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A2a

Annual / Quarterly Financial Statement Apr 22, 2020

4202_10-k_2020-04-22_1c408d0b-7d6e-4b1c-8716-567342e01b9a.pdf

Annual / Quarterly Financial Statement

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Separate financial statements

2019

These Financial Statements are available at the website www.a2a.eu

Contents

Overview of performance, financial conditions and net debt 4
1 Financial statements
Balance sheet 10
Income statement 12
Statement of comprehensive income 13
Cash-flow statement 14
Statement of changes in equity 16
2 Financial statements pursuant
to Consob Resolution no. 17221 of March 12, 2010
Balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010 20
Income statement pursuant to Consob Resolution no. 17221 of March 12, 2010 22
3 Notes
General information on A2A S.p.A. 25
Financial statements 26
Basis of preparation 27
Changes in international accounting standards 28
Accounting standards and policies 30
Notes to the balance sheet 43
Net debt 63
Notes to the income statement 65
Note on related party transactions 81
Consob Communication no. DEM/6064293 of July 28, 2006 84
Guarantees and commitments with third parties 86
Other information 87

4 Attachments

1. Statement of changes in tangible assets 114
2. Statement of changes in intangible assets 116
3/a. Statement of changes in investments in subsidiaries 118
3/b. Statement of changes in investments in affiliates 120
3/c. Statement of changes in investments in other companies 122
4/a. List of investments in subsidiaries 124
4/b. List of investments in affiliates 126
Key data of the financial statements of the main subsidiaries and affiliates
prepared according to IAS/IFRS (pursuant to art. 2429.4 of the Italian Civil Code) 128
Key data of the financial statements of the main subsidiaries and affiliates
prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) 130
Certification of the financial statements pursuant
to article 154-bis, paragraph 5 of Legislative Decree no. 58/98 132
5 Independent Auditors' Report 133
6 Report of the Board of Auditors 139

This is a translation of the Italian original "Bilancio separato 2019" 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 at the website www.a2a.eu.

Overview of performance, financial conditions and net debt

A2A S.p.A.

The Parent Company is responsible for strategic vision, planning, control, financial management and coordination of the A2A Group activities. It also provides services to support the business and operating activities of Group companies (administrative, legal, supply, and personnel management services, information technology and communications) in order to optimize the resources available and use existing expertise in the most efficient manner. These services are governed by intercompany service agreements.

Finally, A2A S.p.A. provides its subsidiaries with office space and operating areas, as well as related services.

A2A S.p.A. owns some hydroelectric plants in Valtellina, the hydroelectric unit in Calabria, as well as the hydroelectric plants of the units in Udine and Mese.

The items in the financial statements at December 31, 2019 of A2A S.p.A. include the effects of the following extraordinary transactions:

  • the transfer of the International Business Unit to the subsidiary A2Abroad S.p.A. with effect from July 1, 2019;
  • the acquisition of the STAFF HR Business Unit from the subsidiary AMSA S.p.A. with effect from August 1, 2019.
Results
millions of euro
01 01 2019
12 31 2019
01 01 2018
12 31 2018
Changes
Revenues
Revenues from the sale of goods and services 4,383.6 3,742.6 641.0
Other operating income 105.5 83.0 22.5
Total revenues 4,489.1 3,825.6 663.5
Operating expenses (4,127.5) (3,515.9) (611.6)
Labour costs (148.1) (134.5) (13.6)
Gross operating income - EBITDA 213.5 175.2 38.3
Depreciation, amortization and write-downs (94.1) (87.5) (6.6)
Provisions (2.3) (2.9) 0.6
Net operating income - EBIT 117.1 84.8 32.3
Result from non-recurring transactions - 5.7 (5.7)
Financial balance 353.0 276.1 76.9
Result before taxes 470.1 366.6 103.5
Income taxes (20.2) (14.1) (6.1)
Result after taxes from operating activities 449.9 352.5 97.4
Net result from discontinued operations 0.7 20.6 (19.9)
Net result of the year 450.6 373.1 77.5

In the year in question A2A S.p.A. shows revenues for a total of 4,489.1 million euro (3,825.6 million euro in the previous year). Sales revenues (4,197.8 million euro) mainly refer to electricity sales to wholesalers, institutional operators, even on IPEX markets (Italian Power Exchange) and subsidiaries, sales of gas and fuels to third parties and subsidiaries and the sale of environmental certificates. Revenues from services (185.8 million euro) mainly refer to services to subsidiaries of an administrative, fiscal, legal, managerial and technical nature. Other operating income (105.5 million euro) include the release of the provision for the tolling contract with Ergosud S.p.A., as well as incentives on net production from renewable sources.

Operating expenses amounted to 4,127.5 million euro (3,515.9 million euro at 31 December 2018) and refer to costs for raw materials (3,586.0 million euro) related primarily to purchases of energy and fuels, both for electricity production and for resale, purchases of materials and environmental certificates; service costs (266.3 million euro), which refer to the costs for the transport and storage of natural gas, costs for plant maintenance as well as for professional and technical services costs and other operating expenses (275.2 million euro), which include the contracting of thermoelectric production plants "tolling agreement" of subsidiaries, as well as water derivation fees, damages and penalties.

Labour costs amounted to 148.1 million euro (134.5 million euro at December 31, 2018); the increase is attributable to both the increase in the number of employees of the company and to the recognition of the total cost of the corporate restructuring plan related to future outgoing employees due to mobility.

Due to the dynamics mentioned above the EBITDA amounted to 213.5 million euro (175.2 million euro at December 31, 2018).

"Amortization and depreciation, provisions and write-downs" of the year amounted to 96.4 million euro (90.4 million euro at December 31, 2018) and include amortisation, depreciation and writedowns of the tangible and intangible assets for 94.1 million euro (87.5 million euro at December 31, 2018) and provisions for 2.3 million euro (2.9 million euro at December 31, 2018), mainly related to provisions for risks.

EBIT was positive for 117.1 million euro (positive for 84.8 million euro at December 31, 2018).

The "Result from non-recurring transactions" was nil at the end of the year under review. At December 31, 2018, this item amounted to 5.7 million euro and included the gain deriving from the sale of the investment held in the company Rudnik Uglja ad Pljevlja.

Financial operations reported a positive balance of 353.0 million euro (positive for 276.1 million euro at December 31, 2018). This item includes dividends from subsidiaries for 333.3 million euro (366.8 million euro at December 31, 2018), the write-back of the investment in A2A gencogas S.p.A. for 96.5 million euro, in line with the write-back of the Electricity CGU of the Generation and Trading Business Unit booked into the consolidated financial statements; additionally, there were net financial expense for 76.8 million euro (86.0 million euro at December 31, 2018).

The Result before taxes was positive for 470.1 million euro (positive for 366.6 million euro at December 31, 2018).

Income taxes were 20.2 million euro (14.1 million euro at December 31, 2018).

Taxation is mainly due to the booking of: i) current tax calculated on taxable income for IRES and IRAP; ii) reduction in deferred tax asset following reversal of the temporary differences from previous years, partly offset by a reduction in deferred tax liabilities, also due to the reversal of temporary differences from previous years.

The "Net result from discounted operations" was positive and equal to 0.7 million euro (20.6 million euro at December 31, 2018) and includes the collection of dividends from the investee company EPCG for 0.2 million euro (15.8 million euro at December 31, 2018) and 0.5 million euro (4.8 million euro at December 31, 2018) the discounting income to adjust the value of the shareholding of EPCG to fair value, by virtue of the agreements entered into by the parties which zeroed the residual value of the shareholding in EPCG held at 18.70% by A2A S.p.A., thus completing the redemption process that began in 2017 following management's decision to exercise the put option on the entire shareholding.

The "Net result for the year" was positive for 450.6 million euro (373.1 million euro at December 31, 2018).

* * *

Net year Capex came to 40.0 million euro and in particular regarded interventions on hydroelectric plants, fixed assets under construction, investments in Group information systems and software, net of amounts realised on equity investments and the sales of fixed assets to Unareti S.p.A. made during the period under review.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

Balance sheet and financial position
millions of euro
12 31 2019 12 31 2018 Changes
CAPITAL EMPLOYED
Net fixed capital 4,702.4 4,556.1 146.3
- Tangible assets 1,002.6 1,038.9 (36.3)
- Intangible assets 87.1 80.2 6.9
- Shareholdings and other non-current financial assets (*) 3,796.5 3,703.5 93.0
- Other non-current assets/liabilities (*) 7.0 (9.9) 16.9
- Prepaid/deferred tax assets/liabilities 59.7 66.0 (6.3)
- Provisions for risks, charges and liabilities for landfills (110.3) (180.3) 70.0
- Employee benefits (140.2) (142.3) 2.1
of which with counter-entry to equity (21.2) (35.2)
Working capital 9.5 52.5 (43.0)
- Inventories 106.9 94.7 12.2
- Trade receivables and other current assets (*) 1,132.9 977.6 155.3
- Trade payables and other current liabilities (*) (1,280.4) (1,026.5) (253.9)
- Current tax assets/tax liabilities 50,1 6.7 43.4
of which with counter-entry to equity (17.5) 10.1
Assets/liabilities held for sale (*) - 109.0 (109.0)
of which with counter-entry to equity - -
TOTAL CAPITAL EMPLOYED 4,711.9 4,717.6 (5.7)
SOURCES OF FUNDS
Equity 2,843.7 2,635.6 208.1
Total financial position beyond one year 2,024.7 2,233.4 (208.7)
Total financial position within one year (156.5) (151.4) (5.1)
Total net financial position 1,868.2 2,082.0 (213.8)
of which with counter-entry to equity (20.1) (14.7)
TOTAL SOURCES 4,711.9 4,717.6 (5.7)

(*) Excluding balances included in the Net Financial Position.

"Capital employed" totalled 4,711.9 million euro at December 31, 2019, partly covered by "Equity" in the amount of 2,843.7 million euro and net debt of 1,868.2 million euro; provided below are the main items that make up the Capital Employed.

Net fixed capital amounted to 4,702.4 million euro and includes:

  • tangible assets for 1,002.6 million euro mainly related to the hydroelectric plants in Valtellina, the Calabria, Mese and Udine units;
  • intangible assets for 87.1 million euro that include software licenses and development projects of IT systems, goodwill and inventories of the environmental certificates related to the industrial portfolio;
  • shareholdings and other non-current financial assets for 3,796.5 million euro, which include shareholdings in subsidiaries (3,793.5 million euro), in associates (2.1 million euro) and other minor shareholdings (0.9 million euro);
  • other non-current assets/liabilities (7.0 million euro) which mainly relate to security deposits made and the payable to the minority shareholders of Linea Group Holding S.p.A.;
  • deferred tax assets/liabilities for 59.7 million euro both IRES and IRAP on changes and provisions made solely for tax purposes;

  • provisions for risks, charges and liabilities for landfills for 110.3 million euro, which consist of decommissioning provisions (4.0 million euro) for the remediation and decommissioning of production facilities at Valtellina hydroelectric power plants; tax provisions (0.1 million euro) for outstanding or potential disputes with the tax authorities; provisions for lawsuits and disputes with employees (7.8 million euro), which refer mainly to outstanding disputes with social security entities and third parties; other provisions for risks (98.4 million euro), which include provisions for public water derivation fees, provisions for contractual charges and other provisions for risks;

  • employee benefits for 140.2 million euro that include the leaving entitlement (TFR) accrued to employees for 27.8 million euro and other provisions for benefits for 112.4 million euro.

Working capital amounted to 9.5 million euro and includes:

  • inventories for 106.9 million euro relating primarily to inventories of fuels, also stored at third parties to produce electricity as well as gas inventories for the sale and storage thereof;
  • trade receivables and other current assets of for 1,132.9 million that include trade receivables from third parties and Group companies for a total of 655.9 million euro and other current assets totalling 477.0 million euro, which mainly include: assets for commodity derivatives (371.5 million euro); receivables from subsidiaries for tax consolidation (55.5 million euro); tax receivables for excise and withholding taxes (2.1 million euro); advances to suppliers (10.9 million euro); and receivables from Ergosud S.p.A. related to portions of emission rights for the Scandale plant (2.2 million euro);
  • trade payables and other current liabilities for 1,280.4 million euro that include trade payables to third parties and to Group companies for a total of 772.8 million euro and other current liabilities totalling 507.6 million euro, which mainly include: liabilities for commodity derivatives (380.1 million euro); payables to subsidiaries for tax consolidation (25.4 million euro); payables to social security institutions and to employees (34.1 million euro); payables for fiscal transparency to Ergosud S.p.A. (7.2 million euro); and tax payables for VAT, excise and withholdings (49.4 million euro);
  • current tax assets/payables for 50.1 million euro related to IRAP and IRES receivables for amounts requested for reimbursement and receivables for Robin Tax paid in previous years, partially offset by IRES and IRAP current payables.

Assets/liabilities held for sale showed a zero balance while at December 31, 2018, they amounted to 109.0 million euro and referred to the fair value of the shareholding in EPCG, 18.70% held by A2A S.p.A.. The decrease is due to the collections made during the reporting year under the agreements entered into by the parties, which zeroed the residual value at December 31, 2018.

The "Net financial position" of 1,868.2 million euro, improved by 213.8 million euro compared to December 31, 2018 and includes the effect of the non-recurring transactions during the year, which was negative for 0.5 million euro and the effect of the application of accounting standard IFRS 16, which was negative for 15.5 million euro. Operations during the year generated resources of 497.6 million euro, partly offset by the resources absorbed by net capex in tangible and intangible assets and shareholdings of 40.0 million euro and dividends paid to shareholders of 217.6 million euro.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

millions of euro 12 31 2019 12 31 2018
NET FINANCIAL POSITION AT THE START OF THE YEAR (2,082.0) (2,358.8)
Contributions from non-recurring transactions (0.5) 0.1
First-time application of IFRS 16 (11.1) -
New contracts IFRS 16 (4.4) -
Result of the year (**) 446.8 298.8
Amortization and depreciation 90.1 83.3
Net interest for the year 76.9 86.1
Net interest paid (73.3) (90.0)
Net taxes paid/receivables for taxes paid (33.2) (6.2)
Write-downs on shareholdings and fixed assets (92.1) 77.4
Change in the assets and liabilities (*) 82.4 45.4
Cash flow from operating activities 497.6 494.8
Cash flow from investment activities (40.0) (51.8)
Dividends paid (217.6) (179.7)
Other changes (3.6) 3.9
Changes in financial assets/liabilities with counter-entry to equity (6.6) 9.5
NET FINANCIAL POSITION AT THE END OF THE YEAR (1,868.2) (2,082.0)

(*) Excluding balances with counter-entry to equity.

(**) Result of the year is exposed net of gains on shareholdings' and fixed assets' disposals.

Below is a detail of the net debt:

millions of euro 12 31 2019 12 31 2018
Medium/long-term debt 3,174.8 2,849.4
Medium/long-term financial receivables (1,150.0) (616.0)
Total non-current net debt 2,024.8 2,233.4
Short-term debt 589.8 1,019.9
Short-term financial receivables (386.3) (661.4)
Cash and cash equivalents (360.1) (509.9)
Total current net debt (156.6) (151.4)
Net debt 1,868.2 2,082.0

Financial statements

1

Balance sheet (1) Assets

amounts in euro Note 12 31 2019 12 31 2018
NON-CURRENT ASSETS
Tangible assets 1 1,002,606,538 1,038,947,161
Intangible assets 2 87,118,089 80,249,610
Shareholdings 3 3,795,629,441 3,702,584,390
Other non-current financial assets 3 1,148,551,632 609,165,937
Deferred tax assets 4 59,687,881 65,999,810
Other non-current assets 5 15,346,408 8,401,311
Total non-current assets 6,108,939,989 5,505,348,219
CURRENT ASSETS
Inventories 6 106,912,138 94,736,836
Trade receivables 7 655,905,922 717,191,968
Other current assets 8 476,999,925 260,381,762
Current financial assets 9 386,297,412 661,376,728
Current tax assets 10 50,082,993 35,542,548
Cash and cash equivalents 11 360,077,895 509,947,205
Total current assets 2,036,276,285 2,279,177,047
NON-CURRENT ASSETS HELD FOR SALE 12 - 108,960,169
TOTAL ASSETS 8,145,216,274 7,893,485,435

(1) As required by Consob Resolution no. 17221 of March 12, 2010, the effects of relations with related parties in the separate financial statements are highlighted in the accounting statements in section 2 and commented on in Note 36. Significant non-recurring events and transactions in the separate financial statements are provided in Note 37 pursuant to Consob Communication DEM/6064293 of July 28, 2006.

Equity and liabilities

amounts in euro Note 12 31 2019 12 31 2018
EQUITY
Share capital 13 1,629,110,744 1,629,110,744
(Treasury shares) 14 (53,660,996) (53,660,996)
Reserves 15 817,577,852 687,046,600
Net result of the year 16 450,622,909 373,091,108
Total equity 2,843,650,509 2,635,587,456
LIABILITIES
Non-current liabilities
Non-current financial liabilities 17 3,169,166,330 2,841,406,962
Employee benefits 18 140,247,448 142,277,393
Provisions for risks, charges and liabilities for landfills 19 110,362,650 180,304,233
Other non-current liabilities 20 11,563,404 18,622,107
Total non-current liabilities 3,431,339,832 3,182,610,695
Current liabilities
Trade payables 21 772,766,564 776,005,156
Other current liabilities 21 507,605,803 250,475,901
Current financial liabilities 22 589,827,173 1,019,911,736
Tax liabilities 23 26,393 28,894,491
Total current liabilities 1,870,225,933 2,075,287,284
Total liabilities 5,301,565,765 5,257,897,979
LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE - -
TOTAL EQUITY AND LIABILITIES 8,145,216,274 7,893,485,435

Overview of performance, financial conditions and net debt

1 Financial statements Balance sheet

Income statement Statement of comprehensive income Cash-flow statement Statement of changes in equity 2 Financial

statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

Income statement (1)

amounts in euro Note 01 01 2019
12 31 2019
01 01 2018
12 31 2018
Revenues
Revenues from the sale of goods and services 4,383,571,770 3,742,583,396
Other operating income 105,544,657 83,044,739
Total revenues 25 4,489,116,427 3,825,628,135
Operating expenses
Expenses for raw materials and services 3,852,241,030 3,203,793,757
Other operating expenses 275,217,982 312,079,537
Total operating expenses 26 4,127,459,012 3,515,873,294
Labour costs 27 148,148,105 134,536,395
Gross operating income - EBITDA 28 213,509,310 175,218,446
Depreciation, amortization, provisions and write-downs 29 96,355,123 90,452,044
Net operating income - EBIT 30 117,154,187 84,766,402
Result from non-recurring transactions 31 - 5,723,742
Financial balance
Financial income 452,352,639 460,220,389
Financial expenses 99,365,164 184,096,679
Result from disposal of other shareholdings - -
Total financial balance 32 352,987,475 276,123,710
Result before taxes 470,141,662 366,613,854
Income taxes 33 20,264,675 14,172,353
Result after taxes from operating activities 449,876,987 352,441,501
Net result from discontinued operations 34 745,922 20,649,607
NET RESULT OF THE YEAR 35 450,622,909 373,091,108

(1) As required by Consob Resolution no. 17221 of March 12, 2010, the effects of relations with related parties in the separate financial statements are highlighted in the accounting statements in section 2 and commented on in Note 36. Significant non-recurring events and transactions in the separate financial statements are provided in Note 37 pursuant to Consob Communication DEM/6064293 of July 28, 2006.

Statement of comprehensive income

amounts in euro 12 31 2019 12 31 2018
Net result of the year (A) 450,622,909 373,091,108
Actuarial gains/(losses) on Employee's Benefits booked in the Net equity (2,092,788) (2,276,775)
Tax effect of other actuarial gains/(losses) 570,079 692,421
Total actuarial gains/(losses) net of the tax effect (B) (1,522,709) (1,584,354)
Effective part of gains/(losses) on cash flow hedge (34,102,536) 19,453,212
Tax effect of other gains/(losses) 9,917,548 (4,737,540)
Total other gains/(losses) net of the tax effect (C) (24,184,988) 14,715,672
Gains/(losses) from recalculation of availiable for sale - -
Tax effect of other gains/(losses) - -
Gains/(losses) from the restatement of financial assets available for sale (D) - -
Total comprehensive result ( A ) + ( B ) + ( C ) + ( D ) 424,915,212 386,222,426

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.

Overview of performance, financial conditions and net debt

1 Financial statements

Balance sheet

Statement of

Cash-flow statement Statement of changes in equity

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

Cash-flow statement

amounts in euro 12 31 2019 12 31 2018
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 509,947,205 611,941,606
Operating activities
Result of the year (**) 446,762,999 298,845,667
Tangible assets depreciation 76,047,018 72,868,919
Intangible assets amortization 14,032,393 10,420,174
Fixed assets write-downs 4,434,188 4,317,618
Shareholdings write-up/down (96,500,000) 73,118,996
Net financial interests 76,855,499 86,063,433
Net financial interests paid (73,255,566) (90,002,400)
Net taxes paid/receivables for disposed taxes (a) (33,239,769) (6,246,891)
Gross change in assets and liabilities (b) 82,445,971 45,451,234
Total change of assets and liabilities (a+b) (*) 49,206,202 39,204,343
Cash flow from operating activities 497,582,733 494,836,750
Investment activities
Investments in tangible assets (23,659,060) (22,021,758)
Investments in intangible assets and goodwill (21,935,972) (22,552,233)
Investments and realizations in shareholdings and securities (*) 590,000 (20,087,607)
Disposal of fixed assets and shareholdings 5,001,100 12,849,050
Cash flow from investment activities (40,003,932) (51,812,548)
FREE CASH FLOW 457,578,801 443,024,202

(*) Cleared of balances in return of shareholders' equity and other balance sheet items.

(**) Net Result is exposed net of gains on shareholdings' and fixed assets' disposals.

Overview of performance, financial conditions and net debt

1 Financial statements

Balance sheet Income statement

Statement of comprehensive income

Cash-flow

Statement of

changes in equity

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

amounts in euro 12 31 2019 12 31 2018
Financing activities
Changes in financial assets
Monetary changes:
Change in intercompany currency accounts 227,652,435 286,180,791
Issuance of loans (809,383,740) (611,257,260)
Proceeds from loans 319,272,575 10,538,593
Other monetary changes 1,200,000 -
Total monetary changes (261,258,730) (314,537,876)
Non-monetary changes:
Other non-monetary changes (3,508,782) (4,210,394)
Total non-monetary changes (3,508,782) (4,210,394)
Total changes in financial assets (*) (264,767,512) (318,748,270)
Changes in financial liabilities
Monetary changes:
Change in intercompany currency accounts 21,369,164 3,215,599
Borrowings/bond issued 440,000,000 30,000,000
Repayment of borrowings/bond (573,216,034) (77,695,807)
Dividends paid (217,642,870) (179,710,827)
Other monetary changes (4,315,465) (2,651,742)
Total monetary changes (333,805,205) (226,842,777)
Non-monetary changes:
Amortized cost valuations (3,347,314) 3,237,235
Other non-monetary changes (5,528,080) (2,664,791)
Total non-monetary changes (8,875,394) 572,444
Total changes in financial liabilities (*) (342,680,599) (226,270,333)
Cash flow from financing activities (607,448,111) (545,018,603)
CHANGE IN CASH AND CASH EQUIVALENTS (149,869,310) (101,994,401)
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 360,077,895 509,947,205

Statement of changes in equity

Description
amounts in euro
Share
Capital
Note 13
Treasury
Shares
Note 14
Equity at December 31, 2017 1,629,110,744 (53,660,996)
IFRS9 - FTA
Equity at January 1, 2018 1,629,110,744 (53,660,996)
Allocation of 2017 net result
Ordinary dividend distribution
Cash flow hedge reserves (*)
IAS 19 reserve "Employee Benefits" (*)
Other changes
Net result of the year (*)
Equity at December 31, 2018 1,629,110,744 (53,660,996)
Allocation of 2018 net result
Ordinary dividend distribution
Cash flow hedge reserves (*)
IAS 19 reserve "Employee Benefits" (*)
Other changes
Net result of the year (*)
Equity at December 31, 2019 1,629,110,744 (53,660,996)
Availability of Equity Reserves
A: For share capital increase
B: To cover losses
C: For distribution to Shareholders - available for euro 548,541,145 (**)
D: Reserves not avaliable

(*) These form part of the statement of comprehensive income.

(**) Of which to fyscal moderate suspension equal to euro 124,783,022.

Overview of performance, financial conditions and net debt

1 Financial statements

Balance sheet Income statement Statement of comprehensive income Cash-flow statement Statement of

changes in equity

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

Total
equity
Net result
of the year
Available for sale
Reserve
Cash flow hedge
Reserve
Reserves
Note 16 Note 15 Note 15 Note 15
2,430,046,767 268,461,294 (462,146) (17,086,626) 603,684,497
(970,910) (970,910)
2,429,075,857 268,461,294 (462,146) (17,086,626) 602,713,587
(268,461,294) 268,461,294
(179,710,827) (179,710,827)
14,715,672 14,715,672
(1,584,354) (1,584,354)
373,091,108 373,091,108
2,635,587,456 373,091,108 (462,146) (2,370,954) 689,879,700
(373,091,108) 373,091,108
(217,642,870) (217,642,870)
(24,184,988) (24,184,988)
(1,522,709) (1,522,709)
790,711 790,711
450,622,909 450,622,909
2,843,650,509 450,622,909 (462,146) (26,555,942) 844,595,940
D A-B-C

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

Balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010 Assets

amounts in euro 12 31 2019 of which
Related
Parties
(note 36)
12 31 2018 of which
Related
Parties
(note 36)
NON-CURRENT ASSETS
Tangible assets 1,002,606,538 1,501,561 1,038,947,161
Intangible assets 87,118,089 80,249,610
Shareholdings 3,795,629,441 3,795,629,441 3,702,584,390 3,702,584,390
Other non-current financial assets 1,148,551,632 1,147,697,845 609,165,937 608,312,150
Deferred tax assets 59,687,881 65,999,810
Other non-current assets 15,346,408 8,401,311
Total non-current assets 6,108,939,989 5,505,348,219
CURRENT ASSETS
Inventories 106,912,138 94,736,836
Trade receivables 655,905,922 235,252,459 717,191,968 234,474,296
Other current assets 476,999,925 55,511,313 260,381,762 60,626,739
Current financial assets 386,297,412 386,297,412 661,376,728 660,176,728
Current tax assets 50,082,993 35,542,548
Cash and cash equivalents 360,077,895 509,947,205
Total current assets 2,036,276,285 2,279,177,047
NON-CURRENT ASSETS HELD FOR SALE - - 108,960,169 108,960,169

Equity and liabilities

amounts in euro 12 31 2019 of which
Related
Parties
(note 36)
12 31 2018 of which
Related
Parties
(note 36)
EQUITY
Share capital 1,629,110,744 1,629,110,744
(Treasury shares) (53,660,996) (53,660,996)
Reserves 817,577,852 687,046,600
Net result of the year 450,622,909 373,091,108
Total equity 2,843,650,509 - 2,635,587,456 -
LIABILITIES
Non-current liabilities
Non-current financial liabilities 3,169,166,330 1,121,265 2,841,406,962 -
Employee benefits 140,247,448 142,277,393
Provisions for risks, charges and liabilities
for landfills
110,362,650 1,000,000 180,304,233 83,000,656
Other non-current liabilities 11,563,404 18,622,107
Total non-current liabilities 3,431,339,832 3,182,610,695
Current liabilities
Trade payables 772,766,564 101,283,124 776,005,156 98,608,894
Other current liabilities 507,605,803 33,138,780 250,475,901 34,114,640
Current financial liabilities 589,827,173 433,133,625 1,019,911,736 411,429,595
Tax liabilities 26,393 28,894,491
Total current liabilities 1,870,225,933 2,075,287,284
Total liabilities 5,301,565,765 5,257,897,979
LIABILITIES ASSOCIATED WITH
NON-CURRENT ASSETS HELD FOR SALE
- -
TOTAL EQUITY AND LIABILITIES 8,145,216,274 7,893,485,435

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob

Resolution no. 17221 of March 12, 2010

Balance sheet pursuant to Consob Resolution no. 17221 of March 12, 2010

Income statement pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

Income statement

pursuant to Consob Resolution no. 17221 of March 12, 2010

amounts in euro 01 01 2019
12 31 2019
of which
Related
Parties
(note 36)
01 01 2018
12 31 2018
of which
Related
Parties
(note 36)
Revenues
Revenues from the sale of goods and services 4,383,571,770 1,550,489,027 3,742,583,396 1,193,615,688
Other operating income 105,544,657 69,566,250 83,044,739 23,939,509
Total revenues 4,489,116,427 3,825,628,135
Operating expenses
Expenses for raw materials and services 3,852,241,030 197,960,662 3,203,793,757 182,341,644
Other operating expenses 275,217,982 188,837,065 312,079,537 208,425,315
Total operating expenses 4,127,459,012 3,515,873,294
Labour costs 148,148,105 1,644,913 134,536,395 1,696,754
Gross operating income - EBITDA 213,509,310 175,218,446
Depreciation, amortization, provisions and
write-downs
96,355,123 338,460 90,452,044
Net operating income - EBIT 117,154,187 84,766,402
Result from non-recurring transactions - 5,723,742 5,723,742
Financial balance -
Financial income 452,352,639 451,577,963 460,220,389 456,524,317
Financial expenses 99,365,164 56,746 184,096,679 80,950,478
Result from disposal of other shareholdings - -
Total financial balance 352,987,475 276,123,710
Result before taxes 470,141,662 366,613,854
Income taxes 20,264,675 14,172,353
Result after taxes from operating activities 449,876,987 352,441,501
Net result from discontinued operations 745,922 20,649,607 20,649,607
NET RESULT OF THE YEAR 450,622,909 373,091,108

General information on A2A S.p.A.

A2A S.p.A. is a company with legal personality organized under the laws of the Italian Republic which operates, also through its subsidiaries ("Group"), both in Italy and abroad.

In particular, as the "Parent Company", A2A S.p.A. is responsible for the guiding strategy, administration, planning and control, financial management and coordinating the activities of the A2A Group.

Therefore, Group companies benefit from administrative, tax, legal, personnel management, procurement and communication services, so as to optimize the resources that are available within the Group and to use the existing known how in a cost-effective way.

The A2A Group mainly operates in the following sectors:

  • production, sale and distribution of electricity even from renewable resources;
  • sale and distribution of gas;
  • production, distribution and sale of heat through district heating networks;
  • waste management (from collection and sweeping to disposal) and the construction and management of integrated waste disposal plants and systems, also making these available for other operators;
  • integrated water cycle management;
  • technical consultancy relating to energy efficiency certificates.

The separate financial statements for A2A S.p.A. are presented in euro, which is also the functional currency in the economies in which the company operates. In particular, the following notes are prepared in thousands of euro.

The separate financial statements of A2A S.p.A. at December 31, 2019, have been prepared on a going-concern basis and comprise the balance sheet, income statement, statement of comprehensive income, cash flow statement, statement of changes in equity and these notes.

The separate financial statements of A2A S.p.A. at December 31, 2019 have been prepared:

  • in compliance with Legislative Decree 58/1998 (art. 154-ter) as amended and with the Issuers' Regulations published by Consob;
  • in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) and approved by the European Union. 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 separate financial statements, the same standards used for the financial statements at December 31, 2018 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, 2019.

These explanatory notes include the supplemental information required by the Italian civil code, by Consob Resolutions no. 15519 and 15520 of July 27, 2006, and Consob communication no. 6064293 of July 28, 2006.

In this file, use has been made of some Alternative Performance Measures (APM) that are different from the financial indicators expressly provided for by the IAS/IFRS international accounting standards adopted by the company; for details of these indicators, please see the specific paragraph Alternative Performance Measures (APM) in the Report on Operations.

These separate financial statements for the year ended December 31, 2019, were approved on March 19, 2020, by the Board of Directors, which authorized its publication, and has been audited by EY S.p.A. in accordance with their appointment by the shareholders of June 11, 2015, for the nine years from 2016 to 2024.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A.

Financial statements

Basis of preparation

Changes in international accounting

standards Accounting

standards and policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

Financial statements

For the balance sheet, the company A2A S.p.A. has adopted a format which separates current and non-current assets and liabilities, as required by paras. 60 et seq. 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" 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/held for sale. In particular, it should be noted that the item "Result from non-recurring transactions" is intended to include the results from the sale of investments in subsidiaries and associates and other non-operating expenses/ income. 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 separate financial statements at December 31, 2018.

Basis of preparation

The separate financial statements as at December 31, 2019, have been prepared on a historical cost basis, with the exception of those items which under IFRS must be or can be measured at fair value, as discussed in further detail in the accounting policies.

The accounting standards, the accounting policies and the methods of measurement used in the preparation of the separate financial statements are consistent with those used to prepare the annual separate financial statements at December 31, 2018, except as specified below regarding newly enacted standards.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A.

Financial Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

Changes in international accounting standards

Pursuant to IAS 8, the subsequent paragraph "Accounting standards, amendments and interpretations applicable by the company as of the current year" indicates and briefly illustrates the amendments in force as of January 1, 2019.

The following paragraphs, "Accounting standards, amendments and interpretations approved by the European Union" and "Accounting standards approved by the European Union but applicable in future years" instead detail the accounting standards and interpretations already issued, whether not yet approved or approved by the European Union and therefore not applicable for the preparation of the financial statements at December 31, 2019, any impacts of which will then be transposed as of the financial statements of the following years.

Accounting standards, amendments and interpretations applicable by the Group as of the current year

As from January 1, 2019, applicable to the Company are the following standards or additions to specific paragraphs of the international accounting standards already adopted by the Company in previous years.

• IFRS 16 "Leases": the standard issued by the IASB on January 13, 2016 and approved by the European Union in November 2017, fully replaces all the previous IFRS accounting requirements for the accounting of leases (IAS 17 and IFRIC 4). The standard applies to all contracts concerning the right to use an asset for a certain period of time in exchange for a specific fee. IFRS 16 sets, for lessees, a single accounting model for all leases (with specific cases of exclusion and exemption), eliminating the distinction, in the accounts, between operating and financial leasing. The accounting forecasts for lessors remain substantially unchanged compared to the previous provisions.

The initial recognition, for the lessee, involves the recording of assets equal to the right to use the asset and a financial liability corresponding to the present value of the future fees to be paid. The subsequent valuation involves the recognition of the amortization of the right of use on the basis of IAS 16 (or alternative valuation method), the related financial expenses and the discounting of the financial liability created during initial recognition using a discount rate corresponding to the A2A Group's average prospective financing rate.

During 2019, the Company conducted an in-depth analysis of the contracts in place, which are the subject of the accounting standard. The analyses carried out have identified substantial impacts and changes in the economic and financial situation, as summarized in the section "Other information" of this report.

  • IFRS 9 "Financial instruments": approved on March 26, 2018 and applicable starting January 1, 2019, the addition allows valuing at amortized cost the expenses related early repayment of financial instruments that were previously measured at fair value through profit and loss. No impact on the economic and financial situation of the Company.
  • IAS 28 "Investments in associates and joint ventures": approved on February 11, 2019, the integration specifies that the requirements of IFRS 9 must be applied to investments in associates or joint ventures that are not permitted to be valued using the equity method. No impact on the economic and financial situation of the Company.
  • IAS 19 "Employee Benefits": the supplement approved on March 14, 2019 clarifies that in the event of an early amendment or termination of a defined benefit plan, the company must apply the updated actuarial assumptions when recalculating the liability. No impact on the economic and financial situation of the Company.

Accounting standards, amendments and interpretations not yet approved by the European Union

  • IFRS 17 "Insurance contracts": issued by the IASB on May 18, 2017, will be applicable to companies that issue insurance contracts from the financial statements closed as of January 1, 2021. No impacts are expected on the Company's economic and financial situation.
  • On October 22, 2018, the IASB issued a supplement to IFRS 3 (Business Combination) that helps companies understand whether an acquisition is definable as an asset combination or a business. In particular, it clarifies that, to define an acquisition as a business, it must be possible to provide goods or services to customers, unlike as indicated by the original standard that has a focus on the ability to produce dividends or economic benefits to stakeholders. No impacts are expected on the Company's economic and financial situation.
  • On September 26, 2019, the IASB issued an amendment to IFRS 9, IAS 39 and IFRS 7 in which it clarifies when a derivative contract can be defined and treated as a hedge in periods of central bank interest rate benchmark reform. No impacts are expected on the Company's economic and financial situation.

Accounting standards, amendments and interpretations approved by the European Union, applicable in future years

• On October 31, 2018, the IASB issued an amendment to IAS 1 and IAS 8 entitled "Definition of materiality" and applicable from January 1, 2020. It should be noted that information is significant when its omission, re-interpretation or obscuration may influence the decisions made by Stakeholders on the basis of the financial report.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation

Changes in

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments

with third parties Other information

4 Attachments

5 Independent Auditors' Report

Accounting standards and policies

Translation of foreign currency items

The consolidated financial statements of the A2A Group are presented in euro; this is also the functional currency of the economies in which the Group operates.

Transactions in other currencies are initially recognized at the exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are translated into euro at the exchange rates at the balance sheet date.

Non-monetary items measured at historical cost in foreign currency are translated at the exchange rates at the date of the transaction. Non-monetary items measured at fair value are translated at the exchange rates at the date when the fair value was determined.

Property, plant and equipment

Assets for business use are classified as tangible assets, while non-business assets are classified as investment property.

Tangible assets are measured at cost, including any additional charges directly attributable to bringing the asset into an operating condition (e.g. transport, customs duty, installation and testing costs, notary and land registry fees and any non-deductible VAT), increased when material and where there are obligations by the present value of the estimated cost of restoring the location from an environmental point of view or dismantling the asset. Borrowing costs, where directly attributable to the purchase or construction of an asset, are capitalized as part of the cost of the asset if the type of asset so warrants.

If important components of tangible assets have different useful lives, they are accounted for separately using the "component approach", assigning to each component its own useful life for the purpose of calculating depreciation (the component approach).

Land, whether occupied by residential or industrial buildings or devoid of construction, is not depreciated as it has an unlimited useful life, except for land used in production activities that is subject to deterioration over time (e.g. landfills, quarries).

