Annual_Report_2016.pdf - Annual Report 2016 Annual Report...

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Unformatted text preview: Annual Report 2016 Annual Report 2016 enel.com Cover_RFA_ENG_DEF_20170427.indd 1 01/05/17 23:20 Annual Report 2016 Contents Report on operations Reports Enel organizational model | 8 Report of the Board of Auditors to the Shareholders' Meeting of Enel SpA | 386 Corporate boards | 10 Letter to shareholders and other stakeholders | 12 Summary of results | 16 Overview of the Group’s operations, performance and financial position | 26 Results by business area | 39 Performance and financial position of Enel SpA | 83 Significant events in 2016 | 89 Reference scenario | 101 Report of the independent audit firm on the 2016 financial statements of Enel SpA | 394 Report of the independent audit firm on the 2016 consolidated financial statements of the Enel Group | 398 Notice of ordinary Shareholders’ Meeting | 402 Proposed allocation of the annual net income and distribution of available reserves | 403 Main risks and uncertainties | 137 Outlook | 142 Other information | 143 Sustainability | 146 Attachments Related parties | 164 Subsidiaries, associates and other significant equity investments of the Enel Group at December 31, 2016 | 408 Reconciliation of shareholders’ equity and net income of Enel SpA and the corresponding consolidated figures | 165 Report on corporate governance and ownership structure | 452 Consolidated financial statements Financial statements | 168 Notes to the consolidated financial statements | 175 Declaration of the Chief Executive Officer and the officer responsible for the preparation of corporate financial reports | 312 Financial statements of Enel SpA Financial statements | 316 Notes to the separate financial statements | 323 Declaration of the Chief Executive Officer and the officer responsible for the preparation of the Company financial reports | 382 3 ENEL IS VALUES Open to the world, to technology and, internally, among our people. This is the strategic concept of Open Power. But in order to transfer to our customers and stakeholders the essence of a new innovative and open Enel, it is essential to instill this approach to openness within the Company. In order to create a shared culture among all of the Group’s parts, we have developed a “galaxy” composed of a Vision – for the first time in Enel – which represents our major long-term objective, a Mission 2025 expressed in five points, the values that represent Enel’s DNA and ten principles of conduct that must inspire everyone who works for the Company. Let’s Innovation discover the Open Power galaxy. PRINCIPLES OF CONDUCT Make decisions in daily activities and take responsibility for them. Share information, being willing to collaborate and open to the contribution of others. Change priorities swiftly in response to changes in the context. Follow through with commitments, Get results by aiming pursuing activities for excellence. with determination and passion. Adopt and promote safe behavior and move pro-actively to improve conditions for health, safety and well-being. Work for the integration of all, recognizing and leveraging individual diversity (culture, gender, age, disabilities, personality etc.). Work focusing on satisfying customers and/or co-workers, acting effectively and rapidly. 4 Responsibility Propose new solution Recognize merit in co-workers and do not give up when and give feedback that can faced with obstacles or failure. improve their contribution. Annual Report 2016 VISION Trust OPEN POWER TO SOLVE THE GREATEST CHALLENGES FACING OUR WORLD MISSION 2025 OPEN ACCESS TO ELECTRICITY FOR MORE PEOPLE Proactivity OPEN THE WORLD OF ENERGY TO NEW TECHNOLOGY OPEN UP TO NEW USES OF ENERGY OPEN UP TO NEW WAYS OF MANAGING ENERGY FOR PEOPLE OPEN UP TO NEW PARTNERSHIPS 5 01_Report on operations Relazione finanziaria Annualannuale Report 2016 2016 Relazione Report onsulla operations gestione Enel organizational model On April 8, 2016, the Enel Group adopted a new organizational structure, partly in relation to the integration of Enel Green Power. More specifically, the main organizational changes include: > the reorganization of the Group’s geographical presence, with a focus on the countries that represent new business opportunities around the world and in which the Group’s presence was established through Enel Green Power. The Group has therefore shifted from a matrix of four geographical areas to one with six such areas. The structure retains the Country “Italy” and the areas “Iberia” and “Latin America”, while the Eastern Europe area has been expanded into the “Europe and North Africa” area. Two new geographical areas have also been created: “North and Central America” and “Sub-Saharan Africa and Asia”. These six areas will continue to maintain a presence and integrate businesses at the local level, seeking to foster the development of all segments of the value chain. At the geographical level, in countries in which the Group operates