Financial position, results of operations and cash flows of the Iren Group

Income statement

Iren Group income statement

(*) Change of more than 100%
 

As required by IFRS 3, the 2019 cash flow balances have been recalculated to take into account, at the acquisition date, the effects of the completion, occurred in 2020, of the purchase price allocation at the final fair value of the assets and liabilities acquired (Purchase Price Allocation) of Ferrania Ecologia and Territorio e Risorse. For further information, refer to the section "Content and Structure of the Consolidated Financial Statements" in the Notes.

Revenue

As at 31 December 2020, the Group booked revenues of € 3,725.5 million, down by -12.8% compared to € 4,274.7 million in the FY 2019. The main reasons for the decrease in revenues are lower energy commodity prices, a reduction in unit sales of electric power caused in part by the lockout resulting from the Covid-19 health emergency, lower sales of natural gas and heat for district heating due to the particularly mild winter, and a decrease in the amount of electric power generated by the Group's facilities. The energy scenario, which was already weak at the beginning of the year, suddenly worsened from the end of February as the safety measures, put in place to cope with the spread of the COVID-19 virus, culminated in the total closure of production activities from the beginning of March until 4 May. The third quarter of 2020 saw an increase in thermoelectric power generation and a recovery in the price of electricity (NSP), which was still below the average price recorded for the same period in 2019. Only during the fourth quarter (months of November and December 2020) the price of electricity (NSP) was higher than that recorded in 2019.

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Gross Operating Margin

Gross operating margin (EBITDA) amounted to € 927.4 million, up +1.1% compared to € 917.3 million in 2019. The trend for the margin was adversely affected by the particularly unfavourable energy and climate situation, mentioned above, the absence of certain non-recurring factors that had featured positively in last year’s results, and the economic consequences of the COVID-19 pandemic. However, the Group's multi-business portfolio and the consolidation operations more than offset the adverse effects mentioned above; in fact, the improvements in the margins of the Market (+33.1%), Waste Management (+9,6%), and Networks (+0.9%) business units more than offset the decline reported by the Energy business unit (-16.7%).

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Operating result

Operating profit (EBIT) amounted to € 415.8 million, down by -8% compared to € 451.8 million of the corresponding period of 2019.
Amortization and depreciation increased by approximately € 37 million during the year, due mainly to new investments becoming operational and the expansion of the scope of consolidation, as well as additions to the provision for bad and doubtful debts of approximately € 25 million, mainly related to an increase in the estimate of expected losses due to the economic crisis linked to the Covid-19 health emergency. In addition, net additions to the provisions for risks, net of reversals, decreased by approximately € 9 million and write-downs by approximately € 8 million.

Financial income and expenses

The revenue components show a balance of net financial expenses of € 55.3 million (79.9 million in 2019).
Financial expenses amounted to 93.6 million, down (-20.9 million) compared to 2019. The decrease is mainly attributable to lower expenses for liability management transactions (-13.8 million); in addition, a decrease has been recorded in the average cost of financial debt, and lower interest, of an accounting nature, relating to outstanding leases, partially offset by higher charges for discounting provisions for charges.
Financial income for the year, which includes capital gains from the sale of non-controlling interests, amounted to € 38.4 million (+10.9% compared to 2019).

Share of profit (loss) of associates accounted for using the equity method

This item, which amounts to € +6.5 million (up from € +4.5 million in the previous financial year), includes the share of the pro-rata results of the Group’s associates and joint ventures, the most significant referring to Aguas de San Pedro, SETA, ACOS, and ASA.

Value adjustments on equity investments

The item (negative by € 1.9 million, positive by € 0.6 million in 2019) comprises mainly the effect of the fair value restatement, at the date of acquisition of control, of the non-controlling interest in Nord Ovest Servizi.

Profit (loss) before tax

As a result of the above trends, consolidated profit before tax amounted to 365.2 million euro (377.0 million euro in the comparison period).

Income tax expense

Income tax for the period amounted to € 100.1 million (-10.2% compared to 2019, in correlation to the lower pre-tax result), with an effective tax rate for 2020 of 27.4% (29.6% in the cross year comparison). The decrease in the tax rate is linked to some extraordinary items relating to previous years and, in particular, among other things, to the IRES refund from IRAP deduction by the Revenue Agency. Not considering these elements of discontinuity, the tax rate would have been substantially in line with that of the previous year.

Net profit (loss) for the period

Therefore, a net profit has been booked for the period of € 265.1 million, unchanged compared to 2019.

The figure is due to the profit pertaining to shareholders of 235.3 million euro, while profit attributable to minorities interests was 29.8 million euro.

