consolidated ﬁnancial statements - ansaldo energia · ansaldo energia - 2018 consolidated...

2018Consolidatedfinancialstatements

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 - 2018 Consolidated financial statem

ents

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

Table of contents6 Significant data

7 Report on Operations

11 Analysis of the financial position

16 Financial situation

18 Alternative non-GAAP performance indicators

20 Management performance

28 Organisational and process/product developments

32 Research, development and technological innovation

36 Personnel

38 Environment and health and safety in the workplace

40 Occupational health and safety

42 Statutory information as per Law 124/2017

43 Risk management

44 Guarantees given as part of the agreement for the sale of the Parent Company’s shares

45 Performance outlook

47 Consolidated financial statements as of 31.12.2018

48 Consolidated income statement

49 Consolidated statement of comprehensive income

50 Consolidated statement of financial position

51 Consolidated statement of cash flows

52 Consolidated Statement of Changes in Equity

53 Reconciliation of the Parent’s equity and net result with consolidated figures

as at 31 December 2018

54 Notes to the Consolidated financial statements for the fiscal year ended on 31 december 2018

54 1. General Information

54 2. Form, contents and accounting standards applied

55 3. Accounting Standards adopted

69 4. Adoption of the new IFRS 9 and IFRS 15 accounting standards

71 5. Quantitative impacts deriving from the adoption of IFRS 9 and IFRS 15

74 6. Upcoming accounting standards and interpretations

75 7. Accounting standards, amendments and interpretations issued by the IASB but not yet

approved by the European Commission

75 8. Use of estimates

76 9. Risk management

79 10. Capital management

79 11. Financial assets and liabilities by category

81 12. Fair value measurement

81 13. Segment reporting

83 14. Intangible assets

85 15. Property, plant and equipment

86 16. Equity investments

88 17. Receivables and other non-current assets

89 18. Inventories

89 19. Contract work in progress and advances from customers

91 20. Trade receivables

92 21. Financial receivables

93 22. Tax liabilities and credits

93 23. Other current assets

94 24. Cash and cash equivalents

94 25. Equity

95 26. Non-current payables to related parties

96 27. Other current and non-current payables

99 28. Employee benefits

102 29. Provisions current and non-current

104 30. Deferred tax liabilities and deferred tax assets

105 31. Other current and non-current liabilities

105 32. Trade payables

106 33. Derivative financial assets and liabilities

106 34. Revenues

107 35. Other operating income and expense

108 36. Purchases and services

108 37. Personnel costs

109 38. Depreciation and impairment

109 39. Change in finished goods, work-in-progress and semi-finished products

110 40. Internal work capitalised

110 41. Financial income and expenses

111 42. Income taxes

111 43. Impact of related party transactions

111 43.1 Impact of related party transactions on assets and liabilities

116 43.2 Impact of related party transactions on profit or loss

118 44. Cash flows from operating activities

118 45. Guarantees and other commitments

120 46. Key events that took place after the reporting period

123 INDEPENDENT AUDITOR’S REPORT

These financial statements have been translated from those issued in Italy, from Italian into English, solely for the convenience of international readers.

ANSALDO ENERGIA 2018 Consolidated Financial Statements 6

Significant data

2018: € 1,165.4 M

2017: € 1,333.4 M

2018: € 1,172.3 M

2017: € 1,464.1 M

2018: € (232.0) M

2017: € 5.7 M

2018: € (930.5) M

2017: € (585.5) M

ORDERS2018: € 4,718.5 M

2017: € 4,836.8 MORDER BACKLOG

2018: € (189.8) M

2017: € 2.0 MEBIT

2018: € (307.9) M

2017: € (183.1) MFREE OPERATING CASH FLOW

REVENUE

NET RESULT

NET FINANCIAL DEBT

7ANSALDO ENERGIA 2018 Consolidated Financial Statements

Report on Operations

Dear Shareholders,

The 2018 financial year closed with a significant loss of €232.0 million due to certain extraordinary factors that will bediscussed below. Nonetheless, we would like you to considerthat the end of year result net of these non-recurringcomponents would have been a profit of approximately €2.0 million, substantially in line with the previous year. The Group’s management has also presented a business planfor 2019-2023, which has been approved by the Board ofDirectors. The plan outlines a number of strategic actions,which will lead to steady growth in the main financialindicators over the five years, and in particular in revenues,gross margin and EBITDA.The Group, therefore, has clear growth prospects in themedium term both in the New Unit business and in theService and Nuclear sectors.Against the backdrop of a weak energy market, a muchlower-than-expected international growth scenario, and allthe negative consequences that will be discussed below, ourresults give us good reason to hope for the future and forthe Group’s continuing ability to generate value.

The main significant events of the 2018 financial year were:• in order to provide a complete picture of the Group’s

situation vis-à-vis the Unit Group, we would briefly like tosummarise our path in previous years.Upon stipulating the supply agreement for a combinedcycle power plant with a power rating of approximately825MW in the industrial district of Gebze – Istanbul(Turkey) in 2011, the Parent Company stipulated anagreement with Unit NV concerning a share capitalinvestment in Yeni Elektrik, the company that had been

established to manage the plant in question. Under theinvestment agreement, the Parent Company acquired a40% holding in Yeni Elektrik, worth 120 million USD(originally approximately € 86 million) and subsequentlymade the capital injections needed to provide thecompany with the means to construct and manage theplant. The equity investment was accompanied by a series offurther agreements with Unit NV, which clearly stipulatedhow the parent company would have the right to sell itsstake to Unit NV at a fixed date, at the amount of itsinvestment plus a fixed return. This aspect justifiedrecording this item under financial receivables in pastfinancial reports.During 2018, Turkey’s economic situation deterioratedsignificantly, particularly following the devaluation of theTurkish lira against both the USD and the Euro, along withrising inflation and interest rates on bank loans. In thiscontext, the cost of gas and electricity also increasedsignificantly, accompanied by a fall in domesticconsumption.Financial credit, which amounted to € 233,868 thousandat 31 December 2017, had been written down at thatdate by € 148,868 thousand following the worsening ofYeni Elektrik’s liquidity situation and its resultingtemporary inability to meet its expiring liabilities. At theend of December 2017, this led to the Group needing toinject liquidity, also on behalf of the other shareholder. Atthe end of 2017, net credit amounted to € 85,000thousand.During the first few months of 2018, again on the basisof the agreements mentioned above, the ParentCompany had to pay for the gas supplies necessary to run


the power plant, since neither Yeni Elektrik nor thepartner Unit had met this requirement. The financialcommitment, also made on behalf of the othershareholder, amounted to € 11.7 million.In the meantime, we have started a series of meetingswith the banks in order to completely restructure YeniElektrik’s debt in a form that it could repay independently,which led to a standstill on the payment of interest duefor the first half of 2018 until the end of September 2018.An agreement was also reached to reduce some of theguarantees provided by the Group, along with theallocation of any benefits deriving from active litigationby the company Yeni Elektrik, up to a maximum of USD8 million. Lastly, in order to avoid a gas interruption bythe supplier, Yeni Elektrik was granted a further loan of65 million Turkish lira (about € 11.6 million), necessary topay for the gas supplies for the period.When the standstill expired, since no half-yearly interesthad been paid, the Group was obliged to pay out a bankguarantee of € 16 million, followed by the enforcementof another guarantee of € 10 million due to non-performance by the other shareholder. During the second half of 2018, the Board of Directors ofthe Parent Company resolved to exercise a 12% putoption on the shares of Yeni Elektrik, the maximumamount that can be exercised without the consent of thelenders. All parties involved received written notificationof this move, with no response or feedback. At 31 December 2018, in view of Yeni Elektrik’scontinuing financial difficulties, the Group decided towrite down the entire amount of the receivable from theUnit Group, which then amounted to € 112.0 million.The Parent Company is continuing to seek a solution tothis difficult situation that will allow the plant to continueto operate, also in light of its strategic position in theTurkish electricity system.Given these difficulties, the Group has also set up aprovision in order to cover the probable risk that thebanks, in view of the continuing indebtedness of YeniElektrik, will call in the guarantees provided by the Groupin their favour, in some cases jointly with the othershareholder: at 31 December 2018, the allocation to thisprovision had an impact of € 121.9 million on theconsolidated income statement;

• During 2018, due to the increased level of competitionon the markets in which the Group operates and theintroduction of new, heavier sanctions against Iran, amarket that had been identified as a potential target, theGroup was faced with a downturn in all the main

indicators, from turnover, which was 16% lower thanestimated in the Budget forecast (November 2017), toEBITDA and net financial indebtedness, which were alsosignificantly lower than forecast (-17% and -31%,respectively). The Parent Company’s management has thereforeproposed a contractual amendment to the banks withwhich the Group has outstanding loans subject tocompliance with financial parameters: – not to calculate the financial parameters as at 31

December 2018;– to set the leverage ratio at 5 at the end of 2019, at 4.8at the end of 2020, returning to 4 in subsequent periods.In a specific letter issued by their Facility Agent, theLenders have accepted these conditions and the requestfor amendment, in exchange for an increase in the spread(125 bps) and an amendment fee.This amendment is subject to some of the conditionsprecedents and some of conditions subsequents. Inparticular, for it to become effective, the Shareholdersmust agree to pay at least € 200 million in the form of asubordinated Shareholders’ Loan, no later than 31 May2019. The first condition has already been met.In fact, CDP S.p.A., through its subsidiary CDP EquityS.p.A., a shareholder of the parent company, todayannounced its binding intention to support the companywith a payment of € 200 million to be made no later than31 May 2019.This letter was acquired by the Parent Company’smanagement in time for the approval of these financialstatements.The Directors of the Parent Company may thereforeprepare these consolidated financial statements on agoing concern basis, having received:– a specific letter of acceptance from the Lenders not to

calculate the financial parameters as at 31 December2018;

– a binding letter of support from a shareholder whoirrevocably undertakes to make a payment of € 200million to the Parent Company by 31 May 2019.

The other Shareholder SEC has stated that it intends tosupport the Group in any case, but postponing theintervention for the time being, in agreement with theItalian Shareholder.

• On 14 August 2018, a section of the Morandi Bridge inGenoa, located right above the Parent Company’sproduction facility, collapsed, causing the Group a seriesof significant negative economic consequences. As aresult, production activities were first interrupted and


then significantly slowed, thereby increasing both theParent Company’s direct and indirect costs. Negotiationsare currently underway with the management of thecommissioner appointed to demolish and rebuild thebridge itself, and with the motorway concessionaire, toensure that the costs incurred by the Group following thecollapse are reimbursed;

• in April 2018, the Parent Company’s shareholderscompleted the € 80 million capital increase approved bythe Extraordinary Shareholders’ Meeting of 21 December2017, for their respective holdings;

• furthermore, in order to cope with the continuingdifficulties of the markets in which the Group operates,while also seeking to protect jobs and limit the risk oflosing key resources, we fell back on the defensivesolidarity contract. Normal working hours have beenreduced by 16 hours per month since April 2018, for theItalian companies only.

At an international level, the economic slowdown has ledsome of our main competitors to heavily revise their businessplans in the Group’s specific sector, announcing significantdevaluations in the Power industry. The limited size of ourGroup, while a disadvantage in some aspects of our

commercial presence in the various countries, makes it easierfor us to adapt our production and our offer than for ourcompetitors. In general, as described by ISTAT, the international economycontinues to show a highly patchwork recovery in differentcountries, while uncertainty about trade policies and thevolatile performance of the financial markets has led to therisk of a possible downturn. In the last part of the year, theEuro area economy slowed sharply, also due to thecontraction of Germany’s GDP. After a phase of slowing growth, in the last two quarters theItalian economy showed minimal growth levels of 0.2% and0.1% respectively, mainly due to the marked fall ininvestments and a slight drop in consumption. Foreigndemand, on the other hand, made a positive contribution toGDP growth. Profit margins fell for manufacturingcompanies, after remaining stable in the first half of the year.Nevertheless, the Group remains confident in itsshort/medium-term growth: in particular, the acquisition ofthe first two orders for the new class H turbine was extremelysignificant for future prospects, which will be discussedbelow. As a result, investment cuts in development have notbeen extended to the finalisation of the gas turbines.

ANSALDO ENERGIA 2018 Consolidated Financial Statements10


The reclassified consolidated income statement is shownbelow:

Analysis of the financial position

2018 2017 Euro/thousand

Revenue 1,172,314 1,464,053

1,172,314 1,464,053

Purchase and personnel expense (1,005,050) (1,306,560)

Impairment losses (114) (59)

Other operating net income (expense) (13,353) 3,915

Change in work-in-progress, semi-finished products and finished goods (2,115) 34,852

EBITDA 151,682 196,201

Amortisation and depreciation (44,671) (40,425)

EBITA Adjusted 107,011 155,776

Extraordinary (costs) / income (248,294) (98,389)

Restructuring Costs (4,538) (2,352)

Amortisation of intangible assets acquired with business combination (39,505) (53,069)

Other activities impairment (4,485) –

EBIT (189,811) 1,966

Net financial income (expense) (47,644) (56,261)

Income taxes (5,486) (59,950)

NET RESULT (231,969) 5,655

of wich third parties (17) (25)

NUCLEAR TOTALREVENUE

SERVICEOPERATIONS

NEW UNITSOPERATIONS

The revenue trend over the past two fiscal years and itsbreakdown by Business Line are as follows (in millions ofEuros):

The 2018 financial year recorded a significant 19.9% dropin revenues exclusively due to the New Units Business Line,which represents approximately 37.4% of revenues andapproximately 24.8% of the gross margin produced this year.This decrease is mainly due to the completion of a contractin Oman in 2017, which had a very significant impact onrevenues in the previous year. The Service Business Linerepresented 55.2% of the revenues but contributed 74.0%to the gross margin. Compared to 2017, the Service recordedan increase of 2.5% in revenues, but a decrease of 5.4% inmargins. Lastly, the Nuclear Business Line represents 7.3%of revenues, a slight increase compared to 2017, but onlycontributed 1.2% to the margin.


Net other income/operating costs, negative for € 13.4million, mainly includes the following items:• € 16.0 million for the product warranty provision;• € 8.6 million for the release of provisions due to non-

occurrence of the risks for which they were set aside;• 6.0 million for taxes and duties;• 1.5 million of net exchange losses on operating items;• 1.5 million for other net operating revenues.

0

200

400

600

800

1000

1200

1400

1600

2018

2017

747

439

632648

8586

1,173

1,464


The trend of the main indicators in the reclassified incomestatement is as follows (in millions of Euros):

EBITDA decreased compared to 2017 (22%) mainly due tothe decline in revenues and margins, especially in the NewUnit Business Line, described above.EBIT was mainly made up of the following items:• Ordinary depreciation and amortisation of € 44.6 million

(€ 40.4 million in 2017);

• Depreciation and amortisation deriving from theallocation of the PPA of € 39.5 million (€ 53.1 million in2017);

• Net non-recurring charges, integration costs, impairmentof other assets and restructuring charges of € 257.3million (€ 100.7 million in 2017), detailed as follows:

0

50

100

150

200

2018

2017

EBITDA NET RESULTEBIT

-50

-100

-150

-200

-250

2,0 5,7

Euro/thousand 2018 2017

Non recurring and integration costs -14,294 -31,766

Unit credit devaluation -112,079 -148,868

Turkey risk fund accrual -121,921 –

Impairment activities -4,485 –

Enipower fund release – 90,745

Asbestos extraordinary accrual – -8,500

-252,779 -98,389

Restructuring costs -4,538 -2,352

-257,317 -100,741

196,2

151,7

-189,8

-232,0


The trend of the total R&D expenditure can be summarisedas follows (in millions of Euros):

The significant increase in R&D spending over the last threeyears is mainly due to the new products in the portfolio.Financial management, showing a loss of € 47.6 million (€56.3 million in 2017), mainly includes € 17.1 million relatingto interest on the bond, € 6.3 million in other net interestpayable to banks, net exchange losses of € 4.5 million, bankcommissions and charges of € 8.8 million and € 3.4 millionin write-downs of equity investments.Income taxes had a positive impact of € 5.5 million. IRES forthe 2018 financial year amounted to € 9.2 million, IRAP to €

2.3 million, while foreign income taxes amounted to € 10.2million; this item also includes the allocation of deferred taxassets on deductible temporary differences for € 20.3 million,the release of deferred tax assets for € 11.9 million, and therelease of deferred tax assets for € 3.1 million, as well asminor movements for € 1.9 million.

The following table shows the reclassified consolidatedbalance sheet as of 31 December 2018 and as of 31December 2017:

0

20

40

60

80

100

120

140

2018

2017

Total Expense

Capitalized Expensed

85,075,9

41,133,4

of which:

126,1

109,2

Non-current assets mainly include intangible assets of €1,570.3 million, tangible assets of € 269.8 million, equityinvestments of € 31.8 million and deferred tax assets of €71.1 million.Non-current liabilities include employee severanceindemnities (TFR) and other defined-contribution plans foremployees for € 35.6 million, provisions for risks for € 101.0million, the provision for deferred taxes for € 137.1 millionand other non-current liabilities for € 40.7 million. The € 81.9million drop in non-current liabilities during the year is mainlydue to the release of € 27.7 million in provisions for risks,the € 14.3 million decrease in the provision for deferred taxliabilities, and the short-term transfer of the portion ofapproximately € 40 million relating to the General Electric

debt for the 2016 Gastone operation maturing at the end of2019.Net working capital went from a shortfall of € 280.0 millionin 2017 to a shortfall of € 239.5 million in 2018, with achange of € 40.5 million. This change is mainly due to theincrease in inventories, receivables and contract work inprogress of € 97.6 million, the significant reduction in tradepayables and advances of € 130.5 million, and the changein provisions for short-term risks and other short-term assetsand liabilities of € 187.6 million. Shareholders’ equity amounted to € 449.5 million andconsisted of share capital of € 180 million, retained earningsand other reserves of € 501.5 million, less a loss for the yearof € 232.0 million.


Euro/thousand 31.12.2018 31.12.2017

Non-current assets 1,944,104 1,893,903

Non-current liabilities 324,644 406,560

1,619,460 1,487,343

Inventories 686,501 627,503

Contract work in progress 225,387 200,208

Trade receivables 300,507 287,062

Trade payables 423,697 556,091

Progress payments and advances from customers 804,244 802,356

Working capital (15,546) (243,674)

Current provisions 134,407 15,552

Other net current assets (liabilities) (89,547) (20,748)

Net working capital (239,500) (279,974)

Net invested capital 1,379,960 1,207,369

Equity 449,446 621,868

attributable to non-controlling interests (151) (147)

Net financial debt 930,514 585,501

The net financial debt as of 31 December 2018 and 2017 isshown below.

Net financial debt amounted to € 930.5 million at 31December 2018, an increase of € 345.0 million compared to31 December 2017 (€ 585.5 million).The change in financial debt is mainly due to the followingfactors:• use of the Revolving Credit Facility that the Group has

with a pool of banks for € 285 million, not used in 2017.At 31 December 2018 this line remained unused for €85 million;

• repayment of medium- and long-term loans for € 25million;

• reduction in the use of hot money credit lines for € 65million;

• write-down of the other financial receivables recorded up

to 31 December 2017 for € 85 million, as part of theaforementioned transaction relating to the settlement ofreceivables from UNIT NV.

Short-term financial debt, including other payables, of €400.9 million at 31 December 2018 consisted mainly of theaforementioned Revolving Credit Facility for € 285 million,hot money lines of credit for € 62 million, payables to factorsfor € 8.2 million, short-term portions of medium and long-term loans for € 25.2 million and other minor items totalling€ 20.5 million.Medium/long-term financial debt, amounting to € 759.7million at 31 December 2018, mainly refers to outstandingbonds for € 621.6 million and the remainder tomedium/long-term loans.


Financial situation

31.12.2018 31.12.2017 Euro/thousand

Current loans and borrowings 392,524 158,449

Non-current loans and borrowings 759,723 780,118

Cash and cash equivalents 229,324 276,300

BANK LOANS, BORROWINGS AND BONDS 922,923 662,267

Related parties financial receivables 851 5

Others financial receivables – 85,000

CURRENT FINANCIAL RECEIVABLES 851 85,005

Related parties loans and borrowings – 1,519

Other current loans and borrowings 8,442 6,720

OTHER LOANS AND BORROWINGS 8,442 8,239

NET FINANCIAL DEBT 930,514 585,501

The explanatory notes contain detailed information regardingthe aforementioned financial relationships.

All loans, with the exception of bond issues, must complywith certain financial covenants, which are described in the

first part of this report and in the relevant section of theexplanatory notes.Total cash and cash equivalents amounted to € 229.3 million,a decrease of € 47.0 million during the year, as reported inthe reclassified cash flow statement below.


2018 2017 Euro/thousand

Cash and cash equivalents as at 1 January 276,300 250,890

Gross cash flows from operating activities 143,040 161,962

Change in other operating assets and liabilities (121,594) (125,058)

Funds from operations (FFO) 21,446 36,904

Change in working capital (205,001) (72,515)

Cash flows generated from (used in) operating activities (183,555) (35,611)

Cash flows used in ordinary investing activities (124,333) (147,536)

Free operating cash-flow (FOCF) (307,888) (183,147)

Strategic transactions – (11,008)

Change in other investing activities (79) (291)

Cash flows generated from (used in) strategic investing activities and other (79) (11,299)

Cash flows generated from (used in) investing activities (124,412) (158,835)

Capital increase 80,000 –

Net changes in other financial liabilities 181,690 222,748

Cask flows generated (used in) financing activities 261,690 222,748

Exchange rate gains (losses) (368) (3,804)

Other changes (331) 912

Cash and cash equivalents as at 31 December 229,324 276,300

As previously mentioned, the fall in cash and cash equivalentsis mainly due to changes in working capital of € 205 millionand investment activities of € 124.3 million, partially offset

by the capital increase of € 80 million and the change infinancial debt of € 181.7 million.

The management assesses the Group’s financial performanceusing certain non-IFRS indicators, as described below.

EBIT

Adjusted EBITA

EBITDA

Free Operating Cash Flow(FOCF)

Funds From Operations (FFO)

Economic Value Added (EVA)

Working capital

Profit before taxes and financial part

EBIT net of:• Impairment on goodwill;• Amortisations on PPA allocations;• Restructuring expenses;• Other non-recurring expenses/income.

Adjusted EBITA net of amortisations anddepreciations of fixed assets

Cash flow from operational andinvestment activities, net of that for“strategic investments”.

Cash flow of the operationalmanagement, net of the changes inworking capital

Difference between the adjusted EBITAand the average capital invested duringthe two fiscal years, measured accordingto the WACC (8.6% as of 31 December2018)

Trade receivables and payables, work inprogress and advances

€ (190) million

€ 107 million

€ 152 million

€ (308) million

€ 21 million

€ (10) million

€ (16) million

€ 2 million

€ 156 million

€ 196 million

€ (183) million

€ 37 million

€ 127 million

€ (244) million


Alternative non-GAAPperformance indicators

Indicator Description 2018 2017


Net working capital

Net Invested Capital

Orders

Order Backlog

Return On Sales (ROS)

Return On Investments (ROI)

Return On Equity (ROE)

Workforce/Average Workforce

Working capital net of risk provisionsand other current assets and liabilities

The net working capital and thealgebraic sum of the non-current assetsand liabilities

Sum of the contracts signed withclients during the fiscal year

Difference between orders acquired asof the balance sheet date andprogressive sales

Ratio of adjusted EBITA and Revenues

Ratio of adjusted EBITA and averageinvested capital during the two years

Ratio of Net Income and average equityduring the two years

Number of employees as of thereporting date

Average number of employees duringthe year

€ (240) million

€ 1,380 million

€ 1,165 million

€ 4,719 million

9.1%

8.3%

(21.6)%

4,086

4,212

€ (280) million

€ 1,207 million

€ 1,.333 million

€ 4,837 million

10.6%

15.1%

0.9%

4,367

4,291

Indicator Description 2018 2017


Management performance

Market prospects and competitive positioning

The performance of the global market for theconstruction of power generation plants andcomponents, and the relative outlook

The trend of the market for the construction of plants andcomponents in which the Group operates is stronglycorrelated to forecast electricity demand, which in turnvaries mainly in line with macroeconomic fluctuations.In 2018, real-world GDP growth remained stable at 2017levels (+3.7%); compared to the previous year, there was anincrease in North America, the Middle East and sub-SaharanAfrica, offset by a slowdown in the Eurozone, China andsome areas of Asia.It is expected to remain relatively stable in the 2019-2023period (GDP +3.7% in 2019 and 2020 and +3.6% in thefollowing years), with growth in the Middle East, sub-Saharan Africa and South America, stability in North Africaand Asia, while a slowdown is expected in Europe, NorthAmerica and China. (source: International Monetary Fund).Medium/long-term prospects point to the growing globaldemand for electricity, although at slightly lower rates thanprevious estimates, with a 2019-2030 CAGR of around2.6% (Source: International Monetary Fund: GlobalData).As far as the mix of fuels used to generate electricity isconcerned, coal continued to be the most widely usedsource for the whole of 2018, contributing to around 37%of production, substantially in line with 2017, followed bygas with around 23%. Nuclear power’s contribution remainsaround 11%, as does hydroelectric power at 16%, while oilis in constant decline and represents a marginal share ofaround 3%. Other renewable sources (wind, solar, biomass,etc.), which are constantly growing, accounted for about10% of world electricity production (source: GlobalData /International Energy Agency).The 2018 data provided by McCoy show a worldwidereduction in fossil fuel power plants and components to justover 70GW (-19% compared to 2017). Demand shrank in2018, as it did in 2017, and over-capacity led to limitedindustry margins. This decline affected both orders for steamturbines in traditional fossil cycles (-25% compared to 2017)and orders for gas and steam turbines for combined cycles(-14% compared to 2017). Orders for steam turbines fortraditional fossil cycles are expected to contract further inthe coming years, mainly due to the gradual reduction ofcoal as an energy source. In the five-year period 2019-2023,

orders are expected to recover for both open and combinedcycle gas turbines.In the nuclear sector, new units are expected to beconcentrated mainly in emerging countries. Belgium andGermany are withdrawing, France, Sweden, Switzerland,Japan and Korea are partially cutting back and, at the sametime, there is growth in around 20 countries developing newprojects, including China, India, Russia, the United ArabEmirates and Saudi Arabia. Canada and the United Stateshave recently announced that they want to maintain aconstant nuclear share in the energy mix. Nuclear capacityin China is expected to exceed that of the United States andthe European Union by 2030.In 2018, about 60 GW of new nuclear power plants wereunder construction, with about 40 GW expected to comeon stream by 2020. About two-thirds of these new plantswill be built in Asia (of which almost 50% in China). While the contribution of nuclear energy to the mix of fuelsused to generate electricity is expected to remain stable orto grow slightly in 2040, fluctuating between 9 and 13%,growing attention to environmental issues could affect thisestimate (source: GlobalData/International EnergyAgency/World Nuclear Association). Due to the increasinglyrestrictive safety measures introduced by many countries,we also expect to see an increase in service activities forexisting nuclear power plants. Moreover, abandonment ofnuclear power by some countries, together with a growingnumber of plants that have reached the end of their usefullife, will lead to growth in the waste management anddecommissioning segment in the coming years.The constant reduction in the cost of electricity (LCOE) fromrenewable sources, combined with growing internationalattention to environmental issues, has made these plantsthe main source of new installations in 2018 with a shareof 57%, confirming the trend of the previous year. The newwind and photovoltaic installations mean that thecumulative installed base is constantly growing, bringingattention to the need to focus on flexibility in managingfluctuations in production; and gas plants remain the mainsource to guarantee this flexibility.The energy mix for electricity production could fluctuate inthe short and medium term, with a significant contributionfrom traditional sources, especially in some countries.However, in the long term, the importance of traditionalsources is expected to decline, in favour of renewablesources. In particular, the mix for electricity production by2040 envisages substantial stability in the share of gas duealso to the growing use of natural gas-fired plants as back-


ups (grid balancing) for the increasing installation ofrenewables. By contrast, gas is expected to growsignificantly in China, where current consumption willdouble in the next 15 years, following the centralgovernment’s policy of a “coal-free” country.Coal and oil are set to shrink as their contribution to theenergy mix by 2040 is expected to fall to 5% (ifenvironmental policies become more stringent), or 33% (ifcurrent policies are maintained) for coal and 1% for oil. Theshare lost by these traditional sources is expected to bereplaced by clean energy sources. Hydroelectricity is stableand is expected to fluctuate between 14% and 19%. Theincrease in the contribution of renewable sources within theenergy mix (it is estimated that in 2040 they could represent20-46% depending on the measures adopted by the variouscountries) also means that OEMs will need to provideintegrated hybrid solutions that allow the stockpiling ofelectricity and, at the same time, to develop high-efficiency,flexible and fast reaction gas turbines to meet the demandsof the grid. However, the improvement of electricity storagetechnologies and the decrease in related costs could allowenergy produced from renewable sources to stabilise,constituting a possible alternative to gas peak plants tomanage temporary fluctuations in supply/demand, requiringa long-term review of the design of new traditional plants.

