Consolidated ﬁnancial statements - Ansaldo Energia · PDF file ·...

2016Consolidatedfinancialstatements

16152 Genoa - Italy - Via N. Lorenzi, 8 - Phone +39 010 6551 - Fax +39 010 655 3411 - [email protected] - www.ansaldoenergia.com

AN

SALD

O EN

ERGIA - Consolidated financial statem

ents 2016

Cop_Consolidato_ing_2015_Layout 1 15/05/17 15:42 Pagina 1

16152 Genoa - Italy - Via N. Lorenzi, 8 - Phone +39 010 6551 - Fax +39 010 655 3411 [email protected] - www.ansaldoenergia.com

Table of contents5 Governing bodies and committees

7 Management report

8 Economic trend and financial situation

10 Ansaldo Energia Group results for the three-year period 2014-2016

13 Analysis of the group's financial position, financial performance and cash-flow

17 Financial situation

20 Related party transactions

21 Alternative non-gaap performance indicators

23 Disclosure of related party transactions

25 Guarantees given as part of the agreement for the sale of Ansaldo Energia shares

26 Management performance

37 Research, development and technological innovation

41 Personnel

44 Risk management

46 Data protection code (italian legislative decree no.196 /2003)

47 Quality, environment

51 Performance and highlights of the main group companies

56 Outlook

57 Analysis of the parent’s financial position, financial performance and cash flows

60 Parent separate financial statements

63 Consolidated Financial Statements as at 31/12/2016

64 Consolidated Income Statement

65 Consolidated Statement of Comprehensive Income

66 Consolidated Statement of Financial Position

67 Consolidated Statement of Cash Flows

68 Consolidated Statement of Changes in Equity

69 Notes to the Consolidated Financial Statements as at 31/12/2016

69 1. General information

69 2. Form, contents and accounting policies applied

70 3. Accounting principles

82 4. New standards and interpretations implemented by the Eu and in force from 1 january 2016

83 5. New standards and interpretations issued by IASb but not yet applicable

84 6. Segment reporting

86 7. Intangible assets

88 8. Tangible assets

89 9. Equity investments

91 10. Impact of related party transactions on assets and liabilities

94 11. Receivables and other non-current assets

95 12. Inventories

96 13. Contract work in progress and advances from customers

97 14. Trade and financial receivables

98 15. Tax assets and liabilities

99 16. Other current assets

99 17. Cash and cash equivalents

99 18. Equity

101 19. Loans and borrowings

103 20. Provisions and contingent liabilities

105 21. Employee benefits

107 22. Other current and non-current liabilities

107 23. Trade payables

108 24. Derivatives

108 25. Guarantees and other commitments

109 26. Impact of related party transactions on profit or loss

112 27. Revenue

113 28. Other operating income and expense

113 29. Purchases and services

114 30. Personnel expenses

115 31. Change in finished goods, work-in-progress and semi-finished products

115 32. Amortisation, depreciation and impairment losses

115 33. Internal work capitalised

116 34. badwill, net of integration costs

116 35. Share of profits (losses) of associated and joint ventures accounted forusing the equity method

116 36. Financial income and expense

117 37. Income taxes

118 38. Cash flows from operating activities

118 39. Financial risk management

121 Key events that took place after the reporting period

122 Annexes

123 Reconciliation of the parent’s equity and profit for the year with consolidatedfigures as at 31 december 2016

125 Independent Auditor’s Report

BOARD OF DIRECTORSfor the 2017-2018 period elected by the Shareholders' Meeting of 16 January 2017

Giuseppe ZampiniChairman

Luisa RuggieroVice chairman

Cao MinVice chairman

Flippo AbbàChief executive officier

Directors:

umberto Della Sala

Chen Xuewen

Guido Rivolta

Hans Rauber

Zheng Xiaohong

BOARD OF STATUTORY AUDITORSfor the 2016-2018 periodelected by the Shareholders' Meeting of 20 April 2016

Michele CasòChairman

Statutory auditors:

Luigi Emilio GaravagliaPier Vittorio Vietti

Alternate auditors:

barbara AloisiPietro Michele Villa

INDIPENDENT AUDITORSfor the 2014-2016 period

PricewaterhouseCoopers S.p.A.

GoverningBodies andCommittees

ANSALDO ENERGIA 2016 Consolidated Financial Statements 6


Management report

Dear Shareholders

The financial period that has just closed was without doubtone of the most important in the history of your Group. Inwhat continued to be a difficult year on the markets, due toboth macroeconomic (slowing economic growth in manyareas of the globe) and geopolitical issues (high levels ofinstability in whole regions, in particular in the Middle Eastand North Africa), your Group succeeded on one hand inachieving satisfactory economic and financial results and onthe other in concluding important extraordinary transactions.

On 25 February 2016 the Group completed the “Gastone”operation, involving the purchase by General ElectricCompany (GE) of hi-tech essential parts for the heavy dutygas turbine sector from the ex-Alstom Power Group (Alstom),along with key personnel for further development.

This operation mainly led to the purchase of:• the intellectual property rights for the latest GT 26 and

GT 36 Alstom gas turbines, the current upgrades and thetechnology for future upgrades;

• Ansaldo Energia Switzerland AG (ex-Alstom Power O&M),based in baden (Switzerland), with around 400employees and 19 service contracts for GT 26 turbinessold by Alstom in recent years. These contracts relate toplants located mostly in Europe, with two exceptions: thefirst in Thailand and the second in Tunisia;

• Power Systems Manufacturing LLC (PSM), based inJupiter, Florida (uSA), which services plants and parts byother manufacturers. The company has 15 servicecontracts, mainly in the uS, but also in Mexico, SouthKorea and brazil.

It was purchased for € 120 million, to be paid in three equalinstalments due at the end of 2018, 2019 and 2020; thecontract specifies that the price may be updated to takeaccount of adjustments, in particular to cash flow acquired(€ 34.5 million), and was finally set at € 161.2 million. Theprice adjustment was paid in full to the seller during 2016 (€41.2 million). In line with the applicable accounting standards (IFRS 3), theGroup entered the final Purchase Price Allocation (PPA) in thefinancial statements at 31 December 2016. The purchase was valued using MEEM, Multi-period ExcessEarnings Method, which is usually applied for evaluatingindividual assets. The Group identified the intrinsic value of the assets acquiredabove all in the backlog, customer relations and thetechnology acquired. The analysis, based on the company's approved businessplans, which on the cost side commit the Group todeveloping future technology and products, showed thetotal value of the assets acquired to be higher than the pricepaid by around € 69.5 million, net of the theoretical taxesassociated. This value was recorded in the consolidated incomestatement as badwill, under “badwill net of integrationcosts”. Total integration costs are therefore shown net of theeconomic advantage that the Group gained from thepurchase.The financial reports of the acquired companies were firstrealigned to the IFRS accounting principles used by theGroup, showing an adjusted equity of a total of € 11.7million.The effects of the PPA can therefore be summarised asfollows:


Economic trend and financial situation

The products acquired, combined with the Group's currentportfolio, will complete our technological range, especiallyin combined cycle products, allowing us to develop thepotential of Ansaldo technological products such as turbinesand alternators.These purchases created the need for an intensive integrationprocess that involved the entire Group across the variouscorporate departments.

In this context, the Ansaldo Energia Group won orders for €1,531.2 million, up by 38.8% on the prior year and allowingus to maintain an order backlog of € 5,337.1 million.In particular, your Group built on the success of pastcontracts to acquire new orders in the Middle East and Italy,while a new and promising market is beginning to developin China.Revenue amounted to € 1,253.3 million, up byapproximately 18.3% on 2015. This growth was attributedto the service line (+59.2% on 2015). Profitability remained

high with an ROS of 10.3% (slightly up on the previous year),although project margin fell slightly (18.3% in 2016compared to 20.0% in 2015).Given market conditions, the Group intends to continuedirect and indirect cost-cutting projects in order to improvecompetitiveness and profitability.Free operating cash flow (prior to strategic investments)amounted to € 2.9 million, while net financial debt stood at€ 252.6 million. With the tensions caused by the financialcrisis among both clients and suppliers, financialmanagement was particularly difficult during the year. As aresult, your Group only succeeded in delivering the resultsdescribed by maintaining a strong focus on cash flowoptimisation.

The Group operates in a highly globalised business sector,with strong competition on the supply side and considerabletechnological and managerial complexity. The Group is notcurrently under threat from any specific risks.

9ANSALDO ENERGIA 2016 Consolidated Financial Statements

Euro/thousand

Purchase price of intellectual property rights (2018-19-20) (20.0)

Purchase price of AES and PSM (2018-19-20) (100.0)

Price adjustment (2016) (41.2)

Price actualization on the transaction date 9.3

ACTUALIZED PRICE (151.8)

Adjusted equity 11.7

Provisional goodwill (140.1)

PPA

backlog 141.0

Customer relation 19.2

Technology acquired 139.0

Deferred tax (83.6)

Provisions (5.9)

Badwill 69.5

Business risks

Regarding the international market, careful and rigorousfinancial risk management and identification is increasinglyimportant.In order to eliminate or minimise credit risk as well asoptimising cash flow from orders, commercial transactionsare carefully analysed from the outset, checking the paymentterms and methods to be offered and subsequently agreed.

In particular, based on the contract's amount, the type ofclient and the importing country, all the necessaryprecautions are taken to limit the risks in terms of both thepayments and the financial instruments used, includingappropriate insurance cover or helping the customer toobtain financing in more complex cases.

Forward contracts are stipulated for all significant non-Eurotransactions subject to currency risks.


REvENUE BY SERvICE LINE

100%

80%

60%

40%

20%

0%20142013

35

9

56

2015

47,5

6,63

45,87

2016

28

6

66

2014

Nuclear Servic Plant and components

Ansaldo Energia Group results for the three-year period 2014-2016

REvENUE

1,250

1,200

1,150

1,100

1,050

1,000

9502013

1,059.7

1,300

1,256.4

2013

1,253.3

2015 20162014


EBITA ADJUSTED

120

125

130

135

115

110

105

100

952013

115.7

102.8

129.4

NET RESULT

60

50

40

30

20

10

02013

5.612.3

60.4

2015 20162014

2015 20162014

NET FINANCIAL POSITION

0

- 50

- 100

- 150

- 200

- 250

- 300

-327.3

- 350

- 400

-252.6

-373.2

2015 20162014


ORDERS

1,400

1,200

1,000

800

600

400

2002013

1,341.6

1,102.9

1,531.2

1,600

3,500

HEADCOUNT

3,000

2,500

2,000

1,500

1,000

5002013

3,505

4,254

4,000

4,500

3,748

2015 20162014

2015 20162014


Ansaldo Energia Group’s consolidated financial statementsas at 31 December 2016 have been prepared in accordancewith the International Financial Reporting Standards (IFRS) ofthe International Accounting Standards board (IASb)endorsed by the European Commission, integrated by therelevant interpretations issued by the International FinancialReporting Interpretations Committee (IFRIC, previously calledthe Standing Interpretations Committee - SIC).

The following reclassified financial statements have beenprepared and annotated in order to provide a complete

picture of the Ansaldo Energia Group's financial position,performance and cash flows.We note that the 2016 consolidated income statementincludes 12 months for the companies already in the groupthe previous year, and only 10 months for those acquiredthrough the “Gastone” strategic investment (AnsaldoEnergia Switzerland (AES) and Power Systems Manufacturing(PSM)) at the end of February 2016.In order to provide a coherent picture allowing for anadequate analysis of our performance, we therefore need totake a closer look at the assets acquired, as follows:

Analysis of the Group's financialposition, financial performanceand cash-flow

AES PSM Total Euro/thousand

Intangible assets 5,414 82 5,496

Tangible assets 27,754 14,490 42,244

Equity investments 4,685 – 4,685

Other non-current assets 11,935 146 12,081

Net working capital (137,468) 79,375 (58,093)

Long term liabilities (16,312 ) (12,942) (29,254 )

Net Invested Capital (103,992) 81,151 (22,841)

Equity (70,946) 82,629 11,683

Net financial debt (33,046) (1,478) (34,524)

The reclassified income statement is as follows:

In 2016, revenue grew by approximately 18.3%, mainlythanks to the Service business Line (+59.2%). The Serviceline contributed roughly 47.5% to revenue andapproximately 64% to gross margin during the year (50.7%in 2015), while the New units line accounted for 45.7% ofrevenue (2015: 55.2%) and 32.8% of gross margin (41.7%in 2015). The Nuclear business Line represented 6.6% ofrevenue (9.1% in 2015) and contributed 3.8% to margin(7.1% in 2015).“Gastone” operation contributes as higher revenue andgross margin respectively for an amount of € 341.8 millionand € 72 million.

Operating profit was recorded at € 96.0 million, equal to7.7% of total revenue (5.5% in 2015). In the 2016 finalbalance, these figures include extraordinary items worth €33.4 million, mainly composed of: € 49.9 million in


2016 2015 Euro/thousand

Revenue 1,253,269 1,059,737

1,253,269 1,059,737

Purchase and personnel expense (1,070,761) (905,354)

Impairment losses (1,283) (822)

Other operating net income (expense) 8,955 (2,860)

Change in work-in-progress, semi-finished products and finished goods (11,454) (3,744)

EBITDA 178,726 146,957

Amortisation and depreciation (49,309) (44,165)

EBITA Adjusted 129,417 102,792

Extraordinary (costs)/ income 20,449 (677)

Termination benefits (4,023) (6,929)

Amortisation of intangible assets acquired with business combination (49,854) (35,423)

Impairment other activities – (1,850)

EBIT 95,989 57,913

Net financial income (expense) (47,591) (48,314)

Income taxes (12,047) (2,680)

NET RESULT 60,445 12,279

of wich third parties (114) (5)

amortisation of intangible assets deriving from the allocationof the merger deficit, € 4.0 million in non-recurringrestructuring expenses, € 49.1 million in integration activitiesinvolving the various corporate areas, as described in theintroduction, in addition to € 69.6 million in badwill derivingfrom the above mentioned Gastone operation.The “amortization, depreciation and impairment” headingrefers to € 15 million in adjustments to the fair value ofdevelopment costs relating to products with insufficientmarket demand.The “other net operative revenue (costs)” item (€ 9.0 million)includes € 18 million of insurance compensation relating toorders, tax expenses of € 2.8 million; net exchange ratelosses of € 6.3 million, and other minor operating expenses.

During 2016, spending on R&D came to € 138.2 million,including € 49.0 million recorded as expenses and € 89.1


million capitalised under intangible assets. The corresponding2015 figure amounted to € 25.2 million, with € 17.9recorded on the income statement and € 7.3 millioncapitalised. This sharp increase in research and developmentactivities is in response to the promising new marketopportunities that are beginning to arise, also in relation tothe new products in our portfolio.

Net financial charges, totalling approximately € 47.6 million,include € 14.3 million in net interest liabilities (€ 16.3 millionin interest liabilities and € 2.0 million earned), € 15.0 millionin other net financial charges, € 8.4 million in exchange ratelosses, and lastly, around € 10 million in write downs oncompanies carried at equity, mainly relating to the ChineseJVs Ansaldo Gas Turbine High Technology and ShanghaiElectric Gas Turbine.

Interest payable to banks includes € 2.6 million for short-termloans (Revolving Credit Facility and hot money), 1 million for

medium/long-term loans, and € 11.4 million relating to thebond.The other financial charges are composed of € 7.0 million inbank fees and commission, and € 0.2 million in interest costson employee leaving indemnity.

Income tax liabilities amounted to € 12.0 million. Corporateincome tax (IRES) amounted to € 6.8 million in 2016, inaddition to € 3.4 million in local production tax (IRAP); taxliabilities also include € 21.1 million deferred taxes, of which€ 26.3 million relating to the PPA reversal and the use of €6 million of tax paid in advance. Other taxation includes €4.2 million in foreign taxes net of € 1.5 million allocated inpast years and € 13 million from the foreign tax reserve.

The following table shows the financial position on 31December 2016 compared to same figures on 31 December2015:

Euro/thousand 31/12/2016 31/12/2015

Non-current assets 1,805,317 1,549,208

Non-current liabilities 577,442 395,780

1,227,875 1,153,428

Inventories 490,183 340,993

Contract work in progress 58,918 101,989

Trade receivables 277,314 235,543

Trade payables 382,791 366,052

Progress payments and advances from customers 754,907 538,324

Working capital (311,283) (225,851)

Current provisions 12,477 15,537

Other net current assets (liabilities) (52,621) 6,868

Net working capital (376,381) (234,520)

Net invested capital 851,494 918,908

Equity 598,861 545,732

attributable to non-controlling interests (122) (9)

Net financial debt 252,633 373,176

Non-current assets mainly include intangible assets totalling€ 1,512.3 million, mainly comprising € 469.2 million derivingfrom the allocation of the merger deficit (excludingdepreciation for the period), € 806.8 million in goodwill, and

€ 84.5 million represent the residual value of the right to usethe trademark until 2111, and research and development,worth € 98.5 million.


These also include tangible assets worth € 235.4 million,investments of € 36.4 million and deferred tax assets of €20.7 million. During the year our investments increased by a net € 25.9million, including a € 34.9 million strategic investment in thetwo Chinese JVs, “Ansaldo Gas Turbine High Technology”and “Shanghai Electric Gas Turbine”, and the impact oflosses recorded by the two JVs for € 10.2 million.

Non-current liabilities include € 35.6 million for employees'leaving indemnity and other employee contribution plans (€25.8 million in 2015) and risk provisions of € 252.1 million(against € 270.6 million in 2015), deferred tax liabilities of170.6 and other non-current liabilities of € 119.1 million.

The provisions for risks mainly consist of € 46.1 million fortax provisions; the product guarantee provision for € 18.7million, of which 7.4 million relating to Ansaldo technology,and € 10.1 million of which was used during the year, € 11.3million for the OSP service on GE technology for projects in

the uS; the final costs for projects being completed, for €90.5 million (a net decrease of € 11.4 million compared to2015); and € 90.7 million set aside to cover possiblesanctions in relation to the Eni power proceedings.

Deferred taxes mainly refer to items allocated during the yearunder PPA, while the other non-current liabilities refer to thecurrent value of the three instalments of the GE loan for theGastone operation (€ 110.6 million), due to be paid at theend of 2018-2019-2020, as described in the introduction.Net working capital fell by € 141.9 million, from (€ 234.5)million in 2015 to (€ 376.4) million in 2016. This variation ismainly due to operating entries, as working capital(inventory, contract work in progress net of advancepayments, trade receivables and payables) fell by € 85.4million.

The company's equity of € 598.9 million consists of € 100million in share capital, retained earnings and other reservesof € 438.4 million, and profit on the year for € 60.4 million.


The data regarding company's net financial debt as at 31 De-cember 2016 is provided below, the consistency of which iscompared to the corresponding figures as at 31 December2015 for the sake of completeness.

Financial situation

31/12/2016 31/12/2015 Euro/thousand

Current loans and borrowings 199,646 58,541

Non-current loans and borrowings 484,644 412,039

Cash and cash equivalents 250,889 98,260

BANK LOANS, BORROWINGS AND BONDS 433,401 372,320

Related parties financial receivables 1,235 643

Others financial receivables 184,355 –

CURRENT FINANCIAL RECEIvABLES 185,590 643

Related parties loans and borrowings 1,295 1,235

Other current loans and borrowings 3,527 264

OTHER LOANS AND BORROWINGS 4,822 1,499

NET FINANCIAL DEBT 252,633 373,176

At 31 December 2016, net financial debt was of € 252.6million, down by € 120.5 million in comparison to 31December 2015.

In April, the Group increased the nominal value of the seniorunsecured bond issued on 28/04/2015 by € 70 million (froma previous nominal value of € 350 million in 2015).

This increase has the same conditions and expiry as theprevious bond. See the summary table below for details.During the year, the Parent Ansaldo Energia also obtained afurther loan from banca Popolare Commercio Industria for atotal of € 30 million.The characteristics of the company's financing relationshipsas at 31 December 2016 can be summarised as follows:


Description Credit line

Bond 5-year bond issued by Ansaldo Energia S.p.A. and purchased by institutionalinvestors on the secondary market. Nominal value of € 420 million at anannual fixed rate of 2.875 %. Issue date 28/04/2015 for the € 350 millionquota and 28/04/2016 for the € 70 million increase. Expires on 28/04/2020.There are no covenants in the contract.

Revolving Facility 1) Held in the name of Ansaldo Energia S.p.A. with a pool of banks (banca IMI,bNP Paribas, Commerzbank, Credit Agricole, HSbC, Santander, uniCredit,Standard Chartered) for a nominal value of €400 million at an interest rateof Euribor 1/2/3/6 months + spread. The spread is based on the EnergiaGroup's leverage ratio. Granted on 27/04/2015. Expires on 27/04/2020. At31/12/2016, € 50 million had been used.

Revolving Facility 2) Held in the name of Ansaldo Energia S.p.A. with ubI bANK for a nominalvalue of € 40 million at an interest rate of Euribor 1/2/3/6 months + spread.The spread is based on the Energia Group's leverage ratio. Granted on28/04/2015. Expires on 28/04/2020. At 31/12/2016, the whole amountavailable had been used.

SACE Facility Agreement Loan in the name of Ansaldo Energia S.p.A. with bNP Paribas for a nominalvalue of € 26.1 million, with a constant capital repayment plan, backed bySACE. Interest rate Euribor 6 months + spread. Spread is of 1.2%. This loanis a result of the renegotiation of the previous loan granted on 31/07/2014,which allowed Ansaldo Energia subsidiary Ansaldo Nucleare to purchaseNuclear Engineering Group (uK). Granted on 06/08/2015 Expires on31/01/2021. In order to eliminate Euribor volatility, an Interest Rate Swapcontract was stipulated in November 2014 with an annual fixed rate of0.415%.

European Investment Bank (EIB) 1 Loan in the name of Ansaldo Energia S.p.A. from the European Investmentbank (EIb) for a nominal value of € 25 million, with a constant capitalrepayment plan. Annual fixed rate of 1.53%. This loan is based on thepresentation of a multi-year R&D plan. Granted on 06/08/2015 Expires on16/08/2022.

European Investment Bank (EIB) 2 Loan in the name of Ansaldo Energia S.p.A. from the European Investmentbank (EIb) for a nominal value of € 25 million and backed by Cassa Depositie Prestiti, with a constant capital repayment plan. Annual fixed rate of0.492%. This loan is based on the presentation of a multi-year R&D plan.Granted on 06/08/2015 Expires on 16/08/2022.

Loan (BPCI) Loan in the name of Ansaldo Energia S.p.A. from bPCI (banca PopolareCommercio ed Industria) for a nominal value of € 30 million at a fixed annualinterest rate of Euribor 3 months + spread of 1.45%. Granted on30/06/2016. Expires on 30/06/2019. Quarterly repayments from 30/09/2016.

All the loans listed in the table, except for the bond, requirethe Company to meet certain parameters: leverage ratio andinterest cover ratio.Leverage Ratio=Net borrowing/Adjusted EbITDA.Interest Cover Ratio = Adjusted EbITDA/Net Interest Payable.To date, the Group has met all the covenant values indicatedin the loan contracts.

Medium/long-term financial debts of € 484.6 million include:€ 420 million relating to the bond; € 16.5 million relating tothe SACE loan; € 35.3 million relating to the EIb loan; and €14.9 million relating to the bPCI loan. All these loans are net of up-front fees, for a total of € 2.1million.

Short term financial debt amounts to € 199.6 million, ofwhich: € 170.2 million for the revolving and hot money lines;€ 8.2 million relating to the accrual of the interest couponson the bond; € 22.8 million relating to the reclassificationfrom medium-long term to short-term of the capitalrepayments and accrued interest on the EIb and SACE bNP

loans; and a deferred charge of up-front fees for a total of €2.3 million. There is also an amount due to the Factor for invoicescollected by the client and not yet repaid for a total of € 2.23million.

Financial receivables amount to € 185.6 million and aremainly composed of the receivable from the NV unit for €184.2 million.

Floating capital totalled € 250.9 million.

Cash flow before strategic investments was of € 2.9 million,while the Fund From Operations (FFO) amounted to € 67.8million.

Strategic investments of € 42.5 million referred to capitalinjections to the two Chinese JVs for a total of € 35 million,and € 7.5 million for the Gastone operation for the currentvalue of the price agreed for the purchase of the ex-Alstomcompanies, net of the cash acquired.



Cash and cash equivalents as at 1 January 98,260 324,253

Gross cash flows from operating activities 120,968 140,721

Change in other operating assets and liabilities (58,643) (131,435)

Funds From Operations (FFO) 62,325 9,286

Change in working capital 52,775 62,594

Cash flows generated from (used in) operating activities 115,100 71,880

Cash flows used in ordinary investing activities (118,078) (30,720)

Free operating cash-flow (FOCF) (2,978) 41,160

Strategic transactions (42,524) (13,052)

Change in other investing activities (2,922) (14,400)

Cash flows generated from (used in) strategic investing activities and other (45,446) (27,452)

Cash flows generated from (used in) investing activities (163,524) (58,172)

Dividends paid 40 –

Net changes in financial assets (liabilities) 201,139 (240,684)

Cash flows generated from (used in) financing activities 201,179 (240,684)

Exchange rate gains (losses) (357) 983

Other changes 232 –

Cash and cash equivalents as at 31 December 250,890 98,260


Related party transactions fall under ordinary management,and are conducted at market value (when not governed byspecific contractual conditions), in the same way as interestbearing debts and loans.They mainly comprise the exchange of goods, provision ofservices and financing from and to the parent and subsidia-

ries, associates, joint ventures and consortia. The section onthe financial statements and explanatory notes at 31 Decem-ber 2016 summarises the economic and financial balanceswith related parties, as well as the percentage impact of thesetransactions on the respective totals.

Related party transactions


Management assesses the Group’s financial performanceusing certain non-IFRS indicators.

As required by CESR communication 05-178b, thecomponents of each of these indicators are described below:

Operating profit (EBIT)The unadjusted profit before taxes, financial income andexpenses. The operating profit does not include income andexpenses on non-consolidated equity investments andsecurities, nor the gains (losses) on the disposal ofconsolidated equity investments, classified under “Financialincome and expenses” in the financial statements or, forequity-accounted investees, under the item “Share of profitor loss of equity-accounted investees”.This value amounted to € 96.0 million in 2016, as opposedto € 57.9 million in 2015.

Adjusted EBITAEbIT as defined above, excluding the following elements::• eany impairment losses on goodwill;• amortisations of the portion of the purchase price allocated

to intangible assets within the scope of extraordinary op-erations (business combinations), pursuant to IFRS 3;

• restructuring costs, within the scope of defined andsignificant plans;

• other income or expenses not of an ordinary nature, i.e.,that can be linked to particularly significant eventsunrelated to the ordinary business activities.

The resulting adjusted gross operating profit is used tocalculate the ROS (return on sales) and ROI (return oninvestments) (as the ratio between the adjusted grossoperating profit and the average value of the capital investedduring the two reporting periods presented). This valueamounted to € 129.4 million in 2016, as opposed to € 102.8million in 2015.

EBITDAAdjusted EbITA, as defined above, excluding amortisation anddepreciation of tangible and intangible assets. This valueamounted to € 178.7 million in 2016, as opposed to € 147.0million in 2015.

Free Operating Cash-Flow (FOCF)The sum of the cash flows generated (utilised) by theoperational management and the cash flows generated(utilised) by investments and disinvestments in tangible andintangible fixed assets and equity investments, excluding anycash flows for the acquisition or disposal of equityinvestments that qualify as “strategic investments” giventheir nature or materiality. The method used to calculateFOCF for the financial years compared here is described inthe reclassified statement of cash flows in the previoussection.At 31/12/2016, FOCF was of € 3.3 million, against € 41.2million at 31/12/2015.

