SALINI COSTRUTTORI GROUP

Transcription

1 SALINI COSTRUTTORI GROUP HALF-YEAR FINANCIAL REPORT AS AT 30 JUNE 2013

2 MISSION The Salini Group is a general contractor specialising in the construction of major, complex works throughout the world. Inspired by the principles of sustainable development, the Group uses technological and organisational innovation as well as its extraordinary human and professional resources to develop construction solutions capable of enhancing the resources of communities and contributing to the economic and social improvement of nations. Interim Directors' Report Half-Year Financial Report as at 30 June

3 TABLE OF CONTENTS INTERIM DIRECTORS REPORT... 4 CORPORATE BODIES... 5 GROUP SUMMARY... 8 K E Y I N C O M E A N D F I N A N C I A L P O S I T I O N F I G U R E S O F T H E G R O U P...9 Introduction... 9 M A C R O E C O N O M I C S C E N A R I O A N D R E F E R E N C E M A R K E T S U S T A I NAB L E DE V E L O P M E N T Q U A L I TY, SAFET Y A N D E N V I R O N M E N T C O R P O R A T E GOVERN A N C E H U M A N R E S O U R C E S C R E A T I N G A CAM P I O N E N A Z I O N A L E A N A L Y S I S O F I N C O M E, F I N A N C I A L P O S I T I O N A N D C A S H F L O W Summary of consolidated financial information P O R T F O L I O O F W O R K I N H A N D C O N S T R U C T I O N S E C T O R Foreign Italy C O N C E S S I O N S S E C T O R P L A N T S SE C T O R N ON- C U R R E N T A S S E T S H E L D F O R S A L E M A I N C O M P A N I E S O F T H E S A L I N I C O S T R U T T O R I G R O U P Salini S.p.A. (consolidated financial statements) Impregilo S.p.A. (consolidated financial statements) T R E A S U R Y S H A R E S M A N A G E M E N T A N D C O O R D I N A T I O N S T A T U T O R Y A U D I T J U D I C I A L P R O C E E D I N G S A G A I N S T S U B S I D I A R Y I M P R E G I L O S.P.A A L T E R N A T I V E P E R F O R M A N C E I N D I C A T O R S I N F O R M A T I O N O N R E L A T E D- P A R T Y T R A N S A C T I O N S E X E R C I S E O F T H E T A X C O N S O L I D A T I O N O P T I O N F O R IRES (C O R P O R A T E I N C O M E T A X ) T A X D I S P U T E R I S K M A N A G E M E N T I N T H E G R O U P S U B S E Q U E N T E V E N T S B U S I N E S S O U T L O O K INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS A S A T 30 JUNE CONSOLIDATED STATEMENT OF INCOME CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS Interim Directors' Report Half-Year Financial Report as at 30 June

4 INTERIM DIRECTORS REPORT Interim Directors' Report Half-Year Financial Report as at 30 June

5 CORPORATE BODIES Interim Directors' Report Half-Year Financial Report as at 30 June

6 Corporate bodies (As at 30 June 2013) BOARD OF DIRECTORS Chairman Chief Executive Officer Directors Simonpietro Salini Pietro Salini Simon Pietro Salini Luisa Todini Alessandro Salini Francesco Perrini* David Morganti* Roberto Cera Gianluca Piredda* *Independent EXECUTIVE COMMITTEE Committee Members Simonpietro Salini Pietro Salini Simon Pietro Salini INTERNAL CONTROL AND CORPORATE GOVERNANCE COMMITTEE Committee Members David Morganti Interim Directors' Report Half-Year Financial Report as at 30 June

7 Roberto Cera Gianluca Piredda REMUNERATION COMMITTEE Committee Members David Morganti Gianluca Piredda Francesco Perrini BOARD OF STATUTORY AUDITORS Chairman Regular Auditors Andrea Monorchio Claudio Valerio Gennaro Mariconda Alternate Auditors Claudio Volponi Roberto Parasassi INDEPENDENT AUDITORS Independent Auditors Reconta Ernst & Young Interim Directors' Report Half-Year Financial Report as at 30 June

8 GROUP SUMMARY Key income and financial position figures Interim Directors' Report Half-Year Financial Report as at 30 June

9 Key income and financial position figures of the Group Introduction The first half of 2013 saw the completion of the voluntary public tender offer (OPA) launched by subsidiary Salini S.p.A. with respect to all ordinary shares of Impregilo S.p.A., resulting in an 88.83% stake in the company's ordinary capital as at 30 June The public tender offer had an initial subscription phase that ended on 18 April 2013, at the end of which control took effect over Impregilo S.p.A., which was previously recognised as an associate. For the purposes of determining the scope of consolidation and in accordance with the provisions of IFRS 3, the acquisition date for accounting purposes was determined to be 1 April As a result of the above, as at 30 June 2013 the balances from the statement of financial position of the subsidiary Impregilo S.p.A. were fully consolidated into the financial statements of the Salini Group, while only the results for the second quarter of 2013 were consolidated into the statement of income. (Values in /000) June 2013 June 2012 TOTAL REVENUES 1,559, ,049 EBITDA 180,999 91,279 EBITDA Margin 11.6% 11.1% EBIT 103,609 47,560 EBIT Margin 6.6% 5.8% EBT 167,927 41,719 EBT Margin 10.8% 5.1% NET PROFIT ATTRIBUTABLE TO THE GROUP 150,310 17,567 ROS (Return on Sales) 7% 6% ROE (Return on Equity) 23% 5% ROI (Return on Investment) 6% 6% June 2013 December 2012 TOTAL FIXED ASSETS 979, ,254 OPERATING WORKING CAPITAL 675,997 (139,371) NON-CURRENT ASSETS HELD FOR SALE 256,502 0 RESERVES (136,182) (20,356) Uses 1,775, ,526 SHAREHOLDERS EQUITY (879,706) (557,861) NET FINANCIAL DEBT (895,647) (280,665) Funding (1,775,353) (838,526) Interim Directors' Report Half-Year Financial Report as at 30 June

