(2) Consolidated Annual Report for 2011

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(1)www.a2a.eu statement. Consolidated financial. 2011. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 2011. Consolidated financial. statement.

(2) Consolidated Annual Report for 2011. Contents. 0.1 Consolidated financial statements 4. Balance sheet. 6. Income Statement. 7. Consolidated statement of comprehensive income. 8. Cash flow statement. 10. Statement of changes in Group equity. 0.2 Consolidated financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010 14. Balance sheet pursuant to Consob Resolution 17221 of March 12, 2010. 16. Income statement pursuant to Consob Resolution of March 12, 2010. 1. 19. General information on A2A S.p.A.. 20. Consolidated annual report. 21. Financial statements. 22. Basis of preparation. 23. Changes in international accounting standards. 31. Scope of consolidation. 32. Consolidation policies and procedures. 38. Accounting policies. 55. A2A Group – areas of activity. 56. Results sector by sector. 58. Notes to the balance sheet. 84. Net debt. 85. Notes to the income statement. 92. Earnings per share. 93. Notes on related party transactions. 97. Consob Communication no. DEM/6064293 Of July 28, 2006. 98. Guarantees and commitments with third parties. 100. Other information. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 0.3 Notes to the consolidated financial statements.

(3) Consolidated Annual Report for 2011 Contents. 0.4 Attachments to the consolidated annual report 148. 1. Statement of changes in tangible assets. 150. 2. Statement of changes in intangible assets. 152. 3. List of companies included in the consolidated annual report. 154. 4. List of shareholdings carried according to equity method. 156. 5. List of shareholdings of the Ecodeco Group. 158. 6. List of shareholdings of the Coriance Group. 160. 7. List of financial assets available for sale. 163. Certification of the consolidated financial statements pursuant to Art. 154bis para. 5 of Leg. Decree 58/98. 166. 0.5 Independent Auditors’ Report. This is a translation of the Italian original “Relazione annuale finanziaria consolidata 2011” and has been prepared solely for the convenience of international readers. In the event of any ambiguity the Italian text will prevail. The Italian original is available on the website www.a2a.eu. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 2.

(4) WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 0.1. Consolidated financial statements.

(5) Consolidated Annual Report for 2011. Balance sheet (1) Assets. Millions of euro. Note. 12 31 2011. 12 31 2010. Tangible assets. 1. 4,685. 4,872. Intangible assets. 2. 1,503. 1,552. Shareholdings carried at equity. 3. 521. 2,411. NON-CURRENT ASSETS. Other non-current financial assets. 3. 48. 40. Other non-current assets. 4. 132. 113. 6,889. 8,988. Total non-current assets CURRENT ASSETS Inventories. 5. 267. 239. Trade receivables. 6. 1,958. 2,141. Other current assets. 7. 410. 275. Current financial assets. 8. 233. 56. Current tax assets Cash and cash equivalents. 9. 30. 18. 10. 147. 132. 3,045. 2,861. 921. 82. 10,855. 11,931. Total current assets NON-CURRENT ASSETS HELD FOR SALE TOTAL ASSETS (1). 11. As required by Consob Communication 17221 of 12 March 2010, the effects of transactions with related parties on the consolidated accounts are indicated in the statements in section 0.2 and discussed in note Significant non-recurring events and transactions in the consolidated financial statements are indicated in Note 40, as required by Consob Communication DEM/6064293 of July 28, 2006.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 4.

(6) Consolidated Annual Report for 2011 Balance sheet. Equity and liabilities. Millions of euro. Note. 12 31 2011. 12 31 2010. 12. 1,629. 1,629. EQUITY Share capital (Treasury shares). 13. (61). (61). Reserves. 14. 1,619. 1,625. Net income for the year. 15. Equity pertaining to the Group Minority interests. 16. Total equity. (420). 308. 2,767. 3,501. 826. 1,344. 3,593. 4,845. 5. LIABILITIES. Non-current financial liabilities. 17. 3,851. 3,736. Deferred tax liabilities. 18. 10. 63. Employee benefits. 19. 272. 276. Provisions for risks, charges and liabilities for landfills. 20. 462. 460. Other non-current liabilities. 21. Total non-current liabilities. 177. 177. 4,772. 4,712. Current liabilities Trade payables. 22. 1,348. 1,450. Other current liabilities. 22. 442. 404. Current financial liabilities. 23. 675. 448. Tax liabilities. 24. 25. 56. Total current liabilities. 2,490. 2,358. Total liabilities. 7,262. 7,070. –. 16. 10,855. 11,931. LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE TOTAL EQUITY AND LIABILITIES. 25. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. Non-current liabilities.

(7) Consolidated Annual Report for 2011. Income statement (1). Millions of euro. Note. 01 01 2011 12 31 2011. 01 01 2010 12 31 2010 (2). 6,096. 5,923. Revenues Revenues from the sale of goods and services Other operating income Total revenues. 27. 102. 118. 6,198. 6,041. 4,396. 4,129. Operating expenses Expenses for raw materials and services Other operating expenses. 302. 318. 4,698. 4,447. Total operating expenses. 28. Labour costs. 29. 558. 554. Gross operating income - EBITDA. 30. 942. 1,040. Depreciation, amortization, provistons and write-downs. 31. 641. 542. Net operating profit - EBIT. 32. 301. 498. 55. 58. Financial expenses. 178. 190. Portion of income and charges when shareholdings are carried at equity.. (132). 28. (255). (104). Financial balance Financial income. Total financial balance. 33. Other non-operating income. 34. 6. Other non-operating expenses. 34. (10). Income before tax. 42. (1) 393. (1) As required by Consob Communication 17221 of March12, 2010, the effects of transactions with related parties on the consolidated accounts are indicated in the statements insection 0.2 and discussed in note 39. Significant non-recurring events and transactions in the consolidated financial statements are indicated in Note 40, as required by Consob Communication DEM/6064293 of July 28, 2006. (2) Values provided for the purposes of comparison with the January - December 2010 reporting period, more specifically for income statement items such as income and charges generated when shareholdings are carried at equity, have been reclassified to reflect the application of IFRS5.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 6.

(8) Consolidated Annual Report for 2011 Income statement. Millions of euro. Income taxes. Note. 35. Income (loss) of current operations, net of tax Net result from non-current assets held for sale. 36. Net income (loss) Income pertaining to minority interests Group net income (loss) for the year. 37. 01 01 2011 12 31 2011. 01 01 2010 12 31 2010. 148. 158. (106). 235. (810). (39). (916). 196. 496. 112. (420). 308. (0.1352). 0.0993. Earnings (loss) per share (in euro): - basic - basic, from operating activities. (0.0076). 0.0710. - basic, from activities held for vale. (0.1276). 0.0283. - diluted. (0.1352). 0.0993. - diluted from operating activities. (0.0076). 0.0710. - diluited from activities held for vale. (0.1276). 0.0283. 7. Consolidated statement of comprehensive income Millions of euro. Net income/(loss) for the year (A). 12 31 2010. (916). 196. (13). 34. Gains/(losses) on the re-measurement of financial assets available for sale. –. (316). Tax effect of other gains/(losses). 2. (45). Total other gains/(losses) net of the tax effect of companies consolidated on a line-by-line basis (B). (11). (327). Other gains/(losses) of companies valued at equity, net of the tax effect (C). (11). 21. Effective part of gains/(losses) on cash flow hedges. Total gain/(loss) (A) + (B) + (C). (938). (110). Total gain/(loss) attributable to: Shareholders of the parent company. (453). (8). Minority interests. (485). (102). WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 12 31 2011.

