2020 Integrated Annual Report
IT

Management report

CONSOLIDATED FINANCIAL STATEMENTS

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Management report

CONSOLIDATED FINANCIAL STATEMENTS

External context, markets and Italgas share

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COVID-19 emergency

The COVID-19 pandemic, which broke out in late February 2020 and is still ongoing, is putting the resilience of Italy’s entire social, healthcare, political, economic and industrial fabric to the test. Faced with a situation of severe instability, Italgas reacted promptly from the outset to protect the health and safety of its people, while ensuring the continuity of essential services to the over 7.7 million customers served in 1,887 municipalities nationwide7.

Decisions relating to the health emergency and organisation of work were immediately entrusted to an internal Crisis Committee, composed of the heads of the company’s main departments. This Committee operated in line with the national health provisions and in continual contact with local and national competent authorities.

The utmost attention was paid to protecting employees. The Company took out specific COVID-19 insurance, provided free prevention measures (voluntary serological, antigen and molecular tests) and immediately procured and distributed safety equipment (masks, gloves, coveralls, sanitiser gels) to all offices and technical units. Employees are also continually updated by means of regular memos on the regulatory measures stemming from the Government Decrees and any repercussions on work activities which, where not strictly necessary, were, and still are to this day, carried out remotely in smart working mode.

The digitisation process of networks, processes and people, launched in 2017, facilitated the prompt reorganisation of work. In the short space of a weekend, from 7 to 9 March 2020, during implementation of the measures set by the government for the first lockdown, we were able to transfer most activities online, with no repercussions for day-to-day operations.

Use of the cloud and provision of a number of digital devices for all personnel reduced mobility and enabled smart working across Italy. With activities organised in this way, the average number of people connected every day via collaboration platforms on all devices (Teams, Zoom, Webex, etc.) rocketed from 200 to over 2000 in just 24 hours. These numbers are significant, and, at full potential, with the ongoing limitations on unnecessary travel, a daily average of 2,100 people were recorded as being operative, with almost 1,000 virtual meetings and 30,000 (with peaks of 35,000) messages in chat.

The effects of the digital transformation of assets and processes have brought structural benefits, including for the reduced movement of people working on technical activities. With the development and use of innovative technologies, such as “Gas Leakage Detection”, “Shareview” and “WorkOnSite”, it was possible to manage the network remotely and efficiently, increase checks in the local area and reopen and manage the worksites in complete safety from as early as May 2020, during the first relaxing of the restrictive measures.

The Italgas Group also took steps to support the national health system, by donating to 7 hospitals up and down the country and to the Civil Protection. The Group’s employees also contributed to these initiatives by joining the charity campaign “Insieme per l’Italia, dona una tua giornata alla lotta contro il Coronavirus” [Together for Italy, donate your day to the fight against Coronavirus], which collected the equivalent in money of approximately 7,000 hours of work, an amount which was then doubled by the company.

Significantly adverse effects of the ongoing pandemic are not reasonably foreseeable on the Italgas business model. The Group has proven that it is able to react promptly and effectively to the difficulties encountered, guaranteeing its usual operating efficiency while continuing to protect its people. The operating and economic effects of interrupting the activities and the resulting delays in the implementation of the corporate plans were significantly absorbed during the year, showing just how resilient the company is when faced with events of this nature and entity.

For more information, see the “Coronavirus Emergency and Business Outlook” paragraph in this document.

Macroeconomic scenario and market trends

The significant reduction in economic activity caused by the restrictions due to the need to reduce the spread of the disease, with the USA PIL suffering its biggest ever drop (more than -30%; almost -12% in the Eurozone) in the second quarter, and the sharp rise in unemployment that followed (reaching almost 15% in April in the USA, more than 4 times pre-COVID levels), called for major expansionary measures by the monetary and fiscal authorities.

To provide liquidity to the market and drive down bond yields, with a view to supporting economic recovery, the ECB launched an emergency asset purchase programme, increasing it from an initial € 750 billion to € 1,850 billion, until at least March 2022. It also introduced new refinancing operations with negative rates in the bank system and improved the terms and conditions of the refinancing operations linked to the reinvestment of funds in the real economy (TLTRO III), bringing the interest rate applied up to 50 basis points (bps) below the rate on deposits (i.e. not higher than -1% in total). In terms of fiscal policies, all the world’s main economic areas launched major public expenditure programmes aimed at mitigating the economic impact of the pandemic. The EU, in particular, decided to suspend the balanced budget rule and approve stimulus measures based on supporting the energy transition and digitisation (€ 750 billion Recovery Plan).

