32,722 thousand increase is due to the 8,162 thousand decrease in non-current items and the 40,884 thousand increase in net working capital. The change in working capital is due to the joint effect of increased work in progress and trade receivables, only partly offset by the increase in trade payables and progress payments and advances from customers. The group s net financial position (loan assets and cash and cash equivalents greater than loans and borrowings) was 301,982 thousand, compared to 289,674 thousand at 31 December 2011 (up 12,308 thousand), after the 28,000 thousand dividend payment ( 33,592 thousand in 2011). It includes the 70,643 thousand advance received from the Russian customer, Zarubezhstroytechnology ( ZST ), for the project for the development of signalling, automation, telecommunication, power supply, security and ticketing systems on the Sirth to Benghazi section in Libya. 8

11 Signalling and Transportation Solutions 2012 Annual Report Ansaldo Sts Group 2.3 Net financial position ( 000) Current loans and borrowings 18,188 14,535 Non-current loans and borrowings Cash and cash equivalents (146,837) (160,928) BANK LOANS AND BORROWINGS (128,649) (146,124) Related party loan assets (120,533) (2,531) Other loan assets (52,987) (110,812) Current financial assets at fair value through profit or loss - (30,756) LOAN ASSETS (173,520) (144,099) Related party loans and borrowings - - Other current loans and borrowings Other non-current loans and borrowings OTHER LOANS AND BORROWINGS NET FINANCIAL POSITION (301,982) (289,674) The group s net financial position totalled 301,982 thousand at the reporting date, compared to 289,674 thousand at 31 December The reclassified statement of cash flows for the year ended 31 December 2012 follows: ( 000) Opening cash and cash equivalents 160, ,320 Gross cash flows generated by operating activities 153, ,299 Changes in other operating assets and liabilities (58,279) (67,235) Funds from operations 95,027 60,064 Change in working capital (51,001) (42,657) Cash flows from operating activities 44,026 17,407 Cash flows used in ordinary investing activities (6,457) (10,188) Free operating cash flow 37,569 7,219 Strategic transactions (216) (6,302) Other changes in investing activities 14 (44) Cash flows used in investing activities (6,659) (16,534) Dividends paid (28,000) (33,592) Cash flows generated by (used in) other financing activities (22,849) 38,955 Cash flows from (used in) financing activities (50,849) 5,363 Exchange rate gains and losses, net (609) 1,372 Closing cash and cash equivalents 146, ,928 Cash and cash equivalents totalled 146,837 thousand at the reporting date, down by 14,091 thousand over the prior year figure. The main changes in the statement of cash flows were as follows: cash flows from operating activities totalled 44,026 thousand, an increase of 26,619 thousand over 2011; cash flows used in investing activities of 6,659 thousand, down 9,875 thousand over 2011 ( 16,534 thousand); cash flows used in financing activities of 50,849 thousand, compared to the cash flows from financing activities of 5,363 thousand in 2011; dividends of 28,000 thousand were paid in 2012 ( 33,592 thousand in 2011). Free operating cash flow (FOCF) before strategic transactions totalled 37,569 thousand, compared to 7,219 thousand for 2011; the 30,350 thousand increase mainly relates to the change in funds from operations (FFO). 9

12 Financial position and results of operations of the Group Non-IFRS alternative performance indicators 2.4 Non-IFRS alternative performance indicators Ansaldo STS S.p.A. s management also assesses the performance of the group and the business segments using certain indicators that are not defined by the IFRS. The components of each indicator are described below as required by CESR/05-178b Communication: Operating profit (EBIT): earnings before interest and taxes, before any adjustment. EBIT excludes gains or losses on unconsolidated equity investments and securities, as well as any gains or losses on sales of consolidated equity investments, which are classified under financial income and expense or share of profits (losses) of equity-accounted investees if related to equity-accounted investments. Adjusted EBIT (Adj): is the EBIT as described above, net of the following items where applicable: - any impairment of goodwill; - amortisation of the portion of purchase price allocated to intangible assets acquired as part of business combinations, pursuant to IFRS 3; - restructuring costs in relation to defined and significant plans; - other income or expense not of an ordinary nature, i.e., related to particularly significant events unrelated to ordinary activities. A reconciliation of EBIT and Adjusted EBIT for the two years is set out below: ( 000) Operating profit (EBIT) 117, ,120 Restructuring costs 6,453 2,339 Adjusted EBIT 123, ,459 Free operating cash flow (FOCF): this indicator is the sum of cash flows from (used in) operating activities and cash flows from (used in) investing and disinvesting in property, plant and equipment, intangible assets and equity investments, net of cash flows from acquisitions or sales of equity investments which are deemed strategic due to their