Consolidated and Separate Financial Statements 2019 Tea Group · Page no. 4 Holding Company...

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Consolidated and

Separate Financial

Statements 2019

Tea Group

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Our mission is to grow by leveraging innovation, generating shared

and sustainable value, to be the reference partner for residents,

businesses, municipalities and institutions in the efficient provision

of selected excellent and innovative services.

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Contents

Introduction 5

Letter to the stakeholders 6

Governance system 9

Corporate structure 10

Key figures 2019 12

Performance 13

Reference scenario and competitive context 14

Consolidated results for the Group 17

Performance of Group companies 19

Group policies 26

Innovation, Technology and IT Services 27

Risk management 28

Human Resources and organisation 32

Compliance and internal control 35

Events after the reporting period 39

Significant events after the reporting period and Business outlook 40

Related party transactions 42

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Holding Company Directors’ Report 43

Consolidated Financial Statements of the Tea Group 49

Financial statements 50

• Income Statement 51

• Statement of Comprehensive Income 51

• Balance Sheet 52

• Statement of Cash Flows 53

• Statement of Changes in Shareholders’ Equity 54

Explanatory notes 55

• Reporting principles 56

• Consolidation scope and principles 70

• Analysis of Income Statement and Balance Sheet items 73

Independent Auditors’ Report 93

Separate Financial Statements of the Holding Company 99

Financial statements 100

• Income Statement 101

• Statement of Comprehensive Income 101

• Balance Sheet 102

• Statement of Cash Flows 103

• Statement of Changes in Shareholders’ Equity 104

Explanatory notes 105

• Reporting principles 106

• Analysis of Income Statement and Balance Sheet items 120

Board of Statutory Auditors’ Report 141

Independent Auditors’ Report 142

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Introduction

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Letter to the stakeholders

Dear Stakeholders,

It is in this environment that we share the results for the year just ended and outline our vision for the future of the Tea

Group in the context of our local area and of global macro-trends.

This year the moment has arrived at a time of major disruption to normality caused by the COVID-19 pandemic, which

rapidly spread to Europe and the rest of the world after its initial outbreak in China between the end of 2019 and the

start of 2020.

Warnings about the virus, that seemed so far away, quickly invaded our own personal, social and business lives, forcing

us to assess our plans for the year under a new light and to rethink the considerations reported in these pages in the

past, reframing them in this new scenario.

The 2019-2023 plan

The year just ended saw the launch of the actions outlined in the 2019-2023 Business Plan, actions confirmed in the

2020-2024 plan with certain timing adjustments.

The inspiring principles of the Tea Group business plan continue to be change, because our operational context changes

very rapidly, sustainability, because our planet can no longer support our perpetual “violence”, and human resources,

the true assets of any organisation.

These three dimensions are interconnected and interdependent: the challenges increasingly evident from climate

change and from the demographic and consumer trends require us to imagine changes in production methods,

consumption, energy procurement, waste management and the management of water resources that can combine

greater well-being of increasingly extensive layers of the population, through the balanced use of resources, so they can

be handed down to the next generations. All of this becomes possible only through the profuse creativity of the

individuals who, in their professional activities, are called upon to first imagine and then create the solutions to this

difficult equation.

The specific feature of this transition phase is the apparent contradiction between the global extent of the issues to be

overcome and the often local nature of the solutions. An example here is the growing decentralisation of energy

production, made possible by the development of renewable resources that offer the creation of energy production

hubs sized to match the needs of small communities that operate in constant exchange with the national grid to sell

excess production or to cover any shortfall.

Likewise, development of the circular economy and re-use of materials require local-level implementation of efficient

waste collection and treatment chains that, at the same time, continue adopting the paradigm Reduce-Reuse-Recover-

Recycle.

In a context that tends to decentralise so many activities, technology becomes the keystone to coordinating a multitude

of scattered players, in such a way as to correct sudden imbalances between demand and supply in real time, but also

increasingly seeking to anticipate these through the adoption of artificial intelligence tools. In turn, the ability offered by

technology to maintain a dynamic balance between complex demand-supply interactions allows companies to reduce

the invested capital required to satisfy a given level of service.

Change, Human Resources, Sustainability

Change is outlined in the Group business plan through investments of Euro 300 million. Of this total, Euro 30 million

refer to investments in technological innovation that aim to make business processes more efficient, reducing specific

consumption of resources, improving the capacity to work on the systems in order to promptly manage exceptions and

anomalies and improving the effectiveness of service provided to customers.

Examples in this respect are the activities in progress to extend the remote control of our systems and the adoption of

advanced software to manage the environmental cleansing service, which will allow the optimisation of vehicle routing

and the training of crews/operators, monitor the quality of service provided and apply predictive maintenance logic to

the vehicles used.

Another dimension of the change involves all Tea Group staff who in 2019 became key players in the Nova initiative, a

competition for ideas to improve products, services and processes of the Group, participated in by 56 individuals who

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proposed 104 projects, 23 of which - after preliminary feasibility studies - were brought to the attention of an

interdepartmental awarding commission set up for this purpose.

The change involved all of us also in terms of personal and professional skills, through distance learning tools made

available covering a broad range of employees and targeted action focused on skills of a more managerial nature for a

more limited group of individuals. These are initiatives that recognise the need for upskilling to ensure that our staff are

constantly updated on the most recent developments and evolutions in skills, and especially to encourage them to

become the promoters of change sought by the Group on their own initiative.

The sustainability profile is outlined in the business plan as transversal to the various business areas: the contribution of

technology to saving resources has already been discussed above. Here it is important to mention the project to

construct a plant that produces biomethane from FORSU (the organic fraction of municipal solid waste), which will be

located on the site in Borgo Mantovano currently occupied by a composting plant, and investments planned for

development of the integrated water service which will significantly improve the access to water resources by all the

areas of the concession and the treatment efficiency of the plants.

Again with regard to the Borgo Mantovano project, we should mention that this requires investments for Euro 28

million and completely relates to the circular economy as it will be fuelled by FORSU collected by the Tea Group in the

province of Mantua and will be constructed on the existing site, thereby avoiding taking up new land and contributing a

considerable environmental improvement.

Consolidated results

The 2019 consolidated results confirm the improvement trend seen in recent years: the year closed with EBITDA at

Euro 44.6 million, up 4.2% on the Euro 42.8 million recorded last year. The investments made reached Euro 32.7

million, an increase of 50% on the Euro 21.8 million of 2018.

During the year, electricity and gas customers increased by 6.2% and the cubic metres served by teleheating reached

6.7 million, with 94% of the energy input to the network originating from heat recovery from the Enipower Mantova

cogeneration plant.

We also continued with the preparatory activities for the consolidation of integrated water service activities in the

Province (where we now serve 75% of residents) under a single operator, keeping the deadlines we had agreed with the

area governing body.

These results were achieved by maintaining an adequate capital structure, which shows a debt/equity ratio of 0.39.

Looking to the future

We conclude by returning to the initial notes on the COVID-19 pandemic and developing these in relation to the

objectives and results presented here above.

We emphasised the unprecedented speed with which Italy was overwhelmed by the health and social emergency

caused by the pandemic: this forces us to accept the need for our organisations to be increasingly able to handle the

unexpected, react to threats the extent of which is such that they cannot be incorporated into forecasting models.

This means developing a new skill: resilience. It is a concept that has cropped up in recent years in management jargon,

the meaning of which has become totally clear today: faced with high-impact events that instantly change the

reference context, organisations have to take rapid action to make sense of the new situation and mobilise all their

organisational resources to overcome it.

The summarily illustrated plan will allow the Group to make use of resources with a high capacity for reconfiguration,

through the digitalisation and enhanced remote control of activities.

But we have seen that the other key dimension of resilience is the ability to make sense of the unexpected, and this

depends on the quality of individuals and the existence of a system of values for the organisation to which individuals

can refer in emergencies: hence the importance of training of our human resources in this respect.

We have seen these mechanisms fully show their effectiveness when reconfiguring our activities to ensure service

continuity to our communities: in a rapidly, effectively and orderly manner, 290 of us out of a total of 572 - in just 10

days - placed ourselves in a condition to adopt smart working, whilst our colleagues in the field were quickly equipped

with the necessary personal protection equipment to continue working in safety, rethinking the work execution

methods to render them consistent with the ongoing emergency. Amongst other things, this allowed us to introduce

new environmental cleansing services to assist in the health emergency.

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We have also taken care of our more vulnerable customers and those hardest hit by the economic effects of the

pandemic, preparing new commercial offers with personalised management of needs for extended payment terms that

have arisen, and cooperating with the Municipalities in preparing other aid measures.

In a word, in the value of our special relationship with our local area we found the inspiration for our emergency

response actions, thereby giving meaning to the local extent of the change we discussed in the introduction.

Fully aware that the results for the current year might show a decline in the recent growth trend, in the light of how

every one of us in the Tea Group has responded in the field, we can look upon today with cautious optimism while we

continue to ready ourselves for tomorrow.

We of the Tea Group

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Governance system

1) In office until approval of the 2021 Financial Statements

2) Appointed for the financial years 2017-2025 (Art. 14, Italian Legislative Decree 39/2010)

Shareholders'

Meeting

Independent Auditors 2)

Deloitte & Touche

Board of Statutory

Auditors 1)

Chairman

Giovanni Saccenti

Standing Auditors

Francesca Chiesi

Maria Grazia Tambalo

Substitute Auditors

Marco Voceri

Giorgia Salardi

Internal Control and

Audit Committee 1)

Chairman

Giovanni Saccenti

Directors

Francesca Chiesi

Maria Grazia Tambalo

Board of Directors 1)

Chairman

Massimiliano Ghizzi

Chief Executive

Officer and

Managing Director

Mario Barozzi

Directors

Andrea Bassoli

Stefania Confalonieri

Elisa Ferrari

Corporate structure

Tea provides its services largely through the operating subsidiaries. The current organisation has a parent company,

Tea, which holds most of the assets, and various sector

Energia, Tea Reteluce, Tea Acque, AqA Mantova, Depura, Tea Servizi Funerari.

separate from operations, ensuring stronger dynamics, flexibility, innovation and planning capacity of the parent

company through compliance with the provisions of g

Tea

This is the holding parent company, owner of networks and systems and of the Mariana Mantovana landfill, which is the

holder of investments in the operating companies, provides all staff services, coordinates the treasu

services to Group companies, manages planning activities through the engineering services, and manages the Cemetery

Service and crematorium of Mantua.

Sei

Manages the production, maintenance and distribution activities for the teleheat

and renewable energy development, the latter being carried out in part directly and partly through the subsidiary

ElectroTea S.r.l.

Tea Energia

This is the sales company of the Group, operating in the open energy mark

end it controls and operates on the electricity and gas supply chains, as well as sales of teleheating, generated and

transported by Sei.

Tea Reteluce

This company was established to synergically manage the prov

that Tea proposed to the municipalities of Mantua province in 2013. The participating local authorities represent

around 70% of the street lights in the province of Mantua. Its strengths are: system

service (electric vehicle charging, public wi


Tea, which holds most of the assets, and various sector-specific operating companies: Mantova Ambiente, Sei, Tea

Acque, AqA Mantova, Depura, Tea Servizi Funerari. The guidance and control activities are


company through compliance with the provisions of guidance and control regulations.


holder of investments in the operating companies, provides all staff services, coordinates the treasu


Manages the production, maintenance and distribution activities for the teleheating, gas distribution, thermal plants


This is the sales company of the Group, operating in the open energy market for end consumers and operators. To this


This company was established to synergically manage the province-wide street lighting service, an innovative project


around 70% of the street lights in the province of Mantua. Its strengths are: system upgrading, energy savings, smart

service (electric vehicle charging, public wi-fi, telecare system, traffic detection, etc.).

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Mantova Ambiente, Sei, Tea

The guidance and control activities are



holder of investments in the operating companies, provides all staff services, coordinates the treasury and cash pooling


ing, gas distribution, thermal plants


et for end consumers and operators. To this


wide street lighting service, an innovative project


upgrading, energy savings, smart

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AqA Mantova

This company manages the integrated water service in the Municipality of Castiglione delle Stiviere.

Tea Acque

This company is responsible for managing the integrated water service and the water network maintenance service, as

well as the Acqua Lab analysis laboratory.

Depura

This company was established from the proportional partial spin-off of Tea Acque by notary deed dated 9 December

2019. It is responsible for special non-hazardous liquid waste management, road maintenance and gas distribution

network maintenance.

Mantova Ambiente

This company manages the Environmental Cleansing Service, waste collection and transportation, separate waste

collection and the collection of special and hazardous waste, operating the treatment and waste disposal plants, and

the planning and maintenance of public green areas.

Tea Servizi Funerari

This company provides funeral services to individuals and funeral transport to businesses. The company was established

following the merger of Global Funeral Service S.r.l. into Tea Onoranze Funebri S.r.l.

Membership of a Group

Note that, following the implementation of Italian Legislative Decree 118/2011, the Municipality of Mantua – the

majority shareholder of the Tea Group – will prepare the Consolidated Financial Statements of the Group and other

companies under its control.

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Key figures 2019

EBITDA GROUP PROFIT EMPLOYEES

ROE ROI NFP/EBITDA

PARENT COMPANY PROFIT

42,8

44,617,5

19,9565

572

10,6% 11,2%8,8% 9,1%

1,12

1,06

17,5

19,6

Values in millions of Euro

unless otherwise specified.

2018

2019

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Performance

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Reference scenario and competitive context of Group operations

Legal and regulatory framework

The Group’s activities are conditioned by regulatory developments that govern the methods for investment in

companies by public administrations, characterised by restrictions designed to limit unjustified waste and accentuate

the controlling relationship between PAs and the companies under their control.

September 2016 saw the entry into force of Italian Legislative Decree 175 - the Consolidated Law on state-controlled

companies - which contains an extensive reform of public investments, redefining the conditions and limits for the

setup of companies by local authorities, restricted on the one hand in terms of their functions and on the other to a

system of director responsibilities. The reference regulations for the investee companies differ depending on the

activities conducted, the service awarding method and whether or not the company is listed. A change in criteria is also

envisaged in public procedures for the purchase of goods and services and liquidation of companies that closed a

certain number of years with a loss.

7 June 2017 saw the completion of the financial instrument issue, listed on the regulated market of the Irish Stock

Exchange (ISE). Through its placement, Tea acquired the status of Public Interest Entity (PIE). Pursuant to art. 26,

paragraph 5 of Italian Legislative Decree 175/2016, this decree does not apply to the Tea Group.

The public utility services sector has a role of primary importance in the Italian economy. A result which was

nevertheless achieved with service and efficiency levels very dissimilar across Italy due to the strong fragmentation of

different-sized operators. With the aim of improving the efficiency and transparency of these services, the Italian

Government and Authorities have therefore gradually pursued action targeting a streamlining of the sector.

Specifically, the Regulatory Authority for Energy Networks and the Environment (ARERA) is an independent body,

established by Italian Law 481 of 14 November 1995 with the task of protecting the interests of consumers and

promoting competition, efficiency and the dissemination of services with suitable quality levels, through regulation and

control activities. The Authority’s action, initially limited to the electricity and natural gas sectors, was later extended

through a number of regulatory measures.

Firstly, Decree no. 201/11, converted to Italian Law no. 214/11, the Authority was assigned duties also in relation to

water services. Subsequently, Italian Legislative Decree 102 of 4 July 2014, which implemented European Directive

2012/27/EU on energy efficiency into Italian Law, assigned specific duties to the Authority in relation to teleheating and

telecooling.

Lastly, Italian Law 205 of 27 December 2017 then assigned the Authority with responsibility for regulating and

controlling the urban and similar waste cycle, including separate waste collection.

In addition to guaranteeing the promotion of competition and efficiency in the energy sectors, for all regulated entities

the Authority’s action aims to ensure standardised ease of use and dissemination of the services across the entire

country, define adequate levels of service quality, prepare certain, transparent tariff systems based on predefined

criteria and promote the protection of user and consumer interests. These functions are performed by harmonising the

economic and financial objectives of the service providers with general objectives of a social nature, environmental

protection and the efficient use of resources.

ARERA action in the next few years will be adopted in accordance with different guidelines, depending on the nature of

the service regulations and their different regulatory period dates. However, a number of key points of the ARERA

interventions are common to all services. In services already opened to market competition, such as electricity and gas

sales, the regulator aims to promote informed conduct by utility consumers-customers, to be encouraged through

increasing digitalisation of service provision processes and the preparation of regulatory protections that are not price-

related, with the aim of avoiding lock-in mechanisms that reduce customer mobility.

With reference to infrastructural business, the regulator will increase its focus on output-based remuneration

mechanisms which combine the intensity of investments necessary to fill the void of delays in infrastructurally

equipping certain areas of Italy with effectiveness and efficiency of the service provided to resident users.

To achieve this objective, the tariff systems proposed by ARERA in the various regulated segments are increasingly

incorporating more bonus and penalty mechanisms distributed in relation to quality of service and more selective

criteria in investments eligible for the tariff remuneration.

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Sales

At the end of 2019, the regulator further postponed the close of the protected market for retail electricity and gas

customers from June 2020 to 1 January 2022. Therefore, the regulator continues to have a significant impact on the

pricing of raw materials and in relations between sector operators.

With reference to relations between shippers and sales companies, the effect of interpreting Decision no. 670/2017

continues - albeit heavily reduced - with some operators offloading the balancing effect of the years 2013-2017 on to

the sales companies.

Gas distribution

Efforts to digitalise the service continue in the natural gas distribution area, with gradual installation of smart meters at

domestic users’ homes, after the completion in recent years of a similar process for the meters of larger users.

From the point of view of sector structure, the process which, based on Italian Legislative Decree 164/2000 and

Ministry of Economic Development Decree no. 226/2011 should lead to the launch of tenders for the award of new

concessions at Minimum Local Area (ATEM) level, as identified in the Ministry of Economic Development Decree, is

progressing very slowly. In this context, the Mantua area in particular has been divided into two Local Areas (Local Area

1: Mantua North and Local Area 2: Mantua South), both of which see the Tea Group’s presence for a total of around 55

thousand delivery points managed in Mantua 1 and approximately 11 thousand delivery points in Mantua 2. At the

reporting date, acting as contracting authority the Municipality of Mantua launched preliminary activities for

publication of the tender for ATEM 1 with a view to it being published at the beginning of 2021. For ATEM 2, on the

other hand, the contracting authority has not yet begun the preliminary procedure.

During the year, further action was taken to define the organisational and financing structure necessary to participate

in the Local Area tender, as established by ARERA. In this respect, from 1 April 2019 SEI S.r.l. acquired the business unit

relating to management and maintenance of the natural gas distribution network of Tea Acque S.r.l., with the aim of

optimising costs and works.

Water sector

By Decision 580/2019, ARERA approved the water tariff method for the regulatory period 2020-2023, which defines

criteria for the calculation of maximum tariff revenues permitted for water operators.

The method confirms the asymmetric regulatory approach that aims to give precedence, from a tariff point of view, to

local entities with a greater infrastructure deficit or affected by operator combination phenomena. The main new

aspects compared to the tariff method that expired in 2019 refer to the introduction of standard costs for the

recognition of certain costs previously recognised on final figures, better subdivision of the bonuses and penalties

matrix associated with service quality and partial abandonment of the distinction between operating costs and capex in

the definition of restrictions on eligible revenues for operators.

Environmental services

So as to give certainty and regulatory stability to the system and promote efficient and effective management of the

cycle services, ARERA introduced the first tariff regulatory period with Decision no. 443 of 31 October 2019 and the

related annex “Tariff method for the integrated waste management service 2018-2021” (MTR). The Authority aims to

implement a system in which construction of the Economic and Financial Plan (PEF) is based on definite and

standardised rules. The Decision forms the first part of the action, in that it refers solely to the determination of waste

service costs, but does not directly impact the determination of tariffs charged to users.

The role of the competent local authority (ETC) was established, with the task of validating the PEF, verifying the

completeness, consistency and fairness of its contents, in addition to that of making pertinent decisions for the later

submission to the Authority of the prepared plan and related user prices.

The measure issued on 31 October 2019, effective from 1 January 2020, saw considerable commitment from the

company in analysing the correct application of the method (the latest clarifications were provided on 27 March 2020

with Decision no. 2/2020 - DRIF), which required the reprocessing of 2018 and 2019 financial statements figures in

order to determine the 2020 PEFs. A further difficulty in the new approval process is linked to the fact that in Lombardy

there is no ATO for waste management, and consequently the role of ETC has to be undertaken by the individual

Municipalities through a specific structure or organisational unit, within the authority itself or identifiable in another

local administration, meeting appropriate third-party profiles with respect to operations.

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The deadline for approval of the 2020 PEFs, by regulation set for 31 December 2019, was postponed to 30 April and

later postponed further to 30 June 2020. As yet, no PEF has been approved.

Also note that, again on 31 October 2019, Decision no. 444 was published with the first transparency obligations for the

waste management service for the regulatory period 1 April 2020-31 December 2023 (TITR). Included among the

actions are the minimum information elements to be made available through web sites, the minimum information

elements to be included in collection notices and individual communications to users in relation to significant operating

changes.

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Consolidated results for the Group

The results at 31 December 2019 confirm last year’s performance in terms of returns on invested capital (9%) and on

equity (11%). In absolute terms, revenues rose by Euro 25.2 million, whilst other operating revenues decreased by Euro

1.7 million. Operating costs increased by Euro 21.8 million and the balance of these effects resulted in EBITDA of Euro

44.6 million, up by Euro 1.8 million.

The increase in revenues is due to two phenomena that are reflected to an almost identical extent in the costs: 2019

saw higher prices on the energy markets, which was mirrored in sale prices and in purchase costs of electricity and gas

purchased for resale to end customers. A second component of the revenues increase is dependent on the accounting

treatment for assets managed under concession, for which the capex in infrastructures have to be recognised in the

income statement both as costs and as revenues from the contracting authority for the value of the infrastructure

created. The Group’s capital expenditure rose from Euro 21.8 million to Euro 32.7 million, and this increase is also

reflected in revenues and operating costs.

Depreciation, amortisation and writedowns reduced by Euro 635 thousand compared to the previous year, which had

been impact by a number of asset writedowns. So the change in terms of EBIT compared to 2018 stands at Euro 2.4

million.

Net financial income declined by Euro 329 thousand, primarily due to lower revaluation of equity investments. EBT

therefore improved by Euro 2.0 million, corresponding to Euro 215 thousand in higher taxes, with a Euro 1.8 million

increase in net profit.

