ANNUAL REPORT 2019 ANNUAL REPORT 2019 FINCANTIERI GROUP FINCANTIERI GROUP

S UMMARY

LETTER TO SHAREHOLDERS 4 FINCANTIERI GROUP CONSOLIDATED FINANCIAL STATEMENTS 103

PARENT COMPANY DIRECTORS Contents 105 AND OFFICERS 9 Consolidated statement of fi nancial position 106 THE FINCANTIERI GROUP 13 Consolidated statement of Our vision 14 comprehensive income 107 Our mission 15 Consolidated statement of changes equity 108 Who we are 16 Consolidated statement of Group overview 18 cash fl ows 109 FINCANTIERI GROUP REPORT ON Notes to the Consolidated Financial OPERATIONS 25 Statements 111 Companies included in the Highlights 26 scope of consolidation 222 Overview 27 Management representation Key fi nancials 33 on the consolidated Group performance 34 fi nancial statements 228 Operational review by segment 45 Report by the independent auditors 230 Core markets 52 Research and innovation 56 GLOSSARY 239 Our people 62 Commitment to health and safety 68 Environmental policy 72 Data and information protection 73 Enterprise risk management 75 Corporate governance 88 Other information 89 Alternative performance measures 98 Reconciliation of parent company profi t/(loss) for the year and equity with the consolidated fi gures 99 Reconciliation of the reclassifi ed fi nancial statements used in the report on operations with the mandatory IFRS statements 100

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Giampiero Massolo CHAIRMAN FINCANTIERI To our Shareholders, shipbuilding industry. The two groups will be able to submit bids for binational programs and for export, as well as generating synergies in the areas of procurement and research and 2019 was a two-speed year for the world shipbuilding industry. On the one hand, the innovation, bringing into play common structures, testing instruments and skills networks. demand for cruise ships remained high, although more focused on medium and small As far as the Off shore and Specialized Vessels segment is concerned, 2019 was once again ships, and on the other hand the market for all other types of merchant vessels was once characterized by an almost total absence of orders. The Coronavirus epidemic raises further again marked by stagnant demand. questions about the timing of any recovery in this sector in the face of a dramatic fall in oil All this has led to the proliferation throughout the world, especially in the Far East, of prices. initiatives to consolidate and streamline the production base, with the aim of reducing There is no doubt that the emergency situation we are experiencing makes it diffi cult to read excess capacity and encouraging the emergence of poles of excellence. the future, but Fincantieri is a large, solid and strategic company with important skills that it is Orders for cruise ships with a gross tonnage above 10,000 totalled 25 vessels, including 20 able to make available for the reconstruction of the country. ships of less than 70,000 gross tonnage, a trend refl ecting the unavailability of production The company has successfully overcome other crises in the past and has the right requirements slots for large ships and the consequent off er of deliveries too far in the future. and spirit to emerge strengthened from this momentous challenge. Once again, the global order book for cruise ships in December 2019 reached almost 100 A heartfelt vote of thanks is now due to all our workers, our suppliers and the institutions, in the ships with deliveries extending to 2027. conviction that our recovery will be based on teamwork, requiring sacrifi ces but also yielding This includes orders received from historic customers for 13 cruise ships for 6 diff erent great results. brands, worth a total of over euro 6 billion. This scenario was supported by growth in the segment that exceeded expectations in terms of passenger numbers, confi rming all the demand drivers such as the growing interest in cruises within the tourist market, the entry of new customers or investors willing to attract new customer segments and the need to replace ships built in the early 1990s. Giampiero Massolo However, in the fi rst months of this year, the Coronavirus epidemic abruptly interrupted growth in the tourism sector and the world economy in general, posing major questions CHAIRMAN FINCANTIERI about the extent of its eff ects in the immediate future, in relation to the duration of the lockdown, and how long these eff ects will last. The health crisis has certainly highlighted the vulnerability of the world social and economic system, heightened by globalization which is the connective tissue, in both a positive and negative sense, of our era. With regard to the naval vessels business area, the subsidiary Marinette Marine Corporation, in addition to winning a contract for the construction of the sixteenth vessel in the “Freedom” class of the Littoral Combat Ship (LCS 31) program for the US Navy, has been involved as the shipbuilder of four Multi-Mission Surface Combatants worth approximately $1.3 billion under the Foreign Military Sales program between the United States and Saudi Arabia. In just ten years, the Group’s US shipyards have delivered ten of the LCS program ships and are building a further six vessels, making them the US Navy’s partner of choice. This is undoubtedly an important reference and will support the current bid for the new FFG (X) class frigates for the US Navy. Fincantieri also signed a contract with Chantiers de l'Atlantique as part of the French Navy’s Flotlog program for the construction of bow sections of the 4 LSS based on the design of the “Vulcan” ship, built by Fincantieri for the Italian Navy. Still in the naval vessel business, the full operation of the 50-50 joint venture between Fincantieri and Naval Group is an important milestone in the consolidation of the European

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Giuseppe Bono FINCANTIERI CHIEF EXECUTIVE OFFICER To our Shareholders As part of the strategy to strengthen the focus on high-tech activities, areas of technological innovation have been identifi ed that are considered to have the greatest impact on the production 2019 was a busy year for Fincantieri, a year of challenges but also of satisfaction, with initiatives system and products. This initiative led to the creation of a new hub i.e. a centre of excellence in designed to further strengthen and energize the Company; future years will be even more electronic and software systems and, at the same time, the acquisition of a majority stake in Insis challenging, following the health and economic emergency triggered by the Coronavirus. S.p.A., a company with expertise in areas such as optronics, telecommunications, information The epidemic, which is putting a severe strain on the country, has seen Fincantieri take prompt technology and cybersecurity. action to counter the emergency and safeguard the health and well-being of its people, Inspired by a long-term strategic vision that goes beyond business management and makes it suspending production activities from 16 March 2020. possible to combine the interests of the Group and its main stakeholders with those of the country, The production shutdown was also accompanied by intense activity to ensure a safe start-up Fincantieri has entered the large-scale infrastructure sector, an area in which Italy once excelled. once the crisis is over and to deal with a profoundly altered economic environment. The Company, accustomed to dealing with complex and high value projects, has made available its The priority has been to secure the huge order backlog acquired, which may however, given great organizational capacity and multidisciplinary skills, demonstrating its capacity to deal with the lengthy cycles involved, provide stronger guarantees in terms of our ability to weather the non-naval infrastructure projects and emergency situations, such as the construction of the new storm. bridge in Genoa. In line with this principle, the utmost importance has been given to relations with customers The bridge over the Polcevera river is a highly complex project that Fincantieri is carrying out in and strategic partners in order to search for shared solutions to maintain orders for cruise ships, record time and despite the new diffi culties created by the health emergency. one of the sectors hardest hit by the crisis. Inevitably, the need to remodel production plans has Fincantieri, a rare beacon and a cornerstone of the Italian industrial framework, has a moral duty to emerged, taking into account the needs of cruise lines and the state of our supplier network in play a leading role, alongside the Government, in supporting the recovery of the country, which has terms of availability of resources and materials. been hard hit by the Coronavirus epidemic, helping to drive reconstruction by protecting jobs and The objective pursued is to minimize the impact of the possible slowdown in activity and national production capacity. The constructive interaction with CDP and ENI, aimed at generating a achieve a "new normal" in the interest of all: Fincantieri and its suppliers, but also its customers. positive socioeconomic and environmental impact throughout Italy, will play a valuable role in this. Inevitably, there will be an impact on operating performance in 2020. However, as long as the In the past the company has been put to the test many times and has successfully overcome other situation can be resolved within a reasonable timeframe, the Group will be able to cope with the crises caused by the market, demonstrating cohesive and proven management, with the ability to impact, given its diversifi cation and its solid fi nancial and capital structure. manage diffi culties and build for the future. The scale of this new shock to the social and economic With regard to operating results, FINCANTIERI S.p.A. recorded an excellent performance in fabric is such that only those who have the strength to resist and propose solutions for the road 2019, while the Group's consolidated results were aff ected by the negative performance of the ahead will emerge stronger, taking a leading role. subsidiary VARD. It only became possible after the delisting at the end of 2018 to implement a The return to work will be an important testing ground for the great challenges that await us, with radical restructuring and refocusing of the latter’s operating activities in order to avoid a repeat the awareness that each of us, with our commitment and the necessary sacrifi ces, can make a of the same problems in the future. diff erence. In terms of strategic choices, the project to consolidate the European shipbuilding industry has For this enormous responsibility and for the contribution that each of us will be called on to make, taken a signifi cant step forward thanks to Naviris, the joint venture between Fincantieri and I want to thank our workers and the employees of our vast network of suppliers, Naval Group, which has become fully operational. This industrial alliance, which can count on in the conviction that our resilience and desire to rebuild will get the Company and the country back the support of the Italian and French governments, paves the way for a strengthening of naval on track. cooperation between the two groups to create a more effi cient and competitive European marine engineering industry, maintaining its leadership in terms of product performance and technological innovation. Within the framework of cooperation between Italy and France, there is also the share purchase agreement for the acquisition of 50% of the capital of Chantiers de l'Atlantique (formerly STX France). Interaction with the Antitrust Authorities on the acquisition of Chantiers de l'Atlantique continued throughout 2019, but on 16 March 2020 the European Commission suspended the Giuseppe Bono procedure. FINCANTIERI CHIEF EXECUTIVE OFFICER

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P ARENT COMPANY DIRECTORS AND OFFICERS

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PARENT COMPANY DIRECTORS AND OFFICERS

Board of Directors Manager responsible for (2019-2021) preparing fi nancial reports

Chairman Felice Bonavolontà Giampiero Massolo

Chief Executive Offi cer Supervisory body Giuseppe Bono Leg. Decree 231/01 Councilors (2018-2020) Barbara Alemanni Chairman Massimiliano Cesare Guido Zanardi Luca Errico Paola Muratorio Member Elisabetta Oliveri Stefano Dentilli Fabrizio Palermo Giorgio Pani Federica Santini Federica Seganti Independent auditors Secretary (2013-2019)* Giuseppe Cannizzaro PricewaterhouseCoopers S.p.A. Board of statutory auditors (2017-2019)

Chairman Gianluca Ferrero Standing Auditor Fioranna Vittoria Negri Roberto Spada Alternate Auditor Alberto De Nigro Flavia Daunia Minutillo Massimiliano Nova

*The Shareholders’ Meeting of 15 November 2019 appointed the independent auditors Deloitte & Touche S.p.A. for the fi nancial years 2020-2028, following the mutually agreed termination of the appointment of PricewaterhouseCoopers S.p.A..

Information regarding the composition and functions of the Board Committees (the Control and Risk Committee, which is also serving on an interim basis as the committee responsible for related party transactions, the Remuneration Committee, the Nomination Committee and the Sustainability Committee) is provided in the “Ethics and Governance” section of the Fincantieri website at www.fi ncantieri.com..

Disclaimer refer to the information available at the date of their publication; FINCANTIERI S.p.A undertakes no obligation Forecast data and information must be regarded as to revise, update or correct its forward-looking statements forward-looking statements and therefore, not being after such date, other than in the circumstances strictly based on simple historical facts, contain, by their nature, an required by applicable regulations. The forward-looking element of risk and uncertainty because they also depend statements provided do not constitute and shall not be on the occurrence of future events and developments considered by users of the fi nancial statements as advice outside the Company's control. Actual results could for legal, accounting, tax or investment purposes nor is therefore be materially diff erent from those expressed in it the intention for such statements to create any type of forward-looking statements. Forward-looking statements reliance and/or induce such users to invest in the Company.

10 11 FINCANTIERI GROUP FINCANTIERI GROUP

T HE FINCANTIERI GROUP

OUR VISION

OUR MISSION

WHO WE ARE

GROUP OVERVIEW

12 13 FINCANTIERI GROUP FINCANTIERI GROUP

OUR VISION The Sea Ahead: all those who work at Fincantieri Group steer for this course: We aspire to be world leaders in the talented men and women working System Technological responsibly to help develop our idea of integrators industrial sectors where we operate, leadership capabilities becoming a reference point for our a future increasingly characterized by customers, always selecting high value- innovation, performance and sustainability. added sectors and standing out for our diversifi cation and innovation.

OUR

STRENGTHS Business Tailor made diversification products

Wide portfolio of Flexible and global clients & products production network

OUR MISSION decision is based on strict observance of the law, labour protection and protection Technological development and continuous of the environment, safeguarding the improvement are the goals that we have interests of our shareholders, employees, set for ourselves, and we are determined to clients, trade and fi nancial partners, local pursue them. communities and groups, creating value for Our every action, project, initiative or every stakeholder.

14 15 FINCANTIERI GROUP FINCANTIERI GROUP

WHO WE ARE specialized vessels, from high-complexity With over 230 years of history and more continents, nearly 20,000 employees, and is ferries to mega yachts, as well as in ship than 7,000 vessels built, Fincantieri has the leading Western shipbuilder; its clients Fincantieri is one of the world’s largest repairs and conversions, production of always kept its management offi ces, as include the world's biggest cruise operators shipbuilding groups and number one for systems and components in the mechanical well as all its distinctive engineering and and the Italian and the US Navy as well as diversifi cation and innovation. It is leader in and electrical sectors, ship interior production skills, in Italy. With over 8,900 numerous foreign navies. Fincantieri is also cruise ship design and construction and a solutions, electronic systems and software, employees and a supplier network that a partner of some of the main European reference player in all high-tech shipbuilding infrastructure and maritime works and after- employs nearly 50,000 people in Italy alone, defence companies within supranational industry sectors, from naval to off shore and sales support services. Fincantieri has enhanced a fragmented programs. production capacity over several shipyards Fincantieri's business is widely diversifi ed by into a strength, acquiring the widest end markets, geographical exposure and by portfolio of clients and products in the client base, with revenue mainly generated FACTS AND FIGURES cruise business. To hold its own in relation from cruise ship, naval vessel and Off shore to competition and assert itself at global and Specialized Vessel construction. level, Fincantieri has broadened its product Compared with less diversifi ed players, portfolio becoming world leader in the such diversifi cation allows it to mitigate the PRINCIPAL Western sectors in which it operates. eff ects of any fl uctuations in demand on the shipbuilder Nearly The Group now has 20 shipyards in four end markets served. 20,000 Employees at 31.12.2019 57% 43% other Italy countries +230 Years of history 20 Shipyards Total area of 5.4 km2

€ 134 million Research and Development +7,000 Ships designed and built

€ 5,849 million Revenues 2019

€ 32.7 billion 98 Total backlog Vessels in order book

+6,000 1st player Suppliers in Italy in diversification alone and innovation 4 Continents

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GROUP OVERVIEW encompassing the design and manufacture and full organizational integration with of high-tech equipment and systems, such FINCANTIERI S.p.A.. The Group operates through the following as stabilization, propulsion, positioning and The economic results of VARD’s Cruise three segments: power generation systems, ship automation business unit, coordinated directly by systems, steam turbines, integrated systems Fincantieri’s Merchant Shipping Division, • Shipbuilding: encompassing the business and ship accommodation, and the provision have been allocated to the Shipbuilding areas cruise ships and expedition cruise of repair and conversion services, logistical operating segment. vessels, naval vessels, ferries and mega support and after-sales services, and Project management for the construction yachts; supply of solutions for electronic systems of off shore vessels, specialized ships and • Off shore and Specialized Vessels: and software and for infrastructure and vessels for the Norwegian Coast Guard have encompassing the design and construction maritime works. been merged into the VARD Off shore and of high-end off shore support vessels, Specialized Vessels business unit, whose specialized ships, and vessels for off shore A new organizational structure for economic results continue to be shown in wind farms and open ocean aquaculture, as the VARD Group was defi ned in 2018, the Off shore and Specialized Vessels. well as innovative products in the fi eld of with a focus on two business units, The structure of the Fincantieri Group and drillships and semi-submersible drilling rigs; the Off shore and Specialized Vessels overview of the companies included in its • Equipment, Systems and Services: business unit and the Cruise business unit, consolidation will now be presented.

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OFFSHORE AND SHIPBUILDING SPECIALIZED VESSELS EQUIPMENT, SYSTEMS AND SERVICES OTHER BUSINESS AREAS

Cruise Ships Ferries Naval Vessels Mega-Yacht Offshore and Systems and Service Electronics, Systems Infrastructure Corporate Contemporay Cruise ferry Aircraft carriers Mega-yacht > 70 m Specialized Vessels Components Ship repairs and Software Design, construction and functions Premium Ro-Pax Destroyers Drilling units Cabins Refitting Design and integration of assembly of steel structures Strategic Direction and Upper Premium Dual fuel ferries Frigates Offshore support vessels Public areas Refurbishment complex systems (system on large projects such as: Coordination Luxury Corvettes (AHTS-PSV-OSCV) Catering Conversions integration) with a focus on • Bridges • Governance, Legal and Exploration/Niche Patrol vessels Special vessels Electrical, electronic Product lifecycle automation • Viaducts Corporate Affairs Expedition cruise vessels Amphibious ships Fisheries/Aquaculture and electromechanical management Cyber security • Airports • Accounting and Finance Logistic support ships Wind offshore integrated systems • Integrated logistic support • Ports • Human Resources Multirole and research vessels Entertainment systems • In-service support • Maritime/hydraulic works • Information Systems PRODUCT PORTFOLIO SEGMENTS Special vessels Stabilization, propulsion, • Refitting • Large commercial and • Research & Innovation Submarines positioning and power • Conversions industrial buildings • Purchasing generation systems Training and assistance Steam turbines

FINCANTIERI S.p.A. Fincantieri Marine Group FINCANTIERI S.p.A. FINCANTIERI S.p.A. FINCANTIERI S.p.A. Seastema S.p.A. Fincantieri FINCANTIERI S.p.A. • Monfalcone Holdings Inc. Fincantieri Oil&Gas S.p.A. • Riva Trigoso • Arsenale Triestino San Issel Nord S.r.l. Infrastructure S.p.A. • Marghera FMG LLC VARD Group AS Seaf S.p.A. Marco Gruppo Insis Fincantieri Infrastructure • Sestri Ponente • Sturgeon Bay • Aukra Isotta Fraschini Motori S.p.A. • Bacino di Genova Opere Marittime S.p.A. • Cantiere Integrato Navale Marinette Marine • Brattvaag Fincantieri SI S.p.A. FMSNA Inc. Pergenova S.c.p.a. Riva Trigoso e Muggiano Corporation LLC • Brevik Marine Interiors Cabins S.p.A. Fincantieri Services Middle Fincantieri Dragaggi • Ancona • Marinette Vard Promar SA Marine Interiors S.p.A. East LLC Ecologici S.p.A. • Castellammare di Stabia ACE Marine LLC • Suape Seanergy a Marine Interiors Fincantieri Services USA LLC • Palermo • Green Bay Vard Vung Tau Ltd. company S.r.l. VARD Group AS Fincantieri India Pte Ltd. • Vung Tau Luxury Interiors Factory S.r.l. • Langsten Fincantieri do Brasil Vard Electro AS Fincantieri Sweden AB • Søviknes Partecipacões SA Vard Design AS Unifer Navale S.r.l. Vard Tulcea SA Fincantieri USA Inc. Vard Piping AS • Tulcea Fincantieri Australia PTY Ltd. Vard Marine Inc. Vard Braila SA Fincantieri (Shanghai) Seaonics AS • Braila Trading Co. Ltd.

MAIN SUBSIDIARIES / ASSOCIATES / JOINT VENTURES MAIN SUBSIDIARIES / ASSOCIATES Vard Accommodations AS Etihad Ship Building LLC. Cetena S.p.A. Orizzonte Sistemi Navali S.p.A. CSSC - Fincantieri Cruise Industry Development Ltd.

20 21 FINCANTIERI GROUP FINCANTIERI GROUP

THE FINCANTIERI PLANET

SHIPYARDS AND DOCKS MAIN SUBSIDIARIES EUROPE EUROPE ASIA ITALY ITALY CHINA Trieste FINCANTIERI S.p.A. Fincantieri (Shanghai) Trading Monfalcone Cetena INDIA Marghera Seastema Fincantieri India Sestri Ponente Isotta Fraschini Motori Vard Electrical Installation Genova Fincantieri Oil&Gas and Engineering (India) Riva Trigoso - Muggiano Marine Interiors QATAR Ancona Marine Interiors Cabins Fincantieri Castellammare di Stabia Services Middle East Palermo Insis SINGAPORE Seanergy A Marine Interiors NORWAY Company Vard Holdings Aukra Fincantieri SI Vard Shipholdings Singapore Brattvaag JAPAN Brevik Fincantieri Infrastructure FMSNA YK Langsten Fincantieri Infrastructure Opere Marittime Søviknes VIETNAM Issel Nord Vard Vung Tau ROMANIA Braila NORWAY VARD Group Tulcea AMERICAS Vard Design USA ASIA Vard Piping Fincantieri Marine Group Vard Electro Fincantieri Marine Systems VIETNAM Vard Accomodation North America Vung Tau Seaonics Fincantieri Services USA Fincantieri USA AMERICAS ROMANIA Vard Tulcea CANADA USA Vard Braila Vard Marine Marinette Sturgeon Bay CROATIA BRAZIL Green Bay Vard Design Liburna Vard Promar SWEDEN BRAZIL Fincantieri Sweden Suape OCEANIA POLAND AUSTRALIA Seaonics Polska Fincantieri Australia

nearly 20,000 20 4 EMPLOYEES SHIPYARDS CONTINENTS

22 23 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

F INCANTIERI GROUP REPORT ON OPERATIONS

HIGHLIGHTS

OVERVIEW

KEY FINANCIALS

GROUP PERFORMANCE

OPERATIONAL REVIEW BY SEGMENT

CORE MARKETS

RESEARCH AND INNOVATION

OUR PEOPLE

COMMITMENT TO HEALTH AND SAFETY

ENVIRONMENTAL POLICY

DATA AND INFORMATION PROTECTION

ENTERPRISE RISK MANAGEMENT

CORPORATE GOVERNANCE

OTHER INFORMATION

RECONCILIATION OF PARENT COMPANYPROFIT (LOSS) FOR THE YEAR AND EQUITY WITH THE CONSOLIDATED FIGURES

RECONCILIATION OF THE RECLASSIFIED FINANCIAL STATEMENTS USED IN THE REPORT ON OPERATIONS WITH THE MANDATORY IFRS STATEMENTS

24 25 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

HIGHLIGHTS OVERVIEW partners in order to safeguard the order backlog acquired, a fundamental element RECORD REVENUES OF EURO 5.8 BILLION MORE THAN 550 DIRECT JOBS CREATED IN ITALY AND After the end of the fi nancial year, the not only for Fincantieri and the system of 2,650 IN THE SUPPLY CHAIN WITH THE INCREASE IN COVID-19 pandemic emergency occurred at the related network, but for the recovery of ORDER INTAKE CONSIDERABLY HIGHER THAN REVENUES WORKFORCE a global level, resulting in strong pressure on the national economy. It should be noted FOR OVER 5 YEARS (EURO 8.7 BILLION) national health systems and the progressive that the current health emergency is a cause INCORPORATED NAVIRIS, EQUAL JOINT VENTURE WITH enactment by government authorities of a of force majeure within the scope of the OF WHICH FOR SIX AS PART OF THE CONSOLIDATION OF THE 28 VESSELS 13 CRUISE SHIPS NAVAL GROUP series of measures aimed at containing the contracts, allowing the Group to modify the DIFFERENT BRANDS AND IN THE EUROPEAN SHIPBUILDING SECTOR 5 NAVAL VESSELS risk of further expansion of the virus. These production schedules and delivery dates of UNITED STATES measures are having signifi cant eff ects on the ships. TOTAL BACKLOG1 FOR 109 SHIPS AND EURO ONGOING INTERACTIONS WITH THE ANTITRUST the social and working lives of individuals Should the situation be resolved within a 32.7 BILLION, EQUIVALENT TO NEARLY 6 TIMES AUTHORITIES ON THE ACQUISITION OF CHANTIERS DE and on the world economy. REVENUES L’ATLANTIQUE reasonable timeframe, Fincantieri believes BACKLOG OF EURO 28.6 BILLION WITH 98 VESSELS The Group reacted promptly to this that the Group's equity and economic TO DELIVERY UP TO 2027 CREATION OF A POLE OF EXCELLENCE IN ELECTRONIC pandemic, activating initiatives to pursue its structure is able to cope with the eff ects of SOFT BACKLOG OF AROUND EURO 4.1 BILLION SYSTEMS AND SOFTWARE, KEY AREAS FOR INNOVATION priority objectives of protecting the health the emergency. of its employees and those of the companies In view of the uncertainty regarding the FROM 12 DIFFERENT ACHIEVED ENVISAGED BY THE DELIVERED 26 VESSELS ALL THE 2019 TARGETS in the industry; in fact, the Group's priority impact on public health and, consequently, SHIPYARDS IN PARTICULAR IN SUPPLY CHAIN SUSTAINABILITY PLAN, at this time is to implement all the necessary on the productive, economic and social MANAGEMENT, SOCIAL ACTIVITIES, HUMAN RIGHTS AND DIVERSITY initiatives to safeguard the health and fabric of the country, as soon as the well-being of its people, who are its most development of the emergency allows a important asset. In this context, Fincantieri clearer analysis of the possible impact, the has currently suspended production Company will fi nalize the new 2020-2024 EXCELLENT RESULTS OF FINCANTIERI S.P.A. EBITDA OF EURO 320 MILLION WITH AN EBITDA activities at Italian production sites as of Business Plan and promptly communicate it (REVENUES OF EURO 4.3 BILLION, EBITDA OF EURO 489 MARGIN OF 5.5% 16 March 2020. The Group is in any case MILLION, EBITDA MARGIN OF 11.3% AND PROFIT FOR ADJUSTED LOSS FOR THE PERIOD2 OF EURO 71 to the market. THE YEAR OF EURO 151 MILLION, NET IMPAIRMENT OF MILLION actively involved in daily monitoring of the THE INVESTMENT IN VARD FOR EURO 50 MILLION AND LOSS FOR THE PERIOD OF EURO 148 MILLION evolution of the spread of the virus, in order To date, the Group has confi rmed its position EXTRAORDINARY COSTS FOR ASBESTOS OF EURO 40 AFTER EXTRAORDINARY COSTS FOR EURO 67 to ensure a proactive management of its as undisputed leader in the high value- MILLION) MILLION, NET OF TAX EXPENSES FOR EURO 73 potential eff ects. added areas of shipbuilding and, thanks to MILLION AND THE LOSS FROM DISCONTINUED At the same time, as far as production its growth strategy based on diversifi cation (FOR OPERATIONS OF EURO 24 MILLION SIGNIFICANT NEGATIVE PERFORMANCE OF VARD activities are concerned, despite the and innovation, also in other industrial WHICH A RESTRUCTURING PLAN WAS IMPLEMENTED mitigating actions already promptly sectors. FOLLOWING ITS DELISTING AT THE END OF 2018) HAS NET DEBT3 OF EURO 736 MILLION WHICH REFLECTS PRODUCED THE FOLLOWING CONSOLIDATED GROUP A FINANCIAL STRUCTURE THAT IS CONSISTENT WITH implemented by the Company, including Once again, management has demonstrated RESULTS THE GROWTH IN CRUISE VOLUMES AND THE RELATED the purchase of medical devices for the that it has a strategic vision that goes DELIVERY SCHEDULE regular performance of the Company's beyond mere company management and REVENUE AND INCOME: EURO 5,849 MILLION operations, the COVID-19 emergency is that it is able to combine the interests of (+8.0%) having signifi cant eff ects on the regular the Group, and its main stakeholders, with and ordinary performance of the Group's those of the country and regions in which it activities in 2020. has its roots. Proof of this lies in Fincantieri’s At a global level, one of the sectors most entry into the infrastructure sector where, aff ected by the current emergency situation by putting its excellence at the service of is tourism, particularly the cruise market the country and combining the best Italian where shipowners were among the fi rst to expertise in a highly complex project, the be forced to stop their operations. In this Group has carried on the reconstruction 1 Sum of backlog and soft backlog. context, the Group's priority and eff orts are of the bridge over the Polcevera River in 2 Profi t/(loss) for the period before extraordinary and non-recurring income and expenses. 3 This fi gure does not include construction loans. focused on care of customers and strategic Genoa. In just six months, the subsidiary

26 27 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

Fincantieri Infrastructure has completed and The increasing total backlog, equal to almost for euro 50 billion and extraordinary costs Net debt is euro 736 million and refl ects put in place twelve pillars, with the intention 6 times the revenues, confi rms the Group’s related to asbestos litigation of euro 40 the Group’s fi nancial structure which is of completing the reconstruction in less than ability to transform soft backlog into million. However, the Group’s economic consistent with the increased volume and a year. confi rmed orders and allows it to maintain results are aff ected by the negative value of Cruise units in production and with The Group's strategy of growth, exceptional visibility in the next few years, performance of the subsidiary Vard. During the delivery schedule. diversifi cation and innovation is not supporting the growth of the Group’s 2019, after the delisting that took place in As part of its industrial alliances, the limited to using its skills to enter new activities and prospective revenues. December 2018, it was possible to start Group’s strategic line has led to the markets such as infrastructure, but also The 3% growth in the headcount from 19,274 the process of restructuring and reviewing establishment of an equal joint venture aims to further increase know-how to the employees at 31 December 2018 (8,662 in the operating activities of the subsidiary between Fincantieri and Naval Group called benefi t of the core sectors in which the Italy) to 19,823 employees at 31 December Vard, aimed at identifying those actions Naviris. This partnership, which is currently Group historically operates. As part of this 2019 (9,334 in Italy), accompanied by a necessary in order to improve management fully operational, realizes the content of strategy to strengthen its competence signifi cant increase in the involvement of performance. This process, which began the “Poseidon” project and paves the in high-technology activities, Fincantieri the supplier network linked to the Group’s with a radical change of management now way to strengthening naval cooperation purchased a majority share of the capital production structure, is also mainly due mostly driven by Fincantieri, involves the between the two groups to create a more of Insis S.p.A., a company operating in the to the adjustment of the workforce to the subsidiary’s full integration into the Group effi cient and competitive European marine information technology and electronics current order backlog relating to the Cruise by aligning its strategy and production engineering industry. This cooperation, sectors. Insis - a solution provider in the business. at all its operations with best practices which can count on the support of both defence and civil sectors - has expertise in The direct placement of more than 550 within Fincantieri. The reorganization has the Italian and French governments, is developing products and services in areas resources in Italy alone, driving the creation led to a downsizing of the production key to the consolidation of the European such as optronics, telecommunications, of 2,650 jobs in the supplier network, footprint, with the subsidiary’s exit from shipbuilding sector, aimed at keeping information technology and cyber security. against a 6% growth in the business volume, the small vessel construction business European shipbuilding a world leader in This acquisition is part of the development highlights the Group’s unique ability to for the fi shery sector and support vessels product performance and technological plan for a pole of excellence in electronic create value for the country in an extremely to fi shery farms and the divesting of the innovation. Thanks to this agreement, the systems and software, which are key sectors complex sector. With an estimated Norwegian shipyards of Aukra and Brevik. two groups will be able to submit bids for for innovation, and is aimed at enabling employment multiplier of 5.9 and an Moreover, the in-depth review, announced binational programs and for export, as well the Group to increase its skills by creating economic value multiplier of 4.5, the Group during the year, of industrial management as generating synergies in the areas of internal synergies and strengthening the creates a fl ywheel eff ect for small-medium methods (design, production and project procurement and research and development, work carried out over the years to develop enterprises while representing a boost to management) and the economic planning permitting Fincantieri and Naval Group to new technologies and applications, including innovation - an element of fundamental of Vard contracts, both in the Cruise and bring into play common structures, testing in defence and industrial electronics. importance for guaranteeing the future of Off shore and Specialized Vessels sectors, instruments and skills networks. In the In the last fi ve years the Group has the Italian industrial sector. This is thanks not was completed, resulting in an estimate of context of cooperation between Italy and demonstrated extraordinary commercial only to the strategic alliances with a long- higher fi nal project costs with a signifi cant France, 2018 also saw the signing of the strength by recording an order intake term perspective, but also to the ability to impact on results for the year. At Group share purchase agreement with the French that far exceeds revenues, more than provide highly technological and customized level, 2019 confi rmed the growth trend in government for the acquisition of 50% of doubling the total backlog from euro 14.8 solutions, using the experience gained to revenues with a record level of euro 5.8 the capital of STX France (now Chantiers de billion in 2014 to euro 32.7 billion in 2019. seize opportunities in new sectors such as billion (+8.0%) and recorded an EBITDA l’Atlantique). The operation, whose closing is The Fincantieri Group recorded signifi cant infrastructure and control and automation of euro 320 million with a margin of still subject to certain conditions, including values yet again in 2019 in terms of new systems and cyber security. 5.5% achieved despite Vard’s operating authorization by the Antitrust Authorities, orders (euro 8.7 billion) for 28 new ships, In terms of economic performance, at the losses. These losses reduce the Adjusted also provides for the loan to Fincantieri successfully delivered 26 naval vessels in 12 level of Fincantieri S.p.A., 2019 confi rmed Loss for the year to euro 71 million and of 1% of the share capital of Chantiers de diff erent shipyards, and can count on a total the excellent results of 2018, with revenues the Group’s Loss for the year to euro l’Atlantique. backlog of euro 32.7 billion for 109 vessels, of euro 4.3 billion (+8.8%), EBITDA of euro 148 million, with tax expenses of euro 73 The Group’s strategy has also found consisting of a backlog of around euro 28.6 489 million, an EBITDA margin of 11.3% and million, Extraordinary and non-recurring expression in the commercial sphere, with billion (with 98 vessels on delivery until a Profi t for the year of euro 151 million, net expenses of euro 67 million and a loss from particular attention to the care of customers 2027) and a soft backlog of euro 4.1 billion. of impairment of the investment in VARD discontinued operations of euro 24 million. and strategic partners.

28 29 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

This includes orders received from historic of bow sections of the 4 LSS based on the Group has won a prestigious order for a margins, benefi ting both from the positive customers for 13 cruise ships for 6 diff erent “Vulcan” ship design built by Fincantieri series of supplies and installations of high- momentum of the market and the strategic brands, worth a total of over euro 6 billion. for the Italian Navy. As regards relations profi le equipment as part of the International choices linked to the effi ciency of production These are projects for new generation ships with strategic partners, a Memorandum of Thermonuclear Experimental Reactor and derisking of the order book. However, which will require the use of cutting edge Understanding (MoU) was signed in January (ITER), a project for the construction of margins in the segment are considerably technology developed in cooperation with 2020 with Qatari Ministry of Defence, aimed an experimental nuclear fusion reactor aff ected by the signifi cant operating losses the Group’s historical customers such as at strengthening the partnership with the recognized as one of the most ambitious of some projects within Vard's Cruise Norwegian Cruise Line Holdings Ltd. (2 country through the evaluation and study renewable energy initiatives in the world. business unit. ships for the Oceania Cruises brand and 1 of new technologies and capabilities, which From an operational viewpoint, 26 vessels The Off shore and Specialized Vessels ultra luxury ship for the Regent Seven Seas could lead to the future acquisition of new were delivered during the year, including 8 operating segment recorded a signifi cant Cruises brand), MSC Cruises (4 luxury cruise state-of-the-art vessels. cruise ships: one for Viking Cruises, three reduction in revenues (-29.4%) and was ships), Viking (2 ships under the March In the Off shore and Specialized Vessels for Carnival Group brands (Costa Crociere, aff ected by the evident slowdown in 2018 agreement), Carnival (2 ships for the sector, the reduced order intake is linked Carnival Cruise Line, Princess Cruises), two production volumes linked to the almost Princess Cruises brand), and Ponant (2 to the total absence of orders in the core for Ponant and two for Hapag Lloyd. In early total absence of orders in the core sector luxury cruise ships). Each of these projects sector. In this context, Vard’s commercial 2020, "Scarlet Lady" was delivered for the combined with the operating diffi culties represents an important achievement for the strategy consists of diversifi cation into high shipowner Virgin Voyages and "Seven Seas typical of an extremely diversifi ed order Group: NCL becomes the most important potential segments such as fi shery (large Splendor" for the Regent brand of the group book. The complexity of the production customer in terms of backlog, MSC’s order complex vessels for fi shing in particular) Norwegian Cruise Line Holdings Ltd. 3 naval process linked to the management of the marks the shipowner’s entry into the and aquaculture (specifi cally innovative vessels were also delivered (two LCS units, order book, which is challenging in terms of luxury segment which is showing strong semi-submersible platforms to be used as “Billings” and “USS Indianapolis” and one number, diversity of projects and types of growth potential, Viking confi rms a genuine fi shery farms), in which the subsidiary is vessel from the FREMM program (“Antonio ships under construction at the same time, partnership relationship with Fincantieri building a track record. Given the negative Marceglia”) and two vessels from the as well as their high innovative content, has totalling at 20 ships ordered including operating performance during the year, Italian Navy fl eet renewal programme were led to the need to revise the cost estimates options, Carnival demonstrates the historic the diversifi cation strategy was adjusted launched (the “Trieste” Landing Helicopter at the end of the orders, resulting in negative customer’s investment in innovation with the by concentrating resources on fewer Dock and the fi rst Multipurpose Off shore margins for the segment. order of the fi rst LNG powered ships for the specifi c projects in order to reduce the risks Patrol Vessel “Paolo Thaon di Revel” as well The Equipment, Systems and Services Princess Cruises brand, and Ponant places associated with a particularly diversifi ed and as the ninth unit from the FREMM program operating segment confi rmed its growth confi dence in the technological capabilities complex order book. “Spartaco Schergat”. In addition, in the trend, recording a signifi cant increase of Vard with the eighth and ninth vessels By aligning its sales force with its strategic fi rst months of 2020, the tenth LCS unit in revenues (+38.1%) linked to the ordered from the subsidiary since its entry focus on new business development, the "St. Louis" was delivered at the American development of a signifi cant order backlog into the expedition cruise sector. Group has also recorded a high level of shipyard in Marinette and the tenth unit of and maintaining a good margin of 10.0%. With reference to the naval vessels business orders in the Equipment, Systems and the FREMM program “Emilio Bianchi” was There was a greater contribution from area, the subsidiary Marinette Marine Services sector. In particular, the Group launched. Finally, 15 vessels were delivered infrastructure projects and conversion and Corporation, in addition to winning a started the construction of the bridge over during the year from shipyards in Norway refurbishment activities, with particular contract for the construction of the sixteenth the Polcevera river in Genoa in the fi rst few and Vietnam, belonging to the Off shore and reference to the supply and installation of vessel of the “Freedom” class Littoral months of the year, with the related orders Specialized Vessels segment. the steel deck for the construction of the Combat Ship (LCS 31) for the US Navy, for the supply and installation of the metal With regard to the economic results of Polcevera River Bridge in Genoa. has been involved as manufacturer of four deck. As part of this contract, Fincantieri has the various sectors, it should be noted In 2019, the Group's commitment to Multi-Mission Surface Combatants worth launched a cooperation among the Group’s that the Shipbuilding segment closed 2019 combining business growth with the approximately $1.3 billion under the Foreign companies involved in the integrated bridge with increased revenues (+8.8%) and a principles of social and environmental Military Sales programme between the monitoring, control and inspection system, margin of 7.4%. This performance refl ects sustainability continued. In particular, within United States and Saudi Arabia. In addition, confi rming its ability to capitalize on its the profi tability of activities related to the area of research and development, the Group signed a contract with Chantiers experience in order to seize opportunities military programs and the excellent results Fincantieri signed two important de l'Atlantique as part of the French Navy’s in new operating segments. In addition, of Fincantieri S.p.A.'s cruise operations, agreements: the fi rst with Cassa Depositi e Flotlog programme for the construction through its subsidiary Fincantieri SI, the which saw a structural increase in Prestiti and Snam for the development of

30 31 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

sustainable technologies applied to maritime view to contributing to a circular, low-carbon KEY FINANCIALS transportation, and the second with Cassa economy, an eco-design system has been Depositi e Prestiti, Terna and Eni for the defi ned to promote the development of (euro/million) 31.12.2019 31.12.2018 development and implementation of wave eco-sustainable ships. In 2019, a further ECONOMIC DATA Group Fincantieri S.p.A. Group restated2 Fincantieri S.p.A. power generation plants on an industrial step was taken by joining the United scale. Nations Global Compact, the world's largest Revenue and income 5,849 4,314 5,416 3,967 The Group continues to actively integrate business sustainability initiative, positioning EBITDA 320 489 421 474 social and environmental sustainability Fincantieri as one of the fi rst shipbuilders to EBITDA margin * 5.5% 11.3% 7.8% 11.9% principles into its strategic vision. During commit to implementing and promoting the EBIT 153 390 285 388 2019, important objectives of the ten universal principles relating to human EBIT margin ** 2.6% 9.0% 5.3% 9.8% Sustainability Plan were achieved, including rights, labour, the environment and anti- Adjusted profi t/(loss) for the year 1 (71) 185 114 252 the drafting of the Suppliers’ Code of corruption in strategy, day-to-day operations Extraordinary and non-recurring income (67) (45) (51) (45) Ethics, which is proposed as a basis for the and corporate culture. and (expenses) Profi t/(loss) for the year from continued creation of a responsible and sustainable (124) 75 operations supply chain, and the drafting of policies Profi t/(loss) for the year (148) 151 69 218 for Communities and Territories and Group share of profi t/(loss) for the year (141) 72 Human Rights, which enshrine the Group's FINANCIAL DATA Group Fincantieri S.p.A. Group Fincantieri S.p.A. commitment to the management of social Net invested capital 1,786 1,391 1,747 1,235 activities and human rights and diversity. Equity 1,050 1,630 1,253 1,525 With specifi c regard to respect for human rights, health, safety and the environment, Net fi nancial position (736) 239 (494) 290 OTHER INDICATORS Group Fincantieri S.p.A. Group Fincantieri S.p.A. 35 audits of Fincantieri S.p.A.'s suppliers were carried out during the year. With a Order intake *** 8,692 6,359 8,617 6,288 Order book *** 37,127 31,296 32,743 27,575 Total backlog ***/**** 32,690 28,307 33,824 30,662 - of which backlog *** 28,590 24,707 25,524 22,462 Capital expenditure 279 215 161 109 Net cash fl ows for the period (296) (315) 402 409 Research and Development costs 134 103 122 93 Employees at the end of the period number 19,823 8,287 19,274 7,874 Vessels delivered number 26 5 35 7 Vessels ordered number 28 15 27 9 Vessels in order book number 98 57 98 47 RATIOS Group Fincantieri S.p.A. Group restated2 Fincantieri S.p.A.

ROI 8.7% 29.7% 16.9% 33.2% ROE -12.9% 9.6% 5.4% 14.8% Total debt/Total equity number 1.2 0.6 1.0 0.7 Net fi nancial position/EBITDA number 2.3 n.a. 1.2 n.a. Net fi nancial position/Total equity number 0.7 n.a. 0.4 n.a.

* Ratio between EBITDA and Revenue and income ** Ratio between EBIT and Revenue and income *** Net of eliminations and consolidation adjustments **** Sum of backlog and soft backlog 1 Profi t/(loss) before extraordinary and non-recurring income and expenses 2 The 2018 fi gures have been restated to refl ect the discontinued operations of the small vessel construction business for the fi shery and aquaculture sectors and the divestment of the Aukra shipyard. The percentages contained in this report have been calculated with reference to amounts expressed in thousands of euros.

32 33 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

GROUP PERFORMANCE % ORDER INTAKE BY OPERATING Russian shipowner Luntos Co. Ltd., for the Group companies involved in the SEGMENT IN 2019 the construction of a fi shery unit and a integrated bridge monitoring, control and Group operational performance 93% contract with the Australian shipowner Coral inspection system, confi rming its ability Expeditions for the design and construction to capitalize on its experience in order Order intake of a second small-scale luxury cruise ship to seize opportunities in new areas. The New orders in 2019 amounted to euro (expedition cruise vessel), sister ship of the subsidiary Fincantieri SI has, in addition, won 8,692 million (in line with 2018), for 28 “Coral Adventurer” and a contract with the a prestigious order for a series of supplies new ships, with a book-to-bill ratio (order client Seasons Shipping for the construction and installations of high-profi le equipment 2% 10% -5% intake/revenue) of 1.5 (1.6 in 2018). Before of an expedition cruise vessel. as part of the International Thermonuclear intersegment consolidation adjustments, the By aligning its sales force with its strategic Experimental Reactor (ITER), a project for

Shipbuilding segment accounted for 93% SHIPBUILDINGOFFSHORE E EQUIPMENT, SYSTEMS CONSOLIDATION focus on new business development, the the construction of an experimental nuclear SPECIALIZED AND SERVICES ADJUSTMENTS fusion reactor recognized as one of the most (82% in 2018), the Off shore and Specialized VESSELS Group has also recorded a high level of Vessels segment for 2% (11% in 2018) and the orders in the Equipment, Systems and ambitious renewable energy initiatives in the Equipment, Systems and Services segment fuel cruise ships, i.e. ships also powered by Services segment. In particular, in the world. Included in the orders acquired in this for 10% (12% in 2018). Liquefi ed Natural Gas. Finally, the shipowner fi rst few months of the year, the Group operating segment is one for Meyer Turku In the cruise ships business area, Fincantieri Ponant confi rmed its order for two small started construction of the bridge over the for the supply of stabilization systems and had considerable success in terms of sales luxury cruise ships that will operate in the Polcevera river in Genoa, with the related turbogenerator systems for heat recovery in 2019, with orders received from historic South Pacifi c area for the Paul Gauguin orders for the supply and installation of the which will be installed on the new class customers for 13 cruise ships for 6 diff erent Cruises brand, the eighth and ninth vessels metal structure. As part of this contract, of cruise ships under construction at the brands, worth a total of over euro 6 billion. ordered from VARD since the subsidiary's Fincantieri has initiated cooperation among Finnish yard. The American group Norwegian Cruise Line entry into the expedition cruise segment. Holdings Ltd. confi rmed its order for two With reference to the naval vessels business (euro/million) ORDER INTAKE ANALYSIS 31.12.2019 31.12.2018 new-concept cruise ships for the Oceania area, the subsidiary Marinette Marine Amounts % Amounts % Cruises brand and signed a contract for the Corporation, in addition to winning a FINCANTIERI S.p.A. 6,359 73 6,288 73 construction of a new ultra luxury cruise contract for the construction of the sixteenth Rest of Group 2,333 27 2,329 27 ship for the Regent Seven Seas Cruises vessel of the “Freedom” class Littoral Total 8,692 100 8,617 100 brand (the third vessel of the Explorer Combat Ship (LCS 31) for the US Navy, Shipbuilding 8,057 93 7,129 82 class), making it the Group’s most important has been involved as manufacturer of four Off shore and Specialized Vessels 207 2 913 11 client in terms of backlog. MSC Crociere Multi-Mission Surface Combatants worth Equipment, Systems and Services 842 10 1,006 12 has signed contracts for the construction approximately $1.3 billion under the Foreign Consolidation adjustments (414) (5) (431) (5) Total 8,692 100 8,617 100 of four luxury cruise ships, thus entering Military Sales program between the United a new segment that is showing signifi cant States and Saudi Arabia. In just ten years, growth potential, while the client Viking the Group’s US shipyards have successfully Backlog and Soft backlog % ORDER BACKLOG BY SEGMENT AT 31 DECEMBER 2019 has confi rmed the order for two of the delivered ten of the LCS program ships and The total backlog as at 31 December 2019 six vessels provided for in the March 2018 are building a further six vessels, making includes 109 ships and amounts to euro 32.7 94% agreement, which will bring its fl eet to 12 them the US Navy’s partner of choice. billion, of which euro 28.6 billion is backlog vessels built by Fincantieri - the largest In addition, Fincantieri signed a contract (with 98 units due for delivery up to 2027) number of vessels in the same class for a with Chantiers de l'Atlantique as part of and euro 4.1 billion soft backlog. single shipowner. Including the options and the French Navy’s Flotlog programme for With the achievement of this record level ships ordered from VARD, the partnership the construction of bow sections of the 4 of backlog (+12% compared to the previous between Viking and Fincantieri only started LSS based on the “Vulcan” ship, built by year), the Group has once again shown 3% 6% -3% in 2012 and has reached a total of 20 ships. Fincantieri for the Italian Navy. its ability to convert the soft backlog into Furthermore, Princess Cruises, a Carnival In the Off shore and Specialized Vessels confi rmed orders in a short period of time, SHIPBUILDINGOFFSHORE E EQUIPMENT, SYSTEMS CONSOLIDATION group brand, has formalized contracts for segment, the Group, through its subsidiary ensuring long-term visibility for the Group SPECIALIZED AND SERVICES ADJUSTMENTS VESSELS the construction of two next-generation dual VARD, was awarded a contract with the and the supplier network. The backlog and

34 35 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

% CAPITAL EXPENDITURE BY OPERATING the total backlog guarantee respectively played by Fincantieri as innovation leader It should be noted with reference to the SEGMENT IN 2019 about 4.9 and 5.6 years of work, based in the relevant operating segments. In fact, Off shore and Specialized Vessels segment . on the revenues recorded in the year, the Fincantieri backlog includes projects that, compared to 31 December 2018, two of 79% with a clear focus on the Shipbuilding for new-concept vessels with a high level the vessels expected to be delivered in 2019 segment. Before intersegment consolidation of innovation, which will enrich the fl eets have been excluded from the order book adjustments, the Shipbuilding operating of the Group’s clients. Specifi cally, the two and classifi ed under Property, Plant and segment accounts for 94% of the Group vessels for Princess Cruises will not only be Equipment following the termination of the order backlog (93% in 2018), the Off shore the largest ever built in Italian shipyards, but contract by the shipowner and the decision and Specialized Vessels operating segment will also be the fi rst in the shipowner’s fl eet to operate the two ships in-house, while 2% 11% 8% 3% (4% in 2018) and the Equipment, to be powered primarily by Liquefi ed Natural another 5 vessels have been postponed Systems and Services operating segment 6% Gas, an ambitious and cutting edge project from 2019 to 2020. In addition, in order (6% in 2018). The growth of the backlog is which launches Fincantieri into a future to optimize production at the American SHIPBUILDINGOFFSHORE E EQUIPMENT, SYSTEMS OTHER ACTIVITIES SPECIALIZED AND SERVICES driven by the Shipbuilding segment, which where emission standards will guide renewal subsidiary, which has also been involved VESSELS recorded an increase of euro 3,114 million programs for our clients’ fl eets. since 2019 in the development of the (+13.1%) before consolidation adjustments. The composition of the backlog by Foreign Military Sales program between the plant and equipment, is mainly The order intake for the year and the current operating segment is shown in the following United States and Saudi Arabia, the delivery related to the upgrading of operational order backlog also highlight the central role table. of two LCS agreed with the counterparty areas and infrastructure at some Italian

(euro/million) was redefi ned. shipyards to meet new production scenarios, DETTAGLIO BACKLOG 31.12.2019 31.12.2018 foreseeing the construction of ever larger Amounts % Amounts % Capital expenditure ships and a strong increase in the volume FINCANTIERI S.p.A. 24,707 86 22,462 88 Capital expenditure amounted to euro 279 of activity, mainly related to management Rest of Group 3,883 14 3,062 12 million in 2019, of which euro 61 million for of the substantial order backlog already Total 28,590 100 25,524 100 intangible assets (including euro 27 million acquired. In addition, capital expenditure 26,828 23,714 Shipbuilding 94 93 for development projects) and euro 218 was made to increase safety standards Off shore and Specialized Vessels 888 3 987 4 million for property, plant and equipment. for plant, equipment and buildings and to Equipment, Systems and Services 1,736 6 1,638 6 Consolidation adjustments (862) (3) (815) (3) The Parent Company accounted for 77% of continue the modernization of Vard Tulcea Total 28,590 100 25,524 100 total capital expenditure. and Vard Braila shipyards in preparation for Capital expenditure represented 4.8% of the both hull construction and the multi-year The soft backlog, representing the value of which are yet reflected in the order Group's revenue in 2019 (2.9% in 2018). program for the construction of pre-fi tted of existing contract options and letters backlog, amounted to approximately euro The substantial level of capital expenditure sections and sections of cruise ships to of intent as well as of contracts at an 4.1 billion at 31 December 2019, compared in 2019, with particular reference to property, support Fincantieri's production network. advanced stage of negotiation, none with euro 8.3 billion at 31 December 2018.

(euro/billion) (euro/million) SOFT BACKLOG 31.12.2019 31.12.2018 CAPITAL EXPENDITURE ANALYSIS 31.12.2019 31.12.2018 Amounts Amounts Amounts % Amounts % Group total 4.1 8.3 FINCANTIERI S.p.A. 215 77 109 68 Rest of Group 64 23 52 32 The following table shows the deliveries in vessels currently in the order book, analysed Total 279 100 161 100 2019 and those scheduled in future years for by the main business areas and by year. Shipbuilding 222 79 124 77 Off shore and Specialized Vessels 6 2 6 4 (number) Equipment, Systems and Services 30 11 18 11 2019 2021 2021 2022 2023 2024 BEYOND IL 2024 Other activities 21 8 13 8 Cruise ships and Total 279 100 161 100 expedition cruise 8 8 9 10 6 4 9 Intangible assets 61 22 37 23 vessels Property, plant and equipment 218 78 124 77 Naval 3 6 8 8 5 5 5 Total 279 100 161 100 Off shore and 15 9 3 1 1 1 Specialized Vessels

36 37 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

R&D and innovation upgrade the technological capacity of certain Revenue and income, equal to a record at 31 December 2018). Revenue generated types of naval vessels. amount of euro 5,849 million, increased by by foreign clients accounted for 82% of total The Group is well aware that Research and euro 433 million compared to the previous revenues in 2019, in line with 2018. Innovation are the foundations for success Group fi nancial results year (+8.0%), with a signifi cant increase in EBITDA is equal to euro 320 million (euro and future competitiveness. Accordingly, its volumes in the Shipbuilding (+8.8%) and 421 million in 2018), with an EBITDA margin 2019 income statement accounts for euro Presented below are the reclassifi ed versions Equipment, Systems and Services (+38.1%) (percentage on Revenue and income) of 134 million in Research and Development of the income statement, statement of segments against a reduction in activity in 5.5% (7.8% in 2018). This margin refl ects expenditure on numerous projects involving fi nancial position and statement of cash fl ows Off shore and Specialized Vessels (-29.4%). the profi tability of activities relating to product and process innovation; the Group and the breakdown of net fi nancial position, Revenue from the cruise ships business area military programs, the excellent results of systematically carries out such activities, seen used by management to monitor business increased by 10.8% and accounted for 56% cruise operations in Italy and the Equipment, as a strategic prerequisite for retaining its performance. of Group revenues (54% at 31 December Systems and Services segment, set against leadership of all high-tech market sectors, now A reconciliation of these reclassifi ed 2018), while revenues from the naval vessels the signifi cant operating losses of the and in the future. statements to the IFRS statements can be business area increased by 4.8% and subsidiary VARD in both the Cruise business In addition, the Group capitalized euro 27 found later on in this report. accounted for 23% of Group revenues (24% area and Off shore and Specialized Vessels. million in development costs in 2019 for It should be noted that following the projects with long-term utility; these projects decision to exit the business of small vessel REVENUE ANALYSIS EBITDA ANALYSIS mainly relate to the development of innovative construction for the fi shery sector and support solutions and systems to optimize onboard vessels for fi shery farms and then to divest €million 5,849 €million operations and improve the effi ciency of the Aukra shipyard, the net results of this 5,416 14.0% 899 7.8% 5.5% cruise ships, both in terms of energy balance activity have been classifi ed as discontinued 10.9% 651 421 320 and reducing environmental impact, as well as operations (the 2018 fi gures have been 6.8% 440 11 10.5% 623 the realization of innovative systems to 18 11.2% restated). 73 10.0% 90 1,503 RECLASSIFIED CONSOLIDATED INCOME STATEMENT 1,434

(euro/million) 31.12.2019 31.12.2019 31.12.2018 31.12.2018 79.2% 5,088 2 Discontinued Restated Discontinued 78.6% 4,678 Operations Operations 8.5% 3957.4% 375 SHIPBUILDING

SHIPBUILDING 3,574 Revenue and income 5,849 46 5,416 58 3,226 Materials, services and other costs (4,497) (60) (4,029) (60) Personnel costs (996) (7) (941) (5) -2.1% Provisions (36) (25) EBITDA 320 (21) 421 (7) (536) (578) (13) EBITDA margin 5.5% -45.9% 7.8% -11.6% (34) -24.2% (107) Depreciation, amortization and impairment (167) (2) (136) (1) EBIT 153 (23) 285 (8) (38) EBIT margin 2.6% -49.3% 5.3% -13.0% 31.12.2018* 31.12.2019 31.12.2018* 31.12.2019 Finance income/(costs) (134) (104)

Income/(expense) from investments (3) (1) SHIPBUILDING OFFSHORE AND EQUIPMENT, SYSTEMS OTHER ACTIVITIES SHIPBUILDING OFFSHORE AND EQUIPMENT, SYSTEMS OTHER ACTIVITIES Income taxes (87) (66) 2 SPECIALIZED AND SERVICES AND CONSOLIDATION SPECIALIZED AND SERVICES VESSELS ADJUSTMENTS VESSELS 1 CRUISE SHIPS OTHER PRODUCTS %ON REVENUES Adjusted profi t/(loss) for the year (71) 114 NAVAL VESSELS AND SERVICES % ON REVENUES of which attributable to Group (64) 117 Extraordinary and non-recurring income and (67) (1) (51) * The 2018 fi gures have been restated to refl ect the discontinued operations of the small vessel construction business for the fi shery and aquaculture expenses sectors and the divestment of the Aukra shipyard. Tax eff ect of extraordinary and non-recurring 14 12 income and expenses Profi t/(loss) for the year from continued operations (124) 75 of which attributable to Group (117) 78 Net profi t/(loss) from discontinued operations (24) (24) (6) (6) Profi t/(loss) for the year (148) 69 of which attributable to Group (141) 72

1 Profi t/(loss) before extraordinary and non-recurring income and expenses. 2 The 2018 fi gures have been restated to refl ect the discontinued operations of the small vessel construction business for the fi shery and aquaculture sectors and the divestment of the Aukra shipyard.