(9) Consolidated Annual Report for 2011. Cash flow statement. Millions of euro. 12 31 2011. 12 31 2010. 132. 25. –. 95. 132. 120. Net income for the year (**). (951). (26). Depreciation. 336. 342. Amortization. 79. 85. Fixed asset write-downs. 125. 23. Results from affiliates (***). 979. 231. 4. 5. CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR EPCG LIQUIDITY CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR Operating activities. Write-downs of shareholdings Income taxes paid. (240). (69). 78. 252. 410. 843. Investments in tangible assets. (183). (247). Investments in intangible assets and goodwill. (127). (85). Investments in shareholdings and securities (*). (11). (14). Sales of fixed assets and shareholdings. 79. 347. Dividends received from shareholdings carried at equity and other shareholdings. 17. 59. (225). 60. Change in assets and liabilities (*) Cash flow from operating activities Investment activities. Cash flow used in investment activities. (*) Net of balances with contra-entry in equity and other balance sheet/cash flow items. (**) Income for the reporting period/year is shown net of capital gains generated by the sale of shareholdings. (***) This item for both 12.31.2011 and 12.31.2010, includes the value of shareholding TdE S.r.l. which has been reclassified in the Income Statement to "Net result from non-current assets held for sale".. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 8.

(10) Consolidated Annual Report for 2011 Cash flow statement. Millions of euro. 12 31 2011. 12 31 2010. Free cash flow. 185. 903. (236). (129). Change in financial liabilities (*). 481. (412). Net financial expenses paid. (111). (105). (298). (217). (6). (28). (170). (891). 15. 12. 147. 132. Financing activities. Dividends paid by parent company Dividends paid by subsidiaries Cash flows used in financing activities CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR. 9. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. Change in financial assets (*).

(11) Consolidated Annual Report for 2011. Statement of changes in Group equity. Description Millions of euro. Equity at 12.31.2009. 1,629. Treasury shares. (61). Cash Flow Hedge. (3). Allocation of 2009 net income Distribution of dividends IAS 32 and IAS 39 reserves (*). 34. Put option on Delmi S.p.A. shares Put option on Abruzzo Energia S.p.A. shares EPCG group consolidation Other changes Net income for year pertaining to the Group and minority interests. Equity at 12.31.2010. 1,629. (61). 31. Allocation of 2010 net income Distribution of dividends IAS 32 and IAS 39 reserves (*). (11). Put option on Delmi S.p.A. shares Other changes Net income for year pertaining to the Group and minority interests. Equity at 12.31.2011 (*) These form part of the statement of comprehensive income.. 1,629. (61). 20. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 10. Share capital.

(12) Consolidated Annual Report for 2011 Statement of changes in Group equity. Income from financial assets available for sale. Other reserves and retained earnings. Group net income for the year. Total group net worth. Minority interests. Total shareholders' equity. 350. 1,695. 80. 3,690. 905. 4,595. (217) (350). –. (217). (28). (245). (316). 10. (306). 25. 25. 3. 3. 3. 3. 5. 5. (2). 3. 308. 308. (112). 196. 308. 3,501. 1,594. 308. 25 (1) 572. 1,344. 2 575. 4,845. (308). (298). (298). (6). (304). (11). (11). (22). 2. 2. (7). (7). (5). (12). (420). (496). (916). (420). -. 11. (80). 1,599. (420). 2,767. 2. 826. 3,593. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 80.

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(14) 0.2 WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. Consolidated financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010.

(15) Consolidated Annual Report for 2011. Balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010. Assets. Millions of euro. 12 31 2011. of which Related Parties (note 39). 12 31 2010. of which Related Parties (note 39). NON-CURRENT ASSETS Tangible assets. 4,685. Intangible assets. 1,503. Shareholdings carried at equity. 1,552. 521. 521. Other non-current financial assets. 48. 6. Other non-current assets. 132. 113. 6,889. 8,988. Total non-current assets. 2,411. 2,411. 40. 6. CURRENT ASSETS Inventories Trade receivables. 267 1,958. Other current assets. 410. Current financial assets. 233. 239 134. 2,141 275. 230. 56. Current tax assets. 30. 18. Cash and cash equivalents. 147. 132. Total current assets NON-CURRENT ASSETS HELD FOR SALE TOTAL ASSETS. 3,045 921 10,855. 120. 9. 2,861 921. 82 11,931. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 14. 4,872.

(16) Consolidated Annual Report for 2011 Balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010. Equity and liabilities. Millions of euro. 12 31 2011. of which Related Parties (note 39). 12 31 2010. of which Related Parties (note 39). EQUITY Share capital (Treasury shares) Reserves Net income for the year Equity pertaining to the Group Minority interests Total equity. 1,629. 1,629. (61). (61). 1,619. 1,625. (420). 308. 2,767. 3,501. 826. 1,344. 3,593. 4,845. 3,851. 3,736. 10. 63. 15. LIABILITIES Non-current liabilities. Deferred tax liabilities Employee benefits. 272. Provisions for risks, charges and liabilities for landfills. 462. Other non-current liabilities Total non-current liabilities. 276 1. 460. 177. 177. 4,772. 4,712. Current liabilities Trade payables. 1,348. 53. 1,450. 26. Other current liabilities. 442. 9. 404. 16. Current financial liabilities. 675. 1. 448. 3. Tax liabilities. 25. 56. Total current liabilities. 2,490. 2,358. Total liabilities. 7,262. 7,070. –. 16. 10,855. 11,931. LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE TOTAL EQUITY AND LIABILITIES. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. Non-current financial liabilities.

(17) Consolidated Annual Report for 2011. Income statement pursuant to Consob resolution no. 17221 of March 12, 2010. Millions of euro. 01 01 2011 12 31 2011. of which Related Parties (note 39). 6,096. 838. 102. 1. 01 01 2010 of which 12 31 2010 Related (1) Parties (note 39). Revenues Revenues from the sale of goods and services Other operating income Total revenues. 268. 118. 1. 6,041. Operating expenses Expenses for raw materials and services Other operating expenses Total operating expenses. 4,396. 678. 302. 8. 4,698. 4,129. 27. 318. 2. 4,447. Labour costs. 558. Gross operating income - EBITDA. 942. 4. 554. Depreciation, amortization, provisions and write-downs. 641. 542. Net operating income - EBIT. 301. 498. 1,040. Financial balance Financial income. 55. 6. 58. Financial expenses. 178. 115. 190. Portion of income and charges when shareholdings are carried at equity. (132). (132). 28. Total financial balance. (255). Other non-operating income. (10). Income before tax. 42. Income (loss) of current operations net of tax. 28. (104). 6. Other non-operating expenses. Income taxes. 5. (1) 393. 148. 158. (106). 235. Net result from non-current assets held for sale. (810). (39). Net income (loss). (916). 196. Income pertaining to minority interests. 496. 112. GROUP NET INCOME (LOSS) FOR THE YEAR. (420). 308. (1) Values provided for the purposes of comparison with the January - December 2010 reporting period, more specifically for income statement items such as income and charges generated when hareholdings are carried at equity, have been reclassified to reflect the application of IFRS5.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 16. 6,198. 5,923.

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(19) WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 0.3. Notes to the consolidated financial statements.

