International accounting standards IFRS10 (Consolidated Financial Statements), IFRS11 (Joint control agreements) and IFRS12 (Investments in Other Companies) as well as the consequent changes to IAS27 (Separate financial statements) and IAS28 (Investments in associates and joint ventures) apply from 1 January 2014.
These new standards change the consolidation method for consolidated equity investments on the basis of the proportional method up to 31 December 2013. In particular, the analyses confirmed that the investments in the water companies in Tuscany, Umbria and Campania fall within the scope of IFRS11 according to which, from 1 January 2014, the only permitted consolidation method is the equity method. Despite this, ACEA is the Industrial Partner of the companies in question with extensive management powers over current operations in all segments of activity, through the Chief Executive Officer with partial rights of designation.
Accordingly, the condensed results from consolidation according to the equity method of such investments shall be included in the Group's EBITDA under item No. 6 Income/(Costs) from equity investments of a non-financial nature, as no events occurred leading to a change in the provisions of the By-laws or the shareholders' agreements in place or in the management activity carried out by the industrial partner.
CONVERSION OF ITEMS DENOMINATED IN FOREIGN CURRENCY
ACEA S.p.A. and its European subsidiaries have adopted the euro as their functional and presentation currency. Foreign currency transactions are initially recognised at the exchange rate on the date of the transaction. Foreign currency monetary assets and liabilities are translated into the functional currency using the exchange rate valid at the end of the reporting period. Exchange differences are recognised in the consolidated income statement, with the exception of differences deriving from foreign currency loans taken out in order to hedge a net investment in a foreign entity. Such exchange differences are taken directly to shareholders’ equity until disposal of the net investment, at which time any differences are recognised as income or expenses in the income statement. The tax effect and tax credits attributable to exchange differences deriving from this type of loan are also taken directly to shareholders’ equity. Foreign currency non-monetary items accounted for at historical cost are translated at the exchange rate valid on the date the transaction was initially recorded. Non-monetary items accounted for at fair value are translated using the exchange rate valid at the date the value was determined.
Revenue from sales and services is recognised when the significant risks and rewards associated with ownership of the goods have been transferred or when the service has been performed. Specifically:
- revenue from the sale and transport of electricity and gas is recognised at the time the service is provided, even when yet to be billed, and includes an estimate of the quantities supplied to customers between their last meter reading and the end of the period. Revenue is calculated on the basis of the related laws, provisions contained in Electricity and Gas Authority resolutions in effect during the period and existing provisions regarding equalisation.
- revenue from the integrated water services is determined on the basis of the Temporary Tariff Method (MTT), valid for determining tariffs for the years 2012 and 2013, approved with AEEG Resolution No. 585/12/R/idr, as amended.
- On the basis of the of the interpretation of the legal nature of the New Investment Fund tariff component (Fo.N.I.), the amount payable to the water companies is recognized as revenue where it is expressly recognized by the Area Authorities which establish its intended use.
Revenue for the year also includes the adjustment relative to so-called pass-through items (i.e. electricity, wholesale water etc.), the details of which are provided in the afore-mentioned resolution. Likewise included are Integrated Water Service costs incurred due to exceptional events (i.e. water emergencies, environmental emergencies etc.) if the investigation conducted prior to recognition has given positive results.
Interest income is recognised on a time proportion basis that takes account of the effective yield on the asset (the rate of interest required to discount the stream of future cash receipts expected over the life of the asset to equate to the initial carrying amount of the asset). Interest is accounted for as an increase in the value of the financial assets recorded in the accounts.
Dividend income is recognised when the shareholder’s right to receive payment is established.
It is classified in the income statement as a component of income from investments.
Grants related to plant investments received from both public and private entities are recognised at fair value when there is reasonable assurance that they will be received and that the envisaged conditions will be complied with.
Water connection grants are recognised as non-current liabilities and taken to the income statement over the life of the asset to which they refer if they relate to an investment, or recognised in full as income if matched by costs incurred during the period.
Grants related to income (disbursed in order to provide an enterprise with immediate financial aid or as compensation for expenses and losses incurred in a previous period) are recognised in the income statement in full, once the conditions for recognition have been complied with.
CONSTRUCTION CONTRACTS IN PROGRESS
Construction contracts in progress are accounted for on the basis of the contractual payments accrued with reasonable certainty, according to the percentage of completion method (cost to cost), attributing revenue and profits of the contract to the individual reporting periods in proportion to the stage of contract completion. Any positive or negative differences between contract revenue and any prepayments received are recognised in assets or liabilities.