38 39 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

EBIT came to euro 153 million in 2019 in net expenses (euro 51 million in 2018) RECLASSIFIED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (euro 285 million in 2018), with an EBIT and include costs for legal disputes (euro (euro/million) margin (EBIT expressed as a percentage 53 million, of which euro 40 million are 31.12.2019 31.12.2018 on Revenue and income) of 2.6% (5.3% asbestos-related litigation), charges for Intangible assets 654 618 in 2018). The reduction is attributable, as business reorganization plans related Rights of use 90 - well as to the reasons explained above to the subsidiary VARD (euro 9 million) Property, plant and equipment 1,225 1,074 with reference to the Group’s EBITDA, to and other costs linked to non-recurring Investments 75 60 the increased amortization following the operations (euro 5 million). The same item Other non-current assets and liabilities (79) 8 recording of rights of use in application of at 31 December 2018 amounted to euro Employee benefi ts (60) (57) Net fi xed capital 1,905 1,703 IFRS 16 (euro 17 million). 51 million and included costs for legal Inventories and advances 828 881 Finance income/(costs) and Income/ disputes (euro 39 million, of which euro Construction contracts and client advances 1,415 936 (expense) from investments record a net 37 million related to asbestos-related Construction loans (811) (632) expense of euro 137 million (net expense litigation) and charges for business Trade receivables 677 749 of euro 105 million at 31 December 2018). reorganization plans related to the Trade payables (2,270) (1,849) The increase in this item is mainly due to subsidiary VARD (euro 5 million), other Provisions for risks and charges (89) (135) financial costs on hedging derivatives for costs linked to non-recurring operations Other current assets and liabilities 125 94 Net working capital (125) 44 orders in foreign currency (increased by (euro 11 million) and income from the sale Net assets (liabilities) held for sale and discontinued 6 - euro 41 million compared to 2018 in line of a shareholding (euro 4 million). operations with the increase in revenues from hedged Tax effect of extraordinary and non- Net invested capital 1,786 1,747 orders) and impairment of financial recurring income and expenses was a net receivables (euro 7 million); these effects positive amounting to euro 14 million at 31 Share capital 863 863 were partially offset by lower finance costs December 2019. Reserves and retained earnings attributable to the Group 156 364 related to debt (decreased by euro 18 Profit/(loss) for the year in 2019 was a net Non-controlling interests in equity 31 26 Equity 1,050 1,253 million). negative of euro 148 million (net positive Net fi nancial position 736 494 Income taxes record a net balance of euro of Euro 69 million at 31 December 2018) Sources of funding 1,786 1,747 87 million in 2019, compared with a net and was affected by the negative euro balance of euro 66 million in 2018, mainly 24 million for discontinued operations, The Reclassifi ed consolidated statement progress following the decision to manage due to the Parent Company. relating to losses in the small fishery of fi nancial position reports an increase in them in-house (euro 34 million), all partially Adjusted profit/(loss) shows a loss of vessels and fishery farms support vessels Net invested capital at 31 December 2019 of off set by depreciation and amortization for euro 71 million at 31 December 2019 (euro construction business at the Aukra euro 39 million compared to the end of the the period (euro 150 million); and iii) the 114 million at 31 December 2018), reflecting shipyard. Net of this value, the Profi t/(loss) previous year, mainly due to the following reduction in Other non-current assets and the factors discussed above. The Group for the year for continued operations was factors: liabilities (euro 87 million) resulting from share of this result is a loss of euro 64 a loss of euro 124 million (profit of euro 75 the fl uctuation in the fair value of foreign million (profit of euro 117 million in 2018). million in 2018). The Group share of this • Net fi xed capital: shows an overall currency derivatives negotiated to cover Extraordinary and non-recurring income result is a loss of euro 141 million (profit of increase of euro 202 million. Among the contracts in currencies other than the euro. and expenses amount to euro 67 million euro 72 million in 2018). most signifi cant eff ects, the following • Net working capital: records a negative should be noted in particular: i) recording balance of euro 125 million (positive for of the right to use leased assets following euro 44 million at 31 December 2018). the initial application of IFRS 16, net of The main variations relate to: i) the the related depreciation (euro 90 million); decrease in Inventories (euro 53 million), ii) the increase in the value of Intangible mainly related to the delivery of a vessel assets and Property, plant and equipment classifi ed among inventories following the of euro 187 million, due mainly to the cancellation of the order and subsequently investments for the period (euro 279 resold; ii) the increase in Construction million), the recording as fi xed assets of contracts and client advances (euro 479 two vessels previously booked as work in million), due to the volumes realized in

40 41 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

the year net of deliveries for the period a reduction of euro 179 million compared RECLASSIFIED CONSOLIDATED STATEMENT OF CASH FLOWS and the reclassifi cation of ships recorded to 31 December 2018, with euro 550 million (euro/million) as fi xed assets; iii) the decrease in Trade related to the Parent Company and euro 261 31.12.2019 31.12.2018 restated1 31.12.2018 published receivables (euro 72 million) mainly due million to the VARD subsidiary. Given the to the collection of the fi nal instalment operational nature of construction loans and Net cash fl ows from operating activities 209 37 30 for delivered vessels; iv) the reduction in particularly the fact that these types of loan Net cash fl ows from discontinued operations (22) (7) Trade payables (euro 421 million) due to the are obtained and can be used exclusively Net cash fl ows from investing activities (310) (163) (163) higher volumes completed in particular in to fi nance the contracts to which they refer, Net cash fl ows from fi nancing activities (173) 535 535 the last quarter of 2019; v) the reduction of management treats them in the same way Net cash fl ows for the period (296) 402 402 Provisions for risks and charges (euro 46 as client advances and so classifi es them as million), mainly due to use of the provision part of Net working capital. for the “Serene” litigation, following the • Equity, amounting to euro 1,050 million, Cash and cash equivalents at beginning of period 677 274 274 Eff ects of currency translation diff erence on opening cash and settlement agreement on closure of all fell by euro 203 million, mainly due to the 1 11 the outstanding proceedings and (vi) the loss for the year of euro 148 million, the cash equivalents increase in construction loans (euro 179 distribution of dividends (euro 17 million) Cash and cash equivalents at end of period 382 677 677 million). and the reduction in the reserve linked to 1 The 2018 fi gures have been restated to refl ect the discontinued operations of the small vessel construction business for the fi shery and aquaculture sectors and the divestment of the Aukra shipyard. Construction loans at 31 June 2019 cash fl ow hedging instruments (euro 26 amounted to euro 811 million overall, with million). The Reclassifi ed consolidated statement operating activities and partly with the CONSOLIDATED NET FINANCIAL POSITION of cash fl ows shows negative net cash fi nancial resources generated last year. fl ows for the period of euro 296 million At 31 December 2019, construction loans (euro/million) (positive for euro 402 million in 2018). The generated cash fl ows of 165 million (at 31 31.12.2019 31.12.2018 investments for the period were fi nanced December 2018 they had absorbed cash Cash and cash equivalents 382 677 partly with the cash fl ow generated by fl ows amounting to euro 12 million). Current fi nancial receivables 2 17 Current bank debt (163) (197) Bonds and commercial papers - current portion (75) (231) Current portion of bank loans and credit facilities (143) (54) Other current fi nancial liabilities (18) (3) Current debt (399) (485) Net current cash/(debt) (15) 209 Non-current fi nancial receivables 91 63 Non-current bank debt (730) (760) Bonds - non-current portion - - Other non-current fi nancial liabilities (82) (6) Non-current debt (812) (766) Net fi nancial position (736) (494)

The Consolidated net fi nancial position, the fi nancial dynamics typical of the cruise which excludes construction loans, reports ship business. The Net fi nancial position at 31 a net debt balance of euro 736 million (euro December 2019 also includes the recognition 494 million in net debt at 31 December of the fi nancial liabilities deriving from the 2018). The change is mainly due to the application of IFRS 16 (euro 92 million). investments made during the period and

42 43 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

Economic and fi nancial indicators in the periods considered. The following table OPERATIONAL REVIEW BY SEGMENT engaged in the design and construction of shows the trend in the main profi tability ratios cruise ships, ferries, naval vessels and mega The following table presents additional and the strength and effi ciency of the capital Shipbuilding yachts. Production is carried out at the economic and fi nancial measures used by structure in terms of the relative importance of Group's shipyards in Italy, Europe and the the Group's management to monitor the sources of fi nance between net debt and equity The Shipbuilding operating segment is United States. performance of its main business indicators for the years ended 31 December 2019 and 2018. (euro/million) 31.12.2019 31.12.2018 restated1 31.12.2018 published 31.12.2019 31.12.2018 Revenue and income * 5,088 4,678 ROI 8.7% 16.9% 16.5% EBITDA * 375 395 ROE -12.9% 5.4% 5.4% EBITDA margin */** 7.4% 8.5% Total debt/Total equity 1.2 1.0 1.0 Order intake * 8,057 7,129 Net fi nancial position/EBITDA 2.3 1.2 1.2 Order book * 34,206 29,620 Net fi nancial position/Total equity 0.7 0.4 0.4 Backlog * 26,828 23,714 Capital expenditure 222 124 1 The 2018 fi gures have been restated to refl ect the discontinued operations of the small vessel construction business for the fi shery and aquaculture 11 13 sectors and the divestment of the Aukra shipyard. Vessels delivered (number) * Before adjustments between operating segments. ** Ratio between operating segment EBITDA and Revenue and income. The changes in ROI and ROE are mainly in line with the ratio at 31 December 2018. attributable to the operating results for Net fi nancial position/EBITDA of 2.3 and Revenue and income of 4.8%, and benefi ted from the positive 2019 (EBIT fell from euro 285 million at 31 Net fi nancial position/Total equity of 0.7 The revenues of the Shipbuilding operating change in the Euro/USD exchange rate December 2018 to euro 153 million at 31 refl ect the increase in the Group's net debt segment at 31 December 2019 are euro (approximately euro 28 million) resulting December 2019 and the net result moved accompanied by reduced profi tability for 5,088 million, up by 8.8% compared to 31 from translation of the fi nancial statements from a profi t of euro 69 million to a loss of the period. It should be noted that the December 2018. of the US subsidiaries. Construction work euro 148 million). fi nancial indebtedness at 31 December 2019 Revenues from the cruise ship business on orders for the Qatari Ministry of Defence, With reference to the indicators of strength also includes the recognition of the fi nancial area totalled euro 3,574 million (euro 3,226 including the design of a corvette and a and effi ciency of the capital structure, Total liabilities deriving from the application of IFRS million at 31 December 2018), an increase patrol vessel, as well as activities relating to debt/Total equity is equal to 1.2, substantially 16 (euro 92 million). of 10.8%, despite the negative impact of the Italian Navy fl eet renewal programme, the change in the euro/Norwegian Krone are going ahead at full speed. During the exchange rate (about euro 14 million) year, three vessels were launched: the generated by translation of the fi nancial “Trieste” Landing Helicopter Dock and the statements of the Norwegian subsidiaries. fi rst Multipurpose Off shore Patrol Vessel, This growth is attributable to higher “Paolo Thaon di Revel” of the Italian Navy volumes and the increase in the size and fl eet renewal program - fi rst vessel delivery value of ships under construction in the for the program is scheduled in 2020 - as Group's Italian shipyards, in addition to the well as the ninth vessel from the FREMM signifi cant increase in volumes developed program “Spartaco Schergat”. We also note by the VARD Cruise business unit (+7% the positive contribution of the subsidiary compared to 2018). FMG engaged in the development of the The naval vessels business area recorded LCS program and the Foreign Military Sales revenues of euro 1,503 million (euro 1,434 program between the United States and million at 31 December 2018), an increase Saudi Arabia.

44 45 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

EBITDA Order intake and improvement of the safety standards of • “Le Bougainville” and “Le Dumont- Segment EBITDA was euro 375 million at New order intake of euro 8,057 million in 2019 plant, equipment and buildings; d’Urville”, two vessels for the French 31 December 2019 (euro 395 million at 31 refers to: • the continuation of activities to shipowner Ponant, at the Norwegian December 2018), with an EBITDA margin of introduce new technologies, in particular Søviknes shipyard; 7.4 % (8.5% at 31 December 2018). • two new-concept cruise ships for at the Monfalcone shipyard, as part • “Hanseatic Nature” and “Hanseatic This margin refl ects the profi tability of Norwegian Cruise Line Holdings Ltd. destined of the requirements of the Integrated Inspiration”, the fi rst two vessels for the activities relating to military programs and for the Oceania Cruises brand, which will Environmental Authorization (IEA). client Hapag-Lloyd, at the Norwegian the excellent results of cruise operations launch the new “Allura class”; Langsten shipyard; in Italy but is considerably aff ected by the • an ultra luxury cruise ship (the third vessel Capital expenditure by the subsidiary VARD • LCS 15 “Billings” and LCS 17 “USS signifi cant operating losses of some VARD of the Explorer class) for Norwegian Cruise in 2019 mainly related to the continuation of Indianapolis”, for the US Navy, as part of Cruise business unit projects. Cruise ship Line Holdings Ltd. destined for the Regent activities to increase production capacity and the LCS program, at the Marinette shipyard building in Italy saw a structural increase in Seven Seas Cruises brand; raise the effi ciency of production processes (Wisconsin); margins, benefi ting both from the positive • four luxury cruise ships for MSC Crociere; at the Tulcea yard, in order to guarantee • “Antonio Marceglia”, the eighth vessel in a momentum of the market and strategic • two vessels for the client Viking as part of adequate support both for hull construction series of ten multi-role frigates (FREMM) for choices linked to increasing production the March 2018 agreement for six vessels; and the long-term program to produce pre- the Italian Navy, at the Muggiano shipyard effi ciency and derisking of the order book. • two next-generation cruise ships for fi tted sections of cruise ships for the Group’s (La Spezia). The negative operating performance of Princess Cruises, a brand of the Carnival Italian shipyards.  the VARD Cruise business unit is linked, on group; Capital expenditure in the US shipyards mainly Off shore and specialized vessels the one hand, to higher costs incurred for • two luxury cruise ships for the shipowner concerned maintenance of infrastructure and recovery actions on production programs Compagnie du Ponant; upgrading of production systems. The Off shore and Specialized Vessels with the aim of guaranteeing delivery of • four bow sections for Chantiers de operating segment includes the design and ships on schedule and, on the other hand, l'Atlantique for four Logistic Support Ships of Production construction of high-end off shore support to revision of cost estimates for fi nishing the French Flotlog program; The number of vessels delivered during 2019 vessels, specialized vessels and vessels the projects in the order book. These higher • a further vessel as part of the Littoral is summarized as follows: for off shore wind farms and open ocean costs have been identifi ed, with particular Combat Ship (LCS 31); aquaculture, as well as innovative products (number) reference to some particularly complex • four Multi-Mission Surface Combatants for DELIVERIES in the fi eld of drillships and semi-submersible projects such as prototype ships, following Saudi Arabia; drilling rigs. Fincantieri operates in this market Cruise ships 8 an in-depth review of industrial management • a barge unit for the client NorthStar Naval vessels 3 through the VARD Group, FINCANTIERI methods and economic planning for VARD Midstream; Mega-yacht S.p.A. and Fincantieri Oil & Gas S.p.A. orders. • an interlake bulk carrier vessel for the client The VARD Group also provides its clients From an operational viewpoint, the Interlake Steamship co.; The vessels delivered were: with turnkey electrical systems, inclusive conversion of the Romanian Tulcea site for • a ferry for Washington Island Ferry Line. of engineering, manufacturing, installation, the construction of complete expedition • “Costa Venezia”, the fi rst vessel of the integration testing and commissioning. cruise ships is nearing completion, while Capital expenditure Italian Costa Crociere designed specifi cally It should be noted that following the support for the Group's Italian shipyards is Capital expenditure in Property, plant and for the Chinese market delivered at the decision to exit the business of small fully operational to develop the substantial equipment by the Parent Company during Monfalcone shipyard; vessel construction for the fi shery sector volume of activity required by the record 2019 mostly involved: • “Viking Jupiter”, the sixth cruise ship for and support vessels for fi shery farms and order book. This conversion has brought the Viking, delivered at the Ancona shipyard; therefore to divest the Aukra yard, the net monthly output of the yard to 3,500 tonnes • the continuation of work to update the • "Carnival Panorama", third vessel in the results of this activity have been classifi ed per month, compared to the 2,500 tonnes working areas and infrastructure at some Vista class for Carnival Cruise Line at the as discontinued operations in the income per month developed at the end of 2018, shipyards, in particular Monfalcone and Marghera shipyard; statement and therefore are not included and will lead to a substantial increase in the Marghera, to meet the new production • "Sky Princess", fourth vessel of the Royal in the operating segment data which refers value of the yard also due to the acquisition scenarios, which involve the construction of Princess class for the shipowner Princess only to continued operations (the 2018 of specifi c know-how. increasingly large vessels, and the upgrading Cruises at the Monfalcone shipyard; fi gures have been restated).

46 47 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

(euro/million) the Australian shipowner Coral Expeditions the Aukra shipyard (Norway); 31.12.2019 31.12.2018 restated1 31.12.2018 published to be built at the Vietnamese Vung Tau • two Ferries delivered to Torghatten Nord AS

Revenue and income * 440 623 681 shipyard; at the Brevik shipyard (Norway). EBITDA * (107) (13) (20) • a small luxury expedition cruise vessel for EBITDA margin */** -24.2% -2.1% -2.9% the shipowner Season Shipping to be built at Equipment, systems and services Order intake * 207 913 913 the Vietnamese Vung Tau shipyard. The Equipment, Systems and Services Order book * 1,449 1,860 1,860 Capital expenditure operating segment includes the business Backlog * 888 987 987 Capital expenditure in 2019 mainly relates to areas for the design and manufacture of Capital expenditure 6 66 measures to maintain production effi ciency high-tech systems and components, such Vessels delivered (number) 15 22 22 in European and Non-European shipyards. as stabilization, propulsion, positioning and * Before adjustments between operating segments. power generation systems, ship automation ** Ratio between operating segment EBITDA and Revenue and income. 1 The 2018 fi gures have been restated to refl ect the discontinued operations of the small vessel construction business for the fi shery and aquaculture Production systems, steam turbines, integrated systems, sectors and the divestment of the Aukra shipyard. The number of vessels delivered during 2019 cabins, repair and conversion services, is summarized as follows: logistical support and after-sales services, Revenue and income their high innovative content, has led to the as well as supply of solutions for electronic Revenues for the Off shore and Specialized need to revise the cost estimates at the end (number) systems and software and infrastructure and DELIVERIES Vessels operating segment at 31 December of the orders, resulting in negative margins. maritime works. These activities are carried 2019 amount to euro 440 million, a decrease These are, in some cases, prototype projects Ferries 2 out by FINCANTIERI S.p.A. and by some of Coral Expedition 1 of 29.4% compared to 31 December 2018 which, although requiring greater use of its subsidiaries, including Isotta Fraschini OSCV 3 Motori S.p.A., Issel Nord S.r.l., Seastema (euro 623 million) and refl ect the negative resources in the implementation phase, Fishery&Aqua 9 impact of the change in the Euro/Norwegian have at the same time allowed development S.p.A., Marine Interiors S.p.A., Marine Interiors Krone exchange rate (euro 12 million) due of the necessary know-how for future Cabins S.p.A., the INSIS Group, Fincantieri to the conversion of the VARD fi nancial development. In detail: Dragaggi Ecologici S.p.A., Fincantieri SI statements. The reduction in revenues is In addition to an in-depth review of the S.p.A., Fincantieri Infrastructure S.p.A. and due to the slowdown in production volumes industrial management and economic • three OSCVs (Off shore Subsea FMSNA Inc. linked to the almost total absence of orders planning of Vard orders, the subsidiary Construction Vessels), two of which were in the core sector, with the consequent has continued with the reduction of its delivered to the shipowner Topaz Energy reduced use of production capacity. production footprint, which has seen it exit and Marine Limited at the Brattvåg shipyard from the fi shery vessel and fi shery farm (Norway), and one of which was delivered EBITDA support vessel construction business, with to the shipowner Dofcon Navegação Ltda at The EBITDA of the operating segment was the divestment of the Aukra and Brevik the Promar shipyard (Brazil); negative for euro 107 million at 31 December shipyards, while the activities and workforce • one expedition cruise vessel delivered to 2019 (euro 13 million at 31 December 2018), of the Brazilian Promar yard have been the Australian shipowner Coral Expedition at with an EBITDA margin of -24.2 % (-2.1% at reduced to a minimum in order to contain the Vung Tau shipyard (Vietnam); 31 December 2018). operating costs. • seven Fishery vessels delivered at the The segment's performance refl ects the Aukra shipyard (Norway) to the shipowners operating diffi culties typical of an extremely Order intake Bergur-Huginn (two vessels), Gjøgur (two diversifi ed order book and the resulting New order intake amounted to euro 207 vessels), Skinney-Thinganes (two vessels) complexity of the production process. million in 2019. In detail: and Utgerdarfelag Akureyringa (one Management of an order book which is vessel) and one Fishery vessel delivered challenging in terms of numbers, diversity • one fi shery vessel for the shipowner at the Brattvåg shipyard (Norway) to the of projects and types of ships under Luntos; shipowner Aker BioMarine Antarctis AS; construction at the same time, as well as • a small luxury expedition cruise vessel for • one Aqua vessel delivered to FSV Group by

48 49 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

(euro/million) systems for the Qatar LPD order; Guard, for cruise clients and other smaller 31.12.2019 31.12.2018 • upgrading of the automation system of the clients; Revenue and income * 899 651 Fiorillo vessel for the Italian Coast Guard; • after-sales services and supply of cabins, wet EBITDA * 90 73 • continuation of the Cavour upgrading units, public areas, kitchens and "complete EBITDA margin */** 10.0% 11.2% program; accommodation" packages for ship platforms; Order intake * 842 1,006 Order book * 2,951 2,519 • installation of the valve remote control • provision of packages related to Backlog * 1,736 1,638 system for the Italian Navy LHD contract; infrastructure and IT security; Capital expenditure 30 18 • supply of the navigation system and console • supply of solutions related to Light combat * Before adjustments between operating segments. for a 45 m yacht; management systems/optronics; ** Ratio between operating segment EBITDA and Revenue and income. • four emergency generator units for • automation and logistics systems and plant; Revenue and income that enable vessels not to use diesel engines four cruise contracts and four 1708 HPCR • provision of Transport & Mobile Solutions. Revenues from the Equipment, Systems and during stops in ports, in line with the objective generator units for use on a US Navy LCS Services segment, amounting to euro 899 promoted by the Grimaldi group of zero vessel; Capital expenditure million (+38.1% compared to 31 December emissions in port. • four Expeditionary Fast Transport engines Capital expenditure in 2019 mainly relates 2018), confi rm the growth trend thanks to the for the US Navy; to upgrading of the operating areas and development of a signifi cant order backlog Order intake • after-sales services and supply of spare parts infrastructure of the new Fincantieri for services provided in the context of military New order intake for the Equipment, Systems for programs of the Italian Navy and US Coast Infrastructure plant in Valeggio sul Mincio. orders and an increase in volumes for repair and Services segment amounted to euro 842 and conversion activities. The signifi cant million in 2019, mostly comprising: Other activities contribution from the activities developed by Fincantieri Infrastructure during 2019 should • supply of In Service Support (ISS) to the Other activities primarily refer to the costs business that are not allocated to other also be noted. Italian Navy on the Submarine and FREMM incurred by corporate headquarters for operating segments. program; directing, controlling and coordinating the EBITDA • the supply and installation of the steel deck (euro/million) The EBITDA of the operating segment was for the bridge in Genoa; 31.12.2019 31.12.2018 euro 90 million at 31 December 2019 (euro • third lot for the construction of electrical Revenue and income 2 - 73 million at 31 December 2018), with an installations for the ITER site at the Cadarache EBITDA (38) (34) EBITDA margin of 10.0 %, substantially in line nuclear site; EBITDA margin n.a. n.a. with the result at 31 December 2018). There • eight stabilization plants for various clients; Capital expenditure 21 13 was a higher contribution from infrastructure • three THR (Heat Recovery Systems) steam n.a. not applicable. projects and conversion and refurbishment turbines, two for the client Meyer Turku and activities, characterized by a lower profi tability one for the client SWS China; Capital expenditure to support the Group's growing activities profi le than other businesses in the same • one model 36 steam turbine, Waste To The main initiatives relate to capital and optimise process management, with segment but strategically important as they Energy segment, for a Moroccan client and expenditure on: particular reference to the upgrading of enable the development and maintenance revamping of a steam turbine for an Italian management systems and the exporting of of client relationships and order backlog client; • ongoing work to implement an integrated these systems to the main subsidiaries of and contribute to increasing employment at • three THR (Heat Recovery System) steam system for ship design (CAD) and project the Group. some of the Group’s Italian yards. Prominent turbine revamps for the client RCCL; lifecycle management (PLM), aimed at among these is the supply and installation of • supply of the automation package for improving the effi ciency and eff ectiveness As in previous years, investment in the metal structure for the construction of the four vessels from the Korean Navy’s FFX-II of the engineering process; renewing the Group’s network infrastructure bridge over the Polcevera river in Genoa and program, for the Korean Navy’s ASR (Auxiliary • the development of information systems and hardware continued. the Grimaldi Lines project, which involves the Submarine Rescue) vessel and for the Qatari installation of cutting-edge solutions aimed Navy’s OPV; at reducing environmental impact and saving • Propulsion propellers and axis lines, energy, such as energy storage systems manoeuvring propellers, steering and handling

50 51 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

CORE MARKETS Seas Cruises, two vessels for Viking Ocean In addition, Fincantieri has received an the rate of technological innovation, the (part of the agreement signed in March order from Chantiers de l'Atlantique for growth in the size and value of products Cruise Ships 2018 to build 6 vessels), four vessels for the construction of the bow sections of and the presence of large markets and/or MSC Cruises (through which this operator four logistic support ships based on the powerful clients. The cruise ship segment once again will enter the luxury segment) and two design of the Italian vessel "Vulcano", recorded excellent performance. For ships hybrid electric-powered luxury vessels for which will be built at the Castellammare di Mega-yacht of more than 10,000 tons in gross tonnage, Ponant, which will operate under the Paul Stabia shipyard. The contract is part of the 2019 saw orders fi nalized for 25 vessels, Gauguin Cruises brand. FLOTLOG programme (“Fleets Logistique”), In the mega yacht sector, 2019 closed with compared with 23 the previous year. For In the large vessels segment, Fincantieri which provides for the construction of four cautious optimism; according to preliminary ships of less than 10,000 tons in gross fi nalized with Princess Cruises, a Carnival logistic support ships (LSS) for the French data, orders for yachts over 60 metres were tonnage, orders for 4 vessels were fi nalized. Group brand, the contracts for the Navy by the temporary consortium formed maintained in line with 2018 (25 vessels). The worldwide order book at December construction of two vessels with a gross by Chantiers de l'Atlantique and Naval Group In terms of demand drivers, the combined 2019 contains 98 vessels (including tonnage of 175,000 tonnes, the biggest ever under the Franco-Italian LSS program led by equity of the UHNW1 population saw, for the those subject to a Memorandum of built in Italy and the fi rst in the Princess OCCAR (Organisation for Joint Armament fi rst time in three years, a decrease of 1.7% Understanding) with deliveries stretching to Cruises fl eet to be primarily gas fuelled. Cooperation) on behalf of DGA, the French compared to 2018. 2027. Finally, for ships of less than 10,000 tonnes, Directorate-General for Armaments, and its During 2019 the demand divers all remained the VARD subsidiary completed a contract Italian counterpart NAVARM. Off shore positive, with increasing interest in cruise for the construction of a vessel on behalf Over the last two years, Fincantieri and tourism, the growth of a substantial middle of the company Coral Expeditions, the Naval Group have worked intensively The off shore sector was again characterized class in Asian countries and in China in sister vessel of the one delivered by the on the project to create an industrial this year by a weak market situation despite particular and the entry of new investors. Vietnamese shipyard Vard Vung Tau in April alliance and in January 2020 Naviris, the a slight recovery in oil prices, which closed At the same time, demand emerged for the 2019. 50/50 joint venture formed by the two the year at around 69 dollars per barrel, replacement of ships that entered fl eets companies, became fully operational. compared to an annual average of 64 in the early 1990s, now made obsolete Naval Vessels With its HQ in Genoa and a subsidiary in dollars. by the entry into force of new safety and Ollioules, the Naviris team will focus on The support vessels sector is still environmental regulations and by the In 2019 there was considerable buoyancy bilateral and export projects, with the characterized by an unsatisfactory increased profi tability of new generation in the market for naval vessels, with the aim of strengthening European industry utilization rate of around 64%; oversupply ships with lower management costs and a fi nalization of several contracts, mainly through the preparation of joint bids, the and the presence of numerous diverse range of entertainment on board. assigned to domestic shipbuilders. pursuit of a more effi cient supply policy, decommissioned vessels have further The growth in the operating segment has Also in this area, the subsidiary Fincantieri the development of joint research and depressed freight rates. gone beyond expectations: according Marine Group (“FMG”) in the United States innovation activities, the sharing of testing During 2019, the overall demand for new to the CLIA (Cruise Lines International received confi rmation of the order for the facilities/tools and skills networks. The path vessels amounted to about ten units and Association), passengers transported in LCS 31, the 16th vessel in the Freedom class towards consolidation in both the civil and mainly concerned small vessels dedicated 2019 would amount to 30 million. ordered by the US Navy. So far, ten vessels naval shipbuilding appears necessary to to maintenance and service activities, 2019 was characterized by high demand for in this class have been delivered and 6 more address the cyclical nature of the market, mainly for wind farms. small and medium-sized ships to serve the are at various stages of construction. expedition and luxury segments: 20 orders In December, the US Navy awarded the out of 25, for 10 cruise lines, in fact concern consortium led by Lockheed Martin, of ships with a gross tonnage of less than which Fincantieri Marinette Marine (FMM) 70,000 tonnes. is a member, an order worth about $1.3 With reference to the Fincantieri Group, out billion for the construction of four Multi- of 13 vessels, 11 concerned vessels of less Mission Surface Combatant (MMSC) vessels than 70,000 tonnes. In detail: two newly for Saudi Arabia, as part of the country's designed vessels for Oceania Cruises, a Foreign Military Sales program. The vessels third Explorer class vessel for Regent Seven will be built at the Marinette shipyard.

1 UHNW = Ultra High Net Worth, individuals with $30 million or more in net wealth.

52 53 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

Repairs and conversions Equipment, Systems and Services

The market for naval repairs in general In the Equipment, Systems and Services was positively aff ected by the demand segment, the Group has achieved important for work to adapt vessels to the new successes in the traditional naval reference standards imposed by the entry into market, such as the order to supply its force of the regulations on emissions and German competitor Meyer Werft with treatment of ballast water, which require stabilization systems and turbogenerators the installation, respectively, of devices to for heat recovery that will be installed treat fumes (scrubbers) and water. However, on the new class of cruise ships under competition remains very intense, especially construction at the Finnish shipyard. in the area of merchant ship repair (tankers, Alongside this market is the growing bulk carriers), but also for the installation contribution of the business linked to the of scrubbers, an activity which has seen a production of structural steel components strong presence from Chinese shipyards. for the infrastructure sector, such as the The passenger, ferry and cruise ship market activities supporting the construction of remains the most attractive area, providing the bridges over the Polcevera and Danube opportunities for maintenance and refi tting rivers. projects, including some of considerable The trend in demand for large metal value and complexity. carpentry is driven by the evolution In this area, in 2019 Fincantieri delivered the of the infrastructure market, which to two cruise ferries "Cruise Roma" and "Cruise date includes numerous tenders for the Barcelona", following their lengthening construction of steel infrastructure for road, and transformation with the insertion of civil, port and energy uses. a section about 29 meters long which Further opportunities for the Group may provides an additional 600 additional linear arise from the supply of infrastructure meters, 80 beds in new passenger cabins, monitoring systems and participation in the two overnight rooms with the capacity for investment plans of the Italian Port System 450 seats and a new 270-seat restaurant. Authorities aimed at carrying out maritime In the spring, Fincantieri launched the works. extension of the Star Breeze, the fi rst vessel of the shipowner Windstar Cruises (Xanterra Travel Collection group) with whom Fincantieri signed a contract in 2018 for the extension and modernisation of three ships. The intervention involves the insertion of a section of about 26 meters, and the almost total renewal of the machinery and refi tting of the engine rooms, public areas and cabins. Work on the third and fi nal vessel will be completed in autumn 2020.

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RESEARCH AND INNOVATION promising new market sectors worldwide. consistency between the activities carried process that identifi es partners with whom Long-term activities are defi ned, in out during the previous year, new corporate a common technological development Fincantieri’s main objective has always agreement with the business units and objectives and the market needs envisaged strategy can be built; been to dominate, in its role as world subsidiaries, starting from an analysis of the in the near future. • Network of universities and research leader, all the high value-added segments economic and technological megatrends institutions: the methods of cooperation of the shipbuilding industry. The Group’s that will be signifi cant for the maritime We cooperate in order to create value range from joint participation in competitive advantage, which lies in its high segment over the next decade. An analysis collaborative projects and direct capacity to provide highly technological of the policy documents produced by In order to take full advantage of its collaboration on specifi c topics to and customized solutions, is evident international organizations, research centres Research and Innovation processes, in developing innovative ideas to transfer to whenever the need to apply solid know- and, more generally, by our stakeholders, addition to making the most of its internal the product; how in system integration emerges. allows us to defi ne the areas which have not expertise, Fincantieri, aware of its role as • Classifi cation societies: these are Fincantieri has repeatedly confi rmed its yet been explored and where the Group’s an integrator, wholeheartedly adopts the constantly involved in the development of position as one of the most competitive resources can be invested. open innovation paradigm, researching new prototypes in order to ensure product global players, thanks to its fl exibility As regards the medium and short term, and proposing collaborations with partners consistency and the appropriateness of and ability to adapt to signifi cant and the Group’s eff ort is focused on satisfying operating upstream in their own value production methods. In addition, the Group cyclical changes in market needs. These the requests it expects to receive in order chain, or with other stakeholders working to shares activities with the Classifi cation fl uctuations require a continuous process of to meet the needs of the end users of the innovate tools, products and services in the Societies in various collaborative projects, change that generates product innovations, product and those actually put forward maritime fi eld. also entering into specifi c agreements to applicable to all types of ships, and process by shipowners. In the fi rst case, the Group facilitate Research and Innovation activities; innovations, which are necessary in order is committed to off -the-shelf innovation, • Customers: the ability to forecast

to apply new technologies and recover i.e. those activities that are not directly INNOVATION customer needs is a signifi cant competitive productivity. applicable to orders, but are strategic in advantage for the Group. Therefore, it The Group aims to be proactive anticipating the needs of the end customers is fundamentally important to always 20-30% towards shipowners by always off ering for its product. The directions to be taken 70-80% OUTFITTING (Suppliers) PLATFORM keep active all those activities aimed at (Fincantieri) innovative solutions that anticipate future suggested by recent market surveys show identifying the technological priorities to be technological developments. The constant the importance of focusing eff orts on issues developed in the short, medium and long updating of produces and processes is one such as energy effi ciency and reduction The Group often promotes long-term term; of the fundamental values of Fincantieri of operating costs, maximizing payload relationships through the creation of • Trade associations and industry forums: that have led to it being one of the most and at the same time perceived quality, wide-ranging cooperative development represent an unmissable opportunity to competitive players in its business globally. and improving safety. In the shorter term, programs. Aware of the signifi cant exchange ideas and are often a starting In this sense, the capacity to seize on the however, the focus is on developing and boost that these can provide, the Group point for cultivating numerous benefi cial promising synergies in terms of innovation innovating technologies and applying them continuously aims to expand its partnership partnerships that consolidate a shared at international level characterizes the to each individual order. Timely fulfi lment networks at local and international level, vision on the main Research and Innovation Group’s actions and makes it gradually of the shipowner’s requests often requires both within the projects it fi nances issues; more integrated with and sensitive to the development of technological solutions independently and by cooperating in • Start-ups: constantly monitored, they market dynamics. or the study of innovative materials and the creation of consortia that respond often guarantee the fi rst steps towards the systems to be applied during the ship to the innovation challenges raised by industrialization of new technologies. We are innovators design phase. public actors, such as the Horizon 2020 Each year Fincantieri draws up a Research programme. The Group strongly believes in the The Group is constantly engaged and Innovation Plan (R&I Plan), which is In fully embracing the Open Innovation possibility of creating value in a in industrial research, experimental the tool used by the Group to eff ectively model, Fincantieri takes into account a wide collaborative way and, for this reason, has development and process innovation implement its strategy and the cornerstone range of stakeholders: created a dense network of collaborations in order to improve existing products, of the other Research and Innovation and participations in various industry processes and services and to expand its processes. The annual redefi nition of the • Suppliers: these are involved in numerous round tables both in Italy and in the main knowledge base to support its entry into projects is essential in order to maintain projects, also thanks to the Innovation countries where the Group operates.

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A common strategy: from global to local be launched within the Horizon Europe clusters published their action plans for the Research. The latter currently represents one level programme to develop solutions to three-year period 2019-2021. Fincantieri of the main independent research centres in In the context of the Group’s collaborations, transform the waterborne transport sector actively contributed to the drafting of these northern Europe. those activated to defi ne its medium- into a zero-emission sector towards the plans, whose contents were transferred into This close cooperation has led to the long term vision and to jointly defi ne year 2050, in line with the objectives of the the contribution that the two associations establishment of two centres for research- the documents that set out the European Green Deal. made to the National Research Programme based Innovation (SFI): sector’s priorities, at local, national and Fincantieri has contributed to the policy (NRP) drafting committee. supranational level, are particularly papers of the industry associations Sea At the Italian level, the Group also • Smart Marine SFI: the centre’s main focus important. Europe and Hydrogen Europe. The former collaborates with AIRI, the Italian Association is to increase the potential of the Norwegian In addition to maintaining a large number of is the European association of shipyards for Industrial Research, contributing to maritime sector within the sustainable bilateral relationships with other companies and manufacturers of maritime systems, the defi nition of the technical analysis waterborne transport segment; in our sector, and with universities and while the latter is the European association documents, which are often taken as a • Move SFI: the centre’s activities are research institutes, the Group is active in representing the industry and research for reference for evaluating actions that support focused on increasing the value of maritime various associations and forums, with the the development of hydrogen technologies innovation, which are activated by public operations by developing IT knowledge, aim of both contributing to the defi nition and fuel cells. In particular, Hydrogen administrations. methods and tools. of sector roadmaps at a general level, and Europe, among its objectives, aims to Over the year Fincantieri contributed, providing its contribution on individual support the launch of the Institutionalized through its representatives in the Italian In addition, VARD has recently joined the technical or technological issues, including European Partnership “Clean Hydrogen for regional technological districts, to the Joint Industry Project (JIP), the Open through the activation of pre-competitive Europe” in the Horizon Europe programme analysis of the context and local application Simulation Platform, with the aim of creating research projects. and to support the activities of the Fuel of the sector’s development strategies, an open source digital platform to be used During 2019, Fincantieri actively Cells and Hydrogen Joint Undertaking (FCH contributing, in particular, to the defi nition during the development of new ships. participated in the work of European JU) of Horizon 2020. of intelligent development strategies (S3) sectoral technology associations. One of At European level, the Group also of the regional territories in which the United States: the National Shipbuilding the most important strategic partners of cooperates with: Company is located. The districts involved in Research Program the European Commission is represented cooperation relationships with the Group are: The American subsidiary Marinette Marine by the European Technology Platform • EuroYards, the association of leading actively collaborates with research centres WATERBORNE which Fincantieri is an European manufacturers, where it actively • Friuli Venezia Giulia Maritime Technology and universities, through the National active member of. The platform aims to contributes to the activities of the technical Cluster (MareTC FVG) Shipbuilding Research Program (NSRP) maintain continuous dialogue between all committee and the working group on • Liguria District for Marine Technology funded by the US Government in order to stakeholders in the maritime, naval, port and product and process digitalization; (DLTM) carry out research and innovation initiatives. logistics fi elds and blue growth operators • the Cooperative Research Ships • Liguria Technology District for Integrated The NSRP project, founded in collaboration (an expression that brings together consortium, which focuses on the study of Intelligent Systems (SIIT) with U.S. Shipyards, studies and develops various economic activities including, hydrodynamic, structural and general issues • Polymeric and Composite Materials and new processes and designs to improve ship for example, fi sheries, aquaculture and related to large ships interpreted both from Structures Engineering District (IMAST) production in the United States and make it maritime tourism, maritime biotechnology, an operational and a design point of view; • Sicily Technology District for Naval more effi cient. The activities carried out in collection of renewable energy from oceans, • European Council for Maritime Applied Transport (NAVTEC) this context range from welding techniques mining from the ocean fl oor), through R&D (ECMAR), an industrial association to “design for maintenance” concepts, the consolidation of a shared consensus that aims to develop a common strategy for Norway: the main partnerships via the study of strategies to reduce ship aimed at identifying European priorities for European research in the maritime sector. The Group benefi ts from the relationships weight and the implementation of innovative Research and Technological Innovation. The that the subsidiary VARD maintains with coating solutions. WATERBORNE platform, which updated its As part of its Italian activities, the Group the Norwegian academic and research Strategic Research Agenda in 2019, played contributed to the work of the Trasporti world. Partnerships are active with the Our main projects a key role in proposing the establishment of Italia 2020 and Blue Italian Growth National NTNU - the Norwegian University of Science the co-Programmed European Partnership Technology Clusters (NTCs). During 2019, and Technology - and the SINTEF - The Over 90 Research and Innovation projects “Zero-emission waterborne transport” to following a participatory process, both Foundation for Industrial and Technical were launched during 2019. The Group

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funded them through its own resources proposed by the Industry 4.0 paradigm, the and the “OT” infrastructures (linked to the and through Research and Innovation enhancement of IoT (Internet of Things) and world of Operational Technology such as, programmes funded at European, national smart devices has taken on fundamental for example, the networks that control and regional level. Some of the projects are importance. These are pervasive across automatic machines) at the shipyards, carried out through close cooperation with all industrial sectors and ships are not with a pilot project started as part of the universities and research institutes, through exempt from this “intelligent” revolution. production process innovation project at the the awarding of specifi c assignments or the The improvement of monitoring systems, Marghera site. funding of doctoral fellowships, research support systems for navigation and on- In the years to come, the aim will be to grants, or positions in partner universities. board activities gives value added to the follow the ship throughout its entire life All the projects can be classifi ed within whole ship product and helps to improve cycle, including by trying to facilitate the last 5 development trajectories, which are operational safety. phase - decommissioning - by studying new Fincantieri’s vision for the sector. Lastly, one of the most interesting challenges welding and joining procedures. for the shipbuilding industry is to develop Green Ship autonomous ships for use in any operational Smart Off shore Infrastructure For the past several years, the concept of scenario, including in busy port areas. These An important part of Fincantieri’s business “greening” has established itself as one of concepts also have important repercussions is the off shore market. Current trends in the guidelines for innovation processes and on maintenance and after-sales activities, this sector are driven by the need to more has acquired fundamental importance in as well as strong implications on cyber effi ciently harness the maritime environment the eyes of the public. The European Union, security aspects. These aspects of the ship through the use of structures aimed at with the recent European Green Deal, the product are studied and developed both in work and life at sea as well as clean energy International Maritime Organization (IMO) specifi cally dedicated projects (e.g. ECHO) production. The displacement of off shore and the Cruise Line International Association and to assess the impacts of projects activities to ever remote areas will require (CLIA), have defi ned precise objectives to activated with the aim of increasing digital the study of support vehicles for transferring reduce polluting emissions (in particular integration and on-board autonomy (e.g. people and materials to and from land. CO2) for the next decades. STESS). Great importance is given to the Fincantieri considers Green Ship as a modelling of possible cyber attack risks and milestone for its vision and the activities the countermeasures to be taken both in carried out in 2019 confi rm this commitment. system terms and physically to prevent these Recent contracts, whether they are related eventualities. to the sectors of new builds or refi tting, feature the use of advanced technologies, Smart Yard such as Liquefi ed Natural gas (LNG), Fincantieri has set itself several development batteries, modern pollutant reducing and objectives as regards safety and productivity energy saving systems. at work with a view to improving all the Fincantieri applies a holistic approach in design and construction phases in the design and construction, integrating the best shipyard. The introduction and application of all on-board systems, pursuing continuous of innovative computer models, logistics improvement in energy effi ciency and and quality control procedures in line supporting the introduction of new green with Industry 4.0 guidelines will drive fuels, technologies for de-carbonization, the evolution of the next shipyards. This including fuel cells, as well as the study of area has also given rise to the studies high-performance materials. and developments related to the cyber security aspects of production processes, Smart Ship and Autonomous Ship with particular emphasis on the security of In the context of the development model Information Technology (IT) infrastructures

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OUR PEOPLE development and enhancement of people Technical Colleges), universities and business Training and development are the strategic levers that increase schools, with the aim of promoting the Developing a globally shared vision, their engagement in the Company. The development of knowledge and skills sought For Fincantieri, the training and development spreading a common culture and objective, through the implementation of and applied in the Company. of people are the two fundamental strategic promoting an increasingly motivating a common “People Strategy” among the During 2019 Fincantieri designed a new levers of the Talent Management process, work environment that responds quickly Group companies, is to aim for excellence course with the Merchant Marine Academy since, by facilitating growth from within, to business needs are the challenges the by increasing people’s well-being and their for senior technicians for the supervision we make it possible for individuals to Group set itself in 2019. The constant productivity. and installation of on-board systems. increase their skills, enhance their potential Further initiatives are being launched which and professionalism and encourage their HEADCOUNT will aff ect territories with a lower rate of motivation and involvement. development. Also during 2019 Fincantieri continued its OF WHOM IN In order to meet the need for new policy of investing in training programmes OF WHOM IN ITALY PARENT COMPANY professional profi les oriented towards the aimed at improving the technical and EMPLOYEES shipbuilding industry and to facilitate the professional know-how of its resources, AT YEAR END integration of young people into the world ensuring eff ective monitoring of roles and of work while promoting the development of encouraging the dissemination of cross- 9,334 the territory and encouraging employment functional skills. 19,823 (8,662 in 8,287 (19,274 in 2018) (7,874 in policies, Fincantieri has intensifi ed its The assessment processes adopted by 2018) 2018) collaboration with technical colleges and Fincantieri are based on the Company Skills vocational schools, such as the IFTS course Model, which aims to enhance and encourage for ship designers in Monfalcone, the course consistent behaviour at all levels of the for Process Technician for Shipbuilding in organization and to develop appropriate skills Genoa and the two editions of the “Ship to face future challenges. They are structured OF WHOM IN Master” courses in La Spezia and Sestri in order to guarantee the most complete, AVERAGE NUMBER PARENT COMPANY OF EMPLOYEES Levante. objective and analytical vision of the various The same attention paid to the national aspects being assessed (Performance context is also paid to the international Assessment, Assessment of Potential and OF WHOM IN ITALY context, where collaborations have been set 360° Assessment, a tool designed to assess 8,036 up with all the main universities, in particular the typical skills of team managers). (7,677 in 19,546 for engineering disciplines, both in the During 2019, people review activities, (19,331 in 2018) 9,001 territories where we operate with our sites which are an active management tool used 2018)19.050 (8,399 in 2018) as well as in locations where the Company is by the HR Department and managers to not present. develop employees, played a key role in In 2019 Fincantieri was awarded the enhancing human capital and defi ning Universum prize as Most Attractive professional growth paths and succession The Group's headcount in Italy recorded a net make selection processes better and more Employer among companies in the plans. People review activities are launched increase of 550 resources, not considering eff ective and to enhance its recruiting and Industrial Engineering and Manufacturing from a synergistic work carried out every the new companies included in the Group’s employer branding policies and strategies. sector according to STEM (Science, six months by the HR Department and by consolidation (122 resources), as the balance The employer branding strategies are Technology, Engineering & Mathematics) the business line and allow the population of the 787 people hired, net of leavers. translated into an increasingly active student rankings of the leading Italian to be mapped using the data related to the In an increasingly complex labour market, presence on social networks and above universities. In 2019, Fincantieri also won the performance appraisal, potential appraisal where there is a growing professional all through a synergistic network of Universum prize as Best Employer for STEM and the experience gained within the mismatch between supply and demand for education and training actors, which see the professionals, professionals with up to fi ve Company in a systematic and structured profi les with technical and technological involvement of secondary schools, Istituti years’ experience, among companies in the way. The strategic output that emerges skills, Fincantieri works constantly to Tecnici Superiori Foundations (ITS - Higher Industrial Engineering sector. from this mapping is the identifi cation of

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high potential, namely those resources subsidiaries and/or associates falling within of the ticket, such as the season ticket for Fincantieri Marine Group provides benefi ts with greater potential and usefulness in the the scope of the supplementary labour the bus or train, for themselves and/or for to all employees working for at least 30 Company, on which to invest so that in the agreement. their dependent family members. hours a week. Benefi ts include subscription future they can play key roles in driving the Within the welfare system, the Social Bonus Confi rming the validity of the welfare to the Group Health Medical Plan, which business. The ultimate goal of people review is particularly important because of its model it has adopted, Fincantieri - having covers various services: a medical coverage meetings is to plan the development actions characteristics. The bonus is paid annually previously won the Welfare Awards 2018 for plan, a dental coverage plan and vision necessary to accompany the growth of and exclusively in welfare services and any the best plan in application of the National coverage plan for eye health. The costs are talent through a career path, with structured unused bonus amounts are automatically Collective Bargaining Agreement for borne partly by the Company and partly by job rotations that provide for both allocated to the individual employee’s Steelworkers and for welfare policies aimed the worker. Additional benefi ts are available horizontal and vertical growth, national and supplementary pension fund. To strengthen at blue collar employees - won the Welfare that are not included in the above plans, international mobility activities, training and the connection between the achievement Award for the Best Welfare Network Plan such as the on-site clinic, vacation and mentoring that support the development of production objectives and consolidation 2019 due to the territorial extension of the holiday pay, the policy on short/long term of interpersonal skills and encourage the of the overall welfare system, employees welfare system. disability, life insurance for accidental death creation of a professional network, even who decide to convert variable bonuses During 2019 the promotion campaign for & dismemberment, the retirement plan and outside the area in which the talent works. into welfare are paid a further increase of the use of corporate car pooling (namely the employee assistance programme. Once a year, in order to ensure eff ective 10% on the value converted. In 2019, 25% two or more people sharing a private car The VARD Group provides its employees, oversight of key positions and allow for of the overall performance bonus was for the commute to and from work) was using diff erent methods depending on the structured and organic refl ection on the converted into welfare services. For an implemented and provided for incentives location, with medical assistance, internal Group’s managerial assets, succession employee to benefi t from company welfare, and the recognition of bonuses. catering services, food cards, training plans for top management are updated to we have a dedicated website through which In order to respond to the growing need for incentives and support for transport to and guarantee and safeguard continuity, stability the employee can access a wide range of work-life balance, we continued to test smart from home. and oversight of the business. goods and services. The most requested working for particular personal situations. Coaching has been developed in a more services were those intended for the family, The Company’s focus on work-life balance, Industrial relations structured and widespread way to in particular for the education of children which is already included in the National enhance management eff ectiveness. This and assistance to family members, together Collective Bargaining Agreement for Industrial relations in Fincantieri are is a voluntary development tool aimed with welfare vouchers, which can be spent steelworkers, where a worker dealing with characterized by a participatory model at facilitating and supporting resources in establishments with which the employees serious family situations can take a period that is developed through the activities of in becoming aware of themselves, their themselves have often asked the Company of leave of absence of up to two years, has various commissions defi ned by the 2016 possibilities and potential, allowing them to arrange special prices. The supplementary also been implemented indirectly with the supplementary labour agreement, which to plan development actions aimed at pension and health programme, which involvement of company clubs, through in some cases, in addition to trade unions, strengthening and consolidating their are complementary to the measures initiatives that meet the employees’ needs: include workers. managerial skills. already defi ned in terms of supplementary special arrangements with day care centres, A strategically important body is the pensions and healthcare, the National seaside or mountain resorts during the Advisory Committee, composed of Welfare model Collective Bargaining Agreement (CCNL) summer, daytime summer camps and after- 12 members, 6 of which are company and the company’s supplementary labour school activities. representatives and 6 trade unions, Fincantieri has implemented a welfare model agreement, were also highly appreciated. With regard to supplementary health which meets annually for information and that is able to positively aff ect the welfare of The portal also provides other categories care, since January 2018 the Company consultation between the Parties on issues its resources and, at the same time, capture of services such as training courses, travel has been a member of the Health Fund such as market scenarios and competitive the most modern dynamics of the labour and holidays, mortgage repayments, leisure, for Steelworkers, called “MètaSalute”, positioning, economic performance, market and the business. sport and wellness. with a supplementary health care plan for alliances and strategic partnerships, business The welfare tools, defi ned with the corporate As regards welfare policies, particular employees and dependent family members, strategies, technological innovations, agreement in 2016, are aimed at employees attention has been paid to public transport also covered free of charge. Health services safety at work, training and retraining, in general of FINCANTIERI S.p.A., including and mobility issues, with a view to are provided both directly, through the relations with educational institutions and/ part-time and fi xed term employees, and are promoting sustainability. The employee can facilities contracted by the operator and in or universities, and employment trends. also recognized for the employees of Italian request the total or partial reimbursement the form of reimbursement. The Committee also meets when there are

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changes in the company and ownership Technical Body and a Committee on Safety is already eff ectively monitored, helping to The VARD Group has established a model of structure, signifi cant organizational and Environment. Their purpose is, by further awareness of the need for companies industrial relations that is strongly oriented changes, considerable changes in labour systematically involving all resources, to and workers to invest in the continuous towards dialogue with trade unions in policy, restructuring and/or reorganization increase the motivation and participation updating of skills and knowledge, identifi ed order to identify and provide impetus for projects and restructuring and development of employees in the change and innovation as strategic factors when responding to the changes needed to ensure a stable programmes. processes, combining the necessary technological, organizational and market and profi table future for the Company. The supplementary agreement also increases in effi ciency and productivity with changes. During 2019, especially in the Norwegian governs the operation of the Joint National the improvement of working conditions and In relation to the growing process of shipyards, agreements and protocols were Committee on Safety at Work and the Joint the environment. internationalization and with a view to signed to defi ne phases, rules and timing National Training Committee. Composed of With regard to the subjective right to encouraging the full involvement of Group for the gradual cessation of VARD activities 3 company representatives and 3 workers’ continuous training, Fincantieri operates workers, Fincantieri, together with the trade at the Aukra and Brevik shipyards and to representatives, these joint committees are in line with the provisions of the National unions, is committed to setting up a special manage the personnel concerned through responsible for analysing the characteristics Collective Bargaining Agreement signed working group for the establishment of the redeployments or support in the search for and trends of the issues within internal in 2016, guaranteeing the possibility of European Works Council (EWC), the purpose new opportunities. Trade union agreements evolution, verifying the consistency of participating, either directly or at the initiative of which will be to inform and consult the have been signed at the VARD shipyards the initiatives implemented, proposing of the Company, in training courses lasting workers of EU-wide companies. in Braila and Tulcea in Romania to improve and evaluating new general or specialized at least 24 hours per person during the three The current company supplementary labour productivity (reorganization of work initiatives, and evaluating and approving years of the National Collective Bargaining agreement will also be fully eff ective in 2020, programmes, shift changes, breaks), with the intervention plans. Agreement. This approach has provided yet since the trade union agreement providing for simultaneous introduction, in terms of pay, of Each company site has a Bilateral Joint more impetus to the training process, which its extension was signed in December 2019. a bonus system focused on results.

