Italferr S.P.A. 2019 ANNUAL REPORT
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Italferr S.p.A. (Translation from the Italian original which remains the definitive version) Italferr S.p.A. 2019 ANNUAL REPORT 2019 Annual Report 1 Italferr S.p.A. Italferr S.p.A. Single-member company managed and coordinated by Ferrovie dello Stato Italiane S.p.A. Share capital: €14,186,000, fully paid up Registered office: Via Vito Giuseppe Galati 71, 00155 Rome Tax code and company registration no.: 06770620588 REA no.: 541241 VAT number: 01612901007 Web site: www.italferr.it 2019 Annual Report 2 Italferr S.p.A. MISSION Italferr is the Ferrovie dello Stato Italiane group’s engineering company with over 30 years of consolidated experience in large infrastructural projects for traditional and high-speed railways, underground and road transport and the design of ports and stations in Italy and abroad. Its mission is to build infrastructure in accordance with high quality standards, deadlines and the budget, covering all technical and management activities for the planning, design, execution, inspection and commissioning of the works. Italferr offers innovative, high-tech services ranging from design to contracting, works management and supervision, inspection and commissioning of lines, stations and intermodal and interport hubs, project management, organisational consultancy, training and the transfer of specialised, avant-garde know-how. 2019 Annual Report 3 Italferr S.p.A. COMPANY OFFICERS Board of directors: Chairman Mario Serio Chief Executive Officer Aldo Isi Director Sabrina De Filippis 1 Director Claudia Eccher Director Sergio Salvio Board of statutory auditors: Chairwoman Roberta De Felice Standing statutory auditor Fabio Mastrangelo Standing statutory auditor Davide Rossetti Alternate statutory auditor Luca Provaroni Alternate statutory auditor Federica Silvestri INDEPENDENT AUDITORS 1 KPMG S.p.A. 1 In office until 10 December 2019 2019 Annual Report 4 Italferr S.p.A. CONTENTS Chairman's letter 6 Directors' report 8 Key and glossary 9 2019 highlights 11 Main events of the year 12 Human resources 15 The environment and innovation 18 Customers 20 Macroeconomic context 21 Market performance 23 Financial position and performance 29 Risk factors 34 Investments 35 Research and development 36 Performance of subsidiaries 36 Treasury shares 38 Related party transactions 38 Other information 39 Outlook 41 Financial statements at 31 December 2019 42 Financial statements 43 Notes to the financial statements 48 2019 Annual Report 5 Italferr S.p.A. CHAIRMAN’S LETTER Dear Shareholder, Italferr’s activities in 2019 have generated results that far surpass expectations, with an extremely positive overall performance in each business segment. As a whole, revenue of the year grew by 9% and the operating profit more than doubled that projected in the budget. A breakdown by business segment highlights the captive business segment’s excellent performance, as design activities on several large works projects for RFI in Lombardy and Sicily sped up and work site operations at the Genoa hub progressed significantly. At the same time, the non-captive market generated revenue in line with forecasts but improved its overall profit margin. On the non-captive market, Italferr continued to diversify its activities in the metro, road and tram sectors not only abroad but also domestically. In addition to the growth in revenue, the company achieved substantial savings in operating costs, which were 5% lower than forecast. A key factor in this improvement was the reduction in personnel expense by 10% compared to budget thanks to the subsidised social security contributions that were granted again in 2019 for new hires, which, along with outgoing employees who had reached retirement age, reduced the average per capita cost, and the fact that the workforce grew less than planned. Although Italferr rolled out a formidable hiring campaign (255 new employees and the hire of 71 employees who were temporary staff) to implement the planned growth in its workforce to cope with the rise in demand for services, this growth was offset by outgoing employees in the year, who limited the net increase to 126 resources (equal to an average of 76 FTEs). Partly mitigating the impact of outgoing employees, the productivity of operating personnel assigned to the company’s contracts exceeded forecasts. Their deep commitment enabled the company to meet all deadlines for priority activities. During the year, Italferr reorganised its organisation abroad by closing five branches in order to cut overheads. In addition to the strong performance, financial debt improved on budget figures, with total debt down by 18% compared to the budget and the ratio of debt to own funds exceeding expectations. Moreover, 2019 also saw the