Enel SpA has its registered office in Viale Regina Margherita 137, Rome, Italy, and since 1999 has been listed on the Milan stock exchange.
There were no changes in the company name in 2022. Enel is an energy multinational and is one of the world’s leading integrated operators in the electricity and gas industries, with a special focus on Europe and Latin America. The consolidated financial statements as at and for the year ended December 31, 2022 comprise the financial statements of Enel SpA, its subsidiaries and Group holdings in associates and joint ventures, as well as the Group’s share of the assets, liabilities, costs and revenue of joint operations (“the Group”).
A list of the subsidiaries, associates, joint operations and joint ventures included in the consolidation scope is attached.
These consolidated financial statements were approved and authorized for publication by the Board of Directors on March 16, 2023.
These consolidated financial statements have been audited by KPMG SpA.
The consolidated financial statements as at and for the year ended December 31, 2022 have been prepared in accordance with international accounting standards (International Accounting Standards - IAS and International Financial Reporting Standards - IFRS) issued by the International Accounting Standards Board (IASB), the interpretations of the IFRS Interpretations Committee (IFRSIC) and the Standing Interpretations Committee (SIC), recognized in the European Union pursuant to Regulation (EC) no. 1606/2002 and in effect as of the close of the year. All of these standards and interpretations are hereinafter referred to as the “IFRS-EU”. The consolidated financial statements have also been prepared in conformity with measures issued in implementation of Article 9, paragraph 3, of Legislative Decree 38 of February 28, 2005.
The consolidated financial statements consist of the consolidated income statement, the statement of consolidated comprehensive income, the statement of consolidated financial position, the statement of changes in consolidated equity and the consolidated statement of cash flows and the related notes.
The assets and liabilities recognized in the statement of financial position are classified on a “current/non-current basis”, with separate reporting of assets held for sale and liabilities included in disposal groups held for sale. Current assets, which include cash and cash equivalents, are assets that are intended to be realized, sold or consumed during the normal operating cycle of the Group; current liabilities are liabilities that are expected to be settled during the normal operating cycle of the Group.
The income statement classifies costs on the basis of their nature, with separate reporting of profit/(loss) from continuing operations and profit/(loss) from discontinued operations attributable to owners of the Parent and to non-controlling interests.
The consolidated cash flow statement is prepared using the indirect method, with separate reporting of any cash flows by operating, investing and financing activities associated with discontinued operations.
Note that the items reported in the cash flow statement also include any impacts deriving from companies classified as discontinued operations. In particular, although the Group does not diverge from the provisions of IAS 7 in the classification of items:
For more information on cash flows as reported in the statement of cash flows, please see the note 46 “Cash flows”.
The consolidated financial statements have been prepared on a going concern basis using the cost method, with the exception of items measured at fair value in accordance with IFRS, as explained in the measurement bases applied to each individual item, and of non-current assets and disposal groups classified as held for sale, which are measured at the lower of their carrying amount and fair value less costs to sell.
The consolidated financial statements are presented in euro, the functional currency of the Parent Enel SpA. All figures are shown in millions of euro unless stated otherwise.
The consolidated income statement, the statement of financial position and the consolidated statement of cash flows report transactions with related parties, the definition of which is given in note 2.2 “Significant accounting policies”.
The consolidated financial statements provide comparative information in respect of the previous year.
Preparing the consolidated financial statements under IFRS-EU requires management to take decisions and make estimates and assumptions that may impact the carrying amount of revenue, costs, assets and liabilities and the related disclosures concerning the items involved as well as contingent assets and liabilities at the reporting date. The estimates and management’s judgments are based on previous experience and other factors considered reasonable in the circumstances. They are formulated when the carrying amount of assets and liabilities is not easily determined from other sources. The actual results may therefore differ from these estimates. The estimates and assumptions are periodically revised and the effects of any changes are reflected through profit or loss if they only involve that period. If the revision involves both the current and future periods, the change is recognized in the period in which the revision is made and in the related future periods.
In order to enhance understanding of the consolidated financial statements, the following sections examine the main items affected by the use of estimates and the cases that reflect management judgments to a significant degree, underscoring the main assumptions used by management in measuring these items in compliance with the IFRS-EU. The critical element of such valuations is the use of assumptions and professional judgments concerning issues that are by their very nature uncertain.
Changes in the conditions underlying the assumptions and judgments could have a substantial impact on future results.
The information included in the consolidated financial statements is selected on the basis of a materiality analysis carried out in accordance with the requirements of Practice Statement 2 “Making Materiality Judgments”, issued by the International Accounting Standards Board (IASB).
With regard to the effects of climate change issues, the Group believes that climate change represents an implicit element in the application of the methodologies and models used to perform estimates in the valuation and/or measurement of certain accounting items. Furthermore, the Group has also taken account of the impact of climate change in the significant judgments made by management. In this regard, the main items included in the consolidated financial statements at December 31, 2022 affected by management’s use of estimates and judgments refer to the impairment of non-financial assets and obligations connected with the energy transition, including those for decommissioning and site restoration of certain generation plants. For further details on these items, see note 19 “Property, plant and equipment”, note 24 “Goodwill”, and note 40 “Provisions for risks and charges”.
Revenue from contracts with customers
Revenue from supply of electricity and gas to end users is recognized at the time the electricity or gas is delivered and includes, in addition to amounts invoiced on the basis of periodic (and pertaining to the year) meter readings or on the volumes notified by distributors and transporters, an estimate of the electricity and gas delivered during the period but not yet invoiced that is equal to the difference between the amount of electricity and gas delivered to the distribution network and that invoiced in the period, taking account of any network losses. Revenue between the date of the last meter reading and the year-end is based on estimates of the daily consumption of individual customers, primarily determined on their historical information, adjusted to reflect the climate factors or other matters that may affect the estimated consumption.
For more details on such revenue, see note 11.a “Revenue from sales and services”.
Impairment of non-financial assets
When the carrying amount of property, plant and equipment, investment property, intangible assets, right-of-use assets, goodwill and investments in associates/joint ventures exceeds its recoverable amount, which is the higher of the fair value less costs to sell and the value in use, the assets are impaired.
Such impairments are carried out in accordance with the provisions of IAS 36, as described in greater detail in note 24 “Goodwill”.
In order to determine the recoverable amount, the Group generally adopts the value in use criterion. Value in use is based on the estimated future cash flows generated by the asset, discounted to their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and of the specific risks of the asset.
Future cash flows used to determine value in use are based on the most recent Business Plan, approved by the management, containing forecasts for volumes, revenue, operating costs and investments. These projections cover the next three years. For subsequent years, account is taken of:
The recoverable amount is sensitive to the estimates and assumptions used in the calculation of cash flows and the discount rates applied. Nevertheless, possible changes in the underlying assumptions on which the calculation of such amounts is based could generate different recoverable amounts. The analysis of each group of non-financial assets is unique and requires management to use estimates and assumptions considered prudent and reasonable in the specific circumstances.
In line with its business model and in the context of the acceleration of the decarbonization of the generation mix and driving the energy transition process, the Group has also carefully assessed whether climate change issues have affected the reasonable and supportable assumption used to estimated expected cash flows. In this regard, where necessary, the Group has also taken account of the long-term impact of climate change, in particular by considering in the estimation of the terminal value a long-term growth rate in line with the change in electricity demand determined using energy models for each country.
Information on the main assumptions used to estimate the recoverable amount of assets with reference to the impacts relating to climate change, as well as information on changes in these assumptions, is provided in note 24 “Goodwill”.
Expected credit losses on financial assets
At the end of each reporting period, the Group recognizes a loss allowance for expected credit losses on trade receivables and other financial assets measured at amortized cost, debt instruments measured at fair value through other comprehensive income, contract assets and all other assets in scope.
Loss allowances for financial assets are based on assumptions about risk of default and on the measurement of expected credit losses. Management uses judgment in making these assumptions and selecting the inputs for the impairment calculation, based on the Group’s past experience, current market conditions as well as forward-looking estimates at the end of each reporting period.
The expected credit loss (i.e., ECL) – determined considering probability of default (PD), loss given default (LGD), and exposure at default (EAD) – is the difference between all contractual cash flows that are due in accordance with the contract and all cash flows that are expected to be received (including all shortfalls) discounted at the original effective interest rate (EIR).
In particular, for trade receivables, contract assets and lease receivables, including those with a significant financial component, the Group applies the simplified approach, determining expected credit losses over a period corresponding to the entire life of the asset, generally equal to 12 months.
Based on the specific reference market and the regulatory context of the sector, as well as expectations of recovery after 90 days, for such assets, the Group mainly applies a default definition of 180 days past due to determine expected credit losses, as this is considered an effective indication of a significant increase in credit risk. Accordingly, financial assets that are more than 90 days past due are generally not considered to be in default, except for some specific regulated markets.
For trade receivables and contract assets the Group mainly applies a collective approach based on grouping trade receivables and contract assets into specific clusters, taking into account the specific regulatory and business context. Only if the trade receivables are deemed to be individually significant by management and there is specific information about any significant increase in credit risk, does the Group apply an analytical approach.
In case of individual assessment, PD is mainly obtained from an external provider.
Conversely, for collective assessment, trade receivables are grouped based on shared credit risk characteristics and past due information, considering a specific definition of default.
Based on each business and local regulatory framework as well as differences in customer portfolios also in terms of risk, default rates and recovery expectations, specific clusters are defined.
The contract assets are considered to have substantially the same risk characteristics as the trade receivables for the same types of contracts.
In order to measure the ECL for trade receivables on a collective basis, as well as for contract assets, the Group considers the following assumptions related to ECL parameters:
Based on specific management evaluations, the forward-looking adjustment can be applied considering qualitative and quantitative information in order to reflect possible future events and macroeconomic scenarios, which may affect the risk of the portfolio or the financial instrument. For additional details on the key assumptions and inputs used please see note 48 “Financial instruments by category”.
Depreciable amount of certain elements of Italian hydroelectric plants subsequent to enactment of Law 134/2012
Italian regulations governing large-scale hydroelectric concessions were significantly modified by the “Simplifications Decree” (Decree Law 135 of 2018 ratified with Law 12 of February 11, 2019). The regulations introduce a number of innovations which, if applied to existing concessions, would require a review of the useful lives of certain investments in hydroelectric plants in order to reflect the possibility that, at the end of the concession, some assets could be transferred free of charge to the new concession holder. However, in estimating the useful lives of these plants, management, with the support of a legal opinion, considered the foreseeable outcome of the appeals promptly lodged by the Company – and others – and the related constitutionality issues, which have also been raised by industrial associations. Consequently, we believe that the legislation raises serious constitutionality issues that will be effectively recognized in the appropriate fora. Accordingly, management deemed it appropriate not to reflect the changes introduced by the regulations and therefore has continued to measure the useful lives of the plants as has been done in previous years under the previous regulatory system, considering this to be the most realistic estimate.
Law 134 of August 7, 2012 containing “urgent measures for growth” (published in the Gazzetta Ufficiale of August 11, 2012), introduced a sweeping overhaul of the rules governing hydroelectric concessions. Among its various provisions, the law establishes that five years before the expiration of a major hydroelectric water diversion concession and in cases of lapse, relinquishment or revocation, where there is no prevailing public interest for a different use of the water, incompatible with its use for hydroelectric generation, the competent public entity shall organize a public call for tenders for the award for consideration of the concession for a period ranging from 20 to a maximum of 30 years.
In order to ensure operational continuity, the law also governs the methods of transferring ownership of the business unit necessary to operate the concession, including all legal relationships relating to the concession, from the outgoing concession holder to the new concession holder, in exchange for payment of a price to be determined in negotiations between the departing concession holder and the grantor agency, taking due account of the following elements:
While acknowledging that the new regulations introduce important changes as to the transfer of ownership of the business unit with regard to the operation of the hydroelectric concession, the practical application of these principles faces difficulties, given the uncertainties that do not permit the formulation of a reliable estimate of the value that can be recovered at the end of existing concessions (residual value).
Accordingly, management has decided it could not produce a reasonable and reliable estimate of residual value. The fact that the legislation requires the new concession holder to make a payment to the departing concession holder prompted management to review the depreciation schedules for assets classified as to be relinquished free of charge prior to Law 134/2012 (until the year ended on December 31, 2011, given that the assets were to be relinquished free of charge, the depreciation period was equal to the closest date between the term of the concession and the end of the useful life of the individual asset), calculating depreciation no longer over the term of the concession but, if longer, over the useful life of the individual assets. If additional information becomes available to enable the calculation of residual value, the carrying amounts of the assets involved will be adjusted prospectively.
Determining the fair value of financial instruments
The fair value of financial instruments is determined on the basis of prices directly observable in the market, where available, or, for unlisted financial instruments, using specific valuation techniques (mainly based on present value) that maximize the use of observable market inputs. In rare circumstances where this is not possible, the inputs are estimated by management taking due account of the characteristics of the instruments being measured.
For more information on financial instruments measured at fair value, please see note 52 “Assets and liabilities measured at fair value”.
In accordance with IFRS 13, the Group includes a measurement of credit risk, both of the counterparty (Credit Valuation Adjustment or CVA) and its own (Debit Valuation Adjustment or DVA), in order to adjust the fair value of financial instruments for the corresponding amount of counterparty risk, using the method discussed in note 52 “Assets and liabilities measured at fair value”.
Changes in the assumptions made in estimating the input data could have an impact on the fair value recognized for those instruments, especially in current conditions where markets are volatile and the economic outlook is highly uncertain and subject to rapid change.
Development expenditure
In order to determine the recoverability of development expenditure, the recoverable amount is estimated making assumptions regarding any further cash outflow that is expected to be incurred before the asset is ready for use or sale, the discount rates to be applied and the expected period of benefits.
Pensions and other post-employment benefits
Some of the Group’s employees participate in pension plans offering benefits based on their wage history and years of service. Certain employees are also eligible for other post-employment benefit schemes.
The expenses and liabilities of such plans are calculated on the basis of estimates carried out by consulting actuaries, who use a combination of statistical and actuarial elements in their calculations, including statistical data on past years and forecasts of future costs. Other components of the estimation that are considered include mortality and retirement rates as well as assumptions concerning future developments in discount rates, the rate of wage increases, the inflation rate and trends in healthcare cost.
These estimates can differ significantly from actual developments owing to changes in economic and market conditions, increases or decreases in retirement rates and the lifespan of participants, as well as changes in the effective cost of healthcare.
Such differences can have a substantial impact on the quantification of pension costs and other related expenses.
For more details on the main actuarial assumptions adopted, please see note 39.
Provisions for risks and charges
For more details on provisions for risks and charges, please see note 40 “Provisions for risks and charges”. Note 57 “Contingent assets and liabilities” also provides information regarding the most significant contingent assets and liabilities for the Group at year end.
Litigation
The Group is involved in various civil, administrative and tax disputes connected with the normal pursuit of its activities that could give rise to significant liabilities. It is not always objectively possible to predict the outcome of these disputes. The assessment of the risks associated with this litigation is based on complex factors whose very nature requires recourse to management judgments, even when taking account of the contribution of external advisors assisting the Group, about whether to classify them as contingent liabilities or liabilities.
Provisions have been recognized to cover all significant liabilities for cases in which legal counsel feels an adverse outcome is likely and a reasonable estimate of the amount of the expense can be made.
Obligations associated with generation plants, including decommissioning and site restoration
Generation activities may entail obligations for the operator with regard to future interventions that will have to be performed following the end of the operating life of the plant.
Such interventions may involve the decommissioning of plants and site restoration, or other obligations linked to the type of generation technology involved. The nature of such obligations may also have a major impact on the accounting treatment used for them.
In the case of nuclear power plants, where the costs regard both decommissioning and the storage of waste fuel and other radioactive materials, the estimation of the future cost is a critical process, given that the costs will be incurred over a very long span of time, estimated at up to 100 years.
The obligation, based on financial and engineering assumptions, is calculated by discounting the expected future cash flows that the Group considers it will have to pay to meet the obligations it has assumed.
The discount rate used to determine the present value of the liability is the pre-tax risk-free rate and is based on the economic parameters of the country in which the plant is located.
That liability is quantified by management on the basis of the technology existing at the measurement date and is reviewed each year, taking account of developments in storage, decommissioning and site restoration technology, as well as the ongoing evolution of the legislative framework governing health and environmental protection.
Subsequently, the value of the obligation is adjusted to reflect the passage of time and any changes in estimates. Please see note 40 “Provisions for risks and charges” for more information on discount rates, undiscounted estimated costs and their timing, which are used to calculate the plant decommissioning and site restoration provision.
Onerous contracts
In order to identify an onerous contract, the Group estimates the non-discretionary costs necessary to fulfil the obligations assumed (including any penalties) under the contract and the economic benefits that are presumed to be obtained from the contract.
Leases
When the interest rate implicit in the lease cannot be readily determined, the Group uses the incremental borrowing rate (IBR) at the lease commencement date to calculate the present value of the lease payments. This is the interest rate that the lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the rightofuse asset in a similar economic environment. When no observable inputs are available, the Group estimates the IBR making assumptions to reflect the terms and conditions of the lease and certain lessee-specific estimates.
One of the most significant judgments for the Group is determining this IBR necessary to calculate the present value of the lease payments required to be paid to the lessor.
The Group approach to determine an IBR is based on the assessment of the following three key components:
For more information on lease liabilities, please see note 48 “Financial instruments by category”.
Income tax
Recovery of deferred tax assets
At December 31, 2022, the consolidated financial statements report deferred tax assets in respect of tax losses or tax credits usable in subsequent years and income components whose deductibility is deferred in an amount whose future recovery is considered by management to be highly probable.
The recoverability of such assets is subject to the achievement of future profits sufficient to absorb such tax losses and to use the benefits of the other deferred tax assets.
Significant management judgment is required to assess the probability of recovering deferred tax assets, considering all negative and positive evidence, and to determine the amount that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies and the tax rates applicable at the date of reversal. However, where the Group should become aware that it is unable to recover all or part of recognized tax assets in future years, the consequent adjustment would be taken to profit or loss in the year in which this circumstance arises.
The recoverability of deferred tax assets is reviewed at the end of each period. Deferred tax assets not recognized are reassessed at each reporting date in order to verify the conditions for their recognition.
For more detail in deferred tax assets recognized or not recognized, please see note 25 “Deferred tax assets and liabilities”.
Identification of cash generating units (CGUs)
For impairment testing, if the recoverable amount cannot be determined for an individual asset, the Group identifies the smallest group of assets that generate largely independent cash inflows. The smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets is a CGU. Identifying such CGUs involves management judgments regarding the specific nature of the assets and the business involved (geographical segment, business segment, regulatory framework, etc.) and the evidence that the cash inflows of the group of assets are largely independent of those associated with other assets (or groups of assets). The assets of each CGU are also identified on the basis of the manner in which management manages and monitors those assets within the business model adopted. In particular, the number and scope of the CGUs are updated systematically to reflect the impact of new business combinations and reorganizations carried out by the Group, and to take account of external factors that could influence the ability of assets to generate independent cash inflows.
In particular, if certain specific identified assets owned by the Group are impacted by adverse economic or operating conditions that undermine their capacity to contribute to the generation of cash flows, they can be isolated from the rest of the assets of the CGU, undergo separate analysis of their recoverability and be impaired where necessary.
The CGUs identified by management to which the goodwill recognized in these consolidated financial statements has been allocated and the criteria used to identify the CGUs are indicated in note 24 “Goodwill”.
Determining the useful life of non-financial assets
In determining the useful life of property, plant and equipment and intangible assets with a finite useful life, the Group considers not only the future economic benefits – contained in the assets – obtained through their use, but also many other factors, such as physical wear and tear, the technical, commercial or other obsolescence of the product or service produced with the asset, legal or similar limits (e.g., safety, environmental or other restrictions) on the use of the asset, if the useful life of the asset depends on the useful life of other assets.
Furthermore, in estimating the useful lives of the assets concerned, the Group has taken account of its commitment under the Paris Agreement. For more information on this issue, please see note 19 “Property, plant and equipment”.
Determination of the existence of control
Under the provisions of IFRS 10, control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Power is defined as the current ability to direct the relevant activities of the investee based on existing substantive rights.
The existence of control does not depend solely on ownership of a majority investment, but rather it arises from substantive rights that each investor holds over the investee. Consequently, management must use its judgment in assessing whether specific situations determine substantive rights that give the Group the power to direct the relevant activities of the investee in order to affect its returns.
For the purpose of assessing control, management analyzes all facts and circumstances including any agreements with other investors, rights arising from other contractual arrangements and potential voting rights (call options, warrants, put options granted to non-controlling shareholders, etc.). These other facts and circumstances could be especially significant in such assessment when the Group holds less than a majority of voting rights, or similar rights, in the investee.
Furthermore, even if it holds more than half of the voting rights in an entity, the Group considers all the relevant facts and circumstances in assessing whether it controls the investee.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements considered in verifying the existence of control.
As reported in Enel’s consolidated financial statements at December 31, 2022, the Enel Group holds minor interests in Enel Green Power Rus LLC and Enel X Rus LLC.
In the wake of the Ukrainian conflict, a number of measures were adopted or undertaken that resulted in the termination of Enel’s management and coordination role at the Russian companies in which the Group holds investments. These measures include: (i) the resignation of all non-independent directors and all managers of non-Russian nationality; (ii) the termination of intercompany contracts; and (iii) the modification of the organizational structure of the Enel Group in order to terminate reporting by the staff or business functions to Enel.
At December 31, 2022 the Enel Group continues to control the companies from an accounting point of view, in compliance with “IFRS 10 - Consolidated Financial Statements”.
Determination of the existence of joint control and of the type of joint arrangement
Under the provisions of IFRS 11, a joint arrangement is an agreement where two or more parties have joint control. Joint control exists only when the decisions over the relevant activities require the unanimous consent of the parties that share joint control.
A joint arrangement can be configured as a joint venture or a joint operation. Joint ventures are joint arrangements whereby the parties that have joint control have rights to the net assets of the arrangement. Conversely, joint operations are joint arrangements whereby the parties that have joint control have rights to the assets and obligations for the liabilities relating to the arrangement.
In order to determine the existence of the joint control and the type of joint arrangement, management must apply judgment and assess its rights and obligations arising from the arrangement. For this purpose, the management considers the structure and legal form of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances. Following that analysis, the Group has considered its interest in Asociación Nuclear Ascó-Vandellós II as a joint operation.
