ANNUAL REPORT 2018 ANNUAL REPORT 2018 FINCANTIERI GROUP FINCANTIERI GROUP
S UMMARY
LETTER TO SHAREHOLDERS 4 FINCANTIERI GROUP CONSOLIDATED FINANCIAL STATEMENTS 99 PARENT COMPANY DIRECTORS Contents 101 AND OFFICERS 9 Consolidated statement of financial position 102 THE FINCANTIERI GROUP 13 Consolidated statement of comprehensive income Our vision 14 103 Our mission 15 Consolidated statement of changes equity 104 Who we are 16 Consolidated statement of Overview 18 cash flow 105 Notes to the Consolidated Financial FINCANTIERI GROUP REPORT ON Statements 107 OPERATIONS 25 Companies included in the Highlights 26 scope of consolidation 216 Introduction 27 Management representation Key financials 31 on the consolidated Group performance 32 financial statements 222 Operational review by segment 42 Report by the independent auditors 224 Core markets 48 Research and innovation 52 GLOSSARY 233 Human resources 60 Environment and safety at work 68 Enterprise risk management 72 Corporate governance 84 Other information 85 Alternative performance measures 94 Reconciliation of parent company profit/ (loss) for the year and equity with the consolidated figures 95 Reconciliation of the reclassified financial statements used in the report on operations with the mandatory IFRS statements 96
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Giampiero Massolo FINCANTIERI CHAIRMAN To our Shareholders of numerous programs, both abroad and in the domestic market. The US subsidiary Fincantieri Marinette Marine has received an order from the US Navy for the LCS 29, the fifteenth vessel in 2018 was an extraordinary year for our Company, with a particularly favourable trend in the the Freedom class of the Littoral Combat Ships program. cruise ship segment, in contrast with a market situation for all other types of merchant vessel In addition, the US Government has awarded to the joint venture led by Lockheed Martin, in marked, even now, by insufficient levels of demand. which Fincantieri Marinette Marine is a partner, an order under an “Undefinitized Contract Action” Orders for cruise ships of more than 10,000 tons in gross tonnage stood at 23 vessels, as an advance on the Foreign Military Sales contract for the construction of 4 Multi-Mission while Memoranda of Understanding/Agreements or Letters of Intent were signed for Surface Combatants (MMSC) for Saudi Arabia, to be built at Marinette. a further 17 ships. The subsidiary VARD signed a contract with the Norwegian Defence Materiel Agency for the Orders were distributed more or less evenly between large ships for the contemporary and construction of three coastguard vessels. premium markets (12 vessels) and small/medium sized ships (11 vessels) for the luxury upper Fincantieri is addressing the substantial production commitment resulting from the premium and expedition segments; the latter is an area of primary interest for the Norwegian implementation of naval programs for the Italian Navy and the Qatar Ministry of Defence by subsidiary VARD which was awarded the construction of 5 vessels for three different cruise involving the Castellammare di Stabia shipyard in support of the integrated Riva Trigoso - lines (Viking, Ponant and Hapag-Lloyd). Muggiano yard, traditionally dedicated to the construction of naval vessels. Fincantieri has acquired orders for 9 vessels for six different customers and signed a During 2018, Fincantieri and Naval Group worked on the project to create an industrial alliance Memorandum of Understanding for a further 12. In particular, the Company further expanded in the naval defence sector, presenting to the Ministries in France and Italy a proposal to define its customer base in 2018, finalising an agreement with TUI Cruises, a joint venture between the terms and conditions for the establishment of a 50:50 joint venture. The decision of the two TUI AG and Royal Caribbean Cruises, for the construction of 2 new generation gas-powered governments to develop a progressive alliance between Naval Group and Fincantieri marks a first cruise ships. A Memorandum of Agreement was also signed with Princess Cruises, a Carnival step towards consolidation in the shipbuilding field. The priorities of the joint venture concern Group brand, for 2 ships of 175,000 tons in gross tonnage, which will be the biggest ever joint planning of competitive tenders for bi-national programs and export, the creation of a built in Italy and the first in the Princess Cruises fleet to be primarily gas fuelled. stable, more efficient and competitive supply chain, support for innovation through joint research Finally, in confirmation of the excellent relationship established with Fincantieri, MSC and development, including new components, and exchange of best practices between the two Crociere has decided to enter the ultra-luxury segment, signing a Memorandum of companies. Agreement with the Company for the construction of a new class of 4 ships of 64,000 tons Fincantieri has worked well, with a clear strategy which makes it the main player in the global in gross tonnage. shipbuilding and naval engineering industry. Its economic performance and commercial success The high volume of orders is justified by the healthy state of cruise tourism, which reached bear witness to its capacity to combine attention to innovation with continual improvement 28.2 million cruise passengers in 2018, confirming also for the years ahead expectations of in all its business processes, based on universally shared objectives and team spirit. further growth, both in traditional markets (America and Europe) and in emerging ones My sincere thanks to all our workers and suppliers, our partners in the creation of our wonderful ships. (Asia). This primary demand is supplemented, moreover, by the need to replace ships that entered service in the early 1990s. This has taken the worldwide order book at December 2018 to a record high of 103 vessels 1, with deliveries stretching as far as 2027, an exceptionally long time horizon in the current industrial scenario. The order book is spread across 18 shipowning groups and 31 brands, unlike eleven years ago, before the economic and financial crisis, when it amounted to 40 vessels and was distributed between 6 shipowning groups with a total of 16 brands.
We are, therefore, in a much bigger market, with a wider range of customers and a demand Giampiero Massolo for highly customized products, all of which has favoured the entry of new producers, FINCANTIERI CHAIRMAN especially in the market for smaller vessels, in the face of a shortage of slots at established shipbuilders. In 2018 there was considerable buoyancy in the market for naval vessels, with the award
1 Includes ships subject to Memorandum of Understanding/Agreement and Letters of Intent.
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Giuseppe Bono FINCANTIERI CHIEF EXECUTIVE OFFICER To our Shareholders Fulfilling military programs or even building a single cruise ship means engaging in dialogue with governments or large customers, making business commitments worth billions of euro, having the The results achieved by Fincantieri in 2018 show that your company is a leader, a true reference ability to deploy a large volume of resources and expertise inside and outside the company and dealing point for the world shipbuilding scene, a model of combined excellence that brings together skills with extremely challenging economic objectives and deadlines. It is clear that this is incompatible with and resources in a range of fields. small size. The 2018 financial year closed with record revenues of almost euro 5.5 billion, an increase of 9% Also in the strategic area, we are continuing to pursue with great determination our strategy of compared to 2017, and a clear rise in profitability, with EBITDA at euro 414 million (+21% compared developing an integrated electronics and information technology hub, a key area for innovation, aimed to 2017) and a margin of 7.6% on revenues (compared to 6.8% in 2017). at strengthening the company's existing skills in the fields of cybersecurity, automation, simulation, Adjusted net income amounted to euro 108 million (+19% compared to 2017) and net income euro training and autonomous driverless technologies, creating synergies between Group companies 69 million (+30% compared to 2017). and thus further reinforcing our vocation as a company that makes innovation and knowledge the Net debt totalled euro 494 million. cornerstone of its competitiveness. The euro 8.6 billion of new orders acquired in 2018 increased the total backlog to a record figure of Finally, we received further confirmation of confidence in our ability to combine the best Italian skills and euro 33.8 billion (+29%), corresponding to a backlog of euro 25.5 billion (+16%) and a soft backlog manage complex projects in the infrastructure sector, where Fincantieri was one of the first to put itself of euro 8.3 billion. forward for the reconstruction of the bridge over the Polcevera, putting its excellence at the service of Today, Fincantieri's backlog, equal to about 2% of Italian GDP, has a value greater than that of the the country for a project that aims not only to restore a key infrastructure but also to repair the damage entire domestic maritime economy, estimated by Censis at euro 33 billion. A unique result not only done to the social fabric of Genoa, a city in which our Group has solid roots. for the industrial segment in which we operate, but also across all industries. In order to better face the challenges of the next few years and to improve process efficiency, We are talking about 116 ships with delivery dates that extend to 2027, offering a guarantee of the Company is carrying out numerous initiatives. long-term visibility that supports the development of leading-edge supply chains and technology These include the completion of the VARD delisting followed by the start of organisational integration districts, creating a driving force for the subcontractor network and fostering Italian export and both for expedition cruise ship construction projects and related production sites and offshore and innovation, while at the same time ensuring long-term employment for all the Group's Italian specialized vessels projects, in the field of industrial design. shipyards and the large and diversified supply chain network, thus providing financial stability. In addition, a partnership was established between Fincantieri, ArcelorMittal CLN Distribuzione Italia The effects are already evident: in Italy the number of employees has grown by about 350, and this and Palescandolo Lavorazioni Siderurgiche for the creation of Centro Servizi Navali S.p.A., trend will continue in the coming years, in order to complete the workforce provided for in the very a company 10.93% owned by Fincantieri, specializing in logistics services and sheet metal processing demanding production plans. for the Fincantieri Monfalcone and Marghera shipyards. This initiative allows low value processes to be It's time for "action", while taking care to preserve the sustainability of the production model that outsourced, freeing precious areas in the yards that, as is well-known, due to their historical nature as requires investment in people. A ship is a large, complex object, which combines an infinite range of industrial sites, have difficulty in reconciling confinement within a limited space with rapidly growing technologies and skills, craftsmanship, quality, economic performance and respect for challenging production needs. deadlines; in other words, building a ship requires real teamwork. Fincantieri confronts all these challenges and all this work every day, true to its values and aware of its The company is therefore working to strengthen the relationship between the school and higher mission to grow with and for the communities in which it operates. technical education and training system and the world of work in the shipbuilding sector, to For Fincantieri, this is an extraordinary moment, contributed to by our workers and the entire network support the processes for job placements and to stimulate local employment, especially youth of suppliers working on our projects. I would like to thank all of them most sincerely in the certainty that employment, thus contributing to regional socio-economic development. this commitment will continue into the future. The Company's growth will continue over the next few years, with an increase in volumes of around I would also like to thank the members of the Board of Directors and the Board of Statutory Auditors 50% by 2022. An ambitious goal that will require a considerable organizational effort who contributed with their constant and competent presence to the achievement of the results and a strengthening of our subcontractor network. achieved in the three-year period. During 2018, we took a number of important steps forward on our chosen strategic path, laying Finally, I would like to thank all the shareholders, in particular CDP, which holds the majority of the shares. the foundations for the joint venture with Naval Group in the naval segment. Thanks to the support We have always had strong support for our initiatives, which have been able to develop in a harmonious of the Italian and French Governments, we signed the agreement for the acquisition of 50% of framework between shareholders, stakeholders, management and staff, a unique factor, in our opinion, Chantiers de l'Atlantique (formerly STX France), plus a loan of 1%. The closing of the operation is in the development of our company. now subject only to the approval of the Antitrust Authority. Both operations aim to combine the experience and skills of excellent companies to achieve a larger scale business, to address the cyclical nature of the markets and to respond to a need that remains poorly understood even today. Giuseppe Bono
FINCANTIERI CHIEF EXECUTIVE OFFICER
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P ARENT COMPANY DIRECTORS AND OFFICERS
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PARENT COMPANY DIRECTORS AND OFFICERS
Board of Directors Manager responsible for (2016-2018) preparing financial reports
Chairman Felice Bonavolontà Giampiero Massolo
Chief Executive Officer Supervisory body Giuseppe Bono Leg. Decree 231/01 Councilors (2018-2020) Gianfranco Agostinetto Simone Anichini Chairman Massimiliano Cesare Guido Zanardi Nicoletta Giadrossi Members Paola Muratorio Stefano Dentilli Fabrizio Palermo Giorgio Pani Donatella Treu
Secretary* Independent auditors Umberto Baldi (2013-2021)
Board of statutory auditors PricewaterhouseCoopers S.p.A. (2017-2019)
Chairman Gianluca Ferrero
Standing Auditor Roberto Spada Fioranna Vittoria Negri
Alternate Auditor Alberto De Nigro Flavia Daunia Minutillo Massimiliano Nova
*From 22 January 2019 the role of Secretary to the Board was covered by Giuseppe Cannizzaro, who was appointed to replace Umberto Baldi.
Information regarding the composition and functions of the Board Committees (the Internal Control and Risk Committee, which is also serving on an interim basis as the committee responsible for related party transactions, the Remuneration Committee, Nomination Committee and the Sustainability Committee) is provided in the Ethics and Governance section of the Fincantieri website at www.fincantieri.com.
Disclaimer refer to the information available at the date of their publication; FINCANTIERI S.p.A undertakes no obligation Forecast data and information must be regarded as to revise, update or correct its forward-looking statements forward-looking statements and therefore, not being after such date, other than in the circumstances strictly based on simple historical facts, contain, by their nature, an required by applicable regulations. The forward-looking element of risk and uncertainty because they also depend statements provided do not constitute and shall not be on the occurrence of future events and developments considered by users of the financial statements as advice outside the Company's control. Actual results could for legal, accounting, tax or investment purposes nor is therefore be materially different from those expressed in it the intention for such statements to create any type of forward-looking statements. Forward-looking statements reliance and/or induce such users to invest in the Company.
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T HE FINCANTIERI GROUP
OUR VISION
OUR MISSION
WHO WE ARE
OVERVIEW
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OUR VISION The Sea Ahead: all those who work at Fincantieri Group steer for this course: We aspire to become world leaders in all talented men and women working areas of shipbuilding requiring the most responsibly to help develop our idea of System advanced solutions, and to stand out even a future increasingly characterized by Technological integrator leadership more for our diversification and innovation. technology, performance and sustainability. capabilities
OUR STRENGTHS Business Tailor made diversification products
Wide portfolio of Flexible & global clients & products production network
OUR MISSION are implemented across the Group: strict observance of the law, labour protection and Development and continuous improvement protection of the environment, safeguarding are the goals that we have set for ourselves, the interests of our shareholders, employees, and we are determined to pursue them. clients, commercial and financial partners, the Our every action, project, initiative or decision general and local communities, creating value is based on principles and guidelines that for every stakeholder.
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WHO WE ARE industry sectors, from naval to offshore With over 230 years of history and more its clients include the world's biggest vessels, from high-complexity special vessels than 7,000 vessels built, Fincantieri has cruise operators and the Italian and the US Fincantieri is one of the world’s largest and ferries to mega yachts, as well as in always kept its management offices, as Navy as well as numerous foreign navies. shipbuilding groups and number one for ship repairs and conversions, production well as all the engineering and production Fincantieri is also a partner of some of the diversification and innovation. It is leader in of systems and mechanical and electrical skills, in Italy. With over 8,600 employees main European defence companies within cruise ship design and construction and a component equipment and after-sales and a supplier network that employs nearly supranational programs. reference player in all high-tech shipbuilding services. 50,000 people, Fincantieri has enhanced Fincantieri's business is widely diversified by a fragmented production capacity over end markets, geographical exposure and by several shipyards into a strength, acquiring client base, with revenue mainly generated the widest portfolio of clients and products from cruise ship, naval and offshore vessel in the cruise segment. To hold its own in FACTS AND FIGURES construction. Compared with less diversified relation to competition and assert itself at players, such diversification allows it to global level, Fincantieri has broadened its mitigate the effects of any fluctuations in product portfolio becoming world leader demand on the end markets served. in the sectors in which it operates. PRINCIPAL Western The Group now has 20 shipyards in 4 shipbuilder continents, more than 19,000 employees, +19,000 and is the leading Western shipbuilder; Employees at 31.12.2018 55% other countries +230 45% Italy 20 Years of history Shipyards Total area of 5.4 km2
€ 122 million Research and Development
+7,000 Ships designed and built € 5,474 million Revenues 2018 98 € 33.8 billion Vessels Total backlog in order book st +5,000 1 player Suppliers in Italy in diversification alone and innovation 4 Continents
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OVERVIEW as stabilization, propulsion, positioning and merged into an autonomous organizational As part of initiatives to raise the efficiency power generation systems, ship automation unit denominated the Cruise business unit. of the production system, the workforce of The Group operates through the following systems, steam turbines, integrated systems The VARD Cruise business unit and the the VARD Brazilian shipyard (Vard Promar) three segments: and ship accommodation, and the provision Parent Company Fincantieri have defined has been reduced to adapt it to the reduced of repair and conversion services, logistical a specific coordination policy based on use of the site. The strategic role of the • Shipbuilding: encompassing the business support and after-sales services. which the head of Fincantieri's Merchant Group's presence in the country remains areas cruise ships and expedition cruise Ships Department directs and controls the unchanged, enabling opportunities in the vessels, naval vessels and other products In 2018 the delisting of VARD was activities of the VARD Cruise business unit. naval field to be taken up, particularly as and services (ferries and mega yachts); completed and December saw the start In line with the above, the economic results regards the Brazilian Navy project for the • Offshore and Specialized Vessels: of full organizational integration with the of this business unit have been reallocated Tamandaré corvettes, as well as to maintain encompassing the design and construction Parent Company both for the construction to the Shipbuilding operating segment. commercial relations with some key clients of high-end offshore support vessels, of expedition cruise vessels and the related Project management for the construction in the offshore field. specialized ships, and vessels for offshore production sites and for offshore and of offshore vessels, special ships and vessels The structure of the Fincantieri Group and wind farms and open ocean aquaculture, specialized vessels projects. As a result of for the Norwegian Coastguard, as well overview of the companies included in its as well as innovative products in the field this reorganization, project management, as the direction of the remaining production consolidation will now be presented. of drillships and semi-submersible the Romanian production sites and sites in Norway, Brazil and Vietnam, drilling rigs; Norwegian shipyards dedicated to the have been merged into the VARD Offshore • Equipment, Systems and Services: outfitting of cruise ships and other key & Specialized Vessels business unit, encompassing the design and manufacture activities such as production supervision whose economic results continue to be of high-tech equipment and systems, such of public areas and procurement have been shown in the Offshore segment.
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OFFSHORE AND SHIPBUILDING SPECIALIZED VESSELS EQUIPMENT, SYSTEMS AND SERVICES OTHER SEGMENTS BUSINESS AREAS
Cruise Ships Ferries Naval Vessels Mega Yacht Offshore and Systems and Components Service Specialized Vessels Contemporay Cruise ferry Aircraft carriers Mega yacht > 70 m Cabins Ship repairs Premium Ro-Pax Destroyers Drilling units Public areas Refitting Upper Premium Dual fuel ferries Frigates Offshore support vessels Electrical, electronic Refurbishment Luxury Corvettes (AHTS-PSV-OSCV) and electromechanical Conversions Exploration/Niche Patrol vessels Special vessels integrated systems Product lifecycle management Expedition cruise vessels Amphibious ships Fisheries/Aquaculture Automation systems • Integrated logistic support Logistic support ships Wind offshore Entertainment systems • In-service support Multirole and research vessels Stabilization, propulsion, • Refitting
PRODUCT PORTFOLIO Special vessels positioning and power • Conversions Submarines generation systems Training and assistance Steam turbines Steel structures for large scale projects
FINCANTIERI S.p.A. Fincantieri Marine Group Holdings Inc. FINCANTIERI S.p.A. FINCANTIERI S.p.A. FINCANTIERI S.p.A. FINCANTIERI S.p.A. • Monfalcone FMG LLC Fincantieri Oil&Gas S.p.A. • Riva Trigoso • Arsenale Triestino San Marco • Marghera • Sturgeon Bay VARD Group AS Seastema S.p.A. • Bacino di Genova • Sestri Ponente Marinette Marine Corporation LLC • Aukra Seaf S.p.A. • Integrated naval shipyard Riva Trigoso and Muggiano • Marinette • Brattvaag Isotta Fraschini Motori S.p.A. Delfi S.r.l. • Ancona ACE Marine LLC • Brevik • Bari Issel Nord S.r.l. • Castellammare di Stabia • Green Bay Vard Promar SA Fincantieri SI S.p.A. FMSNA Inc. • Palermo Fincantieri India Pte Ltd. • Suape Marine Interiors S.p.A. Fincantieri Services Middle East LLC VARD Group AS Fincantieri do Brasil Partecipações SA Vard Vung Tau Ltd. Seanergy a Marine Interiors Fincantieri Services USA LLC • Langsten Fincantieri USA Inc. • Vung Tau company S.r.l. • Søviknes Fincantieri Australia PTY Ltd. Vard Electro AS Fincantieri Infrastructure S.p.A. Vard Tulcea SA Fincantieri (Shanghai) Trading Co. Ltd. Vard Design AS Fincantieri Sweden AB • Tulcea Etihad Ship Building LLC. Vard Piping AS Unifer Navale S.r.l. Vard Braila SA Orizzonte Sistemi Navali S.p.A. Vard Marine Inc. • Braila CSSC - Fincantieri Cruise Industry Development Ltd. Seaonics AS Vard Accommodations AS Cetena S.p.A. MAIN SUBSIDIARIES / ASSOCIATES / JOINT VENTURES MAIN SUBSIDIARIES / ASSOCIATES
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THE FINCANTIERI PLANET
SHIPYARDS AND DOCKS MAIN SUBSIDIARIES EUROPE EUROPE ASIA ITALY ITALY CHINA Trieste FINCANTIERI S.p.A. Fincantieri (Shanghai) Trading Monfalcone Orizzonte Sistemi Navali CSSC - Fincantieri Marghera Cetena Cruise Industry Development Sestri Ponente Delfi INDIA Genova Seastema Fincantieri India Riva Trigoso - Muggiano Isotta Fraschini Motori Vard Electrical Installation Ancona Fincantieri Oil & Gas and Engineering (India) Castellammare di Stabia Seaf Palermo Marine Interiors UAE Seanergy a Marine interiors company Etihad Ship Building NORWAY Aukra Fincantieri SI QATAR Brattvaag Fincantieri Infrastructure Fincantieri Brevik Issel Nord Services Middle East Langsten NORWAY SINGAPORE Søviknes Vard Group Vard Holdings Vard Design ROMANIA Vard Shipholdings Singapore Vard Piping Braila JAPAN Tulcea Vard Electro Vard Accomodation FMSNA YK Seaonics ASIA AMERICAS SWEDEN VIETNAM Fincantieri Sweden USA Vung Tau Fincantieri Marine Group POLOND Fincantieri Marine Seaonics Polska AMERICAS Systems North America USA Fincantieri Services USA Marinette Fincantieri USA Sturgeon Bay Vard Marine US Green Bay CANADA BRAZIL Vard Marine Suape BRAZIL Fincantieri do Brasil Partecipações
OCEANIA AUSTRALIA Fincantieri Australia 19,000 20 4
more than EMPLOYEES SHIPYARDS CONTINENTS
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F INCANTIERI GROUP REPORT ON OPERATIONS
HIGHLIGHTS
INTRODUCTION
KEY FINANCIALS
GROUP PERFORMANCE
OPERATIONAL REVIEW BY SEGMENT
CORE MARKETS
RESEARCH AND INNOVATION
HUMAN RESOURCES
ENVIRONMENT AND SAFETY AT WORK
ENTERPRISE RISK MANAGEMENT
CORPORATE GOVERNANCE
OTHER INFORMATION
ALTERNATIVE PERFORMANCE MEASURES
RECONCILIATION OF PARENT COMPANY PROFIT/(LOSS) FOR THE YEAR AND EQUITY WITH THE CONSOLIDATED FIGURES
RECONCILIATION OF THE RECLASSIFIED FINANCIAL STATEMENTS USED IN THE REPORT ON OPERATIONS WITH THE MANDATORY IFRS STATEMENTS
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HIGHLIGHTS INTRODUCTION Singapore Stock Exchange, its full integration with the Italian activities of the Group ORDER INTAKE (EURO 8.6 BILLION) SUCCESSFUL DELIVERY OF 35 UNITS To our Shareholders, commenced from both a production and a sales 27 UNITS, INCLUDING 14 CRUISE SHIPS FROM 15 DIFFERENT SHIPYARDS The Fincantieri Group has once again confirmed and marketing viewpoint. As far as production FOR 8 SHIPOWNERS its position as undisputed leader in the high is concerned, the capacity of the Romanian ACQUISITION OF A MAJOR NEW CLIENT COMPLETION OF VARD DELISTING PROCESS value-added sectors of shipbuilding. Moving shipyards has been used to produce sections TUI CRUISES AND LAUNCH OF FULL INTEGRATION WITH GROUP’S ahead with its growth strategy based on of cruise ships to support the enormous order ITALIAN ACTIVITIES the diversification of its product portfolio backlog acquired by the Group. In addition, 1 RECORD-HIGH TOTAL BACKLOG WITH and client base, the Group has continued to some of the subsidiary's European shipyards 116 UNITS AT 33.8 BILLION CONTINUED FOCUS ON STRATEGIC INITIATIVES demonstrate its significant ability to create have been employed on the construction of BACKLOG AT EURO 25.5 BILLION (+16%) value in an extremely complex industry, putting expedition cruise ships with operational support SOFT BACKLOG AT EURO 8.3 BILLION APPROVAL AND PUBLICATION OF SUSTAINABILITY PLAN the experience gained to good use by seizing from the parent company. From a sales and opportunities in new segments. marketing viewpoint, the integration aims to The Fincantieri Group recorded significant strengthen VARD's role in the expedition cruise values in the year in terms of new orders (euro ship segment of the market, while maintaining REVENUE AND INCOME: EURO 5,474 MILLION (+9%) PROFIT FOR THE YEAR OF EURO 69 MILLION (+30%) 8.6 billion), successfully delivered 35 naval its presence in the offshore segment, while vessels in 15 different shipyards, and can count awaiting a recovery in the Oil & Gas market. 3 EBITDA OF EURO 414 MILLION (+21%) NET DEBT OF EURO 494 MILLION on a total order backlog of around euro 33.8 Within VARD's offshore activities, WITH A CONSOLIDATED EBITDA MARGIN OF 7.6% (EURO 314 MILLION AT 31 DECEMBER 2017) billion at 31 December 2018. notwithstanding the downsizing of the In addition to consolidating the Fincantieri workforce at the Brazilian shipyard Vard Promar ADJUSTED PROFIT FOR THE YEAR 2 OF EURO 108 MILLION (+19%) Group's leadership at a global level, the total to adapt it to reduced use of the site, the order backlog, composed of about euro 25.5 strategic role of the Group's presence remains billion of backlog (with 98 vessels to deliver up unaltered. The shipyard activities in Brazil, in to 2027) and euro 8.3 billion of soft backlog, will fact, allow the Group to take up opportunities give Fincantieri significant visibility in the next in the naval field, in particular as regards the few years and, in particular, guaranteed work for Brazilian Navy project for the Tamandaré PROPOSED DISTRIBUTION OF A DIVIDEND all the Group's Italian shipyards. corvettes, as well as to maintain commercial OF 0.01 PER SHARE The 2018 results achieved by Fincantieri confirm relations with some key clients in the offshore the development strategy identified in the new segment. 2018-2022 business plan presented at the end During the year the Group was able to take of March 2018. The 2018 financial year ends with advantage, through its subsidiary Fincantieri revenues at record levels of almost euro 5.5 Infrastructure, of sales opportunities in the billion, up 9% on the previous year, EBITDA of infrastructure segment, winning an important euro 414 million (+21%) with a margin, also up contract in Romania for the supply of the steel on the previous year, of 7.6%, Adjusted profit for structure for a suspension bridge over the the year of euro 108 million (+19%) and Profit for Danube. In addition, in January 2019, the Group the year of 69 million (+30%). was awarded, through its subsidiary Fincantieri With an increase of 348 resources, employment Infrastructure, in a joint venture with Salini in Italy has grown by over 4% compared to the Impregilo, the contract for the reconstruction same period of the previous year to meet the of the bridge over the Polcevera river in Genoa. workloads acquired, whereas at an overall level, This contract also provides for cooperation the headcount has fallen from 19,545 units to with the Group's companies involved in the 19,274 units, mainly due to the reduction of the integrated bridge monitoring, control and 1 Sum of backlog and soft backlog. workforce in the VARD shipyard in Brazil. inspection system. This is an extraordinarily 2 Profit/(loss) before extraordinary and non-recurring income and expenses. 3 This amount does not include construction loans. Following the delisting of VARD from the important result in strategic terms, because it
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allows the Group to expand its presence in a and unmanned systems. The establishment by generation cruise ships, the biggest ever built offshore vessel for Prysmian (cable-laying), the highly specialized market with great potential. the subsidiary Marine Interiors of the company in Italy and the first in the Princess Cruises fleet Vard subsidiary has obtained orders for the Industrial alliances continue to be forged within Seanergy S.r.l., dedicated to the construction of to be primarily fuelled by LNG. The agreements construction of 10 specialized vessels, including the naval vessels segment. With the support of kitchens and refrigerated rooms for cruise ships, with TUI Cruises and Princess Cruises 4 fishery vessels, 3 naval vessels, 2 electric the French and Italian governments, Fincantieri also fits into this context. The other initiatives demonstrate Fincantieri's recognized ability to powered ferries and 1 autonomous (unmanned) has agreed with Naval Group the basis for the include the establishment, in partnership with stand out in the field of global shipbuilding, due electric powered container ship, the first of its launch of a solid alliance, identifying terms and ArecelorMittal CLN and Palescandolo, of a to its reliability and ability to innovate and to type built by the Norwegian Group. conditions for the establishment of a 50:50 company named Centro Servizi Navali S.p.A. attract and retain the loyalty of new customers. In the Equipment, Systems and Services joint venture. Thanks to this agreement, the dedicated to logistic services and metal sheet In order to seize the significant sales segment, a contract was signed for a significant two groups will be able to submit bids for joint working for the Fincantieri Monfalcone and opportunities linked to the growth of the plan to extend and modernize three ships for Italian-French projects with potential benefits Marghera shipyards. The outsourcing of part of Chinese cruise market, Fincantieri embarked the shipowner Windstar Cruises (Xanterra Travel for the export sector. In addition, the joint the work will allow space recovery within the some time ago on strategic initiatives which Collection Group); in addition an order was venture could generate synergies in the areas shipyards involved, improving the efficiency of have led to the signing in Shanghai of the acquired for the program to extend and convert of procurement and research and development, the production process without compromising contracts relating to the construction of two the cruise ferries “Cruise Roma” and “Cruise permitting Fincantieri and Naval Group to company know-how. cruise ships for CSSC Carnival Cruise Shipping Barcelona”, to be carried out in the Palermo bring into play common structures, testing In the year Fincantieri approved and published Limited, already announced in 2017. These will shipyards for the Grimaldi Group, as well as an instruments and skills networks. its Sustainability Plan for the first time, be the first vessels ever built in China for the order for the upgrading of the Cavour aircraft Also in the context of cooperation between confirming its ongoing attention to sustainability domestic market. carrier for the Italian Navy. Italy and France, February 2018 saw the signing issues in the development of its business. With In the naval field, production activities are going As far as the economic results for 2018 are of the share purchase agreement with the the aim of creating long-term value, it has set ahead in Italy for the fleet renewal programme concerned, Shipbuilding continues its previous French government for the acquisition of 50% sustainability as one of the goals of its strategy, for the Italian Navy and the design work for the good performance, with a significant increase of the capital of STX France (now Chantiers combining business growth and sound finances huge order for the Qatari Ministry of Defence. In in revenues and margins at the record level of de l’Atlantique). The operation, whose closing with social and environmental sustainability. the year the Group was also awarded contracts 8.5%. In the Offshore and Specialized Vessels is subject to certain conditions, including In the sales and marketing area, the Group has for important projects in the United States, segment, the Group succeeded, with the authorization by the Antitrust Authorities, also been able to benefit from the positive trend in through its subsidiary Marinette Marine (in a diversification measures adopted to counter provides for the loan to Fincantieri of 1% of the the cruise market, spurred by three main factors: joint venture with Lockheed Martin). Specifically, the effects of the crisis in the Oil & Gas share capital of STX France. the favourable trend in demand for cruises both the subsidiary received confirmation from the segment, in keeping volumes substantially At the domestic level, making the most of the in traditional markets and in emerging ones, US Navy of the order for the construction of in line with the previous year, while margins respective competencies developed to create with growth of about 5% in 2018, the entry of the LCS 29 (15th vessel in the Freedom class, were affected by underemployment of some a Country Network, in the second half of 2018 new operators and the need for fleet renewal. followed in January 2019 by the award of the shipyards and the low profitability of Fincantieri and Leonardo confirmed the guiding Against this background, the group acquired order for the construction of the LCS 31, 16th in the latest offshore projects to be delivered. principles of an agreement which will allow an exceptional number of orders in the year for the program), an order for the design of a new In the Equipment, Systems and Services them to compete in the increasingly dynamic the construction of 14 cruise ships (including type of multi-role frigate based on the FREMM segment, the development strategy in market for naval vessels. 5 expedition cruise vessels ordered from the platform, as part of the tender for the program the business area of cabins, complete As part of the reconfiguration of its VARD subsidiary), in addition to finalizing orders of new-generation FFG (X) frigates, and an accommodation and integrated systems management of the value chain, the Group took for the construction of a further 3 vessels in the order for the start of detailed design has led to an increase in revenues while further initiatives during the year to internalize first few days of 2019. A new client was also and planning for the construction of four maintaining high profit margins. high value-added activities and to optimize acquired: the company Tui Cruises (joint venture Multi-Mission Surface Combatants (MMSC) The financial structure of the Group is production processes. In particular, integration between TUI AG and Royal Caribbean Cruises), for Saudi Arabia. consistent with the steady growth in the of the activities developed over the years by which signed an important order for 2 new In the Offshore and Specialized Vessels size and value of the cruise vessels under the various Group business units in the area generation LNG-powered cruise ships, cutting- segment, where the investment crisis in the Oil & construction and the related delivery schedule. of electronics and IT has started in order to edge in terms of technology and environmental Gas sector remains, the Group is taking forward The Group expects 2019 results to be in line maximise value and create further growth impact. A Memorandum of Agreement was its strategy of diversification of its product with 2018 and consistent with the economic opportunities. This initiative mainly concerns also signed with Princess Cruises, a Carnival portfolio and client base in the specialized and financial forecast announced within the control and automation systems, cyber security Group brand, for the construction of two new vessels area. In this context, in addition to an 2018-2022 Business Plan.
28 29 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS
Revenues will continue their trend of growth In 2019, the Equipment, Systems and Services KEY FINANCIALS with an EBITDA margin in line with the one segment is expected to confirm its revenue recorded for 2018. growth trend, thanks to the development of the (euro/million) ECONOMIC DATA 31.12.2018 31.12.2017 Net debt (net financial position) is expected to backlog related to the Italian Navy fleet renewal Revenue and income 5,474 5,020 rise due to working capital financial needs. and to the Qatari contract, the higher volumes EBITDA 414 341 In the Shipbuilding segment, the Group expects of production of cabins and public areas for the EBITDA margin* 7.6% 6.8% to deliver 11 ships in 2019, including 8 cruise cruise business activity, the programs for the EBIT 277 221 ships (one of which, the Viking Jupiter, the sixth lengthening and refitting of the Cavour aircraft EBIT margin** 5.1% 4.4% ship built for the shipowner Viking Cruises, carrier. Adjusted profit/(loss) for the year1 108 91 was delivered on 7 February at the Ancona Extraordinary and non-recurring income and (expenses) (51) (49) Profit/(loss) for the year shipyard) and 3 ships in the naval vessels 69 53 Group share of profit/(loss) for the year 72 57 business area (one of which, Billings - LCS 15, FINANCIAL DATA was delivered at the Marinette shipyard to the Net invested capital 1,747 1,623 US Navy on 6 February). Also with reference Equity 1,253 1,309 to the naval vessels business area, the launch Net financial position (494) (314) of two vessels from the fleet renewal program OTHER INDICATORS for the Italian Navy is expected, including Order intake*** 8,617 8,554 the landing helicopter dock currently under Order book*** 32,743 28,482 Total backlog***/**** 33,824 26,153 construction at the Castellamare di Stabia - of which backlog*** 25,524 22,053 shipyard, while the program for the Qatari Capital expenditure 161 163 Ministry of Defence is coming into full swing, Net cash flows for the period 402 65 with 3 vessels under construction. Research and Development costs 122 113 In the Offshore and Specialized Vessels Employees at the end of the period number 19,274 19,545 segment, the costruction activity related Vessels delivered***** number 35 25 to the backlog acquired as a result of the Vessels ordered***** number 27 32 Vessels in order book***** number 98 106 diversification strategy will continue as well as RATIOS the focus on execution aimed at the recovery ROI 16.5% 12.7% of the margins. ROE 5.4% 4.1% Total debt/Total equity number 1.0 0.6 Net financial position/EBITDA number 1.2 0.9 Net financial position/Total equity number 0.4 0.2
* Ratio between EBITDA and Revenue and income. ** Ratio between EBIT and Revenue and income. *** Net of eliminations and consolidation adjustments. **** Sum of backlog and soft backlog. ***** Number of vessels over 40 meters in length. 1 Profit/(loss) before extraordinary and non-recurring income and expenses. The percentages contained in this report have been calculated with reference to amounts expressed in thousands of euros.
30 31 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS
GROUP PERFORMANCE % ORDER INTAKE BY the Grimaldi Group, as well as an order for the components of a suspension bridge to be OPERATING SEGMENT upgrading of the Cavour aircraft carrier for the built in Romania which, once built, will be the IN 2018 82% Italian Navy. longest in the country and the third biggest Group operational performance Lastly, in November 2018 the Group secured in Europe in terms of the width of the central an order for the supply of the metal span. Order intake New orders in 2018 amount to euro 8,617 million (euro/milioni) (+1%) with a book-to-bill ratio (order intake/ ORDER INTAKE ANALYSIS 31.12.2018 31.12.2017* revenue) of 1.6 (1.7 in 2017). 11% 12% -5% Amounts % Amounts % Before intersegment consolidation adjustments, FINCANTIERI S.p.A. 6,288 73 7,291 85 the Shipbuilding segment accounted for 82% Rest of Group 2,329 27 1,263 15 (92% in 2017), the Offshore and Specialized SHIPBUILDING OFFSHORE AND EQUIPMENT, SYSTEMS CONSOLIDATION Total 8,617 100 8,554 100 SPECIALIZED AND SERVICES ADJUSTMENTS Shipbuilding 7,129 7,845 Vessels segment for 11% (5% in 2017) VESSELS 82 92 Offshore and Specialized Vessels 913 11 471 5 and the Equipment, Systems and Services Equipment, Systems and Services 1,006 12 573 7 segment for 12% (7% in 2017). Martin), for the construction of a new vessel Consolidation adjustments (431) (5) (335) (4) The cruise ships business area of the for the Littoral Combat Ship program in the Total 8,617 100 8,554 100 Shipbuilding segment acquired the following “Freedom” class (LCS 29), the fifteenth ship *The* comparative figures for 2017 have been restated following the redefinition of the operating segments. orders in 2018: in the program, as well as an order for the construction of a barge and an order from Backlog and Soft backlog % ORDER BACKLOG BY SEGMENT • two vessels for the shipowner Viking (the the United States government for the launch The Group's total backlog reached a record AT 31 DECEMBER 2018 ninth and tenth vessels of the same class); of the detailed design and planning for the level of euro 33.8 billion at 31 December 2018 93% • two vessels for the shipowner Norwegian construction of four Multi-Mission Surface (+29% compared to the previous year), of Cruise Line (the fifth and sixth vessels of the Combatants (MMSC) for Saudi Arabia. which euro 25.5 billion was backlog and euro Leonardo class); In the Offshore and Specialized Vessels 8.3 billion soft backlog, with the order delivery • one vessel for the historic luxury brand segment, orders were obtained for the profile extending until 2027. Cunard, part of the Carnival Group; construction of four fishing vessels, two The extraordinary level of total order backlog • one ultra-luxury vessel for Silversea (the third electric powered passenger and vehicle demonstrates the undoubted commercial 4% 6% -3% in the “Muse” series); ferries and an offshore cable-laying vessel. In strength of the Group and its determination to • one vessel for the shipowner Virgin (the addition, three vessels for the Royal Norwegian develop and consolidate strong relationships SHIPBUILDING OFFSHORE AND EQUIPMENT, SYSTEMS CONSOLIDATION fourth unit of the same class); Coast Guard were ordered, enriching VARD’s with its clients. The Group has once again SPECIALIZED AND SERVICES ADJUSTMENTS • two new generation LNG-powered vessels order book with a naval project and further demonstrated its ability to convert agreements VESSELS for a new client, Tui Cruises (joint venture contributing to business diversification. Also and commercial negotiations, represented by with a clear predominance of the Shipbuilding between Tui Ag and Royal Caribbean Cruises); of note is the acquisition of an experimental the soft backlog, into firm orders in a short segment. Before intersegment consolidation • two expedition cruise vessels for Ponant project, the first autonomous (unmanned) time. In fact, the soft backlog, which amounted adjustments, the backlog for the Shipbuilding (the fifth and sixth vessels of the same class), electric powered container ship for the to euro 4.1 billion at the end of the previous segment recorded an increase of euro 2,743 which will be built by the subsidiary VARD; Norwegian company Yara Norge. year, has substantially been converted into new million (+13%), the Offshore and Specialized • two expedition cruise vessels for Viking, In the Equipment, Systems and Services orders during 2018. This conversion, in addition Vessels segment an increase of euro 392 which will be built by the subsidiary VARD; segment, the Group signed a contract for to the other new orders acquired over the million (+66%) and the Equipment, Systems • one expedition cruise vessel for the a significant plan to extend and modernize period, has led to an increase in backlog and Services segment an increase of euro 452 shipowner Hapag Lloyd, third in the series, three ships for the shipowner Windstar of about 16% (from euro 22 billion at million (+38%). which will be built by the subsidiary VARD. Cruises (Xanterra Travel Collection Group); 31 December 2017 to euro 25.5 billion The latest order intake enriches the in addition an order was acquired for the at 31 December 2018). composition of the backlog in terms of the In the naval field, an order was acquired, program to extend and convert the cruise The backlog and the total backlog guarantee number of clients and variety of projects and through the subsidiary Marinette Marine ferries “Cruise Roma” and “Cruise Barcelona”, respectively about 4.7 and 6.2 years of work, is further proof of the effectiveness of the Corporation (in a joint venture with Lockheed to be carried out in the Palermo shipyard for in relation to the revenues recorded in 2018, Group’s growth and diversification strategy.
32 33 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS
Moreover, the policy of investing in reliability, clients and the acquisition of sister ships Capital expenditure % CAPITAL EXPENDITURE BY OPERATING SEGMENT IN 2018 quality and innovation on the latest platforms by these clients which further extend the Capital expenditure amounted to of prototype vessels has enabled both the employment horizon of Fincantieri shipyards euro 161 million in 2018, of which creation of long-lasting relationships with and improve margins. euro 37 million for intangible assets 77% (including euro 22 million for (euro/million) development projects) and euro 124 BACKLOG ANALYSIS 31.12.2018 31.12.2017* million for property, plant and equipment. Amounts % Amounts % The Parent Company accounted FINCANTIERI S.p.A. 22,462 88 19,882 90 for 68% of total capital expenditure. Rest of Group 3,062 12 2,171 10 Capital expenditure represented 2.9% 4% 11% 8% Total 25,524 100 22,053 100 of the Group's revenue in 2018 Shipbuilding 23,714 93 20,971 95 Offshore and Specialized Vessels 987 4 595 3 (3.2% in 2017). Equipment, Systems and Services 1,638 6 1,186 5 Capital expenditure on property, plant SHIPBUILDING OFFSHORE AND EQUIPMENT, SYSTEMS CONSOLIDATION SPECIALIZED AND SERVICES ADJUSTMENTS Consolidation adjustments (815) (3) (699) (3) and equipment in 2018 mainly related VESSELS Total 25,524 100 22,053 100 to the upgrading of operational areas and *The comparative figures for 2017 have been restated following the redefinition of the operating segments. infrastructure at some Italian shipyards to meet new production scenarios based Tulcea shipyard to support both the The soft backlog, representing the value of which are yet reflected in the order on an increasing order backlog, construction of the hulls of the cruise of existing contract options and letters backlog, amounted to approximately euro an increase in the safety standards ships for Norway and the multi-year of intent as well as of contracts at an 8.3 billion at 31 December 2018, compared advanced stage of negotiation, none with euro 4.1 billion at 31 December 2017. of the plant, equipment and buildings program to construct the pre-fitted and the continuation of work to extend sections of cruise ships in support of (euro/billion) the production capacity of the Vard Fincantieri's production network. SOFT BACKLOG 31.12.2018 31.12.2017 Amounts Amounts (euro/million) Group total 8.3 4.1 CAPITAL EXPENDITURE ANALYSIS 31.12.2018 31.12.2017* Amounts % Amounts % FINCANTIERI S.p.A. 109 68 109 67 The following table shows the deliveries in vessels currently in the order book, analyzed Rest of Group 52 32 54 33 2018 and those scheduled in future years for by the main business areas and by year. Total 161 100 163 100 Shipbuilding 124 77 120 74 Offshore 6 4 7 4 Equipment, Systems and Services 18 11 9 6 (number) Other activities 13 8 27 16 2018 2019 2020 2021 2022 2023 BEYOND 2023 Total 161 100 163 100 Cruise ships and expedition cruise 7 8 8 9 6 4 6 Intangible assets 37 23 55 34 vessels Property, plant and equipment 124 77 108 66 Naval > 40 m. 6 3 6 6 6 2 5 Total 161 100 163 100 Offshore and 22 22 3 1 1 1 1 Specialized Vessels *The 2017 comparative figures have been restated following redefinition of the operating segments.
Compared to the situation presented at 31 postponed. It should be noted that following December 2017, the delivery, initially planned the reorganization of VARD, the cruise ships for 2018, of five offshore vessels, two ferries and expedition cruise vessels category now and a fishery unit has been postponed by includes the vessels delivered by the VARD VARD in agreement with the shipowners. Cruise business unit. With regard to naval vessels, the delivery of one unit for the Italian Navy has been
34 35 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS
R&D and innovation optimize onboard operations and improve Revenue and income amounted to a record is substantially in line with the previous the efficiency of cruise ships, both in terms of euro 5,474 million, an increase of euro 454 year. Revenues generated by foreign clients The Group is well aware that Research and energy balance and reducing environmental million compared to the previous year (+9%), accounted for 82% of total revenues in 2018, Innovation are the foundations for success impact, as well as the realization of innovative despite the negative impact a reduction compared to 2017 (85%). and future competitiveness. Accordingly, systems to upgrade the technological (euro 49 million) of the conversion into euro EBITDA came in at euro 414 million (euro its 2018 income statement contains euro capacity of certain types of naval vessels. of the revenues denominated in NOK and 341 million in 2017), with an EBITDA margin 122 million in Research and Development USD generated by the foreign subsidiaries. of 7.6% compared to 6.8% in 2017. The expenditure on numerous projects involving Group financial results The Shipbuilding segment recorded an Shipbuilding segment made a significant product and process innovation; the Group overall increase in revenues of 9.6%, with the contribution to the overall profitability systematically carries out such activities, seen Presented below are the reclassified versions revenues from cruise ships which increased of the Group, with a record EBITDA margin as a strategic prerequisite for retaining, also of the income statement, statement of by 6.4% and the revenues from naval vessels of 8.5% thanks to the excellent performance in the future, its leadership of all high-tech financial position and statement of cash which increased by 18.3%. of the orders under construction both for market sectors. flows and the breakdown of net financial At 31 December 2018 the revenue from the cruise ships and naval vessels. 2018 also In addition, the Group capitalized euro position, used by management to monitor cruise ships business area accounted for 54% saw the EBITDA in the Equipment, Systems 22 million in development costs in 2018 business performance. of the Group's revenues (55% at 31 December and Services segment benefiting from for projects with long-term utility; these A reconciliation of these reclassified 2017), while the naval vessels business area the growth in volumes, and a negative margin projects mainly relate to the development statements to the IFRS statements can be accounted for 24% (22% at 31 December in the Offshore and Special Vessels segment, of innovative solutions and systems to found later on in this report. 2017). The Equipment, Systems and Services which is suffering from the insufficient level of segment also recorded an increase in employment of some RECLASSIFIED CONSOLIDATED INCOME STATEMENT volumes of about 17%, while revenue from the of its shipyards and the low profitability of the Offshore and Specialized Vessels segment latest offshore being delivered. (euro/million) 31.12.2018 31.12.2017 Revenue and income 5,474 5,020 Materials, services and other costs (4,089) (3,742) REVENUE ANALYSIS EBITDA ANALYSIS Personnel costs (946) (909) Provisions (25) (28) €million 5,474 €million EBITDA 414 341 5,020 10.8% 651 7.6% EBITDA margin 7.6% 6.8% 10.1% 558 Depreciation, amortization and impairment (137) (120) 11.3% 681 18 6.8% 414 EBIT 277 221 12.3% 676 22 11.2% 73 EBIT margin 5.1% 4.4% 341 Finance income/(costs) 1,434 (104) (83) 1,212 Income/(expense) from investments (1) (5) 11.5% 64 Income taxes (64) (42) 6.1% 41 Adjusted profit/(loss) for the year1 108 91 of which attributable to Group 77.9% 4,678 111 95 77.6% 4,267 8.5% 395 Extraordinary and non-recurring SHIPBUILDING (51) (49) income and expenses SHIPBUILDING 3,226 3,033 6.3% 270 Tax effect of extraordinary and non-recurring 12 11 income and expenses Profit/(loss) for the year 69 53 of which attributable to Group 72 57 (20) (481) (536) (34) (2.9)% 1 Profit/(loss) before extraordinary and non-recurring income and expenses. (34) 31.12.2017* 31.12.2018 31.12.2017* 31.12.2018 OFFSHORE AND SHIPBUILDING SPECIALIZED EQUIPMENT, SYSTEMS CONSOLIDATION SHIPBUILDING OFFSHORE AND EQUIPMENT, SYSTEMS OTHER PRODUCTS VESSELS AND SERVICES ADJUSTMENTS SPECIALIZED AND SERVICES AND SERVICES VESSELS CRUISE SHIPS NAVAL OTHER PRODUCTS %TOTAL %TOTAL VESSELS AND SERVICES REVENUES REVENUES
*The 2017 comparative figures have been restated following redefinition of the operating segments.