Ordinary maintenance costs are fully expensed to the income statement in the year they are incurred. Costs for maintenance carried out at regular intervals are attributed to the assets to which they refer and are depreciated over the specific residual possibility of use of such.

Tangible assets are stated net of accumulated depreciation and any write-downs. Depreciation is charged from the year in which the individual asset enters service on a straight-line basis over the estimated useful life of the asset for the business. The estimated realizable value which is deemed to be recoverable at the end of an asset's useful life is not depreciated. The useful life of each asset is reviewed annually and any changes, if needed, are made with a view to showing the correct value of the asset.

Landfills are depreciated on the basis of the percentage filled, which is calculated as the ratio between the volume occupied at the end of the period and the total volume authorized.

The main depreciation rates used, which are based on technical and economic considerations, are as follows:


buildings ___________
0.1 % - 10.2 %

production plants _________
0.2 % - 60.0 %

distribution networks ____________
1.4 % - 10 %

fiber-optic networks _____________
5%

miscellaneous equipment ________
10% - 66.7 %

mobile phones ____________
100 %

furniture and fittings _____________
6 % - 16.7 %

electric and electronic office machines _________
10 %- 46.2 %

means of transport ________
10%

improvements to third-party assets - buildings ________
6.3 %

Tangible assets are subjected to impairment testing if there is any indication that an asset may be impaired in accordance with the paragraph below "Impairment of assets"; write-downs may be reversed in subsequent periods if the reasons for which they were recognized no longer apply.

When an asset is disposed of or if future economic benefits are no longer expected from using an asset, it is removed from the balance sheet and any gain or loss (being the difference between the disposal proceeds and the carrying amount) is recognized in the income statement in the year of the derecognition.

Leasing

Assets for rights of use are recognized on the start date of the lease, i.e. the date on which the underlying asset is available for use.

Rights to use assets are measured at cost, net of accumulated depreciation and impairment losses, and adjusted for any restatement of lease liabilities. The cost of assets for rights of use includes the amount of lease liabilities recognized and lease payments made on or before the commencement of the lease. Assets for right of use are depreciated on a straight-line basis from the effective date to the end of the useful life of the asset consisting of the right of use or at the end of the lease term, whichever is earlier.

If the lease transfers ownership of the underlying asset to the lessee at the end of the term of the contract or if the cost of the asset consisting of the right of use reflects the fact that the lessee will exercise the purchase option, the asset consisting of the right of use is depreciated from the effective date until the end of the useful life of the underlying asset.

Lease liabilities are recognized at the present value of lease payments not yet paid at the reporting date. Lease payments also include the exercise price of a purchase option if it is reasonably certain that the option will be exercised.

Intangible assets

Intangible assets are identifiable non-monetary assets without physical substance which are controlled by the enterprise and able to produce future economic benefits, and include goodwill when acquired for consideration.

The fact of being identifiable distinguishes an intangible asset that has been acquired from goodwill; this requirement is normally met when: (i) the intangible asset is attributable to a legal or contractual right, or (ii) the asset is separable, in other words it can be sold, transferred, rented or exchanged individually or as an integral part of other assets.

Control by the enterprise consists of the right to enjoy the future economic benefits flowing from the asset and to restrict the access of others to those benefits.

Intangible assets are stated at purchase or production cost, including ancillary charges, determined in the same way as for tangible assets. Intangible fixed assets produced internally are not capitalized but recognized in the income statement in the year in which the costs are incurred.

Intangible assets with a definite useful life are reported in the financial statements net of the related accumulated amortization and impairments in the same way as for tangible assets. Changes in the expected useful life or in the ways in which the future economic benefits of an intangible asset are achieved by the Company are accounted for by suitably adjusting the period or method of amortization, treating them as changes in accounting estimates. The amortization of intangible fixed assets with a definite useful life is charged to income statement in the cost category that reflects the function of the intangible asset concerned.

Intangible assets are subjected to impairment testing if there are specific indications that they may be impaired, in accordance with the paragraph below "Impairment of assets"; impairment losses may be reversed in subsequent periods if the reasons for which they were recognized no longer apply.

Intangible assets with an indefinite useful life and those that are not yet available for use are subjected to impairment testing on an annual basis, whether or not there are any specific indications that they may be impaired, in accordance with the paragraph below "Impairment of assets". Impairment losses recognized for goodwill are not reversed.

Gains or losses on the disposal of an intangible asset are calculated as the difference between the disposal proceeds and the carrying amount of the asset and recognized in the Income Statement at the time of the disposal.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation

Changes in international accounting standards

policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

The following amortization rates are applied to intangible assets with a definite useful life:

industrial patents and intellectual property rights _____ 33 % - 50 %
concessions, licenses, trademarks and similar rights _________ 6.7 % - 33.3 %
other intangible assets ___________ 2.1% - 20.0 %

Service concession arrangements

IFRIC 12 states that, based on the characteristics of the concession arrangement, the infrastructures used in the provision of public services under concession are to be recognized as intangible assets if the operator has the right to receive a payment from the customer for the service provided, or as a financial asset if the operator has the right to receive payment from the public sector entity.

Impairment loss/Reversal of tangible and intangible assets and shareholdings

Tangible and intangible assets and shareholdings are subjected to impairment testing if there is any specific indication that there may be an impairment loss.

Goodwill, other intangible assets with an indefinite useful life and assets not available for use are tested for impairment at least annually or more frequently if there is any specific indication that they may be impaired.

Impairment testing consists of comparing the carrying amount of an asset or a shareholding with its recoverable amount.

The recoverable amount of an asset or a shareholding is the higher of its fair value less costs to sell and its value in use. To determine the value in use of an asset or a shareholding, the company calculates the present value of the estimated future cash flows on the basis of business plans prepared by management, before tax, applying a pre-tax discount rate which reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset or a shareholding is lower than its carrying amount, a loss is recognized in the income statement. If subsequently a loss on an asset, other than goodwill, is eliminated or reduced, the book value of the asset or of the cash generating unit is raised up to the new estimated recoverable amount, but without it exceeding the value that the asset would have had without any impairment loss. Reversals of impairment losses are immediately recognized in the income statement.

When the recoverable amount of the individual asset cannot be estimated, it is based on the cash generating unit (CGU) or group of CGUs that the asset belongs to and/or to which it may be reasonably allocated.

CGUs are identified on the basis of the company's organizational and business structure as homogeneous aggregations that generate independent cash inflows deriving from the continuous use of the assets allocated to them.

Environmental certificates: emission quotas and White Certificates

Different accounting policies are applied to quotas or certificates held for own use in the "Industrial Portfolio" and those held for trading purposes in the "Trading Portfolio".

Surplus quotas or certificates held for own use in the "Industrial Portfolio" which are in excess of the Group's requirements in relation to the obligations accruing at year end are recognized as other intangible assets at the actual cost incurred. Quotas or certificates assigned free of charge are recognized at a zero carrying amount. Given that they are assets for instant use, they are not amortized but subjected to impairment testing. The recoverable amount is the higher of value in use and market value. If, on the other hand, there is a deficit because the requirement exceeds the quotas or certificates in portfolio at the balance sheet date, a provision is recognized for the amount needed to meet the residual obligation, estimated on the basis of any purchase contracts, spot or forward, already signed at the balance sheet date; otherwise on the basis of market prices.

Quotas or certificates held for trading in the "Trading Portfolio" are recognized in inventories and measured at the lower of purchase cost and estimated realizable value based on market trends. Quotas or certificates assigned free of charge are recognized at a zero carrying amount. Market value is established on the basis of any sales contracts, spot or forward, already signed at the balance sheet date; otherwise on the basis of market prices.

Shareholdings in subsidiaries, associates and joint ventures

Subsidiaries are companies in which the parent company "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", as defined by IFRS 10. Control is generally assumed to exist when a company holds either directly or indirectly more than half of the exercisable voting rights at an ordinary shareholders' meeting, also considering potential voting rights, meaning voting rights deriving from convertible financial instruments.

Subsidiaries are consolidated on a line-by-line basis.

Associates are companies in which the parent has a significant influence over strategic decisions, despite not having control, also considering potential voting rights, meaning voting rights deriving from convertible financial instruments; significant influence is assumed to exist when A2A S.p.A. holds, either directly or indirectly, more than 20% of voting rights exercisable at an ordinary shareholders' meeting.

A joint venture is a contractual agreement whereby two or more parties undertake an income generating activity subject to joint control.

Shareholdings in associates and joint ventures are accounted for in the consolidated financial statements using the equity method.

Long term construction contracts in progress

Construction contracts with durations exceeding one year in progress are valued in accordance with IFRS 15. In particular, over-the-time revenues are recognized if it can be demonstrated that: a) the customer simultaneously receives and consumes the benefits of the contract in force at the same time as the service is provided b) the service provided improves.

Construction contracts currently in progress are measured on the basis of the contractual fees that have accrued with reasonable certainty on the basis of the stage of completion, using the "cost to cost" method, so as to allocate the revenues and net result of the contract to the individual periods to which they belong in proportion to the progress being made on the project. Any difference, positive or negative, between the value of the contracts and advances received is recognized as an asset or a liability respectively.

In addition to the contractual fees, contract revenues include variants, price revisions and incentive awards to the extent that it is probable that they represent actual revenues that can be reliably determined. Ascertained losses are recognized independently of the stage of completion of contracts.

Inventories

Inventories of materials and fuel are measured at the lower of weighted average cost and market value at the balance sheet date. Weighted average cost is determined for the period of reference for each inventory code. Weighted average cost includes any additional costs (such as sea freight, customers charges, insurance and lay or demurrage days in the purchase of fuel). Inventories are constantly monitored and, where necessary, obsolete stocks are written down with a charge to the Income Statement.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards

policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

Financial instruments

Financial instruments include shareholdings (excluding shareholdings in subsidiaries, joint ventures and associates) held for trading (so-called trading shareholdings) or available for sale, non-current receivables and loans and other non-current financial assets, trade and other receivables deriving from company operations and other current financial assets such as cash and cash equivalents. The latter consist of bank and postal deposits, readily negotiable securities used as temporary investments of surplus cash and financial receivables due within three months. Financial instruments also include financial payables (bank loans and bonds), trade payables, other payables and other financial liabilities and derivatives.

Financial assets and liabilities are recognized at the time that the contractual rights and obligations forming part of the instrument arise.

Financial assets and liabilities are accounted for in accordance with IFRS 9 "Financial Instruments".

Financial assets

Initial recognition

financial assets are classified into two categories alone - "at fair value" or "at amortized cost". 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.

All equity instruments both listed and unlisted – must be measured at fair value.

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.

In addition, the method of expected credit losses is modified, moving to an impairment model that leads to the early recognition of forward-looking losses.

Subsequent valuation

Measurement subsequent to initial recognition depends on which of the following categories the financial instrument falls into:

  • Financial assets at amortized cost (debt instruments);
  • Financial assets at fair value in the Income Statement with reclassification of cumulative gains and losses (debt instruments);
  • Financial assets at fair value in the Income Statement without reversal of cumulative gains and losses at the time of derecognition (equity instruments);
  • Financial assets at fair value in the Income Statement.

Financial assets at amortized cost

Financial assets at amortized cost are valued using the effective interest method and are subject to impairment.

Gains and losses are recognized in the income statement when the asset is derecognized, modified or revalued.

Investments in equity instruments

On initial recognition, the Group may irrevocably choose to classify its equity investments as equity instruments recognized at fair value through profit and loss when they meet the definition of equity instruments pursuant to IAS 32 "Financial instruments: Presentation" and are not held for trading. The classification is determined for each individual instrument.

Gains and losses on these financial assets are never reclassified to the income statement. Dividends are recognized as other income in the income statement when the right to payment has been approved, except when the Group benefits from such income as a recovery of part of the cost of the financial asset, in which case such profits are recognized in OCI. Equity instruments recognized at fair value through OCI are not subject to impairment testing.

Financial assets measured at fair value through the income statement

This category includes assets held for trading, assets designated at the time of initial recognition as financial assets at fair value with changes recognized in the Income Statement, or financial assets that must be measured at fair value. Assets held for trading are all those assets acquired for sale or repurchase in the short term. Derivatives, including those separated, are classified as financial instruments held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not represented solely by principal and interest payments are classified and measured at fair value in the Income Statement, regardless of the business model. Notwithstanding the criteria for debt instruments to be classified at amortized cost or at fair value through OCI, as described above, debt instruments may be recognized at fair value in the Income Statement upon initial recognition if this results in the elimination or significant reduction of an accounting mismatch.

Financial instruments at fair value with changes recognized in the Income Statement are recognized in the statement of financial position at fair value and net changes in fair value are recognized in profit/ (loss) for the year.

This category includes derivative instruments and listed equity investments that the Group has not irrevocably chosen to classify at fair value through OCI. Dividends on listed equity investments are also recognized as other income in the statement of profit/(loss) for the year when the right to payment is established.

The embedded derivative contained in a non-derivative hybrid contract, in a financial liability or in a principal non-financial contract, is separated from the principal contract and accounted for as a separate derivative, if: its economic characteristics and the risks associated with it are not closely correlated with those of the principal contract; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value in the Income Statement. Embedded derivatives are measured at fair value, with changes in fair value recognized in the Income Statement. A restatement occurs only when there is a change in the terms of the contract that significantly changes the cash flows otherwise expected or a reclassification of a financial asset to a category other than fair value through profit or loss.

An embedded derivative included in a hybrid contract that contains a financial asset is not separated from the host contract. The financial asset together with the embedded derivative is classified entirely as a financial asset at fair value in the Income Statement.

Derecognition

A financial asset is derecognized when:

  • the rights to receive cash flows from the asset no longer apply;
  • the company has transferred to a third party the right to receive cash flows from the asset or has assumed a contractual obligation to transfer them. In substance, the transfer is completed when: the company has transferred all the risks and rewards of ownership of the asset or has transferred control of the asset while maintaining the related risks and rewards.

In cases where the company has transferred the rights to receive cash flows from an asset or signed an agreement under which it retains the contractual rights to receive the cash flows from the financial asset but assumes a contractual obligation to pay the cash flows to one or more beneficiaries (passthrough), it assesses whether and to what extent it has retained the risks and rewards of ownership. In the cases in which it has neither transferred nor retained substantially all of the risks and rewards or has not lost control of the asset, it continues to be recognized in the financial statements of the Group to the extent of its continuing involvement in the asset. In this case, the Group also recognizes an associated liability. The transferred asset and the associated liability are valued to reflect the rights and obligations that remain with the Group.

When the entity's continuing involvement is a guarantee of the transferred asset, involvement is measured on the basis of the lower of the amount of the asset and the maximum amount of consideration received that the entity might have to repay.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards

policies

Notes to the balance sheet

Net debt Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

Financial liabilities

Financial liabilities are classified, at the time of initial recognition, at fair value in the Income Statement, as mortgages and loans or as derivatives designated as hedges.

Directly attributable transaction costs are added to the valuation.

The Group's financial liabilities include trade payables and other payables, mortgages and loans, including current account overdrafts and derivative financial instruments.

The subsequent evaluation depends on the classification of the main instrument:

  • financial liabilities at fair value in the Income Statement, typically of a trading nature (settlement and transfer in the short term). This category includes financial derivatives held for trading (speculative);
  • loans and receivables: valued at amortized cost using the effective interest method. Gains and losses are recognized in the income statement when the liability is settled, as well as through amortization.

A financial liability is derecognized when the obligation underlying the liability is settled or cancelled.

Derivative financial instruments and hedge accounting

These are initially recognized at fair value on the date the contract is signed and the subsequent measurement is also at fair value.

To classify a derivative as a hedge, the company formally designates and documents the hedging relationship, its risk management objectives and the strategy pursued.

From January 1, 2018, the following must be identified: a) the hedging instrument b) the nature of the risk being hedged c) the way in which the company will assess the effectiveness of the hedge.

The hedging relationship is effective if:

  • there is an economic relationship between the hedged item and the hedging instrument;
  • the effect of the credit risk does not prevail over the changes in value resulting from the aforementioned economic relationship;
  • the hedging ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge this quantity of hedged item.

Transactions that meet the above criteria are accounted for as follows:

Fair value hedging

If a derivative financial instrument is designated as a hedge against exposure to changes in the fair value of an asset or liability attributable to a specific risk, the gain or loss resulting from subsequent changes in fair value of the hedging instrument is recognized in the Income Statement. The profit or loss deriving from the adjustment to fair value of the item hedged, for the part attributable to the hedged risk, changes the book value of this item and is recognized in the Income Statement. Cash flow hedge - If a derivative financial instrument is designated to hedge the exposure to the variability of the cash flows of an asset or a liability recognized in the Financial Statements or of a highly probable transaction, the effective portion of the resulting profits or losses deriving from the fair value adjustment of the derivative instrument is recognized in a specific equity reserve. The cumulative profit or loss is reversed from the equity reserve and recorded in the Income Statement in the same years in which the effects of the hedged transaction are recognized in the Income Statement. The gain or loss associated with that part of the ineffective hedge is recognised in the Income Statement immediately. If the hedged transaction is no longer considered probable, the unrealized gains or losses recognized in the equity reserve are immediately recognized in the Income Statement.

Cash flow hedges

The portion of gain or loss on the hedged instrument relating to the effective portion of the hedge is recognized in other comprehensive income in the cash flow hedge reserve, while the ineffective portion is recognized directly in the Income Statement. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in the fair value of the hedged item.

Amounts accumulated under other components of the comprehensive income statement are recorded, depending on the nature of the underlying hedged transaction. If the hedged transaction subsequently results in the recognition of a non-financial component, the accumulated amount in equity is removed from the separate component of equity and included in the cost or other carrying amount of the asset or liability hedged. This is not considered a reclassification of the items recognized in OCI for the period. This also applies in the case of a hedged forecast transaction of a non-financial asset or a non-financial liability that subsequently becomes an irrevocable commitment to which fair value hedge accounting is applied.

For any other cash flow hedge, the amount accumulated in OCI is reclassified to the income statement as a reclassification adjustment in the same period or periods during which the hedged cash flows impact the income statement.

If the cash flow hedge accounting is discontinued, the accumulated amount in OCI must remain so if the hedged future cash flows are expected to occur. Otherwise, the amount shall be immediately reclassified to profit or loss for the period as a reclassification adjustment. After suspension, once the hedged cash flow occurs, any accumulated amount remaining in OCI must be accounted for depending on the nature of the underlying transaction as described above.

Non-current assets held for sale, disposal groups and discontinued operations – IFRS 5

Non-current assets held for sale, disposal groups and discontinued operations whose carrying amount will be recovered principally through sale rather than continuous use are measured at the lower of their carrying amount and fair value less costs to sell. A disposal group is a group of assets to be disposed of together as a group in a single transaction together with the liabilities directly associated with those assets that will be transferred in that transaction. Discontinued operations on the other hand consist of a significant component of the Group such as a separate major line of business or a geographical area of operations or a subsidiary acquired exclusively with a view to resale.

In accordance with IFRSs, the figures for non-current assets held for sale, disposal groups and discontinued operations are shown on two specific lines in the balance sheet: non-current assets held for sale and liabilities directly associated with non-current assets held for sale.

Non-current assets held for sale are not depreciated or amortized and are measured at the lower of carrying amount and fair value less costs to sell; any difference between carrying amount and fair value less costs to sell is recognized in the income statement as a write-down.

The net economic results arising from discontinued operations, and only discontinued operations, pending the disposal process, any gains or losses on disposal and the corresponding comparative figures for the previous year or period are recognized in a specific line of the income statement: "Net result from discontinued operations". On the other hand any gains or losses recognized as the result of measuring non-current assets (or disposal groups), classified as held for sale within the meaning of IFRS 5, at fair value less costs to sell are presented in a specific line item of the income statement "Result from non-recurring transactions", as discussed further in the previous section "Format of financial statements".

Employee benefits

The employees' leaving entitlement (TFR) and pension provisions are determined using actuarial methods; the rights accrued by employees during the year are recognized in the Income Statement as "labour costs", whereas the figurative financial cost that the company would have to bear if it were to ask the market for an loan of the same amount as the TFR is recognized as part of the "financial balance". Actuarial gains and losses arising from changes in actuarial assumptions are recognized in income statement taking into account the residual average working life of the employees.

Following the introduction of Finance Law no. 296 of December 27, 2006, only the portion of accrued employees' leaving entitlement that remained in the company has been measured in accordance with IAS 19, as amounts are now paid over to a separate entity as they accrue (either to a supplementary pension scheme or to funds held by INPS). As a result of these payments the company no longer has any obligations in connection with the services employees may render in the future.

Guaranteed employee benefits paid on or after the termination of employment through defined benefit plans (energy discount, health care or other benefits) or long-term benefits (loyalty bonuses) are recognized in the period when the right vests.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in

international accounting standards

policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

The liability for defined benefit plans, net of any plan assets, is determined by independent actuaries on the basis of actuarial assumptions and recognized on an accrual basis in line with the work performed to obtain the benefits.

Gains and losses arising from actuarial calculations are recognized in a specific equity reserve.

Reverse factoring

The Group entered into factoring agreements, typically in the technical form of reverse factoring. On the basis of the contractual structures in place, the supplier has the possibility to sell at its discretion, the receivables from the company to a lending institution. In some cases, the payment terms indicated in the invoice are the subject of further deferments agreed between the supplier and the Group; these deferments can be both burdensome and not burdensome.

In the event of extensions, a quantitative analysis is carried out to verify whether or not the contractual terms have been amended. In this context, the relations, for which the primary obligation is maintained with the supplier and the possible deferment, if granted, does not involve a substantial change in payment terms, retain their nature and are therefore classified as trading liabilities.

Provisions for risks, charges and liabilities for landfills

Provisions for risks and charges regard costs of a determinate nature and of certain or probable existence which at year-end are uncertain in terms of timing or amount. Provisions are recognized when there is a legal or constructive present obligation arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits, and it is possible to make a reasonable estimate of the obligation.

Provisions are recognized at the best estimate of the amount that the company would have to pay to settle the liability or to transfer it to third parties at the balance sheet date. If the effect of discounting is significant, provisions are calculated by discounting expected future cash flows at a pre-tax discount rate that reflects the current market assessment of the time value of money. If discounting is used the increase in the provision due to the passage of time is recognized as financial expense.

If the liability relates to tangible assets (such as the dismantling and reclamation of industrial sites), the initial provision is recognized as a counter-entry to the assets to which it refers; expense is then charged to income statement as the asset in question is depreciated.

Treasury shares

Treasury shares are accounted for as a deduction from equity. In particular, treasury shares are recognized as a negative equity reserve.

Grants

Grants, both from public entities and from third party private entities, are measured at fair value when there is the reasonable certainty that they will be received and that the Group will be able to comply with the terms and conditions for obtaining them.

Grants received to provide support for the cost of specific assets are recognized as a direct deduction from the assets concerned and credited to the income statement over the life of the depreciable asset to which they refer.

Revenue grants (given to provide the company with immediate financial support or as compensation for expenses or losses incurred in a previous accounting period) are recognized in their entirety in the income statement as soon as the conditions for recognizing the grants are met.

Revenues and costs

The recognition of revenues is based on the following five steps: (i) identification of the contract with the customer; (ii) identification of the performance obligations, represented by the contractual promises to transfer goods and/or services to a customer; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations identified on the basis of the stand-alone sale price of each good or service; (v) recognition of the revenue when the relative performance obligation is satisfied, i.e. when the promised good or service is transferred to the customer; the transfer is considered completed when the customer obtains control of the good or service, which can occur continuously over time diluted and extended or at a point in time. Depending on the type of transaction, revenues are recognized on the basis of the following specific criteria:

  • revenues for the sale and transport of electricity and gas are recognized at the time that the energy is supplied or the service rendered, even if invoicing has not yet taken place, and are determined by adding estimates of consumption to amounts resulting from pre- established meter-reading schedules. Where applicable, these revenues are based on the tariffs and related tariff restrictions in force during the year prescribed by the law and the Italian Regulation Authority for Energy Networks and Environment and similar foreign bodies;
  • connection contributions paid by users, if not for costs incurred to extend the network, are recognized in the income statement on collection and presented as "revenues from services";
  • the revenues billed to users for an extension of the gas network are accounted for as a reduction in the carrying amount of tangible assets and are recognized in the income statement as a reduction in the depreciation charged over the useful life of the cost capitalized to extend the network;
  • the revenues and costs involved in withdrawing quantities that are higher or lower than the Group's share are measured at the prices envisaged in the related purchase or sale contract;
  • revenues from the provision of services are recognized according to the stage of completion based on the same criteria as for contract work in progress. If it is impossible to calculate revenues on a reliable basis they are recognized up to the amount of the costs incurred providing they are expected to be recovered;
  • revenues from the sale of certificates are recognized at the time of sale.

Revenues are stated net of returns, discounts, allowances and rebates, as well as directly related taxes.

Expenses relate to goods or services sold or consumed during the year or as a result of systematic allocation; if no future use is envisaged they are recognized directly in the income statement.

Result from non-recurring transactions

The 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 non- current 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 expense.

Financial income and expenses

Financial income is recognized when interest income arises using the effective interest method, i.e. at the rate that exactly discounts expected future cash flows over the expected life of the financial instrument.

Financial expense is recognized in the Income Statement on an accrual basis on the basis of the effective interest.

Dividends

Dividend income is recognized when it is established that the shareholders have a right to receive payment, and is recognized as financial income in the Income Statement.

Income taxes

Current taxes

Current income taxes are based on an estimate of taxable income in compliance with tax regulations in force or substantially approved at the balance sheet date, bearing in mind any exemptions or tax credits due. Account is also taken of the fact that the Group now files for tax on a consolidated basis.

Deferred tax assets and liabilities

Deferred tax assets and liabilities are calculated on the temporary differences between the carrying amount of assets and liabilities in the balance sheet and their tax bases, with the exception of goodwill which is not deductible for tax purposes and any differences resulting from investments in subsidiaries which are not expected to reverse in the foreseeable future. The tax rates used are those expected to apply to the period when the temporary differences reverse. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of

preparation Changes in international accounting

standards policies

Notes to the balance sheet

Net debt Notes to the

income statement Note on

related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

that the tax benefit will be realized. The measurement of deferred tax assets takes account of the period for which business plans are available.

When transactions are recognized directly in equity, any related current or deferred tax effects are also recognized directly in equity. Deferred taxes on the undistributed profits of Group companies are only provided for if there is the real intention to distribute such profits and, in any case, if the taxation is not offset as the result of filing a Group tax return.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

Taxes are only offset when they are levied by the same tax authority, when there is the legal right of set-off and when settlement of the net balance is expected.

Use of estimates

Preparing the financial statements and notes requires the use of estimates and assumptions in determining certain assets and liabilities and measuring contingent assets and liabilities. The actual results after the event could differ from such estimates.

Estimates have been used in impairment testing, to determine certain sales revenues, in provisions for risks and charges, in provisions for receivables and other write-downs, amortization and depreciation, the valuation of derivatives, employee benefits and taxes. The underlying estimates and assumptions are regularly reviewed and the effect of any change is immediately recognized in the income statement.

The following are the key assumptions made by management as part of the process of making these accounting estimates. The inherently critical element of such estimates comes from using assumptions or professional opinions on matters that are by their very nature uncertain. Changes in the conditions underlying the assumptions and opinions used could have a material impact on subsequent results.

Impairment Test

The carrying amount of non-current assets (including goodwill and other intangible assets) and of assets held for sale is reviewed periodically and whenever circumstances or events require a more frequent assessment. If it is considered that the book value of a group of fixed assets has had an impairment loss, it is subject to the application of professional judgement by management and is based on assumptions that include: the identification of the Cash Generating Units, the estimate of the future operating cash flows associated with these CGUs during the reference period of the 2019- 2023 business plan, the estimate of the cash flows subsequent to this time horizon, the cash flow deriving from the disposal at the end of useful life of the assets, discount rates used ("Wacc"). These assumptions are complex due to their nature and imply recourse to the opinion of the directors, who are also sensitive to future trends in energy markets, macroeconomic scenarios, and the resolutions of ARERA (Regulatory Authority for Energy Networks and Environment).

For the purpose of preparing the impairment test, the company avails itself of the support of an independent expert, external to the A2A Group.

In the hypothesis in which the recoverable value is lower than the carrying amount, the latter is written down to the extent applicable. Management is of the opinion that the estimates of such recoverable amounts are reasonable, albeit subject to changes in the factors underlying the estimates on which these recoverable amounts have been calculated could produce different measurements. For further details on the way in which impairment testing was carried out and the results of such testing, reference is made to the specific paragraph below.

Revenue recognition

Revenues from sales include the estimate of accrued revenues related to gas and electricity consumed by customers and not yet subject to periodic reading at December 31, 2019 and the estimate of revenues accrued for gas and electricity consumed by customers and not yet billed at December 31, 2019, in addition to the revenues already billed to customers based on the periodic consumption readings made during the year. The processes and methods for evaluating and determining these estimates are based on sometimes complex assumptions that by their nature imply recourse to the opinion of the directors, in particular with regard to recognition of accrued revenues, as the methods used by the A2A Group to estimate the quantities of consumption between the date of the last reading and December 31, and therefore to value the revenues accrued during the year, are based on assumptions and complex calculation algorithms that concern various information systems. Furthermore, the estimate of consumption not subject to periodic reading is made by taking as reference the historical profile of each user, adjusted on the basis of climatic correction factors provided by the Regulation Authority for Energy Networks and the Environment (ARERA), to incorporate other variables that can have an impact on consumption.

Provisions for risks and charges

In certain circumstances it is not easy to identify whether a legal or constructive present obligation exists. The directors assess these situations case by case, together with an estimate of the economic resources required to settle the obligation. Estimating such provisions is the result of a complex process that involves subjective judgements on the part of company management. When the directors are of the opinion that it is only possible that a liability could arise, the risks are disclosed in the section on commitments and contingent liabilities without making any provision.

Liabilities for landfills

The liabilities for landfills provision represents the amount set aside to meet the costs which will be incurred for the management of the period of closure and post-closure of landfills currently in use. The future outlays, calculated for each landfill by a specific appraisal updated annually, were discounted in accordance with the provisions of IAS 37.

Bad debt provision

The entry into force of IFRS 9 on January 1, 2018 has led to a change in the recognition of credit losses for the Group. The approach adopted is a forward-looking one, focusing on the probability of future losses on receivables, even in the absence of events that would suggest the need to write-down a credit position (Expected Losses).

Although the provision is considered adequate, the use of different assumptions or changes in prevailing economic conditions, even more so in this period of recession, could give rise to adjustments to the bad debts provision.

Amortization

Depreciation and amortization charges are a significant cost for the company. Non-current assets are depreciated or amortized on a straight-line basis over the useful lives of the assets. The useful lives of the company's non-current assets are established by the directors, with the assistance of expert appraisers, when they are purchased. The company periodically reviews technological and sector changes, dismantling/closure charges and the recovery amount of assets to update their residual useful lives. This periodic update could lead to a change in the period of depreciation or amortization and hence also in the depreciation or amortization charge in future years.

Measurement of derivative instruments

The derivatives used are measured at fair value based on the forward market curve at the balance sheet date, if the underlying of the derivative is traded on markets that provide official, liquid forward prices. If the market does not provide forward prices, forecast price curves are used based on simulation models developed by Group companies internally. However, the actual results of derivatives could differ from the measurements made.

The serious turbulence on markets for the energy commodities traded by the company, as well the fluctuations in exchange and interest rates, could lead to greater volatility in cash flows and in expected results.

Employee benefits

The calculations of expenses and the related liabilities are based on actuarial assumptions. The full effects of any changes in these actuarial assumptions are recognized in a specific equity reserve.

Business combinations

Accounting for business combinations entails allocating the difference between purchase cost and net carrying amount to the assets and liabilities of the acquired business. For the majority of assets and liabilities this difference is allocated by recognizing the assets and liabilities at fair value. If positive, the unallocated portion is recognized as goodwill. If negative, it is recognized in the income statement. A2A S.p.A. bases its allocations on available information and, for the more significant business combinations, on external appraisals.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation

Changes in international accounting standards

policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

Current taxes and future recovery of deferred tax assets

The uncertainties that exist regarding the way of applying certain tax regulations have led the company to taking an interpretative stance when providing for current taxes in the financial statements; such interpretations could be overturned by official clarifications on the part of the tax authorities.

Deferred tax assets are accounted for on the basis of the taxable profit expected to be available in future years. Assessing the expected taxable profit for the purpose of accounting for deferred taxation depends on factors that can vary over time, and may lead to significant effects on the measurement of deferred tax assets.

Notes to the balance sheet

The Balance Sheet of A2A S.p.A. includes, with respect to the situation at December 31, 2018, the effect of the following non-recurring transactions:

  • the transfer of the International Business Unit to the subsidiary A2Abroad S.p.A. with effect from July 1, 2019;
  • the acquisition of the STAFF HR Business Unit from the subsidiary AMSA S.p.A. with effect from August 1, 2019.

For details of the equity effects of extraordinary transactions in 2019, please refer to note no. 37) Consob Communication no. DEM/6064293 of July 28, 2006 - extraordinary transactions.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of

preparation Changes in international accounting

standards policies

Notes to the balance sheet

Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

ASSETS

NON-CURRENT ASSETS

1) Tangible assets

thousands of euro Balance at Effect of Changes during the year Balance at
12 31 2018 non
recurring
transactions
Invest. Other
changes
Reclassi
fications
net of the
provision
Amort. Total
changes
12 31 2019
Land 32,674 29 1 (369) (339) 32,335
Buildings 224,988 1,363 1,464 (772) (12,059) (10,004) 214,984
Plant and machinery 754,432 3,378 13,712 (434) (54,916) (38,260) 716,172
Industrial and commercial equipment 1,486 875 58 (323) 610 2,096
Other assets 11,645 4,647 151 (4,667) 131 11,776
Construction in progress and advances 13,712 13,309 (11,461) 1,848 15,560
Leasehold improvements 10 58 (6) 52 62
Assets for rights of use 13,697 (4,076) 9,621 9,621
Total tangible assets 1,038,947 - 23,659 17,622 (1,575) (76,047) (36,341) 1,002,606
of which:
Historical cost 2,795,028 23,659 17,592 (16,567) 24,684 2,819,712
Accumulated amortization (1,403,592) 30 14,992 (76,047) (61,025) (1,464,617)
Write-downs (352,489) (352,489)

At December 31, 2019, "Tangible assets" amounted to 1,002,606 thousand euro (1,038,947 thousand euro in the previous year) and show a decrease of 36,341 thousand euro resulting from the following transactions:

  • capex for 23,659 thousand euro;
  • other positive changes of 17,622 thousand euro due to the adoption of IFRS 16 for 13,697 thousand euro, the recognition of a provision for decommissioning for the Valtellina area for 3,965 thousand euro) and negative changes due to reclassifications to other items in the financial statements for 40 thousand euro;
  • disposal of assets, net of accumulated depreciation, for 1,575 thousand euro;
  • amortization for the year for 76,047 thousand euro.

For a detailed analysis of changes in the year, reference shall be made to annex "1 Statement of changes in tangible assets".

Capex during the year refer to:

  • "Land" for a total of 29 thousand euro, referring to maintenance works on the land adjacent to the Basin Quota 800 of the Calabria Unit;
  • "Buildings" for a total amount of 1,363 thousand euro. In detail, they refer: for 730 thousand euro to various interventions on the buildings in Via della Signora, Piazza Po, Piazza Trento, Via Orobia, Canavese, Caracciolo and Gonin Warehouse in Milan; for 416 thousand euro to capex in the office in via Lamarmora in Brescia; for 108 thousand euro to interventions on the buildings in Via Suardi and Via Codussi in Bergamo; for 81 thousand euro to interventions on the building of Pontevico; for 27 thousand euro to restructuring interventions of the guard house of the Arvo dam; for 1 thousand euro to interventions on the buildings of Bormio.
  • "Plant and machinery" for 3,378 thousand euro.

In particular, they refer to interventions for 1,706 thousand euro to the power plants of the Calabria Unit; for 885 thousand euro to the power plants of the Valtellina Unit; for 486 thousand euro to the power plants of the Mese and Udine Unit; for 242 thousand euro to telematic and telephone wiring of buildings in Valtellina; for 59 thousand euro to other minor plants;

  • "Industrial and commercial equipment" for 875 thousand euro;
  • "Other assets" relating to furniture, furnishings, IT equipment and assets worth less than 516 euro, for 4,647 thousand euro;
  • "Construction in progress and advances" for an amount of 13,309 thousand euro;
  • "Leasehold improvements" for 58 thousand euro.

"Tangible assets" include "Construction in progress and advances" for 15,560 thousand euro (13,712 thousand euro at December 31, 2018), presenting an increase of 1,848 thousand euro resulting from the counter effects of the following items:

  • the increase of 13,309 thousand euro is mainly due: for 5,168 thousand euro to works on buildings (mainly in the Piazza Trento area in Milan, for the Canavese plant, for the Magisano plant, on the Via Lamarmora site in Brescia and for buildings of Ricevitrice Sud and Grosio); for 8,141 thousand euro to interventions on plants and machinery, on the Calabria Unit hydroelectric plants (2,455 thousand euro), on the Valtellina Unit plants (1,239 thousand euro), interventions on data, electricity and telephone networks in Valtellina (16 thousand euro), on the Mese and Udine Unit hydroelectric plants (4,180 thousand euro) and to the improvement of other plants (251 thousand euro);
  • the decrease resulting from entry into service, amounting to 11,452 thousand euro, including: 1,065 thousand euro for the completion of the works mainly related to the buildings of the Lamarmora site and the new call center of Piazza Trento; 10,198 thousand euro for works related to the production plants (of which 2,753 thousand euro for the hydroelectric plants of Calabria, 1,965 thousand euro for the plants in Valtellina, 4,424 thousand euro for the plants in Mese and Udine, 1,056 thousand euro for other minor plants); 189 thousand euro for other assets;
  • the decrease of 9 thousand euro due to other changes in the accounts.

With regard to large-scale diversion hydroelectric concessions, it is noted that when they are converted into law (Law no. 12/2019) with amendments to Decree Law December 14, 2018, no. 135 ("Competitiveness Decree Law"), the Legislator intervened in article 11-quater with overall review of the regulations governing large-scale diversion hydroelectric concessions (> 3 MW), as explained in greater detail in the Report on Operations in the section "Regulatory Changes and Impacts on the Business Units of the A2A Group - Generation and Trading Business Unit". While waiting for the Regions to regulate with their own laws the methods, procedures and criteria for awarding concessions, the company is analysing the possible impacts of the new regulations and confirms, to date, that the values recorded in the financial statements of dry and wet works linked to hydroelectric concessions are prudent and recoverable even if they are applied.