in both the conventional and renewable generation businesses, the position of Country Manager will be unified; > the convergence of the entire hydroelectric business within the Renewable Energy business line; > the integrated management of dispatching of all renewable and thermal generation plants by Energy Management at the Country level in accordance with the guidelines established by the Global Trading Divisi. More specifically, the new Enel Group structure is organized, like the previous one, into a matrix that comprises: > Divisions (Global Thermal Generation, Global Trading, Global Infrastructure and Networks, Renewable Energy), which are responsible for managing and developing assets, optimizing their performance and the return on capital employed Global ICT C. Bozzoli Global Procurement F. Buresti Chairman P. Grieco 8 Chief Executive Officer F. Starace Administration, Finance and Control A. De Paoli Innovation and Sustainability E. Ciorra Human Resources and Organization F. Di Carlo Legal and Corporate Affairs G. Fazio European Affairs S. Mori Communications R. O’Keeffe Holding company functions Audit S. Fiori Annual Report 2016 in the various geographical areas in which the Group operates. The Divisions are also tasked with improving the efficiency of the processes they manage and sharing best practices at the global level. The Group can benefit from a centralized industrial vision of projects in the various business areas. Each project will be assessed not only on the basis of its financial return, but also on the basis of the best technologies available at the Group level. On September 12, 2016, following the positive experience of Enel OpEn Fiber in Italy, Enel created a new global business unit within the Global Infrastructure and Networks business line, responsible for managing this new strategic line of business in Italy and around the world. The new business unit, Global Fiber Optic Infrastructures, has the mission of developing strategies and business models for the development of fiber optic infrastructure by the Group at the global level; > Regions and Countries (Italy, Iberia, Latin America, Europe and North Africa, North and Central America, Sub-Saharan Africa and Asia), which are responsible for managing relationships with institutional bodies and regulatory authorities, as well as selling electricity and gas, in each of the countries in which the Group is present, while also providing staff and other service support to the Divisions. The following functions provide support to Enel’s business operations: > global service functions (Procurement and ICT), which are responsible for managing information and communication technology activities and procurement at the Group level; > holding company functions (Administration, Finance and Control, Human Resources and Organization, Communications, Legal and Corporate Affairs, Audit, European Affairs, and Innovation and Sustainability), which are responsible for managing governance processes at the Group level. The new organizational structure modifies the structure of reporting, the analysis of the Group’s performance and financial position and, accordingly, the representation of consolidated results as from September 30, 2016. Consequently, in this consolidated financial report, the results by business segment are discussed on the basis of the new organizational arrangements and taking account of the provision of IFRS 8 with regard to the “management approach”. Similarly, the figures for 2015 have been restated appropriately for comparative purposes. Geographical areas Iberia J. Bogas Gálvez North and Central Europe America, and North Africa Sub-Saharan R. Deambrogio Africa and Asia F. Venturini Latin America L. D’Agnese Italy C. Tamburi Global business lines Global Trading and Upstream Gas C. Machetti Global Renewable Energy F. Venturini Global Infrastructure and Networks L. Gallo Global Thermal Generation E. Viale Report on operations 9 Corporate boards Board of Directors Chairman Directors Secretary Claudio Sartorelli Francesco Starace Alfredo Antoniozzi Alessandro Banchi Alberto Bianchi Paola Girdinio Alberto Pera Anna Chiara Svelto Angelo Taraborrelli Chairman Auditors Alternate auditors Sergio Duca Romina Guglielmetti Roberto Mazzei Michela Barbiero Alfonso Tono Franco Luciano Tutino Patrizia Grieco Chief Executive Officer and General Manager Board of Auditors Independent auditors EY SpA 10 Annual Report 2016 Powers Board of Directors The Board is vested by the bylaws with the broadest powers for the ordinary and extraordinary management of the Company, and specifically has the power to carry out all the actions it deems advisable to implement and attain the corporate purpose. Chairman of the Board of Directors The Chairman is vested by the bylaws with the powers to represent the Company and to sign on its behalf, presides over Shareholders’ Meetings, convenes and presides over the Board of Directors, and ascertains that the Board’s resolutions are carried out. Pursuant to a Board resolution