Performance of the reference market and outlook

The picture described in the previous chapter varies slightlyregion by region for the year 2018.After rebounding in 2017 (2GW), Europe reached 1GW in2018, in line with the trend of recent years. The Middle Eastrecorded the same performance as in previous years with 4GW sold.The African market stands at just over 1 GW in 2018; inparticular, Sub-Saharan Africa has not yet achieved theexpected growth performance, due to geopoliticalinstability, lack of infrastructures and difficulties in raisingfunds.The Asian market recorded two contrasting trends. WhileChina is the best-performing country in recent years (8GWsold representing 40% of the global market in the 50Hzsegment), orders in Southeast Asia fell by 34% comparedto 2017. We expect, however, recovery of orders in this areain the coming years.South America had a disappointing year with only 3machines sold for a total of 0.2 GW. Orders in Russia are in

line with those in 2017 and below the country’s potential.If we analyse the orders for gas turbines (used for open-cycleor combined-cycle plants) within the regions belonging tothe Group’s main market of reference (50Hz and +50MW),Ansaldo Energia Group’s market share in 2018 wasapproximately 8%, slightly lower than in 2017 (10%).General Electric, with approximately 25%, recorded asubstantial decline in its market share. Siemens won 30%of the market (in line with last year). Mitsubishi’s commercialperformance was excellent, reaching about 38% of themarket share.Class H machines, which now account for almost 36% ofthe total market, performed strongly (Source: McCoy).As far as the market at 60 Hz above 70MW is concerned,the data for 2018 show a further decrease of about 42%compared to 2017, with the following main market shares:General Electric 70% and Mitsubishi 30%. Siemens did notrecord any orders in this segment in 2018. At present, theAnsaldo Energia Group does not operate in this sector butmay consider possible future opportunities in this segment.As for the medium-term outlook, gas turbine orders areexpected to recover in 2019-2023 in terms of installed MW,in line with the main macroeconomic and geopoliticalscenarios, while growth in terms of the number of units isexpected to be more contained due to the increasingdemand for high power and efficiency class H products. In particular, in Europe we expect to see the replacement ofold power plants with new, more modern and efficientplants. Europe and North America are expected to reach apeak in installed gas capacity in 2025-2030, followed by agradual downturn due to the growth of renewable sources.Demand is expected to remain stable in the Asia/Pacific area(China in particular), where about 40% of orders for newgas-fired facilities would be expected to come from. Ordersfrom the Middle East and North Africa are expected to grow,but these areas remain vulnerable to political instability(source IEA; McKinsey Global Energy Perspective; EnergyInsights). In response to market demand, the AnsaldoEnergia Group is strengthening its commercial presence inthe areas of greatest interest. In the service sector, the medium/long-term outlook pointsto a growing market for at least the next ten years, despiteever-increasing competition. China, Southeast Asia, and theMiddle East are the regions where greater growth isexpected. The increase in the installed fleet of renewable plantsrequires attention to grid management, both by highlightingthe importance of integrating gas plants with renewable


sources and storage systems to harmonise supply anddemand, and by upgrading traditional plants, both new andexisting, to offer ever higher standards of reliability, costfocus, improved flexibility, adaptation of plants to use newfuels (primarily hydrogen), improved functionality and afocus on predictive maintenance, all areas in which theAnsaldo Energia Group has long been committed.

Commercial activities

Orders by geographical area and business line

In 2018, the Group acquired orders for € 1,165.4 thousand,a reduction of 12.7% compared to the previous year, due tothe effect of a generalised decrease in both the new unitsegment (-3.6%) and the service segment (-5.6%), while thenuclear sector showed a marked decline (-72%). The 2018orders are shown below by Business Line and bygeographical area, and are compared to the same data from2017 (figures in millions of Euros):


ORDERS 2018 (Euro/million) NEW UNITS SERVICE NUCLEAR TOTAL

TOTAL 368 756 41.4 1,165.4

ITALY 267.2 95.1 3.2 365.5

EUROPE 0.3 205.2 36.3 241.8

MIDDLE EAST 37.8 305.7 – 343.5

AFRICA 0.1 57.3 – 57.4

ASIA 62.6 23.6 – 86.2

AMERICA – 69.1 1.9 71.0

ORDERS 2017 (Euro/million) NEW UNITS SERVICE NUCLEAR TOTAL

TOTAL 381.9 801 150,5 1,333.40

ITALY 3.1 217.3 3.3 223.7

EUROPE 35.4 119.4 146.8 301.6

MIDDLE EAST 25.2 49.5 – 74.7

AFRICA 226 37.9 – 263.9

ASIA 92.2 80.9 – 173.1

AMERICA – 296 0.4 296.4

New Units

In 2018, orders in the gas turbine market remained at a levelequivalent to 2017, which was 30% lower than in theprevious five years.

Despite this challenging market environment, the Group wontwo important orders for the GT36 gas turbine, marking asignificant entry into the H-class segment of large gasturbines. The first order was for the supply of the 750 MWpower island at Edison’s Porto Marghera site, and the secondfor the supply of only the gas turbine at the Minhang site inChina for the end customer Shanghai Electric Power.

2018 also saw intense commercial activity for projects thatcould soon be launched also in Europe, and for which theGroup has a good chance of winning contracts: in particular,turnkey contracts for plants with open-cycle gas turbines tocover peak consumption, an essential feature given theimpossibility of planning the generation of energy fromrenewable sources.

The Group has maintained its presence in the Chinesemarket, thanks to the intense collaboration with SEC, andhas begun to explore the possibility of expansion in South-East Asian markets, by means of commercial and marketingactivities that will also be supported by opening a sales officein Vietnam.

The volume of new acquisitions amounted to approximately€ 350 million; the following main supply orders wereacquired during the year:• four synchronous compensators for Terna at the Matera,

Garigliano and Manfredonia sites;• components for two AE64.3A gas turbines for SEC in

China;• an AE94.3A gas turbine and related electric generator for

the Qeshm site in Iran;• a GT36 gas turbine for the Minhang site in China;• a power island (GT36 gas turbine and relative generator,

recovery boiler, steam turbine and relative generator,condenser) for the Porto Marghera site.

Service Continuous product improvement and local promotion byregional structures, combined with the technological focusof the Business Lines, have led to our Global Service

achieving a significant result in terms of new acquisitions,amounting to € 756 million, confirming its role as a growthdriver for the Group. These excellent results are the fruits ofthe efforts made in recent years on both the OEM front(machinery and systems manufactured by the parentcompany Ansaldo Energia), as well as on the OSP front(machinery and systems manufactured by third partycompanies), which has reinforced the Group’s strategy ofoffering itself as a single provider of high-tech services forGas Turbines, Steam Turbines and Electric Generators.

In order to better understand the performance dynamics, themain considerations relating to the various areas are providedbelow:

ItalyThe flexible approach and consistent performancedemonstrated over the years have confirmed the parentcompany Ansaldo Energia as the market leader, obtaining €543 million in new orders. The use of innovative predictivemaintenance techniques, combined with the developmentof digitisation packages, has allowed for the plants’ usefullives to be extended, while at the same time increasing theiroperational flexibility.

EuropeThe progressive decline of coal, the new clean combinedcycle technologies, their increasing operational flexibility, andthe innovative digital techniques have allowed the utilities torediscover a key role for their gas plants. Thanks also to theGroup’s commercial activities, new customers were able tobe acquired, and the growth objectives were able to beachieved (€ 205 million, for an increase of 71.9% withrespect to the same figure for 2017). The continuous drivefor localisation has led to Russia becoming the old continent’ssecond largest market, after Italy, in terms of volumes.

Africa In 2018, the Group’s local business confirmed its ability todrive growth: orders acquired in this area amounted to € 57million, up 51.2% on the previous year. Morocco, on the onehand, through its Field Service Hub, continued to be centralto the acquisition of new orders for the Mohammedia andKenitra sites.On the other hand, the establishment of Ansaldo Algeria, onthe back of the strategic decision taken in 2017, brought thenecessary impetus to relaunch service activities in Algeria,


which has always been the reference market in the areathanks to the 4000 MW of installed OEM power. Also ofnote is the major acquisition in Tunisia of the LTSA contractin Mornaguia, linked to the construction of the open-cycleplant with 2 Turbogas AE94.3A.

AmericaFollowing the outstanding result in 2017, North Americarecorded € 67 million in new acquisitions, well belowexpectations and the 2017 results. This was due to renewedcompetition from traditional OEMs, GE and Siemens, whichmade it impossible to acquire any new long-term contracts(LTSAs).Latin America continues to be a market for traditionalAnsaldo Energia steam turbine and electric generatortechnologies. Also of note is the continued expansion of theHydro business.

Middle EastDuring 2018, this region was the perfect example of anintegrated approach across all the Business Lines, achievingexcellent results in terms of growth (+517.5% year-on-year)with € 306 million in new acquisitions. The Group’s presencein the area and the new MESH Field Service Hub haveenabled it to strengthen relations with traditional customers,renewing the key LTSA for the Fujairah site (GT26 Platform),and to acquire important new LTSA contracts for the

Taweelah site, the perfect combination of OEM and OSPtechnology.Thanks to PSM’s new 60Hz product portfolio, the firstTurbogas contract in Saudi Arabia for 7FA technology wasalso acquired.The region also continues to offer ample opportunities forthe integrated promotion of all the group’s service products.

AsiaOn the one hand, the Group’s partnership with ShanghaiElectric Corporation has allowed for major new acquisitionsto be brought to the Chinese market, while on the otherhand, it has shifted the focus of the Group’s service activitiesto the East, thus allowing it to gain entry into new markets,which achieved a solid result of € 21 million, although downsignificantly on 2017. It is also worth noting thestrengthening of the 9FA technology business in Japan(supply of new hot parts and rotor maintenance).

Nuclear

Acquisitions in the 2018 financial year and the order bookfor the Nuclear Business Line totalled € 41.5 million and €102.1 million respectively, broken down as follows (in €million):


Euro/million Orders Orders Backlog

New Units 9.6 8.6

Decommissioning 21.1 20.8

Services 4.7 56.9

Defence 6.1 7.8

With regard to the breakdown by geographical area,acquisitions in Europe accounted for 91.9% (97.6% in2017), while those in Italy accounted for 8% (2.2% in 2017),with China representing the residual amount.

In the new plants’ segment, the main orders acquired in2018 were associated with the ITER Vacuum Vesselrealisation contract (€ 6.2 million) and the extension of thespecialised support activities at the Mohovce site (for € 1.3million).

The Italian Decommissioning segment saw orders in line withthe previous year. In the UK, also in the decommissioningsector, a very significant order was placed for the Sellafieldsite, which brought the total orders acquired in that countryfor this business to € 19.8 million.

In the Service sector, the most significant acquisition (€ 2.8million) was for additional services as part of the constructionof two new security systems for the PWR plant in Krsko,Slovenia.

The UK defence sector recorded a decrease compared to lastyear, with orders acquired for € 6.1 million.

Many of the previously announced projects for new nuclearpower plants, both in Europe and Latin America, have beencancelled or postponed. This is the case in Argentina, wherethe investment in a new CANDU unit has been abandoned(although the possibility of proceeding with a Chinese PWRtechnology unit is still under discussion), and also in otherplants in the UK, apart from the EPR currently underconstruction at Hinkley Point. In Romania, the project for thenew Cernavoda 3 & 4 units has not seen any significantprogress. The only positive signs are those from countries(Finland, Hungary, Turkey, and Egypt) interested in thebuilding nuclear plants using Russian PWR technology, oftenwith significant financial backing.

In the decommissioning segment, demand continues tofluctuate in the various European countries, in most caseslinked to the availability of adequate funding, often public(as in the UK and also in Italy). However, after years ofuncertainty about the timing of the actual dismantling of theplants following the decision to close them in the wake ofthe Fukushima accident in 2012, significant opportunitieshave materialised in the German market. The Group hasfollowed these trends closely, concentrating its commercialactivities in particular in the United Kingdom and Germany.

There is still a high level of interest in modernising the plantsin operation, both for financial reasons and forenvironmental compatibility, against a background ofgrowing pressure, at least in Europe, to close coal-firedplants. The Group has a strong position in this marketsegment, which will continue to be promising in the comingyears, and it is committed to completing the Embalse lifeextension projects in Argentina and the Krsko safetyimprovements in Slovenia.

The progress of the ITER project, in which the Group isinvolved, opens up significant new opportunities, some ofwhich have already reached an advanced stage of definitionat the beginning of 2019.

Production activities

New UnitsDuring the course of 2018, Ansaldo Energia Groupcontinued to operate in various parts of the world, achievingresults that were consistent with the expectations; inparticular, the main countries in which the Group operatesare the following: Italy, Egypt, Algeria, Tunisia, Congo, Iran,China, Indonesia and Oman.The main results achieved in relation to the various projectsare indicated below.

Middle East • IranIn August 2018 the Mazandaran open-cycle plant startedcommercial operation, while the steam turbines ofMazandaran, Dalahoo and Heris were delivered. Qeshm’s gasturbogenerator was shipped in October 2018.

• OmanIn 2018, all eight GT26 gas turbines and four steam turbinesof the combined cycle plants in Ibri and Sohar were put intooperation.

Asia• Indonesia– Grati: provisional acceptance (Taking Over Certificate) was

received for two AE94.2 open-cycle gas turbinegenerating units (unit 1 on 25 May 2018 and unit 2 on25 June 2018);

– Kamojang: the Final Acceptance Certificate for thegeothermal steam turbine plant was received on 15December 2018.

• China– Sihui: the reliability run was completed and commercial

operation began for both AE94.3 gas turbine generatingunits (unit 1 on 8 June 2018 and unit 2 on 23 July 2018);

– Shangzhuang: the reliability run was completed on 28September 2018 and commercial operations for theAE94.2 gas turbine generating unit started;

– Jiangmen: the reliability run was completed andcommercial operation began for both AE64.3 gas turbinegenerating units (unit 1 on 16 August 2018 and unit 2on 22 September 2018);

– Zhoukou: on 4 October 2018, the reliability run wascompleted and commercial operation began forGeneration Unit 1, with gas turbine AE94.3.


In addition, some activities relating to other contracts withSGC were completed: – supplies for projects Rongcheng 1 (a gas turbine AE94.2),

Gao Yao 1 and 2 (parts for gas turbine AE94.3) werecompleted;

– parts for the Zhang Jia Gang 1 project (AE94.3 gasturbine) were shipped;

– assistance continued for the assembly and commissioningof other gas turbine units supplied by the ParentCompany (Zhoukou projects, Fengxian with AE94.3 gasturbines, Minzhong with two AE94.3 gas turbines).

North Africa• AlgeriaAin Djasser III: provisional acceptance of the EPC plant forunits 5 and 6 was obtained on 20 December 2018.

• TunisiaMornaguia: regarding the EPC contract, the “Notice ToProceed” was received on 30 July 2018 and the two gasturbogenerators were shipped in September and December2018. Construction work is still in progress.

• EgyptAl Shabab: With regard to the conversion contract from opento combined cycle for units 1 and 2, the Taking OverAcceptance Certificate was obtained on 9 April 2018 for unit1 and on 16 May 2018 for unit 2.6th October: For the conversion contract from open tocombined cycle for four units, the Construction CompletionCertificate was obtained on 19 November 2018.

• Sub-Saharan AfricaCongo: for the expansion of the CEC plant with the inclusionof a third unit with gas turbine AE94.2, the delivery of thesupply by the Parent Company to the construction site wascompleted in December 2018.

ItalyOn 19 January 2018, Solvay’s client obtained provisionalacceptance of the Rosignano plant, which saw the turnkeyreplacement of an AE94.2 gas turbine supplied in the 1990swith a latest-generation AE94.2 turbine, including alternatorand auxiliary systems.

Service In 2018, the Global Service recorded economic and financialresults in line with the expectations and results of theprevious year. This was possible thanks to the careful

planning of resources in terms of both man-hours andmaterials rendered available at the clients’ production sites.As a result, 2018 has made it possible to further increase thenumber of maintenance inspections (over 460) and hoursworked (over 1,800 thousand), using both the so-called FieldService Network, the sum of the workforce of the variouscompanies that make up the Group, and the factorypersonnel employed in field activities, balancing theworkload.Excellent performance was achieved at the Fujairah (UAE)site, where the Baden team, assisted by the Genoa andMESH (Middle East Service Hub) workers, completed boththe C-type overhaul and the two unscheduled overhauls ofthe Turbogas GT26 units, in advance and to the fullsatisfaction of the customer. Also at the international level,maintenance was carried out on the 7FA units inLawrenceburg (USA), a new and important acquisition at theend of 2017, which also implemented technologicalupgrades on hot parts (GTOP 3.1) and burners(Flamesheet™), in compliance with deadlines andsafety/quality standards.In continuity with the activities of the previous years, theGlobal Service division has continued with the on-siteintroduction and validation of new products and services,such as GTOP power and efficiency upgrades, and advancedMXLs from Genoa and Baden, as well as combustion andplant operating flexibility improvements like Flamesheet™,Velonox™, Autotune™ and Apex.

Nuclear production activities

Despite 2018 revenues substantially in line with the previousyear (+2.0%), the year just ended was marked by operatinggrowth and a significant loss of margins for the nuclearsector.In 2018, significant costs were incurred in connection withthe Embalse construction site, tackling the lack of quality inthe local supply chain, and especially the financial difficultiesresulting from the crisis that the country has experienced.Although the new emergency Diesel station was successfullystarted up and the Turbine and thermal cycle auxiliaries wereassembled, the extra costs generated during the year led toa significant economic loss.


Organisational and process/product developments

Factory

Factory operating lines have consistently met productionrequirements for the manufacture of new machines, thereconditioning of machine parts, and specialist on-sitesupport for both assembly and service activities.

More specifically, during 2018 the new Genoa Corniglianoplant became fully operational, meeting importantmilestones such as assembly and subsequent shipment of thefirst AE94.3A gas turbine from the port of Genoa, followedby a second turbine.

In the second half of 2018, the first GT26 model gas turbinewas fully assembled at this plant, following the 2016acquisition from General Electric of Alstom’s large gas turbinetechnology. The target of delivering the machine by 2018was met, demonstrating the good level of skills alreadyacquired by Ansaldo resources on the new technology.

During 2018, production activities began in earnest for theformer Alstom GT26 and GT36 S5 models, completingimportant work phases that made it possible to test and fine-tune the investments made with greater continuity, the mostrecent of which was the flushing plant needed to test thering burners used for the GT36 models.

The growth in service volumes and the slowdown in themarket for new units made it necessary to define andimplement a number of measures to redistribute factoryresources. This has made it possible both to provide greatersupport for Field Service activities and to increase internalcapacity in the pallet production line. The workload on thisproduction line increased, not only for the Servicecomponent but also due to the increase in testing activitiesfor the new products.

The new production unit called GRC (Genova Repair Center)and dedicated to activities relevant to the Service business,such as the reconditioning of the hot blades of the gasturbine, successfully delivered the first customer batches andbegan testing new hot parts of the gas turbine (such asburners) to expand business opportunities for the Service.In July, the Lighthouse Plant project was officially launched,entailing the application of the main digital technologies inmanufacturing processes: this involves rethinking some

factory management processes and represents an importantopportunity to increase efficiency.

Service

In 2018, the Regional-Business Lines matrix organisation wasstrengthened, consolidating the new project bidding andperformance processes. Once all the new subsidiaries hadbeen integrated within the Group, the interaction-cooperation phase began to simplify the approach tocustomers, maximising the Group’s economic results.

Part of this involved unifying the integrated 24/7 RemoteMonitoring and Diagnostic (RM&D) technology platform,based on the two main hubs in Genoa (IT) and Jupiter (US),using the OSISoft PI system, bringing the number of unitsmanaged remotely to almost 300. This service, which is alsoextended to other plant components, makes it possible tocollect and subsequently process the data underlying thedigital predictive diagnostic (APEX) and condition-basedmaintenance (CBMEX) systems which, together with theAutotuneTM system, allow our customers to maximise plantperformance and reduce downtime.

With the same aim of optimising processes, the Field ServiceNetwork (FSN), composed of the field operating units of thevarious business lines, has developed training programmesto allow our resources to acquire transversal skills andknowledge of the technologies available to the Group. Alsowithin the FSN, work has begun on the plan to digitise thetools available to field staff. This programme, still in theexperimental phase, was tested in the inspections ofScandale (GT26) and Turbigo (94.3A).

Finally, in close collaboration with the innovation and productengineering bodies, the Group continued its developmentand testing of innovative solutions aimed at improving theperformance of its machinery, extending the maintenanceintervals, and increasing the flexibility/reliability of its plants,in order to render them fully accessible in terms of“retrofitting” the existing fleet.


Engineering

During 2018, product and plant engineers were particularlycommitted to the offers that, given the particular marketmoment, require ever greater flexibility in terms of deviationfrom standards and applications on configurations aimed atnon-traditional markets for the company as well as,obviously, to consolidate the integration of new models oftype GT gas turbines and the developments of the Group’shistorical products.

The following were particularly important in terms of productengineering for gas turbines:• support activities for the start-up of the first 94.3A Evo

machines (Sihui, Mazandaran);• reverse engineering activities for solutions applied to

competitors’ fleets in collaboration with Service;• the constant search for solutions that allow costs to be

reduced while maintaining the current quality standard.The results of the functional and performance tests passedwith a positive overcome for the following projects are ofparticular importance: Ain Djasser units 5 and 6, Labreg units1, 2 and 3, Grati units 1 and 2 and Sihui unit 10.

With regard to product engineering generators we have:• acquired an order from Terna for 4 synchronous

compensators, thanks to the availability of an additionalinertia system working under high vacuum;

• internal tests were successfully completed on theprototype H2 cooling generator type THR-10-53,intended for the Mornaguia job order;

• delivered and put into service 2 salient pole rotors forhydro generators of the Premadio power plant withinnovative design and intended to replace the originalcompetitors’ ones;

• commissioned the H2 generator type THR-L63 doublecoupling in the Mazandaran plant;

• completed the design of the 1000 MVA WT25E138 typegenerator for single shaft coupling to the GT36 turbine.

With regard to product engineering steam turbines:• fine-tuning and improvement of modules and

components for application in machines with advancedsteam conditions (inlet temperatures > 600°C) continued,for application with the new advanced class F and classH gas turbines;

• service activities continued to be supported, for the supplyof components and solutions to improve existingmachines;

• assembly and commissioning of the 6 October plant inEgypt were also completed as part of a turnkey contractfor the conversion into a Combined Cycle of four AE94.2turbogas units supplied in previous years. As part of thisproject, a 345 MW steam turbine (with its air-cooledalternator) with several innovative features was supplied.

During the year, the steam turbines (and the related electricalmachines) were put into service in Egypt for the conversionof pre-existing open-cycle plants into a combined cycle. Inparticular, the Al Shabab 1, 2 and West Damietta units wereput into service. For the first two units, the final warrantytests were also successfully completed and the finalacceptance by the customer was obtained.

Plant engineering activities focused particularly on:• analysis and development of plant solutions to support

customers in the field of plant rehabilitation linked totransitions from conventional to combined cycles, fromfossil fuels (such as oil and/or coal) to natural gas and,more generally, to offer solutions that provide the plantwith improved all-round performance (performance,emissions and life extension);

• analysing and developing plant solutions to supportcustomers in the “hybrid” applications sector, combiningelectrochemical storage systems with traditionalproduction plants. Thanks to the Plant Optimizerintegrated control system developed by the ParentCompany, these systems will be a key element of theelectrical system in the coming years, guaranteeing aresponse that is increasingly in line with the needs of thenetwork operator, both in terms of flexibility andproduction capacity, on the basis of the threefundamental parameters of the control system: speed ofresponse, reliability and precision;

• developing plant-level standardisation aimed at providingcustomers with a consolidated plant-design based onextensive plant engineering references accumulated bythe parent company. This approach, combined with theGroup’s plant and functional capacity, allows it to designcustomised solutions for specific customer needs;

• constant progress in the digital roadmap with theincreasingly extensive application of smart plant designsoftware systems (3D modelling, etc.);

• analysing and developing plant solutions to supportcustomers in the “Flare gas” and/or syngas sector(currently used for Chinese plants).


Investments

Investments in 2018 were partly focused on completing theprojects started in 2017, in terms of the production andassembly requirements for the new GT product line on thetechnological side, and the constant and continuous renewaland efficiency improvement of plants and workplaces on thesafety side, albeit with a view to limiting investments due tothe situation described above.

In the production area, the auxiliary plants of the new GTrotor welding department were completed. In 2018, theover-speed cell was upgraded, which plays a key role in thefinal testing phase of the TG and TV rotors. The cell had tobe upgraded to accommodate the new GT technology, forwhich the existing cell was not of adequate size andperformance. In particular, the supports, the turning gearand the major auxiliary systems were replaced: electrical,lubrication and cooling systems, control and measurementsystems, as well as various equipment.