The adoption of highly expansive policies by central banks led to a significant reduction in real sovereign bonds yield, which dropped to all-time lows in the Eurozone and USA. Meanwhile, the fiscal support policies and subsequent improvement of the Outlook following the announcement of the forthcoming availability of vaccines supported the recovery of inflation expectations, which, after an initial fall due to the impact of the health emergency, gradually recovered, before returning to pre-pandemic levels overall. As a result, the US Treasury nominal yield fell by 101 bps (from 1.92% to 0.91%), against a contraction of 38 bps of the German Bund (from -0.19% to -0.57%).

In view of the monetary support provided by the ECB and the aforementioned tax measures taken by the EU, which prioritised those countries most affected by the pandemic, the 10-year BTP-Bund spread closed 2020 down 49 bps (111 bps from 160 bps), at its lowest since March 2016.

In terms of currency, the EUR/USD strengthened by almost 9% (to 1.22), supported by improved cohesion at European level, as a result of the previously mentioned suspension of the balanced budget rule, adoption of the Recovery Plan and the monetary support provided by the ECB, together with the improved risk appetite following the announcement of vaccines.

2020 Trend and Italgas stock

Global equities were highly volatile in 2020, depending on the developments of the COVID-19 pandemic, its spread in China and throughout the world, and the adoption of monetary and fiscal policies to counter the recession.

The first weeks of the year saw Euro Stoxx return to 12-year highs, due to the US/China trade agreement in late 2019, while share prices dropped sharply from the last week of February, following the spread of the COVID-19 pandemic and the restrictive measures taken as a result to limit contagion. After the highs recorded on 19 February, rising COVID-19 cases outside China, and in Europe in particular, led to a 16% drop in the Euro Stoxx in the subsequent two weeks. This contraction then increased by a further 25% in the ten days following 9 March, when Italy introduced the first generalised lockdown measures in Europe. In the month from 19 February to 18 March 2020, the Euro Stoxx fell 37% overall. The S&P 500 suffered essentially the same dynamics. In the months that followed, the recovery in share prices was made possible by the adoption of hyper-expansive policies by the monetary and fiscal authorities of the main economic areas, aimed at countering the contraction in economic activity, as well as by the announcement of a number of vaccines. Overall, with share prices adjusted after the ex-dividend date, the Euro Stoxx share index closed up 0.8%. Compared with the European share indexes, US indexes also benefited from greater exposure to the technology sector, which profited from lifestyle changes as a result of the pandemic. This, together with the general depreciation of the dollar, explains the 18.4% rise recorded by the S&P 500, to all-time highs.

There were marked differences at national and sector level depending on the severity of the economic impact of the pandemic. At Eurozone level, the Frankfurt DAX was up 3.6%, against falls of 3.3% for the FTSE Mib, 5.0% for the Paris CAC 40 and 12.7% for the Madrid Ibex 35.

On a sector level, the Euro Stoxx Utilities gained 14.1%, as the third best sector on the share index, clearly outperforming the Eurozone benchmark. This was driven by the integrated operators most exposed to renewables, due to increased electricity prices as a result of the EU decarbonisation policies and multiple expansion following increased visibility of growth prospects in the aforesaid environmental policies. With regard to the rest of the Eurozone market, the tech and consumer sectors were the best-performing, while banks and oil products significantly underperformed the market because of the overall context.

The Italgas share closed 2020 at €5.20. Considering the dividend of 0.256 per share and a price at end 2019 of €5.44, it recorded a total shareholder return of 0.6%.

From the date on which it was listed in November 2016 to 31 December 2020, the total shareholder return is 56.4%.

During the year, the average daily trading volume of the Italgas stock on the Italian Stock Exchange electronic market was about 2.5 million shares, with a greater concentration of trades around the announcement of quarterly results, the ex-dividend date and updating of the 2020-2026 Strategic Plan, presented in late October 2020.