The Group re-assesses whether or not it has joint control if facts and circumstances indicate that changes have occurred in one or more of the elements considered in verifying the existence of joint control and the type of the joint arrangement.
In the wake of the Ukrainian conflict, a number of measures were adopted or undertaken that resulted in the termination of Enel’s management of Rusenergosbyt LLC (Group’s associate). These measures include the resignation of all non-independent directors and all managers of non-Russian nationality and the termination of reporting by the staff or business functions to Enel.
At December 31, 2022 the Enel Group continues to exercise joint control of the company from an accounting point of view, in accordance with “IFRS 11 - Joint arrangements”. For more information on the Group’s investments in joint ventures, please see note 26 “Equity-accounted investments”.
Determination of the existence of significant influence over an associate
Associates are those in which the Group exercises significant influence, i.e., the power to participate in the financial and operating policy decisions of the investee but not exercise control or joint control over those policies. In general, it is presumed that the Group has a significant influence when it has an ownership interest of 20% or more.
In order to determine the existence of significant influence, management must apply judgment and consider all facts and circumstances.
The Group re-assesses whether or not it has significant influence if facts and circumstances indicate that there are changes to one or more of the elements considered in verifying the existence of significant influence.
For more information on the Group’s equity investments in associates, please see note 26 “Equity-accounted investments”.
Application of “IFRIC 12 - Service concession arrangements” to concessions
IFRIC 12 applies to “public-to-private” service concession arrangements, which can be defined as contracts under which the operator is obligated to provide public services, i.e., give access to major economic and social services for a certain period of time, on behalf of a public entity (the grantor). In these contracts, the grantor conveys to an operator the right to manage the infrastructure used to provide services.
More specifically, IFRIC 12 gives guidance on the accounting by operators for “public-to-private” service concession arrangements in the event that:
In assessing the applicability of these requirements for the Group, as operator, management carefully analyzed existing concessions.
On the basis of that analysis, the provisions of IFRIC 12 are applicable to some of the infrastructure of a number of companies that operate primarily in Brazil. Further details about the infrastructure used in the service concession arrangements in the scope of IFRIC 12 are provided in note 20 “Infrastructure within the scope of ‘IFRIC 12 - Service concession arrangements’”.
Revenue from contracts with customers In the process of applying
IFRS 15, the Group has made the following judgments (further details about the most significant effect on the Group’s revenue are provided in note 11.a “Revenue from sales and services”).
The Group carefully analyzes the contractual terms and conditions on a jurisdictional level in order to determine when a contract exists and the terms of that contract’s enforceability so as to apply IFRS 15 only to such contracts.
When a contract includes multiple promised goods or services, in order to assess if they should be accounted for separately or as a group, the Group considers both the individual characteristics of goods/services and the nature of the promise within the context of the contract, also evaluating all the facts and circumstances relating to the specific contract under the relevant legal and regulatory framework. To evaluate when a performance obligation is satisfied, the Group evaluates when the control of the goods or services is transferred to the customer, assessed primarily from the perspective of the customer.
For each performance obligation, and in relation to the type of transaction:
The Group considers all relevant facts and circumstances in determining whether a contract includes variable consideration (i.e., consideration that may vary or depends upon the occurrence or non-occurrence of a future event). In estimating variable consideration, the Group uses the method that better predicts the consideration to which it will be entitled, applying it consistently throughout the contract and for similar contracts, also considering all available information, and updating such estimates until the uncertainly is resolved. The Group includes the estimated variable consideration in the transaction price only to the extent that it is highly probable that a significant reversal in the cumulative revenue recognized will not occur when the uncertainty is resolved.
The Group considers that it is an agent in some contracts in which it is not primarily responsible for fulfilling the contract and therefore it does not control goods or services before they are being transferred to customers. For example, the Group acts as an agent in some contracts for electricity/gas network connection services and other related activities depending on local legal and regulatory framework.
For contracts that have more than one performance obligation (e.g., “bundled” sale contracts), the Group generally allocates the transaction price to each performance obligation in proportion to its stand-alone selling price. The Group determines stand-alone selling prices considering all information and using observable prices when they are available in the market or, if not, using an estimation method that maximizes the use of observable inputs and applying it consistently to similar arrangements.
If the Group evaluates that a contract includes an option for additional goods or services (e.g., customer loyalty programs or renewal options) that represents a material right, it allocates the transaction price to this option since the option gives rise to an additional performance obligation.
The Group assesses recoverability of the incremental costs of obtaining a contract either on a contract-by-contract basis, or for a group of contracts if those costs are associated with the group of contracts.
The Group supports the recoverability of such costs on the basis of its experience with other similar transactions and evaluating various factors, including potential renewals, amendments and follow-on contracts with the same customer.
The Group amortizes such costs over the average customer term. In order to determine this expected period of benefit from the contract, the Group considers its past experience (e.g., “churn rate”), the predictive evidence from similar contracts and available information about the market.
Power Purchase Agreements
Power Purchase Agreements (PPAs), which provide for the physical delivery of energy and which do not comply with the requirements of IFRS 10 for the existence of control or joint control over a company or an asset, and IFRS 16 for the recognition of a lease, but which comply with the definition of a derivative under IFRS 9, are accounted for on the basis of the own use exemption when the relevant conditions are met.
For more information on Virtual PPAs complying with the definition of derivative pursuant to IFRS 9, please see note 51 “Derivatives and hedge accounting”.
Classification and measurement of financial assets
At initial recognition, in order to classify financial assets as financial assets at amortized cost, at fair value through other comprehensive income and at fair value through profit or loss, management assesses both the contractual cash-flow characteristics of the instrument and the business model for managing financial assets in order to generate cash flows.
In order to evaluate the contractual cash-flow characteristics of the instrument, management performs the SPPI test at an instrument level, in order to determine if it gives rise to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding, performing specific assessment on the contractual clauses of the financial instruments, as well as quantitative analysis, if required. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
For more details, please see note 48 “Financial instruments by category”.
Hedge accounting
Hedge accounting is applied to derivatives in order to reflect into the financial statements the effect of risk management strategies. Accordingly, at the inception of the transaction the Group documents the hedge relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy.
The Group also assesses, both at hedge inception and on an ongoing basis, whether hedging instruments are highly effective in offsetting changes in the fair values or cash flows of hedged items. On the basis of management’s judgment, the effectiveness assessment based on the existence of an economic relationship between the hedging instruments and the hedged items, the dominance of credit risk in the changes in fair value and the hedge ratio, as well as the measurement of the ineffectiveness, is evaluated through a qualitative assessment or a quantitative computation, depending on the specific facts and circumstances and on the characteristics of the hedged items and the hedging instruments.
For cash flow hedges of forecast transactions designated as hedged items, management assesses and documents that they are highly probable and present an exposure to changes in cash flows that affect profit or loss.
For additional details on the key assumptions about effectiveness assessment and ineffectiveness measurement, please refer to note 51.1 “Derivatives designated as hedging instruments”.
Leases
The complexity of the assessment of the lease contracts, and also their long-term expiring date, requires considerable professional judgments for application of IFRS 16. In particular, this regards:
For more information on leases, please see note 21 “Leases”.
Uncertainty over income tax treatments
The Group determines whether to consider each uncertain income tax treatment separately or together with one or more other uncertain tax treatments as well as whether to reflect the effect of uncertainty by using the most likely amount or the expected value method, based on which approach better predicts the resolution of the uncertainty for each uncertain tax treatments, taking account of local tax regulations.
The Group makes significant use of professional judgment in identifying uncertainties about income tax treatments and reviews the judgments and estimates made in the event of a change in facts and circumstances that could change its assessment of the acceptability of a specific tax treatment or the estimate of the effects of uncertainty, or both. For more information on income taxes, please see note 17 “Income taxes”.
Related parties are mainly those that share the same controlling entity with Enel SpA, the companies that directly or indirectly are controlled by Enel SpA, the associates or joint ventures (including their subsidiaries) of Enel SpA, or the associates or joint ventures (including their subsidiaries) of any Group company. Related parties also include entities that operate post-employment benefit plans for employees of Enel SpA or its associates (specifically, the FOPEN and FONDENEL pension funds), as well as the members of the boards of statutory auditors, and their immediate family, and the key management personnel, and their immediate family, of Enel SpA and its subsidiaries. Key management personnel comprises management personnel who have the power and direct or indirect responsibility for the planning, management and control of the activities of the Company. They include directors (whether executive or not).
Subsidiaries are all entities over which the Group has control. The Group controls an entity, regardless of the nature of the formal relationship between them, when it is exposed, or has rights, to variable returns deriving from its involvement and has the ability, through the exercise of its power over the investee, to affect its returns.
The figures of the subsidiaries are consolidated on a full line-by-line basis as from the date control is acquired until such control ceases.
The financial statements of subsidiaries used to prepare the consolidated financial statements were prepared at December 31, 2022 in accordance with the accounting policies adopted by the Group.
If a subsidiary uses different accounting policies from those adopted in preparing the consolidated financial statements for similar transactions and facts in similar circumstances, appropriate adjustments are made to ensure conformity with Group accounting policies.
Assets, liabilities, revenue and expenses of a subsidiary acquired or disposed of during the year are included in or excluded from the consolidated financial statements, respectively, from the date the Group gains control or until the date the Group ceases to control the subsidiary.
Profit or loss for the year and the other comprehensive income are attributed to the owners of the Parent and non-controlling interests, even if this results in a loss for non-controlling interests.
All intercompany assets and liabilities, equity item, revenue, expenses and cash flows relating to transactions between entities of the Group are eliminated in full.
Changes in ownership interest in subsidiaries that do not result in loss of control are accounted for as equity transactions, with the carrying amounts of the controlling and non-controlling interests adjusted to reflect changes in their interests in the subsidiary. Any difference between the amount to which non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized in consolidated equity.
When the Group ceases to have control over a subsidiary, any interest retained in the entity is remeasured to its fair value, recognized through profit or loss, at the date when control is lost, recognizing any gain or loss from the loss of control through profit or loss. In addition, any amounts previously recognized in other comprehensive income in respect of the former subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities.
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in decisions concerning the financial and operating policies of the investee without having control or joint control over the investee.
A joint venture is a joint arrangement over which the Group exercises joint control and has rights to the net assets of the arrangement. Joint control is the sharing of control of an arrangement, whereby decisions about the relevant activities require unanimous consent of the parties sharing control.
The Group’s investments in associates and joint ventures are accounted for using the equity method.
Under the equity method, these investments are initially recognized at cost and any goodwill arising from the difference between the cost of the investment and the Group’s share of the net fair value of the investee’s identifiable assets and liabilities at the acquisition date is included in the carrying amount of the investment.
After the acquisition date, their carrying amount is adjusted to recognize changes in the Group’s share of profit or loss of the associate or joint venture in Group profit or loss. Adjustments to the carrying amount may also be necessary following changes in the Group’s share in the associate or joint venture as a result of changes in the other comprehensive income of the investee. The Group’s share of these changes is recognized in the Group’s other comprehensive income.
Distributions received from joint venture and associates reduce the carrying amount of the investments. Gains and losses resulting from transactions between the Group and the associates or joint ventures are eliminated to the extent of the interest in the associate or joint venture.
The financial statements of the associates or joint ventures are prepared for the same reporting period as the Group.
When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in an associate or joint venture. If there is objective evidence of a loss of value, the entire carrying amount of the investment undergoes impairment testing pursuant to IAS 36 as a single asset. For more information on impairment, please see the section “Impairment of non-financial assets” in note 2.1 “Use of estimates and management judgment”.
If the investment ceases to be an associate or a joint venture, the Group recognizes any retained investment at its fair value, through profit or loss. Any amounts previously recognized in other comprehensive income in respect of the former associate or joint venture are accounted for as if the Group had directly disposed of the related assets or liabilities.
If the ownership interest in an associate or a joint venture is reduced, but the Group continues to exercise a significant influence or joint control, the Group continues to apply the equity method and the share of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction is accounted for as if the Group had directly disposed of the related assets or liabilities.
When a portion of an investment in an associate or joint venture meets the criteria to be classified as held for sale, any retained portion of an investment in the associate or joint venture that has not been classified as held for sale is accounted for using the equity method until disposal of the portion classified as held for sale takes place.
Joint operations are joint arrangements whereby the Group, which holds joint control, has rights to the assets and obligations for the liabilities relating to the arrangement. For each joint operation, the Group recognized assets, liabilities, costs and revenue on the basis of the provisions of the arrangement rather than the interest held. Where there is an increase in the interest in a joint arrangement that meets the definition of a business:
For more information on the Group’s investments in associates and joint ventures, please see note 26 “Equity-accounted investments”.
Transactions in currencies other than the functional currency are initially recognized at the spot exchange rate prevailing on the date of the transaction.
Monetary assets and liabilities denominated in a foreign currency other than the functional currency are subsequently translated using the closing exchange rate (i.e., the spot exchange rate prevailing at the reporting date).
Non-monetary assets and liabilities denominated in foreign currency that are recognized at historical cost are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities in foreign currency measured at fair value are translated using the exchange rate at the date the fair value was determined. Any exchange differences are recognized through profit or loss.
In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration in foreign currency paid or received, the date of the transaction is the date on which the Group initially recognizes the non-monetary asset or non-monetary liability associated with the advance consideration.
If there are multiple advance payments or receipts, the Group determines the transaction date for each payment or receipt of advance consideration.
For the purposes of the consolidated financial statements, all revenue, expenses, assets and liabilities are stated in euro, which is the presentation currency of the Parent.
In order to prepare the consolidated financial statements, the financial statements of consolidated companies with functional currencies other than the presentation currency used in the consolidated financial statements are translated into euros by applying the closing exchange rate to the assets and liabilities, including goodwill and consolidation adjustments, and the average exchange rate for the period to the income statement items on the condition it approximates the exchange rates prevailing at the date of the respective transactions.
Any resulting exchange gains or losses are recognized as a separate component of equity in a special reserve. The gains and losses are recognized proportionately in the income statement on the disposal (partial or total) of the subsidiary.
When the functional currency of a consolidated company is the currency of a hyperinflationary economy, the Group restates the financial statements in accordance with IAS 29 before applying the specific conversion method set out below.
In order to consider the impact of hyperinflation on the local currency exchange rate, the financial position and performance (i.e., assets, liabilities, equity items, revenue and expenses) of a company whose functional currency is the currency of a hyperinflationary economy are translated into the Group’s presentation currency (the euro) using the exchange rate prevailing at the reporting date, except for comparative amounts presented in the previous year’s financial statements which are not adjusted for subsequent changes in the price level or subsequent changes in exchange rates.
Business combinations initiated before January 1, 2010 and completed within that financial year are recognized on the basis of IFRS 3 (2004).
Such business combinations were recognized using the purchase method, where the purchase cost is equal to the fair value at the date of the exchange of the assets acquired and the liabilities incurred or assumed, plus costs directly attributable to the acquisition. This cost was allocated by recognizing the assets, liabilities and identifiable contingent liabilities of the acquired company at their fair values. Any positive difference between the cost of the acquisition and the fair value of the net assets acquired attributable to the owners of the Parent was recognized as goodwill. If the difference is negative, it is recognized through profit or loss.
The carrying amount of non-controlling interests was determined in proportion to the interest held by non-controlling shareholders in the net assets. In the case of business combinations achieved in stages, at the date of acquisition any adjustment to the fair value of the net assets acquired previously was recognized in equity; the amount of goodwill was determined for each transaction separately based on the fair values of the acquiree’s net assets at the date of each exchange transaction.
Business combinations carried out as from January 1, 2010 are recognized on the basis of IFRS 3 (2008), which is referred to as IFRS 3 (Revised) hereafter.
More specifically, business combinations are recognized using the acquisition method, where the purchase cost (the consideration transferred) is equal to the fair value at the purchase date of the assets acquired and the liabilities incurred or assumed, as well as any equity instruments issued by the purchaser. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement.
Costs directly attributable to the acquisition are recognized through profit or loss.
The consideration transferred is allocated by recognizing the assets, liabilities and identifiable contingent liabilities of the acquired company at their fair values as at the acquisition date. The excess of the consideration transferred, measured at fair value as at the acquisition date, the amount of any non-controlling interest in the acquiree plus the fair value of any equity interest in the acquiree previously held by the Group (in a business combination achieved in stages) over the net amount of the identifiable assets acquired and the liabilities incurred or assumed measured at fair value is recognized as goodwill. If the difference is negative, the Group verifies whether it has correctly identified all the assets acquired and liabilities assumed and reviews the procedures used to determine the amounts to recognize at the acquisition date. If after this assessment the fair value of the net assets acquired still exceeds the total consideration transferred, this excess represents the profit on a bargain purchase and is recognized through profit or loss.
The carrying amount of non-controlling interests is determined either in proportion to the interest held by non-controlling shareholders in the net identifiable assets of the acquiree or at their fair value as at the acquisition date. In the case of business combinations achieved in stages, at the date of acquisition of control the previously held equity interest in the acquiree is remeasured to fair value and any positive or negative difference is recognized in profit or loss.
Any contingent consideration is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration classified as an asset or a liability, or as a financial instrument within the scope of IFRS 9, are recognized in profit or loss. If the contingent consideration is not within the scope of IFRS 9, it is measured in accordance with the appropriate IFRS-EU. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.
If the fair values of the assets, liabilities and contingent liabilities can only be calculated on a provisional basis, the business combination is recognized using such provisional values. Any adjustments resulting from the completion of the measurement process are recognized within 12 months of the date of acquisition, restating comparative figures.
For all fair value measurements and disclosures of fair value, that are either required or permitted by IFRS, the Group applies IFRS 13.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction, between market participants, at the measurement date (i.e., an exit price).
The fair value measurement assumes that the transaction to sell an asset or transfer a liability takes place in the principal market, i.e., the market with the greatest volume and level of activity for the asset or liability. In the absence of a principal market, it is assumed that the transaction takes place in the most advantageous market to which the Group has access, i.e., the market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. Market participants are independent, knowledgeable sellers and buyers who are able to enter into a transaction for the asset or the liability and who are motivated but not forced or otherwise compelled to do so.
When measuring fair value, the Group considers the characteristics of the asset or liability, in particular:
In measuring the fair value of assets and liabilities, the Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes expenses directly attributable to bringing the asset to the location and condition necessary for its intended use.
The cost is also increased by the present value of the estimate of the costs of decommissioning and restoring the site on which the asset is located where there is a legal or constructive obligation to do so. The corresponding liability is recognized under provisions for risks and charges. The accounting treatment of changes in the estimate of these costs, the passage of time and the discount rate is discussed in note 40 “Provisions for risks and charges”. Property, plant and equipment transferred from customers to connect them to the electricity distribution network and/or to provide them with other related services is initially recognized at its fair value at the date on which control is obtained.
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, i.e., an asset that takes a substantial period of time to get ready for its intended use or sale, are capitalized as part of the cost of the assets themselves. Borrowing costs associated with the purchase/construction of assets that do not meet such requirement are expensed in the period in which they are incurred.
Certain assets that were revalued at the IFRS-EU transition date or in previous periods are recognized at their fair value, which is considered to be their deemed cost at the revaluation date.
Where individual items of major components of property, plant and equipment have different useful lives, the components are recognized and depreciated separately. Subsequent costs are recognized as an increase in the carrying amount of the asset when it is probable that future economic benefits associated with the cost incurred to replace a part of the asset will flow to the Group and the cost of the item can be measured reliably. All other costs are recognized in profit or loss as incurred.
The cost of replacing part or all of an asset is recognized as an increase in the carrying amount of the asset and is depreciated over its useful life; the carrying amount of the replaced unit is derecognized through profit or loss.
Property, plant and equipment, net of its residual value, is depreciated on a straight-line basis over its estimated useful life, which is reviewed annually. Any changes in depreciation criteria shall be applied prospectively. For more information on estimating useful life, please see note 2.1 “Use of estimates and management judgment”.
Depreciation begins when the asset is available for use. The estimated useful life of the main items of property, plant and equipment is as follows:
The useful life of leasehold improvements is determined on the basis of the term of the lease or, if shorter, on the duration of the benefits produced by the improvements themselves.
Land is not depreciated as it has an indefinite useful life. Assets recognized under property, plant and equipment are derecognized either upon their disposal (i.e., at the date the recipient obtains control) or when no future economic benefit is expected from their use or disposal. Any gain or loss, recognized through profit or loss, is calculated as the difference between the net disposal proceeds, determined in accordance with the transaction price requirements of IFRS 15, and the carrying amount of the derecognized assets.
Assets to be relinquished free of charge
The Group’s plants include assets to be relinquished free of charge at the end of the concessions. These mainly regard major water diversion works and the public lands used for the operation of the thermal power plants.
Within the Italian regulatory framework in force until 2011, if the concessions are not renewed, at those dates all intake and governing works, penstocks, outflow channels and other assets on public lands were to be relinquished free of charge to the State in good operating condition. Accordingly, depreciation on assets to be relinquished was calculated over the shorter of the term of the concession and the useful life of the assets.
In the wake of the legislative changes introduced with Law 134 of August 7, 2012, the assets previously classified as assets “to be relinquished free of charge” connected with the hydroelectric water diversion concessions are now considered in the same manner as other categories of “Property, plant and equipment” and are therefore depreciated over the useful life of the asset (where this exceeds the term of the concession), as discussed in the section above on the “Depreciable amount of certain elements of Italian hydroelectric plants subsequent to enactment of Law 134/2012”, which you are invited to consult for more details.
In accordance with Spanish laws 29/1985 and 46/1999, hydroelectric power stations in Spanish territory operate under administrative concessions at the end of which the plants will be returned to the government in good operating condition. The terms of the concessions extend up to 2078.
A number of generation companies that operate in Latin America hold administrative concessions with similar conditions to those applied under the Spanish concession system. These concessions will expire in Argentina in 2087, in Brazil in 2047, in Costa Rica in 2031, in Panama in 2060 and in Guatemala in 2062.
