001-096BilSaipem09Ing 27-04-2010 12:25 Pagina I Annual Report 2009 Mission Pursuing the satisfaction of our clients in the energy industry, we tackle each challenge with safe, reliable and innovative solutions. Our skilled and multi-local teams create sustainable growth for our company and the communities in which we operate Our core values Commitment to safety, integrity, openness, flexibility, integration, innovation, quality, competitiveness, teamwork, humility, internationalisation Countries in which Saipem operates EUROPE Austria, Belgium, Bulgaria, Croatia, Cyprus, Denmark, France, Germany, Italy, Luxembourg, Malta, Netherlands, Norway, Portugal, Principality of Monaco, Romania, Spain, Sweden, Switzerland, Turkey, United Kingdom AMERICAS Argentina, Brazil, Canada, Colombia, Dominican Republic, Ecuador, Mexico, Peru, Trinidad & Tobago, United States, Venezuela CIS Azerbaijan, Kazakhstan, Russia, Ukraine AFRICA Algeria, Angola, Cameroon, Congo, Egypt, Equatorial Guinea, Gabon, Ivory Coast, Libya, Morocco, Nigeria, Tunisia MIDDLE EAST Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, Yemen FAR EAST AND OCEANIA Australia, China, India, Indonesia, Japan, Malaysia, Pakistan, Singapore, South Korea, Tahiti, Taiwan, Thailand, Vietnam Annual Report 2009 The forward-looking statements contained in this document are based on a number of assumptions and expectations that could ultimately prove inaccurate, as they are subject to risks and variables outside the Company(cid:213)s control. These include: currency fluctuations, interest rate fluctuations, the level of capital expenditure in the oil and gas industry, as well as other industries, political instability in areas where the Group operates, and actions by competitors. Moreover, contract execution is also subject to variables outside the Company(cid:213)s control, such as weather conditions. Actual results could therefore differ materially from the forward-looking statements. General Shareholders(cid:213) Meeting of April 16 and 26, 2010 Notice of the Shareholders(cid:213) Meeting was published in the daily newspapers Il Sole 24 Ore, Corriere della Sera and La Repubblica on March 16, 2010 Saipem Group consolidated financial report 4 6 7 12 14 17 17 19 20 27 32 35 37 37 40 43 44 46 49 54 57 60 62 84 90 90 90 91 91 91 92 93 98 103 103 105 118 120 122 130 132 178 179 Letter to the Shareholders Board of Directors and auditors of Saipem SpA Saipem Group structure Directors(cid:213) report Saipem SpA share performance Glossary Operating review New contracts and backlog Capital expenditure Offshore Onshore Offshore Drilling Onshore Drilling Financial and economic results Results of operations Consolidated balance sheet and financial position Reclassified cash flow statement Key profit and financial indicators Research and development Quality, health, safety and the environment Sustainability Human resources Information technology Corporate Governance Report and Shareholding Structure Risk management Additional information Buy-back of treasury shares Incentive schemes Consob regulation on markets Disclosure of transactions with related parties Events subsequent to year end Management outlook Reconciliation of reclassified balance sheet, income statement and cash flow statement to statutory schemes Consolidated financial statements Consolidated balance sheet and income statement Basis of presentation Principles of consolidation Summary of significant accounting policies Use of accounting estimates Recent accounting principles Scope of consolidation Changes in the scope of consolidation Notes to the consolidated financial statements Management(cid:213)s certification Independent Auditor(cid:213)s Report S A I P E M A N N UA L R E P O R T / L E T T E R TO T H E S H A R E H O L D E R S Marco Mangiagalli Chairman Pietro Franco Tali Deputy Chairman and Chief Executive Officer (CEO) Hugh James O(cid:213)Donnell Managing Director for Business Support and Transversal Activities (Deputy CEO) Letter to the Shareholders Dear Shareholders, during 2009, the crisis spread from the financial sector to industry, causing a severe economic recession in the United States, Europe and, to a lesser extent, Asia. Hydrocarbon consumption fell significantly, causing a drop in investments by the Oil Industry that had negative repercussions on the Oil Services market. The sectors worst hit by the negative market conditions were those related to the development of marginal oil fields since, in conditions of weak demand and low prices, oil companies prefer to focus on investing in developing resources that have a medium/long-term production life. Your Company(cid:213)s industrial model, which combines technology, an advanced fleet of vessels and a long-standing local presence in the countries in which it operates, affords it a strong competitive edge for the execution of major projects in frontier areas. Saipem(cid:213)s favourable competitive position in areas and sectors traditionally less exposed to the cyclical nature of the market enabled it to acquire new orders during 2009 in quantities sufficient to retain a high level of backlog, which at the end of 2009 was close to the record figures posted at year-end 2008. The Saipem share grew by 101% in 2009, benefiting from the good level of order acquisitions as well as from the recovery of oil prices seen in the second half of the year, which raised hopes of an improvement on its way in conditions in the Oil Services market. 4 With regard to the results achieved by Your Company, it is important to bear in mind that while a fall in oil prices has an immediate impact on the income statements of oil companies, the impact on contractors like Saipem is delayed because of its backlog of orders. During 2009, Saipem in fact mainly executed contracts acquired in the previous two or three years, when market conditions were favourable. The high quality of the order backlog and strong operating performance saw Saipem once again achieve record results, with revenues up by 2% compared with 2008, operating profit up 6.7% and adjusted net profit up by 1.1%. Specifically, in the Offshore sector, revenues increased by 12.4% and operating profit by 15.2%, with activities concentrated in West Africa, Kazakhstan and the Mediterranean. In the Onshore sector, revenues fell by 9.3% and operating profit by 4.3%, due to the slippage of activities on the Manifa project in Saudi Arabia. In Onshore Drilling, revenues rose by 27.4%, due mainly to the start of operations of new rigs in South America and Ukraine, while operating profit fell by 20.3% due to a drop in utilisation rates and increased depreciation. Finally, in Offshore Drilling, revenues rose 19.9%, due in part to the expansion of the fleet, while operating profit rose 11.6%. S A I P E M A N N UA L R E P O R T / L E T T E R TO T H E S H A R E H O L D E R S Jacques Yves L(cid:142)ost Director; Chairman of Saipem sa Luca Anderlini Director Anna Maria Artoni Director The level of operational efficiency achieved once again placed your Company at the top of its industry, while the LTIFR (Lost Time Injury Frequency Rate) index, which provides a measure of safety performance, stood at 0.48 (against 0.5 in 2008). The complex investment programme commenced in 2006 and designed to strengthen and expand our assets in the Offshore Construction and Drilling sectors continued in 2009, with a total outlay of o1,615 million. During the year, in the Drilling sector, construction work was completed on a jack-up due to operate under a long-term contract with Sonangol, as well as on ten onshore drilling rigs contracted to various Clients, mainly in Latin America. Construction and completion works continued on three new vessels for ultra deep water drilling operations (two new semi-submersible drilling platforms and a new ultra-deep water drillship), which are due to be completed during the second half of 2010. Also, in the Offshore Construction sector, works continued on the realisation of a pipelayer and a field development ship, both equipped to carry out deepwater operations, and a new fabrication yard for large offshore structures. These works are expected to be completed in 2011. Finally, activities continued on the construction of a Diving Support Vessel, while work began on the conversion of an oil tanker into an FPSO vessel due to operate under a long-term contract for Eni. Oil industry spending is expected to show signs of recovery in 2010, underpinning expectations of a gradual improvement in market prospects for the oil services industry, despite continued weakness in hydrocarbon demand in general and gas demand in particular, which will lead oil companies to delay the launch of large infrastructure projects. Whilst in 2009, the oil services industry executed contracts largely acquired in previous years, when the market was particularly favourable, in 2010, volumes and margins are expected to be affected by the negative market conditions experienced in 2009. Saipem(cid:213)s business model, which addresses a number of different market sectors, combined with its strong competitive position in frontier areas, which are traditionally less exposed to the cyclical nature of the market, have enabled the company to retain a high level of backlog. The size and quality of the backlog and the strong operating performance on projects, underpin expectations for 2010 of again achieving largely positive results. Revenues are expected to remain at the record levels attained in 2009; the increase in EBITDA is expected to be sufficient to compensate the increase in depreciation resulting from new assets starting operations, and EBIT is envisaged to remain at the record level achieved in 2009. Investments for 2010 are forecast to be in the region of o1.5 billion and will mainly be spent on 5 S A I P E M A N N UA L R E P O R T / L E T T E R TO T H E S H A R E H O L D E R S Pierantonio Nebuloni Director Salvatore Sardo Director Ian Wybrew-Bond Director completing the expansion of the Drilling fleet and further progress towards strengthening the Offshore asset base. The start of operations of distinctive new assets in 2010 and 2011, coupled with a long-standing presence in geographical areas and sectors less exposed to the cyclical nature of the market, underpin expectations for a further significant strengthening of Saipem(cid:213)s competitive position in the medium-term. March 10, 2010 On behalf of the Board of Directors The Chairman Marco Mangiagalli The Deputy Chairman and Chief Executive Officer Pietro Franco Tali BOARD OF DIRECTORS Chairman Marco Mangiagalli Deputy Chairman and Chief Executive Officer Pietro Franco Tali Managing Director for Business Support and Transversal Activities (Deputy CEO) Hugh James O(cid:213)Donnell Directors Jacques Yves L(cid:142)ost Luca Anderlini Anna Maria Artoni Pierantonio Nebuloni Salvatore Sardo Ian Wybrew-Bond Saipem is a subsidiary of Eni SpA 6 BOARD OF STATUTORY AUDITORS Chairman Fabio Venegoni Statutory Auditors Fabrizio Gardi Adriano Propersi Alternate Statutory Auditors Giulio Gamba Alberto De Nigro Independent Auditors PricewaterhouseCoopers SpA S A I P E M A N N UA L R E P O R T / S A I P E M G R O U P S T R U C T U R E Saipem Group structure (subsidiaries) 7 Saipem SpA 100.00% 99.00% Snamprogetti Netherlands BV 1.00% Andromeda Consultoria Tecnica e Representa(cid:141)(cid:155)es Ltda 100.00% Saipem International BV 100.00% 100.00% Sigurd R(cid:159)ck AG Saipem Holding France sas 100.00% Saipem Perfura(cid:141)(cid:155)es e Constru(cid:141)(cid:155)es Petroliferas Unipessoal Lda Saipem (Portugal) - Gest(cid:139)o de Participa(cid:141)(cid:155)es SGPS SA 100.00% 100.00% Saipem Asia Sdn Bhd 31.45% 100.00% 100.00% Snamprogetti France sarl Saipem (Portugal) Com(cid:142)rcio Maritimo Sociedade Unipessoal Lda 100.00% 100.00% 68.55% 99.00% 99.00% Petrex SA PT Saipem Indonesia Snamprogetti Romania Srl Snamprogetti Ltd Snamprogetti Lummus Gas Ltd 20.00% 80.00% Star Gulf Free Zone Co 100.00% Saipem Mediterran Usluge doo 1.00% 100.00% Snamprogetti Engineering BV Varisal - Servi(cid:141)os de Consultadoria e Marketing Unipessoal Lda 100.00% 60.00% 95.00% Saudi Arabian Saipem Ltd 5.00% Snamprogetti Saudi Arabia Co Ltd Llc 100.00% Saipem Luxembourg SA Saipem Contracting (Nigeria) Ltd 97.94% 100.00% Sonsub AS 1.00% 99.00% 100.00% Saipem Ukraine Llc Saipem (Nigeria) Ltd 89.41% 41.94% Sonsub International Pty Ltd Saipem (Malaysia) Sdn Bhd 100.00% 50.00% North Caspian Service Co Llp Ersai Caspian , Contractor Llc 100.00% 100.00% Moss Maritime AS 100.00% 100.00% Katran-K Llc 100.00% 100.00% Saipem UK Ltd 49.00% 99.98% Saipem Qatar Llc Global Petroprojects Services AG Snamprogetti Canada Inc ERS Equipment Rental & Services BV 0.02% Saipem Services sa Saipem America Inc 100.00% 99.92% Saipem Misr for 0.04% Petroleum Services (S.A.E.) 0.04% 100.00% Saipem (Beijing) Technical Services Co Ltd 100.00% Saipem Maritime Asset Management Luxembourg Sarl 50.00% 50.00% Saipem Drilling Co Pvt Ltd 100.00% European Maritime Commerce BV 99.90% Snamprogetti Chiyoda sas di Saipem SpA 100.00% 100.00% 100.00% 100.00% Saipem sa Saipem Discoverer Invest Sarl Intermare Sarda SpA Saipem Energy Services SpA 100.00% Saipem do Brasil Servi(cid:141)(cid:155)s de Petroleo Ltda 100.00% Servizi Energia Italia SpA 70.00% 100.00% Petromar Lda Saipem Singapore Pte Ltd 100.00% SAS Port de Tanger Unipersonelle Boscongo sa 99.99% 100.00% Entreprise Nouvelle Marcellin sa 0.10% Soci(cid:142)t(cid:142) de Construction d(cid:213)Oleoducts Snc 99.90% BOS Investment Ltd 100.00% BOS-UIE Ltd 100.00% Saipem India Project Ltd 100.00% 100.00% Saimexicana SA de Cv 100.00% Sofresid sa Saipem Services M(cid:142)xico SA de Cv Saigut SA de Cv 100.00% 100.00% 99.99% Sofresid Engineering sa 100.00% Saipem Contracting Algerie SpA The diagram only includes Saipem subsidiaries operative in 2009 Directors(cid:213) report S A I P E M A N N UA L R E P O R T / S A I P E M S p A S H A R E P E R F O R M A N C E Saipem SpA share performance On December 31, 2009, the trading price of Saipem(cid:213)s ordinary shares on the Milan Stock Exchange stood at o24.02, representing an increase of 101.5% compared to the closing price of o11.92 recorded at the end of 2008. During the same period, the FTSE MIB (the benchmark stock market index for the Italian stock exchange, consisting of the 40 most-traded stock classes on the exchange) climbed 19.5%. climbing to its 2009 peak of o24.23 during the last trading session of the year but two, thus recovering the ground lost following the financial crisis and returning to the levels recorded in September 2008. During the year, Saipem the share outperformed the FTSE/MIB index by over 80%, making it the fifth best performing stock in the index. The financial crisis, which already hit the markets hard in the second half of 2008, coupled with sharp fluctuations in oil prices, reinforced expectations of an economic slowdown and a subsequent fall in the demand for oil services. This had a negative effect during the first quarter of 2009 on share prices in the oil services sector as a whole as well as on the Saipem share price, which dropped to its lowest point of the year of o10.78 at the end of January. Starting from the second quarter of the year, in conjunction with a stabilisation in market conditions and an upturn in oil prices, the Saipem share began a period of almost uninterrupted growth, The company(cid:213)s market capitalisation at the end of the year was back up over the o10 billion mark after having dropped to o5.3 billion at year end 2008. At December 31, 2009, Saipem ranked 11th in Italy in terms of market capitalisation. Share liquidity was slightly lower than in 2008, with an average number of shares traded daily of 3.5 million (3.8 million in 2008). Shares traded during the year totalled almost 900 million, while the total trade value amounted to over o15 billion (o22 billion in 2008), equal to a daily average of o60 million. Stock exchange data and indices Dec. 31, 2005 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2009 Share capital Ordinary shares Savings shares Market capitalisation Gross dividend per share: - ordinary shares - savings shares Price/earning ratio per share: (2) - ordinary shares - savings shares Price/cash flow ratio per share: (2) - ordinary shares - savings shares Price/adjusted earning ratio per share: - ordinary shares - savings shares Price/adjusted cash flow ratio per share: - ordinary shares - savings shares (o) 441,410,900 441,410,900 441,410,900 441,410,900 441,410,900 441,239,414 441,251,799 441,251,800 441,262,713 441,265,604 171,486 159,101 (o million) 6,087 8,699 159,100 12,051 148,187 5,262 145,296 10,603 (o) (o) 0.19 0.22 23.87 25.97 13.41 14.58 23.87 25.97 13.41 14.58 0.29 0.32 22.65 22.55 14.17 14.11 22.65 22.55 14.17 14.11 0.44 0.47 13.77 14.38 10.42 10.88 20.74 21.65 13.98 14.59 0.55 0.58 5.75 8.12 4.15 5.86 7.26 10.25 4.88 6.89 0.55 (1) 0.58 (1) 14.48 14.48 9.05 9.05 14.48 14.48 9.05 9.05 (1) To be approved by the Shareholders(cid:213) Meeting to be held on April 16 and April 26, 2010, at first and second call, respectively. (2) Figures pertain to the consolidated financial statements. 12 S A I P E M A N N UA L R E P O R T / S A I P E M S p A S H A R E P E R F O R M A N C E On May 21, 2009, a dividend of o0.55 per ordinary share was distributed to shareholders, an increase in excess of 25% compared to the previous year (o0.44 per share). positive performance in 2009 (although not as good as ordinary shares), closing the year up 43% to o24.02 (from o16.82 at year end 2008). Volumes traded were minimal. The price of savings shares in circulation (145,296), convertible at par with ordinary shares, also recorded a Finally, the dividend distributed on savings shares was o0.58 per share (o0.47 in the previous year). Share prices on the Milan Stock Exchange (o) 2005 2006 2007 2008 2009 Ordinary shares: - maximum - minimum - average - year-end Savings shares: - maximum - minimum - average - year-end 14.34 8.69 11.40 13.79 15.52 8.74 11.95 15.00 21.14 13.79 17.85 19.71 21.50 14.42 18.24 19.62 31.56 18.32 24.72 27.30 41.50 19.10 26.97 28.50 30.44 10.29 23.19 11.92 30.05 16.82 26.43 16.82 24.23 10.78 17.51 24.02 24.02 14.85 18.54 24.02 Saipem and FTSE MIB - Average monthly prices January 2005-March 2010 Price in euro of Saipem shares 33.00 2005 2006 2007 2008 2009 2010 FTSE MIB value 48,000 29.50 26.00 22.50 19.00 15.50 12.00 8.50 5.00 1 2 3 4 5 6 7 8 9 1011 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 Saipem FTSE MIB 43,500 39,000 34,500 30,000 25,500 21,000 16,500 12,000 13 S A I P E M A N N UA L R E P O R T / G LO S S A R Y Glossary FINANCIAL TERMS Deep waters: depths of over 500 metres. Drillship: vessel equipped with self-propulsion system, capable of carrying out drilling operations in deep waters. IFRS (International Financial Reporting Standards): Dynamic Positioned Heavy Lifting Vessel: vessel accounting standards issued by the IASB (International Accounting Standards Board) and adopted by the European Commission. They comprise: International Financial Reporting Standards (IFRS), International Accounting Standards (IAS) and the interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and the Standing Interpretations Committee (SIC) adopted by IASB. The denomination International Financial Reporting Standards (IFRS) has been adopted by IASB and applies to standards issued after May 2003. Standards issued before May 2003 have maintained the denomination IAS. Leverage: a measure of a company(cid:213)s level of indebtedness, calculated as the ratio between net borrowings and shareholders(cid:213) equity including minority interest. ROACE: Return On Average Capital Employed is calculated as the ratio between adjusted net profit before minority interest, plus net finance charges on net borrowings, less the related tax effect and net average capital employed. OPERATIONAL TERMS Buckle detection: system that utilises electromagnetic waves during pipelaying to signal collapse of or deformations to pipeline laid. Bundles: bundles of cables. Commissioning: series of processes and procedures undertaken in order to start operations of a gas pipeline, associated plants and equipment. Concrete coating: subsea pipelines are coated with reinforced concrete so as to ballast and protect them from damage and corrosion. Conventional waters: depth of up to 500 metres. Deck: area of a vessel or platform where work equipment is located: process plant and equipment, accommodation modules and drilling units. Decommissioning: undertaken in order to end operations of a gas pipeline, associated plant and equipment. It may occur at the end of the life of the plant, following an accident, for technical or financial reasons, and/or on environmental or safety grounds. 14 equipped with a heavy-lift crane, capable of holding a precise position through the use of thrusters, thereby counteracting the force of the wind, sea, current, etc. EPC: type of contract typical of the Onshore construction sector, comprising the provision of engineering services, procurement of materials and construction. The term (cid:212)turnkey(cid:213) indicates that the system is delivered to the client ready for operations, i.e. already commissioned. EPIC (Engineering, Procurement, Installation, Construction): type of contract typical of the Offshore construction sector, which relates to the realisation of a complex project where the global or main contractor (usually a construction company or a consortium) provides the engineering services, procurement of materials, construction of the system and its infrastructure, transport to site, installation and commissioning/preparatory activities to the start-up of operations. Facilities: auxiliary services, structures and installations required to support the main systems. FDS (Field Development Ship): dynamically-positioned multipurpose crane and pipelay vessel. Flare: tall metal structure used to burn off gas produced by the oil/gas separation in oil fields, when it is not possible to utilise it onsite or ship it elsewhere. Floatover: type of module installation on offshore platforms that does not require lifting operations. A specialised vessel transporting the module uses a ballast system to position itself directly above the location where the module is to be installed; it then proceeds to de-ballast and lower the module into place. Once this has been completed the vessel backs off and the module is secured to the support structure. FPSO vessel: Floating Production, Storage and Offloading system comprising a large tanker equipped with a high-capacity production facility. This system, moored at the bow to maintain a geo-stationary position, is effectively a temporarily fixed platform that uses risers to connect the subsea wellheads to the on-board processing, storage and offloading systems. Hydrocracking (plant): installation for process separation of large oil molecules. S A I P E M A N N UA L R E P O R T / G LO S S A R Y Hydrotesting: operation involving high pressure (higher than operating pressure) water being pumped into a pipeline to ensure that it is devoid of defects. Hydrotreating: refining process aimed at improving the characteristics of oil fractions. Jacket: platform underside structure fixed to the seabed using piles. Jack-up: mobile self-lifting unit comprising a hull and retractable legs, used for offshore drilling operations. J-laying: method of pipelaying that utilises an almost vertical launch ramp, making the pipe configuration resemble the letter (cid:212)J(cid:213). This configuration is suited to deep-water pipe laying. Leased FPSO: FPSO vessel for which a lease contract is in place between a client/lessee (i.e. an oil company) and a contractor/lessor, whereby the lessee makes lease payments to the lessor for use of the vessel for a specific period of time. At the end of the lease term, the lessee has the option to purchase the FPSO. Piggy backed pipeline: small-diameter pipeline, fixed to a larger pipeline, used to transport a product other than that of the main line. Pile: long and heavy steel pylon driven into the seabed; a system of piles is used as the foundation for anchoring a fixed platform or other offshore structures. Pipe-in-pipe: subsea pipeline system comprising two coaxial pipes, used to transport hot fluids (oil & gas). The inner pipe transports the fluid whereas the outer pipe carries the insulating material necessary to reduce heat loss to the sea. The outer pipe also protects the pipeline from water pressure. Pipelayer: vessel used for subsea pipe laying. Piping and Instrumentation Diagram (P&ID): diagram showing all plant equipment, piping and instrumentation with associated shutdown and safety valves. Pre-commissioning: comprises pipeline cleaning out and drying. Pre-drilling template: support structure for a drilling LNG: Liquefied Natural Gas is obtained by cooling platform. natural gas to minus 160 ¡C at normal pressure. The gas is liquefied to facilitate its transportation from the place of extraction to that of processing and/or utilisation. A tonne of LNG equates to 1,500 cubic metres of gas. LPG: Liquefied Petroleum Gases. Produced in refineries through the fractionation of crude oil and subsequent processes, liquid petroleum gases exist in a gaseous state at ambient temperatures and atmospheric pressure, but change to a liquid state under moderate pressure at ambient temperatures, thus enabling large quantities to be stored in easy to handle metal pressure vessels. LTI (Lost Time Injury): an LTI is any work-related injury that renders the injured person temporarily unable to perform any regular job or restricted work on any day/shift after the day or shift on which the injury occurred. Midstream: sector comprising all those activities relating to the construction and management of the oil transport infrastructure. Moon pool: opening in the hull of a drillship to allow for the passage of operational equipment. Mooring buoy: offshore mooring system. Offshore/Onshore: the term offshore indicates a portion of open sea and, by extension, the activities carried out in such area, while onshore refers to land operations. Pig: piece of equipment used to internally clean, scrape and survey a pipeline. Pulling: minor operations on oil wells due to maintenance or marginal replacements. Rig: drilling installation comprising the derrick, the drill deck, which supports the derrick, and ancillary installations that enable the descent, ascent and rotation of the drill unit as well as mud extraction. Riser: manifold connecting the subsea wellhead to the surface. ROV (Remotely Operated Vehicle): unmanned vehicle, piloted and powered via umbilical, used for subsea surveys and operations. S-laying: method of pipelaying that utilises the elastic properties afforded by steel, making the pipe configuration resemble the letter (cid:212)S(cid:213), with one end on the seabed and the other under tension onboard the ship. This configuration is suited to medium to shallow-water pipelaying. Slug catcher: equipment for the purification of gas. Sour water: water containing dissolved pollutants. Spar: floating production system, anchored to the seabed by means of a semi-rigid mooring system, comprising a vertical cylindrical hull supporting the platform structure. Spare capacity: ratio between production and production capacity, i.e. the quantity of oil in excess of demand. Spool: connection between a subsea pipeline and the platform riser, or between the terminations of two pipelines. 15 S A I P E M A N N UA L R E P O R T / G LO S S A R Y Stripping: process through which volatile compounds are removed from the liquid solution or the solid mass in which they have been diluted. SURF (Subsea, umbilicals, risers, flowlines) facilities: pipelines and equipment connecting the well or subsea system to a floating unit. Template: rigid and modular subsea structure where the oilfield well-heads are located. Tie-in: connection between a production line and a subsea wellhead or simply a connection between two pipeline sections. Topside: portion of platform above the jacket. Trenching: burying of offshore or onshore pipelines. Trunkline: oil pipeline connecting large storage facilities to the production facilities, refineries and/or onshore terminals. Tender assisted drilling unit: offshore platform Umbilical: flexible connecting sheath, containing complete with drilling tower, connected to a drilling support tender vessel housing all necessary ancillary infrastructure. Tendons: pulling cables used on tension leg platforms used to ensure platform stability during operations. Tension Leg Platform (TLP): fixed-type floating platform held in position by a system of tendons and anchored to ballast caissons located on the seabed. These platforms are used in ultra deep waters. flexible pipes and cables. Upstream/Downstream: the term upstream relates to exploration and production operations. The term downstream relates to all those operations that follow exploration and production operations in the oil sector. Vacuum: second stage of oil distillation. Wellhead: fixed structure separating the well from the outside environment. Workover: major maintenance operation on a well or replacement of subsea equipment used to transport the oil to the surface. 16 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W Operating review NEW CONTRACTS AND BACKLOG Saipem Group - New contracts awarded as at December 31 (o million) 2008 2009 Saipem SpA Group companies Total Offshore Onshore Offshore Drilling Onshore Drilling Total Italy Abroad Total Eni Group Third parties Total Amount 5,935 7,925 13,860 4,381 7,522 760 1,197 13,860 831 13,029 13,860 540 13,320 13,860 % 43 57 100 32 54 5 9 100 6 94 100 4 96 100 Amount 4,045 5,872 9,917 5,089 3,665 585 578 9,917 2,081 7,836 9,917 3,147 6,770 9,917 % 41 59 100 51 37 6 6 100 21 79 100 32 68 100 17 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W New contracts by geographical area (o million) Backlog by geographical area (o million) 2,081 Italy 946 Rest of Europe 1,732 Russia* 38 Saudi Arabia 1,338 Rest of Asia 2,397 North Africa 1,261 West Africa 124 Americas 1,341 Italy 2,468 Rest of Europe 1,055 Russia* 1,485 Saudi Arabia 1,915 Rest of Asia 5,573 North Africa 2,885 West Africa 2,008 Americas (*) Russia includes Kazakhstan and Azerbaijan. (*) Russia includes Kazakhstan and Azerbaijan. New contracts awarded to the Saipem Group in 2009, less contracts amounts already included in the backlog, amounted to o9,917 million (o13,860 million in 2008). 51% of all contracts awarded were in the Offshore sector, 37% in the Onshore sector, 6% in the Offshore Drilling sector and 6% in the Onshore Drilling sector. New contracts to be carried out abroad made up 79% and contracts awarded by Eni Group companies 32% of the overall figure. Orders awarded to the Parent Company Saipem SpA amounted to 41% of the overall total. Saipem Group - Backlog as at December 31 The backlog of the Saipem Group as at December 31, 2009 stood at o18,730 million. The breakdown of the backlog by sector is as follows: 43% in the Onshore sector, 29% in the Offshore sector, 20% in Offshore Drilling and 8% in the Onshore Drilling sector. 93% of all orders are with overseas clients, while orders from Eni Group companies represented 22% of the overall backlog. The Parent Company, Saipem SpA, accounted for 51% of the total order backlog. (o million) 2008 2009 Amount 9,453 9,652 % 49 51 Amount 9,574 9,156 19,105 100 18,730 4,682 9,201 3,759 1,463 19,105 435 18,670 19,105 2,548 16,557 19,105 24 48 20 8 5,430 8,035 3,778 1,487 100 18,730 2 98 100 13 87 100 1,341 17,389 18,730 4,103 14,627 18,730 % 51 49 100 29 43 20 8 100 7 93 100 22 78 100 Saipem SpA Group companies Total Offshore Onshore Offshore Drilling Onshore Drilling Total Italy Abroad Total Eni Group Third parties Total 18 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W CAPITAL EXPENDITURE Capital expenditure in 2009 amounted to o1,615 million (o2,044 million in 2008) and can be broken down as follows: - o697 million in the Offshore sector relating mainly to the construction and completion of a new pipe lay vessel and a deepwater field development ship, the conversion of an oil tanker into an FPSO unit, the construction of a new fabrication yard in Indonesia, and maintenance and upgrading of the existing asset base; - o690 million in the Offshore Drilling sector, relating mainly to completion works on two semi-submersible rigs, a new ultra-deepwater drillship and a jack-up, in addition to maintenance and upgrading of the existing asset base; - o200 million in the Onshore Drilling sector relating mainly to the upgrading and expansion of the fleet; - o28 million in the Onshore sector for maintenance and upgrading of the existing asset base. The following table provides a breakdown of capital expenditure: Capital expenditure (o million) 2008 2009 Saipem SpA Other Group companies Total Offshore Onshore Offshore Drilling Onshore Drilling Total Details of capital expenditure for the individual business units are provided in the following paragraphs. 219 1,825 2,044 763 60 796 425 192 1,423 1,615 697 28 690 200 2,044 1,615 19 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W OFFSHORE General overview The Saipem Group possesses a strong, technologically advanced and highly-versatile fleet and world class engineering and project management expertise. These unique capabilities and competences, together with a long-standing presence in strategic frontier markets represent an industrial model that is particularly well suited to EPIC (Engineering, Procurement, Installation and Construction) projects. The Group boasts a fleet of semi-submersible vessels equipped with state-of-the-art technologies, including the Saipem 7000, equipped with a dynamic positioning system, 14,000-tonne lifting capacity and capability to lay subsea pipelines in ultra-deep waters using the (cid:212)J-lay(cid:213) system, which can handle a suspended load of up to 1,450 tonnes during pipelay operations. Other vessels include the Castoro Sei, capable of laying large diameter subsea pipelines, the Field Development Ship (FDS), a special purpose vessel used in the development of deep-water fields, equipped with a dynamic positioning system, a 600-tonne lifting capacity crane and a vertical pipelaying system capable of operating in water depths of up to 2,000 metres, and the Saipem 3000, capable of laying flexible pipelines and installing umbilicals and mooring systems in deep 20 waters and installing subsea structures of up to 2,200 tonnes. Saipem also enjoys a strong position in the subsea market, thanks to its use of highly sophisticated technologies, such as subsea ROVs (Remotely Operated Vehicles) and specially-equipped robots capable of carrying out complex deep-water pipeline operations. Furthermore, Saipem(cid:213)s strengthening of its design expertise in the floating production sector and its ability to manage turnkey projects have enabled the Group to successfully market itself as an operator in the Leased FPSO sector, with a fleet comprising the Cidade de Vitoria and the Gimboa. Market conditions The Offshore sector was affected during 2009 by the downturn in investments caused by the financial crisis which hit the global economy starting from the second half of 2008. The fall in activities was mainly connected with longer contract award times and the postponement of projects whose profitability was thrown into doubt by the slump in oil prices. Worst hit by the crisis were fast-track projects. The restriction on credit had a negative impact on smaller, independent operators encumbered by heavy debts and on contractors building on a speculative basis that entered the offshore market in the hope of taking advantage of the industry(cid:213)s boom period, particularly in the FPSO sector. The decrease in activities was followed by a slight drop in the cost of offshore services which, while remaining relatively small for installation vessels and subsea services, was more significant for yard activities. As a result, a number of offshore projects — particular the more costly projects in Brazil and West Africa — became profitable again, even with oil prices at $70-75 a barrel. This should allow a large number of projects that were put on hold during the crisis to be resumed. 2009 FPSO installations worldwide fell sharply, in part because the levels of activity seen in 2008 had been exceptionally high, and in part because the crisis led to the cancellation — even at an advanced stage of development — of projects undertaken on a speculative basis by companies subsequently hit by financial problems. The crisis caused an unprecedented drop in orders, which in the second half of 2008 and the first half of 2009 were zero. The backlog of orders for the entire floating platform sector at year end included 23 FPSO under construction (of which 17 conversions and 6 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W new), approximately 50% down on the record levels seen in 2007. Contract awards began to pick towards the end of 2009 in Asia, Brazil and Italy, where Saipem won the contract for the conversion and operation of the FPSO Aquila. Expectations are for a recovery, albeit gradually, with the situation in Brazil and West Africa looking particularly promising. Subsea installation activities continued at steady levels during the year. In the North Sea, demand was strong for subsea tiebacks to existing fixed and floating structures in shallow water, while installation activity in deep waters increased in Brazil and the Gulf of Mexico. However, this sector too was affected by the crisis, which led to a worldwide decline in orders. In particular, there was a downturn in West Africa, where the market for SURF (Subsea, Umbilicals, Risers and Flowlines) projects would appear to have entered a period of stagnation, following years of strong growth. In Brazil, on the other hand, business is being driven by the new developments in the pre-salt area and is continuing to grow, representing a favourable exception to the general decline. These signs of weakness, coupled with the downturn in the small diameter segment, are expected to have a short-term impact on activities in the SURF segment, but the market(cid:213)s fundamental indicators remain very good. The fixed platform sector saw high levels of activity, with growth recorded against 2008 levels in both the smaller structures segment (topside weighing less than 1,000 tons) as well as in the market for heavier structures. The outlook for the sector meanwhile is even more promising. Activity in the large diameter pipeline sector continued to remain at the low levels recorded in previous years, although a recovery is expected in 2010, driven in part by the Nord Stream project. New contracts The most significant contracts awarded to the Saipem Group during the year were: - for Eni, a contract for the conversion and operation of an FPSO vessel (Floating Production Storage and Offloading). The contract encompasses the conversion of an oil tanker into a FPSO vessel, which 21 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W will be installed and operated by Saipem. Production activities will start in the fourth quarter of 2011. The contract will be for a total period of 20 years; - for Agip KCO, the Hook-Up and Commissioning project in Kazakhstan as part of the Kashagan field development experimental programme, comprising hook-up and commissioning of offshore facilities and pre-fabrication and completion of modules at the Kuryk yard in Kazakhstan. The contract was awarded in partnership with Aker Solutions; - for Esso Exploration Angola (Block 15) Ltd, the contract for the development of the Kizomba Satellites Epc3 Tiebacks project, involving the Kizomba Satellites fields in Block 15 offshore Angola. The scope of work comprises engineering, construction, transport and installation of tiebacks, umbilicals, risers and subsea systems connecting the Mavacola and Clochas fields to the existing Kizomba A and B FPSOs; installation of one wellhead platform and of subsea pipelines, umbilical and PLEMs (pipelines end manifolds), in addition to the detailed engineering for infield pipelines; - for Eni, in Italy, a turnkey contract for works to be carried out in the Mediterranean Sea. Capital expenditure The most significant investments in this sector included: - the continuation of investment in a new pipelayer, CastorOne, equipped with dynamic positioning, designed for laying large diameter pipes in arctic conditions/deep waters; - the continuation of investments for the construction of the new Saipem FDS 2 deepwater field development ship; - the purchase of the lay barge Acergy Piper, which has - for Nord Stream AG, increases in contractual been renamed Saipem Castoro Sette; workscope relating to shore approach works in Germany and Russia; - for Esso Highlands Ltd, an ExxonMobil company, the contract for the PNG LNG Offshore Pipeline Project EPC2 in Papua New Guinea. The scope of work consists of the engineering, transportation and installation of a 407-kilometre long 34(cid:211) gas sealine, which will connect the Omati River landfall point, on the southern coast of Papua New Guinea, to the onshore point located near the capital Port Moresby, on the southeastern coast of the country, where a new LNG plant will be located; - for Premier Oil Natuna Sea BV, the EPIC project in Gajah Baru, in the West Natuna Sea offshore Indonesia, comprising engineering, procurement, installation of two platforms, in addition to a connecting bridge and a subsea gas export pipeline. One of the platforms will be installed using the float-over method. The contract was awarded to a consortium with PT SMOE Indonesia, of which Saipem is the leader; - for Shell Nigeria Exploration and Production Co Ltd (SNEPCo), the contract for the subsea development of the Bonga North-West field, offshore Nigeria. The contract encompasses engineering, procurement, fabrication, installation and pre-commissioning services for production pipe-in-pipe flowlines, water injection flowlines as well as related production facilities; - for PTSC Mechanical and Construction, the Chim Sao Platform and Pipelines Project in Vietnam. The contract encompasses the transportation and 22 - the continuation of construction works on a new diving support vessel; - the beginning of the conversion of an oil tanker into an FPSO vessel; - the continuation for Agip KCO of the programme for the development of the Kashagan field in Kazakhstan; - the continuation of investments for the construction of a new fabrication yard in Indonesia; - strengthening of the operating bases/yards in West Africa and Saudi Arabia; - upgrading and integration works on the fleet(cid:213)s main vessels. Work performed Activities carried out in 2009 consisted of the laying of approximately 1,000 km of pipelines and the installation of 62,333 tonnes of plant and equipment. The main projects were as follows. In the northern Adriatic, various facilities were installed as part of 2009 offshore works relating to the Framework Agreement signed during the year with InAgip doo and Eni Exploration & Production. Also in the Adriatic, activities were completed in connection with the Adriatic LNG project for Terminale GNL Adriatico. The project encompassed the laying of a gas pipeline at Porto Levante, connecting a regasification plant to the national grid, in addition to the laying of fibre optic cables linking the regasification plant to onshore facilities. Installation works were carried out by the S355. In the Mediterranean Sea, Saipem also carried out the following works: - testing and pre-commissioning was completed on the EPIC project Medgaz, for Medgaz, which encompassed the installation of a subsea pipeline system for the transportation of natural gas from Algeria to Spain across the Mediterranean Sea. The works were carried out using the semi-submersible, self-propelled, pipelay vessel S7000, the semi-submersible pipelay vessel Castoro Sei and the pipelay vessel Crawler; - the pipelaying activities were completed on the Maamoura project, for Eni Tunisia BV, as part of an EPIC contract which encompassed project management, engineering, procurement, fabrication and installation of a platform and the laying of two pipelines. The operations were carried out utilising the pipelay vessel Crawler and the Diving Support Vessel Bar Protector; - laying, post-trenching and testing activities were completed on the Balearic project, for Enagas SA, in Spain, which encompassed project management, engineering, transport and installation of two gas pipelines, connecting mainland Spain to Ibiza and Ibiza to Mallorca. The works were carried out using the semi-submersible pipelay vessel Castoro Sei and the pipelay vessel Crawler; - installation activities were completed on the EPIC Sequoia project, in Egypt, for Burullus Gas Co, which encompassed engineering, procurement, installation and commissioning of the subsea development system for the Sequoia field and of a new gas export pipeline; - the installation of a platform jacket was completed on the Baraka project, for Eni Tunisia BV, as part of an EPIC contract which encompasses project management, engineering, procurement, fabrication and installation of a platform; - offshore repair activities were carried out for TMPC (Transmediterranean Pipeline Co) on two of the four pipelines transporting Algerian gas from Tunisia to Sicily (Transmed Pipelines). The work was carried out utilising the Castoro Sette. In Saudi Arabia, following the signing of a Long-Term Agreement with Saudi Aramco for the engineering, procurement, fabrication, transport and installation of structures, platforms and pipelines offshore Saudi Arabia, works were completed on the construction of a new fabrication yard at Dammam, where construction works on platforms which will be installed in the next few years are currently being finished. Engineering and S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W preparatory activities for the installation of a gas pipeline and various flowlines were also carried out. In the Far East, Saipem carried out the following projects: - pipelaying works were completed on the Ledong project, for COOEC, which encompassed the transportation and installation of a jacket in the Ledong field in China. Operations were carried out utilising the semi-submersible pipelay vessel Semac 1; - activities were completed on the North Belut project, for ConocoPhillips, in Indonesia, which comprised engineering, procurement, transport and installation of topsides for a process platform. The platform, which was the heaviest ever installed in Indonesian waters, was installed using the floatover positioning system; - works were completed on the Bohai Bay Development project, for COOEC, in China, which encompassed engineering, project management and installation of nine sealines and a pipe-in-pipe in the bay of Bohai; - offshore works were completed on the Pearl project, for PTSC, in Vietnam, which encompassed engineering and installation of a platform and two pipelines; - engineering, procurement and construction activities are underway for Premier Oil Natuna Sea BV, on the EPIC project, Gajah Baru, in the West Natuna Sea offshore Indonesia, which encompasses engineering, procurement and installation of two platforms, in addition to a connecting bridge and a subsea gas export pipeline. One of the platforms will be installed using the float-over method; - engineering and project management activities are underway on the Premier Oil Block 12 Development, for PTSC, in Vietnam, which comprises engineering, project management, transport and installation of a platform, five pipelines and an umbilical. In Australia, installation works using the pipelay vessel Castoro Otto were completed on the EPIC-type Blacktip project, for Eni Australia Ltd, which comprised engineering, procurement, construction, installation and commissioning of a production platform and associated subsea pipeline system for transporting oil & gas to an onshore terminal. In West Africa, Saipem carried out the following works: - the EPIC contract AKPO, for Total Upstream Nigeria Ltd, in Nigeria, was completed. The project encompassed engineering, procurement, 23 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W construction, installation and commissioning of subsea pipelines, umbilicals and risers, as well as the construction of an oil offloading system, the installation of an FPSO mooring system and the laying of a gas pipeline between the FPSO and the Amenam AMP2 platform. Completion of the pipelines and the installation of risers and spools was carried out using the Saipem FDS; - the EPIC project Awa Paloukou, for Eni Congo SA, in Congo, was completed. The project encompassed engineering, procurement, transport, installation, hook-up and pre-commissioning of a platform, as well as the laying of an interconnecting pipeline linking the platform to the Djeno terminal. Pipelaying operations were carried out by the derrick lay barge Castoro II; - the installation of subsea facilities continued on the Block 17 EPIC contract, in Angola, for Total E&P Angola, which involves exporting gas from Block 17 for injection into two depleted oil reservoirs located offshore Angola. The contract includes engineering, procurement, fabrication, transportation and installation of a new gas injection platform; - offshore works utilising the work barge Saibos 230 and the self-propelled derrick crane vessel Saipem 3000 were completed on the EPIC-type FARM project, for Cabinda Gulf Oil Co Ltd, in Angola, which comprises the construction of 10 flare stacks and modifications to the gas combustion and discharge systems for 14 platforms in Block 0, which are located off the coast of Cabinda province; - work was completed on the Malongo Oil Export project, for Cabinda Gulf Oil Co Ltd, in Angola. The project encompassed project management, engineering, transport and installation of a pipeline; - installation activities are underway on the EPIC-type Olowi project, for CNR International (Olowi), for the development of the Olowi field in Gabon, comprising engineering, procurement, construction and installation of three wellhead towers, three platforms and associated umbilicals. Installation of the first platform was carried out by the derrick lay barge Castoro II; - activities continued on the EPIC type Usan project, for Elf Petroleum Nigeria (Total), relating to the subsea development of the Usan deepwater field, located approximately 160 km south of Port Harcourt in Nigeria. The contract encompasses the engineering, procurement, fabrication, installation and assistance to commissioning and start-up for subsea umbilicals, flowlines and risers connecting the 42 subsea wells to the FPSO system, as well as the 24 construction of the oil loading terminal, consisting of an offloading buoy and two offloading lines, and part of the FPSO anchoring system; - engineering, procurement and fabrication activities are underway on the EPIC-type SCP (Single Central Platform) contract, for Total E&P Angola, which encompasses the construction and commissioning of a platform in Block 2, in Angola; - work is underway on the EPIC-type project, Libondo Platform LB1 and associated pipelines, for Total E&P Congo, in Congo, which encompasses engineering, procurement, construction and installation of two subsea pipelines, two subsea cables and the installation of a platform. In the North Sea, pipelaying activities using the Castoro Sei and other support vessels were completed on the Gjoa Development project, for Statoil Hydro Petroleum AS, which encompassed the installation of one oil pipeline and one gas pipeline. In addition, preparatory and vessel completion activities continued on the Nord Stream project, for Nord Stream AG (an international joint venture formed by Gazprom, BASF/Wintershall, E.ON Ruhrgas and NV Nederlandse Gasunie). The contract involves the laying of a gas pipeline composed of two parallel pipes that will link Vyborg in Russia with Greifswald in Germany across the Baltic Sea. Also in the North Sea, Saipem carried out the following operations using the Saipem 7000: - the Frigg and MCP-01 Decommissioning project for AKOP (Aker Kvaerner Offshore Partners) was completed. The project comprised the removal and transportation of a jacket and seven platforms from the Frigg and MCP-01 gas fields situated in British and Norwegian waters; - the Ormen Lange project, for Statoil Hydro Petroleum AS was completed. The project encompassed the installation of a template (Template D) and other subsea facilities in the Ormen Lange Southern field, in Norway; - a part of the structures were installed on the Valhall project, for Statoil Hydro Petroleum AS, which comprises the transportation and installation of five interconnecting bridges and two wellhead towers for the Valhall field in Norway; - the jacket and piles were installed on the Buzzard Enhancement project, for Nexen Petroleum UK, which encompasses the installation of a jacket, piles and a bridge in British waters in the North Sea. S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W Activities continued on the Underwater Service Contract Long Term Agreement, in Azerbaijan, for BP Exploration (Caspian Sea) Ltd, comprising subsea inspection, maintenance and repair works of BP offshore infrastructure in the Azeri offshore, including for platforms previously installed by BP Exploration. In Kazakhstan, for Agip KCO, as part of the programme for the development of the Kashagan field in the Kazakh waters of the Caspian Sea: - offshore pipelaying operations continued as part of the Kashagan Trunkline and Production Flowlines project. The project comprises engineering, procurement, coating, laying and commissioning of pipelines, fibre optic cables and umbilicals. Pipes were supplied by the Client; - the activities planned for 2009 based on the schedule supplied by the Client continued on the Kashagan Piles and Flares project. The contract comprises construction, assembly, transport and installation of piles and flares and sixteen barges to accommodate plant modules. The scope of works also includes the procurement, fabrication and installation of associated mooring and protection structures; In South America: - engineering and installation operations are ongoing as part of the Mexilhao contract, for Companhia Mexilhao do Brasil, in Brazil. The contract comprises the transport and installation of a jacket, mooring piles and topsides for the PMXL-1 platform, for the Mexilhao field development in the Santos basin, approximately 140 km off the coast of the State of San Paolo; - work continued on the Urugu(cid:136)-Mexilhao Pipeline contract, for Petrobras, in the Santos Basin off the coast of Brazil. The contract comprises the transport, installation and testing of a pipeline that will link the FPSO Cidade de Santos, located in the exploratory Block BS-500, in 1,372 metres of water, to a gas platform in 172 metres of water in the Urugu(cid:136) field. The following vessels also carried out operations during the year: - the FPSO Cidade de Vitoria carried out operations on behalf of Petrobras, as part of an eleven-year contract, on the second phase of the Golfinho field development, situated off the coast of Brazil at a water depth of 1,400 metres; - in relation to the Kashagan Hook Up and - the FPSO Gimboa carried out operations on behalf of Commissioning project, for Agip KCO, the activities commenced in 2008 under the preliminary contract (which was finalised in the first half of 2009) continued during the year. The contract, awarded in consortium with Aker, comprises the hook-up and commissioning of offshore facilities and pre-fabrication and completion of modules at the Kuryk yard in Kazakhstan. Sonangol P&P, under a five-year contract for the provision and operation of an FPSO unit for the development of the Gimboa field, located in Block 4/05 offshore Angola, at a water depth of 700 metres. 25 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W Offshore fleet at December 31, 2009 Saipem 7000 Saipem FDS Castoro Sei Castoro Sette Castoro Otto Saipem 3000 Bar Protector Semac 1 Castoro II Castoro 10 Castoro 12 S355 Crawler Self-propelled, semi-submersible, dynamically positioned crane and pipelay vessel capable of lifting structures of up to 14,000 tonnes and J-laying pipelines at depths of up to 3,000 metres. Multi-purpose, mono-hull, dynamically-positioned crane and pipelay vessel utilised for the development of deepwater fields at depths of up to 2,100 metres, capable of launching 22(cid:211) diameter pipe in J-lay configuration and lifting structures of up to 600 tonnes. Semi-submersible pipelay vessel capable of laying large diameter pipe at depths of up to 1,000 metres. Semi-submersible lay barge capable of laying large diameter pipe at depths of up to 1,000 metres. Dynamically-positioned derrick/lay ship capable of laying pipes of up to 60(cid:211) diameter and lifting structures of up to 2,200 tonnes. Self-propelled, dynamically-positioned crane vessel capable of laying flexible pipes and umbilicals in deep waters and lifting structures of up to 2,200 tonnes. Dynamically positioned dive support vessel used for deep-water diving operations and work on platforms. Semi-submersible pipelay barge capable of laying large diameter pipes in deep waters. Derrick/lay barge capable of laying pipe of up to 60(cid:211) diameter and lifting structures of up to 1,000 tonnes. Trench/pipelay barge capable of burying pipes of up to 60(cid:211) diameter and laying pipes in shallow waters. Pipelay barge, capable of laying pipe up to 40(cid:211) diameter in ultra-shallow waters (1.4 metres). Derrick/lay barge capable of laying pipe up to 42(cid:211) diameter and lifting structures of up to 600 tonnes. Derrick/lay barge capable of laying pipe up to 60(cid:211) diameter and lifting structures of up to 540 tonnes. Saipem Trenching Barge Post-trenching and back-filling barge for up to 40(cid:211) diameter pipes in ultra-shallow waters Saibos 230 Ersai 1 (1) Ersai 2 (1) Ersai 3 (1) (1.4 metres). Work/pipelaying/accommodation barge capable of laying pipe up to 30(cid:211) diameter, equipped with a mobile crane for piling, marine terminals and fixed platforms. Heavy lifting barge equipped with two crawler cranes, capable of carrying out installations whilst grounded on the seabed. The lifting capacities of the two crawler cranes are 300 and 1,800 tonnes, respectively. Work barge equipped with a fixed crane capable of lifting structures of up to 200 tonnes. Self propelled workshop/storage barge used as support vessel, with storage space and office space for 50 people. Accommodation barge for up to 400 people, equipped with antigas shelter for H2S leaks. Launching/cargo barge. Heavy-duty cargo barge. Cargo barge. Cargo barge. Cargo barge, utilised for storage of S7000 J-lay tower. Cargo barge. Launching/cargo barge, for structures of up to 30,000 tonnes. Launching/cargo barge, for structures of up to 20,000 tonnes. Cargo barge. Cargo barge. Launching/cargo barge, for structures of up to 30,000 tonnes. Lightweight cargo barge. Ersai 400 (1) Castoro 9 Castoro XI Castoro 14 Castoro 15 S42 S43 S44 S45 S46 S47 Bos 600 Saibos 103 FPSO - Cidade de Vitoria FPSO unit with a production capacity of 100,000 barrels a day. FPSO - Gimboa FPSO unit with a production capacity of 60,000 barrels a day. (1) Owned by the joint company, managed by Saipem, Ersai Caspian Contractor Llc. 26 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W ONSHORE General overview The Saipem Group(cid:213)s Onshore expertise is centred around the execution of large projects with a high degree of complexity in terms of engineering, technology and operations, with a strong bias towards challenging projects in difficult environments and remote areas. Saipem enjoys a position of primacy at the high-end of the market for the provision of basic and detailed engineering, procurement, project management and construction services for the oil & gas industry, complex infrastructures and environmental projects. The company places great emphasis on local content during the execution of projects, especially in areas such as the Middle East, North and West Africa. The Group enjoys a long-term and continuing operational presence in the Arabian Peninsula, West Africa, North Africa, Europe, Russia and Kazakhstan, although its attention toward Australia and a number of Latin American countries is growing. Market conditions With many companies (particularly smaller companies, independent companies and some majors) having decided to suspend the award of new contracts until there were concrete signs of a recovery, business was 27 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W slow up until the second half of 2009, at which point a pick-up in oil prices saw a number of new contracts assigned, including some for large scale plants. Investments in the upstream sector in 2009 reached good levels, due in particular to the activities of the National Oil Companies in the Middle East and North Africa, with a number of large major contracts awarded in Algeria, the United Arab Emirates and Saudi Arabia. The oil and gas pipeline transport sector is assuming an increasingly strategic role, due to the prospect of improved oil and gas transport corridors to Europe from Russia and North Africa and the development of resources in South America. The natural gas sector in particular is seeing a shift away from the pre-eminence of the traditional supply routes, with East and South Asia (China and India especially) continuing to play a prominent role, with the launch of numerous new projects for the transport of large quantities of oil and gas from Central Asian countries towards regions undergoing rapid development. In the gas liquefaction sector, following the slowdown in recent years, the current growth in demand in Europe and in particular in Asia is expected to absorb the new production capacity that will be generated by projects presently underway. In the short-term, the potential supply surplus is likely to be reabsorbed due to increasing concern over environmental issues, particularly in developed countries, which should see coal continue to be gradually replaced by natural gas in thermoelectric plants. The most promising areas in this market are expected to be Australia, West Africa and Russia. The refinery sector (and the downstream sector in general) was worst hit by the repercussions of the financial crisis during 2009. While new refinery projects continue to be developed in areas characterised by growth in demand (Asia, Latin America) and a high level of natural resources (Middle East, North Africa), in the traditionally more advanced areas (Northern Europe, North America) there have been several definitive plant closures. The geographical shift of production, coupled with the fall in demand, has led to many large scale projects launched in the recent past in the US and Canada on the back of the oil sands and heavy oil development booms being put on hold. However, the need to meet the increasingly stringent quality specifications (especially for export plants, i.e. in the Middle East, North Africa and India), as well as the economic and logistical advantages offered by the construction of conversion plants at the terminals of the new oil supply routes (in Turkey, Russia, Central Asia, China), mean that new 28 development opportunities should continue to emerge. The petrochemical sector was also significantly impacted by the effects of the crisis. The fall in demand, coupled with the overcapacity created by the recent phase of major investments, has provoked a sharp slowdown in new initiatives. Following a number of years of growth, the sector experienced a lean spell in 2008-2009, during which the few new projects were mainly awarded in Asia and the Middle East. The cyclicality of the sector make it particularly sensitive to changes in the economy, and a concrete recovery will only be possible once the current production surplus has been reabsorbed. An additional sector driver continues to be the shift of production towards areas of higher growth where cheaper raw materials are available. At the present time, the most promising projects are being implemented in Asia (China, India, Vietnam, Thailand) and the Middle East (Saudi Arabia, Qatar, Kuwait, UAE), while additional opportunities may emerge in South America and Russia. New contracts The most significant contracts awarded to Saipem during 2009 were: - the EPC project in Algeria for the joint venture Eni- Sonatrach, for the construction of facilities for the treatment of natural gas extracted from the Menzel Ledjmet East field and from the future developments of the Central Area Field Complex. The contract encompasses the engineering, procurement and construction of the natural gas gathering systems and processing plant and the related export pipelines; - for Sonatrach, the EPC contract in Algeria, for gas pipeline GK3 - lot 3, covering the engineering, procurement and construction of a gas transportation system. Lot 3 encompasses a gas pipeline system from Mechtatine to Tamlouka in the northeast of Algeria, then connecting the latter to Skikda and El-Kala, located on the northeastern coast of the country; - for Qatar Fertiliser Co SAQ, the EPC contract in Qatar for the development of the onshore project Qafco 6, including the construction of a new urea production plant within the new Qafco industrial complex at Mesaieed, about 30 kilometres south of Doha; - for Sonatrach, the EPC contract, in Algeria, comprising engineering, procurement and construction of a marine export terminal for a future urea/ammonia plant to be built near the Algerian city of Arzew, approximately 400 kilometres west of Algiers; - for Chevron, the EPC contract for the Gorgon LNG jetty and marine structures project. The scope of work consists of the engineering, procurement, fabrication, construction and commissioning of the LNG jetty and related marine structures for the new Chevron Gorgon LNG plant on Barrow Island, 70 kilometres off the Pilbara coast of Western Australia; - for KOC (Kuwait Oil Co), the EPC contract for the replacement of the compressors systems at KOC(cid:213)s Gathering Centres 07, 08 and 21, in the south of the country. The scope of work will consist of the engineering, procurement, demolition and disposal of existing facilities, construction, installation, commissioning, and training of personnel for three new compressors; - for SIDC — a subsidiary of SIPC (Sohar Industrial Port Co) — in Oman, the contract to design and construct a deepwater bulk jetty for the loading and unloading of mineral ores at the Port of Sohar, about 150 kilometres northwest of Muscat. Capital expenditure Capital expenditure in the Onshore sector focused mainly on the acquisition and readying of plant and equipment necessary for the execution of projects. Work performed Onshore activities during the year comprised of the laying of 716 km of pipe of various diameters and the installation of 76,543 tonnes of equipment. The most significant works are detailed below by geographical area. In Saudi Arabia, for Saudi Aramco: - activities are being completed on the Khurais Crude Facilities project for the construction of a gas-oil separation plant (GOSP) as part of the development of the Khurais oil field in Saudi Arabia, situated approximately 180 km north-east of Riyadh. The contract comprises the engineering, procurement and construction of four gas-oil separation trains, in addition to a number of production infrastructure facilities; - activities are being completed on the Khurais Utilities and WIPS project, which forms part of the programme for the development of the Khurais complex. The contract comprises engineering, procurement, construction, installation and S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W commissioning of pumping stations, which inject water from the Qurayyah water treatment plant into the Khurais field, as well as all necessary utilities; - activities were completed on the Qurayyah Seawater Treatment Plant project, which comprised the expansion of the plant and injection of seawater into the oil fields to support oil production operations; - activities were commenced for Saudi Aramco on the EPC Manifa Field contract for the construction of gas/oil separation trains at the Manifa Field. The project encompasses the engineering, procurement and construction of three gas/oil separation trains (GOSP), gas dehydration, crude inlet manifolds and the flare gas system. In Qatar: - activities continued on the EPC-type contract Qafco 5, for Qatar Fertiliser Co SAQ, comprising engineering, procurement, construction and commissioning of two new ammonia and urea production plants and associated service infrastructure in the industrial area of Qafco, in the city of Mesaieed. The contract was awarded in consortium with Hyundai Engineering & Construction Co Ltd; - works are being completed on the LLPDE Plant project, for the construction of a polyethylene plant for Qatofin; - engineering and procurement activities continued on the EPC-type Pearl Gas To Liquids (GTL) project, for Qatar Shell Ltd, comprising the construction of a waste water treatment plant in the industrial city of Ras Laffan. Operations are nearing completion on the EPC-type Ruwais project, in the United Arab Emirates, for Gasco, which comprises the construction of a fractionation train and the expansion of associated facilities, including the construction of a new loading dock and new refrigerated tanks. Work continued for Kuwait Oil Co (KOC) on the EPC contract BS 160, in Kuwait, which encompasses the engineering, procurement, construction and commissioning of a new gas booster station consisting of two trains for gas compression and dehydration. The gas will be subsequently conveyed to the Mina Al Ahmadi refinery. Construction is underway in Pakistan, for Engro Chemical Pakistan Ltd (ECPL), on the project for the 29 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W supply of technology licenses, engineering, procurement and supervisory activities relating to the construction of a plant for the production of ammonia and urea, including all service infrastructures. The plant will be located in Daharki, approximately 450 kilometres north-east of Karachi. In Algeria, for Sonatrach: - construction work began on the EPC-type LNG GL3Z Arzew contract, which comprises engineering, procurement and construction of a liquefaction plant and the construction of utilities, a generator set and jetty; - construction work began on the EPC contract, for the construction of infrastructure of an LPG treatment plant in the Hassi Messaoud oil complex. The contract comprises the engineering, procurement and construction of three LPG trains; - work began on the Ammonia/Urea Arzew EPC contract, comprising engineering, procurement and construction of a marine export terminal for a future urea/ammonia plant to be built near the Algerian city of Arzew, approximately 400 kilometres west of Algiers; - work is being completed on the EPC-type UBTS (Unit(cid:142) de Traitement du Brut et de sa Stabilisation) project, which encompasses the engineering, procurement and construction of a crude oil treatment and stabilisation plant, comprising three trains, one maintenance unit, four stocking units and a pipeline transporting oil, water and gas; - work is being completed on the EPC-type project LZ2 Hassi R(cid:213)mel-Arzew, for the installation of a new LPG pipeline connecting the Hassi R(cid:213)mel gas field, in central Algeria, to the oil exporting area of Arzew, located on Western Algeria(cid:213)s Mediterranean coast. In Morocco, work is being completed on the EPC-type project for the expansion of the Samir refinery, which comprises the construction of a vacuum unit, a hydro-cracking and a hydro-treating unit, as well as sulphur recovery, amine regeneration, sour water stripper units and the development of existing refinery utilities. The contract is being carried out in consortium with the Turkish company Tekfen. In Nigeria: - work is underway for Total Exploration and new units and the demolition and decommissioning of existing units at the gas treatment plants of Obagi and Obite; - construction is underway on behalf of Shell Petroleum Development Co on the EPC-type Nembe Creek-Cawthorne Channel project, comprising the construction, installation and commissioning of a pipeline located in swamp terrain which will connect the San Bartholomew Manifold to the Cawthorne Channel Junction Manifold (respectively in Bayelsa and Rivers states), and the decommissioning of an existing pipeline and ancillary facilities; - works are ongoing on behalf of ChevronTexaco on the EPC-type Escravos GTL project. The plant will comprise two parallel trains. The contract is being carried out in a 50-50 joint venture with the American company KBR; - construction is being completed on the OB/OB Revamping (T-4/5) project for Nigerian Agip Oil Co (NAOC), which comprises engineering, procurement, construction and commissioning of new units and the demolition and decommissioning of existing units at the gas treatment plants of Obiafu/Obrikom; - construction works progressed on the EPC-type Gbaran project for Shell Petroleum Development Co of Nigeria, which encompasses engineering, procurement and laying of pipelines, flowlines and composite fibre optic and high voltage electrical cables; - construction works are being completed on the EPC-type Gbaran Logistic Base project, for Shell Petroleum Development Co of Nigeria, which comprises engineering, procurement, construction and commissioning of a logistics base for the Gbaran field. In France, construction of the terminal is being completed on the Fos Cavaou project, for Gaz de France, which comprises engineering, procurement and construction of all facilities for a regasification terminal, including three storage tanks and maritime works. In Russia, work was completed on the Sakhalin II project, for Sakhalin Energy Ltd. The project comprised offshore and onshore pipelay operations and installation of compression and pumping stations and a terminal. Production Nigeria Ltd - TEPNG (operator of the joint venture NNPC/TEPNG) on the EPC contract OML 58 Upgrade, which comprises engineering, procurement, construction and commissioning of In Canada, work was completed on the EPC-type Canaport project, for Canaport Lng, which encompassed design, engineering, construction and commissioning of a regasification terminal, inclusive of 30 auxiliary facilities for gas offloading, pumping, vapourisation and transmission and two storage tanks. In addition, the option for the construction of the third LNG tank and the interconnecting piping was exercised. The contract was carried out in consortium with the Canadian company SNC-Lavalin. S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W In Italy, engineering procurement and construction activities are underway for the Eni Refining & Marketing division in connection with the first industrial scale application of EST technology (Eni Slurry Technology), as part of the project for the construction of a refinery at Sannazzaro. EST technology — to whose development Saipem made a significant contribution — has the capacity to almost completely convert heavy oil residues into lighter products. 