Set Distribuzione Financial Statements 2016 · 8 SeT DiSTriBuioNe SPA FINANCIAL STATEMENTS 2016 rePorT oN oPerATioNS 9 by the Provincial Council on 27 September 2013, assigned Trentino

Set DistribuzioneFinancial Statements 2016

F I N A N C I A L S T A T E M E N T S 2 0 1 6



Set Distribuzione SpAFully paid-up Share Capital 112,241,777 euroVia Manzoni 24 – RoveretoTrento Register of Companies No. – Taxpayer ID and VAT No. 01932800228Management and coordination by Dolomiti Energia Holding SpA

Financial Statements as at 31 December 2016

Board of Directors

CHAIRMAN Peroni Agostino

DEPUTY CHAIRMAN Ceschi Alessandro

DIRECTORS Nadalini Giovanna

Creazzi Marino

Seraglio Forti Manuela

Cont Debora

Dalmonego Luigi

CHIEF EXECUTIVE OFFICER Quaglino Stefano

Board of Statutory Auditors

CHAIRMAN Laner Aldo

STATUTORY AUDITORS Bonomi William

Camanini Cristina

INDEPENDENT AUDITORS PricewaterhouseCoopers SpA

Index

Report on operations 6

Set Distribuzione SpAFinancial Statements as at 31 December 2016 24

Balance Sheet 25

Income Statement 27

Financial Statements 28

Notes to the Financial Statements 30

Board of Statutory Auditors’ Report 91

Independent Auditors’ Report 94


R E P O R T O N O P E R A T I O N S 7s e t d i s t r i b u z i o n e s p a F I N A N C I A L S T A T E M E N T S 2 0 1 66

Report on operations

Significant event and business conducted, summary of economic, equity and financial potitions

Dear Shareholders,SET Distribuzione’s operations continued regularly also in 2016 and the year was marked by the constant commitment of your Company to pursuing operational excellence. The Company confirmed its traditional policy of continuous improvement in processes, with the goal of strengthening its position of leadership in service cost and quality.With regard to investments, in 2016 the Company continued to support the development, renovation and adjustment of the distribution grids, promoting technological innovation, the efficient use of resources, the optimum management of flows of energy injected into the grids by the distributed

generation plants and, more generally, the improvement of grid performance.As regards revenue, Resolution no. 654 of 28 December 2015 updated the tariffs for grid services applied to end customers, envisaging a decrease of around 5%. The decrease in grid tariffs in 2016 was mainly due to the inertial evolution of operating costs recognised and the decrease in the rate of return of the invested capital for the 2016-2018 three-year time interval (set at 5.6% for electricity distribution and measurement services).In line with the previous regulatory period, SET Distribuzione’s tariffs remained correlated exclusively to its number of customers, and thus, are not impacted by possible positive or negative changes in the demand for energy and in power withdrawn by end customers.In terms of financial statement results, the provisional individual tariffs were used which are valid for determining eligible revenue for SET Distribuzione for the service of distribution, sale and metering, published by the Authority in the spring of 2016.The structural effects of the new tariffs were partially offset by even greater attention to the rational use of the resources available along with an improvement in operating efficiency.Your Company also fully confirms its place among companies of excellence in electricity

distribution at national level, as testified by the recognitions that we received again this year, as every year since 2005, from the Italian Regulatory Authority for Electricity, Gas and the Water System (AEEGSI) for the quality and continuity of service.At European level, the phase of legislative changes is continuing, with the goal of redesigning tomorrow’s electricity markets and further stimulating the development of a competitive market, which culminated in the publication by the European Commission of the “Winter Package” last December. These changes, whose practical effects are being analysed by the structures of your Company, will be implemented into national regulations, and will radically transform the role of the electricity distributor from what we have traditionally been used to considering it to be. Those changes will thus demand your Company’s ability to face a phase of structural change, by innovating operational models and integrating new skills in addition to those traditionally available. Lastly, we deem it important, at this time, to thank the structures of your Company and the Parent Company Dolomiti Energia Holding which, through their day-to-day commitment and professionalism, have made it possible, also in 2016 to achieve the excellent results of SET Distribuzione.

Reference regulatory framework

In 2016, the reference regulations of the electricity distribution system did not undergo any particular changes or significant interventions. Note that EU, national and provincial regulations govern this sector, given the legislative responsibilities assigned to the Autonomous Provinces. At national level, the sector is governed by Italian Legislative Decree no. 79 of 16 March 1999 (the “Bersani Decree”), which implements Directive 96/92/EC, which orders that the distribution companies operating at the date of entry into force of its provisions continue to carry out the service under a monopoly, based on the concession issued by the Ministry, up to 31 December 2030. Subsequently, the services shall be awarded through tender.At the level of the province, we must firstly note Presidential Decree no. 235 of 26 March 1977, as amended by Italian Legislative Decree no. 463 of 11 November 1999, which sets out implementing rules for the Trentino - Alto Adige Region’s independent charter on energy issues, sanctioning the transfer - as of 1 January 2000 - from the State to the Autonomous Provinces of the energy functions carried out both directly and through public institutions of a national or supra-provincial nature. Italian Legislative Decree 463/1999, in particular, establishes that the companies to which the distribution plants of ENEL S.p.A. are transferred, as well as the companies operating at the date of entry into force of the rules, including consortia and cooperatives for generation and distribution, shall exercise or continue the energy distribution activity up to 31 December 2030. A reorganisation of the electrical service by territorial areas is planned, to be defined based on criteria of low cost and rational use of energy, through the approval of the Distribution Plan by way of measure of the Provincial Council with responsibility over that area. The plan, approved


by the Provincial Council on 27 September 2013, assigned Trentino a single area. Among the other provincial rules, we note, in particular, Provincial Law no. 3 of 20 March 2000, which required the establishment of a company with the local entities for the purpose of taking over from ENEL in the electricity distribution service (in this case, SET Distribuzione S.p.A.).This base regulatory framework, substantially unchanged, must, however be supplemented by a set of measures lower in the regulatory hierarchy, but no less valid, binding and operational for sector companies. We specifically refer to the measures adopted by the AEEGSI in the areas under its responsibility, which also form an integral and substantial part of the reference regulation framework. Here are several recent, important examples.

TA r i F F r e g u L AT i o N F o r T h e e L e C T r i C i T y T r A N S m i S S i o N , D i S T r i B u T i o N A N D m e T e r i N g S e r v i C e F o r T h e r e g u L ATo r y P e r i o D 2 0 1 6 - 2 0 2 3

With its Resolution No. 654/2015, the Authority, concurrently with the publication of the mandatory network tariffs to be applied to end customers in 2016, defined the criteria for the new tariff period of the distribution and measurement of electricity, which shall be in force for the following eight years (2016-2023).The current tariff period was divided in two sub-periods of four years each (NPR1 for 2016-2019 and NPR2 for 2020-2023) with an intermediate revision thus planned in 2020.With reference to the first sub-period, the Authority substantially confirmed the general regulatory framework with certain changes relating to the method for recognising new investments in the tariff and the useful regulatory life of the assets.With its Resolution No. 583/2015, the Authority revised the method for determining the rate of return of the invested capital and set, for the 2016-2018 three-year time interval, a rate of

5.6% for electricity distribution and measurement activities. The Authority also prescribed the extension, by five years, of the useful life of the assets of the low and medium voltage lines in operation after 31 December 2007.With reference to the second sub-period, the Authority announced the shift to a tariff regulation based on total costs (so-called “TOTEX Regulation”) whose specific aspects are being analysed by your Company in collaboration with the Utilitalia association.

i N T e g r AT e D T e x T o N m e T e r i N g ( T i m e )

The “Integrated Text of provisions for the supply of the electricity metering service for the period 2016-2019 (TIME)” was issued by the AEEGSI with Resolution no. 654/2015.The main changes in relation to the previous text concern the responsibilities for the metering service. As of 1 January 2016, the party responsible for metering is required to record said figure with regard to all the points of delivery handled by time band pursuant to the TIS (Integrated Text on Settlement). The purpose of this is to create the conditions for providing domestic customers with the figure of the maximum power delivered monthly on a fifteen minute basis, already required by Resolution no. 582/2015. As of 1 January 2017 Terna is now responsible for collecting, validating and recording measurements for HV points of delivery and interconnection with the National Transmission Grid. Through Resolution 458/2016/R/eel, the issue of automatic indemnities linked to the quality of measurements (quality of the data – time frame in which it is made available) was attributed to the TIME, updating it to the 1 January 2017 version. Previously, those provisions were contained in the new Grid Code (CADE).

reForm oF griD TAriFFS AND TAriFF ComPoNeNTS CoveriNg The geNerAL SySTem ChArgeS For DomeSTiC eLeCTriCiTy CuSTomerS

With its Resolution No. 582/2015, the Authority, implementing the provisions of Italian Legislative Decree No. 102 of 2014 transposing the EU energy efficiency directive, started, from 1 January 2016, the reform of electricity tariffs for household customers. The goal of the reform is to overcome the progressiveness of the network tariff and of system costs, in order to incentivise efficient consumption, and to eliminate the current system of crossed subsidies between categories of household customers, in order to make the tariff adhere to the real costs of the service. The reform is to be implemented gradually and it will be fully enforced from 1 January 2018 onwards. The Authority also prescribed that, starting from 1 January 2017, the granularity of the contractually committed power levels shall be increased, in order to provide end customers with a broader range of options of the level that best suits their needs. In addition, a period of at least 2 years is provided (also starting from 1 January 2017), in which the size of the connection contributions and of the fixed fees to be paid by the customer to the distribution company for power changes made remotely shall be reduced compared to today.In parallel, to eliminate any tariff increase for customers in economic distress, the Authority revised the amount of the social bonus from 1 January 2016.

i N T e g r AT e D T e x T o N S A L e S ( T i v )

In 2016, the AEEGSI took action several times to amend and revise the Integrated Text on Sales, which, inter alia, sets the methods whereby distributor enterprises are to recognise (i) the income statement entries relating to the procurement of the electricity used for their own distribution and transmission purposes and (ii) the difference between the actual losses and the standard losses recognised on the distribution network (so-called “loss delta”).With regard to the second point, the TIV provides a specific equalisation mechanism to regulate the value of the difference between actual losses and standard losses, the latter being defined by applying standard loss factors to the electricity that is supplied and withdrawn. The purpose of this mechanism is to incentivise each distribution company to contain losses. Through this equalisation mechanism, the (positive or negative) difference between actual losses and standard losses, valued at the electricity sale price charged by the Sole Purchaser to operators subject to additional safeguards, shall be allocated to the distribution companies.With its Resolution No. 377/2015, the Authority completed the regulations of the losses on distribution networks, revising the conventional loss percentages starting from 1 January 2016 and the loss equalisation mechanism to be applied to distribution companies starting from the year 2015. In particular, the equalisation mechanism takes into consideration the territorial diversification of losses on distribution networks.


i N T e g r AT e D T e x T o N C Lo S e D D i S T r i B u T i o N S y S T e m S ( T i S D C )

With Resolution no. 539/2015 “Integrated Text on Closed Distribution Systems - TISDC”, the AEEGSI completed the framework of regulations for connection, metering, transmission, distribution, dispatching and sale services in the case of closed distribution systems (CDS), which include Internal User Grids - RIU, introducing a “transitional” regulation pending the definitive regulation of CDS, which shall apply as of 1 October 2017, a term that was postponed from 1 January 2017 by Resolution no. 788/2016.In particular, the document grants users that can be connected to CDS the right to request the connection from the operator that is the concession-holder, while, though with a few simplifications, treating operators of CDS as equivalent to other operators of distribution grids.The measure also requires that, just like with the RIU, a register of CDS different from RIU (known as Other CDS or ACDS) be set up at the Authority.The Resolution outlines the tariff aspects and those regarding the general system charges to apply to users of the CDS, both under the transitional regulation and under the definitive regulations. In particular, with regard to the criteria and economic terms and conditions on the basis of which the operator that is the concession-holder may use the private grids and power lines, the Resolution states that the Authority shall define these, through subsequent measures.Lastly, with regard to assigning the responsibility for service quality and the supply of transmission and distribution services, it requires that the distribution companies and Terna be responsible limited to the point of connection between the public grid and the grid of the CDS.

S e r v i C e C o N T i N u i T y A N D Q u A L i T y

With Resolution no. 646/2015, the AEEGSI defined “output based” regulations for electricity distribution and metering services, which include the principles of service quality regulation for the period 2016-2023 (TIQE 2016-2023), thus redefining the conditions for recognition of investments that are more effective/innovative.The Resolution also confirms the general framework of the service quality regulations, which require that the AEEGSI set the annual trend levels for the following service continuity indicators for customers connected in low voltage:- duration of long-lasting outages;- number of long-lasting and short outages.An individual regulation for medium voltage customers has been confirmed.For each year distributors will be subject to bonuses or penalties, based on their actual performance, calculated based on said efficiency indicators, whether they perform better or worse than the values of the trend established. Moreover, with the new regulatory cycle, ceilings for bonuses were included for areas of concentration on the duration of outages indicator.In addition to the aspects described above, the Resolution outlines the start of the future regulation for innovative investments in the distribution grid, sets out the widespread control of the quality of the voltage provided to end users through the electronic meter and starts a process for improving the resilience of the electric system.

T h e u N B u N D L i N g r e g u L AT i o N

In 2016, the Dolomiti Energia Group, as a Vertically Integrated Enterprise (VIE), carried out the activities directed at fulfilling the obligations to separate the brand and the communication policies established by Article 17 of the new integrated text of the provisions pertaining to functional separation obligations for enterprises operating in the sectors of electricity and gas (TIUF), per Resolution 296/2015/R/COM, adopted by the AEEGSI on 22 June 2015. The goal of the provisions contained in the aforementioned Article 17 is to avoid the risk of confusion for the public when, from a global evaluation relating to the visual, auditory or conceptual resemblance of the communication policies, of the corporate name, of the brand or of the other distinctive signs of the distribution enterprise, the public may be induced to believe that they are connected to the same vertically integrated enterprise or to other companies that belong thereto. In this sense, the rule obligates the Independent Operator to ensure that the communication policies, the brand, the logo and every other distinctive sign of the distribution enterprise are used exclusively by that enterprise and contain no textual or graphic element that may be connected in any way to the selling activities carried out by other companies of the VIE. With regard, in particular, to the change of the name and of the brand, the initiatives carried out in the various Companies of the Group concerned mainly the Parent Company (formerly Dolomiti Energia S.p.A., now Dolomiti Energia Holding S.p.A.), the selling Company (formerly Trenta S.p.A., now Dolomiti Energia S.p.A.) and Dolomiti Reti S.p.A. which from 1 July 2016 changed its name to Novareti S.p.A.On the operational front, the year 2016 saw the Company engaged in the execution of the experimental phase of the “self audit” project per AEEGSI Resolution No. 507/2016. In this regard, it should be briefly recalled that the Authority, with this resolution, started an experimental phase, allowing interested companies to submit, on a voluntary basis, a

draft strengthened self-auditing form, in order to obtain a reorganisation and rationalisation of the current set-up of the structural functional separation restrictions. This alternative solution, if it is evaluated positively at the end of the experimental phase, should provide companies with the advantage of having the structural and organisational restrictions prescribed by the TIUF markedly reduced.Within this experimental phase, expected to be completed in the first half of 2017, the Dolomiti Energia Group, through the subsidiaries Novareti S.p.A. and Set Distribuzione S.p.A. submitted to the AEEGSI, in nearly mirror-like form, two distinct draft self-auditing procedures, both accepted by the Authority and being implemented.To carry out this activity, the Company relied on the advice and supervision of the Company ILM S.r.l. of Milan, which devised the Project now submitted to the Authorities’ evaluation, which was also appointed as Compliance Manager in accordance with and pursuant to Title IV of the TIUF.


i N D e P e N D e N T o P e r ATo r ’ S A C T i v i T i e S f o r 2 0 1 6 p u r s u a n t t o A e e g r e S o L u T i o N 1 1 / 0 7 ( T i u ) A N D A e e g S i r e s o l u t i o n 2 9 6 / 2 0 1 5 / r / C o m ( T i u F ) The main activities and duties of the Independent Operator were updated with art. 14, Annex A to AEEGSI Resolution 296/2015/R/COM (TIUF).In that regard, the Independent Operator ensured that the activities administered in 2016 were managed according to criteria of efficiency, cost-effectiveness, neutrality and non-discrimination; the Independent Operator was provided with suitable resources to carry out its operations and, in particular, for the obligations of the distribution and metering service as well as to implement the annual investment plan, which was achieved based on its targets and content.In compliance with the internal self-regulations procedures and the indications provided in that regard by the Authority for Electricity, Gas and the Water System, SET’s Independent Operator drew up the annual and long-term investment plans for the period 2017-2019, before the Board of Directors approved the 2017 Budget, which occurred on 16 December 2016, without any changes. It was not possible to send the plan to the Authority, pursuant to Resolution 296/2015/R/com, as a result of the communication from said Authority, that the specific website set up for such purpose was unavailable as it is being upgraded.Due to the above unavailability, the Independent Operator could not even send the Authority, after 16 December 2016, the long-term plan following its approval.

h u m A N r e S o u r C e S

As at 31 December 2016, the company workforce was composed of 278 staff. The table below shows the change in the workforce by category:

Category 2015 hirings Terminations Change in Title 2016

+ -

Executives 1 - - 1 - 2

Managers 7 - - 1 (1) 7

Employees 168 1 (9) 2 (1) 161

Manual workers 107 6 (3) - (2) 108

283 7 (12) 4 (4) 278

In 2016, 6 injuries were recorded, of which 1 with a prognosis exceeding 40 days.

As part of a reorganisation carried out among the distribution companies of the Dolomiti Energia Group, which was decided following efficiency analysis, compared with organisational models of similar leading companies in the sector, as well as to better comply with the Authority’s regulations, as of 1 July 2016 the activities regarding the handling of metering data and commercial relationships with the sales companies were grouped into a single centre of responsibility in SET. Operationally, the activities previously guaranteed by the “Commercial Distributor” function of Novareti and the related dedicated resources were concentrated in the “Metering and Remote Management” function of SET, renamed “Commercial and Metering”.

u P D AT e o N D i S P u T e S

On the legal front, there were no particularly significant situations occurring during 2016.However, it is worth noting the dialogue under way with the AEEGSI regarding the method of calculating the goods pertaining to the electricity distribution plants of the parties operating in the Province of Trento that intend to cease operation during the transitional period (i.e. up to 31 December 2030). On this topic, note that, as part of the procedures of restructuring the electricity distribution system in the Province of Trento, pursuant to the described Distribution Plan, if, during the transitional period, an operator decides to avail of the right to cease operating the service, SET is required to take over from them, purchasing from the ceasing operator the ownership of the grid infrastructures at the price set by way of a specific technical appraisal.The dialogue under way with the AEEGSI derives from the position taken by the latter that the tariff should recognise the charges that SET should incur to purchase the above-mentioned infrastructures. The Authority’s position is focused on the principle stating that, at the tariff level, the cost incurred to acquire from the transferor can be recognised only up to the limit of the RAB determined for the plants being purchased. This quantification, where confirmed, gives rise to amounts that are significantly undersized in relation to those deriving from the ordinary determination through technical appraisal functional to sale, with the consequent generation of unrecoverable capital losses for SET.In order to solve the problem and avoid legal disputes arising, contacts between the Company and the AEEGSI have been under way for some time.


