Annual Report • Jul 30, 2018
Annual Report
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AT 30 JUNE 2018
HALF-YEAR FINANCIAL REPORT AT 30 JUNE 2018
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| Highlights | 20 |
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| Introduction | 21 |
| Key fi nancials | 24 |
| Group performance | 26 |
| Operational review by segment | 36 |
| Other information | 42 |
| Enterprise risk management | 46 |
| Alternative performance measures | 58 |
| Reconciliation of the reclassifi ed | |
| fi nancial statements used | |
| in the report on operations with | |
| the mandatory IFRS statements | 60 |
| Consolidated statement | |
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| of fi nancial position | 64 |
| Consolidated statement | |
| of comprehensive income | 65 |
| Consolidated statement | |
| of changes in equity | 66 |
| Consolidated statement of cash fl ows | 67 |
| Note 1 - Form, contents and other general information |
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| Note 2 - Scope and basis | |
| of consolidation | 73 |
| Note 3 - Accounting standards | 74 |
| Note 4 - Critical accounting estimates and assumptions |
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| Note 5 - Intangible assets | 77 |
| Note 6 - Property, plant and equipment 79 | |
| Note 7 - Investments accounted | |
| for using the equity method | |
| and other investments | 80 |
| Note 8 - Non-current fi nancial assets | 81 |
| Note 9 – Other non-current assets | 81 |
| Note 10 - Deferred tax assets | |
| and liabilities | 82 |
| Note 11 - Inventories and advances | 83 |
| Note 12 - Construction contracts - | |
| net assets and liabilities | 84 |
| Note 13 - Trade receivables | |
| and other current assets | 85 |
| Note 14 - Income tax assets | 86 |
| Note 15 - Current fi nancial assets | 87 |
| Note 16 - Cash and cash equivalents | 87 |
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REPORT BY THE INDIPENDENT AUDITORS 124
Chairman Giampiero Massolo
Chief Executive Offi cer Giuseppe Bono
Councilors Gianfranco Agostinetto Simone Anichini Massimiliano Cesare Nicoletta Giadrossi Paola Muratorio Fabrizio Palermo Donatella Treu
Secretary Umberto Baldi
Board of statutory auditors (2017-2019)
Chairman Gianluca Ferrero
Standing members Roberto Spada Fioranna Vittoria Negri
Alternate members Alberto De Nigro Flavia Daunia Minutillo Massimiliano Nova
Manager responsible for preparing fi nancial reports
Felice Bonavolontà*
(2018-2020)
Chairman Guido Zanardi
Members Stefano Dentilli Giorgio Pani
Independent auditors (2013-2021 )
PricewaterhouseCoopers S.p.A.
*Appointed on 22 June 2018
Information regarding the composition and functions of the Board Committees (the Internal Control and Risk Committee, which is also serving on an interim basis as the committee responsible for related party transactions, the Compensation Committee, the Nomination Committee and the Sustainability Committee) is provided in the Governance section of the Fincantieri website at www.fi ncantieri.com.
Forecast data and information must be regarded as forward-looking statements and therefore, not being based on simple historical facts, contain, by their nature, an element of risk and uncertainty because they also depend on the occurrence of future events and developments outside the Company's control. Actual results could therefore be materially diff erent from those expressed in forward-looking statements. Forward-looking statements
refer to the information available at the date of their publication; FINCANTIERI S.p.A undertakes no obligation to revise, update or correct its forward-looking statements after such date, other than in the circumstances strictly required by applicable regulations. The forward-looking statements provided do not constitute and shall not be considered by users of the fi nancial statements as advice for legal, accounting, tax or investment purposes nor is it the intention for such statements to create any type of reliance and/or induce such users to invest in the Company.
We aspire to become world leaders in all sectors that require highly advanced solutions, setting ourselves still further apart by our diversifi cation and innovation work.
The Sea Ahead: all those who work at Fincantieri steer for this course: talented men and women working responsibly to help develop our idea of a future increasingly characterized by innovation, performance and sustainability.
Development and continuous improvement are the goals that we have set for ourselves, and we are determined to pursue them.
Our every action, project, initiative or decision is based on principles and
guidelines that are implemented across the Group: strict observance of the law, labor protection and protection of the environment, safeguarding the interests of our shareholders, employees, clients, trade and financial partners, local communities and groups, creating value for every stakeholder.
Fincantieri is one of the world's largest shipbuilding groups and number one for diversifi cation and innovation. It is leader in cruise ship design and construction and a reference player in all high-tech shipbuilding industry sectors, from naval to off shore vessels, from high-complexity special vessels and ferries to mega yachts, as well as in ship
repairs and conversions, production of systems and mechanical and electrical component equipment and after-sales services. With over 230 years of history and more than 7,000 vessels built, Fincantieri has always kept its management offi ces, as well as all the engineering and production skills, in Italy. With almost 8,500 employees and a supplier network that employs nearly 50,000 people, Fincantieri has enhanced
FACTS AND FIGURES
Data refer to 30 June 2018.
a fragmented production capacity over several shipyards into a strength, acquiring the widest portfolio of clients and products in the cruise segment. To hold its own in relation to competition and assert itself at global level, Fincantieri has broadened its product portfolio becoming world leader in the sectors in which it operates. With globalization, the Group has around 20 shipyards in 4 continents, over 19,000 employees and is the leading Western shipbuilder. It has among its clients the world's major cruise operators, the Italian and the US Navy, in addition to several foreign navies, and it is partner of some of the main European defense companies within supranational programs. Fincantieri's business is widely diversifi ed by end markets, geographical exposure and by client base, with revenue mainly generated from cruise ship, naval and off shore vessel construction. Compared with less diversifi ed players, such diversifi cation allows it to mitigate the eff ects of any fl uctuations in demand on the end markets served.
The Group operates through the following three segments:
• Shipbuilding: encompassing the businesses of cruise ships, naval vessels and other products and services (ferries and Mega yachts);
• Off shore, represented by the subsidiary VARD, encompasses the design and construction of high-end off shore support vessels, expedition cruise vessels, specialized ships, and vessels for off shore wind farms and open ocean aquaculture, as well as the off er of innovative products in the fi eld of
Bacini Palermo S.p.A. Gestione Bacini La Spezia S.p.A. Fincantieri Holding BV Cetena S.p.A.
Fincantieri Marine Group Holdings Inc. FMG LLC • Sturgeon Bay Marinette Marine Corporation LLC • Marinette ACE Marine LLC • Green Bay Fincantieri India Pte Ltd. Fincantieri do Brasil Partecipacões S.A. Fincantieri USA Inc. Fincantieri Australia PTY LTD. Fincantieri (Shanghai) Trading Co. Ltd. Etihad Ship Building LLC. Orizzonte Sistemi Navali S.p.A. CSSC - Fincantieri Cruise Industry Development Ltd. drillships and semi-submersible drilling rigs;
• Equipment, Systems and Services: encompassing the design and manufacture of high-tech equipment and systems, such as stabilization, propulsion, positioning and power generation systems, ship automation systems, steam turbines, integrated systems and ship accommodation, and the provision of repair and conversion services, logistical support and after- sales services.
The structure of the Fincantieri Group and overview of the companies included in its consolidation will now be presented.
Trieste Monfalcone Marghera Sestri Ponente Genova Riva Trigoso - Muggiano Ancona Castellammare di Stabia Palermo
Aukra Brattvaag Brevik Langsten Søviknes
Braila Tulcea
VIETNAM Vung Tau
Marinette Sturgeon Bay Green Bay
Suape
20
SHIPYARDS
Fincantieri (Shanghai) Trading CSSC - Fincantieri Cruise Industry Development
Fincantieri India Vard Electrical Installation and Engineering (India)
FMSNA
UNITED ARAB EMIRATES Etihad Ship Building
Fincantieri Services Middle East
SINGAPORE Fincantieri Singapore R.O. Vard Holdings Vard Shipholdings Singapore
JAPAN FMSNA YK
Group Holdings Fincantieri Marine Systems North America Fincantieri Services USA Fincantieri USA Vard Marine US
CANADA Vard Marine
Fincantieri do Brasil Partecipacoes
AUSTRALIA Fincantieri Australia
Fincantieri S.p.A. (Headquarter) Orizzonte Sistemi Navali Cetena Delfi Seastema Isotta Fraschini Motori Fincantieri Oil & Gas Seaf Marine Interiors Fincantieri SI Fincantieri Infrastructure Issel Nord
VARD Group (Headquarter) Vard Design Vard Piping Vard Electro Vard Accomodation Seaonics
SWEDEN Fincantieri Sweden
POLAND Seaonics Polska
| RESULTS IN LINE WITH THE BUSINESS PLAN 2018-2022 GOALS SIGNED A SHARE PURCHASE AGREEMENT FOR 50% AND THE LOAN OF 1% OF THE CAPITAL OF STX FRANCE WITH THE FRENCH GOVERNMENT VARD'S SHAREHOLDERS' MEETING APPROVED THE SUBSIDIARY'S DELISTING |
ORDER INTAKE OF EURO 2.4 BILLION TWO VIKING VESSELS ONE SILVERSEA VESSEL TWO PONANT VESSELS THREE VESSELS FOR THE ROYAL NORWEGIAN COAST GUARD REACHES RECORD LEVELS TOTAL BACKLOG1 OF EURO 30 BILLION ACQUISITION OF NEW CLIENT TUI CRUISES FOR THE CONSTRUCTION OF TWO NEW-GENERATION LNG-POWERED SHIPS |
|---|---|
| REVENUE AND INCOME: EURO 2,527 MILLION (+10%) EBITDA OF EURO 183 MILLION (+25%) WITH A CONSOLIDATED EBITDA MARGIN OF 7.3% (VS. 6.3% IN THE FIRST HALF OF 2017) ADJUSTED PROFIT FOR THE YEAR2 OF EURO 39 MILLION (+39%) |
PROFIT FOR THE YEAR OF EURO 15 MILLION (+36%) NET FINANCIAL POSITION3 NET DEBT OF EURO 264 MILLION (EURO 314 MILLION OF NET DEBT AT 31 DECEMBER 2017) |
| (1) Sum of backlog of euro 22 billion and soft backlog of around euro 8 billion (representing the value of existing contract options and letters of intent as well as of contracts at an advanced stage of negotiation, none of which yet refl ected in the order backlog). (2) Profi t/(loss) before extraordinary and non-recurring income and expenses. (3) This fi gure does not include construction loans. |
Fincantieri's results for the fi rst half of 2018 confi rm the lines of development identifi ed in the new Business Plan 2018-2022 which was presented at the end of March. The Group's leadership in the high-tech shipbuilding industry sectors is confi rmed by its increasing production volumes and margins, continuing to highlight its signifi cant capacity to create value even though it operates in an extremely complex sector.
The fi rst half of 2018 ends with revenues of over euro 2.5 billion (+10%), EBITDA of euro 183 million (+25%) with a margin of 7.3% increasing by 16% (6.3% at 30 June 2017), an Adjusted profi t for the period of euro 39 million (+39%), Net profi t for the period of euro 15 million (+36%) and Net debt of euro 264 million, an improvement on 31 December 2017.
The Total backlog reached record levels of euro 29.8 billion, with a backlog of euro 22 billion and 99 vessels in the order book (to be delivered until 2026) and a soft backlog of around euro 8 billion, over half of which were transformed into order intake in July, confi rming the Group's historical ability to turn soft backlog into fi rm orders.
The Total backlog enables Fincantieri to have visibility in the coming years in terms of guaranteed work for the Italian shipyards and to consolidate its leadership globally.
In commercial terms, within the cruise ship business, the Group has formalized an order with Viking for the construction of 2 sister ships (part of a series of 8 commissioned previously) and an option for the construction of 6 ships that are more technologically advanced than the previous ones (if exercised, this would bring the total number of vessels built in partnership by the two companies to 16). The Group has also signed a contract with Silversea for the construction of an ultraluxury vessel, the third in the "Muse" series. July 2018 saw the exercise of the option for the construction of the fi fth and sixth "Leonardo" class vessels for the Norwegian Cruise Line, in addition to the four ordered previously and confi rmation of the order for a new generation ship for the historic luxury brand Cunard. In the same month, the Group signed a Memorandum of Agreement to construct 2 cruise ships for Princess Cruises, which will be the largest ever built in Italy, and has secured an order for the construction of 2 new generation cruise ships for a new brand, Tui Cruises (a joint venture between Tui Ag and Royal Caribbean Cruises). These last four vessels, the fi rst cruise ships fueled by LNG, will be cutting edge in terms of technology and sustainability built by the Group. These agreements demonstrate Fincantieri's recognized ability to stand out among the fi eld of international shipbuilders thanks to its reliability and capacity to innovate and its ability to attract and retain new clients. As regards navy vessels, production continues for the program to renew the Italian Navy's fl eet and design and planning activities continue for the massive Qatari Ministry of Defense contract. Furthermore, the Group won the contract from the US Navy to develop a customized version of the FREMM project for new generation multi-role frigates under the FFG(X) program. In July, the subsidiary Marinette Marine Corporation (in a consortium led by Lockheed Martin) secured an order from the US government for the launch of detailed design and planning for the construction of four Multi-Mission Surface Combatants (MMSC) for Saudi Arabia. The subsidiary VARD, as a result of the diversifi cation strategy, achieved signifi cant commercial outcomes in the fi rst half of
2018 with contracts for the construction of 10 vessels, including in particular the 2 expedition cruise vessels for Ponant, rewarding the expansion strategy implemented by the subsidiary in the luxury expedition cruise market, 3 ships for the Norwegian Royal Coast Guard, which will be the fi rst such vessels constructed by VARD, and one cable-laying vessel for the Prysmian group. Moreover, there is the order placed by Viking for the construction of two new expedition cruise ships for Viking, following the letter of intent signed previously with the shipowner, which also includes two further vessels under option. In early July, the Norwegian Group also secured the contract for the construction of the third expedition cruise ship for Hapag Lloyd.
Lastly, in the Equipment, Systems and Services segment, Fincantieri and the Grimaldi Group signed an agreement for the program to lengthen and transform the cruise ferries "Cruise Roma" and "Cruise Barcelona". The Group has secured the contract to upgrade the Cavour aircraft carrier.
The fi rst half of 2018 saw the delivery of 4 cruise ships, including the MSC Seaview which, together with its sister ship (MSC Seaside), is the largest ship ever built in Italy to date, 2 naval vessels and 14 vessels delivered by the VARD Group.
As regards the economic results achieved in the fi rst half of 2018, the Shipbuilding segment has continued to grow in terms of revenues and margins thanks to the positive contribution of the cruise ship and naval vessel businesses.
In the Off shore segment, where the crisis is still ongoing, the diversifi cation strategy has led to an increase of volumes enabling a positive margin to be maintained even though the production structure in the shipyards involved in the current
diversifi cation process are not yet at full employment.
Revenues in the Equipment, Systems and Services segment have increased due to the volumes generated by the production of cabins and public areas which have been driven by the growth in the cruise ship business, and at the same time keeping profi t margins high.
These results are accompanied by the Group maintaining a balanced fi nancial structure enabling it to deal with the expected increased volumes, particularly in the cruise ship business.
Headcount in Italy has increased by over 2% compared to the same period of the previous year in order to meet the increased backlog, while, at group level, staff levels have decreased from 19,428 to 19,375, mainly due to the reduction of the workforce at VARD's Brazilian shipyard. In February 2018, Fincantieri signed the share purchase agreement for 50% of the capital of STX France with the French Government (represented by the Agence des Participations de l'Etat). The shareholders' agreements and the agreement covering the loan of 1% of the share capital of STX France to Fincantieri the terms of which have already been agreed by the parties - will be signed at the closing of the transaction. The agreement with STX France is part of a broader collaboration on shipbuilding between Italy and France. The French and Italian governments have initiated a joint process that has opened the way to the future creation of a progressive alliance in the naval defense segment, based on a close collaboration and integration between Fincantieri and Naval Group, the latter a minority shareholder in STX France. In July 2018, the Shareholders' Meeting of the subsidiary VARD approved the company's delisting from the Singapore stock exchange. Meanwhile, the integration
process in production is ongoing with the use of capacity in Romania to support Fincantieri's massive order backlog for the production of cruise ships, as are the commercial synergies with the Parent Company aimed at strengthening VARD's presence in the expedition cruise ship market.
The Group forecasts results for the year 2018 which are in line with the economic and fi nancial projections outlined in the Business Plan 2018-2022. The growth in revenues forecasted for the second half of the year enables the Group to confi rm the target of a 3-6% increase in revenues on an annual basis with a margin of around 7.5%. The target margin of between 1.8% and 2% for adjusted net profi t is also confi rmed. By the end of 2018, the Net fi nancial position will be a net debt of euro 400-600 million, an increase compared to the amount in the fi rst half of the year, in line with the constant growth of the size and value of the cruise ships under construction and with the delivery schedule.
In the Shipbuilding segment, Fincantieri expects to deliver 5 ships in the second half of 2018, 1 cruise ship and 4 vessels in the naval business. It also expects to achieve full swing of activities in the fl eet renewal program for the Italian Navy and to see the start of production activities for the Qatari Ministry of Defense contract. In the Off shore segment, construction activities continue on the order backlog, the result of the diversifi cation strategy adopted, and related continued focus on execution aimed at recovering mediumterm margins. The deep crisis in the Oil & Gas sector continues and this could impact on the order intake.
In 2018, the Equipment, Systems and Services segment is expected to see its growth in revenues confi rmed, thanks to the development of the backlog related to the Italian Navy fl eet renewal, the Qatari contract and the higher volumes for the production of cabins and public areas supporting the cruise ship business.
| (euro/million) | ||||
|---|---|---|---|---|
| 31.12.2017 | Economic data | 30.06.2018 | 30.06.2017 | |
| 5,020 | Revenue and income | 2,527 | 2,295 | |
| 341 | EBITDA | 183 | 146 | |
| 6.8% | EBITDA margin(*) | 7.3% | 6.3% | |
| 221 | EBIT | 118 | 88 | |
| 4.4% | EBIT margin(**) | 4.7% | 3.8% | |
| 91 | Adjusted profi t/(loss) for the period1 | 39 | 28 | |
| (49) | Extraordinary and non-recurring income and (expenses) |
(32) | (22) | |
| 53 | Profi t/(loss) for the period | 15 | 11 | |
| 57 | Group share of profi t/(loss) for the period | 21 | 13 | |
| 31.12.2017 | Financial data | 30.06.2018 | 30.06.2017 | |
| 1,623 | Net invested capital | 1,523 | 1,877 | |
| 1,309 | Equity | 1,259 | 1,246 | |
| (314) | Net fi nancial position | (264) | (631) | |
| 31.12.2017 | Other indicators | 30.06.2018 | 30.06.2017 | |
| 8,554 | Order intake(***) | 2,388 | 4,369 | |
| 28,482 | Order book(***) | 27,665 | 26,086 | |
| 26,153 | Total backlog()(*) | 29,787 | 25,524 | |
| 22,053 | - of which backlog(***) | 21,987 | 20,424 | |
| 163 | Capital expenditure | 44 | 76 | |
| 65 | Net cash fl ows for the period | 342 | 41 | |
| 113 | Research and Development costs | 61 | 53 | |
| 19,545 | Employees at the end of the period | number | 19,375 | 19,428 |
| 25 | Vessels delivered(*) | number | 20 | 8 |
| 32 | Vessels ordered(*) | number | 13 | 11 |
| 106 | Vessels in order book(*) | number | 99 | 102 |
| 31.12.2017 | Ratios | 30.06.2018 | 30.06.2017 | |
| 12.7% | ROI | 11.0% | 10.4% | |
|---|---|---|---|---|
| 4.1% | ROE | 1.4% | 1.6% | |
| 0.6 | Total debt/Total equity | number | 0.8 | 0.8 |
| 0.9 | Net fi nancial position/EBITDA | number | 0.9 | 2.1 |
| 0.2 | Net fi nancial position/Total equity | number | 0.2 | 0.5 |
(*) Ratio between EBITDA and Revenue and income.
(**) Ratio between EBIT and Revenue and income.
(***) Net of eliminations and consolidation adjustments.
(****) Sum of backlog and soft backlog.
(*****) Number of vessels over 40 meters in length.
n.s. not signifi cant.
(1) Profi t/(loss) before extraordinary and non-recurring income and expenses.
The percentages contained in this report have been calculated with reference to amounts expressed in thousands of euros.
During the fi rst six months of 2018, the Group recorded euro 2,388 million in new orders, compared with euro 4,369 million in the corresponding period of 2017, with a bookto-bill ratio (order intake/revenue) of 0.9 (1.9 at 30 June 2017). Before intersegment consolidation adjustments, the Shipbuilding segment accounted for 47% of the period's total order intake (89% in the fi rst half of 2017), the Off shore segment for 46% (9% in the fi rst half of 2017) and the Equipment, Systems and Services segment for 16% (7% in the fi rst half of 2017). This change in order intake, compared to the same period of the previous year, refl ects the diff erent timing for concluding the agreements. The fi rst half of 2017 benefi ted from an important contract for the construction of 4 cruise ships for the Norwegian Cruise Line. In addition to the order intake, 2018 saw the conclusion of signifi cant agreements signed in July, exercising the option for the construction of the fi fth and sixth cruise ships for the Norwegian Cruise Line, the signature of a Memorandum of Agreement with Princess Cruises for the construction of 2 new generation cruise ships, the largest ever built in Italy, confi rmation of the order for one cruise ship for the historic luxury brand Cunard and two ships for a new client, Tui Cruises (a joint venture between Tui Ag and Royal Caribbean Cruises), new generation LNG-powered vessels, which will be the most cutting-edge ships in terms of technology and sustainability. In early July, VARD also secured the contract for the construction of the third expedition cruise ship for Hapag Lloyd and an order for the construction of two new expedition cruise ships for Viking, following the letter of intent signed previously with the shipowner, which also includes two further vessels under option. In the same month, in the naval vessel
business, Fincantieri secured, through the subsidiary Marinette Marine Corporation (in a consortium led by Lockheed Martin), an order from the US Government for the launch of detailed design and planning for the construction of four Multi-Mission Surface Combatants (MMSC) for Saudi Arabia. With regard to the order intake at 30 June 2018, the Group has formalized an order with Viking, within the cruise ship business, for the construction of 2 sister ships (part of a series of 8 commissioned previously) and an option for the construction of 6 ships that are more technologically advanced than the previous ones (if exercised, this would bring the total number of vessels built in partnership by the two companies to 16). The Group has also signed a contract with Silversea for the construction of an ultra-luxury vessel, the third in the "Muse" series.
In the Off shore segment, as a consequence of the business diversifi cation strategies, the Group secured orders for the construction of 2 expedition vessels for the French shipowner Ponant, 3 vessels for fi shing operations, 1 passenger and vehicle ferry and 1 cable-laying vessel. In addition, there are three vessels for the Royal Norwegian Coast Guard, enriching VARD's order book with a naval project and further contributing to diversifying the business.
Lastly, in the Equipment, Systems and Services segment, Fincantieri and the Grimaldi Group signed an agreement for the program to lengthen and transform the cruise ferries "Cruise Roma" and "Cruise Barcelona" which will be carried out in the Palermo shipyard. Furthermore, the Group has secured the contract to upgrade the Cavour aircraft carrier.
| (euro/million) | ||||||
|---|---|---|---|---|---|---|
| 31.12.2017 | Order intake analysis | 30.06.2018 | 30.06.2017 | |||
| Amounts | % | Amounts | % | Amounts | % | |
| 7,291 | 85 | FINCANTIERI S.p.A. | 1,224 | 51 | 3,836 | 88 |
| 1,263 | 15 | Rest of Group | 1,164 | 49 | 533 | 12 |
| 8,554 | 100 | Total | 2,388 | 100 | 4,369 | 100 |
| 7,526 | 88 | Shipbuilding | 1,132 | 47 | 3,872 | 89 |
| 888 | 10 | Off shore | 1,106 | 46 | 379 | 9 |
| 573 | 7 | Equipment, Systems and Services | 376 | 16 | 323 | 7 |
| (433) | (5) | Consolidation adjustments | (226) | (9) | (205) | (5) |
| 8,554 | 100 | Total | 2,388 | 100 | 4,369 | 100 |
The Group's total backlog reached a record level of euro 29.8 billion at 30 June 2018, of which euro 22 billion in backlog (euro 20.4 billion at 30 June 2017) and euro 7.8 billion in soft backlog (euro 5.1 billion at 30 June 2017), with the order delivery profi le extending until 2026. The backlog and total backlog guarantee about 4.4 years and 6 years of work respectively in relation to the 2017 level of revenue. Before intersegment consolidation adjustments, the Shipbuilding segment accounts for 89% of the Group's backlog (91% in the fi rst half of 2017), the Off shore segment, represented by the subsidiary VARD's activities, for 9% (7% in the fi rst half of 2017) and the Equipment, Systems and Services segment for 6% (6% in the fi rst half of 2017). The latest order intake enriches the composition of the backlog in terms of the number of clients and variety of projects and is further proof of the eff ectiveness of the Group's growth and diversifi cation strategy. Moreover, the policy of investing in reliability, quality and innovation on the latest platforms of prototype vessels
has enabled the creation of long-lasting relationships with clients and the acquisition of sister ships by these clients which extend the employment horizon of Fincantieri shipyards and improve margins.
The growth in backlog compared to the same period of the previous year confi rms the Group's ability to transform soft backlog into fi rm orders.
