2017 Financial Annual Report

Notice of shareholders' meeting

Please note that the Ordinary Shareholders' Meeting convening notice has been published on the company website (www.primaindustrie.com). The ordinary and extraordinary session will be held at the Associated Notary's Office Nardello Stefani Marcoz in Corso Duca degli Abruzzi no. 18, Turin at 10.00 am on April 19th 2018 at the first call, on April 20th, 2018 at PRIMA INDUSTRIE HQTC, Strada Torino-Pianezza no. 36, Collegno (TO) at the second call and on April 23rd, 2018 at 10.00 am at PRIMA INDUSTRIE HQTC, Strada Torino-Pianezza no. 36 Collegno (TO) at the third call to discuss the following:

Agenda

ORDINARY SESSION

1. 2017 financial statements of Finn-Power Italia Srl, merged into Prima Industrie SpA: consequent resolutions.
1. 2017 Financial Statements and related reports: consequent resolutions. Review of the 2017 consolidated financial statements and non-financial statement. Allocation of the net income and distribution of dividends.
1. Remuneration report in accordance with Article 123-ter of the T.U.F. (Consolidated Law on Finance)
1. Resolutions on the acquisition and sale of treasury shares in accordance with articles 2357 and 2357-ter of the Italian Civil Code, subject to revocation of the resolution of the general meeting of April 11th, 2017.
1. Approval of an Incentive plan for management with the allocation of shares in accordance with Article 114 bis of the Consolidation Law on Finance (TUF).

EXTRAORDINARY SESSION

1. Proposal to assign powers to the Board of Directors to increase share capital, in accordance with Article 2443 of the Italian Civil Code, by tranches, with the exclusion of option rights up to 10% for a period of five years from the date of the resolution, in accordance with Article 2441, paragraph 4, second sentence of the Italian Civil Code.
1. Changes to the Article 8 of the articles of association.
1. Proposal to assign powers to the Board of Directors, in accordance with Article 2443 of the Italian Civil Code, for a period of five years from the date of the resolution, to increase share capital in several tranches, in accordance with Article 2349 of the Italian Civil Code for the purposes of share assignment in accordance with Article 114 of the Consolidated Law on Finance.

It is hereby stated that, given the shareholding structure of the Company, the Board may be constituted and may deliberate on April 20th, 2018.

Entitlement to attend

Those entitled to attend the meeting are the holders of voting rights at the end of the accounting day of April 10th, 2018 (record date) and for which the Company has received notification by the qualified intermediary. In accordance with the law, entitled voters may appoint a proxy to represent them at the Meeting. The proxy forms are available on the Company website (www.primaindustrie.com) and they will be sent to those who request them by telephone +39 011 41031.

Documentation

The Meeting convening notice has been published on the Company website (www.primaindustrie.com) and contains all the information and detailed instructions on the rights exercisable by Shareholders (submission of questions and additions to the agenda).

Reports and proposals on the topics on the agenda are available to the public at the registered office, on the company website, and on the storage website (), within the time limits required by law, and will be sent to anyone requesting them.

Gianfranco Carbonato Executive Chairman

Message to stakeholders

2017: the best of our 40 sparkling years

Ladies and Gentlemen,

in the year of our 40th anniversary we are proud to share with you our best results ever.

The year 2017 has been indeed influenced by the positive situation of most of our reference markets, both from a geographic and an industrial perspective. Prima Industrie has taken advantage by this favorable macroeconomic scenario delivering revenues of 449.5 million EUR, up 14.1% from previous year.

Order intake of the year was even higher at 481 million EUR, generating a year-end backlog of 170 (excluding after sale services), up 18.5% on 2016.

Higher turnover has boosted up profitability with adjusted EBITDA (excluding non-recurring items) at 10% (45 Euro million, up 25%) in line with analysts' consensus and with our business plan 2016-2019.

Consolidated Net Profit was 18.7 million EUR, significantly increasing (+83%) versus previous year. This result also benefited from capital gain achieved by Prima Electro after partial sale of Electro Power System shares as well as a reduced Group tax rate due to tax losses carried forward.

The outstanding cash generation in 2017 reduced the Net Indebtedness from 84.2 million EUR at December 31, 2016 to 69.6 million EUR bringing the Group to a ratio Net Debt/Equity of 0.47 and Net Debt/EBITDA of 1.6.

In the light of above excellent results, we have celebrated 40 years from the establishment of Prima by publishing a book on our history, from the early years as an engineering company through our IPO in 1999 and the acquisition of Finn-Power in 2008 arriving to the last decade of strong international expansion, which led the Group to be today a global player in its reference market.

Considering both internal and external growth, the Group turnover CAGR since the Stock Listing was an amazing 12% over a 18 years period!

The Group good results in the year 2017 were supported by the excellent performance of our 3D Laser business, which enjoyed strong investments from automotive and aerospace markets. Also significant was growth of Systems sales, driven by Industry 4.0 technological shift to connected machines and automated production lines.

In terms of geographical markets, we have recorded further growth in North America and China and in other Asian markets.

Europe has also enjoyed a strong growth and the best performance was registered in Italy (+66% machines order intake) also thanks to Government tax incentives to high-tech investments, which have been sluggish for too many years.

R&D activity was very intense, as usual, amounting to 5.2% of consolidated revenues.

In the Machinery Division, Prima Power, the main developments of the year related to Laser Next 2141 (the biggest size of the family) and a new 2D laser machine concept specifically designed for larger size applications and destined initially to the Chinese and Asian markets.

Prima Electro Division focused its R&D activity on further expansion of the CF fiber laser family, where the new higher power CF6000 was developed and is currently under test and validation process. Meanwhile, the development activity on high-power diodes is successfully proceeding. Innovative concepts have been patented and recently presented at the most important event of the sector, Photonics West 2018, in San Francisco.

During the year a third Division was established, Prima Additive, gathering all Group competences both in Direct Energy Deposition and Powder Bed Fusion technologies. The new Division will start its first product deliveries to the market during 2018 and will be localized within the year in a new building which will be constructed next to the Company HQTC in Collegno.

Also Finn-Power OY has started construction of a new modern and more efficient building (factory & offices) in the City of Seinäjoki, replacing current location in Kauhava. The new plant is being built-to-suit by local municipality finance company and will be rented to Finn-Power which will move in after summer 2018.

In the last part of the year the management has carried out an important financial project relating to renewal of the whole Group Medium/Long Term financial structure (Bank loans and Bond) with the aim of reducing interest rates and extending maturities.

We have been happy to observe during the past year an outstanding performance of our Market Cap (increased by 114%), driven by the above mentioned results as well as by a general positive sentiment of financial markets in Italy.

Our shareholders will also appreciate our proposal to increase the Dividend payment from 0.30 Euro to 0.40 Euro per share (+33%).

For the year 2017 the Company publishes for the first time its Sustainability Report, so highlighting that our results were achieved also through a responsible management focused on value creation combined with sustainable growth.

Looking forward, at the moment we don't see any sign of slow down coming from our reference markets, notwithstanding global uncertainties at geopolitical level. This makes us confident in further improving our results in line with our business plan expectations.

In order to thank our employees for their essential contribution to these results and share with them our 40 years anniversary, we have organized a company event last December which we believe they appreciated and will remember in the coming years.

In conclusion we would like to thank in advance our stakeholders and friends for supporting the Group further development in the future.

Yours sincerely,

Gianfranco Carbonato Chairman of the Board

Index

09 Chapter 1. Prima Industrie SpA Management and Control
13 Chapter 2. Prima Industrie Group Structure
17 Chapter 3. Prima Industrie Group Profile
21 Chapter 4. Introduction

25 Chapter 5. Group Management Report

26 Group results summary
26 2017 significant events
28 Macroeconomic context
29 Economic performance
34 Assets, liabilities and financial position
36 Impairment test
36 Business performance
37 Personnel
37 Operations with related parties
38 Management of the risks for Prima Industrie Group
43 Stock trend and treasury stock
43 Shareholding structure
44 Corporate governance
45 Consolidated non-financial statement
46 Application of legislative decree 231/2001
46 Investments made for safety in the workplaces
46 Foreseeable developments in management
47 Significant events occuring after financial year closing
47 Atypical and unusual transactions
48 Management and coordination activities
48 Opt-out regime

51 CHAPTER 6. Consolidated Financial Statements of Prima Industrie Group at December 31st, 2017

52 Consolidated statement of financial position
54 Consolidated income statement
55 Consolidated statement of comprehensive income
56 Consolidated statement of changes in shareholders' equity
58 Consolidated cash flow statement
60 Consolidated statement of financial position pursuant to Consob n. 15519 of July 27th, 2006
62 Consolidated income statement pursuant to Consob n. 15519 of July 27th, 2006
63 Consolidated cash flow statement pursuant to Consob n. 15519 of July 27th, 2006

67 Chapter 7. Description of Accounting Principles

68 Consolidation principles

69 Accounting standards applied
82 Variations to accounting principles

85 Chapter 8. Explanatory Notes to the Consolidated Financial Statements at December 31st, 2017

122 Consolidated financial statements at December 31st, 2017 declaration

125 Chapter 9. Prima Industrie SpA Financial statements December 31st, 2017

126 Statement of financial position
128 Income statement
129 Comprehensive income statement
130 Statement of changes in shareholders' equity
132 Cash flow statement
134 Statement of financial position pursuant to Consob n.15519 of July 27th, 2006
136 Income statement pursuant to Consob n.15519 of July 27th, 2006
137 Cash flow statement pursuant to Consob n.15519 of July 27th, 2006

141 Chapter 10. Description of Accounting Principles

155 Chapter 11. Explanatory Notes to Financial Statements at December 31st, 2017

182 Summary of key figures of the last financial statements of subsidiaries
185 Information pursuant to article 149-duodecies of Consob regulation Prima Industrie Group
186 Financial statements as at December 31st, 2016 declaration

189 Annexes

190 Annex 1 Consolidation area
191 Annex 2 "Non-gaap" performance indicators
192 Annex 3 Currency exchange rates

Report of the independent auditors on the financial statements to December 31, 2017

Report of the independent auditors on the consolidated financial statements to December 31, 2017

Report of the board of statutory auditors on the financial statements to December 31, 2017

Report of the board of statutory auditors on the consolidated financial statements to December 31, 2017

6 7

Prima Industrie SpA Management and Control

Chapter 1. Prima Industrie SpA Management and Control

Board of Directors		Strategic Committee
Executive Chairman	Gianfranco Carbonato	Chairman	Gianfranco Carbonato
Managing Directors	Ezio G. Basso (1) Domenico Peiretti (2)	Members	Ezio G. Basso Domenico Peiretti Paolo Cantarella
Donatella Busso Independent Directors Paolo Cantarella Carla Patrizia Ferrari Paola Gatto			Mario Mauri Michael R. Mansour Marina Meliga
	Mario Mauri	Board of Statutory Auditors
	Marina Meliga	Chairman	Franco Nada
Other Directors	Rafic Y. Mansour Michael R. Mansour	Regular Auditors	Maura Campra Roberto Petrignani
Internal Control Committee		Alternate Auditors	Roberto Coda Gaetana Laselva
Chairman	Donatella Busso
Members	Paolo Cantarella Carla Patrizia Ferrari	Audit Company PricewaterhouseCoopers S.p.A.
Remuneration Committee
Chairman	Mario Mauri	Expiry of Mandates and
Members	Paola Gatto	Appointments
	Rafic Y. Mansour	The Board of Directors shall remain in office until the approval of 2019 Financial Statements.
Operations with Related parties Committee		The Board of Statutory Auditors shall remain in office until the approval of 2018 Financial Statements.
Chairman	Donatella Busso	The Audit company was	appointed by the
Members	Paola Gatto Marina Meliga	Stockholders's Meeting held on April 11th, 2017 for the period 2017-2025.

(1) Ezio G.Basso is also the General Manager of PRIMA INDUSTRIE SpA (2) Domenico Peiretti is also the Managing Director and General Manager of PRIMA ELECTRO SpA

2 2017 Financial Annual Report

Prima Industrie Group Structure

Chapter 2. Prima Industrie Group Structure

Prima Industrie Group Profile

Chapter 3. Prima Industrie Group Profile

The PRIMA INDUSTRIE Group is a market leader in the development, manufacture and sale of laser systems for industrial applications and of machines to process sheet metal, besides in the fields of industrial electronics and laser sources.

The Parent Company PRIMA INDUSTRIE SpA, established in 1977 and listed in the Italian Stock Exchange since 1999 (currently MTA - STAR segment), designs and manufactures high-power laser systems for cutting, welding and surface treatment of three-dimensional (3D) and flat (2D) components.

The PRIMA INDUSTRIE Group boasts 40 years of experience and has over 13,000 machines installed in more than 70 Countries. Owing also to the acquisition of the FINN-POWER Group in February 2008, it has stably ranked among world leaders in the sector of sheet metal processing applications. In recent years, the Group has reorganized its structure, branching its business in the following two divisions:

PRIMA POWER for laser machines and sheet metal processing;
PRIMA ELECTRO for industrial electronics and laser technologies.

The PRIMA POWER division includes the design, manufacture and sale of:

cutting, welding and punching machines for three-dimensional (3D) and two-dimensional (2D) metallic components;
sheet metal processing machines that use mechanical tools (punchers, integrated punching and shearing systems, integrated punching and laser cutting systems, panel bending, bending machines and automated systems).

This division owns manufacturing plants in Italy (PRIMA INDUSTRIE SpA and FINN-POWER ITALIA Srl), in Finland (FINN-POWER OY), in the United States (PRIMA POWER LASERDYNE Llc.), in China (PRIMA POWER Suzhou Co. Ltd.) and has direct sales and customer service facilities in France, Switzerland, Spain, Germany, the United Kingdom, Belgium, Poland, Czech Republic, Lithuania, Hungary, Russia, Turkey, USA, Canada, Mexico, Brazil, China, India, South Korea, Australia and the United Arab Emirates.

The PRIMA ELECTRO division includes the development, construction and sale of electronic power and control components, and high-power laser sources for industrial applications, intended for the machines of the Group and third customers. The division has manufacturing plants in Italy (PRIMA ELECTRO SpA) and in the United States (CONVERGENT - PHOTONICS Llc.), as well as sales & marketing facilities in the United Kingdom and China.

After 40 years of its establishment, the mission of the PRIMA INDUSTRIE Group continues to be that of systematically expanding its range of products and services and to continue to grow as a global supplier of laser systems and sheet metal processing systems for industrial applications, including industrial electronics, markets that demand top-range technology and where growth rates are quite good, though in the presence of a cyclical context.

This Company draft of Financial Statement has been approved by the Board of Directors on March 2nd, 2018.

4 2017 Financial Annual Report

Introduction

Chapter 4. Introduction

This Financial Annual Report at December 31st, 2017 of PRIMA INDUSTRIE Group was prepared in accordance with the provisions of article 154-ter, paragraph 5 of Consolidated Finance Law and subsequent amendments as well as the issuer's Regulation issued by CONSOB. It was drafted in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board officially approved by the European Union and with applicable Italian statutory regulations.

These financial statements were approved by the Board of Directors on March 2nd, 2018 and is published in accordance with the provisions of article 2.2.3 of Borsa Italiana SpA Regulations applicable to issuers listed in the STAR segment.

This Financial Annual Report has been audited.

It should be noted that, to improve disclosure of its financial results, the Group has decided, beginning financial year 2017, to present the income statement according to functional area, rather than by expenditure type, as done until the Consolidated Financial statements for the year 2016 (approved by the Shareholders' Meeting on April 11th, 2017). Therefore, the financial data presented in this Annual Financial Report are presented according to functional area and, to facilitate comparison of the data from the current year with those of the corresponding period of the previous financial year have been reclassified in the same manner.

Presentation of costs based on their allocation is considered more representative than disclosure by type of expenditure. The form chosen conforms to internal reporting and business management procedures and is in line with international practice within the sector in which the Group operates.

"Cost of sales" includes costs relating to the functional areas that participated directly or indirectly to the generation of revenues with the sale of goods and services. Therefore this item includes the production or purchase cost of products and goods sold. It also includes all costs for materials, processing and overheads directly attributable to production. Furthermore, it contains write-downs on inventories, provisions to cover warranty costs on sold goods, transport and insurance costs incurred for deliveries to customers and sales commissions to agents or third-party distributors.

Group Management Report

Chapter 5. Group Management Report

Group results summary

VALUES IN EURO THOUSAND	DECEMBER 31, 2017	DECEMBER 31, 2016	VARIATIONS	%

ORDER INTAKE	480,640	426,511	54,129	12.7%
BACKLOG	169,865	143,378	26,487	18.5%
REVENUES	449,503	393,886	55,617	14.1%
EBITDA	43,178	35,409	7,769	21.9%
EBITDA %	9.6%	9.0%	0.6%	-
EBITDA Adj	45,063	36,135	8,928	24.7%
EBITDA Adj %	10.0%	9.2%	0.9%	-
EBIT	26,296	18,528	7,768	41.9%
EBIT %	5.9%	4.7%	1.1%	-
EBIT Adj	28,205	20,282	7,923	39.1%
EBIT Adj %	6.3%	5.1%	1.1%	-
NET RESULT	18,668	10,160	8,508	83.7%
FCF	21,878	18,879	2,999	15.9%
NFP	(69,632)	(84,215)	14,583	17.3%
HEADCOUNT	1,781	1,664	117	7.0%

(% calculated over the revenues, headcount expressed in units)

For the indices definition, see Annex 2 "Non – GAAP performance indicators".

2017 significant events

Appointment of new Board of Directors and related Committees

On April 11th, 2017, the Shareholders' Meeting of Prima Industrie SpA appointed the new Board of Directors to remain in office until approval of the financial statements of 2019. The Board is made up as follows: Gianfranco Carbonato (confirmed as Chairman of the Board of Directors), Ezio Giovanni Basso, Domenico Peiretti, Rafic Mansour, Michael Mansour, Mario Mauri, Donatella Busso, Paolo Cantarella, Carla Patrizia Ferrari, Paola Gatto and Marina Meliga. The directors Mario Mauri, Donatella Busso, Paolo Cantarella, Paola Gatto, Marina Meliga and Carla Ferrari have declared that they possess the independence requisite referred to in article 148, paragraph 3 of the Consolidated Finance Law (applicable in accordance with article 147-ter, paragraph 4 of the Consolidated Finance Law) and the Code of Conduct endorsed by Borsa Italiana SpA, and as applied by Prima Industrie SpA and specified in the Annual Report on Corporate Governance and Ownership Structure. The independence requirements and the requirements of propriety were immediately verified and confirmed by the Board of Directors after appointment by the Shareholders' Meeting. In that session, the Board also:

assigned executive powers to the Chairman, Gianfranco Carbonato, appointing him Executive Chairman, and appointed Ezio Giovanni Basso and Domenico Peiretti as Managing Directors, assigning them operational powers;

appointed Gianfranco Carbonato, the Executive Chairman to be the director in charge of the internal control and risk management system, with the task setting up and maintaining an effective internal control and risk management system;
appointed the following members to the Remuneration Committee: Mario Mauri, Rafic Mansour and Paola Gatto;
appointed the following members to the control and risk committee: Donatella Busso (Chairwoman), Paolo Cantarella and Carla Ferrari;
appointed the following members to the Committee for operations with related parties: Donatella Busso (Chairwoman), Marina Meliga and Paola Gatto, with the task of expressing the opinions required by the applicable CONSOB regulation;
appointed the following members to the Strategies Committee: Gianfranco Carbonato, Ezio Giovanni Basso, Domenico Peiretti, Paolo Cantarella, Mario Mauri, Michael Mansour and Marina Meliga;
named Donatella Busso as the Lead Independent Director (in accordance with the Code of Conduct recommended by Borsa Italiana SpA).

Appointment for Statutory Audit

On April 11th, 2017, the Shareholders' Meeting of Prima Industrie SpA assigned PricewaterhouseCoopers SpA the task of auditing the annual and consolidated financial statements for the period 2017-2025. The appointment was proposed by the Board of Statutory Auditors, which took into consideration the firm's knowledge of the sector, the methodology presented, its organisation and its technical suitability to carry out the assignment, as well as its annual fee, which was deemed appropriate for the process.

Authorization to purchase treasury stock

The Shareholders' Meeting on April 11th, 2017 has authorized the purchase, in one or more tranches, for a period of eighteen months, of ordinary shares of Prima Industrie S.p.A. for a maximum number of shares equal to 500,000, establishing an equivalent value for the purchase of 10,000,000 Euro, allowing as of now the disposal of treasury stock, in one or multiple times, without time limits, in the methods deemed most appropriate in the interests of the Company and in compliance with applicable regulations.

Purchases, primarily aimed at supporting the liquidity of the market and at the service of any free allocation to shareholders, even dividends in kind will be made on regulated markets according to operating procedures established in the markets organization and management regulations according to the operating methods established in the Italian Stock Exchange S.p.A. regulation, in accordance with Art. 144 bis, paragraph 1, subparagraph b), of Consob Regulation no. 11971/99 and subsequent amendments.

Sale of Finn-Power Italia to Prima Industrie SpA by Finn-Power OY

On October 11th, 2017 PRIMA INDUSTRIE SpA bought the entire share capital of FINN-POWER ITALIA Srl from FINN-POWER OY. Since this transaction took place within the Group, it had no impact either on the scope of consolidation or on segment reporting.

The transaction is related to and functional to the process of organisational integration undertaken by the PRIMA INDUSTRIE Group and concluded with the merger of FINN-POWER ITALIA Srl into PRIMA INDUSTRIE SpA, which took place on February 1st, 2018. For more information on the transaction, see the section "Significant events occurring after the financial year closing ".

Prima Power Laserdyne Subpoena

The U.S. company PRIMA POWER LASERDYNE, indirectly 100% owned by PRIMA INDUSTRIE SpA (through FINN-POWER Oy and PRIMA POWER NORTH AMERICA Inc.) received a Federal Grand Jury subpoena requesting information relating to certain of PRIMA POWER LASERDYNE's exports and related activities since 2011. PRIMA POWER LASERDYNE, with the support of the Law Firms appointed to assist the Company on this matter, is in the process of responding to the subpoena and cooperating with the Government's investigation. On the basis of the current available information, it is not possible to opine with respect to the exposure, if any, to PRIMA POWER LASERDYNE in connection with this matter. Legal costs incurred so far have been regularly charged to PRIMA POWER LASERDYNE income statements.

Macro-economic context

The expansion of global economic activity continues to be robust and widespread. However, the general underlying weakness of inflation remains. The short-term outlook for growth is favourable.

The moderate but widespread economic expansion seen in 2017 seems likely to continue into 2018. In some areas, the outlook even seems to have improved from a few months ago. The restrictive monetary stance could accelerate the upturn. Even if inflationary trends continue to be moderate, there are signs of excessive financial exuberance, however which concern credit in only a few countries. However, the risks of a downturn remain negligible. For now, the outlook is surprisingly calm and only unexpected geopolitical events could disrupt it in 2018.

Over the last three months, consensus forecasts for economic growth in advanced countries have been revised upwards: by one tenth for the USA, the UK and Japan, and by 0.3 percentage points for the Eurozone. This revision reflects the positive surprises that the economic data flows have continued to provide in recent months in both advanced and emerging economies. They are also indicative of the boost in manufacturing that has emerged from surveys.

One comforting feature of this phase is that expectations seemed to be well-founded and subject to far fewer risks than usual.

Many emerging countries underwent a slowdown or even a recession in 2016, but saw growth accelerate to 4% in 2017. The trend in their economic expansion should continue into 2018.

In terms of the geopolitical risks that significantly affected perceptions of the economy and markets, the situation is undoubtedly complex, with the two main crisis hotspots being North Korea (due to its proximity to several drivers of the global economy) and the Persian Gulf (due to the rivalry between Saudi Arabia and Iran). In Europe, after the French presidential vote, the electoral appointments in other countries did not have the same destabilising potential. Indeed, no particular negative effects were observed in relation to the economy. The Italian general election could lead to higher risk premiums on the country's sovereign debt, but not to the extent of affecting economic activity.

According to Intesa Sanpaolo's Research and Studies Department, whose forecasts are presented, the Eurozone economy is expanding and growth is expected to reach 2.3% in 2017. The US economy also closed 2017 with another satisfactory result: growth above potential, low inflation, rising markets, no volatility or signs of financial instability. However, the recovery has been well underway for some time (third longest recovery run since the Second World War). It is also important to assess the impact of the tax reform going forward into 2018. In China, the economy expected to grow by 6.8% in 2018.

Goldman Sachs is also optimistic about world economic growth in 2018. For the first time since 2010, the world's economic performance is exceeding most predictions and Goldman Sachs expect this growth to continue throughout 2018. The global GDP forecast for 2018 is 4.0%, up from 3.7% in 2017 and improvements are expected across most and emerging economies.

Growth is distributed as follows: USA (GDP +2.5%), Eurozone (GDP +2.2%), Japan (+1.6%) and UK (+1.3%). The strength forecasts carry over to the emerging world as well, with differences seen between countries. Goldman Sachs is optimistic about India and Russia, where the recent weakness is giving way to growth. Brazil is also expected to continue improving. The outlook for China, however, points to a difficult time ahead. The biggest short-term risks to the outlook are likely political, ranging from the future of NAFTA to the Italian election and the risk of military conflict on the Korean peninsula.

Economic performance

The company has closed 2017 financial year, reaching a turnover of 449,503 thousand EUR, up from 2016 financial year by 14.12%.

Growth in turnover is a steady trend over time and in the last three years revenue growth shows an increase (CAGR) of 8.6% (as can be seen from the chart below).

This positive trend is, in addition to the good performance of the reference markets, the result of the significant investments made by the Group over the last few years in research and development (renewal of the product range and development of the fiber laser sources) and for commercial strengthening. The Group's excellent results in 2017 were sustained by the excellent performance of the 3D laser machinery business, which benefited from the important investments made by the automotive and aerospace markets. Growth in the sale of the Systems was also significant, sustained by the technological evolution of Industry 4.0, concentrated in interconnected machines and automated production lines.

Below are the main economic indicators of the Group broken down by Division, compared with the same period of the previous year:

Values in euro thousand
DECEMBER 31ST, 2017	REVENUES	GROSS MARGIN	GROSS MARGIN %	EBITDA	EBITDA %	EBIT	EBIT %	NET RESULT
PRIMA POWER	423,118	99,104	23.4%	41,137	9.7%	27,574	6.5%	18,045
PRIMA ELECTRO	52,325	10,586	20.2%	2,167	4.1%	(1,166)	-2.2%	839
ELIMINATIONS	(25,940)	(283)	-1.1%	(126)	-0.5%	(112)	-0.4%	(216)
GROUP	449,503	109,407	24.3%	43,178	9.6%	26,296	5.9%	18,668

(% calculated over the revenues)

Values in euro thousand

DECEMBER 31ST, 2016	REVENUES	GROSS MARGIN	GROSS MARGIN %	EBITDA	EBITDA %	EBIT	EBIT %	NET RESULT
PRIMA POWER	368,669	86,509	23.5%	34,363	9.3%	22,139	6.0%	12,158
PRIMA ELECTRO	42,222	9,750	23.1%	1,257	3.0%	(3,415)	-8.1%	(1,506)
ELIMINATIONS	(17,005)	(276)	-1.6%	(211)	-1.2%	(196)	-1.2%	(492)
GROUP	393,886	95,983	24.4%	35,409	9.0%	18,528	4.7%	10,160

(% calculated over the revenues)

Values in euro thousand

VARIATIONS	REVENUES	GROSS MARGIN	GROSS MARGIN %	EBITDA	EBITDA %	EBIT	EBIT %	NET RESULT
PRIMA POWER	54,449	12,595	23.1%	6,774	12.4%	5,435	10.0%	5,887
PRIMA ELECTRO	10,103	836	8.3%	910	9.0%	2,249	22.3%	2,345
ELIMINATIONS	(8,935)	(7)	-0.1%	85	1.0%	84	0.9%	276
GROUP	55,617	13,424	24.1%	7,769	14.0%	7,768	14.0%	8,508

(% calculated over the revenues)

Following is the consolidated revenues geographical breakdown at December 31st, 2017 compared with same period of the previous year:

REVENUES		DECEMBER 31, 2017	DECEMBER 31, 2016
	Euro thousand	%	Euro thousand	%
EMEA	242,240	53.9	226,094	57.4
AMERICAS	118,016	26.3	94,331	23.9
APAC	89,247	19.8	73,461	18.7
TOTAL	449,503	100.0	393,886	100.0

The above table shows that Group turnover for 2017 (compared with 2016) rose in all areas, with a significant increase of 23,685 thousand EUR in the Americas, 16,146 thousand EUR in EMEA and 15,786 thousand EUR in APAC.

The Group generated consolidated revenues in EMEA of 242,240 thousand EUR. In the Italy and Ex-Yugo area, sales were around 74 EUR million or 16.5% of consolidated turnover; in Northern Europe it was 7.2%, in Russia and Eastern Europe 8.1%, in Spain 6.2% and Germany 5.3%.

Particularly significant was the order acquisition of machines in Italy, which grew by almost 66% in the 2017, also thanks to the incentives of the "Industry 4.0" national plan.

AMERICAS's revenue share grew significantly over compared to 2016, from 94,331 thousand EUR to 118,016 thousand EUR (+ 25.1%); much of this growth is attributable to the United States and Mexico.

As far as APAC countries are concerned, revenues grew compared to the year 2016, from 73,461 thousand EUR to 89,247 thousand EUR (+21.5%); this growth is mainly attributable to China, Australia and Japan, whose revenues move respectively from 52,284 thousand EUR to 63,856 thousand EUR, from 1,562 thousand EUR to 7,625 thousand EUR and from 2,073 thousand EUR to 3,482 thousand EUR.

Shown below it is a subdivision of the revenues by sector of the gross inter-sector transactions:

REVENUES		DECEMBER 31, 2017		DECEMBER 31, 2016
	Euro thousand	%	Euro thousand	%
PRIMA POWER	423,118	94.1	368,669	93.6
PRIMA ELECTRO	52,325	11.6	42,222	10.7
Inter-sector revenues	(25,940)	(5.7)	(17,005)	(4.3)
TOTAL	449,503	100.0	393,886	100.0

As can be seen from the above table, total revenue growth was seen from both the PRIMA POWER division (54,449 thousand EUR) and the PRIMA ELECTRO division (10,103 thousand EUR). For the PRIMA ELECTRO division growth was due to captive supplies of fiber lasers.

The cost of sales at December 31st , 2017 stood at 340,096 thousand EUR up 42,194 thousand EUR from December 31st, 2016 (297,903 thousand EUR).

Group Gross Margin at December 31st, 2017 was 109,407 thousand EUR, an increase of 13,424 thousand EUR compared to 95,983 thousand EUR in the same period of 2016. The margin accounted for 24.3% of sales and remained more or less stable from the previous year (24.4%).

The research and development activity carried out by the Group during the year 2017 has been comprehensively equal to 23,401 thousand EUR (of which 15,826 thousand EUR in the PRIMA POWER sector and 7,575 thousand EUR in the PRIMA ELECTRO sector) equal to 5.2% of turnover.

The capitalized share was equal to 7,134 thousand EUR (of which 4,196 thousand EUR in the PRIMA POWER sector and 2,938 thousand EUR in the PRIMA ELECTRO sector), a significant reduction compared to 10,098 thousand EUR at December 31st, 2016.

Costs sustained in research and development activities for new products proved the Group main purposes in investing for the future and improving products always in the competitiveness on the international markets. For all the capitalized development activities, the technical feasibility has been verified as well as the generation of probable future economic benefits.

During the fiscal year the main research and development activities of the PRIMA POWER division were:

development of new 3D laser machine models, to cover larger work areas and equipped with fiber laser engineered internally;
development of a new model of 2D laser machine to cover lower end of the market;
development of new cutting head equipped with adaptive optics;
development of new software and a new numerical control, both for 2D laser machines, in line with Industry 4.0 specifications;
the implementation of a new punching and laser cutting technology, whose key elements are the fiber laser equipment internally developed and the wide range of tools, their fast and easy replacement;
development of a new model of panel bending machine with technologies to improve product performance;
research into Additive Manufacturing, in which technical operations were conducted for European funded projects, in which PRIMA INDUSTRIE is group leader.

During the fiscal year the main activities carried out by the PRIMA ELECTRO division concerned:

continuation of development activities of solid-state modules for optical of the new fiber laser sources.
development of a new numerical control hardware platform whose computing power enables integration of the latest Industry 4.0 technologies;
development of new fiber laser sources to expand the range of power.

Net research and development costs were 12,564 thousand EUR, up 1,631 thousand EUR from December 31st, 2016 (10,933 thousand EUR). This item includes non capitalizable research and development costs, Tech Center costs and overheads and is disclosed net of grants (national and European) entered on an accrual basis.

Sales and marketing expenses, which include business structure costs such as personnel, trade fairs and events, the demo center, promotional and advertising activities and related overheads, were 29,631 thousand EUR, up 1,727 thousand EUR from 27,903 thousand EUR at December 31st, 2016.

Overheads and administration costs, which includes costs related to Group or Divisional management structures, Finance costs, HR, IT and overheads, were 24,034 thousand EUR, up 2,297 thousand EUR from 21,737 thousand EUR at December 31st, 2016.

Group EBITDA at December 31st, 2017 stood at 43,178 thousand EUR (9.6% of revenues) and was up 7,769 thousand EUR from December 31st, 2016 (35,409 thousand EUR, 9.0% of revenues).

EBITDA at December 31st, 2017 includes net non-recurring costs of 1,885 thousand EUR (726 thousand EUR at December 31st, 2016), therefore the adjusted Group EBITDA was 45,063 thousand EUR (10.0% of revenues) and was up 8,928 thousand EUR from December 31st, 2016 (36,135 thousand EUR, 9.2% of revenues).

The Group's EBIT at December 31st, 2017 is equal to 26,296 thousand EUR (5.9% of revenues), an increase of 7,768 thousand EUR compared to December 31st , 2016 (it was 18,528 thousand EUR, equal to 4.7% of revenues). This result is affected by depreciation of intangible assets for 12,472 thousand EUR and of tangible assets for 4,387 thousand EUR. With regard to the amortization of intangible assets, the main relates to amortization of development costs (8,488 thousand EUR and to the amortization related to assets with a defined useful life recognized in the FINN-POWER Group business (brand and customer relations – "customer list") which are equal to 3,180 thousand EUR.

Group EBT at December 31st, 2017 was positive at 21,852 thousand EUR and had increased by 10,504 thousand EUR from the previous year when it was 11,347 thousand EUR. This value discounts net charges arising from financial operations (including gains and losses on currency exchanges) for 7,000 thousand EUR (at December 31st, 2016 these were 8,230 thousand EUR). Financial expenses in 2017 include expenses recorded in December, following full early repayment of the Finnish loan. The settlement led to the inclusion in the income statement of the as yet not amortised ancillary charges. These amount to 126 thousand Euro.

FINANCIAL RESULTS (€/000)	DECEMBER 31, 2017	DECEMBER 31, 2016
Bond expenses	(2,419)	(2,421)
Club-Deal loan expenses	(1,089)	(1,295)
Finnish Loan loan expenses	(563)	(652)
Advance Finnish loan expenses	(126)	-
Derivate expenses (CRS)	2,500	(916)
Derivates expenses (IRS)	(82)	-
Other financial expenses	(2,248)	(2,597)
Net financial expenses	(4,027)	(7,881)
Net exchange differences	(2,973)	(349)
TOTAL	(7,000)	(8,230)

Exchange rate management was negative at -2,973 thousand EUR (-349 thousand EUR at December 31st, 2016). However, it is important to point out that the management of exchange rate derivatives was positive at 2,500 thousand EUR.

Net profits from other shareholdings was positive at 2,556 thousand EUR and 2,560 thousand EUR related to capital gains on the sale of shares in EPS SA, whose investment is classified among Non-current assets held for sale; 4 thousand EUR relate to the write-down of the shareholding in Caretek srl held by Prima Electro SpA.

Group's NET RESULT at December 31st, 2017 is positive for 18,668 thousand EUR (positive for 10,160 thousand EUR at December 31st, 2016); while the Net Result attributable to parent company amounts to 18,515 thousand EUR. Income taxes in 2017 financial year indicate a negative net balance of 3,184 thousand EUR. The balance of current and deferred taxes is 2,449 thousand EUR, IRAP is equal to 602 thousand EUR and other taxes including those relating to prior years amounted to 133 thousand EUR.

Assets, liabilities and financial position

The reclassified balance sheet of PRIMA INDUSTRIE Group is shown below.

VALUES EXPRESSED IN EURO THOUSAND	DECEMBER 31, 2017	DECEMBER 31, 2016	VARIATIONS

Tangible and intagible fixed assets	82,320	87,733	(5,413)
Goodwill	102,911	103,262	(351)
Equity investments and other non-current assets	365	1,158	(793)
Deferred tax assets	11,340	11,555	(215)
NON-CURRENT ASSETS	196,936	203,708	(6,772)
Inventories	113,035	98,561	14,474
Trade receivables	113,649	88,377	25,272
Trade payables	(110,465)	(88,449)	(22,016)
Advances	(43,620)	(26,029)	(17,591)
OPERATING WORKING CAPITAL	72,599	72,460	139
Other current assets and liabilities	(16,931)	(15,650)	(1,281)
Current tax assets and liabilities	3,308	(2,641)	5,949
Provisions for risks and employee benefits	(32,440)	(26,688)	(5,752)
Deferred tax liabilities	(5,997)	(8,341)	2,344
Non-current assets held for sale	1,111	319	792
NET INVESTED CAPITAL	218,586	223,167	(4,581)
NET INDEBTEDNESS	69,632	84,215	(14,583)
SHAREHOLDER'S EQUITY	148,954	138,952	10,002
Stockholders' equity of the Group	147,668	137,740	9,928
Minority interest	1,286	1,212	74
LOAN SOURCES	218,586	223,167	(4,581)

Tangible and intangible fixed assets (other than Goodwill) of PRIMA INDUSTRIE Group decreased by 5,413 thousand EUR from the previous year. Movements in the year were for:

net increases of 12,953 thousand EUR in the period (6,843 thousand EUR for development costs net of tax credits of the three Italian companies);
amortization and depreciation accounted for 16,882 thousand EUR (of which 8,488 thousand EUR for development costs);
negative exchange rates 1,484 thousand EUR.

The change in Goodwill is attributable to the only currency adjustment.

Investments and other non-current assets decreased by 793 thousand Euro, as a result of:

reclassification of 1,009 thousand EUR of the shareholding in EPS SA (whose book value is 727 thousand EUR and accounts for 10.1% of all shares) from an asset valuated using the equity method to a non-current asset destined for sale;.
increase of 220 thousand EUR in other equity investments due to the acquisition of shareholdings in the Italian company 3D-NT, active in additive manufacturing, and in the Malaysian company PRIMA POWER Sheet Metal Solution. Both these investments are held directly by PRIMA INDUSTRIE SpA.
write-down of 4 thousand EUR for the stake in Caretek Srl held by PRIMA ELECTRO SpA.

Net working capital remained more or less unchanged from the previous financial year.

At December 31st, 2017, the Group's net financial position was equal to 69,632 thousand EUR, compared to 84,215 thousand EUR on December 31st, 2016.

The net financial position detail is shown as follows.

VALUES EXPRESSED IN EURO THOUSAND	DECEMBER 31, 2017	DECEMBER 31, 2016
CASH & CASH EQUIVALENTS	(70,521)	(62,680)
CURRENT FINANCIAL RECEIVABLES	(849)	(792)
CURRENT FINANCIAL LIABILITIES	42,525	35,790
NON CURRENT FINANCIAL LIABILITIES	98,477	111,897
NET FINANCIAL POSITION	69,632	84,215

To provide better information with regard to the net financial position at December 31st, 2016, the following should be considered (including ancillary costs and accrued interest):

the Bond amounts comprehensively to 40,600 thousand EUR;
the Club Deal loan amounts comprehensively to 23,013 thousand EUR;
payables due to leasing companies (almost exclusively of a property nature) amount to 9,578 thousand EUR.

For more details on the net financial position, see Note 10 - Net Financial Position.

Net Equity increased by 10,002 thousand EUR. This increase is due to the positive effects of the results of the Parent Company (18,515 thousand EUR actuarial gains on employer benefit plans (42 thousand EUR), the change to the fair value adjustment reserve for derivatives (4 thousand EUR) and the change in minority shareholders' equity (74 thousand EUR), which were offset by the negative effects of the conversion reserve (5,488 thousand EUR) and the dividend payment (3,145 thousand EUR).

Below is the Cash Flow of the PRIMA INDUSTRIE Group at December 31st, 2017, compared with the corresponding period of the previous year.

VALUES IN EURO THOUSAND	DECEMBER 31, 2017	DECEMBER 31, 2016	VARIATIONS
Net Indebtness Opening	(84,215)	(101,747)	17,532
Cash from operating activities before TWC	34,969	31,826	3,143
Change in Trade Working Capital	(139)	8,239	(8,378)
Cash from operating activities	34,830	40,065	(5,235)
Investments in development costs	(6,843)	(9,711)	2,868
Other investments	(6,109)	(11,475)	5,366
Cash from investment activities	(12,952)	(21,186)	8,234
FREE CASH FLOW (FCF)	21,878	18,879	2,999
Dividends	(3,145)	(2,621)	(524)
Net financial result of investments	2,556	1,049	1,507
Other changes	-	25	(25)
Cash from financing activities	(589)	(1,547)	958
Net exchange differences	(6,706)	200	(6,906)
CASH FLOW - TOTAL	14,583	17,532	(2,949)
Net Indebtness Closing	(69,632)	(84,215)	14,583

Impairment test

An essential part of drafting the PRIMA INDUSTRIE Group's financial statements consists of performing the impairment test of the goodwill items entered in the statements.

In order to enable users of the financial statements to understand the assets valuation process (the underlying assumptions, the estimation methods, the parameters used, etc.) an extensive explanation of the methods employed by the Directors for this purpose is given in the notes attached to the consolidated financial statements (see Note 2 – Intangible assets). The methods and basic assumptions used in the goodwill impairment test carried out by the Directors of PRIMA INDUSTRIE independently and prior to the approval of these financial statements. Please note that no impairment losses have emerged.

Business performance

During the year 2017 the acquisition of orders of the Group (including after-sale service) amounted to 480.6 Euro million, an increase of 12.7% compared to the 426.5 Euro million at December 31st, 2016. The acquisition of orders of the PRIMA POWER segment amounted to 451.0 Euro million, while the PRIMA ELECTRO ones, considering the ones from customers outside the Group, amounted to 29.6 Euro million.

During the year 2017 the Group achieved the highest order acquisition of its history.

The consolidated order portfolio (not including the after-sale service) at December 31st, 2017 amounts to 169.9 million EUR (compared to 143.4 Euro million at December 31st, 2016). The portfolio includes 161.3 million EUR relating to the PRIMA POWER sector and 8.6 million EUR relating to the PRIMA ELECTRO sector.

At February 28th, 2018 the order portfolio amounted to 202.7 million EUR.

Personnel

At December 31st, 2017, the Group had 1,781 employees of which 1,509 in PRIMA POWER Division and 272 in PRIMA ELECTRO Division. Compared to the December 31st, 2016 the employee numbers increased by 117.

	PRIMA POWER			PRIMA ELECTRO	PRIMA GROUP
VALUES EXPRESSED IN UNITS	DEC 31, 2017	DEC 31, 2016	DEC 31, 2017	DEC 31, 2016	DEC 31, 2017	DEC 31, 2016
Production & Installation	547	489	128	122	675	611
Sales & Marketing	168	160	36	41	204	201
Service & Spare Parts	476	461	15	15	491	476
R&D and Product Management	190	177	67	57	257	234
General & Administrative	128	119	26	23	154	142
Total	1,509	1,406	272	258	1,781	1,664

For a better comprehension, the 2016 figures have been re-exposed

Operations with related parties

During the reporting period no significant operations with related parties were concluded in accordance with Article 5, paragraph 8 of the Regulations containing provisions on related parties No. 17221, issued by CONSOB on March 12th, 2010. For further details of the operations carried out by the Group with related parties, refer to - Information on related parties on Explanatory Notes.

There follows a summary report of the operations (disbursements and repayments) related to intercompany loans which, pursuant to article 14, paragraph 2 of the said Regulation and article 32 of the Regulation adopted by the company with regard to related parties, are exempt from the application of the related procedure.

