Consolidated financial statement
Sale of equity investment in ISAB s.r.l.
The agreement underwritten with LUKOIL on 1 December 2008 gives ERG S.p.A. a put option for its 51% investment. The exercise price for rights to 100% of the assets transferred to ISAB S.r.l. (not including the minimum operating inventory) was the fair market value within a collar with a cap at EUR 2,750 million and a floor at EUR 2,000 million, reduced by EUR 15 million following the February 2009 agreement.
The put option is exercisable at ERG S.p.A.'s discretion, commencing in 2010 and within a fouryear period, at an exercise price largely corresponding to the fair value of the shareholding at the exercise date. According to the agreement, the option was exercisable within 4 years in one or more steps, no more than once every 12 months, with the provisions set out below.
Sale of 11% of ISAB S.r.l. in 2011
On 31 January 2011, the Board of Directors of ERG S.p.A. approved the exercise of the put option for 11% of ISAB S.r.l. The value of the sale to LUKOIL of the 11% interest in ISAB (excluding inventory) was EUR 205 million; in accordance with the agreement clauses, the option was exercised at the floor price.
The transaction was closed on 1 April 2011, with the collection of a provisional price of EUR 241 million (including the value of inventory) and of a final adjustment of EUR 3.5 million on 26 October 2011, in view of which a gain of EUR 109 million was recognised; said gain is considered a non-recurring item.
Sale of 20% of ISAB S.r.l. in 2012
3 September 2012 was the closing date of the transaction related to the exercise of the put option by ERG for 20% of the share capital of ISAB S.r.l. LUKOIL paid ERG a provisional price of EUR 485 million, inclusive of the value of inventory, recognising in 2012 a gain of EUR 222 million net of tax effects.
On 31 January 2013, the balance of the definitive sale price, i.e. a positive amount of EUR 9 million, was collected, with the consequent recognition of a gain of the same amount in the current year.
As a result of the transaction, ERG's share decreased from 40% to 20% thus qualifying as a minority interest and no longer a joint control interest.
The aforesaid Income Statement impacts were considered among non recurring items.
Sale of 20% of ISAB S.r.l. in 2013
On 30 December 2013, the transaction relating to the put option for the final 20% of the capital of ISAB S.r.l., approved on 9 October 2013 by the Board of Directors of ERG S.p.A., was closed. The transaction entailed the provisional collection of EUR 426 million, which takes into account the value of inventories and the definition of certain environmental issues relating to the refinery. As a result of the transaction, LUKOIL holds 100% of the share capital of ISAB S.r.l.
For a better understanding of data commented in these Financial Statements, the transaction's main impacts are pointed out below:
- the increase in cash and cash equivalents at the end of the year and the reduction of net financial debt by approximately EUR 426 million as a result of the collection of the sale price;
- the recognition of the realised gain of EUR 177 million, net of related tax effects and ancillary components. The gain and the other income components associated with the sale of the equity investment are considered non-recurring items;
- the equity result of ISAB S.r.l. in the proportion of 20% for the entire year 2013.
The aforesaid impacts refer to the provisional price collected on 30 December 2013. This amount is subject to final adjustment, expected to be defined in the first half of 2014 and therefore not reflected herein.
These Consolidated Financial Statements reflect the sale of the final share of the equity investment in ISAB S.r.l., whereby the Group exited the Coastal Refining business.
Since this transaction involved a Group company (ISAB S.r.l.) which meets the definition of "component of an entity" as prescribed by IFRS 5, the additional disclosure required by the aforementioned Standard are represented herein. Such representation entailed that, for 2013 and for comparison purposes for 2012, the cost and revenue items relating to the discontinued operations, and the capital gain net of tax effects recognised as a result of the fair value measurement of the disposal of the discontinued operations, are classified under "Net income from sold assets and liabilities".
The Consolidated Financial Statements of the ERG Group at 31 December 2013, thus prepared, entail the line-by-line consolidation of both the subsidiaries that will remain within the scope of the ERG Group ("Continuing Operations") and of the profit or loss attributable to the Coastal Refining business, including the measurement at equity of the investee ISAB S.r.l. ("Discontinued Operations"), disclosed separately. Note no. 40, "Net income from sold assets and liabilities", to which reference is made, provides the breakdown of the content and related disclosure, of the items concerning sold assets as represented in the income statement.