The composition of the backlog by operating segment is shown in the following table.
| (euro/million) | ||||||
|---|---|---|---|---|---|---|
| 31.12.2017 | Dettaglio backlog | 30.06.2018 | 30.06.2017 | |||
| Amounts | % | Amounts | % | Amounts | % | |
| 19,882 | 90 | FINCANTIERI S.p.A. | 19,391 | 88 | 18,266 | 89 |
| 2,171 | 10 | Rest of Group | 2,596 | 12 | 2,158 | 11 |
| 22,053 | 100 | Total | 21,987 | 100 | 20,424 | 100 |
| 20,238 | 92 | Shipbuilding | 19,496 | 89 | 18,512 | 91 |
| 1,418 | 6 | Off shore | 1,990 | 9 | 1,403 | 7 |
| 1,186 | 5 | Equipment, Systems and Services | 1,289 | 6 | 1,288 | 6 |
| (789) | (3) | Consolidation adjustments | (788) | (4) | (779) | (4) |
| 22,053 | 100 | Total | 21,987 | 100 | 20,424 | 100 |
The soft backlog, representing the value of existing contract options and letters of intent as well as of contracts at an advanced stage of negotiation, none of which yet refl ected in the order backlog, amounted to approximately euro 7.8 billion at 30 June 2018, compared with euro 5.1 billion at 30 June 2017.
The following table shows the deliveries scheduled each year for the 99 vessels currently in the order book, analyzed by the main business units. With reference to the current year, the table presents deliveries completed as at 30 June 2018 in addition to the total number of deliveries scheduled for the full year 2018.
| (number) | |||||||
|---|---|---|---|---|---|---|---|
| Deliveries | |||||||
| 30.06.18 completed | Total 2018 | 2019 | 2020 | 2021 | 2022 | Beyond 2022 | |
| Cruise ships | 4 | 5 | 4 | 5 | 6 | 4 | 5 |
| Naval > 40 m. | 2 | 6 | 5 | 4 | 5 | 5 | 7 |
| Off shore | 14 | 32 | 17 | 5 | 1 | 1 | 2 |
Compared to the situation presented at 31 December 2017, the delivery of one "Freedom" class Littoral Combat Ship (LCS 15) for the US Navy was initially expected in 2018 but has been postponed until 2019.
Capital expenditure amounts to euro 44 million in the fi rst six months of 2018, of which euro 6 million for intangible assets (including euro 2 million for development projects) and euro 38 million for property, plant and equipment. Capital expenditure represents 1.7% of the Group's revenue in the fi rst six months of 2018 compared with 3.3% in the fi rst six months of 2017.
Capital expenditure on property, plant and equipment in the fi rst half of 2018 mainly related to the continuation of initiatives to
support growth in production volumes and to boost safety standards and compliance with environmental regulations within production sites.
| 31.12.2017 | Capital expenditure analysis | 30.06.2018 | 30.06.2017 | |||
|---|---|---|---|---|---|---|
| Amounts | % | Amounts | % | Amounts | ||
| 109 | 67 | FINCANTIERI S.p.A. | 30 | 68 | 52 | |
| 54 | 33 | Rest of Group | 14 | 32 | 24 | |
| 163 | 100 | Total | 44 | 100 | 76 | 100 |
| 90 | 55 | Shipbuilding | 27 | 60 | 42 | |
| 37 | 23 | Off shore | 9 | 20 | 19 | |
| 9 | 6 | Equipment, Systems and Services | 4 | 10 | 3 | |
| 27 | 16 | Other assets | 4 | 10 | 12 | |
| 163 | 100 | Total | 44 | 100 | 76 | 100 |
| 55 | 34 | Intangible assets | 6 | 13 | 26 | |
| 108 | 66 | Property, plant and equipment | 38 | 87 | 50 | |
| 163 | 100 | Total | 44 | 100 | 76 | 100 |
Presented below are the reclassifi ed consolidated versions of the income statement, statement of fi nancial position and statement of cash fl ows, the breakdown of consolidated
net fi nancial position and the principal economic and fi nancial indicators used by management to monitor business performance. A reconciliation of these reclassifi ed statements to the IFRS statements can be found later on in this report.
| (euro/million) | |||
|---|---|---|---|
| 31.12.2017 | 30.06.2018 | 30.06.2017 | |
| 5,020 | Revenue and income | 2,527 | 2,295 |
| (3,742) | Materials, services and other costs | (1,855) | (1,671) |
| (909) | Personnel costs | (482) | (462) |
| (28) | Provisions | (7) | (16) |
| 341 | EBITDA | 183 | 146 |
| 6.8% | EBITDA margin | 7.3% | 6.3% |
| (120) | Depreciation, amortization and impairment | (65) | (58) |
| 221 | EBIT | 118 | 88 |
| 4.4% | EBIT margin | 4.7% | 3.8% |
| (83) | Finance income/(costs) | (52) | (39) |
| (5) | Income/(expense) from investments | 1 | (1) |
| (42) | Income taxes | (28) | (20) |
| 91 | Adjusted profi t/(loss) for the period1 | 39 | 28 |
| 95 | of which attributable to Group | 45 | 30 |
| (49) | Extraordinary and non-recurring income and (expenses) | (32) | (22) |
| 11 | Tax eff ect of extraordinary and non-recurring income and expenses | 8 | 5 |
| 53 | Profi t/(loss) for the period | 15 | 11 |
| 57 | Group share of profi t/(loss) for the period | 21 | 13 |
(1) Profi t/(loss) before extraordinary and non-recurring income and expenses.
Revenue and income of euro 2,527 million, an increase of euro 232 million on the previous year (+10%), thanks to the positive contribution of all the segments in which the Group operates and despite the negative eff ects (euro 46 million) of converting revenues generated in NOK and USD by foreign subsidiaries into euro. The Shipbuilding segment recorded an increase of revenues in both the cruise ship business (+4% compared to the fi rst half of 2017) accounting for 46% of the Group's total revenues for the year, and the naval vessel business (+15% compared to the fi rst half of 2017). Performance is also positive in the Off shore segment (+26%) and the Equipment, Systems and Services segment recorded extraordinary growth of 41%
accounting for a larger part of the Group's revenues.
Revenue generated by foreign clients accounts for 82% of the total in the period ended 30 June 2018, down from 86% in the corresponding period of 2017.
EBITDA is equal to euro 183 million at 30 June 2018 (euro 146 million in the fi rst half of 2017), with an EBITDA margin of 7.3%, an improvement on the 6.3% at 30 June 2017. This increase was infl uenced by the Shipbuilding segment which has benefi ted from the higher profi tability of the sister cruise ships delivered in the period and the progress on the naval orders for the Italian Navy and the Qatari Ministry of Defense.
EBIT came to euro 118 million in the fi rst half of 2018 (euro 88 million in the same period of the previous year), with an EBIT margin (EBIT expressed as a percentage of Revenue and income) of 4.7% (3.8% in the fi rst half of 2017). This change is the result of the reasons illustrated above for the Group's EBITDA and is partially off set by the greater amortization in the period.
Finance income/(costs) and income/ (expense) from investments report a net expense of euro 51 million (net expense of euro 40 million at 30 June 2017). This change compared to the fi rst half of 2017 is mainly due to the increased net unrealized exchange rate losses (euro 9 million), mostly associated with a loan taken out by Vard Promar and the higher costs for sureties and guarantees related to some large projects launched in the second half of 2017 (euro 5 million). Finance costs for construction loans came to euro 12 million at 30 June 2018 (in line with 30 June 2017).
Income taxes present a net charge of euro 28 million in the fi rst six months of 2018, compared with a net charge of euro 20 million in the same period of 2017.
Adjusted profi t/(loss) for the period is a net profi t of euro 39 million at 30 June 2018 (an increase on euro 28 million at 30 June 2017).
Extraordinary and non-recurring income and expenses report euro 32 million in net expenses (euro 22 million at 30 June 2017) and mainly include costs for legal disputes for euro 33 million (of which euro 32 million mainly related to provisions for asbestos-related litigation), charges for business reorganization plans related to the subsidiary VARD for euro 3 million and an income of euro 4 million from the sale of a shareholding.
Tax eff ect of extraordinary and nonrecurring income and expenses was a net positive euro 8 million at 30 June 2018.
Profi t/(loss) for the period, refl ecting the factors described above, is a net profi t of euro 15 million (euro 11 million at 30 June 2017). The Group share of this result is a net profi t of euro 21 million, compared with a net profi t of euro 13 million in the same period of the previous year.
| 30.06.2017 30.06.2018 583 Intangible assets 625 1,049 Property, plant and equipment 1,031 55 Investments 51 42 Other non-current assets and liabilities 72 (58) Employee benefi ts (58) 1,671 Net fi xed capital 1,721 Inventories and advances 575 852 Construction contracts and client advances 1,594 584 (970) Construction loans (488) 449 Trade receivables 601 (1,426) Trade payables (1,595) (130) Provisions for risks and charges (155) 114 Other current assets and liabilities 3 206 Net working capital (198) - Net assets classifi ed as held for sale - 1,877 Net invested capital 1,523 863 Share capital 863 302 Reserves and retained earnings attributable to the Group 338 81 Non-controlling interests in equity 58 1,246 Equity 1,259 631 Net fi nancial position 264 |
(euro/million) | |||
|---|---|---|---|---|
| 31.12.2017 | ||||
| 582 | ||||
| 1,045 | ||||
| 53 | ||||
| 122 | ||||
| (59) | ||||
| 1,743 | ||||
| 835 | ||||
| 648 | ||||
| (624) | ||||
| 909 | ||||
| (1,748) | ||||
| (141) | ||||
| 1 | ||||
| (120) | ||||
| - | ||||
| 1,623 | ||||
| 863 | ||||
| 374 | ||||
| 72 | ||||
| 1,309 | ||||
| 314 | ||||
| 1,877 | Sources of funding | 1,523 | 1,623 |
The Reclassifi ed consolidated statement of fi nancial position reports a negative change in Net invested capital at 30 June 2018 of euro 100 million compared to the end of the previous year, mainly due to the following factors:
• Net fi xed capital: presents an overall decrease of euro 22 million. The main eff ects include the decrease in Other noncurrent assets and liabilities, the result of the negative fair value of derivatives on exchange rates off set by the increase in the value of Intangible assets, aff ected by the fi rst application of IFRS 15 (euro 48 million).
• Net working capital reports a negative balance of euro 198 million (negative for euro 120 million at 31 December 2017). The main changes relate to i) the decrease in Construction contracts and client advances (euro 64 million), due to the deliveries of some vessels, partially off set by the volumes realized in the fi rst half
of the year; and ii) the decrease in Trade receivables (euro 308 million), due to the receipt of the fi nal payments of the vessels delivered, and in Trade payables (euro 153 million). Construction loans amount to euro 488 million at 30 June 2018 (euro 624 million at 31 December 2017) and relate to the subsidiary VARD for the entire amount (euro 574 million at 31 December 2017). • Equity is euro 1,259 million, with the net income generated over the period (euro 15 million) and the increase of the currency translation reserve (euro 16 million) off set by the distribution of dividends (euro 17 million), the reduction of reserves linked to hedging instruments for cash fl ows (euro 39 million) and the registering of the reserve for the fi rst application of IFRS 15 and IFRS 9 (euro 21 million).
It should also be noted that the shareholding in VARD increased from 79.74% at 31 December 2017 to 83.51% at 30 June 2018.
| (euro/million) | |||
|---|---|---|---|
| 30.06.2017 | 30.06.2018 | 31.12.2017 | |
| 144 | Cash and cash equivalents | 618 | 274 |
| 34 | Current fi nancial receivables | 30 | 35 |
| (329) | Current bank debt | (150) | (122) |
| - | Bonds - current portion | (300) | (300) |
| - | Commercial papers | (225) | - |
| (63) | Current portion of bank loans and credit facilities | (56) | (52) |
| (26) | Other current fi nancial liabilities | (2) | (8) |
| (418) | Current debt | (733) | (482) |
| (240) | Net current cash/(debt) | (85) | (173) |
| 128 | Non-current fi nancial receivables | 130 | 123 |
| (218) | Non-current bank debt | (307) | (262) |
| (299) | Bonds - non-current portion | - | - |
| (2) | Other non-current fi nancial liabilities | (2) | (2) |
| (519) | Non-current debt | (309) | (264) |
| (631) | Net fi nancial position | (264) | (314) |
which excludes construction loans, reports a net debt balance of euro 264 million (euro 314 million in net debt at 31 December 2017). Most of the Group's debt is used to fi nance current assets associated with cruise ship construction and thus directly connected with the fi nancing of net working capital. By contrast, fi xed capital is fi nanced
primarily by equity and for the remainder by other sources of long-term funding. The change in Net fi nancial position is mainly due to the payments received during the six month period, including those related to the four cruise ships delivered, which have more than off set the commitments arising from the continuation of shipbuilding activities.
| 274 | Cash and cash equivalents at end of period | 618 | 144 |
|---|---|---|---|
| (11) | Eff ects of currency translation diff erence on opening cash and cash equivalents | 2 | (7) |
| 220 | Cash and cash equivalents at beginning of period | 274 | 220 |
| 65 | Net cash fl ows for the period | 342 | (69) |
| (299) | Net cash fl ows from fi nancing activities | 278 | (110) |
| (168) | Net cash fl ows from investing activities | (35) | (81) |
| 532 | Net cash fl ows from operating activities | 99 | 122 |
| 31.12.2017 | 30.06.2018 | 30.06.2017 | |
| (euro/million) |
The Reclassified consolidated statement of cash flows reports positive Net cash
flows for the period of euro 342 million (negative for euro 69 million in the fi rst
half of 2017) mainly due to the operating activities and fi nancing activities which generated cash fl ows of euro 99 million and euro 278 million respectively.
Net cash fl ows from operating activities suff ers from the reimbursement of construction loans for euro 165 million (construction loans generated cash infl ows of euro 319 million at 30 June 2017).
The following table presents additional economic and fi nancial measures used
by the Group's management to monitor the performance of its main business indicators in the periods considered. The following table shows the trend in the main profi tability ratios and the strength and effi ciency of the capital structure in terms of the relative importance of sources of fi nance between net debt and equity for the periods ended 30 June 2018 and 2017.
The ratios presented in the table have been calculated on the basis of economic parameters referring to a 12-month period, namely from 1 July 2017 to 30 June 2018 and from 1 July 2016 to 30 June 2017.
| 30.06.2018 | 30.06.2017 | |
|---|---|---|
| ROI | 11.0% | 10.4% |
| ROE | 1.4% | 1.6% |
| Total debt/Total equity | 0.8 | 0.8 |
| Net fi nancial position/EBITDA | 0.9 | 2.1 |
| Net fi nancial position/Total equity | 0.2 | 0.5 |
ROI and ROE in the fi rst six months of 2018 decreased compared to 31 December 2017, the year in which the Group recorded signifi cant growth in economic results which peaked in the second half of 2017. Compared with 30 June 2017, ROI has increased due to the higher profi tability, while ROE is broadly in line. The indicators of the strength and
effi ciency of the capital structure at 30 June 2018 are largely in line with those at 31 December 2017. When compared with the same period in 2017, these indicators show a clear improvement (except for the "Debt/Equity" ratio which is in line) due to the positive change in the net fi nancial position and growth of operating margins.
The Shipbuilding operating segment is engaged in the design and construction of cruise ships, ferries, naval vessels and mega yachts. Production is carried out at the Group's shipyards in Italy, Europe and the United States.
| (euro/million) | |||
|---|---|---|---|
| 31.12.2017 | 30.06.2018 | 30.06.2017 | |
| 3,883 | Revenue and income(*) | 1,892 | 1,757 |
| 269 | EBITDA(*) | 160 | 115 |
| 6.9% | EBITDA margin()(*) | 8.5% | 6.5% |
| 7,526 | Order intake(*) | 1,132 | 3,872 |
| 25,069 | Order book(*) | 23,686 | 22,761 |
| 20,238 | Order backlog(*) | 19,496 | 18,512 |
| 90 | Capital expenditure | 27 | 42 |
| 12 | Vessels delivered(number)(***) | 6 | 5 |
(*) Before eliminations between operating segments.
(**) Ratio between segment EBITDA and Revenue and income. (***) Vessels over 40 meters in length.
Revenue from the Shipbuilding segment amounts to euro 1,892 million at 30 June 2018, up 7.7% compared to the first half of 2017, despite the change in the USD/Euro exchange rate (around euro 24 million), generated from the translation of the financial statements of the US subsidiaries, which negatively affected the naval vessels business, and comprises euro 1,290 million from the cruise ships business (euro 1,238 million at 30 June 2017) and euro 592 million from the naval vessels business (euro 515 million at 30 June 2017).
Growth in revenues, compared to the first half of 2017, can be attributed to the larger size and higher value of the cruise ships
being built and the ongoing activities, in the naval vessels business, related to the fleet renewal program of the Italian Navy (with the first delivery scheduled in 2019) and the ongoing design and planning for the orders for the Qatari Ministry of Defense.
Segment EBITDA was euro 160 million at 30 June 2018 (euro 115 million at 30 June 2017), with an EBITDA margin of 8.5% (6.5% at 30 June 2017). The growth trend continues, recording a further increase owing to the production and prompt delivery of sister cruise ships with higher margins and the ongoing activities in the fleet renewal program of the Italian Navy.
New order intake of euro 1,132 million in the first six months of 2018 refer to the construction of:
• two further cruise ships for Viking (ninth and tenth ships), part of the first series of ten ships, of which five have already been successfully delivered to the client;
• the second ultra-luxury cruise ship "Silver Dawn" for Silversea Cruises.
Capital expenditure on Property, plant and equipment during the first half of 2018 mostly involved:
• updating of the working areas at some shipyards, in particular Monfalcone, Marghera, Sestri and Ancona, to the new production scenarios and upgrading and improvement of the safety standards of machinery, equipment and buildings; • continuation of activities to introduce new technologies in particular at the Monfalcone shipyard with regard to the
Capital expenditure in the US shipyards mainly concerned maintenance of infrastructure and upgrading of production systems.
Integrated Environmental Authorization.
The number of ships delivered in the first six months of 2018 is analyzed as follows:
| (number) | |
|---|---|
| Deliveries | |
| Cruise ships 4 |
|
| Cruise ferries | |
| Naval vessels > 40 m 2 |
|
| Mega yachts | |
| Naval vessels < 40 m |
The vessels delivered were:
• "Carnival Horizon", the cruise ship for Carnival, was delivered at the Monfalcone shipyard;
• "Seabourn Ovation", the second ultraluxury cruise ship for Seabourn Cruise Line, a Carnival Group brand, was delivered at the Genoa Sestri Ponente shipyard;
• "MSC Seaview", the second nextgeneration cruise ship for MSC Cruises, was delivered at the Monfalcone shipyard;
• "Viking Orion", the fifth cruise ship for Viking, was delivered at the Ancona shipyard;
• "Federico Martinengo", the seventh of a series of ten multi-role frigates (FREMM) for the Italian Navy, was delivered at the Muggiano shipyard in La Spezia;
• "Kronprins Haakon", the ice breaker vessel built in the Group's Italian shipyards for the Norwegian Government's Institute of Marine Research and Fishing, was delivered at the Norwegian Vard Langsten shipyard.
The Off shore operating segment, represented by the subsidiary VARD, is engaged in the design and construction of high-end off shore support vessels, expedition cruise vessels, specialized ships, and vessels for off shore wind farms and
open ocean aquaculture, as well as the off er of innovative products in the fi eld of drillships and semi-submersible drilling rigs.
The VARD Group also provides its clients with turnkey electrical systems, inclusive of engineering, manufacturing, installation, integration testing and commissioning.
| (euro/million) | ||||
|---|---|---|---|---|
| 31.12.2017 | 30.06.2018 | 30.06.2017 | ||
| 943 | Revenue and income(*) | 564 | 448 | |
| 42 | EBITDA(*) | 7 | 22 | |
| 4.4% | EBITDA margin()(*) | 1.2% | 4.8% | |
| 888 | Order intake(*) | 1,106 | 379 | |
| 2,646 | Order book(*) | 3,018 | 2,478 | |
| 1,418 | Order backlog(*) | 1,990 | 1,403 | |
| 37 | Capital expenditure | 9 | 19 | |
| 13 | Vessels delivered | number | 14 | 3 |
(*) Before eliminations between operating segments.
(**) Ratio between segment EBITDA and Revenue and income.
Revenue from the Off shore segment amounts to euro 564 million at 30 June 2018, up 25.9% from euro 448 million in the fi rst six months of 2017, in spite of the negative impact of
changes in the Euro/Norwegian Krone exchange rate (euro 25 million) due to the translation of VARD's fi nancial statements. This result is attributable, in particular, to the continuation of the business diversifi cation
strategy implemented by VARD which has generated an increased of production volumes, particularly in the Group's Romanian shipyards.
The segment's EBITDA of euro 7 million at 30 June 2018 (euro 22 million at 30 June 2017), with an EBITDA margin of 1.2% (4.8% at 30 June 2017), in the context of a gradual recovery in the growth of revenues, suff ers from lower margins of the Off shore productions in the order books or delivered during the period together with a level of employment in the VARD shipyards involved in the current diversifi cation process that is still inadequate.
New order intake by the VARD Group in the fi rst half of 2018 amounts to euro 1,106 million. More specifi cally, the order intake concerns:
• two small sized luxury expedition cruise vessels for the French shipowner Ponant;
• three coast guard vessels for the Norwegian Defence Material Agency (NDMA), the Ministry of Defence agency tasked with developing and modernizing the Norwegian Armed Forces; the vessels will be built by the production network of the VARD Group;
• three fi shing vessels for Remøybuen, Nergard Havfi ske and Havfi sk;
• one passenger and vehicle ferry for Boreal;
• one cable-laying vessel for the Prysmian Group.
Capital expenditure in the fi rst half of 2018 mainly relates to the continuation of activities to expand and improve production capacity
at the Vard Tulcea shipyard to support the construction of cruise ship hulls for Norway and the multi-year program to build prefi tted cruise ship blocks and sections for the Fincantieri production network. Capital expenditure is in particular related to increasing the availability of the erection area and other minor work in the Group's shipyards in order to maintain effi ciency.
The following vessels were delivered during the period:
| Deliveries | |
|---|---|
| AHTS | |
| PSV (including MRV) | 1 |
| OSCV | 1 |
| MCV | 10 |
| Other | 2 |
In detail:
• one PSV (Platform Supply Vessel) was delivered to Island Off shore Shipping AS at the Brevik shipyard (Norway);
• one OSCV (Off shore Subsea Construction Vessel) was delivered to Dofcon Navegação Ltda at the Promar shipyard (Brazil);
• ten MCVs (Module Carrier Vessels), one of which was delivered to NMSC Kazmortransfl ot LLP at the Braila shipyard (Romania) and nine were delivered to Topaz Energy and Marine at the Braila and Vung Tau (Vietnam) shipyards;
• one expedition cruise vessel was delivered to the French shipowner Ponant at the Søviknes shipyard (Norway);
• one fi shing vessel was delivered to Nordland Havfi ske AS at the Søviknes shipyard (Norway).
The Equipment, Systems and Services operating segment is engaged in the design and production of systems, equipment and accommodation, in repair and conversion
services and after-sales support for the vessels produced. These activities are carried out by FINCANTIERI S.p.A. and its subsidiaries Isotta Fraschini Motori S.p.A., Delfi S.r.l., Seastema S.p.A., Marine Interiors S.p.A., Fincantieri SI S.p.A. and FMSNA Inc..
| (euro/million) | ||||
|---|---|---|---|---|
| 31.12.2017 | 30.06.2018 | 30.06.2017 | ||
| 558 | Revenue and income(*) | 321 | 227 | |
| 64 | EBITDA(*) | 34 | 25 | |
| 11.5% | EBITDA margin()(*) | 10.7% | 11.1% | |
| 573 | Order intake(*) | 376 | 323 | |
| 1,973 | Order book(*) | 2,140 | 1,987 | |
| 1,186 | Order backlog(*) | 1,289 | 1,288 | |
| 9 | Capital expenditure | 4 | 3 | |
| 31 | Engines produced in workshops | number | 8 | 13 |
(*) Before eliminations between operating segments.
(**) Ratio between segment EBITDA and Revenue and income.
Revenue from the Equipment, Systems and Services segment amounts to euro 321 million (+41.4% compared to the first half of 2017). This increase confirms the growth trend which started in the first half of 2017, due to the development of significant order backlog for the services provided under the orders for the Italian Navy and for the Qatari Ministry of Defense and the increased volumes of cabins and public areas to support the cruise ship business.
Segment EBITDA is euro 34 million at 30 June 2018 (euro 25 million at 30 June 2017), with the EBITDA margin of 10.7%, down from 11.1% in the first six months of 2017, reflecting the greater impact of volumes associated with the cruise ship business.
New order intake for Equipment, Systems and Services amounted to euro 376 million in the first half of 2018, mostly comprising:
• 4 stabilization systems and 1 thruster positioning system for cruise clients;
• supply of propeller systems/shaft lines and stabilization systems for the two Qatari OPV;
• 1 sliding door for a naval client;
• supply of In Service Support (ISS) to the Italian Navy on the Submarine and FREMM program;
• after-sales services and supply of spare parts for programs of the Italian Navy and US Coast Guard, for cruise clients and other smaller clients;
• supply of the automation, internal communication and navigation package for the Qatari Corvette program;
• supply of the automation package for the 3rd and 4th vessels in the Korean Navy's FFX-II program;
• supply of cabins, sanitation, public rooms and "complete accommodation" packages for the ship platform;
• lengthening and transformation of the cruise ferries "Cruise Roma" and "Cruise Barcelona" for Grimaldi;
• preparation of all the upgrade works on the Cavour aircraft carrier.