2) Intangible assets

thousands of euro Balance at Effect of Changes during the year Balance at
12 31 2018 non
recurring
transactions
Invest. Other
changes
Write
downs
Amort. Total
changes
12 31 2019
Industrial patents and intellectual
property rights
7,574 3,714 9,780 (4,842) 8,652 16,226
Concessions, licences, trademarks and
similar rights
17,025 5,673 7,771 (9,179) 4,265 21,290
Goodwill 38,687 954 (4,000) (4,000) 35,641
Assets in progress 14,126 12,549 (17,595) (5,046) 9,080
Other intangible assets 2,838 2,054 (11) 2,043 4,881
Total intangible assets 80,250 954 21,936 2,010 (4,000) (14,032) 5,914 87,118

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A.

Financial statements

Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet

Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

At the reporting date, "Intangible assets" amounted to 87,118 thousand euro (80,250 thousand euro at December 31, 2018) and include the positive effect of non-recurring transactions in the year for a total of 954 thousand euro.

"Intangible assets" in 2019, net of the non-recurring transaction, show an increase of 5,914 thousand euro resulting from the following:

  • capex for 21,936 thousand euro;
  • positive changes for 2,010 thousand euro, mainly related to the change in environmental certificates and industrial CO2 portions;
  • decrease of 4,000 thousand euro due to write-downs for the year, due to the results of the Impairment Test phase, as further described in the paragraph "Goodwill";
  • amortization for 14,032 thousand euro accounted for in the year.

More specifically, capex during the year refer to the following:

  • 3,714 thousand euro for industrial patents and intellectual property rights mainly concerning the implementation of information technology and computer systems;
  • 5,673 thousand euro for concessions, licences, trademarks and similar rights related to the purchase of software;
  • 12,549 thousand euro for intangible assets under construction.

Included in the total balance of "Intangible assets" are "Assets in progress" which amounted to 9,080 thousand euro (14,126 thousand euro as at December 31, 2018), resulting in a decrease of 5,046 thousand euro due to the combined effect of the following:

  • the increase of 12,549 thousand euro mainly relating to the IT projects;
  • the decrease of 17,595 thousand euro due to the entry into service of software and IT applications;

For more in-depth information, refer to annex "2. Statement of changes in intangible assets".

Goodwill

thousands of euro Balance at Effect of Changes during the year Balance at
12 31 2018 non
recurring
transactions
Invest. Reclass./
Other
changes
Disp./
Write
downs
Amort. Total
changes
12 31 2019
Goodwill 38,687 954 (4,000) (4,000) 35,641
Total goodwill 38,687 954 - - (4,000) - (4,000) 35,641

Goodwill equal to 35,641 thousand euro at December 31, 2019 (38,687 thousand euro at December 31, 2018), was formed as a result of non-recurring transactions with third parties.

This goodwill was allocated to the following CGUs: "A2A Reti Gas" for 3,700 thousand euro, "A2A Gas" for 6,800 thousand euro, "A2A Calore" for 18,000 thousand euro and "A2A Ambiente" for 7,141 thousand euro.

The increase of 954 thousand euro refers to goodwill arising from the non-recurring acquisition of the business unit "STAFF HR" from the subsidiary AMSA S.p.A..

Under IAS 36 goodwill, an intangible asset with an indefinite useful life, is not amortized systematically but tested at least once a year ("Impairment Test"). As goodwill neither generates independent cash flow nor can it be sold separately, IAS 36 calls for a secondary audit of its recoverable amount, determining cash flows generated by a set of assets that constitute the business to which it belongs, i.e. the Cash Generating Unit (CGU).

The verification of the recoverable value has been carried out within the broader Impairment Test activities of the various CGU carried out for the Consolidated Financial Statements, which includes the goodwill in question.

Following the Impairment Test, the Company recorded an impairment loss of 4,000 thousand euro related to the "A2A Reti Elettriche" CGU.

The parameters used for the purposes of the Impairment Test are set out in note 2 of the Consolidated Annual Financial Report, to which reference is made for further details.

3) Shareholdings and other non-current financial assets

thousands of euro Balance at
12 31 2018
Effect of
non
Changes
during the
Balance at
12 31 2019
of which included
in the NFP
recurring
transactions
year 12 31 2018 12 31 2019
Shareholdings in subsidiaries 3,700,507 286 92,759 3,793,552
Shareholdings in affiliates 2,077 2,077
Other non-current financial assets 609,166 539,386 1,148,552 608,269 1,147,655
Total shareholdings and other non-current
financial assets
4,311,750 286 632,145 4,944,181 608,269 1,147,655

Shareholdings in subsidiaries

"Shareholdings in subsidiaries" amounted to 3,793,552 thousand euro (3,700,507 thousand euro as at December 31, 2018).

The following table illustrates the changes during the year:

Shareholdings in subsidiaries
thousands of euro
TOTAL
Balance at December 31, 2018 3,700,507
Effect of non-recurring transactions 286
Changes during the year:
- acquisitions and capital increases 9,010
- sales and decreases (12,594)
- reversals 96,500
- write-downs
- exchange assessments
- losses for free float recovery
- reclassifications
- other changes (157)
Total changes during the year 92,759
Balance at December 31, 2019 3,793,552

The value of shareholdings in subsidiaries, net of the positive effect of non-recurring transactions for the year 2019 for 286 thousand euro, a total increase of 92,759 thousand euro compared to the previous year-end and is due to the following changes:

  • increase of 96,500 thousand euro for the write-back of the shareholding in A2A gencogas S.p.A. following the results of the specific impairment test carried out by an external expert on the shareholdings attributable to the "Electricity" CGU;
  • increase of 5,010 thousand euro due to the incorporation of the company YADA ENERGIA S.r.l. for 10 thousand euro, as well as the subsequent capital contribution made in December for 5,000 thousand euro;
  • increase of 4,000 thousand euro relating to the capital contribution subscribed in the investee company A2Abroad S.p.A. in December;

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in

international accounting standards Accounting

standards and policies Notes to the

balance sheet

Net debt

Notes to the income statement Note on

related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

  • decrease of 9,600 thousand euro relating to the shareholding in A2A Illuminazione Pubblica S.r.l., following the reduction in share capital approved during the year;
  • decrease of 2,994 thousand euro relating to the shareholding in Linea Group Holding S.p.A., following the renewal of the partnership agreement between the parties that redefined the amount of the earn-out clauses recorded in A2A S.p.A.'s financial statements;
  • 157 thousand euro for other negative changes.

Further information regarding movements involving shareholdings in subsidiary companies may be found within annexes 3a and 4a to compare their book value and corresponding portions of net assets.

Shareholdings in affiliates and joint ventures

"Shareholdings in affiliates and joint ventures" amounted to 2,077 thousand euro, unchanged compared to the previous year.

Further details regarding shareholdings in affiliates may be found in annexes 3/b and 4/b.

Impairment of shareholdings in subsidiaries, associates and joint ventures

The recoverable value of shareholdings has been measured based on the present value of the corresponding expected net cash flows attributable to the shareholdings of A2A S.p.A.. The cash flows used are in line with those used for the Impairment Test of the CGU for the consolidated financial statements. The same applies to the methodological approach and discount rates adopted further detailed in the Consolidated Annual Financial Report (note 2).

Shown below are the carrying values of the individual shareholdings subject to Impairment Test by an external expert, along with a specification of the type and discount rate applied. It shall be recalled that the Impairment Test is carried out for all shareholdings which have a carrying value higher than the corresponding fraction of shareholders' equity of competence and/or in the presence of specific impairment indicators.

In 2019 the Impairment Test carried out on A2A gencogas S.p.A. resulted in a write-back of 96,500 thousand euro, consistent with the write-back of the Electricity CGU of the Generation and Trading Business Unit, 127 million euro of which was recognized in the consolidated financial statements. More specifically, the 400 MW units of the Mincio, Chivasso and Sermide thermoelectric power plants, which had been fully written down in previous years following their preservation were written back due to their correct function, the changed (increased) prospects of use, also connected with the envisaged phase-out of coal, scenario and remuneration offered by the capacity market mechanism, already assigned for 2022 and 2023 and expected for subsequent years.

The other shareholdings did not require any write-downs/reversals.

Shareholdings
millions of euro
Pre
impairment
test values
at 12 31 2019
Recoverable
amount
(use value)
at 12 31 2019
WACC
Post-tax
Growth
rate g
Reversal
A2A gencogas S.p.A. 510 607 6.6% 0.0% 97

In the previous year, the Impairment Test conducted on A2A Energiefuture S.p.A. had resulted in a write-down of 73,000 thousand euro, while the other shareholdings had not required any write-down.

Shareholdings
millions of euro
Pre
impairment
test values
at 12 31 2018
Recoverable
amount
(use value)
at 12 31 2018
WACC
Post-tax
Growth
rate g
Write-down
A2A Energiefuture S.p.A. 263 190 7.4% 0.0% (73)

Other non-current financial assets

"Other non-current financial assets" amounted to 1,148,552 thousand euro (609,166 thousand euro as at December 31, 2018), of which:

  • financial assets measured at amortized cost (HTC) for 1,147,655 thousand euro (608,269 thousand euro at December 31, 2018), which refer:
  • for 1,147,559 thousand euro (608,173 thousand euro at December 31, 2018) to financial assets with related parties. This item refers to financial receivables from subsidiaries: Linea Group Holding S.p.A. (308,000 thousand euro), A2A gencogas S.p.A. (240,000 thousand euro), A2A Calore & Servizi S.r.l. (205,000 thousand euro), A2A Rinnovabili S.p.A. and the companies acquired by it (INTHE 2 S.r.l., Bellariva Enertel 07 S.r.l., RenewA26 S.r.l., RenewA27 S.r.l., RenewA28 S.r.l., Des Energia Tredici S.r.l., Trovosix S.r.l., Onice S.r.l., CS Solar2 S.r.l. and Solar Sicily S.r.l. for a total of 144,759 thousand euro), Unareti S.p.A. (100,000 thousand euro), A2A Ciclo Idrico S.p.A. (100,000 thousand euro), Aprica S.p.A. (21,000 thousand euro), A2A Smart City S.p.A. (9,000 thousand euro), Biofor (8,700 thousand euro), Azienda Servizi Valtrompia S.p.A. (7,500 thousand euro), SED S.r.l. (3,600 thousand euro). The significant increase in financial assets from related parties is due in particular to the disbursement of new interest-bearing inter-Group loans, net of repayments made during the year, as well as the reclassification of the short-term portion of these loans to "Current financial assets";
  • for 96 thousand euro (unchanged compared to the previous year) to other government securities;
  • financial assets measured at fair value through profit or loss (FVTPL) for 897 thousand euro (unchanged from the previous year), relating to other minority interests.

4) Deferred tax assets

thousands of euro Balance at
12 31 2018
Effect of
non-recurring
transactions
Net changes
during the
year
Balance at
12 31 2019
Deferred tax assets 66,000 (2) (6,310) 59,688

The item, equal to 59,688 thousand euro, includes the net effect, as detailed in the table below to which reference is made, of deferred tax liabilities and deferred tax assets as per corporate income tax (IRES) and regional tax (IRAP) as well as provisions made solely for tax purposes. The recoverability of "Deferred tax assets" recognized in the financial statements is considered likely, since future plans include IRES taxable income sufficient to absorb the temporary differences that will be reversed; for the years of the plan for which the IRAP taxable income is not provided sufficiently to absorb IRAP temporary differences, it was decided to repay the related IRAP deferred tax assets and liabilities.

Deferred tax assets are calculated using the tax rate applicable at the time of repayment.

At December 31, 2019, the amounts relative to deferred tax assets/deferred tax liabilities have been expressed as net ("offsetting") as per IAS 12 standards.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements

Basis of

preparation Changes in international

accounting standards Accounting

standards and policies

Notes to the balance sheet

Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

This item is detailed within the table below:

thousands of euro Balance at
12 31 2019
Balance at
12 31 2018
Value differences of tangible assets 131,810 142,605
Adoption of the finance lease standard (IFRS 16) 348 5,374
Measurement differences of intangible assets 2,522 2,922
Deferred capital gains 15 23
Employee leaving entitlement (TFR) - 1,226
Other deferred tax liabilities 4,404 9,066
Deferred tax liabilities (A) 139,099 161,216
Taxed risk provisions 61,052 82,997
Amortization, depreciation and write-downs 71,528 78,083
Application of the financial instrument standard (IFRS 9) 781 359
Bad debt provision 2,565 2,716
Grants - 2,654
Goodwill 50,466 50,466
Other deferred tax assets 12,395 9,941
Deferred tax assets (B) 198,787 227,216
Net effect deferred tax assets (B-A) 59,688 66,000

For further details and information, please refer to the item "Income/expenses for income tax" on the income statement.

5) Other non-current assets

thousands of euro Balance at
Effect of
Changes
12 31 2018
non
during the
recurring
year
Balance at
12 31 2019
of which included
in the NFP
transactions 12 31 2018 12 31 2019
2,381
-
2,381
Non-current derivatives
Other non-current assets
Total other non-current assets
7,693
708
8,401
-
-
-
(5,312)
12,258
6,946
2,381
12,966
15,347
7,693
-
7,693

"Other non-current assets" amounted to 15,347 thousand euro (8,401 thousand euro at December 31, 2018), presenting an increase of 6,946 thousand euro over the previous year and consist of:

  • non-current derivative instruments amounting to 2,381 thousand euro (7,693 thousand euro at December 31, 2018) that refer to the fair value measurement of a financial instrument at the end of the year;
  • other non-current receivables of 12,966 thousand euro (708 thousand euro at December 31, 2018) relating to security deposits. The significant increase in this item is due to higher security deposits provided to Terna during the year as participation in auctions on the production capacity market.

CURRENT ASSETS

6) Inventories

thousands of euro Balance at
12 31 2018
Effect of
non-recurring
transactions
Changes
during the
year
Balance at
12 31 2019
- Materials 1,272 (50) 1,222
- Material obsolescence provision (620) (14) (634)
Total material 652 - (64) 588
- Fuel 90,546 5,009 95,555
- Others (include environmental certificates) 48 (48) -
Raw and ancillary materials and
consumables
91,246 - 4,897 96,143
Third-party fuel 3,491 7,278 10,769
Total inventories 94,737 - 12,175 106,912

Inventories at December 31, 2019 amounted to 106,912 thousand euro (94,737 thousand euro at December 31, 2018); changes during the year were positive for 12,175 thousand euro and mainly refer to the increase in fuel inventories held by third parties and natural gas inventories. This item includes:

  • inventories of materials amounting to 1,222 thousand euro, net of relative provisions for obsolescence for 634 thousand euro;
  • inventories of fuels, for 95,555 thousand euro, which include the inventories of fuels for the production of electricity, as well as the gas inventories for the sale and storage thereof;
  • fuels at third parties, for 10,769 thousand euro, relating to coal at the warehouse in Koper that have not cleared customs in Italy yet.

7) Trade receivables

thousands of euro Balance at
12 31 2018
Effect of
non-recurring
transactions
Changes
during the
year
Balance at
12 31 2019
Trade receivables - invoices issued 348,061 (318,394) 29,667
Trade receivables - invoices to be issued 384,014 248,419 632,433
Bad debt provision (14,883) 8,689 (6,194)
Total trade receivables 717,192 - (61,286) 655,906

At December 31, 2019, trade receivables amounted to 655,906 thousand euro (717,192 thousand euro at December 31, 2018) and decreased by 61,286 thousand euro. These receivables include:

  • 420,657 thousand euro of receivables from customers;
  • 235,249 thousand euro of receivables from subsidiaries, controlling entities and associates.

As of the reporting date, the bad debt provision calculated in accordance with IFRS 9 amounted to 6,194 thousand euro, a decrease of 8,689 thousand euro. This provision is considered adequate to cover the risks to which it relates.

The detailed changes in the provisions to adjust the values of receivables are outlined in the following table:

thousands of euro Balance at
12 31 2018
Effect of
non-recurring
transactions
Provisions Utilizations Other
changes
Balance at
12 31 2019
Bad debt provision 14,883 - (404) (8,285) - 6,194

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements

Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet

Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

The following is the aging of trade receivables:

thousands of euro Balance at
12 31 2018
Balance at
12 31 2019
Trade receivables of which: 717,192 655,906
Current 287,032 21,816
Past due of which: 61,029 7,851
- Past due up to 30 days 25,497 1,079
- Past due from 31 to 180 days 6,520 724
- Past due from 181 to 365 days 884 (124)
- Past due over 365 days 28,128 6,172
Invoices to be issued 384,014 632,433
Bad debts provision (14,883) (6,194)

8) Other current assets

thousands of euro Balance at
12 31 2018
Effect of
non
Changes
during the
Balance at
12 31 2019
of which included
in the NFP
recurring
transactions
year 12 31 2018 12 31 2019
Current derivatives 163,043 - 208,436 371,479 - -
Other current assets of which: 97,339 - 8,182 105,521 - -
- advances to suppliers 17,409 (6,502) 10,907
- receivables from employees 204 (11) 193
- tax receivables 3,645 (1,587) 2,058
- receivables related to future years 8,062 596 8,658
- receivables from subsidiaries for tax
consolidation
60,575 (5,116) 55,459
- receivables from social security entities 910 (28) 882
- receivables for water derivation fees 52 52
- Stamp office 124 124
- receivables for security deposits 1,276 (102) 1,174
- receivables from Ergosud 2,175 2,175
- other sundry receivables 2,907 20,932 23,839
Total other current assets 260,382 - 216,618 477,000 - -

"Other current assets" presented a balance of 477,000 thousand euro (260,382 thousand euro at December 31, 2018), an increase of 216,618 thousand euro with respect to the previous year.

"Current derivative instruments" amounting to 371,479 thousand euro (163,043 thousand euro at December 31, 2018) refer to the fair value valuation of commodity derivatives at the end of the year under review. The increase is due both to the increase in the fair value valuation of the year and to the change in the amounts covered. It should be noted that "Other current liabilities" include 380,090 thousand euro in "Current derivatives".

Tax receivables, amounting to 2,058 thousand euro, mainly relate to tax receivables from the tax authorities for excise and withholding taxes.

Receivables from Ergosud, amounting to 2,175 thousand 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 ARERA Resolutions no. ARG/elt 194/10 and no. 117/10.

Other receivables show an increase of 20,932 thousand euro mainly attributable to the advance payment of electricity futures contracts the economic result of which will be in the following year.

9) Current financial assets

thousands of euro Balance at
12 31 2018
Effect of
non
recurring
Changes
during the
year
Balance at
12 31 2019
of which included
in the NFP
transactions 12 31 2018 12 31 2019
Financial assets measured at amortized cost
(HTC) of which:
- third parties 1,200 - (1,200) - 1,200 -
- related parties 660,177 (461) (273,419) 386,297 660,177 386,297
Total financial assets measured at amortized
cost (HTC)
661,377 (461) (274,619) 386,297 661,377 386,297
Total current financial assets 661,377 (461) (274,619) 386,297 661,377 386,297

"Current f inancial assets" refer to "Financial assets measured at amortized cost (HTC)" totalling 386,297 thousand euro and refer:

  • 386,047 thousand euro in financial receivable from subsidiaries for both the balance in inter-Group current accounts to which interest rates are applied, at market rates, on a variable Euribor basis with specific spreads for each company, and for the current portion of loans granted to Linea Group Holding S.p.A., Aprica S.p.A., A2A Smart City S.p.A., A2A Rinnovabili S.p.A. and the companies acquired by it (INTHE 2 S.r.l., Bellariva Enertel 07 S.r.l., RenewA26 S.r.l., RenewA27 S.r.l., RenewA28 S.r.l., Trovosix S.r.l.), SED S.r.l. and A2A Montenegro d.o.o. for a total of 25,929 thousand euro;
  • for 250 thousand euro, to financial receivables from associates.

This item, net of the effect of negative non-recurring transactions amounting to 461 thousand euro, shows a decrease of 274,619 thousand euro due to the combined effect of lower receivables for loans granted to subsidiaries following repayments made during the year, as well as lower receivables accrued on current accounts.

10) Current tax assets

thousands of euro Balance at
12 31 2018
Effect of
non-recurring
transactions
Changes
during the
year
Balance at
12 31 2019
Current tax assets 35,542 - 14,541 50,083

At December 31, 2019, this item amounted to 50,083 thousand euro (35,542 thousand euro at December 31, 2018) and refers to IRAP receivables (13,392 thousand euro), IRES receivables (36,066 thousand euro), relating to current IRES for amounts requested for reimbursement on payments of previous years, and the remaining credit for Robin Tax (625 thousand euro) paid in previous years and that will be recovered in subsequent years.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet

Net debt

Notes to the income statement Note on

related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties

Other information 4 Attachments

5 Independent Auditors' Report

11) Cash and cash equivalents

thousands of euro Balance at
12 31 2018
Effect of
Changes
non
during the
recurring
year
Balance at
12 31 2019
of which included
in the NFP
transactions 12 31 2018 12 31 2019
Cash and cash equivalents 509,947 - (149,869) 360,078 509,947 360,078

"Cash and cash equivalents" at December 31, 2019 amounted to 360,078 thousand euro (509,947 thousand euro at December 31, 2018), with a decrease of 149,869 thousand euro compared with the end of the previous year. Bank deposits include accrued interest not yet credited by the end of the year.

Cash and cash equivalents at December 31, 2019 are free from any kind of restriction, block, even temporary, and pledge.

12) Non-current assets held for sale

thousands of euro Balance at
12 31 2018
Effect of
non-recurring
transactions
Changes
during the
year
Balance at
12 31 2019
Non-current assets held for sale 108,960 - (108,960) -

The item "Non-current assets held for sale" at December 31, 2019 shows a zero balance while at December 31, 2018, it amounted to 108,960 thousand euro and referred to the fair value of the shareholding in EPCG, 18.70% held by A2A S.p.A.. The decrease compared to December 31, 2018 is due to the collections made during the reporting year under the agreements entered into by the parties, which brought the residual value existing at December 31, 2018 to zero, thus completing the redemption process begun in 2017 following management's decision to exercise the put option on the entire share package.

EQUITY AND LIABILITIES

EQUITY

Equity, which at December 31, 2019 amounted to 2,843,650 thousand euro (2,635,588 thousand euro at December 31, 2018), is set forth within the following table:

thousands of euro Balance at
12 31 2018
Effect of
non-recurring
transactions
Changes
during the
year
Balance at
12 31 2019
Equity
Share capital 1,629,111 1,629,111
(Treasury shares) (53,661) (53,661)
Reserves 687,047 130,530 817,577
Net result of the year 373,091 77,532 450,623
Total equity 2,635,588 - 208,062 2,843,650

13) Share capital

At December 31, 2019, the "Share capital" amounted to 1,629,111 thousand euro and is comprised of 3,132,905,277 ordinary shares with a unitary value of 0.52 euro each.

14) Treasury shares

The "Treasury shares" amounted to 53,661 thousand euro, unchanged with respect to December 31, 2018 and consist of 23,721,421 own shares held by the company.

15) Reserves

thousands of euro Balance at
12 31 2018
Effect of
non-recurring
transactions
Changes
during the
year
Balance at
12 31 2019
Reserves 687,047 130,530 817,577
of which:
Change in fair value of derivatives
Cash flow hedges and fair value bonds
(3,346) (34,102) (37,448)
Tax effect 975 9,917 10,892
Cash flow hedge reserves and fair value
bonds
(2,371) - (24,185) (26,556)
Change in the IAS 19 Revised reserve -
Employee Benefits
(50,109) (2,094) (52,203)
Tax effect 14,085 571 14,656
IAS 19 Revised reserves -
Employee benefits
(36,024) - (1,523) (37,547)
Change in the Available for sale reserves (608) (608)
Tax effect 146 146
Change in Available for sale (462) - - (462)

"Reserves", which at December 31, 2019 amounted to 817,577 thousand euro (687,047 thousand euro at December 31, 2018), increased by 130,530 thousand euro mainly due to the allocation of the 2018 profit.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and

Notes to the balance sheet

policies

Net debt

Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293

of July 28, 2006 Guarantees and

commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

This item includes the following unavailable reserves:

  • for 95,325 thousand euro the reserve arising from the corporate separation occurred in 1999. Such reserve will be available for distribution in portions in the following years based on the amortization carried out by the receiving company on the higher values determining capital gains from contribution;
  • 26,556 thousand euro for the negative cash flow hedge reserve including the fair value of hedging derivatives and bonds in foreign currency, net of tax;
  • for 37,547 thousand euro, the negative reserve arising from the adoption of IAS 19 Revised Employee Benefits which requires actuarial profits and losses to be recognized directly in an equity reserve, net of the tax effect.
  • for 462 thousand euro, the negative available-for-sale reserve including the fair value of certain available-for-sale shareholdings net of the tax effect;
  • for 232,248 thousand euro, the legal reserve.

Reserves and the profits that in case of distribution must be considered as IRES tax suspension amounted to 73,576 thousand euro.

It should be noted that during 2019, dividends amounting to 217,643 thousand euro corresponding to 0.070 euro per share were distributed, as approved by the shareholders' meeting on May 13, 2019.

16) Result of the year

Positive result for 450,623 thousand euro.

LIABILITIES

NON-CURRENT LIABILITIES

17) Non-current financial liabilities

thousands of euro Balance at
12 31 2018
Effect of
non
Changes
during the
Balance at
12 31 2019
of which included
in the NFP
recurring
transactions
year 12 31 2018 12 31 2019
Non-convertible bonds 2,150,370 399,441 2,549,811 2,150,370 2,549,811
Payables to banks 691,037 (77,548) 613,489 691,037 613,489
Non-current financial payables for rights of use
to third parties
- 4,745 4,745 - 4,745
Non-current financial payables for rights of use
to related parties
- 1,121 1,121 - 1,121
Total non-current financial liabilities 2,841,407 - 327,759 3,169,166 2,841,407 3,169,166

"Non-current financial liabilities" amounted to 3,169,166 thousand euro (2,841,407 thousand euro at December 31, 2018), with an increase of 327,759 thousand euro.

"Non-convertible bonds" regard the following bonds, accounted for at amortized cost:

  • 350,739 thousand euro, maturing in January 2021 and coupon of 4.375%, the nominal value of which is equal to 351,457 thousand euro;
  • 498,713 thousand euro, maturing in January 2022 and coupon of 3.625%, the nominal value of which is equal to 500,000 thousand euro;
  • 299,385 thousand euro, Private Placement maturing in December 2023 and coupon of 4.00%, the nominal value of which is equal to 300,000 thousand euro;

  • 299,395 thousand euro, Private Placement maturing in March 2024 and coupon of 1.25%, the nominal value of which is equal to 300,000 thousand euro;

  • 297,844 thousand euro, maturing in February 2025 and coupon of 1.75%, the nominal value of which is equal to 300,000 thousand euro;
  • 295,805 thousand euro, maturing in October 2027 and coupon of 1.625%, the nominal value of which is equal to 300,000 thousand euro;
  • 114,433 thousand euro, Private Placement in yen maturing in August 2036 and fixed rate of 5.405%, the nominal value of which is equal to 14 billion yen;
  • 393,497 thousand euro, maturing in July 2029 and coupon of 1.00%, the nominal value of which is equal to 400,000 thousand euro.

The net increase in the non-current component of "Non-convertible Bonds", amounting to 399,441 thousand euro compared to December 31, 2018, is mainly due to the subscription of the new green bond with maturity in 2029 aimed at financing and/or refinancing environmental sustainability projects related, for example, to the circular economy and decarbonization, as well as the increase in the ECB exchange rate applied to the yen bond.

Non-current "Payables to banks" amounted to 613,489 thousand euro, a decrease of 77,548 thousand euro compared to the previous year-end, due to the reclassification under current liabilities of the portions of capital maturing within the following year.

"Non-current financial payables for rights of use" to both third parties and related parties amounted to 5,866 thousand euro following the application of IFRS 16 for leases previously classified as operating leases.

The following table shows the comparison, for each long-term debt category, between the book value and the fair value, including the portion falling due in the next 12 months. For listed debt instruments, the fair value is determined using stock prices, while for unlisted securities the fair value is determined using valuation models for each category of financial instrument and using market data relating to the closing date of the financial year, including the credit spreads of A2A S.p.A..

Figures in thousands of
euro and excluding financial
payables for rights of use
Nominal value Book value Current
portion
Non-current
portion
Fair value
Bonds 2,549,457 2,595,413 45,602 2,549,811 2,759,698
Bank loans 721,553 721,215 107,726 613,489 720,401
Total 3,271,010 3,316,628 153,328 3,163,300 3,480,099

18) Employee benefits

At the end of the fiscal year, "Employee Benefits" amounted to 140,247 thousand euro (142,277 thousand euro as of December 31, 2018) with changes as follows during the period:

thousands of euro Balance at
12 31 2018
Effect of
non-recurring
transactions
Provisions Utilizations Other
changes
Balance at
12 31 2019
Employee leaving entitlement (TFR) 27,504 714 5,687 (1,949) (4,141) 27,815
Employee benefits 114,773 12 (5,122) 2,769 112,432
Total employee benefits 142,277 726 5,687 (7,071) (1,372) 140,247

Changes during the year include 5,687 thousand euro in provisions for the year, 7,071 thousand euro in the decrease due to disbursements during the year, 726 thousand euro in the increase due to the effect of extraordinary transactions during the year and 1,372 thousand euro in the net decrease due to actuarial valuations for the year, resulting from the combined effect of the increase for interest cost of 1,857 thousand euro, the increase for actuarial gains/losses of 2,093 thousand euro and other negative changes for 5,322 thousand euro.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A.

Financial statements

Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet

Net debt

Notes to the income statement Note on related party

transactions Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

2019 2018
Discount rate from -0.1% to 0.8% from 0.1% to 1.6%
Annual inflation rate 1.2% 1.5%
Annual seniority bonus increase rate 2.0% 2.0%
Annual additional months increase rate 0.0% 0.0%
Annual cost of electricity increase rate 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 2.4% 2.6%
Average annual increase rate of supplementary pensions 1.1% 1.1%
Annual turnover frequencies 5.0% 5.0%
Annual TFR advance frequencies 2.0% 2.0%

Technical valuations were carried out on the basis of the following assumptions:

It is noted that:

  • the annual discount rate used to determine the present value of the bond has been derived, in line with paragraph 83 of IAS 19, from the Iboxx Corporate AA index recognized at the measurement date. For this purpose, the yield with duration comparable to the duration of the work group evaluated was chosen;
  • the annual rate of salary increase applied exclusively to companies with fewer than 50 employees on average in 2006 was determined on the basis of the reference data communicated by Group companies;
  • the annual rate of TFR increase, according to art. 2120 of the Civil Code, is equal to 75% of inflation plus 1.5 percentage points;
  • the annual advance and turnover frequencies are derived from historical experiences of the Group and the frequencies arising from the experience of the Actuary on a significant number of similar companies;
  • for the demographic technical bases, it is noted that:
  • for "death", the tables TG62 (Premungas) AS62 (Electricity and gas discount) and RG48 (other plans) were used;
  • for "inability", the INPS tables divided by age and gender were used;
  • for "retirement", the 100% parameter was used upon reaching the requirements of AGO (Obligatory General Insurance) in accordance with DL no. 04/2019;
  • for the "probability of leaving the family", the table in the INPS model was used for projections to 2010 updated;
  • for the "frequency of the various structures of surviving nuclei and average age of members", the table in the INPS model was used for projections to 2010.

As required by IAS 19, the sensitivity for post-employment employee benefit obligations is outlined below:

thousands of euro Turnover rate
+1%
Turnover rate
-1%
Inflation rate
+0.25%
Inflation rate -0.25% Actualization
rate
+0.25%
Actualization
rate
-0.25%
TFR 27,429 27,739 27,829 27,330 27,178 27,989
thousands of euro Actualization
rate
+0.25%
Actualization
rate
-0.25%
Mortality table
increased
by 10%
Mortality table
decreased
by 10%
Premungas 19,788 20,483 19,097 21,292
Electricity and gas discount 84,363 89,320 89,381 84,368
Additional months 3,192 3,337 n.s. n.s.

19) Provisions for risks, charges and liabilities for landfills

thousands of euro Balance at
12 31 2018
Effect of
non
recurring
transactions
Provisions Releases Utilizations Other
changes
Balance at
12 31 2019
Decommissioning provisions - 3,965 3,965
Tax provisions 1,986 116 (1,984) 118
Personnel lawsuits and disputes
provisions
14,641 1,485 (6,285) (853) (1,161) 7,827
Other risk provisions 163,677 9,403 (55) (74,572) 98,453
Provisions for risks, charges and
liabilities for landfills
180,304 - 11,004 (8,324) (853) (71,768) 110,363

"Decommissioning provisions", which amounted to 3,965 thousand euro, include charges for costs of dismantling and recovery of production sites related to hydroelectric plants of Valtellina. Changes during the year were related to other increases of 3,965 thousand euro, which refer to the effects of the updated appraisals and have as balancing entry "Tangible assets".

"Tax Provisions", which amounted to 118 thousand euro, refer to provisions for pending or potential litigation with the tax authorities or territorial entities for levies and direct and indirect taxes. The changes in the year were related to the provisions for 116 thousand euro and releases for 1,984 thousand euro, mainly relating to the ICI/IMU dispute with some regional authorities.

The "Personnel lawsuits and disputes provisions" amounted to 7,827 thousand euro and refer to lawsuits pending with social security institutions, for contributions not paid for 998 thousand euro, to lawsuits with third parties for 6,762 thousand euro and with employees for 67 thousand euro, to cover the liabilities that could arise from litigations in progress. Provisions for the year, for 1,485 thousand euro, mainly refer to disputes pending with third parties. Releases amounting to 6,285 thousand euro mainly refer to the disputes in progress with Social Security Institutions following the resolution of the dispute. Utilizations, for 853 thousand euro, mainly refer to the payment made following the resolution of the disputes with third parties. Other changes were negative and totalled 1,161 thousand euro.

"Other risk provisions" of 98,453 thousand euro refer to provisions relating to public water derivation fees for 52,335 thousand euro, provisions for contractual expenses for 14,717 thousand euro, to the mobility provision for the costs arising from the corporate restructuring plan for 7,674 thousand euro, as well as other provisions for risks for 23,727 thousand euro. Provisions for the year amounted to 9,403 thousand euro and refer to allocations to provisions relating to public water derivation fees. Releases amounted to 55 thousand euro. Other changes refer for 7,429 thousand euro to the increase in the mobility provision and for 82,001 thousand euro to the decrease in the provision relating to the cost of the current obligations in the existing tolling contract with the company Ergosud S.p.A. Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and

Notes to the balance sheet

policies

Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

registered in 2014; this release was possible as a result of new and positive future margins of the Scandale plant, also due to the award of the Capacity Market for the years 2022 and 2023, as well as the reduction in the amount of the tolling contract during the year.

20) Other non-current liabilities

thousands of euro Balance at
12 31 2018
Effect of
non
Changes
during the
Balance at
12 31 2019
of which included
in the NFP
recurring
transactions
year 12 31 2018 12 31 2019
Other non-current liabilities 10,664 (4,737) 5,927 - -
Non-current derivatives 7,958 (2,321) 5,637 7,958 5,637
Total other non-current liabilities 18,622 - (7,058) 11,564 7,958 5,637

"Other non-current liabilities" amounted to 11,564 thousand euro and are divided as follows:

  • 5,637 thousand euro for the fair value of financial derivatives to hedge interest rate risk on variable rate mortgages;
  • 2,142 thousand euro for the payable to minority shareholders of Linea Group Holding S.p.A. revised on the basis of the new partnership agreement stipulated during the year by the parties, which reduced the debt relating to earn-out clauses;
  • for 3,354 thousand euro to non-current liabilities related to long-term service agreements relating to the maintenance of the plants;
  • 431 thousand euro for "Other non-current liabilities".

CURRENT LIABILITIES

21) Trade payables and other current liabilities

thousands of euro Balance at
12 31 2018
Effect of
non
Changes
during the
Balance at
12 31 2019
of which included
in the NFP
recurring
transactions
year 12 31 2018 12 31 2019
Advances 112 (104) 8
Payables to suppliers 677,832 (6,294) 671,538
Trade payables to related parties: 98,061 - 3,160 101,221
- subsidiaries 83,605 3,608 87,213
- parent companies 545 (489) 56
- associates 13,911 41 13,952
Total trade payables 776,005 - (3,238) 772,767 - -
Payables to pension and social security
institutions
13,925 89 14,014
Current derivatives 155,542 224,548 380,090
Other payables: 81,009 51 32,442 113,502
- payables for tax consolidation 26,376 (993) 25,383
- payables for tax transparency 7,167 7,167
- payables to personnel 17,650 51 2,440 20,141
- payables to Cassa per i Servizi Energetici e
Ambientali
3 3
- tax payables 14,141 35,242 49,383
- payables for liabilities of competence of the
following year
532 (79) 453
- payables for collections to be allocated 4,074 1,039 5,113
- payables to insurance companies 1,939 (325) 1,614
- payables to waterway municipalities 1,208 270 1,478
- other 7,919 (5,152) 2,767
Total other current liabilities 250,476 51 257,079 507,606 - -
Total trade payables and other current
liabilities
1,026,481 51 253,841 1,280,373 - -

"Trade payables and other current liabilities" amounted to 1,280,373 thousand euro (1,026,481 thousand euro at December 31, 2018), representing an overall increase of 253,841 thousand euro net of the effect of non-recurring transactions, positive for 51 thousand euro.

"Trade payables" amounted to 772,767 thousand euro and include both debt exposure to third-party suppliers (671,546 thousand euro) and trade payables to related parties (101,221 thousand euro).

"Payables to pension and social security institutions" amounted to 14,014 thousand euro and relate to the company's debt position with social security and pension institutions, related to contributions of the month of December 2019 not yet paid.

"Current derivatives" amounted to 380,090 thousand euro and refer to the fair value valuation of commodity derivatives. The increase is due both to the increase in the fair value valuation of the year and to the change in the amounts covered. It should be noted that "Other current assets" include 371,479 thousand euro in "Current derivatives".