A S S e S S m e N T B y T h e i TA L i A N i N L A N D r e v e N u e

In 2008 the Guardia di Finanza (Finance Police) conducted a tax inspection in the company, after which an assessment was conducted by the Italian Inland Revenue. This assessment charged the company with failing to apply registration tax to the acquisition of a business unit for electricity distribution management in the Trentino area from ENEL Distribuzione S.p.A.Note that the transfer of the business unit was carried out through the following steps:a) establishment of a newCo (SET Distribuzione

srl) by ENEL Distribuzione;b) contribution of the above business unit by

ENEL to the newCo established;c) purchase by SET Holding of 100% of the

units of the newCo;d) transformation of the newCo from a limited

liability company (Srl) to a joint-stock company (SpA);

e) reverse merger of SET Holding into SET Distribuzione SpA.

In October 2008 SET lodged an appeal against the assessment, with the First Instance Tax Commission of Trento, which rejected it by sentence of 26 March 2009. Subsequently, in February 2009 the payment order was received in relation to the aforementioned assessment, showing taxes including sanctions, of 8,159 thousand euro. On 29 June 2009 the appointed legal advisor of the Company filed an appeal with the Second Instance Tax Commission of Trento against the first instance decision.Pending the sentence the Company agreed with the Trento Tax Authority on settlement of the amount of the payment order (8,566 thousand euro) based on the assessment. For SET, settlement of the payment order is still offering a saving in terms of interest that the tax authority would calculate on the amounts due. The rate of interest applied by the Tax Authority is 8.52% per year, significantly higher than current market interest rates. The payment did not however preclude or affect the option of your Company bringing action before the various tax tribunals at all levels; if the Tax Authority should lose such

action it would be required to reimburse the entire sum, including interest. By sentence of 21 June 2010 the Second Instance Tax Commission also rejected the appeal. Convinced of the correct nature of its operations, the Company appealed against the decision before the Court of Cassation. For more in-depth accounting details of that event, refer to the notes to the financial statements.

r e S u LT S o F o P e r AT i o N S

In 2016 operations generated positive income statement results, even though they were slightly lower than in the previous year, due to the revision of the electricity distribution tariffs.In particular, it is noted that: • the production value came to 99,523

thousand euro, an increase of 1.7% on the 97,828 thousand euro in 2015;

• the gross operating margin came to 38,877 thousand euro, a decrease of almost 7.5% compared to 42,044 thousand euro recorded in 2015;

• considering amortisation/ depreciation of 18,016 thousand euro (up by around 314 thousand euro compared to 2015) and financial charges of 4,983 thousand euro (up by around 71 thousand euro compared to 2015) profit before tax of 15,726 thousand euro was achieved, with a negative difference of 3,544 thousand euro compared to 2015 (18.4%);

• net profit for the year came to 10,696 thousand euro (compared to 12,082 thousand euro in 2015), a decrease on 2015 nearing 11.5%.

Also regarding the financial aspects, 2016 recorded an additional improvement on the previous year: the short-term net financial position (thus, net of the bond loan, which matures in 2029) was a positive 65,260 thousand euro, improving by around 21,085 thousand euro on 2015, though the Company financed a significant investment plan required by the Independent Operator, using its own equity. The total net financial position of your Company, including 111,936 thousand euro of the bond loan, therefore amounted to a negative 46,676 thousand euro, and guarantees extremely comforting financial stability indicators (ratio of NFP to EBITDA, in particular).

S e r v i C e Q u A L i T y A N D C o N T i N u i T y

SET Distribuzione continues to maintain a high standard regarding the quality and continuity of the service of supply of electricity to users. For several years the AEEGSI has established an adequate level of technical and commercial quality, through a set of indicators which electricity distribution companies must guarantee to their active and passive users. If said parameters, which are accurately verified by the Authority based on the information that companies are required to provide, are not met, a penalty is envisaged for non-performing companies or compensation to users.For service continuity, in particular, the Authority divided the territory of Trentino, as well as the rest of Italy, into three Areas (high, medium and low concentration) based on the number of inhabitants in the municipalities. The Quality standards and related bonuses or penalties to Distributors are set at the level of each Area. With the 2008-2011 regulatory cycle, confirmed with the 2012-2015 regulatory cycle, the AEEGSI introduced additional indicators to measure service continuity. Thus, in addition to the indicator of the average minutes of outages per low voltage user (present since the start of regulation in 2000) it added, for each area, the indicator of maximum number of long-lasting outages (> 3 minutes) and short outages (> 1 sec), also per low voltage customer. Moreover, the Authority provided for compensation to individual medium voltage and low voltage users for long-lasting, widespread outages.The results reported to the Authority in March 2016, regarding 2015, confirm through AEEGSI Resolution 685/2016/R/eel that SET Distribuzione is among the best companies in the electricity distribution sector at national level, which enabled your Company to obtain, as a recognition for its excellent results achieved, a bonus of 1.86 million euro which is the highest in both absolute value and in relative value per user among distribution companies. In detail, in each of the areas of responsibility (high, medium


and low concentration of user), the average duration of outages in 2015 was better than the targets that the Authority assigned SET based on the best service quality standards requested at national level (high concentration: standard - 28 minutes, result - 6 minutes; medium concentration: standard - 45 minutes, result 18 minutes; low concentration: standard - 68 minutes, result - 30 minutes).Also with regard to the number of outages, the results were better than the standards in each of the areas (high concentration: standard - 1.2, result - 0.37; medium concentration: standard - 2.25, result - 0.97; low concentration: standard - 4.30, result - 2.15). As regards 2016, the data concerning service continuity confirmed the positive trend of the previous years for all areas, with all six reference indicators performing better than the standards set by the AEEGSI and further improving on 2015. As regards commercial quality, in 2016, Set Distribuzione maintained the previous years’ positive results in compliance with the standards set by the Authority for the execution times for the various services (cost estimates and simple works on the LV grid, activation and deactivation of metering units, replacements of defective metering units, etc.). Compensation was paid to 82 users out of a total of 32,100 services executed at the specific level of Commercial Quality, thus, compliant with timeframes in 99.7% of cases.

equipped with switches, to improve service continuity and the selectivity of faults on the medium voltage grid and to enable remote control by the Trento Integrated Remote Control Centre.

It is important to note that your Company’s technical structures have drawn up a long-term plan of the need for investment in the grid. Through targeted works that have already been identified in detail, this plan covers a time horizon up to 2020 and forms the reference foundation for the communications envisaged by the Authority in the Integrated Text on unbundling.The plan was shared with the development business lines by your Company’s directors and will continue, as in recent years, to be concretely defined in the annual budgets of the next few years.

i T S y S T e m S

Under the service agreement in force, the parent company Dolomiti Energia Holding develops and makes available to Set Distribuzione all the IT infrastructure and systems required for company operations and to suitably fulfil the obligations required by the Authority. During 2016, the analysis, design and implementation of the structure of the IT system in the area of unbundling were completed. Specifically, activities were completed to put into production the company processes managed in full compliance, also in IT terms, with the Authority’s resolutions.As regards applications, which have been covered by the service agreement with the Parent Company for some time, it is noted that the system of remote management of electronic meters (named “TMM”), developed by Dolomiti Energia Holding is available in its now definitive version, both to SET and to a further ten distributors in the Province of Trento.Also note that the SIR (Grid IT System) system was developed specifically to manage the grids of the Dolomiti Energia Group and acts

as the centre of gravity for the main company flows, specifically between the commercial management area, the remote manager TMM and the remote control of the grids, incorporating the distribution data structures and work processes and unifying all the IT management logics of technical data. The functions make available through SIR which are of interest to the Company include the simulation of medium and low voltage electrical grids and control of periodic summary data regarding service quality, in compliance with the principles promoted by the AEEGSI resolutions, in addition to other applications to improve, monitor and automate several company operating processes.During 2016 the M-SIR (Mobile SIR) project was completed. This system distributes technical-plant information managed using SIR to mobile devices, both for technicians and operational teams, guaranteeing viewing and searching for plant data both online and offline. This system is included in the mobile project for company data and workforce management, named WFM (Work Force Management).IT development activities also involved the following.• Development of integration with the

Integrated IT System, according to the provisions of Resolution 487/2015, for management of the electrical switching process.

• Development of integration with the Integrated IT System, according to the provisions of Resolution 402/2015, for the provision of non-hourly measurements on the SII. The works carried out in 2016 were only the first phase for achieving compliance with the resolution and, specifically, were focused on equipment for obtaining the measurements concerned. The resolution will be fully implemented during 2017.

• Analysis and start of development of the integration with the Integrated IT System, according to the provisions of Resolution 628/2016, for aligning the electrical master records.

• Adjustment to Resolution 258/2015 TIMOE

i N v e S T m e N T S

In addition to the works on the MV and LV grids to fulfil the connection requests from passive users (which decreased further on the previous years) during 2016 activities continued for the purpose of connecting to the grid photovoltaic plants (around 500) and other plants with hydroelectric generation, for total power of around 10 MVA, which were also down on the performance of the last few years.Conversely, as regards works on SET’s initiative relating to expanding the grids, improving service and adjusting plants to legal regulations, the volume of activities was in line with the previous years, amounting to around 4.8 million euro.These are highly profitable works, mainly on the MV grids and Secondary Stations (those characterised by high returns in terms of improving the quality of service), implemented based on a plan that identified these works in great detail.The main investments realised by your Company in 2016 can be summarised as follows:• underground laying of several portions of

the overhead lines using bare conductors on Monte Baldo in the Municipality of Avio

• reconstruction of a portion of the MV line in Valle dei Laghi between Pietramurata and Fies

• works to improve the service in the Municipalities of Borgo Valsugana, Fai della Paganella, Pieve Tesino and Lases by laying underground lines to guarantee a second supply for some districts

• 47 works to replace bare conductors with overhead cable, for a total of 43 km of MV lines, in wooded areas located in mountain districts in the Province; these works resulted in a significant improvement in the resilience of the distribution grid under highly difficult weather conditions during snowfall or on very windy days when tall plants fall on cables

• expansion of several MV lines and plants in Val di Fassa and Alta Valsugana

• requalification works on numerous obsolete secondary stations with open outfitting, with protected switchboards, either motorised or


(Integrated Text on Electricity Late Payment) for management of electrical late payment according to the provisions of the integrated text.

• Adjustment to Resolution 268/2015 CADE, as regards the periodic adjustment of the guarantees required from sellers by SET and the calculation and management of default interest. During 2017 the new methods of invoicing sellers will be implemented, as regulated by Resolution 460/2016 and the related communication standards.

• Adjustment to Resolution 100/2016 for the provision to sellers of the final readings for the switching processes, deactivation of the point and transfer and introduction of monitoring within the timeframes provided, with payment of automatic indemnities in the event of non-compliance.

• Adjustment to Decision 11/2015, which standardised the flows of communication of electricity measurements.

• Adjustment to Decision 7/2016, which made it mandatory to record the measurements of the power brackets for all types of customers, irrespective of the power used, and to communicate these to the sellers.

• Upgrade of the operating system on the ART portal, which is no longer supported by Microsoft, which required a new installation of SAP NetWeaver Portale.

• Upgrade to Version 10 of the Help Desk Advanced application software, integrating it with the SAP, Genesys and SIR systems, to improve the usability and effectiveness of the tool to support the CTI’s technical call centre’s operations and company processes.

• Development of the portal to manage the RPA-I process for Requests to Finalise Authorisations/Interventions, which enable organic, centralised management of the workflows involving the operating units, works planning units and the assets function.

• Upgrading of the Integrated Text on Active Connections (TICA) for electricity producers.

• Other minor upgrades of the distribution systems.

On the infrastructure front we note the

realisation of the fibre optic connection with the offices in Arco, Borgo Valsugana, Preore and Panchià. At those offices and at San Severino Wi-Fi coverage was also set up

C o m m e r C i A L D i S T r i B u T i o N S e r v i C e S

In 2016, Set Distribuzione worked on the optimisation of the remote control operation technique, obtaining excellent quality results, among the best in Italy.The in-depth studies carried out at withdrawal points that could not be reached by the remote management system confirmed the tendency to the increase in interference with the propagation of the waves conveyed on the low voltage grid, caused by user devices owned by the end customers. Important resources were dedicated to the search and elimination of interference sources, with the goal of limiting the already perceptible degradation of the performance levels reached, considering that the new TIF (Integrated Text for Invoicing) prescribes, from January 2017 onwards, significant automatic indemnities which the distributor must pay to end customers in case of prolonged use of estimated readings. The LV voltage monitoring plan prescribed by the TIT (Integrated Text on Transport) was prepared, and starting from 2017 it will promptly highlight, through the electronic meters and the remote management system, the cases of non-conforming voltage values, making it possible to prevent any complaints from end customers or producers.With reference to the service of measurement of natural gas provided to Novareti, remote reading to class >G16 meters was consolidated, with the activities to manage and make available the daily withdrawal data for approximately 5,000 redelivery points that provide for this treatment.Another important result to be pointed out in the gas sector is the full achievement of the remote reading objective for 3% of mass

market utilities (class G4-G6), imposed by the regulation, through two different experimental remote management systems, based on point-multipoint technique via radio at 169 MHz, one of which is particularly interesting because it exploits a major part of the telecommunication infrastructure already in operation for the remote management of electricity.In 2016, moreover, work continued on the challenging implementation of data flows towards Integrated Information System (IIS) of the Sole Purchaser, intended to be the linchpin of the information flows between participants in the markets of electricity and gas.

r e S e A r C h A N D D e v e Lo P m e N T

In 2016, activities with high innovation content continued, on one hand with the reservation of strategic relationships and on the other with the implementation of real solutions in support of corporate processes, of the operation and advanced management of the grid of the near future, also in compliance with the indications of AEEGSI.During the year, the Sunshine project was successfully completed; it saw the Company engaged in a stimulating international environment, in which a system was implemented for real-time monitoring and programming of certain public lighting systems in the Rovereto Municipality.After the experimental activities carried out in the previous years, the network of electric vehicle recharging stations was built throughout the served area. During the year, the first phase of the WFM project was completed; it entailed providing all technical personnel with mobile IT instruments on which are installed appropriate applications for the digitalisation and optimisation of work processes.Personnel continued in their commitment to guarantee participation in technical committees and strategic work groups, both in Italy and Europe.


K e y e C o N o m i C A N D F i N A N C i A L r e S u LT i N D i C ATo r S

E c o n o m i c i n d i c a t o r s

index Formula 2016 2015 Difference

ROE Net profit/Equity 7.1% 8.3% (1.2%)

ROI EBIT/Invested capital 5.0% 6.0% (1.0%)

ROS EBIT/Turnover 22.1% 24.6% (2.5%)

EBITDA Gross operating margin (thousands of euro) 38,877 42,044 (3,167)

EBIT Net operating margin (thousands of euro) 20,709 24,183 (3,474)

The economic indicators were slightly lower than the previous year, mainly due to the tariff revision.

F i n a n c i a l a n d E q u i t y i n d i c a t o r s

index Formula 2016 2015 Difference

Hedging of fixed net assets Equity+medium/long-term liabilities/fixed net assets 1.12 1.10 0.02

Debt ratio Liabilities/Equity 1.59 1.57 0.02

Degree of amortisation Amortisation provision/gross fixed assets 0.58 0.55 0.03

Secondary liquidity ratio Short-term assets/short-term liabilities 1.43 1.45 (0.02)

The financial and equity indicators are in line with values from the previous year.

r i S K A N A Ly S i S – C o r P o r AT e o B J e C T i v e S A N D P o L i C i e S o N r i S K m A N A g e m e N T

c r E d i t r i s k

The company’s clients are mainly electricity wholesalers and, among these, the largest is the associated company Dolomiti Energia S.p.A.Credit is monitored constantly during the year to ensure that the total always expresses its estimated realisable value.

l i q u i d i t y r i s k

The main liquidity risk that the company is exposed to is the potential difficulty of promptly obtaining funds to support its normal business activities. To ensure the Company has the necessary financial means for carrying out ordinary business, it has stipulated a service agreement for finance management with the parent company Dolomiti Energia Holding, which makes provision for treasury management under a “cash pooling” arrangement and surety management activities. The Company’s financial position is constantly monitored by the specifically-assigned office and does not exhibit any problems. The financial position includes a bullet, fixed-rate bond loan with a nominal value of 110 million euro, maturing in 2029, issued on acquiring the electricity distribution business unit from ENEL Distribuzione SpA.

m a r k E t r i s k

The Company exclusively operates on the national market and is thus not exposed to floating currency exchange rates. The tariffs determining the consideration for electricity distribution are instead decided by the AEEGSI and are therefore unlikely to change except in regulatory terms.The risk of fluctuations in interest rates is limited,

as financial exposure is represented by the fixed-rate bond loan mentioned above, with duration until the concession ends. Changes in interest rates could influence the index-linked floating rate short-term deposit.

r e L AT i o N S W i T h T h e PA r e N T C o m PA N y A N D S h A r e h o L D e r S

Relations with Dolomiti Energia Holding are governed by a service agreement which, during the year, made provision for equal remuneration for the services performed by shareholders to SET Distribuzione or by the Company to its shareholders. SET Distribuzione’s decision not to set up its own operational structure to manage the various technical-administrative activities resulted in significant management economies.

The activities carried out for SET Distribuzione mainly regard administrative-management activities, and specifically refer to general services (premises, logistics, cleaning, security, etc.), the outsourced set up and provision of IT systems (regarding the components of hardware, software and communications and network infrastructure), administration in the strict sense, personnel administration and procurement of products and services.

A cash pooling agreement is also in place with Dolomiti Energia Holding which is used to implement the cash pooling service. SET Distribuzione also participates in the national tax consolidation regime and Group VAT with its direct parent company Dolomiti Energia Holding.

The profit and loss items relating to those relationships are illustrated in detail in the notes to the financial statements.


r E l a t i o n s w i t h d o l o m i t i E n E r g i a

g r o u p c o m p a n i E s

The tables below summarise the economic and financial relations with the companies in the Dolomiti Energia Group.

T r e A S u r y S h A r e S

As at 31 December 2016, SET Distribuzione SpA did not hold treasury shares, nor did it carry out directly, indirectly through subsidiaries or associates, through trust companies or third parties, purchases or sales of such shares in 2016. As at 31 December 2016, the subsidiaries, associates and related parties did not hold shares of SET Distribuzione, nor did they carry out purchases or sales of such shares in 2016.During the year, no shares with dividend entitlement, bonds convertible in shares or other securities or similar instruments were issued.

B u S i N e S S o u T Lo o K

In 2017 no significant changes are expected in the company performance as compared to 2016.In any event, the parent company structures that oversee tariff issues are taking action to obtain definitive distribution tariffs to correct those which, in our opinion, are material errors carried out in determining the provisional tariffs currently used. In that regard, intense dialogue is under way with the Authority to resolve the anomaly pointed out above.