36 37 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS
EBIT came to euro 277 million in 2018 reflecting the factors discussed above. RECLASSIFIED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (euro 221 million in 2017), with an EBIT The Group share of this result was a profit (euro/million) margin (EBIT expressed as a percentage of euro 111 million, compared with a profit 31.12.2018 31.12.2017 of Revenue and income) of 5.1% (4.4% in of euro 95 million in 2017. Intangible assets 618 582 2017). This change is due, in addition to the Extraordinary and non-recurring income Property, plant and equipment 1,074 1,045 reasons illustrated above for the Group’s and expenses: report euro 51 million in Investments 60 53 EBITDA, to the greater amortization net expenses (euro 49 million in 2017) and Other non-current assets and liabilities 8 122 following the completion of various include costs for legal disputes (euro 39 Employee benefits (57) (59) capital investment projects in 2018. million, of which euro 37 million relate to Net fixed capital 1,703 1,743 Inventories and advances 881 835 Finance income/(costs) and Income/ asbestos-related litigation), charges for Construction contracts and client advances 936 648 : report business reorganization plans related to (expense) from investments Construction loans (632) (624) a net expense of euro 105 million the subsidiary VARD (euro 5 million), other Trade receivables 749 909 (net expense of euro 88 million at 31 costs linked to non-recurring operations Trade payables (1,849) (1,748) December 2017). The main changes are (euro 11 million) and income from the sale Provisions for risks and charges (135) (141) due to the increased finance costs on of a shareholding (euro 4 million). The Other current assets and liabilities 94 1 hedging derivatives for orders in foreign same item at 31 December 2017 amounted Net working capital 44 (120) Net invested capital 1,747 1,623 currency (increased by euro 14 million to euro 49 million and included costs for in comparison with 2017) and unrealized legal disputes (euro 45 million, of which Share capital 863 863 exchange rate losses associated with the euro 39 million related to asbestos-related Reserves and retained earnings attributable to the Group 364 374 conversion into euro of a loan taken out in litigation) and charges related to business Non-controlling interests in equity 26 72 US dollars by Vard Promar (increased by reorganization plans and other non- Equity 1,253 1,309 euro 6 million compared to 2017), whose recurring personnel costs (euro 4 million), Net financial position 494 314 effects were partly offset by reduced mainly related to the subsidiary VARD for Sources of funding 1,747 1,623 expenses from investments (reduced by the closure of the Niterói shipyard. euro 4 million compared to 2017). Tax effect of extraordinary and non- The Reclassified consolidated statement of exchange rate derivatives negotiated Income taxes: present a net charge of recurring income and expenses: of financial position reports an increase to cover contracts in currencies other euro 64 million in 2018, compared with was a net positive euro 12 million at in Net invested capital at 31 December than the euro. a net charge of euro 42 million in 2017, 31 December 2018. 2018 of euro 124 million compared to • Net working capital: il reports a positive mainly due to the increase in taxable Profit/(loss) for the period: was a net profit the end of the previous year, mainly balance of euro 44 million (negative for income of the parent company. of euro 69 million in 2018, up on 2017 (euro due to the following factors: euro 120 million at 31 December 2017). Adjusted profit/(loss): reported a profit 53 million). The Group share of this result The main changes relate to i) the increase of euro 108 million at 31 December 2018 was a profit of euro 72 million, compared • Net fixed capital: presents an overall in Construction contracts and client (euro 91 million at 31 December 2017), with a profit of euro 57 million in 2017. decrease of euro 40 million. The main advances (euro 288 million) and Trade effects include i) the increase in the value payables (euro 101 million), mainly due to of Property, plant and equipment and the growth in production volumes in the Intangible assets, by euro 65 million cruise ships and naval vessels business, ii) in total, mainly due to capital expenditure the reduction in Trade receivables (euro in the period (euro 161 million) and the 160 million) due to the receipt of the effects of the first application of IFRS final payment instalment for a cruise ship 15 (euro 48 million), partly offset by delivered in the first quarter of 2018 and amortization (euro 137 million) and ii) the iii) the increase in Other current assets and reduction in Other non-current assets liabilities (euro 93 million) as a result of the and liabilities (euro 114 million), mainly the increase in Receivables for prepaid taxes result of the negative trend in the fair value and Other current receivables.
38 39 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS
Construction loans, amounting to euro • Equity, amounting to euro 1,253 million, RECLASSIFIED CONSOLIDATED STATEMENT OF CASH FLOWS 632 million, relating to the subsidiary recorded a reduction of euro 56 million (euro/million) VARD for euro 582 million and to with a profit for the year of euro 69 31.12.2018 31.12.2017 the parent company for the remaining million, which was more than offset by Net cash flows from operating activities 30 532 euro 50 million, were more or less in line the reduction in the legal reserve linked to Net cash flows from investing activities (163) (168) with the previous year. cash flow hedging instruments (euro 77 Net cash flows from financing activities 535 (299) It is recalled that, in view of the million), the distribution of dividends (euro Net cash flows for the period 402 65 operational nature of construction loans 17 million) and the establishment, as a Cash and cash equivalents at beginning of period 274 220 Effects of currency translation difference on opening cash and cash equivalents 1 (11) and particularly the fact that these types deduction from shareholders equity, of the Cash and cash equivalents at end of period 677 274 of loan are obtained and can be used reserve for the first application of IFRS 15 exclusively to finance the contracts and IFRS 9 (euro 21 million). The Reclassified consolidated statement of The following table shows the trend in the to which they refer, management treats It should also be noted that the cash flows reports positive Net cash flows main profitability ratios and the strength them in the same way as client advances shareholding in the VARD Group increased for the period of euro 402 million (positive and efficiency of the capital structure in and so classifies them as part of Net from 79.74% at the end of 2017 to 97.22% for euro 65 million in 2017) due to operating terms of the relative importance of sources working capital. at the end of 2018. activities and financing activities which of finance between net debt and equity generated cash flows of euro 30 million and for the years ended 31 December 2018 euro 535 million respectively and investing and 2017. activities which instead absorbed financial CONSOLIDATED NET FINANCIAL POSITION resources of euro 163 million. ROI and ROE at 31 December 2018 show At 31 December 2018, construction loans an improvement compared to 31 December (euro/million) absorbed cash flows of euro 12 million 2017, essentially due to the improved 31.12.2018 31.12.2017 (euro 16 million at 31 December 2017). economic performance. Cash and cash equivalents 677 274 All the indicators of the strength and Current financial receivables 17 35 Current bank debt (197) (122) Economic and financial indicators efficiency of the capital structure at Bonds - current portion (231) (300) 31 December 2018, when compared Current portion of bank loans and credit facilities (54) (52) The following table presents additional with those at 31 December 2017, show Other current financial liabilities (3) (8) economic and financial measures used a minimal improvement due to the Current debt (485) (482) by the Group's management to monitor negative change in the Net financial Net current cash/(debt) 209 (173) the performance of its main business position and, in particular, the increase Non-current financial receivables 63 123 indicators in the periods considered. in non-current debt. Non-current bank debt (760) (262) Bonds - non-current portion - - Other non-current financial liabilities (6) (2) Non-current debt (766) (264) 31.12.2018 31.12.2017 Net financial position (494) (314) ROI 16.5% 12.7% ROE 5.4% 4.1% The Consolidated net financial position, due to the financial dynamics typical Total debt/Total equity 1.0 0.6 Net financial position/EBITDA 1.2 0.9 which excludes construction loans, reports of the cruise ships business which has Net financial position/Total equity 0.4 0.2 a net debt balance of euro 494 million recorded a growth of volumes compared compared to euro 314 million in net debt to the previous year, with 3 vessels due for at 31 December 2017. The change is mainly delivery in the first three months of 2019.
40 41 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS
OPERATIONAL REVIEW BY SEGMENT shipyards in Italy, Europe and the United Order intake Monfalcone and Marghera, to meet the new States. New order intake of euro 7,129 million in 2018 production scenarios and upgrading and Shipbuilding It should be noted that following the refers to: improvement of the safety standards of operational reorganization of the VARD machinery, equipment and buildings; The Shipbuilding operating segment is Group, its Cruise business unit, which mainly • two cruise ships for Viking (ninth and tenth • continuation of activities to introduce new engaged in the design and construction includes the construction of expedition cruise ships), part of the first series of ten ships, of technologies, in particular at the Monfalcone of cruise ships, expedition cruise vessels, vessels, previously included in the Group's which five have already been successfully shipyard, as part of the requirements of the ferries, naval vessels and mega yachts. Offshore segment, has been reallocated to delivered to the client; Integrated Environmental Authorization (IEA). Production is carried out at the Group's the Shipbuilding operating segment. • the ultra-luxury cruise ship “Silver Dawn” (the third in the "Muse" series) for Silversea Cruises; Capital expenditure by the subsidiary VARD (euro/milioni) • two cruise ships for the shipowner Norwegian in 2018 mainly related to the continuation of 31.12.2018 31.12.2017 restated **** 31.12.2017 published Cruise Line (the fifth and sixth vessels of the activities to increase production capacity and Revenue and income* 4,678 4,267 3,883 Leonardo class); the efficiency of production processes at the EBITDA* 395 270 269 • a cruise ship for the historic luxury brand Tulcea shipyard, in order to guarantee adequate EBITDA margin*/** 8.5% 6.3% 6.9% Cunard, part of the Carnival Group; support both for the construction of the hulls of Order intake* 7,129 7,845 7,526 Order book* 29,620 26,007 25,069 • a cruise ship for the shipowner Virgin (the the cruise ships for Norway, and the long-term Order backlog* 23,714 20,971 20,238 fourth unit of the same class); program to construct pre-fitted sections of Capital expenditure 124 120 90 • two new generation LNG-powered cruise cruise ships for the Group's Italian shipyards. Vessels delivered (number)*** 13 12 12 ships for a new client, Tui Cruises (joint venture Capital expenditure in the US shipyards mainly * Before eliminations between operating segments. between Tui Ag and Royal Caribbean Cruises); concerned maintenance of infrastructure and ** Ratio between segment EBITDA and Revenue and income. *** Vessels over 40 meters in length. • two small luxury expedition cruise vessels upgrading of production systems. **** The 2017 comparative figures have been restated following redefinition of the operating segments. (fifth and sixth vessels of the same class), which will be built by the subsidiary VARD for Production the French shipowner Ponant; The number of vessels delivered during 2018 Revenue and income EBITDA • two expedition cruise vessels, which will be built is summarized as follows: Revenues from the Shipbuilding segment Segment EBITDA was euro 395 million at by the subsidiary VARD for the shipowner Viking; (number) in 2018 amount to euro 4,678 million (euro 31 December 2018 (euro 270 million in 2017 • one expedition cruise vessel, which will be DELIVERIES 4,267 million in 2017 restated, +9.6%) and restated), with an EBITDA margin of 8.5 built by the subsidiary VARD for the shipowner Cruise ships 7 relates, for euro 3,226 million to the business % (6.3% in 2017 restated), confirming the Hapag Lloyd, third in the series; Cruise ferries area cruise ships (euro 3,033 million in 2017 positive trend which started in 2016. This • a vessel from the Littoral Combat Ship Naval vessels > 40 m 6 restated, +6.4%), for euro 1,434 million to the result was achieved thanks to the particularly program of the “Freedom” class (LCS 29), Mega yachts naval vessels business area (euro 1,212 million positive performance of some of the cruise the fifteenth vessel in the program, order Naval vessels < 40 m in 2017, +18.3%) and, for euro 18 million, to contracts, both delivered and and almost acquired via the subsidiary Marinette Marine other activities (euro 22 million in 2017). The completed units (with particular reference Corporation; The vessels delivered were: overall increase in revenues generated by to the second half of the year), as well as to • a barge unit for the chemicals/oil & gas the Shipbuilding segment in 2018 is due to the contribution to the profitability of the segment which will be built by the subsidiary • “Carnival Horizon”, the cruise ship for steady progress in production activities on Group of the naval units contracts. Such Fincantieri Bay Shipbuilding. Carnival, delivered at the Monfalcone cruise orders in the final part of the year and dynamics countervailed the ramp-up phase shipyard; the development of naval contracts, with of production activity in the Cruise business Capital expenditure • "Seabourn Ovation", the second ultra- particular reference to the FREMM program, unit of the VARD Group, reallocated to the Investments in Property, plant and equipment luxury cruise ship for Seabourn Cruise Line, the Italian Navy fleet renewal program Shipbuilding operating segment as a result by the Parent Company during 2018 mostly a Carnival Group brand, delivered at the and the contract for the Qatari Ministry of of the reorganization completed in 2018, involved: Genoa Sestri Ponente shipyard; Defence. following the delisting of the company. • “MSC Seaview”, the second next- • updating of the working areas and generation cruise ship for MSC Cruises, infrastructure at some shipyards, in particular delivered at the Monfalcone shipyard;
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• "Viking Orion", the fifth cruise ship for Offshore and specialized vessels (euro/million) Viking, delivered at the Ancona shipyard; 31.12.2018 31.12.2017 restated*** 31.12.2017 published • “Nieuw Statendam”, the second cruise ship The Offshore and Specialized Vessels Revenue and income* 681 676 943 in the "Pinnacle" class for the Carnival Group segment includes the design and EBITDA* (20) 41 42 EBITDA margin*/** (2.9)% 6.1% 4.4% brand Holland America Line, delivered at the construction of high-end offshore support Order intake* 913 471 888 Marghera shipyard; vessels, specialized vessels and vessels Order book* 1,860 1,564 2,646 • two expedition cruise vessels delivered for offshore wind farms and open ocean Order backlog* 987 595 1,418 by the Søviknes shipyard (Norway) to the aquaculture, as well as innovative products Capital expenditure 6 7 37 French shipowner Ponant; in the field of drillships and semi-submersible Vessels delivered (number) 22 13 13
• “Federico Martinengo”, the seventh of a drilling rigs. Fincantieri operates in this market *Before eliminations between operating segments. **Ratio between segment EBITDA and Revenue and income. series of ten multi-role frigates (FREMM) for through the VARD Group, FINCANTIERI ***The 2017 comparative figures have been restated following redefinition of the operating segments. the Italian Navy, delivered at the Muggiano S.p.A. and Fincantieri Oil & Gas S.p.A. shipyard in La Spezia; The VARD Group also provides its clients generated significant benefits in terms • “Kronprins Haakon”, the ice breaker with turnkey electrical systems, inclusive Revenue and income Revenues from the Offshore and Specialized of reducing VARD’s commitments to the oceanographic vessel built in the Group’s of engineering, manufacturing, installation, Vessels segment in 2018 amounted to banks). Italian shipyards for the Norwegian integration testing and commissioning. euro 681 million, with a slight increase of Government’s Institute of Marine Research It should be noted that following the euro 5 million compared to 2017 restated and Fishing, delivered at the Norwegian operational reorganization of the VARD Order intake (euro 676 million), despite the negative New order intake amounted to euro 913 Vard Langsten shipyard; Group, its Cruise business unit, which mainly impact of changes in the Euro/Norwegian million in 2018. In detail: • “USS Sioux City” (LCS 11) and “USS includes the construction of expedition Krone exchange rate (euro 20 million) Wichita” (LCS 13) for the US Navy, within the cruise vessels, previously included in the due to the conversion of VARD’s financial • three coast guard vessels for the LCS program, delivered at the US Marinette Group's Offshore segment, has been statements. Volumes recorded benefited Norwegian Defence Material Agency shipyard (Wisconsin); reclassified in the Shipbuilding operating from the diversification strategy of VARD’s (NDMA), the Ministry of Defence agency • two ATB (Articulated Tug Barges) for segment. business that was successful also in 2018 tasked with developing and modernizing cargo transport in the chemical/oil & gas and that lead to new orders in the fisheries the Norwegian Armed Forces; the vessels segment (each unit composed of 1 tug and and aquaculture segments, and to the will be built by the production network of 1 barge), delivered at the Sturgeon Bay acquisition of an important program for the the VARD Group; shipyard for the shipowner AMA. Norwegian Coast Guard. • four Fishery vessels for the shipowners Remøybuen, Nergard Havfiske, Havfisk and EBITDA Australian Longline Vessel Pty; The Offshore and Specialized Vessels • two electric powered passenger and segment presented a negative EBITDA vehicle ferries for the shipowner Boreal Sjø; at 31 December 2018 of euro 20 million • one cable-laying vessel for the shipowner compared to the positive EBITDA of euro Prysmian; 41 million in 2017 restated, with a negative • one autonomous (unmanned) electric margin of 2.9% compared to the positive powered container ship for Yara Norge. 6.1% of 2017 restated. This performance reflects, in particular, the low profitability of Capital expenditure the last offshore contracts in the order book, Capital expenditure in 2018 mainly relates to the costs associated with the reduction of measures to maintain production efficiency workload in some shipyards (mainly Brazil) in European and Non-European shipyards. as well as a loss realized from the sale of an offshore vessel whose original contract was cancelled following the bankruptcy of the client (a transaction which however
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Production Ltda at the Promar shipyard (Brazil); Order intake • 1 sliding door for a naval client; The number of vessels delivered during 2018 • twelve MCVs (Module Carrier Vessels), New order intake for the Equipment, Systems • 2 grease-lubricated stabilization systems for is summarized as follows: eleven of which were delivered at the and Services segment amounted to euro Meyer Turku; Group's Romanian and Vietnamese shipyards 1,006 million in 2018, mostly comprising: • 1 steam turbine revamping for RCCL Summit; (number) to the shipowner Topaz Energy and Marine • 1 model 36 steam turbine, Waste to Energy DELIVERIES AHTS and one vessel delivered at the Romanian • extension, conversion and modernization of segment for Swiss client; PSV (including MRV) 1 Braila shipyard to NMSC Kazmortransflot the automation system of the cruise ferries • supply of In Service Support (ISS) to the OSCV 1 LLP; “Cruise Roma” and “Cruise Barcelona” for the Italian Navy on the Submarine and FREMM MCV 12 • seven fishery & aquaculture vessels shipowner Grimaldi; program; Fishery & Aqua 7 delivered at the Group's Norwegian • Cavour aircraft carrier upgrade; • after-sales services and supply of spare Other 1 shipyards, two of which were delivered to • supply of steel structure for a suspension parts for programs of the Italian Navy and the shipowner Cermaq Norway and the bridge over the Danube for the joint venture US Coast Guard, for cruise clients and other In detail: remainder to the companies Nordland Astaldi-IHI in Romania; smaller clients; Havfiske AS, FSV Group-Solstrand trading, • extension and conversion of the “Star • supply of the automation, internal • one PSV (Platform Supply Vessel) was Aqua Shipping AS, Midt-Norsk Havbruk and Breeze”, “Star Legend” and “Star Pride”, communication and navigation package for delivered to Island Offshore Shipping AS at Research Fishing Co.; vessels operating in the luxury cruise the Qatari Corvette program; the Brevik shipyard (Norway); • an LPG vessel delivered at the Brazilian segment, for the shipowner Wind Star; • supply of the automation package for the • one OSCV (Offshore Subsea Construction Promar shipyard to the shipowner Petrobrás • 12 stabilization systems and 6 thruster 3rd and 4th vessels in the Korean Navy’s FFX- Vessel) was delivered to Dofcon Navegação Transporte. positioning systems for cruise clients; II program; • supply of propeller systems/shaft lines, • after-sales services and supply of cabins, stabilization systems and navigation system wet units, public areas, kitchens and Equipment, Systems and Services support for the vessels produced. These activities for the two Qatari OPV (Offshore Patrol "complete accommodation" packages for ship are carried out by FINCANTIERI S.p.A. and its Vessels); platforms. The Equipment, Systems and Services operating subsidiaries Isotta Fraschini Motori S.p.A., Delfi segment is engaged in the design and production S.r.l., Seastema S.p.A., Marine Interiors S.p.A., of systems, equipment and accommodation, Fincantieri SI S.p.A., Fincantieri Infrastructure Other activities repair and conversion services and after-sales S.p.A., Issel Nord S.r.l. and FMSNA Inc. Other activities primarily refer to the costs business that are not allocated to other (euro/million) incurred by corporate headquarters for operating segments. 31.12.2018 31.12.2017 directing, controlling and coordinating the Revenue and income* 651 558 EBITDA* 73 64 (euro/million) EBITDA margin*/** 11.2% 11.5% 31.12.2018 31.12.2017 Order intake* 1,006 573 Revenue and income - - Order book* 2,519 1,973 EBITDA (34) (34) Order backlog* 1,638 1,186 Capital expenditure 18 9 EBITDA margin n.a. n.a. Engines produced in workshops (number) 18 31 Capital expenditure 13 27 n.a. not applicable. *Before eliminations between operating segments. **Ratio between segment EBITDA and Revenue and income. Capital expenditure the efficiency of onboard supervision activities; Revenue and income EBITDA The main initiatives relate to capital • the development of information systems to The revenue from the Equipment, Systems Segment EBITDA at 31 December 2018 expenditure on: support the Group’s increasing activities and and Services segment, which amounts to euro was euro 73 million, up compared to euro optimize process management. 651 million at 31 December 2018, recorded an 64 million in 2017 thanks to the growth in • ongoing work to implement an integrated increase of 16.7% compared to the previous production volumes; the EBITDA margin of system for ship design (CAD) and project As in previous years, investment in renewing the period (euro 558 million). Revenues continue 11.2% is substantially in line with the 11.5% of the lifecycle management (PLM), aimed at Group’s network infrastructure and hardware to benefit from the increase in the volumes of previous year. improving the efficiency and effectiveness of the continued. cabins and public areas built internally within engineering process; the Group, mainly to support the cruise ship • the introduction of mobile devices to increase business.
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CORE MARKETS the strengthening of the infrastructure Naval Vessels the sharing of testing facilities / such as ports and dedicated terminals, instruments and skills networks. Cruise Ships the birth of local companies through the In 2018 there was considerable buoyancy In addition, Leonardo and Fincantieri, purchase of new ships or the exploitation in the market for naval vessels, with the building on the cooperation between The cruise ship segment once again of used vessels and the development finalization of several contracts, also them since 2014, have agreed the guiding recorded excellent performance. of industrial docks to stimulate local abroad, although the main bulk of the principles for an agreement in the naval For ships of more than 10,000 tons in production of new ships. programs continued to be assigned to vessels segment. The aim is to approach gross tonnage, 2018 saw orders finalized The new strategies launched some time domestic shipbuilders. The most notable the market as a Country Network, for 23 vessels, the same number as the ago by Fincantieri for this huge market in terms of scale were the destroyer pooling the competencies of the two previous year; in addition, Memoranda of were crowned in November by the programs for the United States, the companies, relaunching the joint venture Understanding/Agreements were signed signing in Shanghai of the contracts, frigates and OPVs for the Australian Navy Orizzonte Sistemi Navali, which both for a further 17 ships. For ships with less announced in 2017, for the construction and the corvettes and frigates for Saudi parties plan to give resources to, so that than 10,000 tons in gross tonnage, orders of two cruise ships for CSSC Carnival Arabia. it can take responsibility for the Combat for 5 vessels were issued. Cruise Shipping Limited, which will be Also in this area, the subsidiary Fincantieri System, defining requirements and the This has taken the worldwide order the first vessels of this type ever made Marine Group (“FMG”) in the United States architecture of individual components, book at December 2018 to a record in China for the domestic market, as well received confirmation of the order for the including the Combat Management high of 103 ships (including those under as the contract for the design of the LCS 29, the 15th vessel in the Freedom System. a Memorandum of Understanding/ industrial park for the shipbuilding sector class ordered by the US Navy. At the same The path towards consolidation in both Agreement or Letter of Intent) with in the district of Baoshan. time, the US Government has awarded to the civil and naval shipbuilding appears deliveries stretching to 2027, an In the expedition cruise segment, also the joint venture led by Lockheed Martin, necessary to address the cyclical nature exceptionally long time horizon in the attractive due to the high level of in which Fincantieri’s subsidiary, Marinette of the market, the rate of technological current industrial scenario. demand, the Norwegian subsidiary VARD Marine Corporation, is a partner, an order innovation, the growth in the size and The investment programs continue to be has confirmed its diversification strategy, under an “Undefinitized Contract Action” value of products and the presence of driven by the positive trend in demand winning contracts for the construction as an advance on the Foreign Military large markets and/or powerful clients. for cruises in traditional markets like of two new expedition cruise ships for Sales contract for the construction of four The last few years have seen profound Europe and America and in emerging Viking, two more ships for Ponant, sisters Multi-Mission Surface Combatants (MMSC) changes in the competitive framework ones, but also by the entry of new of those ordered in 2016, and a third unit for Saudi Arabia. The ships will be built in both in the civil and naval fields, with operators and the need to replace vessels in the Hanseatic series for Hapag-Lloyd the Fincantieri Marinette shipyard. the disappearance of the smaller and that came into service in the early 1990s. Cruises. The subsidiary VARD, instead, signed a weaker players and the emergence of The Cruise Lines International Fincantieri has acquired orders for contract for the construction of three new operators; this process cannot be Association, the world's largest cruise nine vessels and signed Memoranda of coastguard vessels with the Norwegian considered concluded and the geometry industry trade association, has set a Understanding for a further twelve. In Defence Materiel Agency. of the group is likely to undergo further target of 30 million cruise passengers for particular, a new client was acquired in During 2018, Fincantieri and Naval Group change. 2019, thus predicting growth of over 6% 2018: the company TUI Cruises, a joint worked intensely on the project to compared to the 28.2 million achieved venture between TUI AG and Royal create an industrial alliance, presenting Mega yacht in 2018. Caribbean Cruises, which has awarded to the relevant ministries in France and The Asian market has played an an order for the construction of 2 new Italy a proposal to define the terms and The mega yachts market continued important part in this growth and in generation gas-powered cruise ships. conditions for the establishment of a to be affected in 2018 by a climate of particular the Chinese market, which A Memorandum of Agreement was also 50:50 joint venture. uncertainty, related to geopolitical and has reached 2.4 million passengers, signed with Princess Cruises, a Carnival The aim is to strengthen European economic factors, even though the confirming it as the second biggest Group brand, for the construction of two industry through the joint preparation market for luxury goods continued to country market for cruise passengers new generation cruise ships of 175,000 of bids for binational programs and for grow, along with the wealth and number after the United States. tons in gross tonnage, the biggest ever export, the pursuit of a more efficient of those holding it. China is supporting the development built in Italy and the first in the Princess procurement policy, the development of The preliminary closing results for the of the cruise industry by encouraging Cruises fleet to be primarily gas fuelled. joint research and innovation activities, year indicate a trend in demand in line
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with that for 2017, albeit minus a few (unmanned) electric powered container vessels. Orders for yachts of more than ship for the Norwegian company Yara 60 metres numbered 26 compared to 27 Norge. in 2017, including a pair of vessels started on a speculative basis. Repairs and conversions Overall, the segment has been pervaded by a cautious optimism, which also The market for naval repairs in general emerged during the last boat show was positively affected by the demand for in Genoa, where there was talk of a work to adapt vessels to the new standards recovery, with two-digit growth forecasts imposed by the entry into force of the for the segment in 2018 as well. regulations on emissions and treatment of ballast water, which require the installation, Offshore respectively, of devices to treat fumes (scrubbers) and water. The offshore segment once again reflected Competition continues to be intense in the a depressed market environment, despite a repairs market as a whole, above all in the slight upturn in oil prices which lasted until segment for the repair of merchant vessels September, followed by a new fall which (tankers, bulk carriers) and in particular for took the price at year end to around 51 smaller vessels (up to 160 meters in length) dollars a barrel, against an annual average both from Italian shipyards and numerous of 71 dollars (54 dollars in 2017). operators within the Mediterranean During 2018, at a worldwide level no area (Gibraltar, Spain, France, Croatia, contracts were finalized for Anchor Montenegro, Greece, Turkey and Malta). Handling Tug Supply, while only three The cruise ship sector remains the most orders were recorded for Platform Supply attractive, providing opportunities for Vessels, including an innovative LNG- maintenance and refitting work, including powered vessel. some of considerable value and complexity. Demand was mainly concentrated on In this area Fincantieri has been awarded small Offshore Service Vessel (“OSV”) an order for the important contract for the for maintenance and service activities, lengthening and transformation the cruise particularly for wind farms. ferries Cruise Roma and Cruise Barcelona In this area, the Norwegian subsidiary by inserting a 29 metre long section which VARD succeeded in making its know-how provides an additional 600 linear metres for pay by acquiring an order for a cable- heavy vehicles, 80 beds in new passenger laying vessel for the Prysmian group. cabins, two overnight rooms with the At the same time, the subsidiary capacity for 450 seats as well as a new successfully pursued its diversification 270-seat restaurant. strategy, achieving some notable wins in Fincantieri has also signed with the the fishing and ferries segment, with the shipowner Windstar Cruises (Xanterra acquisition of orders for two innovative Travel Collection group), a contract for the electric powered ferries, as well as an lengthening and modernisation of three important program for the Norwegian ships with the insertion of a 26 metre long Coast Guard in the naval segment. section and the almost complete renewal Also of note is the acquisition of an of the machinery and refitting of the engine experimental project, the first autonomous rooms, public areas and cabins.
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RESEARCH AND INNOVATION it intends to channel its actions. It has Structured processes for innovation megatrends to anticipate market trends. been possible, as a result of collaboration These different processes are supported Fincantieri aspires to maintain its position with other Italian and French shipbuilders The Group’s R&D activities are steered in by Technology Scouting, aimed at as world leader in all shipbuilding and through the relative associations three main directions: identifying emerging technologies, segments that require advanced, high (Assonave and Gican), to establish a including in sectors far removed from the value-added solutions. This technological collective development vision for civil and • Development of technologies and world of shipping. leadership is based on the Group’s high naval technological innovation. innovation applied to the order, Protecting intellectual property enables capacity to innovate and its system The Assonave–Gican roadmap is built i.e. activities aimed at developing Fincantieri to get the greatest possible integrator know-how and leads to on five pillars, called Visions, from which technological solutions, materials and benefit from the results of the research technological growth and a constant the necessary technological objectives innovative systems, carried out during the and innovation activities, from its know- improvement of the essential objectives for their success have been identified. design of ships and necessary to meet the how - accrued and consolidated over the behind every action, project, initiative and These pillars, which are the core direction specific needs of shipowners; years - and from the design solutions decision made by the Group. of Fincantieri’s Research and Innovation • Off-the-shelf innovation, i.e. activities that have enabled it to acquire leadership Innovation of products and working process, are the eco-sustainability and aimed at developing specific design in its market sectors. The Research and methods is therefore one of the energy efficiency of ships (Green Ships), solutions that are not directly applicable Innovation processes are supported by fundamental values behind Fincantieri their digitalization (Smart Ships), their to orders, but are necessary to anticipate Cetena, the centre that is the key element that have led to it being one of the most automation (Autonomous Ships), the customer needs, for example in areas of the Group’s pre-competitive research. competitive actors in its segment globally. development of more efficient, safe such as energy efficiency and reduction Cetena’s main tasks concern purely naval In this sense, the capacity to seize on the and sustainable production facilities of operating costs, maximizing payload - areas including fluid dynamics, innovative promising synergies in terms of innovation and processes (Smart Yards) and the the typical profitability indicator for naval structures and materials, energy efficiency at international level characterizes the introduction of innovative solutions for products - and perceived quality and and control of emissions, safety and Group’s action and makes it gradually more Blue Economy growth (Smart Offshore improving safety; tools for decision support, development integrated with and sensitive to market Infrastructures). The importance of this • Long-term innovation, i.e. activities of manoeuvre and navigation simulators dynamics. vision is supported by the inclusion aimed at developing the Group's and testing activities at sea and in the A company subject to cyclical trends over of these pillars in the 2018-2022 technologies also in order to support laboratory. time, such as the naval business, requires Sustainability Plan. entry into new sectors. considerable flexibility in order to enter Fincantieri actively supports and Widespread network new market segments. This flexibility promotes its roadmap towards innovation Fincantieri has defined a structured and can only be guaranteed by careful with the relevant organizations at articulated process for preparing the The complexity of its products has management of innovation strategies. A national level (the national technology Research and Innovation Plan (R&I Plan), driven Fincantieri to think about its own recent example of the Group’s flexibility clusters Trasporti Italia 2020 and Blue which is the operational tool with which innovation processes, founding them on is VARD’s development of new projects Italian Growth) and European level (the the Group gains greater competitiveness both internal skills and on the creation that build on its experience acquired in the Waterborne technology platform and the on the international market, allowing it to of partnerships with various external offshore segment and in the production Sea Europe association) in the conviction generate and maintain a competitive edge stakeholders that differ in terms of type of vessels capable of operating in extreme that they represent the dynamics of against the competition. It is redefined and geographical location. conditions. technological development in the annually in order to maintain consistency medium- to long-term which are needed between developed activities, corporate The role of system integrator played A clear vision for 2030 to bolster the competitiveness of the objectives and market needs. by Fincantieri requires the creation of European shipbuilding industry. Innovation The Group also continuously studies long-lasting relationships that enable Consolidating a shared path with its is a key element for the operating new concepts, promoting the generation the establishment of cooperative European partners in research and segment to continue to maintain a global of innovations within its business development programmes in order to innovation in the shipbuilding industry leadership position, demonstrating that perimeter, collaborates with suppliers to pursue research into new technologies, is one of the Group’s most ambitious it is fully able to handle the greatest produce innovative solutions that also continually improve current ones - in objectives that it intends to pursue in technological and environmental lead to a possible business expansion, terms of quality, efficiency and costs - the coming years, and one from which challenges of our time. and constantly monitors technological and reduce risks.
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the activities of the NTCs Trasporti Italia • The Friuli Venezia Giulia Maritime created for the development of virtual 2020 NTC and Blue Italian Growth. Technology Cluster (MareTC FVG), which reality, simulation and support tools for the has the objective of promoting and automation of processes and logistics. NTC Italy Transport 2020 developing scientific and applied research, • The Polymeric and Composite Materials technological development and training, and Structures Engineering District 20-30% 70-80% OUTFITTING (Suppliers) PLATFORM Fincantieri participates in the maritime as well as the communication of results, (IMAST) in the Campania region, founded (Fincantieri) Working Group of the Trasporti Italia 2020 the stimulus for innovative activities, the for the development of cutting-edge NTC, whose objective is to create synergy exchange of knowledge and experience, skills in innovative materials for various between the various supply chains and technology transfer, publishing on the segments, including the aerospace, maritime, to identify future research and innovation internet and communication of information automotive and bio-medical industries. In this way the Group has given substance trajectories for the surface transportation between companies and research • The Technology District for Maritime, to the paradigm of open innovation, a industry. organizations, and internationalization, to Commercial and Recreational model of cooperation between firms and In 2018, the Trasporti Italia 2020 promote the growth of the intangible value Transportation (NAVTEC) in Sicily, focused research facilities, creating a network of NTC worked to maintain important of the Friuli Venezia Giulia Region maritime on improving the skills of the network extensive and widespread collaborations at dialogue with the Ministry of Economic technology system. of strategic suppliers within the field of international level. Development (MiSE) and the Ministry of • The Liguria District for Marine Technology maritime repair and conversion in Sicily. In order to ensure the integration of Economy and Finance (MEF) aimed at (DLTM), focused on the development of new internal and external innovation processes, steering actions in support of firms with solutions for vessel systems for naval and The objective of the districts is also to the R&I Plan takes into consideration particular focus on the issue of automatic recreational shipyards, for vessel systems for integrate the skills present in the research the various stakeholders: i) suppliers; ii) incentives (R&D, Training 4.0, etc.) and defence and security, and for monitoring, system and the business world, and to networks of universities and research producing an impact analysis of the reclamation and safety of the marine allow suppliers, universities and research bodies; iii) ship classification bodies; iv) Stability Law on the above issues. environment. centres to interact in close contact with the clients; v) trade associations and industrial • The Liguria Technology District for Group for the development of technological forums. Blue Italian Growth NTC: Integrated Intelligent Systems (SIIT), solutions.
Italy: National Technology Clusters and Fincantieri actively took part in launching Regional Technological Districts the activities of the Blue Italian Growth (BIG) NTC, including through direct National Technology Clusters (NTCs) participation with two members on the perform, for their respective areas Scientific and Technical Committee and of competence, the function of soft two members on the Steering Committee. governance in the meeting-point between In 2018, the BIG NTC continued with scientific research and industry. The consultation and coordination actions with purpose of the clusters is to mobilise the the main players in the public and private industrial system, research system and research system on the topic of Blue Public Administration to activate extensive Growth aimed at defining its own Three- and inclusive national partnerships to Year Action Plan. address shared priorities. Moreover, they fuel strategies for research, development Regional Technological Districts and training of human resources, and the relative implementation plans to maximize At a regional level, the cluster policy has the impact on the economic system, in line strengthened the roles of the districts; with the need for innovation and increased Fincantieri works with five technology competitiveness emerging from companies districts located in the areas of its in the country. 2018 saw a continuation of shipyards:
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Norway: the main partnerships and blue growth fields, consolidating United States: the National Shipbuilding throughout the whole naval industry by the widespread consensus among the many Research Program end of this century. The Group, through the subsidiaries of VARD stakeholders in the sector. Fincantieri Fincantieri considers Green Ship as a group, regularly cooperates with the Norwegian recognizes the importance of participating The American subsidiary Marinette Marine milestone of its vision. The activities in 2018 academic and research world. In particular in the industry consultation processes carries out most of the research and confirm this commitment. Recent contracts, activities are regularly carried out in partnership needed to define the European guidelines innovation initiatives in collaboration with whether they are related to the sectors of new with NTNU - the Norwegian University of for research and technological innovation research centres and universities, through builds or refitting, feature the use of advanced Science and Technology - and SINTEF - The and is therefore an active participant in the National Shipbuilding Research Program technologies, such as Liquefied Natural gas Foundation for Industrial and Technical Waterborne and fully involved in its relaunch. (NSRP) funded by the US Government. (LNG), batteries, modern pollutant reducing Research - one of the main independent In 2018, Fincantieri participated in the work NSRP was founded in collaboration and energy saving systems. research centres in northern Europe. of numerous working groups, contributing with US Shipyards, which studies and Fincantieri aims to continually improve ship This close cooperation has driven to the significantly to the preparation of the develops new processes and designs to energy efficiency and emissions using a establishment of two centres for research- platform’s visions and missions, appropriately improve ship production in the United holistic approach able to cover all the on- based Innovation (SFI), within a framework integrated in a Strategic Research Agenda States and make it more efficient. This board sub-systems. Future activities will be initiative established by the Research Council of for the sector at the European level. project allowed Marinette Marine to launch focused on reducing emissions to air and Norway. These temporary centres (established This document aims to help the process collaboration initiatives for the development water, greater innovation of on-board waste for the period 2015-2023) aim to improve for identifying the industry priorities in of research projects and innovations. The management and disposal systems and the ability to innovate in a specific industrial terms of research and innovation, also activities carried out in this context range reducing noise and vibrations. Furthermore, sector by creating close partnerships between with reference to the issue of mobility, by from welding techniques to “design for Fincantieri supports the Green Fuel Switch, companies and research groups, focused European institutions, identifying a long-term maintenance” concepts, via the study of also by harnessing renewable energy, and on medium- to long-term research goals. In technological development path capable of strategies to reduce ship weight. it believes in developing new technologies particular the Group participates in the Smart strengthening global competitiveness in the for de-carbonization such as Fuel Cells, Marine SFI, the centre which aims to improve sector. Significant projects encouraging the introduction of high the positioning of the Norwegian maritime In the European context, Fincantieri continues performance materials and promoting eco- sector in the segment of low environmental its cooperation, through Assonave, with The Group operates through its own design ideas (for example design for eco- impact maritime transport and Move SFI, the Sea Europe - the European association of resources, with over 90 projects, and compatibility, evaluation of the life cycle, etc.). centre focused on maritime operations and shipyards and producers of naval systems through programmes funded at European, The main Group projects active in 2018 developing IT knowledge, methods and tools - and, through Cetena, with the European national and regional level. Often, given were: "High Efficiency" aimed at identifying to increase their value. Council For Maritime Applied R&D (ECMAR), the complexity of the issues covered, innovative systems solutions for energy which aims to develop a common strategy for projects are cooperative in nature in order recovery; "Platform for Onboard Waste to Europe: the main partnerships European research in the maritime sector in to maximize effectiveness by exchanging Heat conversion" aimed at analysis for waste- line with the EU funded research, innovation knowledge with various actors who are to-energy solutions; "Innovative Electricity During 2018, European stakeholders in the and development priorities. Moreover, the leaders in their respective sectors. In 2018 Generation" with the objective of preliminary maritime sector were strongly committed, in Group participates intensely in the activities the Group pursued the following innovative design of a cruise ship powered by fuel cells; line with the initiatives launched in previous of the Cooperative Research Ships (CRS), a projects: "Low environmental impact technologies" years, to relaunching the Waterborne consortium of over 25 members concerned which provides for the creation of a new European Technology Platform, changing with obtaining data on the hydrodynamic Green Ship 25 metre laboratory for the study of new the membership procedures by opening behaviour of large ships. Fincantieri also Greening has been steering innovation and technologies; "Energy Efficiency Criteria and up to a wider range of private entities participates in Hydrogen Europe, the markets for years now and, today, it represents Optimization of Ship Electric Balance" to and strengthening communication skills European association representing the an important issue in the eyes of public reduce environmental impact; “Sustainable and strategic collaborations with other industry and research for the development opinion. CLIA, the Cruise Lines International Ship Design Program”, aimed at introducing European entities. The Waterborne of hydrogen technologies and fuel cells, Association, recently announced its formal and approving a holistic approach to energy European Technology Platform is the most which cooperates with the European commitment to reducing carbon emissions by efficiency and emissions reduction, “New important strategic partner of the European Commission on the Fuel Cells and Hydrogen 40% by 2030 on all cruise ships, pursuing the generation stabilizers”, to assess the influence Commission in identifying the research Joint Undertaking (FCH JU) innovation International Maritime Organization’s (IMO) of different configurations of the stabilizers on priorities in the maritime, naval, port, logistics programme. objective to reach zero carbon emissions energy efficiency.
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Smart Ship and Autonomous Vessel integrate a wide range of navigation and and the extraction of raw materials and The Internet of Things (IOT) and smart communication products; and “Cyber”, a hydrocarbons. Furthermore, the platforms devices are pervasive across all industrial study of different aspects of cyber security. will be used to store products (energy and sectors and ships are not exempt from this materials) during operation. Their modular “intelligent” revolution. Smart Yard construction will enable the infrastructure The development of sensors, monitoring Fincantieri has identified various areas to be modified during its life cycle by systems, support systems for navigation of interest for improving the design and adding or dismantling individual modules, and on-board activities help increase the production stages of future smart yards. and thus meeting requirements that have value added of the whole ship product and The main aims are related to improving changed over time. This will increase the improve global safety. safety and productivity. Computer models, overall efficiency of offshore operations. The study of pre-accident measures, i.e. virtual product methodologies, additive The increase of offshore activities, and their design and operational solutions to reduce manufacture, cobotics, logistics and quality gradual movement to ever more remote the frequency of accidents, in addition control procedures will drive the evolution areas, will require support infrastructures, to measures that improve the resilience of the shipyard within Industry 4.0. In the particularly for the transfer of people and capacity of ships, i.e. the capacity of a coming years, ships will be designed and materials to and from land. ship to survive accidents, will increase produced by giving greater consideration The main Group projects active in 2018 were: safety across the board. Furthermore, to the life cycle perspective, from design to “Modular Production Platform”, aimed at implementing technologically advanced decommissioning. Moreover, innovative and developing the concept of modular floating solutions will enable process optimization cost-effective production techniques and platforms for offshore operations; Deep Sea and automation and reduce the operating methods will be developed, with a particular Mining, aimed at assessing the commercial costs associated with them. focus on welding and joining procedures. potential of and possible strategic options One of the most interesting challenges The main Group projects active in 2018 for entry into the market for deep sea mining for the shipbuilding industry is to develop were: “Ramsses”, aimed at extending the or mining in remote areas. autonomous ships of a significant size for application of advanced materials in the use in any operational scenario, including maritime industry; “Sidran”, immersive in busy port areas. The key technological system for design review in the naval factors that drive this trend are the field; “Maestri”, Integrated structures and implementation of new technologies that, macro-accommodation modules for cruise based on the integration of different ships; “ISDM”, data and process model for systems, are able to track ship operations the smart vessel production; and “Virtual and allow it to manoeuvre autonomously. sea trial by simulating complex marine Moreover, each highly smart or autonomous operations”, aimed at improving the design ship will require highly advanced IT security process through methods and models for studies to avoid any type of hacker attack. realistic simulation of life-cycle performance. The main Group projects active in 2018 were: “E-Cabin”, aimed at developing Smart Offshore Infrastructure digital solutions and tools for passengers; The offshore world is evolving rapidly and “E-Navigation”, aimed at exploiting the use Fincantieri wants to lead the change. The of augmented reality for the evaluation of evolution is steered by new business models operational scenarios; “Secure Platform”, and by the need to more efficiently harness aimed at increasing physical safety on the maritime environment, also thanks to board ships; “Ocean2020”, with the structures that can be adapted to different aim of integrating unmanned systems uses, such as work and life at sea. and introducing concepts of situational Multipurpose platforms will be able to awareness in a maritime context; support different activities at the same time, “Integrated Bridge” (SeaQ Bridge), to such as aquaculture, energy production
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HUMAN RESOURCES sites in 2018. Its purpose is to increase the and fixed term employees, and is also motivation and participation of employees recognized for the employees of Italian The following section presents the Group's in the innovation processes, combing subsidiaries and/or associates falling under employment figures as well as its main the necessary increases in efficiency and the application of the supplementary initiatives in the field of Human Resources. productivity with the improvement of life labour agreement (Isotta Fraschini Motori and work quality. S.p.A., CETENA S.p.A. and Orizzonte On a national level, work continued in the Sistemi Navali S.p.A.). various joint commissions and special Employees can access a wide range HEADCOUNT attention was given to further developing of goods, and services through a training issues, the structuring of a plan special portal. The options most used OF WHOM IN of initiatives for the prevention and by employees are welfare vouchers OF WHOM IN ITALY PARENT COMPANY containment of accidents and protection (40%), services for families (21%) and EMPLOYEES AT of the environment with the constant and supplementary pensions (15%). YEAR END increasing involvement of the supply chain. Part of the performance bonus, also Solidarity leave was established during called the Social Bonus, is used on an 8,662 the year. It offers employees the option annual basis and exclusively on welfare 19,274 (8,314 in 7,874 (19,545 in 2017) (7.616 nel of passing their own holiday and leave services and is a management element 2017) 2017) entitlements to colleagues in serious need that is consolidated within the Company. and it was extended with the trade union Moreover, workers can convert variable agreement to the Sestri Ponente shipyard. awards linked to the achievement Employees are guaranteed freedom of of assigned objectives into welfare association throughout the Group. In 2018, entitlements. The Company also adds OF WHOM IN PARENT COMPANY 52% of employees are registered with trade a further increase of 10% to the value AVERAGE NUMBER unions. converted for employees who decide to OF EMPLOYEES Specific information procedures are use this opportunity, thereby strengthening envisaged for any restructuring processes the connection between the achievement OF WHOM IN ITALY which involve trade union organizations. of production objectives and consolidation 7,677 The restructuring methods used have of the overall welfare system. (7,471 in 19,331 different set-ups depending on the context Welfare is also extended to the other (19,314 in 2017) 19.050 8,399 in which they are used. Italian subsidiaries and/or associates 2017) (8,071 in 2017) The VARD Group signed five collective that fall within the scope of the national bargaining agreements for foreign collective bargaining agreements. subsidiaries in 2018. On this point, particular attention has been paid to transport issues. In Corporate Welfare 2018, the reimbursement of public The Parent Company had 7,874 employees Industrial relations transport costs was included among the at 31 December 2018, an increase of 258 on With the 2016 cooperation agreement convertible services. With this benefit the 2017 reflecting the net effect of 383 new Industrial relations in Fincantieri are based Fincantieri laid the foundations for employee can request the total or partial entries, mainly in the business areas on a very strong participatory model and a welfare model able to seize on the reimbursement of public transport costs and 125 leavers. This change is mainly are developed through the activities of employment and enterprise market for themselves and/or for their dependent the result of the increase in resources various commissions and specific bodies, dynamics, translating them into a modern family members. employed in the Group’s Italian shipyards, which in some cases, in addition to trade and efficient management of the available confirming Fincantieri’s commitment unions, include workers. This is the case of resources. Confirming the validity of the welfare to pursuing the growth targets set out the Bilateral Joint Technical Body which The welfare system is available to model it has adopted, Fincantieri won the in the Plan. continued to operate in all the company employees in general, including part-time Welfare Awards 2018 for the best plan
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in application of the National Collective by the Company and partly by the worker. integrated business view, the relational 26,500 hours of training were delivered Bargaining Agreement for Steelworkers, In addition, there are other benefits not and methodological skills of recently to Fincantieri employees and, as part of and a special Welfare Awards 2018 award included in the above plans, such as the appointed managers. lifelong learning, the project will continue for welfare policies aimed at manual on-site clinic, vacation and holiday pay, The Project Management Academy has in 2019. workers. the policy on short/long term disability, been introduced in the institutional To keep attention focused on quality In the same vein, the spread of corporate life insurance for accidental death & training programmes offered by the issues, the Naval Vessel Division also Car Pooling (namely two or more people dismemberment, the retirement plan and Fincantieri Corporate University. This provides for a specific course for new sharing a private car for the commute to the employee assistance programme. modular training programme aims to hires on the current procedures in the and from work) continued and in 2019 it The VARD Group provides its employees, accelerate the placement of people naval and after-sales areas, while VARD will be extended to all companies in the using different methods depending on the in Project Management Team and to delivered more training courses aimed at Group. location, with medical assistance, internal strengthen the specific knowledge and product quality standards during the year. To respond to the increasing need catering services, food cards, training skills required of them. A special training course was dedicated for a work/life balance, in addition to incentives and support for transport to As evidence of the importance given to to the roles of production supervisors and envisaging greater working hour flexibility and from home. sustainability issues, an objective that managers of the production and design as regards the times for arriving and envisages the insertion of the subject areas. It was aimed at strengthening their leaving the workplace, the Company Training And Development in the Corporate University’s training managerial and motivational and relational has launched an initial trial of the Smart framework has been included in the 2018- skills also within the context of internal Working tool. In the Talent Management process 2022 Sustainability Plan. corporate dynamics. In relation to supplementary health care, operative within Fincantieri, training In the mass of training aimed at Along these lines, over the year, FMG an agreement was defined with the and development play a key role in strengthening and maintaining technical and VARD also developed a training path national trade unions for the new Health enhancing human capital. People are and specialist skills, a key role is on leadership for supervisors and staff Plan, which has guaranteed a considerable actively involved in their own career played by the Integrated Ship Design in technical roles, aimed at facilitating increase in the level of services provided development paths, from the perspective & Manufacturing (ISDM) project, which development into the team leaders. to employees and a further extension of responsibility, defining career goals and envisages the development of new Globalization and the broadening of the to family members covered with the awareness of training needs. The training technical and managerial tools to support business scenarios in which the Group contribution paid by the Company. programmes provided by the Fincantieri product design and development. The operates from day to day have intensified, Health services were provided both Corporate University, the Company’s training activities already launched will in line with the Company Language Policy, directly, through the facilities contracted management training school, have been have a significant impact in coming years the demand for and provision of training by the operator and in the form of updated in terms of content and delivery as well. to improve language skills across the “reimbursement” and access to them methods in order to better respond to Technical training is also one of the board. was facilitated by assistance for Group business needs and the prospects related priorities for subsidiaries, in both Italy and Fincantieri’s increasing presence in employees only. to order backlog. abroad, and it has been especially focused international scenarios and the need The agreement also confirmed the Numerous editions of the Academy on the issues of production, design, to protect the people required to opportunity for pensioners, under the programme have taken place. This new technological solutions, augmented work abroad have been the basis for operator’s most favourable conditions, programme is dedicated to young reality, after-sales service, with the aim relaunching the Travel Security course. In to continue to make use of the people who have recently been hired of improving the quality of services and 2019, more information was developed for supplementary health care benefits with a by the Company and aims to encourage products supplied to the customer. all employees to raise awareness of the contribution paid for by them. integration into the company environment, The Quality Improvement programme of risks associated with travel abroad and to FMG pays benefits to all employees providing them with training on cross- the Merchant Vessel Division continued; provide them with consequent indications who work for at least 30 hours a week. functional issues and facilitate an aptitude at training level it was delivered in the on how to behave. Benefits include subscription to the Group to manage change. Training for Quality project, a broad The introduction of the new European Health Medical Plan, which covers various Further training paths have been range of technical-operational courses Regulation on Data Protection (GDPR) services: a medical coverage plan, a dental implemented to accompany employees’ aimed at manual workers and production entailed a significant training commitment coverage plan and vision coverage plan development towards managerial supervisors within the Group and those in order to fulfil the legal obligations and for eye health. The costs are borne partly positions and to increase, from an working in contractors. In 2018, over give substance to the internal procedures.