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COMMITMENT TO HEALTH AND SAFETY each production unit. These committees, Particular importance is attached, within safety (compulsory under Brazilian law); composed of the site Management and the the mechanisms governing variable • election of an internal accident prevention Safety at work, workers’ health, the people reporting to management, including pay, to objectives related to health and commission; maintenance and improvement of work the quality, health, safety and environment safety at work and environmental issues. • the internal distribution, based on the environments have always been the main managers, have the aim of supervising and The company’s best performance and Group’s guidelines, of a booklet with the ten drivers of the Company’s policies, in a monitoring production processes during sustainability improvement objectives are golden rules for health and safety at work. vision that considers safety a strategic and their constant evolution and within their benchmarks used to monitor and stimulate development factor for the Company. diff erent complexities. Within the same the performance result and determine the The US subsidiaries have maintained a high The continued implementation of tools framework, workers’ requests and any critical related economic impact. commitment to safety and the environment associated with the certifi cation of the elements that may have emerged during joint Evidence of work-related stress risk has and have received numerous awards for company's systems for managing health and inspections of the operational areas or within been the subject of targeted pathways excellence. In 2019, Fincantieri Marinette safety at work, according to the requirements the Commission for Safety and Environment involving employees and workers’ safety Marine won the Safety Excellence Award of OHSAS 18001/ISO 45001, has resulted have a prompt and timely response. representatives in identifying possible and the Safety Improvement Award, both in the broadening of the work population Similarly, in the United States, at the sources of risk. Surveys and tests carried recognized by the Shipbuilders Council of involved, facilitating dissemination of Fincantieri Marine Group, monthly out individually and for homogeneous America. The National Safety Council has corporate culture growth paths. meetings are held between health & safety groups allow the Company to acquire results also certifi ed Fincantieri Marinette Marine This result is monitored through the and environment managers and union and elements which are used to defi ne, for achieving one million consecutive hours systematic implementation of internal representatives to analyse and share the where necessary, appropriate initiatives worked without injury or illness. audits connected to the certifi cation results of accident analyses, performance with a view to reducing risk and promoting Fincantieri Ace Marine has developed and of management systems and has been indicators and the main updates to the personal well-being (training, organizational launched the SLAM (Stop, Look, Assess, further supported by the various actions safety management system. measures, etc.). The risk of work-related Manage) programme that involves the implemented as part of the Towards Zero The trend in injury data and rates for stress, together with all the specifi c risks employees and aims to promote a pro-active Accidents project. employees and contractors is constantly present in the workplace, is addressed in the vision of health and safety in the workplace. monitored, both at company and site level. safety courses for employees regardless of Towards zero accidents This trend is communicated internally on their position. The entire framework relating a monthly basis, through a special report, to the risk assessment process, in particular For several years the Towards Zero to Top Management, all employers and all for risks related to health and safety at Accidents project has involved all the the health and safety managers. Similarly, work, is incorporated into specifi c company resources concerned with the Company’s with the aim of involving and informing guidelines and subsequent operating production process within a structured plan the entire company audience with a view procedures. of initiatives and has continued along its to prevention, the documented analyses The VARD subsidiary, similarly to Towards path of activities aimed at employees and of accidents and near misses at individual Zero Accidents, continues to implement suppliers and at contractors’ employees. shipyards are systematically shared in a its Vision Zero project, the results of which To consolidate good practices and the particularly detailed format, which is sent confi rm a positive trend. constant monitoring of the production electronically. The same data, together Further initiatives have been implemented dynamics, careful attention is paid to with other health, safety and environmental with the aim of preventing any type of coordination meetings on safety and the (HSE) issues, are compared and examined accident to people and the environment: environment which, scheduled at least at quarterly meetings involving all site every two weeks, are carried out directly managers on health and safety at work • using the Safety Observation tool to report in the production areas and envisage the issues. In the same context, the corporate any anomalies found; participation of all the supervisors involved HR manager coordinates work to share best • reporting health and safety indicators at in processing and the workers’ safety practices, raise issues of common interest the monthly management meetings; representatives. and identify improvement proposals on • organizing the prevention week to reduce Meetings of the Quality and Safety which to involve and direct the Group’s internal accidents; Committees are held periodically in activities. • monthly discussions on health and

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Together in safety implementation methodologies of activities was launched in 2019, to be carried out at new ISO 45001 standard and we plan to aimed at protecting workers’ health and suppliers’ production sites with a focus on complete the transition of the remainder The multimedia support Together in safety. In particular: respect for human rights, the environment by 2020. In parallel, the surveillance activity Safety is available in all Italian shipyards and health and safety at work. by the accredited certifi cation body to to protect all the resources involved in the • production process analysis, with respect maintain the existing management systems production process and promote correct to the risks related to the shipbuilding Security continues. The Palermo shipyard has behaviour, including from an environmental industry and in particular those arising achieved the fi rst OHSAS 18001 certifi cation perspective. This is a training video, with from interferences between the activities Owing to the increasingly frequent and in accordance with the requirements of the a duration of over three hours, aimed of internal and external resources; widespread presence of employees reference standard while the subsidiary at employees of subcontractors (a user • monitoring of the health and safety travelling or on secondment abroad, the Isotta Fraschini Motori has achieved the catchment of around 30,000 people), and management system in place for contract Travel Security programme has developed fi rst ISO 45001 certifi cation in accordance it must be watched in the classroom when work in the shipbuilding industry and its ongoing mapping of risks in foreign with the relevant requirements. The US site people enter the Group’s production sites possible evolution; countries to guarantee the security of of Fincantieri Marinette Marine, already for the fi rst time. • evolution analysis of accidents in the travelling employees and the sustainability previously certifi ed in compliance with The video is available in the 10 languages represented sectors, supplemented with of the locations associated with business OHSAS 18001, has planned to migrate its most used in Fincantieri’s shipyards and a comparison of the data collected at operations. health and safety at work management customized to the logistics of each site in European level; system to the ISO 45001 standard during Italy. It provides information on each of the • analysis of the current near miss model OHSAS 18001/ISO 45001 and SA 8000 2020. production units and on the work risks that mapping (i.e. events which potentially can certifi cations The VARD group maintained OHSAS 18001 characterize shipbuilding. cause accidents) and its possible evolution; certifi cation for the Romanian Braila and In Italy, the Active Safety project continues, • identifi cation and implementation of new During 2019, we continued implementing Tulcea shipyards, as well as the Vietnamese on a regular basis, to provide training and training and information initiatives aimed and consolidating the occupational health Vung Tau shipyard. All VARD shipyards are information to all workers (direct employees at promoting a culture of prevention, and safety management systems in our aligned with SA 8000 standards, which and employees of contractors) present at and innovative communication tools to operating units, with the aim of supporting are based on the International Labour individual shipyards. During working hours strengthen workers’ awareness of the the implementation of the policy adopted Organization (ILO) conventions and the and directly at the workplace, the individual risks in the production process and the by the Company. In 2019, eight Italian sites Universal Declaration of Human Rights supervisors explain the subject matter to appropriate safety measures. completed the migration process to the (Vung Tau is also certifi ed). their staff , who are given a leafl et. In 2019, 9 diff erent editions were carried out with Supplier evaluation a duration of approximately 30 minutes each, which is in addition to the activities The supplier evaluation process has required by law. continued to play a particularly signifi cant role as regards safety, environmental and Memorandum of understanding with INAIL human rights issues. Contractors are already subject to evaluation from a fi nancial, quality, In April 2019, the National Institute contractual and production perspective for Insurance against Accidents at and are assessed using a predefi ned format Work (INAIL) and Fincantieri signed a and scorecards focused on health, safety memorandum of understanding aimed at and environmental issues. The assessments developing a safety at work culture and by the various shipyards have led to the at implementing activities and projects calculation of the overall performances of with the goal of systematically reducing the companies and are subject to permanent accidents and occupational diseases. The monitoring within Supplier Oversight. MoU, which follows on from long-term Alongside this internal evaluation process, cooperation, determines the scope and an additional second party audit programme

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ENVIRONMENTAL POLICY The Group is committed to the DATA AND INFORMATION PROTECTION • conducting periodic IT security implementation and maintenance of an assessments aimed at identifying and Fincantieri is aware that its level of Environmental Management System at The Company’s focus on cyber security remedying any gaps; responsibility is judged by its ability to the production sites and obtaining ISO has gradually intensifi ed in response to the • providing awareness campaigns to combine, in its work, professionalism 14001 certifi cation for most of them. ever-increasing complexity and frequency of employees, aimed at improving awareness of and quality with strict respect for laws Environmental audits are also carried out cyber attacks carried out against companies cyber risks and shedding light on the most and consideration for the needs and regularly at these sites by the specifi c with national and international strategic widespread attack techniques (e.g. social expectations of the community in relation internal structures and all the reports of any importance. The sophistication of cyber engineering) and the organizational and to the protection of public goods. The environmental accidents are systematically threats - made possible by the operation of behavioural methods for neutralizing them; Group wants to represent a model of collected and managed. consolidated international groups, some of • managing cyber risks within a more excellence also in terms of maximum Fincantieri asks its suppliers to share which supported by the governments of the general framework of operational risks that environmental protection and we see the its approach to sustainability in order countries to which they belong - requires may negatively impact on the Company’s environmental management system as the to achieve one of its most important the constant adjustment of the company’s business and image. tool for implementing and monitoring the corporate objectives: having a responsible defences and processes for protecting IT action taken to carry out the commitments and sustainable supply chain. For this assets, as an additional element to protect The Group is aware of its social made. reason it has adopted the Suppliers’ Code the Company’s industrial know-how and responsibilities and in the light of the full As far as environmental protection is of Ethics that includes among its pillars market competitiveness. transposition of the principles laid down concerned, the commitments undertaken the protection of and respect for the For this reason, in 2019 the Group further to protect personal data, it has launched in the new Environment, Health and Safety environment. strengthened the Cyber Security function, a process to comply with Regulation (EU) Policy are to: The Group also believes in the value of activating a pervasive multi-year program 2016/679 of the European Parliament transparency in reporting and is leading focused on managing and mitigating cyber and of the Council of 27 April 2016 on the • assess the risks and environmental change in this direction. As proof of risks, which develops far-reaching project protection of natural persons with regard to impact of its activities and manage the this, in 2016 it joined the CDP Climate initiatives on the company’s technological the processing of personal data and on the environmental aspects using the principles Change Programme, a prestigious British infrastructure, including: free movement of such data, and repealing of precaution and prevention; organization whose goal is to improve the Directive 95/46/EC (the GDPR), which • promote the use of the best available management of environmental risks by • creation of a program to protect the became fully applicable on 25 May 2018. technologies and the use of products with a leveraging information transparency. In industrial networks supporting ship At the end of this process, the Company lower environmental impact; 2019, the Fincantieri Group obtained the B production on 4 pilot shipyards (Monfalcone, adopted a privacy management system, • implement improvement plans aimed at rating, on a scale ranging from the minimum Marghera, Ancona and Riva Trigoso) to allow whose founding principles are contained containing and reducing its emissions to D to the maximum A, which testifi es to the the monitoring, protection and management in the Policy on General Principles of the air, water and soil, the continuous effi ciency eff ectiveness of the actions it has taken in of fi eld equipment; Privacy Management System (Privacy of the Company’s energy performance the fi ght against climate change. • development of a model to manage Policy) which establishes, among other including through the use of energy from cyber security aspects related to product things, the main processes needed to ensure renewable sources, and the minimization development processes; the protections envisaged by the legislation. and proper management of waste; • defi nition of the group business model with With this policy Fincantieri undertakes to • safeguard the natural value and regard to the Information Security Policy establish and maintain over time a control biodiversity of the territories aff ected by Architecture; model aimed at protecting the personal the presence of its sites by implementing • implementation of tools based on data collected and processed as part of appropriate environmental measures and Artifi cial Intelligence to identify a standard the operational processes of its business, protections; behavioural model capable of highlighting promoting the development of a pervasive • design and develop eco-sustainable any anomalies in user actions; privacy culture at Group level. With this in products. • central monitoring of core corporate mind, in addition to the dissemination of services; privacy statements to the data subjects • lifecycle management of cyber security and instructions to personnel authorized incidents; to process personal data, Fincantieri has

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carried out a pervasive training campaign the mapping results with the shipyards ENTERPRISE RISK MANAGEMENT fi nancial and non-fi nancial risk factors, which, if that reached the employees of the Parent and offi ces in the various territories so that they should materialize, could have an impact on Company and was extended to the Italian it can be implemented according to local The Fincantieri Group is exposed in the normal the results of operations and fi nancial condition subsidiaries. characteristics. course of its business activities to various of the Group. As regards the security measures to be Fincantieri Marine Group, complying in implemented to guarantee and protect data, particular with the provisions of the Health 1 Risks related to operational complexity the ISO/IEC 27001:2013 and ISO 9001:2015 Insurance Portability and Accountability Act DESCRIPTION OF RISK IMPACT MITIGATION certifi cations, which represent deeper (HIPAA), has prepared a detailed document integration with the information technology on the protection of employees’ medical Given the operational complexity If the Group was unable to To manage processes of such stemming not only from the implement adequate project complexity, the Group implements required by the personal data protection data, providing training to those who have inherent nature of shipbuilding but management activities, with procedures and work plans obligations, were confi rmed again in 2019, access to such information. also from the Group's geographical suffi cient or eff ective procedures designed to manage and monitor confi rming compliance with the level of and product diversifi cation and and actions to ensure control of the the implementation of each project acquisition-led growth, the Group is proper completion and effi ciency throughout its duration. Constant reliability required by international standards. exposed to the risk of: of its shipbuilding processes and dialogue channels are established With regard to foreign subsidiaries, the the proper representation of between the Group entities in VARD group, complying with the provisions • not guaranteeing adequate these in its reporting, or if it was order to safeguard the integration control of project management unable to adequately manage the processes; occasionally Parent of the GDPR, has adopted the following activities; Group synergies, alliances, joint Company resources are included. line of action: implementing an overall • not adequately managing ventures or other relationships In addition, the Group has adopted mapping of processes that involve personal the operational, logistical and with counterparties and the a fl exible production structure organizational complexity that complexity arising from its product in order to respond effi ciently to data, implementing the privacy policy characterizes the Group; diversifi cation or if it failed to fl uctuations in vessel demand in for employees, limiting access to data in • not correctly representing the effi ciently distribute workloads the various business areas. This compliance with regulatory requirements, operational management events according to production capacity fl exible approach allows the Group and phenomena in the fi nancial (plant and labour) available on to overcome capacity constraints carrying out the related training, sharing reports; each occasion at the diff erent at individual shipyards and to • overestimating the synergies production facilities, revenues and work on more than one contract arising from acquisition operations profi tability might decline, with at the same time while ensuring or suff ering the eff ects of slow and/ possible negative eff ects on its that delivery dates are met. The or weak integration; results of operations and fi nancial Group is implementing actions • forming alliances, joint condition. aimed at improving the production ventures or other relationships and design processes in order to with counterparties that could strengthen competitiveness and negatively aff ect the ability to increase productivity. compete; • not adequately managing the complexity arising from its product diversifi cation; • failing to effi ciently distribute workloads according to production capacity (plant and labour or that excess capacity might impede the achievement of competitive margins; • not meeting market demand due to its own or its suppliers’ insuffi cient production capacity.

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2 Risks related to nature of the market 3 Risks related to maintenance of competitiveness in core markets

DESCRIPTION OF RISK IMPACT MITIGATION DESCRIPTION OF RISK IMPACT MITIGATION

The shipbuilding market in general Postponement of fl eet renewal In order to mitigate the impact of The production of standard Inattentive monitoring of the The Group endeavours to is historically characterized by programs or other events aff ecting the shipbuilding market cycle, the merchant vessels is now dominated Group's markets and slow maintain competitive position in cycles, sensitive to trends in the the order backlog with the Group has pursued a diversifi cation by Asian shipyards, meaning that responses to the challenges its business areas by ensuring a industries served. The Group's Fincantieri Group's principal cruise strategy in recent years, expanding competitiveness can only be posed by competitors and client high quality, innovative product, off shore and cruise clients ship client could impact capacity its business both in terms of maintained by specializing in high needs may lead to a reduction in and by seeking optimal costing base their investment plans on utilization and business profi tability; products and geographical coverage. value-added markets. As far as competitiveness, with an associated as well as fl exible technical and demand by their own clientele; similarly a downturn in the off shore Since 2005 the Group has expanded civilian vessels are concerned, the impact on production volumes, fi nancial solutions in order to be in the case of off shore, the main market could lead, as has already into the businesses of off shore, Parent Company has been focusing and/or less remunerative pricing, able to propose more attractive infl uence is energy demand and happened, to a reduction in the mega yachts, marine systems and for several years on cruise ships, a resulting in a drop in profi t margins. off ers than the competition. In oil price forecasts, which in turn level of orders, in this segment, equipment, repairs, refi tting and business in which it has a long track parallel with the commercial drive investment in exploration for the subsidiary VARD, as well after-sales service. In parallel, the record; following the acquisition of initiatives to penetrate new market and production, while the main as the risk of cancellation or Group has expanded its business VARD, it has extended this focus segments, the subsidiary VARD infl uences on the cruise industry postponement of existing orders. nationally and internationally, through to the production of off shore has developed a series of new ship are trends in the leisure market. In Equally, the availability of resources acquisitions or the incorporation of support vessels and specifi c projects, exploiting not only its own the naval business, the demand for earmarked by the State for defence new companies dedicated to specifi c segments such as fi shing and engineering and design expertise new ships is heavily dependent on spending on fl eet modernization businesses, such as the manufacture aquaculture. Additional factors acquired in the off shore sector governments’ defence spending programs is a variable that could of steel products and automation that may aff ect competitiveness but also the know-how of the policies. infl uence the Group's results of systems. are the risk that due attention is Fincantieri Group. operations and fi nancial condition. Given the current downturn in the not given to client needs, or that off shore market, the subsidiary standards of quality and product VARD has successfully pursued a safety are not in line with market strategy of diversifying into new demands and new regulations. market segments, such as expedition Moreover, aggressive commercial cruise ships and specialized fi shing policies, development of new vessels, with the intent of reducing products and new technologies, or its exposure to the cyclical nature of increases in production capacity by the off shore Oil & Gas industry. competitors may lead to increased price competition, consequently impacting the required level of competitiveness.

DESCRIPTION OF RISK IMPACT MITIGATION

The diffi cult political and economic Situations involving country risk In pursuing business opportunities context and worsening regulatory may have negative eff ects on the in emerging markets, the Group environment of countries in which Group's results of operations and safeguards itself by favouring the Group operates may adversely fi nancial condition, with the loss commercial prospects that are impact operations and future cash of clients, profi ts and competitive supported by inter-governmental fl ows. In addition, the pursuit of advantage and, in the case of agreements or other forms of business opportunities in emerging lawsuits and sanctions, on its cooperation between States, as markets, particularly in the reputation. well as by establishing, within its defence sector, leads to increased own organization, appropriate exposure to country risk and/or safeguards to monitor the risk of international bribery and processes at risk. corruption.

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4 Risks related to contract management DESCRIPTION OF RISK IMPACT MITIGATION

DESCRIPTION OF RISK IMPACT MITIGATION The operational management Bankruptcy by one or more When acquiring orders, and where of contracts carries a risk that counterparties, whether clients or deemed necessary, the Group can The shipbuilding contracts Cost overruns not envisaged at The Group takes into consideration one or more counterparties with suppliers, can have serious eff ects perform checks on the fi nancial managed by the Group are mostly the pre-contractual stage and expected increases in the whom the Group has contracts are on the Group's production and strength of its counterparties, multi-year contracts for a fi xed not covered by a parallel increase components of contract costs unable to meet its commitments, cash fl ows, given the high unit including by obtaining information consideration, any change in which in price can lead to a reduction when determining the off er price. more specifi cally involving one value of shipbuilding orders and from leading credit rating must be agreed with the client. in margins on the contracts In addition, at the time of signing or more clients that do not meet the strategic nature of certain agencies. Suppliers are subject to Contract pricing must necessarily concerned. the contract, fi xed-price purchase the contractual obligations, or supplies for the production process. a qualifi cation process, including involve careful evaluation of the options will already have been one or more suppliers that fail to In particular, client cancellation of evaluation of the potential risks costs of raw materials, machinery, defi ned for some of the vessel's discharge their obligations for orders during vessel construction associated with the counterparty components, sub-contracts and principal components. operational or fi nancial reasons, exposes the Group to the risk of concerned. As regards the fi nancial all other construction-related with potentially serious eff ects having to sell the vessel in adverse aspect, the Group off ers its costs (including personnel and on the performance of operating market conditions or, potentially, suppliers the opportunity to use overheads); this process is more activities and a potential increase at prices that do not allow its instruments that facilitate their complicated in the case of in costs, including legal, in the construction costs to be recovered. access to credit. To address the prototype or particularly complex case of a failure to comply with Moreover, the postponement of diffi cult situation in the off shore ships. contractual commitments. The delivery dates can signifi cantly market, the subsidiary VARD is now Off shore industry is in the midst increase working capital fi nancing working with clients and fi nancial of a profound global market needs, with a consequent growth in institutions to ensure delivery the DESCRIPTION OF RISK IMPACT MITIGATION deterioration aff ecting all its debt and higher borrowing costs. majority of the off shore vessels players with a signifi cant number in the current order book and is Many factors can infl uence When the causes of late delivery The Group manages its contracts of shipowners undertaking pursuing the initiatives launched production schedules, as well as are not recognized by contract, through dedicated structures restructuring, in turn giving rise to ensure a commercial solution to capacity utilization, and so impact shipbuilding contracts provide that control all aspects during to increased counterparty risk. the few off shore projects that have agreed vessel delivery dates with for the payment of penalties that the contract life cycle (design, With particular reference to VARD, remained in the order book to date. possible penalties payable by generally increase the longer the procurement, construction, deterioration in the fi nancial The subsidiary is also considering, the Group. These factors include, delay. outfi tting). Contracts with suppliers situation of clients in the Off shore where possible, all technical and inter alia, strikes, poor industrial include the possibility of applying sector has led to the cancellation or commercial opportunities to productivity, inadequate logistics penalties for delays or hold-ups redefi nition of the delivery dates of reconvert and reposition on the and warehouse management, attributable to such suppliers. some orders in the order book. new markets served those vessels unexpected problems during already built but whose orders have design, engineering and production, been cancelled. events linked to adverse weather conditions, design changes or problems in procuring key supplies. DESCRIPTION OF RISK IMPACT MITIGATION

A signifi cant number of the Group's If the Group were unable to off er The Group adopts a fi nancing shipbuilding contracts (in general, its clients suffi cient fi nancial strategy aimed at diversifying as for merchant vessels like cruise guarantees against the advances much as possible the technical ships and off shore support vessels) received or to meet the working forms of fi nancing and the establish that clients pay only a capital needs of ships during fi nancing counterparties with the part of the contract price during construction, it might not be able ultimate objective of maintaining a ship construction; the balance of to complete contracts or win new more than suffi cient credit capacity the price is paid upon delivery. ones, with negative eff ects on its to guarantee coverage of the As a result, the Group incurs results of operations and fi nancial working capital needs generated by signifi cant upfront costs, assuming condition. its operations. the risk of incurring such costs Moreover, the cancellation and before receiving full payment of postponement of orders by clients the price from its clients and thus in diffi culty could have a signifi cant having to fi nance the working impact on the Group's fi nancial capital absorbed by ships during structure and margins, with the construction. risk that banks limit access to credit, thereby depriving it of the necessary funding for its working capital, such as construction loans, or that banks will only be willing to grant credit at more costly conditions.

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DESCRIPTION OF RISK IMPACT MITIGATION 5 Risks related to production outsourcing and relations with suppliers and local communities The Group's clients often make The lack of available fi nance for Fincantieri supports overseas use of fi nancing to fi nalize the the Group's clients or the low clients during the process of DESCRIPTION OF RISK IMPACT MITIGATION placement of orders. competitiveness of their conditions fi nalizing export fi nance and Overseas clients may be eligible for could have a highly negative particularly in managing relations The Fincantieri Group's decision A negative performance by The Group has specifi c personnel export fi nance schemes structured impact on the Group's ability to with the agencies and companies to outsource some of its business suppliers in terms of quality, timing in charge of coordinating the in accordance with OECD rules. obtain new orders as well as on the involved in structuring such fi nance activities is dictated by strategic or costs causes production costs assembly of on-board systems Under such schemes, overseas ability of clients to comply with the (for example, SACE, Simest and considerations based on two to rise, and the client's perception and managing specifi c areas buyers of ships can obtain contractual terms of payment. the banks). In addition, the process factors: a) outsource activities of the quality of the Fincantieri of outsourced production. In bank credit against receipt of a of structuring fi nance is managed for which it has the skills but product to deteriorate. As for other addition, the Fincantieri Group guarantee by a national export in parallel with the process of insuffi cient in-house resources; b) partners at the local level, non- carefully selects its "strategic credit agency, which in the case of fi nalizing the commercial contract, outsource activities for which there optimal relations may impact the suppliers", which must meet the Italy is SACE S.p.A. and GIEK in the the enforceability of which is often are no in-house skilled resources Group's ability to compete on the highest standards of performance. case of Norway. subject to the shipowner's receipt and which would be too expensive market. The Parent Company has The availability of export fi nancing of the commitment by SACE and and ineffi cient to develop. developed a precise program of is therefore a key condition for the banks to provide an export Dependence on suppliers for supplier performance evaluation allowing overseas clients to award credit guarantee. The subsidiary certain business activities may in this regard, ranging from contracts to the Group, especially VARD also actively works with result in the inability to ensure measurement of the services where cruise ship construction is GIEK, the Norwegian export credit high standards of quality, failure to rendered, both in terms of concerned. agency, particularly in a new sector meet delivery dates, the acquisition quality of service off ered and for the Norwegian market like that of excessive supplier bargaining punctuality of delivery, to the strict of expedition cruise vessels. power, and a lack of access to new observation of safety regulations, As an additional safeguard for technologies. in line with the Group's "Towards the Group, in the event of a In addition, the signifi cant presence Zero Accidents" objective. In client default on its contractual of suppliers in the production addition, particular attention obligations, Fincantieri has the right process has an impact on local is paid in general to relations to terminate the contract. In such communities, possibly requiring the with the local communities a case, it is entitled to keep the Group to address social, political that interact with the Group's payments received and the ship and legality issues. shipyards, involving appropriate under construction. The client may institutional relationships, at also be held liable for paying any the time supplemented by the costs prepaid by the Group. conclusion of suitable legality and/or transparency protocols with the local authorities, which in turn enabled the defi nition of the National Legality Framework Protocol signed in 2017. The subsidiary VARD has paid special attention to the process of evaluating and managing contracts with suppliers operating in new sectors that the Group entered as a result of its diversifi cation strategy.

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6 Risks related to business sustainability 7 Risks related to knowledge management

DESCRIPTION OF RISK IMPACT MITIGATION DESCRIPTION OF RISK IMPACT MITIGATION

The shipbuilding industry, due The aim of the Company is The Company has developed a The Fincantieri Group has a vast The inadequacy of the domestic The Human Resources Department to its specifi c characteristics, to combine business growth sustainability governance system accumulation of experience, know- labour market to meet the Group's constantly monitors the labour requires consideration of certain and fi nancial soundness in line which defi nes the roles and how and business knowledge. As needs, the inability to acquire the market and maintains frequent issues relating to the social and with social and environmental responsibilities of these processes far as the workforce is concerned, necessary skills and the failure to contact with universities, vocational environmental sustainability of sustainability principles, and failure in order to ensure adequate the domestic labour market is not transfer specifi c knowledge to the schools and training institutes. The the business. The Company is to achieve this goal could, in the monitoring and control. The always able to satisfy the needs Group's resources, particularly in Group also makes a signifi cant committed to disseminating its long term, compromise growth risks related to sustainability are of production, either in terms of the technical sphere, could have investment in training its staff , not Governance Model within the of the Company’s value, which identifi ed, assessed and managed numbers or skills. The eff ective negative eff ects on product quality. only in technical-specialist and Group; however, any shortcomings benefi ts stakeholders. within the context of the Enterprise management of the Group's managerial-relational skills, but in the communication of its Risk Management process, and business is also linked to the ability also regarding safety and quality. commitment to the Group could the Company has adopted a to attract highly professional Lastly, specifi c training activities put at risk the achievement of the Sustainability Plan and monitors its resources for key roles, and the are organized to ensure that key goals defi ned and communicated application. The initiatives launched ability to retain such talents within management positions are covered to stakeholders. are accurately reported in the the Group; this involves suitable in the event of staff turnover. Furthermore, the Company has Sustainability Report. talent and resource management With regard to the subsidiary identifi ed specifi c risks related with a view to continuous VARD, an internal reorganization to shipbuilding products and improvement, achieved by investing has been carried out to assist processes, including: in staff training and performance the process of diversifying into evaluation. new markets, with particular • the risk of failing to pay attention attention to the development of to the development of new new concepts and alteration of technologies and environmentally production processes. At the same friendly products; time, actions to recruit qualifi ed • the risk of poor management of labour have been launched in the environmental issues, such as those Romanian shipyards to increase the related to climate change (impact technical and qualitative level of the of natural events, increase in the workforce and achieve production price of materials due to factors effi ciency in order to both support connected to climate); the parent company’s production • the risk that the supply chain plan and guarantee better does not mirror the sustainability management of the other projects principles communicated by the in the order book. Company; • the risk of failing to optimize the Group’s human capital.

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8 Risks related to legal and regulatory environment DESCRIPTION OF RISK IMPACT MITIGATION

DESCRIPTION OF RISK IMPACT MITIGATION Working in the defence and security Possible limitations on the The Group is monitoring the sector, the Group is exposed to direct award of business could possible evolution of national The Fincantieri Group must abide Any breaches of tax, safety or The Group promotes compliance the risk that the evolving tendency prevent the Group from being and Community legislation that by the regulations in force in environmental standards, any with all rules, regulations and laws in this sector could lead in the awarded work through negotiated could open up the possibility of the countries where it operates, changes in the local legal and that apply to it and implements and near future to restrictions on the procedures, without any prior competing in the defence and including those to safeguard the regulatory framework, as well as updates suitable prevention control currently permitted exceptions to publication of a public tender security sector including in other environment and health and safety the occurrence of exceptional or systems for mitigating the risks competition law, with consequent notice. countries. at work, tax regulations and the unforeseen events, could cause associated with breach of such rules, limitations on the direct award of personal data protection regulation. the Fincantieri Group to incur regulations and laws. Accordingly, business in order to ensure greater Any breaches of such rules and extraordinary costs relating to tax, in order to prevent and manage the competition in this particular regulations could result in civil, tax, the environment or safety at work. risk of occurrence of unlawful acts, market. administrative or criminal sanctions, Any breaches of personal data the Parent Company has adopted along with an obligation to do all protection regulations would result an organizational, management that is necessary to comply with in the application of the sanctions and control model under Legislative such regulations, the costs and introduced by EU Regulation Decree 231 of 8 June 2001, which 9 Risks related to information access and operation of the computer system liability for which could have a 2016/679 regarding the protection is also binding for suppliers and, in negative impact on the Group's of personal data. general, for third parties working DESCRIPTION OF RISK IMPACT MITIGATION business and results. with Fincantieri. In particular, the Parent Company has applied the The Group's business could be Computer system failures, loss The Group considers it has taken provisions of Legislative Decree adversely aff ected by: or corruption of data, including all necessary steps to minimize 81/2008 - “Implementation of art. as a result of external attacks, these risks, by drawing on best 1 of Law no. 123 dated 3 August • inadequate management of the inappropriate IT solutions for the practice for its governance systems 2007, concerning health and safety Group's sensitive data, due to needs of the business, or updates and continuously monitoring the at work” (known as the “Health and ineff ective protective measures, to IT solutions not in line with user management of its IT infrastructure Safety at Work Act”). Fincantieri with unauthorized persons outside needs, could aff ect the Group's and applications. Authority has adopted suitable organizational the Group able to access and use operations by causing errors to access and operate on the models for preventing breach of confi dential information; in the execution of operations, computer system is managed these regulations, and sees that such • improper access to information, ineffi ciencies and procedural delays and maintained to ensure proper models are reviewed and updated on involving the risk of accidental and other disruptions, aff ecting the segregation of duties, as enhanced an ongoing basis. The commitment or intentional alterations or Group's ability to compete on the with the adoption of a new access to pursue and promote principles cancellations by unauthorized market. management procedure using of environmental sustainability persons; special software, allowing prior has been reaffi rmed in the Parent • IT infrastructure (hardware, identifi cation and treatment of Company's Environmental Policy networks, software) whose security the risks of segregation of duties document, which binds the Group and reliability are not guaranteed, (SoD) resulting from inappropriate to uphold regulatory compliance resulting in possible disruption of attribution of access credentials. and to monitor working practices so the computer system or network as to ensure eff ective observance or in illegal attempts to gain of the rules and regulations. The unauthorized access or breaches of subsidiary VARD is also committed its data security system, including to minimizing the impact of its coordinated attacks by groups of activities on the environment, hackers. involving actions in terms of resources, policies and procedures to improve its environmental performance. Fincantieri and VARD have implemented an Environmental Management System at their sites with a view to obtaining certifi cation under UNI EN ISO 14001:2004 and has started updating to the 2015 standard. As regards the mitigation of tax risks, the Group constantly monitors changes to the law force. Compliance with the personal data protection regulation is ensured by a system of internal rules adopted in order to ensure that the personal data collected and processed within the company’s business processes.

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10 Risks related to exchange rates 11 Risks related to fi nancial debt

DESCRIPTION OF RISK IMPACT MITIGATION DESCRIPTION OF RISK IMPACT MITIGATION

The Group is exposed to exchange The absence of adequate currency Fincantieri has a policy for Some of the loan agreements In the event of having limited To ensure access to adequate rate risk on transactions of a risk management could increase managing economic and entered into by the Group require it access to credit, including because types of fi nance in terms of commercial and fi nancial nature the volatility of the Group's transaction fi nancial risks that or some of its companies to comply of its fi nancial performance, or in amount and conditions, the Group denominated in a currency economic results. In particular, if defi nes instruments, responsibilities with conditions, commitments and the event of a rise in interest rates constantly monitors the results other than the functional one currencies in which shipbuilding and reporting procedures, with constraints of a fi nancial and legal or of early repayment of debt, the of its operations and fi nancial (economic risk and transaction contracts are denominated were which it mitigates currency nature (such as the occurrence of Group could be forced to delay condition and its current and future risk). In addition, translation risk to depreciate, this could have an market risks. With regard to events of default, even potential raising capital or to seek fi nancial capital and fi nancial structure as can arise when preparing the adverse impact on the Group’s currency translation risk, the Group ones, cross-default clauses and resources under more onerous well as any circumstances that Group’s fi nancial statements, profi t margins and cash fl ow. constantly monitors its main covenants), non-observance of terms and conditions, with negative could adversely aff ect them. In through translation of the income exposures which are normally not which could lead to immediate eff ects on its results of operations particular, to mitigate liquidity statements and balance sheets subject to coverage. repayment of the loans. In addition, and fi nancial condition. risk and maintain a suffi cient level of consolidated subsidiaries that In the same way, the subsidiary future increases in interest rates of fi nancial fl exibility, the Group operate in a currency other than VARD prepared a management could lead to higher costs and diversifi es its sources of funding the Euro (mainly NOK, USD and policy that is based on the payments depending on the level in terms of duration, counterparty BRL). fundamental principles defi ned of indebtedness outstanding at and technical form. Moreover, the by the Parent Company, though the time. The Group might not be Company can negotiate derivative with some diff erences due to the able to access suffi cient credit to contracts, usually in the form of company’s particular needs. properly fi nance its activities (such interest rate swaps, in order to as in the case of particularly poor contain the impact of fl uctuations fi nancial performance) or it might of interest rates on the Group’s be able to access it only under medium/long-term profi tability. particularly onerous terms and conditions. As for the Off shore industry, the worsening fi nancial situation resulting in restructuring by many industry players is causing banks to reduce their credit exposure to them, with the risk of consequent repercussions for VARD's ability to access construction loans, needed not only for off shore projects but also for those in new markets.

86 87 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

CORPORATE GOVERNANCE the Company's profi le and the principles underlying the way it conducts its business; The “Report on Corporate Governance and it provides information about the ownership Ownership Structure” (the “Report”) required structure and adoption of the Corporate by Art. 123-bis of the Consolidated Law on Governance Code, including the main Finance is a stand-alone document approved governance practices applied and the main by the Board of Directors on 1 April 2020, characteristics of the system of internal control and published in the “Ethics and Governance” and risk management; it contains a description section of the Company's website at www. of the operation and composition of the fi ncantieri.it. governing and supervisory bodies and their The Report has been prepared in accordance committees, roles, duties and responsibilities. with the recommendations of the Corporate The criteria for determining the Governance Code and modelled on the compensation of the directors are set out “Format for the report on corporate in the "Remuneration Report", prepared in governance and ownership structure - VIII compliance with the requirements of Art. Edition (January 2019)” drawn up by Borsa 123-ter of Italy's Consolidated Law on Finance Italiana S.p.A. and Art. 84-quater of the Consob Issuer The Report contains a general and complete Regulations, and published in the “Ethics overview of the corporate governance system and Governance" section of the Company's adopted by FINCANTIERI S.p.A. It presents website.

SHAREHOLDERS’ MEETING OTHER INFORMATION l'Atlantique" operation and the performance of the subsidiary VARD. Stock performance The stock recorded an average price for the year of euro 0.98 per share, with a BOARD OF DIRECTORS The performance of the stock in 2019 was peak value for the period of euro 1.26 on

CONTROL largely stationary, falling from a price of 27 February. The stock closed the year, on BOARD OF CHIEF EXECUTIVE CHAIRMAN REMUNERATION NOMINATION SUSTAINABILITY (DIRECTOR IN CHARGE AND RISK STATUTORY SUPERVISORY INDEPENDENT OFFICER OF THE ICRMS) COMMITTEE COMMITTEE COMMITTEE COMMITTEE euro 0.922 per share on 28 December 2018 30 December 2019, with a price of euro AUDITORS BODY AUDITORS to euro 0.921 per share on 30 December 0.92 per share corresponding to a market 2019. The FTSE MIB, the index comprising capitalization of over euro 1.5 billion. Italy's 40 largest stocks, rose by 28.3% over In terms of volumes, a total of 1.4 billion the same period, while the FTSE Mid Cap shares were traded during the year, with an GENERAL RISK HEAD OF index, which includes Fincantieri, rose by average daily trading volume of around 5.5 MANAGER OFFICER INTERNAL AUDITING 18.3%. million shares. During 2019, the stock market performance At 31 December 2019, Fincantieri's share of FINCANTIERI S.p.A. shares recorded a capital of euro 862,980,725.70 was held positive trend in the fi rst part of the year. as follows: 71.32% by CDP Industria S.p.A., CHIEF MANAGER FINANCIAL RESPONSIBLE There was also a slowdown due both to 28.26% by the general market and 0.42% in OFFICER FOR PREPARING FINANCIAL REPORTS the development of the "Chantiers de own shares.

88 89 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

KEY FIGURES 31.12.2019 31.12.2018 Share capital euro 862,980,725.70 862,980,725.70 Ordinary shares issued number 1,699,651,360 1,692,119,070 Own shares number 7,226,303 4,706,890 Market capitalization* euro/million 1,565 1,560 PERFORMANCE 31.12.2019 31.12.2018 Price at year end euro 0.92 0.92 Year high euro 1.26 1.52 Year low euro 0.83 0.91 Average price euro 0.98 1.28

*Number of shares outstanding multiplied by reference share price at period end.

euro 1.30

1.25

1.20

1.15

1.10

1.05

0.95

0.90

0.85

0.80 Dec 2018 Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 Jul 2019 Aug 2019 Sep 2019 Oct 2019 Nov 2019 Dec 2019 Fincantieri FTSE MIB FTSE MID Cap

90 91 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

Other signifi cant events in the period

On 14 January 2019, Cassa Depositi e Prestiti, Fincantieri and Snam signed a preliminary cooperation On 7 June 2019, Fincantieri signed a joint working agreement for charitable purposes with Banco Alimentare agreement aimed at identifying, defining and implementing strategic medium-term projects in some Marche, a not for profit association involved in the recovery of surplus food, and Gemeaz Elior, a company that JANUARY key segments for innovation and the development of the Italian ports, as well as for the development JUNE provides catering services at the Ancona yard canteen. of sustainable technologies for sea transport, in line with the Proposals of the National Integrated Plan for Energy and the Climate. On 14 June 2019, Fincantieri and Naval Group signed the Alliance Cooperation Agreement, which defines the operating terms for the establishment of a 50/50 joint venture. The agreement was signed by the CEOs of the two companies Giuseppe Bono and Hervé Guillou on board the frigate "Federico Martinengo", moored at the La Spezia Navy Arsenal, a vessel from the Italian-French FREMM program, underlining the solidity of the twenty- year collaboration between the two countries, their industries and the national navies. On 4 February 2019 the Autorità di sistema portuale del Mare di Sicilia Occidentale (AdSP- Western Sicilian Sea Port Authority) and Fincantieri signed a Memorandum of Understanding for the launch of a shipbuilding On 18 June 2019, Fincantieri and the National Research Council of Italy (CNR) presented the results of six hub in the port of Palermo, with the shared goal of enabling the Sicilian site to assert itself as one of the FEBRUARY multidisciplinary projects, within the context of the funding relating to innovation in the marine division of the most important shipyards in the Mediterranean. Ministry of Infrastructure and Transport.

On 21 February 2019, during the International Defence Exhibition & Conference (IDEX) 2019 in Abu On 26 June 2019, as part of the agreement signed between Fincantieri, Regione Liguria and the trade union Dhabi, Fincantieri and Abu Dhabi Shipbuilding, leading group in the United Arab Emirates specializing in organizations CGIL, CISL and UIL last year and aimed at implementing a series of initiatives to facilitate work the construction, repair and refitting of merchant and navy ships, announced the reaching of an outline placement processes, the offer of ITS courses was extended to the autumn: a new course will begin in Liguria agreement to explore forms of industrial and commercial cooperation in the future in the marine engineering at the Merchant Marine Academy in order to meet the employment needs of the shipbuilding industry. segment in the UAE. On 27 June 2019, the Fincantieri Board of Directors, in execution of the authorization granted by the Extraordinary Shareholders’ Meeting on 19 May 2017, approved the issue of 7,532,290 ordinary shares, without nominal value, having the same characteristics as the ordinary shares in circulation, for the “Performance Share Plan 2016-2018”, to be allocated free of charge to the beneficiaries of the plan, without On 6 March 2019, Fincantieri signed a joint working agreement for charitable purposes with Banco Alimentare an increase in share capital pursuant to art. 2349 of the Italian Civil Code according to the terms and della Liguria, a not-for-profit association involved in the recovery of surplus food, and I.F.M., a company that conditions set out therein. The shares were issued on 30 July 2019. MARCH provides catering services at the Muggiano (La Spezia) yard canteen.

On 7 March 2019, Genova Industrie Navali - holding, established in 2008 by the merger of two historic Genoa shipyards, T. Mariotti and San Giorgio del Porto - and Fincantieri reached a joint working agreement covering various areas, from new constructions, to repairs and conversions, to ship fittings. This agreement involves On 26 September 2019, the Fincantieri shipyard in Palermo also completed the process for RINA to issue the acquisition by Fincantieri of a minority shareholding in the group holding and the option for a minority OHSAS 18001 and UNI EN ISO 14001 Certificates of Conformity, the highest international standards of health share in T. Mariotti. and safety at work and environmental protection. With this result, the company arrived at full coverage of all SEPTEMBER the Group’s Italian production units. The inauguration ceremony for the Fincantieri Infrastructure site was held on 11 March 2019 in Valeggio sul Mincio (Verona). During the event, the cutting of the first steel sheet for the construction of the new Polcevera viaduct was celebrated.

On 28 October 2019, in the presence of the Chairman of the Board of Ministers, Giuseppe Conte, the Managing Directors of Cassa Depositi e Prestiti, Fabrizio Palermo, Fincantieri, Giuseppe Bono, Terna, Luigi Ferraris and Eni, Claudio Descalzi, signed an agreement in Ravenna that lays the foundations for the On 23 April 2019, within the context of the strengthening of its activities in the operating segments with high OCTOBER technology content, Fincantieri purchased a majority share of the capital of Insis S.p.A., a company based in establishment of a company for the development and construction of wave power plants, in execution of the Follo (La Spezia), operating in the IT and electronic sectors. APRIL agreement signed on 19 April 2019.

On 30 April 2019, the Chairman of INAIL - the Italian National Institute for Insurance against Accidents at Work - Massimo De Felice, and the Chief Executive Officer of Fincantieri, Giuseppe Bono, signed a memorandum of understanding aimed at developing a safety culture in the workplace and the implementation On 15 November 2019, the Ordinary Shareholders' Meeting of FINCANTIERI S.p.A.met in Trieste and resolved of activities and projects for the systematic reduction of occupational accidents and diseases. to approve the consensual termination of the audit engagement conferred on the independent auditors PricewaterhouseCoopers S.p.A., and to confer, upon proposal of the Board of Statutory Auditors, the audit NOVEMBER engagement for Fincantieri S.p.A. for the years 2020-2028 to the independent auditors Deloitte & Touche S.p.A., determining the related fee.

On the Chief Executive Officer of Fincantieri, Giuseppe Bono, and the Rector of the University 20 May 2019, On 27 November 2019, as part of the broad framework of collaborations activated in the recent past, of Calabria, Professor Gino Mirocle Crisci, signed, at the university campus, an agreement aimed at Fincantieri and the University of Genoa signed a new agreement for the promotion and financing of some MAY establishing new collaborative relationships in the civil, industrial and IT engineering sectors. experimental teaching activities in the naval sector.

On 28 November 2019, as part of the process to strengthen corporate responsibility, Fincantieri joined the United Nations Global Compact, the world’s largest business sustainability initiative.

92 93 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

Key events after the reporting period ended way, which compromises the marine and 31.12.2019 coastal ecosystem mainly due to fl oating plastic waste and microplastics. The The fi rst meeting of the Board of Directors agreement was signed with the aim of of Naviris, the joint venture between studying and developing technologies for Fincantieri and Naval Group, was held the collection of waste dispersed at sea on 14 January 2020. This partnership and along the coast and then use them to consolidates the two companies’ shared generate mobility products and industrial desire to build a future of excellence for the applications. shipbuilding industry and Navies. Giuseppe On 10 March 2020, Fincantieri Infrastructure Bono was assigned the Chairmanship and raised the new 100-meter maxi steel deck. Hervé Guillou is a member of the Board The deck, whose profi le will recall the hull of Directors. During the Franco-Italian of a ship, as designed by Renzo Piano was summit in Naples on 27 February 2020, an transported across the Polcevera river. intergovernmental agreement was signed, In the second half of the month, the last reaffi rming the full support of France and 100-meter maxi span was also raised, taking Italy for the joint venture. This agreement the new Genoa bridge over the railway. makes the long-term alliance initiated by On 13 March 2020, Fincantieri, following the two industrial groups fully operational. the outbreak of the Coronavirus On 24 January 2020, Fincantieri and the epidemiological phenomenon and in Qatari Ministry of Defence, through Barzan application of the measures that the Holdings, a company 100% owned by Government has progressively put in place, the Qatari Ministry of Defence, signed a decided to suspend production activities at Memorandum of Understanding (MoU) in the Group's Italian sites from Doha aimed at strengthening the strategic March 16 to 29. partnership through the evaluation and On 26 March 2020, Fincantieri, while study of new technologies and capabilities, taking all the necessary actions to make its which could lead to the future acquisition of employees safe, decided to continue the new units as early as 2020. suspension of work at its plants and offi ces On 24 February 2020, Marakeb until the date indicated in the Decree of Technologies, a leading automation the President of the Council of Ministers solutions provider, and Fincantieri signed of March 22. Therefore, Fincantieri and the a Memorandum of Understanding to national trade unions FIM - FIOM - UILM, explore opportunities for collaboration in have signed an agreement that provides for automation at international level. the possibility of using the Ordinary Wage On 6 March 2020, Cassa Depositi e Guarantee Fund (CIGO) for personnel at all Prestiti, Eni and Fincantieri, confi rming company sites. During the period covered their common commitment to the by CIGO, maintenance activities of the transition towards decarbonization and plants and essential services of the sites environmental sustainability, signed a are still carried out, as are the direction and Memorandum of Understanding to develop management activities strictly necessary joint projects within the circular economy, for the current obligations of the company, aimed at identifying and implementing where possible using smart working, and in technological solutions to deal with order to carry out the preparatory activities marine litter, in a mutually reinforcing for resumption of production.

