Quarterly Report • Nov 23, 2016
Quarterly Report
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| 7 | Geographical areas of activity | |
|---|---|---|
| 22 | Summary of results, assets and liabilities and financial position |
|---|---|
Interim report on operations – September 30, 2016 Contents
| 118 | Net debt |
|---|---|
| 119 | Notes to the income statement |
| 130 | Earnings per share |
| 131 | Significant non-recurring events and transactions |
| 132 | Guarantees and commitments with third parties |
| 133 | Other information |
| Attachments to the Notes to the Interim report on operations |
|
| 156 1. List of companies included in the consolidated financial statements |
|---|
| 166 | Generation and Trading Business Unit | ||
|---|---|---|---|
| ----- | -- | -------------------------------------- | -- |
International Business Unit
| 210 | Macroeconomic scenario | |
|---|---|---|
Energy market trends
Results sector by sector
| 220 | Generation and Trading Business Unit | ||
|---|---|---|---|
Risks and uncertainties
Certification by the Manager in charge
This is a translation of the Italian original "Resoconto intermedio di gestione al 30 settembre 2016" and has been prepared solely for the convenience of international readers. In the event of any ambiguity the Italian text will prevail. The Italian original is available on the website www.a2a.eu
CHAIRMAN Giovanni Valotti
DEPUTY CHAIRMAN Giovanni Comboni
CHIEF EXECUTIVE OFFICER Luca Camerano
DIRECTORS Antonio Bonomo Giambattista Brivio Maria Elena Cappello Michaela Castelli Elisabetta Ceretti Luigi De Paoli Fausto Di Mezza Stefano Pareglio Secondina Giulia Ravera
| CHAIRMAN | |
|---|---|
| Giacinto Gaetano Sarubbi | |
| STANDING AUDITORS Cristina Casadio Norberto Rosini |
|
| SUBSTITUTE AUDITORS Onofrio Contu Paolo Prandi |
The A2A Group operates in the production, sale and distribution of gas and electricity, district heating, environmental services and the integrated water cycle.
These sectors are in turn attributable to the "Business Units" specified in the following diagram identified as a result of the reorganization carried out by the management:
This breakdown into Business Units reflects the organization of financial reports regularly analyzed by management and the Board of Directors in order to manage and plan the Group's business.
Interim report on operations – September 30, 2016
Hydroelectric plants Thermoelectric plants Cogeneration plants Waste treatment plants Technological partnerships
| 100.00% Edipower |
100.00% A2A Trading |
100.00% A2A Energia |
100.00% A2A Ambiente |
100.00% A2A Ciclo Idrico |
100.00% Unareti |
41.75% EPCG |
100.00% A2A Smart City |
51.00% Linea Group Holding |
|---|---|---|---|---|---|---|---|---|
| 100.00% A2A Energiefuture |
70.00% A2A Alfa |
100.00% Aspem Energia |
100.00% Amsa |
100.00% A2A Calore & Servizi |
100.00% Unareti Servizi Metrici |
23.94% ACSM-AGAM |
96.17% Linea Com |
|
| 100.00% A2A gencogas |
50.00% PremiumGas |
33.33% LumEnergia |
100.00% Aprica |
90.00% Aspem |
91.60% Retragas |
|||
| 50.00% Ergosud |
50.00% Metamer |
100.00% Linea Ambiente (1 ) |
60.00% Proaris |
89.00% Camuna Energia |
||||
| 100.00% Linea Energia (1 ) |
100.00% Linea Più (1 ) |
100.00% Linea Gestioni (1 ) |
100.00% Linea Reti e Impianti (1 ) |
49.15% ASVT |
||||
| 39.49% Rudnik Uglja ad Pljevlja |
51.00% MF Waste (1 ) |
90.85% LD Reti (1 ) |
||||||
| 80,00% Lomellina Energia |
100.00% S.TE.A.M. (2 ) |
Interim report on operations – September 30, 2016
| Revenues ___________ | 3,482 millions of euro |
|---|---|
| Gross operating income __________ | 872 millions of euro |
| Result of the period ________ | 323 millions of euro |
| Income statement figures Millions of euro |
01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
3rd quarter 2016 |
3rd quarter 2015 |
|---|---|---|---|---|
| Revenues | 3,482 | 3,638 | 1,159 | 1,171 |
| Operating expenses | (2,146) | (2,361) | (748) | (770) |
| Labour costs | (464) | (463) | (153) | (149) |
| Gross operating income - EBITDA | 872 | 814 | 258 | 252 |
| Depreciation, amortization, provisions and write-downs | (348) | (360) | (114) | (112) |
| Net operating income - EBIT | 524 | 454 | 144 | 140 |
| Result from non-recurring transactions | 52 | (1) | - | - |
| Financial balance | (92) | (107) | (33) | (33) |
| Result before taxes | 484 | 346 | 111 | 107 |
| Income taxes | (145) | (97) | (39) | (20) |
| Net result from discontinued operations | 1 | - | - | - |
| Minorities | (17) | (12) | (4) | (2) |
| Group result of the period | 323 | 237 | 68 | 85 |
| Gross operating income/Revenues | 25.0% | 22.4% | 22.3% | 21.5% |
(**) The figures serve as performance indicators as required by CESRN/05/178/B.
| Balance sheet figures Millions of euro |
09 30 2016 | 12 31 2015 |
|---|---|---|
| Net capital employed | 6,610 | 6,156 |
| Equity attributable to the Group and minorities | 3,368 | 3,259 |
| Consolidated net financial position | (3,242) | (2,897) |
| Consolidated net financial position/Equity attributable to the Group and minorities | 0.96 | 0.89 |
| Consolidated net financial position / EBITDA Rolling 12 months | 2.74 | 2.75 |
| Financial data Millions of euro |
01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
|---|---|---|
| Net cash flows from operating activities | 506 | 536 |
| Net cash used in investing activities | (318) | (207) |
| Free cash flow (Cash Flow Statement figure) | 188 | 329 |
| Key indicators | 09 30 2016 | 09 30 2015 |
|---|---|---|
| Average 6-month Euribor | (0.148%) | 0.075% |
| Average price of Brent (US\$/bbl) | 43.0 | 56.7 |
| Average of the PUN (Single Nationwide Price) Base load (Euro/MWh) | 38.3 | 52.1 |
| Average of the PUN (Single Nationwide Price) Peak load (Euro/MWh) | 42.3 | 57.1 |
| Average price of coal (Euro/tonne) | 45.9 | 52.5 |
| Average price of gas to the PSV (*) (Euro/MWh) | 14.6 | 22.9 |
| Average price of emission certificates EU ETS (**) (Euro/tonn) | 5.3 | 7.5 |
(*) Price of gas of reference for the Italian market
(**) EU Emissions Trading System
Interim report on operations – September 30, 2016 Financial highlights at September 30, 2016
| Group's key operational indicators | 09 30 2016 | 09 30 2015 |
|---|---|---|
| Electricity sold to wholesale customers (GWh) | 6,096 | 6,629 |
| Electricity sold to retail customers (GWh) | 6,142 | 5,680 |
| Electricity sold on the Power Exchange (GWh) | 8,948 | 8,636 |
| Electricity sold domestic and foreign market (GWh) - EPCG | 2,323 | 2,497 |
| Gas sold to wholesale customers (Mcm) | 325 | 332 |
| Gas sold to retail customers (Mcm) | 803 | 734 |
| Heat sold (GWht) | 1,452 | 1,434 |
| Electricity distributed (GWh) | 8,278 | 8,463 |
| Electricity distributed (GWh) - EPCG | 1,616 | 1,637 |
| Gas distributed (Mcm) | 1,210 | 1,198 |
| Water distributed (Mcm) | 47 | 46 |
| Waste disposed of (Kton) | 1,939 | 1,934 |
| Production Details | 09 30 2016 | 09 30 2015 |
|---|---|---|
| Thermoelectric production (GWh) | 5,753 | 6,128 |
| Thermoelectric production (GWh) - EPCG | 801 | 1,033 |
| Hydroelectric production (GWh) | 3,518 | 3,570 |
| Hydroelectric production (GWh) - EPCG | 1,327 | 1,130 |
| Heat production (GWht) | 1,488 | 1,488 |
| Electricity produced by cogeneration (GWh) | 117 | 150 |
11
(*) Source CONSOB for stakes higher than 3% (updated at September 30, 2016).
12
| Key figures of A2A S.p.A. | 09 30 2016 | 12 31 2015 |
|---|---|---|
| Share Capital (euro) | 1,629,110,744 | 1,629,110,744 |
| Number of ordinary shares (par value 0.52 euro) | 3,132,905,277 | 3,132,905,277 |
| Number of treasury shares (par value 0.52 euro) | 23,721,421 | 26,917,609 |
| Last 4 quarters |
|---|
| 3,740 |
| 12,627,474 |
| 1.19 |
| 1.35 |
| 0.96 |
Source: Bloomberg
A2A stock is also traded on the following platforms: Chi-X, BATS, Turquoise, Equiduct, Sigma-X, Aquis, BOAT OTC, LSE Europe OTC, BATS Chi-X OTC .
13
On June 22, 2016 A2A distributed a dividend equal to 0.041 euro per share.
| FTSE MIB | |
|---|---|
| STOXX Europe | |
| EURO STOXX | |
| MSCI Europe Small Cap | |
| WisdomTree Utilities | |
| S&P Developed Ex-US |
| Axia Sustainable Index |
|---|
| ECPI Ethical Index EMU |
| Ethibel Sustainability Index Excellence Europe |
| FTSE ECPI Italia SRI Benchmark |
| Solactive Climate Change Index |
| Standard Ethics Italian Index |
Source: Bloomberg and company information
Moreover, A2A has been included in the Ethibel Excellence Investment Register and in the Ethibel Pioneer Investment Register.
Source: Bloomberg
14
| Current | ||
|---|---|---|
| M/L Term Rating | BBB | |
| Standard & Poor's | Short Term Rating | A–2 |
| Outlook | Stable | |
| M/L Term Rating | Baa3 | |
| Moody's | Outlook | Stable |
Source: Rating agencies
In this Interim Report on Operations, a number of alternative performance indicators (APM) have been used that are different from the financial indicators expressly provided for by the international accounting standards IFRS-EU adopted by the Group.
These alternative indicators are used by the A2A Group in order to more effectively submit information on the profitability of the business in which it operates as well as on the financial situation, useful to improve the overall capacity to assess financial and equity performance.
In the file of the Report, these indicators are shown in the "Summary of results and financial position of the A2A Group". For the income statement, the comparative figures refer to September 30, 2015, while for the balance sheet at December 31, 2015.
15
With reference to alternative indicators, on December 3, 2015, CONSOB issued Communication no. 92543/15, which transposes the Guidelines on the use and presentation of alternative performance indicators as part of regulated financial information, issued on October 3, 2015 by the European Securities and Markets Authority (ESMA). These Guidelines - which have updated the CESR Recommendation on alternative performance indicators (CESR/05 - 178b) are intended to promote the usefulness and transparency of alternative indicators to improve their comparability, reliability and understanding.
In accordance with the Guidelines, the descriptions, content and bases of calculation used for the construction of the alternative performance indicators adopted by the Group are described below.
Gross operating income is an alternative indicator of operating performance, calculated as the sum of "Net operating income" plus "Depreciation, amortization, provisions and writedowns" and "Provisions".
This APM is used by A2A as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors) and represents a useful measure to assess the operating performance of the Group (both as a whole and in terms of individual Business Unit), also through a comparison between the operating results of the reporting period with those relating to previous periods or years. This indicator also allows conducting analyses on operational trends and measure performance in terms of operational efficiency over time.
The Result from non-recurring transactions is an alternative performance indicator designed to reflect the capital gains/losses arising from the valuation at fair value (less costs to sell) or from the disposal of Non-current assets (or disposal groups) classified as held for sale in accordance with IFRS 5, the results from the sale of equity investments in unconsolidated subsidiaries and associated companies and other non-operating income/expenses.
In the file of the Report, this indicator is placed between net operating income and the financial balance. In this way net operating income is not affected by non-recurring operations, making it easier to measure the effective performance of the A2A Group's ordinary operating activities.
This APM is used by A2A as a measure for valuation of the Group's performance associated with non-current assets and liabilities (or disposal groups) held for sale as part of presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors).
16
Net fixed capital is determined as the algebraic sum of:
shareholdings and other non-current financial assets;
other non-current assets and liabilities;
This APM is used by A2A as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors) and represents a useful measure of the net fixed assets of the Group as a whole, also through the comparison between the reporting period with those relating to previous periods or years.
This indicator also allows conducting analyses on operational trends and measure performance in terms of operational efficiency over time.
17
Working capital is determined as the algebraic sum of:
This APM is used by the A2A Group as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors); it represents a useful measure of the ability to generate cash flow from operations within a period of 12 months, also through the comparison between the reporting period with those relating to previous periods or years.
This indicator also allows conducting analyses on operational trends and measure performance in terms of operational efficiency over time.
Capital employed/Net capital employed is calculated as the sum of Net fixed capital, Working capital and Assets/Liabilities held for sale.
This APM is used by the A2A Group as the financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors); it represents a useful measure for the evaluation of total net assets, both current and fixed.
Sources of funds are calculated by adding "Equity" and "Total Net Financial Position".
This APM is used by the A2A Group as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors) and represents the various sources by means of which the A2A Group is financed and the degree of autonomy that the A2A Group has in comparison with third party capital. This indicator also allows measuring the financial strength of the A2A Group.
The Net debt is an indicator of the financial structure, calculated as the sum of net debt and current net debt. Specifically, total non-current net debt is obtained from the algebraic sum of:
Total current net debt is derived from the algebraic sum of:
This APM is used by the A2A Group as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors) and is useful for the purposes of measuring the Group's financial debt, also through the comparison between the reporting period with those relating to previous periods or years. The net financial position of the A2A Group is calculated in accordance with Consob communication no. DEM/6064293 of July 28, 2006 and in accordance with Recommendation ESMA/2013/319.
18
Investments in tangible and intangible assets are extrapolated from the information contained in the notes of the balance sheet.
This APM is used by the A2A Group as financial target in presentations both within the Group (Business Plans) and external (presentations to financial analysts and investors) and is a useful measure of the resources used in the maintenance and development of the investments of the A2A Group (as a whole and in terms of individual Business Unit), also through the comparison between the reporting period with those relating to previous periods or years. This allows A2A to conduct analyses on investment trends and measure performance in terms of operational efficiency over time.
Investors should not place undue reliance on these APM and should not consider all APM as: (i) an alternative to operating or net profit as calculated in accordance with IFRS; (ii) an assessment of the Group's ability to meet cash needs alternative to as deduced from the cashflow from operating, investing or financing activities (as determined in accordance with IFRS); or (iii) an alternative to any other performance indicator provided by IFRS.
19
These alternative performance indicators derive from the historical financial information of the A2A Group and are not intended to provide indications relating to future financial performance, financial position or cash flow of the Group. Moreover, these APM were calculated uniformly for all periods.
Consolidated results and report on operations
22
The results of the A2A Group for the period ended September 30, 2016 are set out below, with comparative figures for the corresponding period of the previous year.
It is noted that the figures reported include the contribution from the consolidation of the LGH Group as from August 1, 2016. The two comparison periods are therefore not homogeneous.
| Millions of euro | 01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
Changes |
|---|---|---|---|
| Revenues | 3,482 | 3,638 | (156) |
| of which: | |||
| - Revenues from the sale of goods and services | 3,315 | 3,515 | (200) |
| - Other operating income | 167 | 123 | 44 |
| Operating expenses | (2,146) | (2,361) | 215 |
| Labour costs | (464) | (463) | (1) |
| Gross operating income - EBITDA | 872 | 814 | 58 |
| Depreciation, amortization and write-downs | (308) | (297) | (11) |
| Provisions | (40) | (63) | 23 |
| Net operating income - EBIT | 524 | 454 | 70 |
| Result from non-recurring transactions | 52 | (1) | 53 |
| Net financial charges | (96) | (110) | 14 |
| Affiliates | 4 | 3 | 1 |
| Result from disposal of other shareholdings | - | - | - |
| Result before taxes | 484 | 346 | 138 |
| Income taxes | (145) | (97) | (48) |
| Result after taxes from operating activities | 339 | 249 | 90 |
| Net result from discontinued operations | 1 | - | 1 |
| Minorities | (17) | (12) | (5) |
| Group result of the period | 323 | 237 | 86 |
In the first nine months of 2016, Revenues of the A2A Group amounted to 3,482 million euro, down by 156 million euro on the first nine months of the previous year (-4.2%). Net of the contribution from LGH (amounting to around 62 million euro), the decrease in revenues can be mainly attributed to the reduction in revenues from the sale of electricity on the wholesale markets.
Despite the increased volumes sold, the decline in sale prices of both gas and electricity recorded on the retail market weighed on the downturn to Group revenues.
"Gross operating income" for the period of 872 million euro rose by 58 million euro over the first nine months of 2015.
| Millions of euro | 09 30 2016 | 09 30 2015 | Delta | Delta % |
|---|---|---|---|---|
| Generation and Trading | 273 | 291 | (18) | (6.2%) |
| Commercial | 100 | 78 | 22 | 28.2% |
| Environment | 174 | 161 | 13 | 8.1% |
| Networks and Heat | 293 | 253 | 40 | 15.8% |
| International | 48 | 43 | 5 | 11.6% |
| Other Services and Corporate | (16) | (12) | (4) | n.a. |
| Total | 872 | 814 | 58 | 7.1% |
The following table highlights the composition by Business Unit:
The Gross operating income of the Generation and Trading Business Unit amounted to 273 million euro, down 18 million euro on the first nine months of the previous year.
As compared with the same period of 2015, the 2016 result benefits from greater nonrecurring items of approximately 13 million euro and the contribution resulting from the consolidation for August and September 2016 of the Generation and Trading Business Unit of the LGH Group (around 1 million euro), while it reflected, for around 5 million euro, the negative impact of change in scope attributable to the allocation of the hydroelectric plants of the Udine unit (apart from Ampezzo and Somplago) – known as the "Cellina Branch" – to Cellina Energy S.r.l. due to the non-proportional demerger of Edipower S.p.A. which came into effect from January 1,2016.
Net of these non-recurring items, the Gross Operating Margin of the Generation and Trading Business Unit was down by around 27 million euro. The worsening of the energy scenario, with all the main market parameters in contraction (PUN Baseload -27%; PUN Peak -26%; PSV -36%) resulted in a negative "scenario" effect with respect to the first nine months of 2015, of around 80 million euro on the management of the plants, added to which there were difficulties in the gas segment, again due to the scenario effect.
The thermoelectric plant of San Filippo del Mela ceasing to operate under the must-run regime at the end of May 2016 and, finally, the lower margin achieved on the activities of the Trading portfolio, due to the compression of the spreads with the foreign market and the loss of certain market opportunities for environmental certificates (such as the conclusion of the Green Certificates mechanism), also negatively contributed to the performance of the Business Unit.
Instead, the following partially offset said dynamics:
24
• the good performance recorded on the environmental certificates market.
The Gross operating income of the Commercial Business Unit equalled 100 million euro, up 22 million euro compared to the same period of 2015.
Net of the non-recurring items that characterized the two periods being compared (7 million euro in 2016 and 6 million euro in 2015), the Gross Operating Income of the Business Unit was up 21 million euro compared to the first nine months of 2015, mainly following the growth in results recorded in the electricity sales sector.
This trend involved both the free market following the increase in volumes sold and the greater number of points serviced, and the protected market, especially by virtue of the increased tariff portion to cover the costs of marketing (despite the decline in quantities sold to customers served under the protected regime).
The Gross operating income of the Environment Business Unit amounted to 174 million euro, up by 13 million euro compared to the same period of the previous year.
Note that the result of the first nine months of 2016 includes the positive contribution of around 5 million euro deriving from the consolidation of the environment sector of LGH from August 1,2016.
Net of the non-recurring items that characterised the two periods being compared and the contribution of LGH, the industrial operating income of the Business Unit was up by 5 million euro compared to the first 9 months of 2015.
The following contributed to the increase in the results of the period in question:
This trend was partially offset by a negative price effect (even though mitigated by forward sales to the Generation and Trading Business Unit) attributable to the sale of electricity and heat produced by the Group's waste-to-energy plants, as well as the reduction in the quantities disposed of at the inert lots landfill of Corteolona (by May 2015) and the landfills of Montichiari and Cavaglià (respectively exhausted in the months of December 2015 and June 2016).
25
The Gross operating income of the Networks and Heat Business Unit amounted to 293 million euro, an increase of 40 million euro compared to the first nine months of 2015.
This increase is attributable mainly to the recording of non-recurring revenue items for the water cycle and relating to the years 2007-2011, as well as the positive contribution of approximately 2 million euro from the consolidation of the networks and heat sector of LGH starting from August 1, 2016.
Net of the positive non-recurring items recorded in the two comparison periods (respectively around 52 million euro in the first nine months of 2016 and around 2 million euro in the same period of the previous year) and the contribution of LGH, the operating income of the Business Unit was down by 12 million euro compared to the previous year.
This performance is essentially due to:
the updating of the aforementioned WACC. Moreover, in the two sectors lower revenues were recorded for connections and services for around 5 million euro;
The margins relating to public lighting activities were instead down by 1 million euro with respect to those of the first nine months of the previous year.
The Gross operating income of the International Business Unit, entirely attributable to the subsidiary EPCG, equalled 48 million euro, an increase of 5 million euro compared to the same period of the previous year. The lower margins deriving from lower sales of electricity to the customer Montenegro Bonus was more than offset by lower costs for thermoelectric production, the greater quantities exported and lower operating costs.
26
"Depreciation, amortization, provisions and write-downs" amounted to a total of 348 million euro (360 million euro at September 30, 2015), of which 6 million euro from the first-time consolidation of the companies acquired in the first nine months (7 million euro of depreciation and amortization and -1 million euro of surpluses) and include amortization and depreciation of intangible and tangible assets for 304 million euro (297 million euro at September 30, 2015), write-downs of fixed assets for 4 million euro (no value at September 30, 2015) and net provisions for 40 million euro (63 million euro at September 30, 2015).
"Depreciation, amortization and write-downs" totalled 308 million euro (297 million euro at September 30, 2015), of which 7 million euro related to the first-time consolidation of the newly acquired companies and recorded an overall increase of 11 million euro.
The amortization of intangible assets decreased by 9 million euro mainly following the adjustment of the amortization of the gas distribution networks following publication of the tender notice by the Municipality of Milan for the assignment in concession of the service gas distribution at local level.
Depreciation of tangible assets show an increase of 16 million euro compared to September 30, 2015 and includes:
• higher depreciation of 12 million euro, mainly relating to the investments which went into production after September 30, 2015;
Write-downs of tangible assets amounted to 4 million euro and refer to 3 million euro for write-downs of assets in progress related to some projects that will no longer be realized regarding the integrated water cycle and 1 million euro for the increase in the decommissioning provision of a plant that was completely written off in previous years.
"Provisions for risks" amount to 34 million euro (51 million euro at September 30, 2015) and were made to cover ongoing disputes and pending lawsuits, for 54 million euro, the effect of which was partially offset by the release of risk provisions set aside in previous years for 20 million euro, of which 1 million euro from the first-time consolidation of the newly acquired companies. The "Bad debt provision" amounted to 6 million euro (12 million euro at September 30, 2015).
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As a result of these changes, "Net operating income" reached 524 million euro (454 million euro at September 30, 2015), of which 1 million euro related to the first-time consolidation of the newly acquired companies, an increase of 70 million euro compared to the corresponding period of the previous year.
The "Result from non-recurring transactions" was positive for 52 million euro (negative for 1 million euro at September 30, 2015) and is related to the assignment to Cellina Energy S.r.l. of the "Cellina Unit" due to the partial, non-proportional demerger of Edipower S.p.A., which came into effect January 1, 2016.
"Net financial charges" equalled 96 million euro (110 million euro at September 30, 2015). The decrease compared to the corresponding period of the previous year, of about 14 million euro, was mainly due to the positive change of realized values of contracts on financial derivatives (negative for 11 million in September 2015, negative for 6 million euro in September 2016) and lower net financial expenses for 6 million euro, despite the increase in net financial debt due to the consolidation of the LGH Group, deriving from the reduction in debt and the effects of the financial strategy actions implemented by the Group.
The "Portion of result of affiliates" was positive for 4 million euro (positive for 3 million euro at September 30, 2015), and is mainly attributable to the valuation, according to the equity method, of the investment in ACSM-AGAM S.p.A. and other minor investments.
"Income taxes" in the period in question equalled 145 million euro (97 million euro at September 30, 2015).
The "Net result from discontinued operations" was 1 million euro (no value at September 30, 2015) and is related to assets held for sale of the LGH Group.
The "Group result for the period", after the minorities were deducted, was positive and amounted to 323 million euro (positive for 237 million euro at September 30, 2015).
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At September 30, 2016, consolidated "Capital employed" amounted to 6,610 million euro and is covered by shareholders' equity per 3,368 million euro, of which 123 million euro related to the interests of minority shareholders from the newly acquired companies, and financial position for 3,242 million euro, of which 381 million euro resulting from the first-time consolidation of newly acquired companies. The Capital employed includes assets/liabilities held for sale for 2 million euro.
"Working capital" amounted to 360 million euro, an increase of 180 million euro compared to December 31, 2015, attributable to: for 69 million euro the first-time consolidation of the newly acquired companies, for 209 million euro the increase in other current assets, for 30 million euro in trade receivables, and for 56 million euro in trade payables, partially offset by the decrease, for 147 million euro in other current liabilities, for 18 million euro in inventories and for 19 million euro in tax payables and receivables.
The "Net fixed capital" amounted to 6,248 million euro, up by 419 million euro compared to December 31, 2015. The change at September 30 was mainly attributable for 571 million euro to the effects of the first-time consolidation of the newly acquired companies, adjusted for 104 million euro by the reduction in tangible assets related to the depreciation for the period, for 34 million euro by the decrease in deferred tax assets and for 23 million euro by the decrease in provisions for risks and benefits.
"Assets/Liabilities held for sale" amounted to 2 million euro, down by 145 million euro as a result of the effectiveness from January 1, 2016 of the partial non-proportional demerger of Edipower S.p.A. related the so-called "Cellina Unit" in favour of Cellina Energy S.r.l..
29
The "Net financial position" amounted to 3,242 million euro (2,897 million euro at December 31, 2015). The cash flow generated in the period was positive and amounted to 124 million euro, after the payment of dividends for 126 million euro, investments in the period for 233 million euro, and the payment of 38.5 million euro in favour Cellina Energy S.r.l. (following the partial non-proportional demerger of Edipower S.p.A.). This cash generation partially offset the effect of the first-time consolidation of LGH (net financial position negative for 379 million euro at July 31, 2016) and the disbursement related to the acquisition (a total of 90 million euro).
It is noted that, net of these effects, the Net financial position would have amounted to 2,773 million euro.
Summary of results, assets and liabilities and financial position
| Millions of euro | 09 30 2016 | 12 31 2015 | Changes |
|---|---|---|---|
| CAPITAL EMPLOYED | |||
| Net fixed capital | 6,248 | 5,829 | 419 |
| - Tangible assets | 5,302 | 5,067 | 235 |
| - Intangible assets | 1,684 | 1,348 | 336 |
| - Shareholdings and other non-current financial assets (*) | 88 | 80 | 8 |
| - Other non-current assets/liabilities (*) | (83) | (66) | (17) |
| - Deferred tax assets/liabilities | 283 | 308 | (25) |
| - Provisions for risks, charges and liabilities for landfills | (660) | (576) | (84) |
| - Employee benefits | (366) | (332) | (34) |
| of which with counter-entry to equity | (167) | (143) | |
| Working capital | 360 | 180 | 180 |
| - Inventories | 186 | 184 | 2 |
| - Trade receivables and other current assets (*) | 2,124 | 1,652 | 472 |
| - Trade payables and other current liabilities (*) | (1,961) | (1,684) | (277) |
| - Current tax assets/tax liabilities | 11 | 28 | (17) |
| of which with counter-entry to equity | (41) | (37) | |
| Assets/liabilities held for sale (*) | 2 | 147 | (145) |
| of which with counter-entry to equity | - | - | |
| TOTAL CAPITAL EMPLOYED | 6,610 | 6,156 | 454 |
| SOURCES OF FUNDS | |||
| Equity | 3,368 | 3,259 | 109 |
| Total financial position beyond one year | 3,450 | 3,059 | 391 |
| Total financial position within one year | (208) | (162) | (46) |
| Total net financial position | 3,242 | 2,897 | 345 |
| of which with counter-entry to equity | 10 | 27 | |
| TOTAL SOURCES | 6,610 | 6,156 | 454 |
(*) Excluding balances included in the net financial position.
Interim report on operations – September 30, 2016
Summary of results, assets and liabilities and financial position
31
| Millions of euro | 01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
|---|---|---|
| NET FINANCIAL POSITION AT THE BEGINNING OF THE PERIOD | (2,897) | (3,363) |
| Contribution first consolidation LGH and other acquisitions | (381) | - |
| Edipower demerger in favour of Cellina Energy | (38) | - |
| Net result (**) | 288 | 249 |
| Depreciation and amortization | 304 | 297 |
| Write-downs/disposals of tangible and intangible assets | 7 | 3 |
| Affiliates | (4) | (3) |
| Net taxes paid | (93) | (14) |
| Changes in assets and liabilities (*) | 4 | 4 |
| Net cash flows from operating activities | 506 | 536 |
| Investments in tangible and intangible assets | (212) | (206) |
| Investments in shareholdings and securities | (111) | (2) |
| Disposal of fixed assets and shareholdings | 4 | - |
| Dividends received from shareholdings | 1 | 1 |
| Purchase of treasury shares | - | - |
| Net cash flows from investment activities | (318) | (207) |
| Free cash flow | 188 | 329 |
| Dividends paid by the parent company | (126) | (113) |
| Dividends paid by the subsidiaries | (5) | (5) |
| Cash flow from the distribution of dividends | (131) | (118) |
| Changes in financial assets/liabilities with counter-entry to equity | 17 | 14 |
| NET FINANCIAL POSITION AT THE END OF THE PERIOD | (3,242) | (3,138) |
(*) Excluding balances with counter-entry to equity.
(**) The net result is stated excluding gains on the disposal of shareholdings.
On January 1, 2016, the partial non-proportional demerger of Edipower S.p.A. came into effect in favour of Cellina Energy S.r.l. on the basis of the demerger deed stipulated between the parties on December 28, 2015.
As a result of this transaction, Cellina Energy S.r.l., a company wholly owned by SEL - Società Elettrica Altoatesina - S.p.A., was assigned the compendium consisting of the hydroelectric plants owned by Edipower S.p.A. constituting the "Udine Unit", with the exception of the hydroelectric plants of Ampezzo and Somplago, along with all the active and passive legal relations functional to them and a cash outlay for a total of 38.5 million euro.
This operation led to a capital gain of 52 million euro for the Group.
32
Following this transaction, the share capital of Edipower S.p.A. is entirely held by A2A S.p.A. The transaction is consistent with the objectives of the Business Plan of A2A as part of thermoelectric generation, which envisage simplified ownership, streamlining and reduction in operating costs and consolidation opportunities.
On January 25, 2016, the Board of Directors evaluated the existence of the independence requirements provided for in article 3 of the Corporate Governance Code for Listed Companies of the Directors Antonio Bonomo, Giambattista Brivio, Maria Elena Cappello, Michaela Castelli, Elisabetta Ceretti, Luigi de Paoli, Stefano Pareglio and Dina Ravera and took note of the evaluation made by the Board of Auditors on the existence of the aforementioned independence requirements of all its members. At the meeting, the Board also approved the following composition for the Appointments and Remuneration Committee: Antonio Bonomo - Chairman, Giovanni Comboni and Dina Ravera.
On February 12, 2016, A2A S.p.A. signed a collaboration agreement with Università Cattolica and Università degli Studi di Brescia, with the aim of promoting dissemination initiatives on innovation and eco-sustainability and fostering the development of a widespread culture regarding energy and the environment.
Specifically, the collaboration with Università Cattolica di Brescia and Università degli Studi di Brescia Health & Wealth is aimed at conducting a thorough survey on the population in the Brescia area to identify environmental needs and expectations. Specifically, researchers will be asked to explore and document the best practices of the technologies and processes related to the transformation of waste materials and systems for the management and treatment of municipal waste, comparing them with the solutions adopted by the A2A Group.
The survey will also have to identify the territory's perception of the A2A Ambiente brand, and the quality of its operations in terms of both the services provided and the quality, effectiveness, efficiency and innovation level of the built and operated plants.
With effect from April 2016, a new system is operational in Brescia for differentiated waste collection, which will be gradually extended to the various areas of the city up to reaching full coverage in 2017. It is a combined domestic collection system: paper and cardboard, glass and metal and plastic packaging are collected door to door, while organic and non-differentiated waste is collected in swing-top bins with a personal electronic card.
On March 31, 2016, the purchase program of treasury shares was concluded, approved by the Board of Directors on February 16, 2016 pursuant to the resolution of the Shareholders' Meetings of June 11, 2015.
The transaction took place in accordance with the provisions of art. 132 of Legislative Decree 58/1998 and subsequent amendments and art. 144-bis of the Issuers' Regulation. The maximum number of shares that could be purchased was set at 35 million, equal to about 1% of the share capital of A2A S.p.A..
At the end of the program, A2A S.p.A. held a total of 61,917,609 ordinary shares, representing 1.976% of the share capital, of which 26,917,609 already in the portfolio at the end of 2015.
The purchases of treasury shares were made at an average unit price of 1.06 euro, for a total amount of 37,177,740 euro.
34
As part of the integration process between subsidiaries and in line with the Group's corporate structure simplification objective defined by the 2015-2019 Business Plan, A2A S.p.A. established Unareti S.p.A.. The company will manage the gas and electricity distribution services.
Unareti S.p.A., operational as of April 1, 2016, integrates the subsidiaries 100% owned by A2A S.p.A. operating in the network services sector, with the advantage to shorten the decisionmaking chain and facilitate intra-group synergies, with positive effects on the operating costs and investment capacity of A2A and its access to financial markets.
The new company, included as part of the companies coordinated by the Networks and Heat Business Unit of the A2A Group, has more than 1,500 employees and achieves a turnover of more than 600 million euro; the single company of the networks will make investments of around 600 million euro in the period 2016-2020; the operation will also allow greater ease of business development both in terms of gas tenders and in terms of possible acquisitions.
The operation and the new Unareti brand meet the provisions of Resolution 296/2015/R/ com (art. 17.6), enacted on June 22, 2015, which provided for independent Managers by June 30, 2016, the obligation of functional separation (unbundling), separating the brand and communication policies between the sales companies and distribution companies belonging to the same Group.
The transaction did not result in changes in the scope of consolidation or impacts on the economic and asset values of the consolidated financial statements.
On March 23, 2016, the Municipality of Milan approved the project launched by Nissan in partnership with the A2A Group for the development of electric mobility in the Municipality of Milan; based on this project, Nissan will provide a fleet of over one hundred zero-emission electric vehicles that will remain free of charge to the Municipality of Milan. The new charging stations will enhance the current infrastructure managed by the A2A Group, which in Milan consists of 32 charging stations accessible to the public thanks to the E-moving project, which brought important developments in terms of electric mobility in Milan.
On April 5, 2016, the Board of Directors of A2A S.p.A. examined and approved the A2A Group's 2016-2020 Strategic Plan. The main objective of the new Business Plan, which does not yet include the additional benefits resulting from the ongoing local aggregations plan, is to confirm the strategic scheme announced last year in light of a worsened energy scenario: transform A2A into a more modern multi-utility, leader in the environment, smart grids and new energy models, more balanced and profitable, able to seize the opportunities that will open up in the Green Economy, Smart Cities and Smart Grids.
The 2016-2020 Strategic Plan of the A2A Group confirms all industrial targets already defined in 2015 and envisages, in addition, new initiatives to counter the adverse market conditions that occurred in the energy market as well as some negative exogenous factors (delayed start of the Capacity Market; reduction of remuneration in the networks sector; reduction of tariffs in Montenegro). Among the major new initiatives that have helped to offset the above scenario, at least partially, we note in particular:
The main development lines of the Plan continue to be characterized by three main areas of intervention: 1. Restructuring and reduction of exposure in the thermoelectric sector; 2. Relaunch of investments in key areas of the environment, networks and free energy market; 3. Redesign of A2A's mission to seize the opportunities arising from the future technological and industrial evolution of some of the Group's businesses.
The A2A Group, through its subsidiary Aprica S.p.A., signed the deed of purchase on April 20, 2016 of a majority shareholding of 64% of the company LA BI.CO DUE S.r.l., with an option exercisable in 2020 to purchase the remaining portion of 36%. LA BI.CO DUE S.r.l. operates in the urban hygiene sector through the collection, transport and disposal of waste, and through environmental hygiene activities in various Municipalities of the Province of Brescia, for a catchment area of around 100,000 inhabitants served and a turnover of around 10 million euro per year.
The company also manages a waste storage, treatment and recovery facility (mainly paper and plastic) in the Municipality of Lograto. The operation is in line with the strategic objectives of the Business Plan of the A2A Group related to margin growth of A2A Ambiente S.p.A., the development of waste collection activities in the areas served and valorization of products from differentiated collection.
This acquisition will also allow creating operational and logistical synergies for urban hygiene activities currently managed by the companies of the Environment Business Unit in the municipalities of the Brescia area, in view of the traditional closeness of the A2A Group to the needs of the territory.
36
A2A S.p.A. acquired the shareholding - currently of 41.7% - in EPCG by means of the international tender held in 2009, and under the so-called "EPCG Agreement" dated September 3, 2009, it acquired the right to manage the company, appointing the Executive Director (CEO) and Executive Manager.
As part of the management of EPCG by A2A, also in order to meet the specific indicators provided by the EPCG Agreement, with effect from 2010, A2A S.p.A. and, as of 2011, Unareti S.p.A. (formerly A2A Reti Elettriche S.p.A.), have provided in favour of EPCG services designed to improve the organization and performance of EPCG. As regards A2A S.p.A., they primarily involve administrative services and organizational support provided through A2A personnel who dedicated part of the time from Italy and directly at EPCG and, as regards Unareti S.p.A. (formerly A2A Reti Elettriche S.p.A.), services related to the implementation of a software for remote monitoring and management of electricity meters.
Within the broader set of services provided, consulting services were also included provided for the benefit of EPCG by specialized companies outside the A2A Group, the costs of which were first invoiced to A2A S.p.A. as part of more complex and organic consulting services provided in favour of the entire A2A Group and subsequently by A2A S.p.A. charged to EPCG for the activities carried out in favour of the same.
In view of the synergistic importance of intra-group services requested by EPCG to A2A, EPCG applied for and obtained, by the State Commission for the Control of Public Procurement Procedures, a formal exemption - dated September 6, 2010 - by which the non-necessity is enshrined for EPCG to apply the procedures provided by law on Public Procurement in order to purchase services from A2A S.p.A., A2A Reti Elettriche and certain other (identified by name) companies controlled by A2A S.p.A..
From a different perspective, service contracts between EPCG and A2A S.p.A. - which, while benefiting from the aforementioned exemption, would have needed the approval of the EPCG Board of Directors - were not explicitly approved by the Board of Directors, which nonetheless approved the budget of each annuity that includes the aforementioned costs. Therefore, the service contracts related to the years 2010, 2011 and 2012 were signed by the CEO pro tempore of EPCG. Pursuant to said contracts, A2A S.p.A. invoiced with regard to the aforementioned annuities a total of 7.75 million euro to EPCG, which has only paid a portion of 4.34 million euro.
37
For the years 2013, 2014 and 2015, in the absence of a specific agreement between the shareholders regarding the formalization of a specific service contract, A2A did not proceed with invoicing, although a broad set of services was indeed provided to EPCG also in said years, and A2A incurred the related charges.
Also, certain consulting services are disputed, related to the period 2011 and 2012 and amounting to about 2 million euro, acquired by EPCG directly from external consulting firms of the A2A Group.
At the beginning of 2014, the local "Party of People with Disabilities and Pensioners" proposed a parliamentary interpellation and filed a complaint to the Special Attorney in relation to service contracts entered into by EPCG with A2A and external consulting firms of the A2A Group. Subsequently, in November 2014, the Montenegrin police sent EPCG a request for documents and data that was fully acknowledged by the management of EPCG in the following month. Two further requests for additional information and documentation were then subjected to EPCG directly by the Special Attorney in August 2015 and February 2016, and in both cases the management of EPCG responded comprehensively to the requests of the investigators.
Until said moment, therefore, EPCG had registered only requests for documentation to which it promptly replied, and EPCG as well as A2A had therefore not - until April 15, 2016 - deemed that said requests could result in actions such to configure a risk if not remote - personal or capital - at the expense of its employees and/or the companies.
On April 15, 2016, the former CFO appointed by A2A in EPCG, who resigned from said office only a few days before for reasons completely unrelated to the issue under consideration, was arrested by the Montenegrin police on order of the Special Attorney. Investigative measures are still covered by confidentiality. However, based on what was published in the local press, the former CFO appointed by A2A is accused - along with two previous EPCG managers appointed by A2A, and three Montenegrin officials of EPCG - of abuse of office in the management of service contracts stipulated by EPCG, as they were stipulated without complying with the local legislation on Public Procurement.
It is also noted that, as attested by the Montenegrin lawyer, the violations of the law on Public Procurement do not have criminal relevance per se, in the absence of evidence of the harm caused or the unlawful utility procured.
Based on the assessments made, the foregoing and the limited information available to date, including the uncertainty of the counts of the charge with respect to those under investigation and the fact that A2A and other Group companies are currently not recipients of any measure, A2A believes that the risk of its possible involvement, direct or indirect, in terms of potential penalties applicable and/or claims for compensation or indemnity actions, can be assessed as "possible." Considering the state of the proceedings and for the same reasons outlined herewith, it is also impossible to quantify in reliable terms the amount of said indemnities or penalties, direct or indirect.
38
In view of the above, the company - in accordance with IAS 37 - considered it correct to handle the case in question providing adequate information and not allocating specific risks provision.
On May 6, 2016, the former CFO appointed by A2A in EPCG, was released on payment of a bail deposit and withdrawal of the passport.
The Municipality of Brescia has achieved national leadership in district heating distribution, with an overall extension of more than 650 kilometres of double piping and a volume of connected buildings that has exceeded 42 million cubic meters, covering the needs of 70% of the city. In addition to the heat recovered from the waste-to-energy plant and the Lamarmora cogeneration plant, as well as the disbursement in case of back-up by the North plant, since October 2015, thanks to the "Calore in rete" project, is the heat recovered from the steel mill Ori Martin, which would otherwise be released into the environment.
The district heating system avoids annually the emission of over 400 thousand tonnes of carbon dioxide and consumption of over 150 thousand tons of oil equivalent.
Smart Living is a research and innovation project with high-technological content, promoted by A2A with the Municipality of Brescia and Università degli Studi of Brescia and is designed to test an innovative model for the management of energy and services aimed at all citizens with special attention to the weaker ones.
The project is currently being tested at a thousand families residing in the city of Brescia and, if it confirms expectations, in the coming years, it will become a model through which to improve the city of Brescia in key sectors such as energy consumption, intelligent public lighting, the analysis of air and noise quality and waste collection.
The ordinary and extraordinary Shareholders' Meeting A2A S.p.A. met on June 7, 2016 and:
approved the proposal formulated by the Board of Directors to adjust the remuneration of the Board of Auditors with the provision of an additional 10,000 euro per year for each Statutory Auditor and additional 30,000 euro per year for the Chair of the Board of Auditors;
authorized subject to revocation of the resolution authorizing the purchase and disposal of treasury shares adopted by the ordinary Meeting of June 11, 2015, to the extent not already used – the Administrative Body to carry out transactions for the purchase and disposal of treasury shares, according to the purposes, procedures and terms indicated below:
40
The Municipality of Brescia, through A2A Ambiente S.p.A., initiated "Puliamo Brescia", a program to improve the façades of some public buildings. The interventions will ensure the restoration of the original conditions of the buildings involved, helping to improve the visual perception of the city.
The service, using the most advanced technologies in the sector, is able to solve any kind of problem with environmentally friendly solutions, thanks to anti-smog materials, while offering the city a valuable tool for the aesthetic recovery of the defaced surfaces. Subsequently, the electrical substations of the A2A Group, particularly impacted by illegal billboards and often defaced by graffiti will be repainted. "Puliamo Brescia" is ideally continuing the "Pronto graffiti" service, activated by Aprica S.p.A. in 2010, which led to 30 interventions on public spaces, 75 on private buildings, which have resulted in the complete clean-up of 12 thousand square meters of marble surfaces, 14 thousand square meters of plastered surfaces and 1,500 square meters of other surfaces.
On June 24, 2016, A2A S.p.A. and the Brescia Mobilità Group signed a memorandum of understanding that will involve actions and projects resulting from joint collaboration regarding the Municipality of Brescia, the quality of life of its citizens, the sustainable development of its territory.
41
The first four common areas of action have already been identified and have created working groups called to translate them into concrete actions in favour of the community: the school and educational projects for young people; the environment and mobility; initiatives of listening, dialogue and discussion with stakeholders; the smart city.
On June 27, 2016, the Smart Working project was initiated at the A2A Group; it is the innovative way of working that allows, for one day a week, to work from home or from a place other than the office using the business tools necessary to carry out the work.
Thanks to a union agreement signed recently, the perimeter of the Group companies and the number of people involved in the pilot project were defined; the project is reserved for employees that have had a permanent employment contract for at least one year.
Under this initiative, around 300 employees of A2A S.p.A. and A2A Energia S.p.A., located in 18 of the Group's offices, may experience for six months this new work system that combines flexibility and innovation. The first months of the Smart Working project will be fundamental to enable the Group to assess the positive aspects and possible areas for improvement, and to consider the possibility of extending this way of working also to other areas in the future.
On June 30, 2016, at the Integrated Energy Centre of A2A in San Filippo del Mela, was the inauguration of the first thermodynamic solar plant built in the world - STEM - Magaldi.
STEM is an innovative, thermodynamic solar technology patented and produced by the Magaldi Group; a qualifying element of the state-of-the-art system is the use of sand, as means of accumulation of thermal energy generated by solar radiation, with the technology of fluidized beds, which guarantees the continuous operation of the plant in the absence of irradiation, at night or in the presence of a cloudy sky in accordance with the required load curve.
