Annual Report 2018 • 3 KEY FIGURES and GENERAL INFORMATION

Annual Report At December 31, 2018 Contents

2 Key figures and general information 3 The SEA Group 4 SEA Group structure and investments in other companies 6 Corporate Boards 7 2018 Key Financial Highlights & other indicators

9 Directors’ Report 2018 10 Significant events in 2018 12 Subsequent events 13 Economic overview 18 Regulatory framework 20 Operating and financial overview 20 Traffic data 21 Income Statement 25 Reclassified statement of financial position 27 Net financial position 27 Reconciliation between equity of the Parent and consolidated equity 28 Alternative performance indicators 29 SEA Group investments 31 Outlook 32 Operating performance - Sector analysis 33 Commercial Aviation 40 General Aviation 41 Energy 43 Risk Management Framework 50 Main disputes outstanding at December 31, 2018 56 Other information 56 Consolidated Non-Financial Report 56 Customer Care 57 The environmental dimension 58 Human resources 62 Corporate Governance System 67 Board of Directors’ proposals to the Shareholders’ Meeting 67 Shareholders’ Meeting Motions

68 SEA Group - Consolidated Annual Accounts 69 Financial Statements 75 Notes to the Consolidated Financial Statements 141 Auditors’ Report

146 SEA SpA - Separate Annual Accounts 147 Financial Statements 153 Notes to the Separate Financial Statements 223 Board of statutory auditors’ report to the shareholders’ meeting of SEA – Società Esercizi Aeroportuali S.p.A. 227 Auditors’ Report Key figures and general information KEY FIGURES AND GENERAL INFORMATION

The SEA Group

The SEA Group manages the Mal- diverse assortment of services with structures and areas dedi- pensa and Linate airports under a to meet the needs of all of the cated to business and shopping. 40-year agreement signed by SEA airport’s passengers. ◼◼ Milan Linate Prime, an airport and the Italian Civil Aviation Au- Terminal 2 is easyJet’s main managed by SEA Prime S.p.A., a thority in 2001. The Milan airport base of operations in Europe, subsidiary of SEA S.p.A.. Dedi- system consists of the following serving a broad network of des- cated to general aviation, it of- airports: tinations. Both terminals can be fers high added value services reached by train. and facilities. ◼◼ Milan Malpensa, Milan’s inter- ◼◼ Milan Malpensa Cargo, is the continental airport, consisting nerve centre of inbound and Finally, through SEA Energia SpA of two terminals. Terminal 1, outbound cargo distribution in (a wholly-owned subsidiary of SEA which was fully renovated fol- Italy. S.p.A.), the Group owns two co-gen- lowing the completion of the ◼◼ Milan Linate, primarily serves eration plant, mainly meeting the restyling of the Schengen area, frequent-flyers travelling to energy needs of the Linate and Mal- serves a wide range of domes- destinations in Italy and the EU. pensa airports, providing electricity, tic, international and interconti- Just 8 KM from Milan city cen- heat and district cooling. nental destinations and offers a tre, Linate is truly a city airport,

Annual Report 2018 • 3 KEY FIGURES AND GENERAL INFORMATION

SEA Group structure and investments in other companies

DIRECT AND INDIRECT INVESTMENTS OF SEA SPA AT DECEMBER 31, 2018

SEA SpA

Airport Commercial Other Management Utilities Activities Activities Handling

SEA Prime SpA SEA Energia Dufrital SpA Romairport Srl Airport SpA Handling SpA 99.91% 100% 40% 0.23% 30%

S.A.C.B.O. SpA Disma SpA SEA Services Malpensa Società Srl Logistica Aeroporto Europa SpA Civile di 18.75% 40% Bergamo 25% Orio al Serio

30.98% Signature Flight Support Italy Srl (*) Aeropuertos Argentina 39.96% 2000 SA 8.5%

Controlling shareholding Associate Investment in other companies

(*) Company held indirectly through SEA Prime SpA.

It should be noted that: and the resulting dissolution of ◼◼ Consorzio Milano Sistema, of the trust that held the interest, which SEA SpA holds 10%, is in ◼◼ As a result of the sale of an addi- Airport Handling SpA once again liquidation. tional 40% stake in Airport Han- became classified as an associat- ◼◼ SEA SpA submitted a request dling and a corresponding share ed company measured according for withdrawal from SITA SC of the Financial Instruments of to the equity method in the con- which was effective as of Feb- Participation to dnata (July 2018) solidated financial statements. ruary 28, 2018.

Annual Report 2018 • 4 KEY FIGURES AND GENERAL INFORMATION

Share capital structure PUBLIC SHAREHOLDERS 8 entities/companies

The share capital of SEA SpA Municipality of Milan(*) 54.81% amounts to Euro 27,500,000, Municipality of Busto Arsizio 0.06% comprising 250 million shares of a par value of Euro 0.11, of Other public shareholders 0.08% which 137,023,805 Class A shares, Total 54.95% 74,375,102 Class B shares and 38,601,093 other shares.

The Class A shareholders upon PRIVATE SHAREHOLDERS divestment resulting in the loss of control must guarantee Class 2i Aeroporti SpA 36.39% B shareholders a right to co- F2i Sgr SpA (**) 8.62% sale. Class A shareholders have a pre-emption right on the sale of Other private shareholders 0.04% Class B shares. Total 45.05%

At December 31, 2018, SEA does not hold treasury shares. The own- (*) Holder of Class A shares ership structure is as follows: (**) On behalf F2i – second Italian Fund for infrastructure

0.18% Other

8.62% F2i Sgr SpA

36.39% 54.81% 2i Aeroporti SpA Municipality of Milan

On February 15, 2018, the shares designated “SEA 3 1/8 2014-2021” change, the Company qualified held by the Province of Varese were on April 17, 2014 and the admis- as a Public Interest Entity (PIE) as purchased by 2i Aeroporti SpA. sion to listing of the notes on the defined in Article 16, paragraph 1, regulated market organised and letter a) of Legislative Decree No. Following the issuance of the bond managed by the Irish Stock Ex- 39/2010.

Annual Report 2018 • 5 KEY FIGURES AND GENERAL INFORMATION

Corporate Boards

Board of Directors (three-year period 2016/2018, appointed by the Shareholders’ Meeting of May 4, 2016)

Chairperson Michaela Castelli * (1)

Chief Executive Officer Armando Brunini** and General Manager

Directors Salvatore Bragantini (2) (3) Stefano Mion (2) Susanna Stefani (2) Susanna Zucchelli (1)

Board of Statutory Auditors (three-year period 2016/2018, appointed by the Shareholders’ Meeting of May 4, 2016)

Chairperson Rosalba Cotroneo

Statutory Auditors Rosalba Casiraghi Andrea Galli Paolo Giovanelli Giacinto Gaetano Sarubbi

Alternate Auditors Anna Maria Allievi Andrea Cioccarelli

Independent Audit Firm Deloitte & Touche SpA

* Following Chairperson Pietro Modiano’s resignation on December 19, 2018, on December 20, 2018, the Board of Directors of SEA SpA appointed Michaela Castelli as the company’s Chairperson. ** The Board of Directors of SEA SpA named Armando Brunini CEO on January 8, 2019 and then also appointed him General Manager on January 16, 2019. On January 8, 2019, Armando Brunini announced his resignation from the position of Vice Chairperson.

(1) Member of the Control, Risks and Sustainability Committee (2) Member of the Remuneration and Appointments Committee (3) Member of the Ethics Committee

Annual Report 2018 • 6 KEY FIGURES AND GENERAL INFORMATION

2018 Key Financial Highlights & other indicators

The key consolidated highlights tion of revenues from contracts traffic development, previous- from the financial statements are with a single commercial objec- ly classified as “other operating illustrated below. tive, entered into effect from Jan- costs”, are now classified as a re- uary 1, 2018. Application of this duction in revenues. For compara- The standard IFRS 15, which pro- Standard entails that commercial bility purposes, the 2017 figures vides for the combined recogni- incentives for airlines aimed at have been restated accordingly.

OPERATING RESULTS

(Euro thousands) 2018 2017 restated Change Revenues 713,145 676,541 36,604 EBITDA (1) 281,851 243,006 38,845 Operating Profit 189,469 127,890 61,579 Profit before taxes 187,396 118,116 69,280 Discontinued Operations profit/(loss) (2) 0 1,556 (1,556) Group Net Profit 136,076 84,070 52,006

(1) EBITDA is calculated as the difference between total revenues and total costs, excluding provisions and write-downs. (2) The line “Discontinued operations net result” from 2017 includes the net result of the company SEA Handling SpA in liquidation, as per IFRS 5.

FINANCIAL DATA

December 31, December 31, Change (Euro thousands) 2018 2017 Fixed assets (A) 1,317,673 1,319,249 (1,576) Net Working Capital (B) (230,897) (183,837) (47,060) Provisions for risks and charges (C) (167,861) (169,935) 2,074 Employee provisions (D) (46,214) (47,834) 1,620 Other non-current payables (E) (13,964) (17,588) 3,624 Net capital employed (A+B+C+D+E) 858,737 900,055 (41,318) Group Net Equity 459,101 391,154 67,947 Minority interest net equity 25 23 2 Net financial debt 399,611 508,878 (109,267) Total sources of financing 858,737 900,055 (41,318)

(A) Fixed assets, including those falling under IFRIC 12, are expressed net of State and European Union contributions. At December 31, 2018, they amounted to Euro 505,226 thousand and Euro 7,019 thousand respectively (Euro 504,383 thousand and Euro 7,019 thousand respectively at December 31, 2017).

Annual Report 2018 • 7 KEY FIGURES AND GENERAL INFORMATION

INVESTMENTS

December 31, December 31, Change (Euro thousand) 2018 2017 Tangible and intangible asset investments 63,980 72,140 (8,160)

OTHER INDICATORS

December 31, 2018 December 31, 2017 NFP/EBITDA 1.42 2.09 Employees at December 31 (HDC) 2,847 2,837

TRAFFIC (COMMERCIAL AND GENERAL AVIATION)

Movements Passengers (1) Cargo (2)

2018 % vs 2017 2018 % vs 2017 2018 % vs 2017

Malpensa 189,910 8.7% 24,561,7 11.5% 558,218 -3.2%

Linate 93,987 -2.6% 9,187,1 -3.3% 10,827 -9.3%

Total commercial traffic 283,897 4.7% 33,748,8 7.0% 569,045 -3.3%

General Aviation (3) 25,920 2.5% 54,3 2.7%

SEA Group Airport System 309,817 4.5% 33,803,1 7.0% 569,045 -3.3%

(1) Arriving+departing passengers (‘000) (2) Arriving+departing cargo in tonnes (3) General Aviation Source: SEA Prime Directors’ Report 2018 DIRECTORS’ REPORT 2018

Significant events in 2018

SEA’s Board of Directors Airport Handling: tion, increasing its holding in the company to 70% and maintain- appoints a new exercise of option by ing the majority on the Board of Chairperson dnata for 40% and Directors, held since March 2016 transfer to SEA of the on completion of the acquisition Following the resignation of Chair- residual 30% of the initial 30% of the company person Pietro Modiano, SEA’s from the Trustee (whole-owner of Board of Directors on December On June 30, 2018, dnata exercised Airport Handling) and of 30% of 20, 2018 appointed as its new the Financial Instruments of Par- the option to purchase an addi- Chairperson Director Michaela ticipation held by SEA. Castelli, granting her all the pow- tional 40% of Airport Handling and a corresponding portion of ers previously held by the outgo- Exercise of this option resulted in ing Chairperson. Financial Instruments of Participa- a series of events in July: the winding up of the trust on completion of its mission and the ensuing transfer to SEA of the residual 30% equity interest; the collection by SEA of Euro 13.3 million (of which Euro 10.6 million for the sale of 70% of the Financial Instru- ments of Participation and Euro 2.7 million for the sale of 70% of the shares), the share of which relating to the sale of 30% by the trust to dnata was conditional on the completion of the transaction; and the receipt of the dividends of Euro 0.4 million approved by Airport Handling in 2016.

Opening of the new facade of to Linate airport

On May 3, 2018, the new facade of to Linate airport was opened. The main works of the first phase of Linate’s restyling beginning in July 2017 concluded and a diluted investment plan shall be rolled out until 2022 for a total amount of Euro 66.4 million.

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New lines of credit

In 2018 and early 2019 the existing committed lines of credit were renegotiated and new facilities contracted with the aim of rein- forcing the SEA Group’s financial structure. At the end of this process, the SEA Group will have committed RCF’s of Euro 260 million, available to be drawn down until 2023, and a new line of EIB funding of Euro 130 million partially covering SEA’s investments plan for the coming years.

The new structure of the committed facilities, for a total of Euro 390 million, will ensure that the SEA Group has adequate financial flexibility in the coming years, at continued favourable cost conditions, during a period also char- acterized by the commitments associated with the upcoming ma- Milan to host World launching new routes, particularly turities of its outstanding medi- to connect Milan with cities in Asia um-/long-term lines of financing. Routes 2020, the world’s and America, and to reinforce the foremost air transport perception of the airport and des- trade event tination among representatives of the foremost organisations in the The assignment of World Routes global aviation industry and the 2020 to Milan was officially an- decision-makers responsible for nounced in July 2018. World development of the network. Routes – among the biggest events in the aviation industry – In view of World Routes 2020, in will be held from September 5 to September 2018 SEA also partici- 8, 2020 in Milan at the Mi.Co con- pated in the World Routes held in vention centre, bringing together Guangzhou, China, with the aim of airlines, airports, aviation stake- promoting Milan as a destination holders, the tourist industry and and meeting with representatives tourism bureaus from all corners of the world’s leading airlines. of the globe, under the auspices of UBM. Management system The winning application that resulted in the decision to hold this for the prevention of important event in Milan was pre- corruption pared by SEA, Mi.Co, the Region of Lombardy and the Municipality of In March 2018, SEA was awarded Milan. certification for its management system for the prevention of cor- SEA views World Routes as an ruption pursuant to the UNI ISO opportunity to consolidate the 37001:2016 standard. growth of Milan’s airports by

Annual Report 2018 • 11 DIRECTORS’ REPORT 2018

Subsequent events

Appointment of Chief Chief Executive Officer has been Directors of SEA SpA also named assigned the powers of legal and Armando Brunini as General Man- Executive Officer and institutional representation, guid- ager. In keeping with these ap- General Manager ance and strategic control of the pointments, SEA’s Board of Direc- Company, together with the re- tors concurrently approved the At its meeting on January 8, 2019, sulting preparation of the annual Company’s new organizational the Board of Directors of SEA and long-term planning docu- model, which introduces the po- SpA created the position of Chief ments, as well as the powers to sition of General Manager, while Executive Officer and appointed submit draft motions to the Board eliminating the positions of Chief Armando Brunini to the role; the of Directors, to ensure the coordi- Operating Officer and Chief- Cor latter concurrently resigned from nation and supervision of equity porate Officer and reallocating the position of Vice Chairperson. investments and to make urgent Along with the appointment of decisions within the Board of Di- the organizational units reporting the Chief Executive Officer, the rectors’ purview with separate au- to them accordingly. The Chief Board also introduced a new or- thority up to predefined amounts Financial and Risk Officer reports ganizational and governance or with joint authority together directly to the General Manager, structure more consistent with with the Chairperson in excess of together with the main organiza- industry practices and compliant the said limits. tional units previously reporting with the new, increasingly com- to the Chief Corporate Officer. petitive marketplace. In fact, the On January 16, 2019, the Board of

Annual Report 2018 • 12 DIRECTORS’ REPORT 2018

Economic overview

In 2018 the world economy con- among the main advanced econ- tion cuts reached in early Decem- tinued to grow, although the out- omies. According to the most re- ber between OPEC members and look for global trade deteriorated. cent indicators, in the final part of other producing nations (OPEC+) International economic growth the year growth remained robust was not enough to stop prices is exposed to numerous of risk in the United States and returned from falling. factors: the repercussions of a to positive territory in Japan, fol- negative outcome to the trade lowing the sharp decline in GDP Economic activity slowed in the negotiations between the United witnessed in the third quarter due Eurozone, due in part to tempo- States and China giving rise to the to the natural disasters that struck rary factors, but also to deterio- introduction of new protectionist the country. In the United King- rating expectations amongst busi- measures, the rekindling of finan- dom growth was consistent with nesses and weak foreign demand. cial tensions in emerging nations the average for the first half of In November, industrial output and the conditions in which the the year. Among the main emerg- declined considerably across all United Kingdom’s departure from ing economies, in China the slow- the main economies. In the au- the European Union (Brexit) will down in economic activity that tumn inflation slowed due to the be concluded, following the vote began in early 2018 continued in performance of energy prices. In by the British Parliament rejecting the final months of the year, de- the third quarter the zone’s GDP the ratification of the agreement spite the tax stimulus measures increased by 0.2% on the previ- negotiated by the government in enacted by the government. By ous period, a sharp slowdown November. contrast, the expansionary phase compared to the spring. Essen- remained robust in India, albeit at tially stagnant exports held back According to projections pub- more moderate rates than in the growth. Domestic demand con- lished by the OECD last Novem- first half of the year, whereas the tinued to contribute 0.5% to GDP, ber, in 2018 global economic macroeconomic scenario in Brazil driven by the change in inven- growth came to 3.7%, one-tenth is still fragile. tories and, to a lesser extent, in- of a point more than in the previ- vestments. In the final months of ous year. Consumer inflation weakened in the year, the industrial output fell the United States and the Unit- faster than expected in Germany, In 2019 global GDP is expected to ed Kingdom, while fluctuating France and Italy. In December, rise by 3.5%, two-tenths of a point around 1% in Japan, although the the Bank of Italy’s €-coin indica- less than projected in September: fundamental component remains tor, which estimates the baseline the revision reflects a slight wors- near zero. performance of Eurozone GDP, ening of the outlook in the Euro- continued to decline to 0.42%, its zone, Japan and the major emerg- Crude oil prices have fallen sharply lowest level since the end of 2016. ing economies, accompanied by since early October, due above all the already expected slowdown to supply-side factors, such as the Inflation fell in the autumn, in the United States, due in part increase in output in the United amounting to 1.6% at the end of to the gradual abatement of the States, Saudi Arabia and Russia, the year, due to the slowdown of expansionary effects of the tax together with the stability of Ira- energy prices. Average inflation stimulus. nian exports, following the tem- for the year was 1.7% (1.5% in porary loosening of the sanctions 2017). In the third quarter of 2018, eco- imposed by the United States. The nomic performances differed agreement on the new produc- In Italy, after growth came to an

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end in the third quarter, the avail- Air transport and ◼◼ Asia (29% market share) posted able economic indicators suggest gains of +7.3%; that economic activity may have airports ◼◼ North America (25% market continued to slow in the fourth share) posted gains of +5.2%; quarter. The weakening seen in Global air transport ◼◼ Central/South America (8% the summer was fuelled by declin- market share) posted gains of ing domestic demand, particularly performance (to October 2018) +4.8%; from investments and, to a lesser ◼◼ the Middle East (4% market degree, household spending. Ac- share) posted gains of +2.3%; cording to the Bank of Italy, the In October 2018, global passenger traffic, measured on a sample ◼◼ Africa (2% market share) post- investment plans of industrial and ed gains of +10.1%. service firms are believed to have of over one thousand airports, in- been reduced in the light of the creased by 6.1 percentage points on In the global rankings, the num- political and economic uncertainty the same period of 2017, amount- ber-one airport by passenger traffic coupled with trade tensions. ing to 5.981 billion passengers. was Atlanta (89.8 million passengers served, of which 79.2 for domestic Italian export performance re- There was growth across all conti- traffic), followed by Beijing (84.4 mained positive in the second nents, and in particular: half of the year. However, slowing million passengers served, of which global trade influenced the -for ◼◼ Europe (which has 32% market 64.6 for domestic traffic), and Dubai eign order outlook for companies. share) posted gains of +6.2%; (74.5 million passengers served).

In the summer quarter, hours 1 worked rose while the number of GLOBAL AIR TRAFFIC job-holders fell slightly. According to the first available data, in the Passengers in October 2018 (5.981 billion) ACI World ranking volumes autumn employment is believed to have remained essentially stable.

Overall inflation fell to 1.2% in De- cember, due above all to slowing energy prices. Companies’ price expectations were revised slightly downwards.

Risk premia on government bonds AFR ASP EUR LAC MEA NAM ACI Total fell due to the agreement be- 146.8 1,709.3 1,935.8 466.9 209.5 1,513.0 5,981.4 tween the Italian government and the European Commission on budget planning. The spread Total cargo in October 2018 (85.6 million tons) ACI World ranking volumes between the yields on Italian and German government bonds stood at approximately 260 basis points in mid-January, 65 points below the November high. However, overall financial market conditions remain tenser than before the summer.

AFR ASP EUR LAC MEA NAM ACI Total 1.7 31.5 16.7 4.0 6.4 25.3 85.6

Key: AFR (Africa), ASP (Asia Pacific), EUR (Europe), LAC (Latin America), MEA (Middle East), NAM (North America). Source: ACI World (Pax Flash & Freight Flash) 1 Source: ACI World (Pax Flash & Freight Flash)

Annual Report 2018 • 14 DIRECTORS’ REPORT 2018

Cargo traffic also increased across South America by +8.7% and Afri- growth of 4.8% to 1166.2 million all areas at an average rate of 4.2 ca by +11.6%. passengers served. percentage points, with 85.6 million tons of cargo processed at a The main European hubs 3 (repre- sample of 681 airports. Asia – the European airport senting 36% of total associated 2 leader in terms of cargo handled performances in 2018 airport traffic) and their percent- – was up by +3.3%, North Ameri- age growth on the previous year ca by +6.1%, Europe by +2.8%, the The ACI Europe associated Euro- are shown below. Middle East by +0.4%, Central/ pean airports reported passenger

EUROPEAN AIR TRAFFIC – THE MAIN HUBS

% vs PY Pax (mio) 90.0 +8.4% 80.0 +7.8% 70.0 60.0 +5.9% +4.9% 50.0 +4.0% +3.7% 40.0 +2.7% 30.0 20.0 10.0 0 Madrid Frankfurt Zurich Rome FCO Paris CDG Amsterdam London LHR 57.9 69.5 31.1 43.0 72.2 71.1 80.1

If the 42 ACI Europe member RANKING FOR PERCENTAGE GROWTH airports are included in the analysis, Malpensa ranks second by percentage growth (+11.5%), 70.0 % vs PY Pax (mio) between Budapest (+13.5%) and +13.5% Athens (+11.2%), as shown below. 60.0 +11.2% 50.0 +10.4% Cargo traffic was stable on the +11.5% previous year (-0.2%), with a total 40.0 +8.4% of over 12.0 million tons handled. 30.0 In terms of goods handled, in the rankings of the main ACI Eu- 20.0 rope member airports, Malpensa comes fifth (558.2 thousand tons), 10.0 after Frankfurt at 2.1 million tons, Paris Charles de Gaulle at 2.0 mil- 0 lion tons and London Heathrow Budapest Malpensa Athens Helsinki Madrid and Amsterdam at 1.7 million tons 14.9 24.7 24.1 20.8 57.9 each. 2 ACI EUROPE: Rapid Exchange 3 Airport hubs: Frankfurt, Amsterdam, Paris Charles de Gaulle, Zurich, Rome Fiumicino, Madrid and London Heathrow.

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Annual Report 2018 • 16 DIRECTORS’ REPORT 2018

Italian airport traffic ITALIAN AIR TRAFFIC performance in 2018 4 70.0 % vs PY Pax (mio) Passenger traffic at the Italian As- 11.1% saeroporti member airports was 60.0 up 5.9%. In 2018 185.4 million pas- 8.5% sengers were served, an increase 50.0 of 10.3 million on 2017. Interna- tional traffic was up by 7.2% and 40.0 6.5% domestic traffic by 3.3%. 5.1% 30.0 4.0% There were 1.4 million flights 20.0 during the year (+3.6%), whereas the cargo carried was essential- 10.0 ly in line with the previous year (1,056.6 thousand tons, -0.4%). 0 South North East North West Islands Centre As may be seen from the fol- 21.3 18.7 61.1 26.4 57.9 lowing chart, the area* with the greatest passenger growth in *North West: Bergamo, Bologna, Genoa, Linate, Malpensa, Turin, others; North East: Treviso, percentage terms was the South, Venice, Verona, others; Centre: Ancona, Rome Ciampino, Rome Fiumicino, others; South: Bari, followed by the North-Eastern Brindisi, Lamezia Terme, Naples, Pescara, Reggio Calabria, others; Islands: Alghero, Cagliari, Lampedusa, Olbia, Palermo, others. and North-Western areas of the country.

Among the North-Western air- General Aviation ports, the Lombardy airport system (25% of total italian traffic) In 2018, Business and General served 46.8 million passengers Aviation in Europe recorded a (+6.5%); Milan Malpensa contrib- 1.8% growth in flights, reaching uted with 24.7 million (+11.5%), pre-crisis figures of 2008. Italy, Milan Linate with 9.2 million where flights were in line with FY (-3.3%) and Bergamo Orio al Serio 2017 (+0.1%), is the fourth market with 12.9 million (+4.9%). in Europe with a 7% market share (source: Wingx). General Aviation In Central Italy, the Rome airport at the Milan Linate and Malpensa system (26% of total italian traf- Prime airports, with 25.9 thousand fic) hit 48.8 million passengers flights, grew by 2.5% and ranks in (+4.2%); Rome Fiumicino served the fifth place in Europe in terms 43.0 million (+4.9%), while Rome of traffic served (after London, Ciampino with 5.8 million con- Paris, Nice and Geneva) and in the tracted (-0.7%). first place in Italy, where it holds a 40% market share. Among the North-Eastern airports, Venice reached 11.2 million passengers carried (+7.9%), while in the South Catania and Naples grew by 8.9% and 15.8% each, serving 9.9 million passengers each.

4 Source: Assaeroporti’s 39 associated airports; the figures include commercial aviation inclusive of direct transits

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Regulatory framework

Establishment of new ing to new airport infrastructure New significant domestic projects; (vi) airports with traffic aviation fees of less than one million annual and EU regulations passengers and airport networks; The Italian Civil Aviation Authority At the level of the Community reg- (vii) the rate of return on invested published the new regulated fees ulatory framework, the European capital; and (viii) regulatory ac- for 2019 in October, following Commission - DG MOVE - continued counting. the conclusion of the airport user the process of assessing Directive consultation process launched in In this regard, the Authority has 2009/12/EC of the European Parlia- July 2018. asked all Italian airport management and of the Council of March ment companies, SEA included, 11, 2009 on airport charges, which The new rates entered into effect for a series of historical economic had been ongoing since 2016. on January 1, 2019 and repre- and technical data (traffic figures, sent an average increase of 0.2% operating and infrastructure in- In the first half of 2018, the Com- compared to 2018, below the information and details of the qual- mission launched a public consul- flation rate planned of 1.2%, as ity of service provided), with the tation addressed to all European stated in the Update to the 2018 aim of assessing any regulatory citizens generally and logically Economy and Finance Document, changes in application of the regu- aimed at completing the process published by the Italian Ministry lation impact assessment method (of a more technical nature and of the Economy and Finance in employed by the Authority. more specifically targeted at in- September 2018). dustry operators) already begun Consultation on the new regula- with the Inception Impact Assess- tory models is expected to begin ment (IIA). Additional phases of Revision of airport fee in the spring and the deadline for the Impact Assessment process regulation models the conclusion of the procedure proper are expected for early has been set as September 30, 2019. On the basis of the most On September 13, 2018 the Trans- 2019. recent available information, DG port Regulation Authority (ART) MOVE decided to publish a pack- published Resolution No. 84, an- SEA does not apply the ART’s reg- age on aviation that will include nouncing the launch of the pro- ulation models since it is regulat- the final report on the assessment cedure for revising the current ed by the Supplementary Regu- of the directive on airport charges, airport fee regulation models (ap- latory Agreement entered into the study of “Taxes in the Aviation proved by resolution no. 92/2017). with ENAC in 2011, pursuant to Industry and their Impact” and the Through this procedure, the Au- Article 17, paragraph 34-bis of De- report on social questions in air thority aims to assess whether it cree-Law No. 78/2009, as convert- transport. During the same peri- is advisable to make changes to ed with amendments by Law 102 od, the Commission is expected to regulatory parameters governing: of August 3, 2009. verify possible approaches to in- (i) the efficiency and elasticity of tervention by the European Union, operating costs; (ii) the optimal which could lay the groundwork use of airport capacity; (iii) the for future economic regulations treatment of commercial margins; for airports. SEA will continue to (iv) the tariff consequences of in- monitor this process, both directly centives for flight operations; (v) and through Italian and European the definition of the plans -relat industry associations.

Annual Report 2018 • 18 DIRECTORS’ REPORT 2018

The New Decree of the President for a high common level of securi- SEA and SEA Energia’s of the Council of Ministers No. ty of network and information sys- 76/2018, “Regulation on the exe- tems across the Union” transpos- qualification as Existing cution, types and size thresholds ing Directive (EU) No 2016/1148 Systems Equivalent to for works subject to public de- (known as the “Network and Infor- Efficient Systems for bate”, which entered into force mation Security Directive” or “NIS Users (SEESEU) on August 24, identifies the types Directive”) concerning the secu- of works for which it will be man- rity of network and information Efficient Systems for Users (SEU datory to involve citizens in public systems in the Union entered into or SEESEU) are simple production debate – a form of consultation effect on last June 24. The Decree and consumption systems consist- that occurs before projects as- has three main goals: ing of a production facility and a sume their definitive form. The consumption unit that are direct- following are subject to public de- ◼◼ promoting a culture of risk ly linked by a private connection, bate, subject to precise size and management and reporting of without an obligation to connect financial limits: motorways and in- incidents among the main eco- third parties, in which the produc- tercity roadways, railway lines, air- nomic actors, and in particular er and end client are the same le- ports, commercial seaports, navi- operators that provide services gal entity or legal entities belong- gable waterways and freshwater essential to the maintenance of ing to the same corporate group. ports, shipping terminals, work economic and social activities to protect the sea and coasts, in- and providers of digital services; On May 8, 2017 GSE (the Electric- termodal freight hubs, overhead ◼◼ improving cyber-security capa- ity Services Operator) definitively power lines, long-term water re- bilities; issued SEESEU certification for tention, regulation or storage fa- ◼◼ enhancing cooperation at the both the Linate and Malpensa air- cilities and systems for transfer- national and EU level. ports. ring water between regions. With the aim of ensuring the con- Obtaining the SEU or SEESEU In the case of airports, such works tinuity of essential services (ener- qualification entails maintaining must involve new passenger or gy, transport, health, finance,...) favourable tariff conditions on cargo terminals, new runways with and digital services (search en- self-produced electricity, with a length of over 1,500 m and an gines, cloud services, e-commerce high efficiency and not drawn overall investment of more than platforms), the Decree provides from the electricity grid and limit- Euro 200 million, net of VAT, asso- for technical and organisational ed to the variable parts of the gen- ciated with all planned contracts. measures intended to reduce risk eral system and network charges, Public debate, which lasts four and limit the impact of informa- as envisaged by Legislative Decree months (but in cases of demon- tion technology incidents and the No. 115/08 and Article 25-bis of strated need may be extended by obligation to report incidents with Decree-Law No. 91/14 converted an additional two months), occurs a significant impact on the provi- with Law No.116/14. in the initial phases of planning of sion of services. The text also iden- the technical and economic feasi- tifies the responsible “NIS” author- By ARERA resolution no. 680/2018 bility plan or the feasibility docu- ities and their duties, carried out of December 18, 2018, the dead- ment for project alternatives. If in cooperation with the equivalent line for opting for CDS or SEESEU debate is launched at the specific authorities in the other Member status (previously set at Decem- request of the administrations or States, as well as the Italian na- ber 31, 2018) was extended to citizens involved, or occurs at the tional Computer Security Incident July 1, 2019. Accordingly, the SEA specific behest of the awarding Response Team (CSIRT), which has Group must make its decision by administration or authority, pub- duties of a technical nature relat- the above deadline. lic debate may not be held after ing to preventing and responding the commencement of definitive to information technology inci- At the reporting date, SEA had yet planning. dents, carried out in cooperation to make a final decision. with the other European CSIRTs. Legislative Decree No. 65/2018, Annex II to the Decree identifies “Implementation of Directive (EU) essential service providers, which No 2016/1148 of the European also include airport managers. Parliament and of the Council of July 6, 2016 concerning measures

Annual Report 2018 • 19 DIRECTORS’ REPORT 2018

Operating and financial overview

Traffic data

MILAN MALPENSA AND LINATE AIRPORT TRAFFIC PERFORMANCE (COMMERCIAL AND GENERAL AVIATION)

Movements Passengers (1) Cargo (2)

2018 % vs 2017 2018 % vs 2017 2018 % vs 2017

Malpensa 189,910 8.7% 24,561.7 11.5% 558,218 -3.2%

Linate 93,987 -2.6% 9,187.1 -3.3% 10,827 -9.3%

Total commercial traffic 283,897 4.7% 33,748.8 7.0% 569,045 -3.3%

General Aviation (3) 25,920 2.5% 54.3 2.7%

SEA Group Airport System 309,817 4.5% 33,803.1 7.0% 569,045 -3.3%

(1) Arriving+departing passengers (‘000) (2) Arriving+departing cargo in tonnes (3) General Aviation Source: SEA Prime

In 2018 the Milan Airport System for North America and of 10.7% General Aviation activity at the managed by the SEA Group served for the Far East. Linate and Malpensa airports gen- a total of 33.8 million passen- erated 25.9 thousand flights, with gers, 2.2 million passengers more By contrast, Linate airport re- an increase of 2.5% on 2017. (+7.0%) than in FY 2017. ported a decline in passenger traffic of 3.3%, principally due In terms of tons, the volumes han- This performance was attributable to the discontinuation of oper- dled at Linate and Malpensa were solely to Malpensa airport, which ations by Air Berlin (still oper- up by 3.3% and 17.7% respectively with 2.5 million additional passen- ating in early 2017) and Air Ita- on 2017, with the average equip- gers posted a gain of 11.5% on ly (former Meridiana), with the ment passing through the two air- the previous year. This outcome exception of service to Olbia ports rising from 15.9 to 16.4 tons was due to the increase in capac- (part of the local public trans- (+3.0%). ity in terms of both seats offered port service program), together (+11.7%) and flights (+8.7%), with with the transfer to Malpensa of The cargo traffic handled by the an equivalent load factor (77%). Air France and KLM with effect Milan Airport System amounted Domestic and European destina- from the April 2017. There was to 569 thousand tons, down by tions contributed significantly, a further 7.4% contraction in the 3.3% on FY 2017. This decline was with increases in passengers of Milan – Rome route and a 5% de- primarily due to exports (-4.8%), 29.4% and 8.6% respectively. In- cline in European routes due to and in particular to the negative tercontinental routes in turn post- the aforementioned transfer of performance of all-cargo carriers ed double-digit growth of 18.8% airlines to Malpensa. (-6.0%), following the decline in

Annual Report 2018 • 20 DIRECTORS’ REPORT 2018

average cargo volume per flight figures are in line with those uti- with the previous year, the 2017 (from 38 to 34 tons), despite an lised for the 2017 consolidated values have been restated. increase in flights (+3.4%). financial statements. In accordance with IFRS 15, from FY 2018 The consolidation scope at De- commercial traffic development cember 31, 2018 differs from Income Statement agreements are recognized as a December 31, 2017 due to the reduction in revenues, rather than inclusion of the associate Airport The accounting policies applied in as operating costs. In order to fa- Handling SpA (30%), measured ac- preparing the 2018 consolidated cilitate like-for-like comparison cording to the equity method.

C.ge % 2018 2017 Change (Euro thousands) 2018/2017 Operating revenues 683,956 648,260 35,696 5.5% Revenue for works on assets under concession 29,189 28,281 908 3.2% Total revenues 713,145 676,541 36,604 5.4% Operating costs Personnel costs 189,416 210,743 (21,327) (10.1%) Other operating costs 215,150 196,786 18,364 9.3% Total operating costs 404,566 407,529 (2,963) (0.7%) Costs for works on assets under concession 26,728 26,006 722 2.8% Total costs 431,294 433,535 (2,241) (0.5%) EBITDA (1) 281,851 243,006 38,845 16.0% Provisions & write-downs 3,704 32,218 (28,514) (88.5%) Restoration and replacement provision 15,077 13,602 1,475 10.8% Amortisation & Depreciation 73,601 69,296 4,305 6.2% Operating profit 189,469 127,890 61,579 48.1% Investment income 14,568 8,135 6,433 79.1% Net financial charges 16,641 17,909 (1,268) (7.1%) Profit before taxes 187,396 118,116 69,280 58.7% Income taxes 51,318 35,667 15,651 43.9% Continuing Operations profit 136,078 82,449 53,629 65.0% Discontinued Operations profit/(loss)(2) 0 1,556 (1,556) (100.0%) Minority interest profit/(loss) 2 (65) 67 (103.1%) Group Net Profit 136,076 84,070 52,006 61.9%

(1) EBITDA is calculated as the difference between total revenues and total costs, excluding provisions and write-downs. (2) The line “Discontinued operations profit/(loss)” from 2017 includes the net result of the company SEA Handling SpA in liquidation, as per IFRS 5. The liquidation process was concluded in 2017.

Annual Report 2018 • 21 DIRECTORS’ REPORT 2018

Operating revenues amounted ation revenues of Euro 415,729 to Euro 683,956 thousand in FY thousand (Euro 394,052 thousand 2018, up Euro 35,696 thousand in 2017), Non-Aviation revenues (+5.5%). This strong performance of Euro 242,399 thousand (Euro was mainly due to traffic devel- 227,352 thousand in 2017), Gen- opment, which drove increases eral Aviation revenues of Euro in both aviation revenues and 11,344 thousand (Euro 12,128 non-aviation passenger service thousand in 2017) and Energy rev- revenues of Euro 21,677 thou- enues of Euro 14,484 thousand sand and Euro 15,047 thousand, (Euro 14,728 thousand in 2017). respectively, against a decline in the other General Aviation and En- Operating revenues increased by ergy businesses of a total of Euro Euro 35,696 thousand on the pre- 1,028 thousand. vious year (+5.5%), supported in 2018 by non-recurring revenues EBITDA was Euro 281,851 thou- of Euro 5,591 thousand due to sand, up 16% on 2017, which had the conclusion of the legal pro- been influenced by the inclusion ceedings in which SEA was recog- among personnel costs of Euro nized as entitled to the fees for 23,923 thousand relating to the the premises occupied in previous leaving incentives provided for in years by the Italian Customs Au- the Framework Agreement signed thority. 2017 was supported by on July 22, 2016 with the trade non-recurring revenues of Euro the presence of non-recurring unions. 2,929 thousand (Euro 2,429 thou- revenues in 2017. sand from the Anti-trust Authority EBIT of Euro 189,469 thousand review of the penalty imposed on Revenues for works on assets was up significantly on the previ- SEA in 2015 following the acquisi- under concession rose from Euro tion of SEA Prime - previously ATA ous year, which included the accru- 28,281 thousand in 2017 to Euro Ali Trasporti Aerei and Euro 500 al of Euro 25,252 thousand on the 29,189 thousand in 2018, mark- thousand from the collection of Alitalia SAI receivable for unset- ing an increase of 3.2%. These a supplier penalty). Net of these tled invoices in the period before revenues refer to construction items, revenues grew Euro 33,034 the company entered extraordi- work on assets under concession thousand (+5.1%). This perfor- nary administration (May 2, 2017), increased by a mark-up repre- mance is principally based on (5): in addition to the aforementioned senting the best estimate of the impact on personnel costs. remuneration of the internal cost for the management of the works ◼◼ Aviation for Euro +23,289 thou- Net profit amounted Euro and design activities undertaken, sand, mainly due to the boost in 136,076 thousand, an increase of which corresponds to a mark-up traffic volumes in the period. Euro 52,006 thousand on the pre- which a third-party general con- ◼◼ Non-Aviation for Euro +10,668 vious year. structor would request to under- thousand, with organic growth take such activities. across all the main business The main income statement ac- segments (Shops, Food & Bev- This account is strictly related to counts are broken down as fol- erage, Car Rental, Parking and investment activities on assets un- lows. Cargo), despite the decline in der concession. the Bank Services segment (-13.5%). Revenues ◼◼ Energy for Euro (165) thousand, mainly due to lower volumes of Operating revenues for the pe- electricity sales to third parties. riod ended December 31, 2018 ◼◼ General Aviation for Euro (758) (net of work on assets under con- thousand, mainly due to lower 5 In this document, the 2017 figures for cession and traffic development revenues as a result of the dis- Aviation and Non-Aviation activities and the Energy and General Aviation businesses have incentives) amounted to Euro continuation of the “into-plane” been restated according to the allocation 683,956 thousand and include Avi- refuelling service in 2018 and criteria used for FY 2018.

Annual Report 2018 • 22 DIRECTORS’ REPORT 2018

Operating costs Costs for works on assets In 2017 almost all of the provision for trade receivables was related under concession Operating costs for the year end- to the credit exposure dating to the period (prior to placement in ed December 31, 2018, net of Costs for works on assets under con- administration on May 2, 2017) costs for works on assets under cession increased from Euro 26,006 to Alitalia SAI in Extraordinary concession, amounted to Euro thousand in 2017 to Euro 26,728 Administration, for an amount of 404,566 thousand, falling Euro thousand in 2018. These costs refer Euro 25,252 thousand. There was 2,963 thousand on the previous to the costs for the works under- no guarantee of the collection of year (-0.7%). Costs in 2018 includ- taken on assets under concession. this loan either at the time of the ed non-recurring items for Euro This movement is strictly related to provision or at the time of writing. 2,073 thousand, consisting solely investment activities. of leaving incentives. Therefore, Further information is available in comparison with 2017 - which in As a result of the above dynam- Note 9.7 of the Consolidated Fi- turn included non-recurring com- ics, EBITDA stood at Euro 281,851 nancial Statements. ponents for Euro 23,966 thou- thousand compared to Euro sand (of which leaving incentives 243,006 thousand for 2017, up 16% of Euro 23,923 thousand Euro) (+Euro 38,845 thousand). Excluding - shows a net increase of Euro the non-recurring items outlined Restoration and 18,930 thousand (+4.9%). above and at like-for-like consolida- replacement provision tion scope, EBITDA was up by 5.4% This cost increase is mainly due to: (+Euro 14,290 thousand). During the reporting year, the net provision amounted to Euro 15,077 thousand (Euro 13,602 ◼◼ Group personnel costs, which Provisions & thousand in 2017) and includes the expected maintenance of the increased Euro 523 thousand write-downs (+0.3%) compared to the same plant in the course of its useful period of 2017, climbing from life. In 2017 the net effect was In FY 2018 provisions and write- due to a provision of Euro 15,093 Euro 186,820 thousand in 2017 downs amounted to Euro 3,704 to Euro 187,343 thousand in thousand and the release of Euro thousand and consisted of Euro 1,491 thousand. 2018. The increase was primar- 2,887 thousand in net provisions ily driven by a slight rise in the for future charges (Euro 1,494 workforce to 2,782 full-time thousand for the period ended Amortization & equivalents in 2018 compared December 31, 2017) and Euro Depreciation with 2,766 in 2017; 817 thousand in net provisions for ◼◼ Other operating costs, which doubtful debt (Euro 30,724 thou- Amortization and depreciation in- increased by Euro 18,407 thousand for the period ended Decem- creased by Euro 4,305 thousand sand (+9.4%) compared to the ber 31, 2017). compared to 2017 (+6.2%), from same period of 2017, rising Euro 69,296 thousand to Euro from Euro 196,743 thousand Provisions for future charges in- 73,601 thousand. The movements in 2017 to Euro 215,150 thou- clude Euro 4,375 thousand in pro- reflect the amortization and de- sand in 2018. This growth was visions relating to the current year preciation process for tangible due to the increase in costs tied for provisions for employment, and intangible assets based on to volumes of Euro 5,307 thou- revocatory risks and insurance de- estimated useful life, which nev- sand (for security, public fees, ductibles, partially offset by the er exceeds the duration of the fees associated with the man- release of previous years’ provi- concession, together with the agement of parking and com- sions for risks and charges of Euro increase in fixed assets the de- mercial costs), the increase in 1,488 thousand, as a result of the preciation of which began after the unit costs of energy – meth- elimination of some ongoing dis- the first half of 2017, such as the Sheraton hotel in Malpensa, the ane and CO2 – of Euro 3,830 putes. thousand and higher operating investments in terminal restyling costs (maintenance, tools and Credit risk provisions refer to net and the investments in Cargo City. hardware/software fees) of provisions for trade receivables Euro 9,270 thousand. (Euro 27,498 thousand in 2017).

Annual Report 2018 • 23 DIRECTORS’ REPORT 2018

Investment income charges on derivatives due to the Discontinued continuing amortization of the and charges relevant notional amount, great- Operations profit/(loss) er guarantee fees on the EIB dis- In the reporting year net income The profit on discontinued oper- bursement of late June 2017 and from investments increased by ations was nil following the liq- an increase in financial income of Euro 6,433 thousand, rising from uidation on July 10, 2017 of SEA Euro 763 thousand following the Euro 8,135 thousand in 2017 to Handling SpA, against a net prof- recognition of interest income ac- Euro 14,568 thousand in 2018. it of Euro 1,556 thousand in the crued on the IRES receivable col- Equity-accounted investments previous year, relating to the con- lected in April 2018 concurrently and other income and charges clusion of the liquidation process with the corresponding nominal are included. which resulted in the settlement tax receivable. of credit and debit positions. The share of the result of Equi- ty-accounted associates was positive at Euro 14,177 thousand in Income taxes Group Net Result 2018 (Euro 8,204 thousand in 2017). The increase, amounting to Income taxes for FY 2018 amount- As a result of the trends outlined Euro 5,973 thousand, is primarily ed to Euro 51,318 thousand, up above, the Group’s net profit attributable to the improvement on 2017 (Euro 35,667 thousand), amounted to Euro 136,076 thou- in the results achieved by some mainly due to the increase in prof- sand, up Euro 52,006 thousand associates, in addition to the inclu- it before taxes. over the previous year (Euro sion, with effect from July 2018, in 84,070 thousand). the scope of companies measured A detailed analysis of the com- at equity of Airport Handling SpA ponents that contributed to this due to the 30% share owned by net result and their comparison SEA SpA. with 2017 is available in Note 9.12 of the Consolidated Finan- Other income increased by Euro cial Statements. 460 thousand. This increase was chiefly due to dividends, which amounted to Euro 387 thousand, as approved by the Shareholders’ Meeting of Airport Handling SpA on May 6, 2016, drawing on the profit from FY 2015, paid on the shares held by SEA, collected directly by SEA in July 2018 following the dissolution of the trust.

Financial income and charges

In 2018, net financial charges reduced Euro 1,268 thousand, from Euro 17,909 thousand in 2017 to Euro 16,641 thousand in 2018.

This outcome was primarily due to the lesser interest expense during the period on medium-/ long-term loans, driven by the decrease in gross debt, lower

Annual Report 2018 • 24 DIRECTORS’ REPORT 2018

Reclassified statement of financial position

December 31, December 31, Change (Euro thousands) 2018 2017 Intangible assets 986,469 998,182 (11,713) Property, plant & equipment 205,483 204,971 512 Investment property 3,408 3,394 14 Investments in associates 67,914 54,054 13,860 Other investments 26 26 0 Deferred tax assets 54,185 51,152 3,033 Other non-current financial assets 0 7,190 (7,190) Other non-current receivables 188 280 (92) Fixed assets (A) 1,317,673 1,319,249 (1,576) Inventories 1,934 4,104 (2,170) Trade receivables 121,005 111,077 9,928 Tax receivables 1,048 14,941 (13,893) Other receivables 9,527 9,200 327 Other current financial assets 0 13,300 (13,300) Current assets 133,514 152,622 (19,108) Trade payables 153,394 153,497 (103) Other payables 192,476 174,592 17,884 Tax payables 18,541 8,370 10,171 Current liabilities 364,411 336,459 27,952 Net Working Capital (B) (230,897) (183,837) (47,060) Provisions for risks and charges (C) (167,861) (169,935) 2,074 Employee provisions (D) (46,214) (47,834) 1,620 Other non-current payables (E) (13,964) (17,588) 3,624 Net capital employed (A+B+C+D+E) 858,737 900,055 (41,318) Group Net Equity (459,101) (391,154) (67,947) Minority interest net equity (25) (23) (2) Net financial debt (399,611) (508,878) 109,267 Total sources of financing (858,737) (900,055) 41,318

All fixed assets, including those falling under IFRIC 12, are expressed net of those funded by State and European Union contributions. At December 31, 2018, they amounted to Euro 505,226 thousand and Euro 7,019 thousand respectively (at December 31, 2017, Euro 504,383 thousand and Euro 7,019 thousand respectively).

Annual Report 2018 • 25 DIRECTORS’ REPORT 2018

3,476 thousand in 2017.

Current liabilities also contributed positively to working capital dynamics as a result of the increase in tax payables, surtaxes payable in connection with the increase in turnover and the increase in the amount payable for fire prevention services.

Other non-current payables refer mainly to payables to employees recorded as a result of the mobility procedure’s commencement on December 27, 2017. Through the mobility procedure, leaving incentive payments were estab- Fixed assets of Euro 1,317,673 Net working capital of Euro lished for a pre-determined num- thousand decreased by Euro -230,897 thousand decreased ber of workers who will qualify for 1,576 thousand over December Euro 47,060 thousand over De- pension benefits by August 2023 31, 2017. cember 31, 2017. (early retirement or old age pension). Such payables decreased This was primarily due to net in- This movement is mainly due to on December 31, 2017 due to the vestments for the year of Euro the decrease in short-term assets, achievement by some workers of 63,980 thousand (net of the use of as a result of the increase in trade the requirements for the settle- the restoration provision), which receivables, principally as a result ment of the payable or the reclas- were more than offset by depre- of higher revenues in the report- sification from non-current to cur- ciation and amortization of Euro ing period, more than offset by rent payables. 73,601 thousand; the increase in the reduction in tax receivables the value of equity investments following the collection in April Net capital employed at Decem- in associated companies (Euro 2018 of the IRES receivable relat- ber 31, 2018 amounted to Euro 13,860 thousand), which includes ing to the deductibility of IRAP 858,737 thousand, with a de- the measurement at equity of from IRES for annual periods 2007 crease of Euro 41,318 thousand associated companies and the re- to 2011 (“click day”) and the re- over December 31, 2017. classification of the instruments duction in other current financial representing 30% of the capital of assets following the elimination of The following table illustrates Airport Handling SpA, previously the financial receivable associated the principal components of Net classified among other non-cur- with the sale of 40% of the equi- Working Capital: rent financial assets and, finally, ty investment held by the trust in the increase in net deferred tax Airport Handling SpA, already sub- assets of Euro 3,033 thousand. ject to an impairment loss of Euro

December 31, December 31, Change (Euro thousands) 2018 2017 Inventories 1,934 4,104 (2,170) Trade receivables 121,005 111,077 9,928 Trade payables (153,394) (153,497) 103 Other receivables/(payables) (200,442) (158,821) (41,621) Other current financial assets 0 13,300 (13,300) Total net working capital (230,897) (183,837) (47,060)

Annual Report 2018 • 26 DIRECTORS’ REPORT 2018

by current operations made it pos- Net financial sible to finance investment in tan- Reconciliation position gible and intangible fixed assets between equity for Euro 79,185 thousand (net of of SEA SpA and The “Net financial position” contributions and gross of IFRIC amounting to Euro 399,611 thou- remuneration and financial charg- consolidated equity sand improved by Euro 109,267 es) and the payment of dividends thousand over December 31, of Euro 70,288 thousand. The reconciliation between the 2017 (Euro 508,878 thousand). net equity of the Parent Company SEA SpA and the consolidated net The positive cash flow generated equity is shown below.

Shareholders’ Equity OCI Net profit Share, Equity at Equity at movements Reserve / (loss) December 31, 2018 (Euro thousands) December 31, 2017

Parent Company Financial State- 335,228 (70,300) 2,174 123,489 390,591 ments

Share of net equity and net profit of the consolidated subsidiaries attributable to the Group, net of 18,920 5,791 24,711 the carrying amount of the relative investments

Adjustments for measurement at 43,229 (2) 6,551 49,778 equity of associates

Other consolidation adjustments (6,199) 247 (5,952)

Consolidated Financial Statements 391,177 (70,302) 2,174 136,078 459,126

Annual Report 2018 • 27 DIRECTORS’ REPORT 2018

Alternative performance indicators

The SEA Group uses alternative the company SEA Handling SpA intangible assets” means in- performance indicators (API’s) in in liquidation, as per IFRS 5. vestments in tangible and in- order to provide information on ◼◼ “Profit / (loss) before taxes” tangible assets based on the the profitability of the business in means the result before the dis- information presented in the which it operates and its financial continued operations net result SEA Group’s notes, net of uses situation more effectively. In - ac and before taxes. of the restoration provision. cordance with the guidelines pub- ◼◼ “Net financial debt” or “Net fi- ◼◼ “Non-recurring components” lished on October 5, 2015 by the nancial position” means liquidi- means items arising from European Securities and Markets ty, financial receivables and cur- non-recurring transactions. Authority (ESMA/2015/1415), and rent securities, net of financial Such items, in the manage- pursuant to Consob communica- payables (current and non-cur- ment’s opinion and where tion 92543 of December 3, 2015, rent) and the fair value of finan- specified, may be excluded in the content and criteria for de- cial debt hedging derivatives. the interest of better compa- termining the APM’s used in the ◼◼ “NFP/EBITDA” means the ratio rability and assessment of fi- present financial statements are of Net financial debt to EBITDA, nancial performance results. In set out below: as defined above. this Directors’ Report, some of ◼◼ “Working capital” means the the measures listed above are ◼◼ EBITDA, gross operating mar- sum of inventories, trade represented and described net of gin or gross operating result is ceivables, other current receiv- non-recurring components. calculated as the difference be- ables, other current financial re- tween total revenues and total ceivables, tax receivables, other Finally, it should be noted that costs, excluding provisions and payables, trade payables and API’s have been calculated uni- write-downs. tax payables. formly across all periods and are ◼◼ EBIT or operating result is cal- ◼◼ “Net capital employed” means not to be considered as replacing culated as the difference be- the sum of working capital, as the conventional measures pre- tween total revenues and total defined above, and fixed assets, scribed in IASs/IFRSs. costs, including provisions and net of the personnel provisions, write-downs. other non-current payables and ◼◼ The line “Discontinued oper- provision for contingencies and ations profit/(loss)” from FY charges. 2017 includes the net result of ◼◼ “Investments in tangible and

Annual Report 2018 • 28 DIRECTORS’ REPORT 2018

SEA Group investments

The SEA Group in 2018 contin- 2018 of Euro 79,185 thousand, sand). It should be noted that no ued its commitment to support net of advances to suppliers, research and development activi- investments in line with its devel- with evidence of new investment ties were carried out in 2018. opment plan. The following table (Euro 63,980 thousand) and re- details the investments made in covery actions (Euro 15,205 thou-

New Restoration Total (Euro thousands) installations investments Flight infrastructure 7,985 6,055 14,040 Air terminals 13,886 3,551 17,437 Cargo 4,665 95 4,760 Misc. buildings 4,610 1,659 6,269 Roadways and parking 2,122 318 2,440 Networks & plant 8,395 3,527 11,922 Ecology 12 0 12 ICT Systems / Projects 15,703 0 15,703 Other equipment 6,602 0 6,602 Total investments 63,980 15,205 79,185

Amounts are inclusive of the 6% remuneration in accordance with IFRIC 12 (Euro 2.5 million) and the share of financial charges (Euro 0.03 million).

Flight infrastructure primarily in- The most significant investments land side access, the arrivals hall, cludes safety measures, coordina- in the terminals were the func- the baggage claim hall and the tion, planning and regimentation tional upgrading and restyling of Leonardo SEA and Welcome Alita- works on the Lambro river and ex- Malpensa Terminal 1, with new lia VIP Lounges. traordinary maintenance on AVL commercial areas, the standard- (remote control and transport ization of existing finishings and Construction was completed on systems) at Linate and Malpensa the restyling of the Schengen Bag- a second warehouse in the Milan airports. gage Claim area. Malpensa Cargo area with an area of approximately 15,000 sq. m. to In addition, further renovation Similarly, at Linate airport, the be used by cargo operators. and revamping work was carried main work involved functional up- out at Linate and Malpensa air- grading and restyling aimed at im- The item “Misc. buildings” is pri- ports, affecting the loading docks, proving the perceived quality and marily composed of work carried de-icing water treatment system architectural image of the termi- out under the agreement with the and handler vehicle storage. nal. In particular, in 2018 the work Italian Air Force and supporting concerned the terminal’s facade, work for the construction of the

Annual Report 2018 • 29 DIRECTORS’ REPORT 2018

new general aviation base located grade and revamp the lighting activation of the E-Gates stations at Malpensa Terminal 2. and mechanical systems in Mal- in the Malpensa and Linate ter- pensa Terminal 1 and 2, as well as minals, which use biometric tech- The work done on the roadways the cogeneration systems, replac- nology for passenger passport and parking system largely re- ing the engine supervision system control, increasing overall airport ferred to the upgrading of the in Linate, and the installation of a security while also reducing wait- southern rental car parking area second generator system at the ing times. at Malpensa and the parking area Malpensa power station. at Linate airport, together with The item “Other equipment” is the supply and installation of the Investments in information and primarily composed of new apron new bollards for the Linate and communication technology relat- equipment such as de-icers, push- Malpensa checkpoints. ed to digital innovation, the con- back tractors, plows, and ambu- solidation and modernization of lifts at the Linate and Malpensa The most significant investments airport application infrastructure airports. made in the networks and plant and cyber-security. In particular, category included work to up- attention should be drawn to the

Annual Report 2018 • 30 DIRECTORS’ REPORT 2018

Outlook

The current year will continue to see passenger traffic growth, driven by the consolidation of both short-to-medium-haul and intercontinental traffic at Malpensa airport, owing in part to the additional new routes announced by Air Italy, in particular with North America (Los Angeles, San Francis- co, Toronto).