31 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W OFFSHORE DRILLING General overview The Group operated in the Offshore Drilling sector in West and North Africa, the Gulf of Suez, the Persian Gulf, Norway, Peru and India. The following vessels of the Group(cid:213)s fleet are currently operational: the Saipem 10000, a drillship capable of working at depths of up to 3,000 metres using its dynamic positioning system; the Scarabeo 7, a semi-submersible vessel capable of operating at depths of up to 1,500 metres and the Scarabeo 5, a fourth generation semi-submersible vessel, capable of working at depths of over 1,800 metres and drilling to a depth of 9,000 metres. Market conditions In 2009, the Offshore Drilling sector was affected by the financial crisis that started in the second half of 2008. However, the first signs of recovery, seen in the second half of the year, caused oil prices to climb back up and as a result, clients began to make tentative enquiries regarding availability/prices and/or in some cases to lease drilling rigs. Jack-ups and semi-submersibles for use in shallow to medium waters are traditionally the first segments to show the signs of a deterioration in market conditions and were in fact worst affected by the decline in activities and rates, especially in the Gulf of Mexico and 32 the Persian Gulf. The market only stabilised in the second half of 2009. The impact of the crisis was less marked for semi- submersibles and drillships, where utilisation rates globally were only slightly lower than in 2008. Vessels for deep water use, particularly drillships, continued to record a steady level of utilisation during the year. Although day rates were on average lower than the peaks recorded during 2008, they nonetheless remained high (in both West Africa and the North Sea). New contracts The most significant contracts awarded to the Group during 2009 were: - a three-year extension of the charter by Statoil of the semi-submersible drilling rig Scarabeo 5 for use in Norway, starting in the first quarter of 2011; the extension to the fourth quarter of 2014 of the charter of the semi-submersible platform Scarabeo 6 by Burullus Gas Co for use in Egypt; - - the one-year charter by Sonangol of the new jack-up Perro Negro 6 for works in Angola, starting in November 2009, with an option for an additional year; - the charter by Total of the jack-up Perro Negro 2 for use in the United Arab Emirates, for a period of six months starting in the first quarter of 2010. Capital expenditure The most significant items of capital expenditure within the Offshore Drilling sector were: - the continuation of construction activities for the new deep-water semi-submersible platform Scarabeo 8, which will operate in Norway on behalf of Eni Norge; - the continuation of construction activities for the new deep-water semi-submersible platform Scarabeo 9, which will operate in the Gulf of Mexico on behalf of Eni; - continuing investments on the new ultra-deep water drillship Saipem 12000, which will operate on behalf of Total Exploration & Production for the development of Block 17 in Angola; - completion of construction work on the jack-up Perro Negro 6, at the Labroy Offshore Shipyard in Batam (Indonesia); - class reinstatement works and investments made on the fleet to ensure compliance with international regulations and to customise vessels to client-specific requirements. S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W Work performed Activities comprised the drilling of 54 wells, totalling approximately 140,200 metres drilled. The deep-water drillship Saipem 10000 completed operations on behalf of Total Exploration & Production in July and subsequently operated on behalf of Eni Congo SA from August to October, before returning offshore Angola to complete drilling operations for Total Exploration & Production. The semi-submersible platform Scarabeo 3 performed drilling operations offshore Nigeria on behalf of Addax Petroleum during the first half of the year and was subsequently transferred to Congo for maintenance work. The semi-submersible platform Scarabeo 4, following the completion of class reinstatement works in April, operated in Egypt for IEOC. From August to November, the rig was docked for maintenance, following which it resumed operations for the same Client. The semi-submersible platform Scarabeo 5 continued HP/HT (high pressure/high temperature) operations in Norwegian waters on behalf of Statoil. The semi-submersible platform Scarabeo 6 continued drilling operations in Egypt on behalf of Burullus Gas Co. The semi-submersible platform Scarabeo 7, following the completion of class reinstatement works, commenced operations in Angola for Eni Angola. The jack-up Perro Negro 2 operated in the Persian Gulf for Saudi Aramco until March 2009. The jack-up Perro Negro 3 carried out drilling and workover operations off the coast of India on behalf of GSPC (Gujarat State Petroleum Co). The jack-up Perro Negro 4 continued operations in Egypt on behalf of Petrobel. The jack-up Perro Negro 5 continued operations in Egypt on behalf of Saudi Aramco. The new jack-up Perro Negro 6 commenced operations in November as part of a contract in Angola on behalf of Sonangol. The jack-up Perro Negro 7 continued drilling operations in Saudi Arabia on behalf of Saudi Aramco. The Packaged 5820 installation continued operations in Libyan waters on behalf of Mobruk Oil Operations Co. In Congo, the new tender assisted rig TAD 1 continued drilling operations on behalf of Eni Congo SA. Also in Congo, workover and maintenance works continued on the fixed platforms owned by Eni Congo SA. 33 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W In Peru, two rigs chartered by Petrotech performed 206 workover and pulling operations, while two tender assisted rigs chartered by BPZ Energy drilled four wells. Utilisation of vessels Vessel utilisation in 2009 was as follows: Vessel Semi-submersible platform Scarabeo 3 Semi-submersible platform Scarabeo 4 Semi-submersible platform Scarabeo 5 Semi-submersible platform Scarabeo 6 Semi-submersible platform Scarabeo 7 Drillship Saipem 10000 Jack-up Perro Negro 2 Jack-up Perro Negro 3 Jack-up Perro Negro 4 Jack-up Perro Negro 5 Jack-up Perro Negro 6 Jack-up Perro Negro 7 Tender Assisted Drilling Unit (a) For the remaining days (to 365), the vessel was not under contract. (b) For the remaining days (to 365), the vessel underwent class reinstatement works. Days under contract 185 (a) 140 (b) 365 250 (b) 346 (b) 365 90 (a) 283 (a) 365 365 46 365 365 34 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W ONSHORE DRILLING General overview In the Onshore Drilling sector, the Saipem Group operates in Italy, Algeria, Congo, Egypt, Saudi Arabia, Kazakhstan, Ecuador, Colombia, Brazil, Peru, Venezuela and Ukraine. On the international markets, the decline in activity was less significant. The Middle East and Russia were worse hit, while in other areas (South America, Asia) levels of activity remained acceptable. The general drop in activity levels caused an immediate availability of rigs on the market, leading to a decline in day rates. Market conditions New field developments in the Onshore Drilling segment were significantly impacted by the changed conditions caused by the financial crisis that began in the second half of 2008. The North American market recorded a marked drop in activity, partly as a consequence of low natural gas prices. New contracts The most significant contracts awarded to the Group during 2009 were: - for Agip KCO, as part of the Kashagan field development in Kazakhstan, the five and a half year contract for the lease of two drilling rigs. The rigs, 35 S A I P E M A N N UA L R E P O R T / O P E R AT I N G R E V I E W which will be installed on artificial islands, are designed to operate in conditions specific to the north Caspian Sea, in a harsh climate and under stringent environmental restrictions; - for the joint venture between First Calgary Petroleum and Sonatrach, in Algeria, the three-year contract for the lease of two rigs. Drilling operations will be carried out in Block 405B located in the Berkine basin, approximately 350 km south-east of Hassi Messaoud; - for Eni, in Congo, the two-year contract for the lease of two drilling rigs, which were previously used in Saudi Arabia. The two rigs will operate in the M(cid:213)Boundi field, located approximately 50 km north-east of Pointe Noire. Capital expenditure Capital expenditure in the Onshore Drilling sector included: - the continuation of construction works on a new rig due to operate in Italy, for Total Italia; - the commencement of construction work on two new rigs due to operate in Kazakhstan, for Agip KCO; - upgrading and integration works on rigs and installations to ensure operational efficiency. Work performed Activities comprised the drilling of 241 wells, totalling approximately 718,604 metres drilled. In Italy, onshore drilling operations were performed on behalf of Eni Exploration & Production utilising three extended-reach drilling and workover rigs in the provinces of Novara and Potenza. Eight rigs are currently present in Saudi Arabia. Nine rigs operated during 2009 for Saudi Aramco. Then, following the end of their respective contracts, one rig commenced operations for South Rub Al-Khali Co Ltd, while another was transferred to Congo. In Algeria, seven rigs operated for First Calgary Petroleum, Repsol and Groupement Sonatrach Agip. In Peru, the Group has seven drill rigs and twelve work over and pulling rigs and also operates five work over 36 and pulling rigs owned by third-parties. The drill rigs drilled a total of eleven wells for Perenco, Interoil, Talisman and Petrobras, while a total of nine hundred and sixty-one work over and pulling operations were carried out for Pluspetrol, Petrobras, Petrotech and Interoil. In Venezuela, the Group has twenty-six drill rigs and four work over and pulling rigs. The drill rigs drilled a total of one hundred and thirty-one wells, mainly for PDVSA, but also for Petroquiriquire, Pluspetrol and Baripetrol, while a total of seventy work over and pulling operations were carried out for PDVSA. In Brazil, three rigs drilled fourteen wells for Petrobras. In Colombia, the Group has three drill rigs. One drilled a total of two wells for Petrolifera and Amerisur, while the other two remained idle. In Kazakhstan, drilling/workover operations continued on behalf of Karachaganak Petroleum Operating (KPO) in the province of Uralsk. During the year, three rigs owned by Saipem continued drilling operations in Uralsk and Aktobe provinces for Zhaikmunai Llp, Maersk Oil Kazakhstan and OilTechnoGroup. An additional four rigs were used: one chartered from the local company Kazburgas and three from the US company Parker. Drilling operations progressed on the (cid:212)D(cid:213) Island project on behalf of Agip KCO in the northern areas of the Caspian Sea. The project comprises drilling operations in Block D of the Kashagan field, to be carried out utilising two rigs owned by the client. Utilisation of equipment Average utilisation of rigs in 2009 stood at 91% (99% in 2008). At December 31, 2009, the Company owned 83 rigs (plus 4 rigs under construction) located as follows: 30 in Venezuela, 19 in Peru, 8 in Saudi Arabia, 7 in Algeria, 3 in Kazakhstan, 3 in Brazil, 3 in Italy, 3 in Colombia, 2 in Ukraine, 2 in Congo, 1 in Ecuador, 1 in Bolivia and 1 in Egypt. Additionally, 5 third-party rigs were used in Peru, 4 third-party rigs were used by the joint venture SaiPar and 2 third-party rigs were used in Kazakhstan. S A I P E M A N N UA L R E P O R T / F I N A N C I A L A N D E C O N O M I C R E S U LT S Financial and economic results As stated in the section (cid:212)Basis of presentation(cid:213), the Consolidated Financial Statements at December 31, 2009 were prepared in compliance with International Financial Reporting Standards (IFRS) and/or International Accounting Standards. RESULTS OF OPERATIONS Saipem Group - Income statement Year 2008 (o million) 10,094 Net sales from operations 12 Other income and revenues (7,260) Purchases, services and other costs (1,410) Payroll and related costs 1,436 Gross operating profit (353) Depreciation, amortisation and impairment 1,083 Operating profit (95) Finance (expense) income 34 Net income from investments 1,022 Adjusted profit before income taxes (280) Income taxes 742 Adjusted profit before minority interest (18) Net profit attributable to minority interest 724 195 Adjusted net profit Gains on disposals (5) Taxation 914 Net profit % Ch. 2.0 11.1 6.7 4.0 4.4 1.1 Year 2009 10,292 14 (7,227) (1,483) 1,596 (440) 1,156 (100) 7 1,063 (288) 775 (43) 732 - - 732 (19.9) Net sales from operations for 2009 amounted to o10,292 million, representing an increase of o198 million compared to 2008, mainly due to greater volumes generated in the Offshore and Drilling sectors, partly offset by the drop in volumes recorded in the Onshore sector. Gross operating profit amounted to o1,596 million, an 11.1% increase versus 2008. Depreciation and amortisation of tangible and intangible assets amounted to o440 million, up significantly compared with the previous year, mainly due to new rigs beginning operations in the Drilling sector. Operating profit for 2009 stood at o1,156 million, a o73 million increase over the previous year. This figure is analysed in detail in the subsequent sections 37 S A I P E M A N N UA L R E P O R T / F I N A N C I A L A N D E C O N O M I C R E S U LT S describing the performance of the various business units. Net finance expense increased by o5 million compared with 2008, mainly due to the increase in net borrowings. Net income from investments amounted to o7 million, a decrease of o27 million compared with 2008, due to the fact that the previous year(cid:213)s figure included a number of non recurring items amounting to o17 million. Adjusted profit before income taxes stood at o1,063 million, a 4.0% increase versus 2008. Income taxes amounted to o288 million, an increase of o8 million compared to 2008, due to an increase in taxable income, with a tax rate that remained essentially stable. Adjusted net profit stood at o732 million, an increase of 1.1% over 2008. Net profit for 2008 benefited from the gain on the sale of the 30% stake in Gaztransport et Technigaz sas. Operating profit and costs by function (o million) Year 2008 10,094 Operating revenues (8,655) Production costs (41) Idle costs (109) Selling expenses (13) (11) Research and development costs Other operating income (expenses) 1,265 Contribution from operations (182) General and administrative expenses 1,083 Operating profit Year 2009 10,292 (8,714) (100) (114) (17) (9) 1,338 (182) 1,156 % Ch. 2.0 0.7 143.9 4.6 30.8 (18.2) 5.8 - 6.7 In 2009, the Saipem Group achieved operating revenues (which are the same as (cid:212)net sales from operations(cid:213)), of o10,292 million, an increase of o198 million compared to the previous year. Production costs (which include direct costs of sales and depreciation of vessels and equipment) rose to o8,714 million, from o8,655 million in 2008 — an increase which was smaller than the increase in sales volumes. Idle costs increased by o59 million due to an increase in the number of idle days, mainly relating to conventional offshore vessels. Selling expenses of o114 million showed a slight increase of o5 million compared with the previous year. Research and development costs included in operating costs increased by o4 million. Contribution from operations recorded a significant increase of 5.8% to o1,338 million, with the contribution margin percentage of 13%, up approximately half a point versus 2008. General and administrative expenses, amounting to o182 million, were in line with 2008. The analysis by business sector is as follows: Offshore Revenues Cost of sales Gross operating profit Depreciation and amortisation Operating profit (o million) Year 2008 Year 2009 3,863 (3,154) 709 (175) 534 4,341 (3,531) 810 (195) 615 Revenues for 2009 amounted to o4,341 million, a 12.4% increase when compared to 2008, due mainly to increased activity in West Africa, Kazakhstan and the Mediterranean. 38 S A I P E M A N N UA L R E P O R T / F I N A N C I A L A N D E C O N O M I C R E S U LT S The cost of sales amounted to o3,531 million, a 12.0% increase compared to 2008 which was in line with the increase in volumes. Depreciation and amortisation rose by o20 million compared to 2008, due to full scale operations on projects that required project-specific equipment. Operating profit for the year amounted to o615 million, equal to 14.2% of revenues, versus o534 million, equal to 13.8% of revenues, in 2008. Meanwhile, the gross profit margin rose to 18.7% from 18.4% in 2008. The increase in margin is attributable to improved contract conditions and strong operating performance. Onshore Revenues Cost of sales Gross operating profit Depreciation and amortisation Operating profit (o million) Year 2008 Year 2009 5,324 (4,972) 352 (49) 303 4,831 (4,493) 338 (48) 290 Revenues in 2009 amounted to o4,831 million, representing a 9.3% decrease compared to 2008, attributable mainly to the slippage of activities related to the Manifa project for Saudi Aramco. The cost of sales of o4,493 million also fell compared with 2008, in line with the decrease in revenues. Depreciation and amortisation recorded a decrease of o1 million. Operating profit in 2009 amounted to o290 million, compared with o303 million the previous year, with the margin on revenues rising from 5.7% in 2008 to 6.0% in 2009. The gross profit margin rose to 7.0% compared with 6.6% in 2008. The increase in margin is attributable to a strong operating performance. Offshore Drilling Revenues Cost of sales Gross operating profit Depreciation and amortisation Operating profit (o million) Year 2008 Year 2009 472 (234) 238 (66) 172 566 (279) 287 (95) 192 Revenues in 2009 amounted to o566 million, representing a 19.9% increase versus 2008, attributable mainly to the full-scale activities of the jack-ups Perro Negro 3 and Perro Negro 7 and a Tender Assisted Drilling Barge. The cost of sales increased by 19.2% compared to 2008. This increase reflected an increase in sales volumes. Depreciation and amortisation increased by o29 million versus 2008, due to the full-scale operation of vessels that underwent refurbishment works in 2008. Operating profit in 2009 amounted to o192 million, versus o172 million in 2008, with the margin on revenues falling from 36.4% to 33.9%. Meanwhile, the gross profit margin rose to 50.7% from 50.4% in 2008. Onshore Drilling Revenues Cost of sales Gross operating profit Depreciation and amortisation Operating profit (o million) Year 2008 Year 2009 435 (298) 137 (63) 74 554 (393) 161 (102) 59 39 S A I P E M A N N UA L R E P O R T / F I N A N C I A L A N D E C O N O M I C R E S U LT S Revenues for 2009 amounted to o554 million, representing a 27.4% increase compared to 2008, due mainly to the start of operations of new rigs in South America and Ukraine and also to preliminary refurbishment activities on two rigs in Kazakhstan owned by the Client, which began in the fourth quarter of 2009. The cost of sales increased by 31.9% compared to 2008, in line with the increase in sales volumes. The increase in depreciation and amortisation is due to the start of operations of new rigs. Operating profit in 2009 amounted to o59 million, versus o74 million in 2008, with the margin on revenues falling from 17.0% to 10.6%. Meanwhile, the gross profit margin dropped to 29.1% from 31.5% in 2008, mainly due to a lower average utilisation of rigs. CONSOLIDATED BALANCE SHEET AND FINANCIAL POSITION Saipem Group - Reclassified consolidated balance sheet (1) The reclassified consolidated balance sheet aggregates asset and liability amounts from the statutory balance sheet according to function, under three basic areas: operating, investing and financing. Management believes that the reclassified consolidated balance sheet provides useful information in assisting investors to assess Saipem(cid:213)s capital structure and to analyse its sources of funds and investments in fixed assets and working capital. Management uses the reclassified consolidated balance sheet to calculate key ratios such as Return On Average Capital Employed (ROACE) and the proportion of net borrowings to shareholders(cid:213) equity (leverage), which is used to evaluate whether Saipem(cid:213)s financing structure is sound and well-balanced. (o million) Dec. 31, 2008 Dec. 31, 2009 Net tangible assets Net intangible assets - Offshore - Onshore - Offshore Drilling - Onshore Drilling Investments Non-current assets Net current assets Net assets available for sale including related net borrowings Provision for employee benefits Capital employed, net Shareholders(cid:213) equity Minority interest Net borrowings Total liabilities and shareholders(cid:213) equity Leverage (net borrowings/shareholders(cid:213) equity including minority interest) 2,631 497 2,149 649 5,171 755 5,926 43 5,969 (1,054) 68 (173) 4,810 2,757 21 2,032 4,810 0.74 3,105 464 2,750 732 6,295 756 7,051 118 7,169 (647) - (182) 6,340 3,434 61 2,845 6,340 0.83 No. shares issued and outstanding 441,410,900 441,410,900 (1) See (cid:212)Reconciliation of reclassified balance sheet, income statement and cash flow statement to statutory schemes(cid:213) on page 93. Non-current assets at December 31, 2009 stood at o7,169 million, an increase of o1,200 million compared to year end 2008. The increase is due to investments in tangible and intangible assets of o1,615 million, the reclassification of the non-strategic investment (20%) in Fertilizantes Nitrogenados de Oriente CEC under (cid:212)net assets available for sale(cid:213) (o68 million), increases in investments accounted for using the equity method of o7 million, depreciation and amortisation of o440 million, disposals of o8 million 40 and the negative effect of the translation of financial statements in foreign currencies and other variations of o42 million. Net current assets increased by o407 million from negative o1,054 million at December 31, 2008 to negative o647 million at December 31, 2009. The provision for employee benefits amounted to o182 million, an increase of o9 million compared with December 31, 2008. As a result of the above, net capital employed increased by o1,530 million, reaching o6,340 million at December 31, 2009, compared to o4,810 million at December 31, 2008. S A I P E M A N N UA L R E P O R T / F I N A N C I A L A N D E C O N O M I C R E S U LT S Shareholders(cid:213) equity, including minority interest, increased by o717 million, to o3,495 million at December 31, 2009, versus o2,778 million at December 31, 2008. This increase reflected net profit for the period of o775 million, changes in the fair value of exchange rate, interest rate and commodity hedging instruments (o166 million) and positive effects arising from the translation into euro of financial statements expressed in foreign currencies and from other variations (o15 million), partially offset by dividend distribution (o239 million). The increase in net capital employed, which was only partially offset by the increase in shareholders(cid:213) equity, led to an increase in net borrowings which, at December 31, 2009 stood at o2,845 million, compared to o2,032 million at December 31, 2008, representing an increase of o813 million. (o million) Dec. 31, 2008 Dec. 31, 2009 Analysis of net borrowings Financing receivables due after one year Payables to banks due after one year Payables to other financial institutions due after one year Net medium/long-term debt Accounts c/o bank, post and Group finance companies Cash and cash equivalents Financing receivables for non-operating purposes due within 90 days Financial assets held for trading or available for sale Financing receivables due within one year Payables to banks due within one year Payables to other financial institutions due within one year Net short-term debt Net borrowings - 475 631 1,106 (1,370) (28) - (36) (260) 73 2,547 926 2,032 (8) 200 1,596 1,788 (969) (17) - (36) (68) 327 1,820 1,057 2,845 The fair value of derivative assets (liabilities) is detailed in Notes 7 and 14 (cid:212)Other current assets(cid:213) and (cid:212)Other non-current assets(cid:213) and in Notes 19 and 24 (cid:212)Other current liabilities(cid:213) and (cid:212)Other non-current liabilities(cid:213). Net debt includes the fair value of interest rate swap assets (liabilities). A breakdown by currency of gross debt, amounting to o3,943 million, is provided in Note 15 (cid:212)Short-term debt(cid:213) and Note 20 (cid:212)Long-term debt and current portion of long-term debt(cid:213). 41 S A I P E M A N N UA L R E P O R T / F I N A N C I A L A N D E C O N O M I C R E S U LT S Statement of comprehensive income (o million) Dec. 31, 2008 Dec. 31, 2009 Net profit for the year Other items of comprehensive income: - change in the fair value of cash flow hedges - investments carried at fair value - exchange rate differences arising from the translation into euro of financial statements currencies other than the euro - income tax relating to other items of comprehensive income Other items of comprehensive income Total comprehensive income for the year Attributable to: - Saipem - minority interest Changes in shareholders(cid:213) equity Shareholders(cid:213) equity including minority interest at December 31, 2008 (o million) Total comprehensive income Dividend distribution Buy-back of treasury shares Cost related to stock options Exchange rate differences deriving from the distribution of dividends and other changes Total changes Shareholders(cid:213) equity including minority interest at December 31, 2009 Attributable to: - Saipem - minority interest 932 (248) (7) 5 54 (196) 736 718 18 775 193 1 (8) (26) 160 935 894 41 2,778 935 (239) 7 7 7 717 3,495 3,434 61 Reconciliation of statutory net profit and shareholders(cid:213) equity to consolidated net profit and shareholders(cid:213) equity (o million) As reported in Saipem SpA(cid:213)s financial statements Difference between the equity value of individual accounts of consolidated companies with respect to the corresponding book value in the statutory accounts of the Parent Company Consolidation adjustments, net of effects of taxation: - difference between purchase cost and underlying book value of net equity - elimination of unrealized intercompany profits - other adjustments Total shareholders(cid:213) equity Minority interest As reported in consolidated financial statements Net profit Shareholders(cid:213) equity Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2009 335 653 - 27 (83) 932 (18) 914 490 306 (1) 28 (48) 775 (43) 732 881 1,188 1,377 1,844 816 (271) (25) 2,778 (21) 2,757 819 (299) (57) 3,495 (61) 3,434 42 S A I P E M A N N UA L R E P O R T / F I N A N C I A L A N D E C O N O M I C R E S U LT S RECLASSIFIED CASH FLOW STATEMENT (1) Saipem(cid:213)s reclassified cash flow statement derives from the statutory cash flow statement. It enables investors to understand the link existing between changes in cash and cash equivalents (deriving from the statutory cash flow statement) and in net borrowings (deriving from the reclassified cash flow statement) that occurred between the beginning and the end of the year. The measure enabling such a link is represented by the free cash flow, which is the cash in excess of capital expenditure requirements. Starting from free cash flow it is possible to determine either: (i) changes in cash and cash equivalents for the period by adding/deducting cash flows relating to financing debts/receivables (issuance/repayment of debt and receivables related to financing activities), shareholders(cid:213) equity (dividends paid, net repurchase of treasury shares, capital issuance) and the effect of changes in consolidation and of exchange differences; (ii) changes in net borrowings for the period by adding/deducting cash flows relating to shareholders(cid:213) equity and the effect of changes in consolidation and of exchange rate differences. Net profit Minority interest (o million) Adjustments to reconcile cash generated from operating profit before changes in working capital: Depreciation, amortisation and other non-monetary items Losses (gains) on/impairments of current assets Dividends, interest, extraordinary income/expenses and income taxes Net cash generated from operating profit before changes in working capital Changes in working capital related to operations Dividends, interests, extraordinary income/expenses and income taxes received (paid) during the year Net cash flow from operations Capital expenditure Investments in acquisition of consolidated companies Disposals Other cash flow related to capital expenditures, investments and disposals Free cash flow Net investments related to financing activities Variation in financial debt Buy-back of treasury shares Cash flow from capital and reserves Effect of changes in consolidation and exchange differences CHANGE IN CASH AND CASH EQUIVALENTS FOR THE YEAR Free cash flow Sale (buy-back) of treasury shares Cash flow from capital and reserves Exchange differences on net borrowings and other changes CHANGE IN NET BORROWINGS 2008 914 18 337 (203) 372 1,438 658 (534) 1,562 (2,044) (3) 350 - (135) - (434) (50) (192) 39 (772) (135) (50) (192) 39 (338) 2009 732 43 502 - 358 1,635 (421) (247) 967 (1,615) - 9 11 (628) - 403 7 (239) 45 (412) (628) 7 (239) 47 (813) (1) See (cid:212)Reconciliation of reclassified balance sheet, income statement and cash flow statement to statutory schemes(cid:213) on page 93. Net cash flow from operations (o967 million) only partially funded capital expenditures, thus generating a negative free cash flow of o628 million. Cash flow from capital and reserves, which amounted to a negative o239 million, were due to the payment of dividends. The sale of treasury shares for incentive 43 S A I P E M A N N UA L R E P O R T / F I N A N C I A L A N D E C O N O M I C R E S U LT S schemes for managers generated a positive cash flow of o7 million, while the effect of exchange differences on net borrowings and other changes produced a net inflow of o47 million. As a result, net borrowings increased by o813 million. Specifically, net cash generated from operating profit before changes in working capital of o1,635 million related to: - net profit for the year of o775 million, including minority interest of o43 million; - depreciation, amortisation and impairment of tangible and intangible assets (o478 million), the change in the provision for employee benefits (o11 million), the change in the provisions for contingencies (o20 million) and losses (gains) on investments accounted for using the equity method, which had a negative impact of o7 million; - net finance expense (o34 million), income taxes (o288 million), unrealized exchange gains (o38 million), net of dividends of o2 million. The negative change in working capital related to operations of o421 million was due to financial flows of projects underway. Dividends, interests and income taxes paid during 2009 of o247 million were mainly related to taxes paid. Capital expenditure in 2009 amounted to o1,615 million. Details of investments by sector are as follows: Offshore (o697 million), Offshore Drilling (o690 million), Onshore Drilling (o200 million) and Onshore (o28 million). Additional information concerning capital expenditure can be found in the (cid:212)Operating Review(cid:213) section. Disposals of investments amounted to o1 million, while other cash flow related to capital expenditures, investments and disposals of o11 million related to the decrease in financing receivables for non-operating purposes. KEY PROFIT AND FINANCIAL INDICATORS Return On Average Capital Employed (ROACE) Return on Average Operating Capital Return On Average Capital Employed is calculated as the ratio between adjusted net profit before minority interest, plus net finance charges on net borrowings, less the related tax effect and net average capital employed. The tax rate applied on finance charges is 27.5%, as per the applicable tax legislation. To calculate the Return on Average Operating Capital, the average capital employed is netted of investments in progress that did not contribute to net profit for the year, which amounted to o1,802 million at December 31, 2008 and o2,225 million at December 31, 2009. Adjusted net profit Exclusion of net finance expense (net of tax effect) Unlevered net profit Capital employed, net: - at the beginning of period - at the end of period Average capital employed, net Adjusted ROACE Return On Average Operating Capital (o million) (o million) (o million) (o million) (o million) (%) (%) 2008 742 69 811 3,993 4,810 4,402 18.4 26.8 2009 775 73 848 4,810 6,340 5,575 15.2 23.8 44 S A I P E M A N N UA L R E P O R T / F I N A N C I A L A N D E C O N O M I C R E S U LT S Net borrowings and leverage Saipem management uses leverage ratios to assess the soundness and efficiency of the Group(cid:213)s capital structure in terms of an optimal mix between net borrowings and shareholders(cid:213) equity, and to carry out benchmark analyses against industry standards. Leverage is a measure of a company(cid:213)s level of indebtedness, calculated as the ratio between net borrowings and shareholders(cid:213) equity. Management(cid:213)s objective is to restore a leverage ratio no higher than 0.5 following the implementation of the four-year plan. Leverage 2008 0.74 2009 0.83 45 S A I P E M A N N UA L R E P O R T / R E S E A R C H A N D D E V E LO P M E N T Research and development During 2009, innovation technology activities were implemented in accordance with the relevant plans. Responsibilities for the development of new technologies and implementation of new initiatives were divided up between the Asset Division, the Offshore Business Unit and the Onshore Business Unit, who were responsible for asset technology, offshore technology and onshore technology, respectively. Thirty-one patent applications were lodged by Saipem during the year. Asset technology During 2009, the Saipem Group(cid:213)s asset technology initiatives continued, with the aim of improving the sustainability of the Group(cid:213)s activities in terms of competitiveness, operational reliability and lower environmental impact through technological innovation. In the Offshore Asset area, work has been continuing for some time on the detailed design of the main technical systems and subsystems for the launch and production facilities of the new pipelay vessel CastorOne. With regard to research and development activities relating to operations in difficult conditions, the period saw the completion of the engineering phase of the project to develop a new method for towing long floating sections of pipeline using (cid:212)intelligent buoys(cid:213). The technology has now been definitively validated using physical and mathematical models and was used at the end of the year on a project in Saudi Arabia. Meanwhile, studies were concluded regarding pipeline installation in difficult-to-reach subarctic locations. The studies were conducted as a collaborative effort which involved the company(cid:213)s various engineering, operating and technology functions and represent a point of 46 reference for future development initiatives regarding technology/capabilities for arctic operations. Other significant R&D activities carried out in the offshore are during the year regarded: - the study of innovative Field Joint Coating systems; - the creation of a prototype system for simulating offshore lifting operations; - development of high efficiency excavation technologies for certain critical operating scenarios; - development of high capacity systems for pipe abandonment and recovery operations and the launch of large pipes in ultra shallow waters. Finally, research activities were started, with the collaboration of university departments and spin-off ventures, for the remote monitoring of buckling during pipe launch operations. Offshore technology The Group(cid:213)s activities in the field of offshore technology in 2009 centred around the development of solutions (in terms of architecture, concepts and technologies) for offshore oil production. The aim of these activities is to develop new solutions and improve existing ones for the development of oil and gas fields in frontier (e.g. deepwater, arctic) areas, the monetisation of offshore natural gas reserves using offshore LNG technology and the exploitation of renewable energy sources. The activities carried out in 2009 were very closely in line with the action plans established in 2008 for all technical areas, with an increase in particular in activities in the (cid:212)subsea processing(cid:213) and (cid:212)floating LNG(cid:213) sectors. In the subsea processing area, the effort was focused on a series of tests on new systems and subsystems developed in previous years: S A I P E M A N N UA L R E P O R T / R E S E A R C H A N D D E V E LO P M E N T - tests on a liquid/liquid gravity separation device; - tests on a proprietary cyclone compact separator and - launch of development work on a tandem offloading system employing a floating cryogenic hose. validation of results; - tests on a new, patented multipipe gas/liquid gravity separation device and validation of the working principle. The tests were followed by preparatory work on the second phase of tests, which is planned to take place in 2010 (validation of results under actual flow conditions). In the SURF (Subsea, Umbilical, Riser and Flowline) area, activities included the end of the main phase of tests on Saipem(cid:213)s proprietary pipe-in-pipe forged ends system. A number of other projects were also launched during 2009, including new risers for ultra deep water applications (up to 3,000 metres) for which solutions adaptable to a whole range of different scenarios were developed. Continuing on from activities carried out in the previous year, work was carried out on thermal insulation and anticorrosion technology. A number of subsea field architecture studies requested by operators were carried out regarding field development in challenging conditions (particularly long tie-back distances or the presence of viscous oils, paraffin, gas and condensates). The studies concerned thermal and hydraulic sizing of flowlines and risers, identification of subsea treatment and pressurisation system requirements and work on the power transmission and distribution systems. The floating LNG (FLNG) area saw an increase in activity that followed on from the work carried out in the previous year. The principal activities performed during 2009 were: - concept development and screening for FLNG case studies requested by clients, plus development of associated technologies; In addition, work was carried out in the following areas: - operations in arctic conditions, including identification of technology requirements and promising technologies related to ice management, operations in extremely cold conditions, operations in environmentally sensitive areas; - Dry-Tree floating production systems, in which a number of operators have shown renewed interest, especially in connection with operations in West Africa. Activities are also being carried out in the offshore renewable energy sector, with wind, wave and tidal energy recovery projects currently underway. Following the installation in 2008 of the prototype tidal energy conversion system, Saipem and its partners in the venture are currently working on the commercial application of the Sabella D10 turbines, which could potentially be installed off the coast of Brittany in the next few years. A number of activities were also carried out during the year in relation to the use of renewable/clean offshore energy (especially wave energy recovery) in deep water oil and natural gas production. These activities are ongoing in 2010. Finally, work to develop a Saipem proprietary thermal energy storage system continued during 2009. The project is partially financed using public funds and is being carried out in conjunction with industrial and academic partners. Onshore technology With continuous demand on a global scale from clients to design, build and modernise plants and assets with a view to achieving efficiency and sustainability, Saipem(cid:213)s 47 S A I P E M A N N UA L R E P O R T / R E S E A R C H A N D D E V E LO P M E N T current approach to technological innovation in support of its EPC activities (Engineering, Procurement, Construction) is to combine the development of unique proprietary technologies and related know-how with the application of the latest third party technologies. In line with this approach, 2009 saw ongoing improvements in the performance of the proprietary urea production technology (SnamprogettiTM), which to date has been licensed in 116 plants globally. Following the design of the world(cid:213)s three largest single train urea plants (Engro in Pakistan and Qafco V-VI in Qatar), which have a capacity of 3,850 tonnes/day, the conceptual design was developed for a 4,200 tonnes/day plant using the same consolidated process sequence. The conceptual design for an ammonia mega-train with a 3,500 tonnes/day capacity capable of supplying a 5,000 tonnes/day urea mega plant was developed in collaboration with Saipem(cid:213)s partner Haldor Tops¿e AS. In addition, a comparative study of a number of process solutions was performed as part of the zero emissions urea synthesis project. In the MTBE cracking sector, following the improvements introduced in the catalyst preparation procedure, a new supplier for the catalysts used in the high-purity isobutylene production process was certified, allowing the supply requests for two new user licenses in India and Taiwan to be completed. Work on the conversion of existing MTBE units into units for the production of ETBE for use as biofuel in Eni refineries was completed successfully, confirming the flexibility and reliability of Saipem/Ecofuel etherification technology in both standard and non-conventional units. Saipem is currently completing the construction of the first ENSOLVEX industrial plant at the Eni R&M refinery in Gela (Italy). ENSOLVEX is a new technology for soil remediation and sediments contaminated by organic compounds. Having been engaged for the first time as main EPC contractor on the GNL 3Z liquefied natural gas project in Arzew (Algeria), Saipem carried out work on the design systems necessary for the project, i.e. simulation of stable and unstable states, computational fluid dynamics, completion of the principal control systems, development of a simulation model for various sections and licensed units of the plant. Saipem completed construction and commenced operation of the first semi-commercial scale Eni R&M plant for the removal of carbon dioxide emissions from refinery gases using microalgae biofixation. The biomass produced as a result could be used in the future for the production of biofuels. Saipem has begun the work necessary to secure an order during the year from Enel for engineering services in support of the Eni-Enel CCS (Carbon Capture and Storage) programme. During 2009, Saipem provided Eni with engineering and project management support in connection with the development of its proprietary technologies and related commercial applications, particularly the EST (Eni Slurry Technology) process, for which the first commercial plant was started up at the Eni R&M refinery in Sannazzaro. 48 S A I P E M A N N UA L R E P O R T / Q U A L I T Y, H E A LT H , S A F E T Y A N D T H E E N V I R O N M E N T Quality, health, safety and the environment Quality 2009 saw all Saipem Group companies continue to fulfil their commitment to ensuring the implementation of the principles of the Group Quality Policy in the management of projects of all types and degrees of complexity and in the coordination of permanent organisational processes. Significant progress was made, with the direct involvement of top management, in defining improvement targets for Group companies, identifying indicators for monitoring the performance of organisational processes and operating projects and in the continuous measurement of internal and external client satisfaction levels. To ensure compliance with market requirements, which are extremely varied and competitive and with the international standard ISO 9001:2008, innovative project quality management and quality control tools continued to be implemented on the main Onshore, Offshore and Drilling operating projects as well as on the principal asset investment projects (with the objective of building efficient and competitive vessels and logistics bases). 2009 also saw the continuation or commencement of the following initiatives: In the Corporate area: - implementation of focus at Business Unit level in quality management system reviews for the Offshore Construction, Drilling, Onshore and Asset Procurement BUs; - implementation of a project sponsored by top management for the review and reinforcement of Group customer satisfaction monitoring methodologies, including the definition of methodologies and IT support. Testing (on new projects and projects already being monitored) is currently underway; - consolidation of methodologies for gathering, capitalising on and sharing Lessons Learned on Offshore, Onshore and Drilling activities, particularly in relation to projects in remote areas and hostile environments; - the launch of an information and awareness campaign regarding the quality management system, involving the publication of a special supplement included with the in house magazine (cid:212)Orizzonti(cid:213) and the distribution of a series of posters bearing a newly designed logo to Onshore and Offshore secondary offices; - performance of an integrated audit of internal processes with a special focus on the application of the Golden Rules & Silver Guidelines defined by Saipem Top Management; - the issue of sector-specific Quality bulletins informing Saipem personnel of improvement initiatives launched during 2009. In the Onshore BU: - mapping and redefinition of all performance indicators related to permanent and project processes; - completion of General Procedures for the Onshore Engineering Function and planning of their circulation to all Operating Centres; - updating of integrated construction system (SICON) to include all new customised quality control criteria for Aramco standards and Pipelines. In the Offshore BU: - continuation of the implementation of new methods for carrying out integrated design reviews, including aspects connected with interfaces with post-engineering fabrication and installation processes; 49 S A I P E M A N N UA L R E P O R T / Q U A L I T Y, H E A LT H , S A F E T Y A N D T H E E N V I R O N M E N T - launch of a project for the standardisation at group level of material and process traceability methodologies and systems in use on pipeline construction vessels (Pipe Tracking Systems); - definition and launch of centralised coordination of QA/QC activities in Fabrication Yards (Dammam/Saudi Arabia, Ambriz/Angola, Karimum/Indonesia), with special emphasis on the conduction of NDT activities. In the Drilling BU: - launch of a management system for controlling tubular goods inspections; - completion of system for monitoring the arrival of materials on board Offshore Rigs to enable quicker identification of areas for improvement. In Asset and Procurement management: - increase in/consolidation of support for vessel investment projects in terms of management approach and widespread control and monitoring of suppliers and yards (including the introduction of a standardisation, check and review process for the engineering phases); - support with the standardisation of organisational structures, management systems and operating manuals on vessels belonging to the Saipem fleet, with the objective of harmonising onboard document/management systems and organisational structures; - support for the review, rationalisation and standardisation of reporting systems in use on board Offshore Construction vessels (including the definition of a set of KPIs for measuring quality performance on vessels); - support to procurement process through the monitoring of suppliers(cid:213) compliance with quality requirements during the preparation of technical evaluations; - improvement of Saipem(cid:213)s partnership with its suppliers, through workshops held with the aim of sharing, circulating and analysing quality management and control requirements applying to the provision of services and the supply of materials and packages. Health Saipem(cid:213)s health and medical service continued with its usual activities of prevention, protection and promotion and the provision of emergency medical assistance to employees at companies and operating sites, within the framework of the Health Management System. 50 Improvements continued to be made during the year to the e-Health system, which provides employees all over the globe with online access to information regarding health issues. The Health portal, which can be accessed via the Company intranet, is continuously updated to ensure that it carries reliable and up to the minute information (both general and work-related) regarding local and global epidemiological conditions, and infectious and non infectious diseases. The list of countries for which medical and health risks/information are provided is constantly updated and expanded, as is the content of the presentations. Implementation and alignment of health surveillance activities in compliance with the requirements based on the applicable European directives and Italian law (Article 41 of Legislative Decree 81/2008). The health of all employees is monitored under a specific health surveillance programme which takes into account the risks associated with their work. Transformation of the electronic database GIPSI (Gestione Informatizzata delle Prestazioni Sanitarie Individuali) into a health management archive in accordance with the requirements of Legislative Decrees 81/2008 and 106/2009. Training sessions for new hires and young graduates regarding medical check ups and the aims and purposes of the health surveillance programme (Articles 36 and 37 of Legislative Decree 81/2008). Periodic meetings attended by (cid:212)Employers(cid:213), delegates and trade union organisations for the analysis of anonymous, aggregated data from health surveillance activities at company/business unit level and review of actions undertaken, held with the aim of disclosing company health activities pursuant to Article 35 of Legislative Decree 81/2008. Periodic analysis of health care facilities in Italy with whom Saipem has an agreement in place. Saipem(cid:213)s Health and Medical Service has agreements with more than 20 Occupational Medicine Centres in Italy for the implementation of reliable and efficient health surveillance programmes. In this regard, the year saw the appointment of a number of designated company doctors ((cid:212)Medico Competente(cid:213)), distributed by Business Unit and geographical area and a coordinator (Article 18 of Legislative Decree 81/2008), with whom there is constant contact for the circulation of health protocols and the organisation of solutions aimed at ensuring the health of employees. Training programme pursuant to Italian occupational medicine legislation (Articles 36 and 37 of Legislative Decree 81/2008), entitled Pre-Travel Counselling. The S A I P E M A N N UA L R E P O R T / Q U A L I T Y, H E A LT H , S A F E T Y A N D T H E E N V I R O N M E N T aim of the programme is to facilitate and promote a travel medicine culture by keeping workers informed with regard to (cid:212)destination risks(cid:213) through one-to-one presentations and training. Through a presentation of the country of destination, the workers is given information regarding the health/medical issues he/she may encounter and the most effective methods for preventing them (vaccination, prophylactic measures, correct behaviour). The training the worker receives is recorded on the GIPSI database. Relations between the Simel function and important scientific organisations and institutional bodies (Ispesl, Simili, Siti, Ukooa, Icoh, Universit(cid:136) (cid:212)La Sapienza(cid:213), Ospedale San Raffaele) to share health surveillance protocols and in connection with the publication of articles in some of the most prestigious scientific journals. The health manual (cid:212)S(cid:147) Viaggiare(cid:213), published in Italian and English, is distributed to personnel of group companies travelling abroad for work. In addition to giving general advice for travellers, the manual provides information on the most common illnesses, and on risks connected with travel and climatic conditions and health-related risks. The section of the intranet portal for the use of medical personnel is constantly updated with information, documentation, useful links, and trade/scientific publications and articles to ensure that personnel are kept informed on the latest scientific discoveries and information drawn from evidence based medicine. Medical personnel are encouraged to write articles for publication on the intranet portal. This allows them to contribute to an exchange of data, experiences, knowledge and initiatives with their colleagues. Further advances were made during the year on the Malaria prevention programme, with the creation of an e-learning programme called (cid:212)Malaria training for medical personnel(cid:213), which has been made mandatory for all Saipem medical staff working in areas of high malaria risk as well as more frequent training courses for employees working in these areas. The year also saw the number of operating companies and sites in which the cardiovascular disease prevention and telecardiology programmes have been implemented continue to grow. There were also the first results of the application of the integrated telemedicine system on offshore vessels and remote sites. It is now possible to exchange images and opinions (even live) with members of Saipem(cid:213)s medical service. Meanwhile, 5 posters were produced in-house for the Stop Smoking Campaign and are currently available on paper or in electronic format from the department(cid:213)s intranet site. In some countries (Croatia and Peru) the posters were also made available to local communities and authorities, who decided to use them in their own efforts. 2009 saw work near completion on the new prevention campaign that aims to target unhealthy lifestyles and inform personnel on the risks of alcohol and drug use and abuse. The posters and brochures for the campaign are due to be completed and distributed during the first six months of 2011. Internal health audits ensure the constant monitoring and improvement of health management activities and, as such, continue to represent an integral part of the group(cid:213)s health management system. During 2009, the ten Saipem doctors enrolled on the second edition of the MIOGATE Masters course in Oil and Gas Telemedicine and Telepharmacy successfully completed their training. A further eleven doctors began the course in December, including a doctor from a major international oil company. Safety During 2009, the LiS (Leadership in Safety) programme continued with its aim of promoting the Saipem Safety Vision globally through the direct involvement of Managers at local level. In the two years since the programme was launched, there have been more than 300 LiS workshops, with the participation of more than 4,500 leaders in 31 different countries. In 2009, the LiS strategy focused mainly on the implementation of phases 2 and 3 of the programme, whose aim is to transmit the LiS message to all workers and to develop their capacity to intervene effectively in hazardous situations. More than 160 official communication events were held, involving more than 7,500 people (phase 2), while more than 100 (cid:212)Five Stars(cid:213) training sessions (phase 3) were organised for approximately 1,300 people. 2009 saw the programme achieve a greater level of penetration at local level within main contractor and client organisations. This created a sense of working towards the shared objective of a safe project or workplace. The following significant events also took place in 2009: 51 S A I P E M A N N UA L R E P O R T / Q U A L I T Y, H E A LT H , S A F E T Y A N D T H E E N V I R O N M E N T - in April 2009, the CEO sent a video message to the entire Saipem workforce on the occasion of the (cid:212)World Day for Safety and Health at Work(cid:213) in which he encouraged Saipem workers to take on board the principles of Leadership in Safety in order to a create a (cid:212)global culture of care(cid:213); - in June 2009, the Team that designed and developed the LiS programme received the prestigious Saipem Innovation Trophy; - in July 2009, the LiS programme was presented to the members of the Board of Directors, who endorsed the Saipem Safety Vision. A general HSE training plan was defined for all of Saipem, which establishes HSE training requirements for all professional roles based on the identification of HSE aspects deemed relevant to specific individual functions. Following the success of the QHSE Forum in 2007, meetings were organised with Italian subcontractors to discuss the following topics: Saipem HSE requirements, subcontracting legislation and contract management. A new programme for the monitoring of work environments at production sites in Italy and abroad with the aim of identifying industrial hygiene risks was designed and implemented during the year. Following the completion of the monitoring programmes, risk assessment documents were produced. As part of the Industrial Hygiene monitoring programme, training on risks to which workers are most exposed was carried out. In parallel with the monitoring programme at the production sites, from January 2009, a new survey and assessment campaign focused on Saipem office buildings throughout Italy was designed and implemented. The efforts to update the HSE Document System continued apace with the reissuing of all documents to ensure their compliance with Legislative Decree 81/2008 and the requirements of OHSAS 18001 guidelines and ISO 14000. This made it possible to extend the services of the HSE function to external clients. During the year, the Group secured a consultancy contract with an external consultancy firm to develop HSE systems and training activities (Eni Greenstream). (i.e. events that could potentially cause fatalities, significant environmental damage, damage to the Company(cid:213)s image, negative impacts on projects, etc.), for which a series of Case Studies were developed. The Risk Assessment process conducted with a group of experts employing advanced technologies (BowTie¤ methodology) helped identify the critical safety factors on board an offshore vessel in terms of procedures, personnel know-how/competencies and equipment. All of these factors were studied and identified using the control systems and audits. The accident that occurred on the S7000 has led the company to analyse and develop new safety guidelines for the complex systems used in offshore activities. The case studies examined took into consideration the risks generated by Dropped Objects and a Failure Modes and Effects Analysis. The results of these analyses generated a series of Health and Safety requirements which are already being implemented in the design of new offshore vessels. Environment In the light of the increasingly restrictive International Regulations in place and with a view to reducing the environmental impact of Saipem activities, a programme for the monitoring of atmospheric emissions of offshore vessels was launched in 2008. In 2009, the emission of pollutants (CO2, CO, NOx, SO2, PM) by the Saipem 7000 was monitored over a seven-day period, with a special focus on the greenhouse gases produced by the vessel. The results obtained were used to assess the vessel(cid:213)s compliance with the international regulations currently in force and to validate the emission factors used by Saipem in its environmental reporting. The monitoring programme will provide information on the actual emissions produced by Saipem vessels and more reliable and specific emission factors than those available in the relevant literature, thus making it possible to establish feasible targets for emission reduction. On the Castoro 10, testing is currently underway on the opsGHS software which is already in use on the Castoro Sei. The software provides a continuous calculation of emissions based on consumption figures and validated emission factors. A project was launched during the year for the identification and prevention of major adverse events Recently, Regulation (EC) No. 1907/2006 of the European Parliament and of the Council concerning the 52 S A I P E M A N N UA L R E P O R T / Q U A L I T Y, H E A LT H , S A F E T Y A N D T H E E N V I R O N M E N T Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) came into force, which amended a significant part of EC regulations regarding chemical substances. The principal objective of REACH is to improve knowledge of the hazards and risks for human health and the environment deriving from chemicals. In 2009, Saipem fulfiled all of its obligations arising from the new regulations, particularly in relation to cases where the Company is a downstream user or importer of chemical substances. A Standard with which all Saipem Companies will be obliged to comply, whose aim is the establishment of a management system for REACH requirements at Corporate level, is currently being completed. In 2009, an environmental awareness campaign was launched in relation to five major areas: waste, hydrocarbon spills, energy saving, ecological footprinting and biodiversity. Information regarding the campaign is planned to be distributed during the first half of 2010. The campaign(cid:213)s objective is to raise awareness of environmental issues among Saipem employees at all levels. 