2008consolidatEdFINANCIAL STATEMENTS ATM GROUP

Transcription

1 2008consolidatEdFINANCIAL STATEMENTS ATM GROUP

2 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ATM GROUP

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4 CONTENTS 05 DIRECTORS REPORT 20 CONSOLIDATED BALANCE SHEET 24 CONSOLIDATED PROFIT AND LOSS ACCOUNT 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 62 STATUTORY AUDITORS REPORT 68 INDEPENDENT AUDITORS REPORT 70 SEPARATE BALANCE SHEET OF ATM S.p.A. AS AT 31 DECEMBER SEPARATE PROFIT AND LOSS ACCOUNT OF ATM S.p.A. FOR THE YEAR ENDED 31 DECEMBER

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6 DIRECTOR S REPORT 1. INTRODUCTION The year just ended was the ATM Group s first full year under the new management, with a sharp focus on the targets set at the end of 2007 and included in the three-year business plan. All activities were geared towards achieving the common goal of increasing the level of service offered, while ensuring its sustainability. Accordingly, organisational and operational efforts were made to boost the efficiency of each individual process. In terms of service quality, the Group focused on all the most significant organisational processes in areas in which customers indicated the most important variables: regularity, safety and security, comfort and information. Developments on the ATM Group s markets have led it to evaluate strategic choices, enabling the Group to strengthen activities in its core location (the Milanese and surrounding areas) on one hand, while growing in Italy and abroad on the other, making it one of Europe s leading players. In line with these prospects, the ATM Group has participated or shown an interest in participating in tenders in Italy and abroad. In October, a group made up of ATM and AT B Bergamo e Brescia Trasporti won the tender for the acquisition of 45% of APAM Esercizio di Mantova, which has been managed by a Managing Director appointed by ATM since November. At the same time, discussion with other operators has continued, particularly in Lombardy, as its proximity could lead to opportunities for operating synergies and business combinations. The Group is continuing work aimed at an alliance with GTT Torino. The feasibility study, which began in March 2008, has shown significant strategic and operating synergies arising from a potential merger. At present, the project is awaiting approval from the two companies shareholders and the Milan and Turin municipal authorities, which should consist of their signing an agreement outlining the main guidelines. 2. THE ATM GROUP In 2008, the ATM Group s corporate organisation process, which began in 2007, continued. The main events of the year were the following: INCORPORATION OF MOVIBUS S.R.L. After the Milan provincial authorities assigned the west lot, on 15 May 2008, Movibus S.r.l. was set up, 26.18% owned by ATM S.p.A., 52.35% by STIE S.p.A. and 21.46% by ATINO M. The company has quota capital of 8,200,000 and is based in Piazza Castello 1, Milan. Its business purpose is to provide local and regional public transport services in the west lot, in addition to providing sub-contracted services to its quotaholders. ATM S.p.A. acquired the investment by conferring the interurban business unit that handles the west lot lines. INCORPORATION OF NUOVI TRASPORTI LOMBARDI S.R.L. On 16 October 2008, Nuovi Trasporti Lombardi S.r.l. was set up, 74.50% owned by ATM S.p.A., 24.50% by A.T.B. S.p.A. and 1% by Brescia Trasporti S.p.A. The company has quota capital of 2,500,000 and is based in Foro Buonaparte 61, Milan. Its business purpose is to manage passenger and freight transport and information transmission services, along with the related scheduling and operational organisation activities. On 29 October 2008, N.T.L. acquired 45% of APAM Esercizio S.p.A., based in Mantua, which manages local public transport services in the municipality and province of Mantua. ACQUISITION OF 100% OF NORD EST. TRASPORTI S.R.L. On 30 May 2008, ATM S.p.A. acquired 100% of the company s quota capital through its acquisition of SA B Autoservizi S.r.l. ACQUISITION OF METRO SERVICE A/S THROUGH INMETRO S.R.L. On 1 January 2008, the subsidiary International Metro Service S.r.l. acquired the entire share capital of Metro Service A/S, which manages the Copenhagen metro. ACQUISITION OF 100% OF GUIDAMI S.R.L. In January 2008, ATM S.p.A. acquired 100% of the quota capital of Guidami S.r.l., which manages a car sharing business in the Milanese area. 5

7 The following chart shows the ATM Group companies. - Perotti Spa handles maintenance and diagnostics for the tram and metro railway structures; ATM SpA ATM SERVIZI S.p.A. LPT operations management GESAM S.r.l. Insurance claims management NORD EST TRASPORTI S.r.l. Suburban LPT management MI PARK S.p.A. Car park management PEROTTI S.p.A. Network and infrastructure maintenance 100% 74,5% 90% 100% 100% 20% 51% 20% 51% 26.18% NUOVI TRASPORTI LOMBARDI S.r.l. LPT management in Mantua and province GUIDAMI S.r.l. Car Sharing CO.MO FUN&BUS s.c.a.r.l. Como funicular railway management METRO 5 S.p.A. Construction of the new metro line 5 MOVIBUS S.r.l. Suburban LPT management INTERNATIONAL METRO SERVICE S.r.l. 51% 100% METRO SERVICE A/S Underground management in Copenhagen Consolidated companies Investees - Mipark Spa designs and builds car parks; - Gesam Srl manages insurance claims; - Guidami Srl manages car sharing in the municipality of Milan; - Inmetro Srl manages the Copenhagen metro through its wholly-owned subsidiary Metro Service A/S; - Nuovi Trasporti Lombardi Srl manages local public transport services in the province of Mantua through the associated company APAM Esercizio S.p.A.. 6