Another notable aspect of 2019 will be the closure of Linate airport for three months (from July 27 to October 27) for repairs on the runway and taxiway T and the upgrade of the BHS system to the new Standard 3. A part of the terminal (known as “lot F”) will also be fully renovated as part of a long-term airport restyling project, expected to be concluded in from the transfer of operations short connections) aimed at ex- early 2021. The purpose of these from Linate to Malpensa, togeth- panding the airport’s capacity and initiatives is to increase security er with greater communication functionality in view of the traffic at the airport and improve the and passenger support costs. passenger experience in terms of peak coinciding with the closure of Linate, moving forward some comfort and quality of service. For the reasons stated, perfor- measures included in the Group’s mance in 2019 is expected to be During the three months in which weaker than in 2018, while con- Investment Plan. The new General Linate will be closed, most flights firming the uptrend witnessed Aviation Terminal is also expect- will be transferred to Malpensa over the past three years, net of ed to be opened in Malpensa in airport, where SEA will focus its the non-recurring effects indicat- time to handle the business traffic commitment to ensuring ade- ed above. managed at Linate by SEA Prime quate standards of service during during the period in which the air- the summer, a period with signifi- In addition to the work on Linate, port is closed. cant traffic peaks. the 2019 infrastructure development plan calls for, inter alia, Management remains committed This process will entail reduced a series of initiatives at Malpen- to further developing the various revenues for the SEA Group due sa (including the creation of new to the suspension of operations at check-in islands, the upgrading of business areas and to pursuing op- Linate, partially offset by greater the piers of the South and Central erating efficiency with the aim of revenues at Malpensa, in addition satellites and an increase in BHS maximising results and company to net non-recurring costs arising carousels for the management of processes.

Annual Report 2018 • 31 DIRECTORS’ REPORT 2018

Operating performance – Sector analysis

Commercial Aviation The Non-Aviation business General Aviation however provides a wide and The Commercial Aviation business segregated offer, managed both The General Aviation business in- includes Aviation and Non-Aviation directly and under license to third cludes the full range of services operations: the former regards parties, of commercial services relating to business traffic at the the management, development for passengers, operators and western apron of Linate airport. and maintenance of airport visitors to the Airports, in addition infrastructure and plant and the to the real estate segment. The offer to SEA Group customers revenues from this area consist Energy of services and activities related of the market fees for activities to the arrival and departure of directly carried out by the Group The energy business includes the aircraft, in addition to airport and from activities carried out by generation and sale of electricity safety services. third parties under license and of and heat to third parties. royalties based on a percentage The revenues generated by of revenues generated by the The results of each of the above these activities are established licensee, usually with the provision businesses are presented below. by a regulated tariff system and of a guaranteed minimum. comprise airport fees, fees for the use of centralised infrastructure, This segment includes also income in addition to security fees and from warehouse, space and tariffs for the use of check-in office rental to Cargo business desks and spaces by airlines and operators, such as cargo handlers, handlers. transport companies and couriers.

Commercial General Aviation Energy Consolidated Aviation (Euro thousands) 2018 2017 2018 2017 2018 2017 2018 2017 OPERATING REVENUES 658,128 621,404 11,344 12,128 14,484 14,728 683,956 648,260 EBITDA 273,622 233,710 7,488 7,799 741 1,497 281,851 243,006 EBIT 183,869 122,100 5,577 5,406 23 384 189,469 127,890

The EBITDA shown above includes the IFRIC margin. The costs regarding incentives to the airlines for the development of traffic are stated as a reduction of revenues in accordance with IFRS 15.

Annual Report 2018 • 32 DIRECTORS’ REPORT 2018

Commercial Aviation

Traffic data

MILAN MALPENSA AND MILAN LINATE AIRPORT TRAFFIC

Movements Passengers (1) Cargo (2)

2018 % vs 2017 2018 % vs 2017 2018 % vs 2017

Malpensa 189,910 8.7% 24,561.7 11.5% 558,218 -3.2%

Linate 93,987 -2.6% 9,187.1 -3.3% 10,827 -9.3%

Total commercial traffic 283,897 4.7% 33,748.8 7.0% 569,045 -3.3%

(1) Arriving+departing passengers (‘000) (2) Arriving+departing cargo in tonnes

In 2018 the Milan Airport Sys- (+28.1%) and the leisure and tem managed by the SEA Group charter segment 71.7 thousand served a total of 33.7 million pas- passengers (+6.2%). sengers, up 7.0% on FY 2017 (2.2 million passengers). Passengers on intercontinental flights at Malpensa amounted to The increase in the number of 6.3 million, an increase of 468.4 passengers (+2.2 million) was at- thousand passengers (+8.1%) on tributable solely to Malpensa air- 2017. port, which with 2.5 million additional passengers posted a gain Linate airport recorded a 3.3% of 11.5% on the previous year. decline on FY 2017 due to the cancellation of operations by Since 2008, the year of the Alita- Air Berlin (with effect from No- lia de-hubbing and the beginning vember 2017), the relocation to of the global recession, Malpen- Malpensa of all Air Italy (former sa has gradually reacquired 5.5 Meridiana) traffic, with the ex- million passengers, closing 2018 ception of service to Olbia (part with nearly one million more pas- of the local public transport ser- sengers than in 2007, the year in vice program), and the shift of which the previous record had flights to Malpensa by KLM and been set. Air France in April 2017.

Malpensa’s strong performance The following is a breakdown of was driven by Terminal 2, which passenger traffic within the Mi- is home solely to easyJet (+402.8 lan airport system by major des- thousand passengers, +5.6%), tinations served and the main and by Terminal 1 (+2.1 million airlines present. passengers, +14.3%), where all traffic segments contributed to growth. In particular, legacy carriers contributed 1.3 million passengers (+11.9%), low-cost carriers 731.9 thousand passengers

Annual Report 2018 • 33 DIRECTORS’ REPORT 2018

Major destinations by number of Year 2018 cge % 2017 % of total passengers served by the Milan airport system (thousands) 1 LONDON 2,562.4 5.7% 7.6% The number-one European desti- 2 PARIS 1,935.8 3.4% 5.7% nation was London, with its five airports and over 2.5 million pas- 3 CATANIA 1,600.7 3.8% 4.7% sengers served, followed by Paris 4 ROME 1,337.5 5.7% 4.0% with 1.9 million passengers and 5 AMSTERDAM 1,221.3 2.2% 3.6% then Catania, the number-one domestic destination served, with 6 PALERMO 1,073.6 40.5% 3.2% 1.6 million passengers. Rome 7 MADRID 1,001.6 20.7% 3.0% posted 1.3 million passengers, marking a recovery on 2017 due 8 NEW YORK 937.4 14.5% 2.8% to the new flights that began to 9 NAPLES 877.5 1.5% 2.6% be operated from Malpensa in 2018. New York and Dubai (in the 10 FRANKFURT 854.3 3.4% 2.5% 8th and 14th spots, respectively) 11 CAGLIARI 849.7 4.9% 2.5% were the leading intercontinental 12 BARCELONA 831.9 0.8% 2.5% destinations. 13 LAMEZIA TERME 719.8 47.6% 2.1% 14 DUBAI 681.8 3.2% 2.0% 15 OLBIA 667.2 3.0% 2.0% London: Heathrow, Gatwick, City, Luton and Stansted; Paris: Charles de Gaulle, Orly; Others 16,596.3 5.7% 49.2% Rome: Fiumicino, Ciampino; New York: New Total 33,748.8 7.0% 100.0% York and Newark

Main airlines by passengers Year 2018 cge % 2017 % of total served by the Milan airport system (thousands) 1 Easyjet 8,294.7 5.4% 24.6% easyJet was again the number-one 2 Alitalia 6,169.9 1.9% 18.3% carrier in terms of traffic volumes at the Milan airports, with a market 3 Ryanair 2,082.8 40.9% 6.2% share of 24.6% of total passengers 4 Lufthansa 1,659.1 8.8% 4.9% (30.8% share at Malpensa). Alita- 5 Air Italy 1,317.6 7.6% 3.9% lia, the number-two carrier, had a market share of 18.3% (62.2% at 6 British Airways 935.9 14.8% 2.8% Linate). Ryanair, fourth in 2017 7 Emirates 930.7 1.4% 2.8% with over 2 million passengers managed exclusively at Malpensa, 8 Vueling Airlines S.A. 837.3 3.8% 2.5% became the number-three airline, 9 Neos 665.9 10.1% 2.0% overtaking Lufthansa. 10 Air France 563.8 0.7% 1.7% 11 Iberia 519.2 18.7% 1.5% 12 Turkish Airlines 486.6 13.7% 1.4% 13 Klm 438.1 5.6% 1.3% 14 Blue Panorama 438.0 3.6% 1.3% 15 Tap Air Portugal 431.1 32.3% 1.3% Others 7,978.1 4.2% 23.6% Lufthansa: Lufthansa + Eurowings + Air Total 33,748.8 7.0% 100.0% Dolomiti

Annual Report 2018 • 34 DIRECTORS’ REPORT 2018

COMPOSITION OF PASSENGER TRAFFIC IN 2018 AT MALPENSA AIRPORT BY GEOGRAPHICAL AREA (THOUSANDS)

vs 2017 17% Domestic Domestic 4.1 29.4%

25% Intercontinental

Europe Total 14.2 24.6 8.6% 11.5%

Intercontinental 6.3 58% 8.1% Europe

Malpensa growth is primarily attributable America with Air Italy, American In 2018 Malpensa served 24.6 mil- to the service to Catania. Airlines, Delta Airlines and Air lion passengers, an increase of Canada and the Far East with Thai 11.5% (2.5 million additional pas- European traffic was up 8.6% to Airways, Air China and Singapore sengers). 14.2 million passengers, an in- Airlines. crease of 1.1 million passengers. Domestic traffic was up 29.4% to This result was primarily due to: 4.1 million passengers, an increase Malpensa Cargo of 929.9 thousand passengers. ◼◼ easyJet (+6.6%, +311.3 thou- Cargo traffic at Malpensa airport This result was due to: sand passengers), which during amounted to Euro 558.2 thou- the year began to offer service sand tons in 2018, a decrease of ◼◼ Ryanair (+65.6%, +406.2 thou- to Berlin and consolidated the 3.2%. This result was due solely to sand passengers), with progres- flights it began to operate in export traffic (-4.8%). There were sive consolidation of service to 2017 to Lublin, Fuerteventura, increases in both all-cargo flights Catania and Comiso and the Vienna and Faro (+65.6 thou- (+3.4%) and mixed flights (+9.0%). flights to Palermo and Lamezia sand total passengers). Terme that began to be operat- ◼◼ Ryanair (+23.2%, +198.9 thou- The decline in cargo traffic was ed in November 2017. sand passengers) expanded its solely due to the negative perfor- ◼◼ Air Italy (+201.8%, +281.0 thou- network in November 2017 to mance of all-cargo carriers (-6.0%), sand passengers), which in the include Valencia, Liverpool, Al- following the decline in average 2018 summer season began to icante and Katowice, and then cargo volume per flight from 38 to shift the service previously of- added Kaunas and Tenerife in 34 tons. By contrast, airlines that fered from Linate to Malpensa, the 2018 winter season. use aircraft in mixed configuration offering new flights to Rome posted growth of 4.5%. Fiumicino, Naples, Palermo, Intercontinental destinations reg- Catania and Lamezia Terme. istered 6.3 million passengers The distribution by geographical ◼◼ Alitalia (+774.3%, +140.5 thou- served, with an increase of 8.1% area shows that the destinations sand passengers), which is It- on 2017, equivalent to 468.4 thou- with the highest growth rates aly’s number-three domestic sand passengers. The breakdown were the Middle East and Europe, carrier, with renewed service to by region is reported below: at 4.8% and 2.4%, respectively. Rome Fiumicino since the 2018 The Far East and North Ameri- summer season (previously op- The geographical areas that con- ca – the number-three and num- erated until February 2017). tributed to these results are the ber-four destinations by volume ◼◼ easyJet (+3.5%, +79.9 thou- Middle East with Turkish Airways, of cargo carried – declined by sand passengers), whose Qatar Airways and Emirates, North 13.7% and 5.4%, respectively.

Annual Report 2018 • 35 DIRECTORS’ REPORT 2018

The decrease in all-cargo traffic, down by approximately 7.6% and which amounted to 395.8 thou- 7.9%, respectively. Qatar, the sand tons, was primarily due to number-two carrier, was up by the reduced flights by Cargolux 36.8%, with 5.8 thousand addi- (-15.8%) and Etihad Airways, which tional tons of cargo, whereas Air suspended flights in the first three Italy handled 4.2 thousand tons months of 2018 and reduced the due to the new flights that began number of flights operated for to be operated in 2018, making it the rest of the year (-86.8%). the number-two carrier by incre- mental cargo volume. In the all-cargo segment, the main courier carriers (Federal Express, DHL and Southern Air) handled 70.6 thousand tons of cargo (+1.9%), accounting for 17.8% of this type of cargo.

Belly traffic, at 162.4 thousand tons of cargo, was up on the previous year. Among the main carriers, Emirates and Air China – in first and third place, respectively, by amount of cargo handled – were

2018 FREIGHT TRAFFIC BY GEOGRAPHICAL AREA - SEA MANAGED AIRPORTS

200,000 Goods in tons.

180,000

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

Middle Far North C/S North C/S East Europe East America America Africa Africa Domestic 4.8% 1.6% -13.7% -5.4% -45.7% 3.4% 33.2% -17.2%

The % change refers to a comparison with the previous year Cargo refers to the flight’s final destination

Annual Report 2018 • 36 DIRECTORS’ REPORT 2018

2018 TRAFFIC COMPOSITION FOR LINATE AIRPORT (THOUSANDS)

vs 2017

47% Europe 4.3 Europe -5.0%

Total 9.2 -3.3%

Domestic 4.8 -1.8% 53% Domestic

Linate carried by Alitalia were in line revenues for a total of Euro 5,591 Linate airport handled 9.2 million with 2017 (+0.3%). In 2018 the thousand compared to Euro passengers, down 3.3% on the carrier began to offer service to 2,824 thousand in FY 2017. Net previous year. Alitalia, with 5.7 mil- Madrid and Luxembourg in April of these items, revenue growth lion passengers served, accounts and to Geneva in September. on the previous year was Euro for 62% of total traffic. 33,956 thousand (+5.5%). This EasyJet also reported an increase growth mainly results from: In comparison to 2017, domes- in load factor on all routes served tic traffic was down (-1.8%), due (Paris Charles de Gaulle and Orly, to the discontinuation of service London Gatwick and Amsterdam), ◼◼ Aviation activities for Euro from Linate by Air Italy (with the alongside that of Lufthansa to 23,289 thousand (from Euro exception of flights to Olbia), Frankfurt. 392,440 thousand in 2017 which focused its operations at to Euro 415,729 thousand in Malpensa airport. 2018). Contributing to this increase is higher traffic vol- European traffic was down by 5%, Revenues umes of Euro 17,924 thousand principally due to the discontinu- (+5.6%), the increase in airport In accordance with IFRS 15, from ation of operations by Air Berlin tariffs for Euro 4,527 thousand (still operating in early 2017) and FY 2018 commercial incentives to and higher revenues from reg- Air Italy, together with the trans- airlines in support of traffic devel- ulated spaces for Euro 838 fer to Malpensa of Air France and opment are recognised as a de- thousand. KLM with effect from the 2017 duction to revenues, rather than ◼◼ Non-Aviation activities for summer season. as operating costs. In order to Euro 10,668 thousand (from facilitate like-for-like comparison Euro 226,140 thousand in 2017 This reduction was partially off- with the previous year, the 2017 to Euro 236,808 thousand in set by the transfer to Malpensa results were restated as per the 2018). This performance was of the daily service to Madrid by new accounting standard. mainly due to good results Iberia (+178.9 thousand passen- in the Retail divisions (Shops, gers with effect from February) Commercial Aviation reve- Food & Beverage, Car Rentals and by the increase in the pas- nues for the period January-De- and Banks) for Euro 2,622 thou- sengers served by British Air- cember 2018 amount to Euro sand (+2.8%) and Parking for ways with flights to the British 658,128 thousand, up Euro Euro 4,061 thousand (+6.3%). capital, consolidating the service 36,724 thousand on the previous Against the same period of the to London City and London Stan- year (+5.9%). previous year, the Premium Ser- sted that began to be operated vices segment (VIP Lounges and in April 2017. The passengers FY 2018 includes non-recurring Fast Track services) increased

Annual Report 2018 • 37 DIRECTORS’ REPORT 2018

for Euro 1,272 thousand and by Euro 1,270 thousand, princi- management for Euro 239 Real Estate for Euro 946 thou- pally due to a reduction in the thousand. sand. Cargo revenues amount- VAT refund. ed to Euro 16,261 thousand, up Euro 966 thousand on 2017 EBITDA and EBIT (+6.3%), following the renew- Operating costs al of certain contracts and the As a result of the trends outlined extension of spaces utilised by Operating costs for the Commer- above, EBITDA in 2018 stood at new tenants. Advertising rev- cial Aviation business decreased enues of Euro 1,062 thousand from Euro 389,969 thousand in Euro 273,622 thousand (Euro also increased, confirming the 2017 to Euro 386,967 thousand in 233,710 in 2017), up Euro 39,912 consolidation of investment in 2018, reducing Euro 3,002 thou- thousand over the previous year the luxury division, especially at sand (-0.8%). (+17.1%). Excluding the non re- Malpensa. curring items mentioned above, Net of non-recurring cost items the increase amounted to Euro In the Retail division, revenues mainly relating to the mentioned 15,093 thousand (+5.9%). from Shops registered growth voluntary leaving incentive plans of Euro 1,329 thousand amounting to Euro 2,046 thou- Amortisation and depreciation (+2.7%). Increases in revenues sand in 2018 and Euro 23,912 and net provisions for recovery, from the non-Schengen board- thousand in 2017, operating costs risks and charges and doubtful ing areas at Terminal 1 contrib- increased by Euro 18,864 thou- debt are lower than 2017 by Euro uted to this performance with sand (+5.2%). This is due to: 21,857 thousand, mainly as a re- the opening of new luxury sult of the 2017 provisions for brands, including Loro Piana ◼◼ Personnel costs, up Euro 468 Alitalia’s losses on receivables of and Rolex. thousand (+0.3%), which incor- Euro 25,255 thousand. Revenues from the Food & porates the net effect of the Beverage segment grew by planned departures and recruit- Consequently, Commercial Avia- Euro 1,705 thousand (+8.5%), ment for the year; tion EBIT in 2018 was Euro 183,869 better growth in percentage ◼◼ The increase in operating and thousand, up Euro 61,769 thou- terms than passenger traffic material costs for a total of Euro sand (+50.6%) on the same period improvements. At Linate, the 18,396 thousand compared to of the previous year. Excluding catering service confirmed FY 2017, mainly due to rising non-recurring items, EBIT in 2018 the previous year’s revenues unitary costs of raw materials was Euro 180,324 thousand, an and CO certificates for 3,437 despite the 3.3% decrease in 2 increase of Euro 8,405 thousand traffic. Due to the increase in and higher costs incurred to (+4.9%) on 2017. traffic and new store openings, meet increased traffic or costs the catering service at Malpen- offset against revenues (park- Investments sa Terminal 1 returned a good ing, Telepass and VIP lounges) The main Commercial Aviation performance supported by the amounting to a total of Euro business investments were: lay-outs present in both land- 14,959 thousand. side and airside areas. ◼◼ the functional upgrading and Among these, there is an in- restyling of Terminal 1 at Mal- crease in costs to public bod- Revenues from the Car Rent- pensa and at Linate; al division returned growth of ies for Euro 2,752 thousand, ◼◼ the construction of a second Euro 858 thousand over 2017 airport services costs for Euro Cargo operator warehouse; (+5.3%), mainly due to the 2,096 thousand, security activ- ◼◼ upgrading works in the Malpen- good performance of Malpen- ities for Euro 1,221 thousand, sa and Linate car parks; sa operators through the cre- parking management costs for ation of new parking spaces Euro 541 thousand, VIP lounge ◼◼ the purchase of new equipment and the opening of new spaces catering for Euro 1,061 thou- for the Linate and Malpensa air- inside Terminal 2’s railway sta- sand, maintenance and spare port aprons. tion, thus making the entry of parts for Euro 2,541 thousand new operators possible. Reve- and chemical products relating nues from Banking Services fell to the deicing service and snow

Annual Report 2018 • 38 DIRECTORS’ REPORT 2018

Other information McDonald’s, Rosso Pomodoro at by the Municipality of Milan’s check-in, Juice Bar and Gourmè in Metropolitan Marketing Depart- Investments/Aviation Spaces the arrivals area) and the board- ment. This initiative aims to ac- Development ing area lay-out, particularly in the quire know-how on the behaviour A summary of major events re- Schengen area. of “city users” arriving in Milan, lating to the development of air- with particular reference to infor- port premises in 2018 is provid- In order to convert the space mation on presence, origin, con- freed up by the former SEA tick- ed below: sumption habits and spending. eting desks, the food offering was extended through the opening ◼◼ the opening of the new of “Pan Brioche”, an innovative Lufthansa lounge; Bilateral Agreements approach managed by Autogrill, ◼◼ the renewal of the contract with A major agreement was signed in with strong specialisation in baked EMIRATES for a second five-year 2018 with the Sultanate of Oman goods and gourmet snacks. contractual period (2018-2022). enabling the increase of flight frequencies operated by Oman Air It should be noted that in October, Retail development on the Muscat-Milan route. Agree- Autogrill completed the renova- The year was marked by the com- ments with Colombia, Congo, tion of the “Puro Gusto” cafeteria pletion of the Schengen boarding Ghana, Kenya, Luxembourg, Sen- in the Linate Arrivals area, based area’s commercialisation, where egal and South Africa were also on a more modern version of the all the spaces were steadily oc- updated and extended, while a original idea and in collaboration cupied and where the majority bilateral aeronautical agreement with Gambero Rosso. recorded double-digit revenue was signed for the first time with growth on the previous year. All the Comoro Islands, Mongolia and Mozambique. brands present in the area are Destination management and consistent with the original plan co-marketing activities Finally, EU negotiating activity of also having an attractive offer Collaborative efforts with the continued, under the auspices of for passengers of low-cost airlines Chamber of Commerce, the Mu- the European Commission, which or, in any case, having an afforda- nicipality of Milan and the Region ble price positioning. of Lombardy also continued in is negotiating vertical agreements 2018 with the aim of increasing between Europe and ASEAN, Renovation work in the non-Schen- the international visibility of Mi- Azerbaijan, Armenia, UAE, Qatar, gen boarding luxury area also con- lan’s airports and the local area. Tunisia and Turkey. tinued with the opening of a tem- Passenger loyalty activities con- porary Loro Piana store in April tinued through the launch and which will move to a larger space publicization of the “Russian in 2019, and Rolex in December, friendly airport” project. Further- both with excellent sales perfor- more, the planning of the first ac- mances. tivities for the World Routes 2020 commenced. In Linate’s airside area, worth mentioning is the opening in Communication activities were August of the new temporary undertaken to support airlines Timebox/Sun Catcher shop un- through social media, newslet- der the management of Dufri- ters and online banners, and vari- tal, and the expansion of Gallo ous launch events for new flights in September. were hosted for Kuwait City, Air Italy, Air China and Ernest Air- With regard to Food & Beverage, lines. the catering service at Terminal 1 recorded a good performance as Analyses carried out in support of a result of traffic growth and the the development of destination new openings, also supported by management activities identified further expansion in the exist- the opportunity to participate in ing landside lay-out (Briciole Bar, the City Pulse project launched

Annual Report 2018 • 39 DIRECTORS’ REPORT 2018

The outcome of Brexit, which to- date is unknown, will be significant in terms of traffic rights. While a broad agreement between the European Union and the United Kingdom (“soft Brexit”) would not affect the use of traffic rights by both parties’ airlines, with highly similar terms to the current ones, and presumably giving rise to an association agreement that is comparable to those defined by the European Union with Norway and Switzerland, the continental market’s scenario in the case of a “hard Brexit” could be somewhat different.

In the latter event and subject to a freezing period of 12 months for mutual prerogatives, in the best- case scenario individual Member States could re-negotiate new bilateral agreements with the Unit- ed Kingdom. These outcomes are not currently readily foreseeable and, in any case, are such as to create a period of considerable uncertainty in relation to airlines’ investment choices and, more generally, the market develop- Revenues EBITDA ed EBIT ment context. General Aviation revenues amount As a result of the developments to Euro 11,344 thousand, reduc- outlined above, EBITDA for the ing Euro 784 thousand (-6.5%) on year 2018 was Euro 7,488 thou- General Aviation the same period of the previous sand, down by Euro 311 thousand year. (-4.0%) over the previous year. Traffic data The decrease in revenues is main- EBIT is up by Euro 171 thousand In 2018, Business and General Avi- ly due to a reduction of Euro 266 (+3.2%) due to the presence of ation in Europe recorded a 1.8% thousand in fuelling income and doubtful debt provisions. growth in movements, reaching various income recorded in 2017 pre-crisis figures of 2008. Italy, arising from time-barred claims, with movements in line with FY amounting to Euro -514 thou- Investments 2017 (+0.1%), is the fourth mar- sand. ket in Europe with a 7% market The General Aviation business’ share (source: Wingx). General Operating costs decreased to principal investments are related Aviation at the Milan Linate and Euro 473 thousand (-10.9%) prin- to the Lambro River water man- Malpensa Prime airports, with cipally as a result of the reorgani- agement works, for which the 25.9 thousand movements, grew sation involving the centralisation completion of works and con- by 2.5% and ranks fifth in Europe of administrative operations at sequent testing are planned for in terms of traffic served (after the parent company, with the con- the first months of 2019, and the London, Paris, Nice and Geneva). sequent creation of efficiencies at commencement of works for the It is ranked first in Italy where it business unit level. construction of the new general holds a 40% market share. aviation terminal at Malpensa.

Annual Report 2018 • 40 DIRECTORS’ REPORT 2018

Energy Revenues 125 thousand net of non-recurring items). Quantitative data In 2018, the Energy business reported revenues of Euro 14,484 thousand, decreasing by Euro 244 Investments In 2018, electricity production thousand on the same period of from both stations registered a 2017 (-1.7%). Net of non-recur- The main Energy business invest- decrease of 9.3% (-33.6 million ments are linked to the works in kWh) compared to 2017, amount- ring items (zero in 2018 and Euro the Malpensa station for the in- ing to 327.7 million kWh. This de- 79 thousand in 2017), revenues stallation of a second 7 MWf elec- crease was due to lower electricity fell by Euro 165 thousand. tric-refrigeration group with its production from both stations. This reduction is due to Euro 328 cooling tower and the revamping of the Linate station’s motor con- Electricity production for the thousand in lower sales volumes trol system. Group’s own uses, including an- of electricity and heat produc- cillary services, losses and imbal- tion to third parties as a result of ances, amounted to 204 million market conditions characterised kWh, while that destined to third by less favourable prices. This Green Certificates parties came in at 123.7 million was partially offset by a settle- kWh. ment of Euro 317 thousand con- The benefit for the award of in- cerning a reconciliation of white centives provided for “district Electricity sold to the Energy Ex- and green certificates granted heating green certificates” ended change recorded a decrease of to the Malpensa co-generation from January 2017. 54.1% (-70 million kWh) compared station in the years prior to 2018 to 2017, amounting to 59.4 mil- and Euro 154 thousand for lower With reference to the legal pro- lion kWh. The reduction was main- other income. ceedings for green certificates ly due to the lower quantity of assigned from 2010 to 2014, it energy available at the stations as Operating costs in FY 2018 amount should be noted that the 17,106 a result of the increase in sales un- to Euro 13,717 thousand, up by green certificates requested by der bilateral contracts and the less Euro 354 thousand. This increase the Italian grid operator, Energy favourable financial conditions on is principally due to the purchase Services Manager (Gestore dei costs of CO for Euro 721 thou- the electricity market compared 2 Servizi Energetici - GSE), of which to 2017. sand (linked to the unitary price 12,435 came under the respon- increase which rose from Euro 5.3 sibility of the Group and 4,671 Following the initiation of new to Euro 20.8 in the period), while under that of a2a, were offset supplies to the airports of Na- methane gas registered a lower with green certificates allocated ples, Alghero and Turin, electric- cost at Euro 345 thousand. This for the year 2015. SEA Energia, ity production for sale under bi- was determined by the reduction through its legal team, filed an ap- lateral contracts (self-produced) in electricity volumes sold to third peal within the legal deadline. increased by 138% (+37.3 million parties; other operating costs kWh compared to 2017), amount- were down by Euro 22 thousand. In the 2017 financial statements, ing to 64.3 million kWh. a provision for future charges of Euro 490 thousand was recorded In 2018, heat production in- EBITDA ed EBIT in relation to green certificates creased by 2% on 2017 (+8.2 mil- for the period 2015 - 2016, which lion kWh) to 410.7 million kWh As a result of the developments had been fully paid in 2017. This - of which over 74% serving the outlined above, 2018 EBITDA was provision is derived from the fact needs of Linate and Malpensa Euro 741 thousand, decreasing by that the amounts received are not airports. Euro 756 thousand on 2017 (and considered definitive, since GSE Euro 520 thousand net of non-re- (in line with assessments for the Sales to third-party customers curring items). period 2010-2014) may request did not change significantly, the return of a portion. There amounting to 104.1 million kWh, EBIT in 2018 was Euro 23 thou- have not been any updates in this down by 1.3% on 2017 (-1.4 mil- sand, down Euro 361 thousand regard. lion kWh). on the previous year (and by Euro

Annual Report 2018 • 41 DIRECTORS’ REPORT 2018

requested and at the date of In 2018, overall Group CO produc- White Certificates 2 the financial statements, 2,915 tion was approx. 177,800 Tonnes, In 2013, the Italian grid opera- certificates were assigned (and of which approx. 119,100 Tonnes tor (Gestore dei Servizi Energet- duly paid) for the H2O segment were generated by the Malpen- ici - GSE) awarded the Malpensa (Combined Cycle 2); the compa- sa station and approx. 58,700 plant the ‘High Energy Cogen- ny is expecting to also receive Tonnes were produced by the Li- eration’ (HEC) (Cogenerazione white certificates for the other nate plant. Alto Rendimento - CAR) indus- segment (Combined Cycle 1). During the year, CO quotas were trial combined heat and pow- 2 er qualification that exempts it purchased on a number of occa- from the obligation to acquire Emission trading sions to cover 2018 production green certificates. needs and partial 2019 needs. In accordance with European Di- The benefit for the award of in- rective 2003/87/EC, from January With reference to 2018 produc- centives provided for “white cer- 1, 2005, plant operators which tion, at December 31, 2018, SEA tificates” ended as from January emit CO into the atmosphere Energia produced 180,673 Tonnes 2 of CO on its own account. There- 2017. must avail of an authorisation is- 2 fore, additional quotas of CO do sued by the competent national 2 In 2017, the Italian grid operator, authority. Each plant, in addition, not have to be purchased to off- Energy Services Manager audit- must receive special “rights” per- set the Ministry of Environment for the approx. 177,800 Tonnes ed white certificates assigned mitting the emission of CO2 into for the period 2012-2015. The the atmosphere without payment. issued. GSE assessed that no subsidies should be paid for heating and Where the rights allocated an- cooling energy used for certain nually concerning the plant are internal services; as a result, a not sufficient to cover emissions, provision for future charges of these may be purchased on the Euro 500 thousand was recog- market. nised in 2017, since such certificates had been fully paid. There Conversely, where the rights al- have not been any updates in located are in excess of the emis- this regard. sions produced, the rights not utilised may be sold. 2016 white certificates were

Annual Report 2018 • 42 DIRECTORS’ REPORT 2018

Risk Management Framework

The creation of sustainable val- listed companies and CoSO ERM – Governance di Risk ue for stakeholders cannot ex- Integrating with Strategy and Per- clude taking risks, which is a fun- formance) and is based on: Management damental component of doing The governance of the SEA Group business. ◼◼ a strategic approach, providing Enterprise Risk Management mod- Management and the Board el defines a second level of risk The SEA Group, in its capacity of of Directors with important management control in the ERM airport operator, is exposed to a information on risk factors, un- division (established in January broad spectrum of potential risks certainties and opportunities, 2018), with the aim of supporting impacting on the achievement of in order to support informed corporate structures in the identi- the business strategies. decision-taking while defining fication and management of - cor objectives, strategies and per- porate risks and at the same time In order to reduce exposure to formance monitoring; guaranteeing periodic reporting such events, the Group adopted ◼◼ an enterprise-wide approach, to top management on the risk specific processes and procedures or an approach extended to all profile’s evolution. The model is to safeguard airport safety and types of risks and opportunities based on the principle that the the quality of services offered, that are potentially significant management of risks involves the for the protection of tangible and for the Group; organisation at all levels and that intangible assets of interest to ◼◼ a value-driven approach cen- management is the primary own- stakeholders and to ensure the tred on risks and opportunities er of risks, since it manages risks long-term creation of value. with the greatest impact on and opportunities on a daily basis corporate strategic objectives in line with business propensity To better support and integrate and value drivers. and is responsible for the defini- the systems mentioned, in 2016 tion and implementation of iden- the SEA Group introduced an The Risk Model consists of four tified mitigation plans. Enterprise Risk Management event categories: external risks, (ERM) model for the identifica- operational and business risks, fi- Corporate and line management tion, homogeneous and trans- nancial risks and legal and compli- are supported by Risk Specialists versal assessment of risks linked ance risks. and the ERM division. to the development of corporate activity, and their ongoing Identified events are assessed Top management periodically re- monitoring, to support man- and subsequently “prioritised” views the company risk profile agement strategic choices and on a scale of 5 levels in terms of and orients the management of decision-making processes and impact, probability of occurrence the main emerging risks, approv- stakeholder assurances. and maturity of the risk manage- ing proposed response plans in ment system. line with the strategic objectives and corporate risk propensity de- Methodological approach The subsequent Risk Response fined by the Board of Directors. phase is aimed at defining the risk Finally, the Internal Audit team The adopted risk governance mod- response strategy to mitigate ex- independently verifies the effec- el is guided by national and inter- posure if this is not considered to tiveness and effective implemen- national best practice principles be in line with the company’s pro- tation of the complete risk man- (e.g. the Self-Governance Code for pensity to risk. agement system.

Annual Report 2018 • 43 DIRECTORS’ REPORT 2018

from and to the United Kingdom distribution of passenger traffic SEA Group principal from Linate airport which, by vir- among the airlines operating on the risk factors tue of Ministerial Decree No. 15 market and the capacity to attract of March 3, 2000 and subsequent new airlines. Any redistribution of The principal risks which the Group amendments, can only serve Euro- traffic may require a certain peri- is potentially exposed to are indi- pean destinations. od of time, temporarily influencing cated below. They are considered Group results. thus because they can have an im- This event could lead to a redistri- pact on the objectives pursued in bution of routes between Linate Development of the regulatory the corporate Strategic Plan. and Malpensa which is altogether framework and applicable rules negative for the Group due to the SEA Group activities, as is the reduction in traffic caused by the case for all Italian Airport Manag- cancellation of activities at Linate External risks ers, are subject to a high level of and the rationalisation of flights regulation which impacts in par- at Malpensa. ticular the establishment of fees SEA Group operates as an air- concerning services offered (airport manager under a fully reg- Airline strategies port fees, security control fees, ulated regime, however, the The reviewing of strategies by air- fees for the use of common use Group’s earnings and financial lines, also linked to macro-economic assets and centralised infrastruc- results are significantly influ- issues, can lead to changes in flights ture for handling services), the enced by worldwide socio-polit- at Group airports. allocation of slots and the control ical, macroeconomic and com- of air traffic. petitive dynamics. The volume of passenger traffic and cargo in transit at the Linate The development of SEA’s specif- Air traffic development and Malpensa airports represents ic regulatory framework with ref- Geo-political developments can a key factor in the results achieved erence, for example, to the tariff have an impact on the air sector, by the Group. Any reduction or in- profile, concession rules and Bilat- particularly causing variations in terruption to flights by one or more eral Agreements between States, traffic in terms of volumes and/or airlines operating out of the SEA may impact Group results. passenger types. Group managed airports may result in a reduction in such traffic, with SEA constantly monitors the activ- The United Kingdom’s imminent consequent negative impacts on ac- ities of Authorities in the national exit from Europe, should it take tivities and Group results. and European aviation field and place without any agreement actively participates in technical between the United Kingdom Therefore, the Alitalia situation may roundtables set up by industry as- and the European Union (no-deal result in reduced flights at the SEA sociations in order to remain firm- Brexit), would cause British air- managed airports. ly in line with any legislative and lines to lose the right to fly freely regulatory changes. from and to countries of the Eu- Despite this, SEA expects the risk ropean Union. This includes the of a reduction or interruption to Competition impossibility of operating flights flights to be mitigated by the re- The strategic choices of other operators representing an alternative to air transport, may pose a threat to the domestic development of traffic at the Milan airports.

The technological development of fast and alternative rail transport has made it possible to reduce travel times from Milan to Rome and Naples, and has made it easier to reach even more dis- tant destinations by rail. The increase in frequency of high-

Annual Report 2018 • 44 DIRECTORS’ REPORT 2018

◼◼ monitors the maintenance of safety standards for all operators and external parties of any type within the airport sites; ◼◼ guarantees ongoing and appropriate training of personnel, with priority for operational staff, placing particular focus on the requirements and the consequent actions for an improved level of Safety; ◼◼ guarantees education and communication, so that all events which may affect Safe- ty are flagged through the filling out of a Ground Safety Report.

Activity and Service Interruptions Group activities may be inter- rupted through: strikes by personnel, by those of the airlines, personnel dedicated to air traffic control services and public emergency service operators; incorrect and non-punctual provision of services by third parties and adverse weather conditions speed trains along these routes passengers pass through daily, may (snow, fog etc.). may lead to a reduction in air have very grave consequences. traffic through Linate airport. Natural events, such as lightning In terms of aviation safety, the and overload short circuits may, Group’s Safety Management Sys- for example, cause electrical Operating and tem, which is also validated and blackouts with the consequent business risks controlled by the Italian Civil Avi- shutdown of information systems, ation Authority (ENAC), maintains affecting displays and leading to The operating risk factors are the highest levels of safety and departure delays; violent storms strictly related to the carrying service quality, acting in line with may lead to the flooding of run- out of airport activities and may the fundamental principles of the ways and/or cause the temporary impact the short and long-term SEA Airport Safety policy, it: interruption of airport activities, performances. with repercussions on the air- ◼◼ guarantees design compli- port’s punctuality. Safety & security ance, the construction and Passenger and employee safety is maintenance of flight infra- The infrastructural systems of a central concern for the Group, structure and plant and equip- Group airports are designed and which places maximum priority ment satisfying the highest constantly maintained to mini- and focus on daily operating and sector standards; mise disruptions linked to these management activities. ◼◼ ensures a review of operating types of circumstances. processes to achieve the high- An accident in one of the airports est compliance possible with Special company procedures are managed by the Group, where on national and international regu- designed to manage such events. average from 21,000 to 46,000 lations concerning Safety;

Annual Report 2018 • 45 DIRECTORS’ REPORT 2018

ganisation which minimises the ing ISO 27001 certification and risks related to human resource the definition of a Cyber Risk management. framework which monitors all corporate technical and conduct The ageing of the company work- requirements. force (the current average age is 49) is also due to the extension of the working age introduced Financial Risks under recent pension reforms and could impact operations The management of financial (particularly in relation to the risks is carried out by the Parent use of new technologies, higher Company which identifies, eval- absenteeism and/or health and uates and implements actions safety problems). SEA constant- to prevent and limit the conse- ly addresses this issue through quences of the occurrence of the the implementation of a varie- above-stated risk factors. ty of initiatives, aimed, on the one hand, at recruiting younger Credit risk staff (including the drafting of a Credit risk represents the expo- recruitment plan for persons un- sure of the SEA Group to potential der 35) and, on the other, of de- losses deriving from the non-com- veloping and maintaining skills pliance of obligations by trading (including specific talent man- Supplier Reliability and financial partners. Any bankruptcy or operational agement initiatives) and employee physical and psychological difficulties of individual or diffi- This risk is primarily of an eco- wellbeing (such as the “Fragility” cult-to-replace suppliers may have nomic/financial nature, or rather initiative to support employees an impact on the Group in oper- with elderly parents). the possibility of the default of a ational and economic-financial counterparty, and also factors of a terms. Information Technology technical/commercial or adminis- The increasing aggressiveness and trative/legal nature. In order to minimise exposure to pervasiveness of cyber-attacks such risk, the company has im- on a global level and new Digital For the SEA Group, credit risk plemented a structured supplier Transformation technology initia- exposure is largely related to qualification and performance tives involving the SEA Group may, the deterioration of a finan- monitoring system, formalised by their particularly critical nature, cial nature of the principle air- into a specific policy. increase the risk of vulnerability of line companies which incur on airport information and technolo- the one hand the effects of the Human resources gy systems. seasonality related to aviation The reaching of Group objectives operations, and on the other depends on internal resources SEA pays great attention to the consequences of geopolitical and relations with employees. protection of its IT systems and events which impact upon the air The non-ethical or inappropri- telecommunications infrastruc- transport sector (wars, epidem- ate behaviour of employees may ture from unauthorized access ics, atmospheric events, rise in have legal and financial conse- and cyber-attacks that may cause oil prices and economic/financial quences on company activities. the temporary suspension or hin- crises). The body of procedures, also in dering of operational services. compliance with the 231 Model In order to control this risk, the adopted by the Group, the Con- In this regard, particularly worth SEA Group has implemented pro- duct Code, training and in-house mentioning are the cyclical cedures and actions to monitor education on these issues, to- vulnerability assessments and the expected cash flows and re- gether with the talent devel- penetration testing of systems covery actions. opment plans and the ongoing using the most advanced tech- cooperation and dialogue with nologies and methodologies, In application of internal cred- the trade unions, support an or- activities underway for obtain- it policies, clients are requested

Annual Report 2018 • 46 DIRECTORS’ REPORT 2018

to procure the release of guar- the SEA Group were subject were: variable rates over a range, in antees: this typically relates to this manner reducing the risk first-demand bank guarantees is- a) Interest rate risk originating from their volatility. sued by primary credit institutions The SEA Group is exposed to the We highlight that these deriv- or guarantee deposits. risk of changes in interest rates ative contracts, underwritten in relation to the necessity to exclusively for the purposes of In relation to the payment terms finance its operating activities hedging market rate volatility, applied for the majority of the cli- and the use of available liquidi- are recorded through the cash ents, credit terms are largely con- ty. The changes in interest rates flow hedge method. centrated within 30 days from the may impact positively or nega- relative invoicing. tively on the results of the SEA At December 31, 2018 the gross Group, modifying the costs and financial debt of the SEA Group Trade receivables are reported in returns on financial and invest- was comprised of medium/long- the financial statements net of any ment operations. term loans (medium/long term write-downs which are prudently portions of loans) and short- made with differentiated rates on The SEA Group manages this risk term loans (exclusively the me- the basis of the risk ratio assigned through an appropriate mixture dium/long-term portion of loans to each client using a classification between fixed and variable rate maturing within 12 months. At based on the rating class and cred- loans, with the objective to miti- this date SEA did not make re- it expiry class (for the calculation gate the economic effect of the course to short-term debt). method of doubtful debt provi- volatility of the interest rates. sion, reference should be made to b) Currency risk paragraph 4.1 of the explanatory Variable interest loans expose The SEA Group, with the excep- notes to the consolidated finan- the SEA Group to a risk origi- tion of the currency risk related cial statements). nating from the volatility of the to the commodity risk, is subject interest rates (cash flow risk). to a low currency fluctuation Market risks Relating to this risk, for the pur- risk as, although operating in an Market risks to which the SEA poses of the relative hedging, international environment, the Group is exposed comprises all the SEA Group makes recourse to transactions are principally in types of risks directly and indirect- derivative contracts, which con- Euro. Therefore, the SEA Group ly related to market price trends. verts the variable rate to a fixed does not consider it necessary In 2018, the market risks to which rate or limits the fluctuations in to implement specific hedging

Annual Report 2018 • 47 DIRECTORS’ REPORT 2018

against this risk as the amounts terms; Aid from SEA Handling. in currencies other than the Euro ◼◼ maintains adequate liquidity are insignificant and the relative in treasury current accounts; In relation to the above-men- receipts and payments generally ◼◼ obtains committed cred- tioned decision three independ- offset one another. it lines (revolving and non), ent appeals were made before which covers the financial the European Union Court, by the c) Commodity risk commitments of the Group in Italian State, by SEA Handling and The SEA Group, limited to only the coming 24 months deriv- by the Milan Municipality. SEA Energia, is exposed to ing from the investment plans changes in prices, and the rel- and contractual debt repay- Following the liquidation of SEA ative implied currency fluctua- ments; Handling and also by reason of the tions, of the energy commodities ◼◼ monitors the liquidity posi- changed de facto and de jure sit- utilised i.e. gas and environmen- tion, in relation to the busi- uations relating to this company, tal certificates connected to ness planning the Court of the European Union, the operating management of at the request of the European the company. These risks de- For further information, refer- Commission and SEA Handling, rive from the purchase of the ence should be made to para- ascertained by Order of Janu- above-mentioned commodities, graph 4 “Risk management” of ary 22, 2018, that the matter of which in the case of gas, are prin- the Explanatory Notes to the the dispute concerning SEA Han- cipally impacted by fluctuations Consolidated Financial State- dling’s appeal has ceased to exist in wholesale market prices. ments. since the appellant company was dissolved. As a result, the Court In the SEA Group, these fluctua- found that there was no longer a tions are absorbed through for- Legal and compliance need to adjudicate on the appeal mulas and indexations utilised in brought by SEA Handling. the pricing structures adopted in risks sales contracts. The Group operates in a sector In parallel, having taken note of the Italian Government’s obser- In 2018, the SEA Group did not regulated at a national, EU and in- vations regarding SEA Handling’s undertake any hedging of this risk, ternational level. dissolution, it ordered the cancel- although not excluding the possi- lation of the case relating to the bility in the future. The conformity of the processes and procedures to national and appeal brought by the Govern- Liquidity risk international standards leads to ment against the Commission’s Liquidity risk for the SEA Group the consideration that the risk of decision. arises where the financial resourc- non-compliance with the conces- es available are not sufficient to sion rules is remote. Given the above, the only ap- meet financial and commercial peal currently pending against commitments within the agreed Risk related to the European the Commission’s decision is that terms and conditions. Commission’s decision of brought by the Municipality of Mi- December 19, 2012 concerning lan. The hearing was held on Feb- The liquidity, cash flows and fi- presumed State Aid awarded to ruary 28, 2018. With the judgment nancial needs of the SEA Group SEA Handling of December 13, 2018, the Court are managed through policies With decision of December 19, of the European Union rejected and processes with the objective 2012, the European Commission the Municipality of Milan’s appeal. to minimise the liquidity risk. judged that the share capital Specifically, the SEA Group: increases carried out by SEA in The Municipality appealed to favour of its subsidiary SEA Han- the Court of Justice against this ◼◼ centrally monitors and man- dling in the 2002-2010 period for decision. ages, under the control of the approx. Euro 360 million, consti- Group Treasury, the financial tuted State Aid incompatible with In any case, the outcome of this resources available, in order the internal market, and conse- judgment cannot have any impact to ensure an efficient man- quently imposed upon the Italian on SEA. agement of these resources, State the obligation to demand also in forward budgeting restitution of the presumed State

Annual Report 2018 • 48 DIRECTORS’ REPORT 2018

Risk connected to the It should also be noted that claims obtain more complete informa- Extraordinary Administration arising post-May 2, 2017 and up tion, even ahead of the above- Procedure of Alitalia SAI S.p.A. to December 31, 2018 have been mentioned events. pursuant to Art. 2, paragraph 2 fully paid to-date, save for the of Decree-Law No. 347/2003 amount of Euro 528,666.15 in re- Public information on Alitalia’s The decree of the Ministry of lation to which an analysis is un- economic and financial context Economic Development of May derway between the parties, and does not exclude the possibility 2, 2017 declared the opening the amount of Euro 9,568,235.00 of losses of a significant extent of Alitalia SAI S.p.A.’s extraordi- for unpaid surtax. emerging in relation to the receiv- nary administration procedure ables registered. pursuant to Art. 2, paragraph In the current state, taking into 2 of Decree-Law No. 347/2003 account the uncertainties related At December 31, 2017, SEA ac- (“Alitalia in Extraordinary Ad- to (i) the fact that the Adminis- crued Euro 25,252 thousand as ministration Procedure 2017” or trators’ Programme has not yet doubtful debt provision (refer- “Alitalia Procedure”). been approved and its implemen- ring to the existing receivables tation methods are not known prior to May 2, 2017), for which With the application for admit- (ii) the Administrators have not there is currently no guarantee tance to liabilities sent to the Ad- yet declared the takeover of cur- on collection. ministrators on December 5, 2017 rent contracts with SEA, with the (Registry No. 06275), SEA request- consequent equalisation of the It should be noted that lodged ed admittance to Alitalia’s liabili- Existing Receivables to Current claims also include surtax on ties for the total amount of Euro Receivables, it is believed, in view boarding fees amounting to Euro 41,050,979.58. of present circumstances and on 6,173 thousand for which SEA the basis of information currently acts as a withholding agent. These Following admittance to liabili- available, that the current uncer- have a corresponding debt en- ties, SEA SpA received payments tainty and risk profiles have been tered as a liability toward Institu- from Alitalia in Extraordinary Ad- assessed in the broader context tions (INPS and Ministry of the In- ministration amounting to a total of the overall assessment of terior) for which the carrier is the of Euro 9,465,081.97 relating to trade receivables. The update of debtor. No specific doubtful debt pre-deducted receivables post- estimates has been provided to provision has been set up. May 2 (originally amounting to Euro 9,622,397.82 Euro). There- fore, receivables admitted to pre-deduction amounted to Euro 157,315.85 at February 5, 2019, of which Euro 23,822.50 were for additional rights and Euro 133,493.35 for various invoices.

By means of the certified email communication of February 7, 2018, the Administrators informed creditors that they had filed a request with the Court of Civitavecchia to split the statement of liabilities, starting with an examination of the section for workers and, at the same time, scheduling a series of hear- ings in which to verify the proof of debt. For this reason, SEA’s application, registered at No. 06275, has not as yet been examined, nor has the date for this verification been set.

Annual Report 2018 • 49 DIRECTORS’ REPORT 2018

Main disputes outstanding at December 31, 2018

Update on litigation Municipality of Milan of a citation, 2019. by which ATA Handling, referring for alleged abuse in the to the decision of the Europe- During this hearing, the Court procedure for acquiring an Commission of December 19, noted the filing of the EU Court’s ATA 2012 concerning alleged State decision and then set deadlines Aid awarded in favour of SEA Han- for the filing of submissions pur- On December 20, 2013, the An- dling, requested compensation suant to Art. 183, paragraph VI of ti-trust Authority (AGCM) initi- for damages suffered as a result the Code of Civil Procedure, de- ated proceedings in response of the above State Aid issued in ferring the case for the discussion to the complaint by Cedicor So- the form of share capital increas- on the preliminary motions to the ciedad Anonima (“CEDICOR”), es, which would have gravely hearing of May 22, 2019. charging SEA with abusing its undermined ATA Handling’s op- dominant position in the course erations and quantifying them Proceedings are still in the initial of tendering for the acquisition through a differential analysis of stage since only the introductory of ATA (Ali Trasporti Aerei SpA - two scenarios (SEA Handling with petitions have been exchanged. now SEA Prime SpA), and impos- share capital increases and SEA In light of the content of the EU ing a fine for the amount of Euro Handling without share capital in- Court’s ruling, which rejected 3,365,000. creases) at Euro 93.1 million. SEA the Municipality’s complaint with has already produced the docu- regard to the Commission’s de- Although it paid the fine, SEA mentary evidence disproving the cision on the existence of state filed an appeal with the Region- charge of predatory pricing. ATA aid, the automatic application al Administrative Court (“TAR”) Handling then challenged juris- of this investigation within the against the ruling. This Court diction before the Court of Cas- framework of our law remains in partially upheld SEA’s appeal and sation, asking the latter to rule on any case contentious, as is, above requested the revaluation of the whether jurisdiction for damages all, the existence of a causal link fine from the Authority, which es- pertained to the regular courts or between the circumstances as- tablished the correct amount at to the administrative courts. The certained by the Commission and Euro 936,320. Court of Cassation ruled that the the damage alleged by the plain- regular courts had jurisdiction, tiff company, as well as the quan- The receipt of the transfer by and the case was then referred to tification of said damages. Whilst the Ministry for Economic Devel- the regular courts for a decision considering the possible risk, the opment was recorded on June on the merits. Directors of the company did not 29, 2018. This position is there- apply specific provisions in view fore closed. Once jurisdiction of the regular of the above observations. For courts had been ruled, ATA Han- the purposes of possible pro- dling moved for resumption of visions, any negative develop- the trial before the court which, ments, which to-date are neither Action brought by ATA as it still had no decision from predictable nor definable, will Handling the Court of the European Un- undergo a consistent assessment ion, firstly adjourned the case on the outcome of the additional In May 2015, ATA Handling, in liq- until April 2018 and subsequent- and more in-depth technical as- uidation and subject to adminis- ly to July 2018, and then further sessments that are underway. tration, notified SEA SpA and the moved the hearing to January 22,

Annual Report 2018 • 50 DIRECTORS’ REPORT 2018

compel fulfilment of the aforesaid commitments made in 1997, and ordering him to pay court costs. Mr. Noseda appealed against the judgment. The case is now waiting to be transferred to the Court of Appeal; judicial proceedings are currently suspended due to the death of one of the third parties cited to the case.

In its financial statements, SEA posted an adequate amount as a provision for risks and charges to cover the risk.

Judgment 3553/2015 issued by the Milan Court of Appeal and Cassation Court Judgment 23454 / 2018

The decision by the Milan Court of Appeal published in Septem- Action brought by Emilio when their value was greater ber 2015 relates to the ongo- than the price then paid (USD ing dispute with customs for Noseda before the Court 2 million). No damage amount non-payment of fees for the of Buenos Aires was specified. use of space made available to ◼◼ compensate Delta Group for SEA. This decision confirms the In 2005, an action was filed the expected profit that failed grounds cited in the judgment against SEA by Mr. Emilio Nose- to materialise because Delta at trial, which ordered customs da before the Court of Buenos Group was not awarded con- to pay SEA the sum of Euro Aires to compel fulfilment of cessions at three Argentine air- 5,591,000. In December 2016 alleged commitments made in ports. No damage amount was customs appealed the aforemen- 1997 by SEA to Delta Group S.A., specified. tioned judgment to the Supreme a Uruguayan company of which Court of Cassation, disputing Mr. Noseda had been legal rep- Once the evidentiary stage of the the amount set by the appeal resentative. Delta Group S.A. trial had ended, we awaited the court. With judgment 23454/18, supported SEA’s tender for the announcement of the judgment. the Court of Cassation rejected Argentine airports concession. A new judge was appointed. Nose- the appeal filed by the Customs da requested legal aid, which Agency, confirming the ruling of Mr. Noseda, as assignee of Delta was granted. SEA then proposed the Court of Appeal which estab- Group’s rights, sought a judgment a settlement in the amount of lished SEA’s right to rental fees ordering SEA to: USD 500,000 which was rejected. for the Customs Agency’s occu- Noseda demanded the amount of pation of its spaces. Since all lev- ◼◼ transfer 2% of the shares of USD 3.5 million plus court costs. els of judgment have been com- AA2000 against payment of their pleted, revenue of Euro 5,631 current market value; On December 30, 2016 Commer- thousand (of which Euro 5,591 ◼◼ compensate Delta Group for cial Court No. 2 of Buenos Aires thousand is share capital and the loss of chance it sustained entered judgment, which was Euro 40 thousand legal interest) because it was unable to reserved on February 2, 2017, dis- was recognised in these Annual sell the shares during the time missing Mr. Noseda’s action to Financial Statements.

Annual Report 2018 • 51 DIRECTORS’ REPORT 2018

Civil litigation between nation of the existing litigation all monies in the fire-fighting described above. In the hearing fund have been allocated to cov- SEA and ENAV of February 12, 2019, the Court er costs and purposes totally un- noted the agreement between related to those initially intend- 1. These proceedings concern the parties and, in anticipation of ed, namely that of reducing the SEA’s claim to assets mistakenly the settlement’s formalisation, costs incurred by the State for assigned to ENAV by means of deferred judgment to April 30, fire-fighting services at airports. provisional delivery memoranda 2019. The closure of all pending in the course of 1983 and 1984. judgments should be approved in It should be noted that the fol- By overturning the judgment en- this hearing. lowing provision was added to the tered at trial, the Court of Appeal Stability Act of 2016, which came granted SEA’s motion and voided into force on January 1, 2016: the transfer of the aforemen- Ruling on fees for fire- tioned assets to ENAV. Judgment “Article 39-bis, paragraph 1, of 3406/2015 acknowledges SEA’s fighting services the Decree-Law of October 1, right to use the state-owned 2007, no. 159, as converted with The law of 27/12/2006 no. 296 premises under concession at the amendments by the law of No- airports of Milan Linate and Milan (2007 Finance Act) article 1, vember 29, 2007, no. 222, after Malpensa, and therefore tempo- paragraph 1328, established a the words: ‘of the law of Decem- rary ownership of the goods pro- fire-fighting fund financed by ber 24, 2003, no. 350’ the follow- duced/benefits obtained. airport companies in propor- ing words are inserted: ‘and of tion to the traffic generated fees charged to airport operating In February 2016, both the Pros- by each, in the amount of Euro companies for fire-fighting -ser ecutor’s Office on behalf of the 30 million a year, in order to re- vices at airports, pursuant to arti- Ministries and ENAV appealed to duce the State’s expenses for cle 1, paragraph 1328, of the Law the Court of Cassation against the fire-fighting service provid- of December 25, 2006, no. 296’.” judgment on appeal 3406/2015, ed at airports by the National which granted SEA’s claims in Fire-Fighting Service. Howev- The amended law redefines the full. In April 2016 SEA moved for er, as a result of the entry into contribution to be paid to the service of the counter-appeal force of the provisions of para- fund as consideration for the ser- with contingent cross-claims graph 3 bis of article 4 of Legis- vice rendered by the fire brigade, against both the Ministries and lative Decree 185 of November in order to eliminate the objec- ENAV. Currently the dispute is 29, 2008, introduced with the tions concerning the nature of the pending before the Court of Cas- Conversion Act of 28/1/2009 tax that were raised by airport op- sation, awaiting scheduling of no. 2, the resources of the fund erators and to return the matter the hearing on the merits. were also allocated to purposes to the jurisdiction of the regular completely unrelated to those courts, notwithstanding the judg- 2. In addition a lawsuit is pend- initially envisaged by the 2007 ments previously entered on this ing before the Court of Milan on Budget. issue. By a judgment published SEA’s claim against ENAV for the on January 26, 2018, the Court assets covered by Ministry De- SEA objected, alleging unlaw- of Rome ruled that the regular cree 14/11/2000; the hearing for fulness, and challenged the law courts have no jurisdiction and final argument had been sched- both before the Regional Admin- that the case must revert to the uled for December 5, 2017 but istrative Court and before the Tax Commission. was postponed to May 29, 2018. regular Court of Rome. At this hearing, the Judge further The Court of Cassation, by order referred the case to July 17, 2018. Over the years considerable case 27074/16, applied to the Constitu- During this last hearing, it was law has accumulated, some of tional Court for review of the con- agreed to further defer the case which has become final. All judg- stitutionality of this provision. to February 12, 2019. ments have found that “the tax was instituted by the law as a On July 20, 2018, the judgment Currently, an attempt is under- tax earmarked for a specific pur- of the Constitutional Court of way to reach a settlement be- pose”. Until now the courts have July 3, 2018 was published de- tween the parties to the case. also observed that ever since law claring the unconstitutionality This would lead to the termi- no. 2/2009 entered into force, of Article 1, paragraph 478 of

Annual Report 2018 • 52 DIRECTORS’ REPORT 2018

Law No. 208 of December 28, nary court in favour of the validity tificates assigned for the period 2015 implementing “Provisions of the jurisdiction of the competent 2012-2015. The GSE assessed that for the drawing up of annual and Tax Commission, which may rein- no subsidies should be paid for multi-year budgets of the State state the judgement, is likely. The heating and cooling energy used (2016 Stability Law)”. preliminary hearing, initially fixed by certain internal departments; for November 2018, was adjourned as a result, a provision for future The aforementioned provi- to May 17, 2019. charges of Euro 500 thousand was sion established that the fees recognised, since such certificates charged to airport management had been fully collected at the end companies for fire-fighting ser- Report from the Energy of the 2017 financial year. Notice vices at airports, as per Art. 1, was received in reference to the Paragraph 1328, of Law 296 of Services Operator as a unit named CC2, regarding the 2006, are not subject to taxation. result of an audit of the restitution of white certificates green certificates for amounting to Euro 75,000, to be The established taxation status district heating at the returned to the airport manager of the fire-fighting fund and the Linate power plant in February 2019. To date, reso- condition of exclusive tax juris- lutions regarding the unit named diction were subsequently con- In December 2016, the Energy Ser- CC1 are still to be made by the Ital- firmed by the Court of Cassation on vices Operator (GSE) sent to SEA’s ian national grid operator, GSE. 15/1/2019. Therefore, in relation to energy subsidiary a report on its the proceedings brought by SEA, audit (carried out in March 2016) to and pending before the Court of verify the information provided for Update on judgment Appeal of Rome, confirmation of the lack of jurisdiction of the ordi- an application for green certifica- 7241/2015 of the tion of the district heating supplied Civil Court of Milan by Linate power plant. The GSE concerning airport fees demanded the return of 17,106 green certificates for the period On January 26, 2017, the Milan 2010-2014 (of which 12,435 for the Court of Appeal upheld trial court Company and 4,671 for A2A), as a ruling 7241/2015 of the Court of result of which a provision for fu- Milan ordering the Ministry of ture charges in the amount of Euro Transport to compensate SEA for 1,049 thousand was recognised, Euro 31,618 thousand in addition since those certificates were paid to revaluations according to the at December 31, 2016. The Compa- ISTAT [cost of living] indices and ny, assisted by its lawyers, lodged interest at the legal rate. An en- an appeal in timely fashion. None- forceable copy of the judgment theless in May 2017 it returned the was served on the Ministry and green certificates requested by the the Prosecutor’s Office in Febru- agency and recognised an addition- ary 2017. On April 14, 2017, the al provision to cover the green cer- Ministry of Transport appealed tificates for the period 2015-2016, to the Court of Cassation, reiter- which had been fully paid at the end ating the grounds stated in the of the 2017 financial year. appeal without any substantial change.