Other activities primarily refer to the costs incurred by corporate headquarters for directing, controlling and coordinating the
business that are not allocated to other operating segments.
| 31.12.2017 | 30.06.2018 | 30.06.2017 | |
|---|---|---|---|
| - | Revenue and income | - | - |
| (34) | EBITDA | (18) | (16) |
| n.a. | EBITDA margin | n.a. | n.a. |
| 27 | Capital expenditure | 4 | 12 |
n.a. not applicable
The most relevant items of expenditure focus on:
• ongoing work to implement an integrated system for ship design (CAD) and project lifecycle management (PLM), aimed at improving the effi ciency and eff ectiveness of the engineering process;
• the introduction of mobile devices to increase effi ciency of onboard supervision activities;
• the development of information systems to support the Group's increasing activities and optimize process management.
As in previous years, work continued on upgrading the Group's network infrastructure and hardware.
The market capitalization of Fincantieri, at the closing price on 30 June 2018, was approximately euro 1,976 million. In terms of stock liquidity, around 968 million shares were traded from the start of the year to 30 June 2018, with a daily average trading volume in the period of around 7.7 million shares, an increase on the 747 million shares traded in the fi rst half of 2017 (with a daily average trading volume of 5.9 million).
| (euro) | |||||
|---|---|---|---|---|---|
| 31.12.2017 | 30.06.2018 | 30.06.2017 | |||
| 0.89 | Average share price in the period | 1.33 | 0.73 | ||
| 1.25 | Share price at period end | 1.17 | 0.98 | ||
| 1,692 | Number of shares issued | number | 1,692 | 1,692 | |
| 1,687 | Number of shares outstanding at period end | number | 1,687 | 1,692 | |
| 2,118 | Market capitalization(*) | euro/million | 1,976 | 1,652 | |
(*) Number of shares issued multiplied by reference share price at period end.
On 3 July 2018, the subsidiary VARD secured a new order for the construction of an Expedition Cruise ship (part of the series of 2 vessels commissioned previously) for Hapag-Lloyd Cruises.
On 12 July 2018, Fincantieri received confi rmation from Norwegian Cruise Line Holdings Ltd. of the option for the construction of the fi fth and sixth vessels in the "Leonardo" class new-generation cruise ships for the Norwegian Cruise Line (NCL), which will be delivered in 2026 and 2027. The option was contained in the February 2017 agreement for the construction of the fi rst 4 vessels.
On 13 July 2018, Fincantieri received an order from TUI Cruises, the joint venture between TUI AG and Royal Caribbean Cruises, for the construction of 2 newgeneration cruise ships powered by LNG (Liquid Natural Gas). These vessels will be built at the Monfalcone shipyard and delivered in 2024 and 2026.
On 20 July 2018, the US Government awarded the consortium led by Lockheed Martin, in which Fincantieri's subsidiary, Marinette Marine Corporation, is a partner, an order under an "Undefi nitized Contract Action" as an advance on the Foreign Military Sales contract for the construction of four Multi-Mission Surface Combatants (MMSC) for Saudi Arabia. The ships will be built in the Marinette shipyard (Wisconsin) and will be characterized by their high maneurverability, the fl exibility deriving from the Freedom class Littoral Combat Ship's single hull, constructed by the same consortium for the US Navy, with autonomy increased to 5,000 nautical miles and a speed above 30 knots, making it capable of coastal and open sea patrol operations. On 23 July 2018, Fincantieri signed a Memorandum of Agreement with Princess Cruises, the brand belonging to Carnival
Corporation & plc, for the construction of 2 cruise ships, the fi rst in the fl eet to be primarily fueled by liquefi ed natural gas (LNG). Each ship will have a gross tonnage of 175,000 and will be largest ever built in Italy.
On 24 July 2018, the subsidiary VARD signed a contract for the design and construction of two expedition cruise ships for Viking. The vessels will be delivered in Norway in 2021 and 2022 respectively and they will be the fi rst vessels built for this shipowner by VARD.
On 24 July 2018, the Shareholders' Meeting of VARD approved the company's delisting from the Singapore stock exchange.
The Group forecasts results for the year 2018 which are in line with the economic and fi nancial projections outlined in the Business Plan 2018-2022. The growth in revenues forecast for the second half of the year enables the Group to confi rm the target of a 3-6% increase in revenues on an annual basis with a margin of around 7.5%. The target margin of between 1.8% and 2% for adjusted net profi t is also confi rmed. By the end of 2018, the Net fi nancial position will be a net debt of euro 400-600 million, an increase compared to the amount in the fi rst half of the year, in line with the constant growth of the size and value of the cruise ships under construction and with the delivery schedule.
In the Shipbuilding segment, Fincantieri expects to deliver 5 ships in the second half of 2018, 1 cruise ship and 4 vessels in the naval business. It also expects to achieve full swing of activities in the fl eet renewal program for the Italian Navy and to see the start of production activities for the Qatari Ministry of Defense contract.
In the Off shore segment, construction activities continue on the order backlog, the result of the diversifi cation strategy
adopted, and related continued focus on execution aimed at recovering mediumterm margins. The deep crisis in the Oil & Gas sector continues and this could impact on the order intake.
In 2018, the Equipment, Systems and Services segment is expected to see its growth in revenues confi rmed, thanks to the development of the backlog related to the Italian Navy fl eet renewal, the Qatari contract and the higher volumes for the production of cabins and public areas driven by the growth of the cruise ship sector.
In compliance with the provisions of the Regulations concerning related party transactions adopted under Consob Resolution no. 17221 of 12 March 2010 and subsequent amendments and additions, FINCANTIERI S.p.A. has adopted a "Procedure for Related Party Transactions" with eff ect from 3 July 2014. As far as related party transactions carried out in the six-month period are concerned, these do not qualify as either atypical or unusual, since they fall within the normal course of business by the Group's companies. Such transactions are conducted under market terms and conditions, taking into account the characteristics of the goods and services involved.
Information about related party transactions, including the disclosures required by the Consob Communication dated 28 July 2006, is presented in Note 28 of the Notes to the Half-Year Financial Report.
The Shareholders' Meeting held on 19 May 2017 authorized the Board of Directors to purchase its own ordinary shares on the
market in order to implement the fi rst cycle of the medium/long-term share-based incentive plan for management, called the Performance Share Plan 2016-2018. Therefore, over the second half of 2017, 4,706,890 Fincantieri own shares were purchased (0.28% of the share capital) for euro 5,277 thousand and held by FINCANTIERI S.p.A. No further purchases of the Parent Company's own shares were made during the fi rst half of 2018.
The "Report on Corporate Governance and Ownership Structure" (the "Report") required by art. 123-bis of the Consolidated Law on Finance is a stand-alone document approved by the Board of Directors on 27 March 2018, and published in the "Governance - Corporate Governance System" section of the Company's website at www.fi ncantieri.it. The Report contains a general and complete over view of the corporate governance system adopted by FINCANTIERI S.p.A. It presents the Company's profi le and the principles underlying the way it conducts its business; it provides information about the ownership structure and adoption of the Corporate Governance Code, including the main governance practices applied and the main characteristics of the system of internal control and risk management; it contains a description of the operation and composition of the governing and supervisory bodies and their committees, roles, duties and responsibilities.
The criteria for determining the compensation of the Directors are set out in the "Remuneration Report", prepared in compliance with the requirements of art. 123-ter of the Consolidated Law on Finance and art. 84-quater of the Consob Issuer Regulations, and published in the "Governance - Remuneration" section of the Company's website.
The Fincantieri Group is exposed in the normal course of its business activities to various fi nancial and non-fi nancial risk factors, which, if they should materialize, could have an impact on the results of
operations and fi nancial condition of the Group. Based on operating performance in the fi rst six months of the year and the macroeconomic context, the risk factors foreseeable for the next six months of 2018 are described below according to their nature.
| DESCRIPTION OF RISK | IMPACT | MITIGATION |
|---|---|---|
| Given the operational complexity stemming not only from the inherent nature of shipbuilding but also from the Group's geographical and product diversifi cation and acquisition-led growth, the Group is exposed to the risk of: • not guaranteeing adequate control of project management activities; • not adequately managing the operational, logistical and organizational complexity that characterizes the Group; • overestimating the synergies arising from acquisition operations or suff ering the eff ects of slow and/or weak integration; • not adequately managing the complexity arising from its product diversifi cation; • failing to effi ciently distribute workloads according to production capacity (plant and labor) or that excess capacity might impede the achievement of competitive margins; |
If the Group was unable to implement adequate project management activities, with suffi cient or eff ective procedures and actions to control the proper completion and effi ciency of its shipbuilding processes, or if it was unable to adequately manage the Group synergies and the complexity arising from its product diversifi cation or if it failed to effi ciently distribute workloads according to production capacity (plant and labor) available on each occasion at the diff erent production facilities, revenue and profi tability might decline, with possible negative eff ects on its results of operations and fi nancial condition. |
To manage processes of such complexity, the Group implements procedures and work plans designed to manage and monitor the implementation of each project throughout its duration. Constant dialogue channels are established between the Group entities in order to safeguard the integration processes, occasionally Parent Company resources are included. In addition, the Group has adopted a fl exible production structure in order to respond effi ciently to fl uctuations in vessel demand in the various business areas. This fl exible approach allows the Group to overcome capacity constraints at individual shipyards and to work on more than one contract at the same time while ensuring that delivery dates are met. The Group is implementing actions aimed at improving the production and design processes in order to strengthen competitiveness and increase productivity. |
• not meeting market demand due to its own or its suppliers' insuffi cient production capacity.
The shipbuilding market in general is historically characterized by cycles, sensitive to trends in the industries served. The Group's off shore and cruise clients base their investment plans on demand by their own clientele; in the case of off shore, the main infl uence is energy demand and oil price forecasts, which in turn drive investment in exploration and production, while the main infl uences on the cruise industry are trends in the leisure market. In the naval business, the demand for new ships is heavily dependent on governments' defense spending policies.
Postponement of fl eet renewal programs or other events aff ecting the order backlog with the Fincantieri Group's principal cruise ship client could impact capacity utilization and business profi tability; similarly a downturn in the off shore market could lead, as has already happened, to a reduction in the level of orders for the subsidiary VARD, as well as exposing it to the risk of cancellation or postponement of existing orders. Equally, the availability of resources earmarked by the State for defense spending on fl eet modernization programs is a variable that could infl uence the Group's results of operations and fi nancial condition.
In order to mitigate the impact of the shipbuilding market cycle, the Group has pursued a diversifi cation strategy in recent years, expanding its business both in terms of products and geographical coverage. Since 2005 the Group has expanded into the businesses of off shore, mega yachts, marine systems and equipment, repairs, refi tting and after-sales service. In parallel, the Group has expanded its business internationally, including through acquisitions. Given the current downturn in the off shore market, the subsidiary VARD has pursued a strategy of diversifying into new market segments, such as expedition
cruise, wind off shore, fi shing and aquaculture, with the intent of reducing its exposure to the cyclical nature of the off shore Oil & Gas industry. As part of the program to improve effi ciency and cut costs to rightsize production capacity for the new market opportunities, VARD has scaled down its production capacity in Brazil by shutting down one of its yards, it has temporarily downsized the workforce at its facilities in Norway using work fl exibility tools and it has repositioned one of the Norwegian yards to serve the aquaculture industry.
| DESCRIPTION OF RISK | IMPACT | MITIGATION |
|---|---|---|
| The production of standard merchant vessels is now dominated by Asian shipyards, meaning that competitiveness can only be maintained by specializing in high value-added markets. As far as civilian vessels are concerned, the Parent Company has been focusing for several years on the cruise ship and cruise ferry segments, where it has a long track record; following the acquisition of VARD, it has extended this focus to the production of off shore support vessels. Additional factors that may aff ect competitiveness are the risk that due attention is not given to client needs, or that standards of quality and product safety are not in line with market demands and new regulations. Moreover, aggressive commercial policies, development of new products and new technologies, or increases in production capacity by competitors may lead to increased price competition, consequently impacting the required level of competitiveness. |
Inattentive monitoring of the Group's markets and slow responses to the challenges posed by competitors and client needs may lead to a reduction in competitiveness, with an associated impact on production volumes, and/or less remunerative pricing, resulting in a drop in profi t margins. |
The Group endeavors to maintain competitive position in its business areas by ensuring a high quality, innovative product, and by seeking optimal costing as well as fl exible technical and fi nancial solutions in order to be able to propose more attractive off ers than the competition. In parallel with the commercial initiatives to penetrate new market segments, the subsidiary VARD has developed a series of new ship projects, exploiting not only its own engineering and design expertise acquired in the off shore sector but also the know-how of the Fincantieri Group. |
| DESCRIPTION OF RISK | ||
|---|---|---|
The diffi cult political and economic context and worsening regulatory environment of countries in which the Group operates, particularly for VARD's activities in Brazil, may adversely impact operations and future cash fl ows. In addition, the pursuit of business opportunities in emerging markets, particularly in the defense sector, leads to increased exposure to country risk and/or risk of international bribery and corruption.
Situations involving country risk may have negative eff ects on the Group's results of operations and fi nancial condition, with the loss of clients, profi ts and competitive advantage and, in the case of lawsuits and sanctions, on its reputation.
IMPACT
In pursuing business opportunities in emerging markets, the Group safeguards itself by favoring commercial prospects that are supported by inter-governmental agreements or other forms of cooperation between States, as well as by establishing, within its own organization, appropriate safeguards to monitor the processes at risk.
MITIGATION
| DESCRIPTION OF RISK | IMPACT | MITIGATION |
|---|---|---|
| The shipbuilding contracts managed by the Group are mostly multi-year contracts for a fi xed consideration, any change in which must be agreed with the client. Contract pricing must necessarily involve careful evaluation of the costs of raw materials, machinery, components, sub-contracts and |
Cost overruns not envisaged at the pre-contractual stage and not covered by a parallel increase in price can lead to a reduction in margins on the contracts concerned. |
The Group takes into consideration expected increases in the components of contract costs when determining the off er price. In addition, at the time of signing the contract, fi xed-price purchase options will already have been defi ned for some of the vessel's principal components. |
all other construction-related costs (including personnel and overheads); this process is more complicated in the case of prototype or particularly complex
ships.
| DESCRIPTION OF RISK | IMPACT | MITIGATION |
|---|---|---|
| Many factors can infl uence production schedules, as well as capacity utilization, and so impact agreed vessel delivery dates with possible penalties payable by the Group. These factors include, inter alia, strikes, poor industrial productivity, inadequate logistics and warehouse management, unexpected problems during design, engineering and production, events linked to adverse weather conditions, design changes or problems in procuring key supplies. |
When the causes of late delivery are not recognized by contract, shipbuilding contracts provide for the payment of penalties that generally increase the longer the delay. |
The Group manages its contracts through dedicated structures that control all aspects during the contract life cycle (design, procurement, construction, outfi tting). Contracts with suppliers include the possibility of applying penalties for delays or hold-ups attributable to such suppliers. |
The operational management of contracts carries a risk that one or more counterparties with whom the Group has contracts are unable to meet its commitments, more specifi cally involving one or more clients do not meet the contractual obligations, or one or more suppliers fail to discharge its obligations for operational or fi nancial reasons. The Off shore industry is in the midst of a profound global market deterioration aff ecting all its players with a signifi cant number of shipowners undertaking restructuring, in turn giving rise to increased counterparty risk. With particular reference to VARD, deterioration in the fi nancial situation of clients in the Off shore sector has led to the cancellation or redefi nition of the delivery dates of some orders in the order book.
Bankruptcy by one or more counterparties, whether clients or suppliers, can have serious eff ects on the Group's production and cash fl ows, given the high unit value of shipbuilding orders and the strategic nature of certain supplies for the production process. In particular, client cancellation of orders during vessel construction exposes the Group to the risk of having to sell the vessel in adverse market conditions or, potentially, at prices that do not allow its construction costs to be recovered. Moreover, the postponement of delivery dates can signifi cantly increase working capital fi nancing needs, with a consequent growth in debt and higher borrowing costs.
When acquiring orders, and where deemed necessary, the Group can perform checks on the fi nancial strength of its counterparties, including by obtaining information from leading credit rating agencies. Suppliers are subject to a qualifi cation process, including evaluation of the potential risks associated with the counterparty concerned. As regards the fi nancial aspect, the Group off ers its suppliers the opportunity to use instruments that facilitate their access to credit. To address the diffi cult situation in the off shore market, the subsidiary VARD is now working with clients and fi nancial institutions to ensure delivery of not only vessels in the current order book but also those whose orders have been canceled. The subsidiary is also considering, where possible, all technical and commercial opportunities to reconvert and reposition on the new markets served those vessels already built but whose orders have been cancelled.
A signifi cant number of the Group's shipbuilding contracts (in general, for merchant vessels like cruise ships and off shore support vessels) establish that clients pay only a part of the contract price during ship construction; the balance of the price is paid upon delivery.
As a result, the Group incurs signifi cant upfront costs, assuming the risk of incurring such costs before receiving full payment of the price from its clients and thus having to fi nance the working capital absorbed by ships during construction.
If the Group were unable to off er its clients suffi cient fi nancial guarantees against the advances received or to meet the working capital needs of ships during construction, it might not be able to complete contracts or win new ones, with negative eff ects on its results of operations and fi nancial condition.
IMPACT
Moreover, the cancellation and postponement of orders by clients in diffi culty could have a signifi cant impact on the Group's fi nancial structure and margins, with the 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.
The Group adopts a fi nancing strategy aimed at diversifying as much as possible the technical forms of fi nancing and the fi nancing counterparties with the ultimate objective of maintaining a more than suffi cient credit capacity to guarantee coverage of the working capital needs generated by its operations.
The Group's clients often make use of fi nancing to fi nalize the placement of orders.
Overseas clients may be eligible for export fi nance schemes structured in accordance with OECD rules.
Under such schemes, overseas buyers of ships can obtain bank credit against receipt of a guarantee by a national export credit agency, which in the case of Italy is SACE S.p.A. and GIEK in the case of Norway.
The availability of export fi nancing is therefore a key condition for allowing overseas clients to award contracts to the Group, especially where cruise ship construction is concerned.
The lack of available fi nance for the Group's clients or the low competitiveness of their conditions could have a highly negative impact on the Group's ability to obtain new orders as well as on the ability of clients to comply with the contractual terms of payment.
Fincantieri supports overseas clients during the process of fi nalizing export fi nance and particularly in managing relations with the agencies and companies involved in structuring such fi nance (for example, SACE, Simest and the banks). In addition, the process of structuring fi nance is managed in parallel with the process of fi nalizing the commercial contract, the enforceability of which is often subject to the shipowner's receipt of the commitment by SACE and the banks to provide an export credit guarantee. The subsidiary VARD also actively works with GIEK, the Norwegian export credit agency, particularly in a new sector for the Norwegian market like that of expedition cruise vessels.
As an additional safeguard for the Group, in the event of a client default on its contractual obligations, Fincantieri has the right to terminate the contract. In such a case, it is entitled to keep the payments received and the ship under construction. The client may also be held liable for paying any costs prepaid by the Group.
| DESCRIPTION OF RISK | IMPACT | MITIGATION |
|---|---|---|
| The Fincantieri Group's decision to outsource some of its business activities is dictated by strategic considerations based on two factors: a) outsource activities for which it has the skills but insuffi cient in-house resources; b) outsource activities for which there are no in-house skilled resources and which would be too expensive and ineffi cient to develop. Dependence on suppliers for certain business activities may result in the inability to ensure high standards of quality, failure to meet delivery dates, the acquisition of excessive supplier bargaining power, and a lack of access to new technologies. In addition, the signifi cant presence of suppliers in the production process has an impact on local communities, possibly requiring the Group to address social, political and legality issues. |
A negative performance by suppliers in terms of quality, timing or costs causes production costs to rise, and the client's perception of the quality of the Fincantieri product to deteriorate. As for other partners at the local level, non-optimal relations may impact the Group's ability to compete on the market. |
The Group has specifi c personnel in charge of coordinating the assembly of on-board systems and managing specifi c areas of outsourced production. In addition, the Fincantieri Group carefully selects its "strategic suppliers", which must meet the highest standards of performance. The Parent Company has developed a precise program of supplier performance evaluation in this regard, ranging from measurement of the services rendered, both in terms of quality of service off ered and punctuality of delivery, to the strict observation of safety regulations, in line with the Group's "Towards Zero Accidents" objective. In addition, particular attention is paid in general to relations with the local communities that interact with the Group's shipyards, involving appropriate institutional relationships, at the time supplemented by the conclusion of suitable legality and/or transparency protocols with the local authorities, which in turn enabled the defi nition of the National Legality Framework Agreement signed in 2017. The subsidiary VARD has paid special attention to the process of evaluating and managing contracts with new suppliers operating in new sectors entered as a result of its diversifi cation |
strategy.
| DESCRIPTION OF RISK | IMPACT | MITIGATION |
|---|---|---|
| The Fincantieri Group has a vast accumulation of experience, know-how and business knowledge. As far as the workforce is concerned, the domestic labor market is not always able to satisfy the needs of production, either in terms of numbers or skills. The eff ective management of the Group's business is also linked to the ability to attract highly professional resources for key roles, and the ability to retain such talents within the Group; this involves suitable talent and resource management with a view to continuous improvement, achieved by investing in staff training and performance evaluation. |
The inadequacy of the domestic labor market to meet the Group's needs, the inability to acquire the necessary skills and the failure to transfer specifi c knowledge to the Group's resources, particularly in the technical sphere, could have negative eff ects on product quality. |
The Human Resources Department constantly monitors the labor market and maintains frequent contact with universities, vocational schools and training institutes. The Group also makes a signifi cant investment in training its staff , not only in technical specialist and managerial relational skills, but also regarding safety and quality. Lastly, specifi c training activities are organized to ensure that key management positions are covered in the event of staff turnover. The subsidiary VARD has carried out an internal reorganization to assist the process of diversifying into new markets, with particular attention to the development of new concepts and alteration of production processes. |
and results.
The Fincantieri Group must abide by the regulations to safeguard the environment and health and safety at work as well as the regulations and laws in force in the countries where it operates. Any breaches of such rules and regulations could result in civil, tax, administrative or criminal sanctions, along with an obligation to do all that is necessary to comply with such regulations, the costs and liability for which could have a negative impact on the Group's business
Any breaches of tax, safety or environmental standards, any changes in the local legal and regulatory framework, as well as the occurrence of exceptional or unforeseen events, could cause the Fincantieri Group to incur extraordinary costs relating to tax, the environment or safety at work.
The Group promotes compliance with all rules, regulations and laws that apply to it and implements and updates suitable prevention control systems for mitigating the risks associated with breach of such rules, regulations and laws. Accordingly, in order to prevent and manage the risk of occurrence of unlawful acts, the Parent Company has adopted an organizational, management and control model under Legislative Decree 231 of 8 June 2001, which is also binding for suppliers and, in general, for third parties working with Fincantieri. In particular, the Parent Company has applied the provisions of Legislative Decree 81/2008 - "Implementation of art. 1 of Law no. 123 dated 3 August 2007, concerning health and safety at work" (known as the "Health and Safety at Work Act"). Fincantieri has adopted suitable organizational models for preventing breach of these regulations, and sees that such models are reviewed and updated on an ongoing basis. The commitment to pursue and promote principles of environmental sustainability has been reaffi rmed in the Parent Company's Environmental Policy document, which binds the Group to uphold regulatory compliance and to monitor working practices so as to ensure eff ective observance of the rules and regulations. The subsidiary VARD is also committed to minimizing the impact of its activities on the environment, 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.
Working in the defense and security sector, the Group is exposed to the risk that the evolving tendency in this sector could lead in the near future to restrictions on the currently permitted exceptions to competition law, with consequent limitations on the direct award of business in order to ensure greater competition in this particular market.
breaches of its data security system, including coordinated attacks by groups of hackers.
Possible limitations on the direct award of business could prevent the Group from being awarded work through negotiated procedures, without any prior publication of a public tender notice.
The Group is monitoring the possible evolution of national and Community legislation that could open up the possibility of competing in the defense and security sector including in other countries.
| DESCRIPTION OF RISK | IMPACT | MITIGATION |
|---|---|---|
| The Group's business could be adversely aff ected by: |
Computer system failures, loss or corruption of data, including as a result of external attacks, |
The Group considers it has taken all necessary steps to minimize these risks, by drawing on best |
| • inadequate management of the Group's sensitive data, due to ineff ective protective measures, with unauthorized persons outside the Group able to access and use confi dential information; • improper access to information, involving the risk of accidental or intentional alterations or cancellations by unauthorized persons; • IT infrastructure (hardware, networks, software) whose |
inappropriate IT solutions for the needs of the business, or updates to IT solutions not in line with user needs, could aff ect the Group's operations by causing errors in the execution of operations, ineffi ciencies and procedural delays and other disruptions, aff ecting the Group's ability to compete on the market. |
practice for its governance systems and continuously monitoring the management of its IT infrastructure and applications. Authority to access and operate on the computer system is managed and maintained to ensure proper segregation of duties, as enhanced with the adoption of a new access management procedure using special software, allowing prior identifi cation and treatment of |
| security and reliability are not guaranteed, resulting in possible disruption of the computer system or network or in illegal attempts to gain unauthorized access or |
the risks of segregation of duties (SoD) resulting from inappropriate attribution of access credentials. |
| DESCRIPTION OF RISK | IMPACT | MITIGATION |
|---|---|---|
| The Group is exposed to exchange rate risk on transactions of a commercial and fi nancial nature denominated in a currency other than the functional one (economic risk and transaction risk). In addition, translation risk can arise when preparing the Group's fi nancial statements, through translation of the income statements and balance sheets of consolidated subsidiaries that operate in a currency other than the Euro (mainly NOK, USD and BRL). |
The absence of adequate currency risk management could increase the volatility of the Group's economic results. In particular, if currencies in which shipbuilding contracts are denominated were to depreciate, this could have an adverse impact on company profi t margins. |
Fincantieri has a policy for managing economic and transaction fi nancial risks that defi nes instruments, responsibilities and reporting procedures, with which it mitigates currency market risks. With regard to currency translation risk, the Group constantly monitors its main exposures which are normally not subject to coverage. In the same way, the subsidiary VARD prepared a management policy that is based on the fundamental principles defi ned by the Parent Company, though with some diff erences due to the company's particular needs. |
Some of the loan agreements entered into by the Group require it or some of its companies to comply with conditions, commitments and constraints of a fi nancial and legal nature (such as the occurrence of events of default, even potential ones, cross-default clauses and covenants), non-observance of which could lead to immediate repayment of the loans. In addition, future increases in interest rates could lead to higher payments depending on the level of indebtedness outstanding at the time. The Group might not be able to access suffi cient credit to properly fi nance its activities (such as in the case of particularly poor fi nancial performance) or it might be able to access it only under 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.
