The main accounting principles adopted in the preparation of the Consolidated Financial Statements at December 31, 2018 are reported below.
The consolidated financial statements at December 31, 2018 and the tables included in the explanatory notes are prepared in thousands of Euro.
2.1 Basis of preparation
The Consolidated Financial Statements includes the Consolidated Statement of Financial Position, the Consolidated Income Statement, the Consolidated Comprehensive Income Statement, the Consolidated Cash Flow Statement, the Statement of Changes in Consolidated Shareholders’ Equity and the relative Explanatory Notes.
In the comparative 2017 financial statements IFRS 5 is applied to the commercial aviation handling sector which is not included in the 2017 results line-by-line for each cost and revenue item, but the total result of the business is recorded on a separate line in the account of the Consolidated Income Statement “Discontinued Operations profit/(loss)”. No Statement of Financial Position amounts are present at December 31, 2018 as the company SEA Handling was liquidated during 2017.
A specific paragraph of the present Explanatory Notes, to which reference should be made (Note 6 “Discontinued Operations profit/(loss)), illustrates the discontinued operations’ accounts presented in the Consolidated Income Statement.
The Consolidated Financial Statements at December 31, 2018 were prepared in accordance with IFRS in force at the approval date of the financial statements and the provisions enacted as per Article 9 of Leg. Decree No. 38/2005. The term IFRS includes all of the International Financial Reporting Standards, all of the International Accounting Standards and all of the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) previously called the Standing Interpretations Committee (SIC) endorsed and adopted by the European Union.
In relation to the presentation method of the financial statements "the current/non-current" criterion was adopted for the statement of financial position while the classification by nature was utilised for the income statement and comprehensive income statement and the indirect method for the cash flow statement. Where present the balances and transactions with related parties are reported.
The Consolidated Financial Statements were prepared in accordance with the historical cost convention, except for the measurement of financial assets and liabilities, including derivative instruments, where the obligatory application of IFRS 9 is required.
The Consolidated Financial Statements were prepared in accordance with the going concern concept, therefore utilising the accounting principles of an operating business. Company Management evaluated that, although within a difficult economic and financial environment, there are no uncertainties on the going concern of the business, considering the existent capitalisation levels and there are no financial, operational, management or other indicators which could indicate difficulty in the capacity of the Group to meet its obligations in the foreseeable future, and in particular in the next 12 months. In the preparation of the Consolidated Financial Statements at December 31, 2018, the same accounting principles were adopted as in the preparation of the Consolidated Financial Statements at December 31, 2017. Following the issue on a regulated market of the “SEA 3 1/8 2014-2021” bond, IFRS 8 and IAS 33 concerning segment reporting and earnings per share were utilised.
For a better presentation of the financial statements, the income statement was presented in two separate statements: a) the Consolidated Income Statement and b) the Consolidated Comprehensive Income Statement.
The Consolidated Financial Statements were audited by the audit firm Deloitte & Touche SpA, the auditor appointed by the Company and the Group.
2.2 IFRS accounting standards, amendments and interpretations applied from January 1, 2018
The International Accounting Standards and amendments which must be obligatory applied from January 1, 2018, following completion of the relative endorsement process by the relevant authorities, are illustrated below.
The adoption of these amendments and interpretations, where applicable, had the following effects on the 2018 financial statements of the Group:
- Following the entry into force of IFRS 15 which provides for the combined presentation of contracts with a single commercial objective, the incentives provided to airline companies to develop traffic were classified as a reduction of revenues. In 2017, they were classified under “Other operating costs”. For comparability purposes, the 2017 figures were reclassified. This amendment had no impact on the result for the year. The analysis of the structure of sales contracts linked to the various Group businesses and related accounting are compliant with the other changes introduced by the new accounting standard and, therefore, did not require a change to the Group’s financial statements;
- Following the entry into force of IFRS 9 which, relating to the recognition of losses in value of financial assets, requires the application of a model based on the expected credit losses, instead of based on the losses on receivables already incurred required by IAS 39, the Directors compared the credit risk of the respective financial instruments at their initial recognition date and confirmed the values recorded in the financial statements at December 31, 2017;
- IFRS 9 requires, in addition, that the accounting treatment relating to the time value of an option not designated is applied in retrospective manner. At January 1, 2018, therefore, the retained earnings increased by Euro 1 thousand with direct recognition of the change recorded in Net Equity under the cash flow hedge reserve, as representative of the change in the time value in 2017;
- Group investments in equity instruments previously classified under “Investments available for sale” based on IAS 39 were designated, in accordance with IFRS 9, as FVTPL and classified under “Other investments”. The changes in the fair value of these equity instruments continue to be recorded in profit or loss.