nature or importance. The reclassified statement of cash flows set out in paragraph 2.3 shows how FOCF is arrived at for the current and previous years. Funds from operations (FFO): this indicator is the cash flows from (used in) operating activities, net of changes in working capital. The reclassified statement of cash flows set out in paragraph 2.3 shows how FFO is arrived at for the current and previous years. Economic value added (EVA): is the difference between EBIT net of income taxes and the cost of the average invested capital of the current and previous years measured on the basis of the weighted average cost of capital (WACC). Operating working capital: comprises trade receivables and payables, inventories, work in progress, progress payments and advances from customers and provisions for risks and charges. Net working capital: is operating working capital less other current assets and liabilities. Net invested capital: is the sum of non-current assets, non-current liabilities and net working capital. Net financial position or debt: the calculation method used complies with paragraph 127 of the CESR/05-054b recommendations implementing Regulation (EC) no. 809/2004. New orders: the sum of the contracts agreed with customers during the year that meet the contractual requirements to be recorded in the orders book. Order backlog: is the difference between new orders and revenue for the year (less the change in contract work in progress). This difference is added to the backlog for the previous year. Headcount: is the number of employees recorded in the relevant register on the reporting date. Return on Sales (ROS): is the ratio of EBIT to revenue. Return on Equity (ROE): is the ratio of the profit or loss for the year to the average amount of equity at the reporting date and the previous year reporting date. Research and development expense: total expense incurred for research and development, both expensed and sold. Research expense taken to profit or loss usually relates to general technology, i.e., aimed at gaining scientific knowledge and/or techniques applicable to various new products and/or services. Sold research expense represents that commissioned by customers and for which there is a specific sales order and it is treated exactly like an ordinary order (sales contract, profitability, invoicing, advances, etc.) in accounting and management terms. 10

13 Signalling and Transportation Solutions 2012 Annual Report Ansaldo Sts Group 2.5 Related party transactions Transactions with related parties relate to ordinary operations. They take place on an arm s length basis (unless governed by specific contractual terms), as does the settlement of interest-bearing receivables and payables. They mainly comprise the exchange of goods, the provision of services and the obtaining/granting of financing from and to the parent, associates, joint ventures, consortia and unconsolidated subsidiaries. During the year, no atypical and/or unusual transactions took place. With effect from 2011, the only impact of the application of IAS 24 (revised) related to disclosure requirements with reference to related parties, entailing the restatement of comparative figures shown in the schedules to consider as related parties those entities under the control or significant influence of the Ministry of Economy and Finance ( MEF ). Related party transactions (see notes 13 and 14 to the consolidated financial statements for greater detail) are as follows at 31 December 2012 and ( 000) Ultimate parent Unconsolidated subsidiaries Associates Joint ventures (*) Consortia (**) Other group companies MEF Total Non-current assets - financial other - - 5,373 1, ,779 Current assets - financial 120, ,533 - trading ,473 2,114 22,201 11,626 90, ,966 - other , ,555 Non-current liabilities - financial other Current liabilities - financial trading ,573-1,214 44,709 1,703 58,741 - other ( 000) Ultimate parent Unconsolidated subsidiaries Associates Joint ventures (*) Consortia (**) Other group companies MEF Total Revenue ,780 11,148 9,769 14, , ,305 Other operating income , ,633 Expense 4, ,915-2,359 25,389 1,695 80,536 Financial income Financial expense (49) Other operating expense (*) Portion not eliminated on proportionate consolidation (**) Consortia subject to significant influence or common control ( 000) Ultimate parent Unconsolidated subsidiaries Associates Joint ventures (*) Consortia (**) Other group companies MEF Total Non-current assets - financial other - - 1,540 1, ,765 Current assets - financial 2, ,531 - trading 365 1,237 13,606 13,513 32,596 15,040 56, ,130 - other , ,509 Non-current liabilities - financial other Current liabilities - financial trading ,969 1, , ,984 - other as defined by CONSOB communication no. DEM/ of 28 July