The innovative STEM technology is characterized by the echo compatibility of materials used such glass for the mirrors, steel for structures and sand and does not provide for the use of diathermic oils or molten salts.
The Integrated Energy Centre envisages, in addition to the STEM, a photovoltaic plant, an anaerobic digestion plant with production of biomethane, and a plant for the production of energy from Secondary Solid Fuel (CSS), for which the authorization process has been initiated at the competent entities. Efficient structures, designed with innovative technologies, which allow producing energy from renewable sources, with positive results also on the quality of life of the community.
42
With Resolution no. 16/2016, the Board of Directors of the Ambit Government Entity for Brescia approved the adjustment tariff items for A2A Ciclo Idrico S.p.A., pursuant to Resolution no. 643/2013/R/IDR of the Authority for Electricity, Gas and the Water System.
The recovery of these adjustment items relates to the period 2007-2011 and amounts to 10 million euro/year for 5 years. Therefore, at September 30, 2016, it benefits from 51.4 million euro of revenues that were invoiced to customers as of July 2016.
In compliance with the Business Plan of the A2A Group, these amounts will be reinvested in the creation of infrastructure for the integrated water service in the province of Brescia.
On July 20, A2A Ambiente S.p.A. finalized the acquisition of 100% of the RI.ECO-RESMAL Group, operating in the collection, selection and treatment of special, non-hazardous waste such as plastic, biomass and, in particular, waste paper, with 5 production facilities in the Milan area and a treatment capacity of around 400 thousand tonnes/year. The operation will also enable industrial synergies by means of the integration of treatment capacity (+30% increase in capacity in the business segment) and the diversification of the customer base.
RI.ECO-RESMAL Group 2015 consolidated revenues totalled approximately 37 million euro, with an EBITDA of approximately 5 million euro. The Enterprise Value of the transaction is approximately 25 million euro.
The A2A Group and the State of Montenegro reached an agreement for the signing of the new Shareholders' Agreements for the management of the Montenegrin company EPCG.
On July 29, 2016, the Parliament of Montenegro approved the new Shareholders' Agreements between the State of Montenegro and A2A for the management of the energy company EPCG, with duration until December 31, 2016.
The main points of these new agreements are maintaining the current management rights of A2A in EPCG, with the appointment of the key managerial figures by A2A and the definition of some reserved matters on important topics for the corporate life of EPCG, the possibility to exercise an option to sell the entire shareholding of A2A to the State of Montenegro, for a value of 250 million euro, upon expiration of the agreements and exercisable by March 31, 2017, and no opposition by A2A to the construction project of the new thermoelectric plant in Pljevlja.
The negotiations that led to the definition of these new agreements were conducted transparently in order to reach consensus and protecting the interests of all parties involved.
On August 4 and 5, 2016, A2A S.p.A., based on the provisions of the industrial partnership contract signed March 4, 2016 with AEM Cremona, ASM Pavia, ASTEM Lodi, Cogeme and SCS Crema, finalized the acquisition of a share of 51% of the share capital of LGH.
The price paid for the acquisition was 112.8 million euro, part of which will be paid three years from today's date, based on the actual implementation of some development projects in progress.
The agreement was finalized following the fulfilment of all conditions precedent, including, in particular, the authorization of the Competition and Market Protection Authority obtained on July 28, 2016 subject to respect of some structural or para-structural measures:
and behavioural:
44
The behavioural measures imposed on A2A were effective immediately after the closing of the transaction, while the structural measures will be implemented according to a predefined schedule, which will be subject to close monitoring by the Authority.
LGH is the leading multi-utility in Lombardy after A2A S.p.A., and closed the year 2015 with revenues of over 550 million euro and an EBITDA of around 77 million euro. The company has a significant presence in environmental services and in the distribution and sale of electricity and gas. A2A and LGH shareholders agree on the strategic value of the partnership for both companies, the first concrete realization of the model of the "Multi-utility of the territories". The transaction is significant as a positive example of a virtuous process for all stakeholders involved: the expected industrial and financial benefits are in fact accompanied by a full valorization of the company's presence in its territories, with objectives of further industrial development, improvement in operating efficiency and increase in quality standards. The partnership between A2A and LGH forms part of the strategic guidelines of the Business Plan of A2A.
Following the finalization of agreements on the A2A-LGH industrial partnership, summarized below are the main objectives of the Business Plan of the LGH Group, which takes into account the combined post-acquisition effects at 2020:
The European Investment Bank (EIB) and A2A S.p.A. have entered an agreement for a 15-year loan of 95 million euro for carrying out investments relating to the integrated water service. The investment program consists of projects included in the Ambit Plan of the province of Brescia, which aim to improve the sustainability and efficiency of services, while ensuring compliance with the relevant EU directives. In particular, investments are aimed at reducing technical losses and energy consumption, extending the coverage of the treatment of drinking water and improving water supply safety. The signed agreement will enable A2A S.p.A. to extend the average duration of its debt at extremely competitive conditions.
45
On October 4, 2016, the Municipalities of Milan and Brescia renewed for another three years, with effect from January 1, 2017, the Shareholders' Agreement signed on December 30, 2013, concerning 1,566,452,642 ordinary shares representing 50% plus two shares of the share capital of A2A S.p.A.. On May 20, 2016, the two Municipalities had proceeded to sign an appendix to the Agreement, which envisaged reducing from six months to three months the term of the agreement, during which it is possible to terminate the same.
46
On October 26, 2016, the Municipality of Milan received from the Municipality of Brescia the proposal, approved by the Council of said Municipality on October 25, 2016, to partially amend the shareholders' agreement relating to A2A S.p.A. existing between the two Municipalities. In particular, said proposal requires the commitment of the two Municipalities to maintain syndicated and bound, in the new agreement, a number of shares held by them in equal measure, equal to 42% of the capital of A2A S.p.A.. On November 4, 2016, the Council of the Municipality of Milan favourably examined the proposal of the Municipality of Brescia and will submit to the Municipal Council the proposal of the new shareholders' agreement for the final determinations of competence.
On October 20, 2016, A2A made a further step in expanding the scope of operations and accelerated in enrichment programs of technological expertise through the purchase of 75% stake of Consul System. The transaction involves the acquisition of the main Italian, independent ESCo (Energy Service Company), not belonging to an industrial group, by a utility to create operational synergies and to develop new products and services on the customer base of both companies. The transaction was finalized by ESCo certified by the A2A Group (A2A Calore & Servizi S.r.l.), for a value of approximately 21 million euro (enterprise value for 100%). The agreement also provides for a put & call structure for the acquisition of the remaining 25% stake. The acquisition is consistent with the guidelines of the Business Plan of the A2A Group that provide for growth in energy services, environment and smart grids. The synergies arising from this transaction will ensure expertise and tools to improve energy efficiency, for the benefit of the territories, businesses and citizens.
A2A continues its strategy of acquisitions aimed at obtaining environmental benefits and improving the services offered to the territory: through its subsidiary A2A Ambiente, on November 9, 2016, the Group finalized the acquisition of a business unit of the company Sanitaria Group S.r.l. dedicated to the management of a composting plant. The plant, located in the Municipality of Bedizzole (BS), employs 18 workers and has a processing capacity of about 80,000 tonnes/year of green fraction from the collection of municipal solid waste (MSW), agriculture or companies operating in the field of gardening, flowers and the like.
47
The energy scenario continues to be characterized by strong volatility and the recovery that started in April/May further accelerated in the months of September and October, when the national prices of electricity and those from dispatching services markets recorded values higher than the average observed between January and August. Nevertheless, through forward sales, the Group covered almost all of its production for 2016 and can therefore only marginally benefit from the favourable market conditions. The economic and financial performance forecasts for the BUs other than generation were positive overall and generally in line, if not slightly better, than what was expected in the Plan. The forecasts for the close of the year are positive: the Group is expecting an increase in both the Gross Operating Profit (EBITDA), expected to be between 1,140 and 1,150 million euros (including the effects of the first consolidation of LGH), and the Net Profit, as well as a further reduction – pre-consolidation of LGH – of the Net Financial Position.
48
| Millions of euro | Note | 09 30 2016 | 12 31 2015 | 09 30 2015 |
|---|---|---|---|---|
| NON-CURRENT ASSETS | ||||
| Tangible assets | 1 | 5,302 | 5,067 | 5,364 |
| Intangible assets | 2 | 1,684 | 1,348 | 1,312 |
| Shareholdings carried according to equity method | 3 | 75 | 68 | 74 |
| Other non-current financial assets | 3 | 77 | 69 | 71 |
| Deferred tax assets | 4 | 283 | 308 | 315 |
| Other non-current assets | 5 | 19 | 6 | 38 |
| Total non-current assets | 7,440 | 6,866 | 7,174 | |
| CURRENT ASSETS | ||||
| Inventories | 6 | 186 | 184 | 236 |
| Trade receivables | 7 | 1,722 | 1,485 | 1,384 |
| Other current assets | 8 | 418 | 183 | 296 |
| Current financial assets | 9 | 219 | 171 | 139 |
| Current tax assets | 10 | 72 | 71 | 72 |
| Cash and cash equivalents | 11 | 728 | 636 | 514 |
| Total current assets | 3,345 | 2,730 | 2,641 | |
| NON-CURRENT ASSETS HELD FOR SALE | 12 | 4 | 205 | 202 |
| TOTAL ASSETS | 10,789 | 9,801 | 10,017 |
(1) For details regarding the first-time consolidation effects of acquisitions in 2016, reference is made to the specific statement below.
(2) The effects of significant non-recurring events and transactions on the consolidated financial statements are presented in Note 40 as required by Consob Communication no. DEM/6064293 of July 28, 2006.
| Millions of euro | Note | 09 30 2016 | 12 31 2015 | 09 30 2015 |
|---|---|---|---|---|
| EQUITY | ||||
| Share capital | 13 | 1,629 | 1,629 | 1,629 |
| (Treasury shares) | 14 | (54) | (61) | (61) |
| Reserves | 15 | 917 | 1,005 | 929 |
| Result of the year | 16 | - | 73 | - |
| Result of the period | 16 | 323 | - | 237 |
| Equity pertaining to the Group | 2,815 | 2,646 | 2,734 | |
| Minority interests | 17 | 553 | 613 | 589 |
| Total equity | 3,368 | 3,259 | 3,323 | |
| LIABILITIES | ||||
| Non-current liabilities | ||||
| Non-current financial liabilities | 18 | 3,497 | 3,089 | 3,779 |
| Employee benefits | 19 | 366 | 332 | 332 |
| Provisions for risks, charges and liabilities for landfills | 20 | 660 | 576 | 532 |
| Other non-current liabilities | 21 | 119 | 99 | 115 |
| Total non-current liabilities | 4,642 | 4,096 | 4,758 | |
| Current liabilities | ||||
| Trade payables | 22 | 1,243 | 1,170 | 993 |
| Other current liabilities | 22 | 722 | 521 | 540 |
| Current financial liabilities | 23 | 751 | 692 | 97 |
| Tax liabilities | 24 | 61 | 43 | 49 |
| Total current liabilities | 2,777 | 2,426 | 1,679 | |
| Total liabilities | 7,419 | 6,522 | 6,437 | |
| LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE |
25 | 2 | 20 | 257 |
| TOTAL EQUITY AND LIABILITIES | 10,789 | 9,801 | 10,017 |
| Millions of euro | Note | Consolidated at 12 31 2015 |
Effect first consolidation LA BI.CO DUE S.r.l. |
Effect first consolidation Gruppo LGH |
Effect first consolidation RI.ECO-RESMAL Group |
Total effect first consolidation acquisitions 2016 |
Changes | ||
|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||
| NON-CURRENT ASSETS | |||||||||
| Tangible assets | 1 | 5,067 | 2 | 332 | 5 | 339 (104) |
|||
| Intangible assets | 2 | 1,348 | - | 299 | 17 | 316 20 |
|||
| Shareholdings carried according to equity method | 3 | 68 | - | 4 | - | 4 3 |
|||
| Other non-current financial assets | 3 | 69 | - | 28 | - | 28 (20) |
|||
| Deferred tax assets | 4 | 308 | - | 8 | 1 | 9 (34) |
|||
| Other non-current assets | 5 | 6 | - | 4 | - | 4 9 |
|||
| TOTAL NON-CURRENT ASSETS | 6,866 | 2 | 675 | 23 | 700 (126) |
||||
| CURRENT ASSETS | |||||||||
| Inventories | 6 | 184 | - | 19 | 1 | 20 (18) |
|||
| Trade receivables | 7 | 1,485 | 3 | 192 | 12 | 207 30 |
|||
| Other current assets | 8 | 183 | 1 | 24 | 1 | 26 209 |
|||
| Current financial assets | 9 | 171 | - | 19 | 1 | 20 28 |
|||
| Current tax assets | 10 | 71 | - | 5 | - | 5 (4) |
|||
| Cash and cash equivalents | 11 | 636 | - | 80 | 3 | 83 9 |
|||
| TOTAL CURRENT ASSETS | 2,730 | 4 | 339 | 18 | 361 254 |
||||
| NON-CURRENT ASSETS HELD FOR SALE | 12 | 205 | - | 1 | - | 1 (202) |
|||
| TOTAL ASSETS | 9,801 | 6 | 1,015 | 41 | 1,062 (74) |
||||
| LIABILITIES | |||||||||
| NON-CURRENT LIABILITIES | |||||||||
| Non-current financial liabilities | 18 | 3,089 | - | 437 | - | 437 (29) |
|||
| Employee benefits | 19 | 332 | 1 | 20 | 1 | 22 12 |
|||
| Provisions for risks, charges and liabilities for landfills | 20 | 576 | - | 72 | 1 | 73 11 |
|||
| Other non-current liabilities | 21 | 99 | - | 18 | - | 18 2 |
|||
| TOTAL NON-CURRENT LIABILITIES | 4,096 | 1 | 547 | 2 | 550 (4) |
||||
| CURRENT LIABILITIES | |||||||||
| Trade payables | 22 | 1,170 | 3 | 115 | 11 | 129 (56) |
|||
| Other current liabilities | 22 | 521 | - | 55 | 2 | 57 144 |
|||
| Current financial liabilities | 23 | 692 | 2 | 57 | 4 | 63 (4) |
|||
| Tax liabilities | 24 | 43 | - | 3 | - | 3 15 |
|||
| TOTAL CURRENT LIABILITIES | 2,426 | 5 | 230 | 17 | 252 99 |
||||
| TOTAL LIABILITIES | 6,522 | 6 | 777 | 19 | 802 95 |
||||
| LIABILITIES DIRECTLY ASSOCIATED TO NON-CURRENT ASSETS HELD FOR SALE |
25 | 20 | - | 2 | - | 2 (20) |
|||
| LIABILITIES | 6,542 | 6 | 779 | 19 | 804 75 |
||||
Interim report on operations – September 30, 2016
Detail of the Balance Sheet highlighting the first-time consolidation effect of 2016 acquisitions
| Effect first Effect first Total effect consolidation consolidation first consolidation Gruppo LGH RI.ECO-RESMAL Group acquisitions 2016 |
Changes | Consolidated at 09 30 2016 |
|---|---|---|
| 332 5 339 |
(104) | 5,302 |
| 299 17 316 |
20 | 1,684 |
| 4 - 4 |
3 | 75 |
| 28 - 28 |
(20) | 77 |
| 8 1 9 |
(34) | 283 |
| 4 - 4 |
9 | 19 |
| 675 23 700 |
(126) | 7,440 |
| 19 1 20 |
(18) | 186 |
| 192 12 207 |
30 | 1,722 |
| 24 1 26 |
209 | 418 |
| 19 1 20 |
28 | 219 |
| 5 - 5 |
(4) | 72 |
| 80 3 83 |
9 | 728 |
| 339 18 361 |
254 | 3,345 |
| 1 - 1 |
(202) | 4 |
| 1,015 41 1,062 |
(74) | 10,789 |
| 437 - 437 |
(29) | 3,497 |
| 20 1 22 |
12 | 366 |
| 72 1 73 18 - 18 |
11 2 |
660 119 |
| 547 2 550 |
(4) | 4,642 |
| 115 11 129 |
(56) | 1,243 |
| 55 2 57 |
144 | 722 |
| 57 4 63 |
(4) | 751 |
| 15 | 61 | |
| 2,777 | ||
| 3 - 3 |
||
| 230 17 252 |
99 | |
| 777 19 802 2 - 2 |
95 (20) |
7,419 2 |
| Millions of euro | Note | 01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
3rd quarter 2016 |
3rd quarter 2015 |
|---|---|---|---|---|---|
| Revenues | |||||
| Revenues from the sale of goods and services | 3,315 | 3,515 | 1,135 | 1,138 | |
| Other operating income | 167 | 123 | 24 | 33 | |
| Total revenues | 27 | 3,482 | 3,638 | 1,159 | 1,171 |
| Operating expenses | |||||
| Expenses for raw materials and services | 1,980 | 2,179 | 691 | 713 | |
| Other operating expenses | 166 | 182 | 57 | 57 | |
| Total operating expenses | 28 | 2,146 | 2,361 | 748 | 770 |
| Labour costs | 29 | 464 | 463 | 153 | 149 |
| Gross operating income - EBITDA | 30 | 872 | 814 | 258 | 252 |
| Depreciation, amortization, provisions and write-downs | 31 | 348 | 360 | 114 | 112 |
| Net operating income - EBIT | 32 | 524 | 454 | 144 | 140 |
| Result from non-recurring transactions | 33 | 52 | (1) | - | - |
| Financial balance | |||||
| Financial income | 17 | 15 | 5 | 4 | |
| Financial expenses | 113 | 125 | 38 | 37 | |
| Affiliates | 4 | 3 | - | - | |
| Result from disposal of other shareholdings (AFS) | - | - | - | - | |
| Total financial balance | 34 | (92) | (107) | (33) | (33) |
| Result before taxes | 484 | 346 | 111 | 107 | |
| Income taxes | 35 | 145 | 97 | 39 | 20 |
| Result after taxes from operating activities | 339 | 249 | 72 | 87 | |
| Net result from discontinued operations | 36 | 1 | - | 1 | - |
| Net result | 340 | 249 | 73 | 87 | |
| Minorities | 37 | (17) | (12) | (4) | (2) |
| Group result of the period | 38 | 323 | 237 | 69 | 85 |
| Result per share (in euro): | |||||
| - basic | 0.1044 | 0.0762 | |||
| - basic from continuing operations | 0.1042 | 0.0762 | |||
| - basic from assets held for sale | 0.0002 | - | |||
| - diluted | 0.1044 | 0.0762 | |||
| - diluted from continuing operations | 0.1042 | 0.0762 | |||
| - diluted from assets held for sale | 0.0002 | - |
(1) For details regarding the consolidation effects of acquisitions in 2016, reference is made to the specific statement below.
(2) The effects of significant non-recurring events and transactions on the consolidated financial statements are presented in Note 40 as required by Consob Communication no. DEM/6064293 of July 28, 2006.
| Millions of euro | 09 30 2016 | 09 30 2015 | 3rd quarter 2016 |
3rd quarter 2015 |
|---|---|---|---|---|
| Net result of the period (A) | 340 | 249 | 73 | 87 |
| Actuarial gains/(losses) on Employee's Benefits booked in the Net equity |
(23) | 22 | 1 | - |
| Tax effect of other actuarial gains/(losses) | 7 | (4) | 1 | - |
| Total actuarial gains/(losses) net of the tax effect (B) | (16) | 18 | 2 | - |
| Effective part of gains/(losses) on cash flow hedge | 26 | 22 | 1 | (8) |
| Tax effect of other gains/(losses) | (6) | (6) | - | 3 |
| Total other gains/(losses) net of the tax effect of companies consolidated on a line-by-line basis (C) |
20 | 16 | 1 | (5) |
| Other gains/(losses) of companies valued at equity net of the tax effect (D) |
- | - | - | - |
| Total comprehensive result (A) + (B) + (C) + (D) | 344 | 283 | 76 | 82 |
| Total comprehensive result attributable to: | ||||
| Shareholders of the parent company | 327 | 271 | 72 | 80 |
| Minority interests | 17 | 12 | 4 | 2 |
With the exception of the actuarial effects on employee benefits recognized in equity, the other effects stated above will be reclassified to the Income Statement in subsequent years.
| Millions of euro | Note | Effect consolidation LA BI.CO DUE S.r.l. |
Effect consolidation Gruppo LGH |
|
|---|---|---|---|---|
| REVENUES | ||||
| Revenues from the sale of goods and services | 4 | 62 | ||
| Other operating income | - | - | ||
| TOTAL REVENUES | 27 | 4 | 62 | |
| OPERATING EXPENSES | ||||
| Expenses for raw materials and services | 2 | 42 | ||
| Other operating expenses | 1 | 4 | ||
| TOTAL OPERATING EXPENSES | 28 | 3 | 46 | |
| LABOUR COSTS | 29 | 1 | 9 | |
| GROSS OPERATING INCOME - EBITDA | 30 | - | 7 | |
| DEPRECIATION, AMORTIZATION AND WRITE-DOWNS | 31 | - | 6 | |
| NET OPERATING INCOME - EBIT | 32 | - | 1 | |
| RESULT FROM NON-RECURRING TRANSACTIONS | 33 | - | - | |
| FINANCIAL BALANCE | ||||
| Financial income | - | - | ||
| Financial expenses | - | 3 | ||
| Affiliates | - | - | ||
| Result from disposal of other shareholdings (AFS) | - | - | ||
| TOTAL FINANCIAL BALANCE | 34 | - | (3) | |
| RESULT BEFORE TAXES | - | (2) | ||
| INCOME TAXES | 35 | - | - | |
| RESULT AFTER TAXES FROM OPERATING ACTIVITIES | - | (2) | ||
| NET RESULT FROM DISCONTINUED OPERATIONS | 36 | - | 1 | |
| NET RESULT | - | (1) | ||
| MINORITIES | 37 | - | 1 | |
| GROUP RESULT OF THE PERIOD/YEAR | 38 | - | - |
Interim report on operations – September 30, 2016
Detail consolidation effect new acquisitions 2016
| Consolidated at 09 30 2015 |
Consolidated at 09 30 2016 |
Old perimeter 09 30 2016 |
Total effect consolidation new acquisitions 2016 |
Effect consolidation RI.ECO-RESMAL Group |
|---|---|---|---|---|
| 3,515 | 3,315 | 3,243 | 72 | 6 |
| 123 | 167 | 167 | - | - |
| 3,638 | 3,482 | 3,410 | 72 | 6 |
| 2,179 | 1,980 | 1,931 | 49 | 5 |
| 182 | 166 | 161 | 5 | - |
| 2,361 | 2,146 | 2,092 | 54 | 5 |
| 463 | 464 | 453 | 11 | 1 |
| 814 | 872 | 865 | 7 | - |
| 360 | 348 | 342 | 6 | - |
| 454 | 524 | 523 | 1 | - |
| (1) | 52 | 52 | - | - |
| 15 | 17 | 17 | - | - |
| 125 | 113 | 110 | 3 | - |
| 3 | 4 | 4 | - | - |
| - | - | - | - | - |
| (107) | (92) | (89) | (3) | - |
| 346 | 484 | 486 | (2) | - |
| 97 | 145 | 145 | - | - |
| 249 | 339 | 341 | (2) | - |
| - | 1 | - | 1 | - |
| 249 | 340 | 341 | (1) | - |
| (12) | (17) | (18) | 1 | - |
| 237 | 323 | 323 | - | - |
| Millions of euro | 09 30 2016 | 12 31 2015 | 09 30 2015 |
|---|---|---|---|
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD/YEAR |
636 | 544 | 544 |
| Edipower demerger in favour of Cellina Energy | (38) | - | - |
| Contribution of first consolidation of LGH and other acquisitions of 2016 | 83 | - | - |
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD/YEAR |
681 | 544 | 544 |
| Operating activities | |||
| Net Result (**) | 288 | (57) | 249 |
| Tangible assets depreciation | 266 | 341 | 250 |
| Intangible assets amortization | 38 | 54 | 47 |
| Fixed assets write-downs/disposals | 7 | 364 | 3 |
| Result from affiliates | (4) | 4 | (3) |
| Net taxes paid (a) Gross change in assets and liabilities (b) |
(93) 4 |
(59) 249 |
(14) 4 |
| Total change of assets and liabilities (a+b) (*) | (89) | 190 | (10) |
| Cash flow from operating activities | 506 | 896 | 536 |
| Investment activities | |||
| Investments in tangible assets | (139) | (253) | (153) |
| Investments in intangible assets and goodwill | (73) | (88) | (53) |
| Investments in shareholdings and securities (*) | (111) | (4) | (2) |
| Disposal of fixed assets and shareholdings | 4 | 7 | - |
| Dividends received | 1 | 2 | 1 |
| Cash flow from investment activities | (318) | (336) | (207) |
(*) Cleared of balances in return of shareholders' equity and other balance sheet items.
(**) Net Result is exposed net of gains on shareholdings', fixed assets' disposals and from discontinued operations (equal to 52 millions of euro - item "Result from non-recurring transactions" of Consolidated Income Statement).
Consolidated cash-flow statement
| Millions of euro | 09 30 2016 | 12 31 2015 | 09 30 2015 |
|---|---|---|---|
| Free cash flow | 188 | 560 | 329 |
| Financing activities | |||
| Change in financial assets (*) | 20 | (88) | (67) |
| Change in financial liabilities (*) | 26 | (133) | (106) |
| Net financial interests paid | (56) | (129) | (68) |
| Dividends paid by the parent company | (126) | (113) | (113) |
| Dividends paid by the subsidiaries | (5) | (5) | (5) |
| Cash flow from financing activities | (141) | (468) | (359) |
| CHANGE IN CASH AND CASH EQUIVALENTS | 47 | 92 | (30) |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD/YEAR | 728 | 636 | 514 |
59
| Description Millions of euro |
Share Capital |
Treasury Shares |
Cash Flow Hedge |
|
|---|---|---|---|---|
| Note 13 | Note 14 | Note 15 | ||
| Net equity at December 31, 2014 | 1,629 | (61) | (51) | |
| Changes in the first nine months of 2015 | ||||
| 2014 result allocation | ||||
| Distribution of dividends | ||||
| IAS 19 reserve (*) | ||||
| IAS 32 and IAS 39 reserves (*) | 16 | |||
| Put option on Aspem S.p.A. shares | ||||
| Other changes | ||||
| Group and minorities result of the period | ||||
| Net equity at September 30, 2015 | 1,629 | (61) | (35) | |
| Changes in the fourth quarter of 2015 | ||||
| IAS 19 reserve (*) | ||||
| IAS 32 and IAS 39 reserves (*) | 10 | |||
| Other changes | ||||
| Group and minorities result of the period | ||||
| Net equity at December 31, 2015 | 1,629 | (61) | (25) | |
| Changes in the first nine months of 2016 | ||||
| 2015 result allocation | ||||
| Purchase of own shares | 7 | |||
| Distribution of dividends | ||||
| IAS 19 reserve (*) | ||||
| IAS 32 and IAS 39 reserves (*) | 20 | |||
| Other changes | ||||
| Group and minorities result of the period | ||||
| Net equity at September 30, 2016 | 1,629 | (54) | (5) |
(*) These form part of the statement of comprehensive income.
Interim report on operations – September 30, 2016 Statement of changes in Group equity
61
Other Reserves and retained earnings Note 15 Result of the period/year Note 16 Total Equity pertaining to the Group Minority interests Note 17 Total Net shareholders' equity Net equity at December 31, 2014 1,629 (61) (51) 1,099 (37) 2,579 600 3,179 2014 result allocation (37) 37 Distribution of dividends (113) (113) (5) (118) IAS 19 reserve (*) 18 18 18 IAS 32 and IAS 39 reserves (*) 16 16 16 Put option on Aspem S.p.A. shares 1 1 Other changes (3) (3) (19) (22) Group and minorities result of the period 237 237 12 249 Net equity at September 30, 2015 1,629 (61) (35) 964 237 2,734 589 3,323 IAS 19 reserve (*) (4) (4) (4) IAS 32 and IAS 39 reserves (*) 10 10 10 Other changes 70 70 166 236 Group and minorities result of the period (164) (164) (142) (306) Net equity at December 31, 2015 1,629 (61) (25) 1,030 73 2,646 613 3,259 2015 result allocation 73 (73) Purchase of own shares 7 7 7 Distribution of dividends (126) (126) (5) (131) IAS 19 reserve (*) (16) (16) (16) IAS 32 and IAS 39 reserves (*) 20 20 20 Other changes (39) (39) (72) (111) Group and minorities result of the period 323 323 17 340
Net equity at September 30, 2016 1,629 (54) (5) 922 323 2,815 553 3,368
Notes to the Interim report on operations
A2A S.p.A. is a company incorporated under Italian law.
A2A S.p.A. and its subsidiaries (the "Group") operate both in Italy and abroad. In particular, abroad, the A2A Group is present in Montenegro following the acquisition of the shareholding in the company EPCG which took place in 2009.
The A2A Group mainly operates in the following sectors:
64
65
The interim report on operations (in the following the "Report") of the A2A Group at September 30, 2016 is presented in millions of euro; the euro is also the functional currency of the economies in which the Group operates.
The Report of the A2A Group at September 30, 2016 was prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) and endorsed by the European Union in particular IAS 34. IFRS means all the revised international accounting standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly known as the Standing Interpretations Committee (SIC).
In preparing the Report, the same principles used in the preparation of the annual financial report at December 31, 2015 were applied, other than the principles and interpretations described in detail in the paragraph below "Changes in accounting principles" adopted for the first time on January 1, 2016.
This Report at September 30, 2016 was approved on November 10, 2016 by the Board of Directors, which authorized publication.
Legislative Decree no. 25 of February 15, 2016, implementing Directive 2013/50/EU (the socalled Transparency II Directive) has repealed the obligation to publish the Interim Report on Operations. However, said decree attributed to Consob the power to order an obligation to publish periodic additional information with respect to the Annual and Half-Yearly Financial Report, subject to a preliminary verification of certain conditions.
On April 14, 2016, Consob therefore opened an initial consultation to collect data and evidence for an analysis of the impact of the regulations.
Based on the replies received, on August 5, 2016, Consob opened a second consultation to acquire contributions on the proposal to include in the so-called Issuers' Regulation a new article 82-ter (Additional periodic financial information).
As a result of the second consultation and by means of Resolution no. 19770 of October 26, 2016 made public on November 3, 2016, Consob resolved to amend the Issuers' Regulation with effect from January 2, 2017, introducing the new article 82-ter (additional periodic financial information).
Based on this new article, listed companies have the right to choose whether or not to publish the additional periodic financial information. If companies choose to publish them on a voluntary basis, they will have to inform the market of their choice and specify the information elements they intend to provide, so that the decisions adopted are clear and stable over time. Any decision to interrupt publication must be substantiated and made public and shall be effective as of the subsequent year.
A2A has therefore initiated assessments on the publication methods of additional periodic financial information referred to in the new article 82-ter of the Issuers' Regulations, which will come into force on January 2, 2017.
Pending the entry into force of said provision, the Company decided to publish the Interim Report on Operations at September 30, 2016 in continuity with the past.
66
The Group has adopted a format for the balance sheet which presents current and noncurrent assets and current and non-current liabilities as separate classifications, as required by paragraphs 60 and following of IAS 1.
The income statement is presented by nature, a format which is considered more representative than a presentation by function. The selected format is in agreement with the presentation used by the Group's major competitors and in line with international practice.
The specific line items "Result from non-recurring transactions" and "Result from disposal of other shareholdings (AFS)" are in the format of the income statement in order to provide clear and immediate identification of the results arising from non-recurring transactions forming part of continuing operations, separating these from the results from discontinued operations. The line item "Non-recurring transactions" consists of the gains and losses arising from the measurement at fair value less costs to sell or from the sale or disposal of noncurrent assets (or disposal groups) classified as held for sale within the meaning of IFRS 5, the gains or losses arising on the disposal of shareholdings in unconsolidated subsidiaries and associates and other non-operating income and expenses. This item is presented between net operating income and the financial balance. In this way net operating income is not affected by non-recurring operations, making it easier to measure the effective performance of the Group's ordinary operating activities.
The cash flow statement has been prepared using the indirect method as permitted by IAS 7.
The statement of changes in equity has been prepared in accordance with IAS 1.
The formats adopted for the financial statements are the same as those used to prepare the annual consolidated financial statements at December 31, 2015.
The Interim Report at September 30, 2016 has been prepared on a historical cost basis, with the exception of those items which, in accordance with IFRS, can or have to be measured at fair value.
The consolidation principles, the accounting principles, the accounting policies and the methods of measurement used in the preparation of the Report are consistent with those used to prepare the annual consolidated financial statements at December 31, 2015, except as specified below.
Pursuant to IAS 8, the subsequent paragraph "Accounting standards, amendments and interpretations applicable by the Group as of the current year" indicates and briefly illustrates the amendments in force as of January 1, 2016.
The following paragraph, "Accounting standards, amendments and interpretations approved by the European Union" instead detail the accounting standards and interpretations already issued but not yet approved by the European Union and therefore not applicable for the preparation of the financial statements at September 30, 2016, any impacts of which will then be transposed as of the financial statements of the following years.
As from January 1, 2016, some additions have been applied following specific paragraphs of the international accounting standards already adopted by the Group in previous years, none of which had an effect, with respect to December 31, 2015, on the Group's economic and financial results or reporting methods.
The main changes are described in the following:
to the standard in question also intends to provide clarification on the aggregation or disaggregation of items of the financial statements if the amount is significant or "material". In particular, the amended to the standard requires not proceeding with the aggregation of financial statement items with different characteristics or the disaggregation of financial statement items that make the disclosure and reading of the financial statements difficult. Furthermore, with regard to the exposure of the financial position of an entity, the amendment clarifies the need to disaggregate some items required by paragraphs 54 (Balance sheet) and 82 (Income statement) of IAS 1;
• IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible Assets": this amendment to the two principles outlined, issued by the IASB on May 12, 2014, clarifies that a depreciation process based on revenues cannot be applied with reference to elements of property, plant and equipment, since this method is based on factors (ex. volumes and selling prices) that do not represent the actual consumption of the economic benefits of the underlying asset. The above prohibition has also been included in IAS 38, under which intangible assets may be amortized on the basis of revenues only if it can be shown that the revenues and consumption of the economic benefits of the intangible asset are highly correlated;
70
IAS 28 "Investments in Associates and Joint Ventures": on December 18, 2014, this standard was amended regarding the investments in associates and joint ventures that are "investment entities": these investments can be measured at fair value or with the equity method. This amendment is applicable from January 1, 2016;
annual amendments to IFRS 2012-2014: on September 25, 2014, the IASB published a series of amendments to certain international accounting standards, applicable with effect from January 1, 2016. The amendments concern:
Regarding the first point, the amendment clarifies that the restatement of the financial statement figures shall not be resort to if an asset or group of assets available for sale is reclassified as "held for distribution", or vice versa.
With reference to IFRS 7, the amendment provides that if an entity transfers a financial asset on terms which allow the "derecognition" of the asset, it shall be required to provide information regarding the involvement of the entity in the transferred asset, if it has signed service contracts that show an entity's interest in the future performance of the financial assets transferred.
71
The amendment of IAS 19 proposed, clarifies that the discount rate to discount the obligations for benefits following the employment relationship, is determined with reference to market yields on corporate bonds of leading companies and, in countries where there is no "thick market" of such securities, the market yields of the securities of public entities are used.
The proposed amendment to IAS 34 requires disclosure of cross-references between the data reported in the interim financial statements and the information associated with them.
The following standards and amendments to existing standards are still pending approval by the European Union and are therefore not applicable by the Group. The dates indicated reflect the expected effectiveness date and enacted in the standards; this date is however subject to the actual approval by the competent bodies of the European Union:
• IFRS 9 "Financial instruments": this standard is the first of a multi-phase project which is designed to replace IAS 39 "Financial instruments: recognition and measurement" and to introduce two new criteria to recognize and measure financial assets and liabilities. The main changes introduced by IFRS 9 may be summarized as follows: financial assets can be measured either at fair value or at their amortized cost. As a result, the categories "loans and receivables", "available- for-sale financial assets" and "held-to-maturity investments" disappear. Classification within the two categories is carried out on the basis of an entity's business model and the contractual cash flow characteristics of the financial asset. A financial asset is measured at amortized cost if both of the following requirements are met: the objective of the entity's business model is to hold assets to collect contractual cash flows (and therefore in substance not to earn trading profits) and the characteristics of the cash flows of the asset are solely payments of principal and interest. A financial asset is measured at fair value if it is not measured at amortized cost. The rules to account for derivatives have been simplified, as the embedded derivative and the host financial asset are no longer recognized separately.
All equity instruments - listed or unlisted - must be measured at fair value (IAS 39 established on the other hand that unlisted equity instruments should be valued at cost if fair value could not be reliably measured).
An entity has the option of presenting changes in the fair value of equity instruments that are not held for trading in equity; that option is not permitted for equity instruments that are held for trading. This designation is permitted on initial recognition, may be adopted for each individual instrument and is irrevocable. If an election is made for this option, changes in the fair value of these instruments may never be reclassified from equity to the income statement. Dividends on the other hand continue to be recognized in the income statement.
72
IFRS 9 does not permit reclassifications between the two categories of financial asset except in the rare case of a change in an entity's business model. In this case the effects of the reclassification are applied prospectively.
The disclosures required to be made in the notes have been adjusted to the classification and measurements rules introduced by IFRS 9. On November 19, 2013, the IASB issued an amendment to this standard which mainly regards the following:
(iii) the effective date of the standard is deferring, originally effective as of January 1, 2015. A partial amendment to the standard was issued in July 2014 on the subject of the valuation of financial instruments, with the introduction of the expected-loss impairment model for loans which replaces the impairment model based on realized losses. The amendment in question is applicable from January 1, 2018;
• on September 11, 2014, the IASB published an amendment to IFRS 10 "Consolidated Financial Statements" and IAS 28 "Shareholdings in affiliates and joint ventures", in order to resolve the conflict between IAS 28 and IFRS 10. According to the provisions of IAS 28, the gain or loss resulting from the sale or transfer of a non-monetary asset to a joint venture or Interim report on operations – September 30, 2016 Changes in international accounting standards
associate in exchange for a share in the capital of the latter is limited to the shareholding in the joint venture or associate by other investors extraneous to the transaction. In contrast, IFRS 10 requires the recording of the entire gain or loss in the event of loss of control of a subsidiary, even if the entity continues to hold a non-controlling stake in it, including in this case also the sale or transfer of a subsidiary to a joint venture or associate. The amendments introduced require that for a sale or transfer of an asset or a subsidiary to a joint venture or associate, the measure of the gain or loss to be recognized in the financial statements of the seller (or transferor) depends on whether the asset or subsidiary sold (or transferred) constitute a business, under the meaning of IFRS 3. If the assets or the subsidiary sold represent a business, the entity shall recognize the gain or loss on the entire investment held; otherwise, the portion of the gain or loss related to the share still held by the entity shall be eliminated. Said amendments are applicable starting from January 1, 2016. However, earlier application is permitted;
• IFRS 14 "Regulatory deferral accounts": the new transitional standard, issued by the IASB January 30, 2014, allows the entity that adopts for the first time the international accounting standards IAS/IFRS, to continue to apply the previous GAAP accounting policies for the evaluation (including impairment) and elimination of regulatory deferral accounts. This standard is still pending approval and will be applicable retroactively from January 1, 2016;
73
IFRS 15 also includes the disclosure requirements that are significantly more extensive than the existing standard concerning the nature, amounts, timing and uncertainty of revenues and cash flows arising from contracts with customers.
On September 11, 2015, the IASB issued an amendment to the standard in question, postponing the date of application with effect from January 1, 2018.
The standard in question was subsequently amendment on April 12, 2016; the amendment, also applicable from January 1, 2018, aims to clarify the guidelines for the identification of an obligation to sell an asset or provide one or more services, and also intends to provide clarification regarding the accounting of licenses related to intellectual property;
74
• IFRS 4 "Insurance contracts": the amendment issued by the IASB on September 12, 2016 disciplines the effects of the application of the standard in question together with those related to the adoption of IFRS 9 "Financial instruments" in the financial statements of insurance contracts issuers. This amendment is applicable from January 1, 2018.
The Report of the A2A Group at September 30, 2016 includes the figures of the parent A2A S.p.A. and those of the subsidiaries over which A2A S.p.A. exercises either direct or indirect control, even if the holding is less than 50%. In addition, companies in which the parent exercises joint control with other entities (joint ventures) and those over which it has a significant influence are consolidated using the equity method.
Following the purchase by Aprica S.p.A. on April 20, 2016, of the 64% of the investment in LA BI.CO DUE S.r.l., a company active in urban waste services in the Province of Brescia, the latter was fully consolidated at September 30, 2016. As permitted by IFRS, in the Report at September 30, 2016, the transaction was accounted for in full by provisionally recognizing the difference between the price paid and fraction of competence of Equity of LA BI.CO DUE S.r.l. in April as Goodwill. By year end 2016 will be the Purchase Price Allocation based on the requirements of IFRS 3.
On July 20, A2A Ambiente S.p.A. finalized the acquisition of 100% of RI.ECO-RESMAL Group, operating in waste collection, selection and recovery in the Milan area; at September 30, 2016, the latter was consolidated with the line-by-line method and in the Report at September 30, 2016, the transaction was accounted for provisionally by fully recognizing the difference between the price paid and fraction of competence of equity of RI.ECO-RESMAL in July as Goodwill. At year end will be the Purchase Price Allocation based on the requirements of IFRS 3.
Following the purchase by A2A S.p.A., which was finalized on August 5, 2016, of 51% of the investment in the Lombardy multi-utility LGH, at September 30, 2016, the latter was fully consolidated. As permitted by IFRS, in the Report at September 30, 2016, the transaction was accounted for in full by provisionally recognizing the difference between the price paid and fraction of competence of equity of LGH at the first consolidation date as Goodwill. At year end, the Group will proceed with the Purchase Price Allocation based on the requirements of IFRS 3.
For further details on the activities of the Purchase Price Allocation required by IFRS 3, reference is made to the paragraph "Other information" of this report.
76
Subsidiaries are those companies over which the parent company, A2A S.p.A., exercises control and has the power, as defined by IFRS 10, to determine financial and operating policy, either directly or indirectly, in order to obtain returns from their activities. Subsidiaries are consolidated from the date on which the Group effectively acquires control and cease to be consolidated on a line-by-line basis from the date on which control is transferred to a company outside the Group.
Investments in associates, namely those in which the A2A Group has a considerable interest and is able to exercise significant influence are accounted for using the equity method. Gains and losses attributable to the Group are recognized in the financial statements from the date on which significant influence or joint control commences.
In the event that the loss attributable to the Group exceeds the carrying amount of an investment, the carrying amount is reduced to zero and any excess loss is provided for to the extent that the Group has legal or constructive obligations to make good the associate's losses or in any case to make payments on its behalf.
With the adoption of IFRS 11, the Group must now classify investments in joint arrangements as either joint ventures (if the Group has rights to the net assets of the arrangement) or joint operations (if the Group has rights to the assets, and obligations for the liabilities, relating to the arrangement).
The Group's investments in joint ventures as defined by IFRS 11 are accounted for using the equity method, whereas for joint operations the standard requires that the Group recognize its portion of the assets, liabilities, revenues and expenses, rather than account for the investments using the equity method.
The A2A Group is not a party to any joint operations and accordingly the adoption of the new standard had no effect on the Interim Report on Operations at September 30, 2016.
If the A2A Group holds call options on shares or other equity instruments that represent capital (warrants) that are convertible into ordinary shares or similar instruments having the potential, if exercised or converted, to give the Group voting rights or reduce the voting rights of third parties ("potential voting rights"), such potential voting rights are taken into consideration when assessing whether or not the Group has the power to govern or influence another company's financial and operating policies.
In general, paragraph 23 of IAS 32 states that a contract that contains an obligation for an entity to purchase shares for cash or another financial asset gives rise to a financial liability for the present value of the exercise price of the option.
77
As a result, therefore, if the Group does not have the unconditional right to avoid the delivery of cash or other financial instruments when a put option on the shares of subsidiaries is exercised, it must recognize a liability.
In the absence of specific instructions in the related accounting standards, the A2A Group: (i) considers the shares involving put options to have already been purchased, including in cases in which the risks and rewards connected with ownership of the shares remain with the minority shareholders and they remain exposed to equity risk; (ii) records a corresponding entry among equity reserves for the liability resulting from the obligation and any subsequent changes that are not related to the mere unwinding of the present value of the strike price; (iii) and recognises such changes through the income statement.
The acquisition of 51% of the share capital of LGH S.p.A. by A2A S.p.A. was finalized on August 5, 2016 for a total value of 98.9 million euro, paid for 51.7 million euro in cash and in treasury shares of A2A S.p.A. for a value of 47.2 million euro, of which 37.2 million euro related to shares purchased in the first half of 2016 and 10 million euro relating to treasury shares already held in portfolio at December 31, 2015.
The transaction value includes 9.6 million euro, paid by A2A S.p.A. to the minority shareholders of LGH S.p.A., linked to specific earn-in clauses established during transaction closing.
Based on the contractual agreements signed by A2A S.p.A. with the minority shareholders of LGH S.p.A., it was agreed that A2A S.p.A., within the third year from the transaction closing date, upon the fulfilment of certain conditions, will pay up to a maximum of 13.9 million euro included in the acquisition value of LGH S.p.A. of 112.8 million euro, regulated by specific and well-identified earn-out clauses.
78
In accordance with the provisions of paragraphs 65B, 65C and 65D of IFRS 3, the Group recorded the cost adjustments for 13.9 million euro under long-term payables, with the investment value as balancing entry, with respect to the disbursement it will pay to the minority shareholders of LGH S.p.A. upon the fulfilment of the conditions established in the contract, since said adjustments are considered probable and reliably determined at the acquisition date.
In the first half-year of 2016, Aprica S.p.A. acquired 64% of the shares of LA BI.CO DUE S.r.l..
As a result of the shareholders' agreement signed between Aprica S.p.A. and Ecoimmobiliare S.r.l., the latter shall have the right, but not the obligation, to sell (put option) to Aprica S.p.A. its shareholding in LA BI.CO DUE S.r.l., equal to 36%.
Ecoimmobiliare S.r.l. may exercise this option as of April 1, 2021 and by, and no later than June 30, 2021; following the option period, if Ecoimmobiliare S.r.l. shall not exercise the put option, Aprica S.p.A. will have the right to acquire the investment of Ecoimmobiliare S.r.l. in LA BI.CO DUE S.r.l..