"Other current liabilities" mainly refer to:

  • payables to subsidiaries for the Group tax consolidation and VAT regime for 25,383 thousand euro;
  • payables for fiscal transparency for 7,167 thousand euro to the associate Ergosud S.p.A.;

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in

international accounting standards Accounting

standards and policies

Notes to the balance sheet

Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

  • payables to employees for 20,141 thousand euro relating to payables to employees for the productivity bonus accrued during the year, as well as the expense for holidays accrued but not taken at December 31, 2019;
  • tax payables for 49,383 thousand euro that mainly refer to payables to the tax authorities for VAT, excise and withholding taxes;

22) Current financial liabilities

thousands of euro Balance at
12 31 2018
Effect of
non
Changes
during the
year
Balance at
12 31 2019
of which included
in the NFP
recurring
transactions
12 31 2018 12 31 2019
Non-convertible bonds 555,917 (510,315) 45,602 555,917 45,602
Payables to banks 52,565 55,161 107,726 52,565 107,726
Current financial payables for rights of use to
third parties
- 3,366 3,366 - 3,366
Current financial payables for rights of use to
related parties
- 333 333 - 333
Financial payables to related parties 411,430 21,370 432,800 411,430 432,800
Total current financial liabilities 1,019,912 - (430,085) 589,827 1,019,912 589,827

"Current financial liabilities" amounted to 589,827 thousand euro, an overall decrease of 430,085 thousand euro.

"Non-convertible Bonds" decreased by 510,315 thousand euro mainly due to the repayment of the bond with maturity in November 2019 and coupon 4.50%. At December 31, 2019, the calculation of interest coupons amounted to 45,602 thousand euro (45,859 thousand euro at December 31, 2018).

Current "Payables to banks" increased by 55,161 thousand euro during the year, mainly due to the reclassification of the portion due within one year of a loan from the item "Non-current financial liabilities" net of the repayments of credit lines and portions of loans during the year under review.

"Current financial payables for rights of use" to both third parties and related parties amounted to 3,699 thousand euro following the application of IFRS 16 for leases previously classified as operating leases.

"Financial payables to related parties" amounted to 432,800 thousand euro and relate to intercompany current accounts on which rates are applied at market conditions, with variable Euribor base with specific spreads for companies.

23) Tax liabilities

thousands of euro Balance at
12 31 2018
Effect of
non-recurring
transactions
Changes
during the
year
Balance at
12 31 2019
Tax liabilities 28,894 (28,868) 26

At December 31, 2019, this item amounted to 26 thousand euro (28,894 thousand euro at December 31, 2018) and refers to the payable for IRES Spain. At December 31, 2019, the exposure to the tax authorities for current IRES and IRAP had a credit balance unlike the previous year.

Net debt

24) Net debt (pursuant to CONSOB Communication no. DEM/6064293 of July 28, 2006 and ESMA/2013/319)

The following table provides details of net debt:

thousands of euro Notes 12 31 2019 Effect of
non-recurring
transactions
12 31 2018
Bonds - non-current portion 17 2,549,811 2,150,370
Bank loans - non-current portion 17 613,489 691,037
Non-current financial payables for rights of use 17 5,866 -
Other non-current liabilities 20 5,637 7,958
Total medium/long-term debt 3,174,803 - 2,849,365
Non-current financial assets with related parties 3 (1,147,559) (608,173)
Other non-current financial assets and other
non-current assets
3-5 (2,477) (7,789)
Total medium/long-term financial receivables (1,150,036) - (615,962)
Total non-current net debt 2,024,767 - 2,233,403
Bonds - current portion 22 45,602 555,917
Bank loans - current portion 22 107,726 52,565
Current financial payables for rights of use 22 3,699 -
Financial liabilities with third parties - current portion 22 - -
Financial liabilities with related parties - current portion 22 432,800 411,430
Total short-term debt 589,827 - 1,019,912
Other current assets 8 - -
Financial assets with third parties - current portion 9 - (1,200)
Financial assets with related parties - current portion 9 (386,297) 461 (660,177)
Total short-term financial receivables (386,297) 461 (661,377)
Cash and cash equivalents 11 (360,078) (509,947)
Total current net debt (156,548) 461 (151,412)
Net debt 1,868,219 461 2,081,991

Pursuant to IAS 7 "Cash Flow Statement", the following are the changes in financial assets and liabilities:

thousands of euro 12 31 2018 Cash flow Non-cash flow
Effect of
non
recurring
transactions
Change in
fair value
Other
changes
Bonds 2,706,287 (110,960) 3,567 (3,481) 2,595,413
Financial payables 1,155,032 (5,203) 13,751 1,163,580
Other liabilities 7,958 (2,321) 5,637
Financial assets (1,269,646) (261,259) 461 (3,508) (1,533,952)
Other assets (7,693) 5,312 (2,381)
Net liabilities deriving from financing activities 2,591,938 (377,422) 461 6,558 6,762 2,228,297
Cash and cash equivalents (509,947) 149,869 (360,078)
Net debt 2,081,991 (227,553) 461 6,558 6,762 1,868,219

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements

Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet

Net debt Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments

with third parties Other information

4 Attachments

5 Independent Auditors' Report

Notes to the income statement

The income statement items at December 31, 2019 of A2A S.p.A. reflect the effects of the following extraordinary transactions, with an impact that is not significant from an economic point of view:

  • the transfer of the International Business Unit to the subsidiary A2Abroad S.p.A. with effect from July 1, 2019;
  • the acquisition of the STAFF HR Business Unit from the subsidiary AMSA S.p.A. with effect from August 1, 2019.

25) Revenues

Revenues in 2019 amounted to 4,489,116 thousand euro (3,825,628 thousand euro at December 31, 2018).

Details of the most important sources of revenues are provided below:

Revenues
thousands of euro
12 31 2019 12 31 2018 CHANGE
Revenues from the sale of goods 4,197,844 3,578,015 619,829
Revenues from services 185,728 164,568 21,160
Total revenues from the sale of goods and services 4,383,572 3,742,583 640,989
Other operating income 105,544 83,045 22,499
Total revenues 4,489,116 3,825,628 663,488

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

Details of the main items are as follows:

thousands of euro 12 31 2019 12 31 2018 CHANGE
Sales of electricity of which: 2,514,982 2,295,143 219,839
- third-party customers 1,793,927 1,798,929 (5,002)
- subsidiaries 721,011 496,214 224,797
- associates 44 - 44
Sales of gas and fuels of which: 1,632,614 1,159,345 473,269
- third-party customers 1,020,479 648,998 371,481
- subsidiaries 606,111 506,089 100,022
- associates 6,024 4,258 1,766
Sales of heat of which 456 375 81
- third-party customers - - -
- subsidiaries 456 375 81
Sales of materials and equipment of which: 8,058 13,187 (5,129)
- third-party customers 1,937 7,375 (5,438)
- subsidiaries 6,121 5,773 348
- associates - 39 (39)
Sales of emission certificates and allowances of which: 41,734 109,965 (68,231)
- third-party customers and inventory change 13,785 89,610 (75,825)
- subsidiaries 27,949 20,355 7,594
Total revenues from the sale of goods 4,197,844 3,578,015 619,829
Services of which:
- third-party customers 2,956 4,100 (1,144)
- subsidiaries 180,013 156,524 23,489
- Municipalities of Milan and Brescia 2,469 3,311 (842)
- associates 290 633 (343)
Total revenues from services 185,728 164,568 21,160
Total revenues from the sale of goods and services 4,383,572 3,742,583 640,989
Other operating income of which:
Other revenues from subsidiaries 6,589 23,925 (17,336)
Other revenues from associates 62,977 15 62,962
Damage compensation 487 837 (350)
Contingent assets 2,026 7,698 (5,672)
Incentives for production from renewable sources
(feed-in-tariff)
25,590 47,589 (21,999)
Gains on disposals of tangible assets 3,868 631 3,237
Other revenues 4,007 2,350 1,657
Total other operating income 105,544 83,045 22,499
Total revenues 4,489,116 3,825,628 663,488

"Revenues from the sale of goods and services" amounted to 4,383,572 thousand euro (3,742,583 thousand euro in 2018).

Sales revenues amounted to 4,197,844 thousand euro and mainly refer to the sale of electricity (2,514,982 thousand euro) to wholesalers and institutional operators (Gestore Mercato Elettrico S.p.A. and Terna S.p.A.), also through sales on the IPEX (Italian Power Exchange) markets as well as to subsidiaries and associates for a total of 11,979 million kWh (+34% compared to December 31, 2018); the sale of gas and fuels to third parties and to subsidiaries (1,632,614 thousand euro) resulting from the sale of 3,851 million cubic meters of natural gas (+37% compared with the previous year); the sale of heat, materials and equipment to third parties and subsidiaries (8,058 thousand euro), the decrease, equal to 5,129 thousand euro of which, compared with the end of the previous year is due mainly to the progressive completion of the turn-key supply of a plant for the bio-drying of municipal solid waste in Spain; and the sale of environmental certificates to third parties and subsidiaries (41,734 thousand euro), which decreased because in the previous year, this item included the sale of all the inventories of green certificates still held in A2A S.p.A.'s portfolio and this decrease was partly offset by higher revenues on CO2 mainly due to the effect of the increase in the sale price of the same in relation to the increase recorded in the reference scenario.

Revenues from services amount to 185,728 thousand euro and mainly relate to revenues from provisions to subsidiaries of administrative, fiscal, legal, managerial and technical services, and revenues from the Municipality of Milan for the video surveillance service.

"Other operating income", amounting to 105,544 thousand euro (83,045 thousand euro in the previous year), refers for 62,980 thousand euro to the release of the provision for the tolling contract with Ergosud. This release was possible as a result of new and positive assumptions about the future profitability of the Scandale power plant, also due to the award of the capacity market for 2022 and 2023, as well as the renegotiation of the tolling contract during the year. The remaining 42,564 thousand euro refer to the recognition of incentives on net production from renewable sources (25,590 thousand euro) 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 service by December 31, 2012 and that have acquired the right to benefit from Green Certificates); as well as rents from subsidiaries and associates, contingent assets recorded as a result of the difference of appropriations in previous years, reimbursements for damages and penalties received from customers, insurance and private entities.

26) Operating expenses

"Operating expenses" totalled 4,127,459 thousand euro (3,515,874 thousand euro in 2018).

The main components of this item are as follows:

Operating expenses
thousands of euro
12 31 2019 12 31 2018 CHANGE
Costs for raw materials and consumables 3,585,913 2,983,280 602,633
Costs for services 266,328 220,514 45,814
Total costs for raw materials and services 3,852,241 3,203,794 648,447
Other operating expenses 275,218 312,080 (36,862)
Total operating expenses 4,127,459 3,515,874 611,585

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements

Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the

Note on related party transactions Consob

Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

thousands of euro 12 31 2019 12 31 2018 CHANGE
Purchases of power and fuel of which: 3,429,203 2,884,211 544,992
- third-party suppliers 3,251,474 2,721,637 529,837
- subsidiaries 177,729 161,804 15,925
- associates - 770 (770)
Change in inventories of fuel (5,009) (16,480) 11,471
Purchases of water of which: 122 184 (62)
- third-party suppliers 41 88 (47)
- subsidiaries 81 96 (15)
Purchases of materials of which: 9,881 11,782 (1,901)
- third-party suppliers 9,821 11,756 (1,935)
- subsidiaries 60 26 34
Change in inventories of materials 64 41 23
Hedging gains on operating derivatives (18,033) (26,241) 8,208
Hedging losses on operating derivatives 14,693 16,109 (1,416)
Purchases of emission certificates and allowances of which: 154,992 113,674 41,318
- third-party suppliers 154,842 112,966 41,876
- subsidiaries 150 708 (558)
Total expenses for raw materials and consumables 3,585,913 2,983,280 602,633
Delivery and transmission costs of which: 144,080 115,650 28,430
- third-party suppliers 140,323 113,051 27,272
- subsidiaries 3,757 2,599 1,158
Maintenance and repairs 34,510 30,062 4,448
Services of which: 87,738 74,802 12,936
- third-party suppliers 72,176 59,053 13,123
- subsidiaries 15,489 15,486 3
- associates 73 263 (190)
Total costs for services 266,328 220,514 45,814
Total costs for raw materials and services 3,852,241 3,203,794 648,447
Leaseholds: 213,655 231,159 (17,504)
- third-party suppliers 24,836 26,995 (2,159)
- subsidiaries 188,819 182,201 6,618
- associates - 21,963 (21,963)
Other operating expenses of which: 61,563 80,921 (19,358)
- other expenses from subsidiaries 18 4,203 (4,185)
- other expenses from associates - 58 (58)
Water derivation concession fees 34,820 35,811 (991)
Damages and penalties 807 811 (4)
Contingent liabilities 1,059 16,399 (15,340)
Losses on disposal of tangible assets 349 222 127
Other operating expenses 24,510 23,417 1,093
Total other operating expenses 275,218 312,080 (36,862)
Total operating expenses 4,127,459 3,515,874 611,585

"Expenses for raw materials and services" amounted to 3,852,241 thousand euro (3,203,794 thousand euro in 2018).

Costs for raw materials and consumables amounted to 3,585,913 thousand euro and refer to costs for purchases of electricity and fuel (3,429,203 thousand euro) from third parties and subsidiaries for both electricity production and for resale to customers and wholesalers, the increase of which mainly derives from higher volumes of electricity and other fuels purchased partially offset by the decrease in procurement unit prices following the fall in the reference scenario; the change in inventories of fuels (-5,009 thousand euro); the net positive effect of gains/losses from hedging derivatives (-3,340 thousand euro); the purchase of materials and water (10,067 thousand euro including the change in inventories); and the purchase of environmental certificates (154,992 thousand euro), the increase of which refers in particular to higher purchases of CO2 mainly due to the increase in the average procurement price as a result of as recorded in the reference scenario in the year.

Service costs amounted to 266,328 thousand euro and relate to the logistics costs for transport on the natural gas network (144,080 thousand euro), costs for maintenance and repairs (34,510 thousand euro) related to both the plants and information systems of the company, as well as costs for services from third parties and subsidiaries and associates (87,738 thousand euro) that include costs for administrative and technical professional services, costs for certification activities, gas storage costs, expenses for insurance, monitoring, banking and other services. The increase compared to the previous year is mainly due to higher costs for natural gas transport as a result of the higher volumes intermediated compared to the previous year, higher gas storage costs and higher costs for IT services, particularly in relation to cybersecurity projects.

"Other operating expenses" amounted to 275,218 thousand euro (312,080 thousand euro in 2018). This item includes the use of third-party assets for 213,655 thousand euro mainly relating to the contracting of thermoelectric production plants "tolling agreement" owned by the subsidiaries A2A Energiefuture S.p.A. and A2A gencogas S.p.A.; the latter was zeroed following the release of the provision, set aside in previous years, as further described in the paragraph relating to "Other revenues and income". Other expenses amounted to 61,563 thousand euro and mainly refer to public water derivation fees, damages and penalties and contingent liabilities.

During the year, the Company paid 2,000 thousand euro in donations to the AEM and ASM Foundations.

Trading margin

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
thousands of euro
NOTES 12 31 2019 12 31 2018
Revenues 25 2.168.810 1.405.722
Operating expenses 26 (2.160.541) (1.401.361)
Total trading margin 8.269 4.361

Thanks to the persistence of significant volatility in the commodity market, systematic trading activity contributed steadily to margin growth during the year. The Group's ongoing listing and market making activities were extended to products with a lower level of liquidity, contributing to an increase in margins and volumes traded, as well as to transactions with energy commodity options and commercial counterparties.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial

statements Basis of

preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the

Note on

related party transactions Consob Communication no. DEM/6064293

of July 28, 2006 Guarantees and commitments

with third parties Other information

4 Attachments

5 Independent Auditors' Report

27) Labour costs

Net of capitalized expenses, labour costs at December 31, 2019, amounted to 148,148 thousand euro (134,536 thousand euro in the previous year).

"Labour costs" may be analysed as follows:

Labour costs
thousands of euro
12 31 2019 12 31 2018 CHANGE
Wages and salaries 94,935 89,349 5,586
Social security charges 30,948 29,160 1,788
Employee leaving entitlement (TFR) 5,687 5,462 225
Other costs 19,628 13,529 6,099
Total labour costs before capitalizations 151,198 137,500 13,698
Capitalized labour costs (3,050) (2,964) (86)
Total labour costs 148,148 134,536 13,612

T he table below shows the average number of employees during the year, broken down by category:

2019 2018 CHANGE
Managers 100 98 2
Supervisors 295 277 18
White-collar workers 1,064 1,001 63
Blue-collar workers 167 169 (2)
Total 1,626 1,545 81

At December 31, 2019, A2A S.p.A. employees totalled 1,638, including the effects of non-recurring transactions for the year, while at December 31, 2018, they were equal to 1,581.

Other personnel costs include 9,007 thousand euro (8 thousand euro at December 31, 2018) relating to the total cost of the company's restructuring plan related to future staff leaving for redundancy.

The item also includes the remuneration paid by A2A S.p.A. to the members of the Board of Directors in the year for a total of 1,694 thousand euro; for further details, reference is made to the specific file "Remuneration Report - 2020".

28) Gross operating income

Due to the effect of the dynamics explained above, "Gross operating income" totalled 213,509 thousand euro (175,218 thousand euro in 2018).

29) Depreciation, amortization, provisions and write-downs

"Depreciation, amortization, provisions and write-downs" equalled 96,355 thousand euro (90,452 thousand euro at December 31, 2018).

The following table provides details of the individual items:

Depreciation, amortization, provisions
and write-downs
thousands of euro
12 31 2019 12 31 2018 CHANGE
Amortization of intangible assets 14,032 10,420 3,612
Depreciation of tangible assets 76,047 72,869 3,178
Other write-downs of fixed assets 4,000 4,196 (196)
Total depreciation, amortization, provisions
and write-downs
94,079 87,485 6,594
Bad debt provision on receivables recognized as current assets (404) 849 (1,253)
Provisions for risks 2,680 2,118 562
Total depreciation, amortization, provisions
and write-downs
96,355 90,452 5,903

In particular, "Depreciation and Amortization" totalled 90,079 thousand euro (83,289 thousand euro in 2018). As of January 1, 2019, this item reflects the effect of the application of IFRS 16 for 4,076 thousand euro. This item includes depreciation and amortization resulting from capex during the year in question net of the depreciation and amortization following the conclusion of the process of depreciation of plant parts and disposals during the year. Depreciation is calculated on the basis of technical and economic rates considered representative of the remaining useful life of the related tangible assets.

At December 31, 2019, write-downs of fixed assets amounted to 4,000 thousand euro and refer to the write-down of a portion of goodwill related to the A2A Reti elettriche CGU following the results of the Impairment Test carried out by an independent external expert. In the previous year, this item amounted to 4,196 thousand euro and referred to the write-down of a building owned by A2A S.p.A. relating to the Monfalcone thermoelectric plant following the results of the Impairment Test.

The "Bad debt provision" showed a negative balance of 404 thousand euro (849 thousand euro at December 31, 2018) related to the surpluses released during the year under review.

The balance of "Provisions for risks" shows a net effect of 2,680 thousand euro (2,118 thousand euro at December 31, 2018) due to allocations of 11,004 thousand euro made during the year, offset by the 8,324 thousand euro of risk provisions made in previous years and released in the current year since the original disputes have ceased to exist. Provisions in the year included for 9,403 thousand euro provisions to "Other risk provisions" mainly related to public water derivation fees, for 1,485 thousand euro provisions to "Personnel lawsuits and disputes provision", for 116 thousand euro provisions to "Tax provisions"; releases mainly refer to "Personnel lawsuits and disputes provisions" relating to ongoing lawsuits with Social Security Institutions. For further details, reference is made to note 19) Provisions for risks, charges and liabilities for landfills.

30) Net operating income

The " Net operating income" is positive by 117,154 thousand euro (84,766 thousand euro at December 31, 2018).

31) Result from non-recurring transactions

At December 31, 2019, the item in question had no value while in the previous year, it amounted to 5,724 thousand euro and included the gain deriving from the sale of the shareholding held in the company Rudnik Uglja ad Pljevlja.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt

Notes to the

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

32) Financial balance

Financial income exceeded financial expenses by 352,988 thousand euro (positive for 276,123 thousand euro at December 31, 2018). Details of the most significant items are shown in the table below:

Financial income

Financial income
thousands of euro
12 31 2019 12 31 2018 CHANGE
Income on derivatives - - -
Reversal of equity investments 96,500 - 96,500
Income on financial assets 355,853 460,220 (104,367)
Income on dividends: 333,343 366,784 (33,441)
- subsidiaries 333,238 365,505 (32,267)
- associates 100 1,057 (957)
- in other companies 5 222 (217)
Gains on financial assets - 76,311 (76,311)
Income on receivables/securities recorded as current assets: 21,905 14,188 7,717
- from subsidiaries 21,403 13,753 7,650
- from associates 337 - 337
- from others: 165 435 (270)
a) on bank accounts 118 191 (73)
b) on other receivables 47 244 (197)
Foreign exchange gains 605 2,937 (2,332)
Total financial income 452,353 460,220 (7,867)

"Financial income" totalled 452,353 thousand euro (460,220 thousand euro at December 31, 2018), and relate to income from financial assets.

The reversal of impairment of shareholdings amounted to 96,500 thousand euro (no value at December 31, 2018) and referred to the shareholding in A2A gencogas S.p.A. following the results of the specific Impairment Test carried out by an external expert on shareholdings attributable to the "Electricity" CGU, as further described in note 3) Shareholdings and other non-current financial assets.

Income on financial assets amounted to 355,853 thousand euro (460,220 thousand euro at December 31, 2018) and concerned:

  • income on dividends in the amount of 333,343 thousand euro (366,784 thousand euro in the previous year) which refer to dividends distributed by subsidiaries, 333,238 thousand euro, associates, 100 thousand euro, and certain investees of A2A S.p.A., 5 thousand euro;
  • income on receivables/securities recorded under current assets in the amount of 21,905 thousand euro (14,188 thousand euro at December 31, 2018), mainly including 21,403 thousand euro (13,753 thousand euro at December 31, 2018) interest from subsidiaries on intercompany loans, 337 thousand euro in interest income from affiliates and 165 thousand euro (435 thousand euro at December 31, 2018) in interest on bank deposits and other receivables;
  • foreign exchange gains in the amount of 605 thousand euro (2,937 thousand euro in the previous year).

In the previous year, financial income included 76,311 thousand euro deriving essentially from the exchange ratios defined in the agreements between the parties for the conclusion of the acquisition of the shareholding in ACSM-AGAM S.p.A..

Financial expenses

Financial expenses
thousands of euro
12 31 2019 12 31 2018 CHANGE
Expenses on financial assets held for trading - 80,908 (80,908)
- Shareholdings write-downs/losses - 80,908 (80,908)
Expenses on derivatives 2,961 3,610 (649)
Expenses on financial assets 96,404 99,579 (3,175)
- from subsidiaries 53 42 11
- from associates 4 - 4
- others: 96,347 99,537 (3,190)
a) interest on bond loans 90,720 90,624 96
b) banks 2,728 3,903 (1,175)
c) discounting charges 1,872 2,091 (219)
d) sundry 303 93 210
e) foreign exchange losses 724 2,826 (2,102)
Total financial expenses 99,365 184,097 (84,732)

"Financial expenses" amounted to 99,365 thousand euro (184,097 thousand euro in 2018) and referred to:

  • realized losses on derivatives for 2,961 thousand euro (3,610 thousand euro at December 31, 2018);
  • for 96,404 thousand euro (99,579 thousand euro at December 31, 2018) for expenses from financial liabilities, made up of:
  • interest charged by subsidiaries in the amount of 53 thousand euro (42 thousand euro in 2018) on intercompany loans extended under the Group's cash management system;
  • charges to associated companies of 4 thousand euro;
  • other financial expenses in the amount of 96,347 thousand euro (99,537 thousand euro at December 31, 2018), which relate to interest on bonds and interest on the revolving credit lines used with various banks and other financial expenses.

In 2018, financial expenses included 80,908 thousand euro for the write-down of the shareholdings held in A2A Energiefuture S.p.A. (73,000 thousand euro), Ecofert S.r.l. in liquidation and Centrale Termoelettrica del Mincio S.r.l. in liquidation, as well as the loss deriving from the recovery of the free float of ACSM-AGAM S.p.A. shares on the Stock Exchange.

The nature and content of derivatives are described in the section "Other information".

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

33) Income taxes

Income taxes
thousands of euro
12 31 2019 12 31 2018 CHANGE
Current IRES 3,769 15,929 (12,160)
Current IRAP 569 2,622 (2,053)
Effect of differences - taxes of previous years (1,452) 1,473 (2,925)
Total current taxes 2,886 20,024 (17,138)
Deferred tax assets 35,700 4,788 30,912
Deferred tax liabilities (18,321) (10,640) (7,681)
Total losses/gains for income taxes 20,265 14,172 6,093

It is noted that for IRES purposes, the Company filed for tax on a consolidated basis, together with its main subsidiaries, in accordance with arts. 117-129 of DPR 917/86.

To this end, a contract has been entered into with each of the subsidiaries to regulate the tax benefits and burdens transferred, with specific reference to current items.

The deferred tax assets and liabilities calculated when determining the subsidiaries' taxable income, again only for IRES purposes, are not transferred to the parent company, A2A S.p.A., but are recognized in the income statement of the individual subsidiary each time there is an effective divergence between net income calculated for tax reporting purposes and net income calculated for financial reporting purposes due to any temporary differences. The deferred tax assets and liabilities shown in the income statement of A2A are therefore calculated exclusively on the divergences between its income for taxable purposes and income for financial reporting purposes.

Current income tax (IRES) of A2A S.p.A. is calculated on its own taxable income net of the adjustments relating to the national tax consolidation filing.

The "income/expense related to consolidation", which constitute the remuneration/counter-entry for the transfer to the parent company A2A of a tax loss or taxable income, are recognized in the balance sheet.

The total amount of IRAP is calculated at 5.57% of the net value of production, suitably adjusted for the items foreseen in the relevant tax legislation.

The deferred tax assets and liabilities for IRAP purposes are booked to the income statement so as to show the total tax charge for the year, taking into account the tax effects of temporary differences. The recoverability of the "IRES deferred tax assets" recorded in the financial statements is considered probable, as the future plans provide for IRES taxable income sufficient for the absorption of the temporary differences that will be reversed; on the other hand, deferred tax assets and liabilities recorded for IRAP purposes are those considered adequate with respect to the best forecast of absorption from future taxable income.

No items have been excluded from the calculation of deferred taxation for IRES or IRAP purposes, with the exceptions highlighted above, and deferred tax liabilities and assets are recognized according to the balance sheet method.

At December 31, 2019, income taxes for the year (IRES and IRAP), amounted to 20,265 thousand euro (14,172 thousand euro at the end of the previous year) and were made up as follows:

  • 4,518 thousand euro in current IRES for the year;
  • 569 thousand euro in current IRAP for the year;
  • -255 thousand euro for remuneration for the transfer of interest payable to the tax consolidation system;
  • 210 thousand euro for transfer to Equity reserve of part of income taxes;
  • -715 thousand euro for the recognition of tax receivables on "art bonus" disbursements;
  • 11 thousand euro relating to taxes on the dividend received by EPCG during the year under review;

  • -1,452 thousand euro related to taxes of previous years;

  • -16,850 thousand euro for deferred tax liabilities for IRES purposes;
  • -1,471 thousand euro for deferred tax liabilities for IRAP purposes;
  • 30,864 thousand euro in deferred tax assets for IRES purposes;
  • 4,836 thousand euro in deferred tax assets for IRAP purposes.

The main permanent increases in IRES include reversals for non-deductible amortization for 45,345 thousand euro, allocations to non-deductible provisions for risks for 21,518 thousand euro, as well as property taxes (IMU) for 6,346 thousand euro.

Reconciliation between the statutory tax rate and the effective tax rate for IRES and IRAP purposes are presented in the statements below.

IRES - reconciliation between statutory and effective taxation

Pre-tax result 470,887,584
Theoretical tax expense 113,013,020
Permanent differences (400,333,738)
Income before taxes adjusted for permanent differences 70,553,846
Current gains/losses on income for the year 16,932,923
Temporary differences deductible in subsequent years 23,519,051
Temporary differences taxable in subsequent years (120,058)
Reversal of prior year temporary differences (75,126,855)
Taxable income 18,825,984
Current gains/losses on income for the year 4,518,236

IRAP - reconciliation between statutory and effective taxation

Difference between production value and costs 199,690,035
Costs not relevant for IRAP purposes (118,787,020)
Total 80,903,015
Theoretical tax expense (4.20%) 3,397,927
Temporary differences deductible in subsequent years 19,920,381
Temporary differences taxable in subsequent years (120,058)
Reversal of prior year temporary differences (90,486,701)
Taxable income for IRAP purposes 10,216,637
Current IRAP on income for the year 569,067

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt

Notes to the

Note on related party transactions Consob Communication

no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

Details are provided below on the analytic situation of the deferred tax assets and liabilities which, as required by international accounting standards, also shows the changes in equity reserves.

IRES - Deferred tax assets and liabilities for the year

Taxable temporary differences

Case description
amounts in euro
Deferred tax
liabilities
A2A previous
year
Non
recurring
transactions
2019
Deferred tax liabilities
previous year
Adjustments (+/-) Uses in current year
Taxable
amount
Taxable
amount
Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax
Measurement differences for tangible assets 510,403,516 0.00 24% 122,496,844 0 24% 0 44,045,132 24% 10,570,832
Adoption of the finance lease standard (IFRS 16) 18,996,600 0.00 18,996,600 24% 4,559,184 (17,279,262) 24% (4,147,023) 267,751 24% 64,260
Measurement differences of intangible assets 12,157,490 0.00 12,157,490 24% 2,917,798 (1,815,005) 24% (435,601) 0 24% 0
Deferred capital gains 94,033 0.00 94,033 24% 22,568 0 24% 0 31,344 24% 7,523
Employee leaving entitlement (TFR) 5,108,781 0.00 5,108,781 24% 1,226,107 (5,108,781) 24% (1,226,107) 0 24% 0
Other deferred tax liabilities 31,876,342 0.00 31,876,342 24% 7,650,322 (1,408,306) 24% (337,993) 371,799 24% 89,232
Total 578,636,762 0.00 578,636,762 138,872,823 (25,611,354) (6,146,725) 44,716,026 10,731,846

Deductible temporary differences

Case description
amounts in euro
Deferred tax
assets
A2A previous
year
Non
recurring
transactions
2019
Deferred tax assets
previous year
Adjustments (+/-) Uses in current year
Taxable
amount
Taxable
amount
Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax
Taxed risk provisions 282,159,607 (3,726) 282,155,881 24% 67,717,411 (129,269) 24% (31,025) 95,844,186 24% 23,002,605
Amortization, depreciation and write-downs 272,994,248 0 272,994,248 24% 65,518,620 (4,826,498) 24% (1,158,360) 22,794,925 24% 5,470,782
Application of the financial instrument standard (IFRS 9) 1,497,250 0 1,497,250 24% 359,340 (1,231,700) 24% (295,608) 0 24% 0
Bad debts provision 11,317,016 0 11,317,016 24% 2,716,084 (75,433) 24% (18,104) 552,413 24% 132,579
Grants 9,644,123 0 9,644,123 24% 2,314,590 (9,644,123) 24% (2,314,590) 0 24% 0
Goodwill 198,729,915 0 198,729,915 24% 47,695,180 0 24% 0 0 24% 0
Other deferred tax assets 38,177,623 (2,151) 38,175,472 24% 9,162,113 (16,367,902) 24% (3,928,296) 651,357 24% 156,326
Total 814,519,782 (5,877) 814,513,905 195,483,337 (32,274,925) (7,745,982) 119,842,881 28,762,292

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet

Net debt

Notes to the

Note on related party transactions Consob Communication

no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

Sub-total Changes in tax rate Increases for the year Equity Total deferred tax liabilities
Tax Taxable
amount
Rate Tax
Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax
10,570,832 466,358,384 24% 111,926,012 466,358,384 24% 111,926,012 0 24% 0 0 24% 0 466,358,384 24% 111,926,012
64,260 1,449,587 24% 347,901
1,449,587
24% 347,901 0 24% 0 0 24% 0 1,449,587 24% 347,901
0 10,342,485 24% 2,482,196
10,342,485
24% 2,482,196 120,058 24% 28,814 0 24% 0 10,462,543 24% 2,511,010
7,523 62,689 24% 15,045
62,689
24% 15,045 0 24% 0 0 24% 0 62,689 24% 15,045
0 0 24% 0 0
24%
0 0 24% 0 0 24% 0 0 24% 0
89,232 30,096,237 24% 7,223,097
30,096,237
24% 7,223,097 0 24% 0 (12,837,722) 24% (3,081,053) 17,258,515 24% 4,142,044
10,731,846 508,309,382 121,994,252 508,309,382 121,994,252 120,058 28,814 (12,837,722) (3,081,053) 495,591,718 118,942,012
Sub-total Changes in tax rate Increases for the year Equity Total deferred tax assets
Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax
186,182,425 24% 44,683,782 186,182,425 24% 44,683,782 20,320,381 24% 4,876,892 1,217,421 24% 292,181 207,720,228 24% 49,852,855
245,372,825 24% 58,889,478 245,372,825 24% 58,889,478 1,748,692 24% 419,686 0 24% 0 247,121,517 24% 59,309,164
265,550 24% 63,732 265,550 24% 63,732 0 24% 0 2,990,537 24% 717,729 3,256,087 24% 781,461
10,689,170 24% 2,565,401 10,689,170 24% 2,565,401 0 24% 0 0 24% 0 10,689,170 24% 2,565,401
0 24% 0 0 24% 0 0 24% 0 0 24% 0 0 24%
198,729,915 24% 47,695,180 198,729,915 24% 47,695,180 0 24% 0 0 24% 0 198,729,915 24% 47,695,180
21,156,213 24% 5,077,491 21,156,213 24% 5,077,491 1,449,978 24% 347,995 20,948,306 24% 5,027,593 43,554,497 24% 10,453,079
662,396,098 158,975,064 662,396,098 158,975,064 23,519,051 5,644,572 25,156,264 6,037,503 711,071,414 170,657,139

IRAP - Deferred tax assets and liabilities for the year

Taxable temporary differences

Case description
amounts in euro
Deferred tax
liabilities
A2A previous
year
Non
recurring
transactions
2019
Deferred tax liabilities
previous year
Adjustments (+/-) Uses in current year
Taxable
amount
Taxable
amount
Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax
Measurement differences for tangible assets 361,012,487 0 361,012,487 5.57% 20,108,396 (3,767,915) 5.57% (209,873) 259,983 5.57% 14,481
Adoption of the finance lease standard (IFRS 16) 14,629,909 0 14,629,909 5.57% 814,886 (14,629,909) 5.57% (814,886) 0 5.57% 0
Measurement differences of intangible assets 75,934 0 75,934 5.57% 4,230 0 5.57% 0 0 5.57% 0
Other deferred tax liabilities 25,426,651 0 25,426,651 5.57% 1,416,264 (3,980,453) 5.57% (221,711) 3,897,374 5.57% 217,084
Total 401,144,981 0 401,144,981 22,343,775 (22,378,277) (1,246,470) 4,157,357 231,565

Deductible temporary differences

Case description
amounts in euro
Deferred tax
assets
A2A previous
year
Non
recurring
transactions
2019
Deferred tax assets
previous year
Adjustments (+/-) Uses in current year
Taxable
amount
Taxable
amount
Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax
Taxed risk provisions 274,304,196 (2,609) 274,301,587 5.57% 15,278,598 (113,624) 5.57% (6,329) 94,269,472 5.57% 5,250,810
Amortization, depreciation and write-downs 225,575,807 0 225,575,807 5.57% 12,564,572 (5,897,501) 5.57% (328,491) 303,229 5.57% 16,890
Costs for business combinations 5.57% 5.57% 5.57%
Grants 6,087,924 0 6,087,924 5.57% 339,097 (6,087,924) 5.57% (339,097) 0 5.57% 0
Goodwill 49,744,604 0 49,744,604 5.57% 2,770,774 0 5.57% 0 0 5.57% 0
Other deferred tax assets 13,974,955 0 13,974,955 5.57% 778,405 0 5.57% 0 71,357 5.57% 3,975
Total 569,687,486 (2,609) 569,684,877 31,731,448 (12,099,049) (673,917) 94,644,058 5,271,674

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet

Net debt Notes to the

Note on related party transactions Consob Communication

no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

Sub-total Changes in tax rate Increases for the year Equity Total deferred tax liabilities
Rate Taxable
amount
Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax
5.57% 356,984,589 19,884,042 356,984,589 5.57% 19,884,042 0
5.57%
0 0 5.57% 0 356,984,589 5.57% 19,884,042
5.57% 0 0 0 5.57% 0 0
5.57%
0 0 5.57% 0
0
5.57%
5.57% 75,934 4,230 75,934 5.57% 4,230 120,058 5.57% 6,687 0 5.57% 0
195,992
5.57% 10,917
5.57% 17,548,824 977,469 17,548,824 5.57% 977,469 0
5.57%
0 (12,837,722) 5.57% (715,061) 4,711,102 5.57% 262,408
374,609,347 20,865,741 374,609,347 20,865,741 120,058 6,687 (12,837,722) (715,061) 361,891,683 20,157,367
Sub-total Changes in tax rate Increases for the year Equity Total deferred tax assets
Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax Taxable
amount
Rate Tax
179,918,490 5.57% 10,021,460 179,918,490 5.57% 10,021,460 19,920,381 5.57% 1,109,565 1,217,421 5.57% 67,810 201,056,293 5.57% 11,198,836
219,375,077 5.57% 12,219,192 219,375,077 5.57% 12,219,192 0 5.57% 0 0 5.57% 0 219,375,077 5.57% 12,219,192
5.57% 5.57% 5.57% 5.57% 5.57%
0 5.57% 0
0
5.57% 0 0 5.57% 0 0 5.57% 0 0 5.57% 0
49,744,604 5.57% 2,770,774 49,744,604 5.57% 2,770,774 0 5.57% 0 0 5.57% 0 49,744,604 5.57% 2,770,774
13,903,598 5.57% 774,430 13,903,598 5.57% 774,430 0 5.57% 0 20,948,306 5.57% 1,166,821 34,851,904 5.57% 1,941,251
462,941,769 5.57% 25,785,857 462,941,769 5.57% 25,785,857 19,920,381 5.57% 1,109,565 22,165,727 5.57% 1,234,631 505,027,878 5.57% 28,130,053

34) Net result from discontinued operations

The "Net result from discontinued operations" was positive and equal to 746 thousand euro (20,650 thousand euro at December 31, 2018) and included the collection of dividends from the investee company EPCG for 219 thousand euro and for 527 thousand euro the discounting income to adjust the value of EPCG shareholding to fair value.