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With the same purposes, the Parent their growth and enabling them to appraisal of the resource to be obtained Recruitment policies, management and Company has promoted and extended perform at their best. by comparing self-assessment and enhancement of human capital to its subsidiary companies training Among these, performance appraisal assessment by others. The multiple and information activities with regards is the systematic and consolidated feedback perspectives collected (self- As enshrined in the Code of Conduct, to Listed Companies, Enterprise Risk process in Italy that enables the core assessment, appraisal by the manager, Fincantieri operates with due regard to Management, IT Security, Organizational competencies of all employees, from by colleagues and by collaborators) diversity and equal opportunities and does Model and the administrative manual workers to managers, to be are shared and discussed in a feedback not permit any kind of discrimination, responsibility of legal entities under measured on an annual basis. The value interview which aims to develop in from personnel selection and throughout Legislative Decree No. 231. added of the process is represented employees a greater awareness of their the entire employment relationship. From the perspective of continuity by the feedback interview that each strengths and areas for improvement. An All the companies in the Group work with the path of cultural growth and manager carries out individually with individual development plan is prepared in accordance with these principles, as resource involvement that the Group their collaborators in order to share the after the feedback which collects the defined in the respective guidelines or has undertaken for some time, various results of the appraisal and define future support actions aimed at strengthening corporate policies. training and information activities targets. The foreign subsidiaries have the most critical competencies. In order to meet the needs arising from the on health and safety at work and the also adopted advanced appraisal systems Appraisals of performance and potential development of the business in terms of environment were promoted in 2018, that measure the performance attained are the drivers that guide the People internationalism, diversification and strong in addition to and in furtherance compared to the assigned objectives, Review activities in the Fincantieri Group. growth, the Fincantieri Group adopts of that required by law. allowing job rotation and professional These help identify resources with greater recruiting and employer branding strategies As part of the policies to enhance growth opportunities to be assessed. potential and usefulness in the Company aimed at identifying and recruiting the best and protect human capital, Fincantieri In 2018, the Parent Company launched and the development actions needed to talent on the market. adopts a variety of tools to evaluate its the comprehensive assessment, a accompany their growth. In fact, potential Each year the Company maintains and resources with the aim of facilitating development tool that enables a full appraisal weighs the maturity of each improves its employer market position, at individual resource’s cognitive, realization, both national and international level. This relational and coordination skills and growth can be seen among students and examines the potential for the resource professionals and it is the result of targeted to hold more complex positions, including actions that are being developed including those far outside their usual perimeter thought the main web and social network of activity. Individual career paths are platforms. identified and defined on these bases and FMG and VARD have a structured system aim to put in place the steps needed to of internal job posting, which gives accrue the experience and essential skills employees the opportunity to apply for through job rotation, classroom and on- job vacancies, and therefore making the-job training and coaching paths. themselves the prime movers of their own The people review activity also helps career paths. succession plans to be set up, which are Fincantieri is an integral part of the an essential tool for identifying managers production fabric in Italy and abroad and who occupy positions of strategic it is fully aware of the need to strengthen importance for the business and ensuring the skills available on the market through the availability of potential “successors” offers that are devised, implemented in the short and medium term. and promoted in close synergy with the In the same vein, FMG has introduced stakeholders operating in the world of work a policy aimed at inter-generational and training. cooperation, also through mentoring and Fincantieri has therefore adopted policies training activities from "senior" to "junior" and strategies aimed at enhancing the workers. knowledge and professional skills available
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in the territories in which it operates. expressed the need to train and prepare on 25 May 2018. From this date, for the Services confirmed once again in 2018 In particular, it has further developed technical career profiles that are not first time, a unified regulatory framework the full compliance of the integrated IT its connection with the main national easily available in the market. This led that defines the fundamental principles security and quality management systems, and international Universities and with to an important cooperation with the applicable to the processing of such data confirming the ISO/IEC 27001:2013 and ISO Maritime Academies, owing to its growing Ministry of Education, Universities and started to be applied within the European 9001:2015 certifications, which represent presence at career days and the promotion Research (MIUR) which resulted in the Union. deeper integration with the information of specific career guidance, training and Memorandum of Understanding signed In this context, Fincantieri - aware of its technology required by the personal data recruitments days - called Meet Fincantieri on 20 November 2018. The MoU aims to social responsibilities and in light of the full protection obligations. - in Universities. The Group continues promote and encourage the development transposition of the principles laid down to to cooperate with Secondary Education of study paths at Istituti Tecnici Superiori protect personal data - launched a process Institutions (known as High Schools (ITS - Higher Technical Colleges), mainly to comply with this regulation the year. and Technical Schools abroad) in Italy, in the areas in which Fincantieri operates At the end of this process, the Company particularly with the Work-Study schemes but also throughout Italy, to train specialist adopted a privacy management system, (Law No. 107/2015), with public (local technical staff in line with the profiles whose founding principles are contained and regional) institutions through career sought. Fincantieri and MIUR have in the policy on General Principles of the guidance and recruitment days and tours agreed on the fact that ITSs are the most Privacy Management System (Privacy around its production sites and shipyards. efficient means to meet the demands of Policy) which establishes, among other Fincantieri consciously aims to be a the employment market, particularly as things, the main processes needed to guiding element for strategies aimed at regards highly specialized roles. ensure the protections envisaged by the building a synergistic network between Among the initiatives implemented, an legislation. public and private institutions, companies important role is played by the launching With this policy Fincantieri undertakes to and districts in the shipbuilding industry. of the first ITS Ship Design course in establish and maintain over time a control In practical terms, Fincantieri established Italy, developed by the Adriatic Nautical model aimed at protecting the personal working groups with the main national Academy in partnership with Fincantieri, data collected and processed as part of and local educational institutions in 2018 which is also the Founding Partner and the operational processes of its business, to identify the potential evolution of the member of the Steering Committee and promoting the development of a pervasive training plans and study programmes in the Executive Committee. privacy culture at Group level. With this in order to bring them closer to the needs of To promote the Fincantieri brand on the mind, in addition to the dissemination of companies. employment markets of the countries privacy statements to the data subjects This pro-active cooperation led to projects in which the Group operates, solid and instructions to personnel authorized with the Central Office for Labour, Training, cooperation arrangements have been to process personal data, Fincantieri has Education and Family of the Friuli Venezia implemented with the main universities carried out a pervasive training campaign Giulia region and with the Liguria region. which have established Naval Engineering that reached all the employees of the These initiatives have culminated in the courses, including through participation in Parent Company and was extended to the setting up of a Regional Labour Agency career guidance and Meet Fincantieri days. Italian subsidiaries. Desk in the Monfalcone shipyard which The Privacy Management System was has facilitated the meeting of employment Privacy protection laid out in detail in a specific Manual and demand and supply in the shipbuilding by operational procedures that identify industry and, in Liguria, with the creation Regulation (EU) 2016/679 of the European certain processes that are especially of a “virtual desk” on the Formazione Parliament and of the Council of 27 April critical such as management of data lavoro platform which identifies and 2016 on the protection of natural persons breaches and management of requests manages job vacancies in the shipbuilding with regard to the processing of personal from data subjects asserting their rights. industry. data and on the free movement of such As regards the security measures to be To support development of the whole data, and repealing Directive 95/46/EC implemented to guarantee and protect shipbuilding industry, Fincantieri has also (the “GDPR”) became fully applicable personal data, the certification body RINA
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Environmental Management System, carried out work on their systems for Towards Zero Accidents project certified in accordance with international extracting and treating welding fumes. standard ISO 14001, with the aim of While the Arsenale Triestino San Marco For several years the Towards Zero supporting the policy adopted by the shipyard, as part of its water management, Accidents project has involved all the Company and give coherence to the has built a collection system for draining resources concerned with the Company’s production model. the industrial waste produced in the dry production process within a structured All the Italian sites have been certified dock into the public network. plan of initiatives. In 2018, a series of and have completed transition to ISO As regards product, the Group activities were carried out that were 14001/2015, while the Palermo shipyard committed to various projects with the aimed at employees and suppliers and at alone is currently in the interim stages aim of containing environmental impact contractors’ employees. which should lead to certification by 2019. throughout the ship’s life cycle. To consolidate good practices and the The Marinette yard in the US also constant monitoring of the production maintained certification for its Health and safety at work dynamics, careful attention has been environmental management system, in paid to coordination meetings on safety compliance with the standard. Safety at work, workers’ health, the and the environment which, scheduled For the VARD Group, the shipyards VARD maintenance and improvement of work at least every two weeks, are carried Braila and VARD Tulcea in Romania environments have always been the main out directly in the production areas with and the VARD Vung Tau shipyard in drivers of the Company’s policies, in a the participation of all the supervisors Vietnam have confirmed their ISO 14001 vision that considers safety a strategic involved in processing and the workers’ certification. Environmental audits are and development factor for the Company. safety representatives. constantly carried out in all the sites, In this light, the continued implementation At the level of individual production as an integral part of the “Vision Zero” of tools associated with the certification unit, Fincantieri has established the programme, by the specific internal of the company's systems for managing Quality and Safety Committees with structures and all the reports of health and safety at work, according the aim of monitoring the production environmental near-misses are collected to the requirements of OHSAS18001, processes within their different structures. and managed systematically. has resulted in the broadening of the The Quality and Safety Committees In 2018 the Fincantieri Group invested work population involved, facilitating meet regularly, are supervised by the ENVIRONMENT AND SAFETY AT WORK about 8 million euros in environmental dissemination of corporate culture growth Management of the production unit and protection. In particular, the Parent paths. are composed of all those reporting to Environmental policy Company launched initiatives to both This result is monitored through the the management and by the quality, improve environmental impact and to systematic implementation of internal health, safety and environment managers. Fincantieri is aware that its level of reduce direct and indirect atmospheric audits connected to the certification Workers are represented in these responsibility is judged by its ability to emissions. of management systems and it has Committees through their safety and combine, in its work, professionalism The works carried out in the Monfalcone been further supported by the various environment representatives. and quality with strict respect for laws shipyard, in line with the improvement initiatives implemented as part of the The documented analysis of accidents and and consideration for the needs and programme set up with the issue of the Towards Zero Accidents project. near-misses at the individual sites, made expectations of the community in relation Integrated Environmental Authorization Owing to the more frequent and with the use of a computerized format, is to the protection of public goods. The (AIA) in 2017, are of particular importance. widespread presence of employees who shared among all the organizational units Company wants to represent a model The main ones involved the systems travel or are on secondment abroad, the and has made the involvement of the of excellence also in terms of maximum for collecting and treating rainwater, Travel Security programme has developed entire Company systematic, particularly environmental protection. noise containment measures related to an ongoing mapping of risks in foreign detailed and timely. To manage the more significant production and systems for extracting and countries to guarantee the security of The Active Safety project involves environmental aspects associated with treating welding fumes. travelling employees and the sustainability training/information provision beyond its business, Fincantieri is committed The Sestri Ponente, Muggiano, Marghera of the locations associated with business that required by law and is carried out to implementing and maintaining an and Riva Trigoso shipyards have also operations. on a monthly basis during working
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hours and directly at the workplace. The Multiple initiatives have been carried out This is a multimedia training video, with The US site of Fincantieri Marinette Marine new element relates to the direct and with the aim of preventing any type of a duration of over three hours, aimed maintained the certification of its health simultaneous involvement of supervisors accident to people and the environment: at employees of subcontractors (a user and safety at work management system, (production managers for Fincantieri, catchment of around 30,000 people), and in compliance with the requirements of BS site managers for external companies) • using the Safety Observation tool to it must be watched in the classroom when OHSAS 18001. in the training and information of their report any anomalies found; people enter the Group’s production sites The VARD Group maintained OHSAS respective employees and in the sharing • reporting health and safety indicators at for the first time. 18001 certification for the VARD Braila of the same issue and common illustrative the monthly management meetings; The aim is to represent and simplify the and VARD Tulcea (Romania) shipyards, material. In 2018, 10 different editions were • organizing the prevention week to main risks present in the shipyard and the as well as the VARD Vung Tau (Vietnam) carried out with a duration of 30 minutes. reduce internal accidents; correct operational methods, also in order shipyard. All VARD shipyards are aligned Over the year, the supplier evaluation • monthly discussions on health and to prevent and minimize the interference with SA 8000 standards, which are based process has received a significant boost safety (compulsory under Brazilian law); risks of certain stages in which several on the International Labour Organization as regards safety issues. Contractors • election of an internal accident activities are carried out. (ILO) conventions and the Universal are already subject to evaluation from prevention commission; The Together in Safety video focuses on Declaration of Human Rights (Vung Tau is a financial, quality, contractual and • the internal distribution of a booklet with 35 risk situations and describes over 180 also certified). production perspective and they have the ten golden rules for health and safety recommended prevention and protection been assessed using a predefined format at work, based on the Group’s guidelines. measures to inform and make the worker and scorecards focused on health, aware of the risk situations present in the safety and environment issues, also by The US subsidiaries have maintained workplace. the various shipyards, with the direct a high commitment to safety and the The video has been developed in the involvement of the managers of the environment and have received numerous 10 languages most used in Fincantieri relative areas. The assessments have awards for excellence. sites and, in the context of each of the led to the calculation of the overall While Fincantieri Bay Shipbuilding won Italian production units, with a first part performances of the companies and will the Shipbuilders Council of America customized to the logistics of each be subject to permanent monitoring Excellence in Safety Award for the fourth shipyard. within Supplier Oversight. year running, Fincantieri Marinette Marine The Training for Quality initiative aims and Fincantieri Bay Shipbuilding have BS OHSAS 18001 and SA 8000 to verify and strengthen the technical been awarded the Excellence in Safety Certifications and operational know-how of production Award by the Shipbuilders Council of supervisors and skilled workers (in both America. During 2018, Fincantieri continued Fincantieri and contractors) and it has Fincantieri Ace Marine has developed implementing and consolidating been extended to all Italian shipyards. the SLAM (Stop, Look, Assess, Manage) the occupational health and safety As part of this initiative, those skills programme that involves the employees management systems in its operating that have a direct impact on product and intends to promote a pro-active vision units, with the aim of supporting the quality have been analysed along with of health and safety in the workplace. implementation of the related policy the consequent identification of any adopted by the Company. training needs, including elements directly Together in Safety project The sites that have already been certified concerning safety, such as the proper continued to be monitored by the RINA use of equipment and work tools, the use A new tool has been made available and certification body to ensure certification of personal protective equipment and operational in all Italian shipyards since maintenance or renewal. keeping the work station clean and tidy. January 2018. It is aimed at protecting The Palermo shipyard, which had started The VARD Group, similarly to Towards human resources and promoting certifying its management system over Zero Accidents, has further developed its correct behaviour, including from an the course of the year, aims to achieve Vision Zero project, the results of which environmental perspective: Together in certification of compliance with the confirm a positive trend. Safety. requirements of the standard by 2019.
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ENTERPRISE RISK MANAGEMENT various financial and non-financial risk factors, 2 Risks related to nature of the market which, if they should materialize, could have DESCRIPTION OF RISK IMPACT MITIGATION The Fincantieri Group is exposed in the an impact on the results of operations and normal course of its business activities to financial condition of the Group. The shipbuilding market in general is Postponement of fleet renewal In order to mitigate the impact of historically characterized by cycles, programs or other events affecting the shipbuilding market cycle, the sensitive to trends in the industries the order backlog with the Group has pursued a diversification 1 Risks related to operational complexity served. The Group's offshore and Fincantieri Group's principal cruise strategy in recent years, expanding cruise clients base their investment ship client could impact capacity its business both in terms of products DESCRIPTION OF RISK IMPACT MITIGATION plans on demand by their own utilization and business profitability; and geographical coverage. Since clientele; in the case of offshore, similarly a downturn in the offshore 2005 the Group has expanded Given the operational complexity If the Group was unable to To manage processes of such the main influence is energy demand market could lead, as has already into the businesses of offshore, stemming not only from the inherent implement adequate project complexity, the Group implements and oil price forecasts, which in happened, to a reduction in the level mega yachts, marine systems and nature of shipbuilding but also from management activities, with procedures and work plans turn drive investment in exploration of orders, in this segment, for the equipment, repairs, refitting and after- the Group's geographical and product sufficient or effective procedures designed to manage and monitor and production, while the main subsidiary VARD, as well as the risk sales service. In parallel, the Group has diversification and acquisition-led and actions to ensure control of the the implementation of each project influences on the cruise industry of cancellation or postponement expanded its business nationally and growth, the Group is exposed to proper completion and efficiency throughout its duration. Constant are trends in the leisure market. In of existing orders. Equally, the internationally, through acquisitions or the risk of: of its shipbuilding processes, or dialogue channels are established the naval business, the demand for availability of resources earmarked the incorporation of new companies if it was unable to adequately between the Group entities in new ships is heavily dependent on by the State for defence spending dedicated to specific businesses, such • not guaranteeing adequate control manage the Group synergies and order to safeguard the integration governments’ defence spending on fleet modernization programs is as the manufacture of steel products. of project management activities; the complexity arising from its processes; occasionally Parent policies. a variable that could influence the Given the current downturn in the • not adequately managing product diversification or if it failed Company resources are included. Group's results of operations and offshore market, the subsidiary VARD the operational, logistical and to efficiently distribute workloads In addition, the Group has adopted a financial condition. has successfully pursued a strategy organizational complexity that according to production capacity flexible production structure in order of diversifying into new market characterizes the Group; (plant and labor) available on each to respond efficiently to fluctuations segments, such as the expedition • overestimating the synergies occasion at the different production in vessel demand in the various cruise market (in which VARD has arising from acquisition operations or facilities, revenue and profitability business areas. This flexible approach already signed orders for 13 vessels suffering the effects of slow and/or might decline, with possible negative allows the Group to overcome from 2016 to date) and specialized weak integration; effects on its results of operations capacity constraints at individual vessels for fishing and aquaculture, • not adequately managing the and financial condition. shipyards and to work on more than with the intent of reducing its complexity arising from its product one contract at the same time while exposure to the cyclical nature of the diversification; ensuring that delivery dates are met. offshore Oil & Gas segment. • failing to efficiently distribute The Group is implementing actions workloads according to production aimed at improving the production capacity (plant and labor) or that and design processes in order to excess capacity might impede the strengthen competitiveness and achievement of competitive margins; increase productivity. • not meeting market demand due to its own or its suppliers’ insufficient production capacity..
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3 Risks related to maintenance of competitiveness in core markets 4 Risks related to contract management
DESCRIPTION OF RISK IMPACT MITIGATION DESCRIPTION OF RISK IMPACT MITIGATION The production of standard Inattentive monitoring of the The Group endeavors to maintain The shipbuilding contracts Cost overruns not envisaged at The Group takes into consideration merchant vessels is now Group's markets and slow competitive position in its managed by the Group are the pre-contractual stage and expected increases in the dominated by Asian shipyards, responses to the challenges business areas by ensuring a mostly multi-year contracts not covered by a parallel increase components of contract costs meaning that competitiveness can posed by competitors and client high quality, innovative product, for a fixed consideration, any in price can lead to a reduction when determining the offer price. only be maintained by specializing needs may lead to a reduction in and by seeking optimal costing change in which must be in margins on the contracts In addition, at the time of signing in high value-added markets. competitiveness, with an associated as well as flexible technical and agreed with the client. Contract concerned. the contract, fixed-price purchase As far as civilian vessels are impact on production volumes, financial solutions in order to be pricing must necessarily involve options will already have been concerned, the Parent Company and/or less remunerative pricing, able to propose more attractive careful evaluation of the costs defined for some of the vessel's has been focusing for several years resulting in a drop in profit margins. offers than the competition. of raw materials, machinery, principal components. on the cruise ship and cruise ferry In parallel with the commercial components, sub-contracts and segments, where it has a long track initiatives to penetrate new market all other construction-related record; following the acquisition of segments, the subsidiary VARD costs (including personnel and VARD, it has extended this focus to has developed a series of new ship overheads); this process is more the production of offshore support projects, exploiting not only its own complicated in the case of vessels and specific segments engineering and design expertise prototype or particularly such as fishing and aquaculture. acquired in the offshore sector complex ships. Additional factors that may affect but also the know-how of the competitiveness are the risk that Fincantieri Group. due attention is not given to DESCRIPTION OF RISK IMPACT MITIGATION client needs, or that standards Many factors can influence When the causes of late delivery The Group manages its contracts of quality and product safety are production schedules, as well are not recognized by contract, through dedicated structures not in line with market demands as capacity utilization, and so shipbuilding contracts provide that control all aspects during and new regulations. Moreover, impact agreed vessel delivery for the payment of penalties the contract life cycle (design, aggressive commercial policies, dates with possible penalties that generally increase the longer procurement, construction, development of new products and payable by the Group. These the delay. outfitting). Contracts with new technologies, or increases factors include, inter alia, strikes, suppliers include the possibility in production capacity by poor industrial productivity, of applying penalties for delays competitors may lead to increased inadequate logistics and or hold-ups attributable to such price competition, consequently warehouse management, suppliers. impacting the required level of unexpected problems during competitiveness. design, engineering and production, events linked to adverse weather conditions, DESCRIPTION OF RISK IMPACT MITIGATION design changes or problems in The difficult political and economic Situations involving country risk In pursuing business opportunities procuring key supplies. context and worsening regulatory may have negative effects on the in emerging markets, the Group environment of countries in which Group's results of operations and safeguards itself by favoring the Group operates may adversely financial condition, with the loss commercial prospects that are impact operations and future cash of clients, profits and competitive supported by inter-governmental flows. In addition, the pursuit of advantage and, in the case of agreements or other forms of business opportunities in emerging lawsuits and sanctions, on its cooperation between States, as markets, particularly in the reputation. well as by establishing, within its defence sector, leads to increased own organization, appropriate exposure to country risk and/or safeguards to monitor the risk of international bribery and processes at risk. corruption.
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DESCRIPTION OF RISK IMPACT MITIGATION DESCRIPTION OF RISK IMPACT MITIGATION The operational management Bankruptcy by one or more When acquiring orders, and where The Group's clients often make The lack of available finance for Fincantieri supports overseas of contracts carries a risk that counterparties, whether clients or deemed necessary, the Group can use of financing to finalize the the Group's clients or the low clients during the process of one or more counterparties with suppliers, can have serious effects perform checks on the financial placement of orders. competitiveness of their conditions finalizing export finance and whom the Group has contracts are on the Group's production and strength of its counterparties, Overseas clients may be eligible could have a highly negative particularly in managing relations unable to meet its commitments, cash flows, given the high unit including by obtaining information for export finance schemes impact on the Group's ability with the agencies and companies more specifically involving one value of shipbuilding orders and from leading credit rating structured in accordance with to obtain new orders as well involved in structuring such finance or more clients do not meet the strategic nature of certain agencies. Suppliers are subject to OECD rules. as on the ability of clients to (for example, SACE, Simest and the contractual obligations, or supplies for the production a qualification process, including Under such schemes, overseas comply with the contractual the banks). In addition, the process one or more suppliers fail to process. In particular, client evaluation of the potential risks buyers of ships can obtain terms of payment. of structuring finance is managed discharge its obligations for cancellation of orders during associated with the counterparty bank credit against receipt of a in parallel with the process of operational or financial reasons. vessel construction exposes the concerned. As regards the financial guarantee by a national export finalizing the commercial contract, The Offshore industry is in the Group to the risk of having to aspect, the Group offers its credit agency, which in the case of the enforceability of which is often midst of a profound global sell the vessel in adverse market suppliers the opportunity to use Italy is SACE S.p.A. and GIEK in the subject to the shipowner's receipt market deterioration affecting conditions or, potentially, at prices instruments that facilitate their case of Norway. of the commitment by SACE and all its players with a significant that do not allow its construction access to credit. To address the The availability of export financing the banks to provide an export number of shipowners undertaking costs to be recovered. Moreover, difficult situation in the offshore is therefore a key condition for credit guarantee. The subsidiary restructuring, in turn giving rise the postponement of delivery market, the subsidiary VARD is now allowing overseas clients to award VARD also actively works with to increased counterparty risk. dates can significantly increase working with clients and financial contracts to the Group, especially GIEK, the Norwegian export credit With particular reference to VARD, working capital financing needs, institutions to ensure delivery the where cruise ship construction is agency, particularly in a new sector deterioration in the financial with a consequent growth in debt majority of the offshore vessels concerned. for the Norwegian market like that situation of clients in the Offshore and higher borrowing costs. in the current order book and is of expedition cruise vessels. sector has led to the cancellation pursuing the initiatives launched As an additional safeguard for or redefinition of the delivery dates to ensure a commercial solution to the Group, in the event of a of some orders in the order book. the few offshore projects that have client default on its contractual remained in the order book to date. obligations, Fincantieri has the The subsidiary is also considering, right to terminate the contract. where possible, all technical and In such a case, it is entitled to keep commercial opportunities to the payments received and the reconvert and reposition on the ship under construction. The client new markets served those vessels may also be held liable for paying already built but whose orders have any costs prepaid by the Group. been cancelled.
DESCRIPTION OF RISK IMPACT MITIGATION A significant number of the If the Group were unable to offer The Group adopts a financing Group's shipbuilding contracts (in its clients sufficient financial strategy aimed at diversifying as general, for merchant vessels like guarantees against the advances much as possible the technical cruise ships and offshore support received or to meet the working forms of financing and the vessels) establish that clients pay capital needs of ships during financing counterparties with the only a part of the contract price construction, it might not be able ultimate objective of maintaining during ship construction; to complete contracts or win new a more than sufficient credit the balance of the price is paid ones, with negative effects on its capacity to guarantee coverage upon delivery. results of operations and financial of the working capital needs As a result, the Group incurs condition. generated by its operations. significant upfront costs, assuming Moreover, the cancellation and the risk of incurring such costs postponement of orders by clients before receiving full payment of in difficulty could have a significant the price from its clients and thus impact on the Group's financial having to finance the working structure and margins, with the capital absorbed by ships during risk that banks limit access to construction. credit, thereby depriving it of the necessary funding for its working capital, such as construction loans, or that banks will only be willing to grant credit at more costly conditions.
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5 Risks related to production outsourcing and relations with suppliers 6 Risks related to knowledge management and local communities DESCRIPTION OF RISK IMPACT MITIGATION DESCRIPTION OF RISK IMPACT MITIGATION The Fincantieri Group has a vast The inadequacy of the domestic The Human Resources Department The Fincantieri Group's decision A negative performance by The Group has specific personnel accumulation of experience, know- labor market to meet the Group's constantly monitors the labor to outsource some of its business suppliers in terms of quality, timing in charge of coordinating the how and business knowledge. As needs, the inability to acquire the market and maintains frequent activities is dictated by strategic or costs causes production costs assembly of on-board systems far as the workforce is concerned, necessary skills and the failure to contact with universities, considerations based on two to rise, and the client's perception and managing specific areas of the domestic labor market is not transfer specific knowledge to the vocational schools and training factors: a) outsource activities of the quality of the Fincantieri outsourced production. In addition, always able to satisfy the needs Group's resources, particularly institutes. The Group also makes a for which it has the skills but product to deteriorate. As for the Fincantieri Group carefully of production, either in terms of in the technical sphere, could significant investment in training insufficient in-house resources; b) other partners at the local level, selects its "strategic suppliers", numbers or skills. The effective have negative effects on product its staff, not only in technical- outsource activities for which there non-optimal relations may impact which must meet the highest management of the Group's quality. specialist and managerial- are no in-house skilled resources the Group's ability to compete on standards of performance. The business is also linked to the ability relational skills, but also regarding and which would be too expensive the market. Parent Company has developed to attract highly professional safety and quality. Lastly, specific and inefficient to develop. a precise program of supplier resources for key roles, and the training activities are organized Dependence on suppliers for performance evaluation in this ability to retain such talents to ensure that key management certain business activities may regard, ranging from measurement within the Group; this involves positions are covered in the event result in the inability to ensure high of the services rendered, both in suitable talent and resource of staff turnover. With regard to standards of quality, failure to meet terms of quality of service offered management with a view to the subsidiary VARD, an internal delivery dates, the acquisition and punctuality of delivery, to continuous improvement, achieved reorganization has been carried of excessive supplier bargaining the strict observation of safety by investing in staff training and out to assist the process of power, and a lack of access to new regulations, in line with the performance evaluation. diversifying into new markets, technologies. Group's "Towards Zero Accidents" with particular attention to the In addition, the significant objective. In addition, particular development of new concepts and presence of suppliers in the attention is paid in general to alteration of production processes. production process has an impact relations with the local communities At the same time, actions to recruit on local communities, possibly that interact with the Group's qualified labor have been launched requiring the Group to address shipyards, involving appropriate in the Romanian shipyards social, political and legality issues. institutional relationships, at to increase the technical and the time supplemented by the qualitative level of the workforce conclusion of suitable legality and achieve production efficiency and/or transparency protocols in order to both support the parent with the local authorities, which company’s production plan and in turn enabled the definition of guarantee better management the National Legality Framework of the other projects in the order Protocol signed in 2017. The book. subsidiary VARD has paid special attention to the process of evaluating and managing contracts with new suppliers operating in new sectors that the Group entered as a result of its diversification strategy.
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7 Risks related to legal and regulatory environment DESCRIPTION OF RISK IMPACT MITIGATION Working in the defence and security Possible limitations on the The Group is monitoring the DESCRIPTION OF RISK IMPACT MITIGATION sector, the Group is exposed to direct award of business could possible evolution of national The Fincantieri Group must abide Any breaches of tax, safety or The Group promotes compliance with the risk that the evolving tendency prevent the Group from being and Community legislation that by the regulations in force in environmental standards, any all rules, regulations and laws that apply in this sector could lead in the awarded work through negotiated could open up the possibility of the countries where it operates, changes in the local legal and to it and implements and updates near future to restrictions on the procedures, without any prior competing in the defence and including those to safeguard regulatory framework, as well as suitable prevention control systems currently permitted exceptions to publication of a public tender security sector including in other the environment and health and the occurrence of exceptional or for mitigating the risks associated with competition law, with consequent notice. countries. safety at work, tax regulations unforeseen events, could cause breach of such rules, regulations and limitations on the direct award and the personal data protection the Fincantieri Group to incur laws. Accordingly, in order to prevent of business in order to ensure regulation. Any breaches of extraordinary costs relating to tax, and manage the risk of occurrence of greater competition in this such rules and regulations could the environment or safety at work. unlawful acts, the Parent Company particular market. result in civil, tax, administrative Any breaches of personal data has adopted an organizational, or criminal sanctions, along with protection regulations would result management and control model under an obligation to do all that is in the application of the sanctions Legislative Decree 231 of 8 June 2001, 8 Risks related to information access and operation of the computer system necessary to comply with such introduced by EU Regulation which is also binding for suppliers and, regulations, the costs and liability 2016/679 regarding the protection in general, for third parties working DESCRIPTION OF RISK IMPACT MITIGATION for which could have a negative of personal data. with Fincantieri. In particular, the Parent impact on the Group's business Company has applied the provisions The Group's business could be Computer system failures, loss The Group considers it has taken and results. of Legislative Decree 81/2008 - adversely affected by: or corruption of data, including all necessary steps to minimize “Implementation of art. 1 of Law no. as a result of external attacks, these risks, by drawing on best 123 dated 3 August 2007, concerning • inadequate management of the inappropriate IT solutions for the practice for its governance health and safety at work” (known Group's sensitive data, due to needs of the business, or updates systems and continuously as the “Health and Safety at Work ineffective protective measures, to IT solutions not in line with user monitoring the management of its Act”). Fincantieri has adopted suitable with unauthorized persons outside needs, could affect the Group's IT infrastructure and applications. organizational models for preventing the Group able to access and use operations by causing errors Authority to access and operate on breach of these regulations, and confidential information; in the execution of operations, the computer system is managed sees that such models are reviewed • improper access to information, inefficiencies and procedural and maintained to ensure proper and updated on an ongoing basis. involving the risk of accidental delays and other disruptions, segregation of duties, as enhanced The commitment to pursue and or intentional alterations or affecting the Group's ability to with the adoption of a new access promote principles of environmental cancellations by unauthorized compete on the market. management procedure using sustainability has been reaffirmed in persons; special software, allowing prior the Parent Company's Environmental • IT infrastructure (hardware, identification and treatment of Policy document, which binds the networks, software) whose the risks of segregation of duties Group to uphold regulatory compliance security and reliability are not (SoD) resulting from inappropriate and to monitor working practices so as guaranteed, resulting in possible attribution of access credentials. to ensure effective observance of the disruption of the computer system rules and regulations. The subsidiary or network or in illegal attempts VARD is also committed to minimizing to gain unauthorized access or the impact of its activities on the breaches of its data security environment, involving actions in terms system, including coordinated of resources, policies and procedures attacks by groups of hackers. to improve its environmental performance. Fincantieri and VARD have implemented an Environmental Management System at their sites with a view to obtaining certification under UNI EN ISO 14001:2004 and have started updating to the 2015 standard. As regards the mitigation of tax risks, the Group constantly monitors changes to the law force. Compliance with the personal data protection regulation is ensured by a system of internal rules adopted in order to ensure that the personal data collected and processed within the company’s business processes.
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9 Risks related to exchange rates 10 Risks related to financial debt
DESCRIPTION OF RISK IMPACT MITIGATION DESCRIPTION OF RISK IMPACT MITIGATION The Group is exposed to exchange The absence of adequate currency Fincantieri has a policy for Some of the loan agreements In the event of having limited To ensure access to adequate rate risk on transactions of a risk management could increase managing economic and entered into by the Group require access to credit, including because types of finance in terms of commercial and financial nature the volatility of the Group's transaction financial risks that it or some of its companies of its financial performance, or amount and conditions, the denominated in a currency economic results. In particular, if defines instruments, responsibilities to comply with conditions, in the event of a rise in interest Group constantly monitors other than the functional one currencies in which shipbuilding and reporting procedures, with commitments and constraints of rates or of early repayment of the results of its operations (economic risk and transaction contracts are denominated were which it mitigates currency a financial and legal nature (such debt, the Group could be forced and financial condition and its risk). In addition, translation risk to depreciate, this could have an market risks. With regard to as the occurrence of events of to delay raising capital or to seek current and future capital and can arise when preparing the adverse impact on company profit currency translation risk, the Group default, even potential ones, cross- financial resources under more financial structure as well as any Group’s financial statements, margins and the Group’s cash flow. constantly monitors its main default clauses and covenants), onerous terms and conditions, with circumstances that could adversely through translation of the income exposures which are normally not non-observance of which could negative effects on its results of affect them. In particular, to statements and balance sheets subject to coverage. lead to immediate repayment operations and financial condition. mitigate liquidity risk and maintain of consolidated subsidiaries In the same way, the subsidiary of the loans. In addition, future a sufficient level of financial that operate in a currency other VARD prepared a management increases in interest rates flexibility, the Group diversifies than the Euro (mainly NOK, USD policy that is based on the could lead to higher costs and its sources of funding in terms and BRL). fundamental principles defined payments depending on the level of duration, counterparty and by the Parent Company, though of indebtedness outstanding at technical form. Moreover, the with some differences due to the the time. The Group might not be Company can negotiate derivative company’s particular needs. able to access sufficient credit to contracts, usually in the form of properly finance its activities (such interest rate swaps, in order to as in the case of particularly poor contain the impact of fluctuations financial performance) or it might of interest rates on the Group’s be able to access it only under medium/long-term profitability. particularly onerous terms and conditions. As for the Offshore industry, the worsening financial situation resulting in restructuring by many industry players is causing banks to reduce their credit exposure to them, with the risk of consequent repercussions for VARD's ability to access construction loans, needed not only for offshore projects but also for those in new markets.
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CORPORATE GOVERNANCE It presents the Company's profile and the principles underlying the way it conducts The “Report on Corporate Governance its business; it provides information about and Ownership Structure” (the “Report”) the ownership structure and adoption of the required by Art. 123-bis of the Consolidated Corporate Governance Code, including the Law on Finance is a stand-alone document main governance practices applied and the approved by the Board of Directors on 25 main characteristics of the system of internal February 2019, and published in the "Ethics control and risk management; it contains a and Governance" section of the Company's description of the operation and composition website at www.fincantieri.it. of the governing and supervisory bodies The Report has been prepared in accordance and their committees, roles, duties and with the recommendations of the Corporate responsibilities. Governance Code and modelled on the The criteria for determining the compensation “Format for the report on corporate of the directors are set out in the governance and ownership structure - VIII "Remuneration Report", prepared in compliance Edition (January 2019)” drawn up by Borsa with the requirements of Art. 123-ter of Italiana S.p.A. Italy's Consolidated Law on Finance and Art. The Report contains a general and complete 84-quater of the Consob Issuer Regulations, overview of the corporate governance and published in the "Ethics and Governance" system adopted by FINCANTIERI S.p.A. section of the Company's website.
SHAREHOLDERS’ MEETING OTHER INFORMATION peak value for the period of € 1.52 on 29 January. The stock closed the year, on Stock performance 28 December 2018, with a price of euro 0.92 per share corresponding to a market BOARD OF DIRECTORS The performance of the stock in 2018 capitalization of over euro 1.5 billion. CONTROL recorded a decline, falling 26.4% from a In terms of volumes, a total of 1.6 billion BOARD OF CHIEF EXECUTIVE CHAIRMAN REMUNERATION NOMINATION SUSTAINABILITY (DIRECTOR IN CHARGE AND RISK AUDIT STATUTORY SUPERVISORY OFFICER OF THE ICRMS) COMMITTEE COMMITTEE COMMITTEE COMMITTEE FIRM price of € 1.25 per share on 29 December AUDITORS BODY shares were traded during the year, with an 2017 to € 0.92 on 28 December 2018. The average daily trading volume of around 6.3 FTSE MIB, the index comprising Italy's 40 million shares. largest stocks, lost 16.1% over the same At 31 December 2018, Fincantieri's share period, while the FTSE Mid Cap, of which capital of euro 862,980,725.70 was held as HEAD OF 2 GENERAL RISK Fincantieri is part, lost 19.6%. follows: 71.64% by Fintecna S.p.A., 28.08% MANAGERS* OFFICER NTERNAL AUDITING Over 2018, FINCANTIERI S.p.A. stock by the general market and 0.28% in own performance recorded a downward trend, shares. in line with the performance of the main
CHIEF Italian indexes, which were also influenced FINANCIAL OFFICER IN OFFICER CHARGE by the worsening of the economic situation at a global level. The stock recorded an average price for the year of € 1.28 per share, with a
* On 22 January 2019, the Board of Directors, upon proposal of the Chief Executive Officer, appointed a second General Manager who will support the General Manager already appointed on 26 September 2016.
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KEY FIGURES 31.12.2018 31.12.2017 Share capital euro 862,980,725.70 862,980,725.70 Ordinary shares issued number 1,692,119,070 1,692,119,070 Own shares number 4,706,890 4,706,890 Market capitalization* euro/million 1,560 2,118
PERFORMANCE 31.12.2018 31.12.2017 Price at year end euro 0.92 1.25 Year high euro 1.52 1.32 Year low euro 0.91 0.47 Average price euro 1.28 0.89
*Number of shares outstanding multiplied by reference share price at period end.
euro 1.60
1.50
1.40
1.30
1.20
1.10
1.00
0.90
0.80 dec 2017 jan 2018 feb 2018 mar 2018 apr 2018 may 2018 jun 2018 jul 2018 aug 2018 sep 2018 oct 2018 nov 2018 dec 2018 Fincantieri FTSE MIB FTSE Mid Cap
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Other significant events in the period
17 23 On 17 January 2018, Fincantieri signed a collaboration agreement with the autonomous region of On 23 October 2018, Fincantieri and Naval Group announced the start of discussions to define the Friuli Venezia Giulia and with the trade union organizations Cgil, Cisl and Uil aimed at implementing terms and conditions for the establishment of a 50:50 joint venture. This represents the first step JANUARY a series of initiatives to promote work placement process and boost local employment, particularly for OCTOBER towards the creation of a broader alliance as provided for in the intergovernmental agreement signed young people, thus contributing to the social and economic development of the region. on 27 September 2017 in Lyon.
2 On 2 February 2018, Fincantieri, through its subsidiary Fincantieri Europe S.p.A., signed a share purchase agreement with the French Government represented by the Agence des Participations de 31 FEBRUARY l'Etat (APE), regarding the acquisition of 50% of the share capital of Chantiers de l’Atlantique (formerly On 31 October 2018, Fincantieri, ArcelorMittal CLN Distribuzione Italia and Palescandolo Lavorazioni STX France). The signature took place after the resolution of the share purchase agreement previously Siderurgiche established a company called “Centro Servizi Navali S.p.A.”, specialized in logistic services signed by Fincantieri and STX Europe on 19 May 2017 as a consequence of the exercise by the French and metal working for the sheet yard at the Fincantieri Monfalcone and Marghera shipyards. OCTOBER Government of its pre-emption right for the acquisition of the entirety of STX France share capital on 28 July 2017 and followed the signing of the share purchase agreement between the French Government and STX Europe. The acquisition by Fincantieri is subject to some conditions, among which the approval by the EU Antitrust Authority. Upon the closing of the deal, the shareholders’ agreements and the stock lending agreement relating to 1% of share capital of Chantiers de l’Atlantique will be signed.
2 22 On 2 November 2018, the delisting of VARD Group from the Singapore Stock Exchange, previously approved by the Shareholders' Meeting of the company on 24 July 2018, was completed. On 22 May 2018, the Campania Region and Fincantieri signed a cooperation agreement to launch NOVEMBER Following the delisting, Fincantieri holds a 97.22% of its shares. actions aimed at maintaining employment levels and increasing order backlog in the Castellammare MAY di Stabia shipyard and to foster the economic, productive, social and employment development of the area, while keeping to environmentally sustainable conditions.
5 28 On 5 November 2018, Fincantieri and the district of Baoshan in Shanghai signed contracts related to the creation of an industry hub, mainly for cruise ship, shipyards and maritime activities, On 28 August 2018, Fincantieri and China State Shipbuilding Corporation (CSSC), NOVEMBER the leading Chinese shipbuilding conglomerate, signed a Memorandum of Understanding as part of the development of these areas of activity started by China. for the expansion of the industrial cooperation already in place between the two groups AUGUST to all the naval and merchant shipbuilding segments.
9 13 On 9 October 2018, Fincantieri and Leonardo agreed on guiding principles to strengthen their On 13 December 2018, following approval by the Board of Directors, Fincantieri published collaboration in the naval sector, revamping the joint venture Orizzonte Sistemi Navali (in which its Sustainability Plan. It was an important step along the path undertaken by the company to spread OCTOBER Fincantieri has a 51% interest) with the aim of making it responsible for the combat system. DICEMBER and consolidate a culture of sustainability, which is an increasingly important aspect in the creation of This partnership will enable both groups to compete in a market that is ever more challenging, long-term value. enhancing the reciprocal skills developed nationally with a view to the country’s system perspective.
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Key events after the reporting period ended Palermo, based on the common goal of 31.12.2018 enabling the Sicilian site to assert itself as one of the most important shipyards in the On 14 January 2019, Cassa Depositi e Mediterranean. Prestiti, Fincantieri and Snam signed a On 6 February 2019, as part of the Littoral preliminary cooperation agreement aimed Combat Ship (LCS) program, the joint at identifying, defining and implementing venture formed by Fincantieri, through strategic medium-term projects in some its subsidiary Fincantieri Marinette key segments for innovation and the Marine (FMM), and Lockheed Martin development of port facilities in Italy, as Corporation, delivered “Billings” (LCS 15) well as for the development of sustainable to the US Navy at the Marinette shipyard technologies for sea transport, in line with (Wisconsin). the Proposals of the National Integrated On 7 February 2019 “Viking Jupiter”, the Plan for Energy and the Climate (PNIEC). sixth cruise ship that Fincantieri has built On 21 January 2019, as part of the US Navy for the shipowner Viking Cruises, was Littoral Combat Ship (LCS) program, the delivered at Fincantieri's Ancona shipyard. consortium formed by Fincantieri, through On 21 February 2019 during the Abu Dhabi its subsidiary Fincantieri Marinette Marine 2019 International Defense Exhibition & (FMM), and Lockheed Martin Corporation, Conference (IDEX), Fincantieri and Abu was awarded the contract for the Dhabi Shipbuilding (ADSB), the leading construction of another LCS (LCS 31). shipbuilder in the United Arab Emirates On 23 January 2019 as part of the specialized in the construction, repair and initiatives for the tender called by the refit of military and commercial vessels, Brazilian Navy for the construction of 4 announced that they have reached an Tamandaré class corvettes, Fincantieri agreement in principle to explore future engaged in a road show aimed at involving forms of industrial and market cooperation the industry of the country, promoting the in the UAE shipbuilding segment. creation and development of the small and medium-sized local and national Business outlook companies supply chain. In January 2019, through its subsidiary The Group expects 2019 results to be in Fincantieri Infrastructure in joint venture line with 2018 and consistent with the with Salini Impregilo, the Group was economic and financial forecast announced selected for the reconstruction of within the 2018-2022 Business Plan. the bridge over the Polcevera river in Revenues will continue their trend of Genoa. This contract also provides for growth with an EBITDA margin in line with cooperation with the Group's companies the one recorded for 2018. involved in the integrated bridge Net debt (net financial position) is monitoring, control and inspection system. expected to rise due to working capital On 4 February 2019 the Autorità di financing needs. sistema portuale del Mare di Sicilia In the Shipbuilding segment, the Group Occidentale (AdSP - Western Sicilian Sea expects to deliver 11 ships in 2019, Port Authority) signed a Memorandum of including 8 cruise ships (one of which, Understanding for the revamping of the the Viking Jupiter, the sixth ship built shipbuilding industry hub in the port of for the shipowner Viking Cruises, was
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delivered on February 7, at the Ancona development of the backlog related to the Resolution no. 17221 of 12 March 2010 and the listing conditions for companies that shipyard) and 3 ships in the naval vessels Italian Navy fleet renewal and to the Qatari subsequent amendments and additions, control companies, incorporated in and business area (one of which, Billings - contract, the higher volumes of production FINCANTIERI S.p.A. has adopted a governed by the laws of non-EU countries, LCS 15, was delivered at the Marinette of cabins and public areas for the cruise "Procedure for Related Party Transactions" that are material to the consolidated shipyard to the US Navy on February 6). business activity, the programs for the with effect from 3 July 2014. financial statements, it is reported that Also with reference to the naval vessels lengthening and refitting of the Cavour As far as related party transactions carried as at 31 December 2018, the Fincantieri business area, the launch of two vessels aircraft carrier. out in the six-month period are concerned, subsidiaries falling under the scope of the from the fleet renewal program for the The results achieved in 2018 allow us to these do not qualify as either atypical above article are the VARD Group and the Italian Navy is expected, including the confirm the 2018 - 2022 Business Plan or unusual, since they fall within the FMG Group. landing helicopter dock currently under targets can be confirmed, thanks to normal course of business by the Group's Suitable procedures have already been construction at the Castellamare di Stabia the constant support of an extremely companies. Such transactions are conducted adopted to ensure that these groups shipyard, while the program for the Qatari determined and cohesive management under market terms and conditions, taking comply with these regulations (art. 36). Ministry of Defence is coming into full team. into account the characteristics of the goods In accordance with the disclosures swing, with 3 vessels under construction. and services involved. required by Consob Communication no. In the Offshore and Specialized Vessels Transactions with the controlling company Information about related party transactions, DEM/6064293 dated 28 July 2006, it is segment, the construction activity related and other group companies including the disclosures required by the reported that no atypical and/or unusual to the backlog acquired as a result of the Consob Communication dated 28 July 2006, transactions took place during 2018. diversification strategy will continue as well Direction and coordination by Fintecna S.p.A., is presented in Note 28 of the Notes to the as the focus on execution aimed the main shareholder of FINCANTIERI S.p.A., Condensed Consolidated Interim Financial Sustainability report at the recovery of the margins. ceased as from 3 July 2014. Statements at 31 December 2018. In 2019, the Equipment, Systems and In compliance with the provisions of the Fincantieri Group’s Sustainability Report Services segment is expected to confirm Regulations concerning related party Purchase of own shares 2018 was approved by the Board of its revenue growth trend, thanks to the transactions adopted under Consob Directors on 25 February 2019 and The Shareholders’ Meeting held on 11 published on the Company's internet site May 2018 authorized the purchase and at the address www.fincantieri.it in the payment of the Company's own ordinary Sustainability section. shares, subject to the revocation, to Moreover, following approval by the the extent not yet used, of the previous Board of Directors, Fincantieri published authorization given by the Shareholders' its Sustainability Plan on its website. Meeting of 19 May 2017. No purchases of This is an important step along the path own shares were made during 2018 and undertaken by the company to spread therefore the number of own shares held and consolidate a culture of sustainability, by FINCANTIERI S.p.A. at 31 December which is an increasingly important aspect 2018 was 4,706,890 (0.28% of the share in the creation of long-term value. capital).
