Comment on the economic and financial results and other information > Comment on the economic and financial results of Italgas S.p.A.

Comment on the economic and financial results of Italgas S.p.A.

Italgas S.p.A. was incorporated on 1 June 2016 and listed on the Milan Stock Exchange from 7 November 2016.

Reclassified income statement

In view of Italgas S.p.A.’s nature as an industrial investment holding, the following reclassified Income Statement has been prepared, which inverts the order of the income statement items under Leg. Decree 127/91, presenting first those which relate to the financial operations, as this is the most significant income component for those companies⁶⁵.

(€ million)	2019	2020	Abs. change	Change %
Financial income and charges
Income from investments	246.1	239.7	(6.4)	(2.6)
Interest income	44.9	35.3	(9.6)	(21.4)
Interest expense and other financial expense	(67.4)	(52.8)	14.6	(21.7)
Total financial income and charges	223.6	222.2	(1.4)	(0.6)
Income from services	86.5	104.1	17.6	20.3
Other operating income	86.5	104.1	17.6	20.3
Other operating costs
For staff	(46.5)	(59.9)	(13.4)	28.8
For performance of non-financial services and other costs	(43.4)	(55.3)	(11.9)	27.4
Total of other operating costs	(89.9)	(115.2)	(25.3)	28.1
Gross profit	220.2	211.1	(9.1)	(4.1)
Income taxes	3.5	3.7	0.2	5.7
Net profit	223.6	214.8	(8.8)	(3.9)

The net profit achieved in 2020 amounted to € 214.8 million, down by € 8.8 million from the corresponding value for 2019.

⁶⁵ See Consob Communication 94001437 of 23 February 1994.

Analysis of the Reclassified Income Statement items

FINANCIAL INCOME AND CHARGES

(€ million)	2019	2020	Abs. change	Change %
Income from investments	246.1	239.7	(6.4)	(2.6)
Interest income	44.9	35.3	(9.6)	(21.4)
Interest expense and other financial expense	(67.4)	(52.8)	14.6	(21.7)

Income from equity investments (€ 239.7 million) essentially includes the dividends distributed by Italgas Reti subsidiaries (€ 225.0 million) and Toscana Energia (€ 14.3 million).

Interest income (€ 35.3 million) essentially relates to interest income from the intragroup loans granted by Italgas to its subsidiaries.

Interest expense and other financial expense (€ 52.8 million) refers to the costs relating to financial debt, and mainly concerns bond loan expense⁶⁶ (€ 45.9 million) and loans from banks (€ 5.2 million).

OTHER OPERATING INCOME

(€ million)	2019	2020	Abs. change	Change %
Income from services	86.5	104.1	17.6	20.3
Other operating income	86.5	104.1	17.6	20.3

OTHER OPERATING EXPENSES

(€ million)	2019	2020	Abs. change	VAR. %
For staff	(46.5)	(59.9)	(13.4)	28.8
For performance of non-financial services and other costs	(43.4)	(55.3)	(11.9)	27.4
Total other operating expenses	(89.9)	(115.2)	(25.3)	28.1

Other operating expenses (€ 115.2 million) refer to personnel costs (€ 59.9 million, of which € 9.7 million in increased expense for staff leaving incentives) and costs for non-financial services and other costs (€ 55.3 million). The latter includes costs for consulting and professional services (€ 5.0 million), ICT services (€ 19.9 million), costs relating to various service contracts (€ 13.4 million), other costs (€ 10.3 million) and amortisation and depreciation (€ 6.6 million).