14 Financial position and results of operations of the Group Performance ( 000) Ultimate parent Unconsolidated subsidiaries Associates Joint ventures (*) Consortia (**) Other group companies MEF Total Revenue ,095 12,042 13,760 18, , ,934 Other operating income Expense 3,218 1,945 41, ,754 35,842 1,864 87,025 Financial income Financial expense (105) Other operating expense (*): Portion not eliminated on proportionate consolidation. (**): Consortia subject to significant influence or common control. Finally, the group s corporate governance framework includes specific guidance on conduct to ensure related party transactions comply with criteria of procedural and substantial correctness. Related party transactions between the parent and related parties take place on an arm s length basis. 2.6 Performance The market and commercial situation Despite the increasingly challenging competitive scenario, the group s sales activities were intense in 2012, generating new orders of 1,492,346 thousand ( 2,163,745 thousand in 2011). Signalling Business Unit New orders for 2012 totalled 893 million ( 1,046 million for 2011). Key events of the year are described below. ITALY New orders totalled approximately 206 million. Key new orders included the contract for the Brescia-Treviglio high-speed section (57 kms) for roughly 70 million, which includes the design, construction, installation, roll-out of the signalling (level 2 and multistation ERTMS (European Rail Traffic Management System/ETCS (European Train Control System)) and automation systems, and the 34 million order to overhaul the Brescia central automated system (ACC) which, due to the complexity of movements within the station areas, also requires the installation of a movement supervision system (SSA-CR). Other important new orders include those for the sale of components and maintenance of rail and on-board equipment for approximately 37 million, as well as several works on the existing high-speed line, such as those related to the completion and technological improvements on the Milan-Bologna and Rome-Naples sections for a total of 17 million. REST OF EUROPE In France, new orders approximated 56 million, including in relation to the sale of components and spare parts ( 26 million), as well as contracts for upgrade activities on high-speed passenger lines. In the United Kingdom, new orders approximated 8 million, related to maintenance activities and minor variations, especially for the Cambrian line; in Germany, new orders of around 8 million related mainly to the sale of on-board equipment for Velaro trains, in Sweden approximately 7 million for components for the maintenance of rail and on-board equipment, in Turkey approximately 3 million related to order variations on the Mersin-Toprakkale line and, finally, in Spain approximately 2 million for maintenance activities on existing highspeed lines. AMERICA In the USA, new orders totalled approximately 157 million, including 73 million related to the contract agreed with the Southeastern Pennsylvania Transportation Authority (SEPTA) for the supply of the Positive Train Control (PTC) integrated signalling system to increase railway transport safety in the regional railway system. Other significant orders related to the sale of components (approximately 43 million) and maintenance for the CSX control room (over 12 million). New orders in Canada exceeded 48 million, the largest two of which relate to the Toronto underground. NORTH AFRICA AND THE MIDDLE EAST In the United Arab Emirates, via the Italo-Indian joint venture comprising Saipem-Tecnimont-Dodsal, the group won a contract (approximating 59 million) for the first line of the new Shah-Habshan-Ruwais line under construction, owned by Etihad Rail (the United Arab Emirates railways). Under the agreement, signalling, automation and telecommunication systems and other minor systems for passenger and freight traffic management and control will be supplied for the line of some 260 kms, which will connect the Shah industrial complex with the Ruwais port. 12

15 Signalling and Transportation Solutions 2012 Annual Report Ansaldo Sts Group ASIA PACIFIC In Australia, new orders totalled approximately 187 million, including the 118 million Roy Hill order for the development of systems for a mining transport railway line featuring innovative satellite technology to pinpoint the train s location, considerably simplifying line set-up and the consequent maintenance expense. There were also orders related to the extension of the NSR (Northern Suburbs Rail) Clarkson- Jindalee line ( 15 million), Xstrata Plc s Ravensworth North line for mining in the Upper Hunter Valley in New South Wales worth around 8 million and numerous activities related to contract variations. In India, new orders approximated 17 million related almost fully to contracts to upgrade the interlocking systems of certain stations of the complex passenger railway network. New orders totalled around 16 million in China, including the important order related to Line 2 of the Hangzhou underground for over 10 million, as well as a further approximate 4 million in the railway sector related to the sale of components and maintenance services. Finally, new orders of over 86 million were acquired in South Korea during the year. Key orders relate to the high-speed Honam line ( 47 million), the order related to the supply of on-board equipment for 22 KTX - II trains ( 13 million) and the sale of on-board equipment to the Korean multinational Hyundai-Rotem for 80 locomotives of the Turkish Railways (TCDD) to upgrade the fleet to European ERTMS/ETCS standards (approximately 10 million). Transportation Solutions