Italian stockmarket regulations
Art. 36 of the Consob Market Regulations (adopted by Consob Resolution no. 16191/2007 and subsequent amendments) sets out the listing conditions for companies that control companies incorporated in and governed by the laws of non-EU countries. With reference to these regulatory requirements concerning
92 93 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS
ALTERNATIVE PERFORMANCE MEASURES • Adjusted profit/(loss) is equal to profit • Net financial position/Total equity: this RECONCILIATION OF PARENT COMPANY PROFIT/ (loss) for the year before adjustments for is calculated as the ratio between the Net (LOSS) FOR THE YEAR AND EQUITY WITH THE Fincantieri's management reviews the non-recurring items or those outside the financial position, as monitored by the CONSOLIDATED FIGURES performance of the Group and its business ordinary course of business, which are Group, and Total equity. segments also using certain measures not reported before the related tax effect. • Provisions: these refer to increases in As required by the Consob Communication envisaged by IFRS. In particular, EBITDA is • Net fixed capital: this reports the the Provisions for risks and charges, and of 28 July 2006, the following table provides used as the main earnings indicator, as it fixed assets used in the business and impairment of Trade receivables and Other a reconciliation between equity and profit/ enables the Group's underlying profitability includes the following items: Intangible non-current and current assets. (loss) for the year of the Parent Company to be assessed without the impact of assets, Property, plant and equipment, FINCANTIERI S.p.A. with the consolidated volatility associated with non-recurring Investments and Other non-current assets figures (Group and non-controlling interests). items or extraordinary items outside the and liabilities (including the fair value (euro/000) ordinary course of business. of derivatives classified in non-current 31.12.2018 31.12.2017 As required by Consob Communication Financial assets and non-current Financial Profit/(loss) Profit/(loss) no. 0092543 of 3 December 2015 which liabilities) net of Employee benefits. Equity for the year Equity for the year • Net working capital: this is equal to implements the ESMA Guidelines on Parent Company Financial Statements 1,524,774 217,998 1,411,723 119,272 Alternative Performance Measures capital employed in ordinary operations Share of equity and net result of consolidated (document no. ESMA/2015/1415), the which includes Inventories and advances, subsidiaries, net of carrying amount of the (341,788) (147,280) (208,736) 1,277 components of each of these measures are Construction contracts and client related investments described below: advances, Construction loans, Trade Consolidation adjustments for difference receivables, Trade payables, Provisions for between purchase price and corresponding 218,823 (4,962) 210,409 (8,095) book value of equity • EBITDA: this is equal to earnings risks and charges and Other current assets Reversal of dividends distributed by consolidated before taxes, before finance income and and liabilities (including Income tax assets, subsidiaries to the Parent Company costs, before income and expenses from Income tax liabilities, Deferred tax assets Joint ventures and associates accounted for 15,330 5,650 8,870 1,030 investments and before depreciation, and Deferred tax liabilities, as well as the using the equity method amortization and impairment, as reported fair value of derivatives classified in current Elimination of intercompany profits and losses (58,459) 1,034 (59,493) (56,344) in the financial statements, adjusted to Financial assets and current Financial and other consolidation adjustments Exchange translation differences from line-by- exclude the following items: liabilities). (131,401) (125,935) line consolidation of foreign subsidiaries - company costs for the Wage Guarantee • Net invested capital: this is equal to the Equity and profit for the year attributable total of Net fixed capital and Net working 1,227,280 72,440 1,236,840 57,140 Fund; to owners of the parent - costs relating to reorganization plans capital. Non-controlling interests 25,690 (3,317) 72,322 (4,000) and other non-recurring personnel • ROI: Return on Investment is calculated Total consolidated equity and profit/(loss) 1,252,970 69,123 1,309,162 53,140 costs; as the ratio between EBIT and the for the year - provisions for costs and legal expenses arithmetic mean of Net invested capital associated with lawsuits brought at the beginning and end of the reporting by employees for asbestos-related period. damages; • ROE: Return on equity is calculated as - other income or expenses outside the ratio between Profit/(loss) for the the ordinary course of business due period and the arithmetic mean of Total to non-recurring events. Equity at the beginning and end of the • EBIT: this is equal to EBITDA after reporting period. deducting depreciation, amortization • Total debt/Total equity: this is calculated as and impairment of a recurring nature the ratio between Total debt and Total equity. (this excludes impairment of goodwill, • Net financial position/EBITDA: this is intangible assets and property, plant calculated as the ratio between the Net and equipment recognized as a result of financial position, as monitored by the impairment tests). Group, and EBITDA.
94 95 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS
RECONCILIATION OF THE RECLASSIFIED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION USED IN THE REPORT ON OPERATIONS WITH THE MANDATORY (euro/million) IFRS STATEMENTS 31.12.2018 31.12.2017 Amounts in IFRS Amounts in reclas- Amounts in IFRS Amounts in reclas- CONSOLIDATED INCOME STATEMENT statement sified statement statement sified statement (euro/million) A - Intangible assets 618 582 31.12.2018 31.12.2017 Intangible assets 618 582 Amounts in IFRS Amounts in reclas- Amounts in IFRS Amounts in reclassi- B - Property, plant and equipment 1,074 1,045 statement sified statement statement fied statement Property, plant and equipment 1,074 1,045 A - Revenue 5,474 5,020 C - Investments 60 53 Operating revenue 5,369 4,914 Investments 60 53 Other revenue and income 105 106 D - Other non-current assets and liabilities 8 122 Recl. to I - Extraordinary and non-recurring income Derivative assets 30 144 and expenses Other non-current assets 31 26 B - Materials, services and other costs (4,089) (3,742) Other liabilities (32) (31) Materials, services and other costs (4,104) (3,747) Derivative liabilities (21) (17) Recl. to I - Extraordinary and non-recurring income 15 5 and expenses E - Employee benefits (57) (59) C - Personnel costs (946) (909) Employee benefits (57) (59) Personnel costs (951) (912) F - Inventories and advances 881 835 Recl. to I - Extraordinary and non-recurring income Inventories and advances 881 835 5 3 and expenses G - Construction contracts and client advances 936 648 D - Provisions (25) (28) Construction contracts - assets 2,531 1,995 Provisions (60) (69) Construction contracts - liabilities and client advances (1,595) (1,347) Recl. to I - Extraordinary and non-recurring income 35 41 and expenses H - Construction loans (632) (624) E - Depreciation, amortization and impairment (137) (120) Construction loans (632) (624) Depreciation, amortization and impairment (137) (120) I - Trade receivables 749 909 F - Finance income and (costs) (104) (83) Trade receivables and other current assets 1,062 1,156 Finance income/(costs) (104) (83) Recl. to N) Other assets (313) (247) G - Income/(expense) from investments (1) (5) L - Trade payables (1,849) (1,748) Income/(expense) from investments 3 (5) Trade payables and other current liabilities (2,116) (1,973) Recl. to I - Extraordinary and non-recurring income Recl. to N) Other liabilities 267 225 (4) and expenses M - Provisions for risks and charges (135) (141) H - Income taxes (64) (42) Provisions for risks and charges (135) (141) Income taxes (52) (31) N - Other current assets and liabilities 94 1 Recl. to L - Tax effect of extraordinary and non- (12) (11) recurring income and expenses Deferred tax assets 123 72 I - Extraordinary and non-recurring income Income tax assets 21 19 (51) (49) and expenses Derivative assets 23 16 Recl. from B - Materials, services (15) (5) Recl. from I) Other current assets 313 247 and other costs Deferred tax liabilities (58) (62) Recl. from C- Personnel costs (5) (3) Income tax liabilities (4) (12) Recl. from D - Provisions (35) (41) Derivative liabilities and option fair value (57) (54) Recl. from G - Income/(expense) from investments 4 Recl. from L) Other current liabilities (267) (225) L- Tax effect of extraordinary and non-recurring 12 11 NET INVESTED CAPITAL 1,747 1,623 income and expenses O - Equity 1,253 1,309 Recl. from H – Income taxes 12 11 P - Net financial position 494 314 Profit/(loss) for the year 69 53 SOURCES OF FUNDING 1,747 1,623
96 97 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
F INCANTIERI GROUP CONSOLIDATED FINANCIAL STATEMENTS
98 99 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
C ONTENTS
FINCANTIERI GROUP CONSOLIDATED Note 17 - Cash and cash equivalents 165 FINANCIAL STATEMENTS Note 18 - Equity 166 Note 19 - Provisions for risks Consolidated statement of financial and charges 169 position 102 Note 20 - Employee benefits 170 Consolidated statement of comprehensive Note 21 - Non-current financial income 103 liabilities 172 Consolidated statement of changes Note 22 - Other non-current liabilities 176 in equity 104 Note 23 - Construction contracts - Consolidated statement of cash flows 105 liabilities 176 Note 24 - Trade payables and other NOTES TO THE CONSOLIDATED current liabilities 178 FINANCIAL STATEMENTS 107 Note 25 - Income tax liabilities 179 Note 1 - Form, contents and other Note 26 - Current financial liabilities 180 general information 108 Note 27 - Revenue and income 183 Note 2 - Scope and basis of consolidation 114 Note 28 - Operating costs 184 Note 3 - Accounting policies 120 Note 29 - Finance income and costs 187 Note 4 - Financial risk management 134 Note 30 - Income and expense from Note 5 - Sensitivity analysis 144 investments 188 Note 6 - Intangible assets 145 Note 31 - Income taxes 189 Note 7 - Property, plant and equipment 149 Note 32 - Other information 191 Note 8 - Investments accounted Note 33 - Cash flows from operating for using the equity method activities 209 and other investments 151 Note 34 - Segment information 210 Note 9 - Non-current financial assets 156 Note 35 - Events after 31 december 2018 214 Note 10 - Other non-current assets 157 Companies included in the scope of Note 11 - Deferred tax assets consolidation 216 and liabilities 158 Note 12 - Inventories and advances 160 MANAGEMENT REPRESENTATION Note 13 - Construction contracts - assets 161 ON THE CONSOLIDATED FINANCIAL Note 14 - Trade receivables and STATEMENTS 222 other current assets 162 Note 15 - Income tax assets 163 REPORT BY THE INDEPENDENT Note 16 - Current financial assets 164 AUDITORS 224
100 101 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(euro/000) (euro/000) Note 31.12.2018 of which related 31.12.2017 of which related Note 2018 of which related 2017 of which related parties Note 32 parties Note 32 parties Note 32 parties Note 32 ASSETS Operating revenue 27 5,368,896 271,109 4,914,255 293,603 NON-CURRENT ASSETS Other revenue and income 27 105,124 3,164 105,830 1,152 Intangible assets 6 617,668 581,501 Materials, services and other costs 28 (4,104,050) (106,386) (3,746,474) (82,097) Property, plant and equipment 7 1,074,026 1,044,671 Personnel costs 28 (951,615) (912,064) - of which non-recurring Investments accounted for using the 32 (4,969) (3,493) 8 55,651 50,581 equity method Depreciation, amortization and impairment 28 (136,359) (119,860) Other investments 8 4,556 2,348 Provisions 28 (58,759) (69,060) Financial assets 9 97,901 13,449 279,763 Finance income 29 36,635 94 31,487 264 Other assets 10 31,811 673 26,403 5,337 Finance costs 29 (140,566) (4,079) (114,934) (3,395) Deferred tax assets 11 123,964 72,104 Income/(expense) from investments 30 5,942 31 Share of profit/(loss) of investments accounted for Total non-current assets 2,005,577 2,057,371 30 (2,905) (4,794) using the equity method CURRENT ASSETS Income taxes 31 (53,220) (31,277) Inventories and advances 12 881,095 201,738 835,199 206,509 PROFIT/(LOSS) FOR THE YEAR (A) 69,123 53,140 Construction contracts - assets 13 2,531,272 1,995,342 Attributable to owners of the parent 72,440 57,140 Trade receivables and other current assets 14 1,062,377 145,310 1,156,018 178,726 Attributable to non-controlling interests (3,317) (4,000) Income tax assets 15 20,602 18,918 Basic earnings/(loss) per share (Euro) 32 0.04293 0.03378 Financial assets 16 48,688 86 57,907 576 Diluted earnings/(loss) per share (Euro) 32 0.04264 0.03366 Cash and cash equivalents 17 676,487 274,411 Total current assets 5,220,521 4,337,795 Other comprehensive income/(losses), net of tax (OCI) Gains/(losses) from remeasurement of employee TOTAL ASSETS 7,226,098 6,395,166 18-20 1,141 94 defined benefit plans EQUITY AND LIABILITIES Total gains/(losses) that will not be reclassified to profit or loss, 18 EQUITY 18 1,141 94 net of tax Equity attributable to owners of the parent attributable to non-controlling interests 2 Share capital 862,981 862,981 Effective portion of gains/(losses) on cash flow 4-18 (77,433) 119,692 Reserves and retained earnings 364,299 373,857 hedging instruments Total Equity attributable to owners of the parent 1,227,280 1,236,838 Gains/(losses) arising from changes in OCI of investments accounted for using the equity 8 (216) Non-controlling interests 25,690 72,322 method Total Equity 1,252,970 1,309,160 Exchange gains/(losses) arising on translation of 18 16,008 (57,840) foreign subsidiaries’ financial statements NON-CURRENT LIABILITIES Total gains/(losses) that may be subsequently 18 (61,425) 61,636 Provisions for risks and charges 19 126,523 130,754 reclassified to profit or loss, net of tax Employee benefits 20 56,806 58,912 attributable to non-controlling interests 1,014 (6,305) Financial liabilities 21 792,728 40,487 293,699 48,935 Total other comprehensive income/(losses), 18 (60,284) 61,730 Other liabilities 22 32,137 30,916 net of tax (B) attributable to non-controlling interests Deferred tax liabilities 11 58,012 61,752 1,016 (6,305) TOTAL COMPREHENSIVE INCOME/(LOSS) Total non-current liabilities 1,066,206 576,033 8,839 114,870 FOR THE YEAR (A) + (B) CURRENT LIABILITIES Attributable to owners of the parent 11,140 125,175 Provisions for risks and charges 19 8,693 10,089 Attributable to non-controlling interests (2,301) (10,305) Construction contracts - liabilities 23 1,594,793 1,347,252 Trade payables and other current liabilities 24 2,116,290 66,642 1,973,482 18,756 Income tax liabilities 25 4,300 12,235 Financial liabilities 26 1,182,846 12,324 1,166,915 19,175 Total current liabilities 4,906,922 4,509,973 TOTAL EQUITY AND LIABILITIES 7,226,098 6,395,166
102 103 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS
(euro/000) (euro/000) Note Share capital Reserves Equity attributable Equity attributable Total Note 31.12.2018 31.12.2017 and retained to owners to non-controlling earnings of the parent interests NET CASH FLOWS FROM OPERATING ACTIVITIES 33 41,682 546,869 1.1.2017 18 862,981 223,134 1,086,115 155,241 1,241,356 - of which related parties 99,454 (256,553) Business combinations Investments in: Share capital increase - intangible assets Share capital increase – non- (37,226) (54,739)
controlling interests - property, plant and equipment (124,069) (107,919) Acquisition of non-controlling - equity investments (18,343) (328) 27,552 27,552 (72,447) (44,895) interests - receivables and other financial assets Dividend distribution (167) (167) - cash out for business combinations, net of cash acquired (85) (5,514) Reserve for long-term incentive plan 3,409 3,409 3,409 Disposals of: Purchase of own shares (5,277) (5,277) (5,277) - intangible assets Other changes/roundings (136) (136) (136) Total transactions with owners - 25,548 25,548 (72,614) (47,066) - property, plant and equipment 232 825 Profit/(Loss) for the year 57,140 57,140 (4,000) 53,140 - equity investments 16,600 50 OCI for the year 68,035 68,035 (6,305) 61,730 - receivables and other non-current financial assets Total comprehensive income - 125,175 125,175 (10,305) 114,870 CASH FLOWS FROM INVESTING ACTIVITIES (162,891) (167,625) for the year Change in non-current loans: 31.12.2017 18 862,981 373,857 1,236,838 72,322 1,309,160 - disbursements 567,785 107,911 First adoption IFRS (20,427) (20,427) (234) (20,661) - repayments 01.01.2018 862,981 353,430 1,216,411 72,088 1,288,499 (61,080) (140,847) Business combinations Change in non-current financial receivables: Share capital increase - disbursements (14,012) (14,227) Share capital increase – non- 180 180 - repayments 64,674 controlling interests Change in current bank loans and credit facilities Acquisition of non-controlling 11,814 11,814 (44,278) (32,464) interests - disbursements 1,255,041 3,184,410 Dividend distribution (16,874) (16,874) (16,874) - repayments (1,200,335) (3,380,512) Reserve for long-term incentive Change in current bonds/commercial papers 4,844 4,844 4,844 plan - disbursements 1,275,300 Purchase of own shares - repayments (1,343,539) Other changes/roundings (55) (55) 1 (54) Change in current parent company loans Total transactions with owners - (271) (271) (44,097) (44,368) Changes in payables/receivables to/from investee companies Profit/(Loss) for the year 72,440 72,440 (3,317) 69,123 Change in other current financial liabilities/receivables 9,398 (11,093) OCI for the year (61,300) (61,300) 1,016 (60,284) Change in receivables for trading financial instruments 2,214 (3,025) Total comprehensive income - 11,140 11,140 (2,301) 8,839 for the year Change in payables for trading financial instruments 30 (6,389) 31.12.2018 18 862,981 364,299 1,227,280 25,690 1,252,970 Net capital contributions by non-controlling interests 180 Purchase of own shares (5,277) Acquisition of non-controlling interests in subsidiaries (32,464) (44,895) CASH FLOWS FROM FINANCING ACTIVITIES 523,192 (313,944) - of which related parties (28,258) (32,566) NET CASH FLOWS FOR THE YEAR 401,983 65,300
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 274,411 219,512 Effect of exchange rate changes on cash and cash equivalents 93 (10,401) CASH AND CASH EQUIVALENTS AT END OF YEAR 676,487 274,411
104 105 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
N OTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
106 107 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FORM, CONTENTS AND OTHER encompassing the design and construction been merged into the VARD Offshore and been prepared on a going concern basis, since GENERAL INFORMATION of high-end offshore support vessels, Specialized Vessels business unit, whose the Directors have verified that there are no specialized ships, and vessels for offshore economic results continue to be shown in the financial, operating or other types of indicators The Parent Company wind farms and open ocean aquaculture, as Offshore segment. that might cast significant doubt upon the well as innovative products in the field of Group’s ability to meet its obligations in the FINCANTIERI S.p.A. (hereinafter “Fincantieri” drillships and semi-submersible drilling rigs; Basis of preparation foreseeable future and particularly within the 12 or the “Company” or the “Parent Company” • Equipment, Systems and Services: months from the end of the reporting period. and, together with its subsidiaries, the encompassing the design and manufacture In 2007 Fincantieri took up the option The Consolidated Financial Statements have “Group” or the “Fincantieri Group”) is a public of high-tech equipment and systems, such permitted by Legislative Decree 38 dated 28 been prepared under the historical cost limited company with its registered office in as stabilization, propulsion, positioning and February 2005, governing the exercise of the convention, except for those financial assets Via Genova no. 1, Trieste (Italy), and is listed power generation systems, ship automation options contained in article 5 of European and financial liabilities for which fair value on the Mercato Telematico Azionario (Italy’s systems, steam turbines, integrated systems Regulation no.1606/2002 concerning measurement is compulsory. electronic stock market) organized and and ship accommodation, and the provision international accounting standards. managed by Borsa Italiana S.p.A.. of repair and conversion services, logistical The Consolidated Financial Statements of Accounting standards, amendments and As at 31 December 2018, 71.64% of support and after-sales services. the Fincantieri Group have been prepared interpretations applicable to financial years the Company’s share capital of euro in compliance with IFRS, meaning all the ended 31 december 2018 862,980,725.70 was held by Fintecna S.p.A.; In 2018 the delisting of VARD was International Financial Reporting Standards, all the remainder of share capital was distributed completed and December saw the start the International Accounting Standards (“IAS”), A brief description of the accounting between a number of private investors (none of full organizational integration with the and all the interpretations of the International standards, amendments and interpretations of whom held significant interests of 3% or Parent Company both for the construction Financial Reporting Interpretations Committee applicable to financial statements as at above) and own shares (of around 0.28% of expedition cruise vessels and the related (“IFRIC”) previously known as the Standing and for the year ended 31 December 2018 of shares representing the share capital). production sites and for offshore and Interpretations Committee (“SIC”), which, is provided below. The list excludes those It should be noted that 100% of the share specialized vessels projects. As a result of as at the reporting date of the Consolidated standards, amendments and interpretations capital of Fintecna S.p.A. is owned by Cassa this reorganization, project management, the Financial Statements, had been endorsed by concerning matters not applicable to the Depositi e Prestiti S.p.A. (hereinafter also Romanian production sites and Norwegian the European Union in accordance with the Group. referred to as “CDP”), 82.77% of whose share shipyards dedicated to the outfitting of procedure laid down in Regulation (EC) no. On 20 June 2016, the IASB issued capital is in turn owned by Italy’s Ministry of cruise ships and other key activities such 1606/2002 of the European Parliament and amendments to IFRS 2 - Classification and Economy and Finance. as production supervision of public areas European Council dated 19 July 2002, and in Measurement of Share-based Payment Furthermore, CDP, with registered office in and procurement have been merged compliance with Legislative Decree 38/2005 Transactions. These amendments address a via Goito 4, Rome, prepares the consolidated into an autonomous organizational unit and Consob Communication no. 6064293 number of issues concerning the accounting financial statements of the larger Group to denominated the Cruise business unit. dated 28 July 2006 concerning disclosures. treatment for share-based payments. In which the company belongs and which are The VARD Cruise business unit and the The statutory audit of the Consolidated particular, significant improvements have available on the website www.cdp.it in the Parent Company Fincantieri have defined Financial Statements is the responsibility been made to (i) accounting for cash-settled section “Financial information”. a specific coordination policy based on of PricewaterhouseCoopers S.p.A., the firm share-based payments, (ii) their classification which the head of Fincantieri’s Merchant appointed to perform the statutory audit of and (iii) accounting for a modification of Principal activities of the Group Ships Department directs and controls the the separate financial statements of the Parent the terms and conditions of a share-based activities of the VARD Cruise business unit. Company and its main subsidiaries. payment that changes the classification of The Group operates through the following In line with the above, the economic results The present Consolidated Financial Statements the transaction from cash-settled to equity- three segments: of this business unit have been reallocated as at and for the year ended 31 December 2018 settled. to the Shipbuilding operating segment. were approved by the Company’s Board of Regulation No. 2016/1905 issued by the • Shipbuilding: encompassing the business Project management for the construction of Directors on 25 February 2019. European Commission on 22 September 2016 areas cruise ships and expedition cruise offshore vessels, special ships and vessels The IFRSs have been consistently applied endorses IFRS 15 “Revenue from Contracts vessels, naval vessels and other products and for the Norwegian Coastguard, as well as to all the accounting periods presented with Customers” (“IFRS 15”). In particular, services (ferries and mega yachts); the direction of the remaining production in the current document. IFRS 15 stipulates that revenues are recorded • Offshore and Specialized Vessels: sites in Norway, Brazil and Vietnam, have The Consolidated Financial Statements have based on the following five steps:
108 109 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
1. identification of the contract with the The IFRS 15 provisions and related on the business model used to hold them; entailed a lower consolidated equity of customer; clarifications replace IAS 18, concerning (ii) a single model for the impairment of euro 501 thousand, net of the related tax 2. identification of the performance contracts for the sale of goods and services, financial assets based on expected losses; effect, due to the application of the new obligations (i.e. the contractual obligations and IAS 11, concerning construction contracts. (iii) methods for applying hedge accounting impairment model for financial assets. to transfer the goods and/or services to the It should be noted that, for the purposes of and (iv) recognition of changes to credit Other new changes introduced by IFRS 9 are: customer); reporting the impacts from the first adoption standing in the fair value measurement of - the new method for classifying 3. determination of the transaction price; of IFRS 15 in the financial statements, the liabilities. and measurement of financial assets 4. allocation of the transaction price to the Group has decided to use simplified method It should be noted that, for the purposes representing capital instruments has not performance obligations identified based on laid down in paragraph C3(b), which records of reporting the impacts from the first resulted in any change; the stand alone selling price of each good or the cumulative effects from application of the adoption of IFRS 9 in the financial - the method for recognizing the financial service; and new accounting standard as an adjustment statements, the Company has decided to risk hedging operations currently adopted 5. recognition of revenue when the related of the initial equity reserves at 1 January 2018 use the “Modified retrospective method”, by the Group is consistent with the new performance obligation has been satisfied. (date of first adoption), while comparative which records the cumulative effects from hedge accounting provisions introduced by figures are not restated according to IFRS 15. application of the new accounting standard IFRS 9. IFRS 15 also requires additional financial The Group has chosen to apply this principle as an adjustment of the initial equity A summary of the effects arising from the statement disclosures to be provided regarding only to contracts not completed at the date reserves at 1 January 2018 (date of first application of IFRS 15 and IFRS 9 on the the nature, amount, timing and uncertainty of of first application. adoption), while comparative figures are opening balances as at 1 January 2018 is revenues and related cash flows. In particular, the adoption of IFRS 15 has not restated according to IFRS 9. given below. There are no effects on the net entailed a lower consolidated equity of euro In particular, the adoption of IFRS 9 has financial position. Regulation No. 2017/1987 issued by the 20,160 thousand, net of the related tax effect, European Commission on 31 October 2017 which is analyzed as follows: (euro/000) endorses the clarifications to IFRS 15. These
clarifications concern: Published First adoption effects Restated 31 December 2017 IFRS 15 IFRS 9 1 January 2018 1. identification of the contractual Non-current assets 2,057,371 55,771 (501) 2,112,641 obligations; of which: Intangible assets 581,501 47,926 629,427 2. attribution of the role of principal or agent; of which: Financial assets 279,763 (651) 279,112 3. determination of the moment revenues of which: Deferred tax assets 72,104 7,845 150 80,099 from granting a licence are recognized. Current assets 4,337,795 (106,628) 4,231,167 of which: Construction contracts - 1,995,342 (106,628) 1,888,714 assets Total Assets 6,395,166 (50,857) (501) 6,343,808 Equity 1,309,160 (20,160) (501) 1,288,499 (euro/000) of which: Group equity 1,236,838 (20,028) (399) 1,216,411 Combination of a series of goods and services into a single contractual obligation (23,308) of which: Non-controlling interests in equity 72,322 (132) (102) 72,088 Change in the timing for recording revenues (1,254) Non-current liabilities 576,033 576,033 Capitalization of incremental costs to obtain contracts (3,444) Current liabilities 4,509,973 (30,697) 4,479,276 Increase of deferred tax assets 7,846 of which: Construction contracts - 1,347,252 (30,697) 1,316,555 liabilities Total (20,160) Total equity and liabilities 6,395,166 (50,857) (501) 6,343,808
Regulation No. 2016/2067 issued by the standard reduces the number of categories On 8 December 2016, the IASB issued or payment of advance consideration European Commission on 22 November of financial assets envisaged under IAS 39 IFRIC 22 - Foreign Currency Transactions in a foreign currency. Application of 2016 endorses IFRS 9 “Financial and defines: (i) the methods for classifying and Advance Consideration, which defines this interpretation has no impact on the Instruments”, which replaces IAS 39 and and measuring financial assets based on what exchange rate to use when accounting Consolidated Financial Statements IAS 32 (“IFRS 9”). In particular, the new the characteristics of the financial flows and for transactions that include the receipt at 31 December 2018.
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On the same date, the IASB issued the is effective for annual accounting periods Cycle” as part of the program of annual Presentation of financial statements “Annual Improvements to IFRSs: 2014-2016 beginning on or after 1 January 2019. Early improvements to the standards; most of Cycle” as part of the program of annual adoption is permitted (concurrently with the the changes are clarifications or corrections The Group presents its statement of financial improvements to the standards; most of date IFRS 15 is first applied) but Fincantieri of existing IFRSs or amendments as a position using a “non-current/current” the changes are clarifications or corrections has not taken up this option. For the purposes consequence of previous changes to IFRSs. distinction, its statement of comprehensive of existing IFRSs or amendments as a of recording in the financial statements the The improvements will be effective from 1 income using a classification based on the consequence of previous changes to IFRSs. impacts resulting from the first adoption of January 2019. nature of expenses, and its statement of Application of these changes has no impact IFRS 16, the Group has decided to adopt On 7 February 2018, the IASB published cash flows using the indirect method. It is on the Consolidated Financial Statements at the practical expedient envisaged by IFRS amendments to IAS 19 – Plan Amendment, also noted that the Group has applied the 31 December 2018. 16 paragraph C5 point b) and paragraph Curtailment or Settlement, specifying the provisions of Consob Resolution no. 15519 C8, based on which the Group will record, methods for determining, in the case of a of 27 July 2006 concerning financial Accounting standards, amendments and on 1 January 2019 (date of first adoption), a defined benefit plan, the costs relating to statement formats. interpretations not yet adopted but for financial liability (estimated to be about euro pensions for the remainder of the reporting With reference to the Statement of which early application is permitted 89 million) corresponding to the current value period. The amendments will be effective Comprehensive Income, the composition of the remaining payments due for the leases from 1 January 2019. of non-recurring income and expenses has On 7 June 2017, the IASB issued the in existence at the date of first application, On 29 March 2018, the IASB published the been altered for the clarifications provided interpretation IFRIC 23 – Uncertainty over with an intangible asset of the same value, revised version of the Conceptual Framework in Consob Communication no. 0092543 Income Tax Treatments, which provides reflecting the right of use of the leased asset, for Financial Reporting and at the same of 3 December 2015. indications on how to reflect the effects as the contra-entry. time published a document amending the of uncertainties in tax treatment in the references to the previous Conceptual Functional and presentation currency accounts. IFRIC 23 will come into effect on 1 Accounting standards, amendments and Framework in IFRS Standards, providing: January 2019. Early adoption is permitted but interpretations already issued but not yet - updated definitions of an asset and a liability; These financial statements are presented in Fincantieri has not taken up this option. effective - a new chapter on measurement, Euro which is the currency of the primary On 12 October 2017, the IASB published derecognition and disclosure; economic environment in which the Group amendments to IFRS 9 – Prepayment Features The following is a brief description of the - clarification of certain principles when operates. Foreign operations are included with Negative Compensation, aimed at new accounting standards, amendments drafting financial statements, such as in the Consolidated Financial Statements in enabling measurement at amortized cost or and interpretations already issued but not prudence and substance over form. accordance with the principles set out in the at fair value through other comprehensive yet effective or not yet endorsed by the The amendments will be effective from 1 following notes. income (OCI) of financial assets with an early European Union and therefore not applicable January 2020. The Consolidated Financial Statements, like repayment option with negative compensation. for the preparation of financial statements On 22 October 2018, the IASB published the accompanying notes, are presented in The amendments will be effective from 1 for annual accounting periods ended 31 amendments to IFRS 3 – Business thousands of euro (euro/000). January 2019. Early adoption is permitted December 2018. The list excludes those Combination, with the aim of identifying the If, in certain cases, amounts are required to (concurrently with the date IFRS 9 is first standards, amendments and interpretations principles according to which an acquisition be reported in a unit other than euro/000, applied) but Fincantieri has not taken up this concerning matters not applicable to the concerns a business or a group of assets, the monetary unit of presentation is clearly option. Group. which, as such, do not meet the definition specified. Regulation No. 2017/1986 issued by the On 7 June 2017, the IASB published of business provided by IFRS 3. The European Commission on 31 October 2017 amendments to IAS 28 – Long-term Interests amendments will be effective for business endorses the new accounting standard IFRS in Associates and Joint Ventures, to clarify combinations that occur from 1 January 2020. 16 - Leases, with significant impacts on the that IFRS 9 applies to long-term interests in On 31 October 2018, the IASB published financial statements of lessors. The distinction an associate or joint venture that form part amendments to IAS 1 and IAS 8, clarifying between an operating lease and a financial of the net investment in the associate or joint the definition of “material information” in lease has been removed and a single model venture. The amendments will be effective order to establish whether or not to include for all leases has been introduced which entails from 1 January 2019. information in the financial statements. recognition of an asset for the right to use On 12 December 2017, the IASB issued the The amendments will be effective from 1 and of a liability for leasing. The new standard “Annual Improvements to IFRSs: 2015-2017 January 2020.
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NOTE 2 - SCOPE AND BASIS OF CONSOLIDATION • On 1 January 2018, the joint venture CSSC owing 50% of the share capital. The new controlling interests. - Fincantieri Cruise Industry Development company, with headquarters in Genoa (Italy), Changes in a parent’s ownership interest Scope of consolidation Limited incorporated CSSC Fincantieri will focus on rebuilding the city’s bridge. in a subsidiary that do not result in (Shanghai) Cruise Design Limited, with acquisition/loss of control are accounted Appendix 1 presents a list of the companies headquarters in Hong Kong, which will The Consolidated Financial Statements at for as equity transactions. The difference included in the scope of consolidation, mainly focus on cruise ship design; 31 December 2018 have not been affected between the price paid and the share of including information about the nature of • On 16 April 2018, the Parent Company by any significant transactions or unusual net assets acquired is recorded against their business, location of their registered was involved in the incorporation of Centro events except as reported in the Notes. equity attributable to the parent as gains/ offices, amount of share capital, the Servizi Navali S.p.A., with headquarters in losses arising on the sale of shares to non- interests held and the companies which San Giorgio di Nogaro (UD), in which it holds Basis of consolidation controlling interests. hold them. 10.93% of the share capital, which will focus If the Group loses control of a subsidiary, it During 2018 the consolidation boundary of on the logistics management of flat and long Subsidiaries recalculates the fair value of the investment the Fincantieri group changed due to the products made of steel and other metals; Consolidated financial statements incorporate retained in the former subsidiary at the date following transactions: • On 4 June 2018, Vard Group AS acquired the financial statements of all entities control is lost, recognizing any difference in 39.38% of the share capital of shipowner (subsidiaries) controlled by the Group. profit or loss as gains or losses attributable • On 8 March 2018, the subsidiary Marine Island Diligence AS; The Group controls an entity (including to the parent. This value will also correspond Interiors S.p.A. incorporated the company • On 28 June 2018, the Parent Company structured entities) when it is exposed, to the remaining investment’s initial carrying “Seaenergy a Marine Interiors Company S.r.l.” sold its shares in Camper & Nicholsons or has rights, to variable returns from its amount classified as an investment in an (formerly M.I. Galley S.r.l.), owning 85% of International SA for euro 16.6 million; involvement with this entity and has the associate or joint venture or as a financial the share capital. The new company, with • On 29 June 2018, Vard Group AS sold its ability to affect those returns through asset. Lastly, the group will account for all headquarters in Pordenone, will focus on the shares in Bridge Eiendom AS; its power over the entity. amounts previously recognized in other design and construction of catering areas; • On 3 August 2018, the Parent Company Subsidiaries are consolidated from the date comprehensive income for that subsidiary, in • On 18 April 2018, exercising a call option, acquired 10% of the share capital of Gruppo that control is obtained until the date control the same way as if the parent had disposed the subsidiary Delfi S.r.l. acquired the PSC S.p.A., a company specialized in the ceases. Costs incurred during the acquisition of the related assets or liabilities directly. This remaining 16.5% of the share capital of Issel planning and construction of technological process are expensed in the year incurred. may result in a reclassification of such gains Nord S.r.l., bringing its shareholding to 100%; systems for major works; Assets and liabilities, income and expenses or losses from equity to profit or loss. • On 30 August 2018, Vard Group AS • On 30 October 2018, the Parent arising from transactions between companies Appropriate adjustments are made to the acquired 100% of the shelf company Vard Company and the subsidiary Fincantieri included in the consolidation are eliminated financial statements of subsidiaries to ensure Contracting AS; SI incorporated the company BUSBAR4F in full; also eliminated are profits and conformity with the Group’s accounting • On 2 November 2018, the de-listing of S.c.a.r.l., in which they hold 10% and 50% of losses arising from intragroup transfers of policies. the VARD Group from the Singapore Stock the share capital respectively. The NewCo, fixed assets, profits and losses arising on The reporting date of subsidiary companies Exchange, previously approved by the with headquarters in Trieste (Italy), will focus the intragroup sale of assets that are still is aligned with that of the Parent Company; Shareholders’ Meeting of the company on on the construction of electrical systems; in inventory of the purchasing company, where this is not the case, subsidiaries 24 July 2018, was completed. Following the • On 5 December 2018, the subsidiary impairment and impairment reversals prepare specific financial statements for use delisting, the subsidiary Fincantieri Oil & Gas Fincantieri Infrastructure S.p.A. was relating to investments in consolidated by the Parent Company. S.p.A. increased its interest in Vard Holdings involved in the incorporation of Fincantieri companies and intragroup dividends. The Limited from 79.74% at 31 December 2017 to Clea Buildings S.c.a.r.l., owning 51% of the portion of capital and reserves attributable Associates 97.22% at 31 December 2018; share capital. The new company, with to non-controlling interests in consolidated Associates are those entities over which • On 11 November 2018, Vard Group AS headquarters in Verona (Italy), will focus on subsidiaries and the portion of profit or loss the Group has significant influence, which increased its shareholding in Vard Acqua the management and execution solely of for the year attributable to non-controlling is usually presumed to exist when it holds Sunndal AS from 96.42% to 98.21%. works relating to the construction of the new interests are identified separately within the between 20% and 50% of the entity’s workshop in the Marghera shipyard; financial statements. Losses attributable to voting power. Investments in associates are With regard to movements in shareholdings • On 18 December 2018, the subsidiary non-controlling interests that exceed the non- initially recognized at cost and subsequently consolidated using the equity method, the Fincantieri Infrastructure S.p.A. was involved controlling interest in an investee’s capital accounted for using the equity method following main transactions are reported: in the incorporation of PERGENOVA S.c.p.a., are allocated to equity attributable to non- described below.
114 115 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
The carrying amount of these investments rights to the assets, and obligations for the differences arising on the income of the foreign entity and translated initially reflects the Group’s share of the associate’s the liabilities, relating to the arrangement, statement’s translation at an average rate at the acquisition- date exchange rate equity, adjusted, if necessary, to reflect the while a joint venture is a joint arrangement as opposed to a closing rate, as well as the and subsequently adjusted to the closing application of IFRSs, as well as the higher whereby the parties that have joint control differences arising on the translation of exchange rate. values attributed to assets and liabilities of the arrangement have rights to the net opening equity at a different rate to that and any goodwill identified on acquisition. assets of the arrangement. applied to closing equity; The exchange rates used to translate the Appropriate adjustments are made to Interests in joint ventures are accounted for • goodwill and fair value adjustments financial statements of Group companies the financial statements of investments using the equity method, while in the case arising from the acquisition of a foreign with a “functional currency” other than the accounted for using the equity method of joint operations, each party to the joint entity are treated as assets and liabilities Euro are as follows: to ensure conformity with the Group’s operation recognizes the specific assets to accounting policies. which it is entitled and the specific liabilities 2018 2017 The Group’s share of profits or losses for which it has obligations, including its is recognized from the date significant share of any assets and liabilities held/ 12-month average Closing rate at 31-Dec 12-month average Closing rate at 31-Dec influence is acquired until the date such incurred jointly, and its share of the revenue US Dollar (USD) 1.1810 1.1450 1.1297 1.1993 influence ceases. If, as a result of losses, and expenses under the terms of the joint Australian Dollar (AUD) 1.5797 1.6220 1.4732 1.5346 an associate reports negative equity, the arrangement. UAE Dirham (AED) 4.3371 4.2050 4.1475 4.4044 carrying amount of the investment is Appropriate adjustments are made to Brazilian Real (BRL) 4.3085 4.4440 3.6054 3.9729 reduced to zero and the Group recognizes the financial statements of joint ventures Norwegian Krone (NOK) 9.5975 9.9483 9.3270 9.8403 a liability for the additional losses only to ensure conformity with the Group’s Indian Rupee (INR) 80.7332 79.7298 73.5324 76.6055 to the extent that it has incurred legal or accounting policies. Romanian Leu (RON) 4.6540 4.6635 4.5688 4.6585 constructive obligations or made payments Chinese Yuan (CNY) 7.8081 7.8751 7.6290 7.8044 on behalf of the associate. Changes in Translation of the financial statements of Swedish Krona (SEK) 10.2583 10.2548 9.6351 9.8438 the equity of investments accounted for foreign operations using the equity method which are not The financial statements of subsidiaries and represented by profits or losses reported associates are prepared in their “functional through its income statement, currency”, being the currency of the Business combinations is recognized, if positive, under intangible are recognized as an adjustment to primary economic environment in which Business combinations under which the assets as goodwill or, if negative, after consolidated equity. they operate. For consolidation purposes, acquirer obtains control of the acquiree reassessing the correct measurement of Unrealized profits and losses arising from the financial statements of each foreign are accounted for in accordance with the fair values of the assets and liabilities transactions between associates accounted company are translated into Euro, which the provisions of IFRS 3 - Business acquired and the cost of acquisition, it for using the equity method and the Parent is the Group’s functional currency and the Combinations, using the acquisition method. is recognized directly in profit or loss Company or its subsidiaries are eliminated presentation currency for its Consolidated The cost of acquisition is represented by as income. Acquisition-related costs are to the extent of the Group’s interest in the Financial Statements. the acquisition-date fair value of the assets accounted for as expenses in the period associate; unrealized losses are eliminated The criteria for translating the financial acquired, the liabilities assumed, and equity incurred. unless they represent an impairment loss. statements of companies expressed instruments issued. The identifiable assets The cost of acquisition includes contingent in a currency other than the Euro are as acquired, and liabilities and contingent consideration, recognized at its acquisition- Joint arrangements follows: liabilities assumed are recognized at their date fair value. Subsequent changes in fair The Group applies IFRS 11 to classify acquisition-date fair values, except for value are recognized in profit or loss or other investments in joint arrangements, • assets and liabilities are translated using deferred tax assets and liabilities, assets comprehensive income if the contingent distinguishing them between joint the closing exchange rate at the year-end and liabilities for employee benefits and consideration is a financial asset or liability. operations and joint ventures according to reporting date; assets held for sale, which are recognized in Contingent consideration classified as the contractual rights and obligations of • income and expenses are translated using accordance with the applicable accounting equity is not remeasured and its subsequent each investor. A joint operation is a joint the average exchange rate for the reporting standards for these items. The difference settlement is accounted for directly in arrangement whereby the parties that period/year; between the cost of acquisition and the fair equity. If, in a business combination, control have joint control of the arrangement have • the “currency translation reserve” reports value of the assets and liabilities acquired is achieved in stages, the Group remeasures
116 117 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUPGRUPPO / CONSOLIDATED FINCANTIERI / BILANCIOFINANCIAL CONSOLIDATO STATEMENTS
its previously held equity interest in the National tax consolidation acquiree at its acquisition-date fair value and Since 2013, FINCANTIERI S.p.A., together recognizes the resulting gain or loss in profit with its subsidiaries Isotta Fraschini Motori or loss. S.p.A. and Fincantieri Oil & Gas S.p.A., have Acquisitions of non-controlling interests partaken in the tax regime governed by art. in entities which are already controlled by 117 et seq. of Presidential Decree 917/1986, the acquirer or disposals of non-controlling namely National Tax Consolidation, headed interests that do not involve a loss of up by Cassa Depositi e Prestiti S.p.A. The control are treated as equity transactions; National Tax Consolidation agreement was therefore, any difference between the cost renewed in 2016 for another three years until of acquisition/disposal and the related share financial year 2018. of net assets acquired/sold is accounted for as an adjustment to the Group’s equity. When controlling interests of less than 100% are acquired, only the portion of goodwill attributable to the Parent Company is recognized. The value of non- controlling equity interests is determined in proportion to the non-controlling interest in the acquiree’s net identifiable assets. Acquisition-related costs are recognized in profit or loss on the date the services are received.
