4.1 Application of “IFRS 16 - Leases”
Transition disclosures
The Group adopted “IFRS 16 - Leases” using the modified retrospective method, with the date of initial application on January 1, 2019; under this method, the standard is applied retrospectively with the cumulative effect of initial applying IFRS 16 recognized at the date of initial application. Accordingly, the comparative information (for year 2018) has not been restated and it is presented, as previously reported, under IAS 17 and related Interpretations. Additionally, the disclosure requirements in IFRS 16 have not been applied to comparative information.
On transition to IFRS 16, the Group elected to use the transition practical expedient to not reassess whether a contract is, or contains, a lease, at January 1, 2019. Therefore, the Group applied the standard only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application.
At transition, the Group:
- did not change the carrying amounts of recognized assets and liabilities at the date of initial application for leases previously classified as finance leases under IAS 17;
- recognized right-of-use assets and lease liabilities for those leases previously classified as an operating lease applying IAS 17, except for leases of low-value assets, whose amount is considered not material, for which is not required to make any adjustments on transition. The Group mainly recognized a right-of-use asset at the date of initial application in an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the balance sheet immediately before the date of initial application. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate of the Group’s lessee entity as of January 1, 2019.
The Group used the following practical expedients when applying IFRS 16 to leases previously classified as an operating lease under IAS 17:
- relied on its assessment of whether leases are onerous applying IAS 37 immediately before the date of initial application and adjusted the right-of-use asset at the date of initial application by the amount of any provision for onerous leases recognized immediately before the date of initial application;
- applied the short-term leases exemption to leases with lease terms ending within 12 months of the date of initial application;
- applied the low-value assets exemption for contracts whose amounts are considered not material;
- used hindsight, particularly to determine the lease term for contracts that contain options to extend or terminate a lease.
IFRS 16 affects substantially all of the Group entities that act as a lessee. The most significant cases affected by the new provisions of IFRS 16 regard the right-of-use in respect of buildings, ground rights of renewable energy plants, cars and other means of transportation (such as shipping) and other technical machinery.
The Group is not required to make any adjustments on transition for leases in which it acts as a lessor.
Millions of euro | ||||
ASSETS | at Dec. 31, 2018 | IFRS 16 effect | at Jan. 1, 2019 | |
Non-current assets | ||||
Property, plant and equipment | 76,631 | 1,370 | 78,001 | |
Investment property | 135 | - | 135 | |
intangible assets | 19,014 | - | 19,014 | |
Goodwill | 14,273 | - | 14,273 | |
Deferred tax assets | 8,305 | - | 8,305 | |
Equity investments accounted for using the equity method | 2,099 | - | 2,099 | |
Derivatives | 1,005 | - | 1,005 | |
Non-current contract assets | 346 | - | 346 | |
Other non-current financial assets | 5,769 | - | 5,769 | |
Other non-current assets | 1,272 | - | 1,272 | |
[Total] | 128,849 | 1,370 | 130,219 | |
Current assets | ||||
Inventories | 2,818 | - | 2,818 | |
Trade receivables | 13,587 | - | 13,587 | |
Current contract assets | 135 | - | 135 | |
Income tax credits | 660 | - | 660 | |
Derivatives | 3,914 | - | 3,914 | |
Other current financial assets | 5,160 | - | 5,160 | |
Other current assets | 2,983 | - | 2,983 | |
Cash and cash equivalents | 6,630 | - | 6,630 | |
[Total] | 35,887 | - | 35,887 | |
Assets classified as held for sale | 688 | 2 | 690 | |
TOTAL ASSETS | 165,424 | 1,372 | 166,796 |
Millions of euro | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | at Dec. 31, 2018 | IFRS 16 effect | at Jan. 1, 2019 | |
Equity attributable to the shareholders of the Parent Company | ||||