Rovereto, 10 March 2017

SET Distribuzione SpA

The ChairmanAgostino Peroni

(in thousands of Euro) Tradereceivables

Financialreceivables

TradePayables

LoansPayables

Dolomiti Energia Holding spa 87 68,281 791 1,499

DTC Scarl 1 - - -Dolomiti Energia SpA 20,687 - 29,248 -

Dolomiti Energia Rinnovabili srl 34 - 22 -

Novareti Spa 299 - 106 -

Hydro Dolomiti Enel srl - - 23 -Dolomiti Energia Trading srl 587 - 10,758 -

Dolomiti Ambiente srl 1 - 12 -

Total 21,696 68,281 40,960 1,499

(in thousands of Euro)revenue Purchases Financial Financial

gooDS ServiCeS oTher gooDS ServiCeS oTher iNCome ChArgeS

Dolomiti Energia Holding spa - 430 - 888 3,590 192 50 -

DTC Scarl - 1 - - - - - -

Dolomiti Energia SpA - 51,541 - 5,767 137 122 - - Dolomiti Energia Rinnovabili srl - 34 - - 73 - - - Novareti Spa - 1,219 - - 338 173 - - Hydro Dolomiti Enel srl - 1 - - - 19 - - Dolomiti Energia Trading srl - 599 - - - 10,145 - - Dolomiti Ambiente srl - 1 - - 51 - - - Total - 53,826 - 6,655 4,189 10,651 50 -

B A L A N C E S H E E T - f i N A N C i A L S T A T E M E N T S 2524 s e t d i s t r i b u z i o n e s p a F I N A N C I A L S T A T E M E N T S 2 0 1 6


b A l A n c e s h e e t - A s s e t s (in thousands of Euro) 3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5

a ) s u B s c r i B E d c a p i ta l u n pa i d

B ) F i X E d a s s E t s

I) iNTANgiBLe ASSeTS

2) DEVELOPMENT COSTS 7,560 5,961

3) INDUSTRIAL PATENTS AND INTELLECTUAL PROPERTY RIGHTS 80,880 -

5) GOODWILL 26,612,926 28,513,850

7) OTHER INTANGIBLE ASSETS 226,981 239,669

total 26,928,347 28,759,480

II) ProPerTy, PLANT AND eQuiPmeNT

1) LAND AND BUILDINGS 22,243,406 22,278,418

2) PLANTS AND EQUIPMENT 225,841,084 224,782,271

3) INDUSTRIAL AND COMMERCIAL FITTINGS 17,841,042 19,252,449

4) OTHER ASSETS 648,809 766,236

5) WORK IN PROGRESS AND ADVANCE PAYMENTS 5,000 5,000

total 266,579,341 267,084,374

III) FiNANCiAL FixeD ASSeTS

2) ACCOUNTS RECEIVABLE WHICH ARE FIXED ASSETS

d-bis) others

- within 12 months 45,582 38,774

total 45,582 38,774

B ) t o t a l F i X E d a s s E t s 2 9 3 , 5 5 3 , 2 7 0 , 2 9 5 , 8 8 2 , 6 2 8

c ) c u r r E n t a s s E t s

I) iNveNTorieS

1) RAW MATERIALS AND CONSUMABLES 2,783,664 2,840,337

total 2,783,664 2,840,337

II) ACCouNTS reCeivABLe oF The CurreNT ASSeTS

1) ACCOUNTS RECEIVABLE - USERS AND CUSTOMERS 8,571,391 9,253,110

4) ACCOUNTS RECEIVABLE - PARENT COMPANIES 3,187,770 5,140,923

5) ACCT. REC. - COMPANIES SUBJECT TO CONTROL BY PARENT COMPANIES 21,608,610 22,103,505

5) bis TAX CREDITS 520,269 1,139,044

5) ter PREPAID TAXES 7,758,351 7,438,085

5) quater ACCOUNTS RECEIVABLE - OTHERS

- within 12 months 14,512,289 16,045,082

total 56,158,680 61,119,749

III) ShorT-Term iNveSTmeNTS

7) FINANCIAL ASSETS FOR CENTRALISED TREASURY MANAGEMENT

c) Parent companies 65,180,392 44,163,920

total 65,180,392 44,163,920

IV) CASh AND CASh eQuivALeNTS

1) BANK AND POSTAL CURRENT ACCOUNTS 79,124 20,522

3) CASH ON HAND 1,310 1,479

total 80,434 22,001

c ) t o t a l c u r r E n t a s s E t s 1 2 4 , 2 0 3 , 1 7 0 1 0 8 , 1 4 6 , 0 0 7

d ) a c c r u a l s a n d d E F E r r a l s

PRePAYMents 57,297 69,221

d ) t o t a l p r E p a y m E n t s a n d a c c r u E d i n c o m E 5 7 , 2 9 7 6 9 , 2 2 1

t o t a l a s s E t s 4 1 7 , 8 1 3 , 7 3 7 4 0 4 , 0 9 7 , 8 5 6

Financial Statements


b A l A n c e s h e e t - l I A b I l I t I e s (in thousands of Euro) 3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5

a ) s h a r E h o l d E r s ’ E q u i t y

I) SHARE CAPITAL 112,241,777 112,241,777

II) SHARE PREMIUM RESERVE 2,517,012 2,517,012

IV) LEGAL RESERVE 3,032,091 2,428,086

VI) OTHER RESERVES

EXTRAORDINARY RESERVE 32,548,653 27,807,057

- rounding reserves 1

VIII) RETAINED EARNINGS OR LOSSES 26,485 24,130

IX) PROFIT OR LOSS FOR THE YEAR 10,696,150 12,082,463

a ) t o t a l s h a r E h o l d E r s ' E q u i t y 1 6 1 , 0 6 2 , 1 6 9 1 5 7 , 1 0 0 , 5 2 5

B ) p r o V i s i o n F o r r i s k s a n d c h a r g E s

2) PROVISION FOR INCOME TAXES (INCLUDING DEFERRED TAXES) 2,891,206 3,065,635

B ) t o t a l 2 , 8 9 1 , 2 0 6 3 , 0 6 5 , 6 3 5

c ) E m p l o y E E t E r m i n a t i o n B E n E F i t s

c ) t o t a l 3 , 6 0 5 , 8 2 8 3 , 8 6 2 , 0 1 7

d ) a c c o u n t s p a y a B l E

1) BONDS

- within 12 months 2,102,373 2,106,218

- after 12 months 109,833,947 109,819,243

4) ACCOUNTS PAYABLE - BANKS

- within 12 months 710 699

7) TRADE PAYABLES

- within 12 months 33,104,366 41,735,103

11) ACCOUNTS PAYABLE - PARENT COMPANIES

- c) others 2,290,042 1,825,168

11) bis ACCT. PAY. - COMPANIES SUBJECT TO CONTROL BY PARENT COMPANIES

- within 12 months 10,989,219 227,426

- after 12 months 29,179,700 21,414,700

12) TAX PAYABLES

- within 12 months 326,504 479,590

13) SOCIAL SECURITY PAYABLES

- within 12 months 760,365 789,723

14) OTHER ACCOUNTS PAYABLE

- within 12 months 2,175,847 2,145,231

- after 12 months 287,689 726,285

d ) t o t a l 1 9 1 , 0 5 0 , 7 6 2 1 8 1 , 2 6 9 , 3 8 6

E ) a c c r u E d l i a B i l i t i E s a n d d E F E r r E d i n c o m E

ACCRUED LIABILITIES 47,706 48,996

DEFERRED INCOME 59,156,066 58,751,297

E ) t o t a l 5 9 , 2 0 3 , 7 7 2 5 8 , 8 0 0 , 2 9 3

t o t a l s h a r E h o l d E r s ’ E q u i t y a n d l i a B i l i t i E s 4 1 7 , 8 1 3 , 7 3 7 4 0 4 , 0 9 7 , 8 5 6

(in thousands of Euro) 2 0 1 6 2 0 1 5

a ) p r o d u c t i o n V a l u E

1) REVENUE FROM SALES AND SERVICES 78,139,698 81,936,834

4) INCREASES IN FIXED ASSETS FOR IN-HOUSE PROJECTS 6,099,951 7,083,044

5) OTHER REVENUE AND INCOME (NO SALE/SERV.)

Other revenue 1,011,526 64,161

Plant-related grants and portion of operating grants 14,272,238 8,743,619

t o t a l p r o d u c t i o n V a l u E 9 9 , 5 2 3 , 4 1 3 9 7 , 8 2 7 , 6 5 8

B ) p r o d u c t i o n c o s t s

6) EXTERNAL PURCHASES OF RAW MATERIALS, CONSUMABLES AND MERCHANDISE (3,718,007) (4,810,787)

7) EXTERNAL PURCHASES OF SERVICES (25,716,187) (26,001,800)

8) COSTS FOR USE OF THIRD PARTY ASSETS (2,082,361) (2,144,125)

9) PERSONNEL COSTS

a) Wages and salaries (11,919,580) (12,221,879)

b) Social security costs (3,724,939) (3,855,710)

c) Employee termination benefits (809,083) (813,274)

e) Other costs (851,406) (631,774)

10) AMORTISATION, DEPRECIATION AND WRITE-DOWNS

a) Amortisation of intangible assets (1,963,021) (1,943,964)

b) Depreciation of property, plant and equipment (16,053,355) (15,758,047)

d) Write-down of accounts receivable recognised to current assets (150,802) (159,247)

11) CHANGE IN INVENTORIES OF RAW MATERIALS, CONSUMABLES AND MERCHANDISE (56,673) 207,890

14) OTHER OPERATING COSTS (11,768,674) (5,512,262)

t o t a l p r o d u c t i o n c o s t s ( 7 8 , 8 1 4 , 0 8 8 ) ( 7 3 , 6 4 4 , 9 7 9 )

d i F F E r E n c E B E t w E E n p r o d u c t i o n V a l u E a n d c o s t s 2 0 , 7 0 9 , 3 2 5 2 4 , 1 8 2 , 6 7 9

c ) F i n a n c i a l i n c o m E a n d c h a r g E s

16) OTHER FINANCIAL INCOME

d) financial income different from above

Parent companies 50,000 87,524

Other 64,096 66,764

17) INTEREST AND OTHER FINANCIAL CHARGES

- OTHER (5,097,242) (5,066,807)

t o t a l F i n a n c i a l i n c o m E a n d c h a r g E s ( 4 , 9 8 3 , 1 4 6 ) ( 4 , 9 1 2 , 5 1 9 )

d ) V a l u E a d J u s t m E n t s o F i n V E s t m E n t s a n d F i n a n c i a l l i a B i l i t i E s

18) REVALUATIONS OF INVESTMENTS - -

19) WRITE-DOWNS OF INVESTMENTS - -

t o t a l V a l u E a d J u s t m E n t s o F i n V E s t m E n t s a n d F i n a n c i a l l i a B i l i t i E s - -

p r o F i t B E F o r E t a X 1 5 , 7 2 6 , 1 7 9 1 9 , 2 7 0 , 1 6 0

20) INCOME TAXES FOR THE YEAR

- Current taxes (5,524,723) (6,937,811)

- Deferred taxes 174,428 568,777

- Prepaid taxes 320,266 (818,663)

p r o F i t ( l o s s ) F o r t h E y E a r 1 0 , 6 9 6 , 1 5 0 1 2 , 0 8 2 , 4 6 3

Income Statement


(in thousands of Euro) 2 0 1 6 2 0 1 5

Profit (+) / Loss (-) for the year 10,696 12,082

Income taxes 5,030 7,188

Interest income for the period (-) (114) (154)

Interest expense for the period (+) 5,097 5,067

Capital gains/losses (-/+) deriving from the sale of assets 48 188

profit (+) / loss (-) for the year before income taxes, interest, dividends and capital gains/losses from sale 20,757 24,371

Allocations/absorptions - provisions for other risks and charges 809 813

Depreciation of fixed assets 18,016 17,702

cash flows before changes in nwc 18,825 18,515

Decrease (+) / increase (-) in inventories 57 (208)

Decrease (+) / increase (-) in trade receivables 682 890

Increase (+) / decrease (-) in trade payables (8,631) 6,165

Decrease (+) / increase (-) in prepayments and accrued income 12 12

Increase (+) / decrease (-) in accrued liabilities and deferred income 400 (150)

Other changes in net working capital 20,971 361

cash flow after changes in nwc 13,491 7,070

Interest collected (+) 114 178

Interest paid (-) (5,085) (5,061)

Income taxes paid (-) (3,492) (14,449)

Usage of provisions (1,065) (1,417)

cash flow after other adjustments (9,528) (20,749)

c a s h F l o w F r o m o p E r at i o n s 4 3 , 5 4 5 2 9 , 2 0 7

Property, plant and equipment / Investments (-) (15,650) (18,265)

Property, plant and equipment / Divestments (+) 53 138

Intangible assets / Investments (-) (132) (50)

Financial fixed assets / Investments (-) (7) 19

c a s h F lo w F r o m i n V E s t i n g ac t i V i t i E s ( 1 5 , 7 3 6 ) ( 1 8 , 1 5 8 )

Cash pooling (21,016) (4,298)

Liabilities / Dividends paid (6,735) (6,735)

c a s h F lo w s F r o m F i n a n c i n g ac t i V i t i E s ( 2 7 , 7 5 1 ) ( 1 1 , 0 3 3 )

Increase (+) decrease (-) in cash and cash equivalents 58 16

o p E n i n g c a s h a n d c a s h E q u i V a l E n t s 2 2 6

c l o s i n g c a s h a n d c a s h E q u i V a l E n t s 8 0 2 2

The centralised treasury agreement in place with the Parent Company requires financial requirements to be centralised at the pooler company (Dolomiti Energia Holding), which operates through the transfer of the credit and debit balances of SET Distribuzione’s current accounts. Therefore, due to the cash pooling, the Company’s cash and cash equivalents at the end of the day are always zero, since they are transferred to the Parent Company, which, in turn, supports the Company’s financial requirements, in the event its financial resources are insufficient.These financial statements are true, actual and conform to the accounting records.


SET Distribuzione SpA


Cash Flow Statement

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 3130 s e t d i s t r i b u z i o n e s p a F I N A N C I A L S T A T E M E N T S 2 0 1 6

Notes to theFinancialStatements

introduction

The “Accounting Reform” was acknowledged into Italian law in 2015, in implementation of European Directive 2013/34, with the publication of Italian Legislative Decree 139/15 in the Official Journal. The aforementioned decree supplements and amends the Italian Civil Code, which contains the general rules for drafting the financial statements, in terms of the layouts, measurement criteria, contents of the notes to the financial statements and the report on operations.The legislative amendments came into force on 1 January 2016. Any economic effects of the changes were recognised by the Company, in accordance with OIC 29, on the opening balance of shareholders’ equity as at 1 January 2015. Therefore, the Company re-stated the effects of the changes that would have occurred

in the financial statements for the year ended as at 31 December 2015, as if the Accounting Reform had already been applied in 2015. The balance sheet and income statement relating to 2015, presented in the financial statements for comparative purposes, therefore differ from the financial statements approved by the shareholders’ meeting of 13 April 2016, to take account of the effects of the Accounting Reform.

A C C o u N T i N g e F F e C T S o F T h e A C C o u N T i N g r e F o r m

The information required by OIC 29 is included in annex 1, and in particular the description of the impacts that the Accounting Reform had on the Company’s economic and equity position and shareholders’ equity. To this end, the following was prepared:• the reconciliation statement of the

shareholders’ equity as at 1 January 2015 and

31 December 2015, determined according to the accounting standards in force before the Reform with the shareholders’ equity determined, solely for comparative purposes, as if the accounting standards in force after the Reform had always been applied;

• the reconciliation statement between the Company’s balance sheet as at 31 December 2015, drafted in accordance with the provisions of the Italian Civil Code before the Reform and, solely for comparative purposes, the Company’s balance sheet drafted as if the accounting standards in force after the Reform had always been applied;

• the reconciliation statement between the Company’s income statement as at 31 December 2015, drafted in accordance with the provisions of the Italian Civil Code before the Reform and the income statement drafted, solely for comparative purposes, as if the accounting standards in force after the Reform had always been applied;

• the explanatory notes relating to the reclassifications included in the above-mentioned reconciliation statements.

P r e PA r AT i o N C r i T e r i A

The financial statements for the year ended as at 31 December 2016 and these Notes to the Financial Statements were prepared on the basis of the provisions set forth in articles 2423 et seq. of the Italian Civil Code (as reformed by Italian Legislative Decree no. 139/15 in implementation of European Directive 2013/34), supplemented by the accounting standards issued by the Italian Accounting Standard Authority (OIC).The financial statements are composed of the following documents:• Balance sheet;• Income statement;• Cash Flow Statement;• Notes to the financial statements.These Notes to the financial statements aim to illustrate, analyse and, in certain cases, supplement the financial statements data, and

contain the information requested by Art. 2427 of the Italian Civil Code, which are in line with the regulatory amendments introduced by Italian Legislative Decree 139/15 and with the accounting standards recommended by the Italian Accounting Standard Authority (OIC).These financial statements are stated in euro. Furthermore:

a) the valuation criteria are those set forth in Article 2426 of the Italian Civil Code; exceptional cases which would make it necessary to not apply the valuation criteria set forth, since incompatible with the “true and fair view” of the equity and financial situation as well as the economic result of the Company, pursuant to Article 2423, 4th paragraph, were not identified;

b) the items of the Balance Sheet and the Income Statement were not grouped;

c) there are no asset and liability items that fall under more than one item in the statement.

Reference should be made to the Report on operations regarding:

a) nature of the activity performedb) business outlookc) relations with parent companies,

subsidiaries, associates and companies subject to common control of the parent company.

A P P L i C AT i o N o F T h e P r i N C i P L e o F r e L e vA N C e

Pursuant to Art. 2423, paragraph 4 of the Italian Civil Code, the obligations regarding recognition, measurement, presentation and disclosure do not need to be observed when their compliance has irrelevant effects for the purposes of providing a true and fair view, with the exception of obligations relating to the proper keeping of accounting records. In this regard, outlined below are the criteria with which said provision was implemented in the Company’s financial statements:


• contingent assets and liabilities deriving from the normal updating of the estimates calculated in previous years, if the amount, individually and taken as a whole, is not significant, are classified under B14) Other operating costs (if negative), and under item A5) Other revenue (if positive) and not by nature under the other items of category B or category A. By contrast, where significant, they were reclassified by nature as an adjustment of the specific revenue or cost items to which they refer.

P r i N C i P L e S A P P L i e D i N T h e vA L u AT i o N o F F i N A N C i A L S TAT e m e N T i T e m S

The items were measured on the basis of the going concern assumption; the principles of prudence and accrual accounting were applied, also by taking into account the substance of the transaction or of the contract. The application of the principle of prudence entailed individually measuring the elements making up the individual asset and liability entries or items, in order to avoid offsetting items that should be recognised and profits that should not be recognised because not realised.In compliance with the accrual principle, the effect of transactions and other events was stated for accounting purposes and attributed to the year to which those transactions and events refer, and not to that in which the relative cash movements actually take place (collections and payments).The measurement criteria adopted in preparing the financial statements are described below.

i N TA N g i B L e A S S e T S

Intangible assets, characterised by a lack of tangibility, are represented by costs which do not terminate their utility in the period they are incurred, but rather manifest economic benefits over several years. They are stated at the purchase cost effectively incurred inclusive of related charges, and/or at production cost if created internally, which includes all the costs directly attributable and also the portion of the indirect costs reasonably attributable to the asset. They are stated net of the portions of amortisation, calculated systematically on a straight-line basis in relation to their residual useful life.In the event of impairment, regardless of the depreciation already accounted for, the asset is correspondingly written down; if the assumptions on which the write-down is based are no longer valid in subsequent years, the original value is written back, only adjusted by depreciation.Start-up and expansion costs (amortised over a period of 5 years) and development costs (amortised over 3 years) are recognised under the balance sheet assets with the consent of the Board of Statutory Auditors. Goodwill was posted following extraordinary transactions relating to the acquisition of business units. According to the provisions of Art. 2426 of the Italian Civil Code, as amended by Legislative Decree 139/2015, goodwill is amortised on the basis of its useful life and, in any case, over a period not exceeding 20 years. In exceptional cases in which it is not possible to reliably estimate its useful life, it is amortised over a maximum period of 10 years. As regards goodwill that arose prior to 1 January 2016, the Company made use of the option to continue with the previous amortisation plan, pursuant to the provisions of Art. 12, paragraph 2 of Italian Legislative Decree 139/2015.