Financial Statements

(in thousands of Euro) 2019 2018 Difference

Revenues 295,681 270,440 25,241

Other revenues and income 4,289 5,942 -1,653

Costs for raw, ancillary and consumable materials 84,916 75,508 9,408

Costs for services 133,167 123,737 9,429

Personnel costs 29,144 28,243 900

Other operating costs 8,142 6,086 2,056

EBITDA 44,601 42,807 1,794

Depreciation, amortisation and writedowns 18,816 19,451 -635

EBIT 25,785 23,357 2,428

Financial income 4,475 4,242 233

Financial expenses 1,790 1,763 27

Gains (losses) on investments measured using the equity method 56 645 -589

EBT 28,526 26,481 2,045

Taxes 7,419 7,204 215

NET PROFIT 21,107 19,277 1,830

of which pertaining to the Group 19,866 17,472 2,394

of which pertaining to minority interests 1,241 1,806 -565

Reclassified Balance Sheet – sources and applications method (in thousands of Euro)

APPLICATIONS 2019 2018 SOURCES 2019 2018

Intangible assets and Right of use 144,134 127,944 Shareholders’ equity 187,925 181,580

Tangible assets 90,979 95,065

Non-current financial assets 49,850 43,249 Non-current liabilities 124,065 126,415

Inventory 2,596 2,853

Deferred liquidity 93,400 92,945 Current liabilities 91,768 82,471

Immediate liquidity 22,799 28,410

Total Applications 403,758 390,465 Total Sources 403,758 390,465

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There were no substantial changes in the balance sheet structure, as also seen from the ratios analysis provided below.

Ratios 2019 2018

Non-current assets / Total assets (I/K) 0.71 0.68

Working capital / Total assets (C/K) 0.29 0.32

Equity / Total assets (N/K) 0.47 0.47

Debt / Total assets (T/K) 0.53 0.53

Current ratio (C/Pc) 1.29 1.51

Liquidity ratio ((Li+Ld)/Pc) 1.27 1.47

Fixed capital self-financing ratio (Equity/I) 0.66 0.68

ROE (Net rev./Equity) 11.23% 10.62%

ROI (EBIT/Ko) 9.05% 8.77%

ROS (EBIT/Sales) 8.60% 8.45%

Statement of financial position (in thousands of Euro)

Aggregate figures 2019 2018 Difference

Total non-current assets 260,396 248,383 12,012

Net working capital 10,712 16,739 -6,027

Gross invested capital 271,108 265,122 5,986

Total provisions and others -35,817 -35,780 -36

Net invested capital 235,291 229,341 5,950

Shareholders’ equity 187,925 181,580 6,345

Net financial position 47,366 47,762 -395

Total sources of finance 235,291 229,342 5,949

Debt/equity ratio 0.25 0.26 -0.01

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Performance of Group companies

Today, Tea is a Group of multiple companies offering different services, but integrated with the objective of improving

the life of the community in terms of sustainability and shared value.

The parent company, Tea, is responsible for coordination of the following operating companies: Mantova Ambiente,

Sei, Tea Energia, Tea Reteluce, Tea Acque, AqA Mantova, Tea Servizi Funerari.

Note that from the spin-off of Tea Acque, Depura was established in 2019, into which the business units not strictly

associated with the integrated water service were transferred, such as special non-hazardous liquid waste

management, road maintenance and gas distribution network maintenance.

ENERGY

WATER

ENVIRONMENTAL SERVICES

END OF LIFE SERVICES

Sales for

127.7 GWh of gas

461.9 GWh of electricity,

of which 52.8 GWh

certified as from

renewable sources

158.9 GWh of heat

73,000 street lights

managed

75% of residents in the

province of Mantua served

16 million cubic metres of

drinking water sold

65 wells

75 treatment plants

385 sewage pumping

systems

174,817 tons of waste

collected in the

municipalities served

3,202 funeral services

7,916 cremations

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Performance of Group companies

Tea

In 2019, the parent company continued action to improve its internal control environment, with the fine-tuning of

several processes.

Enhancement of the Innovation, Technology and IT Systems Department also continued, with the aim of continuous

and integrated promotion within the Group of the transition to increasingly innovative methods for providing services

to the community.

As part of the coordinating and steering activities of the parent company, particularly important are the financial

support guaranteed to its subsidiaries and communication initiatives targeting the community and institutions.

With regard to financial support, the parent company manages a cash pooling system that ensures its subsidiaries have

low-cost rapid access to the financial market. At the end of 2019 the loans of varying types disbursed by Tea S.p.A. to

subsidiaries totalled Euro 46,895 thousand, of which Euro 6,000 disbursed to Tea Acque S.r.l. to the support investment

plans of this subsidiary.

Further details of Tea activities are reported in the paragraphs Innovation, Technology and IT Services, Compliance and

Holding Company Directors’ Report.

ElectroTea

This company is a subsidiary of Sei S.r.l. and owns the Marenghello hydroelectric plant (capacity: 780 kW). The parent

company is instead responsible for the operations management. The plant is situated alongside the Pozzolo-Maglio

outlet – off the River Mincio – which is used to deviate water from the Mincio when water levels are high and to feed

the Pozzolo irrigation channel.

ElectroTea constructed the plant in 2012 and its operational start-up was on 21 December 2012.

The plant is entitled to the all-inclusive tariff under Ministerial Decree 6/07/2012.

Sei

The company has continued to strive to increase its volume of business, focusing mainly on expanding its existing

services and concessions. In particular, for the teleheating activities, new connections were arranged for a total of

34,000 m3, reaching a total volume of 6,701,195 m

3 served. The thermal energy distributed totalled 154,290 MWht.

As in 2018, due to the DN600 Feeder combined with enhancement of the accumulation system implemented at the

“Carlo Poma” Hospital plant, 2019 once again offered the option for almost full use of the heat sold by EniPower

Mantova as the heat production source (94% of the total heat input to the network).

Hydroelectricity production increased at both the plants managed by the company. In particular, the Marenghello plant

generated 2,067,272 kWh compared to 1,486,304 kWh in 2018, due especially to the greater availability of water in the

first and last months of the year.

The increase in production of the Vasarina plant was more limited: 2,187,047 kWh compared to 2,142,121 kWh in

2018.

In 2019, the acquisition was finalised of the Goita Energia business unit containing both the concession underlying the

“Marenghello” hydroelectric plant and the related Global Service contract with ElectroTea.

As noted above when describing activities relating to gas distribution, Sei S.r.l. acquired the business unit relating to

management and maintenance of the natural gas distribution network of the associate Tea Acque. Finalised on 27 June

2019, the transaction became effective on 1 July 2019.

With regard to heat management, the management and operations of thermal plants were transferred to Tea Reteluce

S.r.l. This transaction aimed to integrate thermal plant management with the public lighting services with both target

public authorities, primarily Municipalities. The deed of transfer of the business unit was signed on 1 August 2019,

effective from the same date.

Capital expenditure

The company’s total capex was Euro 5.7 million, with breakdown as illustrated in the chart below (figures in millions of

Euro).

Page no. 21

Tea Energia

In 2019, the company’s revenues recorded an increase due to the effect of volumes, attributable both to the natural

gas and electricity markets and to a general increase in raw material prices.

The energy carriers market inverted, in effect, the price trend mid-year. The inversion did not have a significant impact

on the mix of variable and fixed prices of the company’s portfolio.

Sales and marketing activities continued the sales network expansion strategy both in geographic terms, with the

opening of new points of sale, and through the activation of new co-marketing channels.

The focus on retail market development led to offsetting of more than the natural portfolio losses, thereby satisfactorily

increasing the customer base but not forgetting the importance of the selected business counterparty which confirmed

its continued faith in us.

During the year, the major task of constant alignment of the sales mix to customer needs was carried out with a strong

focus on specific consumption characteristics, also in relation to the effects deriving from the umpteenth

postponement of the “end of protection” until January 2022.

Furthermore, in relation to the effects generated by certain authority decisions, regulation of the natural gas market

was subject to strong operational uncertainties that led to most operators to pass through the risks assumed on market

prices, with resulting tension concerning an upward trend. Through a targeted market positioning strategy, it was

possible to absorb part of the negative effects and maintain competitiveness on the end market.

Tea Reteluce

In 2019, the company consolidated its public street lighting services in the participating municipalities, for a total of

around 73,000 street lights operated, integrating development activities by internal lines and acquisitions. As regards

internal growth, of the increase in street lights around 9,200 units came from the tender award of concessions to

manage the public lighting systems in municipalities in the province of Mantua and other Lombardy provinces and, in

one case, in Aosta. The additional 800 street lights refer to the construction of new network extensions and the

acquisition of systems constructed by third parties (e.g. new subdivisions) in concessions already held at the end of

2018.

External growth contributed by a further 3,800 street lights, through the acquisition from a competitor of a business

unit responsible for managing the Municipalities of Trescore Cremasco (CR), Occhieppo Superiore (BI), Cerrione (BI),

2.3

1.4

1.2

0.3

0.1

0.4

Gas network

Gas telemetering

Marenghello Plant concession

Gas connections

Gas meters

Other

Page no. 22

Verrone (BI), Caresana (VC) and Vigliano Biellese (BI). With the exception of Vigliano Biellese, on the systems acquired

the investments relating to LED upgrading had already been completed.

The development activities in neighbouring areas reconfirm Tea Reteluce as the leading operator in terms of the

number of street lights managed in the province of Mantua, with thirty-four municipalities served.

In line with this combined strategy of consolidating the position in the province of Mantua and targeted developments

in other areas, during 2019 the company was awarded concessions under tender for the management of public lighting

systems in the Municipalities of Guidizzolo (MN), Commessaggio (MN), Urago d’Oglio (BS), Ghedi (BS), Spirano (BG),

Offlaga (CO), Casalmaggiore (CR) and Solferino (MN), for a total contracts value of Euro 18 million acquired.

Work on improvements to street lighting systems continued in 2019 with priority on optimising remote control and

maximising energy savings. Around 45,600 remote lamp-to-lamp control modules have been installed on the lighting

systems in the municipalities included in the tender for the province of Mantua, covering approximately 76% of the

street lights.

During the year, the old technology street lights were replaced with new LED lights, therefore improving the efficiency

of 98% of the number managed under the province of Mantua tender and 84% of the total network managed. Energy

savings action was taken for an annual saving of 1,756 Toe, with value confirmed by White Certificates.

Activity is also in progress on the structural upgrading of posts, with the expectation of replacing around 12,000

obsolete posts with new hot-dip galvanized and/or painted models. Approximately 8,000 posts were replaced in 2019.

The cost of electricity decreased by 1% compared to the previous year, and the related benefit was transferred to the

Municipalities as envisaged in the tender plan. As the “All LED” upgrading progresses, the year-on-year changes in

electricity consumption reduce since the systems are gradually becoming increasingly efficient.

Further savings can be achieved through the optimisation of remote control and stronger digitalisation of system

management processes. Hence, energy consumption in the 28 municipalities covered by the provincial tender fell by

1,716 MWh.

Activity associated with electric vehicles also continues: over 20 charge points are available in the province. All the

charge points can be accessed via an App which allows the user to select their preferred electricity provider as long as it

has an agreement with the payment circuit used. This system makes a European network of over 18,000 charge points

available to users.

2019 saw the further consolidation of the Tea Reteluce reorganisation following purchase of the business unit relating

to thermal plant management and operations from the associate Sei S.r.l., completed on 1 August 2019 for the price of

Euro 223 thousand. Consequently, the Company expanded its supply capacity for heat management services and as

third party manager for thermal plants. Tea Reteluce S.r.l. today manages around 400 thermal power plants in thirty

municipalities in the province of Mantua.

AqA Mantova

Operations continued in line with expectations during 2019.

2019 saw a 2% increase in water consumption compared to the previous year due to higher than average temperatures

and low rainfall in the summer period.

There were no service interruptions during the year and, as a result of remote control installations on the plants, a

more standardised network pressure modulation was possible, an activity which together with improved treatment

system efficiency and the reduction in treated volumes due to low rainfall levels generated an energy saving of 5.9%

compared to the previous year.

Operating activities began in 2019 for the purchase and installation of equipment required to implement the districting

project for the water network, which will lead to further energy efficiency as well as improve the useful life of the

distribution network.

The sewer network survey commenced, which will lead to its hydraulic remodelling with the aim of improving local

service and reducing environmental impacts, and in December the survey was around 60% complete. Works

commenced in December on replacing the existing Grole-Santa Maria water supply pipeline which, due to its age, was

subject to numerous breakages.

Page no. 23

Capital expenditure

The company’s capex totalled Euro 0.7 million, of which Euro 0.4 million in the water distribution network and Euro 0.1

million in the sewer network. The remaining Euro 0.2 million mainly referred to water treatment and pump systems,

meters and equipment purchases.

Tea Acque

During 2019, the volumes distributed rose as a consequence of a particularly dry summer season and the increase in

users served can be linked to the service extensions implemented.

From a capex point of view, the Company implemented the plan envisaged in local area planning, the most significant

works being completion of the Castellucchio water supply network, laying of the network and supply pipelines to

Sailetto and Torricella in the municipalities of Suzzara and Motteggiana, upgrading of the drinking water plant in Suzzara

and the water supply pipelines of Pegognaga-Suzzara and Pegognaga-Gonzaga.

The planimetric-altimetric alignment survey also began on all the sewer networks in the area managed. This major

project, on conclusion of the surveys, will involve the hydraulic remodelling of the entire sewer network, the results of

which will form the basis for capital expenditure in this business segment for the next few years, with the aim of

improving local service, reducing environmental impact and optimising energy consumption.

The purchase of networks and plants, previously managed by GISI S.p.A., was completed in December, thereby finalising

the planned business model.

Provincial Council Decision no. 21 of 16 April 2019 approved the update to the area plan for the province of Mantua.

This decision had significant effects on the ownership structure of the company.

Following the unification process towards a single operator for the province of Mantua, indicated in the area plan

update, on 16 September 2019 the extraordinary shareholders' meeting approved the partial proportional spin-off of

business activities regarding the road maintenance, gas maintenance and special waste sectors into a newco named

Depura S.r.l. The transaction was finalised on 9 December 2019 by notary deed recorded on 11 December 2019 and

entered in the Register of Companies on 12 December 2019, the effective date of the transaction.

Downstream of this transaction, your company exclusively manages the phases of the assigned integrated water

services.

In December, the public partner Tea S.p.A. increased its interest to 80%, in implementation of the re-publicizing

instructions contained in the area plan update referred to above.

Capital expenditure

The company’s total capex was Euro 12.0 million, with breakdown as illustrated in the chart below (figures in millions of

Euro).

Page no. 24

Mantova Ambiente

During 2019, the scope of business activities of the company saw no significant changes compared to the previous year,

except with regard to a number of new works acquired, largely relating to the green areas service and some changes to

the waste collection method.

In 2019, the operating service carried out by Mantova Ambiente and the Private Shareholder, which can now be

defined as well integrated, continued, giving rise to further optimisations, particularly in relation to the frequency,

collection days and developments in domestic collection of organic waste (where enabled). Compared to 2018, in fact,

this business activity saw the introduction - in almost all the municipalities served - of 240-litre wheelie bins to replace

the disposable sacks. These were provided to every user that requested them, in effect improving the workload of

operators and, for the residents, making waste collection more orderly.

2019 saw the launch of part of the project to upgrade the waste bins located in the Municipality of Mantua, a project

which has allowed the replacement with new models of the bins in peripheral areas and those in the main municipal

gardens.

Again in 2019, the Gonzaga and Marmirolo collection centres were upgraded.

2019 was characterised by the introduction by ARERA (Regulatory Authority for Energy Networks and the Environment)

of criteria for the recognition of actual operating costs and investments in the integrated waste service for the period

2018-2021, effective from 1 January 2020. Initial analyses indicate that our position could reach efficiency levels and

related costs aligned with the high-performance companies.

Lastly, with regard to the value of primary and secondary materials recycled through door-to-door separate waste

collection, in the last 8 months of the year and more so in the last 3 months of 2019 there was a drastic drop in paper

and cardboard production prices, which significantly reduced profit margins on the measurable amounts.

Capital expenditure

The total capex was Euro 2.2 million, with breakdown as illustrated in the chart below.

[INTERVALLOCELLE]

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[VALORE]

0.6 [VALORE]

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VALORE]

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Treatment plants

Distribution network

Sewage network

Drinking water purification

Water supply points

Lifting systems

Other

Page no. 25

Tea Servizi Funerari

In 2019, the Company maintained the structure established in the previous year which divides activities into two

business units, B2B (Business to Customer) - funeral services for end customers (the bereaved) - under the brand name

of “Tea Onoranze Funebri”, and B2B (Business to Business) - the funeral transport and related services for third-party

funeral companies - under the brand “Global Funeral Service”.

In 2019, TSF recorded an increase in the funeral services provided, exceeding the previous year’s volumes (586 funerals

performed in 2019 compared to 561 in 2018).

An analysis of the operating figures, however, shows that the number of funeral services performed in the municipality

of Mantua (internal, outgoing and incoming services) with respect to the number of deaths, decreased slightly

compared to the previous year (27.85% in 2019 vs. 28.48% in 2018). This result remains in any event higher than that of

2017 (27.57% with 518 funerals performed).

2019 also saw a slow increase in requests for the Funeral Home service, rising to 182 from 172 in the previous year.

With regard to the funeral transport activities (B2B), note the slight increase in services provided, to 2,616 compared to

2,571 in 2018.

The efforts to rationalise costs and optimise resources, started in the previous year, together with the broad

development of TSF commercial activity, meant that the company’s income statement reached break-even point in

2019.

982

447

357

256

182

Commercial vehicles

Waste containers and dumpsters

Plant

Collection centres

Other

Page no. 26

Group policies

Page no. 27

Innovation, Technology and IT Services

The issue of innovation is central to the Group’s strategy for the next few years and, for this reason, from last year the

Innovation, Technology and IT Services Department was enhanced and reorganised. The department is responsible for

stimulating innovation, being the point of reference for analysing initiatives and for across-the-board adoption of

technologies suited to the modernisation. It also guarantees the development of new project initiatives, the promotion

and dissemination of the digital culture and maintaining business continuity through specific infrastructural action. It

develops local information systems (SITs), software and hardware systems, cyber security policies and is responsible for

invoicing and billing.

All of this is achieved through the selection of new technologies and methodologies, consistent with the solutions

chosen, defining suitable requirements and ensuring their correct implementation, adopting effective solutions,

consolidating existing infrastructures and identifying software needs, promoting sensitisation initiatives on IT security

and guaranteeing compliance with regulations.

The 2020-2024 plan: objectives

In the 2020-2024 plan, technological innovation targeting improved efficiency and reliability of processes, reducing

environmental impact and operating costs is outlined through modernisation projects for the remote control and

remote metering systems and the adoption of data analysis tools (also through the use of artificial intelligence).

Commitments are also undertaken in the plan to improve commercial effectiveness, increase service quality and data

accessibility to allow greater transparency, rendering the customer’s view unique through review of the customer

experience and a new policy of online presence.

Digitalisation

Excellent results were achieved from digitalisation of the sales area and the signing of contractual documents, with 60%

of contracts graphometrically signed. At the same time, savings levels were achieved in-house from the use of printed

material with ad hoc policies on the new integrated multifunction and printer system.

IT security

The vast recovery plan for cyber vulnerabilities has halved the total number of risks and enhanced technologies for

better governance of the server and client systems. The action to disseminate the culture of cyber security has led to a

widespread phishing campaign with subsequent training sessions.

Problem solving

From an organisational point of view, with the operational start-up of the new works management methodology the

works recorded with strong governance of problems were more than double, uploaded to an extensive business

knowledge database.

Open innovation

To stimulate open innovation, a procedure for encouraging openness to new lines of development both internal and

external to the Group through dynamic interaction with universities and research centres, access to start-ups and SMEs,

the following initiatives are identified: a good outcome to the Nova initiative, which saw the submission of 104 ideas, of

which 25 moved to the preliminary study stage; participation in the Startup Intelligence of Milan Polytechnic and

dialogue initiatives with the universities of Verona and Mantua; activation of projects with start-ups to implement a

number of robotic process automation projects and study the use of chatbots.

Page no. 28

Risk management

The Group activities are exposed to the following risks: market risk (defined as commodity risk and interest rate risk),

credit risk, liquidity risk and equity risk.

The Group’s risk management strategy aims to minimise the potential negative effects on its financial performance. The

Company’s Finance Department provides indications on monitoring risk management, and likewise for specific areas in

relation to interest rate risk, exchange rate risk and the use of derivative and other instruments.

The section “Significant events after the reporting period and business outlook” describes the risk profiles linked to the

current health emergency situation (COVID-19).

Market risk

The Group’s exposure to risks from operations on the reference markets can be categorised as: the risk of raw material

price changes (commodity risk), the cost of money trend (interest rate risk) and counterparties’ ability to meet

obligations undertaken with the Group (credit risk). The breakdown of the different sources of risk mentioned is

detailed below.

Commodity risk

The Group is exposed to the risk of commodity price changes as a result of its commodity trading (mainly gas and

electricity). In fact, the value of own trading assets and liabilities is conditioned by changes in the market price of

commodities, directly or through indexing formulas.

In 2019, the carrying amount of commodity derivative contracts used to hedge the energy portfolio corresponds to a

total notional value of 11.9 GWh (72.8 GWh in 2018). The fair value of contracts at 31 December 2019 and 31

December 2018, respectively, totalled Euro 225 thousand (net liabilities) and Euro 533 thousand (net assets).

No commodity derivative contracts were taken out in 2019 to hedge the gas portfolio.

The Group purchases commodities through a series of transactions that involve physical and financial contract trading

on the electricity and gas market and financial contracts with commodities as the directly underlying assets.

The Group’s policy is to use derivative instruments solely for hedging purposes and not as speculative investments.

Derivatives are designated as hedging instruments and measured at fair value, calculated on the basis of their market

value or, if unavailable, according to an internal measurement approach.

Interest rate risk

Exposure to interest rate risk derives mainly from the fact that the Group’s activities are characterised by positive

financial needs during certain contractual periods (medium/long-term debt and credit facilities). Any change in market

interest rates has an impact on the financial expenses associated with the different financing types, affecting the

Group’s cash flows and its financial expenses. The Group policy is to manage interest rate risk relating to its own long-

term debt through transactions in financial instruments at fixed and floating interest rates.

The Group’s exposure to floating interest rate risk represents 61.3% and 66.7% of the total debt at 31 December 2019

and 2018, respectively. The remaining debt, including the bond loan, is at fixed rate. An increase or decrease in interest

rates by 10 basis points would have resulted in an increase/decrease in financial expenses of Euro 52 thousand in 2019

(Euro 61 thousand in 2018).

Credit risk

Credit risk represents the Group’s exposure to potential losses due to a counterparty’s inability to meet its obligations

and derives mainly from trade receivables.

The credit risk is considered low as the Group’s credit portfolio includes many counterparties forming homogeneous

groups (retail, industry, business and public authorities).

As part of normal business activities, the Group overcomes the risk that receivables might not be collected on the due

date through procedures that aim to ensure that trade relations are engaged with customers considered reliable based

Page no. 29

on past experience and available information. This risk is strongly associated with the current unfavourable economic

and financial situation in Italy.

To mitigate the credit risk associated with trade counterparties, the Group’s management constantly reviews its

exposure and monitors the collection of receivables by the contractually established deadlines. The Group also

introduced new debt collection and legal dispute management methods. The credit rating assessment varies according

to the customer category and the types of services provided.

The following tables show a breakdown of current trade receivables at 31 December 2018 and 2019, grouped by past-

due ranges and gross of writedowns calculated on the basis of counterparty default risk. This takes into account

information on solvency available at the reporting date.