2.3 Accounting standards, amendments and interpretations not yet applicable and not adopted in advance by the Group
Below we report the international accounting standards, interpretations and amendments to existing accounting standards and interpretations, or specific provisions within the standards and interpretations endorsed by the IASB which have not yet been endorsed for adoption in Europe, or where adopted in Europe, at the endorsement date of the present document were not adopted in advance by the Group:
|Description||Endorsed at the date of the present document||Effective date as per the standard|
|IFRS 16 Leases||YES||Periods which begin from Jan 1, 2019|
|IFRIC 23 Uncertainty over income tax treatments||YES||Periods which begin from Jan 1, 2019|
|Amendments to IFRS 9 Prepayment features with negative compensation||YES||Periods which begin from Jan 1, 2019|
|Annual improvements to IFRS standards 2015-2017 Cycle||NO||Periods which begin from Jan 1, 2019|
|Amendments to IAS 28 Long term interests in associates and joint ventures||NO||Periods which begin from Jan 1, 2019|
|Amendment to IFRS 3 Business Combination||NO||Periods which begin from Jan 1, 2020|
|Amendment to IAS 19 Plan amendment Curtailment or Settlement||NO||Periods which begin from Jan 1, 2019|
|Amendment to IAS 1 and IAS 8 Definition of Material||NO||Periods which begin from Jan 1, 2020|
|IFRS 17 Insurance Contracts||NO||Periods which begin from Jan 1, 2021|
No accounting standards and/or interpretations were applied in advance whose application is obligatory for periods commencing after December 31, 2018.
On January 13, 2016, the IASB published the new standard IFRS 16 - Leases, which replaces IAS 17 – Leases, as well as the interpretations IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The new standard provides a new definition of leases and introduces a criterion based on control (right of use) of an asset to distinguish leasing contracts from service contracts, identifying the following as essential differences: the identification of the asset, the right of replacement of the asset, the right to obtain substantially all the economic benefits from the use of the asset and the right to use the asset underlying the contract.
The standard establishes a single model to recognise and measure leasing contracts for the lessees which provides also for the recognition of operating leases under assets with a related financial payable, providing the possibility not to be recognise as leasing contracts “low-value assets” (leasing contracts with an asset value below Euro 5,000) and leasing contracts less than 12 months. This Standard does not contain significant amendments for lessors.
The standard will be effective from January 1, 2019, although advance application is permitted. The Company completed the project to introduce the new standard involving an initial phase of detailed analysis of contracts and of the accounting impacts, and a second phase to introduce and adjust the related administrative processes and the accounting system. The Directors have not applied IFRS 16 in advance. As a lessee, with similar classes of underlying assets, the issues subject to the new accounting standard concerned principally industrial equipment and the long-term hire of vehicles, with the consequent recognition of a right of use to non-current assets equal to the present value of the outstanding instalments and with the counter-entry of a finance lease payable. For the calculation of these amounts, an exemption permitted under IFRS 16 was utilised which resulted in a single discount rate for each leasing portfolio with similar characteristics. The Group opted for application of the “Cumulative Catch-up Approach” for the leasing contracts previously classified as operating leases, which resulted in an increase in right of use of Euro 4.8 million, with the counter-entry of an increase in financial payables for leased assets of the same amount.
On June 7, 2017, the IASB published the interpretative document IFRIC 23 – Uncertainty over Income Tax Treatments. The document deals with uncertainties on the tax treatment to be adopted for income taxes. It establishes that uncertainties in the calculation of tax liabilities or assets are reflected in the financial statements only where it is probable that the entity will pay or recover the amount in question. In addition, the document does not contain any new disclosure obligations, but underlines that an entity should establish whether it will be necessary to provide information on considerations made by management and the relative uncertainty concerning the accounting of income taxes, in accordance with IAS 1. The new interpretation applies from January 1, 2019, although early application is permitted. The Directors have not applied IFRIC 23 in advance and are currently assessing the possible effects from the introduction of this interpretation on the Group consolidated financial statements.
2.4 Consolidation method and principles
The financial statements of the companies included in the consolidation scope were prepared as at December 31, 2018 and were appropriately adjusted, where necessary, in line with Group accounting principles.
The consolidation scope includes the financial statements at December 31, 2018 of SEA, of its subsidiaries, and of those subsidiaries upon which it exercises a significant influence.
In accordance with IFRS 10, companies are considered subsidiaries when the Group simultaneously holds the following three elements:
(a) power over the entity;
(b) exposure, or rights, to variable returns deriving from involvement with the same;
(c) the capacity to utilise its power to influence the amount of these variable returns.