(20) Consolidated Annual Report for 2011. General information on A2A S.p.A.. A2A S.p.A. is a company incorporated under Italian law. A2A S.p.A. and its subsidiaries (“Group”) operate both in Italy and abroad, especially following acquisitions in France and Montenegro in recent years. The A2A Group mainly operates in the following sectors: • the production, sale and distribution of electricity; • the sale and distribution of gas;. 19. • the production, distribution and sale of heat via district heating networks; • waste management (from collection and street-sweeping to disposal) and the construction and management of integrated waste disposal plants and systems, also making them available for other operators;. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. • integrated water cycle management..

(21) Consolidated Annual Report for 2011. Consolidated annual report. The consolidated annual report (hereafter referred to as “Annual Report”) at December 31, 2011 of the A2A Group are presented in millions of euro, which is also the currency of the economies in which the Group operates. The annual report of the A2A Group at December 31, 2011 has been prepared: • in compliance with Decree 58/1998 (art. 154 ter) and subsequent amendments, and with the Issuers' Regulations published by Consob; • in accordance with the International Financial Reporting Standards (IFRS) issued by the ’International Accounting Standard Board (IASB) and approved by the European Union. IFRS means all reviewed international accounting standards (IAS) and all interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly known as Standing Interpretations Committee (SIC). This annual report for the year ended December 31, 2011, has been prepared applying the same standards as were adopted for the consolidated financial statements for the year ended December 31, 2010. In addition, from January 1, 2011 the Group adopted for the first time the standards and interpretations explained in detail in the paragraph entitled “Changes in accounting policies". This annual report at December 31, 2011 was approved by the Management Board on March 23, 2012, which authorised its publication; it has been audited by PricewaterhouseCoopers S.p.A. in accordance with their appointment by the Shareholders' Meeting of April 26, 2007 for the nine years from 2007 to 2015. The consolidated annual report for the year ended December 31, 2011, considers the business a continued, going concern.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 20.

(22) Consolidated Annual Report for 2011. Financial statement. For the balance sheet, the Company has adopted a format which separates current and non/current assets and liabilities, as required by paras. 60 et seq. of "IAS 1 Revised”. The income statement is presented by nature, a format that is considered more representative than the so-called "presentation by destination". This format is also adopted by the Company's principal competitors and is in line with international practice. The results of normal operations are shown in the income statement separately from income or costs deriving from non-recurring transactions that form part of the business's normal operations,. 21. such as gains or losses on the sale of shareholdings and other non-recurring income or charges; this makes it easier to measure the effective results of normal operating activities. The cash flow statement is prepared according to the indirect method, as allowed by IAS 7. The statement of changes in equity has been prepared in accordance with IAS 1 Revised. The financial statements presented herein are the same as those used to prepare the Annual. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. Report at December 31, 2010..

(23) Consolidated Annual Report for 2011. Basis of Preparation. The consolidated annual report at December 31, 2011 has been prepared on a historical cost basis, with the exception of those items which, in accordance with IFRS, can or have to be measured at fair value, as explained in the accounting policies. The consolidation principles, accounting policies, measurement methods and estimates used in drawing up this annual report are the same as those use to prepare the consolidated annual report at December 31, 2010... WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 22.

(24) Consolidated Annual Report for 2011. Changes in International Accounting Standards. The accounting standards applied in 2011 were the same as those used in the previous year, with the exception of the variations discussed in the following paragraph "Accounting standards, amendments and interpretations approved by the European Union, taking effect from this reporting period and affecting the Group”. The following section entitled "Accounting standards, amendments and interpretations already approved by the European Union, taking effect from this reporting period but not affecting the Group” and “Accounting standards, amendments and interpretations still to be. 23. approved by the European Union" list all variations to be adopted in future reporting periods, with an indication of the expected effect, as far is estimable, on the annual accounts of the A2A Group.. Accounting standards, amendments and interpretations approved by the European Union, taking effect during the current reporting period and affecting the Group. applied from January 1, 2011, none of which had any significant effect on Group accounts though. The main changes are described below: • IAS 24 Revised "Related Party Disclosures": approved on July 19, 2010 and applicable from January 1, 2011, modifies the definition of related parties and extends the minimum disclosure requirements. This principle requires additional information to be provided on current relations, transactions and balances with related parties, including commitments, disclosed in both the consolidated and separate financial statements of a parent company, a partner in a joint venture or an investor, to be provided in compliance with IAS 27 "Consolidated and separate financial statements". This amendment also applies to individual financial statements; • IFRS 3 “Business combinations”: with the prospective introduction of this revision from July 1, 2010, the requirement for non-controlling interests to either be reported at fair. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. A number of amendments to international accounting standards and interpretations were.

(25) Consolidated Annual Report for 2011 Changes in International Accounting Standards. value or at the proportionate share of net assets of the acquiree on the acquisition date applies only to the non-controlling interest that give the holder access to part of the net assets in the event of liquidation. All other non-controlling interests must be reported at the fair value on the date of acquisition, unless other assessment criteria apply under other IFRS. This revision also clarifies that the requirement to measure shareholdings or shares in the acquirer replacing share-based payments in the acquired company in accordance with IFRS2 on the date of acquisition (market based measure) also applies to share-based payments in the acquired company that are not replaced; • IFRS 7 “Financial instruments: disclosures”: effective from July 1, 2011, this revision draws attention to the interaction between quantitative disclosures and other qualitative ones required by the standard to provide information about the nature and extent of risks arising from financial instruments (EU 149/2011). This approach should help all those using the financial statements to understand the information presented and build a general picture of the nature and extent of risks arising from financial instruments. Moreover, the requirement to provide information on financial assets that have expired but which have been renegotiated or written-down, and the on fair value of the underlying collateral has been eliminated. Regarding this standard, In October 2010 (EU 1205/2011), an amendment was introduced concerning the transfer of financial assets to make transactions in which these assets are sold clearer for users of balance sheets (securitization for example), as well as to better understand the analysis of the potential affects or risks which may remain with the body that transferred the asset. In particular, under this amendment, a qualitative description must be provided of the nature of the link between the assets transferred and the associated liabilities, along with a table showing the fair value of the assets transferred and the associated liabilities. A statement must also be provided regarding the extent of the cash flow needed if the assets disposed of where to be repurchased. Furthermore, under this revision, additional information must be provided on any substantial transfers of assets carried out at the end of the reporting period; • IAS 1 “Presentation of Financial Statements": the amendment applies from January 1, 2011 and establishes that an entity may present the detailed analysis of the overall income statement either in the statement of changes to net equity or in the explanatory notes to the financial statements; • IAS 34 “Interim financial reporting”: with effect from January 2011, this revision requires that explanatory notes describing significant events in interim financial statements must describe any changes to the significant events reported in the last annual report, with emphasis in particular on financial instruments and their fair value.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 24.

