FINANCIAL REPORT - Saipem FINANCIAL REPORT 1999 SAIPEM GROUP STRUCTURE 5 Intermare Sarda S.p.A. P.T....
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FINANCIAL REPORT AS AT 31 ST OF DECEMBER 1999 FINANCIAL REPORT 1999
Transcript of FINANCIAL REPORT - Saipem FINANCIAL REPORT 1999 SAIPEM GROUP STRUCTURE 5 Intermare Sarda S.p.A. P.T....
F I N A N C I A LR E P O R T
AS AT 31ST OF DECEMBER 1999
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C O N T E N T SLetter to the shareholders 3Saipem S.p.A. company officers 4Saipem Group structure 5Report of the directorsPerformance of Saipem S.p.A. shares 8Operating review 10
- Offshore Construction 12- Offshore Drilling and Floating Production 15- Onshore Drilling 17- Onshore Construction 18- Infrastructure 19
Research and development 20Health, safety and environment 22Human resources 23Comments on the financial and economic results
- Results of operations 26- Consolidated balance sheet and financial position 29
Other information- Subsequent events 32- Management expectations of operations 33- Related party transactions 33- Own shares held by the company and it’s subsidiaries 34- Incentive scheme for Saipem management 35
Consolidated financial statements at 31st of December 1999 37Saipem Group consolidated financial statements at 31st of December 1999 38Notes to the consolidated financial statements 41Auditor’s report 74Resolutions approved at the annual Shareholders’ meeting 76
(Translation from the Italian original, which remains the definitive version)
C O N S O L I D A T E DF I N A N C I A L S T A T E M E N T SA N D R E L A T E D R E P O R T S
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Saipem is present in the following countries:Europe: France, Great Britain, Italy, Holland, Norway, Portugal, SwitzerlandAmericas: Argentina, Canada, Peru, U.S.A.C.S.I.: Azerbaijan, Kazakhstan, RussiaAfrica: Algeria, Congo, Egypt, Libya, NigeriaMiddle East: Abu Dhabi, Iran, Oman, Qatar, Saudi Arabia, SharjahFar East: Australia, Indonesia, Malaysia, Singapore, Thailand
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To our shareholders,Throughout the course of 1999, a difficult year, your company continued to developplans, which will permit it to become one of the future world wide leaders in the sectorsof Offshore Construction, Ultra Deep water Drilling, Hydrocarbon Floating Productionsystems and ultra deep water interventions.
The price of oil, which for years had remained relatively stable, fell progressively andsubstantially during 1998. This trend was not reversed until March 1999, when it commencedstrengthening to its present level. This phenomenon associated with re-organizational problems,as a consequence of the Oil Companie’s consolidation process (Exxon-Mobil, BP-Amoco-Arco,Total-Fina-Elf, etc), caused a drastic reduction in oil exploration and development activities. Ithas been estimated that the relative costs fell by approximately 83 billion USD in 1999, areduction of 18% in respect of the previous year. The aforementioned factors resulted in asignificant reduction of Onshore Drilling activities, as well as diminished opportunities forOffshore Drilling and Construction and finally an unforeseen obligation to re-negotiate the dayrates for certain contracts already awarded.
Your company has closed this financial year with a net consolidated income of 69 million euros,40% lower compared to 1998. However, your company was better placed than most of itscompetitors, to face the negative conditions throughout 1999, in respect of the type andconsistency of the backlog of orders (Onshore and Offshore Drilling, Offshore Construction andOnshore Construction), thereby partially offsetting the negative factors. Analysis of a samplesurvey of competitors performed in January 2000 has actually shown that the net results for1999 have been estimated as being 69% lower than that realized in the previous year.
1999 was the final year of the four-year investment programme, and the year, in which annualinvestments reached a maximum of 412 million euros; consequently, the net financial debtincreased to 566 million euros at 31st of December 1999. These investments were made toincrease the operating capacity of the Group and relate to the conversion of Scarabeo 7 to asemi-submersible drilling rig, the installation of a “J-lay” system on the Saipem 7000, theconstruction of the new drillship Saipem 10000 and the construction of a special FieldDevelopment Ship for subsea development. Investments have been made in the ultra deep watersegment, which offers a wider possibility of finding larger reserves and a higher cost/benefitratio, and where the Oil Companies are tending to concentrate their efforts in order to re-establish their reserves.
The “Change Management“ programme also reached its conclusion in 1999. This programmewas initiated, in order to radically change the company internal culture and significantly modifyvarious processes as well as organizing the company into “Business Units”. The project alsointroduced a Document System, a “Performance Evaluation” system and various importantoperational databases. Installation of the Sap R3I system (an Integrated Information System) continued, with theintroduction of the Administration and Finance module and the almost total installation of theapplications for Procurement, Maintenance, Warehousing and Assets.
In order to achieve a more efficient penetration of the market, a partnership agreement wasentered into with IHC Caland (Holland) for ultra deep water floating production activities and anagreement was reached with Enafor (Sonatrach) in Algeria for Onshore Drilling operations.
Whilst the backlog was greatly eroded throughout 1999, due to the acquisition of the BlueStream contract (Offshore Construction sector), the backlog at the year end was greater than thatexisting at the end of the last year. Additional signs of a recovery are evident and new orders areexpected.
The Saipem Board of Directors, in accordance with the company policy of distributing one third
L E T T E R T O T H E S H A R E H O L D E R S
Stefano CaoChairman & CEO
Giancarlo MazzoneManaging Director & CFO
of net consolidated income, will propose the distribution of 23 million euros, at the shareholders’meeting.The Oil Companie’s exploration and development activities are expected to increase byapproximately 12% during the year 2000. A reversal of trends is expected to occur more rapidlyin the Onshore Drilling sector, followed by the Offshore Drilling sector, in which Saipem willutilize the newly constructed Scarabeo 7 and Saipem 10000. The Offshore Construction sector isexpected to recover during the second half of the year, both in the conventional and deep watersegments.
The Blue Stream project, realized by a joint venture between Eni - Snam and Gazprom, for thetransport of gas from Russia to Turkey under the Black Sea will represent one of the mostimportant elements of the growth of your Group. Despite the Russian parliament ratifying the“fiscal agreement”, approval by the Turkish parliament is still awaited. Following an agreementconcluded with the client and whilst awaiting formal approval by the relevant export agencies ofthe financial package, your Group has initiated detailed engineering works, a greater in-depthstudy of the sea bed and the finalization of testing of special tools requested for the laying of thetwo gas lines. The greatest part of the contract is expected to be executed during the year 2001.
In conclusion, 1999, has interrupted the significant increase in revenues and margins realizedduring the last five years, should be considered a transitory period. The strong recovery ofinvestments by the Oil Companies, encouraged by the increased price of crude oil, willundoubtedly stimulate the activities of your company, with resultant improvements in marginsfor the year 2000 and even greater in the year 2001.
For the Board of Directors
Stefano CaoChairman of the Board and Chief Executive Officer
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DIRECTORS (1 )
Chairman and Chief Executive OfficerEntrusted with ordinary and extra-ordinary
powers, except for the limits prescribed bylaw and by the company’s memorandum
and articles of association.Stefano Cao
Managing DirectorChief Financial Officer
Giancarlo MazzoneDirectors
Franco BruniPaolo Andrea Colombo
Carlo GrandeRoberto Jaquinto
Marco MangiagalliAlfredo MoroniMarco Reboa
BOARD OF STATUTORY AUDITORS (1 )
ChairmanGaetano Troina
Statutory AuditorsAldo SanchiniGiorgio Viva
Alternate Statutory AuditorsGiovanni Battista Fregoso
Bruno Maier
INDEPENDENT AUDITORS (2 )
KPMG S.p.A.
(1) Appointed by the Shareholders’ meeting, 26th
of July 1999, for three years(2) Appointed by the Shareholders’ meeting, 16
thof April 1998, for the three-year period 1998 – 2000.
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IntermareSardaS.p.A.
P.T.Saipem
Indonesia
Saipem (Portugal)Gestão e Participações
SGPS S.A.
Saipem UKLtd.
SaipemInternational
B.V.
SaipemS.p.A.
Saipem (Portugal)Comércio
Marítimo Lda.
ERSEquipment Rental
& Services B.V.
SonsubInternational
B.V.
Saibos(Services)
S.A.S.
SonsubInternational
Pty. Ltd.
SonsubInternational
Ltd.
SonsubInternational
A/S
SonsubInternational
Inc.
Saipem AsiaSdn. Bhd.
SaipemInc.
100%
100%
100%
94%
89%
51%
100%
50%
41%
50%
99%
100%
100%
100%
100%
100%
100% 50% 100%
100%
50%
50%
50%
100%100%
SonsubAsia
Sdn. Bhd.
TecnomareIndustriale
S.p.A.
100%
100%
100%
100%
100%
100% 50%
50%
50%
100% Saipem Perfuraçõese ConstruçõesPetrolíferas
América do Sul Lda.
SaibosConstruções
Marítimas Lda.
European MarineContractors
Netherland B.V.
European MarineContractors
Ltd.
Saipem Aban Drilling Co.
Pvt. Ltd.
SaiCloLuxembourg
S.A.
Sasp Offshore Engineering
S.p.A.
Petrex S.A.
Akjaik Drilling Company
J.S.C.
SaipemNigeria
Ltd.
Saipem Contracting
(Nigeria) Ltd.
SB. Construction & Maritime Services
B.V.
SaiCloPty. Ltd.
50%Sasp Offshore Engineering
UK Ltd.
Saipem(Malaysia)Sdn. Bhd.
SaipemArgentina
S.a.m.i.c. y F.
60% Saudi ArabianSaipem
Ltd.
FPSO - FirenzeProdução dePétroleo Lda.
SaipemServices A.G.
SaipemLuxembourg
S.A.
100%SaipemAustraliaPty. Ltd.
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R E P O R T O F T H E D I R E C T O R S
The value of Saipem ordinary shares, on the Milan Stock Exchange, remained at substantiallysimilar levels to those of the previous year, in the unit sum of 3.59 euros at the end of 1999(3.60 euros at the end of 1998).
The strong contraction in the price of crude oil, which commenced in 1998 and continued untilMarch 1999, induced the Oil Companies to reduce their investment and development plans foroil and gas fields. The unexpected and continual recovery in the price of crude oil did notimmediately induce the Oil Companies to review their investment programmes, due to theinstability in the price of crude oil on the principal markets. It was only towards the end of the1999 fiscal year that the Oil Companies decided to review their new investment programmes,based on the improved trend in the price of crude. Due to the long decisional processes by theOil Companies, the oil service companies were unable to benefit from the improved price ofcrude oil in 1999 and no improvement is expected before the second half of the year 2000. The performance of Saipem shares was greatly influenced by fluctuations in the aforementionedsector and as is already known, the quotation of Saipem shares is always influenced by generalstock market trends and by expectations about conditions specific to the markets in whichSaipem operates. The increase in the price of crude oil, associated with the announcement of the acquisition ofimportant contracts in the Offshore Construction sector, positively influenced the shareperformance, particularly in the June – September 1999 period, when they reached a maximumlevel of 4.34 euros. Confirmation, in which the market was advised towards the end of the fiscalyear, that the positive effects would only be felt in the second half of the year, did not attractinstitutional share price operators and the price of shares subsequently fell to 3.59 euros. Theshare price regained ground over successive weeks, to reach approximately 4.00 euros, followingthe release of estimates in which strong growth was forecast for the year 2001.
The quantity of shares traded for the year was approximately 426 million (554 million in 1998,due to an increase in capital when 40 million new shares were issued and simultaneously, Enisold 75 million shares). The value of the traded shares was approximately 1,592 million euroscompared to 2,564 million euros in 1998.
The performance of savings shares, which did not perform as well as ordinary shares throughout1999, was influenced by the decision passed at the Extraordinary Shareholders’ meeting held onthe 16th of December 1998, which allowed the conversion of savings shares to ordinary shares atthe same value. In fact, the savings shares decreased in value by approximately 2.5% fallingfrom 3.59 euros at the end of 1998 to 3.5 euros at the end of 1999.
The volume of savings shares traded during the year was 1.1 million (4.5 million for 1998), for atotal value of approximately 4.5 million euros (21.9 million euros in 1998).
On the Paris Stock Exchange, the volume of shares traded was relatively modest, with shareprices in line with those registered in Milan.
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P E R F O R M A N C E O F S A I P E M S . p . A .S H A R E S
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Saipem S.p.A. - Selected Stock Exchange data and ratios
31st of December 1995 31st of December 1996 31st of December 1997 31st of December 1998 31st of December 1999
Share capital (in Lit.) 400,000,000,000 400,000,000,000 400,000,000,000 400,000,000,000 440,237,300,000
Number of ordinary shares 398,233,482 398,233,482 398,233,482 438,233,482 439,064,782
Number of savings shares 1,766,518 1,766,518 1,766,518 1,766,518 1,172,518
Market capitalization (in millions of euros) 751 1,453 1,926 1,586 1,580
Gross dividend per share
- Ordinary shares (euros) 0.06 0.07 0.08 0.08 0.516
- Savings shares (euros) 0.08 0.09 0.09 0.10 0.067
Price earnings ratio
- Ordinary shares (Lit.) 8.64 16.11 18.66 13.96 22.98- Savings shares (Lit.) 4.77 9.04 15.33 13.90 22.43
Price cash flow ratio
- Ordinary shares (Lit.) 5.02 8.81 10.60 7.58 9.37
- Savings shares (Lit.) 2.77 4.95 8.81 7.55 9.15
Share prices on the Milan Stock Exchange
1995 1996 1997 1998 1999
Ordinary shares
High 1.99 4.09 5.59 6.08 4.34
Low 1.30 1.75 3.61 3.11 2.94
Average 1.70 3.12 4.50 4.51 3.79
End of period 1.80 3.64 4.82 3.60 3.59
Savings shares
High 1.33 2.06 3.96 6.06 4.30
Low 0.96 1.04 1.91 3.19 3.30
Average 1.13 1.59 2.87 4.33 3.77
End of period 1.04 2.04 3.96 3.59 3.50
N E W O R D E R S A N D B A C K L O G
Orders Awarded to the Saipem Group in 1999
(Millions of euros)
1998 1999Amount % Amount %
Saipem S.p.A. 1,013 56% 1,190 75%
Other Group Companies 810 44% 401 25%
Total 1,823 100% 1,591 100%
Offshore Construction 827 45% 1,219 76%
Offshore Drilling and Floating Production 464 26% 43 3%
Onshore Drilling 166 9% 64 4%
Onshore Construction 366 20% 265 17%
Infrastructure —- —- —- —-
Total 1,823 100% 1,591 100%
Italy 207 11% 131 8%
Abroad 1,616 89% 1,460 92%
Total 1,823 100% 1,591 100%
Eni Group 586 32% 157 10%
Third Parties 1,237 68% 1,434 90%
Total 1,823 100% 1,591 100%
Despite an almost total market stagnation, Group Companies were awarded new contractstotalling 1,591 million euros (1,823 million euros in 1998). Of the total orders awarded, 76% relate to Offshore Construction, 3% to Offshore Drilling andFloating Production, 4% to Onshore Drilling and 17% to Onshore Construction. Orders to beexecuted outside of Italy represent 92% of the total, whilst acquisitions by the Eni Group ofCompanies represent 10% of the total. Finally, new orders awarded to Saipem S.p.A. were 75%of the total awarded to the Group. Following analysis of the various sectors, special mentionshould be made of the acquisition of the Blue Stream contract, which comprises engineering,procurement and construction of two sealines. Each sealine will be 390 Kilometres long and willbe laid at a maximum of 2,150 metres between the Russian and Turkish coasts. The Saipemportion of the contract, commissioned by a joint venture between Eni and Gazprom, amounts toapproximately one billion USD.
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Gulf of Mexico, Saipem 7000.
Bevelling of pipes.
Saipem Group – Backlog at 31st of December 1999
(Millions of euros)
1998 1999Amount % Amount %
Saipem S.p.A. 1,547 63% 2,034 79%
Other Group Companies 916 37% 554 21%
Total 2,463 100% 2,588 100%
Offshore Construction 900 37% 1,363 53%
Offshore Drilling and Floating Production 749 30% 622 24%
Onshore Drilling 98 4% 66 2%
Onshore Construction 434 18% 257 10%
Infrastructure 282 11% 280 11%
Total 2,463 100% 2,588 100%
Italy 525 21% 531 21%
Abroad 1,938 79% 2,057 79%
Total 2,463 100% 2,588 100%
Eni Group 616 25% 616 24%
Third Parties 1,847 75% 1,972 76%
Total 2,463 100% 2,588 100%
The backlog, still to be executed at the end of the year, amounted to 2,588 million euros, anincrease of 5% over the same position at the end of 1998.As for the breakdown by sector, 53% is attributable to Offshore Construction, 24% to OffshoreDrilling and Floating Production, 2% to Onshore Drilling, 10% to Onshore Construction and11% to Infrastructure.Saipem S.p.A. has 79% of the overall backlog of orders. Orders to be executed outside of Italyamount to 79%, whilst orders awarded to members of the Eni Group represent 24% of the total.
I N V E S T M E N T S
Group investments in tangible and intangible assets for 1999 totalled 412 million euros, (ofwhich, Saipem S.p.A. invested 34 million euros), compared to 344 million euros, for 1998 (58million euros invested by Saipem S.p.A.).
Investments for 1999 represent a significant stage of completion of the four year overallinvestment plan of 880 million euros, which commenced at the end of 1997. The investments,which are mainly aimed at significantly improving the operating capacity in deep water, wherethe market remains active, should, for the most part, be completed during the course of the year2000.