Business Unit New orders acquired during the year totalled 643 million, compared to 1,256 million in the previous year, which included the Honolulu contract. Generally, the global macroeconomic scenario is still affected by the financial crisis, leading to delays in several projects, and the relevant development programmes do not fully cover the cost of the main projects to expand the transport systems. Demand for technological solutions continues to grow in the driverless underground railway business segment. Key events of the year are described below. ITALY New orders totalled 98 million and comprise: orders and variations related to Line 1 of the Naples underground as part of activities on the Dante- Garibaldi section for the development of the temporary operating control room (shuttle); the upgrade of the definitive operating control room and for the safety project for the entire line for a total of 23 million; the settlement agreement for Line C of the Rome underground ( 36 million) and the extension of Line B1 Conca d oro-ionio ( 3 million). A new contract was won in relation to the Italian high-speed railway for the Brescia-Treviglio section ( 12 million) and orders for the Rome-Naples line ( 11 million). With respect to the contract won for Line 4 (S. Cristoforo-Linate) of the Milan underground, the financing agreements for the joint venture comprising Impregilo (lead contractor), Astaldi, AnsaldoSTS, AnsaldoBreda, Sirti and ATM Milano have not yet become effective but are expected to in the first half of However, based on the obligations taken on as part of the ancillary agreement and its appendices, the joint venture commenced the relevant activities. REST OF EUROPE In Denmark, new orders totalled 120 million in relation to variations and price revisions on existing contracts. Ansaldo STS group was short-listed for the construction of the city of Aarhus first urban tram system; the tender is expected to be announced before the end of NORTH AFRICA AND THE MIDDLE EAST A 16 million order was acquired for the operation and maintenance of the APM Princess Noura University driverless underground in Riyadh, constructed and rolled out this year. Ansaldo STS was successfully short-listed for the Riyadh driverless underground. The winner is expected to be announced in the first half of The offer for the Lusail tramway has been submitted, featuring the Tramwave overhead line-free solution. The winner is expected to be announced in early ASIA PACIFIC New orders acquired in Australia came to 408 million relating to specific contracts under the master agreement with the Rio Tinto mining company. The largest amount relates to the Autohaul project totalling AUD317 million (approximately 253 million). In India, certain underground projects are scheduled for the short- and medium-term and potential partnerships are being evaluated with local contractors. Interest in the company s innovative overhead line-free Tramwave solution is strong in China. A strategic agreement was reached in July with the China-based CNR Dalian and the Taiwan-based General Resources Company, licensing the TramWave technology to the joint venture that will be formed by CNR Dalian and General Resources Company. The innovative TramWave solution offers overhead line-free electric power supply and was developed and patented by Ansaldo STS for use in urban transport systems, eliminating the visual impact of traditional overhead lines. 13

16 Financial position and results of operations of the Group Performance It is hoped that this agreement will lead to a profitable and long-term collaboration so that the many opportunities offered by the Chinese tram market can be exploited. This agreement is also an ideal starting point for more far-reaching collaboration in the mass transit sector with the same partner companies Sales information New orders for the reporting period totalled approximately 1,492,346 thousand, compared to 2,163,745 thousand in the previous year, with a 671,399 thousand decrease. New orders acquired by the Signalling business unit amounted to 893,197 thousand and those of the Transportation Solutions business unit to 642,712 thousand. Key orders acquired by the Signalling business unit in 2012 were as follows: Country Project Customer Amount ( m) Australia Roy Hill 1 Hancock Prospecting USA PTC SEPTA 73.4 Italy HSL MI VR (Brescia Treviglio) Consorzio Saturno 70.2 UAE Abu Dhabi GCC - Abu Dhabi section 1 SAIPEM 58.8 South Korea HSL Korea - Honam Line LSIS 47.3 Italy Brescia ACC RFI 34.4 Canada Extension Phases 2, 3 & 4 TTC 22.8 Canada TTC North Spadina Extension TTC 18.3 Italy HSL Italy variations MI-BO - RM-NA RFI 16.7 Australia Butler Extension - Northern Suburbs Railway (NSR) Public Transport Authority WA 14.7 South Korea On-board equipment ROTEM 13.0 Italy SSB - ATCS variation on 4th application contract Trenitalia 10.9 China Hangzhou line 2 INSIGMA 10.3 USA Components, Service & Maintenance Various 54.5 Italy Components, Service & Maintenance Various 36.8 France Components, Service & Maintenance Various 26.1 Key orders acquired by the Transportation Solutions business unit in 2012 were as follows: Country Project Customer Amount ( m) Australia AutoHaul Rio Tinto Australia