Funds From Operations (FFO)The cash flows generated (utilised) by the operationalmanagement, excluding the component represented bychanges in working capital. The method used to calculateFFO for the financial years compared here is described in thereclassified statement of cash flows in the previous section.At 31/12/2016, FOCF was € 113.0 million compared to a €9.3 million at 31/12/2015.

Economic value added (EvA)The difference between the adjusted gross operating profitexcluding income taxes, and the cost of the average investedcapital during the two years under comparison, calculatedusing the weighted average cost of capital (WACC). In 2016,EVA amounted to € 69.8 million, against € 31.01 million in2015. The WACC rate used in 2016 was equal to 8.1%

Alternative non-GAAPperformance indicators


(8.5% in 2015). If the 2015 value had been calculated usingthe 2016 WACC rate, it would have been of € 33.5 million.

Working CapitalIncludes trade receivables and payables, work in progress,and progress payments and advances from customers. Theworking capital amounted to € 311.3 million as at31/12/2016, as opposed to € 225.9 million on 31/12/2015.

Net Working CapitalThe working capital excluding the current provisions for risksand other current assets and liabilities. At 31/12/2016, it was € 376.4 million compared to € 234.5million at 31/12/2015.

Net Invested CapitalThe sum of the non-current assets, the non-current liabilities,and the Net Working Capital. At 31/12/2016, net invested capital amounted to € 851.5million, against € 918.9 million at 31/12/2015.

Net Financial DebtThe calculation method utilised complies with therequirements set forth under paragraph 127 of CESRrecommendation 05-054b, which implements EC regulation809/2004. The result was of € 252.6 million in December 2016, against€ 373.2 million in 2015.

OrdersThe sum of the contracts stipulated with customers duringthe financial year that met the contractual requirements tobe recorded in the order book. Orders acquired in 2016 amounted to approximately €1,531.2 million, compared to € 1,102.8 million in 2015.

Order backlogThe difference between the orders acquired and the revenuefor the reference period, excluding the change in contractwork in progress. This difference is added to the backlog ofthe previous period, along with any cancellations that mayhave taken place during the period in question. The order backlog amounted to € 5,337.1 million as at31/12/2016, compared to € 3,690.4 million in 2015.

HeadcountThe number of employees recorded in the relevant registeron the reporting date. The register showed 4,254 employeeson 31/12/2016, compared to 3,505 in 2015.

The average number of employees recorded in the registerin 2016 (taking reductions into account for part-timers,maternity leave, leave of absence, etc.) was equal to 4,228,as opposed to 3,620 in 2015..

Return On Sales (ROS)The ratio between the adjusted gross operating profit andthe revenue. This value was equal to 10.3%, as opposed to9.7% in 2015. .

Return On Investments (ROI)The ratio between adjusted EbITA and average net investedcapital for the two financial years under comparison. Thisvalue was of 14.6%, compared to 11.6% in 2015.

Return On Equity (ROE) (Calculated as the difference between net profits and theaverage equity in the two periods compared) was of 10.6%,compared to 2.3% in 2015.

R&D expensesAll internal or external costs incurred for projects undertakento obtain or use new technologies, knowledge, materials,products or processes. The costs may be partly or fullyreimbursed by the customer, funded by the state throughgrants or other favourable laws or they may be borne by theGroup. In accounting terms, R&D expenditures may beclassified as follows:• as “works in progress”, if reimbursed by the customer

within the scope of ongoing contracts;• as expenses in profit or loss for the period in which they

were incurred if relating to research, or rather if they wereincurred at a stage that does not yet allow the companyto demonstrate that the activity will generate futureeconomic benefits;

• as “intangible assets”, if they qualify as developmentexpenses for which the following can be demonstrated:the project’s technical feasibility, the Group’s ability andintention to complete the project, and the existence of apotential market that will allow for the generation offuture economic benefits. If the company receives grantsfor these expenditures, the amount received or to bereceived is offset against the intangible assets' carryingvalue.

R&D expenses amounted to € 138.2 million at 31/12/2016,compared to € 25.2 million at 31/12/2015.


The values of the related party transactions for 2016 and theprevious financial year are summarised below (additionaldetails regarding the Companies involved in thesetransactions can be found under Notes 10 and 26).

In addition to the parent companies and the companies inwhich the Ansaldo Energia Group has direct or indirectinvestments, the related parties also include all the otherrelated parties as defined by the IFRS.

Disclosure of related party transactions

Euro/migliaia Parent Uncon- Associates Group Consortia Entities Total 31-12-13 companies solidated companies under MEF sub- and control or sidiaries others significant influence

Euro/thousand

2016

Current receivables

– financial – 1,235 – – – – 1,235

– trade receivables – 14 198 23,214 – 10,859 34,285

– others – – – – – 8,975 8,975

Current payables

– financial – – – – 1,295 – 1,295

– trade payables – 989 – 692 – 5,502 7,183

– others – – – – – – –

Revenue (611) (19,619) – 10,513 (2,794) 11,979 (532)

Expense – – – 504 – 10,837 11,341

Other operating expense – – – 6 – – 6

Financial income – – – – – – –

Financial expense – – – – 31 – 31


Euro/migliaia Parent Uncon- Associates Group Consortia Entities Total 31-12-13 companies solidated companies under MEF sub- and control or sidiaries others significant influence

Euro/thousand

2015

Current receivables

– financial – 643 – – – – 643

– trade receivables – – 208 10,658 – 8,272 19,138

– others – – – – – 11,276 11,276

Current payables

– financial – – – – 1,235 – 1,235

– trade payables – – – 97 – 5,159 5,256

– others – – – – – 150 150

Revenue – (580) – 65,427 (3,043) 5,790 67,594

Expense 54 – 744 – 8,438 9,236

Other operating expense – – – 5 – 19 24

Financial income – 20 – – – – 20

Financial expense – – – – 44 364 408


As part of the agreement for the sale of Ansaldo Energiashares to Fondo Strategico Italiano, Finmeccanica (nowLeonardo S.p.A.) has issued guarantees for disputes or issuesthat have required Ansaldo Energia to open specific riskfunds.

The sales agreement requires Finmeccanica to providecompensation for any outlays required to cover theguaranteed issues, using various mechanisms based on thespecific circumstances. Fondo Strategico Italiano will decide whether the

compensation is paid directly to Ansaldo Energia, or else toFondo Strategico Italiano itself.

The Fondo Strategico Italiano has formally agreed withAnsaldo Energia that all future compensation related solelyand exclusively to the “asbestos issue” will be paid byFinmeccanica directly to Ansaldo Energia.

With regard to all the other issues covered by Finmeccanica,on the other hand, Fondo Strategico Italiano has not yetdecided who should receive any compensation provided.

Guarantees given as part of the agreement for the sale of Ansaldo Energiashares


Management performance


Market outlook and positioning

Performance and outlook for the global power plantand components market

The global market for power plants and components inwhich your Group operates relies heavily on forecast demandfor electricity, which in turn varies according to changes inmacro-economic variables. Global macro-economic conditions were particularly difficultduring the 2011-2014 period, mainly due to the worseningsovereign debt crisis in Europe (with particular reference toits peripheral states). In 2015, the global economy suffered from the drastic fall inoil prices, which particularly affected growth in exportercountries. The uK's decision to leave the Eu (brexit) and poor growthin the uS both slowed global economic growth in 2016,although only slightly (3.1% against 3.2% in 2015). Amongemerging markets, Asia saw robust growth, while Africa, inparticular in the sub-Saharan area, slowed sharply.

The outlook for 2017 is for moderate global growth (GDP of3.4%) characterised by ongoing pronounced politicaluncertainty in some countries and the uK's transition out ofthe Eu.As a result of this macro-economic situation, the demand forelectric energy, after its historical collapse in 2009, saw 3%recovery in 2011-2013, and continued to grow in the 2014-2016 period, although at lower levels (source: EconomistIntelligence unit).

Medium/long term global growth is expected to increasefrom 2017 to 2030 with a CAGR of approximately 3.0%(Source: Globaldata).In terms of the fuel mix used to generate electric power, coalcontinued to be the primary source throughout 2016,although less than in the past, accounting for roughly 40%of production, followed by gas at approximately 20%:Nuclear power made up around 10% of the total,hydroelectric 15%, while oil represented a marginal quotaof less than 5%. The other renewable sources (biomass,wind, solar, etc.) provided for roughly 5% of global electricpower production (source: GlobalData).

In 2016, the figures for the first 9 months of the globalmarket for fossil fuel electric plants and components fell

slightly on the same period in 2015. This decrease mainlyaffected orders for traditional cycle steam turbines(particularly in the Chinese market), while gas turbinesremained at stable values.

The number of orders rose for the nuclear plants in the first9 months of 2016 in comparison with the prior year,particularly in the Indian market.

The renewable energy plants also continued to see stronggrowth in nearly all international markets during the year.In terms of the evolution of the fuel mix for generatingelectricity, to date we forecast a significant increase in gasamong fossil fuels, primarily due to the following factors: thelarge increase in conventional and non-conventional gasproduction and export in the uS, which may drive globalprices down; tighter international laws on emissions, whichcould affect the use of coal and oil; the use of natural gas asa back-up for the increasing number of renewable energyinstallations (grid balancing).

Performance and Outlook of the Reference Market

Following the acquisition of the Heavy Duty Gas Turbinebusiness from Alstom, Ansaldo Energia's product portfoliohas been considerably expanded. The acquisition also led tosignificant opportunities for the Group, including the chanceto access the 60 Hz market and, through the control of PSM,consolidated technical skills, above all in the third partyservice industry.

Preliminary 2016 data show chronic stagnation in Europeanorders (both east and west). The Middle Eastern market, despite the ongoing geopoliticaltensions, saw a slight fall in orders of about 5% incomparison to 2015. The North African market, on the other hand, saw strongperformance, although affected by a large Siemens ordersigned by the Egyptian government in 2015 and 2016.The results in South East Asia and China were lessencouraging, despite representing one of the largest andmost dynamic global markets, with orders down by around30% on 2015. South America and Sub-Saharan Africa unexpectedlydoubled the number of orders from 2015.

An analysis of the turbogas orders (used for open orcombined cycle plants) in the regions belonging to Ansaldo


ORDERS BY SERvICE LINE

900

750

600

450

300

150

02013 2015

767.5704.7

59

629

362

111.92016

(in millions of Euro)

Service NuclearPlant and components

Energia's main market showed that in 2016 your Groupmaintained a 19% market share, including the ordersacquired directly from Alstom, which represented around70% of Ansaldo's total orders in the same period.With a share of roughly 25%, General Electric lost groundto Siemens, which took the lead with more than 40%.

Regarding the 60Hz market above 30MW, 2016 figuresshowed a sharp fall of around 50%, particularly marked inthe uS and South Korea, with the following main marketshares: General Electric 50%, Mitsubishi 30% and Siemensat 20%.

In the medium term, in line with the main macroeconomicand geopolitical scenarios, we should see a consolidation ofthe moderate upturn of the last couple of years through2017 and 2018, with Europe potentially closer to resolvingwhat is now a structural crisis, a more stable MENA andSouth East Asian countries intentioned to confirm their

recent high growth rates. The stabilisation of oil prices islikely to support economies that are strongly based ontrading fossil fuels, such as Russia.

Overall, the Asian countries’ contribution to orders (for newplants) continues to gain importance, led by China, and thistrend is expected to increase in the medium to long term.

Trade

In 2016, new orders totalled € 1,531.2 million. In comparisonwith the previous year, this was up by 38.8% thanks togrowth in both the new units segment (+22%) and a moremarked increase in services (+94.7%), while nuclear slowed.The 2016 orders are analysed below by business segmentand by geographical area, in comparison to thecorresponding 2015 data:


ORDERS BY GEOGRAPHICAL AREA

60%

50%

40%

30%

20%

10%

02013

9 816

2

59

616

1022

31

18

32016 2015

70%

80%

90%

100%

Italy:

130

.2

Euro

pe: 1

26.4

Mid

dle

East:

243

.9

Afric

a: 2

3

Asia:

909

.9

Amer

icas:

97.8

Italy:

174

Euro

pe: 1

08.5

Mid

dle

East:

244

.5

Afric

a: 3

40.3

Asia:

205

.4

Amer

icas:

30.3

(in millions of Euro)

ORDERS 2016 (Euro) NEW UNITS SERvICE NUCLEAR TOTAL

TOTAL 767,490,220 704,714,091 59,012,909 1,531,217,220

ITALY 37,008,921 90,312,993 2,833,212 130,155,126

EuROPE 250,000 76,012,110 50,097,063 126,359,173

MIDDLE EAST 67,135,021 176,773,475 – 243,908,496

AFRICA 3,018,258 20,018,272 – 23,036,530

ASIA 660,078,020 249,748,339 102,932 909,929,291

AMERICA – 91,848,902 5,979,702 97,828,604

ORDERS 2015 (Euro) NEW UNITS SERvICE NUCLEAR TOTAL

TOTAL 628,869,029 362,025,444 111,892,152 1,102,786,625

ITALY 1,413,893 156,571,672 15,862,398 173,847,963

EuROPE 2,075,568 27,402,049 79,026,784 108,504,401

MIDDLE EAST 186,061,496 58,396,523 – 244,458,019

AFRICA 272,241,780 68,039,167 – 340,280,947

ASIA 167,076,292 37,948,801 669,540 205,694,633

AMERICA – 13,667,232 16,333,430 30,000,662

Orders by geographic area and line


Plants and components

In 2016, the energy market performed in line with the lastfive years, continuing suffer from the ongoing economiccrisis and political instability in some emerging countries.Your Group therefore placed a stronger focus on newmarkets, achieving some very positive results especially in theMiddle East and China, thanks to an intense collaborationwith SEC.In 2016, the volume of new acquisitions amounted toapproximately € 767.5 million; the main orders acquiredduring the course of the year were:– The supply of two GT AE 94.3A gas turbines for the plant

in Zhenjiang (China).The supply of two GT AE 94.3A gas turbines for the plant inYuhai (China).– The supply of a GT AE 94.3A, a steam turbine and two

turbo-generators for the plant in Heris (Middle East).– The supply of a GT AE94.2 for the plant in Rosignano

(Italy).– The supply of four GT26 gas turbines for the plants in Ibri

and Sohar:On 1 March 2016 two supply contracts were signed withChinese EPC Contractor Sepcolll for the combined cycleplants in Ibri (1560MW) and Sohar (1760MW), in Oman.For each plant, the contracts involve supplying four GT26gas turbines with their own air cooled generators, fourheat recovery boilers and two steam turbines with theirown hydrogen cooled generators to the port of loading.A joint Project Team with staff from both baden andGenoa was assigned to manage these contracts. Thecontracts came into full effect on 1 June 2016, and thefirst shipments were made during the year. Alongsidethese major supply contracts, Technical Assistance andLong Term Service agreements were also signed, and weplan to open a local company in Oman to provide theseservices.

Service

The Gastone operation had an immediate knock-on effectof increasing both orders and revenue from the Service Line.In 2016, the Ansaldo Group Service Line received orderstotalling € 704.7 million, in significant growth on the prioryear (€ 362.0 million), mainly thanks to the new companiesacquired during 2016, which contributed € 311.4 million.Comments on the company’s 2016 performance in each areaare provided below:

ItalyDespite the recession in Europe, the domestic marketcontinues to represent an important part of the servicebusiness for Ansaldo Energia S.p.A., accounting for around26% of the total; in 2016, we received orders worth € 90.2million, again mainly associated with existing or renegotiated(extended duration) long term contracts (LTSA).The marked fall in energy use has prompted the electricitymarket to demand more competitive and flexible plants,creating an opportunity for Ansaldo Energia to develop andoffer upgrades and modifications.

EuropeIn general, the same considerations apply to Europe as awhole as for Italy. In this case, our results suffered from themore limited range of Ansaldo Energia products installed,although some market development efforts, particularly inRussia where Ansaldo Energia has continued to invest overrecent years, allowed us to achieve roughly € 35.4 million innew orders (mainly received by the Ansaldo Russiasubsidiary).

Africa2016 was a particularly challenging year due to thewidespread financial crisis in the area, due to the continuinglow oil prices on international markets, leading to new ordersstopping at € 18.2 million.Algeria, which is our reference market in the region with4000 MW of installed Ansaldo Energia power technology,drastically cut maintenance spending for the second yearrunning.Libya remains an interesting prospect, although stillinaccessible due to local security conditions, similar to othercountries in the area.Morocco, on the other hand, proved a source of constantgrowth for the Group.

The AmericasDuring 2016, the inclusion of the new PSM subsidiaryallowed the Group to enter the uS market. New orders wereaccepted from long-term PSM clients, by assigning variantson existing LTSAs and flow activities.Latin America is experience a strong need to increase energyproduction to meet growing demand and the potentialsupply of new or used machinery would lead to newmaintenance contracts. The volumes have been affected bythe lack of Ansaldo Energia Turbogas in the area, meaningthat the contracts acquired are mainly in relation to steamturbines and generators.


The Middle EastThe results from this area significantly exceeded expectations,confirming it as a growth driver for our Service Line.Synergies continued to develop between our operational andcommercial activities: the local operations base in the uAEwas further expanded, becoming a key factor in acquiringboth long-term and current service contracts.The region offers ample opportunities for integratedpromotion of all the group's service products.

Asia and OceaniaThe region's highly strategic role was confirmed by theexpansion of our portfolio and our entry in new markets suchas Thailand and Indonesia. Our partnership with ShanghaiElectric Corporate led to significant results in terms of newacquisitions (in particular some LTSA contracts for Siemensmachinery). The acquisition of the LTSA for the Ibri and Soharplants by the Chinese client was worth € 211 million. Opening local branches of the Group in Thailand, Indonesiaand Korea boosts Ansaldo Energia's presence in an area thathas seen strong demographic and economic development.

Nuclear Line Trade

The Nuclear Line acquisitions during 2016 totalled € 59.0million, divided into: € 12.3 for New plants, € 28.6Decommissioning, € 8.2 Nuclear service and € 9.9 Defence. In terms of division by geographic area, acquisitions inEurope counted for 84.8% (70.6% in 2015), and in Italy for4.8% (14.2% in 2015).These acquisitions brought our order portfolio to € 73.5 bythe end of the year, composed of: € 16.5 for New plants, €33.6 Decommissioning, € 15.6 Nuclear service and € 7.7Defence.

In the New Reactors segment, the main orders acquiredduring 2016 were for the extension of specialised assistanceservices at the Mohovce site (€ 4.3 million), as well as newactivities for ITER, both for the mechanical design of theTokamak Cooling System and for the supply of materials forthe Vacuum Vessel (€ 6.7 million). We continued to trade in these countries with plans toconstruct higher power plants in the Argentinian and uKmarkets as well as in Romania.The most significant orders in the Service sector were inArgentina (€ 5.5 million), where we acquired an order forintegrations to the DCS control system for the balance ofPlant, as well as agreeing variants on the PLEX and Diesel

Generators contracts. In the Waste Management &Decommissioning segment, we acquired the contract fortreating waste run-off in Latina (€ 1.8 million).

In the uK, out of a total of € 35.2 million, € 25 million camefrom the decommissioning of the Sellafield site (MSSS) and€ 13.6 million from the Defence line; in this business line,the largest contributions were made by the EPuRE (€ 9.7million) and VANGuARD (€ 1.2 million) activities.

In comparison to 2015, we saw a fall in the number of MSSScontracts, which amounted to € 49.1 million, and an increasein defence contracts, which reached € 7.8 million;nonetheless, the outlook remains bright for the Sellafieldproject, which was confirmed although with looser expecteddeadlines.

Production activities

New UnitsDuring the course of 2016, Ansaldo Energia was engaged inareas of the world where important socio-political conflictswere taking place, although these did not have anysignificant impacts upon the Group's economic expectations.

The main foreign countries in which the Group works are:Egypt, Algeria, Tunisia, Syria, uAE, Turkey, South Africa,China, Indonesia, Russia, Chile and Oman. We would alsolike to emphasise that an order was acquired in Italy, aftersome years of stagnation in the domestic market.

Egypt: continues to be key market due to the high numberof projects in course, which proceeded as planned during theyear.

Almahmoudia (2 open cycle units). Plant constructed in “fasttrack” mode. First connection to the Egyptian power grid in June 2015.Currently under guarantee.

Banha (1 group: ST, GEN, CAP and bOP for combined cycle):the second year of guarantee closed.

Giza (3 groups: ST, GEN, CAP and bOP for combined cycle):running since early 2016, currently under guarantee.

Al Shabab and Damietta (3 groups: ST, GEN, CAP and bOPfor combined cycle): grid connection is planned for 2017.

6 October Add-On (1 group: ST, GEN, CAP, 4xHRSG CAP andbOP for combined cycle): NTP (Notice to Proceed) obtainedon 5 October 2016. The existing open cycle (4 Turbo-groupswith AE94.2 turbines) manufactured by Ansaldo Energia isplanned for transformation to combined cycle. The plant isforecast for completion 24 months after obtaining NTP.

Algeria: continues to be a reference market for ourproducts.

Ain Djasser II (2 OC groups with GT AE94.2): in June 2016,Provisional Acceptance was signed for both units.

Labreg (3 OC groups with GT AE94.2): in June 2016,Provisional Acceptance was signed for all units..

Hassi Messaoud (3 OC groups with GT AE94.3A): all unitsare up and running. During 2017, the performance tests andauxiliary plants will be completed, while the client willcomplete their preparations.

Ain Diasser III (2 OC groups with GT AE94.2): all supplieshave been shipped. Local activities, civil works and assemblyare in course. The first parallel is planned for the first half of2017.

Tunisia: Sousse C (EPC plant in CC with GT AE94.3A): the plant start-up has been completed. Maintenance activities are in courseunder the LTSA contract.

Sousse D (EPC plant in CC with GT AE94.3A): assembly andcommissioning have been completed and COM wasperformed in June 2016. Performance tests will be carriedout in the first half of 2017. Maintenance activities are incourse under the LTSA contract.

Syria: continues to be subject to geopolitical upheaval. TheDeir Ali plant has been restarted and is now running.Regarding the Deir Azzour plant, all the materials have beenshipped and are being stored in Syria.

United Arab Emirates: activities continued on the Mirfacontract (3 GT AE94.3A, 2 ST, and relative GEN). The three gas turbines were synchronised, the assembly andstart-up activities for the steam part, performed by ourpartner in the HDEC consortium, continue and the combinedcycle will be up and running by the end of the first half of2017.

Middle East: work began on the three projects for whichAnsaldo Energia is supplying the turbogas AE94.3A and thesteam turbines, both with the relative generators. The threeprojects are: • Mazandaran West (1+1 Single shaft), for which the client

is Amal and the final user is Mah Taab. In 2016, the turbo-group was shipped.

• Dalahoo (2+1 Multi shaft), client Farab Co and final userEslam Abad Power Company.

• Heris (1+1 Multi shaft), client Tana Energy and final userHeris Power Plant.

Turkey: the 825 MW combined cycle plant in Gebze for YeniElektrik is in full commercial function for the third year, andcompleted the period of guarantee and contractualavailability in mid-May 2016.

Italy: on 07 December 2016 the Rosignano contract wassigned with Solvay Chimica Italia for a turnkey supply of aturbo-group with AE94.2 gas turbine, GEN and auxiliarysystems. The supply contract includes the removal anddisposal of the existing turbo-group (also supplied byAnsaldo and used commercially for 25 years). The new plantmust be up and running by 31 December 2017. AnsaldoEnergia is also involved as co-investor in the project company,together with belgian company Solvay and Japanesecompany Marubeni.

South Africa: the two turnkey projects in Avon (Durban, 4turbo-groups with AE94.2 open cycle oil-fuelled turbines)and Dedisa (Port Elizabeth, 2 turbo-groups with AE94.2 opencycle oil-fuelled turbines), known as the “Peakers Projects”,have been completed. The Dedisa plant has been in commercial use since 30September 2015 (COD obtained within the contractualdeadlines; Substantial Completion certified by the Client on23 December 2015) and the guarantee period will expire atthe end of September 2017.The Avon project obtained COD on 20 July 2016 andSubstantial Completion on 11 November 2016, to thesatisfaction of the final Client after GENI Ansaldo/Fatarecovering the significant delays caused by local strikes andthe relative unrest, which blocked activities at the worksitefor a certain period. The “Peakers Projects” are of considerable nationalimportance due to the instability and weakness of the localpower generation plants, and represent the first IPP(“Independent Power Producer”) scheme ever applied inSouth Africa.


China: during 2016, new contracts were signed with SGC(Shanghai Electric Gas Turbines Co., one of the 2 jointventures between Ansaldo Energia and SEC), in particular:• Yuhai 1 and 2, for the supply of the hot parts and external

casing for 2 GT AE94.3A units, with delivery by the endof 2017;

• Zhengjang, for the supply of 2 GT AE94.3A units, plus acontrol system and some auxiliaries; the delivery of thetwo units is planned by the end of the first half of 2017;

• Gaoyao 1 and 2, for the supply of the hot parts andexternal casing for 2 GT AE94.3A units, with delivery bythe end of 2017.

We also developed and consolidated the partnership withShanghai Electric Gas Turbine for the New units projects,continuing work on the contracts already signed, inparticular:• Jiangmen: the 2 GT AE64.3A units, plus auxiliaries and

control system, were delivered to the client in 2016 andassembly and start-up (to be done by SGC supervised byAEN) are scheduled by the end of 2017;

• Zhoukou 1 and 2 (ex-Minhang project): the 2 GTAE94.3A units, plus auxiliaries and control system, aredue to be delivered by the end of March 2017. Assemblyand start-up (by SGC supervised by AEN) are scheduledby the end of 2017;

• Shangzhuang: the GT AE94.2 unit, plus auxiliaries andcontrol system, were delivered in the first half of 2016and are currently under assembly by SGC supervised byAEN; start-up will take place during 2017;

• Sihui: the 2 GT AE94.3A units, plus auxiliaries and controlsystem, were delivered in 2016 and assembly and start-up (to be done by SGC supervised by AEN) are scheduledby the end of 2017;

• Fengxian 1 and 2: delivery of the 2 GT AE94.3A units,plus some auxiliaries and control system, is scheduled bythe end of 2017.

Indonesia:• At the beginning of 2016, the contract for the

rehabilitation of the geo-thermal plant in Kamojang, onthe island of Java, in Indonesia, came into effect. This isan EPC contract with client Indonesia Power. AEN is theleader of a consortium with local partner PT.PP, which willbe responsible for civil works and assembly, while AENwill take care of the engineering, supplies (a 30 MW geo-thermal turbine with relative alternator plus bOP),supervising the assembly, start-up and performance

testing of the plant.Provisional acceptance (PAC) is scheduled by the end of2017.

• Grati: in June 2016 the NTP was received for the supplycontract for two GT AE94.2 units and the relativealternators for the CC plant in Grati, on the island of Java,in Indonesia. AEN's client is the Korean EPC contractorLotteE&C, and the final client is PLN (the Indonesian stateutility provider). AEN's services will include training andassistance for assembly and start-up.Provisional acceptance (PAC) in OC is scheduled by theend of the first quarter of 2018.

Russia: in July 2016, with the completion of the testing forguarantee, PAC was obtained from the clientYugozapatanaya for the supply contract for the three GTA64.3A contracts, and relative GEN, for the CC Yugo 2 plant(St. Petersburg). The guarantee period will expire at the endof 2017.

Chile: in 2016, our client Posco E&C (EPC Contractor) issuedthe PAC for the supply of two ST RT30 units, GEN andauxiliaries for the coal-fuelled plant in Cochrane (Chile).The guarantee period will expire at the end of 2018.