non-recurring demerger of the company’s ICT business unit to the related company FSTechnology. This non-recurring transaction is part of the FS Italiane group’s plan to gain a leadership role in the transport and infrastructure industry’s technology community by developing a centralised digital innovation hub, the integration of operating processes and maintenance by gradually in-housing the skills and know-how needed to drive digitalisation. The demerger, which took effect on 1 August, entailed the transfer of all the company’s proprietary software and hardware to FSTechnology, along with 28 specialised resources. This transfer of ownership over assets used for technological innovation has not prevented Italferr from continuing its digital transformation process, which is geared towards the increasingly integrated, efficient and automated design and construction of works, especially using building information modelling (BIM). In addition to its other applications, Italferr is also using BIM experimentally for the real-time management of contracted works . 2019 Annual Report 6 Italferr S.p.A. Indeed, the company received international accolades for its use and development of BIM at The Year in Infrastructure 2019 Conference_Advancing BIM through Digital Twins in its projects for the bridge over the Polcevera River and the Naples- Bari railway section. This award confirms that the company’s digital transformation process, centred around BIM, has propelled Italferr international leadership in the field of infrastructure. Italferr promotes innovation as a crucial factor for sustainability, and this was no exception in 2019 as it, in keeping with previous years, developed methods and protocols to incorporate sustainable choices in infrastructure projects and tangibly implement sustainability policies in the construction of works. This has enabled the company to renew all its quality, environmental and safety certification, which reflect Italferr’s commitment to its management system, protecting the environment, reducing pollution and occupational health and safety. We are particularly proud of the profit for the year, international recognition and our ability to keep up with the times in the field of innovation and sustainability, as we consider them not only milestones achieved in 2019 but also confirmation that the company has the means to continue competing successfully on the market and achieving future goals. 2019 Annual Report 7 Italferr S.p.A. Directors’ report 2019 Annual Report 8 Italferr S.p.A. KEY AND GLOSSARY NON-GAAP PERFORMANCE INDICATORS Below is a description of the criteria used to determine the non-GAAP performance indicators used in this report, which differ from the criteria applied to the financial statements prepared in accordance with the IFRS. Management finds these indicators useful in monitoring the company’s performance and believes they reflect the financial performance of its business segments: Gross operating profit: this is an indicator of the performance of operations and reflects the company’s core business only. It is calculated as the difference between revenue and operating costs. Operating profit: this is an indicator of the performance of operations and is calculated as the sum of gross operating profit and amortisation and depreciation, impairment losses (impairment gains) and provisions. Net operating working capital: this is the sum of inventories, construction contracts, current and non-current trade receivables and current and non-current trade payables. Other assets, net: these reflect the sum of assets and advances from the Ministry of the Economy and Finance for grants, deferred tax assets, other current and non-current assets and other current and non-current liabilities. Working capital: this is the sum of net operating working capital and other assets, net. Net non-current assets: these reflect the sum of property, plant and equipment, investment property, intangible assets and equity investments. Other provisions: these are the sum of post-employment benefits and other employee benefits, the provision for litigation with employees and third parties, the provisions for other sundry risks and deferred tax liabilities. Net invested capital (NIC): this is the sum of working capital, net non-current assets, other provisions and net assets held for sale. Net financial debt (NFD): this is a financial indicator calculated as the sum of bonds, non-current bank loans and borrowings and the current portion thereof, current bank loans and borrowings, current and non-current loans and borrowings from other financial backers, cash and cash equivalents and current and non-current loan assets. Equity (E): this is a financial statements indicator calculated as the sum of share capital, reserves, retained earnings (losses carried