The following table provides a breakdown of investments:(Millions of euros)
1998 1999
Saipem S.p.A. 58 34
Other Group Companies 286 378
Total 344 412
Offshore Construction 124 160
Offshore Drilling and Floating Production 156 221
Onshore Drilling 28 9
Onshore Construction 17 6
Others 19 16
Total 344 412
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Mediterranean Sea, Scarabeo 7.
Semi-submersible drilling rig
Analysing the different sectors:
O F F S H O R E C O N S T R U C T I O N
1995 1996 1997 1998 1999
Pipelines laid (km)
- Italy 114 45 83 191 64
- Abroad 953 759 1,527 1,818 915
Total km 1,067 804 1,610 2,009 979
Structures installed (tons)
- Italy 14,628 50 8,680 4,036 4,601
- Abroad 147,529 97,090 100,065 61,295 106,563
Total tons 162,157 97,140 108,745 65,331 111,164
General informationThe Saipem Group has found the correct strategy for growth and development, through the use ofhis various vessels and is one of the world leaders in Offshore Construction. This comprisesthe traditional laying of sealines and the installation of fixed platforms, but particularly in thehigh technology, ultra deep-water segment. Of the semi-submersible fleet of vessels that Saipemoperates, the most important are; the Saipem 7000, with it’s dynamic positioning capability, alifting capacity of 14,000 metric tons and the ultra deep water “J-lay” system and the CastoroSei, used for the laying of large diameter sealines. The Saipem 7000 is presently operating the“J-lay” system for the first time in the Gulf of Mexico. Saipem also has a strong presence in therapidly expanding deep-water market, using highly sophisticated and technologically advancedequipment, remotely controlled under water vehicles and especially equipped robots to carry outcomplex work in deep water.
Companies active in the Offshore Construction sector, in addition to the parent company, are: - Saipem U.K., European Marine Contractors (jointly owned and managed with Brown & Root),
Saibos Construções Marítimas (jointly owned and managed with Bouygues Offshore), which inorder to assist the Oil Companies in the development of oil fields in ultra deep waters hasinvested in the development of a Field Development Ship. The investment programme wasstarted in 1998 and should be completed in 2001.
- Saipem Malaysia, Saipem Asia and Saipem Indonesia, Sonsub, SaiClo (jointly owned andmanaged with the Australian company Clough), SASP Offshore Engineering (jointly ownedwith Snamprogetti) and Intermare Sarda.
Market overviewThe Offshore Construction market for 1999 suffered a strong overall contraction of activities.The traditional activities of fixed platform installations and the laying of sealines inshallow waters, have been more affected by this negative phase and due to the high costs ofdevelopment, the geographical areas of the North Sea, Asia and the Pacific Ocean have alsobeen penalised.Innovative activities connected to the development of deep-water fields, such as subseainstallations, have been less affected by this negative cycle.
New ordersThe most significant contracts awarded during the year were:
- The previously mentioned EPC (Engineering, Procurement and Commissioning) Blue Streamproject, under the Black Sea, on behalf of the Blue Stream Pipeline Company B.V., whichentails the laying of 2 x 24” gas pipelines at depths of up to 2,150 metres. The total length ofthe pipeline from Beregovaja (Russia) to Samsun (Turkey) is 390 Km. The contract wasawarded to Saipem S.p.A.;
- The EPIC (Engineering, Procurement, Installation and Commissioning) project in Amenam
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Gulf of Mexico, Saipem 7000.
Laying of a sealine.
Nigeria, on behalf of Elf Aquitaine Producing Nigeria (EPNL), for the installation of oil, gasand water producing and working plants. The project entails:
- The installation of a production platform AMP1, comprising an 11,000 ton deck, a 1,500ton jacket, two tripods AMT1 and AMT2, a flare and four connecting bridges;
- The installation of two drilling platforms AMD1 and AMD2;- A housing module AMQ; and- The laying of two 33 Km sealines of 6” and 16” diameter and a further two sealines of 6”
and 24” diameter. The contract was awarded to Saibos. - An agreement for the installation of rigs and the laying of sealines in the Adriatic Sea on
behalf of the Agip division of Eni. The contract was awarded to Saipem S.p.A.;- Engineering for the Blue Stream project on behalf of Snam S.p.A. The contract was awarded to
Saipem S.p.A.;- The installation of the following structures in the Adriatic Sea on behalf of the Agip division of
Eni. A 700 ton jacket, a four legged structure, 48” piles and 6 x 20” diameter guide tubes forthe Barbara North West platform; a jacket, a 450 ton, four legged structure, 48” piles and 4 x30” diameter guide tubes for the Annalisa platform and a 650 ton deck for the Anemone Bplatform. The contract was awarded to Saipem S.p.A.;
- The transport and installation of a 3,800 ton deck module for the Petronius project in the Gulfof Mexico on behalf of Texaco. The contract was awarded to Saipem Inc.; and
- The engineering and installation on the Ha’py platform of a 1,300 ton, four legged jacket with4 x 48” diameter piles and a three tiered integrated deck and transport of the platform fromMaadia to the Ha’py field, on behalf of Petrojet in Egypt. The contract was awarded to SaipemS.p.A.
InvestmentsThe most significant investments in the Offshore Construction sector were:
- Completion of modifications to the Saipem 7000 vessel enabling her to lay sealines in the “J”mode, in ultra deep waters, whilst using her dynamic positioning capability. This new featureof the vessel (the value of which is 140 million euros), together with it’s pre-existing heavylifting capacity, places it at the top of its category for the transport and installation ofplatforms. After having successfully completed testing at sea of the newly installed “J-lay”system, it is now operational on the Exxon contract in the Gulf of Mexico;
- The continuing construction of an advanced, deep-water Field Development Ship, by Samsungin Korea. Work, valued at 70 million euros for the 50% interest by the Saipem Group, is beingperformed on behalf of Saibos, the 50/50 joint venture company between Saipem andBouygues Offshore. The new ship will be an advanced, dynamically positioned,“multipurpose”, vessel, equipped with a “J-lay” tower capable of laying smaller diameterpipelines in deep waters. It will also be used for underwater installation work. Constructionwill take approximately two years and delivery is expected during the second half of the year2000. This investment follows the extension of the charter of Saibos to include deep wateractivities;
- The construction of eight of the eleven new ROVs (Remote Operated Vehicles) commissionedby the subsidiary Sonsub, has been completed. These vehicles form part of the upgrading bySonsub, of the operational capabilities for construction, inspection and intervention work inultra deep waters; and
- The continuation of research activities for the development of technically advanced solutionsfor deep-water operations, as well as the realization of new welding systems, to be used for thelaying of pipelines in the “J” mode.
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FDS, Field Development Ship.
Under construction.
Offshore Construction vessels at 31st of December 1999
Saipem S.p.A.S45 Launch-cargo barge, for structures up to 20,000 tons.SubsidiariesSaipem 7000 Semi-submersible DP Derrick vessel for lifting structures, up to a maximum of 14,000 tons and equipped with a
“J-lay” system capable of laying pipe in ultra deep-waters.Pearl Marine Derrick ship for lifting structures up to 2,200 tons.Crawler Derrick-Lay barge suitable for laying pipe up to 48” diameter and lifting structures up to a maximum of 540 tons.Castoro 2 Derrick-Lay barge; suitable for laying pipe up to 60” diameter and lifting structures up to a maximum of 1,000
tons.Castoro XI Heavy-duty cargo barge.Castoro 9 Launch-cargo barge, for structures up to 5,000 tons.S42 Launch-cargo barge, for structures up to 8,000 tons.S44 Launch-cargo barge, for structures up to 30,000 tons.Lifter 1 Barge with a sheer leg crane capable of lifting up to 1,400 tons.Jointly owned and managed companiesCastoro Otto Mono-hull derrick lay ship suitable for laying pipes up to 60” diameter and lifting structures up to a maximum
of 2,200 tons.Castoro 3 Light weight cargo barge.Saibos 230 Work accommodation barge, with a light lifting capacity and for the laying of pipe up to 20” diameter.Saibos 931 Launch-barge for jackets up to 4,000 tons.Saibos 103 Light weight cargo barge.Castoro Sei Semi-submersible pipe lay vessel for large diameter pipes in deep waters.Castoro 10 Trench barge for laying pipes up to 60” diameter and for laying pipes in shallow waters.Bar 420 (Semac1) Semi-submersible pipe lay vessel for laying large diameter pipes in deep waters.Bar 331 Trench barge for pipes up to 60” in diameter.Bar Protector Multi-purpose, dynamically positioned, dive support vessel.Maxita Multi-purpose, monohull DP crane vessel for the installation of under water structures, small diameter, rigid or
flexible pipe and underwater cables.
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North Sea, Castoro Sei.
Semi-submersible pipelay vessel.
O F F S H O R E D R I L L I N G A N D F L O A T I N G P R O D U C T I O N
1995 1996 1997 1998 1999
Offshore Drilling
Metres drilled
- Italy 9,933 45,491 —- —- —-
- Abroad 81,989 88,712 98,498 94,212 87,919
Total mt 91,922 134,203 98,498 94,212 87,919
Wells drilled
- Italy 5 15 —- —- —-
- Abroad 29 28 25 52 53
Total 34 43 25 52 53
General informationThe Group’s Offshore Drilling and Floating Production presence is concentrated inNorthern Europe, West Africa, North Africa and India. Use of the fifth generation semi-submersible drilling rig, Scarabeo 5, capable of working at depths of over 1,800 metres and ofdrilling to a depth of over 9,000 metres, as well as the semi-submersible Scarabeo 7, whichsuccessfully completed trials in the Sicilian Channel in February 2000 and is capable ofoperating at depths up to 1,200 metres, places the Group at the top of it’s sector as far astechnical capability is concerned. Saipem Nigeria, Petrex and Saipem S.p.A. all operate in thissector.In the Floating Production sector, FPSO Firenze Produção de Petróleo (jointly owned andmanaged with Single Buoy Moorings) completed a floating production system for use in theAquila field on behalf of Agip, in the South Adriatic Sea.
Market overviewActivity levels in all segments and main geographical areas of the Offshore Drilling sectorwere severely affected by the market contraction. Shallow water drilling activity was the most affected area with a heavy increase in the number ofpieces of equipment lying idle and a marked decline in day rates. Deep-water drilling alsosuffered from the market contraction. However, signs of a recovery emerged during the secondhalf of the year, more consistent in the Gulf of Mexico, but to a lesser extent in the shallow watersegment of South East Asia. The Floating Production sector also suffered from the negative market conditions, above all,due to a lack of growth. The volume of projects started in 1999, was approximately the same asthose of 1998. However, this market remains promising, above all in the area offshore Brazil, West Africa, theSouth Mediterranean Sea and the Gulf of Mexico.
New ordersThe most significant contracts awarded during the year were:
- A two year charter, of the Perro Negro 3 jack up, in India, on behalf of Jindal DrillingIndustries;
- The extension of an existing Saipem S.p.A. contract for the charter of the Perro Negro 2 jackup, in Nigeria, on behalf of Elf;
- The charter of the semi-submersible rig Scarabeo 4, in Nigeria, on behalf of Belhop, whichwas awarded to Saipem S.p.A.; and
- The extension of an existing Saipem S.p.A. contract for the charter of the Perro Negro 4 jackup, in Egypt, on behalf of Petrobel.
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Mediterranean Sea, Scarabeo 7.
Semi-submersible drilling rig
InvestmentsThe most significant investments in the Offshore Drilling and Floating Production sector were:- Completion of the conversion of Scarabeo 7, from a floating accommodation unit, to a 4th
generation semi submersible drilling rig capable of operating in waters up to 1,200 metres anddrilling to depths of 7,600 metres (an estimated investment of 230 million euros, excludingother tools not specific to the rig); and
- The continuation of construction work on the new 228 metre drillship, Saipem 10000, at theSamsung shipyards in Korea. The Saipem 10000 will be capable of operating in ultra deepwaters, up to 3,000 metres by using her dynamic positioning mode and will have a storagecapacity of 140,000 barrels. It will have the flexibility to perform extended well testing work.Completion is expected during the second quarter of the year 2000, following an investment ofapproximately 290 million euros.
Utilization of major equipment during 1999
Vessel Type Days under contract
Semi-submersible Drilling Vessels
Scarabeo 3 (*) 351 a
Scarabeo 4 (*) 75 b
Scarabeo 5 (**) 365
Scarabeo 6 (*) 353 a
Jack Ups
Perro Negro 2 (*) 353 a
Perro Negro 3 (*) 365
Perro Negro 4 (*) 363 a
Perro Negro 5 (*) 338 a
FPSO Firenze (***) 365
(*) Equipment owned by subsidiaries.(**) Equipment leased by Saipem S.p.A.(***) Equipment owned by joint venture companies.a - The vessel underwent scheduled maintenance for the balance of the period.b - The vessel was inactive until mid October, when it began working on a contract in Nigeria.
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Saipem 10000
Ultra deep water drillship.
O N S H O R E D R I L L I N G
1995 1996 1997 1998 1999
Onshore Drilling
Metres drilled
- Italy 51,050 58,442 51,719 38,879 13,752
- Abroad 64,907 100,829 125,828 128,199 48,945
Total mt 115,957 159,271 177,547 167,078 62,697
Wells drilled
- Italy 16 13 13 23 6
- Abroad 18 29 30 55 24
Total 34 42 43 78 30
General informationThe Onshore Drilling activity of the Group is primarily located in Italy, Egypt, Algeria, Malta,Nigeria, Kazakhstan, Georgia, Peru and India. The companies operating in this sector areSaipem Nigeria, Petrex, Sadco (a joint venture Indian company, which is jointly managed withthe Aban Drilling Co.), Saipem Perfurações Construções Petrolíferas América do Sul andSaipem S.p.A. In a joint venture with Trevi S.p.A., Saipem S.p.A. also drills “slim cheap hole”wells using proprietary, hydraulic technology.
Market overviewDuring the first half of the year, the Onshore Drilling sector suffered an exceptionally strongdecline in all geographical areas of activity. Signs of a recovery became evident towards the endof the year, above all in Latin and North America. Future geographical areas of interest appearto be those in Central Asia, the Middle East and North Africa.
New ordersThe most significant contracts awarded during the year were:- The charter of a drilling unit in Saudi Arabia for 3 years, on behalf of Saudi Aramco. The
contract was awarded to Saudi Arabian Saipem;- The extension of an existing Saipem S.p.A. contract for the charter of three drilling units by
the Agip division of Eni;- The extension of an existing Saipem S.p.A. contract for the charter of a drilling unit by Oil
Explorer Malta; and- The charter of a drilling unit in Algeria by Louisiana Land & E. Algeria Ltd. The contract was
awarded to Saipem S.p.A.
InvestmentsThe most significant investments made in the above area refer to the maintenance of existingoperating plant and material productivity levels, and the construction of the logistic base in PortHarcourt Nigeria, which is used in support of Onshore Drilling operations.
Rig utilization for 1999During the year, operations involved the use of 28 of the 37 land rigs owned by the SaipemGroup (48% utilization in 1999, 68% in 1998). The rigs were distributed as follows; 14 in Peru,3 in Italy, 3 in Nigeria, 3 in Algeria, 1 in Egypt, 1 in India, 1 in Kazakhstan, 1 in Malta and 1 inGeorgia. In addition, 3 rigs were jointly operated, whilst 6 rigs were utilized by Saipem, undermanagement agreements with third party owners.
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North Africa
A drilling rig in the desert.
O N S H O R E C O N S T R U C T I O N
1995 1996 1997 1998 1999
Onshore Construction
Pipelines laid (km)
- Italy 181 181 38 162 —-
- Abroad 972 1,596 1,183 711 1,303
Total km 1,153 1,777 1,221 873 1,303
Industrial plant (tons)
- Italy —- —- 2,200 —- —-
- Abroad 12,500 26,420 33,824 30,514 30,767
Total tons 12,500 26,420 36,024 30,514 30,767
General informationThe Saipem Group has historically been a leader in the Onshore Construction sector,completing demanding projects involving the laying of large diameter pipelines in harshenvironmental conditions. The Group is also involved in plant construction. The regions, inwhich the Group consistently operates, are Nigeria and the Arabian Peninsula. It is presentlyinvolved in the execution of important projects in Sudan, Argentina and Thailand, withincreasing activities in various South East Asian countries. Since completing works for of thetransport of gas, on behalf of Snam in Italy, no further opportunities for work have becomeavailable and none are forecast in the medium term. In addition to Saipem S.p.A., Saipem Contracting Nigeria, Saudi Arabian Saipem, SaipemMalaysia and Saipem Asia all operate in this sector, whilst the asset holding unit, EquipmentRental & Services (E.R.S.), manages the Group’s operating equipment.
Market overviewThe level of Onshore Construction activity for the year remained constant, in respect of1998, both in the pipeline and plant construction segments. The pipeline constructionsegment, particularly for the transport of petroleum and by-products, increased slightly, but lessthen the plant construction segment, which had a higher level of resistance.