Audit by the Energy SEA on June 9, 2017 filed at the Services Operator on Court of Cassation: A response and a cross-appeal. the assignment of white certificates for the period In light of recent regulatory meas- 2012-2015 ures aimed at accelerating legit- imacy judgments, the discussion During 2017 the Energy Servic- hearing and the court’s decision es Operator audited white cer- are likely before the end of 2019.

Annual Report 2018 • 53 DIRECTORS’ REPORT 2018

No. 6835/2017 was filed, against which an appeal was lodged with the Regional Tax Commission. The fixing of the hearing before the Court of Appeal is currently awaited. On August 9, 2017, the Tax Agency served four more assessment notices for the subsequent years from 2012 to 2015. The Company filed separate appeals against each of them with the Provincial Tax Commission which were rejected with judgment No. 3573/12/2018. An appeal was lodged at the Regional Tax Com- mission against this judgment.

Tax Agency - Notice of assessment for registration tax Writ of summons In light of that above, the Direc- tors of the company did not make Several assessments were re- initiated by Architect specific provisions. Relevant pro- ceived for registration tax relating Colombo against SEA visions have not been accrued as to the application of the tax on SpA, SEA Prime SpA, and yet, as they remain subject to the the refund of sums as ordered in others held jointly and emergence of any negative devel- the judgments entered by the regular Court of Milan. The Company severally opments, currently unforeseeable or indeterminable, to be assessed objected to the Tax Agency that on the outcome of further and the tax had been mistakenly ap- On December 21, 2018, SEA, SEA plied as a proportional tax instead Prime and others held jointly and more detailed ongoing assessments. of at a flat rate. The first appeal severally liable were served a writ filed and argued at the Provin- of summons in which the Archi- cial Tax Commission of Milan was tect Nicoletta Colombo formal- granted. The Company’s request ized his claim for compensation Tax Agency – VAT was deemed reasonable and the in pecuniary damages of Euro assessment notices Tax Agency was ordered to reim- 65,136,114.15 and non-pecuniary burse the expenses. On December damages to be quantified during The local customs office at Linate 28, 2017, the Tax Agency lodged proceedings. and Malpensa airports audited an appeal with the Regional Tax SEA to ascertain whether excise Commission, whereupon the Colombo cites an alleged violation duty had been correctly paid on Company joined the proceedings of copyright law and of terms of the electricity used to operate and for which the hearing date is engagement, by which she claims Linate and Malpensa airports. As still awaited. During 2018, six oth- that copy and ownership rights be a result of this audit and of the er appeals were also discussed by legally reserved to her as per arti- notes, on November 16, 2016, the Provincial Tax Commission of cles 2575-2578 of the Italian Civil SEA received service of an assess- Milan, the first-instance outcome Code. ment notice for 2011 concerning of which was fully in favour of the VAT profiles in the matter. the company and ordered the Tax The estimated risk regarding this An appeal was filed against the Agency to pay litigation expenses. position has been duly defined, as assessment at the Provincial Tax During 2019, two new appeals will of today, as “possible”. Indeed, the Commission of Milan, which ruled be discussed regarding two Set- claim has been assessed to be to- in favour of the Tax Agency. On tlement Notices issued during the tally without merit. December 11, 2017, judgment last few months of 2018.

Annual Report 2018 • 54 DIRECTORS’ REPORT 2018

The sum total of the aforesaid No. 35187-P of April 5, 2018, the port, detailing some observations contingencies and those relat- General Director of ENAC ordered for the company, was prepared ing to the disputes with the Tax an administrative and accounting and forwarded to the company Agency were fully reflected in the audit of the company in order to on November 23, 2018. SEA sent a provision for tax risks accrued for ascertain economic, financial and detailed and timely response to all these items. management regularity and the the observations raised. fulfilment of concessionary contractual obligations. Since the findings of ENAC indicat- ENAC administrative and ed no potential liabilities, relevant provisions have not been accrued Following the audit, carried out by accounting audit in the financial statements for the the appointed professionals at the year ending December 31, 2018. Within the scope of the superviso- offices of SEA from April 10, 2018 ry powers of the entity, with Note to May 18, 2018, a conclusive re-

Annual Report 2018 • 55 DIRECTORS’ REPORT 2018

Other information

Consolidated tion of the Services Charter was tributed across the 3 termi- published and is available online nals and providing feedback Non-Financial at www.seamilano.eu , while the on security check areas, public Report paper version is available at pas- toilets, commercial activities senger information points. and maintenance in general. The system provides daily, The consolidated non-financial Customer Satisfaction is con- real-time results, facilitating report (“Consolidated NFR”) of stantly monitored using various immediate interventions to Società per Azioni Esercizi Aero- tools, such as: improve quality standards. portuali – SEA S.p.A., drawn up ◼◼ The Customer Relationship as per Legislative Decree 254/16, ◼◼ The Customer Satisfaction Management (CRM) plat- is a separate report (CSR Report) Index (CSI), based on inter- form specifically developed to this Directors’ Report, pursuant views conducted by the lead- to manage relations with to art. 5, paragraph 3(b) of Legis- ing market research compa- passengers and e-commerce lative Decree 254/16 and is avail- ny DOXA, according to the customers, facilitating infor- able at www.seamilano.eu, in the American Customer Satisfac- mation flows and internal “Sustainability” section. tion Index (ACSI) model, used company collaboration. internationally across many industrial sectors. With the aim of improving pas- Customer Care ◼◼ The ACI ASQ (Airport Service senger experience, 2018 saw the Quality) programme that in- continuation of the Family Friend- The SEA Group, always keenly volves some 320 airports ly Airport initiative with special aware of the opinion of its us- worldwide and about 110 in ‘Family Lane’ security check lanes ers – passengers, accompanying Europe, with departing pas- dedicated to families at Linate and persons, visitors and employees sengers interviewed using a Malpensa, used by approximately – continued in 2018 to imple- uniform questionnaire. This 12% of departing passengers, and ment a monitoring and improve- enables the setting of a single with the organization of Pet Ther- ment policy of the quality level benchmark for the degree of apy events. of services offered to the vari- satisfaction expressed regard- ous parties which interact with ing the services received at During 2018, the “Live Info Point” the Group. The improvement of different airports worldwide, airport assistance service was the “Passenger Experience” has to identify the highlights and strengthened, by which passen- assumed across the airport in- the most significant experi- gers can receive assistance di- dustry an increasingly significant ences (best practice). rectly from a customer service role, in that Quality Perception, ◼◼ The Instant feedback system employee who talks to them from which is the principal measure- which allows passengers, by one of the 16 video screens in the ment, is recognised as an essen- clicking a button a totem, the two airports, recording a signifi- tial element to support business opportunity to express their cant increase in passenger usage profitability. opinions immediately after (168%) over 2017 considering the using the service 24 hours a volume at call centre level. In accordance with the provi- day. More totems have been sions of the ENAC GEN-06 and added, taking the number In October 2018, Skytrax, a GEN-02A Circulars, the 2018 edi- from 30 to 100 devices dis- world-leading air transport re-

Annual Report 2018 • 56 DIRECTORS’ REPORT 2018

search rating firm, awarded 4 stars listening and communication Energy (ISO 50001) Management for the Passenger Experience of with a wide range of external Systems, during 2018 a close fo- Malpensa Terminal 1, re-confirm- actors to ensure transparency cus was placed on supporting ing the excellent service quality and sharing. the analysis of TUV for renewal (with average ratings higher than of the 14001:2015 certification 4 on a scale of 1 to 5). The introduction of the Group and the 50001 oversight certifi- environmental policy is based cation, with a view to applying on the commitment to a dedi- the new rules and ensuring in- The environmental cated structure which ensures creased Systems integration. maximum attention to the prin- dimension cipal strategic aspects and the operating implications, in addi- Airport Carbon The SEA Group is strongly com- tion to guaranteeing the daily Accreditation and Carbon mitted to providing quality ser- inter-departmental involvement vices in respect and protection of all organisational units whose Neutrality of the Milan of the environment, based on activities have a direct or indirect airports the following principles: impact on the reaching of the environmental objectives. SEA in relation to CO2 emissions ◼◼ extensive compliance with has acted effectively in reducing regulatory requirements; Under this policy in 2004 an Envi- emissions and in particular those ◼◼ an ongoing commitment to ronmental Management System from activities under its direct improving the environmental was drawn up, which in 2006 control or in which significant

and energy performance; achieved the ISO 14001 Certifi- influence is exercised (scope 1 (6) ◼◼ education and involvement of cation, which was reconfirmed and 2) . In June 2018, follow- all actors involved in the air- for the subsequent three-year ing positive assessments by the port system for a commitment period. Italian certifier and the London towards respecting and pro- firm managing the Airport Car- tecting our common environ- In July 2018, the certification bon Accreditation program, SEA mental heritage; was renewed on the basis of the renewed its level 3+ ‘Neutrality’ ◼◼ priority given to the purchase new 14001:2015 regulation by accreditation for both of the air- of products and services the TUV Italia Certification Body. ports it manages. which adopt similar environmental sustainability parame- The range of environmental as- ters, with particular attention pects managed is particularly ex- to energy saving, the reduc- tensive: water, air, noise, climate tion of atmospheric and noise change, energy, waste, electro- emissions and water conserva- magnetic fields, light pollution tion; and landscape. ◼◼ identification of sources and The extensive experience ma- controls of CO2 emissions produced, both direct and indi- tured since 1998 with the incorrect, through the involvement poration of SEA Energia and its of the stakeholders, in order cogeneration (tri-generation at to reduce greenhouse gas Malpensa) plant has seen the emissions in line with the Kyo- formal consolidation in October to protocol; 2013 of the Energy Management ◼◼ a constant level of monitoring System of SEA and its ISO 50001 and verification of the pro- certification by CertiQuality. The cesses related to the energy, current action is undertaken for 6 Scope 1 – Direct emissions – Emissions atmospheric emission, noise improved integration between associated with sources owned or under the and water cycle aspects, and the different certification sys- control of the company. in general the various phe- tems. - Scope 2 - Indirect Emissions - Emissions nomenon concerning interac- associated with the generation of electricity or thermal energy acquired or consumed by tion with the ecosystem; Also in this regard, for both the the company, which is physically emitted ◼◼ a highly developed system of Environmental (ISO 14001) and within the corporate scope.

Annual Report 2018 • 57 DIRECTORS’ REPORT 2018

Airport Safety with priority for those most in- sented 28% of the Headcount at volved in operating processes, December 31, equally distributed Again in 2018, the Safety Man- placing particular focus on the across classifications. agement System continued to requirements and the conse- operate systematic activities for quent actions for an improved the analysis and control cycles and level of Safety; Organisation and mitigation actions. ◼◼ guarantee education and com- management of munication, so that all events personnel Available objective evidence which may affect Safety are flagged through the filling out demonstrates the achievement of The organisational structure of of a Ground Safety Report, objectives and an appreciable lev- several staff and line units was actively encouraging the re- el of improvement in the manage- revised in the year. In particular, porting of Safety events and ment of the ‘Airport Safety’. an Enterprise Risk Management clearly defending the differ- unit was set up within the Chief ence between acceptable and The guideline principles of the Financial and Risk Officer area, unacceptable conduct; SEA Airport Safety policy have re- with the aim of improving the ◼◼ to promote the ‘Just Culture’ mained unaltered in their consist- process of identifying potential key principles. ency and suitability: risk events that may influence the Group’s results and of monitoring the status of mitigation of ◼◼ guarantee design compliance, Human resources such events. the construction and maintenance of flight infrastruc- At December 31, 2018, SEA Group As part of the Europrivacy project, ture and plant and equipment employees numbered 2,847, in- the organisation promptly and ef- satisfying the highest sector creasing 10 on December 31, fectively adapted to the develop- standards; 2017 (+0.4%). Full Time Equivalent ments planned for 2018 by Euro- ◼◼ ensure a review of operating employees in 2018 increased by pean privacy regulations. processes to achieve the high- 16 on 2017 (from 2,766 to 2,782, est compliance possible with +0.6%). The second half of the year was national and international regu- focused on the organization- lations concerning Safety; The increase in personnel is pre- al implementation of the air- ◼◼ monitor the maintenance of dominantly due to the recruit- ports’ new maintenance model, safety standards for all opera- ment of temporary operations which, in conformity with safety tors, companies and external staff needed to manage the great- requirements, responds to the parties of any type within the er passenger traffic recorded in need to establish operational, airport sites; the year. technological and contractual ◼◼ guarantee ongoing and appro- synergies across the airports, priate training of personnel, Females at the SEA Group repre- and to share the development

HEADCOUNT FTE

at December 31, January-December

Category 2018 2017 Change 2018 2017 Change

White-collar 1,798 1,811 (13) 1,749 1,754 (5)

Blue-collar 653 659 (6) 650 657 (7)

Senior Managers 290 274 16 280 270 10

Executives 55 56 (1) 56 57 (1)

Temporary 51 37 14 47 28 19

Total 2,847 2,837 10 2,782 2,766 16

Annual Report 2018 • 58 DIRECTORS’ REPORT 2018

of technological innovations in business and the customer ◼◼ Training Compliance. terms of maintenance process experience within the airports solutions and automation. managed by SEA. The introduction of EU Regulation ◼◼ Smart Evaluation: a project in- 139/14, establishing technical re- As part of organisational inno- troducing a corporate-wide quirements and obligations for air- vation and work-life balance in- common and shared system of port managers, has motivated the itiatives, a smart-working trial performance appraisal through design, development and delivery was launched, involving approx- the simplification and integra- of mandatory training, such as imately 15% of the non-shift tion of the current skills and Airside Safety training for airport population, with the aim of test- performance assessment sys- operators having airside access. ing some technical and organi- tem with a more immediate The contents of the Airside Safety sational elements necessary for and effective feedback delivery training course have been com- smart-working. and collection methodology. pletely revised in adaptation to ◼◼ Onboarding: launched in 2017, the digital development strategy, the programme facilitating all and was subsequently delivered Training phases for the onboarding of to over 1,700 SEA employees. new human resources continued throughout 2018, focus- In this context, the Recurrent During 2018, training and pro- ing in particular on the de- Training planning phase was ini- fessional development activities velopment of organizational tiated with a focus on Operating aimed to integrate business pro- socialization for young gradu- Procedures entirely dedicated cesses in the preparation of hu- ate recruits. to maintenance and operations man capital for market challeng- ◼◼ PRM training: the programme personnel, in accordance with es and the facilitation of change seeks to improve the role’s im- the Acceptable Means of Compli- management. pact, particularly in terms of ance and Guidance material of EU an effective approach to team Regulation 139. In order to gain The various courses focused on integration, customer care and feedback on contents and meth- developing skills and talents personnel motivation. odology, special pilot editions to strengthen contributions to ◼◼ The value of 360° integration: were organized for maintenance achieving company results. addressed to Airport Coordi- personnel, electricians, and elec- nation personnel, the project tromechanical and infrastructure The push for the introduction of is dedicated to making im- technicians, totalling approxi- smart innovative processes and provements in their role, with mately 80 participants. systems guided the planning of a particular focus on team in- training courses and tools for the tegration in support of the in- Again regarding Airport Safety, development of professional and troduction of the new role of SEA renewed its commitment to team skills. Airport Specialist. the planning of Airside Driving ◼◼ Switch to Excellence: this is spe- courses aimed at achieving airside A brief presentation of the main cialist management training driving certification: The Green projects rolled out follows: aimed at developing awareness and Red Driving Permit tests were and skills for effective applica- taken by 348 and 132 SEA person- tion in professional roles. The nel respectively. ◼◼ SEA InSight: launched at the end training plan cycle was initiated of January 2018, the project last September, and is set to In order to guarantee airport promotes a Digital Innovation conclude in April 2019. operations during the winter, in initiative through the creation conformity with SAE Internation- of an internal and inter-func- In 2018, Professional Training al AS6285-86 standards, annual tional team, which, over a peri- and Technical Instruction activ- mandatory Winter Operations od of three years, and with the ities focused on strengthening training was administered to 500 collaboration of the Polytech- engagement in assuring effec- operations personnel. In addition nic of Milan’s Cefriel Innovation tiveness and compliance, in line to the de-icing training, annual Centre, will work on new pro- with the new regulatory frame- Snow Emergency Plan courses cesses, technologies and tools work, guaranteeing: were administered to 35 people. that can contribute to the innovative development of SEA’s ◼◼ Training Operations In addition to the recurrent Air

Annual Report 2018 • 59 DIRECTORS’ REPORT 2018

theoretical training, including field tests for examination by the Fire Brigade Commission; ◼◼ High Risk Refresher Training for already certified personnel subject to periodic retraining. Five new training sessions on technical skills for assisting Pas- sengers with Reduced Mobili- ty (PRM), as regulated by Civil Aviation Authority ENAC Circu- lars GEN02A and ECAC Doc.30, were administered to new PRM personnel, in addition to annual Mandatory Recurrent Training involving 122 participants. The courses included full training, including specialist medical training, to provide the necessary skills for assisting those with reduced mobility and for the use of Ambulift vehicles.

The need, shared with the Post Holder, to guarantee high standards of Ground Safety Culture across specific training activities regarding new airport apron management procedures, stim- ulated the planning of several days of training dedicated to new Airport Specialists. The first Emergency Management cours- Recurrent training for employees, pilot courses, involving 9 personnel, started in 2018 and are set es, involving over 60 people from as envisaged under the State and to conclude in 2019. Airport Coordination, periodic Regions Agreement of 2012. In courses were administered to 37 collaboration with the Prevention In terms of security, the main ac- Airport Maintenance personnel and Protection Service, various tivities concerned Initial and Re- concerning practical training in training course were administered current courses for security card the use of Airport Technical Tools according to risk level. Low Risk issuing, in conformity with ENAC for the lifting of damaged aircraft. courses were made available, for Circular SEC05A regulations, in- the first time online, through the volving over 500 participants, and Following the publication of the E-Learning platform, to all person- technical training for Works Man- 4th edition update of the stand- nel pertaining to this risk catego- agers, involving 33 participants, ard CEI 11-27, a specific Refresher ry. Medium Risk courses, due to and for Safety Coordinators, in- Training programme was devel- their specificity and complexity, volving 55 participants. oped and delivered by distance were administered in attendance learning to 56 electricians and at Training and Instruction venues electromechanical technicians in to over 1,200 participants. Welfare order to update them on electrical standards. Fire-fighting training required two The Corporate Welfare pro- different types of training: gramme for 2018, ever more Occupational safety was a priority focused on the effective needs commitment in 2018, driving the ◼◼ Emergency Management Of- of people, began with data and launch of large-scale Mandatory ficer (AGE) full practical and costs analyses for the initiatives of

Annual Report 2018 • 60 DIRECTORS’ REPORT 2018

the previous year, which indicat- on a single ticket, extended ages within the airports and ed that as much as 81.4% of the also to employees with fixed- the use of x-ray equipment. Still company population made use of term contracts. within the scope of radioprotec- at least one welfare service. The tion, the survey to detect the following main welfare projects Workplace health and potential presence of radon gas were promoted in 2018: in underground and basement safety work areas at Linate and Malpen- ◼◼ Assistance and Care - In addi- sa concluded. The amounts con- In 2018 the SEA Group confirmed tion to the ‘Listening and Help’ firmed expectations, with con- its commitment to workplace desks at Linate and Malpen- centrations comfortably within safety with a view to continual sa, the ‘Fragibilità’ service for regulatory limits. improvement of health and safety employees with elderly and conditions of activities carried out disabled family members was The monitoring of the Occupa- within the airport, also through re-confirmed. tional Health & Safety of spe- the promotion of a culture based ◼◼ Familcare Service - An innovative cific SEA employees exposed on increased awareness and in- platform for employees with to health risks with visits to the volvement of all parties, at all lev- children between 10 and 14 Company-appointed doctors els, on prevention issues. years old or elderly family mem- also continued. bers which provides assistance in cases of need through tools In 2018, SEA renewed its Work- The safety documentation and aimed at the identification and place Health and Safety Man- indications (operating policies, geolocation of family members agement System (SGSSL) cer- operating instructions and safe- in difficulty. tification issued by TÜV Italia ty devices, building regulations, ◼◼ In continuity with 2017, estab- - Accredited in line with the BS information points, emergency lished long-running welfare OHSAS 18001/2007 regulation, as plans, individual protective gear services were re-provided in established by Article 30 of Legis- etc.) are available to all employ- relation to Health and Pre- lative Decree 81/08 for effective ees on the company intranet - vention areas and for offering organizational models in line with “Workplace Safety” function site. support for employees with Legislative Decree 231/2001. children, such as through summer camps at Linate and Mal- The SEA Prevention and Protec- pensa, and summer beach and tion Service updated the Risks mountains camps, as well as Assessment Documents, in ad- toy and game vouchers. dition to supporting the func- ◼◼ Future Lab Project - Initiatives tions responsible for drafting to promote the education and the DUVRI’s for preventative employability of the children interference risk management of employees, such as through regarding the various activities bursaries, intercultural scholar- conducted by third-party con- ships, ‘Learn to study with SEA’ tractors at the airports. Particu- courses, secondary and univer- lar emphasis was placed on ac- sity education orientation, and tivities carried out in confined the new ‘Work and Study’ pro- environments or environments gramme. presenting a potential pollution ◼◼ Home-work mobility - In addi- risk under the provisions of Leg- tion to annual season ticket re- islative Decree 177/11. ductions for ATM and Trenord Malpensa Express lines, 2018 In collaboration with qualified saw the introduction of spe- radiological protection experts, cial rates for second-class tick- the monitoring activity in pro- ets and the new IVOL ‘I trav- tection of workers safety con- el everywhere in Lombardy’ tinued, through specific environ- Pass, which allows the use of mental and personal dosimeters the entire transport network of ionised radiation, related to (trains and surface vehicles) the transit of radioactive pack-

Annual Report 2018 • 61 DIRECTORS’ REPORT 2018

Corporate Governance System

This section contains, among by the Corporate Governance garding the sustainability top- other issues, the information re- Committee of Borsa Italiana S.p.A. ics, changing its name to the quired by Article 123-bis, para- (the “Self-Governance Code” or “Control, Risks and Sustaina- graph 2, letter b) of Legislative De- the “Code”). Although compli- bility Committee”; cree No. 58 of February 24, 1998 ance with the Code is voluntary, 2. The Remuneration and Ap- (“CFA”). The company, not having SEA applies a significant portion pointments Committee. issued shares admitted to trading of the recommendations in order on regulated markets or on mul- to ensure an effective corporate The Committees comprise non-ex- tilateral trading systems, avails of governance system which appro- ecutive Directors, the majority of the option under paragraph 5 of priately assigns responsibilities whom independent. The prerog- Article 123-bis of the CFA to not and powers and supports a cor- atives of the Committees are es- publish the information required rect balance between manage- tablished by motions of the Board of paragraphs 1 and 2 of Article ment and control. of Directors, based on the rec- 123-bis of the law, except for that ommendations and principles of required by the above-stated par- The Company therefore annually the Self-Governance Code; at the agraph 2, letter b). prepares on a voluntary basis the Committee meetings minutes are Corporate Governance and own- prepared and maintained by the The Corporate Governance Sys- ership structure report, which Company. tem of Società per azioni Esercizi outlines the Corporate Govern- Aeroportuali S.E.A. (“SEA” or the ance structure adopted by SEA The Shareholders’ Meeting is the “Company”) involves a set of rules and provides information on the body that, through its resolutions, which meet applicable legal and means for the implementation expresses the shareholders wish- regulatory requirements. The of the recommendations of the es. The Shareholders’ Meeting Corporate Governance system of Self-Governance Code. The report approves the most important de- the company is based on the tra- is available on the website www. cisions of the Company, among ditional administration and con- seamilano.eu. which, the appointment of the trol model as per Articles 2380-bis Corporate Boards, the approval of and subsequent of the Civil Code, The company is not subject to the financial statements, and any therefore with two corporate management and co-ordination changes to the Company By-laws. boards appointed by the Share- pursuant to Article 2497 and sub- holders’ Meeting – the Board of sequent of the Italian Civil Code. The Board of Directors shall have Directors, which undertakes the the widest powers of adminis- management of the Company, The Board of Directors of SEA has tration over the company: it in and the Board of Statutory Audi- set up internally two Committees particular may carry out any and tors, which is required to ensure established under the Self-Gov- all acts it deems appropriate for financial control, together with ernance Code undertaking pro- attaining the corporate scope, the Shareholders’ Meeting itself, posing and consultation functions with the sole exclusion of those which represents the common infor the Board of Directors: attributed by law and the by-laws terests of Shareholders. exclusively to the shareholders’ 1. The Control and Risks Com- meeting. The Board of Statutory SEA has complied with since June mittee, to which the Board of Auditors is the company’s Control 27, 2001 the Self-Governance Directors of SEA on July 31, Board. The Board of Statutory Au- Code for listed companies issued 2018 assigned functions re- ditors verifies compliance with law

Annual Report 2018 • 62 DIRECTORS’ REPORT 2018

and the By-Laws and the principles the introduction of new offenses. ◼◼ the efficiency and effectiveness of correct administration and in of the business processes; particular on the adequacy of the The Corporate Governance Sys- ◼◼ the reliability of financial dis- administration and accounting or- tem of SEA also involves proce- closure. ganisation adopted by the Compa- dures governing the activities ny and on its correct functioning. of the various company depart- The accounting control functions ments, which are consistently sub- Main features of the are assigned to the Independ- ject to verification and updating in risk management ent Audit Firm appointed by the line with regulatory developments Shareholders’ Meeting. and altered operating practices. and internal control systems in relation to The Board of Directors on Decem- the financial reporting ber 20, 2018 appointed Director Internal Control and process contained in the Michaela Castelli as its Chairper- financial statements and son, in replacement of the resign- Risk Management ing Pietro Modiano. Therefore, at in the half-year report the date of this report, the Board System SEA’s Internal Control System on of Directors comprises of 6 mem- financial reporting ensures the bers and shall remain in office un- Introduction exchange of data and information til the approval of the 2018 Annu- with its subsidiary companies and al Accounts. The Internal Control and Risk Man- agement System is represented implements its coordination. In particular, this activity is carried The Board of Statutory Auditors by the set of instruments, rules, out through the dissemination, in office at the date of the pres- procedures and corporate organi- by the SEA parent company, of ent report was appointed by the sational structures to ensure com- regulations on the application of Shareholders’ Meeting of May 4, pliance with regulatory provisions, the accounting policies for the 2016 in accordance with the Com- the By-Laws, reliable and accurate preparation of the SEA Group pany By-laws and remains in office financial reporting and the safe- consolidated financial statements until the approval of the 2018 An- guarding of corporate assets in and the procedures regulating nual Accounts. line with the corporate objectives defined by the Board of Directors. the drafting of annual and consolidated financial statements and The Internal Control and Risk Man- The latter is responsible for the half-year financial statements and agement System is based on the internal control and risk manage- reports. The setting of controls oc- recommendations of the Self-Gov- ment system which, on the basis curs at the end of a process carried ernance Code and applicable best of information provided to the out by the SEA parent company practice. Therefore, one of the in- Chairperson and to the Control, according to a targeted approach struments adopted by the compa- Risks and Sustainability Commit- to identify the individual organ- ny is the Organisation and Control tee by the departments/bodies re- isational entities’ typical critical Model as per Legislative Decree sponsible for internal control and issues that could have significant 231/01. SEA and its subsidiaries the management of business risks, impacts on financial reporting. have therefore each drawn up establishes the guidelines, verifies a “Mapping of risks” in order to their suitability and effective func- adopt organisation, management tioning and ensures the identifica- and control models as per Legisla- tion and correct management of Description of the tive Decree 231/2001 (separately the main business risks. risk management and the “Model” and collectively the internal control systems’ “Models”), effective and adequate The procedures and organisation main features in relation in view of the specific needs of subject to the internal control and the respective companies and the risk management system is imple- to the financial reporting particular nature of their business, mented in order to ensure: process with the principal aim of preventing the offenses set out by the ◼◼ compliance with the laws, regu- As regards the financial reporting applicable regulation. The Model lations, By-Laws and policies; process, the risk management sys- is constantly updated in line with ◼◼ the safeguarding of the compa- tem should not be considered as legislative amendments regarding ny’s assets; distinct from the internal control

Annual Report 2018 • 63 DIRECTORS’ REPORT 2018

system. The System is intended to ensure the trustworthiness, accu- racy, reliability and timeliness of financial reporting.

The Risk Management and Inter- nal Control System’s monitoring process over financial reporting is divided into the following phases:

1. Identification of risks on financial reporting: the activity is carried out with reference to the SEA separate financial statements and the SEA Group consolidated financial statements, taking qualitative and quantitative aspects into account primarily for the selec- tion of the relevant companies to be included in the analysis and, thereafter, of significant transactions. 2. Assessment of risks on financial reporting: risks are assessed in division, corporate and line man- Functions of the Control, Risks terms of the potential qualita- agements are the primary owners and Sustainability Committee tive and quantitative impact. of the identification, assessment The Committee performs advi- Risk assessment is carried out and management of the risks for sory and recommendation func- at both the individual company which they are responsible. Top tions to the Board of Directors and specific process levels. management then periodically on internal control and risk man- 3. Identification of controls im- reviews the overall company risk agement. The CRSC identifies plemented to mitigate previ- profile and opportunely orients business risks and submits them ously-identified risks, both at the management of the main for examination by the Board of the individual company and emerging risks, approving pro- Directors, and finally implements process levels. posed response plans in line with the Board’s guidelines through the strategic objectives and cor- the internal control system’s defi- The governance of the SEA Group porate risk propensity defined by nition, management and mon- Enterprise Risk Management the Board of Directors. itoring. The Control, Risks and model defines a second level of Sustainability Committee also ex- risk management control in the The described Internal Control amines and approves the Annual ERM division, established in Jan- and Risk Management System’s Audit Plan. uary 2018, reporting to the Chief components are mutually coordi- Financial and Risk Officer with the nated and interdependent and the The Committee also fulfils the aim of supporting corporate struc- System as a whole involves - with functions of Related Parties Com- tures in the identification and different roles and according to a mittee (except for transactions management of corporate risks rationale of collaboration and co- concerning matters that are the and at the same time, to guar- ordination - administrative bodies, exclusive prerogative of the Re- antee periodic reporting to top supervisory and control bodies, muneration and Appointments management on the risk profile’s and the company and SEA Group Committee) and, since July 31, development, based on the prin- management. The SEA Board of 2018, the sustainability topic func- ciple that the management of risk Directors has not appointed an tions. involves all levels. executive director responsible for overseeing the functionality of Internal Audit Manager This means that, with the support the internal control and risk man- The audit on the suitability and of risk specialists and the ERM agement system. functionality of the Internal Con-

Annual Report 2018 • 64 DIRECTORS’ REPORT 2018

trol and Risk Management System tive Decree No. 231/2001, on the trols carried out. is entrusted to the Internal Audit instructions of the SEA Superviso- Department. The Internal Audit ry Boards and the subsidiary com- Supervisory Board as per Manager reports to the Chairper- panies. The Auditing Department Legislative Decree 231/2001 son and to the Control, Risks and was also assigned, with Board of The Supervisory Board, appoint- Sustainability Committee; he/she Directors’ motion of February 22, ed by the Board of Directors and is not responsible for any opera- 2018, the responsibility to check in office at December 31, 2018, tional area and does not hierar- the adequacy and effective im- is composed of three members: chically report to any manager plementation of SEA’s Corruption two external independent mem- responsible for operational areas, Management and Prevention Sys- bers - Alberto Mattioli (appoint- including the administration and tem, certified as per the UNI ISO ed on May 4, 2016) and Giovanni finance areas. The Internal Audit 37001:2016 standard. Maria Garegnani (appointed on Manager audits the functionality January 25, 2018) and the Audit- and suitability of the internal con- Independent Audit Firm ing Department Manager - Ahmed trol and risk management system Deloitte & Touche SpA is the Inde- Laroussi (appointed on May 4, and compliance with internal pro- pendent Audit Firm appointed to 2016). The non-executive member cedures issued for this purpose. audit the separate and consolidat- of the Board of Directors, Michae- The Internal Audit Manager has ed annual financial report, to peri- la Castelli, appointed on May 25, autonomy in expenditure and odically verify corporate account- 2017, resigned on December 20, extends his/her activities to all ing practices and to carry out the 2018, as becoming Chairperson of the companies in the SEA Group limited audit of the SEA consoli- the Board of Directors. through specific service contracts. dated half-year financial report. Similarly, the SEA Internal Audit The appointment was conferred On February 8, 2018, the Board of Department reports hierarchically by the Shareholders’ Meeting on Directors appointed Giovanni Ma- to the Chairman and functional- June 24, 2013 and extended to ria Garegnani as Chairperson. ly, to the Board of Directors. The financial year 2022 by the Share- Internal Audit Department is en- holders’ Meeting of May 4, 2016. The Supervisory Board regularly trusted with auditing the effec- The Board of Statutory Auditors reports to the Board of Directors tiveness, suitability and upkeep and the Independent Audit Firm on the Model’s effectiveness, its of the Organisation and Manage- regularly exchange information suitability and upkeep. It sends ment Model pursuant to Legisla- and data in relation to the con- a written report to the Board of Directors every six months on the 231 Model’s implementation status and, in particular, on controls and audits performed and on any critical issues that emerged.

The Supervisory Board has auton- omous powers of initiative, control and expenditure.

Organisation, Management and Control Model pursuant to Legislative Decree 231/2001 SEA has adopted an Organisation and Management Model pursuant to Legislative Decree 231/2001 – which lays down the “Rules on the administrative liability of legal persons, companies and associations, including those without legal status” (the “Decree”) to prevent the offences envisaged by the Decree.

Annual Report 2018 • 65 DIRECTORS’ REPORT 2018

The Model is, therefore, adopted isation and Management Model Directors on February 22, 2018, in compliance with the Decree’s pursuant to Legislative Decree which integrates, using an organic provisions. The Model was adopt- 231/2001. framework, existing company cor- ed by the SEA Board of Directors ruption prevention and combat- by motion of December 18, 2003 The Code of Conduct forms part ting tools. and more recently amended and of the broader “Ethics System” supplemented by the motion of adopted by the Board and defines SEA’s Management System for the the Board of Directors of June 28, the framework of the reference Prevention of Corruption was cer- 2018. The Model was therefore values and principles which the tified on March 8, 2018 according updated in line with the offences SEA Group proposes to adopt in to the UNI ISO 37001:2016 “An- set out in the Decree. The Mod- the corporate decision-making el consists of a “General Section”, process. ti-bribery Management System” a “Special Section” and individual standard. “Components”. SEA’s subsidiary The main duties of the Ethics Com- companies have adopted their mittee, composed of a member of own Organisation and Manage- the SEA Board of Directors and Diversity policies ment Model pursuant to Legisla- the “Human Resources and Or- tive Decree 231/2001. ganisation”, “Legal and Corporate Article 123(bis), paragraph 2 of Affairs” and “Audit” departmental Legislative Decree No. 58/1998 managers, is to promote the Code sets the obligation to describe the of Conduct’s dissemination and to Related Parties Company’s policies on the com- monitor compliance thereof. Transactions Policy position of the administrative, management and governing bod- The company has adopted a Re- ies, taking into account aspects lated Parties Transactions Policy Anti-Corruption Focal such as age, gender, professional (the “RPT Policy”), in effect since Point and educational background. For February 2, 2015. The Policy was cases where no policy has been updated by Board of Directors’ With effect from January 31, adopted, there is a requirement motion of February 22, 2018. 2014, the company identified to explain this decision. SEA’s By- an anti-corruption focal point in The RPT Policy is also available the person of the Legal & Corpo- Laws, in compliance with the legis- on the company’s website www. rate Affairs Director who is also a lative provisions, comprehensively seamilano.eu. member of the Ethics Committee. cover gender diversity within the Board of Directors and Board of In assessing the substantial and The anti-corruption focal point Statutory Auditors; in relation to procedural correctness of trans- deals with any communication on aspects such as age and training, actions with related parties, the corruption, including toward third the Board of Directors on Febru- Board of Directors is assisted by parties; the role, prerogatives and ary 22, 2018 decided to introduce the Related Parties Committee responsibilities are therefore not assessments concerning the adop- which is identical to the Control, comparable with those provided tion or otherwise of a diversity Risks and Sustainability Commit- for by applicable legislation in re- policy also for these aspects. tee or the Remuneration and Ap- lation to the Anti-Corruption Man- pointments Committee, depend- ager (namely, the person in charge Following these assessments, the ing on the matters dealt with from pursuant to Law 190/2012). Board of Directors on February time to time. 1, 2019 recommended to the in- coming Board of Directors, to be Management system for the Code of Conduct prevention of corruption (UNI appointed by the Shareholders’ ISO 37001:2016 certified) Meeting which will approve the The applicable Code of Conduct, SEA, confirming its commitment 2018 Annual Accounts, consid- approved by the Board of Direc- to the prevention and combatting eration of the matter and mo- tors on December 17, 2015 and of illegal practices, has adopted a tions thereon, also in view of the updated on December 11, 2018, System for the Prevention of Cor- above-mentioned assessments. is an integral part of the Organ- ruption, approved by the Board of

Annual Report 2018 • 66 DIRECTORS’ REPORT 2018

Board of Directors’ proposals to the Shareholders’ Meeting

The Board of Directors approves amount of Euro 0.3952 per the 2018 Financial Statements of share; SEA SpA, prepared in accordance ◼◼ Euro 24,689,400.1 to the ex- with IFRS, which report a net prof- traordinary reserve. it of Euro 123,489,400.1. The dividend payment deadline The Board of Directors propos- has been fixed as June 20, 2019. es to the Shareholders’ Meet- ing to allocate the 2018 net profit of Euro 123,489,400.1 as The Chairman of the Board follows: of Directors ◼◼ Euro 98,800,000 as dividend to Shareholders, in the Michaela Castelli

Shareholders’ Meeting Motions

The Shareholders’ Meeting, held 2. Approved the allocation of 3. Fixed the dividend payment dead- on April 19, 2019: the 2018 net profit of a total line as June 20, 2019, with any amount of Euro123,489,400.1, rounding on payment allocated 1. Approved the Directors’ Report as follows: to the extraordinary reserve. prepared by the Board of Direc- ◼◼ Euro 98,800,000 as divi- tors, the Financial Statements dend to Shareholders, in the at December 31, 2018 and the amount of Euro 0.3952 per The Chairman of the Board explanatory notes thereto, as share; of Directors proposed by the Board of Di- ◼◼ Euro 24,689,400.1 to the ex- rectors. traordinary reserve. Michaela Castelli

Annual Report 2018 • 67 SEA Group Consolidated Financial Statements SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements

Consolidated Statement of Financial Position

December 31, 2018 December 31, 2017 of which of which Note Total Total (Euro thousands) related parties related parties Intangible assets 8.1 986,469 998,182 Property, plant & equipment 8.2 205,483 204,971 Investment property 8.3 3,408 3,394 Investments in associates 8.4 67,914 54,054 Other investments 8.5 26 26 Deferred tax assets 8.6 54,185 51,152 Other non-current financial assets 8.7 0 7,190 Other non-current receivables 8.8 188 280 Total non-current assets 1,317,673 0 1,319,249 0 Inventories 8.9 1,934 4,104 Trade receivables 8.10 121,005 11,407 111,077 9,419 Tax receivables 8.11 1,048 14,941 Other current receivables 8.11 9,527 2,005 9,200 Other current financial assets 8.7 0 13,300 Cash and cash equivalents 8.12 153,036 67,194 Total current assets 286,550 13,412 219,816 9,419 Assets held-for-sale 0 0 TOTAL ASSETS 1,604,223 13,412 1,539,065 9,419 Share capital 8.13 27,500 27,500 Other reserves 8.13 295,525 279,584 Net Profit 8.13 136,076 84,070 Group Shareholders’ equity 459,101 391,154 Minority interest shareholders’ equity 8.13 25 23 Group & Minority interest shareholders’ equity 459,126 391,177 Provision for risks and charges 8.14 167,861 169,935 Employee provisions 8.15 46,214 47,834 Non-current financial liabilities 8.16 523,605 546,289 Other non-current payables 8.17 13,964 17,588 Total non-current liabilities 751,644 781,646 Trade payables 8.18 153,394 11,616 153,497 4,519 Income tax payables 8.19 18,541 8,370 Other payables 8.20 192,476 174,592 Current financial liabilities 8.16 29,042 29,783 Total current liabilities 393,453 11,616 366,242 4,519 Liabilities related to assets held-for-sale 0 0 TOTAL LIABILITIES 1,145,097 11,616 1,147,888 4,519 TOTAL LIAIBILITIES & SHAREHOLDERS’ EQUITY 1,604,223 11,616 1,539,065 4,519

Annual Report 2018 • 69 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Income Statement

2018 2017 restated

of which of which Note Total Total (Euro thousands) related parties related parties

Operating revenues * 9.1 683,956 47,864 648,260 40,493

Revenue for works on assets under concession 9.2 29,189 28,281

Total revenues 713,145 47,864 676,541 40,493

Operating costs

Personnel costs 9.3 (189,416) (210,743)

Consumable materials 9.4 (40,234) (33,123)

Other operating costs 9.5 (174,916) (163,663)

Costs for works on assets under concession 9.6 (26,728) (26,006)

Total operating costs (431,294) (28,153) (433,535) (13,858)

EBITDA ** 281,851 19,711 243,006 26,635

Provisions & write-downs 9.7 (3,704) (32,218)

Restoration and replacement provision 9.8 (15,077) (13,602)

Amortisation & Depreciation 9.9 (73,601) (69,296)

EBIT 189,469 19,711 127,890 26,635

Investment income/(charges) 9.10 14,568 14,568 8,135 8,135

Financial charges 9.11 (17,662) (18,167)

Financial income 9.11 1,021 258

Pre-tax profit 187,396 34,279 118,116 34,770

Income taxes 9.12 (51,318) (35,667)

Continuing Operations profit 136,078 34,279 82,449 34,770

Discontinued Operations profit/(loss) 6 0 1,556

Minority interest profit/(loss) 2 (65)

Group Net Profit 136,076 34,279 84,070 34,770

Basic net result per share (in Euro) 9.13 0.54 0.34

Diluted net result per share (in Euro) 9.13 0.54 0.34

* From 2018, following the entry into force of IFRS 15 which provides for the combined presentation of contracts with a single commercial objective, the incentives provided to airline companies to develop traffic were classified as a reduction of revenues. In 2017, they were classified under Other operating costs. For comparability purposes, the 2017 figures were reclassified.

** EBITDA is calculated as the difference between total revenues and total costs, excluding provisions and write-downs.

Annual Report 2018 • 70 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Comprehensive Income Statement

2018 2017

of which of which Total Total (Euro thousands) related parties related parties

Group Net Profit 136,076 34,279 84,070 34,770

- Items reclassifiable in future periods to the net result:

Fair value measurement of derivative financial instruments 1,761 2,435

Tax effect from fair value measurement of derivative financial (422) (584) instruments

Total items reclassifiable, net of tax effect 1,339 1,851

- Items not reclassifiable in future periods to the net result:

Actuarial gains/(losses) on post-employment benefits 1,099 56

Tax effect on actuarial gains/(losses) on post-employment (264) (13) benefits

Total items not reclassifiable, net of tax effect 835 43

Total other comprehensive income items 2,174 1,894

Total comprehensive profit 138,252 85,899

Attributable to:

- Parent company shareholders 138,250 85,964

- Minority interest 2 (65)

Annual Report 2018 • 71 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Cash Flow Statement 2018 2017 of which of which Total Total (Euro thousands) related parties related parties Cash flow from operating activities Pre-tax profit 187,396 118,116 Adjustments: Amortisation, depreciation and write-downs 73,601 69,296 Net change in provisions (excl. employee provision) (1,063) (2,557) Changes in employee provisions (1,172) (2,016) Net changes in doubtful debt provision 817 27,248 Write-down of other financial assets 3,476 Net financial charges 16,491 17,909 Investment income/charges (14,568) (8,135) Anti-trust penalty (exc. interest portion) (2,429) Other non-cash changes (5,357) 15,289 Cash generated (absorbed) from operating activities before changes in working 1,556 capital of discontinued operations Cash flow from operating activities before changes in working capital 256,145 237,753 Change in inventories 1,028 (102) Change in trade and other receivables (8,984) (3,993) (42,579) (1,897) Change in other non-current assets 93 28 Change in trade and other payables 15,788 7,097 5,614 1,054 Receipt IRES receiv. from click day 2013 10,734 Cash generated (absorbed) from changes in working capital of discontinued operations Cash flow from changes in working capital 18,659 3,104 (37,039) (843) Income taxes paid (43,252) (39,307) Anti-trust penalty reimburse. (inc. interest portion) 2,430 Cash generated (absorbed) from operating activities of discontinued operations Cash flow from operating activities 233,982 3,104 161,407 (843) Investments in fixed assets: - intangible assets (*) (37,840) (34,772) - tangible assets and property (21,839) (35,770) Change in other current financial assets 13,300 Divestments from fixed assets: - tangible assets 329 107 Dividends received 6,271 6,271 7,801 7,801 Cash generated (absorbed) from investing activities of discontinued operations 0 (798) Cash flow absorbed from investing activities (39,779) 6,271 (63,432) 7,801 Change in gross financial debt - increase/(decrease) of short & medium-term debt (20,280) 289 Changes in other financial assets/liabilities (1,449) (28) Change in shareholders' equity (250) Dividends distributed (70,288) (70,307) Interest and commissions paid (16,348) (16,908) Interest received 4 9 Cash generated (absorbed) from financing activities of discontinued operations Cash flow absorbed from financing activities (108,361) (87,195) Increase/(decrease) in cash and cash equivalents 85,842 9,375 10,780 6,958 Opening cash and cash equivalents 67,194 56,414 Closing cash and cash equivalents 153,036 67,194 -of which cash and cash equivalents of discontinued operations 0 0 Cash and cash equivalents at year-end reported in financial statements 153,036 67,194

* The investments in intangible assets are net of the utilisation of the restoration provision, which in 2018 amounted to Euro 15,205 thousand (Euro 12,855 thousand in 2017).

Annual Report 2018 • 72 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Statement of changes in consolidated shareholders’ equity

Other Derivative reserves Actuarial Minority Group & contracts Consol. Share Legal and retained gains/ interest Minority hedge Net profit Share. capital reserve earnings (losses) capital & int. share. accounting equity (accumulated reserve reserves equity reserve (Euro thousands) losses)

Balance at December 31, 2016 27,500 5,500 256,707 (1,258) (6,804) 93,619 375,264 566 375,830

Transactions with shareholders

Allocation of 2016 net profit 93,619 (93,619) 0 0

Dividend approved (70,300) (70,300) (70,300)

Acquisition SEA Prime shares 228 228 (478) (250)

Other movements

Other comprehensive income 42 1,850 1,892 1,892 statement items result

Net profit 84,070 84,070 (65) 84,005

Balance at December 31, 2017 27,500 5,500 280,254 (1,216) (4,954) 84,070 391,154 23 391,177

Transactions with shareholders

Allocation of 2017 net profit 84,070 (84,070) 0

Dividend approved (70,300) (70,300) (70,300)

Other movements

Other comprehensive income 835 1,339 2,174 2,174 statement items result

IFRS 9 (*) and IFRS Airport (2) (1) (3) (3) Handling conversion impacts

Net Profit 136,076 136,076 2 136,078

Balance at December 31, 2018 27,500 5,500 294,022 (381) (3,616) 136,076 459,101 25 459,126

(*) Effect deriving from the application of the amendments to IFRS 9 - “Financial Instruments” in which the change in the time value in 2017, equal to Euro 1 thousand, recorded in the measurement of the contracts deriving from the cash flow hedge model, is recognised directly to Net Equity (Cash flow hedge reserve).