P r o P e r T y, P L A N T A N D e Q u i P m e N T

Property, plant and equipment include assets held for long-term use whose economic utility extends beyond the limits of one year, acquired from third parties or produced internally. The cost effectively incurred for the acquisition of the asset also includes the related costs, incurred so that the fixed assets can be used. The production costs include all the costs directly attributable to the asset (typically materials and direct labour) and the portion of other general production costs reasonably attributable to the fixed asset. There were assets subject to revaluation pursuant to Law no. 266 of 23 December 2005.They are stated net of the portions of depreciation, calculated systematically on a straight-line basis in relation to their residual useful life. The depreciation period begins from the year in which the asset is available and ready for use, and for assets acquired during the year the rate is halved, to take into account the minor use. In particular, depreciation is mainly calculated according to the rates shown below:

category Rate applied

primary and secondary substations,

satellite centres, transformers, LV/MV

grids, connections

2.9%

electronic metering units 6.7%

furniture and office machines 5.6%

electronic office machines 16.7%

motor vehicles 12.5%

In the event of impairment, regardless of the depreciation already accounted for, the asset is correspondingly written down; if the assumptions on which the write-down is based are no longer valid in subsequent years, the original value is written back, only adjusted by depreciation.Extraordinary maintenance charges increase the book value of the fixed assets to which they refer, since they increase the production capacity or the useful life attributable to the existing asset;

ordinary maintenance charges are booked to the income statement.No financial charges relating to loans possibly obtained for the construction and manufacture of assets, have been capitalised.

A C C o u N T S r e C e i vA B L e

Accounts receivable are booked to the financial statements according to the amortised cost method, taking into consideration the time factor, and the presumed realisable value. In particular, the initial book value is represented by the nominal value of the account receivable, net of all premiums, discounts and allowances, and inclusive of any costs directly attributable to the transaction that generated the receivable. Transaction costs, any commission income and expense, and any difference between the initial value and the nominal value at maturity are included in the calculation of the amortised cost, using the effective interest rate method. The amortised cost method is not applied to those accounts receivable for which its application would entail irrelevant effects with respect to accounting on the basis of the nominal value. It is presumed that the effects are irrelevant as regards all short-term receivables as well as for all medium/long-term receivables, which accrue interest at a rate similar to the market rate and for which the differences between the initial value and the value at maturity (also taking account of any amounts directly attributable to the transaction that generated the receivable) are not significant with respect to the nominal value of the receivable.The classification of accounts receivable under current assets and financial fixed assets excludes the principle of collectability (i.e. based on the period of time within which the assets will be converted to cash, conventionally represented by one year); instead they are classified on the basis of the role performed by the different assets as part of ordinary company operations. Accounts receivable relating to financial management are recognised under financial fixed assets,


while accounts receivable regarding operations and other accounts receivables are booked to current assets. For the purposes of indicating the amounts collectable within and after 12 months, the classification is performed with reference to their contractual or legal expiry, by also taking into account:• the facts and events set out in the contract,

which may determine a change to the original expiry, which took place before the reporting date;

• the debtor’s realistic ability to fulfil its obligation in accordance with the terms indicated in the contract;

• the time horizon in which the creditor reasonably believes it will be able to collect the receivable due.

An appropriate provision for write-downs is established in relation to potential risks of insolvency, whose consistency with positions of doubtful collectability is verified periodically and, in any case, at the end of each financial year, taking into consideration situations of non-collectability already verified or considered likely.

i N v e N To r i e S

Inventories represent assets destined for sale or which contribute to their realisation in the normal activities of the Company and mainly include raw, ancillary and consumable materials. The assets in inventories are recognised at purchase cost, inclusive of related charges. The inventories are valued in the financial statements at the lower between cost and the realisable value based on the market as of the year-end date; the cost of the replaceable assets is determined using the weighted average cost method, since the quantities purchased are not individually identifiable, but are included in a series of assets equally available.

S h o r T-T e r m i N v e S T m e N T S

Financial receivables deriving from the cash pooling relationship with parent companies were classified under item C.III.7 Financial assets for centralised treasury management which do not constitute fixed assets, in line with the provisions of new standard OIC 14.

A C C r u A L S A N D D e F e r r A L S

These represent the costs and income common to two or more accounting periods, the amount of which varies over time. The amount of the accruals and deferrals is determined by means of the breakdown of the revenue or the cost, for the purpose of allocating just the pertinent portion to the current period.

For multi-year accruals and deferrals, the conditions that led to the initial posting were verified, making suitable changes where necessary.

A C C o u N T S PAyA B L e

Payables include specific and certain liabilities, which represent obligations to pay a determinate amount usually on an established date. They are booked to the financial statements according to the amortised cost method, taking into consideration the time factor. In particular, the initial book value is represented by the nominal value of the account payable, net of transaction costs and all premiums, discounts and allowances deriving directly from the transaction that generated the payable. Transaction costs, any commission income and expense, and any difference between the initial value and the nominal value at maturity are included in the calculation of the amortised cost, using the effective interest rate method. The amortised cost method is not applied to those accounts payable for which its application would entail

irrelevant effects with respect to accounting on the basis of the nominal value. It is presumed that the effects are irrelevant as regards all short-term payables as well as for all medium/long-term payables, which accrue interest at a rate similar to the market rate and for which the differences between the initial value and the value at maturity (also taking account of any amounts directly attributable to the transaction that generated the payable) are not significant with respect to the nominal value of the payable.

P r o v i S i o N S F o r r i S K S A N D C h A r g e S

Provisions for risks and charges include costs and liabilities of a specific nature whose existence is certain or probable, but whose timing and extent are unknown as of the year end date. The provisions represent a realistic estimate of the liability to be incurred on the basis of the information available. When evaluating these provisions, the general principles of prudence and accruals are observed and steps are not taken to establish generic provisions lacking economic justification.

e m P Loy e e T e r m i N AT i o N B e N e F i T S

The employee termination benefits are provided on an accruals basis in compliance with the law and employment contracts in force, considering all types of continuous wages and salaries. The amount recorded in the financial statements reflects the effective liability accrued in favour of employees as at the year-end date, net of advances paid out, and equals that which would be due to employees if their employment were to end on that date.

o P e r AT i N g r e v e N u e S A N D C o S T S

Revenue from the sale of products and costs for the purchase of the same are recognised at the moment of transfer of all risks and benefits connected with ownership, a transfer which normally coincides with shipping or delivery of the goods. Revenue and costs for services are recognised at the moment the service is rendered.Sales revenue and purchase costs are recorded, based on the principle of accrual accounting, net of returns, discounts, allowances and premiums, as well as the taxes directly associated with the sale or the purchase of products and services.

i N C o m e TA x e S F o r T h e y e A r

The current taxes for the year are established on the basis of a realistic forecast of the taxable income pertaining to the year, in accordance with current tax legislation and are stated, net of the advances paid and the withholdings made, in the item tax payables (in the event a net payable emerges) and in the item tax receivables (in the event a net credit emerges).Prepaid and deferred taxes are provided for on the timing differences between the value assigned to an asset or liability on the basis of statutory criteria and the corresponding value for tax purposes. In observance of the prudent principle, prepaid taxes are recognised if their future recovery is reasonably certain.Any estimation variations (including rate variations) are allocated to the taxes for the year.

The content and significance of the main financial statements items are illustrated below.


Assets

i N TA N g i B L e A S S e T S A N D P r o P e r T y, P L A N T A N D e Q u i P m e N T

The changes in historic costs during the year, including any revaluation, were as follows:

O p e n i n g b a l a n c e I n c r e a s e s D e c r e a s e s C l o s i n g

b a l a n c e

i n ta n g i B l E a s s E t s a n d p r o p E r t y, p l a n t a n d E q u i p m E n t

I) INTANGIBLE ASSETS

DEVELOPMENT COSTS 2,014,475 4,102 - 2,018,577

INDUSTRIAL PATENTS AND INTELLECTUAL PROP. RIGHTS 1,292,285 101,100 - 1,393,385

GOODWILL 47,550,506 - - 47,550,506

OTHER INTANGIBLE ASSETS 356,062 26,686 - 382,748

I) IntAnGIble Assets 51,213,328 131,888 - 51,345,216

II) PROPERTY, PLANT AND EQUIPMENT

1) lAnD AnD bUIlDInGs

LAND 3,446,052 42,043 (3,870) 3,484,225

INDUSTRIAL BUILDINGS 35,435,839 732,398 (24,765) 36,143,472

OFFICE BUILDINGS 724,408 - 724,408

39,606,299 774,441 (28,635) 40,352,105

2) PlAnts AnD eQUIPMent

ELECTRICITY SUBSTATIONS 111,878,449 2,596,373 (143,497) 114,331,325

ELEC. DISTRIBUTION GRIDS 429,957,545 11,218,840 - 441,176,385

541,835,994 13,815,213 (143,497) 555,507,710

3) InDUstRIAl AnD cOMMeRcIAl FIttInGs

FITTINGS 3,436,675 63,671 - 3,500,346

REMOTE CONTROL 10,072,983 390,128 - 10,463,111

METERS 29,223,652 522,436 (186,522) 29,559,566

42,733,310 976,235 (186,522) 43,523,023

4) OtheR Assets

FURNITURE AND OFFICE MACHINES 336,302 471 - 336,773

ELECTRONIC OFFICE MACHINES 777,427 83,416 860,843

DEDUCTIBLE VEHICLES 2,010,162 2,010,162

3,123,891 83,887 - 3,207,778

5) WORK In PROGRess AnD ADVAnce PAYMents

WORK IN PROGRESS AND ADVANCE PAYMENTS 5,000 - - 5,000

II) PROPeRtY, PlAnt AnD eQUIPMent 627,304,494 15,649,776 (358,654) 642,595,616

tota l B i ) + B i i ) 678,517,822 15,781,664 (358,654) 693,940,832


Development costs regard the provision by the parent company Dolomiti Energia Holding SpA of the equipment and licences to initiate management of the “Electronic metering” project. That cost is apportioned over the duration of the service agreement entered into with that company and, thus, for a period of 3 financial years.industrial patent and intellectual property rights relate to the purchase cost of software licences (SAP R3).goodwill derives mainly from the following transactions:• the acquisition of the former Enel business

unit and the resulting merger with SET Holding SpA for an original amount of 47,498,618 euro;

• the acquisition of the power company of Terlago for an original amount of 20,000 euro;

• the acquisition of the power company of Vervò for an original amount of 2,000 euro;

• the acquisition of the power company of Tres for an original amount of 2,000 euro.

The value of goodwill pursuant to the first transaction indicated is equal to the higher price settled to purchase the business unit as compared to its shareholders’ equity, not allocated to the asset acquired (already revalued during 2005 in compliance with Law no. 266 of 23 December 2005).The other amounts derive from the difference in the consideration settled by the Municipalities of Terlago, Vervò and Tres for the purchase of the respective municipal power companies and the value of the assets transferred.Goodwill is amortised based on the duration of the concession, which is currently set to expire on 31 December 2030. For property, plant and equipment, it is noted that, in compliance with A.E.E.G. Resolution no. 292/06, as at 31 December 2016, the percentage of analogue meters replaced with electronic meters was 99.93%.Ordinary amortisation of intangible assets and depreciation of property, plant and equipment resulted in the allocation of the following amounts, respectively, to the provisions set up

in the accounts: 1,963,021 euro and 16,053,355 euro. The movements in the accumulated amortisation and depreciation for intangible fixed assets and property, plant and equipment for the year 2016 are shown in the following table.

Opening balance Decreases Amortisat ion/

Depreciat ionClosing balance



DEVELOPMENT COSTS (2,008,513) (2,504) (2,011,017)

IND. PATENTS AND INT. PROP. RIGHTS (1,292,285) - (20,220) (1,312,505)

GOODWILL (19,036,657) - (1,900,923) (20,937,580)

OTHER INTANGIBLE ASSETS (116,393) - (39,374) (155,767)

I) IntAnGIble Assets (22,453,848) - (1,963,021) (24,416,869)



LAND (334,625) - - (334,625)

INDUSTRIAL BUILDINGS (16,895,520) 10,564 (774,492) (17,659,448)

OFFICE BUILDINGS (97,736) - (16,889) (114,625)

(17,327,881) 10,564 (791,381) (18,108,698)

2) PlAnt AnD eQUIPMent

ELECTRICITY SUBSTATIONS (61,151,814) 141,996 (2,759,107) (63,768,925)

ELEC. DISTRIBUTION GRIDS (255,901,908) - (9,995,793) (265,897,701)

(317,053,722) 141,996 (12,754,900) (329,666,626)

3) InDUst. AnD cOMM. FIttInGs

FITTINGS (2,596,417) - (134,972) (2,731,389)

REMOTE CONTROL (7,979,459) - (206,197) (8,185,656)

METERS (12,904,984) 104,640 (1,964,590) (14,764,934)

(23,480,860) 104,640 (2,305,759) (25,681,979)

4) OtheR Assets

FURNITURE AND OFFICE MACHINES (126,105) - (18,710) (144,815)

ELECTRONIC OFFICE MACHINES (773,356) (16,617) (789,973)

DEDUCTIBLE VEHICLES (1,458,193) (165,988) (1,624,181)

(2,357,654) - (201,315) (2,558,969)

5) WORK In PROG. AnD AD. PAYM.

WORK IN PROG. AND AD. PAYMENTS - - - -

II) PROPeRtY, PlAnt AnD eQUIP. (360,220,117) 257,200 (16,053,355) (376,016,272)

tota l B i ) + B i i ) (382,673,965) 257,200 (18,016,376) (400,433,141)


The following table shows the change in the intangible assets and property, plant and equipment at net book value during the year.

O p e n i n g b a l a n c e I n c r e a s e s A m o r t i s a t i o n /D e p r e c i a t i o n

" N e t v a l u e o f a s s e t s s o l d " C l o s i n g b a l a n c e



DEVELOPMENT COSTS 5,962 4,102 (2,504) - 7,560

INDUSTRIAL PATENTS AND INTELL. PROPERTY RIGHTS - 101,100 (20,220) - 80,880

GOODWILL 28,513,849 - (1,900,923) - 26,612,926

OTHER INTANGIBLE ASSETS 239,669 26,686 (39,374) - 226,981

I) IntAnGIble Assets 28,759,480 131,888 (1,963,021) - 26,928,347



LAND 3,111,427 42,043 - (3,871) 3,149,599

INDUSTRIAL BUILDINGS 18,540,319 732,398 (774,492) (14,201) 18,484,024

OFFICE BUILDINGS 626,672 - (16,889) - 609,783

22,278,418 774,441 (791,381) (18,072) 22,243,406

2) PlAnt AnD eQUIPMent

ELECTRICITY SUBSTATIONS 50,726,635 2,596,373 (2,759,107) (1,501) 50,562,400

ELEC. DISTRIBUTION GRIDS 174,055,637 11,218,840 (9,995,793) - 175,278,684

224,782,272 13,815,213 (12,754,900) (1,501) 225,841,084

3) InDUstRIAl AnD cOMMeRcIAl FIttInGs

FITTINGS 840,258 63,671 (134,972) - 768,957

REMOTE CONTROL 2,093,524 390,128 (206,197) - 2,277,455

METERS 16,318,668 522,436 (1,964,590) (81,884) 14,794,630

19,252,450 976,235 (2,305,759) (81,884) 17,841,042

4) OtheR Assets

FURNITURE AND OFFICE MACHINES 210,197 471 (18,710) - 191,958

ELECTRONIC OFFICE MACHINES 4,071 83,416 (16,617) - 70,870

DEDUCTIBLE VEHICLES 551,969 - (165,988) - 385,981

766,237 83,887 (201,315) - 648,809

5) WORK In PROGRess AnD ADVAnce PAYMents

WORK IN PROGRESS AND ADVANCE PAYMENTS 5,000 - - - 5,000

II) PROPeRtY, PlAnt AnD eQUIPMent 267,084,378 15,649,776 (16,053,355) (101,457) 266,579,341

tota l B i ) + B i i ) 295,843,858 15,781,664 (18,016,376) (101,457) 293,507,688


F i N A N C i A L F i x e D A S S e T S

a c c o u n t s r E c E i V a B l E - o t h E r s

A C C o u N T S r e C e i vA B L e o F T h e C u r r e N T A S S e T S

a c c o u n t s r E c E i V a B l E – u s E r s

a n d c u s t o m E r s , n E t o F t h E

p r o V i s i o n F o r w r i t E - d o w n s3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

m i s c E l l a n E o u s a c c o u n t s r E c . - o t h E r

F r o m ot h E r s 4 5 . 5 8 2 3 8 . 7 7 4 6 . 8 0 8

The increase was almost completely (5,888 euro) due to guarantee deposits in favour of the Ministry of the Economy and Finance in relation to sundry concessions.

C u r r e N T A S S e T S

i n V E n t o r i E s

The movements during the year in the stock of materials in inventory are shown in the table below.

Opening balance Purchases

Usages for capital ised

materials

Usages for year

C l o s i n g b a l a n c e

i n V E n t o r i E s

RAW MATERIALS AND CONSUMABLES 2,840,337 3,021,321 (2,581,932) (496,061) 2,783,664

tota l i n V E n to r i E s 2,840,337 3,021,321 (2,581,932) (496,061) 2,783,664

Closing inventories include the stock of meters (550,822 euro), electrical cables (574,477 euro) and other materials used in the construction of electrical grids (1,658,365 euro). These are held in stock by third parties for a total of 619,661 euro.

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

a c c o u n t s r E c E i V a B l E

ACCOUNTS RECEIVABLE - uSerS AND CuSTomerS

InVOIces/bIlls IssUeD 7,018,273 8,131,450 (1,113,177)

Electricity service 6,728,916 7,838,739 (1,109,823)

OTHER SERVICES 289,357 292,711 (3,354)

InVOIces/bIlls tO be IssUeD 2,087,196 1,522,716 564,480

Electricity service 2,053,352 1,511,130 542,222

OTHER SERVICES 33,844 11,586 22,258

PROVIsIOn FOR WRIte-DOWns (534,078) (401,056) (133,022)

ac c o u n t s r E c . - u s E r s a n d c u s to m E r s 8 , 5 7 1 , 3 9 1 9 , 2 5 3 , 1 1 0 ( 6 8 1 , 7 1 9 )

Accounts receivable - users and customers in 2016 were in line with those of the previous year.

