Consolidated financial statement

Acquisition IP Maestrale (now called ERG WIND)

 On 13 February 2013 , ERG closed the agreement with International Power Consolidated Holding Ltd (100% GDF SUEZ) for the acquisition, through the subsidiary ERG Renew, of 80% of the capital of IP Maestrale Investments Ltd, a primary operator in Italy in the segment of renewable energy from wind power.

On the same date, the Shareholders' Meeting of IP Maestrale resolved to change the name of the company to ERG Wind Investments Ltd. The method used for the first consolidation of the acquired companies, as required by reference accounting standards, is described below.

 The acquisition was measured according to the provisions of IFRS 3 on business combinations; based on this standard, for the transaction to be properly accounted for, the following is necessary:

  • determining the total acquisition price;
  • allocating, at the date of acquisition, the price of the business combination to the acquired assets and the liabilities assumed, including those not recognised before the acquisition;
  • recognising any goodwill acquired in the business combination.

Determination of the total price of the acquisition

The total price of the acquisition was EUR 35 million. In particular, the enterprise value of the acquisition was determined to total EUR 859 million, i.e. approximately EUR 1.35 million per installed MW. ERG recognised to the seller a provisional consideration for the equity of the acquired Group of EUR 28.2 million for 80% of the share capital of IP Maestrale.

The agreements with the seller prescribe a put and call option on the remaining 20% of the capital, which may be exercised no earlier than three years after the date of closing. In consideration of the terms of the option and of the method for calculating its exercise price, the acquisition of the minority shares was assumed to be certain, with the consequent inclusion of minority shares in the Group's equity and the recognition of the corresponding fixed financial asset (EUR 7 million).

In July 2013, the parties defined the price of the transaction, setting a total amount of EUR 23 million, thus determining a positive balance of EUR 12 million in ERG's favour.

Moreover, the total price of EUR 23 million, described above, refers to the prices exchanged for the acquisition in question, and does not consider the amount of any price adjustments relating to guarantee clauses for the protection of the ERG Group, which instead were considered for the purposes of this purchase price allocation. These balances were recognised as an offsetting entry among the other non-current liabilities.

Lastly, ancillary charges (Costs for services and other operating costs) tied to the aforesaid acquisition totalled EUR 11 million, net of the related tax effect, which, in these Financial Statements, were allocated to profit and loss as prescribed by IFRS 3 and considered among non-recurring items.

Measurement of the assets and liabilities of the ERG Wind Group at the date of acquisition

The following table shows the details of the acquired assets and assumed liabilities at their carrying value and at their adjusted value, based on IFRS 3 ("Acquisition Method"), to take into account their fair value.

  ERG Wind Group  Adjustments to the acquisition situation Adjusted ERG Wind Group
       
Intangible fixed assets 345 150.622 A) 150.967
Goodwill 88.268 (88.268) B) -
Property, plan and machinery 504.153 - 507.153
Equity investments 2 - 2
Other financial assets 31.954 - 31.954
Deferred tax assets 52.656 11.845 C) 64.501
Other non-current assets 22.133 - 22.133
Non-current assets 699.511 74.199 773.710
       
Inventories 6.395 - 6.395
Trade receivables 75.673 - 75.673
Other current receivables and assets 76.939

(36.648) D)

40.291
Current financial assets - - -
Cash and cash equivalents 25.600 - 25.600
Current assets 184.607 (36.648) 147.959
       
TOTAL ASSETS 884.118 37.551 921.669
       
Equity  (399.818) 336.227 (63.591)
Employees'severance indemnities 714 - 714
Deferred tax libialities 19.887 87.054 E) 106.941
Provisions for non-current liabilities and charges - - -
Non-current financial liabilities 904.198 (144.576) F) 759.622
Other non-current liabilities 2.421 - 2.421
Non-current liabilities 927.220 (57.522) (869.698)
       
TOTAL LIABILITIES AND EQUITY 884.118 37.551 921.669

 

In the determination of the fair value of the acquired assets and liabilities, the main differences identified refer:


A) to the evaluation, i.e. EUR 151 million, of fixed assets, and in particular the contracts and authorisations for the generation of electricity at feed-in tariffs for wind farms in operation. These assets were evaluated with a focused method in reference to each point of sale of the energy to the national grid, grouping the related wind farms connected to the same point of sale;
B) to the reversal of the goodwill to ERG Wind 4 S.r.l., necessary for the purposes of the subsequent purchase price allocation exercise, as prescribed by IFRS 3;
C) to the deferred tax assets related to the entries in question;
D) to the reversal of deferred charges;
E) to the deferred tax liabilities related to the entries in question;
F) to the evaluation of the financial liability relating to the loan, adjusted downwards by EUR 145 million, originally stipulated at more advantageous conditions than those proposed by the market at the time of the acquisition. Current financial liabilities include the negative fair value of the IRS hedging derivative, i.e. an amount of EUR 124 million;
G) to the waiver, by the previous shareholder, of a EUR 207 million loan, already set out in the agreements tied to the sale of the ERG Wind Group to ERG, and subsequently completed in the first quarter of 2013.
 

Determination of residual goodwill

The difference between the total acquisition price and the net value of the acquired assets and liabilities was recognised residually as goodwill.
 

Total price of the acquisition 32.904
Sdjusted shareholders' equity of ERG Wind group (63.591)
Goodwill 96.495


With regard to the definition of the total price of the acquisition, please refer to the previous paragraphs.


ERG Wind contribution to the Consolidated Financial Statements as at 31 December 2013

The economic contribution of the ERG Wind Group in the period between the date of first consolidation (1 January 2013) and the ending date of the year was as follows:
 

Total revenues 166.348
EBITDA 121.270
EBIT 64.539
Net profit (loss) 15.077

At 1 January 2013, the impact of the transaction on the Group's net financial indebtedness is EUR 800 million and it refers to the price paid (EUR 23 million) and to the net financial position of the acquired companies, inclusive of the fair value of the derivatives and of the positive effect deriving from the fair value measurement of the loan, as commented above.

  Adjusted ERG Wind Group Acquisition of equity investment Impact on cnsolidated financial statements
Non-current financial liabilities 759.622 - 759.622
Medium-long-term financial indebtedness 759.622 - 759.622
       
Current financial liabilities 43.175 - 43.175
Cash and cash equivalents (25.600) 23.083 (2.517)
Short-term financial indebtedness 17.575 23.083 40.658
       
Net financial position 777.197 23.083 800.280


With regard to the impairment tests carried out for the purposes of IAS 36, please refer to the paragraph "Impairment tests in the Renewable Energies segment ".

ERG S.p.A. - Genova

Paolo Merli

Head of Corporate Finance & Investor Relations

0039 010 2401376

ERG S.p.A. - Genova

Matteo Bagnara

Investor Relations

0039 010 2401423

ir@erg.it


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