Annual Report 2018 • 73 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Annual Report 2018 • 74 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

1. General information to serve the requirements of its airports; (iv) Disma (held 18.75%) airports and for sale on the ex- which manages a plant for the Società per Azioni Esercizi Aer- ternal market. storage and distribution of avia- oportuali SEA is a limited liabil- tion fuel at Milan Malpensa Air- ity company, incorporated and The SEA Group, through the port; (v) Signature Flight Support domiciled in Italy according to company SEA Prime SpA, manag- Italy Srl (indirectly held 39.96%) Italian Law (the “Company”). es the general aviation activities, which provides general aviation offering high added value servic- services and (vi) SACBO (held The Company’s headquarters are es and facilities. 30.98%) which manages the air- located at Milan Linate Airport in port of Bergamo, Orio al Serio. Segrate (Milan). Through SEA Handling SpA, a subsidiary of SEA and liquidated We report, finally, that since July 2018, following the sale of the The Company and its subsidiaries in 2017, the SEA Group provided 40% holding in Airport Handling (jointly the “Group” or the “SEA also land-side assistance servic- SpA and a corresponding share Group”) manages Milan Malpen- es for aircraft, passengers, bag- Financial Instruments of Partici- sa Airport and Milan Linate Air- gage, cargo and mail (commer- pation to dnata and the resulting port under the 2001 Agreement cial aviation handling business) dissolution of the Milan Airport signed between SEA and ENAC until August 31, 2014. Handling Trust, having exhaust- with a forty-year duration (re- ed its corporate scope, SEA re- newing the previous agreement At December 31, 2018 the gen- classified its 30% stake in Airport of May 7, 1962). eral aviation handling activities concerned the operations of Handling as an associated company measured according to the SEA and the Group companies, in the associates Signature Flight equity method in the consolidat- the running of the airports, are Support Italy Srl (held indirectly ed financial statements. involved in the management, de- 39.96% by SEA) and Malpensa velopment and maintenance of Logistica Europa SpA (held 25%), The activities carried out by the the infrastructure and plant at which therefore operates out- SEA Group, as outlined above, the airports and offer customers side of the commercial aviation are therefore structured into all flight related services and ac- handling business. the business units Commercial tivities, such as the landing and Aviation, General Aviation and departure of aircraft and the air- The Group holds the follow- Energy, with the Group sourcing port security services (Aviation ing investments in associates revenues as illustrated in Note 7 business); these companies in and measured under the equity “Operating segments”. addition provide a wide and spe- method: (i) Dufrital (held 40%) cialised range of commercial ser- which undertakes commercial vices for passengers, operators activities at other Italian airports, and visitors, both managed di- including Bergamo, Florence, 2. Summary of rectly and outsourced (non-Avia- Genoa and Verona; (ii) Malpen- accounting principles tion business). sa Logistica Europa (held 25%) adopted which undertakes integrated The SEA Group, through the com- logistic activities; (iii) SEA Servic- The main accounting principles pany SEA Energia SpA, produces es (held 40%) which operates in adopted in the preparation of the electric and thermal energy both the catering sector for the Milan consolidated financial statements

Annual Report 2018 • 75 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

at December 31, 2018 are report- 38/2005. The term IFRS includes ed below. all of the International Financial Reporting Standards, all of the The consolidated financial state- International Accounting Stand- ments at December 31, 2018 and ards and all of the interpreta- the tables included in the explan- tions of the International Finan- atory notes are prepared in thou- cial Reporting Interpretations sands of Euro. Committee (IFRIC) previously called the Standing Interpreta- 2.1 Basis of preparation tions Committee (SIC) endorsed The Consolidated Financial State- and adopted by the European ments includes the Consolidated Union. Statement of Financial Position, the Consolidated Income State- In relation to the presentation ment, the Consolidated Compre- method of the financial state- hensive Income Statement, the ments “the current/non-current” Consolidated Cash Flow State- criterion was adopted for the ment, the Statement of Changes statement of financial position in Consolidated Shareholders’ while the classification by na- Equity and the relative Explana- ture was utilised for the income tory Notes. statement and comprehensive income statement and the indi- In the comparative 2017 finan- rect method for the cash flow cial statements IFRS 5 is applied statement. Where present the to the commercial aviation han- balances and transactions with dling sector which is not includ- related parties are reported. ed in the 2017 results line-by-line for each cost and revenue item, The Consolidated Financial State- in the next 12 months. In the but the total result of the busi- ments were prepared in accord- preparation of the Consolidated ness is recorded on a separate ance with the historical cost Financial Statements at Decem- line in the account of the Consol- convention, except for the meas- ber 31, 2018, the same account- idated Income Statement “Dis- urement of financial assets and ing principles were adopted as in continued Operations profit/ liabilities, including derivative in- the preparation of the Consol- (loss)”. No Statement of Finan- struments, where the obligatory idated Financial Statements at cial Position amounts are pres- application of IFRS 9 is required. December 31, 2017. Following ent at December 31, 2018 as the the issue on a regulated market company SEA Handling was liqui- The Consolidated Financial of the “SEA 3 1/8 2014-2021” dated during 2017. Statements were prepared in bond, IFRS 8 and IAS 33 concern- accordance with the going con- ing segment reporting and earn- A specific paragraph of the pres- cern concept, therefore utilis- ings per share were utilised. ent Explanatory Notes, to which ing the accounting principles reference should be made (Note of an operating business. Com- For a better presentation of the 6 “Discontinued Operations prof- pany Management evaluated financial statements, the income it/(loss)), illustrates the discon- that, although within a difficult statement was presented in two tinued operations’ accounts economic and financial environ- separate statements: a) the Con- presented in the Consolidated ment, there are no uncertainties solidated Income Statement and Income Statement. on the going concern of the busi- b) the Consolidated Comprehen- ness, considering the existent sive Income Statement. The Consolidated Financial State- capitalisation levels and there ments at December 31, 2018 are no financial, operational, The Consolidated Financial State- were prepared in accordance management or other indicators ments were audited by the audit with IFRS in force at the approval which could indicate difficulty firm Deloitte & Touche SpA, the date of the financial statements in the capacity of the Group to auditor appointed by the Com- and the provisions enacted as meet its obligations in the fore- pany and the Group. per Article 9 of Leg. Decree No. seeable future, and in particular

Annual Report 2018 • 76 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

2.2 IFRS accounting standards, Standards and amendments dorsement process by the rele- amendments and interpretations which must be obligatory applied vant authorities, are illustrated applied from January 1, 2018 from January 1, 2018, following below. The International Accounting completion of the relative en-

Publication Effective date as Effective date Date endorsed in the Official per the standard applied by SEA Description Gazette Periods which begin IFRS 9 Financial instruments Nov 22, 2016 Nov 29, 2016 Jan 1, 2018 from Jan 1, 2018 IFRS 15 Revenue from contracts Periods which begin Sep 22, 2016 Oct 29, 2016 Jan 1, 2018 with customers from Jan 1, 2018 Clarifications to IFRS 15 Revenue Periods which begin Oct 31, 2017 Nov 9, 2017 Jan 1, 2018 from contracts with customers from Jan 1, 2018 Amendment to IFRS 2 Clarification Periods which begin and measurement of share-based Feb 26, 2018 Feb 27, 2018 Jan 1, 2018 from Jan 1, 2018 payment transactions IFRIC 22 Foreign currency Periods which begin transactions and advance March 28, 2018 Apr 3, 2018 Jan 1, 2018 from Jan 1, 2018 consideration Amendment to IAS 40 Transfers of Periods which begin March 14, 2018 March 15, 2018 Jan 1, 2018 investment property from Jan 1, 2018 Annual improvements to IFRS Periods which begin Feb 7, 2018 Feb 8,2018 Jan 1, 2018 Standards 2014-2016 Cycle from Jan 1, 2018

The adoption of these amend- the other changes introduced applied in retrospective man- ments and interpretations, where by the new accounting stand- ner. At January 1, 2018, there- applicable, had the following ef- ard and, therefore, did not re- fore, the retained earnings fects on the 2018 financial state- quire a change to the Group’s increased by Euro 1 thousand ments of the Group: financial statements; with direct recognition of the ◼◼ Following the entry into force change recorded in Net Equi- ◼◼ Following the entry into force of IFRS 9 which, relating to the ty under the cash flow hedge of IFRS 15 which provides for recognition of losses in value reserve, as representative of the combined presentation of of financial assets, requires the change in the time value contracts with a single com- the application of a model in 2017; mercial objective, the incen- based on the expected credit ◼◼ Group investments in equity tives provided to airline com- losses, instead of based on the instruments previously classi- panies to develop traffic were losses on receivables already fied under “Investments avail- classified as a reduction of incurred required by IAS 39, able for sale” based on IAS 39 revenues. In 2017, they were the Directors compared the were designated, in accord- classified under “Other oper- credit risk of the respective ance with IFRS 9, as FVTPL ating costs”. For comparabil- financial instruments at their and classified under “Other ity purposes, the 2017 figures initial recognition date and investments”. The changes in were reclassified. This amend- confirmed the values record- the fair value of these equity ment had no impact on the ed in the financial statements instruments continue to be result for the year. The anal- at December 31, 2017; recorded in profit or loss. ysis of the structure of sales ◼◼ IFRS 9 requires, in addition, contracts linked to the various that the accounting treatment Group businesses and related relating to the time value of accounting are compliant with an option not designated is

Annual Report 2018 • 77 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

2.3 Accounting standards, tations and amendments to ex- where adopted in Europe, at the amendments and isting accounting standards and endorsement date of the present interpretations not yet interpretations, or specific pro- document were not adopted in applicable and not adopted in visions within the standards and advance by the Group: advance by the Group interpretations endorsed by the Below we report the international IASB which have not yet been en- accounting standards, interpre- dorsed for adoption in Europe, or

Endorsed at the date of Description the present document Effective date as per the standard IFRS 16 Leases YES Periods which begin from Jan 1, 2019 IFRIC 23 Uncertainty over income tax treatments YES Periods which begin from Jan 1, 2019 Amendments to IFRS 9 Prepayment features with YES Periods which begin from Jan 1, 2019 negative compensation Annual improvements to IFRS standards 2015-2017 NO Periods which begin from Jan 1, 2019 Cycle Amendments to IAS 28 Long term interests in NO Periods which begin from Jan 1, 2019 associates and joint ventures Amendment to IFRS 3 Business Combination NO Periods which begin from Jan 1, 2020 Amendment to IAS 19 Plan amendment Curtailment NO Periods which begin from Jan 1, 2019 or Settlement Amendment to IAS 1 e IAS 8 Definition of Material NO Periods which begin from Jan 1, 2020 IFRS 17 Insurance Contracts NO Periods which begin from Jan 1, 2021

No accounting standards and/or leasing contracts from service con- months. This Standard does not interpretations were applied in tracts, identifying the following as contain significant amendments advance whose application is ob- essential differences: the identi- for lessors. ligatory for periods commencing fication of the asset, the right of after December 31, 2018. replacement of the asset, the right The standard will be effective to obtain substantially all the eco- from January 1, 2019, although On January 13, 2016, the IASB nomic benefits from the use of the advance application is permitted. published the new standard IFRS asset and the right to use the asset The Company completed the pro- 16 - Leases, which replaces IAS underlying the contract. ject to introduce the new stand- 17 – Leases, as well as the inter- ard involving an initial phase of pretations IFRIC 4 Determining The standard establishes a single detailed analysis of contracts and whether an Arrangement con- model to recognise and meas- of the accounting impacts, and a tains a Lease, SIC-15 Operating ure leasing contracts for the les- second phase to introduce and Leases—Incentives and SIC-27 sees which provides also for the adjust the related administra- Evaluating the Substance of recognition of operating leases tive processes and the account- Transactions Involving the Legal under assets with a related fi- ing system. The Directors have Form of a Lease. nancial payable, providing the not applied IFRS 16 in advance. possibility not to be recognise As a lessee, with similar classes The new standard provides a new as leasing contracts “low-value of underlying assets, the issues definition of leases and introduces assets” (leasing contracts with subject to the new accounting a criterion based on control (right an asset value below Euro 5,000) standard concerned principal- of use) of an asset to distinguish and leasing contracts less than 12 ly industrial equipment and the

Annual Report 2018 • 78 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

long-term hire of vehicles, with 2.4 Consolidation method and culated as the sum of the fair the consequent recognition of principles value of the assets transferred a right of use to non-current as- The financial statements of the and the liabilities assumed by sets equal to the present value companies included in the consol- the Group at the acquisition of the outstanding instalments idation scope were prepared as at date and of the equity instru- and with the counter-entry of a December 31, 2018 and were ap- ments issued in exchange for finance lease payable. For the propriately adjusted, where nec- control of the company ac- calculation of these amounts, an essary, in line with Group account- quired. Accessory charges to exemption permitted under IFRS ing principles. the transaction are generally 16 was utilised which resulted in recorded to the income state- a single discount rate for each The consolidation scope includes ment at the moment in which leasing portfolio with similar the financial statements at De- they are incurred. At the acqui- characteristics. The Group opted cember 31, 2018 of SEA, of its sub- sition date, the identifiable as- for application of the “Cumula- sidiaries, and of those subsidiaries sets acquired and the liabilities tive Catch-up Approach” for the upon which it exercises a signifi- assumed are recorded at fair leasing contracts previously clas- cant influence. value at the acquisition date; sified as operating leases, which the following items form an resulted in an increase in right of In accordance with IFRS 10, com- exception, which are instead use of Euro 4.8 million, with the panies are considered subsidiar- valued according to the appli- counter-entry of an increase in fi- ies when the Group simultane- cable standard: nancial payables for leased assets ously holds the following three ◼◼ deferred tax assets and lia- of the same amount. elements: bilities; ◼◼ employee benefit assets On June 7, 2017, the IASB pub- (a) power over the entity; and liabilities; lished the interpretative doc- (b) exposure, or rights, to variable ◼◼ liability or equity instruments ument IFRIC 23 – Uncertainty returns deriving from involve- relating to share-based pay- over Income Tax Treatments. ment with the same; ments of the company ac- The document deals with uncer- (c) the capacity to utilise its pow- quired or share-based pay- tainties on the tax treatment to er to influence the amount of ments relating to the Group be adopted for income taxes. It these variable returns. issued in substitution of con- establishes that uncertainties in tracts of the entity acquired; the calculation of tax liabilities or The subsidiary companies are con- ◼◼ assets held-for-sale and dis- assets are reflected in the finan- solidated using the line-by-line continued operations; cial statements only where it is method. The criteria adopted for ◼◼ the acquisition of minority probable that the entity will pay the line-by-line consolidation were shareholdings relating to en- or recover the amount in ques- as follows: tities in which control already tion. In addition, the document exists are not considered as does not contain any new disclo- ◼◼ the assets and liabilities and such, but rather operations sure obligations, but underlines the charges and income of the with shareholders; the Group that an entity should establish companies fully consolidat- records under equity any differ- whether it will be necessary to ed are recorded line-by-line, ence between the acquisition provide information on consider- attributing to the minority cost and the relative share of ations made by management and shareholders, where applica- the net equity acquired; the relative uncertainty concern- ble, the share of net equity and ◼◼ the significant gains and losses, ing the accounting of income tax- net result for the period per- with the relative fiscal effect, es, in accordance with IAS 1. The taining to them; this share is deriving from operations be- new interpretation applies from recorded separately in the net tween fully consolidated com- January 1, 2019, although early equity and in the consolidated panies and not yet realised with application is permitted. The Di- income statement; third parties, are eliminated, ex- rectors have not applied IFRIC 23 ◼◼ business combinations are rec- cept for the losses not realised in advance and are currently as- ognised according to the ac- and which are not eliminated, sessing the possible effects from quisition method. According to where the transaction indicates the introduction of this interpre- this method, the amount trans- a reduction in the value of the tation on the Group consolidated ferred in a business combina- asset transferred. The effects financial statements. tion is valued at fair value, cal- deriving from reciprocal paya-

Annual Report 2018 • 79 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

bles and receivables, costs and ◼◼ the book value of these in- equity method not represent- revenues, as well as financial investments are in line with the ed by the income statement come and charges are also elim- adjusted net equity, where result are recorded directly inated if significant; necessary, to reflect the appli- as an adjustment to equity re- ◼◼ the gains and losses deriving cation of IFRS and includes the serves; from the sale of a share of the recording of the higher value ◼◼ the significant gains and loss- investment in a consolidated attributed to the assets and es not realised generated on company which results in the liabilities and to any goodwill operations between the Par- loss of control are recorded in identified at the moment of ent Company and subsidiary the income statement for the the acquisition; companies and investments amount corresponding to the ◼◼ the Group gains and losses are valued under the equity meth- difference between the sales recorded at the date in which od are eliminated based on the price and the corresponding the significant influence be- share pertaining to the Group fraction of the consolidated net gins and until the significant in the investee; the losses not equity sold. influence terminates; in the realised are eliminated, except case where, due to losses, the when they represent a reduc- Associated Companies company valued under this tion in value. Associated companies are com- method indicates a negative panies in which the Group has a net equity, the carrying value 2.5 Consolidation scope and significant influence, which is al- of the investment is written changes in the year leged to exist when the percent- down and any excess pertain- The registered office and the age held is between 20% and ing to the Group, where this share capital (at December 31, 50% of the voting rights. latter is committed to com- 2018 and December 31, 2017) ply with legal or implicit obli- of the companies included in the The investments in associated gations of the investee, or in consolidation scope under the full companies are measured under any case to cover the losses, consolidation method and equity the equity method. The equity is recorded in a specific provi- method are reported below: method is as described below: sion; the equity changes of the companies valued under the

Annual Report 2018 • 80 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Share capital Share capital Company Registered office at 12/31/2018 at 12/31/2017 (Euro) (Euro) SEA Energia S.p.A. Milan Linate Airport - Segrate (MI) 5,200,000 5,200,000 SEA Prime S.p.A. Viale dell'Aviazione, 65 - Milan 2,976,000 2,976,000 Signature Flight Support Italy S.r.l. Viale dell'Aviazione, 65 - Milan 420,000 420,000 Dufrital S.p.A. Via Lancetti, 43 - Milan 466,250 466,250 SACBO S.p.A. Via Orio Al Serio, 49/51 - Grassobbio (BG) 17,010,000 17,010,000 SEA Services S.r.l. Via Caldera, 21 - Milan 105,000 105,000 Malpensa Logistica Europa S.p.A. Milan Linate Airport - Segrate (MI) 6,000,000 6,000,000 Disma S.p.A. Milan Linate Airport - Segrate (MI) 2,600,000 2,600,000 Malpensa Airport - Terminal 2 - Somma Airport Handling S.p.A. (*) 5,000,000 Lombardo (VA)

(*) In July 2018, 30% of the share capital of Airport Handling SpA was transferred to SEA following the dissolution of the Milan Airport Handling Trust, having exhausted its corporate scope, with recognition of the investment under associated companies. At December 31, 2017, the Com- pany was classified under other financial assets.

The following change took place ticipation (increasing its hold- made to the Directors’ Report. in the consolidation scope of the ing in the company to 70%) SEA Group: and due to the dissolution of The companies included in the the Trust, having exhausted its consolidation scope at December ◼◼ due to dnata’s exercise of the corporate scope, Airport Han- 31, 2018 and the respective con- option to purchase an addi- dling at December 31, 2018 is solidation methods are reported tional 40% of Airport Handling consolidated under the equi- below: and a corresponding share of ty method. For further infor- Financial Instruments of Par- mation, reference should be

Group % Group % Company Consolidation Method at 12/31/2018 holding at holding at 12/31/2018 12/31/2017 SEA Energia S.p.A. Line-by-line 100% 100% SEA Prime S.p.A. Line-by-line 99.91% 99.91% Signature Flight Support Italy S.r.l. (1) Net Equity 39.96% 39.96% Dufrital S.p.A. Net Equity 40% 40% SACBO S.p.A. Net Equity 30.979% 30.979% SEA Services S.r.l. Net Equity 40% 40% Malpensa Logistica Europa S.p.A. Net Equity 25% 25% Disma S.p.A. Net Equity 18.75% 18.75% Airport Handling S.p.A. Net Equity 30%

(1) Associate of SEA Prime SpA

Annual Report 2018 • 81 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

2.6 Translation of foreign neration of the internal costs for a reduction in the value of these currency transactions the management of the works intangible assets, the difference The transactions in currencies and design activities undertaken between the present value and other than the operational cur- by the group which is a mark-up the recovery value is recognised in rency of the company are con- a third-party general contractor the income statement. verted into Euro using the ex- would request for undertaking change rate at the transaction the same activities, in accordance (b) Industrial patents and date. with IFRIC 12. intellectual property rights

The foreign currency gains and The lessee must recognise and Patents, concessions, licenses, losses generated from the clo- measure service revenues in ac- trademarks and similar rights sure of the transaction or from cordance with IFRS 15. If the fair Trademarks and licenses are amor- the translation at the reporting value of the services received tised on a straight-line basis over date of the assets and liabilities (specifically the right of use of the estimated useful life. in foreign currencies are recog- the asset) cannot be determined nised in the income statement. reliably, the revenue is calculat- Computer software ed based on the fair value of the Software costs are amortised on construction work undertaken. a straight-line basis over three 2.7 Accounting policies The subsequent accounting of years, while software programme the amount received as financial maintenance costs are charged Intangible assets asset and as intangible asset is de- to the income statement when An intangible asset is a non-mon- scribed in detail in paragraphs 23- incurred. etary asset, identifiable and 26 of IFRIC 12. without physical substance, con- Intangible assets with definite trollable and capable of gener- The construction work in progress useful life are annually tested for ating future economic benefits. at the reporting date is measured losses in value or where there is These assets are recorded at pur- based on the state of advance- an indication that the asset may chase and/or production cost, in- ment of the work in accordance have incurred a loss in value. Ref- cluding the costs of bringing the with IFRS 15 and this amount is erence should be made to the asset to its current use, net of reported in the income statement paragraph below “Impairments”. accumulated amortisation, and line “Revenues for works on assets any loss in value. The intangible under concession”. Property, plant & equipment assets are as follows: Tangible fixed assets includes Restoration or replacement works property, part of which under the (a) Rights on assets under con- are not capitalised and are includ- scope of IFRIC 12, and plant and cession ed in the estimate of the restora- equipment. The “Rights on assets under con- tion and replacement provision as cession” represent the right of the outlined below. Property Lessee to utilise the asset under Property, in part financed by the concession (so-called intangible Assets under concession are am- State, relates to tangible assets ac- asset method) in consideration of ortised over the duration of the quired by the Group in accordance the costs incurred for the design concession, as it is expected that with the 2001 Agreement (which and construction of the asset with the future economic benefits of renewed the previous concession the obligation to return the asset the asset will be utilised by the of May 7, 1962). The 2001 Agree- at the end of the concession. The lessee. ment provides for the obligation value corresponds to the “fair val- of SEA to maintain and manage ue” of the design and construction The accumulated amortisation airport assets for the undertak- assets increased by the financial provision and the restoration and ing of such activities and the right charges capitalised, in accordance replacement provision ensure the to undertake structural airport with IAS 23, during the construc- adequate coverage of the charges works, which remain the property tion phase. The fair value of the of restoration and replacement of of SEA until the expiry of the 2001 construction work is based on the the components subject to wear Agreement, i.e. May 4, 2041. The costs actually incurred increased and tear of the assets under con- fixed assets in the financial state- by a mark-up of 6% representing cession. ments are reported net of State the best estimate of the remu- Where events arise which indicate grants.

Annual Report 2018 • 82 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

to its original condition. straight-line basis, which depre- Depreciation of property is ciates the asset over its estimat- charged based on the number The expenses incurred for the ed useful life. Where this latter of months held on a straight-line maintenance and repairs of an is beyond the date of the end of basis, which depreciates the as- ordinary and/or cyclical nature the concession, the amount is de- set over its estimated useful life. are directly charged to the in- preciated on a straight-line basis Where this latter is beyond the come statement when they are until the expiry of the concession. date of the end of the conces- incurred. The capitalisation of the Applying the principle of the com- sion, the amount is depreciated costs relating to the expansion, ponent approach, when the asset on a straight-line basis until the modernisation or improvement of to be depreciated is composed of expiry of the concession. Apply- owned tangible assets or of those separately identifiable elements ing the principle of the compo- held in leasing, is made only when whose useful life differs signifi- nent approach, when the asset they satisfy the requirements to cantly from the other parts of the to be depreciated is composed of be separately classified as an asset asset, the depreciation is calculat- separately identifiable elements or part of an asset in accordance ed separately for each part of the whose useful life differs signifi- with the component approach, in asset. cantly from the other parts of the which case the useful life and the asset, the depreciation is calculat- relative value of each component The depreciation rates for owned ed separately for each part of the is measured separately. assets, where no separate specific asset. components are identified are re- Depreciation is charged to the ported below: For land, a distinction is made be- income statement based on the tween land owned by the Group, number of months held on a classified under property, plant and equipment and not subject to depreciation and expropriated areas necessary for the extension of the Malpensa Terminal, classified under “Assets under concession” Class % depreciation and amortised over the duration of the concession. Loading and unloading vehicles 10.0% Runway equipment 31.5% The free granting of assets is recognised at market value, accord- Minor equipment 25.0% ing to independent technical ex- Furniture and fittings 12.0% pert opinions. Transport vehicles 20.0%

Plant & Equipment Motor vehicles 25.0% These are represented by tangible fixed assets acquired by the Group EDP 20.0% which are not subject to the obligation of free devolution.

Plant and equipment are recorded at purchase or production cost and, only with reference to owned assets, net of accumulated depreciation and any loss in value. The cost includes charges directly incurred for bringing the asset to their condition for use, as well as dismantling and removal charges which will be incurred consequent of contractual obligations, which require the asset to be returned

Annual Report 2018 • 83 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

The useful life of property, plant is made, recording any write the carrying value of the asset and equipment and their residual down compared to the relative is higher than the recoverable value are reviewed and updated, book value in the income state- amount. When the reasons for where necessary, at least at the ment. The recoverable value of the write-down no longer exist, end of each year. an asset is the higher between the book value of the asset (or of the fair value less costs to sell the cash-generating unit) is re- Investment property and its value in use, where this stated through the income state- This account includes owned latter is the fair value of the esti- ment, up to the value at which buildings not for operational use. mated future cash flows for this the asset would be recorded if Investment property is initially rec- asset. For an asset that does not no write-down had taken place ognised at cost and subsequently generate sufficient independent and amortisation and deprecia- measured utilising the amortised cash flows, the realisable value tion had been recorded. cost criteria, net of accumulated is determined in relation to the depreciation and losses in value. cash-generating unit to which Financial assets the asset belongs. In determin- On initial recognition, the financial Depreciation is calculated on a ing the fair value consideration assets are classified, in accordance straight-line basis over the useful is taken of the purchase cost of with IFRS 9, in one of the follow- life of the building. a specific asset which takes into ing categories based on the busi- account a depreciation coeffi- ness model of the Company for Impairments cient (this coefficient takes into the management of the financial At each reporting date, the prop- account the effective conditions assets and the characteristics erty, plant and machinery, in- of the asset). In defining the val- relating to the contractual cash tangible assets and investments ue in use, the expected future flows of the financial assets. in subsidiaries and associated cash flows are discounted utilis- companies are analysed in or- ing a discount rate that reflects The financial assets represented der to identify any indications the current market assessment by equity instruments of oth- of a reduction in value. Where of the time value of money, and er entities (i.e. investments in these indications exist, an esti- the specific risks of the activity. A companies other than subsidiar- mate of the recoverable value reduction in value is recognised ies, associates and joint control of the above-mentioned assets to the income statement when companies), not held for trading

Category Business Model Characteristics of the cash flows

The cash flows are exclusively The financial asset is held in order to Amortised cost represented by payments of interest collect the contractual cash flows and the repayment of principal

The financial asset is held to collect Fair value through other The cash flows are exclusively the contractual cash flows, both comprehensive income (also represented by payments of interest deriving from sale and operating “FVOCI”) and the repayment of principal activities

Fair value through profit or loss (also Differing from that under amortised Differing from that under amortised “FVTPL”) cost and FVOCI cost and FVOCI

purposes, may be classified in through profit or loss either on or loss if this eliminates or signif- the category FVOCI. This choice, sale or on its impairment. icantly reduces an incoherence in made instrument by instrument, the measurement or in the rec- requires that the fair value Despite that reported above, on ognition (sometimes defined as changes are recognised under initial recognition it is possible “accounting asymmetry”) which “Other items of the comprehen- to irrevocably designate the fi- would otherwise result in a meas- sive income statement” and are nancial asset as measured at fair urement on another basis. not subsequently recognised value recognised through profit

Annual Report 2018 • 84 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

either years.

Derivative financial instruments Derivative financial instruments are classified as hedging instruments, in accordance with paragraph 6.4 of IFRS 9, when the relation between the derivative and the hedged item is formally documented and the effectiveness of the hedge, periodically verified, is high.

The hedging relations are of three types:

1. fair value hedge in the case of hedging the exposure against changes in the fair value of assets or liabilities recorded which is attributable to a risk which could impact the result During the current year the loans and receivables which for the year. The profit or loss- Group applied IFRS9 Financial based on IAS 39 were meas- es on the hedging instrument instruments (as revised in July ured at amortised cost contin- are recorded in the income 2014) and the relative conse- ue to be measured at amor- statement (or in “Other items of the comprehensive income quent amendments. The Group tised cost based on IFRS 9 as statement”, if the hedging decided to restate its compara- held within a business model instrument hedges an equi- tive figures in terms of classifi- whose objective is to collect ty instrument for which the cation and measurement of the the contractual cash flows Group has chosen to present financial instruments. The Direc- and these cash flows comprise the changes in fair value under tors reviewed and measured the solely payments of principal “Other items of the compre- financial assets of the Group held and interest on the amount of hensive income statement”); at January 1, 2018 on the basis the capital to be repaid. 2. cash flow hedge in the case of of the facts and circumstances at ◼◼ In relation to the loss in value of hedging the exposure against that date and concluded that the the financial assets, IFRS 9 re- changes in the cash flows -at initial application of IFRS 9 had a quires the application of a mod- tributable to a particular risk non-material impact on the finan- el based on expected credit associated with all the assets cial assets of the Group both in losses, instead of based on the or liabilities recorded or one of relation to their classification and losses on receivables already in- their components or a highly measurement: curred required by IAS 39. The probable scheduled transac- Directors compared the credit tion and which could impact ◼◼ Group investments in equity risk of the respective financial on the result for the year. The instruments previously classi- instruments at their initial rec- hedging is recorded as follows: fied under “Investments avail- ognition date and confirmed a) the net equity reserve for able for sale” based on IAS 39 the values recorded in the fi- the hedging of the cash flows were designated as FVTPL and nancial statements at Decem- is adjusted to the lower be- classified under “Other invest- ber 31, 2017. tween the cumulative profit or ments”. The changes in the fair loss on the hedging instrument value of these equity instru- None of the other reclassifica- from the commencement of ments continue to be recorded tions of financial assets impact- the hedge and the cumulative in profit or loss. ed on the financial position, change in the fair value of the ◼◼ The financial assets classified result for the year or compre- item hedged from the com- as held to maturity and the hensive result of the Group in mencement of the hedge; b)

Annual Report 2018 • 85 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

the part of the profit or loss on trated above, the application of excluding payments on behalf of the hedging instrument which the criteria of IFRS 9 on the ac- third parties. The payment prom- is an effective hedge is record- counting treatment of hedging ised in the contract with the client ed in a net equity reserve (and operations had no other impacts may include fixed amounts, varia- in specifically under “Other on the Group with reference to ble amounts or both. items of the comprehensive the current year and the com- income statement”). Any resid- parative year. Reference should The reduction in value for the rec- ual profit or loss on the hedge be made to Note 4.2 for further ognition and measurement of the instrument represents the in- information in relation to the doubtful debt provision follows effective part of the hedge management of the risk of the the criteria indicated in paragraph which is recorded in the in- Group. 5.5 of IFRS 9. The objective is to come statement in the account recognise the expected losses “Financial income/charges”; Environmental securities: emission over the entire duration of the 3. hedges of a net investment in a quotas, Green Certificates and receivable considering all reason- foreign operation (as defined in White Certificates able and demonstrable informa- IAS 21), recognised in a similar The SEA Group holds/acquires tion, including indications of ex- manner to the hedging of finan- quotas/certificates for own-use, pected developments. cial cash flows. or rather to meet its own needs and not for trading purposes. Receivables are therefore re- The hedging relations of the ported net of the provision for Group at January 1, 2018 which The quotas/certificates held for doubtful debts. If in subsequent satisfied the admissibility criteria own-use exceeding its needs, periods the reduction in the also qualified for hedge account- determined in relation to the value of the asset is confirmed, ing based on IFRS 9 and there- obligations matured at year-end the doubtful debt provision is fore were considered as contin- (“surplus”), are recorded under utilised; otherwise, where the uing hedging relationships. As other current receivables at cost reasons for the previous write- the fundamental elements of incurred. The certificates assigned down no longer exist, the value the hedging instruments corre- without consideration on the oth- of the asset is reversed up to the spond to the items hedged, all er hand are recorded at zero val- transaction price. For further in- the hedging relations continue. Where however the needs formation, reference should be ue to be effective based on the exceed the quota/certificates in made to Note 4.1. evaluation of the effectiveness portfolio at the reporting date criteria of IFRS 9. When the (“deficit”), a provision is recorded Inventories option contracts are utilised to in the accounts of the necessary Inventories are measured at the hedge highly probable sched- charge to meet the residual obli- lower of average weighted pur- uled transactions, the Group gation, estimated on the basis of chase and/or production cost and only designates the intricate val- any purchase contracts, including net realisable value or replace- ue of the options as hedging in- futures, already underwritten at ment cost. The valuation of inven- struments. Based on IFRS 9, the the reporting date and, residually, tories does not include financial changes in the time value of op- from market prices. charges. tions relating to the item hedged are recognised in the other items Trade and other receivables Inventories are shown net of the of the comprehensive income The trade and other receivables obsolescence provision to adjust statement and are accumulated which do not have a significant fi- inventories to their realisable or in the hedge reserve under net nancing component (determined replacement value. equity. IFRS 9 requires that the in accordance with IFRS 15) are accounting treatment relating initially recognised at transaction Cash and cash equivalents to the time value of an option price, adjusted to take into ac- Cash and cash equivalents in- not designated is applied in ret- count expected losses over the cludes cash, bank deposits, and rospective manner. Therefore, duration of the receivable. The other short-term forms of invest- at January 1, 2018 the extraor- transaction price is the amount of ment, due within three months. dinary reserve was increased by the payment which the entity con- At the reporting date, bank over- Euro 1 thousand. siders it is entitled to in exchange drafts are classified as financial for transferring the promised payables under current liabilities As an exception to that illus- goods or services to the client, in the statement of financial po-

Annual Report 2018 • 86 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

sition. Cash and cash equivalents the best estimate of the present ee is quantifiable only after the are recorded at fair value. value of the charges matured at termination of the employment the reporting date for the pro- service period, and is related Provisions for risks and charges grammed maintenance in the to one or more factors such as The provisions for risks and coming years and undertaken in age, years of service and remu- charges are recorded to cover order to ensure the functionali- neration; therefore the relative known or likely losses or liabil- ty, operations and security of the charge is recognised to the in- ities, the timing and extent of assets under concession. come statement based on ac- which are not known with cer- tuarial calculations. The liability tainty at the reporting date. They It should be noted that the resto- recorded in the accounts for de- are recorded only when there ex- ration and replacement provision fined benefit plans corresponds ists a current obligation (legal or of the assets refers only to fixed to the present value of the ob- implicit) for a future payment re- assets within the scope of IFRIC ligation at the reporting date, sulting from past events and it is 12 (assets under concession classi- net, where applicable, of the fair probable that the obligation will fied to intangible assets). value of the plan assets. The ob- be settled. This amount repre- ligations for the defined benefit sents the best estimate less the Employee provisions plans are determined annually by expenses required to settle the Pension provisions an independent actuary utilising obligation. The Companies of the Group the projected unit credit meth- have both defined contribution od. The present value of the de- Possible risks that may result in a plans (National Health Service fined benefit plan is determined liability are disclosed in the notes contributions and INPS pension discounting the future cash under the section on commit- plan contributions) and defined flows at an interest rate equal benefit plans (Post-Employment ments and risks without any pro- to the obligations (high-quality vision. Benefits). corporate) issued in the currency in which the liabilities will be set- Restoration and replacement A defined contribution plan is a tled and takes into account the provision of assets under plan in which the Group partici- duration of the relative pension concession pates through fixed payments to plan. The accounting treatment of the third party fund operators, and works undertaken by the lessee in relation to which there are no The actuarial gains and losses, on the assets under concession, legal or other obligation to pay in accordance with IAS 19R, are as per IFRIC 12, varies depend- further contributions where the recorded directly under equity ing on the nature of the work: fund does not have sufficient as- normal maintenance on the assets to meet the obligations of in a specific reserve account “Re- set is considered ordinary main- the employees for the period in serve for actuarial gains/loss”. tenance and therefore recog- course and previous periods. For nised in the income statement; the defined contribution plans, We report that, following replacement work and pro- the Group pays contributions, amendments made to the leav- grammed maintenance of the as- voluntary or established contrac- ing indemnity regulations by Law set at a future date, considering tually, to public and private pen- No. 296 of December 27, 2006 that IFRIC 12 does not provide sion funds. The contributions are and subsequent Decrees and for the recognition of a physical recorded as personnel expense Regulations issued in the first asset but a right, must be recog- in accordance with the accruals half of 2007, the leaving indem- nised in accordance with IAS 37 principle. The advanced contri- nity provision due to employees - “Provisions and potential liabil- butions are recorded as an asset in accordance with Article 2120 ities” – which establishes recog- which will be repaid or offset Civil Code is classified as defined nition to the income statement against future payments where benefit plans for the part ma- of a provision and the recording due. tured before application of the of a provision for charges in the new legislation and as defined balance sheet. A defined benefit plan is a plan contribution plans for the part not classified as a contribution matured after the application of The restoration and replacement plan. In the defined benefit pro- the new regulation. provision of the assets under grammes, the amount of the concession include, therefore, benefit to be paid to the employ-

Annual Report 2018 • 87 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Post-employment benefits flows and on the internal yield ments (with recourse). Based Post-employment benefits are initially determined. The finan- on the contractual structures in paid to employees when the em- cial liabilities are classified under place, the supplier has the pos- ployee terminates his employ- current liabilities, except when sibility to assign the receivables ment service before the normal the Group has an unconditional claimed from the Group at its pension date, or when an employ- right to defer their payment for own discretion to a lending insti- ee accepts voluntary termination at least 12 months after the re- tution and cash in the amount be- of the contract. The Group reporting date. fore maturity. cords post-employment benefits when it is demonstrated that the Purchases and sales of financial Invoice payment terms are non-in- termination of the employment liabilities are recognised at the terest bearing as they do not in- contract is in line with a formal valuation date of the relative volve further extensions agreed plan which determines the termi- transaction. upon between the supplier and nation of the employment service, the Group. or when the provision of the bene- Financial liabilities are derecog- fit is a result of a leaving indemnity nised from the balance sheet In this context, the relationships programme. when they are settled and the for which the primary obligation Group has transferred all the is maintained with the supplier Financial liabilities risks and rewards relating to the and any extension, where grant- Financial liabilities and other com- instrument. ed, do not involve a change in mitments to be paid, with the ex- payment terms, retain their na- clusion of the categories indicat- Trade and other payables ture and therefore remain classi- ed in paragraph 4.2 of IFRS 9, are Trade and other payables are in- fied as commercial liabilities. initially measured at amortised itially recognised at amortised cost, using the effective interest cost. Revenue recognition rate. When there is a change in Revenues are recognised when the expected cash flows and it Reverse factoring transactions - the transfer to the client of the is possible to estimate them re- indirect factoring goods or services promised is ex- liably, the value of the payables In order to ensure easy access to pressed in an amount (expressed are recalculated to reflect this credit for its suppliers, the Group net of value added taxes and change, based on the new pres- has entered into reverse factor- discounts) which reflects the ex- ent value of the expected cash ing or indirect factoring agree- pected consideration to be re-

Annual Report 2018 • 88 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

ceived in exchange for the goods the certificates this is then record- Government Grants or services. ed as a customer receivable. Public grants, in the presence of a formal resolution, are recorded on Recognition occurs when (or over White certificates allocated by an accrual basis in direct correla- time) the Group complies with the the GSE until 2016 are handled tion to the costs incurred (IAS 20). obligation to transfer to the client in a similar manner following the the goods or service (or the asset) recognition of the Malpensa sta- Capital grants promised. The asset is transferred tion as a high yield cogeneration Capital public grants relating to when (or over time) the client ac- plant. property, plant and equipment quires control. Control of the as- are recorded as a reduction in the set is the capacity to decide upon Revenue for works on assets acquisition value of the assets to the use of the asset and to obtain under concession which they refer. substantially all the remaining Revenues on construction work benefits. Control includes the ca- are recognised in relation to the Operating grants pacity to prevent other entities to state of advancement of works Operating grants are recorded in use the asset and obtain benefits. in accordance with the percent- the income statement in the ac- The benefits of the assets are the age of completion method and potential cash flows (cash inflows on the basis of the costs incurred count “Operating income”. or savings on outflows) which may for these activities increased by a be obtained directly or indirectly. mark-up of 6% representing the Recognition of costs remuneration of the internal costs Costs are recognised when relat- For each obligation to be com- of the management of the works ing to assets or services acquired plied with over time, the revenues and design activities undertaken or consumed in the year or by sys- are recognised over the time peri- by the SEA Group, the mark-up tematic allocation. od, evaluating the progression to- which would be applied by a gen- wards complete compliance with eral contractor (as established by Financial income the obligation. IFRIC 12). Financial income is recognised on an accruals basis and includes in- Handling activity revenues are The revenues generated by the terest income on funds invested, recognised on an accruals basis, Group refer to the sale of goods foreign currency gains and income according to the number of pas- and services during the period deriving from financial instru- sengers in the year. and principally refer to the busi- ments, when not offset by hedg- ness lines illustrated in the “Op- ing operations. Interest income is Revenues from electric and ther- erating segments” section and recorded in the income statement mal energy production are rec- in the income statement. As at the moment of maturity, con- ognised on an accruals basis, ac- per IFRS 15.114, the Group ag- sidering the effective yield. cording to the effective quantity gregates the revenues record- produced in kWh. The tariffs are ed deriving from contracts with Financial charges customers into categories which based on the contracts in force - Financial charges are recorded both those at fixed prices and in- illustrate how the economic fac- on an accrual basis and include dexed prices. tors impact upon the nature, the interest on financial payables cal- amount, the timing and the level culated using the effective inter- Green certificates, white of uncertainty of the revenues est method and currency losses. certificates and emission quotas and of the cash flows. The companies which produce The financial charges incurred on electricity from renewable sourc- The revenues are recorded net of investments in assets for which a es receive green certificates from the incentives granted to airlines, significant period of time is usu- the Energy Service Operator based on the number of passen- ally needed to render the assets (GSE). Revenues are recognised on gers transported and invoiced by available for use or sale (quali- an accruals basis, both in relation the airlines to the Company for (i) fying assets) are capitalised and to certificates issued on a prelim- the maintenance of traffic at the amortised over the useful life of inary basis and final certificates airport or (ii) the development the class of the assets to which issued. On the recognition of the of traffic through increasing ex- they refer in accordance with the revenues a receivable is recorded isting routes or launching new provisions of IAS 23. from the GSE and on the sale of routes.

Annual Report 2018 • 89 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Income taxes recorded when their recovery is consolidating company the tax Current income taxes are calcu- considered probable. income or loss; the consolidat- lated based on the assessable in- ing company records a receivable come for the year, applying the Current and deferred income with the company that contrib- current tax rates at the reporting taxes are recorded in the income utes assessable income equal to date. statement, except those relating the income tax to be paid. For to accounts directly credited or companies contributing a tax loss, Deferred taxes are calculated on debited to equity, in which case the parent company recognises a all differences between the as- the fiscal effect is recognised di- payable. sessable income of an asset or li- rectly to equity and to the Com- ability and the relative book value, prehensive Income Statement. Dividendi with the exception of goodwill. Taxes are compensated when ap- Payables for dividends to share- Deferred tax assets for the por- plied by the same fiscal authority, holders are recorded in the year in tion not compensated by deferred there is a legal right of compensa- which the distribution is approved tax liabilities are recognised only tion and the payment of the net by the Shareholders’ Meeting. for those amounts for which it is balance is expected. probable there will be future as- The dividends distributed be- sessable income to recover the Other taxes not related to in- tween Group companies are elimi- amounts. The deferred taxes are come, such as taxes on property, nated in the income statement. calculated utilising the tax rates are included under “Other operat- which are expected to be applied ing costs”. in the years when the temporary 3. Estimates and differences will be realised or Within the fiscal consolidation, settled. Deferred tax assets are each company transfers to the assumptions The preparation of the financial statements requires the directors to apply accounting principles and methods that, in some circumstances, are based on difficulties and subjective valuations and estimates based on the historical experience and assumptions which are from time to time considered reasonable and realistic under the relative circumstances. The application of these estimates and assumptions impact upon the amounts reported in the financial statements, such as the statement of financial position, the income statement and the cash flow statement, and on the disclosures in the notes to the accounts.

The accounting principles which relating to the Group, require greater subjectivity by the Direc- tors in the preparation of the estimates and for which a change in the underlying conditions or the assumptions may have a significant impact on the consolidated financial statements are briefly described below.

Annual Report 2018 • 90 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

(a) Impairments residual useful life could result in a uled maintenance in future years The tangible and intangible assets change in the depreciation period in order to ensure the functional- and investments in associated and therefore in the depreciation ity, operations and security of the companies and property invest- charge in future years. assets under concession. ments are verified to ascertain if there has been a loss in value (c) Provisions for risks and (d) Trade receivables which is recorded by means of a charges The Group evaluates the expected write-down, when it is considered The Group companies may be sub- losses on trade receivables in or- there will be difficulties in the reject to legal disputes, in relation der to reflect, through a specific covery of the relative net book val- to taxation or employment issues, doubtful debt provision, the real- ue through use. The verification of based on particularly complex cir- isable value utilising reasonable the existence of the above-men- cumstances of varying degrees of and demonstrable information tioned indicators requires the Di- uncertainty, according to the facts available, without excessive costs rectors to make valuations based and circumstances, jurisdiction or effort at the reporting date on on the information available with- and laws applicable to each case. past events, current conditions in the Group and from the market, and future economic conditions. as well as historical experience. In Considering the inexact nature of The doubtful debt provision rep- addition, when it is determined these issues, it is difficult to pre- resents the best estimate at the that there may be a potential re- dict with certainty any future pay- reporting date made by the Di- duction in value, the Group deter- ments required. rectors. This estimate is based mines this through using the most on facts and expectations which appropriate technical valuation Therefore Management, having may change over time and which methods available. The correct consulted with its legal and tax ad- may, therefore, have significant identification of the indicators visers, recognises a liability against effects compared to the present of the existence of a potential these disputes when a financial estimates made by the Directives reduction in value as well as the payment is considered probable for the preparation of the Group estimates for their determination and the amount of the losses aris- consolidated financial statements. depends on factors which may ing may be reasonably estimated. vary over time impacting upon the In the case in which a payment is valuations and estimates made by considered possible, but is not yet 4. Risk Management the Directors. determinable, such is reported in the explanatory notes. The risk management strategy of (b) Depreciation the Group is based on minimising Depreciation represents a signifi- Provisions are recorded against potential negative effects related cant cost for the Group. The cost risks of a legal and tax nature and to the financial and operating per- of property, plant and equipment employee disputes. The amount formance. Some types of risk are is depreciated on a straight-line of the provisions recorded in the offset through recourse to deriva- basis over the estimated useful life financial statements relating to tive instruments. of the relative assets and compo- these risks therefore represents nents. The useful life of the fixed the best estimate at that date The management of the assets of the Group is determined made by the Directors. This esti- above-mentioned risks is under- by the Directors when the fixed mate results in the adoption of taken by the parent company assets are purchased. This is based assumptions concerning factors which identifies, evaluates and on the historical experiences for which may change over time and undertakes hedging of financial similar fixed assets, market condi- which may, therefore, have sig- risks, in close collaboration with tions and considerations relating nificant effects compared to the other entities of the Group. to future events which could have present estimates made by the Di- an impact on the useful life, such rectors for the preparation of the as changes in technology. There- financial statements. In addition, fore, the effective useful life may the restoration and replacement be different from the estimated provision of the assets under con- useful life. The Group periodically cession, recorded in accordance evaluates technological and sec- with IFRIC 12, includes the best tor changes to update the resid- estimate of the charges matured ual useful life. Any change in the at the reporting date for sched-

Annual Report 2018 • 91 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

4.1 Credit risk cal events which impact upon the ents, credit terms are largely con- Credit risk represents the expo- air transport sector (wars, epidem- centrated within 30 days from the sure of the SEA Group to potential ics, atmospheric events, rise in oil relative invoicing. losses deriving from the non-com- prices and economic/financial cri- pliance of obligations by trading ses). Trade receivables are reported in and financial partners. the financial statements net of In order to control this risk, the doubtful debt provisions, which This risk is primarily of an eco- SEA Group has implemented pro- are prudently made based on the nomic/financial nature, or rather cedures and actions to monitor rating grade and underlying dis- the possibility of the default of a the expected cash flows and re- putes at the reporting date. counterparty, and also factors of a covery actions. technical/commercial or adminis- A summary of the trade receiv- trative/legal nature. In application of internal cred- ables and the relative doubtful it policies, clients are requested debt provisions is reported below: For the SEA Group, credit risk ex- to procure the release of guar- posure is largely related to the antees: this typically relates to deterioration of a financial nature first-demand bank guarantees is- of the principle airline companies sued by primary credit institutions which incur on the one hand the or guarantee deposits. effects of the seasonality related to aviation operations, and on the In relation to the payment terms other consequences of geopoliti- applied for the majority of the cli-

TRADE RECEIVABLES

(Euro thousands) December 31, 2018 December 31, 2017 Trade receivables - customers 212,210 203,516 - of which overdue 127,278 121,048 Doubtful debt provision - customers (102,612) (101,858) Trade receivables - associates 11,496 9,815 Doubtful debt provision - associates (89) (396) Total net trade receivables 121,005 111,077

The aging of the overdue receivables is as follows:

TRADE RECEIVABLES

(Euro thousands) December 31, 2018 December 31, 2017 less than 180 days 23,098 22,661 more than 180 days 104,180 98,387 Total trade receivables overdue 127,278 121,048

Annual Report 2018 • 92 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

The doubtful debt provision was of trade receivables. This matrix til December 2017 also includes amended in accordance with provides rating classes in rows and forward looking elements that the methods described in IFRS 9, the different bands of past-due allow management to value the whose application is obligatory or falling due in columns. The cal- expected loss. The estimates con- from January 1, 2018. A key ele- culated risk ratio represents the cerning applicable risk and gen- ment of the new standard is the probability that the client does eral economic developments are transition from the concept of ‘In- not honour its debt and the per- included in the definition of the curred Loss’ to that of ‘Expected centage of credit, obtained from a rating model and therefore are Loss’: the doubtful debt provision historical analysis, with the possi- constantly updated to reflect the must be determined by taking bility of the client being in default. effective risk, in order to ensure a into account the risks of non-col- Forward looking elements were complete coverage of the credit lection related not only to past- also utilised, such as the possibil- risk encountered by the company. due receivables but also on those ity of management undertaking falling due. There is, therefore, a further provisions, notwithstand- The table below illustrates the need to determine a ‘risk ratio’, ing the indications taken from the gross trade receivables at Decem- representative of the riskiness of matrix. The provision was recal- ber 31, 2018 and 2017, as well commercial counterparties, which culated at December 31, 2017 in as the breakdown of receivables varies according to the credit posi- accordance with the matrix, and from counterparties under admin- tion (performing or expired, with the difference recorded with the istration and in dispute, with indi- different bands for those that provision calculated in the 2017 cation of the bank and insurance expired based on overdue days). accounts was not material. This sureties and deposit guarantees A provision matrix was therefore result is justified by the fact that provided. constructed for the write-down the evaluation model in use un-

TRADE RECEIVABLES

(Euro thousands) December 31, 2018 December 31, 2017 Trade receivables - customers & associates 223,706 213,331 (i) receivables from parties subject to administration 97,123 95,965 procedures (ii) receivables subject to dispute 19,646 21,098 Total trade receivables, net of the receivables at points 106,937 96,268 (i) and (ii) Overdue receivables, other than at points (i) and (ii) 10,509 3,985 Sureties and deposits 76,612 74,177 % of receivables guaranteed by sureties and deposits vs total 71.6% 77.1% trade receivables, net of the receivables at points (i) and (ii)

4.2 Market risks c. commodity risk, related to the in interest rates may impact posi- The market risk to which the SEA volatility of the energy com- tively or negatively on the results Group is exposed comprises all modity prices, in SEA Energia. of the SEA Group, modifying the types of risks directly and indi- costs and returns on financial and rectly related to market prices. In a) Interest rate risk investment operations. 2018, the market risks to which The SEA Group is exposed to the the SEA Group were subject were: risk of changes in interest rates in The SEA Group manages this risk relation to the necessity to finance through an appropriate mixture a. interest rate risk; its operating activities and the use between fixed and variable rate b. currency risk; of available liquidity. The changes loans, with the objective to miti-

Annual Report 2018 • 93 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

gate the economic effect of the that these derivative contracts, The medium/long term debt at volatility of the interest rates. underwritten exclusively for the December 31, 2018 is reported in purposes of hedging market rate the following table, which shows Variable interest loans expose volatility, are recorded through each loan at the nominal value the SEA Group to a risk origi- the cash flow hedge method. (which includes a spread of be- nating from the volatility of the tween 0.20% and 1.62%, not con- interest rates (cash flow risk). At December 31, 2018 the gross sidering the hedging operations Relating to this risk, for the pur- financial debt of the SEA Group and any accessory guarantees): poses of the relative hedging, was comprised of medium/long- the SEA Group makes recourse term loans (medium/long term to derivative contracts, which portions of loans) and short-term converts the variable rate to a loans (exclusively the medium/ fixed rate or limits the fluctu- long-term portion of loans matur- ations in variable rates over a ing within 12 months). At Decem- range, in this manner reducing ber 31, 2018, the SEA Group did the risk originating from the vol- not make recourse to short-term atility of the rates. We highlight debt.

MEDIUM/LONG TERM LOANS

December 31, 2018 December 31, 2017 Average Average (Euro thousands) Maturity Amount rate Amount rate Bonds 2021 300,000 3.125% 300,000 3.125% from 2019 Bank loans - EIB funding 242,083 1.03% 261,849 1.08% to 2037 o/w at Fixed Rate 44,971 3.90% 51,557 3.89% o/w at Variable Rate(*) 197,112 0.38% 210,292 0.39% Other bank loans 2020 88 0.50% 154 0.50% o/w at Fixed Rate 88 0.50% 154 0.50% o/w at Variable Rate Medium/long-term gross financial debt 542,171 2.19% 562,003 2.17%

(*) Includes: (i) variable rate tranche subject to interest rate hedge (ca. 30% at 31.12.2018 & 32% at 31.12.2017); (ii) Euro 80 million of EIB loans with specific bank guarantee

The total value of medium/long- ering the hedging transactions 25.3% of total debt. term loans at December 31, 2018 against the interest rate risk and amounts to Euro 542,171 thou- the cost of bank guarantees on At December 31, 2018 the Group sand, a reduction of Euro 19,832 EIB loans, the average cost of has the following bond issue thousand compared to Decem- debt amounts to 2.78%, stable with a total nominal value of ber 31, 2017, due to repayments compared to December 2017. Euro 300 million. on these loans. The average Overall, the total medium/long- cost of this debt remained sta- term debt at a variable rate not ble amounting to 2.19% at De- hedged by the Company at De- cember 31, 2018. Also consid- cember 31, 2018 was approx.

Annual Report 2018 • 94 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Listing Terms Par value (in Annual Description Issuer ISIN Code Maturity Coupon market (years) million of Euro) rate

SEASPA 3 1/8 Irish Stock XS Fixed SEA SpA 7 04/17/2021 300 3.125% 04/17/21 Exchange 1053334373 annual

The fair value of the overall bank tractual maturity, extrapolated terest portion defined as -out and bond medium/long-term from the market rates; lined above and the capital on Group debt at December 31, 2018 ◼◼ for the bond listed on a regu- maturity was discounted utilis- amounts to Euro 562,361 thou- lated market, reference was ing the spot rate for each con- sand (reduction on Euro 593,482 made to the market value at tractual maturity, extrapolated thousand at December 31, 2017). December 31, 2018; from the market rate. This value was calculated as fol- ◼◼ for the loans at variable inter- lows: est rates, the interest portion The following table reports the was calculated utilising the es- derivative instruments utilised by ◼◼ for the loans at fixed interest timate of the expected rates at the SEA Group to cover the inter- rates, the capital portion and the end of each contractual ma- est rate risk (measured based on interest were discounted utilis- turity, increased by the spread the cash flow hedge method). ing the spot rates for each con- defined contractually. The in-

INTEREST RATE HEDGES

Residual Fair value at Fair value at Notional at Notional at Date of Start Maturity December December (€/000) signing date December sign. 31, 2018 31, 2017 31, 2018 10,000 7,742 05/18/2011 09/15/2012 09/15/2021 (771.8) (1,020.4) 5,000 3,871 05/18/2011 09/15/2012 09/15/2021 (385.9) (510.2) 15,000 10,345 05/18/2011 09/15/2012 09/15/2021 (1,003.8) (1,342.3) IRS 10,000 6,071 6/6/2011 09/15/2012 09/15/2021 (555.8) (751.5) 11,000 6,448 6/6/2011 09/15/2012 09/15/2021 (589.5) (796.9) 12,000 6,621 6/6/2011 09/15/2012 09/15/2021 (598.6) (811.7) 12,000 6,621 6/6/2011 09/15/2012 09/15/2021 (598.6) (811.7) 10,000 6,071 6/6/2011 09/15/2011 09/15/2021 (446.8) (596.6) Collar 11,000 6,069 6/6/2011 09/15/2011 09/15/2021 (436.4) (586.8) Total 96,000 59,859 (5,387.2) (7,228.0)

“-” indicates the cost for the SEA Group of any early closure of the operation “+” indicates the gain for the SEA Group of any early closure of the operation

The fair value of the derivative b) Currency risk national environment, the trans- financial instruments at Decem- The SEA Group, with the excep- actions are principally in Euro. ber 31, 2018 and at December tion of the currency risk related Therefore, the SEA Group does 31, 2017 was determined in ac- to the commodity risk, is subject not consider it necessary to imple- cordance with new IFRS 9 and to a low currency fluctuation risk ment specific hedging against this IFRS 13. as, although operating in an inter- risk as the amounts in currencies

Annual Report 2018 • 95 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

other than the Euro are insignifi- processes with the objective to The SEA Group has available com- cant and the relative receipts and minimise the liquidity risk. Specif- mitted and uncommitted credit payments generally offset one an- ically, the SEA Group: lines which guarantee the cover- other. ing of future financial needs and ◼◼ centrally monitors and man- current operational needs, with c) Commodity risk ages, under the control of the an average maturity of medium/ The SEA Group, limited to only Group Treasury, the financial long-term debt of 4 years, includ- SEA Energia, is exposed to chang- resources available, in order ing the bond issued in 2014. If es in prices, and the relative im- to ensure an efficient manage- the bond loan is excluded, the plied currency fluctuations, of ment of these resources, also in remaining debt has a maturity of the energy commodities utilised forward budgeting terms; approximately 6 years (16% over i.e. gas and environmental certifi- ◼◼ maintains adequate liquidity in 10 years). cates connected to the operating treasury current accounts; management of the company. ◼◼ obtains committed credit lines Trade payables are guaranteed by These risks derive from the pur- (revolving and non), which cov- the Group through careful work- chase of the above-mentioned ers the financial commitments ing capital management which commodities, which in the case of the Group in the coming 12 largely concerns trade receivables of gas are principally impacted by months deriving from the in- and the relative contractual con- fluctuations in the prices of the vestment plans and contractual ditions established. We highlight underlying fuels, denominated debt repayments; that the indirect factoring oper- in US Dollars. In the SEA Group, ◼◼ monitors the liquidity posi- ations, as previously described, these fluctuations are absorbed tion, in relation to the busi- does not change the contractual through formulas and indexations ness planning. payment conditions and therefore utilised in the pricing structures does not result in dilution effects adopted in sales contracts. At December 31, 2018, the SEA on the working capital. Group had irrevocable unutilised In 2018, the SEA Group did not credit lines of Euro 190 million, of The tables below illustrate for undertake any hedging of this risk, which Euro 120 million relating to the SEA Group the breakdown although not excluding the possi- the RCF 1 Line and Euro 70 million and maturity of the financial debt bility in the future. relating to the RCF 2 Line, both (capital, medium/long-term inter- available until December 2023. In est, financial charges on deriva- 4.3 Liquidity risk the initial months of 2019, the SEA tive instruments and leasing) and The liquidity risk for the SEA Group Group will subscribe to additional trade payables at December 31, may arise where the financial re- committed lines for Euro 200 mil- 2018 and December 31, 2017: sources available are not suffi- lion, of which Euro 70 million relat- cient to meet the financial and ing to the RCF 3 Line and Euro 130 commercial commitments within million relating to the New EIB the agreed terms and conditions. Loan. At December 31, 2018, the SEA Group also had a further Euro The liquidity, cash flows and fi- 158 million of uncommitted credit nancial needs of the SEA Group lines available for immediate cash are managed through policies and requirements.

LIABILITIES AT DECEMBER 31, 2018

>1 year >3 years < 1 year > 5 years Total (in Euro millions) < 3 years < 5 years Gross financial debt 36.1 377.5 55.7 142.6 611.9 Trade payables 153.4 153.4 Total payables 189.5 377.5 55.7 142.6 765.3

Annual Report 2018 • 96 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

LIABILITIES AT DECEMBER 31, 2017

>1 year >3 years < 1 year > 5 years Total (in Euro millions) < 3 years < 5 years Gross financial debt 35.4 75.0 368.0 169.1 647.5 Trade payables 153.5 153.5 Total payables 188.9 75.0 368.0 169.1 801.0

At December 31, 2018, loans due ty analysis undertaken by the SEA applying the changes as- within one year relate to the cap- Group were as follows: sumed as per point a) on the ital portion to be paid on some of capital portion of the loans the EIB loans and interest due on a. Assumptions: the effect was an- held during the year; the total debt. The loan repay- alysed on the SEA Group income ◼◼ the interest risk derivative ment scheduling reflects the ca- statement for 2018 and 2017 hedge instruments were pacity of the SEA Group funding to of a change in market rates of measured both in terms of cover medium/long-term needs. +50 or of -50 basis points. cash flows and fair value (in b. Calculation method: terms of changes compared 4.4 Sensitivity ◼◼ the remuneration of the to the same period of the In consideration of the fact that for bank deposits is related to previous year). In both cases, the SEA Group the currency risk is the interbank rates. In order the values were estimated almost non-existent, the sensitivi- to estimate the increase/ applying the changes as per ty analysis refers to Statement of decrease of interest income point a) to the forward curve Financial Position accounts which to changes in market con- expected for the period. could incur changes in value due ditions, the change was as- to changes in interest rates. sumed as per point a) on The results of the sensitivity analy- the average annual balance sis are reported below: In particular, the analysis consid- of bank deposits of the SEA ered: Group; ◼◼ the loans measured were ◼◼ bank deposits; those at variable interest ◼◼ loans; rates, which incur interest ◼◼ interest risk derivative hedge payable linked to the Euribor instruments. at 6 months. The increase/ decrease of the interest pay- The assumptions and calculation able to changes in market methods utilised in the sensitivi- conditions was estimated

December 31, 2018 December 31, 2017 (Euro thousands) -50 bp +50 bp -50 bp +50 bp Current accounts (interest income) -4.76 523.83 -8.73 302.57 Loans (interest charges)(1) 308.67 -1,050.70 394.50 -1,039.74 Derivative hedging instruments (flows)(2) -329.85 329.85 -361.96 361.96 Derivative hedging instruments (fair value)(3) -675.87 661.98 -1,012.61 984.17

(1) + = lower interest charges; - = higher interest charges (2) + = revenue from hedge; - = cost of hedge (3) amount entirely allocated to net equity given full efficacy of hedges

Annual Report 2018 • 97 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

The results of the sensitivity anal- pacity of the SEA Group to meet held or violations of any of the ysis undertaken on some accounts annual and/or half year financial above-mentioned covenants. of the previous tables are impact- commitments (net of financial re- ed by the low level of the market sources available) from operating interest rates. By applying a varia- activities. It should be noted that, 5. Classification of the tion of -50 basis points to the cur- for some loans, non-compliance of financial instruments rent market interest rate curve, the covenant terms results in, for the cash flow corresponding to the following half-year period, the The following tables provide a current accounts and loans would application of a correlated prede- breakdown of the financial assets be opposite to those provided for termined spread (in accordance and liabilities by category at De- by the related types of contracts; with a contractually defined pric- cember 31, 2018 and at December in these cases, these cash flows ing grid). 31, 2017 of the Group. are set at zero. At the present moment the SEA Some loans also include covenant Group is not aware of any default conditions, relating to the ca- situations related to the loans

December 31, 2018 Financial Financial assets and assets Financial Financial liabilities at fair measured at assets at liabilities at value to the other Total Fair Value to amortised amortised comprehensive the Income cost cost income items (Euro thousands) Statement Other investments 26 26 Other non-current financial assets - Other non-current receivables 188 188 Trade receivables 121,005 121,005 Tax receivables 1,048 1,048 Other current receivables 9,527 9,527 Other current financial assets - Cash and cash equivalents 153,036 153,036 Total 26 284,804 0 0 284,830 Non-current financial liabilities 5,387 518,218 523,605 - of which payables to bondholders 298,889 298,889 Other non-current payables 13,964 13,964 Trade payables 153,394 153,394 Tax payables 18,541 18,541 Other current payables 192,476 192,476 Current financial liabilities excl. 29,042 29,042 leasing Current financial liabilities for - - leasing Total 0 0 5,387 925,635 931,022

Annual Report 2018 • 98 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

The values resulting from the reclassified in accordance with utilisation of the amortised cost the new categories of IFRS 9 - Fi- method approximates the fair nancial Instruments applied by value of the category. The fig- SEA from January 1, 2018. ures at December 31, 2017 were

December 31, 2017 restated Financial Financial assets and assets Financial Financial liabilities at fair measured at assets at liabilities at value to the other Total Fair Value to amortised amortised comprehensive the Income cost (**) cost income items (***) (Euro thousands) Statement (*) Other investments 26 26 Other non-current financial assets 7,190 7,190 Other non-current receivables 280 280 Trade receivables 111,077 111,077 Tax receivables 14,941 14,941 Other current receivables 9,200 9,200 Other current financial assets 13,300 13,300 Cash and cash equivalents 67,194 67,194 Total 26 223,182 0 0 223,208 Non-current financial liabilities 7,228 539,061 546,289 - of which payables to bondholders 298,441 298,441 Other non-current payables 17,588 17,588 Trade payables 153,497 153,497 Tax payables 8,370 8,370 Other current payables 174,592 174,592 Current financial liabilities excl. 29,780 29,780 leasing Current financial liabilities for 3 3 leasing Total 0 0 7,228 922,891 930,119

(**) In the 2017 accounts this column was called “Loans and receivables”. The change was required in accordance with the application, from January 1, 2018, of the amendments introduced by IFRS 9. For comparison purposes, the 2017 accounts were restated.