New ordersThe most significant contracts awarded to Saipem during the year were:- The EPC (Engineering, Procurement, Construction) “Ratchaburi to Wang Noi Gas Pipeline”
project, in Thailand, for the construction of a gas line, from the existing Yadana gas pipeline tothe future onshore power station in Wang Noi, on behalf of the PTT (Petroleum Authority ofThailand). The project involves the laying of two 153Km and 3Km pipelines, 30” and 36”diameters respectively, nine line valves, two metering stations and a SCADA system(Supervisory Control And Data Acquisition) and telecommunications. The contract wasawarded to a consortium between Saipem Asia Sdn and Mitsui & Co Ltd, with Saipem Asia asleader;
- The extension of the Saudi Arabian Saipem contract for the Khuff Gas project, which entailsthe laying of various diameter and length, transfer lines for the connection of nine wells, onbehalf of Aramco;
- The EPC (Engineering, Procurement, Construction) “AG Gathering Pipelines Project ñObigbo Node Pipelines” on behalf of Shell Petroleum Development Company of Nigeria Ltd,for the engineering, supply of materials and construction of a gas transmission system withseven Pigging Manifolds and six x 8”, 12” and 16” diameter pipelines for a total of 54 Km.The contract was awarded to Saipem S.p.A.; and
- The Nembe Associated Gas Gathering Project (in Nigeria) on behalf of the Shell PetroleumDevelopment Company of Nigeria Ltd./Willbros West Africa for the construction of launchingand pig receiving stations in Nembe. The laying, hydrostatic testing and commissioning ofvarious 12” and 24” diameter gas lines, for a total of 27Km. The contract was awarded to ajoint venture between Saipem S.p.A. and Belfinger Berger for the offshore Nigeria part andBelfinger Berger Gos Nigeria and Saipem Contracting for the onshore section.
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Middle East.
The laying of a pipeline.
InvestmentsInvestments for 1999, in the Onshore Construction sector, were limited to the refurbishment ofexisting tools and equipment currently being utilized on contracts and for the construction of thenew logistic base in Port Harcourt in Nigeria and in support of Onshore Construction.
Onshore Construction equipment at 31st of December 1999
Equipment Saipem S.p.A. Saipem Group
Cranes from 10 to 150 tons 2 101
Backhoes - 117
Sidebooms 42 215
Pay welders 21 103
Pay Loaders and Wheeled Loaders - 46
Trenchers - 2
Dozers and Tracked Loaders - 79
Motor Graders and Compacter Rollers - 38
Rock Drills - 11
Wheeled Tractors-various 4 54
Pipe Bending machinery 8 43
Cars, Off Road vehicles, Trucks & Buses 70 891
Trailers, Semi-Trailers & Dollies 10 155
Pipe boring/pushing machines 1 4
Motorized and electro-welding machines 78 1,351
Water Pumps and Air Compressors 49 325
Power Generators 3 238
Camp facilities (beds) - 3,300
I N F R A S T R U C T U R E
Activities in the infrastructure sector mainly relate to the High Speed Rail Project, on behalf ofTAV (Treno Alta Velocità). Saipem has a 13.7% share in the Cepav 1 consortium for theconstruction of the Milano - Bologna section. In December 1998 TAV was presented with a price quotation for the entire Milano-Bolognasection. After Italfer verified technical details and following extended negotiations, the quotationwas accepted by TAV on the 28th of January 2000 and a “Pre Atto-Integrativo” was signed.Signing of the final “Atto-Integrativo” is subject to several technical aspects, which are stillbeing studied. Despite the fact that the final document has yet to be signed, TAV has requestedthe Cepav 1 consortium to proceed with all necessary activities in order to deliver a completedproject within 59 months from January 2000.
Saipem S.p.A. also has a 12% share in the Cepav 2 Consortium for the construction of theMilano-Verona section. The project will be modified to reflect changes agreed by the Inter-Ministerial Commission. In particular, the routing through Brescia has yet to be defined.
Works performed by other consortia, in which Saipem S.p.A. is a participating partner, are asfollows: Construction works, by the Sapro consortium, for the Courthouse in Pescara have continued anda decision is expected on the financing arrangements for the construction of a JuvenileCourthouse, in Sassari. Activities by the Venezia Nuova consortium, for the protection of the“Laguna Veneta” from the exceptionally high floods, continued. The U.S.G. consortium and theSocietà Consortile Sage were both placed in liquidation.
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Argentina,.Mega Project.
Welding phase.
Saipem S.p.A. continued it’s commitment to technological innovation throughout 1999, which isindispensable in consolidating and improving it’s competitive position. Approximately 13million euros were spent on projects during 1999.
Pure research costs, of approximately 3 million euros, were, as usual, fully expensed to theincome statement, whilst costs associated with the production of new equipment and prototypes,of approximately 10 million euros, were capitalized, thereby increasing tangible assets.
Following the trend over recent years, R & D expenditures have focused on, what are seen as themost promising areas of technological research, such as the Offshore Construction sector andsubsea intervention segment.
Significant projects carried out during the year were as follows:
Ultra deep-water sealine laying technology
- Operational testing of the “J-lay” system: designed and developed for the Blue Stream projectand the successful testing of the system installed on the S7000, off the Norwegian coast;
- Integration of the dp/pipe: a prototype guidance system for the S7000 during “J-lay”operations was successfully tested. Testing of the algorithms, used for a more efficient useduring critical stages of the dynamic positioning system, were successfully performed;
- Touchdown monitoring system: installation, on the S7000, of a sonar prototype capable ofestablishing when the tube reaches the sea-bed, supplied reassuring information. Both thehardware and software systems will be finalized and used on the Diana Hoover project in theGulf of Mexico at the beginning of the year 2000;
- Buckle (fault) detector, without the use of machinery in the pipe: use of the sealine as a radiowave reflector and elaboration of the information received to diagnose the state of the sealine.Results of tests performed to date are very encouraging and development of a non-intrusivebuckle detector, capable of drastically simplifying traditional detection systems, will continue.This new system is also capable of supplying information on the sealine configuration duringlaying operations; and
- Experimentation of a sealine abandonment and recovery system in ultra deep waters has beencompleted. This system, based on fibreglass cables, greatly simplifies the complexity, weightand bulk of the windlass.
Welding technology and non-destructive testing
- Dual welding heads: the addition of a second head to the Passo welding machinery, allowswelding times to be halved, and the natural evolution of this is the Presto system;
- Operational use of the “Presto” welding system, which improves the quality and theperformance of the “Passo” welding system, due to increased automation levels. This systemwill enhance pipeline construction productivity (on land and at sea);
- The “Carousel” power supply management system: a new primary and auxiliary power supplymanagement system for welding machines was developed and tested at Saipem’sCortemaggiore base. This system allows a reduction of down time during multiple headwelding operations ( approximately 30% during a J-lay launch); and
- NDT in real time: development of real time non-destructive testing is continuing, and will beavailable in the year 2000.
Subsea intervention systems
- The new remote control vehicle (ROV) called “Innovator”, developed by Sonsub, has passedtests at a maximum depth of 3,000 metres and has successfully operated from the S7000.Eleven of these ROV’s, incorporating a Saipem developed control system, will be producedthis year. Due to it’s high level of versatility, Innovator has been integrated with a tracked
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R E S E A R C H A N D D E V E L O P M E N T
Venice, Italy
Remotely Operted Vehicle Innovator combined
with Centaur tracked trench digger.
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trench digger for the burying of cables in deep waters. The currently operational vehicle iscalled Centaur; and
- Sonsub has also developed base modules for the Brutus system, which will allow theconnection of flanged sections under water, without human intervention.
Various
- Finalization of the diffusion of the innovative knowledge management and best practicessystems to the entire Group is taking place, following the successful conclusion of the pilotphase;
- A contract has been signed with a major supplier of buoyancy systems, for the use of ourbuoyancy technology, under an exclusive licensing agreement; and
- Following the successful testing of the 500 ton, shore approach, water propelled, windlasssystem, called “Lupo”, it was subsequently utilized for the landing of an aqueduct in Imperia.
Venice, Italy.
Centaur tracked trench digger.
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Diffusion of the new management guidelines and standards for the Health, Safety andEnvironment system (HSE), which was completed in 1998, was finalized throughout the Groupduring the year.
In order to guarantee an efficient installation of the new system, the following operations wereperformed during 1999:- The new system was distributed to all branches and Group Companies via an information
Cascade, involving top company management and peripheral organizations;- Wide scale health and safety training programmes were instituted for personnel. Particular
attention was given to the training of local staff used on operational projects;- Three new fully equipped health and safety training centres, with qualified instructors, were
opened in Kazakhstan, Nigeria and Saudi Arabia;- The commencement of environmental information programmes aimed at managing the
treatment of waste water and that used for provisioning;- The beginning of a Strategic Health Programme (Programma Strategico Sanitario - PSS),
which shows all direct and indirect medical costs for the Group;- The design of new software, to be integrated with the GIPSI (Gestione Informazioni
Prestazione Sanitarie Individuale - Individual Health Information Management) system, whichhas been used by Saipem for several years. This new software will show and monitor allmedical and accident treatment prescribed in all operational areas;
- The revision and upgrading of vessel and project HSE manuals in order to qualify for ISMcode certification;
- An inspection programme was launched to monitor and verify that HSE procedures andstandards were being correctly applied throughout the Group’s operational activities;
- Emergency evacuation procedures were performed at various Group centres, including the IVOffice Block in San Donato Milanese; and
- Particular care and attention was given to the evaluation and reduction of risk areas in whichemployees are exposed to poisonous, physical and chemical agents.
All of the aforementioned measures, together with a strong commitment by top management,have significantly improved safety conditions at operational sites. This is confirmed by thesignificant reduction in the number of accidents, which have dropped from 4.47 in 1998 to 3.48in 1999, a reduction of approximately 21%.
The following projects/vehicles have greatly contributed to the achievement of these figures:- Scarabeo 3 – Congo;- Khuff Gas project – Saudi Arabia;- Drilling activities – Kazakhstan;- Muglad Basin Development project – Sudan; and- Base di San Vitale Ravenna – Italy.
Much has been invested in environmental impact reduction and the improvement of work safetyconditions. The main improvements were an overall reduction in the noise levels of onshoreconstruction and drilling equipment. Fire prevention measures on all vessels and safety aspectswith regard to all vehicles operating at the logistic centres, were also improved.
H E A L T H , S A F E T Y A N DE N V I R O N M E N T
Scarabeo 7.
Emergency team practicing.
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Due to the types of activities undertaken by the Saipem Group, human resources must possessthe following two special features:- Flexibility, as activities can be performed with it’s own personnel, temporary personnel or
through sub-contractors;- Variable impact, as the total number of internal and external personnel varies according to the
types of contracts undertaken.These factors do not easily allow the use of conventional ratios, which depend on a constantproportion of headcount to annual turnover
In addition, the seasonable variability of our work volume and our reliance on Internationallabour, and/or Italian personnel with temporary contracts, renders more meaningful, ratios basedon average year headcount rather than end of year headcount.
This having been said, the Group employed an average of 10,727 people for 1999 (11,591 in1998) of whom 2,786 were employed by Saipem S.p.A. (3,642 in 1998).
Average workforce 1998 Average workforce 1999
Saipem S.p.A.(**) 3,642 2,876
Other Group Companies 7,949 7,851
11,591 10,727
Offshore Construction 2,641 2,579
Offshore Drilling and Floating Production 868 888
Onshore Drilling 1,739 1,509
Onshore Construction 5,652 5,065
Infrastructure 18 16
Staff 673 670
Total (*) 11,591 10,727
Italian 2,746 2,588
Foreign 8,845 8,139
Italians - Permanent personnel 2,444 2,366
Italians - Temporary personnel 302 222
Total 2,746 2,588
(*) Including all consolidated companies. For those consolidated companies using the proportional method, a proportion equivalentto the consolidated percentage was used
(**) Includes personnel working for joint ventures, in proportion to the participating ratio.
H U M A N R E S O U R C E S
Saipem 7000.
J-lay system clamp control room.
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The decrease in the average number of people employed for the year is attributable to thereduction in volume of activities, directly related to the suspension of investments by the OilCompanies, following the variable price of crude oil.
Nevertheless, a policy of organisational flexibility has allowed the company to face the aboveproblem by reducing the number of foreign personnel employed (-8%) and temporary Italianpersonnel (-26%). This policy, particularly in respect of problems associated with activities inItaly, has been integrated. In accordance with Union officials, C.I.G.S. has been activated for the258 resources from the Onshore Construction, logistic bases and Head office areas; whilst 256resources from the Onshore Drilling sector have been place on a CDS (Contratto di Solidarietà).
The contraction of activities has however, resulted in a reduction of 95 full time Italianpersonnel in respect of 31-12-98, whilst 8 people with degrees and 7 with diplomas wereemployed, a much inferior number to the 52 qualified people employed in 1998 (25 withdegrees and 27 with diplomas). In addition to the aforementioned C.I.G.S. and CDS agreements with union officials, whichentails the re-training of personnel, the allocation of resources to other Group Companies andfacilitated termination schemes due to company re-organization, the following was agreed:- Renewal of the CCNL Energy classification system;- Renewal of the Seagoing Personnel salary contract;- Presentation of the Intermare Sarda industrial plan;- A new flexitime agreement for the Head Office in San Donato Milanese and a review of the
working hours;- Confirmation of salaries being linked to results and a strengthening of the Share bonus issue;
and- The membership and consolidation of integrated social security for the Energy sector.
The company has continued its programme of development and training, in order to improve theprofessionalism of Saipem personnel, with particular emphasis being placed on the safety ofemployees. A huge managerial training programme was implemented as well as technicaltraining being given to the blue-collar workers.
The Change Management programme was finalized with the following results: - The creation of the corporate model, with the decentralisation of activities to peripheral
companies and the definition of relations between the two areas;- The realization of prime change actions to improve or re-design company processes;- The emission of a Corporate document system comprising Procedures, Guidelines and
Standards;- The emission of a Saipem S.p.A. document system comprising General Procedures, working
instructions and manuals;- The creation of various data bases:
- For project engineering information,- For client and competitor profiles,- For professional roles and associated resources.
- The creation of a “Performance Evaluation” information system.
I N F O R M A T I O N S Y S T E M
Throughout the course of the year, strategies were planned and implemented in order to providethe technological infrastructure for a “company information and telecommunication network”.Tool standards and applications were defined in order to obtain maximum uniform benefits fromthe telecommunications network and to ensure the most efficient utilization of the informationsystem between national and foreign companies. The Administration and Finance, Sap-R3 module, became operative at the beginning of the
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year, and throughout the year, applications for the logistic areas of procurement, maintenance,warehouse and assets, were also developed as well as the basis for the extension of theintegrated system to the main foreign branches. It is also worth noting that a four year outsourcing contract for the management of theinformation infrastructure at the Saipem S.p.A. Head office has been signed with “ICTServices”, which is a joint venture company between Eni and EDS.
Y E A R 2 0 0 0
As stated in the 1998 Report of the directors for Saipem S.p.A. and the subsidiaries, during thecourse of 1999, studies were carried out and the small but necessary modifications to theinformation, management and administration and operational and control systems wereimplemented. The systems, which were in use on the vessels and equipment, were all modifiedto avoid any possible problems with the Year 2000. The modification programme was completedon time and therefore problems associated with the change of the year did not arise. Problems arising during the initial months of the year 2000 were not attributable to the “Y2Kbug” .
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R E S U L T S O F O P E R A T I O N S
Saipem Group- Reclassified income statement
(Millions of euros)
1997 1998 1999
Operating revenues 1,647 1,705 1,467
Other income and revenues 23 32 18
Purchases, services and other costs (1,129) (1,162) (978)
Payroll and related costs (325) (322) (302)
Gross operating income 216 253 205
Amortization, depreciation and write-downs (78) (96) (100)
Operating income 138 157 105
Financial Income /(expenses), net (3) (9) (12)
(Loss) / Income from investments, net - 1 1
Income before extraordinary items and income taxes 135 149 94
Extraordinary expenses net - - (4)
Income before income taxes 135 149 90
Income taxes (32) (35) (21)
Net income for the year 103 114 69
Consolidations between several of the principal Oil Companies towards the end of 1998 and thebeginning of 1999, combined with a severe reduction or postponement of investmentprogrammes by them, caused by the dramatic reduction in the price of crude oil, resulted in adramatic cut back in the level of activities by the oil service companies. The contraction in thelevel of activities, particularly hard felt in the Offshore and Onshore Drilling sectors, as well asa reduction in the supply of materials, in respect of 1998, caused a reduction in operatingrevenues of 14%. The fall by 19% in gross operating income can mainly be attributed to thereduction in drilling day rates and the losses generated by a contract in South East Asia in theOffshore Construction sector. Amortization of tangible and intangible assets amounted to 100 million euros, an increase of 4million in respect of 1998, following amortization of the investment made for the installation ofthe ultra deep water “J-lay” system on Saipem 7000. Operating income was, therefore, 105million euros, a difference of 33% over 1998. Financial expenses for the period grew by 3 million euros in respect of the 9 million total for thepreceding year, mainly due to the increased debt connected with the expansion of net currentassets. The effect of financial expenses linked to new investments was insignificant. The greater portion of investments were capitalized and did not enter into production.
Net extraordinary expenses amount to 4 million euros (zero in 1998), following provisions forother risk and expense funds in respect of pending legal actions for alleged monetary fraud.
Income before income taxes in 1999 therefore amounts to 90 million euros, a decrease of39.6% compared to the previous fiscal year.
Income taxes were 21 million euros, a difference of approximately 14 million euros in respectof the previous fiscal year due to the reduction in taxable income and partially a result ofrefunds received from the taxation department for previous years, which amount toapproximately 4 million euros. Therefore, net income reached 69 million euros, a decline of39.5% compared to 1998.