The subsidiary companies are consolidated using the line-by-line method. The criteria adopted for the line-by-line consolidation were as follows:
- the assets and liabilities and the charges and income of the companies fully consolidated are recorded line-by-line, attributing to the minority shareholders, where applicable, the share of net equity and net result for the period pertaining to them; this share is recorded separately in the net equity and in the consolidated income statement;
- business combinations are recognised according to the acquisition method. According to this method, the amount transferred in a business combination is valued at fair value, calculated as the sum of the fair value of the assets transferred and the liabilities assumed by the Group at the acquisition date and of the equity instruments issued in exchange for control of the company acquired. Accessory charges to the transaction are generally recorded to the income statement at the moment in which they are incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recorded at fair value at the acquisition date; the following items form an exception, which are instead valued according to the applicable standard:
- deferred tax assets and liabilities;
- employee benefit assets and liabilities;
- liability or equity instruments relating to share-based payments of the company acquired or share-based payments relating to the Group issued in substitution of contracts of the entity acquired;
- assets held-for-sale and discontinued operations;
- the acquisition of minority shareholdings relating to entities in which control already exists are not considered as such, but rather operations with shareholders; the Group records under equity any difference between the acquisition cost and the relative share of the net equity acquired;
- the significant gains and losses, with the relative fiscal effect, deriving from operations between fully consolidated companies and not yet realised with third parties, are eliminated, except for the losses not realised and which are not eliminated, where the transaction indicates a reduction in the value of the asset transferred. The effects deriving from reciprocal payables and receivables, costs and revenues, as well as financial income and charges are also eliminated if significant;
- the gains and losses deriving from the sale of a share of the investment in a consolidated company which results in the loss of control are recorded in the income statement for the amount corresponding to the difference between the sales price and the corresponding fraction of the consolidated net equity sold.
Associated companies are companies in which the Group has a significant influence, which is alleged to exist when the percentage held is between 20% and 50% of the voting rights.
The investments in associated companies are measured under the equity method. The equity method is as described below:
- the book value of these investments are in line with the adjusted net equity, where necessary, to reflect the application of IFRS and includes the recording of the higher value attributed to the assets and liabilities and to any goodwill identified at the moment of the acquisition;
- the Group gains and losses are recorded at the date in which the significant influence begins and until the significant influence terminates; in the case where, due to losses, the company valued under this method indicates a negative net equity, the carrying value of the investment is written down and any excess pertaining to the Group, where this latter is committed to comply with legal or implicit obligations of the investee, or in any case to cover the losses, is recorded in a specific provision; the equity changes of the companies valued under the equity method not represented by the income statement result are recorded directly as an adjustment to equity reserves;
- the significant gains and losses not realised generated on operations between the Parent Company and subsidiary companies and investments valued under the equity method are eliminated based on the share pertaining to the Group in the investee; the losses not realised are eliminated, except when they represent a reduction in value.
2.5 Consolidation scope and changes in the year
The registered office and the share capital (at December 31, 2018 and December 31, 2017) of the companies included in the consolidation scope under the full consolidation method and equity method are reported below:
|Company||Registered office||Share capital at 12/31/2018 (Euro)||Share capital at 12/31/2017 (Euro)|
|SEA Energia S.p.A.||Milan Linate Airport - Segrate (MI)||5,200,000||5,200,000|
|SEA Prime S.p.A.||Viale dell'Aviazione, 65 - Milan||2,976,000||2,976,000|
|Signature Flight Support Italy S.r.l.||Viale dell'Aviazione, 65 - Milan||420,000||420,000|
|Dufrital S.p.A.||Via Lancetti, 43 - Milan||466,250||466,250|
|SACBO S.p.A.||Via Orio Al Serio, 49/51 - Grassobbio (BG)||17,010,000||17,010,000|
|SEA Services S.r.l.||Via Caldera, 21 - Milan||105,000||105,000|
|Malpensa Logistica Europa S.p.A.||Milan Linate Airport - Segrate (MI)||6,000,000||6,000,000|
|Disma S.p.A.||Milan Linate Airport - Segrate (MI)||2,600,000||2,600,000|
|Airport Handling S.p.A. (*)||Malpensa Airport - Terminal 2 - Somma Lombardo (VA)||5,000,000|
(*) In July 2018, 30% of the share capital of Airport Handling SpA was transferred to SEA following the dissolution of the Milan Airport Handling Trust, having exhausted its corporate scope, with recognition of the investment under associated companies. At December 31, 2017, the Company was classified under other financial assets.
The following change took place in the consolidation scope of the SEA Group:
- due to dnata’s exercise of the option to purchase an additional 40% of Airport Handling and a corresponding share of Financial Instruments of Participation (increasing its holding in the company to 70%) and due to the dissolution of the Trust, having exhausted its corporate scope, Airport Handling at December 31, 2018 is consolidated under the equity method. For further information, reference should be made to the Directors’ Report.