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NOTE 3 - ACCOUNTING POLICIES 1.2 Concessions, licenses, trademarks • a potential market exists for the cost, including estimated dismantling and and similar rights intangible asset or, if it is used internally, removal costs, arising as a consequence of 1. Intangible assets Concessions, licenses and similar rights, the asset is of demonstrable utility; contractual obligations to restore an asset acquired in a business combination, are • adequate technical and financial to its original condition, less accumulated Intangible assets are identifiable non- recognized at their acquisition-date fair resources are available to complete the depreciation calculated over the shorter monetary assets without physical values and systematically amortized over project. of the asset’s estimated useful life and the substance, that are controllable and able the shorter of their expected period of use term of the individual concessions. to generate future economic benefits. and the length of the right’s ownership. Capitalized development costs are Expenditure incurred after acquiring Such assets are carried at purchase Trademarks are considered to have amortized over the period the expected an asset and the cost of replacing cost and/or internal production cost, an indefinite useful life and so are not future income from the project will arise. certain parts is capitalized only if such including expenses directly attributable amortized, but are tested annually for Useful life varies depending on the project expenditure increases the asset’s future to preparing assets for their intended impairment, or whenever specific events or and ranges from 5 to 10 years. economic benefits. Routine repair and use, less accumulated amortization and changed circumstances indicate that they maintenance costs are recognized as any accumulated impairment losses. Any might be impaired. 1.5 Industrial patents and intellectual expenses in the period incurred. If the borrowing costs incurred during and property rights costs of replacing certain parts of an asset for the development of an intangible 1.3 Client relationships and order Amortization of industrial patents and are capitalized, the residual value of the asset are capitalized as part of the backlog intellectual property rights is calculated parts replaced is charged to profit or loss. asset’s cost. Assets qualifying as “assets Client relationships and order backlog on a straight- line basis so as to allocate Property, plant and equipment acquired acquired in a business combination” are recognized only if acquired in the cost incurred for acquiring the rights under finance lease, where the risks and are recognized separately only if their a business combination. over their estimated useful life or the rewards incidental to ownership of an fair value can be measured reliably. Client relationships are amortized over term of the related contracts, if shorter. asset are substantially transferred to the Intangible assets are amortized unless the expected life of such relationships Amortization begins when the acquired Group, are recognized as assets at the they have an indefinite useful life. (10-20 years). rights become effective. The cost of lower of their fair value or the present Amortization commences when the asset The order backlog represents the expected software licenses is amortized on a value of the minimum lease payments, is available for use and is allocated on a residual value of orders existing at the straight-line basis over 3 years. including any purchase option cost. The systematic basis over its useful life. The acquisition date. This value is amortized corresponding lease liability is reported criteria used to identify and determine on a straight-line basis over expected 2. Property, plant and equipment in financial liabilities. Leased assets are any impairment losses for intangible useful life. depreciated using the same criteria and assets can be found in paragraph 3 Items of property, plant and equipment useful lives as indicated below for owned below. 1.4 Research and development costs are stated at their historical purchase assets. Expenditure on research is recognized or production cost less accumulated Leases where the lessor substantially 1.1 Goodwill as an expense when it is incurred. depreciation and any accumulated retains all the risks and rewards of Goodwill is not amortized but is Expenditure on developing new products impairment losses. Cost includes ownership are classified as operating tested annually for impairment, or and processes is capitalized and expenditure that is directly attributable leases. Payments made under operating whenever specific events or changed recognized as an intangible asset only if to preparing the assets for their intended leases are recognized as expenses on a circumstances indicate that it might be all the following conditions are satisfied: use, as well as any costs of dismantling straight-line basis over the lease term. impaired. It is not permitted to reverse and removing the assets which will Depreciation is charged on a straight- a previously recognized impairment • the development project is clearly be incurred as a result of contractual line basis so as to depreciate assets over loss. After initial recognition, goodwill identified and the related costs are obligations to restore assets to their their useful lives. If a depreciable asset is carried at cost less any accumulated identifiable and can be measured reliably; original condition. Any borrowing costs consists of separately identifiable parts, impairment losses. • the technical feasibility of the project incurred during and for the development whose useful lives differ significantly from On loss of control of a subsidiary, the can be demonstrated; of an item of property, plant and other parts of that asset, each part is gain or loss on disposal takes into • the intention to complete the project equipment are capitalized as part of the depreciated separately in accordance with account the residual value of previously and sell the intangible assets generated asset’s cost. the component approach. The Group has recognized goodwill. can be demonstrated; Assets under concession are stated at estimated the following useful lives for its
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various categories of property, plant and method produces broadly similar values 5. Inventories and advances equipment: to those obtained by discounting pre-tax cash flows at a pre-tax discount rate. An Inventories are recorded at the lower CATEGORIES Useful life (years) impairment loss is recognized in profit or of purchase or production cost and net
Industrial buildings and dry docks 33 - 47 loss when an asset’s carrying amount is realizable value, defined as the estimated higher than its recoverable amount. If the Plant and machinery 7 - 25 selling price in the ordinary course of business reasons for an impairment loss cease to less selling costs. The cost of inventories of Equipment 4 - 12 exist, it may be reversed in whole or in part raw, ancillary and consumable materials and Assets under concession Useful life or term of concession, if shorter through profit or loss, except in the case of finished products and goods is determined Leasehold improvements Useful life or term of lease, if shorter goodwill, whose impairment can never be using the weighted average cost method. Other assets 4 - 33 reversed; if an impairment loss is reversed, The cost of production includes raw materials, the asset’s new carrying amount may not direct labor costs and other costs of exceed the carrying amount that would have production (allocated on the basis of normal Land is not depreciated. The residual values 3. Impairment of non-financial assets been determined (net of amortization or operating capacity). Borrowing costs are not and useful lives of property, plant and depreciation) had no impairment loss been included in the value of inventories. equipment are reviewed, and adjusted Property, plant and equipment and recognized in the past. Slow-moving and obsolete inventories are if appropriate, at least at every financial intangible assets are reviewed at the suitably written down to align their value with year-end. end of each reporting period to identify 4. Other investments the net realizable amount. Property, plant and equipment leased out any indication of impairment. If any such by the Fincantieri Group under finance lease indication exists, the recoverable amount of Investments in companies other than 6. Construction contracts agreements (or under a contract treated the such assets is estimated and if this is lower subsidiaries, associates and joint ventures same as a finance lease), where all the risks than the carrying amount, the difference is (generally where the interest is less than 20%) The assets and liabilities for construction and rewards of ownership are substantially recognized in profit or loss as an impairment are classified as financial assets carried at fair contracts are recognized depending on transferred to the lessee, are recognized loss. Intangible assets with indefinite useful value, which normally corresponds, during the method for transferring control of the as financial receivables in the statement of lives, such as goodwill, are not amortized but first inclusion, to the amount of the operation good or service to the customer. If control financial position. Income from the sale of a are tested annually for impairment, or more inclusive of the transaction costs directly is transferred gradually as the good is built leased asset is recognized when the asset often, whenever there are signs that such attributed to it. Subsequent changes in fair or the service is rendered, the assets are is transferred to the lessee. Such income is assets might be impaired. value are recognized in profit or loss (FVTPL) recognized with reference to the value of the determined as the difference between: i) the The recoverable amount of an asset is the or, if the option envisaged by the standard agreed contractual consideration plus any fair value of the asset at the commencement higher of its fair value less costs to sell is exercised, in other comprehensive income grants available under specific laws which of the lease term, or, if lower, the present value and its value in use, defined as the present (FVOCI) under the item “FVOCI reserve”. For have reasonably accrued at the period- of the minimum lease payments accruing value of the future cash flows expected to investments valued at FVOCI, impairment end reporting date, in accordance with the to the Group, computed at a market rate of be derived from that asset. If an asset does losses are not recorded in comprehensive cost-to-cost method, taking into account interest; and ii) the leased asset’s production not generate cash inflows that are largely income, neither are the accumulated profits or the stage of completion of the contract and costs plus any legal costs and internal independent of the cash inflows from other losses if the investment is sold. The dividends any expected risks. If, however, control is costs directly attributable to negotiating assets, its value in use is determined with distributed by the investee are recorded in transferred at the moment of final delivery and arranging the lease. After recognizing reference to the cash-generating unit to comprehensive income only when: of the good or completion of all the services the financial receivable, finance income is which the asset belongs. When calculating contracted, the assets are recognized at recognized by applying a constant periodic an asset’s value in use, its expected cash a) the Group’s right to receive the dividend purchase cost. rate of return to the outstanding receivable flows are discounted using a discount rate matures; If two or more contracts are concluded at so that it is spread over the lease term on a reflecting current market assessments of b) it is probable that the economic benefits the same time (or almost at the same time) systematic and rational basis. the time value of money for the period of arising from the dividend will flow to the with the same customer (or related parties of The criteria used to identify and determine investment and risks specific to that asset. Group; the customer), they are recorded as a single any impairment losses for property, plant and Value in use is determined, net of tax, c) the amount of the dividend can be reliably contract when they meet one or more of the equipment can be found in paragraph 3 below. using a post-tax discount rate, since this measured. following criteria: i) they were negotiated
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together for a single business purpose, ii) the Any borrowing costs incurred for specific the invoice. Such extensions can be either method. Impairment losses for these contract prices are interdependent, or iii) the loans during and for the development interest-bearing or non-interest bearing. receivables is determined using a forward- goods or services promised in the contract of construction contracts are treated as Since the primary obligation is still to the looking approach with a three-step model: represent a single obligation to the customer. expenses of the specific job. supplier, the related liability retains its nature 1) recognition of expected credit losses that A contract is recognized as a single asset Shipbuilding contracts are closed for and so continues to be classified in trade have had no increase in credit risk in the when it identifies a single contractual accounting purposes three months after a payables. first 12 months since initial recognition of the obligation, i.e. if the promise is to transfer vessel’s delivery; in the case of vessels for asset; 2) recognition of lifetime expected one single good/service to the customer government defense forces (naval vessels), 8. Financial assets credit losses at the moment the credit risk or a series of goods/services that are the delivery date is the issue date of the increased significantly since initial recognition substantially the same are transferred to acceptance report. The Group classifies financial assets of the asset; interest revenue is calculated the customer over a period of time using according to the categories identified by on gross carrying amount; 3) recognition of the same methods. If different contractual 7. Financial Liabilities IFRS 9: further lifetime expected credit losses at the obligations are identified in the contract, moment in which the loss occurred; interest these are recognized as separate assets Financial liabilities, inclusive of loans and • financial assets measured at amortized revenue is calculated on the net carrying arising from the same contract with the borrowings, trade payables, other payables cost; amount (the amortized cost is reviewed customer. If the original contract i) provides and other liabilities, other than derivatives, • financial assets measured at fair value because the internal rate of return changes for the construction of an additional asset are initially recognized at fair value and then through other comprehensive income since the trigger event affects cash flows). at the option of the customer or ii) may be measured at amortized cost, less repayments (FVOCI); amended to include the construction of of principal already made. • financial assets measured at fair value 8.2 Financial assets measured at fair value an additional asset, whose price is closely Payables and other liabilities are classified through profit or loss (FVTPL). through other comprehensive income interrelated to the original contract, the as current liabilities, unless the Group has a (FVOCI) construction of the additional asset is treated contractual right to extinguish its obligations Financial assets are classified in this category as a combined part of the original contract. more than twelve months from the reporting 8.1 Financial assets measured at amortized if both of the following conditions are met: The stage of completion is measured by date. Financial liabilities are derecognized cost (i) the asset is held within a business model calculating the proportion that contract costs when they are extinguished, i.e. when Financial assets are classified in this category whose objective is achieved by both collecting incurred for work performed to the reporting the obligation specified in the contract is if both of the following conditions are contractual cash flows and selling the financial date bear to the estimated total costs for discharged, cancelled or expires. met: (i) the asset is held within a business assets; and (ii) the contractual terms of the each contract. For derivative liabilities, please refer to model whose objective is to hold assets in financial asset give rise to cash flows that are If it is expected that the completion of a paragraph 8.4. order to collect contractual cash flows; and solely payments of principal and interest on the contract may give rise to a loss at the gross (ii) the contractual terms of the financial principal amount outstanding. This category margin level, this is recognized in full in 7.1 Reverse factoring asset give rise to cash flows that are solely also includes equity instruments (investments the period in which it becomes reasonably In order to ensure easier access to credit payments of principal and interest on in companies in which the Group exerts neither foreseeable. for its suppliers and given the importance the principal amount outstanding. These control nor considerable influence) for which Assets for construction contracts are of the supply chain to the shipbuilding mainly concern trade receivables and loans. the Group applies the option permitted by this reported as the costs incurred plus profit industry, the Parent Company has entered Except for trade receivables, which do not standard to measure these instruments at fair recognized to date, net of the related into factoring agreements, typically in the contain a significant financial component, value with an effect on overall profitability (see liabilities, i.e. the progress billings issued and technical form of reverse factoring. Based other receivables and loans are initially section 4 above). any estimated future losses. The calculation on these agreements, the supplier has the recognized at fair value. Trade receivables These assets are initially recognized at fair is performed on a contract-by-contract discretionary option to sell receivables which do not contain a significant financial value; in subsequent measurements, the value basis. If the difference arising under this due from the Parent Company or some component are recognized at the price calculated during recognition is updated again calculation is positive, it is classified as an subsidiaries to a finance company and defined for that transaction (determined as and any changes in fair value are recognized in asset under “assets arising from contracts receive the amount owed before the due per IFRS 15 Revenue from contracts with other comprehensive income. Any impairment with customers” and if it is negative, the date; in addition, the supplier also has the customers). The assets belonging to this losses, interest revenues and gains or losses difference is classified as a liability under option to agree with the Parent Company to category are subsequently measured at from exchange rate differences are recorded in “Construction contracts – liabilities”. extend the due date beyond that shown in amortized cost using the effective interest profit and loss.
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8.3 Financial assets measured at fair value loss calculated over a period of up to one year. document the relationship between hedging comprehensive income remains separately in through profit or loss (FVTPL) For receivables belonging to stages 2 or 3, instruments and hedged items, as well as equity until the hedged forecast transaction All financial assets that do not meet the impairments are equal to the expected credit its risk management objectives, hedging occurs, at which point it is reclassified to profit conditions, in terms of business model or loss calculated over the entire duration of the strategy and verifying hedge effectiveness. or loss. The fair value of financial instruments cash flow characteristics, for measurement at exposure. The effectiveness of each hedge must be quoted on public markets is determined amortized cost or at fair value through other The criteria for determining impairment on assessed, both at hedge inception and on with reference to quoted prices at the end comprehensive income are classified in this receivables are based on discounting the an ongoing basis. A hedging transaction is of the period. The fair value of unquoted category. These are mainly derivatives; this expected cash flows for the principal and the usually regarded as highly “effective” if, at instruments is measured with reference to category includes listed and unlisted equity interest. To calculate the current value of flows, inception and during its life, the change in financial valuation techniques: in particular, the instruments that Group has not irrevocably the essential elements are those identifying the hedged item’s fair value, in the case of fair value of interest rate swaps is measured decided to classify as FVOCI at initial the estimated receipts, the related receipt fair value hedges, and in the expected future by discounting the expected future cash recognition or during transition. The assets dates and the discounting rate to be applied. cash flows, in the case of cash flow hedges, flows, while the fair value of foreign currency falling under this category are classified In particular, the loss is the difference between substantially offsets the change in fair value of forwards is determined on the basis of market among current and non-current assets the recognition value and the current value of the hedging instrument. exchange rates at the reporting date and depending on their maturity and reported the estimated cash flows, discounted at the Changes in the fair value of derivative assets the rate differentials expected between the at fair value at the moment of their initial original interest rate of the financial asset. or liabilities that qualify as fair value hedges currencies concerned. recognition. During subsequent measurement, These assets are classified as current assets, are recognized in profit or loss, along with any Financial assets and liabilities measured at fair the profits and losses arising from the fair except for the portion falling due after more changes in the fair value of the hedged item. value are classified in the three hierarchical value measurements are recorded in the than 12 months, which is included in non- In the case of cash flow hedges intended levels described below, in order of the priority consolidated income statement for the period current assets. to offset the cash flow risks relating to attributed to the inputs used to determine fair in which they were recognized. a highly probable forecast transaction, value. In particular: 8.5 Derivatives fair value changes after initial recognition 8.4 Impairment The derivatives used by the Fincantieri in the effective portion of the derivative • Level 1: financial assets and financial liabilities Impairment of financial assets measured at Group are intended to hedge its exposure to hedging instrument are recognized in “Other whose fair value is determined using quoted amortized cost is calculated on the basis of currency risk primarily on sale contracts and, comprehensive income” and included in a prices (unadjusted) in active markets for an expected credit loss model. According to a lesser extent, on procurement contracts separate equity reserve. Amounts recognized identical assets or liabilities; to this model, financial assets are classified denominated in currencies other than the through other comprehensive income are • Level 2: financial assets and financial liabilities as at step 1, step 2 or step 3 depending on functional currencies, and its exposure to reclassified from equity to profit or loss, whose fair value is determined using inputs their level of credit worthiness since initial interest rate risk on loans and to price risk among the operating items, in the same other than quoted prices included within Level recognition. In particular: relating to certain commodities. period that the hedged forecast cash flows 1 that are observable for the asset or liability, Derivative instruments are initially recognized affect profit or loss. If the hedge is not either directly or indirectly (primarily: market • Stage 1: includes (i) newly acquired at fair value on the derivative contract’s perfectly effective, the fair value change exchange rates at the reporting date, expected receivables, (ii) receivables that have not had inception date. Following initial recognition, in the ineffective portion of the hedging rate differentials between the currencies a significant worsening of the credit risk since changes in the fair value of derivative instrument is immediately recognized concerned and volatility of the relevant the initial recognition date and (iii) receivables instruments that do not qualify for hedge in profit or loss. If, during the life of a markets, interest rates and commodity prices); with low credit risk. accounting are recognized as an operating derivative hedging instrument, the expected • Level 3: financial assets and financial liabilities • Stage 2: includes receivables that, while or financial component of the income transaction for which hedging was made whose fair value is determined using inputs not non-performing, have had a significant statement according to the nature of the is no longer expected to occur, the portion not based on observable market data. worsening of the credit risk since the initial instrument. If derivative instruments do of the “reserves” relating to this instrument recognition date. qualify for hedge accounting, any subsequent is immediately reclassified to profit or loss Financial assets are derecognized when the • Stage 3: includes non-performing changes in their fair value are treated in for the period. Conversely, if the derivative rights to receive cash flows from the financial receivables. accordance with the specific rules of the instrument is sold or no longer qualifies as an asset expire and the company has transferred IFRS 9 set out below. For each derivative effective hedge, the portion of the “reserves” substantially all the risks and rewards of For receivables belonging to stage 1, financial instrument designated as a hedging representing changes in the instrument’s fair ownership and the related control of the impairments are equal to the expected credit instrument, the Group must formally value recognized up until then through other financial asset.
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9. Grants from Government and other public plan assets, are determined using actuarial the beneficiaries; therefore, for plans that using the average rate on company debt entities techniques and are recognized on an accrual entail remuneration in equity instruments, that takes account of the risks specific to basis over the period of employment needed the cost is represented by the fair value of the obligation; any increase in the amount Government grants are recognized in the to obtain the benefits. these instruments at the grant date and is of a provision due to the effect of the time financial statements when there is reasonable Defined benefit plans include the employee recognized in “Personnel costs”, over the value of money is recognized in the income assurance that the recipient will comply with severance benefit, payable to employees of period between the grant date and the statement under “Finance costs”. the conditions attaching to them and that the the Group’s Italian companies under article maturity date, against a specially created Contingent liabilities, meaning those relating grants will be received. 2120 of the Italian Civil Code, that accrued Equity reserve. Changes in fair value after the to obligations that are only possible, are not before the reform of this benefit in 2007. grant date have no effect on the initial value. recognized but are disclosed in the section 9.1 Capital related to assets The amount recognized in the financial The estimate of the number of rights that of the notes to the financial statements Government grants related to property, plant statements is calculated on an actuarial will mature until expiry is updated at the end reporting commitments and risks. and equipment are classified as deferred basis using the projected unit credit method; of each period. The change in the estimate income under non-current “Other liabilities”. the discount rate used by this method to is reflected in the adjustment of the Equity 14. Revenue, dividends, finance income and This deferred income is then recognized as calculate the present value of the defined reserve for the share incentive plan, against costs income in profit or loss on a straight-line basis benefit obligation reflects the market yield “Personnel costs”. over the useful life of the asset for which the on bonds with the same maturity as that Revenue from contracts with customers are grant was received. expected for the obligation. The calculation 13. Provisions for risks and charges recognized based on the time control of the relates to the employee severance benefit goods and/or services is transferred to the 9.2 Grants related to income already accrued for past service and, in the Provisions for risks and charges relate to customer. If control is transferred gradually Grants other than those related to assets are case of Italian subsidiaries with less than costs and expenses of a specific nature of as the good is built or the service is rendered, credited to profit or loss as “Other revenue 50 employees, incorporates assumptions certain or probable existence, but whose revenues are recognized over time, i.e. as the and income”. concerning future salary levels. Further to timing or amount are uncertain as at the activities gradually progress. the reform of employee severance benefit reporting date. Provisions are recognized If, however, control is not transferred 10. Cash and cash equivalents under Italian Law 296 dated 27 December when: i) a present legal or constructive gradually as the good is built or the service 2006, the actuarial assumptions no longer obligation is likely to exist as a result of a rendered, revenues are recognized at a Cash and cash equivalents include cash on need to consider future salary levels for Italian past event; ii) it is probable that an outflow point in time, i.e. at the moment of final hand, current accounts and demand deposits subsidiaries with more than 50 employees. of resources embodying economic benefits delivery of the good or completion of with banks and other highly liquid short-term Any actuarial gains and losses are recorded will be required to settle the obligation; service provision. The Group has chosen investments that are readily convertible into in the “Valuation reserves” forming part of iii) the amount of the obligation can be to measure the percentage of completion cash and which are subject to an insignificant equity and immediately recognized in the estimated reliably. of the contracts over time using the cost- risk of change in value. statement of comprehensive income. The amount recognized as a provision is to-cost method. When it is probable that For Italian employee severance benefits that the best estimate of the amount that an total lifetime contract costs will exceed total 11. Employee benefits have accrued after 1 January 2007 (which entity would rationally pay to settle the lifetime contract revenue, the expected loss is are treated like defined contribution plans), obligation at the end of the reporting period immediately recognized as an expense in the Post-employment benefits are defined on the the employer’s obligation is limited to the or to transfer it to a third party at that income statement. basis of formal and informal arrangements payment of contributions to the state or to time; provisions for onerous contracts are Revenue earned up to the reporting date which, depending on their characteristics, a trust or separate legal entity (fund) and is recognized at the lower of the cost required from contracts denominated in a currency are classified as “defined contribution” determined on the basis of the contributions to settle the obligation, net of the expected other than the functional currency is plans and “defined benefit” plans. In defined due. There are no additional obligations for economic benefits arising from the contract, translated into the functional currency using: contribution plans, the employer’s obligation the Company to pay further amounts. and the cost of terminating the contract. i) the hedged exchange rate (if currency risk is limited to the payment of contributions to Where the effect of the time value of money has been hedged - see Section 8.5 above) or the state or to a trust or separate legal entity 12. Share-based incentive plans is material and the obligation settlement ii) in the absence of hedging transactions, the (fund) and is determined on the basis of the date can be estimated reliably, the amount of actual exchange rate used for the part of the contributions due. Medium/long-term share-based incentive the provision is determined by discounting contract already billed and the period-end Liabilities for defined benefit plans, net of any plans are a component of remuneration for the expected cash outflows to present value rate for the part still to be billed.
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Retentions or other amounts which can to investments in subsidiaries, associates 17. Own shares even a long time before. Contracts now be contractually reclaimed by customers and joint ventures, except in cases when seldom include price adjustment formulae, are not recognized until any post-delivery both the following conditions apply: (i) the Own shares are recognized as a reduction of while clauses providing for the possibility obligations have been fully satisfied. Group is able to control the timing of the Equity. The original cost of the own shares of additional consideration for additions Dividends received from investee reversal of such temporary differences and and the income arising from sale at a later or variations apply only to significant companies not consolidated on a line-by- (ii) the temporary differences are unlikely date are shown as movements in Equity. modifications in the scope of work. line basis and with the equity method, are to reverse in the foreseeable future. The margins expected to be achieved recognized in profit or loss when: Deferred income taxes are determined 18. Subjective accounting estimates and upon the entire project’s completion are using tax rates that are expected to apply judgements recognized in profit or loss according a) the Group’s right to receive the dividend to the period when the related differences to the stage of contract completion. matures; are realized or settled. Preparation of financial statements requires Accordingly, correct recognition of b) it is probable that the economic benefits Current and deferred income taxes are management to apply accounting policies construction contracts and margins arising from the dividend will flow to the recognized in profit or loss with the and principles that, in some circumstances, relating to work in progress requires Group; exception of taxes relating to items are based on difficult, subjective estimates management to estimate correctly the c) the amount of the dividend can be reliably which are directly debited or credited and judgements based on past experience costs of completion, any incremental measured. to equity, in which case the tax effect and other assumptions deemed to be costs, as well as delays, additional costs is also recognized directly in equity. reasonable and realistic under the related and penalties that could reduce the Finance income and costs are recognized Deferred tax assets and liabilities are circumstances. The application of such expected margin. In support of such in profit or loss in the period in which they offset if, and only if, income tax is levied estimates and assumptions affects estimates, management uses a system of accrue. by the same taxation authority, there is a the amounts reported in the financial contract risk management and analysis to legally enforceable right of offset and the statements, namely the statement of monitor and quantify the risks relating to 15. Income taxes outstanding net balance is expected to be financial position, the statement of these contracts. The amounts recognized settled. comprehensive income, the statement of in the financial statements represent Income taxes represent the sum of current Taxes not related to income (levies), such as changes in equity and the statement of cash management’s best estimate using these and deferred taxes. property tax, are reported in “Other costs”. flows, and in the accompanying disclosures. systems and procedures. Current income taxes are calculated on The ultimate amount of items derived using taxable profit for the year, using tax rates 16. Earnings per share such estimates and assumptions could 18.2 Provisions for risks and charges that apply at the end of the reporting differ from that reported in the financial The Group recognizes provisions for legal period. 16.1 Basic earnings per share statements because of the inherently and tax risks and outstanding litigation Deferred income taxes are income taxes Basic earnings per ordinary share are uncertain nature of the assumptions and where the outcome is expected to be that are expected to be paid or recovered calculated by dividing profit or loss conditions on which the estimates were negative. The amount of the provisions on temporary differences between the attributable to owners of the Parent based. relating to such risks represents carrying amount of assets and liabilities Company by the weighted average number Below is a brief description of the categories, management’s best estimate at the current and their tax bases. Deferred tax liabilities of ordinary shares outstanding during the with regard to the Fincantieri Group’s date. This estimate is derived by adopting are usually recognized for all taxable period, excluding own shares. sectors of business, most affected by the use assumptions that depend on factors that temporary differences, while deferred tax of estimates and judgements and for which a may change over time. assets, including those for carry forward 16.2 Diluted earnings per share change in the underlying assumptions could tax losses, are recognized to the extent Diluted earnings per ordinary share have a material impact on the consolidated 18.3 Deferred tax assets it is probable that taxable profit will be are calculated by dividing profit or loss financial results. The recognition of deferred tax assets is available against which the temporary attributable to owners of the Parent based on expectations about the Group’s differences can be recovered. No deferred Company by the weighted average number 18.1 Revenue recognition for construction future taxable profit and the possibility tax liabilities are recognized for temporary of ordinary shares outstanding during the contracts of transferring certain tax benefits to differences relating to goodwill. period, excluding own shares, and adjusting Like with other large, long-term contracts, companies participating in the national tax Deferred tax liabilities are recognized on to take account of the number of potential shipbuilding contracts are dated well consolidation of CDP. The assessment of taxable temporary differences relating shares that could be issued. before product completion, sometimes future taxable profit for the purposes of
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recognizing deferred tax assets depends on 18.5 Business combinations factors that can change over time and so The recognition of business combinations have a material impact on the recoverability involves allocating to the acquired of deferred tax assets. company’s assets and liabilities the difference between the purchase price 18.4 Impairment of assets and the net book value of the net assets The Group’s property, plant and equipment acquired. For most of the assets and and intangible assets with indefinite useful liabilities, the allocation of this difference is lives are tested for impairment at least performed by recognizing the assets and annually or more often in the presence of liabilities at their fair value. The unallocated evidence indicating that the carrying amount portion is recognized as goodwill if positive, of such assets is not recoverable. and if negative, it is taken to profit or loss. The impairment loss is determined by Management uses available information for comparing an asset’s carrying amount with the purposes of the allocation process and, its recoverable amount, defined as the higher in the case of the most significant business of the asset’s fair value less costs to sell and combinations, external valuations. its value in use, determined by discounting the expected future cash flows expected 18.6 Medium/long-term share-based to be derived from the asset net of costs to incentive plans sell. The expected cash flows are quantified For medium/long-term share-based using information available at the time of incentive plans, the estimate of the number the estimate on the basis of subjective of rights that will mature until expiry is assessments of future variables (prices, updated at the end of each period. The costs, rates of growth in demand, production change in the estimate is reflected in profiles) and are discounted using a rate that the adjustment of the specially created takes into account the risks specific to the Equity reserve for incentive plans, against asset concerned. “Personnel costs”. Goodwill and other intangible assets with indefinite useful lives are not amortized; the recoverability of their carrying amount is reviewed at least annually and whenever there is an indication that the asset may be impaired. Goodwill is tested for impairment at the lowest level (cash-generating unit “CGU”) within the entity at which management assesses, directly or indirectly, the return on the investment that includes such goodwill. When the carrying amount of the cash-generating unit, including the attributed goodwill, is higher than its recoverable amount, the difference is an impairment loss that is charged first against the value of goodwill until fully absorbed; any loss not absorbed by goodwill is allocated pro- rata to the carrying amount of the other assets in the cash-generating unit.
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NOTE 4 - FINANCIAL RISK MANAGEMENT for supplies to the country’s military services, (euro/000) and by the US Navy and US Coast Guard for 31.12.2017 The principal financial risks to which the Group shipbuilding contracts. Past due is exposed are credit risk, liquidity risk and With specific reference to trade receivables due Not yet due 0 - 1 month 1 - 4 months 4 - 12 months Beyond 1 year Total from private shipowners, the Fincantieri Group market risk (in particular currency, interest rate Trade receivables: constantly monitors customer creditworthiness, and commodity price risk). - from public entities 9,685 8,583 3,156 11,894 12,780 46,098 The management of these financial risks is credit exposure and promptness of payments. - indirectly from public entities* 16,541 13,907 30,448 coordinated by the Parent Company, which It should be underlined that, vessel delivery in - from private customers 507,094 91,657 15,707 27,667 64,541 706,666 decides, in close collaboration with its operating the cruise business is subject to receipt of final Total trade receivables 533,320 100,240 18,863 53,468 77,321 783,212 units, whether and how to hedge these risks. payment. Government grants financed by 19,981 19,981 The following tables provide a breakdown by BIIS Credit risk risk class of the exposure as at 31 December Other government grants 4,475 3,758 8,233 2018 and 2017 based on the nominal value of Receivables from associates 5,562 5,562 receivables before any provision for impairment The Fincantieri Group’s receivables essentially Receivables from joint ventures 151,950 66 152,016 of receivables: comprise amounts owed by private shipowners Receivables from controlling 20,327 20,327 for shipbuilding contracts, by the Italian companies Receivables from other government both for grants receivable and companies (euro/000) Other receivables 114,997 2 21,125 136,124 31.12.2018 Other financial receivables 150,889 150,889 Past due Gross total 1,001,501 104,000 18,863 53,468 98,512 1,276,344 Provision for impairment of Not yet due 0 - 1 month 1 - 4 months 4 - 12 months beyond 1 year Total (42,174) receivables Trade receivables: Net total 1,234,170 - from public entities 2,504 1,048 4,449 8,416 26,451 42,868 Advances, prepayments and 127,289 - indirectly from public entities* 399 17 527 5,031 13,649 19,623 accrued income - from private customers 381,544 88,606 20,294 26,128 64,339 580,911 TOTAL 1,361,459 Total trade receivables 384,447 89,671 25,270 39,575 104,439 643,402 *These are receivables due from customers that manage work commissioned by public entities, which are therefore the effective debtors. Government grants financed by 12,513 12,513 BIIS Liquidity risk absorption of financial resources generated Other government grants 6,672 2,149 8,821 by the growth in production volumes partly Receivables from associates 9,865 9,865 Liquidity risk is the risk that an entity will offset by the receipt of the final instalment Receivables from joint ventures 146,680 66 517 147,263 encounter difficulty in meeting obligations for the cruise ships delivered during the year. Receivables from controlling 2,926 32 2,958 companies associated with financial liabilities. The following tables show the contractual Receivables from other The Group’s net financial position reported maturities of trade and financial liabilities, 2 2 companies net debt of euro 494 million at 31 December other than derivatives, calculated before Other receivables 167,278 2,755 23,732 193,791 2018 compared with net debt of euro 314 interest which, depending on the loan or Other financial receivables 66,545 66,545 million at 31 December 2017. The change form of finance, may be at a fixed or floating Gross total 796,954 94,575 25,302 39,641 128,688 1,085,160 is mainly due to the financial dynamics rate. Provision for impairment of typical of the cruise ship business, with the (50,230) receivables Net total 1,034,930 Advances, prepayments and 152,993 accrued income TOTAL 1,187,923
*These are receivables due from customers that manage work commissioned by public entities, which are therefore the effective debtors.
134 135 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
(euro/000) Market risk Interest rate risk 31.12.2018 Interest rate risk is linked to: On demand Within 1 year Between Beyond Contractual Carrying The financial risks affecting the Group 1 and 5 years 5 years cash flows amount specifically involve the risk that the fair value • uncertainty in the cash flows relating to Payables to controlling company 14 58,367 36,954 4,013 99,348 98,574 or future cash flows of assets/liabilities may the Group’s assets and liabilities because Payables to associates 2,524 3,272 54 5,850 5,850 fluctuate due to changes in the exchange rate of fluctuations in interest rates; this risk Payables to joint ventures 5,214 1,720 6,934 7,088 of currencies in which the Group’s commercial is mitigated using cash flow hedging Bank loans and credit facilities 21,956 860,933 708,767 53,324 1,644,980 1,590,576 or financial transactions are denominated, instruments; BIIS loans 8,146 4,866 13,012 12,513 due to changes in market interest rates or to • fluctuations in the fair value of the Group’s Payables to suppliers 133,544 1,298,979 32,199 100 1,464,822 1,464,822 changes in commodity prices. assets and liabilities because of changes in Payables to suppliers for reverse In pursuing its business objectives, the Group market interest rates; this risk is mitigated 6,704 370,783 377,487 377,487 factoring does not intend to take on financial risks. If using fair value hedging instruments. Finance lease obligations 210 26 236 236 this is not possible, such risks are assumed Bond and commercial papers 231,000 231,000 231,000 only if they relate to the Group’s core business Floating-rate assets and liabilities are exposed Other financial liabilities 20,344 4,191 2,041 26,576 26,373 and their impact can be neutralized (where to the first of these risks, while fixed-rate Other liabilities 3,456 190,383 7,537 127 201,503 201,397 possible) through hedging instruments. assets and liabilities are exposed to the second TOTAL 173,412 3,044,137 794,594 59,605 4,071,748 4,015,916 Apart from using financial instruments, risk. Advances, prepayments and 52,394 currency risk can be hedged by entering In 2018, the Company negotiated three accrued income into loan agreements in the same currency interest rate swaps to pre-hedge the interest TOTAL 4,068,310 as the sale contract, or cash balances can be rate risk on a medium/long-term variable rate established in the same currency as supply loan finalized during the year and two forms (euro/000) contracts. of short-term financing which are expected to 31.12.2017 be used during 2019 (pre-hedging). Derivative On demand Within 1 year Between Beyond Contractual Carrying Currency risk instruments have been accounted for as cash 1 and 5 years 5 years cash flows amount Exposure to currency risk arises primarily flow hedges. Payables to controlling company 7,870 38,187 11,440 57,497 56,574 when shipbuilding contracts are denominated Payables to associates 311 311 311 in foreign currencies and, to a lesser extent, Other market risks Payables to joint ventures 3,801 3,862 579 8,242 8,242 when goods and materials are purchased in The Group’s production costs are affected by Bank loans and credit facilities 609 758,882 215,065 64,013 1,038,569 999,578 currencies other than the functional currency. movements in the price of the principal raw BIIS loans 8,146 13,016 21,162 19,981 Currency risk is managed using forward materials used, such as steel, copper and fuel. contracts or currency options, which are The Group mitigates this risk using appropriate Payables to suppliers 188,792 1,247,938 37,541 25 1,474,296 1,474,296 Payables to suppliers for reverse arranged according to the expected timing of contractual arrangements and/or hedges. 271,964 271,964 271,964 factoring foreign currency cash inflows and outflows; During 2018, the Group entered into swaps Finance lease obligations 253 200 453 453 where possible, payments and receipts in the to fix the purchase price of a large part of its Bond and commercial papers 311,250 311,250 299,239 same currency are matched. diesel and fuel oil needs through until 2022. Other financial liabilities 22,971 3,941 47 26,959 26,916 Currency risk management seeks to hedge all Other liabilities 1,431 208,068 1,063 1,044 211,606 211,519 of the Group’s foreign currency inflows, but Capital management TOTAL 194,633 2,841,515 309,592 76,569 3,422,309 3,369,073 only the largest foreign currency outflows. Advances, prepayments and During 2018, the Group was exposed to The objective of the Fincantieri Group is to 50,639 accrued income currency risk primarily in connection with create value for shareholders and to support TOTAL 3,419,712 certain cruise contracts. This risk was future development by maintaining an mitigated using hedging instruments. adequate level of capitalization that allows it to access external sources of financing at acceptable rates.
136 137 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
Fair value of derivatives (euro/000) 31.12.2017 Other current and non-current financial Positive fair value Notional amount Negative fair value Notional amount assets and Other current and non-current CASH FLOW HEDGING DERIVATIVES financial liabilities include the fair value Interest rate swaps 461 150,000 measurements of derivative financial Forwards 149,367 1,663,134 29,892 82,626 instruments, as presented in the following FAIR VALUE HEDGING DERIVATIVES table. Derivatives have tested positively Interest rate swaps as far as cash flow hedge effectiveness is Forwards 3,213 89,542 21,434 434,988 concerned and so no ineffective portion of Futures these hedges has needed to be expensed to Options profit or loss. HEDGING DERIVATIVES WHICH DO NOT QUALIFY FOR HEDGE ACCOUNTING Interest rate swaps Forwards 3,668 199,233 1,911 138,739 Futures 1,266 9,168 Options TRADING DERIVATIVES Interest rate swaps Forwards Futures Options 3,025 96,306
(euro/000) 31.12.2018 With reference to cash flow hedging flow hedge reserve in the year are shown derivatives, the change in the fair value in the table to this Note. Positive fair value Notional amount Negative fair value Notional amount of the hedged items is perfectly offset by The fair value hedging instruments cover CASH FLOW HEDGING DERIVATIVES the change in the value of the hedging changes in the value of hedged firm Interest rate swaps 1,778 280,000 instruments (negative for euro 81,6 million commitments included in Other current Forwards 41,227 1,688,621 21,920 83,200 in 2018) and therefore no ineffective and non-current assets/liabilities shown FAIR VALUE HEDGING DERIVATIVES portion has been recognized. in Notes 10, 14, 22 and 24. Interest rate swaps The hedged items are recorded under The following tables provide an analysis Forwards 2,546 120,539 34,530 785,519 Construction contracts – assets/liabilities of the maturity of derivative contracts. Futures in the Consolidated Statement of The amounts included in these tables Options Financial Position (see Notes 13 and 23). represent undiscounted future cash flows, HEDGING DERIVATIVES WHICH DO NOT QUALIFY FOR HEDGE The balance and movements of the cash which refer to just the intrinsic value. ACCOUNTING Interest rate swaps Forwards 8,070 335,317 387 63,845 Futures 304 5,639 650 5,490 Options TRADING DERIVATIVES Interest rate swaps Forwards Futures Options 811 41,594 30 11,004
138 139 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
(euro/000) Movements in the cash flow hedge reserve The following table presents movements in 31.12.2018 and impact of derivative instruments on the cash flow hedge reserve and the effect Within 1 year Between Beyond Total profit or loss of derivative instruments on profit or loss: 1 and 5 years 5 years CURRENCY RISK MANAGEMENT (euro/000) Outflow 1,355,761 1,724,280 3,080,041 Equity Inflow 1,328,420 1,699,952 3,028,372 Gross Income taxes Net Profit or loss INTEREST RATE RISK MANAGEMENT 1.1.2017 (36,891) 9,835 (27,056) Outflow 1,111 2,121 3,232 Change in fair value 131,697 (39,061) 92,636 Inflow 339 1,115 1,454 Utilization 36,891 (9,835) 27,056 (27,056) COMMODITY PRICE RISK MANAGEMENT Other income/(expenses) for risk hedging 40,873 Outflow 5,370 5,759 11,129 Finance income/(costs) relating to trading derivatives and time-value component of (3,772) Inflow 5,648 5,133 10,781 hedging derivatives 31.12.2017 131,697 (39,061) 92,636 10,045 Change in fair value 24,968 (9,765) 15,203 (euro/000) Utilization (131,697) 39,061 (92,636) 92,636 31.12.2017 Other income/(expenses) for risk hedging (90,215) Within 1 year Between Beyond Total Finance income/(costs) relating to trading 1 and 5 years 5 years derivatives and time-value component of (18,361) CURRENCY RISK MANAGEMENT hedging derivatives Outflow 737,234 1,969,555 2,706,789 31.12.2018 24,968 (9,765) 15,203 (15,940) Inflow 680,090 2,000,861 2,680,951 INTEREST RATE RISK MANAGEMENT Outflow 328 2,775 693 3,796 Inflow 2,601 769 3,370 Financial assets and liabilities by category The following table analyses financial assets COMMODITY PRICE RISK MANAGEMENT and liabilities by category together with their Outflow 4,974 4,194 9,168 fair value (IFRS 13) at the year-end reporting Inflow 5,864 4,570 10,434 date:
(euro/000) 31.12.2018 The fair value of derivative financial the fair value of forward contracts has A B C D Total Fair value instruments has been calculated considering been calculated with reference to year-end Investments carried at fair 4,289 267 4,556 4,556 market parameters at the year-end exchange rates and interest rates for the value reporting date and using widely accepted different currencies. Derivative financial assets 11,731 41,227 52,958 52,958 measurement techniques. In particular, Other financial assets 125,442 125,442 126,690 Trade receivables and other 1,062,377 1,062,377 1,062,377 current assets Cash and cash equivalents 676,487 676,487 676,487
Derivative financial liabilities (35,596) (23,698) (59,294) (59,294)
Other financial liabilities (19,389) (1,896,891) (1,916,280) (1,938,480) Other non-current liabilities (32,137) (32,137) (32,137) Trade payables and other (2,116,290) (2,116,290) (2,116,290) current liabilities
Key A = Financial assets and liabilities at fair value through profit or loss B = Financial assets and liabilities at fair value through equity (including hedging derivatives) C = Financial assets and receivables carried at amortized cost (including cash & cash equivalents) D = Financial liabilities carried at amortized cost
140 141 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
(euro/000) (euro/000) 31.12.2017 31.12.2017
A B C D Total Fair value Fair value Level 1 Fair value Level 2 Fair value Level 3 Total Investments carried at fair 2,077 272 2,349 2,349 Assets value Financial assets at fair value Derivative financial assets 11,173 149,368 160,541 160,541 through profit or loss Other financial assets 203,532 203,532 188,364 Equity instruments 631 1,446 2,077 Trade receivables and other Debt instruments 1,156,017 1,156,017 1,156,017 current assets Financial assets at fair value
Cash and cash equivalents 274,411 274,411 274,411 through comprehensive income Equity instruments 272 272 Derivative financial liabilities (23,345) (30,353) (53,698) (53,698) Debt instruments Other financial liabilities (17,677) (1,389,239) (1,406,916) (1,416,937) Hedging derivatives 157,516 157,516 Other non-current liabilities (30,916) (30,916) (30,916) Trading derivatives 3,025 3,025 Trade payables and other Total assets 631 160,541 1,718 162,890 (1,973,485) (1,973,485) (1,973,485) current liabilities Liabilities Key Financial liabilities at fair value A = Financial assets and liabilities at fair value through profit or loss 17,677 17,677 B = Financial assets and liabilities at fair value through equity (including hedging derivatives) through profit or loss C = Financial assets and receivables carried at amortized cost (including cash & cash equivalents) D = Financial liabilities carried at amortized cost Hedging derivatives 53,698 53,698 Trading derivatives Total liabilities 53,698 17,677 71,375 FAIR VALUE MEASUREMENT The following tables show the financial instruments that are measured at fair value at 31 December 2018 and 2017, according to Financial assets at fair value through calculated using valuation techniques whose their level in the fair value hierarchy. comprehensive income classified as Level inputs are not observable on the market. This 3 relate to equity investments carried at item relates to the option held by minority (euro/000) fair value. Level 3 also includes the financial shareholders of the American Group FMG, 31.12.2018 liabilities relating to the fair value of options the increase in which since 2017 is mainly Fair value Level 1 Fair value Level 2 Fair value Level 3 Total on equity investments whose fair value, due to the change due to the fair value of the Assets recorded through comprehensive income, is instrument. Financial assets at fair value through profit or loss Equity instruments 178 4,111 4,289 Debt instruments Financial assets at fair value through comprehensive income Equity instruments 267 267 Debt instruments Hedging derivatives 52,147 52,147 Trading derivatives 811 811 Total assets 178 52,958 4,378 57,514
Liabilities Financial liabilities at fair value 19,389 19,389 through profit or loss Hedging derivatives 59,264 59,264 Trading derivatives 30 30 Total liabilities 59,294 19,389 78,683
142 143 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - SENSITIVITY ANALYSIS analysis looks at exposure to currency NOTE 6 - INTANGIBLE ASSETS risk, as defined by IFRS 7, and therefore Currency risk does not consider the effects arising from Movements in this line item are as follows: With regard to currency risk, the Group translation of financial statements of foreign has performed sensitivity analysis, both companies with a functional currency other (euro/000) including and excluding the effect of than the Euro. In addition, the analysis Goodwill Client Development Industrial Concessions, Other Intangibles in Total Relationships costs patents and licenses, intangibles progress hedging derivatives, in order to estimate has not examined the effect of exchange and Order intellectual trademarks and advances the impact on pre-tax profit of a reasonable rate fluctuations on the valuation of work Backlog property and similar rights rights variance in the principal exchange rates to in progress, because the latter does not - cost 278,229 199,128 119,507 98,693 22,859 14,086 53,149 785,651 which the Group is most exposed against qualify as a financial asset under the IAS 32 - accumulated the functional currencies of the Parent definition. The variances for individual cross- amortization and (67,009) (25,713) (87,887) (2,344) (8,076) (191,029) Company and its subsidiaries (involving an currencies have been measured against the impairment losses Net carrying amount at appreciation/ depreciation of the foreign average 6-month volatility observed in 2018 278,229 132,119 93,794 10,806 20,515 6,010 53,149 594,622 1.1.2017 currency against the functional one). The for individual exchange rates. Movements in 2017 - business combinations 86 3,328 21 3,435 (euro/milion) - additions 8,638 6,543 637 424 38,497 54,739 31.12.2018 31.12.2017 - net disposals Effect on pre-tax profit Pre-tax effect on equity Effect on pre-tax profit Pre-tax effect on equity - reclassifications/ 12,970 3,780 2,253 3 (18,312) 694 other Including hedging derivatives - depreciation (8,510) (16,763) (4,545) (1,914) (1,514) (33,246) Foreign currency appreciation (127) (22) (152) - impairment losses Foreign currency depreciation (2) 109 19 132 - exchange rate (24,517) (10,300) (668) (361) (2,444) (371) (82) (38,743) Excluding hedging derivatives* differences Foreign currency appreciation (14) (14) (18) (18) Closing net carrying 253,798 116,637 97,971 16,244 19,047 4,552 73,252 581,501 amount Foreign currency depreciation 14 14 20 20 - cost 253,798 188,850 140,681 108,702 24,185 13,526 73,252 802,994
*The USD/BRL exposure is expressed net of USD construction loans, contracted with the purpose of hedging USD exposures. - accumulated depreciation and (72,213) (42,710) (92,458) (5,138) (8,974) (221,493) impairment losses Net carrying amount at 253,798 116,637 97,971 16,244 19,047 4,552 73,252 581,501 Interest rate risk profit or loss involve a negative impact of 31.12.2017 Similarly, a sensitivity analysis has also approximately euro 2.6 million in the event First adoption IFRS 15 47,926 47,926 Net carrying amount at been performed to estimate the impact of of a 0.50% increase in interest rates and 253,798 116,637 97,971 16,244 19,047 52,478 73,252 629,427 01.01.2018 a potential general change in benchmark a positive impact of euro 1.5 million in the Movements in 2018 interest rates of +/- 50 basis points on an event of a 0.50% reduction. - business combinations 85 85 annualized basis. The estimated effects on - additions 7,228 1,363 249 1,069 27,317 37,226 - net disposals - reclassifications/ 32,240 13,431 (369) 42 (45,330) 14 other - depreciation (8,398) (27,813) (5,980) (2,171) (5,681) (50,043) - impairment losses (211) (211) - exchange rate 1,032 (373) (199) (48) 828 (90) 20 1,170 differences Closing net carrying 254,830 107,951 109,427 25,010 17,584 47,607 55,259 617,668 amount - cost 254,830 188,420 179,898 123,349 24,938 63,048 55,259 889,742 - accumulated depreciation and (80,469) (70,471) (98,339) (7,354) (15,441) (272,074) impairment losses Net carrying amount at 254,830 107,951 109,427 25,010 17,584 47,607 55,259 617,668 31.12.2018
144 145 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
Capital expenditure in 2018 amounted capitalization of incremental costs to data and information available to Group the economic results of the VARD to euro 37,226 thousand (euro 54,739 obtain contracts have been reclassified Management. Cruise business unit were reallocated thousand in 2017) and mainly related to: in “First adoption IFRS” after the Expected future cash flows have been to the Shipbuilding operating segment. first application of IFRS 15 from 1 discounted using WACC (Weighted The remaining activities of the VARD • ongoing work to implement an January 2018. The capitalized costs are Average Cost of Capital) for the Group have been merged into the integrated system for ship design (CAD) amortized according to the contractual individual sectors to which the CGUs VARD Offshore and Specialized and project lifecycle management (PLM), duration of the orders for which they refer and, if necessary, adjusted to take Vessels business unit, whose economic aimed at improving the efficiency and were incurred. More details can be found account of the risk premium/discount of results continue to be shown in the effectiveness of the engineering process, in Note 1. the specific country in which business Offshore segment. For the purposes of and the development of information The exchange rate differences reflect is conducted. The WACC used for impairment testing, the two business systems to support the Group’s movements in the period by the discounting purposes is a post-tax rate units, VARD Cruise and VARD Offshore increasing activities and optimize Norwegian krone and the US dollar applied consistently to the relevant cash and Specialized Vessels, constitute two process management; against the Euro. flows. distinct cash generating units at the • innovative solutions and systems “Goodwill” amounts to euro 254,830 The growth rates (“g rate”) used to level of monitoring and testing of the to optimize onboard operations and thousand at 31 December 2018. project the cash flows of CGUs beyond goodwill recorded for VARD. improve the efficiency of systems The recoverable amount of goodwill the explicit planning period have been The following table shows the amount on cruise ships, as well as innovative is estimated, in accordance with IAS estimated on the basis of the anticipated of goodwill allocated to each CGU, as systems to upgrade the technological 36, using the unlevered version of the growth scenarios for the individual well as the method used to determine capacity of certain types of naval Discounted Cash Flow model whereby sectors in which the CGUs operate. recoverable amount, and the discount vessels. an asset’s value in use is calculated on The cash flow projections used reflect and growth rates adopted for this the basis of estimated future cash flows the current conditions of the CGUs being calculation. During 2018, the Group also spent euro discounted at an appropriate rate. Cash tested, while the values of WACC and g 122 million in research and development flow projections beyond the explicit rate used are consistent with the Group’s costs for various projects involving period covered by the most recent past performance and with management product and process innovations (euro budgets/forecasts are extrapolated expectations of performance in the 113 million in 2017), that will allow the using the perpetuity growth method to markets concerned. Group to retain its leadership of all high- determine terminal value; the growth In the second half of 2018 an operational tech market sectors for the foreseeable rates used (“g rate”) may not exceed reorganization of the VARD Group was future. the long-term average growth rates completed (please refer to Note 1 for “Concessions, licenses, trademarks predicted for the markets in which the a full description) as a result of which and similar rights” include euro 16,158 individual CGUs operate. thousand for trademarks with indefinite For the purpose of impairment testing, CGU Goodwill Recoverable amount WACC post-tax g rate Cash flow period useful lives, reflecting the expectation the Group uses cash flow projections carrying amount for their use and referring to the based on the best information available FMG Group 69,456 Value in use 7.2% 2.2% 4 years names of the American shipyards at the time, derived from the Strategic VARD Offshore and Specialized 129,278 Value in use 6.8% 2.0% 4 years Vessels acquired (namely Marinette and Bay Plan 2018-2022 approved by Group VARD Cruise 56,096 Value in use 6.3% 2.0% 4 years Shipbuilding); these trademarks have Management, updated to take into been allocated to the cash-generating account the 2019 budget data in line unit (CGU) representing the American with the requirements of the Group’s group acquired. All such assets have strategic planning/budgeting process. nonetheless been allocated to their The growth rate used to estimate cash respective CGU for the purposes of flows beyond the explicit planning impairment testing, which has not period is determined on the basis of revealed any evidence of impairment. realistic projections of estimated long- The effects arising from the term sector growth, reflected in market
146 147 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
Impairment tests have made reference to The results obtained have been subjected NOTE 7 - PROPERTY, PLANT AND EQUIPMENT the reporting-date carrying amounts of each to sensitivity analysis for those assumptions, CGU. changes in which might reasonably cause (euro/000) the test results to change materially. This Land and Assets under IIndustrial Assets under Leasehold Other Assets under Total has shown that if WACC were to increase by buildings finance lease plant, concession improvements assets construction FMG Group CGU machinery and advances The impairment test has shown that 100 basis points or if growth rates (g rate), and equipment the CGU’s recoverable amount exceeds used in the terminal value calculation, were its carrying amount, meaning that no to decrease by 100 basis points, recoverable - cost 619,215 3,936 1,200,557 185,356 28,706 176,477 159,379 2,373,626 - accumulated impairment loss needs to be recognized. amounts would still be significantly higher depreciation and (214,390) (2,981) (832,514) (126,540) (22,100) (111,155) (1,309,680) The results obtained have been subjected than carrying amounts. impairment losses Net carrying amount to sensitivity analysis for those assumptions, 404,825 955 368,043 58,816 6,606 65,322 159,379 1,063,946 at 1.1.2017 changes in which might reasonably cause VARD Cruise CGU Movements in 2017 the test results to change materially. This The impairment test has shown that - business 3,215 3 160 3,378 has shown that if WACC were to increase by the CGU’s recoverable amount exceeds combinations 100 basis points or if growth rates (g rate), its carrying amount, meaning that no - additions 16,396 36,616 2,613 299 6,604 45,391 107,919 used in the terminal value calculation, were impairment loss needs to be recognized. - net disposals (403) (344) (1) (26) (13) (787) - reclassifications/ to decrease by 100 basis points, recoverable The results obtained have been subjected 6,301 1 39,983 1,079 133 7,752 (55,935) (686) other changes amounts would still be significantly higher to sensitivity analysis for those assumptions, - depreciation (16,769) (389) (57,100) (4,265) (1,052) (7,002) (86,577) than carrying amounts. changes in which might reasonably cause - impairment losses (38) (38) the test results to change materially. This - exchange rate (25,055) (92) (14,814) (1,079) (1,444) (42,484) VARD Offshore and Specialized Vessels has shown that if WACC were to increase by differences Closing net carrying CGU 100 basis points or if growth rates (g rate), 388,472 475 372,387 58,243 5,985 71,731 147,378 1,044,671 amount The impairment test has shown that used in the terminal value calculation, were - cost 613,581 3,460 1,242,879 189,048 29,030 188,654 147,378 2,414,030 the CGU’s recoverable amount exceeds to decrease by 100 basis points, recoverable - accumulated its carrying amount, meaning that no amounts would still be significantly higher depreciation and (225,109) (2,985) (870,492) (130,805) (23,045) (116,923) (1,369,359) impairment losses impairment loss needs to be recognized. than carrying amounts. Net carrying amount 388,472 475 372,387 58,243 5,985 71,731 147,378 1,044,671 at 31.12.2017 Movements in 2018 - business - combinations - additions 10,677 23,973 1,312 216 3,459 84,432 124,069 - net disposals (1) (177) (44) (10) (232) - reclassifications/ 24,444 40,588 3,290 514 10,804 (81,603) (1,963) other changes - depreciation (16,907) (269) (55,541) (4,496) (1,016) (7,826) (86,055) - impairment losses (50) (50) - exchange rate (2,147) 14 (3,977) 1 403 (708) (6,414) differences Closing net carrying 404,488 220 377,253 58,349 5,700 78,527 149,489 1,074,026 amount - cost 646,233 3,624 1,297,782 193,649 29,774 202,782 149,489 2,523,333 - accumulated depreciation and (241,745) (3,404) (920,529) (135,300) (24,074) (124,255) (1,449,307) impairment losses Net carrying amount 404,488 220 377,253 58,349 5,700 78,527 149,489 1,074,026 at 31.12.2018
148 149 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
Capital expenditure in 2018 has resulted in an asset which occurred after the in-kind NOTE 8 – INVESTMENTS ACCOUNTED additions of euro 124,069 thousand, mainly contribution made to the associate Centro FOR USING THE EQUITY METHOD related to: Servizi Navali S.p.A. with the subscription AND OTHER INVESTMENTS of euro 1,392 thousand, as a paid increase • updating of the working areas and in the share capital of the same, decided in Investments infrastructure at some shipyards, in May 2018 (see Note 8). particular Monfalcone and Marghera, to The value of the property, plant and These are analyzed as follows: meet the new production scenarios and equipment of the indirect subsidiary Vard upgrading and improvement of the safety Promar has been tested for impairment, standards of machinery, equipment and taking as its estimated recoverable amount (euro/000) buildings; the fair value less the costs to sell as Associates Joint ventures Total Other Other Total other Total investments companies companies investments • continuation of activities to introduce new identified in a report commissioned from an accounted carried at fair at fair value technologies in particular at the Monfalcone independent expert. The impairment test for using the value through through profit equity method comprehensive and loss shipyard with regard to the Integrated has shown that the recoverable amount of income Environmental Authorization; the assets exceeds their carrying amount, 1.1.2017 24,512 30,461 54,973 1,140 2,039 3,179 58,152 • maintenance of infrastructure and meaning that no impairment loss needs to Changes in the 3 3 3 upgrading of production systems in the US be recognized. consolidation Additions 11 56,317 56,328 56,328 shipyards; The exchange rate differences reflect Revaluations/ (Impairment (5,135) 341 (4,794) (712) (712) (5,506) • continuation of activities to expand movements in the period by the Norwegian losses) through profit or loss Revaluations/ (Impairment production capacity at the Vard Tulcea krone and the US dollar against the euro. (216) (99) (315) (315) losses) through equity shipyard to support the construction of As at 31 December 2018, the amount of Disposals (43) (43) (3) (3) (46) cruise ship hulls for Norway and the multi- the Group’s property, plant and machinery Dividends from year program to build pre-fitted cruise pledged as collateral against loans received investments accounted for ship blocks and sections for the Fincantieri was approximately euro 243 million (euro using the equity method Reclassifications/Other 2,300 (56,000) (53,700) (53,700) production network. 264 million at the end of 2017). Exchange rate differences (1,868) (1,868) (119) (119) (1,987) Contractual commitments already given 31.12.2017 19,561 31,020 50,581 1,140 1,208 2,348 52,929 The other changes include the reclassification to third parties as of 31 December 2018 Changes in the
of amounts reported at the end of the for capital expenditure not yet reflected consolidation previous year in “Assets under construction in the financial statements amounted to Additions 21,005 234 21,239 21,239 Revaluations/ (Impairment and advances” to the relevant asset approximately euro 87 million, of which (4,781) 1,875 (2,906) 2,208 2,208 (698) losses) through profit or loss categories once the assets entered service. euro 76 million for Property, plant and Revaluations/ (Impairment
“Other changes/Reclassifications” includes equipment and euro 11 million for Intangible losses) through equity euro 1,866 thousand for the disposal of assets. Disposals (12,905) (12,905) (12,905) Dividends from investments accounted for using the equity method Reclassifications/Other 4 4 (873) 869 (4) Exchange rate differences (362) (362) 4 4 (358) 31.12.2018 35,423 20,228 55,651 267 4,289 4,556 60,207
150 151 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
Capital expenditure (“additions”) during the of companies accounted for using the INVESTMENTS AT 31 DECEMBER 2018 year amount to euro 21,239 thousand and equity method (namely associates and joint mainly related to the acquisition of a 10% ventures). COMPANY NAME Registered office % owned Carrying amount shareholding in the PSC Group (euro 11,123 Disposals refer to the removal of the INVESTMENTS IN ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD thousand), the establishment by VARD of carrying value of the shareholding in Camper Brevik Technology AS Norway 34.00 61 the associate Island Diligence AS (euro 6,981 & Nicholsons International, sold for euro Castor Drilling Solution AS Norway 34.13 265 thousand) and the contribution in kind made 16,600 thousand, realizing a capital gain of CSS Design Ltd. British Virgin Islands 31.00 529 Arsenal S.r.l. Italy to the associate Centro Servizi Navali S.p.A. euro 3,695 thousand. 24.00 11 AS Dameco Norway 34.00 7 (see Note 6) with the subscription of “Other investments” include investments DOF Iceman AS Norway 50.00 euro 1,392 thousand as a paid increase carried at fair value, calculated on the Møkster Supply AS Norway 40.00 587 in the share capital of the same. basis of the related prices if quoted in Møkster Supply KS Norway 36.00 1,135 Revaluations/(impairment losses) through active markets (Level 1), or using valuation Olympic Challenger KS Norway 35.00 11,403 profit or loss (negative euro 698 thousand) techniques whose inputs are not observable Olympic Green Energy KS Norway 30.00 include the share of comprehensive income on the market (Level 3). Rem Supply AS Norway 26.66 2,565 Taklift AS Norway 25.47 320 Island Diligence AS Norway 39.38 6,020 Gruppo PSC S.p.A. Italy 10.00 11,123 Centro Servizi Navali Italy 10.93 1,397 Total investments in associates accounted for using the equity 35,423 method INVESTMENTS IN JOINT VENTURES ACCOUNTED FOR USING THE EQUITY METHOD CSSC - Fincantieri Cruise Industry Development Ltd. Hong Kong 40.00 1,557 Etihad Ship Building LLC Arab Emirates 35.00 1,013 Orizzonte Sistemi Navali S.p.A. Genoa 51.00 17,582 Luxury Interiors Factory S.r.l. Naples 40.00 Issel Middle East Information Technology Consultancy LLC Arab Emirates 49.00 17 Unifer Navale S.r.l. Modena 20.00 BUSBAR4F S.c.a.r.l. Trieste 10.00 24 Fincantieri Clea Buildings S.c.a.r.l. Verona 51.00 5 PERGENOVA S.c.p.a. Genoa 50.00 25 CONSORZIO F.S.B.* Venice - Marghera 58.36 5 Total investments in joint ventures accounted for using the equity 20,228 method OTHER INVESTMENTS IN COMPANIES CARRIED AT FAIR VALUE THROUGH COMPREHENSIVE INCOME Consorzio Ric. Innov. Tec. Sicilia Trasp. Navali S.c.a.r.l. Messina 6.21 28 Consorzio CONAI Rome ** 1 Consorzio IMAST S.c.a.r.l. Naples 3.24 22 Consorzio MIB Trieste ** 2 Distretto Ligure delle Tecnologie Marine S.c.a.r.l. La Spezia 11.50 115 EEIG Euroyards Brussels 14.29 10 International Business Science Company S.c.a.r.l. Trieste 18.18 10 MARETC FVG – Maritime Technology cluster FVG S.c.a.r.l. Monfalcone (Gorizia) 14.62 65 SIIT- Distretto Tecnologico Ligure sui Sistemi Intelligenti Integrati Genoa 2.30 14 S.c.p.a Total other investments in companies carried at fair value through 267 comprehensive income OTHER INVESTMENTS IN COMPANIES CARRIED AT FAIR VALUE THROUGH PROFIT AND LOSS Solstad Offshore ASA Norway 0.35 178 Moldekraft AS Norway 6.14 503 Friulia S.p.A. Trieste 0.56 3,608 Total other investments in companies carried at fair value through 4,289 profit and loss
*Consortium for recharging costs **% interest not shown, as consortium membership is subject to continuous change.