(***) In the 2017 accounts this column was called “Financial assets and liabilities at fair value”. The change was required in accordance with the application, from January 1, 2018, of the amendments introduced by IFRS 9. For comparison purposes, the 2017 accounts were restated.

Annual Report 2018 • 99 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

The values resulting from the utili- measure the fair value. The meth- indirectly; sation of the amortised cost methods applied are broken down into ◼◼ level 3: other information. od approximates the fair value of the following levels, based on the the category. information available, as follows: The following table shows the Group assets and liabilities meas- 5.1 Disclosure on fair value ◼◼ level 1: prices practiced on ac- ured at fair value at December 31, In relation to financial instruments tive markets; 2018 and at December 31, 2017: measured at fair value, the table ◼◼ level 2: valuation techniques below reports information on the based on observable market method chosen by the Group to information, both directly and

December 31, 2018 (Euro thousands) Level 1 Level 2 Level 3 Other investments 26 Derivative financial instruments 5,387 Total 5,387 26

December 31, 2017 (Euro thousands) Level 1 Level 2 Level 3 Other investments 26 Derivative financial instruments 7,228 Total 7,228 26

6. Discontinued Operations profit/(loss)

The 2018 discontinued operations result was break-even. The accounting and administration related to the liquidation of SEA Handling SpA in liquidation in the previous year concluded on June 30, 2017.

With the application of IFRS 5, the income statement from discontinued operations is not included in the 2017 results line-by-line for each cost and revenue item, but the total result of the business is recorded on a separate line in the account “Discontinued Oper- ations profit/(loss)”. The Income Statement and a comparison with 2017 is illustrated below.

Annual Report 2018 • 100 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

DISCONTINUED OPERATIONS INCOME STATEMENT

2018 2017 (Euro thousands) Total Total Change Operating revenues 299 (299) Total revenue 0 299 (299) Personnel costs (10) 10 Other operating costs (369) 369 Total operating costs 0 (379) 379 EBITDA 0 (80) 80 Provisions & write-downs 1,636 (1,636) EBIT 0 1,556 (1,556) Financial income Pre-tax result 0 1,556 (1,556) Income tax Discontinued Operations profit/(loss) 0 1,556 (1,556)

7. Disclosure by erated by these activities are estab- Energy: the business includes the lished by a regulated tariff system generation and sale of electricity operating segment and comprise airport fees, fees for and heat on the market. the use of centralised infrastruc- Due to the type of activities un- ture, in addition to security fees The main results of each of the dertaken by the Group, the “traf- and tariffs for the use of check-in above businesses are presented fic” factor significantly impacts desks and spaces by airlines and below. For a better analysis of the the results of all activities. The Business Units the allocation crite- SEA Group has identified three handlers. The Non-Aviation busi- ria were reviewed in 2017, applied operating segments, as further ness however provides a wide and also in 2018. described in the Directors’ Report segregated offer, managed both and specifically: (i) Commercial directly and under license to third The following tables present the Aviation, (ii) General Aviation, (iii) parties, of commercial services for segment income statements and Energy. This representation may passengers, operators and visitors balance sheets, reconciled with differ at individual legal entity to the Airports, in addition to the the figures presented in the Direc- level. The information currently real estate segment. The reve- tors’ Report. available concerning the principal nues from this area consist of the business operating sectors identi- market fees for activities directly fied is presented below. carried out by the Group and from activities carried out by third par- Commercial Aviation: This in- ties under license and of royalties cludes Aviation and Non-Aviation: based on a percentage of revenues the former concerns the manage- generated by the licensee, usually ment, development and mainte- with the provision of a guaranteed nance of infrastructure and plant minimum. and the offer to SEA Group customers of services and activities re- General Aviation: the business lated to the arrival and departure includes the full range of services of aircraft, in addition to airport relating to business traffic at the safety services. The revenues gen- western apron of Linate airport.

Annual Report 2018 • 101 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

SEGMENT DISCLOSURE: INCOME STATEMENT & BALANCE SHEET AT DECEMBER 31, 2018

Commercial General Consol. Financial Energy IC Elim. (Euro thousands) Aviation Aviation Statements Revenues 666,330 15,355 42,202 (39,932) 683,956 of which Intercompany (8,202) (4,011) (27,718) 39,932 Total operating revenues (third 658,128 11,344 14,484 0 683,956 parties) EBITDA 273,622 7,488 741 281,851 EBIT 183,869 5,577 23 189,469 Investment income/(charges) 14,568 Financial charges (17,662) Financial income 1,021 Pre-tax result 187,396 Fixed asset investments 60,179 1,066 2,735 63,980 Tangible assets 18,704 391 2,735 21,830 Intangible assets 41,475 675 42,150

SEGMENT DISCLOSURE: RESTATED INCOME STATEMENT & BAL. SHEET AT DECEMBER 31, 2017

Commercial General Consol. Financial Energy IC Elim. (Euro thousands) Aviation Aviation Statements Revenues 629,374 16,235 37,607 (34,956) 648,260 of which Intercompany (7,970) (4,107) (22,879) 34,956 Total operating revenues (third 621,404 12,128 14,728 0 648,260 parties) EBITDA 233,710 7,799 1,497 243,006 EBIT 122,100 5,406 384 127,890 Investment income/(charges) 8,135 Financial charges (18,167) Financial income 258 Pre-tax result 118,116 Fixed asset investments 64,729 5,964 1,447 72,140 Tangible assets 32,273 2,054 1,447 35,774 Intangible assets 32,456 3,910 36,366

More information on operating - Sector Analysis” section in the business activities is available Directors’ Report. in the “Operating Performance

Annual Report 2018 • 102 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

8. Notes to the Statement 8.1 Intangible assets The table below reports the chang- of Financial Position es in the year in intangible assets:

Increases Amort./ December 31, Reclass./ Destruct./ December 31, in the write- 2017 tran. sales 2018 (Euro thousands) period downs Gross value Rights on assets under concession 1,477,949 2,713 30,715 (1,741) 1,509,635 Rights on assets under concess. in 32,486 29,386 (30,006) (991) 30,875 prog. & adv. Patents and right to use intellectual 72,881 9,661 (106) 82,436 property & others Assets in progress and advances 8,752 10,052 (9,750) 9,054 Other 16,945 83 (74) 16,954 Total gross value 1,609,013 42,150 703 (2,732) (180) 1,648,954 Accumulated amortisation Rights on assets under concession (533,340) 554 1,318 (46,311) (577,779) Rights on assets under concess. in prog. & adv. Patents and right to use intell. (62,163) (7,215) (69,378) prop. & others Assets in progress and advances Other (15,328) (15,328) Total accumulated amortisation (610,831) 0 554 1,318 (53,526) (662,485) Net value Rights on assets under concession 944,609 2,713 31,270 (423) (46,311) 931,857 Rights on assets under concess. in 32,486 29,386 (30,006) (991) 30,875 prog. & adv. Patents and right to use intellectual 10,718 9,661 (7,321) 13,058 property & others Assets in progress and advances 8,752 10,052 (9,750) 9,054 Other 1,617 83 (74) 1,626 Total net value 998,182 42,150 1,258 (1,414) (53,706) 986,469

Annual Report 2018 • 103 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

As per IFRIC 12, rights on assets should be made to Note 8.14. m) to be allocated to Cargo op- under concession amount to Euro erators. At Linate, the SEA Group 931,857 thousand at December The account “Rights on assets un- principally undertook functional 31, 2018 and Euro 944,609 thou- der concession in progress and upgrading and restyling of the sand at December 31, 2017. These advances”, amounting to Euro Terminal, with the first phase com- rights are amortised on a straight- 30,875 thousand, refers to the pleted in the first half of 2018. line basis over the duration of the work in progress on concession This resulted in an improvement concession from the State, as they assets, not yet completed at De- in the perceived quality and the will be returned to the grantor at cember 31, 2018. architectural image of the Air Ter- the end of the concession. The minal’s facade, land side access, amortisation for the year 2018 The main works carried out dur- the arrivals hall, the baggage claim amounts to Euro 46,311 thou- ing the year by the Parent Com- hall and Welcome VIP Lounges. sand. The increases in the year of pany at Malpensa amounted to Euro 34,574 thousand mainly de- Euro 21,029 thousand and mainly The reclassifications to assets un- rive from the entry into use of in- related to: i) the continuation of der concession principally related vestments made in previous years the functional upgrading and re- to the gradual entry into service and recorded under “Assets under styling works at Airport Terminal of the works on Terminal 1, the concession in progress and ad- 1, with the construction of new completion of the works at Linate vances” and from reclassifications commercial areas and upgrading and the cargo area at Malpensa. and transfers between intangible of existing areas and the comple- and tangible fixed assets. tion of the Schengen baggage Industrial patents and intellec- collection area ii) the construction tual property rights and other For assets under concession, SEA of new boarding gates at Terminal intangible assets, amounting to has the obligation to record a res- 2; iii) the completion of a second Euro 13,058 thousand at Decem- toration and replacement provi- warehouse in the Cargo area (with ber 31, 2018 (Euro 10,718 thou- sion, in relation to which reference a surface area of about 15,000 sq. sand at December 31, 2017), relate to the purchase of software components for the airport and operating IT systems. Specifical- ly, the increases for Euro 9,661 thousand principally related to the development and implementation of the administrative and airport management systems, relating to investments in previous years and recorded in the account “Assets in progress and advances” which at December 31, 2018 record a residual amount of Euro 9,054 thousand, relating to software developments in progress. The amortisation for the year 2018 amounts to Euro 7,321 thousand.

In consideration of the results reported and the business outlook, as well as the definition of the airport tariffs contained in the Reg- ulatory Agreement, at December 31, 2018 the Group did not identify any impairment indicators.

The changes in intangible assets during 2017 were as follows:

Annual Report 2018 • 104 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Increases Amort./ December 31, Reclass./ Destruct./ December 31, in the write- 2016 tran. sales 2017 (Euro thousands) period downs Gross value Rights on assets under concession 1,447,809 1,059 29,131 (50) 1,477,949 Rights on assets under concess. in 33,614 25,625 (25,750) (1,003) 32,486 prog. & advances Patents and right to use intellectual 63,543 9,338 72,881 property & others Assets in progress and advances 7,993 9,596 (8,837) 8,752 Other 18,744 86 (1,885) 16,945 Total gross value 1,571,703 36,366 1,997 (1,053) 0 1,609,013 Accumulated amortisation Rights on assets under concession (488,341) 13 (45,012) (533,340) Rights on assets under concess. in prog. & advances Patents and right to use intellectual (55,609) (6,554) (62,163) property & others Assets in progress and advances Other (16,642) 1,380 (66) (15,328) Total accumulated amortisation (560,592) 0 1,380 13 (51,632) (610,831) Net value Rights on assets under concession 959,468 1,059 29,131 (37) (45,012) 944,609 Rights on assets under concess. in 33,614 25,625 (25,750) (1,003) 32,486 prog. & advances Patents and right to use intellectual 7,934 9,338 (6,554) 10,718 property & others Assets in progress and advances 7,993 9,596 (8,837) 8,752 Other 2,102 86 (505) (66) 1,617 Total net value 1,011,111 36,366 3,377 (1,040) (51,632) 998,182

Annual Report 2018 • 105 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

8.2 Property, plant and the movements in property, plant equipment and equipment in 2018. The following tables summarises

Increases Deprec./ December 31, Reclass./ Destruct./ December 31, in the write- 2017 tran. sales 2018 (Euro thousands) period downs Gross value Property 224,519 (19) 4,202 (95) 228,607 Plant and machinery 108,170 1,394 2,120 111,684 Industrial and commercial 44,189 3,885 (3) 48,071 equipment Other assets 69,310 3,270 1,605 (504) 73,681 Assets in progress and advances 9,754 13,299 (8,648) 14,405 Total gross value 455,942 21,829 (721) (602) 0 476,448 Accumulated depreciation & write-downs Property (94,457) (549) 46 (6,874) (101,834) Plant and machinery (67,914) (2,779) (70,693) Industrial and commercial (34,673) (4,671) (39,344) equipment Other assets (53,926) 1 401 (5,570) (59,094) Assets in progress and advances Total accumulated depreciation & (250,970) 1 (549) 447 (19,894) (270,965) write-downs Net value Property 130,062 (19) 3,653 (49) (6,874) 126,773 Plant and machinery 40,256 1,394 2,120 (2,779) 40,991 Industrial and commercial 9,516 3,885 (3) (4,671) 8,727 equipment Other assets 15,383 3,271 1,605 (103) (5,570) 14,586 Assets in progress and advances 9,754 13,299 (8,648) 14,405 Total net value 204,971 21,830 (1,270) (155) (19,894) 205,483

Annual Report 2018 • 106 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

The investments relate to the de- towing tractors for Euro 1,361 All fixed assets, including those velopment of the Aviation sector thousand and new video termi- falling under IFRIC 12, are ex- which, as already reported, in ac- nals for Euro 500 thousand. pressed net of those funded by cordance with IFRIC 12 are clas- State and European Union contri- sified as rights on assets under In view of the disposal of the TGC butions. These latter at Decem- concession and rights on assets turbine at the Malpensa Station ber 31, 2018 amounted to Euro under concession in progress and of SEA Energia expected by July 505,226 thousand and Euro 7,019 those in the Non-Aviation sector, 2020, the relative depreciation thousand respectively. amounting to Euro 4,202 thou- was adjusted. sand at December 31, 2018, princi- The changes in tangible fixed as- pally related to the restyling work In consideration of the results re- sets during 2017 were as follows: at Terminal 1 of Malpensa and the ported and the business outlook, Terminal of Linate. as well as the definition of the airport tariffs contained in the Increments in “Property, plant Regulatory Agreement, at De- and equipment” also include the cember 31, 2018 the SEA Group purchase of new de-icer equip- did not identify any impairment ment and snow ploughs for Euro indicators. 3,495 thousand, new aircraft

Annual Report 2018 • 107 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Amort. & Increases December 31, Reclass./ Destruct./ deprec./ December 31, in the 2016 transfers sales write- 2017 period (Euro thousands) downs Gross value Property 206,872 14,955 2,871 (179) 224,519 Plant and machinery 107,510 306 358 (4) 108,170 Industrial and commercial 38,690 5,828 2 (331) 44,189 equipment Other assets 62,521 2,612 4,200 (23) 69,310 Assets in progress and advances 8,489 12,073 (10,808) 9,754 Total gross value 424,082 35,774 (3,377) (537) 0 455,942 Accumulated depreciation & write-downs Property (88,386) 142 (6,213) (94,457) Plant and machinery (65,362) 4 (2,556) (67,914) Industrial and commercial (31,600) 330 (3,403) (34,673) equipment Other assets (48,458) 22 (5,490) (53,926) Assets in progress and advances Total accumulated depreciation & (233,806) 0 0 498 (17,662) (250,970) write-downs Net value Property 118,486 14,955 2,871 (37) (6,213) 130,062 Plant and machinery 42,148 306 358 (2,556) 40,256 Industrial and commercial 7,090 5,828 2 (1) (3,403) 9,516 equipment Other assets 14,063 2,612 4,200 (2) (5,490) 15,383 Assets in progress and advances 8,489 12,073 (10,808) 9,754 Total net value 190,276 35,774 (3,377) (40) (17,662) 204,971

Annual Report 2018 • 108 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

8.3 Investment property Information on investment property is provided below:

INVESTMENT PROPERTY

(Euro thousands) December 31, 2018 December 31, 2017 Gross value 4,138 4,118 Accumulated depreciation (730) (724) Net total investment property 3,408 3,394

MOVEMENT ACCUMULATED DEPRECIATION

(Euro thousands) December 31, 2018 December 31, 2017 Opening balance (724) (727) Decreases/Reclassification (5) 5 Depreciation (1) (2) Closing balance (730) (724)

The account includes buildings 8.4 Investments in associates not utilised in the operated The changes in the account “Invest- activities of the Group (apartments in associates” at December ments and garages) for which 31, 2018 and December 31, 2017 there were no impairments at are shown below. December 31, 2018.

INVESTMENTS IN ASSOCIATES

Movements Initial December 31, increases / decreases/ December 31, recognition 2017 revaluations write-downs 2018 (Euro thousands) value SACBO SpA 36,626 4,320 (1,965) 38,981 Dufrital SpA 12,411 3,776 (4,056) 12,131 Disma SpA 2,633 244 (253) 2,624 Malpensa Logistica Europa SpA 1,923 1,799 (750) 2,972 SEA Services Srl 461 851 (804) 508 Airport Handling SpA 7,190 3,208 10,398 Signature Flight Support Italy Srl 300 300 Total 54,054 7,190 14,498 (7,828) 67,914

Annual Report 2018 • 109 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

The companies held are all resi- As described in greater detail in in the 2017 accounts under “Oth- dent in Italy. the Directors’ Report, the formal- er non-current financial assets”, to isation of the sale of the further the account “Investments in asso- The net equity of the associated holding in Airport Handling with ciates”. companies was adjusted to take the transfer of the shares and account of the Group accounting winding-up of the trust took place 8.5 Other investments principles and the measurement in July 2018, and therefore the fi- The list of other investments is of investments as per IAS 28. nancial statements at December presented below: The SEA Group share of adjusted 31, 2018 includes the investment net equity at December 31, 2018 in the associated company Airport amounts to Euro 67,914 thousand Handling. This operation resulted (Euro 54,054 thousand at Decem- in a reclassification for an amount ber 31, 2017). of Euro 7,190 thousand, recorded

OTHER INVESTMENTS

% Holding Company December 31, 2018 December 31, 2017 Consorzio Milano Sistema in liquidation 10% 10% Romairport Srl 0.227% 0.227% Aeropuertos Argentina 2000 SA 8.500% 8.500% Sita Soc. Intern. De Telecom.Aereneonautiques (Belgian 0 6 quote reg. company) (*)

(*) On February 28, 2018, following a request for withdrawal, SEA was no longer a member of SITA SC.

The tables below report the changes in other investments in 2018:

OTHER INVESTMENTS

Movements increases / December 31, decreases/ write- December 31, revaluations / 2017 downs 2018 (Euro thousands) reclassifications Consorzio Milano Sistema in 25 25 liquidation Romairport Srl 1 1 Aeropuertos Argentina 2000 SA Sita Soc. Intern. De Telecom. Aereneonautiques (Belgian reg. company) Total 26 0 0 26

Annual Report 2018 • 110 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

The investment of the Group in the The consideration paid was Euro capital of AA2000; therefore, the share capital of Aeropuertos Ar- 14,000,000, entirely received in investment of 1 Euro was main- gentina 2000 (hereafter AA2000) 2011. The transfer of the shares tained in the 2018 financial state- amounted to 8.5% following the will only be completed with au- ments. conversion, by the Argentinian thorisation by the ORSNA regula- government, of the bonds issued tor (Organismo Regulador del Sis- 8.6 Deferred tax assets in 2008 by AA2000 into shares. On tema Nacional de Aeropuertos). The changes in the net deferred June 30, 2011, an agreement was tax assets for the year 2018 are signed with CEDICOR for the sale At the date of the present doc- shown below: of all the investment held by the ument, ORSNA had not yet for- SEA Group in the share capital of malized the authorization of the AA2000, equal to 21,973,747 ordi- sale of the investment in favour nary Class A shares with 1 vote for of Cedicor and, therefore the SEA each share. Group still holds 8.5% of the share

NET DEFERRED TAX ASSETS

(Released) / December 31, (Released) / December 31, allocated to 2017 allocated to P&L 2018 (Euro thousands) Equity Restoration prov. as per IFRIC 12 34,605 (36) 34,569 Write-down tan. assets (impairment test) 14,302 (5) 14,296 Provisions for risks and charges 13,837 (577) 13,260 Non-deductible doubtful debt provision 7,599 (493) 7,105 Labour dispute 5,069 (8) 5,061 Fair value measurement of 1,565 (422) 1,143 derivatives Post-em. bens. prov. discounting (IAS 19) 917 (79) (264) 574 Ord. main. on assets under concession 2,921 1,969 4,890 Amortisation and Depreciation 1,845 182 2,027 Other 3,825 (40) 3,785 Total deferred tax assets 86,484 912 (686) 86,710 Amortisation and Depreciation (30,424) 2,606 (27,818) Allocation gain acquisition SEA (5,119) 218 (4,901) Prime Other 211 (17) 194 Total deferred tax liabilities (35,332) 2,807 0 (32,525) Total deferred tax assets, net of 51,152 3,719 (686) 54,185 liabilities

The IRAP tax rate for the Parent panies fully consolidated by the Company SEA SpA is equivalent Group this is 3.9%. The IRES rate to 4.2%, while for the other com- for Group companies is 24%.

Annual Report 2018 • 111 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

8.7 Other current and non- current financial assets Other current and non-current financial assets are shown in the table below:

OTHER CURRENT AND NON-CURRENT FINANCIAL ASSETS

(Euro thousands) December 31, 2018 December 31, 2017 Other non-current financial assets - 7,190 Other current financial assets - 13,300 Other current and non-current financial assets 0 20,490

“The account “Other current and In July 2018, the exercise of this 387 thousand relating to the non-current financial assets” at option resulted in the following dividends approved by Airport December 31, 2017 related to the events: Handling in 2016 and record- capital paid in favour of Airport ed in the 2018 financial state- Handling less write-downs made i. the winding up of the Trust ments. in 2013, 2014 and 2017. having exhausted its corporate scope; 8.8 Other non-current receivables At December 31, 2018, the bal- ii. the consequent transfer to SEA Other receivables, amounting ance of current and non-current fi- of the residual 30% of the share to Euro 188 thousand at Decem- nancial assets were written down capital; ber 31, 2018 (Euro 280 thousand due to dnata’s exercise of the iii. the collection by SEA of Euro at December 31, 2017) did not option to purchase an addition- 13,300 thousand, of which: change significantly and mainly real 40% of Airport Handling and a Euro 10,640 thousand for the lates to employee receivables and corresponding share of Financial sale of 70% of the Financial In- deposit guarantees. Instruments of Participation, and struments of Participation and the winding up of the Milan Air- Euro 2,660 thousand for the 8.9 Inventories port Handling Trust. sale of 70% of the shares; The following table reports the break- iv. receipt of an additional Euro down of the account “Inventories”:

INVENTORIES

(Euro thousands) December 31, 2018 December 31, 2017 Raw materials, ancillaries and consumables 3,580 4,607 Inventory obsolescence provision (1,646) (503) Total Inventories 1,934 4,104

The account comprises consum- The comparison of inventories 503 thousand at December 31, able goods held for airport activ- with the realisable value or re- 2017). ities. No goods held in inventories placement necessitated an ob- comprised guarantees on loans or solescence inventory provision The changes in the obsolescence concerning other commitments. amounting to Euro 1,646 thou- provision in 2018 is shown below: sand at December 31, 2018 (Euro

Annual Report 2018 • 112 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

MOVEMENTS IN INVENTORY OBSOLESCENCE PROVISION

(Euro thousands) December 31, 2018 December 31, 2017 Opening balance (503) (444) Provisions (1,143) (139) Utilisations 80 Final value inventory obsolescence provision (1,646) (503)

8.10 Trade receivables The breakdown of the trade receivables is reported in the table below:

TRADE RECEIVABLES

(Euro thousands) December 31, 2018 December 31, 2017 Trade receivables - customers 109,598 101,658 Trade receivables - associates 11,407 9,419 Total net trade receivables 121,005 111,077

Trade receivables, shown net of The criteria for the adjustment and 4.1, to which reference should the doubtful debt provision, main- of receivables to their realisable be made. ly include receivables from clients value takes account of valuations and provisions for invoices and regarding the state of the dis- The changes in the doubtful debt credit notes to be issued. pute and are subject to estimates provision were as follows: which are described in Notes 2.7

DOUBTFUL DEBT PROVISION

(Euro thousands) December 31, 2018 December 31, 2017 Opening provision (102,254) (80,263) (Increases)/releases (816) (27,248) Utilisations 369 5,257 Total doubtful debt provision (102,701) (102,254)

Allocation provisions are shown risk in deterioration of the finan- which reflects the expected loss net of reversals and amount to cial positions of the principle op- on each receivable, as per IFRS Euro 816 thousand in 2018 (Euro erators with which disputes exist 9. The increases in 2017 mainly 27,248 thousand in 2017). The and write-downs for receivables refer to the full write-down of doubtful debt provision was cal- under administration, and of past-due receivables, prior to the culated to take into account the the risk assessed by the Group administration on May 2, 2017,

Annual Report 2018 • 113 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

claimed from Alitalia SAI in Ex- The following table provides the traordinary Administration. breakdown of tax receivables and other current receivables: 8.11 Tax receivables and other current receivables

TAX RECEIVABLES AND OTHER CURRENT RECEIVABLES

(Euro thousands) December 31, 2018 December 31, 2017 Tax receivables 1,048 14,941 Other current receivables 9,527 9,200 Total tax receivables and other current receivables 10,575 24,141

Tax receivables of Euro 1,048 764 thousand at December 31, Legislative Decree No. 201/2011 thousand at December 31, 2018 2017) other tax credits. (“Save Italy” decree), permitting mainly refers: the full deduction from the as- In April 2018 the Group received sessable IRES base of IRAP due in ◼◼ for Euro 128 thousand (Euro the IRES receivable relating to relation to personnel and related 2,902 thousand at December the deductibility of the IRAP from expenses. 31, 2017) VAT receivables; IRES for the years 2007 to 2011, ◼◼ for Euro 115 thousand (Euro equal to Euro 10,402 thousand at The account “Other current re- 873 thousand at December 31, December 31, 2017. This receiva- ceivables”, reported net of the rel- 2017) current income tax re- ble arises from the repayment pe- ative provision, is broken down as ceivables; tition presented digitally in 2013 follows: ◼◼ for Euro 805 thousand (Euro (“click day”) as per Article 2 of

OTHER CURRENT RECEIVABLES

(Euro thousands) December 31, 2018 December 31, 2017 Receivables from GSE for white & green certs. 560 1,120 Other receivables 6,050 6,813 Receivables for dividends 2,005 Misc. receivables 562 821 Receivables from insurance companies 200 206 Employee & soc. sec. receivables 143 236 Post & tax stamps 7 4 Receivables from the State for SEA / Ministry for Infrastructure and Transport case Total other current receivables 9,527 9,200

Annual Report 2018 • 114 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

“Other current receivables” sation, which recognised to the Shareholders’ Meeting of Dufrital amount to Euro 9,527 thousand Company the non-adjustment SpA, on December 18, 2018. at December 31, 2018 (Euro 9,200 of handling tariffs for the period thousand at December 31, 2017) 1974-1981, in addition to inter- Miscellaneous receivables amount- and is comprised of the accounts est and expenses incurred by the ing to Euro 562 thousand at De- outlined below. Company, for Euro 3,889 thou- cember 31, 2018 mainly refer to sand and entirely covered by the receivables from payments by Tele- Receivables from GSE, claimed doubtful debt provision. This cred- pass, credit card and POS which by the SEA Group for white and it was related to the residual cred- have not yet been credited in the green certificates, amount to it position that was not collected bank account. Euro 560 thousand. This amount from the Ministry of Infrastruc- includes the receivables claimed ture and Transport, in addition to Receivables from insurance com- by SEA Energia from the Ener- interest up to December 31, 2014. panies, amounting to Euro 200 gy Service Operator relating to thousand at December 31, 2018 the portion of white certificates Other receivables principally con- (Euro 206 thousand at December in 2016 not yet received on the cern accrued income related to 31, 2017) relates to amounts paid combined cycle 1. In 2018, the revenues accrued in the year and on insurance policies in advance Group did not accrue the envis- costs relating to future years. The of the period to which the cost aged incentives for “white certif- account also includes supplier ad- refers. icates”, as the recognition period vances, operating grants and oth- came to a close in 2016. er minor positions. The changes in the other current receivables doubtful debt provi- Receivables from the State for The receivables for dividends to sion is as follows: SEA/Ministry for Infrastructure be received, equal to Euro 2,005 and Transport case, following the thousand, relate to the dividends judgement of the Court of Cas- approved by the Extraordinary

OTHER RECEIVABLES DOUBTFUL DEBT PROVISION

(Euro thousands) December 31, 2018 December 31, 2017 Opening provision (3,889) (4,196) (Increases)/releases - 307 Total other receivables doubtful debt provision (3,889) (3,889)

8.12 Cash and cash equivalents The breakdown of the account “Cash and cash equivalents” is shown in the table below.

CASH AND CASH EQUIVALENTS

(Euro thousands) December 31, 2018 December 31, 2017 Bank and postal deposits 152,955 67,120 Cash in hand and similar 81 74 Total 153,036 67,194

Annual Report 2018 • 115 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Cash and cash equivalents at De- 8.13 Shareholders’ Equity cember 31, 2018 increased Euro At December 31, 2018, the share 85,842 thousand compared to capital of the Company amounted the previous year. The account to Euro 27,500 thousand. at year end comprises bank and postal deposits on demand for The par value of each share was Euro 152,851 thousand (Euro Euro 0.11. 64,667 thousand at December 31, 2017), restricted bank depos- The changes in shareholders’ its of Euro 104 thousand (Euro equity in the year are shown in the 2,453 thousand at December 31, statement of financial position. 2017) and cash amounts for Euro 81 thousand (Euro 74 thousand The reconciliation between the at December 31, 2017). For fur- net equity of the Parent Company ther information on the move- SEA SpA and the consolidated net ments to cash and cash equiva- equity is shown below. lents, reference should be made to the Cash Flow Statement.

Shareholders' Share. Equity at Equity at Equity OCI Net profit / December 31, December 31, movements Reserve (loss) 2018 (Euro thousands) 2017 Parent Company Financial Statements 335,228 (70,300) 2,174 123,489 390,591 Share of net equity and net profit of the consolidated subsidiaries attributable to the Group, net of 18,920 5,791 24,711 the carrying amount of the relative investments Adjustments for measurement at 43,229 (2) 6,551 49,778 equity of associates Other consolidation adjustments (6,199) 247 (5,952) Consolidated Financial Statements 391,177 (70,302) 2,174 136,078 459,126

8.14 Provisions for risks and charges The breakdown of the account “Provisions for risks and charges” is shown in the table below:

PROVISION FOR RISKS AND CHARGES

(Utilisations)/ December 31, Provi./In- December 31, (reclassifica- (Releases) 2017 creases 2018 (Euro thousands) tions) Restoration and replacement provision 137,713 15,077 (15,205) 137,585 Provision for future charges 32,222 4,376 (4,833) (1,489) 30,276 Total provision for risks & charges 169,935 19,453 (20,038) (1,489) 167,861

Annual Report 2018 • 116 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

The restoration and replacement tured relating to the maintenance utilisations in the year refer to provision on assets under con- on assets under concession from the restoration works carried out cession, created in accordance the State which will be undertak- covered by the provisions made in with IFRIC 12, amounting to Euro en in future years. The provision previous years. 137,585 thousand at December for the year takes into account 31, 2018 (Euro 137,713 thousand the updated long-term scheduled The movements of the future at December 31, 2017), refers to maintenance and replacement charges provision were as follows: the estimate of the amount ma- plans on these assets, while the

PROVISION FOR FUTURE CHARGES

(Utilisations)/ December 31, December 31, Prov./Increases (reclassifica- (Releases) 2017 2018 (Euro thousands) tions) Labour provisions 4,708 2,475 (1,168) 6,015 Insurance excesses 1,510 698 (67) (540) 1,601 Tax risks 1,983 (121) 1,862 Green & white certificates 990 990 Future charges on invest. provision 152 (152) Other provisions 22,879 1,203 (3,325) (949) 19,808 Total provision for future charges 32,222 4,376 (4,833) (1,489) 30,276

The employee provisions relate to for the dispute with the Energy Service ber 31, 2018 is mainly composed the expected streamlining actions Operator over green certificates (for of the following items: to be undertaken on operations. the period 2010-2014) and white cer- The utilisations in the year are tificates (for the period 2012-2015). ◼◼ Euro 6,794 thousand for legal dis- related to the incentivised depar- putes related to the operational tures for which a specific provision The “Future charges on invest- management of the airports; was made in the accounts in 2017. ments provision”, which was zero ◼◼ Euro 8,000 thousand relating at December 31, 2018, was allo- to charges from the acoustic “Insurance excess” equal to Euro cated against the valuation of the zoning of the peripheral areas 1,601 thousand refers to the charges stake in Signature Flight Support It- to the Milan Airports (Law No. payable by the SEA Group for damag- aly Srl, which had a negative share- 447/95 and subsequent Min- es deriving from civil responsibility. holders’ equity at December 31, isterial Decrees). It is reported 2017. It should be noted that the that the Airport Commission of The item “Tax risks” refers for Euro shareholders’ meetings of Febru- Malpensa has not yet given the 1,500 thousand to the amount ary 26, 2018 and October 5, 2018 final approval, unlike the- Air allocated by SEA Prime SpA, to of Signature Flight Support Italy Srl port Commission of Linate; cover liabilities related to the resolved to cover the losses and ◼◼ Euro 847 thousand for disputes non-payment of Group VAT by the two recapitalisations of the com- with ENAV; former parent company for the pany. At December 31, 2018, the ◼◼ Euro 3,000 thousand for vari- years 2011 and 2012. value of the investment was Euro ous legal disputes; 300 thousand and it was not nec- ◼◼ Euro 1,167 thousand for risks The item “Green and white certifi- essary to record any future charges relating to revocatory actions cates” amounting to Euro 990 thou- provision on the investment. taken against the Group and sand at December 31, 2018 refers to The account “other provisions” for relating to airline companies SEA Energia. The amount was accrued Euro 19,808 thousand at Decem- declared bankrupt.

Annual Report 2018 • 117 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Based on the updated state of potential liabilities. advancement of disputes at the preparation date of the present 8.15 Employee provisions interim report, and also based The changes in the employee pro- on the opinion of the consult- visions are shown below: ants representing the Group in the disputes, the provisions are considered sufficient to cover

EMPLOYEE PROVISIONS

(Euro thousands) December 31, 2018 December 31, 2017 Opening provision 47,834 49,220 Financial (income)/charges 652 686 Utilisations (1,173) (2,016) Actuarial losses/(profits) (1,099) (56) Total employee provisions 46,214 47,834

The actuarial calculation of the ECONOMIC-FINANCIAL TECHNICAL PARAMETERS employee leaving indemnity takes into account the effects of the re- form of Law No. 296 of December December 31, 2018 December 31, 2017 27, 2006 and subsequent decrees Annual discount rate 1.57% 1.30% and regulations. Annual inflation rate 1.50% 1.50% The principal actuarial assump- Annual increase in employee 2.63% 2.63% tions, utilised for the determina- leaving indemnity tion of the pension obligations, are reported below:

Annual Report 2018 • 118 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

The annual discount rate, utilised cember 31, 2018 is shown below, for the present value of the bond, indicating the effects that would was based on the Iboxx Eurozone arise on the post-employment Corporate A index. benefit provision.

The sensitivity analysis for each of the significant assumptions at De-

CHANGE

(Euro thousands) December 31, 2018 December 31, 2017 + 1 % on turnover rate 45,037 46,485 - 1 % on turnover rate 45,354 47,014 + 1/4 % on annual inflation rate 45,822 47,437 - 1/4 % on annual inflation rate 44,565 46,048 + 1/4 % on annual discount rate 44,191 45,634 - 1/4 % on annual discount rate 46,218 47,878

The average duration of the financial obligation and scheduled payments of the benefits are reported in the following tables:

AVERAGE DURATION OF THE OBLIGATION

(in years) December 31, 2018 December 31, 2017 Duration of the plan 10.0 10.3

EXPECTED DISBURSEMENTS

(Euro thousands) December 31, 2018 December 31, 2017 Year 1 2,127 2,224 Year 2 2,363 1,887 Year 3 2,749 2,488 Year 4 3,835 2,755 Year 5 2,991 3,713

Annual Report 2018 • 119 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

8.16 Current and non-current financial liabilities at Decem- financial liabilities ber 31, 2018 and December 31, The table below provides a break- 2017. down of current and non-current

December 31, 2018 December 31, 2017 Non-current Non-current Current portion Current portion (Euro thousands) portion portion Long-term loans 21,316 219,286 19,766 240,532 Loan charges payable 1,055 1,153 Derivatives fair value 5,387 7,228 Bank payables 22,371 224,673 20,919 247,760 Payables to bondholders 298,889 298,441 Payables for charges on bonds 6,627 6,627 Lease payables - 3 Payables for subsidised loans 44 44 66 88 Other financial payables - 2,169 Payables to other lenders 6,671 298,933 8,864 298,529 Total current and non-current 29,042 523,605 29,783 546,289 liabilities

The financial debt of the Group at year-end, as illustrated in the table below, is almost exclusively comprised of medium/long-term debt - of which over half concerning the “SEA 3 1/8 2014 -2021” bond issue (expressed at amortised cost). The remainder of the debt is comprised of Euro 88 thousand EIB subsidised loans (of which 52% with maturity beyond 5 years and only 9% due in the next 12 months).

The breakdown of the Group net debt at December 31, 2018 and December 31, 2017 is reported below:

Annual Report 2018 • 120 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

NET FINANCIAL DEBT

(Euro thousands) December 31, 2018 December 31, 2017 A. Cash and Cash Equivalents (153,036) (67,194) B. Other cash equivalents C. Securities held for trading D. Liquidity (A)+(B)+(C) (153,036) (67,194) E. Financial receivables F. Current financial payables 7,681 7,780 G. Current portion of medium/long-term bank payables 21,361 19,831 H. Other current financial payables 2,172 I. Payables and other current financial liabilities (F) + (G) + (H) 29,042 29,783 J. Net current financial debt (D) + (E) + (I) (123,994) (37,411) K. Non-current portion of medium/long-term bank payables 219,286 240,532 L. Bonds issued 298,889 298,441 M. Other non-current financial payables 5,430 7,316 Payables and other non-current financial liabilities (K) + N. 523,605 546,289 (L) + (M) O. Net Financial Debt (J) + (N) 399,611 508,878

At the end of December 2018, the derivatives for Euro 1,841 thou- net debt of Euro 399,611 thousand related to the continua- sand decreased Euro 109,267 tion of the amortisation of the thousand on the end of 2017 relative notional value; (ii) low- (Euro 508,878 thousand). er accruals on loans for Euro 98 thousand (iii) negative impact The net debt was affected by a for Euro 518 thousand from number of factors, including: the continued amortisation of the costs for the EIB loans and a. greater liquidity of Euro 85,842 Bond. thousand deriving from the favourable cash flows from The following is a breakdown current operations which also of the variations of current and made it possible to cover in- non-current financial assets and vestment needs; liabilities, with a separate indica- b. the continuation of the repay- tion of cash flows recorded in the ment of part of the loans held, year 2018 and other variations. principally EIB loans (principal repaid in the year totalling Euro 19,831 thousand); c. lower IAS adjustments for Euro 1,426 thousand principally deriving from: (i) the improvement in the fair value of the

Annual Report 2018 • 121 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Derivative Lease pay- Other Loans Bond loans Total liabilities ables liabilities Balance at December 31, 2017 268,231 298,441 7,228 3 2,169 576,072 Cash flows (19,831) (3) (2,169) (22,003) Other changes - Amortised cost 69 448 517 - Fair value change (1,841) (1,841) - Accruals (98) (98) Balance at December 31, 2018 248,371 298,889 5,387 0 0 552,647

8.17 Other non-current payables non-current payables”. The table below reports the breakdown of the account “Other

OTHER NON-CURRENT PAYABLES

(Euro thousands) December 31, 2018 December 31, 2017 Employee payables 11,876 14,946 Social security institutions 2,088 2,642 Total 13,964 17,588

The item includes payables to contributions, recorded as a re- ering this procedure was signed employees and the correspond- sult of the mobility procedure’s on January 15, 2018. The change ing obligation due to the INPS commencement on December 27, is substantially attributable to the resulting from the signing of ear- 2017. Through the mobility proce- reclassification from current paya- ly retirement agreements in the dure, early retirement incentive bles. context of the Personnel Restruc- payments were established for a turing Industrial Plan 2018-2023. pre-determined number of work- 8.18 Trade payables ers who will qualify for pension The breakdown of trade payables “Other non-current payables” re- benefits by August 2023 (early re- is follows. fers to payables to employees tirement or old age pension). The and associated social security agreement with Trade Unions cov-

TRADE PAYABLES

(Euro thousands) December 31, 2018 December 31, 2017 Trade payables 139,303 141,353 Advances 2,475 7,625 Payables to associates 11,616 4,519 Total trade payables 153,394 153,497

Annual Report 2018 • 122 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Trade payables refer to the pur- in the account “Advances” while 5,626 thousand at December 31, chase of goods and services re- awaiting conclusion of all the vari- 2017), IRAP payables for Euro 837 lating to operations and Group ous levels of appeal. thousand (Euro 1,306 thousand investments. at December 31, 2017) , IRES pay- In order to optimise operations ables for Euro 11,539 thousand Payables for advances at Decem- with suppliers, trade payables at (Euro 697 thousand at December ber 31, 2018, equal to Euro 2,475 December 31, 2018 include sums 31, 2017) , VAT payables for Euro thousand (Euro 7,625 thousand ceded under indirect factoring 906 thousand (Euro 709 thousand at December 31, 2017), report a contracts for Euro 1,391 thousand at December 31, 2017) and other significant reduction compared (Euro 4,218 thousand at Decem- taxes for Euro 6 thousand (Euro 32 to the previous year principally ber 31, 2017). thousand at December 31, 2017). due to the effect of the recognition in the income statement of For payables from associated com- 8.20 Other payables the income, equal to Euro 5,631 panies, reference should be made The table below reports the thousand, relating to the occu- to Note 10, relating to transac- breakdown of the account “Other pation of the spaces located in tions with related parties. payables”. the Linate and Malpensa airports, following Cassation Court Sen- 8.19 Income tax payables tence No. 23454/18 which reject- Payables for income taxes ed the recourse presented by the amounting to Euro 18,541 thou- Customs Agency, confirming the sand at December 31, 2018 (Euro previous sentences. The amount 8,370 thousand at December 31, was entirely collected in 2014, fol- 2017), mainly relate to employee lowing Milan Court Sentence No. and consultant’s withholding tax- 12778/2013, and was recorded es for Euro 5,253 thousand (Euro

OTHER PAYABLES

(Euro thousands) December 31, 2018 December 31, 2017 Airport fire service 65,113 59,040 Payables for additional landing rights 49,944 46,131 Others 23,370 21,845 Employee payables for amounts matured 21,311 16,179 Payables to the state for concession fee 14,285 13,634 Payables to social security institutions 14,234 12,968 Employee payables for vacations not taken 2,434 2,625 Third party guarantee deposits 1,160 1,179

Payables to ministry CO2 quotas 301 Payables to others post-em. ben. 242 253 Payables to BoD & Boards of Statutory Auditors 204 207 Payables to the state for concession fee security 90 83 service Payables to shareholders for dividends 89 77 Payables to third parties for ticketing collections 70 Total 192,476 174,592

Annual Report 2018 • 123 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

“Other current liabilities” in- further details, reference should The higher employee payables for creased by Euro 17,884 thousand, be made to the Directors’ Report remuneration matured, for Euro from Euro 174,592 thousand in the section “Risk factors of the 5,132 thousand, are principally at December 31, 2017 to Euro SEA Group”. due to the reclassification of the 192,476 thousand at December current portion of employee paya- 31, 2018. The item “Payables for addition- bles and the relative social contri- al landing rights” represent the bution charges, to be paid in 2019 Relating to the payables to the additional charges created by relating to the mobility procedure State for airport fire services, on Laws No. 350/2003, No. 43/2005, commenced in 2017 and the high- July 20, 2018 the constitutional No. 296/2006, No. 166/2008, No. er payable related to the recogni- court notice of July 3, 2018 was 92/2012 and No. 357/2015. tion, for the year 2018, of a Group published in the Official Gazette performance bonus. which declared the unconstitu- The account “Others”, amount- tionality of Article 1, paragraph ing to Euro 23,370 thousand at 478 of Law No. 208 of December December 31, 2018 (Euro 21,845 28, 2015 implementing “Provi- thousand at December 31, 2017), sions for the drawing up of annu- mainly relates to deferred income al and multi-year budgets of the from clients for future periods State (2016 Stability Law)”. For and other minor payables.

Annual Report 2018 • 124 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

9. Income Statement which the Group operates. There- in the account “Other operating fore, these data differ with re- costs”) in 2018 were classified as a spect to those presented at the reduction of the account “Operat- 9.1 Operating revenues level of the individual legal entity. ing revenues”. The figures in the The table below shows the break- 2017 accounts were reclassified down of operating revenues for In accordance with IFRS 15 - Rev- for a correct comparability of the the years 2018 and 2017. These enue from contracts with custom- accounts in the financial state- data, as shown in Note No. 7 “Dis- ers, applied by SEA from January ments. closure by operating segment” 1, 2018, the incentives to the air- reflect the operational and man- line carriers for the development agerial view of the businesses in of traffic (previously classified

OPERATING REVENUES

(Euro thousands) 2018 2017 restated Commercial Aviation Operating Revenues 658,128 621,404 General Aviation Operating Revenues 11,344 12,128 Energy Operating Revenues 14,484 14,728 Total operating revenues 683,956 648,260

Commercial Aviation Operating Revenues The breakdown of aviation operating revenues is reported below.

AVIATION OPERATING REVENUES

(Euro thousands) 2018 2017 restated Fees and centralised infrastructure 357,438 335,516 Revenues from security controls management 44,622 45,598 Use of regulated spaces 13,669 12,938 Total Aviation operating revenues 415,729 394,052

Aviation revenue growth, amount- be made. ing to Euro 21,677 thousand, is described in detail in the Directors’ The breakdown of Non-Aviation op- Report to which reference should erating revenues is reported below.

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NON AVIATION OPERATING REVENUES

(Euro thousands) 2018 2017 Retail 97,753 95,429 Parking 68,119 64,259 Cargo 16,261 15,844 Advertising 11,529 10,500 Premium services 19,289 18,073 Real estate 8,988 2,459 Services and other revenues 20,460 20,788 Total Non Aviation operating revenues 242,399 227,352

“Services and other revenues” The breakdown of retail revenues mainly relate to income from tick- is reported below. eting services, service activities and other income.

RETAIL REVENUES

(Euro thousands) 2018 2017 Shops 50,704 49,530 Food & Beverage 21,702 20,060 Car Rental 17,192 16,385 Bank services 8,155 9,454 Total Retail 97,753 95,429

For further information, reference western apron of Linate airport Energy Operating Revenues should be made to the Operating and the handling activities relat- The breakdown of Energy operat- Segments section of the Direc- ed to this traffic. Revenues from ing revenues is reported below. tors’ Report. the General Aviation business amounting to Euro 11,344 thou- General Aviation Operating sand registered a decrease (6% Revenues over the previous year). For fur- The General Aviation business in- ther details reference should be cludes the full range of services made to the Directors’ Report. relating to business traffic at the

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ENERGY OPERATING REVENUES

(Euro thousands) 2018 2017 Sale of Electricity 8,931 9,769 Sale of Thermal Energy 4,642 4,222 Other Revenues & Services 911 737 Total Energy operating revenues 14,484 14,728

For an analysis of revenues, refer- by a mark-up of 6% representing ments, reference should be made ence should be made to the Direc- the best estimate of the remuner- to Note 8.1. tors’ Report. ation of the internal cost for the management of the works and 9.3 Personnel costs 9.2 Revenue for works on assets design activities undertaken by The breakdown of personnel costs under concession the Parent Company, which corre- is as follows. Revenues for works on assets un- sponds to a mark-up which a gender concession increased from eral constructor would request to Euro 28,281 thousand in 2017 to undertake such activities. Euro 29,189 thousand in 2018. This account is strictly related to These revenues, as per IFRIC 12, investment and infrastructure up- refer to construction work on as- grading activities. For further in- sets under concession increased formation on the principal invest-

PERSONNEL COSTS

(Euro thousands) 2018 2017 Wages, salaries & social security charges 173,982 173,482 Post-employment benefits 7,676 7,881 Other personnel costs 7,758 29,380 Total 189,416 210,743

Group personnel costs in 2018 traordinary provisions accrued in which increased from 2,766 in decreased Euro 21,327 thou- 2017 deriving from the leaving 2017 to 2,782 in 2018. sand (-10.1%) compared to 2017, incentive plan agreed with the from Euro 210,743 thousand in trade unions. The average number of employ- 2017 to Euro 189,416 thousand ees by category in the two-year in 2018. Passenger traffic growth impact- period (Full Time Equivalent) is ed upon the increase in the aver- as follows: The decrease is due to the ex- age number of FTE employees,

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AVERAGE FULL TIME EQUIVALENT

January- January- % % December 2018 December 2017 Executives 56 2.0% 57 2.1% Managers 280 10.1% 270 9.8% White-collar 1,749 62.9% 1,754 63.4% Blue-collar 650 23.4% 657 23.8% Total full-time employees 2,735 98.3% 2,738 99.0% Temporary workers 47 1.7% 28 1.0% Total employees 2,782 100.0% 2,766 100.0%

9.4 Consumable materials The breakdown of the account “consumable materials” is as follows:

CONSUMABLE MATERIALS

(Euro thousands) 2018 2017 Raw materials, ancillaries, consumables and goods 34,783 32,250

(*) Purchase of Co2 quotas 3,280 836 Change in inventories 2,171 37 Total 40,234 33,123

(*) From 2018 the costs relating to the Co2 emission quotas are classified under consumable materials. In 2017, they were classified under Other operating costs. For comparability purposes, the 2017 figures were reclassified

Consumable materials in- the higher inventory obsoles- 9.5 Other operating costs creased from Euro 33,123 thou- cence provision, an increase in The breakdown of “Other operat- sand in 2017 to Euro 40,234 purchases held for stock and ing costs” is as follows: thousand in 2018, an increase immediate utilisation among of Euro 7,111 thousand. The which fuel and spare parts and increase on the previous year the disposal of spare part mate- is principally generated from rials no longer utilisable.

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OTHER OPERATING COSTS

(Euro thousands) 2018 2017 restated Public fees 34,602 31,868 Ordinary maintenance costs 27,851 26,956 Terminal services provided by handling company 23,255 22,609 Cleaning 14,207 13,898 Other costs 13,067 10,508 Parking management 15,149 14,572 Professional services 8,247 8,813 Utilities & security expenses 9,691 8,438 Tax charges 8,354 7,451 Hardware and software fees & rental 5,366 4,654 Commercial costs (*) 5,067 4,070 Disabled assistance 3,600 3,608 Hire of equipment & vehicles 3,737 3,626 Insurance 1,412 1,710 Emoluments & costs of Board of Statutory Auditors & BoD 838 819 Losses on disposal of assets 473 63 Total other operating costs 174,916 163,663

(*) In accordance with IFRS 15 – Revenue from contracts with customers, applied by the Group from January 1, 2018, the incentives to the airline carriers for the development of traffic, previously classified in the account “Other operating costs”, and shown under commercial costs, in 2018 are classified as a direct reduction of “Operating revenues”. The figures in the 2017 accounts were reclassified for a correct comparability of the accounts in the financial statements.

Other operating costs, amount- ports for Euro 6,073 thousand 8.1 and 8.2. ing to Euro 174,916 thousand in (Euro 5,951 thousand in 2017); 2018, increased Euro 11,253 thou- iii) concession fees to the tax au- These costs refer to the costs for sand on the previous year, mainly thorities for security services of the works undertaken on assets due to higher commercial costs Euro 1,137 thousand (Euro 1,064 under concession. The margin for for public fees (+Euro 2,734 thou- thousand in 2017); other fees to work on assets under concession sand), utilities and security (+Euro various entities for Euro 166 thou- are included in the Commercial 1,253 thousand) and tax charges sand (Euro 205 thousand in 2017). Aviation business. (+Euro 903 thousand).

The increase in “Other costs” is 9.6 Costs for works on assets 9.7 Provisions and write-downs mainly attributable to higher ac- under concession The breakdown of provisions and cessory costs for electricity. Costs for works on assets under write-downs is as follows: concession increased from Euro The Public fees include: i) conces- 26,006 thousand in 2017 to Euro sion fees to the State for Euro 26,728 thousand in 2018. This 27,226 thousand (Euro 24,648 movement is strictly related to in- thousand in 2017); ii) costs for vestment activities, for which ref- fire-fighting services at the- air erence should be made to Notes

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PROVISIONS AND WRITE-DOWNS

(Euro thousands) 2018 2017 Write-downs / (releases) of current receivables & cash 817 27,248 and cash equivalents Write-down of other financial assets - 3,476 Provisions/(releases) for future charges 2,887 1,494 Total provisions and write-downs 3,704 32,218

In 2018 the provisions and write- receivables, amounting to Euro to adjustments on valuations re- downs amount to Euro 3,704 3,476 thousand, included the lated to legal disputes with em- thousand. write-down of the financial re- ployees and operational activities ceivable relating to the Financial of the Milan Airports. For further The doubtful debt provisions were Instruments of Participation and information reference should be recorded in line with IFRS 9. the Airport Handling shares trans- made to Note 8.14. ferred to the Trust and subject of The higher provisions in 2017 the contract with dnata, in antici- 9.8 Restoration and mainly refer to past due receiva- pation of the probable review of replacement provision bles (prior to administration on the sale price on the expiry of the The breakdown of the restoration May 2, 2017) from Alitalia SAI in call option exercisable by dnata. and replacement provision is as Extraordinary Administration, for follows: an amount of Euro 25,252 thou- The net provisions for future risks sand, included under unsecured and charges, amounting to Euro debtors. 2,887 thousand at December 31, 2018 (Euro 1,494 thousand at De- The write-down of other financial cember 31, 2017), principally refer

RESTORATION AND REPLACEMENT PROVISION

(Euro thousands) 2018 2017 Restoration and replacement provision 15,077 13,602

This account includes the pro- with an increase of Euro 1,475 try regulations, in 2018 there vision for the year relating to thousand. were no releases. the scheduled replacement and maintenance of the assets within While in 2017 the provision in- 9.9 Amortisation and the so-called “Concession Right”. creased Euro 15,093 thousand depreciation The provision increased from and a release recorded of Euro The account “Amortisation & de- Euro 13,602 thousand in 2017 to 1,491 thousand in order to ad- preciation” is comprised of: Euro 15,077 thousand in 2018, just the provision to new indus-

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AMORTISATION & DEPRECIATION

(Euro thousands) 2018 2017 Amortisation of intangible assets 53,706 51,632 Depreciation of tangible assets & investment property 19,895 17,664 Total amortisation & depreciation 73,601 69,296

Amortisation and depreciation in exceed the duration of the con- 9.10 Investment income (charg- the period relate to tangible and cession and the depreciation of es) intangible assets held based on new assets entering into service in The breakdown of investment in- the estimated useful life by the the year. come and charges is as follows: Group, which however does not

INVESTMENT INCOME (CHARGES)

(Euro thousands) 2018 2017 SACBO SpA 4,380 4,915 Dufrital SpA 3,776 2,056 Disma SpA 244 262 Malpensa Logistica Europa SpA 1,799 477 Sea Services Srl 851 702 Signature Flight Support Italy Srl (81) (208) Airport Handling SpA 3,208 Valuation at equity of investments 14,177 8,204 Other income (charges) 391 (69) Total income (charges) from investments 14,568 8,135

Net investment income increased fect from July 2018, in the scope dling was not included in the con- from Euro 8,135 thousand in 2017 of companies measured at equity solidation scope. to Euro 14,568 thousand in 2018 of Airport Handling SpA. (+Euro 6,433 thousand). 9.11 Financial income (charges) In 2018 ‘’Other income/(charges)” The breakdown of the account “Fi- Income from the measurement of includes dividends from Airport nancial income and charges” is as associated companies at equity in- Handling SpA collected for a net follows: creased Euro 5,973 thousand. The amount of Euro 387 thousand, increase is primarily attributable approved by the Shareholders’ to the improvement in the results Meeting of the company on May achieved by some associates, in 6, 2016, drawing on the profit addition to the inclusion, with ef- from FY 2015, when Airport Han-

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FINANCIAL INCOME (CHARGES)

(Euro thousands) 2018 2017 Exchange gains 5 11 Other financial income 1,016 247 Total financial income 1,021 258 Interest on medium/long term loans (12,038) (12,413) Commissions on loans (1,628) (1,603) Exchange losses (23) (14) Other interest charges: (3,973) (4,137) - financial charges on post-em. bens. (652) (686) - financial charges on Leasing (1) (1) - financial charges on derivatives (2,290) (2,505) - Others (1,030) (945) Total financial charges (17,662) (18,167) Total financial income (charges) (16,641) (17,909)

Net financial charges in 2018 by the decrease in gross debt, (ii) sand matured on the IRES receiv- amount to Euro 16,641 thousand, lower charges on derivatives due able and collected in April 2018 a decrease of Euro 1,268 thousand to the continuing amortization of simultaneous to the nominal re- on the previous year, against a de- the relevant notional amount, (iii) ceivable paid. crease in gross financial charges of greater guarantee fees on the EIB Euro 505 thousand. disbursement of late June 2017. 9.12 Income taxes The breakdown of the account ”In- This decrease mainly derives from In the same period, financial income taxes” is as follows: varying effects: (i) lesser interest come increased Euro 763 thou- expense during the period on sand mainly due to the impact of medium-/long-term loans, driven interest income of Euro 976 thou-

INCOME TAXES

(Euro thousands) 2018 2017 Current income taxes 55,037 43,752 Deferred income taxes (3,719) (8,085) Total 51,318 35,667

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Reconciliation between theoreti- income tax rate is shown in the ta- cal income tax rate and effective ble below:

(Euro thousands) 2018 % 2017 % Continuing operations profit before taxes 187,396 118,116 Discontinued operations profit/loss before 0 1,556 taxes Profit before taxes 187,396 119,672 Theoretical income taxes 44,975 24.0% 29,555 24.0% Permanent tax differences effect (109) -0.1% (1,016) -0.2% IRAP 8,549 4.6% 7,378 6.2% Other (2,097) -1.1% (250) -0.2% Total 51,318 27.4% 35,667 29.8% Income taxes on continuing operations (51,318) (35,667) Income taxes on discontinued operations 0 0 Total Group income taxes (51,318) (35,667)

Income taxes in 2018 amount Therefore, the basic earnings per They are regulated at market con- to Euro 51,318 thousand com- share in 2018 was Euro 0.54 (net ditions and take account of the pared to Euro 35,667 thousand profit for the year of Euro 136,076 characteristics of the goods and in 2017. The main reasons for thousand/number of shares in cir- services provided. the difference in income taxes culation 250,000,000). in the two periods is due to the The following tables show the significant increase in the pre- The basic earnings per share in balances with related parties at tax profit in 2018. 2017 was Euro 0.34 (net profit for December 31, 2018 and at De- the year of Euro 84,070 thousand/ cember 31, 2017 and the income 9.13 Earnings per share number of shares in circulation statement amounts for the years The basic earnings per share is 250,000,000). 2018 and 2017, with indication of calculated by dividing the Group the percentage of the relative ac- net profit by the weighted - aver count. age number of ordinary shares 10. Related party outstanding in the year. For the transactions diluted earnings per share, as no equity instruments were issued by The related party transactions are the parent company, the weight- not atypical or unusual and form ed average of the shares in circu- part of the ordinary business ac- lation is the same as that utilised tivities of the companies of the for the establishment of the basic Group. earnings per share.