94 95 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

Business outlook resources, delivery times and fi nancial ceased its management and coordination (Italian Stockmarket) Regulations (adopted situation of the supplier network activities, maintaining its position as the by Consob Resolution no. 16191/2007 After the end of the fi nancial year, in the fi rst • Personnel, in terms of production effi ciency, main shareholder of FINCANTIERI S.p.A. and updated with Consob Resolution no. months of 2020, the COVID-19 pandemic availability of resources, logistics and until 13 December 2019, the date on which 20249 of 28 December 2017) sets out the emergency occurred at a global level, insurance needs CDP Industria S.p.A. took over as the main listing conditions for controlling companies resulting in strong pressure on national health • Capital expenditure plans shareholder of FINCANTIERI S.p.A.. incorporated in and governed by the laws systems and the progressive enactment • Commercial negotiations In compliance with the provisions of the of non-EU countries. With reference to the by government authorities of a series of Regulations concerning related party regulatory requirements concerning the measures aimed at containing the risk At a global level, one of the sectors most transactions adopted under Consob listing conditions for controlling companies, of further expansion of the virus. These aff ected by the current emergency situation Resolution no. 17221 of 12 March 2010 and incorporated in and governed by the laws measures are having signifi cant eff ects on the is tourism, particularly the cruise market subsequent amendments and additions, of non-EU countries, that are material to social and working lives of individuals and on where shipowners were among the fi rst to FINCANTIERI S.p.A. has adopted a the consolidated fi nancial statements, the world economy. be forced to stop their operations. In this "Procedure for Related Party Transactions" it is reported that at 31 December 2019, The Group reacted promptly to this context, the Group's priority and eff orts are with eff ect from 3 July 2014. the Fincantieri subsidiaries falling under pandemic, activating initiatives to pursue its focused on care of customers and strategic As far as related party transactions in the year the scope of the above article are the priority objectives of protecting the health partners in order to safeguard the order are concerned, these do not qualify as either VARD Group and the FMG Group. Suitable of its employees and those of the companies backlog acquired, a fundamental element atypical or unusual, since they fall within the procedures have already been adopted to in the industry; in fact, the Group's priority not only for Fincantieri and the system of normal course of business by the Group's ensure that these groups comply with these at this time is to implement all the necessary related network, but for the recovery of the companies. Such transactions are conducted regulations (art. 15). initiatives to safeguard the health and national economy. It should be noted that the under market terms and conditions, taking In accordance with the disclosures required well-being of its people, who are its most current health emergency is a cause of force into account the characteristics of the goods by Consob Communication important asset. In this context, Fincantieri majeure within the scope of the contracts, and services involved. no. DEM/6064293 dated 28 July 2006, it has currently suspended production allowing the Group to modify the production Information about related party transactions, is reported that no atypical and/or unusual activities at Italian production sites as of 16 schedules and delivery dates of the ships. including the disclosures required by the transactions took place during 2019. March 2020. The Group is in any case Should the situation be resolved within a Consob Communication dated 28 July 2006, actively involved in daily monitoring of reasonable timeframe, Fincantieri believes is presented in Note 33 of the Notes to the Sustainability report the evolution of the spread of the virus, that the Group's equity and economic Condensed Consolidated Interim Financial in order to ensure a proactive management structure is able to cope with the eff ects of Statements at 31 December 2019. Fincantieri Group’s Sustainability Report 2019 of its potential eff ects. the emergency. was approved by the Board of Directors on 1 At the same time, as far as production In view of the uncertainty regarding the Purchase of own shares April 2020 and published on the Company's activities are concerned, despite the impact on public health and, consequently, on internet site at the address www.fi ncantieri.it mitigating actions already promptly the productive, economic and social fabric of The Shareholders’ Meeting held on 19 May in the Sustainability section. implemented by the Company, including the the country, as soon as the development of 2017 authorized the Board of Directors to purchase of medical devices for the regular the emergency allows a clearer analysis of the purchase its own ordinary shares on the performance of the Company's operations, possible impact, the Company will fi nalize the market in order to implement the fi rst cycle of the COVID-19 emergency is having signifi cant new 2020-2024 Business Plan and promptly the medium/long-term share-based incentive eff ects on the regular and ordinary communicate it to the market. Information on plan for management, called the Performance performance of the Group's activities in performance for the 2020 fi nancial year will Share Plan 2016-2018. At 31 December 2019, 2020. In particular, the pandemic, also taking be communicated when the interim fi nancial FINCANTIERI S.p.A. held 7,226,303 treasury into account its global scope, may have an reports are published. shares (equal to 0.42% of the Share Capital) impact mainly on the following areas of the with a total value of euro 7,118 thousand. Group’s activities: Transactions with the controlling company and other group companies Italian stockmarket regulations • Production schedules • Supply chain, in terms of availability of With eff ect from 3 July 2014, Fintecna S.p.A. Art. 15 (formerly art. 36) of the Consob

96 97 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

ALTERNATIVE PERFORMANCE MEASURES non-recurring items or those outside the is calculated as the ratio between the Net RECONCILIATION OF PARENT COMPANY ordinary course of business, which are fi nancial position, as monitored by the PROFIT/(LOSS) FOR THE YEAR AND EQUITY Fincantieri's management reviews the reported before the related tax eff ect. Group, and Total equity. WITH THE CONSOLIDATED FIGURES performance of the Group and its business • Net fi xed capital: this reports the fi xed • Provisions: these refer to increases in segments, also using certain indicators not assets used in the business and includes the Provisions for risks and charges, and As required by the Consob Communication envisaged by IFRS. In particular, EBITDA is the following items: Intangible assets, impairment of Trade receivables and Other of 28 July 2006, the following table provides used as the main earnings indicator, as it Property, plant and equipment, Investments non-current and current assets. a reconciliation between equity and profi t/ enables the Group's underlying profi tability and Other non-current assets and liabilities (loss) for the year of the Parent Company to be assessed without the impact of (including the fair value of derivatives FINCANTIERI S.p.A. with the consolidated volatility associated with non-recurring classifi ed in non-current Financial assets fi gures (Group and non-controlling interests). items or extraordinary items outside the and non-current Financial liabilities) net of (euro/000) ordinary course of business. Employee benefi ts. 31.12.2019 31.12.2018 As required by Consob Communication • Net working capital: this is equal to Profit/(loss) Profit/(loss) no. 0092543 of 3 December 2015 which capital employed in ordinary operations Equity for the year Equity for the year

implements the ESMA Guidelines on which includes Inventories and advances, Parent Company Financial Statements 1,629,648 151,352 1,524,774 217,998 Alternative Performance Measures Construction contracts and client advances, Share of equity and net result of consolidated (document no. ESMA/2015/1415), the Construction loans, Trade receivables, Trade subsidiaries, net of carrying amount of the (768,732) (296,087) (341,788) (147,280) components of each of these indicators are payables, Provisions for risks and charges, related investments described below: and Other current assets and liabilities Consolidation adjustments for diff erence (including Income tax assets, Income tax between purchase price and corresponding 189,556 (25,888) 218,823 (4,962) book value of equity • EBITDA: this is equal to earnings liabilities, Deferred tax assets and Deferred Reversal of dividends distributed by before taxes, before fi nance income and tax liabilities, as well as the fair value of consolidated subsidiaries to the Parent (11,256) costs, before income and expenses from derivatives classifi ed in current Financial Company investments and before depreciation, assets and current Financial liabilities). Joint ventures and associates accounted for 13,116 (655) 15,330 5,650 amortization and impairment, as reported • Net invested capital: this is equal to the using the equity method Elimination of intercompany profi ts and losses in the fi nancial statements, adjusted to total of Net fi xed capital and, Net working 72,893 41,292 (58,459) 1,034 and other consolidation adjustments exclude the following items: capital and Net assets (liabilities) held for Exchange translation diff erences from line-by- - costs relating to reorganization plans sale and discontinued operations.. (117,983) (131,401) line consolidation of foreign subsidiaries and non-recurring other personnel costs; • ROI: Return on Investment is calculated as Equity and profi t for the year attributable 1,018,498 (141,242) 1,227,280 72,440 - provisions for costs and legal expenses the ratio between EBIT and the arithmetic to owners of the parent associated with lawsuits brought mean of Net invested capital at the Non-controlling interests 31,351 (6,997) 25,690 (3,317) by employees for asbestos-related beginning and end of the reporting period. Total consolidated equity and profi t/(loss) 1,049,849 (148,239) 1,252,970 69,123 damages; • ROE: Return on equity is calculated as the for the year - other income or expenses outside the ratio between Profi t/(loss) for the period ordinary course of business due to non- and the arithmetic mean of Total Equity recurring events. at the beginning and end of the reporting • EBIT: this is equal to EBITDA after period. deducting recurring depreciation, • Total debt/Total equity: this is calculated amortization and impairment of a recurring as the ratio between Total debt and Total nature (this excludes impairment of equity. goodwill, intangible assets and property, • Net fi nancial position/EBITDA: this is plant and equipment recognized as a result calculated as the ratio between the Net of impairment tests). fi nancial position, as monitored by the • Adjusted profi t/(loss) is equal to profi t Group, and EBITDA. (loss) for the year before adjustments for • Net fi nancial position/Total equity: this

98 99 FINCANTIERI GROUP / REPORT ON OPERATIONS FINCANTIERI GROUP / REPORT ON OPERATIONS

RECONCILIATION OF THE RECLASSIFIED FINANCIAL CONSOLIDATED STATEMENT OF FINANCIAL POSITION STATEMENTS USED IN THE REPORT ON OPERATIONS (euro/million) WITH THE MANDATORY IFRS STATEMENTS 31.12.2019 31.12.2018 Amounts in IFRS Amounts in Amounts in IFRS Amounts in CONSOLIDATED INCOME STATEMENT statement reclassified statement reclassified statement statement (euro/million) A - Intangible assets 654 618 31.12.2019 31.12.20181 Intangible assets 654 618 Amounts in IFRS Amounts in Amounts in IFRS Amounts in statement reclassified statement reclassified B - Rights of use 90 statement statement Rights of use 90 A - Revenue 5,849 5,416 C - Property, plant and equipment 1,225 1,074 Operating revenue 5,775 5,311 Property, plant and equipment 1,225 1,074 Other revenue and income 74 105 D - Investments 75 60 B - Materials, services and other costs (4,497) (4,029) Investments 75 60 Materials, services and other costs (4,520) (4,044) E - Other non-current assets and liabilities (79) 8 Recl. to I - Extraordinary and non-recurring income and Derivative assets 2 30 23 15 expenses Other non-current assets 16 31 C - Personnel costs (996) (941) Other liabilities (66) (32) Personnel costs (1,000) (946) Derivative liabilities (31) (21) Recl. to I - Extraordinary and non-recurring income and 4 5 expenses F - Employee benefi ts (60) (57) D - Provisions (36) (25) Employee benefi ts (60) (57) Provisions (75) (60) G - Inventories and advances 828 881 Recl. to I - Extraordinary and non-recurring income and Inventories and advances 828 881 39 35 expenses H - Construction contracts and client advances 1,415 936 E – Depreciation, amortization and impairment (167) (136) Construction contracts - assets 2,698 2,531 Depreciation, amortization and impairment (168) (136) Construction contracts - liabilities and client advances (1,283) (1,595) Recl. to I - Extraordinary and non-recurring income and 1 I - Construction loans (811) (632) expenses Construction loans (811) (632) F – Finance income/(costs) (134) (104) L - Trade receivables 677 749 Finance income/(costs) (134) (104) Trade receivables and other current assets 1,079 1,062 G - Income/(expense) from investments (3) (1) Recl. to O - Other assets (402) (313) Income/(expense) from investments (3) 3 M - Trade payables (2,270) (1,849) Recl. to I - Extraordinary and non-recurring income and (4) expenses Trade payables and other current liabilities (2,552) (2,116) H - Income taxes (87) (66) Recl. to O - Other liabilities 282 267 Income taxes (73) (54) N - Provisions for risks and charges (89) (135) Recl. L- Tax eff ect of extraordinary and non-recurring (14) (12) Provisions for risks and charges (89) (135) income and expenses O - Other current assets and liabilities 125 94 I - Extraordinary and non-recurring income and (67) (51) expenses Deferred tax assets 99 123 Recl. from B - Materials, services and other costs (23) (15) Income tax assets 9 21 Recl. from C - Personnel costs (4) (5) Derivative assets 2 23 Recl. from D - Provisions (39) (35) Recl. from L - Other current assets 402 313 Recl. from E – Depreciation, amortization and (1) Deferred tax liabilities (54) (58) impairment Income tax liabilities (7) (4) Recl. from G - Income/(expense) from investments 4 Derivative liabilities and option fair value (44) (57) L- Tax eff ect of extraordinary and non-recurring 14 12 income and expenses Recl. from M - Other current liabilities (282) (267) P) Net assets (liabilities) held for sale and Recl. from H – Income taxes 14 12 6 discontinued operations M - Profi t/(loss) for the year from continued operations (124) 75 N - Net profi t/(loss) from discontinued operations (24) (6) NET INVESTED CAPITAL 1,786 1,747 Net profi t/(loss) from discontinued operations (24) Q - Equity 1,050 1,253 Profi t/(loss) for the year (148) 69 R - Net fi nancial position 736 494

1 The 2018 fi gures have been restated to refl ect the discontinued operations of the small vessel construction business for the fi shery and aquaculture SOURCES OF FUNDING 1,786 1,747 sectors and the divestment of the Aukra yard.

100 101 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

F INCANTIERI GROUP CONSOLIDATED FINANCIAL STATEMENTS

102 103 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

C ONTENTS

FINCANTIERI GROUP CONSOLIDATED Note 20 - Provisions for risks FINANCIAL STATEMENTS and charges 174 Note 21 - Employee benefi ts 175 Consolidated statement of fi nancial Note 22 - Non-current fi nancial position 106 liabilities 176 Consolidated statement of comprehensive income 107 Note 23 - Other non-current liabilities 182 Consolidated statement of changes Note 24 - Construction contracts - in equity 108 liabilities 182 Consolidated statement of cash fl ows 109 Note 25 - Trade payables and other current liabilities 183 NOTES TO THE CONSOLIDATED Note 26 - Income tax liabilities 183 FINANCIAL STATEMENTS 111 Note 27 - Current fi nancial liabilities 184 Note 1 - Form, contents and other Note 28 - Revenue and income 187 general information 112 Note 29 - Operating costs 188 Note 2 - Scope and basis of consolidation 118 Note 30 - Finance income and costs 191 Note 3 - Accounting standards 124 Note 31 - Income and expense from Note 4 - Financial risk management 138 investments 192 Note 5 - Sensitivity analysis 148 Note 32 - Income taxes 193 Note 6 - Intangible assets 149 Note 7 - Rights of use 152 Note 33 - Other information 195 Note 8 - Property, plant and equipment 153 Note 34 - Cash fl ows from operating Note 9 - Investments accounted activities 214 for using the equity method Note 35 - Segment information 215 and other investments 155 Note 36 - Discontinued operations 218 Note 10 - Non-current fi nancial assets 160 Note 37 - Acquisition of the Insis Group 219 Note 11 - Other non-current assets 161 Note 38 - Events after 31 December 2019 220 Note 12 - Deferred tax assets and liabilities 162 Companies included in the scope of consolidation 222 Note 13 - Inventories and advances 164 Note 14 - Construction contracts - assets 165 MANAGEMENT REPRESENTATION Note 15 - Trade receivables and other current assets 166 ON THE CONSOLIDATED FINANCIAL STATEMENTS 228 Note 16 - Income tax assets 167 Note 17 - Current fi nancial assets 168 Note 18 - Cash and cash equivalents 169 REPORT BY THE INDEPENDENT Note 19 - Equity 170 AUDITORS 230

104 105 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(euro/000) (euro/000) Note 31.12.2019 of which related 31.12.2018 of which related Note 2019 of which related 2018 of which related parties Note 33 parties Note 33 parties Note 33 parties Note 33

ASSETS Operating revenue 28 5,774,851 307,771 5,368,896 271,109 NON-CURRENT ASSETS Other revenue and income 28 74,357 6,591 105,124 3,164 6 Intangible assets 654,495 617,668 Materials, services and other costs 29 (4,520,109) (211,702) (4,104,050) (106,386) 7 Rights of use 89,617 Personnel costs 30 (1,001,395) (951,615) Property, plant and equipment 8 1,225,030 1,074,026 of which non-recurring 33 (4,188) (4,969) Investments accounted for using the Depreciation, amortization and impairment 29 (167,509) (136,359) 9 55,772 55,651 equity method of which non-recurring 33 (906) 9 Other investments 19,594 4,556 Increases 29 (74,536) (58,759) 10 Financial assets 92,603 34,356 97,901 13,449 of which non-recurring 33 (3,722) 11 Other assets 17,523 31,811 673 Finance income 30 52,599 303 36,635 94 12 Deferred tax assets 99,021 123,964 Finance costs 30 (187,050) (3,086) (140,566) (4,079) Total non-current assets 2,253,655 2,005,577 Income/(expense) from investments 31 3 5,942 CURRENT ASSETS Share of profi t/(loss) of investments accounted for 31 (3,168) (2,905) Inventories and advances 13 827,946 186,484 881,095 201,738 using the equity method 32 Construction contracts - assets 14 2,697,714 2,531,272 Income taxes (71,955) (53,220) 36 Trade receivables and other current assets 15 1,079,388 175,334 1,062,377 145,310 Net profi t/(loss) from discontinued operations (24,329) Income tax assets 16 8,621 20,602 PROFIT/(LOSS) FOR THE YEAR (A) (148,239) 69,123 Financial assets 17 9,329 389 48,688 86 Attributable to owners of the parent (141,242) 72,440 Cash and cash equivalents 18 381,790 676,487 Attributable to non-controlling interests (6,997) (3,317) 33 Total current assets 5,004,788 5,220,521 Basic earnings/(loss) per share (Euro) (0.08360) 0.04293 33 Assets classifi ed as held for sale and 36 Diluted earnings/(loss) per share (Euro) (0.08317) 0.04264 discontinued operations 6,141 - TOTAL ASSETS 7,264,584 7,226,098 Other comprehensive income/(losses), net of tax (OCI)

EQUITY AND LIABILITIES Gains/(losses) from remeasurement of employee 19 19-21 (2,053) 1,141 EQUITY defi ned benefi t plans Attributable to owners of the parent Total gains/(losses) that will not be reclassifi ed to 19 (2,053) 1,141 Share capital 862,981 862,981 profi t or loss, net of tax attributable to non-controlling interests (2) 2 Reserves and retained earnings 155,517 364,299 Eff ective portion of gains/(losses) on cash fl ow 4-19 Total Equity attributable to owners of the parent 1,018,498 1,227,280 (25,615) (77,433) hedging instruments Attributable to non-controlling interests 31,351 25,690 Gains/(losses) arising from changes in OCI of Total Equity 1,049,849 1,252,970 investments accounted for using the equity 9 NON-CURRENT LIABILITIES method Exchange gains/(losses) arising on translation of Provisions for risks and charges 20 70,882 126,523 19 13,418 16,008 21 foreign subsidiaries' fi nancial statements Employee benefi ts 60,044 56,806 Total gains/(losses) that may be subsequently 19 (12,197) (61,425) Financial liabilities 22 881,551 30,376 792,728 40,487 reclassifi ed to profi t or loss, net of tax Other liabilities 23 28,576 32,137 attributable to non-controlling interests 395 1,014 10 Total other comprehensive income/(losses), net Deferred tax liabilities 54,349 58,012 (14,250) (60,284) of tax (B) 19 Total non-current liabilities 1,095,402 1,066,206 attributable to non-controlling interests 393 1,016 CURRENT LIABILITIES TOTAL COMPREHENSIVE INCOME/(LOSS) FOR 20 (162,489) 8,839 Provisions for risks and charges 17,743 8,693 THE YEAR (A) + (B) 21 Employee benefi ts 3 - Attributable to owners of the parent (155,885) 11,140 24 Construction contracts - liabilities 1,282,713 1,594,793 Attributable to non-controlling interests (6,604) (2,301) Trade payables and other current liabilities 25 2,553,701 117,812 2,116,290 66,642 Income tax liabilities 26 7,002 4,300 Financial liabilities 27 1,258,171 11,695 1,182,846 12,324 Total current liabilities 5,119,333 4,906,922 Liabilities directly associated with Assets classifi ed as held for sale and 36 - - discontinued operations TOTAL EQUITY AND LIABILITIES 7,264,584 7,226,098

106 107 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS

(euro/000) (euro/000) Note Share Capital Reserves Equity attributable Equity attributable Total Note 31.12.2019 31.12.2018 and retained to owners to non-controlling earnings of the parent interests NET CASH FLOWS FROM OPERATING ACTIVITIES 34 22,242 41,682 1.1.2018 19 862,981 353,430 1,216,411 72,088 1,288,499 - of which related parties 67,097 99,454 Business combinations Investments in: Share capital increase - intangible assets (60,980) (37,226) Share capital increase – non- 180 180 controlling interests - property, plant and equipment (218,039) (124,069) Acquisition of non-controlling - equity investments (18,107) (18,343) 11,814 11,814 (44,278) (32,464) interests - receivables and other fi nancial assets Dividend distribution (16,874) (16,874) (16,874) - cash out for business combinations, net of cash acquired (13,509) (85) Reserve for long-term incentive plan 4,844 4,844 4,844 Disposals of: Reserve for purchase of own shares - intangible assets Other changes/roundings (55) (55) 1 (54) Total transactions with owners (271) (271) (44,097) (44,368) - property, plant and equipment 308 232 Profi t/(Loss) for the year 72,440 72,440 (3,317) 69,123 - equity investments 125 16,600 OCI for the year (61,300) (61,300) 1,016 (60,284) - receivables and other non-current fi nancial assets 20 Total comprehensive income for 11,140 11,140 (2,301) 8,839 CASH FLOWS FROM INVESTING ACTIVITIES (310,182) (162,891) the year Change in non-current loans: 31.12.2018 19 862,981 364,299 1,227,280 25,690 1,252,970 - disbursements 110,880 567,785 Business combinations 14,157 14,157 Share capital increase - repayments (5,683) (61,080) Share capital increase – non- Change in non-current fi nancial receivables: 159 159 controlling interests - disbursements (31,142) (14,012) Acquisition of non-controlling (1,099) (1,099) 564 (535) - repayments 275 64,674 interests Change in current bank loans and credit facilities: Dividend distribution (16,874) (16,874) (16,874) Reserve for long-term incentive plan 2,190 2,190 2,190 - disbursements 2,033,211 1,255,041 Reserve for purchase of own shares (1,841) (1,841) (1,841) - repayments (1,959,044) (1,200,335) Put option on non-controlling Change in current bonds/commercial papers: (34,915) (34,915) (2,625) (37,541) interests - disbursements 1,152,400 1,275,300 Other changes/roundings (358) (358) 10 (348) - repayments (1,308,401) (1,343,539) Total transactions with owners (52,897) (52,897) 12,265 (40,633) Change in current parent company loans Profi t/(Loss) for the year (141,242) (141,242) (6,997) (148,239) Changes in payables/receivables to/from investee companies OCI for the year (14,643) (14,643) 393 (14,250) Repayment of fi nancial liabilities for leasing IFRS 16 (16,184) Total comprehensive income for (155,885) (155,885) (6,604) (162,489) the year Change in other current fi nancial liabilities/receivables 18,825 9,398 31.12.2019 19 862,981 155,517 1,018,498 31,351 1,049,849 Change in receivables for trading fi nancial instruments 811 2,214 Change in payables for trading fi nancial instruments (30) 30 Net capital contributions by non-controlling interests 159 180 Purchase of own shares (3,495) Acquisition of non-controlling interests in subsidiaries (535) (32,464) CASH FLOWS FROM FINANCING ACTIVITIES (7,953) 523,192 - of which related parties (61,974) (28,258) NET CASH FLOWS FOR THE YEAR (295,893) 401,983

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 676,487 274,411 Eff ect of exchange rate changes on cash and cash equivalents 1,196 93 CASH AND CASH EQUIVALENTS AT END OF YEAR 381,790 676,487

108 109 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

N OTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

110 111 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - FORM, CONTENTS AND OTHER • Off shore and Specialized Vessels: Reporting Standards, all the International Accounting standards, amendments and GENERAL INFORMATION encompassing the design and construction Accounting Standards (“IAS”), and all the interpretations applicable to fi nancial years of high-end off shore support vessels, interpretations of the International Financial ended 31 December 2019 The Parent Company specialized ships, and vessels for off shore Reporting Interpretations Committee wind farms and open ocean aquaculture, as (“IFRIC”) previously known as the Standing A brief description of the accounting FINCANTIERI S.p.A. (hereinafter “Fincantieri” well as innovative products in the fi eld of Interpretations Committee (“SIC”), which, standards, amendments and interpretations or the “Company” or the “Parent Company” drillships and semi-submersible drilling rigs; as at the reporting date of the Consolidated applicable to fi nancial statements as at and for and, together with its subsidiaries, the • Equipment, Systems and Services: Financial Statements, had been endorsed by the year ended 31 December 2019 is provided “Group” or the “Fincantieri Group”) is a encompassing the design and manufacture the European Union in accordance with the below. The list excludes those standards, public limited company with its registered of high-tech equipment and systems, such procedure laid down in Regulation (EC) no. amendments and interpretations concerning offi ce in Via Genova no. 1, Trieste (Italy), and as stabilization, propulsion, positioning and 1606/2002 of the European Parliament and matters not applicable to the Group. is listed on the Mercato Telematico Azionario power generation systems, ship automation European Council dated 19 July 2002, and in (Italy’s electronic stock market) organized systems, steam turbines, integrated systems compliance with Legislative Decree 38/2005 First adoption IFRS 16 and managed by Borsa Italiana S.p.A.. and ship accommodation, and the provision and Consob Communication no. 6064293 With eff ect from 1 January 2019, the new As at 31 December 2019, 71.32% of of repair and conversion services, logistical dated 28 July 2006 concerning disclosures. accounting standard IFRS 16 “Leases” came the Company’s Share Capital of euro support and after-sales services, and The statutory audit of the Consolidated into force, which defi nes a standard form for 862,980,725.70 was held by CDP Industria supply of solutions for electronic systems Financial Statements is the responsibility recognising leasing contracts, eliminating the S.p.A.; the remainder of Share Capital was and software and for infrastructure and of PricewaterhouseCoopers S.p.A., the fi rm distinction between operating and fi nancial distributed between a number of private maritime works. appointed to perform the statutory audit leases, and providing for the recognition of an investors (none of whom held signifi cant of the separate fi nancial statements of the asset for the right to use the good and a liability interests of 3% or above) and own shares A new organizational structure for the VARD Parent Company and its main subsidiaries. for the lease. (of around 0.42% of Shares representing the Group was defi ned in 2018, with a focus The present Consolidated Financial For fi rst-time application, for the purposes of Parent Company’s Share Capital). It should on two business units, the Off shore and Statements as at and for the year ended displaying the impact in the fi nancial statements be noted that 100% of the Share Capital Specialized Vessels business unit and the 31 December 2019 were approved by from the fi rst adoption of IFRS 16, the Group of CDP Industria S.p.A. is owned by Cassa Cruise business unit, and full organizational the Company’s Board of Directors has decided to use the option provided for Depositi e Prestiti S.p.A. (hereinafter also integration with FINCANTIERI S.p.A.. on 1 April 2020. by IFRS 16, paragraph C5, subsection b) and referred to as “CDP”), 82.8% of whose Share The economic results of VARD’s Cruise The IFRSs have been consistently applied to paragraph C8, on the basis of which the Group Capital is in turn owned by Italy’s Ministry of business unit, coordinated directly by all the accounting periods presented in the recognised at 1 January 2019 a fi nancial liability Economy and Finance. Fincantieri’s Merchant Shipping Division, current document. (euro 88 million) corresponding to the actual Furthermore, CDP, with registered offi ce in have been allocated to the Shipbuilding The Consolidated Financial Statements have value of outstanding payments due for leases in via Goito 4, Rome, prepares the consolidated operating segment. been prepared on a going concern basis, place on the date of fi rst application, discounted fi nancial statements of the larger Group to Project management for the construction since the Directors have verifi ed that there using the marginal lending rate on the date which the company belongs and which are of off shore vessels, specialized ships and are no fi nancial, operating or other types of initial application, against a fi xed assets of available on the website www.cdp.it in the vessels for the Norwegian Coast Guard have of indicators that might cast signifi cant the same amount refl ecting the right to use section. been merged into the VARD Off shore and doubt upon the Group’s ability to meet the leased goods, without restating the values Specialized Vessels business unit, whose its obligations in the foreseeable future for the previous fi nancial years presented for Principal activities of the Group economic results continue to be shown in and particularly within the 12 months from comparison. The weighted average marginal the Off shore and Specialized Vessels. the end of the reporting period based on lending rate used to determine the fi nancial The Group operates through the following expected cash fl ows at the date the fi nancial liability at 1 January 2019 was 3.1%. In addition, three segments: Basis of preparation statements are approved. for fi rst-time application, the Group has used The Consolidated Financial Statements have the option not to make any adjustments for • Shipbuilding: encompassing the business The Consolidated Financial Statements been prepared under the historical cost operating leases which have underlying assets areas cruise ships and expedition cruise of the Fincantieri Group have been convention, except for those fi nancial assets of a low value and for operating leases with a vessels, naval vessels, ferries and mega prepared in compliance with IFRS, and fi nancial liabilities for which fair value term ending within 12 months of the date of yachts; meaning all the International Financial measurement is compulsory. initial application, for which the payments due

1 Following the reorganization of the Cassa Depositi e Prestiti S.p.A. Group, on 13 December 2019 the entire stake (71.32% of the share capital) in FINCANTIERI S.p.A. was transferred from Fintecna S.p.A. to CDP Industria S.p.A..

112 113 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

will continue to be recognised, as previously done, of the accounting standard in force up to the Other accounting standards, amendments revised version of the Conceptual Framework under operating charges. 2018 fi nancial year. The income statement also and interpretations applicable with eff ect for Financial Reporting and at the same includes: (i) instalments relating to short-term from 1 January 2019 time published a document amending the In summary, accounting for leasing contracts leases of modest value, as allowed by IFRS 16 On 7 June 2017, the IASB issued the references to the previous Conceptual pursuant to IFRS 16 requires: in a simplifi ed manner; and (ii) variable lease interpretation IFRIC 23 – Uncertainty over Framework in IFRS Standards, providing: instalments, not included in the determination Income Tax Treatments, which provides • in the balance sheet, the recognition of an of the lease liability (e.g. instalments based on indications on how to refl ect the eff ects of - updated defi nitions of an asset and a asset, representing the right of use of the good the use of the leased asset); uncertainties in tax treatment in the accounts. liability; (right of use asset), and a liability (lease liability), • in the statement of cash fl ows, the recognition On 12 October 2017, the IASB published - a new chapter on measurement, representing the obligation to make payments of the repayments of the principal portion of the amendments to IFRS 9 – Prepayment Features derecognition and disclosure; under the contract; as permitted by the principle, lease liability under net cash fl ow from fi nancing with Negative Compensation, aimed at - clarifi cation of certain principles when the right of use asset and the lease liability are activities. Interest payable is recognised under enabling measurement at amortized cost or drafting fi nancial statements, such as recorded in separate items with respect to the net cash fl ow from operating activities, where it at fair value through other comprehensive prudence and substance over form. other components of the balance sheet; is recognised in the income statement. income (OCI) of fi nancial assets with an early • in the income statement, under operating repayment option with negative compensation. The amendments will be eff ective from 1 costs, the recognition of amortization of right The following table shows the reconciliation On 12 October 2017, the IASB published January 2020. Early adoption is permitted of use assets and, in the fi nancial section, the between the commitments for operating leases amendments to IAS 28 – Long-term Interests but the Group has not taken up this option. recognition of interest payable accrued on the reported in the 2018 fi nancial statements and in Associates and Joint Ventures, to clarify On 26 September 2019, the IASB published lease liability, if not capitalized, instead of the the value of the fi nancial liability and related that IFRS 9 applies to long-term interests in an amendments to IFRS 9, IAS 39 and IFRS operating lease instalments recorded under rights of use recorded at the time of fi rst associate or joint venture that form part of the 17 - Interest Rate Benchmark Reform, which operating costs in accordance with the provisions application of IFRS 16: net investment in the associate or joint venture. amend the hedge accounting requirements (euro/000) On 12 December 2017, the IASB issued the of IFRS 9 and IAS 39. The amendments 1 January 2019 “Annual Improvements to IFRSs: 2015-2017 will be eff ective from 1 January 2020. Early Commitments for operating leases IAS 17 not discounted to 31 December 2018 (+) 81,188 Cycle” as part of the program of annual adoption is permitted but the Group has Exceptions to IFRS 16 (-) (8,698) improvements to the standards; most of not taken up this option. On 31 October - For short-term leases (-) (8,436) the changes are clarifi cations or corrections 2019, the IASB published amendments to - For leases of moderate value (-) (261) of existing IFRSs or amendments as a IAS 1 and IAS 8, clarifying the defi nition of Other changes: 34,914 consequence of previous changes to IFRSs. “material information” in order to establish - adjustments due to diff erent consideration of options for early renewal or 34,914 On 7 February 2018, the IASB published whether or not to include information in the termination of contracts amendments to IAS 19 – Plan Amendment, fi nancial statements. The amendments will be Financial liabilities for IFRS 16 non-discounted operating leases at 1 January 2019 107,404 Curtailment or Settlement, specifying the eff ective from 1 January 2020. Early adoption Discount eff ect on operating leases (-) (19,083) methods for determining, in the case of a is permitted but the Group has not taken up Financial liabilities for IFRS 16 discounted operating leases at 1 January 2019 88,322 defi ned benefi t plan, the costs relating to this option. Financial liabilities for fi nancial leases pursuant to IAS 17 at 01/01/2019 (+) 210 pensions for the remainder of the reporting Total IFRS 16 fi nancial liabilities at 1 January 2019 88,531 period. Accounting standards, amendments and The application of these standards, interpretations already issued but not yet New Rights of Use recognised for transition purposes IFRS 16 (+) amendments and interpretations had eff ective Assets for operational use: 88,322 no impact on the Consolidated Financial a) buildings 62,028 Statements as at 31 December 2019. The following is a brief description of the b) state concessions 21,603 new accounting standards, amendments c) vehicles and passenger cars 4,146 Accounting standards, amendments and and interpretations already issued but not c) other 545 interpretations not yet adopted but for yet eff ective or not yet endorsed by the Assets under fi nancial lease as per IAS 17 at 01/01/2019 (+) 210 which early application is permitted European Union and therefore not applicable Financial liabilities for IFRS 16 discounted operating leases at 1 January 2019 88,531 for the preparation of fi nancial statements Equity (Retained earnings) at 1 January 2019 - On 29 March 2018, the IASB published the for annual accounting periods ended 31

114 115 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS GRUPPO FINCANTIERI / BILANCIO CONSOLIDATO

December 2019. The list excludes those If, in certain cases, amounts are required to standards, amendments and interpretations be reported in a unit other than euro/000, concerning matters not applicable to the the monetary unit of presentation is clearly Group. specifi ed. On 22 October 2018, the IASB published amendments to IFRS 3 – Business Combination, with the aim of identifying the principles according to which an acquisition concerns a business or a group of assets, which, as such, do not meet the defi nition of business provided by IFRS 3. The amendments will be eff ective for business combinations that occur from 1 January 2020.

Presentation of fi nancial statements

The Group presents its statement of fi nancial position using a “non-current/current” distinction, its statement of comprehensive income using a classifi cation based on the nature of expenses, and its statement of cash fl ows using the indirect method. It is also noted that the Group has applied Consob Resolution no. 15519 of 27 July 2006 concerning fi nancial statement formats. With reference to the Statement of Comprehensive Income, the composition of non-recurring income and expenses has been altered for the clarifi cations provided in Consob Communication no. 0092543 of 3 December 2015.

Functional and presentation currency

These fi nancial statements are presented in Euro which is the currency of the primary economic environment in which the Group operates. Foreign operations are included in the Consolidated Financial Statements in accordance with the principles set out in the following notes. The Consolidated Financial Statements, like the accompanying notes, are presented in thousands of euro (euro/000).

116 117 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SCOPE AND BASIS OF CONSOLIDATION Marine Interiors S.p.A., in which it holds • On 1 November 2019, Vard Group AS companies included in the consolidation are 100% of the Share Capital. The NewCo, with increased its shareholding in Vard Acqua eliminated in full; also eliminated are profi ts Scope of consolidation registered offi ce in Trieste, will focus on Sunndal AS from 98.21% to 100%; and losses arising from intragroup transfers ship furnishings; • In 2019, Fincantieri, through the subsidiary of fi xed assets, profi ts and losses arising on Appendix 1 presents a list of the companies • On 17 October 2019, the subsidiary Fincantieri Oil & Gas, subscribed a Share the intragroup sale of assets that are still included in the scope of consolidation, Seaf S.p.A. incorporated the company Capital increase in Vard Holdings Ltd. in inventory of the purchasing company, including information about the nature of Fincantieri Infrastructure Opere Marittime for euro 88 million and purchased more impairment and impairment reversals their business, location of their registered S.p.A., in which it holds 100% of the Share shares in the VARD group. As a result of relating to investments in consolidated offi ces, amount of Share Capital, the Capital. The new company, with registered these operations, the stake increased from companies and intragroup dividends. The interests held and the companies which offi ce in Trieste, will focus on construction 97.22% at 31 December 2018 to 98.22% at 31 portion of capital and reserves attributable hold them. works. December 2019. to non-controlling interests in consolidated During 2019 the following companies were subsidiaries and the portion of profi t or loss incorporated which are included in the The following main transactions should also With regard to movements in shareholdings for the year attributable to non-controlling scope of consolidation: be noted: consolidated using the equity method, the interests are identifi ed separately within the following transaction is reported: fi nancial statements. Losses attributable • On 19 February 2019, the Parent Company • On 1 January 2019, the deed of reverse to non-controlling interests that exceed and the subsidiary Fincantieri SI S.p.A. merger by incorporation of Delfi S.r.l. into • On 29 August, the Parent Company the non-controlling interest in an investee’s incorporated the company BOP6 S.c.a.r.l., in the subsidiary Issel Nord S.r.l. took eff ect, became a shareholder of Decomar S.p.A. capital are allocated to equity attributable which they hold 5% and 95% of the Share whereby all the shares making up the with a 20% stake. to non-controlling interests. Capital respectively. The NewCo, based in capital of Delfi S.r.l. were cancelled, while Changes in a parent’s ownership interest Trieste, will install transformers, converters, those of Issel Nord S.r.l. were assigned to The Consolidated Financial Statements at in a subsidiary that do not result in power factor correction units and harmonic FINCANTIERI S.p.A.; 31 December 2019 have not been aff ected acquisition/loss of control are accounted fi lters at the ITER site in Saint-Paul Lez • On 8 January 2019, the company SIA by any signifi cant transactions or unusual for as equity transactions. The diff erence Durance (France); ICD Industries Latvia, 100% owned by the events except as reported in the Notes. between the price paid and the share of • On 13 March 2019, Vard Group AS company Seaonics AS, was liquidated; net assets acquired is recorded against incorporated the company VBD2, in which • On 11 March 2019 the company Vard Ship Basis of consolidation equity attributable to the parent as gains/ it holds 100% of the Share Capital; Repair Braila SA, 100% owned by Vard Braila losses arising on the sale of shares to non- • On 29 August 2019, the Parent Company SA, was liquidated; Subsidiaries controlling interests. incorporated Fincantieri Dragaggi Ecologici • On 19 March 2019, the subsidiary Marine Consolidated fi nancial statements If the group loses control of a subsidiary, it S.p.A. The new company, with registered Interiors Cabins S.p.A. (formerly Marine incorporate the fi nancial statements of all recalculates the fair value of the investment offi ce in Rome, will carry out environmental Interiors S.p.A.) acquired the entire entities (subsidiaries) controlled by the retained in the former subsidiary at the date eco-dredging and related works; shareholding of Luxury Interiors Factory S.r.l.; Group. control is lost, recognizing any diff erence in • On 8 October 2019, the subsidiaries • On 4 July 2019, FINCANTIERI S.p.A. The Group controls an entity (including profi t or loss as gains or losses attributable Vard Promar SA and Vard Group AS completed the acquisition of a 60% stake in structured entities) when it is exposed, to the parent. This value will also incorporated Vard Infraestrutura Ltda., in the INSIS group, a solution provider in the or has rights, to variable returns from its correspond to the remaining investment’s which they hold 99.99% and 0.01% of the fi eld of physically and logically integrated involvement with this entity and has the initial carrying amount classifi ed as an Share Capital respectively; security, operating in domestic and foreign ability to aff ect those returns through its investment in an associate or joint venture • On 10 October 2019, the subsidiary Seaf markets both directly and as a technology power over the entity. or as a fi nancial asset. Lastly, the group S.p.A. incorporated the company M.I. S.p.A., partner of large industrial groups. The Subsidiaries are consolidated from the will account for all amounts previously in which it holds 100% of the Share Capital. purchase price of the investment is euro 23 date that control is obtained until the date recognized in other comprehensive income The new company, with registered offi ce in million. The agreement also provides that control ceases. Costs incurred during the for that subsidiary, in the same way as if the Trieste, will focus on ship furnishings; Fincantieri may exercise a call option on the acquisition process are expensed in the year parent had disposed of the related assets • On 11 October 2019, the subsidiary Marine remaining 40% and the minority third party incurred. or liabilities directly. This may result in a Interiors Cabins S.p.A. (formerly Marine shareholder may exercise a put option on Assets and liabilities, income and expenses reclassifi cation of such gains or losses from Interiors S.p.A.) incorporated the company the same share; arising from transactions between equity to profi t or loss.

118 119 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

Appropriate adjustments are made to are recognized as an adjustment to primary economic environment in which the diff erences arising on the income the fi nancial statements of subsidiaries consolidated equity. they operate. For consolidation purposes, statement’s translation at an average rate to ensure conformity with the Group’s Unrealized profi ts and losses arising from the fi nancial statements of each foreign as opposed to a closing rate, as well as the accounting policies. transactions between associates accounted company are translated into Euro, which diff erences arising on the translation of The reporting date of subsidiary companies for using the equity method and the Parent is the Group’s functional currency and the opening equity at a diff erent rate to that is aligned with that of the Parent Company; Company or its subsidiaries are eliminated presentation currency for its Consolidated applied to closing equity; where this is not the case, subsidiaries to the extent of the Group’s interest in the Financial Statements. • goodwill and fair value adjustments prepare specifi c fi nancial statements for use associate; unrealized losses are eliminated The criteria for translating the fi nancial arising from the acquisition of a foreign by the Parent Company. unless they represent an impairment loss. statements of companies expressed in a entity are treated as assets and liabilities currency other than the Euro are as follows: of the foreign entity and translated initially Associates Joint arrangements at the acquisition- date exchange rate Associates are those entities over which The Group applies IFRS 11 to classify • assets and liabilities are translated using and subsequently adjusted to the closing the Group has signifi cant infl uence, which investments in joint arrangements, the closing exchange rate at the year-end exchange rate. is usually presumed to exist when it holds distinguishing them between joint reporting date; between 20% and 50% of the entity’s operations and joint ventures according to • income and expenses are translated using The exchange rates used to translate the voting power. Investments in associates are the contractual rights and obligations of the average exchange rate for the reporting fi nancial statements of Group companies initially recognized at cost and subsequently each investor. A joint operation is a joint period/year; with a “functional currency” other than the accounted for using the equity method arrangement whereby the parties that • the “currency translation reserve” reports Euro are as follows: described below. have joint control of the arrangement have The carrying amount of these investments rights to the assets, and obligations for 2019 2018 refl ects the Group’s share of the associate’s the liabilities, relating to the arrangement, 12-month average Closing rate at 31.12 12-month average Closing rate at 31.12 equity, adjusted, if necessary, to refl ect the while a joint venture is a joint arrangement application of IFRSs, as well as the higher whereby the parties that have joint control US Dollar (USD) 1.1195 1.1234 1.1810 1.1450 values attributed to assets and liabilities of the arrangement have rights to the net Australian Dollar (AUD) 1.6109 1.5995 1.5797 1.6220 and any goodwill identifi ed on acquisition. assets of the arrangement. UAE Dirham (AED) 4.1113 4.1257 4.3371 4.2050 Appropriate adjustments are made to Interests in joint ventures are accounted for Brazilian Real (BRL) 4.4134 4.5157 4.3085 4.4440 the fi nancial statements of investments using the equity method, while in the case Norwegian Krone (NOK) 9.8511 9.8638 9.5975 9.9483 accounted for using the equity method of joint operations, each party to the joint Indian Rupee (INR) 78.8361 80.1870 80.7332 79.7298 to ensure conformity with the Group’s operation recognizes the specifi c assets to Romanian Leu (RON) 4.7453 4.7830 4.6540 4.6635 accounting policies. which it is entitled and the specifi c liabilities Chinese Yuan (CNY) 7.7355 7.8205 7.8081 7.8751 The Group’s share of profi ts or losses for which it has obligations, including its Swedish Krona (SEK) 10.5891 10.4468 10.2583 10.2548 is recognized from the date signifi cant share of any assets and liabilities held/ infl uence is acquired until the date such incurred jointly, and its share of the revenue infl uence ceases. If, as a result of losses, and expenses under the terms of the joint an associate reports negative equity, the arrangement. carrying amount of the investment is Appropriate adjustments are made to reduced to zero and the Group recognizes the fi nancial statements of joint ventures a liability for the additional losses only to ensure conformity with the Group’s to the extent that it has incurred legal or accounting policies. constructive obligations or made payments on behalf of the associate. Changes in Translation of the fi nancial statements of the equity of investments accounted foreign operations for using the equity method which are The fi nancial statements of subsidiaries and not represented by profi ts or losses associates are prepared in their “functional reported through its income statement, currency”, being the currency of the

120 121 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUPGRUPPO / CONSOLIDATED FINCANTIERI / BILANCIOFINANCIAL CONSOLIDATO STATEMENTS

Business combinations in entities which are already controlled by Business combinations under which the the acquirer or disposals of non-controlling acquirer obtains control of the acquiree interests that do not involve a loss of are accounted for in accordance with control are treated as equity transactions; the provisions of IFRS 3 - Business therefore, any diff erence between the cost of Combinations, using the acquisition method. acquisition/disposal and the related share of The cost of acquisition is represented by net assets acquired/sold is accounted for as the acquisition-date fair value of the assets an adjustment to the Group’s equity. acquired, the liabilities assumed, and equity When controlling interests of less than instruments issued. The identifi able assets 100% are acquired, only the portion acquired, and liabilities and contingent of goodwill attributable to the Parent liabilities assumed are recognized at their Company is recognized. The value of non- acquisition-date fair values, except for controlling equity interests is determined in deferred tax assets and liabilities, assets proportion to the non-controlling interest and liabilities for employee benefi ts and in the acquiree’s net identifi able assets. assets held for sale, which are recognized in Acquisition-related costs are recognized in accordance with the applicable accounting profi t or loss on the date the services are standards for these items. The diff erence received. between the cost of acquisition and the fair value of the assets and liabilities acquired National tax consolidation is recognized, if positive, under intangible Since 2013, FINCANTIERI S.p.A., together assets as goodwill or, if negative, after with its subsidiaries Isotta Fraschini Motori reassessing the correct measurement of S.p.A. and Fincantieri Oil & Gas S.p.A., have the fair values of the assets and liabilities partaken in the tax regime governed by art. acquired and the cost of acquisition, it 117 et seq. of Presidential Decree 917/1986, is recognized directly in profi t or loss namely National Tax Consolidation, headed as income. Acquisition-related costs are up by Cassa Depositi e Prestiti S.p.A.. accounted for as expenses in the period The National Tax Consolidation agreement incurred. was renewed in 2019 for another three years The cost of acquisition includes contingent until fi nancial year 2021. consideration, recognized at its acquisition- date fair value. Subsequent changes in fair value are recognized in profi t or loss or other comprehensive income if the contingent consideration is a fi nancial asset or liability. Contingent consideration classifi ed as equity is not remeasured and its subsequent settlement is accounted for directly in equity. If, in a business combination, control is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss in profi t or loss. Acquisitions of non-controlling interests

122 123 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - ACCOUNTING STANDARDS 1.2 Concessions, licenses, trademarks and asset or, if it is used internally, the asset is of corresponding to the transfer to the similar rights demonstrable utility; customer of the goods or services to which 1. Intangible assets Concessions, licenses and similar rights, • adequate technical and fi nancial resources the asset refers. acquired in a business combination, are are available to complete the project. Intangible assets are identifi able non- recognized at their acquisition-date fair 2. Rights of use monetary assets without physical values and systematically amortized over Capitalized development costs are amortized substance, that are controllable and able the shorter of their expected period of use over the period the expected future income The new accounting standard IFRS 16 to generate future economic benefi ts. and the length of the right’s ownership. from the project will arise. Useful life varies “Leases” defi nes a standard form for Such assets are carried at purchase Trademarks are considered to have depending on the project and ranges from 5 recognising leasing contracts, eliminating cost and/or internal production cost, an indefi nite useful life and so are not to 10 years. the distinction between operating and including expenses directly attributable amortized, but are tested annually for fi nancial leases, and providing for the to preparing assets for their intended impairment, or whenever specifi c events or 1.5 Industrial patents and intellectual recognition of an asset for the right to use use, less accumulated amortization changed circumstances indicate that they property rights the good and a liability for the lease. A and any accumulated impairment might be impaired. Amortization of industrial patents and contract is, or contains, a lease if, in return losses. Any borrowing costs incurred intellectual property rights is calculated on a for consideration, it gives the right to control during and for the development of an 1.3 Client relationships and order backlog straight- line basis so as to allocate the cost the use of a specifi ed asset for a period of intangible asset are capitalized as part Client relationships and order backlog are incurred for acquiring the rights over their time. of the asset’s cost. Assets qualifying recognized only if acquired in a business estimated useful life or the term of the related Assets for the right to use leased assets are as “assets acquired in a business combination. contracts, if shorter. Amortization begins initially valued at cost, and subsequently combination” are recognized separately Client relationships are amortized over the when the acquired rights become eff ective. depreciated over the term of the lease only if their fair value can be measured expected life of such relationships (10-20 The cost of software licenses is amortized on contract defi ned during the analysis, taking reliably. Intangible assets are amortized years). a straight-line basis over 3 years. into account any extension or termination unless they have an indefi nite useful The order backlog represents the expected options that can reasonably be exercised. life. Amortization commences when residual value of orders existing at the 1.6 Incremental costs to obtain contracts and The cost of right to use assets includes the the asset is available for use and is acquisition date. This value is amortized on fulfi l contracts initially recognized value of the lease liability, allocated on a systematic basis over its a straight-line basis over expected useful The incremental costs to obtain the contract the initial direct costs incurred, the estimate useful life. The criteria used to identify life. are the costs an entity incurs to obtain the of any restoration costs to be incurred at and determine any impairment losses contract with the customer that it would the end of the contract and the advance for intangible assets can be found in 1.4 Research and development costs not have incurred if it had not obtained the payments relating to the lease made at paragraph 3 below. Expenditure on research is recognized as an contract (for example, a sales commission). the date of fi rst transition net of any lease expense when it is incurred. Expenditure on These costs can be capitalized if they are incentives received. 1.1 Goodwill developing new products and processes is expected to be recovered. The related liabilities for leased assets are Goodwill is not amortized but is capitalized and recognized as an intangible Costs to perform the contract are capitalized initially measured at the present value of the tested annually for impairment, or asset only if all the following conditions are only if they meet all the following conditions: payments due for the fi xed lease payments whenever specifi c events or changed satisfi ed: i) they are directly related to the contract or to be made at the date of signing the lease circumstances indicate that it might be to a planned contract, which the company agreement and for the exercise price of the impaired. It is not permitted to reverse • the development project is clearly identifi ed can specifi cally identify; ii) they allow the purchase option and redemption option if a previously recognized impairment and the related costs are identifi able and can company to dispose of new or increased reasonably exercisable, discounted using loss. After initial recognition, goodwill be measured reliably; resources to be used to perform (or continue the interest rate implicit in the lease, if is carried at cost less any accumulated • the technical feasibility of the project can be to perform) the contractual obligations; iii) determinable, or the marginal lending rate impairment losses. demonstrated; they are expected to be recovered. at the date. Liabilities for leased assets are On loss of control of a subsidiary, the • the intention to complete the project and The assets recognized from the subsequently increased by the interest that gain or loss on disposal takes into sell the intangible assets generated can be capitalization of the incremental costs to accrues on these liabilities and decreased account the residual value of previously demonstrated; obtain contracts and to fulfi l contracts are in correlation with the lease payments. recognized goodwill. • a potential market exists for the intangible amortized systematically and in a manner Liabilities for leased assets are in any case

124 125 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

restated to take account of changes in 3. Property, plant and equipment CATEGORIES Useful life (years) the payments due for the lease, adjusting Industrial buildings and dry docks 33 - 47 the right of use asset for the same value. Items of property, plant and equipment Plant and machinery 7 - 25 However, if the carrying amount of the asset are stated at their historical purchase Equipment 4 - 12 underlying the right of use is zero and there or production cost less accumulated Assets under concession Useful life or term of concession, if shorter is a further reduction in the valuation of the depreciation and any accumulated Leasehold improvements lease liability, that diff erence is recognized in impairment losses. Cost includes expenditure Useful life or term of lease, if shorter profi t or loss. that is directly attributable to preparing Other assets 4 - 33 In the event of changes in the lease the assets for their intended use, as well as agreement, these changes are accounted any costs of dismantling and removing the Land is not depreciated. The residual values a discount rate refl ecting current market for as a separate lease when rights of use assets which will be incurred as a result of and useful lives of property, plant and assessments of the time value of money for are added to one or more underlying assets contractual obligations to restore assets to equipment are reviewed, and adjusted if the period of investment and risks specifi c and the lease consideration increases by their original condition. Any borrowing costs appropriate, at least at every fi nancial to that asset. Value in use is determined, net an amount that refl ects the separate price incurred during and for the development of year-end. of tax, using a post-tax discount rate, since for the increase in the asset leased. In an item of property, plant and equipment are The criteria used to identify and determine this method produces broadly similar values relation to changes that are not accounted capitalized as part of the asset’s cost. any impairment losses for property, plant and to those obtained by discounting pre-tax for as a separate lease, the lease liability is Assets under concession are stated at equipment can be found in paragraph 3 below. cash fl ows at a pre-tax discount rate. An restated by discounting the lease payments cost, including estimated dismantling and impairment loss is recognized in profi t or loss due using a revised discount rate, based removal costs, arising as a consequence of 4. Impairment of non-fi nancial assets when an asset’s carrying amount is higher on the new lease term. These adjustments contractual obligations to restore an asset than its recoverable amount. If the reasons to liabilities are accounted for by making to its original condition, less accumulated Property, plant and equipment and intangible for an impairment loss cease to exist, it may a corresponding change in the asset depreciation calculated over the shorter of assets are reviewed at the end of each be reversed in whole or in part through profi t underlying the right of use, recording any the asset’s estimated useful life and the term reporting period to identify any indication or loss, except in the case of goodwill, whose gain or loss relating to the partial or total of the individual concessions. of impairment. If any such indication exists, impairment can never be reversed; if an termination of the contract in the income Expenditure incurred after acquiring an asset the recoverable amount of such assets impairment loss is reversed, the asset’s new statement. and the cost of replacing certain parts is is estimated and if this is lower than the carrying amount may not exceed the carrying No rights of use assets are recognized in capitalized only if such expenditure increases carrying amount, the diff erence is recognized amount that would have been determined relation to: i) short-term leases; ii) leases the asset’s future economic benefi ts. Routine in profi t or loss as an impairment loss. (net of amortization or depreciation) had no where the underlying asset is of low value. repair and maintenance costs are recognized Intangible assets with indefi nite useful lives, impairment loss been recognized in the past. Payments due for these types of lease as expenses in the period incurred. If the such as goodwill, are not amortized but are contracts are recognized as operating costs of replacing certain parts of an asset tested annually for impairment, or more often, 5. Other investments expenses on a straight-line basis. are capitalized, the residual value of the parts whenever there are signs that such assets The income statement recognizes, under replaced is charged to profi t or loss. might be impaired. Investments in companies other than operating costs, depreciation of right of Depreciation is charged on a straight- The recoverable amount of an asset is the subsidiaries, associates and joint ventures use assets and, in the fi nancial section, line basis so as to depreciate assets over higher of its fair value less costs to sell and its (generally where the interest is less than 20%) the interest payable accrued on the lease their useful lives. If a depreciable asset value in use, defi ned as the present value of are classifi ed as fi nancial assets carried at fair liability, if not capitalized. The income consists of separately identifi able parts, the future cash fl ows expected to be derived value, which normally corresponds, during statement also includes: (i) instalments whose useful lives diff er signifi cantly from from that asset. If an asset does not generate fi rst inclusion, to the amount of the operation relating to short-term leases of modest other parts of that asset, each part is cash infl ows that are largely independent of inclusive of the transaction costs directly value, as allowed by IFRS 16 in a simplifi ed depreciated separately in accordance with the cash infl ows from other assets, its value in attributed to it. Subsequent changes in fair manner; and (ii) variable lease instalments, the component approach. The Group has use is determined with reference to the cash- value are recognized in profi t or loss (FVPL) not included in the determination of the estimated the following useful lives for its generating unit to which the asset belongs. or, if the option envisaged by the standard lease liability (e.g. instalments based on the various categories of property, plant and When calculating an asset’s value in use, its is exercised, in other comprehensive income use of the leased asset). equipment: expected cash fl ows are discounted using (FVOCI) under the item “FVOCI reserve”. For

126 127 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

investments valued at FVOCI, impairment any grants available under specifi c laws costs for each contract. contract is discharged, cancelled or losses are not recorded in comprehensive which have reasonably accrued at the If it is expected that the completion of a expires. income, neither are the accumulated profi ts or period-end reporting date, in accordance contract may give rise to a loss at the gross For derivative liabilities, please refer to losses if the investment is sold. The dividends with the cost-to-cost method, taking into margin level, this is recognized in full in paragraph 8.4. distributed by the investee are recorded in account the stage of completion of the the period in which it becomes reasonably comprehensive income only when: contract and any expected risks. If, however, foreseeable. 8.1 Reverse factoring a) the Group’s right to receive the dividend control is transferred at the moment of Assets for construction contracts are In order to ensure easier access to credit matures; fi nal delivery of the good or completion of reported as the costs incurred plus profi t for its suppliers and given the importance b) it is probable that the economic benefi ts all the services contracted, the assets are recognized to date, net of the related of the supply chain to the shipbuilding arising from the dividend will fl ow to the recognized at purchase cost. liabilities, i.e. the progress billings issued industry, the Parent Company has entered Group; If two or more contracts are concluded and any estimated future losses. The into factoring agreements, typically in the c) the amount of the dividend can be reliably at the same time (or almost at the same calculation is performed on a contract- technical form of reverse factoring. Based measured. time) with the same customer (or related by-contract basis. If the diff erence arising on these agreements, the supplier has the parties of the customer), they are recorded under this calculation is positive, it is discretionary option to sell receivables 6. Inventories and advances as a single contract when they meet one classifi ed as an asset under “assets arising due from the Parent Company or some or more of the following criteria: i) they from contracts with customers” and if it subsidiaries to a fi nance company and Inventories are recorded at the lower were negotiated together for a single is negative, the diff erence is classifi ed as receive the amount owed before the due of purchase or production cost and net business purpose, ii) the contract prices are a liability under “Construction contracts – date; in addition, the supplier also has the realizable value, defi ned as the estimated interdependent, or iii) the goods or services liabilities”. option to agree with the Parent Company to selling price in the ordinary course of promised in the contract represent a single Any borrowing costs incurred for specifi c extend the due date beyond that shown in business less selling costs. The cost of obligation to the customer. loans during and for the development the invoice. Such extensions can be either inventories of raw, ancillary and consumable A contract is recognized as a single asset of construction contracts are treated as interest-bearing or non-interest bearing. materials and fi nished products and goods when it identifi es a single contractual expenses of the specifi c project. Since the primary obligation is still to the is determined using the weighted average obligation, i.e. if the promise is to transfer Shipbuilding contracts are closed for supplier, the related liability retains its nature cost method. one single good/service to the customer accounting purposes three months after a and so continues to be classifi ed in trade The cost of production includes raw or a series of goods/services that are vessel’s delivery; in the case of vessels for payables. materials, direct labor costs and other substantially the same are transferred to government defense forces (naval vessels), costs of production (allocated on the basis the customer over a period of time using the delivery date is the issue date of the 9. Financial assets of normal operating capacity). Borrowing the same methods. If diff erent contractual acceptance report. costs are not included in the value of obligations are identifi ed in the contract, The Group classifi es fi nancial assets inventories. these are recognized as separate assets 8. Financial liabilities according to the categories identifi ed by Slow-moving and obsolete inventories are arising from the same contract with the IFRS 9: suitably written down to align their value customer. If the original contract i) provides Financial liabilities, inclusive of loans and with the net realizable amount. for the construction of an additional asset borrowings, trade payables, other payables • fi nancial assets measured at amortized cost; at the option of the customer or ii) may and other liabilities, other than derivatives, • fi nancial assets measured at fair value 7. Construction contracts be amended to include the construction of are initially recognized at fair value and through other comprehensive income an additional asset, whose price is closely then measured at amortized cost, less (FVOCI); The assets and liabilities for construction interrelated to the original contract, the repayments of principal already made. • fi nancial assets measured at fair value contracts are recognized depending on construction of the additional asset is Payables and other liabilities are classifi ed through profi t or loss (FVTPL). the method for transferring control of the treated as a combined part of the original as current liabilities, unless the Group good or service to the customer. If control contract. has a contractual right to extinguish its 9.1 Financial assets measured at amortized is transferred gradually as the good is built The stage of completion is measured by obligations more than twelve months from cost or the service is rendered, the assets are calculating the proportion that contract the reporting date. Financial liabilities are Financial assets are classifi ed in this category recognized with reference to the value of costs incurred for work performed to the derecognized when they are extinguished, if both of the following conditions are the agreed contractual consideration plus reporting date bear to the estimated total i.e. when the obligation specifi ed in the met: (i) the asset is held within a business

