Creating and distributing value

Iren Group aims to create value over time for its stakeholders, beginning with its shareholders, through a sustainable growth strategy (see page 28 of the “Sustainability Report”) and appropriate management policies. This is complemented by the Group’s constant commitment to ensuring the transparent, complete and timely disclosure of the results achieved.

Iren Group’s economic results show, compared to 2019, a 12.8% contraction in revenues due to the reduction in energy demand, as a result of the Covid-19 health emergency, as well as a significant drop in commodity prices, against an increase in Gross Operating Profit (EBITDA) of 1.1%, and a substantial alignment of the profit attributable to the Group. The economic effects of the Covid-19 emergency led to a reduction in revenue, mainly in the energy business areas, with a negative impact on EBITDA of about 15 million Euro and an increase of about 25 million Euro in additions to the allowance for doubtful accounts (more details in the Consolidated Financial Statements).

Economic indicators u.m. 2020 2019
Revenue €/mln 3,725 4,275
Gross Operating Profit (EBITDA) €/mln 927 917
Operating result (EBIT) €/mln 416 452
Profit attributable to the Group €/mln 235 237
Total capitalisation €/mln 2,737 3,582
Dividend per share 0.095 (1) 0.0925

(1) Proposal by the Board of Directors.

Net financial debt as of 31/12/2020 amounted to 2,948 million Euro, up from 2,706 million Euro as of 31/12/2019, and was mainly affected by the consolidation of the new companies acquired by the Group and the increase in investments made which, during the year, amounted to approximately 685 million Euro (+30.8% compared to 2019) and were allocated to development measures in the various business sectors, ensuring an important contribution to local communities.

Investments (millions of Euro) 2020 2019 (1)
Generation and district heating 171.6 67.4
Networks (electricity, gas, water cycle) 293.9 297.1
Market 50.6 40.8
Environmental Services 116.3 76.4
Others 52.8 42.3
TOTAL 685.2 524.0

(1) The breakdown has changed as a result of the reclassification of investments.

The economic-financial performance shows – thanks to a business portfolio with a prevalence of regulated activities and a significant increase in investments – a strong focus on developing infrastructures serving the development of the economic systems of the areas served. The multi-utility and predominantly regulated business profile has ensured the Group’s high resilience to the Covid-19 emergency demonstrated, as outlined above, by reduced economic and financial effects. Furthermore, as defined also in the Business Plan perspective, particular attention is paid to environmental sustainability, digital transformation, and innovation in synergy with the companies and institutions in the reference area. By hiring around 612 new employees (745 in 2019), the Group continued the important generational turnover process started in 2018, focused on acquiring the skills needed for digital transformation and development in new business lines.

The focus of the strategic guidelines on sustainability profiles influences the planning of future multi-year investments. These same profiles are part of the principles of the Code of Ethics that Group companies are required to comply with when making investments: creating value and carrying out projects and actions that are useful for increasing the Company’s assets, management and technological values, the return for shareholders, and the economic and social well-being for employees and the community. In the planning processes, the Group pays particular attention to the variables, emerging from economic and industrial scenarios of the sector, able to guarantee the medium and long- term availability of energy. Scenarios are analysed by continuously monitoring industrial, economic, financial and sustainable development dynamics.

In order to plan the development of production capacity, the Group considers the medium-term scenarios referred to the electricity and gas markets, the evolution of the Capacity Market, CO2 and Energy Efficiency Certificates. Development investments in district heating networks and regulatory scenarios favouring growth of renewable energies are also taken into account. The maintenance plans, aimed at ensuring high levels of efficiency and preventing faults, are designed to minimise the impact of unavailabilities on the Group’s results. The plans have a multi-year time horizon and are defined in consideration of the provisions in place for each type of plant.

The energy production facilities of Iren Group are efficient and adequately sized, thanks to the significant investments in new production capacity and in increasing the efficiency of the existent one. As regards planned production capacity, 75% is supplied by cogeneration and thermoelectric plants, 22% from hydroelectric plants and 3% from other plants (waste-to-energy plants, photovoltaic, treatment plants).

In order to ensure that adequate production and reliability standards are maintained, the Group adopts advanced management and maintenance policies (predictive and preventive). It focuses on innovation, both by increasing the efficiency and flexibility of its plants and by developing projects targeted at the energy efficiency of the system (flexibility of combined-cycle plants, management of waste-to-energy plants to seize opportunities of district heating development, installation of heat storage systems, design of mini hydro plants). In this domain, following the award of the auction on 10 December 2020 for the assignment of the “fast reserve” service, work began on the construction of electrical storage systems at the Torino Nord, Moncalieri and Turbigo power plants that will make it possible to increase reserve power and producible energy.