Infrastructure serving a concession not within the scope of “IFRIC 12 - Service concession arrangements”
As regards the distribution of electricity, the Group is a concession holder in Italy for this service. The concession, granted by the Ministry for Economic Development, was issued free of charge and terminates on December 31, 2030. If the concession is not renewed upon expiry, the grantor is required to pay an indemnity. The amount of the indemnity will be determined by agreement of the parties using appropriate valuation methods, based on both the carrying amount of the assets themselves and their profitability.
In determining the indemnity, such profitability will be represented by the present value of future cash flows. The infrastructure serving the concession is owned and available to the concession holder. It is recognized under “Property, plant and equipment” and is depreciated over the useful lives of the assets.
Enel also operates under administrative concessions for the distribution of electricity in other countries (including Spain and Romania). These concessions give the right to build and operate distribution networks for an indefinite period of time.
Under a “public-to-private” service concession arrangement within the scope of “IFRIC 12 - Service concession arrangements” the operator acts as a service provider and, in accordance with the terms specified in the contract, it constructs/upgrades infrastructure used to provide a public service and/or operates and maintains that infrastructure for the years of the concession.
The Group, as operator, does not account for the infrastructure within the scope of IFRIC 12 as property, plant and equipment and it recognizes and measures revenue in accordance with IFRS 15 for the services it performs. In particular, when the Group provides construction or upgrade services, depending on the characteristics of the service concession arrangement, it recognizes:
The Group holds property, plant and equipment for its various activities under lease contracts. At inception of a contract, the Group assesses whether a contract is, or contains, a lease.
For contracts entered into or changed on or after January 1, 2019, the Group has applied the definition of a lease under IFRS 16, that is met if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Conversely, for contracts entered into before January 1, 2019, the Group determined whether the arrangement was or contained a lease under IFRIC 4.
Group as a lessee
At commencement or on modification of a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone price.
The Group recognizes a right-of-use asset and a lease liability at the commencement date of the lease (i.e., the date the underlying asset is available for use).
The right-of-use asset represents a lessee’s right to use an underlying asset for the lease term; it is initially measured at cost, which includes the initial amount of lease liability adjusted for any lease payments made at or before the commencement date less any lease incentives received, plus any initial direct costs incurred and an estimate of costs to retire and remove the underlying asset and to restore the underlying asset or the site on which it is located. Right-of-use assets are subsequently depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the right-of-use assets, as follows:
If the lease transfers ownership of the underlying asset to the Group at the end of the lease term or if the cost of the right-of-use asset reflects the fact that the Group will exercise a purchase option, depreciation is calculated using the estimated useful life of the underlying asset.
In addition, the right-of-use assets are subject to impairment and adjusted for any remeasurement of lease liabilities.
The lease liability is initially measured at the present value of lease payments to be made over the lease term. In calculating the present value of lease payments, the Group uses the lessee’s incremental borrowing rate at the lease commencement date when the interest rate implicit in the lease is not readily determinable.
Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs.
After the commencement date, the lease liability is measured at amortized cost using the effective interest method and is remeasured upon the occurrence of certain events. The Group applies the short-term lease recognition exemption to its lease contracts that have a lease term of 12 months or less from the commencement date. It also applies the low-value assets recognition exemption to lease contracts for which the underlying asset is of low-value whose amount is estimated not material. For example, the Group has leases of certain office equipment (i.e., personal computers, printing and photocopying machines) that are considered of low-value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
The Group presents right-of-use assets that do not meet the definition of investment property in “Property, plant and equipment” and lease liabilities in “Borrowings”. Consistent with the requirement of the standard, the Group presents separately the interest expense on lease liabilities under “Other financial expense” and the depreciation charge on the right-of-use assets under “Depreciation, amortization and impairment losses”.
Group as a lessor
When the Group acts as a lessor, it determines at the lease inception date whether each lease is a finance lease or an operating lease. Leases in which the Group essentially transfers all the risks and rewards associated with ownership of the underlying asset are classified as finance leases; otherwise, they are classified as operating leases.
To make this assessment, the Group considers the indicators provided by IFRS 16. If a contract contains lease and non-lease components, the Group allocates the consideration in the contract applying IFRS 15. The Group accounts for rental income arising from operating leases on a straight-line basis over the lease terms and it recognizes it as other revenue.
Investment property consists of the Group’s real estate held to earn rentals and/or for capital appreciation rather than for use in the production or supply of goods and services.
Investment property is measured at acquisition cost less any accumulated depreciation and any accumulated impairment losses.
Investment property, excluding land, is depreciated on a straight-line basis over the useful lives of the related assets.
Impairment losses are determined on the basis of the criteria following described.
The breakdown of the fair value of investment property is detailed in note 52 “Assets and liabilities measured at fair value”.
Investment property is derecognized either when it has been transferred (i.e., at the date the recipient obtains control) or when it is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss, recognized through profit or loss, is calculated as the difference between the net disposal proceeds, determined in accordance with the transaction price requirements of IFRS 15, and the carrying amount of the derecognized assets.
Transfers are made to (or from) investment property only when there is a change in use.
Intangible assets are identifiable assets without physical substance controlled by the Group and capable of generating future economic benefits. They are measured at purchase or internal development cost when it is probable that the use of such assets will generate future economic benefits and the related cost can be reliably determined. The cost includes any directly attributable expenses necessary to make the assets ready for their intended use. Development expenditure is recognized as an intangible asset only when Group can demonstrate the technical feasibility of completing the asset, its intention and ability to complete development and to use or sell the asset and the availability of resources to complete the asset.
Research costs are recognized as expenses.
Intangible assets with a finite useful life are recognized net of accumulated amortization and any impairment losses. Amortization is calculated on a straight-line basis over the asset’s estimated useful life, which is reassessed at least annually; any changes in amortization policies are reflected on a prospective basis. For more information on estimating useful life, please see note 2.1 “Use of estimates and management judgment”.
Amortization commences when the asset is ready for use. Consequently, intangible assets not yet available for use are not amortized, but are tested for impairment at least annually.
The Group’s intangible assets have a finite useful life, with the exception of a number of concessions and goodwill. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually.
The assessment of indefinite useful life is reviewed annually to determine whether the indefinite useful life continues to be supportable. If not, the change in useful life from indefinite to finite is accounted for as a change in accounting estimate. Intangible assets are derecognized either at the time of their disposal (at the date when the recipient obtains control) or when no future economic benefit is expected from their use or disposal. Any gain or loss, recognized through profit or loss, is calculated as the difference between the net consideration received in the disposal, determined in accordance with the provisions of IFRS 15 concerning the transaction price, and the carrying amount of the derecognized assets.
The estimated useful life of the main intangible assets, distinguishing between internally generated and acquired assets, is as follows:
The Group also presents costs to obtain a contract with a customer capitalized in accordance with IFRS 15 as intangible assets.
The Group recognized such costs as an asset only if:
In particular, the Group generally capitalizes trade fees and commissions paid to agents for such contracts if the capitalization criteria are met.
Capitalized customer contract costs are amortized on a systematic basis, consistent with the pattern of the transfer of the goods or services to which they relate, and undergo impairment testing to identify any impairment losses to the extent that the carrying amount of the asset recognized exceeds the recoverable amount.
The Group amortizes the capitalized customer contract costs on a straight-line basis over the expected period of benefit from the contract (i.e., the average term of the customer relationship); any changes in amortization policies are reflected on a prospective basis.
Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. For further details, please see the section of the accounting policies “Business combinations”.
Goodwill arising on the acquisition of subsidiaries is recognized separately. After initial recognition, goodwill is not amortized, but is tested for impairment at least annually as part of the CGU to which it pertains.
For the purpose of impairment testing, goodwill is allocated, from the acquisition date, to each CGU that is expected to benefit from the synergies of the combination. Goodwill relating to equity investments in associates and joint venture is included in their carrying amount.
At each reporting date, property, plant and equipment, investment property, intangible assets, right-of-use assets, goodwill and equity investments in associates/joint ventures are reviewed to determine whether there is evidence of impairment.
CGUs to which goodwill, intangible assets with an indefinite useful life and intangible assets not yet available for use are allocated are tested for recoverability annually or more frequently if there is evidence suggesting that the assets can be impaired.
If such evidence exists, the recoverable amount of any involved asset is estimated on the basis of the use of the asset and its future disposal, in accordance with the Group’s most recent Business Plan. For the estimate of the recoverable amount, please see note 2.1 “Use of estimates and management judgment”.
The recoverable amount is determined for an individual asset, unless the asset do not generate cash inflows that are largely independent of those from other assets or groups of assets and therefore it is determined for the CGU to which the asset belongs.
If the carrying amount of an asset or of a CGU to which it is allocated is greater than its recoverable amount, an impairment loss is recognized in profit or loss and presented under “Depreciation, amortization and other impairment losses”.
Impairment losses of CGUs are firstly charged against the carrying amount of any goodwill attributed to it and then against the other assets, in proportion to their carrying amount.
If the reasons for a previously recognized impairment loss no longer apply, the carrying amount of the asset is restored through profit or loss, under “Depreciation, amortization and other impairment losses”, in an amount that shall not exceed the carrying amount that the asset would have had if the impairment loss had not been recognized. The original amount of goodwill is not restored even if in subsequent years the reasons for the impairment no longer apply.
If certain specific identified assets owned by the Group are impacted by adverse economic or operating conditions that undermine their capacity to contribute to the generation of cash flows, they can be isolated from the rest of the assets of the CGU, undergo separate analysis of their recoverability and be impaired where necessary.
Inventories are measured at the lower of cost and net realizable value except for inventories involved in trading activities, which are measured at fair value with recognition through profit or loss. Cost is determined on the basis of average weighted cost, which includes related ancillary charges. Net estimated realizable value is the estimated normal selling price net of estimated costs to sell or, where applicable, replacement cost.
For the portion of inventories held to discharge sales that have already been made, the net realizable value is determined on the basis of the amount established in the contract of sale.
Inventories include environmental certificates (for example, green certificates, energy efficiency certificates and European CO2 emissions allowances and guarantees of origin) exceeding compliance in the reporting period. As regards CO2 emissions allowances, inventories are allocated between the trading portfolio and the compliance portfolio, i.e., those used for compliance with greenhouse gas emissions requirements.
Inventories also include nuclear fuel stocks, use of which is determined on the basis of the electricity generated. Materials and other consumables (including energy commodities) held for use in production are not written down if it is expected that the final product in which they will be incorporated will be sold at a price sufficient to enable recovery of the cost incurred.
Financial instruments are any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity; they are recognized and measured in accordance with IAS 32 and IFRS 9.
A financial asset or liability is recognized in the consolidated financial statements when, and only when, the Group becomes party to the contractual provision of the instrument (i.e., the trade date).
Trade receivables arising from contracts with customers, in the scope of IFRS 15, are initially measured at their transaction price (as defined in IFRS 15) if such receivables do not contain a significant financing component or when the Group applies the practical expedient allowed by IFRS 15. Conversely, the Group initially measures financial assets other than the above-mentioned trade receivables at their fair value plus, in the case of a financial asset not measured at fair value through profit or loss, transaction costs.
Financial assets are classified, at initial recognition, as financial assets at amortized cost, at fair value through other comprehensive income and at fair value through profit or loss, on the basis of both the Group’s business model and the contractual cash-flow characteristics of the instrument.
For this purpose, the assessment to determine whether the instrument gives rise to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding is referred to as the SPPI test and is performed at an instrument level.
The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
For purposes of subsequent measurement, financial assets are classified in four categories:
Financial assets measured at amortized cost
This category mainly includes trade receivables, other financial assets and loan assets.
Financial assets at amortized cost are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and whose contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Such assets are initially recognized at fair value, adjusted for any transaction costs, and subsequently measured at amortized cost using the effective interest method and are subject to impairment.
Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
Financial assets at fair value through other comprehensive income (FVOCI) - Debt instruments
This category mainly includes:
Financial assets at fair value through other comprehensive income are assets held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and whose contractual cash flows give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Changes in fair value for these financial assets are recognized in other comprehensive income as well as loss allowances that do not reduce the carrying amount of the financial assets.
When a financial asset is derecognized (e.g., at the time of sale), the cumulative gains and losses previously recognized in equity (except impairment and foreign exchange gains and losses to be recognized in profit or loss) are reversed to profit or loss.
Financial assets at fair value through other comprehensive income (FVOCI) - Equity instruments
This category includes mainly equity investments in other entities irrevocably designated as such upon initial recognition.
Gains and losses on these financial assets are never reclassified to profit or loss. The Group may transfer the cumulative gain or loss within equity.
Equity instruments designated at fair value through OCI are not subject to impairment testing.
Dividends on such investments are recognized in profit or loss unless they clearly represent a recovery of a part of the cost of the investment.
Financial assets at fair value through profit or loss
This category mainly includes: securities, equity investments in other companies, financial investments in fund held for trading and financial assets designated as at fair value through profit or loss at initial recognition.
Financial assets at fair value through profit or loss are:
Such financial assets are initially recognized at fair value with subsequent gains and losses from changes in their fair value recognized through profit or loss.
This category also includes listed equity investments which the Group had not irrevocably elected to classify at fair value through OCI. Dividends on such investments are also recognized as other income in the income statement when the right of payment has been established.
Financial assets that qualify as contingent consideration are also measured at fair value through profit or loss.
Impairment of financial assets
At each reporting date, the Group recognizes a loss allowance for expected credit losses on trade receivables and other financial assets measured at amortized cost, debt instruments measured at fair value through other comprehensive income (FVOCI), contract assets and all other assets within the scope of IFRS 9.
In compliance with IFRS 9, as from January 1, 2018, the Group adopted a new impairment model based on the determination of expected credit losses (ECL) using a forward-looking approach. In essence, the model provides for:
For trade receivables, contract assets and lease receivables, including those with a significant financial component, the Group adopts the simplified approach, determining expected credit losses over a period corresponding to the entire life of the asset, generally equal to 12 months. For all financial assets other than trade receivables, contract assets and lease receivables, the Group applies the general approach under IFRS 9, based on the assessment of a significant increase in credit risk since initial recognition. Under such approach, a loss allowance on financial assets is recognized at an amount equal to the lifetime expected credit losses, if the credit risk on those financial assets has increased significantly, since initial recognition, considering all reasonable and supportable information, including also forward-looking inputs.
If at the reporting date the credit risk on financial assets has not increased significantly since initial recognition, the Group measures the loss allowance for those financial assets at an amount equal to 12-month expected credit losses.
For financial assets on which a loss allowance equal to lifetime expected credit losses has been recognized in the previous reporting period, the Group measures the loss allowance at an amount equal to 12-month expected credit losses when the condition regarding a significant increase in credit risk is no longer met.
The Group recognizes in profit or loss, as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized in accordance with IFRS 9.
The Group applies the low credit risk exemption, avoiding the recognition of loss allowances at an amount equal to lifetime expected credit losses due to a significant increase in credit risk of debt securities at fair value through OCI, whose counterparty has a strong financial capacity to meet its contractual cash-flow obligations (e.g., investment grade).
For more information on the impairment of financial assets, please see note 48 “Financial instruments by category”.
Cash and cash equivalents
This category includes deposits that are available on demand or at very short term, as well as highly liquid shortterm financial investments that are readily convertible into a known amount of cash and which are subject to insignificant risk of changes in value.
In addition, for the purpose of the consolidated statement of cash flows, cash and cash equivalents do not include bank overdrafts at period-end.
Financial liabilities at amortized cost
This category mainly includes borrowings, trade payables, lease liabilities and debt instruments.
Financial liabilities, other than derivatives, are recognized when the Group becomes a party to the contractual clauses of the instrument and are initially measured at fair value adjusted for directly attributable transaction costs. Financial liabilities are subsequently measured at amortized cost using the effective interest rate method. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the carrying amount of the financial asset or liability.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as at fair value through profit or loss unless they are designated as effective hedging instruments. Gains or losses on liabilities at fair value through profit or loss are recognized through profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, only if the criteria in IFRS 9 are satisfied.
In this case, the portion of the change in fair value attributable to own credit risk is recognized in other comprehensive income.
The Group has not designated any financial liability as at fair value through profit or loss, upon initial recognition. Financial liabilities that qualify as contingent consideration are also measured at fair value through profit or loss.
Derecognition of financial assets and liabilities
Financial assets are derecognized whenever one of the following conditions is met:
Financial liabilities are derecognized when they are extinguished, i.e., when the contractual obligation has been discharged, cancelled or expired.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss.
Derivative financial instruments
A derivative is a financial instrument or another contract:
Derivative instruments are classified as financial assets or liabilities depending on the positive or negative fair value and they are classified as “held for trading” within “Other business models” and measured at fair value through profit or loss, except for those designated as effective hedging instruments.
All derivatives held for trading are classified as current assets or liabilities.
Derivatives not held for trading purposes, but measured at fair value through profit or loss since they do not qualify for hedge accounting, and derivatives designated as effective hedging instruments are classified as current or not current on the basis of their maturity date and the Group intention to hold the financial instrument till maturity or not. For more details about derivatives and hedge accounting, please see note 51 “Derivatives and hedge accounting”.
Embedded derivatives
An embedded derivative is a derivative included in a “combined” contract (the so-called “hybrid instrument”) that contains another non-derivative contract (the so-called host contract) and gives rise to some or all of the combined contract’s cash flows.
The main Group contracts that may contain embedded derivatives are contracts to buy or sell non-financial items with clauses or options that affect the contract price, volume or maturity.
A derivative embedded in a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.
Contracts that do not represent financial instruments to be measured at fair value are analyzed in order to identify any embedded derivatives, which are to be separated and measured at fair value. This analysis is performed when the Group becomes party to the contract or when the contract is renegotiated in a manner that significantly changes the original associated cash flows.
Embedded derivatives are separated from the host contract and accounted for as derivatives when:
Embedded derivatives that are separated from the host contract are recognized in the consolidated financial statements at fair value with changes recognized in profit or loss (except when the embedded derivative is part of a designated hedge relationship).
Contracts to buy or sell non-financial items
In general, contracts to buy or sell non-financial items that are entered into and continue to be held for receipt or delivery in accordance with the Group’s normal expected purchase, sale or usage requirements are out of the scope of IFRS 9 and then recognized as executory contracts, according to the “own use exemption”.
A contract to buy or sell non-financial items is classified as “normal purchase or sale” if it is entered into:
Moreover, contracts to buy or sell non-financial items with physical settlement (for example, fixed-price forward contracts on energy commodities) that do not qualify for the own use exemption are recognized as derivatives measured at fair value from the trade date only if:
Trading contracts are valued at fair value through profit or loss; the results of the measurement of changes in the fair value of contracts still outstanding at the reporting date are recognized on a net basis under the item “Net results from commodity contracts”, while at the settlement date:
Contracts to buy or sell non-financial items falling within the scope of application of IFRS 9 can also be subsequently designated as hedging instruments if they satisfy the requirements for hedge accounting.
The Group analyzes all contracts to buy or sell non-financial assets on an ongoing basis, with a specific focus on forward purchases and sales of electricity and energy commodities, in order to determine if they shall be classified and treated in accordance with IFRS 9 or if they have been entered into for “own use”.
Offsetting financial assets and liabilities
The Group offsets financial assets and liabilities when:
In a hyperinflationary economy, the Group adjusts non-monetary items, equity and items deriving from index- linked contracts up to the limit of recoverable amount, using a price index that reflects changes in general purchasing power.
The effects of initial application are recognized in equity net of tax effects. Conversely, during the hyperinflationary period (until it ceases), the gain or loss resulting from adjustments is recognized in profit or loss and disclosed separately in financial income and expense. Starting from 2018, this standard applies to the Group’s transactions in Argentina, whose economy has been declared hyperinflationary from July 1, 2018.
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction, rather than through continuing use.
This classification criterion is applicable only when non-current assets (or disposal groups) are available in their present condition for immediate sale and the sale is highly probable.
If the Group is committed to a sale plan involving loss of control of a subsidiary and the requirements provided for under IFRS 5 are met, all the assets and liabilities of that subsidiary are classified as held for sale when the classification criteria are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.
The Group applies these classification criteria as envisaged in IFRS 5 to an investment, or a portion of an investment, in an associate or a joint venture. Any retained portion of an investment in an associate or a joint venture that has not been classified as held for sale is accounted for using the equity method until disposal of the portion that is classified as held for sale takes place.
Non-current assets (or disposal groups) and liabilities of disposal groups classified as held for sale are presented separately from other assets and liabilities in the statement of financial position.
The amounts presented for non-current assets or for the assets and liabilities of disposal groups classified as held for sale are not reclassified or re-presented for prior periods presented.
Immediately before the initial classification of non-current assets (or disposal groups) as held for sale, the carrying amounts of such assets (or disposal groups) are measured in accordance with the accounting standard applicable to those assets or liabilities. Non-current assets (or disposal groups) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses for any initial or subsequent write-down of the assets (or disposal groups) to fair value less costs to sell and gains for their reversals are recognized in profit or loss from continuing operations.
Non-current assets are not depreciated (or amortized) while they are classified as held for sale or while they are part of a disposal group classified as held for sale. If the classification criteria are no longer met, the Group ceases to classify the non-current assets (or disposal group) as held for sale. In this case they are measured at the lower of:
Any adjustment to the carrying amount of a non-current asset that ceases to be classified as held for sale is included in profit or loss from continuing operations. A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale, and:
The Group presents, in a separate line item of the income statement, a single amount comprising the total of:
The corresponding amount is restated in the income statement for prior periods presented in the financial statements, so that the disclosures relate to all operations that are discontinued by the end of the current reporting period. If the Group ceases to classify a component as held for sale, the results of the component previously presented in discontinued operations are reclassified and included in profit or loss from continuing operations for all periods presented.
Some Group companies are affected by national regulations governing green certificates, guarantees of origin and energy efficiency certificates (so-called white certificates), as well as the European “Emissions Trading System”. Green certificates and guarantees of origin accrued in proportion to electricity generated by renewable energy plants and energy efficiency certificates accrued in proportion to energy savings achieved that have been certified by the competent authority are treated as non-monetary government operating grants and are recognized at fair value, under other operating profit, with recognition of an asset under other non-financial assets, if the certificates are not yet credited to the ownership account, or under inventories, if the certificates have already been credited to that account.
At the time the certificates are credited to the ownership account, they are reclassified from other assets to inventories.
Revenue from the sale of such certificates is recognized under revenue, with a corresponding decrease in inventories.