Share capital | 10,167 | - | 10,167 | |
Other reserves | 1,700 | - | 1,700 | |
Retained earnings/loss carried forward | 19,853 | - | 19,853 | |
[Total] | 31,720 | - | 31,720 | |
Non-controlling interests | 16,132 | - | 16,132 | |
Total shareholders’ equity | 47,852 | - | 47,852 | |
Non-current liabilities | ||||
Long-term borrowings | 48,983 | 1,311 | 50,294 | |
Employee benefits | 3,187 | - | 3,187 | |
Provisions for risks and charges - non-current portion | 5,181 | - | 5,181 | |
Deferred tax liabilities | 8,650 | - | 8,650 | |
Derivatives | 2,609 | - | 2,609 | |
Non-current contract liabilities | 6,306 | - | 6,306 | |
Other non-current liabilities | 1,901 | - | 1,901 | |
[Total] | 76,817 | 1,311 | 78,128 | |
Current liabilities | ||||
Short-term borrowings | 3,616 | - | 3,616 | |
Current portion of long-term borrowings | 3,367 | 59 | 3,426 | |
Provisions for risks and charges - current portion | 1,312 | - | 1,312 | |
Trade payables | 13,387 | - | 13,387 | |
Income tax payable | 333 | - | 333 | |
Derivatives | 4,343 | - | 4,343 | |
Current contract liabilities | 1,095 | - | 1,095 | |
Other current financial liabilities | 788 | - | 788 | |
Other current liabilities | 12,107 | - | 12,107 | |
[Total] | 40,348 | 59 | 40,407 | |
Liabilities included in disposal groups classified as held for sale | 407 | 2 | 409 | |
Total liabilities | 117,572 | 1,372 | 118,944 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 165,424 | 1,372 | 166,796 |
Millions of euro | 2019 |
IFRS 16 effect | |
Total costs (1) | (21) |
Operating income | 21 |
Financial expense | 54 |
Income before taxes | (33) |
Income taxes | (9) |
Net income for the period (shareholders of the Parent Company and non-controlling interests) | (24) |
The figure reflects a decrease of €224 million in costs for services, leases and rentals and an increase of €203 million in depreciation and amortization.
IFRS 16 reconciliation
Millions of euro | |
Minimum payments due in respect of operating leases at Dec. 31, 2018 | 2,441 |
(Discounting effect) | (1,051) |
(Low-value lease exemption) | (1) |
(Shot-term lease exemption) | (19) |
Finance lease liabilities at Dec. 31, 2018 | 657 |
Payments due in respect of leases for renewal periods not included in operating lease commitments at Dec. 31, 2018 | - |
Lease liabilities at Jan. 1, 2019 | 2,027 |
4.2 Argentina - Hyperinflationary economy: impact of the application of IAS 29
As from July 1, 2018, the Argentine economy has been considered hyperinflationary based on the criteria established by “IAS 29 - Financial Reporting in Hyperinflationary Economies”. This designation is determined following an assessment of a series of qualitative and quantitative circumstances, including the presence of a cumulative inflation rate of more than 100% over the previous three years.
For the purposes of preparing the consolidated financial statements and in accordance with IAS 29, certain items of the balance sheets of the investees in Argentina have been remeasured by applying the general consumer price index to historical data in order to reflect changes in the purchasing power of the Argentine peso at the reporting date for those companies.
Bearing in mind that the Enel Group acquired control of the Argentine companies on June 25, 2009, the remeasurement of the non-monetary balance-sheet figures was conducted by applying the inflation indices starting from that date. In addition to being already reflected in the opening balance sheet, the accounting effects of that remeasurement also include changes during the period. More specifically, the effect of the remeasurement of non-monetary items, the components of equity and the components of the income statement recognized in 2019 was recognized in a specific line of the income statement under financial income and expense. The associated tax effect was recognized in taxes for the period.
In order to also take account of the impact of hyperinflation on the exchange rate of the local currency, the income statement balances expressed in the hyperinflationary currency have been translated into the Group’s presentation currency (euro) applying, in accordance with IAS 21, the closing exchange rate rather than the average rate for the period in order to adjust these amounts to current values.
