2018 FINANCIAL STATEMENTS OF ACEA SPA ACEA GROUP CONSOLIDATED FINANCIAL STATEMENTS 2018 FINANCIAL STATEMENTS OF ACEA SPA ACEA GROUP CONSOLIDATED FINANCIAL STATEMENTS INDEX LETTER TO SHAREHOLDERS 4 ACEA YESTERDAY, TODAY AND TOMORROW 6 GROUP STRUCTURE 8 INVESTOR RELATIONS 9 HIGHLIGHTS 10 THE ORGANISATIONAL MODEL 12 THE ACEA BUSINESS MODEL 14 REPORT ON OPERATIONS Corporate bodies 18 Summary of Results 19 Summary of operations and income, equity and financial performance of the Group 21 Summary of Results: performance of economic results 22 Reference context 29 Trend of operating segments 45 Significant facts occurring during the reporting period 69 Significant events occurring after the end of the financial year 69 Main risks and uncertainties 70 Operating (and Financial) Outlook 75 Resolutions regarding the result for the year and the distribution to Shareholders 76 ACEA FINANCIAL STATEMENTS Form and structure 80 Accounting Standards and Measurement Criteria 81 Accounting Standards, Amendments, 86 Interpretations and Improvements Applied as of 1 January 2018 Accounting Standards, Amendments and Interpretations Applicable after the end 88 of the Financial Year and not adopted earlier Income statement 90 Statement of Comprehensive Income 90 Statement of Financial Position 91 Statement of Changes in Equity as at 31 December 2017 92 Statement of Changes in Equity as at 31 December 2018 93 2 ACEA GROUP / CONSOLIDATED FINANCIAL STATEMENTS 2018 Statement of cash flow 94 Notes to the Income Statement 95 Notes to the Balance Sheet - Assets 101 Notes to the Balance Sheet - Liabilities 109 Information on Related Parties 116 Update on Major Disputes and Litigation 119 Additional Information on Financial Instruments and Risk Management Policies 122 Commitments and Contingencies 125 Resolutions regarding the result for the year and the distribution to Shareholders 125 Annexes to the Explanatory Notes of which they form an integral part 126 Report of the Board of Statutory Auditors to the Shareholders Meeting 132 Independent Auditor’s Report 144 Certification of separate financial statements in accordance 151 with art. 154-bis of Legislative Decree 58/98 CONSOLIDATED FINANCIAL STATEMENTS Form and structure 154 Consolidation Policies, Procedures and Scope 155 Basis of Consolidation 157 Accounting Standards and Measurement Criteria 158 Consolidated Income Statement 168 Consolidated Statement of Comprehensive Income 169 Consolidated Statement of Financial Position 170 Consolidated Statement of Cash flows 171 Statement of changes in consolidated equity 172 Notes to the Consolidated Income Statement 173 Notes To The Consolidated Statement Of Financial Position 183 Commitments and Contingencies 202 Service Concession Arrange 203 Related party transactions 214 Update on major disputes and litigation 216 Additional Information on Financial Instruments and Risk Management Policies 224 Annexes 230 Independent Auditor’s Report 244 Certification of consolidated financial statements in accordance 256 with art. 154-bis of Legislative Decree 58/98 Report on Corporate Governance and on the ownership structure 258 INDEX 3 LETTER TO SHAREHOLDERS DEAR SHAREHOLDERS, The fiscal year that ended 31 December 2018 consisted of a series to 2017). Investments recorded a significant increase (+ 19%) com- of events that make it possible to see 2018 as a tangible turning pared to 2017 of € 631 million (€ 532 million in 2017), of which ap- point. First of all at an industrial level thanks to the impetus given by proximately 88% focused on regulated activities. The breakdown the operating areas and based on values like innovation, technolog- shows the Water sector with € 330 million and the Energy Infra- ical development and sustainability, which have long since become structures segment with € 238 million. The other segments and the essential, cutting across all processes at a Group level. A plan that Parent Company followed with substantially lower numbers. is in line with the multi-utility model with a strong industrial orien- The Group’s net financial debt recorded an overall increase mainly tation that the Acea Group intended to relaunch starting from the due to investments of € 147 million, the overall total going from € elaboration of the new and demanding 2018-2022 Business Plan 2,421 million at the end of 2017 to € 2,568 million at 31 Decem- in the second half of 2017. ber 2018, and was reduced by € 63 million compared to 30 Sep- The plan turned out not only to be possible but even revised upwards tember 2018 due to an increase in working capital. The ratio be- in terms of its objectives, as demonstrated both by the repeated re- tween net financial debt and EBITDA is 2.8x, an improvement visions in the guidance given during 2018 and the need to present compared to 2.9x in 2017. the financial community with a substantial update of this plan well To verify continuity and consistency in the management of your ahead of schedule, with goals that are even more challenging. Company in the early months of 