Principles of consolidation

Subsidiaries

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.

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.

A number of subsidiaries and jointly controlled entities performing only limited operating activities (considered on both an individual and an aggregate basis) have not been consolidated. Their non-consolidation does not have a material impact2 on the correct representation of the Group’s total assets, liabilities, net financial position and results for the year. These interests are accounted for as described below under the heading ‘Financial fixed assets’.

Immaterial subsidiaries excluded from consolidation, associates and other interests are accounted for as described under the heading ‘Financial fixed assets’.

Subsidiaries are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date on which control ceases.

Fully-owned subsidiaries are consolidated using the full consolidation method. Assets and liabilities, and revenues and expenses related to fully consolidated companies are therefore wholly incorporated into the consolidated financial statements. The book value of these interests is eliminated against the corresponding portion of their shareholders’ equity.

Equity and net profit attributable to minority interests are shown separately in the consolidated balance sheet and consolidated income statement, respectively.

Jointly controlled entities are consolidated using the proportional method. The book value of interests in these companies is eliminated against the corresponding portion of their shareholders’ equity. Assets and liabilities, and revenues and expenses are incorporated into the consolidated financial statements proportionally to the extent of the interest held.

In the event that additional ownership interests in subsidiaries are purchased from minority shareholders, any excess of the amount paid over the carrying value of the minority interest acquired is recognised directly in equity attributable to Saipem Group. Similarly, the effects of disposals of ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Conversely, a disposal of interests that results in a loss of control causes recognition in the income statement of: (i) any gains or losses calculated as the difference between the consideration received and the portion of the subsidiary disposed; (ii) any gains or losses attributable to measuring any investment retained in the former subsidiary at its fair value; and (iii) any amounts recognised in other comprehensive income in relation to the former subsidiary that may be reclassified subsequently to profit or loss3. The fair value of any investment retained in the former subsidiary at the date when control is lost represents the new carrying amount for subsequent accounting in accordance with the applicable accounting criteria.

If losses applicable to minority interests in a consolidated subsidiary exceed the minority interests in the subsidiary’s equity, the excess and any further losses applicable to the minority interests are allocated against the majority’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’s interest until the minority interests’ share of losses previously absorbed by the majority’s interest have been recovered.

Consolidated companies, non-consolidated subsidiaries, associates and relevant shareholdings as set forth in Article 126 of Consob Resolution No. 11971 of May 14, 1999 and subsequent addenda, are indicated separately in the section ‘Scope of consolidation’. After this section, there follows a list detailing the changes in the consolidation area from the previous year. Financial statements of consolidated companies are audited by independent auditors, who also examine and certify the information required for the preparation of the consolidated financial statements.

(2) According to the IASB conceptual framework, ‘information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements’.
(3) Any amounts recognised in other comprehensive income in relation to the former subsidiary that may not be reclassified to profit or loss are transferred directly to retained earnings.

Business combinations

Business combination transactions are recognised using the acquisition method. The amount transferred in a business combination is determined at the date the controlling interest is acquired and is equivalent to the fair value of the assets transferred, of liabilities incurred or assumed, and of any equity instruments issued by the acquirer. Costs directly attributable to the transaction are recognised in the income statement when they are incurred.

The shareholders’ equity in consolidated companies is determined by attributing to each of the balance sheet items its fair value at the date on which control is acquired4, except for where International Financial Reporting Standards require otherwise. 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.

If the degree of control acquired is not total, the equity attributable to minority interests is determined on the basis of the fair value of the assets and liabilities at the date on which control is acquired, excluding any related goodwill (partial goodwill method). Alternatively, the full value of goodwill arising on the acquisition is recognised, including the share attributable to minority interest (full goodwill method). In this latter case, equity attributable to minority interests is shown at fair value including the related goodwill5. The choice of method is made for each individual business combination on a transaction by transaction basis.

Where control of a company is achieved in stages, the purchase cost is the fair value of the previously held ownership interest plus the consideration paid for the additional ownership interest. Any difference between the fair value of the previously held ownership interest and its carrying amount is recognised in the income statement. In addition, when control of a company is obtained, any amounts recognised in other comprehensive income in relation to the company are taken to profit or loss. Amounts that may not be reclassified to profit or loss are recognised in equity.

Where provisional amounts have been recorded for the assets and liabilities of an acquiree during the reporting period in which a business combination occurs, these amounts are retrospectively adjusted within one year of the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date.

(4) The criteria used for determining fair value are described in the section ‘Fair value measurement’.
(5) The decision to apply the partial or full goodwill method is also made for business combinations where negative goodwill is taken to the income statement (i.e. a gain on bargain purchase).

Intercompany transactions

Unrealised intercompany profit arising on transactions between consolidated companies is eliminated, as are intercompany receivables, payables, revenues and expenses, guarantees (including performance bonds), commitments and risks between consolidated companies.

Unrealised profits resulting from transactions with equity accounted investments are eliminated in proportion to the Group’s interest. In both cases, 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 euro 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’ equity under the item ‘Cumulative currency translation differences’ (included in ‘Other reserves’) for the portion relating to the Group’s interest and under ‘Minority interest’ for the portion related to minority shareholders. Cumulative exchange differences are charged to the income statement when an investment is fully disposed of or when the investment ceases to qualify as a controlled company. In the event of a partial disposal that does not result in the loss of control, the portion of exchange differences relating to the interest sold is recognised under minority interest in equity.

The financial statements translated into euros are those denominated in the functional currency, i.e. the local currency or the currency in which most financial transactions and assets and liabilities are denominated. The exchange rates that have been applied for the translation of financial statements in foreign currencies are as follows:

CurrencyExchange rate
at Dec. 31, 2012
Exchange rate
at Dec. 31,2013
2013 average
exchange rate
 US Dollar   1.3194   1.3791   1.32812 
 British Pound Sterling    0.8161   0.8337   0.849255 
 Algerian Dinar    103.384   107.787   105.614 
 Angolan Kwanza    126.425   134.616   128.176 
 Argentine Peso    6.48641   8.98914   7.27739 
 Australian Dollar    1.2712   1.5423   1.3777 
 Azerbaijani Manat    1.03507   1.0819   1.04176 
 Brazilian Real    2.7036   3.2576   2.86866 
 Canadian Dollar    1.3137   1.4671   1.36837 
 Croatian Kuna    7.5575   7.6265   7.57862 
 Dominican Peso    53.1206   58.8494   55.3822 
 Egyptian Pound    8.37831   9.58716   9.13638 
 Indian Rupee   72.56   85.366   77.93 
 Indonesian Rupee    12,714   16,764.8   13,857.5 
 Malaysian Ringgit    4.0347   4.5221   4.18551 
 Nigerian Naira    206.104   220.886   211.551 
 Norwegian Kroner    7.3483   8.363   7.80671 
 Peruvian New Sol    3.36777   3.85865   3.5918 
 Qatari Riyal   4.80394   5.02187   4.83561 
 Romanian New Leu    4.4445   4.471   4.41899 
 Russian Rouble    40.3295   45.3246   42.337 
 Saudi Arabian Riyal    4.94838   5.17242   4.98086 
 Singapore Dollar    1.6111   1.7414   1.66188 
 Swiss Franc   1.2072   1.2276   1.23106 
 UAE Dirham   4.84617   5.06539   4.878167