In accordance with paragraph 23 of IAS 32, the Group has recognized as a liability the present value of the estimated outlay of 0.3 million euro which it will not be able to avoid if the option is exercised, with a counter-entry to equity.
It is specified that this option has been valued based on the contractual conditions envisaged.
The amount paid by Aprica S.p.A. for the acquisition of 64% of the portions of LA BI.CO DUE S.r.l. shall be subject to an adjustment clause, based both on the net financial position and on the profitability of LA BI.CO DUE S.r.l., linked to the award and to the extension of some agreements in the municipalities of the Province of Brescia.
The contract for acquisition of 64% of the share capital of LA BI.CO DUE S.r.l. by Aprica S.p.A. envisages, among other things, an earn-out that Aprica S.p.A. will be required to pay in case of achievement of predetermined levels of profitability and the award and extension of some agreements in the municipalities of the Province of Brescia.
79
The price paid by A2A Ambiente S.p.A. for the acquisition of the entire RI.ECO-RESMAL perimeter is subject to an adjustment clause, based on both the net financial position and on the amount of investments, exceedance of the threshold of which was provided in the contract, made by the company subject of acquisition as an increase in productivity between 2015 and the transaction closing date.
The contractual agreements that regulate the acquisition of the RI.ECO-RESMAL Group envisage, among other things, an earn-in clause in favour of A2A Ambiente S.p.A., linked both to an eventual non-renewal of the concession of the Cernusco plant for reasons not attributable to A2A Ambiente S.p.A., and to any disbursements and expenses incurred by RESMAL S.r.l. to obtain renewal of the concession. This clause will have an eventual effect from the third year and no later than the fifth year after the closing of the transaction.
In accordance with paragraphs 65B, 65C and 65D of IFRS 3, the Group considered the amount paid by way of earn-in as the investment value since said adjustments are not considered probable and reliably determined at the acquisition date.
The financial statements of the subsidiaries, associates and joint ventures consolidated by the A2A Group are prepared at the end of each reporting period using the same accounting policies as the parent. Any items recognized by using different accounting principles are adjusted during the consolidation process to bring them into line with Group accounting policies. All intra-group balances and transactions, including any unrealized profits arising from transactions between Group companies, are fully eliminated.
In preparing the Report the assets, liabilities, income and expenses of the companies being consolidated are included in their entirety on a line-by-line basis, with the portion of equity and net income for the period attributable to minority interests being stated separately in the balance sheet and income statement.
The carrying amount of the investment in each subsidiary is eliminated against the corresponding share of its net equity, including any adjustments to fair value at the acquisition date; any differences arising are accounted for in accordance with IFRS 3.
Transactions with minority interests which do not lead to the loss of control in consolidated companies are accounted for using the economic entity view approach.
With effect from January 1, 2014, the A2A Group has among other things adopted international accounting standard IFRS 12 "Disclosure of Interests in Other Entities", issued by the IASB in 2011 and adopted by the European Commission on December 11, 2012.
On the basis of the requirements of paragraphs 7 and following of the standard the Group discloses information below about the significant judgements and assumptions it has made in determining:
The A2A Group has established that the requirements of IFRS 10 exist for the consolidation of the shareholding in the Montenegro company EPCG whose business is the production, distribution and sale of electricity.
More specifically, the Group consolidates EPCG, in whose share capital it has an interest of 41.75%, on a line-by-line basis.
Although the company does not hold the majority of the votes that may be exercised at a shareholders' meeting, it is considered to be a subsidiary because the parent company A2A S.p.A., with the appointment of the key managerial figures and the definition of some reserved matters on important topics for the corporate life of EPCG, has de facto control, applying in practice the provisions of the purchase agreement, namely it is able to manage the company from an effective standpoint.
In July, the A2A Group and the State of Montenegro reached an agreement for the signing of the new Shareholders' Agreements for the management of the Montenegrin company EPCG, with duration until December 31, 2016.
The adoption of IFRS 10 has had no effect on the way in which the shareholding in EPCG is consolidated, since A2A S.p.A. has control as "it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee".
IFRS 11 identifies two types of arrangement, joint operations and joint ventures, on the basis of the rights and obligations of the parties, and governs the resulting accounting treatment to be adopted for the recognition of these arrangements in the financial statements.
The most significant effect of the new standard is the fact that a number of entities jointly controlled by A2A, which up until now have been recognized using the equity method, could fall under the definition of joint operations on the basis of the requirements of IFRS 11. The accounting treatment for this type of joint arrangement requires the assets/liabilities and revenue/expenses connected with the arrangement to be recognized on the basis of the rights/obligations due to/assumed by A2A, regardless of the interest held.
In the particular case of its shareholdings in two joint arrangements operating in the Generation and Trading Business Unit, Ergosud S.p.A. and PremiumGas S.p.A., the A2A Group considers that these fall under the category joint ventures as far as their legal form and the nature of the contractual agreements are concerned.
More specifically, for the shareholding in PremiumGas S.p.A. the Group holds rights exclusively connected with the company's results; the company's activities are not directed solely towards the sale of gas to Group companies, thereby ensuring its continuity independent of its commercial relationships with the Group.
For the shareholding in Ergosud S.p.A., despite the existence of a tolling agreement the investee could dispatch energy autonomously, thereby ensuring business continuity also at the end of the agreement. In addition, the A2A Group does not appoint any of the company's key management.
On the basis of the above considerations, the A2A Group has accounted for the shareholdings using the equity method, continuing the treatment used in previous years.
In the case of particularly large amounts and in connection with non-current assets and liabilities held for sale, and only in this case, in accordance with IFRS 5 the relative intra-group financial receivables and payables are not eliminated in order to provide a clear presentation of the financial impact of a possible disposal.
| Key figures at September 30, 2016 Millions of euro INCOME STATEMENT |
Bergamo Pulita 50% |
PremiumGas 50% |
Metamer 50% figures at 06 30 2016 |
|---|---|---|---|
| Sales revenues | 0.1 | 24.7 | 6.1 |
| Gross operating income | (0.2) | 0.4 | 0.6 |
| % of net revenues | (200.0%) | 1.4% | 9.1% |
| Depreciation, amortization and write-downs | (0.4) | - | (0.1) |
| Net operating income | (0.6) | 0.4 | 0.5 |
| Result of the period | (0.4) | 0.3 | 0.3 |
| BALANCE SHEET | |||
| Total assets | 3.0 | 6.8 | 6.1 |
| Equity | (0.9) | 2.9 | 1.6 |
| Net (debt) | (0.3) | 0.3 | 3.5 |
| Key figures at September 30, 2015 Millions of euro INCOME STATEMENT |
Bergamo Pulita 50% |
PremiumGas 50% |
Metamer 50% figures at 06 30 2015 |
|---|---|---|---|
| Sales revenues | 0.3 | - | 6.4 |
| Gross operating income | - | (0.4) | 0.5 |
| % of net revenues | 0.0% | n.s. | 7.8% |
| Depreciation, amortization and write-downs | (0.6) | - | (0.1) |
| Net operating income | 0.7 | (0.4) | 0.4 |
| Result of the period | 0.5 | (0.3) | 0.3 |
| BALANCE SHEET | |||
| Total assets | 3.5 | 4.8 | 6.3 |
| Equity | (0.5) | 3.0 | 1.5 |
| Net (debt) | 0.2 | 0.2 | 3.0 |
Given the nature of the Group's ordinary activities, the interim results can vary as the result of the meteorological conditions during the period.
In this respect reference should be made to the comments on performance by Business Unit presented below.
| Millions of euro | Generation and Trading |
Commercial | Environment | Networks and Heat | International | Other Services and Corporate |
Eliminations | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 01 01 16 09 30 16 |
01 01 15 09 30 15 |
01 01 16 09 30 16 |
01 01 15 09 30 15 |
01 01 16 09 30 16 |
01 01 15 09 30 15 |
01 01 16 09 30 16 |
01 01 15 09 30 15 |
01 01 16 01 01 15 09 30 16 09 30 15 |
01 01 16 09 30 16 |
01 01 15 09 30 15 |
01 01 16 09 30 16 |
01 01 15 01 01 16 09 30 15 09 30 16 |
|||
| Revenues | 1,834 | 2,030 | 970 | 974 | 611 | 604 | 673 | 666 | 167 | 181 136 |
131 | (909) | (948) 3,482 |
||
| - of which inter-sector | 478 | 518 | 36 | 32 | 63 | 59 | 209 | 218 | - | - 123 |
121 | (909) | (948) | ||
| Labour costs | 69 | 68 | 20 | 18 | 193 | 192 | 78 | 87 | 33 | 34 | 71 64 |
||||
| Gross operating income - EBITDA | 273 | 291 | 100 | 78 | 174 | 161 | 293 | 253 | 48 | 43 (16) |
(12) | ||||
| % of revenues | 14.9% | 14.3% | 10.3% | 8.0% | 28.5% | 26.7% | 43.5% | 38.0% | 28.7% 23.8% |
(11.8%) | (9.2%) | 25.0% | |||
| Depreciation, amortization, provisions and write-downs | (147) | (127) | (13) | (13) | (62) | (50) | (93) | (90) | (21) | (26) (12) |
(54) | (348) | |||
| Net operating income - EBIT | 126 | 164 | 87 | 65 | 112 | 111 | 200 | 163 | 27 | 17 (28) |
(66) | ||||
| % of revenues | 6.9% | 8.1% | 9.0% | 6.7% | 18.3% | 18.4% | 29.7% | 24.5% | 16.2% | 9.4% (20.6%) |
(50.4%) | 15.0% | |||
| Result from non-recurring transactions | |||||||||||||||
| Financial balance | |||||||||||||||
| Result before taxes | |||||||||||||||
| Income taxes | |||||||||||||||
| Result after taxes from operating activities | |||||||||||||||
| Net result from discontinued operations | |||||||||||||||
| Minorities | |||||||||||||||
| Group result of the period | |||||||||||||||
| Gross investments (1) | 14 | 36 | 3 | 2 | 42 | 37 | 130 | 113 | 16 | 16 | 7 4 |
- | - |
(1) See the items "Investments" in the schedules on tangible and intangible assets presented in Notes 1 and 2 to the balance sheet.
It is noted that economic data from January 1 to September 30, 2015 and the balance sheet data at December 31, 2015 of the Networks Business Unit and Heat and Services Business Unit were aggregated in the new Networks and Heat Business Unit.
Summary of results sector by sector
| Networks and Heat International Other Services and Eliminations Total Group Corporate |
|
|---|---|
| 01 01 16 01 01 15 01 01 16 01 01 15 01 01 16 01 01 15 01 01 16 01 01 15 01 01 16 09 30 16 09 30 15 09 30 16 09 30 15 09 30 16 09 30 15 09 30 16 09 30 15 09 30 16 |
01 01 15 09 30 15 |
| 673 666 167 181 136 131 (909) (948) 3,482 |
3,638 |
| 209 218 - - 123 121 (909) (948) |
|
| 78 87 33 34 71 64 464 |
463 |
| 293 253 48 43 (16) (12) 872 |
814 |
| 43.5% 38.0% 28.7% 23.8% (11.8%) (9.2%) 25.0% |
22.4% |
| (93) (90) (21) (26) (12) (54) (348) |
(360) |
| 200 163 27 17 (28) (66) 524 |
454 |
| 29.7% 24.5% 16.2% 9.4% (20.6%) (50.4%) 15.0% |
12.5% |
| 52 | (1) |
| (92) | (107) |
| 484 | 346 |
| (145) | (97) |
| 339 | 249 |
| 1 | - |
| (17) | (12) |
| 323 | 237 |
| 130 113 16 16 7 4 - - 212 |
208 |
Summary of results sector by sector
| Millions of euro | Generation and Trading |
Commercial | Environment | ||||
|---|---|---|---|---|---|---|---|
| 3rd quarter 2016 |
3rd quarter 2015 |
3rd quarter 2016 |
3rd quarter 2015 |
3rd quarter 2016 |
3rd quarter 2015 |
||
| Revenues | 609 | 649 | 301 | 275 | 208 | 198 | |
| - of which inter-sector | 109 | 101 | 13 | 8 | 16 | 16 | |
| Labour costs | 22 | 22 | 8 | 5 | 63 | 64 | |
| Gross operating income | 103 | 99 | 27 | 24 | 55 | 51 | |
| % of revenues | 16.9% | 15.3% | 9.0% | 8.7% | 26.4% | 25.8% | |
| Depreciation, amortization, provisions and write-downs | (47) | (45) | (4) | (5) | (21) | (18) | |
| Net operating income | 56 | 54 | 23 | 19 | 34 | 33 | |
| % of revenues | 9.2% | 8.3% | 7.6% | 6.9% | 16.3% | 16.7% | |
| Gross investments | 6 | 8 | 1 | 1 | 14 | 14 |
| Millions of euro | Generation and Trading |
Commercial | Environment | ||||
|---|---|---|---|---|---|---|---|
| 09 30 16 | 12 31 15 | 09 30 16 | 12 31 15 | 09 30 16 | 12 31 15 | ||
| Tangible assets | 2,320 | 2,381 | 3 | 2 | 627 | 437 | |
| Intangible assets | 72 | 75 | 75 | 63 | 81 | 12 | |
| Trade receivables and current financial assets | 723 | 735 | 521 | 547 | 399 | 284 | |
| Trade payables and current financial liabilities | 655 | 782 | 357 | 360 | 287 | 233 |
Summary of results sector by sector
| Generation and Commercial Environment Networks and Heat Trading |
International | Other Services and Corporate |
Eliminations | Total Group | |||
|---|---|---|---|---|---|---|---|
| 3rd 3rd 3rd 3rd 3rd 3rd 3rd 3rd 3rd quarter quarter quarter quarter quarter quarter quarter quarter quarter 2016 2015 2016 2015 2016 2015 2016 2015 2016 |
3rd quarter 2015 |
3rd quarter 2016 |
3rd quarter 2015 |
3rd quarter 2016 |
3rd quarter 2015 |
3rd quarter 2016 |
3rd quarter 2015 |
| 609 649 301 275 208 198 174 175 56 |
63 | 47 | 42 | (236) | (231) | 1,159 | 1,171 |
| 109 101 13 8 16 16 56 66 - |
- | 42 | 40 | (236) | (231) | ||
| 22 22 8 5 63 64 25 27 11 |
11 | 24 | 20 | - | - | 153 | 149 |
| 103 99 27 24 55 51 66 70 13 |
11 | (6) | (3) | 258 | 252 | ||
| 15.3% 9.0% 8.7% 26.4% 25.8% 37.9% 40.0% 23.2% |
17.5% | (12.8%) | (7.1%) | 22.3% | 21.5% | ||
| (45) (4) (5) (21) (18) (33) (30) (6) |
(9) | (3) | (5) | (114) | (112) | ||
| 23 19 34 33 33 40 7 |
2 | (9) | (8) | 144 | 140 | ||
| 6.9% 16.3% 16.7% 19.0% 22.9% 12.5% |
3.2% | (19.1%) | (19.0%) | 12.4% | 12.0% | ||
| 1 1 14 14 53 42 6 |
9 | 3 | 1 | - | - | 83 | 75 |
| International | Networks and Heat | Other Services and Corporate |
Eliminations | Total Group | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 12 31 15 | 09 30 16 | 12 31 15 | 09 30 16 | 12 31 15 | 09 30 16 | 12 31 15 | 09 30 16 | 12 31 15 | ||||
| 564 | 1,590 | 568 | 189 | 184 | (91) | (95) | 5,302 | 5,067 | ||||
| 2 | 1,357 | 3 | 53 | 52 | (204) | (214) | 1,684 | 1,348 | ||||
| 251 | 347 | 237 | 157 | 72 | (451) | (566) | 1,941 | 1,656 | ||||
| 30 | 287 | 37 | 793 | 733 | (452) | (570) | 1,994 | 1,862 |
89
It is noted that the consolidation scope at September 30, 2016 changed compared to December 31, 2015 for to the following operations:
• as of January 1, 2016, the partial non-proportional demerger of Edipower S.p.A. related to the "Cellina Unit" in favour of Cellina Energy (a company wholly owned by Società Elettrica Altoatesina S.p.A.) came into effect pursuant to the demerger deed stipulated between the parties on December 28, 2015. At December 31, 2015, the assets and liabilities of Edipower S.p.A. relating to this transaction had been reclassified, being an operation regarded as disposal group pursuant to IFRS 5, under "Non-current assets held for sale" and "Liabilities directly associated with non-current assets held for sale";
90
For items concerned with the first-time consolidation of LA BI.CO DUE S.r.l., the RI.ECO-RESMAL Group and the LGH Group, the effect was highlighted in a specific column "First-time consolidation effect acquisitions 2016".
Notes to the balance sheet
| Millions of euro | Balance | First-time | Changes during the period | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| at 12 31 2015 |
consolid. effect acquisit. 2016 |
Invest. | Other changes |
Disposals and sales |
Write downs |
Deprecia tion |
Total changes |
at 09 30 2016 |
|||
| Land | 266 | 15 | (44) | (44) | 237 | ||||||
| Buildings | 913 | 57 | 4 | (87) | (2) | (29) | (114) | 856 | |||
| Plant and machinery | 3,608 | 222 | 53 | 198 | (2) | (1) | (207) | 41 | 3,871 | ||
| Industrial and commercial equipment | 24 | 8 | 5 | (5) | 32 | ||||||
| Other assets | 56 | 7 | 11 | 8 | (12) | 7 | 70 | ||||
| Landfills | 23 | 3 | 18 | (6) | 12 | 38 | |||||
| Construction in progress and advances | 103 | 19 | 53 | (64) | (11) | 111 | |||||
| Leasehold improvements | 72 | 1 | 13 | 1 | (2) | (6) | 6 | 79 | |||
| Leased assets | 2 | 7 | (1) | (1) | 8 | ||||||
| Total | 5,067 | 339 | 139 | 30 | (6) | (1) | (266) | (104) | 5,302 | ||
| of which: | |||||||||||
| Historical cost | 9,838 | 339 | 139 | 30 | (52) | 117 | 10,294 | ||||
| Accumulated amortisation | (4,253) | 46 | (266) | (220) | (4,473) | ||||||
| Write-downs | (518) | (1) | (1) | (519) |
91
At September 30, 2016, "Tangible assets" amounted to 5,302 million euro (5,067 million euro at December 31, 2015) and include the first-time consolidation effect relating to the acquisition of the LGH Group, the RI.ECO-RESMAL Group and LA BI.CO DUE S.r.l. for a total of 339 million euro.
The changes for the period, net of the above effect, recorded a decrease of 104 million euro as follows:
Investments may be analyzed as follows:
Tangible assets include "Leased assets" totalling 8 million euro, recognized in accordance with IAS 17, for which the outstanding payable to lessors at September 30, 2016 amounted to 8 million euro.
| Millions of euro | Balance | First-time | Changes during the period | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| at 12 31 2015 |
consolid. effect acquisit. 2016 |
Invest. | Recl./ Other changes |
Disposals and sales |
Write downs |
Amort. | Total changes |
at 09 30 2016 |
|||
| Industrial patents and industrial property rights |
26 | 2 | 1 | (10) | (7) | 19 | |||||
| Concessions, licences, trademarks and similar rights |
799 | 182 | 49 | 11 | (1) | (27) | 32 | 1,013 | |||
| Assets in progress | 20 | 14 | 19 | (13) | (3) | 3 | 37 | ||||
| Other intangible assets | 21 | 7 | (7) | (1) | (8) | 20 | |||||
| Goodwill | 482 | 113 | - | 595 | |||||||
| Total | 1,348 | 316 | 70 | (8) | (1) | (3) | (38) | 20 | 1,684 |
92
At September 30, 2016, "Intangible assets" amounted to 1,684 million euro (1,348 million euro at December 31, 2015) and include the first-time consolidation effect relating to the acquisition of the LGH Group, the RI.ECO-RESMAL Group and LA BI.CO DUE S.r.l. for a total of 316 million euro.
Applying IFRIC 12, from 2010 intangible assets also include assets in concession relating to gas distribution, the integrated water cycle and district heating plants of Varese Risorse.
The Group has environmental certificates that it received free of charge, as further specified in the section "Evolution of the regulation and impacts on the A2A Group Business Units" in the paragraphs "Incentives to production from renewable sources and conversion of the Green Certificate into tariffs" (Generation and Trading Business Unit) and "White Certificates and incentives for district heating" (Networks and Heat Business Unit).
The changes for the period, net of the above effect, recorded an increase of 20 million euro as follows:
More specifically, investments relate to the following:
93
"Other intangible assets" include Customer lists arising on the acquisition of customer portfolios by Group companies. These balances are amortized on the basis of the estimated benefits expected to be obtained in future years. More specifically, the outstanding balance of 2 million euro relates to the amount paid in previous years by subsidiaries regarding a portion of the networks and customers of the province of Brescia and the customer portfolio of the subsidiary Aspem Energia S.r.l..
94
Millions of euro Balance at 12 31 2015 Changes during the period Balance at 09 30 2016 Invest./first consolid. acquis. 2016 Other changes Writedowns Total changes Goodwill 482 113 - - 113 595 Total 482 113 - - 113 595
| CGU - Millions of euro | |
|---|---|
| Electricity networks | 184 |
| Environment | 232 |
| Gas networks | 38 |
| Gas | 7 |
| Heat | 21 |
| LGH Group | 90 |
| Acquisitions 2016 | 23 |
| Total goodwill at September 30, 2016 | 595 |
The first-time consolidation effect of acquisitions in 2016 led to an overall increase of 113 million euro of which 90 million euro already in the sub-consolidation of the LGH Group, while the first-time consolidation of the LGH Group (8 million euro), of the RI.ECO-RESMAL Group (15 million euro) and of the company LA BI.CO DUE S.r.l. (less than one million euro) led to the provisional recognition of goodwill for a total value of 23 million euro, as further described in the paragraph "Other information/3) Transactions IFRS 3 Revised".
The transactions listed above are classified as business combinations in accordance with international standard IFRS 3 revised "Business Combinations"; therefore, the Group fully consolidated the companies through the application of the acquisition method prescribed by IFRS 3 revised.
IFRS 3 revised requires all business combinations to be accounted for using the acquisition method. The acquirer must therefore recognize all the identifiable assets, liabilities and contingent liabilities relating to the acquisition at their fair values at the acquisition date and highlight the eventual recognition of goodwill.
Subsequent to the provisional recognition of goodwill, the Group initiated the Purchase Price Allocation process, which involves an analysis aimed at allocating the higher value paid during the acquisition, given by the difference between the fair value of acquired assets and liabilities and shareholders' equity of the company acquired. The analysis aims to identify the tangible and intangible assets to allocate the higher value paid on the basis of the cash flows that said assets are expected to generate during their useful life. If there is no basis for the allocation to the assets, the higher value will be fully charged to goodwill and will be subjected to an impairment test at least once a year.
Although IFRS 3 requires the Purchase Price Allocation to be completed within 12 months from the date of acquisition, the Group expects to do so by the end of this year.
The following is a breakdown of the item "Goodwill" of the sub-consolidation of the LGH Group:
| CGU - Millions of euro | |
|---|---|
| Linea Group Holding | 3 |
| Linea Più | 6 |
| Linea Ambiente | 40 |
| Linea Reti e Impianti | 5 |
| Linea Gestioni | 7 |
| Linea Energia | 17 |
| Linea Com | 2 |
| Greenambiente | 10 |
| Total goodwill at September 30, 2016 | 90 |
* * *
With reference to "Goodwill" already recognized at December 31, 2015 by the A2A Group, during the reporting period, management conducted a careful analysis of the results achieved compared with the plan, also considering the assumptions and results of the impairment process carried out for the 2015 financial statements. Said analysis did not reveal any elements such to consider likely, material and permanent losses in the value of assets, in addition to as reported in the 2015 financial statements; consequently, the Group did not consider it necessary to conduct a specific impairment test at September 30, 2016.
The impairment test is performed in any case at least annually.
| Millions of euro | Balance at 12 31 2015 |
First-time consolid. |
Changes during the |
Balance at 09 30 2016 |
of which included in the NFP |
||
|---|---|---|---|---|---|---|---|
| effect acquisit. 2016 |
period | 12 31 2015 | 09 30 2016 | ||||
| Shareholdings carried according to equity method |
68 | 4 | 3 | 75 | - | - | |
| Other non-current financial assets | 69 | 28 | (20) | 77 | 57 | 64 | |
| Total shareholdings and other non-current financial assets |
137 | 32 | (17) | 152 | 57 | 64 |
96
| Shareholdings carried according to equity method - Millions of euro | Total |
|---|---|
| Balance at December 31, 2015 | 68 |
| First-time consolidation effect acquisitions 2016 | 4 |
| Changes during the period: | |
| - acquisitions and capital increases | |
| - valuations at equity | 4 |
| - write-downs | |
| - dividends received from shareholdings in companies carried at equity | (1) |
| - sales | |
| - other changes | |
| - reclassifications | |
| Total changes during the period | 3 |
| Balance at September 30, 2016 | 75 |
The change in "Shareholdings carried according to equity method" includes 4 million euro for the positive effect of the first-time consolidation of the LGH Group, 4 million euro for the positive valuation in equity mainly of the shareholding in ACSM-AGAM S.p.A. and 1 million euro for the negative change from the collection of dividends.
The details of the shareholdings are provided in annex no. 2 "List of shareholdings in companies carried at equity".
"Other non-current financial assets" had a balance of 77 million euro at September 30, 2016, representing an increase of 8 million euro over the figure at December 31, 2015. The first-time consolidation effect related to the acquisitions in 2016 led to a positive change of 28 million euro, while changes in the period showed a decrease of 20 million euro. These assets include 64 million euro for medium/long-term financial receivables of which 13 million euro related to the LGH Group, consisting mainly of the non-current portion of financial receivables from minority shareholders and third parties, and 51 million euro related to financial receivables for medium/long-term deposits mainly of the subsidiary EPCG, as well as 13 million euro of investments in other companies, including the first-time consolidation effect of the LGH Group for 5 million euro; for details, reference is made to annex no. 3 "List of financial assets available for sale".
| Millions of euro | Balance at 12 31 2015 |
First-time consolidation effect acquisitions 2016 |
Changes during the period |
Balance at 09 30 2016 |
|---|---|---|---|---|
| Deferred tax assets | 308 | 9 | (34) | 283 |
"Deferred tax assets" amounted to 283 million euro (308 million euro at December 31, 2015), the positive change related to the first-time consolidation effect of acquisitions in 2016 amounted to 9 million euro. This item consists of the net balance of IRES and IRAP deferred tax assets and liabilities arising from changes and accruals made solely for fiscal purposes. The recoverability of "Deferred tax assets" recorded in the financial statements is considered likely, as the future plans envisage taxable income sufficient to use the deferred tax assets.
At September 30, 2016, the amounts relative to deferred tax assets/deferred tax liabilities have been expressed as net ("offsetting") as per IAS 12 standards.
| Millions of euro | Consoli dated financial statements at 12 31 2015 |
First-time consolid. effect acquisit. 2016 |
Accruals (A) |
Utilizations (B) |
Adjustment rates (C) |
Total (A+B+C) |
IAS 39 to equity |
IAS 19 Revised to equity |
Adjustment Rates at Equity Net |
Other changes/ Reclass./ Mergers |
Consoli dated financial statements at 09 30 2016 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Detail of deferred tax assets and liabilities |
|||||||||||
| Deferred tax liabilities | |||||||||||
| Measurement differences for tangible assets |
701 | 6 | 5 | (42) | (37) | (83) | 587 | ||||
| Application of the leasing standard (IAS 17) |
6 | - | 6 | ||||||||
| Application of the financial instrument standard (IAS 39) |
- | - | |||||||||
| Measurement differences for intangible assets |
(4) | 13 | - | 5 | 14 | ||||||
| Deferred capital gains | - | - | |||||||||
| Employee leaving entitlement (TFR) |
4 | - | 4 | ||||||||
| Goodwill | 94 | 4 | - | 98 | |||||||
| Other deferred tax liabilities | (15) | 3 | (2) | (2) | 77 | 63 | |||||
| Total deferred tax liabilities (A) |
786 | 26 | 5 | (44) | - | (39) | - | - | - | (1) | 772 |
| Deferred tax assets | |||||||||||
| Taxed risk provisions | 113 | 3 | 15 | (14) | 1 | 3 | 120 | ||||
| Measurement differences for tangible assets |
618 | 5 | (48) | 2 | (41) | 577 | |||||
| Application of the financial instrument standard (IAS 39) |
32 | 2 | - | (6) | 28 | ||||||
| Bad debts provision | 7 | 7 | (1) | (1) | 13 | ||||||
| Measurement differences of intangible assets |
7 | - | 7 | ||||||||
| Grants | 12 | 6 | (1) | (1) | 17 | ||||||
| Goodwill | 308 | 1 | (30) | (30) | 279 | ||||||
| Other deferred tax assets | 4 | 9 | 5 | (5) | - | 2 | (1) | 14 | |||
| Total deferred tax assets (B) |
1,094 | 35 | 25 | (99) | 2 | (72) | (6) | 5 | - | (1) | 1,055 |
| NET EFFECT DEFERRED TAX ASSETS/ LIABILITIES (B-A) |
308 | 9 | 20 | (55) | 2 | (33) | (6) | 5 | - | - | 283 |
| Millions of euro | Balance at 12 31 2015 |
First-time consolid. |
Changes during the |
Balance at 09 30 2016 |
of which included in the NFP |
||
|---|---|---|---|---|---|---|---|
| effect acquisit. 2016 |
period | 12 31 2015 | 09 30 2016 | ||||
| Non-current derivatives | - | 1 | 9 | 10 | - | 8 | |
| Other non-current assets | 6 | 3 | - | 9 | - | - | |
| Total other non-current assets | 6 | 4 | 9 | 19 | - | 8 |
At September 30, 2016, the item showed an increase of 9 million euro compared to the previous year, net of the first-time consolidation effect of acquisitions in 2016, positive for 4 million euro.
"Non-current derivatives" amounted to 10 million euro and include 8 million euro for the valuation at fair value of a financial instrument at the end of the reporting period which, at December 31, 2015, was recognized as non-current liabilities, and 2 million euro for the valuation at fair value of a derivative on LGH Group commodities.
"Other non-current assets" amounted to 9 million euro and, net of the first-time consolidation effect of acquisitions in 2016, positive for 3 million euro, were unchanged over December 31, 2015 and they essentially consist of security deposits and costs already incurred, however pertaining to future years.
| Millions of euro | Balance at 12 31 2015 |
First-time consolidation effect acquisitions 2016 |
Changes during the period |
Balance at 09 30 2016 |
|---|---|---|---|---|
| - Materials | 86 | 12 | 6 | 104 |
| - Material obsolescence provision | (26) | - | (4) | (30) |
| Total materials | 60 | 12 | 2 | 74 |
| - Fuel | 99 | - | (3) | 96 |
| - Others | 22 | 8 | (22) | 8 |
| Raw and ancillary materials and consumables |
181 | 20 | (23) | 178 |
| Third-party fuel | 3 | - | 5 | 8 |
| Total inventory | 184 | 20 | (18) | 186 |
"Inventories" amounted to 186 million euro (184 million euro at December 31, 2015), net of the related obsolescence provision for 30 million euro (26 million euro at December 31, 2015). The increase in the obsolescence provision mainly refers to the write-down of material inventories of the warehouse of the San Filippo del Mela plant.
Inventories, net of the first-time consolidation effect of acquisitions in 2016, positive for 20 million euro, showed the following overall negative changes for 18 million euro:
| Millions of euro | Balance at 12 31 2015 |
First-time consolidation effect acquisitions 2016 |
Changes during the period |
Balance at 09 30 2016 |
|---|---|---|---|---|
| Trade receivables invoices issued | 1,066 | 193 | (24) | 1,235 |
| Trade receivables invoices to be issued | 734 | 56 | 47 | 837 |
| (Bad debt provision) | (315) | (42) | 7 | (350) |
| Total trade receivables | 1,485 | 207 | 30 | 1,722 |
100
At September 30, 2016, "Trade receivables" amounted to 1,722 million euro (1,485 million euro at December 31, 2015), with an increase of 30 million euro, net of the first-time consolidation effect of acquisitions in 2016 for 207 million euro. In detail, the changes were as follows:
18 million euro due to an increase in receivables from the Municipalities of Milan and Brescia; this item had an overall balance of 97 million euro (79 million euro at December 31, 2015);
2 million euro due to an increase in projects in progress; this item had a balance of 6 million euro at the reporting date, including the first-time consolidation effect of acquisitions in 2016 for 1 million euro compared to 3 million euro at December 31, 2015;
The Group makes spot sales of receivables on a non-recourse basis. At September 30, 2016, the receivables which had not yet fallen due, sold by the Group on a definitive basis and derecognized in accordance with the requirements of IAS 39, amounted to 30 million euro in total (101 million euro at December 31, 2015). At the date of publication of this Interim report on operations, these receivables amount to 4 million euro (8 million euro at December 31, 2015). The sale is related to trade receivables. The Group has no rotating factoring programs.
The "Bad debts provision" amounted to 350 million euro and, excluding the first-time consolidation effect of acquisitions in 2016, amounted to 42 million euro, a net decrease of 7 million euro compared to December 31, 2015. This provision is considered adequate to cover the risks to which it relates.
The changes in the bad debt provision are outlined in the following table:
| Millions of euro | Balance at 12 31 2015 |
First-time consolid. effect acquisit. 2016 |
Accruals | Utilizations | Other changes |
Balance at 09 30 2016 |
|---|---|---|---|---|---|---|
| Bad debts provision | 315 | 42 | 6 | (13) | - | 350 |
| Millions of euro | 09 03 2016 | 12 31 2015 |
|---|---|---|
| Trade receivables of which: | 1,722 | 1,485 |
| Current | 629 | 556 |
| Past due of which: | 605 | 510 |
| - Past due up to 30 days | 65 | 56 |
| - Past due from 31 to 180 days | 89 | 59 |
| - Past due from 181 to 365 days | 45 | 45 |
| - Past due over 365 days | 406 | 350 |
| Invoices to be issued | 838 | 734 |
| Bad debts provision | (350) | (315) |
| Millions of euro | Balance at 12 31 2015 |
First-time consolid. |
Changes during the |
Balance at 09 30 2016 |
in the NFP | of which included |
|---|---|---|---|---|---|---|
| effect acquisit. 2016 |
period | 12 31 2015 | 09 30 2016 | |||
| Current derivatives | 55 | 1 | 159 | 215 | 16 | 16 |
| Other current assets of which: | 128 | 25 | 50 | 203 | ||
| - receivables from Cassa per i Servizi Energetici e Ambientali |
52 | 2 | 20 | 74 | ||
| - advances to suppliers | 7 | 3 | (4) | 6 | ||
| - receivables from employees | 1 | 1 | ||||
| - tax receivables | 4 | 7 | 15 | 26 | ||
| - receivables related to future years/periods | 12 | 4 | 12 | 28 | ||
| - receivables from Ergosud | 19 | - | 19 | |||
| - receivables from social security entities | 3 | 1 | 4 | |||
| - Stamp office | 1 | - | 1 | |||
| - receivables for damage compensation | 1 | - | 1 | |||
| - receivables for water derivation fees | 1 | (1) | - | |||
| - receivables for COSAP advances | 5 | 5 | 10 | |||
| - sundry receivables EPCG | 12 | 1 | 13 | |||
| - receivables for security deposits | 1 | 2 | 3 | |||
| - receivables for RAI fee | - | 8 | 8 | |||
| - other sundry receivables | 9 | 9 | (9) | 9 | ||
| Total other current assets | 183 | 26 | 209 | 418 | 16 | 16 |
"Other current assets" show a balance of 418 million euro compared to 183 million euro at December 31, 2015, an increase of 209 million euro, net of the first-time consolidation effect of acquisitions for 26 million euro.
"Current derivatives" show an increase of 159 million euro related to the increase in commodity derivatives due exclusively to the change in the fair value measurement at the end of the reporting period; financial hedging derivatives were unchanged, mainly in relation to Interest Rate Swap (IRS) contracts to hedge the risk of adverse changes in interest rates on bonds due within one year.
Receivables from Cassa per i Servizi Energetici e Ambientali, amounting to 74 million euro (52 million euro at December 31, 2015), mainly refer to receivables for equalizations pertaining to both the first nine months of 2016 and the year 2015, as well as outstanding receivables for equalizations pertaining to previous years, net of collections made during the reporting period.
Tax receivables, amounting to 26 million euro, mainly relate to tax receivables from the tax authorities for VAT, excise and withholding taxes.
Receivables from Ergosud, amounting to 19 million euro, unchanged over the previous year, refer to the receivable due for new entry plants (Scandale Plant), regarding portions of emission allowances as provided by AEEGSI Resolutions no. ARG/elt 194/10 and no. 117/10.
| Millions of euro | Balance at First-time 12 31 2015 consolid. |
Changes during the |
Balance at 09 30 2016 |
of which included in the NFP |
|||
|---|---|---|---|---|---|---|---|
| effect acquisit. 2016 |
period | 12 31 2015 | 09 30 2016 | ||||
| Other financial assets | 165 | 17 | 28 | 210 | 165 | 210 | |
| Financial assets from related parties | 6 | 3 | - | 9 | 6 | 9 | |
| Total current financial assets | 171 | 20 | 28 | 219 | 171 | 219 |
The item showed a balance of 219 million euro (171 million euro at December 31, 2015) including the first-time consolidation effect of acquisitions in 2016 for 20 million euro. This item mainly includes 184 million euro for financial receivables of the EPCG Group related to freely available interest-bearing bank deposits and 27 million euro of financial receivables of the LGH Group related to financial receivables from minority shareholders and third parties.
| Millions of euro | Balance at 12 31 2015 |
First-time consolidation effect acquisitions 2016 |
Changes during the period |
Balance at 09 30 2016 |
|---|---|---|---|---|
| Current tax assets | 71 | 5 | (4) | 72 |
"Current tax assets" amounted to 72 million euro (71 million euro at December 31, 2015), with a decrease of 4 million euro compared to the previous year, net of the first-time consolidation effect of acquisitions in 2016 for 5 million euro. This item consists of receivables from the tax authorities for IRES (31 million euro) mainly relating to requests for reimbursement as a result of IRAP deductibility for IRES, IRAP (20 million euro) mainly relating to the requests for reimbursement as a result of the recognition of the status of industrial holding for A2A S.p.A. in the previous year and for Robin Tax (21 million euro) relating to the credit requests for reimbursement/compensation.
| Millions of euro | Balance at 12 31 2015 |
First-time consolid. |
Changes during the period |
Balance at 09 30 2016 |
of which included in the NFP |
|
|---|---|---|---|---|---|---|
| effect acquisit. 2016 |
12 31 2015 | |||||
| Cash and cash equivalents | 636 | 83 | 9 | 728 | 636 | 728 |
"Cash and cash equivalents" at September 30, 2016 represent the sum of the bank and postal asset balances, of which 54 million euro relating to the EPCG Group and 106 million euro related to the LGH Group.
Bank deposits include accrued interest although this had not yet been credited at the end of the period.
| Millions of euro | Balance at 12 31 2015 |
First-time consolid. |
Changes during the |
Balance at 09 30 2016 |
of which included in the NFP |
|||
|---|---|---|---|---|---|---|---|---|
| effect acquisit. 2016 |
period | 12 31 2015 | 09 30 2016 | |||||
| Non-current assets held for sale | 205 | 1 | (202) | 4 | 38 | - |
At September 30, 2016, "Non-current assets held for sale" show a balance of 4 million euro and refer to 2 million euro for the reclassification of assets owned by the company SEASM S.r.l., consisting of a 380 kV electrical substation called "Voghera" and intended to connect to the national electricity transmission network (RTN) the thermoelectric plant of Voghera Energia, to 1 million euro for assets held for sale of the EPCG Group and to 1 million euro for assets held for sale of the LGH Group regarding the business unit for municipal sanitation activities of the Lodi area.
At December 31, 2015, this item included 203 million euro, which related to certain assets and asset items of Edipower S.p.A. reclassified in accordance with IFRS 5, in application of the non-proportional, partial demerger of Edipower S.p.A. stipulated on December 28, 2015; the transaction became effective on January 1, 2016 as further described in the paragraph "Significant events during the period".
Equity, which amounted to 3,368 million euro at September 30, 2016 (3,259 million euro at December 31, 2015), is set out in the following table:
| Millions of euro | Balance at 12 31 2015 |
Changes during the period |
Balance at 09 30 2016 |
|---|---|---|---|
| Equity pertaining to the Group: | |||
| Share capital | 1,629 | - | 1,629 |
| (Treasury shares) | (61) | 7 | (54) |
| Reserves | 1,005 | (88) | 917 |
| Group result of the period/year | 73 | 250 | 323 |
| Total equity pertaining to the Group | 2,646 | 169 | 2,815 |
| Minority interests | 613 | (60) | 553 |
| Total equity | 3,259 | 109 | 3,368 |
The overall changes in shareholders' equity were positive for a total of 109 million euro. The result of the period had a positive effect of 323 million euro offset by the dividend distribution for 126 million euro, the decrease in minority interests of 60 million euro and assessments in accordance with IAS 32 and 39 of the Cash flow hedge derivatives.
"Share capital" amounts to 1,629 million euro and consists of 3,132,905,277 ordinary shares each of nominal value 0.52 euro.
"Treasury shares" amounted to 54 million euro (61 million euro at December 31, 2015 and consist of 23,721,421 treasury shares held by the parent company A2A S.p.A. (26,917,609 treasury shares at December 31, 2015). In February and March 2016, the parent company A2A S.p.A. had purchased 35,000,000 treasury shares with a total value of 37 million euro as part of the buy back program approved by the Shareholders' Meeting on June 11, 2015. Treasury shares acquired during the period and a further portion already held in the previous year were used as part of the payment for the purchase of 51% of the share capital of LGH S.p.A. by A2A S.p.A. in August 2016 with a total value of 47 million euro. The adjustment of the value of treasury shares at cost value, compared to the market value on the transaction date, resulted in a positive change of 3 million euro, which was recognized as a balancing entry in equity reserves as required by IAS/IFRS international standards.
| Millions of euro | Balance at 12 31 2015 |
Changes during the period |
Balance at 09 30 2016 |
|---|---|---|---|
| Reserves | 1,005 | (88) | 917 |
| of which: | |||
| Changes in the fair value of cash flow hedge derivatives | (33) | 26 | (7) |
| Tax effect | 8 | (6) | 2 |
| Cash flow hedge reserves | (25) | 20 | (5) |
| Change in the IAS 19 Revised reserve - Employee Benefits | (64) | (24) | (88) |
| Tax effect | 16 | 7 | 23 |
| IAS 19 Revised reserve - Employee Benefits | (48) | (17) | (65) |
"Reserves", which amounted to 917 million euro (1,005 million euro at December 31, 2015), consist of the legal reserve, extraordinary reserves, and the retained earnings of subsidiaries.
This item also includes the negative cash flow hedge reserve of 5 million euro which arises from the period-end measurement of derivatives qualifying for hedge accounting.
The balance also includes negative reserves of 65 million euro arising from the adoption of IAS 19 Revised "Employee Benefits" which requires actuarial profits and losses to be recognized directly in an equity reserve.
The effects, at January 1, 2016, of the non-proportional, partial demerger of Edipower S.p.A. to Cellina Energy S.r.l. resulted in a decrease in Group equity of 39 million euro.
This item consists of the profit for the period of 323 million euro.
| Millions of euro | Balance at 12 31 2015 |
Changes during the period |
Balance at 09 30 2016 |
|---|---|---|---|
| Minority interests | 613 | (60) | 553 |
"Minority interests" amounted to 553 million euro (613 million euro at December 31, 2015) and represent the portion of capital, reserves and result pertaining to minority shareholders related to third-party shareholders of EPCG and the LGH Group.
The decrease for the period of 60 million euro is mainly related to the effects of the nonproportional, partial demerger of Edipower S.p.A. to Cellina Energy S.r.l., which led to the full possession of the shareholding in Edipower S.p.A. held by the Parent Company A2A S.p.A. and the consequent reduction in interest of minority shareholders, in part adjusted by the portions due to the minority shareholders of the LGH Group and by the result of the period due to the minority shareholders of EPCG.
107
| Balance at First-time Changes Millions of euro 12 31 2015 consolid. during the |
Balance at 09 30 2016 |
of which included in the NFP |
||||
|---|---|---|---|---|---|---|
| effect acquisit. 2016 |
period | 12 31 2015 | 09 30 2016 | |||
| Non-convertible bonds | 2,431 | 294 | 6 | 2,731 | 2,431 | 2,731 |
| Payables to banks | 657 | 135 | (36) | 756 | 657 | 756 |
| Finance lease payables | 1 | 4 | (1) | 4 | 1 | 4 |
| Payables to other lenders | - | 4 | 2 | 6 | - | 6 |
| Total non-current financial liabilities | 3,089 | 437 | (29) | 3,497 | 3,089 | 3,497 |
"Non-current financial liabilities" amounted to 3,497 million euro (3,089 million euro at December 31, 2015) of which 70 million euro of EPCG and, excluding the first-time consolidation effect of acquisitions in 2016 equal to 437 million euro, showed a net decrease of 29 million euro.
"Non-convertible bonds" regard the following bonds, accounted for at amortized cost:
Non-current "Payables to banks" amounted to 756 million euro, a decrease of 36 million euro compared to the previous year-end, excluding the first-time consolidation effect of acquisitions in 2016 equal to 135 million euro. This decrease is mainly due to the reclassification of the principal amounts due under "Current financial liabilities", partially offset by the use by EPCG of a portion of the EBRD loan.
"Finance lease payables" amounted to 4 million euro (1 million euro at December 31, 2015) and mainly refer to the consolidation of 2016 acquisitions.
Lastly, payables to other lenders amounted to 6 million euro and referred mainly to the LGH Group.
At the reporting date, this item amounted to 366 million euro (332 million euro at December 31, 2015), including the first-time consolidation effect of acquisitions in 2016 for 22 million euro and changed as follows:
| Millions of euro | Balance at 12 31 2015 |
First-time consolid. effect acquisit. 2016 |
Accruals | Utilizations | Other changes |
Balance at 09 30 2016 |
|---|---|---|---|---|---|---|
| Employee leaving entitlement (TFR) | 164 | 20 | 19 | (8) | (9) | 186 |
| Employee benefits | 168 | 2 | - | (7) | 17 | 180 |
| Total employee benefits | 332 | 22 | 19 | (15) | 8 | 366 |
Other changes mainly refer to payments made to INPS and supplementary pension funds, as well as to the recognition of actuarial differences that include the increase resulting from the service cost for 1 million euro, the increase resulting from the interest cost for 4 million the euro and the increase resulting from actuarial gains/losses for 23 million euro.