RCE 353 & ECP Rio Tinto Australia Various contracts Rio Tinto 54.4 Denmark Copenhagen Ring variation order Metroselskabet 78.9 Denmark Copenhagen Ring - O&M variation orders Metroselskabet 41.4 Italy Rome underground Line C RomaMetropolitane 35.7 Saudi Arabia Riyadh - O&M variation order PMU 16.0 Italy Line 1 of Naples underground - Colli Aminei PCO Metropolitana di Napoli 13.2 Italy HSL MI VR (Brescia Treviglio) Consorzio Saturno 11.8 Italy HSL RO NA variation order Iricav Uno 11.3 Italy Line 1 of the Naples underground - variation order Dante-Garibaldi Metropolitana di Napoli 10.1 New orders for 2012 ( m) and contribution of the business units 2,164 1, December % % December 2011 Signalling Business Unit Transportation Solutions Business Unit The order backlog at 31 December 2012 totalled 5,683,253 thousand, up 230,483 thousand over 31 December ,712 thousand relates to projects in Libya which are currently halted. The order backlog of the Signalling business unit amounted to 2,616,684 thousand ( 2,383,511 thousand net of transactions with the Transportation Solutions business unit). 14

17 Signalling and Transportation Solutions 2012 Annual Report Ansaldo Sts Group The order backlog of the Transportation Solutions business unit amounted to 3,388,258 thousand ( 3,299,742 thousand net of transactions with the Signalling business unit). Order backlog at 31 December 2012 and 2011 and contribution of the business units 5, December % % 39 5, December 2011 Signalling Business Unit Transportation Solutions Business Unit Signalling - performance by Business Unit ( 000) Change New orders 893,197 1,045,870 (152,673) Order backlog 2,616,684 2,341, ,317 Revenue 725, ,375 (2,787) Operating profit (EBIT) 62,530 75,079 (12,549) ROS 8,6% 10,3% -1,7 p,p, Operating working capital 103, ,449 (7,744) Research and development 30,566 32,475 (1,909) Headcount (no.) 2,971 3,081 (110) (The amounts shown in the table include inter-segment transactions). Revenue for 2012 came to 725,588 thousand, compared to 728,375 thousand in the previous year. The key production activities are summarised below. ITALY RAILWAYS - HIGH SPEED The high-speed programme for the original sections (Turin-Milan-Bologna-Florence-Rome-Naples) is largely complete. Works continue on systems to resolve minor issues that do not compromise the safety of train operations. Simultaneously, the activities necessary for the complex technical/administrative testing procedure continue for each section. RAILWAYS - ON-BOARD ATCS/ERTMS In the On-board systems line, production mainly related to the supply of new rolling stock to AnsaldoBreda S.p.A., Stadler (Flirt train ATCS set-up for Strutture Trasporto Alto Adige and set-up options for other Flirt trains for Ferrovie Nord Milano and Ticino-Lombardia consortium), Vossloh and Siemens. Specifically, supply continued of Vivalto double-decker carriages to Trenitalia for high-frequency trains (TAF) and Electric Multiple Unit (EMU) bidirectional trains. Activities also continued for the development of ERTMS systems for the new Zefiro V300 high-speed trains for the Trenitalia fleet. Finally, negotiations were finalised with Trenitalia for the contract to upgrade the ETR 500 fleet and establishing the fees for additional services requested under the ATCS master agreement. RAILWAYS - CENTRAL AUTOMATED SYSTEM (ACC) In the Station equipment line, activities continued on several projects, including: the final stage of the Mestre ACC, Trento Malé ACC, Tel station (Merano-Malles) ACC, Rebaudengo ACC (system delivered to the customer and rolled out in December 2012), Palermo Centrale ACC (finalisation of cabin installation and related power supply), the Genoa junction ACC (materials supply) and the upgrade of the Voghera ACC. The ACC in Chieri was rolled out. Activities also continued for the reconfiguration of the ATCS SST (wayside systems) for the Turin, Naples, Genoa and Verona sections, as well as automation activities comprising both modifications and revamping of existing CTCs (Centralised Traffic Control) (including Siena and Cremona, which have been rolled out) and SCC (command and control system) activities (Venice and Palermo). Negotiations are still underway with the customer for the finalisation of a variation to the Turin-Padua section. MASS TRANSIT Key activities related to the roll-out of the De Ferrari-Brognole section of the Genoa underground and Line B1 of the Rome underground and the extension of Line 1 of the Naples underground. 15