 

Statement on Financial Position

Iren Group reclassified statement of financial position (1)

(*) Change of more than 100%

As required by IFRS 3, the financial position at 31 December 2019 has been restated to take into account, at the acquisition date, the effects of completion, occurred in 2020, of the purchase price allocation at the final fair value of the assets and liabilities acquired (Purchase Price Allocation) of Ferrania Ecologia and Territorio e Risorse. For further information, refer to the section "Content and Structure of the Consolidated Financial Statements" in the Notes.

(1) For a reconciliation of the reclassified statement of financial position with that of the financial statements, please refer to the specific attachment to the Notes to the Consolidated Financial Statements.

The main changes in the statement of financial position for the period are commented on below.

Non‐current assets at 31 December 2020 amounted to € 6,580.9 million, up compared to 31 December 2019, when they were 6,102.1 million euro. The increase of € +478.8 million was mainly due to the effect of the following determinants:

• technical investments in property, plant and equipment (€ +685.2 million) and depreciation and amortisation (€ -440.9 million) in the period;
• M&A transactions:
  • the assets of the so-called "Unieco Environment Division", relating to waste treatment plants and equity investments for a total of € 156.1 million;
  • the district heating network and the equity investment in Nove, included in the SEI Energia business unit, for a total of € 24.2 million;
  • the assets of I.Blu, mainly relating to plastic processing plants (€ 40.2 million);
  • the investment in Asti Servizi Pubblici resulting from the consolidation of Nord Ovest Servizi (€ 9.8 million);
• the recognition of rights of use in application of IFRS 16 - Leases for € 10.9 million, largely relating to lease contracts for buildings used for operating activities.

For more information on the segment details of investments in the period, reference should be made to the section “Segment Reporting” below.

The increase in Other non-current assets (liabilities) (amounting to € 23.3 million) refers mainly to receivables owed by the tax authorities for energy efficiency incentives for buildings.

Net Working Capital decreased by € 123.6 million to € 42.1 million compared to €165.7 million as at 31 December 2019. The change is due to the performance of the commercial and tax components, as well as the increase in the provision for bad and doubtful debts.

"Provisions for Risks and Employee Benefits" amounted to € 657.2 million, an increase of 31.9 million compared with 31 December 2019; the change is mainly attributable to liabilities assumed following the consolidation of the Unieco Environment Division, relating to the future post-operating management of landfills in operation.

Equity amounted to 2,763.5 million euro, compared to the 2,651.3 million euro of 31 December 2019 (+112.2 million euro). The change refers to the effect of the net result (+265.1 million), dividends paid (-148.9 million), the trend of the cash flow hedge reserve linked to interest rate and commodities hedging derivatives (+17.5 million), the change in the scope of consolidation (+9.0 million), the purchase of own shares (-25.6 million), and other changes (4.9 million).

Net financial debt at end of the period amounted to € 2,948.0 million, an increase of € 241.9 million compared to 31 December 2019 (+8.9%) mainly due to the significant investments in the period, growth through acquisitions and dividend payments, partly offset by the dynamics of operating cash flow.

For more details please see the analysis of the statement of cash flows presented below.

 

Iren Group cash flow statement

Change in net financial debt

The statement below details the movements in the Group’s net financial debt that occurred in the period.

(*) Change of more than 100%

As required by IFRS 3, the 2019 cash flow presentation has been recalculated to take into account, at the acquisition date, the effects of the completion, occurred in 2020, of the purchase price allocation at the final fair value of the assets and liabilities acquired (Purchase Price Allocation) of Ferrania Ecologia and Territorio e Risorse. For further information, refer to the section "Content and Structure of the Consolidated Financial Statements" in the Notes.

The increase in financial debt derives from the following determinants:

• operating cash flow of € +821.5 million, upwards (+13.4%) compared with the same period of the previous year, when it amounted to € +724.7 million;
• cash flow from investing activities (-868.9 million), which includes mainly technical investments for the period (685.2 million, up significantly from 524.0 million in 2019). The item "Change in consolidation scope" includes the effect of the consideration paid and the net debt assumed of -197.8 million for the acquisition of the Unieco Environment Division, the district heating business unit of SEI Energia, I.Blu, Nord Ovest Servizi, and Asti Energia e Calore;
• the cash flows of equity capital of € -174.5 million, which includes dividends approved (€ -148.9 million) and the purchase of treasury shares (€ -25.6 million);
• the item "Other changes", amounting to -19.9 million, includes net financial charges, the positive change in the fair value of derivatives hedging interest rate and commodity risks, and the effect of recognition of new lease agreements falling within the scope of IFRS 16. The 2019 comparative figure of -237.5 million included, among others, the effect of the first-time application of IFRS 16 (-105 million) and a negative change in the fair value of hedging derivative instruments.

Finally, we note that the statement of cash flows prepared according to the format of a change in cash and cash equivalents is presented in the opening section “Consolidated Financial Statements and Notes”.