35) Net result of the year

The net income of the year amounted to 450,623 thousand euro (373,091 thousand euro at December 31, 2018).

Note on related party transactions

36) Note on related party transactions

"Related parties" are those indicated by the international accounting standard that concerns Related Party Disclosures (IAS 24 revised).

Relationships with parent companies and their subsidiaries

On October 5, 2007, the Municipalities of Milan and Brescia signed a Shareholders' Agreement to regulate the ownership structure of A2A S.p.A.; this gave the Municipalities joint control over the company.

Specifically, the merger effective January 1, 2008, regardless of the legal structure established, was considered a joint venture, whose joint control was exercised by the Municipalities of Milan and Brescia, each of which owned a share equal to 27.5%.

On June 13, 2014, the Shareholders' Meeting modified the company's governance system, passing from the original two-tier system, adopted in 2007, to a "traditional" system of management and control through the appointment of the Board of Directors.

In December 2014, the Municipalities of Milan and Brescia sold a total shareholding of 0.51% of A2A S.p.A., while in the first two months of 2015, the Municipalities of Milan and Brescia sold an additional shareholding of 4.5% of A2A S.p.A..

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.

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 share capital of A2A S.p.A.. On November 4, 2016, the Council of the Municipality of Milan, after having favourably examined the proposal of the Municipality of Brescia of a partial amendment to the shareholders' agreement, submitted to the Municipal Council the proposal of the new shareholders' agreement for the final determinations of competence.

On January 23, 2017, the Milan City Council approved the new Shareholders' Agreement between the Municipality of Milan and the Municipality of Brescia regarding the shareholding in A2A S.p.A. and has undertaken the commitment not to proceed with the disposal of any shares owned by the Municipality of Milan.

On August 2, 2019, the Municipality of Milan, also on behalf of the Municipality of Brescia, announced that the aforesaid shareholders' agreement was not subject to termination and therefore the agreement must be considered renewed with effect from February 1, 2020 to January 31, 2023.

At the date of approval of these Separate financial statements at December 31, 2019, the two shareholders held a shareholding of 50% plus two shares that enables the two municipalities to maintain control over the company.

The A2A Group companies and the Municipalities of Milan and Brescia routinely entertain commercial relationships related to the supply of electricity, gas, heat, and potable water, management of public lighting systems and street lights, management of water purification and sewers, garbage collection and street sweeping and video surveillance.

Similarly, the A2A Group companies entertain commercial relationships with the companies controlled by the Municipalities of Milan and Brescia, for example, Metropolitana Milanese S.p.A., ATM S.p.A., Brescia Mobilità S.p.A., Brescia Trasporti S.p.A. and Centrale del Latte di Brescia S.p.A., supplying them with electrical energy, gas, heat, water purification and sewer service at market rates appropriate to the supply conditions and providing the services required. Note that these companies are considered related parties in the preparation of the financial statement schedules pursuant to Consob Resolution 17221 of March 12, 2010.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial

statements Basis of

preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet

Net debt

Notes to the

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

The relationships between the Municipalities of Milan and Brescia and the A2A Group, in relation to granting the services associated with public lighting, street lights, management and supply of electricity, gas, heat, and water purification and sewer service are regulated by special conventions and specific contracts.

The relationships between the companies controlled by the Municipalities of Milan and Brescia, which refer to the supply of electricity, are at arm's length conditions.

On April 12, 2017, Amsa S.p.A., a subsidiary of A2A S.p.A., signed a contract with the Municipality of Milan for the management of environmental protection services for the period January 1, 2017 - February 8, 2021.

Relationships with subsidiaries and affiliates

The parent company A2A S.p.A., operates like a centralized treasury for the majority of the subsidiaries.

Relations between the companies are regulated through current accounts between the parent company and the subsidiaries, on which rates are applied, at market conditions, based on variable Euribor, with specific spreads for companies. For the financial year 2019, A2A S.p.A. and its subsidiaries have adopted the VAT procedure of the Group.

Note that for IRES purposes, A2A S.p.A. files for tax on a consolidated basis, together with its main subsidiaries, in accordance with arts. 117-129 of DPR 917/86. To this end, with each of the subsidiaries joining, a special contract was drawn up to regulate the tax advantages/disadvantages transferred, with specific reference to the current entries. These contracts also govern the transfer of any excess of ROL as set forth by prevailing legislation.

The parent company provides the subsidiaries and affiliates with administrative, fiscal, legal, management and technical services in order to optimize the resources available in the company and to use the existing expertise in terms of economic convenience. These services are governed by specific service contracts stipulated annually. A2A S.p.A. also makes office space and operating areas at its own premises available to subsidiaries and associates, as well as associated services. These are provided at market conditions.

The companies A2A gencogas S.p.A. and A2A Energiefuture S.p.A., for a monthly fee related to the actual availability of the thermoelectric plants, provide to the Parent Company the power generation service.

Telecommunication services are provided by the subsidiary A2A Smart City S.p.A..

As of July 1, 2018, the ACSM-AGAM Group's related-party transactions with related parties of the A2A Group are shown as related parties.

Finally, note that pursuant to the Consob communication issued on September 24, 2010, bearing the provisions regarding related party transactions in accordance with Consob Resolution no. 17221 of March 12, 2010, as amended, on November 11, 2010, the Group had approved the procedure for related party transactions which took effect on January 1, 2011, and which aims to ensure the transparency and substantial fairness of the related party transactions executed by A2A S.p.A. directly, or through subsidiaries, identified in accordance with the IAS 24 revised accounting standard. The Board of Directors of June 20, 2016 resolved, with the approval of the Risk Control Committee, the review of the procedure "Regulation of transactions with Related Parties". The review of the procedure particularly involves the reduction, introduced optionally, of the threshold for transactions with subsidiaries of the Municipalities of Milan and Brescia, regarding which to provide for the application of the Procedure. Finally, the procedure was updated on June 22, 2017, following Consob Resolution no. 19925 of March 22, 2017.

Below are the tables with detail of the related party transactions, in accordance with the Consob Resolution no. 17221 of March 12, 2010:

Balance sheet Total Of which with related parties
thousands of euro 12 31 2019 Subsi
diary
compa
nies
Associa
ted
compa
nies
Munici
pality
of Milan
Subsidia
ries
Munici
pality
of Milan
Munici
pality
of
Brescia
Subsidia
ries
Municipa
lity
of Brescia
Related
parties
indivi
duals
Total
related
parties
% effect
on the
balance
sheet
item
TOTAL ASSETS OF WHICH: 8,145,216 5,613,558 3,795 4,076 3 318 139 - 5,621,889 69.0%
Non-current assets 6,108,940 4,942,613 2,077 - - - 139 - 4,944,829 80.9%
Tangible assets 1,002,606 1,502 - - - - - - 1,502 0.1%
Shareholdings 3,795,629 3,793,552 2,077 - - - - - 3,795,629 100.0%
Other non-current financial
assets
1,148,552 1,147,559 - - - - 139 - 1,147,698 99.9%
Current assets 2,036,276 670,945 1,718 4,076 3 318 - - 677,060 33.2%
Trade receivables 655,906 229,387 1,468 4,076 3 318 - - 235,252 35.9%
Other current assets 477,000 55,511 - - - - - - 55,511 11.6%
Current financial assets 386,297 386,047 250 - - - - - 386,297 100.0%
TOTAL LIABILITIES OF WHICH: 5,301,566 547,326 22,119 56 62 - - 112 569,675 10.7%
Non-current liabilities 3,431,340 1,121 1,000 - - - - - 2,121 0.1%
Non-current financial liabilities 3,169,166 1,121 - - - - - - 1,121 0.0%
Provisions for risks, charges and
liabilities for landfills
110,363 - 1,000 - - - - - 1,000 0.9%
Current liabilities 1,870,226 546,205 21,119 56 62 - - 112 567,554 30.3%
Trade payables 772,767 87,213 13,952 56 62 - - - 101,283 13.1%
Other current liabilities 507,606 25,859 7,167 - - - - 112 33,138 6.5%
Current financial liabilities 589,827 433,133 - - - - - - 433,133 73.4%
Income statement Total Of which with related parties
thousands of euro 12 31 2019 Subsi
diary
compa
nies
Associa
ted
compa
nies
Munici
pality
of Milan
Subsidia
ries
Munici
pality
of Milan
Munici
pality
of
Brescia
Subsidia
ries
Municipa
lity
of Brescia
Related
parties
indivi
duals
Total
related
parties
% effect
on the
balance
sheet
item

REVENUES 4,489,116 1,548,250 69,335 2,382 - 87 - - 1,620,054 36.1%

Other operating income 105,544 6,589 62,977 - - - - - 69,566 65.9% OPERATING EXPENSES 4,127,459 386,103 73 - 328 - 3 290 386,797 9.4%

Other operating expenses 275,218 188,837 - - - - - - 188,837 68.6% LABOUR COSTS 148,148 - - - - - - 1,645 1,645 1.1%

FINANCIAL BALANCE 352,988 451,088 433 - - - - - 451,521 n.s. Financial income 452,353 451,141 437 - - - - - 451,578 99.8% Financial expenses 99,365 53 4 - - - - - 57 0.1%

4,383,572 1,541,661 6,358 2,382 - 87 - - 1,550,488 35.4%

3,852,241 197,266 73 - 328 - 3 290 197,960 5.1%

96,355 338 - - - - - - 338 0.4%

Revenues from the sale of goods

Expenses for raw materials and

and services

services

AMORTIZATION, DEPRECIATION, PROVISIONS AND WRITE-DOWNS

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Consob

Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties Other information

4 Attachments

5 Independent Auditors' Report

6 Report of the Board of Auditors

Section 2 of this file provides complete schedules as required under Consob Resolution no. 17221 of
March 12, 2010.

* * *

With regard to the compensation paid to the corporate governance bodies, reference shall be made to the document "Remuneration Report – 2020" available on the website www.a2a.eu.

83

Consob Communication no. DEM/6064293 of July 28, 2006

37) Consob Communication no. DEM/6064293 of July 28, 2006

The year in question has seen the following non-recurring transactions:

  • the transfer of the "International Business Unit" to the subsidiary A2Abroad S.p.A. with effect from July 1, 2019;
  • the acquisition of the "STAFF HR Business Unit" from the subsidiary AMSA S.p.A. with effect from August 1, 2019.

Below is the table with the effects of the non-recurring transactions described above.

Detail of non-recurrering transactions
amounts in euro
NOTE A2A S.p.A.
transfer of
International
Business Unit
to A2Abroad S.p.A.
A2A S.p.A.
acquisition of
STAFF HR Business
Unit from
AMSA S.p.A.
EFFECT
NON-RECURRING
TRANSACTIONS
07 01 2019 08 01 2019
ASSETS
NON-CURRENT ASSETS
Tangible assets 1
Intangible assets 2 954,238 954,238
Shareholdings 3 286,404 286,404
Other non-current financial assets 3
Deferred tax assets 4 (1,555) (1,555)
Other non-current assets 5
TOTAL NON-CURRENT ASSETS 284,849 954,238 1,239,087
CURRENT ASSETS
Inventories 6
Trade receivables 7
Other current assets 8
Current financial assets 9 (421,134) (40,000) (461,134)
Current tax assets 10
Cash and cash equivalents 11
TOTAL CURRENT ASSETS (421,134) (40,000) (461,134)
NON-CURRENT ASSETS HELD FOR SALE 12 -
TOTAL ASSETS (136,285) 914,238 777,953
EQUITY AND LIABILITIES
EQUITY
Share capital 13 -
(Treasury shares) 14 -
Reserves 15 -
Result of the year 16 -
EQUITY - - -
LIABILITIES
NON-CURRENT LIABILITIES
Non-current financial liabilities 17
Employee benefits 18 (26,457) 752,730 726,273
Provisions for risks, charges and liabilities
for landfills
19
Other non-current liabilities 20
TOTAL NON-CURRENT LIABILITIES (26,457) 752,730 726,273
CURRENT LIABILITIES
Trade payables 21
Other current liabilities 21 (109,828) 161,508 51,680
Current financial liabilities 22
Tax payables 23
TOTAL CURRENT LIABILITIES (109,828) 161,508 51,680
TOTAL LIABILITIES (136,285) 914,238 777,953
LIABILITIES DIRECTLY ASSOCIATED WITH
NON-CURRENT ASSETS
HELD FOR SALE
-
TOTAL EQUITY AND LIABILITIES (136,285) 914,238 777,953

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and commitments with third parties Other information 4 Attachments

5 Independent Auditors' Report

Guarantees and commitments with third parties

thousands of euro 2019 2018
Guarantees received 314,669 233,772
Guarantees provided 169,543 187,099

Guarantees received

Guarantees received amounted to 314,669 thousand euro (233,772 thousand euro at December 31, 2018) and include 85,655 thousand euro for sureties and security deposits issued by subcontractors to guarantee the proper execution of the work assigned and 229,014 thousand euro for sureties and security deposits received from customers to guarantee the regularity of payments.

Guarantees provided and commitments with third parties

Guarantees provided amounted to 169,543 thousand euro (187,099 thousand euro at December 31, 2018), of which for obligations undertaken in the loan agreements of 2,600 thousand euro. Said guarantees include bank sureties for 134,458 thousand euro, insurance for 65 thousand euro and parent company guarantees related to associated companies for 35,020 thousand euro.

Other information

1) Significant events after December 31, 2019

Reference should be made to the specific section of this Report on Operations for a description of subsequent events.

2) Information on treasury shares

At December 31, 2019, A2A S.p.A. held 23,721,421 treasury shares, unchanged compared to December 31, 2018, equal to 0.757% of the share capital consisting of 3,132,905,277 shares.

At December 31, 2019, no treasury shares were held through subsidiaries, finance companies or nominees.

3) Information on non-current assets held for sale and discontinued operations (IFRS 5)

The item "Non-current assets held for sale" at December 31, 2019 shows a zero balance while at December 31, 2018, it amounted to 108,960 thousand euro and referred to the fair value of the shareholding in EPCG, 18.70% held by A2A S.p.A.. The decrease compared to December 31, 2018 is due to the collections made during the reporting year under the agreements entered into by the parties, which brought the residual value existing at December 31, 2018 to zero, thus completing the redemption process begun in 2017 following management's decision to exercise the put option on the entire share package.

4) Rules on public funding (Compliance with art. 1, paragraphs 125 et seq. of Law 124/17)

Pursuant to art. 1, paragraphs 125 and following Law 124/17, as reformulated by art. 35 of Decree Law 34/19, even when the standard was first applied, and considering that A2A S.p.A. have not received "subsidies, grants, advantages, contributions or aid, whether in cash or in kind, not general and with no consideration, remuneration or compensation", this note is negative.

It is understood that other information is (also in line with the principle set out in art. 18 of Law 241/1990) available elsewhere, including the State Aid Register, also under the criterion set out in paragraph 127 of the same art. 1 of Law 124/17, which prescribes to "avoid the accumulation of irrelevant information".

It should also be noted that the companies of the A2A Group operate (for the most part) in regulated sectors. Therefore, some sums are recognized by public bodies, but not as subsidies/contributions, but as recognition of the activities they provide or as forms of compensation for costs incurred to meet specific regulatory obligations and in any case by virtue of a general regime. Also all these forms of payment have not been indicated: also in compliance with both the literal aspect of the regulations and with the interpretation criteria that the company has identified (see above).

5) IFRS 16 "Leases"

As already specified in the paragraph "Changes in international accounting standards", the Company decided to apply the new IFRS 16 standard retroactively without restating the comparative data and accounting for the cumulative effect of the initial application of the standard from January 1, 2019, recognising, within the Statement of Financial Position, the assets consisting of the right to use leased assets and the lease liabilities at the present value of the remaining payments due.

It should be noted that the discount rate used to determine the present values of assets and liabilities deriving from operating lease contracts is that corresponding to the Group's average financing rate up to thirty years.

It should be noted that, as a practical expedient, the company has made use of the option provided for in paragraph 6 of the standard not to apply the provisions of paragraphs 22 to 49 of the standard to the following categories:

  • a) short-term leases;
  • b) leases whose underlying assets are of low value.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial

statements Basis of

preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party

transactions Consob Communication no. DEM/6064293 of July 28, 2006

Other information

4 Attachments

5 Independent Auditors' Report

It should also be noted, in accordance with paragraph 48 of the principle, that the company does not have assets for rights of use that meet the definition of property investment.

From the analysis carried out, the Company identified operating leases, the underlying assets of which had not previously been recorded in the financial statements as Assets for rights of use and Financial payables for rights of use, relating to the rental of land, buildings, and the rental of vehicles and other assets.

The application of IFRS 16 from January 1, 2019 with the modified retrospective method resulted in the recognition of new Assets for rights of use and Financial payables for rights of use for an amount of 11,102 thousand euro. There were no significant impacts on the Company's shareholders' equity.

Below is a breakdown of the impact on the Company's Statement of financial position at December 31, 2019 with reference to assets for rights of use deriving from operating and financial leases:

Assets consisting of rights Balance at Changes during the year Balance at
12 31 2019
of use
thousands of euro
12 31 2018 Other changes Amortization Total changes
Land - 150 (53) 97 97
Buildings - 6,380 (1,947) 4,433 4,433
Other assets - - - - -
Vehicles - 7,167 (2,076) 5,091 5,091
Total - 13,697 (4,076) 9,621 9,621

The table below provides a breakdown of the impact on the Company's Statement of financial position at December 31, 2019 with reference to financial payables for rights of use relating to operating and financial lease contracts:

thousands of euro Balance at Balance at
12 31 2018 Interest of
the year
Cash
outflows
Other
changes
Total
changes
12 31 2019
Financial payables for rights of use - 61 (4,111) 13,616 9,566 9,566
Totale - 61 (4,111) 13,616 9,566 9,566

Below is a breakdown of the impact on the Income Statement resulting from the application of IFRS 16 in 2019:

thousands of euro 2019
Other operating expenses 4,111
Amortization (4,076)
Operating income 35
Financial expenses (61)
Pre-tax (26)
Current taxes 6
Net result for the year 20

6) Financial risk management

The parent company, A2A S.p.A., provides centralized risk management for Group companies.

The A2A Group operates in the electricity, natural gas and district heating industry and is exposed to various financial risks in performing its activity:

  • a) commodity risk;
  • b) interest rate risk;
  • c) exchange rate risk not related to commodities;
  • d) liquidity risk;
  • e) credit risk;
  • f) equity risk;
  • g) default and covenant non-compliance risk.

The commodity price risk, related to the volatility of energy commodity prices (gas, electricity, fuel oil, coal, etc.) and prices of environmental securities (EUA/ETS emission rights, green certificates, white certificates, etc.), consists of the possible negative effects that a change in the market price of one or more commodities may have on the cash flows and income prospects of the company, including the exchange rate risk related to the same commodities.

Interest rate risk is the risk of additional financial costs as the result of an unfavourable change in interest rates.

Currency risk not related to commodities is the risk of higher costs or lower revenues because of an unfavourable change in exchange rates between currencies.

Liquidity risk is the risk that financial resources will not be sufficient to meet established financial and business obligations in a timely manner.

Credit risk is the exposure to potential losses deriving from non-performance of commitments by commercial, trading and financial counterparties.

Equity risk is the possibility of incurring losses due to an unfavourable change in the price of shares.

Default and covenant non-compliance risk represent the possibility that loan agreements or bond regulations to which one or more Group companies are party contain provisions allowing the counterparties, banks or bondholders, to ask the debtor for immediate reimbursement of the amounts lent if certain events take place.

Details on the risks to which A2A S.p.A. is exposed are provided below.

a. Commodity risk

a.1) Commodity price risk and exchange rate risk involved in commodity activities

A2A S.p.A. is exposed to price risk, including the related exchange rate risk, on all of the energy commodities that it handles, namely electricity, natural gas, heat, coal, fuel oil, and environmental certificates; the financial performance of production, purchasing and sales activities is affected by the related price fluctuations. These fluctuations act both directly and indirectly, through formulas and indexing in the pricing structure.

To stabilize cash flows and to assure the Group's economic and financial stability, A2A S.p.A. has an Energy Risk Policy that sets out clear guidelines to manage and control the above risks, based on guidance by the Committee of Chief Risk Officers Organizational Independence and Governance Working Group ("CCRO") and the Group on Risk Management of Euroelectric. Reference was also made to the Accords of the Basel Committee on bank supervision and the requirements laid down in international accounting standards on how to recognize the volatility of commodity price and financial derivatives in the income statement and balance sheet.

In the A2A Group, assessment of this kind of risk is centralized at the holding company, which has established a Group Risk Management Organizational Unit as part of the Planning, Finance and Control Organizational Unit. This unit has the task to manage and monitor market and commodity risks, to create and evaluate structured products, to propose financial energy risk hedging strategies, and to support senior management in defining the Group's energy risk management policies.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A.

Financial statements

Basis of

preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet

Net debt Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293

of July 28, 2006 Guarantees and commitments

with third parties Other information

4 Attachments

5 Independent Auditors' Report

Each year, the Board of Directors of A2A S.p.A. sets the Group's commodity risk limits approving the PaR and VaR proposed (prepared in the Risk Committee) in conjunction with approval of the Budget/ Business Plan; Group Risk Management supervises the situation to ensure compliance with these limits and proposes to senior management the hedging strategies designed to bring risk within the set limits, if exceeded.

The activities that are subject to risk management include all of the positions on the physical market for energy products, both purchasing/production and sales, and all of the positions in the energy derivatives market taken by Group companies.

For the purpose of monitoring risks, industrial and trading portfolios have been separated and are managed in different ways. The industrial portfolio consists of the physical and financial contracts directly relating to the Group's industrial operations, namely where the objective is to enhance production capacity also through the wholesaling and retailing of gas, electricity and heat.

The trading portfolio comprises all contracts, both physical and financial, entered into to supplement the profits made from the industrial activities, i.e. all contracts that are ancillary though not strictly necessary to the industrial activity.

In order to identify trading activity, the A2A Group follows the Capital Adequacy Directive and the definition of assets held for trading provided by International Accounting Standard (IFRS) 9: namely assets held for the purpose of short-term profit taking on market prices or margins, without being for hedging purposes, and designed to create a high-turnover portfolio.

Given that they exist for different purposes, the two portfolios have been segregated and are monitored separately with specific tools and limits. More specifically, the trading portfolio is subject to particular risk control and management procedures as laid down in Deal Life Cycle documents.

Senior management is systematically updated on changes in the Group's commodity risk by the Group Risk Management Unit, which controls the Group's net exposure. This is calculated centrally on the entire asset and contract portfolio and monitors the overall level of economic risk assumed by the industrial and trading portfolios (Profit at Risk - PaR, Value at Risk - VaR, Stop Loss).

a.2) Commodity derivatives, analysis of transactions

Derivatives of the industrial portfolio considered hedges

The hedging of price risk by means of derivatives focuses on protecting against the volatility of energy prices on the power exchange (IPEX-EEX), stabilizing electricity price margins on the wholesale market with particular attention being paid to fixed price energy sales and purchases and stabilizing price differences deriving from various indexing mechanisms for the pricing of gas and electricity. To that end, hedging contracts were executed during the year on electricity purchase and sale agreements and on contracts to hedge the fee for the use of electricity transport capacity between the areas of the IPEX market (CCC contracts); hedging contracts were also concluded for the purchase of coal and purchase and sale of gas so as to protect sales margins and at the same time keep the risk profile to within the limits set by the Group's Energy Risk Policy.

As part of the optimization of the portfolio of greenhouse gas emission allowances (see Directive 2003/87/EC), A2A S.p.A. has stipulated Future contracts on the ICE ECX (European Climate Exchange) price. These are considered hedging transactions from an accounting point of view in the event of demonstrable surplus/deficit quotas.

The fair value at December 31, 2019 was -17,381 thousand euro (10,164 thousand euro at December 31, 2018).

Derivatives of the industrial portfolio not considered hedges

Again with a view to optimising the Industrial Portfolio, A2A S.p.A. entered into Future contracts on the ICE ECX (European Climate Exchange) stock exchange price. These do not qualify as hedging transactions from an accounting point of view as they fail to meet the requirement set out in the accounting standards.

The fair value at December 31, 2019 was 4 thousand euro (16 thousand euro at December 31, 2018).

Derivatives of the Trading Portfolio

As part of its trading activity, A2A S.p.A. has taken out Future contracts on major European energy stock exchanges (EEX, ICE) and forward contracts on the price of electricity with delivery in Italy and neighboring countries such as France, Germany and Switzerland. A2A S.p.A. has also stipulated Future, Forward and Option contracts on the ICE ECX (European Climate Exchange) stock exchange price. Also as part of trading activities, both Future and Forward contracts were also stipulated for the market price of gas (ICE-Endex CEGH).

The fair value at December 31, 2019 was 8,765 thousand euro (2,679 thousand euro at December 31, 2018).

a.3) Energy Derivatives, risk assessment of Industrial Portfolio derivatives

PaR(1) or Profit at Risk, is used to assess the impact that fluctuations in the market price of the underlying have on the financial derivatives taken out by A2A S.p.A. that are attributable to the industrial portfolio. It is the change in the value of a financial instruments portfolio within set probability assumptions as the result of a shift in the market indices. The PaR is calculated using the Montecarlo Method (at least 10,000 trials) and a 99% confidence level. It simulates scenarios for each relevant price driver depending on the volatility and correlations associated with each one, using as the central level the forward market curves at the balance sheet date, if available. By means of this method, after having obtained a distribution of probability associated with changes in the result of outstanding financial contracts, it is possible to extrapolate the maximum change expected over a time horizon given by the accounting period at a set level of probability. Based on this methodology, over the time horizon of the accounting period and in the event of extreme market movements and at a 99% confidence level, the expected maximum change in financial derivatives outstanding at December 31, 2019 was 99,389 thousand euro (75,530 thousand euro at December 31, 2018).

The following are the results of the simulation with the related maximum variances:

thousands of euro 12 31 2019 12 31 2018
Profit at Risk (PaR) Worst case Best case Worst case Best case
Confidence level 99% (99,389) 119,873 (75,530) 89,251

This means that with a 99% probability, A2A S.p.A. expects not to have changes in fair value exceeding 99,389 thousand euro in the fair value of its entire portfolio of financial instruments at December 31, 2019 due to commodity price fluctuations in the 12 months following. If there are any negative changes in the fair value of derivatives, these would be compensated by changes in the underlying as the result of changes in market prices.

a.4) Energy Derivatives, risk assessment of Trading Portfolio derivatives

VaR (Value at Risk)(2) is used to assess the impact that fluctuations in the market price of the underlying have on the financial derivatives taken out by A2A S.p.A. that are attributable to the trading portfolio. It is the negative change in the value of a financial instruments portfolio within set probability assumptions as the result of an unfavourable shift in the market indices. VaR is calculated using the RiskMetrics method with a holding period of 3 days and a confidence level of 99%. Alternative methods are used for contracts where it is not possible to perform a daily estimate of VaR such as stress test analysis.

Under this method, in the case of extreme market movements, with a confidence level of 99% and a holding period of 3 days, the maximum estimated loss on the derivatives in question was 159 thousand euro at December 31, 2019 (251 thousand euro at December 31, 2018).

In order to ensure closer monitoring of activities, VaR and Stop Loss limits are also set, understood as the sum of VaR, P&L Realized and P&L Unrealized.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial

statements Basis of

preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet

Net debt Notes to the

income statement Note on

related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments

with third parties Other information

4 Attachments

5 Independent Auditors' Report

1 Profit at Risk: statistical measurement of the maximum potential negative deviation of the margin of an asset portfolio in case of unfavourable market changes over a given time horizon and with a defined confidence interval.

2 Value at Risk: statistical measurement of the maximum potential drop in the fair value of an asset portfolio in the event of unfavourable movements in the market with a given time horizon and confidence level.

The following are the results of the assessments:

thousands of euro 12 31 2019 12 31 2018
Value at Risk (VaR) VaR Stop loss VaR Stop loss
Confidence level 99%,
holding period 3 days
(159) (159) (251) (251)

b. Interest rate risk

The volatility of financial expenses associated to the performance of interest rates is 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.

The book value of bank borrowings and other financing may be analyzed as follows at December 31, 2019:

millions of euro 12 31 2019 12 31 2018
Without
derivatives
With
derivatives
% with
derivatives
Without
derivatives
With
derivatives
% with
derivatives
Fixed rate 2,529 2,721 82% 2,643 2,852 83%
Floating rate 788 596 18% 807 598 17%
Total 3,317 3,317 100% 3,450 3,450 100%

At December 31, 2019, the following are the hedging instruments for interest rate risk:

millions of euro

HEDGING
INSTRUMENT
HEDGED ASSET 12 31 2019 12 31 2018
Fair value Notional Fair value Notional
Collar Floating rate loan (5.6) 76.2 (8.0) 95.2
Total (5.6) 76.2 (8.0) 95.2

With reference to the accounting treatment, hedging derivatives for interest rate risk can be classified as follows:

millions of euro

ACCOUNTING TYPE OF FINANCIAL ASSETS FINANCIAL LIABILITIES
TREATMENT DERIVATIVES NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE
12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018
Cash flow hedge Collar - - - - 76.2 95.2 (5.6) (8.0)
Total - - - - 76.2 95.2 (5.6) (8.0)

The table below illustrates the underlying of outstanding derivatives at December 31, 2019:

Loan Derivative Accounting
A2A S.p.A. loan with BEI: expiring in
November 2023, residual balance
at December 31, 2019 amounting
to 76.2 million euro, at floating rate
interest.
Collar to fully cover the loan and
the same maturity, with a floor
on Euribor rate 2.99% and 4.65%
cap. At December 31, 2019, the fair
value was negative for 5.6 million
The loan is measured at amortized
cost.
The collar is a cash flow hedge,
with 100% recognized in a specific
equity reserve.
euro.

In order to allow a broader understanding of the risks of changes in the interest rates to which the company is subject, a sensitivity analysis of financial expenses was conducted as interest rates varied, applying to financial indebtedness and derivative financial contracts in place a retrospective variation upwards and downwards of 50 basis points of the reference Euribor interest rates. The following table shows the results of this analysis:

millions of euro YEAR 2019
-50 bps +50 bps
Increase (decrease) in net financial expenses (1.4) 1.4

A sensitivity analysis is provided relating to possible changes in the fair value of derivatives (excluding cross currency swaps) on shifting the forward rate curve by +50 bps and -50 bps:

millions of euro 12 31 2019
(base case: -5.6)
12 31 2018
(base case: -8.0)
-50 bps +50 bps -50 bps +50 bps
Change in fair value of derivatives (0.8) 0.8 (1.2) 1.2
(of which cash flow hedges) (0.8) 0.8 (1.2) 1.2
(of which fair value hedges) - - - -

This sensitivity analysis is calculated to determine the effect of the change of the forward interest rate curve of the fair value of derivatives ignoring any impact of the adjustment due to counterparty risk – "Bilateral Credit Value Adjustment" (bCVA) – introduced in the calculation of fair value in accordance with international accounting standard IFRS13.

c. Exchange rate risk not related to commodities

In relation to exchange rate risk other than that included in the price of commodities, the hedging instrument at December 31, 2019 is as follows:

millions of euro

HEDGING
INSTRUMENT
HEDGED ASSET 12 31 2019 12 31 2018
Fair value Notional
(*)
Fair value Notional
(*)
Cross Currency IRS Fixed rate loan in foreign
currency
2.4 114.8 7.7 111.2
Total 2.4 114.8 7.7 111.2

(*) the notional of the CCS is valued at the year-end ECB exchange rate.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet

Net debt Notes to the

income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments

with third parties

Other information

4 Attachments

5 Independent Auditors' Report

The accounting treatment of the derivatives indicated above is as follows:

millions of euro
ACCOUNTING TYPE OF FINANCIAL ASSETS FINANCIAL LIABILITIES
TREATMENT DERIVATIVES NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE
12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018
Cash flow hedge CCIRS 114.8 111.2 2.4 7.7 - - - -
Total 114.8 111.2 2.4 7.7 - - - -

In particular, the underlying of the Cross Currency IRS derivative refers to the bond at fixed rate of 14 billion yen with maturity 2036 bullet issued in 2006.

A cross currency swap contract was stipulated for the entire duration of this loan, which converts the principal and interest payments from yen into euro.

At December 31, 2019, the fair value of the hedge was positive for 2.4 million euro. This fair value would improve by 23.4 million euro in the event of a 10% decline in the forward curve of the euro/ yen exchange rate (appreciation of the yen) and would worsen by 19.1 million euro in the event of a 10% rise in the forward curve of the euro/yen exchange rate (depreciation of the yen). This sensitivity analysis was performed with the aim of calculating the effect of changes in the forward curve of the euro/yen exchange rate on the fair value ignoring any impact on the adjustment due to the bCVA.

d. Liquidity risk

Liquidity risk is the risk that the company, despite being solvent, is unable to meet its obligations in a timely manner or that it is able to do so under unfavourable economic conditions.

thousands of euro Accounting Portions Portions
maturing
Portions maturing by
balance
12 31 2019
maturing
within 12
months
after 12
months
12 31 2021 12 31 2022 12 31 2023 12 31 2024 After
Bonds 2,595,413 45,602 2,549,811 350,740 498,714 299,385 299,395 1,101,577
Bank loans 721,215 107,726 613,489 78,913 78,922 78,970 62,981 313,703
TOTAL 3,316,628 153,328 3,163,300 429,653 577,636 378,355 362,376 1,415,280

The profile of the gross debt maturities of A2A is as follows:

The risk management policy is realized through (i) a debt management strategy diversified by funding sources and maturities, and (ii) maintenance of financial resources sufficient to meet scheduled and unexpected commitments over a given time horizon.

At December 31, 2019, the company had a total of 1,050 million euro, as follows: (i) revolving committed credit lines for 540 million euro, of which 140 maturing in 2021 and 400 in 2023, unused; (ii) unused long-term financing for a total of 150 million euro; (iii) cash and cash equivalents totalling 360 million euro.

A2A also maintains a Bond Issue Program (Euro Medium Term Note Programme) of 4 billion euro, of which 1,549 million euro still available.

The following table analyses the worst case for financial liabilities (including trade payables) in which all of the flows shown are undiscounted future nominal cash flows determined on the basis of residual contractual maturities for both principal and interest; they also include the undiscounted nominal flows of derivative contracts on interest rates.

12 31 2019 millions of euro 1-3
MONTHS
4-12
MONTHS
AFTER
12 MONTHS
Bonds 44 23 2,807
Payables and other financial liabilities 1 110 632
Total financial flows 45 133 3,439
Payables to suppliers 162 3 -
Total trade payables 162 3 -
12 31 2018 millions of euro 1-3
MONTHS
4-12
MONTHS
AFTER
12 MONTHS
Bonds 45 553 2,475
Payables and other financial liabilities 2 55 731
Total financial flows 47 608 3,206
Payables to suppliers 204 1 -
Total trade payables 204 1 -

e. Credit risk

Credit risk relates to the possibility that a counterparty 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 (Credit Policy, Energy Risk Management procedure) 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. Risk mitigation is through the prior assessment of the creditworthiness of the counterparty and the constant verification of compliance with exposure limit as well as through the request for adequate guarantees.

The credit terms granted to customers as a whole have a variety of deadlines, in accordance with applicable law and market practice. In cases of delayed payment, default interest is charged as explicitly prescribed by the underlying supply contracts or by current law (application of the default rate as per Legislative Decree 231/2002).

Trade receivables are recognized on the balance sheet net of any write-downs. It is felt that the amount shown provides and accurate representation of the fair value of the trade receivables portfolio.

For the aging of trade receivables, reference is made to note 7) Trade receivables.

f. Equity risk

A2A S.p.A. was not exposed to equity risk at December 31, 2019.

At December 31, 2019, A2A S.p.A. held 23,721,421 treasury shares, representing 0.757% of the share capital consisting of 3,132,905,277 shares.

As prescribed by IAS/IFRS, treasury shares do not constitute an equity risk as their purchase cost is deducted from equity, and even if they are sold any gain or loss on the purchase cost does not have any effect on income statement.

g. Covenants non-compliance risk

Bonds (book value at December 31, 2019 equal to 2,595 million euro), bank loans (book value at December 31, 2019 equal to 721 million euro) and revolving committed 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 A2A S.p.A. undertakes not to pledge, with exceptions, guarantees on its assets or those of its directly held subsidiaries over and above a specific threshold; (ii) cross- default/ 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 direct subsidiaries.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments

with third parties Other information

4 Attachments

5 Independent Auditors' Report

Bonds include (i) 2,451 million euro nominal (book value at December 31, 2019 2,479 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 nominal (book value at December 31, 2019 116 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).

The loans stipulated with the European Investment Bank, with book value of 669 million euro contain a Credit Rating clause (if rating below BBB- or equivalent level to sub-investment grade), and a change of control clause of A2A S.p.A., with the right for the bank to invoke, upon notice to the company containing indication of the reasons, the early repayment of the loan.

With reference to the bank lines revolving committed available, the line for 400 million euro with maturity August 2023 and the bilateral line for 100 million euro with maturity February 2021, include a Change of Control clause which in the event of a change of control of the company causing a Material Adverse Effect allows the banks to request the facility to be extinguished and early repayment of any amounts drawn.

At December 31, 2019, there was no situation of non-compliance with the covenants of A2A S.p.A..

