Annual Report 2014 enel.com

Transcription

1 Annual Report 2014

2 Annual Report 2014

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4 Contents Report on operations Reports Enel organizational model 6 Corporate Boards 9 Letter to shareholders and other stakeholders 11 Summary of results 14 Overview of the Group s operations, performance and financial position 23 Results by business area 34 Performance and financial position of Enel SpA 58 Significant events in Reference scenario 74 Main risks and uncertainties 102 Outlook 107 Other information 108 Report of the Board of Auditors to the Shareholders' Meeting of Enel SpA 360 Report of the independent audit firm on the 2014 financial statements of Enel SpA 368 Report of the independent audit firm on the 2014 consolidated financial statements of the Enel Group 372 Summary of the resolutions of the Ordinary and Extraordinary Shareholders Meeting 376 Attachments Subsidiaries, associates and other significant equity investments of the Enel Group at December 31, Report on Corporate Governance and Ownership Structure 418 Sustainability 111 Related parties 132 Reconciliation of shareholders equity and net income of Enel SpA and the corresponding consolidated figures 133 Consolidated financial statements Consolidated financial statements 136 Notes to the consolidated financial statements 143 Declaration of the Chief Executive Officer and the officer responsible for the preparation of corporate financial reports 286 Separate financial statements of Enel SpA Separate financial statements 290 Notes to the financial statements 297 Declaration of the Chief Executive Officer and the officer responsible for the preparation of corporate financial reports 356 3

5 4 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS

6 Report on operations

7 Enel organizational model On July 31, 2014, the Enel Group adopted a new organizational structure, based on a matrix of divisions and geographical areas, focused on the industrial objectives of the Group, with clear specification of roles and responsibilities in order to: > > pursue and maintain technological leadership in the sectors in which the Group operates, ensuring operational excellence; > > maximize the level of service offered to customers in local markets. Thanks to this organization, the Group can benefit from reduced complexity in the execution of management actions and the analysis of key factors in value creation. DIVISIONS Global Infrastructure & Networks Global Generation Renewable Energy Global Trading Upstream Gas Italy REGIONS/ COUNTRIES Iberia Latin America Eastern Europe KPI: Revenues Operating expenses (staff/services) Cash flow KPI: Optimization of investments Best practice sharing and efficiency gains More specifically, the new Enel Group structure is organized into: > > Divisions (Global Infrastructure and Networks, Global Generation, Global Trading, Renewable Energy, and Upstream Gas), which are responsible for managing and developing assets, optimizing their performance and the return on capital employed 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; > > Regions and countries (Italy, Iberia, Latin America, Eastern Europe), 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; > > 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, Communication, Legal and Corporate Affairs, Audit, European Union Affairs, and Innovation and Sustainability), which are responsible for managing governance processes at the Group level. 6 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS

8 The new organization will modify the reporting structure, the analysis of the Group s performance and financial position and, accordingly, the representation of consolidated results only from the start of Consequently, in this Annual Report 2014, in line with practice in previous periods, the results by business area are discussed using the previous organizational structure, taking account of the provisions of IFRS 8 concerning the management approach. More specifically, the previous operational model, adopted in early 2012, provided for the organization of the Group on the basis of: > > Holding company functions, which are responsible for directing and controlling strategic activities for the entire Group; > > Global service functions, which are responsible for providing services to the Group, maximizing synergies and economies of scale; > > Business lines, represented by six Divisions, as well as the Upstream Gas function (which pursued selective vertical integration to increase the competitiveness, security and flexibility of strategic sourcing to meet Enel s gas requirements) and the Carbon Strategy function (which operated in the world s CO 2 certificate markets). The activities of the individual Divisions are set out below. The Generation, Energy Management and Sales Italy Division is responsible for: > > the generation and sale of electricity: -- generation from thermal and schedulable hydroelectric power plants in Italy (through Enel Produzione and other smaller companies); -- trading on international and Italian markets, primarily through Enel Trade; > > provisioning for all of the Group s needs and the sale of energy products, including the sale of natural gas to distributors, through Enel Trade; > > the development of natural gas regasification (Nuove Energie); > > commercial activities in Italy, with the objective of developing an integrated package of electricity and gas products and services for end users. More specifically, it is responsible for the sale of electricity on the regulated market (Enel Servizio Elettrico) and the sale of electricity on the free market and the sale of natural gas to end users (Enel Energia). As from July 1, 2013, these activities have been expanded to include retail plant and franchising operations in Italy following the acquisition of Enel.si from the Renewable Energy Division. The Infrastructure and Networks Division is primarily responsible for the distribution of electricity (Enel Distribuzione) and public and artistic lighting (Enel Sole) in Italy. The Iberia and Latin America Division focuses on developing Enel Group s presence and coordinating its operations in the electricity and gas markets of Spain, Portugal and Latin America. The geographical areas in which it operates are as follows: > > Europe, with the generation, distribution and sale of electricity and the sale of natural gas in Spain and Portugal; > > Latin America, with the generation, distribution and sale of electricity in Chile, Brazil, Peru, Argentina and Colombia. The International Division supports the Group s strategies for international growth, as well as managing and integrating the foreign businesses outside the Iberian and Latin American markets, monitoring and developing business opportunities that should present themselves on the electricity and fuel markets. The chief 7