Technical valuations were carried out on the basis of the following assumptions:
| 2016 | 2015 | |
|---|---|---|
| Discount rate | from 0.0% to 1.4% | from 0.24% to 2.03% |
| Annual inflation rate | from 1.5% to 2.8% | from 1.5% to 2.0% |
| Annual seniority bonus increase rate | 2.0% | 2.0% |
| Annual additional months increase rate | from 0.0% to 1.0% | 0.0% |
| Annual cost of electricity increase rate | from 0.5% to 2.0% | 2.0% |
| Annual cost of gas increase rate | 0.0% | 0.0% |
| Annual salary increase rate | 1.0% | 1.0% |
| Annual TFR increase rate | from 2.6% to 3.0% | from 2.6% to 3.0% |
| Average annual increase rate of supplementary pensions | 1.5% | 1.5% |
| Annual turnover frequencies | from 2.0% to 5.0% | from 2.0% to 5.0% |
| Annual TFR advance frequencies | from 2.0% to 2.5% | from 2.0% to 2.5% |
It is noted that:
110
| Millions of euro | Balance at 12 31 2015 |
First-time consolid. effect acquisit. 2016 |
Provisions | Releases | Utilizations | Others changes |
Balance at 09 30 2016 |
|---|---|---|---|---|---|---|---|
| Decommissioning provisions | 170 | 32 | - | - | (1) | 23 | 224 |
| Landfill closing and post-closing expense provisions |
145 | 32 | 12 | - | (4) | 14 | 199 |
| Tax provisions | 59 | - | 6 | (18) | (7) | (5) | 35 |
| Personnel lawsuits and disputes provisions |
131 | 4 | 5 | (1) | (40) | - | 99 |
| Other risk provisions | 71 | 5 | 31 | (1) | (4) | 1 | 103 |
| Provisions for risks, charges and liabilities for landfills |
576 | 73 | 54 | (20) | (56) | 33 | 660 |
"Decommissioning provisions", which amounted to 224 million euro, including the first-time consolidation effect of acquisitions in 2016 for 32 million euro, include charges for costs of dismantling and recovery of production sites mainly related to thermoelectric plants and waste-to-energy plants. The changes for the period concerned uses for 1 million euro, to cover the expenses incurred during the reporting period and other changes for 23 million euro, which refer mainly to the effects of the updates of the discount rates used to estimate the future costs of dismantling and restoration of the sites having "Tangible assets" as balancing entry.
111
The "Landfill closing and post-closing expense provisions", which amounted to 199 million euro, including the first-time consolidation effect of acquisitions in 2016 for 32 million euro, refer to all the costs that will have to be incurred in the future for the sealing of the landfills in cultivation at the reporting date and for the subsequent post-operative management, thirtyyear and fifty-year, provided by the AIA (Integrated Environmental Authorization). The changes for the period concerned provisions of 12 million euro related to the effects of the updates of the discount rates in relation to assets fully depreciated, the effect of which was recognized in the income statement, uses for 4 million euro, which represent the actual outlays of the period, and other changes, positive for 14 million euro, mainly relating to the constitution of the expenses costs for closure and post-closure for the start-up of the bioreactor of Giussago, as well as the effects of the updates of the discount rates of assets not fully depreciated and that have "Tangible assets" as balancing entry.
"Tax Provisions", which amounted to 35 million euro, refer to provisions for pending or potential litigation with the tax authorities or territorial entities for direct and indirect taxes, levies and excises. Provisions for the period, for 6 million euro, were mainly related to the ICI/IMU and COSAP dispute with territorial entities as well as new tax audits opened in the period under review. Releases, for 18 million euro, mainly refer to the conclusion of some ICI/
IMU disputes and the dispute concerning the technical verification of the waste-to-energy plant in Brescia. Uses, for 7 million euro, refer to disbursements in the period due mainly to the subscription of transactions with territorial entities, with regard to pending litigation or pre-litigation. Other changes, negative for 5 million euro, refer to the reclassification under "Other payables" of the certain portion that will be paid in future years in respect of disputes transacted and concluded with the territorial entities.
The "Personnel lawsuits and disputes provisions" amounted to 99 million euro, including the first-time consolidation effect of acquisitions in 2016 for 4 million euro and mainly refer to lawsuits pending with social security institutions, for 32 million euro, related to social security contributions that the Group believes it is not required to pay and for which specific disputes are pending, to lawsuits with third parties, for 64 million euro, and with employees, for 3 million euro, to cover the liabilities that could arise from litigations in progress. Provisions for the period, amounting to 5 million euro, and releases for the period, for 1 million euro, refer to 1 million euro for the provision for the ongoing litigation with social security institutions and litigation with third parties for the remainder. Uses, for 40 million euro, mainly refer to the payment made in respect of the ongoing lawsuit with Pessina Costruzioni in relation to the dispute for Asm Novara S.p.A. as further described in the paragraph "Other information – Asm Novara S.p.A. dispute".
"Other provisions", which amounted to 103 million euro, including the first-time consolidation effect of acquisitions in 2016 for 5 million euro, mainly refer to provisions relating to public water derivation fees for 31 million euro, to the mobility provision for the costs arising from the corporate restructuring plan, for 7 million euro, to the provision for extraordinary maintenance of the waste-to-energy plant in Acerra, for 20 million euro, to the risks provision related to EPCG, for 13 million euro, as well as other provisions for 32 million euro. Provisions for the period amounted to 31 million euro and mainly concerned the provision made to cover contractual expenses, the provision for public water derivation fees, the provision for the non-routine maintenance of the Acerra waste-to-energy plant, as well as provisions of EPCG. Releases for the period amounted to 1 million euro. Uses amounted to 4 million euro. Other changes, positive for 1 million euro, mainly related to the increase in the redundancy provision.
| Millions of euro | Balance at First-time 12 31 2015 consolid. |
Changes during the |
Balance at 09 30 2016 |
of which included in the NFP |
||||
|---|---|---|---|---|---|---|---|---|
| effect acquisit. 2016 |
period | 12 31 2015 | 09 30 2016 | |||||
| Other non-current liabilities | 72 | 10 | 10 | 92 | - | - | ||
| Non-current derivatives | 27 | 8 | (8) | 27 | 27 | 25 | ||
| Total other non-current liabilities | 99 | 18 | 2 | 119 | 27 | 25 |
At September 30, 2016, this item showed an increase of 2 million euro compared to the previous year, excluding the first-time consolidation effect of acquisitions in 2016 for 18 million euro.
"Non-current derivatives" amounted to 27 million euro and, excluding the first-time consolidation effect of acquisitions in 2016, positive for 8 million euro, showed a negative change of 8 million euro compared to the previous year-end mainly due to the change in the fair value valuation of financial instruments at period-end and to the reclassification to the item "Other non-current assets" of a derivative, which at September 30, 2016, showed an asset fair value, while at December 31, 2015, it was a liability.
113
"Other non-current liabilities", which showed a balance of 92 million euro, including the firsttime consolidation effect of acquisitions in 2016 for 10 million euro, mainly refer to security deposits from customers, for 60 million euro, to liabilities pertaining to future years for 14 million euro, to medium/long-term payables to suppliers for 3 million euro, as well as other non-current liabilities for 15 million euro.
| Millions of euro | Balance at 12 31 2015 |
First-time consolid. |
Changes during the |
Balance at 09 30 2016 |
of which included in the NFP |
|
|---|---|---|---|---|---|---|
| effect acquisit. 2016 |
period | 12 31 2015 | 09 30 2016 | |||
| Advances | 5 | - | (1) | 4 | - | - |
| Payables to suppliers | 1,165 | 129 | (55) | 1,239 | - | - |
| Total trade payables | 1,170 | 129 | (56) | 1,243 | - | - |
| Payables to social security institutions | 37 | 2 | (14) | 25 | - | - |
| Current derivatives | 51 | 1 | 150 | 202 | 7 | 4 |
| Other current liabilities of which: | 433 | 54 | 8 | 495 | - | - |
| - Payables to personnel | 72 | 8 | 4 | 84 | - | - |
| - Payables to Cassa per i Servizi Energetici e Ambientali |
100 | - | (17) | 83 | - | - |
| - Tax payables | 44 | 35 | (5) | 74 | - | - |
| - Payables for tax transparency | 8 | - | (1) | 7 | - | - |
| - Payables for energy tariff components | 105 | - | 8 | 113 | - | - |
| - Payables to third-party shareholders EPCG | 20 | - | - | 20 | - | - |
| - Payables to third-party shareholders LGH | - | 3 | - | 3 | - | - |
| - Payables for A.T.O. | 7 | - | (1) | 6 | - | - |
| - Payables to customers for work to be performed | 14 | 2 | (2) | 14 | - | - |
| - Payables to customers for interest on security deposits |
3 | - | - | 3 | - | - |
| - Payables for liabilities of competence of following years/periods |
21 | 2 | 3 | 26 | - | - |
| - Payables for auxiliary services | 1 | - | - | 1 | - | - |
| - Payables for collections to be allocated | 8 | - | - | 8 | - | - |
| - Payables to insurance companies | 3 | - | - | 3 | - | - |
| - Payables for damage compensation to third parties | 2 | - | (2) | - | - | - |
| - Payables to waterway municipalities | 1 | - | - | 1 | - | - |
| - Payables for excise compensation | 6 | - | - | 6 | - | - |
| - Payables for environmental compensation | 3 | - | (1) | 2 | - | - |
| - Payables for RAI fee | - | - | 28 | 28 | - | - |
| - Sundry payables | 15 | 4 | (6) | 13 | - | - |
| Total other current liabilities | 521 | 57 | 144 | 722 | 7 | 4 |
| Total trade payables and other current liabilities |
1,691 | 186 | 88 | 1,965 | 7 | 4 |
"Trade receivables and other current liabilities" amounted to 1,965 million euro (1,691 million euro at December 31, 2015), representing an increase of 88 million euro, excluding the firsttime consolidation effect of acquisitions in 2016 for 186 million euro.
"Trade receivables" amounted to 1,243 million euro and compared to the closing of the previous year, represent a decrease of 56 million euro, excluding the first-time consolidation effect of acquisitions in 2016 for 129 million euro.
"Payables to social security institutions" amounted to 25 million euro (37 million euro at December 31, 2015), including the first-time consolidation effect of acquisitions in 2016 for 2 million euro, and relate to the Group's debt position with social security and pension institutions, related to contributions of the month of September 2016 not yet paid.
"Current derivatives" amounted to 202 million euro (51 million euro at December 31, 2015), including the first-time consolidation effect of acquisitions in 2016 for 1 million euro and refer to the fair value measurement of both commodity derivatives and financial hedging derivative, mainly in relation to Interest Rate Swap (IRS) contracts to hedge the risk of adverse changes in interest rates on bonds due within the year. The increase is due to the increase in commodity derivatives for the fair value measurement of the period.
"Other current liabilities" mainly refer to:
• payables to employees for 84 million euro (72 million euro at December 31, 2015), including the first-time consolidation effect of acquisitions in 2016 for 8 million euro, relating to payables to employees for the productivity bonus accrued during the period, as well as the expense for holidays accrued but not taken at September 30, 2016;
115
payables to customers for work to be performed for 14 million euro (14 million euro at year-end 2015), including the first-time consolidation effect of acquisitions in 2016 for 2 million euro. They refer to estimates already paid by customers for work that has not been completed yet;
payables to customers for interest on security deposits accrued but not yet paid for 3 million euro, unchanged over the previous year;
| Millions of euro | Balance at First-time 12 31 2015 consolid. |
Changes during the |
Balance at 09 30 2016 |
of which included in the NFP |
||
|---|---|---|---|---|---|---|
| effect period acquisit. 2016 |
12 31 2015 | 09 30 2016 | ||||
| Non-convertible bonds | 571 | 11 | 38 | 620 | 571 | 620 |
| Payables to banks | 119 | 45 | (47) | 117 | 119 | 117 |
| Finance lease payables | 1 | 3 | - | 4 | 1 | 4 |
| Financial payables to related parties | 1 | - | 1 | 2 | 1 | 2 |
| Payables to other lenders | - | 4 | 4 | 8 | - | 8 |
| Total current financial liabilities | 692 | 63 | (4) | 751 | 692 | 751 |
116
"Current financial liabilities" amounted to 751 million euro compared to 692 million euro recorded at December 31, 2015 and, excluding the first-time consolidation effect of acquisitions in 2016, showed a decrease of 4 million euro.
"Non-convertible bonds" mainly refer to the bond maturing in November 2016 and coupon of 4.50%, the nominal value of which is currently equal to 503 million euro. Accounting is at fair value hedge; the bond is therefore measured at amortized cost, adjusted for the change in fair value of the risk hedged, which led to a decrease of 1 million euro in the period.
Interest of 101 million euro (53 million euro at December 31, 2015) accrued on the bonds at September 30, 2016, of which 10 million euro related to the consolidation of the LGH Group.
Current "Payables to banks" amounted to 117 million euro and, excluding the first-time consolidation effects of acquisitions in 2016 for 45 million euro, showed a decrease of 47 million euro mainly related to the voluntary early repayment of a loan outstanding.
Lastly, payables to other lenders amounted to 8 million euro and, excluding the first-time consolidation effects of acquisitions in 2016, showed an increase of 4 million euro.
| Millions of euro | Balance at 12 31 2015 |
First-time consolidation effect acquisitions 2016 |
Changes during the period |
Balance at 09 30 2016 |
|---|---|---|---|---|
| Tax liabilities | 43 | 3 | 15 | 61 |
"Tax liabilities" amounted to 61 million euro (43 million euro at December 31, 2015), including the first-time consolidation effect of acquisitions in 2016, and showed a net increase of 15 million euro over the previous year-end.
| Millions of euro | Balance at 12 31 2015 |
First-time consolid. |
Changes during the |
Balance at 09 30 2016 |
of which included in the NFP |
|
|---|---|---|---|---|---|---|
| effect acquisit. 2016 |
period | 12 31 2015 | 09 30 2016 | |||
| Liabilities directly associated with non-current assets held for sale |
20 | 2 | (20) | 2 | - | - |
117
At September 30, 2016, the item amounted to 2 million euro and refers to the liabilities directly associated with assets held for sale of the LGH Group concerning the business unit for municipal sanitation activities of the Lodi area.
At December 31, 2015, this item amounted to 20 million euro and related mainly to the reclassification, pursuant to IFRS 5, of deferred tax liabilities of Edipower S.p.A. in connection with the non-proportional, partial demerger of the same.
The following table provides details of net debt.
| Millions of euro | Notes | 09 30 2016 | First-time consolidation effect acquisit. 2016 |
12 31 2015 |
|---|---|---|---|---|
| Bonds - non-current portion | 18 | 2,731 | 294 | 2,431 |
| Bank loans - non-current portion | 18 | 756 | 135 | 657 |
| Finance leases - non-current portion | 18 | 4 | 4 | 1 |
| Non-current amounts due to other providers of finance | 18 | 6 | 4 | - |
| Other non-current liabilities | 21 | 25 | 7 | 27 |
| Total medium/long-term debt | 3,522 | 444 | 3,116 | |
| Non-current financial assets - related parties | 3 | (6) | - | (5) |
| Non-current financial assets | 3 | (58) | (23) | (52) |
| Other non-current assets | 5 | (8) | - | - |
| Total medium/long-term financial receivables | (72) | (23) | (57) | |
| Total non-current net debt | 3,450 | 421 | 3,059 | |
| Bonds - current portion | 23 | 620 | 11 | 571 |
| Bank loans - current portion | 23 | 117 | 45 | 119 |
| Finance leases - current portion | 23 | 4 | 3 | 1 |
| Current amounts due to other providers of finance | 23 | 8 | 4 | - |
| Current financial liabilities - related parties | 23 | 2 | - | 1 |
| Other current liabilities | 22 | 4 | - | 7 |
| Total short-term debt | 755 | 63 | 699 | |
| Other current financial assets | 9 | (210) | (17) | (165) |
| Current financial assets - related parties | 9 | (9) | (3) | (6) |
| Other current assets | 8 | (16) | - | (16) |
| Total short-term financial receivables | (235) | (20) | (187) | |
| Cash and cash equivalents | 11 | (728) | (83) | (636) |
| Cash and cash equivalents included in Assets held for sale | 12 | - | - | (38) |
| Total current net debt | (208) | (40) | (162) | |
| Net debt | 3,242 | 381 | 2,897 |
The Group's net financial position includes the positive net financial position of the EPCG Group for 190 million euro (152 million euro at December 31, 2015).
119
It is noted that the consolidation scope at September 30, 2016 changed compared to the corresponding period of the previous year for the following operations:
As a result of this, the figures in the income statement for the nine months ended September 30, 2016 are not consistent with those for the nine months ended September 30, 2015.
Revenues for the period totalled 3,482 million euro (3,638 million euro at September 30, 2015), of which 72 million euro, gross of intercompany eliminations, related to the first-time consolidation of the newly acquired companies, and therefore decreased by 156 million euro (-4.2%).
Details of the more significant items are as follows:
| Revenues - Millions of euro | 09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|
| Revenues from the sale of goods | 2,721 | 2,937 | (216) |
| Revenues from services | 588 | 564 | 24 |
| Revenues from long-term contracts | 6 | 14 | (8) |
| Total revenues from the sale of goods and services | 3,315 | 3,515 | (200) |
| Other operating income | 167 | 123 | 44 |
| Total revenues | 3,482 | 3,638 | (156) |
Net of the contribution from LGH (amounting to around 62 million euro), the decrease in revenues can be mainly attributed to the reduction in revenues from the sale of electricity on the wholesale markets.
Despite the increased volumes sold, the decline in sale prices of both gas and electricity recorded on the retail market weighed heavy on the downturn to Group revenues.
| Millions of euro | 09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|
| Sale and distribution of electricity | 1,826 | 2,067 | (241) |
| Sale and distribution of gas | 630 | 597 | 33 |
| Sale of heat | 97 | 110 | (13) |
| Sale of materials | 14 | 9 | 5 |
| Sale of water | 89 | 35 | 54 |
| Sales of environmental certificates | 43 | 99 | (56) |
| Connection contributions | 22 | 20 | 2 |
| Total revenues from the sale of goods | 2,721 | 2,937 | (216) |
| Services to customers | 588 | 564 | 24 |
| Total revenues from services | 588 | 564 | 24 |
| Revenues from long-term contracts | 6 | 14 | (8) |
| Total revenues from the sale of goods and services | 3,315 | 3,515 | (200) |
| Reintegration of costs plant S. Filippo del Mela (plant essential Unit) |
47 | 85 | (38) |
| Damage compensation | 7 | 9 | (2) |
| Contingent assets | 16 | 16 | - |
| Incentives for production from renewable sources (feed-in tariff) |
82 | - | 82 |
| Other revenues | 15 | 13 | 2 |
| Other operating income | 167 | 123 | 44 |
| Total revenues | 3,482 | 3,638 | (156) |
121
Revenues from water sales increased by 54 million euro, compared to the corresponding period of the previous year, mainly as a result of the recognition, to the subsidiary A2A Ciclo Idrico S.p.A., as per Resolution no. 16/2016, by the Ambit Government Entity for Brescia of previous tariff items relating to the financial years 2007 - 2011 under the Resolution of the Authority for Electricity, Gas and the Water System no. 643/2013/R/idr.
The item "Other operating income" shows an increase of 44 million euro arising mainly from the recognition as of January 1, 2016 of the incentives (equal to 82 million euro) on net production from renewable sources, for the entire remaining period of right to Green Certificates after 2015 recognized by the Energy Services Operator, in implementation of the Ministerial Decree of July 6, 2012 as regards plants from renewable sources (entered into operation by December 31, 2012 and that have acquired the right to use the Green Certificates), and the decrease of 38 million euro of revenues for the reinstatement of the costs of the thermoelectric plant of S. Filippo del Mela that as of the end of May 2016, is no longer under the essentiality regime.
Further details on the reasons for the performance of revenues relating to the various Business Units can be found in the paragraph "Result by sector".
122
"Operating expenses" totalled 2,146 million euro (2,361 million euro at September 30, 2015), of which 54 million euro, gross of intercompany eliminations, related to the first-time consolidation of the newly acquired companies, and therefore recorded a decrease of 215 million euro.
The main components of this item are as follows:
| Operating expenses - Millions of euro | 09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|
| Raw materials and consumables | 1,430 | 1,665 | (235) |
| Service costs | 550 | 514 | 36 |
| Total expenses for raw materials and services | 1,980 | 2,179 | (199) |
| Other operating expenses | 166 | 182 | (16) |
| Total operating expenses | 2,146 | 2,361 | (215) |
"Total costs for raw materials and services" amounted to 1,980 million euro (2,179 million euro at September 30, 2015), of which 49 million euro relating to the first-time consolidation of the newly acquired companies, therefore decreasing by 199 million euro.
This decrease is due to the combined effect of the following factors:
| Millions of euro | 09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|
| Purchases of power and fuel | 1,321 | 1,568 | (247) |
| Purchases of materials | 57 | 52 | 5 |
| Purchases of water | 2 | 2 | - |
| Hedging losses on operating derivatives | 2 | 6 | (4) |
| Hedging gains on operating derivatives | (9) | (7) | (2) |
| Purchases of emission certificates and allowances | 55 | 47 | 8 |
| Total expenses for raw materials and consumables | 1,428 | 1,668 | (240) |
| Delivery and transmission costs | 239 | 203 | 36 |
| Maintenance and repairs | 106 | 108 | (2) |
| Other services | 205 | 203 | 2 |
| Total service costs | 550 | 514 | 36 |
| Change in inventories of fuel and materials | 2 | (3) | 5 |
| Total expenses for raw materials and services | 1,980 | 2,179 | (199) |
| Leasehold improvements | 65 | 52 | 13 |
| Concession fees distribution networks Municipality of Milan and Brescia |
6 | 6 | - |
| Water derivation concession fees | 42 | 44 | (2) |
| Contributions to territorial entities, consortia and AEEGSI | 7 | 13 | (6) |
| Taxes and duties | 27 | 39 | (12) |
| Damages and penalties | 2 | 2 | - |
| Contingent liabilities | 6 | 14 | (8) |
| Other costs | 11 | 12 | (1) |
| Other operating expenses | 166 | 182 | (16) |
| Total operating expenses | 2,146 | 2,361 | (215) |
The following table sets out the results arising from the trading portfolio; these figures relate to trading in electricity, gas and environmental certificates.
| Trading margin - Millions of euro | Notes | 09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|---|
| Revenues | 27 | 782 | 872 | (90) |
| Operating expenses | 28 | (781) | (862) | 81 |
| Total trading margin | 1 | 10 | (9) |
The margin of "Trading activities" was down by 9 million euro compared to the corresponding period of the previous year. Excluding the first-time consolidation of the LGH Group for 6 million euro, the reduction amounted to approximately 15 million euro. This dynamic was affected by the loss of some opportunities in the market for environmental certificates (such as the conclusion of the mechanism of Green Certificates), the sharp decline in price differentials with other countries, in particular France and Switzerland, and the very low prices in the summer.
124
Excluding capitalized costs, labour costs at September 30, 2016 amounted to 464 million euro (463 million euro at September 30, 2015), of which 11 million euro related to the first-time consolidation of the newly acquired companies.
"Labour costs" may be analyzed as follows:
| Labour costs - Millions of euro | 09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|
| Wages and salaries | 334 | 328 | 6 |
| Social security charges | 120 | 119 | 1 |
| Employee leaving entitlement (TFR) | 19 | 18 | 1 |
| Other costs | 22 | 17 | 5 |
| Total labour costs before capitalizations | 495 | 482 | 13 |
| Capitalized labour costs | (31) | (19) | (12) |
| Total labour costs | 464 | 463 | 1 |
The table below shows the average number of employees by category:
| 09 30 2016 | 12 31 2015 | 09 30 2015 | Changes September 2016 December 2015 |
Changes September 2016 September 2015 |
|
|---|---|---|---|---|---|
| Executives | 210 | 189 | 183 | 21 | 27 |
| Managers | 618 | 552 | 544 | 66 | 74 |
| White collars | 5,824 | 5,258 | 5,297 | 566 | 527 |
| Blue collars | 6,844 | 6,299 | 6,329 | 545 | 515 |
| Total | 13,496 | 12,298 | 12,353 | 1,198 | 1,143 |
At September 30, 2016, the average labour cost per capita, not considering the effects of the newly acquired companies, amounted to 37.5 thousand euro (37.5 thousand euro at September 30, 2015), unchanged over the corresponding period of the previous year.
At September 30, 2016, the Group had 13,560 employees (of which 2,340 belonging to the EPCG Group), of which 1,430 related to the first-time consolidation of the newly acquired companies, while at September 30, 2015, the Group had 12,423 employees (of which 2,448 belong to the EPCG Group).
The item "Other labour costs" includes early retirement incentives for 2 million euro (1 million euro at September 30, 2015).
As a result of the above movements, consolidated "Gross operating income" at September 30, 2016 amounted to 872 million euro (814 million euro at September 30, 2015), of which 7 million euro arising from the first-time consolidation of the newly acquired companies.
Further details may be found in the section "Results sector by sector".
"Depreciation, amortization, provisions and write-downs" totalled 348 million euro (360 million euro at September 30, 2015), of which 6 million euro related to the first-time consolidation of the companies acquired in the first nine months (7 million euro of depreciation and amortization and -1 million euro of surpluses), representing a decrease of 12 million euro.
125
| Depreciation, amortization, provisions and write-downs Millions of euro |
09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|
| Amortization of intangible assets | 38 | 47 | (9) |
| Depreciation of tangible assets | 266 | 250 | 16 |
| Write-downs of fixed assets | 4 | - | 4 |
| Total amortization, depreciation and write-downs | 308 | 297 | 11 |
| Provision for risks | 34 | 51 | (17) |
| Bad debt provision on receivables recognized as current assets | 6 | 12 | (6) |
| Total depreciation, amortization, provisions and write-downs | 348 | 360 | (12) |
The following table provides details of the individual items:
"Depreciation, amortization and write-downs" totalled 308 million euro (297 million euro at September 30, 2015), of which 7 million euro related to the first-time consolidation of the newly acquired companies and recorded an overall increase of 11 million euro.
The amortization of intangible assets, of which 2 million euro related to the first-time consolidation of the newly acquired companies, decreased by 9 million euro mainly following the adjustment of the amortization of the gas distribution networks following publication of the tender notice by the Municipality of Milan for the assignment in concession of the gas distribution service at local level.
Depreciation of tangible assets show an increase of 16 million euro compared to September 30, 2015 and includes:
126
Write-downs of fixed assets amounted to 4 million euro and refer to 3 million euro for writedowns of assets in progress related to some projects that will no longer be realized regarding the integrated water cycle and 1 million euro for the increase in the decommissioning provision of a plants that was completely written off in previous years.
Regarding the transposition of the "Growth Decree" which lays down procedures for calculating the surrender value of the water system works used to supply water under concession to hydroelectric power plants (the "wet works"), the calculation criteria (revaluation coefficients and useful lives) needed to quantify the surrender value at the end of the relative concessions have not been set yet by the relevant authorities. In the absence of a regulatory framework, the A2A Group carried out a series of simulations estimating the revaluations using ISTAT coefficients, which were found to be the only possible data objectively usable, and made its own estimates of the economic and technical lives of the assets. The results of these simulations led to a very wide variability range, confirming that it is currently impossible to make a reliable estimate of the surrender values at the end of the concessions. Nevertheless, for concessions close to expiry the net carrying amount of the wet works was significantly lower than the range of results obtained. As a result, therefore, as of June 30, 2012, depreciation and amortization is no longer charged only for those concessions nearing expiry (Hydroelectric plant in Valtellina), while the same valuation methods continue to be applied to the remaining concessions.
The balance of "Provisions for risks" shows a net effect of 34 million euro (51 million euro at September 30, 2015) due to allocations of 54 million euro made during the period, offset by the 20 million euro of risk provisions made in previous years, released in the current year since the original disputes have ceased to exist.
Net provisions for the period concerned 11 million euro provisions for expenses funds for closure and post-closure of landfills, 6 million euro provisions for tax funds, 10 million euro provisions for contractual obligations, 5 million euro provisions for funds for personnel lawsuits and disputes, 12 million euro provisions for hydroelectric fees, 3 million euro for other risks provisions relating to EPCG and 7 million euro for various provisions. Releases of risk provisions set aside in previous years amounted to 20 million euro, of which 1 million euro from the first-time consolidation of the newly acquired companies.
For further information, reference is made to Note 20 "Provisions for risks, charges and liabilities for landfills".
The "Bad debt provision" amounted to 6 million euro (12 million euro at September 30, 2015), consisting of the accrual for the period.
"Net operating income" amounted to 524 million euro (454 million euro at September 30, 2015).
127
The "Result from non-recurring transactions" is positive for 52 million euro (negative for 1 million euro at September 30, 2015) and is related to the demerger of the "Cellina Unit" of Edipower S.p.A. in favour of Cellina Energy S.r.l., which took effect on January 1, 2016 following the demerger deed signed between the parties on December 28, 2015 as further specified in the paragraph "Significant events during the period".
The "Financial balance" shows a negative balance of 92 million euro (negative for 107 million euro at September 30, 2015), of which 3 million euro resulting from the first-time consolidation of the newly acquired companies.
Details of the more significant items are as follows:
| Financial balance - Millions of euro | 09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|
| Financial income | 17 | 15 | 2 |
| Financial expense | (113) | (125) | 12 |
| Affiliates | 4 | 3 | 1 |
| Total financial balance | (92) | (107) | 15 |
"Financial income" amounted to 17 million euro (15 million euro at September 30, 2015) and may be analyzed as follows:
| Financial income - Millions of euro | 09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|
| Bank income | 6 | 8 | (2) |
| Other financial income of which: | 11 | 7 | 4 |
| - Financial income from the Municipality of Brescia (IFRIC 12) | 5 | 2 | 3 |
| - Other income | 6 | 5 | 1 |
| Total financial income | 17 | 15 | 2 |
"Financial expenses", which amounted to 113 million euro, of which 3 million euro from the first-time consolidation of the newly acquired companies, decreased by 12 million euro over September 30, 2015, and may be analyzed as follows:
| Financial expenses - Millions of euro | 09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|
| Interest on bond loans | 94 | 94 | - |
| Interest charged by banks | 7 | 11 | (4) |
| Interest on Cassa Depositi e Prestiti loans | - | 2 | (2) |
| Fair value of financial derivatives | (3) | (3) | - |
| Realized on financial derivatives | 6 | 11 | (5) |
| Decommissioning costs | 1 | 1 | - |
| Other financial expenses of which: | 8 | 9 | (1) |
| - IAS discounting charges | 4 | 3 | 1 |
| - Financial expenses (IFRIC 12) | 2 | 3 | (1) |
| - Other expenses | 2 | 3 | (1) |
| Total financial expenses | 113 | 125 | (12) |
The equity method valuation of shareholdings was positive for 4 million euro (positive for 3 million euro at September 30, 2015), and is mainly attributable to the valuation, according to the equity method, of the investment in ACSM-AGAM S.p.A. and other minor investments.
| Income taxes - Millions of euro | 09 30 2016 | 09 30 2015 | Changes |
|---|---|---|---|
| Current taxes | 112 | 71 | 41 |
| Deferred tax assets | 72 | 60 | 12 |
| Deferred tax liabilities | (39) | (34) | (5) |
| Total income taxes | 145 | 97 | 48 |
"Income taxes" for the period amounted to 145 million euro (97 million euro in the nine months ended September 30, 2015).
It is noted that the parent company A2A determines IRAP taxes for the period according to art. 6, paragraph 9, of Legislative Decree December 15, 1997, no. 446 ("industrial holding" method), under which the taxable amount is determined by taking into account also financial income and expenses (excluding those related to shareholdings).
The "Net result from discontinued operations" was 1 million euro (no value at September 30, 2015) and derives from the first-time consolidation of the LGH Group.
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The "Result of minorities" is negative for the Group for 17 million euro and mainly includes the portion attributable to minority interests of the company EPCG. In the corresponding period of the previous year, the item showed a negative balance for the Group for 12 million euro.
The "Group result of the period" was positive for 323 million euro (positive for 237 million euro at September 30, 2015).
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| 01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
|
|---|---|---|
| Earnings (loss) per share (euro) | ||
| - basic | 0.1044 | 0.0762 |
| - basic from continuing operations | 0.1042 | 0.0762 |
| - basic from assets held for sale | 0.0002 | - |
| - diluted | 0.1044 | 0.0762 |
| - diluted from continuing operations | 0.1042 | 0.0762 |
| - diluted from assets held for sale | 0.0002 | - |
| Weighted average number of outstanding shares for the calculation of earnings (loss) per share |
||
| - basic | 3,086,921,378 | 3,105,987,497 |
| - diluted | 3,086,921,378 | 3,105,987,497 |
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At January 1, 2016, the partial non-proportional demerger of Edipower S.p.A. came into effect related to the "Cellina Branch" in favour of Cellina Energy S.r.l. (company wholly owned by Società Elettrica Altoatesina S.p.A.) in application of the demerger deed stipulated the parties on December 28, 2015, which led to a positive impact on the income statement of 52 million euro recorded under "Result from non-recurring transactions".
The reporting period benefited from 51 million euro of non-recurring revenues of the company A2A Ciclo Idrico S.p.A. following application of Resolution no. 16/2016, by means of which the Board of Directors of the Ambit Government Entity of Brescia approved the previous tariff items (for the years 2007-2011) for A2A Ciclo Idrico S.p.A. pursuant to Resolution no. 643/2013/R/idr of the Authority for Electricity, Gas and the Water System.
| Millions of euro | 09 30 2016 | 12 31 2015 |
|---|---|---|
| Guarantees received | 662 | 460 |
| Guarantees provided | 1,913 | 1,545 |
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Guarantees received amounted to 662 million euro (460 million euro at December 31, 2015) and include 250 million euro for sureties and security deposits issued by subcontractors to guarantee the proper execution of the work assigned and 412 million euro for sureties and security deposits received from customers to guarantee the regularity of payments.
Guarantees provided amounted to 1,913 million euro (1,545 million euro at December 31, 2015), of which for obligations undertaken in the loan agreements of 317 million euro. These guarantees have been issued by banks for 637 million euro, insurance companies for 141 million euro and the parent company A2A S.p.A., as parent company guarantee, for 1,135 million euro.
* * *
Group companies hold third party assets under concession, relating mainly to the integrated water cycle, amounting to 66 million euro.
Reference should be made to the specific section of this interim report on operations for a description of subsequent events.
At September 30, 2016, A2A S.p.A. held 23,721,421 treasury shares (26,917,609 at December 31, 2015), representing 0.757% of the share capital consisting of 3,132,905,277 shares. In the first three months of the year, there was an increase in the number of treasury shares compared to December 31, 2015 of 35,000,000 shares purchased between February 16 and March 31, 2016 for a total of approximately 37 million euro. In August, a portion of 38,196,188 treasury shares for a total value of 47 million euro were sold for the acquisition of the majority stake of Linea Group Holding S.p.A..
At September 30, 2016, no treasury shares were held through subsidiaries, finance companies or nominees.
In the first nine months of 2016, the Group completed some acquisitions of investments, which are listed below:
The transactions summarized above are classified as business combinations in accordance with international standard IFRS 3 revised "Business Combinations"; the Group fully consolidated the companies through the application of the acquisition method prescribed by IFRS 3 revised, by virtue of the control obtained on the entities acquired.
IFRS 3 revised requires all business combinations to be accounted for using the acquisition method. The acquirer must therefore recognize all the identifiable assets, liabilities and contingent liabilities relating to the acquisition at their fair values at the acquisition date and highlight the eventual recognition of goodwill.
Subsequent to the provisional recognition of goodwill, the Group will carry out the Purchase Price Allocation process, which involves an analysis aimed at allocating the higher value paid during the acquisition, given by the difference between the fair value of acquired assets and liabilities and accounting shareholders' equity of the company. In accordance with the provisions of IFRS 3, at the acquisition date, the Group must recognize goodwill evaluating it as the excess of (a) with respect to (b), as indicated below:
a) the sum of: (i) the amount transferred measured in accordance with this IFRS, which generally requires the fair value at the acquisition date; (ii) the amount of any minority investment in the acquired company measured in accordance with this IFRS; and (iii) in a business combination realized in several phases, the fair value at the date of acquisition of the equity interests in the acquired company previously held by the acquiring company;
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b) the net value of the amounts, at the acquisition date, of identifiable assets acquired and identifiable liabilities undertaken measured in accordance with this IFRS.
Therefore, only if there is no basis for the allocation to the assets, the higher value will be fully charged to goodwill, which will then be subjected to an impairment test at least once a year.
Although IFRS 3 requires the Purchase Price Allocation to be completed within one year from the date of acquisition, the Group expects to do so by the end of this year.
Accounting at September 30, 2016 resulted in a provisional allocation to "Goodwill" for all the transactions mentioned above. Specifically:
"Non-current assets held for sale" and "Liabilities directly associated with non-current assets held for sale" at September 30, 2016 implement the reclassification of the assets owned by the company SEASM S.r.l. consisting of an electrical substation of 380 kV called "Voghera" and destined to connect to the national electricity transmission grid (RTN) the thermoelectric plant of Voghera Energia, assets held for sale of the EPCG Group, and assets and liabilities held for sale of the LGH Group regarding the business unit for municipal sanitation activities of the Lodi area, while at December 31, 2015, they included some assets of Edipower S.p.A. and liabilities related to them as part of the partial, non-proportional demerger, effective January 1, 2016, in favour of Cellina Energy S.r.l. (wholly owned investee company of Società Elettrica Altoatesina S.p.A.), relating to the "Cellina Unit".
There was no need for the reclassified balances in the above transactions to be written down.
| Figures at September 30, 2016 Millions of euro |
Assets SEASM S.r.l. |
Group LGH |
Group EPCG |
Total |
|---|---|---|---|---|
| ASSETS AND LIABILITIES HELD FOR SALE | ||||
| Non-current assets | 2 | 1 | 1 | 4 |
| Current assets | - | - | - | - |
| Total assets | 2 | 1 | 1 | 4 |
| Non-current liabilities | - | 1 | - | 1 |
| Current liabilities | - | 1 | - | 1 |
| Total liabilities | - | 2 | - | 2 |
Summarized figures relating to these assets and liabilities are as follows.
It is specified that the impact on the income statement of the reclassification of revenues, operating costs and the financial balance of SEASM S.r.l. is not significant as it is less than one million euro, while the economic impact of the reclassification of revenues, operating costs and financial balance related to the business unit of the LGH Group has an effect of 1 million euro.
Adequate provisions are provided where necessary for the disputes and litigation described below.
It is noted that if there is no explicit reference to the presence of a provision, the Group assessed the corresponding risk as possible without appropriating provisions in the financial statements.
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On June 5, 2002, the European Commission published Decision no. 2003/193/EC stating that the three-year exemption from income tax provided by article 3 paragraph 70 of Law no. 549/95 and article 66.14 of Decree Law no. 331/1993, converted into Law no. 427/93, is incompatible with community law, considering this to be "State aid" which is prohibited by article 87.1 of the EC Treaty.
The Company appealed against this decision before the community jurisdictions but these appeals were rejected. The Italian State went ahead with the recovery of the aid in three separate stages, issuing different orders for the various tax period concerned.
The process followed by the various community and national appeals was described in the financial statements up until 2012 and in the quarterly reports up until the third quarter of 2013, to which reference is made for brevity. All the amounts requested for the principal and interest have been settled to avoid any executive action.
The situation regarding pending matters is as follows:
As of today, therefore, the question concerning the quantification of the interest due on the amounts to be recovered is still pending in cassation (whether the interest is compound or simple interest), related to the Second and Third recovery. On this point, the interpretation made by the European Court of Justice is binding on national courts. On March 26, 2015, the Attorney General at the Court of Justice, Melchior Wathelet, submitted his non-binding conclusions to the Court. According to the Attorney General, European legislation does not preclude that national legislation provides for the application of compound interest to a recovery action for illegal aid. However, the same Attorney General found that before 2008, neither European nor national legislation envisaged the application of compound interest for recovery activities.
By sentence ruled on September 3, 2015, the EU Court substantially transposed the opinion of the Attorney General, considering that a national legislation regarding interest on the recovery of State aid, which provides for the application of compound interest, is not contrary to European law. However, the Court highlighted that – before 2008 – no legislation (European and national) provided for the application of compound interest for the recovery of State aid relating to Decisions issued – as in this case – before the entry into force of Reg. no. 794/2004.
Following this binding sentence on the national court, the proceedings in cassation on the Third recovery suspended following the prejudicial referral to the Court of Justice, resumed its course. The defence of the Company filed a statement pointing out that - according to a correct reading of the EU court ruling - the application of compound interest can only occur from November 2008. The hearing was held March 18, 2016; the Attorney General concluded for the dismissal of the appeal of the party. The sentence has not yet been filed.
In any case, concerning the position of A2A, as all the amounts requested were settled some time ago, it is believed that once the pending disputes are completed the company should not have to bear any further costs for the recovery of State aid.
In the 90s, the purchase by BAS S.p.A. of the investment in HISA was made thanks to the services of a local consultant, Consult Latina.
Given the non-uniqueness of the contractual text and the non-acquisition of 100% of the investment in HISA, BAS S.p.A. did not pay to Consult Latina the fee requested because it considered the contractual provision as not applicable and therefore the formulated payment request as unjustified. In 1998, Consult Latina established a lawsuit to obtain payment of the fee.
Legal counsel has confirmed that the preliminary phase was completed years ago and that only the final sentence is awaited.
A2A S.p.A. took over the litigation after the incorporation of BAS S.p.A. in 2005 and repeatedly conferred upon the lawyers the mandate to reach a settlement also expressing a willingness to increase previous offers to cover the litigation costs as well as to listen to and weigh even incremental requests.
As of December 2014, the Court has repeatedly summoned the parties in a closed session to verify the conditions of a conciliation or transaction; the last session was held on September 27, 2016. In each of these occasions, the lawyers of A2A contacted Consult Latina to find a compromise solution with the aim of resolving the dispute, even without acknowledgement of debt. Pending accession to the latest proposal, it was requested to postpone the hearing to November 2016.
Over time, Redengas, a subsidiary of HISA whose shares have been foreclosed in guarantee for the payment by A2A, by Consult Latina, has rooted actions to demand the removal of such encumbrances, even foretelling due compensation against A2A S.p.A. and Consult Latina. On June 3, 2014, the Court rejected the appeal by A2A S.p.A. to stop said foreclosure and A2A S.p.A. notified appeal. On July 13, 2016, A2A S.p.A. and Consult Latina were summoned by Redengas for the preliminary mediation hearing upon the summoning of a new lawsuit to obtain compensation for damages resulting from the seizure continuation. Said damages would result in additional costs for A2A S.p.A..
The Group has set aside a risk provision of 1.3 million euro.
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On May 27, 2011, Consorzio Eurosviluppo Industriale S.c.a.r.l. served a writ on Ergosud S.p.A. and A2A S.p.A. with the following claims: (i) compensation for damages, of both a contractual and extra-contractual nature, jointly, or alternatively exclusively and separately, in the amount of 35,411,997 euro (of which 1,065,529 euro as the residual portion of their share of the expenses); (ii) compensation for damages for the stoppage at the worksite and the failure to return the areas of pertinence to the Consortium.
In the filing of appearance Ergosud S.p.A. and A2A S.p.A. called for the request to be rejected in full because it is unfounded in its merit and in its substance, and pointed out: (i) the lack of the right of the Consortium to institute proceedings as it is in a state of bankruptcy, (ii) the lack of the right of the Consortium to institute proceedings for the damages allegedly suffered by Fin Podella at the item "anticipation of program contract" for 6,153,437 euro and the damages allegedly suffered by Conservificio Laratta S.r.l. for 359,000 euro.
S.F.C. S.A. filed a notice of joinder on November 8, 2011 pursuant to article 105 of the Civil Procedure Code (which allows a third party to make a new, different request to the original judge, extending the argument) and called that Ergosud S.p.A. alone should be ordered to pay damages, in part similar to those claimed by the Consortium, quantified in 27,467,031 euro.
The judge found the bankruptcy of S.F.C. S.A. was legitimate and therefore set the end of the proceedings and the hearing for December 19, 2012, declaring the need to execute an expert opinion, setting May 23, 2013 as the date for the hearing to appoint the court's expert witness. At that hearing the judge, changed in the meantime, confirmed the questions already formulated on December 19, 2012 and appointed the court experts Messrs. Pompili and Caroli, setting a term for the parties to appoint their own consultants. A2A S.p.A. and Ergosud S.p.A. appointed as their experts Mr. Massardo and Mr. Gioffrè, persons who over the years have already drawn up reports on the matters to which the questions refer. After postponements requested by the experts, on July 31, 2014, the CTU was filed with the Court. The hearing for the expert's examination was held after postponement on April 1, 2015 and the hearing for clarification of conclusions has been scheduled for November 30, 2016.
The Group has not allocated any provisions as it does not deem as probable the risk related to this lawsuit.
This matter regards the usage of electricity for auxiliary services. According to the Electricity, Gas and Water Authority (AEEGSI), self-consumption by certain types of plant (waste-toenergy) should be considered in the same way as consumption for auxiliary services. The Group has various plants that benefited from CIP 6/92 incentives and for which inspection visits have been carried out over the years. In certain cases, the Authority carried out said verifications by mandating the CSEA to act with respect to the Group; in other cases, the Authority has not taken any action; in others, the verifications are underway. To date, a provision has been allocated for 1 million euro in line with the potential contingent liabilities.
With regard to the inspection visit in 2006 by the CSEA at the Silla 2 waste-to-energy plant, to date, no updates were found with respect to as already reported in the Notes to the financial statements of previous years. It is believed that, in the event of measures by the AEEGSI tending to the recovery of the CIP 6/92 facilitation, valid defensive objections can be adopted, even taking into account the peculiarities of the waste-to-energy plant in question. In relation to this specific case, the Group has not allocated any provision as it considers the liability possible and not likely.