of May 23, 2014, the Chairman has been vested with a number of additional non-executive powers. Chief Executive Officer The Chief Executive Officer is also vested by the bylaws with the powers to represent the Company and to sign on its behalf, and in addition is vested by a Board resolution of May 23, 2014 with all powers for managing the Company, with the exception of those that are otherwise assigned by law or the bylaws or that the aforesaid resolution reserves for the Board of Directors. Report on operations 11 Letter to shareholders and other stakeholders Dear shareholders and stakeholders, Last year was characterized by major and often rapid changes in macroeconomic conditions, in response to which Enel made significant progress in implementing our strategy, enabling the Group to seize opportunities in highly complex environments. Enel has become the European utility with the largest market capitalization, underscoring the effectiveness of our strategic approach and capacity for operational implementation. The macroeconomic environment The year 2016 was marked by a volatile international environment, with major events occurring in various geographical areas, including the referendum on the exit of the United Kingdom from European Union and the election of the new President of the United States at the end of the year. In the United States, data on growth and the labor market showed a positive trend, as did inflation, which in converging on the target level of 2% prompted the first long-awaited increase in interest rates by the Federal Reserve (Fed) in December 2016. The euro-area economy displayed considerable resilience in response to a series of intra- and extra-European developments that, despite having weakened expected performance, did not prevent continued positive signs of recovery. Euro-area GDP has in fact grown steadily in recent quarters, although it is still affected by the delay in the economic recovery in a number of euro-area countries and by the persistent disparity in growth between Northern and Southern Europe. Inflationary pressure in the euro area was below the target level of the European Central Bank (ECB), which has continued to implement an expansionary monetary policy using unconventional tools, but did announced a phased reduction of quantitative easing. Many of the emerging economies are still suffering the effects of the end of the “commodities super cycle”, political instability and financial difficulties caused by lower revenue and capital outflows. All these factors contributed to producing one of the slowest average growth rates for the emerging economies since 2010. Globally, commodity markets were highly volatile throughout 2016. In particular, oil prices rose from the lows posted early in the year, at around $30 a barrel, to peaks of over $50 a barrel in the latter part of the year. Coal prices, which were strongly impacted by Chinese government measures aimed initially at limiting local production and subsequently at increasing it, varied significantly, rising from lows of around $40/metric ton early in the year to double that level at the end 2016. As for European gas, weak fundamentals in the first nine months of the year kept the benchmark TTF price at €12-14/MWh, before experiencing a sharp rise in the 4th Quarter in conjunction with the start of the winter season, increasing to €20/MWh. Despite the high volatility of commodity prices, investments in renewable energy around the world continue to expand, confirming the trend of recent years. The main results For Enel, 2016 was a very positive year. The Group exceeded its targets, which had already been revised upwards during the year. 12 Annual Report 2016 More specifically, the Group ended 2016 with ordinary EBITDA of €15.2 billion, up from €15 billion last year and better than the guidance provided to the market. Ordinary net income, which is used to calculate the dividend, increased by 12% to €3.2 billion, compared with €2.9 billion last year. The dividend for 2016 amounted to 18 eurocents per share, up 12% compared with 16 eurocents a year earlier. The FFO to net debt ratio, an indicator of financial strength, reached 26%, an improvement over the objective that the Group set itself and an increase on the 25% posted the previous year. As a result of improved cash generation, an interim dividend policy was reinstated with effect as from 2016, which saw the distribution of an interim dividend of 9 eurocents per share in January 2017. Net debt remained broadly stable at €37.6 billion, despite the significant increase in investment for growth (which rose by €1.5 billion compared with 2015) and the increase in dividends distributed. These very positive results are reflected in the performance of the Enel stock, which in 2016 posted an increase of about 8 percentage points (+12% if one includes dividends distributed during the year). The positive performance of Enel shares is even more significant if compared with the Italian benchmark index (FTSE-MIB), which