152 153 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
CSSC - Fincantieri Cruise Industry by Issel Nord S.r.l., is considered jointly Disclosures relating to investments in joint December 2018 is material to the Group. Development Ltd., which is 40% owned by controlled under the agreements with the ventures The figures shown reflect amounts reported the Parent Company, is consolidated using other shareholder. The following tables present summarized in the company’s financial statements the equity method because, under the PSC S.p.A., 10% owned by the Parent financial information for Orizzonte Sistemi as adjusted for the Group’s accounting agreements between the Parent Company Company, is consolidated using the equity Navali S.p.A., a joint venture that at 31 policies. and the other shareholder, it is considered method because the shareholding is jointly controlled. considered to carry significant influence CONDENSED BALANCE SHEET
Etihad Ship Building LLC, which is based on the shareholder agreements (euro/000) 35% owned by the Parent Company, is signed with the other shareholders. 31.12.2018 31.12.2017 consolidated using the equity method Centro Servizi Navali S.p.A., which is ASSETS 353,763 329,507 because, under its shareholders’ agreement, 10.93% owned by the Parent Company, NON-CURRENT 168 376 it is considered jointly controlled with other is consolidated using the equity method Other assets 168 376 shareholders who hold the remainder of because the shareholding is considered CURRENT 353,595 329,131 share capital. to carry significant influence due to the Other assets 333,762 312,791 Orizzonte Sistemi Navali S.p.A., which is Company’s bylaws. Financial assets 1,699 1,611 51% owned by the Parent Company, is Fincantieri Clea Buildings S.c.a.r.l., 51% Cash and cash equivalents 18,134 14,729 consolidated using the equity method owned by Fincantieri Infrastructure S.p.A., LIABILITIES 318,551 294,368 because, under its shareholders’ agreement, is considered jointly controlled under the NON-CURRENT 192 223 Other liabilities 192 223 it is considered jointly controlled with agreement with the other shareholder. CURRENT 318,359 294,145 another shareholder who holds 49%. Other liabilities 318,359 294,145 Luxury Interiors Factory S.r.l., which is Disclosures relating to investments in EQUITY 35,212 35,139 40% owned by Marine Interiors S.p.A., is associates consolidated using the equity method With regard to investments in associates CONDENSED COMPREHENSIVE STATEMENT OF INCOME because, under its shareholders’ agreement, accounted for using the equity method, it is considered jointly controlled with other the following table reports the aggregate (euro/000) shareholders who hold the remainder of share of the profits and losses attributable 31.12.2018 31.12.2017 share capital. to the Group for all associates that are not Revenue 276,634 426,307 Issel Middle East Information Technology individually material. Depreciation and amortization (137) (245) Consultancy LLC, which is 49% owned Interest income 321 550 Pre-tax profit from recurring operations 208 199 (euro/000) Income taxes (139) (110) 31.12.2018 31.12.2017 Net profit from recurring operations 69 89 Other comprehensive income/(losses) Profit (loss) from operations in the year (4,781) (5,135) TOTAL COMPREHENSIVE INCOME/(LOSS) 69 89 Other comprehensive income (216) Total comprehensive income (4,781) (5,351) RECONCILIATION WITH CARRYING AMOUNT
(euro/000) The other components of the Statement of At the reporting date, the Group has not 31.12.2018 31.12.2017 Comprehensive Income at 31.12.2017 included undertaken commitments for financing Equity at 01.01 35,139 35,041 the valuation at fair value of the financial relating to its investments in associates. Profit/(loss) for period 69 89 data for the vessels built at Group shipyards Other movements 4 9 on behalf of associates. Equity at 31.12 35,212 35,139 51% interest in joint venture 17,958 17,921 Other movements (376) (339) Carrying amount 17,582 17,582
154 155 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – NON-CURRENT FINANCIAL ASSETS NOTE 10 – OTHER NON-CURRENT ASSETS
These are analyzed as follows: Other non-current assets are analyzed as follows:
(euro/000) (euro/000) 31.12.2018 31.12.2017 31.12.2018 31.12.2017 Receivables for loans to joint ventures 8,400 Other receivables from investee companies 673 642 Grants financed by BIIS 4,762 12,513 Government grants receivable 4,407 3,758 Derivative assets 30,006 144,456 Firm commitments 18,427 14,016 Other receivables 8,304 7,987 Other non-current financial receivables 49,684 118,099 OTHER NON-CURRENT ASSETS 31,811 26,403 Non-current financial receivables from investee companies 5,049 4,695 NON-CURRENT FINANCIAL ASSETS 97,901 279,763 Other non-current assets are all stated net of governments in the form of tax credits. The the related provision for impairment. amount is analyzed below by due date for “Receivables for loans to joint ventures” “Derivative assets” represent the reporting- Government grants receivable report the recovery: relates to the first tranche of the shareholder date fair value of derivatives with a maturity non-current portion of state aid granted by loan made in 2018 to the joint venture CSSC of more than 12 months. Further details
– Fincantieri Cruise Industry Development can be found in Note 4. The reduction in (euro/000) Ltd. the balance is mainly due to the change in 31.12.2018 31.12.2017 “Grants financed by Banca BIIS” relate the fair value of the derivatives to hedge - between one and two years 4,407 2,052 to production grants under Italian Law exchange rate risks following the weakening - between two and three years 1,706 431/91. In detail, during 2004 the Group of the euro against the dollar. - between three and four years received a total of euro 92.8 million in capital “Other non-current financial receivables” - between four and five years grants from the Ministry of Infrastructure report loans to third parties bearing market - beyond five years and Transport. In accordance with the rates of interest. TOTAL 4,407 3,758 Ministerial Decree approving these grants, “Non-current financial receivables from i) the Group has entered into six fifteen- investee companies” refer to market rate “Firm commitments” of euro 18,427 thousand Ministry of Defence (euro 4,693 thousand). year loans for such amount with Banca loans to VARD Group companies that are (euro 14,016 thousand at 31 December 2017) Please refer to the specific section on litigation Infrastrutture Innovazione e Sviluppo (BIIS), not consolidated line-by-line. reflect the fair value of hedged items in fair in Note 32 for a more detailed explanation. due to be extinguished in 2019 and 2020 It should be noted that, following the first value hedges used by the VARD Group to The remaining balance of euro 3,611 thousand (recognized under financial liabilities), ii) application of IFRS 9, the opening balance hedge currency risk arising on construction consists of security deposits, advances and the loan is repaid directly by the Ministry of at 1 January 2018 of “Other non-current contracts in currencies other than the other minor items. Infrastructure and Transport to BIIS. financial receivables” decreased by euro functional currency. The following table presents the amount of and Given the nature of the financial receivables 651 thousand, reflecting the effects of the “Other receivables” of euro 8,304 thousand movements in the provision for impairment of and financial liabilities in question, the adoption of the new impairment model (euro 7,987 thousand at 31 December 2017) other non-current receivables: repayment of the loan with BIIS has no introduced by IFRS 9. More details can be mainly include the receivable from the Iraqi impact on the Group’s cash flows. found in Note 1.
(euro/000) Provision for impairment of other receivables
Balance at 1.1.2017 16,104 Utilizations (6,116) Increases/ (Releases) (1,800) Total at 31.12.2017 8,188 Utilizations Increases/ (Releases) Total at 31.12.2018 8,188
156 157 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - DEFERRED TAX ASSETS No deferred tax assets have been recognized subsidiaries which are thought unlikely to be AND LIABILITIES on euro 102 million (euro 97 million at 31 recovered against future taxable income. December 2017) in carry forward losses of Deferred tax assets are analyzed as follows: Deferred tax liabilities are analyzed as follows: (euro/000) Sundry Product Other Fair value Actuarial Carry Other Total (euro/000) impairment warranty risks derivatives valuation forward tax temporary losses and charges employee losses differences Deferred taxes from Other Total severance business combinations temporary benefit differences 1.1.2017 35,888 9,197 15,659 9,865 6,266 44,617 32,881 154,373 1.1.2017 57,123 27,949 85,072 Changes in 2017 Changes in 2017 - business combinations 5 5 - business combinations 917 917 - through profit or loss 6,647 2,056 3,450 (2,728) (31,194) (1,955) (23,724) - through profit or loss (1,944) (979) (2,923) - impairment losses - impairment losses - through other - through other comprehensive income (1,804) (1,804) (48,730) 20 (48,710) comprehensive income - tax rate and other changes (5,775) (6,444) (12,219) - tax rate and other (180) (339) 1,588 (5,992) (4,923) - exchange rate differences (5,002) (2,289) (7,291) changes 31.12.2017 45,319 16,433 61,752 - exchange rate (488) (57) (30) (36) (1,061) (3,245) (4,917) Changes in 2018 differences - business combinations 31.12.2017 41,867 10,857 19,079 (38,901) 3,558 13,950 21,694 72,104 - through profit or loss (2,102) (857) (2,959) First adoption IFRS 7,995 7,995 - impairment losses 1.1.2018 41,867 10,857 19,079 (38,901) 3,558 13,950 29,689 80,099 - through other comprehensive income (1,586) (1,586) Changes in 2018 - tax rate and other changes - business combinations - exchange rate differences 495 310 805 - through profit or loss (12,866) (1,385) 1,910 (55) 10,058 17,312 14,974 31.12.2018 43,712 14,300 58,012 - impairment losses - through other 29,134 (351) 28,783 comprehensive income - tax rate and other (28) (12) (40) changes The deferred tax liabilities for business The other temporary differences include the - exchange rate (134) 40 (56) (24) (535) 857 148 differences combinations relate to differences arising difference between book and fiscal values 31.12.2018 28,867 9,512 20,933 (9,791) 3,124 23,473 47,846 123,964 when allocating purchase price to intangible of fixed assets, mainly for the American assets with indefinite useful lives, primarily subsidiaries. client relationships and order backlog.
Deferred tax assets have been recognized on value measurement of hedging derivatives items for which the tax is likely to be recovered (positive for euro 29,134 thousand) with against forecast future taxable income of contra-entry in the equity reserve. Group companies. The opening balance at 1 January 2018 has been The positive difference of euro 43,865 adjusted by euro 7,995 thousand to reflect the thousand mainly relates to the VARD group tax effects resulting from the first application of and is mainly due to the provision made for the new accounting standards IFRS 15 and IFRS tax losses made during the year and the 9. More details can be found in Note 1. valuation of some balance sheet items. Also Deferred tax assets are largely offsettable (by worthy of note is the increase due to the euro 23.5 million) against the deferred tax recognition of the tax effect related to the fair liabilities discussed below.
158 159 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INVENTORIES AND ADVANCES NOTE 13 - CONSTRUCTION CONTRACTS - ASSETS
These are analyzed as follows: These are analyzed as follows:
(euro/000) (euro/000) 31.12.2018 31.12.2017 31.12.2018 31.12.2017 Raw materials and consumables 280,105 249,789 Construction Invoices issued Construction Construction Invoices issued Construction Work in progress and semi-finished goods 120,044 137,317 contracts - gross and provision for contracts - net contracts - gross and provision for contracts - net future losses assets future losses assets Finished products 31,786 31,416 Merchandise Shipbuilding Contracts 8,134,360 (5,610,562) 2,523,798 7,993,621 (6,009,467) 1,984,154 TOTAL INVENTORIES 431,935 418,522 Other contracts for third parties 48,102 (40,628) 7,474 32,867 (21,679) 11,188 Advances to suppliers 449,160 416,677 Total 8,182,462 (5,651,190) 2,531,272 8,026,488 (6,031,146) 1,995,342 TOTAL INVENTORIES AND ADVANCES 881,095 835,199 “Construction contracts - assets” report those The opening balance at 1 January 2018 of Inventories and advances are stated net of consumables basically represents the volume of contracts where the value of the contract’s Construction contracts - net assets has relevant provisions for impairment. stock considered sufficient to ensure the normal stage of completion exceeds the amount been adjusted by euro 106,628 thousand to The difference of euro 45,896 thousand is conduct of production activities. invoiced to the client. The stage of completion reflect the tax effects resulting from the first mainly attributable to the Parent Company Work in progress and semi-finished goods and is determined as the costs incurred to date application of IFRS 15. More details can be and refers in part, to the stock of raw materials finished products include some of the subsidiary plus recognized margins less any expected found in Note 1. needed for production and in part to the VARD’s naval vessels as well as the manufacture losses. advances paid to suppliers for the new naval of engines and spare parts. vessel contracts started in 2017. The following table presents the amount of and The amount recorded for Raw materials and movements in such provisions for impairment:
(euro/000) Provision for impairment - raw Provision for impairment - work in Provision for impairment- finished materials progress and semi-finished goods products 1.1.2017 14,266 - 2,485 Increases 2,625 5,796 Utilizations (1,341) (359) Releases (868) Exchange rate differences (53) (302) (119) 31.12.2017 14,629 5,494 2,007 Increases 2,228 11,413 994 Utilizations (1,732) Releases (2,139) Exchange rate differences 15 (462) 59 31.12.2018 13,000 16,445 3,060
“Provision for impairment - raw materials” “Work in progress and semi-finished goods” includes the adjustments made to align the increased during the year due to the increase carrying amount of slow-moving materials made by the subsidiary VARD in order to still in stock at year end with the net adjust the carrying amount of an offshore estimated realizable value. vessel to the estimated net value of its sale.
160 161 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - TRADE RECEIVABLES AND OTHER project, and grants receivable, by the Parent “Indirect tax receivables” of euro 43,033 CURRENT ASSETS Company and the subsidiary Cetena, for thousand (euro 32,181 thousand at 31 research and innovation. December 2017) mainly refer to claims for These are analyzed as follows: “Other receivables” of euro 208,152 thousand VAT refunds or set-off, to indirect foreign mainly refer to: taxes and claims for customs duty refunds (euro/000) from the Italian Customs Authority. 31.12.2018 31.12.2017 • research grants, shipowner supplies, “Firm commitments” of euro 5,217 thousand Trade receivables 749,387 908,960 insurance claims, advances to suppliers, (euro 2,992 thousand at 31 December 2017) Receivables from controlling companies (tax consolidation) 2,926 20,327 sundry receivables from employees and reflect the fair value of hedged items in Government grants receivable 4,414 4,475 other miscellaneous receivables, mostly fair value hedges adopted by the VARD Other receivables 208,152 142,332 relating to the Parent Company, totalling Group to hedge currency risk arising on Indirect tax receivables 43,033 32,181 euro 206,642 thousand (euro 140,914 construction contracts in currencies other Firm commitments 5,217 2,992 thousand at 31 December 2017); than the functional currency. Accrued income 49,053 44,700 • receivables from social security institutions “Prepayments” mainly refer to insurance Prepayments 195 51 for euro 1,510 thousand (euro 1,418 thousand premiums relating to future periods. TOTAL TRADE RECEIVABLES AND OTHER CURRENT ASSETS 1,062,377 1,156,018 at 31 December 2017), most of which advances paid to employees for accidents Receivables are shown net of provisions A provision for interest charged on past due and amounts owed by INPS (the Italian for impairment. These provisions relate to trade receivables has been recognized in a social security administration) in respect of receivables that are no longer considered “Provision for past due interest”. Provisions the Wage Guarantee Fund. fully recoverable, including those involving for impairment of receivables report the legal action and judicial and out-of-court following amounts and movements: proceedings in cases of debtor default. NOTE 15 – INCOME TAX ASSETS
(euro/000) (euro/000) Provision for impairment of Provision for past due Provision for impairment of Total trade receivables interest other receivables 31.12.2018 31.12.2017 Italian corporate income taxation (IRES) 1.1.2017 27,128 63 6,430 33,621 13,451 13,641 Italian regional tax on productive activities (IRAP) 541 192 Business combinations Foreign tax 6,610 5,085 Utilizations (2,955) (444) (3,399) TOTAL INCOME TAX ASSETS 20,602 18,918 Increases / (Decreases) 1,592 216 1,808 Exchange rate (86) (86) differences The provision for impairment of income 31.12.2017 25,679 63 6,202 31,944 tax assets reports the following amounts Business combinations and movements: Utilizations (1,534) (1,534) (euro/000) Increases / (Decreases) 9,000 607 9,607 Exchange rate Provision for impairment of income tax assets (17) (17) differences Balance at 1.1.2017 2,042 31.12.2018 33,128 63 6,809 40,000 Increases/ (Releases) Other movements The decrease of euro 159,573 thousand year. Total at 31.12.2017 in “Trade receivables” is mainly due to “Government grants receivable” of euro 2,042 the receipt of the final instalment for the 4,414 thousand include operating and Increases/ (Releases) Carnival Horizon cruise ship delivered by the capital grants from the state of Wisconsin Other movements Parent Company in the first months of the recognized by the FMGH Group for the LCS Total at 31.12.2018 2,042
162 163 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – CURRENT FINANCIAL ASSETS NOTE 17 - CASH AND CASH EQUIVALENTS
These are analyzed as follows: These are analyzed as follows:
(euro/000) (euro/000) 31.12.2018 31.12.2017 31.12.2018 31.12.2017 Derivative assets 22,952 16,085 Bank and postal deposits 676,395 274,299 Other receivables 17,329 33,542 Checks Government grants financed by BIIS 7,751 7,468 Cash on hand 92 112 Accrued interest income 439 800 TOTAL CASH AND CASH EQUIVALENTS 676,487 274,411 Prepaid interest and other financial expense 217 12 TOTAL CURRENT FINANCIAL ASSETS 48,688 57,907 Cash and cash equivalents at period end balances on current accounts held with a include euro 10,929 thousand in term number of banks. “Derivative assets” represent the reporting- security for certain contractual obligations bank deposits; the remainder refers to the date fair value of derivatives with a to its lenders. maturity of less than 12 months. The fair “Government grants financed by BIIS” value of derivative financial instruments (Banca Infrastrutture Innovazione e has been calculated considering market Sviluppo) report the current portion of parameters and using widely accepted government grants receivable by shipyards measurement techniques (Level 2). Further and by shipowners, assigned to Fincantieri details can be found in Note 4. as part of contract price. Note 9 contains “Other receivables” include interest- information about the non-current portion bearing receivables from clients and of these grants. deposits made by the VARD Group as
164 165 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - EQUITY Share capital of euro 11,072 thousand (net of tax effects) referring to the capital increase have been Equity attributable to owners of the parent thousand for distribution to shareholders The share capital of FINCANTIERI S.p.A. accounted for as a deduction from the with a dividend of 1 euro cent per share in amounts to euro 862,980,726, fully paid-in, share premium reserve, in compliance with The Ordinary Shareholders’ Meeting held circulation at the coupon-detachment date divided into 1,692,119,070 ordinary shares IAS 32. on 11 May 2018 adopted a resolution to (21 May 2018), excluding own shares in the with no par value. allocate the net profit from the 2017 financial portfolio on that date, and the remainder to The number of shares issued is unchanged Cash flow hedge reserve year, euro 119,272, as follows: euro 5,963 the Extraordinary Reserve. with respect to 31 December 2017. thousand to the Legal Reserve, euro 16,874 The composition of equity is analyzed in the The cash flow hedge reserve reports the following table: Reserve of own shares change in the effective portion of derivative hedging instruments measured at fair value; (euro/000) The reserve is negative for euro 5,277 movements in the cash flow hedge reserve 31.12.2018 31.12.2017 thousand and comprises the value of the are shown in Note 4. Attributable to owners of the parent own shares for the Company’s incentive Share capital 862,981 862,981 plan called “Performance Share Plan 2016 - Currency translation reserve Reserve of own shares (5,277) (5,277) 2018” (described in more detail in Note 32) Share premium reserve 110,499 110,499 to be carried out in accordance with art. The currency translation reserve reflects Legal reserve 40,289 34,326 5 of EU Regulation No. 596/2014 and as exchange differences arising from the Cash flow hedge reserve 15,271 92,527 resolved by the Company’s Shareholders’ translation into euro of financial statements Available-for-sale fair value reserve (394) (323) Meeting held on 19 May 2017. During 2017, of foreign operations prepared in currencies Currency translation reserve (137,916) (134,128) the Parent Company purchased 4,706,890 other than the euro. Other reserves and retained earnings 269,387 219,093 ordinary own shares (0.28% of the share Profit/(loss) for the year 72,440 57,140 1,227,280 1,236,838 capital) for euro 5,277 thousand. The Other reserves and retained earnings Attributable to non-controlling interests number of shares issued is reconciled to Capital and reserves 22,504 89,689 the number of shares outstanding in the These mainly comprise: i) surplus earnings Available-for-sale fair value reserve (11) (84) Parent Company at 31 December 2018. after making allocations to the legal reserve Currency translation reserve 6,515 (13,283) and distributions in the form of shareholder Profit/(loss) for the year (3,318) (4,000) dividends; ii) actuarial gains and losses on
25,690 72,322 N° shares employee benefit plans; iii) the Reserve TOTAL EQUITY 1,252,970 1,309,160 for the share-based incentive plan for Ordinary shares issued 1,692,119,070 management. less: own shares purchased in (4,706,890) 2017 The Fincantieri Group’s purchase of shares Ordinary shares outstanding 1,687,412,180 from minority shareholders in the subsidiary VARD over the year has led to a change of euro 11,814 thousand in other reserves and retained earnings. At 31 December 2017, the subsidiary Fincantieri Oil & Gas directly owned 79.74% of the share capital Share premium reserve of Vard Holdings Limited and its acquisition of shares from minority shareholders of This reserve has been recorded as a result the Norwegian Group took place through of the capital increase accompanying subsequent purchases of shares on the the Company’s listing on the Mercato market which brought the stake to 97.22% Telematico Azionario (MTA) of Borsa at year end. This transaction has not Italiana S.p.A. on 3 July 2014. Listing costs altered the Fincantieri Group’s scope of
166 167 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
consolidation since VARD was already 1 January 2018, which decreased by euro NOTE 19 - PROVISIONS FOR RISKS fully consolidated; the above change in the 20,661 thousand, of which the group’s AND CHARGES interest must be treated as a “transaction portion is euro 20,427 thousand and with owners” in which the difference euro 234 thousand is the portion of non- These are analyzed as follows: between the value of the acquisition and controlling interests. More details on the the carrying amount of the non-controlling effects of the transition can be found in (euro/000) interest acquired is not recognized in profit Note 1. Litigation Product warranty Agent indemnity Business Other risks and Total or loss but in consolidated equity. benefit reorganization charges The change in the Reserve for Non-controlling interests management’s share-based incentive plan 1.1.2017 56,562 43,429 76 2,524 23,383 125,974 refers to the share of personnel costs and The change since 31 December 2017 (euro Business combinations Increases 47,374 30,974 4,468 82,816 costs for services accrued during 2018 44,278 thousand) is due to the effect of Utilization (31,564) (18,367) (1,407) (2,372) (53,710) (euro 4,844 thousand). More details about the purchase of additional VARD shares, as Releases (2,130) (6,978) (15) (2,606) (11,729) the incentive plan can be found in Note 32. described above. . Other movements (1) (467) (468) Exchange rate differences (119) (808) (212) (901) (2,040) First adoption of IFRS 15 and IFRS 9 Other comprehensive income/losses 31.12.2017 70,123 48,249 61 905 21,505 140,843 Business combinations The application of IFRS 15 and IFRS 9 has The amount of other comprehensive Increases 36,857 28,493 3,834 69,184 led to a change in the opening balances of income/losses, presented in the statement Utilization (31,405) (25,257) (1,158) (57,820) “Other reserves and retained earnings” at of comprehensive income, is as follows: Releases (11,495) (7) (6,183) (17,685) Other movements 432 244 676 (euro/000) Exchange rate differences (342) 340 (11) 31 18 31.12.2018 31.12.2017 31.12.2018 75,233 40,762 54 894 18,273 135,216 - of which non-current Gross amount Tax (expense)/ Net amount Gross amount Tax (expense)/ Net amount 73,483 35,919 54 17,067 126,523 benefit benefit portion Effective portion of profits/(losses) on cash - of which current portion 1,750 4,843 894 1,206 8,693 (106,729) 29,296 (77,433) 168,588 (48,896) 119,692 flow hedging instruments Gains/(losses) from remeasurement of 1,502 (361) 1,141 75 19 94 Increases in the litigation provision mainly has been set aside for the cost of the employee defined benefit plans Gains/(losses) arising from changes in OCI of refer to: i) precautionary provisions for reorganization programs initiated in investments accounted for using the equity (216) (216) claims brought by employees, authorities previous years by VARD in its Romanian and method or third parties for damages arising from Norwegian shipyards. Gains/(losses) arising on translation of 14,586 1,424 16,010 (59,810) 1,970 (57,840) asbestos exposure; ii) adjustment of the fund The provision for “Other risks and charges” financial statements of foreign operations against the risk associated with the “Serene” includes funds of euro 5,070 thousand Total other comprehensive income/ (losses) (90,641) 30,359 (60,282) 108,637 (46,907) 61,730 litigation, details of which are given below for environmental clean-up costs and the in Note 32; iii) other provisions for litigation remainder includes provisions for risks
(euro/000) with employees and suppliers and for other related to various kinds of disputes, mostly 31.12.2018 31.12.2017 legal proceedings. of a contractual, technical or fiscal nature, Effective portion of profits/(losses) arising in period on cash flow hedging The “Product warranty” provision relates which might be settled at the Group’s 24,968 131,697 instruments to the estimated cost of carrying out work expense either in or out of court. Effective portion of profits/(losses) on cash flow hedging instruments (131,697) 36,891 under contractual guarantee after vessel reclassified to profit or loss Effective portion of profits/(losses) on cash flow hedging instruments (106,729) 168,588 delivery. The warranty period normally lasts Tax effect of other components of comprehensive income 29,296 (48,896) for 1 or 2 years after delivery, but in some TOTAL OCI FOR CASH FLOW HEDGES, NET OF TAX (77,433) 119,692 cases it may be longer. The “Business reorganization” provision
168 169 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - EMPLOYEE BENEFITS The table below shows the expected payouts for Italian employee severance benefits in Movements in this line item are as follows: years to come: (euro/000) (euro/000) Expected payments 2018 2017 Within 1 year 3,716 Opening balance 58,929 57,848 Between 1 and 2 years 3,177 Business combinations 2,270 Between 2 and 3 years 3,491 Interest cost 724 882 Actuarial (gains)/losses (1,694) (74) Between 3 and 4 years 3,974 Utilizations for benefits and advances paid (1,501) (2,172) Between 4 and 5 years 3,811 Staff transfers and other movements 373 175 Total 18,169 Exchange rate differences (1) Closing balance 56,830 58,929 The Group paid a total of euro 36,598 Plan assets (24) (17) thousand into defined contribution plans in Closing balance 56,806 58,912 2018 (euro 35,406 thousand in 2017).
The balance at 31 December 2018 of euro projected unit credit method; the discount 56,830 thousand is mainly comprised of the rate used by this method to calculate employee severance benefit pertaining to the present value of the defined benefit the Group’s Italian companies (euro 56,794 obligation reflects the market yield on bonds thousand). with the same maturity as that expected for The amount of Italian employee severance the obligation. The assumptions adopted are benefit recognized in the financial statements as follows: is calculated on an actuarial basis using the
31.12.2018 31.12.2017 ECONOMIC ASSUMPTIONS Cost of living increase 1.50% 1.50% Discount rate 1.57% 1.30% Increase in employee severance 2.625% 2.625% benefit DEMOGRAPHIC ASSUMPTIONS RG48 mortality tables published by RG48 mortality tables published by Expected mortality rate the State Accounting Office the State Accounting Office Expected invalidity rate INPS tables split by age and gender INPS tables split by age and gender Expected resignation rate 3.0% 3.0% Expected rate of advances on employee severance 2.0% 2.0% benefit
Reasonable variations in the parameters used do not have any significant impact on the estimated liability.
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NOTE 21 – NON-CURRENT FINANCIAL The exposure to Bayerische Landesbank The first loan was disbursed in 2015 for LIABILITIES relates to three medium/long-term loans 25 million: at the final expiry date of taken out by Fincantieri S.p.A. The first June 2019 the last of the 6 semi-annual These are analyzed as follows: was disbursed in September 2018 for 75 instalments will be repaid. The second million, repayable in a single instalment in loan was disbursed in January 2018 for September 2023. In November 2018 two euro 30 million, repayable in six semi- (euro/000) other “Schuldschein” loans were taken annual instalments from July 2019 ending 31.12.2018 31.12.2017 out with Bayerische Landesbank acting as in January 2022. In August 2018 the third Bank loans and credit facilities - non-current portion 760,448 261,027 Arranger and Paying Agent: the first for loan was disbursed for euro 50 million, also Loans from BIIS - non-current portion 4,762 12,513 euro 29 million with a duration of 3 years repayable in six semi-annual instalments Liabilities to other lenders 6,078 2,474 (expiry November 2021) and the second for from February 2021 to August 2023. Finance lease obligations 26 200 71 million with a duration of 5 years (expiry In November 2016, the Banca Popolare Derivative liabilities 21,414 17,485 November 2023). Both the “Schuldschein” di Ancona, now UBI Banca, granted TOTAL NON-CURRENT FINANCIAL LIABILITIES 792,728 293,699 loans will be repaid in a single solution at the Parent Company a medium/long- the respective maturity dates. term unsecured loan for euro 20 million, The increase in “Bank loans and credit Bank loans and credit facilities “Schuldschein” loans are debt instruments repayable in 6 semi-annual instalments facilities - non-current portion” is due to the which are privately placed by an arranger ending in February 2020. In December taking out of new medium and long term The following table presents the composition bank with professional investors. Unlike 2016, UBI Banca granted the Parent loans for the refinancing, at a much lower of bank loans and credit facilities, including normal syndicated loans, the loan is Company the first ordinary portion, euro cost, of the bond which matured and was disclosure of the non-current portion and securitized in a note (Schuldschein) which 1,617 thousand, of a loan agreed in 2014 repaid in November 2018. the current portion reclassified to current is then transferred to the investors. for euro 2,021 thousand for an innovation financial liabilities: In July 2018 the Parent Company took out project under Law 46/1982 called an unsecured medium-long term loan with “Environment”; this amount will be repaid (euro/000) Banca Nazionale del Lavoro, disbursed in semi-annual instalments due between 31.12.2018 31.12.2017 in the same month for euro 100 million, 2021 and 2024. In 2017 the bank granted Bayerische Landesbank 175,000 repayable in a single instalment in July the Parent Company a new medium/ Banca Nazionale del Lavoro 100,000 2023. long-term unsecured loan for euro 40 Intesa Sanpaolo 103,853 3,613 The exposure to Intesa Sanpaolo refers million, repayable in a single instalment Banca Mediocredito del Friuli Venezia Giulia 9,240 12,775 to a medium/long term unsecured loan in November 2020. In December 2018 Mediobanca disbursed to the Parent Company in a further unsecured loan was taken out UBI Banca 91,617 58,284 August 2018 for euro 100 million, repayable with UBI Banca for a total of 30 million, Banca Popolare dell’Emilia Romagna 84,167 12,500 in a single instalment in July 2023. In repayable in a single instalment in June Cassa di Risparmio di San Miniato 5,000 addition, with the same bank, the Parent 2020. In May 2018 Vard Group AS took Cassa Depositi e Prestiti 51,101 56,444 Company fully drew down, between 2015 out a loan with UBI Banca for a total of Banca UBAE 15,000 15,000 and 2018, the ordinary portions of three 10 million, which will be repaid in three- Credito Valtellinese 50,000 20,000 loans taken out in 2014 for technological monthly instalments by May 2021. Crèdit Agricole – Friuladria 25,000 innovation projects under Law 46/1982 The exposure to Cassa Depositi e Prestiti Unicredit Tiriac Bank SA 11,667 18,338 known as “Environmental Logistics”, refers to six soft loans received by the Innovation Norway 9,232 11,145 ““Payload” and “Production Engineering” Parent Company under the “revolving fund Nordea 1,310 2,501 Banco do Brazil 80,445 84,316 for euro 3,853 thousand. These loans are in support of businesses and investment in Other loans and credit facilities 4,360 9,490 due to be repaid between 2022 and 2024. research” (the “Fund”), established under TOTAL BANK LOANS AND CREDIT FACILITIES 811,992 309,406 The Parent Company has an exposure Law 311 of 30 December 2004, for the Non-current portion 760,448 261,027 to Banca Popolare dell’Emilia Romagna “Superpanamax cruise ship” development Current portion 51,544 48,379 consisting of the residual debt on three project under Law 46/1982, for the medium/long-term unsecured loans. “Ecomos” applied research project under
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Law 297/1999 and for four technological 36 months, in 3 semi-annual instalments these loans in June 2022 and June 2020 construction of its new headquarters. innovation projects under Law 46/1982 ending in September 2022. This loan is respectively. The loan from Nordea refers to the known as “Payload”, “Environmental in addition to the medium/long-term In September 2017, Vard Tulcea SA obtained subsidiary Vard Singapore Pte. Ltd. and has Logistics”, “Production Engineering” and unsecured loan disbursed by the bank in a loan from Unicredit Tiriac Bank SA for been obtained for the purposes of financing “Environment”. July 2017 for 20 million to be repaid, after euro 20 million. The residual amount of the construction of the Vietnamese The following loans have been granted a 22-month grace period, in 5 semi-annual this loan at 31 December 2018 is euro 11,667 shipyard. This loan, originally for USD 15 to the Parent Company under this Fund instalments ending in July 2021. thousand. The loan is collateralized with million (USD 1.5 million outstanding at the through the Cassa Depositi e Prestiti: In January 2018 a medium/long-term shipyard assets and must be repaid in end of 2018), has had its maturity extended unsecured loan, taken out by the Parent monthly instalments by September 2020. from 2014 to 2019. The loan is secured by a • for the “Superpanamax cruise ship” Company in October 2017 with Credit VARD Group AS has six loans with lien over the shares in Vard Holding Ltd. and project, a fully disbursed loan for euro 12,217 Agricole – Friuladria, was disbursed for Innovation Norway for a total of NOK 92 by a parent company guarantee issued by thousand. The loan is unsecured and must euro 25 million, due to be repaid in a single million (current and non-current portions) the same. be repaid in semi-annual instalments by 30 instalment in January 2020. at 31 December 2018; these loans are Among the loans granted to the Brazilian June 2022; In 2017 the Parent Company took out a secured by plant and machinery and by the subsidiaries, Vard Promar SA has a long- • for the “Superpanamax cruise ship” medium/long-term unsecured loan for euro dock at the Langesten shipyard and also term financing agreement for USD 101 project, a fully disbursed loan for euro 15 million with Banca UBAE, repayable in a carry covenants (Consolidated Equity > million with Banco do Brasil, maturing in 4,405 thousand. The loan is unsecured and single instalment in January 2020. NOK 1,500 million and Consolidated Cash 2029. This loan is being used to finance must be repaid in semi-annual instalments FINCANTIERI S.p.A.’s exposure to Banca and cash equivalents > NOK 500 million). construction of the shipyard in Suape and is by 30 June 2020; Mediocredito del Friuli Venezia Giulia refers Vard obtained from Innovation Norge a collateralized with shipyard assets. • for the “Ecomos” project, a fully disbursed to four different loans, secured by a lien waiver of the covenant relating to equity for The non-current portion of bank loans and loan for euro 10,818 thousand. The loan is on plant, machinery and equipment at the the last quarter of 2018. credit facilities reports the instalments due unsecured and must be repaid in semi- Monfalcone shipyard, as disclosed in Note 7, The subsidiary Vard Electro AS obtained beyond one year of loans obtained from annual instalments by 30 June 2024; disbursed between 2009 and 2014 for the a loan from a local bank in 2016 for NOK financial institutions, analyzed by maturity • for the “Payload” project, a fully disbursed original total amount of euro 33.6 million. 59 million, maturing in 2032, to finance as follows: loan for euro 13,043 thousand. The loan These loans are to be repaid progressively is unsecured and must be repaid in semi- in semi-annual instalments by 2022. In (euro/000) annual instalments by 30 June 2024; 2018 the last instalment of a further loan 31.12.2018 31.12.2017 • for the “Production Engineering” project, originally totalling 3.5 million was paid and Fixed rate Floating rate Total Fixed rate Floating rate Total a loan for up to euro 10,822 thousand, the Parent Company extinguished the lien the last portion of which, 2,164 thousand, on the loan. - between one and two years 26,285 138,644 164,929 23,541 23,767 47,308 was disbursed in October 2018. The loan In December 2018 the medium/long- - between two and three years 25,578 73,141 98,719 26,377 68,140 94,517 - between three and four years is unsecured and must be repaid in semi- term unsecured loan granted by Cassa 16,717 45,536 62,253 25,338 4,864 30,202 - between four and five years 290,898 91,269 382,167 16,475 3,313 19,788 annual instalments by 30 June 2024; di Risparmio di San Miniato to the Parent - beyond five years 49,749 2,631 52,380 60,571 8,641 69,212 • for the “Environmental” project, a loan for Company in 2015 for the original amount of Total 409,227 351,221 760,448 152,302 108,725 261,027 up to euro 18,192 thousand, of which euro 15 million was fully repaid. 14,554 thousand was disbursed by the end “Other loans and credit facilities” includes of 2016. The loan is unsecured and must the ordinary residual portion of two loans “Loans from BIIS – non-current portion” reporting-date fair value of derivatives be repaid in semi-annual instalments by 30 granted by Mediocredito Centrale for the reflect the receipt of production grants in with a maturity of more than 12 months. June 2024; “Superpanamax cruise ship” development the form of loans that are then effectively The fair value of derivative financial project under Law 46/1982 and the repaid by the state (see Note 9). The instruments has been calculated In 2018 the Parent Company took out a “Ecomos” applied research project under movement in the period is consistent considering market parameters and further new medium/long-term unsecured Law 297/1999, fully disbursed between 2013 with that of the corresponding amount using widely accepted measurement loan with Credito Valtellinese for euro 30 and 2017 for an overall total of euro 1,847 recognized as a receivable. techniques (Level 2). Further details can million, repayable, after a grace period of thousand. The final instalments are due on “Derivative liabilities” represent the be found in Note 4.
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NOTE 22 - OTHER NON-CURRENT LIABILITIES
These are analyzed as follows:
(euro/000) 31.12.2018 31.12.2017 Capital grants 24,242 21,676 Other liabilities 6,933 9,203 Firm commitments 962 37 TOTAL OTHER NON-CURRENT LIABILITIES 32,137 30,916
“Capital grants” mainly comprise deferred amortization of these assets. income associated with grants for property, “Other liabilities” include euro 4,693 thousand plant and equipment and innovation grants in payables to other parties in respect of the which will be released to income in future amount owed by the Iraqi Ministry of Defense years to match the related depreciation/ (see also Note 10).
NOTE 23 - CONSTRUCTION CONTRACTS - LIABILITIES
These are analyzed as follows:
(euro/000) 31.12.2018 31.12.2017 Construction Invoices issued Construction Construction Invoices issued Construction contracts - gross and provision for contracts - net contracts - gross and provision for contracts - net future losses liabilities future losses liabilities Shipbuilding contracts 2,505,411 4,062,921 1,557,510 1,532,501 2,874,082 1,341,581 Other contracts for third parties 100,142 104,489 4,347 Client advances 37,283 37,283 1,324 1,324 Total 2,505,411 4,100,204 1,594,793 1,632,643 2,979,895 1,347,252
“Construction contracts - liabilities” report includes euro 35 million of advances received those contracts where the value of the stage in relation to a naval contract classified in of completion of the contract is less than inventories under Work in progress and semi- the amount invoiced to the client. The stage finished goods. of completion is determined as the costs The opening balance at 1 January 2018 of incurred to date plus recognized margins less Construction contracts - net liabilities has any expected losses. been adjusted by euro 30,697 thousand to “Client advances” refer to contracts on reflect the tax effects resulting from the first which work had not started at the year-end application of IFRS 15. More details can be reporting date. At 31 December 2018 this item found in Note 1.
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NOTE 24 - TRADE PAYABLES AND OTHER NOTE 25 - INCOME TAX LIABILITIES CURRENT LIABILITIES (euro/000) These are analyzed as follows: 31.12.2018 31.12.2017 Italian corporate income taxation (IRES) 1,269 427 Italian regional tax on productive activities (IRAP) 190 6,049 (euro/000) Foreign tax 2,841 5,759 31.12.2018 31.12.2017 TOTAL INCOME TAX LIABILITIES 4,300 12,235 Payables to suppliers 1,471,101 1,476,531 Payables to suppliers for reverse factoring 377,487 271,964 Social security payables 37,327 35,577 Other payables for deferred employee remuneration 76,454 69,921 Other payables 84,335 91,690 Other payables to Parent Company (tax consolidation) 47,459 87 Indirect tax payables 18,007 15,888 Firm commitments 697 3,837 Accrued expenses 2,576 6,677 Deferred income 847 1,310 TOTAL TRADE PAYABLES AND OTHER CURRENT LIABILITIES 2,116,290 1,973,482
“Payables to suppliers” is essentially sundry payables for insurance premiums, unchanged compared to the previous year. advances received against research “Payables to suppliers for reverse factoring” grants, amounts payable to employee report the liabilities to suppliers who have supplementary pension funds and security relinquished their creditor position with deposits received. Fincantieri to a factoring company. “Indirect tax payables” include euro 16,108 “Social security payables” include amounts thousand for indirect tax liabilities of the due to INPS (the Italian social security VARD Group. authorities) for employer and employee “Firm commitments” reflect the fair value of contributions on December’s wages and hedged items in fair value hedges adopted salaries and contributions on end-of-period by the VARD Group to hedge currency wage adjustments. risk arising on construction contracts “Other payables” include employee income in currencies other than the functional tax withholdings payable to tax authorities, currency.
