FALCK RENEWABLES SpA
Annual report for the year ended 31 December 2014
Board of directors’ meeting Milan, 12 March 2015
FALCK RENEWABLES SpA Share capital Euro 291,413,891 fully paid Direction and coordination by Falck SpA Registered and fiscal address 20121 Milan – Corso Venezia, 16 REA Milano 1675378 Milan Companies Register 03457730962 VAT and tax code 03457730962
Annual report for the year ended 31 December 2014
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 Contents
1 Notice of annual general meeting pag. 4
2 Company officers pag. 7
3 Group structure pag. 8
4 Consolidated financial highlights pag. 9
5 Directors’ report
5.1 Economic framework pag. 11
5.2 Falck Renewables group operating and financial review
5.2.1 Falck Renewables group profile pag. 22 5.2.2 Regulatory framework pag. 22 5.2.3 Performance pag. 31 5.2.4 Non-financial performance indicators pag. 37 5.2.5 Share price performance pag. 38 5.2.6 Performance of business sectors pag. 39 5.2.7 Review of business in 2014 pag. 43 5.2.8 Employees pag. 47 5.2.9 Environment, health and safety pag. 47 5.2.10 Research and development activities pag. 49 5.2.11 Risks and uncertainties pag. 49 5.2.12 Significant events after the balance sheet date pag. 64 5.2.13 Management outlook and going concern pag. 64
5.3 Operating and financial review of Falck Renewables SpA
5.3.1 Financial highlights pag. 65 5.3.2 Performance and review of business in 2014 pag. 65 5.3.3 Employees pag. 66 5.3.4 Capital expenditure pag. 66 5.3.5 Directors, statutory auditors, key managers and their interests pag. 66 5.3.6 Related party transactions pag. 66 5.3.7 Direction and coordination activities pag. 67 5.3.8 Holding of own or parent company shares pag. 67 5.3.9 Purchase and sale of own shares or parent company shares pag. 67 5.3.10 Share schemes pag. 67 5.3.11 Corporate governance and code of self-discipline pag. 67 5.3.12 Participation in opt-out regime pag. 68 5.3.13 Legislative decree 231/01 pag. 68 5.3.14 Proposed appropriation of profit for the year pag. 68
page 2 FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 Contents
6 Consolidated financial information
6.1 Balance sheet pag. 71 6.2 Income statement pag. 72 6.3 Statement of comprehensive income pag. 73 6.4 Statement of cash flows pag. 74 6.5 Statement of changes in equity pag. 75 6.6 Notes to the consolidated financial statements pag. 76 6.7 Additional disclosures regarding financial instruments in accordance with IFRS7 pag. 126
7 Supplementary information to the consolidated financial statements
7.1 List of investments in subsidiaries and associates pag. 150
8 Falck Renewables SpA separate financial statements
8.1 Balance sheet pag. 153 8.2 Income statement pag. 154 8.3 Statement of comprehensive income pag. 155 8.4 Statement of cash flows pag. 156 8.5 Statement of changes in equity pag. 157 8.6 Notes to the financial statements pag. 158 8.7 Additional disclosures regarding financial instruments in accordance with IFRS7 pag. 196
9 Supplementary information to the Falck Renewables SpA separate financial statements
9.1 List of direct and indirect investments in subsidiaries and associates pag. 206 9.2 Summary of significant financial data from latest financial statements of subsidiaries and associates pag. 208
10 Certifications on consolidated and parent company financial statements pursuant to article 81-ter of Consob Regulation 11971 of 14 May 1999 as amended pag. 213
11 Report of the board of statutory auditors to the annual general meeting pag. 216
12 Independent auditors’ reports pag. 222
page 3 FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 1 Notice of annual general meeting
Notice of annual general meeting The shareholders are invited to attend the ordinary annual general meeting (AGM) at the Mediobanca offices in Milan, Via Filodrammatici 3, at 11.00 a.m. on 29 April 2015 in first call and, where necessary, at the same time and address on 30 April 2015 in second call, in order to discuss the following:
Agenda
Ordinary business:
1. The annual report for the year ended 31 December 2014; directors’ report, board of statutory auditors’ report, independent auditors’ reports and consolidated financial statements for the year ended 31 December 2014: approval, related resolutions and resulting matters;
2. Proposed distribution of profit for the year;
3. Presentation of the remuneration report pursuant to articles 123-ter of Legislative Decree 58/1998 and 84-quater of the Listing Rules and consultative vote of the AGM on Section I.
Share capital and right to vote The share capital of Falck Renewables SpA is Euro 291,413,891 issued and fully paid, consisting of 291,413,891 shares with a nominal value of Euro 1 each, each share holding the right to one vote at the AGM. At today’s date the company holds 460,000 own shares that have suspended voting rights.
Attendance and representation at the AGM The following information is provided in respect of those shareholders who hold the right to attend and vote at the AGM (pursuant to article 125-bis of the Consolidated Finance Act): – In accordance with article 83-sexies of the Consolidated Finance Act, shareholders with the right to attend and vote at the AGM is confirmed in writing to the company by the intermediary, based on the information in the company’s register at the end of the accounting day on the seventh working day prior to the date established for the AGM in first call (20 April 2015 – record date); those parties that became shareholders after this date may not attend or vote at the AGM; the intermediary must provide the above notice to the company by the end of the third working day prior to the date set for the AGM in first call (specifically by 24 April 2015). The right to attend and vote will be upheld where notice is received by the company after this date but prior to work commencing on the shareholders’ meeting; – Postal votes and electronic votes are not permitted; – All shareholders who have the right to attend the AGM may be represented by written proxy in compliance with current legislation, by completing a proxy form that is available online on the company website www.falckrenewables.eu. Notice of proxy may be sent by registered post to the company’s registered offices in Corso Venezia 16, Milan (20121), or by certified email to [email protected]; – proxy may be given, along with voting instructions, to Società per Amministrazioni Fiduciarie “SPAFID” S.p.A., for the purpose designated by the company pursuant to article 135-undecies of the Consolidated Finance Act, on condition that the original is received by 27 April 2015 (for the AGM in first call) or 28 April 2015 (for the AGM in second call) either by courier or AR recorded
page 4 FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 1 Notice of annual general meeting
delivery to the premises in Foro Buonaparte 10, Milan (20121); proxy will not be valid for those matters for which voting instructions were not received. A proxy form may be obtained from the company website www.falckrenewables.eu; the proxy and voting instructions may be withdrawn by the above deadline.
Right to ask questions in the AGM Shareholders may ask questions on items on the agenda even prior to the AGM and no later than 25 April 2015, by written request sent by recorded delivery to the company’s registered offices in Corso Venezia 16, Milan (20121) or by certified email to the following address: [email protected], together with the intermediary notice qualifying the shareholder; this notice is not required where prior notice has been received from the intermediary regarding attendance at the AGM. For questions received prior to the AGM the company will at the latest reply during the AGM and may avail of the option to offer a single reply to more than one question pertaining to the same subject. Changes to the agenda and new resolution proposals In accordance with law, shareholders who, either individually or jointly, represent at least one fortieth of the share capital are entitled to propose, within ten days of the notice of the AGM being issued (by Friday 3 April 2015), additional agenda, providing details of them in the request, or submit resolution proposals regarding items already on the agenda. Requests, together with the intermediary’s notice confirming that the limit regarding the number of shares held is satisfied, must be filed in writing, also by post, with the registered offices in Corso Venezia 16, Milan, or by certified email to [email protected]. Shareholders who propose additional agenda must prepare a report on the new business to be discussed or justification for further resolution proposals regarding items already on the agenda, which should be submitted by the last date for filing amendments using the same communication channels regarding the notification of amendments. Any changes to the AGM’s agenda or further resolution proposals regarding items already on the agenda, must be notified by the Company following the same procedure as the notice calling the AGM, at least fifteen days before the date set for the AGM. The amendment notice will be made available to the public, using the same communication channels used to provide the documentation relating to the AGM, together with the shareholders’ report that gave rise to the amendment and any comments by the board of directors. Proposed amendments to the agenda are not admitted in relation to matters, on which the AGM is required to deliberate in accordance with law, proposed by the board of directors or in relation to projects or reports prepared by them, other than those pursuant to article 125-ter, paragraph 1, of the Consolidated Finance Act.
Documentation Documentation relating to the AGM, required by existing legislation, will be made available to the public at the company’s registered offices, at Borsa Italiana SpA and the company website www.falckrenewables.eu with notice provided to the public within the time limits prescribed by law as follows: - the documentation relating to items 1 and 2 on the agenda comprising the report of the board of directors and proposed approval, the annual report for the year ended 31 December 2014, the directors’ report, the 2014 report on corporate governance and ownership structure, the report of the board of statutory auditors and the independent auditors’ reports, will be made available to the public by 31 March 2015 using the channels noted above;
page 5 FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 1 Notice of annual general meeting
- the board of directors’ remuneration report on item 3 of the agenda prepared pursuant to article 123- ter of the Consolidated Finance Act, together with the remuneration report, will be made available to the public by 8 April 2015 using the channels noted above; - The documentation relating the financial statements of subsidiaries and associates will be made available to the public at the company’s registered offices by 14 April 2015. Shareholders holding the right to vote are entitled to obtain copies of the documentation relating to the items on the agenda. *** Shareholders entitled to attend the AGM are invited to arrive before the scheduled starting time for the meeting in order to facilitate registration procedures that will commence from 10.30 a.m. onwards; shareholders are also requested to present a copy of the intermediary notice in order to expedite the control process. *** The notice of annual general meeting was issued by SDIR NIS and published on the company website and in Milano Finanza.
Milan, 24 March 2015
The Chairman Enrico Falck
page 6 FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 2 Company officers
icato su Milano Finanza del 24 maggio 2013. Board of directors
Enrico Falck (*) Chairman Guido Corbetta (*) Deputy chairman Piero Manzoni (*) Chief Executive Officer Elisabetta Caldera (**) Director Emilio Cremona (**) Director Elisabetta Falck Director Federico Falck (*) Director Filippo Marchi Director Libero Milone (**) Director Barbara Poggiali (**) Director Bernardo Rucellai (**) Director
(*) Members of the Executive Committee (**) Independent members
Board of statutory auditors
Massimo Scarpelli Chairman Giovanna Conca Statutory auditor Alberto Giussani Statutory auditor Mara Caverni Substitute statutory auditor Gianluca Pezzati Substitute statutory auditor
Independent auditors
Reconta Ernst & Young SpA
page 7 FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 3 Group structure
page 8 FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 4 Consolidated financial highlights
(Euro thousands) 2014 2013 2012 2011
Revenue 248.325 253.796 252.426 222.750 Gross profit 98.281 103.454 83.042 103.978 EBITDA (1) 135.292 145.275 145.363 123.872 Operating profit/(loss) 70.778 73.961 ( 26.722) 65.571 Profit/(loss) for the year 8.964 14.954 ( 85.467) 19.844 Profit/(loss) for the year attributable to Falck Renewables SpA equity holders 3.352 15.089 ( 79.207) 18.863 Earnings per share (Euro) (2) 0,012 0,052 -0,272 0,070 No. of shares (average for the year) in thousands 290.954 291.070 291.414 269.402 No. of shares (at year-end) in thousands 290.954 290.954 291.414 291.414 - Net financial (assets)/liabilities (113.820) (16.938) (14.438) 22.670 - Non-recourse financing 673.866 690.751 738.443 722.866 Total net financial position net of derivatives 560.046 673.813 724.005 745.536 - Interest rate derivative financial instruments 77.788 53.514 83.324 59.488 - Foreign exchange derivative financial instruments 295 759 Total net financial position including derivatives 638.129 728.086 807.329 805.024 Total equity 499.760 378.832 343.717 451.826 Equity attributable to Falck Renewables SpA equity holders 468.645 372.305 343.987 444.913 Equity holders earnings per share (Euro) (2) 1,611 1,278 1,179 1,650
Capital expenditure 55.913 56.628 57.681 177.355 Gross profit/revenue 39,6% 40,8% 32,9% 46,7% EBITDA/revenue 54,5% 57,2% 57,6% 55,6% Operating profit/revenue 28,5% 29,1% -10,6% 29,4% Profit for the year/total equity 1,8% 3,9% -24,9% 4,4% Net financial position/total equity 1,28 1,92 2,35 1,78
Total number of group employees (no.) 297 224 221 218 (1) EBITDA = EBITDA is measured by the Falck Renewables group as profit for the year before net investment income/costs, net finance income/costs, amortisation and depreciation, impairment, charges to risk provisions and income tax expense. This indicator was calculated applying best market practice taking into consideration the new group financing contracts. This method was applied to calculate EBITDA for the previous years disclosed.
(2) Calculated using the average shares outstanding during the year.
The information relating to 2013-2012-2011 has been restated to reflect the adjustments arising following application of IFRS 11 – Joint arrangements. Further details are set out in the directors’ report in note 5.2.3.1 Application of IFRS 11
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5. Directors’ report
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Dear Shareholders,
The parent company’s separate financial statements and the consolidated financial statements for the year ended 31 December 2014 have been prepared in accordance with International Financial Reporting Standards (IFRS). These standards were adopted in 2005 for the first time in relation to the consolidated financial statements and in 2006 for the parent company’s separate financial statements.
5.1 Economic framework
In 2014, the world economy struggled once again to recover significant growth due to the continued negative impact of the financial crisis and fading dynamism in certain emerging market economies. Global GDP growth in 2014 was 2.6%, in line with 2013 (2.5%). Although overall performance appears to be consistent, a detailed data analysis by country highlights significant differences in the various economic areas compared to 2013. Growth increased in the United States and the United Kingdom, the Euro area and Japan continued to suffer the consequences of the financial crises and the structural limits imposed that have limited economic performance, while China is undergoing a carefully managed and delicate progressive downturn in economic growth. In the same period, other emerging countries experienced a significant downturn in economic growth due to lower international demand and, in many cases, the implementation of further austerity measures on national budgets or increased political uncertainty.
Macroeconomic developments at both global and individual country level were driven by important economic forces that emerged in 2014 and continued into 2015 with significant consequences. Of particular importance were the fall in commodity prices, the continuous and significant fall in interest rates in a number of economies such as the Eurozone, the new direction for monetary policy in the United States and the Eurozone and weak world trade. The significant drop in oil prices, which began in July 2014, gathered momentum towards the end of the year. Over the coming months this trend will most likely witness a significant impact on the redistribution of economic growth between oil exporting and importing countries.
An analysis of historic oil prices highlights how the plunge in prices in the second half of 2014, while significant (-56%), was much less rapid and of lower magnitude than the 2008 collapse where oil prices plummeted by 70% in 5 months.
Moreover, there was a gradual increase in oil prices in the first month of 2015, which hopefully will translate into the events of 2009 where prices increased by +72% in the six months following the collapse.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Also from a macroeconomic viewpoint this period marked the end of Quantitative Easing (“QE”) in America and the introduction in early 2015 of European QE that is expected to have a significant positive impact on the European economy. This is supported by the recent fall in the Euro against other major currencies such as the pound sterling, the US dollar and the Swiss franc, which commenced in the latter part of 2014 and further intensified in early 2015. This weakening of the Euro should not only boost economic growth across Europe, a fundamental condition for a lasting recovery in electricity prices, but also reduce the risk of deflation that seemed increasing likely towards the end of 2014.
Source: Banca d’Italia
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Source: Banca d’Italia
GDP growth
Gross Domestic Product (GDP) growth in the European economies was again very modest in 2014, the results varying widely across countries. After a very positive first quarter in Germany (+2.3%), this slowed down in the second quarter with the third quarter recording 1.2% growth. Spain performed better in percentage terms (+1.4%), continuing the steady rise initiated after the 2012 fourth quarter (-2.7%). Italy closed yet another difficult year in 2014, marked by a prolonged, albeit minor, recession. Only the latter months witnessed a recovery in consumer demand spurred by government policy and low levels of inflation and the fall in energy prices in recent months. The evolution of UK GDP in 2014 recorded 0.5% growth in Q4 2014 against the previous quarter, a slight fall on third quarter growth (+0.7%) but continuing the positive trend that resulted in Q4 2014 GDP of approximately 2.7%, an increase on the same period in 2013.
Source: OECD.Stat
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Unemployment
Unemployment continued to present a major problem requiring urgent measures across the entire Euro area with the exception of Germany that has recorded very low levels of employment that have remained stable over recent years.
Unemployment rates in Spain are particularly high, however this has witnessed a gradual and continuous decline commencing in the third quarter of 2013 that continued throughout 2014. Compared to the record lows in 2013 (26.3%), unemployment fell to 23.7% in the third quarter of 2014.
Unemployment levels were more contained in Italy, France and the UK, displaying different trends in unemployment rates across each country. Italy’s unemployment rate grew once again in 2014 although it fell 0.4% in December to 12.9% at the year-end. 2014 marked a largely stable year for France with a slight increase in the unemployment rate from 10.1% in January 2014 to 10.3% in December the same year, while UK unemployment levels fell in 2014, from 7% to approximately 5.6%, which has contributed to the steady annual economic growth of approximately 2.6%.
Source: www.euro-area-statistics.org
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Government ratios: Public Debt-to-GDP- Public deficit to GDP
The public debt to GDP ratio, although a difficult parameter to change in the course of one year, has taken a negative course in Spain where it now exceeds the 100% threshold and has continued to worsen since the beginning of the economic crisis, increasing from 36.3% at the end of 2007 to the current level of 103.8% at the end of 2014. This negative trend is directly correlated to the high public deficit that amounted to 6% of GDP in 2014.
Italy has the highest public debt-to-GDP ratio of the countries selected, while performance is stable due to the public deficit in Italy closing at 2.6% in 2014.
The results clearly show that Germany has performed better than the rest of the Eurozone, its budget balance is in break-even and it continued to pursue its policy to reduce public debt which fell from 81% to 76% over two years and this path is expected to continue into 2015.
Following the extremely negative events of 2007-2009 and the subsequent settling down period up to 2012, over the last two years the UK’s public deficit has improved significantly. It is forecast that the UK’s budget deficit for 2014 is approximately 5%, which although higher than the European average has improved significantly on the 2012 and 2013 figures of 6.1% and 5.8% respectively. The deficit improvement and economic growth have allowed the UK to slowdown the level of public debt that amounted to 90% at the end of 2014.
Source: www.euro-area-statistics.org
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Source: www.euro-area-statistics.org
Analysis of spread of Government Bond yields between the group’s reference countries and Germany
The spread of government bond yields for those countries of interest to the Falck Renewables group (Italy, the United Kingdom, France and Spain) compared to German government bond yields, has gradually fallen throughout 2014 compared to previous years.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
The major government bond spreads of Italy (BTP), Spain (BONOS), France (OAT) and the United Kingdom (GILT) compared to the German Bund are illustrated below.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Electricity price trends in Italy, the UK and Spain
An analysis of electricity price trends in Italy, Spain and the UK (France has not been taken into consideration here as the group’s plants receive a feed-in-tariff) shows that prices recovered in the last quarter but remain historically low.
Electricity prices in Spain in particular were particularly low in the first four months of the year with an average of just over Euro 17 MWh in February 2014.
Source: Mercato Elettrico (www.mercatoelettrico.org) and www.omie.es
Analysis of the historical price of the Italian Prezzo Unico Nazionale (National Single Price - PUN) over the last three years highlights that prices in 2014 were the outcome of a medium/long-term period where the PUN prices fell principally due to the grave financial crisis. The price trend in the latter months of 2014 leaves some hope of a gradual recovery in Italian electricity prices although this has to take into consideration the medium- term impact of the slump in a number of commodity prices such as oil.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Source: Arithmetic average of hourly prices on electricity market (APX)
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
5.2 Falck Renewables group operating and financial review
5.2.1 Falck Renewables group profile
Falck Renewables SpA is an Italian limited company (“the Company” or “Falck Renewables”) with registered offices in Corso Venezia 16, Milan.
The Falck Renewables group’s current structure is the outcome of the Consolidation Project that took place in the 2010 fourth quarter, whereby all of the renewable energy businesses of Falck SpA were transferred to Falck Renewables SpA, more specifically:
(i) the wind sector business of Falck Renewables Wind Ltd formerly Falck Renewables Plc (previously controlled by Falck SpA through Falck Energy SpA) and its subsidiaries; and
(ii) the WtE, biomass and photovoltaic businesses of Falck Renewables SpA (already controlled prior to conclusion of the Consolidation Project by Actelios SpA) and its subsidiaries.
Commencing September 2014, these activities were extended to include the business of the Vector Cuatro1 group which was acquired in line with the group strategy to develop the services sector.
At the end of 2014, Falck Renewables SpA and its subsidiaries (“the Falck Renewables Group” or “the Group”) essentially operate in Italy, the United Kingdom, Spain and France and following acquisition of the Vector Cuatro SLU group, the Group now has operations in Japan, Canada, Mexico and Bulgaria.
The Falck Renewables Group operates in the production of electricity from renewable sources through wind farms, WtE, biomass and photovoltaic plants and the provision of renewable energy plant management services. Specialising in the renewable energy sector has allowed the Falck Renewables Group to develop skills and acquire know-how in the operation and maintenance (O&M) of proprietary and third party-owned renewable energy power plants.
The Falck Renewables Group operates in the following business sectors:
the wind sector, revenue from which derives mainly from the sale of Green Certificates, ROCs and electricity generated by the Group’s wind farms;
the WtE, biomass and photovoltaic sector, where revenue principally arises on the sale of Green Certificates and electricity, from waste transfer used to generate electricity in WtE plants, waste treatment and the operation and maintenance of third party renewable energy power plants;
the services sector comprising the Spanish group Vector Cuatro, which was acquired on 15 September 2014 and consolidated from October 2014. This sector provides renewable energy plant management services on an international scale. It also offers engineering and consulting services to develop projects for electricity generation employing mainly solar and wind energy.
5.2.2 Regulatory framework
The European Union endorsed the Kyoto Protocol and has developed a specific energy strategy aimed at facilitating renewable energy use. Directive 2009/28/EC set targets for the development of renewable sources for each member state and requires that each state develops its own National Renewable Energy Action Plan. Italy announced its National Renewable Energy Action Plan to the European Commission on 30 June 2010, pledging that by 2020 17% of gross domestic consumption, including 6.38% of energy consumption in the transport sector, 28.97% of electricity and 15.83% of heating and cooling, will be met through renewable energy.
1 See note 5.2.7 “Review of business in 2014-Aurora transaction: Acquisition of the Vector Cuatro group”.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Directive 2009/28/EC was endorsed by Legislative Decree 28/2011 of 6 March 2011 (the Romani Decree) and its implementation was finalised in the decrees issued on 6 July 2012 that consolidated the sector’s regulatory framework. The V energy account relating to photovoltaic energy incentives was published at the same time as the decrees implementing Legislative Decree 28/2011. The new regulatory framework in Italy highlights a significant reduction in incentives for plants that come on stream from 2013 onwards while guaranteeing stable and longstanding incentive mechanisms for plants that commenced operations prior to 31 December 2012. With regard to Italy and the Group’s photovoltaic power plants, the principal development relates to the introduction of Law 116/2014 revising the photovoltaic incentive scheme. New renewables’ incentives mechanisms and amendments to existing ones have also been passed in the other countries in which the Falck Renewables Group operates. There was no significant impact on the power plants based in the UK and France. The renewables’ incentives system in Spain underwent revision and was applicable retroactively to existing operating plants. As detailed further below, the revision of the system of incentives that commenced in 2013 officially came into force in June 2014 with effect from the second half of 2013. Spain currently accounts for approximately 2% of Group production.
Italy: Regulation of the wind, WtE, biomass and photovoltaic sectors
The regulations on incentives for the production of electricity from renewable sources comprises several mechanisms with different applications based on (i) the date the plant commenced operations, (ii) the type of renewable resource used, and (iii) the plant’s capacity. The principal incentives are as follows: a) CIP 6/92; b) Green Certificates introduced by the Bersani Decree and currently in transition phase subsequently to be replaced by the feed-in tariff regime; c) The energy account governing photovoltaic plants; d) The feed-in tariff for solar thermodynamic plants. a) CIP 6/92
This incentive system offers a direct incentive to producers of renewable and similar types of energy, and is still effective for a number of operating plants, whereby under specific agreements (CIP 6 Conventions), lasting between 12 to 15 years, the producers sold energy generated to ENEL (now the GSE) at a fixed price without participating in the feed-in tariff market mechanism. In particular, CIP 6/92 fixed the selling prices under which ENEL purchased electricity, in accordance with the “avoided costs” criteria (of investment, operation and combustibles) applying to ENEL’s production capacity under the previous monopoly regime. The first 8 years of this mechanism included a further incentive in respect of the higher cost of generating renewable energy compared to that of fossil fuels. This incremental incentive is no longer applicable to the Group’s plants operating under the CIP 6 regime that in 2014 only received the avoided cost portion. With regard to the Trezzo sull’Adda plant, the avoided cost element was attributed to the entire installed capacity until August 2014 following which it will be applied to only 3MW of installed capacity up until August 2017, while with regard to the Granarolo dell’Emilia plant, owned by Frullo Energia Ambiente Srl in which the Group has a 49% interest consolidated applying the equity method, the incentive expires in December 2018. The Ministry of Economic Development issues a decree (MD) annually that governs settlement of these incentives on an account/adjustment basis. The MD published in issue 280 of the Official Gazette of the Italian Republic dated 30 November 2012, extended to plants that operate under CIP 6 (selected initiatives as defined by Law 481/95), the application – commencing 1 January 2010 – of specific standard decreasing consumption levels based on the date of the plant’s first connection for the purpose of identifying the combustible element of the avoided cost calculation to be applied to production.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
The introduction of this amendment – further aggravated by its retrospective application to 2010 – forced the Group to challenge the MD before the Lazio Regional Administrative Court requesting its annulment. The Group companies involved prudently set up a specific risk provision comprising the adjustments relating to the period preceding the MD becoming law (1 December 2012), reserving the right to defend their claims in the relevant jurisdictions.
Subsequent to this amendment, Legislative Decree 69/2013 (the so called “Decreto del Fare” that became Law 98 on 8 August 2013) was published on 21 June 2013 resulting in a further substantial change in the method of calculating the avoided cost of fuel component (CEC) commencing 1 January 2013. Until 2012 the CEC was calculated using a mix of fossil fuels that represented (from 1992) the production mix of the national electricity provider (ENEL). Following a proposal put forward by the AEEGSI (Italian Regulatory Authority for Electricity, Gas and Water), the Legislative Decree replaced this method with the wholesale spot market price of natural gas on the Natural Gas Market. This replacement gradually came into force over the 4 quarters of 2013 with full implementation from 2014. b) Green certificates (CV) replaced by Feed-in Tariffs
From 2001, the Bersani Decree has required entities importing or producing more than 100 GWh per year from conventional sources to feed into the grid (in the following year) not less than 2% of energy produced by renewable sources (for 2014 the minimum quota is 2.52%).
The above-mentioned emission quotas may be met through the production of renewable energy or alternatively the purchase of GCs from other renewable energy producers. The GCs are annual certificates of renewable production that producers receive (for 15 year periods) based on production levels (in MWh) multiplied by a variable coefficient based on the type of renewable source as follows:
. wind plants with a capacity of more than 200 KW: 1; . offshore wind farms: 1.5; . biodegradable waste and biomass plants not sourced from agricultural short supply lines: 1.3; . agricultural biomass plants sourced from short chain supplies or supply chain contracts approved by law: 1.8.
The GC market operates on a supply/demand basis (minimum quota/GC). Following intense growth in renewables production, from 2007 GC supplies widely exceeded demand resulting in a collapse in the value of GCs that required government intervention (MD 18/12/2008) whereby the GSE undertook to buy in all excess GCs for the period 2008-2010 at a fixed historic price (3 year moving average). The Romani Decree (Legislative Decree 28/2011) paved the way – with a transition period from 2011-2015 – for the abolition of the GC market replacing it with a feed-in tariff scheme recognised by the GSE through the “contract for difference” mechanism compared to electricity prices. The above mechanism applies to plants in service at 31 December 2012, with an exemption and reduction up to 30 April 2013. This decrease will not apply to the Group’s plants. Legislative Decree 28/2011 envisages a price for GCs (in Euro/MWh) equal to 78% of the difference between 180 and the annual average market price of electricity published by the Regulatory Authority for Electricity and Gas. From 2016, the Implementing Decree (ID) of the Romani Decree (published on 6 July 2012) establishes application of the same formula in calculating the feed-in tariff. This formula is currently applied to all of the Group’s Italian wind farms.
With regard to new plants (that commenced operations after 31 December 2012), the ID states that access to these incentives will take place through entry to registers for plants up to defined capacity thresholds analysed by energy source and by registering for reverse auctions where plants exceed the specified capacity thresholds. In each case annual incentive caps apply for the three year period 2013-2015 differentiated by source. The threshold for enrolment to registers and auctions is 5MW in respect of wind farms and biomass plants. The incentives are awarded monthly for a 20 year period in the form of a feed-in tariff calculated applying the
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
contract for differences mechanism (the GSE pays the producer the difference – where positive – between the feed-in tariff and the energy price recorded for the month of production).
In order to limit the annual renewables incentive burden on prices and electricity tariffs, Law 4/2014 (so called “Destinazione Italia” Decree) offers renewable electricity plant owners that benefit from Green Certificates, Overall Feed-in Tariffs or Premium Tariffs, the option of choosing one of the following:
a) Continue with the current incentive scheme for the remaining period. In this event, any work carried out on these plants will be excluded from any kind of incentive scheme for 10 years following expiry of the current incentive scheme, including purchase and resale arrangements applying electricity prices or tariffs; b) Revision of the current incentive over the plant’s useful life (the reduction in GCs on the Group’s plant portfolio is on average 35%). In this case the producer will have access to a reduced incentive, the degree of which will depend on the type of plant as defined by the decree of the Ministry of Economic Development in conjunction with the Ministry for the Environment and Protection of Land and Sea (and the opinion of the Regulatory Authority for Electricity, Gas and Water) and is applicable for an extended incentive period equal to the remaining incentive period under the current scheme plus 7 years. The percentage of incentive reduction is applied:
1) in respect of plants awarded green certificates, to the multiplication coefficient awarded to green certificates’ plants under annex 2 of Law 244 of 24 December 2007; 2) in relation to overall tariff plants, to the value of the awarded tariff net of the electricity selling price for the prior year determined by the Authority for Electricity and Gas under article 13, paragraph 3 of Law 387 of 29 December 2003; 3) to the premium tariff for those plants granted a premium tariff.
The Group opted for alternative a). c) Energy account
The energy account is the incentive for photovoltaic plants and was originally introduced by Ministerial Decrees (MD) 28/07/05 and 06/02/06 (First Energy Account), which were subsequently amended by MD 19 February 2007 (Second Energy Account). With regard to plants that commenced operations between 1 January 2008 and 31 December 2010 the MD provides tariff-based incentives for the energy produced that vary based on the characteristics of the plants (integrated, partially integrated or non-integrated) and their nominal capacity (1 - 3 kW; 3 - 20 kW; over 20 kW). This incentive is provided by the GSE for a period of up to 20 years. Under Legislative Decree 129 of 13 August 2010, the incentive tariffs under the energy account governed by MD of 19 February 2007 continue to apply to photovoltaic systems including those that commenced operations after 31 December 2010, provided that (i) by 31 December 2010 the photovoltaic system had been installed and the relevant authorities notified of the completion of work, and (ii) the facilities came into operation by 30 June 2011.
MD 06/08/10 (Third Energy Account) applies to plants that entered into service after 1 January 2011 with the exception of those governed by Law 129/2010. This decree also set a national cumulative target of 8GW of capacity to be installed by 2020 with a cap on capacity eligible for incentives of 3 GW for solar photovoltaic plants, 300 MW for innovative integrated plants and 200 MW for concentrating solar plants. The MD of 06/08/10 removed the distinction of plants installed on existing buildings thus analysing them by those installed on buildings and other plants.
MD 12/05/2011 (Fourth Energy Account) established that the provisions of MD 06/08/2010 be applied to plants that entered into service by 31 May 2011. From this date up to 31 December 2016, the Fourth Energy Account sets decreasing six-monthly incentive tariffs to reach the 2016 target of 23 GW of installed capacity while fixing a total cumulative annual expenditure of between Euro 6 to 7 billion. From the first half of 2013, the incentive tariffs will be replaced by a comprehensive tariff for energy sold to the grid.
MD 05/07/2012 (Fifth Energy Account), redefines incentive tariffs commencing 27/08/2012 and sets the annual expenditure limit at Euro 6.7 billion. A comprehensive tariff applies for plants with an installed capacity of less than 1 MW while for plants with greater capacities the tariff represents a premium paid in respect of energy page 25
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
generated. The incentive tariffs are decreasing in value for the first five semesters following which they will be reduced by 15% every six months. Access to the incentives is by entry to specific registers except for plants with less than 12 kW of installed capacity, plants with a capacity of between 12 and 24 kW that request a reduction in the applicable rate and those with a capacity of up to 50 kW built to replace plants containing Eternit.
All of the Group’s photovoltaic plants fall within the scope of the First and Second Energy Accounts.
As mentioned above in the Regulatory framework introductory paragraph, Law 116/2014 was introduced this year, which establishes that commencing January 2015, the incentive tariff for energy generated by plants with a nominal peak capacity exceeding 200 kW (essentially all of the Falck Renewables Group’s plants), is to be revised by the operator based on the following options that must be notified to the GSE by 30 November 2014: a) the incentive period is extended to 24 years commencing from the date the plant came on stream and is then recalculated applying the percentage reductions illustrated in the decree; b) retain the original 20 year incentive period however, the tariff is recalculated based on an initial period whereby the incentive is lower than the current equivalent and a subsequent period with the incentive restated to the original amount (in order to generate a saving of at least Euro 600 million per annum in the period 2015-2019 compared to the amount that would be paid under the current tariff scheme). The reduction percentages will be determined by decree of the Minister of Economic Development and vary between 15% and 25% for the Group; c) retain the current 20 year incentive period, the tariff is reduced for the remaining incentive period by a percentage of the incentive awarded at the time the existing legislation came into force as follows: 1) 6% for plants between 200 kW and 500 kW; 2) 7% for plants between 500 kW and 900 kW; 3) 8% for plants with nominal capacity in excess of 900 kW.
The GSE will automatically apply option c) in the event that plant operators failed to inform their preferred alternative by 30 September 2014. As the Group did not notify its choice, option c) will be applied automatically to the photovoltaic plants. d) Feed-in tariff for solar thermodynamic plants
Ministerial Decree 6/7/2012 (Article 28) implementing Directive 2009/EC/28, extends MD 11/4/2008 “governing the criteria and procedures to promote the production of electricity from solar energy by way of thermodynamic cycles”, which otherwise would have expired in 2013. In addition to the time extension that grants the right to receive incentives to plants that commence activities by 31 December 2015, the financial incentives and access terms were reviewed and improved, thus creating new interest for producers. Ecosesto SpA, a wholly owned subsidiary of Falck Renewables SpA, has constructed a plant that meets these criteria, integrating it into the existing wood-fuelled biomass thermodynamic plant in Rende (CS). The plant was completed in December 2013 and the GSE incentive of Euro 320 per MWh has been confirmed.
Other major events affecting the regulatory framework governing renewable electricity production in 2014
1) Cancellation of Italian Regulatory Authority for Electricity and Gas AEEGSI (formerly AEEG) Resolution 281/2012 and reinstatement of imbalances This resolution introduced for non-programmable sources the transfer of imbalance costs on the difference between electricity actually fed into the grid and scheduled injection plans. The resolution came into force on 1 January 2013. For those plants that inject electricity to the grid under purchase and resale agreements with the GSE, production schedules are prepared and imbalance costs are calculated and transferred by GSE to the producers based on conditions defined by the latter and approved by the AEEGSI in Resolution 493/2012. Numerous appeals were filed against this Resolution by electricity producers and associations of producers. The Lombardy Regional Administrative Court upheld the appeals and ruling 1613/2013, 1614/2013 and 1615/2013 were passed cancelling AEEGSI Resolutions 281/2012 and 493/2012. page 26
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
The AEEGSI appealed to the Council of State which in turn issued orders 3565, 3566, 3567, 3568, stating that the Resolutions cancelled at the first level should remain suspended only in respect of the provisions equating renewable sources to other energy sources while the other provisions, in particular those implemented to guarantee the safety of the electricity system should remain in force. In the meantime the AEEGSI stated (AEEGSI Resolution 462/2013) that pending the Council of State ruling, that the costs introduced by Resolution 281/2012 would be applied commencing 1 October 2013 to producers without application of the exemption (20%), while application of the provisions for the period 1 January to 30 September 2013 would depend on the outcome of the appeal. In its ruling 2936/14 of 9 June 2014, the Council of State cancelled resolutions 281/2012 and 493/2012, thus requiring reimbursement of any amounts paid/received by the operators. This resulted in income for the Group of Euro 2,875 thousand in 2014.
The AEEGSI published Resolution 522/2014 to reintroduce new measures – with effect from 1 January 2015. The new regulation (Resolution AEEGSI 522/2014) is an exact reproduction of the previous version (281/2012), the only differences being that it diversifies the treatment of the various sources (previously treated in the same way) and it has revisited the tolerance levels of programming errors in the injection timetable.
2) Guaranteed Minimum Prices (GMP) for renewable plants up to 1 MW operating under GSE purchase and resale agreements Law 4/2014 (Destinazione Italia) modified the previous regime to exclude, as of 1 January 2014, from the application of GMP, plants that enjoy electricity production incentives, with the exception of very small plants (photovoltaic up to 100 kW and hydroelectric up to 500 kW). The photovoltaic plants of Solar Mesagne Srl and Ecosesto SpA, with a total installed capacity of 3 MW, fall within this category.
3) Capacity remuneration mechanism The Ministry of Economic Development (MED) published the decree approving the terms and conditions of the new capacity remuneration system on 30 June 2014, which offers a sufficient degree of flexibility in services thus guaranteeing the safety of the electricity system without increasing electricity prices and tariffs for customers. The regulations that will impact the electricity network from 2018 impose four conditions on Terna (Italian grid operator for electricity transmission): - The assessment of capacity must take into consideration the positive impact of the development of the network and overseas connections; - The possibility to participate actively in demand; - Encourage the participation of renewable sources with suitable technical requirements to contribute to the flexibility and safety of the system; - The identification of the minimum and maximum values of the reserve premium in order to minimise the cost to the electricity system.
With regard to the transition period 2015-2017, in resolution 320/2014 of 30 June 2014 the AEEGSI has proposed that the MED request Terna to procure the production capacity through options contracts with parties selected by tender.
United Kingdom: regulatory framework in the wind sector
The incentives system for the production of electricity from renewable sources is based almost exclusively on the ROC market (Renewables Obligation Certificate). The ROC market mechanism replaced the “FEED IN TARIFF” system (all-inclusive system covering energy and incentive), the so called NFFO (Non Fossil Fuel Obligation). In England and Wales the previous regime for the sale of electricity generated from renewable sources was regulated under the Electricity Orders (England and Wales) of 1994, 1997 and 1998 (the NFFOEW Orders). In Scotland this regime was governed by the Electricity Orders (Non Fossil Fuel Sources) of 1994, 1997 and 1999 (NFFOS Orders).
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Although the underlying legislation has been repealed, projects which commenced during this regime continue to benefit from these incentives until the expiry of the existing NFFO contracts (fixed price long-term sales contracts) with NFPA (Non Fossil Purchasing Agency). This applies to the Cefn Croes plant as the final NFFO contract matures in 2016. The current renewables’ incentive regime in England and Wales and Scotland is through separate Renewables Obligation Orders (“ROs”). The Renewables Obligation Order 2006 (England and Wales) and the Renewables Obligation (Scotland) Order 2007, respectively impose obligations on electricity suppliers to demonstrate that not less than a stipulated percentage of electricity produced was generated from renewable sources. The Office of Gas and Electricity Markets, OFGEM, issues Renewable Obligations Certificates (“ROCs”) and Scottish Renewable Obligations Certificates (“SROCs”) on behalf of the Gas and Electricity Markets Authority (“GEMA”).
The ROs require electricity suppliers to source an increasing portion of their electricity supply from renewable sources. From 2009 the level of renewable energy is measured by the number of ROCs per MWh of energy supplied and for the period 1 April 2014 to 31 March 2015 the minimum quota each supplier must meet is 0.244 ROCs per MWh of energy distributed. Compliance under the RO scheme is regulated through a certification system using ROCs and SROCs. Renewable energy generators receive ROCs or SROCs for each MWh of electricity generated depending on the technology and source of energy employed. New ROC levels were introduced in late July 2012 in respect of new plants that will enter into service from April 2013. Onshore wind farms that commenced operations after April 2013 will be awarded 0.9 ROCs for each MWh.
ROCs and SROCs are tradable (and can take part in auctions organised by the NFPA), are priced in the market and traded at a premium compared to the market price of a similar quantity of energy (FEED-IN PREMIUM mechanism).
Smaller wind farms connected to the local distribution grid (therefore all of the Group’s wind farms with the exception of Kilbraur and Millennium) are also entitled to receive other incentives. Renewables generating plants are typically connected to the low voltage regional electricity distribution network rather than to the high voltage transmission network operated by the National Grid Electricity Transmission (NGET). Using the distribution network rather than the high voltage transmission network avoids the charges imposed to access the national transmission network TNUoS (Transmission Network Use of System). In order to access the electricity market the generator must enter into a Power Purchase Agreement (PPA) with an electricity supplier which collects electricity generated and sells it directly to the distribution network thus avoiding the requirement to procure electricity through the transmission network. The costs avoided by the supplier (and other costs arising from the current balancing mechanism and losses through the network) are allocated in part to the generating plant and defined Embedded Benefits (benefits arising from inclusion in the distribution network). NGET and Ofgem are currently undertaking an organised consultation process to assist the review of the entire tariff system and determination of Embedded Benefits. The current system will remain in force until at least April 2016 (Ofgem communication).
The Finance Act 2000 introduced the Climate Change Levy (“CCL”) which is a flat rate currently at £4.41 per MWh (£5.41 per MWh for the 2014-2015 financial year), charged on the supply of electricity to non-domestic customers. Eligible renewable generators are entitled to climate change levy exemption certificates (“LECs”). In order to meet the obligations of the Finance Act 2000, suppliers may either purchase LECs from a generator of qualifying renewable energy which can then be submitted to Ofgem or pay the tax directly to Ofgem. Unlike ROCs (and SROCs), LECs are not fully tradable and the supplier must show they relate to a quantity of renewable electricity actually supplied to a specific industrial consumer. The value of LECs depends on both the tax burden on the CCL and the demand-supply balance of LECs. The duration of Climate Change Agreements was extended until 2022/2023 in March 2011 therefore LECs will be recognised commencing April 2023.
The reform of the incentives schemes available to renewable energy producers in the UK is now in the implementation phase and envisages the introduction of:
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Feed-in Tariffs with Contracts for Difference (FiT-CfD) for new plants that under the current system would be eligible for ROCs or SROCs. Under this mechanism renewable energy producers are awarded the difference between the strike price (which reflects an adequate level of remuneration for the cost of investing in the technology employed) and the energy market price (the UK market average price). This incentive period varies depending on the technology used; a transition period will apply between the two incentive regimes during which either of the systems may be adopted. Capacity Market that is designed to guarantee a sufficient level of global investment in programmable generating capacity required to ensure security of electricity supply. The Capacity Market works by providing constant payment to suppliers of reliable sources of capacity in order to ensure supply meets demand; Emission Performance Standard (EPS): limits the level of carbon emissions from new fossil fuel plants. The level introduced will favour stations that are equipped with carbon capture and storage facilities; Carbon Price Floor: sets a floor price for carbon emissions, integrating the European Emission Trading System price in the form of a tax (Carbon Price Support) on fossil fuels used to generate electricity.
No significant changes are expected to be made to the Feed-in Premium currently in place for plants with capacities of less than 5 MW. The reform, which came into effect in 2014 for new plants, envisages a transition period (2014-2017) during which new renewable generators may choose between ROCs (or SROCs) and the new incentive scheme (FiT- CfD). The final date to apply for the ROC scheme may be extended in the case of less mature technologies and particularly sensitive projects.
Spain: regulatory framework in the wind sector
In compliance with Directive 2001/77/EC, Spain established that 29% of gross electricity consumption be produced from renewable energy sources by 2020. The main regulations in Spain comprise the 436/2004 and 661/2007 Royal Decrees. New regulations were approved in July 2010 which do not materially impact the Group’s wind farms falling under the 436/2004 Royal Decree. The 436/2004 Royal Decree established that electricity generated could be sold either at an all-inclusive price (Feed-In Tariff) or under a mechanism comprising a fixed element (or premium) and a variable element based on energy prices in the Spanish electricity market (Feed in Premium-FIP, or Market Option).
The 436/2004 Royal Decree was superseded by the 661/2007 Royal Decree that maintains the feed-in tariff regime and introduces a new variable price regime (Market Option), which is subject to a floor and a cap to ensure wind farm owners are not under or over remunerated. The Group’s wind farms have elected to apply the Market Option established by the 436/2004 Royal Decree.
In 2010 the Spanish Government introduced two extraordinary measures in the electricity generation market for the period 2011-2013:
All electricity generators must pay a tax of Euro 0.5 for each MWh of electricity fed into the network; The incentive for solar plants and wind farms is limited to a maximum number of hours per year with any energy generated over this threshold to be valued at market prices. The threshold for wind energy is 2,589 hours per year but is only applied where in a given year the threshold of the average number of production hours for the entire Spanish wind farm installed capacity is met (currently 2,350).
Royal Decree 1/2012 issued on 27 January 2012 temporarily suspended all economic incentives for the production of electricity from renewable sources in respect of projects not authorised at the date of issue of the decree as Spain has already exceeded the level of installed capacity set out in the plan issued by the Spanish Government. This suspension remained in force until a solution to the system’s tariff deficit was found (Royal Decree 2/2013 detailed below) that defined a new renewable sources remuneration model. In 2012, the Spanish government introduced a 7% tax on electricity production that came into effect in 2013 (Law 15/2012 and Royal Decree 29/2012). Royal Decree 2/2013 (RD 2/2013) introduced urgent measures in respect of the electricity sector that resulted in the review of the incentives tariffs established under RD 661/2007 that had been applied up to this point albeit with the above-mentioned amendments. More specifically, the renewable premium allowed under the “variable
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
tariff regime” (so called FiP or Market Option), adopted by the Group in 2012, was eliminated. This regime entitled the producer to sell electricity independently in the free market and receive an additional premium. Under the new RD 2/2013, plants operating under the FiP are allowed to transfer to the feed-in tariff regime (Feed-in Tariff: FiT), outlined in RD 661/2007, which does not allow the producer to sell to the market but instead assigns a fixed tariff for the market price of electricity plus a premium. Commencing 2013, the Group’s plants transferred from the FiP to the fixed tariff FiT regime. Royal Decree 9/2013 (RD 9/2013) of 12 July 2013, which completes RD 2/2013, introduced new urgent measures to provide financial stability to the electricity market. RD 9/2013 envisages a new remuneration system for existing renewables plants. This reform came into effect on 14 July 2013.
The RD 413/2014 published on 10 June 2014 redefines the system of remuneration incentives for existing plants, providing a contribution compared to market value of a minimum integration of non-recoverable costs arising from the market trading of electricity. The FiT is based on standard operating costs using market averages. The tariff – applicable to new plants – is reduced for existing plants depending on the date they came on stream and consequently the period for which the plant enjoyed benefits under the previous system. Plants that commenced operations prior to 2005 will not be eligible for incentives and will only receive the market price of electricity generated. The Group’s two Spanish plants came on stream in 2003 and 2004 and therefore fall within this category and no longer benefit from any form of incentive and sell electricity generated exclusively at market price.
France: regulatory framework in wind sector
Law 2000-198 of 10 February 2000 regarding the upgrade and development of public services and electricity (and ensuing amendments under the Laws of 3 January 2003 and 15 July 2003 - the French Electricity Law) and Decree 2001-410 of 10 May 2001, require Electricité de France (“EDF”) and local distributors to purchase electricity generated by producers of energy from renewable sources under a 15 year purchase agreement. Subsequent to the amendment of July 2005, the purchase obligation applies to wind farms located within the perimeter of a wind farm development area (zone de development de l’éolien or ZDE).
The conditions governing the purchase of electricity generated by renewable energy plants are set out in the Arrété of 17 November 2008. The Arrété specifies a fixed tariff regime (8.2 Euro c/KWh subject to indexation) for the first 10 years of generation, while the tariff for the last five years of the purchase contract is linked to the volume of energy produced in the first 10 year period. Low-wind sites (less than 2,400 hours of generation per year) will continue to benefit from the same tariff for the full 15 year period, whereas middle and high-wind speed sites will see a decrease in the purchase tariff in the final five years of the contract.
The tariff applicable to a specific wind farm is determined using a coefficient (“k index”) dependent on the year in which the EDF received the full application to enter into the electricity purchase agreement. The k index is reviewed annually in line with a specific formula defined in the Arrété. The tariff, subject to an annual index, is guaranteed for the 15 years following the start of operations. The Group’s plants are located in low wind speed areas.
An appeal was filed with the French Council of State in 2012 contesting the incentives laid down in the Arrété of 17 November 2008 regarding wind farm electricity generation. The appeal claims that the incentives constitute state aid and require the prior approval of the European Commission. The European Court of Justice ruled that the incentives constitute state aid on 11 July 2013; the French Government is currently following authorisation procedures for the tariff with the European Commission in order to validate the existing incentives system. In early June 2014 the French Minister of Energy signed the Arrété that reinstates the incentives system for land based plants that had been repealed by the Council of State at the end of May. The Arrété was published in the Official Journal of the French Republic on 1 July 2014 resulting in a positive conclusion to the administrative matter and rendering effective the tariff for wind farms.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
5.2.3 Performance
5.2.3.1 Application of IFRS 11 The accounting standards used in the preparation of the 2014 Annual Report are in line with those adopted for the preparation of the previous year-end financial statements with the exception of the adoption of IFRS 11 from 1 January 2014 that removes the option to account for jointly controlled entities using proportionate consolidation. Jointly controlled entities2 must be accounted for using the equity method.
The Group companies that will be affected by this change in accounting treatment are Frullo Energia Ambiente Srl (49% interest), Nuevos Parque Eolicos La Muela AIE, Parque Eolico La Carracha Sl, Parque Eolico Plana de Jarreta Sl (26% interests), Palermo Energia Ambiente ScpA in liquidation (23.27% interest) and Vector Cuatro Servicios SL (50% interest). These companies, which were consolidated previously using proportionate consolidation (with the exception of Vector Cuatro Servicios SL, a member of the Vector Cuatro group, which was acquired in September 2014) have been consolidated in the consolidated financial statements using the equity method therefore the financial information at 31 December 2013 has been restated as the standard is applied retroactively as though it had been adopted in 2013. This allows comparison of all financial information disclosed in the report.
The tables below set out the information for 2013 prior to introduction of IFRS 11, the adjustments relating to adoption of the new standard and the restated amounts.
2 Further details are provided in note “6.6.4 Accounting policies, Joint Arrangements - IFRS 11”
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Income statement (Euro thousands) 31.12.2013 31.12.2013 IFRS 11 pre-IFRS 11 post-IFRS 11 Revenue 275.861 (22.064) 253.797
Cost of sales (166.458) 16.116 (150.342)
Gross profit 109.403 (5.948) 103.455
Other income 2.261 60 2.321
Administrative expenses (32.359) 544 (31.815)
Operating profit 79.305 (5.344) 73.961
Finance income/(costs) - net (48.459) 1.051 (47.408)
Investment income 2.088 2.088
Profit before income tax 30.846 (2.205) 28.641
Income tax expense (15.892) 2.205 (13.687)
Profit for the year 14.954 14.954
Loss attributable to non-controlling interests (135) (135)
Profit attributable to owners of the parent company 15.089 15.089
EBITDA (1) 156.848 (11.573) 145.275
(1) EBITDA is defined by the Falck Renewables Group as profit for the period before net investment income/(costs), net finance income/(costs), amortisation and depreciation, impairment, charges to risk provisions and income tax expense.
Balance sheet (Euro thousands) 31.12.2013 31.12.2013 IFRS 11 pre-IFRS 11 post-IFRS 11 Non-current assets 1.137.212 (39.509) 1.097.703
Current assets 300.118 (8.753) 291.365
Total assets 1.437.330 (48.262) 1.389.068
Equity attributable to owners of the parent company 372.305 372.305
Non-controlling interests 6.527 6.527
Total equity 378.832 378.832
Non-current liabilities 878.991 (31.915) 847.076
Current liabilities 179.507 (16.347) 163.160
Total liabilities 1.437.330 (48.262) 1.389.068
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Net financial position (Euro thousands)
31.12.2013 31.12.2013 IFRS 11 pre-IFRS11 post-IFRS11
Short-term third party financial liabilities (64.382) 5.124 (59.258) Short-term Group financial liabilities Short-term third party financial receivables 779 779 Short-term Group financial receivables 25 25 Other securities Cash and cash equivalents 126.982 (6.163) 120.819 Short-term net financial position 63.379 (1.014) 62.365 M/L-term third party financial liabilities (820.209) 29.391 (790.818) M/L-term Group financial liabilities Other securities M/L-term net financial position (820.209) 29.391 (790.818) Net financial position pursuant to Consob circular DEM/6064293/2006 (756.830) 28.377 (728.453) M/L-term third party financial receivables 367 367 M/L-term Group financial receivables Total net financial position (756.830) 28.744 (728.086)
- of which non-recourse financing (723.446) 32.695 (690.751)
The Group results at 31 December 2014, as illustrated below, have fallen compared to 2013, which is mainly attributable to the significant fall in revenue of Euro 5,472 thousand that is principally due to:
(i) With regard to the WtE, biomass and photovoltaic sector, a Euro 1,150 thousand drop in revenue at the Ecosesto biomass plant due to the stoppage for planned maintenance work on the biomass plant and the following events involving the Trezzo sull’Adda WtE plant: The fall, as anticipated by the Group, of average electricity sales prices in Italy, in particular in relation to the avoided cost of fossil fuel component (CIP 6/92); The expiry in August 2014 of the avoided cost incentive relating to 17 MW as established in the agreement with the GSE; The unscheduled stoppage due to a breakdown where from April the plant did not generate electricity but only treated waste: the plant returned to full operating capacity from 16 October 2014; These contributed to a fall in revenue of Euro 9,328 thousand at the Trezzo sull’Adda plant compared to 2013;
(ii) This fall was partially offset by the consolidation of the Vector Cuatro group from 1 October 2014 that contributed Euro 2,041 thousand of revenue in three months and an increase of Euro 3,634 thousand in revenue generated by the wind sector; a number of factors impacted the revenue of this sector as follows: Low wind levels over summer 2014 in all of the areas in which the Group wind farms operate and grid disconnections that gave rise to an overall annual wind power generation of 1,492,000 MWh, a fall on the 1,520,000 MWh generated in 2013. This is despite an increase in installed capacity due page 33
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
to the West Browncastle wind farm entering service ahead of schedule and the Nutberry wind farm operating for a full year in 2014.; The removal of incentives and fall in average electricity prices in Spain that determined a fall in revenue of Euro 2,483 thousand at the Cabezo plant, and a drop in average electricity sales prices in Italy and in pound sterling in the UK; The negative factors above were more than offset by the revision of a number of wind sector power purchase agreements in the UK that guaranteed the Group higher compensation for disconnections forced by grid operators and the strengthening of Sterling against the Euro in 2014 that amounted to 5.4% using the 2014 annual average exchange rates.
(Euro thousands) 31.12.2014 31.12.2013 Revenue 248.325 253.797 Cost of sales (150.044) (150.342) Gross profit 98.281 103.455 Operating profit 70.778 73.961 EBITDA 135.292 145.275 Profit for the year 8.964 14.954 Profit for the year attributable to owners of the parent 3.352 15.089 Invested capital net of provisions 1.137.889 1.106.918 Total equity 499.760 378.832 Net financial position - net indebtedness 638.129 728.086 of which non-recourse financing 673.866 690.751 Capital expenditure 55.913 56.628 Group employees at year-end (no.) 297 224 Ordinary shares (no.) 291.413.891 291.413.891
Revenue in 2014 may be analysed by sector as follows:
(Euro thousands) 2014 % 2013 % Sale of electricity and thermal energy 224.584 90,4 231.292 91,1 Waste treatment and disposal 19.446 7,8 19.287 7,6 Operation and management of renewable power plants 2.069 0,8 Operation and maintenance services 678 0,3 2.820 1,1 Other operating income 1.548 0,6 398 0,2 Total 248.325 100 253.797 100
Electricity generated amounted to 1,694,000 MWh compared to 1,787,000 MWh in 2013. This fall is due to lower production in the wind sector and the stoppage at the Trezzo WtE plant, while waste treated was in line with the previous year (224,620 tons in 2014 compared to 224,630 tons in 2013) as the stoppage did not affect waste treatment.
Gross profit totalled Euro 98,281 thousand, a decrease of Euro 5,174 thousand on 2013 and amounted to 39.6% (2013 – 40.8%) when expressed as a percentage of revenue. Impairment tests carried out on goodwill, intangible assets and property, plant and equipment, identified a number of cases that gave rise to the recognition of impairment losses on the Eolica Cabezo San Roque wind farm for Euro 1,281 thousand and Solar Mesagne Srl photovoltaic plant for Euro 591 thousand. Total impairment amounted to Euro 13,185 thousand in 2013.
Depreciation amounted to Euro 61,720 thousand compared to Euro 58,550 thousand last year, the increase being attributable to the greater installed capacity and the strengthening of Sterling against the Euro.
Other income increased by Euro 7,044 thousand and includes the damages claim relating to the Trezzo WtE plant breakdown, comprising the insurance reimbursement for loss of production income of Euro 3,500
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
thousand net of the Euro 1,548 thousand excess and also reflects the impact of the cancellation of the regulation regarding imbalance costs that had introduced from 2013 for non-programmable sources the transfer of imbalance costs, which has resulted in non-recurring income of Euro 2,875 thousand representing the imbalance costs charged in 2013.
As a result of the above, EBITDA amounted to Euro 135,292 thousand representing a fall of Euro 9,983 thousand compared to 2013 and equalled 54.5% of revenue (2013 – 57.2%): the Group responded effectively to the above issues and the fall in energy prices and EBITDA slightly exceeded the guidance interval (Euro 130- 135 million) communicated to the market in the course of 2014.
Operating profit amounted to Euro 70,778 thousand, a decrease of Euro 3,183 thousand on 2013 and corresponds to 28.5% of revenue (2013 – 29.1%).
The Group’s consolidated income tax expense fell compared to the previous year (- Euro 1,071 thousand). Renewable energy electricity producers in Italy with revenue of Euro 3 million and taxable income of Euro 300,000 are subject to additional IRES (corporation tax or so called Robin Tax) of 6.5%. The Group companies affected by the additional tax in 2014 comprised: Prima Srl, Frullo Energia Ambiente Srl, Eolica Sud Srl, Ecosesto SpA, Geopower Sardegna Srl, Eolo 3W Minervino Murge Srl, Eolica Petralia Srl and Actelios Solar SpA. As detailed below in the note “Significant events after the balance sheet date”, the Italian Constitutional Court ruled on 11 February 2015 that the Robin Tax was unconstitutional. The fall in income tax compared to 2013 is principally due to the lower pre-tax income and was partially offset by the decrease of Euro 600 thousand in deferred income tax assets recorded in the income statement following the Constitutional Court ruling. Future financial periods will benefit from the reduced fiscal burden following this ruling.
