Letter to the Shareholders

Dear Shareholders,

sluggish demand for gas in the Euro zone associated with a steadily rising supply has led to the postponement of important transport infrastructure development and construction projects targeted at the European market. In addition, the economic recession, coupled with problems in the financial systems of a number of European countries, is creating a climate of uncertainty with regard to the future outlook of the global economy and this in turn is having an impact on time frames for the approval and commencement of many initiatives planned by oil companies.

Saipem shares hit a record high of €39.78 in 2012. Despite this, however, the overall price fell by 10.1% in the latter part of the year following negative reactions to a notice of indictment received by the company from the Milan Prosecutor’s Office as part of its investigation into alleged corruption in relation to contracts in Algeria.

Saipem’s results for the year were also impacted by a significant contraction in operating profit in the Engineering & Construction sector in the final quarter of 2012. The reasons for this can for the most part be traced back to the conclusion of projects that produced aboveaverage results, negotiation of change orders that were below expectations, delays in the acquisition of strategic projects and reduced levels of operations.
Specifically, compared to 2011, revenues increased by 6.2% and EBITDA by 3.4%, while net profit was down 2.1%.
In terms of individual business units, Offshore Engineering & Construction revenues increased by 5.5% and EBITDA by 2.3% over the previous year, with activity mostly concentrated in West Africa, Kazakhstan and the North Sea. Onshore Engineering & Construction revenues were up 3.9% but EBITDA was down 17.1% due to the projects in the Middle East and Algeria. In the Offshore Drilling Business Unit, revenues rose 30.6% and EBITDA by 30.5% as a result of the entering into service of the semi-submersible platforms Scarabeo 8 and Scarabeo 9.
Finally, in the Onshore Drilling segment, revenues rose by 1.4% and EBITDA by 2.1%, the main activities being in South America.

In terms of health and safety, the LTIFR (Lost Time Injury Frequency Rate) was 0.32, hence in line with the 0.31 recorded in 2011. However, the 3 fatal accidents that occurred during the year (6 in 2011) serve to remind us that constant effort is needed to ensure that attention to health and safety is kept high at all sites on which Saipem operates.

Investments in 2012 amounted to €1,015 million (€1,199 million in 2011). In Offshore Engineering & Construction, the Castorone pipelay vessel was delivered by the Keppel Shipyard in Singapore, successfully underwent its first operational tests in shallow water and is currently undergoing deep water. Works also continued on the fabrication yard in Karimun in Indonesia and on construction of the new base in Brazil. In Onshore Engineering & Construction,

Saipem Board of Directors


meanwhile, the bases in Canada and Iraq are under completion. The Offshore Drilling sector saw the completion of works on the Scarabeo 8, the upgrading of the Scarabeo 6 to enable it to operate in water depths of up to 1,100 metres and class reinstatement works on the Scarabeo 3. Finally, in Onshore Drilling new rigs were purchased and prepared for operations in Saudi Arabia.

Overall investments in the oil industry are predicted to increase in 2013 following a year marked by delays and cancellations in the awarding of new projects, while market prospects for acquisitions are expected to improve in terms of both volume and project quality. In terms of operations and expected economic results, the Offshore and Onshore Engineering & Construction sector will be impacted in 2013 by the completion of projects that allowed Saipem to fully leverage its distinctive competences, by delays in awards of projects with the same characteristics, and by the execution of contracts in new areas of activity for which it is difficult to make reliable forecasts.

As a result, against otherwise substantially constant volumes, EBIT is expected to fall by 70% in Offshore Engineering & Construction and by approximately 80% in Onshore Engineering & Construction. Offshore Drilling is expected to increase its 2012 results by about 20% despite 4 months of downtime for the semisubmersible platform Scarabeo 5 for class reinstatement works. Onshore Drilling is likewise expected to improve upon its excellent performance in 2012. In overall terms, in 2013, your company should achieve revenues of €13.5 billion, EBIT of €750 million and net profit of €450 million.

Investments planned for 2013 amount to approximately €1 billion, which will mainly be allocated to the construction of bases in Brazil and Canada, the purchase and readying of onshore drilling rigs for the execution of the contract in Saudi Arabia, class reinstatement works on the semi-submersible platform Scarabeo 5, conclusion of activities in relation to the Castorone and, finally, upgrading of the semi-submersible pipelayer Castoro Sei.

March 13, 2013

On behalf of the Board of Directors


Firma il Presidente Alberto Meomartini

The Chairman
Alberto Meomartini

Firma l'amministratore delegato Umberto Vergine

Chief Executive Officer (CEO)
Umberto Vergine