Segment reporting

The Iren Group identifies the following business segments:

• Networks (Electricity distribution networks, Gas distribution networks, Integrated Water Service)
• Waste Management (Waste collection and disposal)
• Energy (Hydroelectric Production and production from other renewable sources, Combined Heat and Power, District Heating Networks, Thermoelectric Production, Public Street Lighting, Global services, Heat management, Energy efficiency services)
• Market (Sale of electricity, gas, heat and other customer services)
• Other services (Laboratories, Telecommunications and other minor services).

These operating segments are disclosed pursuant to IFRS 8, which requires the disclosure about operating segments to be based on the elements which management uses in making operational and strategic decisions.
For a proper interpretation of the income statements relating to individual businesses presented and commented on below, revenue and expense referring to overhead activities were fully allocated to the businesses based on actual usage of the services provided or according to technical and economic drivers.
Given the fact that the Group mainly operates in one area, the following segment information does not include a breakdown by geographical area.
Net invested capital compared to the figures as at 31 December 2019 restated and the income statements for the FY 2020 (up to the operating performance) are presented below by business segment, compared with the figures for the restated FY 2019. As at 31 December 2020, non-regulated activities contributed to the formation of EBITDA for 29% (27% as at 31 December 2019), regulated activities accounted for 49% (unchanged compared to the corresponding period of 2019), while semi-regulated activities account for 22% (24% in 2019).

Reclassified statement of financial position by business segment at 31 December 2020

Reclassified statement of financial position by business segment at 31 December 2019 restated

Income Statement by business segment FY 2020

Income statement by 2019 business segments restated

Networks SBU

As at 31 December 2020, the Networks business segment, which includes the Gas Distribution, Electricity and Integrated Water Service businesses, reported revenues of € 1,040.9 million, downwards slightly by -0.5% compared to € 1,046.4 million in FY 2019.

EBITDA was equal to € 375.8 million, an increase of + 0.9% compared to € 372.5 million in 2019, while the operating result was of € 186.0 million, down by -5.9% compared to € 197.7 million in 2019.
The increase in EBITDA was offset by a rise in depreciation and amortization of approximately € 12 million due to higher capital expenditures and a € 10 million increase in provisions for bad and doubtful debts caused by the Covid-19 health emergency, offset in part by a reduction in the provisions for risks and a decrease in write-downs of approximately € 8 million.

The changes in gross operating profit for the segments concerned are illustrated below.

Network SBU – Electricity

Gross operating profit (EBITDA) amounted to € 79.3 million, upwards +5.9% compared to € 74.9 million in 2019. The increase in the margin is due to an increase in tariff revenues of approximately € 1 million and the operating synergies achieved during the period.

Investments of € 52.5 million were booked for the period, upwards by + 7.7% compared to the € 48.8 million in 2019, concerning mainly new connections, line resilience activities, and the construction of new LV/MV substations and lines, as well as the completion of some primary substations.

Networks SBU – Gas Distribution

Gross operating profit (EBITDA) amounted to € 85.3 million, up -3.9% from € 88.7 million in 2019. The decrease in the margin is due to various factors, including the unfavourable effects deriving from the revision of the tariff method (5th regulatory period), only partially offset by the positive effects on tariffs related to the increase in investments. In addition to the regulatory effect, higher costs have been booked in relation to the energy efficiency certificates (EEC) required to meet the obligation and extraordinary losses related to the recalculation of gas leakage, as well as the effects of components that had positively characterized 2019 and are non-recurring.

Investments in the period amounted to € 50.6 million, down by -5.5% compared to € 53.6 million in 2019, and concerned mainly the areas subject to ARERA resolutions, specifically, the adjustment of the cathodic protection network and the installation of electronic meters.

The latter activity, suspended during the lockdown period, resumed from the beginning of May, albeit at a slow pace due to compliance with Covid-19 protocols.

Networks SBU – Water Cycle

Gross operating profit (EBITDA) amounted to € 211.2 million, upwards +1.1% compared to € 208.9 million in 2019. The increase in the margin is attributable to the restriction on tariff revenues (VRG), in which the components related to the increase in rateable investments (RAB) more than offset the reduction in other components linked to the tariff revision envisaged by the new regulatory period (MTI-3), and to greater synergies on operating costs, which made it possible to offset the absence of some contingencies from the previous year that are no longer repeatable, linked to the adjustment of past tariff items.

Investments in the period totalled € 182.3 million, slightly declining by -2.7% compared to the € 187.3 million in 2019, and concerned the construction, development and extraordinary maintenance of distribution networks and plants, the sewerage network and, in particular, the construction of new water treatment plants and the replacement and installation of mainly remote‐reading metering units.

In addition, common fund investments of € 8.5 million were booked, particularly in information and e-mobility services, across the businesses.