(in thousands of Euro) 2019 2018

Falling due 50,853 51,104

Past due 30-90 days 13,002 9,942

Past due 91-180 days 2,614 2,677

Past due 180-365 days 5,072 3,880

Past due by more than twelve months 25,428 27,025

Provision for bad debts -19,262 -17,727

Total 77,707 76,901

Liquidity risk

The Group is exposed to liquidity risk when it does not have sufficient funding to meet its own obligations and

commitments by the prescribed deadlines and methods. In this case, the Group has to overcome significant fluctuations

in its liquidity position, both of a seasonal nature due to the type of business and in relation to margins agreed at the

time of signing the commodity contracts.

Liquidity risk is associated with the Group’s capacity to meet its commitments deriving mainly from financial liabilities.

Prudent management of liquidity risk originating from the Group’s normal operations implies maintaining an adequate

level of cash and cash equivalents and availability of funding through an appropriate amount in credit facilities.

The Group’s credit facilities can be considered more than sufficient to meet its future financial needs.

In relation to these credit facilities, the unused balance at 31 December 2019 was approximately Euro 37 million.

Also note that:

• there are various sources of funding, with different banks;

• there are no significant liquidity risk concentrations either among financial assets or in sources of funding.

The following tables indicate the expected cash flows in the year to come in relation to the financial liabilities at 31

December 2019.

(in thousands of Euro) Carrying amount Due within a year Due in 1 to 5 years

Due after more than

5 years

Bonds (*) 29,772 2,931 26,841 0

Bank loans (*) 57,849 2,959 0 54,890

Bank overdrafts 11 11

Financial lease/right of use payables 5,344 693 285 4,366

Trade payables 65,478 65,478

Current tax payables 6,219 6,219

Other current liabilities 13,252 13,252

Guarantee deposits from customers 1,275 1,275

Total 179,201 91,543 27,126 60,531

(*) Only the carrying amount takes into consideration the measurement of the financial payable at amortised cost.

Page no. 30

Capital risk

The Group’s aim with regard to equity risk management is mainly to safeguard going concern in order to guarantee

returns for shareholders and benefits for other stakeholders. The Group also aims to maintain an optimum capital

structure in order to reduce borrowing costs.

Financial instruments

The following tables illustrate the financial instruments recorded in the consolidated financial statements, with related

amounts:

At 31 December 2019

(in thousands of Euro) Loans and receivables

Financial

instruments

designated at fair

value through

profit or loss

Hedging

derivatives

Non-financial

assets/liabilities Total

Assets

Trade receivables 77,707 - - - 77,707

Other current and

non-current assets 32,195 13,877 0 22,067 68,138

Cash and cash

equivalents - 22,799 - - 22,799

Total assets 109,902 36,676 0 22,067 168,645

Liabilities

Current and non-

current loans 92,976 - - - 92,976

Trade payables 65,478 - - - 65,478

Other current and

non-current liabilities 10,945 - 225 16,512 27,682

Total liabilities 169,400 0 225 16,512 186,137

Fair value

The fair value is the sum of estimated future cash flows relating to assets or liabilities, including the related financial

income or expenses discounted at year end. The present value of future cash flows is calculated by applying the

forward interest rate curve at the reporting date.

Fair value hierarchy

The fair value of financial instruments listed on an active market is based on the related market prices at the reporting

date. The fair value of unlisted financial instruments is instead determined using measurement approaches based on a

series of methods and assumptions linked to market conditions on that date.

The various levels are as follows:

Level 1: The fair value is determined using prices (unadjusted) of identical financial instruments listed on active markets.

Level 2: The fair value is determined using measurement approaches based on data observable on active markets, other

than the level 1 listed prices.

Level 3: The fair value is determined using measurement approaches based on data not observable on the market.

There were no transfers between levels in the fair value hierarchy in 2018.

The following tables show the financial instruments recognised at fair value, based on the measurement approaches

used:

Page no. 31

(in thousands of Euro) Level 1 Level 2 Level 3 Total

At 31 December 2019

Other current assets - 0 - 0

Cash and cash equivalents 22,799 - - 22,799

Other non-current assets - - 13,877 13,877

Total 22,799 0 13,877 36,676

The fair value of other current and non-current assets and other liabilities is defined on the basis of derivative and

equity instruments, which are measured by taking into consideration market benchmarks at the reporting date, using

measurement approaches commonly accepted in the financial sector.

In particular, the fair value of unlisted equity investments is determined using the discounted future cash flow resulting

from application of the reference WACC.

The nominal value of the cash and cash equivalents approximates the fair value, given the short maturity of such

instruments which mainly comprise bank current accounts.

The following table reconciles the opening and closing balances of financial instruments designated at fair value level 3

(investment in Enipower Mantova S.p.A.) in 2019:

(in thousands of Euro) Level 3

At 31 December 2018 13,877

Profit/(loss) recognised in the consolidated income statement for the year 0

Other increases/(decreases) 0

At 31 December 2019 13,877

Page no. 32

Human Resources and organisation

Workforce

The number of Company employees at 31 December increased to 168 from 165 in the previous year. At consolidated

level, the headcount increased by 7 from 565 to 572, with the following breakdown among Group companies:

Company 2018 2019

Tea S.p.A. 165 168

Tea Acque 72 67

Sei 42 45

Tea Energia 14 18

Mantova Ambiente 229 220

Tea Reteluce 9 12

AqA Mantova 6 6

Tea Servizi Funerari 28 29

Depura - 7

Total 565 572

Company staff by gender, professional category and age range

Around 73% of Group personnel are male, almost 50% classified as white collar workers and approximately 44% blue

collar workers. The impact of female staff in the white collar category is significant, reaching around 46% and up slightly

compared to the previous year (+1%). In the operating roles, the incidence of female personnel remains negligible (5%).

It is in the managers category, instead, that the strongest increase in female staff is seen, rising from 40% in 2018 to

53% in 2019.

Position 2018 2019

Men Women Total Men Women Total

Senior managers 14 1 15 14 1 15

Managers 9 6 15 7 8 15

White collar workers 153 124 277 156 132 288

Blue collar workers 246 12 258 242 12 254

Apprentices 0 0

Total 422 143 565 419 153 572

The breakdown by age range is as follows:

Age range 2018 2019

Under 30 years 39 42

31 to 40 years 109 105

41 to 50 years 215 213

51 to 60 years 181 187

Over 60 years 21 25

Total 565 572

The geographic origin of employees shows prevalent use of local staff. In fact, around 92% are resident in municipalities

in the province of Mantua.

Page no. 33

Human resource management policy

Individuals represent a fundamental factor in business development. The Group protects them and promotes their

development and professional growth, stimulating participation in the business activities with the aim of increasing the

wealth of skills.

In this respect:

- as part of the broader change management programme, an advanced organisational model was designed at the

same time for strong, engaging training linked to the needs of individuals and the business, open to new

technologies, through e-learning courses included in an extensive catalogue of courses open to all employees, in a

gradual process of innovating the digital culture of the organisation;

- new recruits are managed with a view to maintaining distinctive skills and acquiring new skills necessary to pursue

the plan objectives;

- internal mobility is promoted through the publication of company job postings as a lever to professional growth

and the acquisition of new skills;

- performance sustainability, both individual and at group level, internal impartiality and transparency are the

drivers for the Group remuneration policy, and the identification of competitive remuneration levels allow us to

attract and retain human resources with skills in line with business needs;

- as part of the plan of actions identified downstream of the climate survey, the contents of the Intranet section

(Tea Informa), dedicated to the dissemination of information to the entire corporate workforce, have been

enhanced, and an organisation with more flexible working hours has been introduced to help the work-life

balance;

- a procedural change has begun as regards recruiting logic and processes, mainly using digital channels/platforms

to search profiles, as complementary to internal job postings;

- corporate welfare is considered a key factor in maintaining Tea’s appeal as a company to work for and its

competitiveness.

Accidents in the workplace

Detailed information is provided below in accidents in the workplace, in reference to the parent company Tea S.p.A.

and to the Group as a whole.

Tea S.p.A. information on accidents in the workplace

The good performance in recent years is confirmed. No accidents occurred in 2019, except for 2 commuting accidents.

Note that updating continued of the risk assessment document.

Group information on accidents in the workplace

Both the total number of accidents and that excluding commuting accidents decreased compared to the previous year

(16 and 13, respectively, in 2018, whilst in 2019 they numbered 13 and 11).

The total days’ absence decreased from 312 to 246.

Accidents, excluding commuting accidents, have therefore decreased, at the same time recording a decrease in the

number of days’ absence (from 231 to 213).

The accident data and related indicators for recent years are provided below (the figures do not consider commuting

accidents).

Year Accidents Days’ absence

2014 10 110

2015 12 539

2016 9 156

2017 9 250

2018 13 231

2019 11 213

Page no. 34

The number of events decreased and the Group remains at significantly positive absolute levels.

There were 2 commuting accidents in 2019, resulting in total absences of 33 days.

Quality and environment

During 2019, third-party audits were carried out for retention of the quality and environmental certifications of the

following Group companies:

Tea, Tea Acque, Sei, Tea Reteluce and Mantova Ambiente (UNI EN ISO 9001:2015).

Tea, Sei and Mantova Ambiente (UNI EN ISO 14001:2015).

Tea Reteluce has implemented, and certified through third-party audits, UNI EN ISO 14001:2015, energy certification in

accordance with 50001:2018 for public lighting and the title of ESCO for the provision of energy services (UNI

11532:2014).

The inspection visit was also made to the Tea Acque laboratory (in accordance with UNI CEI EN ISO/IEC 17025:2018), for

transition to the new edition of the regulations and to confirm the accreditation.

The third-party audits relating to the certifications were carried out by Kiwa Cermet Italia S.p.A., except with regard to

the laboratory which is accredited directly by the single Italian accreditation authority (Accredia).

12,60

9,56 10,12

13,72

11,33

2015 2016 2017 2018 2019

Frequency indices

(excluding commuting accidents)

0,57

0,17

0,280,24 0,22

2015 2016 2017 2018 2019

Severity indices

(excluding commuting accidents)

Page no. 35

Compliance and internal control

Steering and Monitoring Regulations

The Tea Group has adopted an advanced model for separating its steering and control activities from operating

activities, arranging the management of each of its concessions relating to local public services and each open market

activity through separate special purpose entities, direct or indirect subsidiaries, focused on their own business

activities (the Operating Companies) with the parent company (Tea S.p.A.) retaining the role of provider of all staff

services. Given the model as outlined, the need emerged to adopt a Steering and Monitoring Regulation at Group level

that would better define:

- which support and decision-making processes within the Group, through suitable coordination with the parent

company, allow the Group to adopt standardised strategies and operating methods to maximise management

effectiveness/efficiency. These are defined as “Decision-making Processes”;

- the responsibilities and duties of the Staff departments of the parent company and operating companies for each

Decision-making Process;

- how the Decision-making Processes are structured, with an accurate definition of activities required and their

logical sequence, identifying the specific involvement of Staff departments of the parent company and operating

companies.

Lastly, for the sake of full disclosure, it is worth pointing out that the services provided to Group companies by the

parent company - or vice versa - are further regulated by contractual conditions stated in specific “Intercompany

Contracts” signed by the parties.

The Code of Ethics

In 2019, the Board of Directors of Tea S.p.A. formally adopted the “new version” of the Code of Ethics, which

systematically defines the corporate ethics principles and values that the Group recognises, accepts and agrees on, as

well as its responsibilities in managing internal and external relations.

The Code of Ethics is therefore binding and represents a contractual obligation for all directors, senior managers and

employees of the Group companies, without exception, as well as all those who, though external, have direct or indirect

relations with the Group (e.g. consultants, legal representatives, agents, collaborators of any nature, suppliers, trade

partners, customers).

All the parties mentioned are therefore required to comply with and, to the extent of their responsibilities, ensure that

others comply with the principles of the Code of Ethics, and that under no circumstances does any claim to be acting in

the interests of the Tea Group justify adopting conduct in conflict with the Code’s contents.

Human rights protection policy

The Tea Group is aware that it plays a driving role in economic and sustainable development and in the social growth of

its operating area. For this reason, we believe it is necessary to promote the Group as an economic entity active in

safeguarding the wellbeing of individuals who work in and for a company, its collaborators or those who, simply, live in

the communities in which it operates. In recent years, there has been a more forceful consolidation of the new

awareness of the “social” dimension or business sustainability, which focuses on human rights, personal growth, life

quality and the promotion of diversity and equality. Today it is essential and indispensable to strengthen and respect

these rights as a fundamental element of correct and responsible management of business activities.

The Human Rights Protection Policy, therefore, enhances the existing provisions of the Code of Ethics and constitutes a

manifesto in which the Tea Group commits to promoting the protection of these rights for all individuals working in its

“value chain”, in full compliance with regulations and standards issued by the reference international organisations.

The Organisation, Management and Control Model pursuant to Italian Legislative Decree 231/2001

Tea S.p.A. and the subsidiaries have adopted their own Organisation, Management and Control Model (OMM or

“Model”) in compliance with the provisions of Italian Legislative Decree 231/2001. The Model is a complex set of

principles, rules, provisions and organisational formats required to implement a management, control and monitoring

system for sensitive activities, in order to prevent the commission of offences envisaged in Italian Legislative Decree

231/2001.

Together with the Code of Ethics, the Model adopted by Tea S.p.A., prepared on the basis of regulatory provisions and

Confservizi Guidelines, today constitutes the reference for the definition and updating of individual models of each

Page no. 36

Group company that have respectively arranged the alignment of their own management and control standards to

those adopted by the parent company. The subsidiaries also envisaged specific additional measures associated with the

features of their own business activities.

To ensure the adequacy and effectiveness of the Models, the Boards of Directors of the individual companies have

appointed their own Supervisory Board, with independent powers of initiative and control, and business organisation

support for them has been identified.

The parent company Supervisory Board is a body with 3 members, composed of the Supervisory Board (monocratic) of

the operating companies, except for Mantova Ambiente S.r.l. and Tea Acque S.r.l. where, given the operating

complexity, the respective Boards of Directors have added an external expert to act alongside the internal member.

During 2019, in full compliance with its duties, every individual Supervisory Board:

- verified the adequacy of the Model with respect to current regulations and any updates, reporting possible action

areas;

- formulated proposals for updates and amendments to the Model adopted by the Company;

- with support from the relevant company departments, ensured the maintenance and updating of the Model 231

risk area identification, mapping and classification system;

- monitored the absence of news/reports concerning possible violations of the Model;

- formalised and shared the results of control activities carried out;

- held periodic exchanges of information with the Department Managers and corporate bodies;

- prepared periodic reports to the Board of Directors and Board of Statutory Auditors;

- monitored initiatives for the dissemination of and sensitisation to the Model, including training activities.

Corruption Prevention and Transparency

ANAC Decision no. 1134/2017 regarding “New guidelines for the implementation of regulations on corruption

prevention and transparency by private companies and entities which are controlled by or investees of public

administrations and for-profit public entities”, unlike the contents of the draft consultation paper published in May 2017

on the Authority’s web site, specifically envisaged that “...these Guidelines do not apply to listed companies, for which

further study was considered necessary, also on the basis of the State Council opinion (...), to be conducted in

partnership with the Ministry for the Economy and Finance and CONSOB”.

The Authority therefore accepted the State Council opinion on the draft determination which, reiterating the previous

ANAC Decision no. 8/2015, required the Authority to clarify whether the draft Guidelines also envisage obligations for

the listed companies and the outcome of the ANAC-CONSOB work group with a view to further studying the issue in

question.

The regulations, and in particular the subjective aspects referred to in art. 2 bis, paragraph 2 of Italian Legislative

Decree 33/2013, lead to exclusion of the listed companies as defined in art. 2, paragraph 1, letter p) of the Consolidated

Law on State Controlled Companies from the entities subject to the obligations envisaged by law on transparency and

anti-corruption.

The definition of listed company referred to under letter p) is: “state-controlled companies that issue shares listed on

regulated markets; companies which at 31 December 2015 had issued financial instruments, other than shares, listed on

regulated markets; investee companies of one or the other, unless they are also controlled by or are investees of public

administrations”.

By notice dated 22 June 2018, the MEF provided its own interpreting guidance regarding the “concept of regulated

market in the definition of “listed company”, pursuant to art. 2, paragraph 1, letter p) of the Consolidated Law on State

Controlled Companies (TUSP)”, conclusively stating that it “can be deemed to coincide with that defined in the

Consolidated Law on Finance (TUF) and cannot be open to a broader interpretation; this also in order to prevent

potential evasion of the TUSP regulations, through the listing of financial instruments in markets more easily accessible

to operators and which envisage less stringent reporting obligations”.

From June 2017, Tea S.p.A. took on the role of Public Interest Entity after finalisation of the bond issue procedure. The

resulting obligations therefore bring it under the special judicial system for listed companies, particularly as regards

Page no. 37

information disclosure, investor protection and operations of competitive market rules, and therefore regardless of the

timing of the issue.

Despite the persistence of objective faults in coordination between the various primary and soft low regulatory

systems, and in line with legal studies conducted, until such a time as the Authority defines/clarifies the extent of

application of the regulations on transparency and anti-corruption to the particular status of Tea S.p.A. (and the Group),

it was considered appropriate to:

- prepare a three-year audit plan to assess the adequacy of its internal control system (ICS) in preventing bribery

and corruption and, in more general terms, maladministration;

- adapt to the provisions on transparency and integrity for listed companies as initially envisaged in the Annex to the

draft guidelines opened to consultation, even if later excluded.

Whistleblower protection

The Group has begun to adopt suitable measures to “encourage” whistleblowing on unlawful acts of which an

employee/entity may become aware in the course of their relations (working or otherwise, including occasional),

ensuring that confidentiality is maintained as regards the identity of the reporting party from the moment of receipt of

the report and in all contact thereafter (Italian Law 179/2017). This configures as a fundamental means of control for

identifying irregularities or abuses that could qualify as, or facilitate, the commission of various types of offences. In this

respect, the action promoted envisages:

- the empowerment/training of everyone on the duty to report;

- the setup of special communications channels through which reports can be submitted (e-mail and/or ordinary

mail);

- the preparation of regulations on the methods for managing reports at every stage (receipt, analysis and

processing);

- the adoption of suitable controls to protect the confidential identity of the whistleblower;

- the definition of specific disciplinary sanctions associated with infringement of the ban on retaliatory acts against

whistleblowers or the abusive use of reporting channels, as well as towards those who with malicious intent or

serious negligence submit reports that prove unfounded.

Market Abuse Regulations

In compliance with obligations envisaged in EU regulations (Directive 2004/109/EC “Transparency”, Regulation (EU)

596/2014 “MAR”, as amended), the Tea Group has adopted its own Regulations with the aim of defining the methods

for complying with financial transparency and market abuse prevention obligations.

With specific reference to procedures for the identification and management of Relevant Information and Inside

Information, the Regulations were prepared on the basis of indications contained in the “Guidelines on Inside

Information” issued by CONSOB in October 2017, in support of recommendations by ESMA in its final report

2015/1455.

The Regulation applies to directors, representatives, employees, consultants, auditors, statutory auditors and

collaborators of Tea S.p.A. as an issuer of financial instruments admitted to trading on a regulated market in an EU

Member State. The Issuer status also qualifies Tea S.p.A., under Italian and European law, as a Public Interest Entity

(PIE) which is subject to additional specific legal provisions.

The Regulations also apply to the directors, representatives, employees, consultants, auditors, statutory auditors and

collaborators of every subsidiary of Tea S.p.A. as originators, recipients or disclosing parties of Relevant Information or

Inside Information concerning the Issuer.

Personal data protection

The Tea Group processes personal data solely for administrative and accounting purposes and for purposes relevant to

its institutional duties, i.e.:

- data relating to the management of human resources, the company itself and the subsidiaries that have

subscribed to this service;

Page no. 38

- data relating to contractual relations with customers, including, if envisaged, the personal data of the users of

services provided by Tea Group companies;

- data relating to contractual relations with suppliers, including banks and consultants.

During 2019, the action launched in 2018 continued on the Group’s adaptation to regulatory requirements on

personal data protection. Note the following in particular:

- the Data Protection Officer (DPO), already appointed at Group level in 2018, is now supported by a dedicated

Privacy Department and a support team;

- basic training has been completed for key administrative staff of the Group affected by personal data processing

and the training targeting CEOs of the Group subsidiaries and Department Managers of Tea S.p.A. has continued.

Further training will be planned for 2020 in relation to specific needs of personnel in order to allow targeted

involvement with respect to their sector of operations.

Report on governance and ownership structures pursuant to Art. 123-bis, paragraph 2 b) of the Consolidated Law on

Finance (TUF) - Referral

The report is published on the web site of the parent company Tea S.p.A. at the following link:

https://www.teaspa.it/irj/portal/ts/investitori

Page no. 39

Events after the reporting period

Page no. 40

Significant events after the reporting period and business outlook

The COVID-19 epidemic

From the last week of February 2020, Italy was affected by the spread of the COVID-19 Coronavirus epidemic, which led

to the authorities’ adoption of health protection measures that had an enormous impact on Italy’s economic fabric and

on personal conduct, particularly with the closure of entire production chains and restrictions on the freedom of

movement of individuals to reduce the chances of infection.

Tea Group activities are among those considered essential and, as such, are not subject to suspension, but their

performance methods have changed significantly.

As regards field activities in particular, all non-urgent action at users’ homes have been postponed, whereas back-office

processes have been gradually migrated to smart working and points of contact with the public have been closed.

At the reporting date, of the total workforce of 587 employees, 288 are in agile working arrangements.

For employees who work in the field, agreements have been prepared with trade union representatives and safety

protocols prepared with the company doctor which envisage work organisation methods that ensure physical

distancing wherever possible and the provision of personal protection equipment in all cases where distancing is not

possible due to the nature of the activities.

Frequent deep-cleaning cycles have also been arranged for the offices and technical equipment used by employees.

Employees have also been informed of all individual conduct that helps to limit the spread of infection and access to

company premises is strictly forbidden to anyone showing symptoms of the virus.

The Group’s various activities were affected in different ways by the health crisis associated with the Coronavirus

pandemic. In general, however, the impact on the profitability and value of the Group’s activities can be considered

moderate.

In detail, the electricity and gas consumption of Tea customers has recorded a significant decline in the industrial

segment, with decreases of 25% and 15% compared to the same months in 2019.

The energy prices scenario also recorded significant decreases, with the national single price proving to be 40% lower

on average in March than in the previous year and 54% on average in April.

Likewise, PGas recorded an average down by 24% in March and by 31% in April.

The composition of the customers portfolio, the indexing methods for purchase and sale prices and the increase in the

customer base achieved in 2019 have in any event allowed sales to be affected only minimally by the trends described,

leading to a sales revenue performance to be recorded that was actually an improvement compared to the same period

last year.

For the future, it is reasonable to expect a moderate deterioration in credit quality from the point of view of unpaid

percentages and payment times, also given the measures adopted by ARERA in favour of customers in difficulty during

the health crisis. They establish the obligation of operators to accompany the placement in default of users for non-

payment relating to consumption either recorded or invoiced during the health emergency period with an offer to

break down the amounts due into instalments to be paid over a one-year time span.

