Summary of Results: performance of economic results

At 31 December 2019, changes in the scope of consolidation took place compared to 31 December 2018. Specifically:

• on 18 March 2019 Acea acquired 51% of the company Pescara Distribuzione Gas;
• on 30 April 2019, the companies Acea Solar and Acea Sun Capital were established; the latter includes the acquisitions of photovoltaic plants for a total of 28 MWp made during the second half of 2019 through the acquisition of controlling interests in 13 companies;
• on 4 July 2019 Acea Ambiente acquired 90% of Demap, a company operating in Piedmont in the field of plastics recycling, and on 18 October acquired 60% of Berg, a waste management company in the Municipality of Frosinone;
• on 25 June 2019 Acea SpA set up the company Acea Innovation, operating in the field of Technological Innovation;
• with effect from 7 October 2019, AdF is fully consolidated following the amendment of the shareholders' agreements that allowed Acea to exercise control over the company in accordance with IFRS 10.

Finally, with regard to 2018, please note that:

• Gori was consolidated on a line-by-line basis on 8 November 2018 following the amendment of the agreements with the Campania Region that gave Acea control over the company in accordance with IFRS 10. Therefore, Gori's income statement at 31 December 2018 contains the equity valuation until 8 November and the remaining part of the year is consolidated on a line-by-line basis;
• On 29 November 2018, Acea Ambiente acquired 100% of Bioecologia, a company operating in Tuscany in the field of liquid and solid waste treatment. Therefore the company's income statement as at 31 December 2018 only contains the consolidation for the month of December 2018;
• Acea Peru, incorporated on 28 June 2018, is 90% owned by Acea International and the remaining 10% by Acea Dominicana, and on 5 July 2018 Consorcio Servicios Sur was acquired, 50% owned by Acea International and 1% by Acea Ato 2.

For more details, see the paragraph "Criteria, procedures and area of consolidation".

The table below shows the impact of the change in the scope of consolidation at 31 December 2019.

Revenue from sales and services amounted to € 3.0 billion, an increase of € 185.3 million

As at 31 December 2019, revenues from sales and services come to € 3,022.2 million, up € 185.3 million (+ 6.5%) on those of 2018, mostly due to the increase in revenues from the increase in revenues from the integrated water service (+ € 220.5 million). This change is mainly due to: i) Gori for € 167.1 million; ii) AdF for € 25.7 million (in 2018 the Company was consolidated using the equity method); iii) Acea Ato 2 (+ € 21.5 million) mainly due to the tariff increase determined by ARERA Resolution 918/2017 following the two-year update of the 2018-2019 tariff and the increase in the premium for contract quality compared with the previous year (+ € 2.2 million).

Also contributing to the change in revenues from sales and services: i) the increase in revenues from waste transfer and landfill management (+ € 15.3 million) mainly due to the price effect and the consolidation of Bioecologia for € 3.6 million; ii) the increase in revenues from gas sales for € 19.8 million mainly due to Acea Energia (+ 11.5 million sm³ compared to 2018) and the consolidation of Pescara Gas for € 5.0 million; iii) the higher revenues of foreign companies due to the acquisition of Consorcio CSUR (+ € 5.6 million) and the better performance of Aguas de San Pedro which recorded higher revenues for € 4.4 million.

These increases were partially offset by the reduction in revenues from the sale of electricity of € 73.6 million, as a result of the RCV review of the margin as well as the value recognised for the mechanism for compensating for arrears, provided for in Resolution 706/2018 ARERA. This item includes the higher revenues from the sale of photovoltaic energy deriving from the new companies acquired, for a total of € 4.7 million. These revenues represent the incentive contribution recognised by the GSE for the production of energy from photovoltaic plants. The installed capacity of the newly acquired plants amounts to a total of 28 MWp. 

Other revenues amounting to € 163.9 million 

Other revenues show a decrease of € 27.7 million (- 14.4%) compared to the previous year. The changes are due to a number of items with an opposing sign:
1. from the reduction of € 18.1 million in the contributions accrued on white certificates (TEE) in portfolio. Revenues from TEEs are offset by the costs incurred to purchase them;
2. from the reduction of € 34.0 million in out-of-period income from previous years’ items;
3. from the recognition of the amount of € 16.2 million for the total cancellation of the administrative fine imposed by the AGCM and served on 8 January 2019, following the appeal filed by Acea with the Lazio Regional Administrative Court;
4. from the revenues from the “Open Fiber” agreement for the construction of infrastructure on the network and the laying of optical fibre (+ € 6.3 million). 

External costs for €1.9 billion, up € 17.5 million on 31 December 2018

This item shows an overall increase of € 17.5 million (+ 0.9%) compared to 31 December 2018. The change is due for € 100.0 million to the change in the scope of consolidation, of which € 76.6 million of Gori and the remainder mainly from the following effects:

• lower purchase costs of the white certificates by areti (- € 19.2 million) for the fulfilment of the regulatory obligation concerning energy efficiency;
• lower costs for use of leased assets, of which - € 11.4 million due to the application of IFRS 16 (see the section on "Effects deriving from the introduction of new accounting standards");
• lower out-of-period expenses for € 34.7 million of items related to previous years, in particular Acea Energia (- € 26.5 million).

It should be noted that other operating expenses at 31 December 2018 included € 16.2 million relating to the penalty imposed on Acea by the AGCM (for further information, please refer to the section on the Industrial, Commercial and Trading Segment in this report).