In addition to contract fees, contract revenue includes variations, price revisions and the payment of incentives to the extent that it is probable that they will form part of actual revenue and that they can be reliably determined. Ascertained losses are recognised regardless of the stage of contract completion.
Post-employment employee benefits in the form of defined benefit and defined contribution plans (such as Staff Termination Benefits, Bonuses, Tariff Subsidies, as described in the notes) or other long-term benefits are recognised in the period in which the related right accrues. The valuation of the liabilities is performed by independent actuaries. Such funds and benefits are not financed.
The cost of the benefits involved in the various plans is determined separately for each plan based on the actuarial valuation method, using the projected unit credit method to carry out actuarial valuations at the end of the reporting period.
The profit and loss deriving from the actuarial calculations are recorded in the operating profit, therefore in a specific Equity Reserve, and are not subject to subsequent recognition in the income statement
Income tax for the period represents the aggregate amount of current and deferred tax.
Current tax is based on the taxable profit for the period. The taxable profit differs from the accounting profit or loss as it excludes positive and negative components that will be taxable or deductible in other periods and also excludes items that will never be taxable or deductible. Current tax liabilities are calculated using the tax rates enacted or substantively enacted at the end of the reporting period, and taking account of tax instruments permitted by tax legislation (the domestic tax consolidation system and/or tax transparency).
Deferred tax comprises tax expected to be paid or recovered on temporary differences between the carrying amounts of assets and liabilities in the Statement of Financial Position and the corresponding tax bases, accounted for using the liability method. Deferred tax liabilities are generally recognised on all taxable temporary differences, while deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. Deferred tax assets and liabilities are not recognised if the temporary differences derive from goodwill or the initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax liabilities are recognised on taxable temporary differences arising on investments in subsidiaries, associates and jointly controlled entities, unless the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that, based on the plans approved by the Parent Company’s Board of Directors, it is no longer probable that sufficient future taxable profit will be available against which all or part of the assets can be recovered.
Deferred tax is determined using tax rates that are expected to apply to the period in which the asset is realised or the liability settled. Deferred tax is taken directly to the income statement, with the exception of tax relating to items taken directly to shareholders’ equity, in which case the related deferred tax is also taken to equity.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at historical cost, including any directly attributable costs of making the asset ready for its intended use, less accumulated depreciation and any accumulated impairment charges.
The cost includes the costs of dismantling and removing the asset and cleaning up the site at which the asset was located, if covered by the provisions of IAS 37. The corresponding liability is recognized in the provisions for liabilities and charges. Each component of an asset with a cost that is significant in relation to the total cost of the item, and having a different useful life, is depreciated separately.
The costs of improvements, modernization and transformation that increase the value of property, plant and equipment are capitalized when it is probable that they will increase the expected future economic benefits of the asset.
Land, whether free of constructions or annexed to civil and industrial buildings, is not depreciated as it has an unlimited useful life.
Depreciation is calculated on a straight-line basis over the expected useful life of the asset, applying the following rates:
- Plant and machinery used in operations 1.25% - 6.67%
- Other plant and machinery 4%
- Industrial and commercial equipment used in operations 2.5% - 6.67%
- Other industrial and commercial equipment 6.67%
- Other assets used in operations 12.50%
- Other assets 6.67% - 19.00%
- Motor vehicles used in operations 8.33%
- Other motor vehicles 16.67%
With reference to the repowering project of Tor di Valle industrial site, taking into account the current integrated functional structure of the two plants (combined cycle and cogeneration), the useful life of the plants was revised with specific reference to the components that will not survive after entry into operation of new plants.
Plant and machinery under construction for use in operations or for purposes yet to be determined, is stated at cost, less any impairment charges. The cost includes any professional fees and, if applicable, interest expense capitalised. Depreciation of such assets, in line with all the other assets, begins when they are ready for use. In the case of certain complex assets subject to performance tests, which may be of a prolonged nature, readiness for use is recognised on completion of the related tests.
An asset held under a financial lease is depreciated over its expected useful life, in line with assets that are owned, or, if lower, over the lease term.
Gains and losses deriving from the disposal or retirement of an asset are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognised as income or expense in the income statement.