Trade development

With the gradual recovery of production activities and the easing of pandemic lockdown measures it will also be

possible to return to trade development activities for the acquisition of new customers.

Environmental cleansing and waste treatment and disposal

As regards the environmental cleansing and waste treatment and disposal activities, the first saw an intensification of

operations during the weeks when the virus spread the fastest and a drop in personal movement, in any event with a

decrease of 3.6% for all of April. The waste transferred to the landfill has remained essentially stable, whilst input to the

treatment plants has decreased by around 2%.

In forward-looking terms, the higher revenues achieved from the increased services provided to the Municipalities in

the first few months of the year will remain acquired, whilst the volumes of waste transferred to the landfill and input

to the treatment plants are expected to recover. Disposal costs were slightly higher than forecast in the first few

months of the year.

Page no. 41

With reference to the environmental cleansing services invoiced to users, a moderate deterioration of credit quality can

be expected.

Infrastructure upgrading and modernisation

The infrastructure development activities, such as upgrading of the public lighting systems and the modernisation and

extension of water supply, natural gas distribution and teleheating distribution networks, have seen a slowing in

investments which is believed can be recovered in part in the second half of the year.

This phenomenon has had no impact in economic terms in relation to water, natural gas and teleheating, but it will

generate an insignificant decrease in the public lighting margin as the achievement of energy savings targets on systems

pending upgrading will arrive later than forecast.

Water network management, teleheating and gas distribution activities were instead exposed to potential phenomena

of deterioration of credit quality in relation to amounts invoiced directly to users. However, the evidence gathered to

date allow us to assume that this phenomenon will be short-lived.

Liquidity

Considering the risks of credit impairment described above, simulations were carried out on the Group liquidity position

under different financial stress scenarios, which regarded both the assumption of a deterioration in credit as well as the

assumption of an extension in collection timing. The result of the simulations allows us to conclude that the extent of

available liquidity, existing credit facilities and the flexibility that can be applied to investment decisions will absorb the

foreseeable payment delays without generating financial tensions. In addition, the Parent Company has started

negotiations with credit institutions to transform part of the available credit lines not yet used into fixed term financing.

Concluding considerations

The uncertainties with respect to the socio-economic repercussions linked to the spread of COVID-19 are heavily

impacting estimates of global economic growth and financial market trends and, at the moment, it is not yet possible to

estimate the duration and extent of the economic slowdown in 2020 and the relative effects, which will also depend on

the measures that will be adopted by the Governmental Authorities to support the various economic sectors.

Valuation and estimation processes, particularly those relating to the valuation of the recoverable amount of assets, are

based on the most recent budgets and long-term forecasts that consider internal and market assumptions defined

before the emergency worsened, given that the situation of uncertainty described does not make it possible to define

or obtain forecasts based on reasonable and reliable assumptions.

Even within the outlined context of uncertainty linked to the current health emergency situation, the directors believe

that the financial, operational or other indicators that could point to criticalities concerning the Group’s capacity to

handle its obligations do not call into question the going concern assumption, also considering the Group’s economic

and financial outlooks. The financial statements have therefore been drafted on a going concern basis.

Page no. 42

Related party transactions

Details of transactions between the Group and Related Parties, identified on the basis of criteria defined in IAS 24

“Related Party Disclosures”, for the year ending 31 December 2019, are provided below. Though related party

transactions are carried out at arm’s length, there is no guarantee that, if they were concluded between or with third

parties, the latter would have negotiated and signed the related contracts, or completed the transactions at the same

conditions and in the same manner.

BALANCE SHEET Fondazione

Mazzali

Municipality

of Mantua

ASTER

S.r.l.

ASPEF

S.r.l.

Biociclo

S.r.l.

Blugas

Infrastrutture

S.r.l.

Tnet

Servizi

S.r.l.

Unitea

S.r.l.

Trade receivables

10,151

1,476,111

34,955

52,562

34,821 412,160

107,965

50,002

Financial receivables -

-

-

-

- 5,135,436

-

-

Other receivables -

-

-

-

- -

-

-

Trade payables -

8,824,441

70

84,163 -

310

-

Financial payables -

-

-

-

- -

-

-

Other payables -

4,774,846

-

-

- -

-

-

INCOME

STATEMENT

Fondazione

Mazzali

Municipality

of Mantua

ASTER

S.r.l.

ASPEF

S.r.l.

Biociclo

S.r.l.

Blugas

Infrastrutture

S.r.l.

Tnet

Servizi

S.r.l.

Unitea

S.r.l.

Operating

revenues

172,302

7,344,888

308,955

494,673

472,567 34,383

-

51,002

Operating costs -

2,983,650

20,806

-

901,308 -

- -

Financial income

and expenses -

-

-

-

- 193,228

- -

Page no. 43

Holding Company Directors’ Report

Page no. 44

Economic and Financial performance

In order to better understand the operating performance, reclassified versions of the Income Statement and Balance

Sheet are provided below, respectively according to the production method and according to the financial method for

sources and applications, for the years ending 31 December 2019 and 31 December 2018:



Revenues 39,308 37,915 1,393

Other revenues and income 3,174 4,696 -1,522

Costs for raw, ancillary and consumable materials -856 -881 26

Costs for services -8,751 -10,028 1,277

Personnel costs -8,995 -8,976 -19

Other operating costs -1,549 -1,551 2

EBITDA 22,331 21,175 1,156

Depreciation, amortisation and writedowns -9,043 -10,591 1,548

EBIT 13,288 10,584 2,705

Financial income 4,052 3,884 168

Financial expenses -1,529 -1,574 45

Gains (losses) on investments measured using the equity method 7,463 7,763 -300

EBT 23,275 20,657 2,619

Taxes -3,659 -3,181 -478

NET PROFIT 19,616 17,476 2,141

Reclassified Balance Sheet – sources and applications method (in thousands of Euro)

APPLICATIONS 2019 2018 SOURCES 2019 2018

Intangible assets and Right of use 4,630 4,108 Shareholders’ equity 180,772 168,390


Non-current financial assets 87,250 73,468 Non-current liabilities 61,476 60,794

Inventory 750 671

Deferred liquidity 52,895 44,920 Current liabilities 18,857 19,006

Immediate liquidity 20,321 25,872

Total Applications 261,105 248,190 Total Sources 261,105 248,190

The following financial ratios were calculated following the above reclassifications:

Ratios 2019 2018

Non-current assets/Total assets 0.72 0.71

Working capital/Total assets 0.28 0.29

Equity/Total assets 0.69 0.68

Debt/Total assets 0.31 0.32

Current ratio 3.92 3.76

Liquidity ratio 3.88 3.72

Fixed capital self-financing ratio 0.97 0.95

ROE 10.85% 10.38%

ROI 7.10% 5.99%

ROS 31.28% 24.84%

Comments on the Income Statement and Balance Sheet

The parent company Income Statement records an improvement in EBITDA

of Euro 1.2 million, essentially attributable to the increase in revenues from

assets placed under the management of the operating companies. EBITDA Euro +1.2 million

EBIT Euro +2.7 million

EBT Euro +2.6 million

Page no. 45

Comparison with the previous year improves in terms of EBIT (Euro +2.7 million) due to a number of writedowns

recognised in 2018 and not repeated this year.

The improvement continues essentially unchanged (Euro +2.6 million) for EBT. The increase in EBT corresponds to an

increase of Euro 0.5 million in taxes, which reduces the positive change in net profit by Euro 2.1 million compared to

2018.

The reclassified Balance Sheet shows an increase of Euro 6.4 million

in total non-current assets against an increase of Euro 3.8 million in

working capital. This circumstance, also due to an increase in funds,

brings the net invested capital to a total of Euro 142.6 million. To

cover these commitments, Euro 181 million is from shareholders’

equity, and the net financial position is therefore Euro -38 million.

The debt/equity ratio therefore stands at -21%.

Statement of financial position (in thousands of Euro)

Aggregate figures 2019 2018 Difference

Total non-current assets 171,244 164,827 6,417

Net working capital 2,400 -1,351 3,752

Gross invested capital 173,645 163,476 10,169

Total provisions and others -31,049 -29,593 -1,457

Net invested capital 142,595 133,883 8,712

Shareholders’ equity 180,772 168,390 12,381

Net financial position -38,176 -34,507 -3,669

Total sources of finance 142,595 133,883 8,712

Debt/equity ratio -0.21 -0.20 -0.01

Capital expenditure in tangible assets

Most of the assets are held by Tea S.p.A. which, on becoming owner of the assets for which usage was transferred by

the Municipality of Mantua at the time of transformation into a special Company in 1994, has always arranged the

capital expenditure. Assets were assigned to the operating companies under their management against payment of a

fee. Also the municipal and special non-hazardous waste landfill of Mariana Mantovana, owned by Tea S.p.A., was

assigned under management to Mantova Ambiente against a fee commensurate with the waste disposal quantities.

With the start-up of operating companies in the water and gas distribution sectors, the pre-existing assets remained

with Tea S.p.A., whilst subsequent capital expenditure was arranged by the operating companies. This structure is

consistent with the tariff arrangements, which establish a close connection between invested capital and tariff

recognition. Based on this logic, capex relating to the integrated water cycle and the gas distribution networks must be

made, respectively, by Tea Acqua, AqA and Sei. Capex relating to teleheating networks and plants and the landfill is

instead performed by Tea S.p.A.

The separation of assets from operations, in addition to complying with the provisions of art. 35, Italian Law 448/2001

(paragraph 9 of which requires that companies established to provide local public services and are fully state-owned

must unbundle ownership of the networks and systems from operations), safeguards ownership of the systems and

networks - which will remain public - without inhibiting reliance on the market

for operating and providing the service.

In 2019 the Company incurred total capex of Euro 4,228,148 including Euro

1,757,344 on intangible assets (Euro 1,478,236 software and Euro 279,108

cemetery service concessions) and € 2,470,804 on tangible assets, as follows:

Net invested capital Euro 143 million

Debt/Equity; -0.21

Euro 4.2 million invested in

2019

Page no. 46

Type Amount Type Amount

Land and buildings 121,554 General plant 51,329

Teleheating network and connections 1,559,937 Electronic office equipment 306,942

Teleheating plants 65,175 Ordinary office furniture and equipment 40,075

Equipment and other assets 82,374 Investments under construction 243,418

Total tangible assets 2,470,804

Investment management

2019 was characterised by various transactions that involved the parent company’s equity investments in the

consolidated companies.

In particular, the percentage interests increased in Tea Reteluce S.r.l. and Tea Acque S.r.l., bringing both to 80% and in

each case purchasing the interest from the private shareholder. More details in relation to the values are provided in

the notes of Tea S.p.A., in paragraph 4 of the comments to the balance sheet.

Prior to acquisition of the increased interest in Tea Acque S.r.l., the road maintenance and special waste management

activities were spun off from the company, thereby establishing the new subsidiary Depura S.r.l., 60% owned by Tea

S.p.A.

Research and Development activities

The Company has not conducted research and development activities as these are devolved to the operating

companies.

Relations with subsidiaries, associated companies, parent companies and entities under parent company control

A breakdown of intercompany relations with companies included in the scope of consolidation at the lower level (Tea

Group) and the higher level (Municipality of Mantua Consolidated) is provided below:

BALANCE SHEET

Tea

Energia

S.r.l.

Mantova

Ambiente

S.r.l.

Sei S.r.l. Tea Acque

S.r.l.

Tea Servizi

Funerari

S.r.l.

ElectroTea

S.r.l.

Tea

Reteluce

S.r.l.

AqA

Mantova

S.r.l.

Depura

S.r.l.

Trade receivables 113,597 3,732,401

977,443

6,775,422 119,818 61,401 430,437 137,199

26,348

Financial receivables - 12,688,696

15,226,614

6,000,000

1,058,369 1,743,541

7,604,726

2,271,761

300,000

Other receivables

1,240,688 1,479

458,993

472,614 42,302 16 231,442 170,629

-


344,862

182,209 316,892 - 91,451 -

197,564

Financial payables 423,618 -

- - - - - -

-

Other payables 28,746 103,083

70,358

121,632 18,983 - - -

-

BALANCE SHEET Municipality of

Mantua Aster S.r.l. Blugas Infrastrutture S.r.l. Tnet Servizi S.r.l. Unitea S.r.l.

Trade receivables 24,321 145

412,160 107,965 50,002

Financial receivables - -

5,135,436 - -

Other receivables - -

- - -

Trade payables 48,729 -

- 310 -

Financial payables - -

- - -

Other payables 4,774,846 -

- - -

Page no. 47

INCOME

STATEMENT

Tea Energia

S.r.l.

Mantova

Ambiente

S.r.l.


S.r.l.

Tea

Servizi

Funerari

S.r.l.

ElectroTea

S.r.l.

Tea

Reteluce

S.r.l.

AqA

Mantova

S.r.l.

Depura

S.r.l.

Operating

revenues

3,002,596 16,956,235 6,606,824 7,167,137

622,603 25,707

801,455 465,475 -

Operating costs

520,110 666,701 243,330 199,601

359,986 -

94,628 410 -

Financial

income and

expenses -6,771 192,998 376,669 -1

12,695 60,033

159,336 48,205

322

INCOME STATEMENT Municipality of

Mantua ASTER S.r.l. ASPEF S.r.l. Blugas Infrastrutture S.r.l.

Tnet Servizi

S.r.l. Unitea S.r.l.

Operating revenues 200,872 188,203 - 34,383 -26,005 51,002

Operating costs 2,372 2,215 - 85,892 -

Financial income and

expenses - - - 193,228 - -

Treasury shares

The Company holds 1,532 treasury shares with a nominal value of Euro 396,788, and a carrying amount in the Financial

Statements of Euro 415,717. These shares derive from the voluntary liquidation of Smea S.p.A. on 21 December 2000.

Tea S.p.A. had a 5.84% interest in Smea.

The carrying amount is equal to the value of shares deriving from the voluntary liquidation. In compliance with law, the

percentage is within the limit established in articles 2357 and 2357 bis of the Italian Civil Code, and a specific

undistributable reserve was allocated under shareholders’ equity for the same amount.

No treasury shares were sold during the year.

Significant events after the reporting period and business outlook

Reference should be made to the Directors’ Report to the Group consolidated financial statements with regard to

measures taken in response to the coronavirus pandemic.

In this context, the parent company coordinated the initiatives of individual companies by defining the action priorities

and common guidelines to be adopted, as well as intervention in relation to the proprietary infrastructures also used by

the subsidiaries (offices, plants and IT equipment) to prepare the safety measures necessary to guarantee both

operating continuity and the health of employees.

As regards the business outlook, during 2020, Tea S.p.A. is working to ensure subsidiary operations through the

management of liquidity and bank credit facilities in the context of uncertainty generated by the coronavirus pandemic,

discussed in greater detail in the paragraph on the business outlook in the Directors’ Report to the consolidated

financial statements that is deemed entirely referenced herein.

Strictly in economic terms, the first few months of 2020 saw a decrease in the operating companies’ activities which

could be reflected in a drop in lease payments to the parent company on proprietary assets used by the subsidiaries in

all cases where the lease payments are associated with the business volumes of the user companies.

Even within the outlined context of uncertainty linked to the current health emergency situation, the directors believe

that the financial, operational or other indicators that could point to criticalities concerning the Company’s capacity to

handle its obligations do not call into question the going concern assumption, also considering the Company’s economic

and financial outlooks. The financial statements have therefore been drafted on a going concern basis.

Through support from the central Staff departments, the parent company will ensure that all the subsidiaries will adopt

the organisational measures to allow business activities to continue and guarantee the safety of their employees and

suppliers during the current health emergency.

Page no. 48

Company use of financial instruments

From 2017, the Company is the issuer of a 7-year non-convertible bond for a total of Euro 30 million, listed on the

regulated market of the Irish Stock Exchange and targeting institutional investors only.

This bond loan was measured at amortised cost, as envisaged by IFRS 9, and totalled Euro 29,772 thousand at 31

December 2019.

Note that the bond loan includes contractual clauses that require the Company to comply with financial covenants,

calculated on consolidated financial statement figures, regarding NFP/EBITDA and NFP/Equity ratios. Further details of

the calculation of and compliance with these ratios can be found in the explanatory notes to the consolidated financial

statements.

Secondary branches

The Company does not have secondary branches.

The Chairman of the Board of Directors

Massimiliano Ghizzi

Page no. 49

Consolidated Financial Statements of the Tea Group

Page no. 50

Financial statements

Page no. 51

CONSOLIDATED INCOME STATEMENT

Year ended 31 December


Revenues 295,681 270,440

Other revenues and income 4,289 5,942

Costs for raw, ancillary and consumable materials 84,916 75,508

Costs for services 133,167 123,737

Personnel costs 29,144 28,243

Other operating costs 8,142 6,086

Depreciation, amortisation and writedowns 18,816 19,451

Operating profit 25,785 23,357

Financial income 4,475 4,242

Financial expenses 1,790 1,763

Gains (losses) on investments measured using the equity method 56 645

Profit before taxation 28,526 26,481

Taxes 7,419 7,204

Net profit for the year 21,107 19,277

of which:

Profit (loss) pertaining to the Group 19,866 17,472

Profit (loss) pertaining to minority interests 1,241 1,806

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME




Gains/(losses) from cash flow hedges -641 -232

Gains/(losses) from cash flow hedges - tax effect 63 -161

Actuarial gains/(losses) for employee benefits -9 107

Actuarial gains/(losses) for employee benefits - tax effect 2 -26

Total other comprehensive income -584 -312

Comprehensive income for the year 20,523 18,966

of which:

Profit (loss) pertaining to the Group 19,240 17,115


Page no. 52

CONSOLIDATED BALANCE SHEET

At 31 December


Intangible assets 139,144 127,944


Right of use 4,990 -

Investments measured using the equity method 7,140 7,497

Other non-current assets 42,710 35,752

Deferred tax assets - -

Total non-current assets 284,964 266,258

Inventory 2,596 2,853

Trade receivables 77,707 76,901

Current tax receivables 3,487 3,355

Other current assets 12,205 12,689

Cash and cash equivalents 22,799 28,410

Total current assets 118,795 124,207

Total assets 403,758 390,465

Share capital 73,403 73,403

Legal reserve 6,612 5,590

Share premium reserve 3,534 3,534

Other reserves 62,685 59,300

Retained earnings 13,490 9,092

Profit (Loss) for the year 19,866 17,472

Shareholders’ equity pertaining to the Group 179,589 168,390

Shareholders’ equity pertaining to minority interests 7,094 11,384


Shareholders’ equity 187,925 181,580

Non-current loans 86,383 89,039

Employee benefits 6,147 6,376

Provisions for risks and charges 29,697 28,952

Deferred tax liabilities -27 453

Other non-current liabilities 1,866 1,595

Total non-current liabilities 124,065 126,415

Current loans 6,594 3,786

Commodity derivative liabilities 225 30




Total current liabilities 91,768 82,471

Total liabilities 215,834 208,886

Total shareholders’ equity and liabilities 403,758 390,465

Page no. 53

CONSOLIDATED STATEMENT OF CASH FLOWS

At 31 December



Adjustments for:


Allocations to/(releases from) provisions for risk and others 2,748 2,004

Net financial (income)/expenses -2,685 -2,480

Other non-monetary items 6,026 6,559

Cash flow generated/(absorbed) by operating activities before changes in net working

capital 46,012 44,812

Change in inventories 256 -495

Change in trade receivables -806 1,580

Change in trade payables 6,062 -5,170

Changes in other assets/liabilities -1,112 1,288

Employee benefit payments -433 -854

Interest paid -1,030 -999

Taxes on income paid -5,211 -6,036

Net cash flow generated/(absorbed) by operating activities 43,740 34,125

Investments in tangible assets -5,419 -6,555

Investments in intangible assets -25,502 -19,714

Investments in financial assets -12,872 0

Disposals of tangible and intangible assets 0 0

Loans disbursed -301 -193

Loans repaid 0 701

Dividends received 3,366 3,501

Interest income 660 1,278

Net cash flow generated/(absorbed) by investing activities -40,067 -20,982

New loans arranged 4,000 10,248

Long-term loans repaid -3,203 -3,188

Changes in short-term loans -647 -983

Dividends distributed -9,434 -7,716

Net cash flow generated/(absorbed) by financing activities -9,283 -1,639

Total change in cash and cash equivalents -5,611 11,505

Cash and cash equivalents at the beginning of the year 28,410 16,905

Cash and cash equivalents at year end 22,799 28,410

Page no. 54

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY

(in thousands of

Euro)

Share

capital

Legal

reserve

Share

premium

reserve

Other

reserves

Retained

earnings

Profit

(Loss) for

the year

Capital

and

reserves

-

minority

interests

Profit

(Loss) for

the year

-

minority

interests

Total

Shareholders’

equity

At 1 January 2018

73,403

4,032

3,534

55,572

4,021

16,428

9,404

2,557

168,949

Net profit for the

year 2018

17,472

1,806

19,277

Other

comprehensive

income -356

44 -312

Comprehensive

income for the year

-

-

-

-

-

17,115

-

1,850

18,966

Reclassifications -356

356

44 -44

-

Allocation of profit

2017

1,558

4,085

5,071 -11,269

1,935 -1,380 -

Dividends distributed -5,158 -1,177 -6,335

At 31 December

2018

73,403

5,590

3,534

59,300

9,092

17,472

11,384

1,806

181,580

Net profit for the

year 2019

19,866

1,241

21,107

Other

comprehensive

income -626

42 -584

Comprehensive

income for the year

-

-

-

-

-

19,240

-

1,283

20,523

Reclassifications -626

626

42 -42

-

Purchase of minority

interests -1,389 -5,674 -7,063

Allocation of profit

2018

1,022

5,400

4,397 -10,819

1,343 -1,343 -

Dividends distributed -6,652 -463 -7,115

At 31 December

2019

73,403

6,612

3,534

62,685

13,490

19,866

7,094

1,241

187,925

Mantua, 28 May 2020


Massimiliano Ghizzi

Page no. 55

Explanatory notes

Page no. 56

Reporting principles

1 General information

Tea S.p.A. (the “Company” and, with its subsidiaries, the “Group”) is a multi-utility company established and resident in

Italy, with registered office in Via Taliercio, under the control of the Municipality of Mantua, and is organised according

to the laws of the Republic of Italy. The Company’s shareholders are all public authorities.

Through its subsidiaries, the Group operates in the following sectors: (1) Infrastructure, (2) Energy, (3) Waste

management, treatment and disposal, (4) Services relating to the integrated water cycle (sale and distribution of water,

water supply and sewage treatment), (5) Street lighting and (6) Funeral services.

The statutory audit of the Consolidated Financial Statements is assigned to Deloitte & Touche S.p.A., with responsibility

for auditing the accounts of the Company and the main Group companies.