For the purposes of accounting for charges arising from such regulatory requirements, the Group uses the “net liability approach”.
Under this accounting policy, any environmental certificates received free of charge and those self-produced as a result of Group’s operations that will be used for compliance purposes are recognized at nominal value (nil). In addition, charges incurred for obtaining (in the market or in some other transaction for consideration) any missing certificates to fulfil compliance requirements for the reporting period are recognized through profit or loss on an accrual basis under other operating costs, as they represent “system charges” consequent to compliance with a regulatory requirement.
Liabilities related to employee benefits paid upon or after ceasing employment in connection with defined benefit plans or other long-term benefits accrued during the employment period are determined separately for each plan, using actuarial assumptions to estimate the amount of the future benefits that employees have accrued at the reporting date (using the projected unit credit method). More specifically, the present value of the defined benefit obligation is calculated by using a discount rate determined on the basis of market yields at the end of the reporting period on high-quality corporate bonds. If there is no deep market for high-quality corporate bonds in the currency in which the bond is denominated, the corresponding yield of government securities is used.
The liability, net of any plan assets, is recognized on an accrual basis over the vesting period of the related rights. These appraisals are performed by independent actuaries. If the plan assets exceed the present value of the related defined benefit obligation, the surplus (up to the limit of any cap) is recognized as an asset.
As regards the liabilities/(assets) of defined benefit plans, the cumulative actuarial gains and losses from the actuarial measurement of the liabilities, the return on the plan assets (net of the associated interest income) and the effect of the asset ceiling (net of the associated interest) are recognized in other comprehensive income when they occur. For other long-term benefits, the related actuarial gains and losses are recognized through profit or loss. In the event of a change being made to an existing defined benefit plan or the introduction of a new plan, any past service cost is recognized immediately in profit or loss.
In addition, the Group is involved in defined contribution plans under which it pays fixed contributions to a separate entity (a fund) and has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Such plans are usually aimed to supplement pension benefits due to employees post-employment. The related costs are recognized through profit or loss on the basis of the amount of contributions paid in the period.
Liabilities for benefits due to employees for the early termination of employee service arise out of the Group’s decision to terminate an employee’s employment before the normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the termination of employment. The event that gives rise to an obligation is the termination of employment rather than employee service. Termination benefits are recognized at the earlier of the following dates:
The liabilities are measured on the basis of the nature of the employee benefits. More specifically, when the benefits represent an enhancement of other post-employment benefits, the associated liability is measured in accordance with the rules governing that type of benefits. Otherwise, if the termination benefits due to employees are expected to be settled wholly before 12 months of the close of the period in which the benefits are recognized, the entity measures the liability in accordance with the requirements for short-term employee benefits; if they are not expected to be settled wholly before 12 months of the close of period in which the benefits are recognized, the entity measures the liability in accordance with the requirements for other long-term employee benefits.
The Group undertakes share-based payment transactions settled with equity instruments as part of the remuneration policy adopted for the Chief Executive Officer/General Manager and for key management personnel.
The most recent long-term incentive plans provide for the grant to recipients of an incentive represented by an equity component (settled with equity instruments) and a monetary component (paid in cash), which will accrue if specific conditions are met. The monetary component is classified as a cash-settled transaction if it is based on the price (or value) of the equity instruments of the company that issued the plan or, in other cases, as another longterm employee benefit.
In order to settle the equity component through the bonus award of Enel shares, a program for the purchase of treasury shares to support these plans was approved. For more details on share-based incentive plans, please see note 53 “Share-based payments”.
For the equity component, the Group recognizes the services rendered by employees as personnel expenses over the period in which the conditions for remaining in service and for achieving certain results must be satisfied (vesting period) and indirectly estimates their value, and the corresponding increase in a specific equity item, on the basis of the fair value of the equity instruments (i.e., the issuer shares) at the grant date. This fair value is based on the observable market price of the share, taking account of the terms and conditions under which the shares were granted (with the exception of vesting conditions excluded from the measurement of fair value).
The overall expense recognized is adjusted at each reporting date until the vesting date to reflect the best estimate available to the Group of the number of equity instruments for which the service and performance conditions other than market conditions will be satisfied, so that the amount recognized at the end is based on the effective number of equity instruments that satisfy the service and performance conditions other than market conditions at the vesting date.
No expense is recognized for awards which ultimately do not vest because the performance conditions other than market conditions and/or the service conditions have not been satisfied. Conversely, the transactions are considered to have vested irrespective of whether the market or non-vesting conditions are satisfied, provided that all other vesting conditions are met.
If the incentive based on equity instruments is paid in cash, the Group recognizes the services rendered by employees as personnel expenses over the vesting period and a corresponding liability measured at the fair value of the liability incurred. Subsequently, and until its extinction, the liability is remeasured at fair value at each reporting date, considering the best possible estimate of the incentive that will vest, with changes in fair value recognized under personnel expenses. If the right to receive the monetary incentive does not vest because one or more conditions are not met, the related liability is reversed.
Provisions are recognized where there is a legal or constructive obligation as a result of a past event at the end of the reporting period, the settlement of which is expected to result in an outflow of resources whose amount can be reliably estimated. Where the impact is significant, the accruals are determined by discounting expected future cash flows using a pre-tax discount rate that reflects the current market assessment of the time value of money and, if applicable, the risks specific to the liability.
If the provision is discounted, the periodic adjustment of the present value for the time factor is recognized as a financial expense.
When the Group expects some or all charges to be reimbursed, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. Where the liability relates to decommissioning and/or site restoration in respect of property, plant and equipment, the initial recognition of the provision is made against the related asset and the expense is then recognized in profit or loss through the depreciation of the asset involved.
Where the liability regards the treatment and storage of nuclear waste and other radioactive materials, the provision is recognized against the related operating costs. A liability for restructuring refers to a program planned and controlled by management that materially changes the scope of a business undertaken by the Group or the manner in which the business is conducted. Such a liability is recognized when a constructive obligation is established, i.e., when the Group has approved a detailed formal restructuring plan and has started to implement the plan or has announced its main features to those affected by it. Provisions do not include liabilities in respect of uncertain income tax treatments that are recognized as tax liabilities. The Group could provide a warranty in connection with the sale of a product (whether a good or service) from contracts with customers in the scope of IFRS 15, in accordance with the contract, the law or its customary business practices. In this case, the Group assesses whether the warranty provides the customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications or whether the warranty provides the customer with a service in addition to the assurance that the product complies with agreed-upon specifications.
After the assessment, if the Group establishes that an assurance warranty is provided, it recognizes a separate warranty liability and corresponding expense when transferring the product to the customer, as additional costs of providing goods or services, without attributing any of the transaction price (and therefore revenue) to the warranty. The liability is measured and presented as a provision.
Otherwise, if the Group determines that a service warranty is provided, it accounts for the promised warranty as a performance obligation in accordance with IFRS 15, recognizing the contract liability as revenue over the period the warranty service is provided and the costs associated as they are incurred.
Finally, if the warranty includes both an assurance element and a service element and the Group cannot reasonably account for them separately, then it accounts for both of the warranties together as a single performance obligation.
In the case of contracts in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it (onerous contracts), the Group recognizes a provision as the lower of the excess of unavoidable costs of meeting the obligations (i.e., costs that relate directly to the contract, whether incremental or resulting from an allotment of other costs) under the contract over the economic benefits expected to be received under it and any compensation or penalty arising from failure to fulfil it.
Changes in estimates of accruals to the provisions addressed here are recognized through profit or loss in the period in which the changes occur, with the exception of those in the costs of decommissioning, retiring and/or restoration resulting from changes in the timetable and costs necessary to extinguish the obligation or from a change in the discount rate. These changes increase or decrease the carrying amount of the related assets and are taken to profit or loss through depreciation. Where they increase the carrying amount of the assets, it is also determined whether the new carrying amount of the assets is fully recoverable. If this is not the case, a loss equal to the unrecoverable amount is recognized through profit or loss. Decreases in estimates are recognized up to the carrying amount of the assets. Any excess is recognized immediately in profit or loss.
For more information on the estimation criteria adopted in determining provisions for retiring and/or restoration of property, plant and equipment, especially those associated with decommissioning nuclear power plants and storage of waste fuel and other radioactive materials, please see note 2.1 “Use of estimates and management judgment”.
The Group recognizes revenue from contracts with customers at an amount that reflects the consideration at which the Group expects to be entitled in exchange for those goods or services, using the five-step model envisaged by IFRS 15:
The Group does not disclose the information about the remaining performance obligations in existing contracts if the performance obligation is part of a contract that has an original expected duration of one year or less and if the Group recognizes revenue in the amount to which it has a right to invoice the customer.
More information on the application of this revenue recognition model is provided in note 2.1 “Use of estimates and management judgment” and in note 11.a “Revenue from sales and services”.
The Group recognizes revenue other than that deriving from contracts with customers mainly referring to:
Other operating income primarily includes gains on disposal of assets that are not an output of the Group’s ordinary activities and government grants.
Government grants, including non-monetary grants at fair value, are recognized where there is reasonable assurance that they will be received and that the Group will comply with all conditions attaching to them as set by the government, government agencies and similar bodies whether local, national or international.
When loans are provided by governments at a below-market rate of interest, the benefit is regarded as a government grant. The loan is initially recognized and measured at fair value and the government grant is measured as the difference between the initial carrying amount of the loan and the funds received. The loan is subsequently measured in accordance with the requirements for financial liabilities. Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the costs that the grants are intended to compensate.
Where the Group receives government grants in the form of a transfer of a non-monetary asset for the use of the Group, it accounts for both the grant and the asset at the fair value of the non-monetary asset received at the date of the transfer.
Capital grants, including non-monetary grants at fair value, i.e., those received to purchase, build or otherwise acquire non-current assets (for example, an item of property, plant and equipment or an intangible asset), are deducted from the carrying amount of the asset and are recognized in profit or loss over the depreciable/amortizable life of the asset as a reduction in the depreciation/amortization charge. If there is insufficient information to enable adequate attribution to the fixed assets to which they refer, capital grants are recognized as deferred income under other liabilities, and credited to profit or loss on a systematic basis over the useful life of the asset.
Financial income and expense from derivatives include:
For all financial assets and liabilities measured at amortized cost and interest-bearing financial assets classified as at fair value through other comprehensive income, interest income and expense are recognized using the effective interest rate method.
Interest income is recognized to the extent that it is probable that the economic benefits will flow to the Group and the amount can be reliably measured.
Other financial income and expense include also changes in the fair value of financial instruments other than derivatives.
Dividends are recognized when the unconditional right to receive payment is established.
Dividends and interim dividends payable to the Parent’s shareholders and non-controlling interests are recognized as changes in equity in the period in which they are approved by the Shareholders’ Meeting and the Board of Directors, respectively.
Current income taxes
Current income taxes for the year, which are recognized under “Income tax liabilities” net of payments on account, or under “Tax assets” where there is a credit balance, are determined using an estimate of taxable income and in conformity with the applicable regulations.
Such liabilities and assets are determined using the tax rates and tax laws that are enacted or substantively enacted by the end of the reporting period in the countries where taxable income has been generated.
Current income taxes are recognized in profit or loss with the exception of current income taxes related to items recognized outside profit or loss that are recognized in equity.
Deferred tax
Deferred tax liabilities and assets are calculated on the temporary differences between the carrying amounts of liabilities and assets in the financial statements and their corresponding amounts recognized for tax purposes on the basis of tax rates in effect on the date the temporary difference will reverse, which is determined on the basis of tax rates that are enacted or substantively enacted as at the end of the reporting period.
Deferred tax liabilities are recognized for all taxable temporary differences, except when such liability arises from the initial recognition of goodwill or in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the Group can control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of tax losses and any unused tax credits. For more information concerning the recoverability of such assets, please see the appropriate section of the discussion of estimates.
Deferred taxes and liabilities are recognized in profit or loss, with the exception of those in respect of items recognized outside profit or loss that are recognized in equity. Deferred tax assets and deferred tax liabilities are offset only if there is a legally enforceable right to offset current tax assets with current tax liabilities and when they relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
Uncertainty over income tax treatments
In defining “uncertainty”, it shall be considered whether a particular tax treatment will be accepted by the relevant taxation authority. If it is deemed probable that the tax treatment will be accepted (where the term “probable” is defined as “more likely than not”), then the Group recognizes and measures its current/deferred tax asset or liabilities applying the requirements in IAS 12.
Conversely, when the Group feels that it is not likely that the taxation authority will accept the tax treatment for income tax purposes, the Group reflects the uncertainty in the manner that best predicts the resolution of the uncertain tax treatment. The Group determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on which approach provides better predictions of the resolution of the uncertainty. In assessing whether and how the uncertainty affects the tax treatment, the Group assumes that a taxation authority will accept or not an uncertain tax treatment supposing that the taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations. The Group reflects the effect of uncertainty in accounting for current and deferred tax using the expected value or the most likely amount, whichever method better predicts the resolution of the uncertainty.
Since uncertain income tax positions meet the definition of income taxes, the Group presents uncertain tax liabilities/assets as current tax liabilities/assets or deferred tax liabilities/assets.
The Group has applied the following standards, interpretations and amendments that took effect as from January 1, 2022:
The application of the amendments for 2022 did not have a material impact on these consolidated financial statements.
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 at December 31, 2022, and in accordance with IAS 29, certain items of the statements of financial position 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 financial statement figures was conducted by applying the inflation indices starting from that date. In addition to being already reflected in the opening statement of financial position, the accounting effects of that remeasurement also include changes during the period. More specifically, the effect of the remeasurement of non-monetary items, the equity items and the income statement items recognized in 2022 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 year.
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 year in order to adjust these amounts to present values.
The cumulative changes in the general price indices from December 31, 2018 until December 31, 2022 are shown in the following table:
In 2022, the application of IAS 29 generated net financial income (gross of tax) of €290 million.
The following tables report the effects of IAS 29 on the balance at December 31, 2022 and the impact of hyperinflation on the main income statement items for 2022, 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.
The move towards “net zero” is under way worldwide and the processes of decarbonization and electrification of the global economy are crucial to avoiding the serious consequences of an increase in temperatures of over 1.5 °C.
With this outlook, the Group has set its strategic guidelines as follows:
Considering the risks related to climate change and the commitments established under the Paris Agreement, the Group has decided to achieve the carbon neutrality objectives in advance and reflect its impact on assets, liabilities, and profit or loss, highlighting its significant and foreseeable impacts as required under the Conceptual Framework of the international accounting standards.
In this regard, in accordance with the provisions of the document published by the IFRS Foundation on November 20, 2020, the Group provides explicit information in the notes to these consolidated financial statements regarding how climate change is reflected in our accounts.
For a more effective and comprehensive communication concerning climate change disclosures prepared as part of the notes to these consolidated financial statements, we have mapped this disclosure as shown below, providing references to the various sections where issues associated with climate change are addressed.
Within the European area, the Enel Group has decided to dispose of important business lines, particularly in Russia, Romania and Greece, leading to their assets being reclassified as discontinued operations for the purposes of “IFRS 5 - Non-current assets held for sale and discontinued operations”.
The consolidated income statement reports the profit/ (loss) result from discontinued operations in a separate line.
In accordance with the provisions of IFRS 5, which governs the presentation in the financial statements of profit or loss and the disclosures to be provided in the explanatory note on non-current assets held for sale and discontinued operations, the income statement below reports the results of discontinued operations for 2022 and 2021.
The items are shown net of intercompany transactions which have been completely eliminated.
The figures for 2021, presented for comparative purposes only, pursuant to “IFRS 5 - Non-current assets held for sale and discontinued operations”, have been restated to ensure they are uniform and comparable with those for 2022.
In accordance with the provisions of IFRS 5, the facts and circumstances that led to the reclassification are described below.
Russia
On June 16, 2022, Enel SpA signed two separate agreements with PJSC Lukoil and the Closed Combined Mutual Investment Fund “Gazprombank-Frezia” for the sale of the entire stake held in PJSC Enel Russia, equal to 56.43% of the share capital of the latter.
Following the agreements of June 16, 2022, on October 12, 2022, Enel SpA finalized the sale of the entire stake held in PJSC Enel Russia, equal to 56.43% of the share capital of the latter, to PJSC Lukoil and the Closed Combined Mutual Investment Fund “Gazprombank-Frezia”, for a total of about €137 million. The transaction was closed with the fulfillment of the conditions to which the sale was subject, including authorization of the operation by the President of the Russian Federation pursuant to paragraph 5 of Decree 520 of August 5, 2022.
Upon completion of the sale, Enel sold all power generation assets in Russia, which include approximately 5.6 GW of conventional capacity and approximately 300 MW of wind capacity at various stages of development, ensuring continuity for its employees and customers.
The overall transaction had a negative impact on the Group’s profit of about €1,551 million, mainly reflecting the release of the translation reserve of €1,054 million, and the value adjustment of about €497 million.
For more information, please see the section on “Business combinations”.
Romania
On December 14, 2022, Enel SpA entered into an Exclusivity Agreement with Greek company Public Power Corporation SA (PPC) in relation to the potential disposal of all the equity stakes held by Enel Group in Romania. In this regard, the value of the net assets of Enel Romania was adjusted to the expected sale price, with recognition of a value adjustment of €696 million. On February 4, 2023, Enel SpA, following the announcement released on December 14, 2022, announced that the period of exclusive negotiations with Greek company PPC in relation to the potential disposal of all the equity stakes held by Enel Group in Romania had been extended.
Greece
Enel Green Power has begun the process of finding a potential investor interested in a partnership for the management and development of Enel Green Power Hellas within the Stewardship business model.
The status of the negotiations under way suggest that a sale is highly probable. Accordingly, the requirements established by “IFRS 5 - Non-current assets held for sale and discontinued operations” have been met for the classification of the Greek assets as “discontinued operations”.
For more details on the financial position by business line and geographical area of assets classified as discontinued operations, please see the section “Performance by primary segment (Business Line) and secondary segment (Geographical Area)”.
The details of cash flows relating to discontinued operations are provided below, as already separately shown in the cash flows statement.
The 2021 consolidated income statement and statement of consolidated comprehensive income have been adjusted to take account of the presentation of discontinued operations as required by the “IFRS 5 - Non-current assets held for sale and discontinued operations”.
For more details, please refer to the note “Discontinued operations”.
The figures presented in the comments and the tables of the notes to these consolidated financial statements at December 31, 2022 are uniform and comparable with each other.
Figures at December 31, 2021 for the Business Line Enel X have been adjusted to take account of the transfer of certain net assets and related revenue and expenses to the new Business Line Enel X Way, which are shown under “Holding, Services and Other”. This change affected segment reporting but did not produce any changes in the overall figures for the Group, although a number reclassifications of values were made within the various business lines.
The figures presented in the comments and the tables of the notes to these consolidated financial statements at December 31, 2022 are uniform and comparable with each other.
In the two periods under review, the consolidation scope changed as a result of a number of transactions.
In addition to the above changes in the consolidation scope, the following transactions, although they do not represent transactions involving the acquisition or loss of control, gave rise to a change in the interest held by the Group in the investees:
On January 3, 2022, Enel Produzione SpA acquired 100% of ERG Hydro Srl (subsequently renamed Enel Hydro Appennino Centrale Srl and merged into Enel Produzione SpA on December 1, 2022), owner of generation plants with an installed capacity of about 527 MW and an annual output of approximately 1.5 TWh, for about €1,267 million. At December 2022, the identification of the fair value of the acquired assets and liabilities was completed, with the recognition of goodwill of €349 million.
On March 24, 2022 Enel X International Srl sold 1.1% of Ufinet.
The financial effects of the transaction are as follows.
Following the transaction, the residual investment in Ufinet was classified under other investments measured at fair value through other comprehensive income. Previously it had been accounted for using the equity method.
On June 30, 2022, Enel Green Power SpA sold to Al Rayyan Holding LLC (controlled by the Qatar Investment Authority) 50% of its stake in EGP Matimba NewCo 1 Srl, indirect owner of six projects in South Africa, for about €108 million, which has been paid in full.
Following the transaction, the residual equity investment in EGP Matimba 1 and its subsidiaries was classified among equity-accounted investments and it was remeasured at fair value with a negative impact on profit or loss of about €2 million. Following this remeasurement, the value of the residual equity investment is €108 million.
On July 25, 2022, Enel X Srl sold to Mooney SpA, for about €140 million, settled in the form of financial receivables, its entire stakes in Enel X Financial Services, CityPoste Payment, PayTipper and Junia Insurance and their subsidiaries.
The transaction produced a capital gain of €67 million.
On August 24, 2022, Enel Brasil SA, a subsidiary of Enel Américas, sold its entire stake in CGTF - Central Geradora Termelétrica Fortaleza SA to ENEVA SA for €89 million. During 2022, in line with the provisions of “IFRS 5 - Non-current assets held for sale and discontinued operations”, the net assets of CGTF - Central Geradora Termelétrica Fortaleza SA were classified as held for sale and their value was adjusted to the expected sale price in the amount of €73 million.
With the closing of the sale, a capital loss of about €135 million was recognized, mainly due to the release of the translation reserve, plus other transaction costs of €2 million and the associated tax impact of €37 million.
On October 12, 2022, Enel finalized the sale of the entire stake held in PJSC Enel Russia, equal to 56.43% of the share capital of the latter, to PJSC Lukoil and the Closed Combined Mutual Investment Fund “Gazprombank-Frezia”, for a total of about €137 million. The sale had an overall negative impact on profit or loss of about €1,551 million, mainly due to the release of the translation reserve, in the amount of about €1,054 million. The financial effects of the transaction are as follows.
For more information on the transaction, please see the section “Discontinued operations”
On December 9, 2022, Enel Chile SA finalized the sale of its entire 99.09% stake in the share capital of listed Chilean power transmission company Enel Transmisión Chile SA to Sociedad Transmisora Metropolitana SpA, controlled by Inversiones Grupo Saesa Ltda, for a total amount of €1,342 million. The financial effects of the transaction are as follows.
The transaction had a tax effect of €347 million.
On December 22, 2022, Enel SpA, acting through Enel Grids Srl, closed the sale of a 50% quota in its wholly-owned subsidiary Gridspertise Srl to the international private equity fund CVC Capital Partners Fund VIII for a total of approximately €300 million. The financial effects of the transaction are as follows.