Changes in the provision during the year were as follows:

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

p r o V i s i o n F o r w r i t E - d o w n s

PROVISION FOR WRITE-DOWNS (401,056) (287,727) (113,329)

Provision (150,802) (159,247) 8,445

Usage 17,780 45,918 (28,138)

p r o V i s i o n F o r w r i t E - d o w n s ( 5 3 4 , 0 7 8 ) ( 4 0 1 , 0 5 6 ) ( 1 3 3 , 0 2 2 )



- p a r E n t c o m p a n i E s

t a X c o n s o l i d a t i o n

Detailed below are the main characteristics of the contract governing relations between SET and Dolomiti Energia Spa as part of the “national tax consolidation”:

- term of the transaction: from 2016 to 2018- transfer of taxable income: if the

consolidated company records positive taxable income, it must pay the tax to the consolidating company with a settlement date no later than the deadline for payments to the tax authorities;

- transfer of tax losses: if a negative taxable income is recorded (tax loss), the consolidating company agrees to recognise a final amount equal to the amount of the loss less 3% for discounting purposes.

t a X c r E d i t s

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

a c c o u n t s r E c E i Va B l E - pa r E n t c o m pa n i E s

INVOICES/BILLS ISSUED 42,669 89,726 (47,057)

OTHER ACCOUNTS RECEIVABLE 3,145,101 5,051,197 (1,906,096)

ac c o u n t s r E c E i Va B l E - pa r E n t c o m pa n i E s 3 , 1 8 7 , 7 7 0 5 , 1 4 0 , 9 2 3 ( 1 , 9 5 3 , 1 5 3 )

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

a c c t. r E c . - c o m pa n i E s s u B J E c t to c o n t r o l B y pa r E n t c o m pa n i E s

INVOICES/BILLS ISSUED 16,290,161 17,325,315 (1,035,154)

OTHER ACCOUNTS RECEIVABLE 5,318,449 4,778,190 540,259

ac c o u n t s r E c E i Va B l E - pa r E n t c o m pa n i E s 2 1 , 6 0 8 , 6 1 0 2 2 , 1 0 3 , 5 0 5 ( 4 9 4 , 8 9 5 )

The receivable due from parent companies was almost completely due to the VAT credit for December 2016 (2,458,738 euro) and an IRES 2012 credit (641,578 euro) as a result of the application for refund for the failure to deduct IRAP (productivity tax) on personnel costs (art. 4, paragraph 12 of Law Decree no. 16 of 2 March 2012).

accounts rEcEiVaBlE - companiEs

suBJEct to control By parEnt companiEs

Accounts receivable - companies subject to control by parent companies are mainly due to the electricity transport services and are in line with those of the previous year.

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

t a X c r E d i t s

OTHER TAX CREDITS 88 8,919 (8,831)

IRES CREDIT (CORPORATE TAX) 72,703 (72,703)

IRAP CREDIT (PRODUCTIVITY TAX) 519,817 1,051,512 (531,695)

VIRTUAL STAMP DUTY 364 5,910 (5,546)

ta X c r E d i t s 5 2 0 , 2 6 9 1 , 1 3 9 , 0 4 4 ( 6 1 8 , 7 7 5 )

The IRAP (regional business tax) receivable (519,817 euro) is a residual amount of the annual credit for 2015.


p r E p a i d t a X c r E d i t s BrEakdown oF rEcEiVaBlEs By maturity

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

p r E p a i d t a X E s

p r E pa i d ta X E s 7 , 7 5 8 , 3 5 1 7 , 4 3 8 , 0 8 5 3 2 0 , 2 6 6

For details of prepaid tax credits please see the statements of temporary differences that led to the recognition of deferred tax assets and liabilities.


3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e


OTHER CREDITS 200,288 226,278 (25,990)

ACCOUNTS RECEIVABLE - ELECTRICITY COMPENSATION FUND 13,647,646 14,719,745 (1,072,099)

RENEWABLE SOURCE CERTIFICATES 578,664 743,674 (165,010)

ADVANCES/DEPOSITS 61,512 330,008 (268,496)

ACCOUNTS RECEIVABLE - SOCIAL SECURITY INSTITUTIONS 24,179 25,377 (1,198)

accounts rEcEiVaBlE - othErs, short-tErm 14,512,289 1 6 , 0 4 5 , 0 8 2 (1,532,793)

The most important items are: amounts due from the CSEA (Energy And Environmental Services Fund, formerly the CCSE - Electricity Compensation Fund), primarily deriving from the 2016 transport adjustment (distribution and measurement) (712,775 euro), grid efficiency 2016 (540,000 euro), the 2011 measurement adjustment (still pending the finalisation thereof, estimated at 1,000,000 euro) and energy efficiency certificates for 2016 (11,258,641 euro).

3 1 / 1 2 / 2 0 1 6

Book value (2+3+4) Mat. value - subsequent year

Mat. value - subsequent 4 years Beyond 5 years

B r E a k d o w n o F r E c E i V a B l E s B y m a t u r i t y

ReceIVAbles WhIch ARe FIXeD Assets

From others 45,582 - - 45,582

AccOUnts Rec. OF the cURRent Assets

ACCOUNTS REC. - USERS AND CUSTOMERS 8,571,391 8,571,391 - -

ACCOUNTS REC. - PARENT COMPANIES 3,187,770 3,187,770 - -

ACCT. REC. - COMPANIES SUBJECT TO CONTROL BY PARENT COMPANIES 21,608,610 21,608,610

TAX CREDITS 520,269 520,269 - -

PREPAID TAXES 7,758,351 7,758,351 - -

ACCOUNTS REC. - OTHERS, SHORT-TERM 14,512,289 14,512,289 - -

tota l 56,204,262 5 6 , 1 5 8 , 6 8 0 - 4 5 , 5 8 2

The company has no accounts receivable positions outstanding with foreign entities.

S h o r T-T e r m i N v e S T m e N T S


- p a r E n t c o m p a n i E s

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

F i n a n c i a l a s s E t s F o r c E n t r a l i s E d t r E a s u r y m a n a g E m E n t

pa r E n t c o m pa n i E s 6 5 , 1 8 0 , 3 9 2 4 4 , 1 6 3 , 9 2 0 2 1 , 0 1 6 , 4 7 2

This item refers to a positive cash pooling balance due from the parent company as well as pooler Dolomiti Energia Holding.


c a s h a n d c a s h E q u i V a l E n t s

These refer to maintenance expense, lease payments, concession fees, licences and policies, whose accrual overlaps several financial years.

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

c a s h a n d c a s h E q u i V a l E n t s

BANK AND POSTAL CURRENT ACCOUNTS 79,124 20,522 58,602

CASH ON HAND 1,310 1,479 (169)

tota l c a s h a n d c a s h E q u i Va l E n t s 8 0 , 4 3 4 2 2 , 0 0 1 5 8 , 4 3 3

p r E p a y m E n t s a n d a c c r u E d i n c o m E

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

p r E p a y m E n t s a n d a c c r u E d i n c o m E

ANNUAL PREPAYMENTS 38,872 48,603 (9,731)

MULTI-YEAR PREPAYMENTS 18,425 20,618 (2,193)

tota l p r E pay m E n t s a n d ac c r u E d i n c o m E 5 7 , 2 9 7 6 9 , 2 2 1 ( 1 1 , 9 2 4 )

S h A r e h o L D e r S ’ e Q u i T y A N D L i A B i L i T i e S

s h a r E h o l d E r s ’ E q u i t y

As at 31 December 2016 the shareholding structure was as follows:

Number of shares %

s h a r E h o l d E r s

DOLOMITI ENERGIA HOLDING S.P.A. 83,645,346 74.52%

AUTONOMOUS PROVINCE OF TRENTO 16,913,335 15.07%

CLES MUNICIPAL AUTHORITY 3,506,412 3.12%

A.G.S. SPA RIVA DEL GARDA 2,400,358 2.14%

STET SpA 2,253,691 2.01%

AIR SpA 1,430,000 1.27%

FAI DELLA PAGANELLA MUNICIPAL AUTHORITY 709,398 0.63%

MONCLASSICO MUNICIPAL AUTHORITY 542,184 0.48%

VARENA MUNICIPAL AUTHORITY 227,723 0.20%

CONS. ELETTRICO STORO 155,833 0.14%

CONS. ELETTRICO INDUSTRIALE DI STENICO 146,667 0.13%

CONS. ELETTRICO DI POZZA DI FASSA 100,832 0.09%

A.S.M. TIONE 82,499 0.07%

A.C.S.M. FIERA DI PRIMIERO 72,499 0.06%

CONSORZIO DEI COMUNI 55,000 0.05%

tota l 112,241,777 100.00%

On 24 May 2005 ENEL Distribuzione SpA established SET Distribuzione Srl, which conferred its business unit relating to the management of electricity distribution in the Trentino area, effective from 12:00 a.m. of 30 June 2005. SET Holding SpA (subsidiary of Dolomiti Energia SpA, – now Dolomiti Energia Holding SpA – invested in by the Autonomous Province, Local Entities of Trentino and/or their Companies) acquired 100% of the share capital of SET Distribuzione Srl (transformed into a joint-stock company (società per azioni) on 4 July 2005). Effective 1 January 2011 Dolomiti Energia Holding conferred to SET Distribuzione its electricity distribution business unit, increasing its investment by 53,161,209 euro.

The shareholding structure in 2016 remained unchanged on 31 December 2015.

.


I ) S H A R E C A P I TA L

I I ) S H A R E P R E M I U M R E S E R V E

IV) LEGAL RESERVE

V I ) OT H E R R E S E R V E S

XII I ) RETAINED EARNINGS OR

LOSSES

I X ) P R O F I T O R LO S S F O R T H E

Y E A RTOTA L

VALUE AS AT 31/12/2014 112,241,777 2,517,012 1,341,007 13,887,065 - 21,741,574 151,728,435

ALLOCATION OF PROFIT FOR THE YEAR - - 1,087,079 13,919,989 (21,741,574) (6,734,506)

OTHER CHANGES - roundings - - - 3 - 3

RETAINED EARNINGS (LOSSES) - - - - 24,130 - 24,130

PROFIT/LOSS FOR THE YEAR - - - - - 12,082,463 12,082,463

VALUE AS AT 31/12/2015 112,241,777 2,517,012 2,428,086 27,807,057 24,130 12,082,463 157,100,525

ALLOCATION OF PROFIT FOR THE YEAR - - 604,005 4,741,596 - (12,082,463) (6,736,862)

OTHER CHANGES - roundings - - - 1 - - 1

RETAINED EARNINGS (LOSSES) - - - - 2,355 - 2,355

PROFIT/LOSS FOR THE YEAR - - - - - 10,696,150 10,696,150

VALUE AS AT 31/12/2016 112,241,777 2,517,012 3,032,091 32,548,654 26,485 10,696,150 161,062,169

Retained earnings or losses shown above refers to the effect generating by the endorsement of the Accounting Reform as envisaged by OIC 29 and recognised in Shareholders’ Equity.In 2015 and 2016 dividends were distributed for 6,734,506 euro and 6,736,862 euro, respectively.

Changes in shareholders’ equity accounts in the last two years were as follows:


The table below analyses Shareholders’ Equity in terms of availability and distribution options.

3 1 / 1 2 / 2 0 1 6 U s a g e o p t i o n s

Available portion

U s a g e s u m m a r y f o r p a s t t h r e e y e a r s

A m o u n t t o c o v e r l o s s e s

f o r o t h e r r e a s o n s

aVa i l a B i l i ty a n d d i st r i B u t i o n o pt i o n s F o r s h a r E h o l d E r s ’ E q u i ty

I) SHARE CAPITAL 112,241,777

eQUItY ReseRVes

II) SHARE PREMIUM RESERVE 2,517,012 A,B 2,517,012 - -

PROFIt ReseRVes

IV) LEGAL RESERVE 3,032,091 B - -

EXTRAORDINARY RESERVE 32,548,653 A,B,C 32,548,653 - -

tota l 150,339,533 35,065,665

NON-DISTRIBUTABLE PORTION 2,524,572

RESIDUAL DISTRIBUTABLE PORTION 32,541,093

* A: for share capital increase

* B: to cover losses

* C: for distribution to shareholders

The share premium reserve cannot be distributed until such time as the legal reserve reaches 20% of the share capital (art. 2431 of the Italian Civil Code).In total, non-distributable reserves as at 31 December 2016 amounted to 2,524,572 euro, as 2,517,012 euro are related to the share premium reserve and 7,560 euro to coverage of the amount of development costs not yet amortised at the end of the year, pursuant to art. 2426, no. 5 of the Italian Civil Code.


P r o v i S i o N S F o r r i S K S A N D C h A r g e S

d E F E r r E d t a X p r o V i s i o n

By sentence of 21 June 2010 the Second Instance Tax Commission rejected the appeal. Convinced of the correct nature of its operations, the Company appealed against the decision before the Court of Cassation and the Supreme Court’s ruling is pending. With regard to accounting recognition of this event, during 2010 the company recorded the entire amount mentioned above as extraordinary charges and as a balancing entry for the provision for income taxes, which in turn offset the credit of the same nature generated by virtue of the payments made.

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

p r o V i s i o n F o r i n c o m E t a X E s ( i n c l u d i n g d E F E r r E d t a X E s )

DEFERRED TAX PROVISION 2,891,206 3,065,635 (174,429)

tota l p r o V i s i o n F o r i n c o m E ta X E s 2 , 8 9 1 , 2 0 6 3 , 0 6 5 , 6 3 5 ( 1 7 4 , 4 2 9 )

For details of deferred taxes please see the statements of temporary differences that led to the recognition of deferred tax assets and liabilities, indicated at the end of the Notes.

a s s E s s m E n t B y t h E i t a l i a n

i n l a n d r E V E n u E

As previously mentioned in the Directors’ Report, note that in 2008, the Company was subject to a tax inspection conducted by the Guardia di Finanza which resulted in findings of a single charge relating to failure to apply registration tax to the acquisition of a business unit for electricity distribution management in the Trentino area from ENEL Distribuzione S.p.A.In October 2008 SET lodged an appeal with the First Instance Tax Commission of Trento against the finding, which the Commission rejected by sentence of 26 March 2009.In February 2009 the payment order was received in relation to the aforementioned inspection. The order indicates charges, including sanctions, of 8,158,586 euro. On 29 June 2009 the appointed legal advisor filed an appeal with the Second Instance Tax Commission of Trento against the first instance decision.In relation to the sentence the Company agreed with the Trento Tax Authority on settlement of the amount of the payment order (8,566,222 euro) based on the findings. Settlement of the order resulted in a significant savings for SET in terms of interest due to the tax authorities.

e m P Loy e e T e r m i N AT i o N B e N e F i T S

This provision relates to accounts payable by the Company to employees in service as at year-end in accordance with Article 2120 of the Italian Civil Code, employment contracts and corporate relations. The amount as at 31 December 2016 came to 3,605,828 euro.

The movements in employee termination benefits during the year were as follows:

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

E m p l o y E E t E r m i n a t i o n B E n E F i t s

Opening balance 3,862,017 4,465,571 (603,554)

Allocated during the year 809,083 813,274 (4,191)

Decreases (387,835) (783,317) 395,482

Other changes (677,437) (633,511) (43,926)

E m p loy E E t E r m i n at i o n B E n E F i t s 3 , 6 0 5 , 8 2 8 3 , 8 6 2 , 0 1 7 ( 2 5 6 , 1 8 9 )

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

B o n d s

- within 12 months 2,102,373 2,106,218 (3,845)

- after 12 months 109,833,947 109,819,243 14,704

tota l 1 1 1 , 9 3 6 , 3 2 0 1 1 1 , 9 2 5 , 4 6 1 1 0 , 8 5 9

The significant decrease in the provision is due to 22 terminations of employment during the year due to retirement.

A C C o u N T S PAyA B L e

B o n d s


The bond loan was issued by SET Distribuzione SpA, by virtue of the resolution of the Board of Directors of 21 July 2006, pursuant to art. 2412, paragraph 1 of the Italian Civil Code, for a nominal value of 110,000,000 euro, at a fixed rate of 4.60%, guaranteed by an irrevocable first demand surety issued by the Trento Autonomous Province. The value shown derives from the valuation of the payable at amortised cost, as described in the valuation criteria, and the short-term portion represents the payable for the interest accrued as at 31 December 2016 on the half-yearly coupon, to be liquidated during the following year.The bond has a duration of 23 years as from 1 August 2006 and therefore until 1 August 2029, and shall be repaid at par in a single solution on the maturity date.

a c c o u n t s p a y a B l E - B a n k s

Trade payables decreased in 2016 due to a decrease in the accounts payable to the CSEA due to the 2016 adjustment and tariff components of the sixth two-month period.

a c c o u n t s paya B l E - pa r E n t c o m pa n i E s

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

a c c o u n t s p a y a B l E - B a n k s

due to banks 710 699 11

ac c o u n t s paya B l E - B a n k s 7 1 0 6 9 9 1 1

t r a d E p a y a B l E s

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

t r a d E p a y a B l E s

PAYABLES FOR iNvoiCeS reCeiveD 15,640,686 17,580,762 (1,940,076)

ELECTRICITY SERVICE 15,121,643 16,583,435 (1,461,792)

OTHER SERVICES 519,043 997,327 (478,284)

PAYABLES FOR iNvoiCeS To Be reCeiveD 17,463,680 24,154,341 (6,690,661)

ELECTRICITY SERVICE 16,247,767 22,973,012 (6,725,245)

OTHER SERVICES 1,215,913 1,181,329 34,584

t r a d E paya B l E s 33,104,366 4 1 , 7 3 5 , 1 0 3 (8,630,737)

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

a c c o u n t s p a y a B l E - p a r E n t c o m p a n i E s

PAYABLES FOR iNvoiCeS reCeiveD 387,639 744,474 (356,835)

OTHER SERVICES 387,639 744,474 (356,835)

PAYABLES FOR iNvoiCeS To Be reCeiveD 1,902,403 1,080,694 821,709

Electricity service 7,441 11,833 (4,392)

OTHER SERVICES 1,894,962 1,068,861 826,101

ac c o u n t s paya B l E - pa r E n t c o m pa n i E s 2,290,042 1 , 8 2 5 , 1 6 8 464,874

OF WhIch

accounts payable - parent companies for taxes/interest 1,490,382 975,001 515,381

Payables for invoices received from parent companies pertain to administrative/logistics services. The decrease in value in 2016 compared to 2015 is attributable to the fact that at the end of 2015 the invoices for November and December were still to be paid, while at the end of 2016 only the December invoices are unpaid. The item payables for invoices to be received/other services includes the IRES payable, which amounts to 1,490,382 euro (IRES payables were not present as at 31 December 2015), while the VAT payable is zero (as at 31 December 2015 it was 972,939 euro).


acco u n t s paya B l E - co m pa n i E s s u B J E ct

to co n t r o l B y pa r E n t co m pa n i E s

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

a c c o u n t s p a y a B l E - c o m p a n i E s s u B J E c t t o c o n t r o l B y p a r E n t c o m p a n i E s

PAYABLES FOR iNvoiCeS reCeiveD 29,311,393 21,602,084 7,709,309

Electricity service 38,356 35,923 2,433

other services 29,273,037 21,566,161 7,706,876

PAYABLES FOR iNvoiCeS To Be reCeiveD 10,857,526 40,042 10,817,484

Electricity service 10,781,485 26,466 10,755,019

other services 76,041 13,576 62,465

ac c o u n t s paya B l E - pa r E n t c o m pa n i E s 40,168,919 2 1 , 6 4 2 , 1 2 6 18,526,793

The item Other services mainly includes payables for guarantee deposits received from Dolomiti Energia SpA and Dolomiti Energia Trading SpA to guarantee agreements for transport services, which increased during the year by over 7 million euro.Payables for invoices to be received for the electricity service included the accounts payable deriving from the purchase of energy efficiency certificates relating to the obligations for 2015 (40%) and 2016 (100%), equal to 10,758,110 euro.

t a X p a y a B l E s

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

t a X p a y a B l E s

IRPEF 326,504 472,380 (145,876)

STAMP DUTY - 7,210 (7,210)

ta X paya B l E s 326,504 4 7 9 , 5 9 0 (153,086)

Payables for IRPEF mainly refer to the withholdings on employees’ income accrued as of December 2016, which the company shall PAY in January 2017, as the withholding agent. The

decrease in that value was due to the detaxation to 10% of the performance bonus for 2015 disbursed in 2016.

s o c i a l s E c u r i t y p a y a B l E s

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

s o c i a l s E c u r i t y p a y a B l E s

ACCOUNTS PAYABLE - INPS 490,626 516,617 (25,991)

ACCOUNTS PAYABLE - INPDAP 123,883 124,877 (994)

ACCOUNTS PAYABLE - INAIL 360 795 (435)

SUPPLEMENTARY PENSION FUNDS 145,496 147,434 (1,938)

s o c i a l s E c u r i t y paya B l E s 760,365 7 8 9 , 7 2 3 (29,358)

o t h E r a c c o u n t s p a y a B l E

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

o t h E r a c c o u n t s p a y a B l E

OTHER ACCOUNTS PAYABLE 946,103 871,731 74,372

ACCOUNTS PAYABLE - EMPLOYEES 1,229,744 1,273,500 (43,756)

- within 12 months 2,175,847 2,145,231 30,616

GUARANTEE DEPOSITS FROM THIRD PARTIES 287,689 726,285 (438,596)

- after 12 months 287,689 726,285 (438,596)

ot h E r ac c o u n t s paya B l E 2,463,536 2 , 8 7 1 , 5 1 6 (407,980)

Accounts payable - employees relate to bonuses accrued to be paid and to amounts accrued and not yet paid (unused holidays and leave, gross of the related charges for contributions).