9 geographical areas of operation for this Division are: > > central Europe, where the Division is active in power generation in Slovakia and Belgium (Slovenské elektrárne and Marcinelle Energie) and electricity sales in France (Enel France); > > south-eastern Europe, mainly with the development of generation capacity (Enel Productie) and electricity distribution and sales in Romania (Enel Distributie Banat, Enel Distributie Dobrogea, Enel Energie, Enel Distributie Muntenia and Enel Energie Muntenia); > > Russia, with power generation and electricity sales activities (Enel Russia OJSC). The Renewable Energy Division has the mission of developing and managing operations for the generation of electricity, ensuring their integration within the Group in line with the Enel Group s strategies. The geographical areas of operation for this Division, which in 2014 were modified with regard to operations in the Iberian peninsula, are: > > Europe, with power generation from non-schedulable hydroelectric plants, as well as geothermal, wind and solar plants in Italy ( and other minor companies), Greece ( Hellas), France ( France), Romania ( Romania), Bulgaria ( Bulgaria) and Spain and Portugal ( España); > > Latin America, with power generation sources (various companies); > > North America, with power generation sources ( North America). The mission of the Engineering and Research Division (formerly Engineering and Innovation) is to serve the Group by managing the engineering processes related to the development and construction of power plants (conventional and nuclear), while meeting the quality, temporal and financial objectives set for it. In addition, it is responsible for coordinating nuclear technology operations, providing independent monitoring of the Group s nuclear activities with regard to safety issues. Finally, it manages research activities identified in the process of managing innovation, with a focus on strategic research and technology scouting. Finally, on the basis of the criteria set out by IFRS 8, the generation and energy management results of the Generation, Energy Management and Sales Italy Division are shown separately from the results pertaining to electricity sales in Italy, consistent with the structure of internal reporting to top management. In addition, account was also taken of the possibilities for the simplification of disclosures associated with the materiality thresholds also established under IFRS 8 and, therefore, the item Other, eliminations and adjustments includes not only the effects from the elimination of intersegment transactions, but also the figures for the Parent Company, Enel SpA, the Services and Other Activities area and the Engineering and Research Division, as well as the Upstream Gas function. 8 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS

10 Corporate Boards Board of Directors Chairman Chief Executive Directors Secretary Patrizia Grieco Officer and General Manager Francesco Starace Alessandro Banchi Alberto Bianchi Paola Girdinio Alberto Pera Anna Chiara Svelto Angelo Taraborrelli Claudio Sartorelli Board of Auditors Chairman Auditors Alternate auditors Sergio Duca Lidia D Alessio Gennaro Mariconda Giulia De Martino Pierpaolo Singer Franco Luciano Tutino Independent auditors Reconta Ernst & Young SpA 9

11 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. 10 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS

12 Letter to shareholders and other stakeholders Dear shareholders and stakeholders, the year 2014 was one of great change for the Enel Group. We launched a series of strategic and managerial initiatives to rise to the challenges of an increasingly dynamic and complex environment. In the 1st Half of the year, we focused on the buyout of minority shareholders in Latin America and the launch of the disposal of assets in Eastern Europe. In the 2nd Half, after the appointment of the new Board of Directors and top management, we launched the new organizational structure, a key element in enhancing our efficiency and accelerating our refocusing. In line with the reorganization effort, we undertook a corporate restructuring by separating Endesa from the Enersis subsidiary, which is in charge of operations in five Latin American countries. Finally, we sold a stake of about 22% of Endesa, increasing its liquidity on the market. Thanks to these steps we brought debt to our target level, and we can now turn to face the new challenges of the coming years. The macroeconomic environment The global macroeconomic environment in the past year has been marked by uneven, halting economic performance. Among the mature markets, the United States has established itself as the locomotive of global growth, while Europe has once again demonstrated the difficulties it is facing in sparking a real and lasting recovery. The emerging markets showed the first signs of a slowdown, while maintaining relatively strong levels of growth. The fall in oil prices, the depreciation of the euro as a result of both the expectations of rising interest rates in the US and the quantitative easing in the euro area, the violent Russian currency crisis and tensions in Ukraine all had a major impact last year. In the coming months, some of these factors will help foster a revival of growth of the European economies, such as Italy and Spain, where the Enel Group is present, stimulating household consumption through increased access to credit and increasing current levels of industrial production. The expected economic recovery will then generate a rise in elec- 11