The companies included in the consolidation scope at December 31, 2018 and the respective consolidation methods are reported below:
|Company||Consolidation Method at 12/31/2018||Group % holding at 12/31/2018||Group % holding at 12/31/2017|
|SEA Energia S.p.A.||Line-by-line||100%||100%|
|SEA Prime S.p.A.||Line-by-line||99.91%||99.91%|
|Signature Flight Support Italy S.r.l. (1)||Net equity||39.96%||39.96%|
|Dufrital S.p.A.||Net equity||40%||40%|
|SACBO S.p.A.||Net equity||30.979%||30.979%|
|SEA Services S.r.l.||Net equity||40%||40%|
|Malpensa Logistica Europa S.p.A.||Net equity||25%||25%|
|Disma S.p.A.||Net equity||18.75%||18.75%|
|Airport Handling S.p.A.||Net equity||30%|
(1) Associate of SEA Prime SpA
2.6 Translation of foreign currency transactions
The transactions in currencies other than the operational currency of the company are converted into Euro using the exchange rate at the transaction date.
The foreign currency gains and losses generated from the closure of the transaction or from the translation at the reporting date of the assets and liabilities in foreign currencies are recognised in the income statement.
2.7 Accounting policies
An intangible asset is a non-monetary asset, identifiable and without physical substance, controllable and capable of generating future economic benefits. These assets are recorded at purchase and/or production cost, including the costs of bringing the asset to its current use, net of accumulated amortisation, and any loss in value. The intangible assets are as follows:
(a) Rights on assets under concession
The "Rights on assets under concession" represent the right of the Lessee to utilise the asset under concession (so-called intangible asset method) in consideration of the costs incurred for the design and construction of the asset with the obligation to return the asset at the end of the concession. The value corresponds to the "fair value" of the design and construction assets increased by the financial charges capitalised, in accordance with IAS 23, during the construction phase. The fair value of the construction work is based on the costs actually incurred increased by a mark-up of 6% representing the best estimate of the remuneration of the internal costs for the management of the works and design activities undertaken by the group which is a mark-up a third-party general contractor would request for undertaking the same activities, in accordance with IFRIC 12.
The lessee must recognise and measure service revenues in accordance with IFRS 15. If the fair value of the services received (specifically the right of use of the asset) cannot be determined reliably, the revenue is calculated based on the fair value of the construction work undertaken. The subsequent accounting of the amount received as financial asset and as intangible asset is described in detail in paragraphs 23-26 of IFRIC 12.
The construction work in progress at the reporting date is measured based on the state of advancement of the work in accordance with IFRS 15 and this amount is reported in the income statement line "Revenues for works on assets under concession".
Restoration or replacement works are not capitalised and are included in the estimate of the restoration and replacement provision as outlined below.
Assets under concession are amortised over the duration of the concession, as it is expected that the future economic benefits of the asset will be utilised by the lessee.
The accumulated amortisation provision and the restoration and replacement provision ensure the adequate coverage of the following charges of restoration and replacement of the components subject to wear and tear of the assets under concession.
Where events arise which indicate a reduction in the value of these intangible assets, the difference between the present value and the recovery value is recognised in the income statement.
(b) Industrial patents and intellectual property rights
Patents, concessions, licenses, trademarks and similar rights
Trademarks and licenses are amortised on a straight-line basis over the estimated useful life.
Software costs are amortised on a straight-line basis over three years, while software programme maintenance costs are charged to the income statement when incurred.
Intangible assets with definite useful life are annually tested for losses in value or where there is an indication that the asset may have incurred a loss in value. Reference should be made to the paragraph below “Impairments”.
Property, plant & equipment
Tangible fixed assets includes property, part of which under the scope of IFRIC 12, and plant and equipment.
Property, in part financed by the State, relates to tangible assets acquired by the Group in accordance with the 2001 Agreement (which renewed the previous concession of May 7, 1962). The 2001 Agreement provides for the obligation of SEA to maintain and manage airport assets for the undertaking of such activities and the right to undertake structural airport works, which remain the property of SEA until the expiry of the 2001 Agreement, i.e. May 4, 2041. The fixed assets in the financial statements are reported net of State grants.
Depreciation of property is charged based on the number of months held on a straight-line basis, which depreciates the asset over its estimated useful life. Where this latter is beyond the date of the end of the concession, the amount is depreciated on a straight-line basis until the expiry of the concession. Applying the principle of the component approach, when the asset to be depreciated is composed of separately identifiable elements whose useful life differs significantly from the other parts of the asset, the depreciation is calculated separately for each part of the asset.
For land, a distinction is made between land owned by the Group, classified under property, plant and equipment and not subject to depreciation and expropriated areas necessary for the extension of the Malpensa Terminal, classified under “Assets under concession” and amortised over the duration of the concession.
The free granting of assets is recognised at market value, according to independent technical expert opinions.
Plant & Equipment
These are represented by tangible fixed assets acquired by the Group which are not subject to the obligation of free devolution.
Plant and equipment are recorded at purchase or production cost and, only with reference to owned assets, net of accumulated depreciation and any loss in value. The cost includes charges directly incurred for bringing the asset to their condition for use, as well as dismantling and removal charges which will be incurred consequent of contractual obligations, which require the asset to be returned to its original condition.