2 Reporting principles

The main criteria and accounting principles adopted in the organisation and drafting of the Consolidated Financial

Statements at 31 December 2019 are reported below. Please note that the estimates made at 31 December 2019 do

not reflect the consequences of the worsening of the possible evolutions linked to the current domestic and

international scenario characterised by the spread of COVID-19 and the resulting restrictive measures to limit it,

enacted by the public authorities of the countries concerned. Although these circumstances, which emerged in the

early months of 2020, amount to a subsequent event that does not require an adjustment in the financial statements

pursuant to IAS 10, they are extraordinary in terms of their nature and extent and may have direct and indirect

repercussions on economic activities, creating a context of general uncertainty, the evolutions and relative effects of

which are not currently predictable. The effects of this event will also depend on the timeliness with which

governmental institutions will define monetary and fiscal measures to support the most exposed sectors and operators.

2.1 Basis of presentation

The Consolidated Financial Statements for the year ending 31 December 2019 (“Consolidated Financial Statements”),

approved by the Company’s Board of Directors on 28 May 2020, were prepared on a going concern basis. The approach

adopted by the Group as regards financial risk management is discussed in the Directors’ Report.

These Consolidated Financial Statements were prepared in accordance with International Financial Reporting Standards

(“IFRS”). The term IFRS refers to all the International Financial Reporting Standards, all the International Accounting

Standards (IAS) and all interpretations of the International Financial Reporting Interpretations Committee (IFRIC),

previously known as the Standard Interpretations Committee (SIC), which at the date of approval of the Consolidated

Financial Statements had been endorsed by the European Union in accordance with the procedure envisaged in

Regulation (EC) no. 1606/2002 of the European Parliament and of the Council dated 19 July 2002. In particular, note

that the IFRS were applied in a consistent manner to all periods reported in this document.

These Consolidated Financial Statements were prepared and presented in Euro, which is the currency of the main

economic area in which the Group entities operate (the “operating currency”). Unless otherwise indicated, all amounts

in this document are expressed in thousands of Euro.

The financial statements and related classification criteria adopted by the Group, from the options envisaged in IAS 1

“Presentation of financial statements” (“IAS 1”), are as follows:

• The Balance sheet was prepared by classifying assets and liabilities according to the “current/non-current”

criterion;

• the standard Income Statement was prepared by classifying operating costs by type;

• the Statement of Comprehensive Income, presented separately from the Income Statement, includes income

and expense items which are recognised directly in shareholders’ equity in accordance with specific IFRS

provisions;

• the Statement of Cash Flows was prepared according to the “indirect method”, adjusting the result for the

year for non-monetary components;

Page no. 57

• the Statement of Changes in Shareholders’ Equity, which shows the total income (expenses) for the year,

transactions with shareholders and other changes in shareholders’ equity.

The Financial Statements preparation adopted the historic cost method, where appropriate taking into account the

value adjustments, except items which according to IFRS must be designated at fair value, as indicated in the valuation

criteria and without prejudice to cases for which IFRS provisions allow a different valuation criterion.

The Consolidated Financial Statements were prepared and presented in Euro. Unless otherwise indicated, all amounts

in this document are expressed in thousands of Euro.

2.2 Valuation criteria

A brief description is provided below of the most important accounting principles and valuation criteria used to prepare

the Consolidated Financial Statements.

(i) Foreign currency translation - Operating currency and Presentation currency

The financial statement items of each Group entity are recorded using the currency of the entity’s primary economic

context of operations (its “operating currency”). The Financial Statements were therefore prepared in Euro, the

operating and presentation currency used by the Group.

Transactions and balances

The foreign currency transactions of each entity are translated to the operating currency using the spot rate at the

execution date of the transaction. Exchange gains and losses deriving from the settlement of these transactions and the

translation of assets and liabilities in other currencies, at the year-end exchange rate, are generally recognised in the

Income Statement. These are recognised in shareholders’ equity if they related to future cash flow hedges.

(ii) Revenue recognition

Revenues are recognised at the fair value of the consideration received from the sale of products and services as part of

the Group’s core business activities. Revenue recognition is net of VAT, expected returns, allowances, discounts and

certain marketing activities undertaken with the aid of customers and for which the value is a function of those

revenues.

Revenues from the sale of products are recognised when it is likely that the economic benefits deriving from the

transaction will flow to the entity.

Revenues from the provision of services are recognised by the Group when the total revenues can be reliably

calculated, it is likely that the economic benefits deriving from the transaction will flow to the entity and the completion

status of the transaction can be reliably measured at the Financial Statements reporting date. The Group bases its

estimates on historic results, taking into consideration the type of customer, transaction and specific characteristics of

every arrangement.

The Group has concluded that it is operating on own account in all sales contracts as it is the primary debtor, it has

discretion on the pricing policy (except for in the protected market) and it is also exposed to inventory and credit risk.

IFRS 15 establishes a model for the recognition of revenue which applies to all contracts entered into with customers,

with the exception of those falling within the application of other IAS/IFRS standards.

• The fundamental steps for the recognition of revenue according to this model are:

• customer contract identification;

• identification of the contract’s performance obligations;

• transaction pricing;

• allocation of the transaction price to the performance obligations included in the contract;

• revenue recognition when each performance obligation is met.

Page no. 58

(iii) Government grants

Government grants received are recognised at their fair value if there is reasonable certainty that they will be disbursed

and that the Group will comply with all conditions for such disbursement. Capital grants are recognised as a direct

decrease in capital expenditure, resulting in a lower amortisation amount over the useful life of the asset.

(iv) Taxes on income

Current taxes on income, recognised under “Current tax payables” net of payments on account, or under “Current tax

receivables” when the net balance results in a credit, are determined on the basis of an estimation of taxable income

and in compliance with tax regulations in force. Taxable income is different from net profit in the Income Statement as

it excludes income and cost components that are taxable or deductible in other years, or are not taxable or deductible.

In particular, such payables and receivables are calculated by applying the tax rates in force at the reporting date.

The Group companies have adopted the tax consolidation system introduced by Italian Legislative Decree 344/2003.

This system envisages the recognition of a single tax base for Group companies opting for inclusion in the tax

consolidation. The adoption of this optional system offers the possibility, for IRES tax purposes, of netting the tax results

(taxable amounts and tax losses in the consolidation period) of the participating companies.

Deferred tax assets and liabilities are calculated against all differences emerging between the tax base of an asset or

liability and its related carrying amount, except for goodwill and for differences arising from investments in subsidiaries,

when the reversal timing of such differences is subject to Group control and it is probable that they will not be reversed

in a reasonably foreseeable time frame. Deferred tax assets, including those relating to prior tax losses, for the portion

not offset against deferred tax liabilities, are recognised to the extent that future taxable income is probable against

which they can be recovered. Deferred tax assets and liabilities are determined using tax rates expected to apply in the

years in which the differences will be realised or settled.

Current taxes, deferred tax assets and liabilities are recognised in the standard Income Statement under “Taxes”,

except those relating to items recognised as components of comprehensive income other than net profit and those

relating to items debited or credited directly in shareholders’ equity. Deferred tax assets and liabilities are netted when

they refer to the same tax authority, when there is a legal right to netting and when settlement of the net balance is

expected.

Other taxes not related to income, such as indirect taxes and duties, are included under “Other operating costs” in the

Income Statement.

(v) Leased assets

Tangible assets held under finance leases, which substantially transfer to the Group the risks and benefits of ownership,

are initially recognised as assets measured at fair value at the date of signing of the lease or, if less, at the present value

of the minimum lease payments due, including any consideration to exercise a purchase option. The corresponding

lease liability to the lessor is recorded in the financial statements under financial payables. The assets held under

finance lease are depreciated on the basis of their useful lives, unless the duration of the lease is shorter and there is

reasonable certainty of transfer of ownership of the leased asset on natural termination of the lease. In this case, the

depreciation period will be represented by the lease duration.

On 13 January 2016, the IASB published the standard IFRS 16 - Leases, which replaces IAS 17 - Leases and the

interpretations IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and

SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard provides a new definition of leases and introduces a criterion based on right of use of an asset to

distinguish lease contracts from service contracts, identifying as the discriminating factors of leases: identification of the

asset, right of replacement of the asset, right to receive substantially all economic benefits deriving from use of the

asset and, lastly, the right to control use of the asset underlying the contract for a period of time in exchange for a

consideration. This concept is substantially different from that of “risks and benefits” which were the focus of IAS 17

and IFRIC 4.

The standard establishes a single model for the recognition and measurement of lease contracts for the lessee, which

envisages recognition of an asset held under an operating lease or finance lease among balance sheet assets with a

Page no. 59

balancing entry of a financial payable, also providing the option of not applying this model to contracts covering low-

value assets and short-term leases (with a duration of 12 months or less).

However, no significant changes for the lessor are envisaged in the new standard.

The Group has completed the impact assessment process associated with the introduction of the new standard at the

first-time adoption date (1 January 2019). This process was divided into different steps, including the full mapping of

contracts potentially containing a lease and their analysis, in order to understand the main clauses relevant to

application of the provisions of IFRS 16.

The approach taken in the first-time adoption phase was not retrospective, i.e. right of use equal to the financial

liability. It follows that shareholders’ equity was not amended on FTA.

The following table shows the impact of the adoption of IFRS 16 at the transition date:

€/000 Impact at the transition date

ASSETS (01.01.2019)

Non-current assets

Right of use - Buildings 1,382

Right of use - Plant 4,181

Total 5,563

SHAREHOLDERS’ EQUITY AND LIABILITIES

Non-current liabilities

Non-current finance lease liabilities 4,965

Current liabilities

Current finance lease liabilities 598

Total 5,563

Shareholders’ equity 0

Retained earnings 0

The adoption of IFRS 16 led to the following recognitions at 31 December 2019:

• Recognition of non-current assets for Euro 5,563 thousand. These assets represent the discounted value in

use of assets covered by rights of use;

• Recognition of non-current financial liabilities for Euro 4,965 thousand and current financial liabilities for

Euro 598 thousand. These liabilities represent the financial obligation relating to the present value of cash

flows payable to the lease counterparties for contracts in place at 31 December 2018.

• Recognition of amortisation for Euro 573 thousand, financial expenses for Euro 101 thousand and the write-

off of service costs for Euro 699 thousand. The total effect on the income statement (net of deferred taxes

of Euro 7 thousand) was an increase of Euro 18 thousand in the profit for the year.

• Recognition of a closing balance of shareholders' equity after adding the Euro 18 thousand in increased

profit in the income statement.

Note that the weighted average incremental borrowing rate applied to the financial liabilities recognised at 1

January 2019 was 1.82%.

On adoption of IFRS 16, the Group applied the exemption permitted by paragraph 5(a) of IFRS 16 in relation to

leases of a duration of less than 12 months for vehicle rentals.

Page no. 60

Likewise, the Group applied the exemption offered by paragraph 5(b) of IFRS 16 regarding lease contracts for

which the underlying asset is of low value (i.e. the single asset underlying the lease contract does not exceed

the value of Euro 5 thousand carried forward). Contracts for which the exemption was applied are mainly of

the following types: printers and low-value equipment.

For these contracts, the introduction of IFRS 16 did not affect the recognition of the finance lease liability and

related right of use, but the lease instalments are recognised in the income statement on a line-by-line basis

for the duration of the respective contracts.

Operating lease revenues, in leases where the Group holds the position of lessor, are recognised in the Income

Statement on a straight-line basis for the duration of the lease, and the assets covered by the lease are recognised in

the financial statements by type.

Interest income from leases, in which the Group is the lessor and for which a significant component of the risks and

benefits have been transferred to another entity, is recognised at amortised cost and classified as a financial income

component.

(vi) Cash and cash equivalents

Cash and cash equivalents include cash, demand deposits and financial assets with a maturity on origination that is

equal to or less than three months, readily convertible to cash and subject to immaterial risk of a change in value. The

components of cash and cash equivalents are measured at fair value and related changes are recognised in the

standard Consolidated Income Statement. Collection transactions are recorded by banking transaction date. Payment

transactions also take into account the order date.

(vii) Trade receivables

Trade receivables are initially recognised at fair value, adjusted for directly attributable transaction costs, and

subsequently measured at amortised cost according to the effective interest rate method, suitably adjusted to take into

account any writedowns, by recognising a provision for bad debts.

(viii) Derivative instruments

Derivative instruments are used by the Group to hedge against commodity risk. Consistent with the provisions of IAS

39, derivative instruments can be defined as hedges only when at the start of the hedge there is formal designation and

documentation of the hedging relationship, which envisages that the hedging will be highly effective, its effectiveness

can be reliably verified and the hedge itself is highly effective during the various accounting periods to which it is

designated.

All derivative instruments are measured at fair value, as required by IAS 39.

When derivative instruments are defined as hedges, the following accounting principles apply:

Cash flow hedging: When a financial instrument is designated as a hedging instrument against fluctuations in future

cash flows of an asset or liabilities of a transaction considered highly probable that could have an impact on the

Statement of Comprehensive Income, the overall gain (loss) is reclassified in the Income Statement at the time the

economic effect of the transaction or of the underlying asset/liability arises. Gains (loss) associated with a hedge, or

part of a hedge that has become ineffective, is immediately recognised in the Income Statement among financial

income/expenses. When a hedging instrument or hedging relationship is settled but it is expected that the hedged

transaction will in any event take place, the gain or loss realised up to the moment of settlement remains in the

Statement of Comprehensive Income, and is later recognised in the Income Statement at the date of execution of the

underlying transaction. If the transaction hedged is no longer probable, the gain (loss) recorded in the Statement of

Comprehensive Income is immediately recognised in the Income Statement.

The Group did not use fair value hedges for assets and liabilities in the period covered by these Consolidated Financial

Statements.

Page no. 61

Where hedge accounting cannot be applied, the gain or loss resulting from the fair value measurement of derivative

instruments is immediately recognised in the Income Statement under financial income (expenses).

Equity investments are designated through profit or loss. Shares, for which the fair value cannot be calculated with

sufficient reliability, are measured at acquisition cost. In addition, the carrying amount recorded in the financial

statements for such instruments is tested regularly for signs of potential impairment. Where such proof of impairment

is found, an impairment loss is recorded under financial expenses in the Income Statement for the period.

(ix) Inventory

Raw materials and consumables, semi-finished and finished products

Raw materials and semi-finished products are recognised at the lower between the purchase or production cost (which

includes the cost of raw materials and the cost of labour) and the net realisable value. The costs are calculated using the

weighted average cost method. Inventory purchase costs are calculated net of reductions for allowances and discounts.

The net realisable amount is the sale price estimated as part of normal activities, less the estimated costs for

completion and finalisation of the sale.

(x) Non-current assets held for sale and discontinued operations

Non-current assets (or disposal groups) are classified as held for sale if their carrying value will be recovered mainly

through a sale transaction considered highly probable, rather than through continuous use. These are recognised at the

lower between the carrying amount and the fair value, net of costs to sell.

If the fair value is lower than the carrying amount of the asset or group of discontinued assets, a writedown is

recognised. If not, a revaluation is recognised, which can never be higher than the total writedowns previously

recognised. A revaluation/writedown not recognised by the date of sale of the non-current asset (or disposal group) is

recognised at the date of derecognition of the carrying amounts.

Non-current assets (including those forming part of a disposal group) are not amortised/depreciated whilst classified as

held for sale. Interest expense and other expenses attributable to liabilities of a disposal group classified as held for sale

continue to be recognised.

Non-current assets classified as held for sale and assets of a disposal group classified as held for sale are also recorded

separately from other assets in the Balance Sheet. The liabilities of a disposal group classified as held for sale are also

recorded separately from other liabilities in the Balance Sheet.

(xi) Tangible assets

Tangible assets are measured at cost and recognised at the purchase or production price, net of accrued depreciation

and any impairment losses, periodically determining the market value and adjusting the carrying amount to that value

at the measurement date. The purchase or production cost includes expenses directly attributable to acquisition of the

asset.

Costs for improvement, modernisation and transformation of an incremental nature in relation to leased assets are

recognised under balance sheet assets when it is probable that the expected future economic benefits will be increased

from the use or sale of the asset. These are:

• reclassified under the asset item to which they pertain;

• depreciated over the shorter period between the useful life of the improvements and the duration of the

related lease agreement.

Subsequent costs are included in the carrying amount of the asset or recognised separately, as appropriate, only when

it is probable that it will generate future economic benefits and the cost can be reliably measured. Expenses incurred

for routine and/or cyclical maintenance and repairs are recognised directly in the Income Statement when incurred.

Tangible assets are depreciated on a straight-line basis over their technical economic useful life, intended as the

estimated period in which the asset will be used by the company. The period begins from the month in which the asset

is first used or could have been used. When the tangible asset is made up of multiple significant components with

Page no. 62

different useful lives, depreciation is applied to each component. The value to be depreciated is the recognition value

less the estimated net disposal value at the end of its useful life. The following are not subject to depreciation: land,

even if purchased jointly with a building; works of art; tangible assets held for sale. Any changes to the depreciation

schedule resulting from a review of the useful life of a tangible asset, its residual value or the methods for achieving

economic benefits from the asset, are recognised prospectively.

The residual value of the assets and the related useful life are tested, and adjusted if necessary, at the end of each year.

In addition, the carrying value of the asset is promptly adjusted if it proves to be recognised at a cost higher than its

related recoverable amount.

Tangible assets are depreciated on a straight-line basis over their useful lives, as follows:

TANGIBLE ASSETS Estimated useful life (percentage)

Buildings 3%

Plant and machinery 2% - 12.5%

Industrial and commercial equipment 10% - 20%

Other tangible assets 2% - 25%

(xii) Services under concession

The Group applies IFRIC 12 to agreements for services under concession signed between a public entity (granting

authority) and the Company (concession holder) in reference to the integrated water service, street lighting, gas

distribution and cemetery services. In particular, if the granting authority controls the infrastructure, defining and

monitoring the characteristics of the service provided and applicable prices, at the same time retaining a residual

interest in the asset, the concession holder has the right to claim payment from users for services provided through the

use of the infrastructure, or the right to receive a consideration from the granting authority for the public utility

services provided. Consequently, operators covered by the aforementioned situations cannot recognise the assets

dedicated to provision of the service as tangible assets in the Balance Sheet, regardless of recognition of ownership to

that operator in the service concession arrangements.

In particular, the operator recognises a financial asset to the extent that the concession holder has an unconditional

right to receive contractually guaranteed cash flows from the granting authority for construction services, regardless of

the actual use of the infrastructure. The financial asset acquired is subject to the provisions of IAS 32, IAS 39 and IFRS 7.

The operator instead records an intangible asset to the extent that it has the right to claim payment from users of the

infrastructure. Consequently, the concession holder’s cash flows are not guaranteed by the granting authority, but are

associated with effective use of the infrastructure by users, and therefore demand risk is incurred by the concession

holder. The intangible asset recognised is also subject to the provisions of IAS 38.

Street lighting concessions are considered to be financial assets, whilst the others are classified as intangible assets

(integrated water service, gas distribution or cemetery services).

With reference to capital grants received on non-current assets subject to the application of IFRIC 12, these are

recorded as a reduction in such assets.

Page no. 63

(xiii) Intangible assets

Goodwill

Goodwill is classified as an intangible asset with an indefinite useful life and is initially recognised at cost, subsequently

subjected to annual impairment tests, carried out more frequently if there are indicators suggesting any impairment.

Writeback of the value in a case of previous impairment loss is not permitted. Gains and losses deriving from the

disposal of an asset include the carrying amount of its related goodwill.

The impairment test, conducted according to what is described in the relative section, to which reference is made, is

performed in reference to each cash generating unit (“CGU”) to which the goodwill was allocated. The allocation

involves the assets, or groups of assets, that generate cash flows and which are expected to benefit from the business

combination from which the goodwill arose.

Amortisation methods and periods

Intangible assets with a finite useful life are amortised on a straight-line basis over their useful lives, as follows:

INTANGIBLE ASSETS Estimated useful life (percentage)

Concessions Concession duration

Licences 20% - 33%

Other intangible assets 9%-20%

(xiv) Impairment test

Goodwill and intangible assets with an indefinite useful life are not amortised, but instead are subject to annual

impairment tests, carried out more frequently if there are indicators suggesting any impairment.

The recoverability of tangible assets, intangible assets and rights of use is checked when events or changes in

circumstances lead to the belief that the carrying amount is not recoverable.

Any writedown is recognised for an amount equal to the difference between the carrying amount of the asset and its

recoverable value, in turn equal to the higher between the fair value of the asset, less disposal costs, and its value in

use. For impairment testing purposes, the assets are grouped on the basis of their capacity to generate cash inflows,

separately identifiable and independent of other assets or groups of assets, cash generating units (also “CGUs”)

represented by the smallest identifiable set of assets that generate cash inflows largely independent of those generated

by other assets.

CGUs are defined considering, inter alia, the methods whereby the management controls operating activities (e.g., by

lines of business) or takes decisions regarding whether to maintain in operation or dispose of the company’s assets and

properties.

The CGUs may include corporate assets, or assets that do not generate autonomous cash flows, attributable on

reasonable and consistent bases. Corporate assets that cannot be attributed to a specific CGU are allocated to a

broader aggregate consisting of multiple CGUs. With reference to goodwill, the test is performed at the level of the

smallest aggregate on the basis of which the Company Management directly or indirectly values the return of the

investment which includes the goodwill itself. The rights of use, which generally do not produce autonomous cash

flows, are allocated to the CGU to which they refer; the rights of use which cannot be specifically allocated to the CGUs

are considered corporate assets.

The recoverability is checked by comparing the carrying amount with the relative recoverable amount represented by

the higher of the fair value, net of costs to sell, and the value in use. The latter is determined by discounting the

expected cash flows deriving from the use of the CGU and, if significant and reasonably determinable, from its disposal

at the end of its useful life net of costs to sell. Expected cash flows are determined on the basis of reasonable and

supportable assumptions representing the best estimate of the future economic conditions that will be in place during

the residual useful life of the CGU, attributing major relevance to indications obtained externally.

In order to determine the value in use, the expected cash flows are subject to discounting at a rate that reflects the

current market valuations of the time value of money and the specific risks of the asset not reflected in the estimated

cash flows. In particular, the discount rate used is the Weighted Average Cost of Capital (WACC), which is differentiated

Page no. 64

on the basis of the risk expressed by the sectors/business in which the asset is operating. Specific WACCs are defined on

the basis of a sample of comparable companies.

Value in use is determined net of the tax effect as this method generates values that are substantially equivalent to

those that may be obtained by discounting cash flows gross of taxes at a pre-tax discount rate deriving, on an iterative

basis, from the result of the post-tax valuation.

When the carrying amount of the CGU inclusive of any goodwill attributed to it, determined by taking into account any

writedowns of non-current assets which are part of the CGU, is higher than the recoverable amount, the difference is

subject to a writedown and is attributed on a priority basis to goodwill up to its entire amount; any excess writedown

over and above goodwill is attributed on a pro rata basis to the book value of the assets in the CGU, up to the

recoverable amount of the assets with a finite useful life.

When the reasons for the writedowns recognised no longer apply, the value of the assets is written back and the

adjustment is recognised in the income statement; the write-back is recognised in an amount equal to the lower

between the recoverable amount and the carrying amount gross of the writedowns previously recognised and reduced

by the amortisation/depreciation that would have been recognised if there had been no writedown. Writedowns of

goodwill are not written back.