Investment property, investment property, represented by property held to earn rentals or for capital appreciation or both, is stated at cost, including any negotiating costs less accumulated depreciation and any impairment charges.
Depreciation is calculated on a straight-line basis over the expected useful life of the asset. The rates applied range from a minimum of 1.67% to a maximum of 11.11%.
Investment property is eliminated from the accounts when sold or when the property is unusable over the long-term and its sale is not expected to provide future economic benefits.
Sale and lease-back transactions are accounted for based on the substance of the transaction. Reference should therefore be made to the policy adopted for Leasing.
Any gain or loss deriving from the elimination of an investment property is recognised as income or expense in the income statement in the period in which the elimination takes place.
Leases are classified as finance leases when the terms of the contract substantially transfer all the risks and benefits of ownership of an asset to the lessee. All other leases are considered as operating leases.
Assets held under a finance lease are recognised as assets belonging to the Group and accounted for at amounts equal to fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The underlying liability to the lessor is included in the statement of financial position as an obligation to pay future lease payments. Leasing instalments are apportioned between principal and interest in order to achieve a constant interest rate on the residual liability.
Financial charges, whether certain or estimated, are recognised on an accruals basis unless they are directly attributable to the acquisition, construction or production of an asset, which justifies their capitalisation.
Lease payments under operating leases are recognised as an expense in the income statement on a straight-line basis over the lease term. The benefits received or to be received as an incentive for entering into operating leases are also recognised on a straight-line basis over the lease term.
Intangible assets are identifiable assets without a physical substance which are under the control of the company and capable of producing future economic benefits as well as goodwill acquired against valuable consideration. Intangible assets acquired separately are capitalised at cost, whilst those deriving from a business combination are capitalised at fair value at the date of acquisition. After initial recognition, an intangible asset is carried at cost. The useful life of an intangible asset may be defined as finite or indefinite.
Intangible assets are tested for impairment annually: the tests are conducted in respect of each intangible asset or, if necessary, in respect of each cash-generating unit. Amortisation is calculated on a straight-line basis over the expected useful life of the asset, which is reviewed annually and any resulting changes, if possible, applied prospectively. Amortisation begins when the intangible asset is ready for use.
Gains and losses deriving from the disposal of an intangible asset are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognised as income or expense in the income statement.
Goodwill from business combinations (among which, as an example only, the acquisition of subsidiaries, jointly controlled entities, or the acquisition of business units or other extraordinary transactions) represents the excess of the cost of the acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity at the date of the acquisition. Goodwill is recognised as an asset and is subject to an annual impairment review. Any impairment charges are immediately recognised in the income statement and are not subsequently reversed.
Goodwill emerging at the date of acquisition is allocated to each of the cash-generating units expected to benefit from the synergies deriving from the acquisition. Impairment charges are identified via tests that assess the capacity of each unit to generate cash sufficient to recover the portion of goodwill allocated to it. Should the recoverable amount of the cash-generating unit be less than the allocated carrying amount, an impairment charge is recognised.
On the sale of a subsidiary or jointly controlled entity, any unamortised goodwill attributable to it is included in the calculation of the gain or loss on disposal.
This item includes the value of the thirty-year right of Concession granted by Roma Capitale, regarding the use of fresh and waste water assets, formerly conferred to ACEA and subsequently transferred, as of 31 December 1999, to the spun-off company, ACEA Ato2, and relating to publicly owned assets belonging to the category of so-called “incidental public property” for fresh and waste water services. This right is amortised over the residual concession term (thirty years from 1998). The residual amortisation period is in line with the average term of contracts awarded by public tender.
This item also includes:
- the net value at 1 January 2004 of the goodwill deriving from the transfer of sewerage services to ACEA Ato2 by Roma Capitale with effect from 1 September 2002;
- the goodwill, attributable to this item, deriving from the acquisition of the A.R.I.A. Group, with particular reference to SAO, the company that manages the waste dump in Orvieto;
- the goodwill, attributable to this item, deriving from ACEA’s acquisition of ACEA Ato5.
Concessions are amortised on a straight-line basis over the residual term of each concession.
RIGHT ON INFRASTRUCTURES
Pursuant to IFRIC 12, this item includes the aggregate amount of tangible infrastructures used for the management of the water service. The classification under this derives from the application of IFRIC12 starting in 2010, on the basis of the intangible asset model. Under this interpretation, instead of recognising the tangible structures as a whole for the management of the service, a single intangible asset is recognised as representing the right of the concessionaire to require the users of the public service to pay the tariff.