	DECEMBER 31,				DECEMBER 31,
VALUES EXPRESSED IN EURO THOUSAND	2016	ISSUED (*)	REIMBURSEMENTS	INTERESTS	2017
Loans issued by Prima Industrie SpA
Prima Electro SpA	1,319	-	(532)	23	810
Prima Power Laserdyne LLC	3,445	-	(1,831)	66	1,680
Prima Power Suzhou CO. LTD.	3,131	-	-	90	3,221
Loans issued by Prima Power Iberica S.L.
Prima Industrie SpA	4,000	-	(120)	120	4,000
Loans issued by Finn-Power OY
Prima Industrie SpA	-	15,000	(10,000)	74	5,074
Loans issued by Osai UK LTd
Prima Electro SpA	200	-	(200)	-	-
Loans issued by Prima Power North America
Prima Power Laserdyne LLC	-	3,787	-	93	3,880
TOTAL	12,095	18,787	(12,683)	466	18,665

(*) Loans to Prima Power Laserdyne LLC have been issued in dollars

Management of the risks for Prima Industrie Group

The Risk Model of PRIMA INDUSTRIE Group, based on reference standards adapted to the Group's specific risk categories, involves the mapping of risks by categories identified according to the nature of the risks. Following the business acquisitions of the recent past, this model is reconsidered concurrently with the required organisational changes that are the result of the integration process that is underway. These updates are aimed at the reallocation of risk maps based on their category: context risk, process risk (in turn divided into strategic, operational and financial).

Generally, the PRIMA INDUSTRIE Group operates within a very dynamic market and hence faces multiple risks as it conducts business. Therefore, in addition to the risks described below, further risks and uncertainties may arise of which the Group currently has no knowledge or which are not currently considered important.

Below is a brief description of the main risks to which the Group is exposed.

Context risk

Risks associated with general economic conditions and the cyclical nature of the reference commodity markets

Since it operates within a global competitive context, the economic and financial situation of PRIMA INDUSTRIE Group is influenced by general conditions and world economic trends. Therefore, any negative economic situation or political instability in one or several of the group's geographical markets, including reduced opportunities for access to credit, can have a significant impact on economic performance and can influence its future prospects, in the short, medium and long term.

The Group's business also depends on the performance of some commodity markets (automotive, aerospace, home appliances, etc.) which are historically subject to cyclical variations and uncertain future economic prospects. Any negative economic performance on one or more of these markets, regardless of overall positive developments in the global economy, may significantly affect the Group's economic and financial performance and strategic perspective in the short, medium and long term and may have a negative effect on the business conducted by the Group and on its economic and financial position.

Risks associated with new competitors entering the market

The Group's sector of industry is characterised by a high technological barrier to entry. It is therefore unlikely that a large number of new competitors will enter sector, although the spread of fibre technology has reduced barriers to entry for laser machines. However, it is possible that investors with substantial financial resources – and therefore able to attract sufficient human resources and to financially support the considerable initial investment required to become competitive in the market – may enter the market and change the competitive framework and therefore the Group's product profitability. Similarly, the Group's existing competitors can consolidate their positions through mergers, joint ventures or other forms of trade agreements. As a result, the PRIMA INDUSTRIE Group can compete with groups that have greater financial resources, are larger and with better production capacity, as well as a more diversified presence in the world able to develop greater economies of scale and aggressive pricing policies.

In addition, if the Group is unable to continue to supply its services to existing customers, ensure a high level of satisfaction or develop new products and services, to attract new customers, meet their needs, increase efficiency and reduce overheads, it may not be able to successfully compete in key markets. If the Group is unable to maintain its position in the relevant markets, this could have a negative impact on the business, results, financial condition or future prospects.

Risks associated with financial requirements

Ordinary management of the company involves the availability of considerable financial resources to devote to working capital. Competition dynamics also involves the need for substantial financial resources to support investments in research and development of new products, as well as commercial and production investments for direct establishment in new geographical markets of interest.

In addition, as happened several times in the recent past, the Group may need to consider a loan to evaluate growth opportunities through acquisitions. In line with its development strategy, the Group has credit lines and bank loans granted by major credit institutes, at a level deemed appropriate to avoid financial stress. However, even considering the debt renegotiation in the first months of 2015, it is not possible to rule out that market uncertainty could lead to financial stress and/or the inability to obtain sufficient resources to finance growth and investment plans.

Risks related to the employment of key personnel in the Group

The PRIMA INDUSTRIE Group includes some key figures who, through their experience in the industry and deep knowledge of the Group's business, gained thanks to their long relationship with the Group, have contributed decisively to its success. The Group's future results depend in part on the skills and involvement of key figures. The Group's ability to attract and retain qualified personnel is one of the elements that contribute to certain results. If one or more key figures stops working with the Group and the latter were unable to attract additional qualified personnel, there is a risk that it might not be able to replace them quickly with equally qualified people who are capable of providing, even in the short term, the same contribution, with consequent negative effects on business and on the Group's economic and financial position.

Process risks - strategic

Risks related to competition

The market in which PRIMA INDUSTRIE Group operates is characterised by strong competition and a high rate of technological innovation. In light of this, the Group's activities are particularly focused on research and development and introducing new technologically advanced products to meet market demand. However, there is no certainty that these activities will enable the Group to maintain and/or improve its competitive position, even in the face of the possibility of more innovative competing products. In this case, the Group's assets, operating profitability and financial position can be adversely affected. Notwithstanding the existence of patents and other forms of intellectual property protection on which the Group relies, there is the possibility that competitors might develop (without infringing the Group's intellectual property) similar products or technologies or create alternative ones, with lower costs and greater quality or with a higher level of functionality. This could have negative effects on the Group's competitiveness, with a consequent negative impact on its economic and financial position.

Risks related to technological innovation and the introduction of new products

The business of PRIMA INDUSTRIE Group heavily features research and development and the introduction of new technologically advanced products. Any failure to develop new products that are technologically advance and competitive in terms of price quality and functionality or any delays in the introduction of new products are likely to damage the Group's strategy, with negative effects on profitability and financial standing.

Risks related to intellectual property and know-how

The PRIMA INDUSTRIE Group owns a number of patents and other intellectual property. In addition, the Group cannot guarantee that any required or planned patent, in the new technological development plans, will be granted in each country in which it is needed or is expected to be granted. External parties may infringe the Group's patents and/or intellectual property rights and it may not be able to counter such violations. Consequently, if the Group is unable to protect its intellectual property, it may not be able to benefit from the technological progress achieved, leading to lower future results, and a worsening of the Group's competitive position.

In parallel, the Group cannot rule out the possibility of infringing patents or other intellectual property rights of third parties, which could result in a ban on use of the technologies involved or alteration of production processes or the payment of compensation.

The PRIMA INDUSTRIE Group cannot guarantee protection of its trade secrets, or that third parties will not develop the same or similar know-how independently. Any delivery and production restrictions or production interruptions due to patent infringement, or the subsequent acquisition of corresponding licences, may have an important adverse effect on the Group's business and results.

Risks associated with potential future acquisitions

The PRIMA INDUSTRIE Group evaluates the opportunity to improve its business operations by carrying out efficiency drives or expanding its product range. As a result, the Group has achieved, and may in the future perform, acquisitions or strategic partnerships or other significant operations. These operations could result in a further rise in debt and/or other liabilities that could have an adverse effect on the Group's economic and financial position.

Risks associated with the Group's presence on international markets and new emerging markets

In recent years, the PRIMA INDUSTRIE Group has developed an extensive geographical organisation and today has sufficient commercial coverage of emerging markets. The management of an international organisation requires strong management and significant financial resources. The presence of international markets involves additional risks such as changing market conditions, trade barriers, differences in taxation, restrictions on foreign investment and civil disorder. As a result, these international risks may have adverse effects on business. In recent years, the Group has expanded its presence geographically into emerging markets. Maintaining market share in these emerging markets could require investments in financial, trade and technical terms; if these are missing the market share held by the company could be reduced, with negative impacts on overall economic performance.

Process risks - operating

Risks associated with possible defects in products sold by the Group and related to the timing of deliveries to customers

The PRIMA INDUSTRIE Group manufactures and markets products with high technological content. A significant portion of the products sold is represented by new or newly designed products, which, due to their complexity, can present quality issues and require long installation times. Any defects in products may require extraordinary maintenance and entail contractual liabilities, as well as having a negative impact on the Group's image.

In this regard, it should be noted that both divisions of the PRIMA INDUSTRIE Group consider continuous quality improvement a primary goal. In this respect, the two divisions have formed autonomous organisations aimed at continuous quality control, while each production plant has local units that operate according to the principles of quality defined by the respective division. Furthermore, products are put into production upon receipt of the customer order provided with all the technical specifications. Any situations where production is concentrated at particular times of the year can lead to difficulties in delivery times agreed with the customer resulting in potential compensation claims for damages.

Risks related to dependence on suppliers and potential disruption in supply

The PRIMA INDUSTRIE Group purchases components from a large number of suppliers and relies on services and products provided by external companies. Possible dependence on manufacturers of fibre laser sources (currently only a few parties), will be mitigated by the industrialisation of our laser with fibre technology. Close cooperation between manufacturers and suppliers is common in the Group's sectors and although this offers economic benefits in terms of cost reduction, it may also mean that the Group could be exposed to the difficulties experienced by suppliers, including those of a financial nature, (whether caused by internal or external factors) and this could have a negative effect on the Group. Orders for the purchase of raw materials and semi-finished components from suppliers are planned according to specific workflow rules for the provision of components to the production lines of the production plants. Any delays in the delivery of raw materials and semi-finished products could lead to delays in the delivery of products to the customer; there is no certainty of recovering from the supplier possible claims for damages brought by customers, with consequent negative impact on the company.

Risks related to possible injury caused by the Group's products

The PRIMA INDUSTRIE Group's products are used by customers for cutting, welding and bending metal components and, although highly automated, they need the assistance of the customer's personnel, who are subject to certain risks related to the production processes. Consequently, any injury to the customer's personnel, not entirely covered by insurance, may have a negative effect on the Group's economic and financial position.

Risks related to the Group's production plants

The Group's production facilities are currently located in four countries and are subject to operational risks, including production risks such as equipment failure, failure to comply with current regulations, revocation of permits and licences, labour shortages or work interruptions, natural disasters, sabotage, attacks or disruptions to raw material supplies. Any interruption of work in production facilities, caused by these or other events, can have a negative impact on the Group's economic and financial position.

Risks associated with IT system failures, network outages and breaches in data security

The PRIMA INDUSTRIE Group is subject to IT system failures, power failures and violations of data security, which can adversely affect the Group. The Group depends on technology to maintain and improve the efficiency and effectiveness of its operations and to interface with their customers, and to maintain the accuracy and efficiency of reporting and internal audits. IT system errors can cause erroneous transactions, process inefficiencies, can impede the production or shipment of products and the loss of or damage to intellectual property through security breach. The Group's IT systems can also be penetrated by external parties intent on extracting information.

Risks relating to health, safety and the environment

The PRIMA INDUSTRIE Group is subject to regulations regarding health, safety and the environment in the countries in which it operates. Failure to comply with these rules as a result of operating processes not suitably monitored or, particularly in new markets, an inadequate assessment of these requirements can expose the Group to risks with significant impacts on the Group's economic, equity and financial situation and its reputation. In order to reduce this risk, it should be noted that the Group will adopt systems to manage health, safety and the environment aimed at ensuring compliance with local regulations.

Risks related to legal issues, tax or labour law litigation

In the exercise of its business activities, the PRIMA INDUSTRIE Group may encounter legal, tax or labour law litigation. The Group adopts the necessary measures to prevent and mitigate any penalties that may result from these proceedings, including the establishment of specific risk provisions, as described in the Explanatory Notes. PRIMA INDUSTRIE Group is subject to changes in tax laws in the countries in which it operates. Although the Group allocates provisions, where necessary, for tax disputes, for unforeseen tax payables, it can experience a negative effect on the financial condition and results due to insufficient provisions or due to unforeseeable circumstances.

For more on this, see the section "Significant events in 2017" under the heading "PRIMA POWER LASERDYNE subpoena".

Process risks – financial

Liquidity risk and management of working capital

Liquidity risk is the risk that financial resources may not be sufficient to fund the financial and commercial obligations within the pre-established periods and due dates. The liquidity risk to which the group is subject may derive from late collections and, more generally, from the difficulty of obtaining loans to support operational activities within the necessary time. The cash flow, financing needs and liquidity of group companies are monitored or managed centrally under the supervision of the Group Treasury, with the aim of guaranteeing effective and efficient management of financial resources.

The Group's finished products are usually an investment for client companies, therefore their collection can also be done in quotas, with the last occurring after the machine or system has been commissioned on their premises. The period of time necessary for the production cycle and the commissioning is therefore usually much longer than that for payment of suppliers. In addition, customers often make the investment with medium to long-term financial support, which sometimes takes a long time to obtain. It is normal for the Group to have to face these needs and thus its working capital cycle may be longer and adversely affect Group liquidity. These situations create the need for the Group to have adequate lines of credit and bear the cost for their use. A difficult trend in the financial market or intrinsic difficulties by customers in raising financial funds in the short term could have a negative impact on the Group's economic and financial performance.

Risks related to fluctuation in interest rates and exchange rates

The PRIMA INDUSTRIE Group uses various forms of financing to cover the financial requirements of its business. Changes in interest rate levels can therefore lead to increases or decreases in the financing cost. In order to manage risks related to fluctuations in interest rates on financing transactions, the Group may use, if necessary, financial hedge instruments. Despite this, sudden fluctuations in interest rates could have a negative impact on the economic and financial results due to higher interest expense on the Net Financial Position part not promptly hedged by derivatives. It should be specified that the Group's current Net Financial Position includes a seven-year non-convertible bond whose interest rate is fixed, so it is not exposed to interest rate changes. Moreover, since the PRIMA INDUSTRIE Group operates on a world-scale and with subsidiaries in many countries of the world, the impact of the fluctuation of the different currencies in which are denominated the Group's financial statements may determine relevant economic and financial consequences; to cope with this financial risk, the Group has a hedging policy through the use of derivative instruments.

Credit risk

The Group only deals with noted and trustworthy clients; furthermore, the amount of receivables is monitored during the financial year so that the sum exposed to losses is not significant.

It should be noted that there are no significant concentrations of credit risk within the Group. The financial assets are shown in the financial statements net of the devaluation calculated on the basis of risk of nonfulfilment by the counter party, determined in consideration of the information available on the solvency of the client and possibly considering historical data.

Stock trend and treasury stock

During 2017, PRIMA INDUSTRIE stocks went from a unit value of 15.82 Euro (minimum in the period) at January 2nd, 2017 to 33.80 Euro per share at December 29th, 2017. This was a 114% increase during the period, with performance markedly better than on the reference index (FTSE STAR, c. +35%).

The maximum value of the share was equal to 45 Euro reached on October 18th, 2017. Finally, after the end of the year, the stock value remained stable on a value above 33 Euro per share.

This trend is shown in the chart below:

On April 11th, 2017, the Shareholders' Meeting of PRIMA INDUSTRIE SpA authorised the acquisition of ordinary shares in the company, but at the date of this Annual report, PRIMA INDUSTRIE holds no treasury stock.

Shareholding structure

On December 31st, 2016, the share capital of Prima Industrie SpA amounts to Euro 26,208,185 divided into 10,483,274 ordinary shares at the nominal value of 2.50 Euro each. No classes of shares or bonds have been issued other than ordinary shares.

CHAPTER 5 Group Management Report

In the light of the results of the shareholders diary and from subsequent communications carried out between the company and the overseeing authority, the most up-to-date share structure is as follows:

Pursuant to the combined provisions of article 1, paragraph 1, sub-paragraph w-quarter 1) of Legislative Decree no. 58/1998 and article 117, paragraph 1 of the Issuers CONSOB Regulation 11971/1999, significant investments are the investment of those who participate in the Issuer's share capital with a share of over 5%, as the Issuer is defined as SME.

Corporate governance

The overall corporate governance framework of PRIMA INDUSTRIE, the system of rules and procedures that Company Boards refer to in deciding their line of conduct and in attending to their several responsibilities towards their stakeholders, has been defined bearing in mind the applicable standards and guidelines of the Code of Conduct approved in July 2014 by the Corporate Governance Committee promoted by Borsa Italiana SpA, ABI, Ania, Assogestioni, Assonime, Confindustria.

Pursuant to article 123-bis of Leg. Decree no. 58/1998 (the "TUF") and to articles 89-bis and 144-decies of CONSOB's Regulation, the company annually drafts the "Report on Corporate Governance and Ownership Structure" (based on the "comply or explain" principle), with which it provides appropriate information on its Corporate Governance system. More specifically, the Report contains a general description of the system of corporate governance adopted by the Group and reports the information on the company's structure and its adherence to the Code of Conduct, including the main practices of Governance applied and the characteristics of its Internal Audit and Risk Management, also in relation to the financial information process.

First of all, the Report supplies a whole set of information on the company's Boards, their membership, term of office, business conduct, their powers and other information on elements that further distinguish the structure of corporate governance. It also contains information, including the personal details of company executives, along with their educational and professional profile.

The same Report, moreover, provides news on remuneration (fees) of Directors and Executives who have strategic responsibilities (also by recalling the Report on remuneration to be published in accordance with article 84-quater of the CONSOB Regulation), on the policy to apply when processing confidential information and when conducting major transactions (financial or capital) with associates, or that are atypical or unusual.

In particular, in observance of Leg. Decree no. 173/2008 which implements Directive 2006/46 as part of the legislation, the Report includes information on:

a) the corporate governance practices actually applied by the company, independently of the obligations imposed by legislation or regulations;
b) the main features of the Risk management and Internal audit system, involving the financial information process (consolidated as well);
c) regulations by which Shareholders' Assemblies are held, the Assembly's principal powers, shareholders' rights and the terms for their exercise;
d) the line-up of members and business method of Company Boards and their committees.

Furthermore, the Report incorporates the amendments introduced by Legislative Decree no. 254 of December 30th, 2016 to Article 123-bis of the Consolidated Law on Finance, requiring issuers to include in their corporate governance reports "a description of the diversity policies applied regarding the structure of the administrative, management and auditing bodies in relation to aspects such as age, gender and training/professional courses taken, with a description of the objectives, implementation methods and results of said policies".

The Report is a separate document from the Financial Statements and can be viewed by Shareholders on the company's website (www.primaindustrie.com) each year, along with the documentation submitted to the Assembly for the approval of the financial statements.

PRIMA INDUSTRIE SpA wholly owns certain companies that have offices in non-EU countries and are crucial to its business, pursuant to article 36 of CONSOB Regulation no. 16191/2007, as per its amendments ratified with CONSOB Resolution no. 18214/2012, concerning "Market regulation". With reference to the data available on December 31st, 2017, please note that procedures have been adopted to ensure that the previously mentioned legislation is complied with and that none of the conditions stated in said article 36 subsist.

Consolidated non-financial statement

As a public interest entity, starting from the financial year 2017, PRIMA INDUSTRIE SpA draws up and presents consolidated non-financial statements, in the form of a separate report, as required by art. 5 of Legislative Decree 254/2016 "Context of the statement and disclosure regime" concerning the disclosure of non-financial information and information on diversity by certain companies and large groups. Annexed to the non-financial statement is the report of the independent auditor appointed in accordance with article 3, paragraph 10 of the aforesaid Legislative Decree 254/2016.

The consolidated non-financial statement can be found in the "Investors" section of the website www.primaindustrie.com.

Application of legislative decree 231/2001

The Issuing Party has adopted an Organisation, management and control model, as required by Leg. Decree no. 231/2001.

The Organisation, Management and Control Model responds to the following requirements:

it describes the contents and aims of Decree no. 231/01;
it lists and describes Presumed breaches, identifies the "Sensitive Areas" in which they may occur and arranges "Protocols" to regulate corporate operational procedures and re-conduct the risk of their perpetration below an acceptable threshold set by the company (Sensitive Areas and Protocols document);
it applies the Company Code of Ethics, sensitising all recipients to its diligent compliance;
it defines the criteria for appointing members to the Supervisory Board ("SB"), their tasks and responsibilities, and the method to use when reporting presumed breaches to the Model;
it structures an integrated audit system meant to check that the Model is indeed applied and efficient (duty of the Supervisory Board);
it stresses the need for training and briefing sessions to increase awareness of the Model and of its related documents in all of its recipients;
it adopts a System of Administrative Fines for negligent conduct (Model breach).

The Model is reviewed from time to time to take account of the changing legislative framework, of changes to the company's organisational structure and/or of any imperfections of the Model in its day-by-day application.

The task of monitoring the correct application and observance of the Organisation Model, including revising its contents, is entrusted to the Supervisory Board, which answers to the Board of Directors and Board of Auditors.

On April 11th, 2017, the Board of Directors also appointed the new Supervisory Board, consisting of two members of the Board of Auditors and the head of Internal Auditing, who will remain in office until approval of the financial statements for the financial year 2019.

Investments made for safety in the workplaces

A total of 76 thousand EUR were spent by Prima Industrie SpA in 2017 for safety. The cost items refer to documentation, consultant services and training for safety, devices for vision protection from laser beams, personal protective equipment, signs, the creation of safe conditions in work zones and actions to improve workstation ergonomics.

Foreseeable developments in management

The financial year 2017 saw excellent results, thanks to constant and sustained demand and to the first returns on heavy investments in the product range and the market. The excellent orders since the start of the year, the generation of cash and the positive trend in order in the first two months of 2018, enable the Group to confirm its goals of further growth for the current year.

Significant events occurring after financial year closing

Merger of Finn-Power Italia Srl into Prima Industrie SpA

With notarial deed of January 25th, 2018, with legal effect from February 1st, 2018, FINN-POWER ITALIA Srl was merged into PRIMA INDUSTRIE SpA (100% shareholding), with accounting and tax effect backdated to January 1st, 2018. The organisational and financial reasons for this merger can be found in the optimisation of the structure of the PRIMA INDUSTRIE Group, which will involve shortening the chain of monitoring of investments and streamlining cash, administration and organisation and also centralising decision-making on strategic investments to the parent company. The merger will also be the opportunity for an overall corporate re-organisation, aimed at improving integration of Italian sales and sales, and the running of the two Italian production plants, not to mention lowering costs.

As a simplified merger in accordance Article 2505 of the Italian Civil Code, with PRIMA INDUSTRIE SpA controlling 100% of FINN-POWER ITALIA Srl, it was submitted to the decision of the Board of Directors of PRIMA INDUSTRIE SpA, in observance of the provisions of Article 22 of the Company's articles of association.

Sale of participation in Electro Power Systems SA

On January 24th, 2018 Prima Electro SpA has been signed an agreement with a company belonging to the ENGIE Group (one of the largest global utilities based in Paris) for the sale of the entire stake held in Electro Power Systems SA ("EPS"), a company operating in the energy storage systems listed at the Euronext stock market in Paris.

The agreement was also signed with the other main shareholders of EPS and with the management of the company for the acquisition of the majority stake of EPS. The transaction will take place on the basis of an evaluation of euro 9.5 per share and will be followed by the filing of a mandatory Public Purchase Offer at the same price.

The completion and settlement of the transaction, subject to some conditions precedent, will take place within the first quarter of 2018, generating a capital gain of about 7 million EUR for PRIMA INDUSTRIE Group.

Issue of a bond loan

On February 9th, 2018 the Board of Directors of PRIMA INDUSTRIE S.p.A. resolved to issue a 7-year non-convertible, fixed rate, bond loan for a total of 25 million EUR. The bond is to be placed with approved Italian and/or foreign investors residing in the European Economic Area, with the exception of those in the USA. Even after issue, the bond may only be circulated among these approved investors. The bonds have a minimum denomination of 100,000 Euros and pay a fixed annual coupon of 3.5%. The bond issue, which will be governed by English law, will expire in February 2025. PRIMA INDUSTRIE S.p.A. does not intend to request that the bond be traded in a trading establishment.

Thanks to this issue, the company intends to diversify its sources of financing and, using further available financial resources, intends to repay in full and in advance, the 40 million bond traded on the Luxembourg Stock Exchange, issued on February 6th, 2015 and maturing on February 6th, 2022. The repayment procedure will be implemented in accordance with the procedures set out in the relevant regulations and will be launched by the end of March 2018.

Atypical and unusual transactions

Pursuant to CONSOB Bulletin of July 28th, 2006 no. DEM/6064296, we wish to specify that in the examined period, the Group has not engaged in transactions defined as atypical or unusual in the Bulletin.

Management and coordination activities

Prima Industrie SpA is not subject to management and coordination by other companies or entities and decides which general or operative course of action to take in full independence.

Opt-out regime

The Board of Directors of Prima Industrie has resolved on November 12th, 2012, in accordance with Consob Resolution no. 18079 of January 20th, 2012, to subscribe to the opt-out regimen referred to in articles 70, paragraph 8 and 71, paragraph 1-bis of the Regulation, therefore choosing to avail itself of the right to waiver the obligation of publishing documents describing its mergers, demergers, share capital increases by contributions in kind, purchases and transfers.

Net result allocation

Ladies and Gentlemen,

We hope that you are in favour of the Company's return, after some years, to the risk capital policy, and, taking this opportunity to thank you for the confidence that you have placed in us, we invite you to approve these financial statements of your company on December 31st, 2017 that closes with a net profit of 6,771,475.00 Euro and:

to allocate to the Legal Reserve a portion of the above net profit, amounting to 338,573.75 Euro;
to allocate 4,193,309.60 Euro of the profits in the form of ordinary dividends, at the unit value of 0.40 Euro for each of the 10,483,274 shares;
to set aside 2,239,591.65 to the Extraordinary Reserve.

On behalf of the Board of Directors Executive Chairman

Gianfranco Carbonato

6 2017 Financial Annual Report

Consolidated Financial Statements of Prima Industrie Group at December 31st, 2017

Accounting tables

Chapter 6. Consolidated Financial Statements of Prima Industrie Group at December 31st, 2017

Consolidated Statement of Financial Position

VALUES IN EURO	NOTES	DECEMBER 31, 2017	DECEMBER 31, 2016
Property, plant and equipment	1	35,627,751	35,281,369
Intangible assets	2	149,603,479	155,713,399
Investments accounted for using the equity method	-	-	1,009,341
Other investments	3	355,004	139,051
Non current financial assets	4	9,578	9,578
Deferred tax assets	5	11,340,432	11,555,324
NON CURRENT ASSETS		196,936,244	203,708,062
Inventories	6	113,035,328	98,561,165
Trade receivables	7	113,649,234	88,376,748
Other receivables	8	8,018,722	6,425,617
Current tax receivables	9	9,380,123	5,053,888
Derivatives	10	57,536	-
Financial assets	10	791,509	791,509
Cash and cash equivalents	10	70,520,659	62,679,901
CURRENT ASSETS		315,453,111	261,888,828
Assets held for sale	11	1,111,136	318,812
TOTAL ASSETS		513,500,491	465,915,702

Consolidated Statement of Financial Position (continued)

VALUES IN EURO	NOTES	DECEMBER 31, 2017	DECEMBER 31, 2016
Capital stock	12	26,208,185	26,208,185
Legal reserve	12	4,652,958	4,565,082
Other reserves	12	69,311,022	70,738,752
Currency translation reserve	12	1,360,295	6,848,598
Retained earnings	12	27,620,077	19,276,926
Net result	12	18,515,392	10,102,304
Stockholders' equity of the Group		147,667,929	137,739,847
Minority interest		1,285,839	1,212,065
STOCKHOLDERS' EQUITY		148,953,768	138,951,912
Interest-bearing loans and borrowings	10	98,396,076	111,675,762
Employee benefit liabilities	13	7,693,863	8,100,353
Deferred tax liabilities	14	5,997,482	8,340,653
Provisions	15	172,119	162,684
Derivatives	10	80,445	220,866
NON CURRENT LIABILITIES		112,339,985	128,500,318
Trade payables	16	110,465,363	88,448,383
Advance payments	16	43,620,216	26,029,170
Other payables	16	24,950,838	22,076,067
Interest-bearing loans and borrowings	10	42,524,711	34,894,444
Current tax payables	17	6,071,926	7,695,264
Provisions	15	24,573,684	18,424,370
Derivatives	10	-	895,774
CURRENT LIABILITIES		252,206,738	198,463,472
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES		513,500,491	465,915,702

Consolidated income statement

VALUES IN EURO	NOTES	DECEMBER 31, 2017	DECEMBER 31, 2016
Net revenues	18	449,503,244	393,885,774
Cost of goods sold	19	(340,096,252)	(297,902,746)
GROSS MARGIN		109,406,992	95,983,028
Research and Development costs	20	(12,563,644)	(10,932,964)
Sales and marketing expenses	21	(29,630,518)	(27,903,449)
General and administrative expenses	22	(24,034,482)	(21,737,648)
OPERATING GROSS MARGIN (EBITDA)		43,178,348	35,408,967
Impairment - Write-off	23	(23,299)	(1,027,682)
Depreciation	23	(16,858,918)	(15,853,684)
OPERATING PROFIT (EBIT)		26,296,131	18,527,601
Financial income	24	2,760,000	626,831
Financial expenses	24	(6,786,647)	(8,507,194)
Net exchange differences	24	(2,973,478)	(349,409)
Net result of investments accounted for using the equity method	-	-	1,057,207
Net result of other investments (*)	25	2,555,677	(7,729)
RESULT BEFORE TAXES (EBT)		21,851,683	11,347,307
Taxes	26	(3,183,842)	(1,187,184)
NET RESULT		18,667,841	10,160,123
- Attributable to Group shareholders		18,515,392	10,102,304
- Attributable to minority shareholders		152,449	57,819
RESULT PER SHARE - BASIC (in euro)	27	1.77	0.96
RESULT PER SHARE - DILUTED (in euro)	27	1.77	0.96

(*) It must be outlined that this figure includes a financial gain deriving from EPS SA sale of share for 2,560 thousand euro. In the Balance Sheet the EPS SA investment is classified in the Assets held for sale.

Consolidated statement of comprehensive income

VALUES IN EURO	NOTES	DECEMBER 31, 2017	DECEMBER 31, 2016
NET RESULT (A)		18,667,841	10,160,123
Gains/ (Losses) on actuarial defined benefit plans	12	55,331	(361,496)
Tax effect	12	(13,748)	84,385
Total other comprehensive gains/(losses) not to be classified in the Income Statement, net of tax effects (B)		41,583	(277,111)
Gains /(Losses) on cash flow hedges	12	5,778	(82,686)
Tax effect	12	(1,387)	19,845
Gains/(Losses) on exchange differences on translating foreign operations	12	(5,566,978)	841,028
Total other comprehensive gains/(losses) to be classified in the Income Statement, net of tax effects (C)		(5,562,587)	778,187
TOTAL COMPREHENSIVE INCOME (A) + (B) + (C)		13,146,837	10,661,199
- Attributable to Group shareholders		13,073,063	10,645,541
- Attributable to minority shareholders		73,774	15,658

Consolidated statement of changes in shareholders' equity

LEGAL RESERVE	CAPITAL INCREASE - EXPENSES	FV OF HEDGING DERIVATIVES
	(1,286,154)	-
-	-	-
-	-	-

-	-	-

-	-	(62,841)
	(1,286,154)	(62,841)
	ADDITIONAL PAID-IN CAPITAL 57,506,537 57,506,537	4,494,745 - - 70,337 - 4,565,082

From the 1st of January 2016 to the 31st of December 2016

From the 1st of January 2017 to the 31st of December 2017

	ADDITIONAL		CAPITAL INCREASE	CHANGE IN THE FV OF HEDGING
26,208,185	57,506,537	4,565,082	(1,286,154)	(62,841)
-	-	-	-	-

-	-	87,876	-	-

-	-	-	-	4,391
26,208,185	57,506,537	4,652,958	(1,286,154)	(58,450)
	CAPITAL STOCK	PAID-IN CAPITAL	LEGAL RESERVE	- EXPENSES	DERIVATIVES

STOCKHOLDERS' EQUITY OF THE MINORITY STOCKHOLDERS' NET RESULT GROUP INTEREST	RETAINED EARNINGS	CURRENCY TRANSLATION RESERVE	OTHER RESERVES
6,016,715 129,715,124 1,196,407 130,911,531	14,786,376	5,965,409	16,023,311
- - -	77,709	-	(77,709)
- - (2,620,818) - (2,620,818)		-	(2,620,818)
(6,016,715) - -	4,609,981	-	1,336,397

10,102,304 10,645,541 15,658 10,661,199	(197,140)	883,189	(79,971)
10,102,304 137,739,847 1,212,065 138,951,912	19,276,926	6,848,598	14,581,210

RESERVES	CURRENCY TRANSLATION RESERVE	RETAINED EARNINGS	NET RESULT	STOCKHOLDERS' EQUITY OF THE GROUP	MINORITY INTEREST	STOCKHOLDERS' EQUITY
14,581,210	6,848,598	19,276,926	10,102,304	137,739,847	1,212,065	138,951,912
(3,144,981)	-	-	-	(3,144,981)	-	(3,144,981)

1,669,652	-	8,344,776	(10,102,304)	-	-	-

43,208	(5,488,303)	(1,625)	18,515,392	13,073,063	73,774	13,146,837
13,149,089	1,360,295	27,620,077	18,515,392	147,667,929	1,285,839	148,953,768

Consolidated cash flow statement

VALUES IN EURO	DECEMBER 31, 2017	DECEMBER 31, 2016
Net result	18,667,841	10,160,123
Adjustments (sub-total)	13,139,444	29,886,002
Depreciation, impairment & write-off	16,882,217	16,881,366
Gain from sales of shares in other investments (**)	(2,560,223)	(1,057,207)
Net change in deferred tax assets and liabilities	(2,128,279)	(3,887,211)
Change in employee benefits	(406,490)	187,571
Change in inventories	(14,474,163)	(4,568,458)
Change in trade receivables	(25,272,486)	(1,962,853)
Change in trade payables and advances	39,608,026	14,768,934
Net change in other receivables/payables and other assets/liabilities	1,490,842	9,523,860
Cash Flows from (used in) operating activities (A)	31,807,285	40,046,125
Cash flow from investments
Acquisition of tangible fixed assets (*)	(5,449,124)	(3,176,344)
Acquisition of intangible fixed assets	(640,836)	(904,090)
Capitalization of development costs	(6,842,883)	(9,710,945)
Net disposal of fixed assets	99,965	72,280
Devaluation of Other Investments	4,546	7,729
Capital increase/decrease in Other investments (*)	2,621,826	(25,422)
Capital increase/decrease investments accounted
for using the equity method	-	1,271,421
Cash Flows from (used in) investing activities (B)	(10,206,507)	(12,465,371)

Consolidated cash flow statement (continued)

VALUES IN EURO	DECEMBER 31, 2017	DECEMBER 31, 2016
Cash flow from financing activities
Change in other financial assets/liabilities and other minor items	221,762	651,232
Increases in loans and borrowings (including bank overdrafts)	33,615,117	11,514,175
Repayment of loans and borrowings (including bank overdrafts)	(38,323,278)	(16,203,858)
Repayments in financial lease liabilities	(603,245)	(170,909)
Dividends paid	(3,144,981)	(2,620,818)
Change in currency translation reserve	(5,488,303)	883,189
Other variations	41,583	(277,111)
Cash Flows from (used in) financing activities (C)	(13,681,345)	(6,224,100)
Cash Flows from (used in) change of minority shareholders (D)	(78,675)	(42,161)
Net change in cash and equivalents (E=A+B+C+D)	7,840,758	21,314,493
Cash and equivalents beginning of period (F)	62,679,901	41,365,408
Cash and equivalents end of period (G=E+F)	70,520,659	62,679,901

ADDITIONAL INFORMATION TO THE CONSOLIDATED STATEMENT OF CASH-FLOW	DECEMBER 31, 2017	DECEMBER 31, 2016
Values in Euro
Taxes	(3,183,842)	(1,187,184)
Financial incomes	2,760,000	626,831
Financial expenses	(6,786,647)	(8,507,194)

(*) Not included the acquisition of real estate assets by means of a financial lease and included assets held for sale (**) The gain is relevant to EPS SA sale for share, this investment is classified in the Assets held for Sale

Consolidated statement of financial position pursuant to Consob n.15519 of July 27th, 2006

			OF WHICH		OF WHICH
		DECEMBER 31,	RELATED	DECEMBER 31,	RELATED
VALUES IN EURO	NOTES	2017	PARTIES	2016	PARTIES
Property, plant and equipment	1	35,627,751	-	35,281,369	-
Intangible assets	2	149,603,479	-	155,713,399	-
Investments accounted for using
the equity method	-	-	-	1,009,341	1,009,341
Other investments	3	355,004	180,000	139,051	-
Non current financial assets	4	9,578	-	9,578	-
Deferred tax assets	5	11,340,432	-	11,555,324	-
NON CURRENT ASSETS		196,936,244		203,708,062
Inventories	6	113,035,328	-	98,561,165	-
Trade receivables	7	113,649,234	163,339	88,376,748	50,647
Other receivables	8	8,018,722	-	6,425,617	-
Current tax receivables	9	9,380,123	-	5,053,888	-
Derivatives	10	57,536	-	-	-
Financial assets	10	791,509	-	791,509	-
Cash and cash equivalents	10	70,520,659	-	62,679,901	-
CURRENT ASSETS		315,453,111		261,888,828
Assets held for sale	11	1,111,136	727,238	318,812	-
TOTAL ASSETS		513,500,491		465,915,702

Consolidated statement of financial position (continued) pursuant to Consob n. 15519 of July 27th, 2006

		DECEMBER 31,	OF WHICH RELATED	DECEMBER 31,	OF WHICH RELATED
VALUES IN EURO	NOTES	2017	PARTIES	2016	PARTIES
Capital stock	12	26,208,185	-	26,208,185	-
Legal reserve	12	4,652,958	-	4,565,082	-
Other reserves	12	69,311,022	-	70,738,752	-
Currency translation reserve	12	1,360,295	-	6,848,598	-
Retained earnings	12	27,620,077	-	19,276,926	-
Net result	12	18,515,392	-	10,102,304	-
Stockholders' equity of the Group		147,667,929	-	137,739,847	-
Minority interest		1,285,839	-	1,212,065	-
STOCKHOLDERS' EQUITY		148,953,768		138,951,912
Interest-bearing loans and borrowings	10	98,396,076	-	111,675,762	-
Employee benefit liabilities	13	7,693,863	-	8,100,353	-
Deferred tax liabilities	14	5,997,482	-	8,340,653	-
Provisions	15	172,119	-	162,684	-
Derivatives	10	80,445	-	220,866	-
NON CURRENT LIABILITIES		112,339,985		128,500,318
Trade payables	16	110,465,363	-	88,448,383	-
Advance payments	16	43,620,216	-	26,029,170	-
Other payables	16	24,950,838	1,552,686	22,076,067	774,582
Interest-bearing loans and borrowings	10	42,524,711	-	34,894,444	-
Current tax payables	17	6,071,926	-	7,695,264	-
Provisions	15	24,573,684	-	18,424,370	-
Derivatives	10	-	-	895,774	-
CURRENT LIABILITIES		252,206,738		198,463,472
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES		513,500,491		465,915,702

Consolidated income statement

pursuant to Consob n. 15519 of July 27th, 2006

			OF WHICH		OF WHICH
VALUES IN EURO	NOTES	DECEMBER 31, 2017	RELATED PARTIES	DECEMBER 31, 2016	RELATED PARTIES

Net revenues	18	449,503,244	270,436	393,885,774	395,563
Cost of goods sold	19	(340,096,252)	-	(297,902,746)	-
GROSS MARGIN		109,406,992	-	95,983,028	-
Research and Development costs	20	(12,563,644)	-	(10,932,964)	-
Sales and marketing expenses	21	(29,630,518)	-	(27,903,449)	-
General and administrative expenses	22	(24,034,482)	(2,263,223)	(21,737,648)	(1,411,733)
OPERATING GROSS MARGIN (EBITDA)		43,178,348	-	35,408,967	-
of which: non recurring items		(1,885,086)		(725,313)
Impairment - Write-off	23	(23,299)	-	(1,027,682)	-
Depreciation	23	(16,858,918)	-	(15,853,684)	-
OPERATING PROFIT (EBIT)		26,296,131		18,527,601
of which: non recurring items		(1,908,385)		(1,752,995)
Financial income	24	2,760,000	-	626,831	-
Financial expenses	24	(6,786,647)	-	(8,507,194)	-
Net exchange differences	24	(2,973,478)	-	(349,409)	-
Net result of investments accounted for using the equity method	-	-	-	1,057,207	1,057,207
Net result of other investments (*)	25	2,555,677	2,560,223	(7,729)	-
RESULT BEFORE TAXES (EBT)		21,851,683		11,347,307
of which: non recurring items		521,291	-	(703,517)
Taxes	26	(3,183,842)	-	(1,187,184)	-
NET RESULT		18,667,841		10,160,123
- Attributable to Group shareholders		18,515,392	-	10,102,304	-
- Attributable to minority shareholders		152,449	-	57,819	-
RESULT PER SHARE - BASIC (in euro)	27	1.77		0.96
RESULT PER SHARE - DILUTED (in euro)	27	1.77		0.96

Consolidated cash flow statement

pursuant to Consob n. 15519 of July 27th, 2006

		OF WHICH		OF WHICH
VALUES IN EURO	DECEMBER 31, 2017	RELATED PARTIES	DECEMBER 31, 2016	RELATED PARTIES
Net result	18,667,841		10,160,123
Adjustments (sub-total)	13,139,444	-	29,886,002	-
Depreciation, impairment & write-off	16,882,217	-	16,881,366	-
Gain from sales of shares in other
investments (**)	(2,560,223)	(2,560,223)	(1,057,207)	(1,057,207)
Net change in deferred tax assets
and liabilities	(2,128,279)	-	(3,887,211)	-
Change in employee benefits	(406,490)	-	187,571	-
Change in inventories	(14,474,163)	-	(4,568,458)	-
Change in trade receivables	(25,272,486)	(112,692)	(1,962,853)	170,358
Change in trade payables and advances	39,608,026	-	14,768,934	(1,283)
Net change in other receivables/payables
and other assets/liabilities	1,490,842	778,104	9,523,860	156,686
Cash Flows from (used in)	31,807,285		40,046,125
operating activities (A)
Cash flow from investments
Acquisition of tangible fixed assets (*)	(5,449,124)	-	(3,176,344)	-
Acquisition of intangible fixed assets	(640,836)	-	(904,090)	-
Capitalization of development costs	(6,842,883)	-	(9,710,945)	-
Net disposal of fixed assets	99,965	-	72,280	-
Devaluation of Other Investments	4,546	-	7,729	-
Capital increase/decrease in Other
investments (*)	2,621,826	851,711	(25,422)	-
Capital increase/decrease investments	-		1,271,421	1,271,421
accounted for using the equity method
Cash Flows from (used in) investing	(10,206,507)		(12,465,371)
activities (B)

Consolidated cash flow statement (continued) pursuant to Consob n. 15519 of July 27th, 2006

VALUES IN EURO	DECEMBER 31, 2017	OF WHICH RELATED PARTIES	DECEMBER 31, 2016	OF WHICH RELATED PARTIES

Cash flow from financing activities
Change in other financial assets/liabilities
and other minor items	221,762	-	651,232	-
Increases in loans and borrowings
(including bank overdrafts)	33,615,117	-	11,514,175	-
Repayment of loans and borrowings
(including bank overdrafts)	(38,323,278)	-	(16,203,858)	-
Repayments in financial lease liabilities	(603,245)	-	(170,909)	-
Dividends paid	(3,144,981)	-	(2,620,818)	-
Change in currency translation reserve	(5,488,303)	-	883,189	-
Other variations	41,583	-	(277,111)	-
Cash Flows from (used in) financing
activities (C)	(13,681,345)		(6,224,100)
Cash Flows from (used in) change
of minority shareholders (D)	(78,675)		(42,161)
Net change in cash and equivalents
(E=A+B+C+D)	7,840,758		21,314,493
Cash and equivalents beginning of period (F)	62,679,901		41,365,408
Cash and equivalents end of period (G=E+F)	70,520,659		62,679,901

(*) Not included the acquisition of real estate assets by means of a financial lease and included assets held for sale

(**) The gain is relevant to EPS SA sale for share, this investment is classified in the Assets held for Sale

Description of Accounting Principles

Chapter 7. Description of Accounting Principles

Consolidation Principles

The consolidated financial statements include the financial statements of PRIMA INDUSTRIE SpA (the parent company) and its subsidiaries at 31 December of every year. The financial statements of the subsidiaries are prepared applying the same accounting standards as the parent company; any corrections for consolidation are made to harmonise the items that are affected by application of different accounting standards. All infragroup balances and transactions, including any profits not realised deriving from relations engaged in between companies in the Group, are entirely eliminated. The profits and losses not realised with affiliates are eliminated for the part pertaining to the Group. Any losses not realised are eliminated with the exception of the case in which they are representative of impairments.