18 Financial position and results of operations of the Group Performance REST OF EUROPE (This section includes Turkey and the former Soviet Republics) In France, activities mainly related to on-board systems (TGV Rhin- Rhône, LGV SEA, Bretagne Pays de la Loire BPL) and equipment (Thalys) for the country s high-speed network, as well as the usual maintenance, assistance and production contracts for individual parts. In Sweden, production mainly related to the Ester and Red Line projects. In the United Kingdom, the completion of the Cambrian line project (the first line in Britain to be equipped with the European level 2 ERTMS standard) has been put back to next year due to additional requests of the customer with respect to a new RBC (radio block centre) version for which commissioning has been completed. Activities in Germany were cut to a minimum for both the POS (Paris-Ostfrankreich-Südwestdeutchland) project and the set-up of the Rostock-Berlin line, pending the customer s review of the project inputs. The customer has requested an extension to the scope of work for the on-board project to supply 30 multistandard facilities for 15 Velaro high-speed trains. In Sochi, Russia, assistance was provided in assembling Itarus RBC and power supply systems for the roll-out of the ERTMS standard in the region and the communication protocol testing stage is progressing. In Turkey, in-depth design activities continued for the Mersin-Toprakkale line, as did the on-site installation activities. Production for the Ankara underground comprised design activities and the continuation of on-site installation for the first lot. NORTH AFRICA AND THE MIDDLE EAST Works in Tunisia are almost complete and negotiations are underway with the customer for the partial extension of the work schedule so as to avoid the application of penalties. In Libya, activities for the project to develop the signalling, telecommunications, security and power supply systems for the Ras Ajdir Sirth and Al Hisha Sabha sections were suspended straight after the well-known riots started, and they have not yet recommenced. In a letter dated 21 February 2011, the customer, a construction company of the Russian railways, Zarubezhstroytechnology (ZST), also halted a project to develop a similar system for the Sirth Benghazi section. Negotiations are underway with this company to agree an extension to the period of the contract s suspension. It is presently difficult to say when production for these contracts will resume, given the situation in the country. As previously reported, the currently recognised asset is more than offset by the amount of progress payments. In the United Arab Emirates initial activities linked to preliminary design were completed and interim design and procurement activities are underway for the Abu Dhabi project (Shah-Habshan-Ruwais Line). Initial FAT certifications were successful for the RBC (Radio Block Centre) buoys and cabinets. AMERICA Production activities focused both on long-term projects and the sale of components. With respect to the former, there was intense activity for the customer, Union Pacific, for the OTP/CADX project. Ansaldo STS USA INC. won the contract in 2005 to develop and roll out Next Generation Computer Aided Dispatch (CAD) and an Optimizing Traffic Planner (OTP) system, as well as subsequent maintenance activities until They also included activities for the customer, Southeastern Pennsylvania Transportation Authority (SEPTA), for the procurement, design, construction and installation of a Positive Train Control (PTC) system on 13 lines. The scope of the work includes testing the system control centres and wayside, communication and vehicle components. Contracts were finalised during the year with all subsuppliers (Burns, PHW, Farfield and ARINC) and wayside and communication design and configuration activities have commenced. ASIA PACIFIC Production in Australia focused on the alliances with local mining companies. With respect to Newcastle, installations and commissioning have been completed. Renegotiations of the Program Alliance Agreement with QR National are underway, pending the finalisation of a sales agreement. Start-up activities are underway for the new Roy Hill project. Production in India mainly focused on the KFW and TPWS projects. With respect to the first, during the year commissioning commenced for five stations, six block sections, two medium yards and the H-H-H (three hot systems, one for each side of the station plus one for the station itself) conversion for three of these stations. Engineering and construction & commissioning activities were completed for stage 4, while the CTC is in the final stage. Construction of the centralised traffic control building was also completed. The project s extension until December 2013 has been approved, as well as a variation on the third line. Last year, activities were forecast to be completed between the end of 2012 and the first half of Considerable expense was incurred in 2012 for internal and outsourced engineering activities. This negatively impacted profitability, mainly as a result of the re-working (the retrofit for stations already completed and changes for new ones) requested by the customer. The cost of completion has therefore been re-estimated to include the activities that will have to be rolled out in order to deliver the stations in line with the new project delivery date agreed with the customer. With reference to the NORTH TPWS project, system maintenance training was provided during the year to Indian railway personnel and the performance parameters were monitored. The additional works and on-board installations on all this line s locomotives were completed. The customer also approved an extension, with works to be completed next year. The SOUTH TPWS project was expected to be completed in the first half of 2012, however, there were significant unforeseeable issues 16

