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Risk Management Framework

The creation of sustainable value for stakeholders cannot exclude taking risks, which is a fundamental component of doing business.

The SEA Group, in its capacity of airport operator, is exposed to a broad spectrum of potential risks impacting on the achievement of the business strategies.

In order to reduce exposure to such events, the Group adopted specific processes and procedures to safeguard airport safety and the quality of services offered, for the protection of tangible and intangible assets of interest to stakeholders and to ensure the long-term creation of value.

To better support and integrate the systems mentioned, in 2016 the SEA Group introduced an Enterprise Risk Management (ERM) model for the identification, homogeneous and transversal assessment of risks linked to the development of corporate activity, and their ongoing monitoring, to support management strategic choices and decision-making processes and stakeholder assurances.

Methodological approach

The adopted risk governance model is guided by national and international best practice principles (e.g. the Self-Governance Code for listed companies and CoSO ERM – Integrating with Strategy and Performance) and is based on:

  • a strategic approach, providing Management and the Board of Directors with important information on risk factors, uncertainties and opportunities, in order to support informed decision-taking while defining objectives, strategies and performance monitoring;
  • an enterprise-wide approach, or an approach extended to all types of risks and opportunities that are potentially significant for the Group;
  • a value-driven approach centred on risks and opportunities with the greatest impact on corporate strategic objectives and value drivers.

The Risk Model consists of four event categories: external risks, operational and business risks, financial risks and legal and compliance risks.

Identified events are assessed and subsequently “prioritised” on a scale of 5 levels in terms of impact, probability of occurrence and maturity of the risk management system.

The subsequent Risk Response phase is aimed at defining the risk response strategy to mitigate exposure if this is not considered to be in line with the company’s propensity to risk. 

Risk Management Governance

The governance of the SEA Group Enterprise Risk Management model defines a second level of risk management control in the ERM division (established in January 2018), with the aim of supporting corporate structures in the identification and management of corporate risks and at the same time guaranteeing periodic reporting to top management on the risk profile’s evolution. The model is based on the principle that the management of risks involves the organisation at all levels and that management is the primary owner of risks, since it manages risks and opportunities on a daily basis in line with business propensity and is responsible for the definition and implementation of identified mitigation plans.

Corporate and line management are supported by Risk Specialists and the ERM division. 

Top management periodically reviews the company risk profile and orients the management of the main emerging risks, approving proposed response plans in line with the strategic objectives and corporate risk propensity defined by the Board of Directors. Finally, the Internal Audit team independently verifies the effectiveness and effective implementation of the complete risk management system.

SEA Group risk factors

The principal risks which the Group is potentially exposed to are indicated below. They are considered thus because they can have an impact on the objectives pursued in the corporate Strategic Plan.

External Risks

SEA Group operates as an airport manager under a fully regulated regime, however, the Group's earnings and financial results are significantly influenced by worldwide socio-political, macroeconomic and competitive dynamics.

Air traffic development

Geo-political developments can have an impact on the air sector, particularly causing variations in traffic in terms of volumes and/or passenger types.

The United Kingdom’s imminent exit from Europe, should it take place without any agreement between the United Kingdom and the European Union (no-deal Brexit), would cause British airlines to lose the right to fly freely from and to countries of the European Union. This includes the impossibility of operating flights from and to the United Kingdom from Linate airport which, by virtue of Ministerial Decree No. 15 of March 3, 2000 and subsequent amendments, can only serve European destinations.

This event could lead to a redistribution of routes between Linate and Malpensa which is altogether negative for the Group due to the reduction in traffic caused by the cancellation of activities at Linate and the rationalisation of flights at Malpensa.

Airline strategies

The reviewing of strategies by airlines, also linked to macro-economic issues, can lead to changes in flights at Group airports.

The volume of passenger traffic and cargo in transit at the Linate and Malpensa airports represents a key factor in the results achieved by the Group. Any reduction or interruption to flights by one or more airlines operating out of the SEA Group managed airports may result in a reduction in such traffic, with consequent negative impacts on activities and Group results.

Therefore, the Alitalia situation may result in reduced flights at the SEA managed airports.

Despite this, SEA expects the risk of a reduction or interruption to flights to be mitigated by the redistribution of passenger traffic among the airlines operating on the market and the capacity to attract new airlines.  Any redistribution of traffic may require a certain period of time, temporarily influencing Group results.

Development of the regulatory framework and applicable rules

SEA Group activities, as is the case for all Italian Airport Managers, are subject to a high level of regulation which impacts in particular the establishment of fees concerning services offered (airport fees, security control fees, fees for the use of common use assets and centralised infrastructure for handling services), the allocation of slots and the control of air traffic.