8 3. DEVELOPMENTS IN LOCAL PUBLIC TRANSPORT AND OTHER LOCAL PUBLIC SERVICES The transition period provided for by Law no. 422/97, enabling the Regulating Bodies (municipal and provincial authorities) to begin procedures for tenders to assign local public transport services, ended on 31 December After roughly eight months of vacatio legis, in August 2008, a decree introducing measures aimed at reforming local public services performed for profit, including local public transport services, was converted into law (Law no. 133/2008). This law introduced a new deadline for the public awarding procedures of the above services. The deadline was set for 31 December 2010, and marks the updated end of the transition period. In 2008, after a three-year dispute, the Milan provincial authorities definitively awarded transport services for its areas. The contracts took effect as from 1 January 2008 for the northeast lot (NET S.r.l., which is wholly owned by ATM S.p.A.) and 1 July 2008 for the west lot (Movibus S.r.l., which is 26.18% owned by ATM S.p.A.). However, the appeal in connection with the awarding of the southwest lot, for which ATM Servizi S.p.A. currently manages certain lines under an extension, is still pending. With respect to the Milan municipal authorities concessions, as outgoing service provider, ATM S.p.A. has guaranteed local public service continuity until the municipal authorities complete the documentation necessary to conclude the tender. This is, in any case, an obligation of the current regulating contract. These procedures were concluded when ATM S.p.A., the only eligible entity, was sent an invitation to present an offer, along with the related tender specifications, on 23 January The tender will relate to not only local public transport but also on-demand transport services, the management of parking and car parks and car sharing. As provided for by regional legislation and the Three-Year Milan Municipality Service Plan, the offer was actually presented by ATM Servizi S.p.A., as service management must be assigned to an entity other than the owner of the networks, cars and garages. To meet these obligations, ATM S.p.A. set up ATM Servizi S.p.A. in 2006 through the demerger of certain business units. Lastly, the gross cost structure of the tender will dramatically change the nature of cash flows, as revenues from the sale of tickets will flow to the contracting body (the Milan municipal authorities), whereby the manager (ATM Servizi S.p.A.) will be remunerated for the service with one contractual consideration. In turn, ATM S.p.A. will use intercompany agreements to regulate the activities it performs on behalf of its subsidiary and the provision of means necessary for the service. 4. GROUP COMPANIES RESULTS The results of operations of the parent company and its subsidiaries, with the main reasons for such figures are summarised below. However, reference should also be made to the individual companies financial statements approved by their share/quotaholders for a more comprehensive analysis. ATM Spa ATM S.p.A. ended 2008 with net profit of 2,360,596, as revenues grew by 5.3% on the previous year. This growth exceeds the rise in costs, which was contained at 4.3%. Given the parent company s size compared to its subsidiaries, its net profit for the year is substantially the result of the same dynamics discussed in the note to the consolidated profit for the year, to which reference should be made. ATM Servizi Spa ATM Servizi S.p.A. ended the year with net profit 1,554,481, although 2008 saw a 7.7% decrease in turnover on the previous year following the loss of the inter-urban public transport service concession in two lots. Indeed, the Milan provincial authorities assigned management of the northeast lot to NET S.r.l. (a subsidiary of ATM S.p.A.) on 1 January 2008 and management of the west lot to MOVIBUS S.r.l. (an associated company of ATM S.p.A.) on 1 July Following the above, ATM Servizi S.p.A. transferred its personnel, cars and equipment necessary for transport services to the related companies. It follows that the net profit for 2008 is the result of the reduction in costs, which fell by 7.4% on 2007, and the improvement in financial management, which entailed savings of 86.4% in financial expenses. Nord Est Trasporti Srl This company was set up on 5 December 2007 after the joint venture of SAB Autoservizi S.r.l. and ATM S.p.A. won lot 3 (northeast lot) in the tender called by the provincial authorities for the management of local public transport by bus. As indicated in its deed of incorporation dated 5 December 2007, this is the company s first year of operations. Accordingly, although the year was negative, the company ended 2008 with a net loss of 521,497, which was less than that forecast in the 2008 budget ( 1,037,442). The result for the year was boosted by the agreement signed with the Milan provincial authorities at the end of March 2008, adjusting the consideration per kilometre by 7%, with a positive effect of 547,000. 7