The expenses incurred for the maintenance and repairs of an ordinary and/or cyclical nature are directly charged to the income statement when they are incurred. The capitalisation of the costs relating to the expansion, modernisation or improvement of owned tangible assets or of those held in leasing, is made only when they satisfy the requirements to be separately classified as an asset or part of an asset in accordance with the component approach, in which case the useful life and the relative value of each component is measured separately.
Depreciation is charged to the income statement based on the number of months held on a straight-line basis, which depreciates the asset over its estimated useful life. Where this latter is beyond the date of the end of the concession, the amount is depreciated on a straight-line basis until the expiry of the concession. Applying the principle of the component approach, when the asset to be depreciated is composed of separately identifiable elements whose useful life differs significantly from the other parts of the asset, the depreciation is calculated separately for each part of the asset.
The depreciation rates for owned assets, where no separate specific components are identified are reported below:
|Loading and unloading vehicles||10.0%|
|Furniture and fittings||12.0%|
The useful life of property, plant and equipment and their residual value are reviewed and updated, where necessary, at least at the end of each year.
This account includes owned buildings not for operational use. Investment property is initially recognised at cost and subsequently measured utilising the amortised cost criteria, net of accumulated depreciation and losses in value.
Depreciation is calculated on a straight-line basis over the useful life of the building.
At each reporting date, the property, plant and machinery, intangible assets and investments in subsidiaries and associated companies are analysed in order to identify any indications of a reduction in value. Where these indications exist, an estimate of the recoverable value of the above-mentioned assets is made, recording any write down compared to the relative book value in the income statement. The recoverable value of an asset is the higher between the fair value less costs to sell and its value in use, where this latter is the fair value of the estimated future cash flows for this asset. For an asset that does not generate sufficient independent cash flows, the realisable value is determined in relation to the cash-generating unit to which the asset belongs. In determining the fair value consideration is taken of the purchase cost of a specific asset which takes into account a depreciation coefficient (this coefficient takes into account the effective conditions of the asset). In defining the value in use, the expected future cash flows are discounted utilising a discount rate that reflects the current market assessment of the time value of money, and the specific risks of the activity. A reduction in value is recognised to the income statement when the carrying value of the asset is higher than the recoverable amount. When the reasons for the write-down no longer exist, the book value of the asset (or of the cash-generating unit) is restated through the income statement, up to the value at which the asset would be recorded if no write-down had taken place and amortisation and depreciation had been recorded.
On initial recognition, the financial assets are classified, in accordance with IFRS 9, in one of the following categories based on the business model of the Company for the management of the financial assets and the characteristics relating to the contractual cash flows of the financial assets.
|Category||Business Model||Characteristics of the cash flows|
|Amortised cost||The financial asset is held in order to collect the contractual cash flows||The cash flows are exclusively represented by payments of interest and the repayment of principal|
|Fair value through other comprehensive income (also “FVOCI”)||The financial asset is held to collect the contractual cash flows, both deriving from sale and operating activities||The cash flows are exclusively represented by payments of interest and the repayment of principal|
|Fair value through profit or loss (also “FVTPL”)||Differing from that under amortised cost and FVOCI||Differing from that under amortised cost and FVOCI|
The financial assets represented by equity instruments of other entities (i.e. investments in companies other than subsidiaries, associates and joint control companies), not held for trading purposes, may be classified in the category FVOCI. This choice, made instrument by instrument, requires that the fair value changes are recognised under “Other items of the comprehensive income statement” and are not subsequently recognised through profit or loss either on sale or on its impairment.
Despite that reported above, on initial recognition it is possible to irrevocably designate the financial asset as measured at fair value recognised through profit or loss if this eliminates or significantly reduces an incoherence in the measurement or in the recognition (sometimes defined as “accounting asymmetry”) which would otherwise result in a measurement on another basis.
During the current year the Group applied IFRS9 Financial instruments (as revised in July 2014) and the relative consequent amendments. The Group decided to restate its comparative figures in terms of classification and measurement of the financial instruments. The Directors reviewed and measured the financial assets of the Group held at January 1, 2018 on the basis of the facts and circumstances at that date and concluded that the initial application of IFRS 9 had a non-material impact on the financial assets of the Group both in relation to their classification and measurement:
- Group investments in equity instruments previously classified under “Investments available for sale” based on IAS 39 were designated as FVTPL and classified under “Other investments”. The changes in the fair value of these equity instruments continue to be recorded in profit or loss.
- The financial assets classified as held to maturity and the loans and receivables which based on IAS 39 were measured at amortised cost continue to be measured at amortised cost based on IFRS 9 as held within a business model whose objective is to collect the contractual cash flows and these cash flows comprise solely payments of principal and interest on the amount of the capital to be repaid.
