Group performance

Group performance

Millions of euro

   
 

2019

2018

Change

Revenue

80,327

75,575

4,752

6.3%

Costs

61,890

59,756

2,134

3.6%

Net income/(expense) from commodity risk management

(733)

532

(1,265)

-

Gross operating margin

17,704

16,351

1,353

8.3%

Depreciation, amortization and impairment losses

10,826

6,451

4,375

67.8%

Operating income

6,878

9,900

(3,022)

-30.5%

Financial income

3,953

4,361

(408)

-9.4%

Financial expense

6,397

6,409

(12)

-0.2%

Total net financial income/(expense)

(2,444)

(2,048)

(396)

-19.3%

Share of income/(losses) from equity investments accounted

for using the equity method

(122)

349

(471)

-

Income before taxes

4,312

8,201

(3,889)

-47.4%

Income taxes

836

1,851

(1,015)

-54.8%

Net income from continuing operations

3,476

6,350

(2,874)

-45.3%

Net income from discontinued operations

-

-

-

-

Net income (Group and non-controlling interests)

3,476

6,350

(2,874)

-45.3%

Net income attributable to shareholders of Parent Company

2,174

4,789

(2,615)

-54.6%

Net income attributable to non-controlling interests

1,302

1,561

(259)

-16.6%

   

Revenue

Millions of euro

   
 

2019

2018

Change

Sale of electricity

40,045

39,278

767

2.0%

Transport of electricity

10,470

10,101

369

3.7%

Fees from network operators

866

1,012

(146)

-14.4%

Transfers from institutional market operators

1,625

1,711

(86)

-5.0%

Sale of gas

3,294

4,401

(1,107)

-25.2%

Transport of gas

617

576

41

7.1%

Sale of fuels

914

919

(5)

-0.5%

Fees for connection to electricity and gas networks

785

714

71

9.9%

Revenue from construction contracts

749

735

14

1.9%

Sale of commodities under contracts with physical delivery (IFRS 9)

16,294

11,833

4,461

37.7%

Other revenue

4,668

4,295

373

8.7%

Total

80,327

75,575

4,752

6.3%

The increase in revenue is largely attributable to the item “Sale of commodities under contracts with physical delivery” as a result of reclassifications with no impact on margins. The reclassifications were connected with the application of the IFRIC Agenda Decision of March 2019 to non-financial transactions with physical delivery measured at fair value in accordance with IFRS 9.
The additional increase in revenue is attributable to the positive performance of Infrastructure and Networks, in particular in Latin America, mainly due to the contribution of Enel Distribuição São Paulo in Brazil and the settlement of outstanding regulatory items in Argentina, and to Thermal Generation and Trading in Italy, reflecting in particular an increase in trading activities. These effects were only partially offset by lower revenue from on End-user Markets in Spain and Italy and by adverse exchange rate developments.

Other revenue recognized in 2019 included:

  • the gain on the sale of Mercure Srl, a special purpose vehicle to which Enel Produzione had previously transferred the Valle del Mercure biomass plant (€108 million); 
  • the negative goodwill (€181 million) deriving from the definitive allocation of the purchase price of (i) a number of companies sold by Enel Green Power North America Renewable Energy Partners LLC (€106 million) and (ii) Tradewind, which went from being an associate to a wholly-owned subsidiary (negative goodwill of €75 million); 
  • the gain of €42 million on the sale of Gratiot and Outlaw, two renewables projects developed by Tradewind; 
  • an increase in revenue in Argentina following the agreement between Edesur and local authorities settling reciprocal disputes originating in the period from 2006 to 2016 (€233 million); 
  • the reimbursement envisaged for the exercise of the right of withdrawal by a major industrial customer concerning the supply of electricity by Enel Generación Chile (€160 million), of which €80 million regarding thermal generation and the remaining €80 million concerning renewables generation; 
  • the adjustment of the price for the acquisition of eMotorWerks in 2017 following application of a number of contractual clauses (€98 million); 
  • the fee of €50 million from the agreement reached by e-distribuzione with F2i and 2i Rete Gas for the early all-inclusive settlement of the second indemnity connected with the disposal in 2009 of the interest held by e-distribuzione in Enel Rete Gas. 