The start of work on the new painting booth, which with itsfar-reaching design allows for the housing of largecomponents such as GT rotors on the one hand, and theachievement of high safety standards on the other in termsof the suction and evacuation of vapours generated duringwashing and painting, which cannot be achieved with theexisting painting booth, also supported GT production.

The extraordinary overhaul of the INNSE TP160 horizontallathe, which no longer guaranteed the precision required formachining the gas turbine tie rods, was completed, thusallowing this activity, which would otherwise have had to beoutsourced, to be brought back into the internal productioncycle. The intervention involved the completeelectromechanical overhaul of the lathe and the replacementof the drivers and numerical control.Investments in the generator line were instead dedicated tothe purchase of the new infrared furnace for drying statorplates, for the new rotor winding station, for the expansionof the Clean Area and for the generator test room. Theseplants needed an extraordinary overhaul and replacement ofparts because they were no longer adapted to newtechnologies or, more importantly, safety standards. In thegenerator test room, the auxiliaries needed to carry out testson the THR12 air model, such as the low-voltageswitchboards, the lubrication system and the data acquisitionand control system, were replaced, pending the start of the

new revamping to allow testing of the most powerfulgenerator.

The new sheet metal drying furnace allows for higherproductivity and a very low environmental impact, as itcompletely separates the process environment from thesurrounding environment. With a view to processing the newtechnology generating rotors, the Clean Area had to beenlarged and the plants inside it modified. In particular, thenew alternator rotors were adapted to the weights requiredby the new rotor by modifying the winding assembly wagonsand, as a technological improvement, a new roller centredistance adjustment system was implemented.

The blade line took up a significant share of the investment.The introduction of the Alstom GT26 technology pallets, inparticular for the Service line, made it necessary to acquirenew plants to guarantee both an increase in the currentproduction capacity and the flexibility of use to adapt to avaried product mix such as the current one. With this inmind, a plan has been drawn up for replacing and increasingthe processing capacity with EDM machines along with thesubsequent grinding operations. In 2018, the fleet of EDMmachines was increased by two units with the purchase ofone wire-technology machine and one die-sinking machine,leaving the completion of the replacement and purchase planto 2019. A new combined grinding and milling machine hasalso been acquired, mainly dedicated to the hot paddle line,which also allows the processing of large pallets.

To cope with the installation of energy-intensive systems, theelectrical power drawn from the grid had to be increased bycreating three different ENEL delivery points within theGenoa plant. This resulted in the division of the supply intothree different areas (Campi 1, Campi 2 and Fegino) eachwith an available power of 9.9MW.

As far as the Service business is concerned, attention wasfocused on increasing the fleet of equipment and containersin order to carry out the increased general overhauls. A keyissue was providing the kits needed to carry out all the C-inspections of the GT26s. A balancing lathe and equipmentfor the removal of hoods were acquired, a new toolnecessary to satisfy the scope of work of service contractsinvolving Alstom technology generators.

In terms of office space, the second floor of the “75building” was completely renovated for office use. This



involved installing new heating, air conditioning, datanetwork and fire detection systems, including the roofcovering.

Major interventions were carried out on the overheadtravelling cranes at the Genoa Campi plant as well as aresidual life audit; this project consisted in checking overheadtravelling cranes installed more than 20 years ago, verifyingtheir integrity and functioning and detecting any anomaliesthat may have occurred in the use of this equipment.

Collision avoidance systems were then installed in order toavoid interference between the handling of products andproduction plants; in order to handle the GT36 turbines incombination, the lifting systems of the two hoists installedon the Demag n. 84 overhead travelling crane had to bemodified, thus equipping the system with synchronousspeed.

From the IT point of view, the S4A Project was launched,following on from the process begun in 2016 with the firstSAP implementation project for the PSM and AES subsidiaries(SAP AGP system). The project - involving Ansaldo Energiaand Ansaldo Nucleare - envisages an initial phase aimed atintegrating the Group’s Functional Model through a gapanalysis of the processes currently available on SAP AGP andthe processes of the Italian companies, an analysis of all theprocesses involving the integration of flows between the

parent company and the subsidiaries, and the introductionof Group processes currently managed outside the SAPsystem. The S4A project will be completed during 2019 withthe actual technical implementation phase: the go-live isscheduled for January 2020.

Further attention was given to launching the AE Vendor Hubproject, tasked with implementing a platform to support therelationship between Ansaldo Energia Group companies andsuppliers, right from the first on-boarding phase. Thisinitiative involves setting up a web platform, integrated withthe Group’s management and document system. InDecember 2018, the platform went online for the first twophases (with the involvement of about 3 thousand suppliers);the following phases are scheduled to start during Q2 2019.

A particular focus was on the Lighthouse Plant project of theBusiness Plan 4.0, focused on the digital transformationprocess, in order to consolidate the infrastructures andapplication platforms of the Group companies. The projectconcerned all the main business and operating processes, inparticular, product development in an increasingly integrateddigital way with service activities, support for the increase intechnological capacity resulting from the acquisition ofAlstom technology, the development of cybersecurity toensure the protection of the customer’s criticalinfrastructures, against the digitisation and interconnectionof machines and systems.


The scope of the Group’s R&D activities was definitivelyconsolidated in 2018 following the acquisition andcapitalisation of the ex-Alstom technologies and products.The internalisation of the new technologies included in thecompany portfolio has begun to yield the first results, asdescribed in detail below, improving the performance of classF gas turbines in terms of high efficiency and reducedemissions. This is a clear step towards creating a new familyof products under the Ansaldo Energia brand.

In the area of gas turbine products, the performance of theGT36 model, which was tested at the Birr (CH) test centrefollowing the completion of Phase 1 and Phase 2 (ThermalPaint Run) of the validation campaign, exceededexpectations. These results have significantly increasedproduct competitiveness with a substantial increase in powerand efficiency. During the year, a third test session was alsoset up to confirm the value of the new technologies to beintroduced in future versions of the class H model for the 50Hz market, aimed at improving efficiency, environmentalimpact and flexibility. In order to continue work on the newGT36-S5 control system, the Birr control system for theGT36-S6 was translated from the ALSPA language on theEmerson Ovation platform to complete the design of theclass H gas turbine. Preliminary tests for the completion ofthe product industrialisation phase began at the automationlaboratory in Genoa.

Work also continued on the GT26 MXL3 project dedicatedto the Service fleet to support the increased performance ofthe GT26 combined cycle turbine. The activities carried outin 2018 made it possible to complete the conceptual design,and to start the concurrent engineering phase with suppliersfor the qualification of the hot turbine blades.

The AE94.3A gas turbine continued to be a key componentof development activities in 2018. During the year, the dataacquisition campaign was successfully completed at the Sihuiplant in China, where the first Chinese unit delivered in 310MW configuration, featuring the latest compressor, was putinto operation. In the first part of the year, the Flex Premixburner validation was completed, which began at the end of2017. The main advantage of this burner is its reducedemissions and high operating flexibility. The excellent resultsobtained have led to the engineering of the Dual Fuel versionand its application on the AE94.3A rating 325 MW, with afirst firing scheduled for April 2019. A major milestone in2018 was the completion of the Acoustic Damper project,an essential component to overcome the potentially limitingeffect of high temperature thermo-acoustic combustionphenomena typical of high-efficiency gas turbines. This is aparticularly significant step as it constitutes a transfer of ex-Alstom technology, with particular reference to the GT26.The first set of the new device was installed for validationpurposes on AE 94.3A units at the EniPower plant inRavenna. The tests carried out confirmed both compliancewith the dimensioning thermo-acoustic criteria and thesturdiness of the design; the validation of the newcomponent will continue in 2019 to fully test the potentialof this upgrade. As regards the control and protectionsystems for the AE 94.3A 325 MW gas turbines based onthe Symphony Plus platform, the upgrade to the Mornaguiaplant and the updating of the control systems to the newABB “SD/IO” technology have been completed.

Turning to the E-class gas turbine, in 2018 the first Chineseunit AE94.2 185 MW was successfully started up andreleased for commercial operation at the combined cycleplant in Shangzhuang, near Beijing (China), to the fullsatisfaction of the customer. This model features the most

Research, development andtechnological innovation

recent version of the new compressor characterised byfrontal stages with 3D blades. Testing took place as part of ajoint R&D project with the SGC partner.

The development of the AE94.2 turbine in 2018 was mainlytargeted at the Service business, with the release of upgradepackages for Service use, in response to requests for greaterinstallation flexibility and increased reliability, reducedmaintenance costs and machine downtime.

Work also continued on the project for the design andconstruction of the AE94.2KS gas turbine designed to usevery low calorific value gas from steelmaking processes;development activities, in collaboration with the ShanghaiElectric Gas Turbine Joint Venture, focused in particular onthe compressor and the new combustion system. The designreviews of the conceptual project were successfully passedon both components and Phase 2 of the project wasactivated, mainly dedicated to carrying out pressurecombustion tests on the prototype of the burner in operatingconditions closer to the operating conditions of the machine;this test was carried out in October 2018, with good results.

As far as the AE64.3A is concerned, after having completedthe assembly of the first 78 MW gas turbine complete withspecial on-site validation equipment, in which ceramic tilesreplace similar cooled metal tiles in the combustion chamber,work continued on the development of new burners thatallow the same performance to be obtained with reducedNOx emissions; both atmospheric and pressure tests weresuccessfully carried out in the new previously validated testsections, identifying a higher performing and less pollutingburner than the reference AE64. 3A burner.

In the area of steam turbines, development programmesconcerned the HDx and MDx steam turbine modulesdesigned to be operated under highly flexible operatingconditions (high number of starts and load gradients) thatmeet new market requirements. In this area, a developmentplan is also underway for new materials that can be used athigher operating temperatures for the Steam Turbines. Workalso continued on the implementation of the Steam Turbinecomponent portfolio with the completion of the BP 2F 48”module project. We continued to acquire functioning dataon the steam turbines currently in use in order to extend ourknowledge of complex vibrational phenomena. Work hasbegun on the internalisation of the new fleet acquired (ex-Alstom) as part of the shaft line in order to meet the needs

of customers. A prototype for the RT30 (6 October plant)was developed for the control and protection systems forsteam turbines based on the Ovation platform.

In the turbogenerator product area, the design of the latestgenerator (50WT25E138SS 950 MVA) was completed,designed to update the portfolio of turbogenerators to becoupled to the GT26 and GT36 models acquired. In addition,as part of the activity relating to the development and testingof new insulation materials to be used in the alternators, thetests required by the regulations for the definition of thechemical/physical properties of the belts for the insulation ofthe stator bars continued, in particular for High DielectricVoltage belts. Long-term tests were also set up for insulationfor use with 27 kV generators.

Activities related to immersive virtual reality continue: aprototype system based on a stereoscopic viewer wasdeveloped to represent an AE94.3A EVO2 gas turbine, a50THR10-53 generator and an RT30 steam turbine. Thesystem’s primary aims are to train internal and customer staffand marketing.

In terms of technological development, important resultswere achieved in support of the product portfolio for theNew Unit and Service markets, also thanks to a significantand articulated technical-scientific collaboration undertakenwith the main research centres at European level and withthe major Italian universities.

In the area of high-content combustion of hydrogen mixedwith natural gas, tests were successfully carried out onprototype full-scale components that confirmed theadvantages of adopting a sequential type of burnerarchitecture, which makes it possible to manage higherconcentrations of hydrogen with greater flexibility, whilemaintaining high fuel efficiency.

As part of the development of advanced repair and lifeextension techniques for hot parts, work continued ontesting and producing in the Group’s various machiningcentres: qualifications on AE94.3A turbine blades werecompleted at the Jupiter (Florida, USA) machining centre andat the Genoa machining centre, while qualifications on thesame type of blade are underway for the Shanghai (PRC)machining centre. Qualification activities on turbine blades94.2 continued at the Genoa machining centre. Adevelopment programme was launched to apply advanced


technologies and materials to extend the life of hotcomponents in line with the demands of the Service market.

As part of the development of high-performancecomponents using additive manufacturing techniques, newcomponents for very low-emission architectures for the GT36burner were tested, while a feasibility study was completedto identify a new configuration using high-efficiency coolingfor the flame tube of the improved performance GT36.Another important result in the additive manufacturing areawas achieved, for the AE94.3A gas turbine service. The newtechnology, the selected material and a fine-tuning of theprocess made it possible to qualify and supply replacementcomponents of the combustion chamber obtained with SLM(Selective Laser Melting) technology, which allowed a drasticreduction in supply times while enabling innovative air-cooling solutions.

In the development of coating systems for hot parts, thedevelopment of the process for single and dual layer high-performance thermal barriers has been completed,improving the operating temperatures and therefore theefficiency of class H and post F gas turbines. Joint development activities with the Italian Institute ofTechnology of the robotic system for the inspection of theGroup’s generators (IDLIR) were also completed, with the firstinspections of certain types of generators being carried outwith positive results. On the other hand, work continued onthe robotic system, defining the architecture of the systemand the technologies required for onboard diagnostics.The Group also continued to invest in the expansion oftesting capacity for components, with the completion of theLinear Cascade equipment installed in Genoa during the year,aimed at advanced assessments of aerodynamics and heatexchange of hot parts.

Also in the context of international collaborations, the R&Dactivities provided for in the Grant Agreement assigned tothe “Flexturbine” project by the EU as part of the H2020Programme continued and were completed. The resultsobtained by the entire consortium will be presented to theEU Commission in a dedicated workshop during the first halfof next year. As a leader in the design and testing of flutter-free steam blades, the Parent Company was responsible forthe Material Models Development section in the part of theproject dedicated to improving the life cycle of the gas andsteam turbine components. In particular, during 2018, the“down-scaled steam turbine rotor” was tested at Doosan(Pilzen) and the related modelling was completed, as was the

testing of the mathematical model to represent thecombined cyclic fatigue behaviour. Two speakers from theParent Company took part in the conference: “FlexibleThermal Power Plants as Back-bone for the EnergyTransition” held in Prague on 25 September 2018.Again at the level of European consortia, in 2018 the ParentCompany carried out activities for the two EU-funded projectsincluded in tender H2020 - LCE 28-2017: “Pump Heat” and“Turbo Reflex”. The latter project is particularly interesting tous, because it complements Flexturbine, with applicationsincluding the retrofitting of thermoelectric plants. There arethree areas of work: the development of turbogas compressortechnologies, in order to improve their performance also inoff-design, a field in which the Parent Company is a leader;the development of new methods for cooling the hot bladesof gas turbines; and assessing the impact of the project’sresults in terms of improving the flexibility, efficiency andsustainability of both new and existing plants.

2018 also saw the continuation of the 36-month R&D Projecttitled “Development of a gas turbine with reducedgreenhouse gas emissions and high operational flexibilityusing innovative materials and advanced productionsystems”, funded by the Italian Ministry of EconomicDevelopment (MISE). Mid-stage project technical andeconomic reports have been submitted, and the subsequentministerial verification meeting to approve disbursement isexpected in early 2019In 2018, following proposals submitted in response to MISEtenders, three new projects were awarded: the “Dal byteall’energia” project under the Digital Agenda - Revolvingfund for business support and research investment (FRI)programme; the “Creation of a laboratory for testinginnovative gas turbine burners for low environmental impact,high flexibility and efficient integration with renewableenergy sources - VESTA” project; and the “Development ofadvanced systems for the control of thermo-acousticphenomena in combustion processes for high-efficiency, lowenvironmental impact gas turbines - ARTEC-GT” project,under the National Operational Programme “Enterprise andCompetitiveness - Development and Cohesion Fund” (FSC),in which the Parent Company participates, as a largecompany, at the invitation of the Combustion Centre for theEnvironment and the National Energy Technology District.Work officially began on all three projects in July 2018.

Also in 2018, the EU Commission obtained the GrantAgreement for the “POLlution Know-how and Abatement”project under the H2020 programme, Marie Skłodowska-


Curie Actions - Innovative Training Networks (ITN) 2018. TheParent Company participates in this initiative as a memberof a European consortium for training researchers workingin the combustion sector, and in particular for studyingthermo-acoustic instabilities in the field of fuels with a highpercentage of hydrogen through the evaluation of the flametransfer function. Work will begin in February 2019.

A jury of over 50 international experts awarded the parentcompany Ansaldo Energia as “Best IP Department Italy, Spainand Portugal”, presented during the “Innovation & IP Forumand Awards” held in Paris, January 2019.

More recently, the Parent Company was also nominated forthe “Best European IP Department” competition, which willtake place in the summer of 2019.


In 2018, in line with previous years, the Human ResourcesDepartment of the parent company Ansaldo Energia and thevarious Group companies took steps to both strengthenintegration by drafting shared policies and tools for all Groupcompanies, and to reduce structural and labour costs. During the year, the Group continued to apply the procedurepursuant to art. 4 of Law 92/2012 in the Italian companies,providing incentives for the early retirement of certainemployees. This procedure will continue in the coming year.

As already mentioned, due to the continuation of the difficultsituation in the markets in which the Group operates, whileseeking to protect jobs and limit the risk of losing crucialskills, we have resorted to the use of the solidarity defensivecontract. At the end of 2018, the Group had 4,086 employees, 281less than at the end of the previous year. This reductionaffected both Italian and foreign companies.


Personnel

HEADCOUNT

60%

50%

40%

30%

20%

10%

0 2% 12%

62%

24%

2%

63%

24%

2018 2017

70%

80%

90%

100%

Man

ager

s: 71

Juni

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anag

ers:

484

Whi

te C

ollar

s: 2,

525

Blue

Col

lars:

1,00

6

Man

ager

s: 78

Juni

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anag

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505

Whi

te C

ollar

s: 2,

741

Blue

Col

lars:

1,04

3

11%

The average number of employees in 2018 was 4,211.8.

Training and Development

In 2018 an intensive training activity was carried out,involving a total of 4,970 people.A total of 32,434 hours of training were provided, of which10,460 were financed; expenditure on staff trainingremained high, despite constant attention to costs.Like every year, in compliance with safety regulations, courseswere organised in compliance with the contents of the State-Regions Agreement. Among the initiatives proposed in 2018,we would like to point out “La prova del 9 della sicurezza”,a company project for developing situational awareness as anecessary skill for each worker to manage residual risk.In addition, the operating personnel at the headquarterswere included in improvement projects, some of which alsoinvolved the presence in the classroom of safety colleaguesas teachers (project 5S+1). As well as providing training in specialist areas and digitaltechnologies for technical staff, managerial training initiativeshave been launched aimed at developing people, withparticular attention to current and future middlemanagement. These include group and individual support initiatives forspecific projects and/or business lines, which also involvedcolleagues from foreign offices (e.g. design sprint).The Group continued to use tools to assess and developtransversal, individual and group skills and to manageperformance, as well as to collaborate with externalstructures to create courses for new professional figures (e.g.Master’s degree in Industry 4.0). Sessions were organised to raise awareness of the anti-corruption regulatory framework, the code of conductadopted by the Group, and the constant attention paid tothe management of company information from the point ofview of privacy legislation. These involved 1,484 employeeson the subject of Privacy and EU “Export Compliance”Regulations.A growing number of employees attended language courses,which the Group sees as a fundamental support lever fordialogue with other Group companies and customers.

Client training

13 courses were held for client staff during 2018, for a totalof 33,088 hours of training.The activities involved 221 participants for a total number of206 days of training.This year, most of the training activities were carried out atcustomer plant sites, which also enabled numerous field visitsto be made to theoretical (classroom) training sessions,making the activity much more useful and effective.One of the most significant initiatives in terms ofcommitment, duration and satisfaction was the trainingcourse held in Oman at the two power plants in Ibri andSohar, where the Group also supplied the new GT26 gasturbines. In this situation, the training school had to buildthe GT26 course from scratch, with the concrete and activecollaboration of Swiss colleagues, both in terms of teachingmaterial and teacher training. The courses were held inparallel in the two power stations with a considerablecommitment in terms of time and logistical effort.

Organisation

The year’s activities were focused on the maintenance of theorganisational structure launched in 2016 and developed in2017; the maintenance consisted mainly in the appointmentof new managers following a physiological level of turnover,in addition to some cases of internal mobility. As regards thenuclear business, organisational integration between the twocompanies continued.From the point of view of operating performance, a numberof activities were developed to assess organisationalperformance with a view to verifying its effectiveness andidentifying possible developments at the micro-organisational and process level (project management formulti-company projects and engineering processes).As regards Group governance, in 2018 a directive was passeddefining the main responsibilities for the governance ofinformation security, and the principles and guidelines onhow to protect information (Cyber Security).


Environment

The Group’s Italian sites fall within the scope of ItalianPresidential Decree no. 59 of 13 March 2013 (AUA - UnifiedEnvironmental Authorisation) and the Emission TradingDirective due to the presence of boilers for heating thebuildings in Via Lorenzi.During 2018, particular emphasis was placed on assessingthe significance of environmental aspects, on ContextAnalyses (which confirmed a controlled, marginal andtherefore largely acceptable level of environmental impactrisk at all the sites analysed, also thanks to the various actionsimplemented year after year by the Group for the preventionof all forms of pollution) and on improvement programmes. As in previous years, no major environmental accidentsoccurred at Group sites in 2018.With regard to environmental protection activities, particularattention was paid to the following issues.

Water and waste management Over the last three years, the Parent Company has greatlyimproved its waste logistics management.During the year, initiatives continued to raise awarenessamong staff and subcontractors of the needs andopportunities for waste sorting, in a more extensive andwidespread manner, regardless of local regulations.Solid waste management took place in compliance withcurrent legislation, with a growing commitment to mappingand sorting waste, its recycling and the sale of productionwaste and obsolete plant infrastructure. In Italy, thiscommitment will enable the Group to cope with the impactof the significant increase in disposal costs that is taking placeat all levels.

Monitoring energy consumption, CO2 Emission trading,and other emissionsIn order to meet its production and civil energy needs, theParent Company uses the types of resources detailed below.The use of these resources is monitored using specific meters,and is subject to careful consideration and, where possible,measures aimed at increasing efficiency and reducing their use: • electricity for industrial and civil use (partly self-produced

with solar panels placed on the roofs of Ansaldo EnergiaSpA buildings);

• natural gas;• district heating;• diesel fuel for road haulage. For the Genoa site, the Emissions Trading Directive applies,with variable carbon dioxide emissions and the consequentimpact on the CO2 quotas necessary, available or to besupplied, according to the level of use of the back-up boilerspresent in the plant in Via Lorenzi.All emissions produced by the Group’s plants comply withapplicable laws and regulations, and new or modifiedemissions have been authorised, where necessary.

Hazardous waste managementThe Group constantly manages and checks the hazardousproducts and substances used in its production and worksiteactivities, checking all new substances for applicabilitywithout any hazard to people or the environment, and incompliance with the relevant regulations. Group-widecooperation and synergy are now well established, with theaim of ensuring uniform and uniform management of theissue.Where there are risks in this regard and therefore providedfor in the Emergency and Evacuation Plans, simulations ofspillage accidents and the application of the measuresprovided for in the existing plans and procedures are alsocarried out on a regular basis.


Environment and health andsafety in the workplace


Maintenance of the documentation and proceduralsystem and trainingThe documentation system on environmental issues has beenmaintained and updated, also thanks to the investmentsmade in that regard. Environmental issues were the subject of specific audits andanalyses, and specific decisions were taken during the samemeetings held on safety and health issues. In line with market requirements, a training plan was drawnup and implemented to ensure greater efficiency and

operational flexibility in the management of waste fromexternal sites.Collaboration between other Group companies has enabledconcerted action to be taken to ensure that availableinformation is increasingly shared, facilitated by the adoptionof Group procedures.During 2018, 21 of the 38 Group procedures relating to boththe Environment and Health and Safety were revised,aligning them with the dynamics of the Group and individualcompanies and to take on board proposals for improvement.


In 2018, the Group continued to implement initiatives aimedat promoting a culture of safety throughout all personnelinvolved in the various processes, with the aim of furtherreducing the number of accidents. In 2018, as mentioned, Ansaldo Thomassen Gulf alsoobtained ISO 45001 certification, thus expanding theportfolio of Group companies certified according to theOHSAS/ISO standards, as the other already certifiedcompanies have maintained their certification and arecurrently migrating to the ISO 45001 standard on the basisof the calendars defined with the certification body. Ansaldo Energia, as both company and Group, aims toensure staff take an increasingly interdependent approachstaff to safety, health and the environment, based onindividual attention to safety and respect for theenvironment, both on their own behalf and that of theircolleagues, with a proactive and cooperative approach tothese issues.Our efforts at all levels led to a significant reduction inaccidents again during 2018, along with the relative indexesof frequency and seriousness. In several companies andareas, the goal of Zero Accidents was achieved for the entireyear.Significant attention was paid to the issue of the presenceof compounds containing hexavalent chromium on somesurfaces of the turbines used, produced by both the ParentCompany and its competitors. In this regard, among otherthings, we examined possible training mechanisms tosignificantly reduce the likelihood of the recurrence of thephenomenon, defining and applying the necessary protectivemeasures, which, as confirmed by the company’s MedicalOfficer, are fully adequate to prevent any negative effect onthe health of workers.

ImprovementsIn order to improve accident performance, we furtherdeveloped the methods used to analyse the causes ofaccidents, and the methods for sharing experiences on aGroup and company-wide level, thus ensuring the correctidentification of the best prevention strategies to remove thecauses, while at the same time measuring the efficiency andeffectiveness of the corrective measures adopted.In addition, with the same aim in mind, dedicated meetingswere held with managers and supervisors to share Groupand company objectives and technical solutions for resolvingthe shortcomings found, also in the light of an examinationof behaviour and so-called “near misses”, and structuredprocesses were launched to ensure ever greater directinvolvement of workers in prevention and protectionactivities, with a view to continuous improvement. Particularemphasis was placed on the actions defined andimplemented, with the involvement of various companyfunctions, to deal with the potential or actual presence ofcompounds containing hexavalent chromium on the surfacesof the hot parts of the gas turbines operated, themaintenance of which was entrusted to the Group.

Involvement of workers and top management: trainingand auditingAimed at improving the culture of safety and respect for theenvironment, the various training courses continued througha number of specialist courses, the posting of press releaseson the company notice boards, articles in the company’sinformation body, the promotion of individual improvementproposals, reminders on Safety Day, meetings with theresources of the various bodies on environmental and safetyissues. A training update based on the “Ehs Fundamentals”course, made available to all Group employees, was alsooffered to all company management personnel.

Occupational health and safety

The Environment, Health and Safety units verified theapplication of the corporate procedures and compliance withthe legal requirements on the part of the Group’s personneland the subcontractors’ staff, even by conducting periodicaudits.The results were very positive on the whole. The inspectionfindings were, in any case, analysed in detail, in order toidentify any areas to be included in the company’simprovement plans, so that corrective action can be takeneffectively and efficiently.In collaboration with the factory structures, structuralinitiatives were implemented, including the 5+1 project,aimed at getting workers increasingly involved in improvingjobs and processes. The periodical review of management performance, assignedobjectives, results achieved and improvement actions andinvestments implemented continued, in addition to theperiodical meetings with the Top Management of localentities, organised at the individual companies.