- In relation to the loss in value of the financial assets, IFRS 9 requires the application of a model based on expected credit losses, instead of based on the losses on receivables already incurred required by IAS 39. The Directors compared the credit risk of the respective financial instruments at their initial recognition date and confirmed the values recorded in the financial statements at December 31, 2017.
None of the other reclassifications of financial assets impacted on the financial position, result for the year or comprehensive result of the Group in either years.
Derivative financial instruments
Derivative financial instruments are classified as hedging instruments, in accordance with paragraph 6.4 of IFRS 9, when the relation between the derivative and the hedged item is formally documented and the effectiveness of the hedge, periodically verified, is high.
The hedging relations are of three types:
- fair value hedge in the case of hedging the exposure against changes in the fair value of assets or liabilities recorded which is attributable to a risk which could impact the result for the year. The profit or losses on the hedging instrument are recorded in the income statement (or in “Other items of the comprehensive income statement”, if the hedging instrument hedges an equity instrument for which the Group has chosen to present the changes in fair value under “Other items of the comprehensive income statement”);
- cash flow hedge in the case of hedging the exposure against changes in the cash flows attributable to a particular risk associated with all the assets or liabilities recorded or one of their components or a highly probable scheduled transaction and which could impact on the result for the year. The hedging is recorded as follows: a) the net equity reserve for the hedging of the cash flows is adjusted to the lower between the cumulative profit or loss on the hedging instrument from the commencement of the hedge and the cumulative change in the fair value of the item hedged from the commencement of the hedge; b) the part of the profit or loss on the hedging instrument which is an effective hedge is recorded in a net equity reserve (and in specifically under “Other items of the comprehensive income statement”). Any residual profit or loss on the hedge instrument represents the ineffective part of the hedge which is recorded in the income statement in the account “Financial income/charges”;
- hedges of a net investment in a foreign operation (as defined in IAS 21), recognised in a similar manner to the hedging of financial cash flows.
The hedging relations of the Group at January 1, 2018 which satisfied the admissibility criteria also qualified for hedge accounting based on IFRS 9 and therefore were considered as continuing hedging relationships. As the fundamental elements of the hedging instruments correspond to the items hedged, all the hedging relations continue to be effective based on the evaluation of the effectiveness criteria of IFRS 9. When the option contracts are utilised to hedge highly probable scheduled transactions, the Group only designates the intricate value of the options as hedging instruments. Based on IFRS 9, the changes in the time value of options relating to the item hedged are recognised in the other items of the comprehensive income statement and are accumulated in the hedge reserve under net equity. IFRS 9 requires that the accounting treatment relating to the time value of an option not designated is applied in retrospective manner. Therefore, at January 1, 2018 the extraordinary reserve was increased by Euro 1 thousand.
As an exception to that illustrated above, the application of the criteria of IFRS 9 on the accounting treatment of hedging operations had no other impacts on the Group with reference to the current year and the comparative year. Reference should be made to Note 4.2 for further information in relation to the management of the risk of the Group.
Environmental securities: emission quotas, Green Certificates and White Certificates
The SEA Group holds/acquires quotas/certificates for own-use, or rather to meet its own needs and not for trading purposes.
The quotas/certificates held for own-use exceeding its needs, determined in relation to the obligations matured at year-end (“surplus”), are recorded under other current receivables at cost incurred. The certificates assigned without consideration on the other hand are recorded at zero value. Where however the needs exceed the quota/certificates in portfolio at the reporting date (“deficit”), a provision is recorded in the accounts of the necessary charge to meet the residual obligation, estimated on the basis of any purchase contracts, including futures, already underwritten at the reporting date and, residually, from market prices.
Trade and other receivables
The trade and other receivables which do not have a significant financing component (determined in accordance with IFRS 15) are initially recognised at transaction price, adjusted to take into account expected losses over the duration of the receivable. The transaction price is the amount of the payment which the entity considers it is entitled to in exchange for transferring the promised goods or services to the client, excluding payments on behalf of third parties. The payment promised in the contract with the client may include fixed amounts, variable amounts or both.
The reduction in value for the recognition and measurement of the doubtful debt provision follows the criteria indicated in paragraph 5.5 of IFRS 9. The objective is to recognise the expected losses over the entire duration of the receivable considering all reasonable and demonstrable information, including indications of expected developments.
Receivables are therefore reported net of the provision for doubtful debts. If in subsequent periods the reduction in the value of the asset is confirmed, the doubtful debt provision is utilised; otherwise, where the reasons for the previous write-down no longer exist, the value of the asset is reversed up to the transaction price. For further information, reference should be made to Note 4.1.
Inventories are measured at the lower of average weighted purchase and/or production cost and net realisable value or replacement cost. The valuation of inventories does not include financial charges.
Inventories are shown net of the obsolescence provision to adjust inventories to their realisable or replacement value.