10 8% 7% 6% 5% 4% 3% 2% 1% 0% 6.6% ROS Ebit / Total revenues 5.8% ROE Profit/Shareholders' Equity 25% 22.7% 20% 15% 10% 5% 0% 5.0% % 11% EBITDA Margin 11.6% 11.1% 9% 7% 5% 3% 1% Interim Directors' Report Half-Year Financial Report as at 30 June

11 PORTFOLIO OF WORK IN HAND BY SECTOR ( /000) JUNE 2013 Construction 69.9% 21,700,785 Concessions 29.1% 9,040,180 Plants 0.9% 283,325 31,024, % 29.1% % PORTFOLIO OF WORK IN HAND BY CONSTRUCTION SECTOR ( /000) JUNE 2013 Hydraulic works 26.8% 5,816,783 Railways 30.6% 6,639,018 High-speed railways 14.5% 3,141,699 Miscellaneous works 13.8% 2,992,256 Road works 14.3% 3,111,029 21,700, % 26.8% 13.8% 14.5% % Interim Directors' Report Half-Year Financial Report as at 30 June

12 CONSTRUCTION PORTFOLIO OF WORK IN HAND BY GEOGRAPHICAL AREA ( /000) JUNE 2013 Africa 29.6% 6,419,218 Europe 41.2% 8,947,028 Asia 12.4% 2,690,430 North America 2.3% 507,818 South America 14.5% 3,136,292 21,700, % 2.3% 29.6% 12.4% % OPERATING REVENUES BY SECTOR ( /000) JUNE 2013 JUNE 2012 Construction 97.3% 1,478, % 804,868 Concessions 0.4% 6, % - Plants 2.3% 35, % - SUW 0.0% - 0.0% - 1,519, , % 2.3% % Interim Directors' Report Half-Year Financial Report as at 30 June

13 OPERATING REVENUES BY GEOGRAPHICAL AREA ( /000) JUNE 2013 JUNE 2012 EU 28.3% 429, % 181,520 Non-EU 8.3% 126, % 182,682 Asia 15.8% 239, % 157,166 Africa 28.6% 435, % 283,500 America 19.0% 288, % - 1,519, , % 28.3% % 8.3% 15.8% Interim Directors' Report Half-Year Financial Report as at 30 June

14 Summary personnel figures JUNE 2013 PERSONNEL COSTS 204,881 NUMBER OF EMPLOYEES 34,313 HUMAN RESOURCES 1% 18% 80% 2013 Interim Directors' Report Half-Year Financial Report as at 30 June

15 Macroeconomic scenario and reference markets The Group's competitors are represented by the global construction market and especially the market engaged in large, complex infrastructures, the business of which is projected to grow by about 9% from , particularly in the energy, transport and civil engineering segments. A significant business opportunity in this area is therefore represented by the need of more economically developed countries to replace or expand existing infrastructures that are now insufficient to meet growing energy requirements, as well as the need for mobility connected with economic development and the urbanisation process affecting several emerging and developing countries. Although the continuing instability in the global economy had a negative impact on certain business segments of the construction sector, such as residential and commercial building, it did not decelerate demand for large infrastructures, which in fact continue to be a strategic priority for the growth of national economies, especially in areas such as the Middle East, Central Asia, Latin America and India. This area has contributed to the consolidation process between engineering and construction companies resulting in industrial groups that are increasingly larger and more diversified with specific expertise in executing technologically complex projects with greater value added. Competition among the main market players increasingly hinges on testimonials, expertise and adequate funding. The ability to attract new resources and talent, through acquisitions if necessary, is therefore becoming a critical success factor. Along with increasing size, the level of complexity that major market players must handle is also growing, taking into account the difficult political, commercial, regulatory and governance environments of the respective countries concerned, which make risk management capabilities even more important. In this context, the Salini Group was able to anticipate the signs of change and pursue a growth strategy, including externally, that has allowed it to significantly increase its size through the acquisition of the Impregilo Group, integrating its specific areas of expertise and reputation to compete even more effectively on all continents with a special focus on business segments deemed to have greater value added. The Group strengthened its position at the global level by entering new markets such as Latin America and North America and consolidating its leadership in geographical areas where it already has a presence (Africa, Asia and Italy) thereby creating a Campione Nazionale [National Champion] characterised by: a wealth of first-rate engineering and technological expertise in the construction sector; an integrated management team with the determination and experience required to compete in large-scale and complex infrastructure projects; a global presence with a nearly unequalled sales force; the scale of a market leader; a solid financial structure supported by a healthy credit standing. Interim Directors' Report Half-Year Financial Report as at 30 June

16 Lastly, the new Group plans to implement its growth process at different speeds in the different geographical markets in which it will operate, with a rate of about 17% in Latin America, 5% p.a. in North America and Western Europe and 10% p.a. in Africa and the Middle East. At the end of 2016 the projected value of the portfolio of work in hand for the construction sector alone will amount to 26 billion with a balanced geographical composition and with significant orders in Latin America, Europe and the Middle East and a greater focus on the hydroelectric infrastructure, dams, roads and motorways, railways and metro systems business segments. Interim Directors' Report Half-Year Financial Report as at 30 June