As a result of the above factors, profit for the year amounted to Euro 8,964 thousand, equal to 3.6% of revenue. As a result of the non-controlling interests arising from the Borea transaction, involving the sale of a 49% stake in the six UK wind farms, profit for the year attributable to owners of the parent amounted to Euro 3,352 thousand (2013 – Euro 15,089 thousand).
The net financial position, net of the fair value of derivatives3, was a net indebtedness of Euro 560,046 thousand, a decrease on the net indebtedness of Euro 673,813 thousand at 31 December 2013. The fall is largely due to the Borea transaction (detailed below), which resulted in a cash inflow of Euro 186.1 million, net of the subordinated shareholders’ loans underwritten by CII Holdco for Euro 46.7 million, which led to a Euro 139.4 million improvement in the net financial position.
Part of this cash was used for partial repayment of the corporate loan that amounted to approximately Euro 23 million at 31 December 2014 compared to approximately Euro 74 million at the end of 2013, with the remaining cash to be used to finance Group growth over the coming years; the cash position of the Group, not restricted by project financing, amounted to approximately Euro 105 million at 31 December 2014.
Capital expenditure in the period amounted to Euro 55.9 million and dividends paid totalled Euro 17.2 million. Cash flows from operations amounted to approximately Euro 70 million.
The net financial position comprises non-recourse loans (Gross Project Debt) that amounted to Euro 673,866 thousand at 31 December 2014 (2013 – Euro 690,751 thousand).
The net financial position includes net borrowings of Euro 24,213 thousand relating to construction projects that were not revenue generating at 31 December 2014. The net indebtedness, net of these borrowings and the fair value of derivatives would have amounted to Euro 535,833 thousand.
3 The net financial position including the fair value of derivatives amounted to Euro 638,129 thousand at 31 December 2014 (2013 - Euro 728,086 thousand). The overall net indebtedness represents the sum of cash and cash equivalents, current financial assets including available-for-sale securities, financial liabilities, the fair value of financial hedging instruments and other non-current financial assets.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
The net financial position of the project companies (NFP Project) comprising Gross Project Debt, the fair value of derivatives to hedge interest rate exposure on this debt and the liquidity of the financed projects amounted to Euro 648,260 thousand.
Interest rate swaps totalling Euro 532,303 thousand have been entered into to hedge interest rate fluctuations on the Gross Project Debt, corresponding to 79% of the total debt.
Consequently, as a result of the above, the interest rate risk on the net financial position, net of the fair value of derivatives, amounting to Euro 560,046 thousand, is hedged by interest rate swaps, for an amount exceeding 100% of the net indebtedness: this is due to the significant liquidity held following the Borea Transaction.
The ratios illustrated in the table below summarise the breakdown and hedging of the Falck Renewables Group interest rate risk: (Euro thousands) 31.12.2014 Total NFP net of Fair Value of Derivatives 560.046 Total hedged against interest rate fluctuations 602.303 % Hedged/NFP net of derivatives 108%
Total Gross Debt including Fair Value of Derivatives (GD+FVD) 846.322 of which Project Gross Debt + Fair Value of Project Derivatives 751.080 % Project GD including FV Derivatives/(GD+FVD) 89%
Total Gross Debt (GD) 768.415 of which Project Gross Debt (Project GD) 673.866 % Project GD/GD 88%
Project Gross Debt 673.866 Total hedged against interest rate fluctuations 532.303 % Project NFP/NFP 79%
Total Gross Debt (GD) 768.415 Total hedged against interest rate fluctuations 602.303 % Hedged/GD 78%
Total net financial position including Fair Value of Derivatives (NFP) 638.129 of which Project Financing Net Debt (Project NFP) (*) 648.260 % Project NFP/NFP 102% (*) Project NFP = Project Gross Debt + Fair Value of Project Derivatives - Project Liquidity Capital expenditure in the period, which amounted to Euro 55,913 thousand, represents the Group’s financial commitment in relation to wind farms and improvements to operating plants. Capital expenditure in the period principally comprised Euro 15,650 thousand on the construction of the West Browncastle wind farm, Euro 3,230 thousand on the Spaldington wind farm, Euro 5,923 thousand on the Nutberry wind farm, Euro 7,322 thousand on the Kingsburn wind farm, Euro 7,002 thousand on the Assel Valley wind farm and Euro 1,347 thousand on the Auchrobert wind farm. Expenditure on improvements to operating plants in the WtE, biomass and photovoltaic sector comprised Euro 4,459 thousand and Euro 1,081 thousand on the West Bromwich WtE plant. Expenditure on intangible assets comprised Euro 267 thousand for the purchase of software licences and goodwill arising on the acquisition of Vector Cuatro SLU for Euro 8,413 thousand and Verus Oak Energy Ltd for Euro 846 thousand.
Installed capacity, analysed below by technology, increased compared to 2013, as illustrated in the table below.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
(MW) Technology 31 December 2014 31 December 2013 Wind 674,6 644,6 WtE 20,0 20,0 Biomass 15,0 14,0 Photovoltaic 16,1 16,1 Total 725,7 694,7
Reconciliation of equity attributable to owners of the parent and profit for the year
The consolidation reserve includes the differences arising from the elimination of the book value of consolidated investments against the related share of net equity. As a result the other equity headings correspond to the amounts disclosed in the parent company’s financial statements.
The reconciliation of equity attributable to owners of the parent and the profit for the year, as at and for the year ended 31 December 2014, may be summarised as follows:
(Euro thousands) Share capital Profit Equity and reserves for the year attributable to owners of the parent Falck Renewables SpA financial statements 443.272 30.037 473.309 - Difference between adjusted net equity of consolidated entities and carrying value of related investments (184.648) 9.409 (175.239) - Reversal of dividends from consolidated entities 39.387 (39.387) - Reclassification of guarantees issued by the parent company (6.628) (6.628) - Realised profits on sale of assets between Group companies net of depreciation and amortisation (1.712) 128 (1.584) - Investments valued applying equity method 10.423 409 10.832 - Impairment losses recognised on consolidated equity investments 165.199 2.756 167.955 Group consolidated loss for the year and equity attributable to owners of the parent 465.293 3.352 468.645
5.2.4 Non-financial performance indicators
The key non-financial performance indicators are set out below:
Unit of measurement 31.12.2014 31.12.2013 Gross electricity generated MWh 1.694.000 1.787.000 Total waste treated tonn. 224.620 224.630
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
5.2.5 Share price performance
The performance of the Falck Renewables SpA share price, which is listed on the STAR segment, is illustrated below.
The format of communications to shareholders or prospective investors of Falck Renewables SpA is based on constant interaction and does not necessarily follow that of presentations or road shows. Investor relations are in fact principally based on one to one meetings and issuing notices and explanations even by e-mail or through telephone contact. The Company attended 64 meetings with investor or potential investors.
The Company also attends conventions and discussions both regarding financial matters organised by Borsa Italiana, enterprises or financial institutions and concerning changes in the regulatory framework of the renewables sector.
In the course of 2014, in light of the sale of the non-controlling interests in the UK assets and subsequent partnership with the infrastructure fund Copenhagen Infrastructure I K/S (“CII”) and acquisition of the entire shareholding in Vector Cuatro SLU that operates in the services sector, particular attention was paid to market communications regarding the key elements of these transactions. This complemented the usual meetings with the financial community aimed at illustrating the key elements of the Group’s business model, comprising management, development of new projects and strategic positioning.
Particular care is taken by the Company to ensure that all communications are transparent and timely, also through quarterly earnings conference calls. In addition to the website www.falckrenewables.eu, which meets all of the criteria for companies listed on the STAR segment, from 2012 the Company is also active on Twitter with the account @falckrenewables which provides the latest news regarding the Group.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
5.2.6 Performance of business sectors
The Falck Renewables Group operates in the following business sectors:
- The wind sector through Falck Renewables Wind Ltd and its subsidiaries;
- The WtE and waste treatment, biomass and photovoltaic sector;
- The services sector under the helm of Vector Cuatro SLU and its subsidiaries.
This paragraph therefore illustrates the principal results of operations, net assets and financial data of the Group’s sectors, supported by a brief commentary, while the notes to the financial statements report the full results of operations and net assets of the sectors with separate disclosure of the amounts relating to Falck Renewables SpA which are commented on in a separate note.
WtE, biomass and photovoltaic sector
This sector focuses on electricity generated from both renewable sources (biomass and photovoltaic plants) and the treatment of urban waste employing WtE technology.
The strategy has been developed through the management of operating plants and the development of new projects either directly or through joint ventures with leading industrial enterprises.
The key financial highlights of this sector may be summarised as follows: (Euro thousands) 31.12.2014 31.12.2013 Revenue 59.211 70.399 Cost of sales (52.420) (62.010) Gross profit 6.791 8.389 Operating profit/(loss) 5.167 1.909 EBITDA 16.040 24.284 (Loss) for the year (1.732) (2.857) (Loss) attributable to owners of the parent (1.516) (2.811) Intangible assets 3.856 3.478 Property, plant and equipment 112.176 116.659 Net financial position - indebtedness 180.323 178.002 of which non-recourse financing 34.777 37.324 Capital expenditure 6.386 6.641 Employees at the year-end (no.) 84 102
Revenue in the WtE, biomass and photovoltaic sector fell by Euro 11,188 thousand compared to 2013 due to:
The stoppage at the Trezzo sull’Adda WtE plant following the breakdown of the alternator with no electricity being generated from the end of April and revenue arising only on the waste treatment that experienced a slight fall in transfer prices compared to the previous period; The fall, as anticipated by the Group, in average electricity sales prices particularly in relation to the avoided cost of fuel component under CIP 6/92; Expiry of the avoided cost incentive for 17 MW in August 2014 as established in the agreement with GSE; Expiry of the Fusina plant O&M contract that was managed by Ecosesto SpA; Unfavourable weather conditions in respect of photovoltaic plants over the period; The programmed maintenance work at the Rende biomass plant.
The Trezzo sull’Adda WtE plant returned to full operating capacity on 16 October 2014 and an insurance reimbursement of Euro 3,500 thousand was received in December to cover loss of production income. The Group’s excess on this policy was Euro 1,548 thousand.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
The resolution regarding imbalance costs that commencing 2013 had introduced for non-programmable sources the transfer of imbalance costs to energy producers was cancelled. Consequently, the sector results comprise non-recurring income of Euro 178 thousand relating to the imbalance costs charged in 2013.
The above factors contributed to a fall in EBITDA (-Euro 8,244 thousand) to Euro 16,040 thousand: 27.1% when expressed as a percentage of revenue (2013 – 34.5%).
Operating profit amounted to Euro 5,167 thousand, an increase of Euro 3,258 thousand on the amount recorded in 2013. The 2013 result had been impacted by the impairment losses of Euro 10,513 thousand recognised on goodwill and property, plant and equipment and intangibles of this sector. Impairment tests carried out for the purpose of preparing the Annual Report gave rise to an impairment loss of Euro 591 thousand on the Solar Mesagne Srl photovoltaic plant.
The loss for the year is Euro 1,125 thousand lower than the 2013 loss.
The net indebtedness of Euro 180,323 thousand increased compared to the balance at 31 December 2013 (Euro 178,002 thousand), principally due to the increase in the negative fair value of derivatives, the net financial position net of the fair value of derivatives would have amounted to Euro 175,646 thousand (31 December 2013 - Euro 175,716 thousand).
The net financial position also comprises net financial liabilities of Euro 1,950 thousand relating to projects under construction that were not yet revenue generating at 31 December 2014; the net financial position net of this amount and the fair value of derivatives would have amounted to Euro 173,696 thousand.
The net financial position comprises non-recourse borrowings of Euro 34,777 thousand (31 December 2013 – Euro 37,324 thousand) and the fair value of derivatives to hedge interest rate exposure of Euro 4,677 thousand (31 December 2013 – Euro 2,286 thousand).
Capital expenditure in the period amounted to Euro 6,386 thousand and comprise improvements to operating plants for Euro 4,459 thousand, the West Bromwich plant for Euro 1,081 thousand and goodwill on the acquisition of Verus Oak Energy Ltd for Euro 846 thousand.
Wind sector
This sector focuses on electricity production through the construction and management of plants that generate electricity using wind energy.
The key financial information for this sector may be summarised as follows:
(Euro thousands) 31.12.2014 31.12.2013 Revenue 186.976 183.342 Cost of sales (95.938) (88.438) Gross profit 91.038 94.904 Operating profit 80.875 82.524 EBITDA 133.760 132.635 Profit for the period 17.727 21.696 Profit for the period attributable to owners of the parent 11.899 21.788 Intangible assets 89.312 84.160 Property, plant and equipment 853.562 843.640 Net financial position - indebtedness 785.803 871.894 of which non-recourse financing 639.088 653.427 Capital expenditure 40.633 49.245 Employees at the period-end (no.) 36 41
Wind sector revenue increased by Euro 3,634 thousand on the previous year due to a combination of the following factors:
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
(i) Low wind levels over summer 2014 in all of the areas in which the Group wind farms operate and grid disconnections that gave rise to an overall annual wind power generation of 1,492,000 MWh, a fall on the 1,520,000 MWh generated in 2013. This is despite an increase in installed capacity due to the West Browncastle (30MW) wind farm entering service ahead of schedule and the Nutberry wind farm operating for a full year in 2014.; (ii) The removal of incentives and fall in average electricity prices in Spain that determined a fall in revenue of Euro 2,483 thousand at the Cabezo plant, and a drop in average electricity selling prices in Italy and in pound sterling in the UK contributed, other things remaining equal, to a fall in revenue; (iii) The negative factors above were more than offset by the revision of a number of wind sector power purchase agreements in the UK that guaranteed the Group higher compensation for disconnections forced by grid operators and the strengthening of Sterling against the Euro in 2014 that amounted to 5.4% using the 2014 annual average exchange rates.
The increase in installed capacity relating to the Nutberry (15 MW) wind farm, that entered into service at the end of the 2013 third quarter, and the West Browncastle (30 MW) wind farm, which came on stream in early 2014, together with the stronger pound, resulted in higher depreciation and operating expenses that increased cost of sales by Euro 7,500 thousand.
The resolution regarding imbalance costs that commencing 2013 had introduced for non-programmable sources the transfer of imbalance costs to energy producers was cancelled. Consequently, the sector results comprise non-recurring income of Euro 2,697 thousand relating to the imbalance costs charged in 2013.
EBITDA amounted to Euro 133,760 thousand, an increase of Euro 1,125 thousand and equalled 71.5% of revenue (2013 – 72.3%).
Operating profit fell by Euro 1,649 thousand compared to 2013, amounting to 43.3% of revenue (2013 – 45.0%). Operating profit was negatively impacted by the losses recorded following impairment tests carried out on property, plant and equipment of the sector that comprised a loss of Euro 1,281 thousand on the Eolica Cabezo San Roque plant (total losses last year amounted to Euro 2,671 thousand) and an increase of Euro 4,173 thousand in depreciation due to the greater average installed capacity in 2014 compared to 2013 together with the effect of the stronger pound.
Investment income, accounted for using the equity method, fell by Euro 1,379 thousand due to the poorer performance of the La Muela plant in Spain, in which a 26% interest is held, due to the abolition of incentives in Spain.
The above factors contributed to a profit for the year of Euro 17,727 thousand, a fall of Euro 3,969 thousand on 2013.
The net indebtedness amounted to Euro 785,803 thousand, representing a significant decrease of Euro 86,091 thousand compared to the balance at 31 December 2013. This fall is principally attributable to the Borea transaction that resulted in a cash injection of Euro 186.1 million that, net of the subordinated shareholders’ loans of Euro 46.7 million underwritten by CII Holdco, contributed, all other things being equal, to reducing net indebtedness by Euro 139.4 million. Cash generated by operating plants helped finance capital expenditure in the year that amounted to Euro 40,633 thousand and largely related to the Nutberry, Spaldington, West Browncastle, Kingsburn, Assel Valley and Auchrobert UK wind farms. This sector distributed a dividend of approximately Euro 46 million.
The net financial position also comprises net financial liabilities of Euro 22,263 thousand relating to projects under construction that were not yet revenue generating at 31 December 2014; the net financial position net of this amount and the fair value of derivatives would have amounted to Euro 690,965 thousand. The net financial position includes non-recourse financing of Euro 639,088 thousand (31 December 2013 – Euro 653,427 thousand) and the fair value of derivatives to hedge interest rate exposure of Euro 72,575 thousand (31 December 2013 – Euro 49,783 thousand).
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Services sector
This sector comprises the Spanish group Vector Cuatro that was acquired on 15 September 2014 and has been consolidated from October 2014. This sector provides services and manages renewable energy power plants on an international scale. It also offers engineering and consulting services in the development of projects to generate electricity principally using solar and wind energy.
Following the acquisition of the entire share capital on 15 September 2014, Falck Renewables SpA exercises control of the Vector Cuatro group. The consolidated financial statements include all of the operating result for the period 1 October 2014 to 31 December 2014 and the balance sheet amounts commencing 30 September 2014.
The key financial information for this sector, relating only to the third quarter of 2014 and for which there is no comparative data, may be summarised as follows: (Euro thousands) 31.12.2014 Revenue 2.041 Cost of sales (1.691) Gross profit 350 Operating profit 355 EBITDA 407 Profit for the year 249 Profit for the year attributable to owners of the parent 249 Intangible assets 10.262 Property, pland and equipment 794 Net financial position - indebtedness 147 of which non-recourse financing Capital expenditure 8.602 Employees at the year-end (no.) 92
Capital expenditure principally comprises the higher value paid by Falck Renewables SpA compared to the carrying value of assets of Vector Cuatro SLU at the date of acquisition, which amounted to Euro 8,413 thousand.
5.2.7 Review of business in 2014
Borea transaction: sale of 49% of selected UK wind farms
On 17 March 2014 Falck Renewables SpA, Falck Renewables Wind Ltd and some of their UK subsidiaries finalised the transfer (“Agreement”) of 49% of both the share capital and the subordinated shareholders’ loans in the UK project companies operating in the wind sector that own six operating wind farms in the UK with a total installed capacity of 272.8 MW (based on 100%), to the Danish infrastructure fund Copenhagen Infrastructure I K/S (“CII”), managed by Copenhagen Infrastructure Partners K/S (“CIP”).
The Agreement envisaged the sale by Falck Renewables Wind Ltd, Earlsburn Mezzanine Ltd and Falck Renewables Finance Ltd of a 49% minority interest in the share capital and 49% of the subordinated shareholders’ loans in the companies that own the wind farms operating in the UK, namely Ben Aketil Wind Energy Ltd (27.6 MW), Boyndie Wind Energy Ltd (16.65 MW), Cambrian Wind Energy Ltd (58.5 MW), Earlsburn Wind Energy Ltd (37.5 MW), Kilbraur Wind Energy Ltd (67.5 MW) and Millennium Wind Energy Ltd (65.0 MW) (the “Target Companies”) to CII HoldCo Ltd (a UK subsidiary of CII).
Following the sale, Falck Renewables SpA will retain control of the Target Companies and will continue to consolidate them on a line-by-line basis.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
The Enterprise Value at 31 December 2013 of 100% of the Target Companies amounted to approximately GBP 451.2 million (applying the average rate of GBP/Euro 0.8312 this equals approximately Euro 542.9 million): giving an implicit value of each installed MW of approximately Euro 2 million.
The consideration for the sale of 49% of both the investments and the subordinated shareholders’ loans of the Target Companies is approximately GBP 154.7 million (equal to approximately Euro 186.1 million at the spot rate at 17 March 2014). The consideration was paid almost in full in cash on 17 March 2014, with the exception of a small positive adjustment received in early July 2014.
In accordance with IFRS 12, the disclosure requirements in respect of subsidiaries with material non-controlling interests are detailed below: % Registered Currency Share Direct office capital holding Parent company
FRUK Holdings (No.1) Ltd London (UK) GBP 1 51.000 Falck Renewables Finance Ltd Boyndie Wind Energy Ltd Inverness (UK) GBP 100 100.000 Falck Renewables UK Holdings (No.1) Ltd Cambrian Wind Energy Ltd London (UK) GBP 100 100.000 Falck Renewables UK Holdings (No.1) Ltd Earlsburn Wind Energy Ltd Inverness (UK) GBP 100 51.000 Falck Renewables Wind Ltd Ben Aketil Wind Energy Ltd Inverness (UK) GBP 100 51.000 Falck Renewables Wind Ltd Kilbraur Wind Energy Ltd Inverness (UK) GBP 100 51.000 Falck Renewables Wind Ltd Millennium Wind Energy Ltd Inverness (UK) GBP 100 51.000 Falck Renewables Wind Ltd
Key balance sheet data:
(Euro thousands) Non-current Current Total Non-current Current Net financial Profit for the assets assets equity liabilities liabilities position year FRUK Holdings (No.1) Ltd 19.369 12.811 ( 10.087) 18.750 23.517 ( 37.657) 1.274 Boyndie Wind Energy Ltd 13.041 15.691 3.618 10.599 14.514 ( 3.713) 1.599 Cambrian Wind Energy Ltd 37.577 9.082 1.215 19.706 25.737 ( 32.842) 1.338 Earlsburn Wind Energy Ltd 33.644 9.657 330 29.148 12.823 ( 25.193) 5.172 Ben Aketil Wind Energy Ltd 28.992 4.435 ( 3.707) 28.200 8.935 ( 25.439) 869 Kilbraur Wind Energy Ltd 83.661 10.852 1.296 75.127 18.090 ( 79.099) 4.839 Millennium Wind Energy Ltd 74.640 15.398 2.021 70.599 17.418 ( 68.930) 5.446
Key operating data:
(Euro thousands) Revenue Cost of Gross Operating Profit before Profit for the sales profit profit income tax year FRUK Holdings (No.1) Ltd ( 10) 1.023 2.003 Boyndie Wind Energy Ltd 4.243 ( 1.982) 2.261 2.091 1.477 1.158 Cambrian Wind Energy Ltd 13.380 ( 8.383) 4.997 4.354 722 639 Earlsburn Wind Energy Ltd 12.041 ( 4.607) 7.434 7.264 5.809 4.567 Ben Aketil Wind Energy Ltd 7.202 ( 3.728) 3.474 3.304 1.800 1.426 Kilbraur Wind Energy Ltd 23.797 ( 12.607) 11.190 11.020 5.369 4.212 Millennium Wind Energy Ltd 21.832 ( 11.092) 10.741 10.577 5.334 4.195
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Borea transaction: Earn-out and De-risking In addition to the above consideration, the Agreement also envisages a further deferred payment determined comparing actual performance of the wind farms of the Target Companies (in terms of GWh generated) compared to a pre-determined target for the period 2014–2018, to be settled in cash at the end of this period applying an earn-out mechanism capped at GBP 10 million. In the event that the wind farm performance is below the pre-determined target, the Falck Renewables Group is under no obligation to compensate CII HoldCo. As the timeframe for the performance calculation is very long and therefore achievement of the pre-determined target uncertain, the Group has not recorded anything in the Earn-out contract clause.
The Agreement also envisages that CII HoldCo Ltd has the right to a reduction in the transfer price (De-risking) payable in 2021 based on the difference, where negative, between the average annual electricity price in the UK for the period 2014-2020 and GBP 25 per MWh (nominal not adjusted for inflation), multiplied by actual annual production in MWh in the same period for each wind farm involved in the transfer, multiplied by CII Holdco’s interest in each target company for each year of the period under review (capped at 49%, representing the current percentage ownership in each target company) and taking into consideration the time factor applying a discount rate of 10% (“the Formula”). Any amount due will be paid by the Falck Renewables group to CII HoldCo up to the amount of dividends, interest and loan repayments paid by the Target Companies to the Group. The potential price reduction for the Group will therefore be limited to the cash distributable by the Target Companies from 2021.
This price reduction clause will be cancelled with immediate effect in the event that in any year of the period under review CII HoldCo sells its entire stake in the Target Companies to third parties. In the event that the resulting difference is positive, CII HoldCo will not be required to compensate the Falck Renewables Group. The Group has engaged an independent expert to calculate the potential sum payable in relation to the Formula. The advisor performed a number of simulations based on stress scenarios compared to forecast energy curve prices in the UK market from 2015 to 2020, taking into account actual figure for 2014 of £41.85 per MWh, and the resulting valuations in respect of all of the assumed scenarios did not give rise to a price adjustment in favour of CII HoldCo.
Borea transaction: Partnership
The transaction also resulted in a Partnership agreement whereby the parties intend to invest in other European energy projects that will be developed by the Falck Renewables Group capitalising on its extensive multi- technology pipeline. The Partnership includes short-term investments of Euro 100 million by CII HoldCo in previously authorised, or under construction, onshore wind projects in the Falck Renewables portfolio and a further Euro 125 million in other plants in the energy sector as a whole. The diagram below illustrates the structure pre and post Agreement.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Aurora transaction: Acquisition of the Vector Cuatro group
Falck Renewables signed an agreement on 31 July 2014 to acquire the entire share capital of Vector Cuatro SLU and its subsidiaries (the “Vector Cuatro Group”). The Group, which was founded in 2007 by Borja Escalada (manager and 51% shareholder) and other shareholders, with headquarters in Madrid, operates in providing services and managing renewable power plants. It also provides engineering and consulting services in developing projects to generate electricity principally employing solar and wind energy.
This acquisition is part of the new strategy underlying the Business Plan communicated by the Falck Renewables Group that envisages the development of a new services sector to support the Group’s operating companies and offer third party services. Integration of the two businesses that have specialised renewables’ know-how will enable Falck Renewables to accelerate growth of the services sector by acquiring from the outset a management structure strongly focused on growth and development, a wide portfolio of blue chip clients in the renewables sector, both in photovoltaic and wind production, and the skills required to improve the profitability of the Group’s plants.
The Vector Cuatro Group provides Asset Management, Engineering, Transaction & Legal Services through a team of around 90 highly qualified technicians and professionals with extensive experience in the renewables sector (photovoltaic and wind in particular), and currently manages 830 MW of third party clients. The Group mainly operates in Spain, Italy, France and Bulgaria and is already present and continuously developing new markets including, among others, North America, Mexico, Japan and South Africa.
The Vector Cuatro Group recorded revenue of approximately Euro 7.4 million and profit for the year of approximately Euro 1 million in 2013. Total equity amounted to approximately Euro 2.3 million.
The enterprise value of the Vector Cuatro Group was determined as Euro 12 million at 31 July 2014. The purchase price of 100% of the share capital of the Vector Cuatro Group (Equity Value) was paid in cash and calculated based on the net financial position at 31 July 2014 and the change in net working capital at the same date compared to a pre-determined target level. page 45
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
The consideration of Euro 8,417 thousand is to be paid in two tranches: 75% was paid at the share transfer date (Closing) of 15 September 2014 and the remaining 25% of Euro 2,805 thousand will be paid on 30 June 2015. The transaction will have been financed entirely using company funds.
The former shareholders of the Vector Cuatro Group will still be involved in key management roles such as the management of the Vector Cuatro Group’s operations, which will continue to carry out business under the same brand, and in the area of customer relations. The former Vector Cuatro Group shareholders may also hold key roles in the Falck Renewables Group in defining, developing and providing innovative services to the market. The managers of the Vector Cuatro Group will participate in the 2015 – 2018 Long Term Incentive Plan.
Following acquisition of 100% of the shares that took place on 15 September 2014, Falck Renewables SpA exercises control over the Vector Cuatro Group. The consolidated financial statements include the operating results for the period 1.10.2014-31.12.2014 and the balance sheet data from 30 September 2014. The impact on the consolidated financial statements is detailed in the directors’ report in note 5.1.6 Performance of business sectors - Services sector.
In addition to the Borea and Aurora transactions that took place on 17 March 2014 and 15 September 2014 respectively, the alternator of the Trezzo sull’Adda WtE plant broke down on 24 April 2014 that led to a stoppage of 5 months during which no electricity was generated however waste treatment continued which accounts for approximately 50% of total plant revenue. The insurance reimbursement of Euro 3.5 million has already been paid to the Group and covered direct losses sustained (repair of alternator and associated costs) net of the excess of Euro 0.2 million, and damages relating to loss of production income, net of the excess of approximately Euro 1.2 million.
Authorisations to construct the Auchrobert wind farm in Scotland, with a total maximum installed capacity of 36 MW and the Illois wind farm in High Normandy, France, with a total maximum installed capacity of 12 MW were received in April 2014.
A project finance contract of approximately GBP 23 million was signed with Unicredit Bank AG London branch on 30 April 2014 to finance the Nutberry (UK) wind farm with an installed capacity of 15 MW.
Falck Renewables Wind Ltd acquired a 51% interest in the UK company Verus Energy Oak Ltd for Euro 821 thousand on 30 July 2014. This company holds the authorisation to construct and manage a 16.2 MW innovative WtE plant, using fluidised bed gasification technology, in West Bromwich (UK).
Eolica Petralia Srl finalised the debt renegotiation plan for the Petralia Sottana wind farm in late December 2014. UBI Banca ScpA, Banca Popolare dell'Emilia Romagna Soc. Coop. and Banca Popolare di Milano Scarl, underwrote in equal parts the refinancing through project financing for a total of approximately Euro 24,000,000 with a 12.5 year maturity. The refinancing improved the project’s financial leverage and facilitated a more than 3% reduction in annual project financing costs: this will contribute to a marked improvement in shareholder profitability and significant savings in finance costs commencing 2015 and over the full contract term.
5.2.8 Employees
The number of Group employees at the year-end was 297 and comprised:
(Number) 31.12.2014 31.12.2013 Change Managers 35 27 8 White-collar staff 216 138 78 Blue-collar staff 46 59 (13) Total employees in consolidated entities 297 224 73
The increase is principally due to the acquisition of the Spanish group Vector Cuatro SLU that accounted for 92 new employees. This increase was partially offset by the decrease attributable to the 19 employees that page 46
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
managed the Fusina (VE) plant who, in accordance with contractual obligations with the owner, were transferred under the direct employment of the plant owner following cessation of the O&M contract.
5.2.9 Environment, health and safety
During the year the Group continued its commitment to meet adequate environmental, safety and quality standards that are consistent with its mission statement, through:
- Developing greater integration of company management procedures relating to quality, environment and safety, by capitalising on synergies in these areas;
- Periodic training of employees in relation to health and safety in the workplace and increasing awareness regarding the protection and safeguarding of the environment while carrying out their work.
Periodic inspections continued on the Group companies’ Certified Management Systems by the competent certifying bodies. The Quality and Safety Standard certification awarded in respect of Ecosesto’s O&M activities at the Fusina WtE plant was relinquished following the owner’s decision to proceed with the definitive closure of the plant in the first half of 2014. The parent company and the principal Group subsidiaries operating in the WtE, biomass and photovoltaic sector had the following systems in place:
Company Management system Location Falck Renewables SpA Quality management system UNI EN ISO 9001:2008 – Headquarters for services provided to Group companies: human resources, administration and finance, procurement, quality, environment and safety management.
Environmental management system UNI EN ISO 14001:2004
Safety management system OHSAS 18001-2007
Certificate of Excellence (quality, environment and safety)
Ecosesto SpA Quality management system UNI EN ISO 9001:2008 – Headquarters – Rende biomass plant Environmental management system UNI EN ISO 14001:2004 – Rende biomass plant
Safety management system OHSAS 18001-2007 – Rende biomass plant Safety management system OHSAS 18001-2007: – Fusina WtE plant relinquished following cessation of activities and (activities ceased and plant closure plant closed) – Fusina WtE plant Quality management system UNI EN ISO (activities ceased and 9001:2008: relinquished following cessation of plant closed) activities and plant closure
Ambiente 2000 Srl Quality management system UNI EN ISO 9001:2008 – Trezzo sull’Adda WtE plant Environmental management system UNI EN ISO 14001:2004
Safety management system OHSAS 18001-2007
Certificate of Excellence (Quality, Environment and Safety)
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Prima Srl Quality management system UNI EN ISO 9001:2008 – Trezzo sull’Adda WtE plant Environmental management system UNI EN ISO 14001:2004
EMAS registration Esposito Servizi Quality management system UNI EN ISO 9001:2008 – Gorle plant : Ecologici Srl a) treatment and recovery of non- hazardous waste principally from street sweeping and land reclamation b) selection and adjustment of volume of non-hazardous waste
– Waste collection and
transport
Environmental management system UNI EN ISO
14001:2004 – Gorle plant: sections a) EMAS registration and b)
– Gorle plant: sections a) and b)
The wind sector companies are equipped with an organic quality, environment and safety system and, more specifically, Eolica Sud Srl and Eolo 3W Minervino Murge Srl in Italy are certified under UNI EN ISO 14001:2004 with Eolo 3W Minervino Murge also holding an EMAS registration. With regard to accidents in the parent company and the companies in the WtE, biomass and photovoltaic sector, 3 accidents involving employees took place in 2014 (including 1 in course). Consequently, the total accident frequency rate for 2014 was 9.47, while the criticality rate was of 0.12, an improvement on last year. No accidents involving employees of the wind sector were recorded during the period. No accidents involving employees occurred in the overseas wind sector companies.
5.2.10 Research and development activities
The Falck Renewables Group did not carry out any research and development activities in 2014.
5.2.11 Risks and uncertainties
The principal risks and uncertainties facing the Falck Renewables Group are analysed by nature below. In 2014, the Falck Renewables Group pursued the Risk Management project launched last year with the aim of applying the methods and processes required for an organic approach to risk management. The main activities carried out comprised: i) definition of the methods used to identify and monitor the Group’s risk appetite; ii) analysis of the risks inherent in forecast data; iii) sharing results of the Risk Assessment analysis (and subsequent updates) with Group management; iv) analyses to support Group management in strategic decision making involving the Group’s growth and development.
a) Financial
1. Credit risk page 48
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Credit risk represents both potential losses from non-settlement of receivables and the counterparty risk intrinsic in the negotiation of other financial assets. The credit risk exposure of the Falck Renewables Group is very limited in respect of both commercial customers and financial counterparties. Commercial customers present a low risk due to their nature: the majority of amounts due from third parties (not related parties) is owed by reputable electricity or utility networks. The degree of concentration of customers is medium-high, however they have a high credit rating. The credit risk attributable to the counterparties with which the derivative financial instruments are negotiated is also contained as the derivatives are negotiated with leading financial institutions. With regard to the Group’s liquidity position, the liquidity restricted under project financing is deposited with one of the project financing lending institutions, while the liquid assets not subject to project financing restrictions are normally placed on short-term deposit with Italian banks. The recent acquisition of the Spanish group Vector Cuatro, despite having a widespread third party customer base, has not altered the Group’s credit risk profile. The Group does not enter into instruments or guarantees to mitigate credit risk.
2. Liquidity risk
The Falck Renewables Group has a Group treasury department that employs two cash pooling systems: A “domestic” system between Falck Renewables SpA and all of the Italian Group companies that do not have project financing (those with project financing may not use the system as they are bound by the liquidity management and net indebtedness covenants); A cross-border system between Falck Renewables SpA and Falck Renewables Wind Ltd.
The Group also carries out netting of opposing balances through the use of specific intercompany correspondence accounts. The Falck Renewables Group prepares a monthly updated cash flow statement and cash budget, in which the actual data for the period are supported by a summary evaluation and commentary. Falck Renewables SpA entered into a loan agreement for Euro 165 million (Corporate Loan) on 14 January 2011 that is subject, inter alia, to financial covenants on the ratio of “EBITDA to net financial position” and “net financial position to total equity”, disclosed in the consolidated financial statements. Subsequent to the Borea transaction this loan was reduced to Euro 82.5 million following prior approval by the lenders and approximately Euro 23 million had been drawn down at 31 December 2014. The covenants had been met in full at 31 December 2014. The Corporate Loan is to be repaid at the maturity of 30 June 2015. The Group held cash and cash equivalents of Euro 104.8 million at 31 December 2014 that were not subject to project financing restrictions. The Group has not excluded the possibility of negotiating a new corporate loan reflecting current market conditions with the aim of providing sufficient credit facilities to aid development.
The Spanish group Vector Cuatro, acquired on 15 September 2014, does not present liquidity risks as it is currently financially independent having secured specific bank lines of credit and taking into consideration the low net indebtedness of Euro 147 thousand at 31 December 2014.
3. Plant financing
The Group finances its projects, particularly in the wind sector, principally through project financing and in the majority of cases while waiting to receive the related financing it avails of the Corporate Loan or other bridging loans during the construction phase. The Group still continues to have access to this financing at economic conditions and within a timeframe that satisfy current market conditions, and construction and performance specifications of the financed projects. The Borea transaction finalised on 17 March 2014 contributed to a significant improvement in the Group’s net financial position and has provided greater access to financial resources to finance future investment.
With regard to the operating plants, the Group carefully monitors, particularly now that commencing July 2013 certain incentives have been abolished, the project financing situation of the Cabezo San Roque (23 MW) wind farm in Spain that has nominal gross borrowings of Euro 6,376 thousand (net of the negative fair value of derivatives to hedge interest rate fluctuations amounting to Euro 537 thousand) and liquidity of Euro 5,488 thousand: all of the principal and interest instalments were settled on time up to 31 December 2014. Given the
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situation surrounding the Spanish electricity market, while the financing is not in default at 31 December 2014 it could reach a critical level in the course of 2015, however any difficulties arising should be easily managed given the modest net exposure of the lending banks amounting to Euro 888 thousand.
With regard to the project financing of the La Carracha and Plana de Jarreta (“La Muela”) wind farms, the Group, which holds 26% interests (total 26 MW) that are consolidated using the equity method, together with the majority holder that holds 74%, are carrying out analyses with the lending banks aimed at finding a solution as following cancellation of incentives following recent changes in legislation with effect from July 2013, in conjunction with the significant level of bank borrowings (contrary to the Cabezo San Roque plant), the current debt repayment schedule is not consistent with the project’s lower forecast operating cash flows: the Group has fully written off both the carrying value of the investment of Euro 1,592 thousand and the financial receivables due from the company of Euro 766 thousand.
4. Market risks
The Falck Renewables Group manages interest rate risk centrally. Although it does not define in advance the maximum variable rate debt exposure, it follows well-established procedures aimed at monitoring risk and that avoid undertaking transactions of a speculative nature: in this regard, the Group has implemented specific financial risk policy. The type and suitability of hedging instruments is evaluated for each specific case in consideration of the amount of exposure and current financial market conditions. The Falck Renewables Group uses derivative financial instruments to hedge interest rates and in particular enters into interest rate swaps (IRS) with the exclusive aim of hedging. Moreover, the derivatives held at the year-end were acquired in order to allow the debt structure to meet the covenants determined by the financial institutions in relation to project financing. In particular, borrowings at variable rates for these contracts are matched with opposing IRS that partially convert the borrowings from variable to fixed rates. Although these operations are entered into to hedge interest rate risk, hedge accounting is not applied to all of these derivative financial instruments. Consequently, changes in the fair value of these derivatives follow the general rule applied to trading derivatives and are charged directly to profit or loss with a direct impact on profit for the period. The entire net debt was hedged against interest rate fluctuations through IRS at 31 December 2014.
Foreign exchange risk arises on the Group’s operations outside the Euro zone (principally in the UK and to a lesser extent in Japan, Canada, Bulgaria and Mexico following acquisition of Vector Cuatro). The Group’s exposure to exchange rates is twofold: transaction and translation risk, both of which impact the Group’s income statement and balance sheet. Transaction risk derives from the fluctuation in exchange rates between the date of the commercial/financial transaction and the settlement date (receipt/payment). This risk, which has a direct impact on the result for the period, is determined for the accounting currency of each Group company.
Translation risk represents the overall impact of exchange rate fluctuations on the Group’s income statement and consolidated equity of translating assets, liabilities, revenue and costs of consolidated entities that prepare financial statements in a currency other than the Euro.
The Group’s foreign exchange risk management policy, in line with the financial instruments management policy, involves monitoring the foreign exchange balance to identify exposure and stipulate currency forward contracts where necessary. Currency forward transactions are entered into as new intercompany balances arise in order to maintain the Company and the Group’s foreign exchange balance. The Group mitigates foreign exchange risk on intercompany financial receivables and payables in currencies other than the functional currency through plain vanilla transactions, such as forward currency purchase/sale contracts. Falck Renewables SpA hedges exchange rate risk on its GBP financial receivables due from Falck Renewables Wind Ltd that in turn hedges the financial liability in Euro due to the parent company Falck Renewables SpA.
These same hedging transactions may be used for significant asset and services purchase contracts in foreign currencies.
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b) Legal
Sicily projects (integrated projects for the management and WtE treatment of waste in Sicily)
The key events, updated for the period 1 January 2014 to 31 December 2014 and events after the balance sheet date are summarised below.
Brief summary of events regarding the Sicily Projects
The Commissioner appointed to deal with the emergency waste situation in Sicily published calls for tenders on 9 August 2002 that were awarded on 2 May 2003 to enter into conventions with a maximum 20 year duration, for the utilisation of the residual fraction of municipal waste, net of recycled waste, generated in the territory of the Sicily Region pursuant to article 4 of O.P.C.M. 2983 (subsequently replaced by article 5 of Ordinance 3190/02), with industrial operators that were able to treat the residual fraction of waste and recover energy through its use in dedicated WtE plants or industrial plants under their ownership; also in May 2003 the special- purpose entities Platani Energia Ambiente ScpA (“Platani”) and Tifeo Energia Ambiente ScpA (“Tifeo”), hereinafter the “Sicily Companies”, and Palermo Energia Ambiente P.E.A. - ScpA (“Pea”), currently in liquidation together with Elettroambiente SpA the holding company of Tifeo and Platani, were incorporated. On 17 June 2003 each project company entered into a convention with the President of the Sicily Region (at that time the Commissioner appointed by the Italian Government to tackle the emergency waste situation). Also in 2003, Enel entered into an agreement with Italgest Energia SpA (“Italgest”) for the sale of Elettroambiente (the holding company of Platani and Tifeo), and further to this Falck and Italgest executed an agreement on 5 August 2003 for the sale of Elettroambiente to Actelios SpA (now Falck Renewables SpA). This provides a brief outline of how the Company came to operate in Sicily from 2003 through the three project companies, Pea (23.27% stake), Platani (previously an 85.73% stake increased to 86.77% from 13 June 2011, held through Elettroambiente and subject to direction and coordination activities by the Company) and Tifeo (previously a 95.62% stake increased to 96.35% from 13 June 2011, held through Elettroambiente and subject to direction and coordination activities by the Company), which were incorporated to construct and operate the Integrated Systems for waste management in Sicily after recycling. Relations with the Sicily Regional Administration were developed over a long period (from 2002 to September 2009), during which time numerous significant events occurred. A defining event in this period was the publication of a ruling in July 2007 by the European Court of Justice whereby it found the Italian Republic had failed to fulfil its publicity obligations regarding tenders in line with European Community regulations (Directive 92/50/EEC), as the Commissioner for Waste Emergency and Water Protection in Sicily having treated the tenders as service concessions (and not public service contracts) had called for tenders in 2002 (subsequent to which the Conventions of June 2003 were drawn up between the Sicily Regional Administration and the Sicily Companies and Pea, singly the “Convention” and jointly the “Conventions”) without publishing the call for tenders in the Official Journal of the European Union. Publication of this ruling forced the Regional Department for Waste and Water (“ARRA”), having replaced the Commissioner pursuant to publication of the Presidential Decree of the Sicily Region dated 28 February 2006, to act upon the ruling in order to avoid penalties being raised against the Italian Republic. It was also essential to avoid interruptions in executing the Conventions in order not to compromise the work being carried out to resolve the emergency waste situation. Consequently, in March 2008 ARRA invited the Sicily Companies and Pea to sign agreements, which were entered into in April 2009 (“2009 Agreements” or “2009 Agreement”), that outlined the conditions for the mutual termination of the Conventions and also new calls for tenders in line with European regulations were published in respect of the Sicily Projects. No bids were submitted following which the Sicily Companies and Pea did not take part in the negotiated procedures called by ARRA as the terms established by ARRA therein did not meet the financial terms of the original projects as expressly required in the 2009 Agreements.
2009 - ARRA: declaration of termination and damages claim due to breach of contract
Following the decision of the Sicily Companies and Pea not to take part in the negotiated procedures, ARRA issued Decrees 339, 340 and 341 in September 2009, whereby it terminated the Conventions and the 2009 Agreements claiming breach of obligations by the Sicily Companies and Pea, and requested Zurich Insurance to page 51
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
enforce the guarantees issued as security of the performance of the obligations of the Sicily Companies and Pea under the Conventions. The Decrees were challenged in administrative proceedings brought by the Sicily Companies and Pea4. Civil proceedings were also brought before the Civil Court in Milan whereby the Sicily Companies and Pea5 questioned the legitimacy of execution of the guarantees and the alleged breach of the obligations under the Conventions and 2009 Agreements and requested that ARRA be ordered to comply with the 2009 Agreements and compensate for damages. As noted above the Sicily Companies and Pea underlined that the conditions established by ARRA in publishing the negotiated procedures did not ensure that the financial terms of the original projects would be met and on this basis they maintained they were not required to take part in the negotiated procedures and had not therefore breached the obligations of the 2009 Agreements. The 2009 Agreements established that the companies’ requirement to take part in the negotiated procedures was on condition that these were “carried out based on tariffs and operating conditions (…) that preserved the financial viability of the current project”. In order to support this claim, as part of the civil and administrative proceedings, the Sicily Companies and Pea submitted an independent expert opinion (issued by professor Mario Massari of the Bocconi University in Milan), also requesting as part of the civil proceedings a court-appointed expert to assess the conclusions drawn in the expert opinion and confirm the costs incurred to date on the projects. Moreover, an appeal was filed pursuant to article 700 of the Italian code of civil procedure (c.p.c.) aimed at prohibiting enforcement of the above-mentioned performance guarantees.
2010 – Civil Court of Milan: article 700 of the code of civil procedure (c.p.c.), admits appeals of Tifeo, Platani and Pea
In the orders issued pursuant to article 700 c.p.c., the Civil Court of Milan admitted the appeals filed by the Sicily Companies and Pea on 20 January 2010 and prohibited ARRA from enforcing the performance guarantees. The orders were not challenged by ARRA; with regard to the Court opinion, given the existence of the factual and legal grounds and the danger in delay, it declared that the breach of the Sicily Companies and Pea assumed by ARRA as the grounds for cancelling the Conventions and 2009 Agreements was “prima facie contradicted by ARRA” in the 2009 Agreement. Moreover, in defining the proceedings pursuant to article 700, the Court rejected the claim for lack of jurisdiction brought by the Regional Administration declaring the legal jurisdiction to be correct as the headquarters of Zurich, which had joined the proceedings, were in Milan and that the case had been correctly filed before the ordinary courts. With regard to the above orders, as part of the summary enforcement it states that the Sicily Companies and Pea “are currently creditors” of ARRA “to the sum of (supported by documentary evidence) more than four times (double for Platani) the amount covered by guarantee, in respect of costs incurred on the projects up to 30 September 2009, as certified by an independent advisor appointed under the 2009 Agreement”. On 16 February 2010, the Sicily Region’s Department for Energy and Public utilities (the “Department”), replacing ARRA by law, joined the proceedings seeking rejection of the measures sought by the Sicily Companies and Pea and asking the Court to order the Sicily Companies and Pea to compensate for damages suffered as a result of the alleged breach of the Conventions and the 2009 Agreements (quantified as follows: Tifeo, Euro 36,656,997.65; Platani, Euro 12,898,471.19; Pea, Euro 60,685,999.31). In May 2010, the Sicily Companies and Pea - in light of events that occurred in the intervening period (i.e. publication of Regional Law 9 of 2010 and the proceedings initiated by the Department pursuant to article 7 and ff. of Law 241/1990 in order to invalidate the 2002 bid procedures and all related acts) resulting in the impossibility to proceed with the Sicily Projects – modified their petition for specific performance of contract by ARRA (now the Department) in respect of the 2009 Agreements, to a claim for termination of the above agreements due to the actions and default of ARRA, requesting the Department be ordered to pay damages resulting from ARRA’s breach of the Conventions and 2009 Agreements. The industrial operators sought compensation for damages suffered in respect of both pecuniary loss (quantified as follows: Tifeo, Euro 55,745,013; Platani, Euro 37,676,745; Pea, Euro 49,555,742 – of which the Company share is Euro 11,531,621.16) and loss of profit (quantified as follows: Tifeo, Euro 94,100,000; Platani, Euro 47,800,000; Pea,
4 The challenges were also brought by Falck Renewables SpS and Elettroambiente SpA (currently in liquidation) for the respective amounts. 5 The civil proceedings in conjunction with the appeal under ex article 700 c.p.c. were also brought by Falck RenewablesSpA and Elettroambiente SpA (in liquidation) for the respective amounts. page 52
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Euro 88,800,000 – of which the Company share is Euro 20,663,760). Following the change in petition and acknowledging the petitions filed by the Sicily Companies and Pea, it was requested that the shareholders of the parties to the 2009 Agreements be summoned to join the civil proceedings in February 2011.
2010 – Criminal investigation
As notified to the public on 12 May 2010, all of the documentation in respect of the invitation to tender in 2002 was handed over to the Italian Finance Police in relation to a criminal investigation carried out by the Palermo Public Prosecutor’s Office involving undisclosed parties.
March 2011 – 2011 Annual Report: de-recognition and impairment of Pea due to risk of dissolution
In the 2011 Annual Report, the interest in Pea was deconsolidated and an impairment loss recognised against the carrying value of the investment as the 2010 and 2011 financial statements had not been prepared or approved following a dispute with a shareholder. In the event that an agreement could not have been reached with the shareholder Amia SpA (Amia) regarding approval of Pea’s third liquidation accounts, it is highly likely the company would have been dissolved pursuant to article 2490 of the Italian Civil Code. This would have prevented Pea from continuing the dispute with the Sicily Region’s Department for Energy and Public Utilities. In light of this situation, which only involved Pea and not the disputes between Tifeo and Platani and the Department, for the purpose of preparing the 2011 Annual Report, as risks and uncertainties existed regarding the governance of Pea that modified the likelihood of recoverability and presented the risk of dissolution, Falck Renewables SpA deconsolidated the investment in Pea and recognised an impairment loss against the related carrying value, and all of the receivables (trade and financial) due from the latter6.
July 2011 – Sicily Region: notification of invalidating decree
On 14 July 2011 (almost one year after its publication) the Department notified the Sicily Companies and Pea of Decree 548/Gab of 22 September 2010 issued by the Department and the President of the Sicily Region, whereby the 2002 bid was declared null and void7 and all subsequent and related contracts, acts and measures adopted to implement the said bid procedure were cancelled in self-defence, namely the Conventions and 2009 Agreements. This is in light of, inter alia, the i) the alleged “intersezione soggettiva” between a number of associated companies, ii) the alleged absence of any geographical overlap in the responses to the tender and iii) the outcome in 2005 regarding the infiltration of organised crime in the groups that participated in the bid, and iv) the rulings issued by the European Court of Justice on 18 July 2007. An objection against Decree 548 of 2010 was brought before the Palermo Regional Administrative Court through notification of an appeal for additional grounds on 3 October 2011, as part of proceedings previously filed whereby the companies requested that the Decree be declared invalid.
July 2012 – Civil Court of Milan: civil proceedings suspended
In the ruling made on 20 July 2012 the Civil Court of Milan suspended the civil proceedings pursuant to article 295 c.p.c. until sentencing has been made in respect of the administrative proceedings, as the question regarding the validity of Decree 548 of 2010 (although notified and filed late) has legal relevance as a pre-condition of the civil proceedings. An objection against these rulings was brought before the Joint Divisions of the Italian Supreme Court by the Sicily Companies and Pea on 23 September 2012 with recourse to rule on the applicable jurisdiction pursuant to articles 41 and 42 of the c.p.c. whereby the Supreme Court was requested to (i) withdraw and in any event amend the suspension rulings issued by the Court of Milan and (ii) declare the exclusive jurisdiction of the
6 The risk of Pea being dissolved no longer exists as an agreement was reached between the shareholders on 28 June 2013 allowing the presentation of the financial statements for 2010, 2011 and 2012 by the liquidators and approval by the shareholders. 7 This decree was published, as confirmed in section 7 of the report accompanying the Sicily Regional Council’s resolution 63 of 18 March 2010, to “avoid the risk of the Sicily Region being ordered to pay damages as part of the legal proceedings”.
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ordinary courts regarding the ruling on the claims brought forward in the administrative proceedings (the “First Recourse”) 8.
January and February 2013: top management called by the Italian Finance Police by order of the Palermo public prosecutor to provide preliminary information
Subsequent to this request, on the proposal of the Chief Executive Officer and Chief Financial Officer, and the Corporate Accounting Documents officer, on 28 February 2013 the board of directors of Falck Renewables decided to postpone approval of the 2012 Annual Report in order to investigate this matter that took place prior to the appointment of the current management team, commencing with the public tender process in 2002 to award the Conventions that culminated in (i) civil proceedings with the Sicily Region, suspended pending ruling by the Supreme Court, (ii) administrative proceedings before the Palermo TAR and (iii) the magistrate’s investigation into the above tender in 2002 for the construction of integrated waste management systems in Sicily.
April 2013: separate notification of recourse to jurisdiction pursuant to article 41 (the Second Recourse) Having acknowledged as part of the First Recourse, the concurring conclusions of the Public Prosecutor of the Supreme Court, who confirmed the ordinary court jurisdiction, stating that “the matter wrongly considered to be preliminary does in fact relate to the solution of a potential conflict regarding the choice of jurisdiction”, the Sicily Companies and Pea, in order to protect unequivocally their positions, filed a separate jurisdiction claim with the Palermo TAR pursuant to article 41 (the “Second Recourse”) in relation to pending administrative claims9.
10 May 2013: Palermo TAR (first instance ruling): dismissed Sicily Companies and Pea challenge regarding the validity of the invalidating decree
With regard to the administrative proceedings, the Palermo TAR filed its rulings on 10 May 2013, dismissing the claims brought by the company against Decree 548 of 2010 and Decrees 339, 340 and 341 of 2009. The grounds for these rulings were filed on 30 May 2013. Separate appeals were filed with the Administrative Justice Council of the Sicily Region against the Palermo TAR rulings as notified on 27 July 2013.
21 May 2013 – approval of 2012 Annual Report
Following the above-mentioned request to meet with the Palermo public prosecutor in January/February 2013, the liquidators of Tifeo, Platani and Pea and the Chief Executive Officer of Elettroambiente were informed and also decided to postpone filing of the interim liquidation accounts and financial statements (in the case of Elettroambiente) in order to investigate the above matter further and ensure that all parties involved receive an objective assessment of the situation in light of recent events. The investigation was carried out with the assistance of an independent specialist (the “Advisor”) who issued a report (the “Report”) presenting the findings to the relevant corporate bodies and legal advisors involved in the Sicily litigation. On the basis of the analyses performed, the legal advisors agree that the information contained in the tender documentation and on the Sicily Projects in general (from 1999 - 2009) that was reviewed as part of the internal investigation carried out by the Advisor (as documented in the Report) further the complexity and uncertainty surrounding the dispute between Tifeo, Platani and Pea (as well as Falck SpA, Falck Renewables SpA and Elettroambiente) on one side and the Sicily Region on the other. Recent events have altered the risk profile of the companies involved in the litigation and no longer support the conclusions drawn in previous opinions and more generally do not allow a reliable estimate of the outcome and duration of the dispute (that will in any case be considerably longer than originally estimated).
8 The First Recourse was also brought by Falck Renewables SpA and Elettroambiente SpA (in liquidation) for the respective amounts. 9 The Second Recourse was also brought by Falck Renewables SpA and Elettroambiente SpA (in liquidation) for the respective amounts. page 54
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Given the outcome of the investigation and independent legal opinion, the liquidators of Tifeo and Platani10 (in liquidation) notified their intention, for the purpose of preparing the interim liquidation accounts that were approved at the AGM, to write-down non-current assets comprising land, assets under construction in respect of the WtE projects and a guarantee deposit through a “charge to the sundry risks provision” that was classified in the financial statements as a “write-down of non-current assets”. The directors of the parent company Falck Renewables SpA agreed with the liquidators’ decision and adjusted the consolidated financial statements to recognise an impairment loss of Euro 29,297 thousand against the total goodwill of the Tifeo and Platani projects and Euro 444 thousand on land owned by Tifeo. These losses are in addition to the above “charge to the sundry risks provision for the write-down of non-current assets” that amounted to Euro 70,946 thousand in the 2012 consolidated financial statements and comprised write-downs of: Euro 65,192 thousand on non-current assets under construction; a write-down of Euro 5,198 thousand on land and a write-down of Euro 556 thousand on non-current guarantee deposits. Assets under construction and guarantee deposits were written off in full while land was written down to Euro 1,772 thousand representing the recoverable amount. The impact on consolidated operating profit in 2012 of the above write-downs and impairment losses totalled Euro 100,687 thousand. Also in the 2012 consolidated financial statements, with regard to Palermo Energia Ambiente ScpA (in liquidation), the existing sundry risks provision, set up at 31 December 2011, was increased by Euro 3,222 thousand, trade and financial receivables due to the Group were written down by Euro 360 thousand and other minor write-downs totalled Euro 140 thousand. The total impact of the above negative adjustments on 2012 consolidated profit before income tax was Euro 104,409 thousand. Deferred tax assets were not recorded in the consolidated financial statements in respect of the “charge to the sundry risks provision for write-down of non-current assets” as they would only be recoverable (i) as part of the Group consolidated taxation regime, (ii) where the Group has sufficient taxable income and (iii) when the conditions arise that result in the asset becoming deductible, in this case once the disputes have been settled, which is not foreseeable at present given the complexity of these cases. With regard to Falck Renewables SpA’s 2012 separate financial statements, the directors decided to recognise an impairment loss on the investment in Elettroambiente and financial receivables due from it and amounts due from Tifeo and Platani resulting in a charge of Euro 118,283 thousand to the sundry risks provision in respect of Elettroambiente.
24 May 2013: First Recourse - Joint Divisions of the Italian Supreme Court admit the claims of the Sicily Companies and Pea to continue civil proceedings
In the rulings of 24 May 2013, the Joint Divisions of the Italian Supreme Court dismissed the suspension rulings issued pursuant to article 295 of the c.p.c. by the Civil Court of Milan, thus allowing the proceedings brought before the Civil Court of Milan to continue. In the application to reinstate proceedings pursuant to article 125 implementing procedures of the c.p.c. notified on 27 September 2013, the Sicily Companies and Pea resumed proceedings before the Court of Milan.
11 December 2013: Administrative Justice Council of the Sicily Region, administrative appeal hearing: pending decision
The Department joined the above appeal proceedings before the Administrative Justice Council of the Sicily Region (the Council) on 14 September 2013, requesting dismissal of the claims brought forward by the companies and full reinstatement of Decree 548 of 2010; the Department also insisted that all tender documents and agreements negotiated subsequent to the tender, namely the Conventions and the 2009 Agreements be declared null and void at the outset, representing cancellation in self-defence. The Sicily Region’s Administrative Justice Council postponed sentencing at the hearing that took place on 11 December 2013.
2014 and events after the balance sheet date: the civil proceedings continue
10 An impairment loss had already been recognised against the carrying value of the investment in Pea in the 2011 Annual Report due to the risk of dissolution described above. page 55
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Supreme Court With regard to the Second Recourse brought before the Supreme Court by the companies, following several postponements the appeal hearing will be discussed in Council Chambers on 28 April 2015.
Administrative proceedings With regard to the administrative proceedings pending appeal before the Administrative Justice Council of the Sicily Region, the Council suspended the proceedings in its ruling of 6 February 2014 pending the decision of the Supreme Court on the Second Recourse.