53 S A I P E M A N N UA L R E P O R T / S U S TA I N A B I L I T Y Sustainability During the year Saipem continued to work towards the complete and efficient integration of its sustainability approach in all of its business activities, both at Corporate level and in its various operating companies around the world. The Sustainability Committee, which exercises a sustainability strategy setting role1, met three times during 2009, stepping up its supervisory and review effort with regard to the various processes that make up the Sustainability model, which include reporting, planning, stakeholder relations and internal promotion activities. Saipem(cid:213)s sustainability strategy, which aims to maximise the local content of its activities as a means of gaining a competitive advantage and achieving the integration of the business within the local socio-economic context, had its focus increased on promoting the creation of value for its stakeholders and strengthening relationships with host countries and communities, clients and local suppliers. This approach is aimed at promoting sustainable development in the areas in which Saipem operates and invests through the creation of wealth, achieved by fostering and developing local content and suppliers. To provide a quantitative evaluation of the socio-economic effects of the sustainability strategy, 2009 saw the implementation of the pilot project (cid:212)The sustainable value of Saipem(cid:213)s Local Content strategy(cid:213). The project involved the analysis and measurement of the direct, indirect and induced socio-economic impacts that the presence of the Ersai Caspian Contractor Llc base (Saipem(cid:213)s partner in Kazakhstan) generated in the local area in 2009. Three categories of impact were analysed and measured: - the economic value created, in terms of locally sourced purchases, taxes paid to local authorities, and remuneration of employees; - employment created (direct, indirect and induced); - human capital development, in terms of the greater pay expectancy over a five-year period for an employee that received superior training from Ersai. For each impact category, the total impact (given by the sum of the direct, indirect and induced impacts) and the multiplication factor (which indicated the size of the impact) were calculated. The results of the analysis showed that Saipem(cid:213)s Local Content maximisation strategy, as implemented at the Ersai base, had significant positive effects on the socio-economic development of the region, compared with a more traditional approach. Further details of the pilot project can be found in the 2009 Sustainability Report and the Kazakhstan Case Study. Relationships with stakeholders A number of projects were implemented in parallel during 2009 with the aim of improving stakeholder engagement activities and in particular increasing the level of transparency and information with regard to the Company(cid:213)s Sustainability strategies and performance. In line with Saipem(cid:213)s strategic approach to sustainability as a business support tool and to ensure open and constructive dialogue with privileged (1) The Sustainability Committee is chaired by the Saipem Chief Executive Officer and consists of all the Corporate Vice Presidents of the various functions, the Deputy CEO and CEO of Saipem sa, the Chief Operating Officers of the three Business Units, Offshore, Onshore and Drilling and the Director of Integrated Projects. 54 S A I P E M A N N UA L R E P O R T / S U S TA I N A B I L I T Y stakeholders, a system of information documents for internal use was implemented with the support of the three Business Units and Integrated Projects, with the aim of facilitating and improving the client communication process. The documents in question have been produced to support commercial and bid preparation activities and have been used in dialogue with client stakeholders connected with sustainability issues. In April, PricewaterhouseCoopers certified the 2008 Sustainability Report, which focused mainly on areas where the company has a long-standing presence and on operating activities in these areas. Interactive versions of all documents are available on the redesigned Saipem website. Saipem(cid:213)s Sustainability communication strategy was recalibrated with a view to making it better reflect the heterogeneous nature of its stakeholders, taking into account the differing characteristics and expectations of international stakeholders (such as major energy companies, investors and ratings agencies, international bodies/authorities, etc.), internal stakeholders (employees and trade unions) and local stakeholders (host communities, local authorities, National Oil Company, contractors, etc.). To this end, special emphasis was placed on providing financial stakeholders with timely information on sustainability issues (regarding specific aspects such as CO2, emissions and safety but also issues of a more general nature), while the content and functionality of the Sustainability section of the corporate web site — which constitutes the company(cid:213)s principal means of articulating its Sustainability strategy and providing Sustainability — related information on projects and areas of special interest — were radically overhauled. In addition to the work on the web site, the second half of 2009 saw the various company functions participate in the redefinition of the structure of the Sustainability Report for the 2009 edition which, in line with the thrust of the year(cid:213)s operating activities, focused on the Local Content strategy as a distinctive characteristic of Saipem. The year also provided further evidence of Saipem(cid:213)s strong commitment to local stakeholder relations. As an important element of its engagement strategy, Saipem produces and publishes Sustainability Case Studies on key countries or projects which have stood out for their good sustainability practices and which may represent a point of reference for future projects that have similar characteristics in terms of project type, country or geographical area. In 2009, the project Case Study (cid:212)Dampier to Bunbury Natural Gas Pipeline Stage 5A Expansion Project(cid:213) (Australia) and the Country Case Study (cid:212)Nigeria(cid:213) were published, while new Country Case Studies on Peru and Kazakhstan are in the process of being published. With regard to Sustainability reporting, an information system integrated with the existing Group reporting and accounting systems was implemented during the year with the objective of improving the reliability and certifiability of the data and information used in the sustainability process and disclosed in reports. The system has been operational since the beginning of 2010. Community sustainability projects Sustainability projects continued in areas where Saipem operates, aimed at the development of local host communities through support programmes for business growth and local content development. 55 S A I P E M A N N UA L R E P O R T / S U S TA I N A B I L I T Y The (cid:212)Social and Economic Development Programme(cid:213) implemented on the Peru LNG Export - CDB Melchorita project for example was a winner in the Sustainability category of the 2008 Saipem QHSE & Sustainability Awards. In addition to numerous initiatives in favour of local employees, the project stood out for its social and educational development programmes, women(cid:213)s micro-enterprise start-up programmes, and family support and health promotion initiatives. Further details on sustainability strategies, programmes and actions can be found in the 2009 Sustainability Report, which is published on the web site Saipem and distributed to the Company(cid:213)s principal stakeholders. 56 Human resources S A I P E M A N N UA L R E P O R T / H U M A N R E S O U R C E S 2009 saw a stabilisation in workforce numbers. At year end, Saipem had 36,468 resources, compared with 36,643 at year-end 2008, while Italian personnel numbers at year-end 2009 dropped slightly against the previous year, amounting to 7,018 resources, versus 7,366 at December 31, 2008. The slowdown witnessed compared with the growth recorded in previous years is largely due to market dynamics, as well as to the postponement of a number of major projects. The stabilisation did not however affect the workforce rationalisation programme, which focused on critical professional roles and strategic competencies required for the pursuit of Saipem(cid:213)s business strategies and objectives. From an organisational perspective, the initiatives aimed at achieving the objectives defined in the (cid:212)New Saipem Operating Model Development Programme(cid:213) continued. The work carried out in this regard related to: - optimising staff and business support synergies, activities and processes with a view to introducing a centralised shared services model at single country level (Angola, Algeria, Peru, Indonesia, UAE and Saudi Arabia); - harmonising the operating models of Group companies; - redefinition of the Saipem Document System in order to meet the operating requirements of the Group(cid:213)s network governance model; A number of areas underwent organisational restructuring during the year: - the organisational structure reporting to the Chief Financial Officer, with the aim of increasing the effectiveness and efficiency of the geographically based model used for the coordination of administration and control activities; - the Human Resources, Organisation and ICT Department, with the aim of becoming more effective at satisfying the needs of internal clients by adopting a structure organised along Business Unit lines; - the Multi Business Engineering function, with the aim of enabling the Business Units to coordinate the activities performed by the multi-business engineering centres more directly; - the Floaters, Facilities and Leased FPSO Business Line, to increase its focus on commercial activities and to maximise the synergies between, on the one hand, activities and competencies pertaining to the construction of vessels for lease and, on the other, those pertaining to the construction of vessels for sale. Post-Order activities (expediting, inspection, shipping and customs) were reorganised, with the definition of a model whereby Post Order activities are transferred within the Onshore Business Unit. This was done in order to provide the BU with additional levers for the management of Post Order activities and to obtain greater integration with the technical and management competencies involved in project implementation. The year saw the completion of the rationalisation project at the group(cid:213)s Italian subsidiaries. The project achieved greater overall efficiency through a simplification of shareholding structures, a focus on the core businesses of the companies and the identification of organisational solutions and configurations that maximise the synergies of operating and staff structures involved. Finally, the Complexity and Cost Structure rationalisation programme was concluded during 2009. The programme comprised the definition and implementation of measures to reduce complexity, optimise cost structures, improve the effectiveness of 57 S A I P E M A N N UA L R E P O R T / H U M A N R E S O U R C E S cost planning, allocation and control processes and manage the impact of these measures on organisational structures and work processes. With regard to selection and recruitment, 2009 saw the analysis and rationalisation of the human resource selection, training and development processes in order to achieve better alignment with the current labour market and to adapt to the new business model, under which staff/services are moved closer to business operations. Activities regarding the selection process were aimed at optimising the recruitment phase in anticipation of a recovery on the labour market: a review of selection procedures was carried out, contractual conditions for the supply of external search and selection services were redefined and renegotiated and the Saipem recruitment Portal, eFesto, which is either already operational or in the process of being made operational in a large number of the overseas operating companies in Europe, North Africa, India, the Caspian Sea area and the Far East, was enhanced to include a number of new functions. With regard to training activities, the year saw the launch of numerous professional training initiatives, some of which were made possible by the opening of the Corporate Training Center in Chennai (India), where a number of courses for Indian personnel to be employed in international roles were organised. Other important initiatives were the three-month course for (cid:212)Prefabrication Supervisors(cid:213) at the Arbatax site, which is designed to equip course attendees with the critical skills needed to fill offshore fabrication roles, and the Offshore Onshore Offshore Drilling Onshore Drilling Staff positions Total Italian personnel Other nationalities Total Italian personnel under open-ended contract Italian personnel under fixed-term contract Total Number of engineers Number of employees 58 (cid:212)Field Engineering(cid:213) course, which commenced in autumn. Finally, (cid:212)law compliant(cid:213) training was organised, involving the implementation of a series of seminars and courses relating to the new work safety legislation introduced under Legislative Decree No. 81/2008, the design of courses, content and e-learning applications for training related to Legislative Decree No. 231/2001 and 81/2008, the introduction of new policies regarding security and the promotion of the Code of Ethics. Human resource development activities during the year focused on the review and updating of a number of the methodologies and tools available to management for monitoring, assessing and developing resources. As part of a wider programme aimed at redefining the Leadership model, the year saw the completion in Italy of the second phase of the Feedback 360¡ programme involving all senior managers in key positions and young developing managers. Meanwhile, the first phase of the same programme began at Saipem sa. In addition, a programme known as (cid:212)project Generation Y(cid:213) was launched, which aims to increase the use of the technology and opportunities offered by web 2.0 and by the rising popularity of social networking in resource management and development. Market trends and global economic conditions dictated a cautious attitude in relation to Compensation systems and policies during the year. Variable incentive plans and retention systems were carefully monitored — in particular the more (cid:212)aggressive(cid:213) plans introduced in the previous two year period during which the labour market used by Saipem was extremely turbulent. (units) Average workforce 2008 Average workforce 2009 10,334 15,224 1,581 4,067 3,287 34,493 7,044 27,449 34,493 5,974 1,070 7,044 12,181 14,470 1,531 4,588 3,454 36,224 7,218 29,006 36,224 6,322 896 7,218 (units) Dec. 31, 2008 Dec. 31, 2009 7,071 36,643 7,107 36,468 During the year, the international Global Grading benchmark project was completed. This involved the development of an internal grading system based on typical positions in Saipem(cid:213)s market sector, for use worldwide. The aim is to provide a standard and effective method of benchmarking for all foreign companies, which will aid the interpretation of local compensation analyses, the definition of local compensation structures and the coordination of the internal labour market in terms of mobility and international wage comparisons. As a result of this development, 2010 will see the introduction of a new system for the definition of expatriation compensation packages. In relation to management incentive schemes, the current short-term monetary incentive scheme was confirmed during the year and, in order to continue to support the Company(cid:213)s operating performance in the long-term, it was decided to also maintain the long-term monetary scheme, which is linked to the Company(cid:213)s performance during the three-year period 2009-2011. However, for 2009 only, it was decided to suspend the Stock Option Plans due to the high instability and volatility of the share price and markets, which were strongly affected by exogenous variables. Annual monetary incentives based on actual 2008 management performance were paid out in April to 221 Italian senior managers (79.5% of total senior managers), with a total cost outlay of o6,047,000 (20.8% of the total compensation at January 1, 2009). The new targets for 2009 for the same population of senior managers were also defined during the year. Additionally, July 2009 saw the allocation of deferred monetary incentives to 221 senior managers (excluding executive directors), equal to 79.5% of senior managers, with a total cost outlay of o4,667,500. In industrial relations, the year saw the beginning of discussions with national representatives of trade union organisations from the Energy and Maritime sectors with respect to the renewal of the agreement relating to the seagoing allowance for seamen serving on board special vessels. There were also discussions with energy sector trade union representatives to define the productivity indicators to be used in calculating the 2009 annual performance bonus for Saipem and Saipem Energy Services SpA production sites and sectors, while the agreement regarding regulations for (cid:212)onshore site and office-based assignments(cid:213) was renewed, including the definition of the allowances to be paid out in three installments, expiring December 31, 2012. S A I P E M A N N UA L R E P O R T / H U M A N R E S O U R C E S Finally, the consultation procedures required by labour legislation in relation to the mergers by incorporation of Intermare Sarda into Saipem Energy Services SpA and Snamprogetti Sud into Saipem and the sale/transfer of Saipem Energy Services SpA/Onshore Division to Servizi Energia Italia SpA were completed. As a result of the procedures, specific agreements with trade union organisations were reached. In terms of HR Control activities, 2009 saw the implementation — with the introduction of new functionalities — of the new release of GHRS, Saipem Group(cid:213)s human resource management system (the GHRS Reloaded project), the creation of a new organisational unit and the design of a new integrated governance and control model for HR processes and activities (HRPG system). The scope of the GHRS Reloaded project was to rationalise the existing functionalities and address new requirements that have emerged over recent years, with the overall aim of improving both GHRS itself and the HR processes that interacts with it. The HRPG System (the integrated HR Control system), was developed in order to establish close, logical connections between the numerous, very diverse processes and activities within the Human Resources, Organisation and ICT Function. The system was developed with a view to achieving cost and operating efficiency for the benefit of the HR function(cid:213)s internal clients/partners in the Business Units and Functions. The system will enable the performance of the various organisational structures to be recorded and analysed, thus making it possible to define and implement appropriate follow-up corrective actions to resolve critical issues. 59 S A I P E M A N N UA L R E P O R T / I N F O R M AT I O N T E C H N O LO G Y Information technology The company(cid:213)s main information systems were subjected to numerous change initiatives during the year, with revisions of system architecture and upgrades carried out for the SAP R/3 systems, the SAP BW-based datawarehouse and the Oracle Peoplesoft-based personnel management system, GHRS. The year(cid:213)s principle initiative, called (cid:212)IBIS Consolidation(cid:213) (i.e. relating to the Integrated Business Information Systems investment programme), focused mainly on the upgrade to SAP R/3 version 6.0 and a review, carried out in parallel with the upgrade activities, of the work processes supported by the application, with the aim of adopting the new functionalities offered by the new version. In terms of functionalities, the main initiative during the year was the enhancement of the current IBIS model through the design and implementation of an accounting model for managing working capital by project based on SAP New General Ledger. The project, which will be implemented over a number of years, will replace, where possible, custom applications with native functions. The complexity of having the upgrade project coexist with routine application updates made it necessary to limit the implementation of new SAP functionalities and roll outs. Consequently, a limited number of operations of this type were carried out during the year, in accordance with business priorities. These were a review of the application at Saipem Energy Services SpA, the integration of Snamprogetti Sud, a roll out at Saipem Contracting Algerie SpA and technical preparation activities at Petrex SA in Peru, with roll out to be performed during 2010. In addition to the SAP R/3 project, the review of the Data Warehouse system was also carried out. This project principally affects the Procurement and Human Resources functions. The new Workload Management System (WMS) — the integrated system for project resource workload planning and control introduced at the end of 2008 — 60 can now be considered a fully-fledged company information system, following its widespread adoption in group companies that perform onshore engineering services. At the same time as the roll outs performed at Saipem India Project Ltd, Global Petroprojects Services AG and Saipem sa, work to adapt the system to the offshore operating model was started. The work addressed the offshore requirements of the Sharjah branch of Saipem SpA, of Saipem Energy Services SpA and of Saipem sa. In addition, an analysis of the requirements relating to offshore operations was performed. The IBIS initiative concerning the development of a common document management methodology for all business units continued during the year. A first pilot version of the system is due to be launched during the first half of 2010. Further progress was made on the implementation of the DAMS-Asset document system for the management of technical documentation relating to company assets. The year saw the moving into production of onboard technical documentation from the Saipem 3000, using a solution that integrates the centralised document repository system DAMS, which is based on EMC-Documentum, with an on-board document retrieval system based on EMC-E-Room. In the business support area, the year saw the bulk of the work carried out on a shared development plan for a series of new functions for the SmartPlant Materials and Reference Data application suite, under Saipem(cid:213)s partnership with software supplier Intergraph. Saipem expects to fully exploit the suite(cid:213)s bulk materials management components at its engineering centres, sites and fabrication yards. Intergraph is working to an aggressive development schedule that should lead to the completion of the remaining engineering material specifications functions during 2010. This should enable Saipem to define a multi-year change plan which will see the replacement of an application suite developed in-house, which is still in use in the onshore S A I P E M A N N UA L R E P O R T / I N F O R M AT I O N T E C H N O LO G Y unit and which represents a potential operating risk that needs to be mitigated and eventually eliminated. Meanwhile, positive results were achieved during the year in terms of the development of applications for Construction and Fabrication, using commercially available software (FBit, Bentley ConstructSim, Intergraph Isogen and Spoolgen, and Oracle Primavera) that was enhanced and integrated with custom modules developed in-house and tailored to Saipem(cid:213)s specific construction needs (SICON, Sistema Integrato di Construction Management/Integrated Construction Management System and Piping Tracking System or PTS). These systems were used with an innovative approach and a high level of integration at the Khurais site in Saudi Arabia with satisfactory results and were also widely adopted at other production sites, in particular in Algeria. New Infrastructure and Operations initiatives include the WIE - Windows Infrastructure Evolution project, whose objective is the Group-wide overhaul of infrastructure and workstations, with the introduction of the functionalities offered by the latest Microsoft platforms. The project(cid:213)s objective is the adoption of a centralised management model equipped with automated software distribution and offering new user services. The project is due to be completed in 2010, when the new architecture will be deployed at all Saipem offices. In telecommunications, the year saw an international tender held in collaboration with Procurement for the renewal of the contract to supply VSAT services to the Saipem fleet. The supplier that won the contract, Telespazio, will carry out a programme of technology upgrades in order to guarantee an improved performance but with significantly reduced running costs. Meanwhile, the year saw the continued introduction of the integration services which — thanks to the use of IP technology for the transmission of voice conversations over a data network — will generate savings in telephony costs. The initiative, which is being carried out in cooperation with Eni, will continue in 2010 and will be eventually extended to all operating sites. With regard to ICT governance, and in particular information security, the monitoring activities required to ensure compliance with the Sarbanes-Oxley Act and Law 262 were carried out successfully during the year. Compliance activities have become an integral part of ICT processes — in 2009 further progress was made on the project for the adoption of a control system based on the international ISO framework 27001, with a view to improving the ICT Governance Model for the whole Saipem Group. Assessments were carried out at sixteen Group companies and remediation measures are currently being implemented in the areas of weakness identified with a view to achieving continuous improvement. This approach, coupled with an intelligent use of the latest security technologies, enable Saipem to reduce the risk of exposure of company systems and data to security threats, which are increasingly commonplace in connection with the internet and associated systems. The IBIS Continuous Improvement function managed the implementation of initiatives related to the continuous improvement of the IBIS Integrated Business Information System and the diffusion of the IBIS model at Group level, providing support to the various companies involved in developing know-how and skills with regard to the correct use of the applications. The IBIS Consolidation project required support in particular with the analysis of the new functionalities provided by the new version of SAP and with functional and technical rationalisation in relation to the development of Cash Flow and Working Capital management functions. Finally, the function completed the development of new operating methodologies and standards which ensure compliance with segregation of duties principles in relation to company applications. 61 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Corporate Governance Report and Shareholding Structure, pursuant to Article 123-bis of Law 58/19981, approved by the Board of Directors on March 10, 2010 Issuer profile This Report is designed to provide a general and complete overview of Saipem SpA(cid:213)s ((cid:212)Saipem(cid:213)) corporate governance system. In order to comply with applicable laws and stock market listing standards, in keeping with the recommendations of Borsa Italiana SpA and of the relevant business associations, the Report also furnishes information regarding Saipem(cid:213)s ownership, its compliance with the corporate governance codes established by institutional bodies and the relevant commitments to observe them, as well as the choices that the Company has made in implementing its governance. This Report is available at Saipem(cid:213)s headquarters, published on Saipem(cid:213)s website www.saipem.it, and sent to Borsa Italiana SpA in accordance with set rules and deadlines. Principles Saipem is an internationally-oriented industrial group which, because of its size and the importance of its activities, plays a significant role in the marketplace and in the economic development and welfare of the individuals who work or collaborate with Saipem and of the communities in which it operates. Saipem undertakes to maintain and strengthen a governance system in line with international best practice standards. The complexity of the situations in which Saipem operates, the challenges of sustainable development and the need to take into consideration the interests of all people having a legitimate interest in the corporate business ((cid:212)Stakeholders(cid:213)), increase the importance of clearly defining the values and responsibilities that Saipem recognises, accepts, acknowledges and shares, contributing to a better future for everybody. Compliance with the law, regulations, statutory provisions, self-regulatory codes, ethical integrity and fairness, is a constant commitment and duty of all Saipem(cid:213)s people, and characterises the conduct of Saipem(cid:213)s entire organisation. All personnel working for Saipem, without distinction and/or exceptions, are committed to observing and enforcing the following principles, within their own function and responsibilities, in addition to the values and principles in matters of transparency, energy efficiency and sustainable development, as stated by Institutions and International Conventions. The belief of acting in Saipem(cid:213)s interests cannot in any way justify the adoption of practices contravening these principles. Business ethics Saipem(cid:213)s business and corporate activities must be carried out in a transparent, honest and fair way, in good faith, and in full compliance with competition protection rules. Specifically, Saipem applies the OECD (Organisation for Economic Co-operation and Development) guidelines for multinational companies. Stakeholders Saipem is committed to respecting all stakeholders with whom it interacts in business, as it believes that they are an important asset to the Company. Labour protection and equal opportunities Saipem respects the universally recognised core labour standards contained in the Fundamental Conventions of ILO (International Labour Organisation); it (1) The Report on Corporate Governance is published on Saipem(cid:213)s website www.saipem.it, in the (cid:212)Investor relations(cid:213) section under (cid:212)Corporate Governance(cid:213). 62 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E guarantees the freedom to form a union and the right of collective bargaining; it repudiates any form of forced or juvenile labour and/or discrimination. In addition, Saipem is an equal opportunity employer and guarantees its employees equal treatment based on merit. Development of professional skills Saipem values and promotes the development of skills and competencies of each employee in addition to team work, so that energy and creativity of the individual can realise its full potential. Diversity Saipem(cid:213)s business conduct is inspired by the respect it affords to cultures, religions, traditions, ethnic diversity and the communities in which it operates, and strives to preserve their biological, environmental, social, cultural and economic identities. Cooperation Saipem is committed to promoting the quality of life and the social and economic development of the communities in which the Group operates. Health and Safety Saipem ensures ever-increasing health and safety standards for its employees and the communities in all areas of the world where it operates, and faces all challenges by applying a new safety vision: (cid:212)to be winners through passion for safety(cid:213). The rationale underlying this safety vision is that being safe is to be more efficient in terms of business performance. In 2007, Saipem started implementing an innovative and interactive safety training programme called Leadership in Safety - LiS, aimed at creating a strong safety culture throughout the Company by turning its leaders into safety leaders. A series of LiS workshops were held, and tools were created for personal development, namely questionnaires posted on the Company website, safety guides for structured communication, films, publications and documents endorsed by members of the Board of Directors. Environmental protection Saipem is committed to protecting the environment and ecosystems involved in its business operations and strives to achieve the sustainability goals set by the international conventions Italy endorses. The Code of Ethics At the meeting of July 14, 2008, the Board of Directors of Saipem SpA approved the new organisational, management and control Model pursuant to Legislative Decree No. 231 of 2001 (Model 231)2 and the document (cid:212)Sensitive activities and specific control standards(cid:213), which forms part of Model 231. Model 231 includes the new Code of Ethics which replaces the Code of Practice and is a compulsory general principle of Model 231 itself. The Code of Ethics clearly defines, in compliance with the provisions of law, the values that Saipem recognises and accepts, as well as the responsibilities the Company assumes both internally and externally. It imposes fairness, honesty, integrity and transparency in operations, conduct, working practices and relations both internal and external to the Group; the Board of Directors ensures adherence to the Code through the annual report of the Guarantor of the Code of Ethics, whose responsibilities have been delegated to the (2) Model 231, inclusive of the Code of Ethics, is published on Saipem(cid:213)s website www.saipem.it in the (cid:212)Investor relations(cid:213) section under (cid:212)Corporate Governance(cid:213). 63 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Compliance Committee of Saipem SpA and which, pursuant to Article 6, paragraph 1 of Law Decree 231 of 2001 has been granted (cid:212)independent powers of initiative and control(cid:213). Saipem sent Model 231, together with an accompanying letter, to all Italian and foreign companies in which it has a holding, underlining the fundamental importance that they adopting their own Code of Ethics and organisational model defining, in compliance with local legislation, the values recognised, accepted and shared by Saipem, as well as the responsibility it assumes towards stakeholders in Italy and throughout the world. In compliance with Confindustria (Italian Manufacturing Companies Association) guidelines and the most recent courts decisions, the Board of Directors, at the Audit Committee(cid:213)s proposal, resolved, at their meeting of July 14, 2008, to appoint two external members to the Compliance Committee, to further guarantee its independence. These additional members were selected from among academics and professionals with proven expertise, one of whom took on the role of Chairman of the Committee. In 2008, the Technical Secretariat of the Compliance Committee was established to monitor the evolution of the relevant laws and courts decisions, to draw up proposals for the continuous update of Model 231, to collate and review information and documents received from Saipem offices, and to inform the (cid:212)addressees(cid:213) of the Model of the Committee(cid:213)s decisions and monitor their implementation. With these initiatives, the Board of Directors further strengthened the internal control system, in the firm conviction that the Company(cid:213)s business activities, whose aim is the creation of value for its Shareholders, must be founded on a principle of fair conduct towards all stakeholders (comprising, besides the Shareholders, employees, suppliers, clients, commercial and financial partners, as well as the communities the Group comes into contact with in the countries where it is present) and that this including the promotion of important social initiatives, in a continuous effort to foster amongst stakeholders an awareness that only a business approach that seizes the opportunities and manages the risks resulting from economic, environmental and social development generates long-term value for all parties involved. Sustainability Report3 The Code of Ethics includes the general principles underpinning Saipem(cid:213)s sustainability policy, detailed in the Saipem Sustainability Report which has been produced annually since 2000, and is used to promote the sustainability culture and monitor initiatives and performance. The report is proof of the growing commitment of Group companies to share values and safeguard Quality, Health and Safety and the Environment, key factors for the success of the business and to improve the social, cultural and economic context in which Saipem operates. Saipem(cid:213)s approach to Quality, Health & Safety, Environment and Sustainability is based on principles, policies and processes that are governed by certified management systems and a decentralised organisation best suited to Saipem(cid:213)s business as a global contractor for the energy industry. Sustainability is a consistent and responsible way to ensure the creation of value for stakeholders in this industry, for which every challenge requires safe, reliable and innovative solutions. For Saipem, the Sustainability Report represents the most important tool for reporting on activities and results as well as for informing and engaging with stakeholders. Saipem(cid:213)s organisational structure Saipem(cid:213)s organisational structure is based on the traditional administration and control model where the Board of Directors is the central body, solely responsible for the Company(cid:213)s management. Supervisory and control duties are the responsibility of the Board of Statutory Auditors whereas the External Auditors, appointed by the Shareholders(cid:213) Meeting, are responsible for auditing the accounts. The Shareholders(cid:213) Meeting manifests the will of and binds the Shareholders, through resolutions adopted in compliance with the law and the Company(cid:213)s Articles of Association. The Shareholders(cid:213) Meeting has appointed the Board of Directors for three years. The Board of Directors has appointed the Chairman, a Deputy Chairman - CEO, and a Managing Director for Business Support and Transversal Activities - Deputy CEO. The Chairman has the power to represent the Company, pursuant to Article 21 of the Company(cid:213)s Articles of Association. (3) The Sustainability Report is published on Saipem(cid:213)s website www.saipem.it in the (cid:212)QHSE and Sustainability(cid:213) section under (cid:212)Sustainability Report(cid:213). 64 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E The Board of Directors has also set up two internal corporate committees, with consultative and advisory functions: the Audit Committee, composed of non-executive independent Directors, and the Compensation Committee, composed of a majority of independent Directors, all of whom are non-executive Directors. The Company is a subsidiary of Eni SpA and is therefore subject to the direction and coordination of the Parent Company, pursuant to Article 2497 of the Italian Civil Code. Saipem(cid:213)s shareholdings at December 31, 2009, disclosure required by Article 123-bis of Law 58/1998 Share capital distribution - At December 31, 2009, the share capital of Saipem SpA amounted to o441,410,900; it is fully paid up and comprises No. 441,265,604 ordinary shares, equal to 99.97% of the share capital, of the nominal value of o1 each, and No. 145,296 savings shares, equal to 0.03% of the share capital, of the nominal value of o1 each, equal to 0.03% of share capital, both of which are listed on the Milan Stock Exchange. Shares cannot be divided and each share carries the entitlement of one vote. Saipem(cid:213)s Shareholders enjoy, and are limited by, all relevant rights afforded by law. Savings shares are convertible at par with ordinary shares; they enjoy a higher dividend than ordinary shares equal to 3% of the share nominal value. On January 14, 2010, the Savings Shareholders(cid:213) Meeting confirmed Mr Roberto Ramorini as their collective representative for the following three years. No other financial instruments have been issued by the Company that allocate the right to subscribe newly-issued shares. Restrictions on the transfer of shares - No restrictions exist on the transfer of shares. Relevant shareholdings - Based on information available and notifications received pursuant to Article 120 of Law 58/1998, Shareholders owning a stake in Saipem SpA in excess of 2% at December 31, 2009, are: Shareholders Eni SpA Capital Research and Management Co Blackrock Investment Management (UK) Ltd Alliancebernstein LP FIL Ltd Number of shares % of capital 189,423,307 21,656,293 11,363,254 8,981,488 8,898,844 42.910 4.908 2.575 2.035 2.016 Shareholders breakdown by geographical area based on 2008 dividend payments Shareholders Italy Other EU Member States Americas UK and Ireland Other European States Rest of the world Total (*) Includes treasury shares with no dividend entitlement. Number of Shareholders Number of shares % of capital 28,083 282,129,570 (*) 890 617 246 108 205 49,330,026 67,377,204 25,532,916 4,084,053 12,957,131 63.93 11.19 15.27 5.78 0.93 2.90 30,149 441,410,900 100.00 65 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Shareholders breakdown by size of holding based on 2008 dividend payments Shareholders > 10% > 2% 1% - 2% 0.5% - 1% 0.3% - 0.5% 0.1% - 0.3% † 0.1% Total Number of Shareholders Number of shares % of capital 1 4 8 10 6 61 30,059 30,149 189,423,307 50,899,879 49,473,309 33,169,695 10,491,616 46,268,998 61,684,096 42.91 11.53 11.21 7.51 2.38 10.48 13.98 441,410,900 100.00 Shareholders rights restrictions - All Shareholders enjoy the same rights. Exercise of voting rights - Employees who hold Saipem(cid:213)s shares enjoy the same voting rights as ordinary shareholders. Voting rights restrictions - No restrictions exist on voting rights. Agreements as per Article 122 of Law 58/1998 - No known agreements exist amongst Shareholders, as per Article 122 of Law 58/1998. Change of control clauses - Saipem SpA and its subsidiaries are party to significant agreements that become effective, are amended or terminated if there is a change in the control of Company by the current main Shareholder Eni SpA (change of control clauses). Specifically, these clauses relate to: ¥ financing currently held with third-party credit institutions or with Eni, which, at December 31, 2009, amounted to a total of o3,524 million. Should there be a change of control, Saipem may be requested to repay the loaned capital and related interests in advance of the contractual terms and conditions. Replacing the aforementioned financing on the market and taking into account the adjustment in the risk profile of the Company, would result in an increased annual financial outlay that is estimated at approximately o32.8 million; ¥ bank guarantees amounting to a total of o4,854 million. Should there be a change of control, Saipem may be requested to release all Eni lines currently utilised against bank guarantees. Replacing existing lines on the market, taking into account the adjustment in the risk profile of the 66 Company, would result in an increased annual financial outlay that is estimated at approximately o2.9 million. Indemnification for Directors in case of dismissal, resignation or termination following a public purchase offer - There are no agreements indemnifying Directors in case of dismissal/revocation of their appointment without just cause, resignation or termination following a public purchase offer. Directors(cid:213) appointment or replacement, and modifications to the Articles of Association - Procedures regulating the appointment of Board Directors are illustrated under the item (cid:212)Board of Directors(cid:213). The Board of Directors has the power to amend the Articles of Association to comply with the provisions of law. Share capital increases and buy-back of treasury shares - The Board of Directors does not have the power to increase the share capital, pursuant to Article 2343 of the Italian Civil Code. The number of treasury shares held by the Company at December 31, 2009 was 5,651,047, equal to 1.28% of the share capital. Corporate Governance Code The corporate governance of Saipem SpA is based on international best practice standards and, in particular, on the principles of the Corporate Governance Code (hereafter Code) of listed companies approved in 2006 by the Corporate Governance Committee and promoted by Borsa Italiana SpA (available at www.borsaitaliana.it), in addition to all relevant provisions of regulations issued by Consob (Italy(cid:213)s Securities and Exchange Commission). S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E The Board of Directors of Saipem SpA, at their meeting of November 9, 2000, resolved to adopt the Code and has aligned its Corporate Governance to amendments made to the Code in 2002. At their meeting of December 14, 2006, the Board of Directors moved to adopt the recommendations and principles of the Code in its current version, and to monitor its application. This annual corporate governance report was prepared, as in previous years, in compliance with the (cid:212)Annual corporate governance guidelines(cid:213) of Borsa Italiana SpA of 2003, and tables and suggestions provided under the (cid:212)Guide for the preparation of corporate governance reports(cid:213) issued by Assonime and Emittenti Titoli SpA in 2004, and utilising the format of Borsa Italiana SpA (2nd Edition - February 2010). The Company strived, consistently with the characteristics of its business activities and corporate objectives, to provide correct, exhaustive and effective information, in line with market requirements. Saipem SpA and/or its strategic subsidiaries are not subject to any non-Italian legal requirement that may influence the Corporate Governance of the Issuer. Risk management systems and internal control over financial reporting Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability4 of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The guidelines on internal controls over financial reporting approved by the Board of Directors on October 29, 2007, define rules and methodologies on the design, implementation and maintenance of the internal control system over Saipem(cid:213)s financial reporting, as well as on the evaluation of the system(cid:213)s effectiveness. These guidelines have been designed in accordance with the provisions of the aforementioned Article 154-bis of Law 58/1998 and of the US law Sarbanes-Oxley Act of 2002 (SOA) which Saipem is required to comply with as a subsidiary of Eni whose securities are listed on the New York Stock Exchange (NYSE), and based on the COSO Report ((cid:212)Internal Control - Integrated Framework(cid:213) published by the Committee of Sponsoring Organizations of the Treadway Commission). In accordance with international accounting principles, these guidelines are applicable to Saipem SpA and its direct and indirect subsidiaries, in consideration of their relevance for the preparation of financial reporting. All controlled companies, regardless of their relevance for Saipem(cid:213)s internal control system, use the guidelines as a reference for the design and implementation of their own internal control system in order to ensure it is adequate in relation to the size of the company and the nature of its business. Main features of the risk assessment and internal control systems for the purposes of financial reporting The internal control system was designed in accordance with two fundamental principles: to extend control to all levels of the organisational structure, consistently with operating responsibilities; and the sustainability of controls in the long-term, so as to ensure that the performance of controls is increasingly integrated and compatible with operational requirements. The design, implementation and maintenance of the internal control system are ensured through: risk assessment, control identification, evaluation and reporting. The risk assessment process has a top-down approach aimed at identifying those organisational departments, processes and specific activities that bear a risk of unintentional errors and/or fraud, which could have a material impact on the financial statements. The identification of companies that fall within the scope of the system of internal controls is based both on their contribution to the consolidated financial statements (turnover, net revenues, profits before taxation) and their relevance in terms of processes and specific risks5. Among the companies identified as relevant for the purposes of internal controls, significant processes are then identified based on an analysis of quantitative factors (processes involved in the preparation of financial statements items in excess of a certain percentage of profits before taxation) as well as qualitative factors (for instance: complexity of the accounting treatment used for an item; new items or significant changes in business conditions). (4) Reliability (of reporting): ensuring that reporting is correct, in accordance with generally accepted accounting principles and in compliance with current laws and regulations. (5) Companies subject to internal controls include those incorporated under and regulated by non-EU member state legislations, for which the provisions of Article 36 of Consob Market Regulations apply. 67 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Risks are assessed for relevant processes and activities, i.e. potential events whose occurrence could compromise the achievement of the control objectives for financial reporting (for instance financial statements assertions). These risks are prioritised in terms of their potential impact and probability of occurrence, based on quantitative and qualitative parameters and assuming no controls. Saipem carries out a specific assessment on risks of fraud6, using a methodology based on the (cid:212)Anti-fraud Programmes and Controls(cid:213) included in the guidelines on internal controls over financial reporting. Controls are defined for the individual company, processes and associated risks deemed relevant. The control system comprises of entity level controls, which operate across the relevant entity (Group/individual company) and process level controls. A checklist based on the model adopted in the COSO Report divides entity level controls into five components (control environment, risk assessment, control activities, IT systems and information flows, monitoring activities). The (cid:212)control environment(cid:213) component includes all activities relating to the definition of time-frames for the preparation and publication of financial results (interim and annual financial statements and associated financial calendars); the (cid:212)control activities(cid:213) component covers organisational and regulatory structures that guarantee the achievement of financial reporting objectives (for instance the review and updating by specific departments of Group rules for preparing financial statements and charts of accounts); the component (cid:212)IT systems and information flows(cid:213) includes management controls over the consolidation process (Mastro). Process level controls are divided into specific controls, which are all activities, manual and automated, aimed at preventing, identifying and correcting errors and irregularities occurring during operating activities; and pervasive controls, which are structural elements of the internal control system aimed at establishing a general environment which promotes the correct execution and control of operational activities (for instance segregation of incompatible duties and general IT controls). Specific controls are detailed in ad-hoc procedures which define company processes and the (cid:212)key controls(cid:213), whose absence or non-implementation entails the risk of significant error/fraud in the financial statements which cannot be detected by other controls. Entity level controls and Process Level Controls are constantly monitored to evaluate their design and operating effectiveness; this is done through ongoing monitoring activities carried out by the managers in charge of the relevant processes/activities, and through separate evaluations carried out by the Internal Audit Department in accordance with an audit plan provided by the Chief Financial Officer/Manager responsible for preparing financial reports7 which defines the audit scope and objectives to be implemented through agreed upon audit procedures. Monitoring activities flag-up possible deficiencies in the control system; these are evaluated in terms of probability of occurrence and impact on Saipem(cid:213)s financial reporting and — based on their significance — are classed as (cid:212)deficiencies(cid:213), (cid:212)significant weaknesses(cid:213) and (cid:212)material weaknesses(cid:213). The findings of monitoring activities regarding the state of the internal control system are reported on periodically using IT tools that ensure the traceability of information relating to the adequacy of design and the operating effectiveness of controls. The work of the CFO/Manager responsible for preparing financial reports is supported by various departments within Saipem, whose responsibilities and tasks are set forth in the aforementioned guidelines. Specifically, internal controls involve all levels of Saipem(cid:213)s organisation, from operations and business managers to function and administrative managers. In this organisational context, a very important figure of the internal control system is the risk owner, who carries out line monitoring activities, evaluating the design and operating effectiveness of specific and pervasive controls and producing reports on monitoring activities. The Board of Directors The Board of Directors fulfils a pivotal role for the internal control system, as it defines the guidelines of the organisational, administrative and financial structure of the Company and main Group subsidiaries. It also defines, having reviewed the proposals put forward by the Audit Committee, the guidelines of the internal control system, to ensure that main risks for the Company and its subsidiaries are identified, measured, properly managed and monitored. When defining these guidelines, the Board applies sector (6) Fraud: for the purposes of the Internal Control System, this refers to any intentional act or omission that may result in false representation or misleading reporting. (7) Additional information on the Chief Financial Officer/Senior Manager in charge of financial reporting are provided under its dedicated section. 68 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E regulations and takes into account both national and international reference models and best practices. Finally, the Board of Directors, with the support of the Audit Committee, assesses annually the adequacy, effectiveness and efficiency of the internal control system as a whole in relation to Saipem(cid:213)s characteristics. At their meeting of March 10, 2010, the Board examined the 2009 Report of the Senior Manager in charge of the internal control system (as at March 10, 2010) and its findings on Saipem(cid:213)s internal control system. Following their examination, and taking into consideration initiatives currently underway, the Board deemed Saipem(cid:213)s internal control system adequate, effective and efficient. Executive Director responsible for the internal control system The Board of Directors, at their meeting of April 22, 2009, appointed the Deputy Chairman and CEO the executive director responsible for supervising the functionality of the internal control system, constantly ensuring its adequacy and operating effectiveness with the support of the Audit Committee and the Internal Audit Senior Vice President, in his capacity as Senior Manager in charge of the internal control system. The Deputy Chairman and CEO identified the main business risks for the company, taking into account the characteristics of the activities carried out by the Issuer and its subsidiaries and reporting his findings to the review of the Board of Directors; implemented the guidelines for the internal control system approved by the Board; and was responsible for adjusting this system to the dynamics of the operating conditions and legislative and regulatory framework. Senior Manager in charge of the internal control system and the Internal Audit department On December 14, 2006, the Senior Manager in charge of the internal control system, Mr Alessandro Riva, was appointed by the Board of Directors at the Deputy Chairman and CEO(cid:213)s proposal, having heard the opinion of the Audit Committee. The Senior Manager is responsible for ensuring that the internal control system is adequate, fully operational and effective at all times. He is not responsible for any operative area and reports to the Deputy Chairman and CEO, the Audit Committee and the Board of Statutory Auditors on the adequacy of the internal control system to achieve an acceptable overall risk profile. The Deputy Chairman and CEO granted Alessandro Riva the powers to enter into contracts for consultancy and professional services for the purposes and in support of his responsibilities as the Senior Manager in charge of the internal control system, having access to a commensurate financial budget. On February 8, 2010, the Senior Manager released its annual report on the internal control system (covering the period January 1-December 31, 2009, with information up to the date of issue) and expressed his opinion on its adequacy based on the monitoring activities carried out during the reference period by the Internal Audit department of Saipem SpA. One of the actors operating in the complex internal control system is the Internal Audit department, which reports to the Deputy Chairman and CEO and the Board of Statutory Auditors. The Internal Audit department provides independent and objective activities aimed at promoting efficiency and effectiveness improving measures in the internal control system and the Company(cid:213)s organisation. The Internal Audit department of Saipem SpA carries out the following monitoring activities of the internal control system: (i) an annual Integrated Audit Plan with a top down-risk based approach, which is first submitted to the Audit Committee and the Board of Statutory Auditors of Saipem SpA and then for the approval of the Board of Directors and, pursuant to Law Decree 231/2001, to Saipem(cid:213)s Compliance Committee; (ii) ad-hoc checks upon specific requests by the Company(cid:213)s top management, the Audit Committee, the Board of Statutory Auditors and/or the Compliance Committee, in addition to notification and anonymous requests, in compliance with current corporate procedures; (iii) independent monitoring aimed at producing periodic reports, described here below. The Internal Audit department reports periodically to the Company(cid:213)s control bodies and the top management on its audit activities and monitoring of corrective measures taken. The Senior Manager in charge of the internal control system, the Internal Audit department and the external auditors have access to data, documents and information required to carry out their duties. Organisational Model, pursuant to Law Decree 231/2001 On March 22, 2004, the Board of Directors approved the Organisational, managerial and control model, pursuant to Law 231/2001 and established a Compliance Committee. The Model comprises a comprehensive set of procedures and control processes aimed at preventing the offenses detailed in the aforementioned law decree, and subsequent amendments. The Chairman is responsible for devising 69 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E and implementing initial activities, updating and upgrading the Model. In May 2008, the Deputy Chairman and CEO started the process to align Model 231 to the new corporate organisation, which led to the Board of Directors approving the new Organisational, managerial and control Model 231/2001 on July 14, 2008. As stated at the beginning of this report, Model 231 includes the new Code of Ethics which replaces the Code of Practice and is a compulsory general principle of Model 231 itself. The Compliance Committee, which now is also the Guarantor of the Code of Ethics, is responsible for implementing their plan of actions and informs the Deputy Chairman and CEO on activities carried out. The Compliance Committee(cid:213)s independence is safeguarded by its position within the Company(cid:213)s organisation and reporting lines, pursuant to Article 6, paragraph 1, letter b), of Law 231/2001. In 2009, the Compliance Committee convened on twelve occasions and: promoted and monitored all initiatives aimed at Saipem SpA employees to ensure adequate knowledge of the Model; it defined the Compliance Programme for the year and ensured that it was implemented alongside the scheduled and ad-hoc control activities; contributed to updating the new Model; coordinated and maintained communication channels to and from the Compliance Committee. In 2009, Saipem SpA and the Compliance Committee started and completed (cid:212)Project 231(cid:213) aimed at updating all documentation supporting the Model and associated control procedures in terms of health and safety in the workplace, pursuant to the provisions of Law Decree 81/2008. External auditing company In compliance with the Law, audits of accounts are entrusted to an external auditing company registered in Consob(cid:213)s Roll of Auditors, appointed by the Shareholders(cid:213) Meeting. The current auditing company is PricewaterhouseCoopers SpA, appointed by the Shareholders(cid:213) Meeting of April 30, 2007, for a period of six years. The financial statements of subsidiary companies are subject to audit; these are mostly carried out by PricewaterhouseCoopers. With regard to the opinion on the consolidated financial statements, PricewaterhouseCoopers is responsible for the audits carried out at subsidiary companies by other external auditors, which are immaterial in terms of consolidated assets and turnover. 70 Senior Manager in charge of preparing the Company(cid:213)s financial reports Pursuant to Article 21 of Articles of Association and Article 154-bis of Law 58/1998, the Board of Directors, having heard the opinion of the Board of Statutory Auditors, appoints a Senior Manager in charge of preparing the Company(cid:213)s financial reports, selected from individuals who have carried out the following for at least three years: a) administrative and control activities in a managerial capacity at listed companies with a share capital exceeding o2 million, in Italy, in other European Union or OCSE member states; or b) legal audits at the companies, under letter a) or c) having had a professional position in the field of or a university professor teaching finances or accounting; or d) a management position at public or private companies with financial, accounting or control responsibilities. The Board of Directors ensures that the Senior Manager charged with preparing the Company(cid:213)s financial reports is granted adequate powers and has sufficient means to carry out his/her duties; the Board also ascertains that the administrative and accounting procedures are adhered to. Saipem(cid:213)s CFO Mr Giulio Bozzini is the Senior Manager in charge of preparing the Company(cid:213)s financial reports, pursuant to Article 154-bis of Law 58/1998. He was appointed by the Board of Directors on July 29, 2008, having first ascertained that he met the professional criteria required by the Articles of Association. The Shareholders(cid:213) Meeting The Shareholders(cid:213) Meeting represents the institutional meeting point of the Company(cid:213)s management and its Shareholders. At these meetings, Shareholders may ask questions pertaining to items on the agenda or the Company(cid:213)s management at large. The information provided shall comply with the provisions applicable to inside information. Ordinary Shareholders(cid:213) Meetings are regulated by Article 2364 of the Italian Civil Code, Extraordinary Shareholders(cid:213) Meetings by Article 2365. Notices of Shareholders(cid:213) Meeting are published in various national Italian newspapers, in order to promote Shareholder attendance. The Shareholders(cid:213) Meeting of January 30, 2001 approved the Shareholders(cid:213) Meetings regulations (posted on S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Saipem(cid:213)s website www.saipem.it) to ensure smooth and effective meetings proceedings and, specifically, to safeguard every Shareholders(cid:213) right to intervene on items under discussion. The Extraordinary Shareholders(cid:213) Meeting of April 30, 2007 approved the amendments to the Company(cid:213)s Articles of Association in compliance with the provisions of Law 262/2005. The right of all Shareholders to attend the General Shareholders(cid:213) Meeting is regulated by the provisions of Article 2370 of the Italian Civil Code. Shareholders wishing to attend are required to contact an authorised broker and obtain the appropriate certification, pursuant to Article 2370, paragraph 2 of the Italian Civil Code, at least two working days prior to the Meeting(cid:213)s first summons. Shares are not restricted until after the Shareholders(cid:213) Meeting has taken place. Management and Control Bodies, and Committees The Board of Directors8 Responsibilities and powers of the Board of Directors The Board of Directors is the central body within the Corporate Governance system of Saipem SpA and the Saipem Group. Article 20 of Articles of Association states that the management of the Company is exclusively the responsibility of the Board of Directors. Article 2365 of the Italian Civil Code grants the Board the power, normally the responsibility of the Extraordinary Shareholders(cid:213) Meeting, to resolve on motions concerning: - merger by incorporation of companies whose shares or stakes are owned entirely by the Company, pursuant to Article 2505 of the Italian Civil Code; - merger by incorporation of companies whose shares or stakes are at least 90% (ninety per cent) owned by the Company, pursuant to Article 2505-bis of the Italian Civil Code; - share capital decreases in case of Shareholder(cid:213)s withdrawals; - the issue of corporate bonds and other debentures, barring the issue of bonds convertible into Company(cid:213)s shares; - the adoption of modifications to the Articles of Association to comply with the provisions of law. In addition to the powers granted by Article 2381 of the Italian Civil Code, the Board of Directors is responsible for: - setting a corporate government system and regulations for the Company and the Group. Specifically, following consultation with the Internal Audit Committee, it implements procedures to ensure that the following operations are carried out in a transparent and correct way, both in terms of procedure and substance: operations with related parties and operations where a Director has an interest, both directly or through a third party. The Board also adopts procedures for the management and release of Company information in general, and sensitive information in particular; - establishing internal corporate Committees with consultative and advisory functions, appointing their members, defining their responsibilities and approving their regulations; - granting and revoking the powers of Board Directors, setting their limitations and methods of exercise; having reviewed the proposals put forward by the Compensation Committee and following consultation with the Board of Statutory Auditors, setting the compensation commensurate with the powers granted. The Board has the power to give directives to delegated bodies and carry out operations within its remit; - setting the guidelines for the organisational, administrative and accounting structure of the Company and main Group subsidiaries. The Board evaluates the adequacy of the organisational, administrative and accounting model, placing particular emphasis on the management of conflicts of interests; - the proportional de-merger of companies whose - defining, based on indications provided by the shares or stakes are entirely or at least 90% (ninety per cent) owned by the Company, pursuant to Article 2506-ter of the Italian Civil Code; - transfer of the Company(cid:213)s headquarters within Italy; - incorporation, transfer and closure of secondary offices; Internal Audit Committee, guidelines for the internal control system, ensuring that main business risks for the Company and its subsidiaries are identified, measured, monitored and properly managed. It ascertains annually the adequacy, effectiveness and operation of the internal control system; (8) The Directors(cid:213) professional r(cid:142)sum(cid:142)s are published on Saipem(cid:213)s website www.saipem.it under the section (cid:212)Investor Relations - Corporate Governance(cid:213). 