Waste Management SBU

As at 31 December 2020, the sector's revenues amounted to € 764.8 million, an increase of +7% compared to 714.9 million in 2019. The increase is mainly due to the expansion of the scope of consolidation related to the companies I.Blu (€ +19.7 million) consolidated from August 2020, and the companies of the Environment Division of the UNIECO Group (€ +29.7 million) consolidated from 1 November 2020. On the other hand, energy revenues and revenues from waste disposal activities decreased, only partially absorbed by higher revenues from commercial brokerage and special waste management activities.

Gross operating profit (EBITDA) of the segment amounted to € 173.3 million, upwards +9.6% compared to € 158.1 million in 2019. The increase in margin is attributable for approximately € 11 million to the change in the scope of consolidation of I.Blu and the companies in the UNIECO Environment Division.

On the other hand, revenues from electricity produced by the waste-to-energy plants were down sharply as a result of the fall in electricity prices (average NSP € 38.9/MWh, -25.7%), which was only partially offset by the improved value of green certificates produced (€ 99.1/MWh, +7.5%) and lower volumes of special waste treated and disposed of in landfills as a result of the Covid-19 health emergency. These negative factors were only partially offset by higher revenues from municipal waste management activities, and, specifically, from collection and intermediation activities.

Operating profit (EBIT) amounted to € 50.1 million, down by -9.5% compared to € 55.5 million in the corresponding period of 2019. Higher amortizations were booked during the year for approximately € 11 million, partly related to the expansions of the scope, higher provisions to the bad debt provision for approximately € 4 million, higher provisions for risks for € 8 million and lower write-downs for approximately € 4 million.

Investments made during the year amounted to € 116.3 million, upwards sharply from € 76.4 million in the corresponding period of 2019. The main investments in the period include those relating to the revamping of the Cairo Montenotte biodigester, the construction of the paper and plastic sorting plant in Parma, the vehicles and equipment for door-to-door collection in Turin, and the development of the new Just Iren management system.

Energy SBU

As at 31 December 2020, revenues of the Energy SBU, which includes power generation and heat management, public lighting and energy efficiency activities, amounted to € 1,144.7 million, down -22.3% compared to € 1,473.3 million in 2019. The main reason for the sharp decline in revenues is the drop in sales prices for electric power (approximately € -260 million) caused by the unfavourable energy scenario, in addition to a decrease in electric power production (approximately € -40 million). The contraction in revenue was also affected by lower prices and volumes of district heating heat due to the particularly mild weather (approximately € -20 million) and lower income from energy securities compared to 2019 (€ -26 million). Only revenues from services increased (+ 25 million euros).

(*) Change of more than 100%

As at 31 December 2020, electricity produced was 9,444.5 GWht, downwards -2.8% compared to 9,711.9 GWht of the previous year 2019.

Total thermoelectric production amounted to 8,160.8 GWh, of which 5,454.5 GWh from cogeneration sources, down by -7.9% compared to 5,920.2 GWh in 2019 and 2,706.3 GWh from conventional thermoelectric sources, an increase of + 9.5% compared to 2,470.7 GWh in the corresponding period of 2019.

Production from renewable sources amounted to 1,283.7 GWh, of which 1,262.7 GWh deriving from hydroelectric sources and, marginally, approximately 21 GWh from other renewables (photovoltaic); overall production is down by -2.8% compared to 1,321 GWh in 2019 mainly due to the partial use, however planned, of the Piantonetto reservoir.

Heat production for the period was 2,736.3 GWht, down -3% compared to the 2,820.7 GWht in 2019. Overall, district heating volumes amounted to approximately 96.7 Mmc up +1.9% compared to approximately 95 Mmc in 2019.

EBITDA amounted to € 228.1 million, down by -16.7% compared to € 273.9 million in 2019.

The FY 2020 was characterised by a scenario in which domestic electricity demand was 302.8 TWh, down by -5.3% compared to 319.6 TWh in 2019 (as at 30 June demand was down by -8.8% and as at 30 September by -6.9%) with an average electricity price (NSP) of € 38.9/MWh, down by -25.7% compared to € 52.3/MWh in 2019.

The NSP trend, already down as of the beginning of the year compared to 2019, widened the fall matching the lockdown measure related to the Covid-19 health emergency (17 March - 4 May) which, by reducing demand, further pushed the energy price towards the minimum values recorded in May 2020 (€ 21.8/MWh). Since the third quarter of 2020, the NSP value has been recovering but characterized by high volatility related to pandemic containment actions, availability of hydroelectric generation and higher gas prices.

The concurrent impact of a contraction in sales of electric power and heat and a sharp reduction in unit prices and margins on electric power generation had a significant impact on the SBU's margins, which were offset only in part by improved results from the dispatching service (MSD) and, starting in the third quarter of 2020, by an increase in scheduled thermoelectric generation.

Furthermore, it affects negatively, in the comparison with the previous year, the absence of some extraordinary items of 2019, non-recurring.

The energy efficiency sector compensates, albeit only partially, for the above-mentioned effects and, thanks to activities related to energy re-qualification and building renovation favoured by recent tax breaks (e.g., façade bonus), records positive increases of approximately € 3 million.

