4. Changes in accounting policies and disclosures

 

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

 

-

-

-