71 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E - defining strategies and objectives for the Company and the Group, including sustainability policies. The Board reviews and approves industrial and financial strategic plans for the Company and the Group, as well as all the Company(cid:213)s strategic agreements; - reviewing and approving the preliminary financial statements, the budget, interim and six-monthly reports, and preliminary results for the Company and the Group. The Board reviews and approves the sustainability report; - receiving information from Directors with executive powers at Board Meetings, at least quarterly, regarding: Group activities within their responsibility; major operations; atypical and/or unusual operations or operations with related parties, which have not required approval by the Board of Directors; - receiving information from internal corporate Committees every six months; - evaluating the general management and performance of the Company and the Group, based on the information received from Directors with executive powers, paying particular attention to situations of potential conflict of interests and checking actual interim and yearly results against budget forecasts; - resolving on the most significant and strategic economic and/or financial Company operations, reviewing the most relevant Group industrial and financial operations, paying particular attention to situations where one or more Directors may have an interest, both directly or through a third party, as well as operations with related parties. The following are considered to be significant operations: a) acquisition, disposal or transfer of holding exceeding o25,000,000; g) issue of personal or other guarantees to entities other than subsidiary companies: (i) for amounts exceeding o200 million in favour of subsidiary companies; or (ii) of any amount to companies where the share held is not a controlling stake and the loan is not proportional to the share of the holding; h) incorporations of subsidiaries or company branches; - appointing and revoking the appointment of General Managers, granting them the relevant powers; - appointing and revoking the appointment, having consulted the opinion of the Board of Statutory Auditors, of the Senior Manager charged with preparing the company(cid:213)s financial reports, granting him adequate powers; - appointing and revoking the appointment, having consulted the opinion of the Audit Committee, of a manager in charge of the internal control system; - appointing the Compliance Committee, pursuant to Law 231/2001; - ensuring the appointment of managers in charge of the departments responsible for dealing with Shareholders and investors; - having heard the proposals of the Compensation Committee, setting the criteria for the remuneration of the management of the Company and the Group; implementing incentive plans based on stock or other financial instruments approved by the Shareholders(cid:213) Meeting; - approving the proposals to be submitted for approval to the Shareholders(cid:213) meetings; - reviewing and resolving on all other matters that Directors with executive powers deem appropriate for the Board to assess, due to their sensitivity and/or importance; b) capital expenditure in technical assets differing - approving and entering into agency agreements; from previous ones exceeding o300 million, or of a lower amount but of strategic importance or posing a particular risk; c) purchase or sale or goods and services other than investments, exceeding o1 billion and those whose duration is over 20 years; d) acquisition or transfer of company holdings or branches exceeding o25,000,000; e) acquisition, sale or financial leasing of land and/or f) buildings exceeding o2,500,000; financial of entities other than subsidiary companies: (i) for amounts exceeding o50 million; or (ii) or any amount, to companies where the share held is not a controlling stake and the loan is not proportional to the share of the holding; approving all donations. The Shareholders(cid:213) Meeting endorsed the competition ban provided for in Article 2370 of the Italian Civil Code. Pursuant to Article 2391 of the Italian Civil Code, Directors shall inform the other Directors and the Statutory Auditors of interests they may have, on their own behalf and on behalf of third parties, in any specific Company operation. At Board Meetings, the Chairman reminds the Board of Directors that, pursuant to Article 2391 of the Italian Civil Code, Board Directors must voice any interests they may have, directly or through a third party, related to any items on the Agenda before they are discussed. Directors have to state the nature, origin and relevance of these interests, if any. 72 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Board Review The Board of Directors, in compliance with the recommendation contained in the new Corporate Governance Code, utilises a qualified external consultant to carry out an annual review of its size, composition and operation of the Board itself and its Committees. The review, carried out by Egon Zehnder International, confirmed that Saipem(cid:213)s Board of Directors functions at optimum level and it had further improved in some points. Specifically, the review confirmed that the Board operates in full compliance with the recommendation of the Corporate Governance Code. Furthermore, the following have been identified as specific areas of excellence: - constructive discussions and exposure to senior line management; - positive internal climate and smooth functioning between Saipem(cid:213)s Chairman and CEO; - clear, comprehensive and timely distribution of information for Board meetings. A benchmark of Saipem(cid:213)s Board effectiveness with other international Boards also reported very positive results. Composition The Board of Directors, comprising nine Directors, was appointed by the Shareholders(cid:213) Meeting on April 28, 2008 for three years, its mandate expiring at the Shareholders(cid:213) Meeting called to approve the Financial Statements at December 31, 2010. The appointment of Directors occurs pursuant to Article 19 of Articles of Association, through voting from lists, so as to allow the appointment of minority interest representatives. Lists are filed at the Company(cid:213)s registered headquarters at least fifteen days prior to the Shareholders(cid:213) Meeting (first summons) and are published in compliance with current legislation and Consob regulations. Voting lists enclose a professional r(cid:142)sum(cid:142) for all candidates, their declaration accepting the nomination, stating that there are no grounds for ineligibility and/or incompatibility, and that they meet the integrity and/or independence requirements. Lists can be presented by Shareholders, who, individually or with others, hold voting shares representing at least 1% of the share capital, as per Consob Resolution No. 16319 of January 29, 2008. Seven tenths of Directors are appointed from the list that has obtained the majority of votes (rounded down if necessary). Directors shall meet the honourability requirements prescribed by regulations, possess the professional expertise and experience to carry out their mandate efficiently and effectively and be able to dedicate sufficient time and resources to their office. Pursuant to Article 1.c.2 of the Code, information regarding offices of Directors or Auditors held by members of the Board of listed companies, financial or insurance companies or companies of considerable size is provided below under (cid:212)Offices held by Board Directors(cid:213). The Board comprises the Chairman Marco Mangiagalli, the Deputy Chairman and CEO Pietro Franco Tali, the Managing Director Hugh James O(cid:213)Donnell, and the Directors Luca Anderlini, Anna Maria Artoni, Jacques Yves L(cid:142)ost, Pierantonio Nebuloni, Salvatore Sardo and Ian Wybrew-Bond. Luca Anderlini, Anna Maria Artoni and Pierantonio Nebuloni have been nominated from the list put forward by institutional investors coordinated by ARCA SGR SpA. Marco Mangiagalli, Pietro Franco Tali, Hugh James O(cid:213)Donnell, Jacques Yves L(cid:142)ost, Salvatore Sardo and Ian Wybrew-Bond have been nominated from the list put forward by Eni. Cumulation of offices Pursuant to items 1.c.2 and 1.c.3 of the Corporate Governance Code, to ensure that Directors can devote enough time to their office, the Chairman proposes the adoption of the following guideline on the number of offices Directors may hold: - an executive Director shall not hold: (i) the office of executive Director in other listed companies, either in Italy or abroad, in financial companies, banks, insurance companies or companies with net equity in excess of o1 billion; and (ii) the office of non-executive Director or Statutory Auditor (or member of other control body) in more than three aforementioned companies; - besides the appointment at this Company, a non-executive Director shall not hold: (i) the office of executive Director in more than one of the aforementioned companies and the office of non-executive Director or Statutory Auditor (or member of other control body) in more than three aforementioned companies; and/or (ii) the office of non-executive Director or Statutory Auditor in more than six of the aforementioned companies. Offices held at companies of the same Group are excluded from the limit of cumulation. Should the aforementioned limits be exceeded, Directors shall immediately inform the Board of Directors, who, after assessing the position and, in light 73 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E of the Company(cid:213)s interests, shall invite the Director to take the relevant decisions. The Code recommends that public companies set up a Committee for appointment proposals comprising a majority of non-executive Directors, (cid:212)specifically when the Board of Directors notices that Shareholders are finding it difficult to put forward appointment proposals(cid:213). This Committee has not been implemented since, as previously stated, lists enclose a professional r(cid:142)sum(cid:142) for all candidates. Based on the information received, we list hereunder additional directorships or auditor posts held by Saipem(cid:213)s Board Directors in other listed companies, either in Italy or abroad, in financial companies, banks, insurance companies or companies of relevance (Article 1.c.2 of the Code). MARCO MANGIAGALLI Board Director of Luxottica Group SpA (listed company). PIETRO FRANCO TALI Board Director of Dockwise Ltd (company listed on the Oslo Stock Exchange). ANNA MARIA ARTONI Vice President and Managing Director of Artoni Group SpA; Vice President of Artoni Trasporti SpA and Artoni Logistica SpA; Chairman of Artleasing SpA and A.B. Logistica Srl; Board Director of Carraro SpA (listed company), RCS Quotidiani, Cassa di Risparmio di Parma e Piacenza (Cr(cid:142)dit Agricole Group) and Alemea Technology Srl. PIERANTONIO NEBULONI Board Director of Polynt SpA; Vice President of In Business Consulting SA. SALVATORE SARDO Chairman of Eni Corporate University. Board of Directors(cid:213) Meetings The Company(cid:213)s Articles of Association do not specify how often the Board should meet, although Article 21 states it has to occur at least quarterly as follows: (cid:212)The Directors inform the Board of Directors and the Board of Statutory Auditors promptly or at least every quarter on Company activities, major economic and financial transactions involving the Company or its subsidiaries; in particular they report those operations in which they have an interest, on behalf of themselves or third parties, or those operations that are subject to the influence of the controlling party(cid:213). 74 In 2009, the Board of Directors met on 8 occasions, their meetings lasting three hours on average; three meetings have been scheduled to take place in the first half of 2010. The general public is informed of the dates of Board Meetings when periodical statements and reports, required by current legislation, are to be approved. The Board of Directors sets down the formalities pertaining to the calling of Board Meetings; in particular, meetings are convened by the Chairman, who also prepares the agenda for the meeting, through notices sent by mail, fax or e-mail at least five days prior to the date of the meeting; in exceptional circumstances, notice is sent at least 24 hours prior to the time of the meeting. The Articles of Association allow for meetings to be held via video-conference link. Directors and Statutory Auditors are provided in advance with documents pertaining to items to be discussed and/or resolved on at the meeting. In 2009, an average of 90% of Board Directors and 90% of independent Directors attended Board Meetings. Saipem(cid:213)s COOs also attended Board of Directors(cid:213) meetings on a regular basis to report on the status of operations and the strategic prospects for the various business units. Executive Directors Consistently with international best practices, which recommend avoiding the concentration of duties in one person, the Board of Directors resolved, at their meeting of July 29, 2008, to separate the roles of Chairman and Chief Executive Officer (CEO), the latter being the administrator who, by virtue of powers granted and their actual exercise, is the main person responsible for the management of the Company. The Corporate Governance Committee of Borsa Italiana believes that the separation of the aforementioned roles can strengthen the characteristics of impartiality and balance required of a Chairman of the Board, to whom the law and procedure entrust the tasks of organising the work of the Board as well as acting as a link between executive and non-executive Directors. The separation of the roles of Chairman and Chief Executive Officer (CEO) makes the appointment of a lead independent Director unnecessary. The Board of Directors resolved to appoint Marco Mangiagalli Chairman, and Pietro Franco Tali, formerly Chairman and CEO, Deputy Chairman and CEO. The Board of Directors appointed Hugh James O(cid:213)Donnell Deputy CEO and Managing Director for Business Support and Transversal Activities, and granted him powers commensurate to his new position. S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E The following are executive Directors: Pietro Franco Tali, Hugh James O(cid:213)Donnell and Jacques Yves L(cid:142)ost (Chairman of Saipem sa). The Board vested the Chairman, who is a non-executive Director, with all powers granted to him by law and the Company(cid:213)s Articles of Association, the Deputy Chairman and CEO (Chief Executive Officer) with all ordinary and extraordinary powers to manage the Company, except for the undelegable powers and those of the Board itself. The Deputy Chairman and CEO (Chief Executive Officer), whom the COOs of the Onshore, Offshore and Drilling Business Units report to, is ultimately responsible for the management of the Company, with all the relevant powers barring those of the Board itself. The Chairman chairs the Shareholders(cid:213) Meeting, convenes and chairs Board of Directors(cid:213) meetings, ensures the implementation of resolutions carried by the Board itself. Independent Directors Law 58 of February 24, 1998 provides that a minimum of two Directors meet the independence criteria required from Statutory Auditors of listed companies, if the Board comprises more than seven members. Article 19 of Articles of Association provides that a minimum of three Directors meet the aforementioned independence requirements if the Board comprises more than five members, boosting the number of independent Directors on the Board. Should a Director declare that he fails to meet the independence and integrity requirements, or should the Board not reach the minimum number of independent Directors as set in the Articles of Association, the Board of Directors shall declare the appointment of said Director void and provide for their replacement. The Board of Directors, pursuant to the provisions of the Code and the provisions of Article 147-ter and Article 148, paragraph 3, of Law 58/1998, ascertains annually that the Directors comply with the independence and integrity requirements. Specifically, declarations by the interested parties confirmed as independent four non-executive Directors (Luca Anderlini, Anna Maria Artoni, Pierantonio Nebuloni and Ian Wybrew-Bond). They are considered independent following the evaluation carried out by the Board based on the parameters contained in Article 3 of the Corporate Governance Code and Article 148, paragraph 3, of Law 58/1998. Directors who do not comply with the independence requirement are executive Directors Pietro Franco Tali, Hugh James O(cid:213)Donnell and Jacques Yves L(cid:142)ost, in his capacity as Chairman of the strategic subsidiary Saipem sa, and non-executive Directors Marco Mangiagalli and Salvatore Sardo. The Board of Statutory Auditors has checked the correct application of criteria and procedures adopted by the Board of Directors to ascertain the independence of its members. Independent Directors have not deemed it necessary to meet without the other Directors in view of the fact that they take an active part in Committee meetings. Remuneration of Board Directors Directors(cid:213) remuneration is approved by the Shareholders(cid:213) Meeting; the remuneration of the Chairman, the Deputy Chairman and CEO, and the Managing Director for Business Support and Transversal Activities - Deputy CEO is set, pursuant to Article 2389, paragraph 3 of the Italian Civil Code, by the Board of Directors at the proposal of the Compensation Committee, having previously conferred with the Statutory Auditors. Pursuant to Consob regulations, the Directors(cid:213) Report in the Financial Statements, i.e. the Notes to the Financial Statements, contain the following: (i) amounts paid to the Directors, Statutory Auditors and senior managers with strategic responsibilities; (ii) number of stock grants and stock options allocated to the Deputy Chairman and CEO, and the Managing Director for Business Support and Transversal Activities - Deputy CEO and senior managers with strategic responsibilities; (iii) number of shares held by the Directors, Statutory Auditors and senior managers with strategic responsibilities of Saipem and its controlled companies. The Shareholders(cid:213) Meeting of April 28, 2008 set at o40,000 the remuneration for each Director for every year of office, in addition to reimbursement of expenses incurred. The remuneration of the Deputy Chairman and CEO, and the Managing Director for Business Support and Transversal Activities - Deputy CEO, as well as that of senior managers with strategic responsibilities comprises a fixed component, a variable component and a long-term incentive. The fixed remuneration of the Deputy Chairman and CEO, and the Managing Director for Business Support and Transversal Activities - Deputy CEO is commensurate with the powers vested in them. The fixed remuneration of senior managers with strategic responsibilities is based on their position and strategic responsibilities, in line with comparable positions in the market of large national and international companies, 75 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E with annual adjustments based on merit (continuity of individual performance) or promotion (progression of position/responsibilities). The variable remuneration is paid annually in cash and is linked to the achievement of specific economic, operational and/or strategic objectives and individual targets (for the single business units or departments) set the previous year. The variable part of the Deputy Chairman and CEO(cid:213)s, and the Managing Director for Business Support and Transversal Activities - Deputy CEO(cid:213)s remuneration is linked to the achievement of Company objectives. The variable remuneration paid in 2009 was based on Saipem(cid:213)s targets for the year 2008 (new contracts, adjusted EBITDA, backlog risk management and LTI rate), approved by the Board of Directors at the proposal of the Compensation Committee. The remuneration of non-executive Directors is not linked to the results achieved. Non-executive Directors do not participate in the Company(cid:213)s incentive schemes. The remuneration paid to Board Directors and senior managers with strategic responsibilities are detailed in the annual Financial Statements. In 2009, the Board of Directors approved, at the proposal of the Compensation Committee: (i) to continue with the allocation to Saipem(cid:213)s senior managers of the long-term deferred monetary incentive, linked to the company(cid:213)s EBITDA performance, already adopted in the years 2006-2008 in order to promote the achievement of the Company(cid:213)s targets over the long-term; (ii) the cancellation of the Stock Option Plan in 2009, on account of the high instability and volatility of the Saipem share due to external factors; (iii) an 18% increase in the deferred monetary incentive granted to senior managers holding strategic positions or directly responsible for results. The deferred monetary incentive granted in 2009 will be paid after a three-year vesting period depending on the achievement of annual EBITDA targets (actual vs. budget results) set for the years 2009-2011. After every three-year vesting period, the results of long-term incentive schemes will be reviewed by the Compensation Committee and approved by the Board of Directors. Board Committees In order to carry out its responsibilities more efficiently, the Board has set up two committees: the Audit Committee, comprised exclusively of non-executive independent Board members, and the Compensation 76 Committee, comprising a majority of independent Board members, all of whom are non-executive Directors. All Audit Committee members are accounts and finance experts. The Audit Committee comprises Luca Anderlini, Anna Maria Artoni and Pierantonio Nebuloni. The Compensation Committee comprises Salvatore Sardo - Chairman, Anna Maria Artoni and Pierantonio Nebuloni. The Board of Directors has not deemed it necessary to set up a Directors(cid:213) Nominations Committee in view of the Company(cid:213)s current shareholder structure, and the fact that, pursuant to the law and the Articles of Association, Directors are appointed by the Shareholders(cid:213) Meeting from lists put forward by the Shareholders. Audit Committee The Audit Committee, in compliance with the Board resolution of November 9, 2000, fulfils a preparatory, consultative and propositive role regarding the general management of the Company. In compliance with the amendments made to the Code in July 2002, the Committee approved the (cid:212)Audit Committee Regulations(cid:213) on February 25, 2003. In accordance with the Regulations, the Chairman of the Board of Statutory Auditors, or an Auditor appointed by the Chairman takes part in the Committee(cid:213)s activities; meetings can be attended by Saipem(cid:213)s Chairman. The Internal Audit Manager (being the Senior Manager in charge of the internal control system) assists the Audit Committee and carries out duties assigned as part of his/her role. The Internal Audit department, reporting to the Deputy Chairman and CEO, is responsible for the following: (i) assessing the conformity of accounting and non-accounting criteria and principles, the efficiency of administrative procedures and control systems; (ii) ensuring the implementation and updating of the risk assessment, mapping and classification systems for auditing purposes. The Audit Committee(cid:213)s responsibilities are: (i) assisting the Board of Directors in the following areas: (a) setting guidelines for the internal control system; (b) periodically checking that it is adequate and operates effectively; (c) ensuring that major risks facing the Company are suitably identified and properly managed; (ii) evaluates together with the CFO and the external auditors, the adequacy of accounting principles adopted and their consistency throughout the consolidated financial statements; (iii) assesses together with the external auditors: (a) accounting principles considered (cid:212)critical(cid:213) for the correct financial S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E and economic representation of Saipem(cid:213)s position; (b) alternative accounting standards provided for by the accounting principles and reviewed with the management, the consequences of the application of said alternative standards and related information in addition to the methods considered preferential by the external auditors; (c) contents of every relevant written exchange between the external auditors and the Company(cid:213)s management; (d) issues relating to statutory and consolidated financial statements of major Group companies; (iv) evaluates the work programme prepared by the Internal Audit Manager and receives from the latter reports, al least quarterly, on work performed; (v) evaluates issues raised through Internal Audit reports, communications from the Board of Auditors or individual Auditors, reports and the management letter issued by the external auditors, the annual report issued by Compliance Committee in its capacity as the Guarantor of the Internal Code of Practice, inquiries and studies by third parties; (vi) assesses audit plans put forward and works carried out by the external auditing firms, also in terms of their independent opinions; (vii) verifies independence of the external auditors; (viii) evaluates requests advanced by departmental managers to utilise the auditing firm appointed to audit the financial statements for non- audit service and presents proposals to the Board of Directors. The Audit Committee convened 12 times during 2009, with meetings lasting on average four hours. Main activities consisted of: - reviewing the Integrated Risk Assessment system aimed at setting up the integrated audit programme of the Internal Audit Department; - approving the annual audit plan; - reviewing and evaluating internal audit activities; - meeting with the Chief Financial Officer, the Chairman of the Board of Statutory Auditors, the partner of the external auditing firm to examine the main issues pertaining to the 2008 and 2009 financial statements; - monitoring the development of the operating model of the Internal Audit Department; - acknowledging Company activities relating to Law Decree 231/2001 particularly those activities relating to compliance, training and the analysis of sensitive processes; - studying in-depth the model for the risk analysis and risk management of the Saipem Group; - acknowledging the Company(cid:213)s organisational structure and the powers of attorney and proxy systems at the basis of the Saipem Group decision making mechanism; - monitoring Company activities related to the implementation of accounting processes necessary to implement the new International Financial Reporting Standards (IFRS). The Audit Committee reports to the Board of Directors every six months, providing a detailed account of work carried out and the adequacy of the internal control system. Compensation Committee The Compensation Committee fulfils a propositive role for the Board of Directors vis-(cid:136)-vis the Executive Directors remuneration as well as: (i) deferred incentive schemes; (ii) criteria for setting the Group(cid:213)s top management remuneration; (iii) setting targets and assessing achievements of performance and incentive schemes. In 2009, the Compensation Committee convened on 5 occasions (with average attendance of 2/3 members) and carried out the following: - it examined proposals for review of the long-term management incentive plan for the years 2009-2011 and analysed provisional results of the 2008 incentive plans; - it approved the long-term management incentive plan for the years 2009-2011 and audited 2008 results required for the allocation of the annual and deferred monetary incentive plans to senior managers of the Saipem Group. It also verified Saipem(cid:213)s performance in terms of TSR versus its main competitors required for the allocation of Stock Option plans adopted in the period 2006-2008 to senior managers who have a direct impact on Company results or of strategic interest to the Company; - it proposed the fixed and variable remuneration of the Deputy Chairman and CEO and the Managing Director for Business Support and Transversal Activities - Deputy CEO, based on 2008 results. Saipem(cid:213)s CFO and HR Director were invited to attend Compensation Committee meetings. Compensation Committee meetings at which remuneration proposals are put forward were not attended by the interested Directors. All meetings were minuted. The Compensation Committee had full access to information and Company functions necessary to carry out its responsibilities. 77 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Board of Statutory Auditors9 The Board of Statutory Auditors, pursuant to Article 149 of Law Decree 58/1998, monitors: compliance to the law and the Articles of Association; that management principles are correctly adhered to; the adequacy of the Company organisational structure, the internal control system and the administrative/accounting system, and the reliability of the latter to clearly reflect the Company position; the implementation of corporate governance regulations contained in the Codes of Practice issued by Stock Exchange management companies and/or professional associations, which the Company has publicly declared to adhere to; the adequacy of directions given by the Company to its subsidiaries. The Board comprises three Statutory Auditors and two Alternate Auditors, appointed by the Shareholders on April 28, 2008. The term of office for Statutory Auditors is three years and will expire at the Shareholders(cid:213) Meeting called to approve the Financial Statements at December 31, 2010. Pursuant to Article 27 of Articles of Association, Statutory Auditors are appointed from voting lists; one Statutory Auditor and one Alternate Auditor are chosen from the list put forward by the minority Shareholders. Lists are filed, presented and published in compliance with legal requirements and Consob Regulations. Pursuant to Consob Resolution No. 16319 of January 29, 2008, lists may be presented by Shareholders who, individually or with others, hold shares amounting at least to 1% of the share capital. Pursuant to Article 27, as amended by the Shareholders(cid:213) Meeting on April 30, 2007 to comply with Law 262 of December 28, 2005, the Shareholders(cid:213) Meeting appointed the Chairman of the Board of Statutory Auditors from the minority list. Lists enclose declarations by each candidate stating that they meet the integrity and independence requirements provided by law alongside their professional r(cid:142)sum(cid:142). The Board of Auditors comprises the Chairman Fabio Venegoni, the Statutory Auditors Fabrizio Gardi and Adriano Propersi and the Alternate Auditors Giulio Gamba and Alberto De Nigro. Article 27 of Articles of Association states that Statutory Auditors must be in possession of the requisites as per current legislation, in particular Decree 162/2000; in compliance with the decree, the Articles of Association provide that the following fields are pertinent to the Company(cid:213)s activities: commercial law, business administration and management, the engineering and geology sectors. All Saipem(cid:213)s Statutory Auditors are members of the Register of Certified Auditors. In compliance with the provision of the Corporate Governance Code aimed at ensuring that Statutory Auditors meet the independence requirements following their appointment (a similar provision applies also to Board Directors), the Board of Statutory Auditors assesses annually that all its members meet the independence requirements. Statutory Auditors are provided in advance with documents pertaining to items to be discussed and/or resolved on at Board meetings. The Board of Statutory Auditors ensured the independence of the external audit company, ascertaining that it met all legal requirements and evaluating the nature and size of services other than accounting audits it provided to the Company and its subsidiaries directly, or through associated companies. The Board of Statutory Auditors liaised closely with the Internal Audit department and the Audit Committee, attending Committee meetings and inviting the Internal Audit Manager to its own meetings. Meetings of the Board of Statutory Auditors may be held via video-conference link. The Board of Statutory Auditors convened 23 times during 2009, with meetings lasting on average three hours. The Shareholders(cid:213) Meeting of April 28, 2008 set at o60,000 the annual remuneration of the Chairman of Statutory Auditors and at o40,000 that of the Auditors, in addition to the reimbursement of expenses incurred. Pursuant to Article 27 of Articles of Association, Statutory Auditors may hold positions as members of administrative and control bodies in other companies; however, these are limited by Consob(cid:213)s Issuers(cid:213) Regulations, Article 144-terdecies. In any case, pursuant to the aforementioned regulation, candidates already holding the office of Statutory Auditors at five listed companies may not be appointed as auditors, and if elected, shall forfeit their office. Fabrizio Gardi, Adriano Propersi and Giulio Gamba have been nominated by Eni SpA; Fabio Venegoni and (9) The professional r(cid:142)sum(cid:142)s of Statutory Auditors are published on Saipem(cid:213)s website www.saipem.it under the section (cid:212)Investor Relations - Corporate Governance(cid:213). 78 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Alberto De Nigro have been nominated by institutional investors coordinated by Arca SGR SpA. Based on information received, we list hereafter the other offices (as Board Directors or Statutory Auditor) held by Saipem(cid:213)s Statutory Auditors in other companies. FABIO VENEGONI (Chairman) Statutory Auditor of Beni Stabili SpA (listed company); Statutory Auditor of Boutique Vercelli Srl, Fiditalia SpA, Aura Holding SpA, Radiall Elettronica Srl, Rotolito Lombarda SpA, SG Italian Holding SpA; Chairman of the Board of Statutory Auditors of Coccinelle SpA, Design & Licenses SpA, Francesco Biasia SpA, Infragruppo SpA, Pietro Fiorentini SpA, Quanta System SpA, Riqualificazione Grande Distribuzione Srl, Saipem Energy Services SpA, Segraf Srl; Board Director of Naar Tour Operator SpA, Ceccato SpA, Mediolanum Farmaceutici SpA and 100% Capri Holding SpA. FABRIZIO GARDI (Statutory Auditor) Board Director of Bidachem SpA, Boehringer Ingelheim Italia SpA, V.P. Holding SpA, Valore Reale SGR SpA, Value Partners SpA, Value Team SpA; Statutory Auditor of Almaf SpA, Cititrust SpA - Istituto Fiduciario, Cosmo Bioscience SpA, Cosmo Pharmaceuticals SpA, Econocom Locazione Italia SpA, Fidimo Fiduciaria SpA, Fimag SpA, Gianni Versace SpA, Milaninvest Real Estate SpA, Sodexo Italia SpA, Verim Srl, Voith Siemens Hydro Power Generation SpA. ADRIANO PROPERSI (Statutory Auditor) Chairman of the Board of Directors of IMI Fabi SpA; Board Director of Banca Popolare di Sondrio, Finamin SpA; Chairman of the Board of Statutory Auditors of Tecnocasa Holding SpA, Tecnocasa Franchising SpA, Tecnocasa Partecipazioni SpA, Kiron Partners SpA Tecnomedia SpA, Trade & Partners SpA, La Ducale SpA, Immobiliare Giulini SpA, BEA SpA, Miba SpA, Consorzio C.D.A., Raffineria di Gela SpA, Seacom SpA; Statutory Auditor of Unicredit Business Partner ScpA, Feem Servizi Srl, A.T. Kearney SpA, Eni Gas & Power Belgium SpA, Atlas Copco BLM Srl, Immobiliare Santa Caterina Srl, Abac SpA. GIULIO GAMBA (Alternate Auditor) Chairman of the Board of Statutory Auditors of SIMA Srl, IFM Scarl and SPM Scarl; Statutory Auditor of Servizi Energia Italia SpA, Venezia Tecnologie SpA, Priolo Servizi Scarl, Ravenna Servizi Industriali ScpA, Termica Milazzo Srl, VEGA Scarl. ALBERTO DE NIGRO (Alternate Auditor) Chairman of the Board of Statutory Auditors of Aicon SpA (listed company), 7Finance SpA, AIM Congress Srl, AIM Group SpA, AIM Travel Srl, Chiquita Italia Srl, Costa Real Estate SpA, Engineering Management Consulting SpA, Engineering.IT SpA, Eurolife Italcasse Distribuzione Srl, Kidco Services Srl, Nexta Media Srl, TESAUT SpA, Toyota Motor Leasing Italia SpA; Statutory Auditor of Alfa Gomma Industriale SpA, DAHLIA TV Srl, EngO SpA, McQuay Italia SpA, Nissan Italia SpA, Olivetti SpA, Setesi SpA, Consorzio Sinergie per l(cid:213)innovazione nella ricerca nell(cid:213)Industria e nelle Organizzazioni, Telit Communications SpA; Board Director and Member of the Control Committee of Engineering Ingegneria Informatica SpA (listed company); Sole Director of Ipse 2000 SpA; Board Director of Manesa Srl; Liquidator of Consorzio Informa currently being liquidated. Directors(cid:213) interests and operations with Related Parties Saipem, with regard to Article 9 of the Corporate Governance Code, drafted a procedure named (cid:212)Code of Practice Regulating Operations with Related Parties(cid:213)10, which was approved by the Board of Directors on July 7, 2003. This procedure identifies related parties and details all operations carried out amongst them; it lists criteria of application, operations that require prior consent by the Board of Directors and those that are to be notified to the Board of Statutory Auditors as well as the Board of Directors. Board Directors, General Managers and Senior Manager with strategic responsibilities must declare, every six months, operations they may have carried out with Saipem SpA and/or its subsidiaries, directly or through a third party, in compliance with the provisions of IAS 24. The amounts of commercial, financial or other operations with related parties are provided in the notes to the consolidated and statutory financial statements of Saipem SpA, along with a description of the most relevant types of operations, their incidence, and those operations that had an impact on the Company(cid:213)s assets and financial results. (10) The procedure (cid:212)Code of Practice Regulating Operations with Related Parties(cid:213) is published on Saipem(cid:213)s website www.saipem.it under the section (cid:212)Investor Relations - Corporate Governance(cid:213). 79 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Investor relations and disclosure of inside information Saipem has adopted a policy of information supporting a constant dialogue with institutional investors, the Shareholders and the market in order to guarantee the timely disclosure of comprehensive information on Company activities, and is limited only by the confidentiality requirements afforded to certain information. Information to investors, the market and the media takes place through press releases, periodic meetings with institutional investors, the financial community and the press, in addition to the comprehensive information made available and constantly updated on the Company website. Relations with investors and financial analysts are maintained by the Investor Relations Manager. Information of interest is posted on Saipem(cid:213)s website (www.saipem.it) or can be requested via email from: investor.relations@saipem.eni.it. Relations with Shareholders are maintained by the Head of the Secretary(cid:213)s Office. Information of interest to Shareholders is posted on Saipem(cid:213)s website or can be requested via email from: segreteria.societaria@saipem.eni.it. In the month of December Saipem discloses to the public and publishes on its website its financial calendar detailing main financial events for the following year. Information pertaining to periodic financial reports, relevant operations and newly-issued corporate governance procedures, is disclosed immediately to the public also via publication on the website www.saipem.it, where all press releases and Shareholders(cid:213) notices are also posted. Saipem(cid:213)s commitment to providing investors and markets with financial information that is true, comprehensive, transparent, timely and non-selective is stated in the Code of Ethics, which identifies the values it applies in its business operations and the relations with third parties: namely, disclosure of complete and clear information, the formal and essential legitimacy of practices by its employees at all levels, clarity and veracity of its accounting practices in compliance with current legislation and internal procedures. On March 23, 2006, the Board of Directors updated the (cid:212)Procedure regulating Market disclosure of inside information(cid:213)11, which was approved on December 12, 2002. This procedure — which implements the provisions contained in the (cid:212)Guide on Information to the Market(cid:213) issued by (cid:212)Forum Ref(cid:213) in June 2002 and the provisions of the European Directive on Market Abuse — defines the requirements to be applied to the disclosure of sensitive information to the market (materiality, clarity, homogeneity, symmetry, consistency and timeliness) and regulates the flow of information from controlled companies aimed at obtaining comprehensive and timely information for the Board of Directors and the market on events that may become sensitive information. This procedure also identifies measures to be taken in case of violation of its provisions, also in light of the penal and administrative sanctions introduced by Law 262/2005. The Code of Ethics also defines the duty of confidentiality that Group employees are required to adhere to, in compliance with data protection legislation. Processing of inside information - Internal Dealing12 On March 23, 2006, the Board of Directors approved the procedure for the (cid:212)Upkeep and update of the List of persons having access to inside information(cid:213), in compliance with the provisions of Article 115-bis of Law 58/1998, which states that (cid:212)Listed issuers and persons in a control relationship with them and persons acting on their behalf or for their account shall draw up, and keep regularly updated, a list of the persons who, in the exercise of their employment, profession or duties, have access to information referred to in Article 114, paragraph 1 (editor(cid:213)s note: inside information)(cid:213). This procedure, which contains the provisions of Chapter 1 (Lists of insiders) of Title VII of Consob Regulation No. 11971/1999 implementing the provisions on issuers of Legislative Decree 58/1998, identifies: (i) methods and terms applicable to listing and/or cancellation of personal data relating to persons, who in the exercise of their employment, profession or duties, have regular or occasional access to inside information; (ii) notification to the interested party of their listing and/or cancellation from the List and reasons thereof. This procedure is effective from April 1, 2006. The Board of Directors also approved the (cid:212)Procedure regulating the identification of relevant parties and operations carried out by them, directly or through (11) The procedure (cid:212)Procedure regulating Market disclosure of inside information(cid:213) is published on Saipem(cid:213)s website www.saipem.it under the section (cid:212)Investor Relations - Corporate Governance(cid:213). (12) The procedure (cid:212)Internal Dealing(cid:213) is published on Saipem(cid:213)s website www.saipem.it under the section (cid:212)Investor Relations - Corporate Governance(cid:213). 80 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E third parties, involving shares of Saipem SpA or other associated financial instruments (Internal Dealing Procedure)(cid:213), which replaces the Internal Dealing Code approved by the Board on December 12, 2002. This procedure complies with the provisions of Article 114 (information to be provided to the public), paragraph 7 of Law 58/1998, according to which (cid:212)persons performing administrative, supervisory and management functions in a listed issuer and managers who have regular access to inside information referred to in paragraph 1 and the power to make managerial decisions affecting the future development and prospects of the issuer, persons who hold shares amounting to at least 10% of the share capital, and any other persons who control the issuer must inform Consob and the public of transactions involving the issuer(cid:213)s shares or other financial instruments linked to them that they have carried out directly or through nominees. Such disclosures must also be made by the spouse, unless legally separated, dependent children, including those of the spouse, cohabitant parents and relatives by blood or affinity of the persons referred to above and in the other cases identified by Consob in a regulation implementing Commission Directive 2004/72/EC of April 29, 2004(cid:213). This procedure, which contains the provisions of Chapter II (Transactions concluded by relevant persons and persons closely associated with such persons) of Title VII of Consob Regulation No. 11971/1999 implementing the provisions on issuers of Legislative Decree 58/1998: (i) identifies relevant persons; (ii) identifies operations involving shares issued by Saipem or other associated financial instruments; (iii) sets methods and conditions of disclosure involving transactions and their notification to the public; (iv) states sanctions to be applied in case of non-compliance of the provisions stated in the procedure. In addition to legal requirements, this procedure also lists blocking periods, i.e. periods during which relevant parties may not carry out operations. The following tables are taken from the document (cid:212)Guidelines for the compilation of the Corporate Governance Report(cid:213) issued by Assonime and Emittenti Titoli SpA in March 2004. 81 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Members of the Board of Directors and Internal Committees Board of Directors Internal Audit Committee Compensation Committee executive non independent % attendance member % attendance member % attendance executive X X X X X X X X X 8 100 100 100 100 100 100 70 50 90 X X X X 100 85 60 X X X 12 100 20 100 X X X 5 % attendance to meetings of the Board of Statutory Auditors % attendance to meetings of the Board of Directors Number of other offices (1) 90 95 95 - - 23 100 100 100 - - 8 1 - - 2 - Members Chairman Marco Mangiagalli Deputy Chairman and CEO Pietro Franco Tali Managing Director Hugh James O(cid:213)Donnell Directors Luca Anderlini Anna Maria Artoni Jacques Yves L(cid:142)ost Pierantonio Nebuloni Salvatore Sardo Ian Wybrew-Bond Number of meetings held in 2009 Board of Statutory Auditors Members Chairman Fabio Venegoni Statutory Auditors Fabrizio Gardi Adriano Propersi Alternate Auditors Alberto De Nigro Giulio Gamba Number of meetings held in 2009 (1) Offices held at other listed companies. 82 S A I P E M A N N UA L R E P O R T / C O R P O R AT E G OV E R N A N C E R E P O R T A N D S H A R E H O L D I N G S T R U C T U R E Other provisions of the Corporate Governance Code Powers and operations with related parties The Board of Directors has allocated the following powers: a) thresholds b) exercise of powers c) disclosure of information Has the Board of Directors the power to review and approve the most significant economic and financial operations (including operations with related parties)? Has the Board of Directors defined guidelines and criteria that identify operations as (cid:212)significant(cid:213)? Have the aforementioned guidelines and criteria been detailed in the report? Has the Board of Directors set appropriate procedures for the review and approval of operations with related parties? Have the aforementioned procedures for the approval of operations with related parties been detailed in the report? Procedures pertaining to the most recent appointment of Directors and Statutory Auditors Have candidacies to the offices of Directors been filed at least ten days prior to their appointment? Did the candidacies to the offices of Directors contain sufficient information? Did the candidacies to the offices of Directors enclose a statement indicating the requirement of independence? Have candidacies to the offices of Statutory Auditors been filed at least ten days prior to their appointment? Did the candidacies to the offices of Statutory Auditors contain sufficient information? Shareholders Meetings Has the Company approved Shareholders(cid:213) Meeting(cid:213)s Regulations? Are these Regulations enclosed in the Report (or information as to where they can be obtained/downloaded)? Internal Audit Has the Company appointed the senior manager in charge of the internal control system? Do these senior managers not report to managers of operational areas? Internal Audit Department (pursuant to Article 9.3 of the Code) Investor relations Has the Company appointed an investor relations manager? Investor Relations Department: contact details (address/fax/email) of the Manager (*) Saipem SpA - Via Martiri di Cefalonia, 67 - San Donato Milanese (Milan) 20097 Italy - Tel. +39 02 520 34653 - Fax +39 02 520 54295. Yes No X X X X X X X X X X X X X X X X X Internal Audit X Investor Relations (*) 83 S A I P E M A N N UA L R E P O R T / R I S K M A N AG E M E N T Risk management The main risks that Saipem is facing and actively monitoring and managing are the following: (i) the market risk deriving from exposure to fluctuations in interest rates and exchange rates between the euro and the other currencies used by the company and the risk deriving from exposure to commodity price volatility; the credit risk deriving from the possible default of a counterparty; (ii) (iii) the liquidity risk deriving from the risk that suitable sources of funding for the Group(cid:213)s operations may not be available; (iv) the HSE risk associated with the potential occurrence of accidents, malfunctions, or failures with injury to persons and damage to the environment and impacts on operating and financial results; the country risk; (v) (vi) the project risk associated with the execution phase of engineering and construction contracts. Financial risks are managed in accordance with guidelines defined by the parent company, with the objective of aligning and coordinating Group companies(cid:213) policies on financial risks. Market risk Market risk is the possibility that changes in currency exchange rates, interest rates or commodity prices will adversely affect the value of the Group(cid:213)s financial assets, liabilities or expected future cash flows. Saipem actively manages market risk in accordance with a set of policies and guidelines that provide a centralised model of conducting finance, treasury and risk management operations based on the Group Treasury Structures. 84 Exchange rate risk Exchange rate risk derives from the fact that Saipem(cid:213)s operations are conducted in currencies other than the euro and that revenues and costs from a significant portion of projects implemented are denominated in or linked to non-euro currencies. This impacts on: - profits, which may be significantly affected by exchange rate fluctuations on specific transactions arising from the time lag existing between the execution of a given transaction and the definition of the relevant contractual terms (economic risk) and by the conversion of foreign currency-denominated trade and financial payables and receivables (transaction risk); - the Group(cid:213)s reported results and shareholders(cid:213) equity, as financial statements of subsidiaries denominated in currencies other than the euro are translated from their functional currency into euro (translation risk). Saipem(cid:213)s foreign exchange risk management policy is to minimise economic and transactional exposures arising from foreign currency movements. Saipem does not normally undertake any hedging activity for risks deriving from the translation of foreign currency denominated profits or assets and liabilities of subsidiaries that prepare financial statements in a currency other than the euro, except for single transactions evaluated on a case-by-case basis. In compliance with International Financial Reporting Standards (IFRS), Saipem uses a number of different types of derivative contract to reduce economic and transaction exposure, such as currency swaps, forwards and options. Such derivatives are evaluated by the Eni Corporate Finance Unit of Eni SpA at fair value on the basis of market prices provided by specialised sources. Planning, coordination and management of this activity at Group level is responsibility of the Saipem Treasury Department, which closely monitors the correlation S A I P E M A N N UA L R E P O R T / R I S K M A N AG E M E N T between derivatives and their underlying flows as well as ensuring their correct accounting representation in compliance with the International Financial Reporting Standards. An exchange rate sensitivity analysis was performed for those currencies other than euro for which exchange risk exposure in 2009 was highest (the US dollar, UK pound sterling and the Norwegian kroner) in order to calculate the effect on the income statement and shareholders(cid:213) equity of hypothetical positive and negative variations of 10% in the exchange rates. The analysis was performed for all relevant financial assets and liabilities denominated in the above currencies and regarded in particular the following items: - exchange rate derivatives; - trade and other receivables; - trade and other payables; - cash and cash equivalents; - short and long-term financial liabilities. For exchange rate derivatives, the sensitivity analysis on fair value was conducted by comparing the conditions underlying the forward price fixed in the contract (i.e. spot exchange rate and interest rate) with spot rates and interest rate curves corresponding to the relevant contractual maturity dates, on the basis of year end exchange rates subjected to hypothetical positive and negative changes of 10%, with the resulting effects weighted on the basis of the notional amounts. The analysis did not examine the effect of exchange rate fluctuations on the measurement of work in progress, as under IAS 32, work in progress does not constitute a financial asset. Moreover, the analysis regards exposure to exchange rate risk in accordance with IFRS 7 and therefore does not consider the effects of the conversion of financial statements of consolidated companies with functional currencies other than the euro. A positive variation in exchange rates between the foreign currencies examined and the euro (i.e. depreciation of the euro against the other currencies) would have produced an overall effect on pre tax profit of o18 million (o12 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects, of -o225 million (-o141 million at December 31, 2008). Meanwhile, a negative variation in exchange rates between the foreign currencies examined and the euro (i.e. appreciation of the euro against the other currencies) would have produced an overall effect on pre tax profit of o53 million (o42 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects, of o252 million (o168 million at December 31, 2008). The increase (decrease) with respect to the previous year is essentially due to the currency exchange rates on the two reference dates and to variations in the assets and liabilities exposed to exchange rate fluctuations. Interest rate risk The risk exposure arising from interest rate fluctuations within the Saipem Group is associated mainly with long-term financing with variable rates. To reduce this risk, Interest Rate Swaps (IRS) are entered into, as they also ensure a balanced relation between debt at fixed and variable interest rates. Such derivatives are evaluated at fair value by the Treasury Department of Eni SpA on the basis of market prices provided by specialised sources. Planning, coordination and management of this activity at Group level is the responsibility of the Treasury Department. To measure sensitivity to interest rate risk, a sensitivity analysis was performed. The analysis calculated the effect on the income statement and shareholders(cid:213) equity of hypothetical positive and negative variations of 10% in interest rates. 85 S A I P E M A N N UA L R E P O R T / R I S K M A N AG E M E N T The analysis was performed for all relevant financial assets and liabilities exposed to interest rate fluctuations and regarded in particular the following items: - interest rate derivatives; - cash and cash equivalents; - short and long-term financial liabilities. For interest rate derivatives, the sensitivity analysis on fair value was conducted by comparing the interest rate conditions (fixed and variable rate) underlying the contract and used to calculate future interest rate differentials with discount curves for variable interest rates on the basis of year end interest rates subjected to hypothetical positive and negative changes of 10%, with the resulting changes weighted on the basis of the notional amounts. For cash and cash equivalents, the analysis used the average balance for the year and the average rate of return for the year, while for short and long-term financial liabilities, the average exposure for the year and average interest rate were considered. A positive variation in interest rates would have produced an overall effect on pre tax profit of -o6 million (-o11 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects of -o5 million (-o9 million at December 31, 2008). A negative variation in interest rates would have produced an overall effect on pre tax profit of o6 million (o11 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects of o5 million (o9 million at December 31, 2008). The increase (decrease) with respect to the previous year is essentially due to the interest rates on the two reference dates and to variations in the assets and liabilities exposed to interest rate fluctuations. Commodity risk Saipem(cid:213)s results are affected by changes in the prices of oil products (fuel oil, bunker oil, etc.) and raw materials, since they represent associated costs in the running of vessels, offices and yards and the implementation of projects and investments. In order to accomplish this, it uses derivatives traded over the counter (swaps, forward, contracts for differences) through Eni Trading & Shipping (ETS) on the organised markets of ICE and NYMEX (futures), with the underlying commodities being oil products (ICE gasoil). Such derivatives are evaluated at fair value on the basis of market prices provided by specialised sources or, in the absence of market prices, through Eni finance companies, in accordance with Group guidelines regarding the centralised financial management. 