Key:GT: gas turbinesST: steam turbineGEN: generatorOC: open cycleCC: Combined CycleAE 94.3A / AE 64.3A / AE 94.2: gas turbine modelsCAP: capacitatorHRSG: boilerbOP: balance of plantCOM: commissioningCOD: commercial operation datePAC: provisional acceptanceFAC: final acceptance

ServiceIn 2016, your Group surpassed its financial targets formanaging service contracts.In order to balance the negative effects of stepping downelectric energy production in Europe, we continued todevelop our technical services in order to service the growingmarket for plant flexibilisation.In 2016, we performed more than 400 inspection and


maintenance interventions on gas and steam turbines andalternators, a record number in a single year also thanks tothe expansion of the number of countries where your Grouphas worked over the years.In keeping with past years, the Group continued to localiseand expand our portfolio of available services in order tooffer our clients improved competitiveness.In the European area, we particularly emphasise the firstMajor Overall inspection of the machinery in the Gebzeplant, the assignment of the LTSA contract followed by themodernisation of the Rosignano plant and our growingattention to and presence in the Russian market.We also draw your attention to our numerous successes inEgypt, the Indian sub-continent and the Arabian peninsula,the significant order for spare parts in the M'Sila plant inAlgeria, in the African area; our numerous activities in severalcountries in South America, in particular with steam turbinesand hydroelectric alternators, and our heavy involvement inthe Embalse plant.

Nuclear production activities

Revenue for the period, which amounted to € 83.1 million,fell on the prior year.The uK market fell, and the Ansaldo NEG subsidiary recorded€ 40.9 million in comparison to € 51.1 million in 2015. Outof 2016 revenue, € 27.7 million came from thedecommissioning of the Sellafield site (MSSS) and € 12.9million from the Defence line; in this business line, the largestcontributions were made by the EPuRE (€ 7.0 million) andPAb (€ 1.2 million) activities.

Regarding the work done on Plant Life Extension for theEmbalse plant in Argentina, assembly has begun on both theturbine and the relative thermal cycle, and on the new dieselsstation. Activities will continue into next year, to beconcluded with plant commissioning in early 2018. Thesupply of a new water cooling system for Embalse has alsobeen completed.

During the year, we successfully completed the supply of thecontrol systems for the fuel loading and unloading machineryat units 3 and 4 in the Tianwan plant in China. The mostsignificant project among work on New Plants was onceagain the Vacuum Vessel for ITER: moreover, during the yearthe difficulties keeping to the project schedule led the Clientto withdraw the option of creating the last two sectors,

leading to a reduction of the contract from 7 to 5 sectors intotal. Nonetheless, our activities during the year increasedsignificantly, thanks to substantial progress in supplyingmaterials.

Still in the New Plants sector, we continued to support theplanning of the experimental Myrrha plant in belgium, aswell as providing specialist support for Slovenske Electrarnefor the construction of two VVER 500 units at the Mochovcesite in Slovakia.

We achieved a particularly encouraging result with theintegrated containment testing of the metallic container forthe AP1000 Sanmen plant in China, designed by AnsaldoNucleare in compliance with ASME regulations: this is thehighest pressure container ever built, as well as a highlyinnovative and crucial component for the AP1000 technology(it also acts to remove residual post-accident heat).

In the decommissioning and waste treatment segment,activities mainly centred on orders for SOGIN. Some issuesemerged both with the ELCO Latina project and the EdificioTurbina Garigliano dismantling project. Nonetheless, despitethe extra costs involved, which we are currently discussingwith the Client, we achieved some important contractualtargets, in particular the completion of the mock-up testingof the LECO sludge extraction system. We also started workon the Caorso Resin Treatment project and the mobile super-compactor.

Organisational and process / productdevelopments

Factory

During 2016, we set up a Manufacturing Integration Teamwith members from all manufacturing areas for the purposeof streamlining the launch of the industrialisation process.The new Gas Turbine products required the technologicalcapacities of manufacturing to be upgraded, involvingsignificant investment; in particular, during the year westarted work on the new rotor welding and the FinalAssembly areas in Cornigliano, and launched the rotorbalancing cell modification project. In the second half of2016, General Electric began training on manufacturingprocesses, mainly involving factory personnel.


The need to manage an increasingly complex productportfolio and the drive for constant improvement led us tolaunch the “Manufacturing Standardisation Document”project, which redefined the guidelines and rationalised theprocess of creating manufacturing documents.Regarding scheduling, following the success of the pilotproject, we decided to extend visual management methodsin order to optimise production by constant alignment withthe priorities set out in the schedule.

Another important initiative in 2016, in which the factoryplayed a key role, involved insourcing hot bladereconditioning activities. This initiative, which created andentirely new production unit, is part of Ansaldo Energia'sGlobal Repair Network (GRN) and will see a Genoa RepairCentre (GRC) fully established during 2017. This project, as well as requiring specific investment in newmachinery and plants, involved considerable engineering,research and development, product industrialisation,upgrading of computer systems and development ofemployee professional skills.

Lastly, we would like to emphasise how factory units havebeen increasingly capable of providing a flexible response tomarket needs.

Service

During the year, the Service line underwent a significantreorganisation, and is now divided into five Regions and fourbusiness lines.The five geographic areas (Europe, North America, LatinAmerica, Middle East & Asia, Africa) are responsible for localsales and project support, while the four business lines (AE,GT, SHL, AES, GT and OSP) are divided by product andinclude full responsibility for quoting and performing therelative activities.This structure was designed to facilitate the process ofintegrating the new service units in baden, Switzerland andJupiter, Florida, so as to exploit global synergies and increasethe skills and competitiveness in core products and services.During the year, we continued to develop and test innovativesolutions for improving machinery performance and plantflexibility/reliability, conducting on-site tests with the unitsresponsible for product innovation and studying ways tomake the solutions more innovative, available and fullyusable in terms of “retrofitting” the existing fleet.In line with the previous year, we continued to reduce

technological risks and the relative “time to market” forproducts (or part of them), while at the same time lookingfor business opportunities for the Service segment, with“upgrades” to be offered to existing clients.The process of collecting and managing feedback from on-site activities was stepped up in order to collect informationuseful for creating product improvements and innovation aswell as improving service efficiency.

Once again in 2016, we continued to make the parentAnsaldo Energia Service proposals more competitive formature products, such as steam turbines and electricitygenerators, using our vast heritage of technological on-siteexperience in the field to identify the solution with the besttechnical and financial benefits on a case by case basis.

Engineering

Engineering was, and will continue to be throughout 2017,fully committed to managing the integration of the new GT26 and GT 36 gas turbine models into corporate processes.The activities focussed on aligning all the technicaldocumentation on the GT 26 model, using sharedconfigurations for product structure, developing productssuch as generators and steam turbines required for couplingwith the Alstom tech GTs in combined cycles and draftingstandard reference projects.The technical team was directly involved by the team inbaden for the Ibri & Sohar order, which used GT26 Alstomtech, and for drafting standard quotes for GT 26 and GT36models.As part of its focus on competitive products, the companycontinued “design to cost” activities during the year, whichallowed to meet the cost cutting targets, boostingprofitability; these improvements were applied to quotes inreal time.The following performance tests were successfully conductedduring the course of 2016:

Simple Cycle UnitsAvon (GT AE94.2) units 1, 2, 3 and 4 Ain Djasser (GT AE94.2) units 2 and 3Labreg units 1, 2 and 3Al Mahmoudia diesel units 1 and 2

Steam turbines Giza North unit 3Cochrane units 1 and 2


Investments

During 2016, investments in fixed assets aimed not only toreplace and maintain production facilities, but above all tointroduce innovative technology and manufacturingprocesses.In particular, we set up a department for the plants dedicatedto repairing hot blades, an activity which was previouslytotally outsourced. The biggest investments were the LaserCladding System and the horizontal vacuum oven for heattreatments, also used for some phases of processing the newblades.

In the alternators line, a complex re layout activity aiming tooptimise the production of bars, involving several areas ofthe facilities, has been concluded. A production flow wascreated to include the profiling and taping phases; this wasalso made possible by transferring the flow that goes fromproducing the nude bar through to pressing.We finished revising and updating the entire electrical systemin the stator winding assembly department to meet currentstandards, in order to have a single distribution ring,eliminating all the derivations from the busway and bringing

all branches towards the auxiliary systems in the area up tostandard.

Service's attention focussed on renewing the containers andreintegrating their features. We also purchased a new typeof horizontal lathe for disks that allows the turbine andcompressor blades to be adjusted in the factory, saving timeon the worksite. Lastly, we ran an extraordinary revision ofthe Tacchi TP400 balancing lathe, which was completelyrenovated.

IT investments involved, among other things, implementinga Web security system to protect navigation.

We also reviewed the automatic warehouse managementsystem and simplified back-up handling. Fall protection systems such as lifelines, anchoring points andparapets were installed on the rooves of several buildings, asrequired for maintenance activities in line with health andsafety in the workplace regulations; we also water-proofedand resurfaced numerous skylights, reducing the risk ofdamage to people, objects or equipments present in theproduction facilities below.


The scope and complexity of Group R&D activities changedconsiderably over the year, following the acquisition of theex-Alstom technologies.

The integration of the new models in the Group’s productportfolio and the switch from the Design Suite that Alstomhad under licence from Rolls-Royce and which was used todesign the turbogas projects, required a significant amountof verification and replacement with the Ansaldo Energiaproperty design suite software, in order to ensure thecontinuation of design, performance improvement andmaintenance activities for all the models acquired.The adaptation of the design suite for more advancedprojects, such as the class H turbine for the 50HZ market(GT36 S5) currently underway, is particularly important. Aswell as adapting the aerodynamic calculation codes, a largepart of this work relates to the heat exchange codes andfluidic codes used to calculate the secondary flows requiredin order to reconstruct the complete machinery model thatcombines the fluid-dynamic and structural calculationsduring the transitory phases, taking account of thedeformations relating to the fixed and mobile parts and,therefore, the leeway for the values in the various conditionsof functioning. An intense testing process took place on theburner in the DLR pressure laboratory in Cologne during2016.When purchased, the class H (GT36 S6) gas turbine modelfor the 60 HZ market was in the assembly phase in thetesting facilities whose construction was also undercompletion. During the year, prototype assembly and construction werecomplete and the gas turbine is currently in the validationphase, which will continue in 2017.

Once testing has been completed on the trial plant, thanksto the adaptation of Ansaldo Energia’s design suite to the

new models, the new turbine project can complete validationby using the data acquired during the tests themselves.

An important part of the integration activities involvedconverting the original Alstom technical documentation (3Dmodels, specific materials, 2D tables, quality control plans,machinery and instrument control ribbons, etc.) to thesystems used by Ansaldo Energia. This activity, although notprecisely research and development, is fundamental for theconstruction and processing of the components in theAnsaldo Energia factories where the GT26 and 36 gasturbines will be produced. These activities began in 2016 andwill continue into 2017.

Another important aspect of the integration activities for thenew products in the Ansaldo Energia Group’s portfolio wasdesigning testing rigs for the technology developmentprojects on gas turbine components. This involved 7combustion and fluid-dynamics laboratories, where the newcomponent designs will be tested. Work will begin onbuilding the laboratories in 2017 and will be completed in2018.

With regard to the development of Ansaldo Energia gasturbines, we continued to upgrade the AE94.3A class Fturbine, the goal of which is to improve its performance interms of output and efficiency, as well as to increase itsoperational flexibility.2016 saw the new hot components required for the projectaiming to increase nominal power to 325 MW approved forsupply, and the realization of the first turbine for thisconfiguration. The turbine is designed for the Chinesemarket, and installation and performance testing will becompleted in 2017 in collaboration with Shanghai ElectricGas Turbine Company (SGC).During 2016, a strong boost was given to burner


Research, development and technological innovation

development by the positive results from laboratory testingfor a burner with extensively modified architecture, as wellas the development of other innovative burners as part ofthe co-development project with the Chinese partners atSGC, aiming to improve gas turbine performance while alsoreducing NOx emissions.The release to market of the Dual Pilot System burner andthe applications on the gas turbines installed in brindisi(ENIPOWER), considerably improving performance,emissions, stability and operating flexibility, were importantmilestones during the year.After completing the performance improvement project forthe Class E AE94.2 turbine, involving redesigning the frontalstages of the compressor and all the turbine stages with anominal final power of 185 MW, the results and know-howobtained from the on-site testing phase of the performanceimprovement package for the turbine blades completed atthe Pointe Noire plant in the Republic of Congo became partof the Group’s assets. The increase in power andperformance were confirmed as forecast. The newlydesigned turbine blades are currently in use, and haveaccumulated approximately 20,000 EOH without anyproblems. The special instrumentation was prepared and installed forthe testing of the turbine compressor for validation andcommissioning in the Shangzhuang (China) plant in 2017.We started work on the project to modify the AE94.2 gasturbine designed to use low calorific power gas sourced fromsteel production processes. Development will be focussingon the compressor and the new combustion system, and willbe conducted in partnership with SGC. The concept designhas been reviewed and passed for both components.The special instrumentation for validating the newcombustion chamber on the AE64.3A gas turbine, which willimprove performance at ISO 78MW conditions, hascompleted the planning and installation phases. Thequalification phase has been completed and the ceramic tilesthat will be used to replace the metallic tiles currently usedto cool the turbine’s combustion chamber in its finalconfiguration have gone into production.Manufacturing and repair innovation activities continue andnew projects have been launched to support production andservice lines, including the construction of axial threadwhirlers for AE64.3A using Additive Manufacturingtechnology. Examination of the component manufacturedusing additive technology showed a perfect reproduction ofthe characteristics of components produced usinginvestment casting.Activities focussed on product innovation in line with the

Group's strategic plan, taking on an increasingly importantand centralised role in valorising individual disciplinary skillsand providing the full range of engineering and experimentalservices.These activities also allowed us to extend our technical-scientific collaboration network with leading Europeanresearch centres and major Italian universities.The technological development supporting machineryevolution and process improvement involved projects in allareas relating to Ansaldo Energia products, continuing thework begun in previous years: characterisation, processimprovements and industrialisation, innovative coatings andmaterials testing, projects to define material curves for coldcomponents by conducting mechanical testing on materialsfor the compressor blades and combustion chamber, throughto releasing design curves for characterising the materialsused, developing new methods for calculating coolingsystems for the gas turbine blades, new aeroelastic designmethods for the blades, new methods for calculatingSecondary Air Systems, new methods for calculating themechanical integrity of components and measuringatmospheric and pressure validation for the combustors inorder to improve performance and reduce emissions in ClassF gas turbines. These projects were developed incollaboration with Shanghai Electric Gas Turbines. In January 2016, we launched the three-year R&D activitiesset out in the Grant Agreement assigned by the Eu to theFLEXTuRbINE - Flexible Fossil Power Plants for the FutureEnergy Market through new and advanced TurbineTechnologies – project, as part of the H2020 program. Theproject aims to contribute to developing more flexible andefficient power generation plants in order to meet thegrowing demand in the energy market. Ansaldo Energia(A.S.EN) worked on designing and testing flutter-free steamblades and was responsible for the Material ModelsDevelopment section in the part of the project dedicated toimproving the life cycle of the gas and steam turbinecomponents.The project involves investigating the behaviour of a newlydesigned 37 inch (37G) L-0 blade in the Doosan Skodatesting laboratory, which can recreate particularly interestingoperating conditions (steam pressure) which flutter codescannot yet meet. The materials development part of theproject will be studying the impact of combined cycle fatigue(CCF) on cracking and their propagation, using experimentaltests. In 2016, we began conducting testing for the creationof the mathematical model needed to represent combinedcycle fatigue.In early 2016, we completed all the procedures required by


the Sustainable Industry Tender (Ministerial Decree dated 15October 2014) – called by the Ministry of EconomicDevelopment (MISE) – in relation to the funding request forthe R&D project entitled “Development of gas turbines withreduced greenhouse gas emissions and high operatingflexibility using innovative materials and advancedmanufacturing systems” presented by Ansaldo in July 2015.The project, conducted between Ansaldo Energia andAnsaldo Sviluppo Energia, aims to develop a new generationof high efficiency gas turbines with low greenhouse gasemissions and highly flexible functions designed to meet therequirements of the free energy market. On 22 July 2016, MISE issued the decree containing theguidelines for granting the funding (ref. Project no.F/030044/01-02/X28). The entire project will have a durationof 36 months. The costs eligible for funding under the decreeamount to € 30.56 million, of which around 60% sustainedby AEN and the rest by A.S.EN.In the second half of 2016, we participated in the EuropeanH2020 Call – LCE 28-2017 - Highly flexible and efficient fossilfuel power plants - contributing to present proposal no.764545, “TURBOmachinery REtrofits enabling FLEXible back-up capacity for the transition of the European energysystem”, and no. 764706 “Performance UntappedModulation for Power and Heat via Energy AccumulationTechnologies”. Still as part of the Eu Horizon 2020 program, A.S.ENcontributed to drafting two proposals to be presented to theEu in response to the Marie Curie -Innovative TrainingNetworks 2017 Call, each involving the assignment of aEuropean researcher to AEN for three years, tasked withperforming R&D activities on turbogas combustioninstabilities.In a different sector, although still under Eu fundingprograms, we drafted a proposal for “EAGLE - complexmicro-features realization, based on an adaptivE fluid-dynamic model integrated with lAser and tomoGraphicin-Line mEasurement, toward higher yield of free-form high-cost products” in response to the Factory of the Future no.8-2017 Call. The project aims to develop a new in-linemeasurement and correction system to apply to the turbogasblade production process, particularly in the drilling phase.In September 2016, Ansaldo Energia, was invited by theNational Technology District for Energy (Di.T.N.E.) and theEnvironmental Combustion Centre to help draft a proposalfor the “Experimentation and engineering of a resonator forinstallation on turbogas turbines with annular combustionchamber, aiming to raise the TISO”. The project was presented in response to the National

Operating Program Call “Imprese e competitività” FESR2014-2020, governed by Ministerial Decree 01/06/2016. At the end of October, A.S.EN., on behalf of AEN, completedthe technical activities for the development of the thermal-acoustic tool for turbogas combustion required by the Eu –Marie Curie 2012 – TANGO project. Still during 2016, A.S.EN completed the formal requirementsfor the verification process relating to the AEN project“Control and detection of thermo-acoustic instability in gasturbine combustion systems”, work on the project, whichwas part of the Liguria Region three-year program forresearch and innovation PAR FAS (2007-2013), wasconcluded at the end of 2015.

Regarding steam turbines, development programs focussedon the need to develop components for combined cycleapplications with the new gas turbines in the AnsaldoEnergia portfolio. Modules are currently being developed for use in high steamtemperatures and higher discharge flows in order to boostthe overall efficiency of the combined cycle, in response tonew market demand. Work continued on implementing the blades portfolio,finishing the new 37 inch discharge flow project, known as37G, which will complete the range of Ansaldo Energiaproducts, while the prototypes for L-0 and L-1 mobile bladeswere tested in our in-house super-velocity cell. We continued to acquire functioning data on the steamturbines currently in use in order to extend our knowledgeof complex vibrational phenomena.Installations were set up for new trials in several sites, whichwe hope will provide us with data and analysis (starting from2017) that will help us understand these complexphenomena.As part of the development and testing of new insulationmaterials to be used in alternators, we performed the voltageand thermal endurance tests required by law for defining thechemical and physical properties of the insulation tape usedfor the stators. We also ran static and dynamic tests on thenew bimetallic rotor pins, using a laboratory simulation ofthe annular chamber of a THR L generator for the dynamictesting.

The Ansaldo Energia turbo-generator portfolio is currentlybeing updated to include the new GT26, GT636 S5 e GT36S6 turbogas models acquired. In 2016, we began designing5 generator models, some new and some based on existingmodels, to be completed in 2017/2018. We also continuedto draft the Design Practice for the turbo-alternators.


Regarding the Ansaldo Energia gas and steam turbine controland protection systems, based on the Symphony Plusplatform developed together with Abb, we completeddevelopment on all Ansaldo Energia steam and gas turbinesand made the HIL (Hardware In Loop) and HTS prototypesavailable to the Automation Laboratory, for HIL vs. HTScomparison to guarantee validation.

We completed developing and testing the new controlsystem platform for AE94.3A dual fuel gas turbinesmanufactured using Emerson Ovation, and the HIL andvirtual prototypes are available for use by Ansaldo Energia.The new system was released to the market in March 2016.Work also began on developing the control systems for theGT26, GT36-S5 and GT36-S6 gas turbines, based on theEmerson Ovation platform.

The automation laboratory completed the simulators of thegas turbines installed at the “Pervomayaskaya” plant, as partof Service activities, and the tests were performed with theclient. The automation laboratory also supported thedevelopment activities for coordinated regulation of the Al-Shabab (EMuLPLANT), Marcinelle and Dunamenti plants. Acontainer was designed and developed to acquire data forthe Shangzhuang and Sihui validation procedures, creatingthe data acquisition cabinets and relative cabling, adaptingthe electrical model and running functional AVR checks usingthe simulator as part of the Service activities for the APRILIAplant.

We continued to study and apply innovative instruments forfinishing and control activities in factory production, such asthe equipment for checking the size of Hirth toothing.

Planned 2017 development was set up in collaboration withIIT (Istituto Italiano Tecnologia) of a robotic system designedto inspect Ansaldo and the newly acquired Alstomgenerators, and a feasibility assessment was performed forthe inspection of the gas turbine combustion chambers.

As part of the development activities for servicing gasturbines, we developed and released the new calculationmethod for scheduling gas turbine maintenance activities, tobe implemented in GT control systems during 2017.

Significant development activities took place regardingrepairs of hot components, perfecting the laserreconstruction process for rotor blades and the high tensilebrazing process for Rene80 material, while the processshould be completed for IN939 and ECY768 materials by theend of 2017.

Testing began and continues on high performance materialsfor repairing turbine blades, and a new proprietary materialis under development.

The repair process for AE94.3A turbine blades was launchedby PSM.



During 2016, the Group’s activities included integrating thenew companies acquired, Ansaldo Energia Switzerland andPSM. In terms of management, the Group continued to cutstructural and labour costs and drew up a new collectiveincentive program that, following negotiations with Tradeunions, led to a Supplementary Agreement and theintroduction of a new performance bonus based oneconomic-financial business results, along with an

attendance bonus based on the actual presence in theworkplace guaranteed by each employee during the year. In terms of number of employees, at the end of 2016 wehad 4,254 units, up by 749 in comparison with 2015(+21%). This increase was caused by the inclusion of the newcompanies within the Group perimeter (822 employees at31/12/2016), net of the decrease in numbers in the pre-existing companies.

Personnel

HEADCOUNT

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Training and Development

During 2016, we continued to use tools mainly designed forassessing and developing transversal skills (Light Assessment,Development Centre, Individual Assessment, 360Assessment, Monitoring new entries, Group coaching) andwe carried out and launched initiatives to supportintegration, including individual and group courses onspecific skills (such as Public Speaking in English).

The Group continued to invest in safety and accidentprevention training to reduce the risk of accidents at work,both in the manufacturing facilities and in offices.The courses were led by experienced teachers from thirdparty companies, as well as by qualified in-house instructors.One course in particular was held in baden for the Swisspersonnel, in the presence of a safety officer from the GenoaFacilities.

Investment in refresher courses and training for professionalfamilies continued during the year with a course for ProjectManagers, involving managers from the various businessareas and colleagues from all company departments in therole of instructors and experts, in what is the first experienceof a new Group PM Academy.

French and Chinese language courses were also provided.

Regarding English language, we note that following therecent restructuring, which brought out a clear need for ageneral improvement in language skills, numerous traininginitiatives were launched and offered in a range of learningmethods. These courses continued throughout 2016 andinvolved nearly all Group personnel.

Client training

14 courses were held during 2016, for a total of 1,640 hoursof training.The activities involved 213 participants for a total number of205 days of training.One of the most significant activities in terms of effort,duration and satisfaction was the course held in Genoaduring September and October for Maintenance personnelin Sonelgaz SPE Algeria, one of our foremost North Africanclients, on how to maintain the AE94.2 and AE94.3A gasturbines and the WY21 and WY23z alternators.

The course, which was conducted partly in the classroom andpartly in the factory, mainly involved in-house instructorsfrom the Service and Production sectors.

In November, a series of courses for personnel working atthe Egyptian plants in Al Shabab and West Damietta began.As well as operating and maintenance personnel, a coursewas also held for 8 Project Managers in the two plants,receiving a high degree of satisfaction and consensus fromall participants.

Organisation

The year was marked by the restructuring of the Group,which changed its organisational structure with the entry ofnew companies and the expansion of the product portfolio.The reorganisation aimed to achieve a single organisationalsystem for managing and governing the different companiesand their processes.

The organisational system is based on three business units,each of which is fully responsible for managing contracts,developing markets and the relative executive activities, withits own Research and Development structure for growth,technological and product innovation, and an Operationsstructure to ensure shared functions. The operating units are supported by the Central CorporateDepartments, which provide direction and coordination forstrategic choices and manage the Group’s centralisedservices.After establishing and formalising the first and second levelorganisation, the organisational structures were graduallydefined in greater detail until the restructuring was fullyoperational.

A task force was set up to assist the organisation launchedin August, focussing on end to end management ofcorporate processes and on the organisational areas,processes and compliance. This task force also drafted a new model for managingorganisational documents and Group procedures, based onthe responsibility of process owners, and controllingcompatibility between organisations and processes,guaranteed by the HR structure for the organisationaldocuments and the Quality department for the procedures.

A project was launched to compare the different salary and



benefit systems in the Ansaldo Energia Group byconstructing a role map identifying comparable positionswithin the organisation. The salary systems were thencompared with the appropriate local markets in terms oflevels and characteristics, providing an overall outline of theGroup’s positioning. This was used to identify the activities that will characterise

the governance of the compensation process on a Grouplevel during 2017. It is also continued the initiative launched the previous yearto overhaul the internal Professional System from a globalperspective, in order to create a tool for understanding thevarious professional families found in all the Groupcompanies (Global Job System).

Risk management


Actions Risks

The ongoing economic crisis couldcompromise the Group’s profitabilityand its ability to generate cash flows,including its core businesses.

The Group is involved in legalproceedings (Law no. 231).

The Group has a considerableproportion of long-term fixed pricecontracts.

As part of its ordinary activities, theGroup is liable to customers and thirdparties for its correct performance ofcontracts.

The Group pursues its goal of increasing production efficiency andimproving contract execution capacity while concurrently cuttingstructural costs.

Following the legal proceedings during the past financial years, theGroup has taken all necessary steps to investigate any irregularsituations and to avoid the continued non-compliant conduct by itsemployees, directors and suppliers.

The Group follows the procedures to prepare and authorise its maincommercial offers. The main financial and performance indicators,including Economic Value Added (EVA), one of the referenceindicators, are continuously checked right from the first sale offer.The Group also checks the estimated contract costs regularly, at leastevery three months. It identifies, monitors and evaluates risks anduncertainties inherent in contract performance using the “Contractmanagement” directive, as well as two procedures (LifecycleManagement and Risk Assessment) designed to reduce the probabilitythat risks or their negative consequences will materialise, and ensurethat the appropriate mitigation measures are promptly applied.This procedure involves senior management, the program managersand the quality, production and finance functions (the “phasereview”).

The Group usually agrees insurance policies available on the marketto cover any damages. However, damage could arise that is notcovered by insurance policies or that exceed the sum insured or theinsurance premiums could increase in the future.


The Group earns part of its revenue incurrencies other than those in which itincurs costs, thus exposing it open tocurrency risk.

The Group works in particularlycomplex markets, which requirecompliance with specific regulations.

A large part of the Group’s assets areintangible, especially goodwill.

The Group has an ongoing systematic risk hedging policy for all itscontracts, using the financial instruments available on the market.