Following the transaction, the residual investment in in Gridspertise Srl and its subsidiaries was accounted using the equity method. After fair value measurement, the value of the residual investment is €259 million. The transaction had a tax effect of €8 million.
On December 29, 2022, Enel Brasil SA, a subsidiary of Enel Américas SA, finalized the sale of its entire stake in the Brazilian power distribution company Celg Distribuição SA - Celg-D (Enel Goiás), equal to about 99.9% of the latter’s share capital, to Equatorial Participações e Investimentos SA, a subsidiary of Equatorial Energia SA, for a total of about €1,548 million, of which €269 million for the equity portion and €1,279 million as repayment of intercompany loans. The financial effects of the transaction are as follows.
The sale had a negative impact on profit or loss of about €1,035 million, of which about €208 million mainly attributable to the release of the OCI reserve and €827 million in respect of impairment losses (of which €85 million relating to goodwill).
The sale generated transaction costs of €4 million and a tax effect of €8 million.
During 2022, the Enel Group constantly monitored the effects of the international crisis on its business activities in Russia (with particular regard to provisioning of materials, services and labor), also assessing developments in market variables (e.g., exchange rates, interest rates). The Enel Group also took account of developments connected with the counter-sanctions envisaged by Russia targeting investments held in the country.
In addition, the Enel Group assessed the indirect impacts of the war in Ukraine on business activities, the financial situation and economic performance in the main euro-area countries in which it operates, with particular regard to shortages of raw materials from the areas affected by the conflict and the generalized increase in commodity prices. In consideration of the various recommendations of national and supranational supervisory bodies(46) concerning this issue and in a constantly evolving scenario, characterized by considerable regulatory uncertainty and high and volatile prices, the Enel Group is constantly monitoring the macroeconomic and business variables that enable a best estimate of the potential impacts associated with regulatory changes, sanctions and restrictions on asset holdings, as well as on suppliers and contracts applicable to the Enel Group.
In this regard, it should be noted that no significant impacts related to the Russia-Ukraine conflict have emerged at December 31, 2022.
(46) ESMA Public Statements no. 71-99-1864 of March 14, 2022 and no. 32-63-1277 of May 13, 2022 and no. 32-63-1320 of October 28, 2022; CONSOB warning notices in the weekly notices of March 9-14, 2022 and March 10-21, 2022, and no. 3/22 of May 19, 2022.
On June 16, 2022, Enel SpA signed two separate agreements with PJSC Lukoil and the Closed Combined Mutual Investment Fund “Gazprombank-Frezia” for the sale of the entire stake held in PJSC Enel Russia, equal to 56.43% of the share capital of the latter, for a total of about €137 million.
During the 2nd Quarter of 2022, in order to reduce the risk for Enel SpA of the measures issued by the European Union, the United States and Russia regarding Russian sanctions and counter-sanctions, a number of measures have been taken to terminate Enel SpA’s management and coordination role with Enel Russia. These measures included: (i) the designation by Enel of only independent directors, of Russian nationality, at the recent election of the company’s board of directors; (ii) the appointment of a new general manager, also of Russian nationality, who reports exclusively to the board of directors; (iii) the termination, where possible, of intercompany contracts; (iv) the modification of the organizational structure of the Enel Group in order to terminate reporting by the staff or business functions of Enel Russia to their Enel counterparts; and (v) the consequent interruption of any reporting flows between Enel SpA and Enel Russia.
The transaction was closed and the consideration paid in October 2022, following the fulfillment of certain conditions to which the sale is subject, including approval of the transaction by the President of the Russian Federation in accordance with paragraph 5 of Decree 520 of August 5, 2022.
The accounting effects of the sale of the PJSC Enel Russia Group are shown in note 8 “Main acquisitions and disposals during the year”.
It should also be noted that the Enel Group continues to hold the following equity investments in Russia:
The representation of financial position and performance by business line and geographical area presented here is based on the approach used by management in monitoring Group performance for the two years being compared.
The following table reconciles segment assets and liabilities and the consolidated figures.
Revenue from the “Sale of electricity” amounted to €69,340 million, an increase of €24,287 million compared with the previous year (+53.9%). The increase mainly reflects higher sales volumes and prices, mainly in Italy (€14,852 million) and Spain (€8,076 million).
“Transfers from institutional market operators” increased by €834 million compared with the previous year, mainly in Iberia due to an increase in costs incurred for the purchase of commodities used in thermal generation plants in the Canary Islands, taking account of the rise in prices on international markets.
Revenue from the “Sale of gas” in 2022 amounted to €8,970 million (€4,744 million in 2021), an increase of €4,226 million compared with the previous year. The increase is mainly attributable to higher sales volumes at higher average prices especially in Spain (€2,253 million) and Italy (€1,781 million).
Revenue from the “Sale of fuel” increased by €3,814 million, especially by Enel Global Trading due to the rise in gas sales.
The increase in the “Sale of commodities under contracts with physical settlement” (€12,933 million) and of performance of the measurement of contracts settled in 2022 (€6,633 million) mainly involve gas contracts.
Revenue from contracts with customers (IFRS 15) breaks down into “point in time” and “over time” revenue as indicated in the following tables.
The following table shows the net results on contracts for the sale or purchase of commodities with physical settlement measured at fair value through profit or loss within the scope of IFRS 9.
The table below gives a breakdown of revenue from sales and services by geographical segment.
(1) The figure for 2021 has been adjusted, for comparative purposes only, to take account of the classification under the item “Profit/(Loss) from discontinued operations” of profit/(loss) connected with the assets held in Russia (which were sold in the 4th Quarter of 2022), Romania and Greece as the requirements of IFRS 5 for their classification as discontinued operations have been met.
The following table provides information about the Group’s performance obligations arising from contracts with customers with reference to the main revenue streams only, with a summary of the specific judgments made and the related revenue recognition policies. For information on the use of estimates with revenue from contracts with customers, please see note 2.1 “Use of estimates and management judgment”.
“Grants for environmental certificates” came to €220 million, a decrease of €29 million compared with the previous year, mainly reflecting the decrease in grants for white certificates obtained from distribution operations in Italy. This effect was partially offset by the increase in grants for guarantees of origin in Spain.
Gains on the disposal of entities amounted to €1,876 million in 2022, mainly reflecting the recognition gains on the disposal by Enel X International of 1.1% of the investment in Ufinet (€220 million), the sale by Enel X Srl of financial companies to Mooney (€67 million), the sale of 50% of the investment held by Enel Grids in Gridspertise (€520 million) and the sale of Enel Chile’s interest in Enel Transmisión Chile.
In 2021 the item included the capital gain on the sale of Enel SpA’s interest in Open Fiber (€1,763 million).
“Other income” increased by €980 million, mainly due to the increase of income in Chile (€503 million) following a modification of the existing contractual agreement with Shell, in terms of volumes committed by the supplier, and the increase in Enel Green Power North America of income from tax partnership (€319 million).
The following tables show a breakdown of total revenue by business line based on the approach used by management to monitor the Group’s performance during the two years being compared.
Costs for the purchase of “Electricity” mainly increased due to a rise in volumes purchased in an environment of increasing average prices compared with the previous year, mainly attributable to Italy (€15,396 million) and Spain (€3,563 million).
The increase in costs for the purchase of “Gas” mainly reflects the increase in quantities handled, mainly due to a rise in generation, as well as the increase in the cost of purchasing gas from third parties.
The gain/(loss) from the fair value measurement of closed contracts with physical settlement showed an increase of €7,137 million compared with the previous year, of which €6,117 million attributable to gas and €1,020 million to electricity.
The increase in “Other fuels” is mainly attributable to the increase in the volume of generation and the rise in commodity prices.
Costs for services and other materials amounted to €20,228 million in 2022, an increase of €988 million compared with 2021. This change essentially reflected:
Personnel expenses in 2022 amounted to €4,570 million, a decrease of €570 million. The Group’s workforce decreased by 1,155 employees, mainly reflecting the positive balance between new hires and terminations (1,998 employees), more than offset by changes in the consolidation scope (-3,153 employees), essentially attributable to:
The increase in “Wages and salaries” substantially reflects the cost incurred as a result of new hiring at companies in Italy, the United States, Brazil, Spain and Argentina. The €13 million decrease in in “Post-employment and other long-term benefits” is mainly attributable to Spain. The decrease in “Early retirement incentives connected with restructuring agreements” is mainly attributable to an increase in costs in Italy in 2021 as a result of the signing of a new framework agreement in application of Article 4, paragraphs 1-7-ter, of Law 92/2012, for which provisions of €557 million were recognized for restructuring and digitalization. In 2022 the provision was adjusted according to the developments of the period and changes underlying the actuarial assumptions.
The table below shows the average number of employees by category, along with a comparison with the previous year, and the headcount as of December 31, 2022.
The item, equal to €1,278 million, includes impairment losses and reversals on trade receivables and other financial assets. The net impairment losses on trade receivables increased by a total of €90 million, essentially reflecting the effect of the increase in trade receivables which led to an increase in the provision for bad debts in order to guarantee adequate coverage of the new receivable.
The decrease in “Depreciation, amortization and other impairment losses” in 2022 essentially reflected:
Other operating costs increased by €2,717 million compared with the previous year, mainly reflecting:
Capitalized costs increased by €374 million, mainly reflecting:
Net results from commodity contracts showed net income of €2,365 million in 2022 (net income of €2,523 million in 2021), and break down as follows:
For more information on derivatives, please see note 51 “Derivatives and hedge accounting”.
In 2022, net expense from derivatives on interest and exchange rates amounted to €296 million (net income of €1,461 million in 2021) and break down as follows:
For more information on derivatives, see note 51 “Derivatives and hedge accounting”
Other financial income amounted to €5,169 million, an increase of €2,483 million compared with the previous year.
The increase mainly reflects the following factors:
Other financial expense amounted to €7,329 million, an overall increase of €438 million compared with 2021, essentially reflecting the following factors:
These effects were substantially offset by the reduction in financial expense associated with the recognition of expense on debt management operations (€702 million) in 2021.
The share of profit/(loss) of equity-accounted investments in 2022 came to €4 million, a decrease of €567 million compared with the previous year.
The change was essentially due to a decrease in the share of profit/(loss) pertaining to the Group of Slovak Power Holding (€587 million), heavily penalized by the sharp rise in electricity prices on the spot market, slightly offset by the increase in the share of profit/(loss) of the Spanish companies (€20 million) and Rusenergosbyt (€19 million).
The tax rate for 2022 came to 40%, compared with 30% in 2021. The increase essentially reflects the following factors:
These adverse factors were partly offset by:
For more information on changes in deferred tax assets and liabilities, see note 25. The following table provides a reconciliation of the theoretical tax rate and the effective tax rate.
Both of these indicators are calculated on the basis of the average number of ordinary shares for the year, equal to 10,166,679,946, adjusted by the average number of treasury shares held.
The number of treasury shares, with a par value of €1 each, held at December 31, 2022 was equal to 7,153,795 (4,889,152 at December 31, 2021).
The breakdown of and changes in property, plant and equipment for 2022 is given below.
Plant and machinery included assets to be relinquished free of charge with a carrying amount of €8,409 million (€7,946 million at December 31, 2021), largely regarding power plants in Iberia and Latin America amounting to €3,456 million (€3,672 million at December 31, 2021), and the electricity distribution grid in Latin America totaling €4,228 million (€3,506 million at December 31, 2021).
For more information on “Leased assets”, please see note 21 below.
The types of capital expenditure made during 2022 are summarized below by class of asset. These expenditures, totaling €13,329 million, increased by €1,128 million on 2021, increases that were particularly concentrated in solar power plants.
The Enel Group, in line with the Paris Agreement on CO2 emissions reductions and guided by energy efficiency and energy transition objectives, has invested above all in generation plants that exploit alternative energy sources. Capital expenditure on generation plants mainly regard solar plants in the United States, Italy, Spain, Colombia, Peru, Chile, Brazil, South Africa and Australia. In order to respond to ever more variable climate developments and, therefore, enhance the resilience of grids, the Group continued to invest in the distribution business line (€4,483 million). The €94 million increase is mainly attributable to greater investments in Italy, Brazil and Peru, mainly for corrective maintenance and grid reliability.
Capital expenditure of Enel X increased mainly in Italy, in the e-City and e-Home businesses, in North America and Australia, reflecting higher industrial capex of the Battery Energy Storage business for the implementation of new projects, in Brazil due to higher expenditure in the Smart Lighting, e-Home and Distributed Energy businesses (launch of new PV-Photovoltaic projects), in Peru in the Public Lighting business, in Colombia with the launch of new projects in the Distributed Energy business (PV-Photovoltaic) and in Spain, in the e-Home business. The growth of capital expenditure of Enel X Way refers to deployment of new charging points for electric mobility mainly in Spain.
The change in “Other” mainly includes investments in the period in Battery Energy Storage Systems (BESS) in Italy and North America.
Exchange gains amounted to €684 million.
The “Change in the consolidation scope” in 2022 mainly refers to the acquisition of ERG Hydro Srl (now merged in Enel Produzione) in Italy and the sale of Thar Surya 1 Private Limited in India.
“Impairment losses” amounted to €202 million and are mainly attributable to the value adjustment of the Spanish generation plants of Baleares, Canarias, Ceuta Melilla and Terminal Portuario de Los Barrios, and in Colombia to Sociedad Portuaria Central Cartagena SA, controlled by Enel Colombia, which will terminate commercial operations from November 2023. For that reason, at December 31, 2022, the carrying amount of “Plant and machinery” was written down.
This item was also affected by impairment losses on Enel Produzione’s assets of coal-fired power plants in Torrevaldaliga Nord, Fusina and Brindisi Sud.
“Reclassifications from/to assets held for sale” refer mainly to all the assets of the Romanian, Greek companies and of Enel Russia, which was sold during the 4th Quarter of 2022. It also refers to the reclassification to assets held for sale of Enel Generación Costanera SA and Central Dock Sud SA in Argentina, 3SUN Srl in Italy, Avikiran Solar India Private Limited in India and Bungala in Australia.
“Other changes” include the provision for plant retiring and site restoration costs in the amount of a negative €302 million, mainly in Spain and North America, new leases of €585 million, impairment losses on the property, plant and equipment of the Argentine companies operating in a hyperinflationary economy in the amount of €1,081 million and the effect of capitalizing interest on loans specifically dedicated to capital expenditure on property, plant and equipment of €260 million (€182 million in 2021) breaking down as follows.
At December 31, 2022, contractual commitments to purchase property, plant and equipment amounted to €2,926 million.
Service concession arrangements, which are recognized in accordance with IFRIC 12, regard certain infrastructure serving concessions for electricity distribution in Brazil and Costa Rica.
The following table summarizes the salient details of those concessions.
The assets classified under financial assets are measured at fair value at the end of the concessions. For more information, see note 52 “Assets and liabilities measured at fair value”.
The table below shows changes in right-of-use assets in 2022
Lease liabilities and changes during the year are shown in the table below:
Investment property at December 31, 2022 amounted to €94 million, an increase of €3 million on 2021.
The Group’s investment property consists of properties in Italy, Spain, Brazil and Chile, which are free of restrictions on their sale or the remittance of income and proceeds of disposal. In addition, the Group has no contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements.
The change in 2021 was mainly due to impairment losses recognized on a number of assets in Spain and accumulated depreciation.
For more information on the valuation of investment property, see notes 52 “Assets and liabilities measured at fair value”, and 52.2 “Assets not measured at fair value in the statement of financial position”.
A breakdown of and changes in intangible assets for 2022 are shown below.
Enel’s intellectual property (IP) portfolio comprises a set of critical information for sustainable growth. The Open Innovability® ecosystem generates innovation through the creation and sharing of internal and external solutions that give life to a stream of inventions that are protected and monetized with the support of intellectual property protection mechanisms.
At December 31, 2022 the Group had applied for 883 patents for industrial inventions, in 163 patent families; of these, 711 have been granted and 172 are pending. The portfolio ensures protection in all the markets in which the Group is present. Enel’s portfolio also includes 23 utility models and 194 design registrations. Together with patents, utility models and designs, IP rights also include industrial secrets of both a technical and commercial nature which are constantly codified and maintained in line with the provisions of the Trade Secrets Management procedure. The Group also owns 2,027 trademarks, of which 1,642 have already been registered with 385 applications pending.
Enel has consolidated the processes for managing the generation and exploitation of intellectual property rights within the Intellectual Property Management and Trade Secrets Management organizational procedures. Both procedures look at human capital as an essential element in the creation of IP and seek to encourage employee participation in the inventive process, emphasizing the strategic importance of all inventions.
During 2022, the activity of coding and protection of intellectual property continued in all global business lines.
More specifically:
More generally, the Group continues to invest resources in the development of solutions with a high IP density, which is mainly expressed in the forms of copyright protection and trade secrets for databases and forecasting algorithms for the electricity and gas markets, advanced quantitative models that use scenario data to evaluate the impact of climate change on specific assets/production activities. In particular, this activity includes development models designed to: (i) characterize the ability of an asset to “resist” the possible effects of climate change; (ii) quantify the probability that an event or a combination of climate events will damage a plant; and (iii) provide an index of “weakness” for the asset, including in distributed form, with a specific technical approach to prioritize actions/ fields for improvement.
The following table reports service concession arrangements that do not fall within the scope of IFRIC 12 and had a balance as at December 31, 2022.
Assets with an indefinite useful life amounted to €8,640 million (€8,633 million at December 31, 2021) essentially accounted for by concessions for distribution activities in Spain (€5,678 million), Colombia (€1,047 million), Chile (€1,331 million) and Peru (€584 million), for which there was no statutory or currently predictable expiration date.
On the basis of the forecasts developed, cash flows for each CGU, with which the various concessions are associated, were sufficient to recover the carrying amount. The change during the year was essentially attributable to changes in exchange rates. For more information on service concession arrangements, see note 20.
The change in the consolidation scope for 2022 mainly reflected the acquisition by Enel Produzione of ERG Hydro Srl (now merged in Enel Produzione) in Italy, with an increase in the value of hydroelectric concessions of €170 million.
Impairment losses amounted to €13 million in 2022, and mainly regarded projects for assets under development that management has decided to abandon. For more information, see note 12.e.
“Other changes” mainly reported the design costs connected with the acquisition of a number of Brazilian vehicle companies and impairment losses on intangible assets of Argentine companies operating in a hyperinflationary economy.
The decrease of €79 million in goodwill was mainly attributable to “reclassifications from/to assets classified as held for sale” (-€550 million), regarding Romania (-€404 million) for classification as discontinued operations, Brazil (-€85 million) and Chile (-€61 million) for reclassification as assets held for sale of Celg Distribuição SA - Celg-D (Enel Goiás) and Enel Transmisión Chile, respectively (which were sold in 2022). The negative effect was partially offset by the increase in the consolidation scope mainly reflecting the acquisition of Enel Hydro Appennino Centrale Srl (€349 million) and “Exchange differences” (a positive €147 million) mainly regarding Brazil, Chile and the United States.
The criteria used to identify the cash generating units (CGUs) are based on revenue separation, which is considered the main criterion in view of the nature of our business, taking due account of the operational rules and regulations of the markets in which they operate and the corporate organization. For the purposes of impairment testing of goodwill, the CGUs are grouped on the basis of expected synergies, consistent with management’s strategic and operational vision, within the operating segments identified for segment reporting purposes.
Note also that in 2022 the existing CGUs underwent extensive analysis to assess the possible presence of significant changes pursuant to IAS 36, paragraph 72. This analysis led to the modification of the existing CGUs only for Enel X Way, a new global business established from the spin-off of electric mobility operations from Enel X. In particular, the new Enel X North America CGU was identified.
The recoverable amount of the goodwill recognized was estimated by calculating the value in use of the CGUs or groups of CGUs using discounted cash flow models, which involve estimating expected future cash flows and applying an appropriate discount rate, selected on the basis of market inputs such as risk-free rates, betas and market-risk premiums.
Cash flows were determined on the basis of the best information available at the time of the estimate, taking account of the specific risks of individual CGU or groups of CGUs, and drawn:
More specifically, the terminal value is calculated based on the specific characteristics of the businesses related to the various CGUs or groups of CGUs subject to impairment testing:
The nominal growth rate (g-rate) is equal to the long-term rate of growth in electricity and/or inflation (depending on the country and business involved) and in any case no higher than the average long-term growth rate of the reference market.
The Group therefore confirmed its strategic direction based on the trends associated with the energy transition. The use of capital has been focused on:
Regarding the assumptions for commodity price developments, the use of Paris reference scenarios is confirmed.
More specifically, the price of CO2 is assumed to rise rapidly through 2030, driven by the gradual reduction in the supply of allowances in the face of growing demand, while coal prices are projected to stabilize due to falling demand. Gas price tensions are expected to ease in the coming years in light of a realignment between supply and demand at the global level. Finally, the price of oil is expected to stabilize, with peak demand coming around 2030.
Note also that the Group has used sensitivity analyses to take account of the impacts of climate change in the long term. More specifically:
In order to verify the robustness of the value in use of the CGUs, sensitivity analyses were conducted for the main value drivers, in particular WACC, the long-term growth rate. In these circumstances as well, the results were consistent with the evidence described above, finding that the value of all the CGUs analyzed exceeded the carrying amount, thus ensuring the full recoverability of their carrying amount in the consolidated financial statements of the Enel Group at December 31, 2022.
The table below reports the composition of the main goodwill values for the companies within each CGU, along with the discount rates applied and the time horizon over which the expected cash flows have been discounted.
The following tables detail changes in deferred tax assets and liabilities by type of timing difference and calculated based on the tax rates established by applicable regulations, as well as the amount of deferred tax assets offsettable, where permitted, with deferred tax liabilities.
Deferred tax assets recognized at December 31, 2022, as the recovery of such assets is considered reasonably certain, totaled €10,925 million (€11,034 million at December 31, 2021). Deferred tax assets decreased by €109 million during the year, essentially due to:
These factors were partly offset by the effect of deferred tax assets connected with developments in the fair value of cash flow hedge derivatives, the impact of exchange differences in Latin America and deferred tax assets recognized following the corporate reorganization of the new e-Mobility Business Line in North America and Spain.
Notes to the consolidated financial statements 371 Note that deferred tax assets have not been assessed on tax losses carried forward and for the year (€1,129 million) in the amount of €352 million because, as based on current estimates of future taxable income, their recoverability is not considered probable.