17 Sustainable development Over the years, sustainability has become an integral part of corporate strategy. Programmes have been developed to provide specific instruments to operate in a number of diverse areas while interpreting and respecting the expectations of institutions, clients, local communities, consumers and technical and operating counterparties with diverse histories and cultures. The Group strongly believes that proper sustainable growth management will make it possible to not only mitigate operational, financial and reputational risks through an optimisation of non-financial variables, but also to create new opportunities and gain competitive advantage in a market that is increasingly focused on matters concerning sustainability. The Group has translated these needs into a vision and a work style based on the value of people, on a focus on the environment, on the principles of social responsibility and corporate citizenship. This choice gives rise to our commitment to a broad notion of sustainable development, which is a key aspect of our business. The projects we carry out energy from renewable sources, infrastructures to reduce urban traffic congestion, public metro systems with a low environmental impact, development and upgrading of regional infrastructures to boost regional development create lasting value for the communities involved and are a catalyst for further growth. The Group has formalised its working philosophy in a coordinated set of policies, procedures and organisational structures aligned with major international benchmark standards. In particular, since 2010, the Group has been a member of the United Nations Global Compact, a worldwide initiative for sustainable development, which requires commitment to aligning strategies and operations with ten universal principles on human rights, labour, the environment and the fight against corruption. At a national level, the Group is also part of the Global Compact Network Italy, which involves working together with other member organisations and businesses to execute specific projects and initiatives aimed at advancing the priorities set forth in the Global Compact. The Group s sustainability strategy is implemented by maximising the benefits generated in the areas in which it operates, benefiting local stakeholders. Our priorities include creating new jobs, using local suppliers, investing and engaging in initiatives in favour of local communities, and rigorously conforming to high environmental standards. The commitment to use local workers and suppliers has a positive impact on the development of local economies, especially in emerging markets, by increasing workers skill levels and suppliers qualitative standards, while at the same time improving infrastructure and environmental conditions in the areas in which we execute our projects. Our complete dedication to human resources is especially focused in the areas of health, safety and human rights, through the adoption of standards and codes of conduct that are widely shared and supported by a commitment to training and ongoing dialogue with employees. The Group's commitment is also characterised by a thorough consideration of the needs of local communities. The Head Office divisions, as well as on-site management, analyse and Interim Directors' Report Half-Year Financial Report as at 30 June

18 assess community requirements and develop investment projects in the areas of education, health, culture and recreation, often in partnership with institutions and other local organisations. In recent years, significant resources have been allocated to construct buildings, schools, hospitals and roads. Furthermore, energy and water distribution as well as health care have been provided for local communities. During projects, these local communities have been granted access to some work site facilities, such as medical clinics, classrooms, wells, roads and bridges, which are often turned over to the communities and institutions when the project is complete. Our daily commitment extends from people to the preservation of the environment and natural resources, which are crucial aspects of our business model. To this end, the Group prepares and carries out its work ensuring that the environment will be protected to the greatest extent possible, and is committed to the constant improvement in environmental performance which is seen as an integral part of the company's economic and operating performance. Our work sites are focused on reducing energy and water consumption by developing innovative projects to re-use and recycle natural resources and scrap generated during work in progress. Mitigating the impacts of work site activities on communities is another priority to which the Group dedicates the utmost attention, by monitoring and closely managing aspects relating to noise, vibrations, dust and road conditions. Since the environmental aspect includes strategic objectives within a globalised and extremely competitive market besides human resources and in-house professionals clients, suppliers, authorities and stakeholders are invited to take part in environmental processes and initiatives. The commitment to constantly maintaining an open dialogue with stakeholders, in order to understand their legitimate expectations and create opportunities for involvement and cooperation, is implemented through tools and highly diversified methods both at central level and at the individual work site, generating positive interactions with increasingly broader groups of internal and external stakeholders. The commitment to transparency is also reflected in the Sustainability Report's confirmation, again in 2012 and for the third year in a row, of a score of A+ in applying the standards of the Global Reporting Initiative (GRI), the most accredited and widespread standard at the international level. This document, which each year reports the practices and performance achieved in the area of sustainability, was subject to a limited audit by KPMG S.p.A., with certification site visits performed at Italian projects (Metro B1, Rome) and foreign projects (Cityringen Metro Team Denmark, Ulu Jelai Malaysia, and Alat-Masalli Azerbaijan). Lastly, in the first half of 2013 an assessment tool concerning human rights was tested at several of the Group's significant projects. This tool will later become operational at all non-eu work sites. Interim Directors' Report Half-Year Financial Report as at 30 June

19 Quality, safety and environment Senior management created the Quality, Health, Safety and Environment (QHSE) System to ensure that relevant activities are planned, developed and improved consistently, in compliance with company policies and to the full satisfaction of all stakeholders. In outlying areas, in January 2013 the certification of Salini S.p.A. was extended geographically to management systems at the Dubai and Abu Dhabi branches with respect to ISO 9001, ISO and OHSAS 18001, and at the Singapore branch just for ISO 9001:2008. In April 2013, the ISO 9001, ISO and OHSAS certifications of the subsidiary Salini Australia Pty Ltd were also successfully confirmed. The performance of the Quality, Health, Safety and Environment System was assessed through internal checks and the analysis of reports from work sites, and it was found that the activities specified by the system were applied satisfactorily. In order to improve support provided to production areas, the QHSE department was reorganised with the aim of identifying a regional QHSE coordinator with expertise in the quality, safety and environmental areas. This individual is to work closely with the projects located in the geographical area concerned and provide the support needed for the proper launch of operations and the prompt transfer of know-how acquired. The position of QHSE coordinator was finalised in the first half of In addition, key personnel, notably expatriates, were guaranteed the necessary training specifically in the area of health and safety in the workplace in accordance with Legislative Decree 81/08. Finally, there are plans to develop and integrate several operating procedures, with the dual aim of standardising certain executive aspects of projects and further improving the overall service of the System concerned. Interim Directors' Report Half-Year Financial Report as at 30 June