Cash and cash equivalents
Cash and cash equivalents includes cash, bank deposits, and other short-term forms of investment, due within three months. At the reporting date, bank overdrafts are classified as financial payables under current liabilities in the statement of financial position. Cash and cash equivalents are recorded at fair value.
Provisions for risks and charges
The provisions for risks and charges are recorded to cover known or likely losses or liabilities, the timing and extent of which are not known with certainty at the reporting date. They are recorded only when there exists a current obligation (legal or implicit) for a future payment resulting from past events and it is probable that the obligation will be settled. This amount represents the best estimate less the expenses required to settle the obligation.
Possible risks that may result in a liability are disclosed in the notes under the section on commitments and risks without any provision.
Restoration and replacement provision of assets under concession
The accounting treatment of the works undertaken by the lessee on the assets under concession, as per IFRIC 12, varies depending on the nature of the work: normal maintenance on the asset is considered ordinary maintenance and therefore recognised in the income statement; replacement work and programmed maintenance of the asset at a future date, considering that IFRIC 12 does not provide for the recognition of a physical asset but a right, must be recognised in accordance with IAS 37 - "Provisions and potential liabilities" – which establishes recognition to the income statement of a provision and the recording of a provision for charges in the balance sheet.
The restoration and replacement provision of the assets under concession include, therefore, the best estimate of the present value of the charges matured at the reporting date for the programmed maintenance in the coming years and undertaken in order to ensure the functionality, operations and security of the assets under concession.
It should be noted that the restoration and replacement provision of the assets refers only to fixed assets within the scope of IFRIC 12 (assets under concession classified to intangible assets).
The Companies of the Group have both defined contribution plans (National Health Service contributions and INPS pension plan contributions) and defined benefit plans (Post-Employment Benefits).
A defined contribution plan is a plan in which the Group participates through fixed payments to third party fund operators, and in relation to which there are no legal or other obligation to pay further contributions where the fund does not have sufficient assets to meet the obligations of the employees for the period in course and previous periods. For the defined contribution plans, the Group pays contributions, voluntary or established contractually, to public and private pension funds. The contributions are recorded as personnel expense in accordance with the accruals principle. The advanced contributions are recorded as an asset which will be repaid or offset against future payments where due.
A defined benefit plan is a plan not classified as a contribution plan. In the defined benefit programmes, the amount of the benefit to be paid to the employee is quantifiable only after the termination of the employment service period, and is related to one or more factors such as age, years of service and remuneration; therefore the relative charge is recognised to the income statement based on actuarial calculations. The liability recorded in the accounts for defined benefit plans corresponds to the present value of the obligation at the reporting date, net, where applicable, of the fair value of the plan assets. The obligations for the defined benefit plans are determined annually by an independent actuary utilising the projected unit credit method. The present value of the defined benefit plan is determined discounting the future cash flows at an interest rate equal to the obligations (high-quality corporate) issued in the currency in which the liabilities will be settled and takes into account the duration of the relative pension plan.
The actuarial gains and losses, in accordance with IAS 19R, are recorded directly under equity in a specific reserve account “Reserve for actuarial gains/loss”.
We report that, following amendments made to the leaving indemnity regulations by Law No. 296 of December 27, 2006 and subsequent Decrees and Regulations issued in the first half of 2007, the leaving indemnity provision due to employees in accordance with Article 2120 Civil Code is classified as defined benefit plans for the part matured before application of the new legislation and as defined contribution plans for the part matured after the application of the new regulation.
Post-employment benefits are paid to employees when the employee terminates his employment service before the normal pension date, or when an employee accepts voluntary termination of the contract. The Group records post-employment benefits when it is demonstrated that the termination of the employment contract is in line with a formal plan which determines the termination of the employment service, or when the provision of the benefit is a result of a leaving indemnity programme.
Financial liabilities and other commitments to be paid, with the exclusion of the categories indicated in paragraph 4.2 of IFRS 9, are initially measured at amortised cost, using the effective interest rate. When there is a change in the expected cash flows and it is possible to estimate them reliably, the value of the payables are recalculated to reflect this change, based on the new present value of the expected cash flows and on the internal yield initially determined. The financial liabilities are classified under current liabilities, except when the Group has an unconditional right to defer their payment for at least 12 months after the reporting date.
Purchases and sales of financial liabilities are recognised at the valuation date of the relative transaction.
Financial liabilities are derecognised from the balance sheet when they are settled and the Group has transferred all the risks and rewards relating to the instrument.
Trade and other payables
Trade and other payables are initially recognised at amortised cost.
Reverse factoring transactions - indirect factoring
In order to ensure easy access to credit for its suppliers, the Group has entered into reverse factoring or indirect factoring agreements (with recourse). Based on the contractual structures in place, the supplier has the possibility to assign the receivables claimed from the Group at its own discretion to a lending institution and cash in the amount before maturity.
Invoice payment terms are non-interest bearing as they do not involve further extensions agreed upon between the supplier and the Group.