128 129 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

model whose objective is to hold assets in by both collecting contractual cash fl ows 9.4 Impairment 9.5 Derivatives order to collect contractual cash fl ows; and and selling the fi nancial assets; and (ii) the Impairment of fi nancial assets measured at The derivatives used by the Fincantieri (ii) the contractual terms of the fi nancial contractual terms of the fi nancial asset give amortized cost is calculated on the basis of Group are intended to hedge its exposure to asset give rise to cash fl ows that are solely rise to cash fl ows that are solely payments an expected credit loss model. According currency risk primarily on sale contracts and, payments of principal and interest on of principal and interest on the principal to this model, fi nancial assets are classifi ed to a lesser extent, on procurement contracts the principal amount outstanding. These amount outstanding. This category also as at step 1, step 2 or step 3 depending on denominated in currencies other than the mainly concern trade receivables and loans. includes equity instruments (investments in their level of credit worthiness since initial functional currencies, and its exposure to Except for trade receivables, which do not companies in which the Group exerts neither recognition. interest rate risk on loans and to price risk contain a signifi cant fi nancial component, control nor considerable infl uence) for which In particular: relating to certain commodities. other receivables and loans are initially the Group applies the option permitted by Derivative instruments are initially recognized at fair value. Trade receivables this standard to measure these instruments • Stage 1: includes (i) newly acquired recognized at fair value on the derivative which do not contain a signifi cant fi nancial at fair value with an eff ect on overall receivables, (ii) receivables that have not contract’s inception date. Following initial component are recognized at the price profi tability (see section 4 above). had a signifi cant worsening of the credit recognition, changes in the fair value of defi ned for that transaction (determined as These assets are initially recognized at risk since the initial recognition date and derivative instruments that do not qualify per IFRS 15 Revenue from contracts with fair value; in subsequent measurements, (iii) receivables with low credit risk. for hedge accounting are recognized as an customers). The assets belonging to this the value calculated during recognition is • Stage 2: includes receivables that, while operating or fi nancial component of the category are subsequently measured at updated again and any changes in fair value not non-performing, have had a signifi cant income statement according to the nature amortized cost using the eff ective interest are recognized in other comprehensive worsening of the credit risk since the initial of the instrument. If derivative instruments method. Impairment losses for these income. Any impairment losses, interest recognition date. do qualify for hedge accounting, any receivables is determined using a forward- revenues and gains or losses from exchange • Stage 3: includes non-performing subsequent changes in their fair value are looking approach with a three-step model: rate diff erences are recorded in profi t and receivables. treated in accordance with the specifi c 1) recognition of expected credit losses that loss. rules of the IFRS 9 set out below. For each have had no increase in credit risk For receivables belonging to stage 1, derivative fi nancial instrument designated in the fi rst 12 months since initia 9.3 Financial assets measured at fair value impairments are equal to the expected as a hedging instrument, the Group must recognition of the asset; through profi t or loss (FVTPL) credit loss calculated over a period of up formally document the relationship between 2) recognition of lifetime expected All fi nancial assets that do not meet the to one year. For receivables belonging to hedging instruments and hedged items, credit losses at the moment the credit conditions, in terms of business model or stages 2 or 3, impairments are equal to the as well as its risk management objectives, risk increased signifi cantly since initial cash fl ow characteristics, for measurement expected credit loss calculated over the hedging strategy and verifying hedge recognition of the asset; interest revenue is at amortized cost or at fair value through entire duration of the exposure. eff ectiveness. The eff ectiveness of each calculated on gross carrying amount; other comprehensive income are classifi ed in The criteria for determining impairment on hedge must be assessed, both at hedge 3) recognition of further lifetime expected this category. These are mainly derivatives; receivables are based on discounting the inception and on an ongoing basis. A credit losses at the moment in which the this category includes listed and unlisted expected cash fl ows for the principal and hedging transaction is usually regarded as loss occurred; interest revenue is calculated equity instruments that Group has not the interest. To calculate the current value highly “eff ective” if, at inception and during on the net carrying amount (the amortized irrevocably decided to classify as FVOCI of fl ows, the essential elements are those its life, the change in the hedged item’s fair cost is reviewed because the internal rate at initial recognition or during transition. identifying the estimated receipts, the value, in the case of fair value hedges, and in of return changes since the trigger event The assets falling under this category are related receipt dates and the discounting the expected future cash fl ows, in the case aff ects cash fl ows). classifi ed among current and non-current rate to be applied. In particular, the loss of cash fl ow hedges, substantially off sets assets depending on their maturity and is the diff erence between the recognition the change in fair value of the hedging 9.2 Financial assets measured at fair value reported at fair value at the moment of value and the current value of the estimated instrument. through other comprehensive income their initial recognition. During subsequent cash fl ows, discounted at the original Changes in the fair value of derivative assets (FVOCI) measurement, the profi ts and losses interest rate of the fi nancial asset. or liabilities that qualify as fair value hedges Financial assets are classifi ed in this arising from the fair value measurements These assets are classifi ed as current assets, are recognized in profi t or loss, along with category if both of the following conditions are recorded in the consolidated income except for the portion falling due after more any changes in the fair value of the hedged are met: (i) the asset is held within a statement for the period in which they were than 12 months, which is included in non- item. business model whose objective is achieved recognized. current assets. In the case of cash fl ow hedges intended

130 131 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

to off set the cash fl ow risks relating to hierarchical levels described below, in order income in profi t or loss on a straight-line basis calculate the present value of the defi ned a highly probable forecast transaction, of the priority attributed to the inputs used over the useful life of the asset for which the benefi t obligation refl ects the market yield fair value changes after initial recognition to determine fair value. In particular: grant was received. on bonds with the same maturity as that in the eff ective portion of the derivative expected for the obligation. The calculation hedging instrument are recognized in “Other • Level 1: fi nancial assets and fi nancial 10.2 Grants related to income relates to the employee severance benefi t comprehensive income” and included liabilities whose fair value is determined Grants other than those related to assets are already accrued for past service and, in the in a separate equity reserve. Amounts using quoted prices (unadjusted) in active credited to profi t or loss as “Other revenue case of Italian subsidiaries with less than recognized through other comprehensive markets for identical assets or liabilities; and income”. 50 employees, incorporates assumptions income are reclassifi ed from equity to profi t • Level 2: fi nancial assets and fi nancial concerning future salary levels. Further or loss, among the operating items, in the liabilities whose fair value is determined 11. Cash and cash equivalents to the reform of employee severance same period that the hedged forecast cash using inputs other than quoted prices benefi t under Italian Law 296 dated 27 fl ows aff ect profi t or loss. If the hedge is included within Level 1 that are observable Cash and cash equivalents include cash on December 2006, the actuarial assumptions not perfectly eff ective, the fair value change for the asset or liability, either directly or hand, current accounts and demand deposits no longer need to consider future salary in the ineff ective portion of the hedging indirectly (primarily: market exchange with banks and other highly liquid short-term levels for Italian subsidiaries with more instrument is immediately recognized rates at the reporting date, expected investments that are readily convertible into than 50 employees. Any actuarial gains in profi t or loss. If, during the life of a rate diff erentials between the currencies cash and which are subject to an insignifi cant and losses are recorded in the “Valuation derivative hedging instrument, the expected concerned and volatility of the relevant risk of change in value. reserves” forming part of equity and transaction for which hedging was made markets, interest rates and commodity immediately recognized in the statement of is no longer expected to occur, the portion prices); 12. Employee benefi ts comprehensive income. of the “reserves” relating to this instrument • Level 3: fi nancial assets and fi nancial For Italian employee severance benefi ts that is immediately reclassifi ed to profi t or loss liabilities whose fair value is determined Post-employment benefi ts are defi ned have accrued after 1 January 2007 (which for the period. Conversely, if the derivative using inputs not based on observable on the basis of formal and informal are treated like defi ned contribution plans), instrument is sold or no longer qualifi es market data. arrangements which, depending on their the employer’s obligation is limited to the as an eff ective hedge, the portion of the characteristics, are classifi ed as “defi ned payment of contributions to the state or to “reserves” representing changes in the Financial assets are derecognized when the contribution” plans and “defi ned benefi t” a trust or separate legal entity (fund) and is instrument’s fair value recognized up until rights to receive cash fl ows from the fi nancial plans. In defi ned contribution plans, the determined on the basis of the contributions then through other comprehensive income asset expire and the company has transferred employer’s obligation is limited to the due. There are no additional obligations for remains separately in equity until the hedged substantially all the risks and rewards of payment of contributions to the state or to the Company to pay further amounts. forecast transaction occurs, at which point ownership and the related control of the a trust or separate legal entity (fund) and is it is reclassifi ed to profi t or loss. The fair fi nancial asset. determined on the basis of the contributions 13. Share-based incentive plans value of fi nancial instruments quoted on due. public markets is determined with reference 10. Grants from Government and other Liabilities for defi ned benefi t plans, net Medium/long-term share-based incentive to quoted prices at the end of the period. public entities of any plan assets, are determined using plans are a component of remuneration for The fair value of unquoted instruments actuarial techniques and are recognized the benefi ciaries; therefore, for plans that is measured with reference to fi nancial Government grants are recognized in the on an accrual basis over the period of entail remuneration in equity instruments, valuation techniques: in particular, the fair fi nancial statements when there is reasonable employment needed to obtain the benefi ts. the cost is represented by the fair value of value of interest rate swaps is measured assurance that the recipient will comply with Defi ned benefi t plans include the employee these instruments at the grant date and is by discounting the expected future cash the conditions attaching to them and that the severance benefi t, payable to employees of recognized in “Personnel costs”, over the fl ows, while the fair value of foreign currency grants will be received. the Group’s Italian companies under article period between the grant date and the forwards is determined on the basis of 2120 of the Italian Civil Code, that accrued maturity date, against a specially created market exchange rates at the reporting date 10.1 Capital grants before the reform of this benefi t in 2007. Equity reserve. Changes in fair value after and the rate diff erentials expected between Government grants related to property, plant The amount recognized in the fi nancial the grant date have no eff ect on the initial the currencies concerned. and equipment are classifi ed as deferred statements is calculated on an actuarial value. The estimate of the number of rights Financial assets and liabilities measured income under non-current “Other liabilities”. basis using the projected unit credit method; that will mature until expiry is updated at at fair value are classifi ed in the three This deferred income is then recognized as the discount rate used by this method to the end of each period. The change in the

132 133 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

estimate is refl ected in the adjustment of the 15. Revenue, dividends, fi nance income and arising from the dividend will fl ow to the exception of taxes relating to items which Equity reserve for the share incentive plan, costs Group; are directly debited or credited to equity, in against “Personnel costs”. c) the amount of the dividend can be which case the tax eff ect is also recognized Revenue from contracts with customers reliably measured. directly in equity. Deferred tax assets and 14. Provisions for risks and charges are recognized based on the time control liabilities are off set if, and only if, income of the goods and/or services is transferred Finance income and costs are recognized tax is levied by the same taxation authority, Provisions for risks and charges relate to to the customer. If control is transferred in profi t or loss in the period in which they there is a legally enforceable right of off set costs and expenses of a specifi c nature of gradually as the good is built or the service accrue. and the outstanding net balance is expected certain or probable existence, but whose is rendered, revenues are recognized over to be settled. timing or amount are uncertain as at the time, i.e. as the activities gradually progress. 16. Income taxes Taxes not related to income (levies), such as reporting date. Provisions are recognized If, however, control is not transferred property tax, are reported in “Other costs”. when: i) a present legal or constructive gradually as the good is built or the service Income taxes represent the sum of current obligation is likely to exist as a result of a rendered, revenues are recognized at a and deferred taxes. 17. Earnings per share past event; ii) it is probable that an outfl ow point in time, i.e. at the moment of fi nal Current income taxes are calculated on of resources embodying economic benefi ts delivery of the good or completion of taxable profi t for the year, using tax rates 17.1 Basic earnings per share will be required to settle the obligation; service provision. The Group has chosen that apply at the end of the reporting period. Basic earnings per ordinary share are iii) the amount of the obligation can be to measure the percentage of completion Deferred income taxes are income taxes calculated by dividing profi t or loss estimated reliably. of the contracts over time using the cost- that are expected to be paid or recovered attributable to owners of the Parent The amount recognized as a provision is to-cost method. When it is probable that on temporary diff erences between the Company by the weighted average number the best estimate of the amount that an total lifetime contract costs will exceed total carrying amount of assets and liabilities of ordinary shares outstanding during the entity would rationally pay to settle the lifetime contract revenue, the expected loss and their tax bases. Deferred tax liabilities period, excluding own shares. obligation at the end of the reporting period is immediately recognized as an expense in are usually recognized for all taxable or to transfer it to a third party at that the income statement. temporary diff erences, while deferred tax 17.2 Diluted earnings per share time; provisions for onerous contracts are Revenue earned up to the reporting date assets, including those for carry forward Diluted earnings per ordinary share recognized at the lower of the cost required from contracts denominated in a currency tax losses, are recognized to the extent it is are calculated by dividing profi t or loss to settle the obligation, net of the expected other than the functional currency is probable that taxable profi t will be available attributable to owners of the Parent economic benefi ts arising from the contract, translated into the functional currency using: against which the temporary diff erences Company by the weighted average number and the cost of terminating the contract. i) the hedged exchange rate (if currency risk can be recovered. No deferred tax liabilities of ordinary shares outstanding during the Where the eff ect of the time value of has been hedged - see Section 8.5 above) are recognized for temporary diff erences period, excluding own shares, and adjusting money is material and the obligation or ii) in the absence of hedging transactions, relating to goodwill. to take account of the number of potential settlement date can be estimated reliably, the actual exchange rate used for the part of Deferred tax liabilities are recognized on shares that could be issued. the amount of the provision is determined the contract already billed and the period- taxable temporary diff erences relating to by discounting the expected cash outfl ows end rate for the part still to be billed. investments in subsidiaries, associates and 18. Own shares to present value using the average rate Retentions or other amounts which can joint ventures, except in cases when both on company debt that takes account of be contractually reclaimed by customers the following conditions apply: (i) the Group Own shares are recognized as a reduction of the risks specifi c to the obligation; any are not recognized until any post-delivery is able to control the timing of the reversal Equity. The original cost of the own shares and increase in the amount of a provision due obligations have been fully satisfi ed. of such temporary diff erences and (ii) the the income arising from sale at a later date are to the eff ect of the time value of money is Dividends received from investee companies temporary diff erences are unlikely to reverse shown as movements in Equity. recognized in the income statement under not consolidated on a line-by-line basis and in the foreseeable future. “Finance costs”. with the equity method, are recognized in Deferred income taxes are determined using 19. Subjective accounting estimates and Contingent liabilities, meaning those relating profi t or loss when: tax rates that are expected to apply to the judgements to obligations that are only possible, are not period when the related diff erences are recognized but are disclosed in the section a) the Group’s right to receive the dividend realized or settled. Preparation of fi nancial statements requires of the notes to the fi nancial statements matures; Current and deferred income taxes are management to apply accounting policies reporting commitments and risks. b) it is probable that the economic benefi ts recognized in profi t or loss with the and principles that, in some circumstances,

134 135 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

are based on diffi cult, subjective estimates the costs of completion, any incremental its recoverable amount, defi ned as the higher the purposes of the allocation process and, and judgements based on past experience costs, as well as delays, additional costs and of the asset’s fair value less costs to sell and in the case of the most signifi cant business and other assumptions deemed to be penalties that could reduce the expected its value in use, determined by discounting combinations, external valuations. reasonable and realistic under the related margin. In support of such estimates, the expected future cash fl ows expected circumstances. The application of such management uses a system of contract risk to be derived from the asset net of costs to 19.6 Medium/long-term share-based estimates and assumptions aff ects management and analysis to monitor and sell. The expected cash fl ows are quantifi ed incentive plans the amounts reported in the fi nancial quantify the risks relating to these contracts. using information available at the time of For medium/long-term share-based statements, namely the statement of The amounts recognized in the fi nancial the estimate on the basis of subjective incentive plans, the estimate of the number fi nancial position, the statement of statements represent management’s assessments of future variables (prices, of rights that will mature until expiry is comprehensive income, the statement of best estimate using these systems and costs, rates of growth in demand, production updated at the end of each period. The changes in equity and the statement of cash procedures. profi les) and are discounted using a rate that change in the estimate is refl ected in fl ows, and in the accompanying disclosures. takes into account the risks specifi c to the the adjustment of the specially created The ultimate amount of items derived using 19.2 Provisions for risks and charges asset concerned. Equity reserve for incentive plans, against such estimates and assumptions could The Group recognizes provisions for legal Goodwill and other intangible assets with “Personnel costs”. diff er from that reported in the fi nancial and tax risks and outstanding litigation indefi nite useful lives are not amortized; the statements because of the inherently where the outcome is expected to be recoverability of their carrying amount is 19.7 Subsequent events uncertain nature of the assumptions and negative. The amount of the provisions reviewed at least annually and whenever there In accordance with the provisions of IAS conditions on which the estimates were relating to such risks represents is an indication that the asset may be impaired. 10 – Events occurring after the reporting based. management’s best estimate at the current Goodwill is tested for impairment at the lowest date, the Group analyses business events Below is a brief description of the categories, date. This estimate is derived by adopting level (cash-generating unit “CGU”) within the occurring after the reporting date, in with regard to the Fincantieri Group’s assumptions that depend on factors that entity at which management assesses, directly order to verify whether, if the conditions sectors of business, most aff ected by the use may change over time. or indirectly, the return on the investment that identifi ed by IAS 10 are met, they should of estimates and judgements and for which a includes such goodwill. When the carrying be used to adjust the amounts recognized change in the underlying assumptions could 19.3 Deferred tax assets amount of the cash-generating unit, including in the fi nancial statements, or to recognize have a material impact on the consolidated The recognition of deferred tax assets is the attributed goodwill, is higher than its elements that had not been previously fi nancial results. based on expectations about the Group’s recoverable amount, the diff erence is an recognized. future taxable profi t and the possibility impairment loss that is charged fi rst against With particular reference to the spread 19.1 Revenue recognition for construction of transferring certain tax benefi ts to the value of goodwill until fully absorbed; any of the COVID-19 virus and to the eff ects contracts companies participating in the national tax loss not absorbed by goodwill is allocated pro- that this pandemic could also signifi cantly Like with other large, long-term contracts, consolidation of CDP. The assessment of rata to the carrying amount of the other assets impact on the Group’s operations and, shipbuilding contracts are dated well before future taxable profi t for the purposes of in the cash-generating unit. in particular, its economic and fi nancial product completion, sometimes even a long recognizing deferred tax assets depends on results, in accordance with IAS 10, the Group time before. Contracts now seldom include factors that can change over time and so 19.5 Business combinations has considered the above event to have price adjustment formulae, while clauses have a material impact on the recoverability The recognition of business combinations occurred after the reporting date and does providing for the possibility of additional of deferred tax assets. involves allocating to the acquired not entail an adjustment, which, in any case, consideration for additions or variations company’s assets and liabilities the cannot be determined to date. Consequently, apply only to signifi cant modifi cations in the 19.4 Impairment of assets diff erence between the purchase price the valuation of balance sheet items - and scope of work. The Group’s property, plant and equipment and the net book value of the net assets in particular those relating to construction The margins expected to be achieved and intangible assets with indefi nite useful acquired. For most of the assets and contracts, tangible and intangible fi xed upon the entire project’s completion are lives are tested for impairment at least liabilities, the allocation of this diff erence is asstes, including goodwill, and deferred recognized in profi t or loss according to the annually or more often in the presence of performed by recognizing the assets and tax assets - was carried out without taking stage of contract completion. Accordingly, evidence indicating that the carrying amount liabilities at their fair value. The unallocated into account the negative eff ects, even correct recognition of construction contracts of such assets is not recoverable. portion is recognized as goodwill if positive, signifi cant, that this pandemic will have on and margins relating to work in progress The impairment loss is determined by and if negative, it is taken to profi t or loss. the Group’s operations and consequently on requires management to estimate correctly comparing an asset’s carrying amount with Management uses available information for the aforementioned accounting items.

136 137 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - FINANCIAL RISK MANAGEMENT Italian government both for grants receivable (euro/000) 31.12.2018 and for supplies to the country’s military The principal fi nancial risks to which the services, and by the US Navy and US Coast Past due Group is exposed are credit risk, liquidity Guard for shipbuilding contracts. Not yet due 0 - 1 month 1 - 4 months 4 - 12 months Beyond 1 year Total risk and market risk (in particular currency, With specifi c reference to trade receivables Trade receivables: interest rate and commodity price risk). due from private shipowners, the Fincantieri - from public entities 2,504 1,048 4,449 8,416 26,451 42,868 The management of these fi nancial risks Group constantly monitors customer - indirectly from public entities (*) 399 17 527 5,031 13,649 19,623 is coordinated by the Parent Company, creditworthiness, credit exposure and - from private ship-owners 381,544 88,606 20,294 26,128 64,339 580,911 which decides, in close collaboration promptness of payments. It should be TOTAL TRADE RECEIVABLES 384,447 89,671 25,270 39,575 104,439 643,402 with its operating units, whether and how underlined that, vessel delivery in the cruise Government grants financed by BIIS 12,513 12,513 to hedge these risks. business is subject to receipt of fi nal payment. Other government grants 6,672 2,149 8,821 Receivables from associates 9,865 9,865 Credit risk The following tables provide a breakdown by risk class of the exposure as at 31 December Receivables from joint ventures 146,680 66 517 147,263 Receivables from controlling 2019 and 2018 based on the nominal value 2,926 32 2,958 The Fincantieri Group’s receivables essentially companies comprise amounts owed by private of receivables before any provision for Receivables from other 2 2 shipowners for shipbuilding contracts, by the impairment of receivables: companies Other receivables 167,304 2,755 23,732 193,791

(euro/000) Other fi nancial receivables 66,545 66,545 31.12.2019 GROSS TOTAL 796,954 94,575 25,302 39,641 128,688 1,085,160 Provision for impairment of Past due (50,230) receivables Not yet due 0 - 1 month 1 - 4 months 4 - 12 months Beyond 1 year Total NET TOTAL 1,034,930 Trade receivables: Advances, prepayments and 152,993 - from public entities 5,300 697 264 1,669 27,090 35,020 accrued income - indirectly from public entities (*) 259 11 13,575 263 314 14,422 TOTAL 1,187,923 - from private ship-owners 358,706 23,583 29,271 12,056 69,087 492,703 *These are receivables due from customers that manage work commissioned by public entities, which are therefore the eff ective debtors. TOTAL TRADE RECEIVABLES 364,265 24,291 43,110 13,988 96,491 542,145 Government grants financed by BIIS 4,762 4,762 Liquidity risk typical of the cruise ship business, with the Other government grants 3,017 4,492 7,509 absorption of fi nancial resources generated Liquidity risk is the risk that an entity will by the growth in production volumes Receivables from associates 12,365 4 686 13,055 encounter diffi culty in meeting obligations and by investments during the year. The Receivables from joint ventures 188,226 15 18 1 18 188,278 associated with fi nancial liabilities. following tables show the contractual Receivables from controlling 3,006 32 3,038 companies The Group’s net fi nancial position reported maturities of trade and fi nancial liabilities, Receivables from other net debt of euro 735 million at 31 December other than derivatives, calculated before 792 792 companies 2019 compared with net debt of euro 494 interest which, depending on the loan Other receivables 232,199 2,354 887 19,872 255,312 million at 31 December 2018. The change or form of fi nance, may be at a fi xed or Other fi nancial receivables 59,605 59,605 is mainly due to the fi nancial dynamics fl oating rate. GROSS TOTAL 868,237 31,156 44,701 13,989 116,413 1,074,496 Provision for impairment of (47,569) receivables NET TOTAL 1,026,927 Advances, prepayments and 169,215 accrued income TOTAL 1,196,142

*These are receivables due from customers that manage work commissioned by public entities, which are therefore the eff ective debtors.

138 139 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

(euro/000) Market risk Interest rate risk 31.12.2019 Interest rate risk is linked to: On demand Within 1 year Between Beyond Contractual Carrying The fi nancial risks aff ecting the Group 1 and 5 years 5 years cash flows amount specifi cally involve the risk that the fair value • uncertainty in the cash fl ows relating to Payables to controlling company 19,425 30,667 50,092 49,613 or future cash fl ows of assets/liabilities may the Group’s assets and liabilities because Payables to associates 1,470 8,215 3,026 53 12,764 12,764 fl uctuate due to changes in the exchange rate of fl uctuations in interest rates; this risk Payables to joint ventures 2,801 60,173 62,974 62,974 of currencies in which the Group’s commercial is mitigated using cash fl ow hedging Bank loans and credit facilities 9,889 1,108,470 689,917 42,021 1,850,297 1,804,267 or fi nancial transactions are denominated, instruments; BIIS loans 4,868 4,868 4,762 due to changes in market interest rates or to • fl uctuations in the fair value of the Group’s Payables to suppliers 239,846 1,428,332 40,255 387 1,708,820 1,708,820 changes in commodity prices. assets and liabilities because of changes in Payables to suppliers for reverse In pursuing its business objectives, the Group market interest rates; this risk is mitigated 492,404 492,404 492,404 factoring does not intend to take on fi nancial risks. If using fair value hedging instruments. Financial liabilities for leasing 17,909 44,278 46,914 109,101 92,086 this is not possible, such risks are assumed IFRS 16 only if they relate to the Group’s core business Floating-rate assets and liabilities are Bond and commercial papers 75,000 75,000 75,000 and their impact can be neutralized (where exposed to the fi rst of these risks, while fi xed- Other fi nancial liabilities 1,599 4,162 874 6,635 6,481 possible) through hedging instruments. rate assets and liabilities are exposed to the Other liabilities 18,447 231,871 231 250,549 243,007 Apart from using fi nancial instruments, second risk. TOTAL 272,453 3,448,266 812,536 90,249 4,623,504 4,552,178 currency risk can be hedged by entering As at 31 December 2019, three interest Advances, prepayments and 62,933 accrued income into loan agreements in the same currency rate swaps were in place that had been TOTAL 4,615,111 as the sale contract, or cash balances can be negotiated in 2018 to hedge interest rate established in the same currency as supply risk; two derivatives reduce the exposure contracts. to interest rate risk relating to short-term (euro/000) fi nancing and the third hedges a medium/ 31,12,2018 Currency risk long-term variable rate loan. On demand Within 1 year Between Beyond Contractual Carrying Exposure to currency risk arises primarily 1 and 5 years 5 years cash flows amount when shipbuilding contracts are Other market risks Payables to controlling company 14 58,367 36,954 4,013 99,348 98,574 denominated in foreign currencies and, to The Group’s production costs are aff ected Payables to associates 2,524 3,272 54 5,850 5,850 a lesser extent, when goods and materials by movements in the price of the principal Payables to joint ventures 5,214 1,720 6,934 7,088 are purchased in currencies other than the raw materials used, such as steel, copper and Bank loans and credit facilities 21,956 860,933 708,767 53,324 1,644,980 1,590,576 functional currency. fuel. The Parent Company mitigates this risk BIIS loans 8,146 4,866 13,012 12,513 Currency risk is managed using forward using appropriate contractual arrangements Payables to suppliers 133,544 1,298,979 32,199 100 1,464,822 1,464,822 contracts or currency options, which and/or hedges. During 2019, FINCANTIERI Payables to suppliers for reverse are arranged according to the expected S.p.A. entered into swaps to fi x the purchase 6,704 370,783 377,487 377,487 factoring timing of foreign currency cash infl ows and price of a large part of its diesel and fuel oil Finance lease obligations 210 26 236 236 outfl ows; where possible, payments and needs through until 2022. Bond and commercial papers 231,000 231,000 231,000 receipts in the same currency are matched. Other fi nancial liabilities 20,344 4,191 2,041 26,576 26,373 Currency risk management seeks to hedge Capital management Other liabilities 3,456 190,383 7,537 127 201,503 201,397 all of the Group’s foreign currency infl ows, TOTAL 173,412 3,044,137 794,594 59,605 4,071,748 4,015,916 but only the largest foreign currency The objective of the Fincantieri Group is Advances, prepayments and 52,394 outfl ows. to create value for shareholders and to accrued income During 2019, the Group was exposed to support future development by maintaining TOTAL 4,068,310 currency risk primarily in connection with an adequate level of capitalization that certain cruise contracts. This risk was mostly allows it to access external sources of mitigated using hedging instruments. fi nancing at acceptable rates.

140 141 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

Fair value of derivatives (euro/000) 31.12.2018 Other current and non-current fi nancial Positive fair value Notional amount Negative fair value Notional amount assets and Other current and non-current CASH FLOW HEDGING DERIVATIVES

fi nancial liabilities include the fair value Interest rate swaps 1,778 280,000 measurements of derivative fi nancial Forwards 41,227 1,688,621 21,920 83,200 instruments, as presented in the following FAIR VALUE HEDGING DERIVATIVES

table. All derivatives as cash fl ow hedge Interest rate swaps meet the eff ectiveness requirements laid Forwards 2,546 120,539 34,530 785,519 down by IFRS 9 and so no ineff ective Futures portion of these hedges has needed to Options be expensed to profi t or loss. Derivatives HEDGING DERIVATIVES WHICH DO NOT QUALIFY FOR have tested positively as far as cash fl ow HEDGE ACCOUNTING hedge eff ectiveness is concerned and so Interest rate swaps no ineff ective portion of these hedges has Forwards 8,070 335,317 387 63,845 needed to be expensed to profi t or loss. Futures 304 5,639 650 5,490 Options TRADING DERIVATIVES Interest rate swaps Forwards Futures Options 811 41,594 30 11,004

(euro/000) With reference to cash fl ow hedging fl ow hedge reserve in the year are shown in 31.12.2019 derivatives, the change in the fair value the table to this Note. Positive fair value Notional amount Negative fair value Notional amount of the hedged items is perfectly off set by The fair value hedging instruments cover CASH FLOW HEDGING DERIVATIVES the change in the value of the hedging changes in the value of hedged fi rm Interest rate swaps 2,673 100,000 instruments (negative for euro 23.1 million commitments included in Other current Forwards 33,193 1,172,926 in 2019) and therefore no ineff ective and non-current assets/liabilities shown in FAIR VALUE HEDGING DERIVATIVES portion has been recognized. Note 11, 15, 23 and 25. Interest rate swaps The hedged items are recorded under The following tables provide an analysis of Forwards 1,929 90,445 10,205 584,395 Construction contracts – assets/liabilities in the maturity of derivative contracts. The Futures the Group Statement of Financial Position amounts included in these tables represent Options (see Notes 14 and 24). undiscounted future cash fl ows, which refer HEDGING DERIVATIVES WHICH DO NOT QUALIFY FOR HEDGE The balance and movements of the cash to just the intrinsic value. ACCOUNTING Interest rate swaps 77 180,000 Forwards 1,178 27,059 6,873 257,612 Futures 409 5,164 298 6,421 Options TRADING DERIVATIVES Interest rate swaps Forwards Futures Options

142 143 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

(euro/000) Movements in the cash fl ow hedge reserve The following table presents movements in 31.12.2019 and impact of derivative instruments on the cash fl ow hedge reserve and the eff ect Within 1 year Between 1 and Beyond 5 years Total profi t or loss of derivative instruments on profi t or loss: 5 years CURRENCY RISK MANAGEMENT (euro/000) Equity Outfl ow 1,139,747 1,003,990 2,143,737 Gross Income taxes Net Profit Infl ow 1,122,005 976,129 2,098,134 or loss INTEREST RATE RISK MANAGEMENT 1.1.2018 131,697 (39,061) 92,636 10,045 Outfl ow 988 1,883 2,871 Change in fair value 24,968 (9,765) 15,203 Infl ow 114 7121 COMMODITY PRICE RISK MANAGEMENT Utilizations (131,697) 39,061 (92,636) 92,636 Other income/(expenses) for risk hedging (90,215) Outfl ow 4,110 7,474 11,584 Finance income/(costs) relating to trading Infl ow 4,374 7,322 11,696 derivatives and time-value component of (18,361) hedging derivatives 31.12.2018 24,968 (9,765) 15,203 (15,940) (euro/000) Change in fair value (11,453) 992 (10,461) 31.12.2018 Utilizations (24,968) 9,765 (15,203) 15,203 Within 1 year Between 1 and Beyond 5 years Total Other income/(expenses) for risk hedging (12,398) 5 years Finance income/(costs) relating to trading CURRENCY RISK MANAGEMENT derivatives and time-value component of (73,134) Outfl ow 1,355,761 1,724,280 3,080,041 hedging derivatives Infl ow 1,328,420 1,699,952 3,028,372 31.12.2019 (11,453) 992 (10,461) (70,329) INTEREST RATE RISK MANAGEMENT

Outfl ow 1,111 2,121 3,232 Financial assets and liabilities by category and liabilities by category together with their Infl ow 339 1,115 1,454 fair value (IFRS 13) at the year-end reporting COMMODITY PRICE RISK MANAGEMENT The following table analyses fi nancial assets date: Outfl ow 5,370 5,759 11,129 Infl ow 5,648 5,133 10,781 (euro/000) 31.12.2019 The fair value of derivative fi nancial fair value of forward contracts has been ABCDTotal Fair value instruments has been calculated considering calculated with reference to year-end Investments carried at fair market parameters at the year-end exchange rates and interest rates for the 4,236 15,359 19,594 19,594 value reporting date and using widely accepted diff erent currencies. Derivative fi nancial assets 3,516 3,516 3,516 measurement techniques. In particular, the Other fi nancial assets 11,000 104,939 115,939 118,870 Trade receivables and other 1,079,388 1,079,388 1,079,388 current assets Cash and cash equivalents 381,790 381,790 381,790

Derivative fi nancial liabilities (17,459) (35,860) (53,319) (53,319)

Other fi nancial liabilities (59,083) (2,027,320) (2,086,403) (2,110,716) Other non-current liabilities (28,576) (28,576) (28,576) Trade payables and other (2,553,701) (2,553,701) (2,553,701) current liabilities

Key A = Financial assets and liabilities at fair value through profi t or loss B = Financial assets and liabilities at fair value through equity (including hedging derivatives) C = Financial assets and receivables carried at amortized cost (including cash & cash equivalents) D = Financial liabilities carried at amortized cost

144 145 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

(euro/000) (euro/000) 31.12.2018 31.12.2018 ABCDTotal Fair value Fair value Level 1 Fair value Level 2 Fair value Level 3 Total Investments carried at fair Assets 4,289 267 4,556 4,556 value Financial assets at fair value Derivative fi nancial assets 11,731 41,227 52,958 52,958 through profi t or loss Other fi nancial assets 125,442 125,442 126,690 Equity instruments 178 4,111 4,289 Trade receivables and other Debt instruments 1,062,377 1,062,377 1,062,377 current assets Financial assets at fair value Cash and cash equivalents 676,487 676,487 676,487 through comprehensive income Equity instruments 267 267 Derivative fi nancial liabilities (35,596) (23,698) (59,294) (59,294) Debt instruments Other fi nancial liabilities (19,389) (1,896,891) (1,916,280) (1,938,480) Hedging derivatives 52,147 52,147 Other non-current liabilities (32,137) (32,137) (32,137) Trading derivatives 811 811 Trade payables and other (2,116,290) (2,116,290) (2,116,290) Total assets 178 52,958 4,378 57,514 current liabilities Key Liabilities A = Financial assets and liabilities at fair value through profi t or loss Financial liabilities at fair value through profi t or B = Financial assets and liabilities at fair value through equity (including hedging derivatives) 19,389 19,389 C = Financial assets and receivables carried at amortized cost (including cash & cash equivalents) loss D = Financial liabilities carried at amortized cost Hedging derivatives 59,264 59,264 Trading derivatives 30 30 Total liabilities - 59,294 19,389 78,683 Fair value measurement at 31 December 2019 and 2018, according to their level in the fair value hierarchy. Financial assets at fair value through whose inputs are not observable on the The following tables show the fi nancial comprehensive income classifi ed as Level market. This item relates to the option held instruments that are measured at fair value 3 relate to equity investments carried at by minority shareholders of the American fair value. Level 3 also includes the fi nancial Group FMG, the increase in which since 2018 (euro/000) 31.12.2019 liabilities relating to the fair value of options is mainly due to the change in the fair value on equity investments whose fair value, of the instrument, and the option held by Fair value Level 1 Fair value Level 2 Fair value Level 3 Total recorded through comprehensive income, minority shareholders of the INSIS Group Assets is calculated using valuation techniques recorded during the year. Financial assets at fair value through profi t or loss Equity instruments 101 4,135 4,236 Debt instruments 11,000 11,000 Financial assets at fair value through comprehensive income Equity instruments 15,359 15,359 Debt instruments Hedging derivatives 3,516 3,516 Trading derivatives Total assets 101 3,516 30,494 34,111

Liabilities Financial liabilities at fair value 59,083 59,083 through profi t or loss Hedging derivatives 53,319 53,319 Trading derivatives Total liabilities - 53,319 59,083 112,402

146 147 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - SENSITIVITY ANALYSIS analysis looks at exposure to currency NOTE 6 - INTANGIBLE ASSETS risk, as defi ned by IFRS 7, and therefore Currency risk does not consider the eff ects arising from (euro/000) With regard to currency risk, the Group Goodwill Client Development Industrial Concessions, Other Intangibles in Total translation of fi nancial statements of foreign Relationships costs patents and licenses, intangibles progress has performed sensitivity analysis, both companies with a functional currency other and Order intellectual trademarks and advances Backlog property rights and similar including and excluding the eff ect of than the Euro. In addition, the analysis rights hedging derivatives, in order to estimate has not examined the eff ect of exchange - cost 253,798 188,850 140,681 108,702 24,185 13,526 73,252 802,994 the impact on pre-tax profi t of a reasonable rate fl uctuations on the valuation of work - accumulated variance in the principal exchange rates to in progress, because the latter does not amortization and (72,213) (42,710) (92,458) (5,138) (8,974) (221,493) which the Group is most exposed against qualify as a fi nancial asset under the IAS 32 impairment losses Net carrying amount at the functional currencies of the Parent defi nition. The variances for individual cross- 253,798 116,637 97,971 16,244 19,047 4,552 73,252 581,501 31.12.2017 Company and its subsidiaries (involving an currencies have been measured against the First adoption IFRS 15 47,926 47,926 appreciation/ depreciation of the foreign average 6-month volatility observed in 2019 Net carrying amount at 253,798 116,637 97,971 16,244 19,047 52,478 73,252 629,427 currency against the functional one). The for individual exchange rates. 01.01.2018 Movements in 2018 (euro/000) - business combinations 85 85 31.12.2019 31.12.2018 - additions 7,228 1,363 249 1,069 27,317 37,226 Effect on pre-tax profit Pre-tax effect Effect on pre-tax profit Pre-tax effect - net disposals on equity on equity - reclassifi cations/ 32,240 13,431 (369) 42 (45,330) 14 Including hedging derivatives other Foreign currency appreciation (1) (73) (127) - amortization (8,398) (27,813) (5,980) (2,171) (5,681) (50,043) Foreign currency depreciation 164(2) 109 - impairment losses (211) (211) - exchange rate Excluding hedging derivatives(*) 1,032 (373) (199) (48) 828 (90) 20 1,170 diff erences Foreign currency appreciation (17) (17) (14) (14) Closing net carrying 254,830 107,951 109,427 25,010 17,584 47,607 55,259 617,668 Foreign currency depreciation 19 19 14 14 amount - cost 254,830 188,420 179,898 123,349 24,938 63,048 55,259 889,742 *The USD/BRL exposure is expressed net of USD construction loans, contracted with the purpose of hedging USD exposures. - accumulated amortization and (80,469) (70,471) (98,339) (7,354) (15,441) (272,074) Interest rate risk profi t or loss involve a negative impact of impairment losses Net carrying amount at Similarly, a sensitivity analysis has also approximately euro 3.7 million in the event 254,830 107,951 109,427 25,010 17,584 47,607 55,259 617,668 31.12.2018 been performed to estimate the impact of of a 0.50% increase in interest rates and a Movements in 2019 a potential general change in benchmark positive impact of euro 2.8 million in the - business combinations 18,898 2,236 63 55 2,268 3,975 27,495 interest rates of +/- 50 basis points on an event of a 0.50% reduction. - additions 3,585 2,510 5,224 742 14,766 37,738 64,565 annualized basis. The estimated eff ects on - net disposals (48) (248) (10) (306) - reclassifi cations/ 860 (1) (4,864) 1,245 3,706 131 (1,394) (317) other - amortization (9,481) (28,154) (8,478) (1,765) (9,292) (57,170) - impairment losses (394) (380) (99) (873) - exchange rate 1,921 1,026 84 41 331 21 9 3,433 diff erences Closing net carrying 260,802 118,393 80,811 23,105 20,653 55,154 95,577 654,495 amount - cost 261,196 209,190 181,504 132,656 28,127 83,549 95,577 991,799 - accumulated amortization and (394) (90,797) (100,693) (109,551) (7,474) (28,395) (337,304) impairment losses Net carrying amount at 260,802 118,393 80,811 23,105 20,653 55,154 95,577 654,495 31.12.2019

148 149 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

Capital expenditure in 2019 amounted to euro in the period by the Norwegian krone and the US values of WACC and g rate used are consistent management expectations of performance in the 64,565 thousand (euro 37,226 thousand in 2018) dollar against the euro. with the Group’s past performance and with markets concerned. and mainly related to: “Goodwill” amounts to euro 260,802 thousand at

31 December 2019. Of the increase compared to 31 CGU Goodwill Recoverable amount Post tax g rate Cash flow period • ongoing work to implement an integrated December 2018, euro 3,191 thousand is due to the carrying amount WACC

system for ship design (CAD) and project lifecycle acquisition of the INSIS Group. More details can be FMG Group 70,771 Value in use 6.0% 2.3% 5 years management (PLM), aimed at improving the found in Note 37. VARD Off shore and Specialized 60,104 Value in use 5.8% 1.8% 5 years effi ciency and eff ectiveness of the engineering The recoverable amount of goodwill is estimated, in Vessels process; accordance with IAS 36, using the unlevered version VARD Cruise 126,736 Value in use 6.0% 2.0% 5 years • the development of information systems to of the Discounted Cash Flow model whereby support the Group’s growing activities and an asset’s value in use is calculated on the basis Impairment tests have made reference to the that if WACC were to increase by 100 basis points optimise process management, with particular of estimated future cash fl ows discounted at an reporting-date carrying amounts of each CGU. or if growth rates (g rate), used in the terminal reference to the upgrading of management appropriate rate. Cash fl ow projections beyond the It should be noted that, as at 31 December value calculation, were to decrease by 100 basis systems and the exporting of these systems to explicit period covered by the most recent budgets/ 2019, part of the goodwill allocated to the points, recoverable amounts would still be higher the main subsidiaries of the Group; forecasts are extrapolated using the perpetuity VARD Off shore and Specialized Vessels CGU than carrying amounts. • capitalization of incremental costs to obtain growth method to determine terminal value; the was reallocated to the VARD Cruise CGU. This contracts. growth rates used (“g rate”) may not exceed the reclassifi cation refl ects the new organizational CGU VARD Cruise long-term average growth rates predicted for the allocation of the Vard Electro Group’s activities The impairment test has shown that the CGU’s During 2019, the Group also spent euro 134 markets in which the individual CGUs operate. from the VARD Off shore and Specialized Vessels recoverable amount exceeds its carrying amount, million in research and development costs for For the purpose of impairment testing, the Group CGU to the VARD Cruise CGU. meaning that no impairment loss needs to be various projects involving product and process uses cash fl ow projections based on the best recognized. innovations (euro 122 million in 2018), that will information available at the time. This information is FMG Group CGU The results obtained have been subjected to allow the Group to retain its leadership of all high- based on management forecasts as at 31 December The impairment test has shown that the CGU’s sensitivity analysis for those assumptions, changes tech market sectors for the foreseeable future. 2019 and does not take into account the eff ects on recoverable amount exceeds its carrying amount, in which might reasonably cause the test results “Concessions, licenses, trademarks and similar the operations of Group companies that will result meaning that no impairment loss needs to be to change materially. This has shown that if WACC rights” include euro 16,468 thousand for from the spread of the COVID-19 virus (see Note 3, recognized. were to increase by 100 basis points or if growth trademarks with indefi nite useful lives, refl ecting paragraph 19.7). A new Business Plan 2020-2024 The results obtained have been subjected rates (g rate), used in the terminal value calculation, the expectation for their use and referring to will be fi nalized as soon as developments in the to sensitivity analysis for those assumptions, were to decrease by 100 basis points, recoverable the names of the American shipyards acquired COVID 19 emergency permit a clearer analysis of changes in which might reasonably cause the test amounts would still be signifi cantly higher than (namely Marinette and Bayshipbuilding); these the possible impact. results to change materially. This has shown that carrying amounts. trademarks have been allocated to the cash- Expected future cash fl ows have been discounted if WACC were to increase by 100 basis points or generating unit (CGU) representing the American using WACC (Weighted Average Cost of Capital) if growth rates (g rate), used in the terminal value It should be noted that the above sensitivity group acquired. All such assets have nonetheless for the individual sectors to which the CGUs refer calculation, were to decrease by 100 basis points, analyses were carried out on the basis of the been allocated to their respective CGU for the and, if necessary, adjusted to take account of the recoverable amounts would still be signifi cantly forecasts of the Business Plan prepared by purposes of impairment testing, which has not risk premium/discount of the specifi c country in higher than carrying amounts. the management of the subsidiaries, which, as revealed any evidence of impairment. which business is conducted. The WACC used for mentioned above, does not take into account The eff ects arising from the capitalization of discounting purposes is a post-tax rate applied VARD Off shore and Specialized Vessels CGU the potential eff ects of COVID-19. On this incremental costs to obtain contracts have been consistently to the relevant cash fl ows. The impairment test has shown that the CGU’s point, it should be noted that, at the date of reclassifi ed in “First adoption IFRS” after the fi rst The growth rates (“g rate”) used to project the cash recoverable amount exceeds its carrying amount, preparation of the fi nancial statements, it is not application of IFRS 15 from 1 January 2018. The fl ows of CGUs beyond the explicit planning period meaning that no impairment loss needs to be possible to estimate the possible eff ects that capitalized costs are amortized according to have been estimated on the basis of the anticipated recognized. COVID-19 could have on the operations of Group the contractual duration of the orders for which growth scenarios for the individual sectors in which The results obtained have been subjected companies and therefore on the related future they were incurred. More details can be found in the CGUs operate. to sensitivity analysis for those assumptions, results; consequently, sensitivity analyses have Note 1. The cash fl ow projections used refl ect the current changes in which might reasonably cause the been carried out without taking these eff ects The exchange rate diff erences refl ect movements conditions of the CGUs being tested, while the test results to change materially. This has shown into account.

150 151 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - RIGHTS OF USE NOTE 8 - PROPERTY, PLANT AND EQUIPMENT

Movements in this line item are as follows: (euro/000) Land and Assets under Industrial plant, Assets under Leasehold Other Assets under Total buildings finance lease machinery and concession improvements assets construction (euro/000) equipment and supplier Buildings ROU State Transport Passenger Computer Other Total advances concessions and lifting cars ROU equipment ROU ROU vehicles ROU - cost 613,581 3,460 1,242,879 189,048 29,030 188,654 147,378 2,414,030 ROU - accumulated Initial book value as at amortization and (225,109) (2,985) (870,492) (130,805) (23,045) (116,923) (1,369,359) 62,237 21,603 1,342 2,804 483 62 88,531 01.01.2019 impairment losses Net carrying amount Movements 388,472 475 372,387 58,243 5,985 71,731 147,378 1,044,671 at 1.1.2018 - business combinations 4,200 4,200 Movements in 2018 - increases 13,757 1,755 1,804 410 225 17,951 - business - - decreases (79) (1,651) (26) (1,756) combinations - reclassifi cations/ other (1,412) (1,412) - additions 10,677 23,973 1,312 216 3,459 84,432 124,069 - amortization (12,930) (1,425) (458) (1,442) (301) (88) (16,644) - net disposals (1) (177) (44) (10) (232) - reclassifi cations/ - impairment losses (906) (906) 24,444 40,588 3,290 514 10,804 (81,603) (1,963) other changes - exchange rate diff erences (584) 174 20 33 10 (347) - depreciation (16,907) (269) (55,541) (4,496) (1,016) (7,826) (86,055) Closing net carrying amount 64,283 20,456 904 3,173 602 199 89,617 - impairment losses (50) (50) - cost 78,197 21,881 1,361 4,597 903 287 107,226 - exchange rate - accumulated amortization and (2,147) 14 (3,977) 1 403 (708) (6,414) (13,914) (1,425) (457) (1,424) (301) (88) (17,609) diff erences impairment losses Closing net carrying Net carrying amount at 404,488 220 377,253 58,349 5,700 78,527 149,489 1,074,026 64,283 20,456 904 3,173 602 199 89,617 amount 31.12.2019 - cost 646,233 3,624 1,297,782 193,649 29,774 202,782 149,489 2,523,333 - accumulated amortization and (241,745) (3,404) (920,529) (135,300) (24,074) (124,255) (1,449,307) With eff ect from 1 January 2019, the new fi xed assets of the same amount refl ecting impairment losses Net carrying amount accounting standard IFRS 16 “Leases” came the right to use the leased goods, without 404,488 220 377,253 58,349 5,700 78,527 149,489 1,074,026 at 31.12.2018 into force, which defi nes a standard form for restating the values for the previous Movements in 2019 recognising leasing contracts, eliminating fi nancial years presented for comparison. - business 106 387 493 the distinction between operating and Capital expenditure in 2019 amounted to combinations fi nancial leases, and providing for the euro 17,951 thousand and mainly related to - additions 12,249 35,719 2,246 485 3,934 163,406 218,039 recognition of an asset for the right to use the entering into new contracts, while the - net disposals (1,261) (103) (55) (1,419) - reclassifi cations/ 11,005 (220) 22,335 1,611 81 29,991 (37,969) 26,834 the good and a liability for the lease. decreases related to the early termination of other changes For fi rst-time application, for the purposes contracts. - depreciation (17,978) (53,795) (4,740) (1,027) (10,423) (87,963) of displaying the impact in the fi nancial It should be noted that the impairment - impairment losses (54) (3,899) (3,953) statements from the fi rst application of losses concern the rights of use of the Aukra - exchange rate 90 (861) 1 (2) 164 (419) (1,027) IFRS 16, the Group has decided to use the shipyard following the decision of the Board diff erences Closing net carrying 409,800 - 379,496 57,467 5,237 102,477 270,553 1,225,030 option provided for by IFRS 16, paragraph of Directors of the subsidiary Vard Group amount C5, subsection b) and paragraph C8, on AS to leave the small vessel construction - cost 672,895 1,336,001 197,506 30,346 238,181 270,553 2,745,482 the basis of which the Group recognised at business for the fi shery and aquaculture - accumulated 1 January 2019 a fi nancial liability (euro 88 sectors and the subsequent sale of the amortization and (263,095) (956,505) (140,039) (25,109) (135,704) (1,520,452) impairment losses million) corresponding to the actual value shipyard. Net carrying amount 409,800 - 379,496 57,467 5,237 102,477 270,553 1,225,030 of outstanding payments due for leases For the values of non-current and current at 31.12.2019 in place on the date of fi rst application, fi nancial liabilities pursuant to IFRS 16, discounted using the marginal lending rate reference should be made to notes 22 on the date of initial application, against a and 27.