20 Corporate governance The corporate governance model adopted by Salini is in compliance (except for certain changes) with the principles contained in the Corporate Governance Code for Listed Companies (July 2002 version), Consob recommendations and best practices at the national and international levels (see the Sarbanes-Oxley Act of July 2002 and the Combined Code on Corporate Governance, UK, July 2003). Its corporate governance policies are continually updated and documented in its periodic Corporate Governance Report. The document describes the corporate governance model in detail. It defines the Company s organisation, specifying the roles and responsibilities of each Corporate Body and of senior management, and provides information on the implementation of the provisions of the Code of Conduct. The Internal Control System monitors the practical implementation of governance policies and works effectively to promote their actual and constant execution. The Board of Directors of Salini Costruttori S.p.A., which was re-elected at the Board meeting on 16 October 2012, consists of 9 members, 3 of whom with specific duties, and 6 of whom acting in the capacity of non-executive directors (including 4 independent directors). The Board will remain in office until approval of the financial statements for the year ending 31 December The Board met 10 times during the first half of the year, and its major deliberations involving corporate governance concerned the examination and/or approval of: Group interim reports; the acquisition of strategic equity investments; economic forecasts; the merger plan. In particular, with regard to the merger by incorporation of subsidiary Salini S.p.A. into Impregilo S.p.A., it is noted that on 14 May 2013 the Board of Directors of Salini S.p.A. appointed two independent directors to negotiate essential merger elements with Impregilo especially with respect to the determination of the exchange ratio. On 24 June 2013 the Board of Directors of subsidiary Salini S.p.A. approved the ( reverse ) merger plan of Salini into Impregilo (the merger ). The transaction is a part of a broader industrial and strategic plan launched by the Salini Costruttori Group in 2011 with the aim of creating a Campione Nazionale in the sector of the construction of complex works and infrastructures, thereby creating a large Italian group with shares listed on the screen-based stock market organised and managed by Borsa Italiana S.p.A. The merger represents the crowning achievement of a market transaction that, among other things, registered the success of one of the most significant proxy fights in Europe in recent years supported by small investors, institutional investors and activists and finalised with the full public tender offer promoted by Salini with respect to Impregilo which was completed in May With regard to the Internal Control System, the Internal Audit Department conducted the audits set forth in the Audit Plan defined at the beginning of the year in order to monitor Interim Directors' Report Half-Year Financial Report as at 30 June

21 the suitability of the applicable procedures, as well as the compliance of processes with local and international regulations. During the first half of the year, the inspections requested by the Supervisory Body at Italian and foreign operating divisions were conducted with the aim of assessing the effectiveness of the Organisation, Management and Control Model. At the same time, staff training continued, as did the ongoing monitoring of legislative and case law changes in the area of corporate administrative liability. In particular, in order to promote compliance with ethical standards and full adherence to rules concerning the prevention of corruption as well as integrity, transparency and the proper performance of work activities, the initial steps were taken to prepare a group anticorruption model to provide a systematic reference framework of regulatory tools and policies in this area. This was adopted by the Company to prevent corruption in any direct and indirect, active and passive form, thereby ensuring compliance with national and international anti-corruption regulations including Anti-Corruption Law 190 of 6 November 2012 issued in Italy, the Foreign Corrupt Practices Act (FCPA) issued in the US and the UK Bribery Act issued in the UK. Although repeating the activities specified for updating the model required by Legislative Decree 231/01, the Group's anti-corruption model has a broader scope with the aim of protecting the Company and/or its staff from passive and active forms of corruption which may not necessarily affect the companies' interests or be to their benefit. The Company aligned itself with the regulations in force on IT data security (pursuant to Legislative Decree 196/2003) and updated its Data Security Policy as required by the regulations in force. Interim Directors' Report Half-Year Financial Report as at 30 June

22 Human resources As at 30 June 2013, the Salini Costruttori Group has 34,313 employees, of whom 4.6% are located in Italy and the remaining 95.4% abroad. The Group's multinational and multi-ethnic characteristics are emphasised by its presence on all continents and the employment of personnel from about a hundred different nationalities. Net of the subsidiary Impregilo S.p.A., the Salini Costruttori Group benefited from the contributions of 22,253 employees, of whom 2% are in Italy and 98% abroad. Distribution of total workforce by work place Unit Change (*) Italy No 1,484 1, Foreign work sites No 29,447 32,727 3,280 Total No 30,931 34,313 3,382 *Pro-forma figure: includes the workforce of the Impregilo Group to enable comparison with results as at 30 June During the year the workforce rose by 10.9% (+3,382 employees) broken down into the following categories: Total workforce by category Unit Change (*) Executives No Office workers No 5,757 6, Manual workers No 24,887 27,860 2,973 Total No 30,931 34,313 3,382 The continual increase in the workforce serves as confirmation of the Group's strong attraction especially to new generations of workers, and at the same time reflects the success of the process to recruit and hire highly professional employees who are able to enhance the critical expertise of technical and service areas, thereby ensuring an appropriate gradual generation shift. In terms of training, in addition to investing in development courses and enhancing the skills of individual professionals, the Group offered training activities related to Legislative Decree 81/2008 in keeping with the ongoing focus on health and safety in the workplace and as a part of long-term training plans. During the first half of the year, classroom sessions and e-learning courses were held at the head office and foreign offices. In addition, ad hoc courses were provided for staff appointed as worker safety representatives and for managers of the Accident Prevention and Protection Department. Interim Directors' Report Half-Year Financial Report as at 30 June

