The main accounting principles adopted in the preparation of the separate financial statements of SEA for the year ended December 31, 2017 are reported below.
The financial statements are presented in Euro while the tables included in the explanatory notes are presented in thousands of Euro.
2.1 Basis of preparation
European Regulation (EU) No. 1606/2002 of July 19, 2002 introduced the obligation, from the year 2005, to apply International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and adopted by the European Union for the preparation of the consolidated financial statements of companies listed on regulated European markets. Following the above-mentioned European Regulation, Legislative Decree No. 38 was enacted on February 28, 2005 which governs the option to apply IFRS for the preparation of the consolidated financial statements of non-listed companies. SEA decided to apply this option for the preparation of the consolidated financial statements for the year end December 31, 2006. The same Legislative Decree (fourth paragraph of Article 4) also governs the option to apply IFRS for the preparation of standalone statutory financial statements included in the consolidated financial statements in accordance with IFRS. SEA decided to apply this option from the financial statements for the year ended December 31, 2011. For these separate financial statements, the transition date to IFRS was identified as January 1, 2010.
“IFRS” refers to the International Accounting Standards (“IAS”) in force, as well as those of the IFRS Interpretation Committee, previously known as the International Financial Reporting Interpretations Committee (“IFRIC”), and before that the Standing Interpretations Committee (“SIC”).
The financial statements 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.
In particular the IFRS were applied in a consistent manner for the periods presented in the document. The financial statements were prepared on the basis of the best information on the IFRS and taking into account best practice; any further orientations and interpretative updates will be reflected in subsequent years, in accordance with the provisions of the accounting standards, as detailed below.
The separate 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 company to meet its obligations in the foreseeable future, and in particular in the next 12 months.
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 the indirect method for the cash flow statement. Where present the balances and transactions with related parties are reported.
The financial statement presentations utilised, as outlined above, are those which best represent the equity and financial position of the company.
For a better presentation of the financial statements, the income statement was presented in two separate statements: a) the income statement and b) the comprehensive income statement.
The 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 the fair value criterion is required.
The Company, following the “SEA 3 1/8 2014-2021” bond issue on the market, adopted the accounting standards IFRS 8 “Operating Segments” and IAS 33 “Earnings per share”, to which reference should be made to the Consolidated Financial Statements Notes 7 and 9.14.
The present financial statements were audited by the independent audit firm Deloitte & Touche S.p.A..
2.2 Accounting standards, amendments and interpretations adopted from January 1, 2017
The International Accounting Standards and amendments which must be obligatory applied from January 1, 2017, following completion of the relative approval process by the relevant authorities, are illustrated below. The adoption of these amendments and interpretations, where applicable, has not had any impact on the statement of financial position or on the result of the Company.
|Description||Date approved||Publication in the Official Gazette||Effective date as per the standard||Effective date applied by SEA|
|Amendment to IAS 7 Disclosure initiative||Nov. 6, 2017||Nov. 9, 2017||Periods which begin from Jan 1, 2017||Jan 1, 2017|
|Amendment to IAS 12 Recognition of deferred tax assets for unrealized losses||Nov. 6, 2017||Nov. 9, 2017||Periods which begin from Jan 1, 2017||Jan 1, 2017|
2.3 Accounting standards, amendments and interpretations not yet applicable and not adopted in advance by the Company
Below we report the International Accounting Standards, interpretations and amendments to existing accounting standards and interpretations, or specific provisions within the standards and interpretations approved by the IASB which have not yet been approved for adoption in Europe, or where adopted in Europe, at the approval date of the present document were not adopted in advance by the Company:
|Description||Approved at the date of the present document||Effective date as per the standard|
|IFRS 9 Financial instruments||YES||Periods which begin from Jan 1, 2018|
|IFRS 15 Revenue from contracts with customers||YES||Periods which begin from Jan 1, 2018|
|IFRS 16 Leases||YES||Periods which begin from Jan 1, 2019|
|Amendment to IFRS 2 Clarification and measurement of share based payment transactions||NO||Periods which begin from Jan 1, 2018|
|Annual improvements cycles 2014-2016||NO||Periods which begin from Jan 1, 2018|
|IFRIC 22 Foreign currency transactions and advance consideration||NO||Periods which begin from Jan 1, 2018|
|Amendment to IAS 40 Transfers of investment property||NO||Periods which begin from Jan 1, 2018|
|IFRIC 23 Uncertainty over income tax treatments||NO||Periods which begin from Jan 1, 2019|
|IFRS 9 Prepayment features with negative compensation||NO||Periods which begin from Jan 1, 2019|
|IAS 28 Long term interests in associates and joint ventures||NO||Periods which begin from Jan 1, 2019|
|Annual improvements cycles 2015-2017||NO||Periods which begin from Jan 1, 2019|
|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, 2017.