The subsidiaries are fully consolidated from the date of acquisition, i.e. from the date on which the Group acquires control, and cease to be consolidated at the date on which control is transferred outside the Group. Minority interests represent the part of profits or losses and net assets not held by the Group, and are reported in a separate item in the Income Statement, and in the Income Statement, and in the balance sheet among the elements of net equity, separately from the Group's net equity.

(a) Subsidiaries

All companies, including any vehicle-company, in which the Group has the capacity to control the financial and operating choices, are defined as subsidiary companies. Generally, control is presumed to exist if the Group holds more than half of the voting rights, also via Para-corporate agreements or potential voting rights. Subsidiaries are consolidated at the time in which the Group is capable of exercising control and are de-consolidated when this control ceases.

The Group records acquisitions of controlling shareholdings by means of the acquisition method.

The acquisition cost is the sum of the price paid and any potential accessory charges.

Identifiable and acquired assets and liabilities are initially booked within the consolidated financial statements at the fair value, determined on the date of acquisition.

The excess cost with respect to the investment quota of the fair value of net assets acquired is capitalised as goodwill among intangible assets, if positive; if negative, it is immediately entered to the Income Statement.

The costs, income, receivables, payables and profits/losses realised among companies belonging to the group are eliminated. Where necessary, the accounting principles of the Subsidiaries are amended to bring them into line with those of the parent company.

(b) Affiliates and joint ventures

Affiliated companies are those in which the Group exercises considerable influence but no form of control. Significant influence is presumed in the case that more than 20% of voting rights are held; this threshold is reduced to 10% for listed companies. Affiliated companies are initially recorded at cost and then accounted for, using the equity method. Joint Ventures are companies subject to joint control. They are booked in accordance with the provisions of IFRS 11.

Group equity investment in affiliated companies and joint ventures includes goodwill, as recorded at the time of acquisition and net of any potentially accumulated value losses.

The Group's Income Statement reflects the applicable share of the affiliated company and joint venture's result. If the affiliated company or the joint venture records an adjustment with a direct effect on net equity, the Group determines the portion that applies to it, reflecting such change in the Net Equity statement of change. Booking the quota of a loss from an affiliated company or joint venture within the Group's accounts includes a limit relative to the zeroing out of the investment value; additional loss quotas are entered under the liabilities if the Group has assumed obligations or has implemented payments on behalf of the affiliated company or joint venture.

(c) Other enterprises

Equity investments in other minor enterprises are booked at cost, and may be written down for impairment of value.

Accounting standards applied

Standards to apply when drafting the consolidated financial statements

The consolidated Financial statements for 2017 were drafted in accordance with the International Accounting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and approved by the European Union, as well as the measures issued to implement the article 9 of Leg. Decree no. 38/2005. IFRS refer to all the main International Accounting Standards ("IAS") reviewed and to all the interpretations given by the International Financial Reporting Interpretations Committee ("IFRIC"), formerly known as Standing Interpretations Committee ("SIC").

The financial statements are drafted based on the principle of historical cost, except for those financial assets available for sale, the financial assets held for trading and the hedging instruments, which have been listed at their fair value. The Group has applied accounting principles that are coherent with those applied in previous years, with the exception of amendments to standards and interpretations effective from January 1st, 2017.

Going concern

The consolidated financial statements at December 31st, 2017 were prepared on the basis of the going-concern principle, as it is reasonable to expect that PRIMA INDUSTRIE will continue its business in the foreseeable future. In particular, the value of the order backlog, the rebalanced relationship between risk capital and debt capital, the rescheduling of medium to long-term bank debt, the availability of sufficient credit lines, are the main factors taken into consideration to ascertain that, at the current time, there are no doubts about the Group's prospects of remaining in business.

Financial statements

Starting from the financial year 2017, the Group decided to present the income statement according to functional area, rather than by expenditure type, as done until the Consolidated Financial statements for the year 2016. Therefore, the financial data presented in this Annual Report are presented according to functional area and, to facilitate comparison of the data from the current year with those of the corresponding period of the previous financial year have been reclassified in the same manner.

Presentation of costs based on their allocation is considered more representative than disclosure by type of expenditure. The form chosen conforms to internal reporting and business management procedures and is in line with international practice within the sector in which the Group operates.

"Cost of sales" includes costs relating to the functional areas that participated directly or indirectly in the generation of revenues with the sale of goods or services. Therefore this item includes the production or purchase cost of products and goods sold. It also includes all costs for materials, processing and overheads directly attributable to production. Furthermore, it contains write-downs on inventories, provisions to cover warranty costs on sold goods, transport and insurance costs incurred for deliveries to customers and sales commissions to agents or third-party distributors.

The Group has opted to use the formats described hereinafter in drafting its Financial Statements:

a) for the Consolidated Balance Sheet, the format used distinguishes the assets and liabilities between "current" (i.e. receivable or payable in 12 months) and "non-current" (i.e. receivable or payable after 12 months);
b) for the Consolidated Income Statement, the format used distributes costs according to their kind; the Global Consolidated Income Statement includes, besides the Profit in the year as listed in the Consolidated Income Statement, the other variations to the Net Equity that do not refer to transactions with Shareholders;
c) for the Variations to the Net Equity, the format used reconciles the opening and closing of every entry in both the current year and the previous one;
d) for the Financial Account, the so-called "indirect" method was chosen, whereby the net financial flow of company business is determined by adjusting the profit and loss, because of the effects of:
non-monetary elements such as amortisation and depreciation;
variations of inventory, receivables and payables generated by company business;
other elements whose financial flows are generated by investments and financings.

Please note, furthermore, that with reference to CONSOB Resolution no. 15519 of July 27th, 2006 concerning the format of financial statements, specific supplementary versions have been added for the Income Statement and for the Balance Sheet, which particularly stress those relations with associates and non-recurrent transactions that are most significant, in order to make the financial statements more readily comprehensible.

Stake acquisitions and goodwill

Stake acquisitions (from January 1st, 2010)

Stake acquisitions are entered using the acquisition method (in accordance with the guidelines of IFRS3). The amount paid for a purchased stake is calculated as the sum of the amount transferred at its fair value on the date of the acquisition with any minority stake already held in the purchased company. For all stake acquisitions, the buyer must enter any minority stake in the purchased company at its fair value, or proportionately to the share of the minority stake under the identifiable net assets of the purchased company. Costs of acquisition are covered and classified as administrative expenses.

All potential purchase prices must be listed by the buyer at their fair value on the date of acquisition and classified in accordance with the guidelines of IAS 32 and IAS 39.

In the case of the acquisition of companies, the identifiable assets, liabilities and potential liabilities acquired are recorded at their fair value on the date of acquisition. The positive difference between the acquisition cost and the Group's share in the current value of these assets and liabilities is classified as goodwill and entered in the financial statements as an intangible asset. Any negative difference ("negative goodwill") is recognised in the income statement at the time of acquisition.

After its initial recognition, goodwill is not subject to amortisation and is decreased by any accumulated impairment losses, as determined below. Goodwill relating to investments in subsidiaries and joint ventures is included in the carrying amount of those companies.

Goodwill is initially entered at the cost, i.e. the surplus between the amount paid summed to the amount of the minority stake, compared to the identifiable purchased net assets and the liabilities transferred to the Group. If the amount paid is less than the fair value of the net assets of the purchased subsidiary, the difference is entered in the Income Statement.

After its first entry, goodwill is not impaired and is decreased of any cumulated loss of value, determined according to the methods described hereinafter. Goodwill for stakes in associates and joint ventures is included in the book value of those companies.

Goodwill recoverability is analysed on a yearly basis or more frequently, if events or changes of circumstance lead to presumable loss of value. In order to audit the actual loss of value, goodwill acquired as part of a stake acquisition is allocated on the date of the acquisition to the Group's single cash-flow generating units, or to the groups of cash-flow generating units that are expected to benefit of the purchase's synergies, independently of whether other assets or liabilities of the purchased company have been assigned to those units or unit groupings.

Every unit or unit group to which goodwill is allocated:

represents the lowest level within the Group at which goodwill is monitored for internal management purposes; and
is not more than the divisions identifiable from the Group's industry-related information.

All loss of value is identified by comparing the book value of the cash-generating unit and its recoverable value, determined according to the methods described in paragraph "Loss of asset value". If the value recoverable by a cash-flow generating unit is less than the book value attributed to it, the relative loss of value is reported in the statement. This loss of value is not restored, even if the reasons that have generated it fall short.

If goodwill has been allocated to a cash-flow generating unit and the entity dismisses part of the assets of that unit, the goodwill associated to the dismissed asset must be included in the book value of the asset when determining the profit or loss deriving from the dismissal. Goodwill associated to the dismissed asset must be determined on the basis of the values afferent to the dismissed assets and to the part withheld by the cash-flow generating unit.

If the initial values of an acquired stake are incomplete on the closing date of the financial statements, the Group reports the temporary values of those incomplete elements in its consolidated financial statements. Said temporary values are adjusted in the period they are measured, to account for new information received on facts and circumstances on the date of the acquisition which, if known, would affect the value of the assets and liabilities recognised to that date.

Transactions by which the parent purchases or transfers a minority stake that do not affect its control over the subsidiary are classified as transactions with shareholders and therefore, their effects must be entered in the Net Equity: there will be no adjustments to goodwill and profit/loss reported in the Income Statement.

Loss of asset value ("Impairment")

Permanent assets whose value does not depreciate are annually audited to establish their recovery ("impairment") and whenever there is reason to believe their book value has suffered loss.

Assets that do depreciate are "impairment" tested only if there is reason to believe that their book value has decreased.

Value recoverability is calculated for goodwill purchased and allocated throughout the business year, at the end of the year the latter was purchased and allocated.

In order to verify its recoverability, goodwill is allocated on the date of its acquisition to the unit or group of cash-generating units that benefit of the acquisition.

The amount depreciated because of "impairment" is calculated as the difference between the asset's book value and its recoverable value, determined as the price of sale net of transaction costs and its expendable value, either of which is higher, or the current value, in other words, of the estimated financial flows gross of taxes, applying a discount rate that reflects current market cash value and risks that are specific to the asset. The loss because of a drop in value is at first attributed to the book value of the goodwill allocated to the unit (or unit group) and only later to the other unit assets, proportionately to their book value, up to the amount of the recoverable value of permanent assets. A loss of value is entered if the recoverable value is less than the book value. When a loss of asset value other than goodwill subsequently falls short or decreases, the book value of that asset or cash-flow generating unit is increased to the new estimated recoverable value and cannot exceed the value that would have been determined if no loss due to the drop had been reported. The restored loss of value is entered immediately in the Income Statement.

Tangible Assets

All categories of tangible assets, including real estate investments, are listed in the financial statements at their historical cost, minus the amortisation and "impairment", except for land, which is entered at its historical cost, minus any "impairment". The cost includes all expenses that are directly attributable to the purchase.

Costs incurred after the asset is purchased are accounted for as an increase of the historical value or listed separately, only if it is likely that it will generate future economic benefits and their cost is reliably quantifiable.

Amortisation of tangible assets is calculated with the linear method, to distribute the residual book value over the asset's estimated economic-technical lifespan.

Special maintenance costs capitalised as increase of an already existent asset are depreciated based on the residual lifespan of that asset or, if less, in the interim period from the date of service to the next scheduled maintenance.

The residual value and lifespan of tangible assets are reviewed and modified if necessary, on the closing date of the financial statements.

Capital gains or losses from transfers of tangible assets are entered in the Income Statement and are determined by comparing their book value to the price of sale.

Assets held by virtue of financial lease agreements that basically transfer all risks and benefits tied with the asset to the Group, are entered as Group assets at their fair value or, if less, at the current value of the minimum lease fees due. The lease fee is divided into taxable amount and interest share, determined by applying a fixed interest rate to the residual debt.

The financial debt with leasing companies is entered among the short-term liabilities (current amount) and among the long-term liabilities (amount to be reimbursed after year-end). Interest costs are attributed to the Income Statement for the entire contract term. The leased asset is entered among the tangible assets and is depreciated based on its estimated economic-technical lifespan.

Leased assets over which the lessor essentially preserves all risks and benefits tied thereto are classified as business leases. Costs of business leases are reported in the Income Statement over the term of the leasing agreement.

Real estate investments made in the prospect of collecting rental fees are entered at their book value, net of amortisation and losses due to cumulated reduction in value.

Intangible Assets

Assets with indefinite useful life

(a) Goodwill

Goodwill deriving from stake acquisitions is initially entered at its book value on the date of the acquisition. Goodwill generated by the acquisition of a stake in subsidiaries is included among intangible assets. Goodwill generated by the acquisition of a stake in associates and joint ventures is included in the stake's value. Goodwill is not depreciated, but audited to identify any loss of value, on a yearly basis or even more often, if specific events or changed circumstances give reason to believe that it may have lost value. After its first

entry, goodwill is evaluated at the cost net of any cumulated loss of value. On the date on which control over a formerly purchased company is transferred, the capital gain or loss from the transfer takes account of the corresponding residual value of the previously entered goodwill.

Intangible assets with indefinite useful lives are not depreciated, but are annually or even more frequently (whenever there is reason to believe the asset has lost value) subjected to an impairment test to identify any reduction in value.

Assets with finite useful life

(b) Software

Software licences are capitalised at their cost of purchase and the cost to put them in service, and are depreciated based on their estimated lifespan.

Costs associated to development and software program maintenance are considered operating costs and therefore attributed to the Income Statement according to their category.

(c) Research & Development costs

R&D costs are entered in the Income Statement in the business year they are incurred.

R&D costs relating to specific projects are capitalised if the following conditions are met:

the costs can be reliably determined;
the technical feasibility of the projects, the forecasted volumes and prices indicate that the costs sustained as part of R&D activities will generate economic benefits in the future.

R&D costs attributed to Income Statement over the course of previous years are not post-capitalised, if at a later date the requirements are met.

Capitalised R&D costs are depreciated from the date the product is sold, based on the period in which they are estimated to generate economic benefits (max. 8 years). R&D costs that do not fit the above conditions are charged to Income Statement in the year they were incurred.

(d) Trademark

Trademarks are considered perishable assets. In accordance with IAS 38, these assets are depreciated using a method that estimates when the future economic benefits yielded by the asset are presumed to be consumed.

(e) Other intangible assets

Other intangible assets purchased separately are capitalised at their cost, while those purchased as part of a stake are capitalised at their fair value identified on the date of the acquisition. After their first entry, intangible assets with finite useful life are entered at their cost, minus amortisation and "impairment"; intangible assets with indefinite useful life are instead entered at their cost, minus "impairment" only.

Intangible assets are annually subjected to an "impairment test", whenever there are reasons to caution its performance; this analysis can be conducted on the individual intangible asset or on a cash-flow generating unit of assets. The lifespan of other intangible assets is reviewed on an annual basis: any changes, where plausible, are reported in statements.

Financial Instruments

Presentation

The financial instruments held by the Group are included in the financial statement entries described below. The entry "Stakes and other non-current financial assets" includes stakes in other companies, stakes in joint ventures and other non-current financial assets.

Current financial assets include receivables and cash and cash equivalents. More specifically, the entry "Cash and cash equivalents" includes bank deposits.

Financial liabilities refer to financial debts, include debts for advance payments on orders or on credit transfers, as well as other financial liabilities (which include the negative fair value of hedging instruments), payables and other debts.

Evaluation

Stakes in other companies and stakes in joint ventures included among non-current financial assets are entered as described in the following paragraph "Consolidation principles".

Non-current financial assets other than stakes, such as financial liabilities, are entered, in accordance with what established by IAS 39 – Financial instruments: reporting and evaluation.

Assets held with the intent of keeping them in the portfolio until expiry are evaluated at the depreciated cost, using the effective interest method. When financial assets do not have a clear date of expiry, they are evaluated at their cost of purchase. Evaluations are meant to verify if there is objective evidence that a financial asset may suffer loss of value. If there is such evidence, the loss of value must be reported as cost in the Income Statement for the period. Except for hedging instruments, financial liabilities are listed as depreciated cost, using the method of effective interest.

Hedging instruments

Coherently with the contents of IAS 39, hedging instruments can be entered according to hedge accounting methods only when:

the formal designation and the documentation of the hedge are available on the starting date of the hedge;
it is presumed that the hedge is highly effective;
its effectiveness can be reliably measured; and
the hedge itself is highly effective during the various accounting periods for which it is designated.

All hedging instruments are measured at their fair value, as established by IAS 39.

When hedging instruments qualify for hedge accounting, they are entered in statements as follows:

Cash-flow hedge. If a hedging instrument is chosen to cover the exposure to unstable future cash flows of an asset or liability listed in the financial statements or of an expected and highly probable transaction that could affect the Profit & Loss, the effective share of the profit or loss for the hedging instrument is reported in Other total profits/(losses). The cumulated profit or loss are written off the Other total profits/(losses) and entered in the Income Statement in the same period in which the correlated economic effect of the hedged transaction is reported. The profit or loss associated to a hedge (or part of one) that has become obsolete are immediately entered in the Profit & Loss. If a hedging instrument or a hedge report are closed, but the hedged transaction has not yet been concluded, the cumulated profit and loss, hitherto entered in the Other total profits/(losses), are reported in the Income Statement with regards to the reported economic effects of the hedged transaction. If the hedged transaction is no longer presumed probable, the profits or losses as yet not accrued and suspended in the Other total profits/(losses) are immediately reported in the Profit & Loss.

Fair value hedge. If a hedging instrument is designated to hedge the exposure to variations of the fair value of an asset or liability in the financial statements that are attributable to a particular risk which may affect the Income Statement, the profit or loss deriving from subsequent evaluations of the fair value of the hedging instrument are reported in the Profit & Loss. The profit or loss on the hedged item is attributable to the hedged risk, modifying the book value of that item, and is reported in the Profit & Loss.
Hedge of a net investment. If a hedging instrument is designated to hedge a net investment in an offshore company, the effective share of profit or loss on the hedging instrument is reported in Other total profits/ (losses). The cumulated profit or loss are written off from the Net Equity and entered in the Income Statement on the date in which the offshore asset is dismissed.

Financial Liabilities

Financial liabilities encompass financial debts, which include debts for advance payments on orders or on transfers of credits, as well as other financial liabilities, including hedging instruments and liabilities against assets entered in the scope of financial leasing agreements. As required by IAS 39, they also include payables and miscellaneous debts.

Financial liabilities other than hedging instruments are initially entered at their fair value; they are subsequently evaluated at their depreciated cost, i.e. their starting value, net of already paid cash reimbursements, adjusted (increased or decreased) based on the amortisation (using the effective interest method) of any differences between the starting and closing value.

Loans

Loans are initially entered in the financial statements at their fair value, net of any accessory charges. After their first entry, they are accounted for on the basis of the depreciated cost criteria. Any difference between the collected financing net of any accessory charges and the amount reimbursed is entered in the Income Statement according to its item category, based on the effective interest method. Financings are listed among short-term liabilities, unless the Group does not enjoy unconditional right to defer them to a more than twelve months after the closing date of the financial statements.

Inventory

Inventories are entered at their cost or net price of sale, whichever is the least, with the latter consisting in the standard price applied to customers as part of the company's business, net of variable sale expenses. The cost is determined using the weighted average cost method.

The costs of finished and semi-finished products include design, commodities, cost of direct labour, other direct costs and other indirect costs that can be allocated to production based on a normal manufacturing capacity and to their stage in production. This cost configuration does not include financial charges.

Calculations include provision to cover depreciation of commodities, finished products, spare parts and other supplies considered obsolete or with a slow rotation, taking account of their expected future use and their price of sale.

Receivables and other credits

Receivables are initially entered at their fair value and subsequently quantified at their depreciated cost by applying the effective interest method, net of impairment, to account for receivables that prove uncollectable. Credit impairment is reported if there is objective evidence that the Group will not be able to collect the full amount due by the deadlines agreed with the customer.

The impairment amount is determined as the difference between the book value of the credit and the current value of future receivables, updated with the effective interest rate method. Credit impairment is entered in the Profit & Loss.

Credit Transfers

Transferred credits are cancelled from the company's assets following factoring transactions if and only if the risks and benefits that come with their ownership have all been transferred to the beneficiary; a financial liability of the same amount is entered in the consolidated financial statements as debts for advance payments on credit transfers. Profits and losses from the transferred assets are only reported when those assets have been cancelled from the Group's Balance Sheet.

All credits transferred through factoring transactions that do not meet the requisites for their cancellation as established by IAS 39 remain listed in the Group's financial statements, even though they have legally been transferred.

Cash and cash equivalents

Cash and cash equivalents include cash, bank deposits instantly available and overdraft allowances on bank accounts and other liquid investments collectable within three months. Bank overdrafts are entered in the financial statements among short-term financings.

Assets for sale

The entry "Assets for sale" include non-current assets (or groups of dismissed assets) whose book value will be largely recovered through their sale (as opposed to their continued use). Assets for sale are entered at the least between the net book value and the fair value net of costs of sale and they are not subject to amortisation.

Share Capital

Ordinary shares are classified in the Net Equity.

Accessory charges directly linked to issued shares or to options are entered in the Net Equity, subtracted from cash payments. When the Group purchases parent shares (treasury shares), the price paid net of all directly attributed accessory charges is subtracted from the Group's Net Equity, until the treasury shares are either cancelled or sold.

Current and deferred taxes

The income tax burden for the year is determined according to the legislation in force and at the date of closure of the financial statements. Income tax is reflected in the Income Statement. In particular as regards the three Italian companies, it is highlighted that the national consolidated taxation regime is in force, in accordance with article 117/129 of the Consolidation Act on Income Tax (TUIR).

Deferred taxes are calculated on all temporary differences between the fiscal value and book value of assets and liabilities listed in the financial statements.

Deferred taxes are not accounted for:

on goodwill deriving from stake acquisitions;
on the initially entered asset and liability deriving from a transaction other than a stake acquisition and that does not affect either the operating profit calculated in the financial statements or the taxable income.

Deferred taxes are calculated using tax rates and applying the laws issued or essentially issued on the closing date of the financial statements, and that are expected to be applied upon reversal of the temporary differences that have led to their entry in the first place.

Prepaid tax receivables are entered in the financial statements only if it is likely that when the temporary differences are reversed, a taxable income will be generated that is sufficient to compensate the credit. Prepaid tax receivables are reviewed at the end of every business year and if need be reduced, to the extent that it is improbable that sufficient taxable income will be available in the future, so that part or all the credit can be used.

Deferred taxes are also calculated on temporary differences that originate on stakes in subsidiaries, associates and JV's, except when the reversal of those differences can be contained by the Group and it is likely that they will not occur in the near future. Deferred taxes on components reported directly in the Net Equity are likewise directly attributed to the Net Equity.

Employee benefits

On June 16th, 2011, the IASB issued an amendment to "IAS 19 - Employee Benefits", which modifies the rules for the recognition of fixed benefits plans and of terminations benefits. The main changes concern the recognition in the balance sheet of the deficit or surplus of the plan, the introduction of the net financial burden and the classification of net financial expenses. In particular:

Recognition of the deficit or surplus of the plan: the amendment eliminates the option to defer actuarial gains and losses with the "corridor method" and it requires the recognition directly in Other overall gains (losses) and the recognised in the Income Statement of costs related to past service;
Net financial burden: the net financial burden is composed of financial costs calculated on the present value of liabilities for fixed benefits plans, financial gains from the valuation of plan's assets and financial income or expenses arising from any limits to the recognition of the surplus of the plan. The net financial burden is determined using for all of these components the discount rate used for the measurement of the fixed benefits plans at the beginning of the period;
Classification of net financial expenses: net financial expenses will be recognised among the financial income (expense) in the Income Statement.

(a) Pension plans

On December 31st, 2006, Severance Pay (TFR) of Italian companies was considered a plan of fixed benefits. The legislation applying to the liability was modified by Law of December 27th, 2006, no. 296 ("Financial Law 2007") and the subsequent Decrees and Regulations issued in the first months of 2007. In light of those amendments, and with reference in particular to companies with at least 50 employees, Severance Pay is now considered a plan of fixed benefits only for shares accrued before January 1st, 2007 (and resulting as unpaid in the financial statement), while shares accrued at a later date can be assimilated to a fixed contributions plan.

Plans of fixed benefits are pension liabilities that define the amount of the pension benefit owed to the worker on the date the employment relation is ended; this amount depends on several factors, such as age, years of service and wage.

Fixed-contribution plans are pension plans for which the Group pays a fixed amount to a separate entity. The Group is in no way implicitly required by law to pay additional sums, should the activities in service of the plan prove insufficient to pay off benefits owed to employees for their current service and for services provided hitherto.

The plans described here were recorded in accordance with the provisions of IAS 19.

(b) Benefits paid to employees who attain seniority status

Certain Group companies pay their employees benefits after a set number of years in service (seniority status). The benefits described here were recorded in accordance with the provisions of IAS 19.

(c) Incentives, bonuses and profit-sharing agreements

The Group enters a cost and a debt in view of liabilities that originate for bonuses, employee incentives and profit-sharing agreements, which are calculated with a formula that accounts for profits attributable to shareholders (given their due adjustments). The Group enters a liability under a listed fund only if the event is likely to occur, if contractually due, or in view of a procedural custom that infers an implicit obligation.

Provisions for risks and charges

Provisions to cover risks and charges are accounted for when:

the Group is faced with a legal or implicit obligation as result of previous events;
a deployment of resources to cover the obligation and its amount is probable;
its amount is reliably determinable.

Restructuring provisions include both liabilities deriving from early retirement incentives and penalties tied to terminated leasing agreements. No provisions are accounted for risks and charges in view of future operating losses.

Provisions entered in the financial statements are the best updated estimates made by Directors in identifying the costs (amount) the Group will be called to incur on the closing date to extinguish the obligation.

Income

Entered income includes the fair value deriving from the sale of assets and services, net of VAT, returned goods, discounts and infra-Group transactions. Income is entered in accordance with the following rules:

(a) Sale of assets

Income for sold assets/goods (laser systems, sheet metal processing machines and components) are reported when all of the following conditions are met:

the Group has transferred all significant risks and benefits that come with ownership of the assets to the buyer;
the Group ceases to physically control the sold goods;
the income (value) is reliably determinable;
it is likely that the economic benefits deriving from the transaction will be enjoyed by the Group;
costs incurred or yet to incur for the transaction are reliably determinable.

(b) Service provision

Income for provided services are accounted for based on their progress in the business year they are rendered.

(e) Dividends

Dividends are accounted for in the year the shareholders accrue right to receive their payment.

Distributions of Dividends

Dividends distributed among shareholders generate a debt on the date their distribution is approved by the Shareholders' Assembly.

Profit per Share

Basic profit per share is calculated by dividing the Group's Net Profit by the weighted average value of shares in circulation during the business year. In order to calculate profit by single share, the average weighted value of circulating shares is modified on the assumption that all shares with a potentially diluting effect will be converted. The Group's Net Profit too, is adjusted to account for the effects (net of taxes) of the conversion of potentially diluting shares issued by subsidiaries.

Public Contributions

Public contributions are entered in the financial statements at their fair value only if it is reasonably certain they will be paid and the Group has satisfied all the requirements established by the conditions to obtain them. Revenues from Public Contributions are recorded in the Income Statement if the costs for which they were granted are actually incurred.

Currency conversions

(a) Functional currency and listing currency

Financial statements of subsidiaries, associates and joint ventures are drafted applying their functional currency, i.e. the currency widely used in their chief area of business. The currency used by the PRIMA INDUSTRIE Group for financial statement entries is the Euro.

(b) Assets, liabilities and transactions in foreign currencies

Transactions in a foreign currency are initially reported at the exchange rate applicable on the date of the transaction.

Assets and liabilities in a foreign currency are converted to Euros using the exchange rate applicable on the closing date of the financial statements. All currency exchange differences are reported in Profit & Loss.

(C) Group companies

On the closing date of the financial statements, the assets and liabilities of Group companies in a foreign currency are converted to Euros at the exchange rate applicable on said date. Their entry in the Income Statement is converted applying the average exchange rate for the year. Currency exchange differences are directly reported in Net Equity and are listed separately in the "Currency conversion Reserve", until dismissal of the subsidiary.

Fair Value

The fair value of financial instruments exchanged on an active market is determined on the basis of market prices on the closing date of the financial statements. The market price used as reference for financial assets held by the Group is the current price of sale (or price of purchase for financial liabilities).

The fair value of financial instruments exchanged on an active market is determined by a whole set of estimating techniques and assumptions, based on the market conditions existent on the closing date of the financial statements. For medium and long-term liabilities, the prices of similar financial instruments exchanged are compared, while the financial flows are updated for other categories of financial instruments.

The fair value of IRS is determined by updating the estimated cash flow deriving from the latter on the closing date. For credits, it is presumed that the nominal value net of any adjustments made to account for their collectability is close to the fair value. For the purpose of the required information provided in this report, the fair value of financial liabilities is determined by updating cash flow generated by contracts at an interest rate approximating the market rate the Group applies to fund its business.

Discretional assumptions and significant accounting estimates

Drafting the financial statements calls upon the management to make a series of subjective assumptions and estimates drawing from past experience.

Application of those estimates and assumptions affects the amount of assets and liabilities entered in the Balance Sheet, as well as the costs and income reported in the Income Statement. Actual results may differ (even substantially) from the estimated amounts, considering the natural uncertainty that surrounds the assumptions and underlying conditions.

More specifically, taking account of the uncertainty that persists in certain markets and the economic-financial context in which the Group operates, it cannot be excluded that in the next business year, results will be different from our estimates and that adjustments (even significant) to the book value of the given entries may therefore prove necessary, which cannot presently be either estimated or forecasted. The financial statement items concerned by this condition of uncertainty are credit impairment and warehouse depreciation, non-current assets (tangible and intangible assets), pension liabilities and other benefits accrued after the employment relation and deferred tax receivables.

What follows is a summary of the main evaluation process and key assumptions made as part of that process that may significantly affect the amounts reported in the consolidated financial statements or that involve a risk of ensuing adjustments to the book value of the assets and liabilities in the year following the one balanced in the financial statements.

Goodwill recovery

The book value of this asset was calculated mainly by applying cash-flow estimates expected from its use and adequate discount rates to calculate its current value; if not completely exhaustive, other methods of evaluation were used. As part of the process, and for the purpose of drafting the consolidated financial statements at December 31st, 2017 and, in particular, when performing impairment tests, the foreseeable trend between the period 2018-2020 was considered. Based on the budget figures thus modified, no need for impairment has emerged.

Recoverability considerably depends on the discount rate used as part of updated cash-flow models, including cash flow expected in the future and the rate of growth used for extrapolation. The key assumptions made in determining recovery for the several cash-flow generating units (CGU), including a sensitivity analysis, are described in detail in Note 2 – Intangible assets.

Research and development costs

Research and development costs that meet the requirements for capitalisation are recorded under Intangible Fixed Assets. The average life of research and development projects is estimated at a maximum of 8 years, which is the average period in which the products are estimated to generate cash flows for the Group. Prepaid and deferred taxes

Deferred tax receivables and payables entered in the financial statements are determined by applying the difference between the statutory value and the fiscally recognised value of the various assets and liabilities, the tax rates that are presumed to apply in the various countries in the year the temporary differences are expected to fall short. Prepaid taxes relating to fiscal losses reportable in following years are entered in the financial statements only if and to the extent that the management expects the concerned company to generate a fiscal profit in those years, such as to allow their absorption.

If arising circumstances after the estimates are made induce management to modify those evaluations, i.e. the rate used in calculating the deferred taxes has changed, the items entered in the financial statements are accordingly adjusted.

Inventory Provision

In determining inventory provision, Group companies make a series of estimates on the future requirement for various types of products and materials shared, based on their production plans and previous experience with customer demand. If those estimates prove inaccurate, the obsolescence reserves will be adjusted and will consequently affect the Profit & Loss.

Credit impairment

Provisions for credit impairment are determined based on an analysis of individual credit items and in light of past experience with credit collection and customer relations. If the economic and financial conditions of an important customer suddenly worsen, it may call for the need to adjust credit impairment, consequently having negative effects in terms of profit.

Employee Benefits

Several Group companies (particularly in Italy, Germany and France) have legally or contractually required plans for employee benefits that are paid after the employment relation ends. To calculate the amount entered in the financial statements, actuarial estimates are required that duly consider a series of assumptions on such parameters as annual inflation rates, increase in salaries, annual personnel turnover rate and a set of other variables. A variation in these parameters calls for a readjustment of the actuarial estimates and, consequently, of the amounts reported in the financial statements.

Variations to accounting principles

Accounting principles and interpretations approved by the European Union from January 1st, 2017 At the date of this Annual Report, the new principles approved by law by the European Union and effective from January 1st, 2017 are:

Amendments to IAS 7 Statement of Cash Flows, Disclosure Initiative. The changes made concern the information that companies will have to provide to enable investors to evaluate the changes in liabilities from financing activities. The new provisions will apply from the years beginning on or after January 1st, 2017.
Amendments to IAS 12 Income taxes, recognition of deferred tax assets for unrealised losses. The amendments made provide clarification regarding the recognition of deferred tax assets for debt instruments valued at fair value. The new provisions will apply from the years beginning on or after January 1st, 2017.
Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: sale or transfer of assets between an investor and its associate/joint venture; application deferred indefinitely.
Improvements to IFRS (2014-2016 Cycle) Amendments to IFRS 12, applicable from January 1st, 2017.

Accounting principles and interpretations issued by IASB and transposed by the European Union At the date of this Annual Report, the following principles have been issued by the IASB and incorporated by the European Union:

IFRS 15 Revenues from Contracts with Customers: on October 29th, 2016, EU Regulation no. 2016/1905 transposing IFRS 15 – Revenues from Contracts with Customers was issued. IFRS 15 replaces IAS 18 – Revenue, IAS 11 – Construction Contracts and the related interpretations on revenue disclosure, consisting of IFRIC 13 – Customer Loyalty Programmes, IFRIC 15 – Agreements for the Construction of Real Estate, IFRIC 18 – Transfers of assets from Customers and SIC 31 Revenue – Barter Transactions Involving Advertising Services. The application of the new standard from January 1st, 2018 will involve, alternatively, a method for redetermining all comparative periods presented in the financial statements ("full retrospective method") and a "simplified" method involving the cumulative effect of the first application of the principle that adjusts opening net equity for the year in which the new principle is adopted, with no change to the data concerning all the comparative periods presented. The new standard – which involves recognition of revenue specifically when control of goods or services is transferred to customers, at an amount reflecting the consideration that is expected to be received in return for those products or services – introduces a five-step methodology to analyse transactions and define the revenue recognition method in terms of both "point-in-time"/"over time" recognition, and in terms of total amounts. At the date of approval of these financial statements, the Group is completing an analysis of the impacts that could change the methods for recognising revenues as a result of adoption of the new standard. The analyses carried out so far have identified a performance obligation in the warranty extension period on machinery compared to normal conditions, to be accounted for separately. The Group does not expect significant impacts to result from application of the new IFRS 15.
IFRS 9 Financial Instruments: On November 29th, 2016, EU Regulation no. 2016/2067 transposing IFRS 9 - Financial Instruments concerning the classification, measurement and cancellation of financial assets/

liabilities, the reduction in the value of financial instruments and the disclosure of hedging transactions was issued. IFRS 9, which will be applicable from January 1st, 2018, (i) modifies the classification and valuation model for financial assets; (ii) introduces the concept of expected credit losses among the variables to be considered in the valuation and impairment of financial assets; (iii) modifies the provisions for hedge accounting. At the date of approval of these financial statements, the Group's analysis is proving that application of this standard will have no significant impacts.

IFRS 16 Leases, applicable from January 1st, 2019, with the full or simplified retrospective method described above in relation to IFRS 15. IFRS 16 replaces IAS 17 – Leases and its related interpretations, IFRIC 4 - Determining whether an Arrangement Contains a Lease, SIC 15 - Operating Leases – Incentives, SIC 27 - Evaluating the Substance of Transactions involving the Legal form of a Lease. For the lessee, IFRS 16 requires that for all passive lease contracts, regardless of whether they are operational or financial in nature, a liability should be entered in the balance sheet, represented by the current value of future lease fees, against an entry among the assets of the right to use the leased asset. Leases of less than or equal to 12 months' duration and leases of low value assets can be exempt from application of IFRS 16. The main impacts of the new standard on the financial statements will be: a) balance sheet and financial position, greater non-current assets due to the inclusion of the right to use the leased asset set off against financial payables; b) income statement, inclusion of amortization of the right to use the leased asset and interest charges on current operating lease fees.
Clarification of IFRS 15 Revenues from Contracts with Customers, applicable from January 1st, 2018.
Improvements to IFRSs (2014-2016 Cycle) Amendments to IAS 28, applicable from January 1st, 2018.

Accounting principles and interpretations issued by IASB and not yet transposed by the European Union

At the date of this Annual Report, the following new principles and interpretations have been issued by the IASB but have not been transposed into European Union law:

Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions, applicable from January 1st, 2018.
IFRIC 22 Foreign Currency Transactions and Advance Consideration, applicable from January 1st, 2018. This interpretation refers to transactions in foreign currencies where a company recognises a non-monetary asset or liability arising from the payment or collection of an advance before the company recognizes the related asset, cost or revenue.
Amendments to IAS 40 Investment Property, applicable from January 1st, 2018.
IFRIC 23 Uncertainty over Income Tax Treatments, applicable from January 1st, 2019. This clarifies how to reflect uncertainty for accounting in income taxes in the event that the tax treatment on a specific transaction is unclear.
Amendments to IAS 28 "Long-term interests in Associates and Joint Ventures" which clarifies that an entity that applies IFRS 9 to long-term interests in an associate or joint venture that is part of its net investment in the associate or joint venture. These changes will apply from January 1st, 2019.
Improvements to IFRSs (2015-2017 Cycle) Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23, applicable respectively from January 1st, 2019.

The Group will adopt these new principles, amendments and interpretations from their date of application. At this time no significant impacts on the financial statements are expected, with the exception of the effects of application of IFRS 16 – Leases, as described above, on which the Group is currently conducting an analysis.

8 2017 Financial Annual Report

Explanatory notes to the Consolidated Financial Statements December 31st, 2017

Chapter 8. Explanatory Notes to the Consolidated Financial Statements at December 31st, 2017

The data shown in the explanatory notes, if not shown otherwise, are expressed in EUR.

Sector report

in accordance with IFRS 8, and in line with the Group's management and control model, the Group's management has identified PRIMA POWER and PRIMA ELECTRO as the operating divisions that are subject to sector reports.

The PRIMA POWER Division includes the design, manufacture and sale of:

laser machines to cut, weld and punch metallic components, three-dimensional (3D) and two-dimensional (2D), and
sheet metal processing machines that use mechanical tools (punchers, integrated punching and shearing systems, integrated punching and laser cutting systems, panel bending, bending machines and automated systems).

The PRIMA ELECTRO Division includes the development, construction and sale of electronic power and control components, and hi-power laser sources for industrial applications, intended for the machines of the Group and third customers.

The following sector report is subject to different disclosure rules than those used in the Consolidated Financial Statements of the PRIMA INDUSTRIE Group at December 31st, 2016. The form chosen conforms to internal reporting and business management procedures and is in line with international practice within the sector in which the Group operates. From January 1st, 2017, the Group presents the income statement according to the "cost of goods sold" rather than by expenditure type. Presentation of costs based on their allocation is considered more representative than disclosure by type of expenditure.

The following tables show the financial information directly attributable to the two divisions.

	PRIMA POWER		PRIMA ELECTRO		ELIMINATION		PRIMA INDUSTRIE GROUP
	DEC 31,	DEC 31,	DEC 31,	DEC 31,	DEC 31,	DEC 31,	DEC 31,	DEC 31,
VALUES IN EURO THOUSAND	2017	2016	2017	2016	2017	2016	2017	2016
Net revenues	423,118	368,669	52,325	42,222	(25,940)	(17,005)	449,503	393,886
Cost of goods sold	(324,014)	(282,160)	(41,739)	(32,472)	25,657	16,729	(340,096)	(297,903)
GROSS MARGIN	99,104	86,509	10,586	9,750	(283)	(276)	109,407	95,983
Research and Development costs	(9,992)	(9,059)	(2,731)	(2,041)	159	167	(12,564)	(10,933)
Sales and marketing expenses	(26,932)	(24,714)	(2,662)	(3,190)	(37)	1	(29,631)	(27,903)
General and administrative expenses	(21,043)	(18,373)	(3,026)	(3,262)	35	(103)	(24,034)	(21,738)
OPERATING GROSS MARGIN (EBITDA)	41,137	34,363	2,167	1,257	(126)	(211)	43,178	35,409
Depreciation and Impairment - Write-off	(13,563)	(12,224)	(3,333)	(4,672)	14	15	(16,882)	(16,881)
OPERATING PROFIT (EBIT)	27,574	22,139	(1,166)	(3,415)	(112)	(196)	26,296	18,528
Net financial expenses	(3,524)	(7,377)	(503)	(503)	-	-	(4,027)	(7,880)
Net exchange differences	(2,852)	(290)	(121)	(64)	-	4	(2,973)	(350)
Dividends	-	360	-	-	-	(360)	-	-
Net result of investments accounted for using the equity method	-	-	-	1,057	-	-	-	1,057
Net result of other investments	-	-	2,556	(8)	-	-	2,556	(8)
RESULT BEFORE TAXES (EBT)	21,198	14,832	766	(2,933)	(112)	(552)	21,852	11,347
Taxes	(3,153)	(2,674)	73	1,427	(104)	60	(3,184)	(1,187)
NET RESULT	18,045	12,158	839	(1,506)	(216)	(492)	18,668	10,160
- Attributable to Group shareholders	17,893	12,100	839	(1,506)	(216)	(492)	18,516	10,102
- Attributable to minority shareholders	152	58					152	58

	PRIMA POWER		PRIMA ELECTRO		ELIMINATION		PRIMA INDUSTRIE GROUP
VALUES IN EURO THOUSAND	DEC 31, 2017	DEC 31, 2016	DEC 31, 2017	DEC 31, 2016	DEC 31, 2017	DEC 31, 2016	DEC 31, 2017	DEC 31, 2016
Property, plant and equipment	26,995	27,055	8,632	8,226	1	-	35,628	35,281
Intangible assets	132,525	139,048	20,073	19,730	(2,995)	(3,065)	149,603	155,713
Investments accounted for using the
equity method	-	-	-	1,009	-	-	-	1,009
Other investments	11,281	11,061	19	23	(10,945)	(10,945)	355	139
Non current financial assets	-	1,300	10	10	-	(1,300)	10	10
Deferred tax assets	8,053	7,304	2,921	3,826	366	425	11,340	11,555
NON CURRENT ASSETS	178,854	185,768	31,655	32,824	(13,573)	(14,885)	196,936	203,707
Inventories	95,716	81,488	18,687	18,346	(1,368)	(1,273)	113,035	98,561
Trade receivables	106,972	82,400	15,598	13,115	(8,921)	(7,139)	113,649	88,376
Other receivables	6,600	5,487	1,416	936	2	3	8,018	6,426
Current tax receivables	7,606	4,464	2,186	1,035	(412)	(445)	9,380	5,054
Derivatives	58	-	-	-	-	-	58	-
Financial assets	1,602	810	-	-	(810)	(18)	792	792
Cash and cash equivalents	68,052	56,874	2,469	5,806	-	-	70,521	62,680
CURRENT ASSETS	286,606	231,523	40,356	39,238	(11,509)	(8,872)	315,453	261,889
Assets held for sale	384	319	727	-	-	-	1,111	319
TOTAL ASSETS	465,844	417,610	72,738	72,062	(25,082)	(23,757)	513,500	465,915
STOCKHOLDERS' EQUITY	132,101	120,615	31,688	33,014	(14,835)	(14,677)	148,954	138,952
Interest-bearing loans and borrowings	90,720	102,537	7,676	9,139	-	-	98,396	111,676
Employee benefit liabilities	5,117	5,388	2,577	2,712	-	-	7,694	8,100
Deferred tax liabilities	4,311	5,793	1,792	2,729	(106)	(181)	5,997	8,341
Provisions	172	163	-	-	-	-	172	163
Derivatives	80	221	-	-	-	-	80	221
NON CURRENT LIABILITIES	100,400	114,102	12,045	14,580	(106)	(181)	112,339	128,501
Trade payables	105,954	86,460	13,356	9,116	(8,845)	(7,128)	110,465	88,448
Advance payments	43,167	24,908	453	1,121	-	-	43,620	26,029
Other payables	21,928	19,231	3,039	2,845	(16)	-	24,951	22,076
Interest-bearing loans and borrowings	32,506	26,209	10,879	10,004	(860)	(1,319)	42,525	34,894
Current tax payables	6,011	7,582	481	565	(420)	(452)	6,072	7,695
Provisions	23,777	17,607	797	817	-	-	24,574	18,424
Derivatives	-	896	-	-	-	-	-	896
CURRENT LIABILITIES	233,343	182,893	29,005	24,468	(10,141)	(8,899)	252,207	198,462
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES	465,844	417,610	72,738	72,062	(25,082)	(23,757)	513,500	465,915

Prima Power

Revenues for the PRIMA POWER division increased by 14.8% from the previous year. The division achieved excellent revenues in Italy and ex-Yugo countries (14.9% of the division's revenues), in Northern Europe (7.6%), Spain (6.5%) and Germany (5.5%). Sales in NAFTA countries account for 26.5% of the division's revenues, whereas China accounts for 14.5%.