23 Creating a Campione Nazionale In the first half of 2013, with the completion of the voluntary public tender offer for all ordinary shares of Impregilo S.p.A. and with the approval of the resulting merger plan by the Boards of Directors of Salini S.p.A. and Impregilo S.p.A., a key step was taken to implement the Campione Nazionale plan with the aim of creating a global leader with the know-how, expertise, track record and size necessary to compete in the global construction sector through more efficient and effective business management. Following one of the most significant proxy fight transactions carried out in Europe in recent months, the main steps leading to the implementation of the project can be summarised as follows: on 17 July 2012, based on the proposal of shareholder Salini S.p.A. ( Salini ), Impregilo's Ordinary Shareholders' Meeting approved with a majority, and the attendance of over 80% of share capital, to remove all current directors and appoint a new Board of Directors consisting of 15 directors including 14 taken from the list submitted by Salini; on 27 September 2012, Impregilo and Salini Costruttori S.p.A. (the parent company of Salini) signed a strategic agreement for organisational and commercial cooperation between the Impregilo Group and the Salini Group in order to launch a collaboration strategy aimed at seizing market opportunities and increasing value for both Groups, and at achieving cost savings as a result of operational and industrial synergies with due respect for the individuality, structures and size of the individual companies; on 6 February 2013, Salini S.p.A. gave official notice pursuant to Article 102, paragraph I of Legislative Decree 98/58 (TUF) and Article 37 of Consob Regulation 11971/99 (Issuers Regulation) to launch a voluntary public tender offer, pursuant to Article 106, paragraph 4 of the TUF [Consolidated Finance Act], having as its object all ordinary shares of Impregilo S.p.A. not held by Salini S.p.A. at a price of 4.00 per share; on 16 March 2013, the Offer Document was published as required by law, together with related support documentation including, in particular, the Announcement of the Issuer (Impregilo) prepared pursuant to Article 103 of the TUF and Article 39 of the Issuers Regulation; taking into account the shares contributed during the subscription period (from 18 March to 18 April 2013) and the subsequent reopening of the terms stage (from 18 to 24 April 2013), on 2 May 2013 Salini S.p.A. held a total of 370,575,589 ordinary shares, equal to approximately 92.08% of the total ordinary shares of Impregilo S.p.A.; in light of the outcome of the offer which was not aimed at removing Impregilo shares from listing, Salini S.p.A. announced its decision to restore a float sufficient Interim Directors' Report Half-Year Financial Report as at 30 June

24 to ensure regular trading of the shares, and thus on the date of this Financial Report, the stake in the subsidiary was 88.83% of ordinary capital; on 14 May 2013, the Board of Directors of Salini S.p.A. performed a preliminary review of its merger by incorporation into Impregilo S.p.A., in order to initiate actions seen as preparatory steps for completing the corporate integration in a timely manner, and approved the following measures: a) to appoint Vitale & Associati as the independent expert to produce the expert appraisal supporting the Board of Directors in determining the share exchange ratio for the merger between Salini S.p.A. and Impregilo S.p.A., as well as Banca IMI and Natixis as advisors to assist the Company with all aspects of the transaction; b) to appoint PricewaterhouseCoopers S.p.A., Impregilo s independent auditors, to conduct the statutory audit of the accounts for the preparation of the report pursuant to Article 2501-bis, paragraph 5 of the Italian Civil Code; c) to authorise the Managing Director to formulate, at the Court of Milan, the application for the appointment of the expert in charge of preparing the report on the fairness of the exchange ratio as per Article 2501-sexies of the Italian Civil Code; on 24 June 2013, the Boards of Directors of Salini S.p.A. and Impregilo S.p.A. approved the plan for the ( reverse ) merger of Salini S.p.A. into Impregilo S.p.A. effective 1 January 2014, subject to the approval of the Extraordinary Shareholders' Meetings of the respective companies, and set the share exchange ratio at 6.45 ordinary Impregilo shares for each Salini share; on 28 August 2013, the Prospectus covering the merger by incorporation of Salini S.p.A. into Impregilo S.p.A. was made available to the public at the registered office and website of the subsidiary Impregilo S.p.A.; on 12 September 2013, the Extraordinary Shareholders' Meeting of Impregilo S.p.A. approved the following measures with a broad majority: the merger by incorporation of Salini S.p.A. into Impregilo S.p.A. and the reduction of the share capital of the absorbing company pursuant to Article 2445 of the Italian Civil Code. the assignment of powers to the Board of Directors to increase share capital with the exclusion of options pursuant to Articles 2443 and 2441, paragraph 4, second sentence, of the Italian Civil Code (revision of Article 7 of the articles of association). the assignment of powers to the Board of Directors pursuant to Articles 2443 and 2420-ter of the Italian Civil Code to increase share capital and issue convertible bonds, with, as necessary, the exclusion of options pursuant to Article 2441, paragraphs 4 (first part), 5 and 8 of the Italian Civil Code (revision of Article 7 of the articles of association). Interim Directors' Report Half-Year Financial Report as at 30 June