13 tricity consumption from the trough reached this year, albeit partially contained by the development of energy efficiency. The countries of Latin America, after a decade of strong expansion, showed some signs of slowing down. The decrease in the pace of growth in world trade, the fall in commodity prices and the excessive volatility of certain currencies have all impacted current economic performance, but have not diverted the medium-term trend in development, which remains based on fundamentals such as high rates of population growth, increasing consumption and spreading urbanization, all of which will lead to strong growth in demand for electricity and gas. Management initiatives Despite such a complex environment, the Group managed to achieve the objectives announced to the market thanks to the soundness of its strategy, the technological leadership developed over the years and the swift implementation of management initiatives in The buyback of non-controlling interests in Latin America enabled Enersis, the Enel company heading Group operations in South America, to increase its stake in the capital of a number of companies in which it already held a significant interest, such as Coelce, Edegel and Gas Atacama. These transactions are part of a broader plan for reorganization and corporate restructuring in Latin America, in which we have decided to separate our activities in the Iberian peninsula from those in Latin America, enabling Enersis to report directly to Enel SpA and simultaneously increasing our stake in that Chilean company by about 5%. As part of the process of reducing our debt, we continued to implement the disposal program, previously announced to investors. In particular, the public offering of 21.92% of Endesa, carried out after the separation from Enersis, and other smaller operations enabled us to achieve our targets. Last but not least, the Group reorganization, which saw the creation of five global business lines (Infrastructure and Networks, Generation, Renewable Energy, Trading and Upstream Gas), which are responsible for the allocation of investments in their respective areas and the sharing of best practices at the Group level, and four geographical areas (Italy, Iberia, Latin America and Eastern Europe), whose primary task is to sustain revenue and the generation of cash flow. This new and more responsive structure has also simplified and streamlined the units of the Parent Company, which enters 2015 with a more simple and agile form. Performance in 2014 Revenue in 2014 totaled 75.8 billion, down 3.7% compared with 78.7 billion in 2013, mainly due to the reduction in revenue from electricity sales, itself a consequence of a decline in quantities sold, compounded by the adverse impact of developments in the exchange rates of the currencies of some of the countries in which the Group operates (particularly in Latin America and Russia). EBITDA amounted to 15.7 billion, down 5.6% from 16.7 billion in 2013, mainly due to the different contribution of disposals to performance in the two years. Excluding these items, EBITDA amounted to 15.5 billion ( 15.8 billion in 2013), a reduction of 1.9%, essentially due to changes in exchange rates. This factor was partially offset by the improvement in the margin on electricity sales on the Italian market. Net financial debt at the end of 2014 amounted to 37.4 billion (excluding 0.6 billion regarding net assets classified as held for sale ), a decrease of 2.3 billion from 39.7 billion at the end of The decline reflects the positive effects of ordinary operations, which were particularly significant in the 4th Quarter of the year, as well as cash flow generated by extraordinary transactions. These positive effects were partially offset by the cash requirements of the payment of dividends and investments for the period, as well as exchange rate losses ( 1.1 billion), primarily in respect of medium- and long-term debt denominated in currencies other than the euro. 12 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS

14 Future strategy and forecasts for 2015 In order to compete effectively in the macroeconomic environment of today and tomorrow and, at the same time, seize new business opportunities in the energy industry, the Enel Group is shifting to a new industrial strategy based on four key pillars: i) achieving high levels of operating efficiency through the optimal management of the costs and maintenance capex of our assets; ii) reviving the Group s industrial growth with a sharp increase in growth capex; iii) actively managing our portfolio with a view to creating value; and iv) the Group s new dividend policy. The Enel Group s new business plan therefore sets out the priorities and action plans necessary to pursue these objectives. In order to boost operating efficiency, we will leverage our new Global Business Lines in order to share internal best practices for optimizing operating expenses and managing assets efficiently. The new path to industrial growth will be sustained by major investment in promising markets and businesses, beginning with renewables, by expanding our positioning in areas where we are already operating, such as in Latin America, and entering new countries, partly with a view to subsequently positioning ourselves in other businesses. Other growth areas will include new smart distribution grids and expanding our range of value-added products and services in retail markets. The active management of our portfolio will be targeted at the disposal of non-strategic assets and subsequent reinvestment of the proceeds in order to create value and rationalize the Group structure. Finally, the introduction of a new dividend policy is designed to lend certainty to the pay-out in the near term, with the potential for significant growth in the medium to long term. The Group has a unique presence in the world utilities market, thanks both to its size, its technological diversification, its presence along the entire value chain and its geographical diversification. Our new organizational structure gives management a tool to leverage these characteristics to create even more value in a rapidly evolving global environment. The Chairman of the Board of Directors Patrizia Grieco The Chief Executive Officer Francesco Starace 13

15 Summary of results Electricity sold (TWh) Electricity transported (TWh) Net electricity generation (TWh) Abroad Abroad Abroad Gas sales (billions of m 3 ) 7.8 Abroad 4.3 Italy 87.6 Italy Italy 71.8 Italy 3.5 Capital expenditure by business area (millions of euro) 6,701 International 936 Iberia and Latin America 2,602 Sales 111 Generation and Energy Management 285 Infrastructure and Networks 996 Renewable Energy 1,658 Other, eliminations and adjustments 113 Performance data 2014 (millions of euro) (as compared with 2013 restated) Revenue 75, % Gross operating margin 15, % Operating income 3, % Net income 772