(xv) Trade and other payables

Trade and other payables are classified as current liabilities, unless payment is due more than 12 months after year end.

These are initially recognised at their fair value and subsequently measured at amortised cost using the effective

interest method.

(xvi) Loans

Loans are initially recognised at their fair value, net of directly attributable transaction costs, and subsequently

measured at amortised cost using the effective interest method.

Loans are classified as current liabilities unless the Group has an unconditional right to defer payment for more than 12

months after the reporting date.

(xvii) Provisions for risks and charges

The provisions for risks and charges refer to costs and charges of a specified nature and of certain or probable existence

for which, at the reporting date, the amount and/or date of occurrence cannot be determined. Allocations to these

provisions are recognised when:

− it is probable that a current legal or implicit obligation exists, deriving from a past event;

− it is probable that complying with the obligation will be costly;

− the total obligation can be reliably estimated.

The allocations are recognised at the value representing the best estimate of the amount that the company could

reasonably be expected to pay to settle the obligation or transfer that obligation to third parties at the reporting date.

Provisions for risks and charges are subject to discounting if it is possible to reasonably estimate the moment that cash

outflows will be required. Discounting of the amount is at a pre-tax rate that reflects the time value of money and takes

into account the specific risk attributable to each liability. When the liability refers to tangible assets (e.g. dismantling

and site clean-up), changes in estimation of the provision are recognised as a balancing entry to the asset to which they

refer, up to the limit of the recognition value. Any surplus is recognised in the Income Statement.

Page no. 65

(xviii) Employee benefits - Short-term obligations

The short-term benefits are wages, salaries, related social security contributions, indemnities in lieu of leave and

incentives in the form of bonuses payable in the twelve months following the reporting date. These benefits are

recognised as personnel cost components in the period in which the employment service is provided.

Medium/long-term obligations

Employee severance indemnity, or TFR, is the amount to which employees in Italy are entitled to receive at the time of

termination of the employment contract, and is determined on the basis of years of service and the taxable income

calculated for each employee. When such circumstances arise, it is also possible to partially liquidate the related

amount accrued by the employee in their years of service.

In 2006 the regulations changed, whereby companies with more than 50 employees were obliged to transfer the TFR to

a state-managed Treasury Fund (INPS) or to a supplementary pension fund. If previously the companies had the option

of making allocations to employee severance indemnity provisions in total independence, now, following the changes

brought about by IAS 19, Italian companies accrue an obligation to INPS or to a supplementary pension fund in the form

of “defined benefit plans”. Consequently, the provision for employee severance indemnity still recognised in the

financial statements of Italian companies refers to that accrued up to 31 December 2006. This is an unfinanced defined

benefit plan as the benefits are already fully matured, with the sole exception being future revaluations.

In the defined benefit plans, which also include the employee severance indemnity due to employees pursuant to art.

2120 of the Italian Civil Code (“TFR”), the total benefit payable to the employee can only be quantified after

employment has terminated, and is linked to one or more factors such as age, years of service and remuneration.

Therefore, the related charge is recognised in the Income Statement for the year based on actuarial calculations. The

liability recognised in the financial statements for defined benefit plans corresponds to the present value of the

obligation at the reporting date. The defined benefit plan obligations are determined annually by an independent

actuary using the projected unit credit method. The present value of defined benefit plans is determined by discounting

future cash flows at an interest rate equal to that of Euro bonds (high-quality corporate) which takes into account the

duration of the related pension plan. Actuarial gains and losses deriving from the aforementioned adjustments and

changes in actuarial assumptions are recognised in the Statement of Comprehensive Income.

From 1 January 2007, the 2007 Finance Act and related implementing decrees introduced changes to the employee

severance indemnity regulations, including the decision of employees regarding the allocation of their accruing

severance indemnity. In particular, an employee can opt to direct new employee severance indemnity flows into pre-

selected pension forms or for their retention within the company. In the case of allocation to external pension forms,

the Group is only required to pay a defined contribution to the chosen fund, and from that date any new accruals are

defined contribution plans not subject to actuarial assessment.

(xix) Shareholders’ equity

Ordinary shares are recognised in shareholders’ equity.

If the Group purchases treasury shares, the consideration paid, including any directly attributable incremental costs

(net of income taxes) are deducted from the shareholders’ equity attributable to the Group’s shareholders until the

shares are cancelled or reissued. If such ordinary shares are later reissued, any consideration paid, net of directly

attributable incremental costs of the transaction and tax effects, is included in the shareholders’ equity attributable to

the Group’s shareholders.

(xx) Dividends

The dividends distributed by the Group are recognised as a change in shareholders’ equity in the period in which they

are approved by the shareholders.

Page no. 66

(xxi) Reporting by lines of business

The Group has decided to include only one line of business in its report based on information reviewed by its Operating

Managers, responsible for decisions regarding the allocation of resources and assessment of the results.

(xxii) Rounding

All amounts indicated in the Consolidated Financial Statements and the notes are rounded to the nearest thousand

units unless otherwise indicated.

2.3 Recently issued accounting standards

Accounting standards, amendments and interpretations in force from 1 January 2019

Adoption of the following accounting standards and amendments issued by the IASB and endorsed by the European

Union is compulsory from 1 January 2019. The adoption of these new standards or amendments had no impact on the

Group’s consolidated financial statements except for effects deriving from the first-time adoption of IFRS 16, illustrated

in paragraph 2.2.V.

Annual Improvements to IFRS

Standards 2015-2017 Cycle

This document, published by the IASB on 12 December 2017 as part of the annual

improvements cycle and applicable from 1 January 2019 includes amendments to IFRS

3 “Business Combinations”, IFRS 11 “Joint Arrangements”, IAS 12 “Income Taxes” and

IAS 23 “Borrowing costs”.

IFRS 16 “Leases”

IFRIC 23 “Uncertainty over

Income Tax Treatments”

On 13 January 2016, the IASB published IFRS 16, which replaces IAS 17 and the

related interpretations. The new standard provides a new definition of leases and

introduces a criterion based on right of use of an asset to distinguish lease contracts

from service contracts, identifying as the discriminating factors: identification of the

asset, right of replacement of the asset, right to receive substantially all economic

benefits deriving from use of the asset and the right to control use of the asset

underlying the contract. The standard establishes a single model for the recognition

and measurement of lease contracts for the lessee, which envisages recognition of an

asset held under an operating lease or finance lease among assets with a balancing

entry of a financial payable, also providing the option of not recognising as leases any

contracts covering assets of a minor unit value and leases with a duration of 12

months or less.

The standard applies from 1 January 2019, but early adoption is only permitted for

companies that have opted for early adoption of IFRS 15 Revenue from Contracts with

Customers.

On 7 June 2017, the IASB issued IFRIC 23 “Uncertainty over Income Tax Treatments”

containing indications on the accounting of tax assets and liabilities (current and/or

deferred) relating to taxes on income in the presence of uncertainties regarding the

application of tax regulations. In particular, the interpretation requires an entity to

Page no. 67

Amendment to IAS 28 “Long-

term Interests in Associates and

Joint Ventures”

Amendments to IAS 19 “Plan

Amendment, Curtailment or

Settlement”

analyse all uncertainties over income tax treatments (individually or as a whole,

according to their characteristics), always assuming that the tax authority examines

the tax position in question, being fully aware of all the relevant information. If the

entity considers it unlikely that the tax authority will accept the tax treatment

adopted, it is necessary to reflect the effect of the uncertainty in the estimation of

current and deferred taxes. In addition, the document contains no new reporting

obligations but emphasises that the entity must establish whether it is necessary to

provide information on management considerations relating to the uncertainty

inherent to the recognition of taxes, in accordance with the provisions of IAS 1. The

new interpretation was adopted from 1 January 2019

On 12 October 2017, the IASB issued the Amendment to IAS 28 to clarify the

application of IFRS 9 “Financial Instruments” for long-term interests in associates or

joint ventures included in investments in such entities for which the equity method

was not applied.

The provisions of the Amendment to IAS 28 enter into force from years beginning on

or after 1 January 2019.

The amendments to IAS 19, published by the IASB on 7 February 2018 and in force

from 1 January 2019, clarify the methods for calculating pension costs when there is a

change in the defined benefit plan and require entities to update their assumptions

and remeasure net assets or liabilities associated with the plan. In particular, after

such an event, the entity must use updated assumptions to measure the current

service cost and interest for the rest of the reference period after that event.

Accounting standards, amendments and interpretations not yet adopted but with early application permitted

At the reporting date, the relevant bodies of the European Union have approved the adoption of the following

accounting standards and amendments, not yet adopted by the Company.

Amendments to references to

the conceptual framework in

IFRS standards

On 29 March 2018, the IASB published an amendment to “References to the

conceptual framework in IFRS standards”. The amendment will be effective for

periods starting on or after 1 January 2020, but early application is permitted. The

Conceptual Framework defines the key concepts for financial reporting and guides

the Council in the development of IFRS standards. The document helps guarantee

that the Standards are conceptually consistent and that similar transactions are

treated in the same way, so as to provide information useful to investors, lenders

and other creditors. The Conceptual Framework supports companies in the

development of accounting standards when no IFRS standard applies to a particular

transaction and, in more general terms, helps the interested parties to understand

and interpret the standards.

Amendments to IAS 1 and IAS 8 On 31 October 2018, the IASB published the document “Definition of Material)

Page no. 68

“definition of material”

Amendments to IAS 1 and IAS 8)”. The document introduced an amendment to

the definition of “material” as referred to in the standards IAS 1 and IAS 8. This

amendment aims to make the definition of “material” more specific, and

introduced the concept of obscured information alongside the concepts of

omitted or incorrect information already included in the two standards amended.

The amendment clarifies that information is obscured if described in such a way as

to have a similar effect on key financial statement users as that generated if such

information was omitted or incorrect. The amendments introduced were

approved on 29 November 2019 and apply to all transactions from 1 January 2020

onwards.




IFRS 17 “Insurance Contracts”

Amendments to IFRS 3

“Business Combinations”

On 18 May 2017, the IASB issued IFRS 17 “Insurance Contracts”, which establishes

the principles for the recognition, measurement, presentation and representation of

insurance contracts covered by the standard. The aim of IFRS 17 is to guarantee that

an entity provides relevant information that faithfully represents such contracts, in

order to form a basis for assessment by financial statement users of the effects of

these contracts on the balance sheet, income statement and cash flows of the entity.

The provisions of IFRS 17 enter into force from years beginning on or after 1 January

2021.

On 22 October 2018, the IASB published the document “Definition of a Business

(Amendments to IFRS 3)”, which provides a number of clarifications regarding the

definition of a business for the purpose of correct application of IFRS 3 and helps

companies to determine whether an acquisition refers to a business or rather to a

group of activities.

3 Estimates and assumptions

The preparation of the financial statements requires that the Directors apply accounting principles and approaches

which, in certain circumstances, are based on difficult and objective assessments and estimates based on historic

experience and on assumptions which on each occasion are considered reasonable and realistic for the related

circumstances. The application of these estimates and assumptions affects the amounts recorded in the financial

statements, the balance sheet, income statement, statement of comprehensive income, statement of cash flows and

the disclosures provided. The final results of financial statements items, for which such estimates and assumptions are

used, can differ from those indicated in the financial statements that recognise the effects of the estimated event after

it arises, due to the uncertainty characterising the assumptions and the conditions on which the estimates are based.

The Financial Statements items for which the most significant use of estimates and assumptions is made relate to the

quantification of allocations to provisions for risks and charges, definition of the depreciation/amortisation rate for

tangible assets and intangible assets with a finite useful life, measurement of intangible assets with an indefinite useful

Page no. 69

life and investments, assessment of employee benefits, quantification of deferred taxes and allocations at year end for

revenues relating to electricity, gas and water accrued for services provided between the last actual consumption

metering date and the year-end date. The estimates and assumptions are reviewed periodically and the effects of every

change are reflected in the income statement, provided it affects only that period. If the review affects both current

and future periods, the change is recognised in the period in which the review is made and in the related future

periods.

Page no. 70

Consolidation scope and principles 1. Scope of consolidation

The following table lists the companies included in the scope of consolidation and related percentage interests at 31

December 2019. All the companies have their registered office in Mantua.

Share capital Percentage held at

Company Location Reporting date Currency Amount (000) 31 December 2019

Tea S.p.A. Mantua 31 December EUR 73,403

Tea Energia S.r.l. Mantua 31 December EUR 2,000 100%

Mantova Ambiente S.r.l. Mantua 31 December EUR 227 40.48%

Sei S.r.l. Mantua 31 December EUR 1,000 100%

Tea Acque S.r.l. Mantua 31 December EUR 2,805 80%

Tea Servizi Funerari S.r.l. Mantua 31 December EUR 100 100%

ElectroTea S.r.l. Mantua 31 December EUR 50 60%*

Tea Reteluce S.r.l. Mantua 31 December EUR 100 80%

AqA Mantova S.r.l. Mantua 31 December EUR 1,000 100%

Depura S.r.l. Mantua 31 December EUR 245 60%

* ElectroTea is a subsidiary of Sei S.r.l.

2. Consolidation principles and equity accounting

2.1. Subsidiaries

The subsidiaries are entities over which the Group exercises control. An investor controls an entity when i) it is exposed

to, or has the right to participate in, variations in the related economic returns and ii) it is able to exercise its decision-

making power in relation to significant activities of the entity in order to influence such returns. The existence of control

is verified every time that events and/or circumstances indicate a change in one of the above elements that determine

such control. The subsidiaries are consolidated on a line-by-line basis from the date on which control is acquired, and

cease to be consolidated from the date of transfer of control to third parties.

Business combinations are accounted for by the Group using the acquisition method.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are netted.

Unrealised losses are also netted unless the transaction indicates elements of proof of impairment of the asset

transferred. The accounting principles of the subsidiaries were adjusted where necessary to ensure consistency with

those adopted by the Group.

Minority interests in the economic results and shareholders’ equity of the subsidiaries are shown separately in the

Income Statement, Statement of Comprehensive Income, the Statement of Changes in Shareholders’ Equity and the

Balance Sheet.

2.2. Associated companies

The associated companies are those over which the Group exercises considerable influence, which is presumed to exist

when the interest refers to between 20% and 50% of the voting rights. Associated companies are measured using the

equity method after their initial recognition at cost.

The equity method is described below:

• the carrying amount of these investments is aligned with the shareholders’ equity of the related company, adjusted

where necessary to reflect the application of IFRS and including the recognition of higher values attributed to the assets

and liabilities and any goodwill, identified at the time of acquisition, following a similar procedure to that previously

described for business combinations;

• profit or losses pertaining to the Group are recognised from the date on which the considerable influence began and

up to the date it ceases. If as a result of losses and by using this method, the company records negative shareholders’

Page no. 71

equity, the carrying amount of the investment is cancelled and any excess pertaining to the Group, where the latter is

committed to comply with legal or implicit obligations of the investee, or in any event cover its losses, is recognised in a

specific provision. Changes in shareholders’ equity of companies measured using the equity method, that are not

represented in the Income Statement results, are recognised directly in the Statement of Comprehensive Income;

• unrealised gains and losses, generated on transactions carried out between the company/its subsidiaries and an

investee measured using the equity method, are eliminated based on the value of the Group’s percentage interest in

the investee, except with regard to losses, if these represent a decrease in value of the underlying assets and dividends,

which are eliminated in full. The carrying amount of such investments measured using the equity method is impairment

tested annually in compliance with the accounting principle described in the valuation criteria.

2.3. Changes in the ownership structure

The Group handles transactions with minority interests in the same way as transactions with Group shareholders, when

no loss of control is involved. A change in ownership structure generates an adjustment to the carrying amount of the

portion pertaining to the Group and that pertaining to minority interests. Any difference between the amount of the

adjustment due to the redistribution of interests and any price, paid or received, is recorded in a separate distributable

reserve in shareholders’ equity.

When the Group no longer consolidates the investment or no longer uses the equity method for its recognition, due to

the loss of control or significant influence, the residual amount of the investment is determined at its fair value and the

change is recognised in the Income Statement. The latter becomes the new initial carrying amount of the investment,

classified as an associated company, joint venture or financial asset. In addition, any amount recognised in the

Statement of Comprehensive Income for that entity is accounted for as if the Group had directly disposed of the related

assets and liabilities. This led to amounts previously recognised in the Statement of Comprehensive Income being

reclassified to the Income Statement.

If the percentage interest in an associated company reduces without loss of significant influence, only the

proportionate percentage of amounts previously recognised in the Statement of Comprehensive Income has to be

reclassified to the Income Statement.

2.4. Business combinations

The purchase method is used for the accounting of all corporate acquisitions, regardless of whether the acquisition

refers to equity instruments or other assets. The consideration paid to acquire a subsidiary includes:

• the fair value of assets transferred;

• the total liabilities assumed in relation to previous shareholders of the acquired business;

• the shares issued by the Group;

• the fair value of any contingent assets or liabilities; and

• the fair value of any pre-existing equity investment in the subsidiary.

The identifiable assets acquired, and the liabilities and contingent liabilities assumed, are recognised at their present

value at the acquisition date, i.e. the date on which control is acquired (the “Acquisition Date”). The Group accounts for

the entity’s minority interests in proportion to the percentage minority interest in the net assets.

The costs associated with the acquisition are recognised in the Income Statement in the year in which they are

incurred.

The positive difference between (a) the consideration transferred, (b) the percentage minority interest of the

controlling entity and (c) the fair value at the acquisition date of the previous investment in the company acquired and

the fair value of net identifiable assets acquired, is recognised as goodwill. If, on the other hand, this difference proves

negative, it is recognised directly in the Income Statement as “badwill”.

Page no. 72

Business combinations as a result of which the investees are controlled by the same entity or entities both before and

after the combination, and for which the control is not transitional, are qualified as transactions under common control.

These transactions are not covered by IFRS 3 or other IFRSs. In the absence of a reference accounting standard, the

choice of method for the accounting representation of the transaction must guarantee compliance with the provisions

of IAS 8, i.e. reliable and faithful representation of the transaction.

Page no. 73

Analysis of Income Statement and Balance Sheet items

Income Statement

1 Revenues

The Group presents only one line of business in its report based on information reviewed by its Operating Managers,

defined as Company Directors, responsible for decisions regarding the allocation of resources and assessment of the

results.

The following table provides a breakdown of revenues by type of activity:



Revenues from sales and services 138,154 128,326

Waste disposal services 60,958 55,491

Integrated water services 32,041 30,782

Revenues from services under concession 27,634 20,500

Other 15,598 13,419

Heating services 13,338 12,597

Cemetery and funeral services 6,605 6,444

Fee for use of plant/systems 1,239 1,008

Technical services 62 1,848

Services to third parties 54 24

Total 295,681 270,440

Revenues from sales and services include:

• Euro 73,521 thousand relating to sales of electricity (Euro 64,697 thousand in 2018);

• Euro 54,790 thousand relating to sales of gas (Euro 53,965 thousand in 2018).

“Heating services” include Euro 12,533 thousand relating to sales of teleheating (Euro 11,561 thousand in 2018).

2 Other revenues and income

The breakdown of this item is as follows:



Real estate income 154 99

Compensation for damages, penalties and chargebacks 417 528

Sundry reimbursements 9 10

Other income 3,591 5,211

Operating grant income 117 94

Total 4,289 5,942

Operating grant income refers to EU funding collected by Tea S.p.A. during the year for the “Dynamic Light” project for

Euro 117 thousand.

In relation to grants, it should be emphasised that on 20 December 2019 Tea Acque collected Euro 120.1 thousand

from the AATO as a plant and equipment grant for Torricella/Sailetto supply pipeline and the water supply for the

Municipality of Commessaggio.

Page no. 74

In addition, “Other income” amounts to Euro 3,591 thousand and includes relamping projects and the chargeback of

costs envisaged in contracts for the provision of services. This item also includes the R&D tax credit amounting to Euro

125 thousand.

3 Costs for raw, ancillary and consumable materials

This item breaks down as follows:



Purchases of electricity 31,428 30,043

Purchases of heat 5,055 3,446

Fuel and lubricants 1,296 1,279

Purchases of gas 32,835 34,289

Other raw materials and consumables 14,303 6,451

Total 84,916 75,508

4 Costs for services




Repairs and maintenance 10,059 9,307

Provision of technical and administrative services 4,901 4,554

Municipal services 9,362 9,281

Sundry third-party services 7,820 7,102

Insurance 1,430 1,222

Postal charges 793 990

Sales promotion activities 2,712 2,415

Bank charges and commissions 743 885

Lease and rental costs 502 1,250

Cleaning, transport and porterage costs 634 643

Waste disposal 21,857 20,796

Meter reading 371 399

Provision of street lighting services 2,855 3,068

Gas distribution services 6,883 5,786

Electricity transport services 45,687 39,995

Other costs for services 16,559 16,045

Total 133,167 123,737

5 Personnel costs




Wages and salaries 20,922 20,330

Social security contributions 6,804 6,565

Allocation to Employee Severance Indemnity/TFR provision 1,336 1,265

Other personnel costs 82 83

Total 29,144 28,243

Page no. 75

The following table summarises the number of employees for the years ending 31 December 2019 and 31 December

2018:

At 31 December

2019 2018

Senior managers 15 15

Managers 15 15

White collar workers 288 277

Blue collar workers 254 258

Total number of employees 572 565

6 Other operating costs




Sundry indemnities 874 869

Indirect and sundry taxes 915 837

Allocation to provisions for risks and charges 858 110

Allocation to the provision for bad debts 3,855 3,240

Other costs 1,640 1,031

Total 8,142 6,086

7 Income (expenses) from investments measured using the equity method

The following table shows the change in investments measured using the equity method:

(in thousands of Euro) Associated companies

1 January 2018 7,424

Income (expenses) from investments measured using the equity method 645

Dividends -573

31-Dec-18 7,497


Dividends -450

31-Dec-19 7,140

The following table shows the assets, liabilities, revenues and net profit of investments measured using the equity

method. Note that the values refer to financial statements prepared in accordance with Italian accounting standards.