(26) Consolidated Annual Report for 2011 Changes in International Accounting Standards. Accounting standards, amendments and interpretations approved by the European Union, taking effect from the current reporting period and not affecting the Group In future reporting periods the following principles and interpretations already approved by the European Union and published in the official EU gazette can be applied if the relative conditions are met: • IFRS 1 "First-time adoption of International Financial Reporting Standards": the amendment is applicable from January 1, 2011 and clarifies that whenever an entity changes its accounting practice or exercises exemptions under IFRS 1 following the publication of interim financial statements in accordance with IAS 34 before the publication of the first full financial statements, i.e. prepared in accordance with International Financial Reporting Standards, it must provide justifiable grounds for these changes and update the reconciliation between the previous accounting standards and the IFRS. The requirements of IAS8 "Accounting policies, changes in accounting estimates and errors" do not apply in the afore-mentioned circumstances; • IFRIC 13 “Customer loyalty programmes”: this amendment, applicable from January 1,. 25. 2011, requires that a business entity can estimate the fair value of credit points, referring to the fair value of the awards for which they can be redeemed; • IFRIC 14 “Prepaid contributions of minimum funding requirements”: the amendment took effect from January 1, 2011 and states that if no minimum funding payments are expected for future employment, the economic benefit available as a reduction in contributions is represented by future pension plan payments payable by the organisation for each financial year, over the expected life time of the plan or of the organisation, whichever is the shorter. Future pension plan funding payable by the organisation does not include any. Accounting standards, amendments and interpretations not already approved by the European Union. The following principles and interpretations have not been applied as the relevant EU authorities have not yet concluded the associated approval process. • IFRS 1 “First-time adoption of International Financial Reporting Standards”: on December 20, 2010 IASB issued the document “Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (Amendments to IFRS 1)”. The reason for removing fixed dates in IFRS 1 is to allow new users of IAS/IFRS to apply the same simplified rules as bodies that migrated to international accounting standards in 2005; for businesses publishing accounts to IFRS for the first time after being unable to do so on account of super. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. amounts payable by employees..

(27) Consolidated Annual Report for 2011 Changes in International Accounting Standards. hyperinflation, the amendments allow for IAS/IFRS to be backdated from the first adoption, enabling these organisations to use the fair value instead of the cost for all assets and liabilities in previous accounts; • IFRS 9 “Financial Instruments”, published by IASB on December 16, 2011 and amending the application date of this standard with effect from January 1, 2015 (it had previously been set for January 1, 2013); • IFRS 10 “Consolidated Financial Statements”, published by IASB on May 12, 2011 and taking effect from January 1, 2013. IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements and emphasizes the concept of control, regardless of the nature of the shareholding held by the organisation preparing the consolidated accounts. This control becomes evident when the three circumstances below occur: 1.. the power to influence and manage key operations in the shareholding;. 2.. exposure, or rights, to variable returns from its involvement with the investee;. 3.. the ability to use its power over the investee to affect the amount of the investor's returns.. The power to influence operations that significantly affect the results of the subsidiary (so-called relevant activities) can be more easily exercised through voting rights (including potential voting rights), but also through contractual arrangements. Relevant activities, when control is exercised through voting rights, are represented by operating (development, purchasing and product sales) and financial management activities (obtaining and negotiating loans, acquisitions and sale of financial assets). Variable returns include dividends, payment for services provided by the parent for the subsidiary's activities and tax benefits. This third condition to establish whether control exists regards the interaction between the first two conditions. In other circumstances, an organisation can have an interest in a group of the subsidiary's assets and liabilities as part of a legal or contractual condition. IFRS 10 establishes that, to determine if an organisation is a parent, these assets and liabilities can be considered a separate entity only if it is economically separate from the entity as a whole, and is therefore a subsidiary company for the purposes of the consolidated accounts. Following the introduction of this standard, a revised version of IAS 27 "Separate Financial Statements" was published which remains the main reference for separate accounts, and of IAS 28 "Shareholdings in Associates and Joint Ventures"; the interpretation of SIC 12 "Consolidation - Special Purpose Entities" has also been superseded. Earlier adoption of this standard is permitted. • IFRS 11 “Joint Arrangements”, published by IASB on May 12, 2011 and taking effect from January 1, 2013. This standard establishes that in a joint arrangement, two or more parties have joint control and decisions regarding relevant activities required the unanimous. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 26.

(28) Consolidated Annual Report for 2011 Changes in International Accounting Standards. consent of the parties. IFRS 11 describes two different types of joint arrangement: 1.. Joint operations;. 2.. Joint ventures.. The two types differ in the rights and obligations of each part to the joint arrangement; in a joint operation, the parties have have rights to the assets, and obligations for the liabilities, relating to the arrangement, whereas in a joint venture, the parties have rights to the net assets of the arrangements. IFRS establishes that the assets, liabilities, costs and revenues relating to a joint operation are recognized by the parties in line with their percentage control, whereas joint ventures are recognized by the parties using the net equity method, as laid down in IAS 28 "Shareholdings in Associates and Joint Ventures". Joint arrangements are recognized in the same way for both separate and consolidated financial statements, with assets, liabilities, costs and revenues recognized on the basis of the percentage of control; for joint ventures and shareholdings in subsidiaries and associates on the other hand, they can be recognized in separate financial statements either at cost or as defined in IFRS 9 "Financial Instruments" (and IAS 39 "Financial Instruments: recognition and measurement"), as also specified in IAS 27 "Separate Financial Statements". As regards disclosures to be provided in the explanatory notes, for. 27. more comprehensive information you are referred to the provisions of the new IFRS 12 "Disclosures of Interests in Other Entities". Earlier adoption of this standard is permitted. • IFRS 12 “Disclosures of Interests in Other Entities", issued by IASB on May 12, 2011 and effective from January 1, 2013,; this standard establishes minimum disclosure requirements, combining them with those established by other standards, that entities must provide to help users of the financial statements to understand the nature of subsidiary, associate and joint arrangement (the latter is defined in IFRS 11) interests held by the entity, and the associated risks. In particular, the entity is required to provide (also joint) and if any significant influence is exerted on other entities. Earlier adoption of this standard is permitted. • IFRS 13 “Fair Value Measurement”, published by IASB on May 12, 2011 and effective from January 1, 2013. IFRS 13 determines the fair value, and provides guidelines on how to measure it, also introducing disclosure requirements. The standard does not specify when fair value measurement is required, but does lay down how it should be done when it is required by other standards. The new standard applies to all operations, both financial and non-financial, for which international accounting standards require or allow fair value measurements, with the exception of transactions recognized in IFRS 2 "Share-based Payments", leasing agreements governed by IAS 17 "Leasing", and transactions recognized on the basis of the "net realizable value", as described in IAS 2 "Inventories" and the "Value in use", as defined in IAS 36 "Impairment of Assets". The standard defines the “fair value” as. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. information on interests acquired in order to determine if these are controlling interests.

(29) Consolidated Annual Report for 2011 Changes in International Accounting Standards. the consideration for which an asset could be exchanged, or a liability extinguished, in a transaction between willing, informed and unrelated parties. If transactions can be observed directly in the marketplace, the fair value can be measured fairly easily; where this is not possible, valuation techniques are used. This standard describes three of these techniques, which can be used to calculate the fair value; the first one is the market approach, which uses prices and other relevant information generated by market transactions involving comparable assets and liabilities; the second is the income approach, which converts future cash flows or income and expenses; the third method is the cost approach, which requires the entity to calculate a value that reflects the amount that would be required currently to replace the service capacity of an asset. As regards disclosures to be provided in financial statements, IFRS 13 extends the hierarchy of three levels of fair value, which vary depending on the input used in the valuation techniques, as already provided in IFRS 7 "Financial instruments: disclosures", to all assets and liabilities within its scope of application. Several disclosure requirements vary depending on whether the fair value measurement was done on a recurring or non-recurring basis: recurring means the fair value measurements required by other accounting standards at the end of each reporting period, whereas non-recurring means fair value measurements required in special circumstances only. Earlier adoption of this standard is permitted. • IFRIC 19 “Extinguishing financial liabilities with equity instruments”: issued on November26, 2009 by the IFRIC Committee, this interpretation took effect on July 1, 2010 and provides clarification and guidelines on: 1.. how an entity should evaluate equity instruments issued against the cancellation of a financial liability;. 2.. how differences between the nominal value of financial liabilities that have been extinguished and the initial value of the equity instrument should be recognized and accounted for;. 3.. whether the issue of equity instruments falls within the definition of “consideration” as defined in IAS 39, section 41.. As regards the first aspect, the interpretation provides for measurement at fair value of the equity instruments issued to cancel a financial debt, unless the value cannot be reliably measured. In this case the equity instrument has to be valued at the fair value of the financial liability that is to be cancelled. In addition, it clarifies that any difference between the nominal value of the cancelled financial liability and the initial value of the equity instruments issued has to be booked to the income statement. • IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”; the interpretation considers when and how to account for the costs of removing waste materials in the production phase of a mine. The interpretation makes a distinction between the benefits. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 28.