B r E a k d o w n o F a c c o u n t s

p a y a B l E B y m a t u r i t yDeferred income derives from the method of charging connection revenues invoiced to users in relation to the useful life of the investment. These are determined as follows:

B o o k v a l u e ( 2 + 3 + 4 )

M a t . v a l u e - s u b s e q u e n t

y e a r

M a t . v a l u e - s u b s e q u e n t

4 y e a r sBeyond 5 years

B r E a k d o w n o F a c c o u n t s p a y a B l E B y m a t u r i t y

D) PAyABLeS

BONDS 111,936,320 2,102,373 - 109,833,947

ACCOUNTS PAYABLE - BANKS 710 710 - -

TRADE PAYABLES 33,104,366 33,104,366 - -

ACCOUNTS PAY. - PARENT COMPANIES 2,290,042 2,290,042 - -

ACCT. PAYABLE - COMPANIES SUBJECT TO CONTROL BY PARENT COMPANIES 10,989,219 10,989,219 29,467,389

TAX PAYABLES 326,504 326,504 - -

SOCIAL SECURITY PAYABLES 760,365 760,365 - -

OTHER ACCOUNTS PAYABLE 31,643,236 2,175,847 - -

tota l 191,050,762 51,749,426 29,467,389 109,833,947

Gross charges Charged to income statement

Discounted as at 31.12.2016

To be discounted as at 31.12.2016

Former ENEL connections 5,184,673 160,836 1,893,142 3,291,531

2005 Connections 2,884,778 80,192 1,040,355 1,844,423

2006 Connections 5,744,222 164,121 1,805,327 3,938,895

2007 Connections 4,952,250 141,493 1,414,929 3,537,321

2008 Connections 4,770,256 136,293 1,226,637 3,543,619

2009 Connections 5,879,947 167,998 1,343,988 4,535,959

2010 Connections 5,390,497 154,014 1,078,099 4,312,398

2011 Connections 20,591,712 591,657 8,460,336 12,131,376

- Connect. D.E. Spa contribution 12,759,501 367,879 7,117,672 5,641,830

2012 Connections 7,774,991 222,142 1,110,713 6,664,278

2013 Connections 4,609,357 131,696 526,784 4,082,573

2014 Connections 4,522,270 129,208 387,623 4,134,647

2015 Connections 4,226,812 120,766 241,532 3,985,280

2016 Connections 2,683,875 76,682 76,682 2,607,193

tota l 79,215,640 2,277,098 20,606,147 58,609,493

The company has no accounts payable positions outstanding with foreign entities.

a c c r u E d l i a B i l i t i E s

a n d d E F E r r E d i n c o m E

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

a c c r u E d l i a B i l i t i E s a n d d E F E r r E d i n c o m E

ACCRUED LIABILITIES 47.706 48.996 (1.290)

DEFERRED INCOME 58.609.493 58.232.797 376.696

DEFERRED INCOME - PLANT-RELATED GRANTS 546.573 518.500 28.073

ac c r u E d l i a B i l i t i E s a n d d E F E r r E d i n c o m E 59.203.772 5 8 . 8 0 0 . 2 9 3 403.479

Accrued liabilities derive from the fees on the surety issued by the Trento Autonomous Province to guarantee the bond loan (47,706 euro).

The remaining deferred income, amounting to 546,573 euro, is due to plant-related grants.


Income Statement

P r o D u C T i o N vA L u e

r E V E n u E F r o m s a l E s

a n d s E r V i c E s

c a p i t a l i s E d i m p r o V E m E n t s

2 0 1 6 2 0 1 5 D i f f e r e n c e

r E V E n u E F r o m s a l E s a n d s E r V i c E s

ELECTRICITY REVENUE 71,504,759 76,002,830 (4,498,071)

OTHER REVENUE 3,985,244 4,088,016 (102,772)

PUBLIC LIGHTING REVENUE 252,339 238,518 13,821

CONTINENT LIABILITIES - REVENUE FROM SALES AND SERVICES 2,397,356 1,607,470 789,886

r E V E n u E F r o m s a l E s a n d s E r V i c E s 78,139,698 8 1 , 9 3 6 , 8 3 4 (3,797,136)

During the year, the Company applied the new regulations pursuant to resolution 154/2015/R/eel of 3 April 2015 “determination of reference tariffs for the electricity distribution service”. Sales revenue included the estimated equalisation for 2016 for the unregulated markets and protection for a total of 6,965,000 euro. The positive estimate of 540,000 euro relating to grid efficiency (difference between the losses set out in agreements and the real losses) was also considered.Revenue included connection contributions invoiced to users for 2,782,086 euro (2,739,026 euro in the previous year).

2 0 1 6 2 0 1 5 D i f f e r e n c e

i n c r E a s E s i n F i X E d a s s E t s F o r i n - h o u s E p r o J E c t s

CAPITALISATIONS FROM INVENTORIES 2,581,932 3,374,638 (792,706)

CAPITALISATIONS OF PERSONNEL COSTS 3,518,019 3,708,406 (190,387)

i n c r E a s E s i n F i X E d a s s E t s F o r i n - h o u s E p r oJ E c t s 6,099,951 7 , 0 8 3 , 0 4 4 (983,093)

The company capitalises internal costs for materials and labour used in the construction of electricity distribution grids.

o t h E r r E V E n u E

2 0 1 6 2 0 1 5 D i f f e r e n c e

o t h E r r E V E n u E a n d i n c o m E

OTHER REVENUE 420,557 1,070,109 (649,552)

REAL ESTATE INCOME 126,588 124,845 1,743

GAINS FROM STANDARD OPERATIONS 48,932 61,228 (12,296)

REVENUE FROM EXTRAORDINARY MAINTENANCE 102,244 118,108 (15,864)

SERVICES TO THIRD PARTIES 1,215,817 1,440,319 (224,502)

DE GROUP REVENUE 2,297,402 2,135,181 162,221

ENERGY EFFICIENCY 8,564,521 3,741,899 4,822,622

CONTINENT LIABILITIES - OTHER REVENUE AND INCOME 1,496,177 51,930 1,444,247

other revenue 14,272,238 8,743,619 5,528,619

CONTRIBUTIONS FOR PLANT 1,011,526 64,161 947,365

grants 1,011,526 64,161 947,365

ot h E r r E V E n u E a n d i n c o m E ( n o s a l E / s E r V. ) 15,283,764 8 , 8 0 7 , 7 8 0 6,475,984

The largest amount among contingent assets is the difference in the 2015 estimate of energy efficiency certificates, equal to 1,402,693 euro. Note that revenues are not broken down by geographical area, as they were all achieved in Italy.


P R O D U c t I O n c O s t s

costs For purchasEs oF raw matErials

Other services include services for employees for 528,471 euro (544,029 euro in the previous year).Commercial services of 17,510,461 euro refer to electricity carrier services (17,522,769 euro in 2015) and of 3,815,001 euro to services provided by the parent company Dolomiti Energia Holding and other related companies (3,987,559 euro in 2015).

c o s t s F o r u s E o F t h i r d pa r t y a s s E t s

2 0 1 6 2 0 1 5 D i f f e r e n c e

E X t. p u r c h a s E s o F r a w m a t. , c o n s u m a B l E s a n d m E r c h a n d i s E

PURCHASES OF INVENTORIES (3,021,321) (4,038,068) 1,016,747

PURCHASES OF FUELS (372,792) (404,276) 31,484

PURCHASES OF VEHICLE SPARE PARTS (3,585) (8,030) 4,445

PURCHASE OF MATERIALS NOT IN INVENTORY (313,865) (367,568) 53,703

CONTINGENT LIABILITIES - EXT. PURCHASES OF RAW MAT., CONSUMABLES AND MERCHANDISE (6,444) 7,155 (13,599)

E X t. p u r c h a s E s o F r a w m at. , c o n s u m a B l E s a n d m E r c h a n d i s E (3.718.007) ( 4 . 8 1 0 . 7 8 7 ) 1.092.780

Purchases for inventories refer to electrical cables, meters and other consumables used in the construction and maintenance of distribution grids.

s E r V i c E c o s t s

2 0 1 6 2 0 1 5 D i f f e r e n c e

E X t E r n a l p u r c h a s E s o F s E r V i c E s

EXTERNAL MAINTENANCE SERVICES (1,747,293) (1,760,900) 13,607

INSURANCE, BANKING AND FINANCIAL SERVICES (889,803) (917,002) 27,199

OTHER SERVICES (788,703) (746,946) (41,757)

COMMERCIAL SERVICES (21,333,659) (21,522,931) 189,272

GENERAL SERVICES (703,813) (779,789) 75,976

FINANCIAL STATEMENT CERTIFICATION (36,000) (34,998) (1,002)

BOARD OF STATUTORY AUDITORS (36,400) (36,400) -

DIRECTORS (144,723) (143,213) (1,510)

CONTINENT LIAB. - EXTERNAL PURCHASES OF SERVICES (35,793) (59,621) 23,828

E X t E r n a l p u r c h a s E s o F s E r V i c E s (25,716,187) ( 2 6 , 0 0 1 , 8 0 0 ) 285,613

External maintenance services include third parties services on the distribution grid for 1,063,554 euro (1,111,540 euro in 2015).

2 0 1 6 2 0 1 5 D i f f e r e n c e

c o s t s F o r u s E o F t h i r d p a r t y a s s E t s

MISCELLANEOUS COSTS (168,125) (171,800) 3,675

RENTAL EXPENSE (1,169,286) (1,165,128) (4,158)

RENTAL FEES (493,031) (568,373) 75,342

EASEMENT (28,555) (19,790) (8,765)

SERVICE CONTRACT CHARGES (219,647) (219,034) (613)

CONTINENT LIAB. - COST FOR USE OF THIRD PARTY ASSETS (3,717) - (3,717)

c o s t s F o r u s E o F t h i r d pa r t y a s s E t s (2,082,361) ( 2 , 1 4 4 , 1 2 5 ) 65,482

The 2016 amount is in line with the previous year.

p E r s o n n E l c o s t s

2 0 1 6 2 0 1 5 D i f f e r e n c e

p E r s o n n E l c o s t s

a) Wages and salaries (11,919,580) (12,221,879) 302,299

b) Social security costs (3,724,939) (3,855,710) 130,771

c) Employee termination benefits (809,083) (813,274) 4,191

e) Other costs (851,406) (631,774) (219,632)

- of which contingent liabilities 160,842 85,990 74,852

p E r s o n n E l c o s t s (17,305,008) ( 1 7 , 5 2 2 , 6 3 7 ) 217,629


The workforce as at 31 December 2016 numbered 278 staff (283 as at 31 December 2015), broken down by category as follows:

o t h E r o p E r a t i n g c o s t s

3 1 / 1 2 / 2 0 1 6 3 1 / 1 2 / 2 0 1 5 D i f f e r e n c e

i n F o r m a t i o n o n E m p l o y E E s

Personnel

Executives 2 1 1

Managers 7 7 -

Employees 161 168 (7)

Workers 108 107 1

tota l p E r s o n n E l 278 2 8 3 (5)

The average number of workers was 282.07.

a m o r t i s a t i o n , d E p r E c i a t i o n

a n d w r i t E - d o w n s

2 0 1 6 2 0 1 5 D i f f e r e n c e

a m o r t i s a t i o n , d E p r E c i a t i o n a n d w r i t E - d o w n s

a) Amortisation of intangible assets (1,963,021) (1,943,964) (19,057)

b) Depreciation of property, plant and equipment (16,053,355) (15,758,047) (295,308)

d) Write-down of accounts rec. recognised to current assets (150,802) (159,247) 8,445

a m o r t i s . , d E p r E c . a n d w r i t E - d o w n s (18,167,178) (17,861,258) (305,920)

Amortisation and depreciation for 2016 were in line with that of the previous year.

c h a n g E s i n i n V E n t o r i E s

2 0 1 6 2 0 1 5 D i f f e r e n c e

c h a n g E i n i n V E n t o r i E s o F r a w m at E r i a l s , c o n s u m . a n d m E r c h .

changE in inVEntoriEs oF raw matErials, consumaBlEs and mErchandisE (56,673) 207,890 (264,563)

2 0 1 6 2 0 1 5 D i f f e r e n c e

o t h E r o p E r a t i n g c o s t s

MISCELLANEOUS COSTS (1,195,827) (1,459,143) 263,316

ENERGY EFFICIENCY CHARGES (10,145,334) (3,701,077) (6,444,257)

STANDARD CONTINGENT LIABILITIES (427,513) (352,042) (75,471)

ot h E r o p E r at i n g c o s t s (11,768,674) ( 5 , 5 1 2 , 2 6 2 ) (6,256,412)

Other operating costs include the purchase of energy efficiency certificates of 10,145,334 euro, sundry taxes and duties of 664,108 euro, charges for the specific tariff contribution of 248,294 euro and capital losses from disposals of 96,528 euro. Contingent liabilities include 440,893 euro of the difference in the 2015 estimate of energy efficiency certificates.

FInAncIAl IncOMe AnD chARGes

o t h E r F i n a n c i a l i n c o m E

2 0 1 6 2 0 1 5 D i f f e r e n c e

o t h E r F i n a n c i a l i n c o m E

d) FINANCIAL INCOME DIFFERENT FROM ABOVE 114,096 154,288 (40,192)

ot h E r F i n a n c i a l i n c o m E 114,096 154,288 (40,192)

Financial income included 50,000 euro in interest income accrued on cash pooling, down compared to 2015 (87,524 euro). Default interest invoiced to users was in line with the previous year.


i n t E r E s t a n d o t h E r c h a r g E s

2 0 1 6 2 0 1 5 D i f f e r e n c e

i n t E r E s t a n d o t h E r F i n a n c i a l c h a r g E s

d) OtheRs -

interest expense on bond loan (5,076,677) (5,066,807) (9,870)

management interest (27) (27)

continent liabilities - interest and other financial charges (20,538) (20,538)

i n t E r E s t a n d ot h E r F i n a n c i a l c h a r g E s (5,097,242) (5,066,807) (30,435)

Interest expense/financial charges due to others mainly relate to the bullet bond loan of 110,000,000 euro maturing in 2029, more or less unchanged on 2015.

2 0 1 6 2 0 1 5 D i f f e r e n c e

i n c o m E t a X E s F o r t h E y E a r

Current taxes (5,671,360) (7,043,836) 1,372,476

Taxes from previous years 146,637 106,025 40,612

Deferred taxes 174,428 568,777 (394,349)

Prepaid taxes 320,266 (818,663) 1,138,929

i n c o m E ta X E s F o r t h E y E a r (5,030,029) (7,187,697) 2,157,668

Current taxes are assessed on the basis of a realistic forecast of the taxable base for the year.Deferred taxes are calculated on the timing differences between the economic result before taxation and the taxable income. Deferred tax liabilities are recognised in the income statement under a specific sub-item of item 22)

“Income taxes for the year”, with a matching balance under item B.2 “Provisions for risks and charges: taxation”. Prepaid taxes are recognised in the income statement with a negative sign in the same item 22) “Income taxes for the year”, with a matching balance under item C.II. 4) ter “Prepaid taxes”.

i n c o m E t a X E s F o r t h E y E a r

Direct income taxes for financial year 2016 were recognised for a total of 5,030,029 euro.These can be broken down as follows:


A m o u n t I R A P % c h a r g e

Description

Net production value 38,165,135

theoretical tax charge 1,137,321 2.98%

PERMANENT INCREASES

Established personnel costs 124,323

Non-deductible amortisation/depreciation 1,963,113

Personnel costs 44,743

Standard contingent liabilities 107,571

Local property tax 166,024

Financial charges 105,456

Other increases 930

total Permanent increases 2,512,160

PERMANENT DECREASES

Deduction of personnel costs 17,202,989

total Permanent decreases 17,202,989

TEMPORARY DIFFERENCES - INCREASES - prepaid taxes

Production bonuses 932,642

total temporary differences - increases 932,642

TEMPORARY DIFFERENCES - DECREASES - prepaid taxes

Assets classified in the “third rail” for IRAP 398,398

Production bonuses 986,245

total temporary differences - decreases 1,384,643

TEMPORARY DIFFERENCES - INCREASES - deferred taxes

grants - connections 32,019


ta X B a s E 23,054,414 687,022 1.80%

s t a t E m E n t o F r E c o n c i l i a t i o n

B E t w E E n B a l a n c E s h E E t a n d

t h E o r E t i c a l t a X c h a r g E

(*) Profit before tax includes taxes from previous ye-ars, which are classified in the income statement as an adjustment to current taxes for the year.