fell by 10%, and the European sector index (Euro STOXX Utilities EMU), which posted a decline of 8% over the same period. The Group also posted significant progress towards achievement of the commitments made with regard to the Sustainable Development Goals of the United Nations (SDG), an integral part of our Strategic Plan. Compared with the targets set for 2020, Group has already reached 75% of the goal of 400,000 beneficiaries under SDG 4 (quality education), about 50% of the 3 million beneficiaries under SDG 7 (affordable energy) and 70% of the new target of 1.5 million beneficiaries under SDG 8 (decent work and economic growth). The Group also closed 2016 having made substantial progress on SDG 13 (combat climate change) and its path towards total decarbonization of the generation mix by 2050: grams of CO2/kWheq amounted to about 395 compared with a target of less than 350 for 2020. The main developments With regard to industrial growth, in 2016 Enel set a record for the installation of renewables capacity in a year, exceeding the threshold of 2,000 MW built. The Group also launched a new business model denominated “BSO” (Build, Sell and Operate), a less capital-intensive approach that is intended to further accelerate the development of Enel‘s extensive global project pipeline in renewables. In Italy, Enel presented the roll-out plan for the new generation of smart meters, which will be installed in 32 million homes and businesses and is one of the central elements of the Group‘s innovation process. The new digital meters enable users to have increasingly open, accessible, technologically advanced and sustainable power. Also in Italy, 2016 saw the launch of a project to build an ultra-broadband network infrastructure, with the aim of seizing new opportunities for value creation available to those who can offer, with certain timing and on a competitive basis, a modern, future-proof interconnectivity infrastructure. Work also continued on the Futur-e project in Italy, which seeks to redevelop, with a circular economy approach, 23 of Enel’s thermal power stations that have come to the end of their useful life, encouraging the direct involvement of all stakeholders and local communities. To date, four sites have already been redeveloped, and design contests were launched in 2016 for another five sites. In Spain, the roll-out of the “Cervantes” model digital meter continued last year, with mass installation scheduled for completion in 2017, well in advance of the planned deadline. In Spain and Portugal, Enel initiated a plan for growth through the acquisition of companies distributing and selling electricity to end users. The program has already started to bear fruit and will continue in the coming years. In 2016, environmental upgrading continued in Spain at the Litoral coal-fired plant (in Almeria), which saw unit 2 enter service in November 2016, while work on unit 1 began in December. These measures are designed to transform the plant into one of the most environmentally efficient in Europe. With regard to activities in other countries, in December 2016 the Group won the tender for the acquisition of a Report on operations 13 major Brazilian distribution company, Celg Distribuição SA, which has about 3 million customers and a network of over 200,000 kilometers. In addition, Enel won major tenders for the construction of renewable generation capacity in Indonesia, Morocco, Mexico, Peru and Zambia. Major transactions in Enel’s active portfolio management program included the completion of the first phase of the sale of its stake in Slovenské elektrárne, and the signing of an agreement for the sale of Marcinelle Energie, with the consequent exit of Enel from the Belgian market. The Italian upstream gas assets were also sold. With regard to Enel’s efforts in electric mobility, we installed the world’s first vehicle-to-grid (V2G) hub in Denmark. Using V2G technology, electric vehicles can improve the stability of the grid and further promote the integration of renewable energy in the generation mix, which is a key objective of Enel’s global energy strategy. Moreover, in accordance with Enel’s ”Open Innovation” philosophy, an innovation hub was also opened in Israel, with a view to fostering collaboration with actors in the Israeli ecosystem. These activities and results were also achieved thanks to a more rational and efficient organizational structure. In 2016, the merger of Enel Green Power into Enel was completed, with the convergence of the entire hydroelectric area within the “Global Renewable Energy” business line. Enel also completed the second phase of the corporate restructuring process in Latin America, which is aimed at separating operations in Chile from those in other countries in the area. This led, in December 2016, to the listing of Enel Américas shares on the New York Stock Exchange. Finally, in 2016, the new Enel logo and brand were presented: an important decision, one that involve...
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