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NOTE 26 - CURRENT FINANCIAL LIABILITIES and are secured by the vessels under obtained from the banks a waiver construction. These loans are repaid of the covenants relating to equity in full by the time of vessel delivery and net working capital. These are analyzed as follows: or upon expiry of the loan agreement • At 31 December 2018 the Brazilian if earlier. It should also be noted that subsidiary Vard Promar SA had in the event of shipbuilding contract construction loans with leading (euro/000) cancellation, the bank is entitled to Brazilian banks for a total of USD 31.12.2018 31.12.2017 request early repayment of the loan 195 million which were fully repaid in Bonds and commercial papers 231,000 299,239 unless the Group provides adequate January 2019 following the delivery of Bank loans and credit facilities - current portion 51,544 48,379 guarantees. The existing facilities the project financed. Loans from BIIS - current portion 7,751 7,468 of euro 1,336 million are detailed as Bank loans and credit facilities - Construction loans 632,482 624,360 follows: Other short-term bank debt 195,930 121,690 The construction loans drawn down at Liabilities to other lenders - current portion 906 5,280 • In December 2018 the Parent 31.12.2018 consist of a fixed-rate portion Bank credit facilities repayable on demand 1,287 609 Company agreed with a syndicate of for approximately euro 170 million leading national banks, including Cassa (carrying rates at 31 December 2018 of Financial liabilities for the acquisition of equity investments 1,485 Depositi e Prestiti, a construction loan between 3.2% and 5.3%) and a variable- Payables to joint ventures 1,716 1,628 for up to 300 million to finance the rate portion for about euro 412 million Finance lease obligations - current portion 210 253 construction of a cruise ship. As at 31 (carrying rates at 31 December 2018 of Fair value of options on equity investments 19,389 17,677 December 2018, this loan had not been between 1.6% and 4.3%). Derivative liabilities 37,880 36,213 drawn down. Some of the construction loans include Accrued interest expense 2,751 2,634 • In July 2018 the Parent Company immediate repayment clauses triggered TOTAL CURRENT FINANCIAL LIABILITIES 1,182,846 1,166,915 agreed construction financing with a by circumstances of economic and leading international bank for up to 150 financial distress of clients, construction million, to be disbursed in line with the of whose ships is being financed with For “Bank loans and credit facilities - progress of works on a cruise ship. As such loans. None of the main banks current portion” and “Loans from BIIS - “Construction loans” are analyzed as at 31 December 2018, euro 50 million of financing the VARD Group has reported current portion”, see Note 21. follows at 31 December 2018: this loan had been drawn down. the occurrence of such circumstances. • VARD Group AS has existing “Other short-term bank debt” at 31 (euro/000) construction loan facilities with Nordea, December 2018 includes the drawing 31.12.2018 31.12.2017 DNB, Sparebanken 1 SMN, Deutsche down of committed lines of credit CONSTRUCTION LOANS Bank and Intesa SanPaolo for a total for euro 15 million, entirely relating Italy 50,000 50,000 of NOK 7,122 million. These facilities to VARD, and euro 182 million of Norway 412,535 277,011 had been drawn down by a total of uncommitted lines of credit, of which Brazil 169,947 297,349 NOK 5,794 million at 31 December euro 46 million relates to the Parent TOTAL CONSTRUCTION LOANS 632,482 624,360 2018. These facilities carry covenants Company; this is expected to be repaid as follows: all have a covenant on in January 2019. consolidated equity (minimum NOK At 31 December 2018, the Group had a The change in “Bonds - current portion” With reference to the Euro-Commercial 1,500 million) and consolidated cash total of euro 535 million in committed refers to the regular repayment, on 19 Paper Step Label program structured by and cash equivalents, which must be lines of credit with leading Italian and November 2018, of the bonds placed by the Parent Company in December 2017 at least NOK 500 million. In addition, international banks maturing between the Parent Company on 19 November for a maximum of euro 500 million, euro but only for the loans with DNB and 2019 and 2021. In addition to committed 2013 on the Luxembourg Stock 231 million of this financing had been Sparebanken 1 SMN, there is a covenant credit lines, the Group has access to Exchange (at a below par price of euro drawn down as at 31 December 2018. on net working capital, with a minimum additional uncommitted credit lines with 99.442). Construction loans are project specific of zero. At 31 December 2018 Vard leading Italian and international banks
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in different currencies (about euro 690 The fair value of derivative financial NOTE 27 - REVENUE AND INCOME million). instruments has been calculated “Payables to joint ventures” relate to the considering market parameters and These are analyzed as follows: negative balance on the intercompany using widely accepted measurement current account with Orizzonte Sistemi techniques (Level 2). Further details (euro/000) Navali. can be found in Note 4. 2018 2017 “Fair value of options on equity investments” (Level 3) amounting to Sales and service revenue 4,112,276 3,428,083 Change in construction contracts euro 19,389 thousand (euro 17,677 1,256,620 1,486,172 Operating revenue 5,368,896 4,914,255 thousand at 31 December 2017) is Gains on disposal 219 471 related to the option held by minority Sundry revenue and income 74,518 69,024 shareholders of the American Group Government grants 30,387 36,335 FMG, the increase in which since 2017 Total other revenue and income 105,124 105,830 is due to the revaluation recognized TOTAL REVENUE AND INCOME 5,474,020 5,020,085 in profit and loss under financial costs for euro 847 thousand and, for the remainder, to the positive effect of For detail of the revenue broken down by processes in the naval vessel sector, under translating the balance expressed in the Group’s operating segments, please Law 190 of 2014, assigned in November foreign currency. refer to Note 34. It should be noted that and December 2016. The remaining part almost all the revenue relating to naval and is the grants related to income (euro service contracts is recognized gradually 4,350 thousand) and capital (euro 6,533 over time. thousand) mainly related to the Parent “Government grants” includes euro 19,504 Company, the subsidiary Cetena S.p.A. thousand grants for the year recognized and the US subsidiary Fincantieri Marine by the Parent Company for the loan for Group LLC. innovative projects on products and Sundry revenue and income comprise:
(euro/000) 2018 2017 Penalties charged to suppliers 11,471 8,053 Rental income 810 1,849 Insurance claims 30,861 19,659 Recharged costs 8,402 5,857 Income from third parties relating to personnel 212 150 Other sundry income 21,836 19,538 Gains on held-for-trading foreign currency derivatives 456 11,122 Gains on hedging instruments not qualifying for hedge accounting 2,785 Other income 470 11 Total 74,518 69,024
“Recharged costs”, of euro 8,402 thousand, services made available to subcontractors at mainly refer to various kinds of recharge to the shipyards and out-of-period income and customers and suppliers not attributable to adjustments arising on settlements agreed specific cost categories. with suppliers during the year. “Other sundry income” of euro 21,836 thousand mainly includes the recharge of
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NOTE 28 - OPERATING COSTS (euro 14,227 thousand at 31 December Company’s Chief Executive Officer. More 2017), and concession and similar fees of details on the operation can be found in Materials, services and other costs euro 2,925 thousand (euro 2,771 thousand Note 32. at 31 December 2017). Materials, services and other costs are It should be note that “Technical and Operating leases analyzed as follows: other services” includes charges related to the “Performance Share Plan” (euro 1,122 The following table presents future (euro/000) thousand), approved by the Shareholders’ minimum lease payments under operating 2018 2017 Meeting held on 19 May 2017, for the Parent leases: Raw materials and consumables (2,901,600) (2,502,461) Services (1,148,803) (1,171,098) (euro/000) Leases and rentals (45,126) (40,332) 2018 2017 Change in inventories of raw materials 27,051 14,624 Maturity of future minimum operating lease payments: and consumables Within 1 year 13,022 14,334 Change in inventories work in progress and finished (14,346) (19,715) Between 1 and 5 years products 41,593 33,231 Sundry operating costs (33,348) (51,188) Beyond 5 years 26,573 26,791 Cost of materials and services capitalized Total 81,188 74,356 12,122 23,696 in fixed assets Total materials, services (4,104,050) (3,746,474) and other costs PERSONNEL COSTS
The reduction in Sundry operating costs is 708 thousand in losses on the disposal of (euro/000) mainly due to the recognition in 2017 of an non-current assets (euro 420 thousand at 31 2018 2017 income adjustment of euro 16,701 thousand. December 2017). Personnel costs: Sundry operating costs also include euro Details of the cost of services are as follows: - wages and salaries (704,634) (658,440)
(euro/000) - social security (188,023) (200,652) 2018 2017 - costs for defined contribution plans (36,598) (35,406) - costs for defined benefit plans (13) (70) Subcontractors and outsourced services (612,769) (627,624) - other personnel costs (27,515) (26,358) Insurance (38,970) (42,664) Personnel costs capitalized in fixed assets 5,168 8,862 Other personnel costs (32,655) (26,913) Total personnel costs (951,615) (912,064) Maintenance costs (22,768) (23,182) Commissioning and trials (21,544) (11,207) Outsourced design costs (30,867) (26,302) “Personnel costs” represent the total cost costs” includes charges related to the Licenses (7,372) (4,903) incurred for employees, including wages “Performance Share Plan” (euro 3,722 Transportation and logistics (28,073) (26,300) and salaries, employer social security thousand) for the Group’s management Technical and other services (299,579) (318,933) Cleaning services (35,451) (35,539) contributions payable by the Group, gifts and approved by the Shareholders’ Electricity, water, gas and other utilities (42,882) (44,241) and travel allowances. The change of euro Meeting held on 19 May 2017. More details Utilization of product warranty and other provisions 24,127 16,710 39,551 thousand compared to 31 December on the operation can be found in Note 32. Total cost of services (1,148,803) (1,171,098) 2017 is partly attributable to the increase in Personnel costs include euro 4,969 average resources employed in the Group’s thousand in non-recurring expenses Italian yards. attributable to the subsidiary VARD “Leases and rentals” amounting to euro costs of euro 26,987 thousand (euro 23,334 It should be note that “Other personnel (see Note 32). 45,126 thousand (euro 40,332 thousand at thousand at 31 December 2017), lease costs 31 December 2017) include rental and hire of euro 15,214 thousand
184 185 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
Headcount NOTE 29 - FINANCE INCOME AND COSTS Employees are distributed as follows: These are analyzed as follows:
(number) 2018 2017 (euro/000) Employees at year end: 2018 2017 Total at year end 19,274 19,545 FINANCE INCOME - of whom in Italy 8,662 8,314 Bank interest and fees and other income 5,592 4,705 - of whom in Parent Company 7,874 7,616 Income from derivative financial instruments 73 42 - of whom in VARD 8,664 9,172 Interest and fees from joint ventures and associates 323 28 Average number of employees 19,331 19,314 Interest and other income from financial assets 2,031 3,152 - of whom in Italy 8,400 8,071 Foreign exchange gains 28,616 23,560 - of whom in Parent Company 7,677 7,471 Total finance income 36,635 31,487 - of whom in VARD 8,970 9,068 FINANCE COSTS Interest and fees charged by joint ventures (159) (193) Interest and fees from related parties (168) (68) Interest and fees charged by controlling companies (727) (1,095) DEPRECIATION, AMORTIZATION AND IMPAIRMENT AND PROVISIONS Expenses from derivative financial instruments (19,431) (4,852) Unrealized finance costs - delta fair value (847) (1,947) (euro/000) Interest on employee benefit plans (724) (746) 2018 2017 Interest and fees on bonds and commercial papers (10,878) (12,083) Depreciation and amortization: Interest and fees on construction loans (24,620) (25,652) - amortization of intangible assets (50,041) (33,245) Bank interest and fees and other expense (46,088) (42,289) - depreciation of property, plant and equipment (86,057) (86,577) Foreign exchange losses (36,924) (26,009) Impairment: Total finance costs (140,566) (114,934) - impairment of intangible assets (222) TOTAL FINANCE INCOME AND COSTS (103,931) (83,447) - impairment of property, plant and equipment (39) (38) Total depreciation, amortization and impairment (136,359) (119,860) “Finance income” in 2018 includes euro finance expense), under the structure in Provisions: 539 thousand (euro 817 thousand in place for the disbursement of government - other impairment losses 2017) in interest formally paid by the grants (see Note 9). - impairment of receivables (9,923) (2,450) Italian State to the Parent Company, The decrease in “Foreign exchange - increases in provisions for risks and charges (66,066) (80,091) but effectively paid to BIIS (Banca gains/losses” is primarily attributable to - release of provisions and impairment reversals 17,230 13,481 Infrastrutture Innovazione e Sviluppo) the unfavourable trend in the USD/BRL Total provisions (58,759) (69,060) (with an equal amount recognized as exchange rate.
A breakdown of depreciation and provisions for obligations deriving from amortization expense is provided contractual warranties for euro 28,493 in Notes 6 and 7. thousand (euro 30,974 thousand at 31 “Impairment of receivables” relates to December 2017), and provisions for litigation prudent appropriations to align the nominal for euro 36,857 thousand (euro 47,373 value of receivables with estimated thousand at 31 December 2017). More details realizable value. “Increases in provisions about the nature of the provisions made can for risks and charges” mainly comprise be found in Note 19 and Note 31.
186 187 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 30 - INCOME AND EXPENSE NOTE 31 - INCOME FROM INVESTMENTS TAXES
These are analyzed as follows: These are analyzed as follows:
(euro/000) (euro/000) 2018 2017 2018 2017 INCOME Current taxes (71,153) (17,778) Dividends from other companies 39 53 Deferred tax assets: Release of provision for losses on investments 690 – sundry impairment losses (12,866) 6,647 Gains from sale of investments 3,695 – product warranty (1,385) 2,056 Fair value measurement gains 2,671 – other risks and charges 1,910 3,450 Total income 6,405 743 – carry forward tax losses 10,058 (31,194) EXPENSE – other items 17,312 (4,683) Fair value measurement losses (463) (712) – tax rate and other changes (55) (4,920) Total expense (463) (712) 14,974 (28,644) INCOME/(EXPENSE) FROM INVESTMENTS 5,942 31 Deferred tax liabilities: SHARE OF PROFIT/(LOSS) OF INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD – business combinations 2,102 1,944 Profit 2,122 1,135 – other items 857 979 Loss (5,027) (5,929) – tax rate and other changes 12,222 SHARE OF PROFIT/(LOSS) OF INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (2,905) (4,794) 2,959 15,145 TOTAL INCOME AND EXPENSE FROM INVESTMENTS 3,037 (4,763) Total deferred taxes 17,933 (13,499) TOTAL INCOME TAXES (53,220) (31,277)
Notes: Negative figures indicate the recognition of deferred tax liabilities or reversal of deferred tax assets. Positive figures indicate the reversal of deferred tax liabilities or recognition of deferred tax assets.
The gain from sale of investments relates Limited (euro 1,557 thousand) and Etihad to the sale of the shareholding in Camper & Ship Building LLC (euro 518 thousand). Nicholson International in June 2018. The loss of euro 5,027 thousand mainly With reference to investments carried at fair reflects the Group’s share of the results value, at 31 December 2018 a fair value gain for the year of DOF Iceman AS (euro 1,504 of euro 2,671 thousand was recorded for the thousand), Castor Drilling Solution AS (euro investment in Friulia S.p.A. and a loss of euro 789 thousand), Island Diligence AS (euro 463 thousand for Solstad Offshore ASA. 741 thousand), Møkster Supply KS (euro As regards investments accounted for using 582 thousand), Rem Supply AS (euro 526 the equity method, the profit of euro 2,122 thousand) and Olympic Challenger KS thousand refers mainly to the Group’s share (euro 509 thousand). of the result for the year reported by CSSC For more details on the changes to - Fincantieri Cruise Industry Development investments, see Note 8.
188 189 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
Approximately euro 1,478 thousand in risk provision in relation to the formal NOTE 32 - OTHER INFORMATION expenses were recognized in 2018 for notice of assessment received in 2017 income taxes relating to previous periods for the 2013 period, which is still to be Net financial position (euro 3,556 thousand in 2017), including determined. euro 2,585 thousand of increases The theoretical tax rate is reconciled to The consolidated net financial position as carried out during the year to the tax the effective tax rate as follows: monitored by the Group is presented below.
(euro/000)
2018 2017 (euro/000) Theoretical corporate income tax rate (IRES) 24% 24% 31.12.2018 31.12.2017 Profit/(loss) before tax 122,342 84,417 A. Cash 92 112 Theoretical corporate income tax (IRES) (29,362) (20,260) B. Other cash equivalents 676,395 274,299
Impact of taxes relating to prior periods (6,076) (452) C. Held-for-trading securities Non-taxed income and non-deductible expenses D. Cash and cash equivalents (A)+(B)+(C) 676,487 274,411 Impact of tax losses (13,673) E. Current financial receivables 17,985 34,354 Impairment of deferred tax assets 281 - of which related parties 106 576 Impact of permanent differences and unrecognized F. Current bank debt (197,217) (122,299) 14,238 (2,965) temporary differences G. Bonds and commercial papers - current portions (231,000) (299,239) Impact of temporary differences not recognized in previous H. Current portion of non-current debt (54,292) (51,013) 2,203 144 years - of which related parties (10,622) (17,564) Effect of change in tax rates 978 7,757 I. Other current financial liabilities (2,835) (8,957) Impact of different tax rates applicable to foreign entities (9,389) (5,775) - of which related parties (1,702) (1,611) J. Current debt (F)+(G)+(H)+(I) (485,344) (481,508) IRAP charged to profit or loss (12,139) (10,007) K. Net current debt (D)+(E)+(J) 209,128 (172,743) Total income taxes through profit or loss (53,220) (31,277) L. Non-current financial receivables 63,133 122,794 Current taxes (71,153) (17,778) - of which related parties Deferred taxes 17,933 (13,499) M. Non-current bank debt (760,448) (261,027) - of which related parties (40,487) (48,935) N. Bonds - non-current portion O. Other non-current financial liabilities (6,104) (2,674) P. Non-current debt (M)+(N)+(O) (766,552) (263,701) Q. Net non-current debt (L)+(P) (703,419) (140,907) R. Net financial position (K)+(Q) (494,291) (313,650)
For the purposes of complying with Consob net financial position with the disclosure Communication no. DEM/6064293/2006, recommended by the European Securities the following table reconciles the above and Markets Authority (ESMA).
(euro/000) 31.12.2018 31.12.2017 NET FINANCIAL POSITION (494,291) (313,650) Non-current financial assets (63,133) (122,794) Construction loans (632,482) (624,360) Net financial position as per ESMA recommendation (1,189,906) (1,060,804)
190 191 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
Statement of net financial debt flows (euro/000) 1.1.2018 Business Cash flows Changes Exchange Other non- 31.12.2018 The following table shows the movements combinations in fair value rate monetary differences changes in the financial position with regard to Non-current financial financing activities and cash flows (IAS 7). 263,701 506,705 (7,830) 3,976 766,552 liabilities (euro/000) Non-current financial (122,794) 50,662 530 8,468 (63,134) receivables 1.1.2017 Business Cash flows Changes Exchange Other non- 31.12.2017 Current bank loans and combinations in fair value rate monetary 797,672 54,706 518 31,095 883,991 differences changes credit facilities Other current financial Non-current financial (25,708) 9,398 1,004 156 (15,150) 529,865 (32,936) (13,797) (219,431) 263,701 liabilities/receivables liabilities Current bonds/ Non-current financial 299,239 (68,239) 231,000 (114,472) (14,227) 4,590 1,315 (122,794) commercial papers receivables Receivables/payables for Current bank loans and 1,111,318 482 (196,102) (64,908) 246,121 1,096,911 held-for-trading financial (3,025) 2,244 (781) credit facilities instruments Other current financial (14,198) (11,093) (1,971) 1,865 (25,397) Total liabilities from liabilities/receivables 1,209,085 - 553,232 2,244 (5,778) 43,695 1,802,478 financing activities Receivables/payables for Purchase of non-controlling held-for-trading financial 6,389 (9,414) (3,025) (32,464) interests in VARD instruments Purchase of own shares Total liabilities from 1,518,902 482 (254,358) (9,414) (76,086) 29,870 1,209,396 financing activities Third party capital 180 Purchase of non-controlling CASH FLOWS FROM (44,895) 180 520,768 2,244 interests in VARD FINANCING ACTIVITIES Purchase of own shares (5,277) CASH FLOWS FROM Significant non-recurring events and Atypical and/or unusual transactions (304,530) (9,414) FINANCING ACTIVITIES transactions In accordance with the disclosures In accordance with Consob Communication required by Consob Communication no. no. 0092543 of 3 December 2015 with DEM/6064293 dated 28 July 2006, it is reference to the provisions of Consob reported that no atypical and/or unusual Resolution no. 15519 of 27 July 2006, only transactions were carried out during 2018. items considered to be non-recurring have been presented in the financial statements, Related party transactions excluding extraordinary ones outside of ordinary operations. The items reported Intragroup transactions, transactions with refer to Costs relating to reorganization Fintecna and its subsidiaries, with Cassa plans and other non-recurring personnel Depositi e Prestiti S.p.A. and its subsidiaries, costs of euro 4,969 thousand (euro 4,869 with companies controlled by MEF (Italy’s thousand net of tax effects). Ministry of Economy and Finance) and with other related parties in general, do not qualify as either atypical or unusual, since they fall within the normal course of business of the Fincantieri Group and are conducted on an arm’s length basis. The figures for related party transactions and balances are reported in the following tables.
192 193 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(euro/000) (euro/000) 31.12.2018 31.12.2017 Non-current Current Advances* Trade Trade Non-current Current Trade Non-current Current Advances* Trade Trade Non-current Current Trade financial financial receivables receivables financial financial payables financial financial receivables receivables financial financial payables assets assets and other and other non- liabilities liabilities and other assets assets and other and other non- liabilities liabilities and other current assets current assets current liabilities current assets current assets current liabilities
CASSA DEPOSITI E PRESTITI S.p.A. 2,926 (40,487) (10,622) (47,459) CASSA DEPOSITI E PRESTITI S.p.A. 20,357 (48,935) (17,564) (87) TOTAL CONTROLLING COMPANIES 2,926 (40,487) (10,622) (47,459) TOTAL CONTROLLING COMPANIES 20,357 (48,935) (17,564) (87) ORIZZONTE SISTEMI NAVALI S.p.A. 92,326 (1,702) (1,269) ORIZZONTE SISTEMI NAVALI S.p.A. 82,875 (1,611) (794) UNIFER NAVALE S.r.l. 1,491 (1,042) UNIFER NAVALE S.r.l. (311) CAMPER AND NICHOLSONS CAMPER & NICHOLSONS 351 INTERNATIONAL SA INTERNATIONAL SA CSSC - FINCANTIERI CRUISE CSSC - FINCANTIERI CRUISE 8,400 86 39,528 55,000 INDUSTRY DEVELOPMENT Ltd. INDUSTRY DEVELOPMENT Ltd. ETIHAD SHIP BUILDING LLC 7,598 (4,421) ETIHAD SHIP BUILDING LLC 2,100 14,482 (5,820) CONSORZIO F.S.B. TOTAL JOINT VENTURES 351 2,100 152,357 (1,611) (6,925) LUXURY INTERIORS FACTORY S.r.l (33) OLYMPIC GREEN ENERGY KS 7 TOTAL JOINT VENTURES 8,400 86 1,491 139,452 (1,702) (6,765) DOF ICEMAN AS 4,111 ARSENAL S.r.l. (34) BREVIK TECHNOLOGY AS 178 PSC GROUP 656 18 (4,423) MØKSTER SUPPLY KS 406 CENTRO SERVIZI NAVALI S.p.A. 306 CSS DESIGN 642 OLYMPIC CHALLENGER KS 176 OLYMPIC CHALLENGER KS 45 BREVIK TECHNOLOGY AS 182 CASTOR DRILLING SOLUT. AS 173 MØKSTER SUPPLY KS 619 TOTAL ASSOCIATES 225 5,337 DOF ICEMAN AS CDP IMMOBILIARE S.r.l. 3,250 (2,871) CSS DESIGN 673 SACE FCT 13 ISLAND DILIGENCE AS 4,072 PENSION FUND FOR SENIOR TOTAL ASSOCIATES 5,049 656 673 324 (4,457) MANAGERS OF (1,088) FINCANTIERI S.p.A. CDP IMMOBILIARE S.r.l. COMETA NATIONAL PENSION SACE FCT 11 (54) (3,523) FUND TERNA RETE ITALIA S.p.A. 12 OTHER 1,339 5 (1,221) VALVITALIA S.p.A. 1,843 17 (1,593) TOTAL CDP GROUP 1,339 3,268 (8,703) ACAM CLIENTI S.p.A. (6) QUANTA S.p.A. (447) PENSION FUND EXPERIS S.r.l. (36) FOR SENIOR MANAGERS (1,199) OF FINCANTIERI S.p.A. LEONARDO GROUP 203,081 1,921 (2,474) COMET NATIONAL PENSION FUND (3,651) ENI GROUP (11) 823 (70) SOLIDARIETÀ VENETO - PENSION ENEL GROUP FUND (93) COMPANIES CONTROLLED BY MEF (14) TOTAL CDP GROUP 1,843 28 (6,584) TOTAL OTHER RELATED PARTIES 203,070 2,744 (3,041) QUANTA S.p.A. (34) TOTAL RELATED PARTIES 576 206,509 178,726 5,337 (48,935) (19,175) (18,756) EXPERIS S.r.l. (9) TOTAL CONSOLIDATED STATEMENT OF LEONARDO GROUP 197,748 1,967 (1,528) FINANCIAL POSITION 279,763 57,907 416,677 1,156,018 26,403 (293,699) (1,166,915) (1,973,482) ENI GROUP 613 218 % on consolidated statement of 0% 1% 50% 15% 20% 17% 2% 1% ENEL GROUP (1) financial position
COMPANIES CONTROLLED BY MEF (23) *Advances are classified in “Inventories and advances”, as detailed in Note 12. TOTAL OTHER RELATED PARTIES 197,748 2,580 (1,377) TOTAL RELATED PARTIES 13,449 86 201,738 673 145,310 (40,487) (12,324) (66,642) TOTAL CONSOLIDATED STATEMENT OF FINANCIAL POSITION 97,901 48,688 449,160 31,811 1,062,377 (792,728) (1,182,846) (2,116,290) % on consolidated statement of 14% 0% 45% 2% 14% 5% 1% 3% financial position
194 195 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (euro/000) (euro/000) 2018 2017
Operating revenue Other revenue and Materials, services and Finance income Finance costs Operating revenue Other revenue and Materials, services and Finance income Finance costs income other costs income other costs
CASSA DEPOSITI E PRESTITI S.p.A. (88) (734) CASSA DEPOSITI E PRESTITI S.p.A. (88) (1,668) TOTAL CONTROLLING COMPANIES (88) (734) TOTAL CONTROLLING COMPANIES (88) (1,668) ORIZZONTE SISTEMI NAVALI S.p.A. 257,617 762 (3,033) (159) ORIZZONTE SISTEMI NAVALI S.p.A. 292,944 504 (2,998) (193) UNIFER NAVALE S.r.l. (10,696) UNIFER NAVALE S.r.l. 3 (3,312) CAMPER & NICHOLSONS CAMPER & NICHOLSONS 8 28 INTERNATIONAL SA INTERNATIONAL SA CSSC - FINCANTIERI CRUISE INDUSTRY ETIHAD SHIP BUILDING LLC 403 16 (2,522) DEVELOPMENT Ltd. 4,148 1,268 86 TOTAL JOINT VENTURES 293,347 523 (8,832) 28 (193) ETIHAD SHIP BUILDING LLC 6,125 290 (1,394) BREVIK TECHNOLOGY AS 5 CONSORZIO F.S.B. 11 26 (61) DOF ICEMAN AS 231 LUXURY INTERIORS FACTORY S.r.l. 49 (2,142) TOTAL ASSOCIATES 236 TOTAL JOINT VENTURES 267,901 2,395 (17,326) 94 (159) CDP IMMOBILIARE S.r.l. (2,871) ARSENAL S.r.l. (67) SACE S.p.A. (1,466) GRUPPO PSC 20 (2,897) SACE FCT S.p.A. 46 (68) CENTRO SERVIZI NAVALI S.p.A. (241) OTHER 308 (2,990) BREVIK TECHNOLOGY AS TOTAL CDP GROUP 354 (5,861) (1,534) DOF ICEMAN AS QUANTA S.p.A. (2,735) TOTAL ASSOCIATES 20 (3,205) EXPERIS S.r.l. (575) CDP IMMOBILIARE S.r.l. (379) LEONARDO GROUP 5 216 (62,417) SACE S.p.A. (3,018) ENI GROUP 251 59 (1,413) SACE FCT S.p.A. 42 (168) ENEL GROUP (46) VALVITALIA S.p.A. 102 (8,286) COMPANIES CONTROLLED BY MEF (130) TERNA RETE ITALIA S.p.A. (69) TOTAL OTHER RELATED PARTIES 256 275 (67,316) TOTAL CDP GROUP 144 (8,734) (3,186) TOTAL RELATED PARTIES 293,603 1,152 (82,097) 264 (3,395) QUANTA S.p.A. (1,014) TOTAL CONSOLIDATED STATEMENT OF EXPERIS S.r.l. (168) COMPREHENSIVE INCOME 4,914,255 105,830 (3,746,474) 31,487 (114,934) LEONARDO GROUP 1,273 513 (75,053) % on consolidated statement of 6% 1% 2% 1% 3% ENI GROUP 1,935 92 (756) comprehensive income ENEL GROUP (3) COMPANIES CONTROLLED BY MEF (39) TOTAL OTHER RELATED PARTIES 3,208 605 (77,033) Costs for contributions incurred in 2018 and Senior Managers of FINCANTIERI S.p.A. and TOTAL RELATED PARTIES 271,109 3,164 (106,386) 94 (4,079) included in personnel costs amounted to euro 2,138 thousand for the Cometa National TOTAL CONSOLIDATED STATEMENT OF euro 1,679 thousand for the Pension Fund for Pension Fund. COMPREHENSIVE INCOME 5,368,896 105,124 (4,104,050) 36,635 (140,566) % on consolidated statement of 5% 3% 3% 0% 3% comprehensive income
196 197 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
The main related party relationships related compensation works in progress; REMUNERATION OF THE BOARD OF DIRECTORS, BOARD OF refer to: • costs and revenues or receivables and STATUTORY AUDITORS, INDEPENDENT AUDITORS AND KEY MANAGEMENT PERSONNEL payables with other related parties at 31 • the Group’s transactions with December 2018 and 2017, which mainly (euro/000) Orizzonte Sistemi Navali S.p.A., under refer to the supply of goods or services Emoluments Non-monetary Bonuses and Other the agreement signed in 2006 with the used in the production process. of office1 benefits other incentives remuneration Italian Navy relating to the first phase of The following transaction is also reported 2018 Board of Directors of Parent the “Renaissance” (or FREMM) program. in accordance with Art. 13, par. 3 (c) of the 1,741 4 1,8542 Company This program, for which Orizzonte Sistemi Consob Regulations concerning related Board of Statutory Auditors of 89 Navali S.p.A. is the prime contractor, party transactions: Parent Company involves the construction of 10 ships • the grant of a revolving credit facility to General Managers and Key 200 1,7252 2,211 for the Italian Navy, with ship design FINCANTIERI S.p.A. in March 2018, with Management Personnel Independent Auditors for Parent and production activities performed by expiry date March 2020, by Cassa Depositi 349 325 Company the Company and its subsidiaries. The e Prestiti S.p.A. in a pool with a leading financial liabilities with Orizzonte Sistemi Italian credit institution, to meet financing 2017 Navali S.p.A. at 31 December 2018 and requirements associated with ordinary Board of Directors of Parent 1,741 3 1,5573 2017 relate to its current account with operations as well as the realization of Company Board of Statutory Auditors of Fincantieri under a centralized treasury research, development and innovation 89 Parent Company management arrangement; programs in the period 2018-2019, for a General Managers and Key 179 1,3613 2,372 • the Company’s transactions with maximum amount of euro 200 million Management Personnel the LEONARDO group, in connection (of which euro 100 million granted by Independent Auditors for Parent 336 324 with agreements to supply and install Cassa Depositi e Prestiti S.p.A.). As at 31 Company
combat systems for naval vessels under December 2018, this credit facility had not 1 Excluding amounts paid on behalf of subsidiaries. 2 This figure includes euro 1,122 thousand for the Board of Directors and euro 991 thousand for the General Manager and Key Management Personnel, construction; been drawn down. the fair value accrued in 2018 of the rights assigned under the medium/long-term share-based incentive plan for management (Performance Share Plan 2016-2018). • the Company’s transactions with the 3 This figure includes euro 823 thousand for the Board of Directors and euro 599 thousand for Key Management Personnel, the fair value accrued in 2017 of the rights assigned under the medium/long-term share-based incentive plan for management (Performance Share Plan 2016-2018). PSC Group during 2018 mainly relate to It is also reported that FINCANTIERI the supply of turnkey air conditioning S.p.A. entered into nine new Exporter systems (engineering, supply of Indemnity Agreements with SIMEST More details can be found in the financial statements and the audit of the ventilation equipment, accessories and S.p.A., qualifying as standard less material Remuneration Report. IFRS consolidated financial statements and piping, onboard installation, start-up and related party transactions. Also in the area The fees of the independent auditors the reporting package for Cassa Depositi e commissioning); of less material standard transactions, cover the statutory audit of the separate Prestiti S.p.A., the controlling company. • in relation to transactions with the ENI we report the grant of a construction group, in 2018 the framework agreement loan to FINCANTIERI S.p.A. in December was finalized under which studies have 2018 by Cassa Depositi e Prestiti S.p.A., in been started on new technologies linked syndicate with two leading national banks, to gas utilization and valorisation, some for a maximum of euro 300 million (of of which were completed during the year. which euro 90 million the share of Cassa The remainder relates mainly to sales of Depositi e Prestiti S.p.A.), intended to products and services and the purchase of finance the construction of cruise ships. fuel from ENI S.p.A.; As at 31 December 2018, this loan had not • the receivables/payables to CDP been drawn down. Immobiliare S.r.l. (formerly Fintecna Immobiliare S.r.l.) at 31 December 2017 relate to the sale of a piece of land and
198 199 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
Basic and diluted Earnings/(Loss) per Share Medium/long-term incentive plan the Board of Directors or key management personnel of the Company. The basic assumptions for calculating basic Performance Share Plan 2016-2018 With reference to the Plan’s first cycle, and diluted Earnings/(Loss) Per Share are as On 19 May 2017, the Shareholders’ Meeting of 9,101,544 shares in FINCANTIERI S.p.A. were follows: FINCANTIERI S.p.A. approved the medium/ awarded to the beneficiaries identified by long-term share-based incentive plan for the Board of Directors on 15 December 2016, 31.12.2018 31.12.2017 management, called the Performance Share while, for the second cycle, 4,170,706 shares
Basic/Diluted Earnings/(Loss) Per Share Plan 2016-2018 (the “Plan”) and related in FINCANTIERI S.p.A. were awarded to Terms and Conditions. It should be noted the beneficiaries identified by the Board of Profit/(loss) attributable to owners of the parent Euro/000 72,440 57,140 that the project had been approved by the Directors on 25 July 2017 and for the third Weighted average number of shares outstanding Number 1,687,412,180 1,691,465,257 to calculate the basic earnings/(loss) per share Board of Directors on 10 November 2016. cycle, 3,604,691 shares in FINCANTIERI S.p.A. Weighted average number of shares outstanding The Plan, structured in 3 three-year were awarded to the beneficiaries identified Number 1,699,032,738 1,697,312,068 to calculate the diluted earnings/(loss) per share cycles, provides for the free grant, to the by the Board of Directors on 22 June 2018. Basic earnings/(loss) per share Euro 0.04293 0.03378 beneficiaries identified by the Board of The performance targets are comprised of Diluted earnings/(loss) per share Euro 0.04264 0.03366 Directors, of entitlements to receive a two elements: maximum of 50,000,000 ordinary shares in FINCANTIERI S.p.A. without nominal a) a “market based” component (with a 30% Basic earnings per share have been weighted average number of Fincantieri value, based on the achievement of specific weight on total entitlements awarded) linked calculated by dividing the profit for S.p.A. shares in circulation during the performance targets for the three-year to measuring Fincantieri’s performance in the year attributable to owners of the year, excluding own shares, plus the periods 2016-2018 (first cycle), 2017-2019 terms of TSR related to the FTSE ITALY ALL parent by the weighted average number number of shares that could potentially (second cycle) and 2018-2020 (third cycle). SHARE and the peer group identified by the of Fincantieri S.p.A. shares outstanding be issued. At 31 December 2018, the The performance targets for the Plan’s Company; during the year, excluding own shares. shares that could potentially be issued first cycle have been identified as Total b) a “non-market based” component (with a Diluted earnings per share have been concerned only the shares assigned Shareholder Return (“TSR”) and EBITDA, 70% weight on total entitlements awarded) calculated by dividing the profit for the under the Performance Share Plan 2016- deemed to represent objective criteria for linked to the achievement of the Group’s set year attributable to the Group by the 2018 described below. measuring long-term value creation for EBITDA targets. the Company. The performance targets for the Plan’s second and third cycles will be The overall fair value of the Plan’s first cycle, identified by the Board of Directors at the determined at the date the Shareholders’ GUARANTEES provided by the Parent Company and are time of granting the related entitlements. Meeting approved the Plan (first cycle’s grant broken down as follows: The Plan provides for a three-year vesting date), is euro 6,866,205, while the fair values Guarantees relate exclusively to those period for all beneficiaries from the date of the second and third cycle, determined at
(euro/000) the entitlements are awarded to the date the award dates of 25 July 2017 and 22 June 2018 2017 the shares are allotted to the beneficiaries. 2018 (second and third cycle grant dates), are Therefore, if the performance targets are euro 3,672,432 and 3,963,754 respectively. Sureties 11,828 24,561 achieved and the other conditions of the With reference to the market based Other guarantees 4,286 11,143 Plan’s Terms & Conditions satisfied, the component, the Monte Carlo calculation Total 16,114 35,704 shares vesting for the first cycle will be method is used, based on appropriate allotted and delivered to beneficiaries by assumptions, which enables a consistent “Sureties” at 31 December 2018, as in (euro 2,742 thousand) and Orizzonte 31 July 2019, while those vesting for the number of alternative scenarios to be defined 2017, entirely refer to guarantees issued Sistemi Navali S.p.A. mainly to the Algerian second and third cycles will be allotted and over the time period in consideration. Unlike on behalf of the joint venture Orizzonte Ministry of Defence (euro 1,544 thousand). delivered by 31 July 2020 and 31 July 2021 the market based performance target, the Sistemi Navali S.p.A.. respectively. non-market based component (EBITDA) is “Other guarantees” refer to guarantees The Plan also provides for a lock-up period not relevant for the fair value estimation, but issued in the interest of BUSBAR4F for part of the shares given to members of is updated every quarter in order to take
200 201 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
into account the expectations relating to the shares are allotted to the beneficiaries. described in detail in the Notes to the by the Arbitration Panel, places a latent the number of entitlements that could vest, Therefore, if the performance targets are Consolidated Financial Statements at constraint on Fincantieri’s freedom to do depending on the achievement of the set achieved and the other conditions of the 31 December 2014 and the subject of business), and has been decided, without EBITDA targets. To estimate of the number Plan’s Terms & Conditions satisfied, the shares various subsequent updates, it is recalled entering into the merits of the case, with of entitlements at 31 December 2018, it is vesting for the first cycle will be allotted and that following the failure to agree the the rejection of the demands put forward assumed that the targets are achieved. delivered to beneficiaries by 31 July 2022, operating contracts (Refurbishment by the Company, in relation to which The Shareholders’ Meeting of FINCANTIERI while those vesting for the second and third Contract and Combat System Contract) the Court confirmed a lack of interest to S.p.A. on 19 May 2017 authorized the Board cycles will be allotted and delivered by 31 July required for the Settlement Agreement, maintain the action (locus standi). of Directors to purchase, for a period of 2023 and 31 July 2024 respectively. the Iraqi Government stepped up the With regard to the proceedings to enforce 18 months from the date of the meeting, The Plan also provides for a lock-up period proceedings pending before the Appeals the arbitration awards in the Netherlands, own ordinary shares for this Plan. At 31 for part of the shares given to members of Court of Paris against the arbitration on 24 May 2017, the Court of Amsterdam December 2018, the Parent Company had the Board of Directors or key management awarded to Fincantieri. On 18 January 2018, acknowledged the English awards, purchased 4,706,890 own shares for euro personnel of the Company. the Appeals Court of Paris rejected the but subjected their execution to the 5,277 thousand (unchanged compared to 31 Among the Plan’s targets, in addition to counterparty’s claims. On 20 June 2018 the presentation of a guarantee by the claimant December 2017). the EBITDA and TRS already included in Iraqi Government notified Fincantieri of its to protect Fincantieri’s compensation The Plan’s features, outlined above, are the Performance Share Plan 2016-2018, the appeal before the French Supreme Court should it win. This guarantee was not given. described in detail in the special document Group introduced another parameter, the against the decision of the Appeals Court of Fincantieri appealed against the decision prepared by the Parent Company under Art. sustainability index, to measure achievement Paris and the proceedings are still pending. of the Court of Amsterdam on 20 July 2017. 84-bis of Consob Regulation No. 11971 of 14 of the sustainability targets set by the Group As regards the “Serene” dispute, in July On 9 October 2018, the Appeal Court of May 1999, made available to the public on in order to align with European best practices 2015 the Company lodged its opposition Amsterdam recognized the exequatur of the section of the website “www.fincantieri. and the financial community’s increased with the Trieste Court of Appeal (against the English awards in the Netherlands. it” dedicated to the Shareholders’ Meeting expectations for sustainable development. the shipowner’s request for recognition of With regard to the “Papanikolaou” dispute held on 19 May 2017. The references used to test achievement foreign arbitration awards in Italy) in order pending in the Court of Patras (Greece), of the sustainability target are market to have the awards confirmed as contrary brought by Mr. Papanikolaou and his wife Performance Share Plan 2019-2021 parameters such as the “CDP” (Carbon to domestic and international public order, against the Company, Minoan Lines and On 11 May 2018, the Shareholders’ Meeting Disclosure Project) and a second rating by as well as to enforce the revocation of the others following an accident in 2007 of FINCANTIERI S.p.A. approved the another agency which evaluates the entire awards themselves for procedural fraud. involving the claimant whilst aboard the Performance Share Plan 2019-2021 (the basket of sustainability aspects. A ruling was handed down in late January ship “Europa Palace”, built by Fincantieri: “Plan”) for management, and the related The free award of a number of rights is left 2017, with the unexpected rejection of the (i) in the proceeding relating to the Terms and Conditions, the structure of which to the Board of Directors, which also has the Fincantieri appeal. The Company’s lawyers alleged loss of income until 2012, the was defined by the Board of Directors at the power to identify the number and names of have appealed to Italy’s Court of Cassation, Greek Court of Cassation confirmed the meeting held on 27 March 2018. the beneficiaries. with the intent of having the various faults main conclusions formulated in the appeal The Plan, structured in 3 three-year The Plan’s features, outlined above, are in the ruling recognized. In any case, ruling (which declared Fincantieri liable), cycles, provides for the free grant, to the described in detail in the special document the Company has recognized a specific referring judgement however to the Appeal beneficiaries identified by the Board of prepared by the Parent Company under Art. provision for risks (see Note 19). Court in relation to a relatively minor point, Directors, of entitlements to receive a 84-bis of Consob Regulation No. 11971 of 14 The enforcement proceedings brought while (ii) the proceeding in relation to the maximum of 25,000,000 ordinary shares May 1999, made available to the public on in Italy by the counterparty have been alleged loss of income from 2012 to 2052 in FINCANTIERI S.p.A. without nominal the section of the website “www.fincantieri.it” suspended awaiting the ruling from the is currently suspended. The Company has value, based on the achievement of specific dedicated to the Shareholders’ Meeting held Court of Cassation. made an appropriate allocation to the performance targets for the three-year on 11 May 2018. The verification action brought early in provision for risk in relation to the dispute periods 2019-2021 (first cycle), 2020-2022 February 2015 before the Court of Venice in question. (second cycle) and 2021-2023 (third cycle). Litigation (special industrial property division) is With regard to the “Yuzwa” dispute pending The Plan provides for a three-year vesting intended to confirm that the shipowner is in the District Courts of California and period for all beneficiaries from the date Foreign litigation not the owner of any intellectual property Florida, brought by Mr Yuzwa against the entitlements are awarded to the date With reference to the “Iraq” dispute, rights (which, as erroneously recognized Fincantieri, Carnival and others for losses
202 203 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
suffered by the claimant following an or losses incurred by the Company due to economic resources, suitable provisions for served not only on twenty-one individuals accident aboard the ship “Oosterdam” in supplier or contractor breaches of contract. risks and charges have been recognized. (including members of the Board of Directors 2011, built by Fincantieri, the Florida Court In some cases, it has been considered and of the Oversight Board, and employees of Appeal upheld Fincantieri’s exclusion appropriate to bring negative assessment Criminal prosecutions under Legislative of the Company at the date of the event, request, acknowledging the lack of actions against such alleged claims relating Decree 231/2001 some of whom are still in office or employed jurisdiction, and then rejected the request in one case to rectification of an alleged The Group is currently involved in six criminal by the Company) in the various capacities for review and extraordinary appeal brought excessive downward adjustment applied to a prosecutions brought under Legislative Decree being investigated for the offences of by the counterparty. relationship described by the other party as no. 231/2001 in the Court of Gorizia. “wilful removal or omission of precautions With reference to the claim brought by the a subcontract and in another case, following against workplace accidents” and “bodily Brazilian subsidiary Vard Promar against the termination of orders commissioned and • In January 2014, FINCANTIERI S.p.A. harm” under articles 437 and 590 of the Petrobas Transpetro S.A., after the losses reaching of a settlement agreement. received notice of a request for extension Italian Criminal Code and of violation of incurred on eight shipbuilding contracts, A provision for risks and charges has been of the deadline for the preliminary certain provisions of Legislative Decree a claim for compensation is pending. In recognized for those disputes not thought to investigations, under art. 406 of the Code no. 81/2008, but also on the Company December 2015, Petrobas Transpetro be settled in the Group’s favour. of Criminal Procedure, into the former under art. 25-septies, par. 3, of Legislative S.A. terminated the contracts for the manager of the Monfalcone shipyard for Decree no. 231/2001, in connection with construction of two vessels and demanded Employment litigation the alleged infringement of Art. 256, par. 1, an injury to an employee on 13 December repayment of its previous advance This refers to cases brought by employees letters a) and b) of Legislative Decree No. 2010 at the Monfalcone shipyard during the payments. The related claim has been and former employees of contractors and 152/2006, as well as into the Company, lifting of two bundles of iron pipes. At the brought in the court of the State of Rio subcontractors, which involve the Company being investigated under art. 25-undecies of preliminary hearing on 18 December 2014, de Janeiro. VARD has not recognized any under Art. 1676 of the Italian Civil Code and Legislative Decree No. 231/2001 in relation to the proceedings against the members of receivable in its financial statements at 31 Art. 29 of Legislative Decree 276/2003 (the its alleged management of areas of sorting, the Board of Directors and the Oversight December 2018 for the Transpetro disputes. “customer co-liability” principle). temporary deposit and storage of hazardous Board and the two General Managers were Litigation relating to asbestos continued to waste at the Monfalcone shipyard without dismissed, while the other employees of Italian litigation be settled both in and out of court in 2018. the required authorization, and the alleged the Company at the date of the incident, disposal of such waste with documentation as notified above, were formally indicted. Client credit recovery Other litigation that would not permit it to be traced. As Gorizia’s public prosecutor has challenged With reference to legal action against Other litigation includes: i) claims involving part of these proceedings, in October 2017, the dismissal in the Court of Cassation which, customers that are insolvent, bankrupt or the government bodies for environmental the former Managers of the Monfalcone at the end of the hearing held on 20 January subject of other reorganization measures, expenses, including disputes with the shipyard, the former General Managers of 2016, rejected the appeal and upheld the with whom disputes have arisen, it is reported City of Ancona and the dispute with the the Company, the Company’s former head of dismissal of the action against members of that legal actions are continuing against Ministry of the Environment involving the Safety and former Head of Personnel were the Board of Directors and the Oversight Tirrenia and Siremar, both under special shipyard in Muggiano (the dispute relating notified of the conclusion of the preliminary Board, and the two General Managers. The administration. to the shipyard in Castellammare di Stabia investigations for the offences referred in Company was acquitted at the hearing held The Company’s credits have been has ended due to lack of interest); ii) art. 256, par. 1(a) and 1(b) of Legislative on 14 July 2017 but the public prosecutor has appropriately impaired in cases where the appeals against claims by social security Decree No. 152/2006 (“Unauthorized waste appealed against the ruling. expectation of recovery is less than the authorities, including litigation against management activities”); in April 2018, the • In September 2015, notices of conclusion amount of the credit. INPS for claims arising from the non- Company was also notified of the conclusion of preliminary investigations were served payment of contributions by contractors of the investigations for the offence referred not only on the former Monfalcone shipyard Litigation with suppliers and subcontractors under the customer to in art. 25-undecies of Legislative Decree manager and three other employees under These are disputes involving claims by co-liability principle; iii) compensation for No. 231/2001 (“Environmental Offences”). investigation for violation of art. 19, letter suppliers and contractors that the Company direct and indirect damages arising from the In September 2018 the writ of summons to f), and art. 71 of Legislative Decree no. considers unjustified (alleged contractual production process; iv) civil actions for injury appear in court was served on all those under 81/2008 (respectively concerning breach liability, alleged receivables for invoices compensation claims. investigation. of management obligations and failure not due or for extra items not due), or Whenever the outcome of such litigation • Between March and April 2014, notices of to provide suitable personal protective concerning the recovery of extra costs and/ is thought to result in a possible outflow of conclusion of preliminary investigations were equipment) and in general of art. 2087 of the
204 205 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
Italian Civil Code (failure to adopt suitable and companies, including the Company’s Delfi Headcount measures to protect worker health), but also Chief Executive Officer, the former manager In September 2018 the Italian Customs on the Company itself, under art. 25-septies, and two employees of the Palermo started an audit on the 2014-2016 period, The Group’s average workforce numbered par. 1, 2 and 3, of Legislative Decree no. shipyard for the offence referred to in art. then extended to 2013, focused on the 19,331 employees in 2018 (19,314 in 2017), 231/2001, in connection with an accident 452-quaterdecies of the Criminal Code verification of customs operations and VAT. distributed between the various contractual on 24 November 2009 at the Monfalcone (“Illegal waste trafficking activities”) and the The audit was concluded with findings of a grades as follows: shipyard involving an employee, resulting in a Company for the offence referred to in art. marginal nature. sprained shoulder that took a year to heal. 25-undecies, par. 2(f) Legislative Decree No. (number) • In March 2016, notices of conclusion of 231/2001 (“Environmental Offences”). preliminary investigation were served on the 2018 2017 Average number of employees: former Monfalcone shipyard manager, under Tax position - Senior managers 357 361 investigation for the offense of “bodily harm” - Middle managers 1,013 1,028 under art. 590 of the Italian Criminal Code in National tax consolidation - White collars 6,758 6,327 relation to the violation of certain provisions FINCANTIERI S.p.A., Fincantieri Oil & Gas - Blue collars 11,203 11,598 of Legislative Decree No. 81/2008 and in S.p.A. and Isotta Fraschini Motori S.p.A. take Total average number of employees 19,331 19,314 general art. 2087 of the Italian Civil Code part in the national tax consolidation of (failure to take suitable measures to protect Cassa Depositi e Prestiti S.p.A.. worker health), and on the Company under art. 25 septies, par. 3, of Legislative Decree Audits and assessments No. 231/2001, in connection with an accident on 29 March 2012 at the Monfalcone shipyard Fincantieri Grants and economic benefits received from of 2017 the tables below give information on involving an employee with an injury to the During 2017, Fincantieri was subjected government bodies grants and other economic benefits received little finger on his left hand that healed in to a tax audit of fiscal year 2013, which from Italian public entities during 2018: eight months. concluded with the notification of findings. Under art. 1 paragraph 125 of Law no. 124 • In June and July 2016, notices of conclusion Preliminary investigations continued in 2018 of preliminary investigation were served on and the resulting notices of assessment were GRANTS the former Monfalcone shipyard manager, notified. under investigation for the offense of “bodily Further work is in progress on the Type Grantor Reason Amount received (euro/000) harm” under art. 590 of the Italian Criminal Company’s defence and an appropriate risk Non-repayable MIUR Flumarturb Project/D.M. 593-2000 170 Code in relation to the violation of certain provision has been set aside to cover the Non-repayable MIT Technological Leadership project/D.M.10/06/2015 748 provisions of Legislative Decree No. 81/2008 estimated costs. Non-repayable MIT Agorà Project/D.M.10/06/2015 745 and in general art. 2087 of the Italian Civil Non-repayable MIT Virgin Project/D.M.10/06/2015 740 Code (failure to take suitable measures to Marine Interiors Non-repayable MIT Polar Project/D.M.10/06/2015 596 protect worker health), and on the Company With reference to the tax audit conducted Project F/02/0018/01-02/X27/Sustainable Growth Fund / Non-repayable MISE 776 under art. 25 septies, par. 3, of Legislative by the Italian Revenue Service, Trieste "Digital Agenda" Tender Project Pantaf/ERDF ROP 2014-2020/ASSE1/MEASURE Decree No. 231/2001, in connection with office in 2017 on fiscal year 2015, the Non-repayable FVG Region 44 1.3.b an accident on 25 August 2010 at the assessment notices received in 2018 have Non-repayable F.I.L.S.E. Project Ben/ERDF ROP LIGURIA 2014-2020 /ACTION 1.2.4. 345 Monfalcone shipyard involving an employee been appealed. The same arguments D.M. 16/02/2016 winter air conditioning system with heat Capital GSE S.p.A. 48 of a contractor with a contusion to his left were used by the Italian Revenue Service, pump knee, which took more than forty days to Pordenone office, to adjust the value of the Non-repayable MIUR COCET project 152 heal. deed of transfer of the company branch Non-repayable MIUR PRADE project 156 Non-repayable F.I.L.S.E. ARIANNA project • In June 2018, notifications were served for the purposes of the registration fee; the 163 Non-repayable FVG Region COSMO project 24 of the conclusion of the preliminary appeal against this action ended, at the Non-repayable FVG Region OPENVIEWSHIP project 17 investigations into the management and first level, with a sentence in favour of the Non-repayable FVG Region STABILITY SOFTWARE/ERDF ROP 2014-2020 159 disposal of waste, involving many persons Subsidiary.