Annual Report 2018 • 133 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

GROUP TRANSACTIONS WITH RELATED PARTIES

December 31, 2018 Net operating Trade Other Trade Operating costs (excl. costs Receivables receivables payables revenues for works on assets (Euro thousands) under concession) Investments in associates SACBO (*) 336 476 980 11,254 Dufrital 5,255 2,005 740 31,614 19 Malpensa Logistica Europa 1,208 1,062 4,310 (40) SEA Services 1,170 2,014 3,602 3,846 Disma 115 99 218 (7) Signature Flight Support Italy 112 30 511 39 Airport Handling 3,211 7,194 6,629 13,042 Total related parties 11,407 2,005 11,616 47,864 28,153 Total book value 121,005 9,527 153,394 683,956 404,566 % on total book value 9.43% 21.04% 7.57% 7.00% 6.96%

December 31, 2017 Operating costs Trade Other Trade Operating (excl. costs for Receivables receivables payables revenues works on assets (Euro thousands) under concession) Investments in associates SACBO (*) 276 510 838 10,496 Dufrital 5,542 1,149 31,103 21 Malpensa Logistica Europa 1,840 1,046 4,277 10 SEA Services 1,137 1,714 3,115 3,331 Disma 117 99 215 0 Signature Flight Support Italy 507 1 944 0 Total related parties 9,419 0 4,519 40,492 13,858 Total book value 111,078 9,200 153,497 697,698 456,968 % on total book value 8.48% 0.00% 2.94% 5.80% 3.03%

(*) The account “Operating costs” relating to transactions with SACBO does not include that invoiced by SEA to the final clients and transferred to the associate.

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The table below shows the cash and December 31, 2017, with inflows from the transactions of the dication of the percentage of the Group with related parties for the relative account: years ended December 31, 2018

GROUP CASH FLOWS WITH RELATED PARTIES

December 31, 2018 Total Investments Investments in transactions Consolidated in other % associates with related balance companies (Euro thousands) entities A) Cash flow from operating 3,104 3,104 233,982 1.3% activities B) Cash flow from investing 6,271 6,271 (39,779) -15.8% activities C) Cash flow from financing (108,361) 0.0% activities

December 31, 2017 Total Investments Investments in transactions Consolidated in other % associates with related balance companies (Euro thousands) entities A) Cash flow from operating (843) (843) 161,407 -0.5% activities B) Cash flow from investing 7,552 7,552 (63,432) -11.9% activities C) Cash flow from financing (87,195) 0.0% activities

The transactions between the ing from the concession for the 10.1 Other transactions with Group and related parties for the distribution of fuel (Disma); related parties year ended December 31, 2018 ◼◼ supply by SEA Energia of elec- mainly related to: tricity to Dufrital; SACBO SpA ◼◼ revenue for rental and conces- In 2018, SACBO distributed divi- ◼◼ parking management transac- sions issued by SEA Prime for dends to SEA for Euro 2,026 thou- tions at Orio al Serio-Bergamo the supply of fuel; push back sand. (SACBO) airport; costs (Signature Flight Support ◼◼ commercial transactions with Italy); DUFRITAL SpA reference to the recognition to ◼◼ revenue for administration ser- In 2018, Dufrital distributed divi- SEA of royalties on sales (Dufri- vices and handling activity costs dends to SEA for Euro 4,056 thou- tal and SEA Services); (Airport Handling). sand, of which Euro 2,051 thou- ◼◼ rental of premises (Malpensa sand received in 2018. Logistica Europa); The above-mentioned transac- ◼◼ supply to SEA of catering servic- tions were within the ordinary ac- MALPENSA LOGISTICA EUROPA SpA es (SEA Services); tivities of the Group and undertak- In 2018, Malpensa Logistics dis- ◼◼ commercial transactions deriv- en at market values. tributed dividends to SEA for Euro

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750 thousand. 11. Directors’ fees company SEA SpA and its subsidiaries to the audit firm Deloitte SEA SERVICES Srl In 2018, the remuneration for & Touche SpA for the year 2018 In 2018, SEA Services distribut- the Board of Directors, including amounted to Euro 269 thousand ed dividends to SEA for Euro 804 welfare and accessory charges, for audit services and Euro 59 thousand. amounted to Euro 551 thousand thousand for other services. The (Euro 529 thousand in 2017). Fees of the Audit Firm are net of AIRPORT HANDLING SpA Consob contribution. In 2018, SEA received net dividends from Airport Handling 12. Statutory auditors’ totalling Euro 387 thousand, ap- 14. Commitments and fees proved by the Shareholders’ Meet- guarantees ing of Airport Handling on May 6, In 2018, the remuneration for 2016, drawing on the profit from 14.1 Investment commitments FY 2015 and relating to the invest- the Board of Statutory Auditors, including social security contri- The Group has investment con- ment held, at the moment of the tract commitments of Euro 48,879 approval, by the Trust. bution and accessory charges, amounted to Euro 287 thousand thousand at December 31, 2018 (Euro 290 thousand in 2017). (Euro 36,315 thousand at Decem- DISMA SpA ber 31, 2017), which are reported In 2018, Disma distributed divi- net of the works already realised dends to SEA for Euro 253 thou- and invoiced to the Group, as fol- sand. 13. Independent Audit lows. Firm fees

The audit fees recognised by the

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BREAKDOWN PROJECT COMMITMENTS

(Euro thousands) December 31, 2018 December 31, 2017 Design and extraordinary maintenance civil works and 21,540 21,532 plant at Linate & Malpensa Design and extraordinary maintenance flight 9,079 1,148 infrastructure and roadways at Linate and Malpensa Works on electrical automation and control systems at 7,459 Linate and Malpensa Design and extraordinary maintenance of Linate & 5,884 3,466 Malpensa AVL plants Construction works at Malpensa general aviation 3,122 terminal Extraordinary maintenance for civil works and general 1,333 1,480 aviation plant Design and construction of new warehouses at Cargo 462 4,006 City of Malpensa Construction of new frontage at Linate 3,381 Construction of new de-icing area at Linate 777 Design and works Lambro general aviation 400 Final phase new changing rooms, air side area general 100 aviation Hangar general aviation 25 Total project commitments 48,879 36,315

14.2 Commitments for rental at December 31, 2017), principally The breakdown of the minimum contracts relating to software and hardware payments on the contracts of the At December 31, 2018, the SEA components for the airport IT sys- Group at December 31, 2018 is as Group has commitments on rent- tem, the rental of airport buses follows: al contracts totalling Euro 24,963 and the motor vehicles fleet. thousand (Euro 24,592 thousand

(Euro thousands) December 31, 2018 December 31, 2017 Within 12 months 7,128 7,088 Between 1 and 5 years 17,835 17,504 Total 24,963 24,592

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14.3 Guarantees port for Euro 210 thousand; For further details, reference At December 31, 2018, the sure- ◼◼ guarantee by Banca Popolare should be made to the Directors’ ties in favour of third parties were di Milano to the Energy Market Report to the chapter “Main dis- as follows: Operator for participation in putes outstanding at December 31, the electricity market platform 2018”. ◼◼ two bank sureties, equal re- for Euro 200 thousand; spectively to Euro 42,000 thou- ◼◼ guarantee by Banca Popolare di sand and Euro 46,000 thou- Milano to Unareti for the trans- 18. Transactions relating sand, as guarantee on funds port of energy for Euro 173 to atypical or unusual drawn down in June 2015 and thousand; June 2017 on the EIB line sub- ◼◼ Euro 760 thousand for other operations scribed in December 2014; minor sureties. ◼◼ surety of Euro 25,000 thousand In accordance with Consob Com- to Banca Popolare di Milano to munication of July 28, 2006, the Company did not undertake any guarantee credit lines received 15. Seasonality from companies within the cen- transactions deriving from atypical or unusual operations, as set tralised treasury system; The Group business is character- out in the communication. ◼◼ surety of Euro 26,287 thousand ised by revenue seasonality, which in favour of ENAC, as guarantee are normally higher in the periods of the concession fee; of August and December due to ◼◼ surety of Euro 2,000 thousand increased flights by the airlines 19. Significant non- in favour of SACBO as guaran- at its airports. It should be noted recurring events and tee for the parking manage- that the airports of Milan Malpen- transactions ment at Bergamo airport; sa and Milan Linate are to a cer- ◼◼ surety of Euro 2,000 thousand tain degree complementary from Pursuant to CONSOB Communica- in favour of the Ministry of De- a seasonality viewpoint, in view tion of July 28, 2006, in the view fense as guarantee of the obli- of the different profile of the in- of Directors, in 2018 the compa- gations pursuant to the techni- direct customers (i.e. leisure vs. cal agreement of June 4, 2009 nies of the Group undertook the business). This feature limits the following the advance delivery following non-recurring signifi- seasonal peaks from an overall of the “Cascina Malpensa” area; cant operations: consolidated operational and fi- ◼◼ surety of Euro 102 thousand in nancial viewpoint. favour of the supplier Contract ◼◼ Collection of the IRES receiva- GmbH for the rental of airport ble concerning the deductibili- buses; ty of IRAP from IRES for the fi- ◼◼ guarantee by Banca Popolare di 16. Contingent liabilities nancial years 2007-2011 (“click Milano to the Customs Agency day”) for Euro 10,734 thousand of Segrate (Milan 3) for Euro 75 Reference should be made to the (including interest income of thousand (General Aviation); explanatory notes in relation to Euro 976 thousand); ◼◼ surety by Banca Popolare di receivables (Note 8.10) and oper- ◼◼ Repayment to SEA of the high- Milano to Terna (National Elec- ating risks (Note 8.14). er fine issued by AGCM in 2015 tricity Grid) as guarantee of the (totalling Euro 2,430 thousand) provision of electricity for Euro on the conclusion of the Proce- 1,214 thousand; 17. Contingent assets dure contesting its dominant ◼◼ guarantee by Banca Popolare position in relation to the ten- di Milano to ENEL Distribuzione With reference to Judgment der procedures for the disposal for the transport of energy for 7241/2015 of the Milan Court, of SEA Prime SpA; Euro 1,154 thousand; confirmed by the Milan Court ◼◼ Collection of Euro 13,300 thou- ◼◼ guarantee by Banca Popolare di of Appeal with Judgment No. sand (of which Euro 10,640 Milano to GESAC for the supply 331/2017, concerning airport thousand for the sale of 70% of of electricity to the Naples air- fees, as not all appeals have been the Equity Financial Instruments port for Euro 228 thousand; made this contingent asset was and Euro 2,660 thousand for ◼◼ guarantee by Banca Popolare di not recognised in the income the sale of 70% of the shares), Milano to SAGAT for the supply statement as per IAS 37. representative of the current of electricity to the Turin air- portion of the account “Other

Annual Report 2018 • 138 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

current financial assets” following interest portion), relating 20. Public grants (Article ing the exercise, by dnata, of to the occupation of the spac- the purchase option of a fur- es located in the Linate and 1, paragraphs 125-129 of ther 40% holding in the share Malpensa airports, following Law 124/2017) capital of Airport Handling and Cassation Court Sentence No. a corresponding share of Fi- 23454/2018 which rejected Pursuant to Law No. 124/2017 nancial Instruments of Partici- the recourse presented by the and subsequent supplements, pation. The winding up of the Customs Agency, confirming we communicate that the Group Milan Airport Handling Trust, the previous sentences. The received public grants during the having exhausted its corpo- amount was entirely collected year totalling Euro 451 thousand. rate scope and the consequent in 2014, following Milan Court transfer to SEA of the residual Judgement No. 12778/2013, 30% of the share capital, result- and was recorded in the ac- ed in the reclassification of Euro count “Advances” while await- 7,190 thousand, recorded in ing conclusion of all the various the 2017 accounts under “Oth- levels of appeal. er non-current financial assets”, to the account “investments in associated companies”; ◼◼ Recognition in the income statement of the income, equal to Euro 5,631 thousand (includ-

Amount Beneficiary Provider Purpose Collection date (Euro thousands) Grant for regulation works on SEA SpA * Lombardy Region 11/07/2018 451 Lambro river

* The loan was received by SEA SpA but was simultaneously forwarded to SEA Prime SpA as the effective owner of the works on November 21, 2018.

As required by Article 1 Law No. of Euro 10 thousand are listed 124/2017, paragraph 126, the below. grants received over an amount

Amount Beneficiary Provider Purpose (Euro thousands) La Scala Theatre SEA SpA Founding shareholder annual quota 600 Annual contribution to fund scientific research into Telethon SEA SpA a cure for muscular dystrophy and other genetic 30 Foundation illnesses OPES Foundation SEA SpA QUID Project 2018 40

21. Subsequent events to December 31, 2018 Reference should be made to the Directors’ Report. The Chairman of the Board of Directors

Michaela Castelli

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Annual Report 2018 • 140 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Auditors’ Report

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Annual Report 2018 • 142 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Annual Report 2018 • 143 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

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Annual Report 2018 • 145 SEA SpA Separate Financial Statements SEA SPA – SEPARATE FINANCIAL STATEMENTS

Financial Statements

Statement of Financial Position

December 31, 2018 December 31, 2017 of which of which Note Total Total (in Euro) related parties related parties Intangible assets 6.1 958,046,357 971,029,047 Property, plant & equipment 6.2 154,269,436 152,090,253 Investment property 6.3 3,407,594 3,394,393 Investments in subsidiaries and associates 6.4 50,445,566 43,255,694 Other investments 6.5 26,134 26,164 Deferred tax assets 6.6 55,121,688 52,271,311 Other non-current financial assets 6.7 7,189,871 Other non-current receivables 6.8 118,729 212,302 Total non-current assets 1,221,435,504 0 1,229,469,035 0 Inventories 6.9 1,915,141 4,090,966 Trade receivables 6.10 117,601,550 14,933,566 108,611,501 12,168,396 Current financial receivables 6.11 28,410,346 28,410,346 20,630,136 20,630,136 Tax receivables 6.12 878,585 12,405,721 Other current financial assets 6.7 13,300,000 Other current receivables 6.13 6,257,359 2,004,875 7,646,227 Cash and cash equivalents 6.14 152,983,556 67,128,750 Total current assets 308,046,537 45,348,787 233,813,301 32,798,532 Assets held-for-sale 0 0 0 0 TOTAL ASSETS 1,529,482,041 45,348,787 1,463,282,336 32,798,532 Share capital 6.15 27,500,000 27,500,000 Other reserves 6.15 239,601,124 230,782,330 Net Profit 6.15 123,489,400 76,945,175 SHAREHOLDERS’ EQUITY 390,590,524 0 335,227,505 0 Provision for risks and charges 6.16 164,198,271 166,110,866 Employee provisions 6.17 45,187,506 46,735,743 Other non-current payables 6.21 13,963,564 17,588,430 Non-current financial liabilities 6.18 523,605,255 546,289,193 Total non-current liabilities 746,954,596 0 776,724,232 0 Trade payables 6.19 156,586,278 25,220,974 146,833,655 8,890,142 Income tax payables 6.20 17,463,927 7,227,118 41,010 Other current payables 6.21 188,303,215 169,657,859 Current financial liabilities 6.18 29,583,501 541,764 27,611,967 Total Current Liabilities 391,936,921 25,762,738 351,330,599 8,931,152 Liabilities related to assets held-for-sale 0 0 0 0 TOTAL LIABILITIES 1,138,891,517 25,762,738 1,128,054,831 8,931,152 TOTAL LIAIBILITIES & SHAREHOLDERS’ EQUITY 1,529,482,041 25,762,738 1,463,282,336 8,931,152

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Income Statement

2018 2017 restated

of which of which Note Total Total (in Euro) related parties related parties

Operating revenues * 7.1 663,935,512 55,151,352 626,729,459 47,390,858

Revenue for works on assets under concession 7.2 29,188,489 28,280,955

Total revenues 693,124,001 55,151,352 655,010,414 47,390,858

Personnel costs 7.3 (184,046,956) 903,455 (205,347,807) 687,815

Consumable materials 7.4 (13,489,125) (10,219,347)

Other operating costs 7.5 (200,949,140) (60,820,223) (184,113,939) (39,522,977)

Costs for works on assets under concession 7.6 (26,727,727) (26,005,801)

Total operating costs (425,212,948) (59,916,768) (425,686,894) (38,835,162)

EBITDA 267,911,053 (4,765,416) 229,323,520 8,555,696

Provisions & write-downs 7.7 (3,551,139) (30,616,367)

Restoration and replacement provision 7.8 (15,000,000) (13,509,000)

Amortisation and Depreciation 7.9 (69,406,668) (65,480,105)

EBIT 179,953,246 (4,765,416) 119,718,048 8,555,696

Investment income/(charges) 7.10 8,275,885 8,275,885 7,680,099 7,680,099

Financial charges 7.11 (17,646,607) (18,160,321)

Financial income 7.11 1,580,491 564,358 1,084,763 839,215

Pre-tax profit 172,163,015 4,074,827 110,322,589 17,075,010

Income taxes 7.12 (48,673,615) (33,377,414)

Continuing Operations profit 123,489,400 4,074,827 76,945,175 17,075,010

Discontinued Operations profit/(loss) 0 0 0 0

Net Profit 123,489,400 4,074,827 76,945,175 17,075,010

(*) From 2018, following the entry into force of IFRS 15 which provides for the combined presentation of contracts with a single commercial objective, the incentives provided to airline companies to develop traffic were classified as a reduction of revenues. In 2017, they were classified under Other operating costs. For comparability purposes, the 2017 figures were reclassified.

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Comprehensive Income Statement

(in Euro) 2018 2017

Net Profit 123,489,400 76,945,175

Other comprehensive income statement items

- Items reclassifiable in future periods to the net result:

Profit/(Loss) on fair value measurement of derivative financial instruments cash 1,760,708 2,434,925 flow hedge

Tax effect relating to profit/(loss) on fair value measurement of derivative financial (422,397) (584,382) instruments cash flow hedge

Total items reclassifiable, net of tax effect 1,338,311 1,850,543

- Items not reclassifiable in future periods to the net result:

Actuarial gains/(losses) on post-employment benefits 1,099,090 55,998

Tax effect on actuarial gains/(losses) on post-employment benefits (263,782) (13,439)

Total items not reclassifiable, net of tax effect 835,308 42,559

Total other comprehensive income items 2,173,619 1,893,102

Total comprehensive profit 125,663,019 78,838,277

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Cash Flow Statement

(in Euro) 2018 2017 Pre-tax profit 172,163,015 110,322,589 Adjustments: Amortisation, depreciation and write-downs 69,406,668 65,480,105 Net accruals to provisions & write-downs (including personnel provision) (1,441,183) 22,568,726 Write-down of other financial assets 3,476,367 Net financial charges 16,066,116 17,075,558 Investment charges (income) (8,275,885) (7,680,099) Repay. Anti-trust (exc. interest portion) (2,428,680) Other non-monetary changes (5,983,381) 15,381,230 Cash flow from operating activities before changes in working capital 241,935,350 224,195,796 Change in inventories 1,033,503 (99,925) Change in trade and other receivables (8,321,248) (51,336,019) Change in trade and other payables 31,186,325 731,083 Change other non-current liabilities (3,624,866) Receipt IRES receiv. from click day 2013 10,733,776 Cash flow from changes in working capital 31,007,490 (50,704,861) Income taxes paid (39,999,143) (37,963,420) Anti-trust penalty reimburse. (inc. interest portion) 2,430,343 Cash flow from operating activities 235,374,040 135,527,515 Investments in fixed assets: - intangible assets (*) (37,165,109) (30,843,852) - tangible assets (18,697,782) (32,268,400) - financial assets 30 (250,500) Divestments from fixed assets: - tangible assets 311,107 98,479 Other current financial assets 13,300,000 Dividends received 6,271,010 7,801,363 Receipt from liquidation of SEA Handling SpA in liquidation 8,405,236 Receipt from liquidation of Consorzio Malpensa Construction in liquidation 93,196 Cash flow from investing activities (35,980,744) (46,964,478) Change in gross financial debt - net increase short & medium-long term debt (19,830,823) 288,394 Net increase / (decrease) in other financial assets and liabilities (7,238,447) 18,325,093 Dividends distributed (70,288,319) (70,307,263) Interest and commissions paid (16,182,750) (16,747,163) Interest received 1,849 8,718 Cash flow from financing activities (113,538,490) (68,432,221) Increase/(decrease) in cash and cash equivalents 85,854,806 20,130,816 Opening cash and cash equivalents 67,128,750 46,997,934 Closing cash and cash equivalents 152,983,556 67,128,750

(*) The investments in intangible assets are net of the utilisation of the restoration provision, which in 2018 amounted to Euro 15,171 thousand (Euro 12,808 thousand in 2017).

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Statement of changes in Shareholders’ equity

Other IFRS ini- Eq, Cash Actuari- Total tial con- Extraor- Share Invest- Flow al gains/ Legal Other Total Net Share- version dinary capital ments Hedge (loss,) reserve reserves reserves profit holders’ reserve reserve Re- Reserve reserve Equity (exc, OCI) (in Euro) serve

Balance at 27,500,000 14,813,951 1 (6,803,722) (1,257,343) 138,792,048 5,500,000 60,288,176 211,333,111 87,856,117 326,689,228 January 1, 2017

Transactions with shareholders

Allocation of 2016 net profit 17,556,117 17,556,117 (87,856,117) (70,300,000) & distrib, of dividends

Other movements

Other comprehensive income 1,850,543 42,559 1,893,102 1,893,102 statement items result

Net profit 76,945,175 76,945,175

Balance at 27,500,000 14,813,951 1 (4,953,179) (1,214,784) 156,348,165 5,500,000 60,288,176 230,782,330 76,945,175 335,227,505 December 31, 2017

Transactions with shareholders

Allocation of 2017 net profit 6,645,175 6,645,175 (76,945,175) (70,300,000) & distrib, of dividends

Other movements

Other comprehensive income 1,338,311 835,308 2,173,619 2,173,619 statement items result

Impact of application of IFRS 9 (*) (720) 720

Net Profit 123,489,400 123,489,400

Balance at 27,500,000 14,813,951 1 (3,615,588) (379,476) 162,994,060 5,500,000 60,288,176 239,601,124 123,489,400 390,590,524 December 31, 2018

(*) Effect deriving from the application of the amendments to IFRS 9 - “Financial Instruments” in which the change in the time value in 2017, equal to Euro 720, recorded in the measurement of the contracts deriving from the cash flow hedge model, is recognised directly to Net Equity (Cash flow hedge reserve).

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Annual Report 2018 • 152 SEA SPA – SEPARATE FINANCIAL STATEMENTS

Notes to the Separate Financial Statements

1. General information with a forty-year duration (renew- designated “SEA 3 1/8 2014-2021” ing the previous agreement of on April 17, 2014 and the admis- Società per Azioni Esercizi Aero- May 7, 1962). sion to listing of the notes on the portuali SEA (the “Company” or regulated market organised and “SEA”) is a limited liability compa- At December 31, 2018, SEA does managed by the Irish Stock Ex- ny, incorporated and domiciled in not hold treasury shares. The own- change, the Company qualified Italy according to Italian Law. ership structure is as below. as a Public Interest Entity (PIE) as defined in Article 16, paragraph 1, letter a) of Legislative Decree No. The Company’s headquarters are On February 15, 2018, the shares 39/2010. located at Milan Linate Airport in held by the Province of Varese Segrate (Milan). (equal to 0.64% of the share capital) were purchased by 2i Aeropor- The Company manages Milan Mal- ti SpA, whose holding is therefore pensa Airport and Milan Linate Air- 36.39% of the share capital. port under the 2001 Agreement signed between SEA and ENAC Following the issuance of the bond

Holding Municipality of Milan 54.81% Municipality of Busto Arsizio 0.06% Other public shareholders 0.08% Total public shareholders 54.95% 2i Aeroporti SpA 36.39% F2i Sgr SpA 8.62% Other private shareholders 0.04% Total private shareholders 45.05% Total 100.00%

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2. Summary of “IFRS” refers to the International while the classification by nature Accounting Standards (“IAS”) in was utilised for the income state- accounting principles force, as well as those of the IFRS ment and the indirect method for adopted Interpretation Committee, previ- the cash flow statement. Where ously known as the International present the balances and trans- The main accounting principles Financial Reporting Interpreta- actions with related parties are adopted in the preparation of the tions Committee (“IFRIC”), and be- reported. separate financial statements of fore that the Standing Interpreta- SEA for the year ended December tions Committee (“SIC”). The financial statement presenta- 31, 2018 are reported below. tions utilised, as outlined above, The financial statements were are those which best represent The financial statements are pre- prepared in accordance with IFRS the equity and financial position sented in Euro while the tables in force at the approval date of of the company. included in the explanatory notes the financial statements and the are presented in thousands of provisions enacted as per Article 9 For a better presentation of the Euro. of Leg. Decree No. 38/2005. financial statements, the income statement was presented in two 2.1 Basis of preparation In particular the IFRS were applied separate statements: a) the in- European Regulation (EU) No. in a consistent manner for the pe- come statement and b) the com- 1606/2002 of July 19, 2002 intro- riods presented in the document. prehensive income statement. duced the obligation, from the The financial statements were year 2005, to apply Internation- prepared on the basis of the best The financial statements were al Financial Reporting Standards information on the IFRS and tak- prepared in accordance with the (“IFRS”) issued by the Internation- ing into account best practice; any historical cost convention, except al Accounting Standards Board further orientations and interpre- for the measurement of financial (“IASB”) and adopted by the Eu- tative updates will be reflected in assets and liabilities, including de- ropean Union for the prepara- subsequent years, in accordance rivative instruments, where the tion of the consolidated financial with the provisions of the account- obligatory application of IFRS 9 is statements of companies listed ing standards, as detailed below. required. on regulated European markets. Following the above-mentioned The separate Financial Statements The Company, following the “SEA European Regulation, Legislative were prepared in accordance with 3 1/8 2014-2021” bond issue on Decree No. 38 was enacted on the going concern concept, there- the market, adopted the account- February 28, 2005 which governs fore utilising the accounting prin- ing standards IFRS 8 “Operating the option to apply IFRS for the ciples of an operating business. Segments” and IAS 33 “Earnings preparation of the consolidated Company Management evaluated per share”, to which reference financial statements of non-listed that, although within a difficult should be made to the Consolidat- companies. SEA decided to apply economic and financial environ- ed Financial Statements Notes 7 this option for the preparation of ment, there are no uncertainties and 9.13. the consolidated financial state- on the going concern of the busi- ments for the year end December ness, considering the existent The present financial statements 31, 2006. The same Legislative capitalisation levels and there are were audited by the independ- Decree (fourth paragraph of Ar- no financial, operational, manage- ent audit firm Deloitte & Touche ticle 4) also governs the option ment or other indicators which S.p.A.. to apply IFRS for the preparation could indicate difficulty in the ca- of standalone statutory financial pacity of the company to meet its statements included in the con- obligations in the foreseeable fu- solidated financial statements in ture, and in particular in the next accordance with IFRS. SEA decid- 12 months. ed to apply this option from the financial statements for the year In relation to the presentation ended December 31, 2011. For method of the financial state- these separate financial statements “the current/non-current” ments, the transition date to IFRS criterion was adopted for the was identified as January 1, 2010. statement of financial position

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2.2 Accounting standards, The International Accounting relative endorsement process by amendments and Standards and amendments which the relevant authorities, are illus- interpretations adopted from must be applied from January 1, trated below. January 1, 2018 2018, following completion of the

Publication Effective date Effective date Date endorsed in the Official applied Description as per the standard Gazette by SEA Periods which begin IFRS 9 Financial instruments Nov 22, 2016 Nov 29, 2016 Jan 1, 2018 from Jan 1, 2018 IFRS 15 Revenue from Periods which begin Sep 22, 2016 Oct 29, 2016 Jan 1, 2018 contracts with customers from Jan 1, 2018 Clarifications to IFRS 15 Periods which begin Revenue from contracts with Oct 31, 2017 Nov 9, 2017 Jan 1, 2018 from Jan 1, 2018 customers Amendment to IFRS 2 Clarification and Periods which begin Feb 26, 2018 Feb 27, 2018 Jan 1, 2018 measurement of share-based from Jan 1, 2018 payment transactions IFRIC 22 Foreign currency Periods which begin transactions and advance March 28, 2018 Apr 3, 2018 Jan 1, 2018 from Jan 1, 2018 consideration Amendment to IAS 40 Periods which begin Transfers of investment March 14, 2018 March 15, 2018 Jan 1, 2018 from Jan 1, 2018 property Annual improvements to IFRS Periods which begin Feb 7, 2018 Feb 8, 2018 Jan 1, 2018 Standards 2014-2016 cycle from Jan 1, 2018

The adoption of these amend- duced by the new accounting retained earnings increased by ments and interpretations, where standard and, therefore, did not Euro 720 with direct recogni- applicable, had the following ef- require a change to the Compa- tion of the change recorded in fects on the 2018 financial state- ny’s financial statements; Net Equity under the cash flow ments of the Company: ◼◼ Following the entry into force hedge reserve, as representa- of IFRS 9 which, relating to the tive of the change in the time ◼◼ Following the entry into force recognition of losses in value value in 2017; of IFRS 15 which provides for of financial assets, requires the ◼◼ Company investments in eq- the combined presentation of application of a model based uity instruments previously contracts with a single commer- on the expected credit losses, classified under “Investments cial objective, the incentives instead of based on the losses available for sale” based on IAS provided to airline companies on receivables already incurred 39 were designated, in accord- to develop traffic were classi- required by IAS 39, the Direc- ance with IFRS 9, as FVTPL and fied as a reduction of revenues. tors compared the credit risk of classified under “Other invest- In 2017, they were classified the respective financial instruments”. The changes in the fair under “Other operating costs”. ments at their initial recognition value of these equity instru- For comparability purposes, the date and confirmed the values ments continue to be recorded 2017 figures were reclassified. recorded in the financial state- in profit or loss. This amendment had no impact ments at December 31, 2017; on the result for the year. The ◼◼ IFRS 9 requires, in addition, that analysis of the structure of sales the accounting treatment relat- contracts linked to the various ing to the time value of an op- Company businesses and relat- tion not designated is applied ed accounting are compliant in retrospective manner. At with the other changes intro- January 1, 2018, therefore, the

Annual Report 2018 • 155 SEA SPA – SEPARATE FINANCIAL STATEMENTS

2.3 Accounting standards, tations and amendments to ex- where adopted in Europe, at the amendments and isting accounting standards and endorsement date of the present interpretations not yet interpretations, or specific pro- document were not adopted in applicable and not adopted in visions within the standards and advance by the Company: advance by the Company interpretations endorsed by the Below we report the International IASB which have not yet been en- Accounting Standards, interpre- dorsed for adoption in Europe, or

Endorsed at the date of Description Effective date as per the standard the present document IFRS 16 Leases YES Periods which begin from Jan 1, 2019 IFRIC 23 Uncertainty over income tax YES Periods which begin from Jan 1, 2019 treatments Amendments to IFRS 9 Prepayment YES Periods which begin from Jan 1, 2019 features with negative compensation Annual improvements to IFRS standards NO Periods which begin from Jan 1, 2019 2015-2017 Cycle Amendments to IFRS 10 and IAS 28 Sales or contribution of assets between an NO Periods which begin from Jan 1, 2019 investor and its associate or joint venture Amendment to IAS 19 Plan amendment NO Periods which begin from Jan 1, 2019 Curtailment or Settlement Amendment to IFRS 3 Business NO Periods which begin from Jan 1, 2020 Combination Amendment to IAS 1 e IAS 8 Definition of NO Periods which begin from Jan 1, 2020 Material IFRS 17 Insurance Contracts NO Periods which begin from Jan 1, 2021

No accounting standards and/or es a criterion based on control not to be recognise as leasing con- interpretations were applied in (right of use) of an asset to dis- tracts “low-value assets” (leasing advance whose application is ob- tinguish leasing contracts from contracts with an asset value be- ligatory for periods commencing service contracts, identifying the low Euro 5,000) and leasing con- after December 31, 2018. following as essential differences: tracts less than 12 months. This the identification of the asset, the Standard does not contain signifi- IFRS 16 - Leasing right of replacement of the asset, cant amendments for lessors. On January 13, 2016, the IASB the right to obtain substantially all published the new standard IFRS the economic benefits from the The standard will be effective 16 - Leases, which replaces IAS 17 use of the asset and the right to from January 1, 2019, although - Leases, as well as the interpreta- use the asset underlying the con- advance application is permitted. tions IFRIC 4 Determining whether tract. The Company completed the pro- an Arrangement contains a Lease, ject to introduce the new stand- SIC-15 Operating Leases-Incentives The standard establishes a single ard involving an initial phase of and SIC-27 Evaluating the Sub- model to recognise and measure detailed analysis of contracts and stance of Transactions Involving the leasing contracts for the lesses of the accounting impacts, and Legal Form of a Lease. which provides also for the rec- a second phase to introduce and ognition of operating leases un- adjust the related administrative The new standard provides a new der assets with a related financial processes and the accounting definition of leases and introduc- payable, providing the possibility system. The Directors have not

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applied IFRS 16 in advance. As a mitted. The Directors have not ap- Any liabilities related to business lessee, with similar classes of un- plied IFRIC 23 in advance and are combinations for payments sub- derlying assets, the issues subject currently assessing the possible ject to conditions are recognised to the new accounting standard effects from the introduction of at the acquisition date of the busi- concerned principally industrial this interpretation on the Compa- nesses and business units relating equipment and the long-term hire ny separate financial statements. to the business combination. of vehicles, with the consequent recognition of a right of use of 2.4 Accounting policies Where all or part of a previously non-current assets equal to the acquired company (whose acqui- present value of the outstanding Business combinations and sition produced goodwill) is sold, instalments and with the coun- goodwill the corresponding residual value ter-entry of a finance lease pay- In the case of the acquisition from of goodwill is considered when able. For the calculation of these third parties of businesses or busi- calculating the capital gains or amounts, an exemption permitted ness combinations, the assets, the losses generated by such sale. under IFRS 16 was utilised which liabilities and the contingent liabil- resulted in a single discount rate ities acquired and identifiable are Intangible assets for each leasing portfolio with recorded at their fair value at the An intangible asset is a non-mon- similar characteristics. The Com- date of acquisition. etary asset, identifiable and with- pany opted for application of the out physical substance, control- “Cumulative Catch-up Approach” The positive difference between lable and capable of generating for the leasing previously classi- the acquisition cost and the pres- future economic benefits. With fied as operating leases, which ent value of these assets and lia- the exception of “Rights on as- resulted in an increase in right of bilities are recognised as good- sets under concession”, intangible use of Euro 4.8 million, with the will and classified in the financial assets are recorded at purchase counter-entry of an increase in fi- statements as an intangible asset and/or production cost, including nancial payables for leased assets with indefinite life. the costs of bringing the asset to of the same amount. its current use, net of accumulat- Any negative difference (“bad- ed amortisation, and any loss in IFRIC 23 - Uncertainty over Income will”) is recognised in the income value. The intangible assets are as Tax Treatments statement at the date of acquisi- follows: On June 7, 2017, the IASB pub- tion. lished the interpretative docu- (a) Rights on assets under ment IFRIC 23 – Uncertainty over The costs related to business com- concession Income Tax Treatments. The doc- binations are recognised in the in- The “Rights on assets under con- ument deals with uncertainties on come statement. cession” represent the right of the the tax treatment to be adopted Lessee to utilise the asset under for income taxes. It establishes Goodwill is initially recorded at concession (so-called intangible that uncertainties in the calcula- cost and subsequently reduced asset method) in consideration of tion of tax liabilities or assets are only for loss in value. the costs incurred for the design reflected in the financial state- and construction of the asset with ments only where it is probable Annually, or more frequently if the obligation to return the asset that the entity will pay or recov- specific events or circumstances at the end of the concession. The er the amount in question. In ad- indicate the possibility of having in- value corresponds to the “fair val- dition, the document does not curred a loss in value, the goodwill ue” of the design and construction contain any new disclosure obliga- is subject to an impairment test to assets increased by the financial tions, but underlines that an entity identify any loss in value, in accord- charges capitalised, in accordance should establish whether it will be ance with IAS 36 (Impairments); with IAS 23, during the construc- necessary to provide information the original value is however not tion phase. The fair value of the on considerations made by man- restored if the reasons for the construction work is based on the agement and the relative uncer- write-down no longer exist. costs actually incurred increased tainty concerning the accounting by 6%, representing the remuner- of income taxes, in accordance The goodwill is not revalued, even ation of the internal costs for the with IAS 1. The new interpreta- in application of specific legisla- management of the works and tion applies from January 1, 2019, tion. design activities undertaken by although early application is per- the Company which is a mark-up

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a third-party general contractor subsequent paragraph “Provision a reduction in the value of these would request for undertaking for risks and charges - Restoration intangible assets, the difference the same activities, in accordance and replacement provision of assets between the present value and with IFRIC 12. The lessee must under concession”. the recovery value is recognised in recognise and measure service the income statement. revenues in accordance with IFRS Where events arise which indicate 15. If the fair value of the services received (specifically the right of use of the asset) cannot be determined reliably, the revenue is calculated based on the fair value of the construction work undertaken. The subsequent accounting of the amount received as financial asset and as intangible asset is described in detail in paragraphs 23- 26 of IFRIC 12.

The construction work in progress at the reporting date is measured based on the state of advancement of the work in accordance with IFRS 15 and this amount is reported in the income statement line “Revenues for works on assets under concession’.

Restoration or replacement works are not capitalised and are included in the estimate of the restoration and replacement provision as outlined below.

Assets under concession are amortised over the duration of the concession on a straight-line basis in accordance with the expiry of the concession, as it is expected that the future economic benefits of the asset will be utilised by the lessee. Amortisation begins where the rights in question begin to produce the relative economic benefits.

The accumulated amortisation provision and the restoration and replacement provision ensure the adequate coverage of the charges of restoration and replacement of the components subject to wear and tear of the assets under concession.

Reference should be made to the

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cordance with the 2001 Agree- ment (which renewed the previous concession of May 7, 1962). The 2001 Agreement provides for the obligation of SEA to maintain and manage airport assets for the undertaking of such activities and the right to undertake structural airport works, which remain the property of SEA until the expiry of the 2001 Agreement, i.e. May 4, 2041. The fixed assets in the financial statements are reported net of State grants.

Depreciation of property is charged based on the number of months held on a straight-line basis, which depreciates the asset over its estimated useful life. Where this latter is beyond the date of the end of the concession, the amount is depreciated on a straight-line basis until the expiry of the concession. Applying the principle of the component approach, when the asset to be depreciated is composed of separately identifiable elements whose useful life differs significantly from the other parts of the asset, the depreciation is calculated separately for each part of the asset.

For land, a distinction is made between land owned by the Compa- ny, classified under property, plant (b) Industrial patents and Intangible assets with definite and equipment and not subject to intellectual property rights useful life are annually tested for depreciation and expropriated ar- losses in value or where there is an eas necessary for the extension of Patents, concessions, licenses, indication that the asset may have the Malpensa Terminal, classified trademarks and similar rights incurred a loss in value. Reference under “Assets under concession” Trademarks and licenses are amor- should be made to the paragraph and amortised over the duration of the concession. tised on a straight-line basis over below “Impairments”. the estimated useful life. Property, plant & equipment The free granting of assets is rec- Tangible fixed assets include ognised at market value, accord- Computer software property, part of which under the ing to independent technical ex- Software costs are amortised on scope of IFRIC 12, and plant and pert opinions. a straight-line basis over three equipment. years, while software programme Plant & Equipment maintenance costs are charged to Property These are represented by tangible the income statement when in- Property, in part financed by the fixed assets acquired by the Com- curred. State, relates to tangible assets pany which are not subject to the acquired by the Company in ac- obligation of free devolution.

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Plant and equipment are record- Loading and unloading vehicles 10.0% ed at purchase or production cost and, only with reference to owned Runway equipment 31.5% assets, net of accumulated depre- Various equipment 25.0% ciation and any loss in value. The cost includes charges directly in- Furniture and fittings 12.0% curred for bringing the asset to Transport vehicles 20.0% their condition for use, as well as dismantling and removal charges Motor vehicles 25.0% which will be incurred consequent EDP 20.0% of contractual obligations, which require the asset to be returned to its original condition. The useful life of property, plant Investments in subsidiaries and The expenses incurred for the and equipment and their residual associates are tested annually for maintenance and repairs of an value are reviewed and updated, impairment or more frequently ordinary and/or cyclical nature where necessary, at least at the if evidence of impairment exists. are directly charged to the in- end of each year. Where an impairment loss ex- come statement when they are ists, it is recognised immediately incurred. The capitalisation of the Tangible assets are annually tested through the income statement. costs relating to the expansion, for losses in value or where there Where the share of losses pertain- modernisation or improvement of is an indication that the asset may ing to the company in the invest- owned tangible assets or of those have incurred a loss in value. Refer- ment exceeds the carrying value held in leasing, is made only when ence should be made to the para- of the investment, and the compa- they satisfy the requirements to graph below “Impairments”. ny has an obligation to cover such be separately classified as an asset losses, the investment is written or part of an asset in accordance Investment property down and the share of further with the component approach, in This account includes owned losses is recorded as a provision which case the useful life and the buildings not for operational use. for risks and charges under lia- relative value of each component Investment property is initially rec- bilities in the balance sheet. If an is measured separately. ognised at cost and subsequently impairment loss is subsequently measured utilising the amortised reversed, the increase in carrying Depreciation is charged to the cost criteria, net of accumulated amount (up to a maximum of pur- income statement based on the depreciation and losses in value. chase cost) is recognised through number of months held on a the income statement. straight-line basis, which depreci- Depreciation is calculated on a ates the asset over its estimated straight-line basis over the useful Impairments useful life. Where this latter is be- life of the building. At each reporting date, the prop- yond the date of the end of the erty, plant and machinery, in- concession, the amount is depre- Investments in subsidiaries tangible assets and investments ciated on a straight-line basis until and associates in subsidiaries and associated the expiry of the concession. Apply- The investments in subsidiar- companies are analysed in order ing the principle of the component ies and associated companies to identify any indications of a approach, when the asset to be are measured at purchase cost reduction in value. Where these depreciated is composed of sepa- (including any direct accessory indications exist, an estimate rately identifiable elements whose costs), reduced for impairments in of the recoverable value of the useful life differs significantly from accordance with IAS 36. above-mentioned assets is made, the other parts of the asset, the de- recording any write down com- preciation is calculated separately Any positive difference, arising on pared to the relative book value for each part of the asset. acquisition from third parties, be- in the income statement. The re- tween the purchase cost and fair coverable value of an asset is the The depreciation rates for owned value of net assets acquired in an higher between the fair value less assets, where no separate specific investee company is included in costs to sell and its value in use, components are identified are re- the carrying amount of the invest- where this latter is the fair val- ported below: ment. ue of the estimated future cash

Annual Report 2018 • 160 SEA SPA – SEPARATE FINANCIAL STATEMENTS

flows for this asset. For an asset assets and the characteristics of the financial instruments. The that does not generate sufficient relating to the contractual cash Directors reviewed and measured independent cash flows, the real- flows of the financial assets. the financial assets of the Compa- isable value is determined in rela- ny held at January 1, 2018 on the tion to the cash-generating unit The financial assets represented by basis of the facts and circumstanc- to which the asset belongs. In de- equity instruments of other enti- es at that date and concluded that termining the fair value considera- ties (i.e. investments in companies the initial application of IFRS 9 tion is taken of the purchase cost other than subsidiaries, associates had a non-material impact on the of a specific asset which takes into and joint control companies), not financial assets of the Company account a depreciation coefficient held for trading purposes, may be both in relation to their classifica- (this coefficient takes into account classified in the category FVOCI. tion and measurement: the effective conditions of the as- This choice, made instrument by set). In defining the value in use, instrument, requires that the fair ◼◼ Company investments in the expected future cash flows value changes are recognised un- equity instruments previously are discounted utilising a discount der “Other items of the compre- classified under “Investments rate that reflects the current mar- hensive income statement” and available for sale” based on IAS ket assessment of the time value are not subsequently recognised 39 were designated as FVTPL of money, and the specific risks of through profit or loss either on and classified under “Other the activity. A reduction in value is sale or on its impairment. investments”. The changes in recognised to the income state- the fair value of these equity ment when the carrying value of Despite that reported above, on instruments continue to be the asset is higher than the recov- initial recognition it is possible recorded in profit or loss. erable amount. When the reasons to irrevocably designate the fi- ◼◼ The financial assets classified as for the write-down no longer ex- nancial asset as measured at fair held to maturity and the loans ist, the book value of the asset (or value recognised through profit and receivables which based of the cash-generating unit) is re- or loss if this eliminates or signif- on IAS 39 were measured at stated through the income state- icantly reduces an incoherence in amortised cost continue to be ment, up to the value at which the measurement or in the rec- measured at amortised cost the asset would be recorded if no ognition (sometimes defined as based on IFRS 9 as held within a write-down had taken place and “accounting asymmetry”) which business model whose objective amortisation and depreciation would otherwise result in a meas- is to collect the contractual had been recorded. urement on another basis. cash flows and these cash flows comprise solely payments of Financial assets During the current year SEA ap- principal and interest on the On initial recognition, the financial plied IFRS 9 Financial instruments amount of the capital to be assets are classified, in accordance (as revised in July 2014) and the repaid. with IFRS 9, in one of the follow- relative consequent amendments. ◼◼ In relation to the loss in value ing categories based on the busi- The Company decided to restate of the financial assets, IFRS ness model of the Company for its comparative figures in terms 9 requires the application of the management of the financial of classification and measurement a model based on expected

Category Business Model Characteristics of the cash flows The financial asset is held The cash flows are exclusively represented by Amortised cost in order to collect the con- payments of interest and the repayment of tractual cash flows principal The financial asset is held to collect the contractual The cash flows are exclusively represented by Fair value through other comprehensive cash flows, both deriving payments of interest and the repayment of income (also “FVOCI”) from sale and operating principal activities Fair value through profit or loss (also Differing from that under Differing from that under amortised cost and “FVTPL”) amortised cost and FVOCI FVOCI

Annual Report 2018 • 161 SEA SPA – SEPARATE FINANCIAL STATEMENTS

credit losses, instead of based 1. fair value hedge in the case of net equity reserve for the hedg- on the losses on receivables hedging the exposure against ing of the cash flows is adjust- already incurred required by changes in the fair value of as- ed to the lower between the IAS 39. The Directors compared sets or liabilities recorded which cumulative profit or loss on the the credit risk of the respective is attributable to a risk which hedging instrument from the financial instruments at their could impact the result for the commencement of the hedge initial recognition date and year. The profit or losses on the and the cumulative change confirmed the values recorded hedging instrument are record- in the fair value of the item in the financial statements at ed in the income statement (or hedged from the commence- December 31, 2017. in “Other items of the compre- ment of the hedge; b) the part hensive income statement”, if of the profit or loss on the None of the other reclassifica- the hedging instrument hedges hedging instrument which is tions of financial assets impacted an equity instrument for which an effective hedge is recorded on the financial position, result for the Company has chosen to in a net equity reserve (and in the year or comprehensive result present the changes in fair val- specifically under “Other items of the Company in either years. ue under “Other items of the of the comprehensive income comprehensive income state- statement”). Any residual profit Derivative financial instruments ment”); or loss on the hedge instrument Derivative financial instruments are 2. cash flow hedge in the case of represents the ineffective part classified as hedging instruments, hedging the exposure against of the hedge which is record- in accordance with paragraph 6.4 of changes in the cash flows -at ed in the income statement in IFRS 9, when the relation between tributable to a particular risk the account “Financial income/ the derivative and the hedged item associated with all the assets charges”; is formally documented and the ef- or liabilities recorded or one of 3. hedges of a net investment in a fectiveness of the hedge, periodi- their components or a highly foreign operation (as defined in cally verified, is high. probable scheduled transaction IAS 21), recognised in a similar and which could impact on the manner to the hedging of finan- The hedging relations are of three result for the year. The hedg- cial cash flows. types: ing is recorded as follows: a) the

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The hedging relations of the Com- price, adjusted to take into ac- Cash and cash equivalents pany at January 1, 2018 which count expected losses over the Cash and cash equivalents include satisfied the admissibility criteria duration of the receivable. The cash, bank deposits, and other also qualified for hedge account- transaction price is the amount of short-term forms of investment ing based on IFRS 9 and therefore the payment which the entity con- readily available, due within three were considered as continuing siders it is entitled to in exchange months. At the reporting date, hedging relationships. As the fun- for transferring the promised bank overdrafts are classified as fi- damental elements of the hedg- goods or services to the client, nancial payables under current lia- ing instruments correspond to excluding payments on behalf of bilities. Cash and cash equivalents the item hedged, all the hedging third parties. The payment prom- are recorded at fair value. relations continue to be effec- ised in the contract with the client tive based on the evaluation of may include fixed amounts, varia- Provisions for risks and charges the effectiveness criteria of IFRS ble amounts or both. The provisions for risks and charg- 9. When the option contracts are es are recorded to cover known utilised to hedge highly probable The reduction in value for the rec- or likely losses or liabilities, the scheduled transactions, the Com- ognition and measurement of the timing and extent of which are pany only designates the intricate doubtful debt provision follows not known with certainty at the value of the options as hedging the criteria indicated in paragraph reporting date. They are recorded instruments. Based on IFRS 9, the 5.5 of IFRS 9. The objective is to only when there exists a current changes in the time value of op- recognise the expected losses obligation (legal or implicit) for tions relating to the item hedged over the entire duration of the a future payment resulting from are recognised in the other items receivable considering all reason- past events and it is probable that of the comprehensive income able and demonstrable informa- the obligation will be settled. This statement and are accumulated tion, including indications of ex- amount represents the best esti- in the hedge reserve under net pected developments. mate less the expenses required equity. IFRS 9 requires that the to settle the obligation. accounting treatment relating to Receivables are therefore report- the time value of an option not ed net of the provision for doubt- Possible risks that may result in a designated is applied in retrospec- ful debts. If in subsequent periods liability are disclosed in the notes tive manner. At January 1, 2018, the reduction in the value of the under the section on commit- therefore, the extraordinary re- asset is confirmed, the doubtful ments and risks without any pro- serve increased by Euro 720 with debt provision is utilised against vision. direct recognition of the change charges; otherwise, where the recorded in Net Equity under the reasons for the previous write- Restoration and replacement cash flow hedge reserve, as rep- down no longer exist, the value provision of assets under resentative of the change in the of the asset is reversed up to the concession time value in 2017. As an excep- transaction price. For further in- The accounting treatment of the tion to that illustrated above, the formation, reference should be works undertaken by the lessee application of the criteria of IFRS made to Note 4.1. on the assets under concession, 9 on the accounting treatment of as per IFRIC 12, varies depending hedging operations had no oth- Inventories on the nature of the work: nor- er impacts on the Company with Inventories are measured at the mal maintenance on the asset is reference to the current year and lower of average weighted pur- considered ordinary maintenance the comparative year. Reference chase and/or production cost and and therefore recognised in the should be made to Note 4.2 for net realisable value or replace- income statement; replacement further information in relation to ment cost. The valuation of inven- work and programmed mainte- the management of the risk of the tories does not include financial nance of the asset at a future date, Company. charges. considering that IFRIC 12 does not provide for the recognition of a Trade and other receivables Inventories are shown net of the physical asset but a right, must be The trade and other receivables obsolescence provision to adjust recognised in accordance with IAS which do not have a significant fi- inventories to their realisable or 37 - “Provisions and potential lia- nancing component (determined replacement value. bilities” – which establishes recog- in accordance with IFRS 15) are nition to the income statement of initially recognised at transaction a provision and the recording of a

Annual Report 2018 • 163 SEA SPA – SEPARATE FINANCIAL STATEMENTS

provision for charges in the state- classified as a contribution plan. In The actuarial gains and losses, in ment of financial position. the defined benefit programmes, accordance with IAS 19R, are re- the amount of the benefit to be corded directly under equity in a The restoration and replacement paid to the employee is quantifi- specific reserve account “Reserve provision of the assets under con- able only after the termination of for actuarial gains/loss”. cession include, therefore, the the employment service period, best estimate of the present value and is related to one or more fac- We report that, following amend- of the charges matured at the re- tors such as age, years of service ments made to the leaving indem- porting date for the programmed and remuneration; therefore, the nity regulations by Law No. 296 maintenance in the coming years relative charge is recognised to of December 27, 2006 and sub- and until the end of the conces- the income statement based on sequent Decrees and Regulations sion and undertaken in order to actuarial calculations. The liability issued in the first half of 2007, the ensure the functionality, opera- recorded in the accounts for de- leaving indemnity provision due tions and security of the assets fined benefit plans corresponds to employees in accordance with under concession. to the present value of the ob- Article 2120 Civil Code is classified ligation at the reporting date, as defined benefit plans for the It should be noted that the resto- net, where applicable, of the fair part matured before application ration and replacement provision value of the plan assets. The ob- of the new legislation and as de- of the assets refers only to fixed ligations for the defined benefit fined contribution plans for the assets within the scope of IFRIC plans are determined annually by part matured after the application 12 (assets under concession classi- an independent actuary utilising of the new regulation. fied to intangible assets). the projected unit credit method. The present value of the defined Post-employment benefits Employee provisions benefit plan is determined dis- Post-employment benefits are Pension provisions counting the future cash flows at paid to employees when the em- The company has both defined an interest rate equal to the obli- ployee terminates his employ- contribution plans (National gations (high-quality corporate) ment service before the normal Health Service Contributions and issued in the currency in which the pension date, or when an employ- INPS pension plan contributions) liabilities will be settled and takes ee accepts voluntary termination and defined benefit plans. into account the duration of the of the contract. The Company re- relative pension plan. cords post-employment benefits A defined contribution plan is a plan in which SEA participates through fixed payments to third party fund operators, and in relation to which there are no legal or other obligation to pay further contributions where the fund does not have sufficient assets to meet the obligations of the employees for the period in course and previous periods. For the defined contribution plans, SEA pays contributions, voluntary or established contractually, to public and private pension funds. The contributions are recorded as personnel costs in accordance with the accruals principle. The advanced contributions are recorded as an asset which will be repaid or offset against future payments where due.