A m o u n t I R E S % c h a r g e

Description

Profit before tax (*) 15,872,817

theoretical tax charge 4,365,025 27.50%

PERMANENT INCREASES

Motor vehicle costs 98,444

Phone-related costs 26,408

Non-deductible amortisation/depreciation 1,963,113


Contingent liabilities 107,571

Other 24,965

total Permanent increases 2,386,525

PERMANENT DECREASES

Supplementary social security 30,044

Non-deductible amortisation/depreciation 4,545


Aid for Economic Growth Deduction 1,846,104

Other 150,717

total Permanent decreases 2,068,896

TEMPORARY DIFFERENCES - INCREASES - prepaid taxes

Financial statement certification 36,000

Directors’ fees 10,400

Productivity and one-off bonus 932,642

Amortisation and Depreciation 1,813,584

Credit losses 726

total temporary differences - increases 2,793,352

TEMPORARY DIFFERENCES - DECREASES - prepaid taxes

Financial statement certification 34,998

Directors’ fees 5,200

Productivity and one-off bonus 986,245

Amortisation 384,380

Grants - plant and connection 16,731

Misalignment of assets in the “EC” (acct. elements) section - prepaid taxes 34,729

total temporary differences - decreases 1,462,284

TEMPORARY DIFFERENCES - INCREASES - deferred taxes

Amortisation and Depreciation 783,761


Misalignment of capital losses on assets in the “EC” (acct. elements) section 824

Assets disposed of for align. with Italian Accounting Standards (OIC) 4,391


TEMPORARY DIFFERENCES - DECREASES - deferred taxes


total temporary differences - decreases 230,601

ta X B a s E 18,124,865 4,984,338 31.40%

r E c o g n i t i o n o F d E F E r r E d

a n d p r E p a i d t a X E s

a n d t h E r E s u l t i n g E F F E c t s


No amounts were credited or charged to equity

2015 Prepaid taxes 2016 Reabsorptions Tax rate alignment 2016 Increases Taxes for the year 2016 Prepaid taxes

DESCRIPTION Taxable amount

Tax rate Tax (a)

Taxable amount Tax rate Tax (b)

Taxable amount

Tax rate Tax (c)

Taxable amount

Tax rate Tax (d) e = b+c+d

Taxable amount

Tax rate Tax (f=a+e)

IRes

Provisions for risks 6,804,274 24.00% 1,633,025 27.50% 24.00% 0 6,804,274 24.00% 1,633,026

One-off incentive bonus 986,245 27.50% 271,217 (986,245) 27.50% (271,217) 932,642 24.00% 223,834 (47,383) 932,642 24.00% 223,834

Allo. Write-downs of receivables - excess 3,488 24.00% 837 27.50% 726 24.00% 174 174 4,214 24.00% 1,011

Amortisation and Depreciation 13,074,324 24.00% 3,137,838 (34,729) 24.00% (8,335) 1,813,584 24.00% 435,260 426,925 14,853,179 24.00% 3,564,763

Amortisation/depreciation of revalued assets

7,560,393 24.00% 1,814,494 0 24.00% 0 7,560,393 24.00% 1,814,494

Amortisation/depreciation of reabs. revalued assets 2016

384,380 27.50% 105,705 (384,380) 27.50% (105,705) (105,705) 0 27.50% 0

Grants - connections 75,853 24.00% 18,205 24.00% 0 75,853 24.00% 18,205

Reabsorbed grants - connections 2016 19,737 27.50% 5,428 (16,731) 27.50% (4,601) (3,006) 3.50% (105) (4,706) 3,006 24.00% 721

Certification and BoD 40,198 27.50% 11,054 (40,198) 27.50% (11,054) 46,400 24.00% 11,136 82 46,400 24.00% 11,136

tOtAl PRePAID tAXes - IRes 6,997,803 (1,462,283) (400,912) (3,006) (105) 2,793,352 670,404 269,387 30,279,961 7,267,190

IRAP

Provisions for risks 6,319,738 2.60% 164,313 6,319,738 0.38% 24,015 2.98% 24,015 6,319,738 2.98% 188,328

One-off incentive bonus 986,245 2.60% 25,642 (986,245) 2.60% (25,642) 0 0.38% 932,642 2.98% 27,793 2,151 932,642 2.98% 27,793

Amortisation and Depreciation 1,479,530 2.60% 38,467 (65) 2.60% (2) 1,479,465 0.38% 5,622 2.98% 5,620 1,479,465 2.98% 44,088

Amortisation/depreciation of revalued assets

7,839,458 2.60% 203,826 (398,332) 2.60% (10,357) 7,441,126 0.38% 28,276 2.98% 17,919 7,441,126 2.98% 221,746

Grants - connections 308,975 2.60% 8,033 308,975 0.38% 1,174 2.98% 1,174 308,975 2.98% 9,207

tOtAl PRePAID tAXes - IRAP 440,281 (1,384,642) (36,001) 15,549,304 59,087 932,642 27,793 50,879 16,481,946 491,162

tota l p r E pa i d ta X E s 7,438,084 (2,846,925) (436,913) 15,546,298 58,982 3,725,994 698,197 320,266 46,761,907 7,758,352

s t a t E m E n t p u r s u a n t t o p o i n t 1 4 )

o F a r t. 2 4 2 7 o F t h E i t a l i a n c i V i l

c o d E : d E s c r i p t i o n

o F t E m p o r a r y d i F F E r E n c E s

r E s u l t i n g i n r E c o g n i t i o n

o F t a X a s s E t s a n d l i a B i l i t i E s


2 0 1 5 D e f e r r e d t a x e s 2 0 1 6 R e a b s o r p t i o n s Ta x r a t e a l i g n m e n t 2 0 1 6 I n c r e a s e s Ta x e s f o r t h e y e a r 2 0 1 6 D e f e r r e d t a x e s

DESCRIPTION Taxable amount

Tax rate Tax (a)

Taxable amount

Tax rate Tax (b)

Taxable amount

Tax rate Tax (c)

Taxable amount

Tax rate Tax (d) e = b+c+d

Taxable amount

Tax rate Tax (f=a+e)

IRes

IRES amortisation/ depreciation surplus (Sect. EC)

10,062,825 24.00% 2,415,078 0 10,062,825 24.00% 2,415,078

Reabs. amortisation/ depreciation sur-plus (Sect. EC) 2016

784,733 27.50% 215,802 (784,585) 27.50% (215,761) (148) 3.50% (5) (215,766) 148 24.00% 35

Discounting of plant-related grants 4,470 24.00% 1,073 27.50% 2,409 24.00% 578 578 6,879 24.00% 1,651

Discounting of connection-related grants

1,699,221 24.00% 407,813 228,192 24.00% 54,766 54,766 1,927,413 24.00% 462,579

Reabs. discounting of connection-rela-ted grants 2016

44,976 27.50% 12,368 (44,976) 27.50% (12,368) (12,368) -0 24.00% 0

Bond loan expense 33,282 27.50% 9,152 (4,391) 27.50% (1,208) (1,208) 28,891 27.50% 7,945

Bond loan expense 3,100 24.00% 744 0 3,100 24.00% 744

tOtAl DeFeRReD tAXes - IRes 12,632,607 3,062,030 (833,952) (229,337) (148) (5) 230,601 55,344 (173,998) 12,029,256 2,888,032

IRAP

IRAP discounting of connection-related grants

138,649 2.60% 3,605 (32,109) 2.60% (835) 106,540 0.38% 405 (430) 106,540 2.98% 3,175

tOtAl DeFeRReD tAXes - IRAP 138,649 3,605 (32,109) (835) 106,540 405 0 0 (430) 3,175

tota l d E F E r r E d ta X E s 12,771,256 3,065,635 (866,061) (230,172) 106,392 400 230,601 55,344 (174,428) 12,029,256 2,891,207

s t a t E m E n t p u r s u a n t t o p o i n t 1 4 )

o F a r t. 2 4 2 7 o F t h E i t a l i a n c i V i l

c o d E : d E s c r i p t i o n

o F t E m p o r a r y d i F F E r E n c E s

r E s u l t i n g i n r E c o g n i t i o n

o F t a X a s s E t s a n d l i a B i l i t i E s

No amounts were credited or charged to equity


P r o F i T F o r T h e y e A r

The profit for 2016 was 10,696,150 euro after tax.This document, comprising the Balance Sheet, Income Statement, Cash Flow Statement and Notes to the Financial Statements provide a true and fair view of the equity and financial position and of the economic result for the period, and match compulsory accounting records.

Ot h e R I n F O R M At I O n

n a m E a n d r E g i s t E r E d o F F i c E o F

t h E c o m pa n y t h at d r a F t s t h E

c o n s o l i d at E d F i n a n c i a l s tat E m E n t s

With reference to the information required by Art. 2427, point 22-quinquies and sexies of the Italian Civil Code, it should be noted that the company Dolomiti Energia Holding SpA, with registered office in Via Manzoni 24 Rovereto (TN), drafts the consolidated financial statements of the Group to which the Company belongs as subsidiary and that said consolidated financial statements are available from the company’s registered office, on the company website (www.gruppodolomitienergia.it) and through the usual company channels. In addition, note that the company Findolomiti Energia S.r.l., with registered office in Via Vannetti 18/A Trento, drafts the consolidated financial statements of the larger Group to which the Company belongs and that said consolidated financial statements are available through the usual company channels.

r E l a t E d p a r t y t r a n s a c t i o n s

As regards the information required by Art. 2427, of the Italian Civil Code, it should be noted that no transactions were entered into with related parties that were not performed on an arm’s length basis. Reference should be made to the Report on operations for details of the relations with other companies in the same Group.

o F F - B a l a n c E s h E E t c o m m i t m E n t s ,

g u a r a n t E E s g i V E n

a n d c o n t i n g E n t l i a B i l i t i E s

Pursuant to and in accordance with Art. 2427, paragraph 9 of the Italian Civil Code, the following off-balance sheet commitments, guarantees given and contingent liabilities are indicated:Sureties and collateral securitiesThe Company has no sureties or collateral securities in place that were not recognised in the financial statements. SET Distribuzione benefitted from the sureties and guarantees issued by third parties and the parent company to third parties in the interest of the Company for a total of 118,889,961 thousand euro.CommitmentsThe Company did not assume any commitments that were not recognised in the financial statements.Contingent liabilitiesThe Company did not assume any contingent liabilities that were not recognised in the financial statements.

o F F - B a l a n c E s h E E t a g r E E m E n t s

There are no off-balance sheet agreements, which may significantly impact the Company’s equity and financial position and economic result, pursuant to Art. 2427, point 22-ter of the Italian Civil Code.

r E V E n u E o r c o s t i t E m s o F

E X c E p t i o n a l s i z E o r i n c i d E n c E

Pursuant to Art. 2427, point 13 of the Italian Civil Code, it should be noted that no revenue or cost items of exceptional size or incidence were registered.

s I G n I F I c A n t e V e n t O c c U R R e D A F t e R Y e A R - e n D

g r i d c o d E

Through Resolution 268/2015, the Authority issued the Electricity Distribution Grid Code (CADE), to govern the electricity transport service, with specific reference to provisions regarding contractual guarantees and invoicing of the service. The Code regulations regarding contractual guarantees is set out in Annex B to Resolution 268/2015, which specifies, in paragraph 2.8, that the distributor company defines the amount of the guarantee due from the user (seller company). The standard Code includes in the calculation of the guarantees that the seller must provide also the general system charges, i.e. the considerations for tax-related services for the purpose of funding activities of general interest. To that end, in particular, the guarantees are calculated based on the amount relating to each point of delivery invoiced in the previous three months by the distributor company through the A tariff components, pursuant to articles 40 and 41 of the TIT (Integrated Text on Provisions of the Italian Regulatory Authority for Electricity and Gas for the Provision of Electricity Transmission and Distribution Services).In line with the principles underlying said regulation, even Resolution 612/2013 had envisaged, as a transitional, urgent measure pending the definition of the Standard Code, the right for distributor companies to request suitable guarantees from users of the transport service to cover all the obligations deriving from entering into the contract, thus, including the obligations to pay the general system charges invoiced to the users.With sentence 2182/2016, the Council of State accepted the appeal submitted by a transport user, cancelling the provisions on guarantees relating to the general system charges introduced by said Resolution 612/2013. In particular, and in summary, reformulating the first instance sentence that deemed such measure legitimate, the Council of State:

a) affirming that, based on the law, the general system charges are borne not by the seller companies (which are the users of the transport service), but by the end customers, as can be seen in art. 39, paragraph 3 of Law Decree 83/12;b) thus, the argument that the Authority does not have the power to supplement internal gaps in the transport agreement using a system of guarantees which requires that the transport user bear the risk of non-collection of the general system charges from end customers. Such power of supplementation, according to the court of appeals, is not covered by primary law;c) specifying that, however, lacking a legislative provision regarding the party that incurs the consequences of the breach by the end customers, regulation of this aspect is left to the contractual autonomy of the parties.With the recent sentences 237/2017, 238/2017, 243/2017 and 244/2017, the Lombardy Regional Administrative Court (TAR), in line with the above sentence of the Council of State, accepted the appeals submitted by several transport users relating to the various alleged aspects of illegitimacy of the Standard Code, with specific regard to: (i) the right attributed to the distributor to request guarantees from transport service users for the payment of the general system charges invoiced to the end customers; (ii) the distributor’s right to terminate the agreement in the event of non-payment of said general charges; and (iii) the seller’s obligations with regard to invoicing for and collecting the general system charges.The sentences in question substantially affirm the principle according to which the seller cannot be assigned the role of collector and guarantor for charges not under its remit, which have not effectively been paid. The Lombardy TAR affirmed that traders are required to pay system charges to distributors “limited to those that the traders have actually collected from end customers”, as traders are not held liable in the event of late payment by end customers.This approach in case law, however, leaves some uncertainty in the system, given that, among other things, sellers would not be interested in


collecting the charges, while, given the current regulations, it is substantially impossible for distributors to do so.For the purpose of resolving the problem thus created, with Resolution no. 109/2017/R/EEL of 3 March 2017, the AEEGSI launched the procedure to implement the cited Lombardy TAR sentence, also to identify, within the scope of that procedure, mechanisms to provide adequate compensation to transport users and distribution companies in the event of non-collection of tariff components to cover the general system charges. The term set for closure of the implementation procedure has been set at 31 December 2017.

g E o g r a p h i c a l r a t i o n a l i s a t i o n

At the start of 2017 two operations were finalised in line with the geographical rationalisation of the Electricity Distribution Plan for the Province of Trento. Specifically:• On 1 January 2017, the business lease

agreement entered into by SET and ARE (electricity distribution company in the ACSM Primiero Group) took effect. Based on these agreement, SET Distribuzione shall lease from ARE the business comprising the electrical infrastructures owned by ARE in the Municipality of Predazzo. Likewise, ARE leases from SET the infrastructures that it owns in the Vanoi area (in the Municipalities of Canal San Bovo, Imer, Mezzano, Sagron - Mis and in the districts Ronco Cainari and Piancavalli in the Municipality of Castello Tesino and in the Refavaie district in the Municipality of Pieve Tesino). That solution simplifies the operational management in each area, which was previously managed by the current lesees based on a service agreement.

• Effective on 1 February 2017, the sale by SET to Consorzio Elettrico di Pozza di Fassa of the electrical infrastructures and associated commercial relationships relating to the districts of Pera, Moncion, Gardeccia, Ciampedie and Soraga was finalised.

c h a n g E s a t t h E i n t E g r a t E d

r E m o t E c o n t r o l c E n t r E

Following preparations that lasted all of 2016 and involved several structures of SET in synergy with Hydro Dolomiti Energia (HDE) and the Parent Company, on 1 January 2017 the Workstation for Remote Running of HDE’s services was set up at SET’s Integrated Remote Control Centre. Previously, HDE availed of that service through a contract with Enel Produzione which, in turn, carried out the related activities at the Santa Massenza Plant.This change made it possible to centralise at a single point all activities of supervision, control and monitoring of plants, grids and networks of the Dolomiti Energia Group, leveraging the structure and the services that SET’s technical staff provide under service agreements with other Group companies.

F E E s o F d i r E c t o r s

a n d s t a t u t o r y a u d i t o r s

Information concerning the fees paid to directors and statutory auditors is provided hereunder, pursuant to Art. 2427, point 16 of the Italian Civil Code.

title Financial year 2016

Financial year 2015

Directors 127,000 126,000

Board of Statutory Auditors 35,000 35,000

It should be noted that the Company did not grant any advances or loans to directors and statutory auditors. Furthermore, pursuant to Art. 2427, point 16-bis of the Italian Civil Code, reported below are the total fees due to the independent auditors for the audit of the annual accounts and the total amount of fees for other tax advisory services and for other non-audit services provided to the Company:

title Financial year 2016

Financial year 2015

Statutory Audit 26,000 26,000

Other verification services 5,000 5,000

Tax advisory services - -

Other non-audit services - -

m a n a g E m E n t

a n d c o o r d i n a t i o n a c t i V i t i E s

Pursuant to Art. 2497-bis, paragraph 4 of the Italian Civil Code, the key data of the latest set of financial statements of the parent company Dolomiti Energia Holding S.p.A., which exercises management and coordination activities over SET Distribuzione S.p.A., are reported below.


B a l a n c E s h E E t: s u m m a r y

Assets lIAbIlItIes

IteMs 2015 IteMs 2015

A - SUBSCRIBED CAPITAL UNPAID - A - SHAREHOLDERS' EQUITY 624,625,099

B - FIXED ASSETS 770,399,402 B - PROVIS. FOR RISKS AND CHARGES 2,641,481

I - Intangible assets 13,352,075

II - Property, plant and equipment 46,992,756

III - Financial fixed assets 710,054,571

C - CURRENT ASSETS 214,943,254 C - EMPLOYEE TERMIN. BENEFITS 2,324,399

I - Inventories 60,145

II - Accounts receivable 124,945,256

III - Financial assets 74,709,183

IV - Cash and cash equivalents 15,228,670

D - ACCRUALS AND DEFERRALS 1,425,137 D - ACCOUNTS PAYABLE 355,517,297

E - ACCRUALS AND DEFERRALS 1,659,517

tota l a s s E t s 986,767,793 total liaBilitiEs 986,767,793

r E c l a s s i F i E d i n c o m E s tat E m E n t: s u m m a r y

DescRIPtIOn 2015

A - PRODUCTION VALUE 44,400,666

B - PRODUCTION COSTS (43,510,678)

- DIFFERENCE 889,988

C - FINANCIAL INCOME AND CHARGES 62,574,882

D - VALUE ADJUSTMENTS OF INVESTMENTS

E - EXTRAORDINARY INCOME AND CHARGES 1,539,892

- PROFIT BEFORE TAX 35,246,806

22 - INCOME TAXES FOR THE YEAR (229,708)

2 3 - p r o F i t ( lo s s ) F o r t h E y E a r 35,017,098

The key data of the parent company Dolomiti Energia Holding SpA shown in the summary table required by Art. 2497-bis of the Italian Civil Code were extracted from the relevant financial statements for the year ended as at 31 December 2015. For an adequate and complete understanding of Dolomiti Energia Holding SpA’s equity and financial position as at 31 December 2015, as well as the economic result achieved by the Company in the year ended as at said date, please read the financial statements which, accompanied by the independent auditors’ report, are available in accordance with the forms and methods set forth by law.

p r o p o s E d a l l o c a t i o n o F p r o F i t s

o r l o s s c o V E r a g E

With reference to the information required by Art. 2427, point 22-septies of the Italian Civil Code, we propose to the Shareholders’ Meeting that the profit for the year of 10,696,150 euro be allocated as follows:• 534,808 euro, i.e. 5%, to the legal reserve;• 6,734,507 euro as ordinary dividend to

shareholders, corresponding to 0.06 euro per share, and also proposing that the dividend be paid from 1 June 2017;

• 3,426,835 euro to the extraordinary reserve.


on behalf of the BOARD OF DIRECTORS



V o l u n t a r y E X E m p t i o n s t o t h E F u l l

a d o p t i o n o F t h E n E w a c c o u n t i n g

s t a n d a r d s

1. Useful life of goodwillItalian Legislative Decree 139/15 requires goodwill to be amortised according to its useful life. If, in exceptional cases, this cannot be estimated reliably, goodwill can be amortised for a period not exceeding ten years. The regulation provides the option of not re-determining the goodwill amortisation period already in place as at 31 December 2015. Subsequently, no provision was made to modify the plan of amortisation of the goodwill that arose prior to 1 January 2016.

r E c o n c i l i a t i o n o F s h a r E h o l d E r s ’

E q u i t y a n d t h E E X p l a n a t o r y n o t E s

The reconciliations between Company Shareholders’ Equity as at 1 January 2015 and 31 December 2015, and the net result for the year ended 31 December 2015, drawn up in compliance with the accounting standards applied in the previous year, are shown below.