Risk Assessment and Emergency and Evacuation Plans Maintenance activities continued on the Risk AssessmentDocuments, including the Risk Mitigation Plans, and theEmergency and Evacuation Plans (a new Emergency Plan hasbeen drawn up for Switzerland) for all the sites (bothpermanent and temporary) where the Group operates andthe risk assessment documents relating to all the externalsites where it operates have been issued, independently oflegal obligations.In particular, significant efforts were made to reorganisefactory activities and mobility within the plant and to amendthe Parent Company’s Emergency and Evacuation Plan inview of the effects of the collapse of the Morandi bridge.Moreover, Interference Risk Assessment and Safety andCoordination plans were drawn up where required for boththe Parent Company 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.


The reference regulations require companies that receivefinancial contributions from public administrations and theirsubsidiaries to provide certain details in the explanatorynotes.

The standard in question has been clarified several times,without dispelling the doubts as to its practical application.The Company has adopted the position taken by Assonimewith Circular no. 5 of 22 February 2019, according to whichthe statutory information requirement only applies to specificand individual payments.

As a result, the Company has decided to indicate thefollowing information in this note, according to the type ofcontribution/subsidy granted:• with regard to paid appointments falling within the

company’s typical activity and at market conditions, theCompany declares that it has received paid appointmentsfrom persons belonging to the Public Administration;

these appointments, being part of the typical companyactivity and conducted according to market conditions,are not reported in this section, since they are not subjectto the reporting obligations provided for in Article 1,paragraph 25 of Law 124/2017;

• with regard to contributions/subsidies which may havebeen used and which must be published in the NationalState Aid Register (transparency), please refer to thisdocument;

• with regard to contributions provided by private entities(e.g. training grants from Fondimpresa), these are not thesubject of any information requirements, as they falloutside the scope of this standard;

• with regard to any tax benefits from which the Companyhas benefited, we believe, also in accordance with theposition taken by Assonime in the aforesaid circular, thatthey are of a general nature and therefore do not haveto be disclosed for the purposes of the provision inquestion.


Statutory information as perLaw 124/2017


Regarding the international market, careful and rigorousoperational and financial risk management and identificationare increasingly important.

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 necessary

precautions 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.

For all the most significant transactions in currencies otherthan the Euro, which are subject to currency risks, thecompany stipulates appropriate forward contracts.

The first part of the explanatory notes specifically identifiesthe main risks to which the Group is subject.

Risk management


As part of the agreement for the sale of the ParentCompany’s shares to Fondo Strategico Italiano (now CDPEquity S.p.A.), Finmeccanica (now Leonardo S.p.A.) hasissued guarantees for disputes or issues that have requiredspecific accruals to be made for risk provisions in theconsolidated financial statements.

The sales agreement requires Leonardo to providecompensation for any outlays required to cover theguaranteed issues, using various mechanisms based on thespecific circumstances. At the discretion of CDP Equity, this

compensation can be paid directly by either the ParentCompany or CDP Equity itself.

It should be noted that CDP Equity has come to a formalagreement with the Parent Company, whereby all futurecompensation relating to the “asbestos” issue shall be paiddirectly by Leonardo to the Parent Company itself.

With regard to all the other issues guaranteed by Leonardo,on the other hand, CDP Equity has not yet determined therecipients of any compensation to be provided.

Guarantees given as part of theagreement for the sale of theParent Company’s shares


Despite ongoing uncertainties in the market in which theGroup operates in 2019, a number of positive factors pointto the continuation of the Ansaldo Energia Group’s pastperformance in the coming year. These factors can besummarised as follows:• the New Unit market, which has felt the impact of the

economic crisis more than any other, is not showing anysigns of further decline, and should remain fairly stable;

• the first GT36 machines, the fruits of a considerabledevelopment effort carried out by all the Group’scomponents, should soon enter production and be placedon the market;

• the Service business shows strong growth potential interms of volumes, which the Group has demonstrated itsability to exploit;

• the Group’s strategic efforts aimed at developing newmarkets will continue;

• the Group will continue and will reinforce its strategicpartnership with the shareholder Shanghai ElectricHongkong Co. Limited.

• the order backlog was at an excellent level at the end of2018 and amounted to € 4,719 million.

In order to achieve these targets, the profitability and cashflow will need to be closely monitored and must be protectedwith specific streamlining actions in order to deal with anincreasingly competitive market.

In this scenario, 2019 will be a challenging year; nonetheless,forecast results in terms of orders, profitability and cash flowshould be in line with those set out in the 2019-2023business plan.

Performance outlook

46 ANSALDO ENERGIA 2018 Consolidated Financial Statements

Consolidated Financial Statementsas of 31.12.2018



Consolidated income statement

Euro of which of which related related Notes 2018 parties 2017 parties

Revenue 34 1,172,314,287 47,514,830 1,464,053,261 119,907,587

Other operating income 35 37,572,274 130,930,334

Purchases costs 36 372,122,923 2,679,834 648,281,045 4,300,156

Services costs 36 390,304,171 6,245,432 408,946,979 8,222,772

Personnel expense 37 304,711,213 320,595,166

Amortisation, depreciation and impairment losses 38 200,854,791 242,421,479

Other operating expenses 35 172,865,826 9,765 44,769,616 20,681

Change in finished goods, work-in-progress and semi-finished products 39 (2,114,601) 34,851,775

(-) Internal work capitalised 40 43,276,278 37,144,913

EBIT (189,810,686) 1,965,998

Financial income 41 16,520,530 790,797 10,229,246 347

Financial expenses 41 60,751,712 492,465 61,227,930 33,717

Share of profits (losses) of associates and joint ventures accounted for using equity method (3,413,352) (5,262,817)

Profit (loss) before taxes (237,455,220) (54,295,503)

Income taxes 42 (5,486,104) (59,950,116)

Net result (231,969,116) 5,654,613

- attributable to the owners of the parent (231,951,733) 5,679,205

- attributable to non-controlling interests (17,384) (24,592)


Consolidated statement of comprehensive income


NET RESULT (231,969) 5,655

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

- Actuarial gains (losses) on defined benefit plans plan measurement (1,215) 2,166

Items that may be reclassified to fiscal year profit (loss):

- Changes in cash flow hedges: (15,349) 18,474

- fair value gains (losses) (15,349) 19,337

- transfer to profit (loss) of the period – (863)

- Exchange differences 1,623 (8,252)

- gains (losses) 1,623 (8,252)

- Tax effect 3,062 (4,134)

Other comprehensive income, net of tax effect (11,879) 8,524

Total comprehensive income (loss) (243,848) 13,909

- of which attributable to third parties (17) (25)


Consolidated statement of financial position

Euro of which of which related related Notes 31.12.2018 parties 31.12.2017 parties

Assets Non-current assets Intangible assets 14 1,570,269,731 – 1,539,410,005 – Property, plant and equipment 15 269,769,576 – 261,431,845 – Equity investments 16 31,820,217 – 39,922,701 – Receivables 17 1,171,927 – 668,574 – Deferred tax assets 30 71,072,681 – 52,470,246 – Other non-current assets 17 195 – – – 1,944,104,327 1,893,903,371 Current assets Inventories 18 686,501,284 – 627,503,339 – Contract work in progress 19 225,387,042 – 200,208,202 – Trade receivables 20 300,506,556 77,697,316 287,062,007 34,986,079 Tax assets 22 4,790,376 – 5,299,702 – Financial receivables 21 851,101 851,101 85,004,791 4,791 Derivatives 33 – – 12,156,497 – Other current assets 23 73,652,127 11,199,570 82,734,377 13,990,985 Cash and cash equivalents 24 229,324,257 – 276,299,700 – 1,521,012,743 1,576,268,615 Total assets 3,465,117,070 3,470,171,986

Equity and liabilities Equity Share capital 25 180,000,000 – 100,000,000 – Other reserves 25 269,597,238 – 522,014,372 – Equity attributable to the owners of the parent 449,597,238 – 622,014,372 – Equity attributable to non-controlling interests (150,807) – (146,781) – Total equity 449,446,431 621,867,591 Non-current liabilities Non-current liabilities to related parties 26 10,225,000 10,225,000 10,000,000 10,000,000 Loans and borrowings 27 759,722,577 – 780,118,028 – Employee benefits 28 35,635,516 – 34,770,660 – Provisions 29 100,982,452 – 132,298,993 – Deferred tax liabilities 30 137,054,109 – 151,269,189 – Other non-current liabilities 31 40,746,519 – 78,221,388 – 1,084,366,173 1,186,678,258 Current liabilities Progress payments and advances from customers 19 804,243,855 802,355,649 – Trade payables 32 423,697,464 5,657,023 556,090,909 25,259,789 Loans and borrowings 27 400,965,581 – 166,688,088 1,518,783 Tax liabilities 22 14,201,241 – 1,885,067 – Provisions 29 134,406,937 – 15,552,498 – Derivatives 33 6,645,982 – 1,360,557 – Other current liabilities 31 147,143,406 – 117,693,369 – 1,931,304,466 1,661,626,137 Total liabilities 3,015,670,639 2,848,304,395 Total liabilities and equity 3,465,117,070 3,470,171,986


Consolidated statement of cash flows

Euro/thousand Notes 2018 2017

Cash flows from operating activities:

Gross cash flows from operating activities 44 143,040 161,962

Change in working capital (284,296) (141,176)

Net interest paid (35,220) (39,925)

Income taxes paid (7,079) (16,472)

Cash flows generated from (used in) operating activities (183,555) (35,611)

Cash flows from investing activities:

Acquisitions of companies, net of cash acquired (50) 1,440

Sale of investments 1,043 50

Investments in property, plant and equipment and intangible assets (127,397) (151,474)

Sale of property, plant and equipment and intangible assets 301 2,115

Dividends received 1,720 334

Other investing activities (29) (291)


Cash flows generated from (used in) strategic investing activities – (11,008)


Cash flows from financing activities:

Capital increase and payments from shareholders 80,000 –

Net changes in financial assets/liabilities and other financing activities 181,690 222,747

Cash flows generated from (used in) financing activities 261,690 222,747

Net increase (decrease) in cash and cash equivalents (46,278) 28,302

Other changes (331) 912

Cash and cash equivalents as at 1 January 276,300 250,890

Exchange rate gains (losses) (368) (3,804)

Cash and cash equivalents as at 31 December 229,324 276,300


Consolidated Statement of Changes in Equity

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

1 January 2017 100,000 94,317 (8,344) (20,229) 433,239 598,983

Comprehensive income for the year:

Net result – 5,679 – – – 5,679

Other comprehensive income (expense) – (8,252) 14,928 1,578 8,254

Total comprehensive income – (2,573) 14,928 1,578 – 13,933

Other changes – 8,460 864 271 (497) 9,098

Additions from business combinations – – – – – –

31 December 2017 100,000 100,204 7,448 (18,380) 432,742 622,014

Comprehensive income for the year:

Net result – (231,952) – – – (231,952)

Other comprehensive income (expense) – 1,623 (12,415) (1,087) (11,879)

Total comprehensive income – (230,329) (12,415) (1,087) – (243,831)

Shareholders related transactions

Capital increase 80,000 – – – – 80,000

Total shareholders transactions 80,000 – – – – 80,000

Other transactions – (2,496) 1 – (6,091) (8,586)

31 December 2018 180,000 (132,621) (4,966) (19,467) 426,651 449,597


Reconciliation of the Parent’s equity and net result with consolidated figures as at 31 December 2018

Euro/thousand Equity of which: Net Result

Parent company equity and net result as at 31 December 2018 341,921 (235,773)

Equity surplus in annual financial statements compared to the carrying amounts of investments in consolideted companies (79,109) –

Consolidation adjustments for:

- PPA Nuclear Engineering Group 21,699 140

- PPA Gastone 166,554 (11,729)

- intercompany profits – 17,572

- dividends – (1,712)

- other adjustments (1,468) (449)

Equity and net result attributable to the owners as at 31 December 2018 449,597 (231,951)

Non-controlling interests (151) (17)

Total equity and net result as at 31 December 2018 449,446 (231,969)


Notes to the consolidated financialstatements for the fiscal year endedon 31 December 2018

1. General Information

Ansaldo Energia S.p.A. (“Ansaldo Energia”, the “Company” or the “Parent Company”, and, together with the othercompanies controlled by or affiliated with the same, as the “Group” or “Ansaldo Energia Group”) is a joint stock companydomiciled in Italy, with registered offices at no. 8 Via Nicola Lorenzi, Genoa, and organised according to the legal system ofthe Italian Republic.The company is jointly owned by CDP Equity S.p.A. (an Italian investment holding company belonging to Cassa Depositi ePrestiti Group, formerly known as Fondo Strategico Italiano) and by the Chinese company Shanghai Electric Hongkong Co.Limited, which respectively hold 59.94% and 40% of the share capital in Ansaldo Energia. The remaining 0.06% is held bynatural persons. The Group’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 standards applied

a) Basis for preparationThe consolidated financial statements for the fiscal year ended on 31 December 2018 (henceforth also referred to as the“Consolidated Financial Statements”) have been prepared in accordance with the International Financial Reporting Standards(IFRS) issued by the International Accounting Standards Board and adopted by the European Union. The term IFRS is to beunderstood as the ”International Financial Reporting Standards”, all the “International Accounting Standards” (“IAS”), andall the interpretations of the International Financial Reporting Standards Interpretations Committee (“IFRIC”), previouslyknown as the “Standards Interpretations Committee” (“SIC”), which, as of the date of the Consolidated Financial Statements’approval, have been approved by the European Union according to the procedure required by EC Regulation no. 1606/2002of the European Parliament and of the Council of 19 July 2002. In particular, it should be noted that the IFRS have beenapplied consistently to all the periods presented within this document.

These Consolidated Financial Statements have been prepared:• based on the best available knowledge of the IFRS, and taking into account the best interpretations in this field; any

future interpretative guidance and updates will be reflected in subsequent fiscal years in accordance with the methods


required by the financial reporting standards, on a case-by-case basis;• from a going concern perspective;• based on the conventional cost criterion, with the exception of the valuation of the assets and liabilities in cases where

the application of the fair value criterion is required.

b) Form and content of the financial statementsThe Consolidated Financial Statements have been prepared in Euros, which corresponds to the currency of the main economicenvironment in which the entities comprising the Group operate. Unless otherwise specified, all the amounts included inthis document are expressed in Euros. The reporting formats and the relative classification criteria adopted by the Group, within the scope of the options providedby IAS 1 “Presentation of financial statements” (“IAS 1”), are indicated below:• the consolidated income statement – the scheme of which maintains a cost and revenue classification based on the

nature of the same. This statement contains the net income before taxes and the effects of any discontinued operations,as well as the net income attributable to minority shareholders and the net income attributable to the Group;

• the consolidated statement of comprehensive income – shows the changes in equity resulting from transactions otherthan capital transactions carried out with the company’s shareholders;

• the consolidated statement of financial position has been prepared by classifying the assets and liabilities based on the“current/non-current” criterion;

• the consolidated statement of cash flow was prepared by reporting the cash flows resulting from operating activitiesaccording to the “indirect method”;

• the consolidated statement of changes in equity contains the total income (expenses) for the fiscal year, transactionswith shareholders, and other changes in equity.

The Reconciliation of the Parent’s equity and net result with consolidated figures as at 31 December 2018 was also included,which, through the classification of the various consolidation adjustments, explains the reconciliation between the datashown on the Parent’s financial statements and those shown on the consolidated financial statements.The templates used are those that best represent the Group’s economic, equity, and financial situation.

The preparation of the Consolidated Financial Statements required the use of estimates by the management (for more details,please refer to Note 8, titled “Use of estimates”).

The Board of Directors’ meeting held on 18 April 2019 approved the draft Consolidated Financial Statements as of 31December 2018 for presentation to the shareholders, authorising its publication and calling a Shareholders’ Assembly for30 April and 6 May 2019, in first and second call respectively.

These Consolidated Financial Statements have been audited by PricewaterhouseCoopers S.p.A.

3. Accounting Standards adopted

a) Basis and scope of consolidationThe Consolidated Financial Statements include the economic, equity, and financial situations of the Company and thecompanies/entities included within the scope of consolidation (henceforth the “consolidated entities”), prepared accordingto the IFRS. The financial information regarding the consolidated entities has been drafted with reference to the year endedon 31 December 2018, and, where necessary, has been adjusted accordingly in order to render it consistent with the Group’saccounting standards. The year-end date of the consolidated entities is aligned with that of the Parent Company; if this doesnot occur, they prepare special financial statements for the parent company’s use. The consolidated entities are listed below,along with the relative percentages of the Group’s direct or indirect holdings.


Companies consolidated on a line-by-line basis

Name Investments % Variation Contribution of of the Direct Indirect perimeter group %

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

Ansaldo Russia 100% 100%

Ansaldo Energia Holding Italia S.r.l. 100% X1 100%

Ansaldo Swiss AG 100% X2 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 18.18% 72.73% 90.91%

Ansaldo Energia Holding USA Corp. 100% 100%

Ansaldo Energia IP UK Ltd 100% 100%

Ansaldo Energia Switzerland AG 100% 100%

Niehlgas GmbH 100% 100%

Aliveri Power Unit Maintenance SA 100% 100%

Power System Manufacturing LLC 100% 100%

Ansaldo Energia Muscat LLC 50% 50% 100%

Ansaldo Energia Korea Yuhan Heosa 100% 100%

Ansaldo Energia Messico S. DE. R.L. DE C.V. 100% 100%

Ansaldo Energia Spain S.L. 100% 100%

Ansaldo Serviços de Energia Brasil LTDA 100% 100%

Ghannouch Maintenance Sarl 100% 100%

Power Systems Manufacturing Japan 100% 100%

1. Company merged into the parent company on 1st January 2018.

2. Comapany dismissed/liquidated during 2018, not deleted yet.


Companies measured using the equity method

Changes to the scope of consolidationThe following changes took place during the course of the 2018 fiscal year:• Ansaldo Energia Holding Italia S.r.l. was merged by incorporation into the parent company Ansaldo Energia S.p.A. at the

end of December 2018 with retroactive accounting and tax effects to 1 January 2018;• during the year, the 49% interest previously held in Polaris S.r.l. was sold;• Ansaldo America Latina was liquidated, but has not yet been removed from the national registers;• Ansaldo Swiss AG has definitively ceased trading, following the conclusion of the liquidation procedure.The conditions for the full consolidation of Ansaldo Algeria (formed in 2017) and Ansaldo Nigeria, formed during the year,have not yet been met, as they were not operational at the end of the year.

The criteria used by the Group to define the scope of consolidation and the relative consolidation principles are shown below.

SubsidiariesAn investor controls an entity when: i) it is exposed to, or has the right to participate in, the variability of its economic returns;and ii) it is able to exercise its own decision making power over the relevant activities of the entity itself in order to influencesaid returns. The existence of control is verified every time events and/or circumstances indicate a change in any of the aboveindicators of control. The subsidiaries are consolidated using the full consolidation method starting on the date upon whichcontrol was acquired, and cease to be consolidated starting on the date upon which control is transferred to another party.The financial statements of all the subsidiaries have closing dates that coincide with that of the Parent Company. The followingcriteria are adopted for full consolidation:• the assets and liabilities, as well as income and expenses, of the subsidiaries are incorporated line by line by attributing

to the minority shareholders, where applicable, the share of equity and the net result for the period pertaining to them;this share is recorded separately in the equity and in the statement of comprehensive income;

• the profits and losses with relative tax effects resulting from transactions between fully consolidated companies, not yetrealised with third parties, are eliminated, if significant, with the exception of losses that are not eliminated where thetransaction indicates a reduction in the value of the asset transferred. Reciprocal receivables and payables, costs andrevenues, and financial income and expenses are also eliminated;

• in the presence of shares acquired after the assumption of control (acquisition of non-controlling interests), any difference

Name Investments % Variation Contribution of of the Direct Indirect perimeter group %

Ansaldo Algerie 49% X1 49%

Ansaldo America Latina 5% 95% X2 100%

Ansaldo Gas Turbine High Technology 60% 60%

Ansaldo Nigeria 100% X3-1 100%

AU Finance Holdings BV 40% 40%

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

Polaris - Anserv Srl 20% 20%

Shanghai Electric Gas Turbine 40% 40%

SPVTCCC BV 100% X1 100%

1. Company non entirely consolidated as non operative at 31 December 2018 (and 2017).

2. Comapany dismissed/liquidated during 2018, not deleted yet.

3. Company created in 2018.


between the acquisition cost and the corresponding portion of the acquired equity is recorded directly in the equityattributable to the Group; similarly, the effects arising from the disposal of minority interests without loss of control arerecorded in the equity. In contrast, any sale of investment shares resulting in loss of control requires the following to berecorded on the statement of comprehensive income:(i) any capital gains/losses calculated as the difference between the consideration received and the corresponding portion

of consolidated equity sold;(ii) the effect of the recalculation of any residual investment maintained in order to align it with the relative fair value;(iii) any values reported among the other comprehensive income components relating to the investee company of which

control has been lost that are required to be reversed on the statement of comprehensive income, or, if not requiredto be reversed on the statement of comprehensive income, under the “Other reserves” equity item.

The value of any investment maintained, aligned with the relative fair value on the date of loss of control, represents thenew carrying amount of the investment, which also constitutes the reference value for its subsequent valuation accordingto the applicable valuation criteria.

Joint arrangementsA 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 asan investment and shall account for that investment using the equity method.

AssociatesAssociates are companies over which the Group has significant influence, which is presumed to exist when the investmentrepresents 20% to 50% of the voting rights. Associates are accounted for using the equity method and are initially recordedat cost. The equity method is described below:• where necessary, the carrying amount of these investments is aligned with the adjusted equity of the relative company

in order to reflect the application of the EU IFRS, and includes the entry of the greater values attributed to the assets andliabilities, as well as any goodwill, identified at the time of acquisition, according to a process similar to that previouslydescribed for business combinations;

• the Group’s share of the profit or loss is recorded starting on the date that the significant influence begins, and up untilthe date that the significant influence ceases. If, as a result of losses, the company accounted for using the method inquestion records a negative equity, the carrying amount of the investment is cancelled, and any surplus attributable tothe Group, in the event that the latter has made efforts to fulfil legal or implicit obligations of the investee company, orotherwise to cover its losses, is recorded in a special provision; the changes in equity for companies accounted for usingthe equity method that are not indicated on the income statement are recorded directly on the statement ofcomprehensive income;

• unrealised profits and losses generated on transactions carried out between the Company, its subsidiaries, and the investeecompany accounted for using the equity method, are eliminated based on the value of the Group’s share in the investeecompany itself, with the exception of losses, if these are representative of the asset’s impairment, and dividends, whichare eliminated entirely.

In the case of objective evidence of impairment, recoverability is verified by comparing the entry value with its relativerecoverable amount determined by adopting the criteria indicated in the note titled “Impairment losses on tangible andintangible assets (impairment test)”. When the reasons for the write-downs made no longer subsist, the value of theinvestments is restored within the limits of the write-downs made, with the effects being recorded on the income statement.


Any sale of investment shares resulting in loss of joint control or significant influence over the investee company requires thefollowing to be recorded on the statement of comprehensive income:• any capital gains/losses calculated as the difference between the consideration received and the corresponding portion

of the underwritten value sold;• the effect of the recalculation of any residual investment maintained in order to align it with the relative fair value;• any values reported among the other comprehensive income components relating to the investee company that are

required to be reclassified on the statement of comprehensive income.The value of any investment maintained, aligned with the relative fair value on the date of loss of joint control or significantinfluence, represents the new carrying amount and therefore the reference value for subsequent valuation according to theapplicable valuation criteria.Once an investment accounted for using the equity method, or a share of such an investment, is classified for resale, as itmeets the established criteria for such a classification, the investment or investment share in question is no longer accountedfor using the equity method.

Business combinationsThe business combinations under which control of a business is gained are recorded by applying the so-called acquisitionmethod, in accordance with IFRS 3. In particular, the identifiable assets acquired, and the liabilities and contingent liabilitiesassumed, are recorded at their current value on the date of acquisition, or rather the date upon which control is acquired(the “Acquisition Date”), with the exception of deferred tax assets and liabilities, assets and liabilities relating to employeebenefits, and assets held for sale that are recorded according to the relative financial reporting standards. If positive, thedifference between the acquisition cost and the current value of the assets and liabilities is included among the intangibleassets, such as goodwill; if negative, after having double checked the correct calculation of the current value of the assetsand liabilities acquired and their acquisition cost, this difference is recorded as income directly on the statement ofcomprehensive income. When the determination of the values of the acquired business’s assets and liabilities is carried outon a temporary basis, it must be concluded within a maximum of twelve months from the date of acquisition and onlytaking into account information relating to facts and circumstances that existed as of the Acquisition Date. The temporarilycalculated values are recorded with a retrospective effect during the fiscal year in which the determination is completed.Ancillary transaction charges are recorded on the statement of comprehensive income at the time in which they are incurred.The acquisition cost is represented by the fair value of the assets transferred, the liabilities assumed, and the capitalinstruments issued for the purposes of the acquisition as of the Acquisition Date, and also includes the contingentconsideration, or rather the portion of the consideration whose amount and disbursement are dependent upon future events.The contingent consideration is recorded based on the relative fair value as of the Acquisition Date, and the subsequentchanges in the fair value are recorded on the statement of comprehensive income if the contingent consideration is a financialasset or liability, while contingent considerations classified as equity are recalculated and their subsequent extinction isrecorded directly in equity.In the case of acquisition of control at a later stage, the acquisition cost is determined by summing the fair value of theinvestment previously held in the acquiree, and the amount paid for the additional share. Any difference between the fairvalue of the investment previously held and its carrying amount is recorded on the statement of comprehensive income.Upon acquisition of control, any amounts previously recorded among the other comprehensive income components arerecorded on the statement of comprehensive income, or else in another equity item if its reclassification on the statementof comprehensive income is not required.

Translation of foreign currency accounts and balances

Translation of foreign currency entries 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.), areinitially recognised at the exchange rate ruling when the transaction is performed. Subsequently, monetary items are translatedinto the functional currency at the closing rate on the reporting date and any exchange rate gains or losses are recorded on the


income statement. Non-monetary items are maintained at the exchange rate ruling at the transaction date unless continuingadverse economic trends affect the rate, in which case exchange rate differences are recorded on the income statement.

Translation of balances expressed in a currency other than the functional currencyBalances expressed in a foreign currency (except for currencies of hyperinflationary economies, which is not currently thecase 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 liabilitiesof the foreign operation and translated at the closing rate.