The development of SEA’s specific regulatory framework with reference, for example, to the tariff profile, concession rules and Bilateral Agreements between States, may impact Group results.

SEA constantly monitors the activities of Authorities in the national and European aviation field and actively participates in technical roundtables set up by industry associations in order to remain firmly in line with any legislative and regulatory changes.


The strategic choices of other operators representing an alternative to air transport, may pose a threat to the domestic development of traffic at the Milan airports.

The technological development of fast and alternative rail transport has made it possible to reduce travel times from Milan to Rome and Naples, and has made it easier to reach even more distant destinations by rail. The increase in frequency of high-speed trains along these routes may lead to a reduction in air traffic through Linate airport.

Operating and business risks

The operating risk factors are strictly related to the carrying out of airport activities and may impact the short and long-term performances.

Safety & security

Passenger and employee safety is a central concern for the Group, which places maximum priority and focus on daily operating and management activities.

An accident in one of the airports managed by the Group, where on average 21,000 to 46,000 passengers pass through daily, may have very grave consequences.

In terms of aviation safety, the Group’s Safety Management System, which is also validated and controlled by the Italian Civil Aviation Authority (ENAC), maintains the highest levels of safety and service quality, acting in line with the fundamental principles of the SEA Airport Safety policy, it:

  • guarantees design compliance, the construction and maintenance of flight infrastructure and plant and equipment satisfying the highest sector standards;
  • ensures a review of operating processes to achieve the highest compliance possible with national and international regulations concerning Safety;
  • monitors the maintenance of safety standards for all operators and external parties of any type within the airport sites;
  • guarantees ongoing and appropriate training of personnel, with priority for operational staff, placing particular focus on the requirements and the consequent actions for an improved level of Safety;
  • guarantees education and communication, so that all events which may affect Safety are flagged through the filling out of a Ground Safety Report.

Activity and Service Interruptions

Group activities may be interrupted through: strikes by personnel, by those of the airlines, personnel dedicated to air traffic control services and public emergency service operators; incorrect and non-punctual provision of services by third parties and adverse weather conditions (snow, fog etc.).

Natural events, such as lightning and overload short circuits may, for example, cause electrical blackouts with the consequent shutdown of information systems, affecting displays and leading to departure delays; violent storms may lead to the flooding of runways and/or cause the temporary interruption of airport activities, with repercussions on the airport’s punctuality.

The infrastructural systems of Group airports are designed and constantly maintained to minimise disruptions linked to these types of circumstances.

Special company procedures are designed to manage such events.

Supplier Reliability

Any bankruptcy or operational difficulties of individual or difficult-to-replace suppliers may have an impact on the Group in operational and economic-financial terms.

In order to minimise exposure to such risk, the company has implemented a structured supplier qualification and performance monitoring system, formalised into a specific policy.

Human resources

The reaching of Group objectives depends on internal resources and relations with employees. The non-ethical or inappropriate behaviour of employees may have legal and financial consequences on company activities. The body of procedures, also in compliance with the 231 Model adopted by the Group, the Conduct Code, training and in-house education on these issues, together with the talent development plans and the ongoing cooperation and dialogue with the trade unions, support an organisation which minimises the risks related to human resource management.

The ageing of the company workforce (the current average age is 49) is also due to the extension of the working age introduced under recent pension reforms and could impact operations (particularly in relation to the use of new technologies, higher absenteeism and/or health and safety problems). SEA constantly addresses this issue through the implementation of a variety of initiatives, aimed, on the one hand, at recruiting younger staff (including the drafting of a recruitment plan for persons under 35) and, on the other, of developing and maintaining skills (including specific talent management initiatives) and employee physical and psychological wellbeing (such as the “Fragility” initiative to support employees with elderly parents).

Information Technology

The increasing aggressiveness and pervasiveness of cyber-attacks on a global level and new Digital Transformation technology initiatives involving the SEA Group may, by their particularly critical nature, increase the risk of vulnerability of airport information and technology systems.

SEA pays great attention to the protection of its IT systems and telecommunications infrastructure from unauthorized access and cyber-attacks that may cause the temporary suspension or hindering of operational services.

In this regard, particularly worth mentioning are the cyclical vulnerability assessments and penetration testing of systems using the most advanced technologies and methodologies, activities underway for obtaining ISO 27001 certification and the definition of a Cyber Risk framework which monitors all corporate technical and conduct requirements.