EBITDA in the PRIMA POWER segment is 41,137 thousand EUR and increased in both absolute terms (6,774 thousand EUR) and in percentage terms, from 9.3% to 9.7%. Of note is that EBITDA to December 31st, 2017 is affected by non-recurring events of 2,632 thousand EUR and refer to 1,125 thousand EUR for restructuring/ reorganisation costs and 1,504 thousand EUR for litigation costs and penalties from customers/suppliers. At December 31st, 2016, non-recurring events were -979 thousand EUR. EBIT at December 31st, 2017 had increased by 5,435 thousand EUR. This result is affected by 13,563 thousand EUR amortization, of which 6,817 thousand EUR was the amortization of development costs and fixed assets with a defined useful life recognised in the business merger of the FINN-POWER Group (brand and relations with customers – "customer list"), which amounted to 3,180 thousand EUR.

Prima Electro

Revenues in the PRIMA ELECTRO division went up 10,103 thousand EUR from December 31st, 2016. For the PRIMA ELECTRO division, growth was due to captive supplies of fiber lasers.

EBITDA of the division is 2,167 thousand EUR and increased from December 31st, 2016 in both absolute terms (+910 thousand EUR) and in percentage terms, from 3.0% to 4.1% from same period of the previous year. EBITDA to December 31st, 2017 is affected by non-recurring events of 747 thousand EUR. Non-recurring events at December 31st, 2016 were positive for 253 thousand Euro. EBIT was negative at 1,166 thousand EUR and increased by 2,249 thousand EUR compared to the previous year. This result is affected by 1,596 thousand EUR amortization and impairment and 1,737 thousand EUR for intangible assets (of which 1,685 for development costs). EBIT to December 31st, 2017 is affected by non-recurring events of 723 thousand EUR. Non-recurring events at December 31st, 2016 were negative for 774 thousand EUR.

Consolidated financial position

1. Property, plant and equipment

The tangible fixed assets on December 31st, 2017 are equal to 35,628 thousand EUR an increase of 346 thousand EUR compared with December 31st, 2016.

For more details figure, refer to the table below.

			INDUSTRIAL AND	OTHER	FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT	LAND AND BUILDING	PLANTS AND MACHINERY	COMMERCIAL EQUIPMENT	TANGIBLE FIXED ASSETS	UNDER CONSTRUCTION	TOTAL

Net value as at
December 31, 2015	18,977,163	2,292,078	3,611,294	2,599,798	985,223	28,465,557
Movements 2016
Increases	7,101,922	1,273,068	990,760	1,215,751	223,129	10,804,630
Disinvestments	-	(218,723)	(131,566)	(525,028)	-	(875,317)
Utilization of accumulated
depreciation	-	217,996	112,957	472,084	-	803,037
Depreciation	(813,879)	(581,290)	(1,397,421)	(1,129,796)	-	(3,922,386)
Reclassifications with tangible fixed assets	222,051	14,500	220,081	64,577	(521,209)	-
Differences on exchange rates	(67,198)	(22,307)	50,223	44,890	240	5,848
Net value as at December 31, 2016	25,420,059	2,975,322	3,456,328	2,742,276	687,383	35,281,369
Movements 2017
Increases	837,416	894,549	1,490,834	1,177,600	1,168,749	5,569,148
Disinvestments	-	(449,717)	(307,429)	(736,550)	-	(1,493,696)
Utilization of accumulated depreciation	-	424,899	276,935	691,897	-	1,393,731
Depreciation	(1,001,357)	(812,051)	(1,389,251)	(1,184,436)	-	(4,387,095)

Impairment	-	-	-	-	(23,299)	(23,299)
Reclassifications with tangible fixed assets	4,976	146,929	2,037	-	(153,942)	-
Reclassifications with intangible assets	-	-	-	(73,067)	-	(73,067)
Differences on exchange rates	(281,558)	(34,976)	(203,830)	(95,658)	(23,318)	(639,340)
Net value as at December 31, 2017	24,979,536	3,144,955	3,325,624	2,522,062	1,655,573	35,627,751

The increases for the year amounted to 5,569 thousand EUR and net disposals amounted to 100 thousand EUR. As can be seen in the table above, the most significant increases in the year relate to Industrial and commercial equipment, Other assets (which include electronic office machinery, furniture, vehicles, etc.) and Fixed assets under construction.

Depreciation in the year totalled 4,387 thousand EUR, while exchange rate differences had a negative impact of 639 thousand EUR.

The table below shows the net book value of tangible fixed assets acquired through financial leasing.

	DEC 31, 2017	DEC 31, 2016
Land and Building	9,528,850	9,927,409
Plants and Machinery	605,202	804,954
Industrial and Commercial equipment	21,748	30,447
Other tangible fixed assets	729,176	785,191
TOTAL	10,884,976	11,548,002

2. Intangible assets

The intangible assets on December 31st, 2017 are equal to 149,603 thousand EUR and decreased by 6,110 thousand EUR compared with December 31st, 2016.

For more details, refer to the table below.

		DEVELOPMENT	OTHER INTAGLIBLE
INTANGIBLE ASSETS	GOODWILL	COSTS	ASSETS	TOTAL
Net value as at December 31, 2015	103,169,846	36,348,277	18,252,851	157,770,974
Movements 2016
Increases/(decreases)	-	9,710,945	904,090	10,615,035
Depreciation	-	(7,993,986)	(3,937,312)	(11,931,298)
Impairment	-	(1,027,682)	-	(1,027,682)
Reclassifications with intangible assets	-	309,525	(309,525)	-
Differences on exchange rates	91,975	189,284	5,111	286,370
Net value as at December 31, 2016	103,261,821	37,536,363	14,915,215	155,713,399
Movements 2017
Increases/(decreases)	-	6,842,883	640,836	7,483,719
Depreciation	-	(8,487,865)	(3,983,958)	(12,471,823)
Reclassifications with tangible fixed assets	-	-	73,067	73,067
Differences on exchange rates	(350,384)	(791,516)	(52,982)	(1,194,882)
Net value as at December 31, 2017	102,911,437	35,099,864	11,592,178	149,603,479

The most significant item is represented by Goodwill, which on December 31st, 2017 amounts to 102,911 thousand EUR. Goodwill accounted for refers to the larger value paid with respect to the fair value of the net assets acquired.

The table below shows the book value of the goodwill allocated to each of the Cash Generating Units (CGU).

CASH GENERATING UNIT	BOOK VALUE GOODWILL DECEMBER 31, 2017	BOOK VALUE GOODWILL DECEMBER 31, 2016
PRIMA POWER	97,633	97,851
PRIMA ELECTRO - BU Electronics	4,316	4,316
PRIMA ELECTRO - BU Laser	962	1,095
TOTAL	102,911	103,262

During 2017, following the organisational changes within the PRIMA ELECTRO division, management assessed the level of aggregation of CGUs previously identified for the goodwill impairment test.

This assessment concluded with management determining that the OSAI (Service) and CONVERGENT PHOTONICS CGUs were no longer representative of the way goodwill is monitored.

Consequently, the following new CGUs were identified within the PRIMA ELECTRO division:

PRIMA ELECTRO Business Unit ELECTRONICS
PRIMA ELECTRO Business Unit LASER

There were no changes in CGU for PRIMA POWER.

Prima Power

At December 31st, 2017, the recoverable value of the cash generating unit underwent an impairment test to ascertain any loss in value. This involved a comparison of the book value of the unit (including goodwill) and its value in use, that is the present value of the expected future cash flows from its continuous use and from its disposal at the end of its useful life.

The value in use was determined by discounting the cash flows in the PRIMA POWER segment business plan approved by the Board of Directors of PRIMA INDUSTRIE SpA and concerning the period January 1st, 2018 – December 31st, 2020. The assumptions in the cash flow forecast in the explicit projection period were based on prudential finding and use realistic and achievable future expectations. In order to determine the value in use of the CGU, the sum of the explicit projection cash flows, discounted by 3 years, and a terminal value were considered, to determine the criteria for discounting the perpetual annuity. The discount rate applied to future cash flows was 7.80% (post-tax), calculated in consideration of the sector in which the CGU operates, the countries in which the CGU is expected to achieve the planned results, the fully operational debt structure and the current economic situation. This rate is more or less in line with the one used at the end of the previous financial year (at December 31st, 2016 the post-tax rate was 7.89%). For cash flows of financial years after the explicit projection period, a growth rate of 0.5% (the same used in previous years) was assumed, in line with growth expectations. Determination of the value-in-use using the process illustrated led to a recoverable value above the book value of the cash-flow generating unit, making it possible to avoid any reductions in the value of goodwill allocated to the PRIMA POWER segment.

With respect to the basic assumptions described above, an analysis of sensitivity was made of the results with respect to the WACC, the growth rates (g) and the forecast results. In particular, even with significant increases on the cost of capital and setting to zero the perpetuity growth rate (g), the values of use show no impairment losses. Considering a growth rate (g) of zero, the WACC (post-tax) that would make the recoverable value of the CGU equal to its book value would be 20.31%.

A sensitivity test was also performed with forecast results lower than those reflected in the 2018 - 2020 plan. If revenues forecasted for 2018 were reduced by 5% (and likewise EBITDA) and the percentage growth rates were maintained for the following years, hence even (with a post-tax WACC of 7.80% and growth rate of 0.5%) the values of use would not show impairment losses. Considering a growth rate (g) of 0.5% and a WACC of 7.80%, a 30% reduction in future revenues (with percentage growth maintained at the same rates in the subsequent years) would make the recoverable value of the CGU the same as its book value.

It should be emphasised that the data for this sensitivity study refers to a theoretical year that has some limitations. Indeed, in the reference industry, the greater the revenue contractions, the higher the growth rates during the positive phase of the cycle. Hence a 30% reduction in revenues, keeping the growth rates constant in the following years (i.e. no recovery of the percentage loss of revenues during the five-year period), would mean either a contraction in the machine tools market during the next cycle or a loss in market share for the PRIMA POWER segment. Neither of these events appears likely at the moment.

At the end of the test, the value-in-use of the PRIMA POWER CGU at December 31st, 2017 is greater than its book value of around 285 million EUR.

Prima Electro - BU Electronics

The value in use was determined by discounting the cash flows in the PRIMA POWER ELECTRO BU ELECTRONICS business plan approved by the Board of Directors of PRIMA ELECTRO SpA and concerning the period January 1st, 2018 – December 31st, 2022. The assumptions in the cash flow forecast in the explicit projection period were based on prudential finding and use realistic and achievable future expectations. In order to determine the value in use of the CGU, the sum of the explicit projection cash flows, discounted by 5 years, and a terminal value were considered, to determine the criteria for discounting the perpetual annuity. The discount rate applied to future cash flows was 8.33% (post-tax), calculated in consideration of the sector in which the CGU operates, the countries in which the CGU is expected to achieve the planned results, the fully operational debt structure and the current economic situation. For cash flows of financial years after the explicit projection period, a growth rate of 0.5% (the same used in previous years) was assumed, in line with recent market valuations.

Determination of value in use using the above process led to a recoverable value that was higher than the book value of the cash generating unit, making it possible not to make any reduction to the value of the goodwill assigned to the PRIMA ELECTRO BU ELECTRONICS segment.

In terms of the basic assumptions described above, a sensitivity analysis of the results was also carried out in relation to the WACC, the growth rate (g) and the forecast results. Specifically, even with significant increases in the cost of capital and the zeroing of the perpetuity growth rate (g), the values in use show no impairment losses. Indeed fact, assuming a growth rate (g) of zero, the (post-tax) WACC that would make the recoverable value of the CGU equal to its book value would be 37.66%.

A sensitivity analysis was also carried out with expected results lower than forecast in the 2018 - 2022 plan. If the revenues forecast for 2018 were to be lower by 5% (and consequently EBITDA) and the percentage growth rates for subsequent financial years remain unchanged, in this case, too (with a post-tax WACC of 8.33% and a growth rate of 0.5%), the values in use would not lead to impairment losses. Considering a growth rate (g) of 0.5% and a post-tax WACC of 8.33%, a reduction in future revenues of about 40% (with percentage growth rates in subsequent years remaining unchanged and with a cost structure consistent with turnover levels), would make the recoverable value of the CGU equal to its book value.

At the end of the test at December 31st, 2017, the value in use of the CGU was approximately 42 million EUR higher than its book value.

Prima Electro - BU Laser

The value in use was determined by discounting the cash flows in the PRIMA ELECTRO BU LASER business plan approved by the Board of Directors of PRIMA ELECTRO SpA and concerning the period January 1st, 2018 – December 31st, 2022. The assumptions in the cash flow forecast in the explicit projection period were based on prudential finding and use realistic and achievable future expectations. In order to determine the value in use of the CGU, the sum of the explicit projection cash flows, discounted by 5 years, and a terminal value were considered, to determine the criteria for discounting the perpetual annuity. The discount rate applied to future cash flows was 7.80% (post-tax), calculated in consideration of the sector in which the CGU operates, the countries in which the CGU is expected to achieve the planned results, the fully operational debt structure and the current economic situation. For cash flows of financial years after the explicit projection period, a growth rate of 0.5% (the same used in previous years) was assumed, in line with recent market valuations.

A sensitivity analysis was also carried out with expected results lower than forecast in the 2018 - 2022 plan. If the revenues forecast for 2018 were to be lower by 5% (and consequently EBITDA) and the percentage growth rates for subsequent financial years remain unchanged, in this case, too (with a post-tax WACC of 7.80% and a growth rate of 0.5%), the values in use would not lead to impairment losses. Considering a growth rate (g) of 0.5% and a post-tax WACC of 7.80%, a reduction in future revenues of about 13.5% (with percentage growth rates in subsequent years remaining unchanged and with a cost structure consistent with turnover levels), would make the recoverable value of the CGU equal to its book value.

At the end of the test at December 31st, 2017, the value in use of the CGU was higher than its book value.

Other intangible fixed assets

As can be deduced from the year's progression, most increases in 2017 were due to the capitalisation of development costs.

Considering the business of Prima Industrie SpA (and by all other Group companies) having a high technological content, it is absolutely essential to have constant investment in research and development activities. The Group continued to invest significantly in the development of its products, in order to retain a competitive advantage and be ready in this stage of reference market recovery.

The capitalisation of development costs has been carried out by the PRIMA INDUSTRIE Group where there are the conditions set out in IAS 38. For all the development activities of capitalised new projects, the technical feasibility has been verified as well as the generation of probable future economic benefits. The capitalised costs on development projects are monitored individually and measured in terms of the economic benefits expected from the time of their implementation. The costs capitalised on projects where the technical feasibility is uncertain or no longer strategic are assigned to the Income Statement. The rate applied for the number of hours of internal development reflects the cost of industrial man-hours.

It should be noted that the "Other intangible fixed assets" category contains the trademark and customer relationships ("customer list") deriving from the Purchase Price Allocation of FINN-POWER OY occurred in 2008. The net values of the FINN-POWER trademark is equal to 9,394 thousand EUR while the customer list at December 31st, 2017 is completely depreciated.

The "FINN-POWER" trademark has been defined an asset with finite life, as we consider that its use for business and production purposes will be limited in time to 15 years, and consequently it is subject to the depreciation process.

Customer lists of the FINN-POWER Group have been defined as an asset with a definite life of 10 years, and consequently this asset is submitted to the depreciation process. It should be noted that the FINN-POWER trademark and the customer list of the FINN-POWER Group fall within the "PRIMA POWER" CGU, hence their recoverability was considered as part of the impairment test on goodwill.

3. Other Investments

Other investments at December 31st, 2017 were 355 thousand EUR and had increased by 216 thousand EUR from December 31st, 2016, this was due to:

the investment by PRIMA INDUSTRIE SpA in 3D-NT, a company that is active in the additive manufacturing sector (which the Group will use to develop new technologically innovative products);
investment of PRIMA INDUSTRIE in PRIMA POWER Sheet Metal Solution (a Malaysian company with which the PRIMA POWER division will work to strengthen its presence on the South-East Asian market).
write-down of the 4 thousand EUR stake in Caretek Srl held by PRIMA ELECTRO SpA.

Consequently this heading on December 31st, 2017 is composed of:

Caretek Srl: 18 thousand EUR (investment equal to 19.3% held by PRIMA ELECTRO SpA);
Fimecc OY: 50 thousand EUR (investment equal to 2.4% held by FINN-POWER OY);
Härmämedi OY: 25 thousand EUR (investment equal to 8.3% held by FINN-POWER OY);
Lamiera Servizi Srl: 11 thousand EUR (investment equal to 19% held by PRIMA INDUSTRIE SpA);
3D NT: 180 thousand EUR (investment equal to 15% held by PRIMA INDUSTRIE SpA);
Prima Power Sheet Metal Solution: 41 thousand EUR (investment equal to 19% held by PRIMA INDUSTRIE SpA);
other minor investments: 30 thousand EUR.

4. Non-current financial assets

This item at December 31st, 2017 amounted to 10 thousand EUR and refers to a loan issued by PRIMA ELECTRO SpA to Caretek Srl.

5. Deferred tax assets

Tax assets for deferred taxes were 11,340 thousand EUR, down 215 thousand EUR from the previous financial year.

DEFERRED TAX ASSETS	DECEMBER 31, 2017	DECEMBER 31, 2016
Opening balance	11,555,324	9,845,765
Increase	2,881,970	1,973,980
Decrease	(2,423,159)	(495,392)
Differences on exchange rates	(673,703)	230,971
Closing balance	11,340,432	11,555,324

Below is the breakdown of Tax assets for deferred taxes at December 31st, 2017.

DEFERRED TAX ASSETS	DECEMBER 31, 2017	DECEMBER 31, 2016
Provisions for risks and other liabilities	4,525,026	3,346,710
Inventories	2,978,604	3,356,203
Tax losses carried forward	1,890,346	2,471,733
Employee benefits	709,677	673,874
Non-current tangible/intangible assets/Financial leases	182,726	501,793
Trade receivables	286,211	426,413
Other	767,842	778,598
TOTAL	11,340,432	11,555,324

Deferred taxes are recorded in the financial statements only if the conditions for their recovery exist. The assessment of the recoverability of deferred tax assets takes account of expected profitability in future years. Deferred taxes on tax losses carried forward were entered recognised in relation to the likelihood of future taxable income against which they can be recovered. Considering the above, there were no elements that might change the previous assessments on the recoverability of deferred taxes.

Of previous losses not recorded under tax assets for deferred taxes, the most significant sum (22.1 million EUR) relates to the subsidiary Finn-Power OY.

6. Inventories

The following table shows the composition of inventories at December 31st, 2017 and December 31st, 2016.

INVENTORIES	DECEMBER 31, 2017	DECEMBER 31, 2016
Raw materials	38,434,257	34,127,407
Semi-finished goods	24,223,020	19,731,012
Finished goods	58,042,772	52,953,832
(Inventory provisions)	(7,664,721)	(8,251,086)
TOTAL	113,035,328	98,561,165

The net value of inventories on December 31st, 2017 shows an increase equal to 14,474 thousand EUR compared with December 31st, 2016.

The inventory provisions during the year 2017 were subject to the following movements.

INVENTORY PROVISIONS	DECEMBER 31, 2017
Value as at December 31, 2016	(8,251,086)
Provisions	(1,159,828)
Utilizations	1,425,497
Differences on exchange rates	320,696
Value as at December 31, 2017	(7,664,721)

Appropriations during the period mainly occurred after the sale of assets for which provisions had previously been set aside or because estimated expected losses were updated.

7. Trade Receivables

Net trade receivables at December 31st, 2017 amounted to 113,649 thousand EUR an increase of 25,272 thousand EUR compared to December 31st, 2016.

TRADE RECEIVABLES	DECEMBER 31, 2017	DECEMBER 31, 2016
Receivables from customers	117,032,492	92,050,822
Bad Debt Reserve	(3,383,258)	(3,674,074)
TOTAL	113,649,234	88,376,748

The Bad Debt Reserve during the year 2017 were subject to the following movements.

BAD DEBT RESERVE	EURO THOUSAND
Value as at December 31, 2016	(3,674)
Provisions	(399)
Utilizations	585
Differences on exchange rates	105
Value as at December 31, 2017	(3,383)

The Bad Debt Reserve reflects the management's best estimate about the expected losses of the Group. The book value of Trade Receivables is considered to be equal to its fair value.

Appropriations in the period mainly occurred after the finalization of accounts for losses on loans previously allocated or for the collection of previously written down loans.

Below is a breakdown of trade receivables (inclusive of the bad debt reserve) by due date.

RECEIVABLES BY MATURITY	Euro thousand
Due to expire	77,469
Expired 0 - 180 days	32,457
Expired 180 - 365 days	2,938
Expired over 1 year	4,168
TOTAL	117,032

The high average credit standing of customers and the lack of a significant concentration of receivables reduce credit risk and means the provisions for doubtful accounts are sufficient. Specifically, the recoverability of receivables and any need to write down receivables are the result of a process involving the subjective judgement of the Group. The factors considered mainly concern the creditworthiness of the counterparty, technical components (such as any design changes and/or delays in execution), the amount and the timing of expected future payments and any actions taken or to be taken to recover the receivables.

8. Other receivables

Other current receivables at December 31st, 2017 were 8,019 thousand EUR and increased from the previous year by 1,593 thousand EUR. Here is a breakdown of Other Receivables compared with the previous year's.

OTHER RECEIVABLES	DECEMBER 31, 2017	DECEMBER 31, 2016
Advances payments to suppliers	2,832,904	2,006,187
Contribution to be received for R&D projects	2,437,973	2,327,180
Prepayments and accrued income	1,492,189	1,567,286
Other receivables	979,536	216,647
Advances to employees	276,120	308,317
TOTAL	8,018,722	6,425,617

Receivable research and development grants, down by 111 thousand EUR from the previous year, are for projects financed by the European Community, the Ministry of Economic Development and the Regione Piemonte to be paid to PRIMA INDUSTRIE SpA, PRIMA ELECTRO SpA and FINN-POWER ITALIA srl.

Accrued income and prepaid expenses mainly include portions of costs (such as insurance, leasing fees, fees for information system and/or software licences) regarding subsequent financial years for which the financial outlay had already been made at December 31st, 2017.

9. Current tax receivables

The heading amounts to 9,380 thousand EUR and increased by 4,326 thousand EUR compared to December 31st, 2016.

CURRENT TAX RECEIVABLES	DECEMBER 31, 2017	DECEMBER 31, 2016
VAT receivables	5,762,090	1,661,256
Direct tax advances	1,496,910	2,260,182
Other receivables for minor tax assets	1,062,572	75,214
Receivables towards tax authorities	1,047,849	1,047,849
Withholding taxes	10,702	9,387
TOTAL	9,380,123	5,053,888

The tax receivable amounting to 1,048 thousand EUR refers to a submission of claims for IRES reimbursement (IRAP deductions for IRES purposes for the years 2007-2011) which arose in February 2013.

10. Net Financial Position

On December 31st, 2017 the net financial position of the Group was negative for an amount of 69,632 thousand EUR, decreasing of 14,583 thousand EUR compared to the previous financial year (negative for 84,215 thousand EUR). For a better understanding of the variation in the net financial position achieved during the year 2017, refer to the consolidated cash flow statement of the period.

As required by the Consob communication No. DEM/6064293 of July 28th, 2006, the net financial debt at December 31st, 2017 and December 31st, 2016 is shown in the following table, determined with the indicated criteria in the CESR (Committee of European Securities Regulators) Recommendations of February 10th, 2005 "Recommendations for the uniform activation of the European Commission Regulation on Information Sheets" and quoted by Consob itself.

		DECEMBER 31,	DECEMBER 31,
	NET FINANCIAL POSITION	2017	2016	VARIATIONS
	Values expressed in Euro thousand
A	CASH	70,521	62,680	7,841
B	OTHER CASH AND CASH EQUIVALENTS	-	-	-
C	SECURITIES HELD FOR TRADING	-	-	-
D	CASH ON HAND (A+B+C)	70,521	62,680	7,841
E	CURRENT FINANCIAL RECEIVABLES	849	792	57
F	CURRENT BANK DEBTS	6,192	5,454	738
G	CURRENT PART OF NON-CURRENT INDEBTEDNESS	31,295	24,993	6,302
H	BOND ISSUED	867	871	(4)
I	OTHER CURRENT FINANCIAL DEBTS	4,171	4,472	(301)
J	CURRENT FINANCIAL INDEBTEDNESS (F+G+H+I)	42,525	35,790	6,735
K	NET CURRENT FINANCIAL INDEBTEDNESS (J-D-E)	(28,845)	(27,682)	(1,163)
L	NON-CURRENT BANK DEBTS	47,355	59,195	(11,840)
M	BOND ISSUED	39,733	39,660	73
N	OTHER NON-CURRENT FINANCIAL DEBTS	11,389	13,042	(1,653)
O	NON-CURRENT FINANCIAL INDEBTEDNESS (L+M+N)	98,477	111,897	(13,420)
P	NET FINANCIAL POSITION (K+O)	69,632	84,215	(14,583)

Liquidity

Cash and cash equivalents amount to 70,521 thousand EUR and consist of:

bank deposits for 70,451 thousand EUR and
cash for 70 thousand EUR.

For more details on cash and cash equivalents, see the Consolidated Cash Flow Statement.

Current financial receivables

The current financial receivables amount to 849 thousand EUR and include:

financial instruments for coverage of the exchange rate risk (Currency Rate Swap) for 57 thousand EUR;
a term deposit signed by Prima Industrie SpA as guarantee for a loan granted to the Brazilian subsidiary PRIMA POWER SOUTH AMERICA LTDA equal to 550 thousand EUR;
receivables from the company Wuhan Unity deriving from the sale by Prima Industrie SpA of the last 5% of the investment in Shanghai Unity Prima amounting to 236 thousand EUR;
receivables from the company Lamiera Servizi of 6 thousand EUR, a subsidiary of Prima Industrie SpA for 19%.

Bonds issued

Debt to bondholders amount comprehensively to 40,940 thousand EUR, inclusive of accrued and unpaid interests amounting to 940 thousand EUR. Debt refers exclusively to the Bond issued during the first quarter of 2015 and expiring on February 6th, 2022. The net debt accounted for in the financial statements amounts to 40,600 thousand EUR. The transactions costs incurred at the issuing of the bond were accounted for in reduction of financial debt.

The long term debt amounts to 39,733 thousand EUR beyond 12 months.

Indebtedness with banks

The main figures included in the indebtedness with banks are the Club Deal loan and BNL.

At December 31st, 2017 the Finnish Loan had been fully reimbursed.

The Club Deal loan amounts to 23,334 thousand EUR at December 31st, 2017 and consists of the loan repayment due on June 30th, 2021; the Club Deal loan also includes a quota in the form of revolving credit lines amounting to 20,000 thousand EUR expiring on December 31st, 2019. At December 31st, 2017 these commercial credit lines were fully available. Net debt in balance sheet amounts to 23,013 thousand EUR and includes transaction costs incurred at the issuing of the loan agreement.

The Club Deal loan is for 16,499 thousand EUR expiring beyond 12 months.

On December 19th, 2017, PRIMA INDUSTRIE SpA signed a medium/long-term loan agreement with BNL for 20 million EUR. Net debt in the financial statements total 19,911 thousand EUR and include matured interest and accessory charges incurred at the time the loan was issued.

Le main features of the agreement are as follows:

Six-monthly repayment in depreciation and amortization maturing on December 19th, 2022;
Fixed interest rate based on Euribor plus 1.55%;
In the event of voluntary early repayment, the fees will be 0.2% of the amount repaid in advance;
Compliance with financial covenants identical to those arranged for the Club Deal described above.

The BNL loan is for 16,933 thousand EUR expiring beyond 12 months.

The non current bank debt also includes other bank loans for 13,843 thousand EUR mainly relating to new loans attributable to the three Italian companies PRIMA INDUSTRIE SpA, PRIMA ELECTRO SpA e FINN-POWER ITALIA S.r.l. within the long term refinancing operation TLTRO (Targeted Longer - Term Refinancing Operations) issued by the European Central Bank. The non current bank debt also includes the negative fair value of a derivative financial instrument (IRS – Interest Rate Swap) equal to 80 thousand EUR.

The current indebtedness with banks (considering the current part of the non-current debt) includes the Club Deal loan for 6,514 thousand EUR and BNL loan for 2,978 thousand EUR, bank overdrafts for 5,686 thousand EUR and other bank loans for 22,309 thousand EUR.

Other financial debts

The Other financial debts amount comprehensively to 15,560 thousand EUR (of which 4,171 thousand EUR expire within 12 months).

The other financial debts include:

debts for financial lease amounting to 9,579 thousand EUR (of which 827 thousand EUR expire within 12 months);
other financial debts for 5,981 thousand EUR (of which 3,344 thousand EUR expire within 12 months ); such debts refer mainly to government loans.

Financial indicators ("Covenants")

Both the Club-Deal loan agreement and the Bond require compliance with certain economic and financial ratios (covenants) for their entire period of duration and with variable values in the different measurement periods.

Bond

On February 2nd, 2015, Prima Industrie SpA completed the issuance of non-convertible bonds for an aggregate nominal amount of 40 million EUR and with 7 years maturity, as approved by the Board of Directors on January 13th, 2015.

The bonds, exclusively placed with qualified investors, have a minimum denomination of EUR 200,000 and pay semi-annually a fixed coupon of 5.875% per annum. The bonds, governed under English law, will be redeemed on February 6th, 2022.

The contract governing the bond issue expects for compliance with certain financial covenants, which if not followed is not a decisive event (and therefore mandatory early repayment) but only requires an increase in the interest rate by one percentage point.

BOND
EBITDA (*)/Consolidated Net Financial	3,5 for the duration of the loan, to be calculated
costs ratio not less than:	at June 30 and at December 31 of each year
Net Financial Borrowings/Consolidated EBITDA (*)	4,0 for the duration of the loan, to be calculated
ratio not higher than:	at June 30 and at December 31 of each year
Net Financial Borrowings/Consolidated Shareholders's	1,5 for the duration of the loan, to be calculated
Equity rario not higher than:	at June 30 and at December 31 of each year

(*) net of non recurring costs

Medium to long-term Club Deal bank loan

On February 23rd, 2015, Prima Industrie SpA took out a medium to long-term Club Deal loan agreement for a total amount of 60 million EUR with a pool of Italian banks (Unicredit, IntesaSanpaolo and BNL).

The main features of the loan agreement are as follows:

the amount, totalling 60 million EUR, is divided into a quota of 40 million EUR in the form of loan repayment expiring on June 30th, 2021 and a quota of 20 million EUR in the form of revolving credit lines expiring on December 31st, 2019;
the interest rate for both quotas is set in Euribor plus an additional margin of 3%;
fees charged for failure to use the revolving credit line amount to 1% of the amount not used;
penalties in the event of advanced repayment or voluntary cancellation amount to 0.5% of the refunded/ cancelled amount for the first two years following the subscription of the loan and 0.4% of the refunded/ cancelled amount in case this occurs on the third or fourth year from the subscription date;
the reimbursement instalments for the depreciation part expire every six months starting from December 31st, 2015;
the maximum amount of debt allowed (including the bond loan and this loan) amount to 210 million EUR at Group level;
the following financial covenants must be met:

CLUB DEAL

EBITDA(*)/Consolidated Net Financial	4,25 for the duration of the loan, to be calculated
costs ratio not less than:	at June 30 and at December 31 of each year
Net Financial Borrowing/Consolidated	3,00 for the duration of the loan, to be calculated
EBITDA (*) ratio not more than:	at June 30 and at December 31 of each year

(*) net of non recurring costs

BNL medium/long-term bank loan

On December 19th, 2017, PRIMA INDUSTRIE SpA signed a medium/long-term loan agreement with BNL for 20 million Euro.

Le main features of the agreement are as follows:

six-monthly repayment in depreciation and amortization maturing on December 19th, 2022;
fixed interest rate based on Euribor plus 1.55%;
in the event of voluntary early repayment, the fees will be 0.2% of the amount repaid in advance;
compliance with financial covenants identical to those arranged for the Club Deal described above.

All covenants measured on the consolidated financial statements at December 31st, 2017 are complied with.

Cash flow hedging instruments and accounting for related transactions

In accordance with policy, PRIMA INDUSTRIE Group uses financial instruments to hedge foreign exchange fluctuations, with reference to USD, RMB and GBP transactions.

Coherently with the contents of IAS 39, hedging instruments can be entered according to hedge accounting methods only when:

the formal designation and the documentation of the hedge are available on the starting date of the hedge;
it is presumed that the hedge is highly effective;
its effectiveness can be reliably measured; and
the hedge itself is highly effective during the various accounting periods for which it is designated.

All hedging instruments are measured at their fair value, as established by IAS 39. When hedging instruments qualify for hedge accounting, they are entered in statements as follows:

Cash-flow hedge. If a hedging instrument is chosen to cover the exposure to unstable future cash flows of an asset or liability listed in the financial statements or of an expected and highly probable transaction that could affect the Profit & Loss, the effective share of the profit or loss for the hedging instrument is reported in Other total profits/(losses). The cumulated profit or loss are written off the Other total profits/(losses) and entered in the Income Statement in the same period in which the correlated economic effect of the hedged transaction is reported. The profit or loss associated to a hedge (or part of one) that has become obsolete are immediately entered in the Profit & Loss. If a hedging instrument or a hedge report are closed, but the hedged transaction has not yet been concluded, the cumulated profit and loss, hitherto entered in the Other total profits/(losses), are reported in the Income Statement with regards to the reported economic effects of the hedged transaction. If the hedged transaction is no longer presumed probable, the profits or losses as yet not accrued and suspended in the Other total profits/(losses) are immediately reported in the Profit & Loss.
Fair value hedge. If a hedging instrument is designated to hedge the exposure to variations of the fair value of an asset or liability in the financial statements that are attributable to a particular risk which may affect the Income Statement, the profit or loss deriving from subsequent evaluations of the fair value of the hedging instrument are reported in the Profit & Loss. The profit or loss on the hedged item is attributable to the hedged risk, modifying the book value of that item, and is reported in the Profit & Loss.
Hedge of a net investment. If a hedging instrument is designated to hedge a net investment in an offshore company, the effective share of profit or loss on the hedging instrument is reported in Other total profits/ (losses). The cumulated profit or loss are written off from the Net Equity and entered in the Income Statement on the date in which the offshore asset is dismissed.

At December 31st, 2017 the Group holds several derivative financial instruments for an overall negative value of 23 thousand EUR, of which 58 thousand EUR are current and 80 thousand EUR are non-current.

TYPE	COMPANY	COUNTER PARTY	EXPIRY DATE	REFERENCE NOTIONAL	MTM Dec. 31, 2017
Notional values are indicated in the reference currency
CRS - Non hedge accounting	Prima Industrie SpA	BNL	March 20, 2018	\$ 1,000,000	€ 23,180
CRS - Non hedge accounting	Prima Industrie SpA	BNL	March 20, 2018	\$ 1,000,000	-€ 2,646
CRS - Non hedge accounting	Prima Industrie SpA	BNL	March 20, 2018	¥ 2,000,000	€ 1,959
CRS - Non hedge accounting	Prima Industrie SpA	BNL	March 20, 2018	¥ 2,000,000	-€ 4,860
CRS - Non hedge accounting	Prima Industrie SpA	MPS	March 20, 2018	\$ 1,000,000	€ 20,061
CRS - Non hedge accounting	Prima Industrie SpA	MPS	March 20, 2018	\$ 1,000,000	€ 19,842
				TOTAL	€ 57,536

Derivatives current assets

Derivatives non current liabilities

TYPE	COMPANY	COUNTER PARTY	EXPIRY DATE	REFERENCE NOTIONAL	MTM Dec. 31, 2017
Notional values are indicated in the reference currency
IRS - Hedge accounting	Prima Industrie SpA	BNL	June 30, 2021	€ 10,000,133	-€ 8,959
IRS - Hedge accounting	Prima Industrie SpA	Unicredit	June 30, 2021	€ 10,000,133	-€ 8,959
IRS - Hedge accounting	Prima Industrie SpA	Banca Intesa	June 30, 2021	€ 10,000,133	-€ 8,959
IRS - Hedge accounting	Prima Industrie SpA	BNL	Dec. 19, 2022	€ 20,000,000	-€ 53,568
				TOTAL	-€ 80,445

IFRS 7 requires the classification of financial instruments at fair value to be determined on the basis of the quality of the input sources used in their valuation.

The IFRS 7 classification has the following hierarchy:

Level 1: fair value determined according to unadjusted prices in active markets for identical assets or liabilities;
Level 2: fair value determined according to inputs other than quoted market prices included within Level 1 but which are either directly or indirectly observable. This category includes the instruments the Group uses to hedge risks arising from interest rate and exchange rate fluctuations;
Level 3: fair value determined according to valuation models whose inputs are not based on observable inputs ("unobservable inputs"). There are no financial instruments valuated in this way.

VALUES EXPRESSED IN EURO THOUSAND	LEVEL 1	LEVEL 2	LEVEL 3
Assets valuated at fair value	-	58	-
Other Assets	-	-	-
TOTAL ASSETS	-	58	-
Liabilities valuated at fair value	-	80	-
Other Liabilities	-	-	-
TOTAL LIABILITIES	-	80	-

Asset required by the amendment to IAS 7, the following table shows the changes in liabilities arising from loan activities, whether arising from changes in cash flows or changes not in cash.

		VARIATIONS		VARIATIONS NOT IN CASH
VALUES IN EURO THOUSAND	DECEMBER 31, 2016	FROM CASH FLOW	ISSUES	EXCHANGE RATE EFFECT	FAIR VALUE	DECEMBER 31, 2017
Financial debts	95,831	(4,777)	-	(311)	-	90,743
Bond issued	40,531	69	-	-	-	40,600
Leasing	10,208	(603)	185	(212)	-	9,578
Derivatives	1,117	-	-	-	(1,037)	80
TOTAL	147,687	(5,311)	185	(523)	(1,037)	141,001

Breakdown of financial payables by expiration and interest rate

The following table lists the breakdown of financial payables to banks and other lenders (and, for the purposes of providing a framework for the data exposed in the financial statements, includes payables for leases, factoring and payables to banks for derivatives) by expiration and interest rate.

Current financial payables

CURRENT BANK DEBTS	EFFECTIVE INTEREST RATE EXPIRY		DECEMBER 31, 2017
Values expressed in Euro thousand
Bank overdrafts	N/A	Sight	5,226
Finimp	2.60%	May 25, 2018	506
Banca Popolare del Piemonte	N/A	N/A	410
Interests owed	N/A	N/A	50
TOTAL			6,192

CURRENT PART OF NON-CURRENT INDEBTEDNESS	EFFECTIVE INTEREST RATE	EXPIRY	DECEMBER 31, 2017
Values expressed in Euro thousand
Club Deal (quota in amortizing)	Euribor 6m + 3.0%	June 30, 2021	6,572
Club Deal (quota revolving)	Euribor 6m + 3.0%	Dec 31, 2019	(58)
Banco do Brasil	Euribor 12m + 1.50%	July 18, 2018	1,667
Banco do Brasil	1.60%	July 15, 2018	4,000
Banco do Brasil	1.70%	Sep 30, 2020	1,658
ICBC	Euribor 12m + 1.75%	Jan 10, 2018	5,000
BNL	Euribor 6m + 1.55%	Dec 19, 2022	2,968
Banco Popolare	Euribor 3m + 1.40%	Sep 30, 2019	2,524
Banca Popolare di Milano	Euribor 3m + 1.50%	Sep 30, 2019	2,000
Banca Popolare di Milano	Euribor 3m + 1.30%	Sep 30, 2019	1,997
Banca d'Alba	Euribor 3m + 1.20%	Dec 31, 2021	977
UBI	1.30%	Nov 09, 2020	742
Banca Unicredit/Sace	Euribor 3m + 1.80%	June 30, 2020	595
Banca Piemonte	0.90%	March 31, 2018	300
Banca Sella	Euribor 3m + 1.70%	June 24, 2019	289
Interests owed	N/A	N/A	64
TOTAL			31,295

BOND ISSUED	EFFECTIVE INTEREST RATE	EXPIRY	DECEMBER 31, 2017
Values expressed in Euro thousand
Bond	5.875%	Feb 6, 2022	867
TOTAL			867

OTHER CURRENT FINANCIAL DEBTS	EFFECTIVE INTEREST RATE	EXPIRY	DECEMBER 31, 2017
Values expressed in Euro thousand
IC4life	N/A	Jan 31, 2018	1,545
BCC	Euribor 3m + 1.30%	June 30, 2020	827
MPS	1.50%	Oct 31, 2018	700
MISE	0.448%	Nov 26, 2023	178
Financial leasing	N/A	N/A	921
TOTAL			4,171

Non-current financial payables

NON-CURRENT BANK DEBTS	EFFECTIVE INTEREST RATE	EXPIRY	DECEMBER 31, 2017
Values expressed in Euro thousand
Club Deal (quota in amortizing)	Euribor 6m + 3.0%	June 30, 2021	16,557
Club Deal (quota revolving)	Euribor 6m + 3.0%	Dec 31, 2019	(58)
BNL	Euribor 6m + 1.55%	Dec 19, 2022	16,933
Banco do Brasil	1.70%	Sep 30, 2020	3,329
Banca d'Alba	Euribor 3m + 1.20%	Dec 31, 2021	3,010
Banco Popolare	Euribor 3m + 1.40%	Sep 30, 2019	1,908
Banca Popolare di Milano	Euribor 3m + 1.50%	Sep 30, 2019	1,520
UBI	1.30%	Nov 09, 2020	1,517
Banca Popolare di Milano	Euribor 3m + 1.30%	Sep 30, 2019	1,516
Banca Unicredit/Sace	Euribor 3m + 1.80%	June 30, 2020	897
Banca Sella	Euribor 3m + 1.70%	June 24, 2019	146
Derivative - IRS	N/A	N/A	80
TOTAL			47,355

BOND ISSUED	EFFECTIVE INTEREST RATE	EXPIRY	DECEMBER 31, 2017
Values expressed in Euro thousand
Bond	5.875%	Feb 6, 2022	39,733
TOTAL			39,733

OTHER NON-CURRENT FINANCIAL DEBTS	EFFECTIVE INTEREST RATE	EXPIRY	DECEMBER 31, 2017
Values expressed in Euro thousand

BCC	Euribor 3m + 1.30%	June 30, 2020	1,010
MISE	0.448%	Nov 26, 2023	881
UBI	0.50%	June 3, 2026	767
Financial leasing	N/A	N/A	8,731
TOTAL			11,389

The following table shows the temporal distribution of payments of financial payables.