The Group ensures its constant compliance with the relevantlegislation through specific procedures, subordinating the start of anycommercial actions to checking compliance with limits and attainmentof the necessary authorisations.

The Group regularly monitors its performance vis-à-vis its budgets andtakes any necessary corrective actions in the case of unfavourabletrends. These actions are considered whenever it performs impairmenttests to check the carrying amount of its assets.

Actions Risks

“Information provided pursuant to Italian Legislative Decree no.196 of 30 June 2003 (The Personal Data Protection Code).”

Pursuant to paragraph 26 of the technical requirementsgoverning minimum security measures, which forms Annexb to Italian Legislative Decree no. 196 of 30 June 2003 (thePersonal Data Protection Code), the Data protectiondocument for the processing of personal data was updatedduring the first quarter of 2011.

This document contains the information required byparagraph 19 of the Technical requirements and describesthe security measures implemented by the group to minimisethe risk of destruction or loss, including accidental, ofpersonal data, unauthorised access or unapproved

processing or processing that does not comply with thepurposes for which it was gathered.

In 2016, your Group planned and defined a number ofactions for the data protection procedure to further decreasethe risk of the loss or destruction of data and to eliminateany handling that does not comply with the law.

Pursuant to the Data Protection Authority’s measure of 27November 2008, the Group received the list of systemadministrators from its outsourcer SELEX - ES S.P.A.

This information will be included in the next update of theGroup's data protection document.

The Group continued its actions to inform its personnelabout the issues, including by regularly publishinginformation on the intranet portal.


Data protection code (Italian Legislative Decree no.196 /2003)


Company certification

In 2016, certification bodies performed inspections for themonitoring of the corporate Quality Management Systemcertification (uNI EN ISO 9001), the renewal of theEnvironment (uNI EN ISO 14001) and the monitoring of theHealth and Safety in the Workplace (bS OHSAS 18001)certifications.The certification bodies also confirmed the certificate forwelding activities (uNI EN ISO 3834-2) and renewed thecertificate for functional safety (IEC EN 61511/61508),confirming the certification of our calibration centre activities(uNI EN ISO/IEC 17025).In 2015, the new versions of uNI EN ISO 9001 and uNI ENISO 14001 standards were issued, and we will need to adaptcorporate activities to the new standards by the end of 2018.

Quality

During 2016, organisational changes were introducedleading to a new Quality team being set up, uniting thevarious structures responsible for each company in theGroup.In particular, in 2016 we focussed on aligning andharmonising Quality targets in the different structures, alsoand above all in order to create shared goals throughout thenew Ansaldo Energia Group.Moreover, we continued to support the strategic partnershipwith SEC, and to consolidate our supervision of qualityprocesses across the entire value chain relating to the currentand the new perimeter associated with the ex-Alstomproducts.Once again in 2016, we continued to work towardsimproving our balance between Insurance and QualityControl, although reducing the resources available, while

boosting supplier monitoring, developing a process toanalyse, investigate and promote team working on thecauses of non-conformities in a two-year project that willwork across all the various Manufacturing lines. Wesupported activities for project teams responsible for drawingup quotes and performing order quality and knowledgetransfer activities.

Lastly, we continued to apply the model developed in 2015for measuring all costs linked to prevention, investigation andmanagement of non-quality events (Quality Economics),extending it to Macro-Processes 2, site construction, andMP3, Service, as well as to the MP1 process, turbine andalternator manufacturing.

Regarding the Quality System, in addition to the usualmonitoring activities involving internal audits and therenewal or maintenance of certifications, we drew up a newmodel for corporate processes, and in particular a newdocument management system that applies both forindividual companies and at a Group level, issuing the firstGroup procedure and a new Quality Management SystemManual. These monitoring activities also helped prepare for thecertification inspections, which successfully resulted in theconfirmation of Quality certifications, welding activities andthe certification of the LAT 039 laboratory for calibratinginstruments designed to measure heat, pressure and length,and the renewal of the functional safety certification.

Communication, training and information

Quality in our Group is constantly discussed in meetings withall the units involved, in particular by top management aspart of the management review process.

Quality, environment

Following the training initiatives in 2015, which mainlycovered the Quality Management System, with particularattention to the uNI EN ISO 9001:2015 standard, in 2016training focussed more on specific skills in the Qualitystructures, on aspects relating to Quality assurance andcontrol, such as controlling production processes, supplyquality, 8D analysis techniques and non-destructive controls.Particular efforts were required for the training activitiesassociated with the integration of the new technologiesacquired from the ex-Alstom companies. This training required, and will continue to require during2017, on the job training activities as well as classroominstruction, both on the processes and the new products andtechnology.

Environment

Ansaldo Energia's Italian sites:

• are not subject to IPPC, nor the provisions of ItalianLegislative Decree 334/99 as amended (Major AccidentRisks), are not located within the S.I.N. - National Sites ofInterest - as defined by law 426/98 as amended, and

• are not subject to environmental remediation activities. .

Nevertheless, the production unit at 8 Via Lorenzi falls withinthe scope of Italian Presidential Decree 59 of 13 March 2013(AuA - unified Environmental Authorisation), and the sitesat no. 8 Via Lorenzi and 118 Corso Perrone in Genoa fallwithin the scope of the Emission Trading Directive as they areincluded in the “1.1 Combustion plants with net heat excessof more than 20 MW (excluding plants for hazardous orurban waste”) category.

Constant surveillance of the application of the proceduresand instructions required by ISO 14001 environmentalcertification allowed us to renew it and highlighted thefollowing strong points: the competence and participationof staff, order and cleanliness of departments, effectivemonitoring of environmental aspects in terms of bothoperations and legal compliance, constant improvement ofthe environment and performance management systems.

2016 investments also allowed the Company to perform thescheduled improvements on waste logistics management,the efficiency of the chimneys, and department emissions. Future investments involve running new projects to improvethe waste storage area and the recycling of waste and

production residues, focussing on maximising recycling. As part of the activities to protect the environment, particularattention was paid to the following issues:

Water and waste managementThe waters that serve the site at no. 8 Via Lorenzi in Genoacome from the city's aqueduct. In order to monitorconsumption, all the tapping points have been equippedwith volumetric meters. The water is used for civil, industrial,process, and cooling purposes, and is discharged intodifferent drainage networks based on the type of use andorigin; polluted waters from certain types of process arecollected and disposed of as waste materials.

Solid waste management comprises several differentoperating stages:• the collection of the waste materials by Ansaldo Energia

personnel in containers tagged with the E.W.C.(European Waste Code) label and colour-coded toindicate the different types of waste, and their storage atthe facility's temporary storage area;

• preparation and management of the documentation forthe process of loading/unloading and transporting thewaste materials for final disposal;

• completion of the SISTRI history log and handling datasheet (for hazardous waste materials).

In this respect, the Ansaldo Energia Group encouragesincreasing attention to improving waste separation, recyclingand the sale of production waste and obsolete systeminfrastructures.

Monitoring of energy consumption, CO2 Emissiontrading, and other emissionsIn order to meet its energy requirements for production andcivil purposes, the Group uses the following resources,monitoring consumption with meters: Electric energy forindustrial and civil uses; methane gas; district heating; dieselfuel for road haulage.Increasing attention is paid to saving and recovering energy,in order to reduce energy use, while guaranteeing the samelevel of services to the various corporate users.The Ansaldo Energia Group is required to comply with theEmission Trading Directive, as it has a total installed powergreater than 20 MWth. Fewer tonnes of CO2 were emittedduring 2016 than in 2015. Once again in 2017, we believethat the allowances allocated to Ansaldo Energia by theMinistry of the Environment will be sufficient to ensurecompliance with the limits established by the Kyoto Protocol,



without no need for compensatory activities.Hazardous waste managementThe Group regularly manages and checks the hazardousproducts and substances used in production and worksiteactivities, checking all new substances for applicabilitywithout any hazard to people or the environment and incompliance with the relevant European regulations,including:REACH REGuLATION - EC Regulation no.1907/2006CLP REGuLATION - EC regulation no.1272/2008

Occupational health and safety

In 2016, the Ansaldo Energia Group introduced furtherinitiatives to reduce the number of accidents at work andpromote a culture of safety among all employees involved inproduction processes: directors, supervisors, workers andsubcontractors. Constant supervision of the relevant procedures andguidelines, aiming to ensure compliance with legalrequirements, is at the foundation of the Health and Safetyin the Workplace Management System, which is designed tobritish Standard OHSAS 18001. During the inspection for confirming the certification, thisapproach allowed the certification body to highlight thefollowing strong points for your Group: satisfactoryresolution of issues encountered previously; a constantlyimproving management system; good competencesdemonstrated among the business functions surveyed.

Corrective interventions for issues identified during the yearwere carried out faster, and were combined with investmentsthat will also impact the safety of production processes.before installing our new technological equipment, weexamined them carefully and got end users involved inassessing their impact on health and safety in the workplace.

In order to improve accident rates, we further developed themethods used to analyse the causes of accidents, andsucceeded in correctly identifying the best preventionstrategies as well as measuring their efficiency andeffectiveness.

Various meetings were held in order to advise the relevantsupervisors and managers of corporate objectives and thetechnical solutions chosen in order to resolve the weaknessesidentified and ensure ongoing improvements to theworkplace.

So-called “near miss” accidents were subjected to particularfocus in order to improve preventive activities and get allcorporate resources involved in the shared goal of health andsafety.

In 2016, the Ansaldo Energia Group held its first ever “SafetyDay”. This was an important opportunity to discuss safety, healthand environmental issues, highlighting different approacheswithin Group companies as well as a common interest inshared objectives. This served as a concrete base fordeveloping a process to integrate the systems currently inuse, applying the best practices of the various companies andsetting the goal of “Zero accidents”. Risk assessment reports were issued on all external worksiteswhere we operate, whether or not required by law, and weensured that the Risk Assessment Report and the corporateprocedures were applied throughout.Moreover, Interference Risk Assessment and Safety andCoordination plans were drawn up where required for bothAnsaldo Energia and outsourcer worksites, requiring thecompanies involved to provide documentary and substantialevidence of the solutions implemented to protect theenvironment, and the health and safety of their workers.Our efforts at all levels continued to significantly reduceaccidents reported to INAIL during 2016, along with therelative frequency index. This was accompanied by the campaign dedicated to raisingawareness of the use of PPE, which will be continued in2017, with posters in a range of languages throughout thefacility. This campaign will later be expanded to include theItalian and foreign work sites.

In order to increase the culture of safety and respect for theenvironment at all levels of the Group, we continued a rangeof training courses (in compliance with current legislationand taking account of individual risks and duties and thepotential impact on the environment of corporate activities). Communication and information activities were performedthrough specialised courses for personnel in the Environmentand worksite Safety units, including notifications put up oncompany notice boards; themed leaflets were handed out topersonnel; articles were published in the company press;proposals for individual improvement were promoted; theSafety Day activities; meetings were held with resources inthe various companies to discuss the themes of safety andthe environment.

The training initiatives, supported by the Training School, set

goals to raise awareness and inform all personnel on thethemes of Safety, Health and the Environment, also withreference to legislative aspects, and in particular those setout in Laws 81, 152 and 231, providing specific training forpersonnel directly or indirectly involved in managingoperating procedures and guidelines, guaranteeing thenecessary skills and qualifications for performing ordinaryactivities and dealing with activities with a higher exposureto specific risks.

The Health, Safety and Environment unit also checked theapplication for the organisational processes set out in the

Management System, the maintenance of performance andbehaviour levels by company personnel and compliance withlegal and internal requirements by subcontractors and atfacilities, conducting periodic audits of the various units.These audits were performed regularly at the Genoa site, atinternal worksites for ordinary and extraordinarymaintenance activities, at both Service and NewConstructions worksites, and at foreign branches. The results were very positive on the whole. The findings ofthese inspections were, in any case, analysed in detail toidentify areas for improvement and guarantee theimplementation of corrective measures.



Performance and highlights of the main Group companies

ANSALDO NUCLEARE S.p.A.

The company carries out and supplies projects and therelated services to the nuclear power generation industry.2016 saw a continuation of the challenging conditions forthe nuclear sector in the markets of interest. Sluggish growthin Europe and the resulting struggling growth in electricenergy use led to a substantial slowing of investment in theconstruction of new plants, as well as extending residual lifeof existing plants. Ansaldo Nucleare recorded a considerablefall in commercial opportunities, although it succeeded inmaintaining a competitive range of offers.Regarding the Waste Management and Decommissioningsector, the activities in course in Italy ran into some delaysand problems that were reflected in total profitability duringthe year. The partnership with Ansaldo NES developed without ahitch, bringing growth in the number of joint offers on theuK market, which we hope will bring positive results nextyear.Revenue rose on the previous year to € 48.7 million. The work done on Plant Life Extension for the Embalse plantin Argentina had a particularly strong impact on this result,allowing assembly to begin on both the turbine and therelative thermal cycle, and on the new diesel station. These activities will continue during the year, and will beconcluded when the plant is commissioned in early 2018.Still in Embalse, we completed the supply of a new watercooling system.During the year, we successfully completed the supply of thecontrol systems for the fuel loading and unloading machineryat units 3 and 4 in the Tianwan plant in China. The most significant project among work on New Plants wasonce again the Vacuum Vessel for ITER: moreover, during theyear the difficulties keeping to the project schedule led theClient to withdraw the option of creating the last twosectors, leading to a reduction of the contract from 7 to 5sectors in total. Still in the New Plants sector, we continued to support theplanning of the experimental Myrrha plant in belgium, aswell as providing specialist support for Slovenske Electrarnefor the construction of two VVER 500 units at the Mochovcesite in Slovakia.We achieved a particularly encouraging result with theintegrated containment testing of the metallic container forthe AP1000 Sanmen plant in China, designed by AnsaldoNucleare in compliance with ASME regulations: this is thehighest pressure container ever built, as well as a highlyinnovative and crucial component for the AP1000

technology (it also acts to remove residual post-accidentheat).In the decommissioning and waste treatment segment,activities mainly centred on orders for SOGIN. Some issues emerged both with the LECO Latina project andthe Edificio Turbina Garigliano dismantling project. We notethat, despite the extra costs, which we are still discussingwith the Client, we succeeded in meeting the contractualdeadlines. Moreover work on the Caorso Resin Treatment project andthe mobile super-compactor have started.

2016 performance may be summarised as follows:Profit/(loss) for the year: € -3.2 millionRevenue: € 48.7 millionEquity: € 18.8 million Net financial position: € 2.2 millionHeadcount: 198 employees.

ASIA POWER PROJECTS PRIvATE LTD

Asia Power Projects Private LTD, based in Chennai, India,manages the on-shore activities of Ansaldo Energia’scontracts in the area and mainly provides services.The main component of 2016 revenues was the repair workon the Tangedco plant.

2016 performance may be summarised as follows:Profit/(loss) for the year: € 1.3 millionRevenue: € 2.1 millionEquity: € -2.1 million Net financial position: € -3.3 millionHeadcount: 9 employees.

ANSALDO SWISS AG

During 2016, the Company continued to be wound up,transferring part of its surplus floating capital.

2016 performance may be summarised as follows:Profit/(loss) for the year: € -0.1 millionEquity: € 0.3 millionNet financial position: € 0.4 million



ANSALDO THOMASSEN Bv (ATH)

The company is based in Rheden, Netherlands and is whollyowned by Ansaldo Energia S.p.A. It specialises in providingservices for General Electric technology gas turbines and hasa product portfolio which includes inspections andmaintenance work, repairs, spare parts, upgrades, long-termservice agreements and training. The company also offers regeneration (refurbishment),relocation and installation services for second hand gasturbines.Market conditions in Europe remained stable from theprevious year, while the Asian and Middle Eastern marketsgrew. The company is continuing to shift its business focusfrom Europe towards emerging markets. In terms of orders, the company acquired a total ofapproximately € 28.4 million in 2016, over 74% of whichwere from outside Europe. During the year an order variation was received relating tothe Mirfa project in the uAE, for a total of € 6.9 million, andanother order for spare parts of GE Gas turbines (Frame 6b)for € 2.8 million (PX Sellafield).

Revenues reached € 53.2 million, up by 12% on the previousyear, while EbIT remained stable at € 2.7 million following aslight fall in margins.

2016 performance may be summarised as follows:Profit/(loss) for the year: € 0.1 millionRevenue: € 53.2 millionEquity: € 5.3 millionNet financial position: € -6.9 millionHeadcount: 104 employees.

ANSALDO THOMASSEN GULF LLC (ATG)

This wholly-owned subsidiary of Ansaldo Thomassen bV islocated in Abu Dhabi and is specialised in the repair of hotparts of gas turbines (rotor and stator blades, gas conveyorsand combustion chambers) using different technologies(General Electric, Westinghouse, Mitsubishi, ATLA).Order volumes rose to around € 11.8 million in 2016,compared to € 10.5 in 2015. Revenues grew slightly on theprior year (€ 13.6 million against € 12.6 million), andprofitability followed the same trend (EbIT of € 1.5 millionagainst € 0.8 million in 2015).

The company’s overall results are summarised below:

Profit/(loss) for the year: € 1.4 millionRevenue: € 13.6 millionEquity: € 3.7 millionNet financial position: € -2.3 million Headcount: 84 employees.

YENI AEN ANONIM SIRKETI (YENI AEN)

The company Yeni Aen Insaat Anonim Sirketi (YENI AEN) isbased in Istanbul, Turkey.During 2016, the LTSA contract for the Gebze plantcontinued, and in particular an important inspection blockwas completed, which contributed to the revenues recordedduring the year: 2 HGPI (Hot Gas Path Inspection) on the gasturbines and a minor inspection on the steam turbines.

2016 performance may be summarised as follows:Profit/(loss) for the year: € -1.7 millionRevenue: € 40.5 millionEquity: € 3.1 millionNet financial position: € 1.5 millionHeadcount: 4 employees.

ANSALDO SvILUPPO ENERGIA S.r.l. (A.S.EN.)

During 2016, A.S.EN. continued to perform productResearch and Development activities for the Group, workingon growth strategies and technological innovation.A merger by incorporation procedure was launched withA.S.EN., which will be incorporated in Ansaldo Energia S.p.A.as at 01.01.2017.


NUCLEAR ENGINEERIG GROUP (NEG)

NEG Group comprises Nuclear Engineering Services (NES),which is engaged in the uK's largest nucleardecommissioning programme and is 100% controlled byAnsaldo Nucleare. The company continued its main activities at the Sellafield

site, as well as other business lines.

2016 performance may be summarised as follows:Profit/(loss) for the year: € 2.2 millionRevenue: € 40.9 millionEquity: € 12.5 millionNet financial position: € 0.6 millionHeadcount: 280 employees.

ANSALDO ENERGIA SWITZERLAND (AES)

Ansaldo Energia Switzerland, a wholly owned subsidiary ofAnsaldo Energia Holding Italia, joined the Ansaldo EnergiaGroup on 25 February 2016 following the acquisition of thegas turbines business from General Electric (ex Alstom).The company is based in baden (Switzerland), and manages19 service contracts for GT26 turbines. These contracts relate to clients located mostly in Europe,with two exceptions: the first in Thailand and the second inTunisia.During 2016, the company acquired two important contractsworth a total of approximately € 560 million, for the supplyof components to two large independent energy productionprojects (IPP). The combined cycle plants of Ibri (1510 MW) and Sohar III(1710 MW), in Oman, are scheduled for commissioning inearly 2019. The company also acquired the relative LTSAcontracts, worth € 211 million.The service business was involved during the year ininspecting sites in Italy, Greece and the uAE. The ‘PlantSupport Centre’ was also set up, providing 24 hour, 7 day aweek monitoring of plant operations.In 2016, AES invested around € 70 million in R&D,developing the GT26 and GT36.

2016 performance may be summarised as follows:Profit/(loss) for the year: € -14.7 millionRevenue: € 225.6 millionEquity: € -7.5 millionNet financial position: € 133 millionHeadcount: 426 employees.

ANSALDO ENERGIA HOLDING USA/ POWER SYSTEMSMSG (PSM)

Ansaldo Energia Holding uSA, a wholly owned subsidiary ofAnsaldo Energia Holding Italia, is in turn the full owner of

PSM, which joined the Ansaldo Energia Group on 25February 2016 following the acquisition of the gas turbinesbusiness from General Electric (ex Alstom).The company is based in Jupiter (Florida), and performsservice activities, providing integrated monitoring, upgradingand reconditioning services for plants using Siemens,Mitsubishi and General Electric technology under long termcontracts with the main uS multi-utility companies, as wellas short-term contracts including the supply of spare parts,components and engineering consultancy.Activities during 2016 consisted mainly in building andconsolidating long-term commercial opportunities, partly tocompensate for the uncertainty that has been a feature ofthe reference market following the announcement ofAlstom’s sale by General Electric.At the end of the year, the order backlog representedapproximately three years of forecast sales.During 2016, PSM successfully completed the upgrading ofthe 501F (Siemens) and 7FA (General Electric) turbines, aswell as achieving the technical milestone relating to theproject to convert the FlameSheet combustion systems.A low-emission combustion system (LEC-III) was also installedin several b and F class units.

2016 performance may be summarised as follows:Profit/(loss) for the year: € 1 millionRevenue: € 133.1 millionEquity: € 86.4 millionNet financial position: € 15 millionHeadcount: 395 employees.

ANSALDO ENERGIA IP UK LTD

The company, which is based in London, is used to hold mostof the technologies acquired by the Group with the Gastoneoperation.

2016 performance may be summarised as follows:Profit/(loss) for the year: € 0.3 millionRevenue: € 18.0 millionEquity: € 0.4 millionNet financial position: € 0 million

CONSORZIO STABILE ANSALDO NEW CLEAR

The Ansaldo New Clear (ANC) consortium is composed ofAnsaldo Nucleare (70%), Ansaldo Energia (20%) and Fata



(10%), and was set up to manage the decommissioningcontracts for SOGIN in Italy. During 2016, the consortium acquired a total of € 2 millionin orders, which represent only the start of a longcollaboration.

2016 performance may be summarised as follows:Profit/(loss) for the year: € -1.1 millionRevenue: € 3.3 millionEquity: € -1.2 millionNet financial position: € 1.3 millionHeadcount: 1 employees.

ANSALDO RUSSIA

Ansaldo Energia Russia is based in St Petersburg, Russia. The company was set up to perform service activities usingmaterial supplied by the parent Ansaldo Energia, whileoperating closer to clients in the important Russian market.During 2016, it acquired orders worth € 56.3 million, mainlyfor LTSA activities in the local market.



The outlook for 2017 is moderately optimistic despite thegeneral uncertainty, especially with respect to developmentsin the ongoing economic and financial crisis.

The main indicators that constitute positive elements for theevaluation of the foreseeable performance trend are thefollowing:

• an order backlog worth approximately € 5,337.1 millionas at 31 December 2016, which ensures work for thenext year. These orders are not only significant in termsof their value but also because of the type of productand financial terms agreed, allowing for balancedproduction and cash flow;

• the availability of flexible financial instruments with costscompatible with the Group’s resources which will allowit to meet any cash requirements that may arise in 2017;

• the ongoing improvement of production processeswhich, together with the investments made to increaseefficiency, will lead to improved profitability;

• 2017 will also see an increased offer capacity thanks tothe integration of the portfolio of products deriving fromthe GT26 gas turbine technology.

In consideration of the above, 2017 should therefore seeslightly higher levels of production volume and orders thanin 2016. Your Group will therefore be focussing onmaintaining these targets.

Outlook


Analysis of the parent’s financialposition, financial performanceand cash flows


Revenue 746,621 909,899

746,621 909,899

Purchase and personnel expense (629,360) (768,222)

Other operating net income (expense) 14,985 (351)

Change in work-in-progress, semi-finished products and finished goods (13,019) (5,175)

EBITDA 119,227 136,151

Amortisation and depreciation (41,653) (41,146)

EBITA Adjusted 77,574 95,005

Extraordinary (costs)/ income (9,930) (677)

Termination benefits (3,318) (6,712)

Amortisation of intangible assetsacquired with business combination (34,127) (34,127)

Impairment other activities – (1,850)

EBIT 30,199 51,639

Net financial income (expense) (46,871) (46,047)

Income taxes (9,433) (4,075)

NET RESULT (7,239) 9,667

Economic situation analysis


Financial position

31/12/2016 31/12/2015 Euro/thousand

Non-current assets 1,437,759 1,522,943

Non-current liabilities 332,347 379,912

1,105,412 1,143,031

Inventories 311,797 319,029


Trade receivables 261,383 221,594

Trade payables 282,913 329,397


Working capital (174,547) (235,592)

Current provisions 14,493 18,284

Other net current assets (liabilities) 3,611 (6,022)

Net working capital (185,429) (259,898)

Net invested capital 919,983 883,132

Equity 531,710 537,985


The following table shows the financial position on 31 December 2016 compared to same figures on 31 December2015:






Funds From Operations (FFO) 11,350 16,018

Change in working capital (63,278) 53,343

Cash flows generated from (used in) operating activities (51,928) 69,360


Free operating cash-flow (FOCF) (79,788) 41,183

Strategic transactions (126,981) (13,052)

Change in other investing activities (1) (14,400)

Cash flows generated from (used in) strategic investing activities and other (126,982) (27,452)





Reclassified cash flow statement

The following table shows the reclassified cash flow for the2016 period compared to the same figures in 2015.


