Financial management

General framework

After a long period of stability, the short-term part of the rate curve showed significant changes during 2020, with an upward peak in May (owing to uncertainties linked to the pandemic situation) followed by a downward phase.
In the meantime, the medium/long-term portion of the rates also fell sharply until the start of the lockdown period due to COVID-19, then rose sharply to subsequently fall gradually until the end of 2020; a strong bullish movement resumed in the new year.
The European Central Bank keeps rates unchanged since March 2016. The current rate is 0%.
Similarly, by examining the trend of the six-month Euribor rate, we note that the parameter, after having reached minimum levels at the beginning of March, increased rapidly due to uncertainties on the liquidity front of the market, followed by a subsequent progressive fall to the current level of -0,5%.
The quotations of fixed rates, reflected in the values of the IRS at 5 and 10 years, also fell at the beginning of 2020, which was then completely cancelled out by the rise caused by uncertainty and the crisis linked to the spread of Covid-19. Thanks mainly to the market interventions of the ECB, medium/long-term rates settled at negative levels, except for a recovery in the first months of the new year.

Activities performed

During 2020, activities aimed at consolidating the financial structure of the Iren Group continued. The development of funding needs is monitored through careful financial planning, which enables requirements for new financial resources to be anticipated, taking into account the repayments of outstanding loans, the development of debt, the investments, the trend in working capital and the balance of short‐term and long‐ term sources.
The organisational model adopted by the Iren Group, with the goal of financial optimisation of the companies, provides for centralisation in Iren of treasury management, medium/long‐term loan operations and financial risk monitoring and management. Iren has relations with the leading Italian and international banks, for the purpose of finding the types of loans best suited to its needs, and the best market conditions.

Turning to the transactions carried out in 2020 in more detail, it is noted that, as described in the "Significant events in the period", a loan agreement was signed in May with the new counterparty CEB (Council of Europe Development Bank) for € 80 million to support the investment plan in water infrastructures; also, in October, a new EIB “Green Energy” Loan agreement was signed for € 100 million to support the development and streamlining projects of the district heating network in the Turin area. In March, the "Electricity distribution networks" EIB loan for a total of € 75 million signed in March 2017 was also used in full.
Direct loans with EIB and CEB, with a duration of up to 16 years, not used and available, amount to a total of € 300 million.
With regard to market transactions, under the Euro Medium Term Notes (EMTN) Program of € 4 billion, a new bond issue for an amount of € 500 million, with an annual gross coupon of 1% and maturing on July 1, 2030, was completed at the end of June 2020, with a settlement date of July 1; in addition, on 10 December 2020, with a settlement date of 17 December, the issue of the 4th Green Bond for an amount of € 300 million, with an annual gross coupon of 0.25% and maturing on 17 January 2031, was completed. Both securities have a Fitch BBB rating and are listed on the regulated market of the Irish stock exchange, where the prospectuses have been filed, and on the ExtraMOT market of Borsa Italiana.
Within the Group, the debt position of Scarlino Energia, amounting to € 14 million, was included in the consolidation area while, for the purposes of optimisation, the debt positions of Asti Energia e Calore, I.BLU and the Unieco Environment Division, totalling € 33 million, were written off in advance.

The financial debt from loans (excluding the financial liabilities recognised in application of IFRS 16) at the end of the period was made up of 16% loans and 84% bonds.

As regards financial risks, the Iren Group is exposed to various types of risk, including liquidity risk, risks of changes in interest and exchange rates. As part of its Risk Management activities, the Group uses non‐speculative hedging contracts to limit risks of fluctuations in the interest rate. It is noted that during the period a new interest rate swap contract was entered into to hedge € 50 million of debt, maturing in 2028 and with deferred effect from December 2022; as part of the Liability Management activities, two interest rate swap contracts were terminated for a negative market value of € 5 million.

At year-end, the portion of floating rate debt not hedged by exchange rate derivatives was 4% of financial debt from loans, in line with the Iren Group’s objective of maintaining adequate protection against significant increases in interest rates.
Overall, the activity carried out is aimed at refinancing debt with a view to improving the financial structure, structurally reducing the cost of capital and extending the average duration of financial debt.

The composition of financial debt from loans by maturity and rate type, compared with the situation at 31 December 2019, is shown in the chart below.