VALUES EXPRESSED IN EURO THOUSAND	2018	2019	2020	2021 ONWARDS	TOTAL
CURRENT BANK DEBTS	6,192	-	-	-	6,192
CURRENT PART OF NON-CURRENT INDEBTEDNESS	31,295	-	-	-	31,295
OTHER CURRENT FINANCIAL DEBTS	4,171	-	-	-	4,171
NON-CURRENT BANK DEBTS (*)	-	18,610	13,339	15,325	47,274
BOND ISSUED	867	(77)	(90)	39,900	40,600
OTHER NON-CURRENT FINANCIAL DEBTS	-	2,197	1,675	7,517	11,389
TOTAL	42,525	20,730	14,924	62,742	140,921

(*) excluding the fair value of derivatives

It should be noted that of the total amount of 42,525 thousand EUR payable in 2018, 5,226 thousand EUR refer to bank overdrafts.

11. Assets held for sale

At December 31st, 2017, the value of assets held for sale is equal to 1,111 thousand EUR. The increase is solely due to the reclassification of the shareholding in EPS SA (whose book value is 727 thousand EUR and accounts for 10.1% of all shares) valuated in this asset category using the equity method. The remaining 384 thousand EUR refers to some properties under construction held by the Company FINN-POWER ITALIA Srl located in Mantua, Italy. All assets classified in this category are available for immediate sale, an event that is very likely since the Management has engaged in a divestment programme.

12.Net equity

Share capital

The Share Capital amounts to 26,208,185 EUR (divided into 10,483,274 ordinary shares with a par value of 2.50 EUR each).

Legal reserve

This item amounts to 4,653 thousand EUR and has increased as a result of the allocation of the mandatory share of the profit accrued in 2016.

Other reserves

The item Other Reserves has a value of 69,311 thousand EUR and is made up as follows:

Share Premium Reserve of 57,507 thousand EUR;
Share capital increases were negative for 1,286 thousand EUR;
Fair value adjustment reserve stood at -58 thousand EUR and consists of profits and losses net of taxes, entered directly in the shareholders' equity deriving from the adjustment to fair value of hedges underwritten by the Group;
Other Reserves of 13,148 thousand EUR.

Currency translation reserve

The currency translation reserve has a positive value of 1,360 thousand EUR and has increased over the previous financial year by 5,488 thousand EUR.

Retained Earnings

this amount, which is positive for 27,620 thousand EUR includes the results of previous years of consolidated companies as well as the change in the area of consolidation and the capital losses/gains generated as a result of the acquisition or transfer of treasury shares and the effect of actuarial profits/losses net of taxes on severance indemnities for employees. In addition, the amounts relative to differences in accounting methods on the date of IAS/IFRS transition are also included; these refer to adjustments on balances within financial statements drafted in accordance with Italian accounting principles.

Profit for the year

This item includes the profit for the year, totalling 18,515 thousand EUR (10,102 thousand EUR on December 31st, 2016) attributable to the majority shareholders of the parent company.

Minority Shareholders equity

This item is positive for 1,286 thousand EUR (on December 31st, 2016 it was 1,212 thousand EUR) and compared to the previous financial year, it remained substantially unchanged. The changes in Net Equity attributable to minority shareholders refer to the overall result for the period.

Comprehensive income

Overall income for the period is 13,147 thousand EUR and include:

Profit for the period is 18,668 thousand EUR;
Currency translation reserve: negative at 5,567 thousand EUR (of which -5,489 thousand EUR refer to the majority shareholders and -78 thousand EUR to minority shareholders);
Reserve for fair value adjustment of derivatives: positive for 4 thousand EUR (net of a tax effect of 1 thousand EUR);
Effect of actuarial profit/losses on employee severance indemnities according to the application of IAS 19 revised: positive for 42 thousand EUR (net of a tax effect of -14 thousand EUR).

Connection between result and shareholders' equity of the parent Company and the same values for the Group

Pursuant to the CONSOB Communication of July 28th, 2006, the following table illustrates the connection between the result for the year 2017 and the Group's shareholders' equity at December 31st, 2017 with the same values of the parent company Prima Industrie SpA.

	SHAREHOLDERS' EQUITY AS AT	NET RESULT AS AT	SHAREHOLDERS' EQUITY AS AT	NET RESULT AS AT
RECONCILIATION BETWEEN NET RESULT AND SHAREHOLDERS' EQUITY	DECEMBER 31,	DECEMBER 31,	DECEMBER 31,	DECEMBER 31,
OF THE PARENT COMPANY AND RELATED GROUP VALUES	2017	2017	2016	2016
Values expressed in Euro thousand
PRIMA INDUSTRIE S.p.A. Separate Financial
Statements	105,542	6,771	101,867	1,758
Accounting for shareholders' equity and income
from subsidiaries	234,164	19,639	227,566	12,918
Accounting Goodwill including share allocated
on Trade Mark and Customer List	17,327	(3,180)	20,609	(3,137)
Elimination of values of consolidated shareholdings
in PRIMA INDUSTRIE S.p.A. Financial Statements	(200,780)	1,976	(203,711)	-
Elimination of infragroup income included in stock
and fixed assets	(8,750)	(1,349)	(8,083)	(1,530)
Elimination of depreciation/revaluation
of consolidated shareholdings	1,382	1,496	1,626	971
Elimination of dividends paid between subsidiaries	-	(7,671)	-	(2,707)
Tax effect on consolidation adjustments	(198)	998	(975)	1,591
Other consolidate entries	267	(12)	53	296
PRIMA INDUSTRIE Group Financial Statements	148,954	18,668	138,952	10,160

13. Employees benefits liabilities

The item Employees benefits liabilities is equal to 7,694 thousand EUR on December 31st, 2017, in decrease compared with December 31st, 2016 of 406 thousand EUR; this item includes:

the Severance Indemnity (TFR) recognised by Italian companies for employees;
a loyalty premium recognised by the parent company and by PRIMA ELECTRO for their own employees;
a pension fund recognised by PRIMA POWER GmbH and by PRIMA POWER France Sarl to their employees;
a liability for employee benefits in recorded by Prima Industrie SpA for its branch office in South Korea.

The table below compares the items in question.

EMPLOYEE BENEFITS	DECEMBER 31, 2017	DECEMBER 31, 2016
Severance indemnity fund	5,329,735	5,694,418
Fidelity premium and other pension funds	2,364,128	2,405,935
TOTAL	7,693,863	8,100,353

The table below shows a Severance Indemnity operation.

SEVERANCE INDEMNITY FUND (VALUES EXPRESSED IN EURO THOUSAND)	2017	2016
Opening balance	5,694	5,832
Severance indemnity paid out during the period	(381)	(523)
Actuarial gains/losses	(44)	271
Financial expenses	61	114
Closing balance	5,330	5,694

The main actuarial hypotheses used to estimate the final liabilities deriving from employee benefits are as follows.

ACTUARIAL HYPOTHESES	DECEMBER 31, 2017	DECEMBER 31, 2016
Annual discount rate	0.88% - 1.92%	1.31% - 2.33%
Annual inflation rate	1.5% - 2.0%	1.5% - 2.0%
Annual Severance fund increase rate	2.0% - 2.63%	2.0% - 2.63%

The following demographic hypotheses have been used for Severance Indemnity only:

probability of death as defined by the Italian State Treasury RG48;
the probability of disability, divided by gender, adopted in the INPS model for all the projections to 2010;
retirement age, the first retirement requisite of Compulsory General Insurance;
probability of leaving for causes other than death, with different frequency depending on the company;
for the probability of advances an annual rate of 3.0% was supposed.

Furthermore, a sensitivity analysis was carried out for severance indemnities alone, which showed an insignificant impact with a change in the following variables:

Discount rate +0.50%/-0.50%
Inflation rate +0.25%/-0.25%
Turnover rate +2.00%/-2.00%.

14. Deferred Tax Liabilities

The Deferred Tax Liabilities are equal to 5,997 thousand EUR, in decrease compared with December 31st, 2016 of 2,343 thousand EUR.

DEFERRED TAX LIABILITIES	DECEMBER 31, 2017	DECEMBER 31, 2016
Opening balance	8,340,653	10,518,305
Increase	746,258	573,730
Decrease	(2,737,918)	(2,851,062)
Differences on exchange rates	(351,511)	99,680
Closing balance	5,997,482	8,340,653

The composition of the deferred tax liabilities on December 31st, 2017 is shown below.

DEFERRED TAX LIABILITIES	DECEMBER 31, 2017	DECEMBER 31, 2016
Non-current tangible/intangible assets/Financial leases	5,725,869	7,400,408
Trade receivables/payables and other entries	246,492	912,240
Employee benefits	25,121	28,005
TOTAL	5,997,482	8,340,653

It should be noted that the deferred tax liabilities on the trademark, on the relation with clients and the Cologna Veneta real estate deriving from the company merger of the FINN-POWER Group amount to 3,250 thousand EUR.

Deferred tax liabilities were not recorded on undistributed profit reserves of subsidiaries.

15. Provisions

The provisions for liabilities and charges are equal to 24,746 thousand EUR and increased by 6,159 thousand EUR compared with December 31st, 2016; Non-current provisions refer exclusively to the agent client indemnity provision and amounts comprehensively to 172 thousand EUR.

Below a brief overview of the short-term.

CURRENT PROVISIONS	WARRANTY PROVISIONS	COMPLETION PROJECT AND OTHERS PROVISIONS	TOTAL
Value as at December 31, 2015	9,985,320	5,811,171	15,796,491
Allocations	3,005,605	3,252,866	6,258,471
Utilizations in the period	(2,310,635)	(1,441,943)	(3,752,578)
Exchange rate differences	88,873	33,113	121,986
Value as at December 31, 2016	10,769,163	7,655,207	18,424,370
Allocations	9,791,329	10,912,254	20,703,583
Utilizations in the period	(7,563,003)	(6,148,242)	(13,711,245)
Exchange rate differences	(500,400)	(342,624)	(843,024)
Value as at December 31, 2017	12,497,089	12,076,595	24,573,684

Current provisions mainly relate to product warranties (equal to 12,497 thousand EUR) and to the best estimate of costs still to be incurred for the completion of certain activities ancillary to the sale of machinery already sold (equal to 10,750 thousand EUR). The warranty provision relates to the provisions for technical interventions on the Group's products and is considered appropriate in comparison to the warranty costs which have to be provided for.

The other provisions amounting to 1,327 thousand EUR refer to legal, fiscal procedures and other disputes; these provisions represent the best estimate by management of the liabilities which must be accounted for with regard to legal, fiscal proceedings occasioned during normal operational activity with regard to dealers, clients, suppliers or public authorities.

16. Trade payables, advance payments and other payables

The value of payables increased compared to December 31st, 2016 by 22,017 thousand EUR.

The Clients advance payments heading increased compared to December 31st, 2016 by 43,620 thousand EUR; it has to be noted that this item contains both the advance payments on orders relating to machines which have not yet been delivered, as well as those generated by the application of the IAS 18 accounting principle relating to machines already delivered, but not yet accepted by the end client and therefore not recognized as revenue. Other payables increased to December 31st, 2016 by 2,875 thousand EUR and includes social security and welfare payables, payables due to employees, accruals and deferrals and other minor payables.

For greater detail on the subject, see the table below.

TRADE, ADVANCES AND OTHER PAYABLES	DECEMBER 31, 2017	DECEMBER 31, 2016
Trade payables	110,465,363	88,448,383
Advances	43,620,216	26,029,170
Other payables	24,950,838	22,076,067
TOTAL	179,036,417	136,553,620

17. Current tax payables

Tax payables for current taxes on December 31st, 2017 amounts to 6,072 thousand EUR which results in a reduction of 1,623 thousand EUR compared with December 31st, 2016.

The breakdown of tax liabilities is shown below.

CURRENT TAX PAYABLES	DECEMBER 31, 2017	DECEMBER 31, 2016
Payables for VAT	3,032,351	3,866,981
Payables for income taxes	1,144,151	2,304,086
Payables for withholding tax	1,566,166	1,459,827
Other minor payables	329,258	64,370
TOTAL	6,071,926	7,695,264

Consolidated income statement

As already mentioned above, from January 1st, 2017 the Group changed the presentation method for the items in the income statement, which are no longer presented by "type" and instead are presented by "functional area", with the comparative data from the previous year suitably reclassified. In accordance with paragraph 104 of "IAS 1 – Presentation of Financial Statements", personnel costs amount to 111,167 thousand EUR (102,699 thousand EUR in 2016).

18. Net revenues from sales and services

Revenues from sales and services have already been dealt with in chapter 5 of this document: "Group Management Report" in the paragraph entitled "Economic performance".

19. Cost of goods sold

"Cost of sales" includes costs relating to the functional areas involved directly or indirectly in the generation of revenues with the sale of goods or services. Therefore this item includes the production or purchase cost of products and goods sold. It also includes all costs for materials, processing and overheads directly attributable to production. Furthermore, it contains write-downs on inventories, provisions to cover warranty costs on sold goods, transport and insurance costs incurred for deliveries to customers and sales commissions to agents or third-party distributors. The cost of sales at December 31st, 2017 stood at 340,096 thousand EUR up 42,194 thousand EUR from December 31st, 2016; the main components include materials (220,571 thousand EUR), processing and outsourcing (21,210 thousand EUR).

20. Research and development costs

Research and development activities carried out by the Group in 2017 amounted to a comprehensive 23,401 thousand EUR. The research and development item, shown in the income statement at December 31st, 2017, amounted to 12,564 thousand EUR up 1,631 thousand EUR from the previous year; this item is shown at net of capitalization of research and development costs of 7,134 thousand EUR, grants (national and European) for 3,338 thousand EUR and Tech Center costs and overheads for 365 thousand EUR.

21. Sales and marketing expenses

This item includes, for allocation, business structure costs such as personnel, trade fairs and events, the demo center, promotional and advertising activities and related overheads. Sales and marketing costs during the year 2017 were 29,631 thousand EUR, up from 2016 (27,903 thousand EUR).

22. General and administrative expenses

This item includes all costs related to Group or Divisional management structures, Finance costs, HR, IT and overheads. Overheads and administration costs were 24,034 thousand EUR during the year 2017, up from December 31st, 2016 (21,738 thousand EUR).

23. Impairment, write-downs and depreciation

Depreciation at December 31st, 2017 amounts to 16,859 thousand EUR (of which 12,472 thousand EUR are related to intangible assets).

DEPRECIATION	DECEMBER 31, 2017	DECEMBER 31, 2016
Depreciation of intangible fixed assets	12,471,823	11,931,298
Depreciation of tangible fixed assets	4,387,095	3,922,386
TOTAL	16,858,918	15,853,684

It has to be highlighted that amortization costs relating to the trademark and "customers list" amount to a comprehensive 3,180 thousand EUR, while those relating to development costs amount to 8,488 thousand EUR. During 2017 an impairment amounting to 23 thousand EUR relating mainly to tangible assets of the PRIMA ELECTRO division has been accounted for.

The subdivision by function of the item Impairment, write-downs and depreciation is shown below.

DEPRECIATION	DECEMBER 31, 2017	DECEMBER 31, 2016
Cost of goods sold	2,569,207	2,435,163
Research and Development costs	9,357,699	8,762,365
Sales and marketing expenses	282,352	172,161
General and administrative expenses	4,649,660	4,483,995
TOTAL	16,858,918	15,853,684
IMPAIRMENT - WRITE-OFF	DECEMBER 31, 2017	DECEMBER 31, 2016
Research and Development costs	-	1,027,682
General and administrative expenses	23,299	-
TOTAL	23,299	1,027,682

24. Financial Income and expenses

The financial income and expenses of 2017 shows a negative result of 7,000 thousand EUR.

FINANCIAL MANAGEMENT	DECEMBER 31, 2017	DECEMBER 31, 2016
Financial income	2,760,000	626,831
Financial expenses	(6,786,647)	(8,507,194)
Net financial expenses	(4,026,647)	(7,880,363)
Net exchange of transactions in foreign currency	(2,973,478)	(349,409)
Total Financial Management	(7,000,125)	(8,229,772)

Financial income at December 31st, 2017 includes earnings of 2,500 thousand EUR from the management of foreign exchange derivatives. Financial expenses include 2,419 thousand EUR related to bonds, 1,089 thousand EUR for the Club Deal loan and 689 thousand EUR for the Finnish Loan. Financial expenses in 2017 include nonrecurring expenses recorded in December, following full early repayment of the Finnish loan. The settlement led to the inclusion in the income statement of the as yet not amortised ancillary charges. These amount to 126 thousand EUR.

In 2017, net interest of 5,081 thousand EUR was paid.

25. Net result of other investments

Profits from other shareholdings were 2,556 thousand EUR and relate to:

capital gains of 2,560 thousand EUR on the sale of shares in EPS SA, whose investment is classified among Non-current assets held for sale;
write-down of 4 thousand EUR for the stake in Caretek Srl held by PRIMA ELECTRO SpA.

26. Current and deferred taxes

Income tax for the year 2017 showed a net negative balance of 3,184 thousand EUR. The balance of current and deferred taxes is negative by 2,449 thousand EUR, IRAP is equal to 602 thousand EUR and other taxes, including those relating to prior years, amount to -133 thousand EUR.

TAXES	2017	2016
Values expressed in Euro thousand
Current income taxes (including tax consolidation for Italian Companies)	(5,142)	(4,330)
IRAP (Regional Trade tax)	(602)	(341)
Deferred tax	2,693	3,617
Taxes relating to previous year	(58)	(122)
Other taxes	(75)	(11)
TOTAL	(3,184)	(1,187)

The reconciliation of the tax expenses recorded in the consolidated financial statements and the theoretical tax expenses, based on the theoretical tax rates in force in the countries where Group companies operate, is as follows:

CURRENT INCOME TAXES	2017	2016
Values expressed in Euro thousand
Current tax on theoretical income (excluding regional trade tax IRAP)	(7,726)	(4,739)
Permanent changes	2,685	1,976
Temporary changes	(1,883)	(2,931)
Utilization/Surplus losses	1,676	973
Other differences	106	391
CURRENT INCOME TAXES	(5,142)	(4,330)

In 2017, current income taxes (including IRAP) of 6,512 thousand EUR were paid.

27. Result per Share

The earnings per share December 31st, 2017, positive by 1.77 Euro (positive by 0.96 Euro on December 31st, 2016) is calculated by dividing the profits attributable to the shareholders of the parent company by the average number of ordinary shares in circulation during the financial year which are 10,483,274. The diluted earnings per share is equal to the basic earning because at December 31st, 2017 no dilutive operations occurred.

Guarantees granted, commitments and other potential liabilities

The situation of the guarantees granted and commitments made by the Group at December 31st, 2017 is shown below.

VALUES EXPRESSED IN EURO THOUSAND	31/12/17	31/12/16
Guarantees granted	59,371	29,008
Commitments to leasing companies	1,548	1,907
Other commitments and significant contracts rights	11,805	10,039
TOTAL	72,724	40,954

For a better comprehension, the 2016 figures have been re-exposed

At December 31st, 2017 the guarantees granted by PRIMA INDUSTRIE Group amounted to 59,371 thousand EUR and refer to guarantees to trade counterparties and sureties to credit institutions.

"Commitments to leasing companies" refer to repurchase agreements for sales made through financial intermediaries.

"Other Commitments and significant contract rights" refer mainly to rents on buildings, rentals and operating leases.

The PRIMA INDUSTRIE Group, in addition to probable liabilities for which provisions have been allocated in the related risks provisions, does not have potential liabilities, as described in IAS 37, to be indicated.

Information on related parties

Below is information on related parties with regard to the bodies for administration, control, strategic management and the companies EPS and 3D-NT. 3D-NT, in which PRIMA INDUSTRIE SpA acquired a 15% stake in May 2017, is considered a related party since several people with managerial or partner roles in PRIMA INDUSTRIE SpA are involved in the said company.

OPERATIONS WITH RELATED PARTIES	ADMINISTRATIVE, CONTROL BOARDS AND STRATEGIC MANAGEMENT	EPS	3D-NT	TOTAL (*)

RECEIVABLES AS AT January 1, 2017	-	50,647	-	50,647
RECEIVABLES AS AT December 31, 2017	-	159,700	3,639	163,339
PAYABLES AS AT January 1, 2017	774,582	-	-	774,582
PAYABLES AS AT December 31, 2017	1,552,686	-	-	1,552,686
REVENUES Jan.1, 2017 - Dec.31, 2017	-	262,572	13,378	275,950
COSTS Jan.1, 2017 - Dec.31, 2017	2,268,737	-	-	2,268,737
VARIATIONS IN RECEIVABLES
Jan.1, 2017 - Dec.31, 2017	-	109,053	3,639	112,692
VARIATIONS IN PAYABLES
Jan.1, 2017 - Dec.31, 2017	778,104	-	-	778,104

(*) In 2017, revenues was equal to €275,950, of which €270,436 classified as "Net revenues" and € 5,514 classified as decreasing of the costs in the function "General and administrative expenses ".

Management of financial risks

The Group's financial instruments, aimed at financing the operational activity, include bank loans, the financial leasing contracts and factoring, cash and short-term bank deposits. There are then other financial instruments, such as commercial payables and receivables, deriving from the operational activity.

The PRIMA INDUSTRIE Group is mainly exposed to the following categories of risk:

Interest rate risk
Exchange rate risk
Credit risk
Liquidity risk

The Group has adopted specific policies with the aim of correctly managing the risks mentioned, in order to safeguard its own activity and capacity to create value for shareholders and for all the Stakeholders.

The Group's objectives and politics for management of the above risks is detailed below.

Interest rate risk

The debit position towards the credit system and capital markets can be negotiated at a fixed or variable rate. Variations of interest rate in the market generate the following categories of risk:

an increase in market interest rates exposes to the risk of greater financial burdens to be paid on the quota of variable interest rate debits;
a decrease in market interest rates exposes to the risk of excessive financial burdens to be paid on the quota of fixed interest rate debits.

In particular, the strategies adopted by the Group to confront these risks are as follows:

Interest rate Management/Hedging

Exposure to interest rates is by nature structural, in that the net financial position generates net financial burdens subject to the volatility of interest rates, according to the contractual conditions established with the financing party. Consequently, the identified strategy is of Management/Hedging and is confirmed by:

Continuous Monitoring of the exposure to interest rate risks;
Hedging activity through derivative financial instruments.

Exchange rate risk

The debit position towards the banking system and the capital market, as well as towards other creditors, can be expressed in one's own account currency (Euro), or in other currencies on account. In this case, the financial burden of the debit in currency is subject to the interest rate risks, not of the European market, but of the market of the chosen currency.

The attitude and strategy to follow concerning risk factors are determined by the plurality of elements which concerned both the characteristics of the reference market and their impact on the company balance sheet results. Indeed, four possible strategic and distinctive areas for the operational management of individual risk factors can be identified:

"Avoid" strategy (Avoidance)
Acceptance
Management/Hedging
"Market Intelligence" (Speculation)

In particular, the strategies primarily adopted by the Group to confront these risks are as follows:

Exchange rate Management/Hedging

Exposure to exchange rate risks deriving from financial factors is currently contained, in that the company does not take on financing in currency different from the Europe, with the exception of some financing of the U.S. subsidiaries, for which the U.S. dollar is the reference currency.

In relation to the commercial transactions, on the other hand, at Group level there exists a certain exposure to exchange rate risk, because the fluctuations of purchase in U.S. dollars (substantially the only relevant accounting currency different from the Euro) of the parent company Prima Industrie SpA, of FINN-POWER OY and of PRIMA ELECTRO SpA are not sufficient to balance the fluctuations of sales carried out in U.S. dollars and because the Group also works with other currencies for which hedging transactions are not available.

The Group has recently provided itself with guidelines for managing the foreign exchange risk in the major currencies in which it operates (mainly the US dollar and Chinese Renminbi). The goal is to cover the budget results from the exchange risk, through the subscription of hedging derivatives. This hedging is managed by the parent company Prima Industrie SpA.

The Group carries out monitoring to reduce such exchange risks even using covering instruments.

With regard to account currencies different from the U.S. dollar and Chinese Renminbi not hedged by ad hoc derivatives, the risk management strategy is one of acceptance, both because they normally deal with sums of modest value and because of the difficulty of finding suitable covering instruments.

Credit risk

The Group only deals with known and trustworthy clients; furthermore, the amount of credit is monitored during the financial year so that the sum exposed to losses is not significant.

For this purpose, with regards to PRIMA INDUSTRIE, a Group credit management unit has been set up.

It should be noted that there are no significant concentrations of credit risk within the Group. The financial activities are shown in the balance sheet net of the write-downs calculated on the basis of risk of non-fulfilment by the counter party, determined in consideration of the information available on the solvency of the client and eventually considering historical data.

In compliance with CONSOB Communication DEM/RM 11070007 of August 5th, 2011, we inform you that the PRIMA INDUSTRIE Group Holds no bonds issued by central and local governments nor by government bodies, and has granted no loans to these institutions.

Liquidity risk

The liquidity risk represents the risk that financial resources are not sufficient to fund the financial and commercial obligations within the pre-established periods and due dates.

The risk of liquidity to which the group is subject may emerge from late payments on its sales and more generally from the difficulty of obtaining financing to support operational activities in the time necessary. Cash flows, financing needs and the liquidity of the Group's companies are monitored or managed centrally under the control of the Group Treasury, with the aims of guaranteeing effective and efficient management of financial resources.

The Group operates with the aim of carrying out collection operations on the various financial markets with varied techniques, with the aim of guaranteeing a correct level of liquidity both current and future. The strategic aim is to ensure that at any moment the group has sufficient credit lines to service financial due dates over the following twelve months.

The current difficult market environment whether operational or financial requires particular attention to the management of liquidity risks and, in this sense, particular attention is given to those actions aimed at generating financial resources through operational management and the maintenance of an adequate level of available liquidity.

Therefore, the group has arranged to address the requirements emerging from financial payable due dates and from the investments, through the fluctuations caused by operational management, available liquidity, use of credit lines, the renewing of bank loans and eventual recourse to other forms of provision of a non-ordinary nature.

The table below lists, for the assets and liabilities at December 31st, 2017 and on the basis of the categories foreseen by IAS 39, the additional information on financial instruments pursuant to IFRS 7.

ASSETS	CATEGORY IAS 39	FINANCIAL VALUE DECEMBER 31, 2017	AMORTIZED COST	FV IN EQUITY	FV IN INCOME STATEMENT	FAIR VALUE DECEMBER 31, 2017
Cash and cash equivalents	NA	70,521	-	-	-	70,521
Assets held to maturity	Held to Maturity	792	-	-	-	792
Assets at fair value in profit or loss	Held for Trading	57	-	-	2,500	57
TOTAL		71,370	-	-	2,500	71,370

Fair value by category - IAS 39 - December 31, 2017 - Values expressed in Euro thousand

LIABILITIES	CATEGORY IAS 39	FINANCIAL VALUE DECEMBER 31, 2017	AMORTIZED COST	FV IN EQUITY	FV IN INCOME STATEMENT	FAIR VALUE DECEMBER 31, 2017
Liabilities at amortized cost	Amortised Cost	135,140	135,140	-	-	135,952
Liabilities at fair value in profit or loss	Held for Trading	80	-	-	89	80
Hedge Derivatives	NA	-	-	-	-	-
TOTAL		135,220	135,140	-	89	136,032

Profit and losses by category - IAS 39 - December 31, 2017 - Values expressed in Euro thousand

ASSETS	CATEGORY IAS 39	NET PROFIT AND LOSS	OF WHICH INTERESTS
Cash and cash equivalents	NA	-	126
Assets held to maturity	Held to Maturity	-	-
Assets valued under IAS 17	NA	-	-
TOTAL		-	126
LIABILITIES	CATEGORY IAS 39	NET PROFIT AND LOSS	OF WHICH INTERESTS
Liabilities at amortized cost	Amortised Cost	(3,871)	(3,598)
Liabilities at fair value in profit or loss	Held for Trading	89	89
Hedge Derivatives	NA	-	-

Liabilities valued under IAS 17 NA (224) (224) Other Financial payables - factoring NA (64) (64) TOTAL (4,070) (3,797)

Significant not recurring items

The table below summarises non-recurring items that have had a positive impact on the Income Statement in 2017 for a total of 521 thousand EUR.

SIGNIFICANT NON-RECURRENT EVENTS AND TRANSACTIONS (VALUES EXPRESSED IN EURO THOUSAND)	GROSS MARGIN	SALES AND MARKETING EXPENSES	GENERAL AND ADMINISTRATIVE EXPENSES	IMPAIRMENT	FINANCIAL INCOME AND EXPENSES	NET RESULT OF INVESTMENTS	TOTAL AS AT DEC 31, 2017	TOTAL AS AT DEC 31, 2016	VARIATION 2017 VS 2016
Actions of reorganization/ Restructuring	(344)	(511)	(270)	-	-	-	(1,125)	(846)	(279)
Legal/fiscal disputes and penalties from customers	(335)	(43)	(1,126)	-	-	-	(1,504)	120	(1,624)
Other minor events	-	(3)	747	-	-	-	744	-	744
EBITDA	(679)	(557)	(649)	-	-	-	(1,885)	(726)	(1,159)
Impairment of intangible fixed assets	-	-	-	-	-	-	-	(1,028)	1,028
Impairment of tangible fixed assets	-	-	-	(23)	-	-	(23)	-	(23)
EBIT	(679)	(557)	(649)	(23)	-	-	(1,908)	(1,754)	(154)
Advance Finnish loan expenses	-	-	-	-	(126)	-	(126)	-	(126)
Economical effect on investments accounted for using the equity method	-	-	-	-	-	(5)	(5)	1,049	(1,054)
Gain from sales of shares in EPS SA	-	-	-	-	-	2,560	2,560	-	2,560
EBT	(679)	(557)	(649)	(23)	(126)	2,555	521	(705)	1,226

Transactions deriving from atypical and/or unusual business

Pursuant to CONSOB Bulletin of July 28th, 2006, we wish to specify that in 2017, the Group conducted no atypical and/or unusual business, as per its definition in the Bulletin itself, which states that atypical and/or unusual business are those transactions which, given their importance/relevance, nature of the counterparties, transaction scope, method in determining the price of transfer and time frame (close to closing date), could lead to doubts on: the accuracy/completeness of the information in the financial statements, conflicts of interest, protection of company wealth and protection of minority shareholders.

Signature of the Executive Chairman

Consolidated Financial Statements at December 31st, 2017 Declaration

PURSUANT TO ARTICLE 81-TER OF CONSOB REGULATION NO. 11971 OF MAY 14th, 1999 AND ITS SUBSEQUENT AMENDAMENTS AND INTEGRATIONS

1. The undersigned Gianfranco Carbonato (Executive Chairman) and Davide Danieli (Manager responsible for drafting company accounting documents) of Prima Industrie SpA certify that, taken account of article 154 bis, paragraphs 3 and 4, of Leg. Decree of February 24th, 1998, no. 58:
the company's business is compliant with the given requirements and
the administrative and accounting procedures have been effectively applied in drafting the consolidated financial statements over the course of 2017.
1. That no significant facts have emerged regarding thereto
1. Said signees furthermore certify that:
3.1 the consolidated financial statements:
- a) is drafted in conformity with the applicable international accounting standards commonly used in the European Community, pursuant to (CE) Regulation no. 1606/2002 of the European Parliament and Council of July 19th 2002;
- b) truthfully represent the figures in the accounting books and ledgers;
- c) is suitable to provide a truthful and faithful representation of the capital, economic and financial position of the Corporation and of the group of companies included in the consolidation.
3.2 the Report of the Board of Directors includes a reliable analysis of company business trends and results, as well as of the position of the Corporation and of the group of companies included in the consolidation, along with the description of the chief risks and uncertainties to which they are exposed.

Date: March 2nd, 2018

Signature of the Executive Chairman

Signature of the Manager responsible for drafting the Company accounting documents

Prima Industrie SpA Financial Statements December 31st, 2017

Chapter 9. Financial Statements of Prima Industrie SpA at December 31st, 2017

Statement of financial position

VALUES IN EURO	NOTES	DECEMBER 31, 2017	DECEMBER 31, 2016
Property, plant and equipment	1	14,277,886	13,954,864
Intangible assets	2	9,665,603	9,945,490
Investment in subsidiaries	3	171,937,588	159,429,421
Other investments	4	232,431	11,931
Financial assets - loan to the subsidiaries	5	-	2,800,000
Deferred tax assets	6	2,589,901	2,291,324
NON CURRENT ASSETS		198,703,409	188,433,030
Inventories	7	25,462,069	24,445,109
Trade receivables	8	57,180,626	43,266,836
Other receivables	9	2,656,924	2,638,733
Current tax receivables	10	2,007,586	3,045,409
Derivatives	13	57,536	-
Financial assets	5	6,503,094	5,886,259
Cash and cash equivalents	11	25,242,811	7,456,973
CURRENT ASSETS		119,110,646	86,739,319
TOTAL ASSETS		317,814,055	275,172,349

Statement of financial position (continued)

VALUES IN EURO	NOTES	DECEMBER 31, 2017	DECEMBER 31, 2016
Capital stock	12	26,208,185	26,208,185
Legal reserve	12	4,652,958	4,565,082
Other reserves	12	69,607,122	71,034,163
Retained earnings	12	(1,697,935)	(1,697,935)
Net result	12	6,771,475	1,757,529
STOCKHOLDERS' EQUITY		105,541,805	101,867,024
Interest-bearing loans and borrowings	14	89,938,582	83,857,011
Employee benefit liabilities	15	3,635,568	3,778,483
Deferred tax liabilities	16	884,804	806,191
Provisions	17	1,471,621	1,008,735
Derivatives	13	80,445	82,687
NON CURRENT LIABILITIES		96,011,020	89,533,107
Trade payables	18	58,293,382	47,895,027
Advance payments	18	5,538,417	2,110,241
Other payables	18	7,971,510	6,773,985
Interest-bearing loans and borrowings	14	35,812,419	19,236,238
Current tax payables	19	3,125,602	2,275,053
Provisions	17	5,519,900	4,585,900
Derivatives	13	-	895,774
CURRENT LIABILITIES		116,261,230	83,772,218
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES		317,814,055	275,172,349

Income statement

VALUES IN EURO	NOTES	DECEMBER 31, 2017	DECEMBER 31, 2016
Net revenues	20	153,464,705	124,694,119
Cost of goods sold	21	(127,613,972)	(103,462,176)
GROSS MARGIN		25,850,733	21,231,943
Research and Development costs	22	(2,179,578)	(2,373,596)
Sales and marketing expenses	23	(6,229,408)	(4,302,810)
General and administrative expenses	24	(7,696,609)	(6,424,223)
OPERATING GROSS MARGIN (EBITDA)		9,745,138	8,131,314
Depreciation	25	(3,285,373)	(2,712,717)
OPERATING PROFIT (EBIT)		6,459,765	5,418,597
Financial income	26	8,237,215	3,507,775
Financial expenses	26	(6,559,703)	(6,378,796)
Net exchange differences	26	(524,919)	(237,608)
RESULT BEFORE TAXES (EBT)		7,612,358	2,309,968
Taxes	27	(840,883)	(552,439)
NET RESULT		6,771,475	1,757,529

Comprehensive income statement

VALUES IN EURO	NOTES	DECEMBER 31, 2017	DECEMBER 31, 2016
NET RESULT (A)		6,771,475	1,757,529
Gains/ (Losses) on actuarial defined benefit plans	12	56,854	(92,945)
Tax effect	12	(13,645)	12,974
Total other comprehensive gains/(losses) not to be classified in the Income Statement, net of tax effects (B)		43,209	(79,971)
Gains /(Losses) on cash flow hedges	12	5,778	(82,686)
Tax effect	12	(1,387)	19,845
Gains/(Losses) on exchange differences on translating foreign operations for Branch Office Korea	12	687	-
Total other comprehensive gains/(losses) to be classified in the Income Statement, net of tax effects (C)		5,078	(62,841)
TOTAL COMPREHENSIVE INCOME (A) + (B) +(C)		6,819,762	1,614,717

Statement of changes in shareholders' equity

VALUES IN EURO	CAPITAL STOCK	ADDITIONAL PAID-IN CAPITAL	LEGAL RESERVE	CAPITAL INCREASE - EXPENSES
Balance as at 31/12/2015	26,208,185	57,506,537	4,494,745	(1,286,154)
Allocation of prior year net result	-	-	70,337	-
Dividends paid	-	-	-	-
Reclassification	-	-	-	-
Result of comprehensive Income	-	-	-	-
Balance as at 31/12/2016	26,208,185	57,506,537	4,565,082	(1,286,154)
Allocation of prior year net result	-	-	87,876	-
Dividends paid	-	-	-	-
Result of comprehensive Income	-	-	-	-
Balance as at 31/12/2017	26,208,185	57,506,537	4,652,958	(1,286,154)

EQUITY	NET RESULT	RETAINED ERNINGS	OTHER RESERVES	FV DERIVATES ADJUSTMENT RESERVE
102,873,125	1,406,734	(1,775,643)	16,318,721	-
	(1,406,734)	-	1,336,397	-
(2,620,818)	-	-	(2,620,818)	-
	-	77,708	(77,708)	-
1,614,717	1,757,529	-	(79,971)	(62,841)
101,867,024	1,757,529	(1,697,935)	14,876,621	(62,841)
	(1,757,529)	-	1,669,653	-
(3,144,981)	-	-	(3,144,981)	-
6,819,762	6,771,475	-	43,896	4,391
105,541,805	6,771,475	(1,697,935)	13,445,189	(58,450)

Cash flow statement

VALUES IN EURO	DECEMBER 31, 2017	DECEMBER 31, 2016 (**)
Net result	6,771,475	1,757,529
Adjustments (sub-total)	5,690,248	7,994,979
Depreciation	3,285,373	2,712,717
Net change in deferred tax assets and liabilities	(219,964)	80,136
Change in employee benefits liabilities	(142,915)	40,405
Change in inventories	(1,016,960)	(2,929,829)
Change in trade receivables	(13,913,790)	(4,005,972)
Change in trade payables and advances	13,826,531	12,609,297
Net change in other receivables/payables and other assets/liabilities	3,871,973	(511,775)
Cash Flows from (used in) operating activities (A)	12,461,723	9,752,508
Cash flow from investments
Acquisition of tangible fixed assets (*)	(1,061,175)	(728,277)
Acquisition of intangible fixed assets	(363,747)	(414,445)
Capitalization of development costs	(1,803,441)	(2,141,945)
Net disposal of fixed assets	110	22,938
Capital Increase FINN-POWER OY	-	(18,228,867)
Acquisition of investment in FINN-POWER ITALIA	(13,547,879)	-
Devaluation PRIMA POWER SOUTH AMERICA Ltda	315,186	82,656
Devaluation PRIMA POWER AUSTRALASIA	10,944	26,155
Devaluation PRIMA POWER Gmbh	1,306,201	-
Variations in Other investments	(220,500)	-
Cash Flows from (used in) investing activities (B)	(15,364,301)	(21,381,785)

Cash flow statement (continued)

VALUES IN EURO	DECEMBER 31, 2017	DECEMBER 31, 2016 (**)
Cash flow from financing activities
Change in financial receivables and other financial assets	2,183,165	15,093,094
Change in other non current financial liabilities and other minor items	(951,417)	963,030
Increases in loans and borrowings (including bank overdrafts)	32,245,862	10,613,958
Repayment of loans and borrowings (including bank overdrafts)	(9,527,119)	(10,372,313)
Repayments in financial lease liabilities	(160,990)	(25,515)
Dividends paid	(3,144,981)	(2,620,818)
Other variations	43,896	(79,971)
Cash Flows from (used in) financing activities (C)	20,688,416	13,571,465
Net change in cash and equivalents (D=A+B+C)	17,785,838	1,942,188
Cash and equivalents beginning of period (E)	7,456,973	5,514,785
Cash and equivalents end of period (F=D+E)	25,242,811	7,456,973

ADDITIONAL INFORMATION TO THE STATEMENT OF CASH-FLOW	DECEMBER 31, 2017	DECEMBER 31, 2016 (**)
Values in Euro
Taxes	(840,883)	(552,439)
Financial incomes	8,237,215	3,507,775
Financial expenses	(6,559,703)	(6,378,796)

(*) not included the acquisition of real estate assets by means of a financial lease

(**) for a better comprehension, the 2016 figures have been re-exposed

Statement of financial position pursuant to Consob n.15519 of July 27th, 2006

VALUES IN EURO	NOTES	DECEMBER 31, 2017	OF WHICH RELATED PARTIES	DECEMBER 31, 2016	OF WHICH RELATED PARTIES
Property, plant and equipment	1	14,277,886	-	13,954,864	-
Intangible assets	2	9,665,603	-	9,945,490	-
Investment in subsidiaries	3	171,937,588	171,937,588	159,429,421	159,429,421
Other investments	4	232,431	180,000	11,931	-
Financial assets - loan to the
subsidiaries	5	-	-	2,800,000	2,800,000
Deferred tax assets	6	2,589,901	-	2,291,324	-
NON CURRENT ASSETS		198,703,409		188,433,030
Inventories	7	25,462,069	-	24,445,109	-
Trade receivables	8	57,180,626	18,370,602	43,266,836	17,939,689
Other receivables	9	2,656,924	159,841	2,638,733	-
Current tax receivables	10	2,007,586	-	3,045,409	-
Derivatives	13	57,536	-	-	-
Financial assets	5	6,503,094	5,711,585	5,886,259	5,094,750
Cash and cash equivalents	11	25,242,811	-	7,456,973	-
CURRENT ASSETS		119,110,646		86,739,319
TOTAL ASSETS		317,814,055		275,172,349

Statement of financial position (continued) pursuant to Consob n.15519 of July 27th, 2006

VALORI IN EURO	NOTE	31/12/17	DI CUI PARTI CORRELATE	31/12/16	DI CUI PARTI CORRELATE

Capital stock	12	26,208,185	-	26,208,185	-
Legal reserve	12	4,652,958	-	4,565,082	-
Other reserves	12	69,607,122	-	71,034,163	-
Retained earnings	12	(1,697,935)	-	(1,697,935)	-
Net result	12	6,771,475	-	1,757,529	-
STOCKHOLDERS' EQUITY		105,541,805		101,867,024
Interest-bearing loans and borrowings	14	89,938,582	1,500,000	83,857,011	4,000,000
Employee benefit liabilities	15	3,635,568	-	3,778,483	-
Deferred tax liabilities	16	884,804	-	806,191	-
Provisions	17	1,471,621	-	1,008,735	-
Derivatives	13	80,445	-	82,687	-
NON CURRENT LIABILITIES		96,011,020		89,533,107
Trade payables	18	58,293,382	18,130,686	47,895,027	11,534,326
Advance payments	18	5,538,417	-	2,110,241	-
Other payables	18	7,971,510	1,232,347	6,773,985	690,222
Interest-bearing loans and borrowings	14	35,812,419	7,910,587	19,236,238	85,160
Current tax payables	19	3,125,602	-	2,275,053	-
Provisions	17	5,519,900	-	4,585,900	-
Derivatives	13	-		895,774	-
CURRENT LIABILITIES		116,261,230		83,772,218
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES		317,814,055		275,172,349

Income statement

pursuant to Consob n.15519 of July 27th, 2006

			OF WHICH		OF WHICH
VALUES IN EURO	NOTES	DECEMBER 31, 2017	RELATED PARTIES	DECEMBER 31, 2016	RELATED PARTIES
Net revenues	20	153,464,705	59,631,811	124,694,119	53,678,595
Cost of goods sold	21	(127,613,972)	(27,818,528)	(103,462,176)	(19,894,356)
GROSS MARGIN		25,850,733	-	21,231,943	-
Research and Development costs	22	(2,179,578)	(101,252)	(2,373,596)	-
Sales and marketing expenses	23	(6,229,408)	1,083,827	(4,302,810)	136,990
General and administrative expenses	24	(7,696,609)	(712,462)	(6,424,223)	473,675
OPERATING GROSS MARGIN (EBITDA)		9,745,138		8,131,314
of which: non recurring items		(55,450)		(251,427)
Depreciation	25	(3,285,373)	-	(2,712,717)	-
OPERATING PROFIT (EBIT)		6,459,765		5,418,597
of which: non recurring items		(55,450)		(251,427)
Financial income	26	8,237,215	5,626,142	3,507,775	3,066,806
Financial expenses	26	(6,559,703)	(1,826,304)	(6,378,796)	(209,784)
Net exchange differences	26	(524,919)	-	(237,608)	-
RESULT BEFORE TAXES (EBT)		7,612,358		2,309,968	-
of which: non recurring items		(1,687,781)		(360,238)
Taxes	27	(840,883)	-	(552,439)	-
NET RESULT		6,771,475		1,757,529

Cash flow statement

pursuant to Consob n.15519 of July 27th, 2006

VALUES IN EURO	DECEMBER 31, 2017	OF WHICH RELATED PARTIES	DECEMBER 31, 2016 (**)	OF WHICH RELATED PARTIES
Net result	6,771,475	-	1,757,529	-
Adjustments (sub-total)	5,690,248	-	7,994,979	-
Depreciation	3,285,373	-	2,712,717	-
Net change in deferred tax assets
and liabilities	(219,964)	-	80,136	-
Change in employee benefits liabilities	(142,915)	-	40,405	-
Change in inventories	(1,016,960)	-	(2,929,829)	-
Change in trade receivables	(13,913,790)	(430,913)	(4,005,972)	(1,282,326)
Change in trade payables and advances	13,826,531	6,596,360	12,609,297	5,434,284
Net change in other receivables/payables
and other assets/liabilities	3,871,973	382,284	(511,775)	111,032
Cash Flows from (used in) operating
activities (A)	12,461,723		9,752,508
Cash flow from investments
Acquisition of tangible fixed assets (*)	(1,061,175)	-	(728,277)	-
Acquisition of intangible fixed assets	(363,747)	-	(414,445)	-
Capitalization of development costs	(1,803,441)	-	(2,141,945)	-
Net disposal of fixed assets	110	-	22,938	-
Capital Increase FINN-POWER OY	-	-	(18,228,867)	(18,228,867)
Acquisition of investment in
FINN-POWER ITALIA	(13,547,879)	(13,547,879)	-	-
Devaluation PRIMA POWER SOUTH
AMERICA Ltda	315,186	315,186	82,656	82,656
Devaluation PRIMA POWER AUSTRALASIA	10,944	10,944	26,155	26,155
Devaluation PRIMA POWER Gmbh	1,306,201	1,306,201	-	-
Variations in Other investments	(220,500)	180,000	-	-
Cash Flows from (used in) investing activities (B)	(15,364,301)		(21,381,785)

Cash flow statement (continued)

pursuant to Consob n. 15519 of July 27th, 2006

VALUES IN EURO	DECEMBER 31, 2017	OF WHICH RELATED PARTIES	DECEMBER 31, 2016 (**)	OF WHICH RELATED PARTIES
Cash flow from financing activities
Change in financial receivables
and other financial assets	2,183,165	2,183,165	15,093,094	15,093,094
Change in other non current financial
liabilities and other minor items	(951,417)	-	963,030	-
Increases in loans and borrowings
(including bank overdrafts)	32,245,862	5,325,427	10,613,958	1,585,160
Repayment of loans and borrowings
(including bank overdrafts)	(9,527,119)	-	(10,372,313)	-
Repayments in financial lease liabilities	(160,990)	-	(25,515)	-
Dividends paid	(3,144,981)	-	(2,620,818)	-
Other variations	43,896	-	(79,971)	-
Cash Flows from (used in) financing activities (C)	20,688,416		13,571,465
Net change in cash and equivalents (D=A+B+C)	17,785,838		1,942,188
Cash and equivalents beginning of period (E)	7,456,973		5,514,785
Cash and equivalents end of period (F=D+E)	25,242,811		7,456,973

(*) not included the acquisition of real estate assets by means of a financial lease

(**) for a better comprehension, the 2016 figures have been re-exposed

Description of Accounting Principles

Chapter 10. Description of accounting principles

Valuation Criteria

The 2017 financial statements represent the separate financial statements of the parent company Prima Industrie SpA and have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and endorsed by the European Union. The IFRS also includes all valid International Accounting Standards ("IAS") and all interpretations of the International Financing Reporting Interpretations Committee ("IFRIC"), previously known as the Standing Interpretations Committee ("SIC").