Parent separate financial statements

Income statement

Euro of which of which related related 2016 parties 2015 parties

Revenue 746,621,465 52,051,512 909,898,673 88,523,895

Other operating income 24,795,952 – 9,713,029 419,850

Purchases 216,672,202 9,781,111 260,267,006 1,503,950

Services 260,046,663 4,805,506 349,178,196 24,197,390

Personnel expense 167,456,285 169,043,662

Amortisation, depreciation and impairment losses 75,780,663 75,272,604

Other operating expense 9,811,496 5,857 10,063,820 9,454

Change in finished goods, work-in progress and semi-finished products (13,018,726) – (5,174,565) –

(-) Internal work capitalised 1,566,483 – 1,027,473 –

EBIT 30,197,865 51,639,322 –

Financial income 5,526,442 1,887,436 4,194,594 1,513,357

Financial expense 52,396,533 631,007 50,241,512 421,089

Profit (loss) before taxes and discontinued operations (16,672,226) – 5,592,404 –

Income taxes (9,432,892) – (4,074,711) –

Net result (7,239,334) – 9,667,115 –


Statement of Financial Position

Euro of which of which related related 31/12/2016 parties 31/12/2015 parties

Assets

Non-current assets

Intangible assets 1,066,806,647 – 1,113,525,289 –

Property, plant and equipment 210,607,065 – 210,000,194 –

Equity investments 153,112,707 – 41,016,780 –

Receivables 314,163 – 148,116,125 –

Deferred tax assets 6,918,802 – 10,284,529 –

1,437,759,384 1,522,942,917 Current assets

Inventories 311,797,176 – 319,028,888 –

Contract work in progress 107,975,707 – 156,370,956 –

Trade receivables 261,382,830 99,168,381 221,594,067 36,637,786

Tax assets 1,292,584 – 3,568,550 –

Financial receivables 256,850,961 72,635,961 57,734,365 57,734,365

Other current assets 49,076,448 8,644,452 50,629,175 10,951,137

Cash and cash equivalents 171,378,766 – 68,639,239 –

1,159,754,472 877,565,240

Total assets 2,597,513,856 2,400,508,154 –

Equity and liabilities

Equity

Share capital 100,000,000 – 100,000,000

Others reserves 431,709,816 – 437,985,333

Shareholders' equity 531,709,816 – 537,985,333 –

Total equity 531,709,816 – 537,985,333 –

Non-current liabilities

Loans and borrowings 484,577,734 – 411,744,687 –

Employee benefits 19,092,760 – 20,889,405 –

Provisions 233,660,540 – 269,514,395 –

Deferred tax liabilities 77,092,312 – 86,979,081 –

Other non-current liabilities 2,501,016 – 2,529,589 –

816,924,362 791,657,157

Current liabilities

Progress payments and advances from customers 572,789,775 – 603,188,865 –

Trade payables 282,913,826 7,944,356 329,396,961 12,183,857

Loans and borrowings 331,924,931 130,441,541 59,775,831 1,235,487

Provisions 14,492,573 – 18,284,274 –

Derivatives 5,468,135 – 20,930,591 –

Other current liabilities 41,290,438 2,269,441 39,289,145 2,419,849

1,248,879,678 1,070,865,667 –

Total liabilities 2,065,804,040 – 1,862,522,824 –

Total liabilities and equity 2,597,513,856 – 2,400,508,157 –


Statement of cash flows

Euro 2016 2015

Cash flows from operating activities:


Change in working capital (63,278) 53,343


Net interest paid (33,091) (39,687)

Income taxes paid (7,625) (12,493)

Cash flows generated from (used in) operating activities (51,928) 69,360

Cash flows from investing activities:

Acquisitions of companies, net of cash acquired (1) (4)

Sale of investments 1,543 –

Investments in property, plant and equipment and intangible assets (31,560) (29,107)

Sale of property, plant and equipment and intangible assets 1,961 849

Dividends received 196 84

Change in non-current financial assets – (14,400)

Other investing activities – –


Cash flows generated from (used in) strategic investing activities (126,981) (13,052)


Cash flows from financing activities:

bond issues 71,622 354,852



Net increase (decrease) in cash and cash equivalents 102,740 (237,063)




Consolidated Financial Statementsas at 31/12/2016


Consolidated Income Statement

Euro of which of which related related Notes 2016 parties 2015 parties

Revenue 27 1,253,269,527 (532,784) 1,059,736,629 67,594,446

Other operating income 28 29,757,505 – 17,732,791 –

Purchases 29 474,403,502 4,930,756 299,308,575 435,578

Services 29 376,192,522 6,410,396 386,844,766 8,800,165

Personnel expense 30 315,971,239 – 229,685,117 –

Amortisation, depreciation and impairment losses 32 100,445,992 – 80,410,759 –

Other operating expense 28 20,802,583 5,903 20,593,217 24,718

Change in finished goods, work-in-progress and semi-finished products 31 (11,454,471) – (3,744,419) –

(-) Internal work capitalised 33 91,783,636 – 1,030,524 –

badwill, net of integration costs 34 20,448,920 – – –

EBIT 95,989,278 – 57,913,091 –

Financial income 36 7,668,358 – 8,102,872 20,235

Financial expense 36 45,428,856 31,178 51,100,410 408,345

Share of profits (losses) of associates and joint ventures accounted for using equity method 35 (9,830,431) – (5,316,869) –

Profit before taxes and discontinued operations 48,398,349 – 9,598,684 –

Income taxes (12,046,541) – (2,680,341) –

Net result 60,444,890 – 12,279,025 –

- attributable to the owners of the parent 60,558,494 – 12,284,431 –

- attributable to non-controlling interests (113,604) – (5,406) –


Consolidated statement of comprehensive income

Euro/thousand 2016 2015

NET RESULT 60,445 12,279

Other comprehensive income:

Items that will not be reclassified to profit (loss):

– Actuarial gains (losses) on defined benefit plans plan measurement (1,454) (62)

(1,454) (62)

Items that may be reclassified to profit (loss):

- Changes in cash flow hedges: (3,343) 13,167

- fair value gains (losses) (3,355) 6,735

- transfer to profit (loss) of the period 12 6,432

- exchange rate gains (losses)

- Exchange differences – –

- gains (losses) – –

- transfer to profit (loss) of the period – –

- Tax effect 772 (4,514)

Other comprehensive income, net of tax effect (4,025) 8,591

Total comprehensive income 56,420 20,870


Consolidated statement of financial position

Euro of which of which related related Notes 31/12/2016 parties 31/12/2015 correlpartiesate

Assets Non-current assets Intangible assets 7 1,512,339,170 – 1,154,994,107 – Property, plant and equipment 8 235,357,092 – 223,523,972 – Equity investments 9 36,362,824 – 10,437,762 – Non current receivables to related parties 11 – – 147,783,459 – Receivables 11 528,591 – 447,061 – Deferred tax assets 11 20,729,070 – 12,022,038 – 1,805,316,747 1,549,208,399 Current assets Inventories 12 490,182,619 – 340,992,897 – Contract work in progress 13 58,917,680 – 101,989,331 – Trade receivables 14 277,313,693 34,284,645 235,542,867 19,138,068 Tax assets 15 2,424,348 – 5,415,227 – Financial receivables 14 185,590,453 1,235,044 642,904 642,904 Derivatives 3,643,808 – – – Other current assets 16 82,484,527 8,975,028 72,399,355 11,275,586 Cash and cash equivalents 17 250,888,912 – 98,258,938 1,351,446,040 855,241,519 Total assets 3,156,762,787 2,404,449,921 Equity and liabilities Equity Share capital 18 100,000,000 – 100,000,000 Other reserves 18 498,983,223 – 445,740,959 Equity attributable to the owners of the parent 598,983,223 – 545,740,959 Equity attributable to non-controlling interests (122,688) – (9,084) Total equity 598,860,535 545,731,875 Non-current liabilities Loans and borrowings 19 484,643,521 – 412,038,607 Employee benefits 21 35,639,714 – 25,785,234 Provisions 20 252,089,558 – 270,571,680 Deferred tax liabilities 22 170,578,772 – 89,455,817 Other non-current liabilities 22 119,133,359 – 9,967,249 1,062,084,924 807,818,587 Current liabilities Progress payments and advances from customers 13 754,907,020 – 538,323,530 Trade payables 23 382,790,451 7,182,587 366,052,491 5,255,689 Loans and borrowings 19 204,469,071 1,295,429 60,039,633 1,235,487 Tax liabilities 8,598,026 – 396,444 – Provisions 20 12,477,295 – 15,536,833 – Derivatives 24 15,322,380 – 21,280,895 – Other current liabilities 22 117,253,085 – 49,269,633 150,408 1,495,817,328 – 1,050,899,459 – Total liabilities 2,557,902,252 – 1,858,718,046 – Total liabilities and equity 3,156,762,787 – 2,404,449,921 –


Consolidated statement of Cash Flows

Euro/thousand Notes 2016 2015

Cash flows from operating activities:

Gross cash flows from operating activities 38 120,968 140,721

Change in working capital 38 52,775 62,594

Change in other operating assets and liabilities 38 (12,491) (75,450)

Net interest paid (35,254) (42,861)

Income taxes paid (10,898) (13,124)

Cash flows generated from (used in) operating activities 115,100 71,880

Cash flows from investing activities:

Acquisitions of companies, net of cash acquired 1,071 30

Sale of investments 43 -

Investments in property, plant and equipment and intangible assets (122,595) (32,686)

Sale of property, plant and equipment and intangible assets 2,946 1,585

Dividends received 457 351

Other investing activities (2,922) (14,400)


Cash flows generated from (used in) strategic investing activities (42,524) (13,052)


Cash flows from financing activities:



Net increase (decrease) in cash and cash equivalents 152,755 (226,976)

Other changes 232 –

Exchange rate gains (losses) (357) 983




Consolidated statement of Changes in Equity

Euro/thousand Share Retained Hedging Actuarial Other Total capital earnings reserve reserve reserves equity and of the consolidation Group reserve

1 January 2015 100,000 25,593 (14,425) (7,006) 421,329 525,491

Comprehensive income for the year:

Net result – 12,284 – – – 12,284

Other comprehensive expense – – 8,653 (62) – 8,591

Total comprehensive income – 12,284 8,653 (62) – 20,875

Other changes – (366) – – (259) (625)

31 December 2015 100,000 37,511 (5,772) (7,068) 421,070 545,741

Comprehensive income for the year:

Net result – 60,558 – – – 60,558

Other comprehensive expense – – (2,572) (1,454) – (4,026)

Total comprehensive income 60,558 (2,572) (1,454) – 56,532

Additions from business combination – – – (11,707) 19,936 8,229

PPA effect – – – – 122,263 122,263

Other changes – (3,752) – – (130,030) (133,782)

31 December 2016 100,000 94,317 (8,344) (20,229) 433,239 598,983


Notes to the consolidated financial statements as at 31 December 2016

1. General Information

In recent years, the parent, Ansaldo Energia S.p.A., has been affected by changes in its ownership structure due to businesscombinations.The following summary covers the most important dates:• 13 June 2011: Ansaldo Energia S.p.A., which was 100% controlled by Finmeccanica S.p.A., was taken over by Ansaldo

Energia Holding S.p.A., which in turn was 54.5% controlled by Finmeccanica S.p.A. and 45% controlled by First ReservePower Limited;

• 20 June 2012: a reverse merger agreement was stipulated between Ansaldo Energia S.p.A. and its parent companyAnsaldo Energia Holding S.p.A. € 305 million of the excess consideration transferred was allocated to the fair value ofcertain net assets acquired, while € 780 million was recognised as Goodwill;

• 23 December 2013: First Reserve Power Limited sold its investments in Ansaldo Energia S.p.A., Finmeccanica S.p.A.reduced its shares to 15%, and Fondo Strategico Italiano became a shareholder with an interest of 84.55%;

• 30 June 2014: Fondo Strategico Italiano acquired 0.29% of the share capital from some Ansaldo Energia managers, • 3 July 2014: Fondo Strategico Italiano transferred 44.26% of the Ansaldo Energia S.p.A. shares to FSI Investimenti;• 4 December 2014: Fondo Strategico Italiano sold 40% of share capital to Shanghai Electric Hong Kong Co.Ltd.;• 25 February 2016: Through the fully owned subsidiary Ansaldo Energia Holding Italia S.r.l., Ansaldo Energia completed

the operation to purchase part of the Alstom business in the gas turbines sector from General Electric. The entry ofAnsaldo Energia Switzerland AG based in baden (Switzerland) and Power Systems Manufacturing LLC based in Jupiter(Florida) brought new skills, professional profiles and technology to the Ansaldo Energia Group. This aspect has beencovered in more detail in the Director's report;

• 31 March 2016: shareholder Fondo Strategico Italiano changed its name to CDP Equity;• 15 November 2016: shareholder FSI Investimenti transferred ownership of its shares in Ansaldo Energia SpA to CDP

Equity.The Parent’s mission is to perform, in Italy and internationally, industrial, commercial, design, supply, technology assembly,start up and service activities in the power generation Plants and Components service line, as well as in similar service lines,in addition to performing all works connected with the aforementioned activities. Cutting-edge technology, high professionalstandards, extensive production capacity and competitive projects and products have been constant features of the Groupfrom the outset and will drive it forward into the future..

2. Form, contents and accounting policies applied

Ansaldo Energia group’s consolidated financial statements at 31 December 2016 are drafted in accordance with theInternational Financial Reporting standards IAS/IFRS (hereon in IFRS) endorsed by the European Commission pursuant to ECregulation no. 1606/2002 of 19 July 2002, integrated by the interpretations of the Standing Interpretations Committee (SIC)


and the International Financial Reporting Interpretations Committee (IFRIC) issued by the International Accounting Standardboard (IASb) applicable at that date. Cost was the guiding principle used to draft these financial statements, with the exception of headings which the IFRSrequires to be reported at fair value, as indicated in the evaluation criteria for the individual headings.As permitted by IAS 1, assets and liabilities are presented in the statement of financial position as current or non-current,while income statement captions are shown by nature.The statement of cash flows, on the other hand, was prepared using the indirect method.The same accounting policies were used for these consolidated financial statements as for the 2015 financial statements.Amounts are shown Euro/000 unless stated otherwise.Preparation of the consolidated financial statements required management to make estimates.The board of Directors' meeting held on 15 March 2017 approved the draft consolidated financial statements at 31 December2016 for presentation to the shareholders, authorising its publication and calling a Shareholders' Assembly for 20 April 2017and 27 April 2017 in first and second call respectively.These financial statements have been prepared in accordance with the IFRS and audited by PricewaterhouseCoopers S.p.A..

3. Accounting principles

Basis and scope of consolidationThe consolidated financial statements at 31 December 2016 include the financial statements of the companies/entities inthe consolidation scope (the “consolidated entities”) drafted pursuant to the IFRS. The consolidated entities are listed below,together with the Group’s related direct or indirect holdings in them.

Companies consolidated on a line-by-line basis

Company name investments % variation Contribution of to the direct indirect perimeter Group %

Ansaldo Nucleare S.p.A. 100% 100%

Ansaldo Russia 100% 100%

Ansaldo Sviluppo Energia 100% 100%

Ansaldo Swiss AG 100% 100%

Ansaldo Thomassen b.V. 100% 100%

Ansaldo Thomassen Gulf 100% 100%

Asia Power Project Private Ltd 100% 100%

Nuclear Engineering Group Ltd 100% 100%

Yeni Aen Insaat Anonim Sirketi 100% 100%

Consorzio Stabile Ansaldo New Clear 20% 70% 90%

Ansaldo Energia Holding Italia Srl 100% X 100%

Ansaldo Energia Holding uSA Corp. 100% X 100%

Ansaldo Energia IP uK Ltd 100% X 100%

Ansaldo Energia Switzerland AG 100% X 100%

Niehlgas GmbH 100% X 100%

Aliveri Power unit Maintenance SA 100% X 100%

Power Systems Manufacturing LLC 100% X 100%


Companies accounted for using the equity method

Translation of foreign currency captions and financial statements of foreign operations

Identification of the functional currencyThe balances included in the financial statements of each Group company/entity are recognised in the currency of the primaryeconomic environment in which the entity operates.Ansaldo Energia Group’s consolidated financial statements are presented in EuR, which is the functional currency of the parentcompany, Ansaldo Energia S.p.A.

Translation of foreign currency captions Foreign currency monetary items (cash and cash equivalents, assets and liabilities to be received or settled in established ordeterminable monetary amounts, etc.), as well as non-monetary items (advances to suppliers of goods and/or services, etc.),are initially recognised at the exchange rate ruling when the transaction is performed. Subsequently, monetary items aretranslated into the functional currency at the closing rate on the reporting date and any exchange rate gains or losses arerecorded on the income statement. Non-monetary items are maintained at the exchange rate ruling at the transaction date,unless continuing adverse economic trends affect the rate, in which case exchange rate differences are recorded on the incomestatement.

Translation of financial statements expressed in a currency other than the functional currencyFinancial statements expressed in a foreign currency (except for currencies of hyperinflationary economies, which is not currentlythe case of the Group) are translated into the functional currency as follows:• assets and liabilities are translated at the closing rate;• costs and revenue, income and expense are translated at the average exchange rate of the year or at the rate ruling at

the date of the transaction if this varies significantly from the average rate;• exchange rate gains or losses arising from the translation of captions at a rate that differs from the closing rate and from

the translation of opening equity at a rate that differs from the closing rate are taken to the translation reserve. Thetranslation reserve is released to profit or loss when the investment is sold.

.Goodwill and fair value adjustments relating to the acquisition of foreign operations are recognised as assets and liabilities ofthe foreign operation and translated at the closing rate.

Company name investments % variation Contribution of to the direct indirect perimeter Group %

Ansaldo America Latina 100% 100%

Ansaldo Gas Turbine High Technology 60% 60%

NNS Societé de Service pour Reacteur R. 40% 40%

Polaris Srl 49% 49%

Polaris - Anserv Srl 20% 20%

Shanghai Electric Gas Turbine 40% 40%

SPVTCCC bV 100% X 100%

Ghannouch Maintenance S.a.r.l. 100% X 100%


Intangible assets

Intangible assets are identifiable non-monetary assets without physical substance that generate future economic benefits forthe Group. They are recognised at purchase and/or production cost, including directly related charges incurred to preparethem for use and borrowing costs relating to their acquisition, development or production for those assets that require a longtime period before being ready for use or sale. Their carrying amount is net of accumulated amortisation, except for assetswith an indefinite useful life, and any impairment losses. Amortisation begins when the asset becomes available for use andis calculated systematically over the residual useful life of each asset. It is calculated considering the actual use of the asset inthe year in which an intangible asset is initially recognised.

Development expense This caption includes expenditure incurred to apply the results of research and other knowledge to a plan or project for theproduction of new or substantially advanced materials, devices, processes, systems or services before commercial productioncommences or before the assets are used, when the Group can demonstrate that they will generate future economic benefits.It is amortised based on the units of production method over the period in which the expected future economic benefits willflow to the Group (“francobollo”). If the expenditure meets the definition of “non-recurring expense”, it is recognised in aspecific caption within intangible assets. On the other hand, expenditure incurred in a research stage of a project is expensed when incurred.

Industrial patents and intellectual property rightsIndustrial patents and intellectual property rights are recognised at acquisition cost, net of accumulated amortisation andimpairment losses. Amortisation begins when the title to the right is acquired and the asset is ready for use. Assets areamortised over the shorter of their expected useful life and the title term.

Concessions, licences and trademarksThis category includes: concessions, i.e., those public administration measures entitling private sector entities to use publicassets on an exclusive basis or to manage public services under regulated conditions; licences giving the right to use patents orother intangible assets for a fixed term or a term that can be established; trademarks identifying the origin of products or goodsfrom a specific company and licences to use know how, software or the property of others. The costs, including direct andindirect expenses incurred to obtain these rights, are capitalised after the rights have been acquired and are amortisedsystematically over the shorter of the period of expected use and the period for which the right has been acquired.

GoodwillGoodwill recognised as an intangible asset arises from business combinations and reflects an excess in the acquisition cost ofthe business or business unit over the total fair value at the acquisition date of acquired assets and liabilities. As it has anindefinite useful life, goodwill is not amortised. Instead, it is tested for impairment at least once a year, unless the market andmanagement indicators identified by the Group show that the test has to be conducted when preparing interim financialstatements.

Tangible assets

The tangible assets are measured at purchase or production cost, net of accumulated depreciation and any impairment losses.Cost includes direct charges incurred to prepare assets for use and any disposal and removal costs that will be incurred torestore the site to its original conditions and borrowing costs relating to their acquisition, construction or production for thoseassets that require a long time period before being ready for use or sale.Costs for ordinary and/or routine maintenance and repairs are taken directly to profit or loss when incurred. Costs to expand,upgrade or improve owned or leased assets are capitalised only to the extent they meet the requirements to be classifiedseparately as assets or part of an asset. Grants related to assets are taken as a direct decrease in the cost of the asset to which


they relate.The carrying amount of each asset is depreciated on a systematic basis. Depreciation is calculated on a straight-line basis eachyear over the residual useful lives of assets. It is calculated considering the actual use of the asset in the year in which a tangibleasset item is initially recognised. The following table lists the depreciation periods for the various types of assets:

Years

Land indefinite useful life

Industrial buildings 33

Plant and machinery 20-5

Equipments 8-2,5

Furniture and fittings 8-5

Vehicles 5-4

The Group regularly reviews the estimate of their useful lives and residual values.Depreciation ceases when the asset is sold or reclassified as held for sale.If a depreciable asset is comprised of separately identifiable components with useful lives that differ significantly from theother components comprising the asset, depreciation is calculated separately for each component, using the componentapproach. The caption also includes tooling equipment allocated to specific programmes, which is however depreciated using the unitsof production method, like the other “non-recurring expense”.Profits and losses on the sale of assets or groups of assets are measured by comparing the selling price with the related carryingamount.

Impairment losses

Assets with an indefinite useful life are not depreciated/amortised, but are tested for impairment at least annually.Depreciable assets are tested to check whether there is any internal or external indication that they may be impaired. If anysuch indication exists, the recoverable amount of the asset is estimated and any excess thereof is recognised in profit or loss.

Equity investments

The Group classifies its equity investments as follows:• “Non-consolidated subsidiaries”, in which the investor has the power to govern the financial and operating policies so as

to obtain benefits from its activities;• “associates”, in which the investor has significant influence (at least 20% of voting rights in the ordinary shareholders’

meetings);• “parent companies” when the investee company holds shares in its own parent;• “other companies” that do not fall within either of the above categories.

All the companies controlled by the Group's Parent Company have been included within the scope of the consolidation.

SubsidiariesControl is defined as the power to determine the operating and financial policies of a company. The existence of control isdetermined on the basis of: voting rights, including potential ones, held by the Group and which allow the Group to hold amajority in the ordinary Shareholders meeting; the content of any agreements between the shareholders, or the existence ofparticular statutory clauses which give the Group the power to manage the company; the Group’s control of a sufficient


number of votes to exercise de facto control of the subsidiary’s ordinary Shareholders meeting.Revenues and expenses are included in the consolidated financial statements starting from the date control is acquired andup to the date when control is lost. Receivables and payables, as well as revenues and expenses deriving from intercompanytransactions in the consolidation area are entirely eliminated; profits deriving from the transfer of fixed assets betweenconsolidated companies, the profits from transactions between consolidated companies related to asset transfers which remainas stock in the purchasing company, devaluations and value adjustments of investments in consolidated companies, profitsderiving from transactions between consolidated companies and intragroup dividends are also eliminated. The assets, liabilities, costs and revenues of subsidiaries are included for their total amount assigning to minority shareholdersthe share pertaining to them of equity and net income.The financial statements of subsidiaries are adjusted to ensure the accounting principles are consistent with those adopted bythe Group.The year-end date of the subsidiaries is aligned with that of the Parent Company; if this does not occur, the subsidiaries preparespecial financial statements for the parent company's use.

Joint control agreementsA joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractuallyagreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require theunanimous consent of the parties sharing control.Joint arrangements are either joint operations or joint ventures.A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to theassets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. A joint operatoraccounts for the assets, liabilities, revenues and expenses relating to its involvement in a joint operation. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the netassets of the arrangement. Those parties are called joint ventures. A joint venture recognises its interest in a joint venture as an investment and shallaccount for that investment using the equity method.

AssociatesInvestments in associated companies are valued according to the equity method. An associate is a company whose operationaland financial policies are influenced by the Group, but does not qualify as a subsidiary or a joint venture. under the equitymethod, an investment in an associate is recognised at cost plus any post-acquisition changes in the Group's share of theassociate's net assets. Goodwill pertaining to the associate is included in the carrying amount of the investment and is not amortised. Profits andlosses arising from transactions between the Group and the associate are eliminated in proportion to the interest held by theGroup. The financial statements of subsidiaries evaluated using the equity method are adjusted to ensure the accountingprinciples are consistent with those adopted by the Group.

Business combinationsbusiness combinations are accounted for in the financial statements as follows:– the acquisition cost is determined on the basis of the fair value of the assets transferred, the liabilities assumed, or of the

shares given to the seller to gain control;– the charges relating to business combinations are expensed in the period they are incurred;– the fair value of the shares given is determined based on the Stock Exchange price on the exchange date;– in cases in which the agreement with the seller includes a price adjustment based on the profitability of the acquired

business during a defined time period or at a pre-determined future date (earn-out), such adjustment is included in thepurchase price as at the acquisition date and is valued at the fair value on the acquisition date;

– at the acquisition date, the assets and liabilities, including contingent ones, in the purchased company are valued at theirrespective fair values on such date. The value of such assets is also determined taking into account the potential taxbenefits applicable to the jurisdiction of the assets acquired;


– when the values of the acquired assets, liabilities and contingent liabilities differ from their tax values at the purchasedate, assets and liabilities for deferred taxes are recorded;

– any difference between the acquisition cost and the corresponding share of the net assets acquired is attributed togoodwill, if positive, or to the income statement if negative;

– the revenues and expenses are included in the consolidated financial statements starting from the date control is acquiredand up to the date when control is lost.

The shares intended to be sold, such as those acquired for the sole purpose of being sold within the following twelve months,are classified separately under “assets held for sale”.

Inventories

Inventories are measured at the lower of cost and net realisable value. Cost is calculated using the weighted average costmethod. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion andthe estimated costs necessary to make the sale. Produced raw materials are measured at standard cost, which is reviewedhalf-yearly.Work-in-progress and semi-finished products are measured at production cost, excluding borrowing costs and overheads.

Contract work in progress

Contract work in progress is recognised in accordance with the percentage of completion method whereby contract cost,revenue and profits (losses) are recognised using the percentage of completion method. The stage of completion is calculated on the basis of the ratio of costs incurred at the measurement date and the expectedoverall costs for the contract.The measurement reflects the best estimate of the stage of completion at the reporting date. The Group periodically updatesthe assumptions underlying these measurements. Any profits or losses are recognised in the year in which the adjustmentsare made. The expected loss on a contract affecting operating profit is recognised entirely under operating expense when it becomesreasonably foreseeable. Similarly, any reversal thereof is recognised under other operating income, if related to internal costs.External costs are covered directly through utilisation of the provision for expected losses to complete contracts. Contract work in progress is recognised net of any allowances, expected losses and progress payments and advances relatingto contracts in progress. This analysis is performed individually for each contract, recognising the positive difference (contract work in progress in excessof progress payments and advances) under contract work in progress and the negative difference under “progress billings”.If the amount recognised under progress billings is not collected at the preparation date of the annual and/or interim financialstatements, a balancing entry is recognised under trade receivables.Contracts with consideration in a currency other than the functional currency (Euros in this case) are measured by translatingthe portion of consideration accrued, as per the percentage of completion method, at the closing rate. However, under theGroup’s policy governing currency risk, all contracts whose cash inflows and outflows are significantly exposed to exchangerate fluctuations are adequately hedged: In this case, the recognition procedures set out below.

Financial assets

The Group classifies its financial assets as follows:• financial assets at fair value through profit or loss;• loans and receivables;


• held-to-maturity investments;• available-for-sale financial assets.

Financial assets are classified by management upon initial recognition.

Financial assets at fair value through profit or lossThis category includes financial assets acquired for the purpose of trading in the short term or designated as such bymanagement, in addition to derivative instruments, in relation to which reference should be made to the paragraph below.The fair value of these instruments is based on the bid price at the reporting date. In the case of unlisted instruments, the fairvalue is calculated using common financial valuation techniques. Variations in fair value gains or losses on the financial instruments included in this category are recognised immediately on theincome statement.Classification as current or non-current reflects management expectations about trading: they are included under currentassets when they are expected to be traded within 12 months of the reporting date or when they are recognised as held fortrading.

Loans and receivablesThis category includes non-derivative financial assets with fixed or determinable payments that are not quoted in an activemarket. They are initially recognised at fair value and are subsequently measured at amortised cost, using the effective interestmethod. If there is objective evidence of impairment, the carrying amount of the asset is reduced to that of the currentexpected future cash flows: impairment losses identified by means of impairment tests are recognised in profit or loss. If, in subsequent years, the reasons underlying the impairment loss cease to exist, the impairment loss is reversed to the extentof the carrying amount the asset would have had based on amortised cost had the impairment not been recognised. Theassets are classified as current, except for the portion due after 12 months, which is included under non-current assets.

Held-to-maturity investmentsThese are non-derivative financial assets with fixed maturity that the Group has the positive intention and ability to hold tomaturity. They are classified under current assets when their contractual maturity is within 12 months. If there is objective evidence ofimpairment, the carrying amount of the asset is reduced to that of the expected discounted future cash flows: impairmentlosses identified by means of impairment tests are recognised in profit or loss. If, in subsequent years, the reasons underlyingthe impairment loss cease to exist, the impairment loss is reversed to the extent of the carrying amount the asset would havehad based on amortised cost had the impairment not been recognised.