Medium and long-term gas availability is planned and ensured through the combined management of several sources: multi-year foreign supply contracts, availability of foreign transportation capacity that the Group can use on an event-driven basis, annual availability of storage capacity, and wholesale supply contracts. The combined use of these sources allows for natural gas demand to be met even during particularly severe periods.

Planning is fundamental for guaranteeing the continuity, reliability and security of the integrated water service. This objective is overseen by the resource need analysis for the various areas, also in relation to their possible evolution and seasonality, and the attainment of diversion concessions that are proportional to the identified needs. This is complemented by the planning and management of ordinary and unscheduled maintenance, the renovation of plants and networks to contain water and sewarage network leaks, the adoption of remote control systems and the automation of plants, an emergency service, analytical checks and treatments to guarantee compliance with the qualitative requirements of the water supplied and the waste discharged from treatment plants.

Regarding waste management, at a plant level the production capacity and any revamping needs are assessed and planned. The planning of investments takes into account these evaluations and the planned objectives for the greater enhancement of the waste resource in terms of material and energy.

The Group has adopted a planning tool (medium voltage distribution network master plan) to guarantee the reliability of its electricity distribution network that defines the renovation, upgrading and extension rules and methods, for the main high-to- medium voltage transformer plants and networks. The renovation and updating plan for the main plants, in addition to the gradual substitution of parts of obsolete plants, includes quality and technical improvements to the grid layout and its adaptation to future load increases. In order to guarantee service levels and the reliability of plants, the plan is reviewed and updated in the event that new significant supply requests or reliability and stability issues emerge for the medium voltage network or for the main plants. The management methods are assessed on the basis of the time schedules for the design and implementation of works and in correspondence with technical standards put in place for the construction of new main substations, by verifying and reviewing the projects established in the time schedules. The effectiveness and quality of the interventions are assessed with the maintenance and/or improvement of service level indicators established by ARERA.

In gas distribution, the plan aims to contain leaks, which is the main objective for the safety, quality, efficiency and continuity of service. Regular ordinary and unscheduled maintenance and the renovation of plants and networks, scheduled leak searches, the addition of gas odorants upon receipt by the national transport network, the maintenance of efficient and effective cathodic protection systems and the use of distributed monitoring systems thanks to the remote control, as well as constant supervision of plants and networks by highly qualified and constantly updated staff, all contribute to achieving this objective.

In the analysis of scenarios in the planning phase, the Group also considers the impact produced by climate change trends: variations in temperature distributions – which impact the consumer dynamics of district heating, gas, water and electricity – and extremes of weather phenomena, such as drought and floods. The latter determine, in particular, effects on the hydrology of the hydroelectric plants and water distribution systems, with the associated economic implications, and also constitute factors of attention given the consequences that these may have on the Group’s assets and on the planning of the availability and maintenance scheduled for thermoelectric power plants. For these reasons, the risks associated with climate change and natural and catastrophic phenomena occupy a significant position in the map of the Group’s risks. The Risk Management Department considers these risks in its insurance programme.

The financial or strategic impacts on the Group’s business are mainly analysed in the Group Risk Map, which was subject to a project entailing substantial revision in 2020. The project, considered a strategic and operational risk management tool, led to the identification and quantification of all significant impacts on the business by producing a complete, detailed and integrated Risk Register, which also considers ESG impacts on the impacted risk categories. For each risk category, the Group identified the operational, contractual and insurance mitigation measures that have been implemented, are in progress or have yet to be implemented to reduce the risk profile. This activity also included a specific study of climate change risks, which resulted in developing a specific Risk Policy to manage this category of risks.

The financial implications that the Group constantly monitors are also those arising from the costs associated with the ETS (Emission Trading System) and from its regulatory evolution.

 

Creation of Added Value

Iren Group produces added value in relation to the external resources employed, making efficient use of production factors. Furthermore, in conducting its business, the Group contributes to the economic growth of the social and environmental context in which it operates and produces significant effects in the local areas, especially in relation to the investments made and employment.

The impacts generated by Iren Group on the reference areas contribute to the growth of the economic, social and environmental context.

The activities carried out by the Group have a significant economic impact on the areas in which it operates, guaranteeing direct investment and employment and stimulating local allied industries. The investments improve the social and environmental context through improvements made to basic infrastructure (electricity, gas, sewerage and aqueduct networks, treatment plants) and essential services (waste collection and disposal).