In compliance with European Regulation no. 1606 of July 19th , 2002, starting from 2005, the PRIMA Group has adopted the International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") in the preparation of the consolidated financial statements. Depending on the national legislation implementing that Regulation, the financial statements of the parent company Prima Industrie SpA have been prepared in accordance with these standards since 2006.

The disclosures required by IFRS 1, First Time Adoption of IFRS, regarding the effects following the transition to IFRS, was included in a specific Chapter to the Financial Statements at December 31st, 2006, to which reference is made.

The financial statements are prepared in accordance to the historical cost principle, except for financial assets and liabilities (including derivative instruments) of the category at fair value with changes in value recorded in the Income Statement, as well as on a going concern basis. The Group has determined that there are no significant uncertainties (as defined by par. 25 of IAS 1) on business continuity.

On this issue, it is also appropriate to refer to the specific comment included in the consolidated financial statements in Chapter 7 "DESCRIPTION OF ACCOUNTING PRINCIPLES" in the section "Accounting policies used". The preparation of the financial statements in accordance with IFRS inevitably requires the use of accounting estimates and opinions expressed by the Directors of the company. Aspects of the financial statements that require the application of more complex estimates and greater recourse to the judgements of the Directors is provided below.

This Financial Statements are audited by PricewaterhouseCoopers S.p.A.

Financial statements - Format

The Company presents the income statement according to functional area otherwise referred to as "Cost of Sales", rather than by expenditure type. The cost presentation is based on cost destination and is considered more representative than expenditure type. The form chosen conforms to internal reporting and business management procedures and is in line with international practice within the sector in which the Group operates.

With reference to the assets and liabilities of the balance sheet a form of presentation that distinguishes between current and non-current, as allowed by IAS 1, has been adopted. Moreover, information on the timing of liabilities is provided in the notes. The cash flow statement was prepared under the indirect method.

The Group has opted to use the formats described hereinafter in drafting its Financial Statements:

a) for the Consolidated Balance Sheet, the format used distinguishes the assets and liabilities between "current" (i.e. receivable or payable in 12 months) and "non-current" (i.e. receivable or payable over 12 months);
b) for the Consolidated Profit & Loss, the format used distributes costs according to their type; the Global Consolidated Income Statement includes, besides the Profit in the year as listed in the Consolidated Profit & Loss, the other variations to the Net Equity that do not refer to transactions with Shareholders;
c) for the Variations to the Net Equity, the format used reconciles the opening and closing of every entry in both the current year and the previous one;
d) for the Financial Account, the so-called "indirect" method was chosen, whereby the net financial flow of company business is determined by adjusting the profit and loss, because of the effects of:
o non-monetary elements such as amortisation and depreciation;
o variations of inventory, receivables and payables generated by company business;
o other elements whose financial flows are generated by investments and financings.

Please note, furthermore, that with reference to CONSOB Resolution no. 15519 of July 27th, 2006 concerning the format of financial statements, specific supplementary schemes have been added for the Income Statement and for the Balance Sheet, which particularly stress those relations with associates and non-recurrent transactions that are most significant, in order to make the financial statements more readily comprehensible.

Changes in accounting policies

With regard to the changes in accounting principles that took place in 2017, reference is made, as stated, in Chapter 7 of the consolidated financial statements, "DESCRIPTION OF ACCOUNTING PRINCIPLES".

Conversion of foreign currency

The financial statements have been prepared in Euro, the functional and presentation currency. Transactions in foreign currency are initially recorded at the exchange rate at the transaction date. The assets and liabilities in currencies other than the Euro are converted into EUR using the exchange rates applicable at the balance sheet date. All exchange differences are recognised in the Income Statement, provided that the accounting standards allow the revaluation in equity.

Tangibles assets

All classes of tangible assets, including investment properties, are stated at historical cost, less accumulated depreciation and impairment losses, except for land, recorded at historical cost less impairment, where applicable. Cost includes all expenses directly attributable to the acquisition.

Costs incurred after the acquisition of the asset are accounted for as an increase of their historical value or booked separately only if it is probable that they will generate future economic benefits and the costs can be measured reliably. Depreciation of tangible fixed assets is calculated using the straight-line method, in order to distribute the residual book value of its estimated economic life as follows:

Buildings and incremental work: 33 years
Plant and machinery 10 5 years
Equipment: 4 5 years
Furniture and office equipment: 9 5 years
Electronic office equipment: 5 years
Motor vehicles: 3 5 years

Extraordinary maintenance capitalised as an increase of an existing asset is depreciated over the remaining useful life of the asset or, if lower, during the period until the next maintenance.

The residual value and the useful life of tangible assets are reviewed and adjusted, if appropriate, at the date of the balance sheet.

The book value of tangible fixed assets is written down to its recoverable value immediately, whenever the former exceeds the latter.

Gains and losses on disposal of tangible assets are recognised in the Income Statement and are determined by comparing the carrying amount with the sale price.

Assets held under finance leases, through which all property risks and rewards are substantially transferred to the company, are recognised as Group assets at their fair value or, if lower, at the present value of minimum lease payments due for the lease. The lease fee is separated between the capital portion and the interest, which is determined by applying a fixed interest rate on outstanding debt.

Financial debt payable to the leasing company is recognised as a liability in the short term, for the current portion, and as long-term liabilities for the portion due over one year. The interest cost is recognised in the Income Statement over the term of the contract. The asset under finance leases are recognised as intangible assets and are amortised over the estimated economic useful life of the asset.

Leases for which the lessor substantially preserves all the property risks and rewards are classified as operating leases. The costs of operating leases are recognised in the Income Statement over the term of the lease.

Property investments held for lease are measured at cost less accumulated depreciation and accumulated impairment losses.

Intangible Assets

Finite useful life

(a) Software

Software licences are capitalised at the cost incurred to obtain and implement them and amortised over the estimated useful life (3 to 5 years).

Costs associated with the development and maintenance of software are treated as period costs and charged to the Income Statement on an accruals basis.

(b) Research and development costs

Research costs are recognised in the Income Statement in the period in which they are incurred. Development costs incurred in relation to a specific project are capitalised if the following conditions are met:

the costs can be measured reliably;
the technical feasibility of the projects, the volumes and prices indicate that the costs incurred in the development phase will generate future economic benefits.

Development costs recorded in Income Statements in previous years cannot be capitalised retrospectively even if the requirements are met in the following years.

Development costs with a finite useful life are amortised starting from the date the product is commercialised, based on the period in which they are expected to produce economic benefits, in any case not more than 5 years. Development costs that do not meet these characteristics are charged to the Income Statement in the year in which they are incurred.

(c) Other intangible assets

Other intangible assets acquired separately are capitalised at cost, while those acquired through business combinations are capitalised at fair value at the acquisition date.

After initial recognition, intangible assets with finite useful life are recorded at cost, less depreciation and impairment; intangible assets with indefinite useful life are recorded at cost less impairment only.

Intangible assets generated internally are not capitalised but are recognised in the Income Statement in the year in which they were incurred.

Intangible assets with a finite useful life are verified annually for "impairment" whenever there are any reasons to justify it; such analysis can be conducted for each individual intangible asset or cash revenues generating unit. The useful lives of other intangible assets are reviewed annually: possible changes are applied prospectively, where possible.

Shareholdings in subsidiaries and associated companies

at least once a year, the management of Prima Industrie analyses Equity investments, focusing on companies whose balance sheet value is higher than the corresponding share of shareholders' equity. This difference is investigated and, where it is found to indicate a reduction in the balance sheet value of the investment, management conducts an impairment test.

Investments in other companies

Investments in other small companies, for which no market price is available, are stated at cost less any impairment losses.

Impairment of Assets

Assets with indefinite lives not subject to amortisation are tested for their recoverable value (impairment) annually and whenever there is an indication that the carrying amount may not be recoverable. Assets subject to amortisation are tested for impairment only if there is an indication that their carrying value may not be recoverable.

The amount of the impairment loss is determined as the difference between the asset's carrying amount and its recoverable amount, determined as the higher amount between the sale price net of transaction costs and its use value, that is the current value of estimated cash flows, before tax, applying a discount rate that reflects current market assessments of the time value of money and the specific risk connected to the asset. An impairment loss is recognised if the recoverable amount is less than the book value. When a loss on an asset other than goodwill is reversed or reduced, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount and cannot exceed the carrying amount that would have been determined if there had been no loss in value. The reversal of an impairment loss is recognised immediately in the Income Statement.

Financial instruments

Presentation

The financial instruments held by the Company are included in the items described below. Investments and other non-current financial assets include investments in subsidiaries and other companies as well as investments in joint ventures and other non-current assets.

Current financial assets include trade receivables and cash and cash equivalents. In particular, the item Cash and cash equivalents include bank deposits. The financial liabilities refer to financial payables, including payables for advances on orders, transfer of receivables, and other financial liabilities (which include the negative fair value of derivative financial instruments), trade payables and other payables.

Valuation

Investments in subsidiaries, associates, joint ventures and other companies included under non-current financial assets are accounted for as described in the previous paragraphs.

Non-current assets other than investments, as well as financial liabilities, are accounted for in accordance with IAS 39 - Financial Instruments: Recognition and Measurement.

Loans and receivables that the company does not hold for trading purposes, the assets held with the intention of holding them to maturity are measured at amortised cost using the effective interest method. When financial assets do not have a fixed maturity they are measured at acquisition cost. Assessments are made regularly in order to check whether there is objective evidence that a financial asset may have suffered an impairment loss. If any evidence exists, the impairment loss is recognised as an expense in the Income Statement for the period. With the exception of derivative financial instruments, financial liabilities are measured at amortised cost using the effective interest method.

Financial assets and liabilities subject to fair value hedges are valued in accordance with the methods established for hedge accounting: gains and losses from subsequent fair value valuations, due to changes in the hedged risks, are disclosed in the Income Statement and are offset by the effective portion of the loss or gain arising from subsequent fair value valuations of the hedging instrument.

Derivative financial instruments

In compliance with IAS 39, derivative financial instruments can be accounted for in accordance with the hedge accounting only when:

at the beginning of the hedge, there is formal designation and documentation of the hedging relationship;
it is assumed that the hedge is highly effective;
effectiveness can be reliably measured and
the hedge is highly effective throughout the financial reporting periods for which it is designated.

All derivative financial instruments are measured at fair value in accordance with IAS 39.

When financial instruments have the characteristics to be accounted for under hedge accounting, the following accounting treatment applies:

Cash-flow hedge. If a derivative financial instrument is designated as a hedge for the exposure to variability in future cash flows of an asset or liability recognised in the balance sheet or for a highly probable expected transaction and could affect the Income Statement, the effective portion of the gain or loss on the financial instrument is recognised in other comprehensive income / (loss). The derivative gain or loss is removed from other comprehensive income / (loss) and recognised in the Income Statement of the period in which the relative economic effect of the hedged transaction is noted. The gain or loss associated with a hedge (or part of the hedge) that has become ineffective is recognised in the Income Statement immediately. If a hedging instrument or hedge relations is completed but the hedged transaction has not yet been realised, the gains and losses accrued up to the time recorded in other comprehensive income / (loss) are recognised in the Income Statement interrelated with the detection of the economic effects of the hedged transaction. If the hedged transaction is no longer probable, the cumulative gains or losses not yet realised in other comprehensive income / (loss) are recognised immediately in the Income Statement.
Fair value hedge. If a derivative financial instrument is designated as a hedge of the exposure to changes in the fair value of an asset or liability that is attributable to a particular risk and could affect the Income Statement, the gain or loss from reviewing the fair value of the hedging instrument are recognised in the Income Statement. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the item and are recognised in the Income Statement.
Hedge of a net Investment. If a derivative financial instrument is designated as a hedge of a net investment in a foreign operation, the effective portion of the gain or loss on the derivative financial instrument is recognised in other comprehensive income / (loss). The gain or loss is removed from equity and recognised in the Income Statement at the date of disposal of the foreign asset.

Financial Liabilities

Financial liabilities include financial payables, including payables for advances on orders, transfer of receivables, and other financial liabilities, including derivative financial instruments and liabilities in respect of assets acquired under finance leases. Pursuant to IAS 39, they also include trade and other payables of different nature.

Financial liabilities, other than derivative financial instruments are initially recognised at fair value and are subsequently measured at amortised cost, i.e. the initial value, net of principal repayments made, adjusted (up or down) on the basis of depreciation (using the effective interest method) of any difference between the initial amount and the maturity amount.

Loans

Loans are initially recognised at fair value, net of any incidental charges. After initial recognition they are recorded at amortised cost. Any difference between the proceeds net of any transaction costs and the redemption value is recognised in the Income Statement on an accrual basis at the effective interest rate method. Loans are sorted as short-term liabilities, unless the Company has an unconditional right to defer then over 12 months after the date of the balance sheet.

Inventories

Inventories are stated at the lower amount between cost and net realisable value, the latter is represented by the normal sales value during ordinary activities, less the variable costs of sale.

The cost is determined using the weighted average cost method. The cost of finished goods and semi-finished goods includes the cost of design, raw materials, direct labour, other direct costs and other indirect costs allocated to production activities based on normal production capacity and on the progress. This costing does not include interest expense.

Provision is made for materials, finished goods, spare parts and other supplies considered obsolete or slow moving, taking into account their expected future use and realisable value.

The realisable value is the estimated sale price during normal operations, net of all estimated costs for the completion of the asset and sale and distribution costs.

Trade and other receivables

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method, net of the allowance to take account of their uncollectible accounts. The allowance is recognised if there is objective evidence that the Company is not able to collect the full amount due on the date agreed with the customer.

The amount of the allowance is determined as the difference between the asset's carrying amount and the present value of future collections, discounted at the effective interest rate. The allowance is recognised in the Income Statement.

Transfer of receivables

Receivables transferred as a result of factoring transactions are eliminated from the balance sheet assets only if the ownership risks and rewards have been substantially transferred to the concessionaire. Recourse and nonrecourse receivables transferred that do not meet this requirement remain in the balance sheet of the company, although they have been legally transferred, in this case a liability of equal amount is recognised as a liability against the advance received.

Cash and cash equivalents

Assets for sale

The entry "Assets for sale" include non-current assets (or groups of dismissed assets) whose book value will be largely recovered through their sale (as opposed to their continued use). Assets for sale are entered at the least between the net book value and the fair value net of costs of sale and they are not subject to amortisation.

Share Capital

Ordinary shares are classified in the Net Equity. Accessory charges directly linked to issued shares or to options are entered in the Net Equity, subtracted from cash payments.

When the Group purchases parent shares (treasury shares), the price paid net of all directly attributed accessory charges is subtracted from the Group's Net Equity, until the treasury shares are either cancelled or sold.

Employee benefits

Recognition of the deficit or surplus of the plan: the amendment eliminates the option to defer actuarial gains and losses with the "corridor method" and it requires the recognition directly in Other overall gains (losses) and the recognised in the Income Statement of costs related to past service;
Net financial burden: the net financial burden is composed of financial costs calculated on the present value of liabilities for fixed benefits plans, financial gains from the valuation of plan's assets and financial income or expenses arising from any limits to the recognition of the surplus of the plan. The net financial burden is determined using for all of these components the discount rate used for the measurement of the fixed benefits plans at the beginning of the period;
Classification of net financial expenses: net financial expenses will be recognised among the financial income (expense) in the Income Statement.

(a) Pension plans

On December 31st, 2006, Severance Pay (TFR) of Italian companies was considered a plan of fixed benefits. The legislation applying to the liability was modified by Law of December 27th , 2006, no. 296 ("Financial Law 2007") and the subsequent Decrees and Regulations issued in the first months of 2007. In light of those amendments, and with reference in particular to companies with at least 50 employees, Severance Pay is now considered a plan of fixed benefits only.

Following these changes, only the liability relating to the accrued employee severance indemnity remaining in the company was valued, since the accrued portion was paid to a separate entity (supplementary pension fund or INPS Funds). As a result of these payments, the company will no longer have any obligations related to the work performed in the future by the employee. Even for those who have explicitly decided to maintain the employee severance indemnity in the company, and therefore under the previous legislation, the severance pay accrued starting from January 1st, 2007 has been paid to the Treasury Fund managed by the INPS. On the basis of article 1, paragraph 5 of the 2007 Finance Law, this fund guarantees employees of the private sector the provision of severance pay as per art. 2120 of the civil code, for the amount corresponding to the payments made to it.

Fixed-contribution plans are pension plans for which the Company pays a fixed amount to a separate entity. The Company is in no way implicitly required by law to pay additional sums, should the activities in service of the plan prove insufficient to pay off benefits owed to employees for their current service and for services provided hitherto.

The plans described here were recorded in accordance with the provisions of IAS 19.

(b) Benefits paid to employees who attain seniority status

The Company pays their employees benefits after a set number of years in service (seniority status).The benefits described here were recorded in accordance with the provisions of IAS 19.

(c) Incentives, bonuses and profit-sharing agreements

The Company enters a cost and a debt in view of liabilities that originate for bonuses, employee incentives and profit-sharing agreements, which are calculated with a formula that accounts for profits attributable to shareholders (given their due adjustments). The Company enters a liability under a listed fund only if the event is likely to occur, if contractually due, or in view of a procedural custom that infers an implicit obligation.

Provisions for liabilities and charges

Provisions for risks and charges are recognised when:

a legal or implicit obligation arises for the company as a result of past events;
an outflow of resources to settle the obligation and the amount thereof is probable;
it can be determined reliably.

The restructuring provisions include both liabilities arising from the leave incentives as well as penalties related to the termination of the lease agreements. Provisions are not set aside for risks and charges in respect of future operating losses.

Provisions are measured by discounting the best estimates made by the Directors to identify the amount of costs that the Company shall bear to settle the obligation at the date of the balance sheet.

Revenues

Revenues include the fair value arising from the sale of goods and services, net of VAT, returns, discounts and transactions between Group companies. Revenues are recognised according to the following rules:

(a) Sale of goods

Revenues from the sale of goods (laser systems, sheet metal processing machines and components) are recognised when all the following conditions are met:

the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
the Group ceases to exercise effective control over the sold goods;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Group;
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

(b) Provision of services

Revenues from services are recognised based on the progress made in the period in which they are performed.

(c) Royalties

Revenues from royalties are recognised on an accrual basis under the agreed conditions in the underlying contracts.

(d) Dividends

Dividends are recognised in the period in which the right of shareholders to receive the payment arises.

Taxes

a) Current: the burden on income taxes for the year is determined in accordance with current legislation. Income taxes are recognised in the Income Statement. Concerning in particular Prima Industrie SpA and its subsidiaries Prima Electro SpA and FINN-POWER ITALIA Srl, it should be noted that it is in force the tax bracket of its national consolidated business pursuant to article 117/129 of the Consolidation Act on tax on income (TUIR).
b) Deferred: Deferred tax liabilities and deferred tax assets are calculated on all temporary differences between the tax value and the book value of assets and liabilities in the financial statements of the company.

They are calculated using the tax rates and laws that have been enacted at the balance sheet date, or substantially enacted, and that are expected to be applicable at the time of the reversal of temporary differences that gave rise to the recognition of deferred tax.

The deferred tax assets on tax losses and temporary differences are recognised only if sufficient taxable income to their compensation is probable at the time of the reversal of the temporary differences. Deferred tax assets are reviewed at each financial year-end, and if necessary reduced to the extent that it is no longer probable that sufficient taxable income will become available in the future in order to allow all or part of the asset to be utilised. Deferred taxes related to items recognised directly in equity are also recognised directly in equity.

Distribution of Dividends

The distribution of dividends to shareholders generates a payable at the time of approval of the Shareholders' Meeting.

Government grants

Government grants are recognised at their fair value only if there is reasonable certainty that the Company has accomplished all the requirements set by the terms of the grants. Revenues from government grants are recognised in the Income Statement based on the costs for which they were granted.

Valuation of the Fair value

The fair value of financial instruments traded in an active market is determined based on market prices at the balance sheet date. The market price of reference for financial assets held by the Company is the current selling price (purchase price for financial liabilities).

The fair value of financial instruments that are not traded in an active market is determined using various valuation techniques and assumptions based on market conditions existing at the balance sheet date. For medium and long-term liabilities comparing prices of similar listed financial instruments, for the other categories of financial instruments cash flows are discounted.

The fair value of IRS is determined by discounting the estimated deriving cash flows at the balance sheet date. For receivables it is assumed that the nominal value net of any adjustments made to take account of their payable approximates their fair value. The fair value of financial liabilities for disclosure purposes is determined by discounting contractual cash flows at an interest rate that approximates the market rate at which the company borrows.

Financial risk factors

Concerning the management of financial risks, please refer to paragraph – Management of Financial Risks – Chapter 8 "Explanatory notes to the Consolidated Financial Statements at December 31st, 2017".

Discretionary evaluations and significant accounting estimates

The preparation of financial statements requires Management to make a number of subjective assumptions and estimates based on past experience.

The application of these estimates and assumptions affects the amounts of assets and liabilities recognised in the balance sheet, as well as expenses and income recognised in the Income Statement. Actual results may differ significantly from the estimates made, in view of the natural uncertainty surrounding the assumptions and conditions on which the estimates are based.

In this context it should be noted that the situation caused by the financial and economic crisis has led to the need to make assumptions about future trends characterised by significant uncertainty, so it cannot be ruled out that there will be different results next year compared to as estimated, and which therefore might require even significant adjustments that cannot be foreseen or estimated currently, to the carrying amount of the related items. The main items affected by these situations of uncertainty are provisions for doubtful accounts receivable and inventory, non-current assets (tangible and intangible assets), pension liabilities and other postemployment benefits, deferred tax assets.

The following summarises the main evaluation process and key assumptions used in the process that can have a significant effect on the amounts recognised in the financial statements or for which there is a risk that there can be value adjustments to the carrying amount of assets and liabilities in the year following the date of the financial statements.

Recoverable amount of goodwill included in the FINN-POWER OY investment

The recoverable amount of goodwill included in the FINN-POWER OY investment has been evaluated in the context of the impairment test prepared for the CGU PRIMA POWER. The key assumptions used to define the recoverable amount of the CGU, including a sensitivity analysis, are detailed in Note 2 – Intangible Assets – Chapter 8 "Explanatory notes to the Consolidated Financial Statements at December 31st, 2017".

Research and development costs

Research and development costs that meet the requirements for capitalisation are recorded under Intangible Fixed Assets. The average life of research and development projects is estimated at a maximum of 5 years, which is the average period in which the products are estimated to generate cash flows for the company.

Deferred tax assets and liabilities

Deferred tax assets and liabilities recorded in the balance sheet are determined using the differences between the accounting values and recognised for tax purposes of the various assets and liabilities at the tax rates that are assumed to be in effect in the year in which the temporary differences are expected to be less. Deferred taxes relating to tax losses carried forward to subsequent years are recognised only if and to the extent that management believes it likely that in future years the company will achieve a positive tax result such that it can be absorbed. In the event that, subsequent to the time of execution of the estimate, there are circumstances that lead to changing these estimates or the rate used for the calculation of deferred taxes, the items recorded in the financial statements will be adjusted.

Provision for inventories

In determining the provision for inventory obsolescence, the Company makes a number of estimates regarding future demand for the various types of products and materials in share, on the basis of their production plans and past experience of customer requirements. In the event that these estimates are found to be inappropriate, this will result in an adjustment to the provision for obsolescence with its impact in the Income Statement.

Provision for doubtful debts

Provisions for doubtful accounts are determined based on an analysis of the individual debtors and in the light of past experience in terms of debt and relationships with individual customers. In the event that there is an unexpected deterioration in the economic and financial conditions of a major customer, this could result in the need to adjust the allowance for doubtful accounts, with the consequent negative effects in terms of economic performance.

Employee benefits

The determination of the amount to be budgeted requires the use of actuarial estimates that take into account a number of assumptions relating to parameters such as the annual rate of inflation, wage increase, the annual rate of staff turnover and other variables. Any changes in these parameters require a readjustment of the actuarial estimates and, consequently, the amounts disclosed in the financial statements.

Explanatory Notes to Financial Statements December 31st, 2017

Chapter 11. Explanatory Notes to Financial Statements at December 31st , 2017

The data shown in the explanatory notes, unless otherwise specified, are expressed in Euro.

Financial position

1. Property, plant and equipment

The following table illustrates the composition of tangible fixed assets at December 31st, 2017 and at December 31st, 2016, and the changes during the year.

			INDUSTRIAL AND	OTHER TANGIBLE	FIXED ASSETS
	LAND AND	PLANTS AND	COMMERCIAL	FIXED	UNDER
PROPERTY, PLANT AND EQUIPMENT	BUILDING	MACHINERY	EQUIPMENT	ASSETS	CONSTRUCTION	TOTAL
Net value as at
December 31, 2015	5,001,887	120,329	743,962	305,302	602,140	6,773,620
Movements 2016
Increases	7,026,091	123,502	359,679	234,764	74,857	7,818,893
Disinvestments	-	(105,148)	-	(103,757)	-	(208,905)
Utilization of accumulated
depreciation	-	105,148	-	80,819	-	185,967
Depreciation	(128,312)	(36,293)	(346,666)	(103,255)	-	(614,526)
Reclassifications with tangible
fixed assets	222,051	-	-	-	(222,051)	-
Differences on exchange rates	-	-	(185)	-	-	(185)
Net value as at
December 31, 2016	12,121,717	207,538	756,790	413,873	454,946	13,954,864
Movements 2017
Increases	219,357	91,950	510,204	155,127	184,537	1,161,175
Disinvestments	-	-	-	(24,017)	-	(24,017)
Utilization of accumulated
depreciation	-	-	-	23,907	-	23,907
Depreciation	(282,707)	(37,999)	(394,845)	(122,748)	-	(838,299)
Reclassifications with tangible
fixed assets	4,976	(18,800)	105,041	-	(91,217)	-
Differences on exchange rates	-	-	892	(636)	-	256
Net value as at
December 31, 2017	12,063,343	242,689	978,082	445,506	548,266	14,277,886

Land and buildings amounting to 12,063 thousand EUR includes:

Land for a total value of 3,987 thousand EUR;
Buildings with a total value of 7,955 thousand EUR. This item includes the new HQTC in Collegno, home to a large Technology Center and the Group's headquarters. Also included are the industrial plant at no. 28 Via Antonelli and the building rented by PRIMA POWER UK Ltd;
Light constructions for 121 thousand EUR.

Plants and Machinery amounting to 243 thousand EUR increased during the year by 92 thousand EUR and decreased by 57 thousand EUR (of which the depreciation for the year is equal to 38 thousand EUR).

Industrial and trade equipment item equal to 978 thousand EUR increased during the year by 221 thousand EUR and includes equipment for 864 thousand EUR and dies for 114 thousand EUR. The value of Industrial equipment increased by 615 thousand EUR (of which 105 thousand EUR for reclassification) and was down 395 thousand EUR due to amortisation.

The Other Assets item amounts to 446 thousand EUR and is represented mainly by:

Electronic office equipment with a value of 320 thousand EUR;
Office furniture, furnishings and equipment with a value of 120 thousand EUR;
Other assets for 6 thousand EUR.

The Fixed assets in progress item relates to costs incurred for expansion activities of the new HQTC and to equipment generated internally.

All above mentioned values at December 31st, 2017 are net of accumulated depreciation except for land and fixed assets in progress which are not depreciated.

2. Intangible assets

The following table illustrates the composition of tangible fixed assets at December 31st, 2017 and at December 31st, 2016, and the changes during the year.

		DEVELOPMENT	OTHER INTAGLIBLE
INTANGIBLE ASSETS	SOFTWARE	COSTS	ASSETS	TOTAL
Net value as at December 31, 2015	786,226	8,688,648	12,417	9,487,291
Movements 2016
Increases/(decreases)	416,321	2,141,945	(1,876)	2,556,390
Depreciation	(330,341)	(1,764,006)	(3,844)	(2,098,191)
Net value as at December 31, 2016	872,206	9,066,587	6,697	9,945,490
Movements 2017
Increases/(decreases)	340,241	1,803,441	23,505	2,167,187
Depreciation	(413,070)	(2,026,263)	(7,741)	(2,447,074)
Net value as at December 31, 2017	799,377	8,843,765	22,461	9,665,603

The main item in intangible assets are the development costs (net value at December 31st, 2017 of 8,844 thousand EUR); during 2017 this item increased by 1,803 thousand EUR due to the capitalisation of projects, and decreased by 2,026 thousand EUR due to depreciation.

3. Investments in subsidiaries

The value of equity investments at December 31st, 2017 amounts to 171,938 thousand EUR and it is increasing compared to the previous financial year by 12,508 thousand EUR.

INVESTMENT IN SUBSIDIARIES	INVESTMENT VALUE	INVESTMENT PROVISION	NET VALUE AT DEC. 31, 2016	INCREASES	DEVALUATION	NET VALUE AT DEC. 31, 2017
FINN POWER OY	140,177,405	-	140,177,405	-	-	140,177,405
FINN-POWER ITALIA Srl	-	-	-	13,547,879	-	13,547,879
PRIMA ELECTRO SpA	10,944,702	-	10,944,702	-	-	10,944,702
PRIMA POWER IBERICA SL	1,441,305	-	1,441,305	-	-	1,441,305
PRIMA POWER CHINA Company Ltd	766,765	-	766,765	-	-	766,765
PRIMA POWER MAKINA TICARET LIMITED SIRKETI	539,825	-	539,825	-	-	539,825
OOO PRIMA POWER	122,737	-	122,737	-	-	122,737
PRIMA POWER CENTRAL EUROPE Spzoo	92,821	-	92,821	-	-	92,821
PRIMA POWER UK LTD	1	-	1	-	-	1
PRIMA POWER GmbH	1,039,712	-	1,039,712	-	(1,039,712)	-
PRIMA POWER SOUTH AMERICA Ltda	751,819	(751,819)	-	-	-	-
PRIMA POWER AUSTRALASIA Pty Ltd	157,070	(157,070)	-	-	-	-
PRIMA POWER SUZHOU CO LTD	4,304,148	-	4,304,148	-	-	4,304,148
TOTAL	160,338,310	(908,889)	159,429,421	13,547,879	(1,039,712)	171,937,588

Below are the events in 2017 which led to these changes:

FINN-POWER ITALIA Srl. On October 11th, 2017, PRIMA INDUSTRIE SpA acquired the entire share capital of FINN-POWER ITALIA Srl. This transaction had no impact on the group in terms of consolidation. The transaction is related to and functional to the process of organisational integration undertaken by the Prima Industrie Group and concluded with the merger of Finn-Power Italia Srl into Prima Industrie SpA, which took place on February 1st, 2018 (for more information on this transaction, see the section "Significant events in 2017" in the Report on Operations).
PRIMA POWER GMBH As a result of the significantly negative performance of the German subsidiary, which led to losses of 1,342 thousand EUR in 2017 and to a shareholders' equity of -551 thousand EUR, the cost was deemed to be irrecoverable, and therefore the balance sheet value was set to zero. Furthermore, given the likely commitments to cover losses exceeding the shareholders' equity of the investee company, the parent company PRIMA INDUSTRIE SpA has recorded a provision for risks of 266 thousand EUR in the financial statements, for the future coverage of these losses.

The details of the cost of investments compared with the net equity pro-rata resulting from the economicfinancial situation of the companies involved, in compliance with IAS/IFRS principles, is as follows:

	NET VALUE AT	EQUITY AS AT		EQUITY
INVESTMENT IN SUBSIDIARIES	DEC. 31, 2017	DEC. 31, 2017	STAKE	PRO-QUOTA	DIFFERENCE
FINN POWER OY	140,177,405	127,894,432	100%	127,894,432	(12,282,973)
FINN-POWER ITALIA Srl	13,547,879	13,089,280	100%	13,089,280	(458,599)
PRIMA ELECTRO SpA	10,944,702	33,800,032	100%	33,800,032	22,855,330
PRIMA POWER IBERICA SL	1,441,305	7,739,038	22%	1,702,588	261,283
PRIMA POWER CHINA Company Ltd	766,765	1,192,261	100%	1,192,261	425,496
PRIMA POWER MAKINA TICARET
LIMITED SIRKETI	539,825	948,258	100%	948,258	408,433
OOO PRIMA POWER	122,737	1,989,275	100%	1,989,076	1,866,339
PRIMA POWER CENTRAL EUROPE Spzoo	92,821	796,623	100%	796,623	703,802
PRIMA POWER UK LTD	1	1,025,415	100%	1,025,415	1,025,414
PRIMA POWER GmbH	-	(551,097)	100%	(551,097)	(551,097)
PRIMA POWER SOUTH AMERICA Ltda	-	(894,083)	100%	(893,994)	(893,994)
PRIMA POWER AUSTRALASIA Pty Ltd	-	(221,738)	100%	(221,738)	(221,738)
PRIMA POWER SUZHOU CO LTD	4,304,148	4,286,129	70%	3,000,290	(1,303,858)

The difference between the cost and the shareholders' equity of FINN-POWER OY, arsing the results of previous years as well as 2017, was significantly lower than originally recorded at the time of the acquisition of the company. Given the positive future results expected, no impairment indicators emerged for the value of the equity investment.

FINN-POWER OY in 2017 achieved an EBITDA of 16,134 thousand EUR (equal to 11.7% of revenues). Moreover, the PRIMA INDUSTRIE Group carried out the impairment test on CGU PRIMA POWER (in which the sub-group FINN-POWER is included) in the consolidated financial statements (see Note 2 - Intangible assets) from which are no indications of value impairment index emerge.

The difference between the cost and the net equity of Prima Power Suzhou was not considered a loss in the value of the shareholding, but is attributable to the fact that the company is still in the initial stages of business. The management of PRIMA INDUSTRIE SPA believes this difference will be covered over the coming years by the future profits of the Chinese company. In 2017 the company achieved a profit of 508 thousand EUR.

The differences in the equity investments PRIMA POWER SOUTH AMERICA Ltda and PRIMA POWER AUSTRALASIA Pty Ltd are almost entirely offset by a provision for risks of 1,116 thousand EUR (see Note 17); during the year, 326 thousand EUR was allocated to this provision.

4. Other investments

At December 31st, 2017, the value of investments in other companies was 232 thousand EUR and had increased by 220 thousand EUR from the previous year, following these acquisitions:

the Malaysian PRIMA POWER SHEET METAL SOLUTION (19% holding) and
the Italian company 3D NT, specialising in additive manufacturing (15% holding).

OTHER INVESTMENTS	UNIONFIDI	FIDINDUSTRIA	LAMIERA SERVIZI	PRIMA POWER SHEET METAL SOLUTION	3D NT	TOTAL
December 31, 2015	903	103	10,925	-	-	11,931
Increases	-	-	-	-	-	-
Decreases	-	-	-	-	-	-
December 31, 2016	903	103	10,925	-	-	11,931
Increases	-	-	-	40,500	180,000	220,500
Decreases	-	-	-	-	-	-
December 31, 2017	903	103	10,925	40,500	180,000	232,431

The other investments, unchanged from the previous year, relate to two guarantee consortia (Unionfidi and Fidindustria), which the Company joined, and Lamiera Servizi, in which it holds 19% of the share capital.

5. Financial assets – loans to the subsidiaries

The value of loans granted to non-current subsidiaries was cancelled out from the previous year, due to the reclassification from non-current to current of loans made to subsidiaries.

	LOAN TO	LOAN TO	LOAN	DEPOSIT	FINANCIAL		INTERESTS
CURRENT FINANCIAL	PRIMA POWER LASERDYNE	PRIMA POWER SUZHOU	TO PRIMA ELECTRO	ACCOUNT BANCO	RECEIVABLE V/WUHAN	LOAN TO	ON NON CURRENT
ASSETS	LLC	CO.LTD	S.P.A.	DO BRASIL	UNITY	SUBSIDIARIES	LOANS	TOTAL
December 31, 2016	3,444,814	1,631,111	-	550,000	235,809	5,700	18,825	5,886,259
Reimbursements	(1,538,735)	-	(531,722)	-	-	-		- (2,070,457)
Interests	66,432	90,000	22,979	-	-	-	-	179,411
Reclassification
from non-current
to current	-	1,500,000	1,318,825	-	-	-	(18,825)	2,800,000
Differences on exchange rates	(292,119)	-	-	-	-	-	-	(292,119)
December 31, 2017	1,680,392	3,221,111	810,082	550,000	235,809	5,700	-	6,503,094

Current financial assets amount to 6,503 thousand EUR and changed as follows in 2017:

The time deposit was taken out by the company as guarantee for a loan granted to PRIMA POWER SOUTH AMERICA Ltda.

6. Deferred tax assets

The following table shows the movement of deferred tax assets during the year 2017.

DEFERRED TAX ASSETS	DECEMBER 31, 2017	DECEMBER 31, 2016
Opening balance	2,291,324	2,381,269
Increase	566,830	320,616
Decrease	(268,253)	(410,561)
Closing balance	2,589,901	2,291,324

The items that generate fiscal assets from prepaid taxes can be summed up as follows:

DEFERRED TAX ASSETS	DEFERRED TAXABILITY	DEFERRED TAX ASSETS
Provisions for risks and other liabilities	6,330,810	1,523,751
Inventories	2,122,000	509,280
Employee benefits	1,639,234	393,415
Other assets and liabilities	690,417	163,455
Total	10,782,461	2,589,901

With regard to the recoverability of these taxes it should be noted that Prima Industrie SpA has historically achieved positive taxable incomes, both for IRES and IRAP purposes and expects to earn positive taxable incomes in the following financial years too.

The valuation on the recoverability of prepaid taxes take into account the expected profits in future financial years and furthermore, is supported by the fact that prepaid taxes refer to asset's provision for which there is no expiry.

7. Inventories

The inventories on December 31st, 2017 amount to 25,462 thousand EUR, net of the obsolescence provision.

INVENTORIES	DECEMBER 31, 2017	DECEMBER 31, 2016 (*)
Raw materials	7,099,130	8,034,869
(Provision for Raw materials)	(550,000)	(720,000)
Semi-finished goods	6,012,249	5,731,622
Finished goods	14,472,690	12,723,618
(Provision for Finished goods)	(1,572,000)	(1,325,000)
Total	25,462,069	24,445,109

(*) For a better comprehension, the 2016 figures have been re-exposed

During the year 2017 there was an increase of 1,017 thousand EUR, mainly due to the high order backlog at December 31st, 2017, resulting in the need for procurement and ongoing work necessary to process the orders with delivery requested in the first months of 2018.

The movements of the inventories provisions that occurred during the year are provided below.

INVENTORIES PROVISIONS	RAW MATERIALS	FINISHED GOODS
Value as at December 31, 2016	(720,000)	(1,325,000)
Utilizations	170,000	30,000
Provisions	-	(277,000)
Value as at December 31, 2017	(550,000)	(1,572,000)

8. Trade Receivables

Trade receivables at December 31st, 2017 amounted to 57,181 thousand EUR and compared to the previous financial year an increase of 13,914 thousand EUR was experienced.

TRADE RECEIVABLES	DECEMBER 31, 2017	DECEMBER 31, 2016
Receivables from customers	39,009,186	25,509,821
Bad Debt Reserve	(199,162)	(182,674)
Receivables from customers (net)	38,810,024	25,327,147
Receivables from Related Parties	18,370,602	17,939,689
Receivables from customers (net)	57,180,626	43,266,836

Trade receivables include receivables in foreign currency which relate to items denominated in US dollars and British pounds and relate mostly to invoices issued to American and British subsidiaries.

Given the open positions at December 31st, 2017, adjustments to the exchange rate were entered correctly. Receivables in currencies other than the reference currency are converted into EUR at the effective exchange rate on the date of the financial statements closing. All exchange differences are reflected in the Income Statement.

Movements in the bad debt reserve during the considered period are as follows:

BAD DEBT RESERVE	AMOUNT
Value as at December 31, 2016	182,674
Utilizations	(51,209)
Provisions	67,697
Value as at December 31, 2017	199,162

The provision reflects the management's more accurate estimate of expected losses by Prima Industrie SpA on its receivables.

Below is a breakdown of trade receivables (including those of subsidiaries and associates and net of the bad debt reserve) divided according to expiry.