The operating result of the energy sector amounted to € 111.3 million, down by -20.3% compared to € 139.7 million in 2019. Depreciation and amortization for the period increased by approximately € 3 million compared to 2019, mainly due to the resumption of amortization in the hydroelectric sector on devolvable works (Law No. 12 of 11 February 2019); a decrease was recorded in provisions of approximately € 10 million and a higher release of provisions due to the non-existence of related risks of approximately € 13 million (of which € 18.7 million related to additional past hydroelectric fees).

Investments for the period amounted to € 171.6 million, up from € 67.4 million in 2019, and related mainly to the start of expansion activities at the Turbigo thermoelectric power plant, which will increase the plant's installed capacity from 850 to 1,280 MW.

Market SBU

As at 31 December 2020, the segment’s revenues amounted to € 2,084.6 million, down by -24.1% compared to € 2,745.6 million in 2019. The decrease in revenues reflects a reduction in unit sales, which were down due to the halt in productive activities caused by the Covid-19 health emergency, and a particularly mild winter, and a reduction in the price of energy commodities. This trend characterised the entire fiscal year, with prices recovering from the third quarter onwards but still below the values of the corresponding period of 2019.

Despite the contraction in revenues, EBITDA amounted to € 147.0 million, an increase of + 33.1% compared to € 110.4 million in 2019. This increase is attributable both to sales of electric power and natural gas and reflects primarily an improvement in unit sales margins, which more than offset the negative impact of the drop in unit sales caused by the Covid-19 health emergency.

The operating result amounted to € 67.3 million, an increase of + 17.2% compared to the € 57.5 million in the corresponding period of 2019. The positive trend in EBITDA was offset in part by: higher depreciation and amortization (approximately € 9 million); increased provisions for bad and doubtful debts (approximately € 14 million), reflecting an increase in the estimate of expected losses due to the economic crisis related to the Covid-19 health emergency; and lower releases of provisions and write-downs (approximately € 2 million).

Sale of electricity

The volumes of electricity sold on the free market, net of pumping, grid losses, dedicated withdrawals and including imbalances, amounted to 6,924.1 GWh, down by -23.3% compared to 9,033 GWh in the corresponding period of 2019.

The decrease in the deregulated market affected all customer segments, particularly the business segment (-34.1%), due in part to the effect of the reduction in Consip and small business contracts (-24.2%), which are most affected by the effects of the COVID-19 pandemic.

Sales in the protected market amounted to 371.8 GWh, down by -10.3% compared to 414.5 GWh in the FY 2019.

The table below shows the quantities sold by class of customer segment:

Market SBU - Sale of electricity

EBITDA from the sale of electricity amounts to € 55.5 million, an improvement of + 58.9% compared to € 34.9 million in 2019. This increase is due to an improved unit margin and the development of the customer portfolio, which made it possible to offset the negative impact of a reduction in sales volumes caused by the Covid-19 emergency.

Sale of Natural Gas

Purchased volumes amounted to 3,017.7 Mm3, essentially unchanged (+0.1%), compared to 3,014.2 Mm3 in 2019.

The gas sold by the group amounted to 1,080.4 Mmc up +1.4% compared to 1,065.2 Mmc in 2019 thanks to higher sales to wholesalers; all other customer segments recorded a contraction.

Gas used for internal consumption within the Group amounted to 1,728.2 Mm3, down -1.8% compared to 1,760.2 Mm3 in FY 2019.

EBITDA from gas sales amounts to € 86.1 million, an increase of + 20.8% compared to € 71.3 million in 2019. The positive margin performance is due to improvements in unit sales margins and also to an improvement in the retail sales quota (QVD) component, which made it possible to absorb the lower quantities of gas sold (all business segments were down, except for trading) caused by a particularly mild heating season and the negative effects of the economic crisis resulting from the Covid-19 health emergency.

Sale of heat and other services

Heat sales and other services recorded an EBITDA of € 5.3 million, up from € 4.1 million in 2019. The improvement in the margin is due to the commercial activities of Iren plus and Iren go, the two new business lines for the marketing of goods and services ancillary to the supply of commodities and electric mobility.

Investments made during the year amounted to € 50.6 million, upwards from € 40.8 million in the corresponding period of 2019.

Services and other

As at 31 December 2020 the revenues of the sector, which includes the activities of the analysis laboratories, telecommunications and other minor activities, amounted to € 24.9 million and were up by + 10.9% compared to € 22.5 million in the corresponding period of 2019.

EBITDA amounts to € 3.3 million, upwards compared to € 2.5 million in 2019.

Investments for the period amounted to € 52.8 million and related mainly to corporate activities: information systems, vehicles and real estate services.

 

Energy balances

Electricity balance sheet

 

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Gas balance sheet

(1) Internal use concerns thermoelectric plants and use for heat services and internal consumption

 

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