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Operating income and costs by destination
(Millions of euros)
1997 1998 1999
Operating revenues 1,647 1,705 1,467
Production costs (1,393) (1,445) (1,238)
Idle costs (36) (25) (38)
Selling expenses (16) (14) (16)
Research and development costs (3) (3) (3)
Other operating income net 1 9 3
Contribution from operations 200 227 175
General and administrative expenses (62) (70) (70)
Operating income 138 157 105
Operating revenues, as previously mentioned, fell by 14% to 1,467 million euros.
Production costs, which include direct costs, depreciation and amortization of assets, amountedto 1,238 million euros (1,445 million euros in 1998); the decrease is related to the volume ofactivity.Idle costs, which include vessel and Onshore Construction equipment costs when idle, havemultiplied in direct proportion to the decrease in the utilization of the Offshore Drilling vesselScarabeo 4, some Onshore Drilling rigs and the partial utilization of Saipem 7000, following aperiod of inactivity due to the installation of the “J-lay” system.Selling expenses increased by approximately 2 million euros, following major efforts, in which,Saipem was particularly active during the second half of the year. Research and developmentcosts remained constant and in line with those for the preceding year.Operating income of 4 million euros for the 1998 fiscal year, arose from the sale of 50% of thevessel “Maxita” and to the release of contract risk provisions no longer required, whilstoperating income for 1999, was almost entirely due to capital gains from the sale of OnshoreConstruction and Drilling equipment.
Contribution from operations fell by 23% to 175 million euros.
General and administrative expenses, which include depreciation and amortization of the SAPmodules, have not varied in respect of the previous financial year.
Analysis of results achieved by main sectors:
Offshore Construction
(Millions of euros)
1997 1998 1999
Operating revenues 934 971 756
Operating expenses net of cost of materials (571) (646) (493)
Cost of materials (196) (184) (129)
Depreciation and amortization (36) (38) (38)
Contribution from operations (*) 131 103 96(*) Operating income before general and administrative expenses.
Revenues for 1999 fell by 215 million euros, compared with those of 1998. This is mainlyattributable to the partial use of Saipem 7000, object of an investment programme aimed atequipping her with an ultra deep water “J-lay” system and a general contraction of marketconditions. The supply of materials also suffered a notable reduction in respect of 1998,although income was not so affected.Contribution from operations for the fiscal year shows a decline of 7 million euros, however, inrespect of revenue, it shows a significant increase of 12.7% as compared to the 10.6% in 1998.
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The positive performance has been made possible, despite a 30 million euro loss, connectedwith the Jamangar project in India. This was as a result of unforeseen problems associated withthe execution of the project in India and due to positive results delivered by projects in the FarEast, North America and West Africa.
Offshore Drilling and Floating Production
(Millions of euros)
1997 1998 1999
Operating revenues 134 169 170
Operating expenses (89) (78) (94)
Depreciation and amortization (15) (32) (36)
Contribution from operations (*) 30 59 40(*) Operating income before general and administrative expenses.
Revenue for the fiscal year has remained almost unchanged in respect of 1998 and is mainlydue to the re-negotiation of day rates with the clients and the inactivity, until the middle ofOctober, of the semi-submersible drilling platform Scarabeo 4. These negative factors werecompletely offset by the total utilization of the floating production unit FPSO Firenze and agreater use of the Scarabeo 6.The increase in operating expenses of 16 million euros for 1999, is associated with the semi-submersible vessel, Scarabeo 6, which, whilst under contract, was not operational during thefirst six months of the year. This was due to an upgrading of the vessel, requested and partiallyreimbursed by the client. This, together with a substantial increase in maintenance activitiescarried out towards the end of the fiscal year and the amortization of tools, also for use in theOnshore Drilling sector, resulting from variations to the amortization funds for 1998, havereduced contribution by 19 million euros in respect of the previous fiscal year.
Onshore Drilling
(Millions of euros)
1997 1998 1999
Operating revenues 130 140 96
Operating expenses (85) (102) (80)
Depreciation and amortization (10) (7) (6)
Contribution from operations (*) 35 31 10(*) Operating income before general and administrative expenses
The notable reductions in revenue and contribution, of 44 and 21 million euros respectively, canbe attributed to general national and international market trends resulting in a decrease in theutilization of plant, at significantly diminished rates in respect of 1998.
Onshore Construction
(Millions of euros)
1997 1998 1999
Operating revenues 447 423 442
Operating expenses net of cost of materials (345) (290) (266)
Cost of materials (84) (86) (134)
Depreciation and amortization (14) (13) (13)
Contribution from operations (*) 4 34 29(*) Operating income before general and administrative expenses
The increase in revenue is mainly the result of a greater supply of materials, which traditionallyhave a modest value added component. The growth in contribution from operations can be attributed to a greater increase in operationalefficiency, whilst excluding an 11 million euro release of risk provisions no longer required.
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C O N S O L I D A T E D B A L A N C E S H E E T A N D F I N A N C I A L P O S I T I O N
Saipem Group - Reclassified consolidated balance sheet
(Millions of euros)
31st of December 1998 31st of December 1999
Net tangible fixed assets 885 1,223
Net intangible fixed assets 25 32
910 1,255
- Offshore Construction 382 526
- Offshore Drilling and Floating Production 381 571
- Onshore Drilling 57 61
- Onshore Construction 70 68
- Others 20 29
Financial investments 4 5
Non-current assets 914 1,260
Net current assets 137 290
Employees’ termination benefits (21) (22)
Capital employed 1,030 1,528
Group shareholders’ equity 894 961
Minority interests in net equity 1 1
Net debt 135 566
Cover 1,030 1,528
On the 31st of December 1999, non-current assets reached 1,260 million euros, an increase of346 million euros compared to 1998. The level is mainly associated with net tangible andintangible fixed assets, which grew for the period by 345 million euros. Fixed assets grew,principally due to investments in the offshore sectors, in respect of: the coming on line of thesemi-submersible deep-water drilling rig Scarabeo 7; the construction of a new deepwaterdrillship, Saipem 10000; the installation on Saipem 7000 of a deep-water “J-lay” system, andinitial expenditures for the construction of a new Field Development Ship for subsea fielddevelopment.
Net current assets increased during the year, by 153 million euros, from 137 million euros atthe end of 1998 to 290 million euros at the end of 1999. This was mainly due to the typicalpayment methods by foreign clients, payments by governmental organizations and pay outs byinsurance companies, all of which require long payment periods due to bureaucratic procedures. As a result, total capital employed increased by 498 million euros for the year to reach 1,528million euros on 31st of December 1999 (1,030 million euros at the end of 1998).
The group shareholders’ equity increased by 67 million euros to reach 961 million euros on31st of December 1999 (894 million euros at the end of 1998). The increase is due to income forthe period and the effect from the conversion of assets and liabilities originally expressed incurrencies other than euros, less dividends distributed, by Saipem S.p.A., of 38 million euros.
The increase in the group shareholders’ equity has been less than the increase in capitalemployed, therefore net debt has risen to 566 million euros on 31st of December 1999 (135million euros at the end of 1998).
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Saipem Group - Reclassified statement of cash flow and change in net debt
(Millions of euros)
31-12-1998 31-12-1999
Net income before minority interest 114 69
Adjustments to reconcile cash generated from operating
income before changes in working capital:
- depreciation, amortization and other non-monetary items 68 86
- gain on disposals of assets (6) —
- dividends, interest, extraordinary income/expenses and
income taxes 34 32
Cash generated from operating income before changes in working capital 210 187
Changes in working capital related to operations (85) (125)
Dividends, interest, extraordinary income/expenses and income
taxes received/(paid) during the year (38) (25)
Net cash provided from operating activities 87 37
Capital expenditures (344) (412)
Acquisition of investments (1) —
Disposals 28 7
Other investments and disposals 3 (18)
Free Cash Flow (227) (386)
Investments and disposals related to financing activities (122) 82
Changes in financial debt (51) 374
Changes in share capital and premium reserve net of dividends paid 171 (38)
Effect of changes in consolidation area and exchange differences
relating to cash and cash equivalents (12) 6
Net cash flow for the year (241) 38
Free Cash Flow (227) (386)
Changes in share capital and premium reserve net of dividends paid 171 (38)
Exchange differences on net debt and other changes (13) (7)
Change in net debt (69) (431)
The cash generated from operating income before changes in working capital, (187million euros), has facilitated the financing of the increase in working capital and generated netcash provided from operating activities of 37 million euros.As a result of net investments of 423 million euros, the free cash flow is negative by 386million euros.The changes in share capital and premium reserve, net of dividends paid, are negative in thesum of 38 million euros, whilst changes resulting from the translation of financial statements inforeign currencies have produced a negative outcome of 7 million euros. Consequently, net debthas increased to 431 million euros.
In particular:The Cash generated from operating income before changes in working capital (+187million euros) comprises net income for the year of 69 million euros, adjusted for the following: Depreciation and amortization and write downs of fixed assets (+100 million euros) and areduction of contingencies (-11 million euros) as a result of the actual costs being incurred, forwhich the provisions had originally been made. There was a reduction in the provision for writedowns (-3 million euros); a devaluation of inventories of (-1 million euros); the dividends earned(-1 million euros); of the financial expenses net (+8 million euros); of the extraordinary financialexpenses net (+4 million euros); variation in employee termination benefit provision (+1 millioneuros) and income taxes (-21 million euros).
The increase in working capital related to operations (-125 million euros) has already been
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commented on, in the analysis of the Consolidated Balance Sheet and Financial Position.
Dividends, interest, extraordinary income/expenses and income taxes paid during the year (-25million euros) comprises income from dividends (+1 million euros), interest payments (-7million euros) and payment of income taxes (-19 million euros).
Capital expenditure (-412 million euros), inclusive of investments for the increase in the equitystake of controlled Group Companies, can be subdivided into the following areas of activity:Offshore Construction (-160 million euros), Offshore Drilling and Floating Production (-220million euros), Onshore Drilling (-9 million euros), Onshore Construction (-7 million euros) andother (-16 million euros).Further information on investments made during the year will be found in the commentary onthe Operating Review.
Disposals of (+7 million euros) refer to the sale of the sale of sundry operating equipmentbelonging to the Onshore Construction and Drilling areas.
The change in net equity (-38 million euros) mainly relates to the payment of dividends to theshareholders’ based on the 1998 results.
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S U B S E Q U E N T E V E N T S
Additional contracts, totalling approximately 250 million euros, were awarded to the Group, upto mid March 2000. Of these, contracts amounting to 37 million euros were awarded to SaipemS.p.A.The most significant contracts awarded, entirely to the Offshore Construction sector, were:
- The Bucaneer project in the USA on behalf of Transco Williams Energy, for the constructionof a 36” diameter, 675 Km pipeline from Alabama to Florida. The contract was awarded toSaipem Inc./European Marine Contractors;
- The Cakerwala project in Thailand on behalf of CTOC (Carigali-Triton Operating CompanySdn. Bhd.), for the detailed engineering, supply of materials, construction, installation andcommissioning of three wellhead platforms (CKA, CKB and CKC).The project also comprises:- A central processing platform (CKP);- A riser and compression platform (CKR);- A condensate storage and offloading system (FSO);- A 6” and an 18” diameter sealine, for a total of 15Km and- An accommodation module.The contract was awarded to Saipem Asia Sdn. Bhd.
- The Fukanda Mwafi project (EPC - Engineering, Procurement and Construction) in Congo onbehalf of Agip Recherches Congo, for the engineering, supply of materials and construction oftwo platforms. The contract was awarded to an association comprising Intermare Sarda S.p.A.,Sasp Off-shore S.p.A. and Marino Rossetti;
- The Kvitebjorn project in the Norwegian sector of the North Sea on behalf of Statoil, for thetransport and installation of a 23,000 ton platform. The project was awarded to Saipem UKLtd.;
- The Espoir Field Development project in the Ivory Coast on behalf of Ranger Côte d’Ivoire, forthe engineering, construction, installation and commissioning of a platform with a 550 tondeck, a 120 metre tripod, and two sealines of 8” and 20” in diameter. The contract wasawarded to Saibos Construções Marítimas Lda.;
- The Ivana II phase project in Croatia on behalf of INAGIP, for the installation of the Ivana B,D and E platforms totalling 1,035 tons and connecting sealines. The contract was awarded toSaipem S.p.A.;
- The Huelva sealine in Spain on behalf of CEPSA (Compania Espanola de Petroleos S.A.), forthe detailed engineering, supply of materials and the laying of a 36” diameter sealine whichwill replace the existing 5 Km sealine;
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Argentina, Mega Project.
The laying of sections of the pipeline.
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- An EPC (Engineering, Procurement and Construction) project in the Jade sector of theEnglish portion of the North Sea, on behalf of Phillips, for the laying of a (pipe-in-pipe) 16”and 24” diameter sealine at a depth of 75 metres and for a total of 17 Km. The contract wasawarded to European Marine Contractors Ltd.; and
- The charter of plant in Nigeria by the Nigerian Agip Oil Company for a twelve month period.The contract was awarded to Saipem S.p.A.
M A N A G E M E N T E X P E C T A T I O N S O F O P E R A T I O N S
Management expectations from core activities for the year 2000 are expected to develop intoincome of approximately 934 million euros. This amount can be subdivided as follows: 453million euros for Offshore Construction, 202 million euros relate to the Onshore Constructionsector, 191 million euros can be attributed to the Offshore Drilling and Floating Productionsector, whilst 51 million euros are expected to be produced by the Onshore Drilling sector and37 million euros from Infrastructure.
In addition to the contracts already awarded to the Group, an intense commercial programme hasbeen instituted, in order to take advantage of the renewed research and development programmeby the Oil Companies. Also in order to obtain maximum utilization of the equipment available andthat which will become available following the conclusion of the Group investment programme. It is expected that an improvement in results will commence in the second half of the year 2000and that the first area to benefit from this improvement will be the Onshore Drilling sector. TheGroup also expects to expand activities in the Gulf of Mexico, Central and South East Asia.
Based on the aforementioned expectations, currently available information and knowing that theBlue Stream project, will contribute greatly to the income for the actual fiscal year, an increasein revenue of approximately 20% over the previous fiscal year is expected, with an even strongergrowth in the year 2001.
R E L A T E D P A R T Y T R A N S A C T I O N S
As required by the “Commissione Nazionale per le Società e la Borsa” (The NationalCommission for Corporations and the Stock Exchange) regulations No. 97001754 dated 20th
February 1997 and No. 98015375 dated 27th February 1998, we have supplied the following listof principle transactions with related parties.Saipem S.p.A. is a company controlled by Eni S.p.A. The transactions entered into by SaipemS.p.A., and all of the consolidated Saipem Group companies, with related parties, essentiallyreflect the supply of services, the trading of materials, and the receipt and use of financialinstruments, with other companies controlled and related to Eni S.p.A. These operations are anintegral part of the ordinary day-to-day business and are executed at market conditions. That is,at prices, which would have applied between independent parties. All the transactions entered into have been executed for the mutual benefit of the companiesinvolved.
The following table shows the value of transactions, commercial, financial or of any other nature,entered into with related parties. The analysis by company has been based on the principle ofthe materiality of the transaction in relation to total company transactions. The transactions notanalysed due to their non-materiality have been summarized according to the followingcategories:- Eni S.p.A. subsidiary companies- Eni S.p.A. associated companiesOther related parties
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Commercial and other transactions
(Millions of euros)
Denomination 31st of December 1999 1999 Fiscal yearReceivables Payables Costs Revenue
Materials Services Services Others
Eni S.p.A. 23 11 - 3 77 2
Snam S.p.A. 10 - - - 23 -
Snamprogetti S.p.A. 6 1 - 8 2 -
Agip Recherches Congo SA 7 - - - 26 -
Enidata S.p.A. - 6 5 11 - -
Naoc - Nigerian Agip Oil Co. Ltd. 5 1 2 - 11 -
Agip Petroli S.p.A. 1 - 5 - - -
Sasp Offshore Engeneering S.p.A. 2 3 - 6 1 -
Consorzio Eni per l’Alta Velocità - Cepav 20 58 - - 1 -
Padana Assicurazioni S.p.A. - 1 - 9 - 1
Imprese controllate dell’Eni 6 5 4 9 4 -
Imprese collegate dell’Eni 4 - - - 42 -
Immobiliare Metanopoli - - - 3 - -
Total 84 86 16 49 187 3
Saipem S.p.A., and all of the consolidated Saipem Group companies, provide services, to theEni Group of companies, primarily in the Onshore Construction and in the Onshore andOffshore Drilling sectors, both in Italy and abroad. In 1999 operating revenues from the EniGroup of companies amounted to 147 million euros to which correspond, on the basis of normalcontractual payment terms, receivables of 106 million euros as of the 31st of December 1999.
Financial transactions
(Millions of euros)
Denomination 31st of December 1999 1999 Fiscal YearReceivables Payables Obligations Costs Income
Enifin S.p.A. 30 214 544 12 1
Enibank International Bank Ltd. 14 96 222 9 -
Serleasing S.p.A. - 30 - 1 -
Eni Co-ordination Center 1 - - 1 -
Total 45 340 766 23 1
Enifin S.p.A. provides financial services to the Eni companies and is entirely owned by EniS.p.A. In accordance with a specific agreement between Saipem and Enifin, the latter providesfinancial services to the Italian companies of the Saipem Group of companies consisting ofloans, deposits and financial instruments for the hedging of foreign exchange risks.
O W N S H A R E S H E L D B Y T H E C O M P A N Y A N D I T S S U B S I D I A R I E S
Saipem S.p.A. and its subsidiary companies do not hold their own shares, either directly orindirectly, through fiduciary companies or third parties.