RECEIVABLES BY MATURITY	EURO THOUSAND
Due to expire	34,920
Expired 0 - 180 days	14,567
Expired 180 - 365 days	4,429
Expired over 1 year	3,464
TOTAL	57,380

The high average credit standing of customers and the lack of a significant concentration of receivables reduce credit risk and means the provisions for doubtful accounts are sufficient. Specifically, the recoverability of receivables and any need to write down receivables are the result of a process involving the subjective judgement of the company. The factors considered mainly concern the creditworthiness of the counterparty, technical components (such as any design changes and/or delays in execution), the amount and the timing of expected future payments and any actions taken or to be taken to recover the receivables.

9. Other receivables

Other Receivables are equal to 2,657 thousand EUR, increasing by of 18 thousand EUR compared to the previous financial year (2,639 thousand EUR on December 31st, 2016).

OTHER RECEIVABLES	DECEMBER 31, 2017	DECEMBER 31, 2016
Contribution to be received	1,294,088	1,449,654
Advances payments to suppliers	955,877	773,463
Security deposits	208,928	162,046
Prepayments and accrued income	123,324	222,371
Advances to employees	74,707	31,199
Total	2,656,924	2,638,733

10. Current tax receivables

Current tax assets totalled 2,008 thousand EUR at December 31st, 2017, against 3,045 thousand EUR at December 31st, 2016 and are made up of a tax credit recorded following the submission of applications for a refund (IRAP deduction for IRES purposes for the years 2007-2011), Group IRES (corporation tax), VAT receivables in Italy, receivables for withholding tax paid, tax credits for investments in research and development and foreign VAT refunds.

CURRENT TAX RECEIVABLES	DECEMBER 31, 2017	DECEMBER 31, 2016
Tax Receivables - IRES reimbursment IRAP deduction	970,392	970,392
Tax Receivables - R&D	494,753	225,724
Tax Receivables - Advances direct (IRES and IRAP) taxes	289,432	1,373,595
Tax Receivables - Tax Consolidation (IRES)	181,096	20,547
VAT Receivables - Foreign countries	65,124	22,330
Tax Receivables - Witholding taxes	6,789	3,710
VAT Receivables - Italy	-	429,111
Total	2,007,586	3,045,409

Below is a summary table comparing December 31st, 2017 and December 31st, 2016.

11. Cash and cash equivalents

Cash and cash equivalents at December 31st, 2017 totalled 25,243 thousand EUR, against 7,457 thousand EUR at December 31st, 2016 and consists of cash (including foreign currency), cheques and letters of credit. For more details on Cash and cash equivalents, see the Financial Report (for the Financial Report, see the Chapter 9 – Prima Industrie SpA - Financial Statements at December 31st, 2017).

CASH AND CASH EQUIVALENTS	DECEMBER 31, 2017	DECEMBER 31, 2016
Cash and checks	23,648	22,591
Bank accounts	25,219,163	7,434,382
Total	25,242,811	7,456,973

12. Net Equity

Share Capital

The Share Capital amounts to 26,208,185 EUR (divided into 10,483,274 ordinary shares with a par value of 2.50 EUR each), and has remained unchanged compared with December 31st, 2016.

Legal Reserve

This item amounts to 4,653 thousand EUR and has increased of 88 thousand EUR as a result of the allocation of the mandatory share of the profit accrued in 2016.

Other Reserves

The item "Other Reserves" has a value of 69,607 thousand EUR and is composed of:

Share premium reserve: amounting to 57,506 thousand EUR.
Reserve for non-amortised development costs: 8,844 thousand EUR.
Extraordinary reserve: 4,843 thousand EUR.
Costs for share capital increase: -1,286 thousand EUR and represents costs incurred for share capital increases (such as bank fees, legal and administrative consultant fees, etc.).
Staff indemnities reserve: -241 thousand EUR and, in accordance with IAS 19 revised, refers to the effect of actuarial gains/losses on employee severance indemnities net of tax.

Fair value adjustment reserve: -58 thousand EUR and consists of the portion directly entered directly as net assets, net of taxes, of the market value of derivative contracts hedging exchange rate fluctuation.

Retained earnings

This item was -1,698 thousand EUR. This item includes the differences in accounting methods on the date of transition to IFRS and refer to adjustments on balances within financial statements drafted in accordance with Italian accounting principles.

Comprehensive income

Net income for the period is positively affected by the allocation to the fair value adjustment reserve of 4 thousand EUR (net of 1 thousand taxes). It is also affected by actuarial profit/losses on employee severance indemnities according to the application of IAS 19 revised, which were 44 thousand EUR (net of a tax effect of 14 thousand EUR).

Profit (Loss) for the year

Profits for the year were 6,771 thousand EUR.

For more details on this subject, see the table of changes in equity (for changes in equity, see Chapter 9 – Financial Statements of Prima Industrie at December 31st, 2017).

13. Derivative financial instruments

At December 31st, 2017 PRIMA INDUSTRIE SpA holds current active derivative financial instruments for an amount of 58 thousand EUR and non-current payables for 80 thousand EUR.

TYPE	COMPANY	COUNTERPARTY	EXPIRY DATE	REFERENCE NOTIONAL	MTM Dec. 31, 17
CRS - Non hedge accounting	Prima Industrie SpA	BNL	March 20, 2018	\$ 1,000,000	€ 23,180
CRS - Non hedge accounting	Prima Industrie SpA	BNL	March 20, 2018	\$ 1,000,000	-€ 2,646
CRS - Non hedge accounting	Prima Industrie SpA	BNL	March 20, 2018	¥ 2,000,000	€ 1,959
CRS - Non hedge accounting	Prima Industrie SpA	BNL	March 20, 2018	¥ 2,000,000	-€ 4,860
CRS - Non hedge accounting	Prima Industrie SpA	MPS	March 20, 2018	\$ 1,000,000	€ 20,061
CRS - Non hedge accounting	Prima Industrie SpA	MPS	March 20, 2018	\$ 1,000,000	€ 19,842
				TOTAL	€ 57,536

Derivatives current assets

Derivatives non current liabilities

TYPE	COMPANY	COUNTERPARTY	EXPIRY DATE	REFERENCE NOTIONAL	MTM Dec. 31, 17
IRS - Hedge accounting	Prima Industrie SpA	BNL	June 30, 2021	€ 10,000,133	-€ 8,959
IRS - Hedge accounting	Prima Industrie SpA	Unicredit	June 30, 2021	€ 10,000,133	-€ 8,959
IRS - Hedge accounting	Prima Industrie SpA	Banca Intesa	June 30, 2021	€ 10,000,133	-€ 8,959
IRS - Hedge accounting	Prima Industrie SpA	BNL	Dec. 19, 2022	€ 20,000,000	-€ 53,568
				TOTAL	-€ 80,445

For the purposes of the financial statements at December 31st, 2017, a valuation of outstanding derivative instruments was carried out. For more information on the derivative financial instruments of Prima Industrie SpA and on their disclosure method, see Note 10 - Net Financial Position of the consolidated financial statements

14. Loans

The following table is a breakdown of Prima Industrie SpA's loan status on December 31st, 2017 (in comparison with December 31st, 2016).

BANK BORROWINGS AND OTHER FINANCING	DECEMBER 31, 2017	DECEMBER 31, 2016
Current
Short-term payable for financial leasings	56,872	55,184
Short-term payable for bank loans	25,258,817	18,051,899
Short-term payable for Bond	866,929	871,233
Short-term payable for other financing	1,719,214	172,762
Short-term payable for other financing from subsidiaries	7,910,587	85,160
Total Current	35,812,419	19,236,238
Non-current
Long-term payable for operational leasings	-	105,808
Long-term payable for financial leasings	7,154,615	7,111,487
Long-term payable for bank loans	40,690,797	31,945,078
Long-term payable for Bond	39,732,905	39,659,833
Long-term payable for other financing	860,265	1,034,805
Long-term payable for loan from subsidiaries	1,500,000	4,000,000
Total Non-current	89,938,582	83,857,011
TOTAL	125,751,001	103,093,249

The Club Deal loan at December 31st, 2017 amounted to a total of 23,334 thousand EUR and refers to the loan under depreciation expiring on June 30th, 2021; the Club Deal loan also consists of a quota in the form of revolving credit lines equal to 20,000 thousand EUR expiring on December 31st, 2019 that at December 31st, 2017 was fully available. The net debt in the financial statements amounted to 23,013 and includes the additional costs incurred at the signing of the loan.

The Club Deal loan is for 16,499 thousand EUR expiring beyond 12 months.

On December 19th, 2017, a new medium/long-term loan of 20,000 thousand EUR was taken out with BNL, maturing December 19th, 2022. Net debt in the financial statements totals 19,911 thousand EUR and includes matured interest and accessory charges incurred at the time the loan was issued.

The bond amounts to 40,940 thousand EUR, inclusive of interest accrued but not yet paid amounting to 940 thousand EUR. The payables refer exclusively to the bond issued during the first quarter of 2015 and expiring on February 6th, 2022. Net debt in the financial statements total 40,600 thousand EUR, since the accessory charges incurred at the bond issue, partially reduced the debt.

The quota with expiry over 12 months is equal to 39,733 thousand EUR.

On both the Club Deal and BNL loans and on the bond there are covenants with measurements on annual and half-yearly basis; the covenants measured on the consolidated financial statements at December 31st, 2017 have been met.

Other loans to subsidiaries accounted for 9,411 thousand EUR (of which 1,500 thousand EUR non-recurring) and were made up as follows:

4,030 thousand EUR to PRIMA POWER IBERICA (of which 1,500 thousand EUR non-recurring);
5,074 thousand EUR to FINN-POWER OY;
307 thousand EUR to PRIMA POWER SUZHOU.

For more details about the Financing of PRIMA INDUSTRIE SpA, see the Management Report and the consolidated financial statements at the Note 10 - Net Financial Position.

The movements in the financial payables of Prima Industrie SpA during 2017 are illustrated below.

BANK BORROWINGS AND OTHER FINANCING MOVEMENTS	DECEMBER 31, 2016	INCREASES	DECREASES	RECLASSIFICATION	DECEMBER 31, 2017
Current
Short-term payable for financial leasings	55,184	336	(55,520)	56,872	56,872
Short-term payable for bank loans	18,051,899	12,079,580	(18,052,673)	13,180,011	25,258,817
Short-term payable for Bond	871,233	-	68,768	(73,072)	866,929
Short-term payable for other financing	172,762	1,544,905	(172,993)	174,540	1,719,214
Short-term payable for other financing from subsidiaries	85,160	5,325,427	2,500,000	-	7,910,587
Total Current	19,236,238		18,950,248 (15,712,418)	13,338,351	35,812,419
Non-current
Long-term payable for operational leasings	105,808	-	(105,808)	-	-
Long-term payable for financial leasings	7,111,487	100,000	-	(56,872)	7,154,615
Long-term payable for bank loans	31,945,078	21,933,230	(7,500)	(13,180,011)	40,690,797
Long-term payable for Bond	39,659,833	-	-	73,072	39,732,905
Long-term payable for other financing	1,034,805	-	-	(174,540)	860,265
Long-term payable for loan from subsidiaries	4,000,000	-	(2,500,000)	-	1,500,000
Total Non-current	83,857,011	22,033,230	(2,613,308)	(13,338,351)	89,938,582
TOTAL	103,093,249		40,983,478 (18,325,726)	-	125,751,001

During 2017 financial payables decreased by a total of 22,658 thousand EUR. The table below lists, for the assets and liabilities at December 31st, 2017 to third parties and on the basis of the categories foreseen by IAS 39, the additional information on financial instruments pursuant to IFRS 7.

Fair value by category - IAS 39 - December 31, 2017 - Values expressed in Euro thousand

ASSETS	CATEGORY IAS 39	FINANCIAL VALUE DECEMBER 31, 2017	AMORTIZED COST	FV IN EQUITY	FV IN INCOME STATEMENT	FAIR VALUE DECEMBER 31, 2017

Cash and cash equivalents	NA	25,243	-	-	-	25,243
	Held to
Assets held to maturity	Maturity	792	-	-	-	792
Assets at fair value in	Held for
profit or loss	Trading	57	-	-	2,500	57
TOTAL		26,092	-	-	2,500	26,092

LIABILITIES	CATEGORY IAS 39	FINANCIAL VALUE DECEMBER 31, 2017	AMORTIZED COST	FV IN EQUITY	FV IN INCOME STATEMENT	FAIR VALUE DECEMBER 31, 2017
Liabilities at amortized cost	Amortised Cost	116,247	116,247	-	-	117,059
Liabilities at fair value in profit or loss	Held for Trading	80	-	-	89	80
Hedge Derivatives	NA	-	-	-	-	-
Total		116,327	116,247	-	89	117,139

Profit and losses by category - IAS 39 - December 31, 2017 - Values expressed in Euro thousand

ASSETS	CATEGORY IAS 39	NET PROFIT AND LOSS	OF WHICH INTERESTS
Cash and cash equivalents	NA	-	2
Assets at fair value in profit or loss	Held for Trading	-	-
Assets valued under IAS 17	NA	-	-
Total		-	2

LIABILITIES	CATEGORY IAS 39	NET PROFIT AND LOSS	OF WHICH INTERESTS
Liabilities at amortized cost	Amortised Cost	(3,871)	(3,598)
Liabilities at fair value in profit or loss	Held for Trading	89	89
Hedge Derivatives	NA	-	-
Liabilities valued under IAS 17	NA	(4)	(4)
Other Financial payables - factoring	NA	(31)	(31)
TOTAL		(3,817)	(3,544)

15. Employee Benefits Liabilities

The following table shows the composition of liabilities for employee benefits at December 31st, 2017 and at the closing of the previous year.

EMPLOYEE BENEFIT LIABILITIES	DECEMBER 31, 2017	DECEMBER 31, 2016
Italian employee's benefits liabilities	2,133,047	2,301,087
Fidelity premium	1,459,825	1,452,101
TOTAL	3,592,872	3,753,188

The Employees' Severance Indemnity liabilities, provided by the Italian law, is accrued by employees during their working life and paid on termination of their employment. This indemnity is considered a defined benefit plan, subject to actuarial valuation with regard to future benefits and to benefits already paid.

Below the changes of the Employees' Severance Indemnity liability and of the Fidelity Premium are shown during the year 2017.

ITALIAN EMPLOYEE'S BENEFITS LIABILITIES	DECEMBER 31, 2017	DECEMBER 31, 2016
Opening balance	2,301,087	2,382,188
Italian employee's benefits indemnities paid out during the period	(140,438)	(220,916)
Actuarial gains/losses	(56,854)	92,945
Financial expenses	29,252	46,870
Closing balance	2,133,047	2,301,087

FIDELITY PREMIUM	DECEMBER 31, 2017	DECEMBER 31, 2016
Opening balance	1,452,101	1,340,216
Fidelity Premium paid out during the period	(142,581)	(90,446)
Provisions/Actuarial Adjustment	126,768	117,305
Financial expenses	23,537	85,026
Closing balance	1,459,825	1,452,101

The Fidelity Premium refers to the seniority premium for employees of the company paid at the end of 20, 30 and 35 years of service, corresponding to two gross monthly salaries.

The main hypotheses used to estimate final liabilities from employee benefits are as follows:

ACTUARIAL HYPOTHESES	DECEMBER 31, 2017	DECEMBER 31, 2016
Annual discount rate	1.30%	1.31%
Annual inflation rate	1.50%	1.50%
Annual Italian employee's benefits increase rate	2.63%	2.63%

The demographic hypotheses used for actuarial valuation include:

probability of death as defined by the Italian State Treasury called RG48, divided by gender;
the probability of disability, divided by gender, adopted in the INPS model for projections to 2010;
retirement age, the first retirement requisite of Compulsory General Insurance;
probability of leaving for causes other than death, with annual frequency of 0.5% depending on the company;
probability of advances with an annual rate of 3%.

Furthermore, a sensitivity analysis was carried out for severance indemnities alone, which showed an insignificant impact with a change in the following variables:

Discount rate +0.50%/-0.50%
Inflation rate +0.25%/-0.25%
Turnover rate +2.00%/-2.00%.

It is also to be noted that a liability for employee benefits of 43 thousand EUR has been enrolled by Prima Industrie SpA for its branch office in South Korea.

16. Deferred tax liabilities

The following table shows the movements of deferred tax liabilities during the year 2017.

DEFERRED TAX LIABILITIES	DECEMBER 31, 2017	DECEMBER 31, 2016
Opening balance	806,191	816,000
Increase	315,814	355,153
Decrease	(237,201)	(364,962)
Closing balance	884,804	806,191

The main items for tax liabilities deriving from deferred taxes can be summarised as follows.

DEFERRED TAX LIABILITIES	DEFERRED TAXABILITY	DEFERRED TAX LIABILITIES
Current payables and receivables	3,069,816	736,756
Tangible fixed assets	616,863	148,048
Total	3,686,679	884,804

17. Provisions

The provisions for risks and charges at December 31st, 2017 amounted to 6,992 thousand EUR (1,472 of noncurrent). During the year 2017 they had an overall increase of 1,397 thousand EUR.

The movements of both current and non-current provisions are shown below.

NON-CURRENT PROVISIONS	CUST. AGENT. IND. PROVISION	INVESTMENT LOSSES PROVISION	TOTAL
Value as at December 31, 2015	77,129	1,063,405	1,140,534
Allocations	7,552	108,811	116,363
Utilizations in the period	(2,345)	(408,000)	(410,345)
Exchange rate differences	-	162,183	162,183
Value as at December 31, 2016	82,336	926,399	1,008,735
Allocations	6,975	592,619	599,594
Exchange rate differences	-	(136,708)	(136,708)
Value as at December 31, 2017	89,311	1,382,310	1,471,621

CURRENT PROVISIONS	WARRANTY PROVISIONS AND PROJECT'S COMPLETION	TOTAL
Value as at December 31, 2015	4,642,300	4,642,300
Allocations	4,129,600	4,129,600
Utilizations in the period	(4,186,000)	(4,186,000)
Value as at December 31, 2016	4,585,900	4,585,900
Allocations	11,687,000	11,687,000
Utilizations in the period	(10,753,000)	(10,753,000)
Value as at December 31, 2017	5,519,900	5,519,900

Investment losses provision

This provision relates to the subsidiary PRIMA POWER SOUTH AMERICA Ltda for 894 thousand EUR, to the company PRIMA POWER AUSTRALASIA Pty Ltd for 222 thousand EUR and to the company PRIMA POWER GmbH for 266 thousand EUR For further details on this subject see Note 3 - Investments in subsidiaries.

Agent client indemnity liability

This represents the indemnity payables accrued at year-end towards agents due for interruption of the agency relationship, in accordance with current legislation.

Provision for warranty and projects completion

This refers to provisions for the completion of ongoing projects and technical warranty on products of the company and is proportionate to the costs that must be held. Compared to 2016 they increased for a total of 934 thousand EUR.

18. Trade payables, Advance Payments and other payables

Trade payables at December 31st, 2017 amount to 58,293 thousand EUR, of which 40,163 thousand EUR due to third party suppliers and 18,130 thousand EUR due to related parties.

TRADE, ADVANCES AND OTHER PAYABLES	DECEMBER 31, 2017	DECEMBER 31, 2016
Trade payables	40,162,696	36,360,701
Trade payable owed to related parties	18,130,686	11,534,326
Trade payables	58,293,382	47,895,027
Advances from customers	5,538,417	2,110,241
Advances from customers	5,538,417	2,110,241
Social security payables	2,164,589	1,958,964
Payables with employees	3,665,700	2,601,725
Payables for dividends	1,288	-
Accrued expenses and deferred income	763,558	1,179,839
Other payables	144,028	343,235
Other payable owed to related parties	1,232,347	690,222
Other payables	7,971,510	6,773,985

Trade payables increased by 10,398 thousand EUR in 2017. The figure increased as a consequence of a high orders backlog at December 31st, 2017, resulting in the need to procure goods to complete the orders with delivery in the first few months of 2018.

Advances from customers increased by 3,428 thousand EUR compared to the previous fiscal year. At December 31st, 2017 the item totalled 5,538 thousand EUR against 2,110 thousand EUR at December 31st, 2016. This item mainly consists of advances received from customers on orders for machines not yet delivered.

Debts related to security and welfare are payables to social security and welfare (especially INPS and other forms of assistance).

Payables to employees refers to salaries not yet paid and compensation matured but not yet paid for leave not taken, for production bonus and incentives matured by managers and sales personnel and for advance payment of travel expenses in account of the company for employees out for work.

Accrued expenses and Deferred Income decreased from the previous year by 416 thousand EUR; at December 31st, 2017 it amounted to 764 thousand EUR against 1,180 thousand EUR at December 31st, 2016. This item is mainly composed of deferred income related to some facilitations on an unsecured basis for research and development and revenues from maintenance contracts relating to future years.

19. Current taxes payables

This item amounts 3,126 thousand EUR (2,275 thousand EUR at December 31st, 2016) and includes:

CURRENT TAX PAYABLES	DECEMBER 31, 2017	DECEMBER 31, 2016
Payables for IRES and IRAP	278,758	263,384
Payables to subsidiaries for tax consolidation	1,324,588	1,357,026
Payables for withholding income taxes	707,401	654,491
Payables for VAT	667,373	-
Other tax payables	147,482	152
TOTAL	3,125,602	2,275,053

Income statement

As already mentioned above, from January 1st, 2017 the Group changed the presentation method for the items in the income statement, which are no longer presented by "type" and instead are presented by "functional area", with the comparative data from the previous financial year suitably reclassified. In accordance with paragraph 104 of IAS 1 – Presentation of Financial Statements, personnel costs amount to 27,170 thousand EUR (24,378 thousand EUR in 2016).

20. Net Income from sales and services

Net Revenues from sales and services are set out below divided by product/activity and by geographic area.

NET REVENUES	ITALY	%	EUROPE	%	NORTH AMERICA	%	REST OF THE WORLD	%	TOTAL
Machines	27,805,395	21.67%	32,320,233	25.18%	17,940,654	13.98%	50,271,156	39.17%	128,337,438
Spare parts	6,199,699	31.65%	7,504,181	38.31%	2,724,306	13.91%	3,159,570	16.13%	19,587,756
Services	4,620,674	83.41%	499,978	9.03%	136,294	2.46%	282,565	5.10%	5,539,511
Total	38,625,768		40,324,392		20,801,254		53,713,291		153,464,705

Revenues at December 31st, 2017 amounted to 153,465 thousand EUR with an increase of 28,771 thousand EUR from 2016 (at December 31st, 2016 their value amounted to 124,694 thousand EUR).

21. Cost of goods sold

"Cost of sales" includes costs relating to the functional areas involved directly or indirectly in the generation of revenues with the sale of goods or services. Therefore this item includes the production or purchase cost of products and goods sold. It also includes all costs for materials, processing and overheads directly attributable to production. Furthermore, it contains write-downs on inventories, provisions to cover warranty costs on sold goods, transport and insurance costs incurred for deliveries to customers and sales commissions to agents or third-party distributors. The cost of sales at December 31st, 2017 stood at 127,614 thousand EUR up 24,152 thousand EUR from December 31st, 2016. The main components include materials (85,604 thousand EUR), processing and outsourcing (18,241 thousand EUR).

22. Research and development costs

This item includes non-capitalizable research and development costs, Tech Center costs and overheads and is disclosed net of grants (national and European) entered on an accrual basis. Net research and development costs at December 31st, 2017 were 2,180 thousand EUR, down 194 thousand EUR from the previous fiscal year; the impact of capitalization research and development cost accounted 1,929 thousand EUR and public grants accounted for 1,420 thousand EUR.

23. Sales and marketing expenses

This item includes, for allocation, business structure costs such as personnel, trade fairs and events, the demo center, promotional and advertising activities and related overheads.

Sales and marketing expenses in 2017 amounted to 6,229 thousand EUR, against 4,303 thousand EUR in 2016.

24. General and administrative expenses

This item includes all costs related to Group or Divisional management structures, Finance costs, HR, IT and overheads. Overheads and administration costs were 7,697 thousand EUR during the year 2017, up from December 31st, 2016 (6,424 thousand EUR).

25. Depreciation

Depreciation for the year 2017 amounted to 3,285 thousand EUR, an increase compared to the previous year of 573 thousand EUR. The increase in depreciation of intangible assets is mainly due to development costs (increase of 262 thousand EUR) and software (increase of 83 thousand EUR). The increase in depreciation of tangible fixed assets is mainly due to Buildings (increase of 154 thousand EUR) and Industrial and commercial equipment (increase of 48 thousand EUR).

DEPRECIATION	DECEMBER 31, 2017	DECEMBER 31, 2016
Depreciation of intangible fixed assets	2,447,074	2,098,191
Depreciation of tangible fixed assets	838,299	614,526
TOTAL	3,285,373	2,712,717

The breakdown by function of Depreciation is shown below.

DEPRECIATION	DECEMBER 31, 2017	DECEMBER 31, 2016
Cost of goods sold	757,175	644,251
Research and Development costs	2,091,887	1,798,628
Sales and marketing expenses	58,155	38,147
General and administrative expenses	378,156	231,691
TOTAL	3,285,373	2,712,717

26. Financial Income and Expenses

The net financial costs of 2017 amounts to 1,153 thousand EUR.

FINANCIAL MANAGEMENT	DECEMBER 31, 2017	DECEMBER 31, 2016
Interests on Bond	(2,418,770)	(2,421,251)
Interests on loan Club Deal	(1,089,208)	(1,295,218)
Interests on payable for bank loans (current/non current)	(419,394)	(383,056)
Interests on loans from subsidiaries	(193,973)	(100,973)
Derivatives expenses (CRS)	(90,354)	(1,376,580)
Derivatives expenses (IRS)	(78,649)	-
Interests on financial leasing	(3,579)	(4,170)
Interests paid on employee tax benefits	(52,789)	(131,906)
Impairment of investments	(1,632,331)	(108,811)
Bank charges	(524,533)	(520,423)
Other financial expenses	(56,123)	(36,408)
Financial expenses	(6,559,703)	(6,378,796)
Interests income on loans to subsidiaries	179,411	234,578
Dividends	4,977,870	2,706,994
Derivatives income (CRS)	2,590,338	438,762
Derivatives income (IRS)	(3,537)	-
Bank interest income	2,434	2,122
Other financial income	490,699	125,319
Financial income	8,237,215	3,507,775
Net exchange differences	(524,919)	(237,608)
FINANCIAL INCOME AND EXPENSES (NET)	1,152,593	(3,108,629)

The financial costs related to the bond amount to 2,419 thousand EUR, while interests on the Club Deal loan amount to 1,089 thousand EUR.

As shown in the table above, interest payables to credit institutions amount to 419 thousand EUR. It should also be noted that the financial charges include 1,632 thousand EUR for impairment of investments (related to PRIMA POWER GmbH for 1,306 thousand EUR, to PRIMA POWER SOUTH AMERICA Ltda for 315 thousand EUR and Prima Power Australasia Pty Ltd for 11 thousand EUR) and exchange rate derivatives for 90 thousand EUR.

Financial income includes dividends from subsidiaries for 4,978 thousand EUR (Finn-Power OY: 4,000 thousand EUR, Prima Power China: 522 thousand EUR, Prima Power Central Europe Sp.zoo: 279 thousand EUR and Prima Power Iberica: 174 thousand EUR), income from foreign exchange derivatives: 2,590 thousand EUR of which 953 thousand EUR have not yet been achieved and interest income on loans of 179 thousand EUR to subsidiaries. For more information of the consolidated financial statements, see Note 10 – Net Financial Position.

27. Current and deferred taxes

The tax burden of Prima Industrie SpA at December 31st, 2017 compared to the data of the previous year is summarised below.

TAXES	DECEMBER 31, 2017	DECEMBER 31, 2016
IRES (included the effect derived from consolidated taxation)	(524,753)	(145,751)
IRAP (Regional Trade tax)	(380,752)	(284,091)
Deferred tax assets	313,609	(122,764)
Deferred tax liabilities	(78,613)	9,809
Taxes relating to previous year	(167,374)	(2,010)
Other taxes	(3,000)	(7,632)
TOTAL	(840,883)	(552,439)

The reconciliation between the fiscal costs entered in the financial statements and the theoretical fiscal cost, calculated on the basis of the theoretical tax rates in force in Italy, is as follows:

RECONCILIATION BETWEEN ORDINARY AND THEORICAL TAX RATES	2017	2016
RESULT BEFORE TAXES	7,612,358	2,309,880
IRES rate	24.00%	27.50%
THEORICAL IRES ON INCOME	1,826,966	635,217
PERMANENT INCREASE	705,423	842,301
TEMPORARY INCREASE	5,118,111	1,589,523
PERMANENT DECREASE	(7,885,485)	(2,916,927)
TEMPORARY DECREASE	(2,966,520)	(792,744)
NON-DEDUCTIBLE INTEREST	470,111	396,331
ROL SURPLUS RECOVERED FROM ITALIAN FISCAL CONSOLIDATED	(414,028)	(396,331)
ACE RECOVERED FROM ITALIAN FISCAL CONSOLIDATED	(12,500)	(893,498)
FISCAL LOSS FROM ITALIAN FISCAL CONSOLIDATED	(441,000)	(530,003)
INCREASE/DECREASE	(5,425,888)	(2,701,348)
EFFECTIVE FISCAL RESULT	2,186,470	(391,468)
IRES rate	24.00%	27.50%
EFFECTIVE IRES ON INCOME	524,753	-

Guarantees granted, commitments and other potential liabilities

The guarantees granted and commitments undertaken by the company at December 31st, 2017 are shown below.

GUARANTEES, COMMITMENTS AND OTHER POTENTIAL LIABILITIES	DECEMBER 31, 2017	DECEMBER 31, 2016
Values expressed in Euro thousand
Guarantees granted	57,441	27,346
Other commitments and significant contracts rights	2,914	2,914
Commitments to leasing companies	1,548	1,907
TOTAL	61,903	32,167

For a better comprehension, the 2016 figures have been re-exposed

At December 31st, 2017 the guarantees granted by Prima Industrie SpA amounted to 57,441 thousand EUR and relate to guarantees to trade counterparties and sureties to credit institutions on behalf of Group companies.

"Commitments to leasing companies" refer to repurchase agreements for sales made through financial intermediaries. "Other Commitments and significant contract rights" refer mainly to rents on buildings, rentals and operating leases.

Prima Industrie SpA, in addition to probable liabilities for which provisions have been allocated in the related risks provisions, does not have potential liabilities, as described in IAS 37, to be mentioned.

Information sheet on related parties

Relations with associated parties are generally represented by transactions with companies controlled directly or indirectly by the company regulated at market conditions considered normal in the reference market, in view of the characteristics of the assets and the services rendered.

The impact of these transactions on individual items in the 2017 Financial Statements, already highlighted in the supplementary tables of the Balance Sheet and Income Statement, drawn up in accordance with CONSOB Resolution no. 15519 of July 27th, 2006, is summarised in the following table:

Related parties – financial items

	FINANCIAL	TRADE	OTHER	FINANCIAL	TRADE PAYABLES AND	OTHER
COUNTERPARTY	RECEIVABLES	RECEIVABLES	CREDITS	PAYABLES	ADVANCES	PAYABLES
PRIMA POWER GmbH	-	1,243,998	-	-	127,729	-
PRIMA POWER UK LTD	-	133,836	-	-	69,594	11,411
PRIMA POWER CENTRAL
EUROPE Spzoo	-	491,747	-	-	9,243	-
OOO PRIMA POWER	-	298,435	-	-	-	-
PRIMA ELECTRO SpA	810,082	137,219	-	-	2,631,780	-
CONVERGENT - PHOTONICS LLC	-	29,448	-	-	2,394,166	-
FINN-POWER OY	-	1,221,410	-	5,073,973	1,042,294	-
PRIMA POWER IBERICA	-	3,801,134	-	4,030,246	150,954	-
PRIMA POWER FRANCE Sarl	-	567,519	-	-	62,150	-
PRIMA POWER NORTH AMERICA Inc	-	2,394,659	-	-	-	-
FINN-POWER ITALIA Srl	-	359,241	-	-	611,600	-
PRIMA POWER LASERDYNE LLC	1,680,392	215,887	-	-	768,992	-
PRIMA POWER SOUTH AMERICA LTDA	-	312,142	-	-	24,945	-
PRIMA POWER INDIA PVT. LTD	-	727,070	159,841	-	456,667	-
PRIMA POWER MAKINA TICARET LTD	-	60,352	-	-	8,890	-
PRIMA POWER AUSTRALASIA PTY LTD	-	-	-	-	-	-
PRIMA POWER SUZHOU CO. LTD	3,221,111	6,376,505	-	306,368	9,771,682	-
ADMINISTRATIVE, CONTROL BOARDS AND STRATEGIC MANAGEMENT	-	-	-	-	-	1,220,936
TOTAL	5,711,585	18,370,602	159,841	9,410,587	18,130,686	1,232,347

Related parties – economic items

COUNTERPARTY	REVENUES	COGS	R&D	S&M	G&A	FINANCIAL INCOME	FINANCIAL EXPENSES
PRIMA POWER GmbH	8,759,527	(118,101)	(101,252)	189,448	77,341	52,070	-
PRIMA POWER UK LTD	1,461,057	(205,627)	-	-	54,544	-	-
PRIMA POWER CENTRAL
EUROPE Spzoo	4,941,437	(29,784)	-	19,550	44,952	5,176	-
OOO PRIMA POWER	1,871,706	(32,641)	-	-	44,256	-	-
PRIMA ELECTRO SpA	150	(6,622,760)	-	39,000	66,261	72,979	-
CONVERGENT - PHOTONICS LLC	30,470	(8,187,706)	-	-	1,261	29,513	-
FINN-POWER OY	3,524,153	(2,039,850)	-	324,564	204,388	44,550	(73,973)
PRIMA POWER IBERICA	11,900,840	(407,659)	-	-	18,334	2,432	(120,000)
PRIMA POWER FRANCE Sarl	3,877,300	(67,355)	-	-	39,301	20,764	-
PRIMA POWER NORTH
AMERICA Inc	17,876,858	(713,096)	-	36,752	81,224	21,084	-
FINN-POWER ITALIA Srl	764,786	(1,629,072)	-	305,201	158,948	186,834	-
PRIMA POWER LASERDYNE LLC	292,133	(1,227,366)	-	156,599	49,094	110,414	-
PRIMA POWER SOUTH
AMERICA LTDA	59,558	(25,090)	-	-	5,199	-	-
PRIMA POWER INDIA PVT. LTD	359,757	(199,010)	-	-	10,230	-	-
PRIMA POWER MAKINA
TICARET LTD	670,284	(22,726)	-	(5,786)	34,214	12,504	-
PRIMA POWER SUZHOU CO LTD	3,241,795	(6,290,685)	-	18,499	92,402	92,561	-
ADMINISTRATIVE, CONTROL
BOARDS AND STRATEGIC
MANAGEMENT	-	-	-		- (1,694,411)	-	-
TOTAL	59,631,811	(27,818,528)	(101,252)	1,083,827	(712,462)	650,881	(193,973)

In terms of the impact on the financial flows of relationships with associated parties, these were not represented in a table, since they are almost entirely linked to transactions with companies that are directly or indirectly controlled by the company, as illustrated previously. The above table does not contain items deriving from national consolidated taxation, since they do not represent actual exchanges, but rather only those originating from the financial procedures provided for in national taxation legislation (payables to PRIMA ELECTRO for 413 thousand EUR and payables to FINN-POWER ITALIA of 912 thousand EUR). Furthermore, dividend financial income and impairment of investments are not included, already commented on fully in the previous explanatory notes.

Significant non-recurrent events and transactions

The table below summarises non-recurring transactions that have had a negative impact on the Income Statement for a total of 1,687 thousand EUR, of which one for 55 thousand EUR on EBITDA and one for 1,632 thousand EUR on financial items.

SIGNIFICANT NON-RECURRENT EVENTS AND TRANSACTIONS (VALUES EXPRESSED IN EURO THOUSAND)	GENERAL AND ADMINISTRATIVE EXPENSES	FINANCIAL INCOME AND EXPENSES	TOTAL AS AT DEC 31, 2017	TOTAL AS AT DEC 31, 2016	VARIATION 2017 VS 2016
Actions of reorganization/ Restructuring	(25)	-	(25)	(251)	226
Legal/fiscal disputes and penalties from customers	(30)	-	(30)	-	(30)
Other minor events	-	-	-	-	-
EBITDA	(55)	-	(55)	(251)	196
EBIT	(55)	-	(55)	(251)	196
Impairment of investments	-	(1,632)	(1,632)	(109)	(1,523)
EBT	(55)	(1,632)	(1,687)	(360)	(1,327)

Transactions deriving from atypical and/or unusual operations

In accordance with CONSOB Communication of July 28th, 2006, during 2017 the company performed no atypical and/or unusual transactions, as defined by the Communication, which states that atypical and/or unusual transactions are those operations whose size/importance, nature of the counterparties, object, price transfer determination method and timing (proximity to close of the financial year) can give rise to doubts regarding: the correctness/completeness of the information in the financial statements, conflict of interests, safeguard of company assets, protection of minority shareholders.

Net Financial Position

In accordance with CONSOB Communication no. DEM/6064293 of July 28th, 2006, the table of the Net Financial Position shown above does not indicate non-current financial receivables (at December 31st, 2016 they totalled 2,800 thousand EUR).

For more details on net financial position, see the following notes:

5 Financial assets loans to subsidiaries
11- Cash and cash equivalents
14 Loans

	NET FINANCIAL POSITION	DECEMBER 31, 2017	DECEMBER 31, 2016	VARIATIONS

	Values expressed in Euro thousand
A	CASH	25,243	7,457	17,786
B	OTHER CASH AND CASH EQUIVALENTS	-	-	-
C	SECURITIES HELD FOR TRADING	-	-	-
D	CASH ON HAND (A+B+C)	25,243	7,457	17,786
E	CURRENT FINANCIAL RECEIVABLES	6,561	5,886	675
F	CURRENT BANK DEBTS	118	952	(834)
G	CURRENT PART OF NON-CURRENT INDEBTEDNESS	33,051	17,996	15,055
H	BOND ISSUED	867	871	(4)
I	OTHER CURRENT FINANCIAL DEBTS	1,776	313	1,463
J	CURRENT FINANCIAL INDEBTEDNESS (F+G+H+I)	35,812	20,132	15,680
K	NET CURRENT FINANCIAL INDEBTEDNESS (J-D-E)	4,008	6,789	(2,781)
L	NON-CURRENT BANK DEBTS	42,271	32,028	10,243
M	BOND ISSUED	39,733	39,660	73
N	OTHER NON-CURRENT FINANCIAL DEBTS	8,015	12,252	(4,237)
O	NON-CURRENT FINANCIAL INDEBTEDNESS (L+M+N)	90,019	83,940	6,079
P	NET FINANCIAL POSITION (K+O)	94,027	90,729	3,298

Summary of key figures of the last Financial Statements of subsidiaries

The tables below provide a summary of the key figures of the Financial Statements of subsidiaries by segment at December 31st, 2017.

Prima Power

	FINN POWER OY	FINN POWER ITALIA S.r.l.	PRIMA POWER LASERDYNE LLC	PRIMA POWER SUZHOU CO.LTD.	PRIMA POWER NORTH AMERICA INC.	PRIMA POWER CANADA Ltd.	PRIMA POWER MEXICO SRL de CV	PRIMA POWER GMBH
Values expressed in Euro thousand
NON CURRENT ASSETS	108,058	10,343	4,309	4,165	2,589	-	4	269
CURRENT ASSETS	78,290	37,267	17,280	28,407	45,857	1,024	293	8,860
ASSETS HELD FOR SALE	-	384	-	-	-	-	-	-
TOTAL ASSETS	186,348	47,994	21,589	32,572	48,446	1,024	297	9,129
STOCKHOLDERS' EQUITY	127,894	13,089	7,045	4,286	19,296	966	(94)	(551)
NON CURRENT LIABILITIES	240	2,565	791	-	992	-	-	508
CURRENT LIABILITIES	58,214	32,340	13,753	28,286	28,158	58	391	9,172
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES	186,348	47,994	21,589	32,572	48,446	1,024	297	9,129
	FINN POWER OY	FINN POWER ITALIA S.r.l.	PRIMA POWER LASERDYNE LLC	PRIMA POWER SUZHOU CO.LTD.	PRIMA POWER NORTH AMERICA INC.	PRIMA POWER CANADA Ltd.	PRIMA POWER MEXICO SRL de CV	PRIMA POWER GMBH
Values expressed in Euro thousand
NET REVENUES	137,429	65,628	29,436	21,730	91,696	960	-	22,756

OPERATING PROFIT (EBIT) 12,299 2,203 829 239 8,201 85 (88) (1,284) 1,508 866 618 (310) 509 87 22 (145) 23 (11) - RESULT BEFORE TAXES (EBT) 10,409 1,663 617 (123) 8,357 75 (88) (1,372) 1,621 846 545 (368) 235 70 (64) (315) (9) (11) - NET RESULT 10,298 2,487 502 508 4,500 4 (88) (1,342) 1,210 695 408 (368) 185 58 (64) (315) (12) (11) -

PRIMA POWER FRANCE Sarl	OOO PRIMA POWER	PRIMA POWER CENTRAL EUROPE Sp.z.o.o.	PRIMA POWER IBERICA S.L.
46	749	262	4,073
5,517	4,507	3,748	11,077
-	-	-	-
5,563	5,256	4,010	15,150
250	1,989	797	7,739
69	141	3	-
5,244	3,126	3,210	7,411
5,563	5,256	4,010	15,150
PRIMA POWER FRANCE Sarl	OOO PRIMA POWER	PRIMA POWER CENTRAL EUROPE Sp.z.o.o.	PRIMA POWER IBERICA S.L.
10,755	13,174	18,932	25,150
(310)	618	866	1,508
(368)	545	846	1,621
(368)	408	695	1,210

Prima Electro

	PRIMA	CONVERGENT -	PRIMA ELECTRO
	ELECTRO S.p.A.	PHOTONICS, LLC	CHINA	OSAI UK LTD.
Values expressed in Euro thousand
NON CURRENT ASSETS	39,997	8,937	2	14
CURRENT ASSETS	28,186	12,137	1,768	694
ASSETS HELD FOR SALE	727	-	-	-
TOTAL ASSETS	68,910	21,074	1,770	708
STOCKHOLDERS' EQUITY	33,800	14,746	355	581
NON CURRENT LIABILITIES	10,918	1,127	-	-
CURRENT LIABILITIES	24,192	5,201	1,415	127
TOTAL STOCKHOLDERS' EQUITY AND
LIABILITIES	68,910	21,074	1,770	708
	PRIMA ELECTRO S.p.A.	CONVERGENT - PHOTONICS, LLC	PRIMA ELECTRO CHINA	OSAI UK LTD.
Values expressed in Euro thousand
NET REVENUES	37,253	17,125	2,154	740
OPERATING PROFIT (EBIT)	237	(1,651)	120	55
RESULT BEFORE TAXES (EBT)	2,496	(1,722)	63	55
NET RESULT	2,572	(1,666)	40	41

Information pursuant to article 149-duodecies of Consob Regulation – Prima Industrie Group

The following table, drawn up in accordance with article 149-duodecies of the Consob Issuers' Regulation, presents the costs for the year 2017 included in the consolidated income statement for auditing services and for non-auditing services provided by PricewaterhouseCoopers SpA (hereinafter referred to as "PwC") and by entities belonging to his network.

AUDIT COSTS	2017
Values expressed in Euro thousand
Parent company audit	36
Subsidiaries audit	186
Other services	20
TOTAL	242

The following table shows the total fees owed to PwC and entities belonging to its network for the audit of the 2017 financial statements, as well as fees for 2017 for other auditing and non-auditing services provided to Group companies by PwC and the entities belonging to its network. The expenses incurred in 2017 for these services are not included.

AUDIT FEES	2017
Values expressed in Euro thousand
Parent company audit	75
Subsidiaries audit	243
Other services	43
TOTAL	361

Financial statements as at December 31st, 2017 Declaration

PURSUANT TO ARTICLE 81-TER OF CONSOB REGULATION NO. 11971 OF MAY 14th, 1999 AND ITS SUBSEQUENT AMENDAMENTS AND INTEGRATIONS

1. The undersigned, Gianfranco Carbonato (Executive Chairman) and Davide Danieli (Manager responsible for drafting company accounting documents), of Prima Industrie SpA, certify that, having taken account of the provisions of article 154-bis, paragraphs 3 and 4, of Legislative no. 58 of February 24th, 1998:
the company's business is compliant with the given requirements and
the administrative and accounting procedures have been effectively applied in drafting the consolidated financial statements over the course of 2017.
1. No significant facts have emerged regarding thereto.
1. We also certify that:
1.1 the financial statements:
- a) are drafted in conformity with the applicable international accounting standards commonly used in the European Community, pursuant to (CE) Regulation no. 1606/2002 of the European Parliament and Council of July 19th, 2002;
- b) truthfully represent the figures in the accounting books and ledgers;
- c) is suitable to provide a truthful and faithful representation of the capital, economic and financial position of the company.
1.2 the Report of the Board of Directors includes a reliable analysis of company business trends and results, as well as of the position of the company, along with the description of the chief risks and uncertainties to which they are exposed.