9 Guidami Srl This company handles car sharing activities, i.e., the offer of vehicles for the transport of passengers and/or freight with reservations, which can be used for specific periods of time by car sharing members. It ended the year with a net loss of 562,669, which was lower than the net loss of 618,380 for The result is due to steps taken by management to contain costs and achieve profitability.. GESAM Srl This company posted a net profit of 28,871, up 7.6% on the profit of 26,843 for the previous year. This result was due to the management of insurance claims. During the year, the company carried out activities on behalf of both the parent company and other companies in Italy. Costs mainly relate to personnel expenses and agreements signed with the parent company for services related to claims management, property leases and IT equipment rentals, as well as administrative, tax and legal services. Perotti Spa The financial statements show a net profit of 373,507, compared to a net loss of 91,203 for the previous year. This result is due to the 22% reduction in costs on 2007, following the decrease in personnel expenses and lease payments for machinery and equipment, as certain contracts came to term. However, the decrease in costs is higher than the 14.3% drop in revenues. The reduction in revenues, mainly those from the parent company, which make up roughly 92% of the company s total turnover, is due to the decrease in metro rail grinding activities with the 24-wheel train. Since the fourth quarter of 2008, ATM has managed this activity directly using its personnel. On the other hand, given the loss of turnover from this activity, the company no longer rents the rail grinder, generating a reduction in costs. Mipark Spa This company designs, builds and manages car parks. It ended the year with a net loss of 9,912 and its financial statements show investments of 1,131,342 for analyses and preliminary archaeological digs in sites where the P.za Castello/ Lanza and P.za Castello/Paleocapa car parks will be built and the Lambrate site where an interchange car park will be located, for which the company has already presented a single project to the Milan municipal authorities. Following additional archaeological surveys required by the Superintendency of Art and Culture, the company has presented changes to the original plans. Although long, the authorisation process should be successfully concluded and construction work should resume at that time on the car parks. Inmetro Srl Incorporated on 12 April 2007, this company ended its second year of operations with a net profit of 2,195,020. It cannot be compared to the net profit of 2,628 for 2007, since the company was practically inactive at that time and only recognised the costs of advisory services for the acquisition of the 100% investment in Metro Service A/S from Serco. Accordingly, the net profit for 2008 reflects the result of the first year of operations, and is due to the dividend paid by the subsidiary Metro Service A/S, current manager of the Copenhagen metro. The subsidiary Metro Service A/S s profit and loss account figures for 2008 are summarised below, with comparative prior year figures, in Euros. 8

10 METRO SERVICE A/S 2008* 2007** amount % (euro/000) (euro/000) (euro/000) % LPT revenues 36,266 31,377 4, Production cost -27,481-21,583-5, Gross operating profit 8,785 9,794-1, Indirect production costs -6,760-4,369-2, Operating profit 2,025 5,425-3, Financial income and expenses n.s. Profit before taxation 2,199 5,432-3, Taxation on profit for the year , Net profit for the year 1,621 3,989-2, * Amounts in DKK converted at the average 2008 exchange rate: EUR1 = DKK * Amounts in DKK converted at the average 2007 exchange rate: EUR1 = DKK Metro Service manages the operation and maintenance of the Copenhagen metro. Metro Service is a subcontractor of Ansaldo STS, which holds the contract for the construction, operation and maintenance of the metro with Metroselskabet I/S, which owns the infrastructure. Metro Service s contract expires on 19 October Production revenues total 36.3 million, up 16% on 2007 due to the increase in service volumes as the network was extended to the Copenhagen airport. During the year, Metro Service improved all performance ratios, reaching a record in the number of passengers (46 million in one year, up 17%). It also broke the annual service availability record (98.6%) and achieved a monthly service availability record in January (99.4%), in operating conditions that saw a 10 second reduction in the headway during peak times, to 125 seconds. The train and infrastructure reliability trend also improved significantly, despite a series of difficulties in July and August. In April 2008, the Copenhagen metro received the award for best metro in the world at the MetroRail conference in Copenhagen. Service quality was confirmed at the 2009 conference held in London, where it won the award for best driverless metro. 5. SIGNIFICANT EVENTS IN 2008 PUBLIC TENDERS FOR LOCAL PUBLIC TRANSPORT SERVICES During the year, the Milan provincial authorities launched two further lots (northeast lot awarded to the subsidiary NET S.r.l. on 1 January 2008 and the west lot awarded to the associated company Movibus S.r.l. on 1 July 2008) in addition to the six tendered lots and two already launched in The last two lots are under litigation between the Milan provincial authorities and certain bidders (northwest and southwest). In terms of the urban network, in January 2009, the Milan municipal authorities invited ATM S.p.A., the only eligible manager, to present an offer for the assignment of local public transport services and related and complementary services. LINE S5 SUBURBAN RAILWAY SERVICE The S5 line is one of the eight suburban railway service lines connecting the city of Milan to the surrounding municipalities in the province of Milan and other provinces. Following the public tender, service on the Varese/Gallarate-Pioltello: S5 Line was awarded to the joint venture of Trenitalia S.p.A., Ferrovie Nord Milano Trasporti S.r.l. and ATM S.p.A., which will manage the line for nine years, until 30 June Line S5 extends from Varese to Pioltello, stopping in Gallarate, Busto Arsizio, Legnano, Rho, among other municipalities, and arriving in eight stations in Milan, before continuing on to Pioltello - Limito, with a stop in Segrate. ATM guarantees management of the ticket sales network, ticketing machine maintenance, ticket controls and alternative services. 9