Civil proceedings With regard to the civil proceedings, in the ruling dated 7 January 2014 (amended on 8 January 2014), the Court of Milan, having acknowledged the reinstatement of proceedings, declared that it was ready to rule on the dispute based on documents filed by the parties and scheduled the hearing for 22 April 2014 to commence the exchange of statements. The hearing was postponed on several occasions and the hearing has now been scheduled for 27 March 2015. With regard to the civil proceedings against the Department, the President’s office of the Sicily Region filed a request to be admitted to the case on 21 October 2014. On 4-8 April 2014, the Department served Falck Renewables SpA, a former member of the ATI and subsequently replaced by Pea, Elettroambiente SpA (in liquidation), also a former member of the ATI and subsequently replaced by Platani and Tifeo, and the other members of the ATI, with a default notice contesting presumed extra-contractual obligations (presented for the first time) regarding the non-fulfilment of the construction of the integrated systems. The Group companies replied to the notices denying any responsibility, also in respect of the damages claim made by the Department (Euro 500 million for each ATI), which are considered manifestly groundless.
Release of seized tender documentation The documentation relating to the calls for tender in 2002 that was handed over to the Italian Finance Police in May 2010 was released from seizure in January 2015. Legal proceedings against the Sicily Region will continue in order to uphold the rights and motives of the Sicily Companies, Elettroambiente and Pea (to secure settlement of both pecuniary damages and loss of profit), and provide defence against the claims made by the Department. As the above events confirm the complexity and uncertainties surrounding this litigation, the liquidators of Tifeo, Platani, Pea and Elettroambiente and the directors of Falck Renewables SpA, supported by the opinion of their legal advisors, maintain the requirement of the impairment losses and adjustments recorded in the 2012 Annual Report and consider the risk of an unsuccessful outcome regarding both the counterclaim made by the Department in the civil proceedings and in relation to contractual damages requested by the Department on 4-8 April 2014, to be remote. As noted above, deferred tax assets were not recorded in the consolidated financial statements in respect of the “charge to the sundry risks provision for write-down of non-current assets” as they would only be recoverable (i) as part of the Group consolidated taxation regime, (ii) where the Group has sufficient taxable income and (iii) when the conditions arise that result in the asset becoming deductible, in this case once the disputes have been settled, which is not foreseeable at present given the complexity of these cases.
Guarantees in place
Palermo Energia Ambiente In order to best represent Pea’s and its shareholders claims against the Sicily Regional Authorities, Falck Renewables SpA and Falck SpA, which together hold a 48% interest in Pea, signed an agreement with Pea whereby they agree to defer the receivables (both trade and financial) to allow payment of other creditors and waive the same receivables in the event that following liquidation Pea does not have sufficient financial resources to pay the amounts in full. Also under this agreement, the shareholders Falck Renewables SpA and Falck SpA undertake, inter alia, to provide Pea with the funds required to settle certain creditors. Pea’s other shareholders entered into separate agreements regarding the settlement of receivables with Pea.
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Elettroambiente and its subsidiaries With regard to the other Sicily companies in liquidation (Elettroambiente SpA and its subsidiaries Tifeo and Platani) guarantees were issued in favour of a number of outstanding debts of these companies, subject to specific conditions being met. Moreover liquidation costs up to a maximum of Euro 1,500 thousand have been guaranteed, in particular regarding outstanding litigation.
The principal risks associated with current litigation other than the dispute with the Department regarding the Sicily Projects, which, due to its complexity and the amount of damages claimed by both parties, represents the most significant legal risk, are as follows.
Litigation relating to the Sicily Projects closed during the year
- Altecoen Srl in liquidation/Tifeo On 28 December 2009, Altecoen Srl (hereinafter “Altecoen), currently in liquidation, served three writs on Tifeo regarding agreements for the sale of land in the municipalities of Caltagirone, Enna and Modica, entered into on 1 December 2005. Altecoen’s requests were: (i) primarily, immediate payment of the balance for the sale (95% of the consideration), respectively Euro 23,401.80, Euro 229,301.05 and Euro 169,588.30 and (ii) alternatively, termination of the agreements, with the award of damages that Altecoen calculated as no less than Euro 5,616.43, Euro 83,424.63 and Euro 40,701.19. Tifeo joined the proceedings and in turn requested that the claim be rejected, while retaining the right to exercise the put option on Altecoen’s land, as envisaged in the agreements, after verifying the implications that Regional Law 9 of 8 April 2010 (Regional Law 9/2010) had on proceeding with the Tifeo Project (the Project). Tifeo exercised the put option on 9 June 2010. Altecoen sent a recorded delivery on 1 July 2010, in which it notified its intention to repurchase the land in question. A settlement was reached on 23 May 2014, whereby Tifeo paid a forfeit, assuming all risk, of Euro 250,000.
- Palermo Energia Ambiente ScpA/Safab On 17 January 2014 the parties reached an agreement settling the dispute under arbitration (with Pea agreeing to pay Safab Euro 3.3 million); subsequently the parties notified the board of arbitration of the waiver of the claims made in the proceedings and confirmed that the board had been released from its duty to issue an award. Having acknowledged this release, the board of arbitration pronounced the order for termination of the arbitral proceedings on 30 January 2014.
Other litigation relating to the Sicily Projects (projects for the management and WtE treatment of waste in Sicily)
- Gulino Group SpA/Tifeo On 28 December 2009 Gulino Group S.p.A. (“Gulino”) served two writs on Tifeo regarding the sale agreements for certain plots of land in the municipalities of Modica and Enna/Assoro, entered into on 1 December 2005. Gulino claimed: (i) primarily, immediate payment of the balance of the sales (95% of the total consideration), respectively Euro 2,774,950 and Euro 2,931,700; and (ii) alternatively, the termination of the agreements and payment of damages calculated at not less than Euro 2,143,968 and Euro 2,258,700. Tifeo joined the proceedings requesting the claim be rejected, while stating that it would consider its position with regard to the request for termination after verifying the implications of Regional Law 9 of 8 April 2010 on the ability to proceed with constructing the plants. In the statement filed pursuant to article 183, paragraph 6, no.1 of the c.p.c., Tifeo acknowledged the impact of Regional Law 9/2010 and the procedure pursuant to Article 7 ff of Law 241/1990 on the ability to execute the project and the request to terminate the Agreement with ARRA submitted in the action pending before the Court of Milan. Tifeo also requested that the sale and purchase agreements be terminated; demanding the reimbursement of all sums already paid (5% of the sale price plus VAT on the whole amount, namely Euro 730,250 and Euro 771,500 respectively). In the proceedings before the Civil Court of Enna, in the
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statement filed pursuant to article 183, paragraph 6, no.2, Gulino submitted a counterclaim requesting the Court to order Tifeo to pay an indemnity for the use of the land under dispute. After several attempts at reaching a settlement, in the hearing that took place on 16 February 2012 Tifeo requested, pursuant to article 153 paragraph 2 of the c.p.c., the case be re-opened to submit Decree 548 issued by the President of the Sicily Region on 22.09.2010 (the Decree) and the appeal on additional grounds in Tifeo’s favour notified on 30 September 2011; Gulino opposed this request, asking that the Court grant time to submit a counterclaim. Following several postponements, in the hearing of 29 April 2014 the parties clarified their claims and the Court suspended sentencing awarding time limits to present final briefs. In its ruling of 11 September 2014 the Court of Enna closed the proceedings sentencing Tifeo to respect the conditions of the purchase and sale agreements involving the land in Enna and Assoro that were entered into on 1 December 2005, relating to the obligation to settle 95% of the sales price of the land and pay Euro 2,931,700.00 plus interest pursuant to Legislative Decree 231/2002 from 8 April 2010 to the settlement date (approximately Euro 1,044,524.55) and to reimburse legal expenses of approximately Euro 15 thousand. The ruling was challenged by Tifeo in a writ of summons filed with the Caltanissetta Court of Appeal on 25 September 2014, in which it requested the full revision of the ruling. At the same time as the entry of the appeal case, a claim was filed by Tifeo pursuant to article 351 of the c.p.c. in order to obtain suspension of the temporary enforcement of the ruling pending outcome of the appeal. The Caltanisetta Court of Appeal in the order issued on 19 December 2014 suspended the temporary enforcement of the ruling challenged by Tifeo due to “the complexity of the question underlying interpretation of the negotiations” and Tifeo’s offer to provide a parent company guarantee issued by Falck Renewables. The ruling also ordered assignment of the parent company guarantee to Gulino (now News Holding). The first hearing to discuss initial merits was held before the Caltanissetta Court of Appeal on 21 January 2015. The Court – without prejudice to the suspension of the temporary enforcement of the first degree ruling – adjourned discussions to 21 October 2015. In the proceedings before the Civil Court of Modica, during the hearing of 7 October 2011 to discuss the preliminary statements presented by the parties, the Court of Modica upheld Tifeo’s claim of lack of territorial jurisdiction, transferring the case to the Civil Court of Siracusa, removed the case from the register and granted the parties time to resume proceedings before the competent court. Gulino notified Tifeo of the reinstatement of the case before the Civil Court in Siracusa on 9 January 2012; the first hearing was scheduled to take place on 16 May 2012 however as the case file had not arrived from the Civil Court of Modica, the Court adjourned proceedings to 14 November 2012, reserving the decision on the parties’ requests pending receipt of the file. In the ruling of 14-15 November 2012, the Court awarded the time limits pursuant to article 183, paragraph 6, point 1 of the c.p.c (the initial term starting from 12 March 2013) and adjourned the hearing to 30 October 2013. In this hearing, the Court declared the case ready for decision and adjourned the hearing for the filing of the final briefs by the parties for 2 November 2017.
- Consorzio Ravennate delle Cooperative di Produzione e Lavoro ScpA (the “Consor- zio”)/Elettroambiente An injunction was filed on 9 October 2010 by the Consorzio for service on 27 October 2010, and provisionally enforceable only against Pianimpianti, a shareholder of Platani, whereby the Court of Ravenna ordered Elettroambiente and other shareholders of Platani, to pay Euro 1,530,711 to the Consorzio representing payment for work carried out pursuant to a tender contract entered into on 4 August 2006 (between the Consorzio and Pianimpianti) for civil works on the Platani Project. The action was also brought against the other shareholders of Platani on the grounds that they were jointly and severally liable pursuant to article 13 of Law 109/1994 (now article 37 of Legislative Decree 163/2006). In a writ served on the Consorzio opposing the injunction, Elettroambiente initially contested the claims brought against it as the conditions for invoking its joint and several liability were not satisfied as it had not signed the said tender contract.
Regarding the subject matter of the dispute Elettroambiente has requested (i) withdrawal and/or cancellation of the said injunction due to (a) the invalidity of the basis, namely the tender contract, on which the injunction was issued and (b) the acknowledgement of the events that occurred in the page 58
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meantime (i.e. the issue of Regional Law 9/2010 and the proceedings initiated by the Department pursuant to article 7 and ff of Law 241/1990 to render invalid the 2002 tender process and all related measures) that made it impossible to proceed with the Platani Project, with all related consequences regarding the impossibility of the Consorzio to finish the work specified in the tender contract; and (ii) to verify the absence of any sum owed by Elettroambiente to the Consorzio. Subordinately, in the event of conviction, Elettroambiente filed recovery actions against Pianimpianti and EPC Sicilia Srl (which sold the business of Pianimpianti involved, inter alia, in the dispute), in order to recover any sum that Elettroambiente may be ordered to pay to the Consorzio, requesting the Court pursuant to article 269 c.p.c. to summon Pianimpianti and EPC Sicilia to the action. In a writ served on the Consorzio on 9 December 2010 Enel Produzione contested the injunction requesting it be fully reformed and that the claims made against it by the Consorzio be dismissed. Consequently, Enel Produzione enforced Elettroambiente’s guarantee, invoking the indemnity clause pursuant to the shareholders’ agreement entered into by the parties on 27 October 2002. Finally, AMIA, EMIT and Catanzaro Costruzioni have also independently contested the above injunction without however making any claim against Elettroambiente. The actions were originally assigned to different courts but were later grouped with the exception of the action brought by AMIA as it is currently in extraordinary administration: this action will therefore proceed independently of the others. The parties exchanged statements pursuant to article 183, paragraph 6 of the c.p.c.. With regard to the above exchange of statements, in its first statement Elettroambiente, in light of the Project no longer proceeding, requested appointment of a technical expert (CTU) (i) to ascertain whether, given the impossibility of executing the Project, the work carried out by the Consorzio under the tender contract is currently of any use to Pianimpianti and, consequently, (ii) in the event that it is, identify which work Pianimpianti can put to use; the purpose being to establish whether Pianimpianti is required to pay the Consorzio compensation pursuant to article 1672 of the Italian Civil Code. In the third statement Elettroambiente and Enel Produzione waived the claims and objections made by each other in the proceeding. The Civil Court of Ravenna declared on 2 April 2012 “granting temporary enforcement of the opposed injunction orders to be unacceptable with reference to the current parties" (including Elettroambiente SpA) and did not admit the preliminary statements submitted by the Consorzio (holding them inadmissible and/or unfounded). The Court scheduled the final hearing to submit the parties’ final briefs for 31 January 2013 declaring foremost the need to examine the preliminary statements which “could determine the outcome of the trial”. The Court “declared the admission of further parties to the trial uneconomical”, thus dismissing the claim subordinately made by Elettroambiente that in the event of conviction Pianimpianti and EPC Sicilia be summoned to recover any sums due from them. In this hearing, the parties submitted their respective final briefs and the Court reserved judgement and assigned the time limits for filing closing statements and replies. In the ruling of 14 August 2013, notified on 13 September 2013, the Court of Ravenna admitted the objection brought by Elettroambiente against the injunction and subsequently withdrew the injunction issued in favour of the Consorzio against Elettroambiente, Enel Produzione, EMIT and Catanzaro Costruzioni, ordering full payment of the legal costs. In the first hearing of the appeal filing held on 15 July 2014 all of the appellants requested rejection of the appeal brought by the Consorzio Cooperative Costruzioni, which in turn upheld its request. In the same hearing Catanzaro Costruzioni Srl was declared in contempt of court. The Appeal Court scheduled the hearing to present closing statements for 20 October 2015.
- Palermo Energia Ambiente ScpA/Italian tax authorities On 22 July 2011, the Italian tax authorities enforced the guarantee of Euro 1,111,496.49 issued on 12 December 2007 by Unicredit on behalf of Pea in favour of the tax authorities pursuant to article 38-bis of Presidential Decree 633/72 regarding the 2006 VAT refund claim. On 27 July 2011, Pea was notified of a tax assessment issued by the tax authorities whereby it requested repayment of the refund as it allegedly did not recognise the reason for exclusion from being defined a so-called shell company. An appeal was filed with the Provincial Tax Commission of Palermo against the above assessment on 13 October 2011. In its ruling of 28 December 2011 the Provincial Tax Commission of Palermo admitted the appeal filed by the company. The tax authorities filed an appeal with the Regional Tax Commission. The date for the hearing is pending. The tax authorities also notified rejection of the 2007 and 2008 VAT page 59
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claims on the same grounds as the assessment raised on the 2006 VAT refund claim. Pea challenged the rejections and filed an appeal with the Provincial Tax Commission of Palermo. In its ruling of 28 December 2011, the Provincial Tax Commission of Palermo admitted the appeals and agreed to settle the refund claims. The tax authorities filed an appeal with the Regional Tax Commission and the first hearing is pending.
- Panelli Impianti Ecologici SpA in liq./Falck Renewables–Elettroambiente-Tifeo Panelli Impianti Ecologici SpA (Panelli) served a writ in January 2015 whereby, in summary, it seeks compensation for damages to Panelli following the decision made in January 2010 – to refuse renewal of the authorisations required to designate as landfills (and/or waste treatment plants) certain plots of land in Avola, Lentini and Augusta (the “Land”). At that time the Land was owned by Tifeo following its acquisition from Panelli. The sales contracts envisaged the reconveyance of the Land to Panelli subject to certain conditions. This reconveyance did in fact take place following an action brought by Tifeo against Panelli before the Civil Court of Milan that was finalised in 2012. Panelli maintains that the value of the Land was significantly lower as the above-mentioned authorisation were not renewed and requests damages of Euro 24,000,000. Panelli also holds Falck Renewables liable for these damages (is it exercised direction and control over Tifeo), together with Tifeo and Elettroambiente SpA (in liquidation). The writ suggested the first hearing be held on 5 May 2015. Elettroambiente and Tifeo will also join the proceedings in order to defend and uphold their motives.
Litigation involving other Group companies
Eolica Sud Srl/Italian tax authorities The Catanzaro tax authorities served a notice of assessment on the company on 15 December 2014 contesting that it had wrongfully benefited from the “Tremonti Ter” tax benefit for the 2009 tax year to the amount of approximately Euro 25 million. The authorities had reclassified the tender contract entered into between the company and GE (General Electric) in 2007 for the construction of a wind farm, as it considered this to represent merely the acquisition of goods and services and not a tender to provide finished works. The company maintains that its actions were legitimate. The amount assessed is approximately Euro 15 million representing higher IRES (corporation tax), penalties and interest. The counterclaim with the tax authorities that commenced in April 2013, initially lodged with the Provincial Administrative Office of Catanzaro, subsequently with the Regional Offices of Calabria and finally with the Central Legal Department in Rome, is still pending. The company filed a request for internal review with the tax authority and an appeal with the Provincial Tax Commission of Catanzaro. Based on a technical analysis of the grounds for the tax assessment, the company maintains it can argue its case before the tax court and considers the risk of an adverse outcome to the proceedings as only possible and not probable, as supported by independent legal advice.
Esposito Servizi Ecologici Srl/Italian tax authorities
The Bergamo tax authorities served a number of debt collection summons on Esposito Servizi Ecologici Srl between December 2014 and January 2015, contesting the application for joint and several responsibility pursuant to article 14, paragraph 4 of Legislative Decree 472 of 1997 in respect of the higher tax and penalties pronounced on the previous Esposito Group from which the company and Ecocentro Soluzioni Ambientali Srl purchased two businesses in 2010. The tax demand amounts to approximately Euro 20.8 million. The company immediately filed a request for internal review with the tax authority and an appeal with the Provincial Tax Commission of Bergamo requesting concurrently suspension of the tax rulings. The company believes it has valid grounds to argue its case before the tax courts and considers the risk of an adverse outcome to the proceedings as only possible and not probable as supported by independent legal advice.
Ecosesto SpA
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Ecosesto SpA filed an action with the TAR in Lazio in relation to the Rende plant requesting cancellation of: (i) the Ministry of Economic Development Decree of 20 November 2012, (ii) the Resolution of the Italian Regulatory Authority for Electricity and Gas of 29 April 2010 - PAS 9/10, where this is also extended to “selected initiatives” defined in article 3, paragraph 7 of Law 481 of 14 November 1995; (iii) and the correspondence from GSE S.p.A. of 14 December 2012, protocol P20120225478, addressed to Ecosesto SpA regarding the «Adjustment of prices applicable to electricity sold to GSE in 2010 under sales agreements governed pursuant to CIP 6/92» and protocol P20130001240 of 4 January 2013 regarding the ”Adjustment of prices relating to energy sold to GSE in 2010-2011 under sales agreements pursuant to CIP 6/92”. The action was notified and filed. The Ministry of Economic Development joined the proceedings and filed its defence brief on 18 February 2013 and the date of the hearing is pending. The Group had charged the full amount in respect of the adjustments relating to 2010, 2011 and 2012 to the sundry risks provision in the 2012 Annual Report. Ecosesto SpA is also waiting for the hearing to be scheduled in respect of an action filed on 23 April 2010 with the TAR in Lazio in order to be awarded a D coefficient of 1 rather than 0.9 as it is now IAFR qualified.
Prima Srl Prima Srl filed an action with the TAR in Lazio in relation to the Trezzo sull’Adda WtE plant requesting cancellation of: (i) the Ministry of Economic Development Decree of 20 November 2012, (ii) the Resolution of the Italian Regulatory Authority for Electricity and Gas of 29 April 2010 - PAS 9/10, where this is also extended to “selected initiatives” defined in article 3, paragraph 7 of Law 481 of 14 November 1995; (iii) and the correspondence from GSE S.p.A. of 18 December 2012, protocol P20120229091, addressed to Prima Srl regarding the «Adjustment of prices applicable to electricity sold to GSE in 2010, 2011 and 2012 under sales agreements governed pursuant to CIP 6/92». The action was notified and filed. The date of the hearing is pending. The Group had charged the full amount in respect of the adjustments relating to 2010, 2011 and 2012 to the sundry risks provision in the 2012 Annual Report.
Frullo Energia Ambiente Srl Frullo Energia Ambiente Srl (FEA) filed an action with the TAR of Lazio in relation to the Granarolo dell’Emilia WtE plant requesting cancellation of: (i) the Ministry of Economic Development Decree of 20 November 2012, (ii) the Resolution of the Italian Regulatory Authority for Electricity and Gas of 29 April 2010 - PAS 9/10, where this is also extended to “selected initiatives” defined in article 3, paragraph 7 of Law 481 of 14 November 1995; (iii) and the correspondence from GSE S.p.A. of 18 December 2012, protocol P20120229091, addressed to Frullo Energia Ambiente Srl regarding the «Adjustment of prices applicable to electricity sold to GSE in 2010, 2011 and 2012 under sales agreements governed pursuant to CIP 6/92». The action was notified and filed. The first hearing took place on 8 July 2014 following which the court adjourned the proceedings for final ruling. In the ruling made public on 17 September 2014, the TAR of Lazio did not admit FEA’s appeal which the latter subsequently challenged before the Council of State that has not yet scheduled the hearing on the merits. The Group had charged the full amount in respect of the adjustments relating to 2010, 2011 and 2012 to the sundry risks provision in the 2012 Annual Report, in which Frullo was consolidated applying the proportional method. Frullo is now consolidated using the equity method and in light of the above an adverse outcome would not impact the consolidated financial statements.
Eolo 3W Minervino Murge Srl/ICQ In the injunction filed on 25 June 2012, Eolo 3W Minervino Murge Srl (Eolo 3W) was ordered to pay ICQ Euro 4,544,000, plus interest pursuant to Legislative Decree 231/02 calculated from 24 January 2012 and legal expenses, as further compensation linked to benefits under Law 488/1992, in accordance with the contract signed on 6 September 2006 relating to the sale of ICQ’s entire shareholding in Eolo 3W Minervino Murge Srl to Falck Renewables Wind Ltd. Falck Renewables Wind and Minervento SpA signed an “Assumption to discharge debt” on 9 October 2007, signed by ICQ under article 1273 of the Italian Civil Code (c.c.), whereby Minervento assumed any amounts owed to ICQ by Falck Renewables Wind arising under the contract; on the same date Falck Renewables Wind sold to Minervento its entire shareholding in Eolo 3W; finally, Minervento page 61
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was merged through acquisition with Eolo 3W on 17 June 2010, with the latter taking on all of Minervento’s contractual obligations. In order to avoid excessive legal costs, negotiations took place to reach an amicable settlement without success. Consequently, Eolo 3W filed an objection to the injunction. In the hearing that took place on 1 March 2013 at the end of the discussion the Court reserved judgement on the opposing parties request for provisional enforcement of the injunction adjourning the hearing to 7 November 2013 to discuss the initial objections raised by Eolo 3W. In this hearing the Court awarded the parties the time limits prescribed by law to file briefs pursuant to article 183, paragraph 6, adjourning the case to the hearing scheduled for 30 January 2014 at the same time “reserving judgement on the claim for provisional enforcement” filed by ICQ. Following the exchange of briefs the above hearing took place and the Court scheduled the hearing for the admission of facts for 6 March 2014 without granting the temporary execution of the opposed injunction. In the ruling of 10 July 2014 the Court of Rome admitted the opposition filed by Eolo 3W and cancelled the injunction filed by ICQ. This is a procedural ruling. The judge admitted the preliminary exception of the company regarding the court jurisdiction, applying to the case the compromissory clause of the sales contract of 6 September 2006.
Arbitration Falck SpA- Geopower Sardegna Srl - GEO Mbh A request for arbitration was filed on 25 June 2009 by GEO Gesellschaft für Energie und Oekologie Mbh against Falck SpA after a dispute arose regarding the consideration payable by Falck Renewables Wind Ltd under an agreement for the sale of quotas in Geopower Sardegna dated 20 May 2005. The request regards the enforcement of the corporate guarantee for Euro 3,621,000 issued by Falck SpA on 8 April 2009. The board of arbitration assessed the credit secured by the corporate guarantee as Euro 1.9 million and handed down its award on 8 October 2010, ordering Falck SpA to pay Euro 1.9 million. On 18 November 2010 Falck SpA filed a plea to correct the award, having found mistakes in its calculation. In an order of 20 December 2010, the board of arbitration dismissed the application for the correction of the award. On 7 September 2011 Falck SpA filed an appeal with the Appeal Court of Milan, claiming the invalidity of the arbitration award and a plea for suspension of the award execution; this plea was thrown out by the Court order issued on 20 October 2011. The first hearing on the merits of the appeal action adjourned the final hearing to 23 June 2015. Given the complex subject matter and the new rules governing the challenge of arbitration awards, the outcome of the dispute is uncertain and as a consequence recovery of the sums already paid by Falck under right of restitution is considered unlikely (Euro 1.9 million); if the appeal is successful this amount must be repaid to Falck Renewables Wind Ltd which paid the sum to Falck SpA. c) External risks
Operating in the renewables sector, which is heavily regulated and not always predictable, requires the Group to keep abreast of changes in legislation, thus allowing it to implement the best solutions. The directives and regulations on renewables issued both at European and national level can have a significant impact on the Group’s activities and results. These regulations govern, inter alia, the construction phase (regarding both construction and administration authorisations), and the operational and environmental aspects (regulations relating to the landscape and noise pollution). Developments in the rules regarding incentives mechanisms in the countries in which the Group operates, the resolution of 30 November 2012 that retroactively reduced the CEC (avoided cost) component for plants operating under the CIP 6/92 regime in respect of 2010, 2011 and 2012, Legislative Decree 69 published on 21 June 2013 (urgent measures for economic growth) that envisaged a further significant change in the method of calculating the CEC commencing 1 January 2013, Law 116/2014, the so-called Incentives Spreading Decree regarding the photovoltaic sector (further detailed in the Regulatory Framework note) and developments in the Spanish market as detailed in the Spain: regulatory framework in the wind sector note, have been particularly relevant.
The risks associated with developments in the market in which the Group operates include the progressive changes in the renewable energy market, which has become highly competitive while suffering a gradual decline in the advantages offered to this sector (amongst which the reform of regulations governing imbalance costs for all types of source whereby the energy producers will bear the burden of these costs). There has also been a progressive shift at European level of the choices regarding the tariff regime applicable to new plants that is increasingly centred towards incentives systems based on competitive auctions rather than incentives regimes established on a feed-in-tariff system. page 62
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
Regarding the latter, on 7 May 2013 the Lombardy TAR cancelled the resolution that introduced from 1 January 2013 imbalance costs for companies generating electricity using wind and photovoltaic energy. The Council of State ruling 2936 of 9 June 2014 confirmed the Lombardy TAR rulings that cancelled AEEG resolutions 281/2012 and 493/2012, which resulted in a positive impact in 2014 of approximately Euro 2,875 thousand. The AEEGSI published a new resolution (Resolution 522/2014) on 23 October 2014, to reintroduce new measures with effect from 1 January 2015 that diversify the treatment of the various sources and revisit the tolerance levels of programming errors. The Group constantly monitors the market and anticipates developments in order to mitigate any negative impact and acts accordingly either by adapting its business management tools, establishing business partnerships and agreements or through the geographical diversification of its investments. d) Strategic risks
The sources of energy used in this sector lead to highly variable production levels, due to the diverse climatic conditions of the locations of the wind farms and photovoltaic plants (including sun and wind), and production forecasts that are based on historic data and probability estimates. In particular, electricity generation from wind and solar sources, which represent a significant percentage of the Group’s business, are associated with “non- programmable” climatic factors that are affected by seasonality during the year and do not generate constant production levels. Adverse climatic conditions, specifically long periods of low wind levels for the wind farms and low levels of sun rays for the photovoltaic plants compared to levels recorded during the development stages (regarding the availability of the source and forecast climatic conditions), could result in a drop in, or interruption of, the plant’s activities with a fall in the volume of electricity generated and a negative impact on productivity and the Group’s operating results, state of affairs and financial position. The Group mitigates this risk by installing new sites in diversified geographic areas and monitoring performance using historic data in order to identify sites of potential interest. The Group has defined a procedure to update regularly the future production estimates of each wind farm, taking into account actual historic wind levels by individual location. This procedure is applied to all plants that have been in service for at least five years, while for more recent plants, forecast production is based on third party estimates carried out by a market leader in wind level assessment. Over the coming years other plants will be included in the estimate update procedure once they have reached five years’ operating activity, while those plants already included in the process will undergo further recalculations based on historical data over a longer timeframe. The technology used to generate electricity from renewable sources is subject to continuous development and improvement in the quest to achieve greater efficiency. The Group cannot guarantee that the technology and materials currently used in its plant portfolio will allow them to function effectively and efficiently over time in order to keep up with competition and developments in the regulatory framework. In order to mitigate this risk, the Group actively reviews technological innovation in this field and evaluates the best technology to adopt at the time of developing and renewing its plant facilities. Given the level of knowledge and skills that are required to run the Group’s business, particularly in light of the Business Plan that envisages new business development, the aspects linked to managing and fostering key professional skills have been identified. To manage this potential risk area the Group employs, inter alia, a process of identifying talent, and has analysed the key skills of critical internal resources aimed at designing a training plan to cover skill gaps and succession plans for these resources. The Falck Renewables Group is currently assessing the introduction of a new Long Term Incentive Plan, replacing the previous 2011 – 2013 plan that has now expired, which is offered to the Chief Executive Officer and Key Managers. e) Operating risks
The risks relating to operating plants principally relate to the efficiency of the workforce and the operation and maintenance of the Group’s proprietary plants to harness the optimum capacity and efficiency of each plant over the relevant useful life. The management and safety of the Falck Renewables Group’s plants is carried out in compliance with the Integrated Environmental Authorisation and authorisations required by law in the various countries in which the Group operates and is under the supervision of the Health and Safety Executive/Compliance.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
In the event that plant management, technology and/or materials used were no longer efficient, some, or all, of the Group’s owned plants may suffer a drop in the volume of electricity produced with a consequent negative impact on the Group’s results, state of affairs and financial position. The Group actively oversees these potential risk areas and constantly monitors plant Operation and Maintenance activities to ensure full compliance with applicable regulations and optimum levels of efficiency and effectiveness when the plants are in service.
5.2.12 Significant events after the balance sheet date
Constitutional illegitimacy of the Robin Tax The Italian Constitutional Court declared in its ruling of 11 February 2015 that the Robin Tax, an additional tax on income applied in certain circumstances to enterprises operating in the energy sector, infringes constitutional law with effect from tax periods after 31 December 2014. The illegitimacy ruling actually comes into force on the day after publication of the ruling in the Italian Official Gazette, in this case 12 February 2015. The 2014 Annual Report reflects the impact of this pronouncement with regard to the calculation of deferred income taxes as the above ruling impacts the method of calculation. However, as declared in the ruling, this does not impact the current tax calculation that has been made in line with the previous year.
Sale of Ezse Elektrik Uretim Ltd Şti The interest in the Turkish registered company Ezse Elektrik Uretim Ltd Şti was sold on 25 February 2015 for Euro 200 thousand and has not altered the Group’s financial position as this investment was dormant.
5.2.13 Management outlook and going concern
2015 revenue will benefit from the full year production of the West Browncastle 30 MW wind farm and the consolidation of the Vector Cuatro Group for the full financial year as the Group results reflected only three months results this year.
The Group’s results will however be affected by the weak economic situation that will have a negative impact on electricity demand and prices following the recent slump in gas and oil prices. The Group forecasts electricity prices to drop significantly in Italy, Spain, France and the UK compared to 2014 averages despite the fact that the Group wind farms and biomass plant will benefit from incentive mechanisms that will partially offset this impact (e.g. Italian green certificates), while the feed-in-tariff in France provides a barrier against these fluctuations. Following changes in legislation, the plants in Spain will no longer benefit from incentives. Moreover, the introduction of Law 116/2014 with effect from 1 January 2015 will result in an 8% fall in the incentive tariffs on the Group’s 16 MW solar plants and the results will be negatively impacted by the reintroduction of imbalance costs following the suspension in 2013 and 2014. The Italian Constitutional Court ruling declared the Robin Tax to be illegitimate, which will have a positive impact on the Group’s results.
Group development will continue through the construction and operation of the UK authorised wind farms comprising Spaldington Airfield (up to 12.5 MW), Kingsburn (up to 22.5 MW), Auchrobert (up to 36 MW) and Assel Valley (up to 30 MW) with Spaldington and Kingsburn expected to operate at full capacity from the second half of 2016, while Assel Valley is forecast to enter service at the beginning of the 2017 first quarter and Auchrobert from the end of the same quarter.
The regulatory and market framework in which the Falck Renewables Group operates is undergoing radical changes due to an overall revision of the incentives schemes in conjunction with the introduction of rules aimed at fostering competition in the renewables energy sector of the energy markets. These market changes, together with, and often accentuated by, depressed electricity demand caused by the economic crisis, led to the revision of the Group’s business model in order to guarantee medium/long-term stability.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
The core elements of the new business model are performance planning, management and improvement and the development and implementation of innovative solutions through the partnership with Copenhagen Infrastructure I (sponsored by Pension Danmark) and the development of third party services made possible by the acquisition of Vector Cuatro.
The Group is well placed to face these challenges, both in terms of know-how and financial resources.
5.3 Operating and financial review of Falck Renewables SpA
5.3.1 Financial highlights (Euro thousands) 31.12.2014 31.12.2013 Revenue 223 56 Cost of sales (100) Gross profit 123 56 Operating loss (15.165) (16.022) Profit for the year 30.037 6.040 Invested capital net of provisions 224.916 209.670 Total equity 473.309 451.871 Net financial position (asset) (248.393) (242.201) Capital expenditure 292 741 Employees at the year-end (no.) 85 81 Ordinary shares (no.) 291.413.891 291.413.891
5.3.2 Performance and review of business in 2014
The Company recorded a profit of Euro 30,037 thousand in 2014, after amortisation and depreciation of Euro 335 thousand and tax income of Euro 4,219 thousand.
The result has been influenced significantly by income of Euro 38,739 thousand comprising investment dividend income net of impairment losses recognised against investments, identified following impairment testing. Total dividends amounted to Euro 39,387 thousand and comprised Euro 38,227 thousand from Falck Renewables Wind Ltd, Euro 180 thousand from Ambiente 2000 Srl and Euro 980 thousand from Frullo Energia Ambiente Srl. The total impairment loss of Euro 648 thousand comprises Euro 598 thousand relating to Solar Mesagne Srl that is principally due to new regulations governing photovoltaic plants that led to an 8% fall in incentives, and Euro 50 thousand in respect of Falck Renewables Polska.
Net finance income amounted to Euro 2,244 thousand, a fall on the net income of Euro 3,712 thousand in 2013 due to a fall in finance income from subsidiaries following repayment of intercompany loans in particular by Falck Renewables Wind Ltd.
Employee costs increased compared to the previous year (+ Euro 1,710 thousand) principally due to Key Managers achieving performance objectives and the increase in average employees, while administrative expenses fell by Euro 2,410 thousand largely as a result of lower charges to the sundry risks provision compared to 2013.
The net financial position was an asset of Euro 248,393 thousand, representing a Euro 6,192 thousand increase on the balance at 31 December 2013 due to dividends received from subsidiaries.
5.3.3 Employees
The total number of Company employees at 31 December 2014 was 85 comprising 22 managers and 63 white collar workers, representing an increase of 4 compared to the total at 31 December 2013.
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
5.3.4 Capital expenditure
Capital expenditure amounted to Euro 292 thousand, comprising Euro 116 thousand on intangible assets for the purchase of operating software, while expenditure on property, plant and equipment amounted to Euro 176 thousand.
5.3.5 Directors, statutory auditors, chief financial officers, key managers and their interests
In accordance with Consob Resolution 18049 of 23 December 2011 that repealed article 79 of the Listing Rules and the ensuing Resolution 18079 of 20 January 2012, repealing appendix 3C of the same rules, disclosures relating to the interests of directors, statutory auditors, chief executive officers and key managers with strategic responsibilities are outlined in the Remuneration Report in compliance with article 123 ter of the Consolidated Finance Act.
5.3.6 Related party transactions
Relations with subsidiaries and associates
Falck Renewables SpA carries out arm’s length transactions of both a trade and financial nature with its subsidiaries and associates. These transactions allow for Group synergies to be achieved through the use of common services and know- how and the application of common financial policies. In particular, the transactions relate to specific activities, details of which are provided in the notes to the financial statements and include:
- Raising finance and issuing guarantees; - Administrative and professional services; - Management of common services.
Relations with the parent company Falck SpA
Falck SpA, which is in turn 65.96% owned by Finmeria Srl, held a 61.77% stake in the Company at 31 December 2014 and no transactions of an economic or financial nature take place with the former.
Falck Renewables SpA performs professional services and manages shared services for the parent company Falck SpA. A contract is also in place governing use of the Falck trademark.
The Company also participates in the consolidated tax regime and the Group VAT return with its parent company Falck SpA.
Subsequent to Consob’s communication issued on 24 September 2010 detailing the position on related party transactions pursuant to Consob regulation 17221 of 12 March 2010 and ensuing amendments, the board of directors of Falck Renewables SpA approved the procedure governing related party transactions on 12 November 2010.
5.3.7 Direction and coordination activities
In accordance with article 2497 bis, paragraph 5 of the Italian Civil Code, it is noted that the holding company Falck SpA performs direction and coordination activities with respect to Falck Renewables SpA. The activities performed are of a commercial nature as noted above, and resulted in Euro 283 thousand of income for management services (Euro 260 thousand) and non-recurring income (Euro 23 thousand). Profit for the year also includes recharges made by Falck SpA for services totalling Euro 2,523 thousand comprising use of the Falck trademark (Euro 698 thousand), services of the Chairman and Chief Executive Officer (Euro 1,809 thousand that also includes performance bonuses achieved under the Long Term Incentive Plan), non-recurring costs (Euro 12 thousand) and other minor charges (Euro 4 thousand).
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FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
The provisions of article 37 of Consob Regulation 16191/2007, letters a), b) and c), point i) (as envisaged by article 2.6.2, paragraph 9, of the Listing Rules defined and managed by Borsa Italiana S.p.A.) have been disclosed.
5.3.8 Holding of own shares or parent company shares
In compliance with article 2428, paragraph 2, point 3 of the Italian Civil Code, the Company declares that at 31 December 2014 it held 460,000 own shares with a face value of Euro 460,000, representing 0.1579% of share capital.
The carrying value is Euro 403,025.60 corresponding to an average share price of Euro 0.876.
No subsidiaries held shares in Falck Renewables SpA at 31 December 2014, either through trust companies or third parties.
5.3.9 Purchase and sale of own shares or parent company shares
In accordance with article 2428, paragraph 2, point 4 of the Italian Civil Code, the Company declares that it did not purchase or sell own shares in 2014.
5.3.10 Share schemes
The Company does not currently operate employee benefit schemes through the implementation of stock option plans.
5.3.11 Corporate governance and Code of Self Discipline
Falck Renewables SpA complies and conforms to the Code of Self Discipline drawn up by the Corporate Governance Committee of Borsa Italiana SpA, as amended in July 2014 to reflect recommendations therein and updated to reflect the Group’s particular circumstances. The report on Corporate Governance and Corporate Structure (the Report) provides an overview of the Group’s adopted corporate governance model and discloses information regarding the ownership structure and compliance with the Code of Self Discipline, comprising the key governance principles implemented and the risk and internal control management system that oversees the financial disclosure process. This Report is provided as an appendix to the financial statements and follows the same reporting timetable as the latter and is available on the Company website www.falckrenewables.eu.
5.3.12 Participation in the opt-out regime
The board of directors, in the meeting held on 18 January 2013, approved the Company’s participation in the opt-out regime pursuant to articles 70 paragraph 8 and 71 paragraph 1-bis of the listing rules, amended by Consob Resolution 18079 of 20 January 2012, availing of the exemption from the requirement to file information documents in relation to merger, spin-off, share capital increases through contribution in kind, purchase and disposal transactions.
5.3.13 Legislative decree 231/01
The Company has adopted an Organisation and Operations Manual (the Model) aimed at ensuring that the Company carries out its business correctly and transparently thus safeguarding its stakeholders and has been tailored to meet the specific requirements of Falck Renewables SpA.
The Supervisory Board members are the Chairman, Giovanni Maria Garegnani, Luca Troyer and Siro Tasca. page 67
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 5 Directors’ report
The Model was updated in the second half of 2014 to reflect changes in the internal organisation structure and related processes and to improve format and content by, for example, refining definitions.
5.3.14 Proposed appropriation of profit for the year
Dear Shareholders,
The financial statements for the year ended 31 December 2014 recorded a profit for the year of Euro 30,037,021.38 that we propose to appropriate as follows:
(Euro) To 290,953,891 ordinary shares (*) Euro 0.062 each 18.039.141,24 Retained earnings carried forward 11.997.880,14
Total 2014 profit for the year 30.037.021,38
(*) net of 460,000 own shares.
On behalf of the board of directors The Chairman Enrico Falck
Milan, 12 March 2015
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6. Consolidated financial statements for the year ended 31 December 2014
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.1 Consolidated balance sheet
(Euro thousands) 31.12.2014 31.12.2013 (1) Note of which of which related parties related parties Assets A Non-current assets 1 Intangible assets (1) 104.206 88.468 2 Property, plant and equipment (2) 965.732 959.388 3 Investments (3) 4 4 Investments accounted for using the equity method (4) 19.595 18.632 5 Medium/long-term financial receivables (5) 25 25 367 367 6 Deferred income tax assets (8) 29.245 28.073 7 Other receivables (7) 9.601 2.771 Total 1.128.404 1.097.703 B Current assets 1 Inventories (9) 5.313 4.547 2 Trade receivables (6) 117.527 494 124.878 90 3 Other receivables (7) 38.322 11.319 40.317 10.432 4 Financial receivables (5) 856 804 25 5 Financial assets 6 Cash and cash equivalents (10) 207.606 120.819 Total 369.624 291.365 C Non-current assets held for sale Total assets 1.498.028 1.389.068 Liabilities D Equity 1 Ordinary shares 291.414 291.414 2 Reserves 173.879 65.802 3 Retained earnings 4 Profit for the year 3.352 15.089 Equity attributable to owners of the parent (11) 468.645 372.305 5 Non-controlling interests 31.115 6.527 Total equity (11) 499.760 378.832 E Non-current liabilities 1 Medium/long-term financial liabilities (14) 758.640 790.818 2 Trade payables (15) 1.046 3 Other non-current liabilities (16) 4 Deferred income tax liabilities (8) 16.973 13.798 5 Provisions for other liabilities and charges (12) 37.214 38.691 6 Staff leaving indemnity (13) 3.820 3.769 Total 817.693 847.076 F Current liabilities 1 Trade payables (15) 50.774 445 63.115 891 2 Other payables (16) 41.825 9.979 40.787 9.772 3 Short-term financial liabilities (14) 87.976 59.258 4 Provisions for other liabilities and charges Total 180.575 163.160 G Liabilities attributable to non-current assets held for sale Total liabilities 1.498.028 1.389.068 (1) Restated following application of IFRS 11 Related party transactions are detailed on pages 113 and 114.
page 70. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.2 Consolidated income statement
(Euro thousands) 31.12.2014 31.12.2013 (1) Note of which of which related parties related parties A Revenue (17) 248.325 253.797
Direct labour costs (18) (7.169) (6.800)
Direct costs (19) (142.875) (143.542)
B Cost of sales (150.044) (150.342)
C Gross profit 98.281 103.455
Other income (20) 9.365 697 2.321 598
Other employee costs (18) (15.240) (13.623)
Administrative expenses (21) (21.628) (2.558) (18.192) (1.802)
D Operating profit 70.778 73.961
Finance costs - net (22) (49.820) 273 (47.408) 12
Investment income (23) 213 Share of profit of investments accounted for (24) 409 409 2.088 2.088 using the equity method E Profit before income tax 21.580 28.641
Income tax expense (25) (12.616) (13.687)
F Profit for the year 8.964 14.954
G Profit/(loss) attributable to non-controlling interests 5.612 (135)
H Profit attributable to owners of the parent 3.352 15.089
Diluted earnings per share attributable to owners of the parent (11) 0,012 0,052
(1) Restated following application of IFRS 11 No significant non-recurring transactions took place in 2014.
Related party transactions are detailed on page 122 and 123.
page 71. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.5 Consolidated statement of cash flows (Euro thousands) 31.12.2014 31.12.2013 Gross Tax Net Gross Tax Net A Profit for the year 21.580 (12.616) 8.964 28.641 (13.687) 14.954
Other items of comprehensive income Other items of comprehensive income that may be recycled subsequently to profit/(loss) for the year net of tax Foreign exchange differences on translation of 12.340 12.340 (1.553) (1.553) overseas financial statements Fair value adjustment of available-for-sale financial assets Share of other comprehensive income of investments 213 (78) 135 279 (107) 172 accounted for using the equity method Fair value adjustments of derivatives designated as (23.599) 4.240 (19.359) 28.947 (9.375) 19.572 cash flow hedges
Total other items of comprehensive income that B (11.046) 4.162 (6.884) 27.673 (9.482) 18.191 may be recycled subsequently to profit/(loss) for the year net of tax
Other items of comprehensive income that will not be reclassified subsequently to profit/(loss) for the year net of tax 135.587 135.587 Sale of non-controlling interests in wind companies Balance of actuarial gains/(losses) on employee (174) (174) (180) (180) defined benefit plans Total other items of comprehensive income that C will not be recycled subsequently to profit/(loss) 135.413 135.413 (180) (180) for the year net of tax B+C Other items of comprehensive income 124.367 4.162 128.529 27.493 (9.482) 18.011 A+B+C Total comprehensive income for the year 145.947 (8.454) 137.493 56.134 (23.169) 32.965 Attributible to: - Owners of the parent 105.500 33.111 - Non-controlling interests 31.993 (146)
page 72. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.5 Consolidated statement of cash flows
(Euro thousand) 31.12.2014 31.12.2013 Note of which of which related parties related parties Cash flows from operating activities Profit for the year 8.964 14.954 Adjusted for: Amortisation of intangible assets (18) - (20) 707 973 Depreciation of property, plant and equipment (18) - (20) 61.013 57.577 Impairment of intangible assets (18) - (20) 3.581 Impairment of property, plant and equipment (18) - (20) 1.872 9.604 Write-down of non-current assets (21) Staff leaving indemnity provision (17) 690 676 Fair value of financial assets Finance income (22) (10.273) (17.854) (43) Finance costs (22) 60.093 65.263 31 Dividends received Share of profit of investments valued using equity method (23) (409) (409) (2.412) (Gain)/loss on sale of intangibles (Profit)/loss on disposal of property, plant and equipment 36 189 (Profit)/loss on sale of investments Investment (income)/costs 4 Other changes (9) (7) Income tax expense (income statement) (24) 12.616 13.686 Operating profit before changes in net working capital and provisions 135.304 146.230 Change in inventories (18) (766) (2.125) Change in trade receivables 9.189 (16.076) Change in trade payables (11.462) 15.432 Change in other receivables/payables 1.413 24.796 Net change in provisions (992) (4.258) Change in employee payables - staff leaving indemnity paid during year (12) (998) (524) Cash generated from operating activities 131.688 163.475 Interest paid (59.411) (61.673) (31) Tax paid (15.813) (19.258) Net cash generated from operating activities (1) 56.464 82.544 Cash flows from investing activities Dividends received 980 980 1.176 Proceeds from sale of property, plant and equipment 69 1.797 Proceeds from sale of intangible assets Proceeds from investment activities Purchases of intangible assets (1) (267) (461) Purchases of property, plant and equipment (2) (46.387) (56.167) Acquisition of investments (9.259) Sale of investments Purchase of own shares (10) (231) Change in scope of consoldation 368 28 Interest received 10.302 17.854 43 Net cash used in investing activities (2) (44.194) (36.004) Cash flows from financing activities Dividends paid (17.199) (7.889) (57) Proceeds from share capital increase and capital contribution net of expenses Change in scope of consolidation (4.636) Proceeds from borrowings Loans granted (701) (868) New borrowings 90.481 59.577 27.683 Repayment of borrowings (133.499) (12.623) (86.601) Sale of investments net of costs incurred 135.587 Net cash generated from/(used in) financing activities (3) 74.669 (64.479) Net increase/(decrease) in cash and cash equivalents (1+2+3) 86.939 (17.939) Cash and cash equivalents and bank overdrafts at 1 January 120.237 136.498 Translation gain on cash and cash equivalents 431 1.678 Cash and cash equivalents and bank overdrafts at 31 December (9) 207.607 120.237
page 73. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.5 Consolidated statement of cash flows
(Euro thousands) Share Reserves Profit/(loss) Equity Non- Total capital for the attributable to controlling equity year owners of interests the parent At 31.12.2012 291.414 131.780 (79.207) 343.987 (270) 343.717 Appropriation of 2012 loss (79.207) 79.207 Dividends Purchase of own shares (231) (231) (231) Other movements 13.460 13.460 6.932 20.392 Profit for the year to 31 December 2013 15.089 15.089 (135) 14.954 At 31.12.2013 291.414 65.802 15.089 372.305 6.527 378.832 Appropriation of 2013 profit 15.089 (15.089) Dividends paid (9.310) (9.310) (7.889) (17.199) Sale of non-controlling interest in 111.858 111.858 23.729 135.587 wind companies Purchase of own shares
Other movements (9.560) (9.560) 3.136 (6.424) Profit for year to 31 December 2014 3.352 3.352 5.612 8.964 At 31.12.2014 291.414 173.879 3.352 468.645 31.115 499.760
page 74. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
6.6.1 Basis of preparation of the consolidated financial statements
The consolidated financial statements for the year ended 31 December 2014 have been prepared in accordance with International Financial Reporting Standards (International Accounting Standards - IAS and International Financial Reporting Standards - IFRS), and the relevant interpretations (Standing Interpretations Committee – SIC and International Financial Reporting Interpretations Committee – IFRIC) endorsed by the European Union and the provisions pursuant to article 9 of Legislative Decree 38/2005.
The financial statements used for consolidation purposes are those presented by the board of directors for approval at the shareholders’ meetings of each subsidiary, associate and joint venture, reclassified and adjusted in line with International Financial Reporting Standards (IAS/IFRS) and Group policy.
With regard to the layout of the consolidated financial statements, the Company has opted to present the following accounting statements:
. Consolidated balance sheet The consolidated balance sheet is presented in sections with separate disclosure of assets and liabilities and equity. Assets and liabilities are classified in the consolidated financial statements as either current or non- current.
. Consolidated income statement The consolidated income statement presents costs by function, also using the variable element of cost as a distinguishing factor in the analysis of direct and general costs.
For a better understanding of the normal results of ordinary operating, financial and tax management activities, the income statement presents the following intermediate consolidated results:
- gross profit; - operating profit; - profit before income tax; - profit for the period; - profit attributable to non-controlling interests; - profit attributable to owners of the parent.
Segment reporting has been presented in respect of the business units in which the Group operates, as the information used by management to evaluate operating results and for decision-making purposes in the individual business units coincides with the economic and financial information of each segment.
. Consolidated statement of comprehensive income The Group has opted to present two separate statements, consequently this statement discloses profit for the year including income and expenses recognised directly in equity.
. Consolidated statement of cash flows The consolidated statement of cash flows presents an analysis by areas that generate cash flows as required by International Financial Reporting Standards.
. Consolidated statement of changes in equity The statement of changes in equity is presented as required by International Financial Reporting Standards with separate disclosure of the profit for the period and each item of revenue, income, cost and expense not recorded in the income statement but recognised directly in consolidated equity based on specific IAS/IFRS requirements.
The consolidated financial statements of the Falck Renewables SpA Group are prepared in Euro thousands except otherwise indicated.
page 75. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
In accordance with IAS/IFRS, the Group has adopted IFRS 11 – Joint Arrangements with effect from 1 January 2014, which resulted in the restatement of the 2013 Annual Report (see note 6.6.4 Accounting policies: Joint Arrangements – IFRS 11). Consequently, the comparative figures in the notes to the consolidated financial statements do not correspond to those disclosed in the 2013 Annual Report published on 12 March 2014 as they reflect the adjustments made following adoption of IFRS 11.
The 2014 Annual Report was approved by the board of directors on 12 March 2015.
The Annual Report is audited by Reconta Ernst & Young SpA under the terms of the engagement approved in the AGM of 6 May 2011.
6.6.2 Scope of consolidation
The consolidated financial statements for the year ended 31 December 2014 include the financial statements of the parent company Falck Renewables SpA and its subsidiaries. Falck Renewables controls an entity when it has the power to influence significant decisions, is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity: in this case the entity is consolidated on a line-by-line basis. The companies in which the parent company exercises joint control with other shareholders (joint-ventures) and those in which it exercises a significant influence are accounted for using the equity method.
The Falck Renewables Group consists of 70 companies, of which 63 are consolidated on a line-by-line basis, 6 are consolidated using the equity method and 1 is valued at cost. The companies included in the scope of consolidation at 31 December 2014 are disclosed in the supplementary information (note 7.1).
The following companies have been included in the scope of consolidation this year on a line-by-line basis following acquisition of the Vector Cuatro Group:
- Vector Cuatro SLU (Spanish registered company) - 100% owned by Falck Renewables SpA; - Vector Cuatro Srl (Italian registered company) - 100% owned by Vector Cuatro SLU; - PV Diagnosis Fotovoltaica SLU (Spanish registered company) - 100% owned by Vector Cuatro SLU; - PV Diagnosis Srl (Italian registered company) - 100% owned by Vector Cuatro SLU; - Vector Cuatro France Sarl (French registered company) - 100% owned by Vector Cuatro SLU; - Vector Cuatro EOOD (Bulgarian registered company) - 100% owned by Vector Cuatro SLU; - Vector Cuatro Ingenieria Renovable SLU (Spanish registered company) - 100% owned by Vector Cuatro SLU; - Vector Cuatro Energias Renovables Mexico Sa de CV (Mexican registered company) - 98% owned by Vector Cuatro SLU and 2% by PV Diagnosis Fotovoltaica SLU; - Vector Cuatro Japan KK (Japanese registered company) - 100% owned by Vector Cuatro SLU; - Vector Cuatro Canada Inc (Canadian registered company) - 100% owned by Vector Cuatro SLU.
Vector Cuatro Servicios SL (Spanish registered company), which is 50% owned by Vector Cuatro SLU, was also acquired during the year and has been consolidated using the equity method.
Verus Energy Oak Ltd, in which Falck Renewables Wind Ltd holds a 51% interest, was acquired during the year and the following UK registered companies were incorporated: - Ongarhill Wind Energy Ltd - 75% owned by Falck Renewables Wind Ltd; - Mochrum Fell Wind Energy Ltd - 75% owned by Falck Renewables Wind Ltd; - Leadhills Wind Energy Ltd - 52% owned by Falck Renewables Wind Ltd; - Auchrobert Wind Energy Ltd - 75% owned by Falck Renewables Wind Ltd.
The Polish registered companies Elektrownie Wiatrowe Bonwind Kamienica Sp Zoo and Elektrownie Wiatrowe Bonwind Leszno Sp Zoo, which were 50% owned by Falck Renewables Wind Ltd and Wysoka Wind Farm Sp Zoo, in which Falck Renewables Wind Ltd held a 52% interest and were consolidated on a line-by-line basis, have
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no longer been included in the scope of consolidation following disposal of the entities during the year. The French registered entities Parc Eolien Sainte Trephine Sarl and Parc Eolien de Plovenez du Faou Sarl are no longer included in the scope of consolidation. These investments were 75% owned by Falck Energies Renouvelables Sa which merged with its two wholly owned subsidiaries Parc Eolien d’Availles Limouzin Sarl and Parc Eolien fe Moulismes Sarl. Ecoveol Sas was dissolved during the year.
Nutberry Wind Energy Ltd is 100% owned by Falck Renewables Wind Ltd at 31 December 2014, the interest was 52% at 31 December 2013, and Falck Renewables Uk Holdings no.1 Ltd changed its name to FRUK Holdings no.1 Ltd. West Browncastle Wind Energy Ltd is wholly owned by Falck Renewables Wind Ltd with effect from 29 December 2014.
6.6.3 Principles of consolidation
The companies included within the scope of consolidation applying the line-by-line method are those controlled by the parent company, also through indirect holdings. Associated companies and those entities on which the parent company exercises joint control together with other third parties are consolidated using the equity method. The financial statements of the companies included within the scope of consolidation have been adjusted, where necessary, to bring them into line with Group accounting policies that conform to IAS/IFRS. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which the parent company gains control and up to the date on which this control ceases. All significant intercompany balances and transactions are eliminated. Profits arising on transactions between consolidated entities, or with companies accounted for under the equity method, which are included within assets at the year-end as they are not yet realised, are eliminated if significant. The book value of consolidated investments is eliminated against the related share of equity inclusive of any fair value adjustments on acquisition. The resulting difference is treated as goodwill and is accounted for in accordance with IFRS 3. The non-controlling interests in net equity and profit for the period of consolidated entities are disclosed under separate headings in the consolidated balance sheet and income statement. Differences between acquisition cost and net equity at current fair values at the acquisition date are, where possible, allocated to specific assets and liabilities of the acquired company. In the event that the residual difference relates to a higher purchase price paid for goodwill this is recorded within intangible assets and subjected to an impairment test on an annual basis. Where the remaining difference is negative the amount is charged against the consolidation reserve in equity. The ownership percentage used for companies consolidated either line-by-line or proportionally is the statutory amount considering also indirect holdings. Dividends received by the parent company or other consolidated companies from investments included within the scope of consolidation are reversed in the consolidated income statement. The assets and liabilities in the financial statements of subsidiaries denominated in foreign currencies are translated to Euro applying the year-end exchange rate. The income statements of the financial statements of subsidiaries denominated in foreign currencies are translated to Euro using the average exchange rate for the year. Maintaining the same level of revenue and margins, fluctuations in foreign exchange rates may impact the value of revenue, costs and profit restated in Euro. The differences arising from the translation of opening balances at year-end rates are recorded in the translation reserve together with the difference arising on translation of the income statement and balance sheet values of profit for the year. The following exchange rates were used to translate the financial statements:
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Average rate Average rate 31.12.2014 31.12.2013 2014 2013 Pound Sterling (GBP) 0.8061 0.7789 0.8493 0.8337 US Dollar (USD) 1.3285 1.2141 1.3281 1.3791 Turkish Lira (TRY) 2.9065 2.832 2.5335 2.9605 Polish Zloty (PLN) 4.1843 4.2732 4.1975 4.1543 Mexican Peso (MXN) 17.6550 17.8679 Bulgarian Lev (BGN) 1.9558 1.9558 Canadian Dollar (CAD) 1.4661 1.4063 Japanese Yen (JPY) 140.3061 145.2300
6.6.4 Accounting policies
The valuation and measurement of the financial information for the year ended 31 December 2014 have been based on the IAS/IFRS currently in force and the related interpretations as set out in the documents issued to date by the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC).
The consolidated financial statements are prepared in Euro and all values are rounded to thousands of Euro except where otherwise indicated. The consolidated financial statements are prepared under the historical cost convention, with the exception of derivative instruments and available-for-sale financial assets, which are measured at fair value. The carrying value of assets and liabilities which are covered by fair value hedges and that would normally be recorded at amortised cost, is adjusted to reflect changes in the fair value attributable to the hedged risks. Non-current assets and fixed assets held for sale are recorded at the lower of net book value and fair value less costs of disposal. Preparation of the consolidated financial statements in accordance with IFRS requires management to make estimates, valuations and assumptions on the accounting value of a number of assets and liabilities and related disclosures, and contingent assets and liabilities at the date of the financial statements. The estimates and assumptions are based on historical results and other reasonable information and are adopted when the carrying value of the assets or liabilities may not be reliably estimated using other sources. Actual amounts may differ from estimates.