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I N C E N T I V E S C H E M E F O R S A I P E M M A N A G E M E N T
The extraordinary shareholders meeting, held on 16th of December 1998, gave the Board ofDirectors the power to freely assign, up to 1,700,000 ordinary Saipem S.p.A. shares to managers,during the three year period 1999 - 2001. Transfer of these shares will be restricted for threeyears. Throughout the course of 1999, the Board of Directors distributed the first block of sharesfollowing completion of the 1998 figures. The distribution involved the issue of 237,300ordinary shares. The nominal value of the shares was covered by using a specifically createdreserve in accordance with the provisions of article 2349 of the Italian Civil Code.
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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T SA T 3 1 S T O F D E C E M B E R 1 9 9 9
(Millions of euros)
31-12-1998 31-12-1999A S S E T SShare capital to be received : - -Non-current assets:- Intangible assets:Start-up and capital costs 7 5Industrial patents and similar rights 4 5Goodwill 1 1Differences on consolidation 5 4Assets under development and payments on accounts 7 17Others 1 -Total 25 32- Tangible assets:Land and buildings 27 25Plant and machinery 470 597Industrial and commercial equipment 56 50Other assets 12 10Assets under construction and payments on accounts 320 541Total 885 1,223- Financial fixed assets:Investments: 5 5Subsidiary companies 1 -Associated companies - 1Other 4 4Total 5 5Total non-current assets 915 1,260Current assets:- inventories:Raw materials and supplies 71 76Contract work in progress 117 108Total 188 184- accounts receivable:Trade receivables: 477 470- due within one year 461 449- due after one year 16 21Subsidiary companies: 2 -- due within one year 2 -Associated companies: 13 19- due within one year 13 19Parent companies: 53 22- due within one year 53 22others: 257 250- due within one year 254 247- due after one year 3 3Total 802 761- Cash:Bank, postal and Eni Group finance companies 48 86Cash-in-hand and cash equivalent 2 1Total 50 87Total current assets 1,040 1,032Prepayments and accrued income 25 43Total assets 1,980 2,335
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B A L A N C E S H E E T S
(Millions of euros)
31-12-1998 31-12-1999L I A B I L I T I E SShareholders’ equity:- Share capital 227 227- Share premium reserve 291 291- Revaluation reserve as per law N.413 dated 30.12.91 2 2- Legal reserve 20 22- Other reserves : 21 57
- Reserve for exchange rate differences 21 57- Retained earnings 219 293- Net income for the year 114 69Total Group shareholders’ equity 894 961Minority interest in net equity 1 1Total 895 962Provision for contingencies:Severance pay and similar provisions 5 7Income taxes 10 11Other 48 40Total 63 58Employees’ termination benefits 21 22Accounts payable:Due to banks: 162 169- due within one year 153 157- due after one year 9 12Due to other financial institutions: 161 546- due within one year 126 516- due after one year 35 30Advances 85 64Accounts payable to suppliers: 433 341- due within one year 418 329- due after one year 15 12Amounts payable to associated companies: 11 9- due within one year 11 9Amounts payable to parent companies: 3 1- due within one year 3 1Amounts payable to taxation authorities: 36 38- due within one year 36 38Social security charges payable 5 4- due within one year 4 4- due after one year 1 -Other amounts payable: 55 86- due within one year 54 86- due after one year 1 -Total 951 1,258Accrued expenses and deferred income 50 35Total liabilities 1,980 2,335
G U A R A N T E E S A N D O T H E R M E M O R A N D U M A N D C O N T I N G E N C Y A C C O U N T SGuarantees given on behalf of: 458 377- subsidiary companies 255 290- associated companies 189 64- parent companies 6 6- others 8 17Guarantees given by third parties on behalf of the parent company 458 507Real guarantees on behalf of :- subsidiary companies 3 83
Other memorandum and contingency accounts:- Commitments 936 792Total 1,855 1,759
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(Millions of euros)
1998 1999RevenuesTurnover 1,689 1,480Variation in contract work in progress 17 (13)Increase in internal work capitalized under fixed assets 33 30Other revenues and income: 35 21- other 35 21Total 1,774 1,518Operating expenses:Raw materials consumables and supplies 337 274Services 627 573Use of third party assets 199 128Payroll and related costs: 330 309Wages and salaries 257 240Social security contributions 37 37Employees’ termination benefits 5 4Pensions and similar costs 3 3Other costs 28 25Amortization, depreciation and write-downs: 98 100Amortization of intangible assets 9 7Depreciation of fixed assets 85 91Other write-downs on non-current assets 2 2Write-downs of receivables included under current assets 2 -Variation in raw materials, supplies and consumables (9) -Provision for contingencies - 1Other provisions 20 13Other operating costs 16 15Total 1,618 1,413Difference between revenues and operating expenses 156 105Financial income and expenses:Income from investments: 2 1- associated companies 1 -- other 1 1Other financial income: 88 102Other income:- subsidiary companies 1 -- associated companies 2 1- other 85 101Total 88 102Interest and other financial expenses: 97 114- associated companies - -- other 97 114Total (7) (11)Adjustments to financial income and expenses:Total adjustments - -Extraordinary income and expensesIncome: 3 3- other income 3 3Expenses: 3 7- other expenses 3 7Total extraordinary income and expenses - (4)Income before income taxes 149 90Income taxes 35 21Net income for the year 114 69Minority interest - -Group net income for the year 114 69
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S T A T E M E N T S O F I N C O M E
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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S T A T E M E N T O F C A S H F L O W
(Millions of euros)
1998 1999
Net income for the year 114 69
Depreciation and amortization 94 98
Write-downs (revaluations) 2 (2)
Net change in provision for contingencies (24) (11)
Net change in employees’ termination benefits (5) 1
Losses on disposals, eliminations and transfers 1 1
Losses (gains) on accounts receivable in relation to disposals (7) (1)
(Dividend income) (1) (1)
(Interest income) (11) (8)
Interest expenses 11 16
Extraordinary (income) / expenses - 4
Income taxes 35 21
Operating income before working capital changes 209 187
(increase) decrease :
Inventories (25) 14
Trade and other accounts receivable (137) 4
Prepayments and accrued income (15) (21)
Trade and other accounts payable 67 (109)
Accrued expenses and deferred income 25 (13)
Cash generated from operations 124 62
Dividends received 1 1
Interest received 13 9
Interest paid (11) (16)
Extraordinary (expense)/income (paid)/received 3 -
Income taxes paid (43) (19)
Net cash flow from operating activities 87 37
Investments:
Intangible assets (18) (17)
Fixed assets (316) (395)
Purchase of controlling interest in consolidated companies, net of cash (9) -
Investments and own shares (1) -
Changes in accounts receivable in relation to investments (3) (18)
Additions to short-term financing receivables (131) (19)
Outflows resulting from investments (478) (449)
Disposals:
Fixed assets 28 7
Securities 5 -
Reduction in short-term financing receivables 8 101
Inflows resulting from disposals 41 108
Net cash flow from investing activities (437) (341)
Take on of long term financial debts - 5
Payment of long-term financial debts (5) (5)
Additions to (reduction in ) short-term current account debts (46) 374
Increase in share capital and premium reserve from third parties 205 -
Dividends paid (34) (38)
Net cash flow from financing activities 120 336
Effect of change in consolidation area (3) -
Effect of change in consolidation area - cash of subsidiaries acquired/disposed (2) -
Net effect of changes in consolidation area (5) -
Effect of exchange differences (7) 6
Net cash flow for the year (242) 38
Cash at the beginning of the year 291 49
Cash at the end of the period 49 87
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B A S I S O F P R E P A R A T I O N
The consolidated financial statements as of and for the year ended 31st of December 1999, were prepared in accordance with thecriteria established by paragraph 3 of Decree Law no 127 of 9th of April 1991 (hereinafter the “Decree”) and comply with the ac-counting principles of the Consigli Nazionali dei Dottori Commercialisti e dei Ragionieri and where silent, those of the Interna-tional Accounting Standards Committee (I.A.S.C.).The true and correct representation of the consolidated balance sheets and statements of income has not deviated from that laidout in paragraph 4 of article 29 of the Decree.
In order to facilitate the conversion into euros, all figures stated in the balance sheet, statement of income, statement of cash flowand notes to the consolidated financial statements to 31st of December 1999 have been stated in millions of euros, by applying theconversion rate of Lit. 1,936.27.
The consolidated financial statements comprise the financial statements of Saipem S.p.A. and all Italian and foreign subsidiariesover which Saipem S.p.A. exerts direct and indirect control by way of majority holdings of voting rights or voting rights sufficientlylarge enough to exert a dominant influence at a general shareholders meeting. The consolidated financial statements also includeon a line-by-line proportional basis, the accounts of companies owned and managed jointly with other partners.Companies held exclusively for subsequent sale, those in liquidation and minor investments of not material size have been ex-cluded from the consolidation.The criteria adopted to establish the area of consolidation are consistent with those of the prior year.The subsidiaries and associates of Saipem S.p.A.are listed in the following tables according to article 2359 of the Civil Code. Theyinclude a summary by location (in Italy and abroad) and details of the consolidation methods or valuation criteria used, togetherwith details of any changes in area of consolidation occurred during the year. The last paragraph of article 39 of the Decree wastaken into account when preparing the list of companies. The financial statements of consolidated subsidiaries are subject to au-dit by audit firms, who also examine and express their opinion on the information prepared for inclusion within the consolidatedfinancial statements.Subsequent events occurring after year-end are disclosed in the Report of the Directors on the consolidated financial statements.
A R E A O F C O N S O L I D A T I O N
Companies consolidated using the full consolidation method
% ofCompany Registered office Currency Capital stock holding
of the Group
Parent Company:
Saipem S.p.A. S. Donato Mil.se (MI) Lit. 440,237,300,000 -
Subsidiaries:
In Italy
Intermare Sarda S.p.A. Tortolì (NU) Lit. 13,000,000,000 100
Abroad
Saipem International B.V. Amsterdam Nlg 380,000,000 100
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Companies consolidated using the full consolidation method
% ofCompany Registered office Currency Capital stock holding
of the Group
Indirect shareholdings:
Abroad
Saipem International B.V.:
Saipem (Portugal) Gestão de Participações SGPS S.A. Funchal Esc 10,000,000,000 100
Saipem Luxembourg S.A. Luxembourg Luf. 125,962,250 100
Sonsub International B.V. Amsterdam Nlg 20,000,000 100
Saipem Australia Pty. Ltd. Sydney Aud 17,661,000 100
Petrex S.A. Iquitos N.Soles 11,400,665 100
Saipem (Asia) Sdn Bhd Kuala Lumpur M.Ring. 8,116,500 100
Saipem U.K. Ltd. London £ 6,470,000 100
Saipem (Services) AG Zurich SFr 5,000,000 100
P.T. Saipem Indonesia Jakarta USD 1,250,000 100
Saipem Inc. Houston USD 1,000,000 100
ERS Equipment Rental & Services B.V. Amsterdam Nlg 200,000 100
Saipem Contracting (Nigeria) Ltd. Lagos Naira 270,000,000 94
Saipem (Nigeria) Ltd. Lagos Naira 259,200,000 89
Saudi Arabian Saipem Ltd. Al-Khobar SR 5,000,000 60
Saipem (Malaysia) Sdn Bhd Kuala Lumpur M.Ring. 1,023,500 41
Saipem Argentina S.a.m.i.c. y F. Buenos Aires Pesos 6,000 99
Saipem (Portugal) Gestão de Participações SGPS S.A.
Saipem (Portugal) Comércio Marítimo Lda Funchal Esc 60,000,000,000 100
Saipem Perfurações e Construções Petrolíferas
América do Sul Lda Funchal Esc 45,000,000 100
Sonsub International B.V.:
Sonsub International Inc. (*) Delaware USD 43,333,333 100
Sonsub International Pty Ltd. Perth AUD 6,600 100
Sonsub International Ltd. (**) Aberdeen £ 5,900,838 100
Tecnomare Industriale S.p.A. Venezia Lit. 1,700,000,000 100
Sonsub Asia Sdn. Bhd. Kuala Lampur M.Ring 1,900,000 100
Sonsub International Ltd. :
Sonsub International A/S Oslo N.Kr. 1,295,000 100
(*) Since 01-01-2000 Sonsub Inc.(**)Since 01-01-2000 Sonsub Ltd.
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Companies consolidated using the proportionate method
% ofCompany Registered office Currency Capital stock holding
of the Group
Directly related companies:
SASP Offshore Engineering S.p.A. S. Donato Mil.se (MI) Lit. 5,000,000,000 50
Indirectly related companies:
Saipem UK Ltd.:
European Marine Contractors Ltd. London £ 14,000,000 50
Saipem International B.V.:
Saibos (Services) S.A.S. Paris Fr 250,000 50
SaiClo Pty. Ltd. Perth AUD 5,000,000 50
Saipem Aban Drilling Co. Pvt Ltd. Madras Rs 50,000,000 50
SaiClo Luxembourg S.A. Luxembourg Luf. 6,000,000 50
European Marine Contractors Ltd:
European Marine Contractors Netherlands B.V. Rotterdam Nlg 10,000 50
Saipem (Portugal) Gestão e Participações SGPS S.A.
Saibos Construções Marítimas Lda. Funchal Esc 11,046,980,000 50
FPSO Firenze Produção de Petroleo Lda. Funchal Esc 1,500,000,000 50
ERS Equipment Rental & Services B.V.
SB Construction and Marítime Services B.V. Amsterdam Nlg 40,000 50
Companies accounted for using the equity method
% ofCompany Registered office Currency Capital stock holding
of the Group
Indirect shareholdings:
Saipem International B.V.:
AKJAIK Drilling Company J.S.C.(*) Aksai USD 200,000 51
SASP Offshore Engineering UK Ltd. (**) London £ 500,000 50
(*) In-active in throughout the fiscal year(**)Immaterial sized company
Companies accounted for using the cost method
% ofCompany Registered office Currency Capital stock holding
of the Group
Direct shareholdings:
Consorzio SaiTre S. Donato Mil.se (MI) Lit. 100,000,000 51
Sage Società Consortile a r.l. (*) Cagliari Lit. 20,000,000 51
Savico Società consortile a r.l. Cagliari Lit. 20,000,000 51
Consorzio SAPRO Pescara Lit. 20,000,000 51
Directly related companies:
Consorzio SI S. Donato Mil.se (MI) Lit. 50,000,000 50
Consorzio U.S.G. (*) Parma Lit. 50,000,000 40
APIBI Società Consortile a r.l. (*) S. Donato Mil.se (MI) Lit. 20,000,000 36
Consorzio Eniacqua Calabria (*) Catanzaro Lit. 20,000,000 33
Queiroz Petro S.A. Rio de Janeiro Rls 1,511,484 33
(*) in liquidation
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Variations in the area of consolidation with respect to the consolidated financial statements as of and for the year ended 31st of De-cember 1998, are as follows:- the purchase by third parties of 50% of SaiClo Luxembourg S.A.;- following activities of immaterial importance, SASP Offshore Engineering UK Ltd was consolidated using the equity method in
respect of proportional method used for the financial statements as of and for the year ended 31st of December 1998;- Sonsub Asia Sdn Bhd was consolidated using the full consolidation method following it’s constitution and entry into operation;
and- As Saipem Argentina S.a.m.i.c. y F. achieved a significant turnover, it was consolidated using the full consolidation method as
opposed to the equity method used for the financial statements as of and for the year ended 31st of December 1998.
The consolidated financial statements year-end coincides with the end of the Saipem S.p.A. fiscal year and the majority of com-panies, which are included in the area of consolidation, on the basis of financial statements prepared by the directors for approvalby the shareholders. The fiscal year of Saipem Aban Drilling Co. Pvt. Ltd ends on 31st of March and the fiscal year of Saipem Lux-embourg SA ends on 31st of July, therefore audited interim financial statements prepared by the directors at 31st of December 1999were used for consolidation purposes.The financial statements of consolidated companies have been amended, where necessary, to comply with the accounting princi-ples of Saipem S.p.A.The amounts in the financial statements have been stated in millions of euros. Consequently, items with a value equal to zero orwith a value less than this unit of measurement have been excluded.
P R I N C I P L E S O F C O N S O L I D A T I O N
Investments in companies included in the consolidation
Assets, liabilities, expenses and income of companies consolidated using the full (line by line) consolidation method have beenstated in full in the consolidated financial statements. The book value of investments has been eliminated against the share-holders’ equity of the subsidiaries; the portions of shareholders’ equity and income/(loss) attributable to minority interests havebeen stated in the related captions.The book value of investments in companies consolidated using the proportionate method has been eliminated against the relatedportion of shareholders’ equity of the subsidiaries. Under this method, assets, liabilities, expenses and income of consolidatedcompanies have been stated in the consolidated financial statements in accordance with the percentage of holding held by the par-ent company.The difference between the purchase price of investments and the corresponding share of equity has been allocated to specific as-set and liability captions on the basis of the appraisal thereof at the date of purchase.The residual positive difference, if any, has been stated in the balance sheets as an asset, in particular under “difference from con-solidation” account, and charged to the profit and loss account applying the criteria used for goodwill.Dividends, re-valuations, write-downs and losses from investments in consolidated companies together with gains and lossesrealized on the inter-company disposals of investments in consolidated companies, have been eliminated.
Inter-company balances and transactions
Profits and losses deriving from transactions between consolidated companies and not yet realized with third parties have beeneliminated. Inter-company receivables and payables, expenses and income, together with guarantees, commitments and contin-gencies have also been eliminated.