11 Ecopass On 1 January 2008, the Milan municipal authorities introduced a system of access to the limited traffic zone within the Cerchia dei Bastioni with payment of rates based on the legal of vehicle pollution. It entrusted ATM S.p.A. with the installation and management of this system, named Ecopass BikeMi bike sharing BikeMi is the new bike sharing service in Milan. Created to encourage residents mobility, it is a genuine public transport system used for short periods of time (two hours at most), in conjunction with ATM s traditional means of transport. The service was launched on 3 December with 66 stations in the historic centre. In 2009, it will extend to serve other areas of the city. 6. THE ATM GROUP S SERVICE THE GROUP IN FIGURES In Lombardy, the ATM Group serves an area of 1,085 square kilometres, in 91 municipalities, with a resident population of approximately 3 million. The service is organised in a network that covers 1,441 kilometres, broken down into 124 ordinary lines with 2,902 vehicles. Transported passengers in 2008 totalled roughly 650 million, with million transport km, up 2.5% on The Copenhagen metro serves 162 square kilometres in three municipalities, with a resident population of approximately 650 thousand. The service covers a network of 21 kilometres, with two metro lines and 34 cars million passengers were transported over 15.1 million transport kilometres. SERVICE QUALITY - CERTIFICATIONS To meet the needs of customers and minimise the environmental impact, the Group has updated its company management system to the highest quality standards. Since 2001, it has undertaken a certification process whereby it has created its own quality and environmental management system in accordance with ISO 9001 (international quality management system) and ISO (international environmental management system) standards. In particular, the following activities have been certified: In particolare sono state certificate le attività riguardanti: - service scheduling; - service provision and car maintenance for all means of transport (metro, buses, trams and trolley buses; - maintenance and management of plant and infrastructure necessary for local public transport, including safety and security system; - the construction of trolley bus, railway and tram line infrastructure and traffic management systems. The ATM campus, the training department and the company crèches have also been certified in accordance with UNI ENI ISO 9001 standards. 10

12 SERVICE QUALITY - REGULARITY AND FREQUENCY Service regularity is the most crucial quality factor for our customers. With the aim of constant improvement, the Group has taken the following step: - service extension during evening peak hours until 8 pm, with a 20% increase in surface and underground runs; - strengthening the lines between the first ring of municipalities in the Milanese hinterland and the municipality of Milan; - new timing for the main lines between 8 am and 1 pm on Sundays and holidays, with a pre-scheduled frequency synchronised with the three metro lines, to ensure customers can travel without pointless waits; - strengthening the traffic emergency task force to improve the regularity of means slowed by irregular stops. On-duty operators respond to traffic control notices, following all the necessary stages to resume service, and fine the irresponsible driver; - progressive elimination of 70% of 35-metre trans from the city centre and their replacement with new 26-metre trams. The long trams are used on the main lines with higher demand for transport. SERVICE QUALITY - SAFETY AND SECURITY Ensuring passengers are both secure and safe is one of the key targets in the ATM Group s mission. In terms of security, ATM has intensified surveillance and control on-board trains, in metro stations and along the surface network, doubling security personnel and ramping up coordination with the police. During the year, work continued to train revamping continued, with, among other things, the installation of video cameras and interconnecting cars, to increase the level of security, especially during non-peak hours. ATM guarantees safety through its maintenance processes, which involve all types of transport (trams, buses, trolley buses and trains) and infrastructures (rails and trolley cables). The control rooms are constantly monitoring surface and metro circulation, with systems that provide information in real time on the location, distance and load of cars: in 2008, the new surface control room went into use, making the transmission of wait times even more reliable. SERVICE QUALITY - COMFORT AND ACCESSIBILITY The surface vehicle fleet is constantly being renewed: all new vehicles ordered, some of which have already been delivered, are up to the highest standards of accessibility and comfort (air conditioning, lowered platform, etc.). The Group s commitment to comfortable travel in the metro is twofold: the purchase of new cars, with the launch of the new Meneghino air conditioned trains with interconnecting cars (40 trains by 2010) and the reconfiguration of existing trains, through revamping with the complete overhaul of mechanical parts, the installation of air conditioning in the passenger cars which are now interconnecting to improve mobility and equal passenger distribution in cars, increase train capacity and make travel safer during non-peak hours. The Group has focused not only on vehicles and cars, but also on renewing the infrastructures, particularly the metro stations, to ensure increasingly higher levels of comfort and space. In 2008, a significant redevelopment project began on the metro stations, involving signs, lighting, floors and wall materials and colours. In 2008, work on the Garibaldi station was completed. Work is now in progress to improve the accessibility of stations, with the installation of lifts that, in addition to stairs and escalators, connect the different floors to one another and the surface. The project launched at the end of 2007 to create mobile phone coverage in the metro continued during the year. At 31 December 2008, 32 stations had the service. The project is slated for completion by the end of The Group began work to improve accessibility in 2008 as part of the three-year plan. To this end, it created a work group and appointed a manager responsible for the application of planned projects, many of which are now being implemented. This plan provides for investments to update and maintain cars, vehicles and infrastructures and adopt specific devices. Before the plan was launched, the Group mapped all cars, vehicles and infrastructures according to the full handicap compliance (FHC) indicator. The findings showed a level of public transport accessibility compliance of 56%, placing Milan in the middle of the rankings for large cities worldwide, but above other European cities like London and Berlin. The aim of the plan is to improve the level of transport access for the disabled in the next three years, and ensure more convenient and easier use for the elderly, families with children and passengers with luggage. At the same time, discussion has begun with the accredited Council for the Disabled with the Milan municipal authorities. 11