16 Net electricity generation by source (TWh) Renewables 34% Net electricity generation by renewable resource (TWh) Coal 29% Nuclear 14% Gas combined cycle 13% Oil and gas turbine 10% 94.9 Hydroelectric 78% Wind 15% Geothermal 6% Biomass and solar 1% Employees by business area 68,961 International 10,403 Iberia and Latin America 22,801 Sales 3,633 Generation and Energy Management 5,314 Infrastructure and Networks 17,398 Renewable Energy 3,609 Other, eliminations and adjustments 5,803 Employees by geographical area 16% Iberian peninsula Russia 4% Latin America Italy Other countries 19% 48% 13%

17 Performance data Revenue Millions of euro Revenue in 2014 amounted to 75,791 million, a decrease of 2,872 million (-3.7%) on The decline is essentially attributable to the decrease in revenue from the sale of electricity, largely due to a fall in amounts sold, the adverse impact of changes in the exchange rates of the currencies of a number of the countries in which the Group operates against the euro, and the smaller contribution to performance of disposal of strategic equity interests. These factors were only partly offset by an increase in revenue from the sale of fuels. -3.7% 75, , restated Millions of euro restated Change Sales 15,226 16,921 (1,695) -10.0% Generation and Energy Management 22,606 22,798 (192) -0.8% Infrastructure and Networks 7,366 7,698 (332) -4.3% Iberia and Latin America 30,547 30,674 (127) -0.4% International 5,278 6,296 (1,018) -16.2% Renewable Energy 2,921 2, % Other, eliminations and adjustments (8,153) (8,493) % Total 75,791 78,663 (2,872) -3.7% Gross operating margin The gross operating margin in 2014 amounted to 15,757 million, down 5.6% compared with Excluding the impact of non-recurring transactions, the gross operating margin came to 15,502 million ( 15,769 million in 2013), a decline of 267 million (-1.7%). The change reflected the adverse effects of changes in exchange rates, the impact of which was offset by the improvement in the margin on sales of electricity on the domestic market. Millions of euro -5.6% 15, , restated Millions of euro restated Change Sales 1, % Generation and Energy Management 1,163 1, % Infrastructure and Networks 3,979 4,009 (30) -0.7% Iberia and Latin America 6,294 6,638 (344) -5.2% International 1,204 1,293 (89) -6.9% Renewable Energy 1,938 1, % Other, eliminations and adjustments 98 1,021 (923) -90.4% Total 15,757 16,691 (934) -5.6% 16 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS

18 Operating income Millions of euro Operating income in 2014 amounted to 3,087 million, a decrease of 68.3% compared with 2013 ( 9,740 million). In addition to the decline in the gross operating margin, the contraction is attributable to an increase in impairment losses in 2014 compared with More specifically, while in 2013 the item was entirely accounted for by the writedown of part of the goodwill of the Enel Russia cash generating unit (formerly Enel OGK-5), in 2014 impairment losses were recognized after impairment testing in the total amount of 6,427 million. The impairment included adjustments to fair value of the net assets held for sale pertaining to Slovenské elektrárne ( 2,878 million), conventional generation assets in Italy ( 2,108 million), and water use rights for a number of rivers in the Aysén region of Chile ( 589 million) % 3, , restated Millions of euro restated Change Sales % Generation and Energy Management (1,539) 493 (2,032) - Infrastructure and Networks 2,943 3,029 (86) -2.8% Iberia and Latin America 2,789 3,767 (978) -26.0% International (2,682) (23) (2,659) - Renewable Energy 1,124 1,205 (81) -6.7% Other, eliminations and adjustments (3) 907 (910) - Total 3,087 9,740 (6,653) -68.3% 17

19 Millions of euro % Earnings per share 0.06 Group 4,780 1,545 3, restated Earnings per share 0.34 euro Non-controlling interests Net income Net income pertaining to shareholders of the Parent Company amounted to 517 million in 2014, compared with 3,235 million the previous year. The decrease is essentially attributable to the decline in operating income, the increase in net financial expense and impairment losses on a number of minority interests held by the Group. These factors were partly offset by lower taxes for 2014, which reflected the recognition of a tax credit of 1,392 million in respect of dividends distributed by Endesa following major corporate operations carried out in the last Quarter of 2014, and the impact on deferred taxation of impairment losses. Financial data Millions of euro Net capital employed % 88, , , Group shareholders equity per share 3.35 Net financial debt 92,538 52,832 39, restated Group shareholders equity per share 3.82 Shareholders equity (including non-controlling interests) Net capital employed, including net assets held for sale of 1,488 million (mainly related to Slovenské elektrárne), amounted to 88,528 million at December 31, 2014 and was financed by equity pertaining to shareholders of the Parent Company and non-controlling interests of 51,145 million and net financial debt of 37,383 million. At December 31, 2014, the debt/equity ratio came to 0.73 (0.75 at December 31, 2013). Net financial debt came to 37,383 million, a decrease of 2,323 million compared with December 31, More specifically, cash flows from operations, the disposal of a number of non-strategic assets and the proceeds of the disposal of 21.92% of Endesa in November in a public offer more than covered capital expenditure in the period and the payment of dividends. 18 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS

20 Cash flows from operations Cash flows from operations amounted to 10,058 million in 2014, up 2,804 million on the previous year. Millions of euro +38.7% 10,058 7, restated Capital expenditure Millions of euro Capital expenditure amounted to 6,701 million in 2014 (of which 6,019 million in respect of property, plant and equipment), an increase of 781 million on % 6,701 5, restated Millions of euro restated Change Sales % Generation and Energy Management (28) -8.9% Infrastructure and Networks 996 1,046 (50) -4.8% Iberia and Latin America 2,602 2, % International % Renewable Energy 1,658 1,294 (1) % Other, eliminations and adjustments % Total 6,701 5, % (1) The figure for 2013 does not include 1 million regarding units classified as held for sale. Operations Italy Abroad Total Italy Abroad Total Net electricity generated by Enel (TWh) Electricity transported on the Enel distribution network (TWh) Electricity sold by Enel (TWh) (1) Gas sold to end users (billions of m 3 ) Employees at year-end (no.) (2) 33,405 35,556 68,961 34,246 36,096 70,342 (1) Excluding sales to resellers. (2) Includes 4,430 in units classified as held for sale at December 31, 2014 (37 at December 31, 2013 restated). 19

21 Net electricity generation by source (2014) 13% 14% 10% Renewables Coal Oil and gas turbine Nuclear Gas combined cycle Electricity sold by geographical area (2014) 6% 24% Italy Latin America 36% 34% Iberian peninsula Other countries Employees by geographical area (at December 31, 2014) 13% 19% 29% 34% Net electricity generated by Enel in 2014 rose by 1.3 TWh (+0.5%), with an increase in generation abroad (+0.7 TWh) and in Italy (+0.6 TWh). More specifically, the increase in renewables generation (+3.6 TWh), thanks to an expansion of installed capacity and more favorable weather conditions, was more than offset by a reduction in nuclear generation (-1.3 TWh), with an especially sharp contraction in Spain, and in thermal generation (-1.0 TWh), attributable to the shut-down of a number of plants in Latin America. Electricity transported on the Enel distribution network came to TWh, a decrease of 7.2 TWh (-1.8%), essentially due to the decline in electricity demand in Italy and Spain, only partly offset by the growth posted in Latin America, especially Brazil. Electricity sold by Enel decreased by 9.5 TWh (-3.5%), mainly reflecting a decrease in quantities sold in Italy (-4.6 TWh), France (-4.6 TWh) and the Iberian peninsula (-2.2 TWh), only partly offset by higher sales in Latin America (+1.9 TWh). At December 31, 2014, Enel Group employees numbered 68,961 (-1,381 on the end of 2013). The contraction in the Group workforce is attributable to the balance between new hirings and terminations (for a net decrease of 1,404) and the change in the scope of consolidation (an increase of 23). 48% 4% 16% Italy Iberian peninsula Russia Latin America Other countries Employees (no.) restated Sales 3,633 3,687 Generation and Energy Management (1) 5,314 5,621 Infrastructure and Networks 17,398 17,689 Iberia and Latin America (2) 22,801 22,541 International (3) 10,403 11,439 Renewable Energy 3,609 3,469 Other, eliminations and adjustments 5,803 5,896 Total 68,961 70,342 (1) Includes 41 in units classified as held for sale at December 31, (2) Includes 15 in units classified as held for sale at December 31, (3) Includes 4,374 in units classified as held for sale at December 31, 2014 (37 at December 31, 2013 restated). 20 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS

22 Restatement of the income statement and the balance sheet The figures in the income statement and the balance sheet at December 31, 2013, reported here for comparative purposes only, have been restated to reflect: > > the application of the new IFRS 11, applicable since January 1, 2014 with retrospective effect, under which the only permissible method for accounting for joint ventures is the equity method. This change eliminated the option, permitted under the previous IAS 31 and utilized previously by the Group, of consolidating such interests on a proportionate basis, resulting in the restatement of all the income statement and balance sheet figures, although this did not change the Group s net result or consolidated shareholders equity; > > the application of the new provisions of IAS 32, applicable since January 1, 2014 with retrospective effect, concerning the offsetting of financial assets and liabilities under certain conditions, which led to the restatement of several items in the consolidated balance sheet at December 31, These changes did not have an impact on consolidated shareholders equity; > > the definitive allocation of the purchase prices for a number of companies in the Renewable Energy Division (including Parque Eólico Talinay Oriente) in transactions that had been completed after December 31, As a result, a number of items in the balance sheet at that date were restated. For more detail, please see note 4 to the consolidated financial statements in this Annual Report The following tables show the impact of the restatement on revenue, the gross operating margin and operating income in 2013, by business area. Revenue Millions of euro 2013 Effect of IFRS restated Sales 16,921-16,921 Generation and Energy Management 22,919 (121) 22,798 Infrastructure and Networks 7,698-7,698 Iberia and Latin America 30,935 (261) 30,674 International 7,737 (1,441) 6,296 Renewable Energy 2,827 (58) 2,769 Other, eliminations and adjustments (8,502) 9 (8,493) Total 80,535 (1,872) 78,663 Gross operating margin Millions of euro 2013 Effect of IFRS restated Sales Generation and Energy Management 1,176 (92) 1,084 Infrastructure and Networks 4,008-4,008 Iberia and Latin America 6,746 (108) 6,638 International 1,405 (112) 1,293 Renewable Energy 1,788 (8) 1,780 Other, eliminations and adjustments 1,022-1,022 Total 17,011 (320) 16,691 Operating income Millions of euro 2013 Effect of IFRS restated Sales Generation and Energy Management 554 (61) 493 Infrastructure and Networks 3,028-3,028 Iberia and Latin America 3,836 (69) 3,767 International 85 (108) (23) Renewable Energy 1, ,205 Other, eliminations and adjustments Total 9,944 (204) 9,740 21

23 Sustainability indicators restated Change ISO certified net efficient capacity (% of total) % Average efficiency of thermal plants (%) % Total specific emissions of CO 2 from net generation (gco 2 /kwh eq ) (1) (1) -0.3% Zero-emission generation (% of total) % Enel injury frequency rate (2) (0.1) -7.8% Enel injury severity rate (3) Serious and fatal injuries at Enel 4 13 (9) -69.2% Serious and fatal injuries at contractors % Average hours of training per employee % Verified violations of the Code of Ethics (4) (9) -25.0% (1) Specific emissions are calculated as total emissions from simple thermal generation and co-generation of electricity and heat as a ratio of total renewables generation, nuclear generation, simple thermal generation and co-generation of electricity and heat (including the contribution of heat in MWh equivalent). (2) The indicator is calculated as the ratio between the total number of injuries and the number of hours worked, in millions (INAIL standard). (3) The indicator is calculated as the ratio between the number of days lost for injuries and the number of hours worked, in thousands (INAIL standard). (4) The analysis of reports received in 2013 was completed in For that reason, the number of verified violations for 2013 was restated from 27 to 36. The proportion of ISO compliant capacity was equal to 94.3% at December 31, The rise reflects the new installed capacity of. In 2014 the average efficiency of thermal plants increased from the 39.8% posted in 2013 to 40.3%, the result of greater operation of the most efficient thermal plants. Specific emissions of CO 2 were unchanged compared with In 2014, 47.4% of Enel s generation came from zero-emissions, an increase of 1.3% compared with The percentage rise is due to the increase in installed renewables generation capacity in 2014, which amounted to 630 MW, confirming the Group s commitment to developing carbon-free generation, which will continue in the years to come. The Enel injury frequency rate declined by 7.8%, while the injury severity rate was unchanged, thanks to constant and intensive information, training and awareness-raising activities conducted in order to disseminate a culture of safety at all levels and to promote the adoption of safe behavior, as well as the ongoing implementation of measures to enhance workplace health and safety standards and management processes. Serious and fatal injuries involving Enel personnel decreased by about 70% compared with 2013, even though there were 3 fatal workplace accidents. Serious and fatal injuries involving the employees of contractors working for Enel increased by 12 compared with The average number of hours of training per employee showed an increase of 5.8%, on the previous year, underscoring Enel s constant commitment to this area. As regards the Code of Ethics, the number of verified violations declined by 25%, essentially in line with the reduction in the number of reports received during the year. 22 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS

24 Overview of the Group s operations, performance and financial position Definition of performance indicators In order to present the results of the Group and the Parent Company and analyze its financial structure, Enel has prepared separate reclassified schedules that differ from those envisaged under the IFRS-EU adopted by the Group and Enel SpA and presented in the consolidated and separate financial statements, respectively. These reclassified schedules contain different performance indicators from those obtained directly from the consolidated and separate financial statements, which management feels are useful in monitoring Group and Parent Company performance and representative of the financial performance of our business. In accordance with Recommendation CESR/05-178b published on November 3, 2005, the criteria used to calculate these indicators are described below. > > Gross operating margin: an operating performance indicator, calculated as Operating income plus Depreciation, amortization and impairment losses. > > Group net ordinary income: this is Group net income produced by ordinary operations. > > Net non-current assets: calculated as the difference between Non-current assets and Non-current liabilities with the exception of: -- Deferred tax assets ; -- Securities held to maturity, Financial investments in funds or portfolio management products at fair value through profit or loss, Securities available for sale and Other financial receivables ; -- Long-term borrowings ; -- Post-employment and other employee benefits ; -- Provisions for risks and charges ; -- Deferred tax liabilities. > > Net current assets: calculated as the difference between Current assets and Current liabilities with the exception of: -- Long-term financial receivables (short-term portion), Receivables for factoring advances, Securities, Financial receivables and cash collateral and Other financial receivables ; -- Cash and cash equivalents ; -- Short-term borrowings and the Current portion of long-term borrowings. > > Net assets held for sale: calculated as the algebraic sum of Assets held for sale and Liabilities held for sale. > > Net capital employed: calculated as the algebraic sum of Net non-current assets and Net current assets, provisions not previously considered, Deferred tax liabilities and Deferred tax assets, as well as Net assets held for sale. > > Net financial debt: a financial structure indicator, determined by Long-term borrowings, the current portion of such borrowings and Short-term borrowings less Cash and cash equivalents, Current financial assets and Non-current financial assets not previously considered in other balance sheet indicators. More generally, the net financial debt of the Enel Group is calculated in conformity with paragraph 127 of Recommendation CESR/05-054b implementing Regulation (EC) 809/2004 and in line with the CONSOB instructions of July 26, 2007, net of financial receivables and long-term securities. 23

