Management report

ERG S.P.A. financial statements

The Separate Financial Statements of ERG S.p.A. at 31 December 2013 have been drawn up on the basis of the Standards issued by the International Accounting Standards Board (IASB) and approved by the European Union, inclusive of all international standards that have undergone interpretation (International Accounting Standards – IAS – and International Financial Reporting Standards – IFRS) and the interpretations of the International Financial Reporting Interpretation Committee (IFRIC) and of the previous Standing Interpretations Committee (SIC). Implementing the previously commented new corporate organisational model of the Group, in 2014 business activities previously carried out by ERG S.p.A. are expected to be spun off, by transferring the business units (activities, personnel, assets and contracts) of the Oil and Power businesses respectively to ERG Supply & Trading S.p.A. and to ERG Power Generation S.p.A., both controlled by the single shareholder ERG SpA. With reference to the aforesaid transaction, it should be pointed out that in the Separate Financial Statements of ERG S.p.A. the accounting results and the assets and liabilities relating to the Oil and Power Businesses (discontinued operations) are indicated separately, in accordance with IFRS 5.
The IFRS 5 reclassifications in the income statement also reflect the results of the Coastal Refining business and the effects of the sale of the equity investment in ISAB S.r.l.
For clearer disclosure, the comprehensive results, i.e. including those of the aforesaid businesses, are shown and commented in this Report on Operations.

Income statement

Revenues from ordinary operations

In 2013, revenues amounted to EUR 5,997 million, versus EUR 7,357 million in 2012. The decline in revenues was mainly caused by the progressive exit from the refining business..

Other revenues and income

The other revenues are mainly from companies in the Group and they pertain in particular to revenues for the sale of mandatory inventory and recovered miscellaneous expenses. The item includes EUR 15 million collected from Insurance Companies in relation to the lawsuit brought by Polimeri Europa (now Versalis) against ERG to obtain compensation for the damages caused by the fire of 30 April 2006 in the facilities of the Refinery in Priolo Gargallo, adjacent to Polimeri's plant..

Costs for purchases and changes in inventory

Costs for purchases mainly refer to purchases of crude oil and products and include accessory, transport, insurance expenses, commissions, inspections and customs duties. They also include those of the thermoelectric segment for the procurement of electricity, other utilities and natural gas.
It should be noted that on the basis of the weighted average cost method, the inventory change is impacted not only by the exact level of inventories in stock at the end of the period, but also by the variation in raw material and finished product purchase prices.

Costs for services and other operating costs

Costs for services include the processing costs of the ISAB Refinery, commercial expenses, natural gas transport costs, and the payment to ERG Power S.r.l. for the tolling agreement. In particular, costs for services include EUR 32 million relating to the settlement agreement with the company Versalis S.p.A.
The other operating costs mainly relate to cost of labour, rent, provisions for risks and charges and to taxes other than income taxes.
The decrease from the matching period of 2012 is mainly tied to lower processing costs, as a result of the progressive exit from the refining business, commented above.

Amortisation, depreciation and write-downs

The decrease in amortisation is mainly due to the decrease in software subject to amortisation.

Net financial income (expenses)

The item mainly includes interest income (EUR +13 million), intercompany income (EUR +8 million), exchange rate differences (EUR 1.5 million), interest expenses (EUR -9 million) and interest rate expenses (EUR -4 million).
The improvement compared to 2012 is mostly due to a reduction of approximately EUR 6 million in interest expenses and an increase of approximately EUR 3 million in interest income.

Net income (loss) from equity investments

In 2013 the item consists mainly of the following entries:

• income of approximately EUR 195 million from the capital gain realised from the exercise of the put option on 20% of ISAB S.r.l., net of ancillary income components. In 2012, the item included a capital gain of EUR 262 million realised from exercise of the put option on 20% of ISAB S.r.l.;
• dividends collected from investee companies.

In 2012, the item was affected by the write-down of approximately EUR 149 of the equity investment in TotalErg as a result of the impairment test.

Income taxes

The item includes the balance of taxes deriving from the recovery, for IRES purposes, of the Company's tax loss. The item also includes the income deriving from the application for repayment filed for IRES purposes for the deductibility of the IRAP referred to the cost of labour for previous years.
Taxes include the derecognition of deferred tax assets on tax losses (EUR 21 million) relating to the Robin Tax imposed on ERG S.p.A. and, to date, deemed no longer recoverable.

Statement of financial position

As at 31 December 2013 net invested capital amounted to approximately EUR 935 million, a decrease of approximately EUR 412 million compared with 2012.

Fixed assets

Fixed assets consist mainly of financial fixed assets. The decrease is mainly due to the sale of the final 20% equity investment in ISAB, for EUR 220 million and to the write-down of the equity investment in TotalERG S.p.A., i.e. EUR 86 million, partly offset by the partial write-back of the value of the equity investment in ERG Renew S.p.A., i.e. EUR 35 million.

Net working capital

Net working capital consists of trade receivables and payables vis-à-vis Group companies and third parties. Its decrease is due to the progressive exit from the refining business and to timelimited events at the end of the period.

Other assets

They mainly comprise receivables from tax authorities and other receivables from Group companies. This item also includes deferred tax assets and prepaid expenses, mainly referred to the suspension of the costs related to the "green certificates" in inventory as at 31 December 2013.

Other liabilities

They mainly comprise short-term tax payables, payables to Group companies and other payables. It also includes the other provisions for risks and future liabilities. The increase is mainly due to the allocations, at the end of the period, to provisions relating to site issues, and to higher payables to Group companies. 

Net financial indebtedness (available cash)

The following table shows the medium/long-term financial indebtedness:

The breakdown of short-term financial indebtedness is shown below:

Short-term financial payables and receivables vis-à-vis subsidiaries mainly comprise the balances on the centralised treasury accounts operated with other Group companies as part of centralised management of the Group's finance function.
Other short-term financial payables include the fair value of derivatives at year-end.
The increase in cash and cash equivalents refers to the collection from LUKOIL for the sale of the final 20% of ISAB S.r.l.