13 7. SUMMARY OF ATM GROUP RESULTS 2008 was a highly positive year for the ATM Group. The consolidated profit and loss account shows a net profit of 5.4 million, including 4.4 million attributable to the Group and 1 million to minority interests amount % (euro/000) (euro/000) (euro/000) % Total production revenues 841, ,999 85, LPT revenues 375, ,428 61, Grants 342, ,938 1, Other revenues and income 123, ,633 21, Total production cost 760, ,555 74, Raw materials, consumables, supplies and goods 85,281 79,906 5, Services 191, ,291 29, Use of third party assets 39,009 37,259 1, Personnel expenses 429, ,717 32, Variation in inventory -3,059-8,979 5, Other operating costs 19,155 20,361-1, Gross operating profit 80,648 69,444 11, Amortisation, depreciation and write-downs 73,349 70,226 3, Operating profit 7, ,081 n.s. Financial income and expenses 6,468 10,503-4, Extraordinary income and expense 7,366 8,923-1, Profit before taxation 21,133 18,644 2, Taxation on profit for the year -15,651-15, Net profit for the year 5,482 2,817 2, Net profit for the year attributable to the Group 4,432 2,426 2, Net profit for the year attributable to minority interests 1, Prior year figures are not comparable as they relate to a different consolidation scope, since Metro Service, Guidami and NET were only consolidated from 2008 on. The 8 million increase in operating profit is mainly due to the 85.2 million growth in revenues (+11.3% on 2007), versus an increase of 77.2 million in production cost (+10.2% on 2007). Accordingly, the growth in revenues enabled the Group to offset the effect of inflation that the trend in oil prices had on energy costs and certain types of materials. 12

14 As can be seen in the table below, the growth in revenues is due to the higher turnover generated by public transport activities ( million on 2007, +19.7%), including an increase of 28.2 million in revenues generated in Italy and 33 million abroad, due to the consolidation of the subsidiary Metro Service A/S. LPT revenues amount % (euro/000) (euro/000) (euro/000) % Passengers 345, ,545 61, Italy 312, ,545 28, Denmark 33, ,022 n.s. Parking and car parks 24,796 23,732 1, Other revenues 4,543 5, TOTALE 375, ,428 61, The increase in Italian passenger traffic is mainly due to the growth in ticket sales, which benefited, in the first half of the year, from the gradual closure of metro turnstiles beginning in April However, the rest of the year saw growth, with the sole exception of October and November, when service underwent difficulties. The financial statements show lower revenues from invoicing to the Milan municipal authorities due to the latters non-application of the rate adjustment ( 6.9 million) approved by the Lombardy Region as from September. Income from parking and car parks grew by 4.5%. The growth in income from parking is due to the creation of new toll parking areas in late 2007, while that in car parks is a result of the significant increase in their use (+7%). Revenues from car sharing activities also contributed to turnover during the year, following the consolidation of Guidami, which was not consolidated in After ATM signed the Patto per il Trasporto Pubblico Locale (Local Public Transport Pact) with the Lombardy Region, the value of grants related to income was updated for the first time since 1993 by roughly 10% on previous figures. However, at the date of this report, payment of two-thirds of the amount is subject to approval by a quorum of signatories. In accordance with the principle of prudence, this condition precedent led to the recognition of only one-third of the agreed amount in the separate financial statements. The agreement, which was not only signed by the Lombardy Region, but also all main parties with an interest in public transport (customers, companies, local bodies and trade unions), sets the guidelines for the development of new regional regulations and establishes the stability of the grants and their adjustment for inflation in future years. The 21.3% growth in Other revenues and income (+21.6 million) is partly due to services invoiced to third parties for increased Ecopass activities (both system management and strengthening transport services) and to the favourable performance of non-core business lines: - advertising: advertising revenues grew by 12.9% as a result of the renegotiation of the contract with the current agent, pending suitable market conditions for a new tender; - fines: these rose by 10.7% due to the combined effect of increased controls and the increase in unpaid fine recovery activities; - property leases: the improvement in this caption (+12%) is due to new rental contracts for suburban garages used by the operators that have taken over in provincial lots no longer managed by the Group and spaces rented for commercial use. The reorganisation of Line 1 train revamping activities and the ramping up of the super structure have led to greater capitalised internal work by 24.9%, amounting to 3.9 million. The increase in production cost (10.2%) is due to the usual contractual developments in the cost of labour, the cost of all materials or services directly affected to oil prices (fuel, electricity, steel and mechanical parts). With respect to fuel, the average cost per litre in 2008 was 1, versus 0.83 in 2007, showing a 20% increase. Despite consumption due to higher business volumes and extraordinary maintenance on metro and trolley bus super structure plant, as well as the revamping of Line 1 metro trains, closing inventory showed growth. This is the effect of delivery lines for specific materials, which ran out in late 2008, for the train revamping activities described above, as the purchase plans for these materials were agreed with suppliers in previous years when the project was launched, with different developments in the work schedules and, accordingly, the timing of consumption. The accrual to the provision for obsolete inventory also increased by 1.8 million due to the start-up of a specific analysis on movements in rolling stock materials for the metro and trolley buses. 13