25 the revision of Article 33 of the articles of association in order to give the Board of Directors the option to approve the distribution of advance dividend payments pursuant to Article 2433-bis of the Italian Civil Code. the revision of Article 14 of the articles of association in order to adopt the exception scheme specified in Article 135-undecies, paragraph 1 of Legislative Decree 58 of on 12 September 2013, the Extraordinary Shareholders' Meeting of the subsidiary Salini S.p.A. approved the merger of Salini into Impregilo with effect for legal and accounting purposes on 1 January 2014, and with an exchange ratio of 6.45 ordinary Impregilo shares for each Salini share. From the effective date of the merger, Impregilo will change its company name to Salini Impregilo S.p.A. and will replace Salini in all relations in which Salini was previously a party, taking on all rights and obligations. Upon the completion of the extraordinary transaction, Salini Costruttori S.p.A. will be entitled to a total of 402,480,000 ordinary shares of the Absorbing Company equal to 89.95% of the current ordinary share capital of the latter. The merger transaction is an essential phase in the industrial and strategic plan launched by the Group to create a Campione Nazionale in the sector of the construction of complex works and infrastructures, consisting of a major Italian player with shares listed on the screen-based stock market and capable of becoming one of the largest worldwide operators in this sector. In this context, the integration between the two entities will make it possible to optimise critical success factors that characterise the business segments covered, thereby achieving additional significant benefits such as: a broader geographical presence, based on expert knowledge of the individual countries where the two groups have been successfully operating for decades; scale on a par with global industry leaders, providing possible access to large-scale and technologically complex infrastructure projects; a solid financial structure supported by a healthy credit standing and improved conditions in accessing capital markets; commercial and cost synergies that can be achieved by pooling specific expertise and reputations acquired in other market segments, and by striving for greater efficiency through integrated resource management; the creation of value for all shareholders and stakeholders by significantly increasing value of production and operating margins. Interim Directors' Report Half-Year Financial Report as at 30 June

26 OPERATING PERFORMANCE Analysis of Group results Interim Directors' Report Half-Year Financial Report as at 30 June

27 Analysis of income, financial position and cash flow Summary of consolidated financial information The interim consolidated financial statements as at 30 June 2013 report total revenues of 1,559.3 million, operating margin (EBIT) of million and net profit attributable to the Group of million. Changes vis-à-vis the same period of the previous year were significantly affected by the consolidation of results for the second quarter for Impregilo, which became a subsidiary on 1 April Despite significant non-recurring charges incurred to complete the public tender offer, profitability margins were at impressive levels with an EBITDA margin and ROS of 11.6% and 6.6% respectively. The significant growth in production volumes, together with the progressive improvement in profit margins, are proof of the Group s commitment to promptly seizing opportunities offered by the market and its pursuit of development goals both in a vertical sense and in terms of market presence, in accordance with the principle of maximising cost synergies with an emphasis on technical expertise. Pre-tax profit was greatly affected by the net financial position, which, as well as reflecting the costs sustained in supporting production activities and investments and the results of foreign-exchange losses, shows the positive net effect, equal to 122 million, of adjusting the value of the equity investment in Impregilo S.p.A. to fair value as required by IFRS 3 (for more details, refer to the section on investments in equity investments in the notes to the financial statements). Despite the significant volume of production achieved during the period, the portfolio of work in hand reached a level of 31.0 billion, which represents over 10 years of future production assuming the characteristic revenue volume reported in the statement of income for the first half of 2013 remains constant. After making significant investments to control Impregilo S.p.A. and supporting the Group's ordinary operating performance, the consolidated net financial position, equal to (895.6) million, is in keeping with expectations of the business plan. The Group's staff reached a level of 34,313 employees, representing an increase of 11% over the figure that would have been reported as at 31 December 2012 if the subsidiary Impregilo had been a part of the current scope of consolidation. Interim Directors' Report Half-Year Financial Report as at 30 June

28 Reclassified Group statement of income (Values in /000) 1st half st half 2012 Change % Revenues 1,519, % 804, % 88.9% Other revenues 39, % 16, % 142.7% Total revenues 1,559, % 821, % 89.9% Costs of production (1,151,799) 73.9% (628,757) 76.6% 83.2% Value Added 407, % 192, % 111.9% Personnel costs (204,881) 13.1% (97,256) 11.8% 110.7% Other operating costs (21,581) 1.4% (3,757) 0.5% 474.3% EBITDA 180, % 91, % 98.3% Depreciation and amortisation (70,781) 4.5% (39,943) 4.9% 76.5% Allocation to provisions (1,092) 0.1% (1,664) 0.2% -34.4% Write-downs (5,517) 0.4% (2,113) 0.3% 173.7% EBIT 103, % 47, % 117.8% Financial income and expenses (net) 64, % (5,841) -0.7% ns Pre-tax profit/(loss) 167, % 41, % 302.5% Taxes (32,836) 2.1% (15,535) 1.9% 111.4% Net profit from discontinued operations 23, % 0 0.0% ns Net Profit 158, % 26, % 415.9% Profit/(loss) attributable to minority interests 8, % 8, % -1.1% Profit/(loss) attributable to the Group 150, % 17, % 755.6% Economic and operating performance Key consolidated income figures ( /000) 30 June June 2012 Total revenues 1,559, ,049 EBITDA 180,999 91,279 EBIT 103,609 47,560 EBT 167,927 41,719 Net Profit 150,310 17,567 Net profit/total revenues 9.6% 2.1% Production Revenues for the first half of 2013, which totalled 1,559.3 million, incorporate, effective 1 April 2013, the turnover of the subsidiary Impregilo, which contributed 41% of the total value of production. Foreign projects represented 83% of the total for the year, a testament to the sound competitive position of the Group in geographical areas with great potential, such as Africa and the American continent, which alone represent 46% of the total value of production. Operating revenues amounted to 1,519.9 million, accounting for 97.5% of turnover. Interim Directors' Report Half-Year Financial Report as at 30 June