These estimates and assumptions are reviewed periodically and the effects of all differences relating to the current accounting period are recognised in the income statement. Where the adjustment covers both current and future reporting periods, the adjustment is recorded in the year in which the adjustment is made and future periods. The actual results may differ, in some cases significantly, from the estimated amounts due to changes in the circumstances on which the estimate was based.
The accounting policies used for the preparation of the consolidated financial statements are in line with those applied at 31 December 2013 with the exception of the adoption of new standards, amendments and interpretations that came into force on 1 January 2014.
The Group adopted for the first time a number of standards and amendments that require restatement of previous results including IFRS 10 – Consolidated financial statements and IFRS 11 – Joint Arrangements. The adoption of IFRS 12 – Disclosure of Interests in Other Entities, has extended the disclosures in the consolidated financial statements.
The nature and impact of each new standard and amendment are detailed below:
Consolidated financial statements - IFRS 10: the new standard replaces the portion of IAS 27 and SIC 12 providing a new definition of control in relation to consolidating an entity. An investor is deemed to control an investee when at the same time is has power to direct significant activities, exposure to variable returns from its
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involvement in the investee and the ability to exert power over the investee to affect the amount of its returns. The standard has not affected the Group’s scope of consolidation.
Joint Arrangements - IFRS 11: replaces IAS 31 “Interests in Joint Ventures and applies to all entities that are party to a joint arrangement whereby two or more parties, which have joint control through unanimous consent, have the power to direct decisions regarding relevant activities and govern exposure to future earnings. Two types of agreements have been identified: - joint operation: the party to the agreement recognises its share of assets, liabilities, revenue and costs in the financial statements; - joint venture: the contractual agreement is managed through an entity and the parties to the agreement have rights to the net assets of the arrangement. The share of interest in the joint venture is measured using the equity method and not proportionate consolidation.
The Falck Renewables Group has arrangements that may be classified as joint ventures, consequently the adoption of IFRS 11 has changed the method of consolidation for the following joint ventures: Frullo Energia Ambiente Srl (49% interest); Nuevos Parque Eolicos La Muela AIE (26% interest); Parque Eolico La Carracha Sl (26% interest); Parque Eolico Plana de Jarreta Sl (26% interest); Palermo Energia Ambiente ScpA (in liquidation – 23.27% interest); and Vector Cuatro Servicios SL (50% interest).
These entities (with the exception of Vector Cuatro Servicios SL that was acquired in 2014), were previously consolidated proportionately as the preferred method compared to the equity method. These represent joint ventures as Falck Renewables is a party to the joint control arrangement (generally a shareholder agreement whereby mutual decisions are taken between the parties to the agreement) under which it only has the right to net flows deriving from the operations of the entities governed by the arrangement. As previously illustrated, joint ventures have been consolidated using the equity method as this is now the only option available for accounting for joint ventures. Consequently, the information relating to 31 December 2013 has been restated as IFRS 11 has been applied retroactively as though it had been adopted in 2013. This allows comparison of the information for all periods disclosed.
In order to better understand the impact of the new standard, the tables below illustrate the balance sheet at 31 December 2013 and the income statement and statement of cash flows for the year then ended prior to adoption of IFRS 11 (“pre IFRS 11”), the adjustment arising from application of the new standard (“IFRS 11”) and the adjusted amounts for 2013 (“post IFRS 11 restated”).
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Balance sheet at 31 December 2013
(Euro thousands) 31.12.2013 31.12.2013 pre IFRS 11 IFRS 11 post IFRS 11 published on 12.3.2014 restated Assets A Non -current assets 1 I ntangible assets 91,904 (3,436) 88,468 2 Property, plant and equipment 1,012,761 (53,373) 959,388 3 Investments 4 0 4 4 Investments accounted for using the equity method 0 18,632 18,632 5 Medium/long -term financial receivables 0 367 367 6 Trade receivables 0 0 7 Deferred income tax assets 29,769 (1,696) 28,073 8 Other receivables 2,774 (3) 2,771 Total 1,137,212 (39,509) 1,097,703 B Current assets 1 Inventories 5,387 (840) 4,547 2 Trade receivables 131,435 (6,557) 124,878 3 Other receivables 35,535 4,782 40,317 4 Financial receivables 779 25 804 5 Financial assets 0 0 6 Cas h and cash equivalents 126,982 (6,163) 120,819 Total 300,118 (8,753) 291,365 C Non-current assets held for sale Total assets 1.437.330 (48,262) 1,389,068 Liabilities D Equity 1 Ordinary shares 291,414 0 291,414 2 R eserves 65,802 0 65,802 3 R etained earnings 0 0 4 Profit for the year 15,089 0 15,089 Equity attributable to owners of the parent 372.305 0 372,305 5 Non -controlling interests 6,527 0 6,527 Total equity 378.832 0 378,832 E Non-current liabilities 1 Medium/long -term financial liabilities 820,209 (29,391) 790,818 2 Other non-current liabilities 0 0 3 Deferred income tax liabilities 13,797 1 13,798 4 Provisions for other liabilities and charges 40,538 (1,847) 38,691 5 Staff leaving indemnity 4,447 (678) 3,769 Total 878,991 (31,915) 847,076 F Current liabilities 1 Trade payables 72,512 (9,397) 63,115 2 Other payables 42,613 (1,826) 40,787 3 Short -term financial liabilities 64,382 (5,124) 59,258 4 Provisions for other liabilities and charges 0 0 Total 179,507 (16,347) 163,160 G Liabilities attributable to non-current assets held for sale
Total liabilities 1.437.330 (48,262) 1,389,068
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Income statement for the year ended 31 December 2013
(Euro thousands) 2013 2013
pre IFRS 11 IFRS 11 post IFRS 11 published 12.3.2014 restated
Revenue 275,861 (22,065) 253,797 Direct labour costs (8,178) 1,378 (6,800) Direct costs (158,280) 14,738 (143,542) Total cost of sales (166,458) 16,116 (150,342) Gross profit 109,403 (5,948) 103,455 Other income 2,261 60 2,321 Other employee costs (13,623) 0 (13,623) Administrative expenses (18,736) 544 (18,192) Operating profit 79,305 (5,344) 73,961 Finance costs - net (48,459) 1,051 (47,408) Investment income 2,088 2,088 Profit before income tax 30,846 (2,205) 28,641 Income tax expense (15,892) 2,205 (13,687) Profit for the year 14,954 0 14,954 Loss attributable to non-controlling (135) 0 (135) interests Profit attributable to owners of 15,089 0 15,089 the parent
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Statement of cash flows for the year ended 31 December 2013
(Euro thousands) 2013 pre IFRS 11 2013 post IFRS 11 IFRS 11 published 12.3.2014 restated Cash flows from operating activities Profit/(loss) for the year 14.954 0 14.954 Adjusted for: Amortisation of intangible assets 973 0 973 Depreciation of property, plant and equipment 63.138 (5.561) 57.577 Impairment of intangible assets 3.581 0 3.581 Impairment of property, plant and equipment 10.100 (496) 9.604 Write-down of non-current assets Staff leaving indemnity provision 748 (72) 676 Fair value of financial assets Finance income (18.413) 558 (17.855) (43) Finance costs 66.872 (1.609) 65.263 31 Dividends received Share of profit of investments carried at equity (2.412) (2.412) (Gain)/loss on sale of intangibles (Profit)/loss on disposal of property, plant and equipment 190 (1) 189 (Profit)/loss on sale of investments Investment (income)/costs Other changes (7) 1 (6) Income tax expense (income statement) 15.892 (2.206) 13.686 Operating profit before changes in net working capital and provisions 158.028 (11.798) 146.230 Change in inventories (2.129) 4 (2.125) Change in trade receivables (16.497) 421 (16.076) Change in trade payables 17.224 (1.792) 15.432 Change in other receivables/payables 19.352 5.444 24.796 Net change in provisions (5.851) 1.593 (4.258) Change in employee payables - staff leaving indemnity paid (588) 64 (524) Cash generated from operating activities 169.539 (6.064) 163.475 Interest paid (64.320) 2.647 (61.673) (31) Tax paid (15.601) (3.657) (19.258) Net cash generated from operating activities (1) 89.618 (7.074) 82.544 Cash flows from investing activities Dividends received 1.176 1.176 Proceeds from sale of property, plant and equipment 2.073 (276) 1.797 Proceeds from sale of intangible assets Proceeds from investment activities Purchases of intangible assets (461) 0 (461) Purchases of property, plant and equipment (57.363) 1.196 (56.167) Acquisition of investments Sale of investments Purchase of own shares (231) 0 (231) Change in scope of consoldation 28 0 28 Interest received 18.324 (470) 17.854 43 Net cash used in investing activities (2) (37.630) 1.626 (36.004) Cash flows from financing activities Dividends paid (57) 0 (57) Proceeds from share capital increase and capital contribution net of expenses Change in scope of consolidation (4.636) (4.636) Proceeds from borrowings Loans granted (476) (392) (868) New borrowings 27.754 (71) 27.683 Repayment of borrowings (91.005) 4.404 (86.601) Net cash (used in) financing activities (3) (63.784) (695) (64.479) Net (decrease) in cash and cash equivalents (1+2+3) (11.796) (6.143) (17.939) Cash and cash equivalents and bank overdrafts at 1 January 136.498 0 136.498 Translation gain/(loss) on cash and cash equivalents 1.700 (22) 1.678 Cash and cash equivalents and bank overdrafts at 31 December 126.402 (6.165) 120.237
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IFRS 12 Disclosure of Interests in Other Entities IFRS 12 establishes new disclosure requirements for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The standard does not have an effect on the Group’s financial position or financial performance. The Group does not hold interests in unconsolidated structured entities and still exercises control over all of its subsidiaries. The new standard requires entities to disclose additional information about individual subsidiaries with non- controlling interests that are material; these disclosures have been presented in respect of the wind sector companies involved in the Borea transaction detailed in paragraph 5.2.7 of the Directors’ report, as they are considered material to the Group. Additional disclosures required by the standard have been provided in the notes to the consolidated financial statements.
Investment Entities - Amendments to IFRS 10, IFRS 12 and IAS 27 These amendments provide an exception to consolidation for those entities that meet the definition of an investment entity as defined in IFRS 10 – Consolidated financial statements. This exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments have no impact on the Group as none of the Group’s entities meets the definition of an investment entity pursuant to IFRS 10.
Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32 The amendments clarify the meaning of “currently has a legally enforceable right of set-off” and also clarify the offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. These amendments do not impact the Group’s financial statements.
Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39 These amendments allow hedge accounting to be continued where the novation of a hedge meets certain criteria. These amendments do not impact the results as the Group has not changed its hedges in the current or prior periods.
Recoverable Amount Disclosures for Non-Financial Assets – amendments to IAS 36 These amendments remove the impact introduced involuntarily by IFRS 13 regarding disclosures required by IAS 36. Moreover, these amendments require disclosures regarding the recoverable amount of an asset or CGU for periods in which impairment has been recorded or reversed in respect of that asset or CGU. These amendments have not impacted the Group’s financial statements. The Group has not early adopted any other standards, interpretations or improvements issued but not yet effective.
IFRS and/or interpretations issued but not yet effective The following standards and interpretations had been issued but were not yet effective at the time of preparation of the Annual Report. The Group intends to adopt these standards when they become effective.
IFRIC 21 - Levies IFRIC 21 provides guidance that an entity should recognise a liability when an obligating event arises in accordance with the relevant legislation. For payments that are triggered only on reaching a minimum threshold, the liability is recognised when that minimum threshold is reached. IFRIC 21 is applied on a retrospective basis and is effective for annual periods beginning on or after 17 June 2014.
The principal accounting policies and valuation methods adopted in the preparation of these consolidated financial statements are set out below:
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Business combinations and goodwill Business combinations are accounted for applying the purchase method. The cost of an acquisition is measured as the fair values at the date of exchange of all assets acquired and liabilities assumed and any non-controlling interest in the acquiree. For each business combination the Group establishes whether to measure the non-controlling interest in the acquiree at fair value or the non-controlling interest’s proportionate share of the identifiable net assets of the acquiree. The acquisition costs are charged to profit or loss as incurred and classified in administrative expenses. When the Group acquires a business, it classifies or designates the financial assets acquired or the liabilities assumed on the basis of contractual terms, economic conditions and other pertinent conditions existing at the acquisition date. This may include the separation of embedded derivatives from host contracts. Where the business combination is achieved in stages, the previously held interest is remeasured at fair value at the acquisition date and the resultant gain or loss is recognised in profit or loss. This amount is also taken into account in the determination of goodwill. The contingent consideration is measured at fair value at the time of the business combinations. The change in fair value of the contingent consideration classified as assets or liabilities, such as a financial instrument accounted for under IAS 39 Financial instruments: recognition and measurement, should be recognised in either profit or loss or other comprehensive income. If the additional consideration is not within the scope of IAS 39, it is accounted for in accordance with the relevant IFRS. If the contingent consideration is classified as an equity instrument, the original amount is not remeasured and its subsequent settlement is accounted for within equity. Initial recognition of goodwill is at cost measured as the difference between the aggregate of the value of the consideration transferred and the amount of any non-controlling interest and the net value of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed by the Group. If the fair value of the net assets acquired exceeds the consideration transferred, the Group ensures that the identification of all of the assets acquired and liabilities assumed is complete and reviews the procedures used to determine the amounts recognised at the date of acquisition. Where following this review the fair value of the net assets acquired exceed the consideration transferred, the difference (gain) is recognised in profit or loss. Subsequent to initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of carrying out the impairment test, goodwill acquired from a business combination is allocated, at the date of acquisition, to each of the cash generating units that benefit from the acquisition irrespective of whether the assets or liabilities of the acquired entity are assigned to that unit at the acquisition date. Where goodwill is allocated to a cash generating unit and part of the operations of the CGU is disposed, the goodwill associated with the disposed business is included in the carrying amount in order to determine the gain or loss on sale. The goodwill associated with the disposed business is determined on the basis of the relative values of the disposed business and the remaining portion of the CGU.
Fair value measurement The Group measures financial instruments, such as derivatives and non-financial assets, at fair value at each balance sheet date. The fair value of financial instruments valued at amortised cost is summarised in the notes to the consolidated financial statements. Fair value is the price at which an orderly transaction to sell an asset or transfer a liability would take place between market participants at the measurement date. Fair value measurement assumes that a transaction takes place: (a) in the principal market for the asset or liability; or (b) in the absence of a principal market, the most advantageous market for the asset or liability. The principal market or most advantageous market must be accessible to the Group. The fair value of an asset or liability is measured adopting the assumptions that market participants would use to determine the price of the asset or liability, presuming that they act in such a way as to satisfy their financial interest. The fair value measurement of non-financial assets considers the ability of a market participant to generate economic benefits consistent with its highest and best use or from the sale to another market participant that would use it to its highest or best use.
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The Group employs measurement techniques appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All of the assets and liabilities for which fair value is determined or disclosed in the financial statements are categorised based on the fair value hierarchy as set out below: - Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; - Level 2 – inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; - Level 3 – measurement technique for which inputs are unobservable inputs for the asset or liability. The fair value measurement is classified in its entirety in the level of the lowest level input that is significant to the entire measurement. For assets and liabilities that are measured at fair value on a recurring basis, the Group determines if any transfer between hierarchy levels has taken place by reviewing the categorisation (based on the lowest level of input that is significant to the entire measurement) at each balance sheet date.
Intangible assets An intangible asset is recorded only when it is identifiable, controllable, is expected to generate economic benefits in future periods and the cost may be reliably measured. Intangible assets are recorded at cost including directly attributable expenses and are amortised systematically over their estimated useful economic life. Intangible assets with a finite useful life are classified at cost net of accumulated amortisation and any impairment losses. Amortisation is based on the estimated useful life and commences when the asset is available for use. Intangible assets with an indefinite useful life and those not available for use are tested for impairment. This test consists in a comparison between the future estimated cash flows from the intangible asset and the net book value. The method of discounted operating cash flows is applied based on projections included in future business plans approved by company management. Costs relating to the acquisition of CIP 6/92 rights are amortised over the related benefit period. Goodwill principally relates to the differences arising on first-time consolidation between the book value of the investments and the corresponding share of equity of the consolidated companies, adjusted in order to take into consideration both significant intercompany transactions and the fair values of the identifiable net assets and liabilities of the acquired company. Goodwill that did not originate from consolidation differences relates to the purchase price paid by Vector Cuatro SLU following acquisition of the Langley business that took place prior to Falck Renewables SpA’s acquisition of the former. Goodwill is subjected to an impairment test, at least on an annual basis, in order to identify permanent reductions in value. In order to perform the impairment test correctly, goodwill has been allocated to each of the cash generating units (CGUs) that benefit from the acquisition. The Group defines CGUs as the smallest, reasonably identifiable group of operations that generates cash flows substantially independently from the cash flows generated by other units or groups of units. Given the nature of the renewable energy business (WtE, biomass, wind and solar energy) whereby individual plants in special purpose project companies are identified and measured separately and are generally financed separately from other projects through non-recourse debt to the shareholders, the CGUs represent either the proprietary project companies or those that operate renewable energy power plants. Consequently, these are independent from others generating their own cash flows and operating in an active market with their own products.
Property, plant and equipment Property, plant and equipment is recorded at acquisition or production cost including directly attributable costs. Property, plant and equipment is valued at cost, net of depreciation and accumulated impairment losses, with the exception of land, which is not depreciated and is valued at cost less accumulated impairment losses.
page 85. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
In the event that significant components of an item of property, plant and equipment have different useful lives, each component is attributed a separate useful life for depreciation purposes (component approach). The depreciation rates applied represent the estimated useful life of the assets.
The rates applied to the various asset categories are as follows: (%)
Industrial buildings 4 - 10 Plant and machinery 5 - 10 Equipment 7 - 15 Other assets 6 - 20 Assets operated under concession 5 - 10
These rates are applied based on months of actual use with regard to assets that come into use during the year. Development costs are capitalised on the assets to which they relate from the time the project to construct and operate a plant has been authorised, prior to which they are charged to the period in which they are incurred. Ordinary maintenance costs are charged to expenses in the year in which they are incurred. Maintenance costs that increase the future economic benefits derived from the assets are capitalised on the related asset and depreciated over the residual useful life. Borrowing costs for the construction of a plant or its acquisition are capitalised up until the moment in which the asset is ready for use in the production process. Depreciation is applied from the date on which temporary approval (or equivalent status) is awarded to the plant or areas of it that are capable of operating at full regime as defined by management. From this date, finance costs and expenses attributable to the approved plant or areas within it are no longer capitalised and are charged to the income statement. With regard to the Sicily Projects, property, plant and equipment was measured taking into consideration the current litigation with the Department of the Sicily Region, as detailed in note 5.2.11 of the directors’ report.
Impairment of assets In the presence of circumstances that potentially indicate a loss in value, impairment tests are conducted on tangible and intangible assets with an indefinite useful life, by estimating the recoverable amount of the asset and comparing it with the related net book value. The recoverable value of an asset or CGU is the greater of value in use and fair value less cost of disposal. In the event that the recoverable value is lower than the carrying value, an impairment loss is recognised in the income statement. Where there is an indication that an impairment loss recognised in a previous accounting period is no longer required, the carrying amount is restated to the new estimated recoverable value which may not exceed the carrying value that would have been recognised had the original impairment not occurred. The reversal is also recorded in the income statement. The market capitalisation of the Group at 31 December 2014 of Euro 270,869 thousand is lower than the carrying amount of Group total equity of Euro 468,645 thousand. An impairment test was performed on the operating and non-operating assets of the Falck Renewables Group that did not give rise to the recognition of an impairment loss against assets. Sensitivity analyses were also performed in respect of the WACC rate employed (+/-0.5%) and electricity prices (+/-5%): the outcome was positive in both cases.
Investments and securities
Investments in subsidiaries and associates Investments in subsidiaries excluded from the scope of consolidation are valued at cost when the effect of their consolidation would not have a significant impact on the consolidated financial position and on the consolidated profit for the period. Investments in associates in which the Falck Renewables Group holds more than 20%, or 10% if listed, are valued applying the equity method.
page 86. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Investments in other companies and other securities In accordance with IAS 39 and 32, investments in companies that are neither subsidiaries nor associates are measured at fair value through profit or loss with the exception of those circumstances in which market price or fair value cannot be determined, in which case the cost method is applied. Gains and losses arising on adjustments to value are recognised as a specific reserve within equity. Where impairment losses exist or in the event of disposal of the related asset, the gains and losses recorded in equity up until this point are recycled to the income statement. Investments held for sale are measured at fair value with any adjustment recognised in the income statement. Cost is reduced for any indication of impairment where investments have recorded losses and no profits are foreseeable in the near future to cover these losses; the original value may be restated in subsequent accounting periods in the event that the circumstances that gave rise to the write-down no longer exist.
Joint-ventures
Holdings in joint ventures are consolidated applying the equity method in accordance with IFRS 11.
Financial assets
Classification In accordance with IAS 39 and IAS 32, financial assets are classified into the following four categories: 1. Financial assets ‘at fair value through profit or loss’; 2. Held-to-maturity investments; 3. Loans and receivables; 4. Available-for-sale financial assets.
The classification depends on the reason for which the investment was initially purchased and is subsequently held and management is required to determine the initial classification on initial recognition updating this at each financial year-end. A description of the principal characteristics of each asset category detailed above may be summarised as follows:
Financial assets ‘at fair value through profit or loss’ This category has two sub-categories:
1. Financial assets held for trading;
2. Financial assets designated to the fair value category on initial recognition. This category includes all financial investments, except for equity instruments that are not quoted in an active market but for which a fair value may be reliably measured.
Financial instruments, with the exception of hedge instruments, are included in this category and their fair value recorded in the income statement. All assets within this category are classified as current if they are held for trading purposes or where disposal is expected within 12 months from the year end. Designation of a financial instrument to this category is irrevocable and may take place only on initial recognition.
Held-to-maturity investments Held-to-maturity investments are non derivative financial assets with fixed or determinable payments and fixed maturity, which the Group intends to hold to maturity (e.g. underwritten debentures). Evaluation of the intent and ability to hold the asset to maturity must be made on initial recognition and at each subsequent balance sheet date. In the event of sale before maturity (of a significant amount and not in exceptional circumstances) of held-to- maturity securities, all such investments are reclassified as financial assets held for trading and measured at fair value.
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Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market and which the Group does not intend to trade in. These are included in current assets with the exception of the portion expiring more than 12 months after the balance sheet date, which is classified in non-current assets. Loans and receivables are classified within the financial statements under the headings financial receivables and other receivables.
Available-for-sale financial assets All non-derivative instruments that are not classified in another category are designated as available-for-sale financial assets. These are classified as non-current assets unless management intends to dispose of them within 12 months of the balance sheet date.
Accounting treatment Financial assets ‘at fair value through profit or loss’ held for trading (category 1) and available-for-sale financial assets (category 4) are recorded at fair value including costs directly attributable to acquisition. Gains or losses relating to financial assets held for trading are recognised immediately in the income statement. Gains or losses relating to financial assets available for sale are recorded within a separate heading in equity until they are sold or otherwise disposed of, or until circumstances indicate they may be impaired. Where any of these events takes place, all gains or losses recognised to date and recorded in equity are reclassified to the income statement. For this purpose the Group has defined quantitative parameters that identify a prolonged and significant decline in market prices, with particular reference to a significant decrease in terms of value and a prolonged decrease over time. Fair value represents the amount at which an asset may be exchanged or a liability settled in an arm’s length transaction between knowledgeable, willing parties. As a result it is assumed that the entity is a going concern and that neither party needs to liquidate its assets through transactions applying unfavourable terms. In the case of securities traded on an active market, fair value is determined with reference to the bid price at the end of trading at the balance sheet date. In the event that a market valuation is not available for the investment, fair value is determined either based on the current market value of another substantially similar financial instrument or applying appropriate valuation techniques (discounted cash flows - DCF). Where fair value may not be reliably determined, the financial asset is valued at cost with disclosure in the notes to the financial statements regarding the type of asset and explanation of the accounting treatment. Held-to-maturity investments (category 2) and loans and receivables (category 3) are recorded at cost representing the fair value of the initial consideration exchanged and are subsequently valued applying the amortised cost method utilising the effective interest rate and taking into consideration any discounts or premiums received at the date of acquisition in order to record them over the entire period of ownership up to maturity. Gains and losses are recognised in the income statement either when the investment reaches maturity or where circumstances indicate that it has suffered an impairment loss, in the same way they are identified during the normal amortisation period foreseen by the amortised cost method. Investments in financial assets may be derecognised only when the contractual rights to receive cash flows from the investments have expired (e.g. final payment of underwritten bonds) or when the Group transfers the financial asset together with all of the related risks and rewards.
Inventories Finished goods are stated at the lower of purchase cost and net realisable value. Purchase cost is determined using the weighted average cost method. Obsolete and slow moving inventory is valued based on possible future use or realisation. With regard to contract work in progress that spans more than one accounting period, valuation is based on income earned to date with reasonable certainty, determined by comparing actual costs to date with the total estimated costs to completion.
page 88. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Receivables Receivables are initially recorded at the fair value of the amount to be received, which for this category normally relates to the nominal value indicated on the invoice, adjusted where necessary to the estimated recoverable amount through recognition of a provision for doubtful accounts. Subsequently, where the required conditions exist, receivables are valued applying the amortised cost method.
Cash and cash equivalents Cash and cash equivalents include cash on hand and demand and short-term deposits, the latter maturing in less than three months at the outset. Cash and cash equivalents are recorded at nominal value, or in the case of balances denominated in foreign currency at the year-end spot rate, which represents the fair value.
Non-current assets disposed of or held for sale (Discontinued operations) Non-current assets that have been disposed of or that are held for sale include those assets (or groups of assets) due to be disposed of and for which the accounting value will be recovered principally through sale rather than future use. Non-current assets held for sale are valued at the lower of their carrying amount and fair value less costs to sell. In accordance with IFRS, information relating to discontinued operations is presented in two specific headings in the balance sheet: non-current assets held for sale and liabilities attributable to non-current assets held for sale; and in a specific heading in the income statement: net profit/(loss) of discontinued operations or non-current assets held for sale.
Provisions Provisions are recognised when a present obligation (legal or constructive) exists as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount may be made. No provision is made for risks in relation to which the recognition of a liability is only possible. In this case the risk is disclosed in the relevant note on contingencies and commitments and no provision is made. Provisions may be analysed as follows:
Litigation This provision includes the charge for future costs relating to legal proceedings.
Investments Provision is made to recognise potential impairment losses in the carrying value of non-consolidated subsidiaries.
Environmental This provision comprises future obligations in relation to the decommissioning of power plants at the end of their useful life, with a corresponding increase in the book value of the asset to which the obligation relates, which are calculated based on independent expert valuations. The portion of the total classified in property, plant and equipment that exceeds the amount expected to be realised on sale of the recovered materials is subject to depreciation. This provision also includes amounts provided to meet future commitments in relation to the redevelopment of landfills in accordance with the obligations undertaken on receipt of authorisations from the relevant authorities. These provisions are based on estimates prepared by specialist enterprises and are charged to the income statement.
Sundry risks provision This provision includes all other future liabilities not included above, which are reasonably quantifiable but for which the date of occurrence is uncertain.
Staff leaving indemnity (TFR) Post-employment defined benefits and other long-term employee benefits are subject to actuarial valuation. The liability recognised in the balance sheet is the present value of the Group’s obligations. Actuarial gains and losses are recognised in the income statement. Valuation of the liability is performed by independent actuaries.
page 89. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Pursuant to Finance Act 296 of 27 December 2006, only the liability relating to the TFR held within the company has been valued for the purpose of IAS 19 as future provisions are paid to a separate entity. Consequently, in respect of future payments the company is not subject to the reporting requirements relating to the future benefits payable during employment.
Trade payables Trade payables with normal trading terms are recorded at nominal value. Where the payment terms are such that a financial transaction exists, the nominal value of the liabilities measured applying the amortised cost method is discounted and the difference included in finance costs. Trade payables denominated in foreign currency are translated at year-end exchange rates and the gains and losses arising on exchange are recognised in the income statement in the period in which they arise.
Borrowings and financial liabilities Borrowings are recognised initially at fair value, net of transaction costs incurred. Subsequently, borrowings are stated at amortised cost. Finance costs are determined using the effective interest method. Other financial liabilities comprise derivative instruments entered into in order to hedge interest rate risk. The Group has entered into Interest Rate Swaps (IRS) in order to hedge the risk arising on fluctuations in interest rates applicable to project financing and the loan entered into by the parent company on 14 January 2011. Where possible the Group adopts hedge accounting in relation to these financial instruments, ensuring compliance with IAS 39.
With regard to the derivative contracts on interest rates entered into by Falck Renewables SpA, the fair value was adjusted to take into account counterparty risk (DVA – Debit Valuation Adjustment) by including a correction factor in the yield curve. This measurement was not applied to derivatives on project financing rates as: - The interest rate applied by the lending banks already takes into account the intrinsic risk of the financed company; - At the time of carrying out impairment tests, the calculation assumptions envisaged that future cash flows of the individual companies allow recovery of not only the asset value but also repayment of the residual borrowing including the fair value of the associated derivative.
With regard to derivatives to hedge foreign exchange rates, the measurement of counterparty risk was not considered necessary as it is not significant given the short-term nature of the hedging.
Government grants Government grants are recognised when there is reasonable assurance that an entity will comply with any conditions attached and that the grant will be received. Where grants are awarded to cover expenditure, they are classified as income and recognised in the period in which the related costs are incurred. Where grants are received towards the cost of an asset, both the asset and the grant are recorded at nominal value and systematically charged to the income statement over the useful life of the corresponding asset. Where the Group receives a non-monetary grant, the asset and the grant are recorded at nominal value and systematically charged to the income statement over the useful life of the corresponding asset. Where loans or subsidies awarded by government authorities or similar institutions bear interest rates below current market rates, the benefit arising from this difference is recognised as an additional government grant.
Current tax liabilities The provision for income taxes is based on the estimated taxable income for the period for each individual company, taking into consideration tax credits and losses brought forward and utilised in the period.
Accruals, prepayments and deferrals Accruals, prepayments and deferrals are determined applying the accruals concept.
page 90. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Share capital Ordinary shares are classified within share capital at nominal value. Incremental costs directly attributable to capital transactions by the parent company are recorded as a deduction in equity.
Own shares Own shares repurchased are measured at cost and deducted from equity. The purchase, sale or cancellation of own shares do not give rise to gains or losses in the income statement. Where shares are reissued, the difference between the purchase price and the amount paid is included in equity in the share premium reserve.
Foreign currency translation The functional currency of the Group is the Euro, representing the currency in which the consolidated financial statements are prepared and presented. Foreign currency transactions are recorded at the exchange rate existing at the date of the transaction. Receivables and payables are translated at the closing rate at the balance sheet date. Exchange gains or losses arising on translation are recognised in the income statement in the period in which they arise. Non-monetary items measured at historical cost are translated using the exchange rate at the date of the transaction. Non-monetary items measured at fair value are translated using the exchange rate at the date when the fair value was determined.
Revenue recognition Revenue is recorded net of returns, discounts and rebates, as well as direct taxes on the sale of goods or provision of services.
Revenue from product sales Revenue from the sale of products is recognised on the transfer of ownership, which normally takes place on delivery or despatch of the goods. Revenue also includes income from the sale of Green Certificates (in Italy) and ROCs (in the UK) which are accounted for applying the accruals concept taking into account the accounting period in which the electricity was generated by renewable sources and in proportion to overall production. With regard to Green Certificates, for the purpose of preparing the financial statements, the Group records a receivable due from GSE and the corresponding income for revenue attributable to the period. The Group has opted for the guaranteed Green Certificates purchase arrangement with the GSE applying the price established by current regulations to the final quantity, as disclosed in note 5.1.2 Regulatory framework. The final quantity of Green Certificates issued refers to certificates issued by the GSE, based on actual production, in the year following that in which the production that benefits from incentives took place.
Revenue from services Revenue from services is recognised once the service has been rendered or in relation to the relevant stage of completion.
Interest Finance income is accounted for applying the accruals concept.
Dividends Dividends are recognised when the right to receipt of the dividend is established, which normally corresponds to the approval of distribution in the shareholders’ meeting.
Other income Other income comprises amounts that do not relate to the core business of the Group and, in accordance with IAS 1 is classified in ordinary activities and disclosed separately in the notes to the financial statements where significant in value.
page 91. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Costs Costs are recognised net of returns, discounts, bonuses and premiums, as well as direct taxes relating to the purchase of goods and services.
Taxation including deferred income tax Income tax is calculated and provided for based on estimated taxable income for the year and applying existing tax legislation. Deferred income taxes are calculated applying the liability method on all temporary differences between the tax bases of assets and liabilities and the financial reporting values at the balance sheet date. Deferred income tax assets are recognised only where it is probable that the temporary differences will reverse in the immediate future and to the extent that there will be sufficient taxable income against which these temporary differences may be utilised. The balance of deferred income tax assets is reviewed at each balance sheet date and a valuation allowance is provided in the event that it is no longer probable that sufficient future taxable profits will be available to offset all or part of the tax credit. Unrecognised deferred income tax assets are reviewed at each balance sheet date and are recognised where it is probable that they may be recovered against future taxable profits.
The Italian Constitutional Court declared in its ruling of 11 February 2015 that the Robin Tax, an additional tax on income applied in certain circumstances to enterprises operating in the energy sector, infringes constitutional law with effect from tax periods after 31 December 2014. The illegitimacy ruling actually comes into force on the day after publication of the ruling in the Italian Official Gazette, in this case 12 February 2015. The 2014 Annual Report reflects the impact of this pronouncement with regard to the calculation of deferred income taxes as the above ruling impacts the method of calculation. However, as declared in the ruling, this does not impact the current tax calculation that has been made in line with the previous year.
Income taxes on items recognised directly in equity are also recognised in equity and not through the income statement. Deferred income tax assets and liabilities are measured at the enacted tax rates that will be in effect in the periods in which the assets are realised or the liability is settled and are classified in non-current assets and liabilities, respectively.
VAT Revenue, costs and assets are recorded net of VAT except where: - VAT on the purchase of goods or services is not deductible in which case it is included in the purchase cost of the asset or as part of the cost charged to the income statement; - It relates to trade receivables and payables disclosed gross of VAT. The net balance of VAT recoverable that may be claimed from or is due to customs and excise is classified in either trade receivables or payables.
Earnings per share Earnings per share is calculated by dividing the profit or loss attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year, net of own shares held.
6.6.5 Financial risk management: objectives and criteria
The Group’s financial instruments, other than derivatives, comprise bank borrowings, demand and short-term bank deposits. Similar instruments are employed in financing the Group’s operating activities. The Group uses derivative financial instruments, principally interest rate swaps, with the aim of managing interest rate risk on its transactions and various forms of financing. The Group’s debt financing exposes it to a variety of financial risks that include interest rate, liquidity and credit risk.
page 92. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Interest rate risk
The Group’s exposure to market risk in respect of interest rate fluctuations principally relates to the long-term obligations entered into by the Group using a mix of fixed and variable interest rates. In order to manage this mix effectively, the Group purchases interest rate swaps under which it agrees to exchange, at specific levels, the difference between fixed interest rates and variable rates calculated on a pre-determined notional capital amount. The swaps are designated to hedge the underlying obligations.
Credit risk
The Group only trades with reliable and reputable customers. Credit risk relates to the other financial assets of the Group that include cash and cash equivalents, available-for- sale financial assets and a number of derivative instruments, and present a maximum risk equal to the carrying amount of these assets. Consolidation of the Vector Cuatro Group has not substantially modified the credit risk profile.
Liquidity risk
The objective of the Group is to achieve a balance between maintaining available funds and ensuring flexibility through the use of loans and bank overdrafts. The Group entered into a loan agreement for Euro 165,000 thousand on 14 January 2011 that matures on 30 June 2015 (now reduced to a facility of Euro 82,500 thousand), with the purpose of funding the parent company’s liquidity requirements and to provide capital to and finance its subsidiaries. This loan is subject to, inter alia, financial covenants comprising the ratio of EBITDA/net financial position and net financial position/total equity, calculated based on the amounts disclosed in the consolidated financial statements.
The covenants were met with ample margin at 30 June 2014 and 31 December 2014. The Group holds liquid assets not restricted by project financing of Euro 104,786 thousand at 31 December 2014.
6.6.6 Capital risk management
The key objectives of the Group regarding capital management are creating value for its shareholders and ensuring the going concern of the business. The Group has also established the objective of maintaining the best possible capital structure in order to reduce the cost of debt and fulfil financial covenants imposed by the loan agreement.
6.6.7 Segment information
Set out below are details of the results of operations and financial position by business segment in accordance with IAS/IFRS. The segments identified represent the organisation and production structure adopted by the Falck Renewables Group. The operating segments and performance indicators were based on the reporting model used by the Group’s board of directors for the purpose of strategic decision making.
page 93. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
(Euro thousands) WtE, biomass, Wind Services Holding Elimination Consolidated photovoltaic Operations 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Revenue 59,211 70,399 186,976 183,342 2,041 223 56 (126) 248,325 253,797 Cost of sales (52,420) (62,010) (95,938) (88,438) (1,691) (100) 105 106 (150,044) (150,342) Gross profit 6,791 8,389 91,038 94,904 350 123 56 (21) 106 98,281 103,455 Other income 4,678 531 3,470 867 6 7,442 7,082 (6,231) (6,159) 9,365 2,321 Administrative expenses (6,302) (7,011) (13,633) (13,247) (1) (22,730) (23,161) 5,798 11,604 (36,868) (31,815) Write-down of non-urrent assets Operating (loss)/profit 5,167 1,909 80,875 82,524 355 (15,165) (16,022) (454) 5,551 70,778 73,961 Finance income/(costs) - net (6,162) (5,354) (47,726) (45,874) 9 2,244 3,712 1,815 108 (49,820) (47,408) Investment income/(expenses) 1,927 2,081 (1,379) 7 38,739 15,568 (38,665) (15,568) 622 2,088 (Loss)/profit before income tax 932 (1,364) 31,770 36,657 364 25,818 3,258 (37,304) (9,909) 21,580 28,641 Income tax expense (2,664) (1,493) (14,043) (14,961) (115) 4,219 2,782 (13) (15) (12,616) (13,687) (Loss)/profit for the year (1,732) (2,857) 17,727 21,696 249 30,037 6,040 (37,317) (9,924) 8,964 14,954 Net profit/(loss) of assets held for sale (Loss)/profit for the year (1,732) (2,857) 17,727 21,696 249 30,037 6,040 (37,317) (9,924) 8,964 14,954 (Loss)/profit attributable to non-controlling interests (216) (46) 5,828 (92) 3 5,612 (135) (Loss)/profit attributable to owners of the parent (1,516) (2,811) 11,899 21,788 249 30,037 6,040 (37,317) (9,927) 3,352 15,089 (Euro thousands) WtE, biomass, Wind Services Holding Elimination Consolidated photovoltaic Financial 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Intangible assets 3,856 3,478 89,312 84,160 10,262 776 829 1 104,207 88,467 Property, plant and equipment 112,176 116,659 853,562 843,640 794 465 456 (1,265) (1,367) 965,732 959,388 Net financial position 180,323 178,002 785,803 871,894 147 (248,393) (242,201) (79,751) (79,609) 638,129 728,086 Investments 6,386 6,641 40,633 49,245 8,602 292 741 1 55,913 56,628
6.6.8 Balance sheet content and movements
Assets
A Non-current assets
1 Intangible assets
Movements in the period were as follows: (Euro thousands) At Acquisi- Capital.n ForeignChange in Sales Other Impair- Amorti- At 31.12.2013 tions and exchange scope of move- ment sation 31.12.2014 reclass.n differences consol.n ments losses 1.1 Industrial patent rights 543 51 (171) 423 1.2 Concession, licences, trademarks and similar 3,532 2 1 (513) 3,022 1.3 Goodwill 84,102 9,259 5,199 1,549 100,109 1.4 Other intangibles 2 151 6 162 (23) 298 1.5 Assets under construction and advances 289 116 (57) 6 354 Total 88,468 9,526 5,201 1,718 (707) 104,206
page 94. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Goodwill principally consists of the differences arising on first time consolidation between the book value of the investments and the corresponding share of net equity of the consolidated companies that is attributable to the Group. Goodwill that does not derive from differences arising from consolidation (Euro 1,549 thousand) relates to the price paid by Vector Cuatro SLU for acquisition of the Langley business that took place prior to Falck Renewables SpA’s acquisition of the former and is included under the heading Change in scope of consolidation.
Since 1 January 2005, goodwill has not been amortised but is subjected to an annual impairment test. The goodwill resulting from business combinations has been allocated to separate cash generating units (CGUs) in order to identify potential impairment losses. The cash generating units identified are:
- Ben Aketil Wind Energy Ltd (Ben Aketil wind farm) - Boyndie Wind Energy Ltd (Boyndie wind farm) - Cambrian Wind Energy Ltd (Cefn Croes wind farm) - Earlsburn Wind Energy Ltd (Earlsburn wind farm) - Ecosesto SpA (Rende biomass plant) - Eolica Cabezo San Roque Sau (Cabezo wind farm) - Eolica Petralia Srl (Petralia wind farm) - Eolica Sud Srl (San Sostene wind farm) - Eolo 3W Minervino Murge Srl (Minervino Murge wind farm) - Esquennois Energie Sas (Oise wind farm) - Falck Renewables Wind Ltd (wind sector parent company) - Frullo Energia Ambiente Srl (Granarolo dell’Emilia WtE plant) - Geopower Sardegna Srl (Buddusò-Alà dei Sardi wind farm) - Kilbraur Wind Energy Ltd (Kilbraur wind farm) - Millennium Wind Energy Ltd (Millennium wind farm) - Parc Eolien du Fouy Sas (Maine et Loire wind farm) - Prima Srl (Trezzo sull’Adda WtE plant) - Ty Ru Sas (Plouigneau wind farm) - Nutberry Wind Energy Ltd (Nutberry wind farm) - Spaldington Airfield Wind Energy Ltd (Spaldington wind farm) - West Browncastle Wind Energy Ltd (West Browncastle wind farm) - Kingsburn Wind Energy Ltd (Kingsburn wind farm) - Esposito Servizi Ecologici Srl (Gorle waste treatment plants) - Solar Mesagne Srl (Mesagne photovoltaic plants) - Actelios Solar SpA (Sicily photovoltaic plants) - Vector Cuatro SLU (services ) - Verus Energy Oak Ltd (WtE plant under construction in the UK)
Acquisitions principally comprise goodwill of Euro 8,413 thousand deriving from acquisition of Vector Cuatro SLU and Euro 846 thousand in relation to Verus Energy Oak Ltd. Acquisitions also include software of which Euro 116 thousand relates to the parent company and Euro 151 thousand to Vector Cuatro SLU.
No borrowing costs were capitalised on intangible assets during the year.
No impairment losses were recognised following impairment tests performed on intangible assets at 31 December 2014 (see following paragraph: Impairment tests).
Goodwill at 31 December 2014 comprised:
page 95. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Goodwill (Euro thousands) Carrying value 31.12.2014 Ben Aketil Wind Energy Ltd 11,241 Boyndie Wind Energy Ltd 4,694 Cambrian Wind Energy Ltd 14,253 Earlsburn Wind Energy Ltd 11,059 Eolica Sud Srl 2,224 Eolo 3W Minervino Murge Srl 1,975 Falck Renewables Wind Ltd 10,222 Geopower Sardegna Srl 18,349 Kilbraur Wind Energy Ltd 4,268 Millennium Wind Energy Ltd 10,719 Vector Cuatro SLU 9,962 Other minor amounts 1,143 Total 100,109
Impairment tests
Impairment tests were performed on goodwill, intangible assets and property, plant and equipment and the property, plant and equipment allocated to the CGUs at 31 December 2014 in accordance with the procedures established in IAS 36. In particular, the recoverable amount was determined for each of the individual CGUs (which generally corresponds to each individual project launched) based on value in use, which is calculated using the projection of operating cash flows discounted by the after tax weighted average cost of capital (WACC), which varies depending on the expected useful life of the plants. Given the nature of the business, which foresees medium-term returns and fixed duration rights and concessions, the business plan exceeds 5 years. The recoverable amount of each unit was determined estimating the discounted operating cash flows over the concession term of each project (normally 20 years from the start of production), and assuming a prudent nil terminal value. The projected cash flows are based on the following assumptions: 1. Expected production values of the wind farms/photovoltaic plants based on historic productivity figures;
2. Estimated sales prices extrapolated using market projections, prepared with the assistance of an independent, internationally recognised energy sector provider, on the energy price and expected incentives in the various countries in which the Group operates, taking into account regulatory developments in the sector;
3. Waste transfer prices and biomass purchase costs based on management estimates taking into consideration recent market trends;
4. Operating costs, determined, where applicable on contract terms and otherwise using management estimates taking into consideration developments in the specific reference market.
The discount rate applied to the cash flows represents the weighted average cost of capital determined using the Capital Asset Pricing Model (“CAPM”) where the risk free rate was calculated with reference to the rate of return on government bonds with maturities in line with the residual life of the plant. The systematic non-diversifiable risk (β) and the debt to equity ratio were calculated by way of an analysis of a group of comparable entities operating in the same sector.
The WACCs applied to the various CGUs were as follows:
WtE and biomass Italy: 4.6% to 5.1% Wind sector UK: 5.0% to 6.0% Wind sector UK (in construction/authorisation) 5.9% Wind sector Italy: 5.1% to 5.6% Wind sector Spain: 4,6% Wind sector France: 4.5%
page 96. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Photovoltaic Italy: 5.3% to 5.6%
The key factors that individually or jointly influenced the valuations and impacted the impairment tests, in respect of intangible assets, property, plant and equipment and investments accounted for using the equity method that are commented on separately below but were influenced by the same factors, are detailed below.
These factors had varying effects depending on the technological, geographical, competitive and incentive system features of the CGU and in some cases the negative factors were fully offset by those CGUs that performed well without giving rise to impairment losses.
General factors The anticipated sales prices extrapolated from updated, recent market projections of energy prices and incentives expected in the various countries in which the Group operates are lower than previous year forecasts; this has resulted in, all other things being equal, a fall in estimated future revenues particularly in the UK and Spain; the drop in Italy is largely offset by the green certificates mechanism while the drop in electricity prices in France will not impact Group revenue thanks to the feed-in-tariff mechanism;
The Italian Constitutional Court declared in its ruling of 11 February 2015 that the Robin Tax, an additional tax on income applied in certain circumstances to enterprises operating in the energy sector, infringes constitutional law; the tax amounted to 6.5% of taxable income for corporation tax purposes. The illegitimacy ruling actually comes into force on the day after publication of the ruling in the Italian Official Gazette. The Group will benefit from the lower tax rate commencing 2015 and this was reflected in the impairment test calculations;
The WACCs used to discount the future cash flows are significantly lower than those used last year, principally due to the marked fall in the long-term rate of return on Italian and Spanish, and to a lesser extent French, (the fall in UK rates was very modest), government bonds (which form the basis of the risk free rate in the WACC) and the significant fall in the cost of debt. These changes led to a fall of between 0.5% and 1.4% in the WACCs for the Italian and Spanish plants depending on the technology used and the remaining useful life. With regard to the French plant, the WACC fell by approximately 0.5%, while there was only a modest drop in respect of the UK plants. These factors improved the valuations, all other things being equal.
Factors relating to the WtE, biomass and photovoltaic sector Italian Legislative Decree 91/2014 (Incentives Spreading decree), converted into Law 116/2014, envisages an 8% reduction commencing January 2015 in the incentive tariff in respect of energy generated by photovoltaic plants with installed capacities exceeding 200 kW (all of the Falck Renewables Group’s plants): this has given rise, all other things being equal, to a fall in forecast future revenue of the Group’s solar energy plants that account for 16 MW of installed capacity. With regard to Prima Srl (Trezzo WtE plant), more efficient management of purchases and sales of energy has been assumed following the cessation in respect of almost all of the installed capacity, of the so-called avoided cost incentive; lower management costs linked principally to variable Operation & Maintenance activities have been forecast. With regard to Ecosesto (Rende biomass plant), increased sales of electricity are expected together with increased biomass consumption, the unit cost of which is expected to fall compared to previous estimates; improvements in the biennial maintenance activities are envisaged following the experience gained during the first stoppage in 2014; the above factors will have a positive impact on the valuations in respect of the WtE and biomass plants.
Factors relating to the wind sector The AEEGSI published Resolution 522/2014 to reintroduce new measures governing imbalance costs to be charged to renewable energy producers with effect from 1 January 2015. The new regulation (Resolution AEEGSI 522/2014) is an exact reproduction of the previously cancelled resolution
page 97. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
281/2012, which introduced for non-programmable sources imbalance costs on the hourly difference between electricity actually injected to the network and the amount stated in emissions schedules11. The only differences are the diversification of the treatment of the various sources (previously treated in the same way) and the revision of the tolerance levels of programming errors in the hourly injection timetable: this resulted, all other things being equal, in a fall in forecast future revenue; The Company has updated the estimates relating to the future production levels of each wind farm taking into consideration historical wind levels in the various locations. This update was performed for all operating plants with at least five years’ service in order to obtain valid statistics, while future production levels for those plants in service for a shorter period was based on independent estimates provided by a market leader in wind level assessment. The revised estimates show an approximate 3.8% fall in average production levels that has been reflected in the impairment tests.
The impairment tests gave rise to an impairment loss of Euro 1,281 thousand being recognised on the property, plant and equipment of the Eolica Cabezo San Roque Sau (Spanish wind farm) and a Euro 591 thousand loss in respect of the property, plant and equipment of Solar Mesagne Srl (Mesagne photovoltaic plant). With regard to the above impairment losses, the penalising determinant factor for Eolica Cabezo San Roque Sau was the future electricity price forecasts in Spain, while the incisive factor for Solar Mesagne Srl was the introduction of Law 116/2014 that led to an 8% fall in the energy account incentive commencing 2015 and across the plant’s remaining useful life.
Impairment test: sensitivity analyses
Impairment tests are based on estimates of production, electricity prices and other revenue items (waste transfer) and the interest rates calculated using latest available information at the balance sheet date. As there is a margin of uncertainty for each estimate, a sensitivity analysis was carried out on the recoverable value of the various CGUs. These analyses assumed a 5% increase or decrease in electricity prices compared to the values used in the base case and a 0.5% increase or decrease in the discount rates (WACC) compared to the base case. The two combined sensitivity analyses presented varying outcomes as summarised in the table below that illustrates the positive and negative differential compared to the losses determined in the base case:
VARIATIONS VS BASE CASE Base case Rate Rate BASE (€/M) rate +0.5% -0.5%
Energy prices – base case (1.3) + 0.4
Energy prices: -5% (3.0) (6.3) (0.7)
Energy prices: +5% + 0.8 + 0.4 + 1.2
After reviewing the various outcomes and taking into consideration the variables used to prepare the base case, the directors consider the valuations made to perform the impairment tests, in terms of the base case and the arising impairment losses on the Solar Mesagne photovoltaic plant and the Cabezo San Roque wind farm, to be
11 The Italian Council of State issued ruling 2936/14 on 9 June 2014 whereby it cancelled resolutions 281/2012 and 493/2012 thus requiring the repayment of any sums paid/received by the operators.
page 98. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
satisfactory and confirm that the trend in these variables will be monitored in order to identify any adjustments in the estimates of the recoverable values of the amounts recorded in the financial statements.
Purchase Price Allocation of the Vector Cuatro Group acquisition and impairment tests Falck Renewables SpA acquired a 100% stake in the Spanish Company Vector Cuatro SLU, a parent company with subsidiaries in Spain, Italy, France, Japan, Canada, Mexico and Bulgaria, on 15 September 2014. Following acquisition Falck Renewables SpA exercised control over the Vector Cuatro Group. The consolidated financial statements reflect the operating results for the period 1 October 2014 to 31 December 2014 and the financial position commencing from 30 September 2014. The determination and precise identification of the factors regarding definition of the current values of the identifiable assets and liabilities of the Vector Cuatro Group, with particular reference to contractual values in place with customers as the Vector Group is a client services company with contracts drawn up in different countries with varying expiry dates, and in light of the application of IFRS 3, are still underway. On finalisation of these activities, within 12 months of the execution date as stipulated in IFRS 3, amendments to the determination of the portion of the purchase cost currently allocated on a provisional basis to goodwill. The acquisition was recorded in accordance with the requirements of IFRS 3 on business combinations; this standard requires: (i) determination of the total purchase cost; (ii) allocation of the cost of the business combination to the assets acquired and liabilities assumed at the acquisition date, including any not identified prior to acquisition; (iii) recognition of goodwill acquired in the business combination. At the time of preparation of the Annual Report, the total purchase price was determined at Euro 11,222 thousand, of which Euro 8,417 thousand was paid on 15 September 2014 and Euro 2,805 thousand will be paid on 30 June 2015 net of any claims that may arise in the period between the acquisition date and 30 June 2015. Subsequently, in order to cover the period guaranteed by the acquirees, a first demand bank guarantee from a major bank of Euro 3 million will be issued in favour of Falck Renewables SpA that, in the absence of a claim, will reduce over time up to the final expiry date of 10 January 2019; the guarantee will amount to Euro 500 thousand in the final period between 1 September 2018 and 10 January 2019. The net equity of Vector Cuatro amounted to Euro 1,259 thousand at the acquisition date, giving rise to a difference of Euro 9,962 thousand that has been provisionally allocated to goodwill. With regard to the Vector Cuatro Group CGU, as mentioned above for the other CGUs, an impairment test was performed in accordance with IAS 36. The recoverable amount was determined based on the operating cash flows discounted using the after tax weighted average cost of capital (WACC). This was calculated using the Capital Asset Pricing Model (“CAPM”) in which the risk free rate of return was determined with reference to the 10 year yield curve of Spanish government bonds. The non-diversifiable risk coefficient (β) was extrapolated based on an analysis of a comparable group of companies operating in the same sector. The WACC used was 8.7%. As this relates to a services sector, the timeframe of the plan covers the period 2015- 2018; a terminal value was estimated using a perpetual growth (g) of zero and the resulting amount was prudently reduced to 50% of the cash flows of the first year of the plan pending integration of the company with the Group strategies.
The impairment test performed for the purpose of preparing the Annual Report resulted in a positive recoverable value attributed to the acquisition cost and consequently the goodwill allocated to the Vector Cuatro Group. A sensitivity analysis was carried out assuming a 0.5% increase or decrease in the WACC compared to the rate used in the base case: a 0.5% increase in the WACC would give rise, all other things being equal, to an impairment loss of approximately Euro 0.2 million.
page 99. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
2 Property, plant and equipment
Movements during the year were as follows: (Euro thousands) At Additions Change in Capital.n Exchange Disposals Other Impair- Deprec- At 31.12.2013 scope of and differences move- ment iation 31.12.2014 consol.n reclass.n ments losses
Gross value 2.1 Land 7,535 16 1,755 17 9,323 2.2 Buildings 1,699 1,699 2.3 Plant and machinery 1,056,324 1,679 101,441 25,500 (60) (761) (1,872) 1,182,251 2.4 Industrial and office equipment 2,797 3 84 40 2,924 2.5 Other assets 3,685 165 1,175 157 19 (151) 5,050 2.6 Assets operated under concession 90,129 90,129 2.7 Assets under construction and adv. 79,435 44,524 (103,394) 5,128 (21) 25,672 Total gross value 1,241,604 46,387 1,259 (1) 30,664 (211) (782) (1,872) 1,317,048
Accumulated depreciation 2.1 Land 2.2 Buildings (800) (68) (868) 2.3 Plant and machinery (223,686) (7,734) 30 (56,299) (287,689) 2.4 Industrial and office equipment (1,545) (40) (297) (1,882) 2.5 Other assets (2,729) (425) (16) 98 (496) (3,568) 2.6 Assets operated under concession (53,456) (3,853) (57,309) Total depreciation (282,216) (465) (7,750) 128 (61,013) (351,316)
Net book amounts 2.1 Land 7,535 16 1,755 17 9,323 2.2 Buildings 899 (68) 831 2.3 Plant and machinery 832,638 1,679 101,441 17,766 (30) (761) (1,872) (56,299) 894,562 2.4 Industrial and office equipment 1,252 3 44 40 (297) 1,042 2.5 Other assets 956 165 750 157 3 (53) (496) 1,482 2.6 Assets operated under concession 36,673 (3,853) 32,820 2.7 Assets under construction and adv. 79,435 44,524 (103,394) 5,128 (21) 25,672 Total net book amounts 959,388 46,387 794 (1) 22,914 (83) (782) (1,872) (61,013) 965,732
page 100. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Additions – these comprise: (Euro thousands) Kingsburn wind farm 7,322 Spaldington wind farm 3,230 West Browncastle wind farm 15,650 Nutberry wind farm 5,923 Assel Valley wind farm 7,002 Auchrobert wind farm 1,347 West Bromwich WtE plant 1,081 Actelios Solar photovoltaic plants 2,000 Improvements to Rende biomass plant 901 Improvements to the Trezzo sull'Adda plant 1,363 Other minor wind sector additions 160 Other minor WtE, biomass and photovoltaic sector additions 194 Other minor services sector additions 38 Other minor parent company additions 176 Total 46,387
Impairment tests carried out on property, plant and equipment, as detailed above in the previous note, resulted in an impairment loss of Euro 1,281 thousand being recognised on the Eolica Cabezo San Roque Sau wind farm and Euro 591 thousand on the Solar Mesagne Srl photovoltaic plant.
Borrowing costs allocated during the year to property, plant and equipment amounted to Euro 799 thousand entirely relating to wind farms under construction. Property, plant and equipment at 31 December 2014 did not include amounts relating to revaluations carried out in accordance with local monetary revaluation legislation or arising from economic revaluations.
3 Investments
Investments at 31 December 2014 comprised: (Euro thousands) 31.12.2014 31.12.2013 Change Investments in subsidiaries Investments in associates 4 (4) Other investments Securities Total 4 (4)
Equity investments
. Associates valued at cost This comprises the 20% stake in FRI Energetica Srl that has been written down to nil.
page 101. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
4 Investments accounted for using the equity method
(Euro thousands) Fair value Revaluation/ Other 31.12.2013 adjustment to Dividends 31.12.2014 impairment movements total equity Frullo Energia Ambiente Srl 18.632 1.927 (980) 19.579 Palermo Energia Ambiente ScpA in liq. 74 (74) Parque Eolico La Carracha Sl (800) 80 720 Parque Eolico Plana de Jarreta Sl (792) 79 713 Nuevos Parque Eolicos La Muela AIE Vector Cuatro Servicios SL 16 16 Total 18.632 409 159 (980) 1.375 19.595
Investments accounted for using the equity method comprise the 49% interest in Frullo Energia Ambiente Srl (in liquidation), 23.27% in Palermo Energia Ambiente ScpA (in liquidation) and the 26% interests in Parque Eolico La Carracha Sl and Parque Eolico Plana de Jarreta Sl, each of which own 50% of the share capital of Nuevos Parque Eolicos La Muela AIE, and the 50% stake in Vector Cuatro Servicios SL acquired in September 2014.