In 2018, that item had mainly comprised:

  • the gain and the re-measurement at fair value totaling €190 million connected with the sale of eight companies involved in Project Kino in Mexico at the end of September 2018;
  • the indemnity of €128 million received in connection with the agreement of e-distribuzione for the sale of Enel Rete Gas in 2009;
  • the gain of €65 million on the sale of EF Solare Italia; 
  • the gain of €18 million on the sale of a number of renewables companies in Uruguay

Costs

Millions of euro

   
 

2019

2018

Change

Electricity purchases

20,449

19,802

647

3.3%

Consumption of fuel for electricity generation

4,228

4,920

(692)

-14.1%

Fuel for trading and gas for sale to end users

9,284

12,783

(3,499)

-27.4%

Materials

2,110

1,911

199

10.4%

Personnel

4,634

4,581

53

1.2%

Services, leases and rentals (1)

16,264

16,254

10

0.1%

Other operating expenses

7,276

1,769

5,507

-

Capitalized costs

(2,355)

(2,264)

(91)

-4.0%

Total

61,890

59,756

2,134

3.6%

(1) Of which costs for fixed water diversion fees of €171 million in 2019 (€167 million in 2018) and costs for public land usage fees of €26 million in 2019 (€24 million in 2018).

The increase in costs is mainly attributable to the application of the IFRIC Agenda Decision of March 2019 to non-financial transactions with physical delivery measured at fair value in accordance with IFRS 9, which involved reclassifications of income statement items with no impact on margins.
Please see the notes to the consolidated financial statements for more details on costs for the year.

Gross operating margin

The following table reports developments in the gross operating margin by business area:

Millions of euro

   
 

2019

2018

Change

Thermal Generation and Trading

1,395

1,117

278

24.9%

Enel Green Power

4,604

4,608

(4)

-0.1%

Infrastructure and Networks

8,278

7,539

739

9.8%

End-user Markets

3,287

3,079

208

6.8%

Enel X

158

124

34

27.4%

Services

126

85

41

48.2%

Other, eliminations and adjustments

(144)

(201)

57

28.4%

Total

17,704

16,351

1,353

8.3%

 

The rise in the gross operating margin despite adverse exchange rate developments (especially in Latin America) mainly reflects:

  • Infrastructure and Networks operations in Latin America (€496 million), mainly due to the change in the scope of consolidation with the acquisition of Enel Distribuição São Paulo, income from the agreement between Edesur and the Argentine government settling reciprocal disputes from the period from 2006 to 2016 and in Italy (€227 million), mainly due to a decrease in compliance costs connected with the purchase of energy efficiency certificates. In addition, in 2019 e-distribuzione recognized additional indemnities of €50 million connected with the disposal to F2i of Enel Rete Gas; in 2018 those indemnities had amounted to €128 million; 
  • Thermal Generation and Trading in Spain (€165 million) and Latin America (€173 million), due respectively to (i) the suspension of taxes on thermal and nuclear generation as well as an increase in the margin of nuclear plants, which made up the shortfall caused by the significant decrease in hydro output due to poor water conditions in 2019 and (ii) the improvement in margins posted by the Fortaleza plant in Brazil, mainly reflecting a decline in provisioning costs and the effect of the renegotiation of a supply contract between Enel Generación Chile and its customer Anglo American following payment of an indemnity of €80 million. In addition, writedowns totaling €308 million were recognized on inventories of spare parts and fuels held by coal-fired plants in Italy and Spain for which impairment losses were recognized. This was partially offset in Italy by the gain on the disposal of Mercure Srl by Enel Produzione, which net of transaction costs amounted to €94 million; 
  • End-user Markets in Latin America (€85 million), mainly due to the impact of the acquisition of Enel Distribuição São Paulo, and in Italy (€81 million), due to greater operating efficiency linked especially to lower electricity provisioning costs, which more than offset the decline in quantities sold; 
  • Enel X, thanks to the adjustment of the price for the acquisition of eMotorWerks in 2017, as noted for revenue (€98 million). 

The Enel Green Power Business Line posted a gross operating margin in line with the previous year, as the income recorded in North America for the negative goodwill following the purchase of a number of companies of Enel Green Power North America Renewable Energy Partners (EGPNA REP) and Tradewind, the capital gains from the sales of Gratiot and Outlaw and the higher average prices applied to electricity sales in Italy were essentially offset by the gains recorded in 2018 on the sale of a number of Mexican companies (Project Kino) and the sale of EF Solare Italia.

   Ordinary gross operating margin

Millions of euro

2019

 

Thermal Generation and Trading

Enel Green Power

Infrastructure and Networks

End-user Markets

Enel X

Services

Other, eliminations and adjustments

Total

Gross operating margin

1,395

4,604

8,278

3,287

158

126

(144)

17,704

Indemnity from disposal of interest in Enel Rete Gas

-

-

(50)

-

-

-

-

(50)

Adjustment to fair value of purchase price of a number of Greek companies

-

30

-

 

-

-

-

30

Writedown of fuel and spare parts inventories of a number of coal-fired plants in Italy and in Spain (1)

308

-

 

-

-

-

-

308

Writedown of Reftinskaya coal-fired plant in Russia

7

-

-

-

-

-

-

7

Disposal of interest in Mercure Srl

(94)

-

-

-

-

-

-

(94)

Ordinary gross operating margin

1,616

4,634

8,228

3,287

158

126

(144)

17,905

(1)The writedown of fuel and materials/spare parts inventories is not considered ordinary because it was connected with the impairment recognized for a number of coal-fired plants in Italy and Spain.