Personnel costs, net of the change in the scope of consolidation, decreased by - € 0.5 million

Labour costs increased by € 29.2 million compared to the previous year. The change in the scope of consolidation (+ € 29.7 million in total) is mainly related to the consolidation of Gori, which contributed an increase of € 23.0 million; the increase in capitalised costs was also mainly attributable to the consolidation of Gori for € 15.5 million. This was followed by the higher capitalisations of Acea Ato 2 for € 3.8 million and areti for € 7.9 million.

The average number of employees was 7,070 and increased by 599 compared to the previous year, mainly due to the effect of the change in the scope of consolidation. 

Non-financial investment income decreased by € 2.0 million

The income from non-financial equity investments represent the consolidated result according to the equity method included among the components forming the consolidated Gross Operating Profit of the strategic companies. The table below shows the financial results of the companies valued according to the equity method. It should be noted that these figures also include Gori's 2018 results up to 7 November 2018 (date of commencement of full consolidation) for € 2.6 million and the 2019 results of AdF consolidated according to the equity method up to 7 October 2019.

EBITDA at € 1,042.3 million up by 11.7%

BITDA rose from € 933.2 million in 2018 to € 1,042.3 million at 31 December 2019, recording an increase of € 109.1 million or 11.7%. The increase is mainly due to the water sector (+ € 72.0 million), of which € 69.1 million is due to the change in the scope of consolidation and the remaining part to tariff trends, followed, as regards the significant increase in margins, by the distribution and generation sectors (overall + € 31.2 million) resulting from the positive effect of the energy balance sheet for € 18.2 million and the equalising effects and improvement in the margin of the Public Lighting sector (+ € 7.3 million); the change in the scope of consolidation relating to the acquisition of the photovoltaic companies during the second half of 2019 weighs in at € 3.7 million. The Parent Company also improved its margins (+ € 29.4 million), as a result of the cancellation of the AGCM fine recorded under costs in the previous year (overall the positive effect of the change, € 32.3 million, derives from the recording of the cost in 2018 and the out-of-period income recorded in 2019). The margin of the Commercial and Trading Segment decreased by € 7.0 million due to the lower energy margin, mainly because of the reduction in tariffs and the revision of the mechanism for offsetting arrears. The Environment Segment recorded an overall decrease of € 13.6 million, mainly due to lower CIP 6 revenues of € 16.7 million. 

It should be noted that the first-time application of IFRS 16 affected the improvement in EBITDA for a total of € 11.4 million (for further details see the section "Effects of the introduction of new accounting standards").

EBIT of € 518.1 million (+8.3%)

EBIT increased by € 39.5 million compared to the year ended 31 December 2018. Details of the items affecting EBIT are presented below:

The increase in EBIT was mitigated by the increase in amortisation and depreciation (+ € 42.7 million compared with 2018) mainly due to the change in the scope of consolidation of € 38.9 million (of which € 20.7 million relating to Gori and € 3.7 million to AdF). The increase in amortisation and depreciation was also affected by the first application of the new international standard IFRS 16, which with effect from 1 January 2019, led to the recognition of rights of use of assets belonging to others (Right of use) as fixed assets under lease and amortised over the expected duration of the related contracts. The recognition of the portion of such amortisation and depreciation for 2019 amounts to € 10.7 million (for further details on this, see the section "Effects deriving from the introduction of new accounting standards"). 

Write-downs of receivables of € 9.4 million net of changes in the scope of consolidation decreased by € 17.7 million mainly due to the positive recognition of the effects of the issue on 27 December 2019 of Resolution 568/2019/R/EEL, which provides for the recovery of the portion relating to network tariffs similar to the model for the recognition of uncollected general system charges (- € 12.8 million refer to the provisions made by areas regarding the Gala matter) and lower provisions for the write-down of receivables of the Commercial and Trading Segment (- € 6.7 million). 

Provisions net of the release relating to Gori recorded in the previous year for € 44.2 million decreased by € 9.1 million mainly due to: i) lower tax and regulatory provisions for a total of € 8.7 million, ii) the release of € 4.4 million for the excess amount set aside in Acea Energia in previous years, mainly due to the multi-year adjustment session of the gas service for the years 2014-2017 (€ 3.8 million). These effects were partially offset by the higher provisions for other charges, in particular relating to Acea Ato 5 for € 4.5 million, set aside following the decisions that arose from the reconciliation between Optimal Territorial Area Authority No. 5 Southern Lazio Frosinone and Acea Ato 5. These costs represent portions of investments to be carried out without any tariff recognition, therefore they are fully borne by the Operator. For further information, see the details in the paragraph "Conciliation Board with AATO 5" included in the section "Significant events for the 2019 financial year".

Financial items increased by € 7.4 million

The result of financial operations shows net charges of € 90.3 million and an increase of € 7.4 million compared to 2018. It should be noted that the impact of discounting charges deriving from the application of IFRS 16 amounted to € 2.0 million (for further details see the section "Effects deriving from the introduction of new accounting standards").

At 31 December 2019, the average all-in cost of the Acea Group's debt stood at 2.15%, compared with 2.21% in the previous year.

Management of equity investments decreased by € 10.7 million

Management of equity investments decreased by € 10.7 million as a result of the recording in 2018 of income relating to the closure of the TWS Group's Business Combination, for € 8,902 thousand.

Tax rate of 28.6%, a reduction of 1.8 percentage points

The estimate of the fiscal charges amounted to € 123.2 million, compared to € 124.3 million for last year. The overall decrease of - € 1.1 million recorded in 2019 is mainly due to the effects of the recalculation of deferred taxes. The tax rate for 2019 was 28.6% (30.4% at 31 December 2018).

The Group's net result is up 4.7%

The net result attributable to the Group is € 283.7 million, and shows an increase of € 12.7 million with respect to the previous year.