152 153 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

Capital expenditure in 2019 has resulted in they were reclassifi ed for euro 34 million. NOTE 9 - INVESTMENTS ACCOUNTED FOR additions of euro 218,039 thousand, mainly Prior to this reclassifi cation, the carrying USING THE EQUITY METHOD AND OTHER related to: amount was subjected to an impairment INVESTMENTS loss of euro 12.6 million. In addition, it • updating of the working areas and should be noted that one of the two Investments infrastructure at some shipyards, in vessels was subjected to an impairment particular Monfalcone and Marghera, to test, resulting in an impairment loss of euro These are analyzed as follows: meet the new production scenarios and 3.9 million. upgrading and improvement of the safety The value of the property, plant and standards of machinery, equipment and equipment of the indirect subsidiary Vard (euro/000) buildings; Promar has been tested for impairment, Associates Joint ventures Total Other Other Total other Total investments companies companies investments • upgrading of the operating areas and taking as its estimated recoverable amount accounted carried at fair at fair value value through through profit infrastructure of the new Fincantieri the fair value less the costs to sell as for using the equity method comprehensive and loss Infrastructure plant in Valeggio sul Mincio identifi ed in a report commissioned from income and Vard Braila’s Romanian shipyard an independent expert. The impairment 1.1.2018 19,561 31,020 50,581 1,140 1,208 2,348 52,929 Changes in the following the award of major contracts for test has shown that the recoverable - steel structures; amount of the assets exceeds their consolidation Investments 21,005 234 21,239 21,239 • continuation of activities to introduce new carrying amount, meaning that no Revaluations/ (Impairment (4,781) 1,875 (2,906) 2,208 2,208 (698) technologies in particular at the Monfalcone impairment loss needs to be recognized. losses) through profi t or loss Revaluations/ (Impairment shipyard with regard to the Integrated The exchange rate diff erences refl ect - losses) through equity Environmental Authorization; movements in the period by the Romanian Disposals (12,905) (12,905) (12,905) • maintenance of infrastructure and leu, Brazilian real, US dollar and the Dividends from upgrading of production systems in the US Norwegian krone against the euro. investments accounted for - shipyards; As at 31 December 2019, the amount of using the equity method Reclassifi cations/Other 4 4 (873) 869 (4) - • continuation of activities to modernize the Group’s property, plant and machinery Exchange rate diff erences (362) (362) 44 (358) the Vard Tulcea and Vard Braila shipyards pledged as collateral against loans received 31.12.2018 35,423 20,228 55,651 267 4,289 4,556 60,207 to support the construction of hulls and the was approximately euro 233 million (euro Changes in the 51 51 31 31 82 multi-year program to build pre-fi tted cruise 243 million at the end of 2018). consolidation ship blocks and sections for the Fincantieri Contractual commitments already given Investments 2,531 475 3,006 15,080 21 15,101 18,107 Revaluations/ (Impairment (4,990) 1,822 (3,168) (78) (78) (3,246) production network. to third parties as of 31 December 2019 losses) through profi t or loss for capital expenditure not yet refl ected Revaluations/ (Impairment - The reclassifi cations/other changes include in the fi nancial statements amounted losses) through equity the reclassifi cation of amounts reported to approximately euro 183 million, of Disposals (20) (20) (20) Dividends from at the end of the previous year in “Assets which euro 164 million for Property, plant investments accounted for - under construction and advances” to the and equipment and euro 19 million for using the equity method relevant asset categories once the assets Intangible assets. Reclassifi cations/Other - entered service. This item also includes the Exchange rate diff erences 232 232 1 3 4 236 reclassifi cation of the assets of the Aukra 31.12.2019 33,247 22,525 55,772 15,359 4,235 19,594 75,366 shipyard for euro 6,141 thousand in assets held for sale and discontinued operations. More details can be found in Note 36. Two vessels (PSV) at 31 December 2018 were recorded under contract work in progress and, following management’s decision to manage these vessels itself,

154 155 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

Investments made during the year of companies accounted for using the INVESTMENTS AT 31 DECEMBER 2019 totalled euro 18,107 thousand and mainly equity method (namely associates and joint % Carrying COMPANY NAME Registered office owned amount concerned the purchase of a 15% stake in ventures). INVESTMENTS IN ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD Genova Industrie Navali S.p.A. (euro 15,000 “Other investments” include investments Brevik Technology AS Norway 34.00 77 thousand) and the purchase of a 20% stake carried at fair value, calculated on the Castor Drilling Solution AS Norway 34.13 326 in Decomar S.p.A. (euro 2,500 thousand). basis of the related prices if quoted in CSS Design Ltd. British Virgin Islands 31.00 394 Revaluations/(impairment losses) through active markets (Level 1), or using valuation Arsenal S.r.l. Italy 24.00 11 profi t or loss (negative euro 3.246 thousand) techniques whose inputs are not observable AS Dameco Norway 34.00 24 Norway include the share of comprehensive income on the market (Level 3). DOF Iceman AS 50.00 Møkster Supply AS Norway 40.00 592 Møkster Supply KS Norway 36.00 613 Olympic Challenger KS Norway 35.00 6,988 Olympic Green Energy KS Norway 29.50 Rem Supply AS Norway 26.66 2,308 Taklift AS Norway 25.47 292 Island Diligence AS Norway 39.38 5,490 Gruppo PSC S.p.A. Italy 10.00 12,433 Decomar S.p.A. Italy 20.00 2,500 Centro Servizi Navali S.p.A. Italy 10.93 1,148 Prelios Solution & Technologies S.r.l. Italy 49.00 24 Leonardo Sistemi Integrati S.r.l. Italy 14.58 23 Mc4com - Mission Critical for communications S.c.a.r.l. Italy 50.00 4 Unifer Navale S.r.l. Italy 20.00 Total investments in associates accounted for using the equity method 33,247 INVESTMENTS IN JOINT VENTURES ACCOUNTED FOR USING THE EQUITY METHOD CSSC - Fincantieri Cruise Industry Development Ltd. Hong Kong 40.00 2,837 Etihad Ship Building LLC Arab Emirates 35.00 1,555 Orizzonte Sistemi Navali S.p.A. Genoa 51.00 17,582 Issel Middle East Information Technology Consultancy LLC Arab Emirates 49.00 17 BUSBAR4F S.c.a.r.l. Trieste 10.00 24 Fincantieri Clea Buildings S.c.a.r.l. Verona 51.00 5 PERGENOVA S.c.p.a. Genoa 50.00 500 CONSORZIO F.S.B.* Venice - Marghera 58.36 5 Total investments in joint ventures accounted for using the equity method 22,525 OTHER INVESTMENTS IN COMPANIES CARRIED AT FAIR VALUE THROUGH COMPREHENSIVE INCOME Consorzio Ric. Innov. Tec. Sicilia Trasp. Navali S.c.a.r.l. Messina 6.21 28 Consorzio CONAI Rome (**) 1 Consorzio IMAST Scarl Naples 3.24 22 Consorzio MIB Trieste (**) 2 Distretto Ligure delle Tecnologie Marine S.c.a.r.l. La Spezia 11.51 115 EEIG Euroyards Brussels 14.29 10 International Business Science Company S.c.a.r.l. Trieste 22.22 10 MARETC FVG – Maritime Technology cluster FVG S.c.a.r.l. Monfalcone (Gorizia) 13.30 65 SIIT- Distretto Tecnologico Ligure sui Sistemi Intelligenti Integrati S.c.p.a. Genoa 11.80 71 Consorzio MedITech - Mediterranean Competence - Centre 4 Innovation Naples 4.55 25 Genova Industrie Navali S.p.A. Genoa 15.00 15,000 Uirnet S.p.A. Rome 0.88 10 Total other investments in companies carried at fair value through comprehensive income 15,359 OTHER INVESTMENTS IN COMPANIES CARRIED AT FAIR VALUE THROUGH PROFIT AND LOSS Solstad Off shore ASA Norway 0.35 100 Moldekraft AS Norway 6.14 507 Friulia S.p.A. Trieste 0.57 3,628 Total other investments in companies carried at fair value through profi t and loss 4,235

*Consortium for recharging costs. **% interest not shown, as consortium membership is subject to continuous change. 156 157 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

CSSC - Fincantieri Cruise Industry other shareholder, they are considered jointly Disclosures relating to investments in joint 31 December 2019 is material to the Group. Development Ltd., which is 40% owned by controlled. ventures The fi gures shown refl ect amounts reported the Parent Company, is consolidated using the PSC S.p.A., 10% owned by the Parent The following tables present summarized in the company’s fi nancial statements equity method because, under the agreements Company, is consolidated using the equity fi nancial information for Orizzonte Sistemi as adjusted for the Group’s accounting between the Parent Company and the other method because the shareholding is Navali S.p.A., a joint venture that at policies. shareholder, it is considered jointly controlled. considered to carry signifi cant infl uence based CONDENSED BALANCE SHEET Etihad Ship Building LLC, which is 35% owned on the shareholder agreements signed with by the Parent Company, is consolidated the other shareholders. (euro/000) using the equity method because, under its Decomar S.p.A., 20% owned by the Parent 31.12.2019 31.12.2018 shareholders’ agreement, it is considered Company, is consolidated using the equity ASSETS 284,653 353,763 jointly controlled with other shareholders who method because the shareholding is Non-current 163 168 hold the remainder of share capital. considered to carry signifi cant infl uence based Other assets 163 168 Orizzonte Sistemi Navali S.p.A., which is on the shareholder agreements signed with Current 284,490 353,595 51% owned by the Parent Company, is the other shareholders. Other assets 168,493 333,762 consolidated using the equity method Centro Servizi Navali S.p.A., which is Financial assets 1,556 1,699 because, under its shareholders’ agreement, 10.93% owned by the Parent Company, is Cash and cash equivalents 114,441 18,134 LIABILITIES it is considered jointly controlled with another consolidated using the equity method because 249,380 318,551 shareholder who holds 49%. the shareholding is considered to carry Non-current 185 192 Other liabilities 185 192 Issel Middle East Information Technology signifi cant infl uence due to the Company’s Current 249,195 318,359 Consultancy LLC, which is 49% owned by Issel bylaws. Other liabilities 249,195 318,359 Nord S.r.l., is consolidated using the equity Equity 35,273 35,212 method because, under the agreements with Disclosures relating to investments in the other shareholder, it is considered jointly associates CONDENSED COMPREHENSIVE STATEMENT OF INCOME controlled. With regard to investments in associates PERGENOVA S.c.a.r.l. and Fincantieri Clea accounted for using the equity method, (euro/000) Buildings S.c.a.r.l., respectively 50% and 51% the following table reports the aggregate 31.12.2019 31.12.2018 owned by Fincantieri Infrastructure S.p.A., share of the profi ts and losses attributable Revenue 415,521 276,634 are consolidated using the equity method to the Group for all associates that are not Depreciation and amortization (91) (137) because, under the agreements with the individually material. Interest income 145 321 Pre-tax profi t from recurring operations 235 208 Income taxes (175) (139) (euro/000) Net profi t from recurring operations 60 69 31.12.2019 31.12.2018 Other comprehensive income/(losses) TOTAL COMPREHENSIVE INCOME/(LOSS) 60 69 Profi t (loss) from operations in the year (4,990) (4,781) Other comprehensive income RECONCILIATION WITH CARRYING AMOUNT Total comprehensive income (4,990) (4,781) (euro/000) At the reporting date, the Group has not relating to its investments in associates. 31.12.2019 31.12.2018

undertaken commitments for fi nancing Equity at 01.01 35,212 35,139 Profi t/(loss) for period 60 69 Other movements 1 4 Equity at 31.12 35,273 35,212 51% interest in joint venture 17,989 17,958 Other movements (407) (376) Carrying amount 17,582 17,582

158 159 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - NON-CURRENT FINANCIAL ASSETS NOTE 11 - OTHER NON-CURRENT ASSETS

These are analyzed as follows: Other non-current assets are analyzed as follows:

(euro/000) (euro/000) 31.12.2019 31.12.2018 31.12.2019 31.12.2018 Other receivables from investee companies 686 673 Receivables for loans to joint ventures 22,000 8,400 Government grants receivable 890 4,407 Grants fi nanced by BIIS 4,762 Firm commitments 7,038 18,427 Derivative assets 1,093 30,006 Other receivables 8,909 8,304 Other non-current fi nancial receivables 58,465 49,684 OTHER NON-CURRENT ASSETS 17,523 31,811 Non-current fi nancial receivables from associates 11,045 5,049 NON-CURRENT FINANCIAL ASSETS 92,603 97,901 Other non-current assets are all stated net of governments in the form of tax credits. The the related provision for impairment. amount is analyzed below by due date for “Receivables for loans to joint ventures” the balance is mainly due to the change in Government grants receivable report the recovery: relates to the shareholder loan made to the fair value of the derivatives to hedge non-current portion of state aid granted by the joint venture CSSC – Fincantieri Cruise exchange rate risks following the weakening

Industry Development Ltd. The change of the euro against the dollar. (euro/000) since 31 December 2018 is due to the eff ect “Other non-current fi nancial receivables” 31.12.2019 31.12.2018 of the second tranche made of euro 13,600 refer to loans to third parties bearing - between one and two years 890 4,407 thousand. market rates of interest. The change in - between two and three years “Grants fi nanced by Banca BIIS” at 31 “Other non-current fi nancial receivables” is - between three and four years December 2018 related to production due to the convertible loan of euro 11 million - between four and fi ve years grants under Italian Law 431/91. In detail, that Fincantieri S.p.A. granted to T. Mariotti - beyond fi ve years during 2004 the Group received a total of S.p.A., part of the Genoa Industrie Navali TOTAL 890 4,407 euro 93 million in capital grants from the Group. Ministry of Infrastructure and Transport. “Non-current fi nancial receivables from “Firm commitments” of euro 7,038 thousand Ministry of Defence (euro 4,693 thousand). In accordance with the Ministerial Decree associates” refer to market rate loans to (euro 18,427 thousand at 31 December 2018) Please refer to the specifi c section on litigation approving these grants, i) the Group has Group companies that are not consolidated refl ect the fair value of hedged items in fair in Note 33 for a more detailed explanation. entered into six fi fteen-year loans for line-by-line. The change in the balance is value hedges used by the VARD Group to The remaining balance of euro 4,216 thousand such amount with Banca Infrastrutture due to the three-year loan guaranteed by hedge currency risk arising on construction consists of security deposits, advances and Innovazione e Sviluppo (BIIS), due to be pledge of euro 3.5 million that Fincantieri contracts in currencies other than the other minor items. extinguished in 2020 (recognized under S.p.A. granted to Decomar S.p.A. functional currency.  fi nancial liabilities), ii) the loan is repaid Furthermore, during 2019, these fi nancial “Other receivables” of euro 8,909 thousand The following table presents the amount of and directly by the Ministry of Infrastructure and receivables were subject to impairment (euro 8,304 thousand at 31 December 2018) movements in the provision for impairment of Transport to BIIS. Given the nature of the of euro 6,927 thousand resulting from the mainly include the receivable from the Iraqi other non-current receivables: fi nancial receivables and fi nancial liabilities application of the expected credit loss

in question, the repayment of the loan with model introduced by IFRS 9. (euro/000) BIIS has no impact on the Group’s cash Provision for impairment of other receivables fl ows. Balance at 1.1.2018 8,188 “Derivative assets” represent the reporting- Utilizations date fair value of derivatives with a maturity Increases/ (Releases) of more than 12 months. Further details Total at 31.12.2018 8,188 can be found in Note 4. The reduction in Utilizations Increases/ (Releases) Total at 31.12.2019 8,188

160 161 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets are analyzed as follows: Deferred tax liabilities are analyzed as follows:

(euro/000) (euro/000) Sundry Product Other Fair value Actuarial Carry forward Other Total Deferred taxes from Other temporary Total impairment warranty risks derivatives valuation tax temporary business combinations differences losses and charges employee losses differences severance 1.1.2018 45,319 16,433 61,752 benefit Changes in 2018 31.12.2017 41,867 10,857 19,079 (38,901) 3,558 13,950 21,694 72,104 - business combinations - First adoption IFRS 7,995 7,995 - through profi t or loss (2,102) (857) (2,959) 1.1.2018 41,867 10,857 19,079 (38,901) 3,558 13,950 29,689 80,099 - impairment losses - Changes in 2018 - through other comprehensive income (1,586) (1,586) - business combinations - - tax rate and other changes - - through profi t or loss (12,866) (1,385) 1,910 (55) 10,058 17,312 14,974 - exchange rate diff erences 495 310 805 - impairment losses - 31.12.2018 43,712 14,300 58,012 - through other Changes in 2019 29,134 (351) 28,783 comprehensive income - business combinations 5,272 462 5,734 - tax rate and other (28) (12) (40) - through profi t or loss (7,222) (2,911) (10,133) changes - impairment losses (4) (4) - exchange rate (134) 40 (56) (24) (535) 857 148 diff erences - through other comprehensive income (2) (2) 31.12.2018 28,867 9,512 20,933 (9,791) 3,124 23,473 47,846 123,964 - tax rate and other changes (14) (14) Changes in 2019 - exchange rate diff erences 550 206 756 - business combinations 310310 31.12.2019 42,312 12,037 54,349 - through profi t or loss (3,511) (1,925) (10,049) 2,151 21 8,574 (12,939) (17,678) - impairment losses (2,220) (14,556)(2,127) (18,903) The deferred tax liabilities for business The other temporary diff erences include the - through other 10,777 728 11,505 combinations relate to diff erences arising diff erence between book and fi scal values comprehensive income - tax rate and other when allocating purchase price to intangible of fi xed assets, mainly for the American 1,686 0 (358) (867) (1) 618 (1,698) (620) changes assets with defi ne useful lives, primarily subsidiaries. - exchange rate 25 23 10 5 37 343 443 client relationships and order backlog. diff erences 31.12.2019 24,847 7,610 10,536 2,275 3,872 18,146 31,735 99,021

Deferred tax assets have been recognized Deferred tax assets are largely off settable on items for which the tax is likely to be (by euro 23 million) against the deferred tax recovered against forecast future taxable liabilities discussed below. income of Group companies. It should be No deferred tax assets have been recognized noted that, as a precautionary measure, on euro 83 million (euro 102 million at 31 VARD Group AS has written down part of the December 2018) in carry forward losses of deferred tax assets on losses carried forward subsidiaries which are thought unlikely to be and other temporary diff erences as at 31 recovered against future taxable income. December 2018.

162 163 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - INVENTORIES AND ADVANCES NOTE 14 - CONSTRUCTION CONTRACTS - ASSETS

These are analyzed as follows: These are analyzed as follows:

(euro/000) (euro/000) 31.12.2019 31.12.2018 31.12.2019 31.12.2018

Raw materials and consumables 299,230 280,105 Construction Invoices issued Construction Construction Invoices issued Construction contracts - gross and provision for contracts - net contracts - gross and provision for contracts - net Work in progress and semi-fi nished goods 31,547 120,044 future losses assets future losses assets Finished products 30,152 31,786 Shipbuilding 8,302,891 (5,678,913) 2,623,978 8,134,360 (5,610,562) 2,523,798 TOTAL INVENTORIES 360,929 431,935 contracts Advances to suppliers 467,017 449,160 Other contracts 183,764 (110,028) 73,736 48,102 (40,628) 7,474 TOTAL INVENTORIES AND ADVANCES 827,946 881,095 for third parties Total 8,486,655 (5,788,941) 2,697,714 8,182,462 (5,651,190) 2,531,272

Inventories and advances are stated net of normal conduct of production activities. “Construction contracts - assets” report those invoiced to the client. The stage of completion relevant provisions for impairment. Work in progress and semi-fi nished goods contracts where the value of the contract’s is determined as the costs incurred to date plus The negative change of euro 53,149 thousand and fi nished products include some of the stage of completion exceeds the amount recognized margins less any expected losses. is mainly attributable to the VARD subsidiary subsidiary VARD’s naval vessels as well as the and refers to the sale of an off shore vessel. manufacture of engines and spare parts. The amount recorded for Raw materials and The following table presents the amount consumables basically represents the volume of and movements in such provisions for of stock considered suffi cient to ensure the impairment:

(euro/000) Provision for impairment - raw Provision for impairment - work in Provision for impairment - finished materials progress and semi-finished goods products 1.1.2018 14,629 5,494 2,007 Increases 2,228 11,413 994 Utilizations (1,732) Releases (2,139) Exchange rate diff erences 15 (462) 59 31.12.2018 13,000 16,445 3,060 Increases 4,094 1,880 6,697 Utilizations (2,383) (16,607) (12) Releases (1,091) Exchange rate diff erences 24 156 6 31.12.2019 13,644 1,874 9,751

“Provision for impairment - raw materials” was utilized during the year due to the sale, includes the adjustments made to align the by the subsidiary VARD, of an off shore vessel, carrying amount of slow-moving materials partially impaired in previous years. This sale still in stock at year end with the net also led to a decrease in inventories of work estimated realizable value. in progress and semi-fi nished goods “Work in progress and semi-fi nished goods”

164 165 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - TRADE RECEIVABLES AND OTHER recognized by the FMGH Group for the LCS social security administration) in respect of CURRENT ASSETS project, and grants receivable, by the Parent the Wage Guarantee Fund.. Company and the subsidiary Cetena, for These are analyzed as follows: research and innovation. “Indirect tax receivables” of euro 49,454 “Other receivables” of euro 272,449 thousand (euro 43,033 thousand at 31 thousand mainly refer to: December 2018) mainly refer to claims for (euro/000) 31.12.2019 31.12.2018 VAT refunds or set-off , to indirect foreign • receivables for shipowner supplies, taxes and claims for customs duty refunds Trade receivables 677,472 749,387 insurance claims, advances to suppliers, from the Italian Customs Authority. Receivables from controlling companies (tax consolidation) 3,006 2,926 sundry receivables from employees, research “Firm commitments” of euro 792 thousand Receivables from related parties 792 grants and other miscellaneous receivables, (euro 5,217 thousand at 31 December 2018) Government grants receivable 6,619 4,414 Other receivables 272,449 208,152 mostly relating to the Parent Company, refl ect the fair value of hedged items in Indirect tax receivables 49,454 43,033 totaling euro 270,521 thousand (euro fair value hedges used by the Group to Firm commitments 792 5,217 206,642 thousand at 31 December 2018); hedge currency risk arising on construction Accrued income 68,610 49,053 • receivables from social security institutions contracts in currencies other than the Prepayments 194 195 for euro 2,023 thousand (euro 1,510 thousand functional currency. TOTAL TRADE RECEIVABLES AND OTHER CURRENT ASSETS 1,079,388 1,062,377 at 31 December 2018), most of which “Prepayments” mainly refer to insurance advances paid to employees for accidents premiums and other expenses relating to Receivables are shown net of provisions A provision for interest charged on past due and amounts owed by INPS (the Italian future periods. for impairment. These provisions relate to trade receivables has been recognized in a receivables that are no longer considered “Provision for past due interest”. Provisions fully recoverable, including those involving for impairment of receivables report the NOTE 16 - INCOME TAX ASSETS legal action and judicial and out-of-court following amounts and movements: proceedings in cases of debtor default. (euro/000) 31.12.2019 31.12.2018 (euro/000) Provision for impairment of Provision for past due Provision for impairment of Italian corporate income taxation (IRES) 1,564 13,451 Total trade receivables interest other receivables Italian regional tax on productive activities (IRAP) 344 541 1.1.2018 25,679 63 6,202 31,944 Foreign tax 6,713 6,610 Business combinations TOTAL INCOME TAX ASSETS 8,621 20,602 Utilizations (1,534) (1,534) Increases / 9,000 607 9,607 (Decreases) The provision for impairment of income Exchange rate diff erences (17) (17) tax assets reports the following amounts 31.12.2018 33,128 63 6,809 40,000 and movements: Business combinations Utilizations (2,657) (2,657) (euro/000) Increases / Provision for impairment of income tax assets 1,348 (12) 1,336 (Decreases) Balance at 1.1.2018 2,042 Exchange rate diff erences 7 7 Increases/ (Releases) 31.12.2019 31,826 63 6,797 38,686 Utilizations Total at 31.12.2018 2,042 The decrease of euro 71,915 thousand delivered by the Parent Company in 2019. in “Trade receivables” is mainly due to “Government grants receivable” of euro Increases/ (Releases) receipt of fi nal payments for one cruise 6,619 thousand include operating and Utilizations (1,854) ship invoiced on 31 December 2018 and capital grants from the state of Wisconsin Total at 31.12.2019 188

166 167 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - CURRENT FINANCIAL ASSETS NOTE 18 - CASH AND CASH EQUIVALENTS

These are analyzed as follows: These are analyzed as follows:

(euro/000) (euro/000) 31.12.2019 31.12.2018 31.12.2019 31.12.2018

Derivative assets 2,423 22,952 Bank and postal deposits 381,656 676,395 Other receivables 1,051 17,329 Checks Government grants fi nanced by BIIS 4,762 7,751 Cash on hand 134 92 Accrued interest income 623 439 TOTAL CASH AND CASH EQUIVALENTS 381,790 676,487 Prepaid interest and other fi nancial expense 470 217 TOTAL CURRENT FINANCIAL ASSETS 9,329 48,688 Cash and cash equivalents at period end balances on current accounts held with a include euro 5,215 thousand in term bank number of banks. “Derivative assets” represent the reporting- the euro against the dollar. deposits; the remainder refers to the date fair value of derivatives with a maturity The change in “Other receivables” is due to of less than 12 months. The fair value of the decrease in interest-bearing receivables derivative fi nancial instruments has been from clients and deposits made by the VARD calculated considering market parameters Group as security for certain contractual and using widely accepted measurement obligations to its lenders. techniques (Level 2). Further details can “Government grants fi nanced by BIIS” (Banca be found in Note 4. The reduction in the Infrastrutture Innovazione e Sviluppo) report balance is mainly due to the closure of the current portion of government grants derivative following the delivery of the IV receivable by shipyards and by shipowners, Princess order in 2019 and the change in assigned to Fincantieri as part of contract the fair value of the derivatives to hedge price. Note 10 contains information about the exchange rate risks due to the weakening of non-current portion of these grants.

168 169 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - EQUITY Share capital Reserve of own shares

Equity attributable to owners of the parent shareholders with a dividend of 1 euro cent The share capital of FINCANTIERI S.p.A. The reserve is negative for euro 7,118 per share in circulation at the coupon- amounts to euro 862,980,725.70, fully thousand and comprises the value of the The Ordinary Shareholders’ Meeting held on detachment date (15 April 2019), excluding paid-in, divided into 1,699,651,360 ordinary own shares for the Company’s incentive 5 April 2019 adopted a resolution to allocate own shares in the portfolio on that date, shares (including 7,226,303 own shares in plans called “Performance Share Plan” the net profi t from the 2018 fi nancial year, and the remainder to the Extraordinary portfolio), with no par value. (described in more detail in Note 33) to euro 217,998 thousand, as follows: euro Reserve. On 27 June 2019, the Board of Directors be carried out in accordance with art. 5 10,900 thousand to the Legal Reserve, The composition of equity is analyzed in the approved the closure of the fi rst cycle of EU Regulation No. 596/2014 and as euro 16,874 thousand for distribution to following table: of the “Performance Share Plan 2016- resolved by the Company’s Shareholders’ 2018” incentive plan, allocating 10,104,787 Meeting held on 19 May 2017. Following (euro/000) ordinary Fincantieri shares to benefi ciaries the Board of Directors’ resolution of 27 31.12.2019 31.12.2018 free of charge, following verifi cation of the June 2019 concerning the closure of the Attributable to owners of the parent degree to which the specifi c performance first cycle of the “Performance Share Share capital 862,981 862,981 objectives originally set (EBITDA of 70% Plan 2016-2018”, 2,572,497 own shares in Reserve of own shares (7,118) (5,277) and the “Total Shareholder Return”) had portfolio were allocated free of charge to Share premium reserve 110,499 110,499 been achieved with a weighting of 30%. non-employees, for a total value of euro Legal reserve 51,189 40,289 Following the above resolution, the shares 2,844 thousand, and 5,091,910 shares were Cash fl ow hedge reserve (10,419) 15,271 were allocated using treasury shares in repurchased from employees and non- Available-for-sale fair value reserve (398) (394) portfolio for those to be allocated free employees respectively, for a total value Currency translation reserve (126,002) (137,916) of charge to non-employees numbering of euro 4,725 thousand, in order to enable Other reserves and retained earnings 279,008 269,387 2,572,497 shares and by issuing new shares, them to pay the related tax charges. At Profi t/(loss) for the year (141,242) 72,440 1,018,498 1,227,280 again with no par value, in order to satisfy 31 December 2019, the own shares in Attributable to non-controlling interests the Plan for shares to be allocated free of portfolio amounted to 7,226,303, equal to Capital and reserves 30,336 22,504 charge to employees numbering 7,532,290 0.42% of the Share Capital. The number of Available-for-sale fair value reserve (7) (11) shares. The issue and delivery of the shares shares issued is reconciled to the number Currency translation reserve 8,019 6,515 took place on 30 July 2019. Following this of shares outstanding in the Parent Profi t/(loss) for the year (6,997) (3,318) issue, the number of shares issued was Company at 31 December 2019. 31,351 25,690 1,699,651,360. TOTAL EQUITY 1,049,849 1,252,970 As at 31 December 2019, 71.32% of the Company’s Share Capital, amounting N° shares to euro 862,980,725.70, was held by Ordinary shares issued 1,692,119,070 CDP Industria S.p.A.; the remainder was less: own shares purchased (4,706,890) distributed on the indistinct market (except Ordinary shares outstanding 1,687,412,180 for 0.42% of shares owned by Fincantieri at 31.12.2018 as own shares). None of the other private Changes in 2019 investors holds a signifi cant stake equal to plus: ordinary shares issued 7,532,290 or greater than 3%. It should be noted that plus: own shares allocated 2,572,497 100% of the share capital of CDP Industria less: own shares purchased (5,091,910) Ordinary shares outstanding at S.p.A. is owned by Cassa Depositi e Prestiti 1,692,425,057 S.p.A., which is controlled by Italy’s Ministry 31.12.2019 of Economy and Finance since it holds Ordinary shares issued 1,699,651,360 82.77% of its share capital. less: own shares purchased (7,226,303)

170 171 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

Share premium reserve date. This dividend was paid by June 2019. (euro/000) The Reserve to cover the issue of shares for 31.12.2019 31.12.2018 This reserve has been recorded as a result the 1st cycle of the LTIP amounts to euro Gross Tax Net amount Gross Tax Net amount amount (expense)/ amount (expense)/ of the capital increase accompanying the 3,842 thousand. It was set up by resolution benefit benefit Company’s listing on the Mercato Telematico of the Board of Directors on 27 June 2019 for Eff ective portion of profi ts/(losses) on cash (36,372) 10,757 (25,615) (106,729) 29,296 (77,433) Azionario (MTA) of Borsa Italiana S.p.A. the issue of shares to allocate to employees fl ow hedging instruments on 3 July 2014. Listing costs of euro 11,072 during the payout of the 1st cycle of the Gains/(losses) from remeasurement of (2,789) 736 (2,053) 1,502 (361) 1,141 thousand (net of tax eff ects) referring to the incentive plan “Performance Share Plan employee defi ned benefi t plans capital increase have been accounted for as a 2016-2018”, through the reclassifi cation from Gains/(losses) arising from changes in OCI of investments accounted for using the equity deduction from the share premium reserve, in the reserves of available earnings and more method compliance with IAS 32. specifi cally from the extraordinary reserve. Gains/(losses) arising on translation of 13,834 (416) 13,418 14,586 1,424 16,010 It should be noted that the change in fi nancial statements of foreign operations Cash fl ow hedge reserve this item is attributable for euro (34,915) Total other comprehensive income/ (losses) (25,327) 11,077 (14,250) (90,641) 30,359 (60,282) thousand to the recognition, as a reduction (euro/000) The cash fl ow hedge reserve reports the in the Group’s shareholders’ equity, of a 31.12.2019 31.12.2018 change in the eff ective portion of derivative liability to the minority shareholders of the Eff ective portion of profi ts/(losses) arising in period on cash fl ow hedging hedging instruments measured at fair value; INSIS group, acquired during 2019, for the (11,404) 24,968 instruments movements in the cash fl ow hedge reserve put options granted to them relating to the Eff ective portion of profi ts/(losses) on cash fl ow hedging instruments (24,968) (131,697) are shown in Note 4. minority interests held by them. reclassifi ed to profi t or loss Eff ective portion of profi ts/(losses) (36,372) (106,729) Currency translation reserve Non-controlling interests on cash fl ow hedging instruments Tax eff ect of other components 10,757 29,296 of comprehensive income The currency translation reserve refl ects The change with respect to 31 December TOTAL OTHER COMPREHENSIVE INCOME/(LOSSES), NET OF TAX (25,615) (77,433) exchange diff erences arising from the 2018 is attributable for euro 14,157 thousand translation into Euro of fi nancial statements to the change in the scope of consolidation of foreign operations prepared in currencies due to the acquisition of the INSIS group other than the Euro. in early July 2019 and for euro (2,625) to the recognition, as a reduction of the Other reserves and retained earnings consolidated shareholders’ equity of the INSIS group, of a liability to the minority These mainly comprise: i) surplus earnings shareholders of the same, for the put options after making allocations to the legal reserve granted to them by INSIS SpA for the portion and distributions in the form of shareholder attributable to the minority shareholders of dividends; ii) the reserve to cover the issue INSIS SpA itself. For the remaining euro 733 of shares for the 1st cycle of the LTIP; iii) thousand, these are the eff ects of the change actuarial gains and losses on employee in the consolidation percentage of the VARD benefi t plans; iv) the Reserve for the share- group due to the purchase of minority based incentive plan for management. interests and the capital increase carried out The Ordinary Shareholders’ Meeting held during the year. on 5 April 2019 resolved to allocate the net profi t for the year 2018 as follows: euro 16,874 Other comprehensive income/losses thousand for distribution to the shareholders of 1 euro cent per share in circulation at the The amount of other comprehensive coupon-detachment date (15 April 2019), income/losses, presented in the statement excluding own shares in the portfolio on that of comprehensive income, is as follows:

172 173 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - PROVISIONS FOR RISKS AND CHARGES NOTE 21 - EMPLOYEE BENEFITS

These are analyzed as follows: Movements in this line item are as follows:

(euro/000) (euro/000) Litigation Product warranty Agent indemnity Business Other risks and Total 2019 2018 benefit reorganization charges Opening balance 56,830 58,929 1.1.2018 70,123 48,249 61 905 21,505 140,843 Business combinations 1,456 Business combinations Interest cost 877 724 Increases 36,857 28,493 3,834 69,184 Actuarial (gains)/losses 2,830 (1,694) Utilizations (31,405) (25,257) (1,158) (57,820) Utilizations for benefi ts and advances paid (2,435) (1,501) Releases (11,495) (7) (6,183) (17,685) Staff transfers and other movements 508 373 Other movements 432 244 676 Exchange rate diff erences (1) Exchange rate diff erences (342) 340 (11) 31 18 Closing balance 60,066 56,830 31.12.2018 75,233 40,762 54 894 18,273 135,216 Plan assets (19) (24) Business combinations 65 65 Closing balance 60,047 56,806 Increases 35,041 31,897 3,722 8,726 79,386 The balance at 31 December 2019 of euro is calculated on an actuarial basis using the Utilizations (81,390) (29,062) (12) (460) (5,961) (116,885) Releases (203) (6,206) (3,540) (9,949) 60,066 thousand is mainly comprised of the projected unit credit method; the discount rate Other movements 663 68 129761 employee severance benefi t pertaining to used by this method to calculate the present Exchange rate diff erences (53) 82 4 (2) 31 the Group’s Italian companies (euro 60,057 value of the defi ned benefi t obligation refl ects 31.12.2019 29,291 37,541 42 4,161 17,590 88,625 thousand). the market yield on bonds with the same - of which non-current The amount of Italian employee severance maturity as that expected for the obligation. 26,919 28,988 42 14,933 70,882 portion benefi t recognized in the fi nancial statements The assumptions adopted are as follows: - of which current portion 2,372 8,553 4,161 2,657 17,743 31.12.2019 31.12.2018 ECONOMIC ASSUMPTIONS Increases in the litigation provision mainly for 1 or 2 years after delivery, but in some Cost of living increase 1.20% 1.50% refer to: i) precautionary provisions for claims cases it may be longer. brought by employees, authorities or third The “Business reorganization” provision Discount rate 0.77% 1.57% Increase in employee severance parties for damages arising from asbestos has been set aside for the cost of the 2.40% 2.625% benefi t exposure; ii) other provisions for litigation reorganization programs initiated by VARD DEMOGRAPHIC ASSUMPTIONS with employees and suppliers and for other in its Norwegian shipyards. RG48 mortality tables published by RG48 mortality tables published by Expected mortality rate the State Accounting Office the State Accounting Office legal proceedings. The provision for “Other risks and charges” INPS tables split by age and gender INPS tables split by age and gender Utilization of the provision for litigation includes funds (euro 5,069 thousand) for Expected invalidity rate includes euro 31.5 million for the eff ect of the environmental clean-up costs and the Expected resignation rate 3.0% 3.0% Expected rate of advances on settlement of the “Serene” dispute, which remainder includes provisions for risks 2.0% 2.0% employee severance benefi t resulted in the termination of all enforcement related to various kinds of disputes, mostly proceedings in the English courts and other of a contractual, technical or fi scal nature, Reasonable variations in the parameters used do not The Group paid a total of euro 35,570 proceedings pending in other jurisdictions; which might be settled at the Group’s have any signifi cant impact on the estimated liability. thousand into defi ned contribution plans while the remainder refers mainly to expense either in or out of court. The The table below shows the expected payouts for in 2019 (euro 36,598 thousand in 2018). compensation in the asbestos-related provisions include euro 5,918 thousand Italian employee severance benefi ts in years to come: lawsuits brought by employees, authorities or in provisions made in relation to tax (euro/000) third parties. assessments in progress, classifi ed under Expected payments The “Product warranty” provision relates taxes and levies in profi t or loss. Utilizations Within 1 year 7,036 to the estimated cost of carrying out work include euros 5.6 million in disbursements under contractual guarantee after vessel following the tax settlement proposal for the Between 1 and 2 years 3,801 delivery. The warranty period normally lasts tax audit on 2013. Between 2 and 3 years 2,489 Between 3 and 4 years 2,723 Between 4 and 5 years 2,861 Total 18,910

174 175 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22 - NON-CURRENT FINANCIAL Bank loans and credit facilities LIABILITIES The following table presents the composition These are analyzed as follows: of bank loans and credit facilities, including disclosure of the non-current portion and (euro/000) the current portion reclassifi ed to current 31.12.2019 31.12.2018 fi nancial liabilities:

Bank loans and credit facilities - non-current portion 728,417 760,448 (euro/000) Loans from BIIS - non-current portion 4,762 31.12.2019 31.12.2018 Liabilities to banks and other lenders 7,310 6,078 Financial liabilities for leasing IFRS 16 – non-current portion 76,645 Bayerische Landesbank 225,000 175,000 Finance lease obligations 26 Intesa Sanpaolo 103,854 103,853 Fair value of options on equity investments 37,541 Banca Nazionale del Lavoro 100,000 100,000 Derivative liabilities 31,638 21,414 UBI Banca 81,492 91,617 TOTAL NON-CURRENT FINANCIAL LIABILITIES 881,551 792,728 Banca Popolare dell’Emilia Romagna 75,000 84,167 Banco do Brazil 74,649 80,445 With reference to “Bank loans and credit for euro 50 million, repayable in a single Credito Valtellinese 46,034 50,000 facilities - non-current portion”, during the instalment in July 2022. At 31 December 2019, Cassa Depositi e Prestiti 40,487 51,101 fi rst half of 2019, the Parent Company took a non-current portion of euro 144 million of Banca Mediocredito del Friuli Venezia Giulia 35,880 9,240 out two new medium-long term unsecured bank loans maturing in the next 12 months was Bank of China 30,000 Crèdit Agricole - Cassa di Risparmio della Spezia 25,000 25,000 loans: the fi rst for euro 30 million, with reclassifi ed to the current portion. Banca UBAE 15,000 15,000 Banca Mediocredito del Friuli Venezia Giulia, The item “Financial liabilities for leasing IFRS Innovation Norway 7,501 9,232 repayable in a single instalment in February 16” refers to the non-current portion of the Unicredit Tiriac Bank SA 5,000 11,667 2022; the second for euro 30 million, with the fi nancial liability for instalments due relating Nordea 1,310 Bank of China, repayable in a single instalment to leasing contracts falling within the scope Other loans and credit facilities 3,856 4,360 in May 2024. In July 2019, the Parent Company of application of IFRS 16 applied as from TOTAL BANK LOANS AND CREDIT FACILITIES 868,753 811,992 took out another unsecured medium-long 1 January 2019. Note 7 contains details on Non-current portion 728,417 760,448 term loan with Bayerische Landesbank related rights of use. Current portion 140,336 51,544

The exposure to Bayerische Landesbank “Schuldschein” loans will be repaid in a relates to four medium/long-term loans single solution at the respective maturity of the Parent Company. The fi rst was dates. “Schuldschein” loans are debt disbursed in September 2018 for 75 instruments which are privately placed million, repayable in a single instalment in by an arranger bank with professional September 2023. Moreover, in November investors. Unlike normal syndicated 2018 two other “Schuldschein” loans were loans, the loan is securitized in a note taken out with Bayerische Landesbank (Schuldschein) which is then transferred to acting as Arranger and Paying Agent: the the investors. fi rst for euro 29 million with a duration of The exposure to Intesa Sanpaolo refers to 3 years (expiry November 2021) and the a medium/long term unsecured loan of second for euro 71 million with a duration the Parent Company disbursed in August of 5 years (expiry November 2023). Lastly, 2018 for euro 100 million, repayable in a Bayerische Landesbank disbursed a loan in single instalment in July 2023. In addition, August 2019 for euro 50 million, repayable with the same bank, the ordinary portions in a single instalment in July 2022. The of three loans taken out in 2014 for

176 177 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

technological innovation projects under loan was disbursed for euro 50 million, must be repaid in semi-annual instalments for euro 30 million, repayable in a single Law 46/1982 known as “Environmental repayable in six semi-annual instalments by 30 June 2022; instalment in May 2024. Logistics”, ““Payload” and “Production from February 2021 to August 2023. • for the “Superpanamax cruise ship” The exposure to Crèdit Agricole – Cassa di Engineering” for euro 3,853 thousand were Among the loans granted to the Brazilian project, a fully disbursed loan for euro 4,405 Risparmio della Spezia refers to a medium/ fully drawn down between 2015 and 2018. subsidiaries, Vard Promar SA has a long- thousand. The loan is unsecured and must long-term unsecured loan granted to the These loans are due to be repaid between term fi nancing agreement with Banco be repaid in semi-annual instalments by 30 Parent Company in October 2017 and 2022 and 2024. do Brasil, maturing in 2029. This loan is June 2020; disbursed in 2018 for euro 25 million, due to The exposure to Banca Nazionale del being used to fi nance construction of the • for the “Ecomos” project, a fully disbursed be repaid in a single instalment in January Lavoro refers to a medium/long term shipyard in Suape and is collateralized with loan for euro 10,818 thousand. The loan is 2021 (the original expiry was January unsecured loan of the Parent Company shipyard assets. The residual amount at 31 unsecured and must be repaid in semi- 2020). taken out in 2018 for euro 100 million, December 2019 amounts to euro 83 million. annual instalments by 30 June 2024; In 2017 the Parent Company took out a repayable in a single instalment in July The Parent Company has an exposure • for the “Payload” project, a fully disbursed medium/long-term unsecured loan for euro 2023. to Credito Valtellinese consisting of the loan for euro 13,043 thousand. The loan 15 million with Banca UBAE, repayable in a In November 2016, UBI Banca granted residual debt on two medium/long- is unsecured and must be repaid in semi- single instalment in January 2020. the Parent Company a medium/long- term unsecured loans. The fi rst loan annual instalments by 30 June 2024; Vard Group AS has fi ve loans with term unsecured loan for euro 20 million, was disbursed by the bank in July and • for the “Project Engineering” project, Innovation Norway for a total of NOK 74 repayable in 6 semi-annual instalments September 2017 for euro 20 million to be a fully disbursed loan for euro 10,822 million (current and non-current portions) ending in February 2020. In December repaid, after a 22-month grace period, in thousand. The loan is unsecured and must at 31 December 2019; these loans are 2016, UBI Banca granted the Parent 5 semi-annual instalments ending in July be repaid in semi-annual instalments by 30 secured by plant and machinery and by the Company the fi rst ordinary portion, euro 2021. The second loan, for euro 30 million, June 2024; dock at the Langesten shipyard and also 1,617 thousand, of a loan agreed in 2014 was disbursed in 2018 and is repayable, • for the “Environmental” project, a loan for carry covenants (Consolidated Equity > for euro 2,021 thousand for an innovation after a grace period of 36 months, in up to euro 18,192 thousand, of which euro NOK 1,500 million and Consolidated Cash project under Law 46/1982 called 3 semi-annual instalments ending in 14,554 thousand was disbursed by the end and cash equivalents > NOK 500 million). “Environment”; this amount will be repaid September 2022. of 2016. The loan is unsecured and must Vard obtained from Innovation Norge a in semi-annual instalments due between The exposure to Cassa Depositi e Prestiti be repaid in semi-annual instalments by 30 waiver of the covenant relating to equity 2021 and 2024. In 2017 the bank granted refers to six soft loans received by the June 2024; for the last quarter of 2019. the Parent Company a new medium/ Parent Company under the “revolving fund In September 2017, Vard Tulcea SA long-term unsecured loan for euro 40 in support of businesses and investment in In February 2019, the Parent Company took obtained a loan from Unicredit Tiriac Bank million, repayable in a single instalment research” (the “Fund”), established under out an unsecured medium-long term loan SA for euro 20 million. The residual amount in November 2020. In December 2018 Law 311 of 30 December 2004, for the with Banca Mediocredito del Friuli Venezia of this loan at 31 December 2019 is euro a further unsecured loan was taken out “Superpanamax cruise ship” development Giulia, disbursed in the same month for euro 5,000 thousand. The loan is collateralized with UBI Banca for a total of 30 million, project under Law 46/1982, for the 30 million, repayable in a single instalment with shipyard assets and must be repaid in repayable in a single instalment in June “Ecomos” applied research project under in February 2022. Another exposure of the monthly instalments by September 2020. 2020. In May 2018 Vard Group AS took Law 297/1999 and for four technological Parent Company’s to Banca Mediocredito The subsidiary Vard Electro AS obtained out a loan with UBI Banca for a total of innovation projects under Law 46/1982 del Friuli Venezia Giulia refers to two loans, a loan from a local bank in 2016 for NOK 10 million, which will be repaid in three- known as “Environmental Logistics”, secured by a lien on plant, machinery and 59 million, maturing in 2032, to fi nance monthly instalments by May 2021. “Payload”, “Production Engineering” and equipment at the Monfalcone shipyard, as construction of its new headquarters. The Parent Company has an exposure “Environment”. disclosed in Note 8, disbursed between “Other loans and credit facilities” includes to Banca Popolare dell’Emilia Romagna The following loans have been granted 2009 and 2014 for the original total two loans granted by Mediocredito consisting of the residual debt on two to FINCANTIERI S.p.A. under this Fund amount of euro 34 million. These loans are Centrale to the Parent Company for the medium/long-term unsecured loans. The through the Cassa Depositi e Prestiti: to be repaid progressively in semi-annual “Superpanamax cruise ship” development fi rst loan was disbursed in 2018 for euro instalments by 2022. project under Law 46/1982 and the 30 million, repayable in six semi-annual • for the “Superpanamax cruise ship” In 2019 the bank granted the Parent “Ecomos” applied research project under instalments from July 2019 and ending in project, a fully disbursed loan for euro Company another new medium/long-term Law 297/1999, fully disbursed between January 2022. In August 2018, the second 12,217 thousand. The loan is unsecured and unsecured loan with the Bank of China 2013 and 2017 for an overall total of euro

178 179 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUPGRUPPO / CONSOLIDATED FINCANTIERI / BILANCIOFINANCIAL CONSOLIDATO STATEMENTS

1,847 thousand. The fi nal instalments are due in June 2022, the second entered into in on these loans in June 2022 and June 2020 December 2018 for a total amount of euro respectively. The same item includes the 1 million repayable in quarterly installments exposure of the company Gestione Bacini ending in September 2021, and the exposure La Spezia S.p.A. to Credit Agricole - Cassa of INSIS S.p.A. to Banco BPM relating to di Risparmio della Spezia for a medium/ the residual debt of a medium/long-term long-term loan disbursed in 2007 for a total unsecured loan entered into in July 2017 for of euro 3 million ending in December 2020. a total amount of euro 2 million repayable in The item also includes the exposure of INSIS monthly installments ending in 2020. S.p.A. to Unicredit relating to the residual The non-current portion of bank loans and debt of two unsecured medium/long-term credit facilities reports the instalments due loans, the fi rst entered into in September beyond one year of loans obtained from 2017 for a total amount of euro 1 million fi nancial institutions, analyzed by maturity repayable in quarterly installments ending as follows:

(euro/000) 31.12.2019 31.12.2018 Fixed rate Floating rate Total Fixed rate Floating rate Total

- between one and two years 19,766 94,501 114,267 26,285 138,644 164,929 - between two and three years 58,800 76,222 135,022 25,578 73,141 98,719 - between three and four years 282,978 90,557 373,535 16,717 45,536 62,253 - between four and fi ve years 4,003 31,605 35,608 290,898 91,269 382,167 - beyond fi ve years 66,940 3,045 69,985 49,749 2,631 52,380 Total 432,487 295,930 728,417 409,227 351,221 760,448

“Loans from BIIS – non-current portion” consistent with that of the corresponding at 31 December 2018 refl ect the receipt of amount recognized as a receivable. production grants in the form of loans that The “Fair value of options on equity are then eff ectively repaid by the state (see investments” refers to the option held by Note 10). The movement in the period is minority shareholders of the INSIS Group.

180 181 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 - OTHER NON-CURRENT NOTE 25 - TRADE PAYABLES AND OTHER LIABILITIES CURRENT LIABILITIES

These are analyzed as follows: These are analyzed as follows:

(euro/000) (euro/000) 31.12.2019 31.12.2018 31.12.2019 31.12.2018

Capital grants 23,301 24,242 Payables to suppliers 1,777,752 1,471,101 Other liabilities 5,233 6,933 Payables to suppliers for reverse factoring 492,404 377,487 Firm commitments 42 962 Social security payables 45,019 37,327 TOTAL OTHER NON-CURRENT LIABILITIES 28,576 32,137 Other payables to employees for deferred wages and salaries 91,571 76,454 Other payables 101,695 84,335 “Capital grants” mainly comprise deferred amortization of these assets. Other payables to the Parent Company (tax consolidation) 9,118 47,459 income associated with grants for property, “Other liabilities” include euro 4,693 Indirect tax payables 26,527 18,007 plant and equipment and innovation grants thousand in payables to other parties in Firm commitments 1,397 697 which will be released to income in future respect of the amount owed by the Iraqi Accrued expenses 5,315 2,576 years to match the related depreciation/ Ministry of Defence (see Note 11). Deferred income 2,903 847 TOTAL TRADE PAYABLES AND OTHER CURRENT LIABILITIES 2,553,701 2,116,290

“Payables to suppliers” shows an increase “Other payables” include employee income NOTE 24 - CONSTRUCTION CONTRACTS - of euro 306,651 thousand compared to 31 tax withholdings payable to tax authorities, LIABILITIES December 2018, essentially correlated to the sundry payables for insurance premiums, higher volumes achieved in the last quarter of advances received against research grants, These are analyzed as follows: 2019 in particular. amounts payable to employee supplementary “Payables to suppliers for reverse factoring” pension funds and security deposits received. (euro/000) report the liabilities to suppliers who have “Indirect tax payables” include euro 18,231 31.12.2019 31.12.2018 relinquished their creditor position with thousand for indirect tax liabilities of the Construction Invoices issued Construction Construction Invoices issued Construction Fincantieri to a factoring company. VARD Group. contracts - and provision contracts - net contracts - and provision contracts - net gross for future liabilities gross for future liabilities “Social security payables” include amounts “Firm commitments” refl ect the fair value of losses losses due to INPS (the Italian social security hedged items in fair value hedges adopted Shipbuilding contracts 4,080,158 5,305,142 1,224,984 2,505,411 4,062,921 1,557,510 authorities) for employer and employee by the VARD Group to hedge currency Other contracts for third parties contributions on December’s wages and risk arising on construction contracts in Client advances 57,729 57,729 37,283 37,283 salaries and contributions on end-of-period currencies other than the functional currency. TOTAL 4,080,158 5,362,871 1,282,713 2,505,411 4,100,204 1,594,793 wage adjustments.

“Construction contracts - liabilities” report incurred to date plus recognized margins less those contracts where the value of the stage any expected losses. of completion of the contract is less than “Client advances” refer to contracts on the amount invoiced to the client. The stage which work had not started at the year-end NOTE 26 - INCOME TAX LIABILITIES of completion is determined as the costs reporting date. (euro/000) 31.12.2019 31.12.2018

Italian corporate income taxation (IRES) 1,619 1,269 Italian regional tax on productive activities (IRAP) 1,445 190 Foreign tax 3,938 2,841 TOTAL INCOME TAX LIABILITIES 7,002 4,300

182 183 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 27 - CURRENT FINANCIAL LIABILITIES • In December 2018, FINCANTIERI S.p.A. ships is being fi nanced with such loans. agreed with a syndicate of leading national None of the main banks fi nancing the VARD banks, including Cassa Depositi e Prestiti, a Group has reported the occurrence of such These are analyzed as follows: construction loan for up to 300 million to circumstances. fi nance the construction of a cruise ship. As “Other short-term bank debt” at 31 (euro/000) at 31 December 2019, euro 275 million of this December 2019 includes the drawing down 31.12.2019 31.12.2018 loan had been drawn down. of uncommitted lines of credit for euro 155 Commercial papers 75,000 231,000 • In June 2019, the Parent Company entered million relating to VARD, euro 6 million of Bank loans and credit facilities - current portion 140,336 51,544 into a revolving facility with a leading Italian relating to INSIS and euro 2 million relating to Loans from BIIS - current portion 4,762 7,751 bank dedicated to fi nancing the construction Fincantieri Shanghai. Bank loans and credit facilities - Construction loans 811,410 632,482 of cruise ships for an amount of euro 500 At 31 December 2019, the Group had a total of Other short-term bank debt 162,674 195,930 million ending in December 2022. As at 31 euro 600 million in committed lines of credit December 2019, euro 75 million of this facility with leading Italian and international banks Liabilities to other lenders - current portion 1,035 906 had been drawn down. maturing between 2020 and 2024. In addition Bank credit facilities repayable on demand 97 1,287 • In November 2019, construction fi nancing to committed credit lines, the Group has Payables to joint ventures 1,573 1,716 was agreed with a syndicate of a leading access to additional uncommitted credit lines Payables to associates 55 international bank and a leading Italian bank with leading Italian and international banks in Finance lease obligations - current portion 210 for up to euro 300 million, to be disbursed diff erent currencies (about euro 661 million). Financial liabilities for leasing IFRS 16 – current portion 15,441 in line with the progress of works on a cruise “Payables to joint ventures” relate to the Fair value of options on equity investments 21,542 19,389 ship. As at 31 December 2019, euro 200 negative balance on the intercompany current Derivative liabilities 21,681 37,880 million of this loan had been drawn down. account with Orizzonte Sistemi Navali. Accrued interest expense 2,565 2,751 • Vard Group AS has existing construction “Fair value of options on equity investments” TOTAL CURRENT FINANCIAL LIABILITIES 1,258,171 1,182,846 loan facilities with DNB, Sparebanken 1 SMN (Level 3) amounting to euro 21,542 (euro and Deutsche Bank for a total of NOK 3,848 19,389 thousand at 31 December 2018) For “Bank loans and credit facilities - current “Construction loans” are analyzed as follows million. These facilities had been drawn is related to the option held by minority portion” and “Loans from BIIS - current at 31 December 2019: down by a total of NOK 2,578 million at 31 shareholders of the American Group FMG, portion”, see Note 22. December 2019. These facilities with DNB the increase in which since 2018 is due to and Sparebanken 1 SMN carry covenants the revaluation recognized in profi t and loss as on consolidated equity (minimum NOK under fi nancial costs for euro 2.670 thousand (euro/000) 1,500 million), on consolidated cash and cash and, for the remainder, to the positive eff ect 31.12.2019 31.12.2018 equivalents, which must be at least NOK of translating the balance expressed in foreign CONSTRUCTION LOANS 500 million and on net working capital with currency. Italy 550,000 50,000 a minimum of zero. At 31 December 2019 The fair value of derivative fi nancial Norway 261,410 412,535 Vard obtained from the banks a waiver of the instruments has been calculated considering Brazil 169,947 covenants relating to equity and net working market parameters and using widely accepted TOTAL CONSTRUCTION LOANS 811,410 632,482 capital. measurement techniques (Level 2). Further details can be found in Note 4. With reference to the Euro-Commercial Paper vessel delivery or upon expiry of the loan The construction loans drawn down at Step Label program structured by the Parent agreement if earlier. It should also be noted 31.12.2019 consist entirely of a variable-rate Company in December 2017 for a maximum of that in the event of shipbuilding contract portion (carrying rates at 31 December 2019 euro 500 million, euro 75 million of this fi nancing cancellation, the bank is entitled to request of between 0.5% and 5.2%). had been drawn down as at 31 December 2019. early repayment of the loan unless the Group Some of the construction loans include Construction loans are project specifi c and provides adequate guarantees. The existing immediate repayment clauses triggered by are secured by the vessels under construction. facilities of euro 1,490 million are detailed as circumstances of economic and fi nancial These loans are repaid in full by the time of follows: distress of clients, construction of whose

184 185 FINCANTIERIGRUPPO FINCANTIERI GROUP / /CONSOLIDATED BILANCIO CONSOLIDATO FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28 - REVENUE AND INCOME

These are analyzed as follows:

(euro/000) 2019 2018

Sales and service revenue 3,634,541 4,112,276 Change in construction contracts 2,140,310 1,256,620 Operating revenue 5,774,851 5,368,896 Gains on disposal 119 219 Sundry revenue and income 67,600 74,518 Government grants 6,638 30,387 Other revenue and income 74,357 105,124 TOTAL REVENUE AND INCOME 5,849,208 5,474,020

For detail of the revenue broken down by processes in the naval vessel sector, under the Group’s operating segments, please refer Law 190 of 2014, assigned in November to Note 35. It should be noted that almost and December 2016. The remaining part is all the revenue relating to naval and service the grants related to income (euro 2,233 contracts is recognized gradually over time. thousand) and capital (euro 3,191 thousand) “Government grants” includes euro 1,214 mainly related to the Parent Company, thousand grants for the year recognized the subsidiary Cetena S.p.A. and the US by the Parent Company for the loan for subsidiary Fincantieri Marine Group LLC. innovative projects on products and Sundry revenue and income comprise:

(euro/000) 2019 2018

Penalties charged to suppliers 14,700 11,471 Rental income 1,021 810 Insurance claims 11,090 30,861 Recharged costs 16,945 8,402 Income from third parties relating to personnel 2,216 212 Other sundry income 21,470 21,836 Gains on trading foreign currency derivatives 148 456 Gains on hedging instruments not qualifying for hedge accounting Other income 10 470 Total 67,600 74,518

“Recharged costs”, of euro 16,945 thousand, thousand mainly includes the recharge of mainly refer to various kinds of recharge to services made available to subcontractors at customers and suppliers not attributable to the shipyards and out-of-period income and specifi c cost categories. adjustments arising on settlements agreed “Other sundry income” of euro 21,470 with suppliers during the year.