Date: March 2nd, 2018

Signature of the Executive Chairman

Officer in charge of preparing the financial reports

Annexes

Annex 1 – Consolidation area

PRIMA POWER	REGISTERED OFFICE	SHARE CAPITAL	OWNERSHIP	CONSOLIDATION METHOD
FINN POWER OY	Metallite 4, FI - 62200 Kauhava, FINLAND	€ 30.000.000	100%	Line-by-line method
FINN-POWER Italia S.r.l.	Viale Artigianato 9, 37044, Cologna Veneta (VR), ITALY	€ 1.500.000	100%	Line-by-line method
PRIMA POWER LASERDYNE LLC	8600, 109th Av. North, Champlin, MN 55316, U.S.A.	USD 200.000	100%	Line-by-line method
PRIMA POWER SUZHOU Co. LTD.	Xinrui Road 459, Wujiang Ec. & Tech. Develp. Zone, Suzhou City Jiangsu Prov. CHINA	USD 8.000.000	70%	Line-by-line method
PRIMA POWER NORTH AMERICA Inc.	555W Algonquin Rd., Arlington Heights, IL 60005, U.S.A.	USD 10.000	100%	Line-by-line method
PRIMA POWER CANADA Ltd.	390 Bay Street Suite 2800 Toronto, Ontario M5H 2Y2 CANADA	CAD 200	100%	Line-by-line method
PRIMA POWER MEXICO S DE RL DE CV	Campo Real, 121 FRACC. Valle Real, Saltillo, Coahuila C.P. 25198 MEXICO	USD 250	100%	Line-by-line method
PRIMA POWER GmbH	Lise-Meitner Strasse 5, Dietzenbach, GERMANY	€ 500.000	100%	Line-by-line method
PRIMA POWER IBERICA S.L.	C/Primero de Mayo 13-15, 08908 L'Hospitalet de Llobregat, Barcelona, SPAIN	€ 6.440.000	100%	Line-by-line method
PRIMA POWER CENTRAL EUROPE Sp.z.o.o.	Ul. Holenderska 6 - 05 - 152 Czosnów Warsaw, POLAND	PLN 350.000	100%	Line-by-line method
OOO PRIMA POWER	Ordzhonikidze str., 11/A - 115419, Moscow - RUSSIAN FEDERATION	RUB 4.800.000	99,99%	Line-by-line method
PRIMA POWER FRANCE Sarl	Espace Green Parc , Route de Villepècle, 91280 St. Pierre du Perray, FRANCE	€ 960.015	100%	Line-by-line method
PRIMA POWER MAKINA TICARET LIMITED SIRKETI	Soğanlık Yeni Mah. Balıkesir Cad. Uprise Elite Teras Evler B2 A Dubleks Gül Blok Daire:4 Kartal – Istanbul, TURKEY	TRY 1.470.000	100%	Line-by-line method
PRIMA POWER UK LTD	Unit 1, Phoenix Park, Bayton Road, Coventry CV7 9QN, UNITED KINGDOM	GBP 1	100%	Line-by-line method
PRIMA POWER INDIA PVT. LTD.	Plot No A-54/55, H Block, MIDC, Pimpri, Pune - 411018, Maharashtra, INDIA	Rs. 7.000.000	99,99%	Line-by-line method
PRIMA POWER SOUTH AMERICA Ltda	Av Fuad Lutfalla, 1,182 – Freguesia do Ó - 02968-00, Sao Paulo BRASIL	R\$ 4.471.965	99,99%	Line-by-line method
PRIMA POWER CHINA Company Ltd.	Room 2006, Unit C, Tower 1, Wangjing SOHO, Chaoyang District, Beijing, P.R. CHINA	RMB 2.038.778	100%	Line-by-line method
PRIMA POWER AUSTRALASIA Pty. LTD.	Suite 2, First Floor, 100 Queen street, PO Box 878, Campbelltown, NSW, 2560 AUSTRALIA	A\$ 1	100%	Line-by-line method
BALAXMAN OY	Metallitie 4, FI-62200 Kauhava, FINLAND	€ 2.523	100%	Line-by-line method

PRIMA ELECTRO	REGISTERED OFFICE	SHARE CAPITAL	OWNERSHIP	CONSOLIDATION METHOD
PRIMA ELECTRO S.p.A.	Strada Carignano 48/2, 10024 Moncalieri, (TO) ITALY	€ 15.000.000	100%	Line-by-line method
CONVERGENT - PHOTONICS, LLC	711 East Main Street, Chicopee, MA 01020, U.S.A.	USD 24.119.985	100%	Line-by-line method
PRIMA ELECTRO (CHINA) Co.Ltd.	23G East Tower, Fuxing Shangmao n.163, Huangpu Avenue Tianhe District 510620 Guangzhou P.R. CHINA	€ 100.000	100%	Line-by-line method
OSAI UK Ltd.	Mount House - Bond Avenue, Bletchley, MK1 1SF Milton Keynes, UNITED KINGDOM	GBP 160.000	100%	Line-by-line method

Annex 2 – "Non-gaap" performance indicators

The Management of PRIMA INDUSTRIE assesses the performance of the Group and its business segments using a number of non-IFRS indices. Below are described the components of each of these indices:

ORDERS: includes agreements entered into with customers during the reference period than can be considered part of the order books.

BACKLOG: this is the sum of orders from the previous period and current confirmed orders, net of revenues in the reference period.

EBIT: Operating Profit.

EBITDA: the Operating Profit, as shown in the income statement, gross of "Amortization", "Write-downs and Impairment". This index is also referred to as "Gross Operating Margin".

EBITDA Margin: calculated as the ratio between EBITDA and revenues.

Adjusted EBITDA and EBIT (hereinafter "Adj") correspond to the same alternative performance indicators net of non-recurring items

FCF (Free Cash Flow): is the cash flow from operations that is available after the company has made the necessary reinvestment in new fixed assets. It is the sum of cash flow from operations and the cash flow from investments.

Workforce: is the number of employees on the books on the last day of the reference period.

Annex 3 – Currency exchange rates

The exchange rates applied in the conversion of balances into currencies other than the Euro with the aim of consolidation are the following:

	AVERAGE EXCHANGE RATE		SPOT EXCHANGE RATE
CURRENCY	2017	2016	DECEMBER 31, 2017	DECEMBER 31, 2016
US DOLLAR	1,1293	1,1066	1,1993	1,0541
CHINESE RENMINBI	7,6264	7,3496	7,8044	7,3202
RUSSIAN RUBLE	65,8877	74,2224	69,3920	64,3000
TURKISH LIRA	4,1214	3,3427	4,5464	3,7072
POLISH ZLOTY	4,2563	4,3636	4,1770	4,4103
POUND STERLING	0,8762	0,8189	0,8872	0,8562
BRAZILIAN REAL	3,6041	3,8616	3,9729	3,4305
INDIAN RUPEE	73,4980	74,3553	76,6055	71,5935
AUSTRALIAN DOLLAR	1,4729	1,4886	1,5346	1,4596
CANADIAN DOLLAR	1,4644	1,4664	1,5039	1,4188
MEXICAN PESO	21,3278	20,6550	23,6612	21,7719

Reports of the Independent Auditors and the Board of Statutory Auditors

INDEPENDENT AUDITOR'S REPORT IN ACCORDANCE WITH ARTICLE 14 OF LEGISLATIVE DECREE NO. 39 OF 27 JANUARY 2010 AND ARTICLE 10 OF REGULATION (EU) NO. 537/2014

PRIMA INDUSTRIE SPA

FINANCIAL STATEMENTS AS OF 31 DECEMBER 2017

Independent auditor's report

in accordance with article 14 of Legislative Decree No. 39 of 27 January 2010 and article 10 of Regulation (EU) No. 537/2014

To the Shareholders of Prima Industrie SpA

Report on the audit of the financial statements

Opinion

We have audited the financial statements of Prima Industrie SpA (the "Company"), which comprise the statement of financial position as of 31 December 2017, the income statement, the comprehensive income statement, the statement of changes in shareholders' equity, the cash flow statement for the year then ended, and the explanatory notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements give a true and fair view of the financial position of the Company as of 31 December 2017, and of the result of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/05.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of this report. We are independent of the Company pursuant to the regulations and standards on ethics and independence applicable to audits of financial statements under Italian law. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Analysis of impairment indicators over investments in subsidiaries

Note 3 to the financial statements "Investments in subsidiaries"

The value of the investments in subsidiaries as of 31 December 2017 amounted to Euro 171.9 million (representing approximately 54% of total assets), of which Euro 140.2 million related to the subsidiary Finn-Power OY, which is the most significant investment.

The management of the Company, at least annually, performs an analysis on each subsidiary, focusing on those for which the book value is higher than the corresponding amount of the shareholders' equity. If, further to such analysis, any indicator emerges that could lead to presume that an impairment loss on investments in subsidiaries exists, management performs an impairment test on them.

Considering the relevance of the investments in subsidiaries and the inherent estimate elements influencing the management evaluations, we considered the analysis of the impairment indicators as a key audit matter.

Assessment of development costs recoverability

Note 2 to the financial statements "Intangible assets"

Intangible assets as of 31 December 2017 include "Development costs" amounting to Euro 8.8 million and representing approximately 3% of total assets.

Key audit matters Auditing procedures performed in response to key audit matters

Our audit procedures concerned the examination and discussion with management of the financial performance of the subsidiaries, as well as the evaluation of the existence of any impairment indicators, as requested by IAS 36.

Where impairment indicators existed that could lead to assume an impairment loss of equity investments, we discussed with management the conclusions reached by them further to the impairment tests, verifying the reasonableness of their conclusions in the circumstances. Moreover, we verified the adequacy of the impairment losses made to the investments in subsidiaries.

Finally, we verified the completeness and the accuracy of the information provided in the explanatory notes.

Our audit procedures concerned the understanding of the internal control system over the capitalization process of development costs, of the main development projects through meetings with technical personnel in charge of them, as well as the

Key audit matters	Auditing procedures performed in response to key audit matters
The management of the Company periodically	critical analysis of the assumptions
monitors the development projects and the	underlying the investment recovery plans
related costs, verifying their technical feasibility	prepared by management.
and the generation of probable future economic
benefits expected.	Furthermore, we verified the inherence and
	accuracy of the capitalized development costs,
Development costs are deemed as a key audit	their compliance with the IAS 38
matter considering both their amount and the	requirements, as well as the completeness
inherent estimate elements influencing the	and accuracy of the disclosure provided in the
evaluations performed by management in relation	explanatory notes.
to their recoverability.

Other aspects

The financial statements of Prima Industrie SpA for the year ended 31 December 2016 have been audited by another auditor who, on 16 March 2017, expressed a judgment without modification on these financial statements.

Responsibilities of the directors and the board of statutory auditors for the financial statements

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/05 and, in the terms prescribed by law, for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The directors are responsible for assessing the Company's ability to continue as a going concern and, in preparing the financial statements, for the appropriate application of the going concern basis of accounting, and for disclosing matters related to going concern. In preparing the financial statements, the directors use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The board of statutory auditors is responsible for overseeing, in the terms prescribed by law, the Company's financial reporting process.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of our audit conducted in accordance with International Standards on Auditing (ISA Italia), we exercised our professional judgement and maintained professional scepticism throughout the audit. Furthermore:

we identified and assessed the risks of material misstatement of the financial statements, whether due to fraud or error; we designed and performed audit procedures responsive to those risks; we obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
we obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control;
we evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors;
we concluded on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern;
we evaluated the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicated with those charged with governance, identified at an appropriate level as required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identified during our audit.

We also provided those charged with governance with a statement that we complied with the regulations and standards on ethics and independence applicable under Italian law and communicated with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determined those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We described these matters in our auditor's report.

Additional disclosures required by article 10 of Regulation (EU) No. 537/2014

On 11 April 2017, the Shareholders of Prima Industrie SpA in general meeting engaged us to perform the statutory audit of the Company's separate and consolidated financial statements for the years ending 31 December 2017 to 31 December 2025.

We declare that we did not provide any prohibited non-audit services referred to in article 5, paragraph 1, of Regulation (EU) No. 537/2014 and that we remained independent of the Company in conducting the statutory audit.

We confirm that the opinion on the financial statements expressed in this report is consistent with the additional report to those charged with governance, in their capacity as audit committee, prepared pursuant to article 11 of the aforementioned Regulation.

Report on compliance with other laws and regulations

Opinion in accordance with article 14, paragraph 2, letter e), of Legislative Decree No. 39/10 and article 123-bis, paragraph 4, of Legislative Decree No. 58/98

The directors of Prima Industrie SpA are responsible for preparing a report on operations and a report on the corporate governance and ownership structure of Prima Industrie SpA as of 31 December 2017, including their consistency with the relevant financial statements and their compliance with the law.

We have performed the procedures required under auditing standard (SA Italia) No. 720B in order to express an opinion on the consistency of the report on operations and of the specific information included in the report on corporate governance and ownership structure referred to in article 123-bis, paragraph 4, of Legislative Decree No. 58/98, with the financial statements of Prima Industrie SpA as of 31 December 2017 and on their compliance with the law, as well as to issue a statement on material misstatements, if any.

In our opinion, the report on operations and the specific information included in the report on corporate governance and ownership structure mentioned above are consistent with the financial statements of Prima Industrie SpA as of 31 December 2017 and are prepared in compliance with the law.

With reference to the statement referred to in article 14, paragraph 2, letter e), of Legislative Decree No. 39/10, issued on the basis of our knowledge and understanding of the Company and its environment obtained in the course of the audit, we have nothing to report.

Statement in accordance with article 4 of Consob's regulation implementing Legislative Decree No. 254 of 30 December 2016

The directors of Prima Industrie SpA are responsible for the preparation of the non-financial statement pursuant to Legislative Decree No. 254 of 30 December 2016. We have verified that the directors approved the non-financial statement.

Pursuant to article 3, paragraph 10, of Legislative Decree No. 254 of 30 December 2016, the nonfinancial statement is the subject of a separate statement of compliance issued by ourselves.

Turin, 26 March 2018

PricewaterhouseCoopers SpA

Signed by

Piero De Lorenzi (Partner)

This report has been translated into English from the Italian original solely for the convenience of international readers

INDEPENDENT AUDITOR'S REPORT IN ACCORDANCE WITH ARTICLE 14 OF LEGISLATIVE DECREE NO. 39 OF 27 JANUARY 2010 AND ARTICLE 10 OF REGULATION (EU) NO. 537/2014

PRIMA INDUSTRIE GROUP

CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2017

Independent auditor's report

in accordance with article 14 of Legislative Decree No. 39 of 27 January 2010 and article 10 of Regulation (EU) No. 537/2014

To the Shareholders of Prima Industrie SpA

Report on the audit of the consolidated financial statements

Opinion

We have audited the consolidated financial statements of Prima Industrie SpA and its subsidiaries (the "Prima Industrie Group" or the "Group"), which comprise the consolidated statement of financial position as of 31 December 2017, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows for the year then ended, and the explanatory notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2017, and of the result of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/05.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of this report. We are independent of Prima Industrie SpA (the "Company") pursuant to the regulations and standards on ethics and independence applicable to audits of financial statements under Italian law. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters	Auditing procedures performed in response to key audit matters
Assessment of the goodwill recoverability
Note 2 to the consolidated financial statements "Intangible assets"

Intangible assets as of 31 December 2017 include goodwill, amounting to a total of Euro 102.9 million, representing approximately 20% of total assets, and allocated to the Cash Generating Units ("CGU") below as follows:

Prima Power: Euro 97.6 million;
Prima Electro BU Electronics: Euro 4.3 million;
Prima Electro BU Laser: Euro 1.0 million.

The management of the Company assesses, at least annually, the goodwill recoverability, based on the higher value between the fair value and the value in use of each CGU to which the goodwill amounts are allocated (impairment test). The value in use is determined by discounting the future cash flows expected in the plan as approved by management, and the related terminal value.

Goodwill is deemed as a key audit matter considering both its amount and the inherent estimate elements influencing the evaluations performed by management in relation to its recoverability.

The main estimate elements are linked to the correct definition and identification of the CGU, of future cash flows for each CGU and their discounting rates.

We analysed the reasonableness of the considerations made by management regarding the CGU identified and on the allocation of goodwill thereto, verifying their consistency with the Group structure and with the operating segments in which it operates.

Our audit procedures also concerned the analysis of the main assumptions included in the plans of each CGU, verifying their reasonableness in consideration of the results achieved in 2017, of the order backlog as well as of the expected market development.

Furthermore, we analysed the methodology and the evaluation model used by management to prepare the impairment test, including the reasonableness of the discounting rates and of the related sensitivity analyses, also involving the experts belonging to the PwC network.

Finally, we verified the completeness and the accuracy of the information provided in the explanatory notes.

		Key audit matters
--	--	--------------------------	--

Assessment of development costs recoverability

Note 2 to the consolidated financial statements "Intangible assets"

Intangible assets as of 31 December 2017 include "Development costs" amounting to Euro 35.1 million and representing approximately 7% of total assets.

The management of the Company periodically monitors the development projects and the related costs, verifying their technical feasibility and the generation of probable future economic benefits expected.

Development costs are deemed as a key audit matter considering both their amount and the inherent estimate elements influencing the evaluations performed by management in relation to their recoverability.

Key audit matters Auditing procedures performed in response to key audit matters

Our audit procedures concerned the understanding of the internal control system over the capitalization process of development costs, of the main development projects through meetings with technical personnel in charge of them, as well as the critical analysis of the assumptions underlying the investment recovery plans prepared by management.

Furthermore, we verified the inherence and accuracy of the capitalized development costs, their compliance with the IAS 38 requirements, as well as the completeness and accuracy of the disclosure provided in the explanatory notes.

Other aspects

The consolidated financial statements of the Prima Industrie Group for the year ended 31 December 2016 have been audited by another auditor who, on 16 March 2017, expressed a judgment without modification on these financial statements.

Responsibilities of the directors and the board of statutory auditors for the consolidated financial statements

The directors are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/05 and, in the terms prescribed by law, for such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

The directors are responsible for assessing the Group's ability to continue as a going concern and, in preparing the consolidated financial statements, for the appropriate application of the going concern basis of accounting, and for disclosing matters related to going concern. In preparing the consolidated financial statements, the directors use the going concern basis of accounting unless they either intend to liquidate Prima Industrie SpA or to cease operations, or have no realistic alternative but to do so.

The board of statutory auditors is responsible for overseeing, in the terms prescribed by law, the Group's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

As part of our audit conducted in accordance with International Standards on Auditing (ISA Italia), we exercised professional judgement and maintained professional scepticism throughout the audit. Furthermore:

we identified and assessed the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; we designed and performed audit procedures responsive to those risks; we obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
we obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control;
we evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors;
we concluded on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report.

However, future events or conditions may cause the Group to cease to continue as a going concern;

we evaluated the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
we obtained sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion on the consolidated financial statements.

We communicated with those charged with governance, identified at an appropriate level as required by ISA Italia regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identified during our audit.

From the matters communicated with those charged with governance, we determined those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We described these matters in our auditor's report.

Additional disclosures required by article 10 of Regulation (EU) No. 537/2014

We confirm that the opinion on the consolidated financial statements expressed in this report is consistent with the additional report to those charged with governance, in their capacity as audit committee, prepared pursuant to article 11 of the aforementioned Regulation.

Report on compliance with other laws and regulations

Opinion in accordance with article 14, paragraph 2, letter e), of Legislative Decree No. 39/10 and article 123-bis, paragraph 4, of Legislative Decree No. 58/98

The directors of Prima Industrie SpA are responsible for preparing a report on operations and a report on the corporate governance and ownership structure of the Prima Industrie Group as of 31 December 2017, including their consistency with the relevant consolidated financial statements and their compliance with the law.

We have performed the procedures required under auditing standard (SA Italia) No. 720B in order to express an opinion on the consistency of the report on operations and of the specific information included in the report on corporate governance and ownership structure referred to in article 123-bis, paragraph 4, of Legislative Decree No. 58/98, with the consolidated financial statements of the Prima Industrie Group as of 31 December 2017 and on their compliance with the law, as well as to issue a statement on material misstatements, if any.

In our opinion, the report on operations and the specific information included in the report on corporate governance and ownership structure mentioned above are consistent with the consolidated financial statements of Prima Industrie SpA as of 31 December 2017 and are prepared in compliance with the law.

Statement in accordance with article 4 of Consob's regulation implementing Legislative Decree No. 254 of 30 December 2016

Pursuant to article 3, paragraph 10, of Legislative Decree No. 254 of 30 December 2016, the nonfinancial statement is the subject of a separate statement of compliance issued by ourselves.

Turin, 26 March 2018

PricewaterhouseCoopers SpA

Signed by

Piero De Lorenzi (Partner)

This report has been translated into English from the Italian original solely for the convenience of international readers

PRIMA INDUSTRIE S.p.A.

Registered office: Via Antonelli 32, 10093 Collegno (Turin) Share Capital 26,208,185.00 Euro (fully paid up) Companies Register of Turin No. 03736080015 www.primaindustrie.com

***

REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS' MEETING CONVENED TO APPROVE THE FINANCIAL STATEMENTS TO

31 December 2017

(in accordance with article 153 of Legislative Decree no. 58 of 24 February 1998 and article 2429 of the Italian Civil Code)

To the Shareholders of Prima Industrie SpA,

1. Introduction

The Board of Statutory Auditors, whose members are Franco Nada, Chairman, and statutory auditors Maura Campra and Roberto Petrignani, was appointed by the Shareholders' Meeting of Prima Industrie SpA on 21 April 2016 and will remain in office until approval of the financial statements to 31 December 2018.

The statutory audit of the financial statements was carried out by PricewaterhouseCoopers S.p.A. (hereinafter the "independent auditors"), appointed by the ordinary Shareholders' Meeting of Prima Industrie S.p.A. on 11 April 2017, on the recommendation of the Board of Statutory Auditors, for the financial years 2017-2025. The independent auditors conducts the statutory audit of the financial statements and the Group's consolidated financial statements for the nine-year period, the limited legal audit of the condensed half-year consolidated financial statements, verification of the proper keeping of the accounts and the correct recording of operations in the accounting records, as well as the statutory audit of the financial statements, the audit of the IFRS consolidation records of some of the companies directly or indirectly controlled by Prima Industrie SpA and activities related to the conformity certification for nonfinancial data required by the Decree transposing Directive 2014/95/EU.

The Shareholders' Meeting of 11 April 2017 appointed the new Board of Directors consisting of 11 members, 6 of whom are recognised as independent by their own statements referring to the evaluation criteria set out in the Code of Conduct for listed companies promoted by Borsa Italiana S.p.A.

At its meeting of 11 April 2017, the Board of Directors appointed two managing directors and also assigned executive powers on the Chairman of the company. The Board also appointed the Control and Risks Committee, consisting of three independent directors, the Related Parties Committee, consisting of three independent directors, the Remuneration Committee, consisting of three directors, two of whom are independent, the Strategies Committee and the Lead Independent Director (independent director) in accordance with the Code of Conduct for listed companies promoted by Borsa Italiana SpA.

At the same meeting, the Board appointed the Supervisory Board, consisting of two members of the Board of Auditors and the head of Group Internal Auditing, who will remain in office until approval of the financial statements for the financial year 2019.

2. Monitoring activities

During 2017, the Board of Auditors performed the monitoring activities required by law (specifically article 149 of the Consolidated Finance Law), the Rules of Conduct for the board of statutory auditors of listed companies issued by the National Council of Accountants and Accounting Experts, CONSOB recommendations on company audits and the activities of the board of statutory auditors and the guidelines contained in the Code of Conduct for the corporate governance committee of companies listed with Borsa Italiana SpA, to which the Company has adhered.

2.1 During the year ended 31 December 2017, we monitored compliance with legal requirements and the articles of association and observance of the principles of proper administration.

To this end, the Board availed itself of the information flows presented by the company, considered suitable to ensure that the Board can verify compliance of the organisational structure, internal procedures, company documents and resolutions of official corporate bodies, the provisions of the articles of association and applicable regulations.

For its audits, the Board of Auditors held 6 meetings.

The Board of Auditors conducted checks and received information from the managers of the various company functions. With regard to the administrative and accounting system and its suitability for proper representation of operations, the Board of Auditors has taken the necessary information not only from the company structures, but also through regular meetings with the independent auditors.

Furthermore, the Board of Statutory Auditors:

attended the Shareholders' Meeting;
took part in the 11 meetings of the Board of Directors, during which it was informed of the activities carried out the transactions with most relevance to the balance sheet, income sheet and the cash flow of the company and the Group;
took part in 8 meetings of the Control and Risks Committee;
was invited to and attended a meeting of the Strategies Committee;
acknowledged that two meetings were held of the Remuneration Committee;
met the manager responsible for preparing the company's accounting documents (the "Financial Reporting Manager");
had regular meetings with the Internal Auditor;

regularly met PricewaterhouseCoopers S.p.A (PWC S.p.A), the independent auditors of the financial statements and the consolidated financial statements. With regard to the decision-making processes of the Board of Directors, the Board of Auditors monitored compliance with the principles of proper administration and the fitness of the company's administrative structure and believes that the resolutions and transactions carried out comply with the law and the articles of association and present no potential conflicts of interest, are not manifestly imprudent, risky, atypical or unusual, nor are they in conflict with the decisions of the Shareholders' Meeting or are such that they to compromise the integrity of corporate assets.

2.2 The Board of Statutory Auditors gathered information periodically about the general management and outlook of the company, as well as the most significant transactions.

The most significant events after the end of the financial year at 31 December 2017 include:

the merger of Finn-Power Italia Srl into Prima Industrie SpA with legal effect from 1 February 2018. The Board of Auditors has issued its own report on the financial statements of Finn-Power Italia S.r.l. to 31 December 2017, since the previous body was no longer in existence;
the issue of a 7-year non-convertible, fixed rate, bond loan for a total of 25 Euros. The bond is to be placed with approved Italian and/or foreign investors residing in the European Economic Area, with the exception of those in the USA, in order to diversify sources of financing as detailed in the report on operations.

2.3 The Board of Statutory Auditors found no evidence of atypical and/or unusual transactions with Group companies, third parties or related parties, finding confirmation of this in the guidelines of the Board of Directors, the independent auditors and the head of Internal Auditing.

The Report on Operations drawn up by the Directors contains appropriate information on intragroup transactions or transactions with related parties, all found to be congruous, in the interest of the Company and conducted under market conditions. The financial impact of transactions with related parties is shown in the notes to the financial statements. The impact on the financial flows of relationships with associated parties almost entirely concerns transactions with companies that are directly or indirectly controlled by the company.

With regard to these transactions, the Board of Statutory Auditors considers the information provided by the Directors in their report on operations and explanatory notes to be appropriate.

The Board of Statutory Auditors considers the procedure for transactions with related parties adopted by the company to be in compliance with the applicable regulations.

2.4 The Board of Statutory Auditors, acquired information on and monitored the organisational structure of the Company, considering the overall structure to be sufficient.

2.5 During the year ended 31 December 2017, the Board of Statutory Auditors issued its opinions, as required by law including, Article 2389, paragraph 3, of the Italian Civil Code, on the remuneration of Directors holding special offices, on the incentive plan and on the purchase of treasury shares. On 13 February 2017, the Board gave its recommendations to the Board of Directors of Prima Industrie S.p.A., in accordance with article 16, paragraph 2 and with Regulation no 537/2014 of the European Parliament, for the appointment of statutory auditors for the financial years 2017-2025.

The Board of Auditors acknowledges that, before approval of the draft financial statements, the Directors approved the impairment procedure and the findings of the test and verified their compliance with the requirements of IAS 36.

In accordance with the provisions of the Code of Conduct, the Board of Statutory Auditors also verified:

the proper application of the assessment criteria and procedures adopted by the

Board of Directors to ascertain the independence of its members according to the criteria set out in law and in the Code of Conduct;

the existence and continuance of the independence requirements for Statutory Auditors, according to the criteria of the Code of Conduct.

2.6 During the year ended 31 December 2017, no reports were received in relation to the provisions of Article 2408 of the Italian Civil Code, or complaints from third parties.

2.7 The Board of Statutory Auditors checked that the company has set up an internal control and risk management system, with reference to the Group, in order to enable identification, measurement, management and monitoring of the main risks.

In order to monitor the suitability of the company's internal control system, the Board of Statutory Auditors liaised and coordinated its activities with the Risk Control Committee, the Chairman of the company, the head of the Internal Auditing function and the Supervisory Board.

Furthermore, in its capacity as the Committee for Internal Control and Audit, the Board of Auditors not only set up a continuous information flow with the Control and Risk Committee, but also met regularly with the independent auditors, acknowledging the latter's certification on the absence of significant deficiencies in the internal control system.

With regard to the provisions of Article 36 of CONSOB Resolution no. 16191 of 29 October 2007, concerning the accounting systems of subsidiaries of significant importance, set up in and governed by the laws of non-EU countries, an audit was carried out by the Internal Auditing function and the Financial Reporting Manager, showing that a suitable administrative and accounting system was in place, as well as the additional conditions required by the aforementioned Article 36 of Consob Resolution no. 16191.

The Board of Auditors examined the annual report of the Supervisory Board, on which it has no observations to make.

The Board of Auditors also reports that the Control and Risks Committee has operated in accordance with the provisions of the Code of Conduct. The collaboration with the Committee was productive and effective and, among other things, enabled the coordination of our respective activities and ensured joint evaluation and effective coordination of the overall internal control and risk management system.

The Board of Statutory Auditors reviewed the annual report of the Internal Auditing function on the activities carried out during 2017 and made checks on the process of preparing the half-yearly financial report and the annual financial statements. Also, through regular meetings with the independent auditors, it assessed the appropriateness of the accounting standards and their uniformity for the purposes of the half-yearly financial report and the annual financial statements.

In view of the supervisory activities it conducts, and taking account of the evaluations it makes regarding the appropriateness, effectiveness and functionality of the internal control system by the Control and Risks Committee and the Board of Directors, the Board of Statutory Auditors, within the bounds of its competence, considers the system to be appropriate.

2.8 The Board of Statutory Auditors monitored the suitability of the instructions provided by the company to its subsidiaries, in accordance with article 114, paragraph 2, of the Consolidated Finance Law, and the proper flow of information between them, and believes that the Company is able to comply with the disclosure requirements that are set out in law. The information flow to the central auditor, which takes place at the various levels of the corporate control chain and active throughout the year and a function of the audit of the annual and interim accounts, was considered to be effective.

The Board of Auditors of the main subsidiary reported no critical issues.

2.9 The Board of Statutory Auditors monitored the company's administrative and accounting system and its reliability in correctly representing operations. It did so by obtaining information from the Financial Reporting Manager and the heads of the relevant functions and examining the documentation prepared by the company and analysing the work carried out by the independent auditors.

In particular, the Board of Statutory Auditors notes that the Financial Reporting Manager issued a statement certifying that the financial statements provide a true and fair representation of the financial position, balance sheet and cash flow of the company and the subsidiaries included within the scope of consolidation.

Based on the information obtained, the statements made by the Financial Reporting Manager appear to be complete.

In view of the supervisory activities it conducts, and taking account of the evaluations it makes regarding the appropriateness, effectiveness and functionality of the organisational, administrative and accounting structure set up by the Board of Directors, the Board of Statutory Auditors, within the bounds of its competence, considers the system to be appropriate and reliable in its representation of operations.

2.10 During the year ended 31 December 2017, the Board of Auditors regularly met with the independent auditors EY S.p.A., appointed until the approval of the financial statements for the year ended 31 December 2016, and with PricewaterhouseCoopers S.p.A., in order to share significant data and information in accordance with Article 150, paragraph 3, of the Consolidated Law on Finance.

At these meetings, the independent auditors reported no significant events or anomalies of note.

2.11 During the aforementioned meetings with the appointed independent auditors, the Board of Statutory Auditors monitored activities as required by article 19 of Legislative Decree no. 39 of 27 January 2010. The independent auditors illustrated the quarterly controls carried out and the results, the auditing strategy, and the basic issues encountered during their audits. No critical issues emerged from these meetings that might affect the individual financial statements of the company or the consolidated financial statements.

The Board of Statutory Auditors also assessed the audit plan prepared by PricewaterhouseCoopers S.p.A., determining that it was appropriate for the characteristics and size of the Group, and it monitored the effectiveness of the statutory audit process, determining that it was conducted in accordance with the audit plan and with International Standards on Auditing.

The key matters of the audit and the procedures adopted by the independent auditors were presented to the Board of Auditors and to the Control and Risks Committee, which shared them. These key matters focus on the analysis of impairment indicators for the investments in subsidiaries and the recoverability of capitalised development costs.

The report of PricewaterhouseCoopers S.p.A. on the financial statements to 31 December 2017, issued on 26 March 2017 in accordance with Articles 14 and 16 of Legislative Decree no. 39 of 27 January 2010 – which now, in accordance with the changes introduced by ISA Italia, also indicate the key audit matters – certifies that the financial statements provide a true and fair view of the financial position and performance of the Company at 31 December 2017, the results of its operations and its cash flows for the year, in accordance with the International Financial Reporting Standards approved by the European Union.

The aforementioned report also contains certification that the report on operations and the information required by article 123-bis, paragraph 4, of the Consolidated Finance Law presented in the report on corporate governance and ownership structure are consistent with the financial statements.

In its capacity as the Internal Control and Audit Committee, in accordance with article 19 of Legislative Decree no. 39 of 27 January 2010, the Board of Auditors also received certification that, on the basis of the activities carried out as part of the statutory audit, no significant deficiencies in the internal control system emerged in the financial reporting process.

As a public interest entity, starting from the financial year 2017, Prima Industrie SpA presents consolidated non-financial statements, in the form of a separate report, as required by art. 5 of Legislative Decree 24/2016.

PricewaterhouseCoopers S.p.A. issued a report on these statements on 26 March 2018, in accordance with article 3, paragraph 10, of Legislative Decree no. 254/2016, with observations.

The Board of Auditors monitored the preparation of the consolidated non-financial statements and considers it to be appropriate.

2.12 In the year ended 31 December 2017, no additional assignments were given to the independent auditors PricewaterhouseCoopers S.p.A by Prima Industrie SpA, in addition to those provided for in article 155 of Legislative Decree no. 58 of February 24, 1998. The activities required of the independent auditors and their fees are detailed in the notes to the financial statements as follows: Audit of Parent Company 75,000 Euros, Audit of Subsidiaries 243,000 Euros, Other serves 43,000 Euros. Other services include the certificate of conformity of the consolidated nonfinancial statements

Considering the declaration issued by PricewaterhouseCoopers S.p.A. and the tasks assigned to that company and to the companies belonging to its network, the Board of Auditors does not consider there to be any critical issues regarding its independence.

2.13 As already stated, Prima Industrie S.p.A. adheres to the Code of Conduct of the Committee for Corporate Governance of companies listed with Borsa Italiana S.p.A., as stated in the Report on Corporate Governance and Share Ownership for the year 2017, approved by the Board of Directors on 2 March 2018 and available on the company's website. This report was prepared in accordance with the instructions contained in the Regulations for Markets organised and managed by Borsa Italiana S.p.A..

The Report describes in detail the governance system adopted by the company. This system complies with and adheres to the rules of the governance model required by the above-mentioned Code of Conduct and the principles are effectively and properly applied.

2.13 On 2 March 2018, the Board of Directors prepared and approved the Remuneration Report, in which the Directors illustrated the principles for determining the remuneration of the members of the Board of Directors and executives with strategic responsibilities. Furthermore, the report also contains the table of remuneration paid to members of the Board of Directors, the Board of Statutory Auditors and other executives with strategic responsibilities, as well as a schedule of their shares in the company.

During the monitoring activities described above, no omissions, breaches or irregularities arose that was worthy of note in this report.

3. Financial Statements

The Board of Statutory Auditors examined the draft statements to 31 December 2017, drawn up by the Directors in accordance with legal requirements, and as communicated to the Board of Auditors during the Board Meeting of 2 March 2018, and viewed the consolidated statements on the same date.

To the best of its knowledge, the Board of Statutory Auditors notes that no legal provisions were breached during the preparation of the financial statements.

Since it is not responsible for the statutory audit, the Board of Auditors monitored the general layout of the financial statements, their compliance with the law, their preparation and structure and have no observations to report.

The financial statement for the year ended 31 December 2017 as drawn up by Directors in compliance with statutory requirements, and as duly notified to the Board of Auditors with the detailed information in the Explanatory Note and the Management Report, shows operating profits of 6,771,475 Euros. The Board of Directors has described in detail the year's result and the events that generated it in the Report on Operations and in the Explanatory Notes.

4. Conclusions

In view of the above, in consideration of the statutory audit performed by independent auditors PricewaterhouseCoopers SpA, the Board of Statutory Auditors believe that the financial statements of Prima Industrie SpA for the financial year ended 31 December 2017 can be approved as well as the proposal of the Board of Directors for the allocation of profits of 6,771,475.00 Euros and namely, 338,573.75 Euros to the Legal Reserve, and 4,193,309.60 Euros to be distributed as an ordinary dividend of €0.40 per share and to allocate 2,239,591.65 Euros to the Extraordinary Reserve.

Collegno, 26 March 2018

Board of Statutory Auditors

(Franco Nada) Chairman

(Maura Campra)

Statutory Auditor

(Roberto Petrignani)

Statutory Auditor

PRIMA INDUSTRIE GROUP

***

REPORT OF THE BOARD OF STATUTORY AUDITORS ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

To the Shareholders of Prima Industrie SpA,

The Board of Directors of Prima your company has prepared and approved the consolidated financial statements to 31 December 2017, in accordance with Legislative Decree no. 127 of 9 April 1991 and with the provisions of Article 9 of Legislative Decree no. 38 of 28 February 2005, presented to the Board meeting on 2 March 2018.

The Group Consolidated Financial Statements include the statement by the Chairman and the Manager responsible for drafting the accounting documents pursuant to art. 154-bis of Legislative Decree no. 58 of 24 February 1998.

The Consolidated Financial Statements of the Prima Industrie Group, which are available for your examination, present profits of 18,667,841 EUR, of which 18,515,392 EUR to be allocated to the shareholders of the parent company and 152,449 EUR to be allocated to the minority shareholders and are drafted according to International Accounting Standards (IAS/IFRS).

In the course of our duties, we have carried out oversight activities, and were regularly informed by the parent company's Board of Directors of major economic, financial and equity transactions, including extraordinary operations, performed as part of Group relations.

We ascertained that transactions that were resolved and put into effect, conformed to legislative requirements and to the company by-laws, that they did not diverge from the resolutions of the Shareholders' Meetings, showed no potential conflict of interest and were based on principles of proper administration.

We paid close attention to intragroup operations carried out during the year and ascertained that these were performed legitimately, whether they were commercial in nature or loans granted by the parent company to its subsidiaries.

Audits by the independent auditors, PricewaterhouseCoopers SpA reveal that the values expressed in the consolidated statements conform to the results of the parent company, to the financial statements of the subsidiaries and to all relevant information formally passed on by them.

The Board of Auditors, therefore, did not check these financial statements, in accordance with the provisions of article 41, paragraph 3 of Legislative Decree no. 127 of 9 April 1991.

Furthermore, we obtained the necessary information from the independent auditors on the statutory report, which it issued in accordance with articles 14 and 16 of Legislative Decree no. 39 of 27 January 2010, with nothing of any particular significance being raised. In its own report, the independent auditors confirmed the accuracy of the Management Report in relation to the Consolidated Financial Statements of Prima Industrie SpA and the information disclosed in accordance with article 123-bis of Legislative Decree no. 58 of 24 February 1998 in the report on Corporate Governance and Ownership Structure.

The area of consolidation, the principles for equity consolidation and relevant procedures were all determined in accordance with IFRS rules. The structure of the consolidated financial statements can therefore be considered technically correct and fully conformant to specific regulations.

As in previous years, the Board of Directors has drawn up a single Management Report, which contains all required information pertaining to the parent company and to individual subsidiary companies.

The report illustrates the economic, equity and financial position of all consolidated companies, their operating performance during 2017, the main risks to which the business is exposed and expected developments for 2018.

Having examined this report, we confirm that it corresponds to the Group's consolidated statement.

The Explanatory Notes contain the general drafting criteria for the Consolidated Financial Statements, as well as the criteria used for assessing individual items.

For comparative purposes, the Consolidated Financial Statements also present the data corresponding to the previous year.

Based on our investigations, the Board of Statutory Auditors agrees with the content and form of the Group Consolidated Financial Statements to 31 December 2017.

Collegno, 26 March, 2018

Board of Statutory Auditors

(Franco Nada) Chairman

(Maura Campra) Statutory Auditor

(Roberto Petrignani) Statutory Auditor

Prima Industrie S.p.A.

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General inquiries [email protected]

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Prima Industrie — Annual Report 2017

4210_10-k_2018-06-11_24043eb1-0478-4caf-92d4-c4032b8619fb.pdf

Notice of shareholders' meeting

Agenda

ORDINARY SESSION

EXTRAORDINARY SESSION

Entitlement to attend

Documentation

Message to stakeholders

2017: the best of our 40 sparkling years

Ladies and Gentlemen,

Index

25 Chapter 5. Group Management Report

51 CHAPTER 6. Consolidated Financial Statements of Prima Industrie Group at December 31st, 2017

67 Chapter 7. Description of Accounting Principles

85 Chapter 8. Explanatory Notes to the Consolidated Financial Statements at December 31st, 2017

125 Chapter 9. Prima Industrie SpA Financial statements December 31st, 2017

141 Chapter 10. Description of Accounting Principles

155 Chapter 11. Explanatory Notes to Financial Statements at December 31st, 2017

189 Annexes

Prima Industrie SpA Management and Control

Chapter 1. Prima Industrie SpA Management and Control

Prima Industrie Group Structure

Chapter 2. Prima Industrie Group Structure

Prima Industrie Group Profile

Chapter 3. Prima Industrie Group Profile

Introduction

Chapter 4. Introduction

Group Management Report

Chapter 5. Group Management Report

Group results summary

2017 significant events

Appointment of new Board of Directors and related Committees

Appointment for Statutory Audit

Authorization to purchase treasury stock

Sale of Finn-Power Italia to Prima Industrie SpA by Finn-Power OY

Prima Power Laserdyne Subpoena

Macro-economic context

Economic performance

Values in euro thousand

Assets, liabilities and financial position

Impairment test

Business performance

Personnel

Operations with related parties

Management of the risks for Prima Industrie Group

Context risk

Risks associated with general economic conditions and the cyclical nature of the reference commodity markets

Risks associated with new competitors entering the market

Risks associated with financial requirements

Risks related to the employment of key personnel in the Group

Process risks - strategic

Risks related to competition

Risks related to technological innovation and the introduction of new products

Risks related to intellectual property and know-how

Risks associated with potential future acquisitions

Risks associated with the Group's presence on international markets and new emerging markets

Process risks - operating

Risks associated with possible defects in products sold by the Group and related to the timing of deliveries to customers

Risks related to dependence on suppliers and potential disruption in supply

Risks related to possible injury caused by the Group's products

Risks related to the Group's production plants

Risks associated with IT system failures, network outages and breaches in data security

Risks relating to health, safety and the environment

Risks related to legal issues, tax or labour law litigation

Process risks – financial

Liquidity risk and management of working capital

Risks related to fluctuation in interest rates and exchange rates

Credit risk

Stock trend and treasury stock

Shareholding structure

CHAPTER 5 Group Management Report

Corporate governance

Consolidated non-financial statement

Application of legislative decree 231/2001

Investments made for safety in the workplaces

Foreseeable developments in management

Significant events occurring after financial year closing

Merger of Finn-Power Italia Srl into Prima Industrie SpA

Prima Industrie Annual Report 2017