Adjustments and fiscally driven entries
Adjustments and fiscally driven entries have been eliminated from the consolidated financial statements.
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Conversion of financial statements in foreign currenciesThe financial statements of foreign companies have been translated into euros using the exchange rate prevailing at year-end withrespect to balance sheet captions and the average annual rate for income statement accounts.
Currency 1998 1999average rate year end rate average rate year end rate
US dollar 1.115 1.171 1.067 1.005
Saudi Riyal 4.183 4.394 4.001 3.767
Argentinian peso 1.115 1.171 1.067 1.005
Australian dollar 1.769 1.911 1.654 1.542
Pound sterling 0.673 0.701 0.659 0.622
Malaysian ringgit 4.354 4.445 4.053 3.817
Nigerian naira 96.500 110.103 101.946 99.598
Indian rupee 45.896 49.567 46.198 43.600
Swiss franc 1.615 1.602 1.600 1.605
Currency in euros:
Dutch guilder 2.204 2.204 2.204 2.204
French franc 6.560 6.560 6.560 6.560
Portuguese escudo 200.482 200.482 200.482 200.482
Luxembourg Franc 40.340 40.340 40.340 40.340
The financial statements used for translation purposes are those stated in the relevant local currency or those expressed in thefunctional currency, i.e. the currency in which most of the economic transactions and assets and liabilities are denominated.The financial statements expressed in the currency of one of the countries forming part of the “European Monetary Union” havebeen converted using the irreversible exchange rate.Exchange differences arising from the translation of the financial statements of foreign companies into euros have been booked tothe “Reserve for exchange rate differences” in shareholders’ equity.
Changes in consolidation principles
There have been no changes in the consolidation principles used in the preparation of the consolidated financial statements in re-spect of previous year.
V A L U A T I O N C R I T E R I A
In preparing the consolidated financial statements, reference is made to the Italian Civil Code and accounting principles promul-gated by the Consigli Nazionali dei Dottori Commercialisti e dei Ragionieri. Where these are silent, reference is made to those ofthe International Accounting Standards Committee (I.A.S.C.), which are increasingly applied by Italian practice.The most significant valuation criteria adopted are as follows:
Intangible assets
Intangible assets have been imputed to acquisition or production costs, including directly related charges.Purchased goodwill has been capitalized in the balance sheet and amortized on a straight line basis over a maximum of five yearsstarting from the year in which it was stated in the financial statements. The same criteria, has been applied for the difference fromconsolidation account.Costs incurred for the increase in share capital have been amortized on a straight- line basis, over five years starting from the yearin which they were incurred.Industrial patents and similar rights have been amortized over three years following the acquisition date.Other intangible assets, such as costs incurred for leasehold improvements, have been capitalized and amortized systematicallyover the period of utilization of the expenditure or the residual lease period, if shorter.Intangible assets are written-down when their book value is lower than their utilization value. If the reasons for such write-downsare no longer deemed appropriate during the year, the intangible assets, with exception of start-up costs and goodwill, are re-val-ued up to a maximum of their original value.
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Costs of scientific and technological research
Costs incurred in the development of new ideas and discoveries, in the study of alternative products or processes, new techniquesor designs, in the engineering of prototypes and in other areas of scientific research and development are generally considered tobe current costs and have been expensed to the year in which they were incurred.
Tangible assets
Tangible assets have been imputed to acquisition or production costs including directly related charges, net of grants from thirdparties. In order to determine the quota of financial expenses to be attributed to cost, it has been assumed that investments not fi-nanced through specific debts have been financed by own capital generated during the fiscal year.Cost was re-valued by the Italian companies in accordance with revaluation Law no 576 of 2nd of December 1975, Law no 72 of19th of March 1983 and Law no 413 of 30th of December 1991.Assets acquired under capital leases have been stated at the lower of market value or the net present value of minimum futurelease payments including the purchase option. Tangible assets, including those under capital leases, have been depreciated on a straight- line basis over their useful economiclives.
The percentages used are as follows:Buildings 2.5 - 12.5 %Plant, machinery, equipment, vehicles 7.0 - 25.0 %Industrial and commercial equipment 3.75 - 67.0 %Other assets 12.0 - 20.0 %
Costs relating to upgrading, updating and transformation of assets have been capitalized.Ordinary maintenance and repair costs were expensed in the year in which they were incurred.Write-downs and re-valuations were carried out applying the same criteria as those used for intangible assets.
Financial assets - shares
Investments in subsidiaries excluded from consolidation and associated companies have been stated using the equity method.Other investments have been stated at cost, adjusted for permanent impairment of value, if any. Cost is determined following thecriteria used for intangible assets.Risks arising from potential losses exceeding shareholders’ equity have been stated under liabilities in the account “Provision forcontingencies - Others”. If the reasons for such write-downs are no longer valid and confirmed by future income perspectives, the investment is re-valuedand the adjustment charged to the income statement as a revaluation, up to a maximum of the previous write-down.
Inventories
Inventories, with the exception of contract work-in-progress, have been stated at the lower purchase price, determined accordingto the criteria for intangible assets, and market value.Purchase price has been calculated using the weighted average cost method. As most inventories consist of spare parts, the mar-ket value thereof is represented by their substitution cost or by their net realizable value, if lower.Work-in-progress relating to long-term contracts has been stated on the basis of accrued contractual revenues, determined usingthe percentage of completion method and complying with the principle of prudence.Given the nature of the contract and the type of work, the percentage is calculated on the basis of the work performed, being thepercentage of costs incurred with respect to the total estimated costs.Adjustments made for the economic effects of using this method with respect to the revenues invoiced are included under “work-in-progress” if positive or under deferred income if negative.The agreed revenues, where expressed in foreign currency, were calculated by taking into account the exchange rate fixed by thedesignated hedge; the same method was used for any costs to be incurred in a foreign currency.The valuation of work-in-progress considers directly related costs, contractual risks and contractual price revisions, where theycan be objectively determined.Modifications to original contracts, for additional works, are acknowledged when they can be reasonably undertaken.
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Contract losses have been allocated in full to the year in which they become known.
Accounts receivable and payable
Receivables have been stated at their estimated realizable value and payables at their nominal value.Receivables and payables in foreign currency have been stated using the exchange rate prevailing at year-end or, when related toa hedged transaction, the exchange rate fixed by the relevant hedge.
Financial investments not of a fixed nature
Holdings and securities have been stated at the lower of acquisition cost and market value.
Prepayments and accruals
Prepayments and accruals have been apportioned to the relevant year in order to spread costs and revenues over two or more yearswhere appropriate.
Provision for contingencies
Provisions for contingency comprise allocations made to cover certain or probable costs and expenses, which at year end, were un-quantified or uncertain as to when they would occur.Costs relating to cyclical maintenance programmes not constituting improvements, modernization or upgrading and which can becapitalized, have been stated in the “Provision for contingencies - Others”. The cost was amortized over the relevant cycle. Theprovision is reviewed each year in order to provide for any modifications to the timing or estimated costs.
Restructuring costs
In the financial year in which the negative market conditions cause redundancies to the company’s organizational structure andentail the reduction of personnel involved in critical activities, specific accruals are made to the “Provision for contingencies -Others”. The amounts provided for are calculated on the estimated charges to be incurred for the above-mentioned purpose.Costs deriving from termination and early retirement incentives are expensed to the year in which the restructuring programme isformalized and related decrees issued or contractual terms agreed upon.
Employees’ termination benefits
Employees’ termination benefits have been allocated during the work period by employees according to legislation and labour con-tracts, net of applicable advances. The amount stated in the financial statements reflects the full amount matured for employeesnet of advances made to them. Saipem also makes contributions on behalf of employees to various organizations offering medicalcover to them and other benefits to employees, which are not controlled by Saipem. Contributions to be made have been based onthe contractual conditions of the workers’ organizations and are applied to the income statement. Obligations arising from pensionfunds were insignificant.
Guarantees and other memorandum and contingency accounts
Guarantees have been stated at the foot of the balance sheet for the nominal amount of the guarantee given. Collateral given a-gainst payables or commitments is shown in the balance sheet caption, which indicates the asset given as a guarantee.Commitments for derivative contracts (forward purchases or sales of foreign currencies) which involve future swaps of capital, oth-er assets or the difference between two currencies have been stated at the contract regulation price. The other commitments havebeen stated at the foot of the balance sheet for the actual commitment of the company at the year-end.Guarantees and other memorandum and contingency accounts in foreign currency have been recorded by using the exchange ratesprevailing at year-end. Commitments for derivatives have been stated at the contract regulation price.
Costs and revenues
Revenues from sale of goods and services have been recorded upon the transfer of ownership or on the performance of work.
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Income taxes
Current income taxes are calculated on the basis of the estimated taxable income. The current tax liability has been included un-der “Amounts payable to taxation authorities”.Deferred income taxes have been calculated for all temporary differences between the carrying value of an asset or liability in thebalance sheet and its tax base. Deferred tax liabilities have been calculated regardless of the actual or future tax losses of the com-pany. Deferred tax assets are recognized only to the extent that they can reasonably be expected to be recovered. Taxation on theshareholders’ equity reserves of consolidated companies or companies valued using the equity method, is recognized when it isexpected that such reserves will be distributed or utilized and such distribution or utilization will give rise to tax charges. Fiscalbenefits relating to losses carried forward are recognized when they can reasonably be expected to be realized, even if these loss-es were incurred in previous years, otherwise the benefits are recognized when incurred. Deferred tax assets and liabilities arenetted on an individual company basis. The net balance is recorded in the “Prepayments and accrued income” account, in thecase of deferred tax assets and in the “Provision for income taxes” account, in the case of deferred tax liabilities.
Introduction of the European single currency
Costs connected with the introduction of the euro, specifically incurred to 31st of December 1999 were insufficient to warrant men-tion. The most substantial intervention to the information system has been in respect of the implementation of the SAP R3I mod-ule allowing operations to be performed in euros.
Derivative contracts
Saipem mainly uses domestic currency swap contracts and forward contracts to hedge foreign currency risks.The valuation and book value of hedging contracts and related economic transactions covered by such contracts, depends onwhether hedges are classified as general or transaction-specific.Hedges are considered transaction-specific when they always relate to a specific economic transaction.In this case revenues and expenses related to the hedged transactions are directly recorded using the exchange rates fixed by thehedges.
Modification of valuation criteria
The application of new criteria did not entail changes in respect of the 1998 financial statement.
Format and contents of the consolidated financial statements
The format and contents of the consolidated balance sheets and statements of income have not changed with respect to those oflast year.
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D E T A I L S O F T H E F I N A N C I A L S T A T E M E N T SC A P T I O N S
B A L A N C E S H E E T - A S S E T S
N O N - C U R R E N T A S S E T S
Intangible assets
Intangible assets amounted to 32 million euros at 31st of December 1999, an increase of 7 million euros in respect of the previousyear. Movements for the year are set out below:
(Millions of euros)
Start-up Industrial Goodwill Differences Assets under Other Totaland capital patents and on development
costs similar rights consolidation and payments on account
Historical cost
Balance at 31-12-98 10 9 2 13 7 20 61
Acquisitions - 6 - - 11 - 17
Exchange differences - (1) - - - - (1)
Transfers - - - - (1) (1) (2)
Balance at 31-12-99 10 14 2 13 17 19 75
Accumulated amortization
Balance at 31-12-98 3 5 1 8 - 19 36
Amortization 2 4 - 1 - - 7
Transfers - - - - - - -
Balance at 31-12-99 5 9 1 9 - 19 43
Net book value 5 5 1 4 17 - 32
The acquisitions for the year refer principally to costs incurred for the implementation of the integrated information system SAPR3I.
The main captions included under intangible assets comprise:- Start-up and capital costs, which almost entirely comprise costs incurred for the increase in share capital, which occurred in
1998.- Industrial patents and similar rights, which mainly comprise costs incurred for the development of software programmes, in par-
ticular, those regarding the SAP modules operating in the Administration and Finance areas in Head Office and advanced tech-nologies for the Offshore Construction sector.
- Assets under development and payments on account, which mainly refer to costs incurred by the Parent company for the im-plementation of the integrated SAP system in order to manage accounting figures in euros and the logistic areas.
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Tangible assets
Tangible assets amount to 1,223 million euros showing an increase of 338 million euros compared to 1998. Movements for theyear have been set out below:
(Millions of euros)
Land and Plant and Industrial and Other Assets under Totalbuildings machinery commercial assets construction
equipment and payments on account
Historical cost
Balance at 31-12-98 46 1,148 236 32 320 1,782
Movements:
Acquisitions - 99 3 1 292 395
Transfers - 79 - (1) (78) -
Disposals (1) (1) (11) - - (13)
Eliminations - (2) - - - (2)
Write-downs - - - - (2) (2)
Exchange rate differences 2 36 15 4 9 66
Changes in area of consolidation - - - 1 - 1
Balance at 31-12-99 47 1,359 243 37 541 2,227
Accumulated depreciation
Balance at 31-12-98 19 678 180 20 - 897
Movements:
Depreciation 2 71 14 4 - 91
Disposals - (2) (5) - - (7)
Eliminations - (1) - - - (1)
Exchange rate differences 1 16 4 3 - 24
Balance at 31-12-99 22 762 193 27 - 1,004
Net book value 25 597 50 10 541 1,223
Revaluation of assets held at 31-12-99 3 23 15 - - 41
Net revaluation value of assets held
at 31-12-1999 1 - - - - 1
Vessels working in the Offshore Construction and Offshore Drilling sectors have been included under “Plant and machinery”.
Increases for the year, amount to 395 million euros and mainly relate to investments made to improve the operating capacity inthe offshore sectors in deep waters.
In particular, the most important investments made during the year are listed below:the continuation of the construction of the Saipem 10000 drillship capable of drilling in waters up to 3,000 metres (146 millioneuros);- the installation of a “J-lay” system on Saipem 7000 for the laying sealines in deep waters (79 million euros);- the conversion of Scarabeo 7 from a floatel into a semi-submersible drilling rig for deep waters (66 million euros);- the continuation of works on a “multipurpose” Field Development Ship capable of laying small diameter sealines with the “J-
lay“ system (28 million euros); and- the purchase of new R.O.V.’s by a foreign subsidiary (22 million euros).
Transfers from “Assets under construction and payments on account” were made after the above-mentioned installation works forthe “J-lay” system on Saipem 7000 were completed.
Tangible assets include free of charge transferable assets of 5 million euros and leased assets for an amount of 29 million euros.Leased assets relate to a capital lease contract for the use of the semi-submersible drilling rig for deep waters, Scarabeo 5. Certain tangible assets, amounting to 3 million euros and included under “land and buildings” have been mortgaged as lien, whichwas granted by an Italian subsidiary to a bank against financing.
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Financial fixed assets
Financial fixed assets show a balance of 5 million euros, which remains unchanged with respect to the previous year. Movementsduring the year have been set out below.
(Millions of euros)
Financial fixed assets Cost Adjustments Total
Opening balance 6 (1) 5
Movements: - - -
Closing balance 6 (1) 5
Subsidiary companies
A nil balance remained at 31st of December 1999 following a decrease of 1 million euros in respect of the previous year.Stated under the equity method:
(Millions of euros)
Group holding % 31st of December 1998 31st of December 1999
Saipem Argentina S.a.m.i.c. y F. 99.0 1 -
The variation has occured due to Saipem Argentina S.a.m.i.c. y F. being consolidated using the full consolidation method at 31st
of December 1999.
Associated companies
This caption at 31st of December 1999 showed an increase of 1 million euros in respect of the previous year. An analysis of thiscaption is set out below:Stated under the equity method:
(Millions of euros)
Group holding % 31st of December 1998 31st of December 1999
SASP Offshore Engineering U.K. Ltd 50.0 - 1
The variation in this caption is due to the fact that SASP Offshore Engineering UK Ltd. was not included in the consolidationarea but was valued by using the equity method at 31st of December 1999.
Other
At 31st of December 1999, this caption amounted to 4 million euros. An analysis of the caption is set out below:Using the cost method:Investments in Eni Group companies:
(Millions of euros)
Group holding % 31st of December 1998 31st of December 1999
Enisud S.p.A. 5.0 2 2
Finas Co. Ltd. 2.0 1 1
Eniformazione SCPA 15.0 1 1
Total 4 4
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During the year, investments showed the following movements:
(Millions of euros)
Investments in subsidiary companies Cost Adjustments Total
Opening balance 1 - 1
Movements:
Included in consolidation area (1) - (1)
Closing balance - - -
Investments in associated companies Cost Adjustments Total
Opening balance - - -
Movements:
Excluded from consolidation area 1 - 1
Closing balance 1 - 1
Investments in other companies Cost Adjustments Total
Opening balance 5 (1) 4
Movements:
Closing balance 5 (1) 4
C U R R E N T A S S E T S
Inventories
Inventories amounted to 184 million euros at 31st of December 1999, a decrease of 4 million euros in respect of the previousyear. Movements for the year have been set out below:
(Millions of euros)
Raw materials Contract work Totaland consumables in progress
Opening balance
Original value (a) 75 117 192
Provision for write downs (b) (4) - (4)
Net carrying value 71 117 188
Movements for the year
Original value:
Operating variations (1) (13) (14)
Changes in area of consolidation - - -
Exchange rate differences and other variations 5 4 9
Total (c) 4 (9) (5)
Provisions for write-downs:
(Allocations)/Utilization 1 - 1
Total (d) 1 - 1
Closing balance:
Original value (e = a + c) 79 108 187
Provision for write downs (f = b + d) (3) - (3)
Net carrying value (g = e + f) 76 108 184
Raw materials and supplies, mainly comprising the replacement of assets and tools, have been written-down in previous years toprovide for the reduced use of certain materials and the obsolescence of certain specific items. The provision for write downs, hasbeen used together with the scrapping of obsolete materials.