This proceeding involves the Union Temporal De Impresas (UTE), set up between A2A Ambiente S.p.A., Azhar and Teconma, to build and manage an ITS treatment and disposal plant and composting line in Castellon de la Plana (Spain) as the result of being awarded the tender called by Zone 1 Consortium of Castellon. The Municipality of Calig, neighboring with Castellon, has appealed against the amendment to the agreement between the consortium and the UTE which provided for an increase in the fee from 121 million euro to 140 million euro for adjusting the plants to the specifications required in the AIA, requesting that it be annulled. In the sentence of the court of the first instance of May 21, 2013, the Court upheld the appeal of the Municipality of Calig, additionally ordering, besides upholding the requests of the counterparty, the annulment of the original awarding of the tender to the UTE, with the resulting requirement for the consortium to find a new supplier.
Despite the fact that A2A Ambiente S.p.A. holds an interest of 1% in the UTE, under Spanish law, UTEs are characterized by the joint liability of their members.
The UTE, defended by the law firm Urìa Menendez, has filed an appeal against the Court's sentence of June 12, 2013.
On February 22, 2016, the sentence of the Superior Court of Justice of the Valencia Community, which was not further challenged, was notified to the UTE, which A2A Ambiente S.p.A. holds in the proportion of 1%.
The sentence partially upheld the appeal of the UTE, as it declared the concession null, but confirmed the remainder of the first degree sentence ordering the annulment of the change of the concession contract by which the Consortium (client) paid to the UTE in 2010 extra costs amounting to 19 million euro, due to the non-demonstration of public interest in the contract change.
Under Spanish law, the sentence will have to be implemented by the Consortium within two months of notification. During the transitional period, the conditions will continue to apply of the contract change annulled and the Consortium will have to define the methods for implementation of the provisions of the sentence.
To date, there are no indications regarding decisions of the Consortium in regard. The Spanish lawyer that defended UTE in court highlighted that if the Consortium decides not to approve a new contract change that recognizes the UTE satisfactory economic conditions, the UTE may proceed to trial in order to obtain compensation for damages resulting from failure to recognize the investments made in execution of the second contract change subsequently annulled.
On March 31, 2016, the Consortium Zone 1 filed an appeal with the court for administrative litigation of Castellon for the declaration of material impossibility of execution of the sentence of the Tribunal de Justicia Superior since said sentence would be contrary to the obligations imposed by the AIA.
The UTE presented adhesive intervention on May 11, 2016 in support of the appeal of the Consortium.
On September 21, 2016, the Judge of the administrative litigation of Castellon issued a ruling in which it declared the appeal of the Consortium as inadmissible, considering the previous sentence of the TSJ. However, the Judge did not provide any reasons in support of this anomalous decision.
An appealed against this ruling can be filed by October 17. The Consortium should have no interest in filing an appeal, unlike the Calig Town Hall.
In case of failure to file an appeal within the terms, the sentence of the Court of Administrative Litigation of Castellon will become final. In that situation, the above considerations highlighted in italics would resume.
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To complete this matter, trade and financial receivables of approximately 2.8 million euro due from the UTE were recognized in the financial statements of A2A Ambiente S.p.A. at September 30, 2016.
Given the information available, as outlined above and considering the fact that the Spanish legislation of reference provides for the right of the contractor (UTE) to be compensated for any damages that may result from the annulment (also partial) or from contract termination for reasons not attributable to the latter, it is believed to date that the aforementioned trade and financial receivables are recoverable even if in the medium/long term.
This investigation was initiated with a report filed in March 2011 by the management of the A2A Group against A2A employees and third party businessmen suspected of being responsible for fraud carried out to the harm of the company itself, who - for the payment of conspicuous sums of money - were responsible for illegal trafficking, the falsification of forms identifying the waste and certificates of analysis, in relation to the supply of biomasses and the certification of their calorific value. More specifically, biomass quantities were recorded on entry at figures higher than the real ones, with the relative calorific values also being increased.
This implies damage to the A2A Group and in particular to A2A Trading S.r.l. for the higher costs incurred for undelivered biomass and higher costs incurred for counterfeiting (others) of the calorific capacity of the biomass delivered and not delivered.
The increased use of coal instead of biomasses could have as a consequence the risk of an increase in the environmental costs relating to the second half of 2009 and the whole of 2010, as well the need to reimburse the additional income or Green Certificates recognized with respect to the real income. The company could have submitted, without fault and with reference to the years 2009 and 2010, generating statements of environmental rights greater than those actually produced. To date, the GSE, as it blocked the issuing of licenses for subsequent years, did not address return requests for previous annuities of competence of the A2A Group (second half of 2009-full-year 2010). If the GSE were to take action against the A2A Group, it will evaluate the appropriate actions, including damages, considering also the amount withheld from third-party suppliers.
In accordance with the procedures and modalities required, A2A Trading S.r.l. has also filed a request with the GSE to obtain Green Certificates relating to 2011 in which the calculation has been made on the basis of the real quantities of biomasses delivered to the power station and, in agreement with the Public Prosecutor, by taking into account a possible false (not of A2A) increase of 20% in the calorific values of such. Despite the fact that the GSE has acknowledged the correctness of the calculations made by A2A Trading S.r.l. for 2011, as of today the abovementioned 2011 Green Certificates have not yet been issued.
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If the GSE were to unlock both positions (namely those relating to the years 2009 and 2010 related to the aggravation of environmental liabilities and that of 2011 relating to the delivery of the GC already requested), there would be a credit for the A2A Group for about one million euro.
In criminal proceedings, some measures have been adopted in the context of alternative rites to some of the defendants, with recognition of minimum compensation and recasts of expenses in favour of A2A.
The proceeding passed, for local jurisdiction, before the Court of Gorizia.
The last hearing was held on October 6, 2016. The proceedings in progress were adjourned until February 9, 2017.
The Group has not allocated any provisions as it considers being the aggrieved party in the proceedings.
On March 29, 2013, Pessina Costruzioni notified A2A S.p.A. of the appointment of the arbitrator and the deposition with the arbitrators to initiate the arbitration, in fulfilment of the shareholders' agreements signed in August 2007, with the scope of having A2A S.p.A. ordered to pay compensation for damages for the non-fulfillment of its obligations under the agreements.
A2A S.p.A. appointed its arbitrator within the established term of 20 days, rejecting the requests.
After discussion on the appointment, and after a request for the appointment of a sole arbitrator made by Pessina to the Court of Novara, the parties signed an agreement concerning the formation of the Arbitration Board.
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The appointed arbitrators are the Lawyers Bruna Gabardi Vanoli, Marco Praino (designated by Pessina) and Salvatore Sanzo (designated by A2A S.p.A.); the hearing for the formal constitution of the board was on July 1st, 2013. After this preliminary fulfilment, the parties will specify the applications for arbitration. As a result of the hearing, by means of a summary order, the board fulfilled the requirements for it to be formally established and be able to commence work, setting the deadlines for briefs and preliminary motions and the date of the first hearing. The dates set are October 15 and December 20, 2013 and February 21, 2014 for the submission of briefs and March 5, 2014 for the first hearing. By order of October 8, 2013, the Arbitration Board postponed the deadline for the submission of briefs respectively to October 9, 2013, January 21, 2014 and March 25, 2014. Consequently, the hearing set for March 2014 was postponed to April 10, 2014. The location for the arbitration was set as the offices of the President of the Arbitration Board in Milan. At the hearing of April 10, 2014, preceded by the submission of the parties' briefs, the Board set three new deadlines for the briefs (May 20 for A2A, June 17 for Pessina and June 26 for A2A) and set the date of the merit hearing as July 11, 2014. During the hearing, the plaintiff requested to fix a hearing for conclusions that by order outside the hearing filed on July 22 was set for September 16, 2014. At that hearing, the board set the terms for the filing of the final statements and the date of final hearing; at the request of the parties, such terms were postponed to December 3 and January 7, 2015 for the briefs and February 3, 2015 for the hearing. At that hearing, the board ordered an extension of the deadline for filing the award to 120 days. At the end of May 2015, A2A, having had news of habitual familiarity and commensality elements between the Chair of the Arbitration Board and the lawyer of the claimant, filed at the court of Milan application for recusal of the Chair of the Arbitration Board.
In view of the news of the appeal, with Ordinance 6/15 issued outside the hearing on June 3, 2015, the Board suspended the filing of the award until the end of the proceeding, or until the day following the notification of the outcome of the proceeding conducted by the most diligent party.
The Delegated Chair issued an order rejecting the request condemning A2A to litigation costs to the Chair of the Board and to Pessina.
On June 30, 2015, Pessina notified the Board, in execution of Ordinance 6/15, requesting the board to summarize the pending arbitration process.
On June 30, 2015, the Board, with the dissenting opinion of the arbitrator appointed by A2A filed its award that deems A2A responsible for violation of the shareholders' agreement signed on August 4, 2007 and, consequently, the order to pay damages of 37,968,938.95 euro plus legal fees and arbitration expenses.
The company challenged the Award pursuant to art. 829 CPC before the Milan Court of Appeal. The appeal concerns: 1) nullity of the Award for violation of art. 829, paragraph 1, no. 2, CPC, in light of the lack of impartiality of the Chair of the Arbitration Board, the lawyer Bruna Gabardi Vanoli; 2) the nullity of the Award, pursuant to art. 829, no. 4, CPC, as the arbitration board pronounced outside the limits of the arbitration agreement; 3) nullity of the Award for violation of the adversarial principle, pursuant to art. 829, no. 9 CPC, in so far as the arbitration board based its decision on art. III of the Shareholders' Agreement; 4) failure to state reasons under art. 829, no. 5 and 823, no. 5 CPC, and violation of the adversarial principle pursuant to art. 829, no. 9 CPC, as the arbitration board took its decision, excluding, for no reason, the evaluation of the documentation filed in court by A2A; 5) nullity of the Award for violation of the adversarial principle, pursuant to art. 829, no. 9 CPC, as the arbitration board decided on the basis of accepting the importance of the office of an equitable settlement of the damage, without submitting the issue to a hearing of the parties; 6) nullity of the Award pursuant to art. 829, no. 5 and 823, no. 5 CPC, as the arbitration board assessed the damages on an equitable basis pursuant to art. 1226 Civil Code, without justifying the existence of the condition for the applicability of said provision, and without justifying the existence of the damage; 7) nullity of the Award pursuant to art. 829, no. 3, as the arbitration board assessed the damages on an equitable basis pursuant to art. 1226 Civil Code, without the necessary conditions, in violation of public order. Before the court, Pessina formulated a cross appeal with request for damage liquidation higher than as already liquidated in the award, representing the request for damages formulated in arbitration totalling about 51 million euro. After the first hearing held on December 16, 2015, a hearing was scheduled for the final judgement on May 3, 2016. At said hearing, the parties specified the conclusions and A2A also formulated a reasoned request for relief in terms. The Court adjourned the hearing to June 14, 2016. At said hearing, the Court granted the terms for the filing of final claims and objections respectively for September 5 and September 26, 2016, stating that the request for relief in terms will be examined and assessed in the final conclusions. Within the terms, the parties filed the final brief and related reply reiterating and clarifying the respective requests and arguments.
In July 2015, contextually to the appeal, A2A filed an appeal for the suspension of enforceability of the Ruling. The Court of Appeal by a decree issued by the Chair of the 1st Civil Section on July 10, 2015, without hearing the parties, suspended the enforceability of the Award until the hearing before the Board set for September 15, 2015. On joint request of the parties on September 11, 2015, said hearing was postponed to November 10, 2015. By order issued outside the hearing on November 19, 2015, the decree issued on July 10 was revoked. By decision 3378 of December 18, the Court of Milan granted the enforceability of the Award requested by Pessina, immediately suspended the same day by order issued by the President of the First Section of the Court of Appeal at the request of A2A, scheduling a hearing on January 19, 2016. By order of January 26, 2016 notified on February 4, 2016, the Court of Appeals revoked the Presidential Decree of December 18, 2015 and rejected the request for suspension of the contested measure. On February 24, 2016, Pessina notified injunction and on March 7, 2016 notified garnishment (with a leading banking institution with which A2A opened a specifically dedicated bank account), with the simultaneous assumption by the garnishee of the obligations that the law imposes on the keeper. On March 23, 2016, the garnishment was registered and the hearing for the third-party statement was fixed by the Court of Brescia for May 23, 2016. On April 15, the lawyers of Pessina notified A2A and the third-party bank garnishee the hearing anticipation decree issued on April 6, 2016 by the Court of Brescia, on the request of Pessina, which brought forward to April 27 the hearing for third-party declaration. Following said hearing, on May 2, Pessina notified to the third-party garnishee identification of the credit that was paid on May 11 for the value of 38,524,290.56 euro.
The Group has taken into account the outcome of the Award in the establishment of appropriations to provisions for future risks and charges, allocating the full amount of the Award plus expenses, despite the firm conviction of its positions.
146
With Regional Law no. 22/2011, Lombardy essentially doubled the fee for hydroelectric use of public water, thereby infringing the principles of gradualism and reasonableness in the determination of fees, already recognized by the case law, and also violating the principle of equal competition between operators in the national territory.
Faced with the payment requests made by the Region for the years 2012 and 2013, Edipower S.p.A. therefore paid the fee considering solely the increase arising from the planned inflation rate as compared to the previous year. As a consequence, for 2012 and 2013 the Region issued injunctions for the payment of the amount not paid by the company; Edipower S.p.A. appealed against these injunctions before the Regional Court of Public Waters of Milan, proposing the exception of unconstitutionality of the regional provision. Same conduct was adopted by Edipower for the annuities of the 2014, 2015 and 2016 fees. Moreover, some recent negative developments in case law (and most recently in particular the Sentence of the Constitutional Court 158/2016) led Edipower to let certain judgements extinguish in order to avoid the increase in interest and the risk of condemnation to significant legal expenses, while maintaining intact its right to repetition with respect to overpaid amounts, upon the overall outcome of the litigation.
The same issue also concerns the large-scale derivations in Lombardy of A2A, which, since the outset, in view of its specific circumstances, fully pays the fee demanded by the Region and then sues for excess repetition.
In addition, the D.G.R. (Regional Council Resolution) of Lombardy no. 5130-2016 ordered, by Regional Law 53-bis of Regional Law 26/2003 introduced by Regional Law 19/2010, the subjection of the hydroelectric concessions already expired to an "additional fee" established "provisionally" at 20 €/kW of nominal power of concession, subject to the request for settlement at the outcome of the assessments underway by the regional offices regarding the profitability of expired concessions. It is noted that said additional fee is expected to be applied retroactively from the original expiry of each concession, and therefore for Grosotto, Lovero and Stazzona from January 1, 2011 and for Premadio 1 from July 29, 2013.
A2A, which has always challenged even in court the legitimacy - in the first place constitutional - of the aforementioned paragraph 5, challenged, like other operators, the D.G.R. 5130-2016 before the Superior Court of Public Waters.
For disputes relating to public water derivation fees, at September 30, 2016, the Group set aside risk provisions for the total amount of 30.9 million euro equal to the entire claim of the counterparties.
On March 24, 2015, Carlo Tassara S.p.A. notified A2A, Electricité de France (EDF) and Edison a summons requesting the Court of Milan to condemn A2A and EDF to compensation for damages allegedly suffered by Carlo Tassara, in its capacity as minority shareholder of Edison, in relation to the mandatory tender offer launched by EDF on Edison shares consequently to the transaction by which, in 2012, A2A sold its indirect shareholding in Edison to EDF and simultaneously acquired 70% of the capital of Edipower from Edison and Alpiq.
Until 2012, in fact, A2A and EDF held joint control of Edison S.p.A. Edison, in turn, held 50% of Edipower S.p.A. (the remaining capital of Edipower was held 20% by Alpiq, 20% by A2A and the remaining 10% by Iren).
In the 2012 transaction, A2A sold its indirect shareholding in Edison to EDF and simultaneously acquired 70% of the capital of Edipower from Edison and Alpiq.
147
In the summons notified, Carlo Tassara complained that, in the transaction, EDF and A2A agreed on a mutual "discount" on the price paid by EDF for the purchase of Edison shares, on the one hand, and on the price paid by A2A for the purchase of 70% of Edipower, on the other. This discount was expected to be the result of abusive conduct by EDF and A2A as shareholders of Edison and the violation, among other things, of the regulations on transactions with related parties. This - according to Carlo Tassara - was expected to allow maintaining artificially low the price of the Edison shares paid to A2A and consequently the tender offer price paid to minorities of Edison (which by law was expected to be equal to that paid to A2A).
However, in 2012, A2A and EDF had voluntarily subjected the Transaction to the prior examination of Consob precisely in order to confirm the correctness of the tender offer price. Following extensive examinations, Consob had deemed that a compensatory mechanism could be detected in the transaction as a whole (i.e. between the sale of Edipower on the one hand and the sale of Edison shares on the other) and that therefore the tender offer price was to be increased from 0.84 euro to 0.89 euro per share.
In light of said decision, the parties had increased the sale price of the shareholding in Edison based on the price of 0.89 euro per share, for a total increase of around 84 million euro. EDF launched the tender offer at 0.89 euro per share.
Carlo Tassara resorted to Consob in order to further increase the price of the tender offer, but Consob rejected the request.
In addition, pending the tender offer, Carlo Tassara challenged before the TAR the tender offer document and the related resolution of approval by Consob requesting suspensions thereof for reasons of urgency. However, the TAR postponed the decision on the suspension to a date following the closing of the tender offer and, as a result of this, Carlo Tassara adhered to the tender offer and waived the cautionary request.
The writ of summons does not quantify the damages allegedly suffered by Carlo Tassara as a result of these transactions, referring for their determination to the outcome in the course of proceedings.
The first instance judgement is currently underway.
The Group, having fulfilled the requirements of the regulations in force, does not consider likely the risk for which it has not allocated any provisions.
As part of the previous possessory proceedings already brought by the counterparty pursuant to articles 1168 Civil Code and 703 Code of Civil Procedure (R.G. no. 3979/2014), whose order of acceptance of the requests for reinstatement proposed ex adverso was also confirmed following claim by Linea Ambiente (R.G. no. 783/2015), the counterparty intended to promote a second appeal of "possessory merit", with consequent request for compensation of damages to Linea Ambiente, on the assumption of preclusion and inadmissibility of the further appeal brought by Linea Ambiente pursuant to art. 700 Code of Civil Procedure (see below). The request is based on the principle of inadmissibility of the petitory sentence pending the possessory sentence. The proceedings referred to in R.G. no. 783/2015 was indeed not yet completed at the time the appeal was brought pursuant to art. 700 Code of Civil Procedure filed by Linea Ambiente.
The case is in first instance before the Court of Taranto.
The appearance and response was filed in the interests of Linea Ambiente. During the first appearance hearing of the parties of April 6, 2016, terms were granted to file briefs pursuant to art. 183 paragraph 6 of the Code of Civil Procedure.
The next hearing, called for the taking of evidence, is scheduled for October 26, 2016.
The appointed Lawyer is Giovanni Penzo of the Court of Milan.
The risk for this case has been judged as possible and there has been no allocation to the provision for risks.
The appeal filed by CSEA against Lomellina Energia and against AEEGSI and GSE for the annulment of the sentence of the Milan TAR (Regional Administrative Court) no. 2645/2015, filed at the secretariat on December 15, 2015 (in the sentence R.G. no. 523/2014), with which the appeal by Lomellina Energia against the communication of the Electricity Equalisation Fund of Rome (now CSEA) was only partly rejected and only partially declared inadmissible for lack of jurisdiction, with related Annex A, prot. no. 8549 dated December 9, 2013 and received on December 17, 2013 concerning the "Electricity generation plant fuelled by waste located in the Municipality of Parona called Parona 2 - recovery of unduly paid amounts in accordance with the provisions of Resolution AEEG/2013/E/efr", strictly consequential to Resolution AEEG no. 174/2013, with which it is requested to return alleged undue amounts received by the company, considering that it has benefited from undue economic incentives as a result of the alleged circumstance for which the electricity consumption of auxiliary services, calculated at a flat rate to the extent of 5.2% under two agreements with the GSE, had been far greater than the conventionally established flat rate. With the appealing ruling, the Administrative Judge held that the thema decidendum does not concern complaints regarding activity that is attributable, even indirectly, to the exercise of public power, which could lead to the devolution of the dispute to the jurisdiction of the administrative judge.
149
The jurisdiction of the Regional Administrative Court (TAR) was thus dismissed in favour of that of the ordinary judge, before which, pursuant to art. 11, paragraph 2, Code of Administrative Procedure, the parties are allowed to continue the trial within the peremptory term of three months from the passage of the final judgement of said sentence.
The expenses were compensated.
With the appeal, the CSEA considered that it had an interest in contesting the sentence appealed precisely to the extent that the Administrative Judge dismissed jurisdiction in favour of the ordinary judge.
In particular, the CSEA considered that the Regional Administrative Court (TAR) errs when qualifying that of the Fund as activity not attributable, even indirectly, to the exercise of public power since the CSEA is public entity whose institutional purposes include the recovery of sums, which are public benefits unduly paid.
With the above appeal, therefore, the CSEA has requested that, following the annulment of the first instance sentence, the first instance appeal by Lomellina Energia be entirely rejected.
The case is II Degree of the State Council.
The appeal before the State Council was notified to Lomellina Energia on March 10, 2016. The company appeared in the present case through the Lawyer appointed in the first instance, the Lawyer Maria Simonetta Mollica Straneo of the Court of Milan. A decision is pending regarding the hearing date.
It was decided to allocate a risks provision of 3.5 million euro.
150
* * *
The following information is provided in connection with the main litigation of a fiscal nature.
On January 19, 2016, the Finance Police - Chieti Unit commenced a general audit of A2A gencogas S.p.A. (formerly Abruzzoenergia S.p.A.) for fiscal years 2014 and 2015 for IRES, IREP and VAT purposes. The audit was completed on May 25, 2016. The company submitted comments to the formal notice of assessment by the inspectors. A risk provision of 1.2 million euro has been recognized.
On April 4, 2016, the Provincial Directorate I of Milan - Regional Office of Milan 1 - notified the invitation to appear to provide clarifications on a business transfer in the company Chi. na.co. S.r.l. and the subsequent sale of the investment held in it under control for registration tax purposes. The invitation was followed by a contradictory with the Office and subsequent notification by the latter of the notice of liquidation to the acquiring counterparty, which filed an appeal on September 28, 2016. The risks provision recognized for 1.4 million euro was fully used for the payment of the amounts requested with the liquidation notice.
On December 27, 2011 the Municipality of Milan served payment notices for COSAP (a fee paid for occupying public spaces and areas) for the years 2003 to 2011. An application was filed for annulment of these notices by internal revocation, which the Municipality rejected. The company filed a summons with the Court of Milan against this rejection on July 11, 2012 and on September 25, 2012 filed an appeal with the regional administrative court. In December 2014, payment notices were notified for the years 2012 to 2014 and, in February 2016, a notice of assessment was served for the year 2015. In February 2015, a settlement agreement was entered into with the Municipality of Milan for the final conclusion of the COSAP litigation for the years 2003 to 2011 and a claim was filed before the Regional Administrative Court of Milan against the payment notices for the years from 2012 to 2014. In April 2016, appeal was submitted to the Regional Administrative Court for the year 2015. In September 2016, notice of payment for 2016 was submitted. The company is assessing the action to be taken. A risk provision of 2.9 million euro has been recognized.
On September 4, 2014, the Tax Revenue Office - Brescia Provincial Department - began a general tax audit of Partenope Ambiente S.p.A. (now A2A Ambiente S.p.A.) for fiscal year 2011 for IRES, IREP and VAT purposes. This audit was completed on October 6, 2014. The findings mainly related to violations exclusively regarding direct taxation. On July 7, 2015, a notice of assessment was served for the year 2011. On October 5, 2015, the company filed an application to the assessing office for settlement. On December 22, 2015, the company and the Office signed the contradictory report defining the tax claim. The company has set aside a risk provision for 0.3 million euro.
On March 7, 2013, the Brescia Customs Agency commenced a technical audit of the Brescia waste-to-energy plant owned by Aprica S.p.A. (now owned by A2A Ambiente S.p.A.). The audit was completed on January 16, 2014 with the serving of a formal notice of assessment for the years 2008 to 2011. For 2008 and 2009, the Customs Authority served payment notices on May 7 and 21, 2014 together with the respective penalties. The company appealed against these two demands in July 2014. For the year 2009, in December 10, 2014, the company signed a conciliation agreement with the Customs Agency of Brescia for the final closure of the dispute and the consequent termination of the proceedings. For 2008, the litigation of first instance ended favorably for the company. On September 24, 2015, the Office appealed. The company filed counter-claims on November 17, 2015. With sentence of June 6, 2016, the Regional Tax Commission partially upheld the company's reasons. On August 5, 2014, the Customs Authority served formal notices of assessment for 2012 and 2013. In March 2016, the company defined with the Customs Agency of Brescia the years from 2010 to 2013 with the payment of the amounts due on the basis of the criteria identified in the deed of reconciliation for the year 2009. As a result of the settlement agreements, the fund has been released for the excess and there is a residual risks provision of 0.3 million euro for the year 2008.
In early 2006, the Italian Finance Police – Lombardy Regional Unit, Milan – carried out a tax audit of AMSA Holding S.p.A. (now A2A S.p.A.) for VAT purposes for tax years 2001 to 2005.
The audit ended with the issue of a final report contesting the legitimacy of the ordinary VAT rate, in place of the special rate applied by suppliers for waste disposal and plant maintenance, as well as the subsequent deduction made after the invoices issued for these services were duly paid.
The report was followed by formal notices of assessment from the Tax Revenue Office (Milan 3 Office) for each year audited; appeals were then filed with the Provincial Tax Commission within the term provided by law.
The appeals for 2001 and for 2004 and 2005 were discussed on January 25, 2010 and on February 17, 2010 respectively, with a favorable outcome for the company in all cases. The Tax Revenue Office appealed against the verdict of the first court. The Regional Tax Commission rejected this appeal for all three years, 2001, 2004 and 2005.
152
For 2011, the Tax Revenue Office filed an appeal with the Supreme Court against which AMSA Holding S.p.A. filed a cross-appeal on November 9, 2012.
The outcomes of the 2002 and 2003 disputes were also favorable for the company but the Tax Revenue Office filed an appeal against both sentences. The appeal for 2002 was discussed on November 30, 2010, and by way of a sentence lodged on February 2, 2011 the Milan Regional Tax Commission overturned the sentence of the first court, upholding the Tax Revenue Office's appeal on almost all counts with the exception of the hazardous waste category. The Company filed an appeal with the Supreme Court for 2002. For 2003 the appeal made by the Tax Revenue Office was discussed on November 7, 2011 before the Regional Tax Commission which rejected it with a sentence filed on November 11, 2011. The Tax Revenue Office has not appealed to the Supreme Court for 2003, 2004 and 2005 and the sentence has become final, thereby closing the litigation. For 2001 and 2002, the hearing dates for discussion before the Supreme Court have not yet been set. The company has set aside a risk provision for 1.6 million euro.
On December 23, 2009 the Milan Tax Revenue Office served A2A Trading S.r.l. with a VAT tax assessment regarding fiscal 2004. This notice cited the company's failure to invoice taxable transactions and required the company to pay additional VAT as well as penalties and interest amounting to a total of 3.3 million euro.
In particular, under this assessment the Tax Revenue Office served a penalty on A2A Trading S.r.l. for not having invoiced the Tollee (Edipower S.p.A.) for the Green Certificates allegedly transferred between the two.
After appropriate examination, which also included the other Tollers, it was considered that the Tax Revenue Office's conclusions could not be accepted. In fact, under Tolling arrangements Tollers are on the one hand the owners of the raw materials, including fuel, that they supply to the Tollees to produce electricity, and on the other are the "ab origine" owners of the electricity produced. The delivery of Green Certificates to Tollees by Tollers can in no way be considered to be the transfer of title of such.
A2A Trading S.r.l. has therefore not committed any breach of law and accordingly no provision has been made in the financial statements for this matter.
On December 16, 2010, the Milan Tax Revenue Office served notice of a VAT tax assessment regarding fiscal 2005 and on October 31, 2011 notice of a VAT tax assessment regarding fiscal 2006 for the same reasons, with the resulting demands for additional value added tax plus penalties and interest totalling 5.2 million euro and 11.2 million euro respectively. As in the case of 2004, and also for 2005 and 2006, A2A Trading S.r.l. has not committed any breach of law and accordingly no provision has been made in the financial statements for this matter.
153
A2A Trading S.r.l. has filed an appeal with the relevant bodies against both notices, requesting that the claim for additional taxes be fully annulled.
The Milan Provincial Tax Commission upheld the company's appeals for all years under dispute.
On March 12, 2013 the Tax Revenue Office stated its acceptance, for 2006, of the sentence for the part relating to the dispute regarding the green certificates and filed an appeal with respect to the remaining findings (283,454.16 euro). The Regional Tax Commission rejected the appeal and the Office filed an appeal against this decision with the Supreme Court on August 5, 2014, which was followed by a cross appeal by the company. On May 6, 2013 the Tax Revenue Office notified that it was waiving its appeal and applying for a dismissal of the case for 2004 and 2005.
Note that following the request for documentation regarding Green Certifications for the same Tolling contract in tax years from 2007 to 2010, on October 28, 2011 the Italian Guardia di Finanza - Milan Office served notice of the Report on Findings, highlighting the same failure to bill taxable transactions for the years 2007, 2008 and 2010. No assessment notices have yet been notified.
No provision was ever allocated as the company considered unfounded the claims of the financial administration.
In response to Consob Recommendation no. 61493 published in July 2013, the A2A Group has carried out detailed analyses which have led to the identification of the hydroelectric production sector as the area applicable to the Group.
The investments made in this sector in 2016 were of a marginal amount and due to ordinary maintenance.
In addition, the A2A Group plans to make investments in the hydroelectric sector in the coming years and in particular to incur expenditure for maintenance and for increasing the energy efficiency of plants located in Lombardy and Calabria.
* * *
The company has availed itself of the possibility permitted by article 70, paragraph 8 and article 71, paragraph 1-bis of the Issuers' Regulations, and hence of derogating from the requirement to make an information document available to public in the event of significant mergers, spin-offs, share capital increases by means of the contribution of assets in kind, acquisitions and disposals.
Attachments to the Notes to the Interim report on operations
| Company name | Registered office | Currency | Share capital (thousands) |
|
|---|---|---|---|---|
| Scope of consolidation | ||||
| Unareti S.p.A. | Brescia | Euro | 965,250 | |
| A2A Illuminazione Pubblica S.r.l. | Brescia | Euro | 100 | |
| A2A Calore & Servizi S.r.l. | Brescia | Euro | 150,000 | |
| A2A Smart City S.p.A. | Brescia | Euro | 3,000 | |
| A2A Energia S.p.A. | Milan | Euro | 2,000 | |
| A2A Trading S.r.l. | Milan | Euro | 1,000 | |
| A2A Ciclo Idrico S.p.A. | Brescia | Euro | 70,000 | |
| A2A Ambiente S.p.A. | Brescia | Euro | 220,000 | |
| Aspem Energia S.r.l. | Varese | Euro | 2,000 | |
| A2A Montenegro d.o.o. | Podgorica (Montenegro) | Euro | 100 | |
| A2A Energiefuture S.p.A. | Milan | Euro | 20,050 | |
| Mincio Trasmissione S.r.l. | Brescia | Euro | 10 | |
| A2A gencogas S.p.A. | Milan | Euro | 450,000 | |
| Retragas S.r.l. | Brescia | Euro | 34,495 | |
| Aspem S.p.A. | Varese | Euro | 174 | |
| Varese Risorse S.p.A. | Varese | Euro | 3,624 | |
| Ostros Energia S.r.l. in liquidation | Brescia | Euro | 350 | |
| Camuna Energia S.r.l. | Cedegolo (BS) | Euro | 900 | |
| A2A Alfa S.r.l. | Milan | Euro | 100 | |
| Plurigas S.p.A. in liquidation | Milan | Euro | 800 | |
| Proaris S.r.l. | Milan | Euro | 1,875 | |
| Edipower S.p.A. | Milan | Euro | 475,541 | |
| Ecofert S.r.l. in liquidation | S. Gervasio Bresciano (BS) | Euro | 100 | |
| Unareti Servizi Metrici S.r.l. | Brescia | Euro | 100 | |
| Ecodeco Hellas S.A. in liquidation | Atene (Greece) | Euro | 60 | |
| Ecolombardia 18 S.r.l. | Milan | Euro | 120 | |
| Ecolombardia 4 S.p.A. | Milan | Euro | 13,515 | |
| Sicura S.r.l. | Milan | Euro | 1,040 | |
| Sistema Ecodeco UK Ltd | Canvey Island Essex (UK) | GBP | 250 | |
| Vespia S.r.l. in liquidation | Milan | Euro | 10 | |
| A.S.R.A.B. S.p.A. | Cavaglià (BI) | Euro | 2,582 | |
| Nicosiambiente S.r.l. | Milan | Euro | 50 | |
| Bioase S.r.l. | Sondrio | Euro | 677 |
Interim report on operations – September 30, 2016
1 - List of companies included in the consolidated financial statements
157
| Valuation method | Shareholder | Shareholding % |
% of shareholding consolidated by Group at 09 30 2016 |
|---|---|---|---|
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Energia S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. (87.27%) Unareti S.p.A. (4.33%) |
91.60% | 91.60% |
| Line-by-line consolidation | A2A S.p.A. | 90.00% | 90.00% |
| Line-by-line consolidation | Aspem S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 80.00% | 80.00% |
| Line-by-line consolidation | A2A S.p.A. (74.50%) Linea Energia S.p.A. (14.50%) |
89.00% | 81.90% |
| Line-by-line consolidation | A2A Trading S.r.l. | 70.00% | 70.00% |
| Line-by-line consolidation | A2A S.p.A. | 70.00% | 70.00% |
| Line-by-line consolidation | A2A S.p.A. | 60.00% | 60.00% |
| Line-by-line consolidation | A2A S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. (47%) Linea Energia S.p.A. (48%) |
95.00% | 71.48% |
| Line-by-line consolidation | Unareti S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 68.58% | 68.58% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 96.80% | 96.80% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 99.90% | 99.90% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 70.00% | 70.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 99.90% | 99.90% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 70.00% | 70.00% |
Interim report on operations – September 30, 2016
1 - List of companies included in the consolidated financial statements
| Company name | Registered office | Currency | Share capital (thousands) |
|
|---|---|---|---|---|
| Scope of consolidation | ||||
| Montichiariambiente S.r.l. | Brescia | Euro | 10 | |
| Aprica S.p.A. | Brescia | Euro | 20,000 | |
| Amsa S.p.A. | Milan | Euro | 10,000 | |
| Bellisolina S.r.l. | Montanaso (LO) | Euro | 10 | |
| SED S.r.l. | Robassomero (TO) | Euro | 1,250 | |
| Bergamo Servizi S.r.l. | Brescia | Euro | 10 | |
| LA BI.CO DUE S.r.l. (*) | Lograto (BS) | Euro | 96 | |
| Elektroprivreda Cnre Gore AD Niksic (EPCG) | Niksic (Montenegro) | Euro | 907,108 | |
| EPCG d.o.o. Beograd | Beograd (Serbia) | Dinar RSD | 3,101 | |
| Zeta Energy d.o.o. | Danilovgrad (Montenegro) | Euro | 14,240 | |
| CRNOGORSKI ELEKTRODISTRIBUTIVNI SISTEM D.O.O. PODGORICA | Podgorica (Montenegro) | Euro | 278,102 | |
| RI.ECO S.r.l. | Novate Milanese (MI) | Euro | 1,000 | |
| RESMAL S.r.l. | Milan | Euro | 500 | |
| Galli Ecologistica S.r.l. | Novate Milanese (MI) | Euro | 100 | |
| Resmal Ecologistica S.r.l. | Truccazzano (MI) | Euro | 80 | |
| Linea Group Holding S.p.A. | Cremona | Euro | 189,494 | |
| Linea Reti e Impianti S.r.l. | Cremona | Euro | 7,794 | |
| Linea Gestioni S.r.l. | Crema (CR) | Euro | 5,000 | |
| LD Reti S.r.l. | Lodi | Euro | 23,981 | |
| Linea Più S.p.A. | Pavia | Euro | 5,000 | |
| Linea Energia S.p.A. | Rovato (BS) | Euro | 3,969 | |
| Linea Com S.r.l. | Cremona | Euro | 5,833 | |
| Linea Ambiente S.r.l. | Rovato (BS) | Euro | 3,000 | |
| MF Waste S.r.l. | Rovato (BS) | Euro | 750 | |
| Greenambiente S.r.l. | Priolo Gargallo (SR) | Euro | 50 | |
| Lomellina Energia S.r.l. | Parona (PV) | Euro | 160 | |
| S.TE.A.M. S.r.l. | Rho (MI) | Euro | 1,010 | |
| Equity investments held for sale | ||||
| SEASM S.r.l. | Brescia | Euro | 700 |
(*) The percentage does not take into account the put option.
1 - List of companies included in the consolidated financial statements
| Valuation method | Shareholder | Shareholding % |
% of shareholding consolidated by Group at 09 30 2016 |
|---|---|---|---|
| Line-by-line consolidation | A2A Ambiente S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 80.00% | 80.00% |
| Line-by-line consolidation | Aprica S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | Aprica S.p.A. | 64.00% | 64.00% |
| Line-by-line consolidation | A2A S.p.A. | 41.75% | 41.75% |
| Line-by-line consolidation | EPCG | 100.00% | 100.00% |
| Line-by-line consolidation | EPCG | 51.00% | 57.86% |
| Line-by-line consolidation | EPCG | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. (45%) RI.ECO S.r.l. (55%) |
100.00% | 100.00% |
| Line-by-line consolidation | A2A Ambiente S.p.A. (45%) RI.ECO S.r.l. (55%) |
100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 51.00% | 51.00% |
| Line-by-line consolidation | Linea Group Holding S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | Linea Group Holding S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | Linea Group Holding S.p.A. | 90.85% | 90.85% |
| Line-by-line consolidation | Linea Group Holding S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | Linea Group Holding S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | Linea Group Holding S.p.A. | 96.17% | 96.17% |
| Line-by-line consolidation | Linea Group Holding S.p.A. | 100.00% | 100.00% |
| Line-by-line consolidation | Linea Group Holding S.p.A. | 51.00% | 51.00% |
| Line-by-line consolidation | Linea Group Holding S.p.A. | 80.00% | 80.00% |
| Line-by-line consolidation | MF Waste S.r.l. | 80.00% | 40.80% |
| Line-by-line consolidation | Linea Reti e Impianti S.r.l. | 100.00% | 100.00% |
| Line-by-line consolidation | A2A S.p.A. | 67.00% | 67.00% |
| Company name | Registered office | Currency | Share capital (thousands) |
Shareholding % |
Shareholder at 09 30 2016 (thousands) |
Carrying amount |
|||
|---|---|---|---|---|---|---|---|---|---|
| Shareholdings in companies carried at equity | |||||||||
| PremiumGas S.p.A. | Bergamo | Euro | 120 | 50.00% | A2A Alfa S.r.l. | 3,188 | |||
| Ergosud S.p.A. | Roma | Euro | 81,448 | 50.00% | A2A gencogas S.p.A. | - | |||
| Ergon Energia S.r.l. in liquidation | Milan | Euro | 600 | 50.00% | A2A S.p.A. | - | |||
| Metamer S.r.l. | San Salvo (CH) | Euro | 650 | 50.00% | A2A Energia S.p.A. | 1,844 | |||
| SET S.p.A. | Toscolano Maderno (BS) | Euro | 104 | 49.00% | A2A S.p.A. | 847 | |||
| Azienda Servizi Valtrompia S.p.A. | Gardone Val Trompia (BS) | Euro | 6,000 | 49.15% | Unareti S.p.A. (0.38%) | A2A S.p.A. (48.77%) | 5,842 | ||
| Ge.S.I. S.r.l. | Brescia | Euro | 1,000 | 47.00% | A2A S.p.A. | 2,132 | |||
| Centrale Termoelettrica del Mincio S.r.l. | Ponti sul Mincio (MN) | Euro | 11 | 45.00% | A2A S.p.A. | 4 | |||
| Serio Energia S.r.l. | Concordia sulla Secchia (MO) | Euro | 1,000 | 40.00% | A2A S.p.A. | 780 | |||
| Visano Soc. Trattamento Reflui S.c.a.r.l. | Brescia | Euro | 25 | 40.00% | A2A S.p.A. | 6 | |||
| LumEnergia S.p.A. | Lumezzane (BS) | Euro | 300 | 33.33% | A2A Energia S.p.A. | 227 | |||
| Sviluppo Turistico Lago d'Iseo S.p.A. | Iseo (BS) | Euro | 1,616 | 24.29% | A2A S.p.A. | 769 | |||
| ACSM-AGAM S.p.A. | Monza | Euro | 76,619 | 23.94% | A2A S.p.A. | 39,402 | |||
| Futura S.r.l. | Brescia | Euro | 2,500 | 20.00% | A2A Calore & Servizi S.r.l. | 638 | |||
| Prealpi Servizi S.r.l. | Varese | Euro | 5,451 | 12.47% | Aspem S.p.A. | - | |||
| COSMO Società Consortile a Responsabilità Limitata | Brescia | Euro | 100 | 52.00% | A2A Calore & Servizi S.r.l. | 78 | |||
| G.Eco S.r.l. | Treviglio (BG) | Euro | 500 | 40.00% | Aprica S.p.A. | 3,400 | |||
| Bergamo Pulita S.r.l. | Bergamo | Euro | 10 | 50.00% | A2A Ambiente S.p.A. | - | |||
| Tecnoacque Cusio S.p.A. | Omegna (VB) | Euro | 206 | 25.00% | A2A Ambiente S.p.A. | 238 | |||
| Rudnik Uglja Ad Pljevlja | Pljevlja (Montenegro) | Euro | 21,493 | 39.49% | A2A S.p.A. | 12,067 | |||
| ASM Codogno S.r.l. | Codogno (LO) | Euro | 1,898 | 49.00% | Linea Più S.p.A. | 3,159 | |||
| Bresciana Infrastrutture gas S.r.l. | Roncadelle (BS) | Euro | 100 | 50.00% | LD Reti S.r.l. | 112 | |||
| Total shareholdings | 74,733 |
Interim report on operations – September 30, 2016
2 - List of shareholdings in companies carried at equity
| Valuation method | Carrying amount at 09 30 2016 (thousands) |
Shareholder | Shareholding % |
|---|---|---|---|
| Equity | 3,188 | A2A Alfa S.r.l. | 50.00% |
| - Equity |
A2A gencogas S.p.A. | 50.00% | |
| - Equity |
A2A S.p.A. | 50.00% | |
| Equity | 1,844 | A2A Energia S.p.A. | 50.00% |
| Equity | 847 | A2A S.p.A. | 49.00% |
| Equity | 5,842 | A2A S.p.A. (48.77%) Unareti S.p.A. (0.38%) |
49.15% |
| Equity | 2,132 | A2A S.p.A. | 47.00% |
| 4 Equity |
A2A S.p.A. | 45.00% | |
| Equity | 780 | A2A S.p.A. | 40.00% |
| 6 Equity |
A2A S.p.A. | 40.00% | |
| Equity | 227 | A2A Energia S.p.A. | 33.33% |
| Equity | 769 | A2A S.p.A. | 24.29% |
| Equity | 39,402 | A2A S.p.A. | 23.94% |
| Equity | 638 | A2A Calore & Servizi S.r.l. | 20.00% |
| - Equity |
Aspem S.p.A. | 12.47% | |
| 78 Equity |
A2A Calore & Servizi S.r.l. | 52.00% | |
| Equity | 3,400 | Aprica S.p.A. | 40.00% |
| - Equity |
A2A Ambiente S.p.A. | 50.00% | |
| Equity | 238 | A2A Ambiente S.p.A. | 25.00% |
| Equity | 12,067 | A2A S.p.A. | 39.49% |
| Equity | 3,159 | Linea Più S.p.A. | 49.00% |
| 112 Equity |
LD Reti S.r.l. | 50.00% | |
| 74,733 |
| Company name | Shareholding % |
Shareholder | Carrying amount at 09 30 2016 (thousands) |
|---|---|---|---|
| Available-for-sale financial assets (AFS) | |||
| Infracom S.p.A. | 0.44% | A2A S.p.A. | 155 |
| Immobiliare-Fiera di Brescia S.p.A. | 5.83% | A2A S.p.A. | 280 |
| Azienda Energetica Valtellina e Valchiavenna S.p.A. (AEVV) | 9.39% | A2A S.p.A. | 1,846 |
| Other: | |||
| AQM S.r.l. | 7.52% | A2A S.p.A. | |
| AvioValtellina S.p.A. | 0.18% | A2A S.p.A. | |
| Banca di Credito Cooperativo dell'Oglio e del Serio s.c. | n.s. | A2A S.p.A. | |
| Brescia Mobilità S.p.A. | 0.25% | A2A S.p.A. | |
| Consorzio DIX.IT in liquidation | 14.28% | A2A S.p.A. | |
| Consorzio Ecocarbon | n.s. | A2A Ambiente S.p.A. | |
| Consorzio Italiano Compostatori | n.s. | A2A Ambiente S.p.A. | |
| Consorzio L.E.A.P. | 8.60% | A2A S.p.A. | |
| Consorzio Milano Sistema in liquidation | 10.00% | A2A S.p.A. | |
| Consorzio Polieco | n.s. | A2A Ambiente S.p.A. | |
| Emittenti Titoli S.p.A. | 1.85% | A2A S.p.A. | |
| E.M.I.T. S.r.l. in liquidation | 10.00% | A2A S.p.A. | |
| Guglionesi Ambiente S.c.a.r.l. | 1.01% | A2A Ambiente S.p.A. | |
| Isfor 2000 S.c.p.a. | 5.13% | A2A S.p.A. (4.94%) Linea Gestioni S.r.l. (0.19%) |
|
| S.I.T. S.p.A. | 0.26% | Aprica S.p.A. | |
| Stradivaria S.p.A. | n.s. | A2A S.p.A. | |
| Tirreno Ambiente S.p.A. | 3.00% | A2A Ambiente S.p.A. | |
| Prva banka Crne Gore A.D. Podgorica (*) | 19.76% | EPCG |
3 - List of available-for-sale financial assets
| Company name | Shareholding % |
Shareholder | Carrying amount at 09 30 2016 (thousands) |
|---|---|---|---|
| DI.T.N.E. | 1.45% | Edipower S.p.A. | |
| SIRIO S.C.P.A. | 0.02% | Edipower S.p.A. | |
| ORIONE S.C.P.A. | 0.22% | Edipower S.p.A. | |
| Blugas Infrastrutture S.r.l. | 27.51% Linea Group Holding S.p.A. | ||
| Casalasca Servizi S.p.A. | 13.88% | Linea Gestioni S.r.l. | |
| SABB S.p.A. | 4.47% | Linea Gestioni S.r.l. | |
| Gestione Multiservice S.c.a.r.l. | 6.07% | Linea Più S.p.A. e S.TE.A.M. S.r.l. |
|
| Crit S.c.a.r.l. | 32.9% | Linea Com S.r.l. | |
| Sinergie Italiane S.r.l. in liquidation | 14.92% Linea Group Holding S.p.A. | ||
| Total other financial assets | 10,637 | ||
| Total available-for-sale financial assets | 12,918 |
(*) It is noted that the shareholding in Prva banka Crne Gore A.D. Podgorica, also taking into account the preference shares with no voting rights amounts to 24.10% of share capital.