A defined benefit plan is a plan not

Annual Report 2018 • 164 SEA SPA – SEPARATE FINANCIAL STATEMENTS

when it is demonstrated that the on the contractual structures in are recognised over the time peri- termination of the employment place, the supplier has the pos- od, evaluating the progression to- contract is in line with a formal sibility to assign the receivables wards complete compliance with plan which determines the termi- claimed from the Company at its the obligation. nation of the employment service, own discretion to a lending insti- or when the provision of the bene- tution and cash in the amount be- The revenues generated by the fit is a result of a leaving indemnity fore maturity. company concern the sale of programme. goods and services during the pe- Invoice payment terms are non-in- riod, for which reference should Financial liabilities terest bearing as they do not in- be made to Note 7.1; as per IFRS Financial liabilities and other com- volve further extensions agreed 15.114 the Company aggregates mitments to be paid, with the ex- upon between the supplier and the revenues recorded deriving clusion of the categories indicat- the Company. from contracts with customers ed in paragraph 4.2 of IFRS 9, are initially measured at amortised In this context, the relationships cost, using the effective interest for which the primary obligation is rate. When there is a change in maintained with the supplier and the expected cash flows and it is any extension, where granted, possible to estimate them relia- do not involve a change in pay- bly, the value of the payables is re- ment terms, retain their nature calculated to reflect this change, and therefore remain classified as based on the new present value commercial liabilities. of the expected cash flows and on the internal yield initially deter- Revenue recognition mined. The financial liabilities are Revenues are recognised when classified under current liabilities, the transfer to the client of the except when the Company has an goods or services promised is ex- unconditional right to defer their pressed in an amount (expressed payment for at least 12 months net of value added taxes and after the reporting date. discounts) which reflects the expected consideration to be re- Purchases and sales of financial li- ceived in exchange for the goods abilities are recognised at the val- or services. uation date of the relative transaction. Recognition occurs when (or over time) the Company complies with Financial liabilities are derecog- the obligation to transfer to the nised from the statement of finan- client the goods or service (or cial position when they expire and the asset) promised. The asset is the Company has transferred all transferred when (or over time) the risks and rewards relating to the client acquires control. Con- the instrument. trol of the asset is the capacity to decide upon the use of the as- Trade and other payables set and to obtain substantially all Trade and other payables are in- the remaining benefits. Control itially recognised at amortised includes the capacity to prevent cost. other entities to use the asset and obtain benefits. The benefits of Reverse factoring transactions - the assets are the potential cash indirect factoring flows (cash inflows or savings on In order to ensure easy access to outflows) which may be obtained credit for its suppliers, the Com- directly or indirectly. pany has entered into reverse factoring or indirect factoring agree- For each obligation to be com- ments (with recourse). Based plied with over time, the revenues

Annual Report 2018 • 165 SEA SPA – SEPARATE FINANCIAL STATEMENTS

into categories which illustrate Recognition of costs which are expected to be applied how the economic factors impact Costs are recognised when relat- in the years when the temporary upon the nature, the amount, the ing to assets or services acquired differences will be realised or timing and the level of uncertain- or consumed in the year or by sys- settled. Deferred tax assets are ty of the revenues and of the cash tematic allocation. recorded when their recovery is flows. considered probable. These assets Financial income and liabilities are not recognised if The revenues are recorded net of Financial income is recognised on the temporary differences deriv- the incentives granted to airlines, an accruals basis and includes in- ing from the goodwill or the initial based on the number of passen- terest income on funds invested, recognition (not in business com- gers transported and invoiced by foreign currency gains and income bination) of other assets or liabil- the airlines to the Company for (i) deriving from financial instru- ities in operations do not have an the maintenance of traffic at the ments, when not offset by hedg- impact on the accounting result or airport or (ii) the development ing operations. Interest income is on the assessable fiscal result. of traffic through increasing ex- recorded in the income statement isting routes or launching new at the moment of maturity, con- The carrying value of deferred tax routes. sidering the effective yield. assets is revised at the end of the year and reduced to the extent Revenue for works on assets Financial charges that it is no longer likely that there under concession Financial charges are recorded will be sufficient taxable income Revenues on construction work on an accrual basis and include against which to recover all or part are recognised in relation to the interest on financial payables cal- of the assets. state of advancement of works culated using the effective inter- in accordance with the percent- est method and currency losses. Current and deferred income age of completion method and The financial charges incurred on taxes are recorded in the income on the basis of the costs incurred investments in assets for which a statement, except those relating for these activities increased by a significant period of time is usu- to accounts directly credited or mark-up of 6% representing the ally needed to render the assets debited to equity, in which case best estimate of the remunera- available for use or sale (qualify- the fiscal effect is recognised dition of the internal costs of the ing assets) are capitalised and am- rectly to equity and to the Com- management of the works and ortised over the useful life of the prehensive Income Statement. design activities undertaken by class of the assets to which they Taxes are compensated when ap- SEA, the mark-up which would be refer in accordance with the provi- plied by the same fiscal authority, applied by a general contractor (as sions of the new version of IAS 23. there is a legal right of compensa- established by IFRIC 12). tion and the payment of the net Income taxes balance is expected. Government Grants Current IRES and IRAP income tax- Public grants, in the presence of a es are calculated based on the as- Other taxes not related to in- formal resolution from the issuer, sessable income for the year, ap- come, such as taxes on property, are recorded on an accrual basis in plying the current tax rates at the are included under “Other operat- direct correlation to the costs in- reporting date. ing expenses”. curred (IAS 20). Deferred taxes are calculated on Dividends Capital grants all differences between the as- Payables for dividends to share- Capital public grants relating to sessable income of an asset or li- holders are recorded in the year in property, plant and equipment ability and the relative book value, which the distribution is approved are recorded as a reduction in the with the exception of goodwill. by the Shareholders’ Meeting. acquisition value of the assets to Deferred tax assets for the por- which they refer. tion not compensated by deferred tax liabilities are recognised only Operating grants for those amounts for which it is Operating grants are recorded in probable there will be future as- the income statement in the ac- sessable income to recover the count “Operating income”. amounts. The deferred taxes are calculated utilising the tax rates

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3. Estimates and using the most appropriate tech- ments required. nical valuation methods available. assumptions The correct identification of the Therefore, Management, having indicators of the existence of a po- consulted with its legal and tax ad- The preparation of the financial tential reduction in value as well visers, recognises a liability against statements requires the Directors as the estimates for their determi- these disputes when a financial to apply accounting principles and nation depends on factors which payment is considered probable methods that, in some circum- may vary over time impacting and the amount of the losses aris- stances, are based on difficulties upon the valuations and estimates ing may be reasonably estimated. and subjective valuations and esti- made by the Directors. Reference In the case in which a payment is mates based on the historical ex- should be made in addition to the considered possible, but is not yet perience and assumptions which paragraph below “Impairments”. determinable, such is reported in are from time to time considered the explanatory notes. reasonable and realistic under (b) Amortisation & depreciation the relative circumstances. The Depreciation represents a signif- Provisions are recorded against application of these estimates icant cost for the Company. The risks of a legal and tax nature and and assumptions impact upon the cost of property, plant and equip- employee disputes. The amount amounts reported in the financial ment is depreciated on a straight- of the provisions recorded in the statements, such as the balance line basis over the estimated use- financial statements relating to sheet, the income statement and ful life of the relative assets and these risks therefore represents the cash flow statement, and on components. The useful life of the the best estimate at that date the disclosures in the notes to the fixed assets is determined by the made by the Directors. This esti- accounts. Directors when the fixed assets mate results in the adoption of are purchased. This is based on assumptions concerning factors The accounting principles which, the historical experiences for simi- which may change over time and relating to the Company, require lar fixed assets, market conditions which may, therefore, have sig- greater subjectivity by the Direc- and considerations relating to fu- nificant effects compared to the tors in the preparation of the es- ture events which could have an present estimates made by the Di- timates and for which a change in impact on the useful life, such as rectors for the preparation of the the underlying conditions or the changes in technology. Therefore, financial statements. In addition, assumptions may have a signifi- the effective useful life may be the restoration and replacement cant impact on the financial state- different from the estimated use- provision of the assets under con- ments are briefly described below. ful life. The Company periodically cession, recorded in accordance evaluates technological and sec- with IFRIC 12, includes the best (a) Impairments tor changes to update the residu- estimate of the charges matured The tangible and intangible assets al useful life. This periodic update at the reporting date for sched- and investments in subsidiaries could result in a change in the de- uled maintenance in future years and associated companies and preciation period and therefore in in order to ensure the functional- property investments are verified the depreciation charge in future ity, operations and security of the to ascertain if there has been a years. assets under concession. loss in value which is recorded by means of a write-down, when it is (c) Provisions for risks and (d) Trade receivables considered there will be difficul- charges Company evaluates the expected ties in the recovery of the relative The Company may be subject to losses on trade receivables in or- net book value through use. The legal disputes, in relation to taxa- der to reflect, through a specific verification of the existence of tion or employment issues, based doubtful debt provision, the real- the above-mentioned indicators on particularly complex circum- isable value utilising reasonable requires the Directors to make stances of varying degrees of un- and demonstrable information valuations based on the informa- certainty, according to the facts available, without excessive costs tion available internally and from and circumstances, jurisdiction or effort at the reporting date on the market, as well as historical and laws applicable to each case. past events, current conditions experience. In addition, when it is and future economic conditions. determined that there may be a Considering the inexact nature of potential reduction in value, the these issues, it is difficult to pre- The doubtful debt provision rep- Company determines this through dict with certainty any future pay- resents the best estimate at the

Annual Report 2018 • 167 SEA SPA – SEPARATE FINANCIAL STATEMENTS

reporting date made by the Di- In order to control this risk, SEA Trade receivables are reported in rectors. This estimate is based on has implemented procedures and the financial statements net of facts and expectations which may actions to monitor the expected doubtful debt provisions, which change over time and which may, cash flows and recovery actions. are prudently made based on the therefore, have significant effects underlying disputes at the report- compared to the present esti- In application of internal cred- ing date. The doubtful debt provi- mates made by the Directives for it policies, clients are requested sion necessary to adjust the nom- the preparation of the separate to procure the release of guar- inal value to the realisable value financial statements. antees: this typically relates to is determined analysing all receiv- first-demand bank guarantees is- ables and utilising all available in- sued by primary credit institutions formation on the debtor. or guarantee deposits. 4. Risk Management A summary of trade receivables In relation to the payment terms with third parties and the relative The risk management strategy applied for the majority of the cli- doubtful debt provisions is report- of the Company is based on min- ents, credit terms are largely con- ed below. imising potential negative effects centrated within 30 days from the related to the financial and oper- relative invoicing. ating performance. Some types of risk are offset through recourse to derivative instruments.

The management of the above-mentioned risks is undertaken through identifying, evaluating and undertaking the hedging of financial risks.

4.1 Credit risk The credit risks represent the exposure of SEA to potential losses deriving from the non-compliance of obligations by trading and financial partners.

This risk is primarily of an economic/financial nature, or rather the possibility of the default of a counterparty, and also factors of a technical/commercial or administrative/legal nature.

For SEA the credit risk exposure is largely related to the deterioration of a financial nature of the principle airline companies which incur on the one hand the effects of the seasonality related to aviation operations, and on the other consequences of geopolitical events which impact upon the air transport sector (wars, epidemics, atmospheric events, rise in oil prices and economic/financial crises).

Annual Report 2018 • 168 SEA SPA – SEPARATE FINANCIAL STATEMENTS

(Euro thousands) December 31, 2018 December 31, 2017 Trade receivables - customers, gross of doubtful debt 203,135 196,242 provision - of which overdue 123,348 119,956 Doubtful debt provision - customers (100,467) (99,799) Total trade receivables - customers 102,668 96,443

Receivables transferred follow- course receivables which do not ties against advances received. ing factoring operations are elim- satisfy these requisites remain on inated from the balance sheet the balance sheet of the company, The breakdown of overdue receiv- only when the related risks and even if legally transferred. In this ables at December 31, 2018 and benefits of ownership have been case a financial liability of a similar the previous year is shown below: substantially transferred. Non-re- amount is recorded under liabili-

TRADE RECEIVABLES - CUSTOMERS

(Euro thousands) December 31, 2018 December 31, 2017 Trade receivables - customers 203,135 196,242 Of which overdue 123,348 119,956 - less than 180 days 21,557 23,505 - over 180 days 101,791 96,451 % overdue receivables 60,7% 61,1% % overdue receivables of less than 180 days 10,6% 12,0% % overdue receivables of more than 180 days 50,1% 49,1%

Annual Report 2018 • 169 SEA SPA – SEPARATE FINANCIAL STATEMENTS

The table below illustrates the istration and in dispute, with indi- gross trade receivables at Decem- cation of the bank and insurance ber 31, 2018 and 2017, as well sureties and deposit guarantees as the breakdown of receivables provided. from counterparties under admin-

TRADE RECEIVABLES - CUSTOMERS

(Euro thousands) December 31, 2018 December 31, 2017 Trade receivables - customers 203,135 196,242 (i) receivables from parties subject to administration 95,645 94,715 procedures (ii) receivables subject to dispute 19,179 20,625 Total trade receivables, net of the receivables at points 88,311 80,902 (i) and (ii) Overdue receivables, other than at points (i) and (ii) 8,524 4,616 Sureties and deposits 56,849 55,143 % of receivables guaranteed by sureties and deposits vs total trade receivables, net of the receivables at points (i) 64.4% 68.2% and (ii)

The doubtful debt provision was probability that the client does complete coverage of the credit amended in accordance with not honour its debt and the per- risk encountered by the company. the methods described in IFRS 9, centage of credit, obtained from a whose application is obligatory historical analysis, with the possi- 4.2 Market risks from January 1, 2018. A key ele- bility of the client being in default. The market risk to which SEA is ex- ment of the new standard is the Forward looking elements were posed comprises all types of risks transition from the concept of ‘In- also utilised, such as the possibil- directly and indirectly related to curred Loss’ to that of ‘Expected ity of management undertaking market prices. In 2018, the market Loss’: the doubtful debt provision further provisions, notwithstand- risks to which SEA were subject must be determined by taking ing the indications taken from the were: into account the risks of non-col- matrix. The provision was recal- lection related not only to past- culated at December 31, 2017 in a. interest rate risk; due receivables but also on those accordance with the matrix, and b. currency risk; falling due. There is, therefore, a the difference recorded with the c. price risk of commodities. need to determine a ‘risk ratio’, provision calculated in the 2017 representative of the riskiness of accounts was not material. This a) Interest rate risk commercial counterparties, which result is justified by the fact that SEA is exposed to the risk of varies according to the credit posi- the evaluation model in use un- changes in interest rates in relation (performing or expired, with til December 2017 also includes tion to the necessity to finance its different bands for those that forward looking elements that operating activities and the use expired based on overdue days). allow management to value the of available liquidity. The changes A provision matrix was therefore expected loss. The estimates con- in interest rates may impact posi- constructed for the write-down cerning applicable risk and gen- tively or negatively on the results of trade receivables. This matrix eral economic developments are of the Company, modifying the provides rating classes in rows and included in the definition of the costs and returns on financial and the different bands of past-due or rating model and therefore are investment operations. falling due in columns. The cal- constantly updated to reflect the culated risk ratio represents the effective risk, in order to ensure a SEA manages this risk through

Annual Report 2018 • 170 SEA SPA – SEPARATE FINANCIAL STATEMENTS

an appropriate mixture between variable rates over a range, in this clusively medium/long-term por- fixed and variable rate loans, with manner reducing the risk originat- tion of loans maturing within 12 the objective to mitigate the eco- ing from the volatility of the rates. months). At the reporting date, nomic effect of the volatility of We highlight that these derivative the company does not hold any the interest rates. contracts, underwritten exclusive- short-term debt. ly for the purposes of hedging Variable interest loans expose the market rate volatility, are record- The medium/long term debt at Company to a risk originating from ed through the cash flow hedge December 31, 2018 is reported in the volatility of the interest rates method. the following table, which shows (cash flow risk). Relating to this each loan at the nominal value risk, for the purposes of the rela- At December 31, 2018 the gross (which includes a spread of be- tive hedging, SEA makes recourse financial debt of SEA was com- tween 0.20% and 1.62%, not con- to derivative contracts, which con- prised of medium/long-term loans sidering the effect of the hedging verts the variable rate to a fixed (medium/long term portions of operations and the cost of the rel- rate or limits the fluctuations in loans) and short-term loans (ex- ative guarantees):

MEDIUM/LONG-TERM LOANS AT DECEMBER 31, 2018 AND 2017

December 31, 2018 December 31, 2017 Average Average (Euro thousands) Maturity Amount rate Amount rate Bonds 2021 300,000 3.125% 300,000 3.125% from 2019 Bank loans - EIB funding 242,083 1.03% 261,849 1.08% to 2037 o/w at Fixed Rate 44,971 3.90% 51,557 3.89% o/w at Variable Rate (*) 197,112 0.38% 210,292 0.39% Other bank loans 2020 88 0.50% 154 0.50% o/w at Fixed Rate 88 0.50% 154 0.50% o/w at Variable Rate Medium/long-term gross financial debt 542,171 2.19% 562,003 2.17%

(*) Includes: (i) variable rate tranche subject to interest rate hedge (ca. 30% at 31.12.2018 & 32% at 31.12.2017); (ii) Euro 80 million of EIB loans with specific bank guarantee.

The total value of medium/long- on EIB loans, the average cost of term loans at December 31, 2018 debt amounts to 2.78%, stable amounts to Euro 542,171 thou- compared to December 2017. sand, a reduction of Euro 19,832 thousand compared to the previ- Overall, the total medium/long- ous year, due to repayments on term debt at a variable rate not these loans. hedged by the Company at De- cember 31, 2018 was approx. The average cost of this debt 25.3% of total debt. remained stable amounting to 2.19% at December 31, 2018. Also At December 31, 2018, SEA has considering the hedging transac- the following bond issue with a to- tions against the interest rate risk tal nominal value of Euro 300,000 and the cost of bank guarantees thousand.

Annual Report 2018 • 171 SEA SPA – SEPARATE FINANCIAL STATEMENTS

Listing Terms Par value (in Annual Description Issuer ISIN Code Maturity Coupon market (years) million of Euro) rate

SEA SpA 3 Irish Stock XS Fixed SEA SpA 7 04/17/2021 300 3.125% 1/8 04/17/21 Exchange 1053334373 annual

The fair value of the overall bank from the market rates; lined above and the capital on and bond medium/long-term ◼◼ for the bond listed on a regulat- maturity was discounted utilis- SEA debt at December 31, 2018 ed market, reference was made ing the spot rate for each con- amounted to Euro 562,361 thou- to the market value at Decem- tractual maturity, extrapolated sand (Euro 593,482 thousand at ber 31, 2018; from the market rate. December 31, 2017) and was cal- ◼◼ for the loans at variable inter- culated as follows: est rates, the interest portion The following table reports the derivative instruments utilised by was calculated utilising the es- SEA to hedge the interest rate risk ◼◼ for the loans at fixed interest timate of the expected rates at (measured based on the cash flow rates, the capital portion and the end of each contractual ma- hedge method). interest were discounted utilis- turity, increased by the spread ing the spot rates for each con- defined contractually. The in- tractual maturity, extrapolated terest portion defined as -out

INTEREST RATE HEDGES

Residual Fair value at Fair value at Notional at Notional at Date of Start Maturity December December sign. date December sign. 31, 2018 31, 2017 €/000 31, 2018 10,000 7,742 5/18/2011 9/15/2012 9/15/2021 (771.8) (1,020.4) 5,000 3,871 5/18/2011 9/15/2012 9/15/2021 (385.9) (510.2) 15,000 10,345 5/18/2011 9/15/2012 9/15/2021 (1,003.8) (1,342.3) IRS 10,000 6,071 6/6/2011 9/15/2012 9/15/2021 (555.8) (751.5) 11,000 6,448 6/6/2011 9/15/2012 9/15/2021 (589.5) (796.9) 12,000 6,621 6/6/2011 9/15/2012 9/15/2021 (598.6) (811.7) 12,000 6,621 6/6/2011 9/15/2012 9/15/2021 (598.6) (811.7) 10,000 6,071 6/6/2011 9/15/2011 9/15/2021 (446.8) (596.6) Collar 11,000 6,069 6/6/2011 9/15/2011 9/15/2021 (436.4) (586.8) Total 96,000 59,859 (5,387.2) (7,228.1)

“-” indicates cost for the SEA Group of any early closure of the operation “+” indicates gain for the SEA Group of any early closure of the operation

Annual Report 2018 • 172 SEA SPA – SEPARATE FINANCIAL STATEMENTS

The fair value of the derivative fi- SEA pays for the supply from the ages, under the control of the nancial instruments at December subsidiary SEA Energia. These risks Group Treasury, the financial 31, 2018 and at December 31, derive from the purchase of the resources available, in order 2017 was determined in accord- above-mentioned commodities, to ensure an efficient manage- ance with new IFRS 9 and IFRS 13. which in the case of gas are prin- ment of these resources, also in cipally impacted by fluctuations in forward budgeting terms; b) Currency risk the prices of the underlying fuels, ◼◼ maintains adequate liquidity in SEA is subject to a low currency denominated in US Dollars. These treasury current accounts; fluctuation risk as, although oper- fluctuations are absorbed through ◼◼ obtains committed credit lines ating in an international environ- formulas and indexations utilised (revolving and non), which cov- ment, the transactions are princi- in the pricing structures adopted ers the financial commitments pally in Euro. Therefore, SEA does in sales contracts. in the coming 12 months deriv- not consider it necessary to imple- ing from the investment plan ment specific hedging against this In 2018, SEA did not undertake and debt repayments; risk as the amounts in currencies any hedging of this risk, although ◼◼ monitors the liquidity position, other than the Euro are insignifi- not excluding the possibility in the in relation to the business plan- cant and the relative receipts and future. ning. payments generally offset one another. 4.3 Liquidity risk At December 2018, the SEA Group The liquidity risk for SEA may had irrevocable unutilised credit c) Commodity risk arise where the financial resourc- lines of Euro 190 million, of which SEA is exposed to the changes available are not sufficient to Euro 120 million relating to the es of the prices and the relative meet the financial and commercial RCF 1 Line and Euro 70 million re- exchange rates of the energy commitments within the agreed lating to the RCF 2 Line, both avail- commodities, or rather gas and terms and conditions. able until December 2023. In the environment certificates related initial months of 2019, SEA Group to the operations of the compa- The liquidity, cash flows and finan- will subscribe to additional com- ny, utilised by SEA Energia for cial needs of SEA are managed mitted lines for Euro 200 million, the procurement of the electric- through policies and processes of which Euro 70 million relating ity, heating and air-conditioning with the objective to minimise the to the RCF 3 Line and Euro 130 mil- service on behalf of the parent liquidity risk. In particular SEA: lion relating to the New EIB Loan. company. These variations direct- At December 31, 2018, SEA also ly impact on the final price which ◼◼ centrally monitors and man- had a further Euro 158 million of

Annual Report 2018 • 173 SEA SPA – SEPARATE FINANCIAL STATEMENTS

uncommitted credit lines available Trade payables are guaranteed The tables below illustrate for for immediate cash requirements. by SEA through careful working SEA the breakdown and maturity capital management which large- of the financial debt (capital, me- SEA has available committed and ly concerns trade receivables and dium/long-term interest, financial uncommitted credit lines which the relative contractual conditions charges on derivative instruments guarantee the covering of future established. We highlight that and leasing) and trade payables at financial needs and current opera- the indirect factoring operations, December 31, 2018 and Decem- tional needs, with an average ma- as previously described in detail, ber 31, 2017: turity of medium/long-term debt does not change the contractual of 4 years, including the bond payment conditions and therefore issued in 2014. If the bond loan does not result in dilution effects is excluded, the remaining debt on the working capital. has a maturity of approximately 6 years (16% over 10 years).

LIABILITIES AT DECEMBER 31, 2018

>1 year >3 years < 1 year > 5anni Total (Euro millions) < 3 years < 5 years Gross financial debt 36.1 377.5 55.7 142.6 611.9 Trade payables 156.6 156.6 Total payables 192.7 377.5 55.7 142.6 768.5

LIABILITIES AT DECEMBER 31, 2017

>1 year >3 years < 1 year > 5anni Total (Euro millions) < 3 years < 5 years Gross financial debt 35.4 75.0 368.0 169.1 647.5 Trade payables 146.8 146.8 Total payables 182.2 75.0 368.0 169.1 794.3

The table does not include the long-term needs. ◼◼ bank debt and cash pooling po- short-term Group cash pooling sition; debt, amounting to Euro 0.5 mil- 4.4 Sensitivity ◼◼ loans; lion at the end of 2018, against In consideration of the fact that ◼◼ interest risk derivative hedge which a receivable of a similar na- for the Company the currency risk instruments. ture exists of Euro 28.4 million. is almost non-existent, the sensitivity analysis refers to balance The assumptions and calculation At the end of 2018 loans due with- sheet accounts which could incur methods utilised in the sensitivity in one year relate to the capital changes in value due to changes in analysis undertaken by SEA were portion to be paid on some of the interest rates. as follows: EIB loans and interest due on the total debt. The loan repayment In particular, the analysis consid- a. Assumptions: scheduling reflects the capacity ered: ◼◼ the effect was analysed on of SEA funding to cover medium/ the SEA income statement

Annual Report 2018 • 174 SEA SPA – SEPARATE FINANCIAL STATEMENTS

for the years 2018 and 2017 ◼◼ the interest risk derivative of a change in market rates hedge instruments were of +50 or of -50 basis points. measured both in terms of cash flows and fair value (in b. Calculation method: terms of changes compared ◼◼ the remuneration of the to the same period of the bank deposits and the cash previous year). In both cases, pooling positions is related the values were estimated to the interbank rates. In or- applying the changes as per der to estimate the increase/ point a) to the forward curve decrease of interest income expected for the period. to changes in market conditions, the change was as- The results of the sensitivity analy- sumed as per point a) on the sis are reported below: average annual balance of bank deposits of SEA; ◼◼ the loans measured were those at variable interest rates, which incur interest payable linked to the Euribor at 6 months. The increase/ decrease of the interest payable to changes in market conditions was estimated applying the changes assumed as per point a) on the capital portion of the loans held during the year;

December 31, 2018 December 31, 2017 (Euro thousands) -50 bp +50 bp -50 bp +50 bp Current accounts (interest income) -4.76 523.59 -8.72 302.27 Cash pooling position (interest income) -114.16 114.16 -159.03 159.03 Loans (interest charges) (1) 308.67 -1,050.70 394.50 -1,039.74 Cash pooling position (interest charges) (1) -1.91 -11.66 Derivative hedging instruments (flows) (2) -329.85 329.85 -361.96 361.96 Derivative hedging instruments (fair value) (3) -675.87 661.98 -1,012.61 984.17

(1) + = lower interest charges; - = higher interest charges (2) + = revenue from hedge; - = cost of hedge; (3) amount entirely allocated to net equity given full efficacy of hedges

Annual Report 2018 • 175 SEA SPA – SEPARATE FINANCIAL STATEMENTS

The results of the sensitivity anal- ity of SEA to meet annual and/or 5. Classification of the ysis undertaken on some accounts half year financial commitments of the previous tables are impact- (net of financial resources availa- financial instruments ed by the low level of the market ble) from operating activities. For The following table provides a interest rates. By applying a varia- some loans, non-compliance of the breakdown of the financial assets tion of -50 basis points to the cur- covenant terms results in, for the and liabilities by category at De- rent market interest rate curve, following half-year period, the ap- cember 31, 2018 and at December the cash flow corresponding to plication of a correlated predeter- 31, 2017: current accounts and loans would mined spread (in accordance with a be opposite to those provided for contractually defined pricing grid). by the related types of contracts; in these cases, these cash flows At the present moment, SEA is not are set at zero. aware of any default situations related to the loans held or vio- Some loans include covenant lations of any of the above-men- conditions, relating to the capac- tioned covenants.

December 31, 2018 Financial assets and Financial Financial assets Financial liabilities assets and liabilities liabilities measured measured measured at measured at Total at Fair Fair Value to the at amor- amortised Value to Comprehensive tised cost cost the Income Income Statement (Euro thousands) Statement Other investments 26 26 Other non-current financial assets - Other non-current receivables 119 119 Trade receivables 117,602 117,602 Current financial receivables 28,410 28,410 Tax receivables 879 879 Other current financial assets - Other current receivables 6,257 6,257 Cash and cash equivalents 152,984 152,984 Total 26 306,251 0 0 306,277 Non-current financial liabilities exc. 5,387 518,218 523,605 leasing - of which payables to bondholders 298,889 298,889 Trade payables 156,586 156,586 Income tax payables 17,464 17,464 Other current and non-current paya- 202,267 202,267 bles Current financial liabilities excl. leasing 29,584 29,584 Total 0 0 5,387 924,119 929,506

Annual Report 2018 • 176 SEA SPA – SEPARATE FINANCIAL STATEMENTS

The values resulting from the utilisation of the am- reclassified in accordance with the new categories ortised cost method approximates the fair value of of IFRS 9 - Financial Instruments applied by SEA from the category. The figures at December 31, 2017 were January 1, 2018.

December 31, 2017 restated Financial Financial assets assets and Financial and liabilities Financial liabilities assets measured at liabilities measured at measured at fair value to the measured at Total Fair Value to amortised comprehensive amortised the Income cost (**) income cost statement (***) (Euro thousands) Statement (*) Other investments 26 26 Other non-current financial assets 7,190 7,190 Other non-current receivables 212 212 Trade receivables 108,612 108,612 Current financial receivables 20,630 20,630 Tax receivables 12,406 12,406 Other current financial assets 13,300 13,300 Other current receivables 7,646 7,646 Cash and cash equivalents 67,129 67,129 Total 26 237,125 0 0 237,151 Non-current financial liabilities exc. 7,228 539,061 546,289 leasing -of which payables to bondholders 298,441 298,441 Trade payables 146,834 146,834 Tax payables 7,227 7,227 Other current and non-current paya- 187,246 187,246 bles Current financial liabilities excl. leasing 27,612 27,612 Total 0 0 7,228 907,980 915,208

(*) In the 2017 accounts, this column was called “AFS financial assets”. The change was required in accordance with the application, from Janu- ary 1, 2018, of the amendments introduced by IFRS 9. For comparison purposes the 2017 accounts were restated. (**) In the 2017 accounts this column was called “Loans and receivables”. The change was required in accordance with the application, from January 1, 2018, of the amendments introduced by IFRS 9. For comparison purposes, the 2017 accounts were restated. (***) In the 2017 accounts this column was called “Financial assets and liabilities at fair value”. The change was required in accordance with the application, from January 1, 2018, of the amendments introduced by IFRS 9. For comparison purposes, the 2017 accounts were restated.

Annual Report 2018 • 177 SEA SPA – SEPARATE FINANCIAL STATEMENTS

5.1 Disclosure on fair value tion available, as follows: ◼◼ level 3: other information. In relation to financial instruments measured at fair value, the table ◼◼ level 1: prices practiced on ac- The following tables shows the below reports information on the tive markets; Company assets and liabilities method chosen to measure the ◼◼ level 2: valuation techniques measured at fair value at Decem- fair value. The methods applied based on observable market ber 31, 2018 and at December 31, are broken down into the follow- information, both directly and 2017: ing levels, based on the informa- indirectly;

December 31, 2018 (Euro thousands) Level 1 Level 2 Level 3 Other investments 26 Derivative financial instruments 5,387 Total 0 5,387 26

December 31, 2017 (Euro thousands) Level 1 Level 2 Level 3 Other investments 26 Derivative financial instruments 7,228 Total 0 7,228 26

Annual Report 2018 • 178 SEA SPA – SEPARATE FINANCIAL STATEMENTS

6. Notes to the Statement 6.1 Intangible assets The table below reports the of Financial Position changes in the year in intangible assets:

INTANGIBLE ASSETS

December 31, Increas- De- December 31, Reclass./ Amorti- Write- 2017 es in the struct./ 2018 trans. sation downs (Euro thousands) year sales Gross value Rights on assets under concession 1,446,033 2,713 28,865 (1,738) 1,475,873 Rights on assets under concess. in 32,486 29,385 (30,010) (986) 30,875 prog. & advances Patents and right to use intellectu- 69,273 9,661 78,934 al property & others Assets in progress and advances 5,352 9,377 (9,661) 5,068 Total gross value 1,553,144 41,475 (1,145) (2,724) 0 0 1,590,750 Accumulated amortisation Rights on assets under concession (521,569) 554 1,312 (45,239) (564,942) Rights on assets under concess. in prog. & advances Patents and right to use intellectu- (60,546) (7,216) (67,762) al property & others Assets in progress and advances Total accumulated amortisation (582,115) 0 554 1,312 (52,455) 0 (632,704) Net value Rights on assets under concession 924,464 2,713 29,419 (426) (45,239) 910,931 Rights on assets under concess. in 32,486 29,385 (30,010) (986) 30,875 prog. & advances Patents and right to use intellectu- 8,727 9,661 (7,216) 11,172 al property & others Assets in progress and advances 5,352 9,377 (9,661) 5,068 Total net value 971,029 41,475 (591) (1,412) (52,455) 0 958,046

Annual Report 2018 • 179 SEA SPA – SEPARATE FINANCIAL STATEMENTS

As per IFRIC 12, rights on assets The account “Rights on assets un- Linate, amounting to Euro 8,356 under concession amount to Euro der concession in progress and thousand, works principally con- 910,931 thousand at December advances”, amounting to Euro cerned functional upgrading and 31, 2018 and Euro 924,464 thou- 30,875 thousand, refers to the restyling of the Terminal, with sand at December 31, 2017. These work in progress on concession the first phase completed in the assets are amortised on a straight- assets, not yet completed at De- first half of 2018. This resulted in line basis over the duration of the cember 31, 2018. an improvement in the perceived concession from the State. The quality and the architectural im- amortisation for the year 2018 The main works carried out at Mal- age of the Air Terminal’s facade, amounts to Euro 45,239 thou- pensa amounted to Euro 21,029 land side access, the arrivals hall, sand. The increases in the year, thousand and mainly related to: i) the baggage claim hall and Wel- amounting to Euro 32,723 thou- the continuation of the functional come VIP Lounges. sand, derive from the entry into upgrading and restyling works at use of investments made in pre- Airport Terminal 1, with the con- The reclassifications to assets un- vious years and recorded under struction of new commercial are- der concession principally related “Right on assets under concession as and upgrading of existing areas to the gradual entry into service in progress and advances”. and the completion of the Schen- of the works on Terminal 1, the gen baggage collection area ii) completion of the works at Linate For assets within the concession the construction of new boarding and the cargo area at Malpensa. right, SEA has the obligation to gates at Terminal 2; iii) the com- record a restoration and replace- pletion of a second warehouse Industrial patents and intellectual ment provision, in relation to in the Cargo area (with a surface property rights and other intan- which reference should be made area of about 15,000 sq. m) to be gible assets, amounting to Euro to Note 6.16. allocated to Cargo operators. At 11,172 thousand at December 31, 2018 (Euro 8,727 thousand at December 31, 2017), relate to the purchase of software components for the airport and operating IT systems. Specifically, the increases for Euro 9,661 thousand principally related to the development and implementation of the administrative and airport management systems, relating to investments in previous years and recorded in the account “Assets in progress and advances” which at December 31, 2018 record a residual amount of Euro 5,068 thousand, relating to software developments in progress. The amortisation for the year 2018 amounts to Euro 7,216 thousand.

In consideration of the results reported and the business outlook, as well as the definition of the airport tariffs contained in the Reg- ulatory Agreement, at December 31, 2018 the Company did not identify any impairment indicators.

The changes in intangible assets during 2017 were as follows:

Annual Report 2018 • 180 SEA SPA – SEPARATE FINANCIAL STATEMENTS

INTANGIBLE ASSETS

Increases Re- De- in the class.s/ struct./ Amorti- Write- December 31, sation downs December 31, year trans. sales (Euro thousands) 2016 2017 Gross value Rights on assets under concession 1,419,510 26,573 (50) 1,446,033 Rights on assets under concess. in 33,897 25,619 (26,024) (1,006) 32,486 prog. & advances Patents and right to use intellectual 62,030 7,243 69,273 property & others Assets in progress and advances 5,766 6,829 (7,243) 5,352 Total gross value 1,521,203 32,448 549 (1,056) 0 0 1,553,144 Accumulated amortisation Rights on assets under concession (477,589) 23 (44,003) (521,569) Rights on assets under concess. in prog. & advances Patents and right to use intellectual (53,979) (6,567) (60,546) property & others Assets in progress and advances Total accumulated amortisation (531,568) 0 0 23 (50,570) 0 (582,115) Net value Rights on assets under concession 941,921 26,573 (27) (44,003) 924,464 Rights on assets under concess. in 33,897 25,619 (26,024) (1,006) 32,486 prog. & advances Patents and right to use intellectual 8,051 7,243 (6,567) 8,727 property & others Assets in progress and advances 5,766 6,829 (7,243) 5,352 Total net value 989,635 32,448 549 (1,033) (50,570) 0 971,029

Annual Report 2018 • 181 SEA SPA – SEPARATE FINANCIAL STATEMENTS

6.2 Property, plant and the movements in property, plant equipment and equipment in 2018. The following tables summarises

PROPERTY, PLANT & EQUIPMENT

Reclassi- December 31, Increases Destruct./ Deprecia- December 31, fications/ 2018 (Euro thousands) 2017 in the year transfers sales tion Gross value Property 210,937 4,254 (92) 215,099 Plant and machinery 4,655 1,395 6,050 Industrial and commercial 43,974 3,882 47,856 equipment Other assets 67,871 3,270 1,604 (504) 72,241 Assets in progress and advances 6,361 10,157 (4,734) 11,784 Total gross value 333,798 18,704 1,124 (596) 0 353,030 Accumulated depreciation & write-downs Property (90,706) (549) 44 (6,565) (97,776) Plant and machinery (3,568) (230) (3,798) Industrial and commercial (34,550) (4,656) (39,206) equipment Other assets (52,884) 402 (5,499) (57,981) Assets in progress and advances Total accumulated depreciation & (181,708) 0 (549) 446 (16,950) (198,761) write-downs Net value Property 120,231 3,705 (48) (6,565) 117,323 Plant and machinery 1,087 1,395 (230) 2,252 Industrial and commercial 9,424 3,882 (4,656) 8,650 equipment Other assets 14,987 3,270 1,604 (102) (5,499) 14,260 Assets in progress and advances 6,361 10,157 (4,734) 11,784 Total net value 152,090 18,704 575 (150) (16,950) 154,269

The investments relate to the and those in the Non-Aviation equipment” also include the pur- development of the Aviation sec- sector, amounting to Euro 4,254 chase of new de-icer equipment, tor which, as already reported, thousand at December 31, 2018, snow ploughs and motorised air- in accordance with IFRIC 12 are principally related to the restyling port operating machinery for Euro classified right on assets under work at Terminal 1 of Malpensa. 3,495 thousand, new aircraft tow- concession and rights on assets ing tractors for Euro 1,361 thou- under concessions in progress Increments in “Property, plant and sand, new persons with reduced

Annual Report 2018 • 182 SEA SPA – SEPARATE FINANCIAL STATEMENTS

mobility machinery for Euro 727 Agreement, at December 31, 2018 butions. These latter at Decem- thousand and new video terminals the Company did not identify any ber 31, 2018 amounted to Euro for Euro 500 thousand. impairment indicators. 504,383 thousand and Euro 7,019 thousand respectively. In consideration of the results re- All fixed assets, including those ported and the business outlook, as falling under IFRIC 12, are ex- The changes in tangible fixed as- well as the definition of the airport pressed net of those funded by sets during 2017 were as follows: tariffs contained in the Regulatory State and European Union contri-

PROPERTY, PLANT & EQUIPMENT

December 31, Increases Reclassi- Destruct./ fications/ Deprecia- December 31, (Euro thousands) 2016 in the year transfers sales tion 2017 Gross value Property 193,165 15,611 2,340 (179) 210,937 Plant and machinery 4,509 146 4,655 Industrial and commercial equipment 38,511 5,793 (330) 43,974 Other assets 61,239 2,454 4,200 (22) 67,871 Assets in progress and advances 5,190 8,270 (7,099) 6,361 Total gross value 302,614 32,274 (559) (531) 0 333,798 Accumulated depreciation & write-downs Property (84,945) 142 (5,903) (90,706) Plant and machinery (3,381) (187) (3,568) Industrial and commercial equipment (31,494) 330 (3,386) (34,550) Other assets (47,473) 22 (5,433) (52,884) Assets in progress and advances Total accumulated depreciation & (167,293) 0 0 494 (14,909) (181,708) write-downs Net value Property 108,220 15,611 2,340 (37) (5,903) 120,231 Plant and machinery 1,128 146 (187) 1,087 Industrial and commercial equipment 7,017 5,793 (3,386) 9,424 Other assets 13,766 2,454 4,200 (5,433) 14,987 Assets in progress and advances 5,190 8,270 (7,099) 6,361 Total net value 135,321 32,274 (559) (37) (14,909) 152,090

Annual Report 2018 • 183 SEA SPA – SEPARATE FINANCIAL STATEMENTS

6.3 Investment property INVESTMENT PROPERTY The breakdown of investment property at December 31, 2018 is shown below: December 31, December 31, (Euro thousands) 2018 2017 Gross value 4,138 4,118 Accumulated depreciation (730) (724) Total investment property 3,408 3,394

The changes in the accumulat- MOVEMENT ACCUMULATED DEPRECIATION INVESTMENT ed depreciation provision of the PROPERTY property investments in 2018 is shown below: December 31, (Euro thousands) 2018 Opening balance (724) Reclassifications (4) Decreases Depreciation (2) Final value accumulated depreciation investment (730) property

The account includes buildings which there were no impairments not utilised in the operating activ- at December 31, 2018. ities (apartments and garages) for

Annual Report 2018 • 184 SEA SPA – SEPARATE FINANCIAL STATEMENTS

6.4 Investments in subsidiaries “investments in subsidiaries and shown below: and associates associates” at December 31, 2018 The breakdown of the account and at December 31, 2017 are

INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES

(Euro thousands) December 31, 2018 December 31, 2017 SEA Energia SpA 7,026 7,026 SEA Prime SpA 25,451 25,451 Investments in subsidiaries 32,477 32,477 Airport Handling SpA 7,190 - SACBO SpA 4,562 4,562 Dufrital SpA 3,822 3,822 Malpensa Logistica Europa SpA 1,674 1,674 Disma SpA 421 421 SEA Services Srl 300 300 Investments in associates 17,969 10,779 Investments in subsidiaries and associates 50,446 43,256

“Investments in subsidiaries and ticipation held by SEA. In the 2018 financial statements associated companies” amount to therefore a reclassification of Euro 50,446 thousand at Decem- The exercise of this option result- Euro 7,190 thousand was made ber 31, 2018 (Euro 43,256 thou- ed in the following events: from the account “Other non-cur- sand at December 31, 2017). rent financial assets” to the- ac i. the winding up of the Trust count “Investments in subsidiaries The increase in the year of Euro having exhausted its corporate and associated companies”. 7,190 thousand relates to the rec- scope; ognition of the 30% investment ii. the consequent transfer to SEA Risk related to the European held by the company in Airport of the residual 30% of the share Commission’s decision of Handling SpA. capital; December 19, 2012 concerning iii. the collection by SEA of Euro presumed State Aid awarded to On June 30, 2018, dnata exercised 13,300 thousand, of which: SEA Handling the option to purchase an addi- Euro 10,640 thousand for the With decision of December 19, tional 40% of Airport Handling sale of 70% of the Financial In- 2012, the European Commission and a corresponding portion of struments of Participation and judged that the share capital Financial Instruments of Partici- Euro 2,660 thousand for the increases carried out by SEA in pation, increasing its holding in sale of 70% of the shares; favour of its subsidiary SEA Han- the company to 70% and main- iv. receipt of an additional Euro dling in the 2002-2010 period for taining a majority on the Board of 387 thousand relating to the approx. Euro 360 million, consti- Directors, held since March 2016 dividends approved by Airport tuted State Aid incompatible with on completion of the acquisition Handling in 2016 and record- the internal market, and conse- of the initial 30% of the company ed in the 2018 financial state- quently imposed upon the Italian from the Trustee (whole-owner of ments under Income/(charges) State the obligation to demand Airport Handling) and of 30% of from investments. restitution of the presumed State the Financial Instruments of Par- Aid from SEA Handling.

Annual Report 2018 • 185 SEA SPA – SEPARATE FINANCIAL STATEMENTS

In relation to the above-men- dissolved. As a result, the Court ruary 28, 2018. With the judgment tioned decision three independ- found that there was no longer a of December 13, 2018, the Court ent appeals were made before need to adjudicate on the appeal of the European Union rejected the European Union Court, by the brought by SEA Handling. the Municipality of Milan’s appeal. Italian State, by SEA Handling and The Municipality appealed to the by the Milan Municipality. In parallel, having taken note of Court of Justice against this deci- the Italian Government’s obser- sion. Following the liquidation of SEA vations regarding SEA Handling’s Handling and also by reason of the dissolution, it ordered the cancel- In any case, the outcome of this changed de facto and de jure sit- lation of the case relating to the judgment cannot have any impact uations relating to this company, appeal brought by the Govern- on SEA. the Court of the European Union, ment against the Commission’s at the request of the European decision. The key financial highlights at De- Commission and SEA Handling, cember 31, 2018 and for the pre- ascertained by Order of Janu- Given the above, the only ap- vious year of the subsidiaries and ary 22, 2018, that the matter of peal currently pending against associated companies prepared in the dispute concerning SEA Han- the Commission’s decision is that accordance with Italian GAAP are dling’s appeal has ceased to exist brought by the Municipality of Mi- shown below. since the appellant company was lan. The hearing was held on Feb-

December 31, 2018 Pro-quo- Liabili- Reve- Profit/ Assets Share. ta Share. % held ties nues (loss) Equity (Euro thousands) Equity Subsidiaries SEA Energia SpA 67,140 42,763 48,995 3,440 24,377 24,377 100.00% SEA Prime SpA 26,494 12,706 11,553 2,502 13,788 13,776 99.91% Associates Airport Handling SpA 56,706 21,985 120,901 2,814 34,721 10,416 30.00% Dufrital SpA - - 40.00% SACBO SpA - - 30.979% SEA Services Srl (*) 5,748 2,966 17,027 2,013 2,782 1,113 40.00% Malpensa Logistica Europa SpA 26,440 13,177 52,184 5,999 13,263 3,316 25.00% Disma SpA - - 18.75%

(*) Financial Statements at 30/09/2018

Annual Report 2018 • 186 SEA SPA – SEPARATE FINANCIAL STATEMENTS

December 31, 2017 Pro-quo- Liabili- Profit/ Assets Reve- Share. ta Share. % held ties nues (loss) Equity (Euro thousands) Equity Subsidiaries SEA Handling in liquidazione SpA (*) 10,051 142 1,965 1,683 9,909 9,909 100.00% SEA Energia SpA 56,357 35,420 40,487 2,876 20,937 20,937 100.00% SEA Prime SpA 26,456 15,170 12,334 2,321 11,286 11,276 99.91% Consorzio Malpensa Construction (**) 190 2 4 - 188 96 51.00% Associates Dufrital SpA 76,315 45,378 162,405 5,185 30,937 12,375 40.00% SACBO SpA 238,185 107,811 119,537 12,722 130,374 40,389 30.979% SEA Services Srl (***) 5,873 3,544 14,643 1,564 2,329 932 40.00% Malpensa Logistica Europa SpA 23,221 12,956 43,649 3,823 10,265 2,566 25.00% Disma SpA 10,644 5,035 6,364 712 5,609 1,052 18.75%

(*) Final liquidation accounts at 30/06/2017 (**) Final liquidation accounts at 31/10/2017 (***) Financial Statements at 30/09/2017

6.5 Other investments 2018 and at December 31, 2017 The breakdown of the “Other are shown below: investments” at December 31,

% held % held Company December 31, 2018 December 31, 2017 Aeropuertos Argentina 2000 SA 8.5% 8.5% Consorzio Milano Sistema in liquidazione 10% 10% Romairport Srl 0.227% 0.227% Sita Soc. Intern. De Telecom.Aereneonautiques 6 quote (Belgian reg. company)

Annual Report 2018 • 187 SEA SPA – SEPARATE FINANCIAL STATEMENTS

The following table presents for investments: the years 2018 and 2017 other

OTHER INVESTMENTS

(Euro thousands) December 31, 2018 December 31, 2017 Aeropuertos Argentina 2000 SA 0 0 Consorzio Milano Sistema 25 25 Romairport Srl 1 1 Sita Soc. Intern. De Telecom.Aereneonautiques 0 0 (Belgian reg. company) Total other investments 26 26

On February 28, 2018, following a was signed with CEDICOR for the mo Regulador del Sistema Nacion- request for withdrawal, SEA was sale of all the investment held al de Aeropuertos). no longer a member of SITA SC. by SEA in the share capital of AA2000, equal to 21,973,747 ordi- At the date of the present doc- AA2000 nary Class A shares with 1 vote for ument, ORSNA had not yet for- The investment of SEA in the each share. malised the authorisation of the share capital of Aeropuertos Ar- sale of the investment in favour gentina 2000 (hereafter AA2000) The consideration paid was Euro of Cedicor and, therefore, still amounts to 8.5% following the 14,000,000, entirely received in holds 8.5% of the share capital conversion, by the Argentinian 2011. of AA2000; therefore, the invest- government, of the bonds issued ment of 1 Euro was maintained in in 2008 by AA2000 into shares. The transfer of the shares will only the 2018 financial statements. be completed with authorisation On June 30, 2011, an agreement by the ORSNA regulator (Organis-

Annual Report 2018 • 188 SEA SPA – SEPARATE FINANCIAL STATEMENTS

6.6 Deferred tax assets tax assets for the year 2018 are The changes in the net deferred shown below:

NET DEFERRED TAX ASSETS

Released / allo- Released / allo- December 31, 2017 December 31, 2018 (Euro thousands) cated to P&L cated to Equity Restoration prov. as per IFRIC 12 34,540 (48) 34,492 Write-down tan. assets (impairment 14,101 14,101 test) Provisions for risks and charges 13,140 (791) 12,349 Non-deductible doubtful debt 7,167 (410) 6,757 provision Other receivables provision 319 319 Inventory obsolescence provision 142 322 464 Fair value measurement of 1,564 (422) 1,142 derivatives Post-em. bens. prov. discounting 917 (79) (264) 574 (IAS 19) Ord. main. on assets under 7,990 1,969 9,959 concession Other 124 (9) 115 Total deferred tax assets 80,004 954 (686) 80,272 Accelerated depreciation and lower 27,733 (2,583) 25,150 depreciation on initial application IFRS Total deferred tax liabilities 27,733 (2,583) 0 25,150 Total deferred tax assets, net of 52,271 3,537 (686) 55,122 liabilities

6.7 Other current and non- current financial assets at December current financial assets 31, 2018 and at the end of the The breakdown of current and non- previous year is reported below:

OTHER FINANCIAL ASSETS

December 31, 2018 December 31, 2017 Non-current Non-current (Euro thousands) Current portion Current portion portion portion Other financial assets 13,300 7,190 Total other financial assets 0 0 13,300 7,190

Annual Report 2018 • 189 SEA SPA – SEPARATE FINANCIAL STATEMENTS

At December 31, 2018, the bal- ii. the consequent transfer to SEA from investments. ance of current and non-current fi- of the residual 30% of the share nancial assets were written down capital; In the 2018 financial statements due to dnata’s exercise of the iii. the collection by SEA of Euro therefore a reclassification of option to purchase an addition- 13,300 thousand, of which: Euro 7,190 thousand was made al 40% of Airport Handling and a Euro 10,640 thousand for the from the account “Other non-cur- corresponding share of Financial sale of 70% of the Financial In- rent financial assets” to the- ac Instruments of Participation. struments of Participation and count “Investments in subsidiaries Euro 2,660 thousand for the and associated companies”. In July 2018, the exercise of this sale of 70% of the shares; option resulted in the following iv. receipt of an additional Euro events: 387 thousand relating to the 6.8 Other non-current dividends approved by Airport receivables i. the winding up of the Trust Handling in 2016 and record- The breakdown of the “Other having exhausted its corporate ed in the 2018 financial state- non-current receivables” is shown scope; ments under Income/(charges) below:

OTHER NON-CURRENT RECEIVABLES

(Euro thousands) December 31, 2018 December 31, 2017 Receivables from the state for contributions as per Law - - 449/85 Other receivables 119 212 Total other non-current receivables 119 212

Annual Report 2018 • 190 SEA SPA – SEPARATE FINANCIAL STATEMENTS

“Other non-current receivables” are entirely covered by the doubt- Other receivables principally refer amount to Euro 119 thousand ful debt provision and concern to receivables from employees at December 31, 2018 (Euro 212 receivables based on the “Regula- and guarantee deposits. thousand at December 31, 2017) tory Agreement” between ENAC and is comprised of the accounts and SEA in January 1995 and re- 6.9 Inventories outlined below. vised in December 2004, which The table below reports the break- establishes the partial funding, down of “Inventories”: Receivables from the State for pursuant to Law 449/85, of some grants under Law 449/85, equal to infrastructure projects at Malpen- Euro 1,328 thousand (Euro 1,328 sa Airport. thousand at December 31, 2017),

INVENTORIES

(Euro thousands) December 31, 2018 December 31, 2017 Raw materials, ancillaries and consumables 3,561 4,594 Inventory obsolescence provision (1,646) (503) Total inventories 1,915 4,091

The account includes consumable Inventories were adjusted to their The changes in the obsolescence materials for airport activities; no realisable or replacement value provision in 2018 is shown below: goods held in inventories com- through an obsolescence provi- prised guarantees on loans or con- sion which at December 31, 2018 cerning other commitments. amounts to Euro 1,646 thousand.

MOVEMENTS IN INVENTORY OBSOLESCENCE PROVISION

(Euro thousands) December 31, 2018 Opening balance (503) Provisions (1,143) Utilisations Final value inventory obsolescence provision (1,646)

Annual Report 2018 • 191 SEA SPA – SEPARATE FINANCIAL STATEMENTS

6.10 Trade receivables The breakdown of “trade receivables” at December 31, 2018 and for the previous year are shown below:

TRADE RECEIVABLES

(Euro thousands) December 31, 2018 December 31, 2017 Trade receivables - customers 102,668 96,443 Trade receivables - subsidiaries 3,709 3,306 Trade receivables - associates 11,225 8,863 Total trade receivables 117,602 108,612

Trade receivables, shown net of The criteria for the adjustment of ous paragraph 3, to which refer- the doubtful debt provision, main- receivables to their realisable val- ence should be made. ly include receivables from clients ue will take account of valuations and provisions for invoices and regarding the state of the dis- The changes in the doubtful debt credit notes to be issued. pute and are subject to estimates provision were as follows: which are described in the previ-

DOUBTFUL DEBT PROVISION

(Euro thousands) December 31, 2018 December 31, 2017 Opening provision 99,841 78,450 Net increases (decreases) 713 26,897 Utilisations (1) (5,506) Final value doubtful debt provision 100,553 99,841

The net increase in the provision The utilisations relating to the year relative timing on collection of in- in the year amounted to Euro 713 2018, amounting to Euro 1 thou- voices. thousand (Euro 26,897 thousand sand, refer to the closure during in 2017) and was calculated to the year of disputes in which the For receivables from subsidiaries take into account the risk in dete- provisions were accrued to cover and associated companies, refer- rioration of the financial positions such risks in previous years. ence should be made to Note 8, of the principle operators with relating to transactions with relat- which disputes exist, write-downs For details on the aging of the ed parties. for receivables under administra- receivables reference should be tion and the risk assessed by the made to Note 4.1. Company of the expected losses on each receivable, in accordance The increase in trade receivables with IFRS 9. from related companies on the other hand is substantially due to invoicing maturity periods and

Annual Report 2018 • 192 SEA SPA – SEPARATE FINANCIAL STATEMENTS

6.11 Current financial transactions with related parties. In April 2018, SEA collected the receivables IRES receivable concerning the The account “Current financial re- 6.12 Tax receivables deductibility of IRAP from IRES ceivables” amounts to Euro 28,410 “Tax receivables” of Euro 879 for the financial years 2007-2011 thousand at December 31, 2018 thousand at December 31, 2018 (“click day”) for Euro 10,734 thou- (Euro 20,630 thousand at Decem- (Euro 12,406 thousand at Decem- sand (including interest income of ber 31, 2017) and relates entirely ber 31, 2017) mainly concern for Euro 976 thousand). For further to financial receivables from sub- Euro 445 thousand tax receivables details, reference should be made sidiaries. In particular the balance recorded following the liquida- to the Directors’ Report. at December 31, 2018 is comprised tor’s distribution plan of the sub- of cash pooling receivables from sidiary SEA Handling SpA in liqui- 6.13 Other current receivables SEA Energia SpA. Reference should dation. The breakdown of “Other current be made to Note 8 relating to receivables” is shown below:

OTHER CURRENT RECEIVABLES

(Euro thousands) December 31, 2018 December 31, 2017 Other receivables 3,345 6,380 Receivables for dividends 2,005 Misc. receivables 562 822 Receivables from insurance companies 200 206 Employee & soc. sec. receivables 145 238 Receivables from the State for SEA / Ministry for Infrastructure and Transport case Total other current receivables 6,257 7,646

“Other current receivables” SEA Prime SpA (formerly ATA Ali and POS which have not yet been amount to Euro 6,257 thousand Trasporti Aerei SpA); on May 30, credited in the bank account. at December 31, 2018 (Euro 7,646 2017, the Authority confirmed the thousand at December 31, 2017) reassessment of the penality and Receivables from insurance com- and is comprised of the accounts communication to the Ministry for panies, amounting to Euro 200 outlined below. the Economy and Finance of the thousand at December 31, 2018 approval for the reimbursement (Euro 206 thousand at December Other receivables, amounting to of the amounts. 31, 2017) relates to amounts paid Euro 3,345 thousand at December on insurance policies in advance 31, 2018 (Euro 6,380 thousand The receivables for dividends to of the period to which the cost at December 31, 2017), includes be received, equal to Euro 2,005 refers. miscellaneous receivables (reim- thousand, relate to the dividends bursements, supplier advances, approved by the Extraordinary Employee and social security re- arbitrations with subcontractors Shareholders’ Meeting of Dufrital ceivables, amounting to Euro 145 and other minor positions). The SpA, on December 18, 2018. thousand at December 31, 2018 change in the year is mainly due (Euro 238 thousand at December to the collection of the receivable Receivables for sundry income 31, 2017), mainly refer to the re- of Euro 2,430 thousand relating to amounting to Euro 562 thousand ceivable from INPS and the “Fondo the reimbursement of a portion at December 31, 2018 (Euro 822 Volo per il Contratto di Solidarietà of the penalty imposed on SEA by thousand at December 31, 2017) difensivo” closed in 2014, paid to the Antitrust Authority (AGCM) in mainly refer to receivables from employees on behalf of the insti- 2015 following the acquisition of payments by Telepass, credit card tution and receivables from INAIL.

Annual Report 2018 • 193 SEA SPA – SEPARATE FINANCIAL STATEMENTS

Receivables from the State for and expenses incurred, is entire- 6.14 Cash and cash equivalents SEA/Ministry Infrastructure and ly covered by the doubtful debt The breakdown of the account Transport case which amounts to provision and relates to the resid- “cash and cash equivalents” is Euro 3,889 thousand, following ual amount not yet received from shown in the table below: the judgement of the Cassation the Ministry for Infrastructure and Court, which recognised to the Transport, in addition to inter- Company the non-adjustment est matured up to December 31, of handling tariffs for the period 2014. 1974-1981, in addition to interest

CASH AND CASH EQUIVALENTS

(Euro thousands) December 31, 2018 December 31, 2017 Bank and postal deposits 152,913 67,069 Cash in hand and similar 71 60 Total Cash and cash equivalents 152,984 67,129

The account at year end compris- thousand following the allocation In addition, on January 1, 2018 the es bank and postal deposits on de- of the profit for the year 2017, for extraordinary reserve was reclas- mand for Euro 152,809 thousand Euro 6,645 thousand and to the re- sified for Euro 1 thousand regard- (Euro 64,721 thousand at Decem- classification for Euro 1 thousand ing the effects from the change ber 31, 2017), restricted bank de- of the effects from the change in the time value at December posits of Euro 104 thousand (Euro in the time value at December 31, 2017 on derivative contracts, 2,348 thousand at December 31, 31, 2017 on derivative contracts, following the application of the 2017) and cash amounts for Euro following the application of the amendments introduced by IFRS 9 71 thousand (Euro 60 thousand at amendments introduced by IFRS 9 “Financial Instruments”. December 31, 2017). For further “Financial Instruments”. information on the movements to Actuarial gain/loss reserve cash and cash equivalents, refer- Other Investments Reserve The balance of the reserve at De- ence should be made to the Cash The reserve at December 31, cember 31, 2018, equal to Euro -379 thousand (Euro -1,215 thou- Flow Statement. 2018, equal to Euro 1, represents sand at December 31, 2017), rep- the investment held by SEA in resents the actuarial losses ma- 6.15 Shareholders’ Equity AA2000 based on the agree- tured at the balance sheet date ment with Cedicor as described Share capital on the Post-Employment Benefits in Note 6.5. At December 31, 2018, the share provision. capital of SEA is comprised of 250,000,000 shares of a value of Cash Flow Hedge Reserve Euro 0.11 each, with a total value The balance of the reserve at De- of Euro 27,500 thousand. cember 31, 2018, amounting to Euro -3,616 thousand (Euro -4,953 Legal and extraordinary reserve thousand at December 31, 2017), At December 31, 2018 the legal relates to the change in the fair reserve of SEA amounts to Euro value of the effective part of the 5,500 thousand while the extraor- derivative hedge contracts and of dinary reserve amounts to Euro the relative changes in the time 162,994 thousand (Euro 156,348 value. For further information on thousand at December 31, 2017), derivative contracts, reference with the increase of Euro 6,646 should be made to Note 4.2.

Annual Report 2018 • 194 SEA SPA – SEPARATE FINANCIAL STATEMENTS

Other reserves For the net equity movements, The other reserves, amounting to reference is made to the “State- Euro 60,288 thousand at Decem- ment of changes in Shareholders’ ber 31, 2018, refer entirely to the Equity”. reserves recorded in accordance with the revaluation laws 576/75, Available reserves 72/83 and 413/91. In accordance with Article 2427, No. 7-bis of the Civil Code, the eq- Distribution of dividends uity accounts and their availability On May 3, 2018, the Shareholders’ and possibility for distribution are Meeting approved the distribution reported below. of dividends of Euro 70,300 thousand and the carrying forward to reserves of Euro 6,645 thousand, relating to the allocation of the 2017 net profit, amounting to Euro 76,945 thousand.