186 187 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 29 - OPERATING COSTS “Leases and rentals” amounting to euro in this item is attributable to the fi rst-time 36,168 thousand (euro 45,126 thousand at adoption of IFRS 16. Materials, services and other costs 31 December 2018) include rental and hire It should be note that “Technical and other costs of euro 26,641 thousand (euro 26,987 services” includes charges related to the Materials, services and other costs are thousand at 31 December 2018), lease costs “Performance Share Plan” (euro 1,059 analyzed as follows: of euro 9,216 thousand (euro 15,214 thousand thousand) for the portion for the Parent at 31 December 2018), and concession and Company’s Chief Executive Offi cer. More (euro/000) similar fees of euro 311 thousand (euro 2,925 details on the operation can be found 2019 2018 thousand at 31 December 2018). The change in Note 33. Raw materials and consumables (2,881,856) (2,901,600) Services (1,463,044) (1,148,803) PERSONNEL COSTS Leases and rentals (36,168) (45,126)

Change in inventories of raw materials and consumables 14,128 27,051 (euro/000) Change in inventories work in progress and fi nished products (94,888) (14,346) 2019 2018 Sundry operating costs (75,897) (33,348) Personnel costs: Cost of materials and services capitalized in fi xed assets 17,616 12,122 - wages and salaries (750,547) (704,634) Total materials, services and other costs (4,520,109) (4,104,050) - social security (187,836) (188,023) - costs for defi ned contribution plans (35,570) (36,598) - costs for defi ned benefi t plans (1,232) (13) The increase in Sundry operating costs is thousand in losses on the disposal - other personnel costs (33,237) (27,515) mainly due to the increase in 2019 of costs of non-current assets (euro 708 thousand Personnel costs capitalized in fi xed assets 7,027 5,168 in transactions with customers. Sundry at 31 December 2018). Total personnel costs (1,001,395) (951,615) operating costs also include euro 1.422 Details of the cost of services are as follows:

(euro/000) “Personnel costs” represent the total cost It should be noted that “Other personnel 2019 2018 incurred for employees, including wages costs” includes charges related to the Subcontractors and outsourced services (861,408) (612,769) and salaries, employer social security “Performance Share Plan” (euro 4,014 Insurance (45,134) (38,970) contributions payable by the Group, gifts and thousand). More details on the operation can Other personnel costs (36,564) (32,655) travel allowances. The change of euro 49,780 be found in Note 33. Maintenance costs (26,591) (22,768) thousand compared to 31 December 2018 is Personnel costs include euro 4,188 thousand Commissioning and trials (11,691) (21,544) partly attributable to the increase in average in non-recurring expenses attributable to the Outsourced design costs (51,741) (30,867) resources employed in the Group’s Italian yards. subsidiary VARD (see Note 33). Licenses (8,578) (7,372) Transportation and logistics (41,796) (28,073) Headcount Technical and other services (309,659) (299,579) Employees are distributed as follows: Cleaning services (42,147) (35,451) (number) Electricity, water, gas and other utilities (55,896) (42,882) 2019 2018

Utilization of product warranty and other provisions 28,161 24,127 Employees at year end: Total cost of services (1,463,044) (1,148,803) Total at year end 19,823 19,274 - of whom in Italy 9,334 8,662 - of whom in Parent Company 8,287 7,874 - of whom in VARD 8,437 8,664

Average number of employees 19,546 19,331 - of whom in Italy 9,002 8,400 - of whom in Parent Company 8,036 7,677 - of whom in VARD 8,585 8,970

188 189 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

DEPRECIATION, AMORTIZATION AND IMPAIRMENT NOTE 30 - FINANCE INCOME AND COSTS AND PROVISIONS These are analyzed as follows: (euro/000) 2019 2018 (euro/000) 2019 2018 Depreciation and amortization: - amortization of intangible assets (57,170) (50,041) FINANCE INCOME - depreciation of rights of use (16,644) Interest and fees from joint ventures and associates 299 323 - depreciation of property, plant and equipment (87,963) (86,057) Bank interest and fees and other income 5,011 5,592 Impairment: Income from derivative fi nancial instruments 73 - impairment of goodwill (394) Interest and other income from fi nancial assets 6,360 2,031 - impairment of intangible assets (479) (222) Foreign exchange gains 40,929 28,616 - impairment of rights of use (906) Total fi nance income 52,599 36,635 - impairment of property, plant and equipment (3,953) (39) FINANCE COSTS Total depreciation, amortization and impairment (167,509) (136,359) Interest and fees charged by joint ventures (99) (159) Provisions: Interest and fees from related parties (2,745) (168) - impairment of contractual assets (12,604) Interest and fees charged by controlling companies (242) (727) - impairment of receivables (1,344) (9,923) Expenses from derivative fi nancial instruments (60,574) (19,431) - increases in provisions for risks and charges (73,467) (66,066) Unrealized fi nance costs - delta fair value (1,799) (847) - release of provisions and impairment reversals 12,879 17,230 Interest on employee benefi t plans (868) (724) Total provisions (74,536) (58,759) Interest and fees on commercial papers (627) (10,878) Interest and fees on construction loans (13,834) (24,620) Bank interest and fees and other expense (45,882) (46,088) A breakdown of depreciation and “Increases in provisions for risks and charges” Interest paid on leases IFRS 16 (3,535) amortization is provided in Notes 6, 7 and 8. mainly comprise provisions for obligations Impairment of fi nancial receivables IFRS 9 (6,927) The impairment of contractual assets refers deriving from contractual warranties for Foreign exchange losses (49,918) (36,924) to the impairment on construction contracts, 31,897 thousand (euro 28,493 thousand at 31 Total fi nance costs (187,050) (140,566) reclassifi ed under property, plant and December 2018), and provisions for litigation TOTAL FINANCE INCOME AND COSTS (134,451) (103,931) equipment, and commented on in Note 8. for euro 35,040 (euro 36,857 thousand at “Impairment of receivables” relates to prudent 31 December 2018). More details about the appropriations to align the nominal value of nature of the provisions made can be found “Finance income” in 2019 includes euro 251 Finance costs in 2019 include euro 6,927 receivables with estimated realizable value. in Note 20 and Note 33 thousand (euro 539 thousand in 2018) in thousand of impairment of long-term fi nancial interest formally paid by the Italian State to the receivables determined on the basis of the Parent Company, but eff ectively paid to BIIS expected credit loss model introduced by IFRS 9. (Banca Infrastrutture Innovazione e Sviluppo) The change in expenses from derivative fi nancial (with an equal amount recognized as fi nance instruments is mainly due to the change in the fair expense), under the structure in place value of the derivatives to hedge exchange rate for the disbursement of government grants risks following the weakening of the euro against (see Note 10). the dollar.

190 191 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 31 - INCOME AND EXPENSE FROM NOTE 32 - INCOME TAXES INVESTMENTS These are analyzed as follows: These are analyzed as follows: (euro/000) (euro/000) 2019 2018 2019 2018 Current taxes (45,507) (71,153) INCOME Deferred tax assets: Dividends from associates 50 – sundry impairment losses (5,731) (12,866) Dividends from other companies 31 39 – product warranty (1,925) (1,385) Gains from sale of investments 3,695 – other risks and charges (10,049) 1,910 Fair value measurement gains 2,671 – fair value of derivatives 2,151 Total income 81 6,405 – carry forward tax losses (5,982) 10,058 EXPENSE – other items (15,066) 17,312 Fair value measurement losses (78) (463) – tax rate and other changes 2 (55) Total expense (78) (463) (36,600) 14,974 INCOME/(EXPENSE) FROM INVESTMENTS 3 5,942 Deferred tax liabilities: SHARE OF PROFIT/(LOSS) OF INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD – business combinations 7,222 2,102 Profi t 3,209 2,122 – other items 2,912 857 Loss (6,377) (5,027) – tax rate and other changes 18 SHARE OF PROFIT/(LOSS) OF INVESTMENTS 10,152 2,959 ACCOUNTED FOR USING THE EQUITY METHOD (3,168) (2,905) Total deferred taxes (26,448) 17,933 TOTAL INCOME AND EXPENSE FROM INVESTMENTS (3,165) 3,037 TOTAL INCOME TAXES (71,955) (53,220)

Notes: Negative fi gures indicate the recognition of deferred tax liabilities or reversal of deferred tax assets. Positive fi gures indicate the reversal of deferred tax liabilities or recognition of deferred tax assets. Investments accounted for using the loss of euro 6,377 thousand mainly refl ects equity method show a profi t of euro 3,209 the Group’s share of the results for the thousand and refer mainly to the Group’s year of Olympic Challenger KS (euro 4,518 The theoretical tax rate is reconciled to the share of the result for the year reported by thousand), Island Diligence AS (euro 583 eff ective tax rate as follows: the PSC Group (euro 1,310 thousand), CSSC thousand) and Møkster Supply KS (euro/000) - Fincantieri Cruise Industry Development (euro 532 thousand). 2019 2018 Limited (euro 1,280 thousand) and Etihad For more details on the changes to Theoretical corporate income tax rate (IRES) 24% 24% Ship Building LLC (euro 542 thousand). The investments, see Note 9. Profi t/(loss) before tax (51,955) 122,342 Theoretical corporate income tax (IRES) 12,469 (29,362)

Impact of taxes relating to prior periods 9,467 (6,076) Impact of tax losses (2,872) (13,673) Impairment of deferred tax assets (18,904) Impact of permanent diff erences and unrecognized (49,523) 14,238 temporary diff erences Impact of temporary diff erences not recognized 2,203 in previous years Eff ect of change in tax rates 4,127 978 Impact of diff erent tax rates applicable to foreign entities (8,286) (9,389) Provisions for tax risks (5,479) Tax credit on R&D costs 190

Other taxes charged to profi t or loss (13,144) (12,139) Total income taxes through profi t or loss (71,955) (53,220) Current taxes (45,507) (71,153) Deferred taxes (26,448) 17,933

192 193 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

“Provisions for tax risks” refer to the and Romania and which are still to be NOTE 33 - OTHER INFORMATION provision made during the year to the determined. tax risk provision in relation to certain The following table shows a breakdown of Net fi nancial position preliminary investigations launched current and deferred income taxes in Italy by the tax authorities in 2019 in Italy and other countries: The consolidated net fi nancial position as monitored by the Group is presented below.

(euro/000) 2019 2018 (euro/000) 31.12.2019 31.12.2018 Current taxes (45,507) (71,153) - Italian companies (38,174) (61,365) A. Cash 134 92 - Foreign companies (7,333) (9,788) B. Other cash equivalents 381,656 676,395 C. Trading securities - - Deferred taxes (26,448) 17,933 D. Cash and cash equivalents (A)+(B)+(C) 381,790 676,487 - Italian companies (26,436) (20,015) E. Current fi nancial receivables 2,144 17,985 - Foreign companies (12) 37,948 - of which related parties 389 106 TOTAL (71,995) (53,220) F. Current bank debt (162,771) (197,217) - of which related parties - - G. Bonds and commercial papers - current portion (75,000) (231,000) H. Current portion of non-current debt (142,907) (54,292) - of which related parties (10,120) (10,622) I. Other current fi nancial liabilities (18,098) (2,835) - of which related parties (1,575) (1,702) J. Current debt (F)+(G)+(H)+(I) (398,776) (485,344) K. Net current debt (D)+(E)+(J) (14,842) 209,128 L. Non-current fi nancial receivables 91,510 63,133 - of which related parties 34,356 13,449 M. Non-current bank debt (730,237) (760,448) - of which related parties (30,376) (40,487) N. Bonds - non-current portion - - O. Other non-current fi nancial liabilities (82,135) (6,104) P. Non-current debt (M)+(N)+(O) (812,372) (766,552) Q. Net non-current debt (L)+(P) (720,862) (703,419) R. Net fi nancial position (K)+(Q) (735,704) (494,291)

For the purposes of complying with Consob net fi nancial position with the disclosure Communication no. DEM/6064293/2006, recommended by the European Securities the following table reconciles the above and Markets Authority (ESMA).

(euro/000) 31.12.2019 31.12.2018

Net fi nancial position (735,704) (494,291) Non-current fi nancial assets (91,510) (63,133) Construction loans (811,410) (632,482) Net fi nancial position as per ESMA recommendation (1,638,624) (1,189,906)

194 195 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

Statement of net fi nancial debt fl ows The following table shows the movements (euro/000) in the fi nancial position with regard to 1.1.2019 Business Cash flows Changes in Exchange rate Other non- 31.12.2019 combinations fair value differences monetary fi nancing activities and cash fl ows (IAS 7). changes

Non-current fi nancial 766,552 3,702 90,902 (1,401) (47,383) 812,372 (euro/000) liabilities 1.1.2018 Business Cash flows Changes in Exchange rate Other non- 31.12.2018 Non-current fi nancial (63,140) (30,867) (470) 2,967 (91,510) combinations fair value differences monetary receivables changes Current bank loans and 883,991 8,216 74,167 5,200 145,514 1,117,088 Non-current fi nancial credit facilities 263,701 506,705 (7,830) 3,976 766,552 liabilities Other current fi nancial (15,150) 132 16,936 (2,229) 16,265 15,954 Non-current fi nancial liabilities/receivables (122,794) 50,662 530 8,468 (63,134) receivables Current bonds/ 231,000 (156,000) 75,000 Current bank loans and commercial papers 797,672 54,706 518 31,095 883,991 credit facilities Receivables/payables Other current fi nancial for trading fi nancial (781) 781 (25,708) 9,398 1,004 156 (15,150) liabilities/receivables instruments Current bonds/ Total liabilities from 299,239 (68,239) 231,000 1,802,472 12,050 (4,863) 781 1,100 117,363 1,928,904 commercial papers fi nancing activities Receivables/payables Purchase of non- for trading fi nancial (3,025) 2,244 (781) controlling interests (535) instruments in VARD Total liabilities from Purchase of own shares (3,495) 1,209,085 - 553,232 2,244 (5,778) 43,695 1,802,478 fi nancing activities Third party capital 159 Purchase of non- CASH FLOWS FROM 12,050 (8,733) 781 controlling interests in (32,464) FINANCING ACTIVITIES VARD Purchase of own shares Third party capital 180 Signifi cant non-recurring events and Atypical and/or unusual transactions CASH FLOWS FROM 180 520,768 2,244 transactions FINANCING ACTIVITIES In accordance with the disclosures In accordance with Consob Communication required by Consob Communication no. no. 0092543 of 3 December 2015 with DEM/6064293 dated 28 July 2006, it is reference to the provisions of Consob reported that no atypical and/or unusual Resolution no. 15519 of 27 July 2006, only transactions were carried out during 2019. items considered to be non-recurring have been presented in the fi nancial statements, Related party transactions excluding extraordinary ones outside of ordinary operations. The items reported Intragroup transactions, transactions with refer to costs relating to reorganization plans CDP Industria S.p.A. and its subsidiaries, and other non-recurring personnel costs of with Cassa Depositi e Prestiti S.p.A. and its euro 8,816 thousand (no tax eff ects). subsidiaries, with companies controlled by Italy’s Ministry of Economy and Finance and with other related parties in general, do not qualify as either atypical or unusual, since they fall within the normal course of business of the Fincantieri Group and are conducted on an arm’s length basis. The fi gures for related party transactions and balances are reported in the following tables.

196 197 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(euro/000) (euro/000) 31.12.2019 31.12.2018 Non-current Current Advances* Trade Trade Non-current Current Trade payables Non-current Current Advances* Trade Trade Non-current Current Trade payables financial financial receivables receivables financial financial and other financial financial receivables receivables financial financial and other assets assets and other and other liabilities liabilities current assets assets and other and other liabilities liabilities current non-current current liabilities non-current current liabilities assets assets assets assets CASSA DEPOSITI E PRESTITI S.p.A. 3,171 (30,376) (10,120) (9,109) CASSA DEPOSITI E PRESTITI S.p.A. 2,926 (40,487) (10,622) (47,459) TOTAL CONTROLLING COMPANIES 3,171 (30,376) (10,120) (9,109) TOTAL CONTROLLING COMPANIES 2,926 (40,487) (10,622) (47,459) ORIZZONTE SISTEMI NAVALI S.p.A. 101,518 (1,558) (643) ORIZZONTE SISTEMI NAVALI S.p.A. 92,326 (1,702) (1,269) UNIFER NAVALE S.r.l. 1,491 (595) UNIFER NAVALE S.r.l. 1,491 (1,042) CAMPER AND NICHOLSONS CSSC - FINCANTIERI CRUISE 22,000 355 1,893 (383) INDUSTRY DEVELOPMENT Ltd. INTERNATIONAL SA ETIHAD SHIP BUILDING LLC 6,094 (946) CSSC - FINCANTIERI CRUISE 8,400 86 39,528 CONSORZIO F.S.B. (14) INDUSTRY DEVELOPMENT Ltd. BUSBAR4F S.c.a.r.l. 1,062 21 (1,145) ETIHAD SHIP BUILDING LLC 7,598 (4,421) FINCANTIERI CLEA BUILDINGS S.c.a.r.l. 3 (610) CONSORZIO F.S.B. PERGENOVA S.c.p.a. 58,000 (58,037) LUXURY INTERIORS FACTORY S.r.l. (33) TOTAL JOINT VENTURES 8,400 86 1,491 139,452 (1,702) (6,765) ISSEL MIDDLE EAST INFORMATION 4 (17) TECNOLOGY CONSULTANCY LLC ARSENAL S.r.l. (34) NAVIRIS S.p.A. 95 PSC GROUP 656 18 (4,423) TOTAL JOINT VENTURES 22,000 359 2,553 167,624 (1,575) (62,373) CENTRO SERVIZI NAVALI S.p.A. 306 ARSENAL S.r.l. OLYMPIC CHALLENGER KS 176 PSC GROUP 4,743 38 (11,818) BREVIK TECHNOLOGY AS 182 CENTRO SERVIZI NAVALI S.p.A. 825 (351) MØKSTER SUPPLY KS 619 OLYMPIC CHALLENGER KS 532 DOF ICEMAN AS BREVIK TECHNOLOGY AS CSS DESIGN 673 MØKSTER SUPPLY KS ISLAND DILIGENCE AS 4,072 DOF ICEMAN AS 3,696 TOTAL ASSOCIATES 5,049 656 673 324 (4,457) CSS DESIGN CDP IMMOBILIARE S.r.l. ISLAND DILIGENCE AS 4,628 SACE FCT 11 (54) T. MARIOTTI S.p.A. 43 TERNA RETE ITALIA S.p.A. 12 DECOMAR S.p.A. 3,500 30 VALVITALIA S.p.A. 1,843 17 (1,593) TOTAL ASSOCIATES 12,356 30 4,743 906 (12,169) ACAM CLIENTI S.p.A. (6) CDP IMMOBILIARE S.r.l. SUPPLEMENTARY PENSION FUND FOR SENIOR MANAGERS OF (1,199) SACE FCT FINCANTIERI S.p.A. SACE S.p.A. (11) COMETA NATIONAL SUPPLEMENTARY (3,651) TERNA RETE ITALIA S.p.A. 52 PENSION FUND VALVITALIA S.p.A. 1,550 3 (4,080) SOLIDARIETÀ VENETO (93) SUPPLEMENTARY PENSION FUND FOR PENSION FUND SENIOR MANAGERS OF FINCANTIERI S.p.A. (1,290) TOTAL CDP GROUP 1,843 28 (6,584) COMETA NATIONAL SUPPLEMENTARY PENSION FUND (3,844) QUANTA S.p.A. (34) SOLIDARIETÀ VENETO - PENSION FUND (99) EXPERIS S.r.l. (9) ACAM CLIENTI S.p.A. (1) LEONARDO GROUP 197,748 1,967 (1,528) TOTAL CDP GROUP 1,550 3 (9,273) ENI GROUP 613 218 QUANTA S.p.A. (34) ENEL GROUP (1) EXPERIS S.r.l. COMPANIES CONTROLLED BY MINISTRY OF ECONOMY AND (23) LEONARDO GROUP 177,638 2,579 (24,736) FINANCE ENI GROUP 1,051 (62) TOTAL OTHER RELATED PARTIES 197,748 2,580 (1,377) ENEL GROUP TOTAL RELATED PARTIES 13,449 86 201,738 673 145,310 (40,487) (12,324) (66,642) COMPANIES CONTROLLED BY TOTAL CONSOLIDATED STATEMENT OF FINANCIAL POSITION 97,901 48,688 449,160 31,811 1,062,377 (792,728) (1,182,846) (2,116,290) MINISTRY OF ECONOMY AND (56) FINANCE % on consolidated statement of fi nancial position 14% 0% 45% 2% 14% 5% 1% 3% TOTAL OTHER RELATED PARTIES 179,188 3,633 (34,161) *“Advances” are classifi ed in “Inventories”, as detailed in Note 13. TOTAL RELATED PARTIES 34,356 389 186,484 175,334 (30,376) (11,695) (117,812) TOTAL CONSOLIDATED STATEMENT OF FINANCIAL POSITION 92,603 9,329 467,017 17,523 1,079,388 (881,551) (1,258,171) (2,553,701) % on consolidated statement of fi nancial position 37% 4% 40% 0% 16% 3% 1% 5%

*“Advances” are classifi ed in “Inventories”, as detailed in Note 13. 198 199 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(euro/000) (euro/000) 2019 2018

Operating revenue Other revenue and Materials, services and Finance income Finance costs Operating revenue Other revenue and Materials, services and Finance income Finance costs income other costs income other costs

CASSA DEPOSITI E PRESTITI S.p.A. 172 (136) (242) CASSA DEPOSITI E PRESTITI S.p.A. (88) (734) TOTAL CONTROLLING COMPANIES 172 (136) (242) TOTAL CONTROLLING COMPANIES (88) (734) ORIZZONTE SISTEMI NAVALI S.p.A. 167,475 637 (1,162) (99) ORIZZONTE SISTEMI NAVALI S.p.A. 257,617 762 (3,033) (159) UNIFER NAVALE S.r.l. 4 (11,975) UNIFER NAVALE S.r.l. (10,696) CSSC - FINCANTIERI CRUISE INDUSTRY CAMPER AND NICHOLSONS DEVELOPMENT Ltd. 7,912 3,603 269 INTERNATIONAL SA 8 ETIHAD SHIP BUILDING LLC 221 270 (193) CSSC - FINCANTIERI CRUISE INDUSTRY DEVELOPMENT Ltd. 4,148 1,268 86 CONSORZIO F.S.B. 45 223 (302) ETIHAD SHIP BUILDING LLC 6,125 290 (1,394) BUSBAR4F S.c.a.r.l. 286 7 (917) CONSORZIO F.S.B. 11 26 (61) FINCANTIERI CLEA BUILDINGS S.c.a.r.l. 5 (5,530) LUXURY INTERIORS FACTORY S.r.l. 49 (2,142) PERGENOVA S.c.p.a. 116,049 328 (29,080) TOTAL JOINT VENTURES 267,901 2,395 (17,326) 94 (159) NAVIRIS S.p.A. 95 ARSENAL S.r.l. (67) TOTAL JOINT VENTURES 291,988 5,172 (49,159) 269 (99) PSC GROUP 20 (2,897) ARSENAL S.r.l. (26) CENTRO SERVIZI NAVALI S.p.A. (241) PSC GROUP 266 (28,349) 4 BREVIK TECHNOLOGY AS CENTRO SERVIZI NAVALI S.p.A. 915 (3,054) DOF ICEMAN AS BREVIK TECHNOLOGY AS TOTAL ASSOCIATES 20 (3,205) OLYMPIC GREEN ENERGY KS 6 CDP IMMOBILIARE S.r.l. (379) DOF ICEMAN AS 16 SACE S.p.A. (3,018) REM SUPPLY AS 24 SACE FCT 42 (168) TAKLIFT AS VALVITALIA S.p.A. 102 (8,286) DECOMAR S.p.A. (34) 30 TERNA RETE ITALIA S.p.A. (69) TOTAL ASSOCIATES 46 1,181 (31,463) 34 TOTAL CDP GROUP 144 (8,734) (3,186) CDP IMMOBILIARE S.r.l. QUANTA S.p.A. (1,014) SACE S.p.A. (2,545) EXPERIS S.r.l. (168) SACE FCT 63 (200) LEONARDO GROUP 1,273 513 (75,053) VALVITALIA S.p.A. 240 (16,361) ENI GROUP 1,935 92 (756) TERNA RETE ITALIA S.p.A. (111) ENEL GROUP (3) SNAM S.p.A. (81) COMPANIES CONTROLLED BY (39) ACAM CLIENTI S.p.A. (3) (3) MINISTRY OF ECONOMY AND FINANCE TOTAL CDP GROUP 300 (16,556) (2,745) TOTAL OTHER RELATED PARTIES 3,208 605 (77,033) QUANTA S.p.A. (281) TOTAL RELATED PARTIES 271,109 3,164 (106,386) 94 (4,079) EXPERIS S.r.l. (43) TOTAL CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 5,368,896 105,124 (4,104,050) 36,635 (140,566) LEONARDO GROUP 193 (460) (112,193) % on consolidated statement of ENI GROUP 15,518 133 (1,497) comprehensive income 5% 3% 3% 0% 3% ENEL GROUP 57 (2) COMPANIES CONTROLLED BY 26 36 (372) MINISTRY OF ECONOMY AND FINANCE TOTAL OTHER RELATED PARTIES 15,737 66 (130,944) (2,745) TOTAL RELATED PARTIES 307,771 6,591 (211,702) 303 (3,086) TOTAL CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 5,774,851 74,357 (4,520,109) 52,599 (187,050)

% on consolidated statement of comprehensive income 5% 9% 5% 1% 2%

200 201 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

The main related party relationships refer to: services and purchases of fuel with ENI S.p.A.; REMUNERATION OF THE BOARD OF DIRECTORS, BOARD OF STATUTORY AUDITORS, INDEPENDENT AUDITORS AND KEY • costs and revenue or receivables and MANAGEMENT PERSONNEL • the Company’s transactions with Orizzonte payables with other related parties at 31 Sistemi Navali S.p.A., under the agreement December 2019 and 2018 refer chiefl y to (euro/000) signed in 2006 with the Italian Navy relating the supply of goods or services used in the Emoluments Non-monetary Bonuses and Other of office1 benefits other incentives remuneration to the fi rst phase of the “Renaissance” (or production process. FREMM) program. This program, for which 2019 Board of Directors of Parent Orizzonte Sistemi Navali S.p.A. is the prime The following transaction is also reported 2,018 4 1,7972 Company contractor, involves the construction of 10 in accordance with art. 13, par. 3(c) of the Board of Statutory Auditors of 89 ships for the Italian Navy, with ship design Consob Regulations concerning related party Parent Company and production activities performed by transactions: General Managers and Key 168 1,8122 1,993 the Company and its subsidiaries. The Management Personnel Independent Auditors for Parent fi nancial liabilities with Orizzonte Sistemi • the granting to FINCANTIERI S.p.A., in 363 410 Company Navali S.p.A. at 31 December 2019 and 2018 May 2019, expiring in March 2021, by Cassa relate to its current account with Fincantieri Depositi e Prestiti S.p.A. of a Revolving Credit 2018 under a centralized treasury management Facility for a maximum amount of euro 100 Board of Directors of Parent 1,741 4 1,8543 arrangement; million to cover fi nancial requirements for Company Board of Statutory Auditors of • the Group’s transactions with the ordinary activities and to fi nance research, 89 Parent Company LEONARDO group, in connection with development and innovation programs for the General Managers and Key 200 1,7253 2,211 agreements to supply and install combat year 2018-2021. As at 31 December 2019, this Management Personnel systems for naval vessels under construction; credit facility had not been drawn down. Independent Auditors for Parent 349 325 • the Group’s relations with the newly formed Company

company PERGENOVA, a joint venture It is also reported that FINCANTIERI S.p.A. 1 Excluding amounts paid on behalf of subsidiaries 2 This fi gure includes euro 1,059 thousand for the Board of Directors and euro 1,073 thousand for the General Manager and Key Management Personnel, between Salini Impregilo and Fincantieri entered into fi ve Exporter Indemnity the fair value accrued in 2019 of the rights assigned under the medium/long-term share-based incentive plan for management (Performance Share Plan 2016-2018 and Performance Share Plan 2019-2021). Infrastructure, are aimed at rebuilding the Agreements in favour of SIMEST S.p.A., as 3 This fi gure includes euro 1,122 thousand for the Board of Directors and euro 991 thousand for the General Manager and Key Management Personnel, the fair value accrued in 2018 of the rights assigned under the medium/long-term share-based incentive plan for management (Performance Share Plan 2016-2018). bridge over the Polcevera river in Genoa; standard transactions of lesser importance. • relations with the joint venture CSSC In the context of standard transactions of - FINCANTIERI CRUISE INDUSTRY lesser importance, FINCANTIERI S.p.A. was More details can be found in the fi nancial statements and the audit of the DEVELOPMENT Ltd. between Fincantieri and granted a fi ve-year revolving credit line by Remuneration Report. IFRS consolidated fi nancial statements and CSSC, prime contractor for the construction of Mediocredito Centrale in June 2019 to cover The fees of the independent auditors the reporting package for Cassa Depositi e new cruise ships at the CCSC group’s Chinese fi nancial needs for ordinary activities. cover the statutory audit of the separate Prestiti S.p.A., the controlling company. shipyard, refer to the supply of specialist It is reported that, at 31.12.2019, a construction services and components to support CSSC loan, granted in December 2018 by Cassa shipyards; Depositi e Prestiti S.p.A., in syndicate with two • the Group’s transactions with the PSC leading national banks, had been drawn down Group refer mainly to the supply of turnkey for euro 275 million (of which euro 82.5 million air conditioning systems (engineering, supply the share of Cassa Depositi e Prestiti S.p.A.). of ventilation machines, accessories and ducts, their installation on board, start-up and commissioning); • in relation to transactions with ENI, the framework agreement was fi nalized in 2018 under which studies were launched for new technologies related to gas exploitation. The rest refers chiefl y to the sale of products and

202 203 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

Basic and diluted earnings/(loss) per share fi nancial statements, committing itself vesting for the fi rst cycle will be allotted and to providing the fi nancial resources that delivered to benefi ciaries by 31 July 2019, while The basic assumptions for calculating basic may be necessary to enable it to continue those vesting for the second and third cycles and diluted Earnings/(Loss) Per Share are operations. During 2019, the Parent will be allotted and delivered by 31 July 2020 as follows: Company provided the necessary fi nancial and 31 July 2021 respectively. support to the VARD Group through the The Plan also provides for a lock-up period 31.12.2019 31.12.2018 Share Capital increase of Vard Holdings Ltd, for part of the shares given to members of

Basic/Diluted Earnings/(Loss) Per Share carried out through Fincantieri Oil&Gas, the Board of Directors or key management for euro 88 million, and the granting of a personnel of the Company. Profi t/(loss) attributable to owners of the parent euro/000 (141,242) 72,440 committed loan, in the form of a revolving With reference to the Plan’s fi rst cycle, Weighted average number of shares outstanding to Number 1,689,527,202 1,687,412,180 calculate the basic earnings/(loss) per share credit facility, for euro 90 million. 9,101,544 ordinary shares in FINCANTIERI Weighted average number of shares outstanding to S.p.A. were awarded to the benefi ciaries Number 1,698,210,974 1,699,032,738 calculate the diluted earnings/(loss) per share Medium/long-term incentive Plan identifi ed by the Board of Directors on 15 Basic earnings/(loss) per share euro (0,08360) 0,04293 December 2016; while, for the second cycle, Diluted earnings/(loss) per share euro (0,08317) 0,04264 Performance Share Plan 2016-2018 4,170,706 shares in FINCANTIERI S.p.A. were On 19 May 2017, the Shareholders’ Meeting of awarded to the benefi ciaries identifi ed by Basic earnings per share have been average number of Fincantieri S.p.A. shares FINCANTIERI S.p.A. approved the medium/ the Board of Directors on 25 July 2017; and calculated by dividing the profi t for the year in circulation during the year, excluding own long-term share-based incentive plan for lastly, for the third and last cycle, 3,604,691 attributable to owners of the parent by the shares, plus the number of shares that could management, called the Performance Share shares in the Parent Company were awarded weighted average number of Fincantieri potentially be issued. At 31 December 2019, Plan 2016-2018 (the “Plan”) and related Terms to the benefi ciaries identifi ed by the Board of S.p.A. shares outstanding during the year, the shares that could potentially be issued and Conditions. It should be noted that the Directors on 22 June 2018. excluding own shares. concerned only the shares assigned under related project had been approved by the The economic and fi nancial performance Diluted earnings per share have been the Performance Share Plan 2016-2018 Board of Directors on 10 November 2016. targets are comprised of two elements: calculated by dividing the profi t for the year and the Performance Share Plan 2019-2021 The Plan, structured in 3 three-year cycles, attributable to the Group by the weighted described below. provides for the free grant, to the benefi ciaries a) “market based” component (with a 30% identifi ed by the Board of Directors, of weight on total entitlements awarded) linked to entitlements to receive a maximum of measuring Fincantieri’s performance in terms of Guarantees 50,000,000 ordinary shares in FINCANTIERI TSR related to the FTSE ITALY ALL SHARE and S.p.A. without nominal value, based on the the peer group identifi ed by the Company; Guarantees relate exclusively to those achievement of specifi c performance targets b) “non-market based” component (with a 70% provided by the Parent Company and are for the three-year periods 2016-2018 (fi rst weight on total entitlements awarded) linked broken down as follows: cycle), 2017-2019 (second cycle) and 2018- to the achievement of the Group’s set EBITDA (euro/000) 2020 (third cycle). The performance targets targets. 2019 2018 for all three cycles have been identifi ed as Sureties 11,702 11,828 Total Shareholder Return (“TSR”) and EBITDA, With reference to the market based component, Other guarantees 3,090 4,286 deemed to represent objective criteria for the Monte Carlo calculation method is used, Total 14,792 16,114 measuring long-term value creation for the based on appropriate assumptions, which Company. enables a consistent number of alternative “Sureties” at 31 December 2019, as in 2018, S.p.A. (euro 277 thousand) and Consorzio The Plan provides for a three-year vesting scenarios to be defi ned over the time period entirely refer to guarantees issued on behalf FSB (euro 71 thousand). period for all benefi ciaries from the date in consideration. Unlike the market based of the joint venture Orizzonte Sistemi Navali It should be noted that the Parent Company the entitlements are awarded to the date performance target, the non-market based S.p.A. has guaranteed fi nancial support to the the shares are allotted to the benefi ciaries. component (EBITDA) is not relevant for the fair “Other guarantees” refer to guarantees subsidiary Vard Holdings Ltd and all its Therefore, if the performance targets are value estimation, but is updated every quarter issued in the interest of BUSBAR4F (euro subsidiaries for a period of 18 months achieved and the other conditions of the in order to take into account the expectations 2,742 thousand), Orizzonte Sistemi Navali from the date of approval of the 2019 Plan’s Terms & Conditions satisfi ed, the shares relating to the number of entitlements that

204 205 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

could vest, depending on the achievement The fair value amount determined on the grant in order to align with European best practices and a second rating by another agency which of the set EBITDA targets. To estimate of the date for each cycle of the Plan is illustrated and the fi nancial community’s increased evaluates the entire basket of sustainability number of entitlements at the reporting date, it below. expectations for sustainable development. aspects. is assumed that the targets are achieved. The references used to test achievement of The fair value amount determined on the grant the sustainability target are market parameters date for each cycle of the Plan is illustrated Grant date No. shares awarded Fair value such as the “CDP” (Carbon Disclosure Project) below. First cycle of the Plan 19 May 2017 9,101,544 6,866,205 Second cycle of the Plan 25 July 2017 4,170,706 3,672,432 Grant date No. shares awarded Fair value Third cycle of the Plan 22 June 2018 3,604,691 3,963,754 First cycle of the Plan 24 July 2019 6,842,940 6,668,616

With reference to the Performance Share Plan achievement of specifi c performance targets The Plan’s features, outlined above, are 2019, Fincantieri and Serena Equity Limited 2016-2018, it should be noted that on 27 June for the three-year periods 2019-2021 (fi rst described in detail in the special document entered into a settlement agreement which 2019, the Board of Directors approved the cycle), 2020-2022 (second cycle) and 2021- prepared by the Parent Company under Art. resulted in the termination of all proceedings closure of the fi rst cycle of the “Performance 2023 (third cycle). 84-bis of Consob Regulation No. 11971 of 14 in the English courts and other proceedings Share Plan 2016-2018” incentive plan, The Plan provides for a three-year vesting May 1999, made available to the public on pending in other jurisdictions. allocating free of charge to the recipients period for all benefi ciaries from the date the website www.fi ncantieri.it in the section With reference to the “Papanikolaou” 10,104,787 ordinary Fincantieri shares through the entitlements are awarded to the date “Ethics and Governance – Shareholders’ dispute, brought before the Court of Patras the use of 2,572,497 own shares in portfolio the shares are allotted to the benefi ciaries. Meeting – Shareholders’ Meeting 2018”. (Greece) by Mr. Papanikolaou and his wife and by issuing 7,532,290 new shares, without Therefore, if the performance targets are against the Company, Minoan Lines and a par value. The issue and delivery of the achieved and the other conditions of the Plan’s Litigation others following the accident that occurred shares took place on 30 July 2019. Terms & Conditions satisfi ed, the shares vesting to the plaintiff in 2007 on board the Europa The Plan’s features, outlined above, are for the fi rst cycle will be allotted and delivered Foreign litigation Palace, built by Fincantieri: (i) in the case described in detail in the special document to benefi ciaries by 31 July 2022, while those With reference to the “Iraq” dispute, relating to the alleged loss of income until prepared by the Company under Art. 84-bis vesting for the second and third cycles will be described in detail in the Notes to the 2012, the Patras Court of Appeal has agreed of Consob Regulation No. 11971 of 14 May allotted and delivered by 31 July 2023 and 31 Consolidated Financial Statements at 31 with the main principles of law stated by the 1999, made available to the public on the July 2024 respectively. December 2014 and the subject of various Court of Cassation (which referred the case website “www.fi ncantieri.it” in the section The Plan also provides for a lock-up period subsequent updates, it is recalled that back to the Court of Appeal in relation to a “Ethics and Governance – Shareholders’ for part of the shares given to members of following the failure to agree the operating relatively minor point), but Fincantieri can Meeting – Shareholders’ Meeting 2017”. the Board of Directors or key management contracts (Refurbishment Contract and appeal against the ruling before the Court of personnel of the Company. The free award Combat System Contract) required for Cassation, whilst (ii) the case relating to the Performance Share Plan 2019-2021 of a number of rights is left to the Board of the Settlement Agreement, the Iraqi alleged loss of income from 2012 to 2052 is On 11 May 2018, the Shareholders’ Meeting Directors, which also has the power to identify Government stepped up the proceedings currently suspended. of FINCANTIERI S.p.A. approved the the number and names of the benefi ciaries. pending before the Appeals Court of With regard to the “Yuzwa” dispute pending Performance Share Plan 2019-2021 (the “Plan”) With reference to the Plan’s fi rst cycle, Paris against the arbitration awarded to in the District Courts of California and Florida, for management, and the related Terms and 6,842,940 ordinary shares in FINCANTIERI Fincantieri. On 18 January 2018, the Appeals brought by Mr Yuzwa against Fincantieri, Conditions, the structure of which was defi ned S.p.A. were awarded to the benefi ciaries Court of Paris rejected the counterparty’s Carnival and others for losses suff ered by by the Board of Directors at the meeting held identifi ed by the Board of Directors on 24 July claims. On 20 June 2018 the Iraqi the claimant following an accident aboard on 27 March 2018. 2019. Government notifi ed Fincantieri of its appeal the ship “Oosterdam” in 2011, built by The Plan, structured in 3 three-year cycles, Among the Plan’s targets, in addition to before the French Supreme Court against Fincantieri, the Florida Court of Appeal provides for the free grant, to the benefi ciaries the EBITDA and TRS already included in the decision of the Appeals Court of Paris. upheld Fincantieri’s exclusion request, identifi ed by the Board of Directors, of the Performance Share Plan 2016-2018, the In a ruling issued on 15 January 2020, the acknowledging the lack of jurisdiction, entitlements to receive a maximum of Group introduced another parameter, the French Court of Cassation fi nally rejected and then rejected the request for review 25,000,000 ordinary shares in FINCANTIERI sustainability index, to measure achievement the Iraqi Government’s appeal in its entirety. and extraordinary appeal brought by the S.p.A. without nominal value, based on the of the sustainability targets set by the Group In relation to the “Serene” dispute, on 7 May counterparty. The time limit for a further

206 207 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

appeal to the Supreme Court has expired. applied to a relationship described by the • In January 2014, FINCANTIERI S.p.A. facts established in February 2015). The next With reference to the claim brought by the other party as a subcontract and in another received notice of a request for extension hearing is scheduled for 19 February 2020 for Brazilian subsidiary Vard Promar against case, following the termination of orders of the deadline for the preliminary the continuation of the investigative activities. Petrobas Transpetro S.A., after the losses commissioned and reaching of a settlement investigations, under art. 406 of the Code of • Between March and April 2014, notices of incurred on eight shipbuilding contracts, agreement. Criminal Procedure, into the former manager conclusion of preliminary investigations were a claim for compensation is pending. In A provision for risks and charges has been of the Monfalcone shipyard for the alleged served not only on twenty-one individuals December 2015, Petrobas Transpetro S.A. recognized for those disputes not thought to infringement of Art. 256, par. 1, subsections a) (including members of the Board of Directors terminated the contracts for the construction be settled in the Group’s favor. and b) of Legislative Decree No. 152/2006, as and of the Supervisory Body and employees of two vessels and demanded repayment of well as into the Company, being investigated of the Company at the date of the event, its previous advance payments. The related Employment litigation under art. 25-undecies of Legislative Decree some of whom are still in offi ce or employed claim has been brought in the court of This refers to cases brought by employees No. 231/2001 in relation to its alleged by the Company) in the various capacities the State of Rio de Janeiro. VARD has not and former employees of contractors and management of areas for sorting and the being investigated for the off ences of recognized any receivable in its fi nancial subcontractors, which involve the Company temporary storage of hazardous waste at the “wilful removal or omission of precautions statements at 31 December 2019 for the under the “customer co-liability” principle Monfalcone shipyard without the required against workplace accidents” and “bodily Transpetro disputes. (art. 1676 of the Italian Civil Code and art. 29 authorization, and the alleged disposal of harm through negligence” under articles of Legislative Decree 276/2003). such waste with documentation that did 437 and 590 of the Italian Criminal Code Italian litigation Litigation relating to asbestos continued to not allow it to be traced. With regard to this and of violation of certain provisions of be settled both in and out of court in 2019. case, in October 2017 the former Managers Legislative Decree no. 81/2008, as well as Client credit recovery of the Monfalcone shipyard, the former against the Company under art. 25-septies, With reference to legal action against Other litigation General Managers of the Company, the par. 3, of Legislative Decree no. 231/2001, in customers that are insolvent, bankrupt or the Other litigation includes: i) claims involving Company’s former Head of Safety and the connection with an injury to an employee on subject of other reorganization measures, government bodies for environmental former Head of Personnel were notifi ed of the 13 December 2010 at the Monfalcone shipyard with whom disputes have arisen, it is reported expenses, including disputes with the City conclusion of the preliminary investigations during the lifting of two bundles of iron pipes. that legal actions are continuing against of Ancona and the dispute with the Ministry for the off ences referred in art. 256, par. At the preliminary hearing on 18 December Tirrenia and Siremar, both under special of the Environment involving the shipyard 1, subsections a) and b) of Legislative 2014, the proceedings against the members administration. in Muggiano; ii) appeals against claims by Decree No. 152/2006 (“Unauthorized waste of the Board of Directors and the Supervisory The Parent Company’s credits have been social security authorities, including litigation management activities”); in April 2018, the Body and the two General Managers were appropriately impaired in cases where the against INPS for claims arising from the non- Company was also notifi ed of the conclusion dismissed, while the other employees of expectation of recovery is less than the payment of contributions by contractors of the investigations for the alleged off ence the Company at the date of the incident, amount of the credit. and subcontractors under the customer pursuant to art. 25-undecies of Legislative as notifi ed above, were formally indicted. co-liability principle; iii) compensation for Decree No. 231/2001 (“Environmental Gorizia’s public prosecutor has challenged Litigation with suppliers direct and indirect damages arising from the Crimes”). In September 2018, the court the verdict of no case to answer in the Court These are disputes involving claims by production process; iv) civil actions for injury summons to trial was served on all those of Cassation which, at the end of the hearing suppliers and contractors that the Parent compensation claims. under investigation. At the hearing of 6 March held on 20 January 2016, rejected the appeal Company considers unjustifi ed (alleged Whenever the outcome of such litigation 2019, the judge ruled that no action should and upheld the dismissal of the case against contractual liability, alleged receivables for is thought to result in a possible outfl ow of be taken against the former Manager of members of the Board of Directors and the invoices not due or for extra items not due), economic resources, suitable provisions for the Monfalcone plant in offi ce until 30 June Supervisory Body, as well as the two General or concerning the recovery of extra costs risks and charges have been recognized. 2013, the former General Managers of the Managers. The Company was acquitted at the and/or losses incurred by the Company Company, the former Head of Safety and the hearing held on 14 July 2017 and the decision due to supplier or contractor breaches Criminal prosecutions under Legislative former Head of Personnel of the Company, was appealed by the public prosecutor. At of contract. In some cases, it has been Decree 231/2001 or against the Company, for the facts the hearing on 27 November 2019, the Court considered appropriate to bring negative The Group is currently involved in seven established in May 2013, under the statute of Appeal upheld the acquittal. assessment actions against such alleged criminal prosecutions brought under of limitations. The trial continues against • In September 2015, notices of conclusion claims relating in one case to rectifi cation of Legislative Decree no. 231/2001 in the Court the former Plant Manager in offi ce since 1 of preliminary investigations were served an alleged excessive downward adjustment of Gorizia. July 2013 and the Company (as regards the not only on the former Monfalcone shipyard

208 209 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

manager and three other employees under employee of a contractor with a contusion to part in the national tax consolidation of Cassa a sentence in favour of the Subsidiary. The investigation for violation of art. 19, letter his left knee, which took more than forty days Depositi e Prestiti S.p.A.. Italian Revenue Service appealed against this f ), and art. 71 of Legislative Decree no. to heal. sentence in 2020. 81/2008 (respectively concerning breach • In June 2018, notifi cations were served Audits and assessments The Norwegian tax authorities contested the of management obligations and failure of the conclusion of the preliminary VAT treatment of certain contracts with Vard to provide suitable personal protective investigations into the management and Fincantieri Group in 2020. Defensive actions have been equipment) and in general of art. 2087 of the disposal of waste, involving many persons The tax audit for 2013 was defi ned in 2019. initiated and the consultants do not believe Italian Civil Code (failure to adopt suitable and companies, including the Company’s In 2019, the Italian Revenue Service launched that the dispute will have signifi cant eff ects on measures to protect worker health), but also Chief Executive Offi cer, the former manager a number of investigative activities in the Subsidiary. on the Company itself, under art. 25-septies, and two employees of the Palermo relation to 2014; one of the assessment par. 1, 2 and 3, of Legislative Decree no. shipyard for the off ence referred to in art. notices is the subject of adversarial Vard Tulcea 231/2001, in connection with an accident 452-quaterdecies of the Criminal Code proceedings and further defensive initiatives The subsidiary was subject to an audit by on 24 November 2009 at the Monfalcone (“Illegal waste traffi cking activities”) and will be assessed, including in litigation. the Romanian tax authorities for the 2012- shipyard involving an employee, resulting in a the Company for the off ence referred to in Appropriate provisions have been made. 2016 years, which was concluded with an sprained shoulder that took a year to heal. art. 25-undecies, par. 2(f) Legislative Decree assessment notice; a defensive strategy is • In March 2016, notices of conclusion of No. 231/2001 (“Environmental Off ences”). Marine Interiors Cabins being pursued and appropriate provisions have preliminary investigation were served on By order of 23 April 2019, the Judge for With reference to the tax audit conducted been made. the former Monfalcone shipyard manager, Preliminary Investigations, in acceptance by the Italian Revenue Service, Trieste offi ce under investigation for the off ense of “bodily of the request made by the counsel of the in 2017 on fi scal year 2015, the assessment Vard Braila harm through negligence” under art. 590 of Company’s Chief Executive Offi cer, ordered notices received in 2018 have been appealed. The subsidiary received news of an upcoming the Italian Criminal Code in relation to the the dismissal of the proceedings against The partially unsuccessful ruling was tax audit by the Romanian tax authorities for violation of certain provisions of Legislative Chief Executive Offi cer. The fi rst level of the published in 2020 and the Company will the tax periods 2014-2018. Decree No. 81/2008 and in general art. 2087 proceeding is underway. appeal against it. of the Italian Civil Code (failure to take • In September 2019, notices of conclusion of The same arguments were used by the Headcount suitable measures to protect worker health), preliminary investigation were served on the Italian Revenue Service, Pordenone offi ce, and on the Company under art. 25 septies, hull pre-assembly foreman of the Monfalcone to adjust the value of the deed of transfer The Group’s average workforce numbered par. 3, of Legislative Decree No. 231/2001, shipyard, under investigation for the off ense of the company branch for the purposes 19,546 employees in 2019 (19,331 in 2018), in connection with an accident on 29 March of “bodily harm through negligence” under of the registration fee; the appeal against distributed between the various contractual 2012 at the Monfalcone shipyard involving an art. 590 of the Italian Criminal Code in relation this action ended, at the fi rst level, with grades as follows: employee with an injury to the little fi nger on to the violation of certain provisions of his left hand that healed in eight months. Legislative Decree No. 81/2008 and in general (number) • In June and July 2016, notices of conclusion art. 2087 of the Italian Civil Code (failure to 2019 2018 of preliminary investigation were served on take suitable measures to protect worker Average number of employees: the former Monfalcone shipyard manager, health), and on the Company under art. - Senior managers 381 357 under investigation for the off ense of “bodily 25 septies, par. 3, of Legislative Decree No. - Middle managers 1,215 1,013 harm” under art. 590 of the Italian Criminal 231/2001, in connection with an accident on - White collars 7,297 6,758 Code in relation to the violation 3 February 2016 at the Monfalcone shipyard - Blue collars 10,654 11,203 Total average number of employees 19,546 19,331 of certain provisions of Legislative Decree No. involving an employee with an arm fracture 81/2008 and in general art. 2087 that healed in 83 days. of the Italian Civil Code (failure to take suitable measures to protect worker health), Tax position and on the Company under art. 25 septies, par. 3, of Legislative Decree No. 231/2001, in National tax consolidation connection with an accident on 25 August FINCANTIERI S.p.A., Fincantieri Oil & Gas 2010 at the Monfalcone shipyard involving an S.p.A. and Isotta Fraschini Motori S.p.A. take

210 211 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

Grants and economic benefi ts received from Under art. 1 paragraph 125 of Law no. 124 of Donations and contributions of 2017 the tables below give information on government bodies 2017 the tables below give information on donations and contributions made by the grants and other economic benefi ts received Under art. 1 paragraph 126 of Law no. 124 Group during 2019: from Italian public entities during 2019: Beneficiary Reason Amount paid GRANTS (euro/000)

Type Grantor Reason Amount received PESCHIERE UNIVERSITY STUDENT ACCOMMODATION Contribution 10 (euro/000) Foundation (GE) of the RUI Foundation

Non-repayable MIT Technological Leadership project/D.M. 10 JUNE 2015 748 Contribution FRIENDS OF THE HEART ASSOCIATION 20 Non-repayable MIT Agorà project/D.M. 10 JUNE 2015 745 Contribution FINCANTIERI FOUNDATION 100 Non-repayable MIT Virgin project/D.M. 10 JUNE 2015 740 Contribution ATLANTIC COUNCIL 26 Non-repayable MIT Polar project/D.M. 10 JUNE 2015 596 Donation HELPCODE 25 Non-repayable MIT Motor Yacht project/ D.M. 10 JUNE 2015 484 Donation MUNICIPALITY OF MONFALCONE/School 50 Non-repayable MIT Motor Yacht project/ D.M. 10 JUNE 2015 484 Contribution MUNICIPALITY OF MONFALCONE/GEOgrafi e Festival 15 Non-repayable MIT XL project/ D.M. 10 JUNE 2015 626 Contribution “Fino a Prova Contraria” Association 10 Non-repayable MISE Project E01/0900/00/X 19/ Law 46/82 267 Donation Italian Red Cross Local Genoa Committee 28 Non-repayable MIUR DLTM, FLUMARTURB project 41 Donation Democratic Governors Assn 27 Non-repayable MISE Superpanamax project 151 Donation Norges Tekniske Naturvitenskapelige Universitet 10 Non-repayable FVG Region POR FESR 2014-2020 87 Non-repayable MIUR PON01_02238 “Research and competitiveness” 2007-2013. 20 Non-repayable FONDIMPRESA Reimbursement of training courses 21 Non-repayable INEA SAFEMODE 202 Non-repayable FVG Region LESS 27 Non-repayable FVG Region PRELICA 116 Liguria Non-repayable Region Flood funds 64 Non-repayable MISE GAME project 239 Non-repayable MIUR SWAD project 99 Non-repayable MIUR C3isr project 66 Valle d’Aosta Non-repayable Region “PO FESR” Enterprise Development project 17 Gestore DM 16/02/2016 winter air conditioning system Capital dei servizi 48 energetici with heat pump GSE S.p.A.