25 Main changes in the scope of consolidation In the two periods under review, the scope of consolidation changed as a result of the following main transactions > > Acquisition, on March 22, 2013, of 100% of Parque Eólico Talinay Oriente, a company operating in the wind generation sector in Chile; > > acquisition, on March 26, 2013, of 50% of PowerCrop, a company operating in the biomass generation sector; in view of the joint control exercised over the company together with another operator, the company is now accounted for using the equity method under the provisions of IFRS 11; > > disposal, on April 8, 2013, of 51% di Buffalo Dunes Wind Project, a company operating in the wind generation sector in the United States; > > acquisition, on May 22, 2013, of 26% of Chisholm View Wind Project and Prairie Rose Wind, two companies operating in the wind generation sector in the United States in which the Group held a stake of 49%; as a result of the purchase, the companies are no longer accounted for using the equity method but are now consolidated on a line-by-line basis; > > acquisition, on August 9, 2013, of 70% of Domus Energia (now Finale Emilia), a company operating in the biomass generation sector; > > acquisition, on October 31, 2013, of 100% of Compañía Energética Veracruz, a company operating in the development of hydroelectric plants in Peru; > > disposal, on November 13, 2013, of 40% of Artic Russia, with the consequent deconsolidation of the interest held by the latter in SeverEnergia; > > acquisition, in November and December 2013, of nine companies (representing three business combinations) operating in the development of wind power projects in the United States; > > disposal, on December 20, 2013, of the remaining stake in Enel Rete Gas, previously accounted for using the equity method. > > Loss of control, as from January 1, 2014, of SE Hydropower, under agreements signed in 2010 upon the acquisition of the company, providing for the change in governance structure as from that date. This resulted in the Enel Group no longer meeting the requirements for control of the company, which has instead become an entity under joint control. With these new governance arrangements, the investment was reclassified as a joint operation under IFRS 11; > > acquisition, through a tender offer in effect between January 14, 2014 and May 16, 2014, of an additional 15.18% stake in Coelce, an electricity distribution company in Brazil, already under the Group s control prior to the tender offer; > > acquisition, on April 22, 2014, of 50% of Inversiones Gas Atacama, a company operating in the natural gas transport and electricity generation sector in Chile in which the Group already held 50%; therefore, the company is now consolidated on a line-by-line basis rather than using equity method accounting; > > acquisition, on May 12, 2014, of 26% of Buffalo Dunes Wind Project, a company operating in the wind generation sector in the United States in which the Group already held 49%; therefore, the company is now consolidated on a line-by-line basis rather than using equity method accounting; > > acquisition, on July 22, 2014, of the remaining 50% of Solar Energy, an Italian company operating in the development, design, construction and operation of photovoltaic plants, in which the Group had previously held 50%; therefore, the company is now consolidated on a line-by-line basis rather than using equity method accounting; > > acquisition, on September 4, 2014, of the remaining 39% of Generandes Perú (previously controlled through a stake of 61%), a company that controls, with an interest of 54.20%, Edegel, a company operating in the power generation sector in Peru; > > acquisition, on September 17, 2014, of 100% of Osage Wind LLC, a company that owns a 150 MW wind development project in the United States. In October 2014, a stake of 50% in the company was sold. Consequently, 24 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS

26 the company, held under joint control, began to be accounted for using the equity method; > > disposal, on November 21, 2014, of 21.92% of Endesa in a public offering. The operation did not involve any loss af control; > > during 2014, agreements were completed for the acquisition of wind and solar projects in Chile, in the total amount of about 7 million, and a wind project in Uruguay for 4 million; > > disposal in December 2014 of the entire stake (36.2%) held in LaGeo, a geothermal generation company in El Salvador; > > disposal in December 2014 of 100% of France, a renewables generator in France. In addition, following the internal reorganization of the Group designed to restructure the holdings of the Iberia and Latin America Division, there were a number of changes in non-controlling interests in a number of subsidiaries. More specifically, on October 23, 2014 Endesa (of which the Group holds 92.06%) sold 100% of Endesa Latinoamérica (an investment holding company that owned 40.32% of Enersis) and 20.3% of Enersis, the parent company for operations in Latin America, to Enel Energy Europe, now Enel Iberoamérica (a wholly-owned subsidiary). The operation increased the Group s stake in Enersis by 4.81%. Group performance Millions of euro restated Change Total revenue 75,791 78,663 (2,872) -3.7% Total costs 59,809 61,594 (1,785) -2.9% Net income/(expense) from commodity contracts measured at fair value (225) (378) % GROSS OPERATING MARGIN 15,757 16,691 (934) -5.6% Depreciation, amortization and impairment losses 12,670 6,951 5, % OPERATING INCOME 3,087 9,740 (6,653) -68.3% Financial income 3,326 2, % Financial expense 6,456 5,253 1, % Total financial income/(expense) (3,130) (2,804) (326) -11.6% Share of income/(losses) of equity investments accounted for using the equity method (35) 217 (252) - INCOME BEFORE TAXES (78) 7,153 (7,231) - Income taxes (850) 2,373 (3,223) - NET INCOME FROM CONTINUING OPERATIONS 772 4,780 (4,008) -83.8% NET INCOME FROM DISCONTINUED OPERATIONS NET INCOME (Group and non-controlling interests) 772 4,780 (4,008) -83.8% Net income attributable to shareholders of the Group 517 3,235 (2,718) -84.0% Net income attributable to non-controlling interests 255 1,545 (1,290) -83.5% 25

27 Revenue Millions of euro restated Change Electricity sales and transport and transfers from the Electricity Equalization Fund and similar bodies 59,844 65,504 (5,660) -8.6% Gas sold and transported to end users 4,087 4,452 (365) -8.2% Remeasurement at fair value after changes in control Gains on the disposal of assets (651) -69.0% Other services, sales and revenue 11,486 7,743 3, % Total 75,791 78,663 (2,872) -3.7% Revenue from electricity sales and transport and transfers from the Electricity Equalization Fund and similar bodies in 2014 amounted to 59,844 million, down 5,660 million compared with 2013 (-8.6%). The decline, which also reflects the adverse impact of exchange rate developments, especially in Russia, Chile and Brazil, is attributable to the following factors: > > a decrease of 2,958 million in revenue from wholesale electricity sales, mainly due to a decline in sales on electricity exchanges, only marginally offset by greater sales under bilateral contracts with generation companies; > > a reduction of 1,662 million in revenue from the sale of electricity to end users, of which 1,477 million on regulated markets and 185 million on free markets, essentially associated with the decline in electricity demand; > > a decrease of 807 million in revenue from electricity trading, as volumes handled declined; > > a decrease of 470 million in revenue from the transport of electricity, due essentially to a decline in revenue from the transport of electricity on the regulated market; > > an increase of 237 million in revenue from transfers from the Electricity Equalization Fund and similar bodies, essentially reflecting changes in the regulatory framework for companies operating in the non-peninsular market in Spain. Revenue from gas sold and transported to end users amounted to 4,087 million, down 365 million (-8.2%) on the previous year. The contraction mainly reflects the decline in revenue from the transport of gas to end users, primarily owing to a decrease in amounts transported. Gains on the disposal of assets amounted to 292 million in They essentially regard: > > 123 million from the gain on the disposal of the stake in LaGeo, a geothermal generation company in El Salvador; > > 82 million from the adjustment to the sale price of Artic Russia, which was sold in the 4th Quarter of The adjustment was made in the 1st Quarter of 2014 with the triggering of the earn-out clause included in the agreements reached with the buyer prior to closing the sale; > > 31 million from the gain on the sale of 100% of Enel Green Power France. The gain from remeasurement at fair value after changes in control amounted to 82 million in 2014 ( 21 million in 2013). The gain is attributable to the remeasurement at fair value of the assets and liabilities attributable to the Group: > > following the loss of control, as from January 1, 2014, of SE Hydropower following changes in its governance arrangements ( 50 million); > > already held by Enel prior to the acquisition of full control of Inversiones Gas Atacama ( 29 million) and Buffalo Dunes Wind Project ( 3 million). In 2013, these gains regarded the Group s residual holding (49%) following the loss of control of Buffalo Dunes Wind Project. Income from other services, sales and revenue in 2014 amounted to 11,486 million ( 7,743 million in 2013), an increase of 3,743 million (+48.3%) on the previous year. The rise is essentially due to the following factors: > > an increase of 3,035 million in revenues from the sale of fuels for trading, including revenues for shipping services, essentially due to an increase in volumes handled against a reduction in generation activities, and an increase of 893 million in sales of environmental certificates, mainly green certificates and CO 2 emissions allowances; > > a decrease of 156 million in connection fees, together with a reduction of 71 million in government grants to the Argentine distribution company Edesur concerning the Mecanismo de Monitoreo de Costos. 26 ENEL ANNUAL REPORT 2014 REPORT ON OPERATIONS