Available-for-sale financial assets These are non-derivative financial assets that are designated as available for sale or are not classified under any of the abovecategories. They are measured at fair value, calculated on the basis of market prices at the reporting date or using valuation techniques,and fair value gains or losses are taken to equity (to the “fair value reserve”). They are only reclassified to the income statement when the financial asset is actually sold or, in the case of cumulative losses,when it is clear that the loss recognised in equity will not be recovered. Classification under current or non-current assets depends on management intentions and the asset’s actual tradingpossibilities. Assets that are expected to be realised within 12 months are recognised as current assets. If there is objective evidence of impairment, the carrying amount of the asset is reduced to that of the expected discountedfuture cash flows: impairment losses previously in profit or loss are recorded in the income statement. The impairment loss isreversed if the underlying reasons cease to exist.


Derivatives

Derivatives are always classified as assets held for trading and measured at fair value on the income statement, unless theyqualify for hedge accounting and are effective in hedging the underlying assets, liabilities or commitments of the Group.Specifically, the Group uses derivatives exclusively as part of its strategies of hedging the risk of fluctuations in the fair valueof recognised assets or liabilities or due to contractual commitments (fair value hedges), or in the expected cash flows ofcontractually-defined or highly probable future transactions (cash flow hedges). Reference should be made to apposite notefor details on the recognition of currency risk hedges on long-term contracts. The effectiveness of hedges is documented at the inception of the transaction, as well as periodically at each annual or interimreporting date. Hedge effectiveness is measured by comparing the variations in the fair value of the hedging instrument withthose of the hedged item, or, for more complex instruments, using statistical analysis based on risk variations.

Hedging construction contracts against currency riskTo avoid the risk of fluctuations in foreign currency cash inflows and outflows on construction contracts, the Group specificallyhedges the individual cash flows expected on the contract. Hedges are made on finalising the contracts, unless previous framework agreements exist that make contract acquisitionhighly likely. Currency risk is usually hedged using plain vanilla (forward) instruments. If the hedge is not deemed effective, fair value gainsor losses on these instruments are immediately expensed as financial items and the related underlying item is measured as ifit were not hedged, hence it is exposed to the currency risk. Hedges which fall under the first type of instrument are recognised as cash flow hedges, considering the premium or thediscount as the ineffective portion in the case of forwards, or time value in the case of options. The ineffective portion isrecognised under financial items.

Fair value HedgesChanges in the fair value of derivatives designated as fair value hedges and which qualify as such are recognised on theincome statement, as are changes in the fair value of the underlying assets or liabilities attributable to the risk eliminated bythe hedging transaction.

Cash Flow HedgesChanges in the fair value of derivatives designated as cash flow hedges and which qualify as such are recognised to the extentof the portion determined to be “effective”, in a specific equity reserve (“hedging reserve”). This is subsequently reclassified on the income statement when the forecast transaction affects profit or loss. The change inthe fair value of the ineffective portion is recognised immediately in profit or loss. If the forecast transaction is no longer highlyprobable, the relevant portion of the “hedging reserve” is released immediately to profit or loss. If the hedging instrument is sold or no longer effectively hedges the risk for which it was agreed, the relevant portion of the“hedging reserve” is retained in equity until the underlying transaction affects profit or loss.

Fair value measurementThe fair value of financial instruments quoted on active markets is calculated using the bid price at the reporting date. Thefair value of unlisted derivatives is measured using financial valuation techniques. Specifically, the fair value of interest rate swaps is calculated discounting the future cash flows, while that of currency forwardsis determined on the basis of market rates at the reporting date and the exchange rate spreads between the relevant currencies.The derivative financial instruments on interest rates and currencies (instruments not listed on the official markets) are valuedbased on their respective mark to market values on the date of the report, which is determined internally based on the interestrate and foreign exchange curves, and is integrated by a credit/debit value adjustment. These credit/debit value adjustments are supported by the evaluations of credit institutions.


Cash and cash equivalents

This caption includes cash on hand, deposits and accounts with banks or other credit institutions available for currenttransactions, post office current accounts and other cash equivalents as well as investments maturing within three months ofthe acquisition date. They are recognised at fair value.

Equity

Share capitalShare capital is comprised of the parent’s subscribed and paid-in share capital. Any costs closely related to the issue of sharesare classified as a decrease in share capital when they are directly related to such operation, net of any deferred taxation.

Earnings Per Share a) Earnings Per Share - basic

The basic earnings per share is calculated by dividing the profit attributable to the Group by the weighted average numberof ordinary shares outstanding during the financial year, excluding treasury shares.

b) Earnings Per Share - diluted The diluted earnings per share is calculated by dividing the profit attributable to the Group by the weighted averagenumber of ordinary shares outstanding during the financial year, excluding treasury shares. In order to calculate the dilutedearnings per share, the weighted average number of shares outstanding is adjusted by assuming all the owners willexercise rights that will have a potentially dilutive effect, while the profit attributable to the Group is adjusted so as totake into account any of these potential effects, excluding taxes.

Financial and other liabilities

They are initially recognised at fair value, less any transaction costs, and subsequently measured at amortised cost, using theeffective interest method. They are classified under current liabilities, unless the Group has the contractual right to settle its obligations after at least 12months of the interim or annual reporting date.

Tax

The Group’s tax expense includes current and deferred taxes. When they refer to income and expense recognised in equitythrough other comprehensive income, they are offset against the same caption.Current taxes are calculated on the basis of the tax legislation applicable in the countries where the Group operates, enactedat the reporting date. Any risks arising from different interpretations of income and expense, as well as pending litigation with the tax authoritiesare assessed at least quarterly in order to adjust the relevant provisions.Deferred taxes are recognised in respect of temporary differences between the carrying amounts of assets and liabilities andtheir tax base. Deferred tax assets and liabilities are measured at the tax rates that are expected to be enacted when realisingassets and settling liabilities, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable profits will be available in the yearsthe related temporary differences reverse against which the deductible temporary differences can be utilised.


Employee benefits

Post-employment benefitsSeveral pension (or supplementary) schemes are in place. They can be analysed as follows:• Defined contribution plans under which the Group pays fixed contributions into a separate entity (e.g. a fund) and has

no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay employeesbenefits relating to employee service. Contributions payable to a defined contribution plan are recognised only when employees have rendered service inexchange for such contributions;

• Defined benefit plans whereby the Group has an obligation to provide the agreed benefits to current and former employeesand bears the actuarial and investment risks of the plan. The cost of this plan is therefore not defined in terms of the contributions due for the financial year, but is ratherrecalculated based on the dynamics of the wages and certain demographic and statistical assumptions. The methodutilised is defined as the “projected unit credit method”.

The Group recognises this type of plan using the equity option method, whereby the carrying amount of the recognisedliability reflects that of the relevant actuarial valuation, fully and immediately recognising actuarial gains and losses when theyarise in other comprehensive income through equity in the “actuarial reserve”.

Other long-term employee benefits and post-employment benefitsSome Group employees are granted certain benefits such as jubilee benefits and seniority bonuses which are sometimes paidafter retirement (such as medical benefits). The accounting treatment is the same as that applied to defined benefit plans, hence the “projected unit credit method” isused.However, with respect to “other long-term benefits”, any actuarial gains and losses are recognised immediately and entirelyin profit or loss when they arise.

Termination benefitsTermination benefits are recognised as a liability and an expense when the Group is demonstrably committed to terminatingthe employment of an employee or Group of employees before the normal retirement date or providing termination benefitsas a result of an offer made in order to encourage voluntary redundancy. Termination benefits do not generate future economicbenefits for the Group and, accordingly, are immediately expensed.

Stock grant plans Stock grant plans were in place for the Group companies’ senior management in the previous year. In this case, the theoreticalbenefits granted to the beneficiaries were recognised in profit or loss for the years covered by the plan, with a balancing entryin equity. These benefits are calculated by measuring the fair value of the relevant instrument using valuation techniqueswhich include market conditions, if any, and by adjusting the number of options that are expected to be granted at eachannual or interim reporting date.

Provisions

Provisions are recognised if, at the reporting date, as a result of a past event, the Group has a legal or constructive obligationthat will lead to an outflow of resources which can be estimated reliably. The amount recognised as a provision is the bestestimate of the discounted outlay required to settle the obligation. The discount rate used reflects current market assessmentsand the additional effects of the risk specific to the liability.Changes in estimates are recognised in profit or loss when they take place.


Expected costs to complete construction contractsThe Group operates in extremely complex business areas and with complex contractual arrangements which are recognisedusing the percentage of completion method. The margins recorded on the income statement depend on both the order and the margins forecast from the entire projecton completion. Consequently, for the purposes of correctly recognising work in progress and profits related to works yet to be completed,management is required to make an accurate estimate of expected costs to complete, expected increases and delays, additionalcosts and penalties which could have an impact on the expected profit. In order to better assist management’s estimates,contract risk management and analysis procedures have been introduced to identify, monitor and quantify the risks related tocontract performance. Carrying amounts reflect management’s best estimate at that time, assisted by the above proceduraltools.Moreover, the Group operates in markets where disputes tend to take a long time to settle especially when state bodiesare involved. This requires that management predicts the outcome of such disputes. The main disputes where the risk is “probable” or “possible” (the latter are not provided for) are commented on later on.

Emission rightsThe Group recognises only those transactions for the purchase and/or sale of the emission allowances to cover any differencesbetween allowances assigned and actual emissions generated.

Leasing

Operating leases Operating lease income and expense are taken to profit or loss over the lease term.

Revenue

Revenue is measured at the fair value of the consideration received, net of any discounts and volume rebates.Revenue also includes changes in work in progress, with respect to which reference should be made to the previous note.Revenue relating to the sale of goods is recognised when the Group has transferred to the buyer the significant risks andrewards of ownership of the goods which generally coincides with transfer of title or possession to the buyer, or when therevenue can be measured reliably. Revenue from the rendering of services is recognised based on the percentage of completion method, provided that it can beestimated reliably.

Grants

Grants are recognised on an accruals basis and in direct correlation with costs incurred when their allocation has been formallyapproved. Specifically, grants related to assets are recognised in profit or loss directly in line with the depreciation/amortisation of theassets/projects to which they relate and are recognised as a direct reduction in depreciation/amortisation. In the statement offinancial position, they are recognised as a direct reduction of the capitalised asset to the extent of the residual amount notyet recognised in profit or loss.

Expenses

Costs are recognised if they are pertinent to the Group’s business and on an accruals basis.


Financial income and expense

Interest income and expense are recognised on an accruals basis using the effective interest method, i.e., at the interest ratethat makes all cash inflows and outflows (including any premiums, discounts, commissions, etc.) comprising the transactionfinancially equivalent.borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takesa substantial period of time to get ready for its intended use or sale (qualifying assets) are capitalised as part of the cost ofthat asset.

DividendsDividends are recognised when the right to receive payment is established. This usually coincides with the shareholders’resolution approving their distribution.Dividends paid to the shareholders are considered as a change in equity and recognised as a liability in the year in which thedistribution was approved by the parent’s shareholders.

Related party transactions

Related party transactions take place on an arm’s length basis.


4. New Standards and Interpretations implemented by the EU and in force from 1 January 2016

under IAS 8 (Accounting policies, changes in accounting estimates and errors), the IFRS in force from 1 January 2016 arebriefly illustrated below.

Amendments to IFRS 11 (Joint control arrangements): Accounting of the acquisition of an interest in JointArrangementsOn 24 November 2015, Eu Regulation 2015/2173 was issued, implementing certain amendments, with a limited impact, toIFRS 11 (Joint Control Arrangements) on a community level.IFRS 11 governs the accounting of interests in Joint Ventures and Joint Operations. These amendments add new guidelineson how to record the acquisition of an interest in a Joint Operation that constitutes a business (as defined under IFRS 3 -business Combinations).The changes specify how these acquisitions should be handled.

Amendments to IAS 16 (Property, plants and equipment) and IAS 38 (Intangible assets)On 2 December 2015, Eu Regulation 2015/2231 was issued, implementing certain amendments, with a limited impact, toIAS 16 (Property, plants and equipment) and IAS 38 (Intangible assets).both IAS 16 and IAS 38 envisage depreciation on the basis of the expected pattern of consumption of the future economicbenefits of an asset.The modification clarifies that the use of a depreciation method based on revenues is not considered appropriate. Exclusivelyrelating to intangible assets, this indication may be disregarded only in the following circumstances: (i) the right to use anintangible asset is linked to reaching a certain threshold of revenues to be produced; or (ii) the production of revenues andthe use of the economic benefits of the asset are shown to be closely linked.

IFRS improvements (2012-2014 cycle)On 15 December 2015, Eu Regulation 2015/2343 was issued, implementing on a community level a collection of IFRSimprovements for the 2012-2014 cycle. Regarding these amendments, we note:• IFRS 5 Non-current assets held for sale and discontinued operations - the amendments involve changes to the methods

of disposal (held for sale or for distribution to owners, and vice versa);• IFRS 7 Financial instruments: disclosures - the amendments affect the disclosure of servicing contracts, in terms of

continuing involvement, and the applicability of the disclosure required by IFRS 7 for the compensation between financialassets and liabilities in interim reporting;

• IAS 19 Employee benefits - the modification affects the discount rate used to calculate liabilities for benefits continuingafter the termination of employment (rate in the market area of reference);

• IAS 34 Interim financial reporting - the modification clarifies how information included in interim reports can be integratedwith other information available in other sections of the interim report (e.g. Director's report) by incorporation throughreference.

Amendments to IAS 1 (Presentation of financial statements) - Disclosure initiativeOn 18 December 2015, Eu Regulation 2015/2406 was issued, implementing certain amendments to IAS 1 (Presentation offinancial statements) - Disclosure initiative.

In particular, the amendments, which are part of a wider initiative to improve the presentation of and disclosure in financialstatements, include updates to the following areas:– materiality: the amendments specify that the concept of materiality applies to the financial statements as a whole, and

that including immaterial information can negatively affect the effectiveness of financial reporting; – disaggregation and subtotals: the amendments clarify that it is possible to disaggregate the specific line items in the

separate income statement, overall income statement and statement of financial position. They also introduce newrequirements for using subtotals;


– structure of notes: the amendments specify that companies have a certain amount of flexibility regarding the order inwhich notes are presented. When deciding the order, the company must take account of the comprehensibility andcomparability requirements for financial statements;

– investments accounted for under the equity method: the share of other comprehensive income arising from investmentsin associates or joint ventures accounted for under the equity method must be divided between the items that will or willnot be reclassified to the income statement.

5. New Standards and Interpretations issued by IASB but not yet applicable

On the date of drafting these consolidated financial statements, the following new Principles/Interpretations had been issuedby IASb, but were not yet effective.

New Principles/Interpretations implemented by the EU Obligatory application as of

IFRS 15 ((Revenue from contracts with customers) 1/1/2018

IFRS 9 (Financial instruments) 1/1/2018

New Principles/Interpretations not yet implemented by the EU

IFRS 16 (Leasing) 1/1/2019

Amendments to IFRS 10 (Consolidated financial statements) Application indefinitelyand IAS 28 (Investments in associates and joint ventures): sale or transfer postponedof assets between an investor and its associate/joint venture

Amendments to IAS 12 (Income taxes - Recognition of deferred tax assets on unrealised losses) 1/1/2017

Amendments to IAS 7 (Statement of cash flows - Disclosure initiative) 1/1/2017

Clarifications on IFRS 15 ((Revenue from contracts with customers) 1/1/2018

Amendments to IFRS 2 (Classification and measurement of share-based payment) 1/1/2018

Improvements to IFRS (2014-2016 cycle) - Amendments to IFRS 12 and IAS 28 1/1/2017 for IFRS 121/1/2018 for IAS 28

IFRIC 22 (Foreign currency transactions and advance consideration) 1/1/2018

Amendment to IAS 40 (Investment property) 1/1/2018

The impact of the new Principles/Interpretations on the Group's consolidated financial statements is still being assessed. Inparticular, specific Group projects will be evaluating the implementation of IFRS 15, IFRS 16 and IFRS 9, and a reliable estimateof the effects will only therefore be available once the projects have been completed.

IFRS 15 ((Revenue from contracts with customers)On 22 September 2016, Eu Regulation 2016/1905 was issued, implementing IFRS 15 (Revenue on contracts with customers)


and the relative amendments on a community level. The Clarifications on IFRS 15 issued by IASb in April 2016 have not yetbeen implemented by the Eu. IFRS 15 will replace the standards that currently govern how revenues are recorded, i.e. IAS 18 (Revenue), IAS 11 (Constructioncontracts) and the relative interpretations on recording revenue (IFRIC 13 Customer loyalty programmes, IFRIC 15 Agreementsfor the construction of real estate, IFRIC 18 Transfers of assets from customers and SIC 31 Revenue – Barter transactionsinvolving advertising services).

IFRS 15 applies retrospectively as at 1 January 2018 - or one of the following methods may be chosen in alternative:• the “complete retrospective method” which involves recalculating all periods presented for comparison in the financial

statements;• the “simplified retrospective method” which calculates the cumulative effect of the first application of the principle to

adjust the opening equity for the period in which the principle is introduced. The values for all the periods presented inthe financial statements for comparison remain unvaried.

IFRS 16 (Leasing)In January 2016, IASb issued IFRS 16 (Leasing). IFRS 16 replaces IAS 17 (Leasing) and the relative Interpretations (IFRIC 4Determining whether an arrangement involves a lease; SIC 15 Operating leases - Incentives; SIC 27 Evaluating the substanceof transactions in the legal form of a lease).

IFRS 16 applies retrospectively as at 1 January 2019 - or one of the following methods may be chosen in alternative:• the “complete retrospective method” which involves recalculating all periods presented for comparison in the financial

statements;• the “simplified retrospective method” which calculates the cumulative effect of the first application of the principle to

adjust the opening equity for the period in which the principle is introduced, without therefore recalculating the periodspresented for comparison.

The standard may be applied in advance, but only if IFRS 15 (Revenue from contracts with customers) is also applied. IFRS 16has not yet been implemented by the Eu.From the tenant’s point of view, IFRS 16 requires all leasing operations (with no distinction between operating leases andfinancial leases) to be recorded in the statement of financial position as a liability, represented by the current value of futurepayments, balanced by an item under assets entitled ‘right to use the assets leased’. Leasing contracts lasting less than 12months and leasing of low-value assets may be excluded from the application of IFRS 16.

IFRS 9 (Financial instruments)On 22 November 2016, Eu Regulation 2016/2067 was issued, implementing IFRS 9 (Financial instruments) on a communitylevel. This standard reviews the classification, measurement and cancellation of financial assets and liabilities, the reduction in valueof financial instruments and the recording of hedging operations.IFRS 9 must be applied from 1 January 2018.

6. Segment reporting

For the purposes of IFRS 8 - Operating segments, the Group's activities belong to a single operating segment, namely that ofenergy.

While noting the heavily transversal nature of its activities, on a managerial level the Group has also further based itsorganisation on a structure that, in turn, is divided into service lines and geographical areas.


The Group has thus identified the following service lines: Plants and components, Service, and other less important areas suchas Renewable energy and Nuclear. The geographical area scheme, on the other hand, in which the risks and benefits are alsosignificantly influenced by the fact that the company operates in different countries or different geographical areas, has beenevaluated as secondary.

For a more detailed analysis of each service line, please refer to the Report on Operations.

In order to complete the disclosures, the following table shows the breakdown of the revenue by service line and bygeographical area, as well as the detail of the gross margin (defined as the difference between revenue and cost of production)for each service line, both of which are compared to the values for the same period last year.

Revenue 574,883 595,313 83,074 1,253,270

Gross Margin 91,793 178,005 10,601 280,399

Revenue 589,880 373,843 96,014 1,059,737

Gross Margin 89,295 107,570 15,120 211,985

Furthermore, the following table shows the revenue by geographical area (or rather allocated based on the countries in wherethe customers are based) and the fixed assets by geographical area (which instead are allocated based on their specific loca-tions):

Euro/thousand REvENUE NON-CURRENT ASSETS 2016 2015 31/12/2016 31/12/2015

Italy 196,372 201,701 1,583,749 1,342,441

EuropE/CIS*/Africa/ Middle East 615,757 722,825 165,204 198,955

America 172,058 48,203 21,674 –

Asia/ Australia 269,083 87,008 34,690 7,812

1,253,270 1,059,737 1,805,317 1,549,208

* CIS = Commonwealth of Independent States

Euro/thousand Ansaldo Energia Ansaldo Energia Ansaldo Energia Ansaldo Energia Group - New Units Group - Service Group - Group - 2016 Operation Operation Nuclear Service Line

2015 Ansaldo Energia Ansaldo Energia Ansaldo Energia Ansaldo Energia Group - New Units Group - Service Group - Group - Operation Operation Nuclear Service Line


7. Intangible assets

Intangible assets amount to € 1,512,339 thousand and include development activities for € 98,480 thousand, and assetsunder development relating to research projects for € 53,323 thousand.

Euro/thousand Goodwill Develpment Patent Concessions, Intangible Other Total expenses and licenses and assets assets similar trademarks acquired under rights through develop. business combin. (PPA)

1 January 2015, broken down as follows:

Cost 806,778 16,886 367 94,189 358,520 67,293 1,344,033

Amortisation and depreciation – 15,106 367 6,826 103,176 17,482 142,957

Carrying amount 806,778 1,780 – 87,363 255,344 49,811 1,201,076

Investments – – – – – 7,417 7,417

Sales – – – – – – –

Amortisation and depreciation – 17,461 – 1,090 35,423 1,707 55,681

Reclassifications – 55,136 – – – (52,958) 2,178

Other changes 12 – – – – (10) 2

31 December 2015, broken down as follows:

Cost 806,791 69,833 367 93,739 358,520 21,426 1,350,676

Amortisation and depreciation – 30,378 367 7,466 138,599 18,872 195,682

Carrying amount 806,791 39,455 - 86,273 219,921 2,554 1,154,994

Additions from business combination - 5,410 - - - 28,126 33,536

Investments - 65,368 - – - 26,655 92,023

Sales - - - - - - –

Amortisation and depreciation – 18,593 - 554 49,854 – 69,001

Reclassifications – 6,623 - (1,435) - (5,188) -

Other changes (13) 217 - 258 299,149 1,176 300,787

31 December 2016, broken down as follows

Cost 806,778 239,043 367 93,743 657,669 71,927 1,869,527

Amortisation and depreciation 140,563 367 9,201 188,453 18,604 357,188

Carrying amount 806,778 98,480 - 84,542 469,216 53,323 1,512,339


During 2016, the parent company continued with some projects with a high innovation content justifying their capitalisationfor € 6,287 thousand, which includes the acquisition of a long lease for land in the Ilva area, where we plan to build the newturbine assembly workshop, for a total of € 1,150 thousand. The acquisition of PSM and AES, together with the new GT26 and GT36 technology, contributed to significantly increasedevelopment activities.The biggest development project is for the prototype of the GT36 turbine, mainly performed by AES.

As described above, € 1,275,994 thousand (including goodwill of € 806,778 thousand) arose from the purchase price allocationrequired by IFRS 3 as a result of the merger in 2012 with Ansaldo Energia Holding S.p.A. and the acquisition of the groupNEG.The other assets from the PPA of the Gastone project amount to € 299,149 thousand.The parent also wrote-down some Research and Development components for € 15 million, following a reduction in theirforecast future earnings.

GoodwillThis item includes € 780 million from the parent company Ansaldo Energia and € 26 million from the NEG acquisition describedabove.As required by IAS 36, the goodwill recorded on the financial statements (€ 780 million) and other items of net invested capitalhave been tested for impairment.During the impairment testing for the year, the parent identified a single CGu operating in the energy segment alone.The recoverable value of the only CGu found, in terms of value of use, was calculated using the Discounted Cash Flow (DCF)method that discounts cash flow generated from the activity itself (net of taxation) at a rate representing the weighted averagecost of capital (WACC)The main assumptions adopted to calculate the recoverable amount are the discount rate (WACC), the annual terminal growthrate and the forecast cash flow in the period of reference.The WACC used to discount future cash flows is 8.1%, the same as that used for the impairment testing applied to the energysegment. This rate represents the financial structure of the entity to which the cash-generating units belong and the cost of the financialmeans used, including both debt and equity.The annual terminal growth rate is 1.7%, estimated also considering the fast growing markets in which the Group mainlyoperates.Net present value is obtained by discounting the explicit and implicit cash flows (terminal value) included in the 2016-2021business Plan. The resulting value was compared with adjusted net invested capital. The analysis performed did not highlight any need to write down goodwill as at 31 December 2016.

Moreover, the sensitivity of the model has been tested by changing the above-mentioned parameters (WACC, growth rate,forecast cash flow) in order to test its soundness and validity, including when different assumptions to those used in the basicversion are considered. The determined value of use is subject to the following variations in the applied parameters:– increase of the WACC by 0.5%: € 179 million– 0.5% decrease in growth rate (g): € -145 million– 10% decrease in EbITDA: € 237 million

Even considering all of the scenarios reported above, the carrying amount of the goodwill is recoverable.


8. Tangible assets

The tangible fixed assets are net of accumulated depreciation.The land and buildings mainly consist of the Genoa-Campi industrial sites and the building in Tehran that houses the Iranianbranch.The net increase of € 11,833 thousand on the previous year is mainly due to the following factors.

• Capitalisations for plants that entered into production, mainly for the parent company activities:– A manufacturing department dedicated to repairing hot blades, with a laser cladding system and horizontal vacuum

oven used for heat treatments (€ 2,153 thousand);

Euro/thousand Land Buildings Equipments Others Asset under Total and machinery construction buildings and payments on account

1 January 2015, broken down as follows:

Cost 180,576 249,393 65,829 26,694 19,876 542,368

Amortisation and depreciation 57,801 184,648 54,535 20,355 – 317,339

Carrying amount 122,775 64,745 11,294 6,339 19,876 225,029

Investments 105 1,042 438 611 23,071 25,267

Sales 648 22 4 – 789 1,463


Additions from business combinations – – – 142 – 142

Reclassifications 742 15,993 2,500 2,562 (22,913) (1,116)

Other changes 486 144 23 83 8 744


Cost 181,350 262,517 68,456 29,736 19,253 561,312


Carrying amount 118,316 68,271 10,128 7,556 19,253 223,524

Investments 18 3,279 236 735 26,304 30,572

Sales 99 1,165 1 78 1,888 3,231


Additions from business combinations 2,787 10,927 172 448 160 14,494

Reclassifications 860 13,141 10,020 1,416 (25,437) –

Other changes 140 (29) (94) (85) 229 161


Cost 190,110 351,705 79,024 34,247 18,621 673,707

Amortisation and depreciation 73,925 274,456 63,209 26,760 - 438,350

Carrying amount 116,185 77,249 15,815 7,487 18,621 235,357


– The completion of the re layout of the alternators, in order to create a continuous flow from the nude bar to pressing(€ 1,005 thousand);

– The entry into service of the blohm grinding machine in the hot blades department (€ 1,252 thousand);– The renovation of the fire prevention system (€ 1,450 thousand);– The entry into service of the new life lines and renovation of the rooves and skylights inside the facility (€ 2,093

thousand);– The completion, in the IT department, of the implementation of the Websense system, which has three levels of

protection for web navigation and the automatic warehouse management system (€ 631 thousand);– The renovation of the container park for Service activities, including some large components such as a TPA adjustment

for disks and the complete renovation of the Tacchi TP400 balancing lathe (€ 2,404 thousand);

• The contribution of tangible assets worth € 14,494 thousand following the above acquisitions of PSM and AES.

• Depreciation for the year of € 30,241 thousand has been calculated on the basis of the residual useful life of the assets.

The depreciation rates are set out below:Industrial buildings 3 - 5%Plant and machinery 5 - 20%Equipments 12.5 - 40%Furniture and fittings 12 - 20%Vehicles 20 - 25%

• The decreases of € 3,155 thousand refer to sales, net of depreciation..