Analysis of forward transactions and derivatives

Tests were performed to determine whether these transactions qualify for hedge accounting in accordance with International Accounting Standard IFRS 9. In particular:

  • 1) transactions qualifying for hedge accounting under IFRS 9: can be analyzed between transactions to hedge cash flows (cash flow hedges) and transactions to hedge fair value of assets and liabilities (fair value hedges). For the cash flow hedges, the accrued result is included in gross operating margin when realized on commodity derivatives and in the financial balance for interest rate and currency derivatives, whereas the future value is shown in equity. For fair value hedge transactions, the impacts in the Income Statement are recorded within the same line of the financial statements.
  • 2) transactions not considered as hedges for the purposes of IFRS 9, can be:
  • a. margin hedges: for all hedging transactions of cash flows or the market value in line with internal risk policies, the accrued result and future value are included in gross operating margin for commodity derivatives and in the financial balance for interest rate and currency derivatives;
  • b. trading transactions: the accrued result and future value are recognized above gross operating margin for commodities transactions and in financial income and expense for interest rate and currency transactions.

The use of derivatives in the A2A Group is governed by a coordinated set of procedures (Energy Risk Policy, Deal Life Cycle) which are based on industry best practices and designed to limit the risk of the Group being exposed to commodity price fluctuations, based on a cash flow hedging strategy.

The derivatives are measured at fair value based on the forward market curve at the balance sheet date, if the asset underlying the derivative is traded on markets with a forward pricing structure. In the absence of a forward market curve, fair value is measured on the basis of internal estimates using models that refer to industry best practices.

A2A S.p.A. uses "continuous-time" discounting to measure fair value. As a discount factor, it uses the interest rate for risk-free assets, identified in the Euro Overnight Index Average (EONIA) rate and represented in its forward structure by the Overnight Index Swap (OIS) curve. The fair value of the cash flow hedges has been classified on the basis of the underlying derivative contracts in accordance with IFRS 9.

In compliance with the provisions of IFRS 13, the fair value of an over-the-counter (OTC) financial instrument is determined taking into account the non-performance risk. To quantify the fair value adjustment attributable to this risk, A2A S.p.A. has, in line with best market practices, developed a proprietary model called the "bilateral Credit Value Adjustment" (bCVA), which takes into account changes in the creditworthiness of the counterpart as well as the changes in its own creditworthiness.

The bCVA has two addends, calculated by considering the possibility that both counterparties go bankrupt, known as the Credit Value Adjustment (CVA) and the Debit Value Adjustment (DVA):

  • the CVA is a negative component and contemplates the probability that a counterparty defaults and, at the same time, A2A S.p.A. has a claim against the counterparty;
  • the DVA is a positive component and contemplates the probability that A2A S.p.A. defaults and, at the same time, a counterparty has a claim against A2A S.p.A..

The bCVA is therefore calculated with reference to the exposure, measured on the basis of the market value of the derivative at the time of the default, the probability of default (PD) and the loss given default (LGD). This latter item, which represents the non- recoverable portion of the receivable in the case of default, is measured on the basis of the IRB Foundation Methodology as stated in the Basel 2 accords, whereas the PD is measured on the basis of the rating of the counterparties (internal rating based where not available) and the historic probability of default associated with this and published annually by Standard & Poor's.

Applying the above method did not result in significant changes in fair value measurements.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements

Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments

with third parties Other information

4 Attachments

5 Independent Auditors' Report

Instruments outstanding at December 31, 2019

A) On interest and exchange rates

The following analyses show the outstanding amounts of derivative contracts stipulated and not expired at the balance sheet date, by maturity.

thousands of euro Notional value (a)
expiring within 1 year
Notional value (a)
expiring within 1 and 5 years
Notional
value (a)
expiring
Balance
sheet
value
Progressive
effect to
income
to be
received
to be
paid
to be
received
to be
paid
over 5 years (b) statement at
12 31 2019
(c)
Interest rate risk management
- cash flow hedges as per IFRS 9 19,048 57,143 (5,637)
- not considered hedges as per IFRS 9 - - -
Total derivatives on interest rates - 19,048 - 57,143 - (5,637) -
Exchange rate risk management
- considered hedges as per IFRS 9
on commercial transactions
on financial transactions
114,811 2,381
- not considered hedges as per IFRS 9
on commercial transactions
on financial transactions
Total exchange rate derivatives - - - - 114,811 2,381 -

(a) Represents the sum of the notional value of the elementary contracts that derive from any dismantling of complex contracts.

(b) Represents the net receivable (+) or payable (-) recognized in the balance sheet following the measurement of derivatives at fair value.

(c) Represents the adjustment of derivatives to fair value recognized progressively over time in the income statement from the stipulation of the contract to the present day.

B) On commodities

The following is an analysis of the commodity derivative contracts outstanding at the balance sheet date set up for the purpose of managing the risk of the fluctuations in the market prices of commodities.

Volume by Maturity Fair Value
Due within
1 year
Due within
two years
Due within
five years
Notional
Value
Balance
sheet value
(*)
Progressive
effect to
income
statement
(**)
Energy product price risk
management
Unit of
measurement
Quantity Thousands of euro
A. Cash flow hedges as per IFRS 9,
including:
(17,381.3) -
- Electricity TWh 12.6 0.8 298,378.2 (13,500.1)
- Oil Bbl
- Coal Tons 58,600 3,149.0 (326.6)
- Natural Gas TWh 1.8 0.1 31,154.8 (1,867.1)
- Natural Gas Millions of
cubic metres
7.9 2,197.0 (90.3)
- Natural Gas Degrees day 4,370 3,500.0
- Exchange rate Millions of
dollars
- CO2 Emission rights Tons 2,292,000 58,048.1 (1,597.2)
B. Considered fair value hedges as
per IFRS 9
- -
C. Not considered hedges as per
IFRS 9 of which
8,769.8 11,433.0
C.1 Hedge margin 4.4 (11.8)
- Electricity TWh
- Oil Bbl
- Natural Gas TWh
- Natural Gas Milioni di
metri cubi
- CO2 Emission rights Tons 10,000 250.8 4.4 (11.8)
- Exchange rate Millions of
dollars
C.2 Trading transactions 8.765,4 11.444,8
- Electricity TWh 29.7 1.4 0.6 1,862,825.3 4,255.2 9,688.0
- Natural Gas TWh 104.8 13.8 2.0 2,266,333.6 4,991.5 1,908.5
- CO2 Emission rights Tons 364,000 8,060.0 (481.3) (151.7)
- Environmental Certificates MWh
- Environmental Certificates Tep
Total (8,611.5) 11,433.0

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and

commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

6 Report of the Board of Auditors

(*) Represents the net receivable (+) or payable (-) recognized in the balance sheet following the measurement of derivatives at fair value.

(**) Represents the adjustment of derivatives to fair value recognized progressively over time in the Income Statement from stipulation of the contract until the current date.

C) On investments

At December 31, 2019, there are no derivatives on shareholdings like in the previous year.

Financial and operating effects for derivative transactions in 2019

Effects on the balance sheet

The following table shows the balance sheet figures at December 31, 2019, for derivative transactions.

thousands of euro NOTE TOTAL
ASSETS
NON-CURRENT ASSETS 2,381
Other non-current assets - Derivatives 5 2,381
CURRENT ASSETS 371,479
Other current assets - Derivatives 8 371,479
TOTAL ASSETS 373,860
LIABILITIES
NON-CURRENT LIABILITIES 5,637
Other non-current liabilities - Derivatives 20 5,637
CURRENT LIABILITIES 380,090
Trade payables and other current liabilities - Derivatives 21 380,090
TOTAL LIABILITIES 385,727

Effect on the income statement

The following table sets out the income statement figures at December 31, 2019 arising from the management of derivatives.

thousands of euro Note Realised during
the year
Change in fair
value during the
year
Amounts
recognized
in the income
statement
REVENUES 25
Revenues from the sale of goods
Energy product price risk management
and exchange rate risk management on commodities
- considered hedges as per IFRS 9 13,699 - 13,699
- not considered hedges as per IFRS 9 25,213 404,723 429,936
Total revenues from the sale of goods 38,912 404,723 443,635
OPERATING EXPENSES 26
Expenses for raw materials and services
Energy product price risk management
and exchange rate risk management on commodities
- considered hedges as per IFRS 9 (50,286) - (50,286)
- not considered hedges as per IFRS 9 (101,551) (393,290) (494,841)
Total costs for raw materials and services (151,837) (393,290) (545,127)
Total recognized in Gross operating income (*) (112,925) 11,433 (101,492)
FINANCIAL BALANCE 32
Financial income
Interest rate risk management and equity risk management
Expenses on derivatives
- considered hedges as per IFRS 9 - - -
- not considered hedges as per IFRS 9 - - -
Total - - -
Total financial income - - -
Financial expenses
Interest rate risk management and equity risk management
Expenses on derivatives
- considered hedges as per IFRS 9 (2,961) - (2,961)
- not considered hedges as per IFRS 9 - - -
Total (2,961) - (2,961)
Total financial expenses (2,961) - (2,961)
TOTAL RECOGNIZED IN FINANCIAL BALANCE (2,961) - (2,961)

(*) The figures do not include the effect of the net presentation of the negotiation margin of trading activities.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in international accounting standards Accounting standards and policies Notes to the balance sheet Net debt Notes to the income statement Note on related party transactions Consob Communication no. DEM/6064293 of July 28, 2006 Guarantees and

commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

Classes of financial instruments

To complete the analyses required by IFRS 7 and IFRS 13, the following table sets out the various types of financial instrument that are to be found in the various balance sheet items, with an indication of the accounting policies used and, in the case of financial instruments measured at fair value, an indication of where changes are recognized (income statement or equity). The last column of the table shows the fair value of the instrument at December 31, 2019, where applicable.

thousands of euro Criteria to measure the reported amount of financial instruments
Note Financial instruments
measured at fair value
with changes recognized in:
Financial
instrumen
ts mea
sured at
Book value
at
12 31 2019
Fair value
at
12 31 2019
(*)
Income
statement
Balance sheet amortized
cost
(1) (2) (3) (4)
ASSETS
Other non-current financial assets
Financial assets measured at fair value of which:
- unlisted 897 897 n.a.
- listed - -
Financial assets held to maturity 96 96 96
Other non-current financial assets 1,147,559 1,147,559 1,147,559
Total other non-current financial assets 3 1,148,552
Other non-current assets 5 2,381 12,966 15,347 15,347
Trade receivables 7 655,906 655,906 655,906
Other current assets 8 370,895 584 105,521 477,000 477,000
Current financial assets 9 386,297 386,297 386,297
Cash and cash equivalents 11 360,078 360,078 360,078
Assets held for sale 12 - - -
LIABILITIES
Financial liabilities
Non-current bonds 17 114,433 2,435,378 2,549,811 2,549,811
Current bonds (**) 22 45,602 45,602 45,602
Other non-current and current financial liabilities 17
and 22
1,163,580 1,163,580 1,163,580
Other non-current liabilities 20 5,927 5,637 11,564 11,564
Trade payables 21 772,767 772,767 772,767
Other current liabilities 21 362,125 17,965 127,516 507,606 507,606

(*) The fair value has not been calculated for receivables and payables not related to derivative contracts and loans as the corresponding carrying amount is a good approximation to this.

(**) Including accrued interest.

(1) Financial assets and liabilities measured at fair value with the changes in fair value recognized in the Income statement. (2) Cash flow hedges.

(3) Financial assets available for sale measured at fair value with profit/loss recognized in equity.

(4) Loans and receivables and financial liabilities measured at amortized cost.

Fair value hierarchy

IFRS 7 and IFRS 13 require that fair value classification of financial instruments to be based on the quality of the input source used to calculate the fair value.

In particular, IFRS 7 and IFRS 13 set out three levels of fair value:

  • level 1: this level consists of financial assets and liabilities for which fair value is based on (unadjusted) prices for identical assets or liabilities quoted on active official or over-the-counter markets;
  • level 2: this level consists of financial assets and liabilities for which fair value is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly;
  • level 3: this level consists of financial assets and liabilities for which fair value is based on unobservable market data. This level includes instruments measured on the basis of internal estimates made using proprietary methods based on best sector practice.

An analysis of the assets and liabilities included in the three fair value levels is set out in the following fair value hierarchy table.

thousands of euro NOTE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
Available-for-sale assets measured
at fair value
3 897 897
Other non-current assets 5 2,381 2,381
Other current assets 8 370,948 531 371,479
TOTAL ASSETS 370,948 3,278 531 374,757
Non-current financial liabilities 17 114,433 114,433
Other non-current liabilities 20 5,637 5,637
Other current liabilities 21 379,548 537 5 380,090
TOTAL LIABILITIES 493,981 6,174 5 500,160

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of

preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293

of July 28, 2006 Guarantees and

commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

7) Main regulatory provisions regarding concessions and agreements in the sectors of activity in which the company operates

Large hydroelectric derivation concessions (> 3 MW)

The national regulations governing hydroelectric concessions were originally dictated by the Royal Decree December 11, 1933, no. 1775, which was based on the granting of concessions by the State in a long-term logic, also in order to allow the concessionaires to amortize the significant investments necessary for the construction of the plants. With a view to transferring the concessions and the ownership of the relative works to the State, Article 25 of the R.D. 1775/1933 cit. provided that:

  • all the collection, regulation and forced duct works and the discharge channels (wet works) passed free of charge on state property;
  • any other building, machinery, plant for the use, transformation and distribution of the concession (dry works) could be acquired by the State by means of payment of a price equal to the estimated value of the work material, calculated at the time of entry into possession, abstracting from any assessment of the income that can be derived.

This regulatory framework was subsequently superseded first by electricity sector nationalization Law no. 1643/1962, which resulted in Enel taking over the majority(3) of hydroelectric concessions with the relative recognition of an unlimited duration, and then by the liberalisation of the electricity market as a result of Legislative Decree no. 79/1999(implementing Directive 96/92/EC), which introduced with art. 12 (and subsequent amendments) the principles of:

  • the temporariness of the concessions, establishing a validity period (2029) for concessions without expiration because they are owned by Enel and assigning the term of December 31, 2010 for concessions that have already expired or are expiring by that date;
  • contestability of concessions in the event of expiration, forfeiture or renunciation, providing, no later than 5 years before the expiration, the call for tenders by the competent administration (i.e. the Region) for the allocation of the same for consideration.

These regulations were subsequently amended by art. 37, paragraphs 4 and following, of Decree Law 83/2012 converted into Law 134/2012(4), which partially amended Legislative Decree no. 79/1999. The requirements, parameters and deadlines for carrying out the competitive procedure should have been set out in a specific ministerial decree (Tender MD) that was never issued. The time limit for the invitation to tender for the reallocation of the concession was set at 5 years before the concession expired.

Pending the reallocation of concessions, Legislative Decree 79/1999 (article 12, paragraph 8bis) provides that the outgoing concession holder is to continue to operate the concession under the same conditions as those laid down in the regulations and specifications in force. In this stalemate, some Regions have enacted laws aimed at regulating the "temporary continuation of operations" for expired concessions, also providing for the imposition of an additional fee.

Conversion Law no. 12/2019 of Decree Law December 14, 2018, no. 135 (Simplification Law), art. 11-quater attributed to the Regions the power to regulate, by means of their own laws, to be adopted by March 31, 2020, the procedures and criteria for the allocation of concessions, the process for which must be completed by 2023 with the entrustment of economic operators through tenders or public/ private companies or through forms of partnership. The duration of the new concessions will be between 20 and 40 years, with the possibility of extending the maximum period by a further 10 years depending on the complexity of the project proposal and the amount of investment.

With specific regional measure (after consultation with ARERA), the following will be defined:

• a State fee to be paid on a six-monthly basis to the Regions, comprising a fixed component linked to the average nominal power of the concession and a variable calculated as a percentage of normalized revenues;

3 With the exception of derivations in the ownership of self-producers, municipal companies and local authorities.

4 On September 26, 2013, as part of infringement procedure no. 2011/2026, the European Commission sent Italy a letter of formal notice contesting the non-compatibility of part of article 37 of Law 134/2012 with EU legislation. The procedure is still in progress.

• the possible obligation for the concessionaires to supply annually and free of charge 220 kWh per kW of concession power for at least 50% destined to public services of the provincial territories involved in the derivation.

For concessions expired or expiring on December 31, 2023, which are temporarily continued, an additional fee is also charged.

In terms of compensation to outgoing operators, the rule prescribes:

  • for wet works, the transfer without compensation of ownership of the Regions, and in the case of investments - provided they are defined in the deed of concession or authorized by the granting body - an amount equal to the value of the part of the asset not depreciated;
  • for dry works, the recognition of a residual value derived from accounting records or certified appraisal. In the event of non-use in the concession project, movable and immovable property will be treated differently.

In view of this new regulatory framework, on March 7, 2019, the European Commission sent a second letter of formal notice(5) to Italy, in which it complained that the Italian authorities had:

  • proceeded with continuous extensions of expired concessions, failing to establish transparent and impartial selection procedures for the award;
  • imposed on the successor concessionaire, in particular, for "dry" works, the obligation to pay compensation higher than the non-depreciated value of the assets, in asymmetry of treatment with as provided for in the case of the Regions taking over ownership of such assets, in addition to the cost of removal and disposal of movable assets not included in the concession project.

On May 10, with reference to the criticisms raised by the European Commission, the Italian Government sent a specific letter of reply.

ARERA, pursuant to art. 12, paragraph 1-quinquies, of Law no. 12/2019, with Resolution no. 490/2019/I/eel approved the preparatory Guidelines for the issue of a non-binding opinion on the regional legal schemes regarding state property fees, which must be issued within 20 days from the date of receipt of said scheme (in the event that ARERA's instructions have been complied with) and within 40 days in other cases. The Authority has expressed the following position:

  • i. the variable part(6) of the state fee should be equal to a percentage, however defined by the Regions, of the sum of the products between the hourly quantity of electricity fed into the grid and the corresponding hourly zonal price recorded on the Day Before Market (MGP);
  • ii. with reference to the free transfer of energy, its monetization should be preferred instead of its physical supply, based on the hourly zonal price recognized to the plant, to be determined as final balance, as the average of the hourly zonal prices formed on the MGP, weighted on the quantity of energy fed into the grid on an hourly basis.

In compliance with the provisions of the legislative framework in force and in line with the provisions of the aforementioned ARERA Resolution, the Lombardy Region, with art. 31 of Regional Law 23/2019 Budget Reconciliation 2020-22, has defined, starting from 2020, the obligation to supply free energy to the Region by all holders of concessions of large derivation, whether they are exercised before or after expiry, providing both the physical delivery and its monetization (even in full) to be calculated on the basis of an average hourly zonal price weighted on the quantity of electricity fed into the grid by the plant.

The large-scale derivation hydroelectric concessions held by A2A S.p.A. located in Valtellina (with a nominal concession capacity of approximately 200 MW) have for the most part expired: the Lombardy Region with Regional Council Resolution (D.G.R.) no. X/7693 of January 12, 2018 allowed the temporary continuation of the year until December 31, 2020, establishing the payment of an additional fee and the non-application of the partial exemption from the state fee on the Premadio 1 and Grosio plants, both forecasts challenged by the company(7), except for a shorter term due to the Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements

Basis of preparation

Changes in international accounting

standards Accounting

standards and policies Notes to the

balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments with third parties

Other information

4 Attachments

5 Independent Auditors' Report

5 Again on March 7, the Commission also issued formal notice to Austria, France, Germany, Poland, Portugal, the United Kingdom and Sweden to "ensure that public contracts in the hydroelectric energy sector are awarded and renewed in accordance with EU law".

6 The fixed component of the fee should derive from environmental and/or water-related assessments that are outside the Authority's remit.

7 For further information, reference should be made to the section entitled "Update of the main legal and tax disputes still pending".

reallocation. Other A2A S.p.A. concessions (plants in Mese, Udine and Calabria with a total nominal concession capacity of 345 MW), originally owned by Enel, expire in 2029.

8) Update of the main legal and tax disputes still pending

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 company assessed the corresponding risk as possible without appropriating provisions in the financial statements.

Civil litigation

Consorzio Eurosviluppo S.c.a.r.l./Ergosud S.p.A. + A2A S.p.A. - Civil Court of Rome

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 extracontractual 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 adjournments 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 adjournment on April 1, 2015 and the hearing for clarification of conclusions has been scheduled for November 30, 2016. At this hearing, filing of the award issued by the Arbitration Court of Milan was admitted in March 2016, and the terms were set for the final statements and replication before arriving to the sentence. The hearing to clarify conclusions was then fixed again and postponed several times and was finally held October 31, 2018. The parties have lodged their pleadings within the time allowed and the judgment is therefore pending. The Group has not allocated any provisions as it does not deem as probable the risk related to this lawsuit.

ASM Novara S.p.A. dispute

In March 2013, Pessina Costruzioni initiated arbitration proceedings against A2A to declare the failure to comply with the shareholder agreements of Asm Novara and to sue A2A for damages. On June 30, 2015, the Arbitration 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 04, 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.

On November 23, 2016, the Court of Appeals of Milan filed the Sentence 4337/16 declaring the grounds for appeal of the award filed inadmissible and unfounded, with the consequent absorption of incidental claims.

In the terms, A2A appealed to the Cassation appealing against the chapter of the sentence that rejected the first plea for invalidity of the award and the chapter that individually rejected chapters 5, 6 and 7 relating to the liquidation of the damage equitably. Pessina Costruzioni appeared in court rejecting all the grounds and requesting confirmation of the sentence.

Effectiveness and execution of the award

On May 11, 2016, following invalidity of the effectiveness suspension of the award ordered by the Court of Appeal and the outcome of enforcement actions, A2A paid to Pessina Costruzioni 38,524,290.56 euro.

Carlo Tassara: lawsuit for damages against EDF and A2A S.p.A. on the reorganization of Edison

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.

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 did not quantify the damage allegedly suffered by Carlo Tassara as a result of such transactions. However, with brief on February 20, 2017, Carlo Tassara requested that the court have an expert witness to calculate them (specifying that it be quantified in the alleged difference between the tender offer price and the market value that the Edison shares had previously). Carlo Tassara also filed an appraisal in which such damages were quantified in a total amount between 197 and 232 million euro, amount to calculate the compensation due from each of the companies that will be considered responsible by the judge.

After several postponements justified also by modifications of the judge, on October 17, 2018, the judge rejected the requests for investigation of the plaintiffs, setting March 19, 2019 as the hearing for clarification of conclusions. The Company has filed its pleadings within the time limits and the ruling is pending. 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.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements

Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments

with third parties Other information

4 Attachments

5 Independent Auditors' Report

Criminal litigation

Investigation Monfalcone Plant (RGNR 578/11-RG Court of Gorizia 131/2015)

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. (now A2A S.p.A.). The current risk considered possible is 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. This is in addition to the increased use of coal instead of biomasses could have as a consequence 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.

On February 10, 2020, at the conclusion of the investigation, the GSE communicated the number of Green Certificates that can actually be withdrawn for the years 2009, 2010 and 2011 inviting the company to make the relevant requests.

In criminal proceedings, some sentencing 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.

On April 5, 2019, the Court, after withdrawing from the Chamber of Council, read out the ruling at the hearing: it acquitted all the defendants on grounds of merit or for prescription, with the exception of the legal representative of Friul Pellet S.r.l., who was sentenced, for failure to supply and for supplies of biomass with a calorific value lower than that contractually envisaged, to 2 years and 8 months' imprisonment and to pay compensation for the damage caused to A2A (to be paid separately). The reasons for the decision were filed in July 2019.

In the meantime, the legal representative of Friul Pellet filed an appeal before the Court of Appeal of Trieste and is awaiting the setting of the hearing.

It should be noted that A2A was found to be an injured and damaged party. The Court, on the other hand, ruled that it had not been established that the conditions for the recognition of the damage to the GSE and the Ministry of the Environment had been met, as this could not be considered as automatically proven as the effect of the fraud ordered against A2A. In this latter regard, it is recalled that the Group had not allocated any provision as it had considered being the aggrieved party in the proceedings and that the economic effects at the end of the proceedings would be neutral.

Administrative Litigation

Dispute over public water derivation fees

Derivations of public water for the production of hydroelectricity in Lombardy

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. (now A2A 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. (now A2A S.p.A.) appealed against these injunctions before the Regional Court of Public Waters ("TRAP") of Milan, proposing the exception of unconstitutionality of the regional provision.

The same conduct was adopted by Edipower S.p.A. (now A2A S.p.A.) for the annuities of the 2014, 2015 and 2016 fees.

However, given the consolidation of unfavourable law and contrary to the thesis of Edipower S.p.A. (now A2A S.p.A.) (ref. sent. TSAP no. 138/2016 and sent. Const. Court no. 158/2016), there was the extinction of almost all the appeals established by Edipower S.p.A. (now A2A S.p.A.) and payment the amount originally ordered pursuant to art. 309 Code of Civil Procedure, in order to avoid the increase of legal interest and the risk of condemnation to significant legal fees, as happened to other operators, while keeping intact its right to recover any amounts overpaid. Against this background, the injunctions for payment of October 2016 relating to the years 2014-2015 have not been opposed by Edipower S.p.A. (now A2A S.p.A.), which undertook to pay, with reserve of repetition in the event of a favourable judicial outcome, the quantum state fee not yet paid. The only judgment ("pilot") still pending before TRAP Milan concerning the 2013 State fee for the Liro Auction was last settled by Ruling no. 3247 of July 19, 2019 in which TRAP Milan rejected A2A's appeal.

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, but with reservation of repetition, the fee demanded by the Region and then sues for excess repetition. In December 2016, the only case pending for A2A before the TRAP Milan on the "doubling" of the state fee was also concluded, with partial loss of A2A in this respect.

In addition, the D.G.R. (Regional Council Resolution) of Lombardy no. 5130-2016 ordered, by implementing paragraph 5 of art. 53-bis of Regional Law 26/2003 introduced by Regional Law 19/2010, the subjection of the Lombardy 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 imposed retroactively from the original expiry of each concession, and therefore for Grosotto, Lovero and Stazzona from January 1, 2011, for Premadio 1 from July 29, 2013 and for Grosio from November 15, 2016.

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, the related and consequent provisions as well as the D.G.R. 7693- 2018 and consequent provisions, which reiterated the forecast of the application of an additional fee up to 2020 and, where envisaged, the revocation of the exemption of part of the state fee.

The provisions of the Regions concerning the temporary continuation of expired or expiring concessions could, as from 2019, be justified by the provisions introduced by the Conversion Law no. 12/2019 of Legislative Decree no. 135/2018, the constitutional compatibility of which is nevertheless controversial. In this last regard, it should be pointed out that A2A and Linea Green recently appealed before the TSAP for the annulment of General Director Decree (D.D.G.) no. 10544/2019 by means of which the Lombardy Region ascertained and determined the amounts allegedly owed by the concessionaires as additional fees for 2019 as well and with this appeal, they also requested referral to the Constitutional Court of a matter of constitutional legitimacy in relation to the aforementioned provisions introduced by the law converting Decree Law Simplifications with regard to hydroelectric concessions.

For disputes relating to public water derivation fees, at today's date, the Company set aside risk provisions for the total amount of 52,335 thousand euro equal to the entire claim of the counterparties from the expiry of the single concessions until 2019.

* * *

The following information is provided in connection with the main litigation of a fiscal nature.

A2A S.p.A. - Registration tax for transfer of business unit and sale of the investment Chi.na.co. S.r.l.

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 Provincial Tax Commission of Milan rejected the appeal with sentence filed on July 7, 2017. On February 13, 2018, the acquiring company filed an appeal, which was rejected by the Milan Regional Administrative Court. On April 8, 2019, the Company filed an appeal with the Supreme Court. The risks Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements Basis of preparation Changes in

international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments

with third parties Other information

4 Attachments

5 Independent Auditors' Report

provision recognized for 1.4 million euro was fully used for the payment of the amounts requested with the liquidation notice.

A2A S.p.A. (merging company of AMSA Holding S.p.A.) - VAT Tax assessments for tax years from 2001 to 2005

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 favourable 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.

For 2011, the Tax Revenue Office filed an appeal with the Supreme Court against which AMSA Holding S.p.A. (now A2A S.p.A.), filed a cross-appeal on November 9, 2012. At the hearing on December 12, 2018, the Company requested that the case be suspended in order to assess the facilitated settlement of the dispute. On May 24, 2019, the company filed an application for a facilitated settlement of pending tax disputes and definitively settled its tax claim.

The outcomes of the 2002 and 2003 disputes were also favourable 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. The hearing was held on December 12, 2018 and the appeal was upheld and the judgement was adjourned to the Regional Technical Committee (CTR). On December 23, 2019 the Company filed an appeal for reinstatement in CTR and an appeal for revocation in Cassation. 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.

9) Contingent assets arising from environmental certificates

At December 31, 2019, A2A S.p.A. had a surplus of environmental certificates.

10) Auditors' fees

In accordance with Article 2427, paragraph 16-bis, of the Italian civil code, it is hereby reported that the company paid EY S.p.A. total fees for the legally required auditing of the annual accounts and for other services provided during the year in the amount of 290 thousand euro.

11) Registered office

The registered office of the company is in Brescia in Via Lamarmora 230.

12) Investigation related to EPCG service contracts

A2A S.p.A. acquired the shareholding 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 - until June 30, 2017 - the Executive Director (CEO) and Executive Manager.

As part of the management of EPCG by A2A S.p.A., 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. 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, 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.

For the years 2013, 2014, 2015, 2016 and for the first half of 2017, 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 were 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 Italian 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. The accusation concerns a hypothesis of abuse of office in the management of service contracts stipulated by the same EPCG, and also concerns two other Italian managers seconded by A2A in EPCG in the period 2010-2012, as well as the former pro-tempore Co-General Manager of A2A, who signed the service contracts. On May 6, 2016, the former CFO was released on payment of a bail deposit and withdrawal of the passport. On December 7, 2016, the passport was returned and the CFO returned to Italy. Given the fact that in Montenegro there is a law on liability of legal persons for offences committed by their managers in their own interest, the company also monitored the possibility of extension of the investigation to A2A S.p.A.. At June 30, 2017, this event did not occur, but in the following weeks it emerged from press reports in Montenegro, and lastly with the notification in Podgorica on July 25, 2017, in the hands of the defendant appointed for this purpose by A2A, that the shares held by A2A in EPCG have been the subject of a precautionary measure of seizure. This precautionary measure was judicially challenged by A2A S.p.A., obtaining complete revocation on September 29, 2017. From the precautionary measure, there was also evidence that the proceedings in question were extended to A2A on July 3, 2017. Subsequently, following a civil/commercial agreement signed by A2A on October 23, 2017 with EPCG, and the resolution adopted by the latter on November 17, 2017 to not constitute as injured party in the criminal proceedings, as there was no damage, the Special State Prosecutor ordered the withdrawal of the accusations on December 28, 2017 and therefore the filing of the proceedings against A2A S.p.A. as well as against the three Montenegro officials, originally investigated like the Italian managers.

Pending the transition to the debating phase of the proceedings against the individuals remaining under investigation, the Court of Podgorica notified them, on December 13, 2019, of the authorization Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

General information on A2A S.p.A. Financial statements

Basis of preparation

Changes in international accounting standards

Accounting standards and policies

Notes to the balance sheet Net debt

Notes to the income statement

Note on related party transactions

Consob Communication no. DEM/6064293 of July 28, 2006

Guarantees and commitments

with third parties Other information

4 Attachments

5 Independent Auditors' Report

to transfer the proceedings to Italian jurisdiction. Therefore, we are now waiting for the case to be taken up by the competent Italian bodies, at which time the procedure will be definitively terminated in Montenegro.

Based on the assessments made, the foregoing and the information available to date, A2A believes that the risk of potential penalties applicable and/or claims for compensation or indemnity actions, can be assessed as remote. Considering the state of the proceedings and for the same reasons outlined herewith, it is also impossible to quantify in certain terms the amount of said indemnities or penalties, direct or indirect.

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.

4 Attachments

1 - Statement of changes in tangible assets

Tangible assets
thousands of euro
BALANCE AT 12 31 2018
GROSS
VALUE
ACCUMULATED
DEPRECIATION
PROVISION
WRITE
DOWN
RESIDUAL
VALUE
Land 41,903 (2,594) (6,635) 32,674
Buildings 471,509 (215,762) (30,759) 224,988
Plant and machinery 2,201,615 (1,132,088) (315,095) 754,432
Industrial and commercial equipment 18,983 (17,497) 1,486
Other assets 46,990 (35,345) 11,645
Construction in progress and advances 13,712 13,712
Leasehold improvements 316 (306) 10
Assets for rights of use -
Total tangible assets 2,795,028 (1,403,592) (352,489) 1,038,947
Tangible assets
thousands of euro
BALANCE AT 12 31 2017 EFFECT NON-RECURRING
TRANSACTIONS
GROSS
VALUE
ACCUMULATED
DEPRECIATION
PROVISION
WRITE
DOWN
RESIDUAL
VALUE
GROSS
VALUE
ACCUMULATED
DEPRECIATION
PROVISION
WRITE
DOWN
RESIDUAL
VALUE
Land 42,784 (2,594) (6,950) 33,240 (1,067) 315 (752)
Buildings 475,678 (203,511) (31,385) 240,782 (2,942) 984 626 (1,332)
Plant and machinery 2,233,952 (1,093,849) (327,638) 812,465 (51,243) 17,016 12,543 (21,684)
Industrial and commercial equipment 18,574 (17,176) 1,398
Other assets 47,056 (33,819) 13,237 (1,915) 1,209 (706)
Construction in progress and advances 17,500 17,500 (19) (19)
Leasehold improvements 626 (613) 13
Total tangible assets 2,836,170 (1,351,562) (365,973) 1,118,635 (57,186) 19,209 13,484 (24,493)

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

  1. Statement of changes in tangible

  2. Statement of changes in intangible assets 3/a. Statement

of changes in investments in subsidiaries 3/b. Statement

of changes in investments in affiliates

3/c. Statement of changes in investments in other companies

4/a. List of investments in subsidiaries

4/b. List of investments in affiliates

Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/ IFRS (pursuant to art. 2429.4 of the Italian Civil Code)

Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98

5 Independent Auditors' Report

CHANGES DURING THE YEAR BALANCE AT 12 31 2019
ACQUISITIONS CHANGES
IN
RECLASSIFICATIONS/
OTHER CHANGES
DISPOSALS WRITE
DOWNS
DEPRECIA
TION
TOTAL
CHANGES
GROSS
VALUE
ACCUMULATED
DEPRECIATION
PROVISION
WRITE
RESIDUAL
VALUE
CATEGORY ASSET
VALUE
ACCUMULATED
DEPRECIATION
ASSET
VALUE
ACCUMULATED
DEPRECIATION
FOR THE
YEAR
DOWN
29 1 (369) (339) 41,564 (2,594) (6,635) 32,335
1,363
1,464
(7,995) 7,223 (12,059) (10,004) 466,341 (220,598) (30,759) 214,984
3,378
9,747
3,965 (7,818) 7,384 (54,916) (38,260) 2,210,887 (1,179,620) (315,095) 716,172
875 58 (99) 99 (323) 610 19,817 (17,721) - 2,096
4,647 182 (31) (286) 286 (4,667) 131 51,502 (39,726) - 11,776
13,309 (11,452) (9) 1,848 15,560 - - 15,560
58 (6) 52 374 (312) - 62
13,667 30 (4,076) 9,621 13,667 (4,046) - 9,621
23,659 -
17,592
30 (16,567) 14,992 - (76,047) (36,341) 2,819,712 (1,464,617) (352,489) 1,002,606
EFFECT NON-RECURRING
TRANSACTIONS
CHANGES DURING THE YEAR BALANCE AT 12 31 2018
RESIDUAL
GROSS
PROVISION
RESIDUAL
ACCUMULATED
ACQUISITIONS CHANGES RECLASSIFICATIONS OTHER
DISPOSALS
WRITE DEPRECIA TOTAL GROSS ACCUMULATED PROVISION RESIDUAL
VALUE
WRITE
VALUE
DEPRECIATION
DOWN
IN
CATEGORY
ASSET
VALUE
ACCUMULATED
DEPRECIATION
CHANGES
ASSET
ACCUMULATED
VALUE
DEPRECIATION
DOWNS TION CHANGES
FOR THE
YEAR
VALUE DEPRECIATION WRITE
DOWN
VALUE
315
(752)
12 232 (58) 186 41,903 (2,594) (6,635) 32,674
626
(1,332)
1,145 1,515 310 (310) (1) (4,196) (12,925) (14,462) 471,509 (215,762) (30,759) 224,988
(21,684) 3,854 15,428 (376) 312 (55,567) (36,349) 2,201,615 (1,132,088) (315,095) 754,432
409 (321) 88 18,983 (17,497) - 1,486
(706) 3,150 17 (1,318) 1,318 (4,053) (886) 46,990 (35,345) - 11,645
(19) 13,452 (16,998) (223) (3,769) 13,712 - - 13,712
(310) 310 (3) (3) 316 (306) - 10
(24,493) 22,022 194 -
-
(224)
(1,752)
1,630 (4,196) (72,869) (55,195) 2,795,028 (1,403,592) (352,489) 1,038,947

2 - Statement of changes in intangible assets

Intangible assets
thousands of euro
BALANCE AT 12 31 2018 EFFECT NON
RECURRING
TRANSACTIONS
GROSS
VALUE
ACCUMULATED
DEPRECIATION
RESIDUAL
VALUE
GROSS
VALUE
Industrial patent and intellectual property rights 117,101 (109,527) 7,574
Concessions, licences, trademarks and similar rights 56,066 (39,041) 17,025
Goodwill 38,687 38,687 954
Assets in progress 14,126 14,126
Other intangible assets 4,063 (1,225) 2,838
Total intangible assets 230,043 (149,793) 80,250 954
Intangible assets
thousands of euro
BALANCE AT 12 31 2017
GROSS
VALUE
ACCUMULATED
DEPRECIATION
RESIDUAL
VALUE
Industrial patent and intellectual property rights 111,945 (105,065) 6,880
Concessions, licences, trademarks and similar rights 40,866 (33,094) 7,772
Goodwill 38,687 38,687
Assets in progress 12,426 12,426
Other intangible assets 30,649 (1,214) 29,435
Total intangible assets 234,573 (139,373) 95,200

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

  1. Statement of changes in tangible assets

  2. Statement

intangible assets 3/a. Statement of changes in investments in subsidiaries

3/b. Statement of changes in investments in affiliates

3/c. Statement of changes in investments in other companies

4/a. List of investments in subsidiaries 4/b. List of

investments in affiliates

Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/ IFRS (pursuant to art. 2429.4 of the Italian Civil Code)

Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98

5 Independent Auditors' Report

CHANGES DURING THE YEAR BALANCE AT 12 31 2019
ACQUISITIONS CHANGES
IN
CATEGORY
OTHER
CHANGES
WRITE
DOWNS
DEPRECIATION TOTAL
CHANGES
FOR THE
YEAR
GROSS
VALUE
ACCUMULATED
DEPRECIATION
RESIDUAL
VALUE
3,714 9,818 (38) (4,842) 8,652 130,595 (114,369) 16,226
5,673 7,777 (6) (9,179) 4,265 69,510 (48,220) 21,290
(4,000) (4,000) 35,641 - 35,641
12,549 (17,595) (5,046) 9,080 - 9,080
2,054 (11) 2,043 6,117 (1,236) 4,881
21,936 - 2,010 (4,000) (14,032) 5,914 250,943 (163,825) 87,118
BALANCE AT 12 31 2017 CHANGES DURING THE YEAR BALANCE AT 12 31 2018
GROSS
RESIDUAL
ACCUMULATED
VALUE
VALUE
DEPRECIATION
ACQUISITIONS CHANGES
IN
CATEGORY
OTHER
CHANGES
DEPRECIATION TOTAL
CHANGES
FOR THE
YEAR
GROSS
VALUE
ACCUMULATED
DEPRECIATION
RESIDUAL
VALUE
111,945
(105,065)
6,880
3,036 2,407 (287) (4,462) 694 117,101 (109,527) 7,574
40,866
(33,094)
7,772
4,741 10,474 (15) (5,947) 9,253 56,066 (39,041) 17,025
38,687
38,687
- 38,687 - 38,687
12,426
12,426
14,775 (13,075) 1,700 14,126 - 14,126
(1,214)
29,435
(26,586) (11) (26,597) 4,063 (1,225) 2,838
(139,373)
95,200
22,552 (194) (26,888) (10,420) (14,950) 230,043 (149,793) 80,250

3/a - Statement of changes in investments in subsidiaries

Shareholdings BALANCE AT
FINANCIAL
CHANGES IN 2019 CHANGES IN 2019
thousands of euro STATEMENTS
12 31 2018
INCREASES DECREASES EFFECT
NON-RECURRING
TRANSACTIONS
REVERSALS OF
IMPAIRMENT
LOSS
WRITE-DOWNS
VALUATIONS
FROM
EXCHANGE/
LOSSES
OTHERS
CHANGES
RECLASSIFICATIONS
FINANCIAL ASSETS
Subsidiaries:
Unareti S.p.A. 1,381,881
A2A Ambiente S.p.A. 634,894
A2A Calore & Servizi S.r.l. 330,627
A2A Ciclo Idrico S.p.A. 167,000
A2A gencogas S.p.A. 510,317 96,500
A2A Energiefuture S.p.A. 189,730
A2A Energia S.p.A. 97,039
Retragas S.r.l. 30,105
A2A Smart City S.p.A. 9,222
Proaris S.r.l. 3,557
Camuna Energia S.r.l. 740
Ecofert S.r.l. in liquidation -
Plurigas S.p.A. in liquidation 560
SEASM S.r.l. 469
Linea Group Holding S.p.A. 109,379 (2,994)
A2A Illuminazione Pubblica S.r.l. 28,600 (9,600)
A2A Montenegro d.o.o. 102
Azienda Servizi Valtrompia S.p.A. 10,758
A2A Security S.c.p.a. 23
A2A Energy Solution S.r.l. 4,575
A2A Rinnovabili S.p.A. 50
A2A Alfa S.r.l. -
A2Abroad S.p.A. 300 4,000 286
ACSM-AGAM S.p.A. 190,579 (157)
YADA ENERGIA S.r.l. - 5,010
Total subsidiaries 3,700,507 9,010 (12,594) 286 96,500 - (157) -
Equity investments held for sale
Elektroprivreda Cnre Gore AD (EPCG) 108,960 (108,960)

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

  1. Statement of changes in tangible assets

of changes in intangible assets 3/a. Statement of changes in

  1. Statement

3/b. Statement

of changes in investments in affiliates 3/c. Statement of changes in investments in other companies

4/a. List of investments in subsidiaries

4/b. List of investments in affiliates

Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/ IFRS (pursuant to art. 2429.4 of the Italian Civil Code)

Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98

5 Independent Auditors' Report

CHANGES IN 2019 CHANGES IN 2019 BALANCE AT SHARE OF EQUITY
EFFECT
REVERSALS OF
NON-RECURRING
IMPAIRMENT
TRANSACTIONS
LOSS
WRITE-DOWNS
VALUATIONS
OTHERS
FROM
CHANGES
EXCHANGE/
LOSSES
RECLASSIFICATIONS FINANCIAL
STATEMENTS
12 31 2019
%
HELD
EQUITY AT
12 31 2019
PRO RATA
AMOUNT
1,381,881 100.00% 1,499,462 1,499,462
634,894
330,627
100.00%
100.00%
546,736
366,220
546,736
366,220
167,000 100.00% 220,865 220,865
96,500 606,817 100.00% 644,926 644,926
189,730 100.00% 206,986 206,986
97,039 87.20% 215,353 187,788
30,105 87.27% 40,358 35,220
9,222 87.00% 16,634 14,472
3,557 60.00% 6,014 3,608
740 74.50% 1,090 812
-
560 70.00% 2,680 1,876
469 67.00% 932 624
106,385 51.00% 363,674 185,474
19,000 100.00% 39,979 39,979
102 100.00% 167
10,758 74.55% 21,558 16,071
23 47.60% 254
4,575 100.00% 7,171 7,171
50 100.00% 3,140 3,140
- 70.00%
4,586 100.00% 3,866 3,866
(157) 190,422 41.34% 442,366 182,874
5,010 100.00% 4,759 4,759
-
(157)
- 3,793,552 4,655,189 4,173,217
-

3/b - Statement of changes in investments in affiliates

Shareholdings BALANCE AT CHANGES IN 2019
thousands of euro FINANCIAL
STATEMENTS
12 31 2018
INCREASES DECREASES EFFECT
NON-RECURRING
TRANSACTIONS
FINANCIAL ASSETS
Affiliates:
Sviluppo Turistico Lago d'Iseo S.p.A. (*) 735
SET S.p.A. (*) 466
Serio Energia S.r.l. (*) 400
Ge.S.I. S.r.l. (*) 466
Visano Società Trattamento Reflui S.c.a.r.l. (*) 10
Ergon Energia S.r.l. in liquidation -
Total affiliates 2,077 - - -

(*) Figures in the financial statements at December 31, 2018

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

  1. Statement of changes in tangible assets

  2. Statement of changes in intangible assets 3/a. Statement of changes in

investments in subsidiaries 3/b. Statement

of changes in

3/c. Statement

of changes in investments in other companies 4/a. List of investments in subsidiaries

4/b. List of investments in affiliates

Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/ IFRS (pursuant to art. 2429.4 of the Italian Civil Code)

Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98

5 Independent Auditors' Report

SHARE OF EQUITY BALANCE AT
FINANCIAL
CHANGES IN 2019
PRO RATA
AMOUNT
EQUITY AT
12 31 2019
%
HELD
STATEMENTS
12 31 2019
OTHERS
CHANGES
REVALUATIONS
WRITE-DOWNS
748 3,079 24.29% 735
941 1,919 49.00% 466
746 1,864 40.00% 400
2,425 5,160 47.00% 466
10 26 40.00% 10
(110) (219) 50.00% -
4,760 11,829 2,077 - -

3/c - Statement of changes in investments in other companies

Company Name
thousands of euro
SHAREHOLDING
%
SHAREHOLDER CARRYING
AMOUNT AT
12 31 2019
Available-for-sale financial assets
Immobiliare-Fiera di Brescia S.p.A. 0.90% A2A S.p.A. 280
Others:
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.
L.E.A.P. S.c.a.r.l. 8.57% A2A S.p.A.
Consorzio Milano Sistema in liquidation 10.00% A2A S.p.A.
E.M.I.T. S.r.l. in liquidation 10.00% A2A S.p.A.
Isfor 2000 S.c.p.a. 4.94% A2A S.p.A.
Stradivaria S.p.A. n.s. A2A S.p.A.
DI.T.N.E. S.c.a.r.l. 1.82% A2A S.p.A.
Total other financial assets 617
Total available-for-sale financial assets 897

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.

4/a - List of investments in subsidiaries

Company Name
thousands of euro
REGISTERED OFFICE CURRENCY SHARE
CAPITAL AT
12 31 2019
Imprese controllate :
Unareti S.p.A. Brescia Euro 965,250
A2A Ambiente S.p.A. Brescia Euro 220,000
A2A Calore & Servizi S.r.l. Brescia Euro 150,000
A2A Ciclo Idrico S.p.A. Brescia Euro 70,000
A2A gencogas S.p.A. Gissi (Ch) Euro 450,000
A2A Energia S.p.A. Milan Euro 3,000
Retragas S.r.l. Brescia Euro 34,495
A2A Smart City S.p.A. Brescia Euro 3,448
Proaris S.r.l. Milan Euro 1,875
Camuna Energia S.r.l. Cedegolo (Bs) Euro 900
SEASM S.r.l. Brescia Euro 700
Plurigas S.p.A. in liquidation Milan Euro 800
A2A Montenegro d.o.o. Podgorica (Montenegro) Euro 100
A2A Energiefuture S.p.A. Milan Euro 50,000
Linea Group Holding S.p.A. Brescia Euro 189,494
A2A Illuminazione Pubblica S.r.l. Brescia Euro 19,000
Azienda Servizi Valtrompia S.p.A. Gardone Val Trompia (Bs) Euro 8,939
A2A Security S.c.p.a. Milan Euro 50
A2A Energy Solution S.r.l. Milan Euro 4,000
A2A Rinnovabili S.p.A. Trento Euro 50
ACSM-AGAM S.p.A. Monza Euro 197,344
A2A Alfa S.r.l. Milan Euro 100
A2Abroad S.p.A. Milan Euro 500
YADA ENERGIA S.r.l. Milan Euro 1,000

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

  1. Statement of changes in tangible assets

  2. Statement of changes in intangible assets 3/a. Statement

of changes in investments in subsidiaries

3/b. Statement of changes in investments in affiliates

3/c. Statement of changes in investments in other companies

4/a. List of

4/b. List of investments in affiliates

Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/ IFRS (pursuant to art. 2429.4 of the Italian Civil Code)

Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98

5 Independent Auditors' Report

REGISTERED OFFICE
CURRENCY
SHARE
CAPITAL AT
12 31 2019
EQUITY AT
12 31 2019
RESULT AT
12 31 2019
%
HELD
PRO RATA
AMOUNT
(A)
BALANCE AT
FINANCIAL
STATEMENTS
(B)
DELTA
(A-B)
965,250 1,499,462 118,322 100.00% 1,499,462 1,381,881 117,581
546,736 130,708 100.00% 546,736 634,894 (88,158)
366,220 33,019 100.00% 366,220 330,627 35,593
220,865 23,535 100.00% 220,865 167,000 53,865
644,926 97,576 100.00% 644,926 606,817 38,109
215,353 93,345 87.20% 187,788 97,039 90,749
34,495 40,358 1,311 87.27% 35,220 30,105 5,115
3,448 16,634 1,877 87.00% 14,472 9,222 5,250
1,875 6,014 104 60.00% 3,608 3,557 51
900 1,090 207 74.50% 812 740 72
700 932 79 67.00% 624 469 155
2,680 533 70.00% 1,876 560 1,316
167 3 100.00% 167 102 65
206,986 13,420 100.00% 206,986 189,730 17,256
189,494 363,674 166,405 51.00% 185,474 106,385 79,089
39,979 11,463 100.00% 39,979 19,000 20,979
21,558 838 74.55% 16,071 10,758 5,313
254 89 47.60% 121 23 98
7,171 1,438 100.00% 7,171 4,575 2,596
3,140 1,644 100.00% 3,140 50 3,090
442,366 15,449 41.34% 182,874 190,422 (7,548)
- (11) 70.00% - -
3,866 (721) 100.00% 3,866 4,586 (720)
4,759 (249) 100.00% 4,759 5,010 (251)

4/b - List of investments in affiliates

Company Name
thousands of euro
REGISTERED OFFICE CURRENCY SHARE
CAPITAL AT
12 31 2019
Sviluppo Turistico Lago d'Iseo S.p.A. (*) Iseo (Bs) Euro 1,616
SET S.p.A. (*) Toscolano Maderno (Bs) Euro 104
Serio Energia S.r.l. (*) Concordia sulla Secchia (Mo) Euro 1,000
Ge.S.I. S.r.l. (*) Brescia Euro 1,000
Visano Società Trattamento Reflui S.c.a.r.l. (*) Brescia Euro 25
Ergon Energia S.r.l. in liquidation Milan Euro 600

(*) Figures in the financial statements at December 31, 2018

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

  1. Statement of changes in tangible assets

  2. Statement of changes in intangible assets

3/a. Statement of changes in investments in subsidiaries

3/b. Statement of changes in investments in affiliates

3/c. Statement of changes in investments in other companies

4/a. List of investments in subsidiaries

4/b. List of

Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/ IFRS (pursuant to art. 2429.4 of the Italian Civil Code)

Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article

154-bis, paragraph 5 of Legislative Decree no. 58/98

5 Independent Auditors' Report

EQUITY AT
12 31 2019
RESULT AT
12 31 2019
%
HELD
PRO RATA
AMOUNT
(A)
BALANCE AT
FINANCIAL
STATEMENTS
(B)
DELTA
(A-B)
3,079 (12) 24.29% 748 735 13
1,919 312 49.00% 941 466 475
1,864 269 40.00% 746 400 346
5,160 299 47.00% 2,425 466 1,959
26 - 40.00% 10 10 -
(219) (58) 50.00% (110) - (110)

Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/IFRS

(pursuant to art. 2429.4 of the Italian Civil Code)

SUBSIDIARIES A2A gencogas
S.p.A.
A2A Energiefuture
S.p.A.
A2A Ambiente
S.p.A.
S.p.A. A2A Smart City Retragas S.r.l. SEASM S.r.l.
Share capital: Euro 450,000,000 Euro 50,000,000 Euro 220,000,000 Euro 3,448,276 Euro 34,494,650 Euro 700,000
% held: A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A.
Linea Group
Holding S.p.A. 13.00%
87.00% A2A S.p.A. 87.27%
Unareti S.p.A. 4.33%
A2A S.p.A. 67.00%
Description
thousands of euro
12 31 19 12 31 18 12 31 19 12 31 18 12 31 19 12 31 18 12 31 19 12 31 18 12 31 19 12 31 18 12 31 19 12 31 18
Revenues 151,967 152,048 193,347 196,150 460,411 429,353 62,845 53,241 7,336 8,300 357 357
Gross operating income 69,188 70,175 34,472 40,464 190,776 174,026 10,838 10,639 4,250 4,943 296 295
Net operating income 146,778 19,895 18,111 (109,072) 141,492 123,082 3,955 5,908 1,915 2,594 128 129
Result before taxes 141,108 13,162 17,846 (109,606) 170,404 122,953 3,005 5,650 1,915 2,594 110 95
Result of the year 97,576 4,789 13,420 (79,878) 130,708 82,628 1,877 3,835 1,311 1,804 79 67
Assets 1,076,189 970,895 374,777 337,759 917,663 892,836 128,998 73,439 43,945 44,140 1,502 1,589
Liabilities 431,263 423,499 167,791 144,037 370,928 397,960 112,363 54,924 3,587 3,391 570 736
Equity 644,926 547,396 206,986 193,722 546,736 494,876 16,634 18,515 40,358 40,749 932 853
Net financial position (249,118) (260,997) 115,596 80,056 261,188 308,745 (70,171) (24,045) 9,717 14,002 (537) (706)
AFFILIATES Ergon Energia S.r.l.
in liquidation
Share capital: Euro 600,000
% held: A2A S.p.A. 50.00%
Description
thousands of euro
12 31 19 12 31 18
Revenues 14 87
Gross operating income (79) 35
Net operating income (50) 30
Result before taxes (58) 24
Result of the year (58) 23
Assets 1,231 6,963
Liabilities 1,450 7,124
Equity (219) (161)
Net financial position (343) (810)

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

  1. Statement of changes in tangible assets

  2. Statement of changes in intangible assets 3/a. Statement

of changes in investments in subsidiaries

3/b. Statement of changes in investments in affiliates

3/c. Statement of changes in investments in other companies

4/a. List of investments in subsidiaries 4/b. List of

investments in affiliates

Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/ IFRS (pursuant to art. 2429.4 of the Italian Civil Code)

Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code) Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98

5 Independent Auditors' Report

6 Report of the Board of Auditors

SEASM S.r.l.
Linea Group Holding
A2A Illuminazione
Azienda Servizi
A2A Security S.c.p.a.
A2A Rinnovabili
A2A Energy Solution
S.p.A.
Pubblica S.r.l.
Valtrompia S.p.A.
S.p.A.
S.r.l.
ACSM-AGAM
S.p.A.
700,000
Euro
189,494,116 Euro
19,000,000 Euro
8,938,941 Euro
50,000 Euro
50,000 Euro
4,000,000 Euro
197,343,794
67.00%
A2A S.p.A.
51.00% A2A S.p.A.
100.00% A2A S.p.A.
74.55%
A2A S.p.A.
100.00% A2A S.p.A.
A2A S.p.A.
47.60%
Unareti S.p.A. 0.25%
Unareti S.p.A.
19.10%
A2A Ciclo Idrico S.p.A.
10.90%
Amsa S.p.A.
9.50%
A2A gencogas S.p.A.
4.10%
A2A Ambiente S.p.A.
4.10%
A2A Calore & Servizi S.r.l. 2.70%
A2A Energiefuture S.p.A. 2.00%
100.00% A2A S.p.A.
41.34%
12 31 18
12 31 19
12 31 18
12 31 19
12 31 18
12 31 19
12 31 18
12 31 19
12 31 18
12 31 19
12 31 18
12 31 19
12 31 18
12 31 19
12 31 18
357
20,568
24,263
51,231
40,328
13,249
12,519
1,191
1,590
6,975
55
51,016
94,198
27,452
33,664
295
(7,804)
(3,653)
15,463
13,090
3,779
2,790
375
161
4,773
(174)
2,293
27,933
1,093
(3,228)
129
(9,026)
(4,832)
12,729
10,525
1,271
1,449
135
123
714
(174)
1,232
27,615
(5,199)
(16,767)
95
164,188
10,082
16,120
13,626
1,181
1,410
115
115
1,943
226
1,880
30,748
14,915
1,784
67
166,405
13,120
11,463
9,967
838
980
89
83
1,644
172
1,438
23,206
15,449
5,527
1,589
759,929
602,386
58,482
58,999
41,144
31,531
1,310
1,317
89,426
91,050
42,162
59,750
633,823
606,900
736
396,256
393,036
18,503
11,443
19,586
10,767
1,056
1,167
86,286
90,622
34,990
31,992
191,457
166,077
853
363,674
209,350
39,979
47,556
21,558
20,764
254
150
3,140
428
7,171
27,758
442,366
440,823
(706)
(170,573)
(175,747)
10,152
15,600
(8,513)
(4,913)
(734)
51
(25,519)
3,993
(26,818)
(18,044)
(81,910)
(66,071)

129

Key data of the financial statements of the main subsidiaries and affiliates prepared according to ITALIAN GAAP

(pursuant to art. 2429.4 of the Italian Civil Code)

SUBSIDIARIES Unareti S.p.A. A2A Calore & Servizi
S.r.l.
A2Abroad S.p.A.
Share capital: Euro 965,250,000 Euro 150,000,000 Euro 500,000
% held: A2A S.p.A. 100.00% A2A S.p.A. 100.00% A2A S.p.A. 100.00%
Description
thousands of euro
12 31 19 12 31 18 12 31 19 12 31 18 12 31 19 12 31 18
Revenues 505,684 566,409 239,121 240,239 124 -
Gross operating Income 257,973 234,689 78,557 73,806 (963) (5)
Net operating income 170,714 144,327 45,181 36,435 (963) (5)
Result before taxes 168,911 144,710 46,657 34,955 (964) (5)
Result of the year 118,322 103,137 33,019 24,944 (721) (5)
Assets 2,245,410 2,114,341 696,805 696,065 4,552 300
Liabilities 745,949 635,648 330,585 339,283 686 5
Equity 1,499,462 1,478,693 366,220 356,782 3,866 295
Net financial position (237,123) (108,981) (212,552) (218,583) 3,635 300
AFFILIATES Ge.S.I. S.r.l.
Share capital: Euro 1,000,000
% held: A2A S.p.A. 47.00%
Description
thousands of euro
12 31 18 12 31 17
Revenues 6,148 6,893
Gross operating Income 711 1,080
Net operating income 410 763
Result before taxes 413 783
Result of the year 299 586
Assets 7,298 7,604
Liabilities 2,138 2,743
Equity 5,160 4,860
Net financial position 2,361 863

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

  1. Statement of changes in tangible assets

  2. Statement of changes in intangible assets 3/a. Statement

of changes in investments in subsidiaries

3/b. Statement of changes in investments in affiliates

3/c. Statement of changes in investments in other companies

4/a. List of investments in subsidiaries

4/b. List of investments in affiliates

Key data of the financial statements of the main subsidiaries and affiliates prepared according to IAS/ IFRS (pursuant to art. 2429.4 of the Italian Civil Code)

Key data of the

financial statements affiliates prepared according to ITALIAN GAAP (pursuant to art. 2429.4 of the Italian Civil Code)

Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98

5 Independent Auditors' Report

A2A Energia S.p.A. A2A Ciclo Idrico S.p.A. Proaris S.r.l. Camuna Energia S.r.l. Plurigas S.p.A.
in liquidation
Euro 3,000,000 Euro 70,000,000 Euro 1,875,000 Euro 900,000 Euro 800,000
A2A S.p.A.
Linea Group
Holding S.p.A. 12.80%
87.20% A2A S.p.A. 100.00% A2A S.p.A. 60.00% A2A S.p.A. 74.50% A2A S.p.A. 70.00%
12 31 19 12 31 18 12 31 19 12 31 18 12 31 19 12 31 18 12 31 19 12 31 18 12 31 19 12 31 18
2,263,121 1,618,253 104,778 91,295 3,099 2,898 683 326 540
178,182 136,678 52,313 41,748 365 322 355 (185) (526)
136,326 118,088 34,306 26,511 190 147 302 (235) (526)
137,174 119,243 33,443 25,966 191 149 294 (236) (526)
93,345 85,348 23,535 18,299 104 102 207 (181) 533
833,543 608,474 410,315 383,083 6,540 6,880 1,903 1,703 4,620
618,190 410,829 189,451 185,753 526 874 813 820 1,939
215,353 197,645 220,865 197,330 6,014 6,006 1,090 883 2,680
(57,201) (31,816) (125,825) (122,340) 3,278 2,933 (487) (103) 2,812

Certification of the financial statements pursuant to article 154-bis, paragraph 5 of Legislative Decree no. 58/98

    1. The undersigned Luca Camerano, in the name and on behalf of the entire Board of Directors of A2A S.p.A., and Andrea Crenna, as manager in charge of preparing the corporate accounting documents of A2A S.p.A., certify, also taking into account the contents of article 154-bis, paragraphs 3 and 4, of Legislative Decree 58 February 24, 1998:
  • the adequacy in relation to the characteristics of the company and
  • the effective application

of administrative and accounting procedures for the preparation of financial statements in the year 2019.

  1. It is also certified that:

2.1 the financial statements:

  • a) have been prepared in accordance with International Financial Reporting Standards as endorsed by the European Community pursuant to Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002;
  • b) correspond to the information contained in the accounting ledgers and records;
  • c) provide a true and fair representation of the equity, economic and financial situation of the issuer;
  • 2.2 the report on operations includes a reliable analysis of the results of operations, as well as the situation of the issuer, together with a description of the principal risks and uncertainties to which they are exposed.

Milan, March 19, 2020

Luca Camerano Andrea Crenna

(for the Board of Directors) (Manager in charge of

preparing the corporate accounting documents)

5

Independent Auditors' Report

Independent Auditors' Report

EY S.p.A. Via Meravigli, 12 20123 Milano

Tel: +39 02 722121 Fax: +39 02 722122037 ey.com

Independent auditor's report pursuant to article 14 of Legislative Decree n. 39, dated 27 January 2010 and article 10 of EU Regulation n. 537/2014 (Translation from the original Italian text)

To the Shareholders of A2A S.p.A.

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of A2A S.p.A. (the Company), which comprise the balance sheet as at 31 December 2019, and the income statement, the statement of comprehensive income, statement of changes in equity and the cash flows statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements give a true and fair view of the financial position of the Company as at 31 December 2019, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with the regulations issued for implementing art. 9 of Legislative Decree n. 38/2005.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the regulations and standards on ethics and independence applicable to audits of financial statements under Italian Laws. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

EY S.p.A. Sede Legale: Via Lombardia, 31 - 00187 Roma Capitale Sociale Euro 2.525.000,00 i.v. Iscritta alla S.O. del Registro delle Imprese presso la C.C.I.A.A. di Roma Codice fiscale e numero di iscrizione 00434000584 - numero R.E.A. 250904 P.IVA 00891231003 Iscritta al Registro Revisori Legali al n. 70945 Pubblicato sulla G.U. Suppl. 13 - IV Serie Speciale del 17/2/1998 Iscritta all'Albo Speciale delle società di revisione Consob al progressivo n. 2 delibera n.10831 del 16/7/1997

A member firm of Ernst & Young Global Limited

We identified the following key audit matters:

Key Audit Matter Audit response

Valuation of Shareholdings in subsidiaries

At December 31, 2019, the Shareholdings in subsidiaries balance amount to 3.794 million euro.

The management assesses at least annually the existence of impairment indicators of each investment, in compliance with its strategy of managing legal entities within the group and, in case of occurrence, these assets are subject to impairment test.

The processes and methodologies for assessing and determining the recoverable amount of each shareholdings in subsidiaries are based on complex assumptions, that by their nature imply the use of the management's judgment, in particular with reference to the identification of impairment indicators, to forecast of future cash flows relating to the period covered by the Group's strategic plan, the normalized cash flows assumed as a basis for the terminal value, as well as the long-term growth rates and discount rates applied to such cash flows forecasts.

In consideration of the judgment required and of the complexity of the assumptions used in the estimate of the recoverable amount of investments, we have considered that this area represents a key audit matter.

The disclosures related to the recoverability of the investment in subsidiaries are included in the paragraph "Use of estimates" and in note n.3 "Shareholdings and other non-current financial assets" of the notes to the financial statements.

Our audit procedures related to this key audit matters included, among others:

  • · assessment of the processes and key controls implemented by the Company related to the identification of any loss and to the valuation of Shareholdings in subsidiaries;
  • · assessment of the report produced by the management's third party specialists, as well as the assessment of their competence, capability and objectivity;
  • · assessment of the forecasted future cash flows;
  • · assessment of the consistency between the future cash flows assumed in the Group A2A's strategic plan for the period 2020- 2024;
  • · assessment of the accuracy of actual results against previous forecasts;
  • · assessment of the long-term growth rates and discount rates.

In performing our procedures, we leveraged the used of EY valuation specialists who performed an independent calculation and sensitivity analysis on key assumptions, in order to determine any changes that could significantly impact the valuation of recoverable amount.

Lastly, we reviewed the adequacy of the disclosures included in the notes to the financial statements.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

Responsibilities of Directors and Those Charged with Governance for the Financial Statements

The Directors are responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and with the regulations issued for implementing art. 9 of Legislative Decree n. 38/2005, and, within the terms provided by the law, for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Directors are responsible for assessing the Company's ability to continue as a going concern and, when preparing the financial statements, for the appropriateness of the going concern assumption, and for appropriate disclosure thereof. The Directors prepare the financial statements on a going concern basis unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The statutory audit committee ("Collegio Sindacale") is responsible, within the terms provided by the law, for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with International Standards on Auditing (ISA Italia), we have exercised professional judgment and maintained professional skepticism throughout the audit. In addition:

  • · we have identified and assessed the risks of material misstatement of the financial statements, whether due to fraud or error, designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
  • · we have obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control;
  • · we have evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors;

  • · we have concluded on the appropriateness of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to consider this matter in forming our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern;

  • · we have evaluated the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We have communicated with those charged with governance, identified at an appropriate level as required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We have provided those charged with governance with a statement that we have complied with the ethical and independence requirements applicable in Italy, and we have communicated with them all matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we have determined those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We have described these matters in our auditor's report.

Additional information pursuant to article 10 of EU Regulation n. 537/14

The shareholders of A2A S.p.A., in the general meeting held on 11 June 2015, engaged us to perform the audits of the financial statements for each of the years ending 31 December 2016 to 31 December 2024.

We declare that we have not provided prohibited non-audit services, referred to article 5, par. 1, of EU Regulation n. 537/2014, and that we have remained independent of the Company in conducting the audit.

We confirm that the opinion on the financial statements included in this report is consistent with the content of the additional report to the audit committee (Collegio Sindacale) in their capacity as audit committee, prepared pursuant to article 11 of the EU Regulation n. 537/2014.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

Report on compliance with other legal and regulatory requirements

Opinion pursuant to article 14, paragraph 2, subparagraph e), of Legislative Decree n. 39 dated 27 January 2010 and of article 123-bis, paragraph 4, of Legislative Decree n. 58, dated 24 February 1998

The Directors of A2A S.p.A. are responsible for the preparation of the Report on Operation and of the Report on Corporate Governance and Ownership Structure of A2A S.p.A. as at 31 December 2019, including their consistency with the related financial statements and their compliance with the applicable laws and regulations.

We have performed the procedures required under audit standard SA Italia n. 720B, in order to express an opinion on the consistency of the Report on Operations and of specific information included in the Report on Corporate Governance and Ownership Structure as provided for by article 123-bis, paragraph 4, of Legislative Decree n. 58, dated 24 February 1998, with the financial statements of A2A S.p.A. as at 31 December 2019 and on their compliance with the applicable laws and regulations, and in order to assess whether they contain material misstatements.

In our opinion, the Report on Operation and the above mentioned specific information included in the Report on Corporate Governance and Ownership Structure are consistent with the financial statements of A2A S.p.A. as at 31 December 2019 and comply with the applicable laws and regulations.

With reference to the statement required by art. 14, paragraph 2, subparagraph e), of Legislative Decree n. 39, dated 27 January 2010, based on our knowledge and understanding of the entity and its environment obtained through our audit, we have no matters to report.

Milan, April 3, 2020

EY S.p.A. Signed by: Paolo Zocchi, Auditor

This report has been translated into the English language solely for the convenience of international readers.

Report of the Board of Auditors

LEGISLATIVE
DECREE
58/1998
AND
ARTICLE
2429
PARAGRAPH
3,
CIVIL
CODE
TO
THE
SHAREHOLDERS'
MEETING
OF
A2A
S.P.A.
OF
MAY
13,
2020
(SECOND
CALL,
IF
APPLICABLE,
MAY
14,
2020)

Shareholders,

The
Board
of
Statutory
Auditors
in
office
was
appointed
by
the
Shareholders'
Meeting
of
A2A S.p.A.
(hereinafter
referred
to
as
the
Company)
of
May
15,
2017
and
will
end
its
term
of
office
with
the
Shareholders'
Meeting
convened
to
approve
the
financial
statements
at
December
31,
2019.

Pursuant
to
article
153,
paragraph
1,
of
Legislative
Decree
no.
58
of
February
24,
1998
(hereinafter
Consolidated
Law
on
Finance
),
the
Board
of
Statutory
Auditors
informs
that,
during
the
year
ended
December
31,
2019,
it
carried
out
the
supervisory
and
control
activities
required
by
current
legislation,
with
particular
regard
to
the
provisions
of
the
Italian
Civil
Code,
articles
148
et
seq.
of
the
Consolidated
Law
on
Finance,
Legislative
Decree
no.
39
of
January
27,
2010
as
amended
by
Legislative
Decree
no.
135
of
2016
and
Legislative
Decree
no.
254
of
2016,
also
taking
into
account
the
indications
contained
in
CONSOB
communications
concerning
corporate
controls
and
the
activities
of
the
Board
of
Statutory
Auditors,
the
indications
contained
in
the
Corporate
Governance
Code
for
listed
companies
as
well
as
the

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

6 Report of the Board of Auditors

Accounting Experts.

This
Report
is
given
to
the
Shareholders
of
the
Company
in
view
of
the
Shareholders'
Meeting
called,
on
first
call,
on
May
13,
2020
and,
if
necessary,
on
second
call,
on
May
14,
2020
for
the
approval
of
the
Financial
Statements
at
December
31,
2019.

That
said,
the
activities
carried
out
by
the
Board
of
Statutory
Auditors
during
2019
and
up
to
the
date
of
today's
report
are
set
out
below,
also
with
reference
to
the
requirements
of
CONSOB
Communication
no.
DEM/1025564
of
April
6,
2001
and
subsequent
amendments.

***

1. Most significant transactions with regard to the company's financial position, results of operations and cash flows.

The
most
significant
economic,
financial
and
equity
transactions
and
events
that
took
place
in
2019
were
as
follows:

  • issue
    and
    placement
    of
    the
    first
    400
    million
    euro
    green
    bond
    with
    a
    term
    of
    10
    years,
    as
    part
    of
    the
    Green
    Financing
    Framework,
    for
    institutional
    investors,
    under
    the
    Euro
    Medium
    Term
    Notes
    program;
  • subscription
    with
    AGSM
    Verona
    S.p.A.
    and
    AIM
    Vicenza
    S.p.A.
    of
    a
    termsheet
    for
    an
    exclusive
    agreement,
    which
    will
    be
    concluded
    by
    June
    30,
    2020,
    aimed
    at
    studying
    a
    possible
    strategic
    partnership
    with
    the
    aim
    of
    creating
    a
    reference
    player
    in
    the
    Triveneto
    area;
  • definition
    of
    a
    feasibility
    study
    path
    for
    the
    realization
    of
    the
    territorial
    partnership
    project
    with
    Ambiente
    Energia
    Brianza
    S.p.A.
    (AEB),
    which
    lays
    the
    foundations
    for
    the
    creation
    of
    a
    new
    industrial
    entity
    following
    the
    model
    of
    the
    Multi-‐utility
    of
    the
    Territories.

Details
of
all
transactions
having
a
significant
impact
on
the
Company's
profitability,
assets
and
liabilities
or
financial
position
are
provided
in
the
"Significant
events
during
the
year"
section
of
the
Report
on
Operations.

The
Board
of
Statutory
Auditors
received
from
the
Directors,
with
due
periodicity,
information
on
the
activities
carried
out
and
transactions
of
major
economic,
financial
and
equity
importance
carried
out
by
the
Company
and
its
subsidiaries.
The
Directors
have
reported
on
these
transactions
in
their
Report
on
Operations,
to
which
reference
is
made,
also
with
regard
to
the
characteristics
of
the
transactions
and
their
economic
effects.

The
Board
of
Statutory
Auditors
has
acquired
adequate
information,
which
have
allowed
it
to
reasonably
believe
that
the
above
transactions
complied
with
the
law,
By-‐laws
and
the
principles
of
correct
administration
and
were
not
imprudent,
risky
or
in
conflict
with
the
resolutions
passed
by
the
shareholders'
meeting
or
in
any
case
such
as
to
compromise
the
integrity
of
the
company's
assets.

Transactions
with
related
parties
have
been
subject
to
the
transparency
procedures
provided
for
by
current
legislation.

2. Atypical and/or unusual transactions, carried out with third parties, intragroup or related parties.

The
Board
of
Statutory
Auditors
has
not
found
or
received
any
indications
from
the
Board
of
Directors,
the
Independent
Auditors
or
the
Head
of
Internal
Audit
regarding
the
existence
of
atypical
and/or
unusual
transactions,
as
defined
by
Consob
communication
DEM/6064293
of
July
28,
2006,
carried
out
with
third
parties,
related
parties
or
intragroup.

In
the
notes
to
the
financial
statements,
the
Directors
reported
on
ordinary
transactions
carried
out
during
the
year
with
Group
companies
and
related
parties,
to
which
reference
should
be
made,
also
with
regard
to
the
characteristics
of
the
transactions
and
their
economic

effects.

Their
examination
did
not
reveal
any
critical
issues
with
regard
to
their
suitability,
congruity
or
correspondence
to
the
interests
of
the
Company.

The
Board
of
Statutory
Auditors
verified
the
actual
implementation
and
functioning
of
the
Procedure
for
Transactions
with
Related
Parties
adopted
by
the
Company,
including
periodic
information
from
the
Board
of
Directors
in
the
event
of
such
transactions
being
carried
out.

3. Observations and proposals on the remarks and requests for information contained in the independent auditors' report.

On
April
3,
2020,
the
independent
auditors
EY
S.p.A.
issued
their
report
pursuant
to
article
14
of
Legislative
Decree
no.
39
of
January
27,
2010,
and
article
10
of
Regulation
(EU)
no.
537
of
April
16,
2014,
in
which
the
independent
auditors
certify
that
in
their
opinion:

  • the
    annual
    and
    consolidated
    financial
    statements
    of
    A2A
    S.p.A.
    provide
    a
    true
    and
    fair
    view
    of
    the
    financial
    position
    and
    results
    of
    operations
    of
    the
    Company
    and
    the
    A2A
    Group
    at
    December
    31,
    2019,
    of
    the
    economic
    results
    and
    cash
    flows
    for
    the
    year
    ended
    on
    said
    date,
    in
    accordance
    with
    the
    International
    Financial
    Reporting
    Standards
    adopted
    by
    the
    European
    Union,
    as
    well
    as
    the
    measures
    issued
    in
    implementation
    of
    article
    9
    of
    Legislative
    Decree
    no.
    38
    of
    February
    28,
    2005;
  • the
    report
    on
    operations
    and
    some
    specific
    information
    contained
    in
    the
    report
    on
    corporate
    governance
    and
    ownership
    structure
    indicated
    in
    article
    123-‐bis,
    paragraph
    4,
    of
    Legislative
    Decree
    no.
    58
    of
    February
    24,
    1998
    are
    consistent
    with
    the
    annual
    and
    consolidated
    financial
    statements
    of
    the
    Company
    and
    the
    A2A
    Group
    at
    December
    31,
    2019
    and
    have
    been
    prepared
    in
    accordance
    with
    the
    law;
  • there
    is
    nothing
    to
    report
    with
    reference
    to
    the
    statement
    referred
    to
    in
    article
    14,
    paragraph
    2,
    letter
    e)
    of
    Legislative
    Decree
    no.
    39
    of
    January
    27,
    2010,
    issued
    on
    the
    basis

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

of
the
knowledge
and
understanding
of
the
company
and
the
relative
context
acquired during
the
audit.

