Erg S.P.A. Annual Report As at 31 December 2018 2 Annual Report 2018
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ERG S.P.A. ANNUAL REPORT AS AT 31 DECEMBER 2018 2 ANNUAL REPORT 2018 CONTENTS 1 DIRECTOR’S REPORT Statement of Financial position ............................... 103 Introduction ................................................................... 5 Alternative performance indicators ........................ 109 Corporate bodies ......................................................... 8 Financial Statements of ERG S.p.A. ........................ 115 Business description .................................................. 9 Treasury shares ........................................................... 125 Organisational model ................................................. 14 Branch offices .............................................................. 125 Strategy .......................................................................... 16 Transactions with related parties ............................ 125 Change in business scope in 2018 .......................... 19 Significant events after the balance ERG’s stock market performance ........................... 24 sheet date ...................................................................... 127 Significant events during the year ........................... 26 Business outlook ......................................................... 128 Performance highlights ............................................. 29 Performance by sector .............................................. 30 REPORT ON CORPORATE GOVERNANCE Comments on the year’s performance .................. 31 AND OWNERSHIP ................................................ 130 Profit for the year - Business ..................................... 33 Executive Summary .................................................... 131 Reference market ................................................. 33 History ............................................................................ 142 Wind .......................................................................... 36 Information about the ownership structure Solar ......................................................................... 45 at 31 December 2018 pursuant to Hydroelectric ......................................................... 46 art. 123-bis of Legislative Decree no. 58 Thermoelectric ..................................................... 49 of 24 February 1998 (Consolidated Finance Incentive framework ................................................... 52 Act or “T.U.F.”) ............................................................... 145 Relevant legislative and institutional updates Corporate Governance ............................................... 147 during the year .............................................................. 55 Statutory Bodies .......................................................... 148 Risks and uncertainties .............................................. 62 Board Committees ............................................... 172 Health, Safety and the Environment ....................... 79 Internal Committees ............................................ 188 Governance ................................................................... 82 Corporate Governance Documents ................. 191 Human Capital ............................................................. 84 Management and Coordination ............................... 200 ERG invests in industrial relations: The Internal Control and Risk Management a year of innovation and participation .................... 90 System of the ERG Group .......................................... 201 Cultural and Social activities ..................................... 94 Structure and operation of the Internal Financial statements .................................................. 100 Control and Risk Management System Adjusted Income Statement ..................................... 100 of the ERG Group .................................................. 204 CONTENTS 3 Information on the main features of the Board of Statutory Auditors’ Report ........................ 388 existing internal control and risk management Independent Auditors’ Report .................................. 390 systems in relation to the process of financial disclosure, including at consolidated level ............ 206 The Independent Auditors ......................................... 210 3 NOTES TO THE SEPARATE Investor Relations ........................................................ 210 FINANCIAL STATEMENTS Commitments .............................................................. 211 Statement of financial position ................................ 398 Income Statement ...................................................... 399 PROPOSAL OF THE BOARD Statement of comprehensive income .................... 400 OF DIRECTORS .................................................... 216 Statement of Cash Flows .......................................... 401 Statement of Changes in Equity .............................. 402 Notes to the Separate Financial Statements ........ 403 2 NOTES TO THE CONSOLIDATED Analysis of the statement of financial position .... 435 FINANCIAL STATEMENTS Income Statement Analysis ...................................... 462 Statement of financial position ................................ 219 Representations of the Separate Income Statement ...................................................... 220 Financial Statements .................................................. 481 Statement of comprehensive income .................... 221 Board of Statutory Auditors’ Report ........................ 482 Statement of Cash Flows .......................................... 222 Independent Auditors’ Report .................................. 495 Statement of Changes in Equity .............................. 223 Financial Statements of the main subsidiaries .... 500 Notes to the Consolidated Financial Statements .................................................................... 224 The Group ............................................................... 224 Publication date of the financial statements . 224 Basis of preparation ............................................. 224 Form and contents of the Consolidated Basic presentation ................................................ 225 Main accounting policies .................................... 225 Analysis of the statement of financial position .... 294 Income Statement Analysis ...................................... 346 Representations of the Financial Statements ...... 387 Director’s Report Courtesy translation DIRECTOR’S REPORT CONSOLIDATED FINANCIAL STATEMENTS SEPARATE FINANCIAL STATEMENTS 5 INTRODUCTION DISCLOSURE PURSUANT TO ARTICLES 70 AND 71 OF THE ISSUERS REGULATIONS The Parent has selected the option, introduced by CONSOB with its resolution no. 18079 of 20 January 2012, of waiving the obligation to make available to the public an information document upon carrying out significant transactions, i.e. mergers, demergers, capital increases by contributions in kind, acquisitions and sales. ALTERNATIVE PERFORMANCE INDICATORS (APIS) AND ADJUSTED RESULTS Some of the APIs used in this document are different from the financial indicators expressly provided for by the IFRS adopted by the Group. These alternative indicators are used by the Group in order to facilitate the communication of information on its business performance as well as its net financial indebtedness. Finally, in order to enhance the understanding of the business segments’ performance, the operating results are shown excluding special income items: these results are indicated with the term “Adjusted results”. A definition of the indicators and the reconciliation of the amounts involved, are provided in the “Alternative Performance Indicators” section. 6 ANNUAL REPORT 2018 RESTATED COMPARATIVE DATA • The sale of TotalErg on 10 January 2018 marked the ERG Group’s definitive exit from the OIL industry. Since 2018, its business has therefore been focused exclusively on the market for the generation of energy from renewable sources. The comparison of the 2018 results with those of the same period of 2017 is therefore affected by this change in scope. As such, in order to enhance understandability of the group’s performance and comparability of the results in the two periods and in view of its new strategic and industrial positioning, comparative figures for the corresponding period of 2017 were amended so as to exclude the adjusted results1 of the TotalErg joint venture which had previously been measured using the equity method and reported in the line “Net gains (losses) on equity investments”. In 2017, this contribution was positive in the amount of EUR 24 million. • IFRS 15 - Revenue from Contracts with Customers has been applied from 1 January 2018, with no significant impact on the Group’s consolidated financial statements. In particular, for some contracts, ERG is identified as an “agent”, requiring revenue to be presented at its net value to show only the brokerage margin. MAIN INCOME STATEMENT DATA 2017 TotalErg IFRS 15 Special 2017 deconsolidation Reclassifications items restated Revenue from sales and services 1,056 (0) (9) 0 1,048 Adjusted EBITDA 472 (0) 0 0 472 Adjusted EBIT 220 (0) 0 0 220 Profit 207 (90) 0 (9) 108 of which attributable 207 (90) 0 (9) 108 to the owners of the parent Adjusted profit attributable 142 (24) 0 0 117 to the owners of the parent OPERATING SEGMENTS Operating results are presented and commented on with reference to the various production technologies, in line with the