Moreover, all of the business areas present significant opportunities for the development of innovative technologies and processes and, consequently, for territorial growth, also in terms of know-how.

The Group contributes to the employment of the area in which it operates and generates added value through actions aimed at increasing professional skills and at consolidating the improvements reached in the level of education.

The Group has no specific local recruitment policy; nevertheless, given the specificity of the Italian labour market, there is a high coincidence between the provinces of residence of employees and their assigned place of work: more than 78% of executives reside in the same region as their place of work.

Iren Group generates opportunities for the development of innovative technologies and processes and for the growth of territorial expertise.

The indicator that highlights the Group’s ability to produce value in the area and, at the same time, satisfy the economic interests of its main stakeholders is represented by Added Value, which measures both the economic performance of operations and the ability to create the conditions for distributing wealth to stakeholders.

In 2020, Iren Group generated a total gross Added Value of almost 1,421 million Euro, in line with 2019, which was distributed as follows:

  • 39.0% to the Company (approximately 554 million Euro). This is the share of wealth kept within the Group, inclusive of depreciation and undistributed profits;
  • 32.3% to Personnel (approximately 460 million Euro). This is the share made up of salaries and wages, expenses and other personnel costs;
  • 10.6% to the Public Administration (about 150 million Euro). This is the share distributed in the form of direct and indirect taxes, net of the grants received for the year;
  • 6.6% to Financial Backers (around 94 million Euro). This share includes all the financial charges due by the Group to its creditors;
  • 10.7% to Shareholders (approximately 152 million Euro). This is the share allocated to shareholders in the form of dividends;
  • 0.8% to the Community (more than 11 million Euro). This is the share allocated to local communities through the participation in the development of social, environmental, cultural and sporting events.

Distribution of total gross Added Value to Stakeholders in 2020

 

Determination of Added Value (thousands of Euros) 2020 2019
Revenue from goods and services 3,533,854 4,044,715
Change in work in progress, semi-finished products, finished products and goods -14,159 -2,436
Other revenue 149,434 152,816
Production revenue 3,669,129 4,195,095
Costs for raw materials, consumables, supplies and goods -1,007,514 -1,408,379
Cost for services -1,253,105 -1,411,904
Other expenses -20,677 -29,765
Capitalised expenses for internal work 38,891 33,445
Provisions for risks -70,651 -61,850
Intermediate production costs -2,313,056 -2,878,453
Gross Added Value 1,356,073 1,316,642
Non-core and non-recurring items 64,739 104,673
Net profit from discontinued operations 0 0
Total gross Added Value 1,420,812 1,421,315

 

Taxes and duties

Iren Group, while respecting and independently making its own management decisions and in line with its sustainability policy, pursues a tax strategy inspired by principles of honesty, correctness and regulatory compliance, characterised by collaborative and transparent behaviour towards the tax authorities and third parties, in order to minimise any substantial impact in terms of risk, be it fiscal or reputational.

To this end, Iren’s Board of Directors has issued the document Fiscal Strategy, also referred to in the Code of Ethics, which defines the objectives and the approach adopted by the Group in managing the tax variable. The document is made available to all stakeholders following company regulations and is updated promptly whenever changes occur in the essential elements governed by the document. The Fiscal Strategy establishes the principles of conduct in tax matters, to contain the risk of incurring in the violation of tax regulations or the abuse of the principles and purposes of the tax system, and to ensure the correct and timely determination and settlement of taxes over time. In accordance with these principles, Iren refrains from implementing tax practices or strategies aimed at abusively eroding the tax base and commits itself not to undertake operations and behaviours and not to establish commercial relations or company structures that are devoid of economic substance and aimed at obtaining undue tax advantages and that are not justified by valid economic reasons, including organisational or managerial reasons, or in any case consistent with social and business ethics objectives. Iren also undertakes to actively pursue prior certainty of its tax positions and to prevent the start of unproductive tax disputes or disputes that, in any case, based on a prognostic assessment, could have an unfavourable outcome (principle of “more likely than not”). Where the tax obligations or cases are considered, based on an objective assessment by management, to be unclear or subject to interpretation or, in any case, have margins of uncertainty, Iren acts in any case with full transparency towards the Tax Authorities, according to the instruments made available by the legal system, to achieve the application of the correct level of taxation.

Iren’s Board of Directors, supported by the Control, Risk and Sustainability Committee, defined the guidelines for the internal control and risk management system, including tax risks, and identified the Chief Executive Officer as the person responsible for directing the fiscal strategy, verifying the functioning of the Tax Control Framework, i.e. the tax risk management and control system that Iren has adopted to ensure the submission of accurate tax declarations, the correct application of all tax regulations and, when deemed appropriate, the involvement of the Tax Authority in the case of transactions likely to generate interpretative uncertainties.