Deferred tax liabilities amounted to €9,542 million at December 31, 2022 (€9,259 million at December 31, 2021). They essentially include the determination of the tax effects of the adjustments to assets acquired as part of the final allocation of the cost of acquisitions made in the various years and the deferred taxation in respect of the differences between depreciation charged for tax purposes, including accelerated depreciation, and depreciation based on the estimated useful lives of assets.
Deferred tax liabilities increased by a total of €283 million, due, in particular, to:
These effects were partially offset by the effect of deferred tax assets connected with developments in the fair value of cash flow hedge derivatives, the impact of exchange differences in Latin America and the reclassification of deferred tax liabilities relating to companies classified as available for sale and discontinued operations during the year.
The following table shows changes in the main investments in joint ventures and associated companies accounted for using the equity method.
The increase in equity-accounted investments in 2022 mainly reflected:
These positive effects were mainly offset by:
The following tables provide a summary of financial information for the main joint ventures and associates of the Group not classified as held for sale in accordance with IFRS 5.
For more information on derivatives classified as non-current financial assets, please see note 51 for hedging derivatives and trading derivatives.
Non-current assets deriving from contracts with customers (contract assets) refer mainly to assets under development resulting from public-to-private service concession arrangements recognized in accordance with IFRIC 12 and which have an expiration of beyond 12 months (€492 million). These cases arise when the concession holder has not yet obtained full right to recognize the asset from the grantor, in that there remains a contractual obligation to ensure that the asset is completed and can be remunerated through rates. The figure at December 31, 2022 includes investments for the year in the amount of €1,174 million.
Current contract assets mainly concern construction contracts in progress (€80 million to be invoiced, payments on which are subject to the fulfillment of a performance obligation).
The value at December 31, 2022 of non-current contract liabilities is mainly attributable to distribution operations in Italy (€3,127 million) and Spain (€2,620 million) as a result of the accounting treatment of revenue from connections of new customers, which are deferred over the average duration of the associated contracts.
Current contract liabilities include the contractual liabilities related to revenue from connections to the electricity grid expiring within 12 months in the amount of €1,234 million, mainly recognized in Italy and Spain, as well as liabilities for construction contracts in progress (€509 million). As required under IFRS 15, the following table reports the reversal to profit or loss of contract liabilities by time band.
| Milioni di euro | ||
|---|---|---|
| at Dec. 31, 2022 | at Dec. 31, 2021 | |
| Within 1 year | 1,775 | 1,433 |
| Within 2 year | 516 | 498 |
| Within 3 year | 517 | 480 |
| Within 4 year | 516 | 479 |
| Within 5 year | 515 | 477 |
| More than 5 years | 3,683 | 4,280 |
| Total | 7,522 | 7,647 |
“Other non-current financial assets” increased by €2,655 million mainly reflecting:
The following is a breakdown of equity investments in other companies measured at fair value.
“Securities” are represented by financial instruments in which the Dutch insurance companies invest a portion of their liquidity. The increase in “Other financial assets” is mainly attributable to an increase in financial assets for security deposits.
“Other current financial assets” increased by €5,108 million, mainly reflecting the increase in current financial assets included in net financial debt, as detailed in note 30.1.
The increase in the item is mainly attributable to:
Amounts due from institutional market operators increased by €40 million, mainly in Spain as a result of the remuneration of distribution operations.
Other assets at December 31, 2022 included tax assets in the amount of €1,674 million (€2,286 million at December 31, 2021) and security deposits in the amount of €301 million (€340 million at the end of 2021).
The change for the year mainly reflected the decline in tax assets previously recognized in Brazil, connected with the PIS/COFINS dispute in the amount of €253 million, and a decrease in assets connected with the sale of a number of Brazilian companies in the amount of €976 million, only partially offset by positive exchange rate developments in the amount of €543 million.
Amounts due from institutional market operators mainly include amounts due in respect of the Italian system in the amount of €617 million (€1,519 million at December 31, 2021) and the Spanish system in the amount of €388 million (€667 million at December 31, 2021). The decrease was essentially attributable to the decrease in amounts receivable in Italy in respect of the Energy and Environmental Services Fund, mainly held by e-distribuzione (€429 million) and Servizio Elettrico Nazionale (€106 million), primarily connected with equalization mechanisms.
The increase of €434 million in sundry tax assets is mainly attributable to an increase in credits for indirect taxes and duties in Italy (€216 million), Latin America (€100 million) and in the parent company Enel SpA (€282 million), partially offset by a decline in such items in Spain (€115 million) and North America (€93 million).
Raw and ancillary materials, and consumables consist of materials and equipment used to operate, maintain, and construct power plants and distribution networks, as well as fuel inventories to cover the Group’s requirements for generation and trading activities.
The overall increase in inventories in 2022 (€1,744 million) is mainly attributable to an increase in inventories of fuel and materials, devices and other inventories recorded above all in Italy (€1,221 million), Spain (€506 million) and Latin America (€69 million), notably gas inventories to meet the needs of the Group plants and an increase in stocks of low- and medium-voltage materials, partially offset by the decrease in inventories in Russia and Romania (€100 million).
Trade receivables due from customers are recognized net of loss allowances, which totaled €3,783 million at the end of the year, compared with a balance of €3,663 million at the end of the previous year.
Specifically, the increase in 2022, totaling €529 million, mainly recognized in Spain (€530 million) and Latin America (€554 million), was partially offset by the decrease recognized in Italy (€106 million) and Romania (€500 million), which, in line with the provisions of “IFRS 5 - Non-current assets held for sale and discontinued operations”, was classified as held for sale.
The change in the period is attributable to receivables for electricity and gas sales and transport recognized in the year, as well as the increase in allocations net of releases in respect of bad debt provisions in Italy and Latin America. For more information on trade receivables, see note 48 “Financial instruments by category”.
Cash and cash equivalents, detailed in the following table, increased by €2,183 million due to proceeds from the sale in December 2022 of Enel Transmisión Chile, Gridspertise and Celg Distribuição SA - Celg-D (Enel Goiás).
Changes in assets held for sale in 2022 break down as follows.
Developments in liabilities break down as follows
The item essentially includes assets measured at the lower of cost, understood as their net carrying amount, and the estimated realizable value, which, due to management decisions, meet the requirements of “IFRS 5 - Non-current assets held for sale and discontinued operations” for their classification in this item.
The balances of assets and liabilities held for sale and discontinued operations at December 31, 2022 came to, respectively, €6,149 million and €3,360 million and mainly refer to:
Assets previously classified as held for sale disposed of in 2022 include:
For more information on the financial effects of the above transactions, please refer to the note “Business combinations”.
Share capital – €10,167 million
At December 31, 2022, the fully subscribed and paid-up share capital of Enel SpA totaled €10,166,679,946, represented by the same number of ordinary shares with a par value of €1.00 each. Enel SpA’s share capital was unchanged compared with the amount reported at December 31, 2021.
At December 31, 2022, based on the shareholders register and the notices submitted to CONSOB and received by the Parent pursuant to Article 120 of Legislative Decree 58 of February 24, 1998, as well as other available information, shareholders with interests of greater than 3% in the Parent’s share capital were the Ministry for the Economy and Finance (with a 23.585% stake) and BlackRock Inc. (with a 5.114% stake held for asset management purposes).
Treasury share reserve - €(47) million
At December 31, 2022, treasury shares are represented by 7,153,795 ordinary shares of Enel SpA with a par value of €1.00 each (4,889,152 at December 31, 2021), purchased through an authorized intermediary for a total of €47 million.
Other reserves - €2,740 million
Share premium reserve - €7,496 million
Pursuant to Article 2431 of the Italian Civil Code, the share premium reserve contains, in the case of the issue of shares at a price above par, the difference between the issue price of the shares and their par value, including those resulting from conversion from bonds. The reserve, which is a capital reserve, may not be distributed until the legal reserve has reached the threshold established under Article 2430 of the Italian Civil Code.
Reserve for equity instruments - perpetual hybrid bonds - €5,567 million
This reserve reports the nominal value, net of transaction costs, of the non-convertible subordinated perpetual hybrid bonds denominated in euros for international investors. In 2022, the Group paid €123 million in coupons to holders of perpetual hybrid bonds.
Legal reserve - €2,034 million
The legal reserve is formed of the part of profits that, pursuant to Article 2430 of the Italian Civil Code, cannot be distributed as dividends.
Other reserves - €2,332 million
These include €2,215 million related to the remaining portion of the adjustments carried out when Enel was transformed from a public entity to a joint-stock company.
Pursuant to Article 47 of the Consolidated Income Tax Code (Testo Unico Imposte sul Reddito, or “TUIR”), this amount does not constitute taxable income when distributed.
Translation reserve - €(5,912) million
The increase for the year, of €2,213 million, was mainly due to the change in the consolidation scope connected with the sale of PJSC Enel Russia, Central Geradora Termelétrica Fortaleza and Celg Distribuição SA - Celg-D (Enel Goiás), and the net appreciation of the functional currencies used by the foreign subsidiaries, mainly in Latin America and the United States, against the Group presentation currency (the euro).
Hedging reserve - €(3,553) million
This includes the net expense recognized in equity from the measurement of cash flow hedge derivatives. The change in 2022 is mainly attributable to developments in commodity prices.
Hedging costs reserve - €(81) million
In application of IFRS 9, this reserve includes the fair value gains and losses on currency basis points and forward points. The change in 2022 is mainly attributable to developments in commodity prices.
Reserve from measurement of financial instruments at FVOCI - €(22) million
This includes net unrealized fair value losses on financial assets.
Reserve from equity-accounted investments - €(476) million
The reserve reports the share of comprehensive income to be recognized directly in equity of equity-accounted investees. The change in 2022 is mainly attributable to the change in the hedging reserve of Slovak Power Holding.
Actuarial reserve - €(1,063) million
This reserve includes actuarial gains and losses in respect of employee benefit liabilities, net of tax effects.
Reserve from disposal of equity interests without loss of control - €(2,390) million
This item mainly reports:
The change in the reserve in 2022 is associated with the sale of the 49% stake held by Enel Green Power Canada in Pincher Creek LP and Riverview LP.
Reserve from acquisitions of non-controlling interests - €(1,192) million
This reserve mainly includes the surplus of acquisition prices with respect to the carrying amount of the equity acquired following the acquisition from third parties of further interests in companies already controlled in Latin America.
The change for the year (-€349 million) mainly reflects the effects of the merger between Emgesa SA ESP (acquiring entity), Codensa SA ESP, Enel Green Power Colombia SAS ESP and ESSA 2 (merged entities), following which the Group’s interest in Emgesa SA ESP (now Enel Colombia SA ESP) increased from 39.89% to 47.18%, and the sale by Endesa X Servicios SLU to Enel X Way Srl of 51% of Endesa X Way SL increasing the interest held by the Group in the latter from 70.11% to 85.35%.
Retained earnings - €15,797 million
This reserve reports earnings from previous years that have not been distributed or allocated to other reserves.
The table below shows the changes in gains and losses recognized directly in other comprehensive income, including non-controlling interests, with specific reporting of the related tax effects.
Dividends distributed are shown net of amounts due to treasury shares at the respective “record dates”. These shares were waived for collection and allocated to “retained earnings”.
The dividend for 2022 is equal to €0.40 per share, for a total of €4,067 million (of which €0.20 per share for a total of €2,033 million already paid as an interim dividend). It will be proposed to the Shareholders’ Meeting of May 10, 2023 at single call.
These consolidated financial statements do not take account of the effects of the distribution to shareholders of the dividend for 2022, except for the liability in respect of shareholders for the interim dividend for 2022, which was approved by the Board of Directors on November 3, 2022 for a potential maximum of €2,033 million, and paid as from January 25, 2023 net of the portion pertaining to the 7,153,795 treasury shares held as at the record date of January 24, 2023.
In 2022, the Group also paid €123 million in coupons to holders of perpetual hybrid bonds.
Capital management
The Group’s objectives for managing capital comprise safeguarding the business as a going concern, creating value for stakeholders and supporting the development of the Group. In particular, the Group seeks to maintain an adequate capitalization that enables it to achieve a satisfactory return for shareholders and ensure access to external sources of financing, in part by maintaining an adequate rating.
In this context, the Group manages its capital structure and adjusts that structure when changes in economic conditions so require. There were no substantive changes in objectives, policies or processes in 2022.
To this end, the Group constantly monitors developments in the level of its debt in relation to equity. The situation at December 31, 2022 and 2021 is summarized in the following table.
The increase in the debt/equity ratio, which measures financial leverage, is essentially attributable to the increase in net financial debt, mainly reflecting the funding requirements of investments in the year, the payment of dividends, and the acquisition of ERG Hydro.
See note 47 for a breakdown of the individual items in the table.
The following table presents the composition of non-controlling interests by geographical area.
The change in non-controlling interests mainly reflects the appreciation of the functional currencies of the foreign subsidiaries against the euro (especially in Latin America), the results for the period, the effect of the corporate transaction in Colombia and the impact of hyperinflation. These effects were partly offset by the dividends distributed and the value adjustment of cash flow hedge instruments.
The financial disclosure requirements of IFRS 12 for subsidiaries with significant non-controlling interests are reported below.
For more information on the nature of borrowings, see note 48 “Financial instruments by category”.
The Group provides its employees with a variety of benefits, including deferred compensation benefits, additional months’ pay for having reached age limits or eligibility for old-age pension, loyalty bonuses for achievement of seniority milestones, supplemental retirement and healthcare plans, residential electricity discounts and similar benefits. More specifically:
The following table reports changes in the defined benefit obligation for post-employment and other long-term employee benefits at December 31, 2022, and December 31, 2021, respectively, as well as a reconciliation of that obligation with the actuarial liability.
The liability recognized came to €2,202 million, a decrease of €522 million on 2021. Change in 2022 reflects the reclassification as held for sale of the actuarial liabilities of Enel Generación Costanera SA and Central Dock Sud SA in Argentina, 3SUN Srl in Italy, all the companies in Romania and Greece and PJSC Enel Russia and its subsidiaries, the latter sold in the last quarter of 2022. Furthermore, the actuarial measurement of a plan of Asociación Nuclear Ascó-Vandellós II AIE in Spain showed a surplus with respect to the obligation assumed by the company, and was thus reclassified in a specific asset item of the balance sheet.
The change in the cost recognized in profit or loss was equal to €23 million. The impact on the income statement is, therefore, greater but essentially in line with 2021.
The liability recognized in the statement of financial position at the end of the year is reported net of the fair value of plan assets, amounting to €2,124 million at December 31, 2022. Those assets, which are entirely in Spain and Brazil, break down as follows:
The main actuarial assumptions used to calculate the liabilities in respect of employee benefits and the plan assets, which are consistent with those used the previous year, are set out in the following table.
The following table reports the outcome of a sensitivity analysis that demonstrates the effects on the defined benefit obligation of changes reasonably possible at the end of the year in the actuarial assumptions used in estimating the obligation.
The sensitivity analysis used an approach that extrapolates the effect on the defined benefit obligation of reasonable changes in an individual actuarial assumption, leaving the other assumptions unchanged.
The contributions expected to be paid into defined benefit plans in the subsequent year amount to €221 million.
The following table reports expected benefit payments in the coming years for defined benefit plans.
Expected payments are increasing in general. This is mainly due to Brazil and Argentina.
At December 31, 2022 the provision reflected solely the costs that would be incurred at the time of decommissioning of nuclear plants by Enresa, a Spanish public entity responsible for such activities in accordance with Royal Decree 1349/2003 and Law 24/2005. In general, the costs are quantified on the basis of a standard contract between Enresa and the electricity companies approved by the Ministry for the Economy in September 2001, which regulates the retirement and closing of nuclear power plants. The time horizon envisaged, three years, corresponds to the period from the termination of power generation to the transfer of plant management to Enresa (so-called post-operational costs) and takes account, among the various assumptions used to estimate the amount, of the quantity of unused nuclear fuel expected at the date of closure of each of the Spanish nuclear plants on the basis of the provisions of the concession agreement.
This provision represents the present value of the estimated cost for the retirement and removal of non-nuclear plants where there is a legal or constructive obligation to do so. The provision mainly regarded the Endesa Group and Enel Produzione. The change in the provision in 2022 was mainly linked to the redetermination of the future retirement costs of certain plants in Iberia and North America as well as the uses and releases of provisions set aside in previous years to deal with the decarbonization process.
The following table summarizes the temporal breakdown of payments connected with the site retirement, removal and restoration provision.
The litigation provision covers contingent liabilities in respect of pending litigation and other disputes. It includes an estimate of the potential liability relating to disputes that arose during the year, as well as revised estimates of the potential costs associated with disputes initiated in prior years, based on the indications of internal and external consultants. The balance for litigation mainly regards the companies in Latin America (€395 million), Spain (€169 million) and Italy (€127 million).
The decrease compared with the previous year, equal to €131 million, mainly reflects the decrease in the provision in Brazil following the deconsolidation of Celg-D.
The provision for environmental certificates covers costs in respect of shortfalls in the environmental certificates need for compliance with national or supranational environmental protection requirements and mainly regards Iberia (Endesa Energía and Endesa Generación SA).
The provision for taxes and duties covers the estimated liability deriving from tax disputes concerning direct and indirect taxes.
The balance of the provision also includes the provision for current and potential disputes concerning local property tax (whether the Imposta Comunale sugli Immobili (ICI) or the Imposta Municipale Unica (IMU)) in Italy. In Italy, the Group has taken due account of developments in land registry regulations (which with effect from January 1, 2016 excluded machinery, devices, equipment and other plant specific to a production process from the calculation of the imputed rent for buildings classified in land registry group D, which includes generation plants) in estimating the liability for such taxes, both for the purposes of quantifying the probable risk associated with pending litigation and generating a reasonable valuation of probable future charges on positions that have not yet been assessed by the Revenue Agency and municipalities.
Other provisions cover various risks and charges, mainly in connection with regulatory disputes and disputes with local authorities regarding various duties and fees or other charges.
The decrease of €49 million in other provisions is mainly attributable to Enel Global Trading for uses of provisions for insurance compensation.
The provision for early retirement incentives and other restructuring plans includes the estimated charges related to binding agreements for the voluntary termination of employment contracts in response to organizational needs. The reduction of €305 million for the year mainly reflects uses of provisions for incentives established in previous period in Spain (Acuerdo de Salida Voluntaria) and Italy to cover the early termination of employment for certain employees.
Enel, in its role as a leader of the energy transition, has placed decarbonization and growth of renewables around the world at the center of its strategy.
In this context, Enel has begun restructuring the activities associated with the energy transition process, which involves thermal generation plants in all the geographical areas in which the Group operates. The consequent revision of processes and operating models will require changes in the roles and skills of employees, which the Group intends to implement with highly sustainable plans based on redeployment programs, with major upskilling and reskilling plans and voluntary individual early retirement agreements. The energy transition is also based on the progressive and expansive development of digital tools, as digitization is essential to responding to multiple external forces and making informed and well-considered decisions at every level within the Group.
A provision was therefore established in 2020 for restructuring programs, which at December 31, 2022 amounted to €990 million, which is mainly attributable to Spain and Italy, and represents the estimated costs that the Group will incur following the acceleration of the energy transition, for all direct and indirect activities related to the review of processes and operating models and the roles and skills of employees.
La variazione delle “Altre passività finanziarie non correnti”, pari a 120 milioni di euro, è relativa alla diminuzione della quota non corrente dei debiti relativi al deficit del sistema elettrico spagnolo che erano inclusi nell’indebitamento finanziario netto.
The change in “Other items” reflected the decrease of €45 million in “Other tax liabilities beyond 12 months”, as well as the decrease of €351 million in “Other liabilities” relating to the outcome of the PIS/COFINS dispute in Brazil (already discussed under “Other non-current assets”), only partially offset by the increase of €323 million in “Liabilities for tax partnerships” in North America.
The change in “Other current liabilities” mainly reflects:
The item amounted to €17,641 million (€16,959 million at December 31, 2021) and includes payables in respect of electricity supplies, fuel, materials, equipment associated with tenders, and other services.
More specifically, trade payables falling due in less than 12 months amounted to €17,605 million (€16,865 million at December 31, 2021), while those falling due in more than 12 months amounted to €36 million (€94 million at December 31, 2021).
The increase in other current financial liabilities is mainly attributable to the increase of €171 million in accrued financial expense and deferred financial income, as a result of higher accrued expenses on bond issues.
Other items mainly regard liabilities for accrued interest
Cash flows from operating activities in 2022 was a positive €8,674 million, a decrease of €1,241 million on 2021, mainly attributable to increased cash requirements connected with changes in net working capital.
Cash flows used in investing activities in 2022 came to €13,626 million, from €10,875 million in 2021.
More specifically, investments in property, plant and equipment, intangibles, property investment and contract assets came to €14,503 million (including €156 million classified as available for sale), an increase on 2021.
Investments in companies or business units, net of cash and cash equivalents acquired, amount to €1,275 million and mainly refer to the acquisition by Enel Produzione SpA of 100% of ERG Hydro Srl (now Enel Hydro Appennino Centrale Srl), for €1,196 million net of cash and cash equivalents acquired of €69 million.
Disposals of businesses or business units, net of cash and cash equivalents sold, amount to €2,032 million and mainly refer to:
Cash flows from/(used in) other investing activities in 2022 came to 120 million and mainly reflects:
Cash flows from financing activities came to a total €7,369 million, from €3,931 million used in 2021, mainly reflecting:
In 2022, cash flows used in investing activities in the amount of €13,626 million fully absorbed the cash flows from operating activities for €8,674 million, with the difference coming from financing activities in the amount of €7,369 million. The difference is reflected in an increase in cash and cash equivalents at December 31, 2022 to €11,543 million, from €8,990 million at the end of 2021. The change was also affected by effects associated with the positive developments in the exchange rates of local currencies against the euro, in the amount of €136 million.
The following table shows the net financial position and long-term financial assets and securities on the basis of the items on the statement of consolidated financial position.