(in thousands of Euro) % interest Assets Liabilities Revenues Profit (Loss)

Shareholders’

equity

31-Dec-19

Blugas Infrastrutture S.r.l. 28.70% 36,715 20,905 1,922 17 15,793

Unitea S.r.l. 50.00% 9,190 6,468 7,615 -181 2,903

Tnet Servizi S.r.l. 25.00% 2,719 1,850 1,062 123 746

Biociclo S.r.l. 24.00% 5,163 897 2,788 615 3,651

31-Dec-18


Unitea S.r.l. 50.00% 10,610 6,807 9,372 944 2,860

Page no. 76


Shareholders’

equity

Tnet Servizi S.r.l. 25.00% 3,678 2,933 927 93 653

Biociclo S.r.l. 24.00% 4,576 925 2,588 500 3,151

8 Depreciation, amortisation and writedowns




Amortisation of intangible assets 8,739 8,261

Depreciation of tangible assets 9,504 8,404

Right of use amortisation 573 0

Writedown of tangible assets 0 2,785

Total 18,816 19,451

9 Financial income and expenses




Changes in fair value of investments 0 0

Financial income from street lighting 900 633

Other financial income 3,575 3,609

Total financial income 4,475 4,242

Interest expense on loans 114 129

Landfill financial expenses 691 784

Financial expenses on bonds 762 760

Financial expenses on employee severance indemnity 69 63

Other financial expenses 154 26

Total financial expenses 1,790 1,763

Total net financial income (expenses) 2,685 2,480

10 Taxes




Current taxes on income 7,674 6,421

Deferred taxes on income -255 783

Total 7,419 7,204

The changes in deferred tax assets and liabilities during the year, without taking any netting of balances into account,

are as follows:

Page no. 77

Changes in Deferred Tax Assets

Temporary difference Value at 31.12.2018 Increases Decreases Value at 31.12.2019

Funeral transport lease payables 9,846 - - 9,846

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 2,363 2,363

Surplus provision for bad debts Receivables 12,519,713 3,456,278 -1,924,978 14,051,012

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 3,004,730 829,506 -461,995 3,372,239

Allocations to provisions for risks and

charges 4,565,314 729,061 -992,114 4,302,261

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 1,095,675 174,975 -238,107 1,032,543

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 97,388 27,293 -38,692 85,989

Surplus Maintenance 49,111 179,570 -15,919 212,762

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 11,787 43,097 -3,821 51,063

Writedown of tangible assets 1,229,646 - - 405,957 823,689

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 295,115 - -97,430 197,685

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 47,956 - -15,832 32,124

Non-deductible interest 20,852 - -11,205 9,647

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 5,004 - -2,689 2,315

Statutory depreciation ≠ Tax depreciation 114,888 - - 114,888

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 27,570 - - 27,573

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 4,480 - - 4,480

Property revaluation depreciation 464,305 464,305

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 111,433 - - 111,433

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 18,108 - - 18,108

Inventory writedowns 60,000 60,000

IRES tax rate 24.0% 24% 24.0% 24%

IRES tax effect 14,400 - - 14,400

IRAP tax rate 3.9% 3.9% 3.9% 3.9%


Enipower Mantova assessment 62,854 62,854

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 11,460 - - 11,460

IRAP tax rate 3.9% 3.9% 3.9% 3.9%


Page no. 78


Employee severance indemnity IAS 19 804,197 6,628 -24,801 786,024

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 193,007 1,591 -5,952 188,646

Directors’ remuneration - 39,099 - 37,049

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect - 9,384 - 9,383

Total IRES tax effect 4,772,544 1,058,552 - 809,994 5,021,103

Total IRAP tax effect 172,103 27,293 - 54,525 144,871

Changes in Deferred Tax Liabilities


Allocation to landfill provisions 12,525,367 -690,904 11,834,463

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 3,006,088 - 165,817 2,840,271

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 488,489 26,945 461,544

Associated companies assessment 738,102 738,102

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 177,144 - 0 177,144

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 28,786 0 0 28,786

Concessions IFRIC 12 5,321,396 73,487 -312,659 5,082,224

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 1,277,135 17,637 -75,038 1,219,734

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 207,534 2,866 -12,194 198,207

Netting of IC margins 981,328 -18,638 962,690

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 235,519 - -4,473 231,046

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 38,272 0 -727 37,545

Belleli lease receivables 18,717 -5,136 13,581

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 4,492 -1,433 3,059

IFRS 16 0 24,833 24,833

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect - 5,960 5,960

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 0 969 969

Total IRES tax effect 4,700,378 23,597 84,873 4,477,214

Total IRAP tax effect 763,082 3,834 14,025 727,050

Page no. 79

The deferred tax assets represent the total income taxes recoverable in future years in reference to the deductible

temporary differences and mainly relate to allocations to the provisions for risks and charges. The deferred tax liabilities

represent the total income taxes due in future years in reference to the deductible temporary differences and mainly

relate to the Mariana Mantovana landfill.

Page no. 80

Balance Sheet

1 Intangible assets

This item and related changes for years ending 31 December 2019 and 2018 can be broken down as follows:

(in thousands of Euro) Goodwill

User

licences Concessions

Other

intangible

assets Total

Balance at 1 January 2018 905 1,016 111,293 6,455 119,668

Of which:

- historic cost 1,293 2,608 192,037 24,123 220,062

- accumulated amortisation -389 -1,593 -80,744 -17,659 -100,384

Increases 14,245 870 15,116

Decreases 0

Asset reclassification adjustments -625 2,047 1,422

Amortisation -279 -6,089 -1,893 -8,261

Balance at 31 December 2018 905 736 118,825 7,478 127,944

Of which:

- historic cost 1,293 2,608 205,974 26,324 236,200


Increases 0 17,836 2,614 20,450

Decreases -265 -265

Asset reclassification adjustments -120 -126 -246

Amortisation -270 -6,783 -1,685 -8,739

Balance at 31 December 2019 905 466 129,758 8,016 139,144

Of which:

- historic cost 1,293 2,608 223,810 28,402 256,114


“Goodwill” refers mainly to the acquisition of business units of A.SE.P. (water and gas) and LGH (gas sales).

“Concessions”, totalling Euro 129,758 thousand at 31 December 2019, are mainly composed of rights relating to

networks and systems for providing the following services managed by the Group: gas distribution, integrated water

cycle, energy production and cemetery services. These concessions and activities are accounted for using the intangible

assets model indicated in IFRIC 12.

With regard to gas distribution, the company is the concession holder of networks in 10 municipalities in the province

of Mantua, 8 of which in the “Mantua 1” Area and 2 in the “Mantua 2” Area. Of these, 9 were subsequently awarded on

approval of Decree 164/2000 (the “Letta Decree”, implementing Directive 98/30/EC), which revised the duration of the

concessions (initially between 10 and 40 years). A list of existing concessions at 31 December 2019 is provided below:

Municipality Local Area Signing date Termination date

Asola Mantua 1 11 June 2007 31 January 2020

Borgo Virgilio Mantua 1 23 December 2008 1 January 2021

Bozzolo Mantua 1 31 May 2007 1 February 2020

Curtatone Mantua 1 5 April 2011 5 April 2023

Mantua Mantua 1 30 December 1999 30 December 2039

Porto Mantovano Mantua 1 16 September 2010 1 October 2023

San Benedetto Po Mantua 2 12 April 2005 1 February 2017

San Giorgio di Mantova Mantua 1 16 September 2010 1 October 2023

San Martino dell’Argine Mantua 1 17 September 2007 10 March 2020

Suzzara Mantua 2 8 November 2011 8 November 2023

Page no. 81

For the areas mentioned new concession award tenders are planned from 2021 onwards. As regards the concessions

expiring earlier (San Benedetto Po), these were extended by law up to the date of the new award procedure.

The gas distribution tariffs are established pursuant to regulations in force and periodic decisions published by the

sector Authority (ARERA), and are determined on the basis of the number of delivery points managed. The tariff

regulations in force at the time of approval of these consolidated financial statements are primarily represented by

Decision 859/2017/R/gas which for 2018 approved the compulsory tariffs for natural gas distribution, metering and

marketing services. In addition to setting the tariffs, ARERA also establishes the minimum quality and safety levels of the

services provided, to which a system of incentives/penalties is linked to stimulate continuous improvement of services

by the distributors.

The concessions for the integrated water service networks, as regards most of the province of Mantua, were awarded

to the Tea Group (in particular to Tea Acque, which mainly manages this service) in November 2005 by the AATO with a

20-year duration. In this case, too, the tariffs applied to end users by the company are determined by specific State laws

and ARERA decisions. At present, the calculation method in force for 2016-2019 was defined by Authority Resolution

no. 664/2015/R/idr. It envisages that each operator is guaranteed revenue (known as Vrg), determined on the basis of

operating costs and capital recognised by the aforementioned tariff method, making the revenues independent of

changes in volumes distributed. This is guaranteed by the tariff balancing mechanism which allows operators to recover

differences (in the Vrg for the next two years) between the revenue recognised (Vrg) and the amount effectively

invoiced on the basis of volumes sold.

As happened for gas, by Decision 917/2017/R/Idr ARERA approved the integrated text on technical service quality

(Rqti), with entry into force from 1 January 2018 for the monitoring of indicators and from 2020 for the related

incentive system. The regulations envisaged both specific standards, associated with planned service suspensions, and

macro-indicators (with which a number of other general standards are associated), each divided into clusters in which

the operators will be positioned.

The cemetery services provided directly by the parent company Tea S.p.A. include the management and maintenance

of cemeteries (mainly those in the municipalities of Mantua and Suzzara), crematorium management and vigil lighting.

These services, provided as a result of tender awards, are subject to tariffs determined by the contracting authority.

“Other intangible assets”, totalling Euro 7,479 thousand at 31 December 2018, mainly include investments in software

and leasehold improvements.

At 31 December 2019, goodwill totalled Euro 905 thousand (unchanged since 2018) and is detailed as follows:

(in thousands of Euro)

Integrated water

services

Purchases of

electricity Infrastructure Total

Balance at 31 December 2018 672 65 168 905

Increases - - - -

Writedowns - - - -

Balance at 31 December 2019 672 65 168 905

In compliance with IAS 36, goodwill cannot be amortised but is subject to an annual impairment test, or more frequent

testing if events or circumstances suggest that the asset has suffered impairment. The impairment test is conducted by

comparing the carrying amount with the recoverable amount of the cash generating unit (“CGU”). The recoverable

amount of the CGU is the higher between its fair value, net of costs to sell, and its value in use.

The assumption used in this process represents management’s best estimate for the period under review. The

estimated value in use of the CGU, for the purpose of the annual test, is based on the following assumptions:

• The expected future cash flows covering the period 2020-2024 are discussed in the Group’s Business Plan.

In particular, the estimate considers the EBITDA forecast adjusted to reflect the cost of planned capital

expenditure. These cash flows refer to the CGU in its condition at the time of preparation of the financial

statements and exclude estimated cash flows that could derive from restructuring plans or other

structural changes. The mix of volumes and sales used to estimate future cash flows is based on

assumptions considered reasonable and sustainable, and which represent the best estimate of expected

conditions in relation to market trends for the CGU in the period in question.

Page no. 82

• The expected future cash flow includes a normalised terminal period used to estimate the residual value

at the end of the concession or results beyond the specifically considered time horizon, which are

calculated using the specific medium/long-term growth rate.

• The WACC used reflects the present market assessment of the time value of money for the period under

review and the specific risks of the CGUs in question.

The recoverable amount of the CGUs is higher than their carrying amount. In addition, their historic profitability and

prospects for future earnings indicate that the carrying amount of goodwill will continue to be recoverable.

2 Right of use

(in thousands of Euro) Right of use

Balance at 1 January 2019 5,563

Of which:

- historic cost 5,563

- accumulated amortisation 0

Increases 0

Decreases

Asset reclassification adjustments

Amortisation -573

Balance at 31 December 2019 4,990

Of which:

- historic cost 5,563

- accumulated amortisation -573

The rights of use refer to property lease agreements on properties and for plant rental to which IFRS 16 was applied by

the Group from 2019.

The following table shows the changes in right of use:

At 31 December


Historic cost 5,563 0

Accumulated amortisation -573 0

Net carrying amount 4,990 0

3 Tangible assets

The tangible assets mainly refer to the Mariana Mantovana landfill and the networks and systems relating to

teleheating, gas, water and generic plants not accounted for in compliance with IFRIC 12 “Service Concession

Arrangements”.


(in thousands of Euro) Plant and machinery Land and buildings Landfill Other tangible assets Total

Balance at 1 January 2018 43,331 26,660 25,393 8,747 104,131

Of which:

- historic cost 94,503 37,175 55,578 23,144 210,399

- accumulated depreciation -51,172 -10,515 -30,185 -14,396 - 106,268

Increases 3,200 744 532 1,176 5,651

Decreases - 2 - - 6

Writedowns -2,785

Asset reclassification adjustments - 717 - -705

Page no. 83

(in thousands of Euro) Plant and machinery Land and buildings Landfill Other tangible assets Total

Adjustment to provision for landfill post-closure management -2,099 - 2,099

Depreciation - 4,729 - 979 - 913 -1,783 - 8,404

Balance at 31 December 2018 41,085 23,638 22,912 7,429 95,065

Of which:

- historic cost 96,264 35,107 54,011 23,918 209,299

- accumulated depreciation -55,179 -11,468 -31,098 -16,489 -114,234

Increases 2,902 534 1,474 4,911

Decreases -121 -6 -262 -390

Writedowns -

Asset reclassification adjustments -113 - 92 -206

Adjustment to provision for landfill post-closure management 1,104 1,104

Depreciation -4,578 - 988 -1,880 -2,059 -9,504


Of which:

- historic cost 98,346 35,635 55,114 24,824 213,919

- accumulated depreciation - 59,171 -12,457 -32,978 -18,334 - 122,939

The following table shows the breakdown of internal costs capitalised in 2018 and 2019, mainly relating to capital

expenditure in assets covered by service concession agreements classified under intangible assets:



Materials 4,757 1,857

Services 11,206 10,903

Other expenses 9 53

Personnel 930 648

Total 16,903 13,460

The following table shows the breakdown of finance lease payables classified under tangible assets:

At 31 December


Historic cost 531 644

Accumulated depreciation -124 -144

Net carrying amount 406 500

4 Inventory


At 31 December


Work in progress and semi-finished goods 673 584

Raw materials and consumables 2,103 2,449

Provision for inventory writedowns -180 -180

Total 2,596 2,853

Page no. 84

Inventory totalled Euro 2,596 thousand and Euro 2,853 thousand, respectively, at 31 December 2019 and 2018. The

provision for writedowns totals Euro 180 thousand, unchanged from the previous year.

5 Trade receivables


At 31 December


Trade receivables for invoices issued 62,694 60,546

Trade receivables for invoices to be issued 34,276 34,083


Total 77,707 76,901

Receivables refer primarily to the invoices issued for users of gas, water, energy and waste, net of the provision for bad

debts. Receivables for invoices to be issued refer to estimated consumption by customers in the period between the

last invoice issued and the end of the year.

The following table shows the changes in the provision for bad debts:

(in thousands of Euro) Provision for bad debts

31-Dec-18 17,727

Allocations 3,855

Used -2,320

31-Dec-19 19,262

6 Other current and non-current assets


Other non-current assets

At 31 December


Non-current financial receivables from related parties 5,135 4,942

Investments in other entities 14,003 14,003

Non-current financial receivables from others 1,860 1,752

Guarantee deposits 563 343

Financial lease receivables 162 162

Financial receivable from street lighting 16,847 10,675


Total 42,710 35,752

Other current assets

At 31 December


Advances to suppliers 2,238 2,407

Financial lease receivables 109 374

Social bonus receivables 998 871

Receivables from the compensation fund 102 333

Dividends receivable 0 0

Page no. 85

At 31 December


Commodity derivatives 0 606

Incentives for electricity production from renewable sources 627 605

Energy efficiency certificates 3,789 4,581

Prepaid expenses 482 445


Total 12,205 12,689

“Investments in other entities” refer mainly to the 13.5% interest in Enipower Mantova S.p.A.

The fair value of the investment in Enipower Mantova S.p.A. is measured on the basis of the best estimate of expected

future cash flows from the investment. Specifically, these refer to the expected future cash flows from the investment

in terms of dividends. Once estimated, these cash flows are discounted at the reporting date.

The WACC at 31 December 2019 reflects the decrease in the underlying risk-free rate (return on 10-year BTPs), which

fell from 2.5% in 2018 to 1.9% this year, the decrease in other financial elements (MRP) and the different D/E ratio. The

decrease in the WACC on the one hand, and the increase in expected cash flows on the other, show a present value in

line with 2018.

Given the use of benchmarks not observable on the market, the fair value is classified as “Fair value level 3”.

The non-current “Financial receivable from street lighting” derives from the application of IFRIC 12 “Financial Method”

to the service under concession for the management and upgrading of street lighting systems provided by the Tea

Group, particularly by Tea Reteluce S.r.l. During 2019, another 16 municipalities were added to the 28 already included

in the 2018 scope. Of those added, 10 were awarded through tender participation and 6 were acquired through M&A

transactions.

The assets relating to derivative contracts reflect the measurement of derivative instruments which, at the reporting

date, showed a positive fair value. For more details, see the paragraph on “Fair value” in the Directors’ Report.

The financial lease receivables refer to the planning and implementation of a teleheating infrastructure for Belleli.

7 Cash and cash equivalents


At 31 December


Cash on hand 6 13

Bank and post office accounts 22,793 28,397

Total 22,799 28,410

8 Shareholders’ equity

Share capital

At 31 December 2019, the Group’s fully subscribed and paid-up share capital amounted to Euro 73,403 thousand (Euro

73,403 thousand at 31 December 2018) and comprises 283,408 ordinary shares in issue (283,408 ordinary shares in

issue net of 1,532 treasury shares at 31 December 2018) with a nominal value of Euro 259 each.

Page no. 86

Other reserves

(in thousands of Euro) Cash flow hedging Actuarial reserve

At 31 December 2017 808 60

Profit/(Loss) -232 107

Tax effect -161 -26

Other comprehensive income -393 81

At 31 December 2018 415 141

Profit/(Loss) -641 -9

Tax effect 63 2

Other comprehensive income -578 -7

At 31 December 2019 -163 134

The cash flow hedge reserve at 31 December 2019 was reversed to the Income Statement in 2019 by Euro 45 thousand.

Other reserves include the legal reserve for Euro 6,612 thousand at 31 December 2019 (Euro 5,590 thousand at 31

December 2018).

9 Current and non-current loans

The following table provides a breakdown of this item at 31 December 2019 and 2018:

At 31 December


Non-current portion of bank loans 54,890 58,959

Financial lease/right of use payables 4,652 381

Bonds 26,841 29,699


Current portion of bank loans 2,959 3,063

Financial lease/right of use payables 693 94

Bonds 2,931


Current loans 6,594 3,786

Total loans 92,976 92,826

Due within a year Due in 1 to 5 years

Due after more

than 5 years Total (in thousands of Euro)

31-Dec-19

Bank loans 2,959 54,890 57,849

Financial lease/right of use payables 693 285 4,366 5,344

Bonds 2,931 26,841 0 29,772

Bank overdrafts 11 0 0 11

Page no. 87

Due within a year Due in 1 to 5 years

Due after more

than 5 years Total (in thousands of Euro)

31-Dec-18

Bank loans 3,063 28,391 30,568 62,022

Financial lease/right of use payables 94 381 475

Bonds 17,731 11,969 29,699


The financial lease payables represent the recording of liabilities deriving from the accounting of lease agreements

pursuant to IFRS 16.

The following table provides information on the main long-term loans in place:

(in thousands of

Euro) At 31 December

Financial

institutions Notional value Interest rate 2019 current portion 2018 current portion

BNL 68,000 1M Euribor 45,709 0 51,606 0

Banco BPM 12,200 3M/6M Euribor 7,267 2065 6,809 1633

MPS 2,730 6M Euribor 1086 271 0 0

Credit Agricole 4,049 6M Euribor 1,490 201 1,688 221

Bper 2,000 3M Euribor 2,000 394 0 0

Other 706 Fixed 232 31 1,919 1,209

Total 89,685 57,784 2,962 62,022 3,063

The reduction in medium/long-term payables is due to the lower exposure to the BNL loan. This is a revolving loan in

favour of Tea Acque S.r.l. Tea Acque reduced the balance payable to BNL by making recourse to a shareholder loan

granted by the parent company Tea S.p.A.

In line with international practices, during the years under review the Group’s loan contracts envisage compliance with

operating and financial covenants, which at 31 December 2019 had been satisfied.

Covenants: a number of contractual clauses require the Group to comply with certain levels of financial ratios and could

lead to changes in the interest rate if certain conditions arise. If these covenants are not satisfied, the Group could be

called upon to immediately settle the residual debt;

- negative pledges: these clauses grant the option to lenders to demand early settlement of the loans, mainly

establishing limits on the Group’s options for pledging collateral and personal guarantees on its own assets in

favour of third parties, or of changing the ownership structure of reference holding control of the Group,

without permission from the lenders;

- cross-default assumptions: these clauses assume that if an obligation deriving from relations other than the

loan contracts is declared in default, such default also qualifies as default of the loan contracts themselves.

At 31 December 2019, the bond loan and part of the long-term debt were covered by financial arrangements involving

covenants that result in a number of limitations. There is a small number of covenants on the net debt, including those

that require the Group to maintain a specific level of NFP/EBITDA and NFP/Equity ratios. For more details, see the

Directors’ Report.

EBITDA calculation (as per BOND PROSPECTUS)



EBITDA (Financial Statements) 44,601 42,807 1,794

Allocations to provisions for risks and charges 4,771 4,043 728

EBITDA for covenants calculation 49,372 46,850 2,522

Page no. 88

Net debt calculation (as per BOND PROSPECTUS)



Non-current financial liabilities 81,731 88,658 -6,927

Current financial liabilities 5,901 3,692 2,208

Finance lease/right of use liabilities 5,344 475 4,869

Cash and cash equivalents 22,799 28,410 -5,611

Net debt 70,177 64,416 5,761

Covenants

Contractual limit Value 2019 Value 2018

Bond - Senior Unsecured Amortising Fixed Rate Notes EUR

30 Mln

Net Debt/EBITDA < 4.6x 1.42 1.37

Net Debt/Equity < 1.5x 0.37 0.35

10 Employee benefits

Employee benefits include the employee severance indemnity (TFR) for Group employees. The following shows a

breakdown of the changes recorded in the years under review:


Employee severance

indemnity/TFR

1 January 2018 7,348

Costs for services 96

Financial expenses on employee severance indemnity 63

Other changes -171

Used and advances -854

Actuarial gains (losses) -107

31-Dec-18 6,376

Costs for services 121


Other changes 6


Actuarial gains (losses) 9

31-Dec-19 6,147

The assumptions regarding employee invalidity are made on the basis of an actuarial calculation aligned with published

statistics and with insurance sector experience, broken down by gender and age. The assumptions regarding pension

age are based on position and the type of employment contract.

The actuarial assumptions for the calculation of defined benefit pension plans are broken down in the following table:

At 31 December

(as percentages) 2019 2018

Main assumptions

Inflation rate 0.70% 1.50%

Discount rate 0.24% 1.12%

Pay increase rate 1.18% 1.80%

Turnover rate - senior managers 7.00% 6.00%

Turnover rate - employees 7.00% 6.00%

Page no. 89

11 Provisions for risks and charges

The changes in this item were as follows:


At 31

December

2018 Allocations Releases

Changes in

estimated

cash flows Used

At 31

December

2019

Provision for landfill post-closure management 21,196 691 1,104 -107 22,883

Risks re gas and electricity market 2,449 700 -345 2,803

Risks re water market 1,883 -149 -1,363 370

Risk re liquidation of Sinit 1,625 1,625

Risks for Tnet warranties 688 688

Other provisions for risks 1,112 216 1,327

Total 28,952 1,606 -149 1,104 -1,815 29,697

Provision for landfill post-closure management

This provision essentially refers to future expense for the environmental clean-up of the landfill area once it is filled. The

provision therefore includes the costs for post-closure management until the site in question is fully converted to

parkland.