15 The variation in service costs includes the 6.6 million increase in the cost of electricity for traction and utilities and the 8.5 million increase in maintenance costs. Higher costs are also due to the operational management of the Ecopass system launched at the start of the year and, in particular, to the management of the toll-free number and the call centres to activate passes and report complaints, as well as selling and IT management costs. However, these costs are offset by higher revenues, as described above. Personnel expenses rose by 8.2% ( 32.3 million) on the previous year. The main reasons for this change are as follows: - the two-year term of the national labour agreement expired on 31 December In 2008, the Group estimated the total cost on the basis of previous renewals; - the previous two-year term ( ) provided for a variety of raises, the last of whichoccurred in September This led to a higher charge (dragging effect) on Despite the significant growth in investments, the increase in depreciation is still contained due to projects not yet completed, which are recognised under assets under construction, and as such do not generate depreciation. As in 2007, ATM has calculated IRAP due fully considering former National Transport Fund grants. As mentioned in 2007, this calculation method could change if the Lombardy Region, as trade organisations and companies have requested on numerous occasions, issued an interpretation establishing the exclusion of the portion of grants earmarked to cover personnel expenses from the IRAP tax base. 8. ANALYSIS OF THE EQUITY STRUCTURE CONSOLIDATED BALANCE SHEET amount % Assets (euro/000) (euro/000) (euro/000) % Share capital proceeds to be received 7,616 12,656-5, Net fixed assets 1,360,306 1,274,927 85, Net current assets 828, ,122 42, Total assets 2,196,045 2,073, , Liabilities (euro/000) (euro/000) (euro/000) % Shareholders equity 1,041,315 1,035,178 6, Employees leaving entitlement and provisions 280, ,851-7, Net current liabilities 874, , , Total liabilities 2,196,045 2,073, , Net fixed assets increased by a total of 85.4 million, mainly due to investments to implement the three-year plan for the renewal, strengthening and technological innovation of infrastructures, plant and rolling stock. ATM s commitment in this sense was reflected in the kick-off of tens of projects whose progress is constantly monitored by various teams. A significant commitment has been made to industrial engineering, maintenance and logistics processes. The critical nature of these areas, especially with respect to infrastructures, has required and will continue to require substantial investments and constant attention. New operating processes have been identified and partly implemented to ensure the quality and reliability of the network and rolling stock, which does not meet the Milanese public s expectations. In 2008, the Group carried out investments of million (including intangible fixed assets of 7.3 million and tangible fixed assets of million), compared to million at 31 December Investments of the year were mainly carried out by the parent company ATM S.p.A. The other companies made more modest investments, in line with the Group s policy, which provides for the concentration of shared use investments under ATM. An analysis of the parent company s figures and, in particular the amount of payments on account invoiced by suppliers for fixed assets, which do not constitute tangible fixed assets in the management accounts, shows that investments in 2008 total 206 million (the increase in assets under construction of 180 million, plus assets amounting to 26 million delivered by suppliers for which payments on account were invoiced in 2007), three times the corresponding figure at 14