The exchange rates used for the conversion of the aforementioned balances are shown in the following table:

b) Accounting standards and valuation criteria

Intangible assetsIntangible assets consist of clearly identifiable non-monetary assets without physical substance that are controlled by theGroup and are capable of generating future economic benefits for the company, as well as the goodwill recorded followingbusiness combinations. They are recognised at purchase and/or production cost, including directly related charges incurredto prepare them for use and borrowing costs relating to their acquisition, development or production for those assets that

Exchange Exchange Exchange ExchangeRate as at Average Rate as at Average

31 December 2018 Rate as 2018 31 December 2017 Rate as 2017

USD - U.S. Dollar 1.145 1.181 1.1993 1.1293

IRU - Indian Rupii 79.7298 80.7332 76.6055 73.498

ROL - Leu Romanian 46635 46540 46585 45687

FSV - Swiss Franc 1.1269 1.155 1.1702 1.1115

AED - U.A.E. Dirham 4.205 4.3371 4.4044 4.1461

ARS - Peso 43.1593 32.9094 22.931 18.726

TYR - Turkey Lira 6.0588 5.7077 4.5464 4.1214

RUB - Russian Ruble 79.7153 74.0416 69.392 65.8877

CNY - Renminbi 7.8751 7.8081 7.8044 7.6264

TND -Tunisian Dinar 3.4302 3.1106 2.9737 2.7295

JPY - Japanese YEN 125.85 130.3959 135.01 126.6545

BRL - Real 4.444 4.3085 3.9729 3.6041

MXN - Mexican Peso 22.4921 22.7054 23.6612 21.3278

KRW - South Korean Won 1277.93 1299.07 1279.61 1275.83

GBP - Pound Sterling 0.8945 0.8847 0.8872 0.8762

OMR - Rial Omani 0.4403 0.4541 0.4611 0.4342


require a long time period before being ready for use or sale. Their carrying amount is net of accumulated amortisation,except for assets with an indefinite useful life, and any impairment losses. Amortisation begins when the asset becomesavailable for use and is calculated systematically over the residual useful life of each asset. It is calculated considering theactual use of the asset during the fiscal year in which an intangible asset is initially recognised.The following main intangible assets can be identified within the context of the Group:

Development costs This item includes the costs incurred to apply the results of research and other knowledge to a plan or project for the productionof new or substantially advanced materials, devices, processes, systems or services before commercial production commencesor before the assets are used, when it can be demonstrated that they will generate future economic benefits. It is amortisedbased on the units of production method over the period in which the expected future economic benefits will be obtained (the“stamp” method). On the other hand, expenditure incurred in the 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 patentsor other intangible assets for a fixed term or a term that can be established; trademarks identifying the origin of productsor goods from a specific company and licences to use know-how, software or the property of others. The costs, includingdirect and indirect expenses incurred to obtain these rights, are capitalised after the rights have been acquired and areamortised systematically 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 an indefiniteuseful life, goodwill is not amortised. Instead, it is tested for impairment at least once a year, unless the market and managementindicators identified by the Group show that the test has to be conducted when preparing interim financial statements.

Tangible assetsTangible 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 forthose assets that require a long time period before being ready for use or sale.Tangible assets whose carrying amount will mainly be recovered through a sale transaction (rather than the continued useof the asset) are valued at their carrying amount or their fair value fewer disposal costs, whichever is less. Goods classifiedas “for sale” must be immediately available for sale, their disposal must be highly probable (meaning that there are alreadycommitments to that effect), and their sale value must be reasonable in relation to their fair value.Goods acquired following business combinations are recorded at their fair value as of the acquisition date, possibly correctedwithin the next 12 months. This value represents the cost of acquisition.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 classified separatelyas 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 basiseach year over the residual useful lives of assets. It is calculated considering the actual use of the asset in the year in whicha tangible asset item is initially recognised. The following table lists the depreciation periods for the various types of assets:


Description 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 estimated useful lives and residual values are regularly reviewed. Depreciation ceases when the asset is sold or reclassifiedas held for sale. If a depreciable asset is comprised of separately identifiable components with useful lives that differsignificantly from the other components comprising the asset, depreciation is calculated separately for each component,using the component approach. This item also includes equipment allocated to specific programmes (tooling), depreciatedbased on the method of units produced as opposed to the total expected.Profits and losses on the sale of assets or groups of assets are measured by comparing the selling price with the relatedcarrying amount.

Leased assetsThe definition of a contractual agreement as a leasing transaction (or containing a leasing transaction) is based on thesubstance of the agreement, and requires an assessment as to whether the fulfilment of the agreement depends upon theuse of one or more specific assets, or whether the agreement transfers the right to the use of such assets. The verificationthat an agreement contains a leasing transaction is carried out at the start of the agreement itself.Goods possessed by signing financial leasing agreements, or agreements by which all the risks and benefits associated withownership of the goods are substantially transferred to the Group, are initially recorded as assets at fair value or, if lower, atthe actual value of the minimum lease payments, including any applicable fee for exercising the option to purchase. Thecorresponding liability to the lessor is indicated on the financial statements among the financial liabilities, by applying theamortised cost criterion.After their initial registration, the leased goods are amortised by applying the criterion and the rates indicated above, exceptunder circumstances in which the duration of the lease is less than the useful life represented by these rates, and there is noreasonable assurance of the transfer of the leased goods’ ownership upon the agreement’s natural expiration date; in thiscase, the amortisation period will be represented by the duration of the lease agreement itself.Leases in which the lessor substantially retains all the risks and benefits of ownership are classified as operating leases. Thefees associated with operating leases are recorded in a linear fashion on the income statement over the term of the leaseagreement.

Impairment losses

a) GoodwillAs indicated above, goodwill underwent annual impairment testing, or more frequently in the presence of indicators givingthe impression that it may have suffered impairment, in accordance with IAS 36 (Impairment of assets). This verification isnormally carried out at the end of each fiscal year, and the reference date for this verification therefore coincides with theclosing date of the financial statements.The impairment test, which is described in greater detail under Note 14, is carried out in relation to each of the CashGenerating Units (CGU) to which goodwill has been allocated, or in the case of Ansaldo Energia Group, to the only CGUidentified. Any impairment of goodwill is recorded if the recoverable amount thereof is less than its carrying value on thefinancial statements. The recoverable value is to be understood as the greater of either the fair value of the CGU, less thedisposal costs, or the relative value in use, with the latter being understood as the actual value of the future cash flows forthat asset. In determining the value in use, the expected future cash flows are discounted using a pre-tax discount rate thatreflects the current market assessments of the cost of money in relation to the period of the investment and risks specific to


the asset. If the impairment resulting from the impairment test exceeds the value of the goodwill allocated to the CGU, theremaining surplus is allocated to the assets included in the CGU in proportion to their carrying value. The minimum limit forthis allocation is the greater of the following amounts:• the fair value of the asset less the sales expenses;• the value in use, as defined above;• zero.The original value of the goodwill cannot be restored if the reasons for the impairment no longer subsist.

b) Tangible and intangible assets with a finite useful lifeOn each of the financial statements’ reference dates, checks are carried out to determine whether there are any indicatorsthat tangible and intangible assets have suffered impairment losses. For this purpose, both internal and external sources ofinformation are taken into account. With regard to the former (internal sources), the following are taken into consideration:the obsolescence or physical deterioration of the asset, any significant changes in the use of the asset, and the asset’seconomic performance in relation to the expectations. With regard to external sources, the following are taken intoconsideration: the trend of the assets’ market prices, any technological, market or regulatory discontinuity, the trend of themarket interest rates or the cost of capital used to evaluate the investments.If such indicators are determined to be present, the recoverable value of the aforementioned assets is estimated, with anydepreciation with respect to the relative book value being recorded on the statement of comprehensive income. Therecoverable value of an asset is represented by the greater of either the fair value, less the ancillary sales costs, or the relativevalue in use, determined by discounting the estimated future cash flows for the asset in question, including those derivingfrom its transfer at the end of its useful life, if significant and reasonably ascertainable, and excluding any disposal costs. Indetermining the value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects thecurrent market assessments of the cost of money in relation to the period of the investment and risks specific to the asset.For an asset that does not generate largely independent cash flows, the recoverable value is determined in relation to thecash-generating unit to which the asset belongs. An impairment loss is recorded on the statement of comprehensive income whenever the carrying amount of the asset, orof the CGU to which it is allocated, exceeds the relative recoverable value. The impairment losses of a CGU are first recordedas a reduction of the carrying amount of any goodwill attributed to the same, and then as a reduction of the other assets,in proportion to their carrying values, and within the limits of their recoverable values. If the conditions for a write-downpreviously carried out no longer subsist, the carrying amount of the asset is restored through registration on the incomestatement, within the limits of the carrying value that the asset in question would have had if the write-down had neverbeen done and the relative amortisations had been carried out.

Equity investmentsInvestments in other companies (other than those in subsidiaries, associates and joint ventures) are evaluated at fair value;any changes in the value of such investments are registered in an equity reserve by attributing them to the othercomprehensive income components that will be reclassified on the separate consolidated income statement at the time ofsale or in the presence of an impairment deemed to be definitive. Other unlisted equity investments for which the fair value cannot be reliably determined are stated at cost and adjusted forthe impairments to be recorded on the separate consolidated income statement, in accordance with the provisions of IFRS 9.Impairments of other investments classified among the “financial assets available for sale” cannot be subsequently reversed.

InventoriesInventories 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 ofcompletion and the estimated costs necessary to make the sale. Produced raw materials are measured at standard cost,which is reviewed half-yearly.Work-in-progress and semi-finished products are measured at production cost, excluding borrowing costs and overheads.


Inventories are shown net of the obsolescence provision, which is calculated on the basis of the forecast of (i) unfavourableeconomic conditions that could arise in the future or (ii) the risk of product unsaleability.

Contract work in progressContract 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 calculatedon the basis of the ratio of costs incurred at the measurement date and the expected overall 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 (workin progress in excess of 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 annualand/or interim financial statements, 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 following paragraphs show the classification of financial assets by category in line with the new IFRS 9 standard:

Financial assets valued at amortised costThis category includes financial assets for which the following requirements have been met:a) the asset is held as part of a business model whose objective is to hold the asset for the purpose of collecting contractual

cash flows; andb) the contractual terms of the asset provide for cash flows represented solely by payments of principal and interest on the

amount of principal to be repaid.These are mainly trade receivables, loans and other receivables.Trade receivables that do not contain a significant financial component are recognised at the price defined for the relatedtransaction (determined in accordance with the provisions of IFRS 15 Revenues from customer contracts).Other receivables and loans are initially recognised in the financial statements at their fair value increased by any directlyattributable accessory costs to the transactions that generated them. At the time of subsequent measurement, financialassets were shown at amortised cost, with the exception of loans that do not contain a significant financial component,using the effective interest rate. The effects of this measurement are recognised as a financial income component.

Financial assets at fair value through profit or loss (“FVOCI”)This category includes financial assets for which the following requirements have been met:a) the asset is held as part of a business model whose objective is achieved both through the collection of contractual cash

flows and through the sale of the asset itself; andb) the contractual terms of the asset provide for cash flows represented solely by payments of principal and interest on the

amount of principal to be repaid.These assets are initially recognised in the financial statements at their fair value increased by any directly attributable accessorycosts to the transactions that generated them. At the time of subsequent measurement, the measurement made at the timeof recognition is updated and any changes in fair value are recognised in the statement of comprehensive income.


Financial assets at fair value with a balancing entry in the consolidated income statement (“FVPL”)This category includes financial assets that are not classified in any of the previous categories (i.e. residual category). Theseare mainly derivative instruments.Assets belonging to this category are recorded at fair value upon initial recognition. Ancillary costs incurred on recognitionof the asset are immediately recognised in the consolidated income statement. On subsequent measurement, FVPL financialassets are measured at fair value. Gains and losses arising from changes in fair value are recognised in the consolidatedincome statement in the period in which they are recognised under “Gains (losses) from assets measured at fair value”.Purchases and disposals of financial assets are accounted for at the settlement date.Financial assets are removed from the financial statements when the related contractual rights expire, or when the Companytransfers all the risks and rewards of ownership of the financial asset.

DerivativesThe Ansaldo Energia Group has availed itself of the possibility provided for in § 7.2.21 of IFRS 9 to postpone the adoptionof the hedge accounting module of the same accounting standard and to continue to apply the provisions of IAS 39 for theaccounting of derivatives as hedging instruments.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). For details on the recognition of currencyrisk hedges on long-term contracts, reference should be made to the section titled “Estimated costs to complete long-termcontracts”.The effectiveness of hedges is documented at the inception of the transaction, as well as periodically at each annual orinterim reporting date. Hedge effectiveness is measured by comparing the variations in the fair value of the hedginginstrument with those 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 previousframework agreements exist that make contract acquisition highly likely. Currency risk is usually hedged using plain vanilla(forward) instruments. If the hedge is not deemed effective, fair value gains or losses on these instruments are immediatelyexpensed as financial items and the related underlying item is measured as if it were not hedged, hence it is exposed to thecurrency risk. Hedges which fall under the first type of instrument are recognised as cash flow hedges, considering thepremium or the discount as the ineffective portion in the case of forwards, or time value in the case of options. The ineffectiveportion is recognised under financial items.

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

Cash flow hedgesChanges in the fair value of derivatives designated as cash flow hedges and which qualify as such are recognised to theextent of the portion determined to be “effective”, in a specific equity reserve (“hedging reserve”). This is subsequentlyreclassified on the income statement when the forecast transaction affects profit or loss. The change in the fair value of theineffective portion is recognised immediately in profit or loss. If the forecast transaction is no longer highly probable, therelevant portion of the “hedging reserve” is released immediately to profit or loss. If the hedging instrument is sold or nolonger effectively hedges the risk for which it was agreed, the relevant portion of the “hedging reserve” is retained in equityuntil the underlying transaction affects profit or loss.


Fair value measurementThe Fair value valuations of the financial instruments are carried out by applying IFRS 13 “Fair value measurement”. The fairvalue represents the price that would be received for the sale of an asset or paid for the transfer of a liability within thecontext of an ordinary transaction carried out between market operators on the measurement date.The fair value measurement is based on the assumption that the sale of the asset or the transfer of the liability takes placeon the main market, or rather the market with the greatest volume and level of transactions for the asset or liability inquestion. In the absence of a main market, it is assumed that the transaction takes place on the most advantageous marketto which the Group has access, or rather the market most likely to maximise the results of the asset’s sale, or minimise theamount to be paid for the transfer of the liability.The fair value of an asset or liability is determined in consideration of the assumptions that market participants would useto define the price of the asset or liability in question, with the presumption that they are acting in their best economicinterests. The market participants are independent and informed buyers and sellers who are capable of entering into atransaction for an asset or liability, and are motivated, but are not obliged or induced, to carry out the transaction.In carrying out the fair value measurement, the Group takes into account the characteristics of the specific asset or liability,and namely, for non-financial assets, the ability of a market participant to generate economic benefits by employing theasset for its greatest and best possible use, or by selling it to another market participant capable of using it for its greatestand best possible use. The fair value measurement of the assets and liabilities is carried out using techniques appropriate forthe circumstances, and for which sufficient data are available, maximising the use of observable inputs.IFRS 13 identifies the following hierarchy of fair value levels, which reflects the significance of the inputs used in the relativedetermination:• Level 1 - Quoted price (active market): the data used in the measurements are prices quoted on markets where the same

assets and liabilities in question are exchanged.• Level 2 - Use of parameters observable on the market (e.g. for derivatives, the exchange rates used by the Bank of Italy,

market rate curves, volatility provided by qualified providers, credit spreads calculated based on the CDS, etc.) other thanthe quoted prices referred to in level 1.

• Level 3 - Use of unobservable market parameters (e.g. internal assumptions, cash flows, risk-adjusted spreads, etc.).

Cash and cash equivalentsThis item 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 monthsof the acquisition date. They are recognised at fair value.

Payables and other liabilities (excluding derivatives)Financial liabilities include financial payables, lease payables and trade payables.Amounts due to banks and other lenders are initially recognised at fair value net of directly attributable transaction costsand are subsequently measured at amortised cost using the effective interest rate method. If there is a change in the expectedcash flows, the value of the liabilities is recalculated to reflect this change based on the current value of the new expectedcash flows and the initially determined internal rate of return.Leasing payables are initially recognised at the fair value of the capital goods covered by the contract, or, if lower, at thepresent value of the minimum payments due.Trade payables are obligations to pay for goods or services acquired from suppliers in the ordinary course of business. Tradepayables are classified as current liabilities if they are paid within one year of the balance sheet date. Otherwise, thesepayables are classified as non-current liabilities.Trade and other payables are initially recognised at fair value and subsequently measured using the amortised cost method.When a financial liability is hedged against interest rate risk by a fair value hedge, changes in fair value due to the hedgedrisk are not included in the amortised cost calculation. These changes are amortised from the moment in which the fairvalue hedge accounting is interrupted.Financial liabilities are eliminated from the financial statements when the obligation underlying the liability is extinguished,cancelled or fulfilled.


With reference to the derecognition of a financial liability, new records must be created for its extinction and the recognitionof a new liability if the contractual terms are substantially different. The terms are considerably different if the actualizedvalue of the financial flow under the new terms, including any fee paid net of the fee received and actualised using theoriginal interest rate, are at least 10% different from the actualized value of the remaining financial flows of the originalfinancial liability. If the exchange of debt instruments or the change in the terms are recognised as an extinction, any costsor fees paid are recorded as income or losses associated with the extinction. If the exchange or modification is not recognisedas extinction, any costs or fees sustained will adjust the accounting value of the liability and will be amortized over theremaining term of the liability in question.Financial liabilities include financial payables, including payables for advances on the assignment of receivables, as well asother financial liabilities, including derivative financial instruments and liabilities for assets recorded under finance leases.

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.

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 whenemployees have rendered service in exchange for such contributions;

• Defined benefit plans whereby the Company has an obligation to provide the agreed benefits to current and formeremployees and bears the actuarial and investment risks of the plan. The cost of this plan is therefore not defined in termsof the contributions due for the fiscal year but is rather recalculated based on the dynamics of the wages and certaindemographic and statistical assumptions. The method utilised is defined as the “projected unit credit method”.

As a result of this option, the value of the liability recorded in the balance sheet is in line with that resulting from its actuarialvaluation, with full and immediate recognition of actuarial gains and losses in the period in which they arise in the statementof comprehensive income, through a specific other comprehensive income reserve (“reserve for actuarial gains (losses) inshareholders’ equity”).

Other long-term employee benefits and post-employment benefitsSome Group employees are granted certain benefits such as jubilee benefits and seniority bonuses which are sometimespaid after retirement (such as medical benefits). The accounting treatment is the same as that applied to defined benefitplans, hence the “projected unit credit method” is used.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 Company is demonstrably committed toterminating the employment of an employee or Group of employees before the normal retirement date or providingtermination benefits as a result of an offer made in order to encourage voluntary redundancy. Termination benefits do notgenerate future economic benefits for the Company and, accordingly, are immediately expensed.

ProvisionsProvisions are recognised if, at the reporting date, as a result of a past event, there is a legal or constructive obligation that


will lead to an outflow of resources which can be estimated reliably. The amount recognised as a provision is the best estimateof the discounted outlay required to settle the obligation. The discount rate used reflects current market assessments andthe additional effects of the risk specific to the liability.Changes in estimates are recognised in profit or loss when they take place.

Estimated costs to complete long-term 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 andthe margins forecast from the entire project on completion. Consequently, for the purposes of correctly recognising work inprogress and profits related to works yet to be completed, management is required to make an accurate estimate of expectedcosts to complete, expected increases and delays, additional costs and penalties which could have an impact on the expectedprofit. In order to better assist management’s estimates, contract risk management and analysis procedures have beenintroduced to identify, monitor and quantify the risks related to contract performance (for more details, please refer to Note8 “Use of estimates”). The carrying amounts reflect the management’s best estimate at that time, assisted by the aboveprocedural tools.Moreover, the Group operates in markets where disputes tend to take a long time to settle especially when state bodies areinvolved. This requires that management predicts the outcome of such disputes.

RevenuesRevenue is recognised in accordance with IFRS 15, which requires the recognition of revenue from customer contracts foran amount that reflects the consideration to which the entity believes it is entitled in exchange for the transfer of goods orservices to the customer.Revenue is recognised when the related performance obligation is met, i.e. when the promised good or service is transferredto the customer. The transfer is considered completed when the customer obtains control of the good or service, which maytake place continuously (over time) or at a specific time (at a point in time).Revenues from performance obligations met over time are recognised on the basis of the stage of completion method (orpercentage of completion) according to which costs, revenues and margins are recognised on the basis of productionprogress, determined by reference to the ratio between costs incurred at the measurement date and total expected costs onthe programme or on the basis of the units of product delivered.The measurement reflects the best estimate of the stage of completion as of the date of the financial statements. Theestimates are updated regularly. Any profits or losses are recognised in the year in which the adjustments are made. Theexpected loss on a contract affecting operating profit is recognised entirely under operating expense when it becomesreasonably foreseeable. Vice versa, any reversal thereof is recognised under other operating income, if related to internalcosts. External costs are covered directly through utilisation of the provision for expected losses to complete contracts.For the purposes of presenting the impacts deriving from the first-time adoption of IFRS 15 in the financial statements, theGroup has decided to make use of the simplified method envisaged by the standard, whereby the cumulative effects derivingfrom the application of the new accounting standard are recognised as an adjustment to the initial reserves of shareholders’equity at 1 January 2018 (date of first-time adoption), while the comparative data are not restated on the basis of IFRS 15.The Group has chosen to apply this standard only to contracts not completed at the date of first-time adoption.

GrantsGrants are recognised on an accruals basis and in direct correlation with costs incurred when their allocation has beenformally approved. Specifically, grants related to assets are recognised in profit or loss directly in line with thedepreciation/amortisation of the assets/projects to which they relate and are recognised as a direct reduction indepreciation/amortisation. In the statement of financial position, they are recognised as a direct reduction of the capitalisedasset to the extent of the residual amount not yet recognised in profit or loss.

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


Financial income and expensesInterest 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 recognisedas a liability in the year in which the distribution was approved by the parent’s shareholders.

TaxesThe 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 item. Current taxes are calculated on the basis ofthe tax legislation applicable in the countries where the Group operates, enacted at the reporting date. Any risks arisingfrom different interpretations of income and expense, as well as pending litigation with the tax authorities are assessed atleast 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 arerecognised to the extent that it is probable that sufficient taxable profits will be available in the years the related temporarydifferences reverse against which the deductible temporary differences can be utilised.

Related party transactionsRelated parties are to be understood as companies that have the same parent company as the Group, companies that directlyor indirectly control or are subject to joint control by the Group, and those in which the Group holds a share that allows itto exercise significant influence. The definition of related parties also covers members of the Company’s Board of Directorsand managers with strategic responsibilities. Managers with strategic responsibilities are those who have direct or indirectpower and responsibility in relation to the planning, management, and/or monitoring of the Group’s activities.

4. Adoption of the new IFRS 9 and IFRS 15 accounting standards

The main information elements and a summary of the impacts deriving from the application, as from 1 January 2018, ofIFRS 9 (Financial Instruments) and IFRS 15 (Revenues from contracts with customers) are reported below.

IFRS 9 (Financial instruments)On 22 November 2016, EU Regulation 2016/2067 was issued, implementing at EU level IFRS 9 (Financial Instruments), whichconcerns the classification, measurement, derecognition and impairment of financial assets and liabilities as well as hedgeaccounting.Financial assets are classified on the basis of the business model adopted for their management and the characteristics ofthe related cash flows.As permitted by the accounting standard, the Ansaldo Energia Group has chosen to continue to apply the hedge accountingprovisions of IAS 39 instead of the provisions of IFRS 9.Starting from 1 January 2018, the Group changed the impairment model of its financial assets (including trade receivablesfrom customers) from the incurred loss model provided for by IAS 39 to the expected credit loss model provided for by IFRS


9, and also revised the classification (and consequently the valuation) of its financial assets which, pursuant to IFRS 9, asanticipated, must be carried out on the basis of the business model chosen by the entity for their management and thecharacteristics of the contractual cash flows of the financial assets themselves. On the contrary, in accordance with IAS 39,financial assets were classified (and consequently valued) according to their destination.Impairment of trade receivables and contract assets is carried out by estimating the expected loss over the entire life of thereceivable at the time of initial recognition and in subsequent evaluations. Considering the business in which the Group operates, receivables are characterised by specific risk elements for whichspecific assessments are carried out on individual credit positions.The introduction of the new standard also introduced a different classification of financial assets, which, however, did nothave an impact on the Group’s measurement of these assets.See the table below for the new classification.

2017

2018

Loans Other liabilities Derivatives Derivativesand measured (Asstes) (Liabilities)

IFRS 9 Receivables at amortised cost

Financial assets at fair value through profit or loss – – – –

Financial liabilities at fair value through profit or loss – – – –

Financial Assest and Liabilities through OCI – – – –

Financial Assest and Liabilities through measured at amortised cost 737,069 1,710,697 – –

Hedging Derivatives – – 12,156 1,361

Total 737,069 1,710,697 12,156 1,361

IAS 39

Loans Other liabilities Derivatives Derivativesand measured (Asstes) (Liabilities)

IFRS 9 Receivables at amortised cost

Financial assets at fair value through profit or loss – – – –

Financial liabilities at fair value through profit or loss – – – –

Financial Assest and Liabilities through OCI – – – –

Financial Assest and Liabilities through measured at amortised cost 610,296 1,796,702 – –

Hedging Derivatives – – – 6,646

Total 610,296 1,796,702 – 6,646

IAS 39


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. In addition, on 31 October 2017 EU Regulation 2017/1987 was issued,incorporating the clarifications to IFRS 15.IFRS 15 replaces the principles governing the recognition of revenues, namely, IAS 18 (Revenues), IAS 11 (Work in progresson orders) and the related interpretations on the recognition of revenues.The Group applied the simplified retrospective method by recognising the cumulative effect of the first-time adoption of thestandard as an adjustment to opening shareholders’ equity at 1 January 2018, leaving the previous comparative periodsunchanged.The main differences with respect to the previous accounting standards (IFRS 15 to IAS 11 and related interpretations) areset out below:• revenues from long term service contracts covering several plants: performance obligations have been identified on the

basis of the number of plants subject to maintenance within the individual contract. The allocation of the contractuallyenvisaged price to the various performance obligations took place on the basis of the relative contractually inferred stand-alone selling price. Revenue is recognised over the time of the services rendered for the individual power plants;

• revenues from multi-year on-call service contracts: with IFRS 15, each on-call intervention by the customer is attributableto a separate performance obligation whose revenues are recorded over the time on the basis of the state of progressestimated using the cost-to-cost method. The allocation of the contractually envisaged price to the various performanceobligations took place on the basis of the relative contractually inferred stand-alone selling price.

• revenues from combined contracts for the sale of plant and spare parts: the application of the new principle has identifiedtwo separate performance obligations: 1) the construction of the plant; and 2) the supply of spare parts; for each ofthese, the revenue is recorded over time on the basis of the actual state of progress estimated using the cost-to-costmethod. The allocation of the contractually envisaged price to the various performance obligations took place on thebasis of the relative contractually inferred stand-alone selling price.

The total net impact of the adoption of IFRS 15 on consolidated shareholders’ equity at 1 January 2018 (transition date)amounted to (-€ 9,242 thousand) gross of the tax effects of € 2,173 thousand.