Note: A2A S.p.A. took part in the setting up of Società Cooperativa Polo dell'innovazione della Valtellina, subscribing 5 shares having a nominal value of 50 euro.
Evolution of the regulation and impacts on the Business Units of the A2A Group
The mechanism in force in Italy for the remuneration of production capacity is the Capacity Payment introduced in 2003 by Legislative Decree no. 379 as an administered, transitional system the purpose of which is to ensure the adequacy of the electricity system especially in the days, identified by Terna and defined as critical, where the difference between supply and demand could be at minimum levels.
Since 2004, the Authority's regulation provides for the ex ante establishment of revenue collected from electricity bills and disbursed via two payments (called CAP1 and S) to plants authorized to provide dispatching services.
Legislative Decree no. 379 stated that, under regime, the capacity remuneration shall be based on a market mechanism (capacity market), which was subsequently defined by Resolution ARG/elt 98/11.
The final design involves an auction in which operators awarded acquire the right to receive a bonus (in €/MW/year) and the obligation to offer the capacity awarded in the energy and services markets and return to the counterparty Terna the difference between the benchmark prices and a strike price (in €/MWh). Initially, the Capacity Market involved three-year auctions with a four-year planning horizon. By way of Resolution 95/2015/I/eel, the Authority proposed to the Ministry of Economic Development (MiSE) to reduce to a year the period between the conduct of the auction and delivery, also introducing contracts with one-year duration (first implementation phase).
In August 2015, the Italian Government pre-notified the DG Competition of the operational mechanism, but not the transient one. Pending the verifications by the EU on the compatibility of the Italian mechanism with the discipline of State aid, some measures of the Authority have not yet been implemented (Resolution 320/2014/R/eel and Resolution 95/2015/R/eel).
In April 2016, the European Commission published an interim report following the survey initiated by the latter in 2015 on the capacity remuneration mechanisms in 11 Member States. The discussion in Brussels revealed the need to integrate the current market design, based exclusively on spot markets, with instruments that also allow providing term signals: the model of the Italian regulator (which has profiles that are more competitive than the English one already approved by the Commission) meets these requirements and could be taken as best practice also by other countries. The A2A Group has also submitted its views on the interim report in respect of which a consultation was opened.
It is likely that now, in line with the observations of the interim reports, there will be the rapid start of the capacity market in Italy the effects of which, however, are not expected before 2018.
By means of Resolution 134/2016/R/eel, the Authority imposed on Terna the recalculation, by April 30, 2016, of the S amount for the years 2010 and 2011. The net balance of these adjustments amounted to about 2.1 million euro and will be paid in 12 monthly instalments of the same amount as of April 29, 2016.
In terms of cash, on June 30, 2016, Terna liquidated 12 million euro referred to the CAP1 2015 component, while liquidation is still pending for the S 2015 component.
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Law no. 116/14, converting Decree Law no. 91/04 provided, among the other measures designed to reduce electricity bills for end customers with a low and medium voltage supply that until the 380 kV "Sorgente-Rizziconi" power line connecting Sicily with the mainland becomes operational, all the production units having power exceeding 50 MW situated in Sicily, with the exclusion of non-programmable renewable plants, shall be considered to be "essential" for the safety of the electricity system, with the requirement for offering on the market of the previous day.
From January 1, 2015, the bid and remuneration procedures of said units were therefore defined by the Authority.
Referring to the plant in San Filippo del Mela (Messina), Resolution 663/2015/R/eel recognized the essentiality of group 1 (150 kV) for all of 2016 and groups 2, 5 and 6 (220 kV) until the entry into operation of the Sorgente-Rizziconi cable on May 28 as per Terna communication and pursuant to Resolution 274/2016/R/eel.
By means of Resolution 300/2016/R/eel, the 2013 balance was quantified for the reintegration of the costs of San Filippo del Mela due to the essentiality regime (17.7 million euro) and was paid by June 30. The 2014 balance is expected to be determined by year-end 2016.
The decision by means of which the essential plants will be defined for the year 2017 is expected by the end of October.
The conferment of the gas transport capacity, today allocated on an annual basis for each thermal year, represents one of the most significant fixed costs that the CCGTs shall incur (in 2015, said cost was around 6,000 euro/MW).
By means of DCO 409/2015 and 613/2015, the Authority initiated a pilot project for revision of the conferment criteria, initially only for electricity generation plants and, if necessary, at a later stage, also for other types of customers. Said intervention, for admission of the Authority, is necessary to meet the increased demands for flexibility of thermoelectric plants linked to the strong development of renewables.
Although the Authority was initially inclined to ex-post conferment, Resolution 336/2016/R/ gas included the following:
The reform started October 1, 2016 and will be complete by January 1, 2017. The impacts for the Group are being evaluated; in any case, there has already been a reduction in excess penalties compared to previous years.
Resolution no. 111/06 defines the rules for the calculation of imbalance prices to be applied to the differences between the feed-in and consumption plans and the actual production and withdrawals.
The containment of these imbalances is desirable because it favours the reduction in costs that fall on the bill of end customers as Terna - in the face of more accurate forecasts by dispatching users - uses fewer resources for balancing the system in real time. For this reason, the discipline of these imbalances has been the subject of several amendments by the Authority in order to align the regulation to the need for an efficient market configuration so as to push operators to always make the best forecasts of production and consumption, avoiding arbitrage between prices on different markets.
Following the appeal filed by some operators, Resolutions no. 342/2012, no. 239/2013 and no. 285/2013 amending the above discipline were annulled by the administrative judge for the period July 2012 - August 2014 (excluding June 2014) for non-justification on the urgency and for non-consultation.
Terna made recalculations according to the discipline in force before the resolutions annulled and the adjustment invoices - despite the objections by the A2A Group companies - were directly compensated at June 30, 2015 (for a gross amount of approximately 6.8 million euro) .
In response to the solicitations of some dispatching users, the Authority initiated a process for the valorization of the actual imbalances between 2012 and 2014, by means of resolution 333/2015/R/eel.
A2A Trading S.r.l., Edipower S.p.A. and A2A Energia S.p.A. appealed to the Lazio Regional Administrative Court against Terna as it did not take into account the adjustments of the start of this proceeding (in fact, Terna deems that the resolution did not amend the regulatory framework; thus, it has not yet returned the items compensated pending the end of the proceeding).
By means of Resolution 333/2016/R/eel, the Authority concluded the valuation process of imbalances for the 2012-2014 period providing, by November 1, 2016, the repayment by Terna to the A2A Group companies of the amount compensated in June 2015 (6.4 million euro) and the possibility for the recurring parties to choose (at corporate group level) an alternative solution that would see them only penalized for the first half out of 4 of the relevant period as a result of audits conducted by the Authority.
With Resolution 444/2016/R/eel, the regulatory framework on the actual imbalances has been amended as of August 1, 2016.
The measure introduces mechanisms aimed at providing a more effective incentive to plan with diligence, skill, prudence and foresight, and, at the same time, to enable the Authority to systematically detect possible violations of this obligation (also for the adoption of prescriptive and/or punitive) measures.
In particular, the resolution for the valorization of these imbalances includes:
31, 2016); as of January 1, 2017, the band will be reduced to ± 7.5% (overall standard band of 15%);
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With reference to the valorization of secondary reserve resources in the calculation of imbalances, the Resolution has eliminated, since August 2016, the value of the activation of the secondary imbalance price. Said exclusion is expected to be accompanied by an update by Terna of the price for non-respect of dispatching orders to avoid that dispatching users may benefit from the non-provision of the secondary regulation service for which they were selected.
The table summarizes the main amendments introduced with respect to the previous scheme.
| Until July 31, 2016 | August 1 - December 31, 2016 |
As of January 1, 2017 | ||
|---|---|---|---|---|
| PU authorized | Dual pricing (including secondary reserve) |
Dual pricing (excluding secondary reserve) |
||
| CU and PU not intermittent not authorized |
Single pricing | Single-dual pricing Single-dual pricing Deductible: ± 15% Deductible: ± 7.5% |
||
| PU intermittent relevant | Single pricing; alternatively: MGP price + equalization within threshold (differentiated by source), single pricing beyond |
|||
| PU intermittent not relevant |
Single pricing; alternatively: MGP price within threshold (± 8%) + equalization, single pricing beyond |
Single-dual pricing Deductible: ± 7.5%; alternatively: MGP price within threshold (± 8%) + equalization, dual pricing beyond |
The new discipline, operational since August 1, 2016, and that will be fully operational as of January 1, 2017, will have positive impacts in terms of potential reduction in the unit cost of imbalance for thermoelectric production units while it is not expected to result in increase in cost for significant renewables.
171
The impact on sales companies is expected to be a limited increase in imbalance costs offset by a recovery of competitiveness in offerings to end customers.
In implementation of Directive 2009/28/EC with Legislative Decree no. 28/2011, the incentive schemes have been defined aimed at achieving the production targets from renewable sources by 2020, then implemented by Ministerial Decree of July 6, 2012, which applies in respect of electricity plants powered by renewable sources other than photovoltaic plants.
The aforementioned decree establishes that for plants below a certain power threshold, tariffs shall be recognized (feed-in premium) with direct access or through subscription to records, while for those with higher powers, an auction procedure is established.
The decree also provides, in relation to plants from renewable energy that began operating before December 31, 2012 and that have gained the right to use the Green Certificates (GC), the recognition of an incentive paid by the Energy Services Manager (GSE) on net production for the entire remaining period of the right to GCs after 2015 and that is added to the production sales revenues on the market.
Said incentive (I) is equal to:
A similar method applies to plants that benefit from GC District Heating.
As of January 1, 2016, incentives are paid quarterly by the GSE by the second quarter following the reference one and on the basis of the signing of an Agreement and upon registration and validation of the plants on the GSE portal called GRIN.
To date:
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As of September 30, the collection of the incentive for the plant the process of which had already been concluded was approximately 14 million euro. By the end of 2016, an additional collection of around 56 million euro is estimated, which also includes plants now about to stipulate the agreement.
On March 25, 2016, GSE published a disclosure on the expiries of 2014 GCs and 2015 GCs in respect of which a request may be made to GSE for withdrawal, respectively, by March 31, 2017 and March 31, 2018.
This clarification, strongly supported by operators, allows confirming the possibility of storing and using the GC warehouse until their expiry.
The Group has GC and GC District Heating as detailed below:
| Availability Industrial Securities Account | Expiry | Total GC |
|---|---|---|
| GC 2014 | 03/31/2017 | 441,369 |
| GC DISTRICT HEATING 2014 | 03/31/2017 | 34,313 |
| GC 2015 | 03/31/2018 | 581,390 |
| GC DISTRICT HEATING 2015 | 03/31/2018 | 68,003 |
| Total | 1,125,075 |
Changes in legislation over the past few years, despite having introduced rules to allow the conduct of tenders, have in real terms led to the continuation by the present holders of the exercise of existing large derivation hydroelectric concessions even if they have formally expired, including certain of these held by A2A S.p.A. (1).
Article 37, paragraph 4 of Law 134/2012 converting Decree Law no. 83/2012, the "Growth Decree", confirmed the period of 5 years before the expiry of the concession as being the time limit within which a tender must be called for reassignment and set the term of new concessions in 20 years, extendible to 30 years depending on the size of the investments according to the criteria established by an implementing Ministerial Decree, not yet issued. In addition, a special transitional regime (accelerating) is established for calling tenders for concessions which have already expired or which expire on or before December 31, 2017 (those which were unable to comply with the 5 years for calling the tender). These tenders must be called within 2 years of the effective date of the above implementing Ministerial Decree.
The non-issue, to date, of the "Tender Ministerial Decree" inevitably results in an actual extension of the management by the current concessionaires also of these derivations due to expire beyond 2017.
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The Government, as part of the formal default notice received from the European Commission affirming the opposition of Italian legislation with the principles and rules of EU law, decided to report to the Commission a future amendment to said rules, as part of an overall reorganization of the sector.
In terms of regional regulations, the Lombardy Region, first by Law no. 19/2010 and then by Law no. 35/2014 amended Regional Law no. 26/2003, inserting article 53-bis, which governs the temporary continuation of the exercise for expired concessions and the imposition of an additional fee.
Following the entry into force of the aforementioned regional laws, Lombardy extended, by means of DGR, the duration of the "temporary continuation of the exercise" of large derivation concessions that have already expired, including those of A2A (Grosotto, Lovero, Stazzona and Cancano-Premadio 1) until December 31, 2017, subject to earlier (and highly unlikely) conclusion of the public assignment procedure.
It is noted that for the concession of Cancano-Premadio 1, the Lombardy Region expects to cancel, with effect as of the expiry of July 28, 2013, the partial exemption from the state
(1) The concessions of Grosotto, Lovero and Stazzona expired 12/31/2010 while the one of Premadio 1 at 07/28/2013 (Premadio 2 has validity until 12/31/2043). The concession of Grosio will expire 11/16/2016 while the other concessions A2A S.p.A. (Nucleo Calabria) and Edipower S.p.A. (Friuli and Valchiavenna) will expire 12/31/2029 (pursuant to Legislative Decree no. 79/1999).
fee from which said concession benefits. The relative DGRs were therefore challenged in an appeal that is still pending before the Superior Court of Public Waters (TSAP).
Lastly, by means of art. 62 of the Law 221/2015 ("Collegato Ambientale"), the legislator equalized upward the unit value of the BIM supra-fee due from concessionaires of small derivations above 220 kW of nominal power, making it identical to the one due by the holders of large derivations above 3 MW.
The 2016 Stability Law provided, in art. 1, paragraph 671, the reimbursement of additional hydroelectric concession fees paid to the State in 2006-2007, for renewal of concessions. This provision was, in fact, declared unconstitutional by the Constitutional Court.
The additional fees paid by A2A S.p.A. and Edipower S.p.A. in 2006 and 2007 amounted to about 11.5 million euro including payments to the State (9.6 million euro including interest) and municipal administrations (1.9 million euro). The sums paid to the State are being recovered; the State will use the proceeds of the CO2 unit auctions to make the repayments hopefully in 2016.
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By Regional Council Resolution 5130/2016 of May 9, 2016, the Lombardy Region provisionally quantified the "additional fee" for hydroelectric concessions of major derivations expired, introduced by Regional Law 19/2010 but never implemented up to now, to the extent of 20 €/ kW of average nominal concession power, with reserve of subsequent increase (and related adjustment) if it emerges from the studies that the Region is conducting that the "return" of the expired concessions was higher.
A2A S.p.A. filed an appeal to the D.G.R. (Regional Council Resolution) 5130/2016 in July and on November 16 will be the first hearing at the TSAP. In fact, the measure has a negative impact of 8.8 million euro in arrears (in this regard, a provision has been allocated) and 3 million euro/ year from 2017.
This D.G.R. (Regional Council Resolution) was adopted despite the pending appeal filed by the National Government to the Constitutional Court to the Lombardy Regional Law 22/2015. The arguments put forward by the Government are identical to those of the operators and A2A, which appealed the previous regional resolutions of "temporary continuation of exercise" of its concessions under the principle of homogeneity of fees on the national territory as a condition relating to competition (art. 37, paragraph 7, Law 134/2012), and since the "Bersani Decree" (Legislative Decree 79/99, art. 12, paragraph 8bis) is clear in determining that the exercise of the expired concessions continued, until the new assignment, from the outgoing concession at unchanged conditions, without requiring any regional measure.
Obviously, government appeals (also recently brought against Piedmont and Abruzzo regional standards of abnormal increase in ordinary State fees) are also promoted in view of the reform of Title V of the Constitution and the return to the State of expertise in the energy sector.
Instead, the Region bases the additional fee on the assumption that it already owns the works and hydroelectric plants in question, applying the former art. 25, paragraph 1, of the Consolidated Act 1775/33, superseded by art. 37 of Law 134/2012. The additional fee would represent the consideration for the benefit of said goods by the "former concessionaires", however regarding which they continue to pay IMU (property tax) and other charges.
It is noted that the Constitutional Court ruled in favour of the fees imposed by the Piedmont Region (Sentence no. 158, May 3, 2016) with its own Regional Law no. 22/2014, considered legitimate in the absence of Ministerial Decree provided by art. 37, paragraph 7, of Law 134/2012, which shall set out the general criteria for determining, according to the principles of cost-effectiveness and reasonableness, on the part of the Regions, the maximum values of the fees of the concessions for hydroelectric use.
Efficient Utility Systems (SEU and SEESEU) are Simple Production and Consumption Systems consisting of at least one production plant and one consumption unit directly connected through a private link without obligation of connection to third parties, and connected directly or indirectly, through at least one point, to the public network.
Attainment of qualification as SEU or SEESEU, issued by the GSE, allows the recognition of facilitated tariff conditions on the electricity consumed and not withdrawn from the network, limited to the variable parts of the general system costs, as required by Legislative Decree no. 115/08.
Decree Law 91/14, Law 116/14 and the Authority's Resolution 578/2013/R/eel define the framework of the SEUs that can be referred to a scheme in which there is a single unit Consumption Unit and Production Unit which, if recognized as such, allow for the payment of general expenses equal to 5%.
To be eligible for this benefit as of January 1, 2014, the SEUs that began operating before December 31, 2014 were required to be qualified by GSE according to one of the possible types by September 30, 2015. It is also possible to qualify the system after said date; however, the benefits will be calculated starting from the month following the qualification. For systems that became operational after January 1, 2015, it will be necessary to request qualification after the entry into operation.
By clarification of June 12, 2015, the Authority specified that the generation auxiliary services refer to the ancillary services as per the Unipede definition (now Eurelectric) and therefore also plants subservient to production such as, for example, fuel handling, heating, lighting and office systems directly related to the exercise of the power plant. The value of the SEUs and the Authority's clarification on auxiliary services is twofold because it allows:
However, it is noted that revisions of the SEU legislation - and associated benefits - are possible in light of the EU Guidelines on State Aid.
In particular, by means of DCO 255/2016, the Authority, in accordance with art. 3 Decree Law 210/2015 (Milleproroghe), proposed with effect from January 1, 2016, a reform of the general charges of the electricity system applied to non-domestic customers according to three different options for the allocation of the same between the fixed component (€/year), capacity component (€/kW), and variable component (€/kWh).
Regulation (EU) no. 1227/2011 of the European Parliament and of the Council of October 25, 2011 (REMIT) on the integrity and transparency of the wholesale energy market, has established common rules to prevent abusive practices in electricity and natural gas wholesale markets. This regulation imposes an obligation on market operators to:
a. publish privileged information pertaining to them;
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b. send to ACER (Agency for Cooperation among National Energy Regulators), directly or through third parties, the data concerning the operations carried out on wholesale energy products both sale and purchase orders and transactions concluded (reporting obligation).
Regarding privileged information since 2011, A2A Trading S.r.l. and Edipower S.p.A. have published on websites the unavailability of generation plants above 100 MW. Companies have now adhered to the PIP platform implemented by Gestore dei Mercati Energetici (GME - Energy Markets Operator) for the centralization of inside information.
In terms of reporting, the Commission, in implementation of the REMIT, adopted Implementing Regulation no. 1348/2014 (Implementing Acts), which established procedures and timing for fulfilment. The data to be reported concern standard contracts concluded on organized markets and non-standard ones concluded bilaterally, contracts relating to the transport of electricity and gas and the fundamental data related to storage systems. The market operators involved must send the data to ACER through the organized markets where the operation was performed (ex. GME) or through brokerage the platforms that include trade of electricity and gas.
In order to proceed with the communications to ACER, it is necessary to register with the National Register of market operators set up at the Authority. The following have been registered in the Register of the Authority:
There will be a pecuniary administrative sanction from 10,000 to 200,000 euro for each operator acting in wholesale energy markets subject to the obligation without being registered. Article 22 of Law October 30, 2014, no. 61 also attributes to the Authority ample powers of investigation and sanction on the application of the REMIT.
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With Resolutions 342/16/E/eel and 459/2016/E/eel, the Authority initiated two proceedings for the adoption of measures to promote competition and ensure the proper functioning of markets, through the adoption of prescriptive measures or also through asymmetric regulation measures against certain conduct by dispatching users in the wholesale electricity market, which could have negative effects on energy markets and potentially configurable as market abuse pursuant to the REMIT.
The conduct of users might include:
The proceeding will be completed within 90 days of the publication of Resolution 459/2016 (November 4).
For the A2A Group, the proceedings concerned:
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Finally, on October 6, 2016, at the Authority's request, the Competition and Market Protection Authority initiated two investigation proceedings against Enel S.p.A., Enel Produzione S.p.A. and Sorgenia S.p.A. for alleged violations of the provisions on competition in electricity markets (MGP/MI and MSD) - centre of Brindisi. The deadline for the closure of both proceedings is set by May 30, 2017.
At the hearing of October 7, 2015, the Chamber approved the annual Bill for the market and competition (Competition Bill), which is still being discussed at the Senate as part of the process of conversion into Law.
The regime of protection (gas) and greater protection (electricity) is expected to be superseded as of July 1, 2018. The operational structure of said superseding will be outlined by a subsequent MiSE Decree.
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A crucial issue is the treatment of "inert" customers that at the expected date, have not chosen a supplier on the free market and are still "connected" to their usual supplier. At the hearing of the Industry Commission of June 9, a sub-amendment was withdrawn relating to the provision of auctions for exit from the protection, which, however, has been transformed into an agenda that the aforementioned MiSE Decree will have to take into account.
At the moment, customers "who have not chosen" or are left "without a supplier" will end up in the system of safeguards through bidding procedures for territorial areas and under conditions that encourage the transition to the free market according to rules defined by the Authority.
In parallel, the Authority has carried out its own reform process in order to promote the superseding of the greater electricity protection regime. After a long consultation process (DCO 421/2015 and DCO 75/2016), by means of Resolution 369/2016/R/eel, it has reformed the mechanisms of protection with respect to domestic customers and customers of LV other uses (about 25 million POD for 58 TWh) providing, as of January 1, 2017:
following characteristics:
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A2A Energia S.p.A. submitted a request for admission to the Sole Purchaser for the supply of the TS by the deadline of October 21.
By means of Resolution 296/2015/R/com, the Authority has adopted provisions on brand unbundling for free market vendors also exercising thee greater protection service by providing:
A2A Energia S.p.A. appealed art. 17.9 of Resolution 296/2015/R/com that introduces an obligation for sellers to use information channels, physical and personal spaces separated between sale on the free market and greater protection service without providing coverage of the costs. A postponement of the hearing was requested (previously scheduled for May 12), considering that Resolution 659/2015/R/eel provided that, under the first annual update of the RCV (from 2017), account will be taken of the costs relating to debranding between free market and greater protection. In implementation of said provision, the Authority requested to provide details on any costs incurred in 2015 by the sales companies exercising the greater protection service for the fulfilment of the obligations of brand unbundling.
On May 17, a request was submitted to the Authority, limited to Aspem Energy S.p.A., for a derogation with regard to brand forecasts unbundling provisions between distribution and sales considering the fact that by the end of 2016 (with retroactive accounting effect from January 1, 2016), said company will be incorporated into A2A Energia S.p.A.. Said request was formally accepted by the Authority by means of communication of June 27, 2016.
Lastly, it is noted that Enel, Enel Distribuzione and Enel Servizio Elettrico, with three separate requests, had appealed against Resolution 296/2015/R/com, contesting the Authority's competence regarding brand unbundling. At the end of April, the Lombardy Regional Administrative Court rejected said appeals both regarding brand unbundling between distribution and sales and between free market and greater protection service, recognizing the competence of the Authority to legislate in regard, power conferred by Legislative Decree 193/11 in line with EU regulations.
Law no. 208/2015 on "Measures for the preparation of the annual and multi-annual financial statements of the State" (2016 Stability Law), in paragraphs 152-164 of article 1 regulated the charging of the RAI fee by means of the invoices issued by the electricity companies to their customers.
The total amount of the fee will be divided into 10 monthly instalments that will be charged as part of the invoices sent to customers to which tariffs are applied for residents (if not exempt) as of July.
For the implementation of the above, the MiSE, in consultation with the Ministry of Finance, issued the Decree laying down the "Regulations implementing article 1, paragraph 154, of Law December 28, 2015, no. 208 (RAI fee in the bill)".
The companies impacted by the activity of fee collection will be recognized the costs to the extent of 14 million euro for 2016 and another 14 million euro for 2017. These costs will be reimbursed by the Revenue Agency and will be divided among the various operators on the basis of criteria defined by the Authority, which will also determine the content and the ways in which companies must make available information on the costs / investments incurred.
In an ad hoc Table, constituted between the operators' associations, the Sole Purchaser, and the Revenue Agency, the operational procedures and information flows were identified functional to the implementation of the provisions of the Decree, and particularly the methods and timing for communication by the Revenue Agency of the list of citizens to which the fee will be charged. In May, the Sole Purchaser issued the Technical Specifications of data transmission process concerning the application of the RAI fee through SII.
At the beginning of July, following a request made jointly by the associations of operators, the Revenue Agency provided some clarifications on tax matters and on the correct words to be included on the invoices (the latter provision is not consistent with as provided by the Authority by means of Resolution 610/2015/R/com and therefore subsequently corrected by means of Resolution 378/2016/R/eel).
With Resolution 354/2016/R/eel, the Authority updated the economic conditions of the greater protection service for the third quarter of 2016, providing an increase of 4.3% following the implementation in the tariff of the so-called dispatching extra costs incurred by Terna and already the subject of initiation of proceedings to verify any misconduct of operators (pursuant to Resolutions 342/2016/E/eel and 459/2016/E/eel).
On the basis of the appeal to the Lombardy Regional Administrative Court (TAR) filed by the consumers' associations Codacons and Comitas against Resolution 354/2016/R/eel, by means of a monocratic precautionary decree on July 19, the Judge suspended the Resolution updating the tariff pending the hearing of the Council Chamber on September 15. The Authority immediately filed a request for revocation with respect to the monocratic precautionary decree, which was however rejected by the Regional Administrative Court (TAR), which upheld the rejection of increases in electricity tariffs on July 1.
In the hearing on September 15, the Regional Administrative Court, however, confirmed the updates pursuant to Resolution 354/2016 until the hearing on February 16, 2017. At the same time, it ordered to AEEGSI to adopt a measure to pre-determine the arrangements for the liquidation and automatic payment, without the need for a specific request by final customers, of the repayments due in the event of a favourable outcome of the dispute.
With Resolution 575/2016/R/eel, the Authority established an automatic return mechanism to users of the amounts recovered by Terna under:
The return mechanism envisages including the amounts recovered in the determination of the uplift of the first quarter available, allowing the immediate recognition of recoveries to dispatching users, and through them to the customers of both the free and protected market (without distinction).
Pending closing of the proceeding process, entities exercising greater protection have applied in certain periods (until July 19) the economic conditions of the second quarter, in other period (from September 15) the economic conditions of the third quarter.
Resolution 166/2016/R/ gas has established procedures for determining the economic conditions of the gas protection service for the period October 2016 - December 2017 (date beyond which, under the Competition Bill, there may be termination of price protections).
The component covering wholesale procurement costs (Cmem) will remain defined under the current formula for updating, i.e. on the basis of quarterly OTC forward prices recorded at the TTF hub, maintaining the current procedures for the recognition of logistics costs.
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The CCR component to cover the costs for activities related to the wholesale procurement and coverage of certain risks was revised upward reformulating the recognition of certain risks. Lastly, the extension to December 31, 2017 is expected of the application of the GRAD component, reformulated in order to maintain the expected revenue unchanged.
The revision of the CCR and GRAD components has a positive impact of around 730,000 euro on the 2016/2017 biennium. Finally, indirect benefits are expected on the free market contracts from 2018 for the price benchmark increase.
By resolution 447/2013/R/gas, the Authority introduced a mechanism to promote the renegotiation of long-term contracts for the procurement of natural gas under which the vendors admitted to the mechanism acquire the right to the recognition of a "compensatory" amount that will be quantified at the end of 2016, and recognized on the volumes delivered to customers under protection served with long-term contracts over the thermal years 2010- 2011 and 2011-2012 (APR).
The unit value of the element APR was initially quantified equal to 0.856801 €/GJ; it is subject to annual update by the Authority on the basis of the trend in the spread between Ptop (procurement cost from long-term contracts) and Cmem (spot price).
A2A Energia S.p.A. and Aspem Energia S.p.A. were admitted to the mechanism for a total maximum of 26.4 million euro. The definitive value will be available at year-end 2016. The Group will register the revenue in the income statement once the amounts have been definitively ascertained.
For the moment, the first 2 payments have already been defined, each equal to 40% of the total amount. However, as resulting from Resolution 556/2015/R/gas, the Account set up at the CSEA to cover the APR mechanism, by the CPR component paid by end customers, is not sufficient for the disbursement of the second prepayment and the Authority conferred mandate to proceed with pro-rata payments.
By means of Resolution ARG/gas 89/10, the Authority, in the face of changes in the reference scenario determined by a cyclical phase of reduction in consumption, by an excess of supply and a downward renegotiation of take-or-pay gas contracts, considered it appropriate to transfer to end customers the potential benefits introducing, for thermal year 2010-2011, a reduction coefficient k applied to the indexed component of the QE (variable fee to cover the procurement costs).
This revision was confirmed by the subsequent Resolution ARG/gas 77/11, which provided for an extension until September 30, 2012 of said mechanism, revising slightly upward the value of the coefficient k (from 0.925 to 0.935).
A2A Energia, (including former ASMEA and former BAS Omniservizi) and Plurigas filed an appeal against Resolution ARG/gas 89/10 contesting the arbitrariness of the value of the coefficient k. The appeal was also extended to Resolution ARG/gas 77/11.
In March 2013, the Regional Administrative Court ruled in favour of the requesting companies, cancelling the provisions of resolution ARG/gas 89/10 and related subsequent (233/10, 77/11, 84/11 and 132/11), judgement then appealed before the Council of State by the Authority.
By means of Board Ordinance no. 288/2016, the State Council requested further information, deeming it necessary to carry out further analyses with respect to the Authority and requesting operators. The merit hearing was held on September 22, 2016 and publication of the sentence is pending.
In any case, even if the case of victory of the applicants to the State Council it is, however, likely to expect an order of the Authority redetermining the tariffs for those years.
On January 20, the Council of Ministers adopted the Legislative Decree scheme laying down "Consolidated act on local public services of general economic interest".
On October 19, 2016, the Constitutional Affairs Committee of the Chamber and the Constitutional Affairs Committee of the Senate concluded the examination, in an advisory session, of the Legislative Decree scheme, after which the Government will issue the final decree for publication in the Official Gazette.
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Article 16 confers powers of regulation, control and sanction to the Authority on the waste cycle, also differentiated, urban and similar, in order to ensure accessibility, usability and homogeneous distribution in the territory national and adequate levels of quality in terms of efficiency and cost-effectiveness of management, harmonizing economic-financial objectives with general social-environmental objectives and proper use of resources.
Following said attribution, the name of the AEEGSI will change to Regulation Authority for Energy, Networks and Environment (ARERA).
To this end, by Resolution 78/16/A, the Authority has initiated proceedings for the reorganization following the attribution of the new functions in the environment.
Instead, the integrated water service was excluded from the measure.
Biomethane is a gas that contains at least 95% of methane and is produced from renewable sources: it can, in fact, arise from the biogas produced by the anaerobic digestion of biomass in a controlled environment (digester) or in a landfill, following the decomposition of waste, or gas from biomass gasification. Subjected to a process of purification and upgrading, it reaches the quality of natural gas and, respecting the physical-chemical characteristics specified in the Authority's directives, it is suitable to the subsequent phase of use.
For the Group A2A, issues related to the uses of biomethane are divided into two categories:
The Ministerial Decree is being revised with a new draft in circulation that will change the incentive arrangements for biomethane fed into the natural gas network and introduce the definition of advanced biomethane (biomethane obtained from the organic fraction of municipal solid waste - OFMSW).
The oversight of the two issues, both technical and ministerial, is necessary to support the investments being defined by the Group.
On the completion of some inspections initiated by the Authority through GSE at some of the Group's waste-to-energy plants under CIP 6/92, a request was made for the return of a part of the incentives received, considered unduly credited in the years in which the relative withdrawal conventions with the GSE were in force.
The issue concerns the method of calculation of consumption of electricity for the plant auxiliary services that were considered undervalued with respect to the flat rate defined in the agreement with consequent higher energy sold/paid to/by the GSE.
By means of Resolution 414/2016/E/efr, the Authority ordered the administrative recovery by CSEA also of the sums unduly received by A2A Ambiente S.p.A. with reference to the wasteto-energy plant in Goltara (Bergamo) under the CIP 6/92 scheme until June 2015. However, since the method for calculating the amounts to be returned provided by the measure was not consistent as it determined the valorization of the return not commensurate to the undue income of the operator, steps were taken to highlight the inconsistency and an order of rectification by the Authority is pending.
Legislative Decree no. 152 of April 3, 2006 ("Regulations on environmental matters") as subsequently amended, most recently by Legislative Decree no. 205/10 which dictates measures implementing Directive 2008/98/EC on waste, acts as the reference legislation for the environment sector.
The most recent substantial amendment to parts II, III, IV and V of Legislative Decree 152/2006 was made by Legislative Decree March 4, 2014, no. 46 laying down provisions on industrial emissions in implementation of Directive 2010/75/EU and Integrated Pollution Prevention and Control (IPPC). In particular, AIA activities have been extended and the decree envisages, as specified in Ministerial Decree no. 272 of November 13, 2014, the obligation, if the preliminary Subsistence Verification requires so, to prepare a report with reference to any request for new activity or any substantial authorization changes, that depict the situation of the impacts on the environment and health of the activity, in order to assess the status of the production site before, during and at the end of activities. It is noted that in this regard, the Note was recently published of the Ministry of Environment of June 17, 2015, no. 12422 - Integrated Environmental Authorization (AIA) - "Additional criteria on application of the guidelines in light of the amendments to Legislative Decree 46/2014".
In Official Gazette January 18, 2016, no. 13, Law 28 December 2015, no. 221 was published regarding "Environmental provisions to promote green economy measures and for containment of the excessive use of natural resources" (Collegato Ambientale - Environmental Connection). Regarding the management of waste, conferment to landfills is discouraged and separate collection is awarded, also through "returnable" and the reduction of non-recycled waste is promoted.
Legislative Decree March 4, 2014 no. 46 on provisions on industrial emissions implementing Directive 2010/75/EU (also referred to as IED – Industrial Emission Directive) introduced new regulations having an effect on all industrial plants, with new limits on atmospheric emissions and increased and tighter controls. By way of implementing this provision, starting January 1, 2016, also the regulations to be followed by waste-to-energy plants, currently dictated by Legislative Decree 133/05, will be introduced by Legislative Decree 152/06 in the text dictated by Legislative Decree 46/14.
As of January 10, 2016, the provisions shall apply of Title III-bis of Part IV of Legislative Decree 152/2006, as amended by Legislative Decree 46/2014, for the incineration and co-incineration of waste.
The Official Journal no. 212 of September 12, 2014 published Decree Law 133/2014 ("Unblock Italy" Decree) on "Urgent measures for the opening of worksites, the construction of public works, the digitalization of the country, bureaucratic simplification, the emergency of hydrogeological instability and a pick-up in industrial activities". Among the provisions of interest is article 35 regarding waste-to-energy plants, related to which the Prime Minister's Decree is pending, which identifies the plants for the recovery of energy and the disposal of urban and special waste and some categories of special waste, already existing or yet to be constructed, which are needed to implement a modern integrated system for managing this waste which can achieve national security in self-sufficiency, in order to supersede the infringement procedures for the failure to implement European legislation for the sector.
In Official Gazette April 11, 2015, no. 84 Ministerial Decree March 30, 2015 was published concerning the "Guidelines for the verification of subjection to environmental impact assessment of the projects of competence of the autonomous regions and provinces, provided for in article 15 of Decree Law June 24, 2014, no. 91, converted with amendments by Law August 11, 2014, no. 116".
These guidelines provide instructions and criteria for the execution of the procedure for verification of subjection to EIA (art. 20 of Legislative Decree no. 152/2006) of projects, related to works or new realization interventions, listed in annex IV to part two of legislative decree no. 152/2006, in order to ensure uniform and correct application throughout the national territory of the provisions laid down in Directive 2011/92/EC.
The Resolution of the Register of Environmental Managers of September 16, 2015, no. 2 "Criteria for the application of article 8, paragraph 2 of the Decree of June 3, 2014, no. 120, of the Minister of Environment and Protection of Land and Sea, jointly with the Ministers for Economic Development and Infrastructure and transport" establishes criteria for the application of the provisions of art. 8, paragraph 2 of Ministerial Decree June 3, 2014, no. 120.
On December 29, 2015 on the website of the Ministry of the Environment, Directive December 16, 2015, no. 274 was published on "Guidelines to regulate the conduct of procedures for granting, review and updating of the measures of integrated environmental authorization of competence of the Ministry of the Environment and protection of land and sea".
In Official Journal no. 47 of February 26, 2016, the Law of February 25, 2016, no. 21 was published on "Conversion into law, with amendments, of Decree Law December 30, 2015 no. 210, introducing an extension of the terms set by legislative provisions".
By means of this law, the terms of the application of the SISTRI were confirmed as established by Laws 122/2012, 6/2014 and 11/2015. As a result, from January 1, 2016, the obligation remains of registration with the SISTRI (with the consequent sanctions for non-fulfilment) while the terms for the application of sanctions relating to the failure to use the SISTRI is extended to December 31, 2016.
However, with the conversion into law of Decree Law 210/2015, the sanctions for failure to register with the SISTRI are reduced by 50%.
The Lombardy Region, in order to ensure uniform application in the area of the legislation on AIA and allow proper organization and planning of work, provided information regarding transmission methods, timing of presentation of the results of the verification and application of the obligations related to the Reference Report.
Lombardy Region, starting from as regulated by art.196 of Legislative Decree 152/06 laying down in paragraph 1, letter b) that the Regions are responsible for "the regulation of waste management activities, including the differentiated collection of municipal waste, including hazardous waste, according to a general principle of separation of food waste and waste of plant and animal products or in any case with high humidity from the remaining waste" issued some Guidelines to be proposed to the Municipalities for the drafting of municipal waste management regulations and for the assimilation of special waste.
The standard analyzes the situation of composting plants in Italy, identifying the plants already in operation and ensuring balance between current capacity, region by region, and the theoretical requirements (on ISPRA data). The hypothesis is that of the achievement of the objectives of 65% of differentiated collection and subsequent collection of organic waste, estimated on the basis of the municipalities that are already in line with the objectives. The regions may further legislate on the matter by identifying exactly the remaining requirements and the location of the plants.
Following the partial annulment of the preceding Guidelines approved with D.G.R. no. 2031/2014 (operated by the Lombardy Regional Administrative Court Sentences no. 2434 of November 19, 2015 and no. 195 of January 29, 2016), with D.G.R. no. 5269/2016, a technical document was approved as integration to D.G.R. 2031/2014 in order to ensure efficient use of sludge under the agronomic aspect according to criterion of "good agricultural practice". It also establishes the parameters that must be obligatorily communicated to the user of the sludge for correct preparation of agronomic use plans.
As provided by art. 205, paragraph 3-quater of the Environmental Consolidated Act, issue of "Guidelines on the calculation of the percentage of differentiated collection of municipal and assimilated solid waste" with Ministerial Decree May 26, 2016. These guidelines are intended to provide guidance and criteria for the calculation of the differentiated percentage of municipal and assimilated waste reached in each municipality, in order to standardize, throughout the country, the method of calculating the same. It also states that "the contents of the guidelines are intended as provisions to which the individual regions shall abide in the formulation of their own method to calculate and check the percentages of differentiated collection for the achievement of the objectives set by the national legislation in force".
The measure intervenes on note 4 in Annex C of Part IV of Legislative Decree 152/06 relating to the recovery item R1 "Use principally as fuel or other means to produce energy", in order to implement the provisions of EU Directive 2015/1127, effectively replacing the KC factor, introduced by Ministerial Decree August 7, 2013, with the climate correction factor (CCF, ahead of the EU legislation). The Decree will come into force and shall apply as of July 21, 2016;
With this law, Ispra (article 4, paragraph 1) and Arpa (article 7, paragraph 1) have formally become legal entities of public law, with technical-scientific, administration and accounting autonomy. Ispra will ensure guidance and coordination of Arpa (article 6) and define tools, operating methods and criteria of periodicity and homogeneity for the execution of control activities; it will also issue binding technical standards for the National System of Agencies (article 4). Also established are the essential levels of technical environmental performance (LEPTA), equal throughout the national territory, with the objective of eliminating disparities currently present among the various Arpa, which often translate into different levels of control and attention.
The measure will enter into force January 14, 2017. The Regions will be required to transpose the provisions by the same date.
In implementing Directive 2014/80/EU, the Environment Ministry updated the quality standards of groundwater by introducing perfluoro-alkyl substances (PFAS). In addition, with the decree in question, the Ministry updated letter B, part A of Annex 1 to Part III of Legislative Decree 152/06, by intervening on the definition of "good chemical state" of groundwater as well as on quality standards.
The regulation will amend article 185 of Legislative Decree 152/06 in order to exclude from the scope of application of the discipline on waste including straw, cuttings and pruning:
In particular, these materials, together with any other "natural, non-hazardous agricultural or forestry material", are no longer classified as waste if they are "intended for normal agricultural and zoo-technical practice or used in agriculture, in forestry or for the production of energy from such biomass, even outside the place of production, or with sale to third parties, by means of processes or methods that do not harm the environment or endanger human health".
The guidelines set out the content for the chapters of environmental studies, for both environmental impact studies and for environmental preliminary studies relating to the biodiversity component. An check-list is also approved regarding characterization of the environmental context that must be included in both the Environmental Impact Studies (for EIA proceedings) and for environmental preliminary studies (for EIA verification proceedings or EIA Screening).
Prime Ministerial Decree August 10, 2016 - Identification of the overall treatment capacity of waste-to-energy plants of municipal and assimilated waste in operation or authorized at national level, as well as identification of the residual requirement to be covered by means of the construction of waste-to-energy plants with recovery of municipal and assimilated waste. (16A07192)
The purpose of the regulation, pursuant to art. 35, paragraph 1 of Decree Law September 12, 2014 no. 133 is to:
The regions and autonomous provinces may, no later than June 30 of each year, submit to the Ministry of Environment and Protection of Land and Sea a request to update the regional residual requirement of waste-to-energy of municipal and assimilated waste identified in Annex II of this Presidential Decree.
By means of Resolution 173/2016/R/gas, the Authority approved the provisional reference tariffs for the distribution and metering of natural gas relative to 2016 based on the pre-final investments made until 2015, divestments in 2014 and estimating contributions in 2015.
The new tariffs have been affected by the reduction of the WACC in force since 2016 (Resolution 583/2015/R/com-TIWACC) equal to 6.1% (6.9% in 2015) for distribution and 6.6% (7.2% in 2015) for metering.
| RAB value Unareti S.p.A. pursuant to Resolution 173/2016/R/gas (Millions of euro) | |
|---|---|
| Cap. Centralized | 48 |
| RAB Distribution | 805 |
| RAB Metering | 94 |
| Total | 947 |
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By means of resolution 296/2015/R/com, the Authority confirmed its guidance on brand unbundling by attributing to the Independent Operator the responsibility for the proper implementation of regulation in regard including the obligation of separation of the brand and communication policies (including the company name, the company, sign and any other distinguishing element) with respect to the sale company (avoiding the risk of confusion in the end customer) and the use of information channels, physical and personal spaces separate from those of the sales activity.
In accordance with the provisions of art. 8, paragraph 1 of Resolution 296/2015/R/com that allows the shared management by the vertically integrated company of infrastructure activities carried out under monopoly or assignment, Unareti S.p.A. was established, operative since April 1, 2016, which now manages the distribution and metering of electricity and gas, as well as the activities previously carried out by A2A Servizi alla Distribuzione S.p.A. and A2A Logistica S.p.A..
Following the reform of the means of allocating the natural gas distribution service, 177 "Minimum Territorial Ambits" were defined (Ministerial Decree January 19, 2011 and Ministerial Decree October 18, 2011), for which tenders will be called for the allocation of the service in accordance with the requirements of the Tender regulation (Ministerial Decree November 12, 2011 no. 226, as subsequently integrated and amended). Regulations have also been adopted to protect the jobs of the employees of the operators involved in the restructuring of the sector (Ministerial Decree April 21, 2011).
In recent years, several provisions have intervened amending Legislative Decree 164/2000 and Ministerial Decree 226/2011 with particular reference to the procedures for determining the reimbursement to be paid to the outgoing manager (VIR) and calling tenders.
Ministerial Decree May 22, 2014 approved the Guidelines regarding the criteria and means of application for determining the VIR, while Ministerial Decree May 20, 2015, no. 106 amended Ministerial Decree 226/2011 so as to implement the regulatory amendments on the calculation of the VIR calculation (especially as regards the treatment of contributions), the application of the guidelines, the maximum percentage of the fee, the recognition of the underlying costs of the energy efficiency projects to be realized in the context and offered during tenders.
Decree Law 210/2015 (Milleproroghe 2016), granted a further extension of deadlines for the publication of tender notices by Contracting Stations and the penalizations previously envisaged of the defaulting ones were eliminated.
As part of the tasks entrusted by the legislator to the regulator, the Authority, by Resolution 571/2014/R/gas amended the service contract scheme for the distribution of natural gas, and lastly, by Resolution 407/2015/R/gas, amended the provisions adopted by Resolution 310/2014/R/gas in the determination of the VIR, in relation to the methodological aspects for identifying cases with discrepancy between VIR and RAB greater than 10%.
A Ministerial Decree of MiSE is anticipated on white certificates, which should take account of the objectives resulting from gas tenders, a condition that would allow increasing to 100% the value of the fee contribution received by the awarded parties for the realization of efficiency measures as part of the tender.