19 Signalling and Transportation Solutions 2012 Annual Report Ansaldo Sts Group along the line during the year, particularly in relation to the installation of materials, necessitating additional engineering and construction & commissioning activities. The projects had to be redesigned, particularly as regards defect liability period activities, which impacted profitability. The Calcutta underground project is still in its early stages with the start-up of engineering, procurement and contract management activities. Planning and identification of key suppliers for the system s construction is underway. In Korea, the supply of equipment for the E-loco EMU locomotives was completed, performance testing was successful and system specifications were endorsed for certain types of locomotives for which all equipment was also supplied. System specifications were finalised and technical mechanical plans drawn up for the other types of locomotives and the hardware plans were completed. Performance testing is underway. In China, the ZhengXi Line project is almost complete, with activities relating to the transfer of technology (ToT) to the local partner, Hollysys, which is subject to final approval by MOR (the Ministry of Railways of China). On-board systems issues have been resolved and laboratory and on-site testing carried out together with Hollysys. This entailed the release of a new version of the on-board software featuring a safety case, which has already been installed on the trains. Certain cabling hardware modifications necessary to resolve the issues are currently being defined in conjunction with MOR. Operating profit (EBIT) of the Signalling business unit for the year ended 31 December 2012 came to 62,530 thousand (8.6% as a percentage of revenue), compared to 75,079 thousand (10.3% as a percentage of revenue) in the previous year, due to the different mix of contracts and profitability in the two years. Operating working capital at 31 December 2012 was 103,705 thousand, a decrease on the 111,449 thousand at 31 December 2011, due to the decreased inventories and net work in progress. Research and development expense for the year equalled 30,566 thousand, compared to 32,475 thousand in the previous year. The headcount at 31 December 2012 numbered 2,971 (3,081 employees at 31 December 2011). Streamlining of the Riom and Batesburg production facilities was completed in 2012 with the outsourcing of certain activities and related resources Performance of the Transportation Solutions Business Unit ( 000) Change New orders 642,712 1,256,058 (613,346) Order backlog 3,388,258 3,442,345 (54,087) Revenue 564, ,267 52,586 Operating profit (EBIT) 69,130 55,009 14,121 ROS 12,2% 10,7% +1,5 p.p. Operating working capital (129,106) (172,411) 43,305 Research and development 1,695 1, Headcount (no.) (The amounts shown in the table include inter-segment transactions). Revenue generated by the Transportation Solutions business unit in 2012 amounted to 564,853 thousand, compared to 512,267 thousand in the previous year. Volumes generated in Italy accounted for 43% and those generated abroad for 57%, with 57% of volumes in the underground sector. Production mainly related to the following projects: Line C of the Rome underground, high-speed railways, Copenhagen, the Milan underground, the Genoa underground, Alifana, Line 6 and Line 1 of the Naples underground, the Brescia underground, the Riyadh underground, the Honolulu underground and the Australian Rio Tinto project. The key production activities are summarised below. ITALY HIGH-SPEED RAILWAYS: Interconnections continued to be rolled out and works performed under warranty on those lines already in operation in the high-speed line. With respect to the Rome-Naples section, arbitration between TAV and IRICAV UNO consortium was concluded in June, with the award in favour of IRICAV UNO. The customer has stated its intention to appeal against the award. Negotiations are underway for a settlement to finalise the outstanding litigation. The arbitration between RFI/TAV and the IRICAV DUE consortium was also concluded in May for the Verona-Padua section; under the award, RFI/TAV shall partially compensate IRICAV DUE and the 1992 Agreement is still valid and in effect. RFI has already paid IRICAV DUE the amount set in the award but has not yet forwarded IRICAV DUE the definitive project for the section in order to commence the execution plan. 17

20 Financial position and results of operations of the Group Performance GENOA UNDERGROUND: The De Ferrari/Brignole functional section was opened to the public in December. A variation enabling the conclusion of works in May 2014 is under approval by the Genoa municipality. ALIFANA REGIONAL LINE: Following the halt of all activities related to the Piscinola-Aversa section, the group deemed it necessary to redetermine and agree a suspension of the physical activities so as not to incur extra costs. With reference to the Piscinola-Capodichino section, as the customer failed to fulfil its commitments, a review of the claims was commenced and there is a court order imposing the customer to pay outstanding receivables. NAPLES UNDERGROUND LINE 6: The progress of works for the year was in line with the schedule; it mainly comprised