Costs for replacement and planned maintenance are allocated to a specific fund called “Provision for restoration charges”.
RIGHTS FOR UTILIZATION OF INTELLECTUAL PROPERTY
The costs regarding this item are included under intangible assets and are amortised over a 3-year period of presumed use.
At the end of each reporting period, the Group reviews the value of its property, plant and equipment and intangible assets to assess whether there is any indication that an asset may be impaired (impairment test). If any indication exists, the Group estimates the recoverable amount of the asset in order to determine the impairment charge.
When it is not possible to estimate the recoverable amount of the individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Intangible assets with indefinite useful lives, including goodwill, are tested for impairment annually and each time there is any indication that an asset may be impaired, in order to determine the impairment charge.
The test consists of a comparison between the carrying amount of the asset and its estimated recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In calculating value in use, future cash flow estimates are discounted using a pre-tax rate that reflects current market assessments of the value of money and the risks specific to the business.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount is reduced to its recoverable amount. An impairment charge is immediately recognised as an expense in the income statement, unless the asset is represented by land or buildings, other than investment property, carried at a revalued amount, in which case the impairment charge is treated as a revaluation decrease.
When an impairment no longer exists, the carrying amount of the asset (or cash-generating unit), with the exception of goodwill, is increased to its new estimated recoverable amount. The reversal must not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment charge been recognised for the asset in prior periods. The reversal of an impairment charge is recognised immediately as income in the income statement, unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.
Where an impairment charge is recognised in the income statement, it is included among amortisation, depreciation and impairment charges.
EMISSION ALLOWANCES: GREEN AND WHITE CERTIFICATES
The Group applies different accounting policies to allowances and certificates held for own use in the “Industrial Portfolio” and those held for trading in the “Trading Portfolio”.
Surplus allowances or certificates held for own use, which are in excess of the company’s requirement in relation to the obligations accruing at the end of the year, are accounted for at cost in other intangible assets. Allowances or certificates assigned free of charge are accounted for at a zero value. Given that these are assets for instant use, they are not amortised but are tested for impairment. The recoverable amount is the higher of the asset’s value in use and its market value.
The charge resulting from the fulfilment of the energy efficiency obligation is estimated on the basis of the average purchase price for the contracts concluded, taking into accounts the certificates in the portfolio at the financial statements date; a provision is allocated for the difference between the purchase cost and the contribution estimated pursuant to AEEGSI Resolution No. 13/2014/R/efr, to be paid at the time the certificates are delivered in fulfilment of the obligation.
Allowances or certificates held for trading in the “Trading Portfolio” are accounted for in inventories and measured at the lower of purchase cost and estimated realisable value, based on market trends.
Allowances or certificates assigned free of charge are accounted for at a zero value. Market value is established on the basis of any spot or forward sales contracts already signed at the end of the reporting period; otherwise, on the basis of market prices.
Inventories are at the lower of cost and net realisable value. The cost comprises all materials and, where applicable, direct labour, production overheads and all other costs incurred in bringing the inventories to their present location and condition. The cost is calculated using the weighted average cost formula. The net realisable value is the estimated selling price less the estimated costs of completion and the estimated costs necessary in order to make the sale.
Impairment charges incurred on inventories, given their nature, are either recognised in the form of specific provisions, consisting of a reduction in assets, or, on an item by item basis, as an expense in the income statement.
Financial assets and liabilities are recognised at the time when the Group becomes a party to the contract clauses of the instrument.
FINANCIAL ASSETS RELATED TO SERVICE CONCESSION ARRANGEMENTS
With reference to the application of IFRIC 12 to the public lighting service concession, ACEA adopted the Financial Asset Model recognizing a financial asset to the extent that it has an unconditional contractual right to receive cash flows.
TRADE RECEIVABLES AND OTHER ASSETS
Trade receivables, which have normal commercial terms, are recognised at face value less estimated provisions for the impairment of receivables.
The estimate of uncollectible amounts is made when collection of the full amount is no longer probable.
Trade receivables refer to the invoiced amount which, at the date of these financial statements, is still to be collected, as well as the receivables for revenues for the period relating to invoices that will be issued later.
Financial assets are recognised and derecognised at the trade date and initially recognised at cost, including any directly attributable acquisition costs.