To ensure access to adequate types of fi nance in terms of amount and conditions, the Group constantly monitors the results of its operations and fi nancial condition and its current and future capital and fi nancial structure as well as any circumstances that could adversely aff ect them. In particular, to mitigate liquidity risk and maintain a suffi cient level of fi nancial fl exibility, the Group diversifi es its sources of funding in terms of duration, counterparty and technical form. Moreover, the Company can negotiate derivative contracts, usually in the form of interest rate swaps, in order to contain the impact of fl uctuations of interests rates on the Group's medium/long-term profi tability.
Fincantieri's management reviews the performance of the Group and its business segments using certain non-GAAP measures not defi ned under IFRS. In particular, EBITDA is used as the main earnings indicator, as it enables the Group's underlying profi tability to be assessed without the impact of volatility associated with non-recurring items or extraordinary items outside the ordinary course of business.
As required by Consob Communication no. 0092543 of 3 December 2015 which implements the ESMA Guidelines on Alternative Performance Measures (document no. ESMA/2015/1415), the components of each of these measures are described below:
• EBITDA: this is equal to earnings before taxes, before finance income and costs, before income and expenses from investments and before depreciation, amortization and impairment, as reported in the financial statements, adjusted to exclude the following items:
Intangible assets and Property, plant and equipment recognized as a result of impairment tests).
• Total debt/Total equity: this is calculated as the ratio between Total debt and Total equity.
• Net financial position/EBITDA: this is calculated as the ratio between the Net financial position, as monitored by the Group, and EBITDA.
• Net financial position/Total equity: this is calculated as the ratio between the Net financial position, as monitored by the Group, and Total equity.
• Provisions: these refer to increases in the Provisions for risks and charges, and impairment of Trade receivables and Other non-current and current assets.
(euro/million)
| 30.06.2018 | 30.06.2017 | |||
|---|---|---|---|---|
| Amounts in IFRS statement |
Amounts in reclassified statement |
Amounts in IFRS statement |
Amounts in reclassified statement |
|
| A – Revenue | 2,527 | 2,295 | ||
| Operating revenue | 2,473 | 2,252 | ||
| Other revenue and income | 54 | 43 | ||
| B - Materials, services and other costs | (1,855) | (1,671) | ||
| Materials, services and other costs | (1,857) | (1,673) | ||
| Recl. to I - Extraordinary and non-recurring income | 2 | 2 | ||
| and expenses | ||||
| C - Personnel costs | (482) | (462) | ||
| Personnel costs | (485) | (463) | ||
| Recl. to I - Extraordinary and non-recurring income | ||||
| and expenses | 3 | 1 | ||
| D - Provisions | (7) | (16) | ||
| Provisions | (38) | (35) | ||
| Recl. to I - Extraordinary and non-recurring income | ||||
| and expenses | 31 | 19 | ||
| E – Depreciation, amortization and impairment | (65) | (58) | ||
| Depreciation, amortization and impairment | (65) | (58) | ||
| F – Finance income/(costs) | (52) | (39) | ||
| Finance income/(costs) | (52) | (39) | ||
| G - Income/(expense) from investments | 1 | (1) | ||
| Income/(expense) from investments | 5 | (1) | ||
| Recl. to I - Extraordinary and non-recurring income | ||||
| and expenses | (4) | |||
| H - Income taxes | (28) | (20) | ||
| Income taxes | (20) | (15) | ||
| Recl. to L - Tax eff ect of extraordinary | ||||
| and non-recurring income and expenses | (8) | (5) | ||
| I - Extraordinary and non-recurring income | (32) | (22) | ||
| and expenses | ||||
| Recl. from B - Materials, services and other costs | (2) | (2) | ||
| Recl. from C - Personnel costs | (3) | (1) | ||
| Recl. from D - Provisions | (31) | (19) | ||
| Recl. from G - Income/(expense) from investments | 4 | |||
| L - Tax eff ect of extraordinary and non-recurring | ||||
| income and expenses | 8 | 5 | ||
| Recl. from H – Income taxes | 8 | 5 | ||
| Profi t/(loss) for the period | 15 | 11 | ||
(euro/million)
| 30.06.2018 | 31.12.2017 | |||
|---|---|---|---|---|
| Amounts in IFRS statement |
Amounts in reclassified statement |
Amounts in IFRS statement |
Amounts in reclassified statement |
|
| A - Intangible assets | 625 | 582 | ||
| Intangible assets | 625 | 582 | ||
| B - Property, plant and equipment | 1,031 | 1,045 | ||
| Property, plant and equipment | 1,031 | 1,045 | ||
| C - Investments | 51 | 53 | ||
| Investments | 51 | 53 | ||
| D - Other non-current assets and liabilities | 72 | 122 | ||
| Derivative assets | 96 | 144 | ||
| Other non-current assets | 14 | 26 | ||
| Other liabilities | (32) | (31) | ||
| Derivative liabilities | (6) | (17) | ||
| E - Employee benefi ts | (58) | (59) | ||
| Employee benefi ts | (58) | (59) | ||
| F - Inventories and advances | 852 | 835 | ||
| Inventories and advances | 852 | 835 | ||
| G - Construction contracts and client advances | 584 | 648 | ||
| Construction contracts - assets | 1,973 | 1,995 | ||
| Construction contracts - liabilities and client advances | (1,389) | (1,347) | ||
| H - Construction loans | (488) | (624) | ||
| Construction loans | (488) | (624) | ||
| I - Trade receivables | 601 | 909 | ||
| Trade receivables and other current assets | 855 | 1,156 | ||
| Recl. to N) Other assets | (254) | (247) | ||
| L - Trade payables | (1,595) | (1,748) | ||
| Trade payables and other current liabilities | (1,838) | (1,973) | ||
| Recl. to N) Other liabilities | 243 | 225 | ||
| M - Provisions for risks and charges | (155) | (141) | ||
| Provisions for risks and charges | (155) | (141) | ||
| N - Other current assets and liabilities | 3 | 1 | ||
| Deferred tax assets | 87 | 72 | ||
| Income tax assets | 25 | 19 | ||
| Derivative assets | 9 | 16 | ||
| Recl. from I) Other current assets | 254 | 247 | ||
| Deferred tax liabilities | (62) | (62) | ||
| Income tax liabilities | (10) | (12) | ||
| Derivative liabilities and option fair value | (57) | (54) | ||
| Recl. from L) Other current liabilities | (243) | (225) | ||
| NET INVESTED CAPITAL | 1,523 | 1,623 | ||
| O - Equity | 1,259 | 1,309 | ||
| P - Net fi nancial position | 264 | 314 | ||
| SOURCES OF FUNDING | 1,523 | 1,623 |
C ONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS AT AND FOR THE SIX MONTHS ENDED 30 JUNE 2018
| (euro/000) | |
|---|---|
| Note | 30.06.2018 | of which related parties - Note 28 |
31.12.2017 | of which related parties - Note 28 |
|
|---|---|---|---|---|---|
| ASSETS | |||||
| NON-CURRENT ASSETS | |||||
| Intangible assets | 5 | 625,201 | 581,501 | ||
| Property, plant and equipment | 6 | 1,030,940 | 1,044,671 | ||
| Investments accounted for using the equity method |
7 | 46,156 | 50,581 | ||
| Other investments | 7 | 5,132 | 2,348 | ||
| Financial assets | 8 | 234,822 | 9,655 | 279,763 | |
| Other assets | 9 | 13,544 | 653 | 26,403 | 5,337 |
| Deferred tax assets | 10 | 86,755 | 72,104 | ||
| Total non-current assets | 2,042,550 | 2,057,371 | |||
| CURRENT ASSETS | |||||
| Inventories and advances | 11 | 852,177 | 208,136 | 835,199 | 206,509 |
| Construction contracts - assets | 12 | 1,972,622 | 1,995,342 | ||
| Trade receivables and other current assets | 13 | 855,204 | 182,557 | 1,156,018 | 178,726 |
| Income tax assets | 14 | 25,618 | 18,918 | ||
| Financial assets | 15 | 46,705 | 57,907 | 576 | |
| Cash and cash equivalents | 16 | 617,581 | 274,411 | ||
| Total current assets | 4,369,907 | 4,337,795 | |||
| TOTAL ASSETS | 6,412,457 | 6,395,166 | |||
| EQUITY AND LIABILITIES | |||||
| EQUITY | 17 | ||||
| Attributable to owners of the parent | |||||
| Share capital | 862,981 | 862,981 | |||
| Reserves and retained earnings | 338,240 | 373,857 | |||
| Total Equity attributable to owners of the parent |
1,201,221 | 1,236,838 | |||
| Attributable to non-controlling interests | 58,044 | 72,322 | |||
| Total Equity | 1,259,265 | 1,309,160 | |||
| NON-CURRENT LIABILITIES | |||||
| Provisions for risks and charges | 18 | 143,587 | 130,754 | ||
| Employee benefi ts | 19 | 57,771 | 58,912 | ||
| Financial liabilities | 20 | 323,717 | 43,836 | 293,699 | 48,935 |
| Other liabilities | 21 | 32,301 | 30,916 | ||
| Deferred tax liabilities | 10 | 62,461 | 61,752 | ||
| Total non-current liabilities | 619,837 | 576,033 | |||
| CURRENT LIABILITIES | |||||
| Provisions for risks and charges | 18 | 10,944 | 10,089 | ||
| Construction contracts - liabilities | 12 | 1,389,039 | 1,347,252 | ||
| Trade payables and other current liabilities | 22 | 1,837,875 | 14,121 | 1,973,482 | 18,756 |
| Income tax liabilities | 9,726 | 12,235 | |||
| Financial liabilities | 23 | 1,285,771 | 11,124 | 1,166,915 | 19,175 |
| Total current liabilities | 4,533,355 | 4,509,973 | |||
| TOTAL EQUITY AND LIABILITIES | 6,412,457 | 6,395,166 |
| (euro/000) | |||||
|---|---|---|---|---|---|
| Note | 30.06.2018 | of which related parties - Note 28 |
30.06.2017 | of which related parties - Note 28 |
|
| Operating revenue | 24 | 2,472,610 | 108,295 | 2,251,940 | 85,159 |
| Other revenue and income | 24 | 54,331 | 614 | 43,097 | 320 |
| Materials, services and other costs | 25 | (1,857,000) | (29,466) | (1,673,181) | (4,779) |
| - of which non-recurring | 28 | ||||
| Personnel costs | 25 | (484,356) | (463,854) | ||
| - of which non-recurring | 28 | (1,049) | |||
| Depreciation, amortization and impairment | 25 | (65,719) | (57,775) | ||
| Provisions | 25 | (37,880) | (34,582) | ||
| Finance income | 26 | 26,901 | 445 | 18,589 | 182 |
| Finance costs | 26 | (78,826) | (2,113) | (57,989) | (921) |
| Income/(expense) from investments | 6,452 | (59) | |||
| Share of profi t/(loss) of investments accounted for using the equity method |
(1,503) | (1,280) | |||
| Taxes | 27 | (20,016) | (14,104) | ||
| PROFIT / (LOSS) FOR THE PERIOD (A) | 14,994 | 10,802 | |||
| attributable to owners of the parent | 20,978 | 12,573 | |||
| attributable to non-controlling interests | (5,984) | (1,771) | |||
| Basic earnings/(loss) per share (euro) | 0.01243 | 0.00743 | |||
| Diluted earnings/(loss) per share (euro) | 0.01237 | 0.00742 | |||
| net of tax (OCI) Gains/(losses) from remeasurement of employee |
17 | 535 | 702 | ||
| defi ned benefi t plans | 19 | ||||
| Total gains/(losses) that will not be reclassifi ed to profi t or loss, net of tax |
17 | 535 | 702 | ||
| - attributable to non-controlling interests | |||||
| Eff ective portion of gains/(losses) on cash fl ow hedging instruments |
17 | (38,984) | 69,918 | ||
| Gains/(losses) arising from changes in OCI of | |||||
| investments accounted for using the equity method |
17 | (219) | |||
| Gains/(losses) arising from fair value measurement of securities and bonds at fair value through |
|||||
| comprehensive income | |||||
| Exchange gains/(losses) arising on translation of | |||||
| foreign subsidiaries' fi nancial statements | 17 | 15,987 | (36,082) | ||
| Total gains/(losses) that may be subsequently | |||||
| reclassifi ed to profi t or loss, net of tax | 17 | (22,997) | 33,617 | ||
| - attributable to non-controlling interests | 887 | (3,927) | |||
| Total other comprehensive income/(losses), net of tax (B) |
17 | (22,462) | 34,319 | ||
| - attributable to non-controlling interests | 887 | (3,927) | |||
| TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE PERIOD (A) + (B) |
(7,468) | 45,121 | |||
| attributable to owners of the parent | (2,371) | 50,819 | |||
| attributable to non-controlling interests | (5,097) | (5,698) |
| (euro/000) | ||||||
|---|---|---|---|---|---|---|
| Note | Share capital | Reserves and retained earnings |
Equity attributable to owners of the parent |
Equity attributable to non-controlling interests |
Total | |
| 01.01.2017 | - | 862,981 | 223,134 | 1,086,115 | 155,241 | 1,241,356 |
| Business combinations | ||||||
| Share capital increase | ||||||
| Acquisition of non-controlling interests |
25,790 | 25,790 | (67,772) | (41,982) | ||
| Dividend distribution | ||||||
| Reserve for long-term incentive plan |
1,785 | 1,785 | 1,785 | |||
| Other changes/roundings | ||||||
| Total transactions with owners | 27,575 | 27,575 | (67,772) | (40,197) | ||
| Profi t/(loss) for the period | 12,573 | 12,573 | (1,771) | 10,802 | ||
| Other components | ||||||
| OCI for the period | 38,246 | 38,246 | (3,927) | 34,319 | ||
| Total comprehensive income for the period |
50,819 | 50,819 | (5,698) | 45,121 | ||
| 30.06.2017 | - | 862,981 | 301,528 | 1,164,509 | 81,771 | 1,246,280 |
| 31.12.2017 published | 17 | 862,981 | 373,857 | 1,236,838 | 72,322 | 1,309,160 |
| First adoption IFRS | (20,427) | (20,427) | (234) | (20,661) | ||
| 01.01.2018 | 3 | 862,981 | 353,430 | 1,216,411 | 72,088 | 1,288,499 |
| Business combinations | ||||||
| Share capital increase | ||||||
| Acquisition of non-controlling interests |
2,047 | 2,047 | (8,955) | (6,908) | ||
| Dividend distribution | (16,874) | (16,874) | (16,874) | |||
| Reserve for long-term incentive plan |
2,068 | 2,068 | 2,068 | |||
| Other changes/roundings | (60) | (60) | 8 | (52) | ||
| Total transactions with owners | (12,819) | (12,819) | (8,947) | (21,766) | ||
| Net profi t/(loss) for the period | 20,978 | 20,978 | (5,984) | 14,994 | ||
| Other components | ||||||
| OCI for the period | (23,349) | (23,349) | 887 | (22,462) | ||
| Total comprehensive income for the period |
(2,371) | (2,371) | (5,097) | (7,468) | ||
| 30.06.2018 | 17 | 862,981 | 338,240 | 1,201,221 | 58,044 | 1,259,265 |
(euro/000)
| Note | 30.06.2018 | 30.06.2017 | |
|---|---|---|---|
| NET CASH FLOWS FROM OPERATING ACTIVITIES | 29 | 262,450 | (197,643) |
| - of which related parties | (5,409) | (29,368) | |
| Investments in: | |||
| - intangible assets | (5,934) | (26,045) | |
| - property, plant and equipment | (38,370) | (49,669) | |
| - equity investments | (7,169) | ||
| - receivables and other fi nancial assets | |||
| - cash out for business combinations, net of cash acquired | (85) | (5,515) | |
| Disposals of: | |||
| - intangible assets | |||
| - property, plant and equipment | 334 | 536 | |
| - equity investments | 16,600 | 41 | |
| - receivables and other non-current fi nancial assets | |||
| CASH FLOWS FROM INVESTING ACTIVITIES | (35,624) | (80,652) | |
| Change in non-current loans: | |||
| - disbursements | 65,888 | 23,395 | |
| - repayments | (25,382) | (96,476) | |
| Change in non-current fi nancial receivables: | |||
| - disbursements | (5,057) | (17,512) | |
| - repayments | 205 | ||
| Change in current bank loans and credit facilities | |||
| - disbursements | 512,561 | 1,688,243 | |
| - repayments | (651,127) | (1,345,912) | |
| Change in current bonds/commercial papers | 225,000 | ||
| Change in other current fi nancial liabilities/receivables | (2,517) | 6,955 | |
| Change in receivables for held-for-trading fi nancial instruments |
949 | (2,384) | |
| Change in payables for held-for-trading fi nancial instruments | (5,542) | ||
| Net capital contributions by non-controlling interests | |||
| Increase in share capital | |||
| Acquisition of non-controlling interests in subsidiaries | (6,908) | (41,986) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | 113,612 | 208,781 | |
| - of which related parties | (22,229) | 39,518 | |
| NET CASH FLOWS FOR THE PERIOD | 341,438 | (69,514) | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
274,411 | 219,512 | |
| Eff ect of exchange rate changes on cash and cash equivalents | 1,732 | (6,247) | |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | 617,581 | 143,751 |
N OTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
69
FINCANTIERI S.p.A. (hereinafter "Fincantieri" or the "Company" or the "Parent Company" and, together with its subsidiaries, the "Group" or the "Fincantieri Group") is a public limited company with its registered offi ce in Via Genova no. 1, Trieste (Italy), and is listed on the Mercato Telematico Azionario (Italy's electronic stock market) organized and managed by Borsa Italiana S.p.A. As at 30 June 2018, 71.64% of the Company's share capital of euro 862,980,725.70 was held by Fintecna S.p.A.; the remainder of share capital was distributed between a number of private investors (none of whom held signifi cant interests of 3% or above) and own shares (of around 0.28% of shares representing the Parent Company's share capital). It should be noted that 100% of the share capital of Fintecna S.p.A. is owned by Cassa Depositi e Prestiti S.p.A. (hereinafter also referred to as "CDP"), 82.8% of whose share capital is in turn owned by Italy's Ministry of Economy and Finance.
The consolidated fi nancial statements of the Fincantieri Group have been prepared in compliance with IFRS, meaning all the International Financial Reporting Standards, all the International Accounting Standards ("IAS"), and all the interpretations of the International Financial Reporting Interpretations Committee ("IFRIC") previously known as the Standing Interpretations Committee ("SIC"), which, as at the reporting date of the consolidated fi nancial statements, have been endorsed by the European Union in accordance with the
procedure laid down in Regulation (EC) no. 1606/2002 of the European Parliament and European Council dated 19 July 2002. The condensed consolidated interim fi nancial statements at 30 June 2018 (the "Condensed Consolidated Interim Financial Statements") were approved by the Company's Board of Directors on 26 July 2018.
PricewaterhouseCoopers S.p.A., the fi rm appointed to perform the statutory audit of the separate fi nancial statements of the Parent Company and its main subsidiaries, has performed a limited review of the Condensed Consolidated Interim Financial Statements.
The Half-Year Financial Report of the Fincantieri Group as at 30 June 2018 has been prepared in accordance with the provisions of art. 154-ter par. 2 of Legislative Decree no. 58/98 (known as the "Consolidated Law on Finance") and subsequent amendments and additions. The Condensed Consolidated Interim Financial Statements have been prepared in accordance with IAS 34 - Interim Financial Reporting. IAS 34 allows the preparation of fi nancial statements in a "condensed" format, in which the minimum level of disclosure is less than that required by the IFRSs, as long as the reporting entity has previously published a complete set of fi nancial statements prepared in accordance with IFRS. Since the contents of the Condensed Consolidated Interim Financial Statements are presented in a condensed format, they must be read in conjunction with the Group's consolidated fi nancial statements for the year ended 31 December 2017, prepared in accordance with IFRS (the "2017 Consolidated Financial Statements"). With regard to the main fi nancial risks to
which the Group is exposed - credit risk, liquidity risk and market risk (in particular currency, interest rate and commodity price risk) - the management of these fi nancial risks is the responsibility of the Parent Company which decides, in close collaboration with its operating units, whether and how to hedge these risks. There have been no signifi cant changes in the major fi nancial risks faced compared with those described in the Consolidated Financial Statements at 31 December 2017, which should be consulted for more details. The following table shows the fi nancial assets and liabilities that are measured at fair value at 30 June 2018 and 31 December 2017 according to their level in the fair value hierarchy:
| (euro/000) | ||||||
|---|---|---|---|---|---|---|
| 30.06.2018 | 31.12.2017 | |||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |
| Assets | ||||||
| Financial assets at fair value through profi t or loss |
||||||
| Equity instruments | 725 | 4,137 | 631 | 1,446 | ||
| Debt instruments | ||||||
| Financial assets at fair value through comprehensive income |
||||||
| Equity instruments | 272 | 272 | ||||
| Debt instruments | ||||||
| Hedging derivatives | 103,471 | 157,516 | ||||
| Held-for-trading derivatives | 2,076 | 3,025 | ||||
| Total assets | 725 | 105,547 | 4,409 | 631 | 160,541 | 1,718 |
| Liabilities | ||||||
| Financial liabilities at fair value through profi t or loss |
18,185 | 17,677 | ||||
| Hedging derivatives | 44,996 | 53,698 | ||||
| Held-for-trading derivatives | ||||||
| Total liabilities | 44,996 | 18,185 | 53,698 | 17,677 |
Financial assets and liabilities measured at fair value are classifi ed in the three hierarchical levels given above, in order of the priority attributed to the inputs used to determine fair value. In particular:
• Level 1: fi nancial assets and fi nancial liabilities whose fair value is determined using quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: fi nancial assets and fi nancial liabilities whose fair value is determined using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (primarily: market exchange rates at the reporting date, expected rate diff erentials between the currencies concerned and volatility of the relevant markets, interest rates and commodity prices);
• Level 3: fi nancial assets and fi nancial liabilities whose fair value is determined using inputs not based on observable market data.
Financial assets at fair value through comprehensive income classifi ed as Level 3 relate to equity investments carried at fair value. Level 3 also includes the fi nancial liabilities relating to the fair value of options on equity investments calculated using valuation techniques whose inputs are not observable on the market. Movements in fi nancial assets and liabilities classifi ed as Level 3 are basically due to fair value change through profi t or loss which occurred during the period (euro 2,671 thousand) and the remainder to exchange rate diff erences.
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 the provisions of Consob Resolution no. 15519 of 27 July 2006 concerning fi nancial statement formats.
As previously stated, the scope and basis of consolidation adopted for the preparation of the Condensed Consolidated Interim Financial Statements are in line with those used to prepare the Consolidated Financial Statements, except as reported in Note 3. The following transactions were performed during the fi rst half of 2018:
• On 1 January 2018, the joint venture CSSC
• On 8 March 2018, the subsidiary Marine Interiors S.p.A. incorporated the company M.I. Galley S.r.l. in which it holds 85% of the share capital. The new company, with headquarters in Pordenone, will focus on the design and construction of catering areas;
• On 16 April 2018, the Parent Company was involved in the incorporation of Centro Servizi Navali S.p.A., with headquarters in San Giorgio di Nogaro (UD), in which it holds 10.94% of the share capital, which will focus on the logistics management of fl at and long products made of steel and other metals;
• On 18 April 2018, exercising a call option, the subsidiary Delfi S.r.l. acquired the remaining
bringing its shareholding to 100%;
• On 4 June 2018, Vard Group AS acquired 39.38% of the share capital of Island Diligence AS;
• On 28 June 2018, the Parent Company sold its shares in Camper & Nicholsons International SA for euro 16.6 million;
• On 29 June 2018, Vard Group AS sold its shares in Bridge Eiendom AS;
• In the fi rst half of 2018, Fincantieri increased its shareholding in the Vard Group, through the subsidiary Fincantieri Oil & Gas, from 79.74% at 31 December 2017 to 83.51% at 30 June 2018 for approximately euro 7 million.
No signifi cant transactions or unusual events have taken place during the fi rst half of 2018 or during 2017, except as reported in the Condensed Consolidated Interim Financial Statements as at and for the six months ended 30 June 2018. It is also noted that the Group's business is not subject to seasonal trends.