9. Equity investments

Euro/thousand 31.12.2016 31.12.2015

1 January 10,438 2,328

Acquisitions/subscriptions and capital increases 34,765 13,527

Share of profits (losses) of associates and joint ventures accounted for using equity method (9,798) (4,864)

Dividends received (457) (351)

Capital reimboursement (43) –

Additions from business combinations 1,626 –

Other changes (168) (202)

31 December 36,363 10,438

Changes of the year are mainly related to::

• The value in Euros of the capital injections made by the parent company when forming the two Chinese JVs AGTT (AnsaldoGas Turbine High Technology Co. Ltd.), for € 11,864 thousand, and SEGT (Shanghai Electric Gas Turbine Co. Ltd.), for €23,179 thousand; the former is a 60% holding, and the latter is a 40% holding; the two JVs are both part of thecooperation project with Ansaldo Energia partner Shanghai Electric Hong Kong Co. Ltd., and are part of a plan to penetratethe Chinese market and implement R&D projects in the energy field;

• The incorporation and subsequent share capital contributions of the following companies: – Power Systems Japan € 83 thousand;– Ansaldo Servicos de Energia brasil € 52 thousand;– Ansaldo Energia Mexico € 29 thousand;


– Ansaldo Energia Spain € 4 thousand;

• The effect of the equity-accounted valuations, for a total of € -9,798 thousand, mainly attributed to:– AGTT for € -2,049 thousand;– SEGT for € -7,894 thousand;– Polaris Srl for € -174 thousand;– NNS Senc for € 334 thousand.

• Dividends for € 457 thousand relating to:– Polaris Srl € 98 thousand;– NNS Senc for € 359 thousand;

• New income relating to the investment in SPVTCCC bV for € 1,726 thousand and in Gannouche Maintenance for € 5 thousand;

• The complete write-down of the investment in Sogea for € 9 thousand and Presenzano Energia for € 34, thousand.

• Other movements for € -169 thousand, mainly relating to:– AGTT for € - 44 thousand;– SEGT for € -126 thousand.

List of equity investments as at 31 December 2016 (Euro/thousand)

Name Investment % Investment amount

Subsidiaries and associates

Ansaldo Energia Korea YH 100% 0

Ansaldo Energia Mexico 100% 27

Ansaldo Gas Turbine High Technology Co 60% 12,079

Ansaldo Servicos de Energia brasil 100% 39

NNS Societé de service pour reacteur 40% 365

Polaris Anserv 20% 39

Polaris Srl 49% 270

Power System M. Japan 100% 86

Shanghai Electric Gas Turbine Co 40% 20,217

SPVTCCC bV 100% 1,721

Other equity investments and consortia

Consorzio CISA 66% 68

Consorzio CORIbA 5% 3

Consorzio CREATE 16% 5

Consorzio CRIS 48% 1,166

Consorzio Energie Rinnovabili 51% 10

Consorzio SIRE 29% 25

Euroimpresa Legnano 10% 155

Santa Radegonda 19% 6

SIET S.p.A. 4% 15

SIIT Distretto Tecnologico Ligure 2% 14

Other companies 0% 53

Total equity investments (net of impairment losses) 36,363


10. Impact of related party transactions on assets and liabilities

Related party trading transactions generally take place on an arm’s length basis, as do interest-bearing receivables and payableswhere not governed by specific contractual conditions. The relevant balances are shown below:

6

Euro/thousand Current Trade Other Total financial receivables current Receivables as at 31.12.2016 receivables receivables

Unconsolidated subsidiaries

Gannouche Maintenance 1,231 14 1,245

SPVTCCC bV 4 4

1,235 14 1,249

Associates

NNS Societé pour reacteur 198 198

198 198

Group companies and others

Ansaldo Gas Turbine High Technology 146 146

Eni 816 816

Shanghai Electric Gas Turbine 1,157 1,157

Shanghai Electric Hong Kong 20,855 20,855

Yeni Elektrik uretim Anonim Sirketi 240 240

23,214 23,214

IEntities under MEF control and significant influence

Enel 8,991 8,991

Leonardo (ex Finmeccanica) 345 8,975 9,320

Sogin 1,523 1,523

10,859 8,975 19,834

Total 1,235 34,285 8,975 44,495

% of the total at the reporting date 0.67% 12.36% 10.88%


Euro/thousand Current Trade Other Total financial receivables current Receivables as at 31.12.2015 receivables receivables


Ansaldo America Latina 643 643

643 643

Associates

NNS Societè pour reacteur 208 208

208 208



Eni 3,946 3,946

Shanghai Electric Gas Turbine 846 846

Yeni Elektrik uretim Anonim Sirketi 5,605 5,605

10,658 10,658

Entities under MEF control and significant influence

Enel 6,658 6,658

Finmeccanica 283 11,276 11,559

Sogin 1,331 1,331

8,272 11,276 19,548

Total 643 19,138 11,276 31,057



Euro/thousand Current Trade Other Total loans and payables current Payables as at 31.12.2016 borrowings payables


Ansaldo Energia Mexico 989 989

989 989

Consortia

Consorzio CRIS 1,295 1,295

1,295 1,295



Eni 71 71

Polaris - Anserv 65 65

Shanghai Electric Gas Turbine 164 164

Shanghai Electric Group 347 347

692 692

IEntities under MEF control and significant influence

Enel 414 414

Leonardo (ex Finmeccanica) 5,088 5,088

5,502 5,502

Total 1,295 7,183 8,478

% of the total at the reporting date 0.63% 1.88%


11. Receivables and other non-current assets

Euro/thousand 31.12.2016 31.12.2015

Guarantee deposits 464 374

Other 65 73

Non current receivables to related parties - 147,783

Non-current receivables 529 148,230

Deferred tax assets 20,729 12,022

Other non-current assets 20,729 12,022

The largest variation was seen in non-current loans and receivables, which fell by € 147,701 thousand, mainly due to thereclassification of the receivables from unit NV from non-current receivables to current receivables.The parent won the contract to build a roughly 825 MW combined cycle power plant in the Gebze industrial district of Istanbul,Turkey in 2011. In addition to its traditional duties as builder of “turnkey” plants, in this case, Ansaldo Energia is also aninvestor.In fact, the Group concurrently signed an agreement with unit NV for the acquisition of an equity investment in Yeni Elektrik,a company founded to manage the power plant in question.under the investment agreement, the parent acquired a 40% holding in Yeni Elektrik, worth 120 million uSD (approximately€ 86 million) and subsequently made the capital injections needed to provide the company with the means to construct andmanage the plant. The equity investment is accompanied by a series of further agreements with unit NV, which clearly stipulate how AnsaldoEnergia will have the right to sell its stake to unit NV at a fixed date, at the amount of its investment plus an establishedreturn.

Euro/thousand Current Trade Other Total loans and payables current Payables as at 31.12.2015 borrowings payables

Consortia

Consorzio CRIS 1,235 1,235

1,235 1,235


Eni 38 38

Polaris - Anserv 59 59

97 97

Entities under MEF control and significant influence

Finmeccanica 5,159 150 5,309

5,159 150 5,309

Total 1,235 5,256 150 6,641



under the terms of the agreements drawn up with our associate in 2014, the amount receivable from unit NV (€ 119 million)was divided into a current and a non-current part of € 59 million each.During 2015, the agreement with unit NV was renegotiated and the date for repayment in full of the receivable (worth €147,783 thousand in 2015) was agreed for 2017.This aspect, which led to the entire amount being recorded as non current receivables in 2015, justifies the reclassification ofthe receivables (worth € 184,215 thousand), including both interest and capital, as current receivables in the financialstatements as at 31 December 2016.If our partner is in financial difficulty, the agreements allow Ansaldo Energia to pay off the receivable by selling off 100% ofYeni Elektrik, or using the operating cash-flow. We therefore decided to perform a check on the value recoverable from YeniElektrik, estimating its future cash flow and using a panel of European listed companies operating in the electric energyproduction business.The analysis performed did not point to a need to write down the receivable recorded on the financial statements at 31December 2016. The geo-political situation in Turkey, the performance of the currency and energy markets are all relevant factors for estimatingthe amount recoverable, and we cannot therefore exclude the possibility that our estimates could change, even significantly,due to future unforeseeable events and may also request additional capital injections of the Group in favour of Yeni Elektrickin order to financially support the company for which – as of today – a financial restructuring is taking place.Prepaid taxes increased to € 8,707 thousand, mainly due to the new entries.

12. Inventories

Euro/thousand 31.12.2016 31.12.2015

Raw materials, consumables and supplies 199,002 179,994

Work-in-progress and semi-finished products 130,446 137,538

Finished goods 129,253 –

Advances to suppliers 31,482 23,461

490,183 340,993

Raw materials, consumables and supplies They are stated net of the allowance for inventory write-down of € 20,028 thousand.They are measured at weighted average cost, which is certainly lower than their net realisable value, except for stock piledproducts which are measured at standard cost, reviewed half yearly.During the period, warehouse stock increased in value by € 19,008 thousand, in line with the Group’s commitments. Theparent company increased the inventory write-down fund by € 3,000 thousand in order to deal with the slow moving issuesand the discontinuation of some products.

Work in progress and semi-finished products The semi-finished products, which decreased by € 7,092 thousand, are measured at production cost. They relate to highlystandard parts which will only be allocated to sales contracts when customised. The variation is mainly due to an increase of € 20,547 thousand relating to the new entries and a fall of € 27,624 for fundsused.

Finished goodsThese refer to Increases from business combinations for € 110,330 thousand, relating to PSM and AES. During the year, thisitem further increased to € 38,775 thousand with reference to AES and € 90,478 with reference to PSM.


The products and goods mainly included blades and combustors needed to support the LTSA contracts belonging to the twocompanies.

Advances to suppliersThese items increased by € 8,021 thousand. The variation is mainly due to the normal life of orders associated with production.

13. Contract work in progress and advances from customers

Euro/thousand 31.12.2016 31.12.2015

Contract work in progress (gross) 1,411,512 1,675,771

Progress payments and advances from customers 1,352,594 1,573,782

Losses to completed contracts - -


Progress payments and advances from customers (gross) 3,431,017 2,645,679

Contract work in progress 2,676,110 2,107,355

Losses to completed contracts - -


The net contract work in progress decreased by € 43,071 thousand with respect to the previous year end.

The main contracts comprising the contract work in progress balance are listed below:

Euro/thousand Gross WIP Progress Net WIP as at payments as at 31.12.2016 and advances 31.12.2016 from customers Company Plant description as at 31.12.2016

AEN SOuSSE D - 1TG + 1TV + 1AT - 400MW 267,000 (257,142) 9,858

AEN AL SHAbAb - 2TV + 2AT - 520MW 88,156 (78,489) 9,667

AEN DAMIETTA - 1TV + 1AT 260MW 47,033 (40,804) 6,229

AEN AIN DJASSER III - CICLO APERTO N.2 uNITÀ 120,199 (114,702) 5,497

AEN bATNA LARbAA M'SILA - REFuRbISHM.PALETTE 3,439 - 3,439

AEN EDIPOWER PIACENZA LTSA 2,579 756 3,335

AEN HERIS - 1TG + 1TV + 2AT 13,182 (9,980) 3,202

AEN SOuSSE - C.C. 400 MW 136,856 (134,746) 2,110

PSM AMP-FREEMONT 41,291 (40,763) 528

The net progress payments and advances from customers rose by € 216,583 thousand and are related to contracts of a pre-vailing plant engineering nature, whose billing conditions are not strictly correlated to progress on production.

The main contracts making up the progress payments and advances from customers balance are listed below:


Euro/thousand Gross WIP Progress Net WIP Receivables as at payments as at as at 31.12.2016 and advances 31.12.2016 31.12.2016 from customers Company Plant description as at 31.12.2016

AEN 6° OCTObER ADD ON 17,231 (62,062) (44,831) 332

AEN CALENIA EN./SPARANISE (CE) - GTF 2X12 ANNI 122,500 (154,912) (32,413) 15,114

AEN RIZZICONI - GARANZIA TOT FuNZIONAMENTO 76,365 (107,551) (31,186) 1,594

AEN bRINDISI - FRAME AGREEMENT ENIPOWER 27,833 (46,856) (19,023) 15

AEN TIRRENO POWER NAPOLI LEV. - LTSA TG E ALT 17,612 (35,241) (17,629) 12

AEN TIRRENO POWER/VADO LIG. - LTSA TG + REL. ALT. 54,895 (71,946) (17,050) 1,166

AEN bALLYLuMFORD - LTSA 49,541 (65,269) (15,727) 184

AEN FERRARA - LTSA GRuPPI 1/2 41,306 (56,552) (15,247) 120

AEN EMbALSE - PLEX & REPOWERING 49,332 (63,702) (14,369) 7,995

AEN LEINI' (TO) - LTSA 9 ANNI TG + AT 17,568 (31,826) (14,258) 218

AEN ACEAELECTRAbEL - VOGHERA - MANuT. PROGRAM. 23,929 (37,880) (13,951) 440

AES IbRI SOHAR 115,204 (225,735) (110,531) –

We ascertained the costs still to be incurred in relation to closed orders after completing the works, setting up a specificprovisions. As required by IAS 11, construction contracts are measured using the cost to cost method, i.e., by calculating the percentageof completion as the ratio of costs incurred and total expected costs. Contract work in progress at the reporting date iscalculated by applying the percentage of completion to contract revenue. The contract profits for the year resulting from theapplication of this method totalled € 268,984 thousand.

14. Trade and financial receivables

The loans and receivables are measured at their fair value as at 31/12/2016.With regard to legal disputes and judicial or insolvency proceedings, the trade receivables in dispute are recorded at nominal

Euro/thousand 31.12.2016 31.12.2015 Trade Financial Trade Financial receivables receivables receivables receivables

Receivcables 251,792 184,355 221,957 –

(Impairment losses) (8,763) - (5,552) –

Related parties 34,285 1,235 19,138 643

277,314 185,590 235,543 643


value and written down in a specific provision for doubtful accounts that reflects the effects of the impairment testingconducted. The receivables recorded are not supported by promissory notes or similar securities.

The net increase in trade receivables of € 41,771 thousand was mainly due to:

1. Invoices issued for the following projects:– Yeni Elektrik for € 34,237 thousand;– Al Shabab for € 33,275 thousand;– Mazandaran for € 32,289 thousand;– 6 October for € 29,443 thousand.– Zhengjiang for € 26,825 thousand;– Labreg for € 26,491 thousand;– Ibri Sohar for € 225,735 thousand.

2. Payment was collected for the following projects:– Al Shabab for € 32,605 thousand;– Mirfa Project for € 32,260 thousand;– 6 October for € 28,749 thousand;– Ferrera - Enipower Frame Agreement for € 27,611 thousand;– Tirreno Power for € 24,508 thousand;– Ibri Sohar for € 225,735 thousand.

During the year, the parent factored certain trade receivables without recourse totalling € 153,019 thousand, € 122,572thousand of which was still current, and € 2,235 was collected and not repaid to the factor at 31.12.

The financial receivables refer to the above-mentioned reclassification of the receivables from unit NV, in addition to currentaccounts held with our subsidiaries and affiliates.

15. Tax assets and liabilities

Receivables The tax assets mainly consist of the balances of the provisions for the period held by the parent company and the Italiancompanies for IRES (corporate income tax) and IRAP (local tax on production), net of the advances paid and the credits heldby Yeni AEN and the NEG group.

Payables The composition of the balance mainly relates to provisions for income taxes made by PSM.

Euro/thousand 31.12.2016 31.12.2015 Assets Liabilities Assets Liabilities

Direct taxes 2,424 8,598 5,415 396

2,424 8,598 5,415 396


16. Other current assets

Euro/thousand 31.12.2016 31.12.2015

Prepayments - current portion 7,208 7,801

Employees and pension institution 1,287 495

Other tax assets 27,836 23,272

Other assets 37,179 29,555

Other receivables to related parties 8,975 11,276

82,485 72,399

Other current assets include:• prepayments, principally the portion of insurance premiums for assembly pertaining to future years and allocated to the

contracts on a percentage of completion basis;

• an amount due to the parent from the customer NLC Neyveli for interest on the late payment of withholding taxes of €3,949 thousand, which was unduly withheld and with respect to which formal litigation is underway in India;

• receivables of € 11,961 thousand of the branches, included under other tax assets, which comprise € 5,723 thousand forthe Neyveli litigation;

• an indirect tax receivable worth € 6,215 thousand for Yeni AEN;

• guarantee deposits of € 1,566 thousand;

• a receivable from Finmeccanica (now Leonardo S.p.A.) for € 3,830 thousand relating to the asbestos risk guaranteed toAnsaldo Energia following the share sale to FSI; the receivable from Finmeccanica linked to the asbestos risks fell by €2,398 following repayments received in compensation for payments made by Ansaldo Energia in relation to the litigationsconcluded;

• a receivable of € 4,814 in the form of a reimbursement claim for IRAP deduction from IRES (the Monti decree);

• other receivables for the consolidated companies amounting to € 28,355 thousand.

17. Cash and cash equivalents

Euro/thousand 31.12.2016 31.12.2015

bank deposits 250,889 98,259

250,889 98,260

Cash held in banks is composed of € 181,928 thousand in ordinary current accounts; € 32,961 thousand held in local currencyfor payments of on-site orders; and € 36,000 held in ordinary current accounts in foreign currency.The increase on the prior year, worth € 152,630, is mainly due to the variation in the perimeter explained above and theincrease in the Ansaldo Energia bond, which generated an increase in available funds.

18. Equity

The equity as at 31 December 2016 amounts to € 598,861 thousand, for a net decrease of € 53,120 thousand


Share capital

No. of Carrying Treasury Total ordinary shares amount shares

Outstanding shares 100,000,000 € 10 100,000,000

Treasury shares

31 December 2016 100,000,000 100,000,000

31 December 2016 100,000,000 100,000,000

broken down as follows:

Outstanding shares 100,000,000 € 10 100,000,000

Treasury shares

100,000,000 100,000,000

The parent company's share capital can be broken down as follows:4,483,750 shares held by CDP Equity4,000,000 shares held by Shanghai Electric Hongkong Co. Limited1,500,000 shares held by Leonardo (ex Finmeccanica)16,250 shares held by key management personnelThe Parent does not hold treasury shares.

Other reserves

Euro/thousand Retained Hedging Actuarial Other Total earnings reserve reserve reserves

1 January 2015 25,593 (14,425) (7,006) 421,329 425,491

Net result 12,284 – – – 12,284

Other changes (443) (2,637) – (287) (3,367)

Fair value adjustements – 9,372 (62) – 9,310

Transfers to profit and loss – 6,432 – – 6,432

Departures during the year 77 – – 28 105

Deferred taxes – (4,514) – – (4,514)

31 December 2015 37,511 (5,772) (7,068) 421,070 445,741

Net result 60,558 – – – 60,558

Other changes (2,178) – – (130,030) (132,208)

Fair value adjustements – (3,356) (1,454) – (4,810)

Additions from business combinations – – (11,707) 19,936 8,229

PPA effect – – – 122,263 122,263

Transfers to profit and loss – 12 – – 12

Deferred taxes – 772 – – 772

Exchange rate gains (losses) (1,574) – – – (1,574)

31 December 2016 94,317 (8,344) (20,229) 433,239 498,983


The heaviest impact on reserves was due to extraordinary purchase transactions, which affected profits for the year withbadwill worth € 69,590 thousand, while consolidation reserves were affected by € 122,263 thousand in PPA.Consolidation adjustments amounted to € -130,029 thousand.

Hedging reserveAs required by IAS 39, this reserve includes fair value gains and losses on hedging instruments (derivatives and swaps) thatthe Group put in place to hedge against the currency risk on foreign currency contract revenue and interest rate risk on existingloans. The reserve is net of the relevant deferred taxes and relates to interest rate and currency exchange hedges.

Total reserves shown in the table above include € 123 thousand for third party equity.

19. Loans and borrowings

Changes in loans and borrowings may be analysed as follows:

Euro/thousand 31.12.2015 Increase Addition from Decrease 31.12.2016 business combination

bonds 354,852 71,622 – – 426,474

bank loans and borrowings 115,433 292,273 104 150,061 257,749

Finance lease obligations 558 – – 266 292

Other loans and borrowings – 3,303 – – 3,303

Related party loans and borrowings 1,235 60 – – 1,295

472,078 367,258 104 150,327 689,113

During 2015, the parent company underwent financial debt restructuring, issuing a medium-long term bond due to expire in2020 for € 350,000 thousand with an interest rate of 2.875%, fully subscribed by a pool of banks.

In 2016, the value of the bond was increased to € 420,000 thousand.

€ 10,063 was paid in interest on the bond, and a further € 8,175 thousand in interest is due for the period. The parent company also took out a medium-long term loan from banca Popolare Commercio Industria (bPCI) for € 30,000

Euro/thousand 31.12.2016 31.12.2015 Current Non current Total Current Non current Total

bonds 8,171 418,303 426,474 6,790 348,062 354,852

bank loans and borrowings 191,474 66,275 257,749 51,750 63,683 115,433

Finance lease obligations 226 66 292 263 294 557

Other loans and borrowings 3,303 – 3,303 1 – 1

Related party loans and borrowings 1,295 – 1,295 1,235 – 1,235

204,469 484,644 689,113 60,039 412,039 472,078


thousand. Our current financings have been recorded under current loans. up-front fees and miscellaneous expenses werediscounted from the loans described, and will be recorded on the income statement for the relevant periods. Loans payable also include € 2,236 in receivables collected by the client in the last days of the period and not yet repaid tothe factor.

Net financial debtThe following disclosure is presented in accordance with the format required by CONSOb communication no. DEM/6064293of 28 July 2006:

Euro/thousand 31.12.2016 of which 31.12.2015 of which related parties related parties

bank accounts 250,889 98,259

Cash and cash equivalents 250,889 98,259

Current financial receivables 185,590 1,235 643 643

Current bank loans and borrowings 199,646 58,540

Current financial lease liabilities 226 263

Other current loans and borrowings 4,596 1,295 1,235 1,235

Current financial debt 204,468 60,038

Net current financial (position) debt (232,011) (38,864)

Non-current bank loans and borrowings 484,578 411,745

Non-current financial lease liabilities 66 294

Non-current financial debt 484,644 412,039



20. Provisions and contingent liabilities

Restructuring costsThe provision includes the residual amounts accrued by the parent in previous years to cover the risks related to thediscontinuance of operations.

Product warrantyThis provision is set up to cover direct and indirect damage covered by warranties granted (contractually guaranteedperformance and the guarantee period contractually provided for). based on past history, indirect damage attributable to theGroup product performances may arise from the total products installed.

Pending litigationThis provision represents our best estimate of our liability in relation to arbitration and legal proceedings with third parties bothin Italy and abroad relating to orders and sale of assets in previous years.

Euro/thousand Restructuring Product Pending Tax Other Total warranty litigation provision

1 January 2015

Current 810 100 6,556 – 12,309 19,775

Non current – 17,533 – 59,177 227,124 303,834

810 17,633 6,556 59,177 239,433 323,609

Accruals – – – 2,956 64 3,020

utilization 89 – 2,169 1,859 36,429 40,546

Reversal – 112 – – – 112

Other changes – 12 – – 195 207

Reclassification – – – – (69) (69)

31 December 2015 721 17,533 4,386 60,274 203,195 286,109

Broken down as follows:

Current 721 – 4,386 – 10,430 15,537

Non current – 17,533 – 60,274 192,765 270,572

721 17,533 4,386 60,274 203,195 286,109

Accruals – – – 200 16 216

utilization – 13,897 781 1,414 13,052 29,144

Additions from business combination – 15,187 – – – 15,187

Reversal – 432 – 12,994 – 13,426

Other changes – 327 – – 5,298 5,625

31 December 2016 721 18,718 3,605 46,066 195,457 264,567

Broken down as follows:

Current 721 – 3,605 – 8,151 12,477

Non current – 18,718 - 46,066 187,306 252,090

721 18,718 3,605 46,066 195,457 264,567


TaxesThe tax provision represents our best estimate of tax risk in Italy and abroad (relating to branches) and amounts to € 46,066thousand.The tax fund is mainly used for:• a dispute with the Indian tax authorities about the taxability of materials sold FOb to customers (€ 13,700 thousand,

partially already paid). The parent company Ansaldo Energia believes that the materials are exempt from local taxes byvirtue of the double tax treaty in force between the two countries. In order to strength its position, in addition to defendingthe case at all levels in India, it has also commenced the out-of-court settlement procedure provided for by the treaty;

• 2004-2007 income taxes at risk in Algeria (€ 5,500 thousand); following the tax audit carried out by the tax police, thetax authorities have compulsorily withdrawn € 2,500 thousand from Ansaldo Energia’s bank accounts and € 1,300thousand for a risk arising from a new tax inspection relating to the 2012-2015 tax periods; we are currently negotiatinga settlement;

• the risk arising from a tax inspection in Chile (€ 4,000 thousand); we are still negotiating a settlement; • a € 3,200 thousand tax risk relating to an ongoing inspection in Morocco in relation to the 2011-2014 tax periods;• € 1,900 thousand in taxes due in relation to branches in 2016;• € 3,897 thousand in taxes not yet calculated in Italy;• € 7,500 thousand in taxes due following the sentence passed by the Greek Appeal Court for the 1995-1996 tax periods;• € 3,000 thousand in indirect taxes due in Turkey;• € 2,069 thousand in other taxation.

Other provisionsFormed of:• costs to be incurred after the completion of contracts for warranties or contractual commitments (€ 90,452 thousand).

During the year, € 19,359 were released to the income statement in relation to orders in Algeria, to account for a fall inmaximum risk of the same amount, in addition to

• asbestos risk costs for € 4,878 thousand. The latter accrual is due to the non-renewal of the “work-related illness arisingfrom the use of or exposure to asbestos” insurance policy that expired in January 2007. The provision is the best estimatebased on past figures and consolidated scientific practice, which show that latency times may exceed 15 to 40 years. Pastevents mainly involved the Legnano and Genoa plants. Any future outlays for the asbestos issue covered by this provisionwill be reimbursed by Finmeccanica (now Leonardo S.p.A.), as per its specific guarantee included in the agreementsbetween it and Fondo Strategico Italiano as part of the transaction involving the parent’s ownership structure. FondoStrategico Italiano also formally agreed that all future compensation for any litigation arising in the context of the asbestosissue will be paid directly to Ansaldo Energia by Finmeccanica.

During 2004, as part of an investigation commenced by the public prosecutor into the contracts awarded by Eni power S.p.A.,Ansaldo Energia S.p.A., as its supplier, was committed for trial by the Milan preliminary hearing judge pursuant to the legislationcovering the administrative liability of companies as per Legislative decree no. 231 of 8 June 2001, due to its alleged failureto supervise one of its employees who allegedly committed unlawful actions, who is now deceased. The grounds of the judgement were filed on 19 December 2011. The operative part of the judgement was handed down on20 September 2011 and found Ansaldo Energia liable for the violation of the provisions of Legislative Decree no. 231/2001,therefore ordering it to pay a fine of € 150,000 pursuant to article 12 of same decree and ordered, ex lege, the seizure of anequivalent amount of profit, quantified at 10% of the contract value, i.e., € 98,700 thousand.The grounds of the judgement did not clarify the Company's liability, and the appeal lodged with the Milan Appeal Court on31/01/2012 therefore requests a review of all facts that emerged from the proceeding and a comprehensive reassessment ofall trial acts in order to overturn the court’s decision. The Appeal Court sentence dated 24 October 2013 confirmed the decision of the first degree Court. When appealed again,on 10 November 2015 the Supreme Court overturned the decision of the Appeal Court based on the failure to identify thegrounds for committing the offence by the Ansaldo Energia employee who allegedly committed it, sending the case back tothe other section of the Appeal Court in Milan.