IFRS 15 - Revenue from contracts with customers
In the year 2017, the company implemented an analysis project to identify the impacts of the new obligatory standard’s application as from January 1, 2018. Different types of contracts from the Company’s various business sectors were analysed in order to identify specific cases requiring management, according to IFRS 15 requirements, that is different to the one currently being applied.
The main issues envisaged by the standard that could have potential impacts on SEA are listed below:
- Combination of contracts: according to paragraph IFRS 15.17 "the entity must group two or more contracts concluded simultaneously (or almost) with the same client and record them as a single contract in the accounts, if one or more of the following criteria are met:
- Contracts are negotiated for a single commercial objective;
- The amount of fees payable under one of the contracts is dependent on the price or performance of the other contract;
- The goods or services promised in the contracts are a single "obligation to act".
- Transaction price: IFRS-15.47 defines the "Transaction Price" as the payment amount which the entity considers it is entitled to in exchange for transferring the promised goods or services to the client. The payment promised in the contract with the client may include fixed amounts, variable amounts or both.
- Collectability: according to paragraph 9 of IFRS 15, the entity shall account for the client contract falling within the scope of this Standard’s application only if all the following criteria are met:
- The contracting parties approved the contract and are committed to fulfil their respective obligations;
- The entity may identify the rights of each of the parties with respect to the goods or services to be transferred;
- The entity can identify the payment conditions for the goods or services to be transferred;
- The contract has commercial substance (that is, the entity’s risk, timing or amount of future cash flows will change as a result of the contract);
- It is likely that the entity will receive the fees to which it is entitled in exchange for the goods or services that will be transferred to the client.
- Principal vs Agent: the standard requires the evaluation of transactions between the parties if the entity acts as the "Principal" and is therefore responsible for the service rendered or as the "Agent" in the event that the performance obligation to which the party is held consists in making arrangements for a third party to provide the promised goods or services.
The project’s conclusions showed that the current structure of active contracts linked to various SEA businesses and associated accounting are compliant with the changes introduced by the new accounting standard. The only change is related to the reclassification of some commercial costs, which will be subjected to a direct reduction in revenues as from the financial year 2018.
IFRS 9 - Financial instruments
The new IFRS 9 standard, in effect since January 1, 2018 includes the rules relating to the 3 accounting phases: classification and measurement, impairment and Hedge Accounting. The Company adopted the full application of the standard as of January 1, 2018, despite the fact that the standard provides for the possibility of applying the new rules for Hedge Accounting as of January 1, 2019. The three IFRS 9 application areas are analysed below, highlighting the impact on the SEA Group:
- Classification and measurement: assets currently classified as "financial assets available for sale" must be reclassified as "Financial assets/liabilities measured at FV through Profit or Loss", and assets relating to Equity Financial Instruments currently classified as assets measured at amortised cost as "Financial assets/liabilities measured at FV through Profit or Loss", since they do not conform to the SPPI test, which requires that for an asset to be recorded at amortised cost, it should only provide for the repayment of the capital and interest and with fixed time limits for the capital’s repayment;
- Impairment of trade receivables: a key element of the new standard is the transition from the concept of 'Incurred Loss' to that of 'Expected Loss': the doubtful debt provision must be determined by taking into account the risks of non-collection related not only to past-due receivables but also on those falling due. There is, therefore, a need to determine a 'risk ratio', representative of the riskiness of commercial counterparties, which varies according to the credit position (performing or expired, with different bands for those that expired based on overdue days). There is also the need to include forward-looking elements when determining the 'risk ratio'. The analysis for the purposes of the IFRS 9 standard was based on the results of a previous project, which also took place in the year 2017 with the aim of splitting clients up into rating classes and covering 98% of SEA’s turnover with this classification. A provision matrix was therefore constructed for the write-down of trade receivables. This matrix provides rating classes in rows and the different bands of past-due or falling due in columns. The calculated risk ratio represents the probability that the client does not honour its debt and the percentage of credit, obtained from a historical analysis, with the possibility of the client being in default. The above matrix was created during the analysis phase, and the difference calculated on the write-down provision by applying the method currently used in the Group. The matrix is immaterial. This result is justified by the fact that the current evaluation model in use also includes forward-looking elements that allow management to value the expected loss.