5. Quantitative impacts deriving from the adoption of IFRS 9 and IFRS 15

The impacts of the transition on the main items of the balance sheet and financial position are summarised below.The table shows the effects of the introduction of the new principles for the various items that make up the balance sheet:


Assets

Intangible assets 1,539,410 1,539,410

Property, plant and equipment 261,432 261,432

Equity investments 39,923 39,923

Receivables 669 669

Deferred tax assets 52,470 2,173 54,643

Non current assets 1,893,903 2,173 – 1,896,076

Inventories 627,503 627,503

Contract work in progress 200,208 200,208


Tax assets 5,300 5,300

Financial receivables 85,005 85,005

Derivatives 12,156 12,156

Other current assets 82,734 82,734


Current assets 1,576,269 – – 1,576,269

Total assets 3,470,172 2,173 – 3,472,345

Equity and liabilities

Equity

Share capital 100,000 100,000

Other reserves 522,014 (7,069) 514,945

Equity attributable to the owners of the parent 622,014 (7,069) 614,945

Equity attributable to non-controlling interests (147) (147)

Total equity 621,868 (7,069) – 614,798

Non-current liabilities to related parties 10,000 10,000

Loans and borrowings 780,118 780,118

Employee benefits 34,771 34,771

Provisions 132,299 132,299

Deferred tax liabilities 151,269 151,269

Other non-current liabilities 78,221 78,221

Non-current liabilities 1,186,678 – – 1,186,678

Progress payments and advances from customers 802,356 9,242 811,598


Loans and borrowings 166,688 166,688

Tax liabilities 1,885 1,885

Provisions 15,552 15,552

Derivatives 1,361 1,361

Other current liabilities 117,693 117,693

Current liabilities 1,661,626 9,242 – 1,670,868

Total liabilities 2,848,304 9,242 – 2,857,546

Total liabilities and equity 3,470,172 2,173 – 3,472,345

Euro 31 december IFRS 15 IFRS 9 31 december 2017 2017 Adj.


The table shows the effects on the income statement for the year 2017 if IFRS 15 had been applied as from 1/1/2017. Theimpact does not take into consideration any job orders, which would have had an impact, but which were closed during the2017 financial year.

Revenue 1,464,053 (4,617) 1,459,437

Other operating income 130,930 130,930

Purchases costs 648,281 648,281

Services costs 408,947 408,947

Personnel expense 320,595 320,595

Amortisation, depreciation and impairment losses 242,421 242,421

Other operating expenses 44,770 44,770

Change in finished goods, work-in-progress and semi-finished products 34,852 34,852

(-) Internal work capitalised 37,145 37,145

EBIT 1,966 (4,617) (2,651)

Financial income 10,229 10,229

Financial expenses 61,228 61,228

Share of profits (losses) of associates and joint ventures accounted for using equity method (5,263) (5,263)

Profit (loss) before taxes (54,296) (4,617) (58,913)

Income taxes (59,950) (1,090) (61,040)

Net result 5,655 (3,527) 2,128

- attributable to the owners of the parent 5,680 (3,527) 2,153

- attributable to non-controlling interests (25) (25)

Euro/thousand 31 december IFRS 15 IFRS 9 31 december 2017 2017 Adj.


6. Upcoming accounting standards and interpretations

• IFRS 16 – On 31 October 2017, EU Regulation 2017/1986 was issued, which implemented IFRS 16 - Leasing at EU level.IFRS 16 replaces IAS 17 (Leasing) and the relative Interpretations (IFRIC 4 Determining whether an arrangement involvesa lease; SIC 15 Operating leases - Incentives; SIC 27 Evaluating the substance of transactions in the legal form of a lease).IFRS 16 applies retrospectively from 1 January 2019.In accordance with IFRS 16, the accounting treatment of leases payable (which do not constitute the provision of services)is based on the recognition of a financial liability in the balance sheet, represented by the present value of future leasepayments, against the recognition of the “right to use the leased asset” as an asset.Leases payable, which were previously classified as finance leases in accordance with IAS 17, will not be subject to anychange with respect to the current accounting presentation, in full continuity with the past.On first-time adoption, for leases previously classified under IAS 17 as operating leases, the Group intends to apply thesimplified retrospective method with the recognition of the financial liability for leasing contracts and the correspondingvalue of the right of use measured on the remaining contractual instalments at the date of transition.In the Ansaldo Energia Group, contracts falling within the scope of IFRS 16 mainly refer to:– land and buildings for office and industrial use,– leases of materials intended for factory and/or office use and car rentals.

With reference to the options and exemptions provided for by IFRS 16, the Group will make the following choices:– IFRS 16 is not generally applied to intangible assets, short-term contracts (i.e. contracts of less than 12 months) and

contracts with a low unit value;– rights of use and financial liabilities relating to leasing contracts are classified under specific items in the statement of

financial position;– any service component included in the lease payments is generally excluded from the scope of IFRS 16;– contracts with similar characteristics are valued using a single discount rate;– leasing contracts previously valued as financial leases in accordance with IAS 17 maintain the values previously recorded.

The main impacts on the financial statements, still under evaluation and refinement, can be summarised as higher non-current assets due to the recognition of the “right of use of the leased asset” as a contra-entry to higher financial liabilities;consequently, the recognition of a leasing debt of between € 95 and 120 million is expected at the time of the transition.The impacts are based on the results of the analyses at the date of preparation of these financial statements and couldchange, even significantly, as the implementation process is still in progress. The impacts during transition are not indicativeof future developments, as the choices for the allocation of capital could change with consequent economic and financialrepercussions on the recognition in the financial statements.

• Amendments to IFRS 9 – Financial Instruments - Negative Cleared Prepayments adopted by EU Regulation 498/2018. Theamendments made to this standard are intended to clarify the classification of certain early repayment financial assetswhen IFRS 9 applies;

• IFRIC Interpretation 22 – Foreign currency transactions and advances, adopted by EU Regulation 519/2018, which aimsto clarify the accounting of transactions that include the receipt or payment of advances in foreign currency;

• IFRIC Interpretation 23 – Uncertainty of treatments for income tax purposes, adopted by EU Regulation 1595/2018, aimsto clarify how to reflect the uncertainty in accounting for income taxes.


7. Accounting standards, amendments and interpretations issued by the IASB but not yetapproved by the European Commission

• IFRS 17 - Insurance Contracts;• Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures;• IFRS - Annual Improvements cycle 2015-2017;• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement;• Amendments to the Conceptual Framework;• Amendments to IFRS 3: Business Combinations;• Amendments to IAS 1 and IAS 8: Definition of Material.

8. Use of estimates

The preparation of the financial statements requires the directors to apply accounting standards and methodologies which,under certain circumstances, are based on difficult and subjective evaluations and estimates, historical experience, andassumptions that are considered to be reasonable and realistic in light of the relative circumstances. The application of theseestimates and assumptions affects the amounts reported on the financial statements, the statement of financial position,the income statement, the comprehensive income statement, the statement of cash flows, and the disclosures provided.Due to the uncertainty that characterises the assumptions and the conditions upon which the estimates are based, the finalresults of the items on the financial statements for which these estimates and assumptions have been utilised may differ,even considerably, from those contained in the financial statements showing the effects of the estimated items.Even if not all of the estimated accounting entries are significant on an individual basis, they are significant collectively. Forthis reason, the areas that need to be evaluated more subjectively by the directors during the preparation of the estimates,and for which any changes in the conditions underlying the assumptions could have a significant impact upon the Group’sfinancial results, are summarised below.

Deferred tax assetsThe deferred tax assets are recognised against the temporary deductible differences between the values of the assets andliabilities indicated on the financial statements with respect to the corresponding value for tax purposes. A discretionalassessment must be made in order for the directors to determine the amount of the deferred tax assets that can be accountedfor, which depends on the estimate of the probable timing and the amount of the future taxable profits.

Provision for doubtful receivables The recoverability of the receivables is assessed taking into account the risk of their inability to be collected, their age, andthe impairment losses on receivables recorded in the past for similar types of receivables.

ProvisionsProvisions representing the risk of negative outcomes have been recorded for legal and tax risks. The value of the provisionsrecorded on the financial statements for these risks represents the best estimate to date made by the directors. This estimateinvolves certain assumptions dependent upon factors that can change over time, and which could therefore have a significanteffect in relation to the current estimates made by the directors during the preparation of the Group’s consolidated financialstatements.

Impairment of assetsGoodwill and other tangible and intangible assets with finite useful lives are checked for impairment, which is recordedthrough write-downs whenever the indicators reveal the likelihood of difficulty in recovering the relative net carrying amountthrough use. The verification of the existence of these indicators requires the directors to make subjective assessments based


on the information available within the Group and on the market, as well as from historical experience. Moreover, if it isdetermined that potential impairment may have been generated, the Group proceeds with the determination of the sameusing appropriate valuation techniques. The correct identification of the elements indicating a potential impairment oftangible and intangible assets, and the estimates for the determination of the same, depending upon factors that can changeover time, thus affecting the evaluations and estimates made by the directors themselves.

DepreciationThe costs of the tangible and intangible assets with finite useful lives are amortised at constant rates over the course of theestimated useful lives of the relative assets themselves. The useful economic lives of such assets are determined by thedirectors at the time of their acquisition, based on historical experience for similar assets, market conditions, and anticipatedfuture events that could have an impact on the useful lives of the assets, including changes in technology. Their actualeconomic lives may therefore differ from their estimated useful lives.As required by section 10 of IAS 8 (Accounting policies, changes in accounting estimates and errors), in the absence of aStandard or Interpretation specifically applicable to a particular transaction, the Management shall make use of weightedsubjective evaluations to determine the accounting methodologies to be adopted in order to provide consolidated financialstatements that faithfully represent the Group’s financial position, operating results, and cash flows, reflect the economicsubstance of the transactions, are neutral, are prepared according to the principle of prudence, and are complete in all ofthe relevant aspects.

Recognition of revenues and costs relating to contract work in progressThe group uses the percentage of completion method to account for long-term contracts. The margins recorded on theincome statement depend on both the order and the margins forecast from the entire project on completion. Consequently,for the purposes of correctly recognising work in progress and profits related to works yet to be completed, the directors arerequired to make an accurate estimate of expected costs to complete, expected increases and delays, additional costs andpenalties which could have an impact on the expected profit. Using the percentage of completion method requires theGroup to estimate the costs of completion, which in turn requires estimates to be made that depend upon factors that canchange over time, and could therefore have a significant effect upon the current values. If the actual cost is different fromthe estimated cost, this change will have an impact on the results in future fiscal years.

9. Risk management

The group is exposed to a series of business and financial risks associated with its operations.The main business risks consist of the following:• Economic crisis: the continuation of the economic crisis could compromise the Group’s profitability and its ability to

generate cash flows, including by its core businesses. In order to counteract this risk, the Group pursues its goal ofincreasing production efficiency and improving contract execution capacity while concurrently cutting structural costs.

• Long term fixed price contracts: the Group’s response to this risk consists of following the established procedures duringthe preparation and approval of its main sales offers, with the main financial and performance indicators, includingEconomic Value Added (EVA), one of the reference indicators, being continuously checked right from the initial phases.The Group also checks the estimated contract costs regularly, at least every three months. It identifies, monitors andevaluates risks and uncertainties inherent in contract performance using the “Contract management” directive, as wellas two procedures (Lifecycle Management and Risk Assessment) designed to reduce the probability that risks or theirnegative consequences will materialise, and ensure that the appropriate mitigation measures are promptly applied.This procedure involves senior management, the program managers and the quality, production and finance functions(the so-called “phase review”).

• Customer liability: the Group is exposed to risks of customer or third party liability linked to the proper execution of thecontracts, which it addresses by stipulating standard insurance policies available on the market to cover any damages


caused. However, damage could arise that is not covered by insurance policies, or that exceed the sum insured, or elsethe insurance premiums, which are nevertheless constantly monitored by the management, could increase in the future.

• Legislative compliance: The Group ensures its constant compliance with the relevant legislation through specificprocedures, subordinating the start of any commercial actions to checking compliance with limits and attainment of thenecessary authorisations.

The risks of a financial nature consist of:• Liquidity risks, which consist of the risk that the available financial resources will not be sufficient to meet the obligations

under the agreed terms and deadlines;• 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, for example, byusing hedging derivatives.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 figuresof the reference years. However, because of their nature, they cannot be considered as indicators of the real effects of futurechanges in reference parameters when a different financial position and different market conditions are considered. Moreover,they do not reflect the interrelations and complexities of the reference markets.

Liquidity riskLiquidity risk consists of the risk that, due to the inability to raise new funds or liquidate assets on the market, the Group isunable to meet its payment obligations, resulting in a negative impact upon the operating result if it were to be forced toincur additional costs to meet its commitments or a situation of insolvency. The Group’s aim is to establish a financial structure that, in keeping with its business objectives and the defined limits, i)ensures an adequate level of liquidity, minimising the relative opportunity cost, and ii) maintains a balance in terms of thedebt composition and duration.The following table shows a maturity analysis based on the contractual repayment obligations in relation to the capitalisedvalues of the bond, the trade payables, and other liabilities held as of 31 December 2018 and 2017. The first column showsthe year-end balance, while the next columns show the foreseen cash outs at the indicated deadlines, including interest.


Interest rate riskThe Group is exposed to interest rate variations in relation to the use of its liquidity. The interest rate risks were measured bymeans of a sensitivity analysis, as required by IFRS 7, conducted upon the exposed part at risk of changes to the interest ratenot covered by derivatives. If the reference rates were 50 basis points higher/lower, the effects on shareholders’ equity at 31December 2018 and on the result for the year ended on that date would have been insignificant.

Foreign exchange risksThe Group’s procedures require that 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 inEuros. Any foreign currency purchases are usually hedged by a corresponding amount of revenue in the same currency.The notional amount in Euros of all items hedged by sell-side derivatives totalled € 192,415 thousand, and € 680 thousandfor buy-side derivatives as of 31 December 2018.In view of the above, and, in particular, excluding the effect of the policy of hedging transactions in currencies other thanthe Euro, the sensitivity analysis on the variations in foreign exchange rates is insignificant.

Credit riskThe 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 standby 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.

Euro/thousand Amount as at Whitin Between 1 Over Total 31 december 2017 1 year and 5 years 5 years

Bonds 617,562 17,124 323,970 359,625 700,719

Other current and non-current financial liabilities 329,244 155,970 152,070 19,396 327,436

Trade payables 556,091 556,091 556,091

Other current and non-current liabilities 205,916 125,916 80,000 205,916

Euro/thousand Amount as at Whitin Between 1 Over Total 31 december 2018 1 year fand 5 years 5 years

Bonds 618,387 17,171 302,563 353,191 672,925

Other current and non-current financial liabilities 542,302 369,910 134,830 23,008 527,748

Trade payables 423,697 423,697 423,697

Other current and non-current liabilities 324,944 147,143 180,303 327,447


The following table provides a breakdown of the trade receivables, grouped by maturity and by geographical region, net ofthe provision for doubtful receivables:

Trade receivables Euro/thousand Area Europe Area US Other Total

At 31.12.2018

- Retentions 121 – 203 324

- Not yet due 23,422 13,230 11,947 48,599

- Overdue by less than six months 29,182 5,449 117,973 152,604

- Overdue between six months and one year 6,730 89 33,583 40,402

- Overdue between one and five years 10,126 719 31,207 42,052

- Overdue more than five years 8,256 3,096 5,174 16,526

Total 77,837 22,583 200,087 300,507

There is no significant risk of credit concentration, either by geographical area, sector or type of customer.

10. Capital management

The management of the Group’s capital is aimed at ensuring a solid credit rating and adequate capital indicator levels tosupport the investment plans, in accordance with the contractual obligations assumed with lenders.The Group obtains the capital necessary to finance the development needs of its businesses and operational activities; thefunding sources consist of a balanced mix of risk capital and debt capital, in order to ensure a balanced financial structureand to minimise the overall cost of capital, with consequent benefits for all the “stakeholders.”The return on the risk capital is monitored based on the market trend and business performance, once all the other obligationshave been met, including debt servicing; therefore, in order to ensure an adequate return on the capital, the protection ofbusiness continuity, and the development of the businesses, the Group constantly monitors the changes in the level of debtin relation to equity, the business trend, and the cash flow forecasts, over both the short and medium/long term.

11. Financial assets and liabilities by category

The following tables detail the Group’s financial assets and liabilities as required by IFRS 7, in accordance with the categoriesidentified by IFRS 9, as of 31 December 2018 and 2017. The Group has no financial assets or liabilities measured at fairvalue through profit or loss or in the statement of comprehensive income, nor financial assets available for sale.


The table that follows shows the reconciliation of the net financial position from 1 January 2018 to 31 December 2018,showing the financial movements and the movements that did not involve a financial flow (non-cash changes)

Euro/thousand As at 31 december 2018 Financial assets/ Hedging Total liabilities at derivatives amortized cost

Other current financial assets 230,175 230,175

Other non-current financial assets 1,172 1,172


Other receivables and other current assets 78,443 78,443

Total 610,296 610,296

Loans and borrowings and other current liabilities 400,966 400,966

Other debts and other non-current liabilities 50,972 50,972

Loans and borrowings and other non-current liabilities 759,723 759,723


Other debts and other current liabiliites 161,345 6,646 167,991

Total 1,796,702 6,646 1,803,348

Other current financial assets 361,304 361,304

Other non-current financial assets 669 669


Other receivables and other current assets 88,034 12,156 100,191

Total 737,069 12,156 749,226

Loans and borrowings and other current liabilities 166,688 166,688

Other debts and other non-current liabilities 88,221 88,221

Loans and borrowings and other non-current liabilities 780,118 780,118


Other debts and other current liabiliites 119,578 1,361 120,939

Total 1,710,697 1,361 1,712,057

Euro/thousand As at 31 december 2017 Financial assets/ Hedging Total liabilities at derivatives amortized cost


Euro/thousand Cash and Financial Short term Medium/ Total cash equivalent receivables loans and long term barrowings loans and barrowings

Net financial debt as at 31 december 2017 276.300 85.005 (166.688) (780.118) (585.501)

Cash Flow of the period (46,276) 27,925 (234,278) 20,395 (232,234)

Exchange rate gains (losses) (368) (368)

Other non-cash changes (332) (112,079) (112,411)

Net financial debt as at 31 december 2018 229,324 851 (400,966) (759,723) (930,514)

12. Fair value measurement

The following table summarises the assets and liabilities measured at fair value as of 31 December 2018 and 2017, basedon the level that reflects the inputs used to determine their fair value:


Financial Assets/Liabilities at fair value

Derivatives assets (level 2) – 12,157

Derivatives liabilities (level 2) (6,093) 123

IRS (553) (1,484)

The Group makes use of internal evaluation models generally used in financial practice. There were no transfers betweenthe various levels of the fair value hierarchy during the periods in question

13. Segment reporting

For the purposes of IFRS 8 - Operating segments, the Group’s activities belong to a single operating segment, namely thatof energy. Moreover, while noting the heavily transversal nature of its activities, on a managerial level the Group has 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, nuclear and renewables. Thegeographical area scheme, on the other hand, in which the risks and benefits are also significantly influenced by the factthat the company operates in different countries or different geographical areas, has been evaluated 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 revenues by service line and bygeographical area, as well as the detail of the gross margin (defined as the difference between revenue and cost ofproduction) for each service line.


Furthermore, the following table shows the revenues by geographical area (or rather allocated based on the countries inwhere the customers are based) and the fixed assets by geographical area (which instead are allocated based on their specificlocations):

Revenue


Italy 243,816 215,475

Europe/CIS*/Africa/Middle East 675,593 944,391

America 156,904 145,142

Asia/Australia 96,001 159,045

1,172,314 1,464,053

*CIS= Commonwealth of Independent State

Non-current assets


Italy 1,617,004 1,647,910

Europe/CIS*/Africa/Middle East 284,944 220,620

America 22,263 19,833

Asia/Australia 19,893 5,540

1,944,104 1,893,903

*CIS= Commonwealth of Independent State

Euro/thousand New Units Service Nuclear Renewable Total Operation Operation Energies and Distribution

Revenue 436,516 647,491 86,357 1,950 1,172,314

Gross Margin 61,928 188,832 3,221 66 254,048


14. Intangible assets

This item and the relative change can be detailed as follows:

During the course of the 2018 fiscal year, the Group continued to develop new technologies relating to the GT26 and GT36turbines. The main development project regarded the prototype of the GT36 turbine, which was carried out jointly by theItalian and Swiss teams.As described below, € 1,184,506 thousand (of which € 806,778 thousand in goodwill) is the result of the application of thepurchase price allocation process as required by IFRS 3 in relation to the 2012 merger with Ansaldo Energia Holding S.p.A.and the acquisition of the English Group (€ 140,794 thousand in total) and the acquisition from General Electric Companyof part of Alstom’s gas turbine business (the Gastone Project).

Euro/thousand Goodwill Development Patent Concessions, Intangible Other Total expenses and licenses and assets assets similar trademarks acquired under rights through develop- business ment combinations (PPA)

1 January 2017, broken down as follows:

Cost 806,222 241,231 367 114,161 657,669 71,929 1,891,579

Accumulated amortisation and impairment (556) 142,751 367 29,619 188,453 18,605 379,239

Carrying amount 806,778 98,480 – 84,542 469,216 53,324 1,512,340

Investments – – – – – 87,618 87,618

Sales – 3,233 – 1,224 – 5 4,462

Amortisation and impairment – 5,499 – 2,904 53,069 (667) 60,805

Reclassifications – (53,426) – 11,802 – 41,624 –

Other changes – (1,697) – 597 – 5,819 4,719

31 December 2017, broken down as follows:

Cost 805,967 157,030 367 129,003 657,669 203,496 1,953,532


Carrying amount 806,778 34,626 – 92,813 416,146 189,047 1,539,410

Investments – – – – – 86,696 86,696

Amortisation and impairment – 8,790 – 2,657 39,505 5,432 56,384

Reclassifications – 2,345 – 922 1,087 (4,354) –

Other changes – 82 – 184 – 282 548


Cost 805,893 159,564 367 110,725 659,300 284,441 2,020,290


Carrying amount 806,778 28,263 – 91,262 377,728 266,239 1,570,270


GoodwillThe “Goodwill” item, which amounted to € 806,778 thousand as of 31 December 2018, can be attributed as follows:– a € 781 million reverse merger between Ansaldo Energia S.p.A. and its parent company Ansaldo Energia Holding S.p.A.

in 2012;– € 26 million for the acquisition of Nuclear Engineering Services.

The cash-generating unit (CGU) to which the goodwill is allocated, which represents the level at which the same is monitoredby the Company’s management coincides with the operating segment into which all the products and services provided bythe Group converge — or rather the Energy segment (for more details, please refer to Note 13 “Segment reporting”).In keeping with the requirements of the international accounting standards, the impairment test to ascertain any impairmentof goodwill had already been conducted by the reference date of these financial statements. The impairment test was carriedout by comparing the book value of goodwill with the value in use of the CGU to which it refers.The value in use was calculated using the Discounted Cash Flow (“DCF”) method, by discounting the operational cash flowsgenerated by the asset itself (net of taxation) at a discount rate representing the weighted average cost of capital.The main assumptions adopted to calculate the recoverable amount are the discount rate (WACC), the annual terminalgrowth rate, and the forecast cash flows during the period of reference.The WACC used to discount the future cash flows is equal to 9.0% and includes an additional market risk premium (0.4%).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 markets in which the Group mainly operates. The value in use was obtained by discounting the explicit and implicit cash flows (terminal value) included in the 2019/2023Plan approved by the Parent’s Board of Directors, which were estimated based on past economic and income performanceand future expectations. The resulting value was compared with adjusted net invested capital. The business plan was drawn up with the support of a leading consulting firm in the field of marketing & strategy.The results of the impairment test carried out show that the estimated recoverable value of the CGU exceeds its carryingamount at the reference date by € 243 million.We also performed a sensitivity analysis in order to verify the effects of the variation of certain parameters considered to besignificant (i.e. WACC, EBITDA growth rate) upon the results of the impairment test, with the other parameters remainingconstant: this analysis also did not reveal the need to make any write-downs on the values of the consolidated assetssubjected to impairment tests. The results obtained are as follows:

SENSITIVITY ANALYSIS Variable Variation Impact on recoverable amount

Increase of WACC 1% (226) M€

Decrease in growth rate (g) (1%) (166) M€

Decrease in EBITDA (10%) (168) M€

Therefore, in view of all the above scenarios, the recoverable amount of the CGU has not been found to be lower than itscarrying amount. A similar test was carried out on other intangible assets with an indefinite useful life, subject to impairment testing, and inparticular on intangible assets in the process of being completed relating to GT36 and GT26 technologies, whose carryingvalues at 31 December 2018, included among intangible assets, amounted to € 313.6 million and € 57.7 million respectively.Also as a result of this test, the book value of these technologies was lower than their recoverable value.With regard to all the other intangible assets subject to amortisation, analyses were performed in order to identify anypresumptions of impairment, as a result of which the performance of any specific impairment tests was deemed to beunnecessary.


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

1 January 2017, broken down as follows:

Cost 190,110 351,705 79,024 34,248 18,621 673,708

Accumulated depreciation and impairment 73,926 274,456 63,209 26,761 – 438,352

Carrying amount 116,184 77,249 15,815 7,487 18,621 235,356

Investments 72 2,193 4,702 906 60,001 67,874

Sales 48 – 5 4 1,614 1,671


Reclassifications 10,644 15,643 9,753 1,877 (37,917) –

Other changes (694) (872) (54) (163) (6,180) (7,963)


Cost 198,996 335,771 118,206 36,475 32,911 722,359


Carrying amount 120,176 77,053 23,739 7,554 32,911 261,433

Investments – 2,788 1,654 602 35,657 40,701

Sales – 144 20 4 131 299


Reclassifications 3,848 16,405 9,326 699 (30,278) –

Other changes (58) 214 1 (69) 125 213


Cost 203,122 356,152 128,297 37,317 38,284 763,172


Carrying amount 117,863 80,123 27,267 6,233 38,284 269,770

15. Property, plant and equipment

This item and the relative change can be detailed as follows:

The tangible fixed assets are net of accumulated depreciation. The land and buildings mainly consist of the Genoa-Campiand Genoa Cornigliano industrial sites, and the building in Tehran that houses the Iranian branch. Capitalisations for plantsthat have started production mainly consist of:• completion of safety works on the quay in the area served by the Cornigliano assembly plant to enable the shipment of

machinery by sea from Genoa, as well as completion of the road network for the entire area (€ 2,638 thousand);• the complete renovation (construction, mechanical and electrical) of the 2nd floor of the “Building 75” owned by the

Parent Company, for office use (€ 2,452 thousand);• the implementation of new equipment (kits) to allow the Field Service to carry out C-inspection activities on GT26

machines (€ 3,541 thousand);• the new stator packing plant and relative foundations for the construction of larger alternators (€ 1,786 thousand);• tooling for casting GT26 (€ 2,166 thousand) and GT 36 S5 (€ 617 thousand);• the purchase of a transportable 120-ton lathe-balancer for service sites (€ 759 thousand);


• the completion, as part of energy efficiency projects, of the “thermal plant regulation” project with the aim of increasingthe efficiency of thermal energy consumption in relation to real needs (€ 611 thousand);

• the commissioning of the kiln for drying stator plates, which allows the process to be separated from the surroundingenvironment and reduce emissions (€ 463 thousand);

• installation of the Flow Bench Turbine for flushing the burners of the new GT (€ 487 thousand).