16 31 December 2007, which amounted to 79 million (increase in assets under construction of 146 million, net of payments on account to suppliers of 67 million for fixed assets). Investments mainly related to rolling stock, as 77 new environmentally-friendly buses and 22 new tram cars were rolled out. In addition, the delivery of the first new Meneghino metro trains (the first was rolled out in March 2009) marked the launch of the comprehensive renewal of the fleet, which will see the replacement of over 400 buses and the use of 40 new metro trains in the next three years. In terms of plant, the electronic magnetic ticketing system was completed, along with the rehaul of metro line 1 signs and the technological upgrading of the operating switchboard for the remote tracking of surface vehicles. The net working deficit amounts to million, substantially in line with 31 December 2007 (deficit of million). The variation is mainly due to the increase in net current assets ( million), due to trade and tax receivables, offset by a similar variation in current liabilities ( million). In relation to the latter, the 59.5 million increase in trade payables, following higher investment volumes, was partially offset by the 38.4 million decrease in payables to the majority shareholder. Net invested capital at 31 December 2008 amounts to 1,257 million, 1,041.3 million of which is covered by shareholders equity. The net financial position decreased from million to million. The net financial position with the Milan municipal authorities shows an additional increase in ATM s receivable balance, which rose from million to million. In this respect, as part of negotiations underway with the municipal authorities for the approval of a repayment plan, which in 2009 led to a significant reduction in the receivable, the parties agreed to close the joint current account at year end, which shows a balance of 22 million due to ATM. This amount should be credited to ATM in two instalments in 2009, as an integral part of the agreements under negotiation with the municipal authorities. 9. ANALYSIS OF THE FINANCIAL STRUCTURE AND CASH FLOWS FROM OPERATIONS Liquid funds decreased from million to million at 31 December 2008, as illustrated by the cash flow statement attached to these notes. Financial indebtedness amounts to 85.8 million at year end, down 4.3 million on 31 December 2007, reflecting the net effect of repayments of prior year loans ( 25.9 million) and the use of the full government loan ( 21.6 million) including principal and interest, agreed in December 2008 to purchase 13 trains for the metro line 1. Cash flows used for investing activities in relation to the implementation of the three-year plan for the renewal, strengthening and technological innovation of infrastructure, plant and rolling stock, totalling million, were financed through: - (I) contributions from core business operations of 81.8 million; - (II) contributions from financial income, net of reductions in indebtedness, of 70.4 million; - (III) the use of liquid funds for the rest. Cash management in 2008 generated financial income of 19.2 million, showing gross yield of 3.95%. Net write-downs of 8.1 million to the securities portfolio, calculated in accordance with applicable accounting principles, reflect the temporary impairment due to the deterioration of market conditions compared to 2007, but there is no actual risk of losing invested capital at maturity. 10. HUMAN RESOURCES AND ORGANISATION MANAGEMENT AND ORGANISATIONAL STRUCTURE In 2008, the ATM Group worked to consolidate its new group structure, with the primary aim of ensuring total control over activities and a rapid decision-making process. The creation of six committees reporting to ATM S.p.A. s board of directors fully involves the parent company in decisions and issues that relate to it, in complete compliance with current regulations. The introduction of new team management model (executive team and various operating teams) has made it possible to implement organisational mechanisms that ensure complete control over the various business processes. The consistent review of the proxy system has laid the correct foundation to enable the teams to take all necessary steps and decisions at various levels, without jeopardising oversight. In line with the above, considerable attention has been devoted to developing human resource management tools capable of creating the necessary energy to implement such a challenging strategic project. The need for a radical culture change has entailed the introduction of innovative measures substantially aimed at empowering all organisational levels to meet company objectives through the clear definition of personal objectives and a related reward and development policy. 15

17 DEVELOPMENT AND TRAINING In 2008, development and training projects were based on the general aim of ensuring excellence, correct management of internal growth and effectively supporting the cultural change process. Per capita training days came to 1.9 in 2008, compared to 1.4 in Central group projects in 2008 included: - the implementation of a new objective-based evaluation system involving all company managers and some junior managers. The new system provides for the evaluation of results in comparison with objectives for all employees under the Management by Objectives (MBO) plan, integrated with an evaluation of leadership conduct; - the launch of a talent management and development process which will lead to the identification of excellent resources, for whom specific development training programmes will be created; - the creation of company conventions to update managers, junior managers and department heads on results achieved and strategies that the company intends to implement to reach the established development goals. The main projects planned for 2009 relate to: - the implementation of the evaluations provided for by the company system, with progressive extension to new white collar employee target groups; - the management and development of new talents through a development centre; - collaboration with schools and universities to broaden the recruitment pool through information sessions to improve the ATM Group s image; - the creation of excellent driving schools; - the reduction of absenteeism; - the creation of a climate survey involving, in the preliminary stage, all ATM parent company employees, with the aim of measuring the company s ability to meet employee needs, in terms of communicating objectives, professional training and gratification. WORKFORCE At year end, the ATM Group has 8,898 employees (8,703 at 31 December 2007). Changes in the year relate to 366 new hires, 468 employees who left the company and 12 transfers to the associated company Movibus. 285 employees work for the Danish subsidiary Metro Service A/S. 11. ENVIRONMENTAL COMMITMENT The environment and the development specific policies in this respect are included in the ATM Group s mission, as it has been committed to minimising the impact of its activities for years. The ATM parent company has received ISO environmental certification and maintained it in 2008 explicitly in relation to operating and maintenance activities. Again for in 2008, the ATM Group confirms its commitment to energy and ecological sustainability, and translates this commitment into action through: - renewing the vehicle fleet; - the development of electrical traction means of transport; - experimenting low environmental impact technical solutions; - offering alternative services for sustainable transport (on-demand services, car sharing and bike sharing). Investments to new the vehicle fleet have, and will continue to have, a twofold impact, given the reduction in consumption and the reduction of pollutant emissions. The bus renewal plan, which, as mentioned above, in 2008, saw the rolling 16