- Hedge Accounting: according to the rules laid down by IAS 39, derivative instruments in hedge accounting are to be accounted for by specifically applying the cash flow hedge model (hedging expected cash flows). As a result of the application of this accounting treatment, derivatives’ intrinsic value variations are recorded in a Shareholders’ Equity reserve (cash flow hedge reserve) and time value variations are simultaneously recorded in the Income Statement. Hedging treatment is supported by the preparation of special hedging documentation (Hedging Relationship Documentation) and the implementation of 'effectiveness tests’ as required by IAS 39. According to IFRS 9, the accounting treatment to be used is that which follows hedge accounting criteria as defined for the cash flow hedge model, but both the intrinsic value variations and the time value variations must be recorded in two different Shareholders’ Equity reserves. At the date of first application, the derivative’s time value should therefore be recognised within a special OCI reserve and the amount from the extraordinary reserve reclassified. It is calculated that as at January 1, 2018, reclassification for the Company will amount to Euro 720. At subsequent reporting dates, time value variations should continue to be recognised in the same OCI reserve.
IFRS 16 - Leasing
As of January 1, 2019, the new IFRS 16 standard will replace IAS 17. Each contract for finance lease payables, including those now considered as operating (for example, rentals), will be classified as finance leases. Only finance lease payables whose duration is of less than 12 months or which refer to goods whose individual value is less than US Dollars 5,000 can be excluded from the application of the new standard. The Company has identified all the long-term contracts in effect to-date and involving the payment of a fee for the use of assets of a various nature, excluding those classifiable as "low value" or "short-term lease", and assets involving the payment of a fee for the use of software licences and has defined the duration of the " lease" on the basis of the contractual terms. As a result of this analysis, these contracts were valued through an "overall recalculation" that would determine a value of 'Right of Use" and "Liability". Since the company opted to adopt the standard as of January 1, 2019 and opted out of early adoption, the analyses will be updated in 2018 in order to define the re-opening values that are to be recorded in the financial statements on January 1, 2019.
2.4 Accounting policies
Business combinations and goodwill
In the case of the acquisition from third parties of businesses or business combinations, the assets, the liabilities and the contingent liabilities acquired and identifiable are recorded at their fair value at the date of acquisition.
The positive difference between the acquisition cost and the present value of these assets and liabilities are recognised as goodwill and classified in the financial statements as an intangible asset with indefinite life.
Any negative difference (“badwill”) is recognised in the income statement at the date of acquisition.
The costs related to business combinations are recognised in the income statement.
Goodwill is initially recorded at cost and subsequently reduced only for loss in value.
Annually, or more frequently if specific events or circumstances indicate the possibility of having incurred a loss in value, the goodwill is subject to an impairment test to identify any loss in value, in accordance with IAS 36 (Impairments); the original value is however not restored if the reasons for the write-down no longer exist.
The goodwill is not revalued, even in application of specific legislation.
Any liabilities related to business combinations for payments subject to conditions are recognised at the acquisition date of the businesses and business units relating to the business combination.
Where all or part of a previously acquired company (whose acquisition produced goodwill) is sold, the corresponding residual value of goodwill is considered when calculating the capital gains or losses generated by such sale.
An intangible asset is a non-monetary asset, identifiable and without physical substance, controllable and capable of generating future economic benefits. With the exception of “Rights on assets under concession”, intangible 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 6%, representing the remuneration of the internal costs for the management of the works and design activities undertaken by the Company which is a mark-up a third party general contractor would request for undertaking the same activities, in accordance with IFRIC 12. The determination of the fair value results from the fact that the lessee must apply paragraph 12 of IAS 18 and therefore if the fair value of the services received (specifically the right to utilise the asset) cannot be determined reliably, the revenue is calculated based on the fair value of the construction work undertaken.
The construction work in progress at the statement of financial position date is measured based on the state of advancement of the work in accordance with IAS 11 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 on a straight-line basis in accordance with the expiry of the concession, as it is expected that the future economic benefits of the asset will be utilised by the lessee. Amortisation begins where the rights in question begin to produce the relative economic benefits.