Financial Risks

The management of financial risks is carried out by the Parent Company which identifies, evaluates and implements actions to prevent and limit the consequences of the occurrence of the above-stated risk factors.

Credit risk

Credit risk represents the exposure of the SEA Group to potential losses deriving from the non-compliance of obligations by trading and financial partners.

This risk is primarily of an economic/financial nature, or rather the possibility of the default of a counterparty, and also factors of a technical/commercial or administrative/legal nature.

For the SEA Group, credit risk exposure is largely related to the deterioration of a financial nature of the principle airline companies which incur on the one hand the effects of the seasonality related to aviation operations, and on the other consequences of geopolitical events which impact upon the air transport sector (wars, epidemics, atmospheric events, rise in oil prices and economic/financial crises).

In order to control this risk, the SEA Group has implemented procedures and actions to monitor the expected cash flows and recovery actions.

In application of internal credit policies, clients are requested to procure the release of guarantees: this typically relates to first-demand bank guarantees issued by primary credit institutions or guarantee deposits.

In relation to the payment terms applied for the majority of the clients, credit terms are largely concentrated within 30 days from the relative invoicing.

Trade receivables are reported in the financial statements net of any write-downs which are prudently made with differentiated rates on the basis of the risk ratio assigned to each client using a classification based on the rating class and credit expiry class (for the calculation method of doubtful debt provision, reference should be made to paragraph 4.1 of the explanatory notes to the consolidated financial statements).

Market risks

Market risks to which the SEA Group is exposed comprises all types of risks directly and indirectly related to market price trends. In 2018, the market risks to which the SEA Group were subject were:

  1. Interest rate risk
    The SEA Group is exposed to the risk of changes in interest rates in relation to the necessity to finance its operating activities and the use of available liquidity. The changes in interest rates may impact positively or negatively on the results of the SEA Group, modifying the costs and returns on financial and investment operations.
    The SEA Group manages this risk through an appropriate mixture between fixed and variable rate loans, with the objective to mitigate the economic effect of the volatility of the interest rates.
    Variable interest loans expose the SEA Group to a risk originating from the volatility of the interest rates (cash flow risk). Relating to this risk, for the purposes of the relative hedging, the SEA Group makes recourse to derivative contracts, which converts the variable rate to a fixed rate or limits the fluctuations in variable rates over a range, in this manner reducing the risk originating from their volatility. We highlight that these derivative contracts, underwritten exclusively for the purposes of hedging market rate volatility, are recorded through the cash flow hedge method.
    At December 31, 2018 the gross financial debt of the SEA Group was comprised of medium/long-term loans (medium/long term portions of loans) and short-term loans (exclusively the medium/long-term portion of loans maturing within 12 months. At this date SEA did not make recourse to short-term debt).
  2. Currency risk
    The SEA Group, with the exception of the currency risk related to the commodity risk, is subject to a low currency fluctuation risk as, although operating in an international environment, the transactions are principally in Euro. Therefore, the SEA Group does not consider it necessary to implement specific hedging against this risk as the amounts in currencies other than the Euro are insignificant and the relative receipts and payments generally offset one another.
  3. Commodity risk
    The SEA Group, limited to only SEA Energia, is exposed to changes in prices, and the relative implied currency fluctuations, of the energy commodities utilised i.e. gas and environmental certificates connected to the operating management of the company. These risks derive from the purchase of the above-mentioned commodities, which in the case of gas, are principally impacted by fluctuations in wholesale market prices.
    In the SEA Group, these fluctuations are absorbed through formulas and indexations utilised in the pricing structures adopted in sales contracts.
    In 2018, the SEA Group did not undertake any hedging of this risk, although not excluding the possibility in the future.

Liquidity risk

Liquidity risk for the SEA Group arises where the financial resources available are not sufficient to meet financial and commercial commitments within the agreed terms and conditions.

The liquidity, cash flows and financial needs of the SEA Group are managed through policies and processes with the objective to minimise the liquidity risk. Specifically, the SEA Group:

  • centrally monitors and manages, under the control of the Group Treasury, the financial resources available, in order to ensure an efficient management of these resources, also in forward budgeting terms;
  • maintains adequate liquidity in treasury current accounts;
  • obtains committed credit lines (revolving and non), which covers the financial commitments of the Group in the coming 24 months deriving from the investment plans and contractual debt repayments;
  • monitors the liquidity position, in relation to the business planning

For further information, reference should be made to paragraph 4 “Risk management” of the Explanatory Notes to the Consolidated Financial Statements.