86 With regard to commodity risk hedging instruments, a 10% positive variation in the underlying rates would have produced an overall effect on pre tax profit of o0.1 million (-o0.3 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects, of o6 million (o4 million at December 31, 2008). A 10% negative variation in the underlying rates would have produced an overall effect on pre tax profit of -o0.1 million (o0.3 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects, of -o6 million (-o4 million at December 31, 2008). The increase (decrease) with respect to the previous year is essentially due to the differences between the prices used in calculating the fair value of the instrument at the two reference dates. Credit risk Credit risk represents Saipem(cid:213)s exposure to potential losses deriving from non-performance of counterparties. Credit risk arising in the normal course of operations is monitored by the business units and the administration department on the basis of standard procedures and periodic reporting. For financial investments and the use of financial instruments, including derivatives, companies adopt the guidelines issued by the Treasury Department of Saipem. The critical situation that has developed on the financial markets has led to additional preventative measures to avoid the concentration of risk/assets being adopted. In addition, operations involving derivative instruments are being managed with a greater degree of selectivity. The company did not have any significant cases of non performance by counterparties. As at December 31, 2009, Saipem has no significant concentrations of credit risk. Liquidity risk Liquidity risk is the risk that suitable sources of funding for the Group may not be available (funding liquidity risk), or that the Group is unable to sell its assets on the market place (asset liquidity risk), making it unable to meet its short-term finance requirements and settle obligations. Such a situation would negatively impact the Group(cid:213)s results as it would result in the Company incurring higher borrowing expenses to meet its obligations or under the worst of conditions the inability of the Company to continue as a going concern. Saipem manages liquidity risk by targeting a capital structure that guarantees a level of liquidity S A I P E M A N N UA L R E P O R T / R I S K M A N AG E M E N T adequate for the Groups(cid:213) needs, optimising the opportunity cost of maintaining liquidity reserves and achieving an optimal profile in terms of maturity and composition of debt, in accordance with management plans and business objectives including prescribed limits in terms of maximum ratio of debt to total equity and minimum ratio of medium and long-term debt to total debt as well as fixed rate medium and long-term debt to total medium/long-term debt. In spite of the significant deterioration of market conditions, which during the year led to an expansion of the credit market and strong pressure on spreads, Saipem believes it has access to sufficient funding and borrowing facilities to meet currently foreseeable requirements, thanks to a use of credit lines that is both flexible and targeted to meet business needs. The liquidity management policies used — which were being applied even before the worsening of the crisis — have the objective of ensuring both the availability of adequate funding to meet short-term requirements and obligations and a sufficient level of operating flexibility to fund Saipem(cid:213)s development plans, while maintaining an adequate finance structure in terms of debt composition and maturity. At December 31, 2009, Saipem maintained unused borrowing facilities of o1,267 million. These facilities were under interest rates that reflected market conditions. Fees charged for unused facilities were not significant. The following tables show total contractual payments (including interest payments) and maturities on financial debt and payments and due dates for trade and other payables. Finance debt (o million) Long-term debt Short-term debt Fair value of derivative instruments Interest on debt Trade and other payables (o million) Trade payables Other payables and advances 2010 350 1,797 175 2,322 52 2011 322 - 18 340 51 2012 196 - 8 204 49 2010 2,602 3,131 Maturity 2013 371 - - 371 46 2014 379 - - 379 43 After 528 - - 528 95 Maturity 2011-2014 After - 2 - - Total 2,146 1,797 201 4,144 336 Total 2,602 3,133 In addition to the financial and trade debt recorded in the balance sheet, the Saipem Group has contractual obligations relating to non-cancellable operating leases whose performance will entail payments being made in future years. The following table shows undiscounted payments due in future years in relation to outstanding contractual obligations. Outstanding contractual obligations (o million) Non-cancellable operating leases 2010 116 2011 103 2012 29 Maturity 2013 19 2014 5 After 4 Total 276 The table below summarises Saipem(cid:213)s capital expenditure commitments for property, plant and equipment and capital projects at December 31, 2009, for which procurement contracts will normally have been entered into. (o million) Committed on major projects Other committed projects Maturity 2010 805 109 914 2011 151 - 151 87 S A I P E M A N N UA L R E P O R T / R I S K M A N AG E M E N T HSE risk Saipem(cid:213)s business activities conducted both in and outside of Italy are subject to a broad range of national legislation and regulations, including laws implementing international protocols and conventions relating to specific sectors of activity. These laws and regulations require prior authorisation and/or the acquisition of a license before operations may commence and the compliance with health, safety and environmental protection regulations. Environmental regulations impose restrictions on the types, quantities and concentration of pollutants that can be released into the air, water and soil and require companies to adopt correct waste management practices. In particular, strict operating practices and standards to protect biodiversity must be adopted when exploring for, drilling and producing oil and gas in certain ecologically sensitive locations (protected areas). Failure to comply with environmental, health and safety laws is punishable by criminal and civil sanctions against the individuals responsible and — in certain cases of violations of safety laws — against companies, in accordance with a European model of direct corporate liability implemented in Italy through Legislative Decree 231/2001. Environmental, health and safety laws and regulations have a substantial impact on Saipem(cid:213)s operations, and expenses, and liabilities that Saipem may incur in relation to compliance with environmental, health and safety laws and regulations are expected to remain material to the Group(cid:213)s results of operations or financial position in future years. Recently enacted legislation regarding health and safety in the workplace in Italy introduced new requirements which will have an impact on operations at Eni sites and in particular on relationships with contractors as well as significant repercussions on the models used for attributing liability in the event of violations of health and safety legislation. The new legislation emphasised the importance of adopting certified organisational and management models capable of discharging the company from corporate liability in the event of violations of legislation regarding health and safety in the workplace. For this purpose, Saipem has adopted HSE guidelines to ensure the health and safety of employees, local communities, contractors and clients and the safeguarding of the environment, in compliance with local and international rules and regulations and in line with international best practices and standards. An ongoing process of risk identification, evaluation and mitigation is at the heart of HSE management operations in all phases of activity and for all business 88 units. This process is implemented through the adoption of effective management procedures and systems designed to suit the specific characteristics of each activity and the sites in which they take place and with a view to achieving the continuous improvement of plant and processes. Additionally, the codification and proceduralization of operating phases has led to a reduction of the human factor in plant risk management. Operating emergencies that may have an adverse impact on assets, people and the environment are managed by the business units at site level through dedicated HSE structures equipped with emergency response plans indicating the corrective actions to be taken to minimise damage in the event of an incident and responsibilities for ensuring they are taken. Saipem(cid:213)s integrated approach to managing health, safety and environmental issues is supported by the adoption in all Group companies of an HSE management system based on the Saipem/Eni Management System Model. This is a procedure based on an annual cycle of planning, implementation, control, review of results and definition of new objectives. The model is aimed at achieving risk prevention and the systematic monitoring and control of HSE performance, in a cycle of continuous improvement, and is subject to audits by internal and independent experts. Saipem(cid:213)s facilities are certified to international standards such as ISO 14001, OHSAS 18001 and even EMAS. Saipem also provides an advanced programme of training and development for HSE staff with the aim of: - promoting conduct consistent with the applicable guidelines; - guiding HSE-related cultural, professional and managerial growth of all personnel working at and for Saipem; - supporting knowledge management and HSE risk control. Country risk Substantial portions of Saipem(cid:213)s operations are performed in countries outside the EU and North America, certain of which may be politically or economically less stable. Developments in the political framework, economic crisis, social unrest can compromise temporarily or permanently Saipem(cid:213)s ability to operate or to economically operate in such countries. Further risks associated with activities in such countries are: (i) lack of well established and reliable legal systems and S A I P E M A N N UA L R E P O R T / R I S K M A N AG E M E N T uncertainties surrounding enforcement of contractual rights; (ii) unfavourable developments in laws and regulations and unilateral contract changes, leading to reductions in the value of Saipem(cid:213)s assets, forced sales and expropriations; (iii) restrictions on construction, drilling, imports and exports; (iv) tax increases; (v) civil and social unrest leading to sabotages, acts of violence and incidents. While the occurrence of these events is unpredictable, they may have a material adverse impact on Saipem(cid:213)s financial position and results. Saipem employs a continuous and holistic approach to monitoring political, social and economic risk in countries in which it operates or intends to invest, using the reports on principal project risks and related trends prepared in accordance with Corporate Risk Management Policy and Risk Management procedures and Standards and Security reports prepared in accordance with the Corporate Security Policy and Guidelines on Security Activities. Project risk The main objectives of the Risk and Opportunity and Knowledge Management department are to: - promote the use of risk and opportunity and knowledge management in tenders and in the execution phase of projects managed by the various Business Units; - assure periodic reporting to management on principal project risks; - ensure the spread of a risk and opportunity and knowledge management culture within Saipem; - provide advice, support and guidelines to the Business Units and projects in identifying and evaluating risks and opportunities and in all activities related to the implementation of mitigation and improvement measures for risk management and the optimisation of opportunities, respectively; - define, develop and update tools and methods for collecting and organising lessons learned and making them available to projects; - ensure adequate training in line with the international standards and Codes of Practice to commercial and project management teams; - ensure the constant updating of guidelines, procedures and Corporate standards, promoting their correct application within Saipem and subsidiary companies. The standards and procedures in force at Saipem comply in terms of project risk management with the principal international risk management regulations and standards. 89 S A I P E M A N N UA L R E P O R T / A D D I T I O N A L I N F O R M AT I O N Additional information BUY-BACK OF TREASURY SHARES No treasury shares were purchased on the market during the year or after the balance sheet date. Period Treasury shares purchased 2003 (from May 2) 2004 2005 2006 2007 2008 2009 Treasury shares Less: - treasury shares allocated as stock grants - treasury shares allocated as stock options Treasury shares held at December 31, 2009 At March 10, 2010, the share capital amounted to o441,410,900. On the same day, the number of shares in circulations was 436,136,753. INCENTIVE SCHEMES From 2006, stock grants were replaced by a deferred monetary incentive. The deferred monetary incentive allocated in 2009 may be paid out after a three-year vesting period depending on the achievement of EBITDA annual targets (actual results versus targets) set for the years 2009-2012. 90 No. of shares Average cost (o) Total cost (o thousand) Share capital (%) 2,125,000 1,395,000 3,284,589 1,919,355 848,700 2,245,300 - 6.058 7.044 10.700 18.950 25.950 25.836 - 12.873 9.826 35.146 36.371 22.024 58.010 - 11,817,944 14.745 174.250 0.48 0.32 0.74 0.43 0.19 0.51 - 2.67 1,616,400 4,550,497 5,651,047 21.064 119.035 1.28 Stock options Following a proposal by the Compensation Committee, the Board of Directors resolved not to implement the Stock Option Plan in 2009 due to the high instability and volatility of the Saipem share caused by exogenous variables and to compensate for this by supplementing the deferred monetary incentive assigned to critical managerial resources. S A I P E M A N N UA L R E P O R T / A D D I T I O N A L I N F O R M AT I O N CONSOB REGULATION ON MARKETS Article 36 of Consob Regulation on Markets: conditions for the listing of shares of companies with control over companies established and regulated under the law of non-EU countries With regard to the recently published regulations setting out conditions for the listing of shares of companies with control over companies established and regulated under the law of non-EU countries that are deemed to be of material significance in relation to the consolidated financial statements, the Company discloses that: - at December 31, 2009, the following nine Saipem subsidiaries fell within the scope of application of the regulation in question, namely: ¥ Ersai Caspian Contractor Llc; ¥ Global Petroprojects Services AG; ¥ Petrex SA; ¥ Saipem Asia Sdn Bhd; ¥ Saipem Contracting (Nigeria) Ltd; ¥ Saipem Contracting Algerie SpA; ¥ Saipem Misr for Petroleum Services (S.A.E.); ¥ Saudi Arabian Saipem Ltd; ¥ Snamprogetti Saudi Arabia Ltd. Procedures designed to ensure full compliance with Article 36 have already been adopted. Article 37 of Consob Regulation on Markets: conditions preventing the admission to trading on an Italian regulated market of the shares of subsidiaries subject to management and coordination by another company The Board of Directors has ascertained that the company satisfies the conditions set out in Article 37 of Consob Regulation on Markets for the admission to trading on an Italian regulated market of the shares of subsidiaries subject to management and coordination by another company. DISCLOSURE OF TRANSACTIONS WITH RELATED PARTIES Transactions with related parties entered into by Saipem SpA and identified by IAS 24 concern mainly the exchange of goods, the supply of services, and the provision and utilisation of financial resources with non consolidated subsidiaries and associates as well as Eni SpA companies. All such transactions are an integral part of the ordinary day-to-day business and are carried out on an arm(cid:213)s length basis (i.e. at conditions which would be applied between independent parties) and in the interest of Group companies. Managers with strategic responsibilities must declare, every six months, any transactions they enter into with Saipem SpA or its subsidiaries, directly or through a third party, in compliance with the provisions of IAS 24. The amounts of trade, financial or other operations with related parties are provided in Note 44 to the consolidated financial statements of Saipem SpA. EVENTS SUBSEQUENT TO YEAR END New contracts In 2010, Saipem was awarded new contracts and negotiated variations to existing contracts amounting to approximately o1,500 million. These can be broken down as follows: - o375 million in the Offshore sector, relating to increases in the scope of work of existing contracts and a contract for Snam Rete Gas for the installation 91 S A I P E M A N N UA L R E P O R T / A D D I T I O N A L I N F O R M AT I O N of a new onshore gas landing system from the FSRU (Floating Storage Re-gasification Unit) to be installed off the coast of Livorno (Tuscany); - o865 million in the Onshore sector, relating to: ¥ increases in the scope of work of existing contracts, mainly in the Middle East and West Africa; ¥ the EPC contract for Rivers State Government, comprising engineering, procurement, construction and commissioning of an OCGT (Open Cycle Gas Turbine) power generation unit, in Port Harcourt, Nigeria; ¥ the EPC contract for Pemex, for two desulphurisation units and two amine regeneration units to be built at two of the client(cid:213)s refineries in Mexico; - o260 million in the Drilling sectors, for contracts already illustrated in the press release of January 27, 2010. MANAGEMENT OUTLOOK Oil industry spending is expected to show signs of recovery in 2010, underpinning expectations of a gradual improvement in market prospects for the oil services industry, despite continued weakness in hydrocarbon demand in general and gas demand in particular, which will lead oil companies to delay the launch of large infrastructure projects. Whilst in 2009 the oil services industry executed contracts largely acquired in previous years, when the market was particularly favourable, in 2010 volumes and associated margins are expected to be affected by the negative market conditions experienced in 2009. Saipem(cid:213)s business model, which addresses a number of different market sectors, combined with strong competitive position in frontier areas, which are traditionally less exposed to the cyclical nature of this market, have enabled the company to retain a high level of backlog. The size and quality of the backlog and the strong operating performance on projects, underpin expectations for 2010 of again achieving largely positive results. Revenues are expected to remain at the record levels attained in 2009; the increase in EBITDA is expected to be sufficient to compensate the increase in depreciation resulting from new assets starting operations, and EBIT is envisaged to remain at the record level achieved in 2009. Investments for 2010 are forecast to be in the region of o1.5 billion and will be spent on completing the expansion of the Drilling fleet and further progress towards strengthening the Offshore asset base. The start of operations of new distinctive assets in 2010 and 2011, coupled with a long-standing presence in geographical areas and sectors less exposed to the cyclical nature of the market, underpin expectations for a further significant strengthening of Saipem(cid:213)s competitive position in the medium-term. 92 S A I P E M A N N UA L R E P O R T / R E C O N C I L I AT I O N O F R E C L A S S I F I E D B A L A N C E S H E E T, I N C O M E S TAT E M E N T A N D C A S H F LOW S TAT E M E N T Reconciliation of reclassified balance sheet, income statement and cash flow statement to statutory schemes Reclassified balance sheet Reclassified balance sheet items (where not stated otherwise, items comply with statutory scheme) A) Net tangible assets Note 8 - Property, plant and equipment B) Net intangible assets Note 9 - Intangible assets C) Investments Note 10 - Investments accounted for using the equity method Note 11 - Other investments Recl. from E) - provisions for losses related to investments D) Working capital Note 3 - Trade and other receivables Recl. to I) - financing receivables not related to operations Note 4 - Inventories Note 5 - Current tax assets Note 6 - Other current tax assets Note 7 - Other current assets Note 12 - Other financial assets Recl. to I) - financing receivables not related to operations Note 13 - Deferred tax assets Note 14 - Other non-current assets Note 16 - Trade and other payables Note 17 - Income tax payables Note 18 - Other current tax liabilities Note 19 - Other current liabilities Note 23 - Deferred tax liabilities Note 24 - Other non-current liabilities E) Provisions Note 21 - Provisions for contingencies Recl. to C) - provisions for losses related to investments Net assets available for disposal F) Provision for employee benefits Note 22 - Provisions for employee benefits CAPITAL EMPLOYED, NET G) Shareholders(cid:213) equity Note 26 - Saipem shareholders(cid:213) equity H) Minority interest Note 25 - Minority interest I) Net borrowings Note 1 - Cash and cash equivalents (o million) Dec. 31, 2008 Dec. 31, 2009 Partial amounts from statutory scheme Amounts from reclassified scheme 5,171 Partial amounts from statutory scheme Amounts from reclassified scheme 6,295 5,171 755 42 2 (1) 4,255 (260) 1,397 37 301 420 - - 94 17 (6,370) (101) (110) (476) (25) (49) (185) 1 (173) 2,757 21 (1,398) (36) 2,613 1,106 7 (260) - 755 43 6,295 756 118 2 (2) 756 118 (870) (449) 4,040 (68) 1,071 113 285 256 8 (8) 113 34 (5,735) (115) (124) (227) (64) (28) (200) 2 (182) 3,434 61 (986) (36) 1,797 1,796 350 (68) (8) (184) 68 (173) 4,810 2,757 21 2,032 (198) - (182) 6,340 3,434 61 2,845 Note 2 - Other financial assets held for trading or available for sale Note 15 - Short-term debt Note 20 - Long-term debt Note 20 - Current portion of long-term debt Recl. from D) - financing receivables held for non-operating purposes (Note 3) Recl. from D) - financing receivables held for non-operating purposes (Note 12) TOTAL LIABILITIES AND SHAREHOLDERS(cid:213) EQUITY 4,810 6,340 93 S A I P E M A N N UA L R E P O R T / R E C O N C I L I AT I O N O F R E C L A S S I F I E D B A L A N C E S H E E T, I N C O M E S TAT E M E N T A N D C A S H F LOW S TAT E M E N T Reclassified income statement The only items of the reclassified income statement which differ from the statutory scheme are those stated hereafter: - revenues, amounting to o13 million, related to reimbursements for non-core business services, insurance claims and costs paid by the client, which feature under the statutory scheme as (cid:212)other revenues and income(cid:213), have been recorded as reductions under the corresponding cost items in the reclassified income statement; - the other gains and losses deriving from commodity contracts (-o7 million) have been recorded as reductions under the corresponding cost items in the reclassified income statement; - the items (cid:212)financial income(cid:213) (o1,101 million), (cid:212)financial expenses(cid:213) (-o1,116 million) and (cid:212)derivatives(cid:213) (-o85 million), which are indicated separately under the statutory scheme, are stated under the item (cid:212)finance (expense) income(cid:213) (-o100 million) in the reclassified income statement; - the items (cid:212)effect of accounting using the equity method(cid:213) (o7 million) and (cid:212)other income (expenses) from investments(cid:213) (o0 million), which are indicated separately under the statutory scheme, are stated net under the items (cid:212)net income from investments(cid:213) and (cid:212)gain on disposals(cid:213) under the reclassified income statement. All other items are unchanged. 94 Reclassified cash flow statement The only items of the reclassified cash flow statement which differ from the statutory scheme are those stated hereafter: - the items (cid:212)depreciation and amortisation(cid:213) (o438 million), (cid:212)net change in provisions(cid:213) (o20 million), (cid:212)net change in the provision for employee benefits(cid:213) (o11 million), (cid:212)impairments (write-ups)(cid:213) (o40 million) and (cid:212)losses (gains) on investments accounted for using the equity method(cid:213) (-o7 million), indicated separately and included in cash generated from operating profit in the statutory scheme, are shown net under the item (cid:212)depreciation, amortisation and other non-monetary items(cid:213) (o502 million); - the items (cid:212)dividends(cid:213) (-o2 million), (cid:212)interest income(cid:213) (-o27 million), (cid:212)interest expense(cid:213) (o61 million), (cid:212)unrealised exchange (gains) losses(cid:213) (o38 million) and (cid:212)current and deferred income taxes(cid:213) (o288 million), indicated separately and included in cash generated from operating profit in the statutory scheme, are shown net under the item (cid:212)dividends, interests, extraordinary income/expenses and income taxes(cid:213) (o358 million); - the items regarding changes in (cid:212)inventories(cid:213) (o326 million), (cid:212)trade and other receivables(cid:213) (-o56 million), (cid:212)other assets(cid:213) (o147 million), (cid:212)trade and other payables(cid:213) (-o568 million) and (cid:212)other liabilities(cid:213) (-o270 million), indicated separately and included in cash generated from operating profit in the statutory scheme, are shown net under the item (cid:212)changes in working capital related to operations(cid:213) (-o421 million); - the items (cid:212)dividends received(cid:213) (o40 million), (cid:212)interest received(cid:213) (o26 million), (cid:212)interest paid(cid:213) (-o91 million) and (cid:212)income taxes paid(cid:213) (-o222 million), indicated separately and included in cash generated from operating profit in the statutory scheme, are shown net under the item (cid:212)dividends, interests, extraordinary income/expenses and income taxes received (paid) during the year(cid:213) (-o247 million); - the items relating to investments in (cid:212)intangible assets(cid:213) (-o14 million) and (cid:212)tangible assets(cid:213) (-o1,601 million), indicated separately and included in cash flow from investing activities in the statutory scheme, are shown net under the item (cid:212)capital expenditure(cid:213) (-o1,615 million); - the items relating to disposals of (cid:212)intangible assets(cid:213) (o8 million) and (cid:212)investments(cid:213) (o1 million), indicated separately and included in cash flow from disposals in the statutory scheme, are shown net under the item (cid:212)disposals(cid:213) (o9 million); S A I P E M A N N UA L R E P O R T / R E C O N C I L I AT I O N O F R E C L A S S I F I E D B A L A N C E S H E E T, I N C O M E S TAT E M E N T A N D C A S H F LOW S TAT E M E N T - the items (cid:212)proceeds from short-term receivables(cid:213) (o1,099 million), (cid:212)proceeds from long-term debt(cid:213) (o184 million), (cid:212)repayments of long-term debt(cid:213) (-o65 million) and (cid:212)increase (decrease) in short-term debt to banks(cid:213) (-o815 million), indicated separately and included in net cash used in financing activities in the statutory scheme, are shown net under the item (cid:212)variation in financial debt(cid:213) (o403 million); - the items (cid:212)effect of exchange rate changes on cash and cash equivalents(cid:213) (-o15 million), (cid:212)effect of changes in consolidation area and other changes(cid:213) (o60 million), indicated separately and included in net cash used in financing activities in the statutory scheme, are shown net under the item (cid:212)effect of changes in consolidation and exchange differences(cid:213) (o45 million). All other items are unchanged. 95 Consolidated financial statements S A I P E M A N N UA L R E P O R T / S C H E M E S Balance sheet (o million) ASSETS Current assets Cash and cash equivalents Other financial assets held for trading or available for sale Trade and other receivables Inventories Current tax assets Other current tax assets Other current assets Total current assets Non-current assets Property, plant and equipment Intangible assets Investments accounted for using the equity method Other investments Other financial assets Deferred tax assets Other non-current assets Total non-current assets Assets held for sale TOTAL ASSETS LIABILITIES AND SHAREHOLDERS(cid:213) EQUITY Current liabilities Short-term debt Current portion of long-term debt Trade and other payables Income tax payables Other current tax liabilities Other current liabilities Total current liabilities Non-current liabilities Long-term debt Provisions for contingencies Provisions for employee benefits Deferred tax liabilities Other non-current liabilities Total non-current liabilities TOTAL LIABILITIES SHAREHOLDERS(cid:213) EQUITY Minority interest Saipem(cid:213)s shareholders(cid:213) equity: - share capital - share premium reserve - other reserves - retained earnings - net profit for the year - treasury shares Total shareholders(cid:213) equity ) * ( e t o N (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (45) (15) (20) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) (28) (29) (30) TOTAL LIABILITIES AND SHAREHOLDERS(cid:213) EQUITY (*) The notes constitute an integral part of the consolidated financial statements. 98 d e t a l e r h t i w h c i h w f o s e i t r a p 617 1,158 142 159 - - 1,746 72 255 169 1,590 26 8 0 0 2 . 2 1 . 1 3 1,398 36 4,255 1,397 37 301 420 7,844 5,171 755 42 2 - 94 17 6,081 68 13,993 2,613 7 6,370 101 110 476 9,677 1,106 185 173 25 49 1,538 11,215 21 2,757 441 55 (63) 1,536 914 (126) 2,778 13,993 d e t a l e r h t i w h c i h w f o s e i t r a p 874 1,149 73 336 - 3 2,393 2 129 421 615 48 9 0 0 2 . 2 1 . 1 3 986 36 4,040 1,071 113 285 256 6,787 6,295 756 118 2 8 113 34 7,326 - 14,113 1,797 350 5,735 115 124 227 8,348 1,796 200 182 64 28 2,270 10,618 61 3,434 441 55 99 2,226 732 (119) 3,495 14,113 Income statement (o million) REVENUES Net sales from operations Other income and revenues Total revenues Operating expenses Purchases, services and other Payroll and related costs Depreciation, amortisation and impairment Other operating income and expenses OPERATING PROFIT Finance income (expenses) Finance income Finance expense Derivative financial instruments Total finance income (expenses) Income (expenses) from investments Share of profit (loss) of equity-accounted investments Other gain (loss) from investments Total income (expense) from investments PROFIT BEFORE INCOME TAXES Income taxes NET PROFIT Attributable to: - Saipem - minority interest Earnings per share attributable to Saipem (o per share) Basic Diluted ) * ( e t o N (32) (33) (34) (35) (36) (37) (38) (39) (40) (41) (42) (42) (*) The notes constitute an integral part of the consolidated financial statements. Statement of comprehensive income (o million) Net profit Other items of comprehensive income: - change in the fair value of cash flow hedges (1) - investments carried at fair value - exchange rate differences arising from the translation into euro of financial statements currencies other than the euro - income tax relating to other items of comprehensive income Other items of comprehensive income Total comprehensive income Attributable to: - Saipem - minority interest S A I P E M A N N UA L R E P O R T / S C H E M E S d e t a l e r h t i w h c i h w f o s e i t r a p 1,875 - (86) (7) 13 (56) 56 d e t a l e r h t i w h c i h w f o s e i t r a p 1,559 2 (81) (1) 67 (178) 73 9 0 0 2 10,292 27 10,319 (7,233) (1,483) (440) (7) 1,156 1,101 (1,116) (85) (100) 7 - 7 1,063 (288) 775 732 43 1,68 1,66 8 0 0 2 10,094 44 10,138 (7,291) (1,410) (353) (1) 1,083 1,405 (1,568) 68 (95) 22 207 229 1,217 (285) 932 914 18 2,10 2,07 31.12.2008 31.12.2009 932 (248) (7) 5 54 (196) 736 718 18 775 193 1 (8) (26) 160 935 894 41 99 (1) The change in the fair value of cash flow hedges relates almost exclusively to transactions with the parent company Eni. S A I P E M A N N UA L R E P O R T / S C H E M E S Consolidated statement of changes in shareholders(cid:213) equity Saipem shareholders(cid:213) equity s e r a h s y r u s a e r t r o f e v r e s e R e v r e s e r l a g e L y c n e r r u c e v i t a l u m u C n o i t a l s n a r t s e c n e r e f f i d e g d e h w o l f h s a C e v r e s e r i s g n n r a e d e n i a t e R r a e y e h t r o f t i f o r p t e N s e r a h s y r u s a e r T l a t o T y t i u q e (cid:213) s r e d o h e r a h s l l a t o T t s e r e t n i y t i r o n M i 65 16 67 (13) (632) 384 (73) 1,581 4 1,585 - - - - - - 7 - - - 7 72 - - - - - - 15 - - - 15 87 - - - - - - - 18 - - 18 34 - - - - - - - (17) - - (17) 17 - 41 - - - - - (80) 41 (80) - - - - - - - - - - - - 108 (93) - (194) - (3) (197) - - - - - - - - - 8 8 - - - - - - - 875 - 6 - 6 - - - - 875 (126) 251 (258) - - - - - - - (18) (2) 4 - - - (4) - - 235 873 (384) 875 - - (7) - 914 - - - (7) 914 - (192) 668 16 8 (22) (683) - - - 875 3 878 41 6 (80) - - - 41 6 (80) 842 3 845 (126) - (4) (2) 4 - - - - (3) (3) (126) - (4) (2) 1 (131) (4) (128) (77) 2,295 4 2,299 914 18 932 (194) (7) 5 - - - (194) (7) 5 718 18 736 (192) - (49) (50) - - 8 (22) - - - - (192) - (50) 8 (1) (1) (23) (257) - - - - - - - 670 (875) (49) (256) (89) (85) 1,536 914 (126) 2,757 21 2,778 (o million) Balance at December 31, 2006 2007 net profit Other items of comprehensive income Change in the fair value of cash flow hedges net of the tax effect Investments carried at fair value Exchange rate differences arising from translation into euro of financial statements currencies other than euro Total recognised income and (expense) for the year Transactions with shareholders Dividend distribution Retained earnings and transfer to legal reserve Treasury shares repurchased Other changes in shareholders(cid:213) equity Cost related to stock options/grants Other changes Total l a t i p a c e r a h S i m u m e r p e r a h S e v r e s e r 441 55 - - - - - - - - - - - - - - - - - - - - - - Balance at December 31, 2007 441 55 2008 net profit Other items of comprehensive income Change in the fair value of cash flow hedges net of the tax effect Investments carried at fair value Exchange rate differences arising from translation into euro of financial statements currencies other than euro Total recognised income and (expense) for the year Transactions with shareholders Dividend distribution Retained earnings and transfer to legal reserve Treasury shares repurchased Other changes in shareholders(cid:213) equity Cost related to stock options/grants Other changes Total - - - - - - - - - - - - - - - - - - - - - - s e v r e s e r r e h t O 7 - - - - - - - - - - - 7 - - - - - - - - - - - Balance at December 31, 2008 441 55 7 100 Consolidated statement of changes in shareholders(cid:213) equity continued S A I P E M A N N UA L R E P O R T / S C H E M E S (o million) Balance at December 31, 2008 2009 net profit Other items of comprehensive income Change in the fair value of cash flow hedges net of the tax effect Investments carried at fair value Exchange rate differences arising from translation into euro of financial statements currencies other than euro Total recognised income and (expense) for the year Transactions with shareholders Dividend distribution Retained earnings and transfer to legal reserve Treasury shares repurchased Other changes in shareholders(cid:213) equity Cost related to stock options/grants Difference between the carrying amount and strike price of stock options and stock grants exercised by Saipem managers Other changes Total l a t i p a c e r a h S i m u m e r p e r a h S e v r e s e r 441 55 - - - - - - - - - - - - - - - - - - - - - - - - s e v r e s e r r e h t O 7 - - - - - - - - - - - - Saipem shareholders(cid:213) equity s e r a h s y r u s a e r t r o f e v r e s e R e v r e s e r l a g e L y c n e r r u c e v i t a l u m u C n o i t a l s n a r t s e c n e r e f f i d e g d e h w o l f h s a C e v r e s e r i s g n n r a e d e n i a t e R s e r a h s y r u s a e r T d e s a h c r u p e r r a e y e h t r o f t i f o r p t e N l a t o T y t i u q e (cid:213) s r e d o h e r a h s l l a t o T t s e r e t n i y t i r o n M i 87 17 (89) (85) 1,536 914 (126) 2,757 21 2,778 - - - - - - 1 - - - - 1 - - - - - - - - - - - - - 167 - (1) 166 - - - - - - - - - - (5) (5) - - - - - - - - 732 - 1 - 1 - - - - 732 (239) 674 (675) - 8 (1) 8 - - - - 689 (914) - - - - - - - 7 - - - 7 732 43 775 167 1 - - 167 1 (6) (2) (8) 894 41 935 (239) - 7 8 (1) 8 (217) - - - - - (1) (1) (239) - 7 8 (1) 7 (218) Balance at December 31, 2009 441 55 7 88 17 77 (90) 2,226 732 (119) 3,434 61 3,495 Statement of cash flows (o million) Net profit for the year Minority interest Depreciation and amortisation Impairments (write-ups) Net change in provisions for contingencies Net change in the provision for employee benefits Net gains on disposal of assets Losses (gains) on investments accounted for using the equity method Dividend (income) (Interest income) Interest expense Unrealised exchange (gains) losses Current and deferred income taxes Cash generated from operating profit before changes in working capital ) * ( e t o N (36) (39) (40) 914 18 353 13 (13) 6 (203) (22) (5) (128) 237 (17) 285 (*) The notes constitute an integral part of the consolidated financial statements. 8 0 0 2 9 0 0 2 732 43 438 40 20 11 - (7) (2) (27) 61 38 288 1,438 1,635 101 S A I P E M A N N UA L R E P O R T / S C H E M E S Statement of cash flows continued (o million) (Increase) decrease: - inventories - trade and other receivables - other assets - trade and other payables - other liabilities Cash flow from operations Dividends received Interest received Interest paid Income taxes paid Realised exchange gains or losses on dividends Other changes related to operating activities Net cash provided by operating activities of which with related parties Investing activities: - intangible assets - tangible assets - investments Cash flow from investing activities Disposals: - tangible assets - investments - collection and transfer of financing receivables and other short-term financial assets Other changes related to investing activities Cash flow from disposals Net cash used in investing activities of which with related parties Securities Buy-back of treasury shares Proceeds from short-term receivables Proceeds from short-term debt Proceeds from long-term debt Repayments of short-term debt Repayments of long-term debt Increase (decrease) in short-term debt to banks Net capital contributions by minority shareholders Dividend distribution Net cash used in financing activities of which with related parties Effect of exchange rate changes on cash and cash equivalents Effect of changes in consolidation area and other changes Net cash flow for the year Cash and cash equivalents - beginning of year Cash and cash equivalents - end of year ) * ( e t o N 8 0 0 2 9 0 0 2 (578) (641) (147) 1,637 387 42 128 (237) (278) 6 (195) 1,038 (13) (2,031) (3) 46 310 - (6) - (36) (50) (195) 85 221 (503) (6) - - (192) (85) 2,096 326 (56) 147 (568) (270) 40 26 (91) (222) - - 1,214 1,562 967 1,912 (14) (1,601) - 8 1 11 - - - 7 - - 1,099 184 (65) (815) - (239) 398 (1,615) 20 (1,595) 171 (15) 60 (412) 1,398 986 (2,047) 350 (1,697) (676) (9) 48 (772) 2,170 1,398 (44) (9) (8) (10) (44) (44) (1) (1) (*) The notes constitute an integral part of the consolidated financial statements. 102 S A I P E M A N N UA L R E P O R T / B A S I S O F P R E S E N TAT I O N - P R I N C I P L E S O F C O N S O L I DAT I O N Basis of presentation The consolidated financial statements of Saipem have been prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and adopted by the European Commission pursuant to Article 6 of EC Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002 and in accordance with Article 9 of Legislative Decree No. 38/20051. The consolidated financial statements have been prepared by applying the cost method except for items that under IFRS must be recognised at fair value, as described in the accounting policies section. The consolidated financial statements include the statutory accounts of Saipem SpA and the accounts of all Italian and foreign companies in which Saipem SpA holds the right to directly or indirectly exercise control, determine financial and management decisions and obtain economic and financial benefits. The consolidated financial statements also include, on a line-by-line proportional basis, data of companies managed under joint operating agreements. Immaterial subsidiaries and subsidiaries whose consolidation does not produce significant economic and financial effects are not consolidated. A subsidiary is generally considered to be immaterial when it does not exceed two of the following three limits: (i) total assets or liabilities: o3,125 thousand; (ii) total revenues: o6,250 thousand; and (iii) average number of employees: 50. Subsidiaries whose consolidation does not produce significant economic and financial effects perform limited operating activities. The effects of these exclusions are immaterial2. Immaterial subsidiaries excluded from consolidation, associates and other interests are accounted for as described under the heading (cid:212)Financial fixed assets(cid:213). Consolidated companies, non-consolidated subsidiaries, associates and relevant shareholdings as set forth in Article 126 of Consob resolution 11971 of May 14, 1999 and subsequent addenda, are indicated in the section (cid:212)Scope of Consolidation(cid:213). After this section, there follows a list detailing the changes in the scope of consolidation from the previous year. Subsidiaries(cid:213) financial statements are audited by independent auditors, who examine and certify the information required for the preparation of the consolidated financial statements. The consolidated financial statements at December 31, 2009, approved by Saipem(cid:213)s Board of Directors on March 10, 2010, were audited by the independent auditor PricewaterhouseCoopers SpA. As the main auditor of the Group, PricewaterhouseCoopers SpA is responsible for the auditing activities of the subsidiaries, and, to the extent allowed under Italian legislation, for the work of other independent auditors. Amounts in these financial statements and the notes thereto are stated in millions of euros (o million). Principles of consolidation Interests in consolidated companies Fully owned subsidiaries are consolidated using the full consolidation method. Assets and liabilities, revenues and expenses related to fully consolidated subsidiaries are therefore wholly incorporated into the consolidated financial statements. The book value of these interests is eliminated against the corresponding portion of their shareholders(cid:213) equity. Jointly controlled companies are consolidated using the proportional method. The book value of interests in these companies is therefore eliminated against the corresponding portion of their shareholders(cid:213) equity. Assets and liabilities, revenues and expenses are incorporated into the consolidated financial statements proportionally to the interest held. Subsidiaries and jointly controlled entities are consolidated from the date on which control is transferred to the group and are deconsolidated from the date on which control ceases. The shareholders(cid:213) equity in consolidated companies is determined by attributing to each of the balance sheet items its fair value at acquisition date. The excess of the purchase price of an acquired entity over the total fair value assigned to assets acquired and liabilities assumed is recognised as goodwill; negative goodwill is recognised in the income statement. The purchase of additional ownership interests in subsidiaries from minority shareholders is recognised as goodwill and represents the excess of the amount paid over the carrying value of the minority interest acquired. The difference between the proceeds from the disposal of the subsidiary and its carrying amount as at the date of disposal — including the cumulative amount of any exchange differences that relate to the subsidiary, recognised in the separate component (1) The international accounting standards used in the preparation of the consolidated financial statements are essentially the same as those issued by the IASB and in force in 2009, since the current differences between the IFRS endorsed by the European Commission and those issued by the IASB relate to situations that do not affect the Group, with the exception of IFRIC 12 (cid:212)Service Concession Arrangements(cid:213) and IFRIC 18 (cid:212)Transfers of Assets from Customers(cid:213) (see also section on (cid:212)Recent accounting principles(cid:213)). (2) According to the IASB conceptual framework, (cid:212)information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements(cid:213). 103 S A I P E M A N N UA L R E P O R T / P R I N C I P L E S O F C O N S O L I DAT I O N of equity in accordance with IAS 21, the (cid:212)Effects of changes in foreign exchange rates(cid:213) — is recognised in the consolidated income statement as a gain or loss on the disposal. Equity and net profit attributable to minority interests are shown separately in the consolidated balance sheet and consolidated income statement, respectively. Minority interest is determined on the basis of the fair value of the assets and liabilities at the acquisition date, excluding any related goodwill. If losses applicable to minority interests in a consolidated subsidiary exceed the minority interests in the subsidiary(cid:213)s equity, the excess and any further losses applicable to the minority interests are allocated against the majority(cid:213)s interest, except to the extent that the minority interests have a binding obligation and are able to make an additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the majority(cid:213)s interest until the minority interests(cid:213) share of losses previously absorbed by the majority(cid:213)s interest have been recovered. Dividends, revaluations, write-downs and losses on interests in consolidated companies, in addition to gains and losses on intercompany disposals of shareholdings in consolidated companies, are eliminated. Business combination under common control Since business combinations under common control lie outside the scope of IFRS 3, management has, in compliance with paragraphs 10, 11 and 12 of IAS 8, used its judgement in developing and applying an accounting policy that results in information that is relevant, reliable, representative of the economic substance of transactions and prudent. In making its judgement, management considered the requirements and criteria of the IFRS, as well as those of other accounting standards, to the extent that these latter did not conflict with the former. Under the resulting accounting policy, the assets and liabilities acquired are recognised at the carrying amounts recognised previously in the consolidated financial statements of the parent company Eni SpA. The difference between the purchase price and net assets and liabilities is recognised in consolidated shareholders(cid:213) equity. Intercompany transactions Unrealized intercompany profit is eliminated, as are intercompany receivables, payables, revenues and expenses, guarantees (including performance bonds), commitments and risks. Intercompany losses are not eliminated since they are considered an impairment indicator of the assets transferred. Foreign currency translation Financial statements of foreign companies having a functional currency other than the euro are converted into the presentation currency applying: (i) closing exchange rates for assets and liabilities; (ii) historical exchange rates for equity accounts; and (iii) average rates for the year to the income statement (source: Bank of Italy). Cumulative exchange rate differences resulting from this translation are recognised in shareholders(cid:213) equity under the item (cid:212)Cumulative currency translation differences(cid:213) for the portion relating to the Group(cid:213)s interest and under (cid:212)Minority interest(cid:213) for the portion related to minority shareholders. Cumulative exchange differences are charged to the income statement when the investments are sold or the capital employed is returned. The financial statements of foreign subsidiaries translated into euro are denominated in the functional currencies of the countries where the entities operate, i.e. the local currency or the currency in which most financial transactions and assets and liabilities are denominated. 104 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S The exchange rates that have been applied for the translation of financial statements in foreign currencies are as follows: y c n e r r u C US Dollar British Pound Sterling Algerian Dinar Angolan Kwanza Saudi Arabian Riyal Argentine Peso Australian Dollar Azerbaijan Manat Brazilian Real Canadian Dollar Central African CFA Franc Croatian Kuna Egyptian Pound Indian Rupee Indonesian Rupee Kazakhstan Tenge Malaysian Ringgit Mexican Peso Nigerian Naira Norwegian Kroner Peruvian New Sol Qatar Riyal Dominican Peso Romanian New Leu Russian Rouble Singaporean Dollar Swiss Franc UAE Dirham 8 0 0 2 , 1 3 . c e D t a e t a r e g n a h c x E 1.3917 0.9525 98.3946 104.614 5.22303 4.80444 2.0274 1.12248 3.2436 1.6998 655.957 7.3555 7.67609 67.636 15,239.1 168.227 4.8048 19.2333 193.249 9.75 4.37155 5.06816 49.0688 4.0225 41.283 2.004 1.485 5.1118 9 0 0 2 , 1 3 . c e D t a e t a r e g n a h c x E 1.4406 0.8881 104.172 128.608 5.40329 5.46185 1.6008 1.15723 2.5113 1.5128 655.957 7.3 7.90576 67.04 13,626.1 213.775 4.9326 18.9223 215.548 8.3 4.16189 5.24609 51.9443 4.2363 43.154 2.019 1.484 5.1229 e g a r e v a 9 0 0 2 e t a r e g n a h c x e 1.3948 0.8909 101.2125 110.784 5.23092 5.21103 1.7727 1.12284 2.7674 1.5849 655.957 7.34 7.74345 67.361 14,443.7 206.034 4.9079 18.7989 209.099 8.73 4.19064 5.07816 50.066 4.2399 44.138 2.024 1.51 5.2914 Summary of significant accounting policies The most significant accounting policies used in the preparation of the consolidated financial statements are described below. Current assets Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are classified as current liabilities under the item (cid:212)Short-term debt(cid:213). Inventories Inventories, with the exception of contract work-in-progress, are stated at the lower of purchase or production cost and net realizable value. Net realizable value is defined as the estimated selling price of the inventory in the ordinary course of business. The cost of inventories is determined by applying the weighted average cost method on a monthly basis. Work-in-progress relating to long-term contracts is stated on the basis of agreed contract revenue determined with reasonable certainty, recognised in proportion to the stage of completion of contract activity and in accordance with the prudence principle. Given the nature of the contracts and the type of work, the percentage of completion is calculated on the basis of the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs (i.e. cost-to-cost method). 105 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S Adjustments made for the economic effects of using this method with respect to previously recognised revenue are included under contract work-in-progress if positive or under trade payables if negative. When hedged by derivative contracts qualifying for hedge accounting, revenues denominated in foreign currencies are translated at the contracted rates. Otherwise, they are translated at the exchange rate prevailing at year end. The same method is used for costs denominated in a foreign currency. The valuation of work-in-progress considers all directly related costs, contractual risks and contract revision clauses, where they can be reliably estimated. Modifications to original contracts for additional works are recognised when realisation is probable and the amount can be reliably estimated. Expected losses on contracts are recognised as expenses immediately. Bidding costs are expended in the year in which they are incurred. Current financial assets Held for trading financial assets and available-for-sale financial assets are measured at fair value with gains or losses recognised in the income statement under (cid:212)Finance income (expense)(cid:213)3 and to the equity reserve related to other comprehensive income, respectively. In the latter case, changes in fair value recognised in equity are taken to the income statement when the asset is sold or impaired. The objective evidence that an impairment loss has occurred is verified considering, inter alia, significant breaches of contracts, serious financial difficulties or the high probability of insolvency of the counterparty. Losses are deducted from the carrying amount of the asset4. Available-for-sale financial assets include financial assets other than derivative financial instruments, loans and receivables, held- for-trading financial assets and held-to-maturity financial assets. The fair value of financial instruments is determined by market quotations or, in their absence, by the value resulting from the adoption of suitable financial valuation models which take into account all the factors adopted by market operators and prices obtained in similar recent transactions in the market. Interest and dividends on financial assets stated at fair value are accounted for on an accrual basis as (cid:212)Finance income (expense)(cid:213) and (cid:212)Other income (expense) from investments(cid:213), respectively. When the purchase or sale of a financial asset occurs under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the market place concerned (e.g. purchase of securities on regulated markets), the transaction is accounted for on the settlement date. Receivables are stated at amortised cost (see (cid:212)Financial fixed assets - Receivables and financial assets held to maturity(cid:213)). Transferred financial assets are derecognised when the contractual rights to receive the cash flows of the financial assets are transferred together with the risks and rewards of ownership. Non-current assets Tangible assets Tangible assets, including investment properties, are recognised using the cost model and stated at their purchase or production cost including any costs directly attributable to bringing the asset into operation. In addition, when a substantial period of time is required to bring the asset into operation, the purchase price or production cost includes the borrowing costs incurred that could have otherwise been saved had the investment not been made. The purchase or production costs are net of government grants related to assets, which are only recognised when all the required conditions have been met. In the case of a present obligation for the dismantling and removal of assets and the restoration of sites, the carrying value includes, with a corresponding entry to a specific provision, the estimated (discounted) costs to be borne at the moment the asset is retired. The accounting treatment of changes in estimates for these provisions, the passage of time and the discount rate are indicated under (cid:212)Provisions for contingencies(cid:213). Tangible assets are not revalued for financial reporting purposes. (3) From 2009, changes in the fair value of non-hedging commodity derivatives, including the effects of settlements, are recognized under (cid:212)Other operating income and expenses(cid:213). Prior period results have been restated accordingly. (4) EU Commission Regulation No. 1004/2008 of October 15, 2008 endorsed certain amendments to IAS 39 (cid:212)Financial Instruments: Recognition and Measurement(cid:213) and to IFRS 7 (cid:212)Financial Instruments: Disclosures(cid:213). The amendments allow, providing specific criteria are met, an entity to reclassify held-for-trading and available-for-sale financial assets into financial instruments measured at cost or amortized cost. The change has not produced any effect for Saipem. 106 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S Assets held under finance leases or under leasing arrangements that do not take the legal form of a finance lease but substantially transfer all the risks and rewards of ownership of the leased asset are recognised at fair value, net of taxes due from the lessor or, if lower, at the present value of the minimum lease payments. Leased assets are included within tangible assets. A corresponding financial debt payable to the lessor is recognised as a financial liability. These assets are depreciated using the criteria described below. Where it is not reasonably certain that the purchase option will be exercised, leased assets are depreciated over the shorter of the lease term and the estimated useful life of the asset. Expenditures on renewals, improvements and transformations that extend the useful lives of the related asset are capitalised. Tangible assets, from the moment they begin or should begin to be used, are depreciated systematically using a straight-line method over their useful life, which is an estimate of the period over which the assets will be used by the company. When tangible assets comprise more than one significant element with different useful lives, each component is depreciated separately. The depreciable amount of an asset is its cost less the estimated residual value at the end of its useful life, if this is significant and can be reasonably determined. Land is not depreciated, even where purchased with a building. Tangible assets held for sale are not depreciated but are valued at the lower of book value and fair value less costs to sell. Assets that can be used free of charge are depreciated over the shorter of the duration of the concession and the useful life of the asset. Replacement costs of identifiable components in complex assets are capitalised and depreciated over their useful life. The residual book value of the component that has been replaced is charged to the income statement. Ordinary maintenance and repair costs are expensed when incurred. The carrying value of tangible assets is reviewed for impairment whenever events indicate that the carrying amounts for those assets may not be recoverable. The recoverability of an asset is assessed by comparing its carrying value with the recoverable amount, represented by the higher of fair value less costs to sell and value in use. If there is no binding sales agreement, fair value is estimated on the basis of market values, recent transactions, or the best available information that shows the proceeds that the company could reasonably expect to collect from the disposal of the asset. Value in use is the present value of the future cash flows expected to be derived from the use of the asset and, if significant and reasonably determinable, from its disposal at the end of its useful life, net of disposal costs. Cash flows are determined on the basis of reasonable and documented assumptions that represent the best estimate of the future economic conditions during the remaining useful life of the asset, giving more importance to independent assumptions. Discounting is carried out at a rate that reflects current market assessments of the time value of money and the risks specific to the asset that are not reflected in the estimate of future cash flows. The discount rate used is the Weighted Average Cost of Capital (WACC) adjusted for risks specific to the market. Value in use is calculated net of the tax effect as this method results in values similar to those resulting from discounting pre-tax cash flows at a pre-tax discount rate deriving, through an iteration process, from a post-tax valuation. Valuation is carried out for each single asset or, if the realizable value of a single asset cannot be determined, for the smallest identifiable group of assets that generates independent cash inflows from their continuous use (i.e. (cid:212)cash generating unit(cid:213)). If the reasons for impairment cease to exist, the impairment loss is reversed to the income statement as income from revaluation. The value of the asset is written back to the lower of the recoverable amount and the original book value before impairment and net of any depreciation that would have been incurred had no impairment loss been recognised. Tangible assets destined for specific operating projects, for which no further future use is envisaged due to the characteristics of the asset itself or high usage during project execution, are depreciated over the duration of the project. Intangible assets Intangible assets are assets without physical substance, controlled by the company and capable of producing future economic benefits, and goodwill acquired in business combinations. An asset is classified as intangible when management is able to distinguish it clearly from goodwill. This condition is normally met when: (i) the intangible asset arises from legal or contractual rights, or (ii) the asset is separable, i.e. can be sold, transferred, licensed, rented or exchanged, either individually or as an integral part of other assets. An entity controls an asset if it has the ability to obtain the future economic benefits related to an asset and to restrict the access of others to those benefits. Intangible assets are initially stated at cost as determined by the criteria used for tangible assets and are not revalued for financial reporting purposes. Intangible assets with a defined useful life are amortised systematically over their useful life estimated as the period over which the assets will be used by the company. The amount to be amortised and the recoverability of their book value are determined in accordance with the criteria described in the section (cid:212)Tangible assets(cid:213). Goodwill and other intangible assets with an indefinite useful life are not amortised. The recoverability of their carrying value is reviewed at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. 107 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S Goodwill is tested for impairment at the level of the smallest aggregate (cash generating unit) on which the company, directly or indirectly, evaluates the return on the capital expenditure to which goodwill relates. The cash generating unit is the smallest identifiable group of assets that generates cash inflows from continuing use, and that are largely independent of the cash inflows from other assets or groups of assets. If the carrying amount of the cash generating unit, including goodwill allocated thereto, exceeds the cash generating unit(cid:213)s recoverable amount, the excess is recognised as impairment. The impairment loss is first allocated to reduce the carrying amount of goodwill. Any remaining excess is allocated on a pro-rata basis to the carrying value of the assets that form the cash generating unit. The recoverable amount of cash generating units to which goodwill relates is determined based on value in use, i.e. the present value of future cash flows expected to result from the use of the asset. Impairment charges against goodwill are not reversed5. Negative goodwill is recognised in the income statement. Costs of technological development activities Costs of technological development activities are capitalised when the company can prove that: (a) there is the technical capacity to complete the asset and make it available for use or sale; (b) there is the intention to complete the asset and make it available for use or sale; (c) it is possible to make the asset available for use or sale; (d) it can be shown that the asset is able to produce future economic benefits; (e) technical, financial and other resources are available to complete development of the asset and make the asset available for use or sale; (f) the cost attributable to the intangible asset can be reasonably determined. Grants Grants related to assets are recorded as a reduction of the purchase price or production cost of the related assets when there is reasonable assurance that all the required conditions attached to them, agreed upon with government entities, will be met. Grants related to income are recognised in the income statement. Financial fixed assets INVESTMENTS Investments in subsidiaries excluded from consolidation and associates are accounted for using the equity method. When there is objective evidence of impairment (see also section (cid:212)Current assets(cid:213)), the recoverability is tested by comparing the carrying amount and the related recoverable amount determined adopting the criteria indicated in the item (cid:212)Tangible assets(cid:213). Subsidiaries excluded from consolidation and associates may be accounted for at cost, adjusted for impairment losses, if this does not result in a misrepresentation of the company(cid:213)s financial condition and results. When the reasons for their impairment cease to exist, investments accounted for at cost are revalued within the limit of the impairment made and their effects are taken to the income statement item (cid:212)Other income (expense) from investments(cid:213). Other investments, included in non current assets, are recognised at their fair value and their effects are included in the equity reserve related to other comprehensive income. Changes in fair value recognised in equity are charged to the income statement when the investment is sold or impaired. When investments are not traded in a public market and fair value cannot be reasonably determined, investments are accounted for at cost, adjusted for impairment losses; impairment losses may not be reversed5. The risk deriving from losses exceeding shareholders(cid:213) equity is recognised in a specific provision to the extent the parent company is required to fulfil legal or implicit obligations towards the subsidiary or to cover its losses. RECEIVABLES AND HELD-TO-MATURITY FINANCIAL ASSETS Receivables and financial assets held to maturity are stated at cost represented by the fair value of the initial exchanged amount adjusted to take into account direct external costs related to the transaction (e.g. fees of agents or consultants, etc.). The initial carrying value is then adjusted to take into account capital repayments, devaluations and amortisation of the difference between the reimbursement value and the initial carrying value. Amortisation is carried out on the basis of the effective interest rate, which (5) Impairment charges recognised in an interim period are not reversed even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the subsequent interim period. 108 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S is the rate that exactly discounts the present value of estimated future cash flows to the initial carrying value (i.e. the amortised cost method). Receivables for finance leases are recognised at an amount equal to the present value of the lease payments and the purchase option price or any residual value; the amount is discounted at the interest rate implicit in the lease. Any impairment is recognised by comparing the carrying value with the present value of the expected cash flows discounted at the effective interest rate defined at initial recognition or at the moment of its updating to reflect re-pricings contractually established (see also (cid:212)Current assets(cid:213)). Receivables and held-to-maturity financial assets are recognised net of the provision for impairment losses. When the impairment loss is definite, the provision is used. Otherwise it is released. Changes to the carrying amount of receivables or financial assets arising from amortised cost valuation are recognised as (cid:212)Finance income (expenses)(cid:213). Non-current assets held for sale Non-current assets and current and non-current assets included within disposal groups, whose carrying amount will be recovered principally through a sale transaction rather than through their continuing use, are classified as held for sale. Non-current assets held for sale, current and non-current assets included within disposal groups and liabilities directly associated with them are recognised in the balance sheet separately from the entity(cid:213)s other assets and liabilities. Non-current assets held for sale are not depreciated and are measured at the lower of the fair value less costs to sell and their carrying amount. Any difference between the carrying amount and the fair value less costs to sell is taken to profit or loss account as an impairment loss; any subsequent reversal is recognised up to the cumulative impairment losses, including those recognised prior to qualification of the asset as held for sale. Financial liabilities Debt is carried at amortised cost (see item (cid:212)Financial fixed assets - Receivables and held-to-maturity financial assets(cid:213) above). Provisions for contingencies Provisions for contingencies are liabilities for risks and charges of a definite nature and whose existence is certain or probable but for which at year-end the timing or amount of future expenditure is uncertain. Provisions are recognised when: (i) there is a present obligation (legal or constructive), as a result of a past event; (ii) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; (iii) a reliable estimate can be made of the amount of the obligation. Provisions represent the best estimate of the expenditure required to settle the obligation or to transfer it to third parties at the balance sheet date. The amount recognised for onerous contracts is the lower of the cost necessary to fulfil the obligations, net of expected economic benefits deriving from the contracts, and any compensation or penalties arising from failure to fulfil these obligations. Where the effect of the time value of money is material and the payment dates of the obligations can be reliably estimated, the provisions should be discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as (cid:212)Finance (expense) income(cid:213). When the liability regards a tangible asset, the provision is stated with a corresponding entry to the asset to which it refers. The income statement charge is made through the depreciation process. The costs that the company expects to bear in order to carry out restructuring plans are recognised when the company formally defines the plan and the interested parties have developed the reasonable expectation that the restructuring will happen. Provisions are periodically updated to show the variations of estimates of costs, production times and actuarial rates. The estimated revisions of the provisions are recognised in the same income statement item that previously held the provision, or, when the liability regards tangible assets, with a corresponding entry to the assets to which they refer. In the notes to the consolidated financial statements, the following contingent liabilities are described: (i) possible, but not probable obligations arising from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company; (ii) present obligations arising from past events whose amount cannot be measured with sufficient reliability or whose settlement will probably not require an outflow of resources embodying economic benefits. Employee benefits Post-employment benefit plans, including constructive obligations, are classified as either (cid:212)defined contribution plans(cid:213) or (cid:212)defined benefit plans(cid:213) depending on the economic substance of the plan as derived from its principal terms and conditions. In the first case, the company(cid:213)s obligation, which consists of making payments to the State or to a trust or fund, is determined on the basis of the contributions due. 109 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S The liabilities related to defined benefit plans, net of any plan assets, are determined on the basis of actuarial assumptions6 and charged on an accruals basis during the employment period required to obtain the benefits. The valuation of the liability is made by independent actuaries. The actuarial gains and losses of defined benefit plans are recognised prorata on service in the income statement using the corridor method, if and to the extent that the net cumulative actuarial gains and losses unrecognised at the end of the previous reporting period exceed the greater of 10% of the present value of the defined benefit obligation and 10% of the fair value of the plan assets, over the expected average remaining working lives of the employees participating in the plan. Such actuarial gains and losses derive from changes in the actuarial assumptions used or from a change in the conditions of the plan. Obligations for long-term benefits are determined by adopting actuarial assumptions. The effect of changes in actuarial assumptions or a change in the characteristics of the benefit are taken to profit or loss in their entirety. Treasury shares Treasury shares are recorded at cost and as a reduction of equity. Gains or losses from the subsequent sale of treasury shares are recorded as an increase (or decrease) in equity. Revenues Revenues related to contract work-in-progress are recognised on the basis of contractual revenues, with reference to the stage of completion determined using the cost-to-cost method. Revenues for contract work-in-progress in a foreign currency are recognised at the euro exchange rate on the date the stage of completion of a contract is measured with the customer. This value is adjusted to take into account exchange differences arising on derivatives that qualify for hedge accounting. Advances are recognised at the exchange rate on the date of payment. Requests for additional payments deriving from a change in the scope of the work are included in the total amount of revenues when it is probable that the client will approve the variation and the related amount. Claims deriving, for example, from additional costs incurred for reasons attributable to the client are included in the total amount of considerations only when it is probable that the client will accept them. Work that has not yet been accepted is recognised at the year-end exchange rate. Revenues associated with sales of products and services, with the exception of contract work-in-progress, are recorded when the significant risks and rewards of ownership pass to the customer or when the transaction can be considered settled and associated revenue can be reliably measured. Revenue related to partially rendered services is recognised by reference to the stage of completion, providing this can be measured reliably and that there is no significant uncertainty regarding the collectibility of the amount and the related costs. When the outcome of the transaction cannot be estimated reliably, revenue is recognised only to the extent of costs incurred that are expected to be recoverable. Revenues are stated net of returns, discounts, rebates and bonuses and direct taxation. Costs Costs are recognised when the related goods and services are sold, consumed or allocated, or when their future benefits cannot be determined. Operating lease payments are recognised in the income statement over the length of the contract. Labour costs comprise remuneration paid, provisions made to pension funds, accrued holidays, national insurance and social security contributions in compliance with national contracts of employment and current legislation. Given their compensatory nature, labour costs also include stock options granted to managers. The instruments granted are recorded at fair value on the vesting date, plus any charges borne by the employer (social security contributions and employee termination indemnities) and are not subject to subsequent adjustments. The current portion is calculated pro rata over the vesting period)7. The fair value of stock options is determined using valuation techniques which consider conditions related to the exercise of options, current share prices, expected volatility and the risk-free interest rate. The fair value of stock options is shown in the item (cid:212)Payroll and related costs(cid:213) as a contra entry to (cid:212)Other reserves(cid:213). (6) Actuarial assumptions relate to, inter alia, the following variables: (i) future salary levels; (ii) employee mortality rate; (iii) employee turnover rate; (iv) percentage of plan participants with dependents eligible to receive benefits (e.g. spouses and children); (v) for medical assistance plans, frequency of claims and future medical costs; (vi) interest rates. (7) Period between the date of the award and the date on which the option can be exercised. 