The accumulated amortisation provision and the restoration and replacement provision ensure the adequate coverage of the following charges:
- complete amortisation of the assets under concession at the end of the concession;
- restoration and replacement of the components subject to wear and tear of the assets under concession.
Reference should be made to the subsequent paragraph “Provision for risks and charges – Restoration and replacement provision of 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 include 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 Company 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 Company, 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 Company 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.
They 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”.
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 loss in value.
Depreciation is calculated on a straight-line basis over the useful life of the building.
Investments in subsidiaries and associates
The investments in subsidiaries and associates are measured at purchase cost (including any direct accessory costs), reduced for impairments in accordance with IAS 36.
Any positive difference, arising on acquisition from third parties, between the purchase cost and fair value of net assets acquired in an investee company is included in the carrying amount of the investment.
Investments in subsidiaries and associates are tested annually for impairment or more frequently if evidence of impairment exists. Where an impairment loss exists, it is recognised immediately through the income statement. Where the share of losses pertaining to the company in the investment exceeds the carrying value of the investment, and the company has an obligation to cover such losses, the investment is written down and the share of further losses is recorded as a provision for risks and charges under liabilities in the statement of financial position. If an impairment loss is subsequently reversed, the increase in carrying amount (up to a maximum of purchase cost) is recognised through the income statement.
At each statement of financial position 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 one of the following categories based on the relative nature and purpose for which they were acquired:
- financial assets at fair value through profit or loss;
- loans and receivables;
- available for sale financial assets.
The financial assets are recorded under assets when the company becomes contractually party to the assets. The financial assets sold are derecognised when the right to receive the cash flow is transferred together with all the risks and benefits associated with ownership.
Purchases and sales of financial assets are recognised at the valuation date of the relative transaction. Financial assets are measured as follows:
(a) Financial assets at fair value through profit or loss
Financial assets are classified in this category if acquired for the purposes to be sold in the short-term period. The assets in this category are classified as current and measured at fair value; the changes in fair value are recognised in the income statement in the period in which they arise, if significant.
(b) Loans and receivables
Loans and receivables are financial instruments, principally relating to trade receivables, non-derivative, not listed on an active market, from which fixed or determinable payments are expected. Loans and receivables are stated as current assets, except for amounts due beyond 12 months from the statement of financial position date, which are classified as non-current. These assets are measured at amortised cost, on the basis of the effective interest rate.
When there is an indication of a reduction in value, the asset is reduced to the value of the discounted future cash flows obtainable. The losses in value are recognised in the income statement. When, in subsequent periods, the reasons for the write-down no longer exist, the value of the assets are restated up to the value deriving from the application of the amortised cost.
(c) AFS financial assets
The AFS assets are non-derivative financial instruments explicitly designated in this category or are not classified in any of the previous categories and are classified under non-current assets unless management has the intention to sell them within 12 months from the statement of financial position date. These financial assets are measured at fair value and the valuation gains or losses are allocated to an equity reserve under “Other comprehensive income”. They are recognised in the income statement only when the financial asset is sold, or, in the case of negative cumulative changes, when it is considered that the reduction in value already recorded under equity cannot be recovered.
In the case of investments classified as available for sale, a prolonged or significant decline in the fair value of the investment below the initial cost is considered an indicator of loss in value.
Derivative financial instruments
Derivative financial instruments are classified as hedging instruments when the relation between the derivative and the hedged item is formally documented and the effectiveness of the hedge, periodically verified, is high. When the hedged derivatives cover the risk of change of the fair value of the instruments hedged (fair value hedge; e.g. hedge in the variability of the fair value of asset/liabilities at fixed rate), these are recorded at fair value through the income statement; therefore, the hedging instruments are adjusted to reflect the changes in fair value associated to the risk covered. When the derivatives hedge a risk of changes in the cash flows of the instruments hedged (cash flow hedge), the hedging is designated against the exposure to changes in the cash flows attributable to the risks which may in the future impact on the income statement. The effective part of the change in fair value of the part of the derivative contracts which are designated as hedges in accordance with IAS 39 is recorded in an equity account (and in particular "other items of the comprehensive income statement"); this reserve is subsequently transferred to the income statement in the period in which the transaction hedged impacts the income statement. The ineffective part of the change in the fair value of the part of the derivative contracts, as indeed the entire change in the fair value of the derivatives which are not designated as hedges or which do not comply with the requirements of the above-mentioned IAS 39, are recognised directly in the income statement in the account "financial income/charges."