(30) Consolidated Annual Report for 2011 Changes in International Accounting Standards. accruing from waste removal activities. Benefits consist of the generation of usable ore and improved access to further quantities of material that will be mined in future periods. In the former, the materials constitute inventory and the associated costs are therefore accounted as such (in compliance with IAS 2 "Inventories"). In the latter case, the costs are accounted for as non-current stripping activity assets, provided it is probable that the future future economic benefit (improved access to the ore body) associated with the stripping activity will flow to the entity. • IAS 12 “Income Taxes”, issued by IASB on December 20, 2011; IASB admits exceptions to the general principle governing the recognition of deferred tax assets and liabilities when arising from property investments measured at fair value (as provided by IAS 40 Investment Property); the assumption is that the recognition of deferred tax liabilities depends solely on whether an entity expects to sell the investment. This amendment became effective on January 1, 2012 although earlier adoption is permitted. • IAS 27 Revised "Separate Financial Statements", issued by IASB on May 12, 2011, effective from January 1, 2013; at the same time as principle IFRS 10 "Consolidated Financial Statements" was introduced, a revised version of the standard IAS 27 was published, retaining the general principle regarding separate financial statements. This standard. 29. applies to the valuation of subsidiary, associate and joint venture shareholdings in the separate accounts of the parent. Joint ventures, as is also the case for shareholdings in subsidiaries and associates, are recognized in separate financial statements at cost or as described in IFRS 9 "Financial Instruments" (and in IAS 39 "Financial instruments: recognition and measurement"). When a parent chooses not to prepare consolidated financial statements, as established in IFRS 10 "Consolidated Financial Statements", in its separate accounts, it must disclose shareholdings in subsidiaries, associates and joint ventures, the main offices (and legal premises if different), their operations, the brought to account. Earlier adoption of the principle is permitted, and in this case, IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements", IFRS 12 "Disclosures of Interests in Other Entities" and IAS 28 (as amended in 2011) must all be applied. • IAS 28 Revised "Shareholdings in Associates and Joint Ventures", issued by IASB on May 12, 2011, effective from January 1, 2013; at the same time as principle IFRS 10 "Consolidated Financial Statements" was introduced, a revised version of this standard was published to establish how shareholdings in associates and joint ventures should be recognized. An entity with joint control or significant interest over another body must recognize this shareholding using the net equity method. Earlier adoption of the principle is permitted, and in this case, IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements", IFRS 12 "Disclosures of Interests in Other Entities" and IAS 27 (as amended in 2011) must all be applied.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. percentage stake in each individual company and details of how the respective values are.

(31) Consolidated Annual Report for 2011 Changes in International Accounting Standards. • IAS 32 “Accounting for rights issues": approved on December 23, 009 and effective from February 1, 2010: allows options rights (or warrants) to be classified as equity in the issuing body's financial statements when issued to increase share capital at a fixed price for all shareholders in a different exercise currency from the issuing body. The current accounting practice laid down in IAS 32 established that these instruments had to be presented as liabilities for derivative instruments. • IAS 1 “Presentation of Financial Statements”; the revision, which will take effect from July 1, 2012, concerns the presentation of data in the comprehensive income statement. In particular, this amendment retains the option of presenting the Income Statement and Comprehensive Income Statement in either a single report or in two separate reports, one following immediately after the other. The various components that will be charged to the Income Statement in future years must be grouped together in the comprehensive income statement: these figures can be presented either with or without the net tax effect. Earlier adoption of this amendment is permitted. • IAS 19 "Employee Benefits", effective from January 1, 2013; the changes made in the amendment can be summed up in three main categories: (i) recognition and presentation in financial statements; (ii) disclosures; (iii) further amendments. The first type of amendment concerns defined benefit plans. In particular, the corridor method to recognize actuarial gains and losses has been eliminated, and the obligation to immediately recognize these components in the Income Statement introduced. For presentation in the financial statements, the amendment establishes that changes in defined benefit costs are split into the following three components: 1.. service cost. 2.. finance cost. 3.. remeasurement cost. As regards disclosure, in addition to eliminating the need to provide details of deferred recognition of gains and losses (no longer necessary after the corridor method was eliminated), the amendment proposes disclosure of details of the plans and associated amounts brought to account, risk arising from the plans, a sensibility analysis of changes in demographic risk and participation in multi employer plans.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 30.

(32) Consolidated Annual Report for 2011. Scope of consolidation. The annual report of the A2A Group for the year ended December 31, 2011 includes the figures of the parent company A2A S.p.A. and those of its subsidiaries in which A2A S.p.A., directly or indirectly, holds a majority of the voting rights that can be exercised at ordinary shareholders' meetings. Also carried at equity are companies in which the parent company holds joint control with other shareholders (joint ventures) and those over which it exercises a considerable influence. Your attention is drawn to the completion of the sale of BAS SII S.p.A. on December 23,2011; at. 31. year-end, this company was shown in accounts as an "Non-current asset held for sale". For a description of changes in the overall scope, you are referred to "Changes to the scope of. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. consolidation since December 31, 2010" in the explanatory notes to the balance sheet..

(33) Consolidated Annual Report for 2011. Consolidation policies and procedures. Consolidation Policies Subsidiaries The scope of consolidation of the A2A Group comprises the parent company A2A S.p.A. and the companies over which it exercises direct or indirect control, even when the interest is less than 50%. Subsidiaries are consolidated from the date on which the Group effectively acquires control and are deconsolidated from the date on which control is transferred to a company outside of the Group.. Associates and Joint Ventures Shareholdings in associates, in other words those in which the A2A Group has a significant interest and is able to exercise a considerable influence, and those over which A2A S.p.A. has joint control together with other shareholders (joint venture), are valued according to the equity method. Gains and losses pertaining to the Group are recognised in the financial statements from the date on which the significant influence or joint control commenced. In the event that the loss pertaining to the Group exceeds the book value of the shareholding, this value is cancelled and any excess loss is provided for to the extent that the Group has legal or implicit obligations towards the associate to cover its losses or, in any case, to make payments on its behalf.. Potential voting rights If the A2A Group holds call options to buy shares or other instruments representing capital that are convertible into ordinary shares, or other instruments that have the potential, if exercised or converted, to give the Group voting rights or reduce the voting rights of third parties ("potential voting rights"), such potential voting rights have to be taken into. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 32.