110 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S The costs for the acquisition of new knowledge or discoveries, the study of products or alternative processes, new techniques or models, the planning and construction of prototypes or any other costs incurred for other scientific research activities or technological development, are generally considered current costs and expensed as incurred. These costs are capitalised when they meet the requirements listed under (cid:212)Costs of technological development activities(cid:213). Exchange rate differences Revenues and costs associated with transactions in currencies other than the functional currency are translated into the functional currency by applying the exchange rate at the date of the transaction. Monetary assets and liabilities in currencies other than the functional currency are converted by applying the year-end exchange rate. The effect is recognised in the income statement. Non-monetary assets and liabilities denominated in currencies other than the functional currency valued at cost are translated at the initial exchange rate. Non-monetary assets that are re-measured at fair value (i.e. at their recoverable amount or realizable value), are translated at the exchange rate applicable on the date of re- measurement. Dividends Dividends are recognised at the date of the general shareholders(cid:213) meeting in which they were declared, except when the sale of shares before the ex-dividend date is certain. Income taxes Current income taxes are determined on the basis of estimated taxable income. The estimated liability is recognised in (cid:212)Income tax payables(cid:213). Current income tax assets and liabilities are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets or liabilities are recognised for temporary differences between the carrying amounts and tax bases of assets and liabilities, based on tax rates and tax laws that have been enacted or substantively enacted for future years. Deferred tax assets are recognised when their realisation is considered probable. Deferred tax assets and liabilities are recorded under non-current assets and liabilities and are offset at single entity level if related to offsettable taxes. The balance of the offset, if positive, is recognised in the item (cid:212)Deferred tax assets(cid:213); if negative, in the item (cid:212)Deferred tax liabilities(cid:213). When the results of transactions are recognised directly in shareholders(cid:213) equity, current taxes, deferred tax assets and liabilities are also charged to shareholders(cid:213) equity. Derivatives A derivative is a financial instrument which has the following characteristics: (i) its value changes in response to the changes in a specified interest rate, financial instrument price, commodity price, foreign exchange rate or other variable; (ii) it requires no initial net investment or the investment is small; (iii) it is settled at a future date. Derivatives, including embedded derivatives that are separated from the host contract, are assets and liabilities recognised at their fair value, which is estimated by using the criteria described in the section (cid:212)Current assets(cid:213). Consistently with its business requirements, Saipem classifies derivatives as hedging instruments, whenever possible. Derivatives are classified as hedging instruments when the relationship between the derivative and the subject of the hedge is formally documented and the effectiveness of the hedge is high and is tested regularly. When hedging instruments cover the risk of changes in the fair value of the hedged item (fair value hedge; e.g. hedging of changes in the fair value of fixed interest rate assets/liabilities), they are stated at fair value, with changes taken to the income statement. Hedged items are accordingly adjusted for changes in their fair value attributable to the hedged risk. A cash flow hedge is a hedge of the exposure to variability in cash flows that could affect profit or loss and that is attributable to a particular risk associated with a recognised asset or liability (such as future interest payments on variable rate debt) or a highly probable forecast transaction, such as project income/costs. The effective portion of changes in fair value of derivatives designated as hedges under IAS 39 is recorded initially in a hedging reserve and is recognised in the income statement in the period in which the hedged item affects the income statement. The ineffective portion of changes in fair value of derivatives, as well as the entire change in fair value of those derivatives not designated as hedges or that do not meet the criteria set out in IAS 39, are taken directly to the income statement under (cid:212)Finance income (expenses)(cid:213). 111 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S Financial statements8 Assets and liabilities of the balance sheet are classified as current and non-current. Items of the income statement are presented by nature9. The statement of comprehensive income shows net profit together with incomes and expenses that are recognised directly in equity in accordance with IFRS. The statement of changes in shareholders(cid:213) equity includes profit and loss for the year, transactions with shareholders and other changes in shareholders(cid:213) equity. The statement of cash flows is presented using the indirect method, whereby net profit is adjusted for the effects of non-cash transactions. Changes in accounting principles Segment reporting is prepared according to the provisions of IFRS 8 (cid:212)Operating Segments(cid:213), effective starting from January 1, 2009. The new standard requires segment reporting to be prepared according to the requirements used for the preparation of internal reports for the entity(cid:213)s chief operating decision maker. Therefore the identification of operating segments and the related reporting are prepared on the basis of internal reports that are regularly reviewed by the entity(cid:213)s chief operating decision maker in order to allocate resources to the segment and to assess its performance. The adoption of the provisions of IFRS 8 (cid:212)Operating segments(cid:213) has not modified the reporting segments10. Risk management The main risks that Saipem is facing and actively monitoring and managing are the following: (i) the market risk deriving from exposure to fluctuations in interest rates and exchange rates between the euro and the other currencies used by the company and the risk deriving from exposure to commodity price volatility; (ii) the credit risk deriving from the possible default of a counterparty; (iii) the liquidity risk deriving from the risk that suitable sources of funding for the Group(cid:213)s operations may not be available; (iv) the HSE risk associated with the potential occurrence of accidents, malfunctions, or failures with injury to persons and damage to the environment and impacts on operating and financial results; (v) the country risk; (vi) the project risk associated with the execution phase of engineering and construction contracts. Financial risks are managed in accordance with guidelines defined by the parent company, with the objective of aligning and coordinating Group companies(cid:213) policies on financial risks. MARKET RISK Market risk is the possibility that changes in currency exchange rates, interest rates or commodity prices will adversely affect the value of the Group(cid:213)s financial assets, liabilities or expected future cash flows. Saipem actively manages market risk in accordance with a set of policies and guidelines that provide a centralised model of conducting finance, treasury and risk management operations based on the Group Treasury Structures. Exchange rate risk Exchange rate risk derives from the fact that Saipem(cid:213)s operations are conducted in currencies other than the euro and that revenues and costs from a significant portion of projects implemented are denominated in or linked to non-euro currencies. This impacts on: - profits, which may be significantly affected by exchange rate fluctuations on specific transactions arising from the time lag existing between the execution of a given transaction and the definition of the relevant contractual terms (economic risk) and by the conversion of foreign currency-denominated trade and financial payables and receivables (transaction risk); The financial statements are the same reported in the Annual Report 2008 with the exception of: (i) the adjustments related to the application, starting from 2009, of (8) the revised IAS 1 (cid:212)Presentation of Financial Statements(cid:213) as integrated by the document (cid:212)Improvements to IFRSs(cid:213) issued in May 2008, which requires the preparation of the statement of comprehensive income and the recognition of the non-hedging derivatives in the (cid:212)current(cid:213) and (cid:212)non-current(cid:213) section of the balance sheet and (ii) the recognition of the changes in the fair value of the non-hedging derivatives on commodities, including the effects of settlements, in the new income statement item (cid:212)Other operating income (expense)(cid:213). Prior period results have been restated accordingly. (9) Additional information regarding financial instruments, applying the classification required by IFRS, is provided under Note 31, Guarantees, commitments and risks (cid:212)Additional information on financial instruments(cid:213). (10) Moreover, starting from 2009, the provisions of the revised IAS 23 (cid:212)Borrowing Costs(cid:213) are applied. The revised standard requires the capitalisation of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset that takes a substantial period of time to get ready for use or sale. The main change from the previous version is therefore the removal of the option of immediately recognising as an expense such borrowing costs. The change does not affect Saipem(cid:213)s financial statements as it already capitalises such costs. Other new international accounting standards that became effective in 2009 and/or changes to existing accounting standards did not have a material impact on the financial statements at December 31, 2009. 112 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S - the Group(cid:213)s reported results and shareholders(cid:213) equity, as financial statements of subsidiaries denominated in currencies other than the euro are translated from their functional currency into euro (translation risk). Saipem(cid:213)s foreign exchange risk management policy is to minimise economic and transactional exposures arising from foreign currency movements. Saipem does not normally undertake any hedging activity for risks deriving from the translation of foreign currency denominated profits or assets and liabilities of subsidiaries that prepare financial statements in a currency other than the euro, except for single transactions evaluated on a case-by-case basis. In compliance with International Financial Reporting Standards (IFRS), Saipem uses a number of different types of derivative contract to reduce economic and transaction exposure, such as currency swaps, forwards and options. Such derivatives are evaluated by the Eni Corporate Finance Unit of Eni SpA at fair value on the basis of market prices provided by specialised sources. Planning, coordination and management of this activity at Group level is responsibility of the Saipem Treasury Department, which closely monitors the correlation between derivatives and their underlying flows as well as ensuring their correct accounting representation in compliance with the International Financial Reporting Standards. An exchange rate sensitivity analysis was performed for those currencies other than euro for which exchange risk exposure in 2009 was highest (the US dollar, UK pound sterling and the Norwegian kroner) in order to calculate the effect on the income statement and shareholders(cid:213) equity of hypothetical positive and negative variations of 10% in the exchange rates. The analysis was performed for all relevant financial assets and liabilities denominated in the above currencies and regarded in particular the following items: - exchange rate derivatives; - trade and other receivables; - trade and other payables; - cash and cash equivalents; - short and long-term financial liabilities. For exchange rate derivatives, the sensitivity analysis on fair value was conducted by comparing the conditions underlying the forward price fixed in the contract (i.e. spot exchange rate and interest rate) with spot rates and interest rate curves corresponding to the relevant contractual maturity dates, on the basis of year end exchange rates subjected to hypothetical positive and negative changes of 10%, with the resulting effects weighted on the basis of the notional amounts. The analysis did not examine the effect of exchange rate fluctuations on the measurement of work in progress, as under IAS 32, work in progress does not constitute a financial asset. Moreover, the analysis regards exposure to exchange rate risk in accordance with IFRS 7 and therefore does not consider the effects of the conversion of financial statements of consolidated companies with functional currencies other than the euro. A positive variation in exchange rates between the foreign currencies examined and the euro (i.e. depreciation of the euro against the other currencies) would have produced an overall effect on pre tax profit of o18 million (o12 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects, of -o225 million (-o141 million at December 31, 2008). Meanwhile, a negative variation in exchange rates between the foreign currencies examined and the euro (i.e. appreciation of the euro against the other currencies) would have produced an overall effect on pre tax profit of o53 million (o42 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects, of o252 million (o168 million at December 31, 2008). The increase (decrease) with respect to the previous year is essentially due to the currency exchange rates on the two reference dates and to variations in the assets and liabilities exposed to exchange rate fluctuations. (o million) Derivatives Trade and other receivables Trade and other payables Cash and cash equivalents Short-term debt Medium/long-term debt Total 8 0 0 2 9 0 0 2 +10% -10% +10% -10% Income statement Shareholders(cid:213) equity Income statement Shareholders(cid:213) equity Income Shareholders(cid:213) equity statement Income Shareholders(cid:213) equity statement (13) 83 (57) 45 (41) (5) 12 (166) 83 (57) 45 (41) (5) (141) 40 (68) 70 (37) 33 4 42 166 (68) 70 (37) 33 4 168 (14) 96 (55) 13 (18) (4) 18 (257) 96 (55) 13 (18) (4) (225) 257 (79) 68 (11) 14 3 252 58 (79) 68 (11) 14 3 53 113 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S The results of the sensitivity analysis on trade receivables and payables broken down by currency are as follows. (o million) Receivables Total Payables Total Currency Total ˘ -10% ˘ +10% Total ˘ -10% ˘ +10% 8 0 0 2 9 0 0 2 USD GBP NOK USD GBP NOK Other currencies 734 9 2 745 545 39 47 1 632 (67) (1) - (68) 61 4 5 - 70 82 1 - 83 (50) (3) (4) - (57) 845 14 6 865 509 56 39 5 609 (77) (1) (1) (79) 57 6 4 1 68 94 1 1 96 (46) (5) (4) - (55) Interest rate risk The risk exposure arising from interest rate fluctuations within the Saipem Group is associated mainly with long-term financing with variable rates. To reduce this risk, Interest Rate Swaps (IRS) are entered into, as they also ensure a balanced relation between debt at fixed and variable interest rates. Such derivatives are evaluated at fair value by the Treasury Department of Eni SpA on the basis of market prices provided by specialised sources. Planning, coordination and management of this activity at Group level is the responsibility of the Treasury Department. To measure sensitivity to interest rate risk, a sensitivity analysis was performed. The analysis calculated the effect on the income statement and shareholders(cid:213) equity of hypothetical positive and negative variations of 10% in interest rates. The analysis was performed for all relevant financial assets and liabilities exposed to interest rate fluctuations and regarded in particular the following items: - interest rate derivatives; - cash and cash equivalents; - short and long-term financial liabilities. For interest rate derivatives, the sensitivity analysis on fair value was conducted by comparing the interest rate conditions (fixed and variable rate) underlying the contract and used to calculate future interest rate differentials with discount curves for variable interest rates on the basis of year end interest rates subjected to hypothetical positive and negative changes of 10%, with the resulting changes weighted on the basis of the notional amounts. For cash and cash equivalents, the analysis used the average balance for the year and the average rate of return for the year, while for short and long-term financial liabilities, the average exposure for the year and average interest rate were considered. A positive variation in interest rates would have produced an overall effect on pre tax profit of -o6 million (-o11 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects of -o5 million (-o9 million at December 31, 2008). A negative variation in interest rates would have produced an overall effect on pre tax profit of o6 million (o11 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects of o5 million (o9 million at December 31, 2008). 114 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S The increase (decrease) with respect to the previous year is essentially due to the interest rates on the two reference dates and to variations in the assets and liabilities exposed to interest rate fluctuations. (o million) Derivatives Cash and cash equivalents Short-term debt Medium/long-term debt Total 8 0 0 2 9 0 0 2 +10% -10% +10% -10% Income statement Shareholders(cid:213) equity Income statement Shareholders(cid:213) equity Income Shareholders(cid:213) equity statement Income Shareholders(cid:213) equity statement - 7 (16) (2) (11) 2 7 (16) (2) (9) - (7) 16 2 11 (2) (7) 16 2 9 - 1 (5) (2) (6) 1 1 (5) (2) (5) - (1) 5 2 6 (1) (1) 5 2 5 Commodity risk Saipem(cid:213)s results are affected by changes in the prices of oil products (fuel oil, bunker oil, etc.) and raw materials, since they represent associated costs in the running of vessels, offices and yards and the implementation of projects and investments. In order to accomplish this, it uses derivatives traded over the counter (swaps, forward, contracts for differences) through Eni Trading & Shipping (ETS) on the organised markets of ICE and NYMEX (futures), with the underlying commodities being oil products (ICE gasoil). Such derivatives are evaluated at fair value on the basis of market prices provided by specialised sources or, in the absence of market prices, through Eni finance companies, in accordance with Group guidelines regarding the centralised financial management. With regard to commodity risk hedging instruments, a 10% positive variation in the underlying rates would have produced an overall effect on pre tax profit of o0.1 million (-o0.3 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects, of o6 million (o4 million at December 31, 2008). A 10% negative variation in the underlying rates would have produced an overall effect on pre tax profit of -o0.1 million (o0.3 million at December 31, 2008) and an overall effect on shareholders(cid:213) equity, before related tax effects, of -o6 million (-o4 million at December 31, 2008). The increase (decrease) with respect to the previous year is essentially due to the differences between the prices used in calculating the fair value of the instrument at the two reference dates. CREDIT RISK Credit risk represents Saipem(cid:213)s exposure to potential losses deriving from non-performance of counterparties. Credit risk arising in the normal course of operations is monitored by the business units and the administration department on the basis of standard procedures and periodic reporting. For financial investments and the use of financial instruments, including derivatives, companies adopt the guidelines issued by the Treasury Department of Saipem. The critical situation that has developed on the financial markets has led to additional preventative measures to avoid the concentration of risk/assets being adopted. In addition, operations involving derivative instruments are being managed with a greater degree of selectivity. The company did not have any significant cases of non performance by counterparties. As at December 31, 2009, Saipem has no significant concentrations of credit risk. LIQUIDITY RISK Liquidity risk is the risk that suitable sources of funding for the Group may not be available (funding liquidity risk), or that the Group is unable to sell its assets on the market place (asset liquidity risk), making it unable to meet its short-term finance requirements and settle obligations. Such a situation would negatively impact the Group(cid:213)s results as it would result in the Company incurring higher borrowing expenses to meet its obligations or under the worst of conditions the inability of the Company to continue as a going concern. Saipem manages liquidity risk by targeting a capital structure that guarantees a level of liquidity adequate for the Groups(cid:213) needs, optimising the opportunity cost of maintaining liquidity reserves and achieving an optimal profile in terms of maturity and composition of debt, in accordance with management plans and business objectives including prescribed limits in terms of maximum ratio of debt to total equity and minimum ratio of medium and long-term debt to total debt as well as fixed rate medium and long-term debt to total medium/long-term debt. 115 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S In spite of the significant deterioration of market conditions, which during the year led to an expansion of the credit market and strong pressure on spreads, Saipem believes it has access to sufficient funding and borrowing facilities to meet currently foreseeable requirements, thanks to a use of credit lines that is both flexible and targeted to meet business needs. The liquidity management policies used — which were being applied even before the worsening of the crisis — have the objective of ensuring both the availability of adequate funding to meet short-term requirements and obligations and a sufficient level of operating flexibility to fund Saipem(cid:213)s development plans, while maintaining an adequate finance structure in terms of debt composition and maturity. At December 31, 2009, Saipem maintained unused borrowing facilities of o1,267 million. These facilities were under interest rates that reflected market conditions. Fees charged for unused facilities were not significant. The following tables show total contractual payments (including interest payments) and maturities on financial debt and payments and due dates for trade and other payables. Finance debt (o million) Long-term debt Short-term debt Fair value of derivative instruments Interest on debt Trade and other payables (o million) Trade payables Other payables and advances 2010 350 1,797 175 2,322 52 2011 322 - 18 340 51 2012 196 - 8 204 49 2014 379 - - 379 43 After 528 - - 528 95 y t i r u t a M 2013 371 - - 371 46 y t i r u t a M 2010 2,602 3,131 2011-2014 - 2 After - - Total 2,146 1,797 201 4,144 336 Total 2,602 3,133 In addition to the financial and trade debt recorded in the balance sheet, the Saipem Group has contractual obligations relating to non-cancellable operating leases whose performance will entail payments being made in future years. The following table shows undiscounted payments due in future years in relation to outstanding contractual obligations. Outstanding contractual obligations (o million) Non-cancellable operating leases 2010 116 2011 103 2012 29 y t i r u t a M 2013 19 2014 5 After 4 Total 276 The table below summarises Saipem(cid:213)s capital expenditure commitments for property, plant and equipment and capital projects at December 31, 2009, for which procurement contracts will normally have been entered into. (o million) Committed on major projects Other committed projects 116 y t i r u t a M 2010 805 109 914 2011 151 - 151 S A I P E M A N N UA L R E P O R T / SU M M A RY O F SI G N I F I C A N T AC C O U N T I N G P O L I C I E S HSE RISK Saipem(cid:213)s business activities conducted both in and outside of Italy are subject to a broad range of national legislation and regulations, including laws implementing international protocols and conventions relating to specific sectors of activity. These laws and regulations require prior authorisation and/or the acquisition of a license before operations may commence and the compliance with health, safety and environmental protection regulations. Environmental regulations impose restrictions on the types, quantities and concentration of pollutants that can be released into the air, water and soil and require companies to adopt correct waste management practices. In particular, strict operating practices and standards to protect biodiversity must be adopted when exploring for, drilling and producing oil and gas in certain ecologically sensitive locations (protected areas). Failure to comply with environmental, health and safety laws is punishable by criminal and civil sanctions against the individuals responsible and — in certain cases of violations of safety laws — against companies, in accordance with a European model of direct corporate liability implemented in Italy through Legislative Decree 231/2001. Environmental, health and safety laws and regulations have a substantial impact on Saipem(cid:213)s operations, and expenses, and liabilities that Saipem may incur in relation to compliance with environmental, health and safety laws and regulations are expected to remain material to the Group(cid:213)s results of operations or financial position in future years. Recently enacted legislation regarding health and safety in the workplace in Italy introduced new requirements which will have an impact on operations at Eni sites and in particular on relationships with contractors as well as significant repercussions on the models used for attributing liability in the event of violations of health and safety legislation. The new legislation emphasised the importance of adopting certified organisational and management models capable of discharging the company from corporate liability in the event of violations of legislation regarding health and safety in the workplace. For this purpose, Saipem has adopted HSE guidelines to ensure the health and safety of employees, local communities, contractors and clients and the safeguarding of the environment, in compliance with local and international rules and regulations and in line with international best practices and standards. An ongoing process of risk identification, evaluation and mitigation is at the heart of HSE management operations in all phases of activity and for all business units. This process is implemented through the adoption of effective management procedures and systems designed to suit the specific characteristics of each activity and the sites in which they take place and with a view to achieving the continuous improvement of plant and processes. Additionally, the codification and proceduralization of operating phases has led to a reduction of the human factor in plant risk management. Operating emergencies that may have an adverse impact on assets, people and the environment are managed by the business units at site level through dedicated HSE structures equipped with emergency response plans indicating the corrective actions to be taken to minimise damage in the event of an incident and responsibilities for ensuring they are taken. Saipem(cid:213)s integrated approach to managing health, safety and environmental issues is supported by the adoption in all Group companies of an HSE management system based on the Saipem/Eni Management System Model. This is a procedure based on an annual cycle of planning, implementation, control, review of results and definition of new objectives. The model is aimed at achieving risk prevention and the systematic monitoring and control of HSE performance, in a cycle of continuous improvement, and is subject to audits by internal and independent experts. Saipem(cid:213)s facilities are certified to international standards such as ISO 14001, OHSAS 18001 and even EMAS. Saipem also provides an advanced programme of training and development for HSE staff with the aim of: - promoting conduct consistent with the applicable guidelines; - guiding HSE-related cultural, professional and managerial growth of all personnel working at and for Saipem; - supporting knowledge management and HSE risk control. COUNTRY RISK Substantial portions of Saipem(cid:213)s operations are performed in countries outside the EU and North America, certain of which may be politically or economically less stable. Developments in the political framework, economic crises and social unrest can compromise temporarily or permanently Saipem(cid:213)s ability to operate or to economically operate in such countries. Further risks associated with activities in such countries are: (i) lack of well established and reliable legal systems and uncertainties surrounding enforcement of contractual rights; (ii) unfavourable developments in laws and regulations and unilateral contract changes, leading to reductions in the value of Saipem(cid:213)s assets, forced sales and expropriations; (iii) restrictions on construction, drilling, imports and exports; (iv) tax increases; (v) civil and social unrest leading to sabotages, acts of violence and incidents. While the occurrence of these events is unpredictable, they may have a material adverse impact on Saipem(cid:213)s financial position and results. 117 S A I P E M A N N UA L R E P O R T / U S E O F AC C O U N T I N G E S T I M AT E S Saipem employs a continuous and holistic approach to monitoring political, social and economic risk in countries in which it operates or intends to invest, using the reports on principal project risks and related trends prepared in accordance with Corporate Risk Management Policy and Risk Management procedures and Standards and Security reports prepared in accordance with the Corporate Security Policy and Guidelines on Security Activities. PROJECT RISK The main objectives of the Risk and Opportunity and Knowledge Management department are to: - promote the use of risk and opportunity and knowledge management in tenders and in the execution phase of projects managed by the various Business Units; - assure periodic reporting to management on principal project risks; - ensure the spread of a risk and opportunity and knowledge management culture within Saipem; - provide advice, support and guidelines to the Business Units and projects in identifying and evaluating risks and opportunities and in all activities related to the implementation of mitigation and improvement measures for risk management and the optimization of opportunities, respectively; - define, develop and update tools and methods for collecting and organising lessons learned and making them available to projects; - ensure adequate training in line with the international standards and Codes of Practice to commercial and project management teams; - ensure the constant updating of guidelines, procedures and Corporate standards, promoting their correct application within Saipem and subsidiary companies. The standards and procedures in force at Saipem comply in terms of project risk management with the principal international risk management regulations and standards. Use of accounting estimates The preparation of financial statements and interim reports in accordance with generally accepted accounting standards requires management to make accounting estimates based on complex or subjective judgments, past experience and assumptions deemed reasonable and realistic based on the information available at the time. The use of these estimates and assumptions affects the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates given the uncertainty surrounding the assumptions and conditions upon which the estimates are based. Summarised below are those accounting estimates used in the preparation of consolidated financial statements and interim reports that are considered critical because they require management to make a large number of subjective judgments, assumptions and estimates regarding matters that are inherently uncertain. Changes in the conditions underlying such judgments, assumptions and estimates may have a significant affect on future results. CONTRACT WORK IN PROGRESS Contract work in progress for long-term contracts — for which estimates necessarily have a significant subjective component — are measured on the basis of estimated revenues and costs over the full life of the contract. Contract work in progress includes extra revenues from additional works following modifications to the original contracts if their realisation is probable and the amount can be reliably estimated. The ever-increasing volumes generated by EPIC (Engineering, Procurement, Installation and Construction) type projects, which are intrinsically highly complex, large-scale, long-term and involve a high level of unpredictability, have made it necessary to include expected additional revenues in periodic statements even before a formal agreement with the counterpart has been reached. IMPAIRMENT OF ASSETS Saipem assesses its tangible and intangible assets for possible impairment if there are events or changes in circumstances that indicate the carrying values of the assets are not recoverable. Impairment is recognised in the event of significant permanent changes in the outlook for the market segment in which the asset is used. Determining as to whether and how much an asset is impaired involves management estimates on complex and highly 118 S A I P E M A N N UA L R E P O R T / U S E O F AC C O U N T I N G E S T I M AT E S uncertain factors, such as future market performances, the effects of inflation and technological improvements on operating costs, and the outlook for global or regional market supply and demand conditions. The amount of an impairment loss is determined by comparing the book value of an asset with its recoverable amount. The recoverable amount is the greater of the asset(cid:213)s fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from the use of the asset, net of disposal costs. The expected future cash flows used for impairment reviews are based on judgmental assessments of future variables such as prices, costs, demand growth rate, and production volumes, considering the information available at the date of the review and are discounted a rate that reflects the risk inherent in the relevant activity. Goodwill and other intangible assets with an indefinite useful life are not amortised. The recoverability of their carrying value is reviewed at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at cash-generating unit level, i.e. the smallest aggregate on which the company, directly or indirectly, evaluates the return on the capital expenditure. If the recoverable amount of a cash generating unit is lower than the carrying amount, goodwill attributed to that cash generating unit is impaired up to that difference; if the carrying amount of goodwill is less than the amount of impairment, assets of the cash generating unit are impaired on a pro-rata basis for the residual difference. BUSINESS COMBINATIONS Accounting for business combinations requires the allocation of the purchase price to the various assets and liabilities of the acquired business at their respective fair values. Any positive residual difference is recognised as goodwill. Negative residual differences are credited to the income statement. Management uses all available information to make these fair value determinations and, for major business acquisitions, typically engages an independent appraisal firm to assist in the fair value determination of the acquired assets and liabilities. CONTINGENCIES Saipem records provisions for contingencies primarily in relation to employee benefits, litigation and tax issues. Determining appropriate amounts for provisions is a complex estimation process that includes subjective judgements. EMPLOYEE BENEFITS Post-employment benefit plans arising from defined benefit plans are evaluated with reference to uncertain events and based upon actuarial assumptions including, inter alia, discount rates, expected rates of return on plan assets, expected rates of salary increases, medical cost trend rates, estimated retirement dates and mortality rates. The significant assumptions used to account for pensions and other post-retirement benefits are determined as follows: (i) discount and inflation rates reflect the rates at which the benefits could be effectively settled, taking into account the duration of the obligation. Indicators used in selecting the discount rate include rates of annuity contracts and rates of return on high- quality fixed-income investments (such as government bonds). The inflation rates reflect market conditions observed country by country; (ii) the future salary levels of the individual employees are determined including an estimate of future changes attributed to general price levels (consistent with inflation rate assumptions), productivity, seniority and promotion; (iii) healthcare cost trend assumptions reflect an estimate of the actual future changes in the cost of the healthcare related benefits provided to the plan participants and are based on past and current healthcare cost trends including healthcare inflation, changes in healthcare utilisation, and changes in health status of the participants; (iv) demographic assumptions such as mortality, disability and turnover reflect the best estimate of these future events for the individual employees involved, based principally on available actuarial data; and (v) determination of the expected rates of return on assets is made through compound averaging. For each plan, the distribution of investments among bonds, equities and cash and their specific average expected rate of return is taken into account. Differences between expected and actual costs and between the expected return and the actual return on plan assets routinely occur and are called actuarial gains and losses. Saipem employs the corridor method to amortise its actuarial gains and losses. This method amortises on a pro-rata basis the net cumulative unrecognised actuarial gains and losses at the end of the previous reporting period that exceed 10% of the greater of (i) the present value of the defined benefit obligation; and (ii) the fair value of plan assets, over the average expected remaining working lives of the employees participating in the plan. Additionally, obligations for other long-term benefits are determined by adopting actuarial assumptions. The effect of changes in actuarial assumptions or a change in the characteristics of the benefit are taken to profit or loss in their entirety. 119 S A I P E M A N N UA L R E P O R T / R E C E N T AC C O U N T I N G P R I N C I P L E S Recent accounting principles Accounting standards and interpretations issued by IASB/IFRIC and endorsed by the European Union Commission Regulations No. 495/2009 and No. 494/2009 of June 3, 2009 endorsed the revised IFRS 3 (cid:212)Business Combinations(cid:213) and an amended version of IAS 27 (cid:212)Consolidated and Separate Financial Statements(cid:213). The revisions to IFRS 3 require, inter alia, (i) acquisition-related costs to be accounted for separately from the business combination and then recognised as expenses; (ii) the recognition in the income statement of any change to contingent consideration; and (iii) the choice of the full goodwill method which means recognising the full value of the goodwill of the business combination including the share attributable to minority interest. In the case of step acquisitions, the revisions also require the recognition in the income statement of the difference between the fair value at the acquisition date of the net assets previously held and their carrying amounts. The amendments of IAS 27 require, inter alia, acquisitions or disposals of ownership interests in a subsidiary that do not result in the loss of control, to be accounted for as equity transactions. Meanwhile, in the event of disposals of ownership interests that result in a loss of control, joint control or significant influence, the investment retained in the former subsidiary is increased/decreased to fair value at the date when control is lost, with gains or losses arising from the difference between the fair value and carrying amount of the held investment recognised in the income statement. The revised standards shall be applied for annual periods beginning on or after July 1, 2009 (for Saipem: 2010 financial statements). Commission Regulation No. 1293/2009 of December 23, 2009 endorsed the amendment to IAS 32 (cid:212)Classification of rights issues(cid:213). The amendment clarifies how to classify in the issuer(cid:213)s financial statements those financial instruments which grant to shareholders the right to acquire equity instruments of the issuers for a price denominated in a currency other than issuer(cid:213)s functional currency. If such instruments are issued pro rata to the issuer(cid:213)s existing shareholders for a fixed amount of cash, they should be classified as equity even if their exercise price is denominated in a currency other than the issuer(cid:213)s functional currency. The amendment to IAS 32 shall be applied for annual period beginning on or after February 1, 2010 (for Saipem: 2011 financial statements). Commission Regulation No. 254/2009 of March 25, 2009 endorsed IFRIC 12 (cid:212)Service Concession Arrangements(cid:213) (hereinafter IFRIC 12). The interpretation provides guidance on the accounting by operators for public-to-private service concession arrangements. An arrangement within the scope of this interpretation involves for a specified period of time an operator constructing, upgrading, operating and maintaining the infrastructure used to provide the public service. In particular, when the grantor controls or regulates what services the operator must provide with the infrastructure, at what price and any significant residual interest in the infrastructure at the end of the term of the arrangement, the grantor shall recognise the concession as an intangible asset or as a financial asset on the basis of the agreements. According to the Commission Regulation, this interpretation shall be applied for annual periods beginning on or after March 29, 2009 (for Saipem: 2010 financial statements)11. Commission Regulation No. 1142/2009 of November 26, 2009 endorsed IFRIC 17 (cid:212)Distributions of Non-cash Assets to Owners(cid:213) (hereinafter IFRIC 17). The interpretation provides clarification and guidance on the accounting treatment of distributions of non-cash assets to owners of an entity, or distributions that give owners a choice of receiving either non-cash assets or a cash alternative. In particular, the interpretation requires, inter alia, the distribution to be measured at the fair value of the assets to be distributed. The liability to pay a dividend shall be recognised when the dividend is appropriately authorised; the liability and the related adjustments are recognised as a contra to equity. When an entity settles the dividend payable, it shall recognise the difference, if any, between the carrying amount of the non-cash assets distributed and the fair value of the dividend payable in profit or loss. According to the Commission Regulation, this interpretation shall be applied for annual periods beginning after October 31, 2009 (for Saipem: 2010 financial statements)12. Commission Regulation No. 1164/2009 of November 27, 2009 endorsed IFRIC 18 (cid:212)Transfers of Assets from Customers(cid:213) (hereinafter IFRIC 18). The interpretation provides clarification and guidance on the accounting for transfers of assets to be used to connect customers to a network to supply goods or services. The interpretation is also applied in the cases in which the entity (11) According to IFRIC 12 provisions, the interpretation is applicable to annual periods beginning on or after January 1, 2008. IFRIC 12 therefore had to be considered, starting from 2008, for the preparation of Annual Report on Form 20-F. Starting from 2007, Eni applied the SEC provisions allowing elimination of the U.S. GAAP reconciliation of the net income and equity for foreign private issuers that prepare their financial statements adopting the provisions of the international accounting standards (IFRS) issued by the IASB (including those not yet endorsed as well as those that have been endorsed but that have a different effective date). (12) According to IFRIC 17 provisions, the interpretation is applicable to annual periods beginning on or after July 1, 2009. 120 S A I P E M A N N UA L R E P O R T / R E C E N T AC C O U N T I N G P R I N C I P L E S receives cash from a customer that must be used only to connect the customer to a network. When the definition of an asset set out in the Framework is met, the asset received is recognised at its fair value; when the agreement states the supply of more than one service (for example, connection to a network and supply of goods) the entity receiving the transfer shall assess which service is provided against the transferred asset and recognises, consistently, a revenue when the connection is made or over a period no longer than the length of the supply and the useful life of the asset. IFRIC 18 provisions do not apply to assets within the scope of IFRIC 12. According to the Commission Regulation, this interpretation shall be applied for annual periods beginning after October 31, 2009 (for Saipem: 2010 financial statements)13. Accounting standards and interpretations issued by IASB/IFRIC but not yet endorsed by the European Union On November 4, 2009, IASB issued a new version of IAS 24 (cid:212)Related Party Disclosures(cid:213), which: (i) broadened the definition of a related party; (ii) for transactions between entities related to the same Government, allows quantitative disclosures to be limited to significant transactions. The revised standard shall be applied for annual periods beginning on or after January 1, 2011. On November 12, 2009 IASB issued IFRS 9 (cid:212)Financial Instruments(cid:213), which changes the recognition and measurement of financial assets and their classification in the financial statements. The new provisions require, inter alia, a classification and measurement model of financial assets based exclusively on the following categories: (i) financial assets measured at amortised cost; (ii) financial assets measured at fair value. The new provisions also require investments in equity instruments, other than subsidiaries, jointly controlled entities or associates, to be measured at fair value with value changes recognised in profit or loss. If these investments are not held for trading purposes, subsequent changes in the fair value can be recognised in other comprehensive income, with only dividend income recognised in profit or loss. Amounts taken to other comprehensive income shall not be subsequently transferred to profit or loss, even at disposal. IFRS 9 provisions shall be applied for annual periods beginning on or after January 1, 2013. On November 26, 2009 IASB issued IFRIC 19 (cid:212)Extinguishing Financial Liabilities with Equity Instruments(cid:213) which defines the accounting treatment to adopt when a financial liability is settled by issuing equity instruments to the creditor (debt for equity swaps). Equity instruments issued to extinguish fully or partially a liability are measured at their fair value or, if fair value cannot be reliably measured, at the fair value of the financial liability extinguished. The difference between the carrying amount of the financial liability extinguished and the fair value of equity instrument issued shall be recognised in profit or loss. IFRIC 19 provisions shall be applied for annual periods beginning on or after July 1, 2010 (for Saipem: 2011 financial statements). On April 16, 2009, IASB issued the document (cid:212)Improvements to IFRSs(cid:213), which includes only changes to the existing standards and interpretation of a technical and editorial nature. The provisions come into effect starting from 2010. Saipem is currently reviewing these new IFRS and interpretations to determine the likely impact on the Group(cid:213)s results. (13) According to IFRIC 18 provisions, the interpretation shall be applied prospectively to transfers of assets from customers received on or after July 1, 2009. Therefore, similarly to IFRIC 12, IFRIC 18 provisions have to be considered for the preparation of Annual Report on Form 20-F. 121 S A I P E M A N N UA L R E P O R T / S C O P E O F C O N S O L I DAT I O N Scope of consolidation at December 31, 2009 y n a p m o C e c i f f o d e r e t s i g e R y c n e r r u C l a t i p a c e r a h S l s r e d o h e r a h S n o i t a d i l o s n o c s (cid:213) m e p i a S ) % ( n o i t a d i l o s n o c f o g n i t n u o c c a r o ) * ( e l p i c n i r p d o h t e M d l e h % CONSOLIDATING COMPANY Saipem SpA San Donato Milanese EUR 441,410,900 Eni Corporate SpA Saipem SpA Third parties 42.91 1.44 55.65 CONTROLLED COMPANIES ITALY Consorzio Sapro San Giovanni Teatino Intermare Sarda SpA Tortol(cid:147) Saipem Energy Services SpA San Donato Milanese Servizi Energia Italia SpA Marghera Snamprogetti Chiyoda sas di Saipem SpA OUTSIDE ITALY Andromeda Consultoria Tecnica e Rapresenta(cid:141)(cid:155)es Ltda Bannorsud - Comercio, Servi(cid:141)(cid:155)s de Consultoria e Investimentos Lda (***) Boscongo sa BOS Investment Ltd BOS-UIE Ltd Entreprise Nouvelle Marcellin sa Ersai Caspian Contractor Llc Ersai Marine Llc (***) ERS - Equipment Rental & Services BV European Marine Contractors Ltd (**) European Marine Investments Ltd (**) European Maritime Commerce BV Global Petroprojects Services AG Hazira Cryogenic Engineering & Construction Management Private Ltd Hazira Marine Engineering & Construction Management Private Ltd Katran-K Llc San Donato Milanese Rio de Janeiro (Brazil) Funchal (Portugal) Pointe Noire (Congo) Hertfordshire (United Kingdom) Hertfordshire (United Kingdom) Marseille (France) Almaty (Kazakhstan) Almaty (Kazakhstan) Amsterdam (Netherlands) London (United Kingdom) London (United Kingdom) Amsterdam (Netherlands) Zurich (Switzerland) Mumbai (India) Mumbai (India) EUR EUR EUR EUR EUR 10,329 6,708,000 9,020,216 291,000 10,000 BRL 322,350,000 Saipem SpA Third parties Saipem SpA Saipem SpA Saipem Energy Services SpA Saipem SpA Third parties Saipem SpA Snamprogetti Netherlands BV 51.00 49.00 100.00 100.00 100.00 99.90 0.10 99.00 1.00 Co. F.C. F.C. F.C. F.C. 100.00 100.00 100.00 99.90 100.00 F.C. EUR 5,000 Saipem (Portugal) - Gest(cid:139)o 100.00 de Participa(cid:141)(cid:155)es SGPS SA XAF 200,000,000 Saipem sa Third parties 99.99 0.01 100.00 GBP GBP EUR 700,000 Saipem sa 100.00 100.00 600,600 BOS Investment Ltd 100.00 100.00 1,018,700 Saipem sa 100.00 100.00 KZT 1,105,930,000 Saipem International BV 50.00 50.00 Third parties 50.00 1,000,000 Ersai Caspian Contractor Llc 100.00 90,760 Saipem International BV 100.00 100.00 20,000 European Marine Investments Ltd Saipem UK Ltd 50.00 100.00 50.00 20,000 Saipem International BV 100.00 100.00 18,000 ERS - Equipment Rental & Services BV 100.00 100.00 5,000,000 Saipem International BV 100.00 100.00 KZT EUR GBP USD EUR CHF INR 500,000 Saipem sa Third parties INR 100,000 Saipem sa Sofresid sa 55.00 45.00 99.99 0.01 E.M. F.C. F.C. F.C. F.C. F.C. E.M. F.C. F.C. F.C. F.C. F.C. E.M. E.M. Krasnodar (Russian Federation) RUB 1,603,800 Saipem International BV 100.00 100.00 F.C. F.C. = full consolidation, P.C. = proportionate consolidation, E.M. = equity method, Co. = cost method In liquidation. (*) (**) (***) Inactive throughout the year. 122 S A I P E M A N N UA L R E P O R T / S C O P E O F C O N S O L I DAT I O N y c n e r r u C l a t i p a c e r a h S l s r e d o h e r a h S n o i t a d i l o s n o c s (cid:213) m e p i a S ) % ( n o i t a d i l o s n o c f o g n i t n u o c c a r o ) * ( e l p i c n i r p d o h t e M d l e h % F.C. F.C. F.C. E.M. F.C. F.C. F.C. E.M. F.C. F.C. F.C. F.C. F.C. F.C. F.C. F.C. E.M. NOK 40,000,000 Saipem International BV 100.00 100.00 USD 145,000 Moss Maritime AS 100.00 100.00 NOK 20,000,000 Moss Maritime AS 100.00 100.00 NGN 40,000,000 Saipem sa 100.00 KZT 1,910,000,000 Saipem International BV 100.00 100.00 PEN 100,719,045 Saipem International BV 100.00 100.00 USD KZT 357,143 1,000,000 Saipem sa Third parties Ersai Caspian Contractor Llc 70.00 30.00 70.00 100.00 100.00 E.M. USD 111,290,000 AOA 1,600,000 Saipem International BV 68.55 31.45 Saipem Asia Sdn Bhd Saipem (Portugal) - Gest(cid:139)o 60.00 de Participa(cid:141)(cid:155)es SGPS SA Third parties 40.00 100.00 F.C. MXN 90,050,000 Saimexicana SA de Cv 100.00 100.00 MXN USD MYR 50,000 Saipem sa 100.00 100.00 250,000 Saipem International BV 100.00 100.00 1,033,500 NGN 259,200,000 EUR 299,278,738 Saipem International BV 41.94 58.06 Third parties Saipem International BV 89.41 10.59 Third parties Saipem (Portugal) - Gest(cid:139)o 100.00 de Participa(cid:141)(cid:155)es SGPS SA 100.00 89.41 100.00 EUR 49,900,000 Saipem International BV 100.00 100.00 USD 50,000,000 Saipem International BV 100.00 100.00 ARS 444,500 Saipem International BV 99.58 0.42 Third parties MYR 8,116,500 Saipem International BV 100.00 100.00 F.C. AUD 10,661,000 Saipem International BV 100.00 NGN 827,000,000 Saipem International BV 97.94 2.06 Third parties 97.94 DZD 1,556,435,000 Sofresid sa 100.00 100.00 USD 215,000 Saipem SpA 100.00 100.00 E.M. F.C. F.C. F.C. y n a p m o C Moss Maritime AS Moss Maritime Inc Moss Offshore AS Nigerian Services & Supply Co Ltd (***) North Caspian Service Co Llp Petrex SA Petromar Lda e c i f f o d e r e t s i g e R Lysaker (Norway) Houston (USA) Lysaker (Norway) Lagos (Nigeria) Almaty (Kazakhstan) Iquitos (Peru) Luanda (Angola) Professional Training Center Llc (***) Karakiyan District, Mangistau Oblast (Kazakhstan) PT Saipem Indonesia Sagio - Companhia Angolana de Gest(cid:139)o de Instala(cid:141)ao Offshore Lda Saigut SA de Cv Saimexicana SA de Cv Saipem (Beijing) Technical Services Co Ltd Saipem (Malaysia) Sdn Bhd Saipem (Nigeria) Ltd Saipem (Portugal) Com(cid:142)rcio Mar(cid:146)timo Sociedade Unipessoal Lda Saipem (Portugal) - Gest(cid:139)o de Participa(cid:141)(cid:155)es SGPS SA Saipem America Inc Saipem Argentina Samic y F. (**) (***) Saipem Asia Sdn Bhd Saipem Australia Pty Ltd (***) Saipem Contracting (Nigeria) Ltd Saipem Contracting Alg(cid:142)rie SpA Saipem Discoverer Invest Sarl Jakarta (Indonesia) Luanda (Angola) Ensenada (Mexico) Mexico City (Mexico) Beijing (China) Kuala Lumpur (Malaysia) Lagos (Nigeria) Funchal (Portugal) Funchal (Portugal) Wilmington (USA) Buenos Aires (Argentina) Kuala Lumpur (Malaysia) Sydney (Australia) Lagos (Nigeria) Hassi Messaoud (Algeria) Luxembourg (Luxembourg) F.C. = full consolidation, P.C. = proportionate consolidation, E.M. = equity method, Co. = cost method In liquidation. (*) (**) (***) Inactive throughout the year. 123 S A I P E M A N N UA L R E P O R T / S C O P E O F C O N S O L I DAT I O N y n a p m o C e c i f f o d e r e t s i g e R Saipem do Brasil Servi(cid:141)(cid:155)s de Petroleo Ltda Rio de Janeiro (Brazil) Saipem Drilling Co Pvt Ltd Saipem Engineering Nigeria Ltd (***) Chennai (India) Lagos (Nigeria) Saipem Holding France sas Saipem India Project Ltd Saipem International BV Saipem Logistics Services Ltd (***) Saipem Luxembourg SA Saipem Maritime Asset Management Luxembourg Sarl Saipem Mediterran Usluge doo Saipem Misr for Petroleum Services (S.A.E.) Chennai (India) Amsterdam (Netherlands) Lagos (Nigeria) Luxembourg (Luxembourg) Luxembourg (Luxembourg) Rijeka (Croatia) Port Said (Egypt) Saipem Perfura(cid:141)(cid:155)es e Constru(cid:141)(cid:155)es Petrol(cid:146)feras Unipessoal Lda Funchal (Portugal) y c n e r r u C BRL INR EUR USD HRK EUR EUR QAR l a t i p a c e r a h S l s r e d o h e r a h S n o i t a d i l o s n o c s (cid:213) m e p i a S ) % ( n o i t a d i l o s n o c f o g n i t n u o c c a r o ) * ( e l p i c n i r p d o h t e M d l e h % 14,719,299 50,000,000 NGN 75,000,000 Saipem Energy Services SpA 100.00 100.00 Saipem International BV 50.00 50.00 Saipem sa Saipem International BV 95.00 5.00 Third parties 100.00 Montigny le Bretonneux (France) EUR 40,000 Saipem International BV 100.00 100.00 INR 407,000,000 Saipem sa 100.00 100.00 EUR 172,444,000 Saipem SpA 100.00 100.00 NGN 55,000,000 Saipem International BV 100.00 31,002 Saipem (Portugal) - Gest(cid:139)o 100.00 de Participa(cid:141)(cid:155)es SGPS SA 100.00 100,000 Saipem International BV 100.00 100.00 1,500,000 Saipem International BV 100.00 100.00 2,000,000 224,459 2,000,000 Saipem International BV 99.92 ERS - Equipment Rental 0.04 & Services BV European Maritime Commerce BV 0.04 Saipem (Portugal) - Gest(cid:139)o 100.00 de Participa(cid:141)(cid:155)es SGPS SA Saipem International BV 49.00 51.00 Third parties 100.00 100.00 F.C. Saipem Qatar Llc Saipem sa Saipem Services M(cid:142)xico SA de Cv Saipem Services SA Saipem Singapore Pte Ltd Saipem UK Ltd Saipem Ukraine Llc SAS Port de Tanger Soci(cid:142)t(cid:142) par Actions Simplifi(cid:142)e Unipersonelle Saudi Arabian Saipem Ltd Shipping and Maritime Services Ltd (***) Sigurd R(cid:159)ck AG Snamprogetti Africa (Nigeria) Ltd (**) (***) Doha (Qatar) Montigny le Bretonneux (France) Mexico City (Mexico) Bruxelles (Belgium) Singapore (Singapore) EUR 26,488,695 Saipem SpA 100.00 100.00 MXN EUR 50,000 Saimexicana SA de Cv 100.00 100.00 61,500 Saipem International BV 99.98 ERS - Equipment Rental 0.02 & Services BV 100.00 SGD 28,890,000 Saipem sa 100.00 100.00 New Malden (United Kingdom) Kiev (Ukraine) Montigny le Bretonneux (France) GBP EUR EUR 6,470,000 Saipem International BV 100.00 100.00 106,061 Saipem International BV 99.00 1.00 Saipem Luxembourg SA 100.00 37,000 Saipem sa 100.00 100.00 Al-Khobar (Saudi Arabia) Lagos (Nigeria) Zurich (Switzerland) Lagos (Nigeria) SAR 5,000,000 NGN 13,000,000 Saipem International BV 60.00 40.00 Third parties ERS - Equipment Rental 100.00 & Services BV 100.00 F.C. E.M. CHF 25,000,000 Saipem International BV 100.00 100.00 F.C. NGN 5,000,000 Snamprogetti Netherlands BV Snamprogetti Management Services SA 99.00 1.00 E.M. F.C. F.C. E.M. F.C. F.C. F.C. E.M. F.C. F.C. F.C. F.C. E.M. F.C. F.C. F.C. F.C. F.C. F.C. F.C. F.C. = full consolidation, P.C. = proportionate consolidation, E.M. = equity method, Co. = cost method In liquidation. (*) (**) (***) Inactive throughout the year. 124 S A I P E M A N N UA L R E P O R T / S C O P E O F C O N S O L I DAT I O N y n a p m o C e c i f f o d e r e t s i g e R y c n e r r u C l a t i p a c e r a h S l s r e d o h e r a h S n o i t a d i l o s n o c s (cid:213) m e p i a S ) % ( n o i t a d i l o s n o c f o g n i t n u o c c a r o ) * ( e l p i c n i r p d o h t e M d l e h % CAD 100,100 Saipem International BV 100.00 100.00 Snamprogetti Canada Inc Snamprogetti Engineering BV Snamprogetti France sarl Snamprogetti Ltd Snamprogetti Lummus Gas Ltd Montreal (Canada) Amsterdam (Netherlands) Montigny le Bretonneux (France) Basingstoke (United Kingdom) Sliema (Malta) EUR EUR GBP EUR 18,151 22,867 15,000,000 50,000 Snamprogetti Management Services SA (**) Geneva (Switzerland) CHF 300,000 Snamprogetti Netherlands BV Snamprogetti Netherlands BV Snamprogetti Netherlands BV Snamprogetti Netherlands BV Third parties Snamprogetti Netherlands BV Third parties 100.00 100.00 100.00 100.00 100.00 100.00 99.00 99.00 1.00 99.99 0.01 Snamprogetti Netherlands BV Snamprogetti Romania Srl Snamprogetti Saudi Arabia Co Ltd Llc Amsterdam (Netherlands) Bucharest (Romania) Al-Khobar (Saudi Arabia) Soci(cid:142)t(cid:142) de Construction d(cid:213)Oleoducs Snc Montigny le Bretonneux (France) Sofresid Engineering sa Sofresid sa Sonsub AS Sonsub International Pty Ltd Sonsub Ltd (**) Star Gulf Free Zone Co Montigny le Bretonneux (France) Montigny le Bretonneux (France) Randaberg (Norway) Sydney (Australia) Aberdeen (United Kingdom) Dubai (United Arab Emirates) TBE Ltd (***) Damietta (Egypt) Varisal - Servi(cid:141)os de Consultadoria e Marketing Unipessoal Lda Funchal (Portugal) EUR EUR EUR GBP AED EGP EUR EUR 92,117,340 Saipem SpA 100.00 100.00 RON 5,034,100 SAR 10,000,000 Snamprogetti Netherlands BV Saipem International BV 99.00 100.00 1.00 Saipem International BV 95.00 Snamprogetti 5.00 Netherlands BV 39,000 Saipem sa Entreprise Nouvelle Marcellin sa 1,267,143 Sofresid sa Third parties 99.90 0.10 99.99 0.01 8,253,840 Saipem sa 100.00 100.00 100.00 F.C. 100.00 F.C. 100.00 NOK 1,882,000 Saipem International BV 100.00 100.00 AUD 13,157,570 Saipem International BV 100.00 100.00 5,901,028 Saipem International BV 100.00 100.00 500,000 50,000 500,000 Saipem (Portugal) - Gest(cid:139)o de Participa(cid:141)(cid:155)es SGPS SA Saipem (Portugal) Com(cid:142)rcio Mar(cid:146)timo Sociedade Unipessoal Lda Saipem sa Third parties 80.00 100.00 20.00 70.00 30.00 Saipem (Portugal) - Gest(cid:139)o 100.00 de Participa(cid:141)(cid:155)es SGPS SA 100.00 F.C. F.C. F.C. F.C. F.C. F.C. E.M. F.C. F.C. F.C. F.C. F.C. F.C. F.C. F.C. E.M. F.C. = full consolidation, P.C. = proportionate consolidation, E.M. = equity method, Co. = cost method In liquidation. (*) (**) (***) Inactive throughout the year. 125 S A I P E M A N N UA L R E P O R T / S C O P E O F C O N S O L I DAT I O N y n a p m o C e c i f f o d e r e t s i g e R AFFILIATED AND JOINTLY CONTROLLED COMPANIES ITALY ASG Scarl San Donato Milanese CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Uno CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Due Consorzio Snamprogetti Abb Lg Chemicals (**) Consorzio U.S.G. (**) San Donato Milanese San Donato Milanese San Donato Milanese Parma Modena Scarl San Donato Milanese Rodano Consortile Scarl San Donato Milanese Rosetti Marino SpA Ravenna SP - TKP Fertilizer Srl (**) San Donato Milanese OUTSIDE ITALY 02 Pearl snc Africa Oil Services sa (**) Barber Moss Ship Management AS Montigny le Bretonneux (France) Guyancourt (France) Lysaker (Norway) Bonny Project Management Co Ltd Greenford (United Kingdom) BOS Shelf Ltd Society Caspian Barge Builders Pte Ltd (***) Charville - Consultores e Servi(cid:141)os, Lda CMS&A Wll Dalia Floater Angola Snc Doris Development Canada Ltd Doris Engenharia Ltda Doris Engineering sa Doris USA Inc Fertilizantes Nitrogenados de Oriente CEC Baku City (Azerbaijan) Singapore (Singapore) Funchal (Portugal) Doha (Qatar) Paris la Defense (France) St. John(cid:213)s (Canada) Rio de Janeiro (Brazil) Paris (France) Houston (USA) Caracas (Venezuela) y c n e r r u C EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR l a t i p a c e r a h S l s r e d o h e r a h S 50,864 51,646 51,646 50,000 25,823 400,000 250,000 4,000,000 50,000 1,000 37,500 Saipem SpA Third parties Saipem SpA Third parties Saipem SpA Third parties Saipem SpA Third parties Saipem SpA Third parties Saipem SpA Third parties Saipem SpA Third parties Saipem sa Third parties Saipem SpA Third parties Saipem sa Third parties Saipem sa Third parties NOK 1,000,000 Moss Maritime AS Third parties d l e h % 55.41 44.59 50.36 49.64 52.00 48.00 50.00 50.00 40.00 60.00 59.33 40.67 53.57 46.43 20.00 80.00 50.00 50.00 50.00 50.00 44.88 55.12 50.00 50.00 GBP AZN SGD EUR 1,000 2,000 2 5,000 QAR 500,000 LNG - Servi(cid:141)(cid:155)s e Gest(cid:139)o 100.00 de Projectos Lda Star Gulf Free Zone Co Third parties 50.00 50.00 Saipem Singapore Pte Ltd 50.00 50.00 Third parties Saipem (Portugal) - Gest(cid:139)o de Participa(cid:141)(cid:155)es SGPS SA Third parties Snamprogetti Netherlands BV Third parties EUR CAD BRL EUR 0 Entreprise Nouvelle Marcellin sa Third parties 10,000 Doris Engineering sa 100.00 2,203,170 3,571,440 Doris Engineering sa Third parties Sofresid sa Third parties 50.00 50.00 40.00 60.00 USD 1,500,000 Doris Engineering sa 100.00 VEB 9,667,827,216 Snamprogetti Netherlands BV Third parties 20.00 80.00 n o i t a d i l o s n o c s (cid:213) m e p i a S ) % ( n o i t a d i l o s n o c f o g n i t n u o c c a r o ) * ( e l p i c n i r p d o h t e M 55.41 P.C. 50.36 P.C. E.M. E.M. Co. 59.33 P.C. 53.57 P.C. E.M. E.M. 50.00 P.C. E.M. E.M. E.M. 50.00 P.C. E.M. 50.00 50.00 P.C. 50.00 20.00 80.00 27.50 72.50 50.00 P.C. 27.50 P.C. Co. E.M. E.M. E.M. E.M. F.C. = full consolidation, P.C. = proportionate consolidation, E.M. = equity method, Co. = cost method In liquidation. (*) (**) (***) Inactive throughout the year. 126 S A I P E M A N N UA L R E P O R T / S C O P E O F C O N S O L I DAT I O N y n a p m o C e c i f f o d e r e t s i g e R y c n e r r u C l a t i p a c e r a h S l s r e d o h e r a h S Fertilizantes Nitrogenados de Oriente SA Caracas (Venezuela) VEB 286,549 Fertilizantes Nitrogenados de Venezuela CEC Jos(cid:143) - Edo. Anzategui (Venezuela) VEB 312,214,634,511 Fertilizantes Nitrogenados de Venezuela Srl Jos(cid:143) - Edo. Anzategui (Venezuela) VEB 287,000 Snamprogetti Netherlands BV Third parties Fertilizantes Nitrogenados de Oriente CEC Fertilizantes Nitrogenados de Oriente CEC n o i t a d i l o s n o c s (cid:213) m e p i a S ) % ( n o i t a d i l o s n o c f o g n i t n u o c c a r o ) * ( e l p i c n i r p d o h t e M E.M. Co. Co. d l e h % 20.00 80.00 100.00 100.00 FPSO Firenze Produ(cid:141)(cid:139)o de Petr(cid:152)leo, Lda FPSO Mystras (Nigeria) Ltd FPSO Mystras - Produ(cid:141)(cid:139)o de Petr(cid:152)leo, Lda Guangdong Contractor Snc Funchal (Portugal) Lagos (Nigeria) Funchal (Portugal) Montigny le Bretonneux (France) Kazakhoil Bouygues Offshore Sarl (***) Kwanda Suporto Logistico Lda LNG - Servi(cid:141)os e Gest(cid:139)o de Projectos Lda Mangrove Gas Netherlands BV Almaty (Kazakhstan) Luanda (Angola) Funchal (Portugal) Amsterdam (Netherlands) EUR 50,000 NGN 15,000,000 EUR EUR 50,000 1,000 KZT 1,000,000 AOA 25,510,204 EUR 5,000 EUR 2,000,000 Moss Krylov Maritime St. Petersburg (Russian Federation) Nigetecsa Free Zone Enterprise (***) Olokola (Nigeria) ODE North Africa Llc Offshore Design Engineering Ltd Maadi - Cairo (Egypt) London (United Kingdom) RUB USD EGP GBP 98,000 40,000 100,000 100,000 PT Singgar - Doris RPCO Enterprises Ltd Sabella sas Saibos Akogep Snc Saipar Drilling Co BV Jakarta (Indonesia) Nicosia (Cyprus) Quimper (France) Montigny le Bretonneux (France) Amsterdam (Netherlands) Saipem Kharafi National MMO Fz Co Dubai IDR 2,298,750,000 EUR 17,100 EUR EUR EUR AED 37,000 39,000 20,000 600,000 Saipem Taqa Al Rushaid Fabricators Co Ltd Saipem Triune Engineering Private Ltd Saipon snc (United Arab Emirates) Dammam (Saudi Arabia) SAR 10,000,000 New Delhi (India) Montigny le Bretonneux (France) INR EUR 200,000 20,000 F.C. = full consolidation, P.C. = proportionate consolidation, E.M. = equity method, Co. = cost method (*) (***) Inactive throughout the year. Saipem (Portugal) - Gest(cid:139)o de Participa(cid:141)(cid:155)es SGPS SA Third parties 50.00 50.00 P.C. 50.00 FPSO Mystras - Produ(cid:141)(cid:139)o 100.00 de Petr(cid:152)leo Lda Saipem (Portugal) - Gest(cid:139)o 50.00 de Participa(cid:141)(cid:155)es SGPS SA Third parties 50.00 E.M. 50.00 P.C. 60.00 60.00 P.C. Entreprise Nouvelle Marcellin sa Third parties Saipem sa Third parties Saipem sa Third parties Snamprogetti Netherlands BV Third parties Saipem (Portugal) - Gest(cid:139)o de Participa(cid:141)(cid:155)es SGPS SA Third parties Moss Maritime AS Third parties 40.00 50.00 50.00 40.00 60.00 25.00 75.00 50.00 50.00 50.00 50.00 Saipem International BV 50.00 50.00 Third parties Offshore Design Engineering Ltd Saipem sa Doris Engineering sa Doris Engineering sa Third parties Snamprogetti Netherlands BV Third parties 100.00 50.00 50.00 50.00 50.00 50.00 50.00 Sofresid Engineering sa 32.50 67.50 Third parties Saipem sa Third parties 70.00 30.00 Saipem International BV 50.00 50.00 Third parties Saipem International BV 50.00 50.00 Third parties Saipem International BV 40.00 60.00 Third parties Saipem International BV 50.00 50.00 Third parties 60.00 Saipem sa 40.00 Third parties Co. E.M. E.M. 50.00 P.C. E.M. E.M. E.M. 50.00 P.C. E.M. 50.00 P.C. E.M. 70.00 P.C. 50.00 P.C. E.M. E.M. E.M. 60.00 P.C. 127 S A I P E M A N N UA L R E P O R T / S C O P E O F C O N S O L I DAT I O N y n a p m o C e c i f f o d e r e t s i g e R y c n e r r u C l a t i p a c e r a h S l s r e d o h e r a h S n o i t a d i l o s n o c s (cid:213) m e p i a S ) % ( n o i t a d i l o s n o c f o g n i t n u o c c a r o ) * ( e l p i c n i r p d o h t e M d l e h % SC TCPI Romania - Tecnoprojecto Internacional Projectos e Realiza(cid:141)(cid:155)es Industriais SA SEA Tank Co sa Bucharest (Romania) Paris (France) Servicios de Constru(cid:141)iones Caucedo sa (**) SNC Saipem - Bouygues TP Soci(cid:142)t(cid:142) pour la Realisation du Port de Tanger Mediterran(cid:142)e Southern Gas Constructors Ltd SPF - TKP Omifpro Snc Starstroi Llc Starstroi - Maintenance Llc Starstroi - Sakhalin - Bezopasnost sarl Starstroi Security Llc Stat Assets Management sas Stat Holding International Ltd Stat Marine Llc Stat Marine Ltd Stat Marine sas Stat Services sa STTS Snc Santo Domingo (Dominican Republic) Monaco (Principality of Monaco) Anjra (Morocco) Lagos (Nigeria) Paris (France) Krasnodar (Russian Federation) Krasnodar (Russian Federation) Yuzhno (Russian Federation) Krasnodar (Russian Federation) Nimes (France) North Harrow (United Kingdom) Houston (USA) North Harrow (United Kingdom) Nimes (France) La Seyne sur Mer (France) Montigny le Bretonneux (France) EUR RUB RUB RUB RUB EUR GBP USD GBP EUR EUR EUR RON 172,500 EUR DOP EUR EUR 46,800 100,000 10,000 33,000 NGN 10,000,000 Tecnoprojecto Internacional Projectos e Realiza(cid:141)(cid:155)es Industriais SA 100.00 Doris Engineering sa Third parties Saipem sa Third parties Saipem sa Third parties SAS Port de Tanger Third parties Saipem (Portugal) - Gest(cid:139)o de Participa(cid:141)(cid:155)es SGPS SA Third parties 99.62 0.38 49.70 50.30 70.00 30.00 33.33 66.67 50.00 50.00 50,000 7,699,490 1,000,000 Snamprogetti France sarl 50.00 50.00 Third parties Saipem sa Third parties Starstroi Llc 50.00 50.00 100.00 300,000 Starstroi Security Llc 100.00 300,000 Starstroi Llc 50,000 10,000 10,000 1,000 40,582 38,112 1,000 Stat Holding International Ltd Doris Engineering sa Third parties Stat Holding International Ltd Third parties Stat Holding International Ltd Third parties Stat Holding International Ltd Third parties Stat Holding International Ltd Third parties Saipem sa Third parties Saipem sa Third parties Petromar Lda Third parties Saipem sa Third parties TZS Llc (NV) TZS Llc (TX) Saipem sa Third parties 100.00 100.00 70.00 30.00 94.00 6.00 94.00 6.00 93.91 6.09 99.84 0.16 60.00 40.00 49.00 51.00 35.00 65.00 40.00 60.00 99.00 1.00 42.50 57.50 E.M. Co. E.M. 70.00 P.C. 33.33 P.C. 50.00 P.C. 50.00 P.C. 50.00 P.C. E.M. E.M. E.M. E.M. E.M. E.M. E.M. E.M. E.M. 60.00 P.C. E.M. E.M. E.M. 20.00 P.C. E.M. E.M. Sud-Soyo Urban Development Lda T.C.P.I. Angola Tecnoprojecto Internacional sa Tchad Cameroon Maintenance BV Technip-Zachry-Saipem LNG Lp Soyo (Angola) Luanda (Angola) Rotterdam (Netherlands) Houston (USA) Tecnoprojecto Internacional Projectos e Realiza(cid:141)(cid:155)es Industriais SA Porto Salvo - Concelho de Oeiras (Portugal) AOA 20,000,000 AOA EUR USD EUR 9,000,000 18,000 5,000 700,000 TSKJ II - Constru(cid:141)(cid:155)es Internacionais, Funchal Sociedade Unipessoal, Lda (Portugal) EUR 5,000 TSKJ - Servi(cid:141)(cid:155)es de Engenharia Lda 100.00 (*) (**) F.C. = full consolidation, P.C. = proportionate consolidation, E.M. = equity method, Co. = cost method In liquidation. 