29 Construction is the core sector with operating revenues for the period totalling 1,478.5 million, or 97% of operating revenues. Operating revenues by sector ( /000) 30 June 2013 % 30 June 2012 % Construction 1,478,468 97% 804, % Concessions 6,022 0% 0% Plants 35,503 2% 0% TOTAL OPERATING REVENUES 1,519, % 804, % Hydroelectric projects made a significant contribution in this area, including the Ethiopian projects Gibe III and the Grand Ethiopian Renaissance Dam, the Ulu Jelai works in Malaysia, the construction of the Sogamoso dam in Colombia and the project to widen the Panama Canal. Similar comments can be made for the project to construct the metro system in Copenhagen, Denmark, and the construction of railway sections in Venezuela. Operating revenues by geographical area ( /000) 30 June 2013 % 30 June 2012 % Italy 263,087 17% 106,487 13% EU (excluding Italy) 166,204 11% 75,033 9% Non-EU 126,776 8% 182,682 23% Asia 239,837 16% 157,166 20% Africa 435,162 29% 283,500 35% America 288,928 19% - 0% TOTAL OPERATING REVENUES 1,519, % 804, % Other non-operating revenues, equal to 39.3 million, essentially relate to items which, by their very nature, do not fall under core activities (e.g. recovery of costs incurred on behalf of subsidiaries and charged back to them, technical and administrative services provided to third parties, sale of materials, insurance reimbursements). Costs Direct production costs stand at 1,151.8 million and account for 73.9% of total revenues (76.4% in June 2012). Service costs, which represent the direct cost with the greatest weighting, refer in the main to expenses incurred to support production volumes and, net of ancillary expenses (about 33.6 million) incurred to launch the public tender offer for Impregilo, are proportional to the growth in turnover. Personnel costs, which totalled million, absorbed 13.1% of the value of production and continue to be partially affected by the start-up of new initiatives which, due to their start-up nature, have not yet reflected their full production potential. Interim Directors' Report Half-Year Financial Report as at 30 June

30 Results of operations The operating results for the year demonstrate the significant profitability of the projects in progress and of the portfolio of work in hand. Economic and financial indicators, such as ROI (+6%) and net invested capital turnover (0.88), confirm the positive performance of return on invested capital, both in terms of profitability and the capacity to generate sales income. EBITDA performance was particularly impressive, reaching a level of million and resulting in an EBITDA margin of 11.6%, an improvement over the same period of the previous year (11.4%) despite the impact of non-recurring costs from the tender offer of 33.6 million. Similar comments can be made with respect to EBIT, which reached a level of million for an ROS of 6.6%, representing an increase of 7.6% over the same index reported as at 30 June Profit from discontinued operations Profit from discontinued operations ( 23.7 million) largely includes the positive outcome (net of related estimated taxes) of the judgment of the Court of Cassation and the results of enforcement proceedings initiated by the subsidiary Impregilo S.p.A. in relation to the litigation concerning claims for damages made through the subsidiary FIBE for former RDF (refuse-derived fuel) plants. More complete information concerning the litigation described and the broader context in which it should be seen are provided in a later section of this Financial Report called Assets Held for Sale and Discontinued Operations SUW (Solid Urban Waste) Campania Projects. Results for the period EBT (pre-tax profit) totalled million, representing 10.8% of revenues. This percentage was due to the combined impact of favourable profits from operations and the benefits of financial operations that were affected by the net impact of 122 million resulting from the measurement at fair value of the controlling interest in Impregilo. The provision for taxes for the year ( 32.8 million) includes a provision for current taxes of 28 million and a provision for deferred taxes of 4.8 million. For additional information on the calculation of taxes, see the section on Income taxes in the notes to the financial statements. Interim Directors' Report Half-Year Financial Report as at 30 June

31 6,5% Reclassified statement of financial position (Values in /000) 30 June Dec 2012 Change Change % % Intangible fixed assets 119,172 2, ,466 n.s. Tangible fixed assets 677, , , % Equity investments 96, ,496 (492,787) -83.6% Other fixed assets 86,093 4,738 81,355 n.s. Total fixed assets (A) 979, ,254 (19,218) -2% Inventories 312, ,067 99, % Amounts due from clients 1,641, ,014 1,016, % Amounts due to clients (1,897,683) (1,098,254) (799,429) 72.8% Trade receivables 1,755, ,593 1,262, % Other assets 440, , , % Tax receivables 382, , , % subtotal 2,635, ,413 2,085, % Trade payables (1,396,579) (576,243) (820,335) 142.4% Other liabilities (562,631) (112,541) (450,089) 399.9% subtotal (1,959,209) (688,785) (1,270,425) 184.4% Operating working capital (B) 675,997 (139,371) 815, % Non-current assets held for sale (C) 256, ,502 n.s. Employee benefits (24,152) (4,963) (19,189) 386.6% Provisions for risks and charges (112,029) (15,393) (96,636) 627.8% Total provisions (D) (136,182) (20,356) (115,825) 569% Net invested capital (E=A+B+C+D) 1,775, , , % Cash and cash equivalents 896, , , % Current financial assets 25, ,829 n.s. Non-current financial assets 68,976 25,086 43, % Current financial liabilities (1,056,326) (327,836) (728,490) 222.2% Non-current financial liabilities (830,208) (392,232) (437,976) 111.7% Net financial payables/receivables (F) (895,647) (280,665) (614,982) 219% Shareholders equity 661, , , % Minority interests 217,848 36, , % Shareholders Equity (G) 879, , ,845 58% Total funding (H=F+G) 1,775, , , % Interim Directors' Report Half-Year Financial Report as at 30 June