The disclosures regarding non-controlling interests are set out below in accordance with IFRS 12:
% Registered Currency Share Direct office capital holding Parent company
Frullo Energia Ambiente Srl Bologna Euro 17.139.000 49,000 Falck Renewables SpA Palermo Energia Ambiente ScpA in liq, Palermo Euro 120.000 23,273 Falck Renewables SpA Nuevos Parque Eolico La Muela AIE Saragozza (Spain) Euro 10.000 50,000 Parque Eolico La Carracha SL 50,000 Parque Eolico Pla na de Jarreta SL Parque Eolico La Carracha SL Saragozza (Spain) Euro 100.000 26,000 Falck Renewables Wind Ltd Parque Eolico Plana de Jarreta SL Saragozza (Spain) Euro 100.000 26,000 Falck Renewables Wind Ltd Vector Cuatro Servicios SL Madrid (Spain) Euro 30.000 50,000 Vector Cuatro SLU
Key balance sheet information: (Euro thousands) Non-current Current Total Non-current Current Net financial Total profit assets assets equity liabilities liabilities position for the year Frullo Energia Ambiente Srl 88.297 21.987 40.658 35.757 33.869 ( 32.418) 3.594 Palermo Energia Ambiente ScpA in liq, 43.311 3.627 ( 59.679) 81.951 24.666 ( 29.687) Nuevos Parque Eolico La Muela AIE 2 60 38 24 Parque Eolico La Carracha SL 18.381 8.378 456 19.646 6.658 ( 12.100) ( 2.196) Parque Eolico Plana de Jarreta SL 18.196 8.033 ( 267) 19.791 6.705 ( 12.565) ( 2.170) Vector Cuatro Servicios SL 40 100 45 49 46 17 31
page 102. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Key income statement information: (Euro thousands) Revenue Cost of Gross profit Operating Profit before Profit sales profit income tax for the year Frullo Energia Ambiente Srl 33,856 ( 25,784) 8,072 6,453 5,106 3,594 Palermo Energia Ambiente ScpA in liq, - 1,049 Nuevos Parque Eolico La Muela AIE 459 ( 459) - Parque Eolico La Carracha SL 3,353 ( 5,575) ( 2,222) ( 2,205) ( 3,331) ( 2,458) Parque Eolico Pla na de Jarreta SL 3,098 ( 5,333) ( 2,235) ( 2,189) ( 3,291) ( 2,429) Vector Cuatro Servicios SL 171 171 35 31 31
The 26% interests in both Parque Eolico La Carracha Sl and Parque Eolico Plana de Jarreta Sl, each of which own 50% of the share capital of Nuevos Parque Eolicos La Muela AIE, were written down to a nil carrying value as for the 23.27% interest in Palermo Energia Ambiente ScpA (in liquidation). The test on the recoverable value of the investment in Frullo Energia Ambiente Srl, performed in accordance with the requirements of IAS 36, gave a positive outcome.
5 Financial receivables
Financial receivables at 31 December 2014 comprised: (Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Amounts owed by third parties 738 738 779 779 (41) (41) Amounts owed by subsidiaries Amounts owed by associates 25 25 392 367 25 (367) (342) (25) Amounts owed by parent company Amounts owed by other Falck Group companies Derivative financial instruments 118 118 118 118 Total 881 25 856 1.171 367 804 (290) (342) 52
Financial receivables are disclosed net of the provision for doubtful accounts of Euro 8,627 thousand, which relates to the total financial receivable owed by Palermo Energia Ambiente ScpA (in liquidation). Current amounts comprise Euro 738 loaned to a third party shareholder for the development of the UK wind sector projects. Amounts owed by associates comprises the amount due from Vector Cuatro Servicios Sl.
page 103. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
6 Trade receivables Trade receivables at 31 December 2014 consisted of the following: (Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Trade receivables 117,033 117,033 124,788 124,788 (7,755) (7,755) Amounts owed by subsidiaries Amounts owed by associates 81 81 88 88 (7) (7) Amounts owed by parent company 306 306 306 306 Amounts owed by other Falck Group companies 107 107 2 2 105 105 Total 117,527 117,527 124,878 124,878 (7,351) (7,351) The analysis of trade receivables by geographical location is as follows:
. Italy Euro 87,645 thousand . Great Britain Euro 26,836 thousand . Spain Euro 1,173 thousand . France Euro 900 thousand . Japan Euro 323 thousand . Mexico Euro 59 thousand . Canada Euro 58 thousand . Bulgaria Euro 35 thousand
Trade receivables are disclosed net of the provision for doubtful accounts of Euro 6,334 thousand at 31 December 2014, which is recorded in order to adjust them to fair value. Total third party trade receivables of Euro 117,033 thousand at 31 December 2014, comprised Euro 80,824 thousand not yet due and Euro 14,020 thousand not more than one month overdue.
Amounts owed by associates include Euro 4,059 thousand due from Palermo Energia Ambiente ScpA that was written down to nil through the provision for doubtful accounts.
7 Other receivables Other receivables at 31 December 2014 consisted of the following: (Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Amounts owed by third parties 4,252 4,252 1,958 1,958 2,294 2,294 Amounts owed by subsidiaries Amounts owed by associates 5,390 5,390 6,500 6,500 (1,110) (1,110) Amounts owed by parent company 5,929 5,929 3,932 3,932 1,997 1,997 Amounts owed by other Falck Group companies Advances 3,481 3,481 2,571 2,571 910 910 Tax credits 21,319 7,203 14,116 21,197 21,197 122 7,203 (7,081) Guarantee deposits 2,118 2,117 1 2,421 2,421 (303) (304) 1 Accrued income and prepayments 5,434 281 5,153 4,509 350 4,159 925 (69) 994 Total 47,923 9,601 38,322 43,088 2,771 40,317 4,835 6,830 (1,995)
Amounts owed by third parties comprises Euro 3,800 thousand relating to insurance claims already settled in early 2015, consisting of Euro 2,966 thousand and Euro 834 thousand relating to Prima Srl and Ambiente 2000 Srl
page 104. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
respectively. Amounts owed by associates relates to the dividend declared but not yet paid by Frullo Energia Ambiente Srl. The amounts owed by parent company principally relate to tax income due from Falck SpA in relation to the Group consolidated tax regime. Current tax credits principally relate to the VAT receivables of the Group companies that carried out significant investments in recent years. Accrued income and prepayments at the year-end amounted to Euro 5,434 thousand and largely relate to maintenance prepayments and deferred charges on expenses relating to guarantees, insurance and royalties payable.
8 Deferred income tax assets
Deferred income tax assets may be analysed as follows: (Euro thousands) 31.12.2014 31.12.2013 Intangible assets 1,026 (5,958) Property, plant and equipment (16,941) 601 Risk and expenses provisions 678 1,946 Provision for doubtful accounts 206 357 Tax losses carried forward 3,716 3,855 Share capital increase expenses 757 Accruals 158 913 Financial instruments 20,501 17,664 Amortised cost method 2,505 3,312 Other 423 (9,172) Total 12,272 14,275
The balance of Euro 12,272 thousand comprises Euro 29,245 thousand of deferred income tax assets net of Euro 16,973 thousand of deferred income tax liabilities. Deferred income tax assets on tax losses carried forward have been recorded as they are considered to be recoverable. Deferred income tax assets have not been recognised on the charges made to the sundry risks provision in respect of the Sicily Projects as they would only be recoverable (i) as part of the Group consolidated tax regime, (ii) against sufficient Group taxable income and (iii) once the conditions allowing their deductibility are realised, namely once the legal disputes have been settled, which is not foreseeable at present given the complexity surrounding these cases, at least not within the timeframe of the current business plan.
The Italian Constitutional Court declared in its ruling of 11 February 2015 that the Robin Tax, an additional tax on income applied in certain circumstances to enterprises operating in the energy sector, infringes constitutional law with effect from tax periods after 31 December 2014. The illegitimacy ruling actually comes into force on the day after publication of the ruling in the Italian Official Gazette, in this case 12 February 2015. The 2014 Annual Report reflects the impact of this pronouncement with regard to the calculation of deferred income taxes as the above ruling impacts the method of calculation. However, as declared in the ruling, this does not impact the current tax calculation that has been made in line with the previous year. Both deferred income tax assets and liabilities have been recalculated that resulted in an increased tax charge of Euro 598 thousand and a reduction in net equity reserves of Euro 2,297 thousand.
page 105. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Movements in the deferred income tax asset account were as follows:
(Euro thousands) 31 December 2013 28,073 Movements through the income statement (4,866) Movements recorded within equity 4,162 Change in the scope of consolidation Reclassifications (7,590) Other movements 9,466 31 December 2014 29,245 Movements in the deferred income tax liability account were as follows: (Euro thousands) 31 December 2013 (13,798) Movements through the income statement Movements recorded within equity Change in the scope of consolidation Reclassifications 7,590 Other movements (10,765) 31 December 2014 (16,973)
B Current assets
8 Inventories
Inventories at 31 December 2014 consisted of the following: (Euro thousands) 31.12.2014 31.12.2013 Change Raw materials and consumables 2,762 2,564 198 Semi-finished goods Work in progress Finished goods 2,551 1,983 568 Advances Total 5,313 4,547 766 Raw materials comprise the stocks of biomass while finished goods relate to spare parts for the operating plants.
10 Cash and cash equivalents (Euro thousands) 31.12.2014 31.12.2013 Change Short-term bank and post office deposits 207,586 120,809 86,777 Cash in hand 20 10 10 Total 207,606 120,819 86,787 Cash and cash equivalents may be detailed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Cash at bank and in hand 207,606 120,819 86,787 Bank overdrafts (582) 582 Invoice advances Group current accounts Total cash and cash equivalents 207,606 120,237 87,369
page 106. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Total cash and cash equivalents amount to Euro 207,606 thousand due to the sum received as part of the Borea transaction that was partially used to repay the Corporate Loan.12 The liquidity not linked to project financing contracts of Euro 104,786 thousand was placed on short-term deposit with Italian banks.
Cash at bank and in hand of the Group companies, that enter into project financing, principally relate to the bank balances that are required to meet the covenants imposed by the project financing contracts. The balance relating to the wind sector is Euro 98,593 thousand, while that of the WtE, biomass and photovoltaic sector is Euro 4,227 thousand. The cash balances linked to project financing contracts analysed by company are as follows:
(Euro thousands) Company 31.12.2014
Actelios Solar SpA 4,227 Total WtE, biomass and photovoltaic sector 4,227 Cambrian Wind Energy Ltd 3,595 Boyndie Wind Energy Ltd 1,693 Earlsburn Wind Energy Ltd 4,666 Ben Aketil Wind Energy Ltd 2,629 Millennium Wind Energy Ltd 7,231 Kilbraur Wind Energy Ltd 3,762 Nutberry Wind Energy Ltd 2,810 Eolica Sud Srl 20,216 Eolo 3W Minervino Murge Srl 10,726 Geopower Sardegna Srl 23,068 Eolica Petralia Srl 4,353 SE Ty Ru Sas 3,856 Parc Eolien du Fouy Sas 1,351 Parc Eolien des Crêtes Sas 1,250 Esquennois Energie Sas 1,899 Eolica Cabezo San Roque Sau 5,488 Total wind sector 98,593 Total liquidity linked to project financing 102,820
Liabilities
D Equity
10 Share capital
Share capital consists of 291,413,891 issued and fully paid ordinary shares, with a face value of Euro 1 each. The parent company owns 460,000 own shares with a face value of Euro 460,000, representing 0.1579% of total share capital. The carrying value of own shares held is Euro 403,025.60, corresponding to an average share price of Euro 0.876.
12 The Corporate Loan relates to the loan of Euro 165 million taken out by Falck Renewables SpA on 14 January 2011 of which Euro 23,116 thousand has currently been drawn down.
page 107. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Movements in equity during 2013 and 2014 were as follows:
(Euro thousands) Reserves Share Share Demerger Translat- Cash flow Actuarial Other Profit Equity Non- Total capital premium reserve ion hedge gains/losses reserves for the attributable controlling account under common reserve reserve reserve year to owners interests control of the parent 31.12.2012 291.414 620.976 (371.598) 1.550 (60.380) (58.768) (79.207) 343.987 (270) 343.717
Appropriation of 2012 loss of (79.207) 79.207 the parent to reserves
Dividends distributed (57) (57) Re-consolidation of Pea and guarantees ssued on behalf of (4.547) (4.547) 6.991 2.444 Tifeo and Platani Own shares held (231) (231) (231) Acquisition of non-controlling interests Other movements (1.559) 19.744 (163) (15) 18.007 (2) 18.005 Profit for the year 15.089 15.089 (135) 14.954 31.12.2013 291.414 620.976 (371.598) (9) (40.636) (163) (142.768) 15.089 372.305 6.527 378.832
(Euro thousands) Reserves Share Share Demerger Translat- Cash flow Actuarial Other Profit Equity Non- Total capital premium reserve ion hedge gains/losses reserves for the attributable controlling account under common reserve reserve reserve year to owners interests control of the parent 31.12.2013 291,414 620,976 (371,598) (9) (40,636) (163) (142,768) 15,089 372,305 6,527 378,832
Appropriation of 2013 profit of 15,089 (15,089) the parent to reserves
Dividends distributed (9,310) (9,310) (7,889) (17,199) Sale of non-controlling interest 111,858 111,858 23,729 135,587 in wind companies Own shares held Acquisition of non-controlling interests Other movements 10,593 (19,515) (149) (489) (9,560) 3,136 (6,424) Profit for the year 3,352 3,352 5,612 8,964 31.12.2014 291,414 620,976 (371,598) 10,584 (60,151) (312) (25,620) 3,352 468,645 31,115 499,760
Earnings per share
Basic earnings per share is calculated by dividing profit for the year attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year. Own shares held are excluded. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Diluted earnings per share is in line with basic earnings per share as there are no dilutive potential shares or options in circulation.
The data used to calculate basic earnings per share were as follows.
31.12.2014 31.12.2013 Weighted average number of ordinary shares in issue (number) 290,953,891 291,069,836 Profit attributable to ordinary equity holders of the parent (Euro thousands) 3,352 15,089 Basic earnings per share (Euro per share) 0.012 0.052
page 108. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
31.12.2014 31.12.2013 Weighted average number of ordinary shares in issue (number) 290,953,891 291,069,836 Profit attributable to ordinary equity holders of the parent (Euro thousands) 3,352 15,089 Diluted earnings per share (Euro per share) 0.012 0.052
12 Provisions for other liabilities and charges (Euro thousands) Change in Charges Credited Other Foreign scope of movements exchange 31.12.2013 consolidation differences 31.12.2014 Provisions for pensions and similar obligations Other provisions - litigation 145 (37) 108 - investments 2,804 1,592 (1,147) (1,958) 18 1,309 - environmental 31,099 (132) (484) 733 31,216 - restructuring and liquidation - sundry risks provision 4,643 21 (96) 13 4,581 Total other provisions 38,691 1,613 (1,412) (2,442) 764 37,214 Total 38,691 1,613 (1,412) (2,442) 764 37,214
All provisions are non-current.
The environmental provision comprises future obligations in relation to the decommissioning of power plants at the end of their useful life that are calculated based on independent expert valuations. The corresponding charges are not expensed in the income statement but recorded as an increase in the book value of the asset to which the obligation relates. The provision also includes amounts provided to meet future commitments in relation to the redevelopment of landfills in accordance with the obligations undertaken on receipt of authorisations from the relevant authorities. These are also based on estimates prepared by specialist enterprises.
The investments provision relates to the interest in the associated entity Palermo Energia Ambiente ScpA (in liquidation).
The sundry risks provision was used in respect of payments to Pea’s third party creditors (Euro 2,974 thousand) covered by guarantees issued by Falck Renewables SpA.
The sundry risks provision largely comprises the charge of Euro 3,974 thousand made subsequent to publication of the Ministry of Economic Development Decree of 20.11.2012 regarding the «Adjustment of the prices applicable to electricity sold to GSE in 2010, 2011 and 2012 under sales agreements governed pursuant to CIP 6/92» and relating to revenue for the period January 2010 to November 2012.
The sundry risks provision also includes Euro 317 thousand to cover the risk arising on the dispute between Ambiente 2000 Srl and the Italian Tax Authorities.
page 109. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
13 Staff leaving indemnity
(Euro thousands) Charges Interest Other Actuarial Used or 31.12.2013 cost movements gains/losses paid 31.12.2014 Managers 683 211 19 72 (291) 694 White and blue collar staff 3,086 479 91 76 101 (707) 3,126 Total 3,769 690 110 76 173 (998) 3,820
The Trattamento di Fine Rapporto, “TFR” (staff leaving indemnity provision), was subjected to an actuarial valuation by an independent expert. The actuarial financial assumptions utilised to calculate the estimated cost in 2014 are as follows: (%) 31.12.2014 31.12.2013 Change Annual discount rate 1.50% 3.15% -1.65% Annual inflation rate 1.75% 2.00% -0.25% Annual total pay increase rate 1.75% 3.00% -1.25% Annual TFR increase rate 2.81% 3.00% -0.19% The discount rate was based on the iBoxx Eurozone Corporates AA 10+ index at the time of calculation.
A sensitivity analysis was carried out on the actuarial assumptions used in the model in accordance with IAS 19R. The base case used the rates in the table above and increases and decreases of a half, a quarter and two percentage points respectively were applied to the most significant assumptions namely the average discount, inflation and turnover rates. The results of the sensitivity analyses are summarised as follows:
Sensitivity analysis Annual discount rate (Euro thousands) +0.50% -0.50% Managers 675 707 White and blue collar staff 2,975 3,226
Sensitivity analysis Annual inflation rate (Euro thousands) +0.25% -0.25% Managers 700 687 White and blue collar staff 3,159 3,106
Sensitivity analysis Annual turnover rate (Euro thousands) +2.00% -2.00% Managers 682 700 White and blue collar staff 3,002 3,221
page 110. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
An estimate of expected future contributions in accordance with IAS 19R is provided below:
Future cash flows (Euro thousands)
Less than 12 months between 1 - 2 years Between 2 - 5 years Between 5 - 10 years Over 10 years Managers 166 57 306 359 340 White and blue collar staff 322 289 898 1,408 5,070 Total 488 346 1,204 1,767 5,410
14 Financial liabilities
Financial liabilities at 31 December 2014 consisted of the following: (Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Due to third parties 94,549 58,196 36,353 105,052 98,719 6,333 (10,503) (40,523) 30,020 Due to subsidiaries Due to associates Due to parent company Due to other Falck Group companies Project financing 673,866 623,230 50,636 690,751 638,585 52,166 (16,885) (15,355) (1,530) Derivative financial instruments 78,201 77,214 987 54,273 53,514 759 23,928 23,700 228 Total 846,616 758,640 87,976 850,076 790,818 59,258 (3,460) (32,178) 28,718 Falck Renewables SpA entered into a loan agreement for Euro 165 million with a pool of leading banks (Corporate Loan) on 14 January 2011, the purpose of which was to finance business development and planned investments. Following the Borea transaction, the loan was renegotiated to Euro 82.5 million, with the prior consent of the financing banks, and Euro 23,116 thousand, net of the amortised cost, had been drawn down at 31 December 2014. The Corporate Loan is subject to, inter alia, financial covenants, calculated based on the amounts in the consolidated financial statements, comprising the ratios of EBITDA/net financial position and net financial position/total equity: these covenants were met with ample margin at both 30 June 2014 and 31 December 2014.
The parent company has placed a pledge on the shares held in Falck Renewables Wind Ltd corresponding to a nominal value of GBP 37,755 thousand. The Corporate Loan will be extinguished at maturity on 30 June 2015 and a new corporate loan may be negotiated under current market conditions in order to equip the Group with credit facilities that can satisfy the requirements of new project development.
Liabilities supported by real guarantees include all project financing contracts, which are secured by pledges on the shares of the financed companies.
Amounts due to third parties represent borrowings raised by other Group companies and are detailed further, together with project financing loans and derivative financial instruments, in the additional disclosures on financial instruments.
In order to hedge the interest rate risk on project financing, the entities in question have entered into interest rate swap contracts (IRS) for the portion of the interest linked to project financing, with the purpose of rendering variable rates fixed at conditions that are substantially in line with market rates. Details of Falck Renewables Group’s outstanding IRSs at 31 December 2014 are disclosed in the note “Additional disclosures on financial instruments in accordance with IFRS7”. The lending banks have imposed covenants on the above borrowings that the companies are obliged to meet for the entire contract period and are verified by the banks every six months. These checks did not identify any breach of the defined parameters.
page 111. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Following cancellation of the incentives from July 2013, the Group carefully monitors the project financing of the Cabezo San Roque (23 MW) wind farm in Spain which has nominal gross debt of Euro 6,376 thousand (excluding the negative fair value on interest rate hedges of Euro 537 thousand) and cash and cash equivalents of Euro 5,488 thousand: all principal and interest instalments had been met at 31 December 2014. Given the situation surrounding the Spanish electricity market, while the financing is not in default at 31 December 2014 it could reach a critical level in the course of 2015, however any difficulties arising should be easily managed given the modest net exposure of the lending banks amounting to Euro 888 thousand.
More specifically the project financing contracts require the Group to satisfy certain obligations and parameters including:
- The obligation to bind part of settled revenue to guarantee repayment of the outstanding debt on specific projects;
- The requirement to issue mortgages on properties or pledges on shares to the financial institutions that are party to the projects;
- The satisfaction of certain debt service cover ratios between expected cash flows arising on the financed project over a certain period and the interest and principal of the outstanding debt in the same period;
- The satisfaction of total equity/net financial debt ratios;
- The possibility of distributing dividends only where: i) established debt service cover ratios are met, and ii) on settlement of outstanding payments arising on the project financing contracts.
15 Trade payables
Trade payables at 31 December 2014 compared to the previous year-end may be analysed as follows:
(Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Trade payables 51,375 1,046 50,329 62,224 62,224 (10,849) 1,046 (11,895) Amounts due to subsidiaries Amounts due to associates Amounts due to parent company 434 434 848 848 (414) (414) Amounts due to other Falck Group companies 11 11 43 43 (32) (32) Total 51,820 1,046 50,774 63,115 63,115 (11,295) 1,046 (12,341) Amounts due to the parent company Falck SpA largely comprise Euro 409 thousand due by Falck Renewables SpA. Non-current trade payables relate to an accrual for maintenance costs due after more than one year.
16 Other payables
Other payables at 31 December 2014 compared to 31 December 2013 consisted of the following:
page 112. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
(Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Amounts due to third party creditors 31,178 31,178 30,483 30,483 695 695 Amounts due to subsidiaries Amounts due to associates Amounts due to parent company 9,979 9,979 9,772 9,772 207 207 Amounts due to other Falck Group companies Accruals and deferred income 668 668 532 532 136 136 Total 41,825 41,825 40,787 40,787 1,038 1,038
Third party creditors may be detailed as follows:
(Euro thousands) 31.12.2014 31.12.2013 Amounts due to Ministry of Economic Development 14,236 14,236 Tax payables 4,977 8,652 Wittholding taxes due 753 583 Amounts due under transaction with Grezzago town council 140 Environmental contribution 851 1,022 Amounts due to employees and holiday pay 3,130 2,938 Amount due for acquisition of Vector Cuatro 2,805 Dividends to be distributed by Prima Srl 1,747 1,629 Social security payables 849 820 Interest for late payment in respect of Enna Court ruling 1,034 Amount due for acquisition of Solar Mesagne business 276 276 Insurance excess 200 Other minor amounts 320 197 Total 31,178 30,493 The amounts due to the Ministry of Economic Development relate to the grant awarded pursuant to Law 488, which has been recorded in other payables awaiting final confirmation of the amount, following which the balance will be deducted from the cost of the plant net of commission due to a counterparty.
The amount due to the parent company relates to IRES (corporation tax) payable under the Group consolidated tax regime with the parent company Falck SpA.
The amount of Euro 2,805 thousand due for the acquisition of Vector Cuatro SLU, represents 25% of the total acquisition cost (Euro 11,222 thousand) that will be settled on 30 June 2015.
Commitments and contingencies
Guarantees issued at 31 December 2014 amounted to Euro 141,432 thousand. Guarantees relating to subsidiary undertakings principally consist of performance bonds to guarantee completion of work in progress and to participate in tenders for contracts, for a total of Euro 72,813 thousand and guarantees issued to the VAT authorities in relation to requests for repayment of VAT receivables for Euro 16,167 thousand. Also included are Euro 6,715 thousand of bank guarantees and other guarantees of Euro 45,737 thousand.
With regard to the Sicily Project companies currently in liquidation (Elettroambiente SpA and its subsidiaries Tifeo and Platani), guarantees have been issued to cover certain creditors subject to specific conditions being met. Trade payables comprise Euro 12,866 thousand in respect of these obligations.
page 113. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Falck Renewables SpA issued a bank guarantee of Euro 867 thousand in respect of the commitment to meet Palermo Energia Ambiente ScpA’s third party creditors. Trade payables comprise Euro 805 thousand in respect of this commitment.
Other risks
With regard to the price adjustment of Euro 20 million relating to the investment in Elettroambiente SpA and the corresponding decrease in Other payables due to Italgest Energia SpA recorded at the time of preparation of the 2009 financial statements, the Falck Renewables Group is exposed to a remote risk in respect of this amount with regard to the potential reinstatement of the contractual conditions on which the total acquisition price of Elettroambiente SpA was based, although this is considered improbable.
Related party transactions
In compliance with Consob’s circulars of 20 February 1997, 27 February 1998, 30 September 1998, 30 September 2002 and 27 July 2006, no uncharacteristic or uncommon transactions take place with related parties that are beyond the normal business operations or are detrimental to the Group’s results of operations, state of affairs and financial position. Related party transactions represent the day to day business activities that are carried out at arm’s length. These comprise the recharge of costs between Group companies and intercompany current accounts that give rise to finance income and costs. In accordance with IAS 24 Related Party Disclosures and the disclosures pursuant to Consob circular 6064293 of 28 July 2006, all related party transactions and the corresponding incidence on the Falck Renewables Group’s balance sheet headings are provided below.
(Euro thousands) Trade receivables Trade payables 31.12.2014 31.12.2013 Change 31.12.2014 31.12.2013 Change Parent company Falck SpA 306 306 434 848 (414) Total parent company 306 306 434 848 (414) Associates Frullo Energia Ambiente Srl 81 88 (7) Total associates 81 88 (7) Other Group companies Falck Energy SpA 88 88 Sesto Siderservizi Srl 19 2 17 11 43 (32) Total other Group companies 107 2 105 11 43 (32) Total 494 90 404 445 891 (446) % incidence on balance sheet heading 0.4% 0.0% 0.9% 1.4% (Euro thousands) Financial receivables Financial payables 31.12.2014 31.12.2013 Change 31.12.2014 31.12.2013 Change Associates Parque Eolico La Carracha SL 133 (133) Parque Eolico Plana de Jarreta SL 259 (259) Vector Cuatro Servicios Sl 25 25 Total associates 25 392 (367) % incidence on balance sheet heading 2.8% 33.5%
page 114. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
(Euro thousands) Other receivables Other payables 31.12.2014 31.12.2013 Change 31.12.2014 31.12.2013 Change Parent company Falck SpA 5.929 3.932 1.997 9.979 9.772 207 Total parent company 5.929 3.932 1.997 9.979 9.772 207 Associates Frullo Energia Ambiente Srl 5.390 5.390 Parque Eolico La Carracha SL 608 (608) Parque Eolico Plana de Jarreta SL 502 (502) Total associates 5.390 6.500 (1.110) Total 11.319 10.432 887 9.979 9.772 207 % incidence on balance sheet heading 23,6% 24,2% 23,9% 24,0%
Net financial position
The net financial position is disclosed below in accordance with the Consob communication DEM/6064293 of 28 July 2006. (Euro thousands) 31.12.2014 31.12.2013 Change Short-term third party financial liabilities (87,976) (59,258) (28,718) Short-term Group financial liabilities Short-term third party financial receivables 856 779 77 Short-term Group financial receivables 25 (25) Other securities Cash and cash equivalents 207,606 120,819 86,787 Short-term net financial position 120,486 62,365 58,121 Medium/long-term third party financial liabilities (758,640) (790,818) 32,178 Medium/long-term Group financial liabilities Other securities Medium/long-term financial position (758,640) (790,818) 32,178 Net financial position pursuant to Consob circular DEM/6064293/2006 (638,154) (728,453) 90,299 Medium/long-term third party financial receivables Medium/long-term Group financial receivables 25 367 (342) Total net financial position (638,129) (728,086) 89,957 - of which non-recourse financing (673,866) (690,751) 16,885
page 115. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Disclosures relating to electric power plants
The disclosures presented in accordance with Consob Recommendation DIE/0061493 of 18 July 2013 in relation to information to be provided in financial reports and press releases of listed issuers in the renewable energy sector are summarised below:
1. Disclosures relating to electric power plants in service at 31 December 2014
Plant Owner Percentage Date Installed Electricity Net book ownership entered into capacity generated value service (MW) by the plant at 31.12.2014 in 2014 (GWh) (Euro thousands) Trezzo (MI) WtE plant ** Prima Srl 85% Sept. 2003 20 139 32,820 Revamping Rende (CS) biomass plant *** Ecosesto SpA 100% 15 105 21,071 Jan. 2011
Rende (CS) photovoltaic plant Ecosesto SpA 100% July 2007 1 1 3,903
Siciliy photovoltaic plants * Actelios Solar SpA 100% April 2011 13 20 39,749 July 2009 Mesagne (BR) photovoltaic plant* Solar Mesagne Srl 100% 2 3 5,815 May 2010 Cambrian Wind Energy Cefn Croes (Wales) wind farm 100% April 2005 59 146 Ltd 37,287 Boyndie Wind Energy June 2006 Boyndie (Scotland) wind farm 100% 17 42 12,640 Ltd June 2010 Earlsburn Wind Energy Earlsburn (Scotland) wind farm 100% Dec. 2007 38 112 32,534 Ltd Ben Aketil Wind June 2008 Ben Aketil (Scotland) wind farm 100% 28 79 24,384 Energy Ltd Jan. 2011 Millennium Wind March 2009 Millennium (Scotland) wind farm 100% 65 171 77,290 Energy Ltd Feb. 2011 Kilbraur Wind Energy Feb. 2009 Kilbraur (Scotland) wind farm 100% 68 182 82,828 Ltd Sept. 2011 Nutberry Wind Energy Nutberry (Scotland) wind farm 100% Oct. 2013 15 11 31,714 Ltd West Browncastle West Browncastle wind farm (Scotland) 100% June 2014 30 37 57,818 Wind Energy Ltd Oct. 2009 San Sostene (CZ) wind farm Eolica Sud Srl 100% 80 166 117,735 Oct. 2010 Eolo 3W Minervino Minervino Murge (BT) wind farm * 100% Dec. 2008 52 93 71,997 Murge Srl Buddusò - Alà dei Sardi (OT) wind farm Geopower Sardegna July 2011 100% 158 338 189,262 **** Srl Dec. 2011 Petralia Sottana (PA) wind farm * Eolica Petralia Srl 100% July 2012 22 42 34,101 Plouigneau (France) wind farm SE Ty Ru Sas 100% July 2012 10 21 15,897 Parc Eolien du Fouy Maine et Loire (France) wind farm 100% April 2009 10 18 9,284 Sas Parc Eolien des Cretes Maine et Loire (France) wind farm 100% April 2009 10 18 9,801 Sas Esquennois Energie Oise (France) wind farm 100% July 2009 12 24 13,050 Sas Eolica Cabezo San Saragozza (Spain) wind farm 100% Jan. 2004 23 57 9,471 Roque Sau Total 746 1,825 930,451
* The net book value comprises the plant's carrying value and the value of the land owned by the project company ** The net book value comprises the plant's carrying value and the value of the building owned by the project company *** The net book value comprises the plant's carrying value and the value of the land and buildings owned by the project company **** The installed capacity is 158.7 MW, production limit is 138 MW
Frullo Energia Ambiente Srl is a joint venture with Herambiente SpA, which holds a 51% stake, and Parque Eolico La Carracha Sl and Parque Eolico Plana de Jarreta Sl are joint ventures with the German company Baywa R.E. Asset Holding Gmbh, which holds a 74% interest in the companies.
page 116. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
The information disclosed in respect of these three joint ventures only represents Falck Renewables Group’s percentage ownership. Financing Plant Owner Financial Nature of finance Maturity Commitment Significant liability & guarantees contractual issues to conditions financial inst.s 31.12.2014 (see footnote) (see footnote)
Trezzo WtE plant (MI) Prima Srl 0 N.A. 31/12/2013 N.A. N.A.
31/07/2014 Rende biomass plant (CS) Ecosesto SpA (7,875) Medium/long-term loan C N.A. 31/12/2019
Rende photovoltaic plant (CS) Ecosesto SpA N.A. N.A. N.A. N.A.
Sicily photovoltaic plants Actelios Solar SpA (34,777) Project financing 30/06/2026 A D
Current account with the Mesagne photovoltaic plant Mesagne (BR) Solar Mesagne Srl F N.A. N.A. N.A. parent company
Cefn Croes wind farm (Wales) Cambrian Wind Energy Ltd (16,763) Project financing 31/12/2019 A D
Boyndie wind farm (Scotland) Boyndie Wind Energy Ltd (1,790) Project financing 31/12/2019 A D
Earlsburn wind farm (Scotland) Earlsburn Wind Energy Ltd (26,165) Project financing 15/04/2022 A D
Ben Aketil wind farm (Scotland) Ben Aketil Wind Energy Ltd (23,889) Project financing 30/06/2025 A D
Millennium wind farm (Scotland) Millennium Wind Energy Ltd (57,551) Project financing 15/04/2024 A D
Kilbraur wind farm (Scotland) Kilbraur Wind Energy Ltd (61,343) Project financing 15/04/2024 A D
Nutberry wind farm (Scotland) Nutberry Wind Energy Ltd (28,503) Project financing 29/3/2029 A D
San Sostene wind farm (CZ) Eolica Sud Srl (108,231) Project financing 31/12/2024 A D
Eolo 3W Minervino Murge Minervino Murge wind farm (BT) (63,717) Project financing 31/12/2023 A D Srl Buddusò - Alà dei Sardi wind farm (OT) Geopower Sardegna Srl (182,445) Project financing 30/06/2027 A D
Petralia Sottana wind farm (PA) Eolica Petralia Srl (21,769) Project financing 30/06/2027 A D
Plouigneau wind farm (France) SE Ty Ru Sas (12,279) Project financing 30/06/2030 A D
Maine et Loire wind farm (France) Parc Eolien du Fouy Sas (8,499) Project financing 15/07/2027 A D
Maine et Loire wind farm (France) Parc Eolien des Cretes Sas (8,857) Project financing 15/07/2027 A D
Oise wind farm (France) Esquennois Energie Sas (10,940) Project financing 15/07/2027 A D Eolica Cabezo San Roque Saragozza wind farm (Spain) (6,348) Project financing 31/12/2018 A D Sau Total project financing (673,866)
Total others (7,875)
Total financing (681,741)
A Security package standard for project finance transactions B Special priviledge mortgage C Patronage letters D Financial covenants that block dividend distribution in the event of default E Financial covenants that result in default and increase in margins F Amount not included in consolidation amounting to Euro 6,047 thousand at 31.12.2014 G Amount not included in consolidation amounting to Euro 27,669 thousand at 31.12.2014
The standard security package envisaged by the Falck Renewables Group’s project financing contracts comprises: mortgage, special privileges, the disposal of receivables under guarantee, pledges on shares, pledges on current accounts and in certain cases the disposal of shareholder loans.
All amounts secured under project financing transactions have been received and the equity portion (share capital and shareholders’ loans) has been paid in full.
page 117. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
1. Disclosures relating to electric power plants not yet in service at 31 December 2014
Installed Net book value Estimated date of Plant Owner Stage of completion capacity 31.12.2014 entry into service (MW) (Euro thousands)
Spaldington wind farm (England) Spaldington Wind Energy Ltd Authorised Up to 12.5 II half 2016 7.169
Kingsburn wind farm (Scotland) Kingsburn Wind Energy Ltd Authorised Up to 22.5 II half 2016 9.771
Assel Valley wind farm (Scotland) Falck Renewables Wind Ltd Authorised Up to 30 I half 2017 7.002 Auchrobert wind farm (Scotland) Auchrobert Wind Energy Ltd Authorised Up to 36 I half 2017 1.347
Being appealed by Illois wind farm (France) Parc Eolien d'Illois Sarl Authorised Up to 12 Not material third parties
West Bromwich WtE plant (England) Verus Energy Oak Ltd Authorised Up to 16.2 I half 2018 1.081
6.6.9 Income statement content and changes
17 Revenue
Revenue consisted of the following: (Euro thousands) 31.12.2014 31.12.2013 Change Revenue from sale of goods 224,584 231,292 (6,708) Revenue from sale of services 23,741 22,505 1,236 Total 248,325 253,797 (5,472)
Revenue arising from the sale of goods, compared to the previous year, may be attributed to the following business segments: (Euro thousands) 31.12.2014 31.12.2013 Change Sale of electrical energy 224,584 231,292 (6,708) Total 224,584 231,292 (6,708)
Revenue arising on the provision of services, compared to 2012, is attributable to the following business segments: (Euro thousands) 31.12.2014 31.12.2013 Change Waste treatment and disposal 19,446 19,287 159 Renewable energy plant services and management 2,069 2,069 Operation and maintenance 678 2,820 (2,142) Other operating income 1,548 398 1,150 Total 23,741 22,505 1,236
Renewable energy plant services and management comprises Euro 2,041 thousand relating to revenue of the Vector Cuatro Group.
Revenue analysed by geographical location is as follows:
- Italy Euro 146,486 thousand - Great Britain Euro 91,425 thousand - Spain Euro 2,600 thousand - France Euro 7,364 thousand
page 118. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
- Japan Euro 188 thousand - Bulgaria Euro 67 thousand - Other Europe Euro 149 thousand - Other America Euro 42 thousand - Other Asia Euro 4 thousand
18 Employee costs
Employee costs may be analysed as follows: (Euro thousands) 31.12.2014 31.12.2013 Changes Cost of production employees 7,169 6,800 369 Cost of administrative staff 15,240 13,623 1,617 Total 22,409 20,423 1,986
Employee costs rose by Euro 1,986 thousand due to the achievement in 2014 of targets under the key managers Long Term Incentive Plan that gave rise to a cost of Euro 1,205 thousand and an increase in the average number of employees, principally arising from the consolidation of the Vector Cuatro Group.
Total employee costs analysed by nature of expense are as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Wages and salaries 16,373 14,815 1,558 Social security costs 4,825 4,509 316 Staff leaving indemnity (TFR) 690 676 14 Other costs 521 423 98 Total 22,409 20,423 1,986
The average number of employees was as follows: (Number) 31.12.2014 31.12.2013 Managers 30 27 White-collar staff 161 136 Blue-collar staff 52 60 Total average number of employees 243 223
19 Direct costs
Direct costs may be analysed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Materials 19,563 17,995 1,568 Services 38,550 37,076 1,474 Other costs 22,364 19,435 2,929 Change in inventories (749) (2,129) 1,380 Charges to operating provisions 54 267 (213) Amortisation of intangibles 492 718 (226) Impairment of intangibles 3,581 (3,581) Depreciation of property, plant and equipment 60,729 57,309 3,420 Impairment of property, plant and equipment 1,872 9,604 (7,732) Costs capitalised on assets under construction (314) 314 Total 142,875 143,542 (667)
page 119. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
The increase in materials, services, other costs and depreciation is due to the increase in installed capacity compared to the previous year. Impairment tests performed on the goodwill and intangibles and property, plant and equipment recorded in the financial statements identified a number of cases that gave rise to the recognition of impairment losses against the Eolica Cabezo San Roque plant for Euro 1,281 thousand and the Solar Mesagne plant for Euro 591 thousand. Total direct costs are largely in line with 2013, despite higher costs deriving from the increased installed capacity, which is due to a fall in the level of impairment losses arising from impairment tests compared to 2013 (-Euro 11,313 thousand).
20 Other income
Other income consisted of the following: (Euro thousands) 31.12.2014 31.12.2013 Change Income from operating activities 964 1,011 (47) Income from non-operating activities 8,401 1,310 7,091 Total 9,365 2,321 7,044
Income from operating activities may be further detailed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Income from services 799 872 (73) Rental income 96 76 20 Other income 69 63 6 Total 964 1,011 (47)
Income from non-operating activities may be further detailed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Income relating to other accounting periods 4,341 640 3,701 Gains on disposal of property, plant and equipment 26 88 (62) Insurance compensation 4,005 519 3,486 Other 29 63 (34) Total 8,401 1,310 7,091
Income relating to other accounting periods principally comprises Euro 2,875 thousand for the reversal of the provision for imbalance costs made in 2013, the renegotiation of a supplier services contract and an element of variable pay relating to 2013 and paid in 2014 that was lower than estimated. Insurance compensation principally comprises Euro 3,500 thousand in respect of the losses incurred at the Trezzo sull’Adda plant net of the Euro 1,548 thousand excess.
21 Administrative expenses
Administrative expenses may be further detailed as follows:
page 120. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
(Euro thousands) 31.12.2014 31.12.2013 Change Consumables 1,337 1,622 (285) Services 13,138 11,988 1,150 Other costs 5,934 6,145 (211) Non-operating expenses 929 842 87 Amortisation of intangible assets 215 254 (39) Depreciation of property, plant and equipment 284 268 16 Charges to sundry risks provision (209) (2,927) 2,718 Total 21,628 18,192 3,436
Administrative expenses have increased due to higher services costs linked to Euro 900 thousand paid in respect of the Chief Executive Officer achieving the objectives established in the Long Term Incentive Plan and a lower amount reversed from the sundry risks provision (- Euro 2,718 thousand). The remaining administrative expenses are substantially in line with 2013.
22 Finance costs - net
Finance income and costs may be analysed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Finance costs (52,987) (49,107) (3,880) Foreign exchange losses (7,905) (16,769) 8,864 Finance income 2,501 1,351 1,150 Foreign exchange gains 7,772 16,504 (8,732) Borrowing costs capitalised on assets under construction 799 613 186 Total (49,820) (47,408) (2,412)
There were no finance costs due to Falck SpA.
Finance costs for 2014 and 2013 may be further analysed as follows: (Euro thousands) 31.12.2014 Debenture loans Bank loans Others Total
Payable to others 53,563 7,329 60,892 Total 53,563 7,329 60,892
(Euro thousands) 31.12.2013 Debenture loans Bank loans Others Total
Payable to others 65,647 229 65,876 Total 65,647 229 65,876
Foreign exchange losses of Euro 7,582 thousand are classified in bank loans, while others comprise Euro 323 thousand.
page 121. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Finance income for 2014 and 2013 may be further analysed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Interest and commission - parent company 0 Interest and commission - associates 273 91 182 Interest and commission - banks 7,667 12,293 (4,626) Other 2,333 5,471 (3,138) Total 10,273 17,855 (7,582)
Bank interest and commission and other finance income comprise Euro 5,983 thousand and Euro 1,789 thousand of foreign exchange gains respectively.
Net finance costs have increased compared to 2013 despite a fall in average net indebtedness due to late payment interest of Euro 1,034 thousand in respect of the Tifeo/Gulino Group ruling, bank waivers of Euro 670 thousand relating to the Borea Transaction, and higher interest on shareholders’ loans issued by CII Holdco, which are principally medium-term, compared to the interest avoided on the corporate loan and interest income on short-term liquid assets.
23 Investment income
Investment income may be analysed as follows:
(Euro thousands) 31.12.2014 31.12.2013 Change Liquidation surplus of Ecoveol Sas 130 130 Gain on sale of Parc Eolien de Plovenez de Faou 3 3 Gain on sale of Parc Eolien de Sainte Trephine 2 2 Gain on derecognition of Elektrownie Leszno 140 140 Impairment of FRI Energetica Srl (4) (4) Loss on derecognition of Elektrownie Kamienica (1) (1) Loss on derecognition of Elektrownie Wisoka (57) (57) Total 213 213
24 Share of profit from investments accounted for using the equity method
This includes the valuation of investments in associated entities accounted for using the equity method:
(Euro thousands) 31.12.2014 31.12.2013 Change Frullo Energia Ambiente Srl 1,927 2,404 (477) Palermo Energia Ambiente ScpA (in liquidation) 74 (324) 398 Parque Eolico La Carracha Sl (800) 4 (804) Parque Eolico Plana de Jarreta Sl (792) 4 (796) Total 409 2,088 (1,679)
25 Income tax expense
(Euro thousands) 31.12.2014 31.12.2013 Change Current tax 7,749 16,633 (8,884) Deferred income tax 4,867 (2,946) 7,813 Total 12,616 13,687 (1,071)
page 122. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
Current taxes are based on the estimated taxable income for the period calculated in accordance with current tax legislation. Total taxes differ from the theoretical amount that results from applying the tax rate to the Group’s consolidated profit. Electricity producers in Italy were subject to additional IRES of 10.5% for 2011-2013, following which it fell to 6.5% for 2014. This additional tax applied in 2011-2013 to revenue of more than Euro 10 million and taxable income of at least Euro 1 million, falling to revenue of Euro 3 million and taxable income of Euro 300,000 from 2014. The Group companies affected by the additional tax in 2014 comprised: Prima Srl, Frullo Energia Ambiente Srl, Eolica Sud Srl, Ecosesto SpA, Geopower Sardegna Srl, Eolo 3W Minervino Murge Srl, Eolica Petralia Srl and Actelios Solar SpA. As detailed in the director’s report in the note on “Significant events after the balance sheet date”, the Italian Constitutional Court in its ruling of 11 February 2015, declared the Robin Tax to infringe constitutional rights. The fall in the income tax expense is principally due to the lower taxable income that was partially offset by the reversal of deferred income tax assets following the Constitutional Court ruling which amounted to approximately Euro 600 thousand. Future periods will benefit from the lower tax burden arising from the above ruling. The tax rate was approximately 48% in 2013 as it benefited from the reversal of deferred tax liabilities in the UK. A valid comparison of the 2014 and 2013 tax rates requires removal of the impact of this reversal on 2013. The 2013 tax rate net of the deferred tax liability reversal (UK tax rate adjustment) would have been approximately 58% and in line with 2014 (approximately 58.5%). The 2014 tax rate also reflects the negative impact of the reversal of Euro 0.5 million of deferred income tax assets (following cancellation of the Robin Tax). The 2014 tax rate net of this reversal would have amounted to approximately 56%.
The reconciliation between theoretical income tax and the actual expense is detailed below. (Euro thousands) 31.12.2014 31.12.2013 Profit before taxation 21,580 28,641 Taxes calculated applying tax rates to Group profit (4,827) (6,909) Income not subject to tax 589 952 Expenses not deductible for tax purposes (8,178) (10,214) Deferred income taxes on change in rate and Robin Tax (2,674) 1,620 Tax losses for which no deferred income tax was recognised (14) (212) Impairment loss on goodwill Other differences 2,488 1,076 Total income tax (12,616) (13,687)
Related party transactions
In compliance with Consob’s circulars of 20 February 1997, 27 February 1998, 30 September 1998, 30 September 2002 and 27 July 2006, no uncharacteristic or uncommon transactions take place with related parties that are beyond the normal business operations or are detrimental to the Group’s results of operations, state of affairs and financial position. Related party transactions represent the day to day business activities that are carried out at arm’s length. These comprise the recharge of costs between Group companies and intercompany current accounts that give rise to finance income and costs. In accordance with IAS 24 Related Party Disclosures and the disclosures pursuant to Consob circular 6064293 of 28 July 2006, all related party transactions and the corresponding incidence of related party transactions on the Falck Renewables Group’s income statement headings are provided below.
page 123. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.6 Notes to the consolidated financial statements
(Euro thousands) Revenue Revenue Other Direct Admin. Finance Finance Income from sale from income costs expenses costs income from of goods services investments Parent company Falck SpA 283 2,523 Total parent company 283 2,523 Associates Frullo Energia Ambiente Srl 116 1,927 Palermo Energia Ambiente ScpA 166 271 74 Parque Eolico La Carracha SL 1 (800) Parque Eolico Plana de Jarreta SL 1 (792) Total associates 282 273 409 Group companies Falck Energy SpA 76 Sesto Siderservizi Srl 56 35 Total Group companies 132 35 Total 697 2,558 273 409 % incidence on income statement heading 7.4% 11.8% 2.7% 100%
25 Significant non-recurring events and transactions
In accordance with Consob communication DEM/6064293 of 28 July 2006, no significant non-recurring transactions took place in the Falck Renewables Group in the course of 2014.
26 Uncharacteristic and uncommon transactions In accordance with Consob communication DEM/6064293 of 28 July 2006, in the course of 2013 the Falck Renewables Group did not carry out any uncharacteristic and/or uncommon transactions, as defined in the above communication.
27 Auditors’ remuneration (Euro thousand) Company Audit of annual Other activities and interim reports Falck Renewables SpA 107 94 WtE, biomass and photovoltaic sector 108 11 Wind sector 354 72 Services sector 23 Total 592 177
All companies are audited by Reconta Ernst & Young.
Other activities in respect of the parent company relate to the certification of covenants.
page 124. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
Additional disclosures on financial instruments in accordance with IFRS7
This note sets out the additional disclosures relating to financial assets and liabilities in accordance with IFRS 7. This disclosure respects the order of the IFRS. Where the information requested was not considered significant the related paragraph was omitted. The note is presented in two sections. The first sets out detailed information regarding financial assets and liabilities, in particular regarding their classification in compliance with IAS 39, the impact on the income statement for the year and their fair value. The second section presents information regarding the risks attributable to the financial assets and liabilities, in particular credit risk, liquidity risk and market risk. This includes both qualitative and quantitative information that is analysed into points (e.g. 1.) and sub-points (e.g. 1.2). The detailed quantitative information is provided for 31 December 2014 and where significant at 31 December 2013. The Group adopted IFRS 11 which has been applied retroactively as though the standard had been adopted in 2013, therefore the information relating to 2013 was adjusted for comparison purposes.
Prior to presenting the detailed disclosures, a summary of the principal disclosures is provided as follows.
The Falck Renewables Group has third party borrowings, consisting mainly of project financing, resulting in an overall net indebtedness. Financial assets and liabilities are almost entirely measured at cost and amortised cost in the financial statements, with the exception of certain derivative instruments on interest rates that are measured at fair value. A number of these transactions, although undertaken to hedge exposure, are not measured in accordance with hedge accounting, while the majority are measured applying hedge accounting with changes in fair value recorded in equity. The main impact of the derivative instruments on the income statement does not arise from changes in the value of the principal financial assets and liabilities recorded on the balance sheet, but from the interest income and expense (in respect of interest rate swaps) and foreign exchange gains and losses (arising on foreign exchange derivatives).
Credit risk is not considered to be significant: the high concentration of trade receivables due from a few counterparties is strongly mitigated by the corresponding credit rating and the risk profile has not substantially changed at present following acquisition of the Vector Cuatro Group. Liquidity risk is moderate as trade payables due within one year are offset by significant cash reserves, while the most significant borrowings relate to long-term project financing contracts. The Group also has committed credit facilities relating to the finance contract stipulated on 14.1.2011 that has only partially been drawn down. The only market risk considered to be significant is interest rate risk as almost all Group borrowings are at variable rates, although the risk is mitigated by IRS contracts.
The Falck Renewables Group adopts well-established internal procedures in the management of credit, liquidity and market risks on financial assets and liabilities, which are documented in the Group’s policies and procedures.
Section I: Supplementary disclosures on financial assets/liabilities
1. Balance sheet
1.1 Categories of financial assets and liabilities
The tables below illustrate the carrying values at 31 December 2014 and 31 December 2013 of the financial assets and liabilities classified in accordance with IAS 39. In order to reconcile with the balance sheet totals the penultimate column sets out the values of the assets and liabilities that are not included in the scope of IFRS 7.
At 31 December 2014 the total financial assets of the Falck Renewables Group amounted to Euro 329,914 thousand and financial liabilities totalled Euro 913,214 thousand, compared to a total balance sheet value of
page 125. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
Euro 1,498,028 thousand. The financial assets and liabilities are almost entirely measured at cost and amortised cost. The principal financial assets comprise trade receivables and cash and cash equivalents, while the main financial liabilities relate to borrowings and trade payables. The financial impact of financial assets and liabilities measured at fair value through profit or loss or equity is significant and consists of derivative financial instruments.
(Euro thousands) 31.12.2014
Fair value through profit Fair value against Amortised cost or loss equity or cost Total FA/FL A/L not within within Balance Financial Financial FA/FL scope of scope of sheet total Loans and FA/FL held FA available for assets held-to- liabilities at designation on IFRS7 IFRS7 receiv.bls for trading sale/other FL maturity amortised cost initial recognition Assets Property, plant and equipment and intangibles 1.069.938 1.069.938 Securities and investments 19.595 19.595 Financial receivables 763 118 881 881 Inventories 5.313 5.313 Trade receivables 117.527 117.527 117.527 Deferred income tax assets 29.245 29.245 Other receivables 3.889 11 3.900 44.023 47.923 Cash and cash equivalents 207.606 207.606 207.606 Total 329.785 11 118 329.914 1.168.114 1.498.028 Liabilities Total equity 499.760 499.760 Financial payables 768.415 78.201 846.616 846.616 Trade payables 51.820 51.820 51.820 Other payables 14.778 14.778 27.047 41.825 Deferred income tax liabilities 16.973 16.973 Provisions for other liabilities and charges 37.214 37.214 Staff leaving indemnity 3.820 3.820 Total 835.013 78.201 913.214 584.814 1.498.028
page 126. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
(Euro thousands) 31.12.2013 Fair value Fair value through profit against Amortised cost or loss equity or Total FA/FL A/L not cost within within Balance FA/FL scope of scope of sheet total Financial Financial FA available Loans and designation on FA/FL held IFRS7 IFRS7 assets held-to- liabilities at for sale/other receiv.bls initial for trading maturity amortised cost FL recognition Assets Property, plant and equipment and intangibles 1,047,856 1,047,856 Securities and investments 18,636 18,636 Financial receivables 1,171 1,171 1,171 Inventories 4,547 4,547 Trade receivables 124,878 124,878 124,878 Deferred income tax assets 28,073 28,073 Other receivables 302 2,420 2,722 40,366 43,088 Cash and cash equivalents 120,819 120,819 120,819 Total 247,170 2,420 249,590 1,139,478 1,389,068 Liabilities Total equity 378,832 378,832 Financial payables 795,803 54,273 850,076 850,076 Trade payables 63,115 63,115 63,115 Other payables 14,774 14,774 26,013 40,787 Deferred income tax liabilities 13,798 13,798 Provisions for other liabilities and charges 38,691 38,691 Staff leaving indemnity 3,769 3,769 Total 873,692 54,273 927,965 461,103 1,389,068
page 127. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
1.2 Collateral – financial assets pledged as security for liabilities and collateral accepted as security for assets
Financial assets pledged as security for liabilities comprise the shares of the companies listed in the table below. The pledge values correspond to the face value of the shares in question. Currency Pledged amount Actelios Solar SpA Euro 120,000 Ben Aketil Wind Energy Ltd GBP 100 Boyndie Wind Energy Ltd GBP 100 Cambrian Wind Energy Ltd GBP 100 Earlsburn Wind Energy Ltd GBP 100 Nutberry Wind Energy Ltd GBP 100 Eolica Cabezo San Roque Sau Euro 1,432,650 Eolica Petralia Srl Euro 2,000,000 Eolica Sud Srl Euro 5,000,000 Eolo 3W Minervino Murge Srl Euro 10,000 Esquennois Energie Sas Euro 37,000 Falck Renewables Finance Ltd GBP 100 Falck Renewables UK Holdings GBP 1 (No.1) Ltd Falck Renewables Wind Ltd GBP 37,754,814 Geopower Sardegna Srl Euro 2,000,000 Kilbraur Wind Energy Ltd GBP 100 Millennium Wind Energy Ltd GBP 100 Parc Eolien des Crêtes Sas Euro 37,000 Parc Eolien du Fouy Sas Euro 37,000 Parque Elico Plana de Jarreta Sl Euro 26,000 Parque Eolico La Carracha Sl Euro 26,000 SE Ty Ru Sas Euro 1,009,003
page 128. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
2. Income statement and total equity
2.1 Impact of financial assets and liabilities on the income statement and net equity
The table below illustrates the net gains or losses generated in 2014 and 2013 from the financial assets/liabilities reclassified according to IAS 39. The only amount relates to the gains and losses arising on the increase in value of derivative financial instruments.
(Euro thousands) 31.12.2014 Gains/(losses) Gains/(losses) Gains/(losses) recycled from through profit or recorded against Total equity to profit or loss equity loss FA at fair value through profit or loss 917 917 FA held for trading FL at fair value through profit or loss (8) (8) FL held for trading Available-for-sale FA/other FL 955 (23,386) (22,431) FA held-to-maturity Loans and receivables FL at amortised cost Total 909 955 (23,386) (21,522)
(Euro thousands) 31.12.2013 Gains/(losses) Gains/(losses) Gains/(losses) recycled from through profit or recorded against Total equity to profit or loss equity loss FA at fair value through profit or loss 60 60 FA held for trading FL at fair value through profit or loss (480) (480) FL held for trading Available-for-sale FA/other FL 28.947 28.947 FA held-to-maturity Loans and receivables FL at amortised cost Total (420) 28.947 28.527
The amount of Euro 917 thousand comprises: the positive change in foreign exchange hedging contracts for Euro 342 thousand and the change in fair value of the contracts entered into to hedge interest rate risk that are not accounted for under hedge accounting for Euro 575 thousand. The negative change of Euro 8 thousand relates to foreign exchange hedging contracts. The negative change of Euro 23,386 thousand is in respect of financial derivatives accounted for under hedge accounting. More specifically, the other items of comprehensive income at 31 December 2014 include Euro 150 thousand representing forward currency contracts and Euro 23,536 thousand on interest rate swaps. The amount of Euro 955 thousand relates to the amount recycled from equity to profit or loss in respect of the cash flow hedge reserve for the portion no longer hedged in respect of Falck Renewables SpA.
page 129. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
The table below illustrates total interest income/expense (calculated using the effective interest rate method) and the fee income/expense generated by financial assets/liabilities not measured at fair value through profit or loss and the fee income/expense arising from trust and other fiduciary activities in 2014 and 2013. (Euro thousands) 31.12.2014 Interest Fee income/ income/ Total (expense) (expense)
FA not at fair value through profit or loss 2,501 2,501 FL not at fair value through profit or loss (49,105) (4,680) (53,785) Trust and other fiduciary activities Other (not within scope of IFRS7) 556 556 Total (46,048) (4,680) (50,728)
(Euro thousands) 31.12.2013 Interest Fee income/ income/ Total (expense) (expense)
FA not at fair value through profit or loss 1,351 1,351
FL not at fair value through profit or loss (46,304) (2,269) (48,573) Trust and other fiduciary activities Other (not within scope of IFRS7) 234 234 Total (44,719) (2,269) (46,988)
The reconciliations of the above amounts with net finance costs recorded in the 2014 and 2013 income statements are as follows.
(Euro thousands) 31.12.2014 Gains/losses through profit or loss 909 Total interest income/expense (46,048) Fee income/expense (4,680) Total (49,819) Net finance costs per income statement (49,819)
(Euro thousands) 31.12.2013 Gains/losses through profit or loss (420) Total interest income/expense (44,719) Fee income/expense (2,269) Total (47,408) Net finance costs per income statement (47,408)
2.2 Provision for doubtful accounts
Total charges of Euro 716 thousand were made in 2014 of which: Euro 467 thousand relates to trade receivables of Falck Renewables SpA due from Palermo Energia Ambiente ScpA;
page 130. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
Euro 100 thousand relates to trade receivables of Falck Renewables SpA; Euro 94 thousand relates to trade receivables of Prima Srl; Euro 55 thousand relates to trade receivables of Esposito Servizi Ecologici Srl, gross of Euro 57 thousand used by Esposito Servizi Ecologici Srl and Euro 102 thousand used by Prima Srl.