128 y n a p m o C TSKJ - Nigeria Ltd TSKJ - Servi(cid:141)(cid:155)es de Engenharia Lda TSLNG snc TSS Dalia snc TZS Llc (NV) TZS Llc (TX) e c i f f o d e r e t s i g e R Lagos (Nigeria) Funchal (Portugal) Courbevoie (France) Courbevoie (France) Reno (USA) San Antonio (USA) S A I P E M A N N UA L R E P O R T / S C O P E O F C O N S O L I DAT I O N y c n e r r u C l a t i p a c e r a h S l s r e d o h e r a h S n o i t a d i l o s n o c s (cid:213) m e p i a S ) % ( d l e h % NGN 50,000,000 EUR 5,000 EUR EUR USD USD 20,000 0 10,000 5,000 TSKJ II - Constru(cid:141)(cid:155)es Internacionais, Sociedade Unipessoal, Lda 100.00 Snamprogetti Netherlands BV Third parties Saipem sa Third parties Saipem sa Third parties Saipem America Inc Third parties Saipem America Inc Third parties 25.00 75.00 50.00 50.00 27.50 72.50 20.00 80.00 20.00 80.00 n o i t a d i l o s n o c f o g n i t n u o c c a r o ) * ( e l p i c n i r p d o h t e M E.M. E.M. 50.00 P.C. 27.50 P.C. 20.00 P.C. 20.00 P.C. The Saipem Group comprises 164 companies: 70 are consolidated using the full consolidation method, 29 with the proportionate consolidation method, 58 with the equity method and 7 with the cost method. (*) F.C. = full consolidation, P.C. = proportionate consolidation, E.M. = equity method, Co. = cost method 129 S A I P E M A N N UA L R E P O R T / C H A N G E S I N T H E S C O P E O F C O N S O L I DAT I O N Changes in the scope of consolidation Changes in the scope of consolidation with respect to the consolidated financial statements at December 31, 2008, are detailed below in date order: New incorporations, disposals, liquidations and changes to the consolidation method: - on January 16, 2009, Frigstad Discoverer Invest (S) Pte, previously consolidated using the full consolidation method, was delisted from the Register of Companies; - on February 12, 2009, the Singapore company, Caspian Barge Builders Pte, was incorporated and is consolidated using the equity method; - on March 23, 2009, Saipem sa acquired remaining 50% of Saipem Aban Drilling Co Private Ltd (SADCO) from third parties. The company, previously consolidated using the proportionate method, is now consolidated using the full consolidation method; - as of March 23, 2009, Saipem Logistics Services Ltd, previously consolidated using the full consolidation method, was consolidated using the equity method, since it fell below the relevant size; - on April 27, 2009, the Qatar company, Saipem Qatar Llc, was incorporated and is consolidated using the equity method; - on May 12, 2009, SSS Capital Llc, consolidated using the equity method, was sold to third parties; - on July 9, 2009, SAIR - Constru(cid:141)(cid:155)es Mecanicas de Estruturas Maritimas Lda, consolidated using the equity method, was put into liquidation; - on July 27, 2009, the Kazakh company, Professional Training Center Llc, was incorporated and is consolidated using the equity method; - on August 3, 2009, SAIR - Constru(cid:141)(cid:155)es Mecanicas de Estruturas Maritimas Lda, was delisted from the Register of Companies; - on September 1, 2009, Snamprogetti Management Service SA, consolidated using the full consolidation method, was put into liquidation; - on September 1, 2009, Moss Mosvold II Management Lda, previously consolidated using the full consolidation method, was put into liquidation; - as of September 18, 2009, Snamprogetti Management Service SA, previously consolidated using the full consolidation method, having been placed into liquidation, was consolidated using the equity method, - on September 25, 2009, European Marine Contractors Ltd, consolidated using the full consolidation method, was put into liquidation; - on September 25, 2009, European Marine Investment Ltd, consolidated using the full consolidation method, was put into liquidation; - on September 30, 2009, Snamprogetti USA Inc, previously consolidated using the full consolidation method, was merged by incorporation into Saipem America Inc; - as of October 1, 2009, Saipem Triune Engineering Pvt Ltd, previously consolidated using the proportionate method, was consolidated using the equity method; - on October 6, 2009, Snamprogetti Sud SpA, previously consolidated using the full consolidation method, was merged by incorporation into Saipem SpA; - on October 7, 2009, Saipem Venezuela SA, previously accounted for using the cost method, was put into liquidation; - on October 16, 2009, Moss Mosvold II Management Lda, was delisted from the Register of Companies; - on November 13, 2009, Delong Hersent Lda, previously consolidated using the full consolidation method, was merged by incorporation into Saipem SA; - on November 24, 2009, Moss Arctic Offshore SA, consolidated using the full consolidation method, was put into liquidation and then on December 1, 2009, was delisted from the Register of Companies; - on December 2, 2009, Service et Equipments Petroliers et Gaziers sa, previously consolidated using the full consolidation method, was merged by incorporation into Saipem sa; - on December 11, 2009, Sud Est Cie, previously accounted for using the cost method, was merged by incorporation into Sofresid sa; - on December 15, 2009, Saipem Venezuela SA, was delisted from the Register of Companies; - on December 17, 2009, Lipardiz Constru(cid:141)(cid:139)o de Estruturas Maritimas Lda, having previously been placed into liquidation, was delisted from the Register of Companies; - on December 28, 2009, Saibos Constru(cid:141)(cid:155)es Maritimas Unipessoal Lda, previously consolidated using the full consolidation method, was merged by incorporation into Saipem Portugal Comercio Maritimo Lda. 130 S A I P E M A N N UA L R E P O R T / C H A N G E S I N T H E S C O P E O F C O N S O L I DAT I O N Changes of company names or transfers of holdings between group companies not affecting the scope of consolidation: - on March 10, 2009, Saibos - Constru(cid:141)(cid:155)es Maritimas, Lda changed name to Saibos - Constru(cid:141)(cid:155)es Maritimas, Unipessoal, Lda; - on June 24, 2009, Varisal - Servi(cid:141)os de Consultadoria e Marketing Lda changed name to Varisal - Servi(cid:141)os de Consultadoria e Marketing Unipessoal. Lda; - on June 26, 2009, Frigstad Discoverer Invest Ltd changed name to Saipem Discoverer Invest S(cid:136)rl; - on September 15, 2009, Saipem Aban Drilling Co Pvt Ltd changed name to Saipem Drilling Co Pvt Ltd; - on October 28, 2009, Saipem Energy Italia SpA changed name to Servizi Energia Italia SpA; - on November 13, 2009, Saipem sa, following the merger by incorporation of Delong Hersent Lda, acquired 70% of Petromar Lda, which was already consolidated using the full consolidation method and 49% of Kwanda Suporto Logistico Lda and Sud- Soyo Urban Development Lda, both consolidated using the equity method; - on November 23, 2009, Saipem (Portugal) Com(cid:142)rcio Mar(cid:146)timo Sociedade Unipessoal Lda acquired 100% of Saipem sa(cid:213)s interest in Saibos Constru(cid:141)(cid:155)es Maritimas Unipessoal Lda, thus becoming the company(cid:213)s sole shareholder; - on November 27, 2009, following a capital increase, 68.55% of PT Saipem Indonesia was owned by Saipem International BV (who held 100% at December 31, 2008), while the remaining 31.45% was held by Saipem Asia Sdn Bhd; - on November 30, 2009, Saipem sa, following the merger by incorporation of Service et Equipments Petroliers et Gaziers SA, acquired 99.9% of Soci(cid:142)t(cid:142) de Construction d(cid:213)Oleoducs Snc, which was already consolidated using the full consolidation method, 55% of Hazira Cryogenic Engineering & Construction Management Private Ltd and 45% of Africa Oil Services SA, both of which are accounted for using the equity method. Changes in functional currencies As of January 1, 2009, Saipem Ukraine Llc changed its functional currency from the hryvnia to the euro. As of January 1, 2009, Ersai Caspian Contractor Llc changed its functional currency from the Tenge to the US dollar. 131 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Notes to the consolidated financial statements Current assets Cash and cash equivalents 1 Cash and cash equivalents amounted to o986 million (o1,398 million at December 31, 2008) representing a decrease of o412 million on the previous year. Cash and equivalents at year-end, 41% of which are denominated in euro, 36% in US dollars and 23% in other currencies, received an average interest rate of 0.81%. o617 million thereof (o874 million at December 31, 2008) are on deposit at Eni Group financial companies. Cash and cash equivalents include cash and cash on hand of o17 million (o28 million at December 31, 2008). At December 31, 2008, there were no financial receivables due within 90 days. Funds in three current accounts held by the subsidiary Saipem Contracting Alg(cid:142)rie SpA (equivalent to o26.6 million at December 31, 2009) have been temporarily frozen in connection with an investigation being conducted into third parties. The breakdown of cash and cash equivalents of Saipem and other Group companies at December 31, 2009 by geographical area (based on the country of domicile of the relevant company) was as follows: (o million) Italy Rest of Europe Asia-Pacific Africa Americas Total 111 580 107 151 37 986 Other financial assets held for trading or available for sale 2 At December 31, 2009, other financial assets held for trading or available for sale amounted to o36 million (o36 million at December 31, 2008) and consisted of the following: (o million) Unlisted securities Total 31.12.2008 31.12.2009 36 36 36 36 These assets related to units in collective investment schemes (Sicav) with maturities of less than three months held by a number of French associates. Trade and other receivables 3 Trade and other receivables of o4,040 million (o4,255 million at December 31, 2008) were as follows: (o million) Trade receivables Financing receivables for operating purposes Financing receivables for non-operating purposes Other receivables: - other Total 31.12.2008 31.12.2009 3,384 12 260 599 4,255 3,242 - 68 730 4,040 132 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Receivables are stated net of the provision for impairment losses of o112 million: (o million) Trade receivables Other receivables Total 8 0 0 2 . 2 1 . 1 3 73 18 91 s n o i t i d d A 35 - 35 s n o i t c u d e D (1) - (1) e t a r e g n a h c x E n o i t a l s n a r t s e c n e r e f f i d (1) - (1) s e g n a h c r e h t O - (12) (12) 9 0 0 2 . 2 1 . 1 3 106 6 112 Trade receivables amounted to o3,242 million, representing an increase of o142 million. o260 million (o325 million at December 31, 2008) were due from parent companies (Eni SpA and its divisions). Receivables from related parties are shown in Note 44 (cid:212)Transactions with related parties(cid:213). Trade receivables included retention amounts guaranteeing contract work in progress of o198 million (o213 million at December 31, 2008), of which o124 million were due within one year and o74 million due after one year. Trade receivables neither past due nor impaired amounted to o2,607 million (o2,901 million at December 31, 2008). Impaired receivables, net of the provision for impairment losses, amounted to o1 million (o7 million at December 31, 2008). Receivables past due, but not impaired, amounted to o634 million (o483 million at December 31, 2008), of which o413 million from 1 to 90 days past due, o101 million from 3 to 6 months past due, o54 million from 6 to 12 months past due and o66 million more than one year past due. These receivables are primarily due from high credit quality counterparties. Financing receivables for non-operating purposes of o68 million (o260 million at December 31, 2008) mainly related to the receivable held by Saipem SpA for the loan of working capital to the CEPAV Due Consortium of o49 million and to funds of o6 million held by the subsidiaries Saipem sa (o4 million) and Saipem UK Ltd (o2 million) in time deposit accounts with third parties. Receivables from jointly controlled companies, with regard to the non-consolidated portion, were as follows: (o million) CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Uno 02 Pearl snc Charville - Consultores e Servi(cid:141)os, Lda Lipardiz - Constru(cid:141)(cid:139)o de Estruturas Maritimas, Lda FPSO Mystras Saipar Drilling Co BV Soci(cid:142)t(cid:142) pour la Realisation du Port de Tanger Mediterran(cid:142)e STTS Snc TSS Dalia snc Saipon snc Starstroi Llc Southern Gas BOS Shelf Ltd Society Total 31.12.2008 31.12.2009 47 - 5 2 1 1 2 7 1 2 15 - - 83 - 7 2 - - 1 2 - - 3 1 11 1 28 133 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Other receivables of o730 million consisted of the following: (o million) Receivables from: - insurance companies - employees - national insurance/social security contributions - bank accounts due within/after one year - foreign tax authorities other than tax credits - consultants and professionals Prepayments for services Guarantee deposits Customs and excise duties Receivables from agents and representatives Other Total 31.12.2008 31.12.2009 6 21 2 12 - - 450 19 - - 89 599 3 31 1 6 4 1 553 18 2 8 103 730 Other receivables of o6 million related to receivables due from parent companies (Eni SpA and its divisions). Other receivables neither past due nor impaired amounted to o662 million (o569 million at December 31, 2008). Other receivables past due, but not impaired, amounted to o68 million (o30 million at December 31, 2008), of which o12 million from 1 to 90 days past due, o12 million from 3 to 6 months past due, o34 million from 6 to 12 months past due and o10 million more than one year past due. These receivables are primarily due from high credit quality counterparties. The fair value of trade and other receivables did not differ significantly from their carrying amount due to the short period of time elapsed between their date of origination and their due date. Receivables in currencies other than euro amounted to o1,785 million (o1,758 million at December 31, 2008) and their breakdown by currency was as follows: - US Dollar 70% (54% at December 31, 2008); - Saudi Arabian Ryal 9% (18% at December 31, 2008); - Nigerian Nairal 7% (2% at December 31, 2008); - British Pound Sterling 3% (3% at December 31, 2008); - other currencies 11% (23% at December 31, 2008). Inventories 4 Inventories of o1,071 million (o1,397 million at December 31, 2008) were as follows: 8 0 0 2 . 2 1 . 1 3 9 0 0 2 . 2 1 . 1 3 (o million) Raw and auxiliary materials and consumables Work in progress Total Work in progress - 1,089 1,089 Other Total 308 - 308 308 1,089 1,397 Work in progress - 748 748 Other Total 323 - 323 323 748 1,071 Inventories are stated net of the valuation allowance of o7 million. (o million) Inventories valuation allowance 134 8 0 0 2 . 2 1 . 1 3 3 3 s n o i t i d d A 4 4 s n o i t c u d e D - - s e g n a h c r e h t O - - 9 0 0 2 . 2 1 . 1 3 7 7 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Contract work in progress, amounting to o748 million (o1,089 million at December 31, 2008) included sums associated with requests for payments not yet formally accepted by clients, but which are deemed probable and reasonably estimated. Receivables from related parties are shown in Note 44 (cid:212)Transactions with related parties(cid:213). Current tax assets 5 Current tax assets of o113 million (o37 million at December 31, 2008) were as follows: (o million) Italian tax authorities Foreign tax authorities Total 31.12.2008 31.12.2009 6 31 37 79 34 113 The increase in current tax assets of o76 million mainly related to changes in the amounts due from Italian tax authorities (o73 million) to Saipem SpA (o66 million) and Saipem Energy Services SpA (o7 million). Other current tax assets 6 Other current tax assets of o285 million (o301 million at December 31, 2008) were as follows: (o million) Italian tax authorities: - VAT credits - other Foreign tax authorities: - VAT credits - other Total 31.12.2008 31.12.2009 153 149 4 148 73 75 301 144 141 3 141 85 56 285 The decrease in other current tax assets of o16 million was related to changes in the amounts due from Italian tax authorities to Saipem SpA and from foreign tax authorities, in particular to Snamprogetti Canada Inc. Other current assets 7 Other current assets of o256 million (o420 million at December 31, 2008) were as follows: (o million) Fair value of non-hedging derivatives Fair value of hedging derivatives Other Total 31.12.2008 31.12.2009 125 214 81 420 32 127 97 256 At December 31, 2009, the fair value of derivative instruments was equal to a positive amount of o159 million (o339 million at December 31, 2008). The fair value of derivative instruments was determined using valuation models commonly used in the financial sector and based on year-end market data (exchange and interest rates). The fair value of forward contracts (forward outrights and currency swaps) was determined by comparing the net present value at contractual conditions of forward contracts outstanding at December 31, 2009, with their present value recalculated at year- end market conditions. The model used is the Net Present Value model, which is based on the forward contract exchange rate, the year end exchange rate and the respective forward interest rate curves. 135 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The fair value of derivative contracts by type is provided in the following table: (o million) 1) Derivative contracts qualified for hedge accounting: - interest rate derivatives - forward currency contracts (Spot component) . purchase . sale Total - forward currency contracts (Forward component) . purchase . sale Total Total derivative contracts qualified for hedge accounting 2) Derivative contracts not qualified for hedge accounting: - interest rate derivatives - forward currency contracts (Spot component) . purchase . sale Total - forward currency contracts (Forward component) . purchase . sale Total - commodities - other derivative contracts Total Total derivative contracts not qualified for hedge accounting Total 8 0 0 2 . 2 1 . 1 3 s t e s s A 9 0 0 2 . 2 1 . 1 3 s t e s s A Fair value Commitments Fair value Commitments purchase sale purchase sale 91 140 231 (10) (3) (13) 218 48 82 130 (6) - (6) 1 1 125 343 851 2,107 633 1,086 - 26 36 94 130 - (3) (3) 127 19 13 32 - - 32 - - 32 159 1,275 1,880 1,000 190 Derivatives designated as cash flow hedges related to forward purchase and sale transactions (forward outrights and currency swaps). The cash flows and the income statement impact of hedged highly probably forecast transactions at December 31, 2009 are expected to occur up until 2012. During 2009, there were no cases of hedged items being no longer considered highly probable. The fair value of derivative assets qualified for hedge accounting at December 31, 2009 was equal to o127 million (o218 million at December 2008). The effective portion (spot component) of fair value movements in these derivatives was deferred in a hedging reserve in equity (o124 million) and recorded under finance income and expense (o6 million), while the forward component (the ineffective portion of fair value movements), amounting to o3 million, was recognised as finance expense. The fair value of derivative liabilities qualified for hedge accounting at December 31, 2009, analysed in Note 19 (cid:212)Other current liabilities(cid:213) and Note 24 (cid:212)Other non-current liabilities(cid:213), was equal to o158 million (o361 million at December 31, 2008). The spot component of fair value movements in these derivatives was deferred in a hedging reserve in equity (o113 million) and recorded under finance income and expense (o13 million), while the forward component, amounting to o32 million, was recognised as finance expense. During the year, operating revenues and expenses were adjusted by a net negative amount of o26 million to reflect the effects of hedging. Another approximately o13 million was recorded as an increase in the cost of construction of tangible assets. 136 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Other assets at December 31, 2009 amounted to o97 million, representing an increase of o16 million on the previous year and consisted of: prepayments of o55 million (o50 million at December 31, 2008), insurance premiums of o14 million (o5 million at December 31, 2008), costs of office leases of o9 million (o12 million at December 31, 2008) and other assets of o19 million (o14 million at December 31, 2008). Receivables from related parties are shown in Note 44 (cid:212)Transactions with related parties(cid:213). Non-current assets Property, plant and equipment 8 Property, plant and equipment amounting to o6,295 million (o5,171 million at December 31, 2008) was as follows: i g n n n i g e b e h t r a e y e h t t a f o e u l a v t e N 12 138 1,931 93 38 1,350 3,562 14 238 2,482 345 86 2,006 5,171 s t n e m t s e v n I - 56 481 78 27 1,389 2,031 - 14 228 42 50 1,257 1,591 s t n e m r i a p m i d n a n o i t a i c e r p e D - (18) (252) (64) (13) - (347) - (22) (302) (86) (17) - (427) n o i t a d i l o s n o c f o e p o c s e h t n i e g n a h C n o i t a l s n a r t s e c n e r e f f i d y c n e r r u C - - - - - - - - - - - 10 - 10 1 3 (53) (4) 4 5 (44) (1) (12) 4 (5) (6) (18) (38) s l a s o p s i D - (3) (40) - (3) - (46) - - (4) (3) (1) - (8) (o million) 31.12.2008 Land Buildings Plant and machinery Industrial and commercial equipment Other assets Assets under construction and advances Total 31.12.2009 Land Buildings Plant and machinery Industrial and commercial equipment Other assets Assets under construction and advances Total s e g n a h c r e h t O 1 62 415 242 33 1 20 170 225 84 d n e e h t r a e y e h t t a f o e u l a v t e N e u l a v s s o r G d n e e h t r a e y e h t t a f o 14 238 14 349 2,482 4,591 345 86 14 238 518 206 652 178 2,006 7,790 14 343 882 294 2,741 9,190 2,578 4,916 (738) 15 2,006 5,171 (504) (4) 2,741 6,295 s t n e m r i a p m i d n a n o i t a i c e r p e d r o f n o i s i v o r P - 111 2,109 307 92 - 2,619 - 105 2,338 364 88 - 2,895 Capital expenditure made during the year amounted to o1,601 million (o2,031 million at December 31, 2008) and related to the following sectors: Offshore (o689 million), Offshore Drilling (o689 million), Onshore Drilling (o200 million) and Onshore (o23 million). Capital expenditure during the year included (cid:212)Changes in the scope of consolidation(cid:213), amounting to o10 million. This amount related to the positive difference — allocated to tangible assets — between the purchase price for the remaining 50% of the company Saipem Drilling Co Pvt Ltd and the shareholders(cid:213) equity of the purchased company. The main items of capital expenditure during the year included: - in the Offshore sector, the continuation of the construction of a new pipelay vessel, a deepwater Field Development Ship and a new diving support vessel, the purchase of the lay barge Acergy Piper, which has been renamed Castoro Sette, the construction of a new fabrication yard in Indonesia and maintenance and upgrading of the existing asset base; - in the Onshore sector, the acquisition and readying of plant and equipment necessary for the execution of projects; - in the Offshore Drilling sector, the completion of a jack-up, the continuation of construction works on two semi-submersible rigs semi-submersible rigs and a new ultra-deepwater drillship and maintenance and upgrading of the existing asset base; - in the Drilling Onshore sector, the completion of 10 rigs and the continuation of upgrading and construction works on three rigs. Finance expenses capitalised during the year, calculated using an average interest rate of 2.67.%, amounted to o49 million (o51 million at December 31, 20078. 137 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The main depreciation rates used are as follows: (%) Buildings Plant and machinery Industrial and commercial equipment Other assets 2.50 - 12.50 7.00 - 25.00 3.75 - 67.00 (*) 12.00 - 20.00 (*) The higher rate is applicable to assets to be used on specific projects where depreciation is based on project duration. Exchange rate differences due to the translation of financial statements prepared in currencies other than the euro, amounting to negative o38 million, mainly related to companies whose presentation currency is the US dollar. The gross carrying value of fully depreciated property, plant and equipment that is still in use amounted to o130 million (o124 million at December 31, 2008) and mainly consisted of project-specific equipment which has been fully depreciated over the life of the project. During the year, no government grants were recorded as a decrease of the carrying value of property, plant and equipment. At December 31, 2009, all property, plant and equipment was free from pledges, mortgages and/or other obligations. The total commitment on current items of capital expenditure at December 31, 2009 amounted to o1,065 million (o1,516 million at December 31, 2008), as indicated in (cid:212)Summary of significant accounting policies - Risk management(cid:213). Finance leases Saipem currently has no finance leases. Intangible assets 9 Intangible assets of o756 million (o755 million at December 31, 2008) were as follows: i g n n n i g e b e h t r a e y e h t t a f o e u l a v t e N 4 5 - 3 7 731 750 - 2 15 4 4 730 755 s t n e m r i a p m i d n a n o i t a s i t r o m A - - (5) - (1) - (6) - (1) (8) (2) (2) - (13) n o i t a d i l o s n o c f o e p o c s e h t n i e g n a h C - - - - - - - - - - - - - - s t n e m t s e v n I - 1 7 5 - - 13 - 1 8 2 1 2 14 s e g n a h c r e h t O (4) (4) 13 (4) (2) (1) (2) - - 3 (1) (3) 1 - d n e e h t r a e y e h t t a f o e u l a v t e N e u l a v s s o r G d n e e h t r a e y e h t t a f o s t n e m r i a p m i d n a n o i t a s i t r o m a r o f n o i s i v o r P - 2 15 4 4 730 755 - 2 18 3 - 733 756 7 4 110 4 5 730 860 7 5 121 3 1 733 870 7 2 95 - 1 - 105 7 3 103 - 1 - 114 (o million) 31.12.2008 Intangible assets with finite useful lives Development costs Industrial patents and intellectual property rights Concessions, licenses and trademarks Assets in progress and advances Other intangible assets Intangible assets with indefinite useful lives Goodwill Total 31.12.2009 Intangible assets with finite useful lives Development costs Industrial patents and intellectual property rights Concessions, licenses and trademarks Assets in progress and advances Other intangible assets Intangible assets with indefinite useful lives Goodwill Total 138 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Concessions, licenses and trademarks and industrial patents and intellectual property rights of o18 million and o2 million consist mainly of costs for the implementation of SAP applications and modules at the parent company (o17 million in 2008 ). Goodwill of o733 million related to the difference between the purchase price, inclusive of related costs, and the shareholders(cid:213) equity of Saipem sa (o689 million), Sofresid sa (o21 million), the Moss Maritime Group (o14 million), Saipem India Project Ltd (o2 million), Saipem Energy Services SpA (o1 million), Syndial SpA (o3 million) and Ecos Group Srl (o3 million). For impairment purposes, goodwill has been allocated to the following cash-generating units: (o million) Offshore Onshore Total 31.12.2009 416 317 733 The recoverable amount of the two cash generating units was determined based on value in use, calculated by discounting the future cash flows expected to result from the use of each CGU. The expected future cash flows for the explicit forecast period of four years were derived from Saipem(cid:213)s 2010-2013 Strategic Plan, which was approved by top management in February 2010. The forecast cash flows based on the plan assume that the major programme of investments currently underway will be completed and that the backlog of orders at December 31, 2009 will not be affected by cancellations or renegotiations. Value in use was calculated applying a post tax discount rate of 8.5% (up half a percentage point from 2008). The terminal value (i.e. for subsequent years beyond the plan horizon) was estimated using a perpetual growth rate of 2% applied to an average normalised terminal cash flow. Assumptions were based on past experience and took into account current interest rates, business specific risks and expected long-term growth for the sectors. Post tax cash flows and discount rates were used as this method results in values similar to those resulting from a pre-tax valuation. The table below shows the amounts by which the recoverable amounts of the Offshore and Onshore cash generating units exceed their carrying amounts, including allocated goodwill. (o million) Goodwill Amount by which recoverable amount exceeds carrying amount e r o h s f f O 416 4,535 e r o h s n O 317 2,957 l a t o T 733 7,492 The key assumptions adopted for assessing the recoverable amount of the cash generating units exceeding its carrying amount referred to operating results (a combination of various factors, e.g. sales volumes, service prices, project profit margins, cost structure), the discount rate and the growth rates adopted to determine the terminal value. The following changes in each of the assumptions, ceteris paribus, would cause the excess of the recoverable amount of the Offshore cash generating unit over its carrying amount, including the allocated portion of goodwill, to be reduced to zero: - decrease of 56% in the operating result of the four years of the plan; - use of a discount rate of 17%; - negative real growth rate. Changes in each of the assumptions, ceteris paribus, that would cause the excess of the recoverable amount of the Onshore cash generating unit over its carrying amount, including the allocated portion of goodwill, to be reduced to zero are greater than those of the Offshore cash generating units described above. 139 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The main amortisation rates used are as follows: (%) Development costs Industrial patents and intellectual property rights Concessions, licenses, trademarks and similar (included in (cid:212)industrial patents(cid:213)) Other intangible assets 20.00 - 20.00 6.66 - 7.50 20.00 - 20.00 20.00 - 33.00 Investments accounted for using the equity method 10 Investments accounted for using the equity method of o118 million (o42 million at December 31, 2008) were as follows: i g n n n i g e b e h t r a e y e h t t a f o e u l a v t e N 6 29 35 2 40 42 s n o i t p i r c s b u s d n a s n o i t i s i u q c A - 3 3 - - - d e t n u o c c a - y t i u q e f o t i f o r p f o e r a h S s t n e m t s e v n i d e t n u o c c a - y t i u q e f o s s o l f o e r a h S s t n e m t s e v n i - 22 22 - 14 14 - - - (1) (6) (7) e p o c s e h t n i e g n a h C n o i t a d i l o s n o c f o - 3 3 3 5 8 s d n e d i v i d r o f n o i t c u d e D - (17) (17) - (6) (6) n o i t a l s n a r t y c n e r r u C s e c n e r e f f i d - - - - - - s e g n a h c r e h t O (4) - (4) (1) 68 67 d n e e h t r a e y e h t t a f o e u l a v t e N 2 40 42 3 115 118 t n e m r i a p m i r o f n o i s i v o r P - - - - - - (o million) 31.12.2008 Investments in subsidiaries Investments in associates Total 31.12.2009 Investments in subsidiaries Investments in associates Total Investments in controlled companies and associates at December 31, 2009 are analysed in the section (cid:212)Scope of consolidation(cid:213). Shares of profits of investments accounted for using the equity method of o14 million related to TSKJ Servi(cid:141)(cid:155)es de Engenharia Lda (o4 million), Doris Engineering sa (o3 million), Rosetti Marino SpA (o5 million), Tecnoprojecto Internacional Projectos e Realiza(cid:141)(cid:155)es Industriais SA (o1 million) and LNG Lda (o1 million). Shares of losses of equity-accounted investments, amounting to o7 million, related to Kwanda Suporto Logistico Lda (o5 million), Saipem Taqa Al Rushaid Fabricators Co Ltd (o1 million) and Snamprogetti Management Services SA (o1 million). Deductions following the distribution of dividends of o6 million related to Rosetti Marino SpA (o1 million), Doris Engineering sa (o2 million), TSKJ - Servi(cid:141)(cid:155)es de Engenharia Lda (o2 million) and LNG Lda (o1 million). Changes in the scope of consolidation (o8 million) were due to the consolidation using the equity method of Snamprogetti Management Services SA (o3 million), previously consolidated using the full consolidation method and Saipem Triune Engineering Private Ltd (o5 million), previously consolidated using the proportionate method. (cid:212)Other changes(cid:213) related to the re-inclusion in the scope of consolidation of Fertilizantes Nitrogenados de Oriente CEC (o68 million), which at December 31, 2008 was classified under assets held for sale. 140 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The net carrying value of investments accounted for using the equity method related to the following companies: (o million) Hazira Marine Engineering & Construction Management Private Ltd Saipem Engineering Nigeria Ltd Snamprogetti Management Services SA Total subsidiaries Doris Engineering sa Rosetti Marino SpA Kwanda Suporto Logistico Lda Starstroi Security Llc Tecnoprojecto Internacional Projectos e Realiza(cid:141)(cid:155)es Industriais SA TSKJ - Servi(cid:141)(cid:155)es de Engenharia Lda LNG - Servi(cid:141)os e Gest(cid:139)o de Projectos Lda Fertilizantes Nitrogenados de Oriente CEC Saipem Triune Engineering Private Ltd Saipem Taqa Al Rushaid Fabricators Co Ltd SP - TKP Fertilizer Srl Tchad Cameroon Maintenance BV T.C.P.I. Angola Tecnoprojecto Internacional SA Starstroi Maintenance Llc Total associates t s e r e t n i p u o r G ) % ( 100.00 95.00 99.99 40.00 20.00 40.00 50.00 42.50 25.00 25.00 20.00 50.00 40.00 50.00 40.00 35.00 50.00 8 0 0 2 . 2 1 . 1 3 t a e u l a v t e N 1 1 - 2 13 11 6 2 2 2 1 - - 1 1 1 - - 9 0 0 2 . 2 1 . 1 3 t a e u l a v t e N 1 - 2 3 14 14 1 2 3 4 - 68 5 - 1 1 1 1 40 115 Other investments 11 Other investments of o2 million (unchanged from December 31, 2008) were as follows: s n o i t p i r c s b u s d n a s n o i t i s i u q c A - - - - - - - - e u l a v t e n i g n n e p O 1 4 8 13 1 - 1 2 s n o i t a u l a v e R - - - - - - - - n o i t a d i l o s n o c f o e p o c s e h t n i e g n a h C n o i t a l s n a r t s e c n e r e f f i d y c n e r r u C - (4) (3) (7) - - - - - - - - - - - - t n e m r i a p m I - - - - - - - - s e g n a h c r e h t O - - (4) (4) (1) - 1 - e u l a v t e n g n i s o l C 1 - 1 2 - - 2 2 t n e m r i a p m i r o f n o i s i v o r P 2 - - 2 - - - - (o million) 31.12.2008 Investments in subsidiaries Investments in associates Investments in other companies Total 31.12.2009 Investments in subsidiaries Investments in associates Investments in other companies Total Investments in subsidiaries and associates at December 31, 2009 are analysed in the section (cid:212)Scope of consolidation(cid:213). (cid:212)Other changes(cid:213) to investments in other companies related to a fair value adjustment of the investment in Nagarjuna Fertilizer & Chemicals Ltd. 141 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The net value of investments related to the following companies: (o million) Sud Est Cie Total subsidiaries Total associates Nagarjuna Fertilizer and Chemicals Ltd Total other companies t s e r e t n i p u o r G ) % ( 99.70 0.93 e u l a v g n i y r r a c t e N 8 0 0 2 . 2 1 . 1 3 t a 1 1 - 1 1 e u l a v g n i y r r a c t e N 9 0 0 2 . 2 1 . 1 3 t a - - 2 2 The value of the investment in Sud Est Cie has been reduced to zero as a result of the company(cid:213)s merger into Sofresid sa. Other information about investments The following table summarises key financial data from the most recent available financial statements of subsidiaries and associates accounted for using the equity and cost method, in proportion to the Group interest held: (o million) Total assets Total liabilities Net sales from operations Operating profit Net profit (loss) for the year 8 0 0 2 . 2 1 . 1 3 9 0 0 2 . 2 1 . 1 3 Subsidiaries Associates Subsidiaries Associates 35 34 1 - - 208 170 66 3 4 7 4 1 - - 238 125 66 4 3 The total amount of assets and liabilities of subsidiaries is negligible and therefore the effects of exclusion from the scope of consolidation are considered immaterial. Other financial assets 12 At December 31, 2009, other long-term financial assets amounted to o8 million and related to financing receivables held for non- operating purposes by the associate company Saipem UK Ltd. Deferred tax assets 13 Deferred tax assets of o113 million (o94 million at December 31, 2008) are shown net of offsettable deferred tax liabilities. (o million) Deferred tax assets Total 8 0 0 2 . 2 1 . 1 3 94 94 s n o i t i d d A 117 117 s n o i t c u d e D (76) (76) n o i t a l s n a r t s e c n e r e f f i d r e h t o d n a y c n e r r u C s e g n a h c (22) (22) 9 0 0 2 . 2 1 . 1 3 113 113 Details of deferred tax assets are provided in Note 23 (cid:212)Deferred tax liabilities(cid:213). 142 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Other non-current assets 14 Other non-current assets of o34 million (o17 million at December 31, 2008) were as follows: (o million) Fair value of hedging derivatives Other receivables Other Total 31.12.2008 31.12.2009 4 5 8 17 - 4 30 34 Other receivables related to amounts paid in compliance with local regulations to government bodies, to be refunded after a set period. Current liabilities Short-term debt 15 Short-term debt of o1,797 million (o2,613 million at December 31, 2008) was as follows: (o million) Banks Other financial institutions Total 31.12.2008 31.12.2009 69 2,544 2,613 51 1,746 1,797 Short-term debt decreased by o816 million, mainly due to a shift towards long-term debt and the optimization of the short-term cash position. The current portion of long-term debt, amounting to o350 million (o7 million at December 31, 2008), is detailed in Note 20 (cid:212)Long-term debt and current portion of long-term debt(cid:213). The breakdown of short-term debt by issuing institution, currency and average interest rate was as follows: (o million) 8 0 0 2 . 2 1 . 1 3 9 0 0 2 . 2 1 . 1 3 Issuing institution Currency Amount Interest rate % Amount Interest rate % CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Due Eni SpA Eni Coordination Center SA Euro Euro Euro Eni Coordination Center SA US Dollar Eni Coordination Center SA British Pound Sterling Eni Coordination Center SA Third parties Third parties Third parties Third parties Total Swiss Franc Euro US Dollar Nigerian Naira Other from - 4.507 5.059 3.331 5.829 - 1.000 3.201 14.250 to - 4.507 5.809 4.431 5.912 - 4.510 17.750 15.000 variable 43 715 1,106 269 260 - 8 171 25 16 2,613 from - 0.575 0.684 0.481 0.785 0.437 0.800 - to - 0.575 1.124 1.851 0.845 0.437 0.800 - 16.500 16.500 variable 43 307 985 158 213 40 1 - 20 30 1,797 At December 31, 2009, Saipem had unused lines of credit amounting to o1,267 million (o1,273 million at December 31, 2008). These agreements carry interest charges based on prevailing market conditions. Commission fees on unused lines of credit were not significant. At December 31, 2009, there were no unfulfilment of terms and conditions or violation of agreements in relation to financing contracts. 143 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Trade and other payables 16 Trade and other payables of o5,735 million (o6,370 million at December 31, 2008) were as follows: (o million) Trade payables Advances Other payables Total 31.12.2008 31.12.2009 3,276 2,790 304 6,370 2,602 2,826 307 5,735 Trade payables amounted to o2,602 million, representing a decrease of o674 million. Advances of o2,826 million (o2,790 million at December 31, 2008), consisted mainly of adjustments to revenues from long-term contracts in accordance with the accruals concept, made on the basis of the amounts contractually matured (o1,533 million at December 31, 2009; o1,836 million at December 31, 2008) and advances on contract work in progress received by Saipem SpA and foreign subsidiaries of o1,293 million (o954 million at December 31, 2008). Trade payables and advances to parent companies (Eni Corporate and Divisions) amounted to o13 million (o20 million at December 31, 2008). Trade payables to Eni Group companies are shown in Note 44 (cid:212)Transactions with related parties(cid:213). Payables to jointly controlled companies, with regard to the non-consolidated portion, consisted of the following: (o million) CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Uno Rodano Consortile Scarl Modena Scarl ASG Scarl Lipardiz - Constru(cid:141)(cid:139)o de Estruturas Maritimas, Lda Guangdong Contractor Llc Saipem Triune Engineering Private Ltd Starstroi Llc Saipon snc BOS Shelf Ltd Society Total Other payables of o307 million were as follows: (o million) Payables to: - employees - non-financial public administrations - national insurance/social security contributions - insurance companies - creditors relating to advances - consultants and professionals Other Total 31.12.2008 31.12.2009 19 4 1 11 9 10 1 3 - - 58 - - - - - - - 1 1 1 3 31.12.2008 31.12.2009 108 - 58 5 19 4 110 304 126 1 54 6 15 2 103 307 Other payables to related parties are shown in Note 44 (cid:212)Transactions with related parties(cid:213). The fair value of trade and other payables did not differ significantly from their carrying amount due to the short period of time elapsed between their date of origination and their due date. 144 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Income tax payables 17 Income tax payables of o115 million (o101 million at December 31, 2008) were as follows: (o million) Italian tax authorities Foreign tax authorities Total 31.12.2008 31.12.2009 22 79 101 38 77 115 The increase in income tax payables of o14 million was related to amounts owing by the Parent Company Saipem SpA to Italian tax authorities. Other current tax liabilities 18 Other current tax liabilities of o124 million (o110 million at December 31, 2008) were as follows: (o million) Italian tax authorities: - other Foreign tax authorities: - VAT - other Total 31.12.2008 31.12.2009 11 11 99 55 44 110 11 11 113 68 45 124 The increase in other current tax liabilities of o14 million was due to an increase in the amounts due owing to foreign tax authorities, in particular by Saipem Contracting Nigeria Ltd. Other current liabilities 19 Other current liabilities of o227 million (o476 million at December 31, 2008) were as follows: (o million) Fair value of non-hedging derivatives Fair value of hedging derivatives Other Total 31.12.2008 31.12.2009 130 307 39 476 55 120 52 227 At December 31, 2009, the fair value of derivatives was equal to a negative amount of o175 million (o437 million at December 31, 2008). The following table shows the fair value of derivative assets and liabilities at December 31, 2008: (o million) Fair value of derivative assets Fair value of derivative liabilities Total 31.12.2008 31.12.2009 343 (491) (148) 159 (213) (54) The fair value of derivative instruments was determined using valuation models commonly used in the financial sector and based on year-end market data (exchange and interest rates). The fair value of forward contracts (forward outrights and currency swaps) was determined by comparing the net present value at contractual conditions of forward contracts outstanding at December 31, 2009, with their present value recalculated at 145 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S year-end market conditions. The model used is the Net Present Value model, which is based on the forward contract exchange rate, the year end exchange rate and the respective forward interest rate curves. A liability of o12 million (asset of o5 million at December 31, 2008), relating to the fair value of an interest rate swap entered into by Saipem SpA, has been recorded under Note 15 (cid:212)Short-term debt(cid:213) (o7 million) and Note 20 (cid:212)Long-term debt(cid:213) (o5 million). The fair value of interest rate swaps was determined by comparing the net present value at contractual conditions of swaps outstanding at December 31, 2009, with their present value recalculated at year-end market conditions. The model used is the Net Present Value model, which is based on EUR forward interest rates. The fair value of derivative contracts by type is provided in the following table: (o million) 1) Derivative contracts qualified for hedge accounting: - interest rate derivatives . interest rate swaps - forward currency contracts (Spot component) . purchase . sale Total - forward currency contracts (Forward component) . purchase . sale Total - forward currency contracts (Forward component) Total Total derivative contracts qualified for hedge accounting 2) Derivative contracts not qualified for hedge accounting: - interest rate derivatives . interest rate swaps - forward currency contracts (Spot component) . purchase . sale Total - forward currency contracts (Forward component) . purchase . sale Total - commodities - other derivative contracts Total Total derivative contracts not qualified for hedge accounting Total 8 0 0 2 . 2 1 . 1 3 s e i t i l i b a i L 9 0 0 2 . 2 1 . 1 3 s e i t i l i b a i L Fair value Commitments Fair value Commitments purchase sale purchase sale 5 400 12 400 168 166 334 (3) (22) (25) 47 361 - 56 69 125 2 (6) (4) 1 8 9 130 491 1,798 1,750 90 795 3 656 62 43 71 114 - - - 32 158 - 13 39 52 - - - - 3 3 55 213 788 2,359 58 388 1,409 19 For a comprehensive analysis of the fair value of hedging derivatives, see Note 7 (cid:212)Other current assets(cid:213). Information on hedged risks and the hedging policy is given in the Basis of Presentation section. Other current liabilities, amounting to o52 million (o39 million at December 31, 2008), included deferred revenue and income of o12 million and other liabilities of o40 million. Other payables to related parties are shown in Note 44 (cid:212)Transactions with related parties(cid:213). 146 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Non-current liabilities Long-term debt and current portion of long-term debt 20 Long-term debt, including the current portion of long-term debt, amounted to o2,146 million (o1,113 million at December 31, 2008) and was as follows: 8 0 0 2 . 2 1 . 1 3 Long-term debt 475 631 1,106 Current portion of long-term debt 4 3 7 9 0 0 2 . 2 1 . 1 3 Long-term debt 200 1,596 1,796 Total 479 634 1,113 Current portion of long-term debt 276 74 350 (o million) Banks Other financial institutions Total Long-term debt is shown below by year of maturity: (o million) e p y T Banks y t i r u t a M e g n a r 2011 Other financial institutions 2011-2024 Total 1 1 0 2 200 122 322 2 1 0 2 - 196 196 3 1 0 2 - 371 371 4 1 0 2 - 379 379 r e t f A - 528 528 Total 476 1,670 2,146 l a t o T 200 1,596 1,796 Long-term debt amounted to o1,796 million, up o690 million versus December 31, 2008 (o1,106 million). The current portion of long-term debt increased by o343 million due to scheduled repayments to UniCredit/BBVA and Interbanca. Saipem SpA entered into borrowing facilities for o75 million with a number of financial institutions, which require certain performance indicators based on the Saipem Group Consolidated Financial Statements to be maintained. These conditions were complied with in 2009. The following table analyses long-term debt, including the current portion of long-term debt, by issuing institution, currency, maturity and average interest rate: (o million) 8 0 0 2 . 2 1 . 1 3 9 0 0 2 . 2 1 . 1 3 Issuing institution Currency Maturity Amount Interest rate % Amount Interest rate % Eni SpA Eni Coordination Center SA Eni Coordination Center SA Third parties Third parties Third parties Total Euro Euro US Dollar Euro US Dollar 2012-2017 2010-2014 2010-2016 2010-2011 British Pound Sterling 2010-2014 407 - 210 479 8 9 1,113 from 4.950 - 3.451 4.507 - 5.060 to - - 5.231 4.882 - - 658 580 424 476 - 8 2,146 from 1.450 0.964 2.181 0.575 - to 4.950 5.970 5.100 1.050 - 1.265 1.265 There was no debt secured by mortgages or liens on fixed assets of consolidated companies or by pledges on securities. 147 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The fair value of long-term debt, including the current portion of long-term debt, amounted to o1,910 million (o948 million at December 31, 2008), of which o1,441 million relating to other financial institutions and o469 million relating to banks. It was calculated by discounting the expected future cash flows at the following rates: (%) Euro US Dollar British Pound Sterling 2008 2.52-3.66 1.12-2.97 1.83-4.25 2009 0.70-4.23 0.29-3.40 0.54-3.23 The difference between the fair value of long-term debt and its nominal value was mainly due to the debt of o400 million maturing in 2017. The following table shows net borrowings as indicated in the section (cid:212)Financial and economic results(cid:213) of the (cid:212)Operating and Financial Review(cid:213): (o million) A. Cash B. Cash equivalents: - financing receivables for non-operating purposes due within 90 days C. Available-for-sale and held-to-maturity securities D. Liquidity (A+B+C) E. Financing receivables F. Short-term bank debt G. Long-term bank debt H. Short-term related party debt I. Long-term related party debt L. Other short-term debt M. Other long-term debt N. Total borrowings (F+G+H+I+L+M) O. Net borrowings (N-D-E) Current 1,398 - 36 1,434 260 69 4 2,393 2 151 1 2,620 926 8 0 0 2 . 2 1 . 1 3 Non- current - - - - - - 475 - 615 - 16 1,106 1,106 9 0 0 2 . 2 1 . 1 3 Non- current - - - - 8 - 200 - 1,590 - 6 1,796 1,788 Total 986 - 36 1,022 76 51 476 1,746 1,662 - 8 3,943 2,845 Total Current 1,398 986 - 36 1,434 260 69 479 2,393 617 151 17 3,726 2,032 - 36 1,022 68 51 276 1,746 72 - 2 2,147 1,057 Net borrowings include IRS liabilities. However, it does not include the fair value of currency and commodity derivatives indicated in Notes 7 and 14 (cid:212)Other current assets(cid:213) and (cid:212)Other non-current assets(cid:213) and in Notes 19 and 24 (cid:212)Other current liabilities(cid:213) and (cid:212)Other non-current liabilities(cid:213). Current financing receivables for non-operating purposes of o68 million (o260 million at December 31, 2008) consisted mainly of amounts to be received by Saipem SpA from the CEPAV Due Consortium and financing receivables relating to time deposits at financial institutions. 148 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Provisions for contingencies 21 Provisions for contingencies of o200 million (o185 million at December 31, 2008) were as follows: (o million) 31.12.2008 Provisions for taxes Provisions for contractual penalties and disputes Provisions for losses on investments Provisions for redundancy incentives Other Total 31.12.2009 Provisions for taxes Provisions for contractual penalties and disputes Provisions for losses on investments Other Total e u l a v g n n e p O i 49 25 1 1 108 184 66 38 1 80 185 s e s a e r c n I 17 24 - - 16 57 17 2 1 63 83 s n o i t c u d e D (10) (10) - - (38) (58) (17) (17) - (29) (63) s e g n a h c r e h t O 10 (1) - (1) (6) 2 - 6 - (11) (5) e u l a v g n i s o l C 66 38 1 - 80 185 66 29 2 103 200 The provisions for taxes, amounting to o66 million, related entirely to disputes with foreign tax authorities that are either ongoing or potential based on recent assessments which failed to finalise all pending fiscal years. The provisions for contractual penalties and disputes amounted to o29 million and consisted entirely of accruals by Saipem SpA and a number of foreign subsidiaries. This represents a best estimate of the amount that may be required to settle current disputes. The provisions for losses on investments amounted to o2 million and related to losses of investments that are in excess of their carrying amounts. The provision related to investments held by Saipem International BV and Saipem sa. Other provisions stood at o103 million and principally consisted of an estimate of expected losses on long-term contracts in the Offshore and Onshore sectors. With respect to the foregoing liabilities, Saipem does not reasonably expect any material additional losses beyond those amounts accrued above. 22 Provisions for employee benefits Provisions for employee benefits of the Saipem Group relate to employee termination indemnities, pension plans with benefits measured in consideration of the employee(cid:213)s annual compensation preceding retirement and other long-term benefits. Provisions for indemnities upon termination of employment primarily related to the provisions accrued by Italian companies for employee termination indemnities ((cid:212)TFR(cid:213)), determined using actuarial techniques and regulated by Article 2120 of the Italian Civil Code. The indemnity is paid upon retirement as a lump sum payment, whose amount corresponds to the total of the provisions accrued during the employees(cid:213) service period based on payroll costs as revalued until retirement. As a result of the provisions contained in the Finance Act for 2007 and related legislation — which came into effect on January 1, 2007 — employees had until June 30, 2007 to decide whether to assign amounts already accrued and future benefits to a private pension fund or to the fund managed by the National Social Security Agency, INPS. For companies with less than 50 employees it was possible to continue the scheme as in previous years. The allocation of future TFR provisions to private pension funds or to the INPS fund meant that these amounts would be classified as costs to provide benefits under a defined contribution plan. Past amounts accrued for post-retirement indemnities under the Italian TFR regime continue to represent costs to provide benefits under a defined benefit plan and must be assessed based on actuarial assumptions. 149 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Following this change in regime, which occurred in 2007, the existing provision for Italian employees was reassessed to take account of the curtailment due to reduced future obligations reflecting the exclusion of future salaries and relevant increases from actuarial calculations. Pension funds concern: - defined benefit plans of foreign companies located, primarily, in France, the United Kingdom and Norway; - pension provisions and similar obligations for personnel employed abroad, to whom local legislation applies. Benefits consist of a return on capital determined on the basis of length of service and compensation paid in the last year of service or average annual compensation paid in a specific period preceding retirement. Liabilities and costs related to the supplementary medical reserve for Eni managers (FISDE) are calculated on the basis of the contributions paid by the company for retired managers. The deferred cash incentive scheme comprises estimated variable remuneration related to company performance to be paid out to senior managers who achieve their individual targets. Jubilee awards are benefits due following the attainment of a minimum period of service and, with regard to the Italian companies, they consist of remuneration in kind. Provisions for employee benefits of o182 million (o173 million at December 31, 2008) consisted of the following: (o million) Employee termination indemnities (TFR) Foreign pension plans Supplementary medical reserve for Eni managers (FISDE) Deferred cash incentive scheme Jubilee awards Total The present value of long-term employee benefits was as follows: 31.12.2008 31.12.2009 65 60 14 26 8 173 (o million) 31.12.2008 n g i e r o F n o i s n e p s n a l p Plan assets TFR Gross liability Net liability Other long-term benefits Present value of benefit obligation at beginning of year 63 120 Change in the scope of consolidation Current cost Finance expense Expected return on plan assets Contributions paid Actuarial gains (losses) Benefits paid Amendments, curtailments and settlements Exchange rate differences and other changes Present value of benefit obligation at end of year 31.12.2009 Present value of benefit obligation at beginning of year Change in the scope of consolidation Current cost Finance expense Expected return on plan assets Contributions paid Actuarial gains (losses) Benefits paid Amendments, curtailments and settlements Exchange rate differences and other changes Present value of benefit obligation at end of year 2 3 3 - - 1 (10) - 1 63 63 - - 4 - - 2 (7) - - 62 - 7 3 - - (2) (4) - (4) 120 120 - 16 5 - - 3 (10) (14) 4 124 63 - - - 3 7 (8) (3) 1 (12) 51 51 - - - 3 2 1 (1) (14) 6 48 57 - 7 3 (3) (7) 6 (1) (1) 8 69 69 - 16 5 (3) (2) 2 (9) - (2) 76 35 - 11 2 - - 1 (3) - 1 47 47 - 8 2 - - 3 (6) - 1 55 150 63 66 14 31 8 182 Total 155 2 21 8 (3) (7) 8 (14) (1) 10 179 179 - 24 11 (3) (2) 7 (22) - (1) 193 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The present value of the obligation for other long-term benefits of o55 million (o47 million at December 31, 2008) related to FISDE (o16 million; o13 million at December 31, 2008), jubilee awards (o8 million; o8 million at December 31, 2008) and the deferred cash incentive scheme (o31 million). The current cost and benefits paid related to Employee Termination Indemnities at December 31, 2008 were adjusted to reflect the effect of the conversion of the plan from a defined benefits plan to a defined contribution plan. The reconciliation analysis of benefit obligations and plan assets was as follows: R F T n g i e r o F n o i s n e p s n a l p m r e t - g n o l s t i f e n e b r e h t O 31.12.2008 31.12.2009 31.12.2008 31.12.2009 31.12.2008 31.12.2009 (o million) Present value of funded benefit obligations Present value of plan assets Net present value of funded benefit obligations Present value of unfunded benefit obligations Unrecognised actuarial gains (losses) Unrecognised past service cost Net liability recognised in provision for employee benefits - - - 63 2 - 65 - - - 62 1 - 63 62 (51) 11 58 (9) - 60 61 48 13 63 (10) - 66 - - - 47 1 - 48 Costs for long-term employee benefits recorded in the income statement were as follows: (o million) 2008 Current cost Interest cost Expected return on plan assets Amortisation of actuarial gains (losses) Expected return on reimbursement rights Effect of curtailments and settlements Total costs 2009 Current cost Interest cost Expected return on plan assets Amortisation of actuarial gains (losses) Expected return on reimbursement rights Effect of curtailments and settlements Total costs n g i e r o F n o i s n e p s n a l p m r e t - g n o l s t i f e n e b r e h t O 7 3 3 1 - - 14 16 5 3 2 - - 26 11 2 - - - - 13 8 2 - 1 - - 11 R F T 3 3 - - - - 6 - 4 - - - - 4 Costs for other long-term benefits of o11 million (o13 million at December 31, 2008) mainly related to the deferred cash incentive scheme. 151 - - - 55 (1) (1) 53 l a t o T 21 8 3 1 - - 33 24 11 3 3 - - 41 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The main actuarial assumptions used in the evaluation of post retirement benefit obligations at year end and the estimate of costs expected for 2010 were as follows: (%) 2008 Main actuarial assumptions: - discount rates - rate of compensation increase - expected rate of return on plan assets - rate of inflation 2009 Main actuarial assumptions: - discount rates - rate of compensation increase - expected rate of return on plan assets - rate of inflation R F T 5.35 - - 2.0 6 - - 2.5 d e d n u F n o i s n e p s n a l p 4.7-13.0 2.0-12.0 4.25-7.5 2.0-18.8 3.80-13.0 4.25-9.25 2.0-12.0 2.0-11.0 m r e t - g n o l s t i f e n e b r e h t O 4.7-5.8 - - 2.00 3.0-6.0 - - 2.5 The expected rate of return on plan assets was determined with reference to prices quoted on regulated markets. With regards to Italian plans, demographic tables prepared by the Ragioneria Generale dello Stato (RG48) were used. Plan assets consisted of the following: (%) December 31, 2009 Shares Bonds Real estate Other s t e s s a n a l P 2.55 56.05 7.52 33.88 d e t c e p x E n r u t e r 6.5 5.4 6.31 6.78 The actual return on plan assets was a gain of o5 million (loss of o3 million at December 31, 2008). With reference to healthcare plans, the effects deriving from a 1% change in the actuarial assumptions of medical costs were as follows: (o million) Impact on current costs and interest costs Impact on net benefit obligation The amount expected to be accrued to defined benefit plans for 2009 amounted to o5.2 million. e s a e r c n I % 1 0.14 2.00 e s a e r c e D % 1 (0.2) (1.7) 152 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The analysis of changes in the actuarial valuation of the net liability with respect to the previous year, resulting from differences between actuarial assumptions and actual figures recorded at year end was as follows: (o million) 2008 Impact on net benefit obligation Impact on plan assets 2009 Impact on net benefit obligation Impact on plan assets R F T 1 - (2) - n g i e r o F n o i s n e p s n a l p 3 12 5 (2) y r a t n e m e l p p u S l a c i d e m e v r e s e r ) E D S I F ( 4 - 2 - s t i f e n e b r e h t O - - - - Deferred tax liabilities 23 Deferred tax liabilities of o64 million (o25 million at December 31, 2008) are shown net of offsettable deferred tax assets. (o million) Deferred tax liabilities Total 8 0 0 2 . 2 1 . 1 3 25 25 s n o i t i d d A 76 76 s n o i t c u d e D (38) (38) n o i t a l s n a r t s e c n e r e f f i d r e h t o d n a y c n e r r u C s e g n a h c 1 1 9 0 0 2 . 2 1 . 