In this context, the relationships for which the primary obligation is maintained with the supplier and any extension, where granted, do not involve a change in payment terms, retain their nature and therefore remain classified as commercial liabilities.
Revenues are recognised when the transfer to the client of the goods or services promised is expressed in an amount (expressed net of value added taxes and discounts) which reflects the expected consideration to be received in exchange for the goods or services.
Recognition occurs when (or over time) the Group complies with the obligation to transfer to the client the goods or service (or the asset) promised. The asset is transferred when (or over time) the client acquires control. Control of the asset is the capacity to decide upon the use of the asset and to obtain substantially all the remaining benefits. Control includes the capacity to prevent other entities to use the asset and obtain benefits. The benefits of the assets are the potential cash flows (cash inflows or savings on outflows) which may be obtained directly or indirectly.
For each obligation to be complied with over time, the revenues are recognised over the time period, evaluating the progression towards complete compliance with the obligation.
Handling activity revenues are recognised on an accruals basis, according to the number of passengers in the year.
Revenues from electric and thermal energy production are recognised on an accruals basis, according to the effective quantity produced in kWh. The tariffs are based on the contracts in force - both those at fixed prices and indexed prices.
Green certificates, white certificates and emission quotas
The companies which produce electricity from renewable sources receive green certificates from the Energy Service Operator (GSE). Revenues are recognised on an accruals basis, both in relation to certificates issued on a preliminary basis and final certificates issued. On the recognition of the revenues a receivable is recorded from the GSE and on the sale of the certificates this is then recorded as a customer receivable.
White certificates allocated by the GSE until 2016 are handled in a similar manner following the recognition of the Malpensa station as a high yield cogeneration plant.
Revenue for works on assets under concession
Revenues on construction work are recognised in relation to the state of advancement of works in accordance with the percentage of completion method and on the basis of the costs incurred for these activities increased by a mark-up of 6% representing the remuneration of the internal costs of the management of the works and design activities undertaken by the SEA Group, the mark-up which would be applied by a general contractor (as established by IFRIC 12).
The revenues generated by the Group refer to the sale of goods and services during the period and principally refer to the business lines illustrated in the “Operating segments” section and in the income statement. As per IFRS 15.114, the Group aggregates the revenues recorded deriving from contracts with customers into categories which illustrate how the economic factors impact upon the nature, the amount, the timing and the level of uncertainty of the revenues and of the cash flows.
The revenues are recorded net of the incentives granted to airlines, based on the number of passengers transported and invoiced by the airlines to the Company for (i) the maintenance of traffic at the airport or (ii) the development of traffic through increasing existing routes or launching new routes.
Public grants, in the presence of a formal resolution, are recorded on an accrual basis in direct correlation to the costs incurred (IAS 20).
Capital public grants relating to property, plant and equipment are recorded as a reduction in the acquisition value of the assets to which they refer.
Operating grants are recorded in the income statement in the account “Operating income”.
Recognition of costs
Costs are recognised when relating to assets or services acquired or consumed in the year or by systematic allocation.
Financial income is recognised on an accruals basis and includes interest income on funds invested, foreign currency gains and income deriving from financial instruments, when not offset by hedging operations. Interest income is recorded in the income statement at the moment of maturity, considering the effective yield.
Financial charges are recorded on an accrual basis and include interest on financial payables calculated using the effective interest method and currency losses. The financial charges incurred on investments in assets for which a significant period of time is usually needed to render the assets available for use or sale (qualifying assets) are capitalised and amortised over the useful life of the class of the assets to which they refer in accordance with the provisions of IAS 23.
Current income taxes are calculated based on the assessable income for the year, applying the current tax rates at the reporting date.
Deferred taxes are calculated on all differences between the assessable income of an asset or liability and the relative book value, with the exception of goodwill. Deferred tax assets for the portion not compensated by deferred tax liabilities are recognised only for those amounts for which it is probable there will be future assessable income to recover the amounts. The deferred taxes are calculated utilising the tax rates which are expected to be applied in the years when the temporary differences will be realised or settled. Deferred tax assets are recorded when their recovery is considered probable.
Current and deferred income taxes are recorded in the income statement, except those relating to accounts directly credited or debited to equity, in which case the fiscal effect is recognised directly to equity and to the Comprehensive Income Statement. Taxes are compensated when applied by the same fiscal authority, there is a legal right of compensation and the payment of the net balance is expected.
Other taxes not related to income, such as taxes on property, are included under “Other operating costs”.
Within the fiscal consolidation, each company transfers to the consolidating company the tax income or loss; the consolidating company records a receivable with the company that contributes assessable income equal to the income tax to be paid. For companies contributing a tax loss, the parent company recognises a payable.
Payables for dividends to shareholders are recorded in the year in which the distribution is approved by the Shareholders’ Meeting.
The dividends distributed between Group companies are eliminated in the income statement.