Moreover, in the course of the year: The provision increased by Euro 18 thousand arising on the first time consolidation of Vector Cuatro SLU; Financial receivables were written down by Euro 1,675 thousand in respect of amounts owed to Falck Renewables SpA by Palermo Energia Ambiente ScpA; The receivables of Falck Renewables Wind due from Parque Eolico La Carracha and Parque Eolico Plana de Jarreta were written down to nil.
3. Further additional disclosures
3.1 Accounting policies
The accounting policies adopted for the recognition and measurement of financial assets and liabilities are presented in the notes to the consolidated financial statements in paragraph 6.6.4 Accounting policies.
3.2 Fair value
The tables below disclose the fair value of the financial assets/liabilities and the related carrying amount at 31 December 2014 and 31 December 2013. The carrying amount of the financial assets/liabilities valued at cost and amortised cost (see point 1.1) is a reasonable estimate of fair value as these relate to either short-term or variable rate financial assets and liabilities or medium/long-term financial liabilities that, based on sample calculations, did not give rise to significant differences.
The fair value of derivative financial instruments at the balance sheet date is equal to the discounted future cash flows given the Euro curve at 31 December and its related forward rates.
The fair value of forward exchange contracts is measured using the year-end spot rates (December 2014), and forward rates and yield curves on foreign currency.
31.12.2014 (Euro thousands) Carrying amount Fair value Financial assets Securities and investments 0 0 Financial receivables 881 881 Trade receivables 117,527 117,527 Other receivables 3,900 3,900 Cash and cash equivalents 207,606 207,606 Total 329,914 329,914 Financial liabilities Financial payables 846,616 846,616 Trade payables 51,820 51,820 Other payables 14,778 14,778 Total 913,214 913,214
page 131. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
31.12.2013 (Euro thousands) Carrying amount Fair value Financial assets Securities and investments 0 0 Financial receivables 1,171 1,171 Trade receivables 124,878 124,878 Other receivables 2,722 2,722 Cash and cash equivalents 120,819 120,819 Total 249,590 249,590 Financial liabilities Financial payables 850,076 850,076 Trade payables 63,115 63,115 Other payables 14,774 14,774 Total 927,965 927,965
Analysis of financial liabilities at 31 December 2014 and 31 December 2013 by instrument and conditions.
page 132. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
31.12.2014 (Euro thousands) Fair Carrying Current Non-current Interest rate Value amount portion portion % Loan to finance revamp of Rende plant - Banca Popolare di Sondrio -Ecosesto SpA Euribor 6 m + spread 7,875 7,875 1,575 6,300
Shareholders' loan - Prima Euribor 3 m + spread 1,289 1,289 0 1,289 Sicily Projects' loan Euribor 3 m + spread 1,433 1,433 1,433 Other bank borrowings - Falck Renewables SpA Euribor 3 m + spread 23,116 23,116 23,116 0 Other bank borrowings 133 133 133 Interest payable 1,243 1,243 1,243 Shareholders' loan - wind sector 46,662 46,662 9,602 37,060 Royalty instruments payable Euribor 3 m + spread 11,937 11,937 11,937 Bank borrowings - Vector Cuatro Group 861 861 684 177 Total borrowings 94,549 94,549 36,353 58,196 Project financing Actelios Solar SpA Euribor 6 m + spread 34,778 34,778 2,257 32,521 Project financing Cambrian WE LIBOR 3M + Spread 16,763 16,763 3,365 13,398 Project financing Boyndie LIBOR 3M + Spread 1,790 1,790 887 903 Project financing Earlsburn LIBOR 3M + Spread 26,165 26,165 4,938 21,227 Project financing Ben Aketil LIBOR 3M + Spread 23,889 23,889 1,896 21,993 Project financing Millennium LIBOR 3M + Spread 57,551 57,551 4,040 53,511 Project financing Kilbraur LIBOR 3M + Spread 61,342 61,342 3,687 57,655 Project financing Nutberry LIBOR 3M + Spread 28,503 28,503 1,073 27,430 Project financing Geopower Euribor + spread 182,445 182,445 10,099 172,346 Project financing Eolica Petralia Euribor 6 m + spread 21,769 21,769 999 20,771 Project financing Eolo 3W Euribor + spread 63,717 63,717 5,357 58,360 Project financing Eolica Sud Euribor + spread 108,232 108,232 7,922 100,309 Project financing Crêtes Euribor + spread 8,857 8,857 577 8,280 Project financing Fouy Euribor + spread 8,499 8,499 556 7,943 Project financing Esquennois Euribor + spread 10,940 10,940 717 10,223 Project financing Ty RU Euribor + spread 12,279 12,279 851 11,428 Project financing Eolica Cabezo Euribor + spread 6,348 6,348 1,415 4,933 Totale borrowings under project financing 673,866 673,866 50,636 623,230 IRS - Actelios Solar 4,677 4,677 4,677 IRS - Falck Renewables SpA 574 574 574 0 IRS - Cambrian WE 1,366 1,366 1,366 IRS - Boyndie 65 65 65 IRS - Earlsburn 1,461 1,461 1,461 IRS - Ben Aketil 4,179 4,179 4,179 IRS - Millennium 3,398 3,398 3,398 IRS - Kilbraur 3,175 3,175 3,175 IRS - Nutberry 2,691 2,691 2,691 IRS - Geopower 25,544 25,544 25,544 IRS - Eolica Petralia 1,452 1,452 1,452 IRS - Eolo 3W 8,754 8,754 8,754 IRS - Eolica Sud 14,985 14,985 14,985 IRS - Crêtes 1,448 1,448 1,448 IRS - Fouy 1,395 1,395 1,395 IRS - Esquennois 1,772 1,772 1,772 IRS - Ty RU 315 315 315 IRS - Eolica Cabezo 537 537 537 Foreign exchange instruments of Falck Renewables SpA to hedge net GBP exposure 256 256 256 Foreign exchange instruments of Falck Renewables SpA to hedge Kingsburn orders 157 157 157 Total derivative financial instruments 78,201 78,201 987 77,214 Total financial liabilities 846,616 846,616 87,976 758,640
page 133. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
(Euro thousands) 31.12.2013
Fair Carrying Current Non-current Interest rate value amount portion portion % Loan to finance revamp of Rende plant - Banca Popolare di Euribor 6 m + spread 9,450 9,450 1,575 7,875 Sondrio -Ecosesto Banca Popolare Sondrio mortgage - Ecosesto Euribor 3 m + spread 1,063 1,063 1,063 0 Thermodynamic project - Banca Popolare di Sondrio 5,500 5,500 500 5,000 Shareholders' loan - Prima Euribor 3 m + spread 1,252 1,252 134 1,118 Sicily Projects' loan Euribor 3 m + spread 1,405 1,405 1,405 Other bank borrowings - Falck Renewables SpA Euribor 3 m + spread 74,178 74,178 581 73,597 Other bank borrowings 0 0 Bank loans for interest matured and not paid on project financing 1,140 1,140 1,140 Shareholders' loans - wind sector 1,201 1,201 1,201 0 Other borrowings - wind sector 139 139 139 Royalty instruments payable Euribor 3 m + spread 9,724 9,724 9,724 Total borrowings 105,052 105,052 6,333 98,719 Project financing Actelios Solar SpA Euribor 6 m + spread 37,324 37,324 2,702 34,622 Project financing Millennium LIBOR 3M + Spread 57,348 57,348 3,689 53,659 Project financing Kilbraur WE LIBOR 3M + Spread 61,314 61,314 4,107 57,207 Project financing Ben Aketil LIBOR 3M + Spread 24,269 24,269 1,983 22,286 Project financing Earlsburn LIBOR 3M + Spread 27,082 27,082 2,303 24,779 Project financing Boyndie LIBOR 3M + Spread 2,445 2,445 775 1,670 Project financing Cambrian WE LIBOR 3M + Spread 24,705 24,705 2,964 21,741 Project financing FRF LIBOR 3M + Spread 0 0 0 0 Project financing Eolica Cabezo Euribor + spread 7,647 7,647 1,312 6,335 Project financing Eolica Petralia Euribor 6 m + spread 23,595 23,595 1,759 21,836 Project financing Eolo 3W Euribor + spread 68,568 68,568 4,986 63,582 Project financing Crêtes Euribor + spread 9,458 9,458 522 8,936 Project financing Fouy Euribor + spread 9,104 9,104 503 8,601 Project financing Esquennois Euribor + spread 11,745 11,745 649 11,096 Project financing Eolica Sud Euribor + spread 122,367 122,367 14,375 107,992 Project financing Geopower Euribor + spread 190,674 190,674 8,733 181,941 Project financing Ty RU 13,106 13,106 804 12,302 Totale debiti per project financing 690,751 690,751 52,166 638,585 IRS - Actelios Solar 2,286 2,286 2,286 IRS - Falck Renewables SpA 1,445 1,445 1,445 IRS - Cambrian WE 1,844 1,844 1,844 IRS - Kilbraur WE 3,573 3,573 3,573 IRS - Millennium WE 4,395 4,395 4,395 IRS - Ben Aketil WE 3,329 3,329 3,329 IRS - Boyndie WE 120 120 120 IRS - Earlsburn WE 1,813 1,813 1,813 IRS - Eolo 3W 6,754 6,754 6,754 IRS - Eolica Cabezo San Roque SAU 693 693 693 IRS - Parc Eolien des Crêtes SAS 1,072 1,072 1,072 IRS - Esquennois Energie SAS 1,302 1,302 1,302 IRS - Parc Eolien du Fouy 1,032 1,032 1,032 IRS - Eolica Sud 10,056 10,056 10,056 IRS - Geopower 13,736 13,736 13,736 IRS - Petralia 26 26 26 IRS - SE Ty RU 37 37 37 480 480 480 0 Foreign exchange instruments of Falck Renewables SpA Foreign exchange instruments to hedge Falck Renewables SpA 279 279 279 0 investments Total derivative financial instruments 54,273 54,273 759 53,514 Total financial liabilities 850,076 850,076 59,258 790,818
page 134. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
Analysis of derivatives and financing contracts to which they relate:
(Euro thousands) Original Notional Company Type of derivative Maturity Fair value currency value Falck Renewables SpA Interest rate swap 30/06/2015 EURO 70,000 574 Actelios Solar SpA Interest rate swap 30/06/2026 EURO 32,626 4,677 Cambrian Wind Energy Ltd Interest rate swap 30/06/2016 GBP 18,164 1,366 Kilbraur Wind Energy Ltd Interest rate swap 15/10/2019 GBP 46,909 3,174 Millennium Wind Energy Ltd Interest rate swap 15/04/2019 GBP 44,043 3,398 Ben Aketil Wind Energy Ltd Interest rate swap 31/12/2024 GBP 21,836 4,179 Boyndie Wind Energy Ltd Interest rate swap 30/06/2016 GBP 1,324 65 Earlsburn Wind Energy Ltd Interest rate swap 18/04/2017 GBP 17,228 1,461 Nutberry Wind Energy Ltd Interest rate swap 29/03/2029 GBP 24,915 2,691 Eolo 3W Minervino Murge Srl Interest rate swap 31/12/2023 EURO 50,508 8,755 Eolica Cabezo San Roque Sau Interest rate swap 31/12/2018 EURO 4,251 537 Parc Eolien des Cretes Sas Interest rate swap 15/01/2024 EURO 7,223 1,448 Esquennois Energie Sas Interest rate swap 15/01/2024 EURO 8,969 1,772 Parc Eolien du Fouy Sas Interest rate swap 15/01/2024 EURO 6,953 1,395 Eolica Sud Srl Interest rate swap 31/12/2024 EURO 88,392 14,985 Geopower Sardegna Srl Interest rate swap 30/06/2027 EURO 141,588 25,544 Eolica Petralia srl Interest rate swap 30/06/2027 EURO 16,021 1,452 SE Ty Ru Sas Interest rate swap 30/06/2030 EURO 1,352 315 Total derivative financial instruments 77,788
page 135. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
Analysis of interest rate hedges of the Falck Renewables Group at 31 December 2014:
Change to Change in Foreign Change to profit or 31.12.2013 scope of exchange 31.12.2014 equity loss for fair consol.n difference value Falck Renewables SpA 1,445 - (1,250) 379 - 574 Actelios Solar 2,286 - 2,391 - - 4,677 Cambrian Wind Energy Ltd 1,845 - (609) - 130 1,366 Kilbraur Wind Energy Ltd 3,573 - (616) (34) 251 3,174 Millennium Wind Energy Ltd 4,395 - (1,267) (37) 307 3,398 Ben Aketil Wind Energy Ltd 3,329 - 616 - 234 4,179 Boyndie Wind Energy Ltd 120 - (63) - 8 65 Earlsburn Wind Energy Ltd 1,813 - (459) (21) 128 1,461 Nutberry Wind Energy Ltd - - 2,538 148 5 2,691 Eolo 3W Minervino Murge Srl 6,754 - 2,001 - - 8,755 Eolica Cabezo San Roque Sau 693 - (156) - - 537 Parc Eolien des Cretes Sas 1,072 - 382 (6) - 1,448 Esquennois Energie Sas 1,302 - 477 (7) - 1,772 Parc Eolien du Fouy Sas 1,032 - 368 (5) - 1,395 Eolica Sud Srl 10,056 - 4,929 - - 14,985 Geopower Sardegna Srl 13,736 - 11,808 - - 25,544 Eolica Petralia srl 26 - 1,426 - - 1,452 SE Ty Ru Sas 37 - 278 - 315 Total 53,514 - 22,794 417 1,063 77,788
Analysis of financial receivables at 31 December 2014 and 31 December 2013 by instrument and conditions.
31.12.2014 (Euro thousands)
Carrying Current Non-current Interest rate Fair value amount portion portion - - - - - Interest accrued but not yet paid 71 71 71 Receivables due from third party shareholders UK projects Variable 667 667 667 Receivables due from associates (Vector Cuatro Servicios) Variable 25 25 25 Amounts due from employees - - - Foreign currency forward exchange contracts (FKR) 118 118 118 TOTAL 881 881 856 25
page 136. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
31.12.2013 (Euro thousands)
Carrying Current Non-current Interest rate Fair value amount portion portion % Amounts due from third party shareholders - UK projects Variable 718 718 718 Amounts due from associates Variable 392 392 25 367 Interest accrued but not yet paid 61 61 61 Amounts due from employees Foreign currency forward exchange contracts (Falck Renewables - FKR) - - TOTAL 1,171 1,171 804 367
3.3 Fair value – hierarchy
All financial instruments measured at fair value have been classified in the three categories below based on the lowest level of significant input in determining overall fair value: level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; level 2: valuation techniques where the lowest level of significant input for the purpose of measuring fair value is observable either directly or indirectly; level 3: valuation techniques where the lowest level of significant input for the purpose of measuring fair value is unobservable.
The Group held the following instruments measured at fair value at 31 December 2014:
(Euro thousands) 31.12.2014 Level 1 Level 2 Level 3 Total Financial assets measured at FV Forward exchange contracts 118 118 Total assets 118 118 Financial liabilities measured at FV Forward exchange contracts 413 413 Interest rate swaps 77,788 77,788 Total liabilities 78,201 78,201
(Euro thousands) 31.12.2013 Level 1 Level 2 Level 3 Total Financial liabilities measured at FV Forward exchange contracts 759 759 Interest rate derivative instruments 53,514 53,514 Total liabilities 54,273 54,273
page 137. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
Section II: Risks arising from financial instruments
1. Credit risk
1.1 Qualitative disclosures
Credit risk represents both potential losses from non-settlement of receivables and the counterparty risk linked with the negotiation of other financial assets. The credit risk exposure of the Falck Renewables Group is very limited in respect of both commercial customers and financial counterparties. The credit risk of commercial customers is low: 86.47% of amounts due from third parties (not related parties) is owed by reputable national energy suppliers or utility companies. The degree of concentration of customers is high, however they have a strong credit rating. The credit risk attributable to the counterparties with which the derivative financial instruments are negotiated is also limited as the derivatives are negotiated with leading financial institutions. A summary quantitative indication of the maximum exposure to credit risk is the carrying amount of the financial assets, expressed gross of derivatives with a positive fair value and net of any guarantees. The Group does not enter into instruments or guarantees to mitigate credit risk; consequently, the disclosures below are not affected by such instruments.
1.2 Quantitative disclosures
At 31 December 2014 the maximum credit risk exposure amounted to Euro 329,914 thousand and comprised:
(Euro thousands) 31.12.2014 Gross Write-down Net Financial receivables 9,509 (8,628) 881 Trade receivables 123,861 (6,334) 117,527 Other receivables 3,900 3,900 Cash and cash equivalents 207,606 207,606 Total 344,876 (14,962) 329,914
At 31 December 2013 the maximum credit risk exposure amounted to Euro 249,590 thousand and comprised:
(Euro thousands) 31.12.2013 Gross Write-down Net Financial receivables 8,123 (6,952) 1,171 Trade receivables 130,319 (5,441) 124,878 Other receivables 2,722 2,722 Cash and cash equivalents 120,819 120,819 Total 261,983 (12,393) 249,590
An analysis of trade receivables at 31 December 2014 and 31 December 2013 by class of customer with the corresponding percentage of total receivables is set out below. This provides a summary indication of the concentration of commercial credit risk.
page 138. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
(Euro thousands) 31.12.2014 % exposure by Class of customer Total exposure class of customer Energy suppliers/utility companies 101,200 86.47% Public authorities (Councils) 0 0.00% Other entities 15,833 13.53% Total trade receivables 117,033 100%
(Euro thousands) 31.12.2013 % exposure by Class of customer Total exposure class of customer Energy suppliers/utility companies 103,802 83.18% Public authorities (Councils) 186 0.15% Other entities 20,800 16.67% Total trade receivables 124,788 100%
The ageing analysis of trade receivables by class of customer, analysed by the overdue periods used internally to monitor receivables, as at 31 December 2014 and 31 December 2013, is set out below. Balances not yet due at 31 December 2014 and 31 December 2013 are also presented.
(Euro thousands) 31.12.2014 Total Overdue Total Not yet due exposure 0 - 30 31 - 60 61 - 90 91 - 120 > 120 overdue Energy suppliers/utility companies 101.200 2.626 20.671 96 10 23.403 77.797 Public authorities (Councils) - - Other entities 15.833 11.394 761 268 156 228 12.806 3.027 Total trade receivables 117.033 14.020 21.432 364 166 228 36.209 80.824
(Euro thousands) 31.12.2013 Total Overdue Total overdue Not yet due exposure 0 - 30 31 - 60 61 - 90 91 - 120 > 120 Energy suppliers/utility companies 103,802 21,048 - - 121 70 21,239 82,563 Public authorities (Councils) 186 17 4 0 0 5 26 160 Other entities 20,800 1,479 903 342 362 823 3,909 16,891 Total trade receivables 124,788 22,544 907 342 483 898 25,174 99,614
2. Liquidity risk
2.1 Qualitative disclosures
Liquidity risk is summarised in the tables below that illustrate the financial liabilities grouped by maturity date. The Falck Renewables Group has a group treasury department that employs two cash pooling systems:
page 139. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
a domestic system between Falck Renewables SpA and the Group’s Italian subsidiaries that do not have project financing (entities with project financing may not participate in the pooling system due to the liquidity management and debt restrictions imposed);
a cross-border system between Falck Renewables SpA and Falck Renewables Wind Ltd.
The Group also carries out netting of opposing balances through the use of specific intercompany correspondence accounts. The Falck Renewables Group prepares an update of the cash flow statement and the cash budget on a monthly basis, in which the actual data for the period are supported by a summary evaluation and commentary.
2.2 Quantitative disclosures
Financial liabilities are analysed by contractual maturity across four time bands. The analysis has been concentrated on bank borrowings and shareholders’ loans, the latter have been disclosed separately. Liabilities in respect of royalty instruments have also been disclosed separately as payment depends on the performance of the financed wind farms. Royalty instruments represent a financial instrument used by wind farms in the UK to acquire the consent of local communities in which the wind farms are located.
31.12.2014 (Euro thousands) Analysis of financial liabilities (principal amounts: amounts due by contractual maturity) < 12 months 1-2 years 2-5 years > 5 years Total 128,160 66,184 178,390 386,180 758,914 Bank borrowings 26,750 6,323 155 0 33,228 Project financing 50,636 58,815 178,235 386,180 673,866 Trade payables 50,774 1,046 0 0 51,820 Other 0 0 0 0 0 Analysis of financial liabilities (principal amounts: amounts due by estimated contractual maturity) 24,380 7,994 19,477 24,248 76,099 Shareholders' loans 9,602 7,994 19,477 12,311 49,384 Royalty instruments 0 0 0 11,937 11,937 Other payables 14,778 0 0 0 14,778
31.12.2013 (Euro thousands) Analysis of financial liabilities (principal amounts: amounts due by contractual maturity) < 12 months 1-2 years 2-5 years > 5 years Total 120,278 122,813 169,114 433,131 845,335 Bank borrowings 4,997 76,172 2,575 7,725 91,469 Project financing 52,166 46,641 166,539 425,406 690,751 Trade payables 63,115 0 0 0 63,115 Other 0 0 0 0 0 Analysis of financial liabilities (principal amounts: amounts due by estimated contractual maturity) 16,109 0 1,118 11,128 28,355 Shareholders' loans 1,335 0 1,118 1,404 3,857 Royalty instruments 0 0 0 9,724 9,724 Other payables 14,774 0 0 0 14,774
page 140. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
In order to provide a better analysis of the overall financial commitments underlying the liabilities illustrated in the table above, a calculation was made of interest due to be paid for each maturity period shown. As contractual interest rates on the above borrowing instruments are all variable, quarterly or six-monthly, and closely linked to Euribor rates, this calculation was made taking into consideration the implicit rates of the swap rate curve correlated with Euribor rates at 31 December 2014. Calculation of the quarterly and six-monthly interest was simplified by assuming that the payment periods for each instrument had the same start and end date. With regard to interest payable, the estimated value of the differentials relating to derivative financial instruments held at 31 December 2014 was calculated. The estimated differentials were calculated applying the implicit forward rates in the zero coupon curve at 31 December 2014 without discounting cash flows. In this case a detailed analysis of each derivative instrument held was performed.
Analysis of financial liabilities (estimated flows on contractual basis: interest costs plus IRS differentials) (Euro thousands) 31.12.2014 < 12 1 - 2 years 2 - 5 years > 5 years Total months IRS differentials 18,534 14,893 27,381 18,316 79,124 Bank borrowings 479 149 212 840 Project financing 17,256 16,670 47,270 57,784 138,980 Total 36,269 31,712 74,863 76,100 218,944
Analysis of financial liabilities (flows on estimated contractual basis: interest costs) (Euro thousands) 31.12.2014 < 12 1 - 2 years 2 - 5 years > 5 years Total months Shareholders' loans 155 4,809 32,125 37,089 Total 155 4,809 32,125 37,089
Analysis of financial liabilities (estimated flows on contractual basis: interest costs plus IRS differentials) (Euro thousands) 31.12.2013 < 12 1 - 2 years 2 - 5 years > 5 years Total months IRS differentials 18,524 15,146 18,789 2,638 55,097 Bank borrowings 3,060 1,777 1,024 106 5,967 Project financing 20,006 20,582 71,009 105,376 216,973 Total 41,590 37,505 90,822 108,120 278,037
page 141. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
3. Market risks
3.1 Interest rate risk
3.1.1 Qualitative disclosures
The Falck Renewables Group manages interest rate risk centrally. Although it does not define in advance the maximum variable rate debt exposure, it follows well-established procedures aimed at monitoring risk and that avoid undertaking transactions of a speculative nature. The type and suitability of hedging instruments is evaluated for each specific case in consideration of the amount of exposure and current financial market conditions.
The Falck Renewables Group uses derivative financial instruments to hedge interest rates and in particular enters into interest rate swaps (IRS) with the exclusive aim of hedging. Moreover, the derivatives held at the year-end were acquired in order to allow the debt structure to meet the covenants established by the financial institutions in relation to project financing. In particular, borrowings at variable rates for these contracts are matched with opposing IRS that partially convert the borrowings from variable to fixed rates. Although these operations are entered into to hedge interest rate risk, hedge accounting is not applied to all of these derivative financial instruments. Consequently, changes in fair value of these derivatives follow the general rule applied to trading derivatives and are charged directly to the income statement with a direct effect on profit/(loss) for the year.
The degree of the Falck Renewables Group’s interest rate exposure was measured through a sensitivity analysis performed applying the guidelines provided in paragraph 40 of IFRS 7 and the examples illustrated in Implementation Guide (IG) 35. A brief description of the methodology used to perform the sensitivity analysis and the results obtained is provided below.
Firstly, the effect on profit for the year was determined applying a different yield curve to that used at the reporting date. For the Falck Renewables Group this means recalculating the fair value of the derivative instruments and charging directly to the income statement the difference between the simulated fair value and the value at the year-end. This provides both the portfolio risk on derivatives held at the balance sheet date and the related effect on profit/(loss) for the year. The analyses were performed taking into consideration investments valued using the equity method as the impact of interest rate fluctuations on financial performance and the financial position of these entities impact consolidated profit for the year and total equity.
The actual effect on profit for the year of a different scenario for interest rates also depends on the average financial assets and liabilities for the period on which interest accrues. The example provided in IG35 of IFRS 7 refers to the effect on the financial statements originating from a different interest rate arising during the year. Once the finance income and costs relating to a new scenario become known it is easy to verify, measuring the difference between these and the actual income/expense, the effect of a new interest rate scenario on the income statement.
The sensitivity analysis assumed two scenarios, a decrease and an increase in interest rates. Changes in interest rates for each scenario have been applied: 1) to the yield curve at the reporting date, assuming a parallel shift in the yield curve; 2) to the average interest rate paid in the course of the year on variable rate borrowings; 3) to the average interest rate earned during the year on variable rate financial assets; 4) to the interest rates used to determine the differentials paid/received during the year on derivative financial instruments.
As already noted the change in fair value of each derivative instrument held at 31 December 2014, together with the related impact on profit for the year, was calculated for each scenario. The impact on profit arising from changes in finance income and costs was also calculated for each scenario. The tables below illustrate the outcome of these analyses. Given the current market situation and the potential rise in interest rates, an increase of 50 basis points and a decrease of 15 basis points were applied.
page 142. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
An increase of 50 basis points would have resulted in a negative impact on profit of approximately (1.51%), while a decrease of 15 basis points would have determined a positive impact on profit for the year of approximately 0.45%.
3.1.2 Quantitative disclosures
Scenario Euribor +50bp
Derivatives impact
page 143. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
(Euro thousands) Scenario I - Euribor + 50 bp % on Tax Tax profit effect of % of Accounting Base Scenario Change Change Change effect of before change in profit for treatment value value FV BS IS change in income FV to the year FV in IS tax equity Falck Renewables SpA Hedge Accounting (574) (399) 176 60 116 0.54% (32) (16) 0.94% Frullo Energia Ambiente Non-hedge (1,804) (1,545) 259 - 259 1.20% (71) - 2.09% Srl Accounting
Actelios Solar Spa Hedge Accounting (4,677) (3,624) 1,053 1,053 - 0.00% (290) 0.00%
Geopower Sardegna Srl Hedge Accounting (25,544) (20,506) 5,038 5,038 - 0.00% (1,385) 0.00%
Eolo 3W Hedge Accounting (8,754) (7,462) 1,292 1,292 - 0.00% (355) 0.00%
Eolica Sud Hedge Accounting (14,985) (12,442) 2,543 2,543 - 0.00% (699) 0.00%
Eolica Petralia Srl Hedge Accounting (1,452) (887) 565 565 - 0.00% (155) 0.00%
Esquennois Energie SAS Hedge Accounting (1,772) (1,492) 280 280 - 0.00% (77) 0.00% Parc Eolien des Crêtes Hedge Accounting (1,448) (1,223) 225 225 - 0.00% (62) 0.00% SAS
Parc Eolien du Fouy Hedge Accounting (1,394) (1,177) 217 217 - 0.00% (60) 0.00%
Ty-Ru Hedge Accounting (315) (225) 90 90 - 0.00% (25) 0.00%
Cambrian WE Hedge Accounting (1,366) (1,205) 161 161 - 0.00% (32) 0.00%
Kilbraur WE Hedge Accounting (3,175) (2,611) 564 564 - 0.00% (113) 0.00%
Millennium WE Hedge Accounting (3,398) (2,968) 430 430 - 0.00% (86) 0.00%
Ben Aketil Hedge Accounting (4,179) (3,609) 570 570 - 0.00% (114) 0.00%
Boyndie Hedge Accounting (65) (57) 8 8 - 0.00% (2) 0.00%
Earlsburn Hedge Accounting (1,461) (1,276) 185 185 - 0.00% (37) 0.00%
Nutberry Hedge Accounting (2,690) (1,722) 968 968 - 0.00% (194) 0.00%
Cabezo Hedge Accounting (537) (495) 42 42 - 0.00% (11) 0.00%
Parque Eolico la Carracha Hedge Accounting (170) (141) 29 29 - 0.00% (8) 0.00% Parque Eolico Plana de Hedge Accounting (168) (139) 29 29 - 0.00% (8) 0.00% Jarreta Total (79,928) (65,205) 14,724 14,349 375 1.74% (103) (3,729) 3.03%
page 144. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
Total impact
(Euro thousands) Scenario I - Euribor + 50bp
Tax effect on Net impact Tax effect on Change BS Change IS % of PBT % of PFY BS on BS change in IS Impact of change in fair value of 14,349 (3,729) 10,620 375 1.74% (103) 3.03% derivatives Impact on finance costs and IRS - - - (1,029) -4.77% 283 -8.32% differentials (*) Impact on finance income and IRS - - - 840 3.89% (231) 6.79% differentials (*) Total 14,349 (3,729) 10,620 186 0.86% (51) 1.51%
(*)The tax effect on derivatives was calculated applying the following rates: 27.5% for the Italian companies, 20% for UK companies and 27.5% for all other companies. A tax rate of 27.5% was applied to calculate the tax effect on finance income and costs.
page 145. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
Scenario Euribor -15 bp
Derivatives impact (Euro thousands) Scenario II - Euribor - 15 bp % of profit Tax effect of Tax effect of Accounting Scenario % of profit for Base value Change FV Change BS Change IS before change in FV change in FV treatment value the year income tax in IS to equity Falck Hedge (574) (627) (53) (18) (35) -0.16% 10 5 -0.28% Renewables SpA Accounting Frullo Energia Non-hedge (1,804) (1,881) (77) - (77) -0.36% 21 -0.62% Ambiente Srl Accounting Actelios Solar Hedge (4,677) (4,993) (316) (316) - 0.00% 87 0.00% Spa Accounting Geopower Hedge (25,544) (27,056) (1,511) (1,511) - 0.00% 416 0.00% Sardegna Srl Accounting Hedge Eolo 3W (8,754) (9,142) (388) (388) - 0.00% 107 0.00% Accounting Hedge Eolica Sud (14,985) (15,748) (763) (763) - 0.00% 210 0.00% Accounting Eolica Petralia Hedge (1,452) (1,621) (169) (169) - 0.00% 47 0.00% Srl Accounting Esquennois Hedge (1,772) (1,850) (79) (79) - 0.00% 22 0.00% Energie SAS Accounting Parc Eolien des Hedge (1,448) (1,511) (63) (63) - 0.00% 17 0.00% Crêtes SAS Accounting Parc Eolien du Hedge (1,394) (1,455) (61) (61) - 0.00% 17 0.00% Fouy Accounting Hedge Ty-Ru (315) (323) (8) (8) - 0.00% 2 0.00% Accounting Hedge Cambrian WE (1,366) (1,413) (46) (46) - 0.00% 9 0.00% Accounting Hedge Kilbraur WE (3,175) (3,327) (151) (151) - 0.00% 30 0.00% Accounting Hedge Millennium WE (3,398) (3,578) (180) (180) - 0.00% 36 0.00% Accounting Hedge Ben Aketil (4,179) (4,359) (180) (180) - 0.00% 36 0.00% Accounting Hedge Boyndie (65) (67) (2) (2) - 0.00% 0.00% Accounting Hedge Earlsburn (1,461) (1,516) (55) (55) - 0.00% 11 0.00% Accounting Hedge Nutberry (2,690) (3,050) (359) (359) - 0.00% 72 0.00% Accounting Hedge Cabezo (537) (561) (24) (24) - 0.00% 7 0.00% Accounting Parque Eolico la Hedge (170) (178) (9) (9) - 0.00% 2 0.00% Carracha Accounting Parque Eolico Hedge (168) (176) (9) (9) - 0.00% 2 0.00% Plana de Jarreta Accounting Total (79,928) (84,432) (4,503) (4,391) (112) -0.52% 31 1,135 -0.90%
page 146. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 6.7 Consolidation – additional disclosures on financial instruments in accordance with IFRS7
Total impact
(Euro thousands) Scenario II - Euribor - 15 bp Tax effect Tax effect Net impact Change BS Change IS % of PBT on change % of PFY on BS on BS in IS Impact of change in fair value of (4,391) 1,135 (3,256) (112) -0.52% 31 -0.90% derivatives Impact on finance costs and IRS - - - 309 1.43% (85) 2.50% differentials (*) Impact on finance income and - - - (252) -1.17% 69 -2.04% IRS differentials (*) Total (4,391) 1,135 (3,256) (55) -0.26% 15 -0.45%
(*)The tax effect on derivatives was calculated applying the following rates: 27.5% for the Italian companies, 20% for UK companies and 27.5% for all other companies. A tax rate of 27.5% was applied to calculate the tax effect on finance income and costs.
3.2 Foreign exchange risk
A sensitivity analysis was performed in order to determine the impact of fluctuations in exchange rates on the balances denominated in foreign currencies of all Group companies as at 31 December 2014. The analyses were performed assuming two scenarios, a 10% appreciation/depreciation of the spot rate between the exchange rate in which the amount is denominated and the rate used to translate the balances for the purpose of preparing the financial statements. These analyses showed that a 10% appreciation in the exchange rates of balances denominated in foreign currency would result in a foreign exchange loss and a corresponding decrease in the consolidated result before income tax of Euro -345 thousand. A 10% depreciation in the balances denominated in foreign currency would give rise to a foreign exchange gain and consequently an increase in the consolidated result before income tax of Euro 408 thousand. This analysis relates to the foreign exchange risk exposure in accordance with IFRS 7 and does not therefore take into account the positive or negative impact arising from the translation of overseas subsidiaries prepared in functional currencies other than the Euro where there is an appreciation/depreciation in the relevant foreign currencies.
page 147.
7. Supplementary information to the consolidated financial statements
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 7 Supplementary information to the consolidated financial statements
7.1 List of investments in subsidiaries and associates
% Indirect holding Registered Currency Share Direct office capital holding % Subsidiary . Companies consolidated applying the line-by-line method
Falck Renewables SpA Milan Euro 291,413,891 Actelios Solar SpA Sesto S. Giovanni (Mi) Euro 120,000 100.000 Ambiente 2000 Srl Milan Euro 103,000 60.000 Assel Valley Wind Energy Ltd Inverness (GB) GBP 100 75.000 Falck Renewables Wind Ltd Auchrobert Wind Energy Ltd Inverness (GB) GBP 100 75.000 Falck Renewables Wind Ltd Beaumont Wind Energy Ltd London (GB) GBP 50 100.000 Falck Renewables Wind Ltd Ben Aketil 2 Wind Energy Ltd Inverness (GB) GBP 100 100.000 Falck Renewables Wind Ltd Ben Aketil Wind Energy Ltd Inverness (GB) GBP 100 51.000 Falck Renewables Wind Ltd Boyndie Wind Energy Ltd Inverness (GB) GBP 100 100.000 Falck Renewables UK Holdings (No.1) Ltd Cambrian Wind Energy Ltd London (GB) GBP 100 100.000 Falck Renewables UK Holdings (No.1) Ltd Dunbeath Wind Energy Ltd Inverness (GB) GBP 100 52.000 Falck Renewables Wind Ltd Earlsburn Mezzanine Ltd London (GB) GBP 100 100.000 Falck Renewables Wind Ltd Earlsburn Wind Energy Ltd Inverness (GB) GBP 100 51.000 Earlsburn Mezzanine Ltd Ecosesto SpA Rende (Cosenza) Euro 5,120,000 100.000 Elettroambiente SpA (in liquidation) Sesto S. Giovanni (Mi) Euro 245,350 100.000 Elektrownie Wiatrowe Bonwind Łyszkowice Łódź (Poland) PLN 132000 50.000 Falck Renewables Wind Ltd Sp.Z.o.o. Eolica Cabezo San Roque Sau Saragozza (Spain) Euro 1,500,000 100.000 Falck Renewables Wind Ltd
Eolica Petralia Srl Sesto S. Giovanni (Mi) Euro 2,000,000 100.000 Falck Renewables Wind Ltd
Eolica Sud Srl Davoli Marina (Cz) Euro 5,000,000 100.000 Falck Renewables Wind Ltd Eolo 3W Minervino Murge Srl Sesto S. Giovanni (Mi) Euro 10,000 100.000 Falck Renewables Wind Ltd Esposito Servizi Ecologici Srl Sesto S. Giovanni (Mi) Euro 10,000 100.000 Esquennois Energie Sas Paris (France) Euro 37,000 100.000 Falck Renewables Wind Ltd Ezse Elektrik Uretim Ltd Sirketi Izmir (Turkey) TRY 17,500,000 100.000 Falck Renewables Wind Ltd Falck Energies Renouvelables Sas Rennes (France) Euro 60,000 100.000 Falck Renewables Wind Ltd Falck Renewables Finance Ltd London (GB) GBP 100 100.000 Falck Renewables Wind Ltd Falck Renewables Italia Srl Sesto S. Giovanni (Mi) Euro 100,000 100.000 Falck Renewables Wind Ltd Falck Renewables Wind Ltd London (GB) GBP 37,759,066 99.989 Falck Renewables Energy Srl Sesto San Giovanni Euro 10,000 100.000 Falck Renewables Polska Z o.o. (in liquidation) Warsaw (Poland) PLN 5,000 100.000 Falck Renewables UK Holdings (No.1) Ltd London (GB) GBP 1 51.000 Falck Renewables Finance Ltd Geopower Sardegna Srl Sesto S. Giovanni (Mi) Euro 2,000,000 100.000 Falck Renewables Wind Ltd Kilbraur 2 Wind Energy Ltd Inverness (GB) GBP 100 100.000 Falck Renewables Wind Ltd Kilbraur Wind Energy Ltd Inverness (GB) GBP 100 51.000 Falck Renewables Wind Ltd Kingsburn Wind Energy Ltd Inverness (GB) GBP 100 52.000 Falck Renewables Wind Ltd Leadhills Wind Energy Ltd Inverness (GB) GBP 100 52.000 Falck Renewables Wind Ltd Millennium Wind Energy Ltd Inverness (GB) GBP 100 51.000 Falck Renewables Wind Ltd Mochrum Fell Wind Energy Ltd Inverness (GB) GBP 100 75.000 Falck Renewables Wind Ltd Ness Wind Energy Ltd London (GB) GBP 50 100.000 Falck Renewables Wind Ltd
page 149. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 7 Supplementary information to the consolidated financial statements
% Indirect holding Registered Currency Share Direct office capital holding % Subsidiary . Companies consolidated applying line-by-line method (continued) Nutberry Wind Energy Ltd Inverness (GB) GBP 100 100.000 Falck Renewables Wind Ltd Ongarhill Wind Energy Ltd London (GB) GBP 100 75.000 Falck Renewables Wind Ltd Parc Eolien Illois Sarl Rennes (France) Euro 1,000 100.000 Falck Energies Renouvelables Sas Parc Eolien des Cretes Sas Paris (France) Euro 37,000 100.000 Falck Renewables Wind Ltd Parc Eolien du Fouy Sas Paris (France) Euro 37,000 100.000 Falck Renewables Wind Ltd Falck Renewables Gmbh and co.KG Nuremberg (Germany) Euro 5,000 100.000 Falck Energies Renouvelables Sas Falck Renewables Verwaltungs Gmbh Nuremberg (Germany) Euro 25,000 100.000 Falck Energies Renouvelables Sas
Platani Energia Ambiente ScpA (in liquidation) Palermo Euro 3,364,264 86.770 Elettroambiente SpA
Prima Srl Sesto S. Giovanni (Mi) Euro 5,430,000 85.000 SE Ty Ru Sas Rennes (France) Euro 1,009,003 100.000 Falck Renewables Gmbh and co.KG Solar Mesagne Srl Brindisi Euro 50,000 100.000 Spaldington Airfield Wind Energy Ltd London (GB) GBP 100 75.000 Falck Renewables Wind Ltd
Tifeo Energia Ambiente ScpA (in liquidation) Palermo Euro 4,679,829 96.350 Elettroambiente SpA
Vector Cuatro SLU Madrid (Spain) Euro 55,001 100.000 Vector Cuatro Srl Turin (Italy) Euro 25,000 100.000 Vector Cuatro SLU Vector Cuatro France Sarl Lyon (France) Euro 50,000 100.000 Vector Cuatro SLU Vector Cuatro EOOD Sofia (Bulgaria) BGN 2,000 100.000 Vector Cuatro SLU Vector Cuatro Canada INC Vaughan (Ontario, Canada) CAD 100 100.000 Vector Cuatro SLU Vector Cuatro Japan KK Tokyo (Japan) JPY 1,000,000 100.000 Vector Cuatro SLU Vector Cuatro Energias Renovables Mèxico SA de Miguel Hidalgo DF (Mexico) MXN 50,000 98.000 Vector Cuatro SLU CV PV Diagnosis Fotovoltaica SLU Madrid (Spain) Euro 3,100 100.000 Vector Cuatro SLU Vector Cuatro Ingenieria Renovable SLU Madrid (Spain) Euro 3,006 100.000 Vector Cuatro SLU PV Diagnosis Srl Milan (Italy) Euro 10,000 100.000 Vector Cuatro SLU Verus Energy Oak Ltd London (GB) GBP 1 51.000 Falck Renewables Wind Ltd West Browncastle Wind Energy Ltd Inverness (GB) GBP 100 100.000 Falck Renewables Wind Ltd . Companies consolidated using the equity method
Frullo Energia Ambiente Srl Bologna Euro 17.139.100 49,000 Palermo Energia Ambiente ScpA (in liquidation) Palermo Euro 120.000 23,273 Nuevos Parque Eolicos La Muela AIE Saragozza (Spain) Euro 10.000 50,000 Parque Eolico La Carracha SL 50,000 Parque Eolico Plana de Jarreta SL Parque Eolico La Carracha Sl Saragozza (Spain) Euro 100.000 26,000 Falck Renewables Wind Ltd Parque Eolico Plana de Jarreta Sl Saragozza (Spain) Euro 100.000 26,000 Falck Renewables Wind Ltd Vector Cuatro Servicios SL Madrid (Spain) Euro 30.000 50,000 Vector Cuatro SLU
. Other investments in subsidiaries and associates valued at cost
FRI Energetica Srl Cosenza Euro 20,000 20.000 Falck Renewables Wind Ltd
page 150.
8. Falck Renewables SpA separate financial statements at 31 December 2014
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.1 Falck Renewables SpA balance sheet
(Euro thousands) 31.12.2014 31.12.2013 Note of which of which related parties related parties Assets A Non-current assets 1 Intangible assets (1) 776 829 2 Property, plant and equipment (2) 465 457 3 Investments and financial assets (3) 222,756 212,133 4 Trade receivables (5) 5 Medium/long-term financial receivables (4) 98,984 98,984 98,938 98,938 6 Deferred income tax assets (7) 1,232 2,348 7 Other receivables (6) 7 4 Total 324,220 98,984 314,709 B Current assets 1 Inventories (8) 2 Trade receivables (5) 5,694 5,626 1,344 1,220 3 Other receivables (6) 15,290 14,957 14,183 13,935 4 Financial assets (4) 82,685 82,495 222,347 222,347 5 Investments 6 Cash and cash equivalents (9) 102,419 233 Total 206,088 238,107 C Non-current assets held for sale Total assets 530,308 552,816 Liabilities D Equity 1 Ordinary shares 291,414 291,414 2 Reserves 151,858 154,417 3 Retained earnings 4 Profit for the year 30,037 6,040 Equity attributable to shareholders (10) 473,309 451,871 E Non-current liabilities 1 Medium/long-term financial liabilities (13) 75,042 2 Other non-current liabilities (15) 3 Deferred income tax liabilities 4 Provisions for other liabilities and charges (11) 9,770 11,346 5 Staff leaving indemnity (12) 1,907 1,706 Total 11,677 88,094 F Current liabilities 1 Trade payables (14) 3,727 419 5,289 886 2 Other payables (15) 5,900 331 3,287 436 3 Short-term financial liabilities (13) 35,695 11,592 4,275 3,207 4 Provisions for other liabilities and charges Total 45,322 12,851 G Liabilities attributable to non-current assets Total liabilities 530,308 552,816
Related party transactions are disclosed on pages 185 to 187.
page 152. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.2 Falck Renewables SpA income statement
(Euro thousands) 31.12.2014 31.12.2013 Note of which of which related parties related parties A Revenue (16) 223 127 56
Direct labour costs (17)
Direct costs (18) (100)
B Cost of sales (100) 0
C Gross profit 123 56
Other income (19) 7,442 6,928 7,082 7,017
Other employee costs (17) (10,546) (8,836)
Administrative expenses (20) (12,184) (3,578) (14,324) (2,453)
D Operating loss (15,165) (16,022)
Finance income - net (21) 2,244 6,564 3,712 10,106
Investment income (22) 38,739 38,739 15,568 15,568
E Profit before income tax 25,818 3,258
Income tax expense (23) 4,219 2,782
F Profit for the year 30,037 6,040
No significant non-recurring transactions occurred during the year.
Related party transactions are disclosed on pages 192 and 193.
page 153. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.3 Falck Renewables SpA statement of changes in comprehensive income
(Euro thousands) 31.12.2014 31.12.2013 Gross Tax Net Gross Tax Net A Profit for the year 25,818 4,219 30,037 3,258 2,782 6,040
Other items of comprehensive income Other items of comprehensive income that will be recycled subsequently to profit/(loss) for the year net of tax Foreign exchange differences on translation of overseas financial statements Fair value adjustment of available-for-sale financial assets Fair value adjustments of derivatives designated as 1,250 (413) 837 1,089 (360) 729 cash flow hedges
Total other items of comprehensive income that B 1,250 (413) 837 1,089 (360) 729 will be recycled subsequently to profit/(loss) for the year net of tax
Other items of comprehensive income that will not be recycled subsequently to profit/(loss) for the year net of tax Balance of actuarial gains/(losses) on employee (126) (126) 9 9 defined benefit plans Total other items of comprehensive income that C will not be recycled subsequently to profit/(loss) (126) (126) 9 9 for the year net of tax B+C Other comprehensive income/(loss) 1,124 (413) 711 1,098 (360) 738 A+B+C Total comprehensive income/(loss) 26,942 3,806 30,748 4,356 2,422 6,778
page 154. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.4 Falck Renewables SpA statement of cash flows
(Euro thousands) 31.12.2014 31.12.2013 Note of which of which related parties related parties Cash flows from operating activities Profit for the year 30,037 6,040 Adjusted for: Amortisation and impairment of intangible assets (20) 170 142 Depreciation and impairment of property, plant and equipment (20) 165 122 Staff leaving indemnity provision (17) 371 383 Write-down of investments and other securities (22) 648 5,691 Finance income (21) (14,191) (8,576) (18,044) (11,191) Finance costs (21) 11,947 2,011 14,332 34 Dividends (22) (39,387) (39,387) (21,259) 21,259 Share of profit of investments valued at equity Gain on sale of intangibles Profit on disposal of property, plant and equipment 6 Profit on sale of investments (22) Other cash flows 13 41 Income tax (income statement) (23) (4,219) 2,782
Operating (loss) before changes in net working capital and provisions (14,446) (9,764) Change in inventories (5) Change in trade receivables (14) (4,350) 788 Change in trade payables (1,562) 492 Change in other receivables/payables 6,450 (2,080) Net change in provisions (11) (1,576) 1,882 Change in employee payables - staff leaving indemnity paid during year (12) (358) (369) Cash used in operating activities (15,842) (9,051) Interest paid (9,684) (2,011) (12,251) (34) Tax paid (25) (15) Net cash used in operating activities (1) (25,551) (21,317) Cash flows from investing activities Dividends 39,387 39,387 24,855 24,857 Proceeds from sale of property, plant and equipment 3 17 Proceeds from sale of intangible assets Proceeds from sale of investment activities Purchases of intangible assets (1) (116) (452) Purchases of property, plant and equipment (176) (289) Acquisition of investments (3) (11,271) (11,271) (3,601) (3,601) Own shares purchased (10) (231) Sale of investments Interest received 13,114 8,576 18,044 11,191 Net cash generated from investing activities (2) 40,941 38,343 Cash flows from financing activities Dividends paid (10) (9,310) Share capital increase and share capital contributions Expenses on capital transactions Proceeds from borrowings 139,890 139,890 76,066 76,066 Loans granted (69,768) (69,768) New borrowings 17,000 Repayment of borrowings (68,750) (18,804) Net cash generated from/(used in) financing activities (3) 78,830 (12,506) Net increase in cash and cash equivalents and bank overdrafts(1+2+3) 94,220 4,520 Cash and cash equivalents and bank overdrafts at 1 January (3,275) (7,795) Cash and cash equivalents and bank overdrafts at 31 December (9) 90,945 (3,275)
page 155. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.5 Falck Renewables SpA statement of changes in equity
(Euro thousands) Share Reserves (Loss)/profit Total capital for the year equity
31.12.2012 291,414 255,941 (102,031) 445,324 Appropriation of 2012 loss (102,031) 102,031 Dividends paid Own shares purchased (231) (231) Other movements 738 738 Profit for the year to 31 December 2013 6,040 6,040 31.12.2013 291,414 154,417 6,040 451,871 Appropriation of 2013 profit 6,040 (6,040) Dividends paid (9,310) (9,310) Own shares purchased Other movements 711 711 Profit for the year to 31 December 2014 30,037 30,037
31.12.2014 291,414 151,858 30,037 473,309
page 156. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
Direction and coordination activities
In accordance with article 2497 bis, paragraph 4 of the Italian Civil Code, the key information from the latest approved financial statements of Falck SpA (31 December 2013) is disclosed, due to the fact that the latter performs direction and coordination activities. For a full and better understanding of the financial position of Falck SpA at 31 December 2013, and the profit for the year then ended, reference should be made to its financial statements complete with the independent auditors’ report, which are available at the parent company’s registered offices and on its website www.falck.it.
page 157. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
BALANCE SHEET 31 DECEMBER 2013 31 DECEMBER 2012 CHANGE FALCK SpA Amounts Amounts Total Amounts Amounts Total Amounts Amounts Total ASSETS due within due after (Euro) due within due after (Euro) due within due after (Euro) 12 months 12 months 12 months 12 months 12 months 12 months A) SHARE CAPITAL SUBSCRIBED AND NOT YET PAID 0 0 0 B) FIXED ASSETS I. Intangible assets 1 Start-up and expansion costs 2 Research, development and advertising expenses 3 Industrial patent rights 4 Concessions, licences, trademarks and similar rights 5 Goodwill 5.784 7.834 (2.050) 6 Assets under construction and advances 7 Other intangible assets 1.123.391 1.872.320 Total intangible assets 1.129.175 1.880.154 (750.979) II. Tangible assets 1 Land and buildings 2 Plant and machinery 3 Industrial and commercial equipment 4 Other tangible assets 20.438 43.603 (23.165) 5 Assets operated under concession 6 Assets under construction and advances Total tangible assets 20.438 43.603 (23.165) III. Financial assets 1 Equity investments : a subsidiaries 333.691.209 333.691.209 b associates c other companies 67.478 20.416.006 (20.348.528) Total equity investments 333.758.687 354.107.215 (20.348.528) 2 Receivables : a due from subsidiaries b due from associates c due from parent company d due from others e due from other Group companies f guarantee deposits 148.504 148.504 Total receivables 148.504 148.504 3 Securities 0 4 Own shares (nominal value Euro 6,907,653) 12.192.593 12.192.593 Total financial assets 346.099.784 366.448.312 (20.348.528) TOTAL FIXED ASSETS 347.249.397 368.372.069 (21.122.672) C) CURRENT ASSETS I. Inventory 1 Raw materials and consumables and goods 2 Work in progress, semi-finished products and goods 3 Contract work in progress 4 Finished products and goods 5 Advance payments Total inventory II. Receivables 1 Trade receivables 2 Due from subsidiaries a trade 850.152 850.152 843.204 843.204 6.948 6.948 b financial 25.177.965 25.177.965 25.910.721 25.910.721 (732.756) (732.756) c other 9.772.506 9.772.506 7.588.590 7.588.590 2.183.916 2.183.916 Total receivables due from subsidiaries 35.800.623 35.800.623 34.342.515 34.342.515 1.458.108 1.458.108 3 Due from associates a trade b financial c other Total receivables due from associates 4 Due from parent company a trade b financial c other Total receivables due from parent company 4bis Tax credits 3.954.718 3.954.718 5.976.926 5.976.926 (2.022.208) (2.022.208) 4ter Deferred tax assets 580.485 580.485 6.296.481 6.296.481 (5.715.996) (5.715.996) 5 Due from others a financial 0 0 0 0 b advance payments 10.268 10.268 11.694 11.694 (1.426) (1.426) c other 138.976 138.976 936.156 936.156 (797.180) (797.180) Total receivables due from others 149.244 149.244 947.850 947.850 (798.606) (798.606) 6 Due from other group companies a trade b financial c other Total receivables due from other Group companies 0 Total receivables 40.485.070 40.485.070 47.563.772 47.563.772 (7.078.702) (7.078.702) III. Short-term investments 1 Investments in subsidiaries 0 0 0 2 Investments in associates 0 0 0 3 Investments in other companies 17.119.661 2.599.487 14.520.174 4 Own shares 0 0 0 5 Securities 0 0 6 Bills receivable 0 0 0
Total short-term investments 17.119.661 2.599.487 14.520.174 IV. Cash and bank 1 Bank and post office accounts 51.220 49.843 1.377 2 Cheques 0 3 Cash in hand 4.110 6.338 (2.228) Total cash and bank 55.330 56.181 (851) TOTAL CURRENT ASSETS 57.660.061 50.219.440 7.440.621 D) ACCRUED INCOME AND PREPAID EXPENSES 481 (481) TOTAL ASSETS 404.909.458 418.591.990 (13.682.532)
page 158. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
BALANCE SHEET 31 DECEMBER 2013 31 DECEMBER 2012 CHANGE FALCK SpA Amounts Amounts Total Amounts Amounts Total Amounts Amounts Total LIABILITIES due within due after (Euro) due within due after (Euro) due within due after (Euro) 12 months 12 months 12 months 12 months 12 months 12 months A) SHAREHOLDERS' EQUITY I. Share capital 72,793,163 72,793,163 II. Share premium reserve 28,905,335 28,905,335 III. Revaluation reserve 1 reserve ex Law 72/83 2 reserve ex Law 413/91 Total revaluation reserves IV. Legal reserve 14,558,633 14,558,633 V. Statutory reserve VI. Reserve for own shares 12,192,593 12,192,593 VII. Other reserves 1 Extraordinary reserve 17,187,170 17,187,170 8 Contribution from shareholders 450,000 450,000 Total other reserves 17,637,170 17,637,170 VIII. Profit carried forward 109,545,034 108,836,041 708,993 IX. (Loss)/profit for the period (20,072,989) 708,993 (20,781,982) TOTAL SHAREHOLDERS' EQUITY 235,558,939 255,631,928 (20,072,989) B) PROVISIONS FOR RISKS AND CHARGES 1 For pensions and similar obligations 2 For taxes a Current b Deferred Total provision for taxes 3 Other provisions a Provision for litigation 1,449,996 2,238,996 (789,000) b Provision for equity investment risks 10,094,000 10,094,000 c Provision for environmental improvements 0 d Provision for reorganisation and liquidation costs 0 e Sundry provisions 20,943,667 21,573,712 (630,045) Total other provisions 32,487,663 23,812,708 8,674,955 TOTAL PROVISIONS FOR RISKS AND CHARGES 32,487,663 23,812,708 8,674,955
C) EMPLOYEE SEVERANCE INDEMNITY 110,902 91,811 19,091 D) PAYABLES 1 Bonds and debenture loans 0 2 Convertible bonds and debenture loans 33,273,029 33,273,029 33,273,029 33,273,029 0 3 Shareholders' loans 0 4 Bank loans and overdrafts 92,241 94,556,134 94,648,375 313,325 91,568,434 91,881,759 (221,084) 2,987,700 2,766,616 5 Other financing creditors 0 0 0 6 Advance payments received 0 0 7 Trade payables 1,407,078 1,407,078 1,567,291 1,567,291 (160,213) (160,213) 8 Bills payable 0 0 0 9 Due to subsidiaries a trade 144,950 144,950 (144,950) (144,950) b financial 682,046 682,046 685,434 685,434 (3,388) (3,388) c other 5,047,245 5,047,245 8,605,273 8,605,273 (3,558,028) (3,558,028) Total amount due to subsidiaries 5,729,291 5,729,291 9,435,657 9,435,657 (3,706,366) (3,706,366) 10 Due to associates a trade b financial c other Total amount due to associates 11 Due to parent company a trade b financial c other Total amount due to parent company 12 Tax payables 64,214 64,214 1,364,353 1,364,353 (1,300,139) (1,300,139) 13 Social security and national insurance contributions 233,668 233,668 236,202 236,202 (2,534) (2,534) 14 Other payables 1,192,566 1,192,566 1,080,938 1,080,938 111,628 111,628 15 Due to other group companies a trade 0 b financial 0 c other 0 Total amount due to other group companies 0 TOTAL PAYABLES 8,719,058 127,829,163 136,548,221 13,997,766 124,841,463 138,839,229 (5,278,708) 2,987,700 (2,291,008) E) ACCRUED LIABILITIES AND DEFERRED INCOME 203,733 216,314 (12,581) TOTAL LIABILITIES 404,909,458 418,591,990 (13,682,532)
page 159. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
FALCK SpA (Euro) 31.12.2013 31.12.2012 Change A) Value of production 1 Revenue from sales and services 721,000 739,200 (18,200)
2 Change in work in progress, semi-finished and finished products 3 Change in contract work in progress 4 Own work capitalised a production and inventory b capitalised interests Total own work capitalised 5 Other income a grants received b other operating income c recharged expenses 309,164 117,457 191,707 d sundry income 907,648 786,000 121,648 e property income f gains from ordinary operations 7,214 7,214 g non-recurring income 98,964 522,950 (423,986) Total other income 1,322,990 1,426,407 (103,417) Total value of production 2,043,990 2,165,607 (121,617) B) Cost of production 6 Raw materials and consumables and goods (7,296) (11,420) 4,124 7 Cost of services a services (2,120,652) (1,764,874) (355,778) b utilities (3,548) (5,618) 2,070 c sundry costs (80,412) (83,741) 3,329 Total cost of services (2,204,612) (1,854,233) (350,379) 8 Rentals and leasing charges (80,702) (214,968) 134,266 9 Employee costs a salaries and wages (425,351) (394,089) (31,262) b social security charges (130,620) (122,041) (8,579) c staff leaving indemnity (TFR) (27,971) (27,676) (295) d pensions and similar obligations e other costs (7,446) (7,493) 47 Total employee costs (591,388) (551,299) (40,089) 10 Amortisation,depreciation and write-downs a amortisation of intangible assets (750,978) (752,967) 1,989 b depreciation of tangible assets (23,165) (23,195) 30 c other write-downs on fixed assets d write-down of current assets and cash (195,344) (1,584,302) 1,388,958 e utilisation of bad debt provision in respect of current assets f bad debts Total amortisation,depreciation and write downs (969,487) (2,360,464) 1,390,977 11 Change in inventory of raw materials and consumables and goods 12 Provision for contingencies a Charge to provision for litigation b Utilisation of provision for litigation Total provision for contingencies 13 Other provisions 14 Other operating charges a indirect taxes (88,661) (9,566) (79,095) b property charges c losses from ordinary operations d non-recurring expenses (14,715) (219,905) 205,190 e other (25,163) (26,269) 1,106 Total other operating charges (128,539) (255,740) 127,201 Total cost of production (3,982,024) (5,248,124) 1,266,100 Difference between value and cost of production (1,938,034) (3,082,517) 1,144,483 C) Financial income and charges 15 Income from equity investments a subsidiaries 4,965,693 (4,965,693) b associates c other companies 522,329 415,135 107,194 d tax credits on dividends e gains on disposal of equity investments 32,698 32,698 Total income from equity investments 555,027 5,380,828 (4,825,801)
page 160. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
FALCK SpA (Euro) 31.12.2013 31.12.2012 Change 16 Other financial income a From receivables included in fixed assets a.1 subsidiaries a.2 associates a.3 parent company a.4 other Group companies a.5 others Total from receivables included in fixed assets b From securities included in fixed assets c From securities included in current assets c.1 interest income from securities c.2 gains from disposal of securities Total income from securities included in current assets d Other income d.1 interest and commission from subsidiaries 796,966 874,187 (77,221) d.2 interest and commission from associates 160,626 184,313 (23,687) d.3 interest and commission from parent company d.4 interest and commission from other Group companies d.5 interest and commission from banks 3,337 14,858 (11,521) d.6 interest and commission from others and sundry income 315,370 (315,370) Total other income 960,929 1,388,728 (427,799) Total other financial income 960,929 1,388,728 (427,799) 17 Interest expense and other financial charges a subsidiaries (6,094) (7,249) 1,155 b associates c parent company d other Group companies e others (5,671,375) (6,962,554) 1,291,179 f losses on disposal of equity investments g losses on disposal of securities Total interest expense and other financial charges (5,677,469) (6,969,803) 1,292,334 17bis Exchange gains and losses a exchange gains 202,490 440,126 (237,636) b exchange losses (232,220) (427,363) 195,143 Total exchange gains and losses (29,730) 12,763 (42,493) Total financial income and charges (4,191,243) (187,484) (4,003,759) D) Adjustments to financial assets 18 Revaluations a equity investments 935,730 1,323,000 (387,270) b financial assets included in fixed assets c securities included in current assets Total revaluations 935,730 1,323,000 (387,270) 19 Write-downs a equity investments a.1 permanent losses on equity investments (6,736,000) (4,301,185) (2,434,815) a.2 provision for equity investment risks (10,094,000) (10,094,000) a.3 utilisation of provision for equity investment risks 3,935,000 (3,935,000) Total write-downs on equity investments (16,830,000) (366,185) (16,463,815) b of financial assets included in fixed assets c of securities included in current assets Total write-downs (16,830,000) (366,185) (16,463,815) Total adjustments to financial assets (15,894,270) 956,815 (16,851,085) E) Extraordinary income and expenses 20 Income a gains from extraordinary disposals 1,290,872 (1,290,872) b other extraordinary income 2,018,397 3,143,724 (1,623,066) c utilisation of provision for reorganisation and liquidation costs Total extraordinary income 2,018,397 4,434,596 (2,416,199) 21 Expenses a losses from extraordinary disposals b tax relating to prior financial periods c other extraordinary charges (100,440) (2,207,492) 2,107,052 d reorganisation and liquidation costs Total extraordinary expenses (100,440) (2,207,492) 2,107,052 Total extraordinary items 1,917,957 2,227,104 (309,147) Loss for the year before taxation (20,105,590) (86,082) (20,019,508) 22 Tax on profit for the year 32,601 795,075 (762,474) 23 (Loss)/profit for the year (20,072,989) 708,993 (20,781,982)
page 161. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
8.6.1 Accounting policies
The valuation and measurement of financial information for the year ended 31 December 2014 have been based on the IAS/IFRS currently in force and their related interpretations as set out in the documents issued to date by the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC).