The cumulative changes in the general price indices at December 31, 2018 and December 31, 2019 are shown in the following table:
Periods | Cumulative change in general consumer price index |
From July 1, 2009 to December 31, 2018 | 346.30% |
From January 1, 2019 to December 31, 2019 | 54.46% |
In 2019, the application of IAS 29 generated net financial income (gross of tax) of €95 million.
The following tables report the effects of IAS 29 on the balance at December 31, 2019 and the impact of hyperinflation on the main income statement items for 2019, differentiating between that concerning the revaluation on the basis of the general consumer price index and that due to the application of the closing exchange rate rather than the average exchange rate for the period in accordance with the provisions of IAS 21 for hyperinflationary economies.
Millions of euro | ||||
Cumulative hyperinflation effect at Dec. 31, 2018 | Hyperinflation effect for the period | Exchange differences | Cumulative hyperinflation effect at Dec. 31, 2019 | |
Total assets | 765 | 368 | (276) | 857 |
Total liabilities | 197 | 38 | (71) | 164 |
Shareholders’ equity | 568 | 330(1) | (205) | 693 |
(1) The figure includes net income for 2019, equal to €56 million.
Millions of euro | |||||
IAS 29 effect | IAS 21 effect | Total effect | |||
Revenue | 297 | (325) | (28) | ||
Costs | 306 | (1) | (236) | (2) | 70 |
Operating income | (9) | (89) | (98) | ||
Net financial income/(expense) | (4) | (17) | (21) | ||
Net income/(expense) from hyperinflation | 95 | - | 95 | ||
Income before taxes | 82 | (106) | (24) | ||
Income taxes | 26 | (18) | 8 | ||
Net income for the year (shareholders of the Parent Company and non-controlling interests) | 56 | (88) | (32) | ||
Attributable to shareholders of the Parent Company | 39 | (32) | 7 | ||
Attributable to non-controlling interests | 17 | (56) | (39) |
(1) Includes impact on depreciation, amortization and impairment losses of €85 million.
(2) Includes impact on depreciation, amortization and impairment losses of €(16) million.
4.3 Application of IFRIC agenda decision on transactions on non-financial items with physical delivery within “IFRS 9 - Financial instruments”
Transition disclosures
In its Agenda Decision of March 2019, the IFRS Interpretations Committee (IFRIC) clarified the proper recognition of contracts entered into to buy or sell fixed-price non-financial items, accounted for at fair value through profit or loss under IFRS 9 and physically settled, including energy commodities.
Based on that measure, the Group changed its accounting policy for the year ended December 31, 2019, with no impact on net income or equity.
Past practice was based on the recognition in:
- “Net income/(expense) from commodity contracts measured at fair value” of changes in the fair value of outstanding derivatives as well as of the effects in profit or loss, at the settlement date, of the derecognition of derivative assets/liabilities deriving from the fair value measurement of those contracts;
- “Revenue from sales and services” and “Electricity, gas and fuel purchases” of revenue and costs on the settlement date.
The current treatment of such contracts for non-financial items that do not meet the requirements for the own use exemption envisages recognition:
- under “Revenue” of changes in fair value on outstanding sale contracts as well as, at the settlement date, of the revenue together with the effects in profit or loss from the derecognition of assets/liabilities deriving from the fair value measurement of those contracts;
- under “Costs”:
- of changes in fair value on outstanding purchase contracts; and
- at the settlement date, of the associated purchase costs as well as the effects in profit or loss from derecognition of assets/liabilities deriving from the fair value measurement of those contracts.
Consequently the income statement line “Net income/(expense) from commodity contracts measured at fair value” has been renamed as “Net income/(expense) from commodity risk management”, which currently includes only changes in fair value and settlement effects of energy commodity derivatives without physical settlement.