The exchange rates used to translate the fi nancial statements of Group companies with a "functional currency" other than the Euro are as follows:
| 30.06.2018 | 31.12.2017 | 30.06.2017 | |||||
|---|---|---|---|---|---|---|---|
| Average rate | Closing rate | Average rate | Closing rate | Average rate | Closing rate | ||
| US Dollar (USD) | 1.2104 | 1.1658 | 1.1297 | 1.1993 | 1.0830 | 1.1412 | |
| Australian Dollar (AUD) | 1.5688 | 1.5787 | 1.4732 | 1.5346 | 1.4851 | 1.4364 | |
| UAE Dirham (AED) | 4.4450 | 4.2814 | 4.1475 | 4.4044 | 3.9758 | 4.1894 | |
| Brazilian Real (BRL) | 4.1415 | 4.4876 | 3.6054 | 3.9729 | 3.4431 | 3.7600 | |
| Norwegian Krone (NOK) | 9.5929 | 9.5115 | 9.3270 | 9.8403 | 9.1785 | 9.5713 | |
| Indian Rupee (INR) | 79.4903 | 79.8130 | 73.5324 | 76.6055 | 71.1760 | 73.7445 | |
| Romanian Leu (RON) | 4.6543 | 4.6631 | 4.5688 | 4.6585 | 4.5370 | 4.5523 | |
| Chinese Yuan (CNY) | 7.7086 | 7.7170 | 7.6290 | 7.8044 | 7.4448 | 7.7385 | |
| Swedish Krona (SEK) | 10.1508 | 10.4530 | 9.6351 | 9.8438 | 9.5968 | 9.6398 |
It should be noted that the recording and measurement criteria adopted in preparing the Half-Year Financial Report at 30 June 2018 are the same as those adopted in preparing the Consolidated Financial Statements at 31 December 2017, to which reference is made, except for those listed under the accounting standards, amendments and interpretations applicable with eff ect from 1 January 2018, since they have become compulsory following completion of the relevant endorsement procedures by the competent authorities. The list excludes those accounting standards, amendments and interpretations concerning matters not applicable to the Group.
Regulation No. 2016/1905 issued by the European Commission on 22 September 2016 endorses IFRS 15 "Revenue from Contracts with Customers" ("IFRS 15"). In particular, IFRS 15 stipulates that revenues are recorded based on the following fi ve steps:
identifi cation of the contract with the customer;
identifi cation of the performance obligations (i.e. the contractual obligations to transfer the goods and/or services to the customer);
determination of the transaction price;
allocation of the transaction price to the performance obligations identifi ed based on the stand alone sale price of each good or service; and
recognition of revenue when the related performance obligation has been satisfi ed.
IFRS 15 also requires additional fi nancial statement disclosures to be provided regarding the nature, amount, timing and uncertainty of revenues and related cash fl ows.
Regulation No. 2017/1987 issued by the European Commission on 31 October 2017 endorses the clarifi cations to IFRS 15. These clarifi cations concern:
identifi cation of the contractual obligations;
attribution of the role of principal or agent;
determination of the moment revenues from granting a licence are recognized.
The IFRS 15 provisions and related clarifi cations replace IAS 18, concerning contracts for the sale of goods and services, and IAS 11, concerning construction contracts. It should be noted that, for the purposes of reporting the impacts from the fi rst adoption of IFRS 15 in the fi nancial statements, the Group has decided to use the "Modifi ed retrospective method", which records the cumulative eff ects from application of the new accounting standard
as an adjustment of the initial equity reserves at 1 January 2018 (date of fi rst adoption), while comparative fi gures are not restated according to IFRS 15.
In particular, the adoption of IFRS 15 has entailed a lower consolidated equity of euro 20,160 thousand, net of the related tax eff ect, which is analyzed as follows:
| Combination of a series of goods and services into a single contractual obligation | (23,308) |
|---|---|
| Change in the timing for recording revenues | (1,254) |
| Capitalization of incremental costs to obtain contracts | (3,444) |
| Increase of deferred tax assets | 7,846 |
| Total | (20,160) |
Regulation No. 2016/2067 issued by the European Commission on 22 November 2016 endorses IFRS 9 "Financial Instruments", which replaces IAS 39 and IAS 32 ("IFRS 9"). In particular, the new standard reduces the number of categories of fi nancial assets envisaged under IAS 39 and defi nes: (i) the methods for classifying and measuring fi nancial assets based on the characteristics of the fi nancial fl ows and on the business model used to hold them; (ii) a single model for the impairment of fi nancial assets based on expected losses; (iii) methods for applying hedge accounting and (iv) recognition of changes to credit standing in the fair value measurement of liabilities. It should be noted that, for the purposes of reporting the impacts from the fi rst adoption of IFRS 9 in the fi nancial statements, the Company has decided to use the "Modifi ed retrospective method", which records the cumulative eff ects from application of the new accounting standard as an adjustment of the initial equity reserves at 1 January 2018 (date of fi rst adoption), while comparative fi gures are not restated according to IFRS 9. In particular, the adoption of IFRS 9 has entailed a lower consolidated equity of euro 501 thousand, net of the related tax eff ect, due to the application of the new impairment model for fi nancial assets. Other new changes introduced by IFRS 9 are:
• the new method for classifying and measurement of fi nancial assets representing capital instruments has not resulted in any change;
• the method for recognizing the fi nancial risk hedging operations currently adopted by the Group is consistent with the new hedge accounting provisions introduced by IFRS 9.
A summary of the eff ects arising from the application of IFRS 15 and IFRS 9 on the opening balances as at 1 January 2018 is given below. There are no eff ects on the net fi nancial position.
| (euro/000) | ||||
|---|---|---|---|---|
| Published | First adoption effects | Restated | ||
| 31 December 2017 | IFRS 15 | IFRS 9 | 1 January 2018 | |
| Non-current assets | 2,057,371 | 55,771 | (501) | 2,112,641 |
| of which: Intangible assets | 581,501 | 47,926 | 629,427 | |
| of which: Financial assets | 279,763 | (651) | 279,112 | |
| of which: Deferred tax assets | 72,104 | 7,845 | 150 | 80,099 |
| Current assets | 4,337,795 | (106,628) | 4,231,167 | |
| of which: Construction contracts - assets | 1,995,342 | (106,628) | 1,888,714 | |
| Total Assets | 6,395,166 | (50,857) | (501) | 6,343,808 |
| Equity | 1,309,160 | (20,160) | (501) | 1,288,499 |
| of which: Group equity | 1,236,838 | (20,028) | (399) | 1,216,411 |
| of which: Non-controlling interests in equity | 72,322 | (132) | (102) | 72,088 |
| Non-current liabilities | 576,033 | 576,033 | ||
| Current liabilities | 4,509,973 | (30,697) | 4,479,276 | |
| of which: Construction contracts - liabilities | 1,347,252 | (30,697) | 1,316,555 | |
| Total Equity and Liabilities | 6,395,166 | (50,857) | (501) | 6,343,808 |
On 20 June 2016, the IASB issued amendments to IFRS 2 - Classifi cation and Measurement of Share-based Payment Transactions. These amendments address a number of issues concerning the accounting treatment for share-based payments. In particular, signifi cant improvements have been made to (i) accounting for cash-settled share-based payments, (ii) their classifi cation and (iii) accounting for a modifi cation of the terms and conditions of a share-based payment that changes the classifi cation of the transaction from cash-settled to equity-settled. Application of these changes has not impacted on the Half-Year Financial Report at 30 June 2018. On 8 December 2016, the IASB issued IFRIC 22 - Foreign Currency Transactions and Advance Consideration, which defi nes what exchange rate to use when accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. Application of these interpretations has not impacted on the Half-Year Financial Report at 30 June 2018. On the same date, the IASB issued the "Annual Improvements to IFRSs: 2014-2016 Cycle" as
part of the program of annual improvements to the standards; most of the changes are clarifi cations or corrections of existing IFRSs or amendments as a consequence of previous changes to IFRSs. Application of these changes has not impacted on the Half-Year Financial Report at 30 June 2018.
Regulation No. 2017/1986 issued by the European Commission on 31 October 2017 endorses IFRS 16 "Leases" with signifi cant impacts on the fi nancial statements of lessors. The distinction between an operating lease and a fi nancial lease has been removed and a single model for all leases has been introduced which entails recognition of an asset for the right to use and of a liability for leasing. The new standard is eff ective for annual accounting periods beginning on or after 1 January 2019. Early adoption is permitted (concurrently with the date IFRS 15 is fi rst applied) but Fincantieri has not taken up this option. The implementation method and the evaluation of the eff ects of the new standard on the Group's consolidated fi nancial statements are ongoing.
A full description of the use of
accounting estimates can be found in the Consolidated Financial Statements at 31 December 2017.
Certain valuation processes, particularly the more complex ones, such as the determination of any impairment of noncurrent assets, are generally carried out in full only at the time of preparing the annual fi nancial statements when all the necessary information is available, unless there are indicators of impairment that require the immediate assessment of any impairment losses.
Movements in this line item are as follows:
| (euro/000) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Goodwill | Client relationships and order backlog |
Development costs |
Industrial patents and intellectual property rights |
Concessions, licenses, trademarks and similar rights |
Other intangibles |
Intangibles in progress and advances |
Total | |
| - cost | 253,798 | 188,850 | 140,681 | 108,702 | 24,185 | 13,526 | 73,252 | 802,994 |
| - accumulated | ||||||||
| amortization and | (72,213) | (42,710) | (92,458) | (5,138) | (8,974) | (221,493) | ||
| impairment losses | ||||||||
| Net carrying amount at 31.12.2017 published |
253,798 | 116,637 | 97,971 | 16,244 | 19,047 | 4,552 | 73,252 | 581,501 |
| First adoption IFRS 15 | 47,926 | 47,926 | ||||||
| Net carrying amount at 01.01.2018 |
253,798 | 116,637 | 97,971 | 16,244 | 19,047 | 52,478 | 73,252 | 629,427 |
| Movements | ||||||||
| - business combinations | 85 | 85 | ||||||
| - capital expenditure | 148 | 40 | 175 | 83 | 5,488 | 5,934 | ||
| - net disposals | ||||||||
| - reclassifi cations/other | 28,443 | 10,161 | 54 | 1 | (38,659) | |||
| - amortization | (4,231) | (13,328) | (2,737) | (1,159) | (1,780) | (23,235) | ||
| - impairment losses | ||||||||
| - exchange rate | ||||||||
| diff erences | 8,288 | 3,813 | 159 | 151 | 521 | 58 | 12,990 | |
| Closing net carrying amount |
262,086 | 116,304 | 113,393 | 23,859 | 18,638 | 50,840 | 40,081 | 625,201 |
| - cost | 262,086 | 195,198 | 169,491 | 119,053 | 25,075 | 61,746 | 40,081 | 872,731 |
| - accumulated | ||||||||
| amortization and | (78,894) | (56,098) | (95,194) | (6,437) | (10,906) | (247,530) | ||
| impairment losses | ||||||||
| Net carrying amount at 30.06.2018 |
262,086 | 116,304 | 113,393 | 23,859 | 18,638 | 50,840 | 40,081 | 625,201 |
"Goodwill" amounts to euro 262,086 thousand at 30 June 2018, of which euro 68,235 thousand allocated to the FMG Group cash-generating unit (CGU), within the Shipbuilding operating segment, and euro 193,851 thousand to the VARD Group CGU, within the Off shore operating segment. The increase in the balance of euro 8,288 thousand compared to 31 December 2017 is due to converting fi gures expressed in US Dollars and Norwegian Krone into Euro.
"Concessions, licenses, trademarks and similar rights" include euro 15,869 thousand for trademarks with indefi nite useful lives, refl ecting the expectation for their use. In accordance with the provisions of IAS 36, the Group is of the opinion that the conditions exist as at 30 June 2018 to confi rm the value of goodwill, of trademarks with indefi nite useful lives and of the other intangible assets recognized
as a result of business combinations, since no evidence of impairment has emerged indicating a reduction in their value. Capital expenditure during the fi rst half of 2018, of euro 5,934 thousand (euro 26,045 thousand at 30 June 2017), mainly included the ongoing work to implement an integrated system for ship design (CAD) and project lifecycle management (PLM), aimed at improving the effi ciency and eff ectiveness of the engineering process, and the development of IT systems to support the Group's increased work and optimize management of the processes.
The eff ects arising from the capitalization of incremental costs to obtain contracts have been reclassifi ed in "First adoption IFRS" after the fi rst application of IFRS 15 from 1 January 2018. The capitalized costs are amortized according to the contractual duration of the orders for which they were incurred. More details can be found in Note 3.
Movements in this line item are as follows:
| (euro/000) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Land and buildings |
Leased buildings |
Industrial plant, machinery and equipment |
Assets under concession |
Leasehold improvements |
Other assets | Assets under construction and supplier advances |
Total | |
| - cost | 613,581 | 3,460 1,242,879 | 189,048 | 29,030 | 188,654 | 147,378 | 2,414,030 | |
| - accumulated depreciation and impairment losses |
(225,109) | (2,985) (870,492) (130,805) | (23,045) | (116,923) | (1,369,359) | |||
| Net carrying amount at 01.01.2018 |
388,472 | 475 | 372,387 | 58,243 | 5,985 | 71,731 | 147,378 | 1,044,671 |
| Movements | ||||||||
| - business combinations | ||||||||
| - additions | 444 | 7,102 | 59 | 3 | 5 | 30,757 | 38,370 | |
| - net disposals | (146) | 25 | (121) | |||||
| - reclassifi cations/other | 14,674 | 20,744 | 166 | 2 | 223 | (37,934) | (2,125) | |
| - depreciation | (8,321) | (131) | (27,747) | (2,164) | (467) | (3,629) | (42,459) | |
| - impairment losses | (24) | (24) | ||||||
| - fi nance costs | ||||||||
| - exchange rate diff erences |
(2,930) | 8 | (4,762) | 207 | 105 | (7,372) | ||
| Closing net carrying amount |
392,315 | 352 | 367,578 | 56,304 | 5,523 | 68,562 | 140,306 1,030,940 | |
| - cost | 626,431 | 3,559 1,263,120 | 189,273 | 29,042 | 189,009 | 140,306 2,440,740 | ||
| - accumulated depreciation and impairment losses |
(234,116) | (3,207) (895,542) (132,969) | (23,519) (120,447) | (1,409,800) | ||||
| Net carrying amount at 30.06.2018 |
392,315 | 352 | 367,578 | 56,304 | 5,523 | 68,562 | 140,306 | 1,030,940 |
Capital expenditure in the fi rst half of 2018 has resulted in additions of euro 38,370 thousand, mainly related to:
• updating of the working areas at some shipyards, in particular Monfalcone, Marghera, Sestri and Ancona, to the new production scenarios and upgrading and improvement of the safety standards of machinery, equipment and buildings;
• continuation of activities to introduce new technologies in particular at the Monfalcone shipyard with regard to the Integrated Environmental Authorization;
• maintenance of infrastructure and upgrading
of production systems in the US shipyards; • continuation of activities to expand production capacity at the Vard Tulcea shipyard to support the construction of cruise ship hulls for Norway and the multi-year program to build prefi tted cruise ship blocks and sections for the Fincantieri production network.
"Other changes" includes euro 1,866 thousand for the disposal of an asset which occurred after the in-kind contribution in the associate Centro Servizi Navali S.p.A. with the subscription of euro 1,392 thousand as a paid increase in the share capital of the same decided in May 2018 (see Note 7).
These are analyzed as follows:
(euro/000)
| Associates Joint ventures | Total investments accounted for using the equity method |
Other companies carried at fair value through comprehensive income |
Other companies carried at fair value through profit or loss |
Total other investments |
Total | ||
|---|---|---|---|---|---|---|---|
| 01.01.2018 | 19,561 | 31,020 | 50,581 | 1,140 | 1,208 | 2,348 | 52,929 |
| Business combinations | |||||||
| Additions | 6,989 | 180 | 7,169 | 7,169 | |||
| Revaluations/(Impairment losses) through profi t or loss |
(1,748) | 244 | (1,504) | 2,743 | 2,743 | 1,239 | |
| Revaluations/(Impairment losses) through equity |
|||||||
| Disposals | (12,905) | (12,905) | (12,905) | ||||
| Dividends from investments accounted for using the equity method |
|||||||
| Reclassifi cations/Other | 2,127 | 2,127 | (869) | 870 | 2,128 | ||
| Exchange rate diff erences | 688 | 688 | 40 | 40 | 728 | ||
| 30.06.2018 | 27,617 | 18,539 | 46,156 | 272 | 4,860 | 5,132 | 51,288 |
Capital expenditure in the fi rst half of 2018 has resulted in additions of euro 7,169 thousand, euro 6,984 thousand of which was related to the incorporation by the VARD Group of the associate Island Diligence AS. "Revaluations/(Impairment losses) through profi t or loss" and through equity relating to companies accounted for using the equity method include the Group's share of the net result and of the associates' and joint ventures' equity changes during the period. "Disposals" refer to the elimination of the carrying value of the shareholding in Camper & Nicholson International sold at the end of June 2018 for euro 16.6 million, realizing a gain of euro 3,695 thousand. "Other investments" include euro 4,860
thousand in investments carried at fair value, calculated on the basis of the related prices if quoted in active markets (Level 1), or using valuation techniques whose inputs are not observable on the market (Level 3). The change in the fair value of such investments has resulted in the recognition of net revaluations through profi t or loss of euro 2,743 thousand, following the positive change of the related fair value during the period.
Other changes includes the subscription of euro 1,392 thousand for the in-kind contribution in the associate Centro Servizi Navali S.p.A. as a paid increase in the share capital of the same decided in May 2018 (see Note 6).
These are analyzed as follows:
(euro/000)
| NON-CURRENT FINANCIAL ASSETS | 234,822 | 279,763 |
|---|---|---|
| Non-current fi nancial receivables from investee companies | 9,655 | 4,695 |
| Other non-current fi nancial receivables | 119,876 | 118,099 |
| Derivative assets | 96,617 | 144,456 |
| Grants fi nanced by BIIS | 8,674 | 12,513 |
| 30.06.2018 | 31.12.2017 |
"Derivative assets" represent the reporting-date fair value of derivatives with a maturity of more than 12 months (Level 2). It should be noted that, following the fi rst
application of IFRS 9, the opening balance at
1 January 2018 of "Other non-current fi nancial receivables" decreased by euro 651 thousand, refl ecting the eff ects of the adoption of the new impairment model introduced by IFRS 9. More details can be found in Note 3.
Other non-current assets are analyzed as follows:
| OTHER NON-CURRENT ASSETS | 13,544 | 26,403 |
|---|---|---|
| Other receivables | 8,057 | 7,987 |
| Firm commitments | 2,023 | 14,016 |
| Government grants receivable | 2,811 | 3,758 |
| Other receivables from investee companies | 653 | 642 |
| 30.06.2018 | 31.12.2017 | |
| (euro/000) |
Other non-current assets are all stated net of the related provision for impairment. The following table presents the amount
of and movements in the provision for impairment of other non-current receivables:
| Total at 30.06.2018 | 8,188 |
|---|---|
| First adoption IFRS | |
| Increases/(Releases) | |
| Utilizations | |
| Total at 01.01.2018 | 8,188 |
| Provision for impairment of other receivables |
|
| (euro/000) |
Movements in deferred tax assets are analyzed as follows:
| (euro/000) | |
|---|---|
| Total | |
| 31.12.2017 published | 72,104 |
| First adoption IFRS | 7,995 |
| 01.01.2018 | 80,099 |
| Business combinations | |
| Through profi t or loss | (9,894) |
| Impairment losses | |
| Through other comprehensive income | 15,374 |
| Other movements | |
| Exchange rate diff erences | 1,176 |
| 30.06.2018 | 86,755 |
Deferred tax assets have been recognized on items for which the tax is likely to be recovered against forecast future taxable income of Group companies. The above deferred tax assets include euro 23.5 million which can be off set against the deferred tax liabilities shown below. No deferred tax assets have been recognized on euro 108 million (euro 97 million at 31 December 2017) in carryforward losses of subsidiaries which
are thought unlikely to be recovered against future taxable income. It should be noted that the opening balance at 1 January 2018 has been adjusted by euro 7,995 thousand in order to refl ect the tax eff ects arising from the fi rst application of the new IFRS 15 and IFRS 9. More details can be found in Note 3.
Movements in deferred tax liabilities are analyzed as follows:
| (euro/000) | |
|---|---|
| Total | |
| 01.01.2018 | 61,752 |
| Business combinations | |
| Through profi t or loss | 1,354 |
| Impairment losses | |
| Through other comprehensive income | (2,630) |
| Other movements | |
| Exchange rate diff erences | 1,985 |
| 30.06.2018 | 62,461 |
These are analyzed as follows:
(euro/000)
| 30.06.2018 | 31.12.2017 | |
|---|---|---|
| Raw materials and consumables | 263,797 | 249,789 |
| Work in progress and semi-fi nished goods | 126,527 | 137,317 |
| Finished products | 31,780 | 31,416 |
| Merchandise | ||
| Total inventories | 422,104 | 418,522 |
| Advances to suppliers | 430,073 | 416,677 |
| TOTAL INVENTORIES AND ADVANCES | 852,177 | 835,199 |
Inventories and advances are stated net of relevant provisions for impairment. The following table presents the amount of and movements in such provisions for impairment:
| (euro/000) | |||
|---|---|---|---|
| Provision for impairment - raw materials |
Provision for impairment - work in progress and semi finished goods |
Provision for impairment- finished products |
|
| 01.01.2018 | 14,629 | 5,494 | 2,007 |
| Increases | 853 | 12,678 | |
| Utilizations | (1,013) | ||
| Releases | (238) | ||
| Exchange rate diff erences | 5 | 298 | 25 |
| 30.06.2018 | 14,236 | 18,470 | 2,032 |
"Construction contracts - net assets" are analyzed as follows:
(euro/000)
| 30.06.2018 | 31.12.2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| Construction contracts - gross |
Invoices issued and provision for future losses |
Construction contracts - net assets |
Construction contracts - gross |
Invoices issued and provision for future losses |
Construction contracts - net assets |
|||
| Shipbuilding contracts |
7,695,993 | (5,732,362) | 1,963,631 | 7,993,621 | 6,009,467 | 1,984,154 | ||
| Other contracts for third parties |
30,901 | (21,910) | 8,991 | 32,867 | 21,679 | 11,188 | ||
| Total | 7,726,894 | (5,754,272) | 1,972,622 | 8,026,488 | 6,031,146 | 1,995,342 |
"Construction contracts – net liabilities" are analyzed as follows:
| Construction Invoices issued contracts - and provision gross for future losses Shipbuilding 2,852,319 4,228,387 contracts Other contracts for 113,525 119,927 third parties Client advances 6,569 |
||||
|---|---|---|---|---|
| 6,569 | 1,324 | 1,324 | ||
| 6,402 | 100,142 | 104,489 | 4,347 | |
| 1,376,068 | 1,532,501 | 2,874,082 | 1,341,581 | |
| Construction contracts - net liabilities |
Construction contracts - gross |
Invoices issued and provision for future losses |
Construction contracts - net liabilities |
|
| 30.06.2018 |
It should be noted that the opening balances of "Construction contracts - net assets" and "Construction contracts - net liabilities" at 1 January 2018 have been restated by euro
106,628 thousand and euro 30,697 thousand respectively in order to refl ect the tax eff ects arising from the fi rst application of the new IFRS 15. More details can be found in Note 3.
These are analyzed as follows:
(euro/000)
| 30.06.2018 | 31.12.2017 | |
|---|---|---|
| Trade receivables | 600,611 | 908,960 |
| Receivables from controlling companies (tax consolidation) | 24,009 | 20,327 |
| Government grants receivable | 5,314 | 4,475 |
| Other receivables | 157,397 | 142,332 |
| Indirect tax receivables | 25,805 | 32,181 |
| Firm commitments | 5,878 | 2,992 |
| Accrued income | 34,727 | 44,700 |
| Prepayments | 1,463 | 51 |
| TOTAL TRADE RECEIVABLES AND OTHER CURRENT ASSETS | 855,204 | 1,156,018 |
The above receivables are shown net of provisions for the impairment of receivables. These provisions relate to receivables that are no longer considered fully recoverable, including those involving legal action and judicial and out-of-court proceedings in cases of debtor default.
A provision for interest charged on past due trade receivables has been recognized in a "Provision for past due interest". The amount of and movements in the overall provisions for impairment of receivables are as follows:
| (euro/000) | |
|---|---|
| Provision for impairment of receivables | |
| 01.01.2018 | 31,944 |
| Business combinations | |
| Utilizations | (47) |
| Increases | 275 |
| Releases | (8) |
| Exchange rate diff erences | 56 |
| 30.06.2018 | 32,220 |
The decrease of euro 308,348 thousand in "Trade receivables" is mainly due to receipt of fi nal payments for four cruise ships delivered in the fi rst half of 2018 and invoiced at 31 December 2017. The increase of euro 15,065 thousand in "Other receivables" mainly refers to receivables for shipowner allowances, receivables for contributions to research
and construction, and other receivables from Social Security authorities associated with the Parent Company.
"Firm commitments" refl ect the fair value of hedged items in fair value hedges used by the Group to hedge currency risk arising on construction contracts in currencies other than the functional currency.
These are analyzed as follows:
| TOTAL INCOME TAX ASSETS | 25,618 | 18,918 |
|---|---|---|
| Foreign tax | 6,352 | 5,085 |
| Italian regional tax on productive activities (IRAP) | 4,946 | 192 |
| Italian corporate income taxation (IRES) | 14,320 | 13,641 |
| 30.06.2018 | 31.12.2017 | |
| (euro/000) |
The amount and movements in the provision for impairment of income tax assets are as follows:
These are analyzed as follows:
(euro/000)
| 30.06.2018 | 31.12.2017 | |
|---|---|---|
| Derivative assets | 8,930 | 16,085 |
| Other receivables | 29,272 | 33,542 |
| Government grants fi nanced by BIIS | 7,608 | 7,468 |
| Accrued interest income | 812 | 800 |
| Prepaid interest and other fi nancial expense | 83 | 12 |
| TOTAL CURRENT FINANCIAL ASSETS | 46,705 | 57,907 |
"Derivative assets" represent the reportingdate fair value of derivatives with a maturity of less than 12 months. The fair value of derivative fi nancial instruments has been calculated considering market parameters and using widely accepted measurement techniques (Level 2).