32 Financial results Key consolidated financial position figures ( /000) 30 June Dec 2012 Fixed assets 979, ,254 Operating working capital 675,997 (139,371) Non-current assets held for sale 256,502 0 Reserves (136,182) (20,356) Net invested capital 1,775, ,526 Shareholders equity 879, ,861 Net financial payables/receivables (895,647) (280,665) The statement of financial position as at 30 June 2013 reflects changes in the Group's operations, the impressive growth of which is instrumental for the balanced use of investments and careful management of working capital. Net fixed assets totalled million and mainly consisted of technical equipment assigned to work sites, the amount of which totalled million net of related accumulated depreciation. The change in intangible fixed assets was almost entirely due to the consolidation of the asset balances of the subsidiary Impregilo. The nature of these assets was largely related to rights to infrastructures under concession, payments made to acquire high-speed railway divisions and goodwill related to the subsidiaries Fisia Babcock and Shanghai Pucheng. The value of equity investments reflected the different accounting treatment used to record the stake held in Impregilo, which, in the previous year, as an associate, was recorded in the statement of financial position in an amount totalling about 570 million. Operating working capital of million is a direct function of the significant growth in production revenue, which has affected uses of fund proportionally, with specific reference to inventories for work in progress, certification for clients and supplier exposure. Non-current assets held for sale, totalling million, consisted mainly of former RDF plants valued at million that were covered in the previous section Profit from discontinued operations, in relation to which more complete information is provided in the section below entitled Non-current assets held for sale. Interim Directors' Report Half-Year Financial Report as at 30 June

33 Net financial position At the end of the first half of 2013, the net financial position stood at (895.7) million and, consistent with Company expectations, reflects the result of planned investments to implement the Campione Nazionale project completed when control over Impregilo S.p.A. was obtained, as well as ordinary uses of cash flow to support the continuing growth in order production volume. To be specific, the balance of current and non-current financial liabilities was affected by the loan obtained from Banca IMI and Natixis in the amount of about 1,282 million to cover direct and ancillary costs of the public tender offer for all ordinary shares of Impregilo S.p.A. This loan was partially repaid in May following receipt of a dividend of about million approved by the Shareholders' Meeting of the subsidiary Impregilo S.p.A. thereby ensuring that financial structure and liquidity ratios continue to be balanced. It should also be noted that in July the Group successfully completed a bond issue with a nominal amount of 400 million and a term of five years, generating funds to be used for the partial repayment of debt connected with the referenced public tender offer, and at the same time shifting the mix of maturities toward the long term. (Values in /000) 30 June Dec 2012 Change Cash and cash equivalents 896, , ,766 Current financial assets 25, ,829 Current financial liabilities (1,056,326) (327,836) (728,490) Short-term financial debt (134,415) 86,481 (220,896) Non-current financial assets 68,976 25,086 43,890 Non-current financial liabilities (830,208) (392,232) (437,976) Medium-/long-term financial debt (761,232) (367,146) (394,086) NET FINANCIAL POSITION (895,647) (280,665) (614,982) Interim Directors' Report Half-Year Financial Report as at 30 June

34 Portfolio of work in hand As a result of the strategic cooperation agreement sealed by the two Groups in September 2012, the combined industrial expertise of Salini and Impregilo made it possible for commercial operations to achieve impressive performance in the first half of The consolidated portfolio of work in hand totalling about 31.0 billion consists of 21.7 billion coming from the construction sector, while the concession and plant businesses contributed 9.0 billion and 0.3 billion respectively. New business totalling 5.3 billion was mainly due to the construction business, which with a share of about 3.3 billion represents 62.1% of the total, while the remaining 37.9% generated by the concession sector mainly reflected the value of the management agreement for the hospital in the Turkish city Gaziantep. Performance of the railways and metro systems area was particularly impressive, and represented 58% of new business reported in the construction sector. With regard to core business, the construction backlog included 28% from domestic operations ( 6.1 billion) and the remaining 72% from foreign projects, of which Africa represents 41% ( 6.4 billion), Asia and the Middle East 18% ( 2.7 billion) the American continent 23% ( 3.7 billion) and Europe 18% ( 2.8 billion). The significance of the construction sector is not only due to its 70% stake in the portfolio of work in hand, but is also an indicator of the Group's market penetration capabilities: in six months it was able to improve its backlog by 9% from 19.9 billion (pro-forma figure including Impregilo's 2012 portfolio) at the end of the previous year to the current level of 21.7 billion. Construction portfolio of work in hand by geographical area: 14.5% 2.3% 29.6% 12.4% % With 31% of the portfolio, the railway works sector ( 6,639 million) is the Group's core business, but the percentage of projects in the dams and hydroelectric plants sector ( 5,817 million) is also significant at a level of 27% of the total works to be executed. Interim Directors' Report Half-Year Financial Report as at 30 June

35 Construction portfolio of work in hand by business sector 14.3% 26.8% 13.8% % 30.6% Interim Directors' Report Half-Year Financial Report as at 30 June