A2A Reti Gas S.p.A. (now Unareti S.p.A.) had challenged the Guidelines and Ministerial Decree May 20, 2015, no. 106 (TAR Lazio) and all the acts of the Contracting Authority of the ATEM Milano 1 related to the definition of the VIR (TAR Lombardy).
However, with Sentence no. 10286/2016 of October 14, 2016, the Lazio Regional Administrative Court (TAR) rejected said appeal as it deemed as unfounded the pleas raised by the company in relation to non-compliance with the provisions established by the free will of the parties, the criteria for the definition of price lists, the deduction of contributions and the reduction of the useful life of meters up to G6. Instead, the complaints concerning the right granted to the Municipalities to sell the grid and on the scores for investments in energy efficiency were deemed inadmissible for lack of current interest.
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At the end of 2015, the first tenders were published for the concession of the natural gas distribution service on the basis of areas. Among these, some are related to areas in which Unareti S.p.A. is the current manager, i.e. the area Milan 1 - City and Plant of Milan, published in the EU Official Journal on December 26.
The contract amount for the entire period of the assignment indicated in the above tender amounted to 1,369 million euro for 12 years. The tender notice outlines the disagreement between the Contracting Authority and Unareti S.p.A. (formerly A2A Reti Gas S.p.A.) regarding the amount of the VIR of the plants because of the treatment of contributions regarding which the aforementioned dispute is pending.
The deadline for receipt of tenders by the Contracting Station was set for June 13, 2016, then extended to October 17, 2016 and subsequently extended to January 16, 2017. The offer submitted will be valid for 360 days.
Tenders will be assessed in accordance with the criteria laid down by Ministerial Decree 226/2011, as amended: the economic tender will have a weight of 28 points out of 100, while the technical tender 72 points out of 100.
By means of Resolution 233/2016/R/eel, the Authority approved the 2016 provisional reference tariffs for electricity distribution, while those for metering will be defined by the end of October (term thus postponed by Resolution 417/2016/R/eel, originally scheduled for July 2016).
Tariffs are defined considering the WACC in force since 2016 (Resolution 583/2015/R/com-TIWACC) equal to 5.6% (6.4% in 2015), and also according to the additions of Resolution 654/2015/R/eel (TIT 2016 - 2019). In particular, they consider: investments until 2015 (including those related to commercialization of the service, the costs of which were previously recognized on a pre-final parametric basis), divestments in 2014 and an estimate of the amount of contributions in 2015.
| Value of RAB Unareti S.p.A. (Millions of euro) (*) | |
|---|---|
| RAB Distribution | 537 |
| RAB Metering | 76 |
| Total | 613 |
(*) Company estimate.
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Resolution 646/2015/R/eel (TIQE 2016 - 2023) contains numerous provisions aimed at selective promotion of investments in distribution networks. However, almost all of these mechanisms are present in terms of general objectives and guidelines regarding their operation shall be developed through appropriate work tables attended by distributors, the Authority and Terna (including the one on resiliency of the electrical system, initiated on April 1, 2016).
Articles 129, 130, 131, 132 of the TIQE provide the innovative features of the medium-voltage distribution networks in areas with high penetration of distributed generation from renewable sources: "Observability of power flows and the state of resources disseminated on MV networks, voltage regulation of distribution networks".
Art. 134 of the TIQE envisages the modernization of the obsolete risers in urban areas with plants designed according to a "future proof" logic capable of supporting any increases of the contemporary use of power following the change of the domestic tariff. The Authority has provided a regime of output-based rewards/penalties related to the capacity difference between before and after the remediation of the risers. Unareti S.p.A. adhered to this opportunity and is preparing its own plan for the replacement of risers in Milan and Brescia.
Regarding the "smart city" experimentations (art. 135) with innovative features on the LV networks, distributors in urban areas with minimum 300,000 inhabitants will have access to the town scale pilot projects with innovative management logic of the LV network, possibly multi-service (smart water grid, integration with advanced mobility systems, etc.). Each distributor selected will be granted a contribution for the cost incurred.
By Resolution 87/2016/R/eel, the Authority defined the:
In collaboration with the AGCOM, the Authority will assess the actual availability of standardized technological solutions that allow defining incremental functionalities for meters to be installed following the definition of the functional specifications enabling version 2.1 (refer to Annex C to Resolution 87/2016).
The measure constitutes the implementation of Legislative Decree July 4, 2014, no. 102, and follows DCO 416/2015.
The A2A Group intends the meter as a tool not only to enable greater awareness by users on their energy consumption but also in the future to enable new services (i.e. Demand Response) and for better management of the grid (i.e. meter as sensor of the grid).
The installation process of the current approximately 37 million 1G meters started in 2001 by Enel Distribuzione and involved distributors for many years and with different timing. In compliance with the provisions of Resolution 292/2006, A2A Reti Elettriche S.p.A. (now Unareti S.p.A.) realized the installation plan of approximately 1.2 million meters in the period 2004-2014 and has a park with an average remaining useful life of approximately 6 years.
By means of DCO 457/2016/R/eel (which follows DCO 267/2016/R/eel), the Authority has proposed its final guidelines for the recognition of costs incurred for the replacement of the current 1G smart meters.
In particular:
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it provides that operators can still submit their commissioning plans before the deadline and that these plans can access a fast track procedure in case of compliance with certain limits for the cost difference between 2G and 1G meters; on the contrary, they will be subjected to a detailed cost/benefit analysis (lasting 6-12 months);
it confirms the Totex methodology for the recognition of costs;
In case of insufficient incentive for early replacement of the meters, the risk would be to have a country with "2 speeds" with the major cities (Milan and Brescia, Rome, Turin) excluded from the possibility of benefiting from advantages - also commercial - offered by the new meters.
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By Resolution 463/2016/R/com, the Authority has approved:
In particular, with reference to the obligations imposed on the distributors, TIF introduces indemnities in favour of final customers, recognized by means of the sales company, in case of delay in the provision of metering data by providing a specific compensation equal to 10 euro in case of non-provision on the part of the distributor, for two consecutive months, of the actual metering data in the case of withdrawal points by bands. Compensation will not be applied if non-compliance with the discipline is due to unforeseeable circumstances and force majeure.
The TIF will enter into force on January 1, 2017.
Following the referendum, which took place on June 12 and 13, 2011 the legislative provisions referred to in the questions involved were repealed, including article 23-bis of Decree Law 112/2008 on the assignment of local public services of economic importance.
Regarding existing management, as enshrined in art. 34 of Decree Law 179/12 converted into Law 221/12 and supplemented by Law July 29, 2015, no. 115, art. 8 paragraph 1, assignments of services to listed companies and subsidiaries of listed companies, such as those relating to the assignments to A2A, will remain active until natural expiry, and however until 2036.
Also in execution of the amendments of Legislative Decree 152/06 made by art. 7 Decree Law 133/14 as amended, at the meeting of September 17, 2015, the Board of Directors of the Ambit Government Entity (EGA) of Brescia, by Resolution no. 14, chose as form of single management of the SII in the Optimal Territorial Ambit of the Province of Brescia, the mixed company, with the consequent elimination (subject to the safeguards of law) of the other various forms of management in the meantime present on the territory of competence.
The entrustment to the new company, called Acque Bresciane, is expected to be ratified by the Province of Brescia Council by the end of October.
By means of Resolution 664/2015/R/idr, the Authority defined the criteria for the regulatory period 2016-2019 (MTI-2) confirming the asymmetric regulation in force in the previous period (MTI-1):
On February 29, 2016, A2A Ciclo Idrico S.p.A. appealed to the Lombardy Regional Administrative Court against Resolution 664/2015/R/idr developing the following 3 reasons of law:
By means of Resolution no. 16 of July 5, 2016, the Board of Directors of the EGA of Brescia approved the payment of previous tariff items to A2A Ciclo Idrico S.p.A. pursuant to Resolution no. 643/2013/R/idr of the Authority for an amount of approximately 51.4 million euro. Said items:
• are attributable to the non-recognition of the capital invested in the period 2007-2011;
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Given this recognition, A2A Ciclo Idrico S.p.A. shall:
By means of Resolution no. 24 of September 30, 2016, the EGA Board approved the tariff arrangement for the periods 2012-2015 and 2016-2019 for A2A Ciclo Idrico S.p.A. and ASVT S.p.A.. The resolution shall now pass to the Provincial Council for approval.
By means of Resolution 655/2015/R/idr, the Authority, as is already provided for in the electricity and gas sectors, introduced with effect from July 1, 2016 the provisions concerning the contractual quality to users of the SII.
For each service, quality levels were defined (improvement compared to the Charter of Services) in terms of general and specific standards, in addition to the related monitoring and verification systems. Communication channels (physical counters, website, e-mail, call center, fax, etc.) are also provided through which users can make requests to the Operator for services.
By means of Resolution 361/2016/R/idr, the Authority approved the request for derogation from the opening on Saturday morning of the counters in Brescia and Gardone Valtrompia submitted by the EGA at the request of A2A Ciclo Idrico S.p.A. and ASVT S.p.A. together with consumer associations. The request was submitted in order to avoid the higher costs arising from staff overtime and office management that could burden citizens.
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Resolution 656/2015/R/idr provides the minimum essential content of the "standard agreement" for the regulation of relations between awarding entities and Operators.
As to the scope of application, the Authority states that "with regard to Municipalities and service segments where managers are operating - different from area managers - and that exercise the service under an assignment acquiesced in accordance with regulations currently in force and undeclared ceased by law, the standard agreement provisions apply as compatible".
The signing of the standard agreement is an essential prerequisite for the approval of the 2016-2017 tariffs.
Resolution 137/2016/R/com integrates the current system of accounting separation required by TIUC (Accounting Unbundling Integrated Text) for the electric and gas sector with the introduction of accounting separation obligations on operators of the SII, or of each of the individual services that make it up and the related reporting requirements.
In particular, the following accounting separation regimes are envisaged:
The regulation provides that the SII operators are required to draw up Separate Annual Accounts (CAS) articulating the accounting separation for each EGA in the activities identified (Aqueduct, Sewerage, Purification, Other water activities, Various activities) and in the related sectors.
At the beginning of May, the schemes were published and the first data communication will be in 2017 on the year 2016.
By means of Resolution 218/2016/R/idr, the Authority approved the Integrated Text for regulation of the metering service as part of the SII at national level (TIMSII).
The measure, confirming the general approach of the DCO 42/2016/R/idr, introduces, with effect from January 1, 2017, a first set of provisions concerning utility metering, deferring to subsequent rulings the discipline relating to the metering of industrial users authorized to discharge into the public sewer, the theme of the water balance and definition of levels of performance of the metering service.
In particular, the regulation imposes on the operators of the water service the responsibility for the metering service, involving obligations of installation of meters and periodic collection (based on consumption) of metering.
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Obligations are also introduced for the collection of self-reading of meters and archiving (5 years) and provision of consumption by the parties concerned.
Prime Ministerial Decree of August 29, 2016, implementing articles 60 and 61 of the Collegato Ambientale (Environmental Connection), published in the Official Gazette on October 14, entrusts to the Authority the definition of forms of containment of default, access to the vital minimum quantity of water (instead of 50 litres/day per capita) to all resident home users at a facilitated tariff (amount to be guaranteed even in case of default) and the definition of customers that cannot be disconnected.
Legislative Decree no. 102/2014 implementing Directive 2012/27/EC on energy efficiency attributed to the Authority functions also in the district heating/cooling sector for the provision of measures on: ways in which managers make public the prices applied to the provision of heat, connection, disconnection, as well as regarding safety, continuity, commercial quality, billing of consumption, also by sending reports to the competent authorities.
After an initial recognition in 2014 (Resolution 411/2014/R/tlr), the Authority proceeded with 2 data collections in 2015 relating to:
In February 2016, A2A Calore & Servizi S.r.l. received a further request for information on the costs of heat metering and accounting systems.
Article 9 of Legislative Decree no. 102/2014 entrusted to the Authority the task of implementing the provisions on metering, direct accounting of individual consumption (by meters or allocators), billing and information on billing, access to consumer data for buildings connected to district heating and cooling networks in order to increase customer awareness and change consumer behaviour.
In DCO 252/16, the Authority addressed these issues by considering:
In a statement on September 23, the Authority ruled that due to the amendments introduced to article 9, paragraph 1, of aforementioned Legislative Decree no. 102/2014, the definition of the technical and performance requirements of individual meters (renamed sub-meters by Legislative Decree no. 102/2014 no. 141 of July 18, 2016) and the criteria to evaluate the technical and economic feasibility of their installation in buildings with several property units and in multi-purpose units served by district heating and district cooling networks no longer falls under the Authority's responsibilities.
As for supply meters, considering the regulatory amendments - that have prevented a conclusion with an appropriate term - and considering the imminence of December 31, 2016, the date by which entities exercising metering activities must install them, the Authority considered it appropriate not to adopt regulation measures on the minimum requirements of the meters to be installed by operators of district heating and cooling networks by December 31, 2016, already the subject of the same DCO 252/2016/R/tlr, postponing to a new consultation on the minimum requirements for meters that must be installed also in replacement of existing ones (including the definition of remote reading).
Unareti S.p.A. is the third party responsible in Italy for the achievement of energy savings under the mechanism of White Certificates (WC) with an obligation of annulment 2016 equal to 565,231 WC (484,895 WC + 80,336 WC of recovery).
With Resolution June 16, 2016 of the Markets Management of the Authority, the following were published:
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In recent years, the A2A Group has submitted to the GSE several projects that have had approval problems and that can be divided into two types:
Part of the WC issued was used by May 30, 2016 to fulfil the obligation of Unareti S.p.A., while the remaining part will be accounted for in the income statement when the WC will be sold to third parties.
The Group has a warehouse as detailed below:
| Expiry | Total WC | |
|---|---|---|
| WC | Without maturity | 212,171 |
Regarding district heating WC, the following is also noted:
One of the energy policy objectives of the Montenegro government is an increase in the use of renewable energy by the country.
More specifically, in September 2011 the government introduced ("Decree on the Tariff System for the Establishment of Preferential Prices of Electricity from Renewable Sources of Energy and Efficient Co-generations") an incentivizing tariff to support the production of energy from renewable energy sources (FER). Power Purchase Agreements with the market operator CGES having a 12 year term are envisaged for purchasing the energy produced, at prices annually adjusted for inflation.
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In October 2012, with the approval of provisions designed to implement Directive 2009/28/EC by the Energy Community, Montenegro also accepted the setting of a binding objective of 33% to be achieved by 2020 for the production of energy from renewable sources as a percentage of total consumption.
The second regulatory period started on August 1, 2014 and ended in late 2015 to realign the new regulatory period, which was expected to start on January 1, 2016, with effect from the calendar year.
At the end of 2015, the RAE (the Regulation Agency) determined the tariffs for a new transitional period lasting one year, starting from January 1, 2016 until December 31, 2016. The level of regulated tariffs for domestic customers provides for a reduction of about 1%. Subsequently, the tariff methodologies will be redefined for a three-year regulatory period (2017-2019).
It is noted that at the end of December 2013 the RAE unexpectedly approved a provision to amend the current tariff methodology, impacting the method of calculating the fees for using the transmission grid borne exclusively by the electricity generation operators, with effect originally planned from January 1, 2014 to the end of July 2015 and subsequently became definitive.
EPCG has filed an appeal for the annulment of this decision, which it believes is based on premises which are not in line with the principles of transparency and non-discrimination that should form the basis of the regulation, and which appear to be extremely detrimental to the economic and financial balance of the company. The appeal was upheld in the first instance, although the RAE has opposed this judgement. A final ruling by the courts is currently awaited in this respect.
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In the third quarter of 2016, the world economy continued to grow at a moderate pace; the outcome of the referendum on the Brexit has not had significant effects on the global economy for the moment. The outlook improved slightly in emerging countries, while it remains uncertain in major advanced economies.
In the second quarter, Gross Domestic Product (GDP) in the United States increased by 1.4%, after the slight slowdown in the previous period (0.8%). The robust expansion in household spending was partly offset by the contribution provided by the negative change in stocks and the fall in construction investment (source: US Department of Commerce).
In Japan, in the second quarter of 2016, GDP slowed considerably (from 2.1% to 0.7%), reflecting the slowdown in private consumption and the fall in exports. The country's economy is still characterized by uncertainty; however, it is expected to benefit from the fiscal stimulus package recently approved by the government for a total amount of about 1.5% of GDP.
China's GDP grew by 6.7% on an annual basis in the third quarter of 2016, at the same rate in the two previous quarters and slightly above forecasts, which estimated a growth of 6.6% (source: National Bureau of Statistics in Beijing). This result has strengthened the government's expectations on the achievement of the annual target of 6.5 - 7%. In India, GDP growth in the second quarter of 2016 remained strong (7.1%), although decelerating from the first quarter. The recession has eased in both Brazil (-3.8% from -5.4%) and Russia (-0.6% from -1.2%).
Economic activity in the Eurozone, after losing momentum in the second quarter of 2016, affected by the slowdown in investment and consumption, is expected to accelerate slightly. GDP, as published by Istat, is expected to stand at +0.3% in the third quarter of 2016, driven by the recovery in foreign demand and the stabilization of private consumption growth, influenced by the gradual improvement of the labour market situation and the rise in disposable income.
After the steady performance in the second quarter, Italian GDP, as published in the Economic Bulletin of the Bank of Italy, is expected to record a slightly positive change in the third quarter of 2016. It is noted that the growth was especially supported by the recovery in the industrial cycle, in line with the more modest increase of transport flows. The recovery in services has continued, as can be deduced from the maintenance of the confidence indicators of the sector's companies and the increase in the purchasing power of households. For the moment, Istat has not provided forecasts on GDP figures for the third quarter and has revised downward by 0.1% the preliminary estimate for 2016 (from 0.8% to 0.7%), as announced in March.
The dynamics of consumer prices in advanced economies have remained weak: in the US, inflation rose slightly to 1.1% (from +0.8% in July); in Japan, inflation fell in August by 0.5% (from -0.4% in July).
In the major emerging economies, the price dynamics was contained in China (1.3% in August), while it remained stronger in India (5.0% and in line with the objective of the Central Bank), and above all in Brazil and Russia (9.0% and 6.9%, respectively).
Regarding the Eurozone, Eurostat reported that inflation on an annual basis was 0.4% in September 2016, in acceleration compared to August (+0.2%), thanks to the gradual recovery of energy commodity prices. There has been an acceleration in price pressures in Germany and the exit from deflation in Spain for the first time since 2014. In a context of growth and inflation that is steadily, albeit slowly, increasing, there might not be a need for further significant intervention by the ECB in addition to the extension of the current "quantitative easing" program beyond March 2017.
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A slight recovery has been recorded for Italian inflation. In September, according to preliminary estimates published by Istat, the national consumer price index for the whole nation (NIC) recorded an increase of 0.1% compared to September 2015, from -0.1% in August. This is the first positive sign year on year after seven consecutive months with trend decreases. The average inflation acquired for the first nine months of 2016 was -0.2% (source: ISTAT).
As for the euro/dollar exchange rate, the single currency fell to lows in July, recovered in August and September, and then fell again in the first part of October to below 1.10 dollars. The average value for the first nine months of 2016 was 1.12.
The cost of money in the Eurozone remains set at the level in force since March 16, with the main refinancing rate at zero. However, the rate on deposits has remained negative (-0.4%). At its meeting on October 20, the ECB decided not to touch interest rates and wait to extend the "quantitative easing" (purchase plan of securities of 80 billion per month), the time horizon of which is now set for March 2017.
The Monetary Policy Committee of the Federal Reserve (FOMC), at its meeting on September 20-21, decided to keep rates unchanged at 0.25 - 0.5%. The FOMC requires further evidence, in order to proceed with a rate increase, regarding the real strengthening of the US economy.
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In the latest forecasts on the global economy's overall health, the main international organizations cut growth estimates; a signal that shows that the world economic recovery is still adversely affected by many factors, such as the depreciation of raw materials, geopolitical unrest in some countries and the risks associated with protectionism policies.
The economists of the International Monetary Fund (IMF) have confirmed estimates for global growth at 3.1% this year and 3.4% in 2017, however with a clear trend difference between the advanced economies (slowing) and emerging and developing economies (slightly accelerating).
Advanced economies will grow by only 1.6% in 2016, less than the 2.1% recorded last year, and worse than 1.8% expected in July. The largest reduction concerned the United States: IMF economists predict a 1.6% growth in 2016 (0.6% less than in July) and 2.2% in 2017 (0.3% less). In Japan, a modest growth rate is expected of 0.5% in 2016 and 0.6% in 2017.
By contrast, in emerging and developing countries, growth will accelerate for the first time in 6 years to 4.2% in 2016 and 4.6% in 2017 (source: IMF). China's GDP is estimated at 6.6% this year and 6.2% in 2017, compared to 6.9% in 2015. India has continued to march, with GDP expected to increase to 7.6% for both this year and for the next. Instead, economic activity has slowed in Latin America, with several countries in recession, while the Middle East is affected by conflicts, terrorism and the decline in oil prices.
The International Monetary Fund has revised upwards its Eurozone forecasts by 0.1 percentage points with respect to as estimated in July: GDP is expected to grow by 1.7% in 2016 and 1.5% in 2017. Among the major Eurozone countries, the IMF sees GDP in Germany up by 1.7% in 2016 and 1.4% in 2017 and growth in France of 1.3% both this year and the next. GDP in Spain is still at higher rates, estimated at +3.1% in 2016 and +2.2% in 2017, with upward revisions of 0.5 and 0.1 percentage points respectively.
The International Monetary Fund has reduced the growth estimates for Italy. In 2016, Italian GDP will rise by 0.8% and in 2017 by 0.9%, or 0.1 percentage points lower than the estimates for July. The IMF figure coincides for 2016 with the one contained in the update note to the Economic and Financial Document (DEF) while for the year 2017, the government estimates GDP at +1.0%. Good news on unemployment with a two-year period down from 11.9% in 2015: this year in fact, the rate of persons without work in Italy is estimated at 11.5%, with a drop to 11.2% in 2017 (source: IMF).
As regards the level of prices in the Eurozone, the recent recovery in oil prices could lead to a gradual increase in inflation: for the fourth quarter, +0.7% is expected with an average growth of 0.3% for all of 2016. In the first part of 2017, inflation is expected to reach 1.3% due to the absence of the deflation effect in energy prices (source: ISTAT).
Regarding Italy, according to the estimate contained in the "Macroeconomic projections for the Italian economy" of the Bank of Italy, inflation is expected to reach 0.2% in 2016, to then increase to 1.2% in 2017 and 1.5 % in 2018.
The euro-dollar exchange rate, according to the estimates of most financial institutions, may record a downward trend in the coming months. The trends in the levels of interest rate and therefore the roles of central banks will be decisive for exchange rates. There are expectations for the December meeting during which the ECB will decide on a possible extension of the "quantitative easing" beyond March 2017 and in any case, until there is a lasting adjustment of prices, consistent with its inflation target. The heads of the FED have seemed to increasingly favour tightening on interest rates at the meeting to be held in December, the last of 2016. Action at the next meeting in November is instead considered highly unlikely to prevent tensions on the eve of the presidential elections.
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In the first nine months of 2016, the price of Brent showed an upward trend from the lows recorded in January, reaching 47.3 \$/bbl in September (corresponding to 42.2 €/bbl); the period was characterized by considerable volatility, affected by the uncertainty about the possibility of an agreement between the main producing countries on the production cut; in September, OPEC announced that an agreement had been reached, the details of which are expected to be defined in November. As doubts persist on the actual entity of the reduction, the announcement supported oil prices, which reached around 50 \$/bbl in early October. The strengthening of prices was also due to the drop in US supply and the temporary interruption of production in major exporting countries. Despite the upward trend, the average value in the first nine months was 43.0 \$/bbl, or 24% lower than the average value in the same period in 2015. According to the estimates of the International Energy Agency (IEA) in 2016, the excess supply is expected to decline by about 60%, largely due to the downsizing of the production of non-OPEC countries, while the demand is expected to recover gradually.
As regards coal, there was a first period of the year characterized by prices stably below 50 \$/tonne. Starting in July, despite the continuing weak demand, there has been a significant increase in prices, with the price of coal delivery in the ports of Amsterdam-Rotterdam-Antwerp (Coal Cif Ara) in September, which reached 63.4 \$/tonne bringing the average price for the first nine months of 2016 to 51.6 \$/tonne.
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As far as the domestic market scenario is concerned, there was a net requirement of 230,481 GWh (source: Terna), with a decrease of 3.1% compared to the first half of 2015.
Net production of electricity remains weak, amounting to 200,610 GWh, down 2.7% on an annual basis. The normalization of water availability led to a significant decrease in production from hydroelectric sources, which stood at 33,746 GWh, a decrease of 6.3% compared to the same period in 2015. There was a decrease in thermoelectric production, which in the period considered fell by 2.2% compared to the first nine months of 2015, reaching 130,301 GWh.
As for renewable sources, there has been a discordant trend: photovoltaic was down by 10.0% compared to the first nine months of 2015; on the other hand, there was an increase in both wind power (+13.2%) and geothermal production (+2.1%).
National production, excluding pumping, accounted for 86.4% of the demand for electricity, while net imports satisfied the remainder.
In terms of prices, the Base Load PUN (Single National Price) in the period January-September fell by 27%, amounting to 38.3 €/MWh against 52.1 €/MWh in the first nine months of 2015.
Downward trend also for the price in high load time slots (-26% for the Peak Load PUN reaching 42.3 €/MWh). The price in low load time slots recorded a decrease in the first nine months of 2016 compared to the same period the previous year (-27% for the Off-Peak PUN reaching 36.2 €/MWh). For the last quarter of 2016, forward curves indicate an increase in prices with values greater than 45 €/MWh.
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In the first nine months of 2016, the demand for natural gas increased by 1.5% over the corresponding period of 2015, to close at 47,978 Mcm (source: Snam Rete Gas). Also in the third quarter, there was an increase in demand for gas that, confirming the growth trend of 2016, marks an increase of 2.0% compared to the third quarter of 2015.
The recovery mainly concerned consumption in the thermoelectric sector, marking an increase of 7.8% compared to the first nine months of 2015, also benefiting from the decline in renewable energy production. The industrial sector also highlights signs of recovery reaching 9,772 Mcm, with an increase of 2.3% over the corresponding period of 2015. In the same reporting period, consumption of the residential and commercial sectors recorded instead a reduction of 2.8%, due to milder temperatures both in winter and in summer.
On the supply side, domestic production fell to record lows, amounting to 4,044 Mcm (-16.1% compared to the first nine months of 2015). Imports represented around 92% of requirements net of changes in stocks while national production covered the remainder.
Regarding prices, in the first nine months of 2016, the price of gas to the TTF amounted to 12.9 €/MWh, down by 37.7% compared to the same period the previous year. The price of gas to the PSV showed an upward trend which, starting from the lows in February (to coincide with the start of exports of US shale gas via LNG), reached a peak in July, only to retrace significantly. Specifically, the average price for the first nine months of 2016 amounted to 14.6 €/MWh, down 36.3% over the same period of 2015. In July, the prices amounted to a value of 15.8 €/MWh. For the fourth quarter of 2016, forward curves indicate an increase in prices with average values close to 17 €/MWh.
The trend in the respective prices resulted in a PSV-TTF differential of 1.7 €/MWh for the reporting period, significantly lower than the 2015 differential of 2.1 €/MWh. The main factors that will characterize the value of the spread will be linked to the performance of gas supplies from the South (expected to increase for the renewed availability of Algeria) and to the portfolio optimization logic adopted by the leading Italian importers and related to expectations on price differentials for the coming months (source: Ref).
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Results sector by sector
The A2A Group operates in the following "Business Units":
The activities of the Generation and Trading Business Unit are related to the management of the generation plant portfolio(1) of the Group. The "Generation" sector has the specific goal of maximizing plant availability and efficiency, minimizing operating and maintenance (O&M) costs. Instead, the "Trading" sector has the task of maximizing the profit from the management of the energy portfolio through the purchase and sale of electricity, fuel (gaseous and nongaseous) and environmental certificates on domestic and foreign wholesale markets. The Trading Business Unit also includes the activity of trading on domestic and foreign markets of all energy commodities (gas, electricity, environmental certificates).
218
The activities of the Commercial Business Unit Sales are aimed at the retail sale of electricity and natural gas to customers in the free market and sale to customers served under protection scheme.
The activities of the Environment Business Unit relates to the management of the integrated waste cycle, which ranges from collection and street sweeping to the treatment, disposal and recovery of materials and energy.
In particular, collection and street sweeping mainly refers to street cleaning and the collection of waste for transportation to its destination.
Instead, waste treatment is an activity that is carried out in dedicated centers to convert waste in order to make it suitable for the recovery of materials.
Lastly, disposal of urban and special waste in combustion plants or landfills ensures the possible recovery of energy through waste-to-energy or the use of biogas.
The activities of the Networks and Heat Business Unit mainly consists of the technical and operational management of networks for the distribution of electricity, the transport and distribution of natural gas and the management of the entire integrated water cycle (water captation, aqueduct management, water distribution, sewerage network management, purification). It is also aimed at the sale of heat and electricity produced by cogeneration plants (mostly owned by the Group), through district heating networks and ensures the operation and maintenance of cogeneration plants and district heating networks. Also included are activities relating to the management service of third-party heating plants (heat management services) and public lighting, traffic regulation systems, the management of votive lights and systems design services.
In the reporting period, the International Business Unit includes the activities carried out by the investee company Elektroprivreda Crne Gore AD Nikšic' (EPCG)(2) in relation to the production and sale of electricity in Montenegro and the operational technical management of the related electricity distribution networks.
219
Other Services include video-surveillance, data transmission, telephony and internet access services.
Instead, Corporate services include the activities of guidance, strategic direction, coordination and control of industrial operations, as well as services to support the business and operating activities (ex. administrative and accounting services, legal services, procurement, personnel management, information technology, communications etc.) whose costs, net of amounts recovered from accrual to individual Business Units based on services rendered, remain the responsibility of the Corporate.
The following is a summary of the main quantitative and economic data relating to the Generation and Trading Business Unit.
| 3rd quarter 2016 |
3rd quarter 2015 |
GWh | 09 30 2016 | 09 30 2015 | Changes | % 2016/2015 |
|---|---|---|---|---|---|---|
| SOURCES | ||||||
| 3,289 | 3,707 | Net production | 9,274 | 9,700 | (426) | (4.4%) |
| 2,031 | 2,415 | - thermoelectric production | 5,753 | 6,128 | (375) | (6.1%) |
| 1,256 | 1,292 | - hydroelectric production | 3,518 | 3,570 | (52) | (1.5%) |
| 2 | - | - photovoltaic production | 3 | 2 | 1 | 50.0% |
| 13,212 | 9,687 | Purchases | 34,706 | 28,948 | 5,758 | 19.9% |
| 2,452 | 1,782 | - exchange | 7,299 | 5,565 | 1,734 | 31.2% |
| 1,312 | 1,270 | - wholesalers | 3,175 | 4,076 | (901) | (22.1%) |
| 9,448 | 6,635 | - Trading/Service portfolio | 24,232 | 19,307 | 4,925 | 25.5% |
| 16,501 | 13,394 | TOTAL SOURCES | 43,980 | 38,648 | 5,332 | 13.8% |
| USES | ||||||
| 1,663 | 1,349 | Sales to Group Retailers | 4,704 | 4,076 | 628 | 15.4% |
| 2,974 | 2,256 | Sales to other wholesalers | 6,096 | 6,629 | (533) | (8.0%) |
| 2,416 | 3,154 | Sales on the exchange | 8,948 | 8,636 | 312 | 3.6% |
| 9,448 | 6,635 | Trading/Service portfolio | 24,232 | 19,307 | 4,925 | 25.5% |
| 16,501 | 13,394 | TOTAL USES | 43,980 | 38,648 | 5,332 | 13.8% |
The sales figures are stated gross of any losses.
220
The Group's electricity output in the first nine months of 2016 amounted to 9,274 GWh, to which should be added purchases of 34,706 GWh for a total availability of 43,980 GWh.
Production shows a decline of 4.4% compared to the same period of the previous year, mainly due to the reduction in thermoelectric production following the conclusion of the essentiality mechanism of the plant in San Filippo del Mela for groups 2, 5 and 6, as of May 28, 2016 and in relation to hydroelectric production, to the sale of the hydroelectric plants of the Udine unit – the so-called "Cellina Unit" – effective January 1, 2016.
Purchases of electricity amounted to 34,706 GWh (28,948 GWh at September 30, 2015): fewer purchases on the wholesale markets were more than offset by higher volumes traded on the stock exchange as part of trading activities.
In the same period, lower sales on wholesale markets (-8%) were more than offset by higher volumes sold on spot markets (+3.6%) and to the Commercial Business Unit (+15.4%).
The amount of electricity traded in the trading context recorded an increase of 25.5%.
Overall in the first nine months, electricity sales of the Generation and Trading Business Unit reached a total of 43,980 GWh (38,648 GWh at September 30, 2015).
| 3rd quarter 2016 |
3rd quarter 2015 |
Millions of cubic metres | 09 30 2016 | 09 30 2015 | Changes | % 2016/2015 |
|---|---|---|---|---|---|---|
| SOURCES | ||||||
| 687 | 710 | Procurement | 1,939 | 1,846 | 93 | 5.0% |
| (193) | (183) | Withdrawals from stock | (96) | (69) | (27) | 39.1% |
| (3) | (3) | Internal consumption/GNC | (9) | (10) | 1 | (10.0%) |
| 1,218 | 170 | Trading/Service Portfolio | 2,742 | 755 | 1,987 | n.s. |
| 1,709 | 694 | TOTAL SOURCES | 4,576 | 2,522 | 2,054 | 81.4% |
| USES | ||||||
| 128 | 110 | Commercial Business Unit uses | 807 | 748 | 59 | 7.9% |
| 255 | 280 | Thermoelectric uses | 648 | 623 | 25 | 4.0% |
| 6 | 6 | Heat and Environment Business Unit uses | 54 | 64 | (10) | (15.6%) |
| 102 | 128 | Wholesalers | 325 | 332 | (7) | (2.1%) |
| 1,218 | 170 | Trading/Service Portfolio | 2,742 | 755 | 1,987 | n.s. |
| 1,709 | 694 | TOTAL USES | 4,576 | 2,522 | 2,054 | 81.4% |
Quantities are stated at standard cubic meters at an HCV of 38100 MJ on delivery.
The volume of gas sold in the first nine months of 2016 amounted to 4,576 million cubic meters, up 81.4% over the corresponding period of 2015 (2,522 million cubic meters).
In particular, there was an increase in volumes of gas traded as part of the Trading Portfolio (+1,987 million cubic meters) due to an increase in related activities, volumes sold for thermoelectric uses (+4), as well as volumes of gas sold to the Commercial Business Unit (+7.9%), while there was a reduction in sales to the other Business Units of the Group (-15.6%) and to wholesalers (-2.1%).
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| 3rd quarter 2016 |
3rd quarter 2015 |
Millions of euro | 01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
Changes | % 2016/2015 |
|---|---|---|---|---|---|---|
| 609 | 649 | Revenues | 1,834 | 2,030 | (196) | (9.7%) |
| 103 | 99 | Gross operating income | 273 | 291 | (18) | (6.2%) |
| 16.9% | 15.3% | % of Revenues | 14.9% | 14.3% | ||
| (47) | (45) | Amortization, depreciation, provisions and write-downs |
(147) | (127) | (20) | 15.7% |
| 56 | 54 | Net operating income | 126 | 164 | (38) | (23.2%) |
| 9.2% | 8.3% | % of Revenues | 6.9% | 8.1% | ||
| 6 | 8 | Investments | 14 | 36 | (22) | (61.1%) |
| FTE | 1,163 | 1,243 | (80) | (6.4%) | ||
| 22 | 22 | Labour costs | 69 | 68 | 1 | 1.5% |
LGH: it is noted that the figure of FTE refers to the average of the reporting period, while labour costs are related only to the two months of consolidation (August and September 2016).
Revenues amounted to 1,834 million euro, down by 196 million euro compared to the same period of the previous year, due to the decline recorded in the energy scenario which led to a reduction of both the forward prices and the spot prices.
The Gross operating income of the Generation and Trading Business Unit amounted to 273 million euro, down 18 million euro on the first nine months of the previous year.
As compared with the same period of 2015, the 2016 result benefits from greater non-recurring items of approximately 13 million euro and the contribution resulting from the consolidation for the months of August and September 2016 of the Generation and Trading Business Unit of the LGH Group (around 1 million euro), while it reflected, for around 5 million euro, the negative impact of change in scope attributable to the allocation of the hydroelectric plants of the Udine unit (apart from Ampezzo and Somplago) – known as the "Cellina Branch" – to Cellina Energy S.r.l. due to the non-proportional demerger of Edipower S.p.A. which came into effect from January 1,2016.
Net of these non-recurring items, the Gross operating income of the Generation and Trading Business Unit was down by about 27 million euro. The worsening of the energy scenario, with all major market parameters down (PUN Baseload -27%; PUN Peak -26%; PSV -36%) led to difficult "starting" conditions and a negative comparative effect, compared to the first nine months of 2015 of about 80 million euro on the management of the plants in addition to the difficulties on the gas segment, also due to the scenario.
The thermoelectric plant of San Filippo del Mela ceasing to operate under the must-run regime at the end of May 2016 and, finally, the lower margin achieved on the activities of the Trading portfolio, due to the compression of the spreads with the foreign market and the loss of certain market opportunities for environmental certificates (such as the conclusion of the Green Certificates mechanism), also negatively contributed to the performance of the Business Unit.
Instead, the following partially offset said dynamics:
Depreciation, amortization, provisions and write-downs totalled 147 million euro (127 million euro at September 30, 2015). The increase of 20 million euro is mainly due to higher provisions for risks made to cover contractual expenses.
As a result of the above changes, Net operating income amounted to 126 million euro (164 million euro in the first nine months of 2015).
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During the reporting period, Investments amounted to around 14 million euro and mainly concerned extraordinary maintenance at the hydroelectric units in Mese, Calabria and Valtellina for approximately 5 million euro thermoelectric plants in Monfalcone, Chivasso and Piacenza for about 9 million euro. There were also investments of 0.7 million euro realized at the company A2A Trading S.r.l. mainly concerning developments and evolutionary maintenance on hardware and software platforms.
The decrease in FTE recognized in the first nine months of 2016 compared to the corresponding period of 2015 is attributable for approximately -26 FTE to the sale of the "Cellina Unit" in favor of Cellina Energy S.r.l., the contribution of LGH for approximately 32 FTE, while the remaining part (-86 FTE) is instead mainly attributable to the efficiency plan in place of the generation sector.
The following is a summary of the main quantitative and economic data relating to the Commercial Business Unit.
| 3rd quarter 2016 |
3rd quarter 2015 |
09 30 2016 | 09 30 2015 | Changes | % 2016/2015 |
|
|---|---|---|---|---|---|---|
| Electricity sales | ||||||
| 1,630 | 1,370 | Electricity sales Free Market (GWh) | 4,603 | 4,009 | 594 | 14.8% |
| 523 | 574 | Electricity sales under Greater Protection Scheme (GWh) |
1,539 | 1,671 | (132) | (7.9%) |
| 2,153 | 1,944 | Total electricity sales (GWh) | 6,142 | 5,680 | 462 | 8.1% |
| 3rd quarter 2016 |
3rd quarter 2015 |
09 30 2016 | 09 30 2015 | Changes | % 2016/2015 |
|
|---|---|---|---|---|---|---|
| Gas sales | ||||||
| 99 | 63 | Gas sales Free Market (Mcm) | 472 | 372 | 100 | 26.9% |
| 40 | 43 | Gas sales under Greater Protection Scheme (Mcm) |
331 | 362 | (31) | (8.6%) |
| 139 | 106 | Total gas sales (Mcm) | 803 | 734 | 69 | 9.4% |
The amounts of sales are stated net of losses.
In the first nine months of 2016, there was an increase in electricity sales (+8.1%) and gas sales (+9.4%) compared to the same period of the previous year.
The growth in the electricity sector is due to the higher sales made on the free market with regards to large customers and to a lesser extent to the mass market, partly offset by the drop in quantities sold to customers served under the protected regime.
Growth in the gas sector is mainly due to a greater number of redelivery points on the free market and larger volumes sold to large customers.
Commercial Business Unit
| 3rd quarter 2016 |
3rd quarter 2015 |
Millions of euro | 01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
Changes | % 2016/2015 |
|---|---|---|---|---|---|---|
| 301 | 275 | Revenues | 970 | 974 | (4) | (0.4%) |
| 27 | 24 | Gross operating income | 100 | 78 | 22 | 28.2% |
| 9.0% | 8.7% | % of Revenues | 10.3% | 8.0% | ||
| (4) | (5) | Amortization, depreciation, provisions and write-downs |
(13) | (13) | - | - |
| 23 | 19 | Net operating income | 87 | 65 | 22 | 33.8% |
| 7.6% | 6.9% | % of Revenues | 9.0% | 6.7% | ||
| 1 | 1 | Investments | 3 | 2 | 1 | 50.0% |
| FTE | 565 | 431 | 134 | 31.0% | ||
| 8 | 5 | Labour costs | 20 | 18 | 2 | 11.1% |
LGH: it is noted that the figure of FTE refers to the average of the reporting period, while labour costs are related only to the two months of consolidation (August and September 2016).
Revenues amounted to 970 million euro (974 million euro at September 30, 2015). Net of the contribution of the LGH Group, amounting to 24 million euro, revenues were down by 28 million euro on the first nine months of the previous year, mainly due to the reduction of unitary prices in both the electricity and gas segments.
225
The Gross operating income of the Commercial Business Unit equalled 100 million euro, up 22 million euro compared to the same period of 2015.
Net of the non-recurring items that characterized the two periods being compared, the Gross operating income of the Business Unit was up 21 million euro compared to the first nine months of 2015, mainly following the growth in results recorded in the electricity sales sector.
This trend involved both the free market following the increase in volumes sold and the greater number of points serviced, and the protected market, by virtue of the increased tariff portion to cover the costs of marketing (despite the decline in quantities sold to customers served under the protected regime described above).
Amortization, depreciation and provisions and write-downs totalled 13 million euro, in line with those at September 30, 2015.
As a result of the above changes, Net operating income amounted to 87 million euro (65 million euro in the same period of the previous year).
In the reporting period, Investments of the Commercial Business Unit amounted to approximately 3 million euro and mainly concerned development and evolution maintenance on hardware and software platforms to support marketing and invoicing activities.
The increase of FTE in the first nine months of 2016 compared to the corresponding period of 2015 is attributable for about 94 FTE to the LGH contribution, while the remainder (+40 FTE) is instead primarily attributable to the assumptions for the consolidation of atypical.
The following is a summary of the main quantitative and economic data relating to the Environment Business Unit.
| 3rd quarter 2016 |
3rd quarter 2015 |
09 30 2016 | 09 30 2015 | Changes | % 2016/2015 |
|
|---|---|---|---|---|---|---|
| 401 | 294 | Waste collected (Kton) | 1,063 | 942 | 121 | 12.8% |
| 715 | 606 | Waste disposed of (Kton) | 1,939 | 1,934 | 5 | 0.3% |
| 347 | 331 | Electricity sold (GWh) | 1,012 | 996 | 16 | 1.6% |
| 112 | 101 | Heat sold (GWht)* | 804 | 751 | 53 | 7.1% |
(*) Quantities at the plant entrance.
In the first nine months of 2016, the quantities of waste collected, amounting to 1,063 thousand tonnes, were up on the first nine months of 2015 (+12.8%). Net of the waste collected relative to the LGH Group (54 thousand tonnes), the quantities increased by 7.1% mainly thanks to the new municipalities under management. Instead, the quantities of waste disposed of showed a slight increase (+5 thousand tonnes) over the same period of 2015: the greater quantities deriving from the consolidation of the LGH Group (120 thousand tonnes) were almost entirely offset by the lower amounts of special waste disposed of at the inert waste landfill in Corteolona due to the interruption of contributions, the lower amounts disposed of at the landfills in Cavaglià (exhausted from June 2016) and in Montichiari (exhausted from December 2015). Lastly, higher quantities were disposed of at the landfill in Giussago (start in January 2016) and at the treatment plants of the newly acquired companies RI.ECO and RESMAL.
The quantities of electricity sold were up 16 GWh compared to the first nine months of 2015, thanks to the contribution of the LGH Group (+31 GWh), while heat production rose (+53 thermal GWh) mainly due to higher quantities required by the district heating sector.
Environment Business Unit
| 3rd quarter 2016 |
3rd quarter 2015 |
Millions of euro | 01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
Changes | % 2016/2015 |
|---|---|---|---|---|---|---|
| 208 | 198 | Revenues | 611 | 604 | 7 | 1.2% |
| 55 | 51 | Gross operating income | 174 | 161 | 13 | 8.1% |
| 26.4% | 25.8% | % of Revenues | 28.5% | 26.7% | ||
| (21) | (18) | Amortization, depreciation, provisions and write-downs |
(62) | (50) | (12) | 24.0% |
| 34 | 33 | Net operating income | 112 | 111 | 1 | 0.9% |
| 16.3% | 16.7% | % of Revenues | 18.3% | 18.4% | ||
| 14 | 14 | Investments | 42 (*) | 37 | 5 | 13.5% |
| FTE | 5,555 | 4,929 | 626 | 12.7% | ||
| 63 | 64 | Labour costs | 193 | 192 | 1 | 0.5% |
LGH: it is noted that the figure of FTE refers to the average of the reporting period, while labour costs are related only to the two months of consolidation (August and September 2016).
(*) Investments in 2016 do not include the price paid for the acquisition of the investments in RI.ECO, RESMAL and LA BI.CO DUE for approximately 21 million euro.
During the first nine months, the Business Unit recorded revenues of 611 million euro (604 million euro at September 30, 2015). Net of the contribution of the LGH Group, amounting to 20 million euro, revenues were down by 13 million euro mainly due to decreased activity on orders.
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The Gross operating income of the Environment Business Unit amounted to 174 million euro, up by 13 million euro compared to the same period of the previous year.
Note that the result of the first nine months of 2016 includes the positive contribution of around 5 million euro deriving from the consolidation of the environment sector of LGH from August 1, 2016.
Net of the non-recurring items that characterised the two periods being compared and the contribution of LGH, the industrial operating income of the Business Unit was up by 5 million euro compared to the first nine months of 2015.