Millions of euro

2018

 

Thermal Generation and Trading

Enel Green Power

Infrastructure and Networks

End-user Markets

Enel X

Services

Other, eliminations and adjustments

Total

Gross operating margin

1,117

4,608

7,539

3,079

124

85

(201)

16,351

Indemnity from disposal of interest in Enel Rete Gas

-

-

(128)

-

-

-

-

(128)

Gain on sale of EF Solare Italia

-

(65)

-

-

-

-

-

(65)

Ordinary gross operating margin

1,117

4,543

7,411

3,079

124

85

(201)

16,158

         

Operating income

Millions of euro

   
 

2019

2018

Change

Thermal Generation and Trading

(3,494)

(118)

(3,376)

-

Enel Green Power

3,276

3,505

(229)

-6.5%

Infrastructure and Networks

5,277

4,787

490

10.2%

End-user Markets

2,163

1,958

205

10.5%

Enel X

(98)

19

(117)

-

Services

(75)

(38)

(37)

-97.4%

Other, eliminations and adjustments

(171)

(213)

42

19.7%

Total

6,878

9,900

(3,022)

-30.5%

The decrease in operating income reflected an increase in depreciation, amortization and impairment losses of €4,375 million, despite the improvement in the gross operating margin. The increase in depreciation, amortization and impairment losses reflected the writedowns in 2019 of a number of coal-fired plants in Italy, Spain, Chile and Russia, which led to the recognition of impairment losses totaling €4,010 million.
More specifically, in the 1st Half of 2019 two plants in Chile were written down by €356 million, reflecting in part the effect of the agreement with the Chilean government on their early closure, while in Russia writedowns reflected the sale of the Reftinskaya coal-fired plant, which at June 30, 2019 had been classified as held for sale and its value adjusted (€127 million) to take account of the sale price. In the 3rd Quarter of 2019, the adverse developments in conditions in Spain associated with the deterioration in commodity prices and the operation of the CO2 emission market, compromised the competitiveness of coal-fired plants. In Italy, in addition to the deterioration in market conditions, the implementation of the new system for remunerating generation capacity availability (the capacity market) narrowed the future scope for using plants with higher levels of CO2 emissions, providing for the exclusion of coal-fired plants from the electricity market. For these reasons, the carrying amount of a number of coal-fired plants in Italy and Spain, including dismantling charges, was written down by a total of €3,527 million.

The change in operating income also includes the depreciation charges on rights of use over leased assets, which as from January 1, 2019 are recognized as leased property, plant and equipment and depreciated over the term of the associated leases in application of IFRS 16 (€203 million), and the writedown of the receivable for the Funac by the Brazilian distribution company Enel Distribuição Goiás in the amount of €96 million.

These factors were partly offset by the writeback of €265 million recognized in respect of gas-fired plants in Italy following impairment testing.

Ordinary operating income

Millions of euro

2019

 

Thermal Generation and Trading

Enel Green Power

Infrastructure and Networks

End-user Markets

Enel X

Services

Other, eliminations and adjustments

Total

Operating income

(3,494)

3,276

5,277

2,163

(98)

(75)

(171)

6,878

Indemnity from disposal of interest in Enel Rete Gas

-

-

(50)

-

-

-

-

(50)

Disposal of interest in Mercure Srl

(94)

-

-

-

-

-

-

(94)

Writedown of fuel and spare parts inventories of a number of coal-fired plants in Italy and in Spain (1)

308

-

-

-

-

-

-

308

Writedown of a number of coal-fired plants in Italy

1,936

-

-

-

-

-

-

1,936

Writedown of a number of coal-fired plants in Spain

1,591

-

-

-

-

-

-

1,591

Revaluation of a number of gas-fired plants in Italy

(265)

-

-

-

-

-

-

(265)

Writedown of a number of coal-fired plants in Chile

356

-

-

-

-

-

-

356

Writedown of Reftinskaya coal-fired plant in Russia

134

-

-

-

-

-

-

134

Writedown of a number of renewables projects in Italy and North America

-

70

-

-

-

-

-

70

Writedown of Funac receivable of Enel Distribuição Goiás

-

-

96

-

-

-

-

96

Writedown of certain intangible assets of Enel X North America

-

-

-

-

77

-

-

77

Writedown of certain assets of Enel Italia

-

-

-

-

-

29

-

29

Adjustment of purchase price of a number of Greek companies

-

30

-

-

-

-

-

30

Ordinary operating income

472

3,376

5,323

2,163

(21)

(46)

(171)

11,096

(1) The writedown of fuel and materials/spare parts inventories is not considered ordinary because it was connected with the impairment recognized for a number of coal-fired plants in Italy and Spain.