(34) Consolidated Annual Report for 2011 Consolidation policies and procedures. consideration when assessing whether or not the Group has the power to govern or influence the other company's financial and operating policies.. Consolidation Procedures General Procedure The financial statements of the subsidiaries, associates and joint ventures consolidated by the A2A Group are prepared at the end of each reporting period using the same accounting policies as the parent company. Any items valued on alternative bases are adjusted during the consolidation process to bring them into line with Group accounting policies. All intercompany balances and transactions, including any unrealised profits deriving from transactions between Group companies, are eliminated completely. In preparing the annual report, the assets, liabilities, costs and revenues of the companies being consolidated are included in their entirety on a line-by-line basis, showing the portion of equity and net income for the period pertaining to minority interests separately in the balance sheet and income statement.. 33. The book value of the shareholding in each of the subsidiaries is eliminated against the corresponding share of net equity, including any adjustments to fair value at the date of acquisition; any differences arising are handled in accordance with IFRS 3. Transactions with minority shareholders which do not entail the loss of control in consolidated companies are treated according to the so-called "economic entity view".. Only in the case of particularly large figures and exclusively in connection with non-current assets and liabilities available for sale, in accordance with the requirements of IFRS 5, the related intercompany financial receivables and payables are not eliminated, so as to show clearly the financial impact in the event of their disposal, as described in more detail in "Accounting Standards and Valuation Criteria".. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. Consolidation procedure for assets and liabilities available for sale (IFRS 5)..

(35) Consolidated Annual Report for 2011 Consolidation policies and procedures. Effects on consolidation procedures of certain contracts concerning shares/quotas of Group companies a) Option contracts between A2A S.p.A. and Società Elettrica Altoatesina SEL S.p.A. for part of their shareholding in Delmi S.p.A. A2A S.p.A. has signed option contracts with Società Elettrica Altoatesina SEL S.p.A. (SEL) in relation to part of the shares in Delmi S.p.A. that it holds. Under these option contracts between A2A S.p.A. and SEL S.p.A., the latter has the right to sell to A2A S.p.A. and A2A S.p.A. has the right to purchase from SEL S.p.A. two lots of Delmi S.p.A. shares, representing 50% and 35% respectively of SEL S.p.A.'s shareholding in Delmi S.p.A. (currently 10% of Delmi S.p.A. share capital). The strike price of these options will be calculated for each lot based on various formulas that take into account SEL S.p.A.'s initial investment and/or the value of Edison S.p.A.'s shares at the time the options are exercised, depending in the case of SEL S.p.A.'s put options, among other things, on whether SEL S.p.A.- – at the time of exercising the option - has or has not become the owner of some of Edison S.p.A.'s hydroelectric power plants located in the Province of Bolzano. If exercised, SEL S.p.A. put options and A2A S.p.A. call options on SEL S.p.A., can be implemented in stages. A2A S.p.A. and SEL S.p.A. renegotiated the expiry dates of these options, postponing them beyond the initial deadline. In part, this deferral was due to the fact that the parties could not agree on whether the conditions for the exercise of one of SEL S.p.A.'s put options had been satisfied or not. As a result, the options are still in. In line with paragraph 23 of IAS 32, the Group has booked to liabilities the present value of the estimated outlay. Changes in the present value of this liability caused by the passing of time are considered as financial expenses and booked to the Income statement. There is still some uncertainty in international accounting standards as to how to treat the difference between the present value of the strike price of the put options and the book value of the minority interests. In the absence of an interpretation of this question by the IFRIC, the Group has decided to show the difference as a reduction of equity pertaining to the Group (if positive) or as an increase in equity pertaining to the Group (if negative) as an alternative to adjusting goodwill. This is in line with decisions taken by the Group in previous years. Accordingly, any changes in the liability that do not depend on time result in adjustments to Group equity.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 34.

(36) Consolidated Annual Report for 2011 Consolidation policies and procedures. If the options expire without them being exercised, the liability will be reclassified to equity, reinstating the minority interests. The consolidated annual report at December 31, 2011 shows a liability to third parties for the possible exercise of the put options on the shares of Delmi S.p.A. of 91 million euro (93 million euro at December 31, 2010), a reduction in minority interests of 157 million euro (unchanged with respect to the comparable date), a positive change in equity pertaining to the Group of 2 million euro (92 million euro at December 31, 2010). The share of Delmi S.p.A.'s result remains 51% as the above options do not currently give A2A S.p.A. access to the economic benefits associated with the shares under option. b) Call option on the purchase of 1% of the share capital of ASM Novara S.p.A. A2A S.p.A. owns 50% of the shares of ASM Novara S.p.A., a company with share capital of one million euro set up with other shareholders in order to build and manage a district heating network in Novara. As a result of the shareholder agreement between the shareholders of ASM Novara S.p.A., A2A S.p.A. has a call option to buy 1% of the share capital of ASM Novara S.p.A. Similarly the other. 35. shareholders, who hold the remaining 50%, have a put option to sell 1% of the share capital to A2A S.p.A. Exercising one of these options would give A2A S.p.A. control over ASM Novara S.p.A. Any of the parties can exercise their options within three years of satisfaction of certain conditions relating to the construction of the district heating network in Novara: by December 31, 2011 these conditions had still not been fulfilled. IAS 27, paragraph 14, establishes that when assessing whether an entity has the power to “potential voting rights” that would derive from exercising the options, providing they are currently exercisable. Such potential voting rights should then be added to the existing voting rights in order to calculate the total interest held in the share capital, which in turn establishes the method of consolidation to be applied to the affiliate concerned. Potential voting rights that are not currently exercisable are understood as being, for example, those that cannot be exercised until a future date or until some future event takes place. Consequently, the potential voting right that A2A S.p.A. holds in ASM Novara S.p.A., as explained above, is not currently exercisable, so the shareholding in ASM Novara S.p.A. is consolidated according to the equity method.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. govern the financial and operating policies of another entity, it has to take account of the.

(37) Consolidated Annual Report for 2011 Consolidation policies and procedures. When options are exercised, A2A SpA will measure the stake in ASM Novara S.p.A. in accordance with consolidation procedures for shareholdings. c) Option granted to the Municipality of Varese for the sale of 9.8% of Aspem S.p.A. and 10% of Varese Risorse S.p.A. A2A S.p.A. holds 90% of the shares of Aspem S.p.A., a company that provides local public services in the city of Varese and in other towns in the province of Varese. Under the shareholder agreement between A2A S.p.A. and the Municipality of Varese, the latter has the right, but not the obligation, to sell (put option) to A2A S.p.A. 9.8% of the share capital of Aspem S.p.A. and 10% of the share capital of Varese Risorse S.p.A. (90% controlled by Aspem S.p.A.). The two shareholdings have to be bought together within the same context. The Municipality of Varese can exercise its option after the expiry date of the period of nontransferability of the shares in Aspem S.p.A. and Varese Risorse S.p.A., which lasts for three years from the date of signing the shareholder agreement. These options have been valued according to the purchase value for Aspem S.p.A. and according to the enterprise value of Varese Risorse S.p.A. In line with paragraph 23 of IAS 32, the Group has booked to liabilities with associated counter entry under net equity, the present value of the estimated outlay which it will not be able to avoid if it exercises this option. The Annual Report at December 31, 2011 shows a liability to the Municipality of Varese, for the possible exercise of the put option on the shares of Aspem S.p.A. and Varese Risorse S.p.A., of 4 million euro, with a corresponding reduction in the equity pertaining to minority interests.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 36.