Summary of Possibility Quota Amount at 31/12/2018 utilisations over of use (*) available (Euro thousands) last 3 years Share capital 27,500 Legal reserve 5,500 B Extraordinary reserve 162,994 A,B,C 162,994 IFRS initial conversion reserve 14,814 Other Eq. Investments Reserve 0 Cash Flow Hedge Reserve (3,616) Actuarial gain/loss reserve (379) Other Reserves (1): - as per revaluation law 576/75 3,649 A,B,C 3,649 - as per revaluation law 72/83 13,557 A,B,C 13,557 - as per revaluation law 413/91 43,082 A,B,C 43,082 Total 267,101 223,282 0 Total non-distributable amount 43,819

Key: (*) A: for share capital increase; B: for coverage of losses; C: for distribution to shareholders (1) Suspension of taxes reserve

Annual Report 2018 • 195 SEA SPA – SEPARATE FINANCIAL STATEMENTS

6.16 Provisions for risks and risks and charges” in the year are charges reported below: The changes in the “Provisions for

PROVISION FOR RISKS AND CHARGES

December 31, Prov./ Utilisations/ December 31, Releases (Euro thousands) 2017 Increases Decreases 2018 Restoration and replacement 137,483 15,000 (15,171) 137,312 provision Provision for future charges 28,628 4,180 (4,580) (1,342) 26,886 Total prov. for risks & charges 166,111 19,180 (19,751) (1,342) 164,198

The restoration and replacement tured relating to the maintenance utilisations in the year refer to provision on assets under con- on assets under concession from the restoration works carried out cession, created in accordance the State which will be undertak- covered by the provisions made in with IFRIC 12, amounting to Euro en in future years. The provision previous years. 137,312 thousand at December for the year takes into account 31, 2018 (Euro 137,483 thousand the updated long-term scheduled The movements of the future at December 31, 2017), refers to maintenance and replacement charges provision were as follows: the estimate of the amount ma- plans on these assets, while the

PROVISION FOR FUTURE CHARGES

December 31, Prov./ Utilisations/ December 31, Releases (Euro thousands) 2017 Increases Decreases 2018 Labour provisions 4,612 2,474 (1,134) 5,952 Tax risks 483 (122) 361 Other provisions 23,533 1,706 (3,324) (1,342) 20,573 Total provision for future charges 28,628 4,180 (4,580) (1,342) 26,886

The employee provisions relate to Agency in respect of the resale disputes related to the opera- the expected streamlining actions of electricity and registration tax tional management of the Mi- to be undertaken on operations. applied on the transactions in ac- lan Airports; The utilisations in the year are cordance with a number of civil ◼◼ Euro 2,496 thousand relating to related to the incentivised depar- judgments. disputes with insurance compa- tures for which a specific provision nies for requests for indemni- was made in the accounts in 2017. The account “Other provisions” ties; for Euro 20,573 thousand at De- ◼◼ Euro 8,000 thousand relating The “Tax risks” provision of Euro cember 31, 2018 (Euro 23,533 to charges from the acoustic 361 thousand is related to the thousand at December 31, 2017) zoning of the peripheral areas provision for disputes currently is mainly composed of the follow- to the Milan Airports (Law No. underway with the competent tax ing items: 447/95 and subsequent Min- judicial bodies over VAT resulting isterial Decrees). It is reported from the tax audit by the Customs ◼◼ Euro 5,063 thousand for legal that the Airport Commission of

Annual Report 2018 • 196 SEA SPA – SEPARATE FINANCIAL STATEMENTS

Malpensa has not yet given the taken against the Company and senting the Company in the dis- final approval, unlike the- Air relating to airline companies putes, the provisions are consid- port Commission of Linate; declared bankrupt. ered sufficient to cover potential ◼◼ Euro 847 thousand for disputes liabilities. with ENAV; Based on the updated state of ◼◼ Euro 3,000 thousand for vari- advancement of disputes at the 6.17 Empoyee provisions ous legal disputes; preparation date of the present The changes in the employee pro- ◼◼ Euro 1,167 thousand for risks report, and also based on the visions in 2018 and in the previous relating to revocatory actions opinion of the consultants repre- year are shown below:

EMPLOYEE PROVISIONS

(Euro thousands) December 31, 2018 December 31, 2017 Opening provision 46,736 48,095 Financial (income)/charges 652 686 Utilisations (1,101) (1,989) Actuarial losses / (profits) rec. to equity reserve (1,099) (56) Total employee provisions 45,188 46,736

Annual Report 2018 • 197 SEA SPA – SEPARATE FINANCIAL STATEMENTS

The annual discount rate, utilised CHANGE for the present value of the bond, was based on the Iboxx Eurozone Corporate A index. (Euro thousands) December 31, 2018 December 31, 2017 + 1 % on turnover rate 45,037 46,485 The sensitivity analysis for each of the significant assumptions at - 1 % on turnover rate 45,354 47,014 December 31, 2018 and the previ- + 1/4 % on annual inflation 45,822 47,437 ous year is shown below, indicat- rate ing the effects that would arise - 1/4 % on annual inflation on the post-employment benefit 44,565 46,048 provision. rate + 1/4 % on annual discount 44,191 45,634 rate - 1/4 % on annual discount 46,218 47,878 rate

The average duration of the finan- AVERAGE DURATION OF THE BOND cial obligation and scheduled payments of the benefits are reported in the following tables: (Euro thousands) December 31, 2018 December 31, 2017 Duration of the plan 10.0 10.3

EXPECTED DISBURSEMENTS

(Euro thousands) December 31, 2018 December 31, 2017 Year 1 2,127 2,224 Year 2 2,363 1,887 Year 3 2,749 2,488 Year 4 3,835 2,755 Year 5 2,991 3,713

6.18 Current and non-current non-current financial liabilities at De- financial liabilities cember 31, 2018 and at the end of The breakdown of current and the previous year is reported below:

December 31, 2018 December 31, 2017 (Euro thousands) Current Non-Current Current Non-Current Bank payables 22,371 224,672 20,919 247,760 Payables to other lenders 7,213 298,933 6,693 298,529 Total financial liabilities 29,584 523,605 27,612 546,289

Annual Report 2018 • 198 SEA SPA – SEPARATE FINANCIAL STATEMENTS

The breakdown of the accounts is shown below:

December 31, 2018 December 31, 2017 Non-current Non-current Current portion Current portion (Euro thousands) portion portion Long-term loans 21,316 219,285 19,766 240,532 Loan charges payable 1,055 1,153 Derivatives fair value 5,387 7,228 Bank payables 22,371 224,672 20,919 247,760 Payables to bondholders 298,889 298,441 Payables for charges on bonds 6,627 6,627 Subsidised rate loans 44 44 66 88 Financial payable to subsidiaries 542 Payables to other lenders 7,213 298,933 6,693 298,529 Total current and non-current 29,584 523,605 27,612 546,289 liabilities

As illustrated in the table above, ◼◼ Value: Euro 300 million; EBITDA maximum of 3.8. The the Company debt primary con- ◼◼ Interest rate: fixed annual cou- covenant has been complied sists of medium/long term bank pon of 3.125%; with to date. loans and the bond issued on April ◼◼ Duration: 7 years, with single 17, 2014, the “SEA 3 1/B 2014- repayment on maturity, except For further information on bank 2021”. for advanced repayment pos- loans and derivative contracts un- sibilities established under the derwritten reference should be The principal features of the bond Loan regulation and in line with made to Note 4. are as follows: market practices; ◼◼ Listing: Regulated market The breakdown of the Company ◼◼ Type of bond: Senior, unse- managed by the Irish Stock Ex- net financial debt at December cured, non-convertible, in min- change; 31, 2018 and December 31, 2017, imum denominations of Euro ◼◼ Covenant: typical international in accordance with CONSOB Com- 100 thousand and exclusively practice for the issue of such munication of July 28, 2006 and targeting qualified and institu- bonds, such as the Limitation of ESMA/2012/81 recommendations tional investors; Indebtedness or rather to main- are reported below: ◼◼ Issue price: at par; tain a Net Financial Position/

Annual Report 2018 • 199 SEA SPA – SEPARATE FINANCIAL STATEMENTS

NET FINANCIAL DEBT

(Euro thousands) December 31, 2018 December 31, 2017 A. Cash and Cash Equivalents (152,984) (67,129) B. Other cash equivalents - - C. Securities held for trading - - D. Liquidity (A)+(B)+(C) (152,984) (67,129) E. Financial receivables (28,410) (20,630) F. Current financial payables 542 - G. Current portion of medium/long-term bank payables 21,316 19,766 H. Other current financial payables 7,726 7,846 I. Payables and other current financial liabilities (F) + (G) + (H) 29,584 27,612 J. Net current financial debt (D) + (E) + (I) (151,810) (60,147) K. Non-current portion of medium/long-term bank payables 219,285 240,532 L. Bonds issued 298,889 298,441 M. Other non-current financial payables 5,431 7,316 Payables and other non-current financial liabilities N. 523,605 546,289 (K) + (L) + (M) O. Net Financial Debt (J) + (N) 371,795 486,142

At the end of December 2018, the to offset the cash flow absorbed Euro 67,129 thousand at the end net financial debt amounted to by investing activity (Euro 35,981 of 2017), ii) continuation of the re- Euro 371,795 thousand, decreas- thousand) and that absorbed payment of loans in place amounting by Euro 114,347 thousand from financing activity for the ing to Euro 19,832 thousand. compared to the end of 2017 payment of dividends and interest (Euro 486,142 thousand). and commissions (respectively of The following is a breakdown Euro 70,288 thousand and Euro of the variations of current and As illustrated in the cash flow 16,183 thousand); financing activ- non-current financial assets and statement, the level of net finan- ities were impacted by the follow- liabilities, with a separate indica- cial debt was impacted by the fact ing factors: i) increase in cash and tion of cash flows recorded in the that the cash flow generated from cash equivalents by Euro 85,855 year 2018 and other variations. the operating activity of Euro thousand (Euro 152,984 thousand 235,374 thousand was sufficient at the end of 2018 compared to

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CURRENT AND NON-CURRENT FINANCIAL ASSETS AND LIABILITIES

Med./ Subsidised Paya- long-term loans (cur- bles for Financial Deriva- bank loans Bond rent and charges payables/ tive lia- Total (current and loans non-cur- on loans receiv to bilities non-current rent & bond sub. (Euro thousands) portion) portion) loans December 31, 2017 260,298 298,441 154 7,780 7,228 (20,630) 553,271 Cash flows: Issue new tranche of EIB loans Repayments (capital portion) (19,766) (66) (19,832) Cash pooling changes (7,238) (7,238) Payment interest on bank loans and bond loans (7,780) (7,780) recognised to FY 2017 Total cash flows (19,766) 0 (66) (7,780) 0 (7,238) (34,850) Other changes: Amortised cost effect 69 448 517 Fair value change (1,841) (1,841) Accrual on interest charges on 7,682 7,682 loan & bond loan Total other changes 69 448 0 7,682 (1,841) 0 6,358 December 31, 2018 240,601 298,889 88 7,682 5,387 (27,868) 524,779

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6.19 Trade payables The breakdown of the “Trade payables” is shown below:

TRADE PAYABLES

(Euro thousands) December 31, 2018 December 31, 2017 Trade payables 128,615 130,362 Advances 2,750 7,582 Payable to subsidiaries 13,607 4,371 Payables to associates 11,614 4,519 Total trade payables 156,586 146,834

Trade payables of Euro 156,586 Linate and Malpensa airports, 6.20 Income tax payables thousand at December 31, 2018 following Cassation Court Sen- Payables for income taxes refers to the purchase of goods tence No. 23454/18 which reject- amounting to Euro 17,464 thou- and services relating to the oped the recourse presented by the sand at December 31, 2018 (Euro erating activity and investments. Customs Agency, confirming the 7,227 thousand at December 31, In order to optimise operations previous sentences. The amount 2017), mainly relate to direct tax- with suppliers, trade payables at was entirely collected in 2014, fol- es for Euro 11,825 thousand Euro December 31, 2018 include sums lowing Milan Court Judgment No. 1,142 thousand at December 31, ceded under indirect factoring 12778/2013, and was recorded 2017), employee and consultant’s contracts for Euro 1,391 thousand in the account “Advances” while withholding taxes for Euro 5,144 (Euro 4,218 thousand at Decem- awaiting conclusion of all the var- thousand (Euro 5,520 thousand ber 31, 2017). ious levels of appeal; b) amounts at December 31, 2017) and VAT received for SEA’s participation in for Euro 490 thousand (Euro 504 Payables for advances at Decem- international research and inno- thousand at December 31, 2017). ber 31, 2018, equal to Euro 2,750 vation projects. The remainder of thousand, report a significant re- payables on account mainly relate 6.21 Other current and non- duction by Euro 4,832 thousand to payments on account by clients. current payables compared to the previous year The breakdown of the account due to opposing effects: a) the For payables from subsidiaries and “Other current payables” at De- recognition in the income state- associated companies, reference cember 31, 2018 is shown below: ment of the income, equal to should be made to Note 8, relat- Euro 5,631 thousand (including ing to transactions with related interest), relating to the occupa- parties. tion of the spaces located in the

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OTHER CURRENT PAYABLES

(Euro thousands) December 31, 2018 December 31, 2017 Payables to social security institutions 13,969 12,714 Employee payables for amounts matured 21,113 15,979 Employee payables for vacations not taken 2,388 2,536 Payables to the State for airport fire services 65,113 59,040 Payables to the State for concession fee 14,285 13,634 Payables to the state for concession fee security 90 83 service Payables for additional landing rights 49,944 46,131 Payables to third parties for ticketing collections 70 Third party guarantee deposits 998 968 Payables to the Board of Directors and Board of 187 190 Statutory Auditors Payables to shareholders for dividends 89 77 Payables to others post-em. ben. 240 251 Others 19,887 17,985 Total other current payables 188,303 169,658

“Other current payables” in- to be settled in 2019 relating to charged to airlines (and not yet re- creased by Euro 18,645 thousand, the mobility procedure initiated ceived) and those already received from Euro 169,658 thousand in 2017 and the increased payable and reversed to the INPS/Tax Agen- at December 31, 2017 to Euro related to the recognition, for the cy in the initial months of 2019. 188,303 thousand at December year 2018, of a bonus based on 31, 2018. the results of the company, relat- Relating to the payables to the ed to the achievement of compa- State for airport fire services, on This increase is mainly due to the ny performances; iv) increase in July 20, 2018 the constitutional offsetting of the following items: payables to the State relating to court notice of July 3, 2018 was i) higher charges of Euro 6,073 the payment of concession fees, published in the Official Gazette thousand for the contribution of for Euro 651 thousand, following which declared the unconstitu- the Company to the airport fire the change in the traffic data; v) tionality of Article 1, paragraph protection service under Law No. increase in the account “Others” 478 of Law No. 208 of December 296 of December 27, 2006 ii) infor Euro 1,902 thousand. The ac- 28, 2015 implementing “Provi- crease in payables for Euro 3,813 count “Other”, amounting to Euro sions for the drawing up of annu- thousand concerning boarding 19,887 thousand at December al and multi-year budgets of the fee surcharges required by Law 31, 2018 (Euro 17,985 thousand State (2016 Stability Law)”. For No. 350/2003, No. 43/2005, No. at December 31, 2017), mainly further details, reference should 296/2006, No. 166/2008, No. relates to deferred income from be made to the Directors’ Report 92/2012 and No. 357/2015; iii) clients for future periods and oth- in the section “Risk factors of the higher employee payables for er minor payables. The increase is SEA Group”. services matured, for Euro 5,134 principally due to the timing of in- thousand, principally due the re- voicing by the company. The breakdown of the account classification of the current- por “Other non-current payables” at tion of employee payables and “Payables for additional landing December 31, 2018 and at De- the relative contributory charges, rights” include the amounts re- cember 31, 2017 is shown below:

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OTHER NON-CURRENT LIABILITIES

(Euro thousands) December 31, 2018 December 31, 2017 Employee payables 11,876 14,946 Payables to social security institutions 2,088 2,642 Total other non-current liabilities 13,964 17,588

“Other non-current payables” re- agreement with Trade Unions cov- Financial payables above five years fers to payables to employees ering this procedure was signed amount to Euro 124,722 thousand and associated social security on January 15, 2018. relating to the repayment of prin- contributions, recorded as a re- cipal on medium/long-term loans sult of the mobility procedure’s The decrease of Euro 3,624 thou- at December 31, 2018. commencement on December 27, sand is substantially attributable 2017. Through the mobility proce- to the reclassification under -cur dure, early retirement incentive rent payables. payments were established for a pre-determined number of work- 6.22 Payables and receivables ers who will qualify for pension beyond five years benefits by August 2023 (early re- There are no receivables over five tirement or old age pension). The years.

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7. Income Statement enues by business unit is reported below: 7.1 Operating revenues The breakdown of operating rev-

OPERATING REVENUES BY BUSINESS UNIT

(Euro thousands) 2018 2017 restated Aviation 422,939 399,250 Non Aviation 240,997 227,479 Total operating revenues 663,936 626,729

In accordance with IFRS 15 - Rev- costs”) in 2018 were classified as a The breakdown of Aviation oper- enue from contracts with custom- reduction of the account “Operat- ating revenues is reported below. ers, applied by SEA from January ing revenues”. The figures in the 1, 2018, the incentives to the air- 2017 accounts were reclassified line carriers for the development for a correct comparability of the of traffic (previously classified accounts in the financial state- in the account “Other operating ments.

AVIATION OPERATING REVENUES

(Euro thousands) 2018 2017 restated Fees and centralised infrastructure 361,314 337,834 Security management revenues 44,671 45,495 Use of regulated spaces 16,954 15,921 Total Aviation operating revenues 422,939 399,250

Aviation revenue in 2018 increased increase in seats offered by -car Reference should be made to the Euro 23,689 thousand compared riers both at Malpensa (up 11.6% Directors’ Report for further de- to the previous year, from Euro of which 14.1% at Terminal 1 and tails. 399,250 thousand in 2017 to Euro 5.3% at Terminal 2) and, iii) signing 422,939 thousand in 2018. This of new bilateral agreements and The breakdown of Non-Aviation growth was supported by the updating of some agreements al- operating revenues is reported tariff adjustment defined in the ready in place. Passenger traffic below. Regulatory Agreement and the in- recorded increased movements crease in passenger traffic thanks of 4.7% and passengers of 7%. to: i) activation of new routes and Goods traffic however reduced increased frequencies on many 3.3% on the previous year to 569 existing routes, both on Europe- thousand tonnes of cargo moved. an and non-European routes; ii)

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NON AVIATION OPERATING REVENUES

(Euro thousands) 2018 2017 Retail 94,332 91,988 Parking 68,155 64,123 Cargo spaces 15,097 13,969 Advertising 11,389 10,328 Premium services 14,972 13,885 Real Estate 2,083 1,422 Services and other revenues 34,969 31,764 Total Non Aviation operating revenues 240,997 227,479

The breakdown of retail revenues is reported below.

RETAIL REVENUES

(Euro thousands) 2018 2017 Shops 48,909 47,610 Food & beverage 20,271 18,809 Car rental 17,054 16,204 Banking activities 8,098 9,365 Total Retail 94,332 91,988

Non-Aviation revenues grew Euro intense commercial policy, featur- premium services rose 1,087 thou- 13,518 thousand compared to the ing an extremely strong manage- sand, thanks to higher income previous year, from Euro 227,479 ment drive combining marketing generated by services at the Mal- thousand in 2017 to Euro 240,997 and revenue management strat- pensa and Linate VIP Lounges. thousand in 2018. This increase egies based on continual commu- is mainly attributable to the fol- nication to differentiate tariffs “Services and other revenues” lowing factors: i) retail revenues based on customer needs and mainly relate to income from the grew Euro 2,344 thousand thanks seasonality and ongoing renewal design services, service activities to higher royalties on the con- of the sales channels; iii) revenues and other income. The 2018 bal- cessions for sales directly to the from cargo concessions grew Euro ance increased Euro 3,205 thou- public. In particular, this income 1,128 thousand benefitting from sand on the previous year, mainly benefitted from the increase in the increased fees from the leas- due to the countering effects of: passenger traffic and the coming of new warehouses construct- i) recognition of non-recurring pletion of the Schengen board- ed in the Malpensa cargo areas; income of Euro 5,591 thousand ing areas commercialisation, at iv) advertising revenues increased (not including interest portion), Terminal 1 of Malpensa, at which Euro 1,061 thousand, thanks to relating to the occupation of all spaces have been gradually oc- the consolidation of promotional the spaces located in the Linate cupied; ii) parking revenues grew and marketing investment by lux- and Malpensa airports, follow- Euro 4,032 thousand due to a very ury enterprises; v) revenues from ing Cassation Court Sentence No.

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23454/18 which rejected the re- by a mark-up of 6%, representing reflects the decrease in the year course presented by the Customs the best estimate of the remuner- due to lower work on assets under Agency, confirming the previous ation of the internal cost for the concession. sentences in favour of the com- management of the works and de- pany; ii) reduction of revenues sign activities undertaken by the 7.3 Personnel costs from the concession of non-retail Company, which corresponds to a The breakdown of personnel costs spaces to third party operators for mark-up which a general construc- is as follows: Euro 1,052 thousand and a reduc- tor would request to undertake tion in other income. such activities and are included in the Aviation business unit. 7.2 Revenue for works on assets under concession This account is strictly related to Revenues for works on assets un- investment and infrastructure up- der concession decreased from grading activities. For further in- Euro 28,281 thousand in 2017 to formation on the principal invest- Euro 29,188 thousand in 2018. ments, reference should be made to Note 6.1. These revenues, as per IFRIC 12, refer to construction work on as- The account “Costs for work on assets under concession increased sets under concession” (Note 7.6)

PERSONNEL COSTS

(Euro thousands) 2018 2017 Wages and salaries 132,268 131,507 Social security charges 37,298 37,281 Post-employment benefits 7,468 7,649 Other personnel costs 7,013 28,911 Personnel costs 184,047 205,348

Personnel costs decreased Euro This principally relates to the rec- The average number of FTE em- 21,301 thousand, from Euro ognition in financial year 2017 of ployees by category compared to 205,348 thousand in 2017 to leaving incentive plans agreed the previous year is reported be- Euro 184,047 thousand in 2018 with the trade unions. For further low: (-10.4%). information, reference should be made to the Directors’ Report.

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AVERAGE FULL TIME EQUIVALENT

January - December 2018 % 2017 % Executives 54 2% 54 2% Managers 275 10% 264 10% White-collar 1,710 63% 1,712 63% Blue-collar 629 23% 636 24% Total full-time employees 2,668 98% 2,666 99% Temporary workers 46 2% 28 1% Total employees 2,714 100% 2,694 100%

The increase in personnel is pre- The employee Head-count (HDC) dominantly due to the hiring of at year-end in the parent company temporary operational staff to was as follows: support increased passenger numbers.

NO. HDC (HEAD COUNT) EMPLOYEES (AT PERIOD END)

2018 2017 change HDC Employees (at period end) 2,780 2,771 9

7.4 Consumable materials The breakdown of “Consumable materials” is as follows:

CONSUMABLE MATERIALS

(Euro thousands) 2018 2017 Raw materials, ancillaries, consumables and goods 11,313 10,180 Change in inventories 2,176 39 Total consumable materials 13,489 10,219

The account “consumable materi- 3,270 thousand compared to the which fuel and spare parts and the als” mainly includes the purchase previous year is principally gener- disposal of spare part materials no of goods for airport activities ated by from the higher invento- longer utilisable. (chemical products for de-icing ry obsolescence provision, an in- and de-snowing, clothing, spare crease in purchases held for stock parts, etc). The increase of Euro and immediate utilisation among

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7.5 Other operating costs The table below reports the breakdown of the account “Other operating costs”:

OTHER OPERATING COSTS

(Euro thousands) 2018 2017 restated Utilities & security expenses 37,763 29,840 Public entity fees 34,598 31,848 Ordinary maintenance costs 25,955 24,629 Terminal services provided by handling company 22,810 22,546 Parking management 15,988 15,298 Cleaning 14,015 13,686 Professional legal, administrative and strategic services 7,616 8,282 Tax charges 7,542 6,671 Hardware & software use licenses 4,894 4,112 Commercial costs 4,874 3,864 Disabled assistance and passenger support 3,997 3,608 Hire of equipment & vehicles 3,645 3,540 Insurance 1,076 1,285 Emoluments & costs of Board of Statutory Auditors & BoD 670 650 Losses on disposal of assets 473 63 Rental charges 130 138 Other costs 14,903 14,054 Total other operating costs 200,949 184,114

In accordance with IFRS 15 - Reve- In 2018, the account “Other op- 1,221 thousand following the nue from contracts with custom- erating costs” increased by Euro increase in security filter con- ers, applied by SEA from January 16,835 thousand compared to trol activities; 1, 2018, the incentives to the air- the previous year. This increase ◼◼ increase in concession fees to line carriers for the development was principally due to the follow- Public Entities for Euro 2,750 of traffic (previously classified ing factors: thousand following the higher in the account “Other operating concession fee which SEA must costs”) and recorded under com- ◼◼ increase in utility costs due pay for the year 2018 to ENAC. mercial costs in 2018 were classi- mainly to higher heating and air This increase is strictly correlat- fied as a reduction of the account conditioning charges for Euro ed to the traffic numbers; “Operating revenues”. The fig- 3,514 thousand and increased ◼◼ higher ordinary maintenance ures in the 2017 accounts were electricity costs for Euro 2,829 costs of Euro 1,326 thousand, reclassified for a correct compa- thousand. This change is strict- relating to programmed main- rability of the accounts in the fi- ly correlated to movements in tenance on property, plant and nancial statements. the price of the raw materials. equipment; Security costs increased Euro ◼◼ lower costs for professional le-

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gal, administrative and strate- thousand (Euro 4,088 thousand 26,728 thousand in 2018. The gic services of Euro 666 thou- in 2017), catering service costs change in the account is related sand following the efficiency for the VIP lounges of Euro 3,812 to the investment activities (Note actions implemented by the thousand (Euro 3,104 thousand 7.2). Company; in 2017), commission and broker- ◼◼ increase in tax charges for 871 age costs of Euro 1,592 thousand These costs refer to the costs for thousand following the higher (Euro 1,428 thousand in 2017), the works undertaken on assets Municipal Tax due following other industrial and administra- under concession and concern the acquisition, completed on tion costs (principally certifica- the Aviation business unit. December 18, 2017, of the tion and authorisation charges, Malpensa Sheraton building; reception and welcoming passen- 7.7 Provisions and write-downs ◼◼ increased commercial costs of gers and losses on receivables) The breakdown of provisions and Euro 1,010 thousand related to of Euro 1,045 thousand (Euro write-downs is as follows: greater commercial and mar- 1,361 thousand in 2017), landside keting initiatives in 2018; transportation services of Euro ◼◼ increase in the residual ac- 1,069 thousand (Euro 846 thou- count “Other costs” for Euro sand in 2017), association contri- 849 thousand, principally re- butions paid by the Company of lated to higher costs for cater- Euro 1,133 thousand (Euro 1,065 ing services in the VIP lounges, thousand in 2017), purchase and land connection charges and subscription of newspapers and other charges for certifications magazines of Euro 482 thousand and authorisations, only par- (Euro 440 thousand in 2017) and tially offset by the reduction in office running expenses and ad- other administrative charges. ministration costs.

The residual account “Other 7.6 Costs for works on assets costs” mainly includes fees rec- under concession ognised by SEA for the collec- Costs for works on assets under tion of airport rights related to concession increased from Euro general aviation for Euro 4,014 26,006 thousand in 2017 to Euro

PROVISIONS AND WRITE-DOWNS

(Euro thousands) 2018 2017 Provisions / (releases) of current receivables & cash and 713 26,897 cash equivalents Write-down of other financial assets 3,476 Provisions/(releases) to provisions for future charges 2,838 243 Total provisions and write-downs 3,551 30,616

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In 2108 “Provisions and write- amended in accordance with the operational management of the downs” decreased Euro 27,065 methods described in IFRS 9, Milan Airports. thousand on the previous year whose application is obligatory (from Euro 30,616 thousand in 2017 from January 1, 2018. In the previous year, the “Provi- to Euro 3,551 thousand in 2018). sions and Write-downs” account This decrease, amounting to Euro included the write-down of Euro The doubtful debt provision in 26,184 thousand, mainly refers 3,476 thousand of other financial the year was calculated to take to the recognition in the 2017 assets, following the realignment into account the risk in deterio- accounts of the full write-down of the assets recorded in the ac- ration of the financial positions of past-due receivables, prior to counts on the measurement of of the principle operators with administration on May 2, 2017, the shares held in Airport Han- which disputes exist, write-downs claimed from Alitalia SAI in Ex- dling through the Trust. for receivables under administra- traordinary Administration. tion and the risk of non-receipt 7.8 Restoration and concerning not only overdue The net provisions for future risks replacement provision receivables but also those with and charges, amounting to Euro The breakdown of the restoration upcoming maturity. As previous- 2,838 thousand mainly refers to and replacement provision is as ly described in Note 4, to which provisions for personnel and ad- follows: reference should be made, the justments on valuations related doubtful debt provision was to legal disputes concerning the

RESTORATION AND REPLACEMENT PROVISION

(Euro thousands) 2018 2017 Accrual/(release) restoration and replacement 15,000 13,509 provision Total accrual to restoration and replacement 15,000 13,509 provision

This account includes the provision for the year relating to the scheduled replacement and maintenance of the assets within the so-called “Concession Right”.

An increase of Euro 1,491 thousand is reported, from Euro 13,509 thousand in 2017 to Euro 15,000 thousand in 2018, following the updating of the long-term scheduled replacement and maintenance plan of the assets within the so-called “Concession Right”.

Annual Report 2018 • 211 SEA SPA – SEPARATE FINANCIAL STATEMENTS

7.9 Amortisation and depreciation The account “amortisation & depreciation” is comprised of:

AMORTISATION & DEPRECIATION

(Euro thousands) 2018 2017 Amortisation of intangible assets 52,455 50,570 Depreciation of property, plant and equipment 16,950 14,909 Depreciation of real estate investments 2 1 Total amortisation & depreciation 69,407 65,480

The depreciation of tangible fixed within the “Concession Right”, 7.10 Investment income assets reflects the estimated consideration is taken of the con- (charges) useful life made by the company cession duration. The breakdown of investment in- while, for the intangible assets come and charges is as follows:

INVESTMENT INCOME (CHARGES)

(Euro thousands) 2018 2017 Dividends from Dufrital SpA 4,056 1,679 Dividends from SACBO SpA 2,026 2,128 Dividends from SEA Services Srl 804 624 Dividends from Malpensa Logistica Europa SpA 750 1,236 Dividends from Airport Handling SpA 387 Dividends from Disma SpA 253 234 Revaluation (Write-down) SEA Handling SpA in 1,705 liquidation Revaluation (Write-down) Consorzio Malpensa 74 Construction in liquidation Total income (charges) from investments 8,276 7,680

Investment income amounts to Finally, the previous year bene- tor’s accounts of the former sub- Euro 8,276 thousand in 2018 com- fitted also from revaluation in- sidiaries. pared to Euro 7,680 thousand in come for a total of Euro 1,779 the previous year. thousand, deriving from the dif- For further information, reference ference between the value of the should be made to Note 6.4. Investment income concerning investment held in SEA Handling dividends distributed by investees SpA in liquidation and the Mal- increased Euro 2,375 thousand pensa Construction Consortium on the previous year (from Euro in liquidation and the value of the 5,901 thousand in 2017 to Euro asset liquidated to SEA following 8,276 thousand in 2018). the approval of the final liquida-

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7.11 Financial income (charges) nancial income and charges” is as The breakdown of the account “fi- follows:

FINANCIAL INCOME (CHARGES)

(Euro thousands) 2018 2017 Exchange gains 1 4 Other financial income 1,579 1,081 Total financial income 1,580 1,085 Interest charges on medium/long-term loans (12,038) (12,413) Exchange losses (11) (10) Other interest charges (5,597) (5,737) Total financial charges (17,646) (18,160) Total financial income (charges) (16,066) (17,075)

Net financial charges reduced The reduction in financial charg- reference should be made to Note Euro 1,009 thousand (from Euro es of Euro 514 thousand is main- 6.18. 17,075 thousand in 2017 to Euro ly due to: i) decrease in the gross 16,066 thousand in 2018). Against debt, with lower interest expense 7.12 Income taxes an increase of Euro 495 thousand of Euro 375 thousand; and ii) re- The breakdown of the account “in- in financial income, the financial duction in other interest expenses come taxes” is shown below: charges reduced with a reduction of Euro 140 thousand. The posi- in costs of Euro 514 thousand. tive effect related to the decrease in interest expense on derivatives Financial income in 2018 bene- for Euro 215 thousand was only fitted from the interest income partially offset by the increase in recognised by the Tax Agency fol- expenses related to bank guaran- lowing the liquidation of the IRES tees on the EIB loans subscribed in receivable concerning the deduct- June 2017. ibility of IRAP from IRES for the financial years 2007-2011 (“click For further information on the day”) of the Company. change in the financial liabilities,

Annual Report 2018 • 213 SEA SPA – SEPARATE FINANCIAL STATEMENTS

INCOME TAXES

(Euro thousands) 2018 2017 Current income taxes 52,211 41,074 Deferred tax charge/(income) (3,537) (7,697) Total income taxes 48,674 33,377

The reconciliation between the theoretical and effective tax rate for 2018 is shown below:

(Euro thousands) 2018 % Profit before taxes 172,163 Theoretical income taxes 41,319 24.0% Permanent tax differences effect (331) -0.2% IRAP 8,133 4.7% Other (447) -0.3% Effective taxes 48,674 28.3%

The “Other” account principally includes tax adjustments concerning both current and deferred taxes of previous years.

The main permanent tax differences relate to the dividends from investees under the pex system received in 2018 and the accelerated amortisation tax break on equipment, effects which were only partially offset by the increase principally due the non-deductible part of the Municipal Tax and other non-deductible costs.

8. Related party transactions

The table below shows the balances and transactions of the company with related parties for the years 2018 and 2017 and an indication of the percentage of the relative account:

Annual Report 2018 • 214 SEA SPA – SEPARATE FINANCIAL STATEMENTS

TRANSACTIONS WITH RELATED PARTIES

December 31, 2018 Current Current Trade Other current Trade financial financial Receivables receivables payables (Euro thousands) receivables liabilities Subsidiaries SEA Energia SpA 417 28,410 12,417 SEA Prime SpA 3,292 1,190 542 Associates Aiport Handling SpA (*) 3,211 7,194 SACBO SpA 336 476 Dufrital SpA 5,113 2,005 740 Malpensa Logistica Europa SpA 1,208 1,062 SEA Services Srl 1,170 2,014 Signature Flight Support Italy Srl 72 29 Disma SpA 115 99 Total related parties 14,934 28,410 2,005 25,221 542 Total book value 117,602 28,410 6,257 156,586 29,584 % on total book value 12.70% 100.00% 32.04% 16.11% 1.83%

Year ended December 31, 2018 Operat- Other Personnel Net financial in- Investment income ing reve- operating costs come (charges) (charges) (Euro thousands) nues costs Subsidiaries SEA Energia SpA 447 28,419 (80) 562 SEA Prime SpA 7,651 4,061 (625) 2 Associates Airport Handling SpA (*) 6,629 13,190 (149) 387 SACBO SpA (**) 981 11,257 (2) 2,026 Dufrital SpA 31,120 19 4,056 Malpensa Logistica Europa SpA 4,310 (40) 750 SEA Services Srl 3,602 3,846 804 Disma SpA 218 (7) 253 Signature Flight Support Italy Srl 193 28 Total related parties 55,151 60,820 (903) 564 8,276 Total book value 663,936 200,949 184,047 (16,066) 8,276 % on total book value 8.31% 30.27% -0.49% -3.51% 100.00%

(*) In July 2018, 30% of the share capital of Airport Handling SpA was transferred to SEA following the dissolution of the Trust, having exhausted its corporate scope, with recognition of the investment in the account “Investments in subsidiaries and associated companies”. The income statement transactions therefore refer to the July - December period. (**) The account “Other operating costs” relating to transactions with SACBO, equivalent to Euro 11,257 thousand, does not include that invoiced by SEA to the final clients and transferred to the associate.

Annual Report 2018 • 215 SEA SPA – SEPARATE FINANCIAL STATEMENTS

TRANSACTIONS WITH RELATED PARTIES

December 31, 2017

Trade Receiv- Current financial Income tax Trade Payables (Euro thousands) ables receivables payables Subsidiaries SEA Energia SpA 409 20,253 3,201 41 SEA Prime SpA 2,897 377 1,170 Associates SACBO SpA 276 510 Dufrital SpA 5,430 1,149 Malpensa Logistica Europa SpA 1,840 1,046 SEA Services Srl 1,137 1,714 Signature Flight Support Italy Srl 63 1 Disma SpA 116 99 Total related parties 12,168 20,630 8,890 41 Total book value 108,612 20,630 146,834 7,227 % on total book value 11.20% 100.00% 6.05% 0.57%

Year ended December 31, 2017 Operat- Other Personnel Net financial in- Investment income ing reve- operating costs come (charges) (charges) (Euro thousands) nues costs Subsidiaries SEA Handling SpA in liquidazione (*) 10 8 1,705 SEA Energia SpA 440 21,822 (80) 839 Consorzio Malpensa Contruction (*) (8) 4 74 SEA Prime SpA 7,581 4,105 (566) Associates SACBO SpA (**) 921 10,440 (4) 2,128 Dufrital SpA 30,541 21 1,679 Malpensa Logistica Europa SpA 4,239 10 (38) 1,236 SEA Services Srl 3,331 3,113 624 Disma SpA 215 234 Signature Flight Support Italy Srl 121 Total related parties 47,391 39,523 (688) 839 7,680 Total book value 676,167 233,552 205,348 (17,075) 7,680 % on total book value 7.01% 16.92% -0.34% -4.91% 100.00%

(*) In 2017 SEA Handling SpA in liquidation and Malpensa Construction Consortium were removed from the companies register following the approval of the final liquidator’s accounts and the distribution plan. (**) The account “Other operating costs” relating to transactions with SACBO, equivalent to Euro 10,440 thousand, does not include that invoiced by SEA to the final clients and transferred to the associate.

Annual Report 2018 • 216 SEA SPA – SEPARATE FINANCIAL STATEMENTS

8.1 Transactions with subsidiary behalf of SEA, of airport and es (SEA Services); companies security fees. An agreement is ◼◼ commercial transactions deriv- Commercial transactions between also in place between the coming from the concession for the SEA and subsidiary companies are pany and SEA Prime SpA for distribution of fuel (DISMA); as follows: administration services (includ- ◼◼ revenue for administration ser- ing legal, tax and accounting vices and handling activity costs i. transactions between SEA and services); (Airport Handling SpA). SEA Energia SpA concerning the supply to the Milan Airports, Financial receivables and paya- The above-mentioned transac- of electric and thermal ener- bles relate to centralised treasury tions were within the ordinary ac- gy produced by the Co-gen- services (cash pooling) which SEA tivities of the Company and of the eration plants, located at the undertakes on behalf of the sub- Group and undertaken at market afore-mentioned airports, for sidiaries. values. its energy requirements, as well as the agreement for the 8.2 Transactions with associated 8.3 Other transactions with provision, by the Company in companies related parties favour of SEA Energia, of ad- The transactions between the ministrative services (among Company and the associated com- SACBO SpA which legal, fiscal, planning and panies, in the periods indicated In 2018, SACBO distributed divi- control); below: dends to SEA for Euro 2,026 thou- ii. the transactions with SEA Prime sand. SpA concern the sub-conces- ◼◼ commercial parking manage- sion contract for the General ment transactions at Orio al Se- DUFRITAL SpA Aviation management opera- rio-Bergamo (SACBO) airport; In 2018, Dufrital distributed divi- tions, at Linate airport, grant- ◼◼ commercial transactions with dends to SEA for Euro 4,056 thou- ed by SEA on May 26, 2008 and reference to the recognition to sand, of which Euro 2,005 thou- expiring on April 30, 2041. The SEA of royalties on sales (Dufri- sand received in 2019. contract concerns, specifically, tal and SEA Services); the utilisation of the general ◼◼ rental of premises (Malpensa MALPENSA LOGISTICA EUROPA aviation infrastructure and the Logistica Europa); SpA verification and collection, on ◼◼ supply to SEA of catering servic- In 2018, Malpensa Logistics dis-

Annual Report 2018 • 217 SEA SPA – SEPARATE FINANCIAL STATEMENTS

tributed dividends to SEA for Euro social security contributions and utory financial statements of SEA 750 thousand. accessory charges, amounted recognised to the independent to Euro 450 thousand (Euro 428 audit firm Deloitte & Touche SpA SEA SERVICES Srl thousand in 2017). for the year 2018 amounted to In 2018, SEA Services distribut- Euro 219 thousand and Euro 59 ed dividends to SEA for Euro 804 thousand for other activities. The thousand. remuneration of the Independent 10. Statutory auditors’ audit firm is stated net of the ob- AIRPORT HANDLING SpA fees ligatory Consob contribution. In 2018, Airport Handling distributed dividends to SEA for Euro In 2018, the remuneration for 387 thousand. the Board of Statutory Auditors, 12. Commitments and including social security contri- guarantees DISMA SpA butions and accessory charges, In 2018, Disma distributed divi- amounted to Euro 220 thousand 12.1 Investment commitments dends to SEA for Euro 253 thou- (Euro 222 thousand in 2017). The principal commitments for in- sand. vestment contracts under Consor- tium Regroupings are shown below net of works already realised: 9. Directors’ fees 11. Independent Audit Firm fees In 2018, the remuneration for the Board of Directors, including The fees for the audit of the stat-

BREAKDOWN PROJECT COMMITMENTS

Annual Report 2018 • 218 SEA SPA – SEPARATE FINANCIAL STATEMENTS

12.2 Commitments for rental and hardware components for the payments on the contracts of the contracts airport IT system, the rental of air- Company at December 31, 2018 At December 31, 2018, SEA has port buses and the motor vehicles and the previous year is as follows: commitments on rental contracts fleet. totalling Euro 24,963 thousand, principally relating to software The breakdown of the minimum

(Euro thousands) December 31, 2018 December 31, 2017 Within 12 months 7,128 7,060 Between 1 and 5 years 17,835 17,466 Total 24,963 24,526

12.3 Guarantees sand, as guarantee on funds tralised treasury system; At December 31, 2018, the sure- drawn down in June 2015 and ◼◼ surety of Euro 26,287 thousand ties in favour of third parties were June 2017 on the EIB line sub- in favour of ENAC, as guarantee as follows: scribed in December 2014; of the concession fee; ◼◼ surety of Euro 25,000 thousand ◼◼ surety of Euro 2,000 thousand ◼◼ two bank sureties, equal re- to Banca Popolare di Milano to in favour of SACBO as guaran- spectively to Euro 42,000 thou- guarantee credit lines received tee for the parking manage- sand and Euro 46,000 thou- from companies within the cen- ment at Bergamo airport;

Annual Report 2018 • 219 SEA SPA – SEPARATE FINANCIAL STATEMENTS

◼◼ surety of Euro 2,000 thousand 15. Contingent assets to the tender procedures for in favour of the Ministry of De- the disposal of SEA Prime SpA fence as guarantee of the obli- With reference to Judgment (formerly ATA Ali Trasporti Aer- gations pursuant to the techni- 7241/2015 of the Milan Court, ei SpA); cal agreement of June 4, 2009 confirmed by the Milan Court ◼◼ Collection of Euro 13,300 thou- following the advance delivery of Appeal with Judgment No. sand (of which Euro 10,640 of the “Cascina Malpensa” area; 331/2017, as not all appeals have thousand for the sale of 70% ◼◼ surety of Euro 102 thousand in been made this contingent asset of the Financial Instruments of favour of the supplier Contract was not recognised in the income Participation and Euro 2,660 GmbH for the rental of airport statement as per IAS 37. For fur- thousand for the sale of 70% of buses; ther details, reference should be the shares), representative of ◼◼ Euro 554 thousand for other made to the Directors’ Report. the current portion of the ac- minor sureties. count “Other current financial assets” following the exercise, by dnata, of the purchase op- 16. Transactions relating 13. Seasonality tion of a further 40% holding to atypical or unusual in the share capital of Airport The business is characterised by operations Handling and a corresponding revenue seasonality, which are share of Financial Instruments normally higher in the periods In accordance with Consob Com- of Participation. The winding of August and December due to munication of July 28, 2006, the up of the Milan Airport Han- increased flights by the airlines Company did not undertake any dling Trust, having exhausted at its airports. It should be noted transactions deriving from atyp- its corporate scope and the that the airports of Milan Malpen- ical or unusual operations, as set consequent transfer to SEA of sa and Milan Linate are to a cer- out in the communication. the residual 30% of the share tain degree complementary from capital, resulted in the reclas- a seasonality viewpoint, in view sification of Euro 7,190 thousand, recorded in the 2017 of the different profile of the in- 17. Significant non- direct customers (i.e. leisure vs. accounts under “Other non-cur- business). This feature limits the recurring events and rent financial assets”, to the ac- seasonal peaks from an overall transactions count “investments in associat- consolidated operational and fied companies”; nancial viewpoint. Pursuant to CONSOB Communica- ◼◼ Recognition in the income tion of July 28, 2006, in the view statement of the income, equal of Directors, in 2018 the Company to Euro 5,631 thousand (includ- 14. Contingent liabilities undertook the following non-re- ing interest portion), relating to curring significant operations: the occupation of the spaces lo- Reference should be made to cated in the Linate and Malpen- ◼◼ Collection of the IRES receiva- the explanatory notes in relation sa airports, following Cassation ble concerning the deductibili- to disputes on receivables (Note Court Sentence No. 23454/18 ty of IRAP from IRES for the fi- 6.10) and operating risks (Note which rejected the recourse nancial years 2007-2011 (“click 6.16). For further information, presented by the Customs day”) for Euro 10,734 thousand reference should be made to the Agency, confirming the previ- (including interest income of Directors’ Report. ous sentences. The amount Euro 976 thousand); was entirely collected in 2014, ◼◼ Repayment to the Company of following Milan Court Judge- the higher fine issued by AGCM ment No. 12778/2013, and was in 2015 (totalling Euro 2,430 recorded in the account “Ad- thousand) on the conclusion vances” while awaiting conclu- of the Procedure contesting its sion of all the various levels of dominant position in relation appeal.

Annual Report 2018 • 220 SEA SPA – SEPARATE FINANCIAL STATEMENTS

18. Public grants (Article we communicate that the Group received public grants during the 1, paragraphs 125-129 of year totalling Euro 451 thousand. Law 124/2017)

Pursuant to Law No. 124/2017 and subsequent supplements,

Amount Beneficiary Provider Purpose Collection date (In thousands of Euro) Grant for regulation works on SEA SpA * Lombardy Region 11/07/2018 451 Lambro river

*The loan was received by SEA SpA but was simultaneously forwarded to SEA Prime SpA as the effective owner of the works on November 21, 2018.

As required by Article 1 Law No. 124/2017, paragraph 126, the grants received over an amount of Euro 10 thousand are listed below.

Amount Beneficiary Provider Purpose (In thousands of Euro) La Scala Theatre SEA SpA Founding shareholder annual quota 600 Annual contribution to fund scientific research Telethon SEA SpA into a cure for muscular dystrophy and other 30 Foundation genetic illnesses OPES Foundation SEA SpA QUID Project 2018 40

19. Subsequent events to The Chairman 2018 of the Board of Directors Reference should be made to the Michaela Castelli Directors’ Report.

Annual Report 2018 • 221 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Annual Report 2018 • 222 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

Board of Statutory Auditors’ Report to the Shareholders’ Meeting of SEA - Società Esercizi Aeroportuali S.p.A. as per Article 2429, second paragraph, of the Civil Code

Dear Shareholders, also regarding the result for the with regards to the appointment year ended December 31, 2018. of the Chairman of the Board of Di- during the year ended December rectors, following the resignation of 31, 2018, the Board of Statutory Oversight upon legal, regulatory the previous Chairman, in addition Auditors performed the super- and By-Law compliance to the appropriate composition of visory activities required by law, The Board of Statutory Auditors the Board of Directors, according in accordance with the Conduct met during the year 9 times to car- to the applicable By-Laws, and the rules for Boards of Statutory Au- ry out periodic verifications, during establishment, subsequent to year- ditors endorsed by the Italian Ac- which information was exchanged end, of the new organisational and counting Profession (Consiglio Na- on a regular basis with the heads of governance structure, with the ap- zionale dei Dottori Commercialisti the company departments and the pointment of the Chief Executive e degli Esperti Contabili). Independent Audit Firm. Officer and the General Manager and the consequent organisational The Board of Statutory Auditors It attended the Shareholders’ structure reallocation. also executed the role set out un- Meeting of May 3, 2018 and the der Article 19 of Legislative Decree meetings of the Board of Direc- Oversight upon compliance No. 39 of January 27, 2010, as the tors, which met on 12 occasions, with the principles of correct Internal Control and Audit Commit- noting that they were held in administration and regarding tee, with SEA qualifying as an Entity compliance with the By-Laws and related party transactions of Public Interest (EIP), as per Article the applicable legislative and reg- In order to oversee compliance 16, paragraph 1, letter a) of the stat- ulatory provisions governing their with the principles of correct ed Legislative Decree No. 39/2010, functioning. administration, in addition to at- as an issuer of securities, i.e. the tending, as stated above, all meet- “SEA 3 1/8 2014-2021” bond listed In addition, the Board of Statuto- ings of the Board of Directors, the on the market regulated and man- ry Auditors ensured the presence Board of Statutory Auditors: aged by the Irish Stock Exchange of at least one of its members at and as a company adopting a tradi- the meetings of the committees ◼◼ received at its meetings infor- tional governance model. established within the Board and mation from the Directors and also met the Supervisory Board as Management on the general The Board of Statutory Auditors in per Legislative Decree 231/2001. performance and on the out- this Report outlines the activities look, as well as on the most sig- carried out during the year, broken In this regard, the Board of Statu- nificant transactions, in terms down by each category of over- tory Auditors oversaw compliance of size or nature, carried out by sight under the applicable rules for with law and the By-Laws, particular- the company and its subsidiar- Boards of Statutory Auditors, and ly verifying regulatory compliance ies. This information is exhaus-

Annual Report 2018 • 223 SEA GROUP - CONSOLIDATED FINANCIAL STATEMENTS

tively outlined in the Directors’ cree 39/2010 and Article 10 of The Board of Statutory Auditors Report, to which reference Regulation (EC) No. 537/2014, oversaw compliance with the pro- should be made. respectively for the statutory fi- visions of Legislative Decree No. On the basis of the informa- nancial statements and for the 254 of December 30, 2016 con- tion made available, the Board consolidated financial statements cerning non-financial disclosure of Statutory Auditors may rea- at December 31, 2018, prepared and information upon diversity, sonably consider that these as per International Financial Re- while the Independent Audit Firm transactions carried out by porting Standards - IFRS – adopt- verified the preparation of the the company comply with law ed by the European Union. These non-financial disclosure and issued and the By-Laws, and were not reports indicate that the statutory a limited assurance with regards to manifestly imprudent, in poten- financial statements and the con- the consistency of the information tial conflict of interest, hazard- solidated financial statements of provided against that required by ous or against the motions un- SEA provide a true and fair view the Decree and against the report- dertaken by the Shareholders’ of the statement of financial posi- ing standards/guidelines utilised Meeting, or such as to compro- tion of SEA S.p.A. and of the SEA for such disclosure. mise the integrity of the com- Group at December 31, 2018 and pany’s assets; of the result and of the cash flows The notes to the financial state- ◼◼ did not note any atypical or un- for the year ending at the same ments of the company indicate usual transactions with Group date. With regards to the statu- the amount of fees accruing in companies, related parties or tory financial statements and the the year to the independent audit third parties and assessed the consolidated financial statements, firm and the amount regarding its compliance of the related party the independent audit firm stated network, including other services. transactions with the company that the Directors’ Report and the policy. The Board of Directors Corporate Governance and Own- Taking account of the independ- in the Annual Report provided ership Structure Report, limited ence declarations issued by exhaustive disclosure upon the to the disclosure indicated at Ar- Deloitte & Touche S.p.A. and the transactions executed with sub- ticle 123-bis, paragraph 4 of Leg- transparency report produced sidiaries and with other related islative Decree No. 58 of February by the former in accordance with parties, outlining the economic, 24, 1998, are consistent with the Article 18 of Legislative Decree equity and financial effects. financial statements and were 39/2010 and published on its ◼◼ the Company does not hold prepared in compliance with law. website, in addition to the assign- treasury shares. ments awarded to the company In addition, the Independent Au- and the companies belonging to its Oversight on the auditing of dit Firm, with regards to the state- network by SEA S.p.A. and by the accounts and the independence ment as per Article 14, paragraph Group companies, and the note of the Audit Firm 2, letter e) of Legislative Decree confirming compliance with the The Board of Statutory Auditors No. 39 of January 27, 2010, con- ethics and independence princi- held meetings with the managers cerning the identification of sig- ples under the “Code of Ethics for of the Independent Audit Firm, nificant errors in the Directors’ Professional Accounts” issued by also as per Article 19, paragraph 1 Report, on the basis of its knowl- the IESBA, the Board of Statutory of Legislative Decree No. 39/2010, edge and understanding of the Auditors does not indicate any crit- during which it reviewed the work company and the relative over- ical aspects with regards to the in- plan adopted, received information view acquired during the audit ac- dependence of the Audit Firm. on the accounting policies utilised, tivities, declared to not having any on the accounting representation matters to report. It indicated, as Oversight of the internal control of the main transactions carried a key aspect of the audit, the Res- and risk management system out in the year, in addition to the toration Provision for works under and of the administrative and outcome of the audit. It did not concession. accounting system note any events or situations re- The Board of Statutory Auditors, quiring indication in this Report. The Independent Audit Firm is- also as the Internal Control and sued, finally, the Additional Re- Audit Committee, as per Article The Independent Audit Firm, port for the Internal Control and 19 of Legislative Decree No. 39 of Deloitte & Touche S.p.A, issued Audit Committee as per Article 11 27.01.2010, oversaw the adequa- March 18, 2019 the reports as of Regulation (EC) No. 537/2014. cy of the internal control and risk per Article 14 of Legislative De- management system and of the

Annual Report 2018 • 224 SEA SPA – SEPARATE FINANCIAL STATEMENTS

administrative-accounting system, cate events or situations which re- In 2018, no petitions or notices in addition to the appropriateness quire highlighting in this Report; were received by the Board of of this latter to correctly reflect ◼◼ it monitored the project activi- Statutory Auditors as per Article operating events. In this con- ties carried out in terms of risks, 2408 of the Civil Code. text, it requested and obtained in particular the progress on the all necessary information from Enterprise Risk Management During the verifications, as de- the Managers of the respective (ERM) project designed to build scribed above, there were no more Departments, undertaking all ver- a model for the identification, significant facts meriting mention ifications considered necessary classification, measurement, in this report. through the direct examination of monitoring and homogeneous company documents. and transversal assessment of ******** operational risks, in addition to The Board maintained constant and their continuous monitoring, in Observations and proposals adequate liaison with the Internal support of the strategic choices with regard to the financial Audit Department and verified that and decisions of management statements and their approval this department has the required and for stakeholder assurance. Considering that the mandate of capacity, autonomy and independ- ◼◼ began oversight on the periodic the Board of Statutory Auditors of ence. It also verified that adequate disclosure of financial statement the company shall conclude with collaboration and exchange of in- information which the company the approval of the 2018 finan- formation took place between the is required to produce for ENAC cial statements, the Sharehold- bodies and departments undertak- and reviewed the conclusive Re- ers’ Meeting is called to consider, ing control functions. Reciprocal port issued following the adminis- among matters on the agenda, exchange of information also took trative-accounting checks on the the appointment of the statutory place with the Board of Statutory company by ENAC, and the re- auditors, including the Chairper- Auditors of the subsidiaries and as- sponses from the company to the son of the Board of Statutory Au- sociated companies. observations contained therein. ditors, and of the Alternate Audi- tors, for the 2019-2021 three-year In particular: Oversight of the adequacy of period and for the establishment the organisational structure of their remuneration. ◼◼ it carried out investigations in The Board of Statutory Auditors order to assess whether the ad- acquired knowledge upon and In relation to that stated above, on ministrative-accounting system oversaw, to the extent of its re- the basis of the activities carried of the company is appropriate mit, the adequacy of the organi- out in the year, the Board of Statu- to permit the presentation of a sational structure of the company, tory Auditors does not indicate any true and fair view in the finan- reviewing and obtaining informa- reasons preventing approval of the cial statements of the operat- tion of an organisational and pro- financial statements at December ing events; it periodically over- cedural nature, through: 31, 2018, as prepared by the Board saw the correct functioning of of Directors and with regards to the system through meetings ◼◼ the acquisition of information the motions proposed regarding with the managers of the Ad- from the managers of the com- the allocation of the net profit. ministration, Finance and Con- petent company departments; trol Department; ◼◼ meetings with the Independent Milan, March 18, 2019 ◼◼ it examined the audit plans, the Audit Firm and the results of periodic reports and the annual specific audit activities carried THE BOARD OF STATUTORY report prepared by the Audit- out by the former. AUDITORS ing Department. These reports Rosalba Cotroneo do not indicate any critical is- ******** (Chairman) sues and confirmed that the at Rosalba Casiraghi risk areas with regards to inter- Other information (Statutory Auditor) nal control have been recorded The Board of Statutory Auditors Andrea Galli and monitored; declares in addition to not having (Statutory Auditor) ◼◼ it examined the periodic report received requests for the issue of Paolo Giovanelli of the Supervisory Board, set opinions and was not required to (Statutory Auditor) up as per Legislative Decree No. issue opinions on the basis of spe- Giacinto Sarubbi 231/2001, which does not indi- cific regulations. (Statutory Auditor)

Annual Report 2018 • 225 SEA SPA – SEPARATE FINANCIAL STATEMENTS

Annual Report 2018 • 226 SEA SPA – SEPARATE FINANCIAL STATEMENTS

Auditors’ Report

Annual Report 2018 • 227 SEA SPA – SEPARATE FINANCIAL STATEMENTS

Annual Report 2018 • 228 SEA SPA – SEPARATE FINANCIAL STATEMENTS

Annual Report 2018 • 229 SEA SPA – SEPARATE FINANCIAL STATEMENTS

Annual Report 2018 • 230 The SEA Group’s focus on environmental protection, through the adoption of targeted initiatives, has significantly reduced CO2 emissions.

Milan Malpensa and Milan Linate once again confirmed their exceptional record at European level, achieving “Neutrality” under the Airport Carbon Accreditation Initiative. SEA - Società per Azioni Esercizi Aeroportuali

Milan Linate Airport - 20090 Segrate, Milan Tax Code and Milan Companies Registration Office No. 00826040156 Milan REA No. 472807 - Share Capital Euro 27,500,000 fully paid-in www.seamilano.eu