The Company’s separate financial statements are prepared in Euro and all values are rounded to thousands of Euro except where otherwise indicated. The financial statements have been prepared applying the historical cost convention, with the exception of derivative instruments and available-for-sale financial assets, valuation of which is based on the market value (fair value) principle. The carrying value of those assets and liabilities that are covered by fair value hedges and that would normally be recorded at amortised cost, is adjusted to reflect changes in the fair value attributable to the hedged risks. Non-current assets and tangible fixed assets held for sale are recorded at the lower of net book value and fair value less costs of disposal. Preparation of the financial statements in accordance with IFRS requires management to make estimates, valuations and assumptions on the accounting value of a number of assets and liabilities and related disclosures, and contingent assets and liabilities at the date of the financial statements. The estimates and assumptions are based on historical results and other reasonable information and are adopted when the carrying value of the assets or liabilities may not be reliably estimated using other sources. Actual amounts may differ from estimates.
These estimates and assumptions are reviewed periodically and the effects of all differences relating to the current accounting period are recognised in the income statement. Where the adjustment covers both current and future reporting periods, the adjustment is recorded in the year in which the adjustment is made and future periods. The actual results may differ, in some cases significantly, from the estimated amounts due to changes in the circumstances on which the estimate was based.
The financial statements have been prepared in accordance with International Financial Reporting Standards - IFRS issued by the International Financial Reporting Standards Board, based on the documents published in the European Community’s Official Gazette (ECOG).
The accounting policies are consistent with those used to prepare the 2013 Annual Report with the exception of the adoption of new standards, amendments and interpretations that came into force on 1 January 2014.
The Company adopted for the first time a number of standards and amendments that require restatement of previous results including IFRS 11 – Joint Arrangements and IFRS 12 – Disclosure of Interests in Other Entities that extended the disclosures in the consolidated financial statements. The nature and impact of each new standard and amendment are detailed below:
Joint Arrangements - IFRS 11: replaces IAS 31 “Interests in Joint Ventures and applies to all entities that are party to a joint arrangement whereby two or more parties, which have joint control through unanimous consent, have the power to direct decisions regarding relevant activities and govern exposure to future earnings. Two types of agreements have been identified: - joint operation: the party to the agreement recognises its share of assets, liabilities, revenue and costs in the financial statements; - joint venture: the contractual agreement is managed through an entity and the partiesto the agreement have rights to the net assets of the arrangement. The share of interest in the joint venture is measured using the equity method and not proportionate consolidation.
page 162. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
IFRS 12 Disclosure of Interests in Other Entities IFRS 12 establishes new disclosure requirements for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The standard does not have an effect on the Company’s financial position or financial performance.
Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32 The amendments clarify the meaning of “currently has a legally enforceable right of set-off” and also clarify the offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. These amendments do not impact the Company’s financial statements.
Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39 These amendments allow hedge accounting to be continued where the novation of a hedge meets certain criteria. These amendments do not impact the results as the Company has not changed its hedges in the current or prior periods.
Recoverable Amount Disclosures for Non-financial assets – Amendments to IAS 36 These amendments remove the impact introduced involuntarily by IFRS 13 regarding disclosures required by IAS 36. Moreover, these amendments require disclosures regarding the recoverable amount of an asset or CGU for periods in which impairment has been recorded or reversed in respect of that asset or CGU. These amendments have not impacted the Company’s financial statements. The Company has not early adopted any other standards, interpretations or improvements issued but not yet effective.
IFRS and/or interpretations issued but not yet effective
The following standards and interpretations had been issued but were not yet effective at the time of preparation of the Annual Report. The Company intends to adopt these standards when they become effective.
IFRIC 21 - Levies IFRIC 21 provides guidance that an entity should recognise a liability when an obligating event arises in accordance with the relevant legislation. For payments that are triggered only on reaching a minimum threshold, the liability is recognised when that minimum threshold is reached. IFRIC 21 is applied on a retrospective basis and is effective for annual periods beginning on or after 17 June 2014.
The principal accounting policies and valuation methods adopted in the preparation of the Company’s separate financial statements are set out below:
Fair value measurement The Company measures financial instruments, such as derivatives and non-financial assets, at fair value at each balance sheet date. The fair value of financial instruments valued at amortised cost is summarised in the notes to the financial statements. Fair value is the price at which an orderly transaction to sell an asset or transfer a liability would take place between market participants at the measurement date. Fair value measurement assumes that a transaction takes place: (a) in the principal market for the asset or liability; or (b) in the absence of a principal market, the most advantageous market for the asset or liability. The principal market or most advantageous market must be accessible to the company. The fair value of an asset or liability is measured adopting the assumptions that market participants would use to determine the price of the asset or liability, presuming that they act in such a way as to satisfy their financial interest.
page 163. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
The fair value measurement of non-financial assets considers the ability of a market participant to generate economic benefits consistent with its highest and best use or from the sale to another market participant that would use it to its highest or best use. The Company employs measurement techniques appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All of the assets and liabilities for which fair value is determined or disclosed in the financial statements are categorised based on the fair value hierarchy as set out below: - Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; - Level 2 – inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; - Level 3 – measurement technique for which inputs are unobservable inputs for the asset or liability. The fair value measurement is classified in its entirety in the level of the lowest level input that is significant to the entire measurement. For assets and liabilities that are measured at fair value on a recurring basis, the Company determines if any transfer between hierarchy levels has taken place by reviewing the categorisation (based on the lowest level of input that is significant to the entire measurement) at each balance sheet date.
Intangible assets An intangible asset is recorded only when it is identifiable, controllable, is expected to generate economic benefits in future periods and the cost may be reliably measured. Intangible assets are recorded at cost including directly attributable expenses and are amortised systematically over their estimated useful economic life.
Intangible assets with a finite useful life are classified at cost net of accumulated amortisation and any impairment losses. Amortisation is based on the estimated useful life and commences when the asset is available for use.
Intangible assets are tested annually for impairment. In accordance with IAS 36 the carrying amount of assets is reviewed for impairment whenever there is an indication that it may not be recoverable. Assets are disclosed net of any recognised impairment losses.
Intangible assets also include industrial patent rights that comprise costs incurred for the automation and mechanisation of the information systems that are subject to an amortisation rate of 20%.
Property, plant and equipment Falck Renewables SpA opted for the cost method in preparing the first IAS/IFRS financial statements, as prescribed by IFRS 1. As a result, with regard to property, plant and equipment, the Company has preferred not to adopt the fair value approach. Property, plant and equipment is recorded at acquisition or production cost including directly attributable costs. Property, plant and equipment is valued at cost, net of depreciation and impairment losses, with the exception of land, which is not depreciated and is valued at cost less impairment losses. In the event that significant components of an item of property, plant and equipment have varying useful lives, each component is attributed a separate useful life for depreciation purposes (component approach). The depreciation rates applied represent the estimated useful life of the assets. The rates applied to the various asset categories are as follows:
page 164. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
(%)
Industrial buildings 4 - 10 Plant and machinery 5 - 10 Equipment 7 - 15 Other assets 6 - 20 Assets operated under concession 5 - 10
These rates are applied based on months of actual use with regard to assets that come into use during the year. Ordinary maintenance costs are charged to expenses in the year in which they are incurred. Maintenance costs that increase the future economic benefits derived from the assets are capitalised on the related asset and depreciated over the residual useful life. Borrowing costs for the construction of a plant or its acquisition are capitalised up until the moment in which the asset is ready for use in the production process.
Impairment of assets In the presence of circumstances that potentially indicate a loss in value, impairment tests are conducted on tangible and intangible assets that have an indefinite useful life, by estimating the recoverable amount of the asset and comparing it with the related net book value. The recoverable value of an asset or CGU is the greater of value in use and fair value less cost of disposal. In the event that the recoverable value is lower than the carrying value, an impairment loss is recognised in the income statement. When there is an indication that an impairment loss recognised in a previous accounting period is no longer required, the carrying value is restated to the new estimated recoverable value which may not exceed the carrying value that would have been recognised had the original impairment not occurred. The reversal is also recorded in the income statement.
The market capitalisation of Falck Renewables SpA at 31 December 2014 of Euro 270,869 thousand is lower than the carrying amount of equity amounting to Euro 473,309 thousand. An impairment test was performed on the overall value of Falck Renewables SpA that did not give rise to the recognition of an impairment loss. Sensitivity analyses were also performed in respect of the WACC rate employed (+/-0.5%) and electricity prices (+/-5%): the outcome was positive in both cases.
Investments and securities
Investments in subsidiaries and associates Investments in subsidiaries and associates are valued at cost. The book value is written down to reflect impairment losses in the event that the investments are in a loss-making situation and no profits are foreseeable in the near future to cover the losses reported; the original value is restated in future financial periods in the event that the reasons for the write-down no longer exist.
Investments in other companies and other investments In accordance with IAS 39 and 32, investments in companies that are neither subsidiaries nor associates are measured at fair value with the exception of those circumstances in which market price or fair value cannot be determined: in this event the cost method is applied. Gains and losses arising on adjustments to value are recognised as a specific reserve within equity. Where impairment losses exist or in the event of disposal of the related asset, the gains and losses recorded in equity up until this point are recycled to the income statement. Investments held for sale are measured at fair value with any adjustment recognised in the income statement. Cost is reduced for any indication of impairment where investments have recorded losses and no profits are foreseeable in the near future to cover these losses; the original value may be restated in subsequent accounting periods in the event that the circumstances that gave rise to the write-down no longer exist.
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Financial assets
Classification In accordance with IAS 39 and IAS 32, financial assets are classified into the following four categories:
1. Financial assets ‘at fair value through profit or loss’; 2. Held-to-maturity investments; 3. Loans and financial receivables similar to loans; 4. Available-for-sale financial assets.
The classification depends on the reason for which the investment was initially purchased and is subsequently held and management is required to determine the initial classification on initial recognition updating this at each financial year-end. A description of the principal characteristics of each asset category detailed above may be summarised as follows:
Financial assets ‘at fair value through profit or loss’ This category has two sub-categories:
1. Financial assets held for trading;
2. Financial assets designated to the fair value category on initial recognition. This category includes all financial investments other than equity instruments that are not quoted in an active market but for which a fair value may be reliably measured. Financial instruments, with the exception of hedge instruments, are included in this category and their fair value recorded in the income statement.
All assets within this category are classified as current if they are held for trading purposes or where disposal is expected within 12 months from the year end. Designation of a financial instrument to this category is irrevocable and may take place only on initial recognition.
Held-to-maturity investments Held-to-maturity investments are financial assets with fixed or determinable payments and fixed maturity, which the Company intends to hold to maturity (e.g. underwritten debentures). Evaluation of the intent and ability to hold the asset to maturity must be made on initial recognition and at each subsequent balance sheet date. In the event of sale before maturity (of a significant amount and not in exceptional circumstances) of held-to- maturity securities, all such investments are reclassified as financial assets held for trading and measured at fair value.
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market and which the Company does not intend to trade in. These are classified in current assets with the exception of the portion expiring more than 12 months after the balance sheet date, which is classified in non-current assets. Loans and receivables are classified within the financial statements under the headings financial receivables and other receivables.
Available-for-sale financial assets All non-derivative instruments that are not classified in another category are designated as available-for-sale financial assets. These are classified as non-current assets unless management intends to dispose of them within 12 months of the balance sheet date.
Accounting treatment Financial assets ‘at fair value through profit or loss’ held for trading (category 1) and available-for-sale financial assets (category 4) are recorded at fair value including costs directly attributable to acquisition. Gains or losses relating to financial assets held for trading are recognised immediately in the income statement.
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Gains or losses relating to financial assets available for sale are recorded within a separate heading in equity until they are sold or otherwise disposed of, or until circumstances indicate they may be impaired. Where any of these events takes place, all gains or losses recognised to date and recorded in equity are reclassified to the income statement. Fair value represents the amount at which an asset may be exchanged or a liability settled in an arm’s length transaction between knowledgeable, willing parties. As a result it is assumed that the entity is a going concern and that neither party needs to liquidate its assets through transactions applying unfavourable terms. In the case of securities traded on an active market, fair value is determined with reference to the bid price at the end of trading at the balance sheet date. In the event that a market valuation is not available for the investment, fair value is determined either based on the current market value of another substantially similar financial instrument or applying appropriate valuation techniques (discounted cash flows - DCF). Where fair value may not be reliably determined, the financial asset is valued at cost with disclosure in the notes to the financial statements regarding the type of asset and explanation of the accounting treatment. Held-to-maturity investments (category 2) and loans and receivables (category 3) are recorded at cost representing the fair value of the initial consideration exchanged and are subsequently valued applying the amortised cost method utilising the effective interest rate and taking into consideration any discounts or premiums received at the date of acquisition in order to record them over the entire period of ownership up to maturity. Gains and losses are recognised in the income statement either when the investment reaches maturity or where circumstances indicate that it has suffered an impairment loss, in the same way they are identified during the normal amortisation period foreseen by the amortised cost method. Investments in financial assets may be derecognised only when the contractual rights to receive cash flows from the investments have expired (e.g. final payment of underwritten bonds) or when the company transfers the financial asset together with all of the related risks and rewards.
Inventories Finished goods are stated at the lower of purchase cost and net realisable value. Purchase cost is determined using the weighted average cost method. Obsolete and slow moving inventory is valued based on possible future use or realisation. With regard to contract work in progress that spans more than one accounting period, valuation is based on income matured to date with reasonable certainty, determined by comparing actual costs to date with the total estimated costs to completion.
Receivables Receivables are initially recorded at the fair value of the amount to be received, which for this category normally relates to the nominal value indicated on the invoice, adjusted where necessary to the estimated recoverable amount through recognition of a provision for doubtful accounts. Subsequently, where the required conditions exist, receivables are valued applying the amortised cost method.
Cash and cash equivalents Cash and cash equivalents include cash on hand and demand and short-term deposits, the latter maturing in less than three months at the outset. Cash and cash equivalents are recorded at nominal value, or in the case of balances denominated in foreign currency at the year-end spot rate, which represents the fair value.
Non-current assets disposed of or held for sale (Discontinued operations) Non-current assets that have been disposed of or that are held for sale include those assets (or groups of assets) due to be disposed of and for which the accounting value will be recovered principally through sale rather than future use. Non-current assets held for sale are valued at the lower of their carrying amount and fair value less costs to sell.
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In accordance with IFRS, information relating to discontinued operations is presented in two specific headings in the balance sheet: non-current assets held for sale and liabilities attributable to non-current assets held for sale; and in a specific heading in the income statement: net profit/(loss) of discontinued operations or non- current assets held for sale.
Provisions Provisions are recognised when a present obligation (legal or constructive) exists as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount may be made. No provision is made for risks in relation to which the recognition of a liability is only possible. In this case the risk is disclosed in the relevant note on contingencies and commitments and no provision is made. Provisions may be analysed as follows:
Litigation This provision includes the charge for future costs relating to legal proceedings.
Investments Provision is made to recognise potential impairment losses in the carrying value of subsidiaries.
Environmental This provision is set up to meet future requirements in relation to the redevelopment of landfills in accordance with the obligations undertaken on receipt of permission from the relevant authorities. The provision is based on estimates prepared by specialist enterprises.
Sundry risks provision This provision includes all other future liabilities not included above, which are reasonably quantifiable but for which the date of occurrence is uncertain.
Staff leaving indemnity (TFR) Post-employment defined benefits and other long-term employee benefits are subject to actuarial valuation. The liability recognised in the balance sheet is the present value of the company’s obligations. Actuarial gains and losses are recognised in the income statement. Valuation of the liability is performed by independent actuaries. Pursuant to Finance Act 296 of 27 December 2006, only the liability relating to the TFR held within the company has been valued for the purpose of IAS 19 as future provisions are paid to a separate entity. Consequently, in respect of future payments the Company is not subject to the reporting requirements relating to the future benefits payable during employment.
Trade payables Trade payables are recorded at nominal value. Where the payment terms are such that a financial transaction exists, the nominal value of the liabilities measured applying the amortised cost method is discounted and the difference included in finance costs. Trade payables denominated in foreign currency are translated at year-end exchange rates and the gains and losses arising on exchange are recognised in the income statement in the period in which they arise.
Borrowings and financial liabilities Borrowings are recognised initially at fair value, net of transaction costs incurred. Subsequently, borrowings are stated at amortised cost. Finance costs are determined using the effective interest method. Other financial liabilities comprise derivative instruments entered into in order to hedge interest rate risk. The derivative instruments are not accounted for using hedge accounting and in accordance with IAS 39 are recognised at fair value through profit or loss. The Company adopted IAS 39 from 1 January 2005.
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The Company has entered into Interest Rate Swaps (IRS) in order to hedge the risk arising on fluctuations in interest rates on the loan entered into on 14 January 2011. Where possible the Company adopts hedge accounting in relation to these financial instruments, ensuring compliance with IAS 39.
With regard to the derivative contracts on interest rates entered into by Falck Renewables SpA, the fair value was adjusted to take into account counterparty risk (DVA – Debit Valuation Adjustment) by including a correction factor in the yield curve. With regard to derivatives to hedge foreign exchange rates, the measurement of counterparty risk was not considered necessary as it is not significant given the short-term nature of the hedging.
Government grants Government grants are recognised when there is reasonable assurance that an entity will comply with any conditions attached and that the grant will be received. Where grants are awarded to cover expenditure, they are classified as income and recognised in the period in which the related costs are incurred. Where grants are received towards the cost of an asset, both the asset and the grant are recorded at nominal value and systematically charged to the income statement over the useful life of the corresponding asset. Where the Company receives a non-monetary grant, the asset and the grant are recorded at nominal value and systematically charged to the income statement over the useful life of the corresponding asset. Where loans or subsidies awarded by government authorities or similar institutions bear interest rates below current market rates, the benefit arising from this difference is recognised as an additional government grant.
Current tax liabilities The provision for income taxes is based on the estimated taxable income for the period for each individual company, taking into consideration tax credits and losses brought forward and utilised in the period.
Accruals, prepayments and deferrals Accruals, prepayments and deferrals are determined applying the accruals concept.
Share capital Ordinary shares are classified within share capital at nominal value. Incremental costs directly attributable to capital transactions by the parent company are recorded as a deduction in equity.
Foreign currency translation The functional currency of the Company is the Euro, representing the currency in which the financial statements are prepared and presented. Foreign currency transactions are recorded at the exchange rate existing at the date of the transaction. Receivables and payables are translated at the closing rate at the balance sheet date. Exchange gains or losses arising on translation are recognised in the income statement in the period in which they arise. Non-monetary items measured at historical cost are translated using the exchange rate at the date of the transaction. Non-monetary items measured at fair value are translated using the exchange rate at the date when the fair value was determined.
Revenue recognition Revenue is recorded net of returns, discounts and rebates, as well as direct taxes on the sale of goods or provision of services.
Revenue from product sales Revenue from the sale of products is recognised on the transfer of ownership, which normally takes place on delivery or despatch of the goods.
Revenue from services Revenue from services is recognised once the service has been rendered.
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Interest Finance income is accounted for applying the accruals concept.
Dividends Dividends are recognised when the right to receipt of the dividend is established, which normally corresponds to the approval of distribution in the shareholders’ meeting.
Other income Other income comprises amounts that do not relate to the core business of the Company and, in accordance with IAS 1 which has been applied from 1 January 2005, is classified in ordinary activities and disclosed separately in the notes to the financial statements where significant in value.
Costs Costs are recognised net of returns, discounts, bonuses and premiums, as well as direct taxes relating to the purchase of goods and services.
Taxation including deferred income tax Income tax is calculated and provided for based on estimated taxable income for the year and applying existing tax legislation. Deferred income taxes are calculated applying the liability method on all temporary differences between the tax bases of assets and liabilities and the financial reporting values at the balance sheet date. Deferred income tax assets are recognised only where it is probable that the temporary differences will reverse in the immediate future and to the extent that there will be sufficient taxable income against which these temporary differences may be utilised. The balance of deferred income tax assets is reviewed at each balance sheet date and a valuation allowance is provided in the event that it is no longer probable that sufficient future taxable profits will be available to offset all or part of the tax credit. Unrecognised deferred income tax assets are reviewed at each balance sheet date and are recognised where it is probable that they may be recovered against future taxable profits. Income taxes on items recognised directly in equity are also recognised in equity and not through the income statement. Deferred income tax assets and liabilities are measured at the enacted tax rates that will be in effect in the periods in which the assets are realised or the liability is settled and are classified in non-current assets and liabilities, respectively.
VAT Revenue and costs are recorded net of VAT. Trade receivables and payables are recorded gross of VAT. The net amount of VAT recoverable or due to the tax authorities is disclosed either in trade receivables or payables respectively.
8.6.2 Balance sheet contents and movements
Assets
A Non-current assets
1 Intangible assets
Movements during the year were as follows:
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(Euro thousands) Additions Capital.n Change in Disposals Other Impairment Amorti- 31.12.2013 and scope of move- losses sation 31.12.2014 reclass.n consol.n ments 1.1 Industrial patent rights 541 51 1 (170) 423 1.2 Concessions licences, trademarks and similar 1.3 Goodwill 1.4 Other intangibles 1.5 Assets under construction and advances 288 116 (51) 353 Total 829 116 1 (170) 776
Acquisitions principally relate to applications software, implemented and tailored to the Company’s requirements. No borrowing costs were capitalised during the year.
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2 Property, plant and equipment
Movements during the year were as follows: (Euro thousands) Additions Capital.n Change in Disposals Impairment Deprec- 31.12.2013 and scope of losses iation 31.12.2014 reclass.n consol.n (A)
Gross value 2.1 Land 2.2 Buildings 2.3 Plant and machinery 2.4 Industrial and office equipment 2.5 Other assets 861 26 96 (7) 976 2.6 Assets operated under concession 2.7 Assets under construction and advances 150 (96) 54 Total gross value 861 176 (7) 1.030
Accumulated depreciation 2.1 Land 2.2 Buildings 2.3 Plant and machinery 2.4 Industrial office and equipment 2.5 Other assets (404) 4 (165) (565) 2.6 Assets operated under concession Total depreciation (404) 4 (165) (565)
Net book amounts 2.1 Land 2.2 Buildings 2.3 Plant and machinery 2.4 Industrial and office equipment 2.5 Other assets 457 26 96 (3) (165) 411 2.6 Assets operated under concession 2.7 Assets under construction and advances 150 (96) 54 Total net book amounts 457 176 (3) (165) 465 Additions comprise Euro 44 thousand on hardware for the internal control system, Euro 88 thousand for three motor vehicles, Euro 26 thousand for mobile phones and other minor acquisitions totalling Euro 18 thousand.
3 Investments and financial assets
The total at 31 December 2014 may be analysed as follows:
(Euro thousands) 31.12.2014 31.12.2013 Change Investments in subsidiaries 214,284 203,661 10,623 Investments in associates 8,472 8,472 Investments in other entities Securities Total 222,756 212,133 10,623
The increase in investments in subsidiaries relates to the acquisition of Vector Cuatro SLU for Euro 11,222 thousand and the share capital increase in Falck Renewables Polska for Euro 49 thousand, net of the losses recognised following impairment tests that amounted to Euro 598 thousand in respect of Solar Mesagne Srl and Euro 50 thousand on Falck Renewables Polska. Impairment tests were carried out on the carrying value of all investments.
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A comparison of the carrying amount of investments net of recognised impairment losses and the related share of net assets is illustrated below:
(Euro thousands) Total equity at Share of total Company Business sector 31.12.2014 % holding Carrying value Difference assets
WtE, biomass, Ecosesto SpA 4,954 100% 4,954 4,606 348 photovoltaic
WtE, biomass, Actelios Solar SpA 3,180 100% 3,180 1,125 2,055 photovoltaic
WtE, biomass, Frullo Energia Ambiente Srl 40,657 49% 19,922 8,472 11,450 photovoltaic
WtE, biomass, Falck Renewables Energy Srl 168 100% 168 90 78 photovoltaic
WtE, biomass, Ambiente 2000 Srl 2,527 60% 1,516 864 652 photovoltaic
WtE, biomass, Prima Srl 36,394 85% 30,935 28,494 2,441 photovoltaic
WtE, biomass, Esposito Servizi Ecologici Srl 1,262 100% 1,262 1,171 91 photovoltaic
WtE, biomass, Solar Mesagne Srl 374 100% 374 229 145 photovoltaic
WtE, biomass, Falck Renewables Polska Sp. Zoo 9 100% 9 9 photovoltaic
Falck Renewables Wind Ltd Wind 139,573 99.99% 139,559 166,483 (26,924) (consolidated)
Vector Cuatro SLU (consolidated) Services 3,057 100.00% 3,057 11,222 (8,165)
The higher carrying value of Falck Renewables Wind Ltd and Vector Cuatro SLU compared to the proportionate share of shareholders’ equity does not require recognition of an impairment loss given the expected future profit flows in respect of the projects owned by their subsidiaries and projects under development.
Impairment tests were performed where there was indication of a fall in the value of investments at 31 December 2014 in accordance with the procedures established in IAS 36. In particular, the carrying value of each investment was compared with the equity value. Equity value represents the difference between the net indebtedness and the enterprise value calculated based on the future cash flows of each entity. As it is a sub- holding, the value of Falck Renewables Wind Ltd was determined using the sum of parts method. Future cash flows were discounted by a specific weighted average cost of capital (WACC), net of tax.
The projected cash flows are based on the following assumptions:
Expected production values of the wind farms/photovoltaic plants based on historic productivity figures;
Estimated sales prices extrapolated using market projections, prepared with the assistance of an independent, internationally recognised energy sector provider, on the energy price and expected incentives in the various countries in which the subsidiaries operate, taking into account regulatory developments in the sector;
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Waste transfer prices and biomass purchase costs based on management estimates taking into consideration recent market trends;
Operating costs, determined, where applicable on contract terms and otherwise using management estimates taking into consideration developments in the specific reference market.
The WACCs applied were as follows:
WtE and biomass Italy: 4.6% to 5.1% Wind sector UK: 5.0% to 6.0% Wind sector UK (in construction/authorisation) 5.9% Wind sector Italy: 5.1% to 5.6% Wind sector Spain: 4,6% Wind sector France: 4.5% Photovoltaic Italy: 5.3% to 5.6%
The data relating to the UK, Italian, French and Spanish wind sectors are combined for the purpose of valuing the Falck Renewables Wind consolidation.
The impairment test performed at 31 December 2014 led to an impairment loss of Euro 598 thousand being recognised in respect of the investment in Solar Mesagne Srl following introduction of new legislation, the so called Incentive Spreading decree, which reduced photovoltaic incentives by 8% commencing 1 January 2015.
The key factors that individually or jointly influenced the valuations and impacted the impairment tests are detailed below. These factors had varying effects depending on the technological, geographical, competitive and incentive system features of the plants and in some cases the negative factors were fully offset by those entities that performed well without giving rise to impairment losses.
General factors The anticipated sales prices extrapolated from updated, recent market projections of energy prices and incentives expected in the various countries in which the subsidiaries operate are lower than previous year forecasts; this has resulted in, all other things being equal, a fall in estimated future revenues particularly in the UK and Spain; the drop in Italy is largely offset by the green certificates mechanism while the drop in electricity prices in France will not impact Group revenue thanks to the feed-in-tariff mechanism;
The Italian Constitutional Court declared in its ruling of 11 February 2015 that the Robin Tax, an additional tax on income applied in certain circumstances to enterprises operating in the energy sector, infringes constitutional law; the tax amounted to 6.5% of taxable income for corporation tax purposes. The illegitimacy ruling comes into force on the day after publication of the ruling in the Italian Official Gazette. The Group will benefit from the lower tax rate commencing 2015 and this was reflected in the impairment test calculations;
The WACCs used to discount the future cash flows are significantly lower than those used last year, principally due to the marked fall in the long-term rate of return on Italian and Spanish, and to a lesser extent French, (the fall in UK rates was very modest), government bonds (which form the basis of the risk free rate in the WACC) and the significant fall in the cost of debt. These changes led to a fall of between 0.5% and 1.4% in the WACCs for the Italian and Spanish plants depending on the technology used and the remaining useful life. With regard to the French plant, the WACC fell by approximately 0.5%, while there was only a modest drop in respect of the UK plants. These factors improved the valuations, all other things being equal.
Factors relating to the WtE, biomass and photovoltaic sector Italian Legislative Decree 91/2014 (Incentives Spreading decree), converted into Law 116/2014, envisages an 8% reduction commencing January 2015 in the incentive tariff in respect of energy
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generated by photovoltaic plants with installed capacities exceeding 200 kW (all of the Falck Renewables Group’s plants): this has given rise, all other things being equal, to a fall in forecast future revenue of the Group’s solar energy plants that account for 16 MW of installed capacity: Solar Mesagne Srl was not able to offset the fall in revenue which resulted in recognition of an impairment loss of Euro 598 thousand. With regard to Prima Srl (Trezzo WtE plant), a more efficient management of purchases and sales of energy has been assumed following the cessation in respect of almost all of the installed capacity, of the so-called avoided cost incentive; lower management costs linked principally to variable Operation & Maintenance activities have been forecast. With regard to Ecosesto (Rende biomass plant), increased sales of electricity are expected together with increased biomass consumption, the unit cost of which is expected to fall compared to previous estimates; improvements in the biennial maintenance activities are envisaged following the experience gained during the first stoppage in 2014; the above factors will have a positive impact on the valuations in respect of the WtE and biomass plants.
Factors relating to the wind sector (Falck Renewables Wind Ltd) The AEEGSI published Resolution 522/2014 to reintroduce new measures governing imbalance costs to be charged to renewable energy producers with effect from 1 January 2015. The new regulation (Resolution AEEGSI 522/2014) is an exact reproduction of the previously cancelled resolution 281/2012, which introduced for non-programmable sources imbalance costs on the hourly difference between electricity actually injected to the network and the amount stated in emissions schedules13. The only differences are the diversification of the treatment of the various sources (previously treated in the same way) and the revision of the tolerance levels of programming errors in the hourly injection timetable: this resulted, all other things being equal, in a fall in forecast future revenue; The Company has updated the estimates relating to the future production levels of each wind farm taking into consideration historical wind levels in the various locations. This update was performed for all operating plants with at least five years’ service in order to obtain valid statistics, while future production levels for those plants in service for a shorter period was based on independent estimates provided by a market leader in wind level assessment. The revised estimates show an approximate 3.8% fall in average production levels that has been reflected in the impairment tests.
Despite the above negative factors that influenced the wind sector, which are partially offset by the positive elements, the equity value of Falck Renewables Wind Ltd is considerably greater than the carrying value, consequently the investment value is considered recoverable.
Impairment test: sensitivity analyses
Impairment tests are based on estimates of production, electricity prices and other revenue items (waste transfer) and the interest rates calculated using latest available information at the balance sheet date. As there is a margin of uncertainty for each estimate, a sensitivity analysis was carried out on the recoverable value of the various CGUs. These analyses assumed a 5% increase or decrease in electricity prices compared to the values used in the base case and a 0.5% increase or decrease in the discount rates (WACC) compared to the base case. The two combined sensitivity analyses presented varying outcomes as summarised in the table below that illustrates the positive and negative differential compared to the losses determined in the base case:
13 The Italian Council of State issued ruling 2936/14 on 9 June 2014 whereby it cancelled resolutions 281/2012 and 493/2012 thus requiring the repayment of any sums paid/received by the operators.
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VARIATIONS VS BASE CASE Base case Rate Rate BASE (€/M) rate +0.5% -0.5%
Energy prices – base case (0.3) + 0.2
Energy prices: -5% (0.8) (2.2) + 0.1
Energy prices: +5% + 0.1 (0.1) + 0.2
After reviewing the various outcomes and taking into consideration the variables used to prepare the base case, the directors consider the valuations made to perform the impairment tests, in terms of the base case and the arising impairment loss on the investment in Solar Mesagne Srl, to be satisfactory and confirm that the trend in these variables will be monitored in order to identify any adjustments in the estimates of the recoverable values of the amounts recorded in the financial statements.
Impairment test on the investment in Vector Cuatro Falck Renewables SpA acquired a 100% stake in the Spanish Company Vector Cuatro SLU, a parent company with subsidiaries in Spain, Italy, France, Japan, Canada, Mexico and Bulgaria, on 15 September 2014.
At the time of preparation of the financial statements, the total purchase price was determined at Euro 11,222 thousand, of which Euro 8,417 thousand was paid on 15 September 2014 and Euro 2,805 thousand (recorded in other payables in the parent company financial statements) will be paid on 30 June 2015 net of any claims that may arise in the period between the acquisition date and 30 June 2015. Subsequently, in order to cover the period guaranteed by the acquirees, a first demand bank guarantee from a major bank of Euro 3 million will be issued in favour of Falck Renewables SpA that, in the absence of a claim, will reduce over time up to the final expiry date of 10 January 2019; the guarantee will amount to Euro 500 thousand in the final period between 1 September 2018 and 10 January 2019. With regard to the investment in Vector Cuatro, as illustrated above for all other investments, an impairment test was performed in accordance with IAS 36. The recoverable amount was determined based on the operating cash flows discounted using the after tax weighted average cost of capital (WACC). This was calculated using the Capital Asset Pricing Model (“CAPM”) in which the risk free rate of return was determined with reference to the 10 year yield curve of Spanish government bonds.
The non-diversifiable risk coefficient (β) was extrapolated based on an analysis of a comparable group of companies operating in the same sector. The WACC used was 8.7%. As this relates to a services sector, the timeframe of the plan covers the period 2015-2018; a terminal value was estimated using a perpetual growth (g) of zero and the resulting amount was prudently reduced to 50% of the cash flows of the first year of the plan pending integration of the company with the Group strategies.
The impairment test performed for the purpose of preparing the separate financial statements resulted in a positive recoverable value attributed to the investment in Vector Cuatro SLU. A sensitivity analysis was carried out assuming a 0.5% increase or decrease in the WACC compared to the rate used in the base case: a 0.5% increase in the WACC would give rise, all other things being equal, to an impairment loss of approximately Euro 0.2 million.
Elettroambiente SpA
The entire stake in Elettroambiente and the financial and trade receivables due to Falck Renewables SpA by the former were written-off in full for the purpose of preparing the separate financial statements at 31 December 2012.
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The 2014 result of Falck Renewables SpA includes the write-off of Euro 250 thousand against trade and financial receivables due to the former by Elettroambiente and Euro 209 thousand released from the sundry risks provision. This provision was set up in 2013 to reflect Falck Renewables SpA’s financial commitments following the liquidation of Elettroambiente. This gave rise to a total cost of Euro 41 thousand in the 2014 results.
Palermo Energia Ambiente ScpA
The entire stake in Palermo Energia Ambiente ScpA (Pea) and the trade and financial receivables due to Falck Renewables SpA by the former were written off in full at the time of preparation of the separate financial statements at 31 December 2011 and 2012. The 2014 result of Falck Renewables SpA reflects the write-off of Euro 2,142 thousand against trade and financial receivables due to the former by Pea and a decrease of Euro 2,401 thousand in the sundry risks provision. This gave rise to a net increase of Euro 259 thousand in the 2014 results.
4 Financial receivables
Financial receivables at 31 December 2014: (Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Amounts owed by third parties 72 72 72 72 Amounts owed by subsidiaries 181,323 98,984 82,339 321,285 98,938 222,347 (139,962) 46 (140,008) Amounts owed by associates Amounts owed by parent company Amounts owed by other Falck Group companies Derivative financial instruments 274 274 274 274 Total 181,669 98,984 82,685 321,285 98,938 222,347 (139,616) 46 (139,662) Financial receivables are disclosed net of the provision for doubtful amounts of Euro 88,379 thousand. The provision for doubtful amounts comprises the write-off in full of the financial receivables due from Palermo Energia Ambiente ScpA and Elettroambiente SpA of Euro 8,628 thousand and Euro 79,751 thousand respectively.
Non-current amounts owed by subsidiaries are largely in line with 2013, while current amounts decreased significantly following the Borea transaction that resulted in Falck Renewables Wind Ltd receiving approximately Euro 186.1 million and enabled it to reduce the balance owed to Falck Renewables SpA from Euro 184,529 thousand at 31 December 2013 to Euro 34,312 thousand at 31 December 2014 after payment of a dividend of Euro 38,227 thousand.
Non–current amounts owed by subsidiaries relate to loans granted to Prima Srl for Euro 6,374 thousand, Actelios Solar SpA for Euro 10,859 thousand, Eolica Petralia Srl for Euro 9,487 thousand, Eolica Sud Srl for Euro 42,915 thousand, Geopower Sardegna Srl for Euro 22,241 thousand and Eolo 3W Minervino Murge Srl for Euro 7,108 thousand.
Current amounts owed by subsidiaries comprise the intercompany correspondence accounts with Falck Renewables Wind Ltd for Euro 34,312 thousand, Ecosesto SpA for Euro 36,238 thousand, Esposito Servizi Ecologici Srl for Euro 6,141 thousand and Solar Mesagne Srl for Euro 5,648 thousand.
All transactions with related parties are disclosed in the Related party transactions note.
page 177. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
5 Trade receivables
Trade receivables at 31 December 2014 consisted of the following: (Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Trade receivables 68 68 124 124 (56) (56) Amounts owed by subsidiaries 5,132 5,132 1,130 1,130 4,002 4,002 Amounts owed by associates 81 81 88 88 (7) (7) Amounts owed by parent company 306 306 306 306 Amounts owed by other Group companies 107 107 2 2 105 105 Total 5,694 5,694 1,344 1,344 4,350 4,350
The Company has a provision for doubtful accounts of Euro 6,946 thousand. The Company does not have significant receivables due from non-domestic customers that require disclosure. Trade receivables owed by Platani Energia Ambiente ScpA (Euro 1,270 thousand), Tifeo Energia Ambiente ScpA (Euro 1,327 thousand) and Elettroambiente SpA (Euro 191 thousand) were written-off to the provision for doubtful accounts. Trade receivables due from Palermo Energia Ambiente ScpA (Euro 4,059 thousand) have been written-off in full through the provision for doubtful accounts.
All transactions with related parties are disclosed in the Related party transactions note.
6 Other receivables
Other receivables at 31 December 2014 comprised: (Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Amounts owed by third parties 9 7 2 4 4 5 3 2 Advances 72 72 72 72 Amounts owed by subsidiaries 5,950 5,950 5,950 5,950 Amounts owed by associates 5,390 5,390 5,390 5,390 Amounts owed by parent company 3,617 3,617 2,595 2,595 1,022 1,022 Amounts owed by other Group companies Tax credits 46 46 32 32 14 14 Accrued income and prepayments 213 213 216 216 (3) (3) Total 15,297 7 15,290 14,187 4 14,183 1,110 3 1,107
Non-current amounts owed by third parties comprise guarantee deposits. Amounts owed by subsidiaries and associates principally relate to the dividends declared by the shareholders of Prima Srl and Frullo Energia Ambiente Srl that had not been paid at the year-end. The amounts owed by parent company consist of the amount owed by Falck SpA under the Group consolidated tax regime. Tax credits comprise the IRAP (trade tax) payment on account.
All transactions with related parties are disclosed in the Related party transactions note.
page 178. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
7 Deferred income tax assets
Deferred income tax assets may be analysed as follows:
(Euro thousands) 31.12.2014 31.12.2013 Change
Employee bonuses and directors' emoluments 571 838 (267) Expenses for share capital increase 232 778 (546) Derivative financial instruments 189 478 (289) Charge to litigation provision 36 36 - Goodwill on acquisition of business 327 350 (23) Dividends declared but not paid (156) (156) - Other 33 24 9 Total 1,232 2,348 (1,116)
Deferred income tax assets in the financial statements of Euro 1,232 thousand, comprises Euro 1,388 thousand of deferred income tax assets net of deferred income tax liabilities of Euro 156 thousand. Deferred income tax assets have not been recognised on the write-downs of trade and financial receivables in respect of the Sicily Projects as they would only be recoverable once the conditions allowing their deductibility are realised, namely once the legal disputes have been settled, which is not foreseeable at present given the complexity surrounding these cases.
B Current assets
8 Inventories
The Company had no inventories at 31 December 2014.
9 Cash and cash equivalents (Euro thousands) 31.12.2014 31.12.2013 Change Short-term bank and post office deposits 102,416 229 102,187 Cash in hand 3 4 (1) Total 102,419 233 102,186
Cash and cash equivalents may be further detailed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Cash at bank and in hand 102,419 233 102,186 Bank overdrafts (580) 580 Invoice advances Group current accounts (11,474) (2,928) (8,546) Total cash and cash equivalents 90,945 (3,275) 94,220
Cash and cash equivalents have increased to Euro 102,419 thousand following repayment of intercompany loans principally by Falck Renewables Wind Ltd using the cash injection deriving from the Borea transaction
page 179. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
that was used for partial repayment of the Corporate Loan.14 The excess liquidity arising on the payment received as part of the Borea transaction was placed on short-term time deposits that have immediate access. The fair value of the deposits is in line with the nominal value at 31 December 2014.
Liabilities
D Equity
10 Share capital
Share capital consists of 291,413,891 issued and fully paid ordinary shares, with a face value of Euro 1 each. Falck Renewables SpA owns 460,000 own shares with a face value of Euro 460,000, representing 0.1579% of total share capital. The carrying value of own shares held is Euro 403,025.60, corresponding to an average share price of Euro 0.876. Total equity may be analysed as follows: (Euro thousands) Summary of utilisation Total Possible Share in three previous financial years utilisation available To cover losses Other reasons
Share capital 291,414 Capital reserves Share premium 470,335 A-B-C (*) 470,335 92,061 3,572 Reserve for share capital increase expenses (8,731) (8,731) Revaluation reserves ex Law 72/83 1,003 A-B 1,003 Reserve ex art.54 Pres. Decree 597/73 3,424 A-B 3,424 Reserve ex art.55 Pres. Decree 597/73 653 A-B 653 Reserve for purchase of own shares (403) (403) Fair value reserve (131) (131) Reserve for actuarial gains/(losses) on TFR (117) (117) Reserve on common control transactions (860) (860) Demerger surplus (371,598) A-B (371,598) Earnings reserves Legal reserve 58,283 B 58,283 Profit carried forward A-B-C 11,746 8,276 Profit for the year 30,037 Total 473,309 151,858 103,807 11,848
Key: A: share capital increase B: to cover losses C: distributed to shareholders (*): Pursuant to article 2431 of the Italian Civil Code, the total reserve may be distributed only if the legal reserve meets the limit imposed by article 2430 of the Italian Civil Code.
Movements in equity during 2013 and 2014 were as follows:
14 The Corporate Loan represents the Euro 165 million loan negotiated by Falck Renewables SpA on 14 January 2011 of which Euro 23,116 thousand has currently been drawn down.
page 180. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
(Euro thousands) AtAppropriation Profit for Share capital Other At 31.12.2012 of result the year increase movements 31.12.2013 Share capital 291,414 291,414 Share premium 620,976 (92,061) 528,915 Revaluation reserve 1,003 1,003 Legal reserve 2,972 2,972 Reserve for expenses on share capital (8,731) (8,731) Statutory reserves Own shares held (172) (231) (403) Other reserves - ex art. 54 Pres. Decree 597/73 3,424 3,424 - ex art. 55 Pres. Decree 597/73 653 653 - demerger surplus (371,598) (371,598) - fair value reserve (1,696) 729 (967) - reserve for actuarial gains/(losses) on TFR 9 9 - reserve for transactions under common (860) (860) control Retained earnings 9,970 (9,970) (Loss)/profit for the year (102,031) 102,031 6,040 6,040 Total 445,324 6,040 507 451,871
(Euro thousands) AtAppropriation Profit for Share capital Other At 31.12.2013 of result the year increase movements 31.12.2014 Share capital 291.414 291.414 Share premium 528.915 (58.580) 470.335 Revaluation reserve 1.003 1.003 Legal reserve 2.972 302 55.008 58.282 Reserve for expenses on share capital (8.731) (8.731) Statutory reserves Own shares held (403) (403) Other reserves - ex art. 54 Pres. Decree 597/73 3.424 3.424 - ex art. 55 Pres. Decree 597/73 653 653 - demerger surplus (371.598) (371.598) - fair value reserve (967) 837 (130) - reserve for actuarial gains/(losses) on TFR 9 (126) (117) - reserve for transactions under common (860) (860) control Retained earnings Profit for the year 6.040 (6.040) 30.037 30.037 Total 451.871 (5.738) 30.037 (2.861) 473.309 The legal reserve has reached one fifth of share capital and the reserve for expenses on share capital increase and the fair value reserve are disclosed net of the related tax effect.
page 181. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
11 Provisions for other liabilities and charges
(Euro thousands) AtChange in scope Charged Utilised Other Foreign At 31.12.2013 of consol.n movements exchange 31.12.20134 Provisions for pensions and similar obligations Other provisions - litigation 108 108 - investments - environmental - restructuring and liquidation - sundry risks provision 11,238 1,034 (2,610) 9,662 Total other provisions 11,346 1,034 (2,610) 9,770 Total 11,346 1,034 (2,610) 9,770
The litigation provision, which was set-up last year to cover disputes with former employees, was partially utilised during the year. The sundry risks provision comprises the guarantee issued by the Company to Elettroambiente SpA, the holding company of Tifeo and Platani, all currently in liquidation, in order to cover outstanding creditors at 31 October 2013 and liquidation costs in 2014, capped at Euro 1,500 thousand. The charge of Euro 1,034 thousand relates to the ruling on litigation between Tifeo and the Gulino Group. Falck Renewables SpA issued a guarantee on behalf of Tifeo in favour of Gulino on 18 November 2014 to cover Tifeo’s obligations under the ruling. The amounts utilised against the sundry risks provision relates to costs incurred by Falck Renewables SpA in respect of its commitment to support payment of Palermo Energia Ambiente ScpA and Elettroambiente’s SpA’s creditors amounting to Euro 2,401 thousand and Euro 209 thousand respectively in 2014.
12 Staff leaving indemnity (TFR)
(Euro thousands) At Charge Interest Other Actuarial Utilised/ At 31.12.2013 cost movements gain/(loss) paid 31.12.2014 Managers 508 181 14 15 66 (195) 589 White and blue-collar staff 1,198 190 34 (1) 60 (163) 1,318 Total 1,706 371 48 14 126 (358) 1,907 The “Trattamento di Fine Rapporto” (TFR) (staff leaving indemnity provision), was subjected to an actuarial calculation by an independent expert.
The actuarial financial assumptions used at 31 December 2014 and for the purpose of estimating the cost for 2014 are as follows: (%) 31.12.2014 31.12.2013 Change Annual discount rate 1.50% 3.15% -1.65% Annual inflation rate 1.75% 2.00% -0.25% Annual total pay increase rate 1.75% 3.00% -1.25% Annual TFR increase rate 2.81% 3.00% -0.19%
The discount rate was based on the iBoxx Eurozone Corporates AA 10+ index at the time of calculation.
A sensitivity analysis was carried out on the actuarial assumptions used in the model in accordance with IAS19. The base case used the rates in the table above and increases and decreases of a half, a quarter and two percentage points respectively were applied to the most significant assumptions namely, the average discount rate, average inflation rate and average turnover rate.
page 182. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
The results of the sensitivity analyses are summarised as follows: Sensitivity analysis Annual discount rate (Euro thousands) +0.50% -0.50% Managers 576 601 White-collar staff 1,282 1,359
Sensitivity analysis Annual inflation rate (Euro thousands) +0.25% -0.25% Managers 591 586 White-collar staff 1,327 1,311
Sensitivity analysis Annual turnover rate (Euro thousands) +2.00% -2.00% Managers 581 596 White-collar staff 1,301 1,341
An estimate of expected future contributions in accordance with IAS 19 is provided below:
Future cash flows (Euro thousands)
Less than 12 months between 1 - 2 years Between 2 - 5 years Between 5 - 10 years Over 10 years Managers 161 50 283 97 293 White-collar staff and special categ.s 231 192 424 696 1,192 Total 392 242 707 793 1,485
13 Financial liabilities
Financial liabilities at 31 December 2014 consisted of the following: (Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Amounts due to third parties 23,116 23,116 74,185 73,597 588 (51,069) (73,597) 22,528 Amounts due to subsidiaries 11,474 11,474 2,928 2,928 8,546 8,546 Amounts due to associates Amounts due to parent company Amounts due to other Group companies Project financing Derivative financial instruments 1,105 1,105 2,204 1,445 759 (1,099) (1,445) 346 Total 35,695 35,695 79,317 75,042 4,275 (43,622) (75,042) 31,420
Current amounts due to subsidiaries relate to the correspondence current accounts with Ambiente 2000 Srl amounting to Euro 3,890 thousand, Falck Renewables Srl (in liquidation) for Euro 367 thousand and Euro 6,787 thousand with Prima Srl. Falck Renewables SpA entered into a loan agreement for Euro 165 million with a pool of leading banks (Corporate Loan) on 14 January 2011, the purpose of which was to finance business development and planned investments. Following the Borea transaction, the loan was renegotiated to Euro 82.5 million, with the prior
page 183. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
consent of the financing banks, and Euro 23,116 thousand, net of the amortised cost, had been drawn down at 31 December 2014. The corporate loan is subject to, inter alia, financial covenants, calculated based on the amounts in the consolidated financial statements, comprising the ratios of EBITDA/net financial position and net financial position/total equity: these covenants were met with ample margin at both 30 June 2014 and 31 December 2014. The parent company has placed a pledge on the shares held in Falck Renewables Wind Ltd corresponding to a nominal value of GBP 37,755 thousand. The corporate loan will be extinguished at maturity on 30 June 2015 and a new corporate loan may be negotiated under current market conditions in order to equip the Group with credit facilities that can satisfy the requirements of new project development.
Derivative financial instruments comprise Euro 574 thousand relating to the fair value of outstanding derivative financial instruments at 31 December 2014 in respect of the loan agreement and Euro 531 thousand in respect of the fair value of foreign exchange hedging contracts (GBP/Euro).
All transactions with related parties are disclosed in the Related party transactions note.
14 Trade payables
Trade payables at 31 December 2014 compared to the previous year are as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Trade payables 3,308 3,308 4,403 4,403 (1,095) (1,095) Amounts due to subsidiaries 20 20 (20) (20) Amounts due to associates Amounts due to parent company 409 409 823 823 (414) (414) Amounts due to other Falck Group companies 10 10 43 43 (33) (33) Total 3,727 3,727 5,289 5,289 (1,562) (1,562) The Company does not have significant trade payables with non-domestic customers that require disclosure. Amounts due to the parent company comprise payables to Falck SpA for use of the Falck trademark and recharges in respect of the Chairman’s and CEO’s management services. All transactions with related parties are disclosed in the Related party transactions note.
15 Other payables
Other payables at 31 December 2014 compared to 31 December 2013 are as follows:
(Euro thousands) 31.12.2014 31.12.2013 Change Total Non- Current Total Non- Current Total Non- Current current current current Amounts due to third parties 5,539 5,539 2,814 2,814 2,725 2,725 Amounts due to subsidiaries Amounts due to associates Amounts due to parent company 331 331 436 436 (105) (105) Amounts due to other Falck Group companies Accruals and deferred income 30 30 37 37 (7) (7) Total 5,900 5,900 3,287 3,287 2,613 2,613 Amounts due to third parties may be detailed as follows:
page 184. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
(Euro thousands) 31.12.2014 31.12.2013 Other amounts due to employees (Mbo) 1,307 1,588 Amount due for acquisition of Vector Cuatro 2,805 Holiday pay 500 482 Social security payable 431 371 Tax payable 432 333 Other 64 40 Total 5,539 2,814
All transactions with related parties are disclosed in the Related party transactions note.
Commitments and contingencies
Guarantees issued at 31 December 2014 for both the Company and its subsidiaries amounted to Euro 20,206 thousand and comprised guarantees issued to entities and the government authorities (Euro 200 thousand) and guarantees issued to the VAT authorities (Euro 11,804 thousand). The total also includes other guarantees of Euro 8,202 thousand.
Upon request of the liquidators of the Sicily Project companies Tifeo and Platani, Falck Renewables SpA has agreed to provide the financial support, through its subsidiary and parent company of the former, Elettroambiente SpA (also in liquidation), to meet certain creditors upon satisfaction of established conditions. Liquidation costs, in particular legal costs, have also been guaranteed up to a maximum Euro 1,500 thousand. The sundry risks provision includes Euro 6,325 thousand in respect of the above amounts.
Falck Renewables SpA also issued a bank guarantee of Euro 867 thousand in respect of the commitment to meet Palermo Energia Ambiente ScpA’s third party creditors and Euro 805 thousand of this is recorded in trade payables.
Other risks
With regard to the price adjustment of Euro 20 million relating to the investment in Elettroambiente SpA and the corresponding decrease in other payables due to Italgest Energia SpA that were recorded in the 2009 financial statements, Falck Renewables SpA is exposed to a remote risk in respect of this amount with regard to the potential reinstatement of the contractual conditions on which the total acquisition price of Elettroambiente SpA was based, although this is considered improbable.