This item was calculated through recourse to an independent expert appraisal. The increases and decreases for the

period were made to adjust existing provisions on the basis of estimated future costs to be incurred at the reporting

date. The decreases also refer to use of the provision for expenses incurred during the period (relating to closed

sections of the landfill), and to the total expense incurred during the post-closure phase until mineralisation of the

waste is completed and the landfill has been converted to parkland.

Risks re gas and electricity market

The provision includes allocations made over the years against a legal dispute, adjusting payment charges to be paid to

TERNA or SNAM and losses due to the possible reduction of the direct sales network.

The legal dispute was lodged by the Shareholders of Sinergie Italiane S.r.l. in Liquidazione (4.97% investee of Tea S.p.A.)

against Tea S.p.A. and Sinergie Italiane S.r.l. in Liquidazione (SinIt), in relation to the alleged obligation of Tea S.p.A. to

recognise to SinIt a fee to cover the operating costs of the gas import contracts entered into by SinIt.

In this dispute, the first instance decision was pronounced, only partially accepting the counterparty claim and in any

event without recognising the existence of any damages to be compensated by Tea. The plaintiff filed an appeal,

reiterating the claim for compensation of damages. During 2019, the appeal proceedings did not commence. Therefore,

in view of the persisting risk of an adverse decision against Tea, the provision was not released despite the favourable

first instance decision.

Risks re water market

The provision refers to potential tariff balance adjustments of the authority and possible penalties inflicted by the ARPA.

Risk re liquidation of SINIT

The provision refers to possible payments that Tea S.p.A. may incur, as shareholder of SINIT, due to the winding-up of

the company. SINIT liquidation activities are still in progress and, despite the break-up of certain assets, the capital

deficit position remains.

Other provisions for risks

These are allocations for minor risks and charges.

Page no. 90

12 Other current and non-current liabilities


Trade payables

At 31 December



Payables to subsidiaries 0 10

Payables to associated companies 74 194

Payables to related parties 8,794 5,958

Total 65,478 59,416

Current tax payables

At 31 December


Tax payables - IRAP 181 108

Tax payables - IRES 1,888 452

Other tax payables 1,416 1,239

Regional waste tax 2,405 2,030

Italian TV licence fees payable 310 273

Energy duty payable to tax authorities 18 18

Total 6,219 4,120

Other current liabilities

At 31 December


Payables to employees 1,582 1,562

Payables to social security/pension institutions 1,907 1,700

Energy and environmental services fund 2,919 1,330

Other short-term liabilities 6,844 10,526

Total 13,252 15,119

Other non-current liabilities

At 31 December


Guarantee deposits from customers 1,236 1,275

Other non-current liabilities 630 320

Deferred tax liabilities -27 453

Total 1,839 2,048

13 Other information

(i) Guarantees

The breakdown of guarantees given is as follows:

Page no. 91

At 31 December


Guarantees in favour of associated companies for medium/long-term loans 12,435 12,435

Guarantees in favour of other companies for medium/long-term loans 3,911 3,911

Total 16,346 16,346

(ii) Remuneration due to Directors, Statutory Auditors and Independent Auditors

The annual remuneration due to Directors and members of the Board of Statutory Auditors can be broken down as

follows:


(in Euro) 2019 2018

Directors 443,229 452,661

Board of Statutory Auditors 189,376 186,840

Total 632,605 639,501

The fees due to the Independent Auditors for the year ending 31 December 2019 totalled Euro 179,932.

Year ended 31

December

(in Euro) 2019 2018

Statutory audit of the annual accounts 122,631 120,018

Other audit services 57,301 18,300

Total 179,932 138,318

(iii) Related party transactions

Related parties are identified on the basis of provisions of IAS 24. Related party transactions are mainly of a trade and

financial nature and are associated with transactions carried out at arm’s length. However, there is no guarantee that, if

such transactions were concluded between or with third parties, the latter would have negotiated and signed the

related contracts, or completed the transactions at the same conditions and in the same manner.

The breakdown of related party transactions is as follows:

BALANCE SHEET Fondazione

Mazzali

Municipality

of Mantua

ASTER

S.r.l.

ASPEF

S.r.l.

Biociclo

S.r.l.

Blugas

Infrastrutture

S.r.l.

Tnet

Servizi

S.r.l.

Unitea

S.r.l.

Trade receivables 10,151

1,476,111

34,955

52,562

34,821 412,160

107,965

50,002

Financial

receivables -

-

-

-

- 5,135,436

-

-

Other receivables -

-

-

-

- -

-

-

Trade payables -

8,824,441

70

84,163 -

310

-

Financial payables -

-

-

-

- -

-

-

Other payables -

4,774,846

-

-

- -

-

-

Page no. 92

INCOME

STATEMENT

Fondazione

Mazzali

Municipality

of Mantua

ASTER

S.r.l.

ASPEF

S.r.l.

Biociclo

S.r.l.

Blugas

Infrastrutture

S.r.l.

Tnet

Servizi

S.r.l.

Unitea

S.r.l.

Operating

revenues

172,302

7,344,888

308,955

494,673

472,567 34,383

-

51,002

Operating costs -

2,983,650

20,806

-

901,308 -

- -

Financial income

and expenses -

-

-

-

- 193,228

- -

These Financial Statements, comprising the Income Statement, Statement of Comprehensive Income, Balance Sheet,

Statement of Changes in Shareholders’ Equity, Statement of Cash Flows and the Notes, present a true and fair view of

the financial position and of the result for the period and reflect the contents of the accounting records.

Mantua, 28 May 2020


Massimiliano Ghizzi

Page no. 93

Independent Auditors’ Report

Page no. 94

Page no. 95

Page no. 96

Page no. 97

Page no. 98

Page no. 99

Separate Financial Statements of the Holding Company

Page no. 100

Financial statements

Page no. 101

INCOME STATEMENT



Revenues 39,308 37,915

Other revenues and income 3,174 4,696

Costs for raw, ancillary and consumable materials 856 881

Costs for services 8,751 10,028

Personnel costs 8,995 8,976

Other operating costs 1,549 1,551


Operating profit 13,288 10,584

Financial income 4,052 3,884

Financial expenses 1,529 1,574

Gains (losses) on investments measured using the equity method 7,463 7,763

Profit before taxation 23,275 20,657

Taxes 3,659 3,181


STATEMENT OF COMPREHENSIVE INCOME




Investment revaluation using the equity method -578 -393

Other comprehensive income that will be reclassified to the Income

Statement in subsequent years -578 -393

Actuarial gains/(losses) for employee benefits -7 27

Actuarial gains/(losses) for employee benefits - tax effect 2 -6

Other comprehensive income that will not be reclassified to the Income

Statement in subsequent years -5 20

Total other comprehensive income -583 -373

Comprehensive income for the year 19,034 17,103

Page no. 102

BALANCE SHEET

At 31 December


Intangible assets 4,279 4,108


Right of use 352 -

Investments measured using the equity method 57,170 47,378


Total non-current assets 187,139 176,728

Inventory 750 671

Trade receivables 11,551 8,568

Current tax receivables 271 646


Cash and cash equivalents 20,321 25,872

Total current assets 73,967 71,462

Total assets 261,105 248,190

Share capital 73,403 73,403

Legal reserve 5,289 4,415

Share premium reserve 3,534 3,534

Other reserves 66,932 61,765

Retained earnings 11,998 7,798

Profit (Loss) for the year 19,616 17,476

Shareholders’ equity 180,772 168,390


Employee benefits 1,351 1,410

Provisions for risks and charges 26,302 24,590

Deferred tax liabilities 3,396 3,593


Total non-current liabilities 61,476 60,794

Current loans 3,517 223




Total current liabilities 18,857 19,006

Total liabilities 80,334 79,800

Total shareholders’ equity and liabilities 261,105 248,190

Page no. 103

STATEMENT OF CASH FLOWS

At 31 December



Adjustments for:


Allocations to/(releases from) provisions for risk and others 411 -1,380

Net financial (income)/expenses -2,524 -2,310

Other non-monetary items -3,804 -4,294

Cash flow generated/(absorbed) by operating activities before changes in net working

capital 22,742 20,083

Change in inventories -79 3

Change in trade receivables -2,984 2,080

Change in trade payables 679 -517

Changes in other assets/liabilities 1,599 4,426

Employee benefit payments -80 -228

Interest paid -704 -720

Taxes on income paid -5,317 -4,235

Net cash flow generated/(absorbed) by operating activities 15,857 20,891

Investments in tangible assets -2,471 -2,980

Investments in intangible assets -2,180 -818

Investments in financial assets -6,700

Disposals of tangible and intangible assets 0 0

Loans disbursed -11,386 -5,388

Dividends received 7,116 8,049

Interest income 1,136 939

Net cash flow generated/(absorbed) by investing activities -14,485 -198

New long-term loans 2,355 0

Loans repaid -306 -1,519

Dividends distributed -8,971 -6,539

Net cash flow generated/(absorbed) by financing activities -6,922 -8,058

Total change in cash and cash equivalents -5,551 12,635

Cash and cash equivalents at the beginning of the year 25,872 13,236

Cash and cash equivalents at year end 20,321 25,872

Page no. 104

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands of Euro) Share

capital

Legal

reserve

Share

premium

reserve

Other

reserves

Retained

earnings

Profit (Loss)

for the year

Total

Shareholders’

equity

At 1 January 2018 73,403 3,014 3,534 57,236 3,268 15,992 156,446

Net profit for the year - - - - - 17,476 17,476

Other comprehensive

income - - - - - - 373 - 373

Comprehensive income for

the year - - - - - 17,103 17,103

Reclassifications - 1,401 - 4,529 4,531 - 10,461 -

Dividends distributed - - - - - - 5,158 - 5,158

At 31 December 2018 73,403 4,415 3,534 61,765 7,798 17,476 168,390

Net profit for the year - - - - - 19,616 19,616

Other comprehensive

income - - - - - - 583 - 583

Comprehensive income for

the year - - - - - 19,034 19,034

Reclassifications - 874 - 5,167 4,200 - 10,240 -

Dividends distributed - - - - - 6,652 - 6,652

At 31 December 2019 73,403 5,289 3,534 66,932 11,998 19,616 180,772

Mantua, 28 May 2020


Massimiliano Ghizzi

Page no. 105

Explanatory notes

Page no. 106

Reporting principles

1 General information

The characterising element for the corporate identity of Tea S.p.A., a local public services company, lies in its historic

link to the local area, where its roots date back to the 19th century. From a geographic point of view, its local area

extends from the city of Mantua to the entire province and beyond.

The Company’s registered office is at Via Taliercio 3, Mantua. The Company’s shareholders are all public authorities,

and the Municipality of Mantua holds the controlling interest.

The Company, the holding for the Group, is the owner of networks and plants and the Mariana Mantovana landfill, and

holds the investments in the operating companies. It also provides all staff services and coordinates the treasury and

cash pooling services for the Group.

The only operating activity still remaining with the Holding is the cemetery service, i.e. management of the cemeteries

in Mantua and Suzzara (contract awarded through public tender) and the crematorium in Mantua.

In 2017, the Company issued a 7-year non-convertible bond for a total of Euro 30 million, listed on the regulated

market of the Irish Stock Exchange.

The statutory audit of the separate financial statements is assigned to Deloitte & Touche S.p.A., with responsibility for

auditing the accounts of the Company and the main Group companies.

2 Summary of accounting standards

This note provides a list of the main international accounting standards adopted in the preparation of these Financial

Statements at 31 December 2019. Please note that the estimates made at 31 December 2019 do not reflect the

consequences of the worsening of the possible evolutions linked to the current domestic and international scenario

characterised by the spread of COVID-19 and the resulting restrictive measures to limit it, enacted by the public

authorities of the countries concerned. Although these circumstances, which emerged in the early months of 2020,

amount to a subsequent event that does not require an adjustment in the financial statements pursuant to IAS 10, they

are extraordinary in terms of their nature and extent and may have direct and indirect repercussions on economic

activities, creating a context of general uncertainty, the evolutions and relative effects of which are not currently

predictable. The effects of this event will also depend on the timeliness with which governmental institutions will define

monetary and fiscal measures to support the most exposed sectors and operators.

2.1 Basis of presentation

With effect from the year ending 31 December 2017, in application of Italian Legislative Decree 38 of 28 February 2005,

as amended by Law Decree 91 of 24 June 2014, the Company prepares the separate financial statements (“Separate

Financial Statements”) in compliance with International Financial Reporting Standards (hereinafter “IFRS” or

“International Accounting Standards”) issued by the International Accounting Standards Board (hereinafter “IASB”) and

adopted by the European Commission in accordance with the procedure referred to in art. 6, Regulation (EC) no.

1606/2002 of the European Parliament and of the Council issued on 19 July 2002. This because the Company qualifies

under the definition in art. 2 (a) of Italian Legislative Decree 38/2005: “Companies that are issuers of financial

instruments admitted to trading on regulated markets in any EU Member State, other than those indicated under letter

d”.

The term IFRS refers to all the IFRS, all the International Accounting Standards (IAS) and all interpretations of the

International Financial Reporting Interpretations Committee (IFRIC), previously known as the Standard Interpretations

Committee (SIC).

The Separate Financial Statements for the year ending 31 December 2019, approved by the Company’s Board of

Directors on 28 May 2020, were prepared on a going concern basis - even in the conditions of uncertainty linked to the

spread of the pandemic (COVID-19) as described in the section “Significant events after the reporting period and

business outlook” in the Directors’ Report, to which reference is made - as the Directors verified that there are no

indications of a financial, operations or other nature that could suggest critical issues in the Company’s capacity to meet

its obligations in the foreseeable future and in particular in the next 12 months.

Page no. 107

The description of methods used by the Company to manage financial risks is provided in the Directors’ Report.

The financial statements and related classification criteria adopted by the Company, from the options envisaged in IAS 1

“Presentation of financial statements”, are as follows:

• The Balance sheet was prepared by classifying assets and liabilities according to the “current/non-current” criterion;

• The standard Income Statement was prepared by classifying operating costs by type;

• The Statement of Comprehensive Income, presented separately from the Income Statement, includes income and

expense items which are recognised directly in shareholders’ equity in accordance with specific IFRS provisions;

• The Statement of Cash Flows was prepared according to the “indirect method”, adjusting the result for the year for

non-monetary components;

• The Statement of Changes in Shareholders’ Equity, which shows the total income/(expenses) for the year,

transactions with shareholders and other changes in shareholders’ equity.

The Financial Statements preparation adopted the historic cost method, where appropriate taking into account the

value adjustments, except items which according to IFRS must be designated at fair value, as indicated in the valuation

criteria and without prejudice to cases for which IFRS provisions allow a different valuation criterion.

The Separate Financial Statements were prepared and presented in Euro. Unless otherwise indicated, all amounts in

this document are expressed in thousands of Euro.

2.2 Valuation criteria

A brief description is provided below of the most important accounting principles and valuation criteria used to prepare

the Financial Statements.

(i) Revenues and Costs

Revenues are recognised for the total fair value of the consideration received or to be received, net of returns,

discounts, allowances and bonuses, as well as directly associated taxes.

The Company records revenues from the sale of goods and the provision of services when the amount of revenues can

be reliably calculated, it is likely that the economic benefits deriving from the transaction will flow to the entity and the

completion status of the transaction can be reliably measured at the Financial Statements reporting date. The Company

bases its estimates on historic results, taking into consideration the type of customer, transaction and specific

characteristics of every arrangement.

IFRS 15 establishes a model for the recognition of revenue which applies to all contracts entered into with customers,

with the exception of those falling within the application of other IAS/IFRS standards.

The fundamental steps for the recognition of revenue according to this model are:

• customer contract identification;

• identification of the contract’s performance obligations;

• transaction pricing;

• allocation of the transaction price to the performance obligations included in the contract;

• revenue recognition when each performance obligation is met.

The income and expense from measurement of investments using the equity method refer to the percentages of profit

or loss realised by the subsidiaries and associated companies. The dividends collected or to be collected as decided by

the latter are recognised as a direct reduction in the carrying amount of the investment subject to impairment testing.

Costs are recognised on an accrual basis when they relate to goods and services purchased or consumed during the

year or are systematically allocated, i.e. when their potential future use cannot be identified.

Financial income and expenses are recognised in the Income Statement in the year of accrual.

Page no. 108

(ii) Transactions in foreign currency

Revenues and costs relating to transactions other than in Euro are recognised at the spot rate on the date the

transaction is recognised.

Cash assets and liabilities in currencies other than the Euro are translated to the operating currency by applying the

spot rate at the reporting date, with recognition of the effect in the Income Statement. Non-monetary assets and

liabilities expressed in currencies other than the Euro are measured at cost and recognised at the exchange rate on

initial recognition. When measurement is at fair value or at the recoverable value or realisable value, the spot rate at

the date of calculation of that value is adopted.

(iii) Government grants

Government grants received are recognised at their fair value if there is reasonable certainty that they will be disbursed

and that the Company will comply with all conditions for such disbursement. Capital grants are recognised as a direct

decrease in capital expenditure, resulting in a lower amortisation amount over the useful life of the asset.

(iv) Dividends

Dividends are recognised at the date of approval by the Shareholders’ Meeting establishing entitlement to receive

payment, except when it is reasonably certain that the shares will be sold prior to the coupon date.

The dividends decided by the Shareholders’ Meeting are recognised as a change in shareholders’ equity in the year in

which they are approved.

(v) Taxes on income

Current taxes on income, recognised under “Current tax payables” net of payments on account, or under “Current tax

receivables” when the net balance results in a credit, are determined on the basis of an estimation of taxable income

and in compliance with tax regulations in force. Taxable income is different from net profit in the Income Statement as

it excludes income and cost components that are taxable or deductible in other years, or are not taxable or deductible.

In particular, such payables and receivables are calculated by applying the tax rates envisaged by regulations in force at

the reporting date.

Some of the Group companies have adopted the tax consolidation system introduced by Italian Legislative Decree

344/2003. This system envisages the recognition of a single tax base for Group companies opting for inclusion in the tax

consolidation. The adoption of this optional system offers the possibility, for IRES tax purposes, of netting the tax results

(taxable amounts and tax losses in the consolidation period) of the participating companies.

Deferred tax assets and liabilities are calculated against all differences emerging between the tax base of an asset or

liability and its related carrying amount, except for goodwill and for differences deriving from investments in

subsidiaries, when the reversal timing of such differences is subject to Group control and it is probable that they will not

be reversed in a reasonably foreseeable time frame. Deferred tax assets, including those relating to prior tax losses, for

the portion not offset against deferred tax liabilities, are recognised to the extent that future taxable income is

probable against which they can be recovered. Deferred tax assets and liabilities are determined using tax rates

expected to apply in the years in which the differences will be realised or settled.

Current income taxes, deferred tax assets and liabilities are recognised in the standard Income Statement under

“Taxes”, except for those relating to items recognised as components of comprehensive income other than net profit

and those relating to items debited or credited directly in shareholders’ equity. Deferred tax assets and liabilities are

netted when they refer to the same tax authority, when there is a legal right to netting and when settlement of the net

balance is expected.

The balance payable after offsetting is recognised under “Deferred tax liabilities”.

Other taxes not related to income, such as indirect taxes and duties, are included under “Other operating costs” in the

Income Statement.

Page no. 109

(vi) Intangible assets

Intangible assets are composed of non-monetary elements, identifiable and with no physical consistency, controllable

and suitable for generating future economic benefits, as well as goodwill when acquired against payment. The

identifiability is defined in reference to the possibility of distinguishing the intangible asset acquired from the goodwill.

This requirement is normally satisfied when:

• the intangible asset is attributable to a legal or contractual right; or

• the asset can be separated, i.e. sold, transferred, leased or exchanged independently, or is an integral part of

other assets.

These elements are initially recognised at purchase and/or production cost, including directly attributable expense to

prepare the asset for use.

(a) Services under concession

The Company applies IFRIC 12 to agreements for services under concession signed between a public entity (granting

authority) and the Company (concession holder) in reference to cemetery services. In particular, if the granting

authority controls the infrastructure, defining and monitoring the characteristics of the service provided and applicable

prices, at the same time retaining a residual interest in the asset, the concession holder has the right to claim payment

from users for services provided through the use of the infrastructure.

More precisely, the operator recognises an intangible asset in accordance with provisions of IAS 38, to the extent to

which it has the right to claim payment from users of the infrastructure. Consequently, the concession holder’s cash

flows are not guaranteed by the granting authority, but are associated with effective use of the infrastructure by users,

and therefore demand risk is incurred by the concession holder.

With reference to capital grants received on non-current assets subject to the application of IFRIC 12, these are

recognised as a reduction in such assets.

(b) Other intangible assets with a finite useful life

Intangible assets with a finite useful life are recognised at cost, as described previously, net of accrued amortisation and

any impairment losses.

Intangible assets with a finite useful life are amortised from the moment the asset becomes available for use and the

related cost is distributed systematically in relation to its residual possibility of use, i.e. over its estimated useful life.

Intangible assets with a finite useful life are systematically amortised over their useful life, intended as the estimated

period in which the assets will be used by the Company. Intangible assets are amortised according to the methods

indicated below:

Intangible asset category Estimated useful life (percentage)

Concessions Concession duration

Licences 20% - 33%

(vii) Tangible assets

Tangible assets are recognised at purchase or production cost, net of accrued depreciation and any impairment losses,

periodically determining the market value and adjusting the carrying amount to that value at the measurement date.

The purchase or production cost includes expenses directly attributable to acquisition of the asset.

Costs for improvement, modernisation and transformation of an incremental nature in relation to leased assets are

recognised under balance sheet assets when it is probable that the expected future economic benefits will be increased

from the use or sale of the asset. These are:

• reclassified under the asset item to which they pertain;

• depreciated over the shorter period between the useful life of the improvements and the duration of the

related lease agreement.

Page no. 110

Subsequent costs are included in the carrying amount of the asset or recognised separately, as appropriate, only when

it is probable that it will generate future economic benefits and the cost can be reliably measured. Expenses incurred

for routine and/or cyclical maintenance and repairs are recognised directly in the Income Statement when incurred.

Tangible assets are depreciated on a straight-line basis over their technical economic useful life, intended as the

estimated period in which the asset will be used by the Company. The period begins from the month in which the asset

is first used or could have been used. When the tangible asset is made up of multiple significant components with

different useful lives, depreciation is applied to each component. The value to be depreciated is the recognition value

less the estimated net disposal value at the end of its useful life. The following are not subject to depreciation: land,

even if purchased jointly with a building; works of art; tangible assets held for sale. Any changes to the depreciation

schedule resulting from a review of the useful life of a tangible asset, its residual value or the methods for achieving

economic benefits from the asset, are recognised prospectively.

The estimated useful life of the main tangible assets is as follows:

Tangible asset category Estimated useful life (percentage)

Buildings 3%

Plant and machinery 2% - 12.5%

Industrial and commercial equipment 10% - 20%

Other tangible assets 2% - 25%

(viii) Rights of use IFRS16

On 13 January 2016, the IASB published the standard IFRS 16 - Leases, which replaces IAS 17 - Leases and the

interpretations IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and

SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard provides a new definition of leases and introduces a criterion based on right of use of an asset to

distinguish lease