"Other receivables" mainly include deposits made by the VARD Group as security
against contractual obligations to its lenders; over the period, the amount of deposits has fallen by euro 4 million.
"Government grants fi nanced by BIIS" (Banca Infrastrutture Innovazione e Sviluppo) report the current portion of government grants receivable by shipyards and by shipowners, assigned to Fincantieri as part of contract price.
These are analyzed as follows:
| TOTAL CASH AND CASH EQUIVALENTS | 617,581 | 274,411 |
|---|---|---|
| Cash on hand | 206 | 112 |
| Checks | ||
| Bank and postal deposits | 617,375 | 274,299 |
| 30.06.2018 | 31.12.2017 | |
| (euro/000) |
Cash and cash equivalents at period end include euro 1,444 thousand in bank deposits and escrow accounts; the remainder refers to the balances on current accounts held with a number of banks.
The composition of equity is analyzed in the following table:
| (euro/000) | ||
|---|---|---|
| 30.06.2018 | 31.12.2017 | |
| Attributable to owners of the parent | ||
| Share capital | 862,981 | 862,981 |
| Reserve of own shares | (5,277) | (5,277) |
| Share premium reserve | 110,499 | 110,499 |
| Legal reserve | 40,289 | 34,326 |
| Cash fl ow hedge reserve | 53,492 | 92,527 |
| Financial asset fair value reserve | (338) | (323) |
| Currency translation reserve | (123,595) | (134,128) |
| Other reserves and retained earnings | 242,192 | 219,093 |
| Profi t/(loss) for the period | 20,978 | 57,140 |
| 1,201,221 | 1,236,838 | |
| Attributable to non-controlling interests | ||
| Capital and reserves | 71,924 | 89,689 |
| Financial asset fair value reserve | (67) | (84) |
| Currency translation reserve | (7,829) | (13,283) |
| Profi t/(loss) for the period | (5,984) | (4,000) |
| 58,044 | 72,322 | |
| TOTAL EQUITY | 1,259,265 | 1,309,160 |
The share capital of FINCANTIERI S.p.A. amounts to euro 862,980,726, fully paid-in, divided into 1,692,119,070 ordinary shares with no par value.
The number of shares issued is unchanged with respect to 31 December 2017.
The reserve is negative for euro 5,277 thousand and comprises the value of the own shares for the Company's incentive plan called "Performance Share Plan 2016 - 2018" (described in more detail in Note 28) to be carried out in accordance with art. 5 of EU Regulation No. 596/2014 and as resolved by the Company's Shareholders' Meeting held on 19 May 2017. In 2017, the Parent Company purchased 4,706,890 ordinary own shares (0.28% of the share capital) for euro 5,277 thousand. The number of shares issued is reconciled to the number of outstanding shares in the Parent Company at 30 June 2018.
| N° shares | |
|---|---|
| Ordinary shares issued | 1,692,119,070 |
| less: own shares purchased in 2017 | (4,706,890) |
| Ordinary shares outstanding | 1,687,412,180 |
This reserve has been recorded as a result of the capital increase accompanying the Company's listing on the Mercato Telematico Azionario (MTA) of Borsa Italiana S.p.A. on 3 July 2014. Listing costs of euro 11,072 thousand (net of tax eff ects) referring to the capital increase have been accounted for as a deduction from the share premium reserve, in compliance with IAS 32.
The cash fl ow hedge reserve reports the change in the eff ective portion of derivative hedging instruments measured at fair value.
The currency translation reserve refl ects exchange diff erences arising from the translation into Euro of fi nancial statements of foreign operations prepared in currencies other than the Euro.
These mainly comprise: i) surplus earnings after making allocations to the legal reserve and distributions in the form of shareholder dividends; ii) actuarial gains and losses on employee benefi t plans; iii) the reserve for the share-based incentive plan for management. The Ordinary Shareholders' Meeting held on 11 May 2018 resolved to allocate the net profi t for the year 2017 as follows: euro 16,874 thousand for distribution to the shareholders
of 1 euro cent per share in circulation at the coupon-detachment date (21 May 2018), excluding own shares in the portfolio on that date. This dividend was paid by June 2018. The Fincantieri Group's purchase of shares from minority shareholders in the subsidiary VARD over the fi rst six months of 2018 has led to a change of euro 2,047 thousand in other reserves and retained earnings. At 31 December 2017, the subsidiary Fincantieri Oil & Gas directly owned 79.74% of the share capital of Vard Holdings Limited and its acquisition of shares from minority shareholders of the Norwegian Group took place through subsequent purchases of shares on the market until the stake reached 83.51% by the end of June 2018. This transaction has not altered the Fincantieri Group's scope of consolidation since VARD was already fully consolidated; the above change in the interest must be treated as a "transaction with owners" in which the diff erence between the value of the acquisition and the carrying amount of the non-controlling interest acquired is not recognized in profi t or loss but in consolidated equity.
The change in the Reserve for management's share-based incentive plan refers to the share of personnel costs, benefi ciaries of the plan, matured over the fi rst half of 2018 (euro 2,068 thousand). More details about the incentive plan can be found in Note 28.
The application of IFRS 15 and IFRS 9 has led to a change in the opening balances of "Other reserves and retained earnings" at 1 January 2018, which decreased by euro 20,661 thousand, of which the group's portion is euro 20,427 thousand and euro 234 thousand is the portion of non-controlling interests. More details on the eff ects of the transition can be found in Note 3.
(euro/000)
The change of euro 8,955 thousand since 31 December 2017 is due to the purchase of additional shares in VARD, as described above.
The amount of other comprehensive income/ losses, presented in the statement of comprehensive income, is as follows:
| 30.06.2018 | 30.06.2017 | |||||
|---|---|---|---|---|---|---|
| Gross amount |
Tax (expense)/ benefit |
Net amount | Gross amount |
Tax (expense)/ benefit |
Net amount | |
| Eff ective portion of profi ts/(losses) on cash fl ow hedging instruments |
(54,398) | 15,414 | (38,984) | 99,275 | (29,357) | 69,918 |
| Gains/(losses) from remeasurement of employee defi ned benefi t plans |
704 | (169) | 535 | 924 | (222) | 702 |
| Gains/(losses) arising from changes in OCI of investments accounted for using the equity method |
(219) | (219) | ||||
| Gains/(losses) arising on translation of fi nancial statements of foreign operations |
13,228 | 2,759 | 15,987 | (37,405) | 1,323 | (36,082) |
| TOTAL OTHER COMPREHENSIVE INCOME/(LOSSES) |
(40,466) | 18,004 | (22,462) | 62,575 | (28,256) | 34,319 |
| Eff ective portion of profi ts/(losses) arising in period on cash fl ow 7,986 hedging instruments Eff ective portion of profi ts/(losses) on cash fl ow hedging instruments (62,384) reclassifi ed to profi t or loss Eff ective portion of profi ts/(losses) on cash fl ow hedging instruments (54,398) Tax eff ect of other components of comprehensive income 15,414 |
(38,984) 69,918 |
TOTAL OTHER COMPREHENSIVE INCOME/(LOSSES), NET OF TAX |
|---|---|---|
| (29,357) | ||
| 99,275 | ||
| 36,891 | ||
| 62,384 | ||
| (euro/000) | 30.06.2018 30.06.2017 |
The following table presents movements in the cash fl ow hedge reserve and the eff ect of derivative instruments on profi t or loss:
| (euro/000) | ||||
|---|---|---|---|---|
| Equity | Profit or loss | |||
| Gross | Taxes | Net | ||
| 01.01.2017 | (36,891) | 9,835 | (27,056) | |
| Change in fair value | 131,697 | (39,061) | 92,636 | |
| Utilization | 36,891 | (9,835) | 27,056 | (27,056) |
| Other income/(expenses) for risk hedging | 40,873 | |||
| Finance income/(costs) relating to held-for-trading derivatives and time-value component of hedging derivatives |
(3,772) | |||
| 31.12.2017 | 131,697 | (39,061) | 92,636 | 10,045 |
| Change in fair value | 77,299 | (23,647) | 53,652 | |
| Utilization | (131,697) | 39,061 | (92,636) | 92,636 |
| Other income/(expenses) for risk hedging | (87,507) | |||
| Finance income/(costs) relating to held-for-trading derivatives and time-value component of hedging derivatives |
(5,640) | |||
| 30.06.2018 | 77,299 | (23,647) | 53,652 | (511) |
These are analyzed as follows:
| (euro/000) | ||||||
|---|---|---|---|---|---|---|
| Litigation | Product warranty |
Agent indemnity benefit |
Business reorganization |
Other risks and charges |
Total | |
| Non-current portion | 69,561 | 41,714 | 61 | 19,418 | 130,754 | |
| Current portion | 562 | 6,535 | 905 | 2,087 | 10,089 | |
| 01.01.2018 | 70,123 | 48,249 | 61 | 905 | 21,505 | 140,843 |
| Business combinations | ||||||
| Other movements | ||||||
| Increases | 31,317 | 9,202 | 40,519 | |||
| Utilizations | (14,504) | (9,658) | (443) | (24,605) | ||
| Releases | (520) | (2,385) | (2,905) | |||
| Exchange rate diff erences | (163) | 463 | 30 | 348 | 678 | |
| 30.06.2018 | 86,773 | 47,737 | 61 | 935 | 19,025 | 154,531 |
| Non-current portion | 86,317 | 39,353 | 61 | 17,856 | 143,587 | |
| Current portion | 456 | 8,384 | 935 | 1,169 | 10,944 | |
Increases in the litigation provision mainly refer to: i) precautionary provisions for claims brought by employees, authorities or third parties for damages arising from asbestos exposure; ii) the provision against the risk associated with the "Serene" litigation, recognized after the ruling handed down in January 2017 by the Trieste Court of Appeal, which rejected Fincantieri's opposition thereby making the arbitration awards issued in July 2014 executive; iii) other provisions for litigation with employees and suppliers and for other legal proceedings.
The "Product warranty" provision relates to the estimated cost of carrying out work under contractual guarantee after vessel delivery. The warranty period normally lasts for 1 or 2 years after delivery, but in some cases it may be longer. The provision for "Other risks and charges" includes euro 7,779 thousand for environmental cleanup costs, while the remainder relates to various kinds of disputes, mostly of a contractual, technical or fi scal nature, which might be settled at the Group's expense either in or out of court.
Movements in this line item are as follows:
| (euro/000) | ||
|---|---|---|
| 30.06.2018 | 31.12.2017 | |
| Opening balance | 58,929 | 57,848 |
| Change in consolidation perimeter | ||
| Business combinations | 2,270 | |
| Interest cost | 388 | 882 |
| Cost of services | ||
| Actuarial (gains)/losses | (705) | (74) |
| Utilizations for benefi ts and advances paid | (955) | (2,172) |
| Staff transfers and other movements | 135 | 175 |
| Exchange rate diff erences | ||
| Closing balance | 57,792 | 58,929 |
| Plan assets | (21) | (17) |
| Closing balance | 57,771 | 58,912 |
The amount of Italian employee severance benefi t recognized in the fi nancial statements is calculated on an actuarial basis using the projected unit credit method; the discount rate used by this method to calculate the present value of the defi ned benefi t obligation refl ects
the market yield on bonds with the same maturity as that expected for the obligation. The assumptions adopted are in line with those used for the fi nancial statements at 31 December 2017 except for the discount rate, changed to 1.46% at the end of June 2018.
These are analyzed as follows:
(euro/000)
| 30.06.2018 | 31.12.2017 | |
|---|---|---|
| Bank loans and credit facilities - non-current portion | 306,550 | 261,027 |
| Loans from BIIS - non-current portion | 8,674 | 12,513 |
| Liabilities to other lenders | 2,305 | 2,474 |
| Finance lease obligations | 95 | 200 |
| Derivative liabilities | 6,093 | 17,485 |
| TOTAL NON-CURRENT FINANCIAL LIABILITIES | 323,717 | 293,699 |
With reference to "Bank loans and credit facilities - non-current portion", during the fi rst half of 2018, the Parent Company took out two new medium-long term unsecured loans: the fi rst euro 25 million, repayable in a single instalment in January 2020; the second for euro 30 million, repayable in 6 semi-annual instalments starting in July 2019 and ending in January 2022. In the same period, the subsidiary VARD
took out an additional medium-long term loan for euro 10 million, repayable in 9 semiannual instalments starting in May 2019 and ending in May 2021. At 30 June 2018, a noncurrent portion of euro 20 million of bank loans maturing in the next 12 months was reclassifi ed to the current portion. "Derivative liabilities" represent the reporting-date fair value of derivatives with a maturity of more than 12 months (Level 2).
These are analyzed as follows:
| TOTAL OTHER NON-CURRENT LIABILITIES | 32,301 | 30,916 |
|---|---|---|
| Firm commitments | 37 | |
| Other liabilities | 10,812 | 9,203 |
| Capital grants | 21,489 | 21,676 |
| 30.06.2018 | 31.12.2017 | |
| (euro/000) |
"Capital grants" mainly comprise deferred income associated with grants for property, plant and equipment and innovation grants
which will be released to income in future years to match the related depreciation/ amortization of these assets.
These are analyzed as follows:
| (euro/000) | ||
|---|---|---|
| 30.06.2018 | 31.12.2017 | |
| Payables to suppliers | 1,353,232 | 1,476,531 |
| Payables to suppliers for reverse factoring | 241,845 | 271,964 |
| Social security payables | 52,420 | 35,577 |
| Other payables to employees | 87,173 | 69,921 |
| Other payables | 78,530 | 91,777 |
| Indirect tax payables | 16,043 | 15,888 |
| Firm commitments | 766 | 3,837 |
| Accrued expenses | 6,302 | 6,677 |
| Deferred income | 1,564 | 1,310 |
| TOTAL TRADE PAYABLES AND OTHER CURRENT LIABILITIES | 1,837,875 | 1,973,482 |
"Payables to suppliers for reverse factoring" report the liabilities to suppliers who have relinquished their creditor position with Fincantieri to a factoring company. "Social security payables" include amounts due to INPS (the Italian social security authorities) for employer and employee contributions on June's wages and salaries and contributions on end-of-period wage adjustments. This balance also includes the 2018 premium due to INAIL, Italy's provider of national insurance against occupational injury and illness, which is being paid in instalments.
"Other payables to employees" reported at 30 June 2018 include the eff ects of
allocations made for unused holidays and deferred pay.
"Other payables" include employee income tax withholdings payable to tax authorities, sundry payables for insurance premiums, advances received against research grants, amounts payable to employee supplementary pension funds, security deposits received and various liabilities for disputes in the process of being settled fi nancially.
"Firm commitments" refl ect the fair value of hedged items in fair value hedges used by the Group to hedge currency risk arising on construction contracts in currencies other than the functional currency.
These are analyzed as follows:
| (euro/000) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 30.06.2018 | 31.12.2017 | |
|---|---|---|
| Bond | 299,667 | 299,239 |
| Bank loans and credit facilities - current portion | 48,026 | 48,379 |
| Loans from BIIS - current portion | 7,608 | 7,468 |
| Bank loans and credit facilities - Construction loans | 488,339 | 624,360 |
| Commercial Papers | 225,000 | |
| Other short-term bank debt | 142,212 | 121,690 |
| Liabilities to other lenders - current portion | 643 | 5,280 |
| Bank credit facilities repayable on demand | 7,949 | 609 |
| Financial liabilities for the acquisition of equity investments | 1,485 | |
| Payables to joint ventures | 941 | 1,628 |
| Finance lease obligations - current portion | 265 | 253 |
| Fair value of options on equity investments | 18,185 | 17,677 |
| Derivative liabilities | 38,903 | 36,213 |
| Accrued interest expense | 8,033 | 2,634 |
| TOTAL CURRENT FINANCIAL LIABILITIES | 1,285,771 | 1,166,915 |
At 30 June 2018, "Bank loans and credit facilities - Construction loans" includes the use of euro 488 million in construction loans by the VARD Group. The change compared to 31 December 2017 is mainly due to the Group's deliveries of cruise and off shore orders over the period.
Moreover, euro 225 million of Commercial Papers issued under the Euro-Commercial Paper Step Label, structured at the end
of 2017, for the issue of unsecured shortterm debt securities, had been used at 30 June 2018. The maximum amount of debt securities that can be issued under this program is euro 500 million. The fair value of derivative fi nancial instruments has been calculated considering market parameters and using widely accepted measurement techniques (Level 2).
These are analyzed as follows:
| TOTAL REVENUE AND INCOME | 2,526,941 | 2,295,037 |
|---|---|---|
| Other revenue and income | 54,331 | 43,097 |
| Government grants | 11,051 | 13,645 |
| Sundry revenue and income | 43,135 | 29,075 |
| Gains on disposal | 145 | 377 |
| Operating revenue | 2,472,610 | 2,251,940 |
| Change in construction contracts | 1,271,486 | 1,269,639 |
| Sales and service revenue | 1,201,124 | 982,301 |
| 30.06.2018 | 30.06.2017 |
More details on segment information can be found in Note 30.
Materials, services and other costs are analyzed as follows:
| (euro/000) | ||
|---|---|---|
| 30.06.2018 | 30.06.2017 | |
| Raw materials and consumables | (1,257,259) | (1,108,984) |
| Services | (569,769) | (503,588) |
| Leases and rentals | (22,180) | (19,258) |
| Change in inventories of raw materials and consumables | 24,231 | (18,205) |
| Change in work in progress | (14,839) | (14,704) |
| Sundry operating costs | (17,227) | (17,883) |
| Cost of materials and services capitalized in fi xed assets | 43 | 9,441 |
| TOTAL MATERIALS, SERVICES AND OTHER COSTS | (1,857,000) | (1,673,181) |
| TOTAL PERSONNEL COSTS | (484,356) | (463,854) |
|---|---|---|
| Personnel costs capitalized in fi xed assets | 1,760 | 4,563 |
| - other personnel costs | (13,793) | (10,339) |
| - costs for defi ned contribution plans | (17,856) | (16,737) |
| - social security | (96,594) | (103,331) |
| - wages and salaries | (357,873) | (338,010) |
| Personnel costs: | ||
| 30.06.2018 | 30.06.2017 | |
| (euro/000) |
"Personnel costs" represent the total cost incurred for employees, including wages and salaries, employer social security
contributions payable by the Group, gifts and travel allowances.
The Fincantieri Group's headcount at 30 June 2018 can be broken down as follows:
| (number) | ||
|---|---|---|
| 30.06.2018 | 30.06.2017 | |
| Employees at period end: | ||
| Total at period end | 19,375 | 19,428 |
| - of whom in Italy | 8,447 | 8,269 |
| - of whom in Parent Company | 7,705 | 7,524 |
| - of whom in VARD | 8,984 | 9,025 |
| Average number of employees | 19,313 | 19,111 |
| - of whom in Italy | 8,186 | 7,943 |
| - of whom in Parent Company | 7,613 | 7,429 |
| - of whom in VARD | 9,007 | 8,932 |
| (euro/000) | ||
|---|---|---|
| 30.06.2018 | 30.06.2017 | |
| Depreciation and amortization: | ||
| - amortization of intangible assets | (23,235) | (15,201) |
| - depreciation of property, plant and equipment | (42,460) | (42,555) |
| Impairment: | ||
| - impairment of goodwill | ||
| - impairment of intangible assets | ||
| - impairment of property, plant and equipment | (24) | (19) |
| Total depreciation, amortization and impairment | (65,719) | (57,775) |
| Provisions: | ||
| - impairment of receivables | (274) | (167) |
| - increases in provisions for risks and charges | (40,519) | (39,262) |
| - release of provisions and impairment reversals | 2,913 | 4,847 |
| Total provisions | (37,880) | (34,582) |
A breakdown of depreciation, amortization and impairment is provided in Notes 5 and 6. Details of provisions can be found in Notes 9, 13 and 18.
These are analyzed as follows:
| 30.06.2018 | 30.06.2017 | |
|---|---|---|
| FINANCE INCOME | ||
| Interest and other income from fi nancial assets | 1,182 | 1,274 |
| Income from derivative fi nancial instruments | 73 | 16 |
| Bank interest and fees and other income | 4,102 | 2,346 |
| Foreign exchange gains | 21,544 | 14,953 |
| Total fi nance income | 26,901 | 18,589 |
| FINANCE COSTS | ||
| Interest and fees charged by joint ventures | (3) | (139) |
| Interest and fees charged by controlling companies | (364) | (782) |
| Expenses from derivative fi nancial instruments | (6,277) | (2,249) |
| Interest on employee benefi t plans | (342) | (351) |
| Interest and fees on bonds | (6,046) | (5,992) |
| Interest and fees on construction loans | (11,684) | (11,674) |
| Bank interest and fees and other expense | (21,282) | (16,323) |
| Foreign exchange losses | (32,828) | (20,479) |
| Total fi nance costs | (78,826) | (57,989) |
| TOTAL FINANCE INCOME AND COSTS | (51,925) | (39,400) |
"Finance income" includes euro 305 thousand (euro 445 thousand in the fi rst half of 2017) in interest formally paid by the Italian State to the Parent Company, but eff ectively paid to
Banca Infrastrutture Innovazione e Sviluppo (with an equal amount recognized as fi nance cost), under the structure in place to disburse government grants.
Income taxes have been calculated on the basis of the result for the period. Deferred income taxes are analyzed in Note 10.
The consolidated net fi nancial position as monitored by the Group is presented below.
| (euro/000) | ||
|---|---|---|
| 30.06.2018 | 31.12.2017 | |
| A. Cash | 206 | 112 |
| B. Other cash equivalents | 617,375 | 274,299 |
| C. Held-for-trading securities | - | - |
| D. Cash and cash equivalents (A)+(B)+(C) | 617,581 | 274,411 |
| E. Current fi nancial receivables | 30,167 | 34,354 |
| - of which related parties | - | 576 |
| F. Current bank debt | (150,161) | (122,299) |
| - of which related parties | - | - |
| G. Bonds - current portion | (524,667) | (299,239) |
| H. Current portion of non-current debt | (56,059) | (51,013) |
| - of which related parties | (10,200) | (17,564) |
| I. Other current fi nancial liabilities | (1,851) | (8,957) |
| - of which related parties | (924) | (1,611) |
| J. Current debt (F)+(G)+(H)+(I) | (732,738) | (481,508) |
| K. Net current debt (D)+(E)+(J) | (84,990) | (172,743) |
| L. Non-current fi nancial receivables | 129,531 | 122,794 |
| - of which related parties | 9,655 | - |
| M. Non-current bank debt | (306,550) | (261,027) |
| - of which related parties | (43,836) | (48,935) |
| N. Bonds - non-current portion | - | - |
| O. Other non-current fi nancial liabilities | (2,400) | (2,674) |
| - of which related parties | - | - |
| P. Non-current debt (M)+(N)+(O) | (308,950) | (263,701) |
| Q. Net non-current debt (L)+(P) | (179,419) | (140,907) |
| R. Net fi nancial position (K)+(Q) | (264,409) | (313,650) |
For the purposes of complying with Consob Communication no. DEM/6064293/2006, the following table reconciles the above
net fi nancial position with the disclosure recommended by the European Securities and Markets Authority (ESMA).
| Net fi nancial position as per ESMA recommendation | (882,279) | (1,060,804) |
|---|---|---|
| - of which related parties | ||
| Construction loans | (488,339) | (624,360) |
| Non-current fi nancial receivables | (129,531) | (122,794) |
| Net fi nancial position | (264,409) | (313,650) |
| 30.06.2018 | 31.12.2017 | |
| (euro/000) |
In accordance with Consob Communication no. 0092543 of 3 December 2015 with reference to the provisions of Consob Resolution no. 15519 of 27 July 2006, only items considered to be non-recurring have been presented on the face of the fi nancial statements, and not extraordinary ones outside of ordinary operations. The items reported refer to non-recurring costs of restructuring plans presented gross of euro 73 thousand in tax eff ects (euro 91 thousand at 30 June 2017).
In accordance with the disclosures
required by Consob Communication no. DEM/6064293 dated 28 July 2006, it is reported that no atypical and/or unusual transactions were carried out during the fi rst half of 2018.
Intragroup transactions, transactions with Fintecna and its subsidiaries, with Cassa Depositi e Prestiti and its 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.