Legal and compliance risks

The Group operates in a sector regulated at a national, EU and international level.

The conformity of the processes and procedures to national and international standards leads to the consideration that the risk of non-compliance with the concession rules is remote.

Risk related to the European Commission’s decision of December 19, 2012 concerning presumed  State Aid awarded to SEA Handling 

With decision of December 19, 2012, the European Commission judged that the share capital increases carried out by SEA in favour of its subsidiary SEA Handling in the 2002-2010 period for approx. Euro 360 million, constituted State Aid incompatible with the internal market, and consequently imposed upon the Italian State the obligation to demand restitution of the presumed State Aid from SEA Handling.

In relation to the above-mentioned decision three independent appeals were made before the European Union Court, by the Italian State, by SEA Handling and by the Milan Municipality.

Following the liquidation of SEA Handling and also by reason of the changed de facto and de jure situations relating to this company, the Court of the European Union, at the request of the European Commission and SEA Handling, ascertained by Order of January 22, 2018, that the matter of the dispute concerning SEA Handling’s appeal has ceased to exist since the appellant company was dissolved. As a result, the Court found that there was no longer a need to adjudicate on the appeal brought by SEA Handling.

In parallel, having taken note of the Italian Government’s observations regarding SEA Handling’s dissolution, it ordered the cancellation of the case relating to the appeal brought by the Government against the Commission’s decision.

Given the above, the only appeal currently pending against the Commission’s decision is that brought by the Municipality of Milan. The hearing was held on February 28, 2018. With the judgment of December 13, 2018, the Court of the European Union rejected the Municipality of Milan’s appeal.

The Municipality appealed to the Court of Justice against this decision.

In any case, the outcome of this judgment cannot have any impact on SEA.

Risk connected to the Extraordinary Administration Procedure of Alitalia SAI S.p.A. pursuant to Art. 2, paragraph 2 of Decree-Law No. 347/2003

The decree of the Ministry of Economic Development of May 2, 2017 declared the opening of Alitalia SAI S.p.A.’s extraordinary administration procedure pursuant to Art. 2, paragraph 2 of Decree-Law No. 347/2003 ("Alitalia in Extraordinary Administration Procedure 2017" or "Alitalia Procedure").

With the application for admittance to liabilities sent to the Administrators on December 5, 2017 (Registry No. 06275), SEA requested admittance to Alitalia’s liabilities for the total amount of Euro 41,050,979.58. 

Following admittance to liabilities, SEA SpA received payments from Alitalia in Extraordinary Administration amounting to a total of Euro 9,465,081.97 relating to pre-deducted receivables post-May 2 (originally amounting to Euro 9,622,397.82 Euro). Therefore, receivables admitted to pre-deduction amounted to Euro 157,315.85 at February 5, 2019, of which Euro 23,822.50 were for additional rights and Euro 133,493.35 for various invoices.

By means of the certified email communication of February 7, 2018, the Administrators informed creditors that they had filed a request with the Court of Civitavecchia to split the statement of liabilities, starting with an examination of the section for workers and, at the same time, scheduling a series of hearings in which to verify the proof of debt. For this reason, SEA’s application, registered at No. 06275, has not as yet been examined, nor has the date for this verification been set.

It should also be noted that claims arising post-May 2, 2017 and up to December 31, 2018 have been fully paid to-date, save for the amount of Euro 528,666.15 in relation to which an analysis is underway between the parties, and the amount of Euro 9,568,235.00 for unpaid surtax.

In the current state, taking into account the uncertainties related to (i) the fact that the Administrators’ Programme has not yet been approved and its implementation methods are not known (ii) the Administrators have not yet declared the takeover of current contracts with SEA, with the consequent equalisation of the Existing Receivables to Current Receivables, it is believed, in view of present circumstances and on the basis of information currently available, that the current uncertainty and risk profiles have been assessed in the broader context of the overall assessment of trade receivables. The update of estimates has been provided to obtain more complete information, even ahead of the abovementioned events.

Public information on Alitalia’s economic and financial context does not exclude the possibility of losses of a significant extent emerging in relation to the receivables registered.

At December 31, 2017, SEA accrued Euro 25,252 thousand as doubtful debt provision (referring to the existing receivables prior to May 2, 2017), for which there is currently no guarantee on collection. 

It should be noted that lodged claims also include surtax on boarding fees amounting to Euro 6,173 thousand for which SEA acts as a withholding agent. These have a corresponding debt entered as a liability toward Institutions (INPS and Ministry of the Interior) for which the carrier is the debtor. No specific doubtful debt provision has been set up.