The financial position is reported in compliance with Guideline 39, issued on March 4, 2021 by ESMA and applicable as from May 5, 2021, and with warning notice no. 5/2021 issued by CONSOB on April 29, 2021, which replaced the references to the CESR Recommendations and the references in Communication no. DEM/6064293 of July 28, 2006 regarding the net financial position. The net financial debt of the Enel Group at December 31, 2022 and December 31, 2021 is reconciled with net financial debt as provided for in the presentation methods of the Enel Group.
The net position as per CONSOB instructions does not include derivatives designated as hedges for hedge accounting purposes or entered into for trading purposes as they are used for hedging.
At December 31, 2022, those financial assets and liabilities are reported separately in the statement of financial position under the following items: “Non-current financial derivative assets” in the amount of €3,970 million (€2,772 million at December 31, 2021), “Current financial derivative assets” in the amount of €14,830 million (€22,791 million at December 31, 2021), “Non-current financial derivative liabilities” in the amount of €5,895 million (€3,339 million at December 31, 2021), and “Current financial derivative liabilities” in the amount of €16,141 million (€24,607 million at December 31, 2021).
Furthermore, for the purpose of better representing the Enel Group’s net financial debt, it includes the fair value of the cross currency swaps entered into to hedge foreign currency loans to external counterparties. For more information on the classification of such derivatives, please see note 51 “Derivatives and hedge accounting”.
This note provides disclosures necessary for users to assess the significance of financial instruments for the Group’s financial position and performance.
The following table reports the carrying amount for each category of financial asset provided for under IFRS 9, broken down into current and non-current financial assets, showing hedging derivatives and derivatives measured at fair value through profit or loss separately.
For more information on the recognition and classification of current and non-current derivative assets, please see note 51 “Derivatives and hedge accounting”.
For more information on fair value measurement, see note 52 “Assets and liabilities measured at fair value”.
The following table reports financial assets measured at amortized cost by nature, broken down into current and non-current financial assets.
Impairment of financial assets at amortized cost
Financial assets measured at amortized cost amounted to €45,788 million at December 31, 2022 (€38,763 million at December 31, 2021) and are recognized net of allowances for expected credit losses totaling €4,087 million at December 31, 2022 (€4,051 million at the end of the previous year).
The Group mainly has the following types of financial assets measured at amortized cost subject to impairment testing:
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
The expected credit loss (ECL) – determined using probability of default (PD), loss given default (LGD) and exposure at default (EAD) – is the difference between all contractual cash flows that are due in accordance with the contract and all cash flows that are expected to be received (i.e., all shortfalls) discounted at the original effective interest rate (EIR).
For calculating ECL, the Group applies two different approaches:
A forward-looking adjustment can be applied considering qualitative and quantitative information in order to reflect future events and macroeconomic developments that could impact the risk associated with the portfolio or financial instrument.
Depending on the nature of the financial assets and the credit risk information available, the assessment of the increase in credit risk can be performed on:
When there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof, the gross carrying amount of the financial asset shall be reduced. A write-off represents a derecognition event (e.g., the right to cash flows is legally or contractually extinguished, transferred or expired).
The following table reports expected credit losses on financial assets measured at amortized cost on the basis of the general simplified approach.
To measure expected losses, the Group assesses trade receivables and contract assets with the simplified approach, both on an individual basis (e.g., government entities, authorities, financial counterparties, wholesale sellers, traders and large companies, etc.) and a collective basis (e.g., retail customers).
In the case of individual assessments, PD is generally obtained from external providers.
Otherwise, in the case of collective assessments, trade receivables are grouped on the basis of their shared credit risk characteristics and information on past due positions, considering a specific definition of default.
Based on each business and local regulatory framework, as well as differences between customer portfolios, including their default and recovery rates (comprising expectations for recovery beyond 90 days):
Contract assets substantially have the same risk characteristics as trade receivables for the same types of contracts. In order to measure the ECL for trade receivables on a collective basis, as well as for contract assets, the Group uses the following assumptions regarding the ECL parameters:
Despite the deterioration in the collection status of certain customer segments, which was taken into consideration in determining impairment of trade receivables, the Group’s portfolio has so far demonstrated resilience to the macroeconomic context and the current price scenario. This reflects the expansion of digital collection channels and a solid diversification of commercial customers. The following table reports changes in the allowance for expected credit losses on loan assets in accordance with the general approach.
The following table reports changes in the allowance for expected credit losses on trade receivables in accordance with the simplified approach.
The following table reports changes in the allowance for expected credit losses on other financial assets at amortized cost in accordance with the simplified approach.
Note 49 “Risk management” provides additional information on the exposure to credit risk and expected losses.
The following table shows financial assets at fair value through other comprehensive income by nature, broken down into current and non-current financial assets.
The following table shows financial assets at fair value through profit or loss by nature, broken down into current and non-current financial assets.
For more information on derivative financial assets, please see note 51 “Derivatives and hedge accounting”.
The following table shows the carrying amount for each category of financial liability provided for under IFRS 9, broken down into current and non-current financial liabilities, showing hedging derivatives and derivatives measured at fair value through profit or loss separately.
For more information on fair value measurement, please see note 52 “Assets and liabilities measured at fair value”.
The following table shows financial liabilities at amortized cost by nature, broken down into current and non-current financial liabilities
The following table reports the nominal value, carrying amount, and fair value of long-term borrowings including the portion falling due within 12 months.
The following table reports long-term financial debt by currency and interest rate.
Long-term financial debt denominated in currencies other than the euro increased by €9,543 million, largely attributable to the changes in debt denominated in US dollars.
The nominal value of long-term debt amounted to €71,873 million at December 31, 2022, an increase of €12,768 million compared with December 31, 2021. The increase in debt reflected new borrowing of €22,399 million and exchange losses of €781 million, only partially offset by repayments of €9,359 million and the deconsolidation of debt of various companies, in particular that resulting from the sale of the equity investment in Enel Russia, equal to €1,053 million.
Repayments in 2022 involved bonds in the amount of €2,788 million and loans in the amount of €6,571 million.
Specifically, repayments of bonds in 2022 included:
The main repayments of loans made during the year included:
New borrowings in 2022 involved €12,390 million in bonds and €10,009 million in loans.
The table below shows the main characteristics of financial transactions carried out in 2022 and translated into euros at the exchange rate prevailing at December 31, 2022.
The following table reports the impact on gross long-term debt of hedges to mitigate currency risk.
The amount of floating-rate debt that is not hedged against interest rate risk is the main risk factor that could adversely impact profit or loss (raising borrowing costs) in the event of an increase in market interest rates.
At December 31, 2022, 38.2% of long and medium-term financial debt was floating rate (38.4% at December 31, 2021). Taking account of hedges of interest rates considered effective pursuant to the IFRS-EU, 34.7% of long and medium-term net financial debt at December 31, 2022 was exposed to interest rate risk (31% at December 31, 2021). These figures are in line with the limits established in the risk management policy.
The following table shows the impact of the IBOR reform on long-term financial debt for the main indices (for more details, please see the section “Reform of benchmarks for the determination of interest rates - IBOR reform” in note 51.1).
Long-term debt – Main covenants
The Group’s main long-term financial liabilities are governed by covenants that are commonly adopted in international business practice. They include in particular bond issues carried out within the framework of the Global/Euro Medium Term Notes program, issues of subordinated unconvertible hybrid bonds (so-called “hybrid bonds”) and loans granted by banks and other financial institutions (including the European Investment Bank and Cassa Depositi e Prestiti SpA).
The main covenants regarding bond issues carried out within the framework of the Global/Euro Medium Term Notes program of Enel and Enel Finance International NV (including the green bonds of Enel Finance International NV guaranteed by Enel SpA, which are used to finance the Group’s so-called eligible green projects) and those regarding bonds issued by Enel Finance International NV on the US market guaranteed by Enel SpA can be summarized as follows:
Since 2019, Enel Finance International NV has issued a number of “sustainable” bonds on the European market (as part of the Euro Medium Term Notes - EMTN bond issue program) and on the American market, both guaranteed by Enel SpA, linked to the achievement of a number of the Sustainable Development Goals (SDGs) of the United Nations that contain the same covenants as other bonds of the same type.
In 2022, Enel Finance America LLC issued a “sustainable” bond of the same type, guaranteed by Enel SpA, on the US market.
The main covenants covering Enel’s hybrid bonds, including the perpetual hybrid bond issues, which will only be repaid in the event of the dissolution or liquidation of the Company, can be summarized as follows:
The main covenants envisaged in the loan contracts of Enel and Enel Finance International NV and the other Group companies, including the sustainability-linked loan facility agreements obtained by Enel SpA, can be summarized as follows:
Some loan contracts entered into by Enel SpA, including as guarantor, provide for some additional covenants, such as:
In some cases, the covenants are also binding for the significant companies or subsidiaries of the obligated parties. All the borrowings considered specify “events of default” typical of international business practice, such as, for example, insolvency, bankruptcy proceedings or the entity ceases trading.
In addition, the guarantees issued by Enel in the interest of e-distribuzione SpA for certain loans to e-distribuzione SpA from Cassa Depositi e Prestiti SpA require that at the end of each six-month measurement period Enel’s net consolidated financial debt shall not exceed 4.5 times annual consolidated EBITDA. Finally, the debt of Endesa SA, Enel Américas SA, Enel Chile SA and the other Spanish and Latin American subsidiaries (notably Enel Generación Chile SA) contains covenants and events of default typical of international business practice.
At December 31, 2022 short-term borrowings totaled €18,392 million, an increase of €5,086 million compared with December 31, 2021, and break down as follows:
Commercial paper liabilities totaling €13,838 million concerned issues by Enel Finance International, Endesa and Enel Finance America.
The main commercial paper programs include:
At December 31, 2022, the whole amount of commercial paper issues, equal to €13,838 million, was linked to sustainability objectives.
For more information on derivative financial liabilities, please see note 51 “Derivatives and hedge accounting”.
The following table shows net gains and losses by category of financial instruments, excluding derivatives.
For more details on net gains and losses on derivatives, please see note 14 “Net financial income/(expense) from derivatives”.
As part of its operations, the Enel Group is exposed to a variety of financial risks, notably interest rate risk, commodity risk, currency risk, credit and counterparty risk and liquidity risk.
Enel’s primary objective is to mitigate financial risks appropriately so that they do not give rise to unexpected changes in results.
The following sections detail the above financial risks. There were no changes in the sources of exposure to such risks compared with the previous year.
Interest rate risk derives primarily from the use of financial instruments and manifests itself as unexpected changes in charges on financial liabilities, if indexed to floating rates and/or exposed to the uncertainty of financial terms and conditions in negotiating new debt instruments, or as an unexpected change in the value of financial instruments measured at fair value (such as fixed-rate debt).
The main financial liabilities held by the Group include bonds, bank borrowings, borrowings from other lenders, commercial paper, derivatives, cash deposits received to secure commercial or derivative contracts (guarantees, cash collateral).
The Enel Group mainly manages interest rate risk through the definition of an optimal financial structure, with the dual goal of stabilizing borrowing costs and containing the cost of funds.
This goal is pursued through the diversification of the portfolio of financial liabilities by contract type, maturity and interest rate, and modifying the risk profile of specific exposures using OTC derivatives, mainly interest rate swaps and interest rate options. The term of such derivatives does not exceed the maturity of the underlying financial liability, so that any change in the fair value and/or expected cash flows of such contracts is offset by a corresponding change in the fair value and/or cash flows of the hedged position.
Proxy hedging techniques can be used in a number of residual circumstances, when the hedging instruments for the risk factors are not available on the market or are not sufficiently liquid.
Using interest rate swaps, the Enel Group agrees with the counterparty to periodically exchange floating-rate interest flows with fixed-rate flows, both calculated on the same notional principal amount.
The following table reports the notional amount of interest rate derivatives at December 31, 2022 and December 31, 2021 broken down by type of contract.
For more details on interest rate derivatives, please see note 51 “Derivatives and hedge accounting”.
Enel analyzes the sensitivity of its exposure by estimating the effects of a change in interest rates on the portfolio of financial instruments.
More specifically, sensitivity analysis measures the potential impact on profit or loss and on equity of market scenarios that would cause a change in the fair value of derivatives or in the financial expense associated with unhedged gross debt.
These market scenarios are obtained by simulating parallel increases and decreases in the yield curve as at the reporting date.
There were no changes introduced in the methods and assumptions used in the sensitivity analysis compared with the previous year.
With all other variables held constant, the Group’s pre-tax profit would be affected by a change in the level of interest rates as follows:
At December 31, 2022, 22.3% (24.5% at December 31, 2021) of the nominal value of gross long-term financial debt was floating rate. Taking account of effective cash flow hedges of interest rate risk (in accordance with the provisions of the IFRS-EU), 82.0% of the nominal value of gross long-term financial debt was hedged at December 31, 2022 (84.5% at December 31, 2021).
Currency risk mainly manifests itself as unexpected changes in the financial statement items associated with transactions denominated in a currency other than the presentation currency. The Group’s consolidated financial statements are also exposed to translation risk as a result of the conversion of the financial statements of foreign subsidiaries, which are denominated in local currencies, into euros as the Group’s presentation currency.
The Group’s exposure to currency risk is connected with the purchase or sale of fuels and power, investments (cash flows for capitalized costs), dividends and the purchase or sale of equity investments, commercial transactions and financial assets and liabilities.
The Group policies for managing currency risk provide for the mitigation of the effects on profit or loss of changes in the level of exchange rates, with the exception of the translation effects connected with consolidation.
In order to minimize the exposure to currency risk, Enel implements diversified revenue and cost sources geographically, and uses indexing mechanisms in commercial contracts. Enel also uses various types of derivative, typically on the OTC market.
The derivatives in the Group’s portfolio of financial instruments include cross currency interest rate swaps, currency forwards and currency swaps. The term of such contracts does not exceed the maturity of the underlying instrument, so that any change in the fair value and/or expected cash flows of such instruments offsets the corresponding change in the fair value and/or cash flows of the hedged position.
Cross currency interest rate swaps are used to transform a long-term financial liability denominated in currency other than the presentation currency into an equivalent liability in the presentation currency.
Currency forwards are contracts in which the counterparties agree to exchange principal amounts denominated in different currencies at a specified future date and exchange rate (the strike). Such contracts may call for the actual exchange of the two principal amounts (deliverable forwards) or payment of the difference generated by differences between the strike exchange rate and the prevailing exchange rate at maturity (non-deliverable forwards). In the latter case, the strike rate and/or the spot rate can be determined as averages of the rates observed in a given period.
Currency swaps are contracts in which the counterparties enter into two transactions of the opposite sign at different future dates (normally one spot, the other forward) that provide for the exchange of principal denominated in different currencies.
The following table reports the notional amount of transactions outstanding at December 31, 2022 and December 31, 2021, broken down by type of hedged item.
More specifically, these include:
At December 31, 2022, 51% (45% at December 31, 2021) of Group long-term debt was denominated in currencies other than the euro. Taking account of hedges of currency risk, the percentage of debt not hedged against that risk amounted to 18% at December 31, 2022 (17% at December 31, 2021).
The Group analyzes the sensitivity of its exposure by estimating the effects of a change in exchange rates on the portfolio of financial instruments.
More specifically, sensitivity analysis measures the potential impact on profit or loss and equity of market scenarios that would cause a change in the fair value of derivatives or in the financial expense associated with unhedged gross medium/long-term debt.
These scenarios are obtained by simulating the appreciation/depreciation of the euro against all of the currencies compared with the value observed as at the reporting date.
There were no changes in the methods or assumptions used in the sensitivity analysis compared with the previous year.
With all other variables held constant, the pre-tax profit would be affected by changes in exchange rates as follows.
The risk of fluctuations in the price of energy commodities such as electricity, gas, oil, CO2, and raw materials such as minerals and metals is generated by the volatility of prices and structural correlations between them, which create uncertainty in the margin on purchases and sales of electricity and fuels and materials at variable prices (e.g., indexed bilateral contracts, transactions on the spot market, etc.).
The exposures on indexed contracts are quantified by breaking down the contracts that generate exposure into the underlying risk factors.
To contain the effects of fluctuations and stabilize margins, in accordance with the policies and operating limits determined by the Group’s governance and leaving an appropriate margin of flexibility to seize any short-term opportunities that may present themselves, Enel develops and plans strategies that impact the various phases of the industrial process linked to the production and sale of electricity and gas (such as forward procurement and long-term commercial agreements), as well as risk mitigation plans and techniques using derivative contracts (hedging).
As regards electricity sold by the Group, Enel mainly uses fixed-price contracts in the form of bilateral physical contracts (PPAs) and financial contracts (e.g., contracts for differences, VPP contracts, etc.) in which differences are paid to the counterparty if the market electricity price exceeds the strike price and to Enel in the opposite case. The residual exposure in respect of the sale of energy on the spot market not hedged with such contracts is aggregated by uniform risk factors that can be managed with hedging transactions on the market. Proxy hedging techniques can be used for the industrial portfolios when the hedging instruments for the specific risk factors generating the exposure are not available on the market or are not sufficiently liquid. In addition, Enel uses portfolio hedging techniques to assess opportunities for netting intercompany exposures.
The Group mainly uses plain vanilla derivatives for hedging (more specifically, forwards, swaps, options on commodities, futures, contracts for differences). Some of these products can be indexed to a variety of underlyings (coal, gas, oil, CO2, different geographical areas, etc.) and the approaches can be assessed and adapted to specific needs.
Enel also engages in proprietary trading in order to maintain a presence in the Group’s reference energy commodity markets. These operations consist in taking on exposures in energy commodities (oil products, gas, coal, CO2 certificates and electricity) using financial derivatives and physical contracts traded on regulated and over-thecounter markets, optimizing profits through transactions carried out on the basis of expected market developments. The following table reports the notional amount of outstanding transactions at December 31, 2022 and December 31, 2021, broken down by type of instrument.
For more details, please see note 51 “Derivatives and hedge accounting”.
The following table presents the results of the analysis of sensitivity to a reasonably possible change in the commodity prices underlying the valuation model used in the scenario at the same date, with all other variables held constant.
The impact on pre-tax profit of shifts of +15% and -15% in the price curve for the main commodities that make up the fuel scenario and the basket of formulas used in the contracts is mainly attributable to the change in the price of electricity, gas and petroleum products and, to a lesser extent, of CO2. The impact on equity of the same shifts in the price curve is primarily due to changes in the price of electricity, petroleum products and, to a lesser extent, CO2. The Group’s exposure to changes in the prices of other commodities is not material.
The Group’s commercial, commodity and financial transactions expose it to credit risk, i.e., the possibility that a deterioration in the creditworthiness of a counterparty or the failure to discharge contractual payment obligations could lead to the interruption of incoming cash flows and an increase in collection costs (settlement risk), as well as lower revenue flows due to the replacement of the original transactions with similar transactions negotiated on unfavorable market conditions (replacement risk). Other risks include the reputational and financial risks associated with significant exposures to a single counterparty or groups of related customers, or to counterparties operating in the same sector or in the same geographical area.
Accordingly, the exposure to credit and counterparty risk is attributable to the following types of transactions:
In order to minimize credit and counterparty risk, credit exposures are managed at the region/country/global business line level by different units, thereby ensuring the necessary segregation of risk management and control activities. Monitoring the consolidated exposure is carried out by Enel SpA.
In addition, at the Group level the policy provides for the use of uniform criteria – in all the main regions/countries/ global business lines and at the consolidated level – in measuring commercial credit exposures in order to promptly identify any deterioration in the quality of outstanding receivables and any mitigation actions to be taken.
The policy for managing credit and counterparty risk associated with commercial activities provides for a preliminary assessment of the creditworthiness of counterparties and the adoption of mitigation instruments, such as obtaining collateral or unsecured guarantees.
In addition, the Group undertakes transactions to factor receivables without recourse, which results in the complete derecognition of the corresponding assets involved in the factoring, as the risks and rewards associated with them have been transferred.
Finally, with regard to financial and commodity transactions, risk mitigation is pursued with a uniform system for assessing counterparties at the Group level, including im416 Integrated Annual Report 2022 plementation at the level of regions/countries/global business lines, as well as with the adoption of specific standardized contractual frameworks that contain risk mitigation clauses (e.g., netting arrangements) and possibly the exchange of cash collateral.
Despite the deterioration in the collection status of some customer segments, which was taken into account in the assessment of the impairment of trade receivables, to date the Group portfolio has displayed resilience to the current macroeconomic context and price scenario. This reflects the strengthening of digital collection channels and a sound diversification of the customer base.
Liquidity risk manifests itself as uncertainty about the Group’s ability to discharge its obligations associated with financial liabilities that are settled by delivering cash or another financial asset.
Enel manages liquidity risk by implementing measures to ensure an appropriate level of liquid financial resources, minimizing the associated opportunity cost and maintaining a balanced debt structure in terms of its maturity profile and funding sources.
In the short term, liquidity risk is mitigated by maintaining an appropriate level of unconditionally available resources, including liquidity on hand and short-term deposits, available committed credit lines and a portfolio of highly liquid assets.
In the long term, liquidity risk is mitigated by maintaining a balanced maturity profile for our debt, access to a range of sources of funding on different markets, in different currencies and with diverse counterparties.
The mitigation of liquidity risk enables the Group to maintain a credit rating that ensures access to the capital market and limits the cost of funds, with a positive impact on its financial position and performance.
The Group holds the following undrawn lines of credit and commercial paper programs.
The table below summarizes the maturity profile of the Group’s long-term debt.
In conducting its business, the Enel Group has entered into contracts to purchase specified quantities of commodities at a certain future date for its own use, which qualify for the own use exemption provided for under IFRS 9.
The following table reports the undiscounted cash flows associated with outstanding commitments at December 31, 2022.
At December 31, 2022, the Group did not hold offset positions in assets and liabilities, as it is not the Enel Group’s policy to settle financial assets and liabilities on a net basis.
The following tables show the notional amount and the fair value of derivative financial assets and derivative financial liabilities eligible for hedge accounting or measured at FVTPL, classified on the basis of the type of hedge relationship and the hedged risk, broken down into current and non-current instruments.
The notional amount of a derivative contract is the amount on the basis of which cash flows are exchanged. This amount can be expressed as a value or a quantity (for example tons, converted into euros by multiplying the notional amount by the agreed price). Amounts denominated in currencies other than the euro are translated at the official closing exchange rates provided by the World Markets Refinitiv (WMR) Company.