2019, we note that 2019 guid- This result was made possible by the expertise and commitment of ance forecasts further growth compared to 2018, indicating that management and each employee, together with the Chairwoman with the same range of activities EBITDA will increase between 5% Michaela Castelli and the Board of Directors, with the support of and 6%, investments more than 10% and net financial debt at the Shareholders and Stakeholders. end of the year will be between € 2.85 billion and € 2.95 billion. Building on this foundation the economic and financial side of the As mentioned, 2018 was the year we launched a particularly chal- business saw extraordinarily positive financial statements with a lenging Business Plan that generated an acceleration in Acea Group net profit that is 50% higher than 2017 and distribution of a Group’s most strategic projects and processes, in constant align- € 0.71 dividend, and the crucial customer service side saw consid- ment with both the more general scenario of reference and with erable improvement even in historically critical areas. more specific scenarios linked to the core business. But it was al- 2018 also stood out for the acceleration of the construction of the so a year of consolidation and building on what was started in the Peschiera Aqueduct’s second line in order to meet Rome’s water second half of 2017 in order to pursue levels of excellence both needs, pursued by Acea with determination and attention to main- in terms of overall compliance to ensure the engagement of all tain a harmonious relationship with local communities. employees, and with respect to the main issues that a multi-util- Focusing on the results achieved by the Group in 2018, the figure for ity like Acea is called to manage, like innovation, sustainability, consolidated net revenues is detailed, which, amounting to € 3,028 the market, the public and the local community – and of course million, shows an increase of € 231 million (+ 8%) compared to 2017, its own people. It is important to underline the impetus given to and particularly worthy of note is the growth of consolidated EBIT- the two pillars of Innovation and Sustainability referenced in the DA which amounted to € 933 million (+ 11%), mainly due to the 2018-2022 Business Plan, both critical for all of the Group’s in- contribution of the water and electricity distribution and generation dustrial and non-industrial activities. sectors and, to a lesser extent, by the Environment, Engineering and With regard to Sustainability, we remind you that from 2018 it is Services and Overseas segments. More in detail, the performance of mandatory for major listed companies to produce a Non-Finan- the Water segment was influenced by the results of Acea Ato 2 and cial Statement relating to the previous year, which for the Acea Acea Ato 5, which recorded increases of € 50 million and € 4 mil- Group is essentially the Sustainability Report, this year in its 21st lion respectively, in addition to the greater contribution of the con- edition. So once again in 2018 a tool has been made available to solidated water companies to shareholders’ equity for € 16 million, provide a significant amount of information relating to the activ- specifying that Gori was fully consolidated on 8 November 2018 and ities carried out by the Group’s Companies and their impacts, contributed € 12 million to EBITDA. classified according to GRI (the most common reporting stand- The Group’s net result amounted to € 271 million (+ 50% compared ard) to ensure understanding. 4 ACEA GROUP / CONSOLIDATED FINANCIAL STATEMENTS 2018 Some significant events took place in 2018 that are worth noting levied jointly and severally against Acea, Acea Energia and areti for here. These include the agreement stipulated by Acea and Open abuse of a dominant position in the electricity market, which the Fiber for the development of a broadband communications net- Acea Group will challenge with all legal remedies available to it. work and the implementation of innovative services for the city of Considering that in 2018 the Acea Group beat all forecasts as Rome; the placement of bond issues for € 1 billion exclusively for presented here, one can envisage a continuation of this same institutional investors of the Euromarket, which received requests success in 2019. equal to more than 2.5 times the amount of the Bonds ofered The Group will continue to make major investments in infrastruc- (Fitch Ratings and Moody’s assigned a rating BBB+ and Baa2 re- ture, generating an immediate positive impact on performance, spectively, in line with Acea); the Memorandum of Understanding EBITDA and invoicing and collection processes without afecting (MoU) signed by Acea and Huawei Italia for the definition of high the soundness of the financial structure. value technological projects; the 100% acquisition of Bioecologia Indeed, the Group’s financial structure will remain solid for many S.r.l. involved in the purification, treatment and intermediation of years to come.