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The valuation of work in progress has been made on the basis of reasonably likely additional revenues from customers, not yet for-mally accepted by the clients.
Work in progress on behalf of Eni Group companies amounts to 14 million euros.
Accounts receivable
Accounts receivable amount to 761 million euros, a decrease of 41 million euros in respect of the previous year. Variations forthe year have been set out in the following table:
(Millions of euros)
Variations in receivables component Trade Subsidiary Associated Parent Others Totalof current assets receivables companies companies companies
Opening balance
Original value (a) 506 2 13 53 266 840
Provision for write-downs (b) (29) - - - (9) (38)
Net value 477 2 13 53 257 802
Variations for the year
Original value:
Operating variations (31) (2) 6 (31) (25) (83)
Exchange rate differences 16 - - - 16 32
Total (c) (15) (2) 6 (31) (9) (51)
Changes in consolidation area (d) 5 - - - 2 7
Provision for write-downs:
(Allocations)/utilization 3 - - - - 3
Total (e) 3 - - - - 3
Closing balance:
Original value (f=a+c+d) 496 - 19 22 259 796
Provision for write-downs (g=b+e) (26) - - - (9) (35)
Net value (h=f-g) 470 - 19 22 250 761
There are no receivables due after five years.During the year, the Parent company factored receivable of approximately 20 million euros, without the right of recourse.
Trade receivables
This caption amounted to 470 million euros at 31st of December 1999, showing a decrease of 7 million euros in respect of 31st ofDecember 1998 and comprises receivables of a trading nature only.
Trade receivables due after one year amounted to 21 million euros (16 million euros at 31st of December 1998) and mainly relateto the retention monies relating to long term construction contracts.
This caption includes receivables due from Eni Group companies of 61 million euros.
Subsidiary companies
This caption has a nil balance at 31st of December 1999, showing a decrease of 2 million euros in respect of 31st of December1998.
Associated companies
Receivables due from associated companies amounted to 19 million euros at 31st of December 1999, an increase of 6 million eu-ros in respect of 31st of December 1998. They relate to trading activities, carried out on an arm’s length basis and are set out as follows:
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(Millions of euros)
31st of December 1998 31st of December 1999
Due within one year:
SaiClo Luxembourg S.A. (operational purposes receivables) - 10
Saipem Aban Drilling Company Ltd. 4 3
European Marine Contractors Ltd. 5 2
SaiClo Pty. Ltd. 2 2
Saibos Contruções Marítimas Lda 2 1
SASP Offshore Engineering S.p.A. - 1
Total 13 19
Parent companies
This caption amounted to 22 million euros at 31st of December 1999, a decrease of 31 million euros in respect of 31st of Decem-ber 1998 and comprises receivables of a trading nature due from the Agip division of Eni S.p.A.
Others
This caption totalled 250 million euros at 31st of December 1999, a decrease of 7 million euros in respect of 31st of December 1998.Other receivables due within one year amounted to 247 million euros (254 million euros at 31st of December 1998). They com-prise short-term financing receivables of 66 million euros (137 million euros at 31st of December 1998), of which 21 million eu-ros refer to deposits made with Enifin by the Parent company (8 million euros at 31st of December 1998), amounts due from taxa-tion authorities of 73 million euros (49 million euros at 31st of December 1998) and advance payments to suppliers of 11 millioneuros (20 million euros at 31st of December 1998). Receivables due from insurance companies of 53 million euros (6 million eu-ros at 31st of December 1998) have also been included. They comprise reimbursement of costs and damages sustained of which5 million euros were received at the beginning of the year 2000. Of the remaining portion, 25 million euros have quantified byan independent adjuster and communicated to the insurance company and the remaining 23 million euros have almost been a-greed with the insurance company.
Other receivables of 3 million euros (3 million euros at 31st of December 1998), due after one year, are mainly due from securitydeposits and tax advances on employee’s termination benefits by the Parent company.
Other receivables include 23 million euros due from other Eni Group companies.
Cash and equivalents
Cash amounted to 87 million euros at 31st of December 1999, an increase of 37 million euros in respect of the previous year. Itcomprises temporary liquid funds directly correlated to bank overdraft generated by treasury operations made at a Group level.
P R E P A Y M E N T S A N D A C C R U E D I N C O M E
These amounted to 43 million euros at 31st of December 1999, an increase of 18 million euros in respect of the previous year. Theyinclude the following items:
- Accrued incomeAccrued income amounted to 1 million euros at 31st of December 1999, a decrease of 3 million euros over the previous year.
- PrepaymentsThis caption amounted to 42 million euros at 31st of December 1999, an increase of 21 million euros in respect of the previousyear. It mainly includes prepayments of financial expenses on cover contracts for exchange rate risks of 22 million euros (3 mil-lion at 31st of December 1998) relative to the Parent company and a foreign subsidiary. In addition, it includes costs to be in-curred in future periods of 12 million euros (18 million euros at 31st of December 1998) and prepaid taxes of 1 million euros (3million euros in 1998).
Prepayments relating to Eni Group companies amount to 1 million euros.
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B A L A N C E S H E E T - L I A B I L I T I E S
S H A R E H O L D E R S ’ E Q U I T Y
(Millions of euros)
31st of December 1998 31st of December 1999
Share capital 227 227
Share premium reserve 291 291
Revaluation reserve 2 2
Legal reserve 20 22
Other reserves:
– reserve for exchange rate differences 21 57
Retained earnings 219 293
Net income for the year 114 69
Total 894 961
Share capital
The Saipem S.p.A. share capital, of 440,237,300 outstanding shares, amounts to 227 million euros, of which, 439,064,782 are or-dinary shares and 1,172,518 are savings shares. During the course of the fiscal year, the share capital increased by 237,300 or-dinary shares. These shares were freely issued to Managers as part of a three year incentive plan approved at the extraordinaryshareholders’ meeting held on 16th of December 1998 and in accordance with article 2349 of the Italian Civil Code.
Share premium reserve
The reserve amounted to 291 million euros at 31st of December 1999, unchanged in respect of the previous year.
Revaluation reserve
The revaluation reserve relates to any revaluation made by the Parent Company in accordance with Law no 413/91.
Legal reserve
The legal reserve of Saipem S.p.A. represents the portion of profits which, under article 2430 of the Civil Code, may not be dis-tributed to shareholders as dividends.
Reserve for exchange rate differences
The reserve for exchange rate differences arises from the conversion into euros of the financial statements expressed in foreigncurrency of companies, which operate autonomously from their parent company.
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Movements in consolidated shareholders’ equity for the years ended 31st of December 1998 and 1999
(Millions of euros)
Share Share Reval. Legal Other Retained Net income Totalcapital premium reserve reserve reserves earnings for the year
reserve
Balance at 31-12-97 206 107 2 17 41 153 103 629
Distributed dividends - - - - - - (34) (34)
Retained earnings for 1997 - - - 3 - 66 (69) -
Increase of share capital 21 184 - - - - - 205
Exchange differences - - - - (20) - - (20)
Net income for the year - - - - - - 114 114
Balance at 31-12-98 227 291 2 20 21 219 114 894
Distributed dividends - - - - - - (38) (38)
Retained earnings for 1998 - - - 2 - 74 (76) -
Exchange differences - - - - 36 - - 36
Net income for the year - - - - - - 69 69
Balance at 31-12-99 227 291 2 22 57 293 69 961
Reconciliation of statutory net income and Shareholders’ equity to consolidated net income and Shareholders’ equity
(Millions of euros)
31st of December 1998 31st of December 1999Shareholders’ Net income Shareholders’ Net income
equity for the year equity for the year
As reported in statutory financial statements 632 51 614 20
Difference between book value and shareholders’ equity,
including result for the year, of consolidated subsidiaries 415 153 476 25
Consolidation adjustments for:
- un-realized inter-company result elimination (140) (87) (135) 5
- elimination of tax effects by nature (1) (1) 4 5
- other adjustments (11) (2) 3 14
Total shareholders’ equity 895 114 962 69
Minority interests in capital and reserves (1) - (1) -
Group shareholders’ equity 894 114 961 69
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P R O V I S I O N F O R C O N T I N G E N C I E S
Provision for contingencies amounted to 58 million euros showing a decrease of 4 million euros in respect of the previous year.
The composition of the caption and movements have been set out below.
(Millions of euros)
Other provisions for contingenciesSeverance Income Periodic Contractual Losses on Provision Provision Provision Other Total
pay and taxes maintenance risks long term for other for losses in for similar contracts risks and associated restructuring
provisions charges and other costscompanies
Closing balance at 31-12-1997 4 12 21 16 20 16 1 - 1 91
Movements in the year:
Allocations 3 1 7 1 9 - - 2 3 26
Utilization (1) (1) (13) (13) (18) (2) (1) - (1) (50)
Exchange differences (1) (1) - (1) - - - - (3)
Other variations - (2) - - - - - - - (2)
Closing balance at 31-12-1998 5 10 14 4 10 14 - 2 3 62
Movements in the year:
Allocations 3 2 9 - 2 7 - - 2 25
Utilization (2) (1) (9) (4) (9) (3) - (2) (2) (32)
Exchange differences - - - - - - - - - -
Other variations 1 - 1 - 3 - - - (2) 3
Closing balance at 31-12-1999 7 11 15 - 6 18 - - 1 58
Severance pay and similar provisions
The provision amounts to 7 million euros, an increase of 2 million euros in respect of the previous year and relates to the retire-ment obligations due to personnel employed in countries other than Italy, for whom different legislation applies.
Income taxes
Amount to 11 million euros, an increase of 1 million euros in respect of the previous year due to the balance between the amountsprovided for and utilized during the year.It comprises amounts provided for potential or existing disputes with local tax authorities based on costs taking into account localtax regulation.
Other provisions for contingencies
Amount to 40 million euros, showing a decrease of 7 million euros in respect of the previous year. Others relates primarily to thefollowing:
Periodic maintenance
The provision amounts to 15 million euros, showing an increase of 1 million euros in respect of the previous year, due to the dif-ference between the provision and the utilization effected by the Parent Company and foreign subsidiaries, which own the vessels,in order to carry out periodic maintenance programmes on the vessels.
Contractual risks
This caption was completely utilized and therefore decreased by 4 million euros in respect of the previous year. This decrease isdue to the release, made by a foreign subsidiary, of the provision set up in prior years following a contract in the Offshore Con-struction sector, since the provision was no longer required.
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Losses on long term contracts
This provision amounting to 6 million euros, decreased by 4 million euros in respect of the previous year as a consequence of theutilization to cover the losses incurred in the year on contracts of the Offshore and Onshore Construction sectors. The provisionexisting at year-end represents the best estimate of the losses expected from contracts in the sectors of activity already mentioned.
Provision for other risks and charges
This provision amounts to 18 million euros, an increase of 4 million euros in respect of the previous year. The provision existingat year end is almost entirely attributable to Saipem S.p.A. and relates to the estimated future expenses which may arise from al-leged violations of foreign currency legislation and ongoing disputes which Saipem S.p.A. has submitted to arbitration.
For additional information in respect of current legal proceedings, please refer to the ”Other information” section relating toSaipem S.p.A.
Provision for restructuring costs
This provision was completely utilized during the fiscal year, following charges of 2 million euros.
E M P L O Y E E S ’ T E R M I N A T I O N B E N E F I T S
This caption amounts to 22 million euros and shows a net increase of 1 million euros in respect of the previous year.Variations in this caption have been set out below:
(Millions of euros)
Total
Opening balance 21
Variations:
- Allocations 4
- Utilization (3)
Closing balance 22
P A Y A B L E S
Total payables amount to 1,258 million euros and show a decrease of 307 million euros in respect of the previous year. The move-ments are shown in the table below:
(Millions of euros)
Movements in the yearOpening Increases/ Exchange rate Other Closing balance (repayments) differences variations balance
Due to banks 162 (3) 10 - 169
Due to other financial institutions 161 373 12 - 546
Advances 85 (23) 2 - 64
Accounts payable 433 (116) 19 5 341
Amounts payable to associated companies 11 (3) 1 - 9
Amounts payable to parent companies 3 (2) - - 1
Amounts payable to taxation authorities 36 (1) 2 1 38
Social security charges payable 5 (1) - - 4
Other amounts payable 55 27 2 2 86
Total 951 251 48 8 1,258
Payables due after more than five years amount to 6 million euros and have been placed under the caption, “Due to other finan-cial institutions”.
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Due to banks
This caption amounted to 169 million euros at 31st of December 1999, an increase of 7 million euros in respect of the previousyear. Amounts due to banks after one year are 12 million euros (9 million euros at 31st of December 1998).Amounts due to banks secured by collateral amount to 83 million euros. They relate to a loan, of which 80 million euros had beenutilized by 31st of December 1999 by a foreign Italian subsidiary and secured against the shares of the company as well as anoth-er loan granted to another Italian subsidiary on the related fixed assets.
Due to other financial institutions
This caption amounted to 546 million euros at 31st of December 1999 showing an increase of 385 million euros in respect of theprevious year, mainly due to investments made during the year. It comprises loans granted to the Parent company and foreign sub-sidiaries by Eni Group finance companies (511 million euros) and payables due to leasing companies for capital leases (35 mil-lion euros).The balance also comprises payables due to Eni Group companies of 545 million euros.Payables due after one year totalled 30 million euros (35 million euros at 31st of December 1998).Amounts due to banks and other financial institutions totalled 715 million euros. They comprise short-term debts of 673 millioneuros (279 million euros at 31st of December 1998), granted at an average interest rate of 4.8% (7.3% in 1998) and amounts dueafter one year of 42 million euros (43 million euros at 31st of December 1998) granted at an average interest rate of 4.3% (7.9%in 1998).
Advances
This caption amounted to 64 million euros at 31st of December 1999 and showed a decrease of 21 million euros in respect of theprevious year. It relates to advance payments received, exclusively by the Parent Company, for works yet to be performed. Ad-vances of 44 million euros relating to Cepav 1 and 2 have also been included.
Accounts payable to suppliers
These amounted to 341 million euros at 31st of December 1999 and show a decrease of 92 million euros in respect of the previous year. No accounts payable, are due after five years.Payables due to Eni Group companies amount to 13 million euros.
Amounts payable to associated companies
This caption amounted to 9 million euros at 31st of December 1999, a decrease of 2 million euros in respect of the previous yearand relates to dealings of a trading nature, which have been summarized as follows:
(Millions of euros)
31st of December 1998 31st of December 1999
European Marine Contractors Ltd (portion not consolidated) 7 6
SaiClo Pty. Ltd. (portion not consolidated) 3 3
Saibos (Services) S.A.S. (portion not consolidated) 1 -
Total 11 9
Amounts payable to parent companies
This caption comprises amounts due to the Agip division of Eni S.p.A. by the Parent company. It amounted to 1 million euros at31st of December 1999, a decrease of 2 million euros in respect of the previous year.
Amounts payable to taxation authorities
The amount payable to taxation authorities amounted to 38 million euros at 31st of December 1999, showing an increase of 2 mil-lion euros in respect of the previous year.This caption mainly consists of amounts payable to local taxation authorities for income taxes (27 million euros), VAT (5 millioneuros) and withholding taxes (5 million euros).
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Social security charges payable
This caption amounted to 4 million euros at 31st of December 1999, showing a decrease of 1 million euros in respect of the previ-ous year. It comprises social security contributions payable by the Parent Company and Italian Group companies.
Other amounts payable
Other amounts payable amounted to 86 million euros at 31st of December 1999, an increase of 31 million euros in respect of theprevious year. They mainly comprise payables due to joint ventures of 19 million euros (2 million euros at 31st of December 1998),personnel of 15 million euros (22 million euros at 31st of December 1998), the Cepav Uno and Cepav Due consortia of 14 millioneuros (14 million euros at 31st of December 1998), and insurance companies of 6 million euros (4 million euros at 31st of Decem-ber 1998), and payables due to consultants and other professionals of 2 million euros (1 million euros at 31st of December 1998). Other amounts payable to Eni Group companies amounted to 2 million euros.
A C C R U E D E X P E N S E S A N D D E F E R R E D I N C O M E
This caption amounted to 35 million euros at 31st of December 1999 showing a decrease of 15 million euros in respect of the pre-vious year and comprises:
- Accrued expensesAccrued expenses at 31st of December 1999 are less than the measuring unit used for the consolidated statement.
- Deferred incomeThis balance amounted to 35 million euros at 31st of December 1999 showing a decrease of 15 million euros in respect of 31st
of December 1998 and is summarized as follows:(Millions of euros)
31st of December 1998 31st of December 1999
Adjustments to revenues from long-term contracts made on the basis of the amounts
contractually matured 45 30
Exchange rate hedging transactions 5 3
Insurance company premiums - 2
Total 50 35
Deferred income from Eni Group companies amounts to 13 million euros.
G U A R A N T E E S A N D O T H E R M E M O R A N D U M A N D C O N T I N G E N C Y A C C O U N T S
This caption amounted to 1,759 million euros at 31st of December 1999 (1,855 million euros at 31st of December 1998).