Reclassified Statement of Financial Position

(€ million)	31.12.2019	31.12.2020	Abs. change
Fixed capital	5,636.2	6,201.2	565.0
Property, plant and equipment	15.8	15.8	0.0
Intangible fixed assets	9.9	13.5	3.6
Equity investments	2,993.8	2,994.6	0.8
Financial receivables held for operations	2,623.0	3,181.0	558.0
Net payables (receivables) relating to investment activities	(6.3)	(3.7)	2.6
Net working capital	(4.9)	(31.5)	(26.6)
Provisions for employee benefits	(17.8)	(15.0)	2.8
NET INVESTED CAPITAL	5,613.5	6,154.7	541.2
Shareholders’ equity	1,705.0	1,708.9	3.9
Net financial debt	3,908.5	4,445.8	537.3
COVERAGE	5,613.5	6,154.7	541.2

Net invested capital amounted to € 6,154.7 million and rose by € 541.2 million compared to 31 December 2019, mainly due to the higher financial receivables instrumental to operations (€ 558.0 million), the increased value of intangible assets (€ 3.6 million) and the decrease in net debt relating to investment activities (€ 2.6 million).

Equity investments totalling € 2,994.6 million refer to the equity investments in the consolidated companies Italgas Reti, Italgas Acqua, Toscana Energia, Gaxa and Seaside (€ 2,836.8 million) and the equity investments in companies accounted for using the equity method (€ 157.8 million).

Net working capital

(€ million)	31.12.2019	31.12.2020	Abs. change
Tax receivables	55.4	55.8	0.4
Trade receivables	34.7	49.1	14.4
Other assets	6.2	4.5	(1.7)
Trade payables	(27.5)	(32.9)	(5.4)
Tax payables	(52.4)	(74.6)	(22.2)
Deferred tax assets	5.4	9.0	3.6
Provisions for risks and charges	(1.8)	(8.4)	(6.6)
Other liabilities	(24.9)	(34.0)	(9.1)
	(4.9)	(31.5)	(26.6)

Net working capital (€ 31.5 million) decreased by € 26.6 million compared to 31 December 2019, primarily as a result of: (i) the increase in net tax items (€ 18.2 million); (ii) the increase in trade receivables (€ 14.4 million) against the increase in provision of services to subsidiaries, such as ICT services; (iii) the decrease in other assets (€ 1.7 million); (iv) the increase in trade payables (€ 5.4 million) and (v) the increase in other liabilities (€ 9.1 million) primarily associated with IRS hedging transactions.

Net financial debt

(€ million)	31.12.2019	31.12.2020	Change Abs.
Financial and bond debt	4,477.3	5,268.9	791.6
Short-term financial debt (*)	358.0	684.4	326.4
Long-term financial debt	4,106.6	4,571.6	465.0
Financial liabilities for leasing pursuant to IFRS 16	12.7	12.9	0.2
Financial receivables non-instrumental to operations and cash and cash equivalents	(568.8)	(823.1)	(254.3)
Financial receivables non-instrumental to operations	(418.9)	(166.0)	252.9
Cash and cash equivalents	(149.9)	(657.1)	(507.2)
Passività per imposte differite	(92.5)	(55.2)	37.3
Net financial debt	3,908.5	4,445.8	537.3
Finance lease payables – IFRS 16	12.7	12.9	0.2
Net financial debt (excluding the effects pursuant to IFRS 16)	3,895.8	4,432.9	537.1

(*) Includes the short-term portion of long-term financial debt and financial debt to subsidiaries.

As of 31 December 2020, net financial debt, including the impacts of financial liabilities pursuant to IFRS 16 of € 12.9 million (€ 12.7 million in the corresponding period of 2019), amounted to € 4,445.8 million, up by € 537.3 million from 31 December 2019 (€ 3,908.5 million). Net of the impact of the application of IFRS 16, net financial debt amounted to € 4,432.9 million (€ 3,895.8 million as of 31 December 2019, up by € 537.1 million).

Financial and bond debt as of 31 December 2020 totalled € 5,268.9 million (€ 4,477.3 million as of 31 December 2019) and refer to: bonds (€ 3,854.5 million), loan agreements with the European Investment Bank (EIB) (€ 783.6 million), (iii) payables to banks (€ 617.9 million) and (iv) financial liabilities pursuant to IFRS 16 (€ 12.9 million).

The financial receivables non-instrumental to operations (€ 166.0 million) refer primarily to financial receivables due from subsidiaries paid through the intercompany current account.