1 3 64 64 Currency translation differences and other changes(cid:213) related to an increase in offset deferred tax assets and liabilities at individual entity level. Deferred tax assets and liabilities consisted of the following: (o million) Deferred tax liabilities Deferred tax assets available for offset Deferred tax assets not available for offset Net deferred tax assets (liabilities) 31.12.2008 31.12.2009 (142) 117 (25) 94 69 (194) 130 (64) 113 49 153 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The most significant temporary differences giving rise to net deferred tax liabilities were as follows: (o million) Deferred tax liabilities: - accelerated tax depreciation - non distributed reserves held by investments - other Deferred tax assets: - accruals for impairment losses and provisions for contingencies - carry-forward tax losses - other less: - unrecognised deferred tax assets Net deferred tax assets (liabilities) 8 0 0 2 . 2 1 . 1 3 (11) (44) (87) (142) 30 102 148 280 (69) 211 69 s n o i t i d d A (1) (12) (63) (76) 33 52 42 127 (10) 117 41 s n o i t c u d e D - 2 36 38 (3) (50) (38) (91) 15 (76) (38) n o i t a l s n a r t s e c n e r e f f i d r e h t o d n a y c n e r r u C s e g n a h c 1 - (15) (14) 5 2 (14) (7) (2) (9) (23) 9 0 0 2 . 2 1 . 1 3 (11) (54) (129) (194) 65 106 138 309 (66) 243 49 Unrecognised deferred tax assets of o66 million (o69 million at December 31, 2008) related to tax losses that it will probably not be possible to utilise against future income. Tax losses Under Italian tax law, tax losses can be carried forward for up to five subsequent years, except for losses incurred in the first three years of activity of a company, which can be carried forward without time limit. Tax losses of foreign companies can be carried forward on average for more than five years, while a considerable part can be carried forward without limit. The tax rate applied by the Italian subsidiaries to determine the portion of carry-forward tax losses to be utilised was 27.5%. The rate for foreign entities averaged out at 28.3%. Tax losses, amounting to o378 million (o333 million at December 31, 2008), related entirely to foreign companies and can be used in the following periods: (o million) 2010 2011 2012 2013 2014 After 2014 Without limit Total Other non-current liabilities 24 Other non-current liabilities of o28 million (o49 million at December 31, 2008) were as follows: (o million) Fair value of hedging derivatives Trade and other payables Total 154 s e i r a i d i s b u s n a i l a t I - - - 5 - - - 5 s e i r a i d i s b u s n g i e r o F - 2 - 2 - 50 319 373 31.12.2008 31.12.2009 49 - 49 26 2 28 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The fair value of hedging derivatives related to commodity contracts entered into by Saipem SpA, with maturities from 2011- 2012. Further details can be found in Note 7 (cid:212)Other current assets(cid:213) and Note 19 (cid:212)Other current liabilities(cid:213). Shareholders(cid:213) equity Minority interest 25 Minority interest at December 31, 2009 amounted to o61 million (o21 million at December 31, 2008). Minority interest in profit and shareholders(cid:213) equity related to the following consolidated subsidiaries: (o million) Ersai Caspian Contractor Llc Saipem (Nigeria) Ltd Saipem Contracting (Nigeria) Ltd Total 31.12.2008 31.12.2009 19 1 1 21 60 - 1 61 Saipem(cid:213)s shareholders(cid:213) equity 26 Saipem(cid:213)s shareholders(cid:213) equity at December 31, 2009, amounting to o3,434 million can be analysed as follows: (o million) Share capital Share premium reserve Legal reserve Reserve for treasury shares Cash flow hedge reserve Cumulative currency translation differences Other reserves Retained earnings Net profit for the year Treasury shares Total 31.12.2008 31.12.2009 441 55 87 17 (89) (85) 7 1,536 914 (126) 2,757 441 55 88 17 77 (90) 7 2,226 732 (119) 3,434 Saipem(cid:213)s shareholders(cid:213) equity at December 31, 2009 included distributable reserves of o3,000 million (o2,411 million at December 31, 2008), some of which are subject to taxation upon distribution. A deferred tax liability has been recorded in relation to the share of reserves the Group expects to distribute (o54 million at December 31, 2009). Share capital 27 At December 31, 2009, the share capital of Saipem SpA, fully paid-up, amounted to o441 million, corresponding to 441,410,900 shares with a nominal value of 1 euro each, of which 441,265,452 are ordinary shares and 145,448 are savings shares. On April 28, 2009, Saipem(cid:213)s Shareholders(cid:213) Meeting approved a dividend distribution of o0.55 per ordinary share and o0.58 per savings share, with the exclusion of treasury shares. Share premium reserve 28 The share premium reserve at December 31, 2009, amounting to o55 million was unchanged from December 31, 2008. 155 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Other reserves 29 At December 31, 2009, (cid:212)Other reserves(cid:213) amounted to o99 million (negative o63 million at December 31, 2008) and consisted of the following items. Legal reserve At December 31, 2009, the legal reserve stood at o88 million. This represents the portion of profits, accrued as per Article 2430 of the Italian Civil Code, that cannot be distributed as dividends. The reserve increased by o1 million versus December 31, 2008, following the allocation of 2008 net profit. Cash flow hedge reserve This reserve showed a positive balance of o77 million (negative o89 million at December 31, 2008) and related to the fair value valuation of interest rate swaps, commodity hedges and the spot component of foreign currency hedging contracts at December 31, 2009. The reserve is shown net of tax of o20 million (o7 million at December 31, 2008). Cumulative currency translation differences This reserve amounted a negative o90 million and related to exchange rate differences arising from the translation into euro of financial statements currencies other than the euro. Reserve for treasury shares This reserve amounted to o17 million and was unchanged from December 31, 2008. Other reserves Other reserves amounted to o7 million and were unchanged from December 31, 2008. They related to the allocation of part of 2008 net profit, pursuant to Article 2426, 8-bis of the Italian Civil Code. This caption also comprises the re-valuation reserve set up by Saipem SpA in previous years, amounting to o2 million. Treasury shares 30 Saipem SpA holds 5,651,047 treasury shares (6,347,700 at December 31, 2008), amounting to o119 million (o126 million at December 31, 2008). These are ordinary shares of Saipem SpA with a nominal value of o1 each. Treasury shares are for allocation to the 2002-2008 stock option schemes. Operations involving treasury shares during the year were as follows: Treasury shares repurchased 2003 (from May 2) 2004 2005 2006 2007 2008 2009 Total Less treasury shares allocated: - without consideration, as stock grants - against payment, as stock options Treasury shares held at December 31, 2009 r e b m u N s e r a h s f o 2,125,000 1,395,000 3,284,589 1,919,355 848,700 2,245,300 - 11,817,944 1,616,400 4,550,497 5,651,047 At December 31, 2009, outstanding stock options amounted to 4,769,014 shares. 156 t s o c e g a r e v A ) o ( t s o c l a t o T ) n o i l l i m o ( 6.058 7.044 10.700 18.950 25.950 25.836 - 14.745 13 10 35 36 22 58 - 174 l a t i p a c e r a h S ) % ( 0.48 0.32 0.74 0.43 0.19 0.51 - 2.67 21.064 119 1.28 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Further information on stock option schemes are provided in Note 35 (cid:212)Payroll and related costs(cid:213). Reconciliation of statutory net profit and shareholders(cid:213) equity to consolidated net profit and shareholders(cid:213) equity (o million) As reported in Saipem SpA(cid:213)s financial statements Difference between the equity value of individual accounts of consolidated companies with respect to the corresponding book value in the statutory accounts of the Parent Company Consolidation adjustments, net of effects of taxation: - difference between purchase cost and underlying book value of net equity - elimination of unrealised intercompany profits - other adjustments Total shareholders(cid:213) equity Minority interest As reported in consolidated financial statements 8 0 0 2 . 2 1 . 1 3 9 0 0 2 . 2 1 . 1 3 Net profit 335 Shareholders(cid:213) equity 881 Net profit 490 Shareholders(cid:213) equity 1,188 653 - 27 (83) 932 (18) 914 1,377 816 (271) (25) 2,778 (21) 2,757 306 (1) 28 (48) 775 (43) 732 1,844 819 (299) (57) 3,495 (61) 3,434 31 Guarantees, commitments and risks Guarantees Guarantees of o6,706 million (o7,446 million at December 31, 2008) were as follows: 8 0 0 2 . 2 1 . 1 3 (o million) Associates Consolidated companies Own Total Unsecured Other guarantees Total Unsecured 22 504 30 556 42 4,417 2,431 6,890 64 4,921 2,461 7,446 22 492 20 534 9 0 0 2 . 2 1 . 1 3 Other guarantees 55 3,391 2,726 6,172 Total 77 3,883 2,746 6,706 Other guarantees issued for associated and consolidated companies of o3,446 million (o4,459 million at December 31, 2008) related to: (i) guarantees given to third parties relating to bid bonds and performance bonds of o3,441 million, including VAT recoverable from tax authorities of o4 million; (ii) letters of patronage issued to commissioning entities of o5 million. Commitments Saipem SpA, for the benefit of its customers, is committed to fulfiling the contractual obligations entered into by subsidiary or associate companies where they fail to fulfil the contractual obligations themselves, as well as to paying for any damages incurred as a result of any failure to meet those obligations. These commitments guarantee contracts whose overall value amounted to o21,745 million (o21,207 million at December 31, 2008), including the backlog quota at December 31, 2009 relating to Group companies. Risk management The main risks that Saipem is facing and actively monitoring and managing are the following: (i) the market risk deriving from exposure to fluctuations in interest rates and exchange rates between the euro and the other currencies used by the company and the risk deriving from exposure to commodity price volatility; 157 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S (ii) the credit risk deriving from the possible default of a counterparty; (iii) the liquidity risk deriving from the risk that suitable sources of funding for the Group(cid:213)s operations may not be available; (iv) the HSE risk associated with the potential occurrence of accidents, malfunctions, or failures with injury to persons and damage to the environment and impacts on operating and financial results; (v) the country risk; (vi) the project risk associated with the execution phase of engineering and construction contracts. Financial risks are managed in accordance with guidelines defined by the parent company, with the objective of aligning and coordinating Group companies(cid:213) policies on financial risks. For further details on risk management, see the (cid:212)Summary of significant accounting policies(cid:213) section. Capital structure management Saipem management uses leverage ratios to assess the soundness and efficiency of the Group(cid:213)s capital structure in terms of an optimal mix between net borrowings and shareholders(cid:213) equity, and to carry out benchmark analyses against industry standards. Leverage is a measure of a company(cid:213)s level of indebtedness, calculated as the ratio between net borrowings and shareholders(cid:213) equity. Management(cid:213)s objective is to restore a leverage ratio no higher than 0.5 following the implementation of the investment programme and the disposal of non-core assets. Additional information on financial instruments FINANCIAL INSTRUMENTS - CARRYING AMOUNTS AND EFFECT ON INCOME STATEMENT AND EQUITY The carrying amounts and effect on income statement and equity of financial instruments were as follows: (o million) Financial instruments held for trading Non-hedging derivatives (a) Financial instruments available for sale Other financial assets available for sale (a) Receivables and payables and other assets (liabilities) measured at amortised cost Trade and other receivables (b) Financing receivables (a) Trade and other payables (c) Financing payables (a) Net hedging derivative assets (liabilities) (d) g n i y r r a C t n u o m a (23) 36 3,972 68 5,735 3,943 (33) e m o c n i e h t n i t n e m e t a t s d e s i n g o c e r ) e s n e p x e ( e m o c n I (17) - (16) - 41 (58) (68) d e s i n g o c e r ) e s n e p x e ( y t i u q e n i e m o c n I - - - - - - (192) (a) The income statement effects relate only to the income (expense) indicated in Note 38 (cid:212)Finance income (expense)(cid:213). (b) The income statement effects were recognised in (cid:212)Purchases, services and other(cid:213) (impairments and losses on receivables). Net currency translation gains (losses) are included in note c. (c) The income statement effects were recognised in (cid:212)Finance income (expense)(cid:213) (currency translation gains (losses) arising from adjustments to the year-end exchange rate). (d) The income statement effects were recognised in (cid:212)Net sales from operations(cid:213) and (cid:212)Purchases, services and other(cid:213) (o26 million) and in (cid:212)Finance income (expense)(cid:213) (o42 million). FAIR VALUE OF FINANCIAL INSTRUMENTS Below, financial assets and liabilities measured at fair value in the balance sheet are classified using the (cid:212)fair value hierarchy(cid:213) based on the significance of the inputs used in the measurement process. The fair value hierarchy consists of the following three levels: a) b) Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities; (i.e. as prices) or indirectly (i.e. derived from prices); Level 3: Inputs for assets or liabilities that are not based on observable market data. c) 158 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Financial instruments measured at fair value at December 31, 2009 were classified as follows: (o million) Held for trading financial liabilities: - non-hedging derivatives Held for trading financial assets: - other financial assets available for sale Financial liabilities measured at fair value under the fair value option: - investments Net hedging derivative assets (liabilities) Total 9 0 0 2 . 2 1 . 1 3 Level 1 Level 2 Level 3 Total - 36 2 - 38 (23) - - (33) (56) - - - - - (23) 36 2 (33) (18) In the normal course of its business, Saipem uses various types of financial instrument. The information regarding their fair value is as follows. Notional amounts of derivatives The notional amount of a derivative is an amount used as a reference to calculate the contractual payments to be exchanged. This amount may be expressed in terms of a monetary or physical quantity (e.g. barrels, tonnes, etc.). Monetary quantities in foreign currencies are converted into euros at the exchange rate prevailing at year end. Notional amounts of derivatives do not represent the amounts actually exchanged between the parties and do not therefore constitute a measure of Saipem(cid:213)s credit risk exposure. This is instead represented by the positive net fair value of derivative contracts at year end. Interest rate risk management Saipem only enters into interest rate swaps to manage its interest rate risk. (o million) Interest rate swaps t n u o m a l a n o i t o N 8 0 0 2 . 2 1 . 1 3 t a 400 t n u o m a l a n o i t o N 9 0 0 2 . 2 1 . 1 3 t a 400 The table below shows swaps entered into, weighted average interest rates and maturities. Average interest rates are based on year end rates and may be subject to changes that could have a significant impact on future cash flows. Comparisons between the average buying and selling rates are not indicative of the fair value of derivatives. In order to determine their fair value, the underlying transactions must be taken into account. Receive fixed/pay variable-notional amount Weighted average rate received Weighted average rate paid Weighted average maturity (o million) (%) (%) (years) 31.12.2008 31.12.2009 400 3.85 4.72 2.85 400 3.85 1.00 1.10 159 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Exchange rate risk management Saipem enters into various types of forward foreign exchange contracts to manage its exchange rate risk. For contracts involving the exchange of two foreign currencies, both the amount received and the amount sold are indicated. (o million) Forward foreign exchange contracts t n u o m a l a n o i t o N 8 0 0 2 . 2 1 . 1 3 t a 1,521 t n u o m a l a n o i t o N 9 0 0 2 . 2 1 . 1 3 t a 2,386 The table below shows forward foreign exchange contracts and other instruments used to manage the exchange rate risk for the principal currencies. (o million) AUD CNY EUR GBP JPY KWD NOK USD Total 8 0 0 2 . 2 1 . 1 3 t a l a n o i t o N t n u o m a Purchase 24 58 197 612 34 44 123 2,985 4,077 Sell 62 - 139 55 21 - 14 5,307 5,598 Purchase 21 59 71 463 49 45 89 2,654 3,451 Commodity price risk Saipem only enters into commodity contracts to manage its commodity price risk exposure. The table below shows notional amounts for forward commodity contracts entered into. 8 0 0 2 . 2 1 . 1 3 t a l a n o i t o N t n u o m a Sell 59 - 11 50 17 103 16 5,581 5,837 9 0 0 2 . 2 1 . 1 3 t a l a n o i t o N t n u o m a 9 0 0 2 . 2 1 . 1 3 t a l a n o i t o N t n u o m a (o million) Forward commodity contracts Purchase 93 Sell - Purchase 58 Sell - Legal proceedings Following the acquisition and merger by incorporation of Snamprogetti, Saipem is involved in civil and administrative proceedings and legal actions connected with the ordinary course of its business. Based on the information available to date, and taking into account the provisions made for contingencies, Saipem believes that the foregoing will not have significant adverse effects on its consolidated financial statements. A brief summary of the most important ongoing proceedings is provided hereafter. Unless otherwise stated, no provision has been made in relation to these proceedings because Saipem deems an adverse outcome to be unlikely. CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Due The arbitration proceedings brought by the CEPAV Due consortium against (cid:212)Treno ad Alta Velocit(cid:136)(cid:213) (High Speed Train, hereafter TAV) to recover damages for delays allegedly attributable to TAV, which began on December 28, 2000 (and which were reported on in previous financial statements), are still ongoing. The proceedings have however recognised the consortium(cid:213)s right to damages with a partial award issued on January 4, 2007. TAV have appealed against the partial award, pleading the previous termination of the 160 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S relevant agreement. Decree Law No. 7 of January 31, 2007 — subsequently converted into law — did in fact revoke the concession awarded by Ferrovie dello Stato to TAV SpA for the construction of the Milan-Verona line, and this revocation would have also affected the agreement that CEPAV Due signed with TAV SpA on October 15, 1991, leading to its termination. The judgment on appeal is currently ongoing. The hearing of the conclusions has been scheduled for January 28, 2011. The first proceeding was concluded on February 23, 2010 with the delivery of the arbitration award, which condemned TAV to pay the CEPAV Due consortium an amount of o44,176,787 plus legal interest and compensation for inflation accrued, from the date of the request for arbitration until the date of payment of damages. The court also condemned TAV to pay an additional o1,115,000 plus interest and compensation for inflation accrued from October 30, 2000 until the date of payment of damages. In February 2007, after Decree Law No. 7 of January 31, 2007 entered into force, the CEPAV Due consortium notified TAV of a second request for arbitration aimed at recovering damages for breaches of contract committed by TAV before the issue of the decree and for damages resulting from the revocation of the agreement. TAV has rejected any liability in this regard. Subsequent to the commencement of this second arbitration proceeding, Article 12 of Decree Law No. 112 of June 25, 2008, converted into Law No. 133 of August 6, 2008, provided for the (cid:212)Annulment of the revocation of the TAV concessions(cid:213) and for the continuation without interruption of the agreement signed by CEPAV Due with TAV SpA on October 15, 1991 with RFI (Rete Ferroviaria Italiana) SpA. The arbitration proceeding is continuing to determine the damages suffered by the Consortium. The Arbitration Panel scheduled a hearing for September 22, 2009 for the appointment of a court-appointed expert (Consulente Tecnico di Ufficio), but this hearing was postponed until November 23, 2009. At the November 23 hearing, the Arbitration Panel agreed to the request of both parties to suspend the decision with regard to the appointment of the court-appointed expert. The date for the next hearing has not yet been announced. Both parties have accepted the date of December 31, 2010 as the deadline for the issue of the award. CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Uno - TAV SpA As mentioned in previous financial statements, the CEPAV Uno consortium (Eni consortium for the High-Speed Railway Line), consisting of Saipem SpA having a 50.36% stake; Consorzio Cooperative Costruzioni - CCC, a 21.34% stake; and Grandi Lavori - Fincosit and Impresa Pizzarotti & C. a 14.15% stake each, signed a contract with TAV SpA on October 15, 1991 and, subsequently, a supplemental contract on August 3, 2000 and an Addendum on June 27, 2003, for the construction of the Milan-Bologna high- speed railway line. These contracts were also signed by Eni SpA, acting as guarantor, to ensure the Consortium(cid:213)s timely and complete fulfilment of all the obligations included in the contract, the subsequent supplemental contract and addendum as well as any ensuing addenda/modifications. The Consortium has asked for an extension to the completion dates for the works and additional fees (o1,770,000,000, as at December 31, 2007). An attempt to reach an amicable settlement ended unsuccessfully on March 14, 2006. For this reason, on April 27, 2006, notification of arbitration was sent to TAV. The evidence acquisition phase is currently underway. The deadline for the arbitration panel to file the arbitration award was originally set for June 29, 2010 and was subsequently extended, for the purpose of acquiring further evidence, to June 12, 2011 and then December 27, 2011. TSKJ Consortium Investigations by the U.S. Securities and Exchange Commission Snamprogetti Netherlands BV has a 25% participation in the TSKJ Consortium companies. The remaining participations are held in equal shares of 25% by Halliburton/KBR, Technip, and JGC. Beginning in 1994, the TSKJ Consortium has been involved in the construction of natural gas liquefaction facilities at Bonny Island in Nigeria. Snamprogetti SpA, the holding company of Snamprogetti Netherlands BV, was sold by Eni to Saipem SpA in February 2006. Snamprogetti was subsequently merged into Saipem as of October 1, 2008. The U.S. Securities and Exchange Commission (SEC), the U.S. Department of Justice (DoJ), and other authorities, including the Milan Public Prosecutor(cid:213)s office, are investigating alleged improper payments made by the TSKJ Consortium to certain Nigerian public officials. The proceedings in the US: since June 2004, Saipem/Snamprogetti and Eni have been voluntarily providing information in response to requests by the SEC and the DoJ in connection with the investigations. In February 2009, KBR and its former parent company, Halliburton, announced that they had reached a settlement with the SEC and the DoJ with respect to the TSKJ matter, as well as other unspecified matters. KBR/Halliburton pleaded guilty to Foreign Corrupt Practices Act (FCPA) charges stemming from their involvement in the TSKJ matter and agreed to pay a criminal fine of $402 million to the DoJ and a civil penalty of $177 million to the SEC. In view of the agreements entered into by KBR/Halliburton with the DoJ and the SEC, the TSKJ matter could result in legal liability on the part of individuals as well as the other members of the TSKJ Consortium found in violation of the FCPA, and those entities could be subject to substantial fines and the imposition of ongoing measures by the US government to prevent future violations, including potentially a monitor of internal controls, and debarment from government contracts. 161 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S In a press release of February 12, 2010, the French company Technip — following an intensification of its discussions with US authorities in previous weeks — announced the recognition of a provision for an amount of o245 million reflecting the estimated cost of resolution with such authorities. The decision was made based on the status of ongoing discussions with the DoJ and the SEC, which allowed Technip to estimate the cost of a global resolution of all potential claims against the company arising from the investigation. With regard to Snamprogetti and Eni, contacts with the US authorities have also intensified recently. Based on the status of ongoing discussions, the Company estimated the cost of a global resolution of all potential claims arising from the investigation with the US authorities at a figure similar to the estimate made by Technip. The proceedings in Italy: beginning in 2004, the TSKJ matter has prompted investigations by the Milan Public Prosecutor(cid:213)s office against unknown persons. Starting in March 10, 2009, the company received requests to produce documents from the Milan Public Prosecutor(cid:213)s office. On July 17, 2009, the date on which a search and attachment warrant was served on Saipem/Snamprogetti, the Milan Public Prosecutor(cid:213)s office indicated to the company that it is investigating one or more people; previously, as far as the company knew, nobody was under formal investigation. On July 31, 2009, a decree issued by the Judge for Preliminary Investigation at the Court of Milan was served on Saipem SpA (as legal entity incorporating Snamprogetti SpA). The decree set for September 22, 2009 a hearing in camera in relation to proceedings pursuant to Legislative Decree No. 231 of June 8, 2001, under which the Milan Public prosecutor is investigating Saipem SpA and Eni SpA for liability of legal entities arising from offences involving international corruption alleged against to two former managers of Snamprogetti SpA. The Milan Public Prosecutor requested that Saipem SpA and Eni SpA be debarred from activities involving — directly or indirectly — any agreement with the Nigerian National Petroleum Corporation and its subsidiaries. The above mentioned hearing allowed Eni and Saipem to conduct their own defence before any decision was made with regard to the requested disqualification. The Milan Public Prosecutor(cid:213)s request for precautionary measures related to TSKJ Consortium practices between 1995 and 2004. In this regard, the Public Prosecutor claimed the inadequacy and violation of the organisational, management and control Model adopted to prevent the commission of the alleged offences by persons subject to direction and supervision. At the time of the events under investigation, the company had in place a code of practice and internal procedures based on current best practices. Subsequently, the code and internal procedures have been improved with a view to achieving the continuous improvement of internal controls. Furthermore, on July 14, 2008, Saipem approved a new Code of Ethics and a new Model 231, which reaffirmed that the belief that one is acting in favour or to the advantage of Saipem can never, in any way, justify — not even in part — any behaviours that conflict with the principles and contents of the Code, while an analysis of existing internal anti-corruption procedures was also carried out, with a view to implementing any modifications that proved necessary. The proceedings in camera scheduled for September 22, 2009 were postponed to the hearing of October 21, 2009, following which on November 17, 2009, the judge for the preliminary investigation rejected the request for precautionary measures of disqualification filed by the Milan Public Prosecutor. The Milan Public Prosecutor appealed against the decision of the Judge for Preliminary Investigation and the resulting hearing of the Court of Appeal, which exercised the function of judicial review court, was held on January 19, 2010. On February 9, 2010, the review court handed down its ruling, which dismissed as unfounded the appeal of the Public Prosecutor and upheld the decision of the Judge for Preliminary Investigation. On February 19, 2010 the Public Prosecutor of Milan filed an appeal with the Third Instance Court, asking for the decision of the Review Court Judge to be annulled. Meanwhile, on February 11, 2010, the Milan Public Prosecutor requested, pursuant to Article 248 of the Penal Code, documentation and information related to companies in which Eni SpA and Saipem SpA (former Snamprogetti SpA) have participating interests involved in the Bonny Island project. An adverse conclusion of the investigations cannot be excluded. However, in connection with the sale of Snamprogetti to Saipem, Eni agreed to indemnify Saipem for potential losses resulting from the investigations into the TSKJ matter. EniPower - Enquiries by the Judiciary As mentioned in previous financial statements, as part of the inquiries commenced by the Milan Public Prosecutor (criminal proceedings 2460/03 R.G.N.R. pending at the Milan Public prosecutor(cid:213)s office) into contracts awarded by EniPower to various companies, Snamprogetti SpA (as engineering and procurement services contractor), together with other parties, were served a notice informing them that they were under investigation, pursuant to Article 25 of Legislative Decree 231/2001. Preliminary investigations ended in August 2007, with a favourable outcome for Snamprogetti, which was not included among the parties still under investigation for whom committals for trial have been requested. 162 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Snamprogetti subsequently brought proceedings against the physical and legal persons implicated in transactions relating to the Company and reached settlements with a number of parties that requested the application of settlement procedures. Following the conclusion of the preliminary hearing, criminal proceedings continued against former employees of the above companies as well as against employees and managers of a number of their suppliers, pursuant to Legislative Decree No. 231/2001. Eni SpA, EniPower and Snamprogetti presented themselves as plaintiffs in the preliminary hearing. In the preliminary hearing related to the main proceeding of April 27, 2009, the judge for the preliminary hearing requested that all parties that did not request the application of settlement procedures stand trial, excluding Romeo Franco Musazzi and ABB Instrumentation SpA as a result of the statute of limitations. In the hearing of March 2, 2010 the Court confirmed the admission as plaintiffs of Eni SpA, EniPower SpA and Saipem SpA against the defendants under the provisions of Legislative Decree No. 231/2001. The trial has been postponed to the hearing of April 13, 2010 in order to sue the defendants of further companies involved. Revenues The following is a summary of the main components of revenues. Additional information about changes in revenues is provided under the (cid:212)Financial and economic results(cid:213) section of the (cid:212)Operating and Financial Review(cid:213). 32 Net sales from operations Net sales from operations were as follows: (o million) Net sales from operations Change in contract work in progress Total Net sales by geographical area were as follows: (o million) Italy Rest of Europe CIS Rest of Asia North Africa West Africa Americas Australia, Oceania and rest of the world Total Information required by IAS 11, paragraphs 39, 40 and 42 is provided by business sector in Note 43. Revenues from Eni Group companies amounted to o1,735 million. 33 Other income and revenues Other income and revenues were as follows: (o million) Contract penalties and other trade revenues Gains on disposal of assets Compensation for damages Other Total 2008 9,656 438 10,094 2008 1,135 878 1,092 2,747 1,475 1,950 590 227 2009 10,581 (289) 10,292 2009 1,139 860 1,186 2,226 1,791 2,315 598 177 10,094 10,292 2008 2009 26 7 1 10 44 - 5 8 14 27 163 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Operating expenses The following is a summary of the main components of operating expenses. For more information about changes in operating expenses, see the (cid:212)Financial and economic results(cid:213) section of the (cid:212)Operating and Financial Review(cid:213). 34 Purchases, services and other Purchases, services and other miscellaneous operating expenses included the following: (o million) Production costs - raw, ancillary and consumable materials and goods Production costs - services Operating leases and other Net provisions for contingencies Other expenses less: - capitalised direct costs associated with self-constructed assets - changes in inventories of raw, ancillary and consumable materials and goods Total 2008 2,551 4,216 619 (8) 78 (97) (68) 7,291 2009 2,445 4,045 682 19 117 (50) (25) 7,233 Production costs for services included agency fees of o79 million (o155 million at December 31, 2008). Costs incurred in connection with research and development activities recognised in profit and loss as they do not meet the requirements to be capitalised amounted to o17 million (o17 million at December 31, 2008). (cid:212)Operating leases and other(cid:213) included operating lease payments of o633 million (o350 million in 2008). Future minimum lease payments expected to be paid under non-cancellable operating leases amounted to o276 million (o257 million in 2008), of which o116 million was due within one year, o156 million between 2-5 years and o4 million due after 5 years. Net provisions for contingencies are detailed in Note 21 (cid:212)Provisions for contingencies(cid:213). Other expenses of o117 million included indirect taxes of o38 million, mainly related to foreign direct and indirect subsidiaries of Saipem SpA. Purchase services and other expenses towards Eni Group companies amounted to o85 million. 35 Payroll and related costs Payroll and related costs were as follows: (o million) Wages and salaries Social security contributions Contributions to defined benefit plans Employee termination indemnities Accrual to provision for employee termination indemnities recognised as a contra-entry to pension plans or INPS fund Other costs less: - capitalised direct costs associated with self-constructed assets Total 2008 1,135 198 27 6 17 41 (14) 1,410 2009 1,228 197 37 4 19 17 (19) 1,483 Net accruals to provisions for employee benefits are shown under Note 22 (cid:212)Provisions for employee benefits(cid:213). 164 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Stock-based compensation STOCK OPTIONS With the aim of improving motivation and loyalty of the managers of Saipem SpA and its subsidiaries pursuant to Article 2359 of the Italian Civil Code that are directly responsible for Group results and/or holding strategic positions, Saipem approved stock compensation plans that provide the assignment for no consideration of purchase rights of Saipem treasury shares (options). 2002-2004 and 2005 plans Stock option plans provide the right for the assignee to purchase treasury shares with a 1 to 1 ratio after the end of the third year from the date of the grant (vesting period) for assignees resident in Italy and after the end of the fourth year for assignees resident in France, with a strike price calculated as the arithmetic average of official prices recorded on the Italian stock market in the month preceding assignment or, from 2003 onwards, the average cost of treasury shares on the day preceding the assignment, if greater. 2006-2008 plan The exercise of stock allocated as part of the 2006-2008 stock option plan is subject to the achievement of a performance condition. At the end of each three-year vesting period, the Board of Directors sets the percentage of exercisable options (between 0 and 100), in relation to the Total Shareholder Return (TSR) of the Saipem share against its six largest international competitors in terms of market capitalisation. Options can be exercised after three years from the date of allocation and for a maximum period of three years. The strike price is calculated as the arithmetic average of official prices recorded on the Italian stock market in the month preceding assignment. The arithmetic average of such prices, weighted by the number of shares assigned, amounts to o25.872 per share for 2008. The following table shows changes in the stock option plans: (o thousand) Options as of January 1, 2009 New options granted (Options exercised during the year) (Options cancelled during the year) (b) Options outstanding as of December 31, 2009 Of which exercisable at December 31, 2009 8 0 0 2 Average strike price 16.293 25.872 9.020 - 19.170 8.293 Number of shares 5,497,696 1,339,000 (686,396) (5,650) 6,144,650 1,160,150 Market price (a) Number of shares 150,802 6,144,650 33,261 15,732 - 72,630 13,713 - (686,753) (688,883) 4,769,014 1,721,739 9 0 0 2 Average strike price 19.170 - 9.794 - 21.045 14.393 Market price (a) 72,630 - 11,826 11,668 114,933 41,494 (a) The market price relating to new options granted, options exercised in the year and options cancelled in the year corresponds to the average market value. The market price of shares underlying options outstanding at the beginning and end of the year is the price recorded at January 1 and December 31. (b) Options cancelled relate to the termination of employment. 165 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The following table shows stock options outstanding as of December 31, 2009 and the number of assignees: ) * ( e k i r t S e c i r p 6.187 6.821 7.594 11.881 17.519 26.521 25.872 - s e r a h s f o . o N 2,105,544 1,283,500 1,166,000 980,500 1,965,000 1,332,500 1,339,000 - 10,172,044 (1,835,097) (1,178,500) (963,000) (441,000) (132,900) - - - (4,550,497) (239,533) (63,000) (20,500) (33,000) (395,775) (87,225) (13,500) - (852,553) 30,914 42,000 182,500 506,500 1,436,325 1,245,275 1,325,500 - 4,769,014 s r e g a n a m f o . o N 213 58 58 56 91 91 93 - r a e Y 2002 2003 2004 2005 2006 2007 2008 2009 December 31, 2009 Options exercised 2002 2003 2004 2005 2006 2007 2008 2009 Options cancelled 2002 2003 2004 2005 2006 2007 2008 2009 Options outstanding 2002 2003 2004 2005 2006 2007 2008 2009 (*) Official average of prices recorded on the Italian stock market in the month preceding assignment. 166 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S At December 31, 2009, No. 4,769,014 options had been assigned for the purchase of No. 4,769,014 ordinary shares of Saipem SpA with a nominal value of o1. The options related to the following plans: 2002 plan 2003 plan 2004 plan 2005 plan 2006 plan 2007 plan 2008 plan 2009 plan Total s e r a h s f o r e b m u N 30,914 42,000 182,500 506,500 1,436,325 1,245,275 1,325,500 - 4,769,014 e c i r p e k i r t S ) o ( 6.187 6.821 7.594 11.881 17.519 26.521 25.872 - i g n n i a m e r ) s r a e y ( e f i l e g a r e v A 1 2 3 4 4 5 6 ) o ( e u l a v r i a F s e e n g i s s a r o f t n e d i s e r y l a t I n i ) o ( e u l a v r i a F s e e n g i s s a r o f e c n a r F n i t n e d i s e r Not available Not available 1.1928 2.0935 3.1029 5.7208 8.8966 8.2186 1.1806 2.0085 2.9795 6.1427 9.5320 8.7734 The fair value of stock options granted in 2002 is not available, as it was not calculated at the time of assignment. The fair value valuation of options granted in 2003, 2004 and 2005 considers the stock options as European until September 30, 2006, August 23, 2007 and July 27, 2008, respectively, for assignees resident in Italy and until September 30, 2007, August 23, 2008 and July 27, 2009 for those resident in France; subsequently they are considered American. The fair value was therefore calculated using a combination of the Black, Scholes and Merton method for European options and the Roll, Geske and Whaley method for American options. The fair value of 2006 and 2007 stock option rights was calculated based on the trinomial trees method, which considers the stock as American-type call options with dividend entitlement. The following assumptions were made for the 2008 plan: - for assignees resident in Italy: Risk-free interest rate (%) Expected life (years) Expected volatility (%) Expected dividends (%) - for assignees resident in France: Risk-free interest rate (%) Expected life (years) Expected volatility (%) Expected dividends (%) 2008 4.926 6 34.700 2.090 2008 4.918 7 34.700 2.090 The cost of stock grant and stock option plans in 2009 amounted to o7 million (o8 million in 2008). Compensation of key management personnel Compensation due to senior managers responsible for Group results or holding positions of strategic interest (i.e. key management personnel) amounted to o18 million (o26 million in 2008) and was as follows: (o million) Wages and salaries Employee termination indemnities Stock options Total 2008 2009 6 6 14 26 7 7 4 18 167 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Compensation of Directors and Statutory Auditors Compensation of Directors amounted to o3,600 thousand (o3,575 thousand in 2008). Compensation of Statutory Auditors amounted to o140 thousand (o155 thousand in 2008). Compensation included emoluments and all other retributive and social security compensations due for the function of director or statutory auditor of Saipem SpA or companies within the scope of consolidation that represented a cost to Saipem. Average number of employees The average number of employees, by category, for all consolidated companies was as follows: (number) Senior managers Junior managers White collars Blue collars Seamen Total 31.12.2008 31.12.2009 436 3,801 14,610 15,389 257 34,493 436 4,034 15,726 15,765 263 36,224 The average number of employees was calculated as the arithmetic mean of the number of employees at the beginning and end of the year. The average number of senior managers included managers employed and operating in foreign countries, whose position is comparable to senior manager status. 36 Depreciation, amortisation and impairment Depreciation, amortisation and impairment are detailed below: (o million) Depreciation and amortisation: - tangible assets - intangible assets Impairment: - intangible assets Total 2008 2009 347 6 353 - 353 427 11 438 2 440 37 Other operating income and expenses (cid:212)Other operating income and expenses(cid:213) related to the recognition in the income statement of the effects related to the valuation at fair value of those derivatives on commodities which cannot be qualified as hedging instruments under IFRS. At December 31, 2009, they amounted to -o7 million (-o1 million at December 31, 2008). 38 Finance income (expense) Finance income (expense) was as follows: (o million) Finance income (expense) Finance income Finance expense Derivatives 168 2008 2009 1,405 (1,568) (163) 68 (95) 1,101 (1,116) (15) (85) (100) S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Net finance income and expense was as follows: (o million) Exchange gains (losses) Exchange gains Exchange losses Finance income (expense) related to net borrowings Interest and other income from Group financial companies Interest from banks and other financial institutions Interest and other expense due to Group financial companies Interest and other expense due to banks and other financial institutions Other finance income (expense) Other finance income Other finance expense Total Gains (losses) on derivatives consisted of the following: (o million) Exchange rate derivative Interest rate derivatives 2008 (56) 1,272 (1,328) (121) 67 20 (178) (30) 14 46 (32) (163) 2008 68 - 68 2009 41 1,072 (1,031) (58) 13 14 (56) (29) 2 2 - (15) 2009 (82) (3) (85) The net gain on derivatives of o85 million (net gain of o68 million in 2008) was primarily due to the recognition in the income statement of the change in fair value of derivatives that do not qualify as hedging instruments under IFRS and changes in the value of the forward component of derivatives that qualify for hedge accounting. 39 Income (expense) from investments The share of profit (loss) of investments accounted for using the equity method and other gains (losses) from investments consisted of the following: (o million) Share of profit of investments accounted for using the equity method Other income (expense) from investments Gain on disposals Dividends Total 2008 22 3 199 5 229 2009 7 (2) - 2 7 The share of profit and loss of investments accounted for using the equity method is analysed under Note 10 (cid:212)Investments accounted for using the equity method(cid:213). The difference with respect to the prior year was mainly related to the gain of o195 million on the sale in 2008 of the investment in Gaztransport et Technigaz sas. 169 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S 40 Income taxes Income taxes consisted of the following: (o million) Current taxes: - Italian subsidiaries - foreign subsidiaries Net deferred taxes: - Italian subsidiaries - foreign subsidiaries Total 2008 2009 158 138 (6) (5) 285 138 153 47 (50) 288 Current taxes amounted to o291 million and related to Ires (o99 million), Irap (o30 million) and other taxes (o162 million). The effective tax rate was 27.1% (28.1% in 2008), compared with a statutory tax rate of 19.0% (21.4% in 2008), calculated by applying a 27.5% tax rate (Ires) to profit before income taxes and a 3.9% tax rate (Irap) to the net value of production as provided for by Italian laws. The difference between the statutory and effective tax rate was due to the following factors: (%) Statutory tax rate Items increasing (decreasing) statutory tax rate: - net value of production abroad (Irap) - lower foreign subsidiaries tax rate and other factors Total changes Effective tax rate 2008 21.4 (0.2) 6.9 6.7 28.1 2009 19.0 (0.9) 9.0 9.9 27.1 Minority interest 41 Minority interest(cid:213)s share of profit amounted to o43 million and related mainly to Ersai Caspian Contractor Llc. 42 Earnings per share Basic earnings per ordinary share are calculated by dividing net profit for the year attributable to Saipem(cid:213)s shareholders by the weighted average of ordinary shares issued and outstanding during the year, excluding treasury shares. The average number of ordinary shares outstanding used for the calculation of the basic earnings per share outstanding for 2009 and 2008 was 435,388,476 and 435,726,295, respectively. Diluted earnings per share are calculated by dividing net profit for the year attributable to Saipem(cid:213)s shareholders by the weighted average of fully-diluted shares issued and outstanding during the year, with the exception of treasury shares and including the number of shares that could potentially be issued. At December 31, 2009, shares that could potentially be issued only regarded shares granted under stock option plans. The average number of shares outstanding used for the calculation of diluted earnings for 2008 and 2009 was 442,004,132 and 440,302,786, respectively. Reconciliation of the average number of shares used for the calculation of basic and diluted earnings per share is as follows: Average number of shares used for the calculation of the basic earnings per share Number of potential shares following stock option plans Number of savings shares convertible into ordinary shares 31.12.2008 435,726,295 6,129,650 148,187 31.12.2009 435,388,476 4,769,014 145,296 Average number of shares used for the calculation of the diluted earnings per share 442,004,132 440,302,786 Saipem(cid:213)s net profit Basic earnings per share Diluted earnings per share 170 (o million) (o per share) (o per share) 914 2.10 2.07 732 1.68 1.66 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S 43 Information by industry segment and geographical area Information by industry segment (o million) December 31, 2008 Net sales from operations less: intersegment sales Net sales to customers Operating profit Depreciation, amortisation and impairment Net income from investments Capital expenditure Property, plant and equipment Investments Current assets Current liabilities Provisions for contingencies December 31, 2009 Net sales from operations less: intersegment sales Net sales to customers Operating profit Depreciation, amortisation and impairment Net income from investments Capital expenditure Property, plant and equipment Investments Current assets Current liabilities Provisions for contingencies e r o h s f f O 5,528 1,665 3,863 534 175 20 763 2,197 31 2,254 2,565 32 5,824 1,483 4,341 615 195 - 697 2,672 35 2,007 2,287 43 e r o h s n O 6,198 874 5,324 303 49 209 60 178 13 3,291 3,731 77 5,815 984 4,831 290 48 7 28 144 85 2,823 3,134 82 e r o h s f f O g n i l l i r D 736 264 472 172 66 - 796 2,147 - 319 327 6 804 238 566 192 95 - 690 2,748 - 243 259 2 Intersegment sales were conducted on an arm(cid:213)s length basis. The following table contains information required by IAS 11 paragraphs 39, 40, 42 and 45. (o million) Net sales from operations Change in contract work in progress Change in deferred income Progress billings Operating expense Change in provision for future losses Costs incurred Advances Contract work in progress (a) Deferred income (b) Provision for future losses (c) Total (a+b+c) e r o h s f f O 4,341 167 (149) 4,359 (3,699) (27) (3,726) 174 (198) 663 41 506 e r o h s n O 4,831 115 (159) 4,787 (4,551) 10 (4,541) 1,115 (547) 864 60 377 e r o h s n O g n i l l i r D 514 79 435 74 63 - 425 649 - 208 223 1 688 134 554 59 102 - 200 731 - 294 282 1 e r o h s f f O g n i l l i r D 566 - 5 571 (374) - (374) 1 - 6 1 7 d e t a c o l l a n U - - - - - - - - - 1,772 2,831 69 - - - - - - - - - 1,420 2,386 72 e r o h s n O g n i l l i r D 554 (2) - 552 (495) - (495) 3 (3) - 1 (2) l a t o T 12,976 2,882 10,094 1,083 353 229 2,044 5,171 44 7,844 9,677 185 13,131 2,839 10,292 1,156 440 7 1,615 6,295 120 6,787 8,348 200 l a t o T 10,292 280 (303) 10,269 (9,119) (17) (9,136) 1,293 (748) 1,533 103 888 171 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Information by geographical area Since Saipem(cid:213)s business involves the deployment of a fleet on a number of different projects over a single year, it is difficult to allocate assets to a specific geographic area. As a result, certain assets have been deemed not directly attributable. The unallocated part of tangible and intangible assets and capital expenditure related to vessels and their related equipment and goodwill. The unallocated part of current assets pertained to inventories related to vessels. A breakdown of revenues by geographical area is provided in Note 32. (o million) 2008 Capital expenditure Tangible and intangible assets Identifiable assets (current) 2009 Capital expenditure Tangible and intangible assets Identifiable assets (current) e p o r u E f o t s e R 9 12 1,595 11 12 1,029 y l a t I 68 80 881 106 143 759 a i s A f o t s e R 108 172 a c i r f A h t r o N 8 20 a c i r f A t s e W 49 132 1,031 1,264 1,474 82 255 4 17 61 465 1,200 1,216 1,121 S I C 107 276 791 95 256 434 s a c i r e m A 233 989 304 45 663 436 d e t a c o l l a n U 1,462 4,245 504 1,211 5,240 592 l a t o T 2,044 5,926 7,844 1,615 7,051 6,787 Current assets were allocated by geographical area using the following criteria: (i) cash and cash equivalents and financing receivables were allocated on the basis of the country in which individual company bank accounts were held; (ii) inventory was allocated on the basis of the country in which onshore storage facilities were situated (i.e. excluding inventory in storage facilities situated on vessels); (iii) trade receivables and other assets were allocated to the geographical area to which the related project belonged. Non current assets were allocated on the basis of the country in which the asset operates, except for offshore drilling and construction vessels, which were included under (cid:212)Unallocated(cid:213). 44 Transactions with related parties Saipem SpA is a subsidiary of Eni SpA. Transactions with related parties entertained by Saipem SpA and/or companies within the scope of consolidation concern mainly the supply of services, the exchange of goods, and the provision and utilisation of financial resources with other Eni SpA subsidiaries or associated companies. These transactions are an integral part of the ordinary day-to- day business and are carried out on an arm(cid:213)s length basis, i.e. at conditions which would be applied between independent parties. All transactions were carried out for the mutual benefit of the companies involved. The tables below shows the value of transactions of a trade, financial or other nature entered into with related parties. The analysis by company is based on the principle of relevance in relation to the total amount of transactions. Transactions not itemised because they are immaterial are aggregated under the following captions: - Eni subsidiaries; - Eni associates; - other related parties. 172 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Trade and other transactions Trade transactions as of and for the year ended December 31, 2008 consisted of the following: (o million) Company Unconsolidated associates CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Due TSKJ - Servi(cid:141)(cid:155)es de Engenharia Lda Kwanda Suporto Logistico Lda Total Unconsolidated subsidiaries Snamprogetti Africa (Nigeria) Ltd Total Eni subsidiaries Eni SpA Eni SpA Exploration & Production Division Eni SpA Gas & Power Division Eni SpA Refining & Marketing Division Agip Energy & Natural Resources (Nigeria) Ltd Agip Karachaganak BV Agip Kazakhstan North Caspian Operating Co NV Dunastyr Polisztirolgy(cid:136)rt(cid:151) Eni Algeria Production BV Eni Australia BV Eni Congo SA Eni Coordination Center SA Eni Corporate University SpA Eni Hewett Ltd Eni Iran BV Eni Mediterranea Idrocarburi SpA Eni North Africa BV EniPower Mantova SpA EniPower SpA EniServizi SpA Eni Tunisia BV GreenStream BV Ieoc Production BV Naoc - Nigerian Agip Oil Co Ltd Polimeri Europa SpA Praoil SpA Raffineria di Gela SpA Serfactoring SpA Servizi Aerei SpA Snam Rete Gas SpA Societ(cid:136) EniPower Ferrara Srl Soci(cid:142)t(cid:142) pour la Construction du Gazoduc Transtunisien SA - Scogat SA Sofid SpA Stoccaggi Gas Italia SpA Syndial SpA Total Eni subsidiaries Eni associates Total Eni companies Total transactions with related parties Overall total Incidence (%) 8 0 0 2 . 2 1 . 1 3 8 0 0 2 r a e Y Receivables Payables Guarantees Costs Revenues Goods Services Goods and services Other 53 - 49 102 2 2 27 178 3 117 9 1 118 6 2 45 31 160 - - 4 29 7 - 1 3 22 2 - 64 37 1 17 - - 46 3 1 - - 1 - - 11 1 - 8 - - 6 - - 3 - - 3 - - - - - - 23 - - - 20 3 - - 44 - - - 14 1 12 70 1,030 15 1,045 1,149 4,255 27.01 - 2 - - 124 4 128 129 6,370 2.03 64 - - 64 - - 5,294 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,294 - 5,294 5,358 7,446 71.96 - - - - - - 6 1 - 3 - - - - - - - - - - - - - - - 3 - - - - - - - - - - - 1 - - 1 - - 6 1 - 5 - - - - - - - - 5 - - 1 - - - 40 - - - - - - - - 1 - - 1 1 - 2 - - 1 280 11 81 24 4 313 11 5 144 125 - - 3 5 42 24 4 5 2 48 6 2 37 36 - 24 - - 57 3 - - - - - - - - - - 2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 13 - 13 13 2,551 0.51 - 5 - - 64 3 67 68 4,835 1.41 - - - - 2 2 2 2 44 4.55 144 - 30 71 1,542 15 1,557 1,559 10,094 15.44 173 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Trade transactions as of and for the year ended December 31, 2009 consisted of the following: (o million) 9 0 0 2 . 2 1 . 1 3 9 0 0 2 r a e Y Receivables Payables Guarantees Costs Revenues Goods Services Goods and services Other 54 72 1 127 6 192 3 65 6 2 169 1 - - 1 2 1 19 - 55 5 - 7 5 4 19 2 2 21 64 2 - 113 - 14 40 - - 63 7 1 - - 1 8 1 - 4 - - 7 - - - 1 - - - 13 - - 2 - - - - - 8 - 105 - 2 48 - - - 54 - - - 6 25 53 974 57 1,031 1,158 4,040 28.66 - - - 253 1 254 255 5,735 4.45 77 - - 77 4,854 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,854 - 4,854 4,931 6,706 73.53 - - - - 5 1 - 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 - - 1 4 1 1 6 - - - - 1 - 1 5 - - - - - 5 - - - - 1 46 - - - 2 - - 1 - 1 1 - - 2 20 4 26 2 372 2 73 27 5 440 1 - 1 1 - 2 72 107 105 - - 7 8 1 33 3 3 71 109 4 1 64 1 26 37 - - 70 17 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 9 - 9 9 2,445 0.37 - - - 76 - 76 77 4,727 1.63 4 37 49 1,755 94 1,849 1,875 10,292 18.22 - - - - - - - 27 - Company Unconsolidated associates CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Due Kwanda Suporto Logistico Lda Saipem Taqa Al Rushaid Fabricators Co Ltd Total associates Eni subsidiaries Eni SpA Eni SpA Exploration & Production Division Eni SpA Gas & Power Division Eni SpA Refining & Marketing Division Agip Energy & Natural Resources (Nigeria) Ltd Agip Karachaganak BV Agip Kazakhstan North Caspian Operating Co NV Agip Oil Ecuador BV Banque Eni SA Burren Energy Services Ltd Ecofuel SpA Eni Adfin SpA Eni Algeria Production BV Eni Angola SpA Eni Australia BV Eni Congo SA Eni Coordination Center SA Eni Corporate University SpA Eni Denmark BV Eni Hewett Ltd Eni Iran BV Eni Mediterranea Idrocarburi SpA EniPower SpA EniServizi SpA Eni Tunisia BV First Calgary Petroleum Ltd GreenStream BV Ieoc Production BV Naoc - Nigerian Agip Oil Co Ltd Nigerian Agip Exploration Ltd Polimeri Europa SpA Raffineria di Gela SpA Serfactoring SpA Servizi Aerei SpA Snam Rete Gas SpA Societ(cid:136) EniPower Ferrara Srl Soci(cid:142)t(cid:142) pour la Construction du Gazoduc Transtunisien SA - Scogat SA Stoccaggi Gas Italia SpA Syndial SpA Total Eni subsidiaries Eni associates Total Eni companies Total transactions with related parties Overall total Incidence (%) 174 9 0 0 2 . 2 1 . 1 3 Other payables Contract work in progress - 141 1 - - - - - - 142 748 18.98 162 - - - - 1 32 - - 195 255 76.47 8 0 0 2 r a e Y S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S The totals shown in the tables refer to the items (cid:212)trade receivables(cid:213), (cid:212)trade payables(cid:213), (cid:212)production costs - raw, ancillary and consumable materials and goods(cid:213) and (cid:212)production costs - services(cid:213) described in Notes 3, 16 and 34. The Saipem Group provides services to Eni Group companies in all sectors in which it operates, both in Italy and abroad. Revenues from Eni associates amounted to o94 million, of which o56 million from InAgip Doo. Receivables due from Eni associates amounted to o57 million, of which o30 million due from InAgip Doo. Other transactions consisted of the following: (o million) Eni SpA Eni Exploration & Production Division Eni Gas & Power Division Eni Refining & Marketing Division Banque Eni SA EniServizi SpA Eni Trading & Shipping Polimeri Europa SpA Syndial SpA Total transactions with related parties Overall total Incidence (%) 8 0 0 2 . 2 1 . 1 3 Other payables Contract work in progress 417 - - - 5 - 47 - - 469 525 89.33 - - 38 17 - - - - 18 73 1,089 6.71 Other receivables 158 - - - 1 - - - - 159 290 54.83 Other receivables 336 - - - 3 - - - - 339 437 77.57 Financial transactions Financial transactions as of and for the year ended December 31, 2008 consisted of the following: (o million) Company Eni SpA Banque Eni SA CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Due Eni Coordination Center SA Eni Trading & Shipping SpA Total transactions with related parties 8 0 0 2 . 2 1 . 1 3 Receivables Payables (1) Commitments Expenses Income Derivatives - - - - - - 1,123 - 43 1,844 - 3,010 9,089 168 - - - 9,257 (107) (1) - (70) - (178) 57 2 - 8 - 67 73 - - - (1) 72 (1) Shown on the balance sheet, inclusive of current portion, under (cid:212)Short-term debt(cid:213) (o2,393 million) and (cid:212)Long-term debt(cid:213) (o617 million). Financial transactions also include transactions with Eni Trading & Shipping SpA which are included in the income statement under the item (cid:212)Other operating income (expense)(cid:213). 175 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Financial transactions as of and for the year ended December 31, 2009 consisted of the following: (o million) Company Eni SpA Banque Eni SA CEPAV (Consorzio Eni per l(cid:213)Alta Velocit(cid:136)) Due Eni Coordination Center SA Eni Trading & Shipping SpA Serfactoring SpA Total transactions with related parties 9 0 0 2 . 2 1 . 1 3 9 0 0 2 r a e Y Receivables Payables (1) Commitments Expenses Income Derivatives - - - - - - - 966 - 43 2,399 - - 8,876 69 - - - - 3,408 8,945 (55) - - - - (1) (56) 10 - - 3 - - 13 54 2 - - - - 56 (1) Shown on the balance sheet, inclusive of current portion, under (cid:212)Short-term debt(cid:213) (o1,745 million) and (cid:212)Long-term debt(cid:213) (o1,663 million). Financial transactions also include transactions with Eni Trading & Shipping SpA which are included in the income statement under the item (cid:212)Other operating income (expense)(cid:213). As the result of a special agreement between Saipem and the Eni Corporate Finance Unit (previously Enifin SpA), Eni SpA supplies financial services to the Italian companies of the Saipem Group, consisting of loans, deposits and financial instruments for the hedging of foreign exchange and interest rate risks. The incidence of financial transactions and positions with related parties was as follows: (o million) Short-term debt Long-term debt including current portion (o million) Finance income Finance expense Derivatives Other operating income and expenses 8 0 0 2 . 2 1 . 1 3 Related parties 2,393 617 8 0 0 2 r a e Y Related parties 67 (178) 73 (1) Total 2,613 1,113 Total 1,405 (1,568) 68 (1) Incidence (%) 91.59 55.44 Total 1,797 2,146 9 0 0 2 . 2 1 . 1 3 Related parties 1,746 1,662 9 0 0 2 r a e Y Incidence (%) 97.16 77.45 Incidence (%) Total Related parties Incidence (%) 4.77 11.35 107.35 100.00 1,101 (1,116) (85) (7) 13 (56) 56 (7) 1.18 5.02 (65.88) 100.00 The main cash flows with related parties were as follows: (o million) Revenues and other income Costs and other expenses Finance income (expenses) Net change in trade receivables and payables Net cash provided by operating activities Change in financial (payables) receivables Net cash used in financing activities Total cash flows with related parties 176 31.12.2008 31.12.2009 1,561 (81) (39) (403) 1,038 (85) (85) 953 1,875 (86) 6 117 1,912 398 398 2,310 S A I P E M A N N UA L R E P O R T / N O T E S TO T H E C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S Financial transactions also include transactions with Eni Trading & Shipping SpA which are included in the income statement under the item (cid:212)Other operating income (expense)(cid:213). The incidence of cash flows with related parties consisted of the following: (o million) Net cash provided by operating activities Cash used in investing activities Cash used in financing activities 8 0 0 2 . 2 1 . 1 3 Related parties 1,038 - (85) Total 1,562 (1,697) (676) Incidence (%) 66.45 - 12.57 Total 967 (1,595) 171 9 0 0 2 . 2 1 . 1 3 Related parties 1,912 - 398 Incidence (%) 197.72 - 232.75 Information on jointly controlled entities Information relating to jointly controlled entities, consolidated using the proportionate method are as follows: (o million) Capital employed, net Total assets Total current assets Total non-current assets Total liabilities Total current liabilities Total non-current liabilities Total revenues Total operating expenses Operating profit Net profit (loss) for the year 31.12.2008 31.12.2009 (162) (116) 774 748 26 734 705 29 1,421 (1,382) 39 20 447 427 20 385 362 23 943 (900) 43 44 Assets held for sale 45 Assets held for sale at December 31, 2008 amounting to o68 million and relating to the sale of the non-strategic investment in Fertilizantes Nitrogenados de Oriente CEC (design and construction of process plants) have been reclassified to (cid:212)Investments accounted for using the equity method(cid:213) (Note 10) as negotiations for the sale of the company did not produce the outcome that was originally anticipated. 46 Significant non-recurring events and operations No significant non-recurring events or operations took place in 2009. 47 Positions or transactions deriving from atypical or unusual transactions No significant atypical and/or unusual transactions were performed in 2008 or 2009. 48 Events subsequent to year-end Information on subsequent events is provided in the section (cid:212)Subsequent events(cid:213) of the (cid:212)Operating and Financial Review(cid:213). 177 S A I P E M A N N UA L R E P O R T / M A N AG E M E N T (cid:213) S C E R T I F I C AT I O N Certification of the consolidated financial statements pursuant to Article 154-bis, paragraph 5 of Legislative Decree No. 58/1998 (Testo Unico della Finanza) 1. The undersigned Pietro Franco Tali and Giulio Bozzini in their quality as Deputy Chairman and CEO and manager responsible for the preparation of financial reports of Saipem SpA, respectively, pursuant to Article 154-bis, paragraphs 3 and 4 of Legislative Decree No. 58 of February 24, 1998, certify that the internal controls over financial reporting in place for the preparation of the 2009 consolidated financial statements and during the period covered by the report, were: - adequate to the company structure, and - effectively applied during the process of preparation of the report. 2. Internal controls over financial reporting in place for the preparation of the 2009 consolidated financial statements have been defined and the evaluation of their effectiveness has been assessed based on principles and methodologies adopted by Saipem in accordance with the Internal Control - Integrated Framework Model issued by the Committee of Sponsoring Organizations of the Treadway Commission, which represents an internationally-accepted framework for the internal control system. 3. The undersigned officers also certify that: 3.1 this 2009 consolidated annual report: a) was prepared in accordance with the evaluation and measurement criteria issued by the International Accounting Standards Board (IASB) and adopted by the European Commission according to the procedure set forth in Article 6 of the European Regulation (CE) No. 1606/2002 of the European Parliament and European Council of July 19, 2002; b) corresponds to the company(cid:213)s evidence and accounting books and entries; c) fairly represents the financial condition, results of operations and cash flows of the parent company and the Group consolidated companies as of and for the period presented in this report; 3.2 the operating and financial review provides a reliable analysis of business trends and results, including trend analysis of the parent company and the Group companies, as well as a description of the main risks and uncertainties. March 10, 2010 Pietro Franco Tali Deputy Chairman and CEO Giulio Bozzini Chief Financial Officer 178 Independent Auditors(cid:213) Report S A I P E M A N N UA L R E P O R T 179 S A I P E M A N N UA L R E P O R T 180 Headquarters: San Donato Milanese (Milan) - Italy Via Martiri di Cefalonia, 67 Branches: Cortemaggiore (Piacenza) - Italy Via Enrico Mattei, 20 saipem Societ(cid:136) per Azioni Capital Stock O441,410,900 fully paid Tax identification number and Milan Companies(cid:213) Register No. 00825790157 Information for Shareholders Saipem SpA, Via Martiri di Cefalonia, 67 - 20097 San Donato Milanese (Milan) - Italy Relation with institutional investors and financial analysts Fax +39-0252054295 e-mail: investor.relations@saipem.eni.it Publications Bilancio al 31 dicembre (in Italian) Annual Report (in English) Interim Consolidated Report as of June 30 (in Italian and English) Sustainability Report (in Italian and English) Also available on Saipem(cid:213)s website: www.saipem.eni.it Website: www.saipem.eni.it Operator: +39-025201 Design: Opera Cover: Inarea Layout and supervision: Studio Joly Srl - Rome - Italy Printing: Impronta Grafica - Cant(cid:157) (Como) - Italy www.saipem.eni.it