the continuation of civil works on the sites related to the sixth Rider (Mergellina-Municipio functional section) and progress on the testing of the signalling system s trackside equipment. Specifically, the civil works on the stations A. Mirelli and S. Pasquale are at an advanced stage (the excavation has reached the bottom and construction has commenced of the internal structures), while the Chiaia and Municipio stations are still subject to various issues compromising the normal progress of the executive stage. The contract manager delivered the works for the technological systems in November, thus enabling the commencement of the procurement process which will take place in the first few months of 2013 with a view to having the main systems ready for testing by year end. ROME UNDERGROUND LINE C: In 2012, CIPE (Interministerial economic planning committee) approved funding for the settlement agreement between the parties and the T3 section for which the contractual formalisation is yet to take place. With reference to the progress of on-site activities, testing (including integrated system testing) is substantially complete on the Pantano- Torre Gaia section. Integrated system testing is underway for the Torre Gaia-Centocelle tunnel section, which is the first to be rolled out. Certain variations have become necessary for Metro C, reducing work shifts dedicated to testing and pre-operational activities. Consequently, Roma Metropolitane and Metro C are working on a new roll-out plan which foresees the above activities and which provides for the launch of the pre-operational stage by the general contractor in the first part of 2013 directly on the Pantano-Centocelle section, to avoid efficiency losses. MILAN UNDERGROUND LINE 5: Assembly activities have been completed for the functional section from Bignami to Zara and the systems rolled out. The ATC proof tests and final integrated system testing have been completed. The functional section will be rolled out in February No particular issues have arisen in relation to the activities to complete the Zara to Garibaldi section and its roll-out is slated for the end of With reference to the line s extension from Garibaldi (excluded) to the San Siro station, the executive design is substantially complete and orders for all main supplies have been issued. Testing of the signalling and telecommunications materials is nearing completion. Due to delays in delivery from the customer, there is presently a difference between the final date for the work compared to the contractually-agreed programme. An agreement has been reached with the Milan municipality for a situation that, although on a smaller scale (skipping some stations), will allow the partial opening of the Garibaldi to San Siro line by the contractually-agreed date of April 2015 (in time for EXPO 2015) and the completion of all works and the opening of the complete line by October NAPLES UNDERGROUND LINE 1: During the year, the technological works were completed in relation to the Toledo station opened in September. Activities are also underway on the other sites that will lead to the completion of the Dante-Garibaldi section in its final configuration, except for the Municipio and Duomo stations, by the end of BRESCIA UNDERGROUND: The procurement and assembly activities have been completed and the integrated system testing for the start-up (first year of commercial operation) configuration is substantially complete. Performance testing, which involves a greater number of vehicles, is yet to be completed. The system is at a pre-operational stage and ministerial approval for the start-up of commercial operations will be received in March REST OF EUROPE THESSALONIKI UNDERGROUND: Technical meetings continued with the customer, Attiko Metro, to formalise the technical acceptance of the compliance matrix of the CBTC signalling system, and concluded positively in December. With respect to the general final design, the customer has officially approved the Greek version of the Telecom system and partially approved that of the Security Management System (SMS); the English version for the third rail system has been partially approved and the approval procedure for depot equipment is almost complete. A remedy of petition was formally brought before the Greek court at the end of November, representing the parent s claim for damage incurred during the design stage. Moreover, an official claim was lodged in October with the joint venture for the ATC signalling system proposed during the bidding stage and never accepted by the customer. Internal consultations and analyses also continued with a view to agreeing new timelines between the members of the joint venture. COPENHAGEN: All detailed design documentation ( DD ) was issued in the fourth quarter of DD milestones for the CMC (civil works for the depot) and passenger vehicles subsystems have been reached. The supplier of civil works for the depot has completed the activities related to the foundations of buildings E (internal washing) and F (external washing). Activities are underway for the construction of buildings A, B, C and D (electricity substation, offices and depot workshop), cable laying and piping. 18