18 out of 90 new vehicles, will entail the replacement of at least another 400 vehicles within three years. All new vehicles have been, and will be, equipped with diesel engines using EEV technology (to reduce pollutant emissions) or hybrid diesel-electricity engines as soon as they are available at the industrial level. Three new hybrid minibuses delivered in February 2009 are now used in the testing stage to carry out normal commercial services. All the new generation trains being delivered feature systems that minimise energy consumption and recover it during braking. All these features are provided for on trains that are being revamped (more than five in 2008) and the new trolley buses that have been ordered (60 in the next two years). Decisions made in terms of developing the use of renewable energy sources led the Group to confer the engagement for the installation of a solar power plant on top of the new warehouse in Precotto in The same solution is planned for the car garage in Rogoredo, and will then be considered for all company structures. 12. RISKS AND UNCERTAINTIES The ATM Group still has a wide-ranging asset protection process for service continuity, i.e., the maintenance of service punctuality along all metro and/or surface routes and passenger safety. It also includes a series of contingency plans to be implemented in response to pre-crisis or crisis situations. Demonstrating the efficiency of these plans are the evacuation drills at a metro station and the simulation of the cable falling on a long section of the electrical surface network, in addition to safety procedures consistent with technological developments. Since January 2009, the parent company has created a new Asset Protection Technology Systems Department which, among other things, is responsible for studying, developing and implementing strategies, policies and operating plans to prevent, respond and resolve intentional and/or negligent and/or accidental events that could damage the material, immaterial, organisation and human resources that the Group or needs to ensure adequate competitive edge in the short, medium and long-term. With the creation of this specific new ATM department, its way of operating is shifting with the complete evaluation of real risks, to a preventive approach that stops and recovers. At present, the awareness of non-competitive intentional or accidental threats to production processes, employees internal activities and external affairs has increased, in a context that is increasingly characterised by uncertainty, conflict and, in certain cases, danger. Accordingly, ATM is implementing its new method of responding to these situations, considering the close inter-relationships of certain internal audit, control, risk analysis, security issues and safety or medium/long-term strategy issues The Group is learning to look at these inter-related areas and handle them in a more structured, integrative and related way. To date, the work carried out by the Asset Protection Technology Systems Department is equipping the ATM Group with a new business process that not only assigns risk owner or risk manager roles and responsibilities within the Group, but also provides for periodic reviews and updating of risks, response plans, contingency plans and continuity plans. This single interfunctional team, which, based on the analysis of company strategies, defines the risks and the impact and probability of occurrence of each risk, in addition to developing suitable response plans outlining counter-action to limit and/or mitigate the impact of the risks on ATM s business strategies. The above plan is scheduled for completion, with the creation of the first business risk log, within the third quarter of 2009, after which meetings will be held periodically and updating on high-impact risk response plans will be almost daily. The main risks are summarised below. RISKS RELATED TO REGULATORY DEVELOPMENTS ON ATMOSPHERIC AND GROUND POLLUTANT EMISSIONS The reduction of emitted pollutants is not only a requirement under Italian and regional laws (indeed, the Lombardy Region has banned Euro 0 and Euro 1 vehicles and might ban Euro 2 vehicles in the future), but it is also one of the ATM Group s biggest challenges in protecting its environment. This is why the Group has commenced a programme to install specific technological devices, such as particulate filters, on all Euro 2 vehicles, to reduce harmful emissions and upgrade the vehicles to Euro 3. The vehicles are washed in specific automated tunnels, and the waste water is transferred - through purification systems - in the public sewage system, in accordance with waste water limits set by applicable regulations. Solid and liquid waste created by maintenance activities, such as motor oil, is disposed of in compliance with applicable regulations. For the future, the ATM Group has set the goal of reducing the production of waste for disposal. RISKS RELATED TO SERVICE REGULARITY AND QUALITY Plant malfunctioning and accidents that temporarily compromise operations could constitute additional business risks. To mitigate these risks, the ATM Group draws on the best prevention and protection strategies, including preventive and predictive maintenance technologies, aimed at recording and controlling risks. It also uses emergency teams operating around the clock to restore service or damaged infrastructure. 17

19 RISKS RELATED TO SERVICE OPERATIONS The risk arising from damage to people or things during service operations is reduced through a continuous employee training process and clinical tests on their health. Residual risks are covered by specific insurance contracts on company assets and for damage to third parties caused by the company. 13. SUBSEQUENT EVENTS On 23 January 2009, the Milan municipal authorities sent ATM a letter of invitation to participate in the tender for Local public transport and related services as an eligible company. The deadline for the tender was initially set for 25 March 2009 and then extended to 11 May. 14. OUTLOOK OF THE PLAN The business plan, which covers all core activities within the Milanese area, forecasts substantial economic balance, with investments of approximately 1,100 million, nearly half of which will be self-financed. The tender called by the Milan municipal authorities should not generate any changes in the Group s results. Focus on customers and service level will underpin the Group s strategies. Many projects have already been kicked off on specific issues in terms of punctuality, regularity, safety and security, cleanliness, air conditioning on vehicles and the level of information provided. The new plan is defined by the substantial commitment of funding to bridging the gap in vehicle reliability, especially with respect to plant, highlighted particularly in the second half of All maintenance engineering will be redesigned in terms of operating processes, with a strengthening of resources and know-how. The result of these measures will, particularly in 2009, affect the percentage of costs on revenues, with a return to normal levels in the following two years. As mentioned above, environmental and energy sustainability is a crucial aspect of the Group s strategies, as related measures have already shown. 15. COMPANY OFFICERS BOARD OF DIRECTORS CHAIRMAN AND MANAGING DIRECTOR Elio Catania DIRECTORS Giuseppe Frattini Piero Ramponi Francesco Tofoni Luciano Valaguzza BOARD OF STATUTORY AUDITORS CHAIRMAN OF THE BOARD OF STATUTORY AUDITORS Angelo Minoia STANDING AUDITORS Alessandro Danovi Stefano Sarubbi ALTERNATE AUDITORS Roberto Castoldi Domenico Salerno INDEPENDENT AUDITORS PricewaterhouseCoopers S.p.A. 18