On
April
3,
2020,
the
independent
auditors
EY
S.p.A.
also
issued
their
additional
report
pursuant
to
article
11
of
Regulation
(EU)
537/2014,
which,
among
other
things,
confirms
that,
during
the
audit
of
the
Company's
annual
financial
statements
and
the
Group's
consolidated
financial
statements
for
the
year
ended
December
31,
2019,
no
significant
deficiencies
were
identified
in
the
internal
control
system
for
financial
information
and/or
in
the
accounting
system.

The
auditor's
reports
highlight
the
key
aspects
of
the
audit,
to
which
reference
should
be
made.

4. Complaints pursuant to article 2408 of the Civil Code and filing of petitions. Initiatives undertaken by the Board of Statutory Auditors and related outcomes.

In
2019,
no
complaints
were
received
pursuant
to
article
2408
of
the
Civil
Code
nor
petitions
of
any
kind
by
third
parties.

In
this
regard,
it
should
be
recalled
that
the
Company
has
adopted
a
whistleblowing
procedure
that
provides
for
the
establishment
of
suitable
information
channels
to
ensure
the
reception,
analysis
and
processing
of
reports,
related
internal
control
issues,
corporate
information,
administrative
liability
of
the
Company,
fraud
or
other
matters,
sent
by
employees,
members
of
corporate
bodies
or
third
parties,
including
in
confidential
or
anonymous
form.

5. Appointment of the independent auditors and related costs.

The
annual
financial
statements
of
A2A
S.p.A.
and
its
subsidiaries
have
been
subject
to
a
full
audit
by
EY
S.p.A.
on
the
basis
of
the
appointment
conferred
by
the
shareholders'
meeting
for
financial
years
2016
to
2024.

The
following
table
provides
a
summary
of
the
fees
paid
for
audit
work
performed
within
the
The annual financial statements of A2A S.p.A. are subject to a full audit by EY S.p.A. on the basis of their appointment for financial years 2016 to 2024 by shareholders in general meeting.

Group during 2019. The following table provides a summary of the fees paid for audit work performed within the Group

Description
thousands of euro
Leading
Auditor
Other
auditors
A2A S.p.A.
Audit of annual financial statements 145.0
Audit of consolidated financial statements 42.0
Periodic tests of accounting 21.0
Review of half-yearly report 67.0
Audit of the separate annual accounts for ARERA 15.0
Total 290.0 -
Subsidiaries
Audit of annual financial statements 800.0
Periodic tests of accounting 196.0
Review of half-yearly report 187.0
Audit of the separate annual accounts for ARERA 48.0
LGH Group 256.0
ACSM-AGAM Group 355.0
Total 1,842.0 -
Associates and joint ventures
Audit of the information sent to shareholders for the consolidation 34.0
Total 34.0 -
TOTAL A2A GROUP 2,166.0 -

The
Board
of
Statutory
Auditors
has
been
informed
by
the
Company
that
the
following
additional
fees
paid
to
companies
or
professional
firms
connected
to
the
international
network
engagements in 2019 for fees amounting in total to 52 thousand euro, which mainly related to Treasury shares

of
EY
S.p.A.
in
relation
to
the
offices
specified
below
have
been
recorded
(amounts
in
euro):
At December 31, 2019, A2A S.p.A. held 23,721,421 treasury shares, being 0.757% of its share capital

Each share has a par value of 0.52 euro.
Company
Secondary locations
Purpose Amount
Acsm-­‐Agam S.p.A.
The company does not have secondary offices.
Related parties and tax consolidation
Limited examination of the
2018
Non-­‐Financial
Declaration
required
under
Legislative Decree 254/2016
Details of related party transactions are provided in note 39 to the consolidated financial statements
of the Acsm-­‐Agam Group
and note 36 to the separate financial statements as required by article 2428 of the Civil Code.
15,000.00

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

Retragas S.r.l. Certification of revenues and
investments
and
disposals
relating to 2018. Resolution
114/2019/R/GAS
of
March
29, 2019
1,000.00
Unareti S.p.A. Carrying out the procedures
required by the company to
allow Unareti to participate in
the mechanism for mitigating
the process of efficiency of
commercial
losses
in
accordance
with
the
procedures
indicated
in
Resolution 377/2015/R/EEL
10,000.00
A2A Energiefuture S.p.A. Request for reinstatement of
2018 costs San Filippo del
Mela
-­‐
Essential
plants
resolution ARERA 111/06
1,000.00
A2A S.p.A. Comfort letter in connection
with the issuance of a 400
million
euro
public
Green
bond with a maturity of up to
10
years
under
the
Euro
Medium Term Notes Program
25,000.00
Total 52,000.00

The
conferral
of
the
above
appointments
was
approved
in
advance
by
the
Board
of
Statutory

Auditors.

Pursuant
to
the
provisions
of
article
6,
paragraph
2,
letter
a)
of
Regulation
(EU)
no.
537/2014,
the
Board
of
Statutory
Auditors
has
received
from
EY
S.p.A.
a
statement
that
it
has
maintained
its
position
of
independence
and
objectivity
with
respect
to
the
Company
and
its
Group
throughout
the
2019
financial
year,
taking
into
account
the
activities
carried
out.

6.
Main
opinions
issued
by
the
Board
of
Statutory
Auditors
in
accordance
with
current
legislation.

In
2019,
the
Board
of
Statutory
Auditors,
in
particular:

  • examined
    and
    positively
    assessed
    the
    approval
    of
    the
    2019
    Audit
    Plan
    prepared
    by
    the

Head
of
the
Internal
Audit
function
and
approved
by
the
Board
of
Directors;

  • examined
    and
    positively
    assessed
    the
    Remuneration
    Policy
    for
    2019
    as
    well
    as
    the
    text
    of
    the
    Remuneration
    Report
    approved
    by
    the
    Board
    of
    Directors
    at
    its
    meeting
    of
    April
    3,
    2019,
    verifying
    that
    it
    contained
    the
    information
    required
    by
    article
    123
    ter
    of
    the
    Consolidated
    Law
    on
    Finance
    and
    article
    84
    quater
    of
    Consob
    Regulation
    11971/1999;
  • examined
    and
    positively
    assessed
    the
    text
    of
    the
    Report
    on
    Corporate
    Governance
    and
    Ownership
    Structure
    approved
    by
    the
    Board
    of
    Directors
    at
    its
    meeting
    of
    April
    3,
    2019,
    verifying
    that
    it
    contains
    the
    information
    required
    by
    article
    123
    bis
    of
    the
    Consolidated
    Law
    on
    Finance
    and
    complies
    with
    the
    provisions
    of
    the
    scheme
    prepared
    by
    Borsa
    Italiana
    S.p.A.;
  • issued
    a
    favourable
    opinion,
    pursuant
    to
    article
    19,
    first
    paragraph,
    letter
    e)
    of
    Legislative
    Decree
    no.
    39
    of
    January
    27,
    2010
    and
    article
    5
    of
    European
    Community
    Regulation
    no.
    537
    of
    April
    16,
    2014,
    in
    relation
    to
    the
    assignment
    of
    "non
    audit
    services"
    to
    the
    independent
    auditors.

After
the
end
of
the
financial
year
and
up
to
the
date
of
this
report,
the
Board
of
Statutory
Auditors
has
also:

  • examined
    and
    positively
    assessed
    the
    approval
    of
    the
    2020
    Audit
    Plan
    prepared
    by
    the
    Head
    of
    the
    Internal
    Audit
    function
    and
    approved
    by
    the
    Board
    of
    Directors;
  • examined
    and
    positively
    assessed
    the
    Remuneration
    Policy
    for
    2020
    as
    well
    as
    the
    text
    of
    the
    Remuneration
    Report
    approved
    by
    the
    Board
    of
    Directors
    at
    its
    meeting
    of
    March
    19,
    2020,
    ascertaining
    that
    it
    contains
    the
    information
    required
    by
    article
    123
    ter
    of
    the
    Consolidated
    Law
    on
    Finance,
    as
    amended
    following
    Legislative
    Decree
    no.
    49
    of
    May
    10,
    2019
    and
    article
    84
    quater
    of
    Consob
    Regulation
    11971/1999;
  • examined
    and
    positively
    assessed
    the
    text
    of
    the
    Report
    on
    Corporate
    Governance
    and
    Ownership
    Structure
    approved
    by
    the
    Board
    of
    Directors
    at
    its
    meeting
    of
    March
    19,

8

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

2020,
verifying
that
it
contains
the
information
required
by
article
123
bis
of
the
Consolidated
Law
on
Finance
and
complies
with
the
provisions
of
the
scheme
prepared
by
Borsa
Italiana
S.p.A..

7. Attendance at meetings of corporate bodies.

In
2019,
the
Board
attended
all
the
meetings
of
the
Board
of
Directors,
for
a
total
of
15
sessions,
during
which
it
was
informed
about
the
activities
carried
out
and
the
most
significant
transactions
made
by
the
Company
and
its
subsidiaries.
In
this
context,
the
Board
received
from
the
Chairman
and
CEO
the
information
regarding
the
exercise
of
the
respective
proxies. Moreover,
the
Board
held
22
meetings
in
2019,
during
which
information
was
also
exchanged
with
the
independent
auditors
in
order
to
ensure
that
no
transactions
were
carried
that
were
imprudent,
risky,
in
potential
conflict
of
interest,
in
contrast
with
the
law,
By-‐laws
or
the
resolutions
of
the
shareholders'
meeting
or
such
to
affect
the
integrity
of
the
Company's
assets.

The
Board
of
Statutory
Auditors
also
attended
15
meetings
of
the
Control
and
Risk
Committee,
12
meetings
of
the
Remuneration
and
Appointments
Committee,
and
5
meetings
of
the
Committee
for
Transactions
with
Related
Parties,
gaining
knowledge
of
the
work
they
performed
during
the
year.

The
Control
Body
also
participated
in
the
Shareholders'
Meeting
of
May
13,
2019.

In
2020,
to
date,
the
Board
of
Statutory
Auditors
has
attended
10
meetings
of
the
Board
of
Directors,
5
meetings
of
the
Control
and
Risk
Committee,
5
meetings
of
the
Remuneration
and
Appointments
Committee,
1
meeting
of
the
Committee
for
Transactions
with
Related
Parties
and
has
held
8
meetings
of
the
Board
of
Statutory
Auditors.

8. Observations on compliance with the principles of correct administration.

The
Board
of
Statutory
Auditors,
following
its
supervisory
activity,
has
no
observations
to
make

regarding
compliance
with
the
principles
of
correct
administration
and
has
verified
that
the
Directors
are
aware
of
the
riskiness
and
effects
of
the
operations
carried
out.

In
particular,
the
Board
of
Statutory
Auditors
verified
that
the
management
decisions
were
taken
in
the
interest
of
the
Company,
compatible
with
the
Company's
resources
and
assets
and
adequately
supported
by
information,
analysis
and
verification
processes,
also
with
recourse,
when
deemed
necessary,
to
the
advisory
activities
of
the
Committees
and
external
professionals.

9. Observations on the adequacy of the organizational structure.

The
Board
of
Statutory
Auditors
constantly
collected
information
on
the
organizational
structure
of
the
Company
and
changes
thereto,
also
meeting
with
the
related
managers
of
the
Company.
In
light
of
what
has
been
verified,
the
Board
of
Statutory
Auditors
believes
that
the
organizational
structure
of
the
Company,
the
procedures,
expertise
and
responsibilities
are
adequate
in
relation
to
the
size
of
the
Company
and
the
type
of
activity
performed.

The
Board
of
Statutory
Auditors
also
verified
the
adequacy
of
the
organizational
structure
of
subsidiaries
with
strategic
importance
of
A2A
S.p.A.,
with
particular
reference
to
the
internal
control
and
risk
management
system.

10. Adequacy of the Internal Control and Risk Management System.

The
Board
of
Statutory
Auditors
monitored
the
adequacy
of
the
Internal
Control
and
Risk
Management
System
of
A2A
S.p.A.
and
its
strategically
important
subsidiaries,
by
means
of:

a) the
regular
collection
of
information,
including
at
meetings
of
the
Control
and
Risk
Committee
and
by
means
of
meetings
with
the
Head
of
the
Internal
Audit
function,
the
Head
of
the
Compliance
function,
the
Group
Risk
Officer
and
the
Heads
of
other
functions concerned
from
time
to
time,
on
the
activities
carried
out,
the
mapping
of
risks
relating
to
ongoing
activities,
the
verification
programs
and
the
projects
for
implementing
the
internal
Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

control
system,
with
the
acquisition
of
the
related
documentation;

  • b) regular
    participation
    in
    the
    work
    of
    the
    Control
    and
    Risk
    Committee
    set
    up
    pursuant
    to
    the
    Corporate
    Governance
    Code
    for
    listed
    companies;
  • c) examination
    of
    the
    periodic
    reports
    of
    the
    Control
    and
    Risk
    Committee;
  • d) examination
    of
    the
    reports
    of
    the
    Head
    of
    the
    Internal
    Audit
    Function,
    concerning
    the
    checks
    in
    the
    various
    company
    areas,
    both
    at
    peripheral
    and
    corporate
    level,
    on
    the
    functioning
    of
    the
    Group's
    Internal
    Control
    and
    Risk
    Management
    System
    and
    the
    monitoring
    of
    the
    implementation
    of
    the
    corrective
    actions
    identified
    as
    a
    result
    of
    the
    audit
    activity;
  • e) the
    examination
    of
    the
    periodic
    reports
    prepared
    every
    six
    months
    by
    the
    Head
    of
    Internal
    Audit
    function,
    which
    contain
    information
    on
    the
    activities
    carried
    out
    by
    the
    latter
    during
    the
    reference
    period,
    the
    risk
    management
    procedures
    within
    the
    Company,
    respect
    for
    plans
    defined
    for
    their
    reduction,
    strategic
    goals
    for
    reduction
    and
    efficiency,
    as
    well
    as
    the
    positive
    assessment
    of
    the
    same
    Head
    of
    the
    Internal
    Audit
    function
    on
    the
    suitability
    of
    the
    internal
    control
    and
    risk
    management
    system
    of
    the
    Company
    and
    its
    subsidiaries
    with
    strategic
    importance,
    with
    respect
    to
    the
    characteristics
    of
    the
    Company
    and
    the
    profile
    of
    risk
    undertaken.
    In
    particular,
    the
    Board
    of
    Statutory
    Auditors
    expressed
    a
    favourable
    opinion
    on
    the
    organizational,
    administrative
    and
    accounting
    structure
    and
    the
    internal
    control
    and
    risk
    management
    system
    of
    A2A
    S.p.A.
    and
    its
    strategically
    important
    subsidiaries;
  • f) the
    examination
    of
    reports
    on
    the
    prevention,
    monitoring
    and
    management
    of
    the
    risk
    of
    legislative
    non-‐compliance
    and
    anti-‐corruption
    risk.

The
Board
of
Statutory
Auditors
has
also:

150

  • verified
    that
    the
    Company
    has
    an
    Organizational,
    Management
    and
    Control
    Model
    consistent
    with
    the
    principles
    contained
    in
    Legislative
    Decree
    231/01
    and
    the
    guidelines
    drawn
    up
    by
    the
    Trade
    Associations,
    most
    recently
    updated
    by
    the
    Board
    of
    Directors
    on
    October
    24,
    2019,
    to
    take
    account
    of
    the
    entry
    into
    force
    of
    Legislative
    Decree
    107/2018
    laying
    down
    "Rules
    for
    the
    adaptation
    of
    national
    legislation
    to
    Regulation
    (EU)
    no.
    596/2014"
    (Market
    Abuse
    Regulation
    or
    MAR);
    the
    introduction
    of
    the
    crime
    of
    trafficking
    in
    illicit
    influences
    (Law
    3/2019);
    fraud
    in
    sports
    competitions
    and
    the
    abusive
    exercise
    of
    gambling
    or
    betting
    activities
    introduced
    by
    Law
    39/2019
    and
    the
    amendment
    to
    article
    416-‐ter
    of
    the
    Criminal
    Code
    regarding
    political-‐Mafia
    voting
    (Law
    43/2019);
  • verified
    that
    the
    Company
    has
    an
    Anti-‐Corruption
    Policy,
    most
    recently
    approved
    in
    the
    version
    updated
    by
    the
    Board
    of
    Directors
    on
    July
    11,
    2019;
  • examined
    the
    periodic
    reports
    (at
    June
    30,
    2019
    and
    December
    31,
    2019)
    of
    the
    Supervisory
    Board
    provided
    for
    by
    Legislative
    Decree
    231/2001
    summarizing
    the
    activities
    carried
    out
    during
    the
    year
    and
    met
    its
    members;
  • met
    with
    representatives
    of
    the
    Board
    of
    Statutory
    Auditors
    of
    the
    subsidiaries
    A2A
    Ciclo
    Idrico
    S.p.A.,
    Linea
    Green
    S.p.A.,
    A2A
    Ambiente
    S.p.A.
    and
    A2A
    Rinnovabili
    S.p.A.
    for
    the
    purposes
    of
    exchanging
    information
    on,
    among
    other
    things,
    the
    functioning
    of
    corporate
    activities
    and
    compliance
    with
    the
    directives
    issued
    by
    the
    parent
    company,
    the
    characteristics
    of
    the
    internal
    control
    system,
    the
    corporate
    organization
    of
    subsidiaries,
    the
    composition
    and
    activities
    of
    the
    Supervisory
    Bodies,
    Committees
    and
    the
    Internal
    Audit
    function.

Therefore,
in
the
course
of
carrying
out
the
above
activities,
the
Board
of
Statutory
Auditors:

a) did
not
identify
any
critical
situations
or
facts
that
might
suggest,
in
relation
to
2019,
that
A2A
S.p.A.'s
Internal
Control
and
Risk
Management
System
is
inadequate;

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

  • b) considering
    the
    information
    provided
    by
    the
    Chairman
    of
    the
    Supervisory
    Board
    and
    the
    reports
    mentioned
    above,
    which
    show
    that,
    in
    2019,
    no
    censurable
    facts
    or
    violations
    of
    the
    Model
    emerged,
    the
    Board
    of
    Statutory
    Auditors,
    to
    the
    extent
    of
    its
    competence,
    considers
    that
    said
    Model
    is
    suitable
    for
    preventing
    offences
    under
    the
    regulations
    in
    question
    and
    is
    correctly
    adopted;
  • c) noted
    the
    positive
    assessment
    expressed
    by
    the
    Board
    of
    Directors
    in
    relation
    to
    the
    adequacy
    and
    effective
    functioning
    of
    the
    Internal
    Control
    and
    Risk
    Management
    System
    for
    2019.

The
Board
of
Statutory
Auditors
has
examined
in
detail
what
happened
during
the
year
and
in
particular:

  • on
    March
    14,
    2019,
    an
    employee
    of
    A2A
    Ambiente
    S.p.A.,
    seconded
    to
    Linea
    Ambiente
    S.r.l.
    as
    the
    company's
    Chief
    Operating
    Officer,
    was
    remanded
    in
    custody
    as
    part
    of
    investigations
    into
    the
    offences
    referred
    to
    in
    articles
    319
    and
    321
    of
    the
    Italian
    Criminal
    Code
    with
    reference
    to
    an
    alleged
    bribery
    connected
    with
    the
    issue
    of
    Executive
    Decision
    no.
    45
    dated
    April
    5,
    2018
    by
    the
    Province
    of
    Taranto
    for
    the
    orographic
    optimization
    of
    the
    Linea
    Ambiente
    S.r.l.'s
    Grottaglie
    landfill.

At
present,
Linea
Ambiente
S.r.l.
has
not
been
notified
of
any
measure
in
relation
to
a
possible
liability
under
Legislative
Decree
no.
231/01;

  • on
    May
    7,
    2019,
    the
    Carabinieri
    investigative
    unit
    of
    Monza
    showed
    up
    at
    Amsa
    S.p.A.'s
    headquarters
    to
    notify
    an
    order
    for
    the
    exhibition
    of
    documents
    issued
    by
    the
    Milan
    Public
    Prosecutor's
    Office,
    relating
    to
    the
    documentation
    concerning
    three
    tenders
    launched
    by
    Amsa
    in
    2017-‐2018,
    as
    well
    as
    the
    supplies
    made
    to
    it
    by
    a
    specific
    supplier.
    In
    relation
    to
    these
    proceedings,
    the
    Company's
    Chief
    Operating
    Officer
    and
    other
    employees
    were
    investigated,
    as
    well
    as
    three
    members
    of
    a
    tender
    judging

152

committee
issued
by
Amsa
S.p.A..
No
dispute
has
been
raised
against
Amsa
S.p.A.
on
the
basis
of
the
regulations
on
the
administrative
liability
of
legal
persons,
as
Amsa
S.p.A.
considers
itself
to
be
an
"injured
party"
and,
in
fact,
has
filed
a
complaint
with
the
Public
Prosecutor's
Office
through
a
trusted
lawyer.

In
addition,
the
Board
of
Statutory
Auditors
has
constantly
monitored
ongoing
civil
and
criminal
litigation
involving
the
Company
and
the
Group,
for
which
reference
is
made
to
as
detailed
in
the
2019
Consolidated
Annual
Report,
section
3)
Other
Information,
section
9)
Update
on
the
main
legal
and
tax
disputes
currently
pending.

11.Adequacy of the administrative-‐accounting system and its reliability.

The
Board
of
Statutory
Auditors,
to
the
extent
of
its
competence,
monitored
the
adequacy
of
the
administrative-‐accounting
system
and
its
reliability
in
correctly
representing
operating
events
as
well
as
the
activities
carried
out,
under
the
coordination
of
the
Head
of
Financial
Reporting,
for
the
purposes
of
compliance
with
Law
262/05
"Provisions
for
the
protection
of
savings
and
the
regulation
of
financial
markets
"
and
subsequent
amendments
and
additions,
by
means
of:

  • a) the
    acquisition
    of
    information
    from
    the
    Head
    of
    Financial
    Reporting
    as
    well
    as
    from
    the
    Heads
    of
    other
    company
    departments,
    also
    in
    the
    context
    of
    participation
    in
    the
    work
    of
    the
    Control
    and
    Risk
    Committee;
  • b) the
    acquisition
    of
    information
    on
    the
    procedures
    adopted
    and
    instructions
    issued
    by
    A2A
    S.p.A.
    for
    the
    preparation
    of
    the
    Annual
    Report
    of
    the
    Group
    at
    December
    31,
    2019
    and
    the
    Half-‐Year
    Report
    of
    the
    Group
    at
    June
    30,
    2019;
  • c) examination
    of
    the
    periodic
    reports
    of
    the
    Head
    of
    Financial
    Reporting,
    as
    well
    as
    the
    reports
    of
    the
    Internal
    Audit
    Function
    on
    the
    actual
    application
    of
    the
    administrative
    and
    accounting
    procedures
    pursuant
    to
    Law
    262/05
    and
    on
    the
    outcome
    of
    the
    related
    tests

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

carried
out,
drawn
up
in
execution
of
the
mandate
entrusted
by
the
Head
of
Financial
Reporting;

d) meetings
with
the
Independent
Auditors
and
analysis
of
the
results
of
their
work;

e) examination
of
company
documents.

The
Board
of
Statutory
Auditors
also
noted
that,
following
the
favourable
opinion
issued
by
the
Control
and
Risks
Committee,
in
accordance
with
the
recommendations
made
by
the
European
Securities
and
Markets
Authority
("ESMA")
on
January
21,
2013,
the
joint
document
Bank
of
Italy/Consob/ISVAP
no.
4
of
March
3,
2010
and
Consob
Communication
no.
3907
of
January
19,
2015,
on
March
19,
2020,
the
Board
of
Directors
autonomously
and
prior
to
the
approval
of
the
annual
financial
statements,
approved
the
impairment
test
procedures
applied
by
the
Company
in
preparing
the
financial
statements
at
December
31,
2019
and
the
impairment
test
procedures
to
be
applied
to
the
annual
financial
statements
of
the
companies
of
the
A2A
Group.

In
the
course
of
carrying
out
the
activity
described
above,
the
Board
of
Statutory
Auditors
did
not
identify
any
critical
situations
or
facts
that
might
lead
to
the
conclusion,
in
relation
to 2019,
that
the
administrative-‐accounting
system
of
A2A
S.p.A.
is
inadequate
and/or
unreliable.

12. Adequacy of the instructions given to subsidiaries.

It
should
be
noted
that
the
Company
regulates,
by
means
of
specific
procedures,
the
flow
of
information
to
it
from
its
subsidiaries,
particularly
with
regard
to
major
transactions.

The
Board
of
Statutory
Auditors
considers
the
instructions
given
by
the
Company
to
its
subsidiaries
pursuant
to
article
114,
paragraph
2
of
the
Consolidated
Law
on
Finance
to
be
adequate,
in
order
to
comply
with
the
communication
obligations
provided
for
by
law.

13. Any relevant aspects relating to meetings with auditors.

The
Board
of
Statutory
Auditors
met
with
the
independent
auditors
in
relation
to
the
Annual

Report
at
December
31,
2019:

  • a) to
    exchange
    information
    on
    the
    verifications
    carried
    out
    by
    the
    latter
    pursuant
    to
    Legislative
    Decree
    39/2010
    and
    article
    150,
    paragraph
    3
    of
    the
    Consolidated
    Law
    on
    Finance,
    on
    the
    regular
    accounting
    and
    correct
    reporting
    of
    events
    in
    the
    accounting
    records.
    During
    these
    meetings,
    there
    were
    no
    reports
    of
    problems
    or
    abnormalities;
  • b) for
    the
    examination
    and
    evaluation
    of
    the
    preparation
    process,
    including
    the
    evaluation
    of
    the
    correct
    application
    of
    accounting
    standards
    and
    homogeneity
    of
    the
    same,
    the
    Half-‐ Year
    Report
    of
    the
    Group
    at
    June
    30,
    2019
    and
    the
    Annual
    Report
    of
    the
    Group
    at
    December
    31,
    2019,
    as
    well
    as
    the
    outcomes
    of
    the
    audit
    and
    evaluation
    of
    these
    documents.

In
particular,
the
Board
of
Statutory
Auditors:
-‐
analyzed
the
activity
carried
out
by
the
independent
auditors,
and
in
particular,
the
methodological
structure,
the
audit
approach
used
for
the
various
significant
areas
of
the
financial
statements
and
the
planning
of
the
audit
work;
-‐
shared
with
the
independent
auditors
the
problems
relating
to
corporate
risks,
thus
being
able
to
appreciate
the
adequacy
of
the
response
planned
by
the
independent
auditors
with
the
structural
and
risk
profiles
of
the
Company
and
the
Group.

The
Board
of
Statutory
Auditors,
in
addition
to
as
already
stated
in
paragraph
3,
also:

  • a) received,
    pursuant
    to
    article
    11
    of
    Regulation
    (EU)
    no.
    537/2014,
    the
    supplementary
    report
    of
    the
    independent
    auditors,
    also
    illustrating
    the
    key
    issues
    arising
    from
    the
    statutory
    audit
    and
    any
    significant
    deficiencies
    in
    the
    internal
    control
    system
    for
    financial
    reporting
    and/or
    in
    the
    accounting
    system,
    from
    which
    no
    significant
    deficiencies
    were
    identified;
  • b) took
    note
    of
    the
    statement
    on
    the
    independence
    of
    EY
    S.p.A.
    pursuant
    to
    article
    6
    of
    Regulation
    (EU)
    no.
    537/2014,
    annexed
    to
    the
    supplementary
    report,
    from
    which
    no
    situations
    emerge
    that
    could
    compromise
    its
    independence;

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

c) discussed,
pursuant
to
article
6,
paragraph
2,
letter
b)
of
Regulation
(EU)
no.
537/2014,
with
the
independent
auditors
the
risks
relating
to
the
independence
of
the
same
and
the
measures
adopted
by
the
independent
auditors
to
mitigate
said
risks.

14. Adhesion to the Corporate Governance Code of the Governance Committee of listed companies.

The
Board
of
Statutory
Auditors
verified
that
the
Company
complies
with
the
Corporate
Governance
Code
for
listed
companies
approved
in
March
2006
and
last
amended
in
July
2018
(hereinafter
Code).

It
therefore
supervised,
pursuant
to
article
149,
paragraph
1,
letter
c-‐bis)
of
the
Consolidated
Law
on
Finance,
the
procedures
for
the
concrete
implementation
of
the
rules
of
corporate
governance
provided
for
by
the
Code,
with
particular
regard
to:

  • the
    correct
    application
    of
    the
    ascertainment
    criteria
    and
    procedures
    adopted
    by
    the
    Board
    of
    Directors
    to
    assess
    the
    independence
    of
    its
    members;
  • the
    manner
    in
    which
    the
    self-‐assessment
    activities
    of
    the
    Board
    of
    Directors
    and
    its
    Internal
    Committees
    were
    carried
    out,
    including
    that
    relating
    to
    the
    requirements
    for
    independent
    directors;
  • the
    Company's
    Corporate
    Governance
    structure.

The
Board
of
Statutory
Auditors
also
acknowledges
that
the
Board
of
Directors,
at
its
meeting
of
February
25,
2020,
examined
the
recommendations
of
the
Corporate
Governance
Committee
contained
in
the
letter
of
December
19,
2019
addressed
by
the
Chair
of
the
Committee
to
the
Chairpersons
of
the
Boards
of
Directors
of
Italian
listed
companies
and,
for
information,
to
the
relative
Chief
Executive
Officers
and
Chairpersons
of
the
control
bodies,
in
order
to
make
the
necessary
decisions
in
this
regard.

The
Board
of
Statutory
Auditors
monitored
the
activities
carried
out
by
the
Control
and
Risk
Committee,
the
Remuneration
and
Appointments
Committee
and
the
Related
Parties
Committee,
also
through
participation
in
their
meetings.

****

In
addition
to
the
above,
the
Board
of
Statutory
Auditors:

  • assessed
    the
    compliance
    of
    its
    composition
    with
    the
    provisions
    of
    the
    law
    on
    gender
    portions,
    as
    well
    as
    its
    adequacy
    in
    terms
    of
    policies
    on
    diversity
    of
    age
    and
    diversity
    of
    educational
    and
    professional
    experience;
  • confirmed
    the
    correctness
    and
    effectiveness
    of
    its
    functioning,
    also
    taking
    into
    account
    the
    requirements
    of
    professionalism,
    competence
    and
    experience
    of
    its
    members,
    compliance
    with
    the
    regulatory
    provisions
    on
    the
    accumulation
    of
    offices
    of
    the
    Statutory
    Auditors,
    the
    availability
    of
    time
    in
    the
    performance
    of
    their
    duties,
    as
    well
    as
    the
    functionality
    and
    quality
    of
    information
    flows
    with
    the
    Board
    of
    Directors,
    the
    Control
    and
    Risk
    Committee,
    the
    independent
    auditors
    and
    other
    control
    functions;
  • successfully
    carried
    out
    the
    periodic
    verification
    regarding
    compliance
    with
    the
    criteria
    of
    independence
    with
    regard
    to
    each
    of
    its
    members,
    as
    required
    by
    the
    Code.
    The
    outcome
    of
    said
    audits
    is
    outlined
    in
    the
    Annual
    Report
    on
    Corporate
    Governance
    and
    Ownership
    Structures
    prepared
    for
    the
    year
    2019;
  • drafted
    the
    summary
    sheets
    of
    the
    control
    activities
    carried
    out
    by
    the
    Board
    of
    Statutory
    Auditors
    in
    2019
    according
    to
    as
    provided
    in
    CONSOB
    Communication
    no.
    1025564
    of
    April
    6,
    2001.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

Final evaluations of the supervisory activity carried out and proposal

to the Shareholders' Meeting.

Having
regard
to
the
foregoing,
and
having,
in
the
year
under
consideration:

  • monitored
    compliance
    with
    the
    law
    and
    By-‐laws,
    principles
    of
    proper
    administration,
    and
    in
    particular
    the
    adequacy
    of
    the
    administrative
    and
    accounting
    organization
    structure
    adopted
    by
    the
    Company
    and
    proper
    functioning
    thereof;
  • monitored
    observance
    of
    information
    obligations
    regarding
    privileged
    information;
  • monitored
    the
    functioning
    and
    effectiveness
    of
    the
    internal
    control
    system
    and
    the
    administrative-‐accounting
    system,
    in
    order
    to
    assess
    their
    suitability
    to
    company
    requirements,
    as
    well
    as
    their
    reliability
    for
    the
    representation
    of
    management
    events;
  • monitored
    compliance
    with
    the
    provisions
    of
    law
    relating
    to
    the
    process
    of
    preparing,
    controlling,
    approving
    and
    publishing
    the
    Company's
    statutory
    financial
    statements
    and
    the
    process
    of
    preparing,
    controlling
    and
    publishing
    the
    Group's
    consolidated
    financial
    statements
    and
    reports
    on
    operations
    for
    the
    year
    2019,
    including
    through
    direct
    checks
    and
    information
    obtained
    from
    the
    independent
    auditors,
    and
    also
    ascertained
    the
    adequacy,
    from
    the
    point
    of
    view
    of
    the
    method,
    of
    the
    impairment
    test
    process;
  • verified
    that,
    in
    accordance
    with
    Regulation
    (EC)
    no.
    1606/2002
    and
    Legislative
    Decree
    no.
    38/2005,
    the
    financial
    statements
    of
    A2A
    S.p.A.
    and
    the
    consolidated
    financial
    statements
    of
    the
    Group
    at
    December
    31,
    2019
    are
    prepared
    in
    accordance
    with
    IAS/IFRS
    international
    accounting
    standards
    approved
    by
    the
    European
    Commission,
    supplemented
    by
    the
    related
    interpretations
    issued
    by
    the
    International
    Accounting
    Standards
    Board
    (IASB);
  • monitored
    compliance
    with
    the
    procedure
    for
    the
    preparation
    and
    presentation
    of
    the
    annual
    financial
    statements
    to
    the
    Shareholders'
    Meeting;
  • monitored,
    pursuant
    to
    article
    19,
    paragraph
    1
    of
    Legislative
    Decree
    39/2010,
    the
    financial

158

reporting
process
and
effectiveness
of
internal
control,
internal
audit
and
risk
management
systems
and
informed
the
Board
of
Directors
on
the
outcome
of
the
statutory
audit;

  • monitored
    compliance
    with
    the
    provisions
    established
    by
    Legislative
    Decree
    254/2016
    and
    Consob
    Regulation
    no.
    20267/2018,
    examining,
    among
    other
    things,
    the
    consolidated
    non-‐ financial
    statement
    and
    also
    verifying
    compliance
    with
    the
    provisions
    governing
    its
    preparation
    pursuant
    to
    the
    aforementioned
    decree
    and
    therefore
    its
    preparation
    in
    compliance
    with
    these
    rules.
    The
    Board
    of
    Statutory
    Auditors
    verified
    the
    approval
    by
    the
    Board
    of
    Directors
    on
    March
    19,
    2020
    of
    the
    aforementioned
    Statement
    and
    the
    issue
    on
    April
    3,
    2020,
    by
    the
    independent
    auditors,
    of
    the
    attestation
    of
    conformity
    of
    the
    information
    provided
    in
    said
    document
    with
    the
    requirements
    of
    articles
    3
    and
    4
    of
    Legislative
    Decree
    254/2016
    and
    the
    "Global
    Reporting
    Initiative
    Sustainability
    Reporting
    Standards",
    identified
    as
    the
    reporting
    standard
    by
    the
    Directors
    of
    A2A
    S.p.A..

The
Board
of
Statutory
Auditors
also
noted
that,
as
required
by
the
ESMA
Statement
of
March
11,
2020,
the
Directors
clarified
in
their
Report
-‐
in
the
section
"Significant
events
after
year-‐ end"
of
the
Annual
Report
-‐
the
activities
carried
out
and
the
considerations
made
in
relation
to
the
possible
implications
of
the
crisis
caused
by
the
pandemic
spread
of
the
Covid-‐19
virus. With
reference
to
the
recent
emergence
of
the
Coronavirus
emergency,
which
is
likely
to
have
repercussions
on
more
than
one
type
of
risk,
A2A
has
put
in
place
crisis
management
measures,
also
adopting
suitable
procedures
to
protect
human
resources
and
contain
material
and
immaterial
damage
and
to
guarantee
the
correct
management
of
communication
flows.
The
Group
closely
monitors
the
evolution
of
the
situation
by
updating
the
sensitivity
analyses
on
the
effects
of
the
epidemic,
and
has
identified
the
first
measures
to
contain
possible
negative
economic/financial
effects
during
the
current
year.

Overview of performance, financial conditions and net debt

1 Financial statements

2 Financial statements pursuant to Consob Resolution no. 17221 of March 12, 2010

3 Notes

4 Attachments

5 Independent Auditors' Report

Providing
the
foregoing,
the
Board
of
Statutory
Auditors
states
that,
during
the
supervision activities
described
above,
no
reprehensible
facts,
omissions,
or
irregularities
arose
that
require
reporting
to
the
competent
bodies.

In
view
of
the
above,
the
Board
of
Statutory
Auditors
kindly
requests
that
you
approve
the
financial
statements
at
December
31,
2019
presented
by
the
Board
of
Directors
along
with
the
report
on
operations
and
the
proposed
distribution
of
a
dividend.

*

*

*

Shareholders,

with
the
approval
of
the
financial
statements
at
December
31,
2019,
is
expiry
of
the
mandate
of
the
Board
of
Statutory
Auditors
appointed
by
the
Shareholders'
Meeting
on
May
15,
2017.
You
are
therefore
required
to
appoint
the
new
Board
of
Statutory
Auditors
for
the
next
three
years,
in
accordance
with
the
law
and
the
by-‐laws
.

We
wish
to
take
this
opportunity
to
thank
you
for
your
trust
during
these
years
of
mandate.

Milan,
April
20,
2020

THE BOARD OF STATUTORY AUDITORS

(Signed Giacinto Sarubbi) -­‐ Chairman
(Signed Maurizio Leonardo Lombardi) -­‐ Statutory Auditor
(Signed Chiara Segala) -­‐ Statutory Auditor

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