Related party transactions
In compliance with Consob’s circulars of 20 February 1997, 27 February 1998, 30 September 1998, 30 September 2002 and 27 July 2006, no uncharacteristic or uncommon transactions take place with related parties that are beyond the normal business operations or are detrimental to the Company’s results of operations, state of affairs and financial position. Related party transactions represent the day to day business activities that are carried out at arm’s length. These comprise the recharge of costs between group companies and intercompany current accounts that give rise to finance income and costs. In accordance with IAS 24 Related Party Disclosures and the disclosures pursuant to Consob circular 6064293 of 28 July 2006, all related party transactions and the corresponding incidence on Falck Renewables SpA’s balance sheet headings are provided below.
page 185. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
(Euro thousands) Trade receivables Trade payables 31.12.2014 31.12.2013 Change 31.12.2014 31.12.2013 Change Subsidiaries Actelios Solar SpA 80 14 66 Ambiente 2000 Srl 204 6 198 Ecosesto SpA 278 19 259 Eolica Sud Srl 69 5 64 Eolica Petralia Srl 97 1 96 Eolo 3W Minervino Murge Srl 76 5 71 Esposito Servizi Ecologici Srl 124 6 118 Falck Renewables Energy Srl 37 37 Falck Renewables Italia Srl in liquidation 117 7 110 Falck Renewables Wind Ltd 1,830 1,830 20 (20) Geopower Sardegna Srl 258 175 83 Prima Srl 1,914 888 1,026 Solar Mesagne Srl 48 4 44 Total subsidiaries 5,132 1,130 4,002 20 (20) Associates Frullo Energia Ambiente Srl 81 88 (7) Total associates 81 88 (7) Parent company Falck SpA 306 306 409 823 (414) Total parent company 306 306 409 823 (414) Group companies Falck Energy SpA 88 88 Sesto Siderservizi Srl 19 2 17 10 43 (33) Total Group companies 107 2 105 10 43 (33) Total 5,626 1,220 4,406 419 886 (467) % incidence on balance sheet heading 98.8% 90.8% 11% 17%
(Euro thousands) Financial receivables Financial payables 31.12.2014 31.12.2013 Change 31.12.2014 31.12.2013 Change Subsidiaries Actelios Solar SpA 10,859 10,500 359 Ambiente 2000 Srl 3,890 2,928 962 Ecosesto SpA 36,238 24,896 11,342 Eolica Petralia Srl 9,487 10,455 (968) Eolica Sud Srl 42,915 43,848 (933) Eolo 3W Minervino Murge Srl 7,108 6,886 222 Esposito Servizi Ecologici Srl 6,141 6,339 (198) Falck Renewables Wind Ltd 34,312 184,529 (150,217) Falck Renewables Italia Srl in liquidation 25 (25) 367 367 Falck Renewables Energy Srl 511 (511) 430 430 Geopower Sardegna Srl 22,241 20,875 1,366 Prima Srl 6,374 6,374 6,787 6,787 Solar Mesagne Srl 5,648 6,047 (399) Total subsidiaries 181,323 321,285 (139,962) 11,474 2,928 8,546 Total 181,323 321,285 (139,962) 11,474 2,928 8,546 % incidence on balance sheet heading 99.8% 100% 33.2% 3.8%
page 186. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
(Euro thousands) Financial instruments - assets Financial instruments - liabilities 31.12.2014 31.12.2013 Change 31.12.2014 31.12.2013 Change Subsidiaries Falck Renewables Wind Ltd 118 279 (161) Kingsburn Wind Energy Ltd 156 156 Total subsidiaries 156 156 118 279 (161) % incidence on balance sheet heading 56.9% 0.0% 10.7% 12.7%
(Euro thousands) Other receivables Other payables 31.12.2014 31.12.2013 Change 31.12.2014 31.12.2013 Change Subsidiaries Prima Srl 5,950 5,950 Total subsidiaries 5,950 5,950 Associates Frullo Energia Ambiente Srl 5,390 5,390 Total associates 5,390 5,390 Parent company Falck SpA 3,617 2,595 1,022 331 436 (105) Total parent company 3,617 2,595 1,022 331 436 (105) Total 14,957 13,935 1,022 331 436 (105) % incidence on balance sheet heading 97.8% 98.3% 5.6% 13.3%
page 187. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
8.6.3 Income statement content and movements
16 Revenue
Revenue consisted of the following: (Euro thousands) 31.12.2014 31.12.2013 Change Revenue from sale of goods Revenue from provision of services 223 56 167 Total 223 56 167
17 Employee costs
Employee costs may be analysed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Cost of production employees Cost of administrative staff 10,546 8,836 1,710 Total 10,546 8,836 1,710 Total employee costs analysed by nature of expense are as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Wages and salaries 7,715 6,064 1,651 Social security costs 2,392 1,970 422 Staff leaving indemnity (TFR) 371 383 (12) Other costs 68 419 (351) Total 10,546 8,836 1,710
The average number of employees was as follows: (Number) 31.12.2014 31.12.2013 Managers 21 19 White-collar staff 62 60 Blue-collar staff Total average number of employees 83 79
Employee costs rose by Euro 1,710 thousand due to the achievement of certain targets under the key managers Long Term Incentive Plan that gave rise to costs of Euro 1,205 thousand and an increase in the average employee numbers.
18 Direct costs
Direct costs comprise a charge of Euro 100 thousand to the provision for doubtful debts in 2014 to cover the risk of non-settlement of a receivable.
19 Other income
Other income may be analysed as follows:
page 188. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
(Euro thousands) 31.12.2014 31.12.2013 Change Income from operating activities 6,909 7,019 (110) Income from non-operating activities 533 63 470 Total 7,442 7,082 360 Income from operating activities may be further detailed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Income from services provided to other Group companies 6,513 6,429 84 Other income from Group companies 392 588 (196) Other third party income 4 2 2 Total 6,909 7,019 (110) Income from non-operating activities may be further detailed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Income relating to other accounting periods 495 30 465 Income arising in other periods due to Falck SpA 23 23 Otheer 15 33 (18) Total 533 63 470 Income relating to other accounting periods principally relate to the renegotiation of a supplier services contract and an element of variable pay relating to 2013 that were paid in 2014 for an amount lower than the estimate recorded in the previous period.
20 Administrative expenses
Administrative expenses may be detailed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Materials 159 133 26 Services 8,612 7,173 1,439 Other costs 3,616 3,792 (176) Non-operating expenses 1,038 1,080 (42) Amortisation and impairment of intangible assets 170 142 28 Depreciation and impairment of property, plant and equipment 165 122 43 Charges to provisions (1,576) 1,882 (3,458) Total 12,184 14,324 (2,140) Administrative expenses fell on the previous year largely due to a decrease in the charge to the sundry risks provision which amounted to a charge of Euro 1,882 thousand last year compared to a reversal of Euro 1,576 thousand in 2014. The increase in services principally comprises the amount of Euro 900 thousand paid to the CEO in 2014 following the achievement of objectives under the Long Term Incentive Plan. The charges to provisions comprises the increase of Euro 1,034 thousand in respect of the ruling in the litigation with the Gulino Group net of the utilisation of Euro 2,610 thousand in respect of guarantees issued to the Sicily Project companies.
21 Finance income - net
Finance income and costs comprised:
page 189. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
(Euro thousands) 31.12.2014 31.12.2013 Change Finance costs (11,947) (14,332) 2,385 Finance income 14,191 18,044 (3,853) Total 2,244 3,712 (1,468) Finance costs comprise the write-down of financial receivables due from the subsidiary Elettroambiente SpA and the associate Palermo Energia Ambiente ScpA amounting to Euro 143 thousand and Euro 1,675 thousand respectively. Finance income fell compared to the previous year due to lower interest income charged to Falck Renewables Wind Ltd (Euro 8,157 thousand in 2013 compared to Euro 2,448 thousand in 2014) following the significant repayment made by the latter using the cash arising on the Borea transaction. Subsequent to the loan repayment by Falck Renewables Wind Ltd, bank finance income increased due to higher liquidity on deposit and a fall in finance costs on medium/long-term borrowings due to partial repayment of the corporate loan however, the above factors did not fully offset the fall in interest income from subsidiaries.
Finance costs consisted of the following: (Euro thousands) 31.12.2014 31.12.2013 Change Bank interest 2 17 (15) Interest paayble to subsidiaries and write-downs 336 110 226 Interest payable to associates and write-downs 1,675 975 700 Interest payable on corporate loan and other m/l-term borrowings 1,006 1,886 (880) Interest arising on amortised cost method 1,269 1,269 0 Bank charges 1,362 1,089 273 Commission on guarantees 233 185 48 Interest cost on TFR 48 53 (5) Other finance costs 1,438 1,064 374 Foreign exchange losses 4,578 7,684 (3,106) Total 11,947 14,332 (2,385)
Finance costs for 2014 and 2013 may be further analysed as follows: (Euro thousands) 31.12.2014 Debenture Bank Other Total loans borrowings Payable to subsidiaries 336 336 Payable to associates 1,675 1,675 Payable to parent company Payable to others 9,882 54 9,936 Total 9,882 2,065 11,947
Amounts payable to others comprises Euro 48 thousand of interest cost on TFR, late payment interest of Euro 4 thousand and Euro 2 thousand of foreign exchange losses on trade receivables.
(Euro thousands) 31.12.2013 Debenture Bank Other Total loans borrowings Payable to subsidiaries 110 110 Payable to associates 975 975 Payable to parent company Payable to others 13,189 58 13,247 Total 13,189 1,143 14,332
page 190. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
Amounts payable to others comprises Euro 53 thousand of interest cost on TFR and Euro 5 thousand of foreign exchange losses on trade receivables.
Finance income for the year ended 31 December 2014 may be detailed as follows: (Euro thousands) 31.12.2014 31.12.2013 Change Interest income and commission from subsidiaries 8,304 11,006 (2,702) Interest income and commission from associates 271 185 86 Interest income and commission from banks 1,000 68 932 Foreign exchange gains 4,616 6,785 (2,169) Total 14,191 18,044 (3,853)
22 Investment income/(costs) (Euro thousands) 31.12.2014 31.12.2013 Change Dividends from Frullo Energia Ambiente Srl 980 980 0 Dividends from Prima Srl 0 Dividends from Ambiente 2000 Srl 180 83 97 Dividends from Actelios Solar SpA 1,700 (1,700) Dividends from Ecosesto SpA 400 (400) Dividends from Falck Renewables Wind Ltd 38,227 17,996 20,231 Dividends from Solar Mesagne Srl 100 (100) Impairment loss on Esposito Servizi Ecologici Srl (2,461) 2,461 Impairment loss on Ecosesto SpA (1,848) 1,848 Impairment loss on Falck Renewables Polska (50) (50) Impairment loss on Solar Mesagne Srl (598) (1,362) 764 Impairment loss on Falck Renewables Energy Srl (20) 20 Total 38,739 15,568 23,171 Total impairment losses of Euro 648 thousand, consist of Euro 598 thousand in respect of Solar Mesagne Srl due to the 8% fall in incentives following introduction of new legislation on photovoltaic plants and Euro 50 thousand on Falck Renewables Polska.
23 Income tax expense (Euro thousands) 31.12.2014 31.12.2013 Change Current tax 4,921 3,346 1,575 Deferred tax (702) (564) (138) Total 4,219 2,782 1,437 (Euro thousands) 31.12.2014 31.12.2013 Profit/(loss) before taxation 25,818 3,258 Taxes calculated applying tax rate to profit (8,538) (1,076) Profits not subject to tax 11,728 5,505 Expenses not deductible for tax purposes (628) (2,761) Other differences 136 Prior year income arising on Group consolidated tax regime 1,521 1,114 Total income tax 4,219 2,782
Deferred income tax assets have not been recognised on the write-downs of trade and financial receivables in respect of the Sicily Projects as they would only be recoverable once the conditions allowing their deductibility
page 191. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
are realised, namely once the legal disputes have been settled, which is not foreseeable at present given the complexity surrounding these cases.
Related party transactions
In compliance with Consob’s circulars of 20 February 1997, 27 February 1998, 30 September 1998, 30 September 2002 and 27 July 2006, no uncharacteristic or uncommon transactions take place with related parties that are beyond the normal business operations or are detrimental to the Company’s results of operations, state of affairs and financial position. Related party transactions represent the day to day business activities that are carried out at arm’s length. These comprise the recharge of costs between Group companies and intercompany current accounts that give rise to finance income and costs. In accordance with IAS 24 Related Party Disclosures and the disclosures pursuant to Consob circular 6064293 of 28 July 2006, all related party transactions and the corresponding incidence of related party transactions on Falck Renewables SpA’s income statement headings are provided below.
page 192. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
(Euro thousands) Revenue Other Operating Non- Direct Administrative Investment Other Interest from sales operating income operating costs expenses income/ finance and other and services income income (costs) income finance costs
Subsidiaries Ambiente 2000 Srl 661 180 25 Actelios Solar SpA 220 370 Ecosesto SpA 902 1,161 Elettroambiente SpA (in liquid.) 82 107 107 143 Esposito Servizi Ecologici Srl 396 190 Eolica Petralia Srl 115 456 Eolica Sud Srl 213 1,376 Eolo 3W Minervino Murge Srl 236 222 Falck Renewables Energy Srl 124 2 2 Falck Renewables Italia Srl 102 15 Falck Renewables Polska Zoo (50) 1 Falck Renewables Wind Ltd 127 1,713 38,227 2,448 96 Geopower Sardegna Srl 258 1,544 Platani Energia Ambiente ScpA (in liquid.) 175 222 2 Prima Srl 711 217 70 Solar Mesagne Srl 148 (598) 188 Tifeo Energia Ambiente ScpA (in liquid.) 175 224 5 Total subsidiaries 127 6,231 553 37,759 8,304 336 Parent company Falck SpA 260 23 2,523 Total parent company 260 23 2,523 Associates Frullo Energia Ambiente Srl 116 980 Palermo Energia Ambiente ScpA (in liquid.) 166 467 271 1,675 Total associates 282 467 980 271 1,675 Group companies Falck Energy SpA 76 Sesto Siderservizi Srl 56 35 Total Group companies 132 35 Total 127 6,905 23 3,578 38,739 8,575 2,011 % on income statement heading 57.0% 99.9% 4.3% 29.4% 100% 60.4% 16.8%
24 Significant non-recurring events and transactions
Pursuant to Consob communication DEM/6064293 of 28 July 2006, no significant non-recurring transactions occurred in 2014.
25 Uncharacteristic and uncommon transactions
Pursuant to Consob communication DEM/6064293 of 28 July 2006, in the course of 2012 Falck Renewables SpA did not carry out any uncharacteristic and/or uncommon transactions, as defined in the communication.
page 193. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.6 Falck Renewables SpA notes to the financial statements
26 Emoluments of directors, statutory auditors, chief executive officers and key managers
Following Consob Resolution 18049 of 23 December 2011 that repealed article 78 of the Listing Rules and the ensuing Resolution 18079 of 20 January 2012, repealing appendix C of the same rules, disclosures relating to the interests of directors, statutory auditors, chief executive officers and key managers with strategic responsibilities are outlined in the Remuneration Report in compliance with article 123 ter of the Consolidated Finance Act.
In accordance with article 2427 of the Italian Civil Code, the total emoluments for each category are as follows:
(Euro thousands) 31.12.2014 31.12.2013 Directors' emoluments 2,450 1,322 Statutory auditors' emoluments 175 195 Total 2,625 1,517
page 194. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.7 Falck Renewables SpA – additional disclosures on financial instruments in accordance with IFRS7
Additional disclosures on financial instruments in accordance with IFRS7
This note sets out the additional disclosures relating to financial assets and liabilities in accordance with IFRS 7. These disclosures are presented in the same order as they are set out in IFRS 7 and have been omitted where not considered significant. The note is presented in two sections. The first sets out detailed information regarding financial assets and liabilities while the second presents information regarding the risks attributable to the financial assets and liabilities, in particular credit risk, liquidity risk and market risk. This includes both qualitative and quantitative information that is analysed into points (e.g. 1.) and sub-points (e.g. 1.2). The detailed quantitative information is provided for 31 December 2014 and where significant at 31 December 2013.
Before presenting the detailed disclosures it is important to note that Falck Renewables SpA holds significant financial assets in the form of financial receivables that contributes to a strong positive net financial position. The financial assets and liabilities are almost entirely measured at cost and amortised cost in the financial statements, with the exception of derivative financial instruments on interest rates that are measured at fair value. The portion of these derivatives designated as hedging instruments are measured applying hedge accounting with changes in fair value recorded in equity; changes in fair value relating to the portion not designated as hedges is recorded in profit or loss.
Credit, liquidity and market risk are very limited. Credit risk exposure is not significant as the majority of trade and financial receivables are with other Group companies and not third parties. Liquidity risk is also considered to be low due to the credit facility arising from the loan agreement entered into on 14 January 2011 and that is only partially drawn down at present and the significant liquidity balances that are placed on short-term deposits with Italian banks. The loan contract is subject to, inter alia, financial covenants, calculated based on the amounts in the consolidated financial statements, comprising the ratios of EBITDA/net financial position and net financial position/total equity: these covenants were met both at 30 June 2014 and 31 December 2014. Interest rate risk arises on financial receivables due from subsidiaries and interest rate fluctuations could give rise to higher or lower finance income and therefore higher or lower dividends, consequently a sensitivity analysis was not performed. The liquidity on deposit will be used in future to finance subsidiaries’ investments, thus generating further financial receivables. Falck Renewables SpA adopts specific procedures to manage the credit, liquidity and market risk on financial assets and liabilities, which have been documented in the Group’s policies.
Section I: Financial instruments
1. Balance sheet
1.1 Categories of financial assets and liabilities
The tables below illustrate the carrying value at 31 December 2014 and 31 December 2013 of the financial assets and liabilities classified in accordance with IAS 39. In order to reconcile with the balance sheet totals the penultimate column sets out the values of the assets and liabilities that are not included within the scope of IFRS 7.
page 195. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.7 Falck Renewables SpA – additional disclosures on financial instruments in accordance with IFRS7
(Euro thousands) 31.12.2014
Fair value Fair value through profit against Amortised cost or loss equity or Total cost A/L not FA/FL within Balance within scope of sheet total Financial FA/FL FA scope of Financial IFRS 7 Loans and liabilities at designation FA/FL held available IFRS 7 assets held- receiv.bls amortised on initial for trading for sale and to-maturity cost recognition other FL
Assets Property, plant and equipment and intangibles 1,241 1,241 Investments 222,756 222,756 Financial assets 181,395 274 181,669 181,669 Inventories Trade receivables 5,694 5,694 5,694 Deferred income tax assets 1,232 1,232 Other receivables 11,340 11,340 3,957 15,297 Cash and cash equivalents 102,419 102,419 102,419 Total 198,429 102,419 274 301,122 229,186 530,308 Liabilities Total equity 473,309 473,309 Financial liabilities 34,590 1,105 35,695 35,695 Trade payables 3,727 3,727 3,727 Other payables 5,900 5,900 Provisions for other liabilities and charges 9,770 9,770 Staff leaving indemnity 1,907 1,907 Total 38,317 1,105 39,422 490,886 530,308
page 196. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.7 Falck Renewables SpA – additional disclosures on financial instruments in accordance with IFRS7
(Euro thousands) 31.12.2013
Fair value Fair value through profit against Amortised cost or loss equity or Total cost A/L not FA/FL within Balance within scope of sheet total Financial FA/FL FA scope of Financial IFRS 7 Loans and liabilities at designation FA/FL held available IFRS 7 assets held- receiv.bls amortised on initial for trading for sale and to-maturity cost recognition other FL
Assets Property, plant and equipment and intangibles 1,286 1,286 Investments 212,133 212,133 Financial assets 321,285 321,285 321,285 Inventories Trade receivables 1,344 1,344 1,344 Deferred income tax assets 2,348 2,348 Other receivables 11,340 11,340 2,847 14,187 Cash and cash equivalents 233 233 233 Total 333,969 233 334,202 218,614 552,816 Liabilities Total equity 451,871 451,871 Financial liabilities 77,113 2,204 79,317 79,317 Trade payables 5,289 5,289 5,289 Other payables 3,287 3,287 Provisions for other liabilities and charges 11,346 11,346 Staff leaving indemnity 1,706 1,706 Total 82,402 2,204 84,606 468,210 552,816
1.2 Collateral – Financial assets pledged as security for liabilities and collateral accepted as security for assets
Financial assets pledged as security for liabilities comprise the shares of Actelios Solar SpA owned by Falck Renewables SpA with a face value of Euro 120 thousand and the shares of Falck Renewables Wind Ltd for a total GBP 37,755 thousand. The pledged amounts correspond with the nominal value of the shares.
2. Income statement and net equity
2.1 Income, expenses, profits or losses
The table below illustrates gains/(losses) on financial assets and liabilities in 2014 and 2013 reclassified in accordance with IAS 39. The only amount relates to gains on the increase in value of derivative financial instruments.
page 197. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.7 Falck Renewables SpA – additional disclosures on financial instruments in accordance with IFRS7
(Euro thousands) Gains/ Gains/ Gains/ (losses) (losses) (losses) recycled 31.12.2014 through Total recorded in from equity profit or total equity to profit or loss loss FA at fair value through profit or loss 799 799 FA held for trading 0 FL at fair value through profit or loss 0 FL held for trading 0 Available for sale FA/other FL 295 955 1,250 FA held to maturity 0 Loans and receivables 0 FL at amortised cost 0 Rounding 0 Total 799 295 955 2,049
(Euro thousands) Gains/ Gains/ Gains/ (losses) (losses) (losses) recycled 31.12.2013 through Total recorded in from equity profit or total equity to profit or loss loss FA at fair value through profit or loss 0 FA held for trading 0 FL at fair value through profit or loss (480) (480) FL held for trading 0 Available for sale FA/other FL 1,089 1,089 FA held to maturity 0 Loans and receivables 0 FL at amortised cost 0 Rounding 0 Total (480) 1,089 0 609
The gain of Euro 799 thousand relates to the overall change in fair value of foreign exchange hedging contracts, for Euro 224 thousand and the change in fair value of the speculative portion of interest rate hedges amounting to Euro 575 thousand. The gain of Euro 295 thousand relates to the fair value measurement of derivative financial instruments measured applying hedge accounting. The amount recycled from equity to profit or loss of Euro 955 thousand represents the portion of the cash flow hedge reserve no longer considered a hedge.
page 198. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.7 Falck Renewables SpA – additional disclosures on financial instruments in accordance with IFRS7
The tables below illustrates total interest income/expense (calculated using the effective interest rate method) and the fee income/expense generated by financial assets/liabilities not measured at fair value through profit or loss and the fee income/expense arising from trust and other fiduciary activities in 2014 and 2013.
(Euro thousands) 31.12.2014 Interest income Fee income Total (expense) (expense) FA not at fair value through profit or loss 7,261 (79) 7,183 FL not at fair value through profit or loss (3,908) (3,908) FL at fair value through profit or loss Other (not within scope of IFRS 7) (1,830) (1,830) Total 1,523 (79) 1,445
(Euro thousands) 31.12.2013 Interest income Fee income Total (expense) (expense) FA not at fair value through profit or loss 10,021 (36) 9,985 FL not at fair value through profit or loss (3,790) (3,790) FL at fair value through profit or loss Other (not within scope of IFRS 7) (2,003) (2,003) Total 4,228 (36) 4,192
The reconciliations of the above amounts with net finance income/(costs) recorded in the 2014 and 2013 income statements are as follows.
(Euro thousands) 31.12.2014 Gains/(losses) through profit or loss 799 Total interest income/expense 1,523 Fee income/expense (79) Total 2,244 Net finance income per income statement 2,244
(Euro thousands) 31.12.2013 Gains/(losses) through profit or loss (480) Total interest income/expense 4,228 Fee income/expense (36) Total 3,712 Net finance income per income statement 3,712
page 199. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.7 Falck Renewables SpA – additional disclosures on financial instruments in accordance with IFRS7
3. Further additional disclosures
3.1 Accounting policies
The accounting policies adopted for the recognition and measurement of financial assets and liabilities are presented in the notes to the separate financial statements of Falck Renewables SpA in paragraph 8.6.1 Accounting policies.
3.2 Fair value
The tables below disclose the fair value of the financial assets/liabilities and the related carrying amount at 31 December 2014 and 31 December 2013. The carrying amount of the financial assets/liabilities valued at cost and amortised cost (see point 1.1) is a reasonable estimate of fair value, as these relate to either short-term or variable rate financial assets and liabilities.
(Euro thousands) 31.12.2014 Carrying amount Fair value Financial assets Securities and investments 0 Financial receivables 181,669 181,669 Trade receivables 5,694 5,694 Other receivables 11,340 11,340 Cash and cash equivalents 102,419 102,419 Total 301,122 301,122 Financial liabilities Financial payables 35,695 35,695 Trade payables 3,727 3,727 Other payables 0 0 Total 39,422 39,422
(Euro thousands) 31.12.2013 Carrying amount Fair value Financial assets Securities and investments 0 Financial receivables 321,285 321,285 Trade receivables 1,344 1,344 Other receivables 11,340 11,340 Cash and cash equivalents 233 233 Total 334,202 334,202 Financial liabilities Financial payables 79,317 79,317 Trade payables 5,289 5,289 Other payables 0 Total 84,606 84,606
page 200. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.7 Falck Renewables SpA – additional disclosures on financial instruments in accordance with IFRS7
Analysis of financial receivables at 31 December 2014 and 31 December 2013 by instrument and conditions.
(Euro thousands) 31.12.2014 Effective interest rate Fair Carrying Current Non-current value amount portion portion Loans due from subsidiaries Euribor + spread 98,984 98,984 98,984 Loans due from associates Euribor + spread Interest matured Euribor + spread 72 72 72 Group correspondence accounts Euribor + spread 82,339 82,339 82,339 Derivative financial instruments 274 274 274 Total financial receivables 181,669 181,669 82,685 98,984
(Euro thousands) 31.12.2013 Effective interest rate Fair Carrying Current Non-current value amount portion portion Loans due from subsidiaries Euribor + spread 98,938 98,938 98,938 Loans due from associates Euribor + spread Group correspondence accounts Euribor + spread 222,347 222,347 222,347 Total financial receivables 321,285 321,285 222,347 98,938
4. Risks arising from financial instruments
4. 1 Credit risk
The credit risk on third party financial and trade receivables is not considered significant as the related exposure is very limited. With regard to the credit risk exposure on receivables due from subsidiaries, a significant charge was made to the provision for doubtful trade and financial receivables to take into account the uncertainties surrounding litigation with the Sicily Region.
The maximum credit risk exposure at 31 December 2014 amounted to Euro 301,122 thousand and consisted of the following:
(Euro thousands) 31.12.2014 Gross Write-down Net Financial receivables 270,048 (88,379) 181,669 Trade receivables 12,640 (6,946) 5,694 Other receivables 11,340 11,340 Cash and cash equivalents 102,419 102,419 Total 396,447 (95,325) 301,122
page 201. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.7 Falck Renewables SpA – additional disclosures on financial instruments in accordance with IFRS7
The maximum credit risk exposure at 31 December 2013 amounted to Euro 334,202 thousand and consisted of the following:
(Euro thousands) 31.12.2013 Gross Write-down Net Financial receivables 407,846 (86,561) 321,285 Trade receivables 7,170 (5,826) 1,344 Other receivables 11,340 11,340 Cash and cash equivalents 233 233 Total 426,589 (92,387) 334,202
4.2 Liquidity risk
Falck Renewables SpA’s liquidity risk is very modest; net financial debt amounted to Euro 35,695 thousand at 31 December 2014 (2013 – Euro 79,17 thousand). This compares with total liabilities of Euro 530,308 thousand and Euro 552,816 thousand, in 2014 and 2013 respectively. Financial liabilities largely comprise the loan entered into on 14 January 2011 that is subject to covenants and classified in short-term liabilities and short- term liabilities relating to the balance of correspondence accounts with a number of subsidiaries. Falck Renewables SpA has cash and cash equivalents of Euro 102,419 thousand placed on short-term deposit with Italian banks.
4.3 Market risk
4.3.1 Interest rate risk
Falck Renewables SpA has entered into interest rate swaps to hedge the interest rate exposure on the committed bank borrowings for a total Euro 70,000 thousand at 31 December 2014 which exceeds the amount drawn-down of Euro 23,116 thousand. Interest rate risk arises on financial receivables due from subsidiaries and interest rate fluctuations would correspond to an increase or decrease in interest income that would result in lower or higher dividends therefore a sensitivity analysis has not been carried out. Total financial assets and liabilities exposed to changes in interest rates are detailed below:
(Euro thousands) 31.12.2014 Financial assets Financial receivables 181,395 Derivative financial instruments 274 Cash and cash equivalents 102,419 Total 284,088 Financial liabilities Financial liabilities (34,590) Derivative financial instruments (1,105) Total (35,695)
Net exposure 248,393
page 202. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 8.7 Falck Renewables SpA – additional disclosures on financial instruments in accordance with IFRS7
(Euro thousands) 31.12.2013 Financial assets Financial receivables 321,285 Cash and cash equivalents 233 Total 321,518 Financial liabilities Financial liabilities (77,113) Derivative financial instruments (2,204) Total (79,317) Net exposure 242,201
page 203.
9. Supplementary information to the separate financial statement of Falck Renewables SpA
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 9 Supplementary information to the separate financial statements of Falck Renewables SpA
9.1 List of direct and indirect investments in subsidiaries and associates Registered Currency Share Total equity Profit/ Direct Indirect Carrying office capital (loss) interest interest value
(Euro (Euro thousands) thousands) (%) (%) (Euro)
Directly controlled subsidiaries Actelios Solar SpA Sesto S. Giovanni (Mi) Euro 120,000 3,180 863 100.000 1,124,979 Ambiente 2000 Srl Milan Euro 103,000 2,527 123 60.000 863,874
Ecosesto SpA Rende (Cosenza) Euro 5,120,000 4,954 (613) 100.000 4,606,000
Elettroambiente SpA Sesto S. Giovanni (Mi) Euro 245,350 (89,449) 174 100.000 0
Esposito Servizi Ecologici Srl Sesto S. Giovanni (Mi) Euro 10,000 1,262 (501) 100.000 1,171,000
Falck Renewables Energy Srl Sesto S. Giovanni (Mi) Euro 10,000 168 79 100.000 90,000
Falck Renewables Polska Z o.o. Warsaw (Poland) PLN 5,000 9 (20) 100.000 0
Falck Renewables Wind Ltd London (GB) GBP 37,759,066 150,109 94,786 99.989 166,483,362
Prima Srl Sesto S. Giovanni (Mi) Euro 5,430,000 36,394 (1,386) 85.000 28,494,159
Solar Mesagne Srl Brindisi Euro 50,000 374 (538) 100.000 229,000 Vector Cuatro SLU Madrid (Spain) Euro 55,001 2,346 344 100.000 11,221,971 214,284,345
Indirectly controlled subsidiaries Assel Valley Wind Energy Ltd Inverness (GB) GBP 100 (10) (10) 75.000
Auchrobert Wind Energy Ltd Inverness (GB) GBP 100 (6) (6) 75.000
Beaumont Wind Energy Ltd London (GB) GBP 50 100.000
Ben Aketil 2 Wind Energy Ltd Inverness (GB) GBP 100 100.000
Ben Aketil Wind Energy Ltd Inverness (GB) GBP 100 (3,707) 1,426 51.000
Boyndie Wind Energy Ltd Inverness (GB) GBP 100 3,618 1,158 100.000
Cambrian Wind Energy Ltd London (GB) GBP 100 1,215 639 100.000
Dunbeath Wind Energy Ltd Inverness (GB) GBP 100 (2,304) (18) 52.000
Earlsburn Mezzanine Ltd London (GB) GBP 100 32,766 25,684 100.000
Earlsburn Wind Energy Ltd Inverness (GB) GBP 100 330 4,567 51.000
Elektrownie Wiatrowe Bonwind Łyszkowice Łódź (Poland) PLN 132,000 (626) (189) 50.000 Sp.Z.o.o. Eolica Cabezo San Roque Sau Saragozza (Spain) Euro 1,500,000 6,198 (298) 100.000
Eolica Petralia Srl Sesto S. Giovanni (Mi) Euro 2,000,000 6,433 586 100.000
Eolica Sud Srl Davoli Marina (Cz) Euro 5,000,000 9,935 317 100.000
Eolo 3W Minervino Murge Srl Sesto S. Giovanni (Mi) Euro 10,000 1,206 522 100.000
Esquennois Energie Sas Paris Euro 37,000 (448) (27) 100.000
Ezse Elektrik Uretim Ltd Sirketi Izmir (Turkey) TRY 17,500,000 7,069 (80) 100.000
Falck Energies Renouvelables Sas Rennes (France) Euro 60,000 (3,651) (590) 100.000
Falck Renewables Finance Ltd London (GB) GBP 100 22,162 20,310 100.000
Falck Renewables Italia Srl Sesto S. Giovanni (Mi) Euro 100,000 114 (587) 100.000
Falck Renewables UK Holdings (No.1) Ltd London (GB) GBP 1 (10,087) 2,003 51.000
page 205. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 9 Supplementary information to the separate financial statements of Falck Renewables SpA
Registered Currency Share Total equity Profit/ Direct Indirect Carrying office capital (loss) interest interest value
(Euro (Euro thousands) thousands) (%) (%) (Euro)
Indirectly controlled subsidiaries (continued) Geopower Sardegna Srl Sesto S. Giovanni (Mi) Euro 2,000,000 29,019 9,351 100.000
Kilbraur 2 Wind Energy Ltd Inverness (GB) GBP 100 100.000
Kilbraur Wind Energy Ltd Inverness (GB) GBP 100 1,296 4,212 51.000
Kingsburn Wind Energy Ltd Inverness (GB) GBP 100 (949) 251 52.000
Leadhills Wind Energy Ltd Inverness (GB) GBP 100 52.000
Millennium Wind Energy Ltd Inverness (GB) GBP 100 2,021 4,195 51.000
Mochrum Fell Wind Energy Ltd Inverness (GB) GBP 100 75.000
Ness Wind Energy Ltd London (GB) GBP 50 100.000
Nutberry Wind Energy Ltd Inverness (GB) GBP 100 (2,552) (731) 100.000
Ongarhill Wind Energy Ltd London (GB) GBP 100 75.000
Parc Eolien d'Illois Sarl Rennes (France) Euro 1,000 (9) (4) 100.000
Parc Eolien des Cretes Sas Paris Euro 37,000 (1,594) (55) 100.000
Parc Eolien du Fouy Sas Paris Euro 37,000 (345) 35 100.000
Falck Renewables Gmbh and co.KG Nuremberg (Germany) Euro 5,000 (300) 69 100.000
Falck Renewables Verwaltungs Gmbh Nuremberg (Germany) Euro 25,000 21 (1) 100.000 Platani Energia Ambiente ScpA (in Palermo Euro 3,364,264 (39,686) 0 86.770 liquidation) S E Ty Ru Sas Rennes (France) Euro 1,009,003 2,260 (157) 100.000
Spaldington Airfield Wind Energy Ltd London (GB) GBP 100 (20) (11) 75.000
Tifeo Energia Ambiente ScpA (in liquidation) Palermo Euro 4,679,829 (52,481) (860) 96.350
Vector Cuatro Srl Turin (Italy) Euro 25,000 542 231 100.000 Vector Cuatro France Sarl Lyon (France) Euro 50,000 139 34 100.000 Vector Cuatro EOOD Sofia (Bulgaria) BGN 2,000 6 2 100.000 Vector Cuatro Canada INC Vaughan (Ontario, Canada) CAD 100 (40) (19) 100.000 Vector Cuatro Japan KK Tokio (Japan) JPY 1,000,000 165 147 100.000 Vector Cuatro Energias Renovables Mèxico Miguel Hidalgo DF (Mexico) MXN 50,000 (37) (35) 98.000 SA de CV PV Diagnosis Fotovoltaica SLU Madrid (Spain) Euro 3,100 64 (10) 100.000
Vector Cuatro Ingenieria Renovable SLU Madrid (Spain) Euro 3,006 46 (12) 100.000
PV Diagnosis Srl Milan (Italy) Euro 10,000 41 15 100.000
Verus Energy Oak Ltd London (GB) GBP 1 (29) (13) 51.000
West Browncastle Wind Energy Ltd Inverness (GB) GBP 100 (1,986) (1,910) 100.000 Associates
FRI Energetica Srl Cosenza Euro 20,000 20.000
Frullo Energia Ambiente Srl Bologna Euro 17,139,100 40,658 3,594 49.000 8,471,678
Nuevos Parque Eolicos La Muela AIE Saragozza (Spain) Euro 10,000 38 50.000 Palermo Energia Ambiente ScpA (in Palermo Euro 120,000 (59,679) 0 23.273 liquidation) Parque Eolico La Carracha Sl Saragozza (Spain) Euro 100,000 456 (2,458) 26.000
Parque Eolico Plana de Jarreta Sl Saragozza (Spain) Euro 100,000 (267) (2,429) 26.000
Vector Cuatro Servicios SL Madrid (Spain) Euro 30,000 45 31 50.000
page 206. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 9 Supplementary information to the separate financial statements of Falck Renewables SpA
9.2 Summary of significant financial data of subsidiaries and associates
Balance sheet (Euro thousands) Non-current Current Total Non-current Current assets assets equity liabilities liabilities Directly controlled subsidiaries Actelios Solar SpA 42,178 8,802 3,180 44,329 3,471
Ambiente 2000 Srl 37 8,327 2,527 804 5,034
Ecosesto SpA 28,301 25,824 4,954 7,009 42,161
Elettroambiente SpA 71,869 15 (89,449) 160,868 465
Esposito Servizi Ecologici Srl 6,797 3,215 1,262 486 8,264
Falck Renewables Energy Srl 1 3,377 168 3,210
Falck Renewables Polska Z o.o. 26 9 8 9
Falck Renewables Wind Ltd 58,609 204,483 150,109 15,844 97,139
Prima Srl 40,385 24,256 36,394 11,703 16,543
Solar Mesagne Srl 6,239 231 374 0 6,096
Vector Cuatro SLU 2,788 2,665 2,346 293 2,814
Indirectly controlled subsidiaries Assel Valley Wind Energy Ltd 13,972 22 (10) 14,005
Auchrobert Wind Energy Ltd 4,908 (6) 4,914
Beaumont Wind Energy Ltd
Ben Aketil 2 Wind Energy Ltd
Ben Aketil Wind Energy Ltd 28,992 4,435 (3,707) 28,200 8,935
Boyndie Wind Energy Ltd 13,041 15,691 3,618 10,599 14,514
Cambrian Wind Energy Ltd 37,577 9,082 1,215 19,706 25,737
Dunbeath Wind Energy Ltd (2,304) 2,304
Earlsburn Mezzanine Ltd 6,163 26,613 32,766 11
Earlsburn Wind Energy Ltd 33,644 8,657 330 29,148 12,823 Elektrownie Wiatrowe Bonwind Łyszkowice 85 195 (626) 905 Sp.Z.o.o. Eolica Cabezo San Roque Sau 11,543 6,214 6,198 7,279 4,280
Eolica Petralia Srl 33,108 7,848 6,433 31,253 3,270
Eolica Sud Srl 131,168 35,544 9,935 145,778 10,999
Eolo 3W Minervino Murge Srl 71,955 18,662 1,206 68,438 20,972
Esquennois Energie Sas 13,853 2,438 (448) 12,763 3,976
Ezse Elektrik Uretim Ltd Sirketi 7,127 7,069 58
Falck Energies Renouvelables Sas 40 8,082 (3,651) 11,773
Falck Renewables Finance Ltd 183 22,334 22,162 355
Falck Renewables Italia Srl 44 734 114 294 370
Falck Renewables UK Holdings (No.1) Ltd 19,369 12,811 (10,087) 18,750 23,517
page 207. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 9 Supplementary information to the separate financial statements of Falck Renewables SpA
(Euro tho us ands ) No n-current Current To tal No n-current Current as s ets as s ets equity liabilities liabilities
Indirectly controlled subsidiaries (continued) Geo po wer Sardegna Srl 212,853 50,974 29,019 208,025 26,784
Kilbraur 2 Wind Energy Ltd
Kilbraur Wind Energy Ltd 83,661 10,852 1,296 75,127 18,090
Kings burn Wind Energy Ltd 10,169 1,181 (949) 12,299
Leadhills Wind Energy Ltd
Millennium Wind Energy Ltd 74,640 15,398 2,021 70,599 17,418
Mo chrum Fell Wind Energy Ltd
Nes s Wind Energy Ltd
Nutberry Wind Energy Ltd 35,377 4,939 (2,552) 30,949 11,919
Ongarhill Wind Energy Ltd
P arc Eo lien d'Illo is Sarl 105 23 (9) 137
P arc Eo lien des Cretes Sas 10,681 1,502 (1,594) 10,354 3,424
P arc Eo lien du Fo uy Sas 10,000 1,610 (345) 10,011 1,945
Falck Renewables Gmbh and co.KG 3,810 3,447 (300) 7,558
Falck Renewables Verwaltungs Gmbh 25 21 5
P latani Energia Ambiente ScpA (in 34,607 2,070 (39,686) 54,458 21,906 liquidatio n)
S E Ty Ru Sas 15,189 4,140 2,260 12,478 4,591
Spaldingto n Airfield Wind Energy Ltd 13,642 3 (20) (3) 13,668 Tifeo Energia Ambiente ScpA (in 45,788 2,677 (52,481) 69,971 30,975 liquidatio n)
Vecto r Cuatro Srl 101 1,854 542 1,413
Vecto r Cuatro France Sarl 33 427 139 322
Vecto r Cuatro EOOD 1 130 6 125
Vecto r Cuatro Canada INC 140 (40) 181
Vecto r Cuatro J apan KK 8 536 165 378
Vecto r Cuatro Energias Reno vables 6 14 (37) 57 Mèxico SA de CV
P V Diagnosis Fotovoltaica SLU 46 133 64 1 113
Vecto r Cuatro Ingenieria Reno vable 47 46 SLU
P V Diagno s is Srl 2 234 41 194
Verus Energy Oak Ltd 1,085 76 (29) 1,200
Wes t Bro wncas tle Wind Energy Ltd 63,030 5,033 (1,986) 2,718 67,331
Associates
FRI Energetica Srl NA NA NA NA NA
Frullo Energia Ambiente Srl 88,297 21,987 40,658 35,757 33,869 Nuevos P arque Eolicos La Muela 2 60 38 24 AIE P alermo Energia Ambiente ScpA (in 43,311 3,627 (59,679) 81,951 24,666 liquidatio n) P arque Eo lico La Carracha Sl 18,381 8,378 456 19,646 6,658
P arque Eo lico P lana de J arreta Sl 18,196 8,033 (267) 19,791 6,705
Vecto r Cuatro Servicio s SL 40 100 45 49 46
page 208. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 9 Supplementary information to the separate financial statements of Falck Renewables SpA
(Euro thousands) Cost of Gross Operating Profit before Profit /(loss) for Revenue sales profit/(loss) profit/(loss) income tax the year
Indirectly controlled subsidiaries (continued) Geopower Sardegna Srl 44,303 (19,567) 24,735 25,952 14,064 9,351
Kilbraur 2 Wind Energy Ltd
Kilbraur Wind Energy Ltd 23,797 (12,607) 11,190 11,020 5,369 4,212
Kingsburn Wind Energy Ltd (11) 61 251
Leadhills Wind Energy Ltd
Millennium Wind Energy Ltd 21,832 (11,092) 10,741 10,577 5,334 4,195
Mochrum Fell Wind Energy Ltd
Ness Wind Energy Ltd
Nutberry Wind Energy Ltd 5,221 (3,218) 2,003 1,974 (973) (731)
Ongarhill Wind Energy Ltd
Parc Eolien d'Illois Sarl (4) (4) (4)
Parc Eolien des Cretes Sas 1,631 (1,155) 476 476 (82) (55)
Parc Eolien du Fouy Sas 1,690 (1,115) 575 575 53 35
Falck Renewables Gmbh and co.KG (14) (14) (14) 69 69
Falck Renewables Verwaltungs Gmbh (1) (1) (1)
Platani Energia Ambiente ScpA (in liquidation) 320 (155)
S E Ty Ru Sas 1,767 (1,313) 454 454 (236) (157)
Spaldington Airfield Wind Energy Ltd (13) (14) (11)
Tifeo Energia Ambiente ScpA (in liquidation) 583 (1,062) (860)
Vector Cuatro Srl 2,068 (1,699) 369 364 365 231
Vector Cuatro France Sarl 433 (384) 48 46 49 34
Vector Cuatro EOOD 193 (191) 3 2 2 2
Vector Cuatro Canada INC 96 (118) (21) (21) (19) (19)
Vector Cuatro Japan KK 958 (705) 253 251 242 147
Vector Cuatro Energias Renovables Mèxico SA de 28 (63) (35) (35) (35) (35) CV PV Diagnosis Fotovoltaica SLU 76 (92) (16) (16) (13) (10)
Vector Cuatro Ingenieria Renovable SLU (11) (1) (12) (12) (12) (12)
PV Diagnosis Srl 61 (23) 38 18 24 15
Verus Energy Oak Ltd (17) (17) (13)
West Browncastle Wind Energy Ltd 3,610 (2,880) 731 731 (2,534) (1,910)
Associates FRI Energetica Srl NA NA NA NA NA NA
Frullo Energia Ambiente Srl 33,856 (25,784) 8,073 6,453 5,106 3,594
Nuevos Parque Eolicos La Muela AIE 459 (459)
Palermo Energia Ambiente ScpA (in liquidation)
Parque Eolico La Carracha Sl 3,353 (5,575) (2,222) (2,205) (3,331) (2,458)
Parque Eolico Plana de Jarreta Sl 3,098 (5,333) (2,235) (2,189) (3,291) (2,429)
page 209.
10. Certifications on the consolidated and separate financial statements pursuant to article 81- ter of Consob regulation 11971 of 14 May 1999 as amended
Certification of the consolidated financial statements pursuant to article 81-ter of Consob Regulation 11971 of 14 May 1999, as amended
We, the undersigned Piero Manzoni, in my capacity as “Chief Executive Officer”, and Paolo Rundeddu, in my capacity as “Corporate Accounting Documents Officer”, of Falck Renewables SpA, taking into account the provisions of Article 154-bis, Sections 3 and 4, of Legislative Decree 58 of 24 February 1998, certify that the administrative and accounting procedures applied to prepare the consolidated financial statements for the year ended 31 December 2014:
were adequate in light of the Group’s characteristics; and have been properly applied.
As described in the notes to the consolidated financial statements, following acquisition of a 100% interest in Vector Cuatro SLU, the Falck Renewables Group acquired control over the Vector Cuatro Group with effect from 15 September 2014, which gave rise to the consolidation of the full year financial position while only the three months results from the date of acquisition were consolidated. The process of integration and alignment of the Vector Cuatro Group with corporate procedures is currently underway in accordance with Law 262/05.
We further certify that:
1. the consolidated financial statements : a) have been prepared in accordance with applicable international accounting principles (IAS/IFRS), recognised by the European Union pursuant to EC Regulation 1606/2002 of the European Parliament and Council of 19 July 2002; b) are consistent with the data in the accounting records and other corporate documents; c) provide a true and fair presentation of the balance sheet, income statement and financial position of the issuer and of all of the companies included in the scope of consolidation;
2. the directors’ report includes a reliable analysis of the Group performance and results of operations and financial position of the issuer and of all of the companies included in the scope of consolidation, together with a description of the main risks and uncertainties to which they are exposed (1).
Chief Executive Officer Corporate Accounting Documents Officer
Piero Manzoni Paolo Rundeddu
Milan, 12 March 2015 ______
(1) Pursuant to article 154-bis paragraph 5 letter e) of Legislative Decree 58/1998 (Consolidated Finance Act).
Certification of the separate financial statements pursuant to article 81-ter of Consob Regulation 11971 of 14 May 1999, as amended
We, the undersigned Piero Manzoni, in my capacity as “Chief Executive Officer”, and Paolo Rundeddu, in my capacity as “Corporate Accounting Documents Officer”, of Falck Renewables SpA, taking into account the provisions of Article 154-bis, Sections 3 and 4, of Legislative Decree 58 of 24 February 1998, certify that the administrative and accounting procedures applied to prepare the separate financial statements for the year ended 31 December 2014:
were adequate in light of the Company’s characteristics; and have been properly applied.
We further certify that:
1. the separate financial statements:
a) have been prepared in accordance with applicable international accounting principles (IAS/IFRS), recognised by the European Union pursuant to EC regulation 1606/2002 of the European Parliament and Council of 19 July 2002; b) are consistent with the data in the accounting records and other corporate documents; c) provide a true and fair presentation of the balance sheet, income statement and financial position of the issuer.
2. the directors’ report includes a reliable analysis of the performance and results of operations and the financial position of the issuer, together with a description of the main risks and uncertainties to which it is exposed(1).
Chief Executive Officer Corporate Accounting Documents Officer
Piero Manzoni Paolo Rundeddu
Milan, 12 March 2015 ______
(2) Pursuant to article 154-bis paragraph 5 letter e) of Legislative Decree 58/1998 (Consolidated Finance Act).
11. Report of the board of statutory auditors to the annual general meeting
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 11 Report of the board of statutory auditors to the annual general meeting
Report of the board of statutory auditors to the annual general meeting of shareholders of Falck Renewables SpA on 29 April 2015 pursuant to article 153 of Legislative Decree no. 58/1998 and article 2429, paragraph 2 of the Italian Civil Code
During the financial year ended 31 December 2014, we carried out the controls required by current law and regulations, pursuant to article 149 of Legislative Decree 58/1998 (TUF - Consolidated Finance Act) and the rules of conduct for boards of statutory auditors recommended by the Consigli Nazionali dei Dottori Commercialisti and Esperti Contabili (representative bodies of the Italian accounting professions) to which we refer in this report, which was prepared also taking into consideration the guidelines issued by Consob (the Italian stock exchange commission) in communication 1025564 of 6 April 2001 and ensuing amendments.
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The board of statutory auditors (the Board) was appointed by the AGM on 29 April 2014 and will remain in office until the approval of the annual report for the year ended 31 December 2016. The members of the board of statutory auditors have complied with the limits on the number of offices held as set forth in article 144 terdecies of the Listing Rules and notified Consob accordingly. The independent auditors are Reconta Ernst & Young SpA and reference should be made to the independent audit report. We note that the information disclosed in the financial statements for the year ended 31 December 2014 is comparable with that of 31 December 2013, the information in the latter was reclassified following adoption of IFRS 11 in order to render it comparable with that of 2014.
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In consideration of the manner in which we performed our institutional activities we confirm that: We attended all of the meetings of the shareholders, the board of directors, the Risk Control Committee (RCC) and the Remuneration Committee (RC) that took place during the year and we obtained from the directors timely and adequate information regarding the activities performed, in accordance with regulatory and statutory requirements; We obtained suitable information in order to be able to perform our duties regarding verification of the adequacy of the Company's organisation structure and compliance with principles of correct administrative practice, through direct enquiries, the collation of information from officers responsible for the respective functions and exchanges of information and data with the independent auditors and with the boards of statutory auditors of the subsidiary companies; We oversaw the internal control and accounting-administrative systems, with the objective of verifying their adequacy to support operational requirements, as well as their reliability in presenting transactions, by examining company documentation, obtaining information from the heads of the relevant departments, and analysing the results of the work carried out by the independent auditors; We verified compliance with current legislation regarding the preparation, presentation and layout of both the separate Company and consolidated financial statements, taking into consideration the fact that the Company has prepared the separate company and the consolidated financial statements in accordance with International Financial Reporting Standards. Following publication of joint document no. 4 by Banca d’Italia/Consob/Isvap dated 3 March 2010, the board of directors confirmed that the impairment tests performed on the assets carried in the balance sheet complied with the provisions of IAS 36 and approved them separately prior to that of the financial statements; We verified that the 2014 directors’ report conforms to the law and is in agreement with the resolutions approved by the board of directors and with transactions presented in the Company’s and the consolidated financial statements; more specifically in the notes on Risks and uncertainties and Management outlook and going concern in the directors’ report, the directors describe the major risks and uncertainties to which the Group is exposed, indicating those of a financial, legal, regulatory, strategic, and operational nature, providing details of all civil, tax and administrative litigation in which the Group is involved and providing detailed evidence of the status of litigation. No observations were required to be made by the board of statutory auditors
page 214. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 11 Report of the board of statutory auditors to the annual general meeting in relation to the interim half-year report of the Company and the Group. The quarterly and half-yearly reports were prepared and published in accordance with current legislation and regulations.
In the course of our verification work, carried out in the manner described above, no significant matters emerged that required notification to the regulatory bodies. On the basis of our findings from the tests carried out and from information obtained, the decisions taken by the directors appear to comply with the law and the Company’s articles of association, principles of correct administrative practice, are appropriate to and compatible with the Company’s size and net assets, and meet Company requirements.
* * * The specific disclosures to be included in this report are set out below in the order prescribed in the above- mentioned Consob communication of 6 April 2001.
We have obtained adequate information and investigated the major economic, financial and equity transactions undertaken by the Company and its subsidiaries, as disclosed in detail in the directors’ report, to which we refer. More specifically, we bring your attention to the following:
Disclosures relating to the Sicily Projects, which are discussed in detail in the note on Legal risks, describe the underlying reasons for the write-off of all balances relating to the Sicily Projects and the status of pending litigation; The transaction finalised on 17 March 2014 regarding the sale of a 49% stake in the main UK wind farm projects and a co-investment partnership with the infrastructure fund Copenhagen Infrastructure I K/S; The transaction that was finalised on 15 September 2014 relating to the acquisition of 100% of Vector Cuatro SLU and its subsidiaries. This group provides services and plant management activities to renewable energy power plants (principally solar and photovoltaic plants); Disclosure that Falck SpA performs direction and coordination activities in respect of Falck Renewables SpA. The impact of related party transactions with the parent company is illustrated in note 5.3.7 of the notes to the financial statements.
We have not been informed of uncharacteristic and/or uncommon transactions carried out during the year, including those with Group companies or related parties. The ordinary financial and trading transactions carried out between Group companies or with related parties are disclosed in the directors' report and in the notes to the Company’s and the consolidated financial statements. In particular, these related to a number of specific transactions including treasury management, the provision of loans and guarantees, the provision of professional and other services, and the management of common services, which are all carried out at arm’s length and are regulated by contractual agreements. The information obtained allowed us to confirm that the above transactions took place in accordance with the law and the Company’s articles of association and that they were undertaken in the interests of the Company and the Group. Commencing 2010, the Related Party Transactions policy was approved board of directors’ in accordance with Consob recommendations.
On the whole, the information provided by the directors in their report in accordance with article 2428 of the Italian Civil Code, in respect of the items illustrated at point 1) above, is considered sufficient to provide all of the required disclosures.
The independent auditors Reconta Ernst & Young SpA issued audit reports on 20 March 2015, in accordance with articles 14 and 16 of Legislative Decree 39 dated 27.1.2010, on the separate Company financial statements and the consolidated financial statements for the year ended 31 December 2014. These audit reports confirm that the Company’s and the consolidated financial statements for the year ended 31 December 2014 comply with the provisions relating to the preparation of financial statements, that they have been properly presented and that they give a true and fair view of the state of affairs and the result of operations for the year of the parent company Falck Renewables SpA and of the Falck Renewables SpA Group and that the directors’ report reflects the information disclosed in the financial statements.
page 215. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 11 Report of the board of statutory auditors to the annual general meeting
No petitions have been filed to date.
No petitions have been filed to date pursuant to article 2408 of the Italian Civil Code.
Reconta Ernst & Young SpA was appointed as the Company’s independent auditors for 2011-2019 at the AGM held on 6 May 2011. No issues regarding the independence of the auditors arose during the year, taking into consideration the regulatory and professional requirements that govern audit activities. Moreover the independent auditors confirmed that based on all available evidence it maintained its independence and objectivity in respect of Falck Renewables SpA and that there were no changes regarding the existence of reasons for incompatibility defined under article 160 of the Consolidated Finance Act and chapter I-bis of section IV of the listing rules. The independent auditors submitted the annual statement of independence pursuant to article 17, paragraph 9, letter a) of Legislative Decree 39/2010 on 20 March 2015.
Non-audit activities assigned to Reconta Ernst & Young and other members of the same network were published in a specific report by Reconta Ernst & Young issued on 20 March 2015; the related fees paid by Falck Renewables SpA amounted to Euro 165,198.
In the course of 2014, the board of statutory auditors did not issue any opinions prescribed by law.
The control activities described above were carried out in 2014 through the attendance by the board of statutory auditors at: 5 meetings of the board of statutory auditors; 1 shareholders’ meeting; 15 board of directors’ meetings; 2 executive committee meetings; 16 Risk Control Committee meetings; 12 Human Resources Committee meetings.
We have no particular observations to make regarding compliance with principles.
The board of statutory auditors has constantly updated its knowledge and verified the effectiveness of the Company’s organisation structure, comparing it with the corporate organisation charts approved and communicated to Consob, through information gathered from each area and meetings with the heads of the internal control function and the independent auditors. The current organisation structure, analysed by business unit and function, at present appears to be appropriate given the size of the Group and meets its operating requirements.
With regard to the adequacy of the System of Internal Controls the board of statutory auditors confirms that it: participated in the activities of the Risk Control Committee (RCC), attended where appropriate by the head of internal audit and the Risk manager, received regular reports from the head of internal audit regarding controls carried out; agreed the audit plan with the independent auditors; received information regarding the accounting standards adopted and the outcome of the audit activities from the Corporate Accounting Documents Officer and the independent auditors. The Board took note of the report issued by the head of internal audit to the Risk Control Committee regarding the adequacy of the internal control and risk management system in 2014. Falck Renewables SpA has for some time now adopted the Organisation and Operations Manual (the “Manual”) prepared in accordance with Legislative Decree 231/01, aimed at preventing the commission of illegal offences as defined in the decree, thus safeguarding the administrative responsibility of the Company. A Supervisory Board (SB) has been appointed in order to enforce implementation of the Manual. The SB carries out supervisory, control and other activities independently and is composed of two independent directors and the head of internal audit.
page 216. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 11 Report of the board of statutory auditors to the annual general meeting
We have no particular observations to report with regard to the adequacy of the administrative-accounting system and of its ability to present management activities fairly. Pursuant to Law 262/2005 (law on savings), a Corporate Accounting Documents Officer was appointed based on the proposal of the Internal Control Committee in agreement with the board of statutory auditors. A Group accounting manual and protocols and administrative-accounting procedures have been adopted regarding accounting closures, the preparation of the financial statements and reporting packages by subsidiaries. The Company maintains strict control over information from its subsidiaries in order to fulfil its regular communication requirements. The Corporate Accounting Documents Officer evaluates the administrative- accounting internal control system using tests performed by an independent third party. In accordance with Law 262/2005 the Company performed tests on the accounting closure and administrative procedures in general in order to confirm that the correct accounting data flows into the financial statements, documents and prospectuses.
An adequate flow of information between the parent company and its subsidiaries (also in relation to the communications covered by article 114.2 of Legislative Decree no. 58/1998) is ensured through specific instructions sent to the subsidiaries by parent company management. The Group coordination activities are also guaranteed by the presence on the corporate bodies of the main subsidiaries of directors and members of top management of the parent company. In accordance with article 2497 bis of the Italian Civil Code, it is noted that Falck Renewables SpA is subject to direction and coordination activities by Falck SpA in the form of strategic directives, while the Company and its corporate bodies still maintain operating independence. Falck Renewables SpA performs direction and coordination activities in respect of its subsidiaries. We have no specific matters to note regarding the exchange of information with the boards of statutory auditors of the subsidiaries.
No significant matters emerged, which require specific mention, during the regular meetings between the statutory auditors and the independent auditors, held in accordance with article 150.2 of Legislative Decree no. 58/1998.
The Company has adopted the Code of Self Discipline for listed companies. We note that the directors’ report makes specific mention to the annual corporate governance report prepared in accordance with article 123 bis of the TUF, to which reference should be made. The statutory auditors confirm in their report that the disclosures pursuant to article 123 bis, paragraph 1 letters c), d), f), l) m) and paragraph 2, letter b) of Legislative Decree 58/98 comply with legislation. The board of statutory auditors confirmed that in the course of the year the board of directors carried out the independence requirement checks on its own non-executive members in compliance with article 3.C.1 of the Code of Self Discipline and the assessment criteria therein; the board of statutory auditors verified the correct application of the independence assessment criteria and procedures adopted by the board of directors and has no exceptions to note. The board of statutory auditors also verified the independence of its own board members through compliance with paragraph 10.C.2 of the Code of Self Discipline of Borsa Italiana. In 2010 the board of directors adopted the procedure regarding related party transactions prepared in accordance with article 2391 – bis of the Italian Civil Code and based on Consob ruling 17221 of 12 March 2010 and ensuing amendments and interpretations. The Board of Directors has delegated the responsibility for overseeing related party transactions to the CCR.
Our work was carried out in 2014 in the normal course of business and no omissions, censurable actions or other irregularities emerged from our work that require disclosure.
In relation to the work performed during the financial year, we do not have any observations to report under article 153.2 of Legislative Decree 58/1998 on the financial statements, their approval and on matters on which we are required to report. In addition, we have no observations to make regarding the board of directors proposed appropriation of profit for the year and the dividend distribution of Euro 0.062 per share.
page 217. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 11 Report of the board of statutory auditors to the annual general meeting
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Pursuant to article 144 – quinquiesdecies of the Listing Rules, approved by Consob in ruling 11971/99 and ensuing amendments, the list of offices held by the board of statutory auditors in companies listed in Book V, Chapter V, Headings V, VI and VII of the Italian Civil Code, is published by Consob on its website (www.consob.it).
Milan, 24 March 2015
The board of statutory auditors
Massimo Scarpelli - Chairman
Giovanna Conca - Statutory auditor
Alberto Giussani – Statutory auditor
page 218.
12. Independent auditors’ reports
FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 12 Independent auditors’ reports
page 220. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 12 Independent auditors’ reports
page 221. FALCK RENEWABLES SpA – Annual report for the year ended 31 December 2014 12 Independent auditors’ reports
page 222.