16. Equity investments

The value of “Equity investments” amounted to € 31,820 thousand, down € 8,103 thousand on 31 December 2017.The main changes that led to the variation in the “Equity investments” are highlighted below:

Euro/thousand 31.12.2018 31.12.2017

1 January 39,923 36,363

Acquisitions/subscriptions and capital increases 50 11,292

Share of profits (losses) of associates and joint ventures accounted

for using equity method (except provision for risk on investments) (2,961) (5,263)

Dividends received (1,720) (334)

Capital reimboursement (995) (50)

Revaluation (Devaluation) (211) –

Change in consolidation area (77) (148)

Other changes (2,189) (1,937)

31 December 31,820 39,923

The changes for the fiscal year essentially refer to:• the subscription of capital in Ansaldo Energia Iranian Ltd (€ 49 thousand);• the write-down of the investments in the two Chinese Joint Ventures AGT (Ansaldo Gas Turbine High Technology Co.

Ltd.) and SEGT (Shanghai Electric Gas Turbine Co. Ltd.) for € 1,893 thousand (of which € 70 thousand charged to thereserve for foreign exchange differences) and € 2,736 thousand (of which € 112 thousand charged to the reserve forforeign exchange differences) respectively; the first is held at 60%, the second at 40%; the two JVs were created as partof the cooperation project with the shareholder of Ansaldo Energia, Shanghai Electric Hong Kong Co. Limited, with thegoals of penetrating into the Chinese market and implementing energy-related Research and Development projects;during the course of the fiscal year, the two JVs respectively accumulated losses, which resulted in their devaluation onthe financial statements;

• the repayment of the capital in NNS Societé de service pour Reacteur Rapide (€ 31 thousand);• the write-down of the equity investment in Consorzio C.R.I.S. (€ 209 thousand), as a result of the repayment of the share

capital on termination (€ 956 thousand);• the line “other movements” includes (for € 1,721 thousand) the write-off of the value of the investment in SPVTCCC

whose valuation at negative equity led to its recording in the provisions for risks on investments;• the line “dividends” refers to NNS and Polaris.


List of equity investments as of 31 December 2018

Euro/thousand Name Investment % Investment amount

Subsidiaries and associates

Ansaldo Algerie 49% 176

Ansaldo Energia Iranian 70% 49

Ansaldo Gas Turbine Technology 60% 7,682

AU Finance Holding 40% 380

Polaris Anserv 20% 50

Shanghai Electric Gas Turbine 40% 12,181

Other equity investments and consortia

AC Boilers 10% 6,000

Cogenerazione Rosignano 33% 5,000

Consorzio CISA in liquidazione 66% 68

Consorzio CORIBA in liquidazione 5% 3

Consorzio CREATE 20% 5

Consorzio Energie Rinnovabili 51% 10

Consorzio SIRE in liquidazione 29% 25

Euroimpresa Legnano in liquidazione 10% 155

Santa Radegonda 19% 6

SIET 2% 15

SIIT Distretto Tecnologico Ligure 2% 14

Other companies 0.10% 1

Total equity investments (net of impairment losses) 31,820

As mentioned, the main effects of the valuation of the associates using the equity method upon the consolidated financialstatements as of 31 December 2018 was the devaluation of investments in the two Chinese Joint Ventures AGT (AnsaldoGas Turbine High Technology Co. Ltd.) and SEGT (Shanghai Electric Gas Turbine Co. Ltd) respectively for € 1,893 thousandand € 2,736 thousand.


The most significant provisional data regarding these two investments are provided below:

Total Assets 19,689 236,792

Total Liabilities 6,885 206,338

Total Equity 12,804 30,454

Equity Reconciliation:

Equity as at 1 January 15,841 37,015

Net Result (3,037) (6,562)

Equity as at 31 December 12,804 30,454

Total Revenue 2,008 170,349

The figures were converted using the exchange rate at 31 December 2018.The table below shows the effects of valuations of investments consolidated using the equity method:


Valuation NNS 1,070 396

Valutazione Polaris Anserv 6 6

Valuation Shanghai Electric Gas Turbine (2,625) (4,139)

Valuation Ansaldo Gas Turbine Technology (1,822) (1,796)

Valuation Ansaldo America Latina 9 –

Valuation Ansaldo Algeria 103 –

Valuation SPVTCCC (9) –

Valuation AU Finance Holding 185 –

Valuation Polaris 122 270

Valuation Ansaldo Energia Nigeria (452) –

(3,413) (5,263)

17. Receivables and other non-current assets

This item can be detailed as follows:

Euro/thousand 31.12.2018 31.12.2017

Guarantee deposits 568 552

Other 604 117

Non-current receivables 1,172 669

Deferred tax assets 71,073 52,470

Other non-current assets 71,073 52,470

Euro/thousand Ansaldo Shanghai Gas Turbine Electric Gas 31 december 2018 Technology Co Turbine Co


18. Inventories


Euro/thousand 31.12.2018 31.12.2017

Raw materials, consumables and supplies 420,094 348,677

Work-in-progress and semi-finished products 247,464 248,179

Advances to suppliers 18,943 30,647

686,501 627,503

Raw materials, consumables and supplies They are stated net of the allowance for inventory write-down of € 61,818 thousand.In the financial year, they increased by € 71,417 thousand in relation to the volume of job orders in progress.

Work-in-progress and semi-finished products Semi-finished products, which increased by € 715 thousand, relate to highly standard parts which will only be allocated tosales contracts when customised.

Advances to suppliersThese items decreased by € 11,704 thousand. The variation is mainly due to the normal life of orders associated withproduction.

19. Contract work in progress and advances from customers


Euro/thousand 31.12.2018 31.12.2017

Contract work in progress (gross) 1,196,112 1,435,153

Progress payments and advances from customers 970,725 1,234,945

Contract work in progress (net) 225,387 200,208

Progress payments and advances from customers (gross) 3,940,585 3,601,568

Contract work in progress 3,136,341 2,799,212

Progress payments and advances from customers (net) 804,244 802,356


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

The net progress payments and advances from customers rose by € 1,888 thousand and are related to contracts of a prevailingplant engineering nature, whose billing conditions are not strictly correlated to progress on production.

Plant Description Customer Gross WIP Progress Net WIP as at payments as at 31.12.2018 and advances 31.12.2018 from customers Euro/thousand as at 31/12/2018

EMBALSE PLEX & REPOWERING - ARGENTINA NASA 107,019 (93,157) 13,862

YENI ELEKTRIK CCGT - LTSA YENI AEN INSAAT ANONIM SIRKETI 12,832 – 12,832

MUTARE OPEN CYCLE PEAKING POWER PLANT 120 MW HELCRAW ELECTRICAL PVT LTD. 9,737 – 9,737

MIRFA PROJECT - N.3 TG + N.2 TV + N.5 AT MIRFA INTERNATIONAL POWER & WATER C. 6,957 – 6,957

TENASKA LTA TENASKA GATEWAY PARTNERS LTD. 10,871 (4,297) 6,574

LAWRENCEBURG POWER LTA LAWRENCEBURG POWER LLC. 24,638 (18,927) 5,711

EPC MORNAGUIA - IMPIANTO IN CICLO APERTO S.T.E.G. SOCIETÉ TUNISIENNE DE L’ELEC. ET DU GAZ) 96,872 (91,331) 5,541

IBRI SEPCO III 136,676 (132,237) 4,439

CGN YULCHON POWER PLANT LTSA CGN YULCHON 44,153 (40,085) 4,068

RAVENNA - UPGRADE EVO1.2 ENIPOWER S.P.A. 3,708 – 3,708

COTE MATEVE 1 TG + 1 AT CENTRALE ELECTRIQUE DU CONGO S.A. 25,352 (21,739) 3,613

LABREG - CICLO APERTO N. 3 UNITÀ SOCIETE ALGERIENNE DE PRODUCTION DE 54,255 (51,115) 3,140

CAS MUCONE 1 2-RIF.ALTERNAT.55 MVA ENEL SOCIETÀ PER AZIONI COMP.NA 56,767 (53,679) 3,088

YIXING - FRAME AGREEMENT SHANGHAI ELECTRIC GAS TURBINE 3,424 (381) 3,043

TAWEELAH IB & IBE - PART, EQUIPMENT, RE ASIA GULF POWER SERVICE COMPANY LTD 13,481 (10,476) 3,005


Plant Description Customer Gross WIP Progress Net WIP Trade as at payments as at receivables 31.12.2018 and advances 31.12.2018 as at from 31.12.2018 customers as at Euro/thousand 31.12.2018

CALENIA EN./SPARANISE (CE)-GTF 2X12 ANNI CALENIA ENERGIA S.P.A. 143,423 (169,658) (26,235) 2,352

RIZZICONI - GARANZIA TOT FUNZIONAMENTO AXPO SERVIZI PRODUZIONE ITALIA S.P.A. 95,548 (121,727) (26,179) 873

TIRRENO POWER/VADO LIG.-LTSA TG+REL.ALT. TIRRENO POWER S.P.A. 62,495 (81,129) (18,634) 34

FRAME AGREEMENT LEINÌ ENGIE PRODUZIONE S.P.A. 24,920 (42,466) (17,546) 4,975

HERIS - 1TG + 1TV + 2AT TANA ENERGY MANAGEMENT CO. (TANA) 46,498 (63,932) (17,434) 8,931

LTSA - GHANNOUCH S.T.E.G. SOCIETÉ TUNISIENNE DE L'ELEC. ET DU GAZ) (15,606) 0 (15,606) 8,199

LTSA - EMSLAND LINGEN RWE GENERATION SE (15,318) 0 (15,318) 1,626

BRINDISI - FRAME AGREEMENT ENIPOWER ENIPOWER S.P.A. 59,512 (74,822) (15,310) 221

LTSA - AGHADA AGHADA GENERATION STATION (15,291) 0 (15,291) 1,317

FRAME AGREEMENT ROSELECTRA ENGIE PRODUZIONE S.P.A. 21,240 (35,549) (14,309) 1,327

ZHENGJIANG - 2TG 94.3A SHANGHAI ELECTRIC HONGKONG CO LTD 20,527 (34,582) (14,055) 955

LTSA - SOTO 4 EDP ESPANA S.A.U. (13,820) 0 (13,820) 375

LTSA - GISSI A2A GENCOGAS S.P.A. (13,799) 0 (13,799) 20

LTSA - CASTEJON 2 EDP ESPANA S.A.U. (12,964) 0 (12,964) 390

THISVI - LTSA 14 YEARS ELPEDISON S.A. 24,531 (37,310) (12,779) 2,601

BALLYLUMFORD - LTSA AES BALLYLUMFORD LTD 56,326 (68,942) (12,616) 216

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

We ascertained the costs still to be incurred in relation to closed orders after completing the works, setting up a specificprovision. As required by IFRS 15, 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 fromthe application of this method totalled € 254,048 thousand.

20 Trade receivables


Euro/thousand 31.12.2018 31.12.2017


(Impairment) (6,376) (8,503)

Receivables from related parties 77,697 34,986

300,507 287,062


With regard to legal disputes and judicial or insolvency proceedings, the trade receivables in dispute are recorded at nominalvalue and written down in a specific provision for doubtful accounts. The receivables recorded are not supported bypromissory notes or similar securities.

The provision for doubtful trade receivables underwent the following change in 2018:

Opening balance 8,503

Accrual 115

Utilization 1,792

Other movements (450)

Closing balance 6,376

The analysis of the receivables past due and the considerations on the methods for managing the credit risk are provided inNote 9.The Group resorted to the non-recourse assignment of some receivables from customers. The balance sold as at 31 Decemberamounted to € 105,965 thousand (€ 106,681 thousand in 2017).

21. Financial receivables

Euro/thousand 31.12.2018 31.12.2017

Financial receivables 112,079 233,868

(Impairment) (112,079) (148,868)

Financial receivables from related parties 851 5

851 85,005

Financial receivables amounted to € 851 thousand and relate exclusively to items with related parties, already detailed in thecorresponding paragraph.Financial receivables resulting from transactions with the Unit NV Group, which increased by € 27,079 thousand during theyear, have been written down in full, as already commented in detail in the Report on Operations.


22. Tax liabilities and credits


31.12.2018 31.12.2017 Euro/thousand Receivables Payables Receivables Payables

Current tax 4,790 14,201 5,300 1,885

4,790 14,201 5,300 1,885

Current tax creditsThese mainly refer to advance payments and taxes paid in excess.

Current tax liabilitiesThe composition of the balance relates to provisions for income taxes made mainly by the Parent Company (€ 10,357thousand), while the remainder refers to taxes on the income of the foreign subsidiary.

23. Other current assets

The breakdown of the item is provided below:

Euro/thousand 31.12.2018 31.12.2017

Prepayments - current portion 7,089 4,931

Employees and pension institution 2,514 2,193

Other tax assets 19,161 21,991

Other assets 33,688 39,628

Other receivables from related parties 11,200 13,991

73,652 82,734

The prepayments mainly regard the portion of insurance premiums for assembly pertaining to future years and allocated tothe contracts on a percentage of completion basis.Other current assets include:• 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; • Parent Company guarantee deposits of € 1,257 thousand;• a receivable from Leonardo S.p.A. of € 5,907 thousand for the asbestos risk guaranteed to Ansaldo Energia following

the sale of its shares to the FSI (now CDP Equity);• a receivable from Leonardo S.p.A. amounting to € 4,953 thousand as reimbursement for an IRAP deduction from IRES

(Monti Decree).• VAT receivables for € 8,981 thousand.

Amounts due from the tax authorities include receivables from the Ansaldo Energia Branches (other amounts due from thetax authorities) of € 11,897 thousand.During the year, the Group sold without recourse a VAT receivable of € 29,472 thousand.


24. Cash and cash equivalents


Euro/thousand 31.12.2018 31.12.2017


229,324 276,300

The composition of the bank deposits can be attributed to ordinary accounts amounting to € 189,222 thousand (€ 10,000thousand of which are secured), amounts held in local currencies, following collections on contracts for on-site activities,amounting to € 26,701 thousand, and foreign currency accounts amounting to € 13,401 thousand.Please refer to the first part of the Management Report for a better understanding of the changes in this item..

25. Equity

The equity as of 31 December 2018 amounted to € 449,446 thousand.

Share capital

Number Nominal Total of Shares Value

Shares 18,000,000 € 10 € 180,000,000

31 december 2018 18,000,000 € 10 € 180,000,000

The Parent Company’s share capital can be broken down as follows:• 10,788,750 shares held by CDP Equity• 7,200,000 shares held by Shanghai Electric Hongkong Co. Limited• 11,250 shares held by Key management personnel• The Parent Company is jointly controlled by CDP Equity and Shanghai Electric Hongkong Co. Limited and does not hold

any treasury shares.

On 21 December 2017, the shareholders’ meeting approved an € 80 million capital increase for the Parent Company to bereserved for the shareholders CDP Equity SpA, Shanghai Electric Hong-Kong co Limited and the Managers, in proportion totheir respective capital shares; the capital increase was completed, through subscription and full payment of the relatedamount by the shareholders, on 15 April 2018.


Other reserves The changes in the other reserves are listed below.

Euro/thousand Retained Hedging Actuarial Other Total Earinings Reserve Reserves Reserves

1 December 2017 94,317 (8,344) (20,229) 433,239 498,983

Net result 5,679 – – – 5,679

Other changes 8,460 864 271 (1,606) 7,989

Fair value adjustements – 19,337 2,166 – 21,503

Transfers to profit and loss statement – (863) – – (863)

Deferred taxes – (3,546) (588) – (4,134)

Consolidation adjustments – – – 1,109 1,109

Exchange rate gains (losses) (8,252) – – – (8,252)

31 December 2017 100,204 7,448 (18,380) 432,742 522,014

Net result (231,952) – – – (231,952)

Other changes (2,428) 1 – (8,263) (10,690)

Fair value adjustements – (15,349) (1,215) – (16,564)

Deferred taxes – 2,934 128 2,172 5,234

Exchange rate gains (losses) 1,555 – – – 1,555

31 December 2018 (132,621) (4,966) (19,467) 426,651 269,597

Minority interestsThe minority interests are representative of the non-controlling interests in the Group’s subsidiaries. The relative changes areshown in the schemes contained within these financial statements.

Other reservesThe “Other movements” line includes the effects resulting from the retrospective application of the new IFRS 15 standard,which led to the recording in shareholders’ equity of -€ 9,242 thousand.

26. Non-current payables to related parties

This payable refers entirely to the share of the Ansaldo Energia Switzerland capital increase subscribed by the companySimest S.p.A. (Cassa Depositi e Prestiti Group) in 2017. With regard to this share, the Parent Company has a call with a five-year maturity, such that the share currently in the possession of Simest S.p.A. is considered, in every effect, a de factoinvestment by the Group in return for a non-current payable from Simest S.p.A.


27. Other current and non-current payables


The changes in current financial payables are shown below.

Euro/thousand 31.12.2017 New borrowings Payment Other 31.12.2018 (and other increases) movements

Bonds 617,562 11,543 10,718 – 618,387

Bank loans and borrowings 320,907 680,464 469,190 (41) 532,140

Financial lease obligations 98 202 139 5 166

Other loans and borrowings 6,720 78,334 75,058 – 9,996

Related parties loans and borrowings 1,519 – 1,519 – –

946,806 770,543 556,624 (36) 1,160,689

At 31 December 2018, the bond issue amounted to € 618,327 thousand and in 2018 interest accrued amounted to € 17,124 thousand.

Euro/thousand 31.12.2018 31.12.2017 Current Non-current Total Current Non-current Total

Bonds 10,718 607,669 618,387 10,718 606,844 617,562

Bank loans and borrowings 381,806 150,334 532,140 147,632 173,274 320,906

Financial lease obligations – 166 166 98 – 98

Other loans and borrowings 8,442 1,554 9,996 6,721 – 6,721

Related parties loans and borrowings – – – 1,519 – 1,519

400,966 759,723 1,160,689 166,688 780,118 946,806


The characteristics of the main loan transactions in place at 31 December 2018 can be summarised as follows::

Bond 1- Issuance of Bonds Bond issued by the Parent Company and purchased by institutional inve-stors on the secondary market. Nominal value of € 420 million at a finiterate of 2.875 % per annum. Issue date 28/04/2015 for the portion of €350 million and increase of € 70 million on 28/04/2016. On 28/04/2017(value date 01/06/2017) a repurchase transaction was carried out on themarket for a share of € 159.2 million. At 31/12/2018 the Bond maturingon 28/04/2020 was equal to € 260.8 million. There are no covenants inthe contract.

Bond 2 - Issuance of Bonds Bond issued by the Parent Company and purchased by institutional inve-stors on the secondary market. Nominal value of € 350 million at a finiterate of 2.75 % per annum. Date of issue 31/05/2017. At 31/12/2018 thisbond had a value of € 357.5 million and matures on 31/05/2024. Thereare no covenants in the contract.

Revolving Facility (Pool) Line taken out by the Parent Company 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 the Euribor1/2/3/6 month rate + Spread. The spread is based on the Ansaldo EnergiaGroup's leverage ratio. At 31/12/2018 it was equal to 2.25% per annum.Granted on 27/04/2015. The original contract was amended on10/07/2017. The amount has been reduced to € 360 million. Maturity30/06/2022. The line was used at 31/12/2018 for € 285 million.

SACE Facility Agreement (BNP-SACE) Loan undersigned by the Parent Company 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 loanwas signed on 06/08/2015 and will expire on 31/01/2021. In order to eli-minate Euribor volatility, an Interest Rate Swap contract was stipulated inNovember 2014 with an annual fixed rate of 0.415%.

European Investment Bank (EIB) Loan undersigned on 6-7/08/2015 by the Parent Company with EuropeanInvestment Bank (EIB) for a nominal value of € 50 million, with a constantcapital repayment plan. Fixed rate of 1.53% per annum for the amount of€ 25 million not Guaranteed by CDP; fixed rate of 0.492% for the amountof € 25 million Guaranteed by CDP. This loan is based on the presentationof a multi-year R&D plan. Maturity 16/08/2022.

European Investment Bank (EIB) Loan undersigned on 15-19/12/2016 by the Parent Company with Euro-pean Investment Bank (EIB) for a nominal value of € 80 million, with a bi-annual and constant capital repayment plan starting on 31 July 2018.Annual fixed rate of 1.551%. This loan is based on the presentation of amulti-year R&D plan. Maturity 31/01/2024.

Description Credit line


Loan (UBI) Loan undersigned on 27/10/2017 by the Parent with Unione Banche Ita-liane (UBI) for a nominal value of € 60 million, with a bi-annual capital re-payment plan starting on 30 April 2020. Interest rate Euribor 6 months +spread. Spread is of 2.3%. Maturity 30/10/2024. To eliminate the volatilitylinked to the Euribor, on 31 October 2017 an Interest Rate Swap contractwas stipulated with a fixed rate of 0.3050% per annum, without a floorof zero.

Mediocredito Bank Loan (MISE) Loan signed on 25 June 2018 by Ansaldo Nucleare Spa with Mediocredito and Facilitated Loan (CDP) Banca, the only entity that disburses both the bank portion and the portion

financed by CDP. Loan obtained for the development of an integrated te-chnology for the disposal of radioactive waste from the decommissioningof nuclear plants. Ansaldo Energia is the Guarantor. The total loan amountsto € 6.7 million, broken down as follows: Bank Loan of € 1.5 million(22.22%) and Facilitated Loan of € 5.2 million (77.78%). Both have a half-yearly capital repayment plan starting from 31/12/2024. Rate Euribor 6months + spread of 3%. Rate Facilitated Fixed rate of 0.80% per annum.Maturity 31/12/2028.

Bank loan Intesa San Paolo Loan signed on 07/06/2018 by Ansaldo Thomassen Gulf with Intesa SanPaolo Abu Dhabi Branch for the construction of "Warehouse and Borro-wer's general Corporate purposes". Loan of AED 14 million with a six-mon-thly repayment plan for 5 years with a constant instalment and equal toAED 1.4 million from June 2021 (3 years of pre-amortisation). MaturityJune 2026. Interest rate Eibor 6 months + spread. Spread is of 3.05%.

All the loans listed in the table, excluding the Bonds, require compliance with two indicators: the “Leverage Ratio” (NetBorrowing/Adjusted EBITDA) and the “Interest Cover Ratio” (Adjusted EBITDA/Net Interest Payable). This issue is covered indetail in the Directors’ Report.Finally, the financial liabilities include € 8,183 thousand for a receivable without recourse collected from the customer duringthe final days of the fiscal year and not yet returned to the factor.


Net financial debtThe details of the financial indebtedness as of 31 December 2018 and 2017 are provided below:

Euro/thousand 31.12.2018 of which 31.12.2017 of which related parties related parties

Bank accounts 229,324 276,300

CASH AND CASH EQUIVALENTS 229,324 276,300

CURRENT FINANCIAL RECEIVABLES 851 851 85,005 5

Current bank loans and borrowings 381,806 147,632

Bond liabilities 10,718 10,718

Financial lease liabilities – 98

Other current loans and borrowings 8,442 – 8,240 1,519

CURRENT FINANCIAL DEBT 400,966 166,688

NET CURRENT FINANCIAL DEBT (POSITION) 170,791 (194,617)

Non-current bank loans and borrowings 150,334 173,274

Bond liabilities 607,669 606,844

Financial lease liabilities 166 –

Other non-current liabilities 1,554 –

NON-CURRENT FINANCIAL DEBT 759,723 780,118

NET FINANCIAL DEBT 930,514 585,501

28. Employee benefits


Euro/thousand 31.12.2018 31.12.2017

TFR 17,092 18,802

Defined benefit pension plans 16,039 13,607

Other provisions for personnel 2,505 2,362

35,636 34,771

This amount mainly includes the liability relating to the defined benefit plans of the Group’ foreign companies amountingto € 16,039 thousand and the debt for the Employee Severance Indemnity amounting to € 17,092 thousand. Defined-benefit pension plans, mainly relating to Ansaldo Energia Switzerland, are determined taking into account the yearsof service and remuneration of employees and are subject to actuarial valuation.The provision for employee severance indemnities (TFR), relating to the Italian companies, represents the residual portion ofthe debt at the date of entry into force of the reform, net of the payments made up to the reference dates and, being similar,according to IAS 19, to a liability deriving from a defined benefit plan, has been subject to actuarial valuation. The movementsin the item “Defined Benefits of Obligation” are shown below:


31.12.2018

Euro/thousand Present value Present value Net liability of of obligation of asset Defined benefit plans

Opening balance 931 931

Service costs 190 190

Benefits paid (53) (53)

Closing balance 1,068 1,068

31.12.2017

31.12.2017

Euro/thousand Present value Present value Net liability of of obligation of asset Defined benefit plans

Opening balance 868 868

Service costs 212 212

Benefits paid (148) (148)

Closing balance 932 932

Euro/thousand 31.12.2018 31.12.2017

Opening balance 18,802 20,785

Interest cost 154 150

Actuarial (gains) losses on equity 1,215 (2,166)

Decreases due to sales 3,079 4,027

Other changes – 4,060

Closing balance 17,092 18,802

The details of the main economic and demographic assumptions used for the purposes of the actuarial valuations are providedbelow:

TFR 31.12.2018 31.12.2017

Discount rate 0.63% 0.75%

Wage increase rate 2.10% 2.46%

Inflation rate 1.50% 1.50%


Foreign defined benefit pension plans 31.12.2018 31.12.2017

Discount rate 1.05% 0.85%

Wage increase rate 1.50% 1.50%

The assumptions taken into consideration for the calculation during the two years under review are expressed in the followingtable:

TFR and Defined TFR and Defined benefit pension benefit pension plans plans 31.12.2018 31.12.2017

Death R.G. 48 R.G. 48

Retirement 5.8 6.1

Annual frequency of Turnover and Advances on TFR

Frequency of advances on TFR payments 0.98 2.34

Frequency of turnover 5.65 2.94


29. Provisions current and non-current


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). Indirect damage to the total installed may occur due tothe performance of the Group’s products.The provision increased by € 16,000 thousand, mainly related to the installation of the new AE 94.3A EVO 2 turbine.