At each future balance sheet date, the financial assets that the Group has a positive intention and ability to hold to maturity (held-to-maturity financial assets) are recognised at amortised cost using the effective interest method, less any impairment charges applied to reflect impairments.
Financial assets other than those held to maturity are classified as held for trading or as available for sale, and are stated at fair value at the end of each period.
When financial assets are held for trading, gains and losses deriving from changes in fair value are recognised in the income statement for the period. In the case of financial assets that are available for sale, gains and losses deriving from changes in fair value are recognised directly in a separate item of shareholders’ equity until they are sold or impaired. At this time, the total gains and losses previously recognised in equity are recycled through the income statement for the period. The total loss is equal the difference between the acquisition cost and current fair value.
The fair value of financial instruments traded in active markets is based on quoted market prices (bid prices) at the end of the reporting period. The fair value of investments that are not traded in an active market is determined on the basis of quoted market prices for substantially similar instruments, or calculated on the basis of estimated future cash flows generated by the net assets underlying the investment.
Purchases and sales of financial assets, which imply delivery within a timescale generally defined by the regulations and practice of the market in which the exchange takes place, are recognised at the trade date, which is the date the Group commits to either purchase or sell the asset.
Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are initially stated at fair value.
After initial recognition, they are carried at amortised cost using the effective interest method.
At the end of each reporting period, the Group assesses if there has been impairment for a financial asset, or a group of financial assets. A financial asset or a group of financial assets is subject to impairment if, and only if, there is evidence of impairment, as a consequence of one or more events that occurred after initial recognition, which had an impact on future estimated cash flows. Impairment can be shown by indicators such as financial difficulties, failure to meet obligations, non-payment of significant amounts, the probability that the debtor goes bankrupt or is subject to another form of financial reorganisation, and if objective data shows that there is a measurable decrease in future estimated cash flows.
CASH AND CASH EQUIVALENTS
This item includes cash at bank and in hand, demand deposits and highly liquid short-term investments, which are readily convertible into cash and are subject to an insignificant risk of changes in value.
Financial liabilities are stated at amortised cost. Borrowing costs (transaction costs) and any issue premiums or discounts are recognised as direct adjustments to the nominal value of the borrowing. Net financial costs are consequently re-determined using the effective rate method.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are initially recognised at cost and then re-measured to fair value at subsequent end of the reporting periods. They are designated as hedging instruments when the hedging relationship is formally documented at its inception and the periodically verified effectiveness of the hedge is expected to be high.
Fair Value Hedges are recognised at fair value and any gains or losses recognised in the Income Statement. Any gains or losses resulting from the fair value measurement of the hedged asset or liability are similarly recognised in the Income Statement.
In the case of Cash Flow Hedges, the portion of any fair value gains or losses on the hedging instrument that is determined to be an effective hedge is recognised in shareholders’ equity, while the ineffective portion is recognised directly in the Income statement.
Trade payables which have normal commercial terms are stated at face value.
DERECOGNITION OF FINANCIAL INSTRUMENTS
Financial assets are derecognised when the Group has transferred all the related risks and the right to receive cash flows from the investments.
A financial liability (or portion of a financial liability) is derecognised when, and only when, it is extinguished, i.e. when the obligation specified in the contract is either fulfilled, cancelled or expires.
If a previously issued debt instrument is repurchased, the debt is extinguished, even if the Group intends to resell it in the near future. The difference between the carrying amount and the amount paid is recognised in the income statement.
PROVISIONS FOR LIABILITIES AND CHARGES
Provisions for liabilities and charges are made when the Group ha a present (legal or implicit) obligation as a result of a past event, if it is more likely than not that an outflow of resources will be required to settle the obligation and the related amount can be reliably estimated.
Provisions are measured on the basis of Management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period, and are discounted when the effect is significant.
Where the financial effect of time is significant and the obligation due dates can be reliably estimated, the provision is determined by discounting the expected future cash flows determined by taking into account the risks associated with the obligation at the average borrowing rate of the company; the increase in the provision resulting from the time value of money is recognized in the income statement under "Net financial income/(expense)”.
When the liability regards the cost of dismantling and/or repairing an item of property, plant and equipment, the initial provisions are accounted for as a contra entry in respect of the asset to which they refer. The provisions are released to the income statement through depreciation of the item of property, plant and equipment to which the charge refers.