(values in Euro)Before recording the

effects of the Accounting Reform

Assessment effect of financial derivatives Tax effects

After recording the effects of the

Accounting Reform

s h a r E h o l d E r s ’ E q u i t y 0 1 / 0 1 / 2 0 1 5 151,728,435 33,282 (9,152) 151,752,565





Accounting Reform

2 0 1 5 i n c o m E s tat E m E n t 12,080,108 3,099 (744) 12,082,463





Accounting Reform

s h a r E h o l d E r s ’ E q u i t y 3 1 / 1 2 / 2 0 1 5 157,074,040 36,381 (9,896) 157,100,525

The application of the criterion of amortised cost to the bond loan issued by the Company resulted in the reversal of capitalised costs under intangible assets in relation to fees incurred on issue and annual amortisation. This cost was broken down over the duration of the loan and posted to interest expense according to the effective interest rate method.

ANNEX 1 – IMPACTS OF THE ACCOUNTING REFORM AND CHANGE OF STANDARD

r E c o n c i l i a t i o n o F t h E B a l a n c E

s h E E t a n d t h E E X p l a n a t o r y n o t E s

The reconciliation statement between the Company’s balance sheet as at 31 December 2015, as per the financial statements approved by the shareholders’ meeting on 13 April 2016 and, solely for comparative purposes, the Company’s balance sheet drafted as if the new accounting standards had always been applied, is shown below:


b A l A n c e s h e e t - A s s e t s (amounts in Euro) 3 1 / 1 2 / 2 0 1 5 p o s t - R e f o r m

3 1 / 1 2 / 2 0 1 5 p r e - R e f o r m C h a n g e

a ) s u B s c r i B E d c a p i ta l u n pa i d

B ) F i X E d a s s E t s


2) Development costs 5,961 5,961 -

5) Goodwill 28,513,850 28,513,850 -

7) Other intangible assets 239,669 384,044 (144,375)

total 28,759,480 28,903,855 (144,375)


1) Land and buildings 22,278,418 22,278,418 -

2) Plants and equipment 224,782,271 224,782,271 -

3) Industrial and commercial fittings 19,252,449 19,252,449 -

4) Other assets 766,236 766,236 -

5) Work in progress and advance payments 5,000 5,000 -

total 267,084,374 267,084,374 -

III) FINANCIAL FIXED ASSETS

2) Accounts receivable which are fixed assets -

d-bis) from others 38,774 38,774 -

- after 12 months 38,774 38,774 -

total 38,774 38,774 -

t o t a l F i X E d a s s E t s 295,882,628 296,027,003 (144,375)

c ) c u r r E n t a s s E t s

I) INVENTORIES

1) Raw materials and consumables 2,840,337 2,840,337 -

total 2,840,337 2,840,337 -

II) ACCOUNTS RECEIVABLE OF THE CURRENT ASSETS

1) Accounts receivable - customers 9,253,110 9,253,110 -

4) Accounts receivable - parent companies 5,140,923 49,304,843 (44,163,920)

5) Accounts receivable - companies subject to control by parent companies 22,103,505 - 22,103,505

5 bis) Tax credits 1,139,044 1,139,044 -

5 ter) Prepaid taxes 7,438,085 7,438,085 -

5 quater) Accounts receivable - others 16,045,082 38,148,587 (22,103,505)

total 61,119,749 105,283,669 (44,163,920)

III) SHORT-TERM INVESTMENTS

7) Financial assets for centralised treasury management

c) parent companies 44,163,920 - 44,163,920

total 44,163,920 - 44,163,920

IV) CASH AND CASH EQUIVALENTS

1) Banks and postal current accounts 20,522 20,522 -

2) Cheques - - -

3) Cash on hand 1,479 1,479 -

total 22,001 22,001 -

t o t a l c u r r E n t a s s E t s 108,146,007 108,146,007 -

d ) a c c r u a l s a n d d E F E r r a l s

Prepayments 69,221 69,221 -

tota l p r E pay m E n t s a n d acc r u E d i n co m E 69,221 69,221 -

t o t a l a s s E t s 404,097,856 404,242,231 ( 1 4 4 , 3 7 5 )

b A l A n c e s h e e t - l I A b I l I t I e s (amounts in Euro) 3 1 / 1 2 / 2 0 1 5 p o s t - R e f o r m

3 1 / 1 2 / 2 0 1 5 p r e - R e f o r m C h a n g e

a ) s h a r E h o l d E r s ’ E q u i t y

I) Share capital 112,241,777 112,241,777 -

II) Share premium reserve 2,517,012 2,517,012 -

IV) Legal reserve 2,428,086 2,428,086 -

VI) Other reserves -

- Extraordinary reserve 27,807,057 27,807,057 -

VIII) Retained earnings or losses 24,130 - 24,130

IX) Profit or loss for the year 12,082,463 12,080,108 2,355

t o t a l s h a r E h o l d E r s ' E q u i t y 157,100,525 157,074,040 26,485

B ) p r o V i s i o n F o r r i s k s a n d c h a r g E s

2) Taxes, including deferred 3,065,635 3,055,738 9,897

t o t a l 3,065,635 3,055,738 9,897

c ) E m p l o y E E t E r m i n a t i o n B E n E F i t s

d ) a c c o u n t s p a y a B l E

1) Bonds 111,925,461 110,000,000 1,925,461

- within 12 months 2,106,218 - 2,106,218

- after 12 months 109,819,243 110,000,000 (180,757)

4) Accounts payable - banks 699 699 -

7) Trade payables 41,735,103 41,735,103 -

11) Accounts payable - parent companies 1,825,168 1,825,168 -

11 bis) Accounts payable - companies subject to control by parent companies 21,642,126 - 21,642,126

- within 12 months 227,426 - 227,426

- after 12 months 21,414,700 - 21,414,700

12) Tax payables 479,590 479,590 -

13) Social security payables 789,723 789,723 -

14) Other accounts payable 2,871,516 24,513,642 (21,642,126)

- within 12 months 2,145,231 2,372,657 (227,426)

- after 12 months 726,285 22,140,985 (21,414,700)

t o t a l 181,269,386 179,343,925 1,925,461

E) accruEd liaBilitiEs and dEFErrEd incomE

Accrued liabilities 48,996 2,155,214 (2,106,218)

Deferred income 58,751,297 58,751,297 -

t o t a l 58,800,293 60,906,511 (2,106,218)

t o t a l s h a r E h o l d E r s ’ E q u i t y a n d l i a B i l i t i E s 404,097,856 404,242,231 (144,375)


B a l a n c E s r E l a t i n g t o c o m p a n i E s

s u B J E c t t o c o m m o n c o n t r o l B y t h E

p a r E n t c o m p a n y

With reference to the companies subject to control by parent companies, Italian Legislative Decree 139/2015 has set out specific rows in relation to both balance sheet assets and liabilities, as well as to the income statement. For said reason, it was necessary to reclassify certain positions in said new rows of the balance sheet of the financial statements as at 31 December 2015.

n E w n u m B E r i n g o F c E r t a i n i t E m s

Due to the cancellation and introduction of balance sheet and income statement rows, the numbering of certain items was modified. As a result of the inclusion of new items and, specifically, Asset item C III 7), it was necessary to reclassify the positive cash pooling balances.

c r i t E r i o n o F a m o r t i s E d c o s t

The Company opted to adopt the criterion of amortised cost, and this resulted in value adjustments to intangible assets, accounts payable - bonds, provision for deferred taxes and shareholders’ equity.

r E co n c i l i at i o n o F t h E i n co m E

stat E m E n t a n d t h E E X p l a n ato ry n ot E s

The reconciliation statement between the Company’s income statement as at 31 December 2015, as per the financial statements approved by the shareholders’ meeting on 13 April 2016 and, solely for comparative purposes, the Company’s income statement drafted as if the new accounting standards had always been applied, is shown below:

I n c O M e s t A t e M e n t (amounts in Euro) Financial year 2015 post-Reform

Financial year 2015 pre-Reform Change

a ) p r o d u c t i o n V a l u E

1) Revenue from sales and services 81,936,834 80,329,364 1,607,470

4) Increases in fixed assets for in-house projects 7,083,044 7,083,044 -

5) Other revenue and income 8,807,780 10,692,821 (1,885,041)

a) grants 64,161 64,161 -

b) other revenue 8,743,619 10,628,660 (1,885,041)

t o t a l p r o d u c t i o n V a l u E 97,827,658 98,105,229 (277,571)

B ) p r o d u c t i o n c o s t s

6) Costs for raw materials, consumables and merchandise 4,810,787 4,817,942 (7,155)

7) For services 26,001,800 25,942,179 59,621

8) Costs for use of third party assets 2,144,125 2,144,125 -

9) Personnel costs 17,522,637 17,436,647 85,990

a) wages and salaries 12,221,879 12,221,879 -

b) social security costs 3,855,710 3,855,710 -

c) employee termination benefits 813,274 813,274 -

e) other costs 631,774 545,784 85,990

10) Amortisation, depreciation and write-downs 17,861,258 17,871,570 (10,312)

a) amortisation of intangible assets 1,943,964 1,954,276 (10,312)

b) depreciation of property, plant and equipment 15,758,047 15,758,047 -

d) write-down of accounts receivable recognised to current assets and cash and cash equivalents 159,247 159,247 -

11) Change in inventories of raw materials, consumables and merchandise (207,890) (207,890) -

14) Other operating costs 5,512,262 5,963,077 (450,815)

t o t a l p r o d u c t i o n c o s t s 73,644,979 73,967,650 (322,671)

d i F F E r E n c E B E t w E E n p r o d u c t i o n V a l u E a n d c o s t s 24,182,679 24,137,579 45,100

c ) F i n a n c i a l i n c o m E a n d c h a r g E s

16) other financial income 154,288 154,288 -

d) financial income different from above 154,288 154,288 -

parent companies 87,524 87,524 -

other 66,764 66,764 -

17) Interest and other financial charges (5,066,807) (5,059,594) (7,213)

d) from others (5,066,807) (5,059,594) (7,213)

t o t a l F i n a n c i a l i n c o m E a n d c h a r g E s (4,912,519) (4,905,306) (7,213)

d ) V a l u E a d J u s t m E n t s o F i n V E s t m E n t s a n d F i n a n c i a l l i a B i l i t i E s

18) Revaluations - - -

19) Write-downs - - -

t o t a l V a l u E a d J u s t m E n t s o F i n V E s t m E n t s a n d F i n a n c i a l l i a B i l i t i E s

- - -

E ) E X t r a o r d i n a r y i n c o m E a n d c h a r g E s

20) Extraordinary income - 143,114 (143,114)

b) contingent assets and non-existent liabilities - 143,114 (143,114)

21) extraordinary charges - (2,301) 2,301

a) taxes relating to prior periods - (2,301) 2,301

t o t a l E X t r a o r d i n a r y i t E m s - 140,813 (140,813)

p r o F i t B E F o r E t a X 19,270,160 19,373,086 (102,926)

20) Income taxes for the year (7,187,697) (7,292,978) 105,281

- current taxes (6,937,811) (7,043,836) 106,025

- deferred taxes 568,777 569,521 (744)

- prepaid taxes (818,663) (818,663) -

p r o F i t ( l o s s ) F o r t h E y E a r 12,082,463 12,080,108 2,355


E l i m i n a t i o n o F c a t E g o r y E o F t h E

i n c o m E s t a t E m E n t

The accounting reform eliminated category E of the Income statement relating to extraordinary components. Subsequently, the items included in these rows in the 2015 income statement were reclassified by nature to the most suitable rows.

c r i t E r i o n o F a m o r t i s E d c o s t

The Company opted to adopt the criterion of amortised cost, and this resulted in adjustments to the amortisation intangible assets, interest and financial charges and deferred taxes.

c o n t i n g E n t a s s E t s a n d l i a B i l i t i E s

Contingent assets and liabilities which were previously classified under item A5) Other revenue and item B14) Other operating costs, were reclassified by nature.

R E P O R T 91

Report

Board of Statutory Auditors’ report

To T h e S h A r e h o L D e r S ’ m e e T i N g F o r A P P r o vA L o F T h e F i N A N C i A L S TAT e m e N T S

To the Shareholders of S.E.T. Distribuzione Spa

The Board of Statutory Auditors of your company exercises the function of legitimacy control and management supervision pursuant to Art. 2403 of the Italian Civil Code. The independent audit has been assigned, by means of the resolution of the Shareholders’ meeting, to the independent auditors Pricewaterhouse Coopers S.p.A., based on the provisions of Art. 2409-bis of the Italian Civil Code. In 2016, our activities were carried out in compliance with the legal provisions and Code of Conduct of the Board of Statutory Auditors issued by the Italian Accounting Profession, whose results are reported in the two parts highlighted hereunder pursuant to Art. 2429, paragraph 2 of the Italian Civil Code.We should point out that the approval of the financial statements for the year ended as at 31 December 2016 marked the end of the three-year mandate assigned to the independent auditors and that, subsequently, the Shareholders’ meeting was called to confer a new appointment in accordance with Art. 13 of Italian Legislative Decree no. 39/2013, as amended by Italian Legislative Decree no. 135/2016. The justified proposal of the Board of Statutory Auditors to the Shareholders’ Meeting set forth in the aforementioned legislative provisions was drafted separately.

c o n t r o l a n d m o n i t o r i n g a c t i V i t i E s

We monitored compliance with the law, with the articles of association and respect for the principles of sound administration.We attended Shareholders’ Meetings and the meetings of the Board of Directors, conducted in compliance with the statutory and legislative provisions, in relation to which, based on the information obtained, we did not note any breaches, nor transactions that were manifestly imprudent, hazardous, involved a potential conflict of interests or were as such to compromise the integrity of company assets.During the meetings held, we acquired information from the directors on the performance of company operations, in respect of which we have no particular comments to make.During the meetings held, we also obtained information from the Chief Executive Officer on the general performance of operations and on the business outlook, as well as details of the more significant transactions in terms of size or characteristics performed by the company and, based on the information acquired, we have no comments to make.For the entire year, we were able to ascertain that: • the internal administrative personnel

appointed to record company events did not change substantially with respect to the previous year;

• the level of staff technical training remains adequate with respect to the type of events to be recorded and staff have sufficient knowledge of company problems.

We acquired knowledge and monitored, for matters within our competence, the adequacy and functioning of the company’s organisational structure, also through information obtained from department managers. In this regard, we have no particular comments to make.We examined various management aspects in depth and monitored, for matters within our competence, the adequacy and functioning of the administrative and accounting system, and its reliability in correctly representing

R E P O R T 9392 s e t d i s t r i b u z i o n e s p a F I N A N C I A L S T A T E M E N T S 2 0 1 6

operating events, by obtaining information from department managers and from the appointed independent auditor, also through a sample-based examination of corporate documents.In this regard, we held the necessary meetings with the appointed independent auditor, and no significant data or information emerged that would warrant mention in this report.We met with the Supervisory Body, that provided us with the 2016 reports, including all the activities carried out during the year, and no critical aspects emerged with respect to the correct implementation of the organisational model.We did not receive any reports from shareholders in accordance with Art. 2408 of the Italian Civil Code, nor did we issue any opinions or carry out any investigations; consequently, no omissions, limitations or irregularities emerged which need to be reported.During the course of our supervision, as described above, no other significant events emerged that would require mention in this report.

p r E p a r a t i o n o F t h E F i n a n c i a l

s t a t E m E n t s a n d t h E a s s o c i a t E d

c o n t E n t s

We examined the draft financial statements for the year ended as at 31 December 2016, which were made available to us in accordance with the terms set out in Art. 2429 of the Italian Civil Code, in regards to which we report the following.As we are not responsible for the full audit of the financial statements, we monitored their overall presentation, general compliance with the law in relation to their format and structure, and in this respect we have no particular comments to make.We verified the observance of the legal provisions regarding the contents of the report on operations and, in this regard, we have no particular observations to make. As regards the preparation of the financial

statements, we specify that the notes to the financial statements provide all the information required by Art. 2427, paragraph 1 of the Italian Civil Code on the actions that concerned the main financial statements items, and the other management information, as well as those entered into with other Group companies or with related parties.It should be noted that no exceptional cases were verified during the year which made it necessary to make use of the exemptions set forth in Art. 2423, paragraph 4 and Art. 2423-bis, paragraph 2 of the Italian Civil Code.We expressed our consent to the recognition of start-up and expansion costs and development costs in the financial statements, reaching agreement with the Directors as regards their amortisation criteria. The existence of the item “Goodwill” is acknowledged, which is amortised in accordance with the legal provisions. Pursuant to Art. 2426 - first paragraph no. 6 of the Italian Civil Code, the Board of Statutory Auditors expresses its consent to the recognition under assets of goodwill acquired against consideration.

The criteria used to draft the financial statements for the year ended as at 31 December 2016 deviate from those used to prepare the previous year’s financial statements, solely due to the effect of the first-time application of the amendments introduced to Art. 2426 of the Italian Civil Code by Italian Legislative Decree no. 139/2015.The company prepared an appropriate table which shows, for comparative purposes, the differences deriving from the application of the new accounting standards.

c o n c l u s i o n s

In relation to the above and taking into account the results reported by Pricewaterhouse Coopers s.p.a., the Board of Statutory Auditors proposes that the Shareholders’ Meeting approve the financial statements for the year ended as at

31 December 2016, as drafted by the Board of Directors.As regards the Board of Directors’ proposal regarding the allocation of profit for the year, the Board has no observations to make, however, pointing out that the relevant decision rests with the shareholders’ meeting. The drafting of this report marks the expiry of the three-year mandate conferred to the Board of Statutory Auditors. The Statutory Auditors wish to offer their thanks for the confidence shown in them and the collaboration offered by the entire company.

Rovereto, 29 March 2017.

The Board of Statutory Auditors

Aldo laner (Chairman)

William bonomi (Statutory auditor)

camanini cristina (Statutory auditor)

R E P O R T 9594 s e t d i s t r i b u z i o n e s p a F I N A N C I A L S T A T E M E N T S 2 0 1 6

indipendent Auditors’ report

96 s e t d i s t r i b u z i o n e s p a F I N A N C I A L S T A T E M E N T S 2 0 1 6

On the cover: Street Lighting

Archive Gruppo Dolomiti Energia

Graphic design: Plus, Trento

Set Distribuzione SpA Rovereto, via Manzoni 24

~www.set.tn.it

Set Distribuzione Financial Statements 2016 · 8 SeT DiSTriBuioNe SPA FINANCIAL STATEMENTS 2016 rePorT oN oPerATioNS 9 by the Provincial Council on 27 September 2013, assigned Trentino

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