(38) Consolidated Annual Report for 2011 Consolidation policies and procedures. Highlight at December 31, 2011 and December 31, 2010 for joint ventures (consolidated at equity) Summary figures at December 31, 2011 Millions of euro. Ecodeco group companies 50% (*). Metamer 50%. INCOME STATEMENT Revenues from the sale of goods and services. 12.5. 10.5. Gross operating income. 1.2. 0.4. 9.8%. 3.8%. 0.7. 0.1. % of net sales Depreciation, amortization and write-downs Net operating income Result for the year. 0.5. 0.3. (0.3). 0.2. 13.6. 6.3. BALANCE SHEET Total assets Shareholders' equity Net debt. 1.2. 1.3. (3.1). 2.0. (*) Bellisolina S.r.l., Bergamo Pulita S.r.l. and Sed S.r.l... 37. Figures at December 31, 2011 for Transalpina di Energia S.r.l. and Edipower S.p.A. have not been provided as these companies have not approved their respective financial statements following the extraordinary operations they were involved in, as described in more detail in note 3 "Shareholdings and other non-current financial assets". Summary figures at December 31, 2010 Millions of euro. Edipower 20%. TransalEcodeco pina group di Energia companies 50% 50% (*). Metamer 50%. Revenues from the sale of goods and services Gross operating income % of net sales. 207.8. 5,541.5. 12.8. 11.0. 81.6. 683.5. 2.0. 0.3. 39.3%. 12.3%. 15.6%. 2.7%. Depreciation, amortization and write-downs. 55.6. 903.0. 1.2. 0.1. Net operating income. 26.0. (219.5). 0.8. 0.2. Result for the year. 10.9. (244.5). 0.2. 0.2. 12.7. 7.0. BALANCE SHEET Total assets. 803.8. 8,364.0. Shareholders' equity. 421.1. 1,761.0. 1.4. 1.3. Net debt. 221.7. 2,479.5. (2.6). (3.4). (*) Bellisolina S.r.l., Bergamo Pulita S.r.l. and Sed S.r.l.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. INCOME STATEMENT.

(39) Consolidated Annual Report for 2011. Accounting policies. Translation of foreign currency items The consolidated financial statements of the A2A Group are expressed in euro, which is also the currency of the economies in which the Group operates. Transactions in currencies other than the euro are initially booked at the exchange rate applicable on the day of the transaction. Monetary assets and liabilities denominated in foreign currency are translated into euro at the exchange rate ruling on the annual report date. Non-monetary items valued at historical cost in foreign currency are translated at the exchange rate ruling on the date when the transaction was first recorded. Non-monetary items shown at fair value are translated at the exchange rate ruling on the valuation date.. Tangible assets Industrial buildings are booked under tangible assets, whereas non-industrial buildings are classified as investment property. These are booked at historical cost, including any additional charges directly attributable to the asset and needed to bring it into service (e.g. transport, customs duty, installation and testing costs, notary and land registry office fees and any non-deductible VAT), increased by the present value of the estimated cost of restoring the location from an environmental point of view or dismantling the plant. Financial expenses, where directly attributable to the purchase or construction of the asset, are capitalised as part of the asset cost if the type of asset so warrants. If important components of tangible assets have different useful lives, they are accounted for separately according to the "component approach", giving each of them its own useful life for the purpose of calculating depreciation (the Component Approach). Land, whether occupied by residential or industrial buildings or devoid of construction, is not depreciated as they have an unlimited useful life, except for land used in production activities that is subject to deterioration over time (e.g. landfills, quarries).. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 38.

(40) Consolidated Annual Report for 2011 Accounting policies. Ordinary maintenance costs are wholly expensed to the income statement in the year they are incurred. Maintenance costs which add to the value of an asset are attributed to it for accounting purposes and depreciation charged in relation to the remaining useful life of the asset. Assets held under finance leases, or by way of agreements which may not explicitly resemble a finance lease but otherwise substantially transfer all risks and benefits of ownership to the A2A Group, are recognised as group assets at either the fair value or the present value of outstanding lease instalments, whichever is the lower. The corresponding liability to the lessor is shown in the balance sheet under financial payables. Tangible assets are shown net of accumulated depreciation and any write-downs. Depreciation is calculated from the year in which the individual asset enters service and is charged on a straight-line basis over the estimated useful life of the asset for the business. The estimated realisable value which is deemed to be recoverable at the end of their useful life is not depreciated. The useful life of each asset is reviewed annually and any changes, if needed, are made with a view to showing the correct value of the asset. The depreciation of freely transferable assets is calculated on a straight-line basis over the lower of the residual duration of the concession and the estimated useful life of the assets.. 39. Landfills are depreciated on the basis of the percentage filled, which is calculated as the ratio between the volume occupied at the end of the period and the total volume authorised. The main depreciation rates used, which are based on technical and economic considerations, • Buildings. 1.0%-. 17.3%. • Production plants. 1.0% -. 33.3%. • Transport lines. 1.4% - 100.0%. • Transformation stations. 1.8% - 33.3 %. • Distribution networks. 1.4% - 33.3 %. • Miscellaneaus equipment. 3.3% - 100.0%. • Mobile phones. 100.0%. • Furniture and fittings. 10.0% -. 25.0%. • Electric and electronic office machines. 10.0% -. 33.3%. • Vehicles. 10.0% - 25.0%. • Leasehold improvements. 12.5% -. 33.3%. Tangible assets are subjected to impairment testing if there are specific signs that they have suffered a loss of value. This test will be carried out in accordance with the method explained in the paragraph below on "Impairment of assets"; any write-downs can be reversed in subsequent periods if the reasons for them no longer apply. When an asset is disposed of or future economic benefits are no longer expected from using the asset, it is eliminated from the balance sheet and any gain or loss (i.e. the difference. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. are as follows:.

(41) Consolidated Annual Report for 2011 Accounting policies. between the disposal value and the carrying value) is booked to the income statement in the year of the elimination.. Intangible assets Intangible assets are identifiable non-monetary assets that cannot be seen, touched or physically measured, which are controlled by the enterprise and able to produce future economic benefits; The fact of being identifiable is to distinguish an intangible asset that has been acquired from goodwill; this requirement is normally met when: (i) The intangible asset is attributable to a legal or contractual right, or (ii) the asset is separable, in other words it can be sold, transferred, rented out or exchanged autonomously or as an integral part of other assets. Control by the enterprise consists of the right to enjoy the future economic benefits deriving from the asset and the possibility of limiting access to it by others. Intangible assets are reported in the financial statements at purchase or production cost, including ancillary charges, determined in the same way as for tangible assets. Intangible fixed assets produced internally are not capitalised but charged to income in the period in which the costs are incurred. Intangible assets with a definite useful life are reported in the financial statements net of the related accelerated amortization and permanent loss in value in the same way as for tangible assets. Changes in the expected useful life or in the ways in which the future economic benefits of an intangible asset are achieved by the Company are accounted for by suitably adjusting the period or method of amortization, treating them as changes in accounting estimates. The amortization applied to intangible fixed assets with a definite useful life is charged to the income statement in the cost category that reflects the function of the intangible asset concerned. Tangible assets are subjected to impairment testing if there are specific signs that they may have suffered a loss of value. This impairment test will be carried out in accordance with the method explained in the paragraph below on "Impairment of assets"; any write-downs can be reversed in subsequent periods if the reasons for them no longer apply. Intangible assets with an indefinite useful life and those that are not yet available for use are subjected to impairment testing on an annual basis, whether or not there are specific signs that they have suffered a loss of value, using the methods explained below in the paragraph entitled “Impairment of assets". Write-downs of goodwill cannot subsequently be written back.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 40.