Euro/thousand Restructuring Product Pending Tax Other Total Warranty litigation Provision provisions

1 January 2017

Current 721 – 3,605 – 17,439 21,765

Non-current – 18,718 – 46,066 187,306 252,090

721 18,718 3,605 46,066 204,745 273,855

Accruals – 7,520 533 – 8,504 16,557

Utilisation 282 4,000 193 – 22,813 27,288

Reversals – 4,757 – 13,716 94,968 113,441

Other changes – (1,281) – – – (1,281)

Reclassifications – (8) – – (543) (551)

31 December 2017 439 16,192 3,945 32,350 94,925 147,851

Broken down as follows

Current 439 – 3,945 – 11,168 15,552

Non-current – 16,192 – 32,350 83,757 132,299

439 16,192 3,945 32,350 94,925 147,851

Accruals – 16,000 300 231 121,937 138,468

Utilisation 275 – 1,377 5,955 29,936 37,543

Reversals – 873 – – 8,468 9,341

Other changes – 224 – – 453 677

Reclassifications – (4,907) – – 184 (4,723)

31 December 2018 164 26,636 2,868 26,626 179,095 235,389

Broken down as follows:

Current 164 – 2,868 – 131,375 134,407

Non-current – 26,636 – 26,626 47,720 100,982

164 26,636 2,868 26,626 179,095 235,389


Pending litigationThis provision represents our best estimate of our liability in relation to arbitration and legal proceedings with third partiesboth in Italy and abroad relating to orders and sale of assets in previous years.

TaxesThe tax provision represents our best estimate of tax risk in Italy and abroad (relating to branches) and amounts to € 26,626thousand.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 Group believes that the materials are exempt from local taxes by virtue of the double tax treatyin force between the two countries. In order to strengthen its position, in addition to defending the case at all levels inIndia, it has also commenced the out-of-court settlement procedure provided for by the treaty;

• € 600 thousand in indirect taxes due in Turkey;• € 800 thousand in direct taxes due in Pakistan;• € 450 thousand in indirect taxes due in Indonesia;• € 5,350 thousand in taxes at risk in Algeria for tax disputes relating to the years 2004-2007 (following an audit by the

tax authorities, the tax office has deducted from the Parent Company’s bank accounts the amount of € 2,500 thousand);• € 1,459 thousand in taxes due in relation to the Branches in 2016;• € 2,272 thousand in taxes not yet calculated in Italy.The provision for taxes was used for € 5,955 thousand, mainly with reference to taxes in Greece.

Other provisionsThese mainly consist of:• costs to be incurred after the completion of contracts for warranties or contractual commitments (€ 42,484 thousand).

The provision changed due to net utilisations totalling € 27,881 thousand;• asbestos risk costs for € 7,762 thousand. The provision is the best estimate based on past figures and consolidated

scientific practice, which show that latency times may exceed 15 to 40 years. Past events mainly involved the Legnanoand Genoa plants. Any future outlays for the asbestos issue covered by this provision will be reimbursed by Finmeccanica(now Leonardo S.p.A.), as per its specific guarantee included in the agreements between it and Fondo Strategico Italiano(now CDP Equity) as part of the transaction involving the parent’s ownership. CDP Equity also formally agreed that allfuture compensation for any litigation arising in the context of the asbestos issue will be paid directly to Ansaldo Energiaby Leonardo S.p.A.

• Provisions of € 121,921 thousand relating to the risk of enforcement of guarantees given in favour of Yeni Elektrik, asdescribed in greater detail in the Report on Operations.


30. Deferred tax liabilities and deferred tax assets

The changes in the “Deferred tax liabilities” and “Deferred tax assets” items are shown below:

Deferred tax assets at 31 December 2018 mainly refer to the deferred tax effect on:• provisions for risks of € 11,114 thousand, of which € 10,203 thousand was allocated during the year;• Unit NV credit for € 42,975 thousand, of which € 7,247 thousand allocated during the year;• employee benefits of € 6,003 thousand, not significantly modified during the year.

Deferred tax liabilities at 31 December 2018 mainly relate to the effects of the PPAs of 2011 and 2016. Movements in thisitem were reversed in 2018 for € 11,857 thousand due to the tax effect on amortisation and depreciation.

Euro/thousand Amount as at Income Income Releases/ Reclassifies Amount as at 31 december statement statement accruals 31 dicembre 2017 accruals releases on equity 2018

Deferred tax assets

Taxed provisions 2,297 10,203 (1,386) 11,114

Heding researve 960 960

MBO and other personnel incentives 184 (20) 164

Impairment on receivables 36,551 7,572 44,123

Employees benefits recognised at Equity 2,267 2,267

Employee benefits 6,457 96 128 (678) 6,003

FTA IFRS 15 (2,370) 2,370 –

Other deductible temporary differences 4,714 2,433 (705) 6,442

Total deferred tax assets 52,470 20,304 (3,095) 1,088 306 71,073

Deferred tax liabilities

Purchase price allocation 154,850 (11,857) 142,993

Heding researve 1,717 (1,974) (257)

FTA IFRS 15 198 198

Employees benefits 709 115 (10) (588) 226

Other taxable temporary differences (6,007) 3,669 (3,817) 49 (6,106)

Total Deferred tax liabilities 151.269 3,784 (15,684) (1,974) (341) 137,054


31. Other current and non-current liabilities


Non-Current Current Euro/thousand 31.12.2018 31.12.2017 31.12.2018 31.12.2017

Employees 3,354 3,192 22,280 18,635

Deferred income – – 2 –

Social security institutions – – 11,761 12,166

Other 37,393 75,029 102,699 79,990

Total other debts 40,747 78,221 136,742 110,791

Other current tax liabilities – – 10,401 6,902

Deferred tax liabilities 137,054 151,269 – –

Total other liabilities 177,801 229,490 147,143 117,693

Payables to employees The “Payables to employees” refer to the payables for additional monthly payments, vacation time, and paid leave accruedbut not utilised, and settled in the following fiscal year.The non-current amount refers to the seniority bonuses set aside and measured at fair value.

Payables to social security and welfare institutions They relate to the contributions to be borne by the Group and by employees due to these institutions on the Decemberwages and salaries paid in January and on the remuneration of the year whose contributions are paid quarterly or yearly.

Other payables The item “Other payables” includes the current and non-current portions of the payable to General Electric for the Gastoneoperation (€ 80 million and € 37.4 million respectively), payables to Partners in A.T.I. for works carried out (including thepayable by Ansaldo Nucleare on the Vacuum Vessel project for € 7,512 thousand), payables to consultants and other minoritems.

32. Trade payables

Trade payables decreased by € 132,394 thousand due to lower production during the year. The maturity factoring operations included in this item at 31 December 2018 show a total debt of € 51,584 thousand (€58,750 thousand in 2017). Through these transactions, the Group allows its suppliers to factor their receivables for goodssupplied or services provided to the Group, whereby they collect their receivables and the Group may avail of a furtherdeferment of its trade payables, bearing the related interest. The latter approximated € 528 thousand during the year andare recorded under “Other operating expenses” in the income statement.


33. Derivative financial assets and liabilities


31.12.2018 31.12.2017 Euro/thousand Assets Liabilities Assets Liabilities

Currency forwards – 6,086 12,156 (123)

IRS hedging on non-current loan – 560 – 1,484

– 6,646 12,156 1,361

In keeping with the corporate policy, the Group arranged to cover its foreign currency assets and liabilities with derivativescalled “forward foreign exchange tools” and with a medium and long term variable rate IRS loan.

34. Revenues


Sales Revenue 855,083 785,698

Services Revenure 209,273 129,746

1,064,356 915,444

Change in work-in-progress 60,443 428,701

Related parties revenue 47,515 119,908

Total revenue 1,172,314 1,464,053

Revenue from sales and services is detailed in the table presented in the “Segment reporting” section.In addition to the operating revenue for the period, the revenues also include the amounts acquired upon obtaining theProvisional Acceptance Certificate (PAC) attesting to the completed plants’ transfer of ownership to the customer.

The following table shows the main revenues by order.

Euro/thousand Plant Description Customer Amount

MIRFA PROJECT - N.3 TG + N.2 TV + N.5 AT MIRFA INTERNATIONAL POWER & WATER C 146,086

AIN DJASSER III - CICLO APERTO N.2 UNITÀ SOCIETE ALGERIENNE DE PRODUCTION DE ELECTRICITÉ 129,841

AL SHABAB - 2TV + 2AT - 520MW EAST DELTA ELECTRICITY 94,653

ENEL - GEOTERMICHE 20 MW ENEL GREEN POWER S.P.A. 69,457

FERRARA - LTSA GRUPPI 1/2 S.E.F. S.R.L. 59,352

GRATI LOTTE ENGINEERING & CONSTRUCTION 51,119

IBRI SEPCO III - ELECTRIC POWER CONSTRUCTION CORP. 38,439

ROSEN ROSIGNANO - LTSA ROSEN ROSIGNANO ENERGIA S.P.A. 36,273

ROSIGNANO - 1 TG 94.2 + 1AT SOLVAY CHIMICA ITALIA SPA 32,000

PASARGAD QESHM - TG AE94.3A QESHM MOVALLED CO. 26,613


Euro/thousand Plant Description Customer Amount

XCEL 7FA FORT ST. VRAIN-PARTS EXCH AGRMT XCEL ENERGY 25,910

SOHAR III SEPCO III - ELECTRIC POWER CONSTRUCTION CORP. 25,827

NVE SILVERHAWK NEVADA ENERGY 25,022

SLOVENIA - KRSKO PWR BB2 PROJECT NUKLEARNA ELEKTRARNA KRSKO 20,173

TORINO NORD - LTSA IREN ENERGIA S.P.A. 19,426

35. Other operating income and expense

2018 2017 Euro/thousand Income Expense Income Expense

Grants for Research and Development costs – – 213 –

Other grants related to income 188 – 152 –

Gains/losses on sales of property, plant and equipment and intangible assets 46 44 5 6

Accruals to/reversals of provisions 8,611 138,237 99,810 16,557

Exchange rate gains (losses) on operating activities 5,462 7,949 13,717 7,645

Unrealised exchange rate gains and losses 19,291 18,256 5,939 14,659

Financial income/expenses on trade receivables/payables 202 529 – 387

Insurance compensation 2,448 8,891 –

Taxes – 5,992 – 3,117

Restructuring costs – – – 81

Indirect taxes – 754 – 705

Other operating income/expense 1,324 1,095 2,203 1,592

Other related parties operating income/expense – 10 – 21

37,572 172,866 130,930 44,770

The “provisions” item mainly refers to the provision for product warranties and the provision for the receivable from theUnit NV Group as already stated in the previous paragraphs, as well as in the Report.The exchange differences relate to the adjustment of trade receivables and payables originally expressed in currencies otherthan the Euro to the exchange rates at the end of the period.Insurance reimbursements are mainly due to the damage suffered by various power plants (€ 2,448 thousand). Indirect taxes refer to property taxes (€ 770 thousand), waste taxes (€ 201 thousand) and other taxes. Other costs mainly relate to donations (€ 37 thousand), gifts (€ 104 thousand) and other general expenses.The difference between the two years in the item “Absorption of provisions “ essentially refers to the release of the Enipowerprovision in 2017, when the Court of Appeal of Milan declared the Parent Company not guilty for alleged lack of supervisionof an employee, who was suspected of having committed irregularities in the context of contracts commissioned by Enipower.


36. Purchases and services


Materials from third parties 437,330 713,724

Change in inventories (67,887) (69,743)

Purchases from related parties 2,680 4,300

Total purchases 372,123 648,281

Services from third parties 369,440 385,507

Services from related parties 6,245 8,223

Rentals and operating leases 4,633 5,132

Hire expense 9,986 10,085

Total services 390,304 408,947

Costs for the purchase of materials from third parties amount to € 437,330 thousand, a decrease of € 276,394 thousandcompared to the previous year.Costs for third-party services amount to € 369,440 thousand, a decrease of € 16,067 thousand compared to the previousyear.The decrease in costs is essentially due to the decrease in production.Service costs (of which € 6,245 thousand from unconsolidated related parties) refer to customs and transport costs (including€ 16,785 thousand for Ansaldo Energia and € 1,680 thousand for Ansaldo Energia Switzerland), travel expenses (including€ 17,620 thousand for Ansaldo Energia and € 1,213 thousand for Ansaldo Nucleare, 1,278 thousand for Ansaldo Thomassen,€ 250 thousand for Power System Manufacturing, and € 121 thousand for Ansaldo Energia Switzerland), ordinarymaintenance costs (€ 1,722 thousand), fees for directors and statutory auditors (€ 2,267 thousand) and the remainder formiscellaneous industrial services, consultancy and general expenses. The costs for fees, rents, and operating leases to third parties, including the rental costs for buildings and storage andprocessing areas (€ 4,633 thousand), rentals of photocopiers, computer equipment, and other leases (€ 9,986 thousand).

37. Personnel costs


Salaries and wages 234,491 245,508

Social security and pension contributions 52,142 55,281

Costs related to other defined benefit plans 1,723 212

Costs related to defined contribution plans 10,931 15,618

Termination benefits 4,538 2,563

Other costs 886 1,413

304,711 320,595

At the end of 2018, the resources listed amounted to 4,086 units, down by 281 units with respect to the end of 2017 (-6%).


The table below shows employees by category and average number:

2018 2017 Changes

Managers 75 76 (1)

Junior Managers 507 503 4

White Collars 2,609 2,666 (57)

Blue Collars 1,021 1,046 (25)

4,212 4,291 (79)

The personnel expenses of € 304,711 thousand consist of monthly and deferred pay, social security contributions andemployee severance indemnities accrued as of 31 December 2018, and include the portion relating to the Parent’s foreignpermanent establishments (€ 12,083 thousand). The decrease of € 15,884 thousand is mainly due to the elimination of variable salaries (MBO and production bonuses), theintroduction of solidarity contracts and the reduction in the workforce.

38. Depreciation and impairment


Amortisation and depreciation:

- intangible assets 50,818 61,330

- property, plant and equipment 32,278 32,064

83,096 93,394

Impairment losses:

- other assets 112,193 149,028

- intangible assets 5,566 –

117,759 149,028

Total amortisation, depreciation and impairment losses 200,855 242,422

The depreciation trend reflects the depreciation of the tangible and intangible fixed assets based on their estimated usefullives. For more details, please refer to Note 14 “Intangible assets” and Note 15 “Tangible assets”.The “Impairment – other assets” item includes the previously discussed devaluation of the Group Unit receivables for €112,079 thousand.

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


Change in finished goods, work-in-progress and semi-finished products (2,115) 34,852

The change is due to the combination of production orders with sales contracts and the natural increase for semi-finishedproducts awaiting combination with sales orders.


40. Internal work capitalised


Personnel expenses 42,151 34,001

Materials 1,125 1,426

Others – 1,718

43,276 37,145

The increases in fixed assets for internal work relate to labour costs and property, plant and equipment, and to intangibleassets for the development of the Parent Company’s technologies (€ 8,633 thousand), and to costs for the prototype anddevelopment of the GT36 for € 34,643 thousand.

41. Financial income and expenses

The “financial income and expenses” item can be detailed as follows:

The financial income mainly includes interest income, which basically consists of the balances held in ordinary and foreigncurrency bank accounts, and the exchange rate differences on the amounts in foreign currencies, above all those derivingfrom the U.S. dollar area.Financial expenses are set out in detail in the table above and are mainly composed of interest expenses on the bond issue(€ 17,124 thousand), interest expenses on the Revolving loan (€ 4,494 thousand), exchange differences on financial items,as well as discounting charges on the payable to General Electric (€ 2,190 thousand).

Euro/thousand 2018 2017 Income Expense Net Income Expense Net

Interest cost on defined benefit plans – 154 (154) – 150 (150)

Interest on discounted value – 2,190 (2,190) – 2,353 (2,353)

Interests 816 26,008 (25,192) 1,587 19,394 (17,807)

Commissions – 7,121 (7,121) – 7,124 (7,124)

Premiums paid/collected on forwards 73 248 (175) 155 3,572 (3,417)

Exchange rate gains and losses 14,458 20,762 (6,304) 8,478 17,603 (9,125)

Fair value gain and losses – 3,498 (3,498) – 1,123 (1,123)

Investments in subsidiaries Value Adjustments – 211 (211) – – –

Other financial income and expenses 383 68 315 9 9,875 (9,866)

Related parties financial income/expenses 791 492 299 – 34 (34)

16,521 60,752 (44,231) 10,229 61,228 (50,999)


42. Income taxes

The income taxes item consists of the following:


IRES 9,207 6,389

IRAP 2,255 2,706

Gains from fiscal consolidation (60) (712)

Other income taxes 10,243 1,852

Tax provision reversals – (13,716)

Prior year taxes 1,747 (556)

Provisions for tax risks 231 –

Net deferred tax (29,109) (55,913)

(5,486) (59,950)

43. Impact of related party transactions

43.1. Impact of related party transactions on assets and liabilities

Related party transactions fall under ordinary management, and are conducted at market value (when not governed byspecific contractual conditions), in the same way as interest-bearing debts and loans. They mainly comprise the exchange ofgoods, provision of services and financing from and to the parent and subsidiaries, associates, joint ventures and consortia. The amounts of the related party receivables are highlighted below:


The amounts of the related party payables are highlighted below:

Euro/thousand Current Trade Other Total financial receivables current Receivables as at 31.12.2018 receivables receivables

Companies that exercise joint control

Shanghai Electric Hong Kong 33,509 33,509

33,509 33,509

Subsidiaries

Ansaldo Algeria 95 95

Ansaldo Energia Nigeria 373 373

SPVTCCC 5 5

378 95 473

Associates and Others

Ansaldo Gas Turbine Technology 5 5

Eni 16,387 16,387

Shanghai Electric Gas Turbine 9,093 9,093

Simest 473 473

Yeni Elektrik 240 240

473 25,725 26,198

Consortia

Consorzio C.R.I.S. 1 1

1 1

Entities under MEF control or significant influence

Enel 15,772 15,772

Leonardo 1,255 11,200 12,455

Sogin 1,340 1,340

18,367 11,200 29,567

Total 851 77,697 11,200 89,748


Euro/thousand Current Trade Other Total financial receivables current Receivables as at 31.12.2017 receivables receivables


Shanghai Electric Hong Kong 16,358 16,358

Subsidiaries

SPVTCCC 5 5

5 16,358 16,363

Affiliates and Joint Venture

Ansaldo Gas Turbine Technology 151 151

NNS Societè pour reacteur 118 118

Shanghai Electric Gas Turbine 1,840 1,840

2,109 2,109

Associates and others

Other 1,157 1,157

Eni 3,290 3,290

4,447 4,447

Consortia

Consorzio CRIS 1 1

1 1


Enel 8,150 8,150

Leonardo 878 13,991 14,868

Sogin 3,044 3,044

12,072 13,991 26,063

Total 5 34,986 13,991 48,982


The amounts of the related party payables are highlighted below:

Euro/thousand Other Current Trade Total non-current loans and Payables Payables as at 31.12.2018 liabilities borrowings


Shanghai Electric Hong Kong 527 527

527 527


Eni 64 64

Polaris Anserv 71 71

Simest 10,225 10,225

10,225 135 10,360


Enel 15 15

Leonardo 4,980 4,980

4,995 4,995

Total 10,225 5,657 15,882


Euro/thousand Other Current Trade Total non-current loans and Payables Payables as at 31.12.2017 liabilities borrowings


Shanghai Electric Group 527 527

527 527

Affiliates and Joint Venture

Ansaldo Gas Turbine Technology Co. LTD 142 142

Polaris -Anserv 68 68

Shanghai Electric Gas Turbine Co. LTD 580 580

790 790


AC Boilers 18,564 18,564

Eni 352 352

Others (830) (830)

18,086 18,086

Consortia

Consorzio CRIS 10,000 1,519 11,519

10,000 1,519 11,519


Enel 328 328

Leonardo 5,529 5,529

5,857 5,857

Total 10,000 1,519 25,260 36,779


43.2. Impact of related party transactions on profit or loss

The impact of related party transactions on profit or loss in 2018 and 2017 is summarised below:

Euro/thousand Revenue Cost Other Financial Financial operating Income expenses 2018 expenses


Shanghai Electric Hong Kong 13,500

13,500

Subsidiaries

Ansaldo Algerie 95

Ansaldo Energia Nigeria 2

95 2


Ansaldo Gas Turbine Technology 322

AU Finance Holding 177

Eni 940 349 7

Polaris Anserv 358

Shanghai Electric Gas Turbine Technology 2,283

3,545 707 7 177

Consortia

Consorzio C.R.I.S. 14

14


Enel 27,835 2,472

Ferrovie dello Stato 42

Leonardo 5,609 3 139

Simest 473 478

Sogin 2,540 95

30,375 8,218 3 612 478

Total 47,515 8,925 10 791 492


Euro/thousand Revenue Cost Other Financial operating Expenses 2017 costs


Cassa Depositi e prestiti Equity 134 18

Shanghai Electric Group 180

314 18

Parent Company

Ansaldo Energia 662

662

Subsidiaries

Aliveri Power Units Maintenance (570) 4,144

Ansaldo Energia Korea (1,655) 186

Ansaldo Energia Switzerland 3,076

Ansaldo Nucleare 2,794

Ansaldo Russia (6,186)

Ansaldo Thomassen (329)

Ansaldo Thomassen Gulf (648)

Gannouche Maintenance (476)

Niehlgas GMBH (384)

Power System Manifacturing 971

Yeni AEN Anonim Sirketi 16,831

13,423 4,330

Associates and Joint Venture

Others 162

Ansaldo Gas Turbine Technology Co. 1,015

Polaris Anserv 432

Shanghai Electric Gas Turbine Co. 85,904

86,919 594

Group companies and others

Eni 2,053

2,053

Consortia

Cons. Stabile Ansaldo New Clear (4,604)

Consorzio Cris 34

(4,604) 34


Leonardo 7,154 2

Enel 16,335 89

Sogin 5,120

Ferrovie dello Stato 42

21,455 7,285 2

Total 119,908 12,523 21 34


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.

44. Cash flows from operating activities

For the 12 months as at 31 December Euro/thousand 2018 2017

Net result (231,969) 5,655

Amortisation, depreciation and impairment losses 201,504 243,036

Income taxes (5,486) (59,950)

Provision accruals 129,626 (83,169)

Defined benefit pension and stock grant plan costs 1,723 212

Gains on the sale of non-current assets (2) –

Impairment losses on equity investments cost measured 3,413 5,263

Financial income and expense, net of impairment losses on measured cost equity investments 44,231 50,999

Other non-monetary items – (84)

143,040 161,962

45. Guarantees and other commitments

Guarantees givenThe group has the following guarantees at 31 December 2018:

Euro/thousand 31.12.2018 31.12.2017

Third parties guarantees 1,009,149 1,197,400

Other personal guarantees issued to third parties – 3,336

Personal guarantees issued 1,009,149 1,200,736

Guarantees for third parties include:• customers for advances received and as performance bonds (€ 971,288 thousand);• indemnity in favour of Cassa Depositi e Prestiti for the EBI loan (€ 16,429 thousand);• customers for participation in tenders (€ 10,916 thousand);• others for € 10,515 thousand.Guarantees are also provided to customers of subsidiaries for the satisfactory execution of work.


Personal guarantees received

Euro/thousand 31.12.2018 31.12.2017

Sureties received 108,765 145,983

Others 46,940 68,789

Personal guarantees received 155,705 214,772

The guarantees are provided by suppliers for the correct performance of orders (€ 108,765 thousand);The others relate to letters of credit given to the Company by customers to guarantee collection (€ 46,940 thousand).

Contingent liabilitiesWe are not aware of the existence of any other disputes or proceedings that could have significant repercussions on theGroup’s financial position, with the exception of those described in the preceding paragraphs in the report and in the notesto the financial statements.

Remuneration to the independent auditing firm These consolidated financial statements have been audited by PricewaterhouseCoopers S.p.A., which was appointed by theParent Company’s shareholders on 19 April 2017 for the three-year period from for 2017 to 2019.For the financial years ended 31 December 2018 and 2017, the fees payable to the independent auditors for audit andother services amounted to € 1,320 thousand (€ 690 thousand in 2017), respectively. These values also include theremuneration received by the same auditing firm among the other companies included within the scope of consolidationwhere it has assignments.


46. Key events that took place after the reporting period

The main events that marked the first few months of 2019 were the following:• On 21 January 2019, a fatal accident occurred at the Genoa Campi plant involving an employee of an external company

operating in the plant’s internal logistics area. The Parent Company is not involved in any way;• On 23 March 2019, the parent company Ansaldo Energia and China United Gas Turbine Company (UGTC) signed an

agreement for technological collaboration in the heavy-duty gas turbine sector, with a view to independently developingthe local production of heavy-duty gas turbines. Ansaldo Energia will support UGTC’s heavy-duty gas turbine programmewith its technical expertise in design, engineering and testing, partly with an eye to establishing a long-term and mutuallybeneficial partnership for both parties.

• On the same date, in the presence of the President of the People’s Republic of China, Xi Jinping, and the Italian PrimeMinister, Giuseppe Conte, Ansaldo Energia received an order worth around € 25 million from Chinese customers for thesupply of an AE94.2K gas turbine, designed to burn low-calorific fuel, with an associated syngas compressor for theBengang combined cycle power plant, located in Benxi, in north-eastern China. This new order, on the one hand,strengthens Ansaldo Energia’s presence in the market for the production of energy using low-calorific gas, in whichAnsaldo Energia boasts over 20 years of significant experience and, on the other hand, further consolidates the long-term strategic partnership between Shanghai Electric and Ansaldo Energia.

• In the first few days of April 2019, since the half-yearly interest due as at 31 December 2018 on the Yeni Elektrik loansmentioned in the first part of the Directors’ Report had not been paid, the Group was obliged to pay out a bank guaranteefor USD 21 million, followed by the enforcement of a separate guarantee of USD 12 million for the shareholder’s shareof default. This enforcement is fully covered by the provision set aside for these specific risks in Turkey as at 31 December2018.

• On 15 April 2019, the annual defensive solidarity contract used for the Italian companies since mid-April 2018 ended,resulting in a reduction in normal working hours of 16 hours per month. The Parent Company’s management isconsidering renewing this arrangement for the second half of 2019.


BOARD OF DIRECTORS

For the period 2017-2018

Rivolta Guido Chairman

Cao MinVice Chairman

Giuseppe ZampiniChief Executive Officer

Directors:

Mascardi Fabiola

Latini Pierfrancesco

Yuan Jianhua

Baldocci Carlo

Rauber Hans

Zheng Xiaohong

BOARD OF STATUTORY AUDITORS

For the 2016-2018 period

Casò Michele Chairman

Statutory auditors:

Garavaglia Luigi Emilio Vietti Pieri Vittorio

Alternate auditors:

Aloisi Barbara Villa Pietro Michele

INDEPENDENT AUDITOR

For the 2017-2019 period

PricewaterhouseCoopers S.p.A.

Parent CompanyCorporate Bodies

Independent Auditor’sReport



Andamento economicoe situazione finanziaria

Edited by:Ansaldo Energia S.p.A.

2018Consolidatedfinancialstatements

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

AN

SALD

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ERGIA - 2018 Consolidated financial statem

ents