Impact on the income statement
Millions of euro | Notes | |||
2018 | Effect of IFRIC application | 2018 | ||
Revenue | ||||
Revenue from sales and services | 8.a | 73,134 | (97) | 73,037 |
Other income | 8.b | 2,538 | - | 2,538 |
[Subtotal] | 75,672 | (97) | 75,575 | |
- | ||||
Costs | - | |||
Electricity, gas and fuel purchases | 9.a | 35,728 | 1,536 | 37,264 |
Services and other materials | 9.b | 18,870 | (464) | 18,406 |
Personnel | 9.c | 4,581 | - | 4,581 |
Net impairment/(reversals) of trade receivables and other receivables | 9.d | 1,096 | - | 1,096 |
Other operating expenses | 9.f | 2,889 | (1,120) | 1,769 |
Capitalized costs | 9.g | (2,264) | - | (2,264) |
| [Subtotal] | 66,255 | (48) | 66,207 |
Net income/(expense) from commodity risk management | 10 | 483 | 49 | 532 |
Operating income | 9,900 | - | 9,900 | |
Financial income from derivatives | 11 | 1,993 | - | 1,993 |
Other financial income | 12 | 1,715 | - | 1,715 |
Financial expense from derivatives | 11 | 1,532 | - | 1,532 |
Other financial expense | 12 | 4,392 | - | 4,392 |
Net income/(expense) from hyperinflation | 168 | - | 168 | |
Share of income/(losses) of equity investments accounted for using the equity method | 13 | 349 | - | 349 |
Income before taxes | 8,201 | - | 8,201 | |
Income taxes | 14 | 1,851 | - | 1,851 |
Net income from continuing operations | 6,350 | - | 6,350 | |
Net income from discontinued operations | - | - | - | |
Net income for the year (shareholders of the Parent Company and non-controlling interests) | 6,350 | - | 6,350 | |
Attributable to shareholders of the Parent Company | 4,789 | - | 4,789 | |
Attributable to non-controlling interests | 1,561 | - | 1,561 | |
Basic earnings/(loss) per share attributable to shareholders of the Parent Company (euro) | 0.47 | - | 0.47 | |
Diluted earnings/(loss) per share attributable to shareholders of the Parent Company (euro) | 0.47 | - | 0.47 | |
Basic earnings/(loss) per share from continuing operations attributable to shareholders of the Parent Company (euro) | 0.47 | - | 0.47 | |
Diluted earnings/(loss) per share from continuing operations attributable to shareholders of the Parent Company (euro) | 0.47 | - | 0.47 |
With regard to the details in notes 8 and 9 on revenue and costs, respectively, the following tables give a breakdown of the effects of the application of the interpretation on contracts in commodities with physical delivery that fall within the scope of IFRS 9:
Millions of euro | Notes | |||
2018 | Effect of IFRIC application | 2019 | ||
Revenue from sales and services | ||||
Sale of electricity | 8.a | 43,110 | (3,832) | 39,278 |
Sale of fuels | 8.a | 8,556 | (7,637) | 919 |
Sale of environmental certificates | 8.a | 497 | (461) | 36 |
Sale of energy commodities under contracts with physical delivery (IFRS 9) | 8.a | - | 13,843 | 13,843 |
Gain (loss) on derivatives on sale of commodities with physical delivery | 8.a | - | (2,010) | (2,010) |
Total | 52,163 | (97) | 52,066 |
Millions of euro | Notes | |||
2018 | Effect of IFRIC application | 2019 | ||
Purchase of electricity, gas and fuel | ||||
Electricity | 9.a | 19,584 | 218 | 19,802 |
Gas | 9.a | 12,944 | 1,318 | 14,262 |
Total | 32,528 | 1,536 | 34,064 | |
Other materials | 9.b | 2,375 | (464) | 1,911 |
Other operating expenses | ||||
Gain/(Loss) on derivatives on sale of commodities with physical delivery | 9.f | - | (1,120) | (1,120) |
Total | 34,903 | (48) | 34,855 | |
Net income/(expense) from commodity risk management | 10 | 483 | 49 | 532 |
Total impact of IFRIC application on profit or loss | - | - | - |