The following contributed to the increase in the results of the period in question:
of electricity to activate the Efficient System for Users (SEU) at the waste-to-energy in Bergamo, as well as the increase in prices for disposing of waste deemed similar to urban waste;
• the start of disposal processes at the new landfill in Giussago from January 2016.
This trend was partially offset by a negative price effect (even though mitigated by forward sales to the Generation and Trading Business Unit) attributable to the sale of electricity and heat produced by the Group's waste-to-energy plants, as well as the reduction in the quantities disposed of at the inert lots landfill of Corteolona (by May 2015) and the landfills of Montichiari and Cavaglià (respectively exhausted in the months of December 2015 and June 2016).
Depreciation, amortization, provisions and write-downs amounted to 62 million euro, of which 4 million euro related to the LGH Group (50 million euro in the first nine months of the previous year).
As a result of these changes, Net operating income totalled 112 million euro (111 million euro in the first nine months of 2015).
Investments in the period totalled 42 million euro and were mainly related to maintenance and development work on waste-to-energy plants (13 million euro), treatment plants and landfills (6 million euro), the purchase of collection vehicles and containers (21 million euro), and other minor investments, including the contribution of LGH (2 million euro).
Excluding the consolidation of the LGH Group (+653 FTE), there was a decrease of -27 FTE, due to changes in the perimeter in the two comparison periods for about 9 FTE (award of new tenders for collection and municipal sanitation and acquisition of a new company active in the collection sector in 2016, offset by lower FTE for the event EXPO 2015) and for approximately -36 resources to contain organic at constant perimeter.
The following is a summary of the main quantitative and economic data relating to the Heat and Networks Business Unit.
| 3rd quarter 2016 |
3rd quarter 2015 |
09 30 2016 | 09 30 2015 | Changes | % 2016/2015 |
|
|---|---|---|---|---|---|---|
| 2,812 | 2,941 | Electricity distributed (GWh) | 8,278 | 8,463 | (185) | (2.2%) |
| 171 | 130 | Gas distributed (Mcm) | 1,210 | 1,198 | 12 | 1.0% |
| 43 | 42 | Gas transported (Mcm) | 238 | 247 | (9) | (3.6%) |
| 16 | 17 | Water distributed (Mcm) | 47 | 46 | 1 | 2.2% |
Electricity distributed in the first nine months of 2016 was equal to 8,278 TWh, down (-185 GWh) compared to the first nine months of 2015, following the downturn to consumption mainly as a result of use in medium and high voltage. The positive contribution of the quantities of electricity distributed of the LGH Group contributed to this change for a value of 68 GWh.
The quantities of gas distributed amounted to 1,210 million cubic meters (+1%) in the reporting period, with a contribution of LGH of 42 Mcm, while the quantities of gas transported amounted to 238 million cubic meters (-3.6%).
Water distributed instead amounted to 47 Mcm, up 1 Mcm compared to the corresponding period of the previous year.
| 3rd quarter 2016 |
3rd quarter 2015 |
GWht | 09 30 2016 | 09 30 2015 | Changes | % 2016/2015 |
|---|---|---|---|---|---|---|
| SOURCES | ||||||
| 60 | 50 | Plants at: | 673 | 727 | (54) | (7.4%) |
| - | - | - Lamarmora | 258 | 292 | (34) | (11.6%) |
| 2 | - | - Famagosta | 61 | 87 | (26) | (29.9%) |
| 7 | 7 | - Tecnocity | 49 | 49 | - | - |
| 51 | 43 | - Other plants | 305 | 299 | 6 | 2.0% |
| 125 | 116 | Purchases from: | 1,040 | 962 | 78 | 8.1% |
| 14 | 15 | - Third parties | 225 | 201 | 24 | 11.9% |
| 111 | 101 | - Other Business Units | 815 | 761 | 54 | 7.1% |
| 185 | 166 | TOTAL SOURCES | 1,713 | 1,689 | 24 | 1.4% |
| USES | ||||||
| 120 | 100 | Sales to end customers | 1,452 | 1,434 | 18 | 1.3% |
| 65 | 66 | Distribution losses | 261 | 255 | 6 | 2.4% |
| 185 | 166 | TOTAL USES | 1,713 | 1,689 | 24 | 1.4% |
Notes:
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The figures only refer to district heating. Sales relating to heat management are not included.
Purchases include the quantities of heat purchased from the Environment Business Unit.
In the first nine months of 2016, sales of heat to final customers increased slightly compared to the same period of the previous year, also thanks to the contribution of the consolidation of the LGH Group. Lower sales due to the mild weather recorded in the period under review were fully offset by higher quantities of sales resulting from the commercial development in place.
Heat production decreased by 54 thermal GWh, while purchases increased by 78 thermal GWh.
| 3rd quarter 2016 |
3rd quarter 2015 |
Millions of euro | 01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
Changes | % 2016/2015 |
|---|---|---|---|---|---|---|
| 174 | 175 | Revenues | 673 | 666 | 7 | 1.1% |
| 66 | 70 | Gross operating income | 293 | 253 | 40 | 15.8% |
| 37.9% | 40.0% | % of Revenues | 43.5% | 38.0% | ||
| (33) | (30) | Amortization, depreciation, provisions and write-downs |
(93) | (90) | (3) | 3.3% |
| 33 | 40 | Net operating income | 200 | 163 | 37 | 22.7% |
| 19.0% | 22.9% | % of Revenues | 29.7% | 24.5% | ||
| 53 | 42 | Investments | 130 | 113 | 17 | 15.0% |
| FTE | 2,434 | 2,153 | 281 | 13.1% | ||
| 25 | 27 | Labour costs | 78 | 87 | (9) | (10.3%) |
LGH: it is noted that the figure of FTE refers to the average of the reporting period, while labour costs are related only to the two months of consolidation (August and September 2016).
Revenues of the Networks and Heat Business Unit during the first nine months of 2016 stood at 673 million euro (666 million euro as at September 30, 2015). This trend was impacted by both the consolidation of the LGH Group for an amount equal to 11 million euro, and the posting in the first nine months of 2016 of 51.4 million euro of non-recurring revenues for the company A2A Ciclo Idrico.
In fact, with resolution no. 16/2016 the Board of Directors of the "Ente di Governo dell'Ambito" (Ambit Government Entity) for Brescia approved the previous tariff items (for the years 2007-2011) for A2A Ciclo Idrico S.p.A. pursuant to Resolution no. 643/2013/R/idr of the Italian Regulatory Authority for Electricity, Gas and the Water System.
This trend was however almost entirely reabsorbed by the lower revenues recorded in the electricity and gas distribution sectors (mainly following the review of the WACC - Weighted Average Cost of Capital - starting from 2016 as well as the new regulatory structure for the distribution of electricity), the sales of environmental certificates, as well as the strong contraction of the average sales prices for heat and electricity in the district heating and heat management sector.
The Gross operating income of the Networks and Heat Business Unit amounted to 293 million euro, an increase of 40 million euro compared to the first nine months of 2015.
Net of the positive non-recurring items recorded in the two comparison periods (respectively around 52 million euro in the first nine months of 2016 and around 2 million euro in the same period of the previous year) and the contribution of LGH, the operating income of the Business Unit was down by 12 million euro compared to the previous year.
This performance is essentially due to:
231
• lower fixed costs for the entire Networks and Heat Business Unit for approximately 15 million euro deriving partly from the Group's current operative efficiency plan and partly from higher capitalization.
The margins relating to public lighting activities were instead down by 1 million euro with respect to those of the first nine months of the previous year.
Depreciation, amortization, provisions and write-downs amounted to 93 million euro, up compared to the first nine months of the previous year (90 million euro at September 30, 2015), mainly following the consolidation of LGH.
As a result of these changes Net operating income totalled 200 million euro (163 million euro in the first nine months of 2015).
Investments in the period in question amounted to 130 million euro and regarded:
232
Excluding the consolidation of the LGH Group (+252 FTE), there was an increase of FTE equal to +29 (+1.3%).
The following is a summary of the main quantitative and economic data relating to the International Business Unit. In the period under review, the International Business Unit coincides with EPCG, for which the quantitative and economic data is shown.
| 3rd quarter 2016 |
3rd quarter 2015 |
GWh | 09 30 2016 09 30 2015 Changes |
% 2016/2015 |
|||
|---|---|---|---|---|---|---|---|
| SOURCES | |||||||
| 634 | 669 | Production | 2,128 | 2,163 | (35) | (1.6%) | |
| 389 | 423 | - thermoelectric production | 801 | 1,033 | (232) | (22.5%) | |
| 245 | 246 | - hydroelectric production | 1,327 | 1,130 | 197 | 17.4% | |
| 211 | 318 | Imports and other sources | 612 | 788 | (176) | (22.3%) | |
| 196 | 313 | - imports | 544 | 754 | (210) | (27.9%) | |
| 15 | 5 | - other sources | 68 | 34 | 34 | 100.0% | |
| 845 | 987 | TOTAL SOURCES | 2,740 | 2,951 | (211) | (7.2%) | |
| USES | |||||||
| 586 | 754 | Domestic market consumption | 1,746 | 2,164 | (418) | (19.3%) | |
| 83 | 92 | Distribution losses | 288 | 333 | (45) | (13.5%) | |
| 35 | 38 | Transmission losses | 104 | 105 | (1) | (1.0%) | |
| 5 | 6 | Other uses | 25 | 16 | 9 | 56.3% | |
| 136 | 97 | Exports | 577 | 333 | 244 | 73.3% | |
| 845 | 987 | TOTAL USES | 2,740 | 2,951 | (211) | (7.2%) |
The total availability of the EPCG Group in the first nine months of 2016 was 2,740 GWh (2,951 GWh at September 30, 2015).
Demand was covered by the EPCG plants that produced a total of 2,128 GWh (substantially in line with the first nine months of 2015), of which 801 GWh from thermoelectric source (-22.5%) and 1,327 GWh from hydroelectric source (+17.4%); the reduction in thermoelectric production at the plant in Pljevlja was offset by higher hydroelectric production recovered significantly recorded especially in the second quarter of the year. The period under review also recorded a decrease in imports (-210 GWh), as well as an increase in quantities exported (+244 GWh).
EPCG Group electricity sales on the domestic market stood at a total of 1,746 GWh, down 19.3% on the corresponding period of the previous year, mainly following the interruption of the supply of electricity to the major energy-hungry customer Montenegro Bonus.
| 3rd quarter 2016 |
3rd quarter 2015 |
09 30 2016 | 09 30 2015 | Changes | % 2016/2015 |
|
|---|---|---|---|---|---|---|
| 572 | 583 | Electricity distributed (GWh)* | 1,616 | 1,637 | (21) | (1.3%) |
(*) Data net of distribution losses.
Moreover, in the period in question, the electricity distributed on the medium and low voltage network in Montenegro amounted to 1,616 GWh (1,637 GWh at September 30, 2015).
| 3rd quarter 2016 |
3rd quarter 2015 |
Millions of euro | 01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
Changes | % 2016/2015 |
|---|---|---|---|---|---|---|
| 56 | 63 | Revenues | 167 | 181 | (14) | (7.7%) |
| 13 | 11 | Gross operating income | 48 | 43 | 5 | 11.6% |
| 23.2% | 17.5% | % of Revenues | 28.7% | 23.8% | ||
| (6) | (9) | Amortization, depreciation, provisions and write-downs |
(21) | (26) | 5 | (19.2%) |
| 7 | 2 | Net operating income | 27 | 17 | 10 | 58.8% |
| 12.5% | 3.2% | % of Revenues | 16.2% | 9.4% | ||
| 6 | 9 | Investments | 16 | 16 | - | - |
| FTE | 2,378 | 2,509 | (131) | (5.2%) | ||
| 11 | 11 | Labour costs | 33 | 34 | (1) | (2.9%) |
Revenues amounted to 167 million euro (181 million euro at September 30, 2015). The reduction in revenues in the period is mainly due to the lower sales of electricity to the customer Montenegro Bonus (supply interrupted from March 2016) and other end users (lower sales and distribution revenues).
The Gross operating income equalled 48 million euro, entirely attributable to the subsidiary EPCG, an increase of 5 million euro compared to the same period of the previous year. The lower margins deriving from lower sales of electricity to the customer Montenegro Bonus was more than offset by lower costs for thermoelectric production, the greater quantities exported and lower operating costs.
Depreciation, amortization, provisions and write-downs equalled 21 million euro (26 million euro at September 30, 2015).
Interim report on operations – September 30, 2016 International Business Unit
As a result of these changes, Net operating income was positive for 27 million euro, an increase of 10 million euro over the first nine months of 2015.
Investments amounted to about 16 million euro and mainly refer to work to replace traditional meters with remote controlled meters (9.6 million euro), maintenance of the primary and secondary distribution network (3.5 million euro), work on the central information systems and the purchase of new vehicles (approximately 1.2 million euro), as well as maintenance work on the thermoelectric plant in Pljevlja and on the hydroelectric plants in Perucica and Piva (a total of approximately 1.7 million euro).
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| 3rd quarter 2016 |
3rd quarter 2015 |
Millions of euro | 01 01 2016 09 30 2016 |
01 01 2015 09 30 2015 |
Changes | % 2016/2015 |
|---|---|---|---|---|---|---|
| 47 | 42 | Revenues | 136 | 131 | 5 | 3.8% |
| (6) | (3) | Gross operating income | (16) | (12) | (4) | 33.3% |
| (12.8%) | (7.1%) | % of Revenues | (11.8%) | (9.2%) | ||
| (3) | (5) | Amortization, depreciation, provisions and write-downs |
(12) | (54) | 42 | (77.8%) |
| (9) | (8) | Net operating income | (28) | (66) | 38 | (57.6%) |
| (19.1%) | (19.0%) | % of Revenues | (20.6%) | (50.4%) | ||
| 3 | 1 | Investments | 7 | 4 | 3 | 75.0% |
| FTE | 1,213 | 984 | 229 | 23.3% | ||
| 24 | 20 | Labour costs | 71 | 64 | 7 | 10.9% |
LGH: it is noted that the figure of FTE refers to the average of the reporting period, while labour costs are related only to the two months of consolidation (August and September 2016).
Other Services and Corporate earned revenues of 136 million euro in the first nine months of 2016 (131 million euro at September 30, 2015).
Gross operating income was negative for 16 million euro, a slight decrease compared with as recorded in the same period of the previous year.
Depreciation, amortization, provisions and write-downs equalled 12 million euro (54 million euro at September 30, 2015). This change is mainly attributable to the allocation in the same period of 2015, of higher non-recurring risks provisions for about 40 million euro.
After Depreciation, amortization, provisions and write-downs there was a Net operating loss of 28 million euro (a net operating loss of 66 million euro at September 30, 2015).
Investments for the period amounted to 7 million euro and mainly refer to investments in information systems and telecommunication networks.
Excluding the consolidation of the LGH Group (+207 FTE), there was an increase of FTE equal to +22 FTE.
The A2A Group has a risk assessment and reporting process which is based on the Enterprise Risk Management method of the Committee of Sponsoring Organizations of the Treadway Commission (CoSO report) and best risk management practice and is in compliance with the Corporate Governance Code as updated by Consob in 2011, which states: "…Each issuer shall adopt an internal control and risk management system consisting of policies, procedures and organizational structures aimed at identifying, measuring, managing and monitoring the main risks....".
This process requires a risk model to be set up that takes account of the Group's characteristics, its multi-business vocation and the sector to which it belongs. This model, is not a static reference, it is subject to periodic revision consistent with the evolution of the Group and the context in which it operates. The methodology adopted is characterized by the regular identification of the risks to which the Group is exposed. In this context, an assessment process is carried out which, through the involvement of all its structures, allows the Group to identify the most important risks and establish the relative controls and mitigation plans. At this stage, the involvement of risk owners is essential as responsible for the identification, assessment and update of risk scenarios (specific events in which risk can materialize) related to activities of its competence. This phase is carried out with the support and coordination of the Group Risk Management structure through operating methods that allow clearly identifying risks, the related causes and management methods.
The methodology adopted is modular and leverages on the fine-tuning of the experience gained and methods of analysis used: on the one hand, it aims to develop the risk assessment further with specific reference to the consolidation of the mitigation process and on the other to develop and integrate risk management activities in business processes. This evolution is carried out consistent with the gradual increase in the awareness of management and the business structures about risk management issues, achieved among other things through the use of specific training support provided by Group Risk Management.
Set out below is a description of the main risks and uncertainties to which the Group is exposed.
It is noted that in terms of greater estimated impact on the Group's results, the main risks are the following, in order of importance:
The A2A Group operates in highly regulated sectors whether they are managed under natural monopoly (such as infrastructure for the distribution and transport of electricity and gas, the integrated water cycle and district heating) or under free market regime (such as energy management, trading and sale of energy carriers and other services to customers).
Among the risk factors, therefore, the constant and not always predictable evolution of the legislative and regulatory framework of reference shall be considered.
For these risk factors, the Group adopts a regulatory risk monitoring and management policy in order to mitigate, to the extent possible, the effects through oversight on various levels, which primarily involves collaborative dialogue with the institutions (Ministry of Economic Development, Authority for Electricity, Gas and Water System, the Competition and Market Protection Authority, Authority for Communications Guarantees) and technical bodies of the sector (GSE Energy Services Operator, GME Energy Markets Operator, Terna) as well as active participation in category associations and working groups established at said entities.
To address these issues, in 2015, the top management set up a specific organization structure called "Regulatory Affairs and Market", reporting directly to the CEO, broadening the mandate, strengthening the link with the business and exceeding the vision for which the relationship with the regulator shall be interpreted solely as compliance (or litigation).
Also the view to European regulations, following the work of Brussels through participation in the tables of Eurelectric and Cedec, allows seeing "in advance" the subject of transposition into Italian law (in some cases automatic as per regulations).
Constant dialogue with Business Units is also envisaged, not only for the simulation of impacts on current activities but also for the evaluation of their requests in terms of support to new initiatives.
The Institutional and Regulatory Committee was also set up, composed of the Chairman and CEO of the Group, as well as the Institutional Relations Manager and the Regulatory Affairs and Market Manager. This Committee meets periodically involving from time to time the Managers of the Business Units concerned, and the Managers of the staff structures in order to transfer to them the new regulations, take a corporate position on evolving standards and collect the requests of the business to convey them to the stakeholders of reference.
Regulatory Affairs and Market implemented constantly updated monitoring and control tools (ex. Regulatory Review produced on a quarterly basis), in order to consider the potential impacts on the regulation on the company.
The main topics involved in current changes in legislation, with major potential effects on the Group, are as follows:
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• the achievement of energy savings under the White Certificates mechanism.
Given the features of the sectors in which it operates, the Group is exposed to energy scenario risk, namely the risk linked to changes in the price of energy raw materials (electricity, natural gas, coal and fuel oil) and the exchange rates connected with these. Significant, unexpected and/or structural changes in commodity prices, especially in the medium term, may result in a reduction in the Company's operating margins.
The Group has approved an Energy Risk Policy that regulates the procedures by which commodity risk are monitored and managed, or the highest level of variability to which the result is exposed with reference to the trend of prices of energy commodities.
Consistent with the provisions of the Policy, the commodity risk limits of the Group are defined and approved annually by the Board of Directors.
Market risk is managed by constantly monitoring the total net exposure of the Group's portfolio and addressing the main factors affecting the trend. Appropriate hedging strategies are defined, where necessary, designed to maintain this risk within the established limits, typically through hedging at 12 months and partially at 24 months.
The objective of stabilizing the cash flows generated by the asset portfolio and outstanding contracts is thus pursued through the management of physical contracts and derivative financial instruments, limiting to the extent possible, the volatility of the Group's economic and financial results following changes in commodity prices.
All of the Group's Business Units of activity involve managing production sites which are technologically and operationally complex (electric power stations, waste disposal plants, cogeneration plants, distribution networks, etc.), where a breakdown or accidental damage could lead to a lack of availability and in turn to financial losses and possibly harm to the Group's reputation due to the interruption of the services provided.
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These risks are linked to a variety of factors which, in the case of certain plants, could what is more be accentuated by changes in the competitive context and in the reference markets. To the extent that the risk of unavailability of the plants may be considered an inherent part of the business and a risk that is impossible to eliminate entirely, the Group sets up preventive risk mitigation strategies at all of its Business Units to reduce the probability of such risks occurring and action strategies aimed at limiting any impact.
Safeguarding the Group's plants and infrastructure involves adopting and continuously updating procedures for scheduled maintenance, of both an ordinary and preventative nature, aimed at identifying and preventing potential critical situations, identified amongst other things on the basis of specific engineering analyses carried out by dedicated technical staff, all in line with best practices. It also involves periodically reviewing the plants and networks as well as providing specific training courses for technical personnel. In addition, the A2A Group makes widespread use of instruments for the control and remote control of technical parameters for the monitoring and timely detection of any anomalies as well as having a back-up of the components needed to guarantee operational continuity, where possible. The integration process between the specialist engineering teams in the A2A Group has led to a strengthening of the skills relating to plant performance analyses.
In addition, the progressive adoption of advanced software and sensors is planned at all of the Group's plants for calculating the actual yield of the plants, aimed at enabling an approach to be taken that is even more preventive compared to the past as far as the planning and performance of maintenance is concerned. The gradual adoption of the above controls is also envisaged in the case of the acquisition of new production sites, to facilitate their alignment to the Group's standards.
In view of the current context of the energy markets in which the energy production plants operate, with particular reference to thermoelectric plants, it is noted that activities and projects have been planned and undertaken to ensure operational flexibility, efficiency and availability at times when said requirements are requested of them, such as the programming of flexibilization investments of the combined cycle plants, modernization of plants and machinery or the redesign of plant parts which, over time, have highlighted structural problems, the renegotiation of service contracts with manufacturers of turbogas machinery, the integration and the constant recourse to specialized resources available within the Group, a program to reduce structural costs of thermoelectric plants.
Moreover, to control the risks arising from the present way in which the thermoelectric plants work, arising from trends in the energy markets, a process for revising, uniforming and fully adjusting the maintenance contracts and specific actions to rationalize the management of spare parts warehouses are currently in progress. Also regarding the production of energy from thermoelectric sources, it is noted that the Group pays particular attention, by means of stable and cooperative dialogue, through the organizational structure Institutional and Territorial Relations, with institutions, local authorities and communities, to the issues of risk regarding the manufacturing sites that use fossil fuels (Monfalcone, Brindisi, S. Filippo del Mela). Said oversight aims to promote a proper and positive perception of the plants as well as to pursue the possibility of a future realization of adaptation and conversion projects according to innovative and cutting-edge technologies, thus guaranteeing adequate employment levels and avoiding incurring potential costs for the decommissioning of sites.
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In the Environment Business Unit, specific activities are in place and monitoring tools have been installed to prevent any possible risk of interruption to the waste transportation and disposal service. In particular, specific controls have been implemented to detect the presence of unsuitable substances in waste destined for incineration, as well as plants, systems and specific operating procedures for loading and output of materials deposited at storage sites and waste treatment aimed at limiting the risk of development of fire. The Business Unit is additionally introducing steps to optimize the management of certain sites in order to make the disposal process more efficient. Furthermore, it is noted that structural interventions were planned and partly completed on all plants of the Group, and in particular on the large waste-to-energy plants, designed to ensure a higher reliability and perspective of operability over time, such as the realization of electrical backup lines, replacing thermomechanical components that have reached the end of their technical life, renovation of structures designed to reduce Interim report on operations – September 30, 2016 Risks and uncertainties
deteriorations, the realization of new plants for the treatment of the organic fraction of urban waste for subsequent contribution to waste-to-energy plants, extraordinary maintenance also aimed at increasing the thermal potential of these plants. To mitigate any repercussions on the Group's reputation due to a temporary impossibility to transport waste, mutual assistance exists between the Group's plants and there is centralized coordination of planned stoppages for maintenance. Lastly, we note the emerging issue related to potential impacts on the profitability of the Acerra plant as a result of possible criticality that may arise, pending the agreement between the Campania Region and A2A Ambiente S.p.A., in the definition of mechanisms to guarantee the revenues of the plant after the conclusion of the CIP 6 tariff regime.
With reference to the issue of interruption of waste collection and urban cleaning services in the municipalities served by the Group companies, there are specific management and programming procedures of the related activities, the availability of means held as reserve for situations of emergency, control and monitoring of vehicles in service in the areas served (also online through a control room equipped with cutting-edge technical equipment), spare parts warehouses managed and structured in order to deal with the statistically most recurring failures.
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Within the transport and distribution networks of energy and gas, it is noted that interventions were planned and started designed to increase the reliability of services and to ensure the ongoing appropriateness of the infrastructure with the evolution and expansion of urban areas and territories served by the various Group companies, such as the implementation and expansion of automation systems and remote control of stations and cabins, the construction of new cabins for electricity and gas. As part of the operating activities of the electricity grids, the issue of continuity of service during periods of special climatic conditions with potential reputational risks arising from possible interruptions of service delivery is confirmed as particularly relevant. To deal with these situations, in addition to the usual maintenance activities, the Group has planned and started the enhancement of actions to streamline the meshing of electricity grids and extraordinary plans for reclamation of the components considered critical for the continuity of operation. There are also and currently the subject of unification and optimization, in view of the recent organizational developments, remote operational controls, advanced technical safety tools, emergency intervention teams as well as specific safeguards for infrastructure which, during exceptional phenomena difficult to predict in terms of location of the same and assessment of their effects, are more exposed to risks of interruption in the delivery of services.
Further potential risks for the Group are related to possible accidents in the management of traffic lights and street lighting that involve staff of the company or third parties. To mitigate this risk issue, activities have been planned for replacement of the most outdated electrical circuits, test campaigns and, if necessary, replacement of older supports, and implementation was completed of new systems for remote control of lighting points.
The Group takes an active part in projects for the development of the electricity network from a "smart grid" standpoint, meaning by this a network with which it is possible to exchange information on energy flows and manage demand peaks more efficiently, thus reducing the risk of interruption. In particular, the Networks Business Unit is engaged in the development of new solutions for the so-called smart grids, where through the introduction of digital technology new features are realized to address the increasing complexity resulting from the deployment of distributed generation sources connected to the LV networks and to better meet the demands of the Regulator and the expectations of customers.
Operative means of regulating the customer's consumption during specific time bands have been successfully tested in the district heating sector; these are designed to avoid excessive peaks in the use of installed power with the resulting possibility of critical matters arising regarding the optimal working of the networks. Actions are being studied to upgrade supply facilities of the district heating network that are most exploited, as well as construction of new heat transport routes for the improvement of the structural organization of the network. These operations are supplemented, as part of the maintenance of the network, by continuous engineering analysis supporting interventions for repairs. Measures to be implemented over the following three years and designed to ensure the continuity of the district heating service are also underway for situations in which there is a temporary interruption of the supply of heat to the network by the waste-to-energy plants of the Group. Lastly, projects are being evaluated for the exploitation of heat in the water of the water supply network and in the water treated at waste water treatment plants.
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A risk issue that is always important concerns the unauthorized access of external personnel to the Group's plants and infrastructure, which could impede the smooth running of operations, with potential impact on the safety of operating personnel, unauthorized third parties, the sites and their surroundings, as well as economic impacts resulting from the need to have to interrupt production activities. To mitigate these possible events, development activities are ongoing of guidelines to manage the issue within the Group to regulate in a unitary manner, the operating procedures for access to the plants and supervision services, also in coordination with the police, for control of sites that are more vulnerable to intrusions or which may be potential targets of acts of sabotage. Further interventions are also being evaluated and have already been partly realized such as studies on the situation of gas plants to increase their safety level, improvement of existing passive fences, strengthening of anti-intrusion alarm system and the installation of control systems for badge access, infra-red cameras and systems. The initiatives listed above are coordinated by the organizational structure Group Security, which is responsible for the management of all security aspects in order to ensure the protection of human and material resources, industrial assets and information managed by the A2A Group.
Finally, the Group takes out insurance cover against any direct and indirect damage which may arise from other types of risk. The contractual conditions that characterize these policies were revised to align them to the way in which the plants work and to energy market conditions.
Risks related to climate change refer to the possibility that the production and consumption of products (electricity, gas for heating) and services (district heating) provided by the Group may be negatively affected by unfavourable conditions, such as the scarcity of rainfall or particularly mild temperatures in the hot season, with consequent negative effects on expected profitability. With reference to the Generation and Trading Business Uni, low rainfall would result in a reduced availability of water resources with respect to expected values that arise from statistical evaluations; to ensure the optimal use of available water resources, there is an organizational oversight constituted by the presence of company units dedicated to the development of analyses and engineering models to support the programming of hydroelectric plants both in the medium and short term; it is also noted that the Group's hydroelectric plants have different characteristics in terms of water resource exploitation and that they are distributed on the Italian territory. As regards the Networks and Commercial Business Units, milder winter temperatures than expected would result in lower demand on the part of end users, of gas and heat used for heating. The oversight consists of the presence of company units dedicated to the formulation of demand forecasts in relation to temperatures expected and the consequent management and optimization of the production/supply of heat.
Interest rate risk is related to the uncertainty associated with the trend in interest rates, changes in which can result in, given a certain amount and composition of debt, an increase in net financial expenses. The volatility of financial expenses associated to the performance of interest rates is therefore monitored and mitigated through a policy of interest rate risk management aimed at identifying a balanced mix of fixed-rate and floating rate loans and the use of derivatives that limit the effects of fluctuations in interest rates.
In order to analyze and manage the risks relating to interest rate risk the Group has developed an internal model enabling the exposure to this risk to be calculated using the Montecarlo method, assessing the effect that fluctuations in interest rates may have on future cash flows.
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Credit risk relates to the possibility that a counterparty, commercial or trading, may be in default, or fail to respect its commitment in the manner and timing provided by contract. This type of risk is managed by the Group through specific procedures and appropriate mitigation actions.
This risk is overseen by both the Credit Management function allocated centrally (and the corresponding functions of the operating companies) and the Group Risk Management Organizational Unit responsible for supporting the Group companies with reference to both commercial and trading activities.
Specifically, with regard to trading activities and in compliance with the procedures in place (Energy Risk Policy, Risk Management, Deal Life Cycle), Group Risk Management, based on proprietary systems, assesses the Rating of Counterparties, defines the Probability of Default and attributes the Maximum Exposure to Risk, systematically verifying compliance with the limits of Counterparty Risk and Credit Risk.
A further parameter monitored, which helps to limit the risk of concentration on the individual counterparty, is represented by the Credit VaR, namely the assessment of risk in terms of potential loss, with a certain confidence level, associated to the entire loan portfolio.
In relation to commercial counterparties and in compliance with the procedures in place (Credit Risk Policy), risk is mitigated through preventive assessment, attainment of guarantees and collateral, compensation management, optimization of credit reminders and recovery processes as well as the use of monitoring and reporting tools. Group Risk Management intervenes in the management of commercial credit both directly and indirectly, through a specific proprietary model, in defining the creditworthiness and credit limit of business customers, for which derogation to guarantee release is required.
Liquidity risk regards the Group's timely ability to meet its payment commitments. To hedge this risk, the Group ensures the maintenance of adequate financial resources, as well as a liquidity buffer sufficient to meet unexpected commitments. At September 30, 2016, the Group contracted revolving committed credit lines for 850 million euro, unused. It also has unused long-term bank financing for a total of 230 million euro and cash and cash equivalents totalling 728 million euro.
The management of liquidity risk is pursued by the Group also by maintaining a Bond Issue Program (Euro Medium Term Note Programme) sufficiently large and partially unused as to enable the Company to timely resort to the Capital market. As of today, this program amounts to 4 billion euro, of which 1,650 million euro still available.
This risk exists if the loan agreements provide for the option by the lender, upon the occurrence of certain events, to request early repayment of the loan, thus entailing a potential liquidity risk for the Group.
Bonds, loans and committed revolving bank lines present Terms and Conditions in line with the market for each type of instrument. In particular, they envisage: (i) negative pledge clauses under which the parent company undertakes not to pledge, with exceptions, guarantees on its assets or those of its directly held subsidiaries over and above a specific threshold; (ii) crossdefault/acceleration clauses which entail immediate reimbursement of the loans in the event of serious non-performance; and (iii) clauses that provide for immediate repayment in the event of declared insolvency on the part of certain Group companies.
Bonds include (i) 2,406 million euro issued as part of the EMTN Programme, which provide to investors a Change of Control Put in the event of a change of control of the company resulting in a rating downgrade at sub-investment grade level in the following 180 days (if within said 180 days, the company's rating should return to investment grade, the option may not be exercised); (ii) 98 million euro relating to the private bond in yen with maturity 2036 with a Put right clause in favour of the investor in the event that the rating is lower than BBB- or equivalent level (sub-investment grade); (iii) 307 million euro related to the LGH Eurobond with maturity 2018 with a Change of Control Put clause in the event of a change in control of the company. Following the acquisition by A2A S.p.A., said option was exercised by some bondholders for a total amount of 500 thousand euro, reimbursed on October 12, 2016.
The loans stipulated with the European Investment Bank, of 603 million euro, excluding EPCG, contain a Credit Rating clause (if rating below BBB- or equivalent level to sub-investment grade), of which 460 million euro also include a change of control clause of the parent company, with the right for the bank to invoke, upon notice to the company containing indication of the reasons, the early repayment of the loan.
Lastly, the loan signed by the parent company with UniCredit, brokered by the EIB, of 12 million euro and maturity June 2018, contains a credit-rating clause that provides for a commitment by the company to maintain an investment grade rating for the whole loan term. In the event of non-compliance there are a number of annual financial covenants to be respected based on the ratios of debt to equity, debt to gross operating income and gross operating income to interest expense.
With regard to loans of the subsidiaries, the loan of A2A gencogas S.p.A. (already Abruzzoenergia S.p.A.) of 43 million euro is backed by a secured guarantee (mortgage) for a maximum of 120 million euro and contains two financial covenants, NFP/Shareholders' funds and NFP/Gross operating income.
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The "project loan" of 51 million euro in place between Lomellina Energia and a pool of banks is secured by collateral on the company's properties and plants and envisages, among the cases of non-compliance, the reduction of the Loan Life Coverage Ratio (resulting from the ratio of net present value of the expected cash flow of the project and amount of the outstanding debt) below the value of 1.10.
The loan of 24 million euro in place between Linea Energia and Unicredit is secured by collateral on the company's properties and plants and envisages for the year 2016 the obligation to ensure that the ratio between the amount of principal of the loan disbursed and not yet repaid and equity (inclusive of subordinated shareholder loans) is equal to or greater than 2.40.
The subsidiary EPCG has outstanding loans entered into with EBRD (European Bank for Reconstruction and Development) and IDA (International Development Association) for a total book value of 53 million euro, which provide certain financial covenants.
The committed revolving bank lines available provide a Change of Control clause which, in the event of a change of control of the parent company causing a Material Adverse Effect, allows the banks to request the facility to be extinguished and any amounts drawn down to be repaid. The line for 600 million euro is subject to the financial covenant NFP/EBITDA.
At September 30, 2016, the total book value of the loans that contain financial covenants amounted to 171 million euro.
| Company | Bank | Level of reference | Level recognized | Date of recognition |
|---|---|---|---|---|
| A2A | Pool RCF | NFP/Ebitda <=4.2 | 2.6 | 06/30/2016 |
| A2A gencogas (already Abruzzoenergia) |
IntesaSanpaolo | NFP/Equity <=2 NFP/EBITDA<=6 |
0.5 2.4 |
12/31/2015 12/31/2015 |
| EPCG | EBRD | Debt/Ebitda <= 4 Curr.Assets/Curr. Liab. >= 1.2 Ebitda/Interest >= 4 |
1.5 4.4 22.2 |
12/31/2015 12/31/2015 12/31/2015 |
| IDA | self-fin. ratio=>35% collection ratio>94% |
169.05% 102% |
12/31/2015 12/31/2015 |
|
| Lomellina Energia | Pool of banks | Loan Life Coverage Ratio >1.10 | 1.20 | 06/30/2016 |
| Linea Energia | Unicredit | Residual debt/Equity < 2.4 | 1.0 | 06/30/2016 |
At September 30, there was no situation of non-compliance with the covenants of the A2A Group companies.
The risks associated with events that impact the environment or the health of the population living in the areas affected by the Group's activities are the object of increasingly close attention by public regulators and ever more stringent legislation. This type of risk covers all activities of the Group, with particular reference to the disposal of production waste, emissions resulting from the production processes, the management of the collection, storage, treatment and disposal of waste, the supply of basic goods such as drinking water, waste water treatment, the management of emptying and maintenance of the reservoirs for the collection of water resources for the production of electricity.
To monitor these potential risk events, the Group has implemented various actions: procedures for design and construction of deposit and storage sites of waste materials, monitoring systems and the presence of static and dynamic barriers enabling to detect pollution phenomena attributable to the same sites, systems for continuous detection and monitoring of emissions, systems for detection and abatement of polluting concentrations, water purification plants for discharges of waste treatment plants. With regard to the issue related to the management of the reservoirs, with specific reference to maintenance of the same and the corresponding possible negative effects on water and on the local area determined by removal of sediments, it is noted that partial drainage of basins is being evaluated in relation to the type of interventions as well as the use of different methods for removal of the sediments.
Interventions are being studied for the realization of plants for the storage and subsequent treatment of the wet fraction of waste materials intended for waste-to-energy.
With reference to the issue of waste water treatment, actions are being evaluated for the upgrading and enhancement of existing infrastructure.
The Group is significantly involved in preventing such risks and has adopted a policy document entitled "Policy for the Quality, Environment and Safety of the A2A Group" which is the tool which now sets out the Group's approach to such questions. This document, which is widely distributed both internally and externally, explains the values which underlie the Group's operations and which the Environment, Health and Safety Organizational Structure is committed to disseminating and sharing as guidance for the day-to-day work of all concerned.
The Environment, Health and Safety Organizational Structure also supports senior management in establishing company policy in these areas, checking that this is implemented properly in compliance with the rules applicable in all areas and internal processes. The main activities of the structure consist in the definition of guidelines, oversight of Environment and Safety regulations and dissemination thereof within the Group and in conducting regular audits, both in terms of regulatory compliance and compliance with company procedures.
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The operational implementation of the policy is carried out through the use of an Environmental Management System (EMAS) by those operating entities of the Group which are more exposed to both direct and indirect potential environmental impact. This system provides for a program of progressive extension and upgrading to the standards of ISO14001 certification for the Group's main activities having a greater impact on the environment, as well as for obtaining EMAS certification for the Group's main plants. In order to arrive at a single model, a revision and updating process is currently taking place which will enable all the Group's operating companies to refer to a single integrated Quality, Environment and Safety management system.
The Group directly oversees the risk issues concerned also through the Environment, Health and Safety Organizational Structures of the company and site, which provide the necessary support to employees, officers and management in the oversight of significant environmental aspects, in implementing developments in regulations and in the HSE (Health Safety Environment) management system.
The Group is involved at various levels in constant and transparent dialogue in dealings with entities, with the communities of reference and with stakeholders, also through tools such as Environmental declarations (published for sites participating in the EMAS regulation) and the Sustainability Report.
The process of updating the Organizational and Management Model as per Legislative Decree no. 231/2001 with reference to the introduction of environmental offences following the enactment of Law 68/2015 has been completed for some Group companies and is in progress at the other Group companies. With the aim of achieving constant improvement in control and moving in line with best practices, the Group takes part through industry associations in discussion groups held to draft BREFs (Best Available Techniques Reference Documents) for LCPs (Large Combustion Plants) and waste management.
From the perspective of having a constant evolution of the systems controlling environmental risk, the Group has joined the ARPA (Regional Agency for the Protection of the Environment) Lombardy Project, whose purpose is to improve the efficiency of the system for controlling the more significant emissions, also in the light of technical developments in the sector, by connecting all the Emission Monitoring Systems (SMEs) to a single control center. The A2A Group has taken out insurance cover against damage arising from both accidental and gradual pollution in order to cover any residual environmental risk, meaning against events caused by a sudden and unpredictable fact, and against the environmental damage inherent in continuing operations.
Each year, the Group publishes a Sustainability Report which reports key data and information on the environmental and social aspects connected with the Group's activities. The Sustainability Report conforms to standard GRI-G3.1 issued by the Global Reporting Initiative and since 2010 has been certified by the auditors.
The activities of the A2A Group are managed through ICT systems which support the main business processes: operational, administrative and commercial. Potential risk factors include the inadequacy, fragmentation of existing platforms of such systems compared to business needs or the failure to keep these updated, possible "downtime" making the systems unavailable and the inadequate handling of the aspects linked to the integrity and confidentiality of information. These risk factors are mitigated by controls governed by the Group Information & Communication Technology (ICT) Organizational Structure.
The process within the Group of integrating and consolidating its ICT systems, determined on the basis of the changes in corporate structures which have taken place in previous years, has led to a number of important objectives being reached. Following the integration of distribution support systems on a single platform, the program for the convergence of the main systems supporting commercial activities has also been completed. In areas where there is still inadequacy fragmentation of systems and platforms used, in consequence of which there may be inefficiencies in the implementation of business processes such as billing and credit management, it is noted that activities have been started for the definition and subsequent implementation of plans to integrate the platforms used. The Group will continue to develop its information system structure and improve its efficiency by drawing up a dedicated general architectural strategic plan.
The Group, in addition to defining outsourcing contracts for ICT services that envisage clearly defined service level agreements, has a Disaster Recovery procedure that, albeit not fully tested, in case of unavailability of one of the two CEDs (Data Processing Centre), guarantees the partial recovery of data and information relating to business activities on the alternative CED. It is also highlighted that oversights are currently present for availability of suppliers and resources within the Group to deal with logical attacks, virus attacks and system crashes. Further activities were also initiated aimed at increasing the reliability and continuity levels of provision of ICT services, such as the implementation of infrastructure improvement projects of the Brescia CED and assessments regarding the transportation of the current Data Centers. We also note the structuring of the Business Continuity Plan, which aims to be the tool through which the Group is preparing to deal with additional scenarios unavailability of services for areas considered most critical; the definition will be followed by the identification of specific implementation activities, strategies for definition of future outsourcing contracts for support to ICT services such as "Multivendor" and reinsourcing of responsibility in ICT. Considering the importance of the activities carried out daily on the Power Exchange, particular attention is paid to the oversight of systems for interfacing with the Market, activities have been completed that guarantee the continuity of operations for generation and energy bid areas, in case of failure of one of the CEDs. A specific control was developed in 2012 to support trading activities.
Data confidentiality and security are subject to specific controls by the Group, through internal policies, tools to segregate access to information, as well as through specific contractual agreements with any third parties who may have to access sensitive information. To further improve the oversight in place, the alignment is being verified between the model of organizational roles and model of technical roles of Segregation of Duties implemented in the systems; said verification will be followed by the implementation of profiles designed to strengthen security aspects for critical information systems. Consistent with this work, it is planned to gradually adopt identity management and access control tools designed to ensure increasingly effective control over the processing of data critical for the business as well as additional access control systems at the Group CEDs. A team has been set up to prevent and monitor any possible hacking into the Group's information systems and specific applications solutions have been acquired to manage and control information security.
As further control of this specific risk issue the Group carries out annual vulnerability assessments, both internally and externally. Lastly, a multi-year master plan of safety initiatives approved by Top Management was conducted in 2014 and updated and expanded in 2015, which defines the actions to be taken to gradually improve the maturity level of safety up to making it adequate to the business services provided by the Group. In this regard, specific policies will be prepared on the use of mobile devices, which are increasingly used today for carrying out business activities.
A centralized support plan is also being evaluated for Group ICT, of systems for monitoring, infrastructure control and industrial processes (such as SCADA systems and networks) that, because of an increasingly driven integration with "IT" (Information Technology) systems, are potentially exposed to security and integrity risks.
Lastly, it is noted that insurance coverage is being evaluated specific for ICT aimed at mitigating the potential indirect damages as a result of the unavailability of systems and applications as well as those related to violations and intrusions into corporate systems.
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The Group operates in a heterogeneous business environment characterized by a strong technology element and the presence of personnel at its plants and throughout its territory.
Certain Group activities are, by their nature, more exposed to the risk of "typically workrelated" accidents linked to the operational services in the territory and the performance of technical services and activities at the plants.
The prevention measures adopted aim for a "zero risk" objective through the Quality, Environment and Safety Policy (which provides for a program to upgrade the personnel safety management system to comply with ISO 14001 and OHSAS 18001 standards), encouraging a constant rise in the level of safety in the workplace. In particular, in this respect, the use of additional models for measuring the Environment, Health and Safety risk at the level of single plant is being started.
A central Prevention and Protection Service has been set up as part of the Quality, Environment and Safety Organizational Structure in order to harmonize the objectives of safety and protection in Group companies and to monitor that these standards are also being followed by contractors at both the prequalification stage and the execution stage at worksites. In this sense, the model for controlling contracts from a health and safety standpoint is currently being developed further.
A gradual enhancement of the organizational control structure is planned, which among other things carries out specific inspections to monitor compliance with legislation as well as personnel update training. In this respect, specific training plans have been established for each business position and responsibility and a start has been made to these training courses.
A project to revise the present organizational model is ongoing based on the establishment of guidelines, methodologies, instruments and controls provided by the Environment, Health and Safety Organizational Structure and assisted by the support of specific Environment, Health and Safety functions in each company and by the active involvement of the operating structures.
Finally, with the aim of constantly improving control, a process is planned to revise the present model for managing employee health supervision carried out by a team of doctors situated locally who perform regular health personnel assessments. As part of this revision process the Group plans to develop specific analysis and reporting tools regarding the results of the health supervision process.
A plan to refine the system of analyzing and controlling accidents and injuries has begun, in order to support the process of constant improvement in safety matters. This project provides for periodic reporting, which by means of increasingly detailed specific indices and information will provide support for identifying the causes of accidents and injuries and taking corrective and mitigating action.
Further information on the management of health and safety in the workplace may be found in the A2A Group's annual Sustainability Report, together with performance indicators and additional details.
Certification by the Manager in charge Certification by the Manager in charge of preparing the corporate accounting documents pursuant to article 154-bis, paragraph 2 of Legislative Decree no. 58/1998
The Manager in charge of preparing the corporate accounting documents of A2A S.p.A., Andrea Eligio Crenna, declares - in accordance with article 154-bis, subsection 2 of the Financial Act (TUF) (Legislative Decree 58/1998) - that the accounting information contained in this Interim Report on Operations at September 30, 2016 corresponds to the documentary evidence, books and accounting records.
Milan, November 10, 2016
Manager in charge of preparing the corporate accounting documents Andrea Eligio Crenna
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