Millions of euro

2018

 

Thermal Generation and Trading

Enel Green Power

Infrastructure and Networks

End-user Markets

Enel X

Services

Other, eliminations and adjustments

Total

Operating income

(118)

3,505

4,787

1,958

19

(38)

(213)

9,900

Indemnity from disposal of Enel Rete Gas

-

-

(128)

-

-

-

-

(128)

Gain on sale of EF Solare Italia

-

(65)

-

-

-

-

-

(65)

Writedown of Alcúdia plant (Spain)

82

-

-

-

-

-

-

82

Reversal of impairment on EGP Hellas CGU and impairment of wind projects (Cyclades islands)

-

(117)

-

-

-

-

-

(117)

Writedown of Nuove Energie CGU

27

-

-

-

-

-

-

27

Net writedown of biomass and solar plants in Italy

-

94

-

-

-

-

-

94

Ordinary operating income

(9)

3,417

4,659

1,958

19

(38)

(213)

9,793


 

Group net income

Group net income for 2019 amounted to €2,174 million, compared with €4,789 million the previous year. The decrease in operating income discussed above was accompanied by:

  • the effects of the repurchase in March 2019 of control of 13 companies from EGPNA REP, which led to a change in the scope of consolidation and the recognition of a capital loss by EGPNA REP; 
  • the recognition in 2018 of (i) the reversal of impairment of the financial receivable arising following the sale of 50% of Slovak Power Holding for €186 million and (ii) the positive adjustment of the fair value of that receivable in the amount of €134 million; 
  • the writedown of a financial receivable in Spain in the amount of €21 million associated with the Litoral coal-fired plant, which underwent impairment testing; 
  • the revaluation in 2018 of the assets of the equity investment measured using the equity method of Slovak Power Holding in the amount of €362 million and the writedown in 2019 of the same equity investment in the amount of €34 million; 
  • the recognition of prepaid taxes in 2018 on prior-year losses by Enel Distribuição Goiás (€274 million) and Enel Green Power SpA due to the merger with 3Sun (€85 million); 
  • non-controlling interests, which benefitted from an improvement in net income as a ratio of pre-tax income in the two years under review, reflecting in particular the impairment recognized on the wholly-owned subsidiary Enel Produzione. 

These effects were partially offset by the reversal of deferred tax liabilities of Enel Distribuição São Paulo following the merger with Enel Brasil Investimentos Sudeste SA (“Enel Sudeste”) in the amount of €494 million.

Group net ordinary income in 2019 amounted to €4,767 million (€4,060 million in 2018), an increase of €707 million compared with 2018. The following table provides a reconciliation of Group net income with Group net ordinary income, indicating the non-recurring items and their respective impact on performance, net of the associated tax effects and non-controlling interests.

   

Millions of euro

 
 

2019

2018

Group net income

2,174

4,789

Indemnity from disposal of interest in Enel Rete Gas

(49)

(128)

Disposal of interest in Mercure Srl

(97)

-

Writedown of certain assets held by Slovak Power Holding

38

(646)

Writedown of fuel and spare parts inventories of a number of coal-fired plants in Italy and in Spain

203

-

Writedown of a number of coal-fired plants in Italy

1,400

-

Writedown of a number of coal-fired plants in Spain

849

-

Revaluation of a number of gas-fired plants Italy

(188)

-

Writedown of a number of coal-fired plants in Chile

151

-

Writedown of Reftinskaya coal-fired plant in Russia

60

-

Writedown of Funac receivable of Enel Distribuição Goiás

38

-

Writedown of certain intangible assets of Enel X North America

77

-

Writedown of certain assets of Enel Italia and Enel Green Power

50

-

Writedown of assets of a number of wind and hydro projects in North America

31

-

Adjustment of purchase price of a number Greek companies

30

-

Writedown of Alcúdia plant (Spain)

-

43

Reversal of impairment on EGP Hellas CGU and impairment of wind projects (Cyclades islands)

-

(39)

Gain on sale of EF Solare Italia

-

(64)

Writedown of Nuove Energie CGU

-

20

Writedown of biomass and solar plants in Italy

-

85

Group ordinary net income (1)

4,767

4,060

(1) Taking account of tax effects and non-controlling interests.