(euro/000)
| 30.06.2018 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Non-current financial assets |
Current financial assets |
Advances | Trade receivables and other non-current assets |
Trade receivables and other current assets |
Non-current financial liabilities |
Current financial liabilities |
Trade payables and other current liabilities |
|
| FINTECNA S.p.A. | ||||||||
| CASSA DEPOSITI E PRESTITI S.p.A. | 24,039 | (43,836) | (10,200) | (43) | ||||
| TOTAL CONTROLLING COMPANIES | 24,039 (43,836) | (10,200) | (43) | |||||
| ORIZZONTE SISTEMI NAVALI S.p.A. | 88,179 | (924) | (500) | |||||
| UNIFER NAVALE S.r.l. CAMPER & NICHOLSONS INTERNATIONAL SA CSSC - FINCANTIERI CRUISE |
799 | (3) | ||||||
| INDUSTRY DEVELOPMENT Ltd. | 55,000 | |||||||
| ETIHAD SHIP BUILDING LLC | 6,455 | (4,983) | ||||||
| TOTAL JOINT VENTURES | 799 | 149,634 | (924) | (5,486) | ||||
| CENTRO SERVIZI NAVALI S.p.A. | 306 | |||||||
| OLYMPIC GREEN ENERGY KS | ||||||||
| DOF ICEMAN AS | 3,949 | |||||||
| BREVIK TECHNOLOGY AS | 185 | |||||||
| MØKSTER SUPPLY KS | 648 | |||||||
| CSS DESIGN | 653 | |||||||
| ISLAND DILIGENCE AS | 4,689 | |||||||
| OLYMPIC CHALLENGER KS | 184 | |||||||
| CASTOR DRILLING SOLUT. AS | ||||||||
| TOTAL ASSOCIATES | 9,655 | 653 | 306 | |||||
| CDP IMMOBILIARE S.r.l. | ||||||||
| SACE FCT | 15 | (40) | ||||||
| PENSION FUND FOR SENIOR MANAGERS OF FINCANTIERI S.p.A. |
(2,066) | |||||||
| COMETA NATIONAL PENSION FUND |
(4,246) | |||||||
| TERNA RETE ITALIA S.p.A. | 6 | |||||||
| VALVITALIA S.p.A. | 917 | (168) | ||||||
| SOLID. VENETO - PENSION FUND | (111) | |||||||
| OTHER | 8,208 | (21) | ||||||
| TOTAL CDP GROUP | 917 | 8,223 | (6,646) | |||||
| QUANTA S.p.A. | ||||||||
| EXPERIS S.r.l. | (9) | |||||||
| LEONARDO GROUP | 206,420 | 133 | (1,912) | |||||
| ENI GROUP COMPANIES CONTROLLED BY MINISTRY OF ECONOMY AND FINANCE |
222 | (26) 1 |
||||||
| TOTAL OTHER RELATED PARTIES | 206,420 | 355 | (1,946) | |||||
| TOTAL RELATED PARTIES | 9,655 | 208,136 | 653 | 182,557 (43,836) | (11,124) | (14,121) | ||
| TOTAL CONSOLIDATED STATEMENT OF FINANCIAL POSITION |
234,822 46,705 852,177 | 13,544 855,204 | (323,717) | (1,285,771) (1,837,875) | ||||
| % on consolidated statement of fi nancial position |
4% | 0% | 24% | 5% | 21% | 14% | 1% | 1% |
(*) "Advances" are classifi ed in "Inventories and advances", as detailed in Note 11
(euro/000)
| 31.12.2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Non current financial assets |
Current financial assets |
Advances* | Trade receivables and other current assets |
Trade receivables and other non-current assets |
Non-current financial liabilities |
Current financial liabilities |
Trade payables and other current liabilities |
|
| FINTECNA S.p.A. | ||||||||
| CASSA DEPOSITI E PRESTITI S.p.A. | 20,357 | (48,935) | (17,564) | (87) | ||||
| TOTAL CONTROLLING COMPANIES | 20,357 | (48,935) | (17,564) | (87) | ||||
| ORIZZONTE SISTEMI NAVALI S.p.A. | 82,875 | (1,611) | (794) | |||||
| UNIFER NAVALE S.r.l. | (311) | |||||||
| CAMPER & NICHOLSONS INTERNATIONAL SA |
351 | |||||||
| CSSC - FINCANTIERI CRUISE INDUSTRY DEVELOPMENT Ltd. |
55,000 | |||||||
| ETIHAD SHIP BUILDING LLC | 2,100 | 14,482 | (5,820) | |||||
| TOTAL JOINT VENTURES | 351 | 2,100 | 152,357 | (1,611) | (6,925) | |||
| OLYMPIC GREEN ENERGY KS | 7 | |||||||
| DOF ICEMAN AS | 4,111 | |||||||
| BREVIK TECHNOLOGY AS | 178 | |||||||
| MØKSTER SUPPLY KS | 406 | |||||||
| CSS DESIGN | 642 | |||||||
| OLYMPIC CHALLENGER KS | 45 | |||||||
| CASTOR DRILLING SOLUT. AS | 173 | |||||||
| TOTAL ASSOCIATES | 225 | 5,337 | ||||||
| CDP IMMOBILIARE S.r.l. | 3,250 | (2,871) | ||||||
| SACE FCT | 13 | |||||||
| PENSION FUND FOR SENIOR MANAGERS OF FINCANTIERI S.p.A. |
(1,088) | |||||||
| COMETA NATIONAL PENSION FUND |
(3,523) | |||||||
| TERNA RETE ITALIA S.p.A. | ||||||||
| VALVITALIA S.p.A. | ||||||||
| SOLID. VENETO - PENSION FUND | ||||||||
| OTHER | 1,339 | 5 | (1,221) | |||||
| TOTAL CDP GROUP | 1,339 | 3,268 | (8,703) | |||||
| QUANTA S.p.A. | (447) | |||||||
| EXPERIS S.r.l. | (36) | |||||||
| LEONARDO GROUP | 203,081 | 1,921 | (2,474) | |||||
| ENI GROUP | (11) | 823 | (70) | |||||
| COMPANIES CONTROLLED BY MINISTRY OF ECONOMY AND FINANCE |
(14) | |||||||
| TOTAL OTHER RELATED PARTIES | 203,070 | 2,744 | (3,041) | |||||
| TOTAL RELATED PARTIES | 576 206,509 | 178,726 | 5,337 | (48,935) | (19,175) | (18,756) | ||
| TOTAL CONSOLIDATED STATEMENT OF FINANCIAL POSITION |
279,763 | 57,907 416,677 | 1,156,018 | 26,403 | (293,699) | (1,166,915) (1,973,482) | ||
| % on consolidated statement of fi nancial position |
0% | 1% | 50% | 15% | 20% | 17% | 2% | 1% |
(*) "Advances" are classifi ed in "Inventories and advances", as detailed in Note 11
(euro/000)
| 30.06.2018 | |||||
|---|---|---|---|---|---|
| Operating revenue |
Other revenue and income |
Materials, services and other costs |
Finance income | Finance costs | |
| FINTECNA S.p.A. | |||||
| CASSA DEPOSITI E PRESTITI S.p.A. | (43) | (565) | |||
| TOTAL CONTROLLING COMPANIES | (43) | (565) | |||
| ORIZZONTE SISTEMI NAVALI S.p.A. | 108,001 | 395 | (935) | (3) | |
| UNIFER NAVALE S.r.l. | (3,226) | ||||
| CAMPER & NICHOLSONS INTERNATIONAL SA | 8 | ||||
| ETIHAD SHIP BUILDING LLC | 92 | 155 | (1,163) | ||
| LUXURY INTERIORS FACTORY S.r.l. | 3 | (396) | |||
| TOTAL JOINT VENTURES | 108,093 | 553 | (5,720) | 8 | (3) |
| ARSENAL S.r.l. | (12) | ||||
| BREVIK TECHNOLOGY AS | 1 | ||||
| REM SUPPLY AS | |||||
| OLYMPIC GREEN ENERGY KS | 4 | ||||
| DOF ICEMAN AS | 432 | ||||
| TOTAL ASSOCIATES | (12) | 437 | |||
| CDP IMMOBILIARE S.r.l. | (379) | ||||
| SACE S.p.A. | (1,545) | ||||
| SACE FCT | 15 | ||||
| POSTE ITALIANE | (24) | ||||
| ACAM CLIENTI S.p.A. | |||||
| VALVITALIA | 28 | (2,962) | |||
| OTHER | 18 | ||||
| TOTAL CDP GROUP | 61 | (3,365) | (1,545) | ||
| QUANTA S.p.A. | (691) | ||||
| EXPERIS S.r.l. | (65) | ||||
| LEONARDO GROUP | 11 | (19,225) | |||
| ENI GROUP | 191 | (337) | |||
| ENEL GROUP | (8) | ||||
| COMPANIES CONTROLLED BY MINISTRY OF ECONOMY AND FINANCE |
|||||
| TOTAL OTHER RELATED PARTIES | 202 | (20,326) | |||
| TOTAL RELATED PARTIES | 108,295 | 614 | (29,466) | 445 | (2,113) |
| TOTAL CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME |
2,472,610 | 54,331 | (1,857,000) | 26,901 | (78,826) |
| % on consolidated statement of comprehensive income |
4% | 1% | 2% | 2% | 3% |
(euro/000)
| 30.06.2017 | ||||||
|---|---|---|---|---|---|---|
| Operating revenue |
Other revenue and income |
Materials, services and other costs |
Finance income | Finance costs | ||
| FINTECNA S.p.A. | ||||||
| CASSA DEPOSITI E PRESTITI S.p.A. | (43) | (782) | ||||
| TOTAL CONTROLLING COMPANIES | (43) | (782) | ||||
| ORIZZONTE SISTEMI NAVALI S.p.A. | 84,998 | 138 | (568) | (139) | ||
| UNIFER NAVALE S.r.l. | (386) | |||||
| CAMPER & NICHOLSONS INTERNATIONAL SA | 20 | |||||
| ETIHAD SHIP BUILDING LLC | 103 | (126) | ||||
| LUXURY INTERIORS FACTORY S.r.l. | ||||||
| TOTAL JOINT VENTURES | 84,998 | 241 | (1,080) | 20 | (139) | |
| ARSENAL S.r.l. | ||||||
| BREVIK TECHNOLOGY AS | 2 | |||||
| REM SUPPLY AS | 30 | |||||
| OLYMPIC GREEN ENERGY KS | 130 | |||||
| DOF ICEMAN AS | ||||||
| TOTAL ASSOCIATES | 162 | |||||
| CDP IMMOBILIARE S.r.l. | ||||||
| SACE S.p.A. | ||||||
| SACE FCT | 10 | |||||
| POSTE ITALIANE | ||||||
| IDS INGEGNERIA DEI SISTEMI S.p.A. | (402) | |||||
| ACAM CLIENTI S.p.A. | (1) | |||||
| VALVITALIA | 32 | (343) | ||||
| OTHER | ||||||
| TOTAL CDP GROUP | 42 | (746) | ||||
| QUANTA S.p.A. | (1,005) | |||||
| EXPERIS S.r.l. | (148) | |||||
| LEONARDO GROUP | 18 | (1,319) | ||||
| ENI GROUP | 161 | 19 | (416) | |||
| ENEL GROUP | (22) | |||||
| COMPANIES CONTROLLED BY MINISTRY OF ECONOMY AND FINANCE |
||||||
| TOTAL OTHER RELATED PARTIES | 161 | 37 | (2,910) | |||
| TOTAL RELATED PARTIES | 85,159 | 320 | (4,779) | 182 | (921) | |
| TOTAL CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME |
2,251,940 | 43,097 | (1,673,181) | 18,589 | (57,989) | |
| % on consolidated statement of comprehensive income |
4% | 1% | 0% | 1% | 2% |
The following transaction is also reported in accordance with art. 13, par. 3(c) of the Consob Regulations concerning related party transactions:
• the grant of a two-year revolving line of credit to FINCANTIERI S.p.A. in March 2018 by CDP S.p.A., in syndicate with a leading Italian credit institution, to meet fi nancing requirements associated with ordinary operations as well as the realization of research, development and innovation programs in the period 2018-2019 for a maximum amount of euro 200 million (of which euro 100 million granted by CDP S.p.A.). As at 30 June 2018, this loan had not been drawn down.
It is also reported that FINCANTIERI S.p.A. entered into two Exporter Indemnity Agreements with SIMEST S.p.A., qualifying as standard less material related party transactions.
Costs for contributions incurred in the fi rst half of 2018 and included in personnel costs amounted to euro 984 thousand (euro 477 thousand in the fi rst half of 2017) for the Pension Fund for Senior Managers of FINCANTIERI S.p.A. and euro 974 thousand (euro 593 thousand in the fi rst half of 2017) for the Cometa National Pension Fund.
Furthermore, during the period, Directors, Statutory Auditors, General Managers and other Key Management Personnel were paid a total of euro 4,024 thousand in remuneration by the Parent company, of which euro 1,788 thousand classifi ed in personnel costs and euro 2,236 thousand in the cost of services.
A detailed description of the medium/ long-term share-based incentive plan for management, called the Performance Share Plan is given below.
On 19 May 2017, the Shareholders' Meeting of FINCANTIERI S.p.A. approved the medium/ long-term share-based incentive plan for management, called the Performance Share Plan 2016-2018 (the "Plan") for management and related Terms and Conditions. It should be noted that the project had been previously approved by the Board of Directors on 10 November 2016. The Plan, structured in 3 three-year cycles, provides for the free grant, to the benefi ciaries identifi ed by the Board of Directors, of entitlements to receive a maximum of 50,000,000 ordinary shares in FINCANTIERI S.p.A. without nominal value, based on the achievement of specifi c performance targets for the three-year periods 2016-2018 (fi rst cycle), 2017-2019 (second cycle) and 2018-2020 (third cycle). The performance targets for all three cycles have been identifi ed as Total Shareholder Return ("TSR") and EBITDA, deemed to represent objective criteria for measuring long-term value creation for the Company. The Plan provides for a three-year vesting period for all benefi ciaries from the date the entitlements are awarded to the date the shares are allotted to the benefi ciaries. Therefore, if the performance targets are achieved and the other conditions of the Plan's Terms & Conditions satisfi ed, the shares vesting for the fi rst cycle will be allotted and delivered to benefi ciaries by 31 July 2019, while those vesting for the second and third cycles will be allotted and delivered by 31 July 2020 and 31 July 2021 respectively.
The Plan also provides for a lock-up period for part of the shares given to members of the Board of Directors or key management personnel of the Company.
With reference to the Plan's fi rst cycle, 9,101,544 ordinary shares in FINCANTIERI S.p.A. were awarded to the benefi ciaries identifi ed by the Board of Directors on 15 December 2016; while, for the second cycle, 4,170,706 shares in FINCANTIERI S.p.A. were awarded to the benefi ciaries identifi ed by the Board of Directors on 25 July 2017; and lastly, for the third and last cycle, 3,604,691 shares in the Parent Company were awarded to the benefi ciaries identifi ed by the Board of Directors on 22 June 2018.
The economic and fi nancial performance targets are comprised of two elements:
a) a "market based" component (with a 30% weight on total entitlements awarded) linked to measuring Fincantieri's performance in terms of TSR related to the FTSE ITALY ALL SHARE and the peer group identifi ed by the Company; b) a "non-market based" component (with a 70% weight on total entitlements awarded)
linked to the achievement of the Group's set EBITDA targets.
With reference to the market based component, the Monte Carlo calculation method is used, based on appropriate assumptions, which enables a consistent number of alternative scenarios to be defi ned over the time period in consideration. Unlike the market based performance target, the non-market based component (EBITDA) is not relevant for the fair value estimation, but is updated every quarter in order to take into account the expectations relating to the number of entitlements that could vest, depending on the achievement of the set EBITDA targets. To estimate of the number of entitlements at 31 December 2017, it is assumed that the targets are achieved. The fair value amount determined on the grant date for each cycle of the Plan is illustrated below.
| Grant date | No. shares awarded |
Fair value | |
|---|---|---|---|
| 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 |
| Third cycle of the Plan | 22 June 2018 | 3,604,691 | 3,963,754 |
With reference to the Performance Share Plan 2016-2018, the Shareholders' Meeting of FINCANTIERI S.p.A. on 19 May 2017 authorized the Board of Directors to purchase, for a period of 18 months from the date of the meeting, own ordinary shares for this Plan. At 30 June 2018, the Parent Company had purchased 4,706,890 own shares for euro 5,277 thousand.
On 11 May 2018, the Shareholders' Meeting of FINCANTIERI S.p.A. approved the Performance Share Plan 2019-2021 (the "Plan") for management, and the related Terms and Conditions, the structure
of which was defi ned by the Board of Directors at the meeting held on 27 March 2018.
The Plan, structured in 3 three-year cycles, provides for the free grant, to the benefi ciaries identifi ed by the Board of Directors, of entitlements to receive a maximum of 25,000,000 ordinary shares in FINCANTIERI S.p.A. without nominal value, based on the achievement of specifi c performance targets for the three-year periods 2019-2021 (fi rst cycle), 2020-2022 (second cycle) and 2021-2023 (third cycle). The Plan provides for a three-year vesting period for all benefi ciaries from the date the entitlements are awarded to the date
the shares are allotted to the benefi ciaries. Therefore, if the performance targets are achieved and the other conditions of the Plan's Terms & Conditions satisfi ed, the shares vesting for the fi rst cycle will be allotted and delivered to benefi ciaries by 31 July 2022, while those vesting for the second and third cycles will be allotted and delivered by 31 July 2023 and 31 July 2024 respectively.
The Plan also provides for a lock-up period for part of the shares given to members of the Board of Directors or key management personnel of the Company.
Among the Plan's targets, in addition to the EBITDA and TRS already included in the Performance Share Plan 2016-2018, the Group introduced another parameter, the sustainability index, to measure achievement of the sustainability targets set by the Group in order to align with European best practices and the fi nancial community's increased expectations for sustainable development.
The references used to test achievement of the sustainability target are market parameters such as the "CDP" (Carbon Disclosure Project) and a second rating by another agency which evaluates the entire basket of sustainability aspects. The free award of a number of rights is left to the Board of Directors, which also has the power to identify the number and names of the benefi ciaries.
The following is an update on the status of litigation described in the Notes to the 2017 Consolidated Financial Statements:
With reference to the "Iraq" litigation, on 20 June 2018 the Iraqi Government served Fincantieri with the appeal before the French Court of Cassation against the ruling of the Appeals Court of Paris dated 18 January 2018, which rejected the counterparty's claims against the arbitration awarded to Fincantieri. As regards the "Serene" dispute, unless there are any further postponements, a ruling is expected in the third quarter of 2018 on the appeal lodged by Fincantieri on 20 July 2017 against the decision of the Court of Amsterdam handed down on 24 July 2017 recognizing the English awards, though subjecting their enforcement to the presentation of a guarantee by the claimant to protect Fincantieri's compensation should it win. To date this guarantee has not been given. Failure to do this means the claimant cannot proceed to enforce the shares held by Fincantieri in Fincantieri Holding BV, subject to preventive seizure.
With regard to the dispute pending in the Court of Patras (Greece), brought by Mr. Papanikolaou and his wife against the Company, Minoan Lines and others following an accident in 2007 involving the claimant whilst aboard the ship "Europa Palace", built by Fincantieri, the end of the proceeding before the Court of Cassation relating to the alleged loss of income until 2012 and the ruling on the proceeding relating to the alleged loss of income from 2012 to 2052, during which Fincantieri renewed its wish to postpone the decision on the merits until the ruling is handed down by the Court of Cassation on the previous proceeding and asked to the see the settlement between Mr Papanikolaou and Minoan Lines, are both expected in the last quarter of 2018.
With regard to the dispute pending in the District Courts of California and Florida, brought by Mr Yuzwa against Fincantieri, Carnival and others for loss suff ered by the claimant following an accident aboard the ship "Oosterdam" in 2011, built by Fincantieri, the Florida Court of Appeal upheld Fincantieri's exclusion request, acknowledging the lack of jurisdiction, and then it rejected the appeal brought by the counterparty. The ruling by the Supreme Court in Florida on the extraordinary appeal lodged by the counterparty is pending.
This refers to cases brought by employees and former employees of contractors and subcontractors, which involve the Company under the "customer co-liability" principle (art. 1676 of the Italian Civil Code and art. 29 of Legislative Decree 276/2003). Litigation relating to asbestos continues to be settled both in and out of court in 2018.
With reference to disputes with government bodies for environmental expenses, the dispute against the Ministry of the Environment involving the Castellammare di Stabia shipyard ended with a fi nal ruling of insuffi ciency of interest.
The Group is currently involved in six criminal prosecutions brought under Legislative Decree no. 231/2001 in the Court of Gorizia.
In October 2017, the former Managers of the Monfalcone shipyard, the former General Managers of the Company, the Company's former head of Safety and former Head of Personnel were notifi ed of the conclusion of the preliminary investigations for the off ences referred to in art. 256, par. 1(a) and 1(b) of Legislative Decree No. 152/2006 ("Unauthorized waste management activities"). As part of the same proceeding, in April 2018, the Company was also notifi ed of the conclusion of the investigations for the off ence referred to in art. 25-undecies of Legislative Decree No. 231/2001 ("Environmental Off ences"). In June 2018, the Company's Chief Executive Offi cer and others were notifi ed of the conclusion of the preliminary investigations relating to the Palermo shipyard for the off ence referred to in art. 452-quaterdecies of the Criminal Code ("Illegal waste traffi cking activities") and the Company for the off ence referred to in art. 25-undecies, par. 2(f) Legislative Decree No. 231/2001 ("Environmental Off ences").
FINCANTIERI S.p.A., Fincantieri Oil & Gas S.p.A. and Isotta Fraschini Motori S.p.A. take part in the national tax consolidation of Cassa Depositi e Prestiti S.p.A..
With reference to the tax audit of fi scal year 2013, evidence appraisal is ongoing.
In 2017, the Italian Revenue Service, Trieste offi ce, carried out a tax audit of fi scal year 2015; the audit ended with the notifi cation of a formal notice of assessment containing fi ndings essentially related to the acquisition of a company in 2015. Assessments on fi scal years 2014 and 2015 were notifi ed in 2018 and a settlement is currently being attempted.
The same fi ndings were used by the Italian Revenue Service, Pordenone offi ce, to adjust the value of the deed for the purposes of the registration fee.
After an unsuccessful attempt at settlement, an appeal has been fi led with the Tax Commission (jointly with the seller of the company, jointly and severally liable).
These are analyzed as follows:
(euro/000)
| 30.06.2018 | 30.06.2017 | |
|---|---|---|
| Profi t/(loss) for the period | 14,994 | 10,802 |
| Depreciation and amortization | 65,694 | 57,756 |
| (Gains)/losses from disposal of property, plant and equipment | (3,174) | (341) |
| (Revaluation)/impairment of property, plant and equipment, intangible assets and equity investments |
(1,216) | 1,624 |
| Increases/(releases) of provisions for risks and charges | 37,614 | 35,957 |
| Interest expenses capitalized | ||
| Interest on employee benefi ts | 388 | 624 |
| Interest income | (5,284) | (3,620) |
| Interest expense | 39,340 | 34,910 |
| Income taxes | 20,016 | 14,104 |
| Long-term share-based incentive plan | 2,068 | 1,785 |
| Impact of unrealized exchange rate changes | 12,649 | 1,773 |
| Finance income and costs from derivatives | ||
| Gross cash fl ows from operating activities | 183,089 | 155,374 |
| CHANGES IN WORKING CAPITAL | ||
| - inventories | (8,686) | 1,117 |
| - construction contracts and client advances | 3,397 | (1,017,176) |
| - trade receivables | 310,653 | 671,975 |
| - other current assets and liabilities | 16,392 | (83,416) |
| - other non-current assets and liabilities | (3,288) | (4,017) |
| - trade payables | (160,318) | 128,330 |
| Cash fl ows from working capital | 341,239 | (147,813) |
| Dividends paid | (16,875) | |
| Interest income received | 3,991 | 2,664 |
| Interest expense paid | (18,763) | (17,333) |
| Income taxes (paid)/collected | (21,714) | (3,796) |
| Utilization of provisions for risks and charges and for employee benefi ts | (25,428) | (31,365) |
| NET CASH FLOWS FROM OPERATING ACTIVITIES | 262,450 | (197,643) |
| - of which related parties | (5,409) | (29,368) |
Management has identifi ed the following operating segments which refl ect the model used to manage and control the business sectors in which the Group operates: Shipbuilding, Off shore, Systems, Components and Services and Other Activities. The Shipbuilding operating segment is engaged in the design and construction of cruise ships, ferries, naval vessels (for the Italian and foreign navies) and mega yachts. Production is carried out at the Group's shipyards in Italy, Europe and the United States. Off shore, represented by the subsidiary VARD, encompasses the design and construction of high-end off shore support vessels, expedition cruise vessels, specialized ships, and vessels for off shore wind farms and open ocean aquaculture, as well as the off er of innovative products in the fi eld of drillships and semisubmersible drilling rigs.
The Equipment, Systems and Services operating segment is engaged in the design and manufacture of high-tech equipment and systems, such as stabilization, propulsion, positioning and power generation systems, ship automation systems, steam turbines, integrated systems and ship accommodation, and in the provision of repair and conversion
services, logistical support and after-sales services.
Other activities primarily refer to the cost of activities by corporate headquarters, which are not allocated to other operating segments. The Group evaluates the performance of its operating segments and the allocation of fi nancial resources on the basis of revenue and EBITDA. The latter is defi ned as Profi t/ (loss) for the period adjusted for the following items: (i) Income taxes, (ii) Share of profi t/ (loss) of investments accounted for using the equity method, (iii) Income/(expense) from investments, (iv) Finance costs, (v) Finance income, (vi) Depreciation, amortization and impairment, (vii) costs borne by the Company associated with the "Wage Guarantee Fund", (viii) costs relating to reorganization plans and other non-recurring personnel costs, (ix) provisions for costs and legal expenses associated with lawsuits brought by employees for asbestos-related damages, and (x) other particularly material expenses or income outside the ordinary course of business arising from non-recurring events.
The results of the operating segments at 30 June 2018 and 30 June 2017 are reported in the following pages.
| (euro/000) | |||||
|---|---|---|---|---|---|
| 30.06.2018 | |||||
| Shipbuilding | Offshore | Equipment, Systems and Services |
Other Activities | Group | |
| Segment revenue | 1,892,286 | 563,932 | 321,450 | 844 | 2,778,512 |
| Intersegment elimination | (6,897) | (77,710) | (166,218) | (746) | (251,571) |
| Revenue(*) | 1,885,389 | 486,222 | 155,232 | 98 | 2,526,941 |
| EBITDA | 160,481 | 6,565 | 34,334 | (18,054) | 183,326 |
| EBITDA margin | 8,5% | 1,2% | 10,7% | 7,3% | |
| Depreciation, amortization and impairment |
(65,719) | ||||
| Finance income | 26,901 | ||||
| Finance costs | (78,826) | ||||
| Income/(expense) from investments | 2,757 | ||||
| Share of profi t of investments accounted for using the equity method |
(1,503) | ||||
| Income taxes | (27,985) | ||||
| Extraordinary and non-recurring income and expenses |
(23,957) | ||||
| Profi t/(loss) for the period | 14,994 |
(*) Revenue: Sum of "Operating revenue" and "Other revenue and income" reported in the consolidated statement of comprehensive income.