Guarantees
Guarantees amount to 884 million euros and may be summarized as follows:
(Millions of euros)
31st of December 1998 31st of December 1999
Guarantees granted on behalf of:
- subsidiary companies 255 290
- associated companies 189 64
- parent companies 6 6
- others 8 17
458 377
Guarantees granted by third parties in favour of the Parent company 458 507
Total 916 884
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Such guarantees comprise:- guarantees granted on behalf of subsidiary and associated companies mainly connected with potential defaults in carrying out
work obligations;- guarantees given to third parties relating to guarantees issued by banks for orders, for advance payments on obligations arising
from the participation in contract tenders, for the proper execution of work, for liens and for credit facilities.Guarantees granted by third parties in favour of the Parent company include 9 million euros relating to receivables sold with re-course.
Real guarantees
Amounts due to banks secured by collateral amount to 83 million euros. They relate to a loan secured against the shares of thecompany, of which a foreign Italian subsidiary had utilized 80 million euros by 31st of December 1999. A further loan, secured a-gainst the fixed assets, in the sum of 3 million euros was granted to another Italian subsidiary.
Other memorandum and contingency accounts
This caption amounts to 792 million euros and refers to commitments on hedging contracts. Such commitments on derivative con-tracts, including options, may be summarized as follows:
(Millions of euros)
31st of December 1998 31st of December 1999
Purchase of foreign currency 139 259
Sale of foreign currency 465 489
Total 604 748
Options:
Purchase of foreign currency 230 -
Sale of foreign currency 102 44
Total 332 44
These derivative contracts are entered into in order to reduce the market risks exposure arising from exchange rate fluctuationsof those currencies in which trading transactions are carried out. Thus, derivative contracts for dealing purposes are not held.The amounts detailed by currency are as follows:
(Millions of euros)
Currency Nominal value at 31-12-98 Nominal value at 31-12-99Purchases Sales Purchases Sales
US Dollar 254 489 153 524
Euro - - 15 -
French Franc 10 - 1 -
German Mark 3 - - -
Italian Lira 7 - 55 -
Pound Sterling 1 15 - 9
Dutch Guilder 8 18 1 -
Norwegian Corona 86 30 34 -
Danish Corona - 15 - -
Total 369 567 259 533
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The market value of the above contracts are the amounts estimated as payable or receivable for the contracts as of the year-enddate including, therefore, the unrealized income or losses on open contracts. In order to estimate the market value of the contracts,indices quoted by the stock market and appropriate pricing models have been used. The total theoretical net gains (losses) aris-ing are as follows:
(Millions of euros)
31st of December 1998 31st of December 1999
Derivate contracts on currencies:
- gains 26 17
- losses (9) (27)
Total 17 (10)
Commitments relating to hedging contracts with Eni Group companies amount to 766 million euros (877 million euros at 31st ofDecember 1998).
Off-balance sheet commitments and contingencies
The Parent company, for the benefit of its customers, is committed to fulfil the contractual obligations entered into by subsidiariesor associates where they fail to fulfil the contractual obligations themselves, as well to pay for any damages suffered as a result ofany failure to meet those obligations. These commitments guarantee the cover of contracts to a value of 1,941 million euros (1,869 million euros at 31st of December 1998).
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S T A T E M E N T O F I N C O M E
R E V E N U E S
Turnover
Turnover amounted to 1,480 million euros, a decrease of 209 million euros over the previous year.A breakdown of the turnover per sector of activity is set out below:
(Millions of euros)
1998 1999
Offshore Construction 958 781
Offshore Drilling and Floating Production 169 170
Onshore Drilling 139 96
Onshore Construction 420 431
Infrastructure 3 2
Total turnover 1,689 1,480
Turnover per geographical area is as follows:
1998 1999Geographical area (*) Millions of euros % Millions of euros %
Italy 159 9.4 112 7.6
North Sea 307 18.2 311 21.0
Rest of Europe 36 2.1 36 2.4
Africa 451 26.7 356 24.0
Middle East 254 15.0 219 14.8
Far East 277 16.4 182 12.3
Americas 205 12.2 264 17.9
Total 1,689 100.0 1,480 100.0(*) Measured according to final destination of the services
Revenues from Eni Group companies amounted to 147 million euros (251 million euros in 1998) and from Agip division of EniS.p.A. to approximately 79 million euros (107 million euros in 1998).
Variation in contract work in progress
Comments on the negative variation of 13 million euros, relating to Offshore and Onshore Construction contracts, have been dis-closed in the note on “Inventories”.
Increase in internal work capitalized under fixed assets
This item relates to the capitalization of costs for internal work incurred during the year. It amounts to 30 million euros and re-lates entirely to increases in fixed assets.
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Other revenues and income
Other revenues and income amounted to 21 million euros, a decrease of 14 million euros over the previous year and can be sum-marized as follows:
(Millions of euros)
1998 1999
Others:
- Release of provision for contingencies 15 3
- Release of provision for write downs - 3
- Gains on sale of tangible fixed assets 8 3
- Compensation for damages 4 3
- Income on transactions with personnel 4 3
- Other revenues from Eni Group companies - 2
- Income relating to trading transactions 2 1
- Other operating revenues 2 3
Total 35 21
The release of the provision for contingencies arises as a result of actual costs incurred (or not) being less than the original ac-cruals set up for such risks in previous years.
O P E R A T I N G E X P E N S E S
Raw materials, consumables and supplies
This caption amounted to 274 million euros, a decrease of 63 million euros over the previous year. It comprises costs for the pur-chase of raw materials and other, used in operating activities as well as consumables and supplies.Costs for raw materials, consumables and supplies purchased from Eni Group companies amounted to 6 million euros.
Services
Services amounted to 573 million euros, a decrease of 54 million euros over the previous year.Such costs relate to sub-contracting, engineering and management work, insurance, transport, consultancy and technical servic-es, maintenance, postal and telegraphic services, personnel and other general services.They include 5 million euros (7 million euros for 1998) for commercial brokerage fees.
Costs for services provided by Eni Group companies amounted to 40 million euros and can be summarized as follows: project andengineering costs , 11 million euros; insurance premiums relating to assets involved in operating activities and personnel insur-ance, 8 million euros; general services (building maintenance and office security costs, telecommunications, aircraft services, EDPcosts) 6 million euros and professional, technical, training and implementation of new information technology projects, 15 millioneuros.
Use of third party assets
Costs for the use of third party assets amounted to 128 million euros showing an increase of 71 million euros over the previousyear. These costs comprise instalments for the lease and rental of vessels, motor vehicles, land and buildings and aircraft, as well ascosts for licenses and industrial patents.Costs for the use of third party assets due to Eni Group companies amounted to 3 million euros.
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Payroll and related costs
Amounted to 309 million euros and includes salaries and wages, employees’ termination benefits, vacations accrued but not yettaken and social security contributions in accordance with current labour contracts and legislation.The allocation made to employee termination benefits includes the revaluation of the reserve at 31st of December 1998 and hasbeen calculated on the basis of the cost of living index (ISTAT) for the period maturing to the benefit of the employee.Other personnel costs amount to 25 million euros (28 million euros in 1998) and relate to canteen services, building yard servic-es, transport and other similar costs.
The average number, by category of employees, of all the consolidated companies was as follows:
Personnel at Personnel at Average workforce31st of December 1998 31st of December 1999 1999 (*)
Managers 112 100 106
Executives 345 340 327
White collar 3,197 2,431 2,762
Blue collar 8,455 6,406 7,213
Seamen 375 327 319
Total 12,484 9,604 10,727(*) average of monthly average figures.
Full data is shown below for the employees of companies consolidated using the proportionate method, in accordance with article37 of Decree law no 127 of 9th of April 1991. These have been included in the above table at 50%.(Data shown at 100%):
Personnel at Personnel at Average workforce31st of December 1998 31st of December 1999 1999 (*)
Managers 13 12 14
Executives 61 70 66
White collar 437 331 400
Blue collar 312 125 209
Seamen 87 84 85
Total 910 622 774(*) average, of monthly average figures.
Amortization, depreciation and write-downs
Amounted to 100 million euros, an increase of 2 million euros over the previous year.It includes the amortization of intangible assets, depreciation of fixed assets and the write-downs of non-current assets.An analysis of amortization, depreciation and write-downs is provided in the notes on intangible and fixed assets, and accountsreceivable included under current assets.
Variations in raw materials, supplies and consumables
This expenditure mainly comprises the variation in spare parts and consumables for internal use rather than for resale, and to 31st
of December 1999 showed a nil balance.
Further information is given in the note on “Inventories”.
Provision for contingencies
Amounted to 1 million euros and relate to provisions made by Saipem S.p.A. in respect of future estimated costs deriving fromcurrent legal actions allocated to the “Provisions for other risks and charges”.
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Other provisions
Other provisions totalled 13 million euros (20 million euros in 1998) and include allocations made to “Provision for contingencies- Others”. The amount is relative to the allocation made in relation to estimated losses on contracts of the Onshore and OffshoreConstruction sector, which were in progress at year-end (2 million euros), the provision for periodic maintenance relating to theoperating vessels (9 million euros) and 2 million euros were allocated to “Other provisions”.
Other operating costs
These amounted to 15 million euros, a decrease of 1 million euros in respect of the previous year and have been summarized asfollows:
(Millions of euros)
1998 1999
Taxation and customs duties 8 10
Losses from the disposal and elimination of intangible and fixed assets 2 3
Charges on trading transactions 3 1
Other operating costs 3 1
Total 16 15
F I N A N C I A L I N C O M E A N D E X P E N S E
Income from investments
Income from investments amounted to 1 million euros, a decrease of 1 million euros in respect of the previous year and relate todividends received during the year by a foreign subsidiary.
Other financial income
Other financial income amounted to 102 million euros, an increase of 4 million euros in respect of the previous year and compris-es:
(Millions of euros)
1998 1999
Exchange rate gains 71 93
Interest income on bank deposits and current accounts 5 3
Interest from associated companies 2 1
Premiums on hedging contracts for exchange rate risks 1 1
Interest income from Eni Group financing companies 4 -
Other 5 4
Total 88 102
The above amounts include income of 1 million euros from Eni Group companies.Movements in exchange rates, which took place after the year-end, showed a net positive effect.
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Interest and other financial expenses
Amounted to 114 million euros with an increase of 17 million euros in respect of the previous year and have been summarized asfollows:
(Millions of euros)
1998 1999
Exchange rate losses 70 86
Interest expenses on payables to others 1 6
Expenses on contracts for the hedging of exchange risks - 11
Interest on sums due to Eni Group financing companies 15 10
Interest expenses and other charges on sums due to banks 10 -
Other financial expenses 1 1
Total 97 114
The above figures include charges from Eni Group companies totalling 21 million euros.
Financial expenses charged to the asset account
Tangible assets comprise financial expenses of approximately 5 million euros, which were capitalized during the 1999 fiscal year.1 million euros refer to “Plant and machinery”, whilst 4 million euros refer to “Fixed assets and advances”
E X T R A O R D I N A R Y I N C O M E A N D E X P E N S E S
Income
Extraordinary income amounted to 3 million euros and refers a reimbursement made available from the Procura della Repubbli-ca di Milano following an investigation termed “Mani Pulite”.
Expenses
Amounted to 7 million euros and mainly refer to a provision made by the parent company for 6 million euros in respect of “Pro-visions for other contingencies”, relative to presumed future expenses. These expenses mainly arise from alleged violations of thecurrency laws and for 1 million euros, which relate to probable taxes to be paid to the authorities, following “Mani Pulite” pro-ceedings.
I N C O M E T A X E S
Income taxes amounted to 21 million euros, a decrease of 14 million euros over the previous year. The decrease is due to a re-duced income level and a reimbursement by the Italian Fiscal Authorities, following a court case regarding the de-taxing of in-come on products by Saipem Italia, in Italy, based on the use of subsidies and specific laws.
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S E G M E N T I N F O R M A T I O N
Operating revenues, contribution from operations, tangible and intangible fixed assets, capital expenditure and depreciation and amortization by segment
Offshore Offshore Onshore Onshore Infrastructure TotalConstruction Drilling and Drilling Construction and
Floating Head officeProduction
1998
Operating revenues 971 169 139 423 3 1,705
Contribution from operations 103 59 30 35 - 227
Tangible and intangible fixed assets 382 381 57 70 20 910
Capital expenditure 124 156 28 17 19 344
Depreciation, amortization and write-downs 38 32 8 13 5 96
1999
Operating revenues 781 170 96 431 2 1,480
Contribution from operations 96 40 10 29 - 175
Tangible and intangible fixed assets 526 571 61 68 29 1,255
Capital expenditure 160 220 9 7 16 412
Depreciation, amortization and write-downs 38 36 6 13 7 100
Detailed information relating to the above has been disclosed in the appropriate section of the Report of the directors.
Related party transactions
Related party transactions have been disclosed in the appropriate section of the Report of the directors.
Saipem S.p.A. Directors and Statutory Auditors’ emoluments
Emoluments made to the Saipem S.p.A. Board of Directors for 1998 and 1999 amounted to 891 thousands euros and 822 thou-sands euros, respectively. Emoluments made to the Saipem S.p.A. Board of Statutory Auditors of for 1998 and 1999 amounted to72 thousands euros each. The above fees comprise ordinary emoluments, non monetary fringe benefits, bonuses and other incentives, attendance fees, outof pocket expenses reimbursed on a forfeit basis and emoluments recognized for similar offices in other consolidated companies.For those directors entrusted with specific powers and who are employees of the company, the emoluments also comprise a nor-mal salary. Moreover, in the case of termination of employment, the emoluments comprise additional amounts in excess of the ter-mination indemnity, if any. The above compensation refers to those emoluments, which are subject to taxation, in accordance with personal tax regulations.
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R E C L A S S I F I E D C O N S O L I D A T E D B A L A N C E S H E E T(Millions of euros)
31st of December 1998 31st of December 1999
Net tangible fixed assets 885 1,223
Net intangible fixed assets 25 32
Tangible and intangible fixed assets, net 910 1,255
- Offshore Construction 382 526
- Offshore Drilling and Floating Production 381 571
- Onshore Drilling 57 61
- Onshore Construction 70 68
- Others 20 29
Financial investments 4 5
Non-current assets (a) 914 1,260
Inventories 188 184
Other current assets 630 738
Current liabilities (619) (574)
Provision for contingencies and other charges (62) (58)
Net current assets (b) 137 290
Employees’ termination benefits (c) (21) (22)
Capital employed (d=a+b-c) 1,030 1,528
Group shareholders’ equity (e) 894 961
Minority interests in net equity (f) 1 1
Net financial debt – medium and long term 43 42
Net financial debt – short term 92 524
Net debt (g) 135 566
Cover (h=e+f+g) 1,030 1,528
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(Millions of euros)
1998 1999
B Y N A T U R E O F C O S T
Operating revenues 1,705 1,467
Other income and revenues 32 18
Purchases, services and other costs (1,162) (978)
Payroll and related costs (322) (302)
Gross operating income (a) 253 205
Amortization, depreciation and write-downs (b) (96) (100)
Operating income (c=a-b) 157 105
Financial expenses, net (d) (9) (12)
Income from investments, net (e) 1 1
Income from ordinary activities (f=c-d+e) 149 94
Extraordinary expenses, net (g) - (4)
Income before income taxes (h=f-g) 149 90
Income taxes (i) (35) (21)
Net income for the year (l=h-i) 114 69
Income for the year attributable to third parties (m) - -
Group net income for the year (n=l-m) 114 69
R E C L A S S I F I E D C O N S O L I D A T E D I N C O M E S T A T E M E N T
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R E C L A S S I F I E D C O N S O L I D A T E D I N C O M E S T A T E M E N T(Millions of euros)
1998 1999
B Y D E S T I N A T I O N O F C O S T
Operating revenues 1,705 1,467
Production costs (1,445) (1,238)
Idle costs (25) (38)
Selling expenses (14) (16)
Research and development expenses (3) (3)
Other operating income, net 9 3
Contribution from operations 227 175
General and administrative expenses (70) (70)
Operating income 157 105
Financial expenses, net (9) (12)
Income from investments, net 1 1
Income from ordinary activities 149 94
Extraordinary expenses, net - (4)
Income before income taxes 149 90
Income taxes (35) (21)
Net income for the year 114 69
Income for the year attributable to third parties - -
Group net income for the year 114 69
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AUD
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REP
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A U D I T O R ’ S R E P O R T
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R E S O L U T I O N S A P P R O V E D A T T H E A N N U A L S H A R E H O L D E R S ’ M E E T I N G
The Saipem S.p.A. Shareholders’ meeting held on 26th of April 2000 in first call, approved the following:
1) The Financial Report at 31st of December 1999 and the allocation of income totalling 19,632,608 euros (lire 38,014,030,475)as follows:
• Allocation to the legal reserve of 981,630 euros (lire 1,900,701,524)• Allocation to the share distribution reserve, in accordance with art. 2349 of the Italian Civil Code, of 76,074 euros (lire
147,300,000)• Distribution of a dividend totalling 22,754,526 euros (lire 44,058,905,540), comprising excess income totalling 18,574,904
euros (lire 35,966,028,951) and income from previous years amounting to 4,179,622 euros (lire 8,092,876,589).
The dividend, which will be paid as from 25th of May 2000, will be allocated as follows:- lire 100 to 439,064,782 ordinary shares lire 43,906,478,200- lire 130 to 1,172,518 savings shares lire 152,427,340
2) To pay the Statutory Auditors KPMG S.p.A. a sum totalling lire 200,000,000 per annum for the fiscal years 1999 and 2000 inconnection with additional auditing activities as per article 155 of D.Lgs. 24.2.1998 n. 58.