The Board of Directors also established the Tax Risk Management Committee, which has four permanent members: Risk Management Manager, Tax Risk Manager, CFO and Head of Consolidated Financial Statements and Taxation. The Committee oversees the processes envisaged by the Tax Control Framework with supervisory and control tasks, as well as guiding in the context of monitoring activities, supporting the various players involved, including the Chief Executive Officer and the Tax Risk Manager, in the performance of their respective tasks in a non-binding advisory and propositional capacity. The Tax Risk Manager is responsible for monitoring the effectiveness and efficiency of the controls in place to protect against tax risks and periodically reports to the Tax Committee on the activities carried out, their results, and the Tax Control Framework’s adequacy. By identifying and assessing risks and the preparation, in collaboration with the functions involved, of operating procedures of a fiscal nature, the Tax Risk Manager ensures that each control owner is aware of and implements the control measures and confirms the effective application of the procedures. Consistent with the broader system of internal control and risk management, the Tax Control Framework requires that tax risk be managed through the assignment of responsibilities and roles according to three levels of control. The first level control is represented by the individual operating lines which, daily, in carrying out the activities for which they are responsible, implement the so-called “line controls”, as defined by company policies and procedures, aimed at ensuring that operating activities are carried out correctly, including those with repercussions on tax compliance. Therefore, the first level of control is carried out by the company management of the individual operating lines, including the Tax and Compliance Department.

The second level of control is entrusted to the Tax Risk Manager who, according to the criterion of separation of duties concerning line roles, prepares the annual monitoring plan on tax controls and risks and ensures its execution, identifying any areas for improvement and supporting the control owners in identifying the related corrective actions. Adequate, proportionate and diversified information flows guarantee the circulation of information and ensure that the results deriving from the monitoring activities carried out by the Tax Risk Manager are known at the appropriate company levels.

The third level control, entrusted to the Internal Audit Unit, has the objective of verifying the operation and suitability of the internal control and risk management system and identifying anomalous trends and violations of procedures and regulations.

The management of fiscal and tax aspects has been identified as a sensitive activity concerning the tax offences referred to in the Italian Legislative Decree 231/01 that Iren considers potentially applicable in the conduct of business activities. The “Procedure for the management of reports to the Supervisory Body”, approved by the Board of Directors, regulates the methods of communication and management of reports concerning situations of overt or alleged violations of the law, of the principles of the Organisational Model 231 and of the procedures governing sensitive activities at risk of 231-related crimes, along with instruments for implementing the Model itself (for more details on the Model 231, see page 51 of the “Sustainability Report”).

In order to improve communication and collaboration with the Tax Authorities, Iren Group decided to adhere to the “Collaborative Compliance Regime” (Italian Legislative Decree 128/2015), which provides a new scheme of relations between the Revenue Agency and taxpayers inspired by the principles of cooperative compliance already adopted by foreign tax administrations. The main benefits of tax risk management derive from the possibility of joint assessment of any tax risks with the Revenue Agency before the tax return and access to forms of prior appeal with an abbreviated procedure. The Group Companies that meet the requirements of the Revenue Agency for participation in the “Collaborative Compliance Regime” are Iren and Iren Energia, which, on 29 December 2020, applied to join the scheme, for which the phase of dialogue with the Revenue Agency necessary for admission is underway.

Iren has also consolidated a stakeholder involvement process through the Local Committees, representing the main tool for dialogue and discussion between Iren Group and all stakeholders (consumers/customers, employees, suppliers, institutions, shareholders, the environment and local communities).

Lastly, the tax information in the Consolidated Financial Statements and the Sustainability Report is subject to an assurance process by a third party (Independent Auditors).

The income taxes for FY 2020 amount to approximately 100 million Euro (down 10.3% compared to 2019). The effective tax rate is 27.40%.

In 2020, the Group received over 26 million Euro in benefits and grants from the public administration, of which 6.4 million Euro in capital investments.

Taxes and duties paid (millions of Euro) 2020 2019
Government and Region 100.13 111.64
Total direct taxes and duties 100.13 111.64
ATO concession fees 2.54 2.75
Other concession fees 23.87 24.88
Derivation, taxes and licenses (derivation fees and surtaxes) 18.91 18.64
Taxes and duties 25.16 25.14
Total indirect taxes and duties 70.48 71.41
TOTAL 170.61 183.05

 

Relevant topics

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