Details of "Extraordinary and non-recurring income and expenses" gross of the tax eff ect (euro 7,969 thousand) are presented in the following table.
| Extraordinary and non-recurring income and expenses | 31,927 |
|---|---|
| Other non-recurring income and expenses | 2,789 |
| Provisions for costs and legal expenses associated with asbestos-related lawsuits(3) | (32,134) |
| Costs relating to reorganization plans and other non-recurring personnel costs(2) | (2,582) |
| Costs associated with the " Wage Guarantee Fund"(1) | - |
| 30.06.2018 | |
| (euro/000) |
(1) Amount included in "Personnel costs".
(2) Amount included in "Personnel costs".
(3) Of which euro 1.9 million included in "Materials, services and other costs" and euro 30.2 million in "Provisions".
| 30.06.2017 | |||||
|---|---|---|---|---|---|
| Shipbuilding | Offshore | Equipment, Systems and Services |
Other Activities | Group | |
| Segment revenue | 1,757,219 | 447,835 | 226,595 | 667 | 2,432,316 |
| Intersegment elimination | (7,385) | (31,872) | (97,491) | (529) | (137,278) |
| Revenue(*) | 1,749,834 | 415,963 | 129,104 | 138 | 2,295,038 |
| EBITDA | 114,955 | 21,514 | 25,196 | (16,143) | 145,522 |
| EBITDA margin | 6,5% | 4,8% | 11,1% | 6,3% | |
| Depreciation, amortization and impairment |
(57,775) | ||||
| Finance income | 18,589 | ||||
| Finance costs | (57,989) | ||||
| Income/(expense) from investments | (59) | ||||
| Share of profi t of investments accounted for using the equity method |
(1,280) | ||||
| Income taxes | (14,104) | ||||
| Extraordinary and non-recurring income and expenses |
(22,102) | ||||
| Profi t/(loss) for the period | 10,802 |
(*) Revenue: Sum of "Operating revenue" and "Other revenue and income" reported in the consolidated statement of comprehensive income.
Details of "Extraordinary and non-recurring income and expenses" gross of the tax eff ect (euro 5,038 thousand) are presented in the following table.
| 30.06.2017 | |
|---|---|
| Costs associated with the "Extraordinary Wage Guarantee Fund"(1) | (78) |
| Costs relating to reorganization plans and other non-recurring personnel costs(2) | (1,049) |
| Provisions for costs and legal expenses associated with asbestos-related lawsuits(3) | (18,736) |
| Other non-recurring income and expenses | (2,239) |
| Extraordinary and non-recurring income and expenses | (22,102) |
(1) Amount included in "Personnel costs".
(2) Amount included in "Personnel costs".
(3) Of which euro 1.6 million included in "Materials, services and other costs" and euro 17.1 million in "Provisions".
| The following table shows a breakdown of | ||
|---|---|---|
| Property, plant and equipment in Italy and |
other countries:
(euro/million)
| Total Property, plant and equipment | 1,031 | 1,045 |
|---|---|---|
| Other countries | 366 | 379 |
| Italy | 665 | 666 |
| 30.06.2018 | 31.12.2017 |
Capital expenditure in the fi rst half of 2018 on Intangible assets and Property, plant and equipment amounted to euro 44 million, of which euro 33 million relating to Italy and the remainder to other countries.
The following table shows a breakdown of revenue and income between Italy and other countries, according to client country of residence:
| (euro/million) | ||
|---|---|---|
| 30.06.2018 | 30.06.2017 | ||||
|---|---|---|---|---|---|
| Revenue and income | % | Revenue and income | % | ||
| Italy | 453 | 18% | 326 | 14% | |
| Other countries | 2,074 | 82% | 1,969 | 86% | |
| Total Revenue and income | 2,527 | 2,295 |
The following table shows those clients whose revenue (defi ned as revenue plus change in inventories) accounted for
more than 10% of the Group's revenue and income in each reporting period:
| 30.06.2018 | 30.06.2017 | |||
|---|---|---|---|---|
| Revenue and income % |
Revenue and income | % | ||
| Client 1 | 699 | 28% | 563 | 25% |
| Client 2 | 349 | 14% | 334 | 15% |
| Total Revenue and income | 2,527 | 2,295 |
On 3 July 2018, the subsidiary VARD secured a new order for the construction of an Expedition Cruise ship (part of the series of 2 vessels commissioned previously) for the shipowner Hapag-Lloyd Cruises. On 12 July 2018, Fincantieri received confi rmation from Norwegian Cruise Line Holdings Ltd. of the orders for the construction of the fi fth and sixth vessels in the "Leonardo" class new-generation cruise ships for the Norwegian Cruise Line (NCL), which will be delivered in 2026 and 2027. The option was contained in the February 2017 agreement for the construction of the fi rst 4 vessels.
On 13 July 2018, Fincantieri received an order from TUI Cruises, the joint venture between TUI AG and Royal Caribbean Cruises, for the construction of 2 new-generation cruise ships powered by LNG (Liquid Natural Gas). These vessels will be built at the Monfalcone shipyard and delivered in 2024 and 2026. On 20 July 2018, the US Government awarded the consortium led by Lockheed Martin, in which Fincantieri's subsidiary, Marinette Marine Corporation, is a partner, an order under an "Undefi nitized Contract Action" as an advance on the Foreign Military Sales contract for the construction of four
Multi-Mission Surface Combatants (MMSC) for Saudi Arabia. The ships will be built in the Marinette shipyard (Wisconsin) and will be characterized by their high maneurverability, the fl exibility deriving from the Freedom class Littoral Combat Ship's single hull, constructed by the same consortium for the US Navy, with autonomy increased to 5,000 nautical miles and a speed above 30 knots, making it capable of coastal and open sea patrol operations.
On 23 July 2018, Fincantieri signed a Memorandum of Agreement with Princess Cruises, the brand belonging to Carnival Corporation & plc, for the construction of 2 cruise ships, the fi rst in the fl eet to be primarily fueled by liquefi ed natural gas (LNG). Each ship will have a gross tonnage of 175,000 and will be largest ever built in Italy. On 24 July 2018, the subsidiary VARD signed a contract for the design and construction of two expedition cruise ships for Viking. The vessels will be delivered in Norway in 2021 and 2022 respectively and they will be the fi rst vessels built for this shipowner by VARD.
On 24 July 2018, the Shareholders' Meeting of VARD approved the company's delisting from the Singapore stock exchange.
| COMPANY NAME Principal activity |
Registered office |
Share capital | (%) interest held | % consolidated by Group |
||
|---|---|---|---|---|---|---|
| Subsidiaries consolidated line-by-line |
||||||
| BACINI DI PALERMO S.p.A. | Palermo | EUR | 1,032,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| Dry-dock management | ||||||
| CENTRO PER GLI STUDI DI TECNICA NAVALE CETENA S.p.A. |
Genoa | EUR | 1,000,000.00 | 71.10 | FINCANTIERI S.p.A. | 86.10 |
| Ship research and experimentation | 15.00 | Seaf S.p.A. | ||||
| FINCANTIERI OIL & GAS S.p.A. | ||||||
| Holding company | Trieste | EUR | 21,000,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| FINCANTIERI HOLDING B.V. | ||||||
| Holding company for foreign | Netherlands | EUR | 9,529,384.54 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| investments | ||||||
| FINCANTIERI MARINE SYSTEMS | ||||||
| NORTH AMERICA Inc. | USA | USD | 501,000.00 | 100.00 | Fincantieri | 100.00 |
| Sale and after-sale services relating | Holding B.V. | |||||
| to mechanical products | ||||||
| FMSNA YK | Japan | JPY | 3,000,000.00 | 100.00 | Fincantieri Marine Systems North |
100.00 |
| Servicing and sale of spare parts | America Inc. | |||||
| GESTIONE BACINI LA SPEZIA S.p.A. | Muggiano | |||||
| Dry-dock management | (La Spezia) | EUR | 260,000.00 | 99.89 | FINCANTIERI S.p.A. | 99.89 |
| ISOTTA FRASCHINI MOTORI S.p.A. | ||||||
| Design. construction. sale and after | Bari | EUR | 3,300,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| sale services relating to fast medium | ||||||
| duty diesel engines | ||||||
| SOCIETÀ PER L'ESERCIZIO DI | ||||||
| ATTIVITÀ FINANZIARIE SEAF S.p.A. Financial support for Group |
Trieste | EUR | 6,562,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| companies | ||||||
| DELFI S.r.l. | Follo | |||||
| Technical and logistics engineering | (La Spezia) | EUR | 400,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| ISSEL NORD S.r.l. | Follo | |||||
| Logistics engineering | (La Spezia) | EUR | 102,961.00 | 100.00 | Delfi S.r.l. | 100.00 |
| SEASTEMA S.p.A. | ||||||
| Design and development of | Genoa | EUR | 300,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| integrated automation systems | ||||||
| FINCANTIERI AUSTRALIA Pty Ltd. | Australia | AUD | 2,200,100.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| Shipbuilding support activities | ||||||
| FINCANTIERI SERVICES MIDDLE | ||||||
| EAST LLC Project management services |
Qatar | EUR | 200,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| FINCANTIERI USA Inc. | ||||||
| Holding company | USA | USD | 1,029.75 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| FINCANTIERI SERVICES USA LLC | ||||||
| After-sales services | USA | USD | 300,001.00 | 100.00 | Fincantieri USA Inc. | 100.00 |
| COMPANY NAME Principal activity |
Registered office |
Share capital | (%) interest held | % consolidated by Group |
||
|---|---|---|---|---|---|---|
| FINCANTIERI MARINE GROUP HOLDINGS Inc. Holding company |
USA | USD | 1,027.97 | 87.44 Fincantieri USA Inc. | 87.44 | |
| FINCANTIERI MARINE GROUP LLC Ship building and repair |
USA | USD | 1,000.00 | 100.00 | Fincantieri Marine Group Holdings Inc. |
87.44 |
| MARINETTE MARINE CORPORATION Ship building and repair |
USA | USD | 146,706.00 | 100.00 | Fincantieri Marine Group LLC |
87.44 |
| ACE MARINE LLC Building of small aluminium ships |
USA | USD | 1,000.00 | 100.00 | Fincantieri Marine Group LLC |
87.44 |
| FINCANTIERI DO BRASIL PARTICIPAÇÕES SA Holding company |
Brazil | BRL | 1,310,000.00 | 80.00 20.00 |
FINCANTIERI S.p.A. Fincantieri Holding B.V. |
100.00 |
| FINCANTIERI INDIA Pte. Ltd. Design, technical support and marketing |
India | INR | 10,500,000.00 | 99.00 1.00 |
Fincantieri Holding B.V. FINCANTIERI S.p.A. |
100.00 |
| MARINE INTERIORS S.p.A. Ship interiors |
Trieste | EUR | 5,120,000.00 | 100.00 | Seaf S.p.A. | 100.00 |
| M.I. GALLEY S.r.l. Dormant |
Pordenone | EUR | 50,000.00 | 85.00 | Marine Interiors S.p.A. |
85.00 |
| FINCANTIERI SI S.p.A. Electric, electronic and electromechanical industrial solutions |
Trieste | EUR | 500,000.00 | 100.00 | Seaf S.p.A. | 100.00 |
| FINCANTIERI INFRASTRUCTURE S.p.A. Carpentry |
Trieste | EUR | 500,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| FINCANTIERI SWEDEN AB Sale, maintenance and after-sales service for a series of systems, equipment and related activities |
Sweden | SEK | 5,000,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| FINCANTIERI (SHANGHAI) TRADING Co. Ltd. Engineering design, consulting and development |
China | CNY | 3,500,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| FINCANTIERI EUROPE S.p.A. Holding company |
Italy | EUR | 50,000.00 | 100.00 | FINCANTIERI S.p.A. | 100.00 |
| VARD HOLDINGS Ltd. Holding company |
Singapore | SGD 932,200,000.00 | 83.51 | Fincantieri Oil & Gas S.p.A. |
83.51 | |
| VARD GROUP AS Shipbuilding |
Norway | NOK | 16,295,600.00 | 100.00 | Vard Holdings Ltd. | 83.51 |
| VARD SHIPHOLDING SINGAPORE Pte. Ltd. Charter of boats, ships and barges |
Singapore | USD | 1.00 | 100.00 | Vard Holdings Ltd. | 83.51 |
| VARD ELECTRO AS Electrical/automation installation |
Norway | NOK | 1,000,000.00 | 100.00 | VARD Group AS | 83.51 |
| COMPANY NAME Principal activity |
Registered office |
Share capital | (%) interest held | % consolidated by Group |
||
|---|---|---|---|---|---|---|
| VARD ELECTRO ITALY S.r.l. Installation, production, sale and assistance for electrical equipment and parts |
Genoa | EUR | 200,000.00 | 100.00 | Vard Electro AS | 83.51 |
| VARD RO HOLDING S.r.l. Holding company |
Romania | RON | 82,573,830.00 | 100.00 | VARD Group AS | 83.51 |
| VARD NITERÓI Ltda. Inactive |
Brazil | BRL 354,883,790.00 | 99.99 0.01 |
VARD Group AS Vard Electro Brazil (Instalaçoes Eletricas) Ltda. |
83.51 | |
| VARD PROMAR SA Shipbuilding |
Brazil | BRL | 869,108,180.00 | 100.00 | VARD Group AS | 83.51 |
| ESTALEIRO QUISSAMÃ Ltda. Inactive |
Brazil | BRL | 400,000.00 | 50.50 | VARD Group AS | 42.17 |
| VARD SINGAPORE Pte. Ltd. Sales and holding company |
Singapore | USD | 6,000,000.00 | 100.00 | VARD Group AS | 83.51 |
| VARD DESIGN AS Design and engineering |
Norway | NOK | 4,000,000.00 | 100.00 | VARD Group AS | 83.51 |
| VARD ACCOMMODATION AS Accommodation installation |
Norway | NOK | 500,000.00 | 100.00 | VARD Group AS | 83.51 |
| VARD PIPING AS Pipe installation |
Norway | NOK | 100,000.00 | 100.00 | VARD Group AS | 83.51 |
| SEAONICS AS Off shore handling systems |
Norway | NOK | 46,639,721.00 | 56.40 | VARD Group AS | 47.10 |
| VARD SEAONICS HOLDING AS Dormant |
Norway | NOK | 30,000.00 | 100.00 | VARD Group AS | 83.51 |
| SEAONICS POLSKA SP. Z.O.O. Engineering services |
Poland | PLN | 400,000.00 | 62.50 37.50 |
ICD Software AS Seaonics AS |
47.10 |
| VARD DESIGN LIBURNA Ltd. Design and engineering |
Croatia | HRK | 20,000.00 | 51.00 | Vard Design AS | 42.59 |
| VARD ELECTRO TULCEA S.r.l. Electrical installation |
Romania | RON | 4,149,525.00 | 99.96 | Vard Electro AS | 83.48 |
| VARD ELECTRO BRAZIL (INSTALAÇÕES ELETRICAS) Ltda. Electrical installation |
Brazil | BRL | 3,000,000.00 | 99.00 1.00 |
Vard Electro AS VARD Group AS |
83.51 |
| VARD ELECTRO BRAILA S.r.l. Electrical installation |
Romania | RON | 45,000.00 | 100.00 | Vard Electro AS | 83.51 |
| VARD ELECTRICAL INSTALLATION AND ENGINEERING (INDIA) Pte. Ltd. Electrical installation |
India | INR | 7,000,000.00 | 99.00 1.00 |
Vard Electro AS Vard Electro Tulcea S.r.l. |
83.51 |
| VARD TULCEA SA Shipbuilding |
Romania | RON | 151,606,459.00 | 99.996 0.004 |
Vard RO Holding S.r.l. VARD Group As |
83.51 |
| VARD BRAILA SA Shipbuilding |
Romania | RON | 165,862,177.50 | 94.12 5.88 |
Vard RO Holding S.r.l. VARD Group AS |
83.51 |
| COMPANY NAME Principal activity |
Registered office |
Share capital | (%) interest held | % consolidated by Group |
||
|---|---|---|---|---|---|---|
| VARD ENGINEERING CONSTANTA S.r.l. Engineering |
Romania | RON | 1,408,000.00 | 70.00 30.00 |
Vard RO Holding S.r.l. Vard Braila S.A. |
83.51 |
| VARD VUNG TAU Ltd. Shipbuilding |
Vietnam | USD | 8,000,000.00 | 100.00 | Vard Singapore Pte. Ltd. |
83.51 |
| VARD ACCOMMODATION TULCEA S.r.l. Accommodation installation |
Romania | RON | 436,000.00 | 99.77 0.23 |
Vard Accomodation AS Vard Electro Tulcea S.r.l. |
83.51 |
| VARD ENGINEERING BREVIK AS Design and engineering |
Norway | NOK | 105,000.00 | 100.00 | VARD Group AS | 83.51 |
| VARD OFFSHORE BREVIK AS Services and installation |
Norway | NOK | 100,000.00 | 100.00 | VARD Group AS | 83.51 |
| VARD SHIP REPAIR BRAILA SA Ship repair |
Romania | RON | - | 100.00 | Vard Braila SA | 83.51 |
| VARD MARINE Inc. Design and engineering |
Canada | CAD | 9,783,700.00 | 100.00 | VARD Group AS | 83.51 |
| VARD MARINE US Inc. Ship design and marine engineering |
USA | USD | 10,000.00 | 100.00 | Vard Marine Inc. | 83.51 |
| VARD ENGINEERING GDANSK Sp. Z.o.o. Off shore design and engineering activities |
Poland | PLN | 50,000.00 | 100.00 | Vard Engineering Brevik AS |
83.51 |
| VARD CONTRACTING AS Various shipbuilding services |
Norway | NOK | 500,000.00 | 100.00 | VARD Group AS | 83.51 |
| INDUSTRIAL CONTROL DESIGN AS Automation and control system |
Norway | NOK | 536,796.00 | 100.00 | Seaonics AS | 47.10 |
| CDP TECHNOLOGIES ESTONIA OÜ Automation and control system |
Estonia | EUR | 5,200.00 | 100.00 CDP Technologies AS | 47.10 | |
| SIA ICD INDUSTRIES LATVIA Automation and control system software |
Latvia | EUR | 33,164.00 | 100.00 | Industrial Control Design AS |
47.10 |
| VARD ELECTRO CANADA Inc. Installation and integration of electrical systems |
Canada | CAD | 100,000.00 | 100.00 | Vard Electro AS | 83.51 |
| CDP TECHNOLOGIES AS Research and development of technology |
Norway | NOK | 500,000.00 | 100.00 | Seaonics AS | 47.10 |
| VARD AQUA SUNNDAL AS Supplier of aquaculture equipment |
Norway | NOK | 1,100,000.00 | 96.42 | VARD Group AS | 80.52 |
| VARD AQUA CHILE SA Supplier of aquaculture equipment |
Chile | CLP | 137,989,917.00 | 95.00 Vard Aqua Sunndal AS | 76.49 | |
| VARD AQUA SCOTLAND Ltd. Supplier of aquaculture equipment |
UK | GBP | 10,000.00 | 100.00 Vard Aqua Sunndal AS | 80.52 |
| COMPANY NAME Principal activity |
Registered office |
Share capital | (%) interest held | % consolidated by Group |
||
|---|---|---|---|---|---|---|
| Joint ventures consolidated using the equity method |
||||||
| ORIZZONTE SISTEMI NAVALI S.p.A. Management of large naval vessel contracts |
Genoa | EUR | 20,000,000.00 | 51.00 | FINCANTIERI S.p.A. | 51.00 |
| ETIHAD SHIP BUILDING LLC Design, production and sale of civilian and naval ships |
Arab Emirates | AED | 2,500,000.00 | 35.00 | FINCANTIERI S.p.A. | 35.00 |
| CSSC - FINCANTIERI CRUISE INDUSTRY DEVELOPMENT Ltd. Design and marketing of cruise ships |
Hong Kong | EUR 140,000,000.00 | 40.00 | FINCANTIERI S.p.A. | 40.00 | |
| UNIFER NAVALE S.r.l. Piping |
Modena | EUR | 150,000.00 | 20.00 | Seaf S.p.A. | 20.00 |
| LUXURY INTERIORS FACTORY S.r.l. Ship interiors |
Italy | EUR | 50,000.00 | 40.00 Marine Interiors S.p.A. | 40.00 | |
| CSSC - FINCANTIERI (SHANGAI) CRUISE DESIGN LIMITED Engineering, Project Management and Supply Chain Management |
Hong Kong | RMB | 1,000,000.00 | 100.00 | CSSC - Fincantieri Cruise Industry Development Limited |
40.00 |
| ISSEL MIDDLE EAST TECHNOLOGY CONSULTANCY LLC IT consulting and Oil & Gas services |
Qatar | AED | 150,000.00 | 49.00 | Issel Nord S.r.l. | 49.00 |
| COMPANY NAME Principal activity |
Registered office |
Share capital | (%) interest held | % consolidated by Group |
||
|---|---|---|---|---|---|---|
| Associates consolidated using | ||||||
| the equity method CASTOR DRILLING SOLUTION AS |
||||||
| Off shore drilling technology | Norway | NOK | 229,710.00 | 34.13 | Seaonics AS | 16.08 |
| OLYMPIC CHALLENGER KS | Norway | NOK | 84,000,000.00 | 35.00 | VARD Group AS | 29.23 |
| Shipowner | ||||||
| BREVIK TECHNOLOGY AS | ||||||
| Holding of technology licenses and | Norway | NOK | 600,000.00 | 34.00 | VARD Group AS | 28.39 |
| patents | ||||||
| ARSENAL S.r.l. | Italy | EUR | 16,421.05 | 24.00 | Fincantieri Oil & Gas | 24.00 |
| IT consulting | S.p.A. | |||||
| MØKSTER SUPPLY AS | Norway | NOK | 13,296,000.00 | 40.00 | VARD Group AS | 33.40 |
| Shipowner | ||||||
| MØKSTER SUPPLY KS | Norway | NOK | 131,950,000.00 | 36.00 | VARD Group AS | 30.06 |
| Shipowner | ||||||
| REM SUPPLY AS | Norway | NOK | 345,003,000.00 | 26.66 | VARD Group AS | 22.26 |
| Shipowner | ||||||
| OLYMPIC GREEN ENERGY KS | Norway | NOK | 4,841,028.00 | 29.50 | VARD Group AS | 24.64 |
| Shipowner | ||||||
| DOF ICEMAN AS | Norway | NOK | 23,600,000.00 | 50.00 | VARD Group AS | 41.76 |
| Shipowner | ||||||
| TAKLIFT AS Floating cranes |
Norway | NOK | 2,450,000.00 | 25.47 | VARD Group AS | 21.27 |
| AS DAMECO Maintenance services |
Norway | NOK | 606,000.00 | 34.00 | Vard Offshore Brevik AS |
28.39 |
| ISLAND DILIGENCE AS Shipowner |
Norway | NOK | 17,012,500.00 | 39.38 | VARD Group AS | 32.89 |
| CENTRO SERVIZI NAVALI S.p.A. | ||||||
| Steel-working | Italy | EUR | 12,782,000.00 | 10.94 | FINCANTIERI S.p.A. | 10.94 |
| CSS DESIGN LIMITED | British Virgin | 31.00 | Vard Marine Inc. | |||
| Design and engineering | Islands | GBP | 100.00 | 25.89 | ||
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 Legislative Decree 58 dated 24 February 1998, hereby represent:
the suitability in relation to the business's organization and,
of the administrative and accounting processes for the preparation of the condensed consolidated half-year fi nancial statements at 30 June 2018, during the fi rst half of 2018.
The adequacy of the administrative and accounting processes for preparing the condensed consolidated half-year fi nancial statements at 30 June 2018 has been evaluated on the basis of a procedure established by Fincantieri in compliance with the Internal Control - Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, which is the generally accepted standard model internationally.
The undersigned also represent that:
3.1 the condensed consolidated half-year fi nancial statements at 30 June 2018:
3.2 the report on operating performance includes a fair review of the important events taking place in the fi rst six months of the year and their impact on the condensed consolidated half-year fi nancial statements, together with a description of the principal risks and uncertainties to which the Group is exposed.
26 July 2018
CHIEF EXECUTIVE OFFICER
Giuseppe Bono
MANAGER RESPONSIBLE FOR PREPARING FINANCIAL REPORTS
Felice Bonavolontà
To the shareholders of Fincantieri SpA
We have reviewed the accompanying consolidated condensed interim financial statements of Fincantieri SpA and its subsidiaries (the Fincantieri Group) as of 30 June 2018, comprising the consolidated statement of financial position, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and related notes. The directors of Fincantieri SpA are responsible for the preparation of the consolidated condensed interim financial statements in accordance with the International Accounting Standard applicable to interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on these consolidated condensed interim financial statements based on our review.
We conducted our work in accordance with the criteria for a review recommended by Consob in Resolution n°10867 of 31 July 1997. A review of consolidated condensed interim financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than a fullscope audit conducted in accordance with International Standards on Auditing (ISA Italia) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the consolidated condensed interim financial statements.
Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated condensed interim financial statements of the Fincantieri Group as of 30 June 2018 are not prepared, in all material respects, in accordance with the International Accounting Standard applicable to interim financial reporting (IAS 34) as adopted by the European Union.
Trieste, 27 July 2018
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
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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