(42) Consolidated Annual Report for 2011 Accounting policies. Gains or losses on disposal of an intangible asset are calculated as the difference between the disposal value and the carrying value of the asset and are booked to the income statement at the time of the disposal. The following amortization rates are applied to intangible assets with a definite useful life: • Industrial patents and intellectual property rights. 12.5%-. 33.3%. • Concessions, licences, and trademarks. 6.7 % -. 33.3%. • Improvements to third party assets. 12.5 % -. 33.3%. Impairment of tangible and intangible assets Tangible and intangible assets are subjected to impairment testing if there are specific signs that they have suffered a loss of value. Goodwill, other intangible assets with an indefinite useful life or assets not available for use are tested for impairment every year, or more frequently if there are signs that the assets may have suffered a loss in value. impairment testing consists of comparing the recoverable amount of the asset with its net. 41. book value. The recoverable amount of an asset is the higher of its fair value, net of selling costs, and its value in use. To determine an asset's value in use, the entity calculates the present value of the estimated future cash flows, before tax, applying a pre-tax discount rate, which reflects current market valuations of the time value of money and the specific risks to which the asset is exposed. If the recoverable amount of an asset is lower than the book value, a loss is booked to the income statement. If a loss has been reported for an asset, other than goodwill, is subsequently eliminated or reduced, the book value of the asset is raised up to the new had without any impairment loss. Write-backs of impairment losses are booked immediately to the income statement. When the recoverable value of the individual asset cannot be estimated, this value is based on the cash generating unit (CGU) or group of CGUs that the asset belongs to and/or with which it could reasonably be associated. The CGUs have been identified according to the organisational and business structure, as homogeneous aggregations that generate independent incoming cash flows deriving from the continuous use of the assets attributed to them.. Emission quotas and green certificates Different accounting policies are applied to quotas or certificates held for own use in the “Industrial Portfolio”, and those held for trading purposes in the “Trading Portfolio”.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. estimate of recoverable value, but without it exceeding the value that the asset would have.

(43) Consolidated Annual Report for 2011 Accounting policies. Surplus quotas or certificates held for own use which are in excess of the company's requirements in relation to the obligations accruing at year end are booked to other intangible assets at the actual cost incurred. Quotas or certificates assigned free of charge on the other hand, are booked at a zero value. Given that they are assets for instant use, they are not amortised but subjected to an impairment test. The recoverable amount is the higher of its value in use and its market value. If, on the other hand, there is a deficit because the requirement exceeds the quotas or certificates in portfolio at the balance sheet date, an estimate is made of the amount needed to meet the residual obligation based on any purchase contracts, spot or forward, already signed at the balance sheet date; otherwise, on the basis of market prices. Quotas or certificates held for trading in the “Trading Portfolio” are booked to inventories and measured at the lower of purchase cost and estimated realisable value based on market trends. Quotas or certificates assigned free of charge on the other hand, are booked at a zero value. Market value is established on the basis of any sales contracts, spot or forward, already signed at the balance sheet date; otherwise, on the basis of market prices. 42. Shareholdings in subsidiaries, associates and joint ventures Subsidiaries are companies in which the parent company alone has the power to determine the strategic decisions of the business in order to obtain the associated benefits. Generally, this control is presumed to exist when a company holds either directly or indirectly more than half of exercisable voting rights at the general shareholders' meeting, also considering the socalled potential voting rights, i.e. voting rights deriving from convertible financial instruments. Associates are companies in which the parent has a significant influence on strategic voting rights deriving from convertible financial instruments; a significant influence is presumed when A2A S.p.A. holds, either directly or indirectly, more than 20% of exercisable voting rights at the general shareholders' assembly. A joint venture is a contractual agreement whereby two or more parties undertake an incomegenerating activity subject to joint control. Equity investments in associates and joint ventures are carried at equity in the consolidated financial statements.. Long-term construction contracts in progress Long-term construction contracts currently in progress are valued on the basis of the contractual fees that have accrued with reasonable certainty, according to the stage of. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. decisions, albeit without overall control, also considering so-called potential voting rights, i.e..

(44) Consolidated Annual Report for 2011 Accounting policies. completion (known as "cost to cost" method), so as to allocate the revenues and net result of the contract to the individual periods to which they belong, in proportion to the progress being made on the project. Any difference, positive or negative, between the value of the contracts and the advances received is booked respectively to the asset or liability side of the balance sheet. In addition to the contractual fees, contract revenues include any variants, price revisions and incentive awards to the extent that probably represent actual revenues that can determined with a reasonable degree of reliability. Ascertained losses are recognised independently of the stage of completion of the contracts.. Inventories Inventories of materials and fuel are valued at the lower of weighted average cost and market value at the period-end. Weighted average cost is determined for the period of reference and for each inventory code. Weighted average cost includes any additional costs (such as sea freight, customers charges, insurance, lay or demurrage days in the purchase of fuel).. 43. Inventories are constantly monitored and, whenever necessary, obsolete stocks are written down with a charge to the income statement.. Financial instruments Financial assets and liabilities are accounted for as laid down in IAS 39 – “Financial instruments: recognition and measurement”. Financial instruments include trading investments and investments that are available for sale operations, and other current financial assets such as cash and cash equivalents. They do not include investments in subsidiaries, joint ventures and associates. The latter include bank deposits, readily negotiable securities used as temporary investments of surplus cash and financial receivables due within three months. Financial instruments also include financial payables (bank loans and bonds), trade payables, other payables and other financial liabilities and derivatives. Financial assets and liabilities are recognised at the time that the contractual rights and obligations foreseen by the instrument arise. Initially, all financial assets are recognised at fair value, including ancillary charges (purchase/issue costs) in the case of assets and liabilities not measured at fair value through profit and loss.. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. and non-current receivables and loans, trade and other receivables deriving from company.

(45) Consolidated Annual Report for 2011 Accounting policies. Measurement subsequent to initial recognition depends on which of the following categories the financial instrument is classified as: • non-derivative financial assets and liabilities at fair value through profit and loss include: –. financial assets and liabilities held for trading (HFT), i.e. with the intention of repurchasing or reselling them in the short term.. –. financial liabilities which on initial recognition have been designated as being at fair value through profit and loss.. • other non-derivative financial assets and liabilities, including: –. loans and receivables (L&R).. –. investments held to maturity (HTM).. –. financial liabilities valued at amortized cost.. • available-for-sale financial assets (AFS). • derivatives. The following is a detailed explanation of the accounting policies applied in measuring each of the above categories after initial recognition: • non-derivative fair value financial assets and liabilities booked to the Income Statement are measured at fair value with any changes also booked to the income statement. • other non-derivative financial assets and liabilities with fixed or determinable payments other than investments are valued at amortised cost. Any transaction costs incurred during the acquisition or sale are adjusted directly on the nominal value of the asset or liability (e.g. issue premium or discount, loan acquisition costs, etc.). Financial income and charges are then remeasured on the basis of the effective interest rate method. Financial assets are assessed regularly to see if there are any signs that they have suffered impairment. In the assessment of receivables in particular, account is taken of the solvency of the creditors, as well as the characteristics of credit risk, which is indicative of the individual payment capacity of the individual debtors. Any impairment losses are booked as a cost to the income statement. This category includes the investments held with the intent and the capacity for them to be held to maturity, non-current loans and receivables, trade receivables and other receivables originated by the assets of the business, financial payables, trade payables, other payables and other financial liabilities. • available-for-sale financial assets are non-derivative financial assets that are not classified as financial assets at fair value and recognized in the Income Statement, or other financial assets, which therefore makes them a residual item. They are measured at fair value and any gains or losses generated are booked directly to equity until they are written-down or sold, at which stage they are transferred to the income statement. Losses booked directly to equity are in any case reversed and booked to the income statement, even if the financial asset has not been eliminated, if there is objective evidence that the asset has suffered impairment. Unlisted investments with a fair value that cannot be reliably. WorldReginfo - ffa36ede-2a92-40a0-8619-4584a8310275. 44.