LOW COST FINANCING

Grantor Reason Subsidized interest Amount funded rate % (euro/000)

MIUR DLTM, FLUMARTURB project 0.5 87 MISE GAME project subsidized loan 0.0 957 MIUR SWAD project subsidized loan 0.5 102 MIUR C3isr project subsidized loan 0.5 66

212 213 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 34 - CASH FLOWS FROM OPERATING NOTE 35 - SEGMENT INFORMATION Vessels business unit and the Cruise business ACTIVITIES unit, and full organizational integration with Management has identifi ed the following operating FINCANTIERI S.p.A. These are analyzed as follows: segments which refl ect the model used to The economic results of VARD’s Cruise business manage and control the business sectors in which unit, coordinated directly by Fincantieri’s Merchant (euro/000) the Group operates: Shipbuilding, Off shore and Shipping Division, have been allocated to the 31.12.2019 31.12.2018 Specialized Vessels, Equipment, Systems and Shipbuilding operating segment. Profi t/(loss) for the year – Continuing operations (123,911) 69,123 Services and Other Activities. Project management for the construction of Depreciation and amortization 161,777 136,098 Shipbuilding: encompassing the business areas off shore vessels, specialized ships and vessels for (Gains)/losses from disposal of property, plant and equipment 1,296 (3,202) cruise ships and expedition cruise vessels, naval the Norwegian Coast Guard have been merged (Revaluation)/impairment of property, plant and equipment, intangible vessels, ferries and mega yachts. into the VARD Off shore and Specialized Vessels 5,079 959 assets and equity investments Off shore and Specialized Vessels: encompassing business unit, whose economic results continue to (Revaluation)/Impairment of working capital 3,946 the design and construction of high-end off shore be shown in the Off shore and Specialized Vessels. Increases/(releases) of provisions for risks and charges 63,937 48,914 support vessels, specialized ships, vessels for The Group evaluates the performance of its Interest expenses capitalized off shore wind farms and open ocean aquaculture, operating segments and the allocation of fi nancial Interest on employee benefi ts 1,363 903 as well as the off er of innovative products in the resources on the basis of revenue and EBITDA. Interest income (15,664) (7,946) fi eld of drillships and semi-submersible drilling rigs. The latter is defi ned as Profi t/(loss) for the year Interest expense 66,435 82,640 Equipment, Systems and Services: encompassing adjusted for the following items: (i) Income taxes, Income taxes 71,955 53,220 the design and manufacture of high-tech (ii) Share of profi t/(loss) of investments accounted Long-term share-based incentive plan 5,073 4,844 equipment and systems, such as stabilization, for using the equity method, (iii) Income/(expense) propulsion, positioning and power generation from investments, (iv) Finance costs, (v) Finance Non-monetary operating income and expenses 19,118 systems, ship automation systems, steam turbines, income, (vi) Depreciation, amortization and Impact of unrealized exchange rate changes 60 11,966 integrated systems and ship accommodation, and impairment, (vii) costs relating to reorganization Finance income and costs from derivatives the provision of repair and conversion services, plans and other non-recurring personnel costs, (viii) Gross cash fl ows from operating activities 260,464 397,519 logistical support and after-sales services, and provisions for costs and legal expenses associated CHANGES IN WORKING CAPITAL supply of solutions for electronic systems and with lawsuits brought by employees for asbestos- - inventories 58,906 (47,489) software and for infrastructure and maritime works. related damages, (ix) other particularly material - construction contracts and client advances (494,193) (359,700) Other activities primarily refer to the cost of expenses or income outside the ordinary course of - trade receivables 94,104 161,421 corporate activities which have not been allocated business arising from non-recurring events and (x) - other current assets and liabilities (39,981) (79,157) to other operating segments. net profi t or loss from discontinued operations. - other non-current assets and liabilities 4,373 (2,351) A new organizational structure for the VARD The results of the operating segments at 31 - trade payables 396,950 101,515 Group was defi ned in 2018, with a focus on two December 2019 and 31 December 2018 are - receivables for hedging instruments business units, the Off shore and Specialized reported below. - payables for hedging instruments (euro/000) Cash fl ows from working capital 280,623 171,758 2019 Dividends paid (16,874) (16,874) Shipbuilding Offshore and Equipment, Systems Other Activities Group Specialized Vessels and Services Interest income received 10,373 7,268 Segment revenue 5,088,143 439,986 899,520 1,825 6,429,473 Interest expense paid (49,342) (52,383) Intersegment elimination (129,312) (94,317) (355,237) (1,399) (580,265) Income taxes (paid)/collected (61,550) (8,799) Revenue (*) 4,958,831 345,669 544,282 426 5,849,208 Utilization of provisions for risks and charges and for employee benefi ts (118,723) (59,288) EBITDA 375,258 (106,685) 89,904 (38,860) 319,617 NET CASH FLOWS FROM OPERATING ACTIVITIES – Continuing EBITDA margin 7.4% -24.2% 10% 5.5% 44,507 41,682 operations Depreciation, amortization and impairment (166,603) Finance income 52,599 NET CASH FLOWS FROM OPERATING ACTIVITIES – Discontinued (22,265) Finance costs (187,050) operations Income/(expense) from investments 3 NET CASH FLOWS FROM OPERATING ACTIVITIES 22,242 41,682 Share of profit/(loss) of investments accounted for using the equity method (3,168) - of which related parties 67,097 99,454 Income taxes (71,955) Extraordinary and non-recurring income and expenses (67,355) Net profit/(loss) from discontinued operations (24,329) Profi t/(loss) for the year (148,241)

*Revenue: Sum of “Operating revenue” and “Other revenue and income” reported in the consolidated statement of comprehensive income.

214 215 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

Details of “Extraordinary and non-recurring eff ect (positive for euro 14,291 thousand) are The following table shows a breakdown of Property, plant and equipment in Italy and other income and expenses” gross of the tax presented in the following table. countries:

(euro/000) (euro/million) 2019 31.12.2019 31.12.2018

Costs relating to reorganization plans and other non-recurring personnel costs1 (8,816) Italy 815 704 Provisions for costs and legal expenses associated with asbestos-related lawsuits2 (39,549) Other countries 410 374 Other extraordinary income and expenses3 (18,990) Total Property, plant and equipment 1,225 1,078 Extraordinary and non-recurring income and expenses (67,355)

1 Of which euro 4.2 million included in “Personnel costs”, euro 3.7 million in “Provisions” and euro 0.9 million in “Depreciation, amortization and impairment”. 2 Of which euro 4.6 million included in “Materials, services and other costs” and euro 35.0 million in “Provisions”. 3 Of which euro 13.4 million for legal expenses and euro 5.6 million for other extraordinary expenses included in the item “Sundry operating costs”. Capital expenditure in 2019 on Intangible and the remainder to other countries. assets and Property, plant and equipment The following table shows a breakdown of “Depreciation, amortization and impairment” included in the item “Costs relating to reorganization amounted to euro 279 million (euro 161 revenue and income between Italy and other includes euro 0.9 million of non-recurring costs plans and other non-recurring personnel costs”. million in 2018), of which euro 235 million countries, according to client country of related to Italy (euro 122 million in 2018) residence: (euro/000) 2018 (euro/million) Shipbuilding Offshore and Equipment, Systems Other Activities Group 31.12.2019 31.12.2018 Specialized Vessels and Services Revenue and income % Revenue and income %

Segment revenue 4,678,234 680,980 650,846 1,905 6,011,965 Italy 1,059 18 1,004 18 Intersegment elimination (394,811) (126,896) (15,757) (481) (537,945) Other countries 4,790 82 4,470 82 Revenue (*) 4,283,423 554,084 635,089 1,424 5,474,020 Total Revenue and income 5,849 100 5,474 100 EBITDA 395,393 (19,978) 73,210 (34,992) 413,633 EBITDA margin 8.5% -2.9% 11.2% 7.6% Depreciation, amortization and (136,359) The following table shows a breakdown of revenue and income according to country of production: impairment Finance income 36,635 (euro/million) Finance costs (140,566) 31.12.2019 31.12.2018 Income/(expense) from investments 2,246 Revenue and income % Revenue and income % Share of profi t/(loss) of investments accounted for using the equity (2,905) Italy 4,448 76 3,989 73 method Norway 731 12 817 15 Income taxes (53,220) United States 581 10 467 9 Extraordinary and non-recurring (50,344) Other 89 2 201 3 income and expenses Total Revenue and income 5,849 100 5,474 100 Net profi t/(loss) from discontinued - operations Profi t/(loss) for the year 69,120 The following table shows those clients whose of the Group’s revenue and income in each *Revenue: Sum of “Operating revenue” and “Other revenue and income” reported in the consolidated statement of comprehensive income. revenue (defi ned as revenue plus change in reporting period: Details of “Extraordinary and non-recurring income for euro 11,844 thousand) are presented in the inventories) accounted for more than 10%

and expenses” gross of the tax eff ect (positive following table. (euro/million) (euro/000) 31.12.2019 31.12.2018 2018 Revenue and income % Revenue and income %

Costs relating to reorganization plans and other non-recurring personnel costs1 (4,969) Client 1 1,451 25 1,562 29 Provisions for costs and legal expenses associated with asbestos-related lawsuits2 (37,432) Client 2 699 12 795 15 Proceeds from sale of shareholding in Camper & Nicholsons3 3,695 Total 2,150 2,357 Other non-recurring income and expenses4 (11,638) Extraordinary and non-recurring income and expenses (50,344)

1 Amount included in “Personnel costs”. 2 Of which euro 5.1 million included in “Materials, services and other costs” and euro 32.3 million in “Provisions”. 3 Amount included in “Income/(expense) from investments”. 4 This item includes other costs linked to non-recurring activities.

216 217 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

NOTE 36 - DISCONTINUED OPERATIONS completion of the sale by 2020. Pending NOTE 37 - ACQUISITION OF THE INSIS parent company and an increase in Share completion of the sale transaction, the GROUP Capital with a share premium subscribed on In October 2019, the Board of Directors of shipyard’s activities were completed with the same date. The agreement also provides the subsidiary Vard Group AS approved the delivery of the last vessel in December Description of the operation that Fincantieri may exercise a call option the decision to leave the small vessel 2019. on the remaining 40% and the minority construction business for the fi shery and The gains and losses net of tax eff ects On 4 July 2019, FINCANTIERI S.p.A. shareholder may exercise a put option on aquaculture sectors and to proceed with relating to this transaction have been completed the acquisition of a 60% stake in the same stake. the sale of the Aukra shipyard. Following classifi ed as discontinued operations in the INSIS group, a solution provider in the that decision on 28 October 2019, Vard profi t and loss. Below are details of the fi eld of physically and logically integrated Accounting for the acquisition Group AS signed a letter of intent with a profi t and loss items at 31 December 2019 security, operating in domestic and foreign potential purchaser which envisages the with the comparison at 31 December 2018: markets both directly and as a technology The following table shows the total partner of large industrial groups. The consideration, the fair value of the assets (euro/000) acquired, the liabilities assumed and the 2019 2018 purchase price of the investment was euro 23 million, which is the result of the purchase evidence of goodwill arising from the Operating revenue 46,069 58,330 of shares from the shareholders of the acquisition. Other revenue and income 161

Materials, services and other costs (58,997) (59,691) (euro/000) Personnel costs (8,869) (5,643) Depreciation, amortization and impairment (1,644) (813) Consideration paid for the purchase of shares from shareholders 17,400 Provisions (524) 249 Consideration paid for Share Capital increase with share premium 6,000 Finance income (a) Total consideration 23,400 Finance costs (529) (29) Fair value of assets acquired and liabilities assumed Income/(expense) from investments 4 Intangible assets 27,495 Share of profi t/(loss) of investments accounted for using the equity Plant and machinery 4,678 method Investments 82 Income taxes 1,671 Other non-current assets 84 PROFIT/(LOSS) FOR THE YEAR (24,329) (5,926) Trade receivables and other current assets 35,080 Inventories 4,632 The carrying amount of assets and liabilities Work in progress net of installment invoices 1,603 held for sale is detailed below: Cash and cash equivalents 10,222 Provisions for risks and charges (1,744) (euro/000) Trade payables and other current liabilities (30,340) 2019 Deferred taxes (5,427) Non-current assets 6,141 Non-current fi nancial liabilities (3,702) Current assets Current fi nancial liabilities (8,318) TOTAL ASSETS 6,141 Total 34,345

Non-current liabilities Non-controlling interests (662) Current liabilities (b) Total net assets acquired 33,683 TOTAL LIABILITIES - (c) Equity share = (b) x 60% 20,209

Goodwill = (a-c) 3,191

218 219 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

The consideration paid for 60% of the Chairmanship and Hervé Guillou is a member the month, the last 100-meter maxi deck was • Personnel, in terms of production effi ciency, Group amounts to euro 23.4 million, which is of the Board of Directors. During the Franco- also raised, taking the new Genoa bridge over availability of resources, logistics and insurance equivalent to a valuation of euro 39 million for Italian summit in Naples on 27 February 2020, the railway. needs 100% of the Group against group equity at the an intergovernmental agreement was signed, After the end of the fi nancial year, and in the • Plan of investments acquisition date of euro 20.1 million. reaffi rming the France’s and Italy’s full support fi rst months of 2020, the COVID-19 pandemic • Commercial negotiations The diff erence, between the value of 100% for the joint venture of Naval Group and emergency occurred at a global level, resulting of the Insis Group and the Equity at the Fincantieri. This agreement makes the long-term in strong pressure on national health systems At a global level, one of the sectors most aff ected acquisition date of euro 18.9 million, was alliance initiated by the two industrial groups and the progressive enactment by government by the current emergency situation is tourism, allocated to the Order Backlog and Client fully operational. authorities of a series of measures aimed at with particular attention to the cruise market Relationships intangible assets and the On 24 January 2020, Fincantieri and the containing the risk of further expansion of the where shipowners were among the fi rst to be remainder to goodwill. Qatari Ministry of Defence, through Barzan virus. These measures are having signifi cant forced to stop their operations. In this context, The value of the Order Backlog, valued using Holdings, a company 100% owned by the Qatari eff ects on the social and working lives of the Group’s priority and commitment are focused an income method, was estimated at euro 2.6 Ministry of Defence, signed a Memorandum individuals and on the world economy. on care of customers and strategic partners in million, to be amortized over 3 years, while the of Understanding (MoU) in Doha aimed at The Group reacted promptly to this pandemic, order to protect the order backlog a fundamental value of the Client Relationships, valued using strengthening the strategic partnership through activating certain initiatives to pursue its element not only for Fincantieri and for the the Multiperiod excess earnings method, was the evaluation and study of new technologies priority objectives of protecting the health supplier network system, but also in the context estimated at euro 16.3 million, to be amortized and capabilities, which could lead to the future of its employees and those of the companies of the recovery of the national economy. It should over 10 years. The residual goodwill after the acquisition of new units as early as 2020. in the industry; in fact, the Group’s priority be noted that the current health emergency is recognition of deferred tax liabilities (euro On 24 February 2020, Marakeb Technologies, at this time is to implement all the necessary a cause of force majeure within the scope of 5.3 million) amounts to euro 5.3 million. The a leading automation solutions provider, initiatives to safeguard the health and well- the contracts, allowing the Group to modify the share of goodwill recognized in these fi nancial and Fincantieri signed a Memorandum of being of its people, who represent its most production schedules and delivery dates of the statements amounts to euro 3.2 million, or Understanding to explore opportunities for important asset. In this context, Fincantieri ships. 60% of the amount calculated. collaboration in automation at international level. has currently suspended production activities Should the situation be resolved within a In relation to the written put option granted On 6 March 2020, Cassa Depositi e Prestiti, at Italian shipyards as of 16 March 2020. The reasonable time frame, Fincantieri believes that to minority shareholders, a fi nancial liability Eni and Fincantieri, confi rming their Group is in any case actively involved in daily the Group’s equity and economic structure is able of euro 30,977 thousand has been recorded common commitment to the transition monitoring of the evolution of the spread to cope with the eff ects of the emergency. against a negative reserve in Group’s towards decarbonization and environmental of the virus, in order to ensure proactive shareholders’ equity. sustainability, signed a Memorandum of management of its potential eff ects. On 26 March 2020, Fincantieri, while taking all If the INSIS Group had been consolidated as Understanding to develop joint projects within At the same time, as far as production the necessary actions to make its employees of 1 January 2019, it is estimated that it would the circular economy, aimed at identifying and activities are concerned, despite the mitigating safe, decided to continue the suspension of work have contributed euro 19 million to the Group’s implementing technological solutions to deal actions already promptly implemented by at its plants and offi ces until the date indicated consolidated revenues without a material with marine litter, in a mutually reinforcing way, the Company, including the purchase of in the Decree of the President of the Council of impact on the Group’s results for the year. which compromises the marine and coastal medical devices for the regular performance Ministers of March 22. Therefore, Fincantieri and ecosystem mainly due to fl oating plastic waste of the Company’s operations, the COVID-19 the national trade unions FIM - FIOM - UILM, and microplastics. The agreement was signed emergency is having signifi cant eff ects on have signed an agreement that provides for the NOTE 38 - EVENTS AFTER 31 DECEMBER with the aim of studying and developing the regular and ordinary performance of the possibility of using the Ordinary Wage Guarantee 2019 technologies for the collection of waste Group’s activities in 2020. In particular, the Fund (CIGO) for personnel at all company sites. dispersed at sea and along the coast and then pandemic, also taking into account its global During the period covered by CIGO, maintenance The fi rst meeting of the Board of Directors of use them to generate mobility products and scope, may have an impact mainly on the activities of the plants and essential services of Naviris, the joint venture between Fincantieri industrial applications. following areas of the Group’s activities: the sites are still carried out, as are the direction and Naval Group, was held on 14 January On 10 March 2020, Fincantieri Infrastructure and management activities strictly necessary for 2020. This partnership consolidates the two raised the new 100-meter maxi steel deck. The • Production schedules the current obligations of the company, where companies’ shared desire to build a future of deck, whose profi le will recall the hull of a ship, • Supply chain, in terms of availability of possible using smart working, and in order to excellence for the shipbuilding industry and as designed by Renzo Piano was transported resources, delivery times, fi nancial situation of carry out the preparatory activities for resumption Navies. Giuseppe Bono was assigned the across the Polcevera river. In the second half of the supplier network of production.

220 221 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION

Countries in Countries in Registered % Registered % Principal activity which they Share capital Principal activity which they Share capital office interest held % consolidated by Group office interest held % consolidated by Group operate operate

Subsidiaries FINCANTIERI MARINE consolidated GROUP HOLDINGS Inc. USA USA USD 1,027.97 87.44 Fincantieri USA Inc. 87.44 line-by-line Holding company FINCANTIERI MARINE BACINI DI PALERMO S.p.A. Fincantieri Marine Palermo Italy EUR 1,032,000.00 100.00 Fincantieri S.p.A. 100.00 GROUP LLC USA USA USD 1,000.00 100.00 87.44 Dry-dock management Group Holdings Inc. Ship building and repair CENTRO PER GLI STUDI DI MARINETTE MARINE Fincantieri Marine TECNICA NAVALE CETENA Fincantieri S.p.A. CORPORATION USA USA USD 146,706.00 100.00 87.44 Genoa Italy 71.10 Group LLC S.p.A. EUR 1,000,000.00 Seaf S.p.A. 86.10 Ship building and repair Ship research and 15.00 ACE MARINE LLC Fincantieri Marine experimentation USA USA Building of small aluminium USD 1,000.00 100.00 Group LLC 87.44 FINCANTIERI OIL & GAS ships S.p.A. Trieste Italy EUR 21,000,000.00 100.00 Fincantieri S.p.A. 100.00 Fincantieri S.p.A. FINCANTIERI DO BRASIL 80.00 Holding company PARTICIPAÇÕES SA Brazil Brazil BRL 1,310,000.00 Fincantieri Holding 100.00 B.V. FINCANTIERI HOLDING B.V. Holding company 20.00 Holding company for foreign Netherlands Netherlands EUR 9,529,384.54 100.00 Fincantieri S.p.A. 100.00 Fincantieri Holding FINCANTIERI INDIA Pte. Ltd. 99.00 investments Design, technical support and India India INR 10,500,000.00 B.V. 100.00 1.00 Fincantieri S.p.A. FINCANTIERI MARINE marketing SYSTEMS NORTH AMERICA Fincantieri Italy, USA USA MARINE INTERIORS CABINS Inc. USD 501,000.00 100.00 Holding B.V. 100.00 S.p.A. Trieste Romania, EUR 5,120,000.00 100.00 Seaf S.p.A. 100.00 Sale and after-sale services Ship interiors Norway relating to mechanical products LUXURY INTERIORS Marine Interiors Fincantieri Napoli Italy FMSNA YK FACTORY S.r.l. EUR 50,000.00 100.00 Cabins S.p.A. 100.00 Servicing and sale of spare Japan Japan JPY 3,000,000.00 100.00 Marine Systems 100.00 Ship interiors parts North America Inc. Italy, MARINE INTERIORS S.p.A. Marine Interiors Trieste Romania, EUR 1,000,000.00 100.00 100.00 GESTIONE BACINI LA SPEZIA Muggiano Ship interiors Norway Cabins S.p.A. Italy Fincantieri S.p.A. S.p.A. (La Spezia, Italy) EUR 260,000.00 99.89 99.89 Dry-dock management MI S.p.A. Trieste Italy EUR 50,000.00 100.00 Seaf S.p.A. 100.00 Dormant ISOTTA FRASCHINI MOTORI S.p.A. SEAENERGY A MARINE Marine Interiors Design, construction, sale Pordenone Italy Bari Italy EUR 3,300,000.00 100.00 Fincantieri S.p.A. 100.00 INTERIORS COMPANY S.r.l. EUR 50,000.00 85.00 S.p.A. 85.00 and after-sale services relating Manufacture of furniture to fast medium- duty diesel engines FINCANTIERI SI S.p.A. Electric, electronic and Italy, Trieste EUR 500,000.00 100.00 Seaf S.p.A. 100.00 SOCIETÀ PER L’ESERCIZIO DI electromechanical industrial France ATTIVITÀ FINANZIARIE SEAF solutions S.p.A. Trieste Italy EUR 6,562,000.00 100.00 Fincantieri S.p.A. 100.00 Financial support for Group FINCANTIERI Italy, Trieste Fincantieri S.p.A. companies INFRASTRUCTURE S.p.A. Romania EUR 500,000.00 100.00 100.00 Italy Fincantieri S.p.A. Carpentry BOP6 S.c.a.r.l. Trieste 5.00 France EUR 40,000.00 Fincantieri SI S.p.A. 100.00 Electrical installation 95.00 FINCANTIERI INFRASTRUCTURE Fincantieri Trieste Italy OPERE MARITTIME S.p.A. EUR 100,000.00 100.00 Infrastructure S.p.A 100.00 ISSEL NORD S.r.l. Follo Italy EUR 400,000.00 100.00 Fincantieri S.p.A. 100.00 Dormant Logistics engineering (La Spezia, Italy) FINCANTIERI SWEDEN AB SEASTEMA S.p.A. Sale, maintenance and after- Design and development Genoa Italy EUR 300,000.00 100.00 Fincantieri S.p.A. 100.00 sales service for a series of Sweden Sweden SEK 5,000,000.00 100.00 Fincantieri S.p.A. 100.00 of integrated automation systems, equipment and systems related activities FINCANTIERI AUSTRALIA Pty Ltd. Australia Australia Fincantieri S.p.A. FINCANTIERI (SHANGHAI) AUD 2,400,100.00 100.00 100.00 TRADING Co. Ltd. Shipbuilding support China China RMB 3,500,000.00 100.00 Fincantieri S.p.A. 100.00 activities Engineering design, consulting and development FINCANTIERI SERVICES MIDDLE EAST LLC Qatar Qatar EUR 200,000.00 100.00 Fincantieri S.p.A. 100.00 FINCANTIERI EUROPE S.p.A. Trieste Italy EUR 50,000.00 100.00 Fincantieri S.p.A. 100.00 Project management services Holding company

FINCANTIERI USA Inc. USA USA Fincantieri S.p.A. INSIS S.p.A. USD 1,029.75 100.00 100.00 Milan Italy EUR 10,791,563.00 55.50 Fincantieri S.p.A. 60.00 Holding company Automation systems FINCANTIERI SERVICES USA REICOM S.r.l. LLC USA USA USD 300,001.00 100.00 Fincantieri USA Inc. 100.00 Milan Italy EUR 600,000.00 100.00 Insis S.p.A. 60.00 Design and engineering After-sales services

222 223 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION

Countries in Countries in Registered % Registered % Principal activity which they Share capital Principal activity which they Share capital office interest held % consolidated by Group office interest held % consolidated by Group operate operate

S.E.C. SÉCURITÉ DES VARD SEAONICS HOLDING AS Norway Norway NOK 30,000.00 100.00 Vard Group AS 98.22 ENVIRONNEMENTS COMPLEXES Milan Italy EUR 10,000.00 100.00 Insis S.p.A. 60.00 Dormant Design and engineering SEAONICS POLSKA SP. Z O.O. Poland Poland PLN 400,000.00 100.00 Seaonics AS 55.40 C.S.I. CONSORZIO STABILE Engineering services Milan Italy Insis S.p.A. IMPIANTI S.r.l. EUR 40,000.00 75.65 45.39 VARD DESIGN LIBURNA Ltd. Croatia Croatia HRK 20,000.00 51.00 Vard Design AS 50.09 Installation of systems Design and engineering HMS IT S.p.A. VARD ELECTRO TULCEA S.r.l. Romania Romania Vard Electro AS Rome Italy EUR 1,500,000.00 60.00 Insis S.p.A. 36.00 RON 4,149,525.00 99.96 98.18 Design and engineering Electrical installation VARD ELECTRO BRAZIL 99.00 Vard Electro AS ESSETI SISTEMI E Brazil Brazil Milan Italy Insis S.p.A. (INSTALAÇÕES ELETRICAS) Ltda. BRL 3,000,000.00 Vard Group AS 98.22 TECNOLOGIE S.r.l. EUR 100,000.00 51.00 30.60 Electrical installation 1.00 ICT consulting and services VARD ELECTRO BRAILA S.r.l. Romania Romania RON 45,000.00 100.00 Vard Electro AS 98.22 MARINA BAY S.A. Electrical installation Luxembourg Luxembourg EUR 31,000.00 100.00 Insis S.p.A. 60.00 Dormant VARD ELECTRICAL 99.50 Vard Electro AS INSTALLATION AND India India INR 14,000,000.00 98.22 FINCANTIERI DRAGAGGI ENGINEERING (INDIA) Pvt. Ltd. 0.50 Vard Electro Tulcea S.r.l. ECOLOGICI S.p.A. Rome Italy EUR 500,000.00 55.00 Fincantieri S.p.A. 55.00 Electrical installation Construction of hydraulic works Vard RO Holding S.r.l. VARD TULCEA SA Romania Romania 99.996 RON 151,606,459.00 Vard Group AS 98.22 VARD HOLDINGS Ltd. Fincantieri Oil & Gas Shipbuilding 0.004 Singapore Singapore SGD 932,200,000.00 98.22 98.22 Holding company S.p.A. Romania, Vard RO Holding S.r.l. VARD BRAILA SA 94.12 Romania RON 165,862,177.50 98.22 Shipbuilding Italy 5.88 Vard Group AS VARD GROUP AS Norway Norway NOK 26,795,600.00 100.00 Vard Holdings Ltd. 98.22 Shipbuilding VARD ENGINEERING 70.00 Vard RO Holding S.r.l. CONSTANTA S.r.l. Romania Romania RON 1,408,000.00 98.22 VARD SHIPHOLDING Vard Braila S.A. Engineering 30.00 SINGAPORE Pte. Ltd. Singapore Singapore USD 1.00 100.00 Vard Holdings Ltd. 98.22 VARD VUNG TAU Ltd. Vard Singapore Pte. Charter of boats, ships and barges Vietnam Vietnam USD 8,000,000.00 100.00 98.22 Norway, Shipbuilding Ltd. VARD ELECTRO AS Norway Vard Group AS Electrical/automation UK NOK 1,000,000.00 100.00 98.22 VARD ACCOMMODATION Vard Accomodation AS installation 99.77 TULCEA S.r.l. Romania Romania RON 436,000.00 98.22 0.23 Vard Electro Tulcea S.r.l. VARD ELECTRO ITALY S.r.l. Accommodation installation Installation, production, sale VARD ENGINEERING BREVIK AS Genoa Italy EUR 200,000.00 100.00 Vard Electro AS 98.22 Norway Norway NOK 105,000.00 100.00 Vard Group AS 98.22 and assistance for electrical Design and engineering equipment and parts VARD OFFSHORE BREVIK AS Norway Norway NOK 100,000.00 100.00 Vard Group AS 98.22 Off shore industrial services and installation VARD RO HOLDING S.r.l. Romania Romania RON 82,573,830.00 100.00 Vard Group AS 98.22 VARD MARINE INC. Holding company Canada Canada CAD 9,783,700.00 100.00 Vard Group AS 98.22 Design and engineering Vard Group AS VARD NITERÓI Ltda. 99.99 VARD MARINE US INC. USA USA Vard Marine Inc. Brazil Brazil BRL 354,883,790.00 Vard Electro 98.22 USD 1,010,000.00 100.00 98.22 Dormant 0.01 Brazil Ltda. Design and engineering VARD ENGINEERING Vard Engineering VARD PROMAR SA Poland Poland Brazil Brazil BRL 1,109,108,180.00 100.00 Vard Group AS 98.22 GDANSK Sp. Z.o.o. PLN 50,000.00 100.00 Brevik AS 98.22 Shipbuilding Off shore design and engineering activities VBD1 AS VARD INFRAESTRUTURA Vard Promar SA Norway Norway NOK 500,000.00 100.00 Vard Group AS 98.22 Brazil Brazil 99.99 Dormant Ltda. BRL 10,000.00 Vard Group AS 98.22 0.01 VBD2 AS Dormant Norway Norway NOK 30,000.00 100.00 Vard Group AS 98.22 Management of own ships ESTALEIRO QUISSAMÃ Ltda. Brazil Brazil BRL 400,000.00 50.50 Vard Group AS 49.60 VARD CONTRACTING AS Dormant Norway Norway NOK 30,000.00 100.00 Vard Group AS 98.22 Dormant VARD SINGAPORE Pte. Ltd. CDP TECHNOLOGIES AS Norway Norway Seaonics AS Singapore Singapore SGD 6,000,000.00 100.00 Vard Group AS 98.22 NOK 500,000.00 100.00 55.40 Sales and holding company Research and development of technology CDP TECHNOLOGIES ESTONIA OÜ Estonia Estonia CDP Technologies AS VARD DESIGN AS EUR 5,200.00 100.00 55.40 Norway Norway NOK 4,000,000.00 100.00 Vard Group AS 98.22 Automation and control system software Design and engineering VARD ELECTRO CANADA Inc. Installation and integration of Canada Canada CAD 100,000.00 100.00 Vard Electro AS 98.22 VARD ACCOMMODATION AS Norway Norway NOK 500,000.00 100.00 Vard Group AS 98.22 electrical systems Accommodation installation VARD AQUA SUNNDAL AS Norway Norway NOK 1,100,000.00 100.00 Vard Group AS 98.22 Supplier of aquaculture equipment VARD PIPING AS Norway Norway Vard Group AS NOK 100,000.00 100.00 98.22 VARD AQUA CHILE SA Pipe installation Chile Chile CLP 106,000,000.00 95.00 Vard Aqua Sunndal AS 93.31 Supplier of aquaculture equipment SEAONICS AS VARD AQUA SCOTLAND Ltd Norway Norway NOK 46,639,721.00 56.40 Vard Group AS 55.40 UK UK GBP 10,000.00 100.00 Vard Aqua Sunndal AS 98.22 Off shore handling systems Supplier of aquaculture equipment

224 225 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION

Countries in Countries in Registered % Registered % Principal activity which they Share capital Principal activity which they Share capital office interest held % consolidated by Group office interest held % consolidated by Group operate operate

Joint ventures consolidated Associates consolidated using the equity method using the equity method

ORIZZONTE SISTEMI NAVALI Italy, CASTOR DRILLING S.p.A. SOLUTION AS Norway Norway NOK 229,710.00 34.13 Seaonics AS 18.91 Genoa EUR 20,000,000.00 51.00 Fincantieri S.p.A. 51.00 Management of large naval Algeria Off shore drilling technology vessel contracts OLYMPIC CHALLENGER KS Norway Norway NOK 84,000,000.00 35.00 Vard Group AS 34.38 ETIHAD SHIP BUILDING LLC Arab Arab Shipowner Fincantieri S.p.A. Design, production and sale of Emirates Emirates AED 2,500,000.00 35.00 35.00 civilian and naval ships BREVIK TECHNOLOGY AS Holding of technology licenses Norway Norway NOK 1,050,000.00 34.00 Vard Group AS 33.39 CSSC - FINCANTIERI CRUISE and patents INDUSTRY DEVELOPMENT Hong Kong Hong Kong Fincantieri S.p.A. MOKSTER SUPPLY AS LIMITED EUR 140,000,000.00 40.00 40.00 Norway Norway NOK 13,296,000.00 40.00 Vard Group AS 39.29 Design and marketing of cruise Shipowner ships MOKSTER SUPPLY KS Norway Norway NOK 131,950,000.00 36.00 Vard Group AS 35.36 ISSEL MIDDLE EAST Shipowner INFORMATION TECHNOLOGY Arab Arab Issel Nord S.r.l. REM SUPPLY AS CONSULTANCY LLC Emirates Emirates AED 150,000.00 49.00 49.00 Norway Norway NOK 345,003,000.00 26.66 Vard Group AS 26.19 IT consultancy and Oil & Gas Shipowner services OLYMPIC GREEN ENERGY KS Norway Norway NOK 4,841,028.00 29.50 Vard Group AS 28.97 CSSC - FINCANTIERI Shipowner (SHANGAI) CRUISE DESIGN CSSC - Fincantieri DOF ICEMAN AS LIMITED Norway Norway NOK 23,600,000.00 50.00 Vard Group AS 49.11 Hong Kong Hong Kong RMB 1,000,000.00 100.00 Cruise Industry 40.00 Shipowner Engineering, Project Development Limited Management and Supply Chain TAKLIFT AS Norway Norway NOK 2,450,000.00 25.47 Vard Group AS 25.02 Management Floating cranes Italy, Fincantieri S.p.A. Vard Offshore Brevik BUSBAR4F S.c.a.r.l. Trieste 10.00 AS DAMECO EUR 40,000.00 60.00 Norway Norway NOK 606,000.00 34.00 33.39 Installation of electrical systems France 50.00 Fincantieri SI S.p.A. Maintenance services AS British British FINCANTIERI CLEA CSS DESIGN LIMITED Vard Marine Inc. BUILDINGS S.c.a.r.l. Fincantieri GBP 100.00 31.00 30.45 Verona Italy EUR 10,000.00 51.00 51.00 Design and engineering Virgin IslandsVirgin Islands Contract management and Infrastructure S.p.A. Fincantieri Oil & Gas execution ARSENAL S.r.l. Trieste Italy EUR 16,421.05 24.00 S.p.A. 24.00 PERGENOVA S.c.p.a. Fincantieri IT consulting Genoa Italy Construction of bridge EUR 1,000,000,00 50.00 Infrastructure S.p.A. 50.00 ISLAND DILIGENCE AS Norway Norway NOK 17,012,500.00 39.38 Vard Group AS 38.68 in Genoa Shipowner CONSORZIO F.S.B. Venice Italy Fincantieri S.p.A. EUR 15,000.00 58.36 58.36 UNIFER NAVALE S.r.l. Finale Emilia Construction Italy EUR 150,000.00 20.00 Seaf S.p.A. 20.00 Piping (Modena) San Giorgio CENTRO SERVIZI NAVALI S.p.A. di Nogaro Italy EUR 12,782,000.00 10.93 Fincantieri S.p.A. 10.93 Steel-working (Udine) Norway, GRUPPO PSC S.p.A. Maratea Qatar, EUR 1,431,112.00 10.00 Fincantieri S.p.A. 10.00 Shipbuilding and systems (Potenza) Romania, Colombia

DECOMAR S.p.A. Massa Italy EUR 2,500.00 20.00 Fincantieri S.p.A. 20.00 Eco-dredging

PRELIOS SOLUTIONS & TECHNOLOGIES S.r.l. Milan Italy EUR 50,000.00 49.00 Insis S.p.A. 29.40 Engineering LEONARDO SISTEMI INTEGRATI S.r.l. Genoa Italy EUR 65,000.00 14.58 Insis S.p.A. 8.75 Engineering MC4COM - MISSION CRITICAL FOR Milan Italy EUR 10,000.00 50.00 HMS IT S.p.A. 18.00 COMMUNICATIONS S.c.a.r.l. Engineering

226 227 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT REPRESENTATION ON THE CONSOLIDATED FINANCIAL STATEMENTS

Management representation on the consolidated fi nancial statements pursuant to art. 154- bis, par. 5 of italian legislative decree 58/1998 (italy’s consolidated law on fi nance)

1. The undersigned Giuseppe Bono, in his capacity as Chief Executive Offi cer, and Felice Bonavolontà, as Manager Responsible for Preparing Financial Reports of FINCANTIERI S.p.A. (“Fincantieri”), with reference to the requirements of art. 154-bis, paragraphs 3 and 4, of Italian Legislative Decree No. 58 dated 24 February 1998, hereby represent:

• the suitability in relation to the business’s organization and, • the eff ective application

of the administrative and accounting processes for the preparation of the consolidated fi nancial statements during fi nancial year 2019.

2. The suitability of the administrative and accounting processes for preparing the consolidated fi nancial statements at 31 December 2019 has been evaluated on the basis of a procedure established by Fincantieri in compliance with the Internal Control - Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, which is the generally accepted standard model internationally.

3. The undersigned also represent that: 3.1 the consolidated fi nancial statements: a) have been prepared in accordance with the International Financial Reporting Standards endorsed by the European Union under Regulation (EC) 1606/2002 of the European Parliament and Council dated 19 July 2002; b) correspond to the underlying accounting records and books of account; c) are able to give a true and fair view of the assets, liabilities, fi nancial position and results of operations of the issuer and the group of companies included in the consolidation.. 3.2 The Report on Operations includes a fair review of operating performance and results, as well as the situation of the issuer and of all the companies included in the consolidation area, together with a description of the principal risks and uncertainties to which they are exposed.

1 April 2020

CHIEF EXECUTIVE OFFICER MANAGER RESPONSIBLE FOR PREPARING Giuseppe Bono FINANCIAL REPORTS

Felice Bonavolontà

228 229 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

REPORT BY THE INDEPENDENT AUDITORS

Independent auditor’s report Key Audit Matters Auditing procedures performed in in accordance with article 14 of Legislative Decree No. 39 of 27 January 2010 and article 10 of response to key audit matters Regulation (EU) No. 537/2014 Valuation of construction contracts

To the shareholders of Fincantieri SpA Refer to notes No 3 “Accounting policies (point 7 – construction contracts)”, No 14 “Construction contracts – assets”, No 20 “Provisions for risks and charges”, No 24 “Construction contracts – Report on the Audit of the Consolidated Financial Statements liabilities” to the consolidated financial statements

Opinion In the consolidated financial statements We performed an understanding and as at 31 December 2019, the Fincantieri Group evaluation of the internal control system with We have audited the consolidated financial statements of Fincantieri Group (the Group), which recorded assets for construction contracts reference to the construction contracts. We comprise the consolidated statement of financial position as of 31 December 2019, the consolidated amounting to Euro 2.697.714 thousand identified and tested the relevant controls. statement of comprehensive income, consolidated statement of changes in equity, consolidated (representing 37% of total assets) and liabilities statement of cash flows for the year then ended, and notes to the consolidated financial statements, for construction contracts amounting to Euro For each naval construction contract we including a summary of significant accounting policies. 1.282.713 thousand (representing 18% of total obtained and examined the contract (and liabilities and net equity). their amendments and modifications agreed In our opinion, the consolidated financial statements give a true and fair view of the financial position with the client, if any) and verified that the of the Group as of 31 December 2019, and of the result of its operations and cash flows for the year The value of the construction contracts is total revenues were in accordance with the then ended in accordance with International Financial Reporting Standards as adopted by the determined with the percentage of completion contracts. For the construction contracts European Union, as well as with the regulations issued to implement article 9 of Legislative Decree method by comparing the contract costs incurred expressed in foreign currencies, we checked No. 38/05. for work performed at the reporting date with the the conversion of the price to Euro. estimated total costs for each contract. If it is expected that the completion of a contract may For each construction contract we performed Basis for Opinion give rise to a loss, this is recognized in full in the comparative analysis by comparing the period in which it becomes reasonably budget of the full life costs with the one for We conducted our audit in accordance with International Standards on Auditing (ISA Italia). foreseeable. sister vessels and with the budgets obtained Our responsibilities under those standards are further described in the Auditor’s Responsibilities for in past audits, in order to verify significant the Audit of the Consolidated Financial Statements section of this report. We are independent of The forecast of total costs requires a high level of fluctuations. We had discussions with the Fincantieri SpA (the Company) pursuant to the regulations and standards on ethics and management judgement and an error in this stage Project Managers and with the management independence applicable to audits of financial statements under Italian law. We believe that the audit could lead to a wrong valuation of the control team in order to understand main evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. construction contracts (and consequently of fluctuations and evaluate the reasonableness operating revenue) that could be significant. of the budgets and their updates.

Key Audit Matters Furthermore, due to the complexity of the We analysed and verified the process of contracts and to the long time required to attribution of the costs incurred to the related Key audit matters are those matters that, in our professional judgment, were of most significance in complete the construction of the vessels, it is construction contract and we checked the our audit of the consolidated financial statements of the current period. These matters were possible that management may not correctly balance between general accounting and addressed in the context of our audit of the consolidated financial statements as a whole, and in estimate the probability and the magnitude of industrial accounting for some randomly forming our opinion thereon, and we do not provide a separate opinion on these matters. future events that could have an impact on the selected yards. valuation of the contract costs, of the provision for future losses and/or on the evaluation of the guarantee provision.

230 231 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

The correct measurement of the stage of We performed substantive procedures in The CGU “FMG Group” refers to the US group We recalculated the discount rates applied by completion of the construction contracts and of order to test the correct attribution of the controlled by Fincantieri Marine Group LLC, the management for each CGU and the long- the possible related liabilities represents a key costs to the related construction contract. involved in the construction of middle size term growth rate, also with the support of audit matter due to the magnitude of the amounts vessels in the US for civil clients and experts from the PwC network. involved and due to the high level of management We verified the percentage of completion government agencies, including the US Navy judgement. computed by comparing the costs incurred at and the US Coast Guard. We performed sensitivity tests (and we the reporting date with the estimated full life analysed those performed by the costs. The Company at least annually performs an management) to ascertain whether changes in impairment test for each CGU. This impairment the discount and growth rates could lead to We performed substantive procedures on the test is based on the estimation of the value in an impairment. closing of the accounting for the use of each CGU determined with the constructions delivered during the financial discounted cash flow method. For the We verified the completeness and accuracy of year, on the reasonableness of the provision computation the Company used the cash flows the disclosures in the explanatory notes to the for estimated future losses and of the derived from the 2020-2024 Business Plans financial statements. guarantee provision. We evaluated the impact prepared by the FMG Group and VARD Group of claims from customers, if any. management.

Furthermore, the drop in oil prices and the crisis of the offshore industry impacted the profitability Recoverability of goodwill of the VARD Group which closed the 2019 financial year (and previous years) with non Refer to notes No 3 “Accounting policies (point positive results. 1.1 – goodwill)” and No 6 “Intangible assets” to the consolidated financial statements The results of the impairment tests have been subjected by the management to sensitivity In its consolidated financial statements as at 31 We performed an understanding and analysis to ascertain whether reasonable changes December 2019, Fincantieri SpA recognized evaluation of the method adopted by the in the parameters could lead to an impairment. goodwill amounting to Euro 260.802 thousand management to develop the impairment test (representing 3,6% of total assets), out of which applied for each CGU. We focused on this aspect as the amount of Euro 60.104 thousand allocated to the cash goodwill recognised in the financial statements is generating unit (“CGU”) “VARD Offshore and We examined the 2020-2024 Business Plans significant and because the management’s Specialized vessels”, Euro 126.736 thousand projections prepared by the management of valuation of the recoverable amount of each CGU allocated to the CGU “VARD Cruise” and Euro the FMG Group and the VARD Group and we implies a high degree of judgement in the 70.771 thousand allocated to the CGU “FMG held discussions and interviews with the estimate of the expected cash flows, in particular, Group”, and Euro 3.191 thousand generated in the company management to understand and as well as in the definition of the discount rates year as a result of a business combination. critically analyse the assumptions used. applied.

The two CGUs “VARD Offshore and Specialized We compared the 2019 budget, used in the vessels” and “VARD Cruise” have been impairment test of last year, with the actual identified starting from 2018 following a figures as at 31 December 2019 in order to Responsibilities of the Directors and the Board of Statutory Auditors for the reorganization of the group controlled by the identify significant differences and Consolidated Financial Statements company Vard Holdings Limited (“VARD corroborate the appropriateness of the Group”), historically involved in the sector of planning process adopted by the The directors are responsible for the preparation of consolidated financial statements that give a true design and construction of offshore means of management. and fair view in accordance with International Financial Reporting Standards as adopted by the support for the extraction and production of European Union, as well as with the regulations issued to implement article 9 of Legislative Decree petroleum and natural gas and for the industry We verified the accuracy of the impairment No. 38/05 and, in the terms prescribed by law, for such internal control as they determine is of oil services. This reorganization is the test model used by the management through necessary to enable the preparation of consolidated financial statements that are free from material outcome of the business diversification process an independent recalculation and by misstatement, whether due to fraud or error. undertaken by the VARD Group in the last few comparing the results obtained. years to cope with the decline in demand of Offshore vessels.

232 233 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

x We evaluated the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements The directors are responsible for assessing the Group’s ability to continue as a going concern and, in represent the underlying transactions and events in a manner that achieves fair presentation. preparing the consolidated financial statements, for the appropriate application of the going concern x We obtained sufficient and appropriate audit evidence regarding the financial information of basis of accounting, and for disclosing matters related to going concern. In preparing the consolidated the entities or business activities within the Group to express an opinion on the consolidated financial statements, the directors use the going concern basis of accounting unless they either intend financial statements. We are responsible for the direction, supervision and performance of to liquidate the parent company Fincantieri SpA or to cease operations, or have no realistic the Group audit. We remain solely responsible for our audit opinion on the consolidated alternative but to do so. financial statements. The board of statutory auditors is responsible for overseeing, in the terms prescribed by law, the Group’s financial reporting process. We communicated with those charged with governance, identified at an appropriate level as required by ISA Italia regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identified Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements during our audit.

Our objectives are to obtain reasonable assurance about whether the consolidated financial We also provided those charged with governance with a statement that we complied with the statements as a whole are free from material misstatement, whether due to fraud or error, and to regulations and standards on ethics and independence applicable under Italian law and communicated issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance with them all relationships and other matters that may reasonably be thought to bear on our but is not a guarantee that an audit conducted in accordance with International Standards on independence, and where applicable, related safeguards. Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could From the matters communicated with those charged with governance, we determined those matters reasonably be expected to influence the economic decisions of users taken on the basis of the that were of most significance in the audit of the consolidated financial statements of the current consolidated financial statements. period and are therefore the key audit matters. We described these matters in our auditor’s report.

As part of our audit conducted in accordance with International Standards on Auditing (ISA Italia), we exercised our professional judgement and maintained professional scepticism throughout the Additional Disclosures required by Article 10 of Regulation (EU) No 537/2014 audit. Furthermore: On 28 February 2014, the shareholders of Fincantieri SpA in the general meeting engaged us to x We identified and assessed the risks of material misstatement of the consolidated financial perform the statutory audit of the Company’s stand alone and consolidated financial statements for the statements, whether due to fraud or error; we designed and performed audit procedures years ending 31 December 2013 to 31 December 2021. Following the appointment of the new Group responsive to those risks; we obtained audit evidence that is sufficient and appropriate to auditor by the Shareholders' meeting of the Company's controlling shareholder, our audit engagement provide a basis for our opinion. The risk of not detecting a material misstatement resulting has been resolved by consensual resolution and will end with the approval of the 2019 financial from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, statements by the Shareholders' meeting. intentional omissions, misrepresentations, or the override of internal control; x We obtained an understanding of internal control relevant to the audit in order to design We declare that we did not provide any prohibited non-audit services referred to in article 5, audit procedures that are appropriate in the circumstances, but not for the purpose of paragraph 1, of Regulation (EU) No. 537/2014 and that we remained independent of the Company in expressing an opinion on the effectiveness of the Group’s internal control; conducting the statutory audit. x We evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors; We confirm that the opinion on the consolidated financial statements expressed in this report is x We concluded on the appropriateness of the directors’ use of the going concern basis of consistent with the additional report to the board of statutory auditors, in their capacity as audit accounting and, based on the audit evidence obtained, whether a material uncertainty exists committee, prepared pursuant to article 11 of the aforementioned Regulation. related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated Report on Compliance with other Laws and Regulations financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern; Opinion in accordance with Article 14, paragraph 2, letter e), of Legislative Decree No. 39/10 and Article 123-bis, paragraph 4, of Legislative Decree No. 58/98

The directors of Fincantieri SpA are responsible for preparing a report on operations and a report on the corporate governance and ownership structure of the Fincantieri Group as of 31 December 2019, including their consistency with the relevant consolidated financial statements and their compliance with the law.

234 235 FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS FINCANTIERI GROUP / CONSOLIDATED FINANCIAL STATEMENTS

We have performed the procedures required under auditing standard (SA Italia) No. 720B in order to express an opinion on the consistency of the report on operations and of the specific information included in the report on corporate governance and ownership structure referred to in article 123-bis, paragraph 4, of Legislative Decree No. 58/98, with the consolidated financial statements of the Fincantieri Group as of 31 December 2019 and on their compliance with the law, as well as to issue a statement on material misstatements, if any.

In our opinion, the report on operations and the specific information included in the report on corporate governance and ownership structure mentioned above are consistent with the consolidated financial statements of the Fincantieri Group as of 31 December 2019 and are prepared in compliance with the law.

With reference to the statement referred to in article 14, paragraph 2, letter e), of Legislative Decree No. 39/10, issued on the basis of our knowledge and understanding of the Company and its environment obtained in the course of the audit, we have nothing to report.

Statement in accordance with article 4 of Consob’s Regulation implementing Legislative Decree No. 254 of 30 December 2016

The directors of Fincantieri SpA are responsible for the preparation of the non-financial statement pursuant to Legislative Decree No. 254 of 30 December 2016. We have verified that the directors approved the non-financial statement.

Pursuant to article 3, paragraph 10, of Legislative Decree No. 254 of 30 December 2016, the non- financial statement is the subject of a separate statement of compliance issued by ourselves.

Trieste, 20 April 2020

PricewaterhouseCoopers SpA

Signed by

Maria Cristina Landro (Partner)

This report has been translated into English from the Italian original solely for the convenience of international readers

236 237 FINCANTIERI GROUP

G LOSSARY

238 239 FINCANTIERI GROUP FINCANTIERI GROUP

GLOSSARY Order intake 2 - Accounting and Finance CGU Value of new orders, including order additions Acronym for Cash-Generating Unit, defi ned and variations, awarded to the Company in Impairment testing as the smallest identifi able group of assets each reporting period. This is the work performed by the Group that generates cash infl ows that are largely 1 - Operating Activities to assess, at every reporting date, whether independent of the cash infl ows from other Order book there is evidence that an asset might be assets or groups of assets. Shipowner Value of principal contracts, order additions impaired, by estimating its recoverable The entity that operates the ship, and variations, in respect of orders not yet amount. EBIT irrespective of whether it is the owner delivered or fulfi lled. Acronym for Earnings Before Interest and or not. Business combination Taxes. It is defi ned as: Profi t/(loss) for the Soft Backlog This is the aggregation of entities or year adjusted for the following items (i) Dry-dock Value of existing contract options and businesses into a single entity that is Income taxes, (ii) Share of profi t/(loss) Basin-like structure in which ships are built letters of intent as well as of contracts at an required to prepare fi nancial statements. of investments accounted for using the or repaired. advanced stage of negotiation, none of which equity method, (iii) Income/(expense) from yet refl ected in the order backlog. Net fi xed capital investments, (iv) Finance costs, (v) Finance Order backlog This reports the fi xed assets used in the income, (vi) costs associated with the “Wage Residual value of orders not yet Total order book business and includes Intangible assets, Guarantee Fund”, (vii) costs relating to completed. This is calculated as the This is calculated as the sum of the order Property, plant and equipment, Investments reorganization plans and other non-recurring difference between the total value of book and soft backlog. and Other non-current assets (including personnel costs, (viii) provisions for costs an order (including any additions and the fair value of derivatives classifi ed in and legal expenses associated with lawsuits amendments) and the value reported Total backlog non-current Financial assets and non- for asbestosrelated damages, and (ix) other as “Work in progress” at the period-end This is calculated as the sum of the order current Financial liabilities) net of Employee non-recurring income and expenses. reporting date. backlog and soft backlog. benefi ts. EBITDA Mega-Yachts Refi tting/refurbishment Net working capital Acronym for Earnings Before Interest, Taxes, The business of building motor yachts that The business of refi tting ships that are This is equal to capital employed in Depreciation and Amortization. It is defi ned are at least 70 meters (230 feet) in length. obsolete or no longer fi t for use after changes ordinary operations which includes as: Profi t/(loss) for the year adjusted for the in the law and/or regulations. Inventories and advances, Construction following items (i) Income taxes, (ii) Share Merchant vessels contracts and advances from clients, of profi t/(loss) of investments accounted Ships intended for commercial purposes, GT - Gross Tonnage Construction loans, Trade receivables, Trade for using the equity method, (iii) Income/ mostly involving passenger transportation. A unit that measures a ship’s total internal payables, Provisions for risks and charges, (expense) from investments, (iv) Finance Examples are cruise ships, ferries (either volume, including its engine rooms, fuel tanks and Other current assets and liabilities costs, (v) Finance income, (vi) Depreciation, for transporting just vehicles or for both and crew quarters. Its measurement is based (including Income tax assets, Income tax amortization and impairment; (vii) costs vehicles and passengers), container ships, on the external area of the bulkheads. liabilities, Deferred tax assets and Deferred associated with the “Wage Guarantee oil tankers, dry and liquid bulk carriers, etc. tax liabilities, as well as the fair value of Fund”, (viii) costs relating to reorganization CGT - Compensated Gross Tonnage derivatives classifi ed in current Financial plans and other nonrecurring personnel Naval Vessels An international unit of measurement that assets and current Financial liabilities). costs, (ix) provisions for costs and legal Vessels used for military purposes, such provides a common way of measuring the expenses associated with lawsuits for as surface combat vessels (aircraft amount of work needed to build a given Net invested capital asbestos-related damages, and (x) other carriers, destroyers, frigates, corvettes, ship. It is calculated by multiplying the GT of This represents the sum of Net fi xed capital non-recurring income and expenses. patrol ships) as well as support craft and a ship by a coeffi cient determined according and Net working capital. submarines. to the type and size of ship. Fair value The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

240 241 FINCANTIERI GROUP

IAS/IFRS Revenue Acronyms for the International Accounting This line in the income statement reports Standards and International Financial revenue earned on contracts and revenue Reporting Standards, adopted by the from the sale of various products and Company. services.

Net expenditure/disposals Basic or diluted earnings per share These represent investments and Basic earnings per share are calculated disinvestments in property, plant and by dividing profi t or loss for the reporting equipment, intangible assets, equity period attributable to ordinary equity investments and other net non-operating holders by the weighted average number assets. of ordinary shares outstanding during the period. Operating capex Diluted earnings per share are calculated This represents investments in property, in the same way as for basic earnings plant and equipment and intangible assets per share, but take account of all dilutive other than those acquired in a business potential ordinary shares as follows: combination and allocated to property, plant and equipment or intangible assets. - profi t or loss attributable to ordinary shares is increased by the after-tax amount Net fi nancial position of dividends and interest recognized in the A line in the statement of fi nancial position period in respect of the dilutive potential that summarizes the Company’s fi nancial ordinary shares and is adjusted for any other position and includes: changes in income or expense that would result from the conversion of the dilutive - Net current cash/(debt): cash and cash potential ordinary shares; equivalents, trading securities, current - the weighted average number of ordinary fi nancial receivables, current bank debt shares outstanding is increased by the (excluding construction loans), current weighted average number of additional portion of long-term loans and credit ordinary shares that would have been facilities, other current fi nancial liabilities; outstanding assuming the conversion of all - Net non-current cash/(debt): noncurrent dilutive potential ordinary shares. fi nancial receivables, non-current bank debt, bonds, other non-current fi nancial liabilities. WACC Acronym for Weighted Average Cost of Statement of cash fl ows Capital. This represents the average cost of This examines all the cash fl ows that caused the various sources of company fi nancing, changes in cash and cash equivalents, in both in the form of debt and of capital. order to determine “Net cash fl ows for the period”, as the diff erence between cash infl ows and outfl ows in the period.

242 243 Parent Company Registered offi ce Via Genova no. 1 - 34121 Trieste – Italy Tel: +39 040 3193111 Fax: +39 040 3192305 fi ncantieri.com Share capital Euro 862,980,725.70 Venezia Giulia Company Registry and Tax No. 00397130584 VAT No. 00629440322

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