The fair value of traded financial instruments is based on the listed price at the statement of financial position date. Where the market for a financial asset is not active (or refers to non-listed securities), the Group determines fair value utilising valuation techniques which include: reference to advanced negotiations in course, references to securities which have the same characteristics, analyses based on cash flows, price models based on the use of market indicators and aligned, as far as possible, to the assets to be valued.
Trade and other receivables
Trade and other receivables are initially recognised at fair value and subsequently measured based on the amortised cost method net of the doubtful debt provision. When there is an indication of a reduction in value, the asset is reduced to the value of the discounted future cash flows obtainable.
Indicators of loss in value include, among others, significant contractual non-compliance, significant financial difficulties, insolvency risk of the counterparty. Receivables are reported net of the provision for doubtful debts. When in subsequent periods the reduction in the value of the asset is confirmed, the doubtful debt provision is utilised against charges; otherwise, where the reasons for the previous write-down no longer exist, the value of the asset is reversed up to the recoverable amount derived from applying the amortised cost method where no write down had been made. 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 readily available, due within three months. At the reporting date, bank overdrafts are classified as financial payables under current liabilities. 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 statement of financial position 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 statement of financial position.
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 statement of financial position date for the programmed maintenance in the coming years and until the end of the concession 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 company has both defined contribution plans (National Health Service Contributions and INPS pension plan contributions) and defined benefit plans.
A defined contribution plan is a plan in which SEA 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, SEA pays contributions, voluntary or established contractually, to public and private pension funds. The contributions are recorded as personnel costs 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 statement of financial position 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 Company 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 are initially measured at fair value, net of directly allocated accessory costs, and subsequently 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 is 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 Company has an unconditional right to defer their payment for at least 12 months after the statement of financial position date.
Purchases and sales of financial liabilities are recognised at the valuation date of the relative transaction.
Financial liabilities are derecognised from the statement of financial position when they expire and the Company has transferred all the risks and rewards relating to the instrument.
Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently measured based on the amortised cost method.
Reverse factoring transactions - indirect factoring
In order to ensure easy access to credit for its suppliers, the Company 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 Company 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 Company.
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 at fair value of the amount received for the services from the ordinary activities, in accordance with the accruals principle. They are calculated following the deduction of VAT and discounts.
The revenues, principally relating to the provision of services, are recognised in the accounting period in which they are provided.
Rental income and royalties are recognised in the year of maturity, based on the underlying contractual agreements while the payments for green certificates are recognised annually in accordance with the long-term contracts and refer to the remuneration of the internal networks within the airport.
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 best estimate of the remuneration of the internal costs of the management of the works and design activities undertaken by SEA, the mark-up which would be applied by a general contractor (as established by IFRIC 12).
Public grants, in the presence of a formal resolution from the issuer, 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.
The incentives granted to airlines, and based on the number of passengers transported, 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, are considered commercial costs and, as such, classified under “Operating costs” and recognised in correlation to the revenues to which they refer. In particular, in the opinion of management which monitors the effectiveness of these commercial initiatives together with other marketing initiatives classified under commercial costs, although these incentives are allocated to specific revenue accounts proportionally, because of their contribution to traffic and to the growth of the airport, from an operating viewpoint they must be considered together with all costs incurred by the Company through commercial and marketing activities and are therefore reported in the Management Accounts and valued in the company KPI together with marketing costs. Therefore, the decision was taken to classify these incentives in the annual financial reporting in line with their operating objectives.
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 the new version of IAS 23.
Current IRES and IRAP income taxes are calculated based on the assessable income for the year, applying the current tax rates at the statement of financial position 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. These assets and liabilities are not recognised if the temporary differences deriving from the goodwill or the initial recognition (not in business combination) of other assets or liabilities in operations do not have an impact on the accounting result or on the assessable fiscal result.
The carrying value of deferred tax assets is revised at the end of the year and reduced to the extent that it is no longer likely that there will be sufficient taxable income against which to recover all or part of the assets.
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”.
Payables for dividends to shareholders are recorded in the year in which the distribution is approved by the Shareholders’ Meeting.