Exchange rate derivatives associated with borrowings refer to the fair value and notional amount of cross currency swaps entered into to hedge foreign currency loans to third parties; the net fair value of these derivatives is included in the representation of the Group’s net financial debt.
Derivatives are initially recognized at fair value, on the trade date of the contract, and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
Hedge accounting is applied to derivatives entered into in order to reduce risks such as interest rate risk, currency risk, commodity price risk (including Virtual PPAs) and net investments in foreign operations when all the criteria provided by IFRS 9 are met.
At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether hedging instruments are highly effective in offsetting changes in fair values or cash flows of hedged items. For cash flow hedges of forecast transactions designated as hedged items, the Group assesses and documents that they are highly probable and present an exposure to changes in cash flows that affect profit or loss.
Depending on the nature of the risk exposure, the Group designates derivatives as either:
For more details about the nature and the extent of risks arising from financial instruments to which the Group is exposed, please see note 49 “Risk management”. To be effective a hedge relationship shall meet all of the following criteria:
Based on the IFRS 9 requirements, the existence of an economic relationship is evaluated by the Group through a qualitative assessment or a quantitative computation, depending on the following circumstances:
In order to demonstrate that the behavior of the hedging instrument is in line with those of the hedged item, different scenarios will be analyzed.
For hedging of commodity price risk, the existence of an economic relationship is deduced from a ranking matrix that defines, for each possible risk component, a set of all standard derivatives available in the market whose ranking is based on their effectiveness in hedging the considered risk.
In order to evaluate the credit risk effects, the Group considers the existence of risk mitigating measures (collateral, mutual break-up clauses, netting agreements, etc.).
The Group has established a hedge ratio of 1:1 for all the hedge relationships (including commodity price risk hedging) as the underlying risk of the hedging derivative is identical to the hedged risk, in order to minimize hedging ineffectiveness.
The hedge ineffectiveness will be evaluated through a qualitative assessment or a quantitative computation, depending on the following circumstances:
The main causes of hedge ineffectiveness can be the following:
The macroeconomic context became particularly unstable in 2022, due to the conflict between Russia and Ukraine, impacting raw material supply chains and causing high price volatility, especially in the energy sector. In this context, the commodity risk was managed effectively and did not have a significant impact on the soundness of hedging relationships, also thanks to the solidity of the integrated portfolio models used in the main European areas in which the Group operates and the geographical diversification of our sources of supply. Even credit risk was essentially unaffected, as the Group’s main trading counterparties have a high credit rating or are adequately secured by bank or insurance guarantees.
The conflict and the difficult macroeconomic conditions had only a limited impact on the management of interest rate and exchange rate risk, being insufficient to directly and significantly influence the valuation of derivative instruments and the outcome of effectiveness checks of hedges. The volatility that buffeted financial markets was offset by risk mitigation actions using derivative financial instruments.
Fair value hedges are used to protect the Group against exposures to changes in the fair value of assets, liabilities or firm commitment attributable to a particular risk that could affect profit or loss.
Changes in the fair value of derivatives that qualify and are designated as hedging instruments are recognized in the income statement, together with changes in the fair value of the hedged item that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest rate method is used is amortized to profit or loss over the period to maturity.
Cash flow hedges are applied in order to hedge the Group exposure to changes in future cash flows that are attributable to a particular risk associated with a recognized asset or liability or a highly probable transaction that could affect profit or loss.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the income statement.
Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the hedged forecast sale takes place).
If the hedged item results in the recognition of a non-financial asset (i.e., property, plant and equipment or inventories, etc.) or a non-financial liability, or a hedged forecast transaction for a non-financial asset or a non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, the amount accumulated in equity (i.e., hedging reserve) shall be removed and included in the initial amount (cost or other carrying amount) of the asset or the liability hedged (i.e., “basis adjustment”).
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. For hedge relationships using forwards as a hedging instrument, where only the change in the value of the spot element is designated as the hedging instrument, accounting for the forward element (profit or loss vs OCI) is defined case by case. This approach is actually applied by the Group for hedging of currency risk on renewables assets.
Conversely, for hedge relationships using cross currency interest rate swaps as hedging instruments, the Group separates foreign currency basis spread, in designating the hedging derivative, and present them in other comprehensive income (OCI) as hedging costs.
With specific regard to cash flow hedges of commodity risk, in order to improve their consistency with the risk management strategy, the Enel Group applies a dynamic hedge accounting approach based on specific liquidity requirements (the so-called liquidity-based approach).
This approach requires the designation of hedges through the use of the most liquid derivatives available on the market and replacing them with others that are more effective in covering the risk in question.
Consistent with the risk management strategy, the liquidity-based approach allows the roll-over of a derivative by replacing it with a new derivative, not only in the event of expiry but also during the hedge relationship, if and only if the new derivative meets both of the following requirements:
Satisfaction of these requirements is verified quarterly. At the roll-over date, the hedge relationship is not discontinued. Accordingly, starting from that date, changes in the effective fair value of the new derivative will be recognized in equity (the hedging reserve), while changes in the fair value of the old derivative are recognized through profit or loss.
Overview
Interbank Offered Rates (“IBORs”) are benchmark rates at which banks can borrow funds on the interbank market on an unsecured basis for a given period ranging from overnight to 12 months, in a specific currency.
In recent years there have been a number of cases of manipulation of these rates by the banks contributing to their calculation. For this reason, regulators around the world have begun a sweeping reform of interest rate benchmarks that includes the replacement of some benchmarks with alternative risk-free rates (the IBOR reform). The Group’s main exposure is based on Euribor and USD LIBOR.
Euribor is still considered compliant with the European Benchmarks Regulation (BMR) and this permits market participants to continue to use it for both existing and new contracts.
In line with the most recent guidance issued by the major regulatory bodies:
As a result of the IBOR reform, a number of temporary exceptions to the rules on hedge relationships have been allowed in implementation of the amendments to IFRS 9 issued in September 2019 (Phase 1) and August 2020 (Phase 2) to address, respectively:
Impact of the IBOR reform on the Group
In a context of uncertainty regarding the IBOR transition in the various countries, the Group has determined the overall number and nominal value of the contracts impacted by the reform. In addition, a number of contractual amendments have already been implemented in contracts previously indexed to GBP LIBOR in 2021 and others will be amended in 2023 on the basis of the evolution of the IBOR reform and market practice.
Debt and derivatives
The Group’s floating rate debt is mainly benchmarked against Euribor and USD LIBOR and is almost entirely hedged using financial derivatives.
At the reporting date, the Group is planning to take no action with regard to Euribor since, as stated above, this benchmark has been comprehensively reformed to comply with the European Benchmarks Regulation. Despite the continuity with Euribor, replacement clauses may be required and could therefore be implemented by the Group in the new contracts in accordance with the evolution of accepted market practice.
During 2022, the Group obtained new US dollar loans indexed to SOFR. The main focus over the coming months will be how to change existing USD LIBOR to USD SOFR exposures and how to use the new, alternative risk-free rates for new financial transactions.
The Group’s derivative instruments are managed through contracts that are mainly based on framework agreements defined by the International Swaps and Derivatives Association (ISDA).
The ISDA has revised its standardized contracts in light of the IBOR reform and amended the choices for floating rates within the 2006 ISDA definitions to include replacement clauses that would apply upon the permanent discontinuation of specific key benchmarks. These changes took effect on January 25, 2021. Transactions represented in the 2006 ISDA definitions carried out on January 25, 2021 or later include adjusted floating-rate options (e.g., the choice of floating rate with replacement clause), while transactions completed before that date (previous derivative contracts) continue to be based on the 2006 ISDA definitions.
For this reason, the ISDA published an IBOR Fallback Protocol to facilitate multilateral amendments to include the amended definitions. The Group is assessing whether to: (i) adopt that protocol in the light of its exposure and developments in the IBOR reform or (ii) adjust in advance any contracts impacted bilaterally by the reform.
Hedge relationships
At the reporting date, hedged items and hedging instruments are primarily indexed to Euribor, USD LIBOR and SONIA.
The Group has assessed the impact of uncertainty engendered by the IBOR reform on hedge relationships at December 31, 2022 with reference to both hedging instruments and hedged items. Both the hedged items and the hedging instruments will change their parameterization from interbank market-based benchmarks (IBORs) to alternative risk-free rates (RFRs) as a result of the contractual amendments that will take effect in the coming years. In particular, uncertainty remains as to how the replacement will take place with regard to both hedging instruments and hedged items indexed to USD LIBOR. The Group manages the uncertainty associated with these hedge relationships by continuing to apply the temporary exceptions provided for in the amendments to IFRS 9 issued in September 2019 (Phase 1). It was therefore felt that the benchmark indices for determining the interest rates on which the cash flows of the hedged items or the hedging instruments are based would not change as a consequence of the IBOR reform. The exception was applied for the following hedge relationship requirements:
The hedge relationships impacted may become ineffective attributable to different replacements of existing benchmarks with alternative risk-free benchmarks. In any case, the Group will seek to implement the replacements at the same time.
In addition, the Group changed the reference to GBP LIBOR in its interest rate hedging instruments used in cash flow hedge relationships with the new, economically equivalent, SONIA benchmark at the end of 2021. Consequently, the Group no longer applies the amendments to IFRS 9 issued in September 2019 (Phase 1) to these hedge relationships and, consequently, is applying the amendments to IFRS 9 issued in August 2020 (Phase 2), modifying the formal designation of the hedge relationship as required by the IBOR reform and without considering this event as a termination of the hedge relationship.
Furthermore, for cash flow hedge relationships, in modifying the description of the hedged item in the hedge relationship, the amounts accumulated in the cash flow hedge reserve were considered on the basis of the alternative benchmark index in relation to which the future hedged cash flows are determined.
The following table provides details of the notional amounts of the hedging instruments for which the amendments to IFRS 9 (both Phase 1 and Phase 2) were applied as at December 31, 2022, broken down by the alternative benchmark index used for determining the interest rate.
Unamended contracts including those with specific replacement clauses
The Group is monitoring the evolution of the transition from the old interest rate benchmarks to the new rates, reviewing the overall value of contracts that have not yet been indexed to the new benchmark rates and, among these, the value of contracts which already include specific replacement clauses. The Group considers a contract to have not yet incorporated an alternative benchmark rate when the interest rate of the contract is indexed to an interest rate benchmark still involved in the IBOR reform and, therefore, when uncertainties still exist as to how and when replacement with the new benchmark will take place.
Interest rate risk
The following table shows the notional amount and the average interest rate of instruments hedging the interest rate risk on transactions outstanding at December 31, 2022 and December 31, 2021, broken down by maturity.
The following table shows the notional amount and the fair value of the hedging instruments on the interest rate risk of transactions outstanding as at December 31, 2022 and December 31, 2021, broken down by type of hedged item.
The following table shows the notional amount and the fair value of hedging derivatives on interest rate risk as at December 31, 2022 and December 31, 2021 broken down by type of hedge.
The notional amount of derivatives classified as hedging instruments at December 31, 2022 came to €7,755 million, with a corresponding positive fair value of €206 million.
Compared with December 31, 2021, the notional amount decreased by €908 million, mainly reflecting:
We also note the early closure of interest rate swaps for an amount of €1,050 million. The improvement in the fair value of €802 million mainly reflects developments in the yield curve.
Fair value hedge derivatives
The following table reports net gains and losses recognized through profit or loss in respect of fair value hedge derivatives and the hedged item that are attributable to interest rate risk both in 2022 and the previous year.
The following table shows the impact of fair value hedges of interest rate risk in the statement of financial position at December 31, 2022 and December 31, 2021.
The following table shows the impact of the hedged item of fair value hedges in the statement of financial position at December 31, 2022 and December 31, 2021.
Cash flow hedge derivatives
The following table shows the cash flows expected in coming years from cash flow hedge derivatives on interest rate risk.
The following table shows the impact of cash flow hedges of interest rate risk in the statement of financial position at December 31, 2022 and December 31, 2021.
The following table shows the impact of the hedged item of cash flow hedges in the statement of financial position at December 31, 2022 and December 31, 2021.
Currency risk
The following table reports the maturity profile of the notional amount and associated average contractual exchange rate for the instruments hedging currency risk on transactions outstanding at December 31, 2022 and December 31, 2021.
The following table shows the notional amount and the fair value of the hedging instruments on the currency risk of transactions outstanding as at December 31, 2022 and December 31, 2021, broken down by type of hedged item.
Cash flow hedges and fair value hedges include:
The following table reports the notional amount and fair value of foreign exchange derivatives at December 31, 2022 and December 31, 2021, broken down by type of hedge.
The notional amount of CCIRS at December 31, 2022 amounted to €28,733 million (€21,439 million at December 31, 2021), an increase of €7,294 million. Cross currency interest rate swaps with a total amount of €258 million expired, while new derivatives amounted to €7,500 million, of which €6,936 million in respect of bond issues denominated in British pounds and US dollars in 2022. In addition, following the novation of a bond in US dollars from Enel Finance International to Enel Finance America, cross currency interest rate swaps of €662 million were terminated early. The amount also reflects developments in the exchange rate of the euro against the main other currencies and the effect of amortization, which caused their notional amount to increase by €714 million.
The notional amount of currency forwards at December 31, 2022 amounted to €9,126 million (€6,019 million at December 31, 2021), an increase of €3,107 million. The exposure to currency risk, especially that associated with the US dollar, is mainly due to purchases of natural gas, purchases of fuel and cash flows in respect of investments. Changes in the notional amount are connected with a greater exposure to exchange rate risk, in particular towards the US dollar, resulting from the increase in natural gas prices and the recovery in the generation of electricity from coal.
Fair value hedge derivatives
The following table reports net gains and losses recognized through profit or loss, reflecting changes in the fair value of fair value hedge derivatives and the hedged item that are attributable to currency risk for 2022 and the previous year.
The following table shows the impact of fair value hedges of currency risk in the statement of financial position at December 31, 2022 and December 31, 2021.
The following table shows the impact of the hedged item of fair value hedges in the statement of financial position at December 31, 2022 and December 31, 2021.
Cash flow hedge derivatives
The following table shows the cash flows expected in coming years from cash flow hedge derivatives on currency risk.
The following table shows the impact of cash flow hedges of currency risk in the statement of financial position at December 31, 2022 and at December 31, 2021.
The following table shows the impact of the hedged item of cash flow hedges in the statement of financial position at December 31, 2022 and December 31, 2021.
The following table reports the notional amount and fair value of instruments hedging commodity price risk on transactions outstanding at December 31, 2022 and December 31, 2021, broken down by type of commodity.
The table reports the notional amount and fair value of derivatives hedging commodity price risk at December 31, 2022 and at December 31, 2021, broken down by type of hedge.
The positive fair value of cash flow hedge derivatives on commodities regards derivatives on gas and oil commodities in the amount of €2,384 million, derivatives on CO2 (€143 million), derivatives on power (€1,107 million) and, to a lesser extent, hedges of coal purchases requested by the generation companies in the amount of €2 million.
The first category primarily regards hedges of fluctuations in the price of natural gas, for both purchases and sales, carried out for oil commodities and gas products.
The CO2 category mainly includes hedging transactions undertaken for Enel Group compliance purposes.
The power category mainly includes medium/long-term hedging transactions, especially in Spain and North America.
Cash flow hedge derivatives on commodities included in liabilities regard derivatives on gas and oil commodities in the amount of €5,951 million (mainly for derivatives hedging sales), derivatives on power in the amount of €1,408 million and, to a lesser extent, derivatives on coal and CO2 in the amount of respectively €373 million and €7 million.
Cash flow hedge derivatives
The following table shows the cash flows expected in coming years from cash flow hedge derivatives on commodity price risk.
The following table shows the impact of cash flow hedges of commodity price risk in the statement of financial position at December 31, 2022 and December 31, 2021.
The following table shows the impact of the hedged item of cash flow hedges in the statement of financial position at December 31, 2022 and December 31, 2021.
With regard to cash flow hedge derivatives on commodity prices, the entire commodities market continued to experience major price swings in 2022. The greatest impact in terms of changes in the cash flow hedge reserve is attributable to future transactions in gas, which of all commodities was the one most affected by the high volatility. Finally, the ineffectiveness recognized in 2022 on future transactions in gas is mainly related to proxy hedging operations in Spain.
The following table shows the notional amount and the fair value of derivatives at FVTPL as at December 31, 2022 and December 31, 2021
At December 31, 2022 the notional amount of trading derivatives on interest rates came to €100 million. The negative fair value of €23 million improved by €48 million on the previous year, mainly due to developments in the yield curve.
At December 31, 2022, the notional amount of derivatives on exchange rates was €5,761 million. The overall decrease in their notional value of €47 million and the increase in the associated net fair value of €80 million mainly reflected normal operations and developments in exchange rates.
At December 31, 2022, the notional amount of derivatives on commodities came to €98,207 million. The fair value of trading derivatives on commodities classified as assets mainly reflects the market valuation of hedges of gas and oil amounting to €11,270 million, derivatives on power amounting to €993 million, derivatives on CO2 amounting to €117 million and, to a lesser extent, derivatives on coal and other commodities totaling €21 million and €72 million, respectively.
The fair value of trading derivatives on commodities classified as liabilities mainly regards hedges of gas and oil amounting to €10,852 million, derivatives on power amounting to €1,260 million and derivatives on CO2, coal and other commodities in the amount of €35 million, €9 million and €16 million, respectively.
These amounts include transactions managed within the trading portfolios and transactions that, although established for hedging purposes, did not meet the requirements for hedge accounting.
The “other” category includes hedges using carried out on guarantees of origin and green certificates, i.e., incentive mechanisms for the production of electricity from renewable sources. In addition to commodity price risk, the Group companies have to manage the risk of fluctuations in the price of these certificates which were recently affected by greater market volatility compared with the past, due to the increasing market attention to environmental sustainability issues.
The Group determines fair value in accordance with IFRS 13 whenever such measurement is required by the IFRS as a recognition or measurement criterion.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction, between market participants, at the measurement date (i.e., an exit price). The best proxy of fair value is market price, i.e., the current publicly available price actually used on a liquid and active market.
The fair value of assets and liabilities is classified in accordance with the three-level hierarchy described below, depending on the inputs and valuation techniques used in determining their fair value:
This note also provides detailed disclosures concerning the valuation techniques and inputs used to perform these measurements.
To that end:
For general information or specific disclosures on the accounting treatment of these circumstances, please see
note 2 “Accounting policies”.
The following table shows, for each class of assets measured at fair value on a recurring or non-recurring basis in the statement of financial position, the fair value measurement at the end of the reporting period and the level in the fair value hierarchy into which the fair value measurements of those assets are classified.
The fair value of “Equity investments in other companies at FVOCI” is determined for listed companies on the basis of the quoted price at the close of the year, while that for unlisted companies is based on a reliable valuation of the relevant assets and liabilities.
“Financial assets from service concession arrangements at FVTPL” concern electricity distribution operations in Brazil, mainly by Enel Distribuição Rio de Janeiro, Enel Distribuição Ceará, and Enel Distribuição São Paulo, as well as the generation plant of PH Chucas in Costa Rica, and are accounted for in accordance with IFRIC 12.
Fair value was estimated as the net replacement cost based on the most recent rate information available and on the general price index for the Brazilian market. The current portion of “Loan assets and other financial assets at FVTPL” essentially regard investments of liquidity. Their fair value is determined using Level 1 as based on market inputs.
Level 3 of the non-current portion of “Loan assets and other financial assets at FVTPL” reports the receivable in respect of the sale of Slovak Power Holding, which amounted to €8 million at December 31, 2022. Its fair value was determined using the contractual price formula. The current portion of “Loan assets and other financial assets at FVTPL” includes under Level 1 investments in securities and funds held mainly by Latin American companies. The current portion of “Other cash investments at FVTPL” at Level 3 mainly refers to the optimization of Enel SpA’s excess cash holdings.
The fair value of derivative contracts is determined using the official prices for instruments traded on regulated markets. The fair value of instruments not listed on a regulated market is determined using valuation methods appropriate for each type of financial instrument and market data as of the end of the reporting period (such as interest rates, exchange rates, volatility), discounting expected future cash flows on the basis of the market yield curve and translating amounts in currencies other than the euro using exchange rates provided by the World Markets Refinitiv (WMR) Company.
Derivatives on interest rates and exchange rates are all measured using Level 2 inputs.
The fair value of derivatives on commodities is almost always measured using Level 1 or Level 2 inputs, as the determination is based on market inputs as these contracts are entered into with exchange counterparties, leading sector operators or financial institutions.
Marginal exceptions include certain derivatives relating to certain long-term financial contracts (virtual power purchase agreements, or VPPAs), for which internal measurement models were also used in part in order to measure these instruments over longer time horizons, given the illiquidity of the underlying variables.
In accordance with the IFRS, the Group assess credit risk, both of the counterparty (Credit Valuation Adjustment or CVA) and its own (Debit Valuation Adjustment or DVA), in order to adjust the fair value of financial instruments for the corresponding amount of counterparty risk where necessary. More specifically, the Group measures CVA/DVA using a Potential Future Exposure valuation technique for the net exposure of the position and subsequently allocating the adjustment to the individual financial instruments that make up the overall portfolio. All of the inputs used in this technique are observable on the market.
For each class of assets not measured at fair value on a recurring basis but whose fair value must be reported, the following table reports the fair value at the end of the year and the level in the fair value hierarchy into which the fair value measurements of those assets are classified.
The table reports the fair value of investment property and inventories of real estate not used in the business in the amount of €154 million and €47 million respectively. The amounts were calculated with the assistance of appraisals conducted by independent experts, who used different methods depending on the specific assets involved.
The following table reports for each class of liabilities measured at fair value on a recurring or non-recurring basis in the statement of financial position the fair value measurement at the end of the reporting period and the level in the fair value hierarchy into which the fair value measurements are classified.
Contingent consideration mainly regards a number of equity investments held by the Group in North America, whose fair value was determined on the basis of the contractual terms and conditions.
For each class of liabilities not measured at fair value in the statement of financial position but whose fair value must be reported, the following table reports the fair value at the end of the period and the level in the fair value hierarchy into which the fair value measurements of those liabilities are classified.
For listed debt instruments, the fair value is given by official prices. For unlisted instruments the fair value is determined using appropriate valuation techniques for each category of financial instrument and market data at the close of the year, including the credit spreads of Enel.