The grounds for the sentence issued by the Supreme Court have not yet been filed. Considering that the Appeals Court cannotapply a more severe penalty than that originally applied by the first degree Court, and without knowing the grounds for theSupreme Court's decision to refer the case to the Appeals Court or how long the subsequent legal proceedings will last, theCompany, on the advice of its lawyers, has decided not to change the amount previously allocated and recorded it at itscurrent value on 31 December.

On 11 July 2014, Siemens AG submitted a formal request for arbitration in relation to the Company (ICC Arbitration Case no.20363/GFG at the Arbitration body in Zurich).This arbitration concerns the different interpretations of certain clauses of the license agreement signed between Siemens AGand the Company on 19 July 1991, and the subsequent Winding up Agreement of the aforementioned license agreementsigned on 19 October 2005. It should be noted that the Arbitration was requested by Siemens AG after it learned of the technology agreement signedwith Doosan Heavy Industry for the development of an advanced gas turbine and the agreements associated with thefinalisation of the sale of Ansaldo Energia shares to Shanghai Electric Corporation.

The main requests made by Siemens AG to the arbitrators were the following:• to declare that the Company must return and cease using all the information received from Siemens AG during the license

period;• to declare that the Company is forbidden to transfer the technical information rendered available by Siemens AG to the

Group during the license period to any third parties.

On 29 July 2016 the arbitration body issued a final decision, denying all the requests made by Siemens AG.

21. Employee benefits

Euro/thousand 31.12.2016 31.12.2015

Defined benefits of Obligation (DbO) 32,561 23,075

Defined benefit pension plans 868 788

Other provisions for personnel 2,211 1,922

35,640 25,785

Debt includes, for the Italian companies, the employee leaving indemnity TFR fund prior to the reform of the legislation in2006; moreover, with the aggregation of companies described above, the AES employee leaving fund increased by € 13,897thousand.

TFR is a typical part of Italian employment law, and involves setting aside part of employee salaries to be paid to the employeeon leaving the company. The amount is calculated pursuant to article 2120 of the Italian Civil Code by dividing the fixedremuneration components by 13.5.under defined benefit plans, the Group companies have the obligation to provide qualifying employees with a certain levelof benefits at maturity, covering for any lower level of plan assets compared to the agreed level of benefits.

Changes in defined benefit plans are set out below:


31.12.2016

Euro/thousand Present value Present value Net liability of of obligation of asset defined benefit plans

Opening balance 788 788

Service costs 131 131

benefits paid (51) (51)

Closing balance 868 868

31.12.2015

Euro/thousand Present value Present value Net liability of of obligation of asset defined benefit plans

Opening balance 780 780

Service costs 240 240

benefits paid (232) (232)

Closing balance 788 788

Changes in the liability for Italian post-employment benefits are set out below:

Euro/thousand 31.12.2016 31.12.2015

Opening balance 23,075 30,097

Interest expense 244 279

Actuarial (gains)/losses on equity 1,454 62

Decreases due to sales 6,110 7,437

Additions from business combinations 13,897 -

Other movements 1 74

Closing balance 32,561 23,075

The amount recognised in the income statement is € 244 thousand.The other provisions for personnel (€ 2,211 thousand) show the amount to be contributed to the supplementary pensionfunds in January.


22. Other current and non-current liabilities

NON CURRENT CURRENT Euro/thousand 31.12.2016 31.12.2015 31.12.2016 31.12.2015

Employees 2,979 3,025 37,148 20,486

Deferred income – – 12 –

Social security institutions – – 10,192 9,771

Other 116,154 6,942 60,481 9,465

Related parties – – – 150

Total other liabilities 119,133 9,967 107,833 39,872

Deferred tax liabilities 170,576 89,456 – –

Other current tax liabilities – – 9,420 9,398

Total other non current liabilities 289,709 99,423 117,253 49,270

Employees - non-currentThese include accrued seniority bonuses measured at fair value.

Other non-current liabilitiesThese represent the discounted value at 31/12/2016 of the amount due to GE following the Gastone operation, to be repaidover the following three years.

Deferred tax liabilitiesThe increase is mainly due to the deferred taxation relating to the PPA for the Gastone project.

Employees - currentThis item rose by € 16,662 thousand, mainly due to the amounts set aside for employees at the end of the year.

Social security institutions They relate to the contributions to be borne by the Group and by employees due to these institutions on the December wagesand salaries paid in January and on the remuneration of the year whose contributions are paid quarterly or yearly.

Other liabilitiesThese mainly include accrued liabilities relating to insurance on assembly and multi-year order risks, amounts due to Partnersin ATI for works performed, payments to consultants and other minor amounts.The increase is mainly attributable to the effects of the new companies included in the perimeter.

23. Trade payables

Trade payables increased by € 16,738 thousand. This increase was attributable to the production trend and the prudent payment policy applied. The “maturity factoring” payables included herein amounted to € 43 million as at 31 December 2016. Through thesetransactions, the parent company allows its suppliers to factor their receivables for goods supplied or services provided to theCompany, whereby they collect their receivables and the Company may avail of a further deferment of its trade payables,bearing the related interest. The latter approximated € 369 thousand during the year and are recorded under “Other operatingexpenses” in the income statement.


24. Derivatives

Derivative assets and liabilities may be analysed as follows.

31.12.2016 31.12.2015 Euro/migliaia Assets Liabilities Assets Liabilities

Currency forwards 3,644 11,771 – 11,348

IRS hedging of non-current loan – 3,551 – 9,933

3,644 15,322 – 21,281

During the previous period, following the repayment of the € 300 million loan which was hedged by a fixed rate IRS derivative,the parent company signed a derivative designed to freeze the financial effects of the first. It then recorded a debt forderivatives, amounting to € 3,551 thousand at the end of the period.In line with corporate policy, the company hedged currency contracts with currency forwards. Group fair value at 31 December 2016 was € 3,644 thousand for payables and € 11,771 thousand for receivables.

25. Guarantees and other commitments

LeasingThe parent company is party to certain operating leases, mainly for use of office multifunctional digital copiers and civil facilitymanagement equipment. Minimum future non-cancellable lease payments are of minimal amounts.The parent has no financial leases in place.

Personal guarantees givenThe Parent had the following guarantees in place as at 31 December 2016:

Euro/thousand 31.12.2016 31.12.2015

Third party sureties 1,235,825 1,096,816

Personal guarantees issued 1,235,825 1,096,816

Third party suretiesThey relate to sureties issued by banks and insurance companies to:

• customers for participation in tenders (€ 13,581 thousand);

• customers for advances received and as performance bonds (€ 1,064,747 thousand);

• others, including: financial backers, customs and tax offices and lessors (€ 3,845 thousand);

• the guarantee in favour of the banks in relation to the GEbZE pool loan (€ 56,921 thousand);

• the guarantees issued by Finmeccanica to the tax authorities against the previous years' VAT receivables arising from the“VAT consolidation” procedure (€ 9,461 thousand).

• a guarantee from the Deposits and Loans Fund relating to € 25,000 thousand in loans from the EbI.

• a guarantee from AKbANK for a loan to Yeni Elektrik for € 28,460 thousand.

• Parent Company Guarantee for a loan in favour to Yeni Elektrik related to two Working Capital Facility for a total amountof € 33,810 thousand


Personal guarantees received

Euro/thousand 31.12.2016 31.12.2015

Related parties sureties – –

Third party sureties 131,363 154,104

Hold harmless 51,228 70,172

Other 87,577 122,223

Personal guarantees received 270,168 346,499

These relate to:

• performance bonds received from suppliers (€ 101,363 thousand);

• the guarantee given by Dexia bank belgium for the Gebze contract to guarantee payment of equity and shareholder loans(€ 30,000 thousand);

• the hold harmless letter received from Yeni Elektrik for the pertinent portion of the GEbZE loan (€ 34,152 thousand);

• the hold harmless letter received from Yeni Elektrik for the pertinent portion of the GEbZE loan (€ 17,076 thousand);

• letters of credit received by the parent from customers guaranteeing payment (€ 87,577 thousand).

26. Impact of related party transactions on profit or loss

The impact of related party transactions on profit or loss in 2016 and 2015 is summarised below:


Euro/thousand Revenue Expense Other Financial Financial operating income expense 2016 expense

Parent companies

Ansaldo Energia (611) – – – –

(611) – – – –

Subsidiaries

Ansaldo Energia Switzerland 736 – – – –

Ansaldo Nucleare 117 – – – –

Ansaldo Russia 638 – – – –

Ansaldo Swiss (9) – – – –

Ansaldo Thomassen (472) – – – –

Ansaldo Thomassen Gulf 107 – – – –

Yeni AEN Anonim Sirketi (20,736) – – – –

(19,619) – – – –

Consortia

Consorzio CRIS – – – – 31

Consorzio Stabile Ansaldo New Clear (2,794) – – –

(2,794) – – – 31


Ansaldo Gas Turbine High Technology 458 – – – –

Eni 3,269 83 6 – –

Polaris Anserv – 290 – – –

Shanghai Electric Gas Turbine Co. 6,349 23 – – –

Shanghai Electric Group Co LTD 437 108 – – –

10,513 504 6 – –

Entities under MEF control or significant influence

Enel 8,697 4,624 – – –

Ferrovie dello Stato – 2 – – –

Leonardo (ex Finmeccanica) – 6,211 – – –

Sogin 3,282 – – – –

11,979 10,837 – – –

Total (532) 11,341 6 – 31

% of the total at the reporting date 100.00% 100.00% 99.83% 99.62% 99.43%

Euro/thousand Revenue Expense Other Financial Financial operating income expense 2015 expense

Subsidiaries

Ansaldo Nucleare 1,747 54

Ansaldo Swiss 92

Ansaldo Thomassen (48)

Ansaldo Thomassen Gulf (90) (1)

Ansaldo Russia (3,375)

Asia Power Project Ltd – 1

Yeni Aen Insaat Anonim Sirteki 1,094

Ansaldo America Latina – 20

(580) 54 – 20 –


Eni 46,379 481 5

Fincantieri 4

Polaris Anserv 290

Shanghai Electric Gas Turbine Co. 1,341 (27)

Yeni Elektric uretim Anonim Sirteki 17,703

65,427 744 5 – –

Consortia

Consorzio CRIS 44

Consorzio Stabile Ansaldo New Clear (3,043)

(3,043) – – – 44

Entities under MEF control or significant influence

Enel 4,178 17

Ferrovie dello Stato – 41

Finmeccanica 1,612 8,380 19 364

5,790 8,438 19 – 364

Total 67,594 9,236 24 20 408

% of the total at the reporting date 6.38% 1.35% 0.12% 0.25% 0.80%

Financial income relates to the investment of cash during the year, including with temporary time constraints, always in linewith best market conditions. Expense paid to subsidiaries related to services received, net of fees for those rendered. Financial income and expense arisefrom financial transactions carried out at the market rates adopted by the Group.Related party transactions mainly relate to the provision of materials and services for specific contracts or general services.



27. Revenue


Sales 900,196 534,576

Services 556,561 88,682

1,456,757 623,258

Change in work in progress (202,955) 368,885

Related parties revenue (532) 67,594

Total revenue 1,253,270 1,059,737

Revenue from sales and services is detailed in the table presented in the “Segment reporting” section.Revenue include, in addition to production value for the period, the shares acquired on obtaining the Provisional AcceptanceCertificate (PAC) marking the transfer of ownership of the completed plants to the client; moreover, in relation to the closureof the Gebze order in 2014, we recorded revenue from the 2016 repayments of the loan for the Yeni Elektrik project, for atotal of € 18,233. The increase in sales revenue was due to the closure of some orders.

The following table shows the main revenue by order.

Euro/thousand Company Amount Description

AEN 174,418 AVON - PEAK POWER PLANT 4 X 170 MW

PSM 80,210 PROJECT VARI LTSA

AEN 46,887 bANHA - N. 1 TV RT30+1AT THRL45

YENI 40,494 YENI ELEKTRIK

ATH 40,000 MIRFA

AEN 34,993 6TH OCTObER - EXTENSION

AEN 26,943 HAMMA - RICAMbI

AEN 22,262 DEDISA - PEAK POWER PLANT 2 X 170 MW

ANN 11,463 ARGENTINA EMbALSE

ANN 11,022 ITER VACuuM VESSEL

AEN 6,524 CENTRALI VARIE ENEL - RICOND.TG V94 3.A2

AEN 6,415 SHIRVAN - RICAMbI TG

AEN 3,864 LERDO - N.1 GENER. + ACCESS. RIC. TV

AEN 3,500 NEKA - uPDATE GT V94.2

AEN 2,465 YANbu 7 S.A. - RESTORATION OF T/G N.7

28. Other operating income and expense

2016 2015 Euro/thousand Income Expense Income Expense

Other grants related to income 416 – 279 –

Gains/losses on sales of property, plant and equipment and intangible assets 73 362 129 7

Accruals/reversals to/of provisions 432 16 112 64

Exchange rate gains (losses) 5,333 7,695 7,249 7,113

unrealised exchange rate gains and losses 3,263 7,305 4,678 6,030

Financial income/expenses on trade receivables/liabilities – 455 – 838

Insurance compensation 17,983 – 4,165 –

Indirect taxes – 2,797 – 5,105

Other operating income/expense 2,258 2,166 1,121 1,412

Other related parties operating income/expense – 7 – 24

29,758 20,803 17,733 20,593

Grants related to income were in relation to personnel training. Insurance compensation was due to the damage incurred at various power plants (€ 17,983 thousand), including Ravennafor € 3,879 thousand and 6th October for € 4,034 thousand. The other operating income (€ 1,923 thousand) regards previously impaired receivables due from insolvent countries thatwere collected through SACE.

Indirect taxes include local property tax (€ 795 thousand), waste collection tax (€ 188 thousand) and other taxes (€ 1,814thousand). The other costs regard membership fees (€ 352 thousand), donations (€ 79 thousand), losses on credits (€ 12 thousand), gifts(€ 366 thousand) and others (€ 156 thousand).Other costs for associates were regarding membership fees.

29. Purchases and services


Materials from third parties 468,504 336,009

Change in inventories 969 (37,136)

Purchases from related parties 4,931 436

Total purchases 474,404 299,309

Services from third parties 354,417 369,413

Services from related parties 6,410 8,800

Rentals and operating leases 8,914 5,310

Hire expense 6,452 3,322

Total services 376,193 386,845



Purchases of materials from third parties totalled € 468,504 thousand, up by € 132,495 thousand with respect to the previousyear.Variation in stock rose by € 38,105.Service costs totalled € 376,193 thousand, for a decrease of € 10,652 thousand with respect to the previous year.Costs for acquisitions and services therefore increased, essentially due to the increase in production associated with theexpansion in the consolidation perimeter.

30. Personnel expenses


Wages and salaries 241,132 173,424

Incentive plan for key management personnel 3,051 -

Social security and pension contributions 53,304 37,915

Other defined benefit plans 131 240

Defined contribution plans 10,857 8,522

Termination benefits 4,023 6,929

Early retirements incentives 2,047 142

Other costs 1,426 2,513

315,971 229,685

The headcount as at 31 December 2016 numbered 4,254, as opposed to 3,505 employees on 31 December 2015.

The table below shows employees by category and average number:

2016 2015 Changes

Managers 61 71 –

Junior managers 277 275 2

White collars 3,074 2,406 668

blue collars 815 878 (63)

4,227 3,620 607

The personnel expenses of € 315,971 thousand consist of monthly and deferred pay, social security contributions and employeeleaving indemnity accrued as at 31/12/2016, and includes the portion relating to foreign permanent establishments (€ 11,642thousand). The increase of € 86,286 was mainly due to the above-mentioned expansion of the perimeter.

31. Change in finished goods, work-in-progress and semi-finished products


Change in finished goods, work-in-progress and semi-finished products (11.454) (3.744)

The € 7,710 thousand decrease over the previous year is mainly due to higher volumes of semi-finished products for whichthe sales contracts have been finalised. This meant that customisation work could start and be allocated to the sales contracts.

32. Amortisation, depreciation and impairment losses


Amortisation and depreciation:

- intangible assets 53,759 43,509

- property, plant and equipment 30,163 25,080

83,922 68,589

Impairment losses:

- intangible assets 15,242 11,822

- other assets 1,282 –

- goodwill – –

16,524 11,822

Total amortisation, depreciation and impairment losses 100,446 80,411

Amortisation of intangible assets with a definite useful life is due to the PPA process (€ 34,127 thousand) arising from themerger of Ansaldo Energia Holding SpA into Ansaldo Energia and the consequent allocation of part of goodwill, as alreadydiscussed in the notes to the statement of financial position. The amortisations for intangible assets amount to € 9,065thousand, and refer to Research and Development capitalised and amortised using the ‘stamp’ method for blades andmachinery sold and the IP relating to the Gastone project.During the period, in the absence of significant future revenue the Group recorded impairments to some items in R&D of €15,242 thousand.The depreciation of tangible assets reflects the residual useful life of the various assets.

33. Internal work capitalised

Increases in non-current assets as a result of internal work include the labour and material costs. These mainly related to costsfor the prototype and development of the GT36 for € 85,899 thousand, and the development and improvement of the repairprocesses for € 4,315 thousand.

Euro/migliaia 2016 2015

Personnel expenses 40,352 642

Others 29,163 -

Materials 22,269 389

91,784 1,031



34. Badwill, net of integration costs

The badwill recorded as € 20,449 thousand relates to the PPA for the Gastone project (€ 69,590 thousand) net of integrationcosts (€ 49,141 thousand).

35. Share of profits (losses) of associated and joint ventures accounted for using the equity method

Euro/thousand

NNS 334

Polaris (174)

Ansaldo America Latina 14

Ansaldo Gas Turbine High Technology (2,049)

Shanghai Electric Gas Turbine (7,894)

Gannouche (46)

Ansaldo Energia Spain (3)

Ansaldo Energia brasil (17)

PSM Japan 5

(9,830)

36. Financial income and expense

Financial income includes:• interest mainly on cash deposited with banks and on foreign currency accounts;• exchange rate gains and losses on foreign currency mainly in the uS dollar area.

Financial expenses include:• interest on medium/long term loans (€ 975 thousand);• interest on the bond issued for the period (€ 11,443 thousand);

Euro/thousand 2016 2015 Income Expense Net Income Expense Net

Interest expense on defined benefit plans – 244 (244) – 278 (278)

Interest 2,067 16,256 (14,189) 2,376 31,065 (28,689)

Commissions – 7,022 (7,022) – 11,388 (11,388)

Premiums paid/collected on forwards 222 120 102 25 819 (794)

Exchange rate gains and losses 5,276 19,342 (14,066) 4,075 5,300 (1,225)

Fair value gains and losses – 2,087 (2,087) – – –

Impairment losses/reversals of impairment losses on equity investments – – – – 1 (1)

Other financial income and expense 103 327 (224) 1,607 1,841 (234)

Related party financial income/expense – 31 (31) 20 408 (388)

7,668 45,429 (37,761) 8,103 51,100 (42,997)

• the portion pertaining to the year of the up-front fees paid on the medium-long term loans (€ 1,328 thousand) and com-mission on sureties and bank charges (€ 4,946 thousand);

• exchange costs on financial items mainly relating to deposits held in Egyptian pound due to the currency’s sharp fall invalue from 9 to 19 EGP/€, for an equivalent of € 15,055 thousand;

• exchange adjustments for € 1,797 thousand;• financial expenses for the Revolving credit line (€ 2,440 thousand).

37. Income taxes

This caption comprises:


IRES 6,844 11,210

IRAP 3,389 3,230

Other income taxes 13,708 3,511

Prior year taxes (15,882) (2,643)

Provisions for tax risks 200 2,956

Net deferred tax expense (20,306) (20,944)

(12,047) (2,680)

Deferred tax liabilities and the corresponding payables at 31 December 2016 amounted to:– € 77,092 thousand for PPA and the temporary variations in Ansaldo Energia; – € 78,740 thousand for PPA related to the Gastone project;– € 12,071 thousand relating to the temporary differences created by the sale of PSM by General Electric;– € 2,260 thousand relating to the PPA for NEG;– € 395 thousand for the temporary variations in Ansaldo Nucleare;– € 21 thousand for the temporary variations in A.S.EN.

Deferred tax assets and the corresponding receivables at 31 December 2016 amounted to:– € 6,919 thousand for the temporary variations in Ansaldo Energia;– € 2,240 thousand for the temporary variations in Ansaldo Nucleare;– € 263 thousand for the temporary variations in Ansaldo Thomassen;– € 628 thousand relating to the valorisation of the loss recorded by Yeni AEN Insaat;– € 444 thousand for the temporary variations in Ansaldo Russia;– € 78 thousand for the temporary variations in A.S.EN.;– € 734 thousand relating to the valorisation of the loss recorded by Ansaldo Energia Holding Italia;– € 3,358 thousand relating to the temporary differences and loss recorded by Ansaldo Energia Switzerland;– € 6,065 thousand referring to the deferred taxation relating to a risk fund.

Deferred taxes and related deferred tax assets and liabilities at 31 December 2016 recognised against equity are set out below:

Euro/thousand 31.12.2015 Equity impact 31.12.2016

Deferred tax assets recognised directly in equity for defined benefit plans – 2,190 2,190

Deferred taxes recognised directly in equity for cash flow hedge 1,056 773 1,829



38. Cash flows from operating activities

As at 31 December Euro/thousand 2016 2015

Net result 60,445 12,279

Amortisation, depreciation and impairment losses 94,565 82,739

Income taxes (12,047) (2,680)

Accruals to provisions (416) (48)

Defined benefit pension and stock grant plan costs 131 240

Gains on the sale of non-current assets 289 (121)

Impairment losses on equity investments cost measured 9,830 5,317

Financial income and expense, net of impairment losses on measured cost equity investments 37,760 42,995

Other non-monetary items (69,589) -

120,968 140,721

The change in working capital, shown net of the impacts of acquisitions and sales of companies and exchange rate gains andlosses, comprises:

Euro/thousand 31.12.2016 31.12.2015

Inventories 4,156 (39,166)

Work in progress and progress payments and advances from customers 36,710 77,672

Trade receivables and payables 11,909 24,088

Changes in working capital 52,775 62,594

The change in other operating assets and liabilities, shown net of the impacts of acquisitions and sales of companies and ex-change rate gains and losses, comprises:

Euro/thousand 31.12.2016 31.12.2015

Pension fund and stock grant payments (6,162) (7,670)

Change in provisions for risks (29,311) (40,545)

Changes in other operating items 22,982 (27,235)

(12,491) (75,450)

39. Financial risk management

The Group’s operations expose it to the following financial risks:• market risks, related to the Group’s exposure to interest-bearing financial instruments (interest rate risks) and to operations

in areas that use currencies other than the Group’s functional currency (currency risk);• credit risk, arising from normal trading transactions or financing activities.

The Group specifically monitors each of these financial risks and acts promptly to contain them including via hedgingderivatives.The potential impact of hypothetical fluctuations in the reference parameters on actual results is described below, includingusing sensitivity analyses. As set out in IFRS 7, these analyses are based on simplified scenarios applied to the actual figures of the reference years.However, because of their nature, they cannot be considered as indicators of the real effects of future changes in referenceparameters when a different financial position and different market conditions are considered. Moreover, they do not reflectthe interrelations and complexities of the reference markets.

Liquidity riskGiven its net financial debt, the Group is exposed to liquidity risk, which is contained by its ability to quickly generate cashflows sufficient to cover its operating requirements and also repay the loans it took on when it changed the parent’sshareholding structure. The business plans for the next few years, prepared on a prudent basis, support the above.

Interest risk managementThe Group’s net financial debt comprises a portion bearing interest at fixed rates and another portion at variable rates, whichis hedged by IRSs. However, it is exposed to the interest rate risk in relation to the investment of its liquidity. The risk has been assessed through a sensitivity analysis, as required by IFRS 7. Had the reference rates been higher (lower) by50 basis points at 31 December 2016, the profit for the year and equity would have been higher (lower) by € 1,959 thousand.

Currency risk managementThe Group’s procedures require that all revenue in foreign currency exposed to the currency risk be hedged on acquisition ofthe related contract. With respect to expenses, the Group’s policy provides that supply agreements are mainly contracted in Euros. Any foreigncurrency purchases are usually hedged by a corresponding amount of revenue in the same currency.Hedging transactions, i.e., currency purchase/sale forwards, are carried out with the parent and the banks. The notionalamount in Euros of all items hedged by sell-side derivatives totalled € 290,343 thousand, and € 51,906 for buy-side derivativesat the end of 2016.A sensitivity analysis of the effect of exchange rate fluctuations is meaningless, considering the modest exposure to foreigncurrencies.

Credit risk managementThe Group is exposed to credit risk in terms of both its trading counterparties and its financing and investing activities, inaddition to the guarantees given for third party liabilities or commitments.In order to remove or contain the credit risk from trading transactions, especially with foreign counterparties, the Group hasimplemented a careful hedging policy that provides for hedging trading transactions since inception and carefully monitoringthe conditions and payment terms to propose in its commercial offers, that may subsequently be included in sales agreements.Specifically, depending on the contractual amount, the type of customer and importing country, specific measures are takento contain credit risk, in terms of payment terms and related financial means required, such as stand-by or irrevocable andconfirmed letters of credit or, where this is not possible and if the country/customer is specifically at risk, the Group considerswhether to request an adequate insurance policy through the dedicated export credit agencies, like SACE, or internationalbanks, in the case of contracts that require financing of supply.

The following table breaks down trade receivables by geographical area and due date:



Other customers Euro/thousand Area Europe Area US Others Total

As at 31.12.2016

– Retentions 203 203

– Not yet due 88,196 14,025 68,787 171,008

– Overdue by less than six months (4,934) 124 640 (4,170)

– Overdue between six months and one year 8,926 322 32,197 41,445

– Overdue between one and five years 1,666 1,908 16,265 19,839

– Overdue more than five years 3,316 2,870 8,518 14,704

97,170 19,249 126,610 243,029

As at 31.12.2015

– Retentions 25 – 203 228

– Not yet due 67,956 699 63,876 132,531

– Overdue by less than six months 11,538 1,805 5,120 18,463

– Overdue between six months and one year 22,179 (160) 4,574 26,593

– Overdue between one and five years 4,047 3,066 23,580 30,693

– Overdue more than five years (184) 2,883 5,198 7,897

105,561 8,293 102,551 216,405

DerivativesThe following table shows the fair value of derivatives:

Fair value 2016 Fair value 2015

Assets

Currency forward/swap/option 3,644 –

Passività

Currency forward/swap/option 11,771 11,348

Interest rate swap 3,551 9,933


During the first months of 2017, the board of directors hasapproved the underlying guidelines of debt refinancing.

Key events that took place after the reporting period


Annexes

Reconciliation of the parent’s equity and profit for the year with consolidated figuresas at 31 December 2016

Euro/thousand Equity of which: Net Result

Parent's equity and Net result as at 31 December 2016 531,710 (7,239)

Equity surplus in annual financial statements compared to the carrying amounts of investments in consolidated companies (116,823) –

Consolidation adjustments for:

- difference between purchase price and relevant carrying amount of equity 114,562 12,552

- PPA Nuclear Engineering Group 550 441

- PPA Gastone 76,291 76,291

- elimination of intercompany profits (21,795)

- deferred taxes

- dividends (555) (555)

- actuarial gains and losses

- other adjustments (6,752) 863

Equity and Net result attributable to the owners 6 as at 31 December 2016 598,983 60,558

Non-controlling interests (123) (114)

Total equity and Net result as at 31 December 2016 598,860 60,444



Independent Auditor’s Report

Edited byAnsaldo Energia S.p.A.

2016Consolidatedfinancialstatements

16152 Genoa - Italy - Via N. Lorenzi, 8 - Phone +39 010 6551 - Fax +39 010 655 3411 - [email protected] - www.ansaldoenergia.com

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