As of 31 December 2020, the breakdown of debt by type of interest rate, including financial liabilities for leases pursuant to IFRS 16 is as follows:

(€ million)	31.12.2019	%	31.12.2020	%
Fixed rate	4,026.6	89.9	4,527.0	85.9
Floating rate	450.7	10.1	741.9	14.1
	4,477.3	100.0	5,268.9	100.0

Fixed-rate financial liabilities amounted to € 4,527.0 million and refer to bonds (€ 3,854.5 million), financial liabilities pursuant to IFRS 16 (€ 12.9 million) and to two EIB loans: the first maturing in 2037 (€ 359.8 million), converted to fixed rate in January 2018 through an “Interest Rate Swap” derivative hedging contract expiring in 2024; the second maturing in 2032 (€ 299.8 million), converted to fixed rate in July 2019 through an “Interest Rate Swap” derivative hedging contract expiring in 2029.

Fixed-rate financial liabilities increased by € 500.4 million compared to 31 December 2019, mainly due to the bond issue completed in June for a nominal value of € 500 million.

Floating-rate liabilities stood at € 741.9 million and were up by € 291.2 million as a result of the increased use of bank credit lines (€ 291.2 million).

As of 31 December 2020, Italgas had unused committed credit facilities of € 500 million, maturing in October 2021.

As of 31 December 2020, there are no loan contracts in place containing financial covenants and/or backed by real guarantees. Some of these contracts provide, inter alia, for the following: (i) negative pledge commitments pursuant to which Italgas and its subsidiaries are subject to limitations on pledging real property rights or other restrictions on all or part of the respective assets, shares or merchandise; (ii) pari passu and change-of-control clauses; and (iii) limitations on certain extraordinary transactions that the Company and its subsidiaries may carry out. As of 31 December 2020, these commitments were respected.

Reclassified Statement of Cash Flows

(€ million)	2019	2020
Net profit	223.6	214.8
Correction:
_Amortisation, depreciation and other non-monetary components	8.1	6.6
_Dividends, interest and income taxes	(236.7)	(225.9)
Change in working capital due to operating activities	0.0	19.6
Dividends, interest and income taxes collected (paid)	238.3	206.5
Cash flowNet cash flow from operating activities is represented by the cash generated by a company over a certain period of time. Specifically, the difference between current inflows (mainly cash revenue) and current cash outflows (costs from operating activities	233.3	221.6
Technical investments	(1.2)	(7.8)
Equity investments	(12.9)	0.0
Net financial investments instrumental to operations	(230.9)	(558.0)
Other changes related to investments activities	2.2	(2.6)
Free Cash flowNet cash flow from operating activities is represented by the cash generated by a company over a certain period of time. Specifically, the difference between current inflows (mainly cash revenue) and current cash outflows (costs	(9.5)	(346.8)
Change in financial receivables not related to operations	(343.3)	252.9
Change in current and non-current financial debt	564.8	791.4
Reimbursements of financial liabilities for leased assets	(3.2)	(2.3)
Equity Cash flowNet cash flow from operating activities is represented by the cash generated by a company over a certain period of time. Specifically, the difference between current inflows (mainly cash revenue) and current cash outflows (costs	(189.3)	(207.1)
Other changes relating to non-monetary components	0.0	19.1
Cash flowNet cash flow from operating activities is represented by the cash generated by a company over a certain period of time. Specifically, the difference between current inflows (mainly cash revenue) and current cash outflows (costs for the year	19.5	507.2

Change in net financial debt

(€ million)	2019	2020
Free Cash flowNet cash flow from operating activities is represented by the cash generated by a company over a certain period of time. Specifically, the difference between current inflows (mainly cash revenue) and current cash outflows (costs	(9.5)	(346.8)
Equity Cash flowNet cash flow from operating activities is represented by the cash generated by a company over a certain period of time. Specifically, the difference between current inflows (mainly cash revenue) and current cash outflows (costs	(121.4)	(14.1)
Other changes relating to non-monetary components	0.0	19.1
Change in financial liabilities for leased assets	(0.4)	(2.5)
Change in net financial debt	(199.2)	(537.3)

Management report

CONSOLIDATED FINANCIAL STATEMENTS

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