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LOW COST FINANCING NOTE 33 - CASH FLOWS FROM OPERATING Grantor Reason Subsidized Amount funded ACTIVITIES interest rate % (euro/000) These are analyzed as follows: Cassa Depositi e Prestiti S.p.A. Production Engineering - L. 46 0.50% 2,164 MISE Digital Agenda - L. 46 0.80% 4,509 (euro/000) 31.12.2018 31.12.2017 Donations and contributions 2017 the tables below give information Profit/(loss) for the year 69,123 53,140 on donations and contributions made Depreciation and amortization 136,098 119,823 Under art. 1 paragraph 126 of Law no. 124 of by the Group during 2018: (Gains)/losses from disposal of property, plant and equipment (3,202) (51) (Revaluation)/impairment of property, plant and equipment, intangible 959 5,544 Beneficiary Reason Amount paid assets and equity investments (euro/000) Increases/(releases) of provisions for risks and charges 48,914 68,363 Trieste Giuseppe Verdi Theatrical and Operatic Foundation Donation 35 Interest expenses capitalized Pallamano Trieste ASD Contribution 10 Interest on employee benefits 903 985 Atlantic Council Contribution 50 Interest income (7,946) (7,885) Fincantieri Foundation Contribution 100 Interest expense 82,640 81,380 Trieste University - Department of Medical Science, Surgery and Contribution 30 Income taxes 53,220 31,277 Health Municipality of Monfalcone- School fees Long-term share-based incentive plan 4,844 3,409 Donation 45 and transport Impact of unrealized exchange rate changes 11,966 1,657 Cystic Fibrosis research foundation Donation 23 Finance income and costs from derivatives
Lombardo family solidarity fund Contribution 12 Gross cash flows from operating activities 397,519 357,642 CHANGES IN WORKING CAPITAL Library - Biblioteca Judeteana "Panait Istrati" Braila Donation in kind 11 - inventories (47,489) (266,841) High School “ANGHEL SALIGNY" Braila, Romania Donations and gifts 15 - construction contracts and client advances (359,700) (115,159) High School - Liceul Tehnologic Henry Coanda Donations and gifts 15 - trade receivables 161,421 209,827 Hospital - Asociatia Daruieste Viata Donations and gifts 11 - other current assets and liabilities (79,157) 4,851 High School - Colegiul Dobrogean Spiru Haret Tulcea Donations and gifts 11 - other non-current assets and liabilities (2,351) (577) - trade payables 101,515 458,238 - receivables for hedging instruments - payables for hedging instruments Cash flows from working capital 171,758 647,981 Dividends paid (16,874) (167) Interest income received 7,268 6,766 Interest expense paid (52,383) (54,682) Income taxes (paid)/collected (8,799) 2,729 Utilization of provisions for risks and charges and for employee benefits (59,288) (55,758) NET CASH FLOWS FROM OPERATING ACTIVITIES 41,682 546,869 - of which related parties 99,454 (256,553)
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NOTE 34 - SEGMENT INFORMATION merged into an autonomous organizational (euro/000) unit denominated the Cruise business unit. 2018
Management has identified the following The VARD Cruise business unit and the Shipbuilding Offshore and Equipment, Systems Other Group operating segments which reflect the Parent Company Fincantieri have defined Specialized vessels and Services Activities model used to manage and control the a specific coordination policy based on Segment revenue 4,678,234 680,980 650,846 1,905 6,011,965 business sectors in which the Group which the head of Fincantieri’s Merchant Intersegment elimination (394,811) (126,896) (15,757) (481) (537,945) operates: Shipbuilding, Offshore, Systems, Ships Department directs and controls the Revenue* 4,283,423 554,084 635,089 1,424 5,474,020 Components and Services and Other activities of the VARD Cruise business unit. EBITDA 395,393 (19,978) 73,210 (34,992) 413,633 Activities. In line with the above, the economic results EBITDA margin 8.5% (2.9%) 11.2% 7.6% Depreciation, amortization and Shipbuilding includes the business areas of this business unit have been reallocated (136,359) impairment cruise ships and expedition cruise vessels, to the Shipbuilding operating segment. Finance income 36,635 naval vessels and other products and Project management for the construction of Finance costs (140,566) services (ferries and mega yachts). offshore vessels, special ships and vessels Income/(expense) from investments 2,246 Offshore and Specialized Vessels includes for the Norwegian Coastguard, as well as Share of profit/(loss) of investments the design and construction of high-end the direction of the remaining production accounted for using the equity (2,905) offshore support vessels, specialized sites in Norway, Brazil and Vietnam, have method ships, and vessels for offshore wind farms been merged into the VARD Offshore and Income taxes (53,220) Extraordinary and non-recurring and open ocean aquaculture, as well as Specialized Vessels business unit, whose (50,344) income and expenses innovative products in the field of drillships economic results continue to be shown in Profit/(loss) for the year 69,120 and semi-submersible drilling rigs. the Offshore segment. The Equipment, Systems and Services The Group evaluates the performance of its *Revenue: Sum of “Operating revenue” and “Other revenue and income” reported in the consolidated statement of comprehensive income. operating segment includes the business operating segments and the allocation of areas for the design and manufacture of financial resources on the basis of revenue high-tech equipment and systems, such as and EBITDA, defined as Profit/(loss) for Details of “Extraordinary and non-recurring effect (positive for euro 11,844 thousand) are stabilization, propulsion, positioning and the year adjusted for the following items: income and expenses” gross of the tax presented in the following table. power generation systems, ship automation (i) Income taxes, (ii) Share of profit/(loss) systems, steam turbines, integrated systems, of investments accounted for using the cabins, repair and conversion services, equity method, (iii) Income/(expense) from (euro/000) logistical support and after-sales services. investments, (iv) Finance costs, (v) Finance 2018 Other activities primarily refer to the cost income, (vi) Depreciation, amortization and Costs associated with the “Wage Guarantee Fund" of corporate activities which have not been impairment, (vii) costs associated with the Costs relating to reorganization plans and other non-recurring personnel costs 1 (4,969) allocated to other operating segments. “Wage Guarantee Fund”, (viii) costs relating Provisions for costs and legal expenses associated with asbestos-related lawsuits 2 (37,432) 3 In 2018 the delisting of VARD was to reorganization plans and other non- Proceeds from sale of shareholding in Camper & Nicholsons 3,695 Other non-recurring income and expenses 4 completed and December saw the start recurring personnel costs, (ix) provisions (11,638) Extraordinary and non-recurring income and expenses (50,344) of full organizational integration with the for costs and legal expenses associated with lawsuits brought by employees for 1 Amount included in “Personnel costs”. Parent Company both for the construction 2 Of which euro 5.1 million included in “Materials, services and other costs” and euro 32.3 million in “Provisions”. of expetition cruise vessels and the related asbestos-related damages, (x) Proceeds 3 Amount included in “Income/(expenses) form investments”. 4 This item includes other costs linked to non-recurring activities. production sites and for offshore and from sale of shareholding in Camper & specialized vessels projects. As a result of Nicholsons and (xi) other particularly this reorganization, project management material expenses or income outside the for cruise ships, the Romanian production ordinary course of business arising from sites and Norwegian shipyards dedicated to non-recurring events. the outfitting of cruise ships and other key The results of the operating segments at 31 activities such as production supervision of December 2018 and 31 December 2017 are public areas and procurement have been reported below.
210 211 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
(euro/000) Capital expenditure in 2018 on Intangible and the remainder to other countries. 2017* assets and Property, plant and equipment The following table shows a breakdown of Shipbuilding Offshore and Equipment, Systems Other Activities Group amounted to euro 161 million (euro 163 revenue and income between Italy and other Specialized vessels and Services million in 2017), of which euro 122 million countries, according to client country of Segment revenue 4,267,039 676,371 557,769 1,477 5,502,656 related to Italy (euro 119 million in 2017) residence: Intersegment elimination (180,223) (55,260) (245,694) (1,396) (482,572) Revenue** 4,086,816 621,111 312,075 82 5,020,084 (euro/million) EBITDA 269,722 41,410 64,379 (34,240) 341,270 31.12.2018 31.12.2017 EBITDA margin 6.3% 6.1% 11.5% 6.8% Revenue and income % Revenue and income % Depreciation, amortization and Italy 1,004 18 730 15 (119,860) impairment Other countries 4,470 82 4.290 85 Finance income 31,487 TOTAL REVENUE AND INCOME 5,474 100 5.020 100 Finance costs (114,934) Income/(expense) from investments 31 Share of profit/(loss) of investments The following table shows those clients than 10% of the Group’s revenue and income (4,794) accounted for using the equity method whose revenue (defined as revenue plus in each reporting period: Income taxes (31,276) change in inventories) accounted for more Extraordinary and non-recurring (48,784) income and expenses (euro/million) Profit/(loss) for the year 53,140 31.12.2018 31.12.2017
* The 2017 comparative figures have been restated following redefinition of the operating segments. Revenue and income % Revenue and income % ** Revenue: Sum of “Operating revenue” and “Other revenue and income” reported in the consolidated statement of comprehensive income. Client 1 1,562 29 1,190 24 Client 2 795 15 669 13 Details of “Extraordinary and non-recurring (positive for euro 10,933 thousand) are TOTAL 2,357 1,859 income and expenses” gross of the tax effect presented in the following table.
(euro/000) 2017 Costs associated with the “ Wage Guarantee Fund" 1 (78) Costs relating to reorganization plans and other non-recurring personnel costs 1 (3,493) Provisions for costs and legal expenses associated with asbestos-related lawsuits 2 (38,395) Other non-recurring income and expenses 3 (6,818) Extraordinary and non-recurring income and expenses (48,784)
1 Amount included in “Personnel costs”. 2 Of which euro 4 million included in “Materials, services and other costs” and euro 34.4 million in “Provisions”. 3 This mainly refers to a provision recognized against risks in connection with the “Serene” litigation.
The following table shows a breakdown of Property, plant and equipment in Italy and other countries:
(euro/million) 31.12.2018 31.12.2017 Italy 704 666 Other countries 374 379 Total Property, plant and equipment 1,078 1,045
212 213 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
NOTE 35 - EVENTS AFTER 31 DECEMBER This contract also provides for cooperation 2018 with the Group’s companies involved in the integrated bridge monitoring, control and On 14 January 2019, Cassa Depositi e inspection system. Prestiti, Fincantieri and Snam signed On 4 February 2019 the Autorità di a preliminary cooperation agreement sistema portuale del Mare di Sicilia aimed at identifying, defining and Occidentale (AdSP - Western Sicilian Sea implementing strategic medium-term Port Authority) signed a Memorandum of projects in some key segments for Understanding for the revamping of the innovation and the development of shipbuilding industry hub in the port of port facilities in Italy, as well as for the Palermo, based on the common goal of development of sustainable technologies enabling the Sicilian site to assert itself for sea transport, in line with the as one of the most important shipyards Proposals of the National Integrated Plan in the Mediterranean. for Energy and the Climate (PNIEC). On 6 February 2019, as part of the On 21 January 2019, as part of the Littoral Combat Ship (LCS) program, US Navy Littoral Combat Ship (LCS) the joint venture formed by Fincantieri, program, the consortium formed by through its subsidiary Fincantieri Fincantieri, through its subsidiary Marinette Marine (FMM), and Lockheed Fincantieri Marinette Marine (FMM), Martin Corporation, delivered “Billings” and Lockheed Martin Corporation, (LCS 15) to the US Navy at the Marinette was awarded the contract for the shipyard (Wisconsin). construction of another LCS (LCS31). On 7 February “Viking Jupiter”, the sixth On 23 January 2019 as part of the cruise ship built by Fincantieri for the initiatives for the tender called by the shipowner Viking Cruises, was delivered Brazilian Navy for the construction of 4 at Fincantieri’s Ancona shipyard. Tamandaré class corvettes, Fincantieri On 21 February 2019 during the Abu engaged in a road show aimed at Dhabi 2019 International Defence involving the industry of the country, Exhibition & Conference (IDEX) , promoting development of the small Fincantieri and Abu Dhabi Shipbuilding and medium-sized local national (ADSB), the leading shipbuilder in the companies supply chain. United Arab Emirates specialized in the In January, through its subsidiary construction, repair and refit of military Fincantieri Infrastructure in a joint and commercial vessels, announced venture with Salini Impregilo, the Group that they have reached an agreement was selected for the contract for the in principle to explore future forms of reconstruction of the bridge over the industrial and market cooperation in the Polcevera river in Genoa. UAE shipbuilding segment.
214 215 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION
Company name Registered Share % Company name Registered Share % Principal activity office capital interest held % consolidated by Group Principal activity office capital interest held % consolidated by Group
Subsidiaries consolidated FINCANTIERI MARINE GROUP line-by-line HOLDINGS Inc. USA USD 1,027.97 87.44 Fincantieri USA Inc. 87.44 Holding company BACINI DI PALERMO S.p.A. Palermo EUR 1,032,000.00 100.00 FINCANTIERI S.p.A 100.00 FINCANTIERI MARINE GROUP LLC Fincantieri Marine Dry-dock management USA USD 1,000.00 100.00 87.44 Ship building and repair Group Holdings Inc. CENTRO PER GLI STUDI DI MARINETTE MARINE TECNICA NAVALE CETENA S.p.A. 71.10 FINCANTIERI S.p.A Fincantieri Marine Genoa EUR 1,000,000.00 86.10 CORPORATION USA USD 146,706.00 100.00 87.44 Ship research and 15.00 Seaf S.p.A. Group LLC Ship building and repair experimentation ACE MARINE LLC Fincantieri Marine FINCANTIERI OIL & GAS S.p.A. Building of small aluminium USA USD 100.00 87.44 Trieste EUR 21,000,000.00 100.00 FINCANTIERI S.p.A 100.00 1,000.00 Group LLC Holding company ships FINCANTIERI HOLDING B.V. FINCANTIERI DO BRASIL FINCANTIERI S.p.A 80.00 Holding company for foreign Netherlands EUR 9,529,384.54 100.00 FINCANTIERI S.p.A 100.00 PARTICIPAÇÕES SA Brazil BRL 1,310,000.00 Fincantieri Holding 100.00 20.00 investments Holding company B.V. FINCANTIERI MARINE SYSTEMS FINCANTIERI INDIA Pte. Ltd. Fincantieri Holding 99.00 NORTH AMERICA Inc. Fincantieri Design, technical support and India INR 10,500,000.00 B.V. 100.00 USA USD 501,000.00 100.00 100.00 1.0 Sale and after-sale services relating Holding B.V. marketing FINCANTIERI S.p.A to mechanical products MARINE INTERIORS S.p.A. Trieste EUR 5,120,000.00 100.00 Seaf S.p.A. 100.00 Fincantieri Ship interiors FMSNA YK Japan JPY 3,000,000.00 100.00 Marine Systems 100.00 SEAENERGY A MARINE INTERIORS Servicing and sale of spare parts Marine Interiors North America Inc. COMPANY S.r.l. Pordenone EUR 50,000.00 85.00 85.00 S.p.A. GESTIONE BACINI LA SPEZIA S.p.A. Muggiano Manufacture of furniture EUR 260,000.00 99.89 FINCANTIERI S.p.A 99.89 Dry-dock management (La Spezia) FINCANTIERI SI S.p.A. Electric, electronic and Trieste EUR 500,000.00 100.00 SEAF S.P.A. 100.00 ISOTTA FRASCHINI MOTORI S.p.A. electromechanical industrial solutions Design, construction, sale and after- Bari EUR 3,300,000.00 100.00 FINCANTIERI S.p.A 100.00 FINCANTIERI INFRASTRUCTURE sale services relating to fast medium- S.p.A. Trieste EUR 500,000.00 100.00 FINCANTIERI S.p.A 100.00 duty diesel engines Carpentry SOCIETÀ PER L’ESERCIZIO DI FINCANTIERI SWEDEN AB ATTIVITÀ FINANZIARIE SEAF S.p.A. Trieste EUR 6,562,000.00 100.00 FINCANTIERI S.p.A 100.00 Sale, maintenance and after-sales Financial support for Group companies service for a series of systems, Sweden SEK 5,000,000.00 100.00 FINCANTIERI S.p.A 100.00 DELFI S.r.l. Follo EUR 400,000.00 100.00 FINCANTIERI S.p.A 100.00 equipment and related Technical and logistics engineering (La Spezia) activities ISSEL NORD S.r.l. Follo EUR 102,961.00 100.00 Delfi S.r.l. 100.00 FINCANTIERI (SHANGHAI) Logistics engineering (La Spezia) TRADING Co. Ltd. China RMB 3,500,000.00 100.00 FINCANTIERI S.p.A 100.00 SEASTEMA S.p.A. Engineering design, consulting and Design and development of Genoa EUR 300,000.00 100.00 FINCANTIERI S.p.A 100.00 development integrated automation systems FINCANTIERI EUROPE S.p.A. Trieste EUR 50,000.00 100.00 FINCANTIERI S.p.A 100.00 FINCANTIERI AUSTRALIA Pty Ltd. Holding company Australia AUD 2,200,100.00 100.00 FINCANTIERI S.p.A 100.00 Shipbuilding support activities VARD HOLDINGS Ltd. Fincantieri Oil & Gas Singapore SGD 932,200,000.00 97.22 97.22 FINCANTIERI SERVICES MIDDLE Holding company S.p.A. EAST LLC Qatar EUR 200,000.00 100.00 FINCANTIERI S.p.A 100.00 VARD GROUP AS Norway NOK 16,295,600.00 100.00 Vard Holdings Ltd. 97.22 Project management services Shipbuilding FINCANTIERI USA Inc. VARD SHIPHOLDING SINGAPORE USA USD 1,029.75 100.00 FINCANTIERI S.p.A 100.00 Holding company Pte. Ltd. Singapore USD 1.00 100.00 Vard Holdings Ltd. 97.22 Charter of boats, ships and barges FINCANTIERI SERVICES USA LLC USA USD 300,001.00 100.00 Fincantieri USA Inc. 100.00 VARD ELECTRO AS After-sales services Electrical/automation Norway NOK 1,000,000.00 100.00 VARD Group AS 97.22 installation
216 217 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION
Company name Registered Share % Company name Registered Share % Principal activity office capital interest held % consolidated by Group Principal activity office capital interest held % consolidated by Group
VARD ELECTRO ITALY S.r.l. VARD ENGINEERING CONSTANTA 70.00 Vard RO Holding S.r.l. Installation, production, S.r.l. Romania RON 1,408,000.00 97.22 30.00 Vard Braila S.A. sale and assistance Genoa EUR 200,000.00 100.00 Vard Electro AS 97.22 Engineering for electrical equipment VARD VUNG TAU Ltd. Vard Singapore Vietnam USD 8,000,000.00 100.00 97.22 and parts Shipbuilding Pte. Ltd. VARD RO HOLDING S.r.l. Romania RON 82,573,830.00 100.00 VARD Group AS 97.22 VARD ACCOMODATION TULCEA Holding company 99.77 Vard Accomodation AS S.r.l. Romania RON 97.22 436,000.00 Vard Electro Tulcea S.r.l. VARD Group AS 0.23 VARD NITERÓI Ltda. 99.99 Accommodation installation Brazil BRL 354,883,790.00 Vard Electro Brazil 97.22 Dormant 0.01 VARD ENGINEERING BREVIK AS Ltda. Norway NOK 105,000.00 100.00 VARD Group AS 97.22 Design and engineering VARD PROMAR SA Brazil BRL 869,108,180.00 100.00 VARD Group AS 97.22 Shipbuilding VARD OFFSHORE BREVIK AS Offshore industrial services and Norway NOK 100,000.00 100.00 VARD Group AS 97.22 ESTALEIRO QUISSAMÃ Ltda. Brazil BRL 400,000.00 50.50 VARD Group AS 49.10 installation Dormant VARD SHIP REPAIR BRAILA SA VARD SINGAPORE Pte. Ltd. Romania RON - 100.00 Vard Braila SA 97.22 Singapore USD 6,000,000.00 100.00 VARD Group AS 97.22 Ship repair Sales and holding company VARD DESIGN AS VARD MARINE INC. Norway NOK 4,000,000.00 100.00 VARD Group AS 97.22 Canada CAD 9,783,700.00 100.00 VARD Group AS 97.22 Design and engineering Design and engineering VARD ACCOMODATION AS VARD MARINE US INC. Norway NOK 500,000.00 100.00 VARD Group AS 97.22 USA USD 1,010,000.00 100.00 Vard Marine Inc. 97.22 Accommodation installation Design and engineering VARD PIPING AS VARD ENGINEERING GDANSK Norway NOK 100,000.00 100.00 VARD Group AS 97.22 Pipe installation Sp. Z.o.o. Vard Engineering Poland PLN 50,000.00 100.00 97.22 SEAONICS AS Offshore design and engineering Brevik AS Norway NOK 46,639,721.00 56.40 VARD Group AS 54.83 Offshore handling systems activities VARD SEAONICS HOLDING AS VBD1 AS Norway NOK 30,000.00 100.00 VARD Group AS 97.22 Norway NOK 500,000.00 100.00 VARD Group AS 97.22 Dormant Dormant SEAONICS POLSKA SP. Z O.O. VARD CONTRACTING AS Poland PLN 400,000.00 100.00 Seaonics AS 54.83 Norway NOK 30,000.00 100.00 VARD Group AS 97.22 Engineering services Dormant VARD DESIGN LIBURNA Ltd. CDP TECHNOLOGIES AS Croatia HRK 20,000.00 51.00 Vard Design AS 49.58 Design and engineering Research and development of Norway NOK 500,000.00 100.00 Seaonics AS 54.83 VARD ELECTRO TULCEA S.r.l. technology Romania RON 4,149,525.00 99.96 Vard Electro AS 97.18 Electrical installation CDP TECHNOLOGIES ESTONIA OÜ VARD ELECTRO BRAZIL Automation and control system Estonia EUR 5,200.00 100.00 CDP Technologies AS 54.83 99.00 Vard Electro AS (INSTALAÇÕES ELETRICAS) Ltda. Brazil BRL 3,000,000.00 97.22 software 1.00 VARD Group AS Electrical installation SIA ICD INDUSTRIES LATVIA Automation and control system Latvia EUR 100.00 Seaonics AS 54.83 VARD ELECTRO BRAILA S.r.l. 33,164.00 Romania RON 45,000.00 100.00 Vard Electro AS 97.22 Electrical installation software VARD ELECTRO CANADA Inc. VARD ELECTRICAL INSTALLATION Vard Electro AS Installation and integration of Canada CAD 100,000.00 100.00 Vard Electro AS 97.22 AND ENGINEERING (INDIA) Pte. 99.50 India INR 14,000,000.00 Vard Electro Tulcea 97.22 electrical systems Ltd. 1.00 S.r.l. VARD AQUA SUNNDAL AS Electrical installation Norway NOK 1,100,000.00 98.21 VARD Group AS 95.48 Supplier of aquaculture equipment VARD TULCEA SA 99.996 Vard RO Holding S.r.l. Romania RON 151,606,459.00 97.22 VARD AQUA CHILE SA Shipbuilding 0.004 VARD Group As Chile CLP 137,989,917.00 95.00 Vard Aqua Sunndal AS 90.71 Supplier of aquaculture equipment VARD BRAILA SA 94.12 Vard RO Holding S.r.l. Romania RON 165,862,177.50 97.22 VARD AQUA SCOTLAND Ltd. Shipbuilding 5.88 VARD Group AS UK GBP 10,000.00 100.00 Vard Aqua Sunndal AS 95.48 Supplier of aquaculture equipment
218 219 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION
Company name Registered Share % Company name Registered Share % Principal activity office capital interest held % consolidated by Group Principal activity office capital interest held % consolidated by Group
Joint ventures consolidated Associates consolidated using the using the equity method equity method CASTOR DRILLING SOLUTION AS ORIZZONTE SISTEMI NAVALI S.p.A. Norway NOK 229,710.00 34.13 Seaonics AS 18.71 Offshore drilling technology Management of large naval vessel Genoa EUR 20,000,000.00 51.00 FINCANTIERI S.p.A. 51.00 contracts OLYMPIC CHALLENGER KS Norway NOK 84,000,000.00 35.00 VARD Group AS 34.03 Shipowner ETIHAD SHIP BUILDING LLC Design, production and sale of Arab Emirates AED 2,500,000.00 35.00 FINCANTIERI S.p.A. 35.00 BREVIK TECHNOLOGY AS civilian and naval ships Holding of technology licenses and Norway NOK 600,000.00 34.00 VARD Group AS 33.05 patents CSSC - FINCANTIERI CRUISE INDUSTRY DEVELOPMENT Ltd. MOKSTER SUPPLY AS Hong Kong EUR 140,000,000.00 40.00 FINCANTIERI S.p.A. 40.00 Norway NOK 13,296,000.00 40.00 VARD Group AS 38.89 Design and marketing of cruise Shipowner ships MOKSTER SUPPLY KS Norway NOK 131,950,000.00 36.00 VARD Group AS 35.00 UNIFER NAVALE S.r.l. Shipowner Modena EUR 150,000.00 20.00 Seaf S.p.A. 20.00 Piping REM SUPPLY AS Norway NOK 345,003,000.00 26.66 VARD Group AS 25.92 LUXURY INTERIORS FACTORY S.r.l. Shipowner Italy EUR 50,000.00 40.00 Marine Interiors S.p.A. 40.00 Ship interiors OLYMPIC GREEN ENERGY KS Norway NOK 4,841,028.00 29.50 VARD Group AS 28.68 ISSEL MIDDLE EAST INFORMATION Shipowner TECHNOLOGY CONSULTANCY LLC Qatar AED 150,000.00 49.00 Issel Nord S.r.L. 49.00 DOF ICEMAN AS IT consultancy and Oil Norway NOK 23,600,000.00 50.00 VARD Group AS 48.61 Shipowner & Gas services TAKLIFT AS CSSC - FINCANTIERI (SHANGAI) Norway NOK 2,450,000.00 25.47 VARD Group AS 24.76 CSSC - Fincantieri Floating cranes CRUISE DESIGN LIMITED Hong Kong RMB 1,000,000.00 100.00 Cruise Industry 40.00 Engineering, Project Management AS DAMECO Vard Offshore Development Limited Norway NOK 606,000.00 34.00 33.05 and Supply Chain Management Maintenance services Brevik AS
BUSBAR4F s.c.a.r.l. 10.00 FINCANTIERI S.p.A. CSS DESIGN LIMITED British Virgin Italy EUR 40,000.00 60.00 GBP 100.00 31.00 Vard Marine Inc. 30.14 Installation of electrical systems 50.00 Fincantieri SI S.p.A. Design and engineering Islands
FINCANTIERI CLEA BUILDINGS ARSENAL S.r.l. Fincantieri Oil & Gas Fincantieri Trieste EUR 24.00 24.00 Italy EUR 51.00 51.00 16,421.05 s.c.a.r.l. 10,000.00 Infrastructure S.p.A. IT consulting S.p.A. Contract management and execution ISLAND DILIGENCE AS Norway NOK 17,012,500.00 39.38 VARD Group AS 38.29 PERGENOVA s.c.p.a. Fincantieri Shipowner Italy EUR 50,000.00 50.00 50.00 Construction of bridge in Genoa Infrastructure S.p.A. CENTRO SERVIZI NAVALI S.p.A. Italy EUR 12,782,000.00 10.93 FINCANTIERI S.p.A. 10.93 CONSORZIO F.S.B. Steel-working Italy EUR 15,000.00 58.36 FINCANTIERI S.p.A. 58.36 Construction GRUPPO PSC S.p.A. Italy EUR 1,431,112.00 10.00 FINCANTIERI S.p.A. 10.00 Shipbuilding and systems
220 221 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT REPRESENTATION ON THE CONSOLIDATED FINANCIAL STATEMENTS
Management representation on the consolidated financial statements pursuant to art. 154- bis, par. 5 of italian legislative decree 58/1998 (italy’s consolidated law on finance)
1. The undersigned Giuseppe Bono, in his capacity as Chief Executive Officer, and Felice Bonavolontà, as Manager Responsible for Preparing Financial Reports of FINCANTIERI S.p.A. (“Fincantieri”), with reference to the requirements of art. 154-bis, paragraphs 3 and 4, of Italian Legislative Decree No. 58 dated 24 February 1998, hereby represent:
• the suitability in relation to the business’s organization and, • the effective application
of the administrative and accounting processes for the preparation of the consolidated financial statements during financial year 2018.
2. The suitability of the administrative and accounting processes for preparing the consolidated financial statements at 31 December 2018 has been evaluated on the basis of a procedure established by Fincantieri in compliance with the Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, which is the generally accepted standard model internationally.
3. The undersigned also represent that: 3.1 the consolidated financial statements: a) have been prepared in accordance with the International Financial Reporting Standards endorsed by the European Union under Regulation (EC) 1606/2002 of the European Parliament and Council dated 19 July 2002; b) correspond to the underlying accounting records and books of account; c) are able to give a true and fair view of the assets, liabilities, financial position and results of operations of the issuer and all the companies included in the consolidation area. 3.2 The report on operations includes a fair review of operating performance and results as well as the situation of the issuer and all the companies included in the consolidation area, together with a description of the principal risks and uncertainties to which they are exposed.
25 February 2019
CHIEF EXECUTIVE OFFICER MANAGER RESPONSIBLE FOR PREPARING Giuseppe Bono FINANCIAL REPORTS
Felice Bonavolontà
222 223 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
REPORT BY THE INDEPENDENT AUDITORS
Independent auditor’s report Key Audit Matters Auditing procedures performed in in accordance with article 14 of Legislative Decree No. 39 of 27 January 2010 and article 10 of response to key audit matters Regulation (EU) No. 537/2014 Valuation of construction contracts
To the shareholders of Fincantieri SpA Refer to notes No 3 “Accounting policies (point 6 – construction contracts), No 13 “Construction contracts – assets”, No 19 “Provisions for risks and charges”, No 23 “Construction contracts – Report on the Audit of the Consolidated Financial Statements liabilities” to the consolidated financial statements
Opinion The Fincantieri Group recored assets for We performed an understanding and construction contracts amounting to Euro evaluation of the internal control system with We have audited the consolidated financial statements of Fincantieri Group (the Group), which 2.531.272 thousand (representing 35,03% of total reference to the construction contracts. We comprise the consolidated statement of financial position as of 31 December 2018, the consolidated assets) and liabilities for construction contracts identified and tested the relevant controls. statement of comprehensive income, consolidated statement of changes in equity, consolidated amounting to Euro 1.594.793 thousand statement of cash flows for the year then ended, and notes to the consolidated financial statements, (representing 22,07% of total liabilities and net For each naval construction contract we including a summary of significant accounting policies. equity) in the consolidated financial statements obtained and examined the contract (and as at 31 December 2018. their amendments and modifications agreed In our opinion, the consolidated financial statements give a true and fair view of the financial position with the client, if any) and verified that the of the Group as of 31 December 2018, and of the result of its operations and cash flows for the year The value of the construction contracts is total revenues were in accordance with the then ended in accordance with International Financial Reporting Standards as adopted by the determined with the percentage of completion contracts. For the construction contracts European Union, as well as with the regulations issued to implement article 9 of Legislative Decree method by comparing the contract costs incurred expressed in foreign currencies, we checked No. 38/05. for work performed at the reporting date with the the conversion of the price to Euro. estimated total costs for each contract. If it is expected that the completion of a contract may For each construction contract we performed Basis for Opinion give rise to a loss, this is recognized in full in the comparative analysis by comparing the period in which it becomes reasonably budget of the full life costs with the one for We conducted our audit in accordance with International Standards on Auditing (ISA Italia). foreseeable. sister vessels and with the budgets obtained Our responsibilities under those standards are further described in the Auditor’s Responsibilities for in past audits, in order to verify significant the Audit of the Consolidated Financial Statements section of this report. We are independent of The forecast of total costs requires a high level of fluctuations. We had discussions with the Fincantieri SpA (the Company) pursuant to the regulations and standards on ethics and management judgement and an error in this stage Project Managers and with the management independence applicable to audits of financial statements under Italian law. We believe that the audit could lead to a wrong valuation of the control team in order to understand main evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. construction contracts (and consequently of fluctuations and evaluate the reasonableness operating revenue) that could be significant. of the budgets and their updates.
Key Audit Matters Furthermore, due to the complexity of the We analysed and verified the process of contracts and to the long time required to attribution of the costs incurred to the related Key audit matters are those matters that, in our professional judgment, were of most significance in complete the construction of the vessels, it is construction contract and we checked the our audit of the consolidated financial statements of the current period. These matters were possible that management may not correctly balance between general accounting and addressed in the context of our audit of the consolidated financial statements as a whole, and in estimate the probability and the magnitude of industrial accounting for some randomly forming our opinion thereon, and we do not provide a separate opinion on these matters. future events that could have an impact on the selected yards. valuation of the contract costs, of the provision for future losses and/or on the evaluation of the We performed substantive procedures in guarantee provision. order to test the correct attribution of the costs to the related construction contract. The correct measurement of the stage of completion of the construction contracts and of the possible related liabilities represents a key audit matter due to the magnitude of the amounts involved and due to the high level of management judgement.
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224 225 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
We verified the percentage of completion computed by comparing the costs incurred at The Company at least annually performs an We performed sensitivity analysis in order to the reporting date with the estimated full life impairment test for each CGU. This impairment evaluate if changes in the discount and costs. test is based on the estimation of the value in growth rates could lead to an impairment. We performed substantive procedures on the use of each CGU determined with the closing of the accounting for the discounted cash flow method. For the We verified the completeness and accuracy of constructions delivered during the financial computation the Company used the cash flows the disclosures in the notes. year, on the reasonableness of the provision derived from the Strategic Plan 2018-2022 for estimated future losses and of the approved by the Board of Directors. guarantee provision. We evaluated the impact of claims from customers, if any. Furthermore, the reduction of the oil price and the crisis of the offshore industry impacted the profitability of the VARD Group which recorded Recoverability of goodwill non positive results in 2018 (and in previous years). Refer to notes No 3 “Accounting policies (point 1.1 – goodwill) and No 6 “Intangible assets” to We focused on this matter as the amount of the consolidated financial statements goodwill recognised in the financial statements is significant and because the management’s Fincantieri SpA recognized goodwill amounting to We understood and evaluated the valuation of the recoverable amount of each CGU Euro 254.830 thousand (representing 3,53% of methodology applied by management in the involves a high level of judgement, in particular total assets) in its consolidated financial impairment test for each CGU. relating to the estimate of the expected future statements as at 31 December 2018, out of which cash flows and the definition of the discount rates Euro 129.278 thousand allocated to the cash We examined the projections in the Strategic used. generating unit (“CGU”) “VARD Offshore and Plan 2018-2022 and we had discussions with Specialized vessels”, Euro 56.096 thousand to the management in order to understand and CGU “VARD Cruise” and Euro 69.456 thousand critically analyse the assumptions used by Responsibilities of the Directors and the Board of Statutory Auditors for the allocated to the CGU “FMG Group”. them. Consolidated Financial Statements
The two CGUs “VARD Offshore and Specialized We compared the 2018 budget, used in the The directors are responsible for the preparation of consolidated financial statements that give a true vessels” and “VARD Cruise” have been impairment test of last year, with the actual and fair view in accordance with International Financial Reporting Standards as adopted by the identified starting from 2018 following a data as at 31 December 2018, in order to European Union, as well as with the regulations issued to implement article 9 of Legislative Decree reorganization of the group controlled by the identify significant differences and No. 38/05 and, in the terms prescribed by law, for such internal control as they determine is company Vard Holdings Limited (“VARD corroborate the planning process used by necessary to enable the preparation of consolidated financial statements that are free from material Group”), historically involved in the sector of management. misstatement, whether due to fraud or error. design and construction of offshore means of support for the extraction and production of We verified the accuracy of the impairment The directors are responsible for assessing the Group’s ability to continue as a going concern and, in petroleum and natural gas and for the industry test model used by management through an preparing the consolidated financial statements, for the appropriate application of the going concern of oil services. This reorganization is the independent re-computation and by basis of accounting, and for disclosing matters related to going concern. In preparing the consolidated outcome of the business diversification process comparing the results obtained. financial statements, the directors use the going concern basis of accounting unless they either intend undertaken by the VARD Group in the last few to liquidate Fincantieri SpA or to cease operations, or have no realistic alternative but to do so. years to cope with the decline in demand of We recomputed the discount rates used by The board of statutory auditors is responsible for overseeing, in the terms prescribed by law, the Offshore vessels. management for each CGU and the growth Group’s financial reporting process. The CGU “FMG Group” refers to the US group rate with the support of experts from the PwC controlled by Fincantieri Marine Group LLC, network. involved in the construction of middle size vessels in the US for civil clients and government agencies, including the US Navy and the US Coast Guard.
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We communicated with those charged with governance, identified at an appropriate level as required Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements by ISA Italia regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identified Our objectives are to obtain reasonable assurance about whether the consolidated financial during our audit. statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance We also provided those charged with governance with a statement that we complied with the but is not a guarantee that an audit conducted in accordance with International Standards on regulations and standards on ethics and independence applicable under Italian law and communicated Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can with them all relationships and other matters that may reasonably be thought to bear on our arise from fraud or error and are considered material if, individually or in the aggregate, they could independence, and where applicable, related safeguards. reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. From the matters communicated with those charged with governance, we determined those matters that were of most significance in the audit of the consolidated financial statements of the current As part of our audit conducted in accordance with International Standards on Auditing (ISA Italia), period and are therefore the key audit matters. We described these matters in our auditor’s report. we exercised professional judgement and maintained professional scepticism throughout the audit. Furthermore: Additional Disclosures required by Article 10 of Regulation (EU) No 537/2014 • We identified and assessed the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; we designed and performed audit procedures On 28 February 2014, the shareholders of Fincantieri SpA in the general meeting engaged us to responsive to those risks; we obtained audit evidence that is sufficient and appropriate to perform the statutory audit of the Company’s stand alone and consolidated financial statements for the provide a basis for our opinion. The risk of not detecting a material misstatement resulting years ending 31 December 2013 to 31 December 2021. from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; We declare that we did not provide any prohibited non-audit services referred to in article 5, • We obtained an understanding of internal control relevant to the audit in order to design paragraph 1, of Regulation (EU) No. 537/2014 and that we remained independent of the Company in audit procedures that are appropriate in the circumstances, but not for the purpose of conducting the statutory audit. expressing an opinion on the effectiveness of the Group’s internal control; • We evaluated the appropriateness of accounting policies used and the reasonableness of We confirm that the opinion on the consolidated financial statements expressed in this report is accounting estimates and related disclosures made by the directors; consistent with the additional report to the board of statutory auditors, in their capacity as audit • We concluded on the appropriateness of the directors’ use of the going concern basis of committee, prepared pursuant to article 11 of the aforementioned Regulation. accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required Report on Compliance with other Laws and Regulations to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. Opinion in accordance with Article 14, paragraph 2, letter e), of Legislative Decree However, future events or conditions may cause the Group to cease to continue as a going No. 39/10 and Article 123-bis, paragraph 4, of Legislative Decree No. 58/98 concern; • We evaluated the overall presentation, structure and content of the consolidated financial The directors of Fincantieri SpA are responsible for preparing a report on operations and a report on the statements, including the disclosures, and whether the consolidated financial statements corporate governance and ownership structure of the Fincantieri Group as of 31 December 2018, including represent the underlying transactions and events in a manner that achieves fair presentation. their consistency with the relevant consolidated financial statements and their compliance with the law. • We obtained sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated We have performed the procedures required under auditing standard (SA Italia) No. 720B in order to financial statements. We are responsible for the direction, supervision and performance of express an opinion on the consistency of the report on operations and of the specific information the group audit. We remain solely responsible for our audit opinion on the consolidated included in the report on corporate governance and ownership structure referred to in article 123-bis, financial statements. paragraph 4, of Legislative Decree No. 58/98, with the consolidated financial statements of the Fincantieri Group as of 31 December 2018 and on their compliance with the law, as well as to issue a statement on material misstatements, if any.
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228 229 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS
In our opinion, the report on operations and the specific information included in the report on corporate governance and ownership structure mentioned above are consistent with the consolidated financial statements of the Fincantieri Group as of 31 December 2018 and are prepared in compliance with the law.
With reference to the statement referred to in article 14, paragraph 2, letter e), of Legislative Decree No. 39/10, issued on the basis of our knowledge and understanding of the Company and its environment obtained in the course of the audit, we have nothing to report.
Statement in accordance with article 4 of Consob’s Regulation implementing Legislative Decree No. 254 of 30 December 2016
The directors of Fincantieri SpA are responsible for the preparation of the non-financial statement pursuant to Legislative Decree No. 254 of 30 December 2016. We have verified that the directors approved the non-financial statement.
Pursuant to article 3, paragraph 10, of Legislative Decree No. 254 of 30 December 2016, the non- financial statement is the subject of a separate statement of compliance issued by ourselves.
Trieste, 13 March 2019
PricewaterhouseCoopers SpA
Signed by
Maria Cristina Landro (Partner)
This report has been translated into English from the Italian original solely for the convenience of international readers
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230 231 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP
G LOSSARY
232 233 FINCANTIERI GROUP FINCANTIERI GROUP
1 - Operating Activities Order book to assess, at every reporting date, whether EBIT Value of principal contracts, order there is evidence that an asset might be Acronym for Earnings Before Interest and Shipowner additions and variations, in respect of impaired, by estimating its recoverable Taxes. It is defined as: Profit/(loss) for the The entity that operates the ship, orders not yet delivered or fulfilled. amount. year adjusted for the following items (i) irrespective of whether it is the owner or Income taxes, (ii) Share of profit/(loss) not. Soft backlog Business combination of investments accounted for using the Value of existing contract options and This is the aggregation of entities or equity method, (iii) Income/(expense) Dry-dock letters of intent as well as of contracts businesses into a single entity that is from investments, (iv) Finance costs, (v) Basin-like structure in which ships are at an advanced stage of negotiation, required to prepare financial statements. Finance income, (vi) costs associated built or repaired. none of which yet reflected in the order with the “Wage Guarantee Fund”, (vii) backlog. Net fixed capital costs relating to reorganization plans and Order backlog This reports the fixed assets used in other non-recurring personnel costs, (viii) Residual value of orders not yet Total order book the business and includes Intangible provisions for costs and legal expenses completed. This is calculated as the This is calculated as the sum of the order assets, Property, plant and equipment, associated with lawsuits for asbestos- difference between the total value of book and soft backlog. Investments and Other non-current assets related damages, and (ix) other non- an order (including any additions and (including the fair value of derivatives recurring income and expenses. amendments) and the value reported Total backlog classified in non-current Financial assets as “Work in progress” at the period-end This is calculated as the sum of the order and non-current Financial liabilities) net of EBITDA reporting date. backlog and soft backlog. Employee benefits. Acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. Mega yachts Refitting/refurbishment Net working capital It is defined as: Profit/(loss) for the The business of building motor yachts The business of refitting ships that are This is equal to capital employed in year adjusted for the following items (i) that are at least 70 meters (230 feet) in obsolete or no longer fit for use after ordinary operations which includes Income taxes, (ii) Share of profit/(loss) length. changes in the law and/or regulations. Inventories and advances, Construction of investments accounted for using the contracts and advances from clients, equity method, (iii) Income/(expense) Merchant vessels GT - Gross Tonnage Construction loans, Trade receivables, from investments, (iv) Finance costs, Ships intended for commercial A unit that measures a ship’s total internal Trade payables, Provisions for risks and (v) Finance income, (vi) Depreciation, purposes, mostly involving passenger volume, including its engine rooms, fuel charges, and Other current assets and amortization and impairment; (vii) transportation. tanks and crew quarters. Its measurement liabilities (including Income tax assets, costs associated with the “Wage Examples are cruise ships, ferries (either is based on the external area of the Income tax liabilities, Deferred tax assets Guarantee Fund”, (viii) costs relating for transporting just vehicles or for both bulkheads. and Deferred tax liabilities, as well as to reorganization plans and other non- vehicles and passengers), container ships, the fair value of derivatives classified recurring personnel costs, (ix) provisions oil tankers, dry and liquid bulk carriers, etc. CGT - Compensated Gross Tonnage in current Financial assets and current for costs and legal expenses associated An international unit of measurement Financial liabilities). with lawsuits for asbestos-related Naval Vessels that provides a common way of damages, and (x) other non-recurring Vessels used for military purposes, such measuring the amount of work needed to Net invested capital income and expenses. as surface combat vessels (aircraft build a given ship. This represents the sum of Net fixed carriers, destroyers, frigates, corvettes, It is calculated by multiplying the GT capital and Net working capital. Fair value patrol ships) as well as support craft and of a ship by a coefficient determined The amount for which an asset could be submarines. according to the type and size of ship. CGU exchanged, or a liability settled, between Acronym for Cash-Generating Unit, defined knowledgeable, willing parties in an arm’s Order intake 2 - Accounting and Finance as the smallest identifiable group of assets length transaction. Value of new orders, including order that generates cash inflows that are largely additions and variations, awarded to the Impairment testing independent of the cash inflows from other IAS/IFRS Company in each reporting period. This is the work performed by the Group assets or groups of assets. Acronyms for the International Accounting
234 235 FINCANTIERI GROUP
Standards and International Financial Revenue Reporting Standards, adopted by the This line in the income statement reports Company. revenue earned on contracts and revenue from the sale of various products and Net expenditure/disposals services. These represent investments and disinvestments in property, plant and Basic or diluted earnings per share equipment, intangible assets, equity Basic earnings per share are calculated investments and other net non-operating by dividing profit or loss for the reporting assets. period attributable to ordinary equity holders by the weighted average number Operating capex of ordinary shares outstanding during the This represents investments in property, period. plant and equipment and intangible assets Diluted earnings per share are calculated other than those acquired in a business in the same way as for basic earnings combination and allocated to property, per share, but take account of all dilutive plant and equipment or intangible assets. potential ordinary shares as follows:
Net financial position • profit or loss attributable to ordinary A line in the statement of financial shares is increased by the after-tax position that summarizes the Company’s amount of dividends and interest financial position and includes: recognized in the period in respect of the dilutive potential ordinary shares • Net current cash/(debt): cash and cash and is adjusted for any other changes in equivalents, held-for-trading securities, income or expense that would result from current financial receivables, current bank the conversion of the dilutive potential debt (excluding construction loans), current ordinary shares; portion of long-term loans and credit • the weighted average number of facilities, other current financial liabilities; ordinary shares outstanding is increased • Net non-current cash/(debt): non- by the weighted average number of current financial receivables, non-current additional ordinary shares that would bank debt, bonds, other non-current have been outstanding assuming the financial liabilities. conversion of all dilutive potential ordinary shares. Statement of cash flows This examines all the cash flows that WACC caused changes in cash and cash Acronym for Weighted Average Cost equivalents, in order to determine of Capital. This represents the average “Net cash flows for the period”, as the cost of the various sources of company difference between cash inflows and financing, both in the form of debt and of outflows in the period. capital.
236 237 Parent Company Registered office Via Genova no. 1 - 34121 Trieste – Italy Tel: +39 040 3193111 Fax: +39 040 3192305 fincantieri.com Share capital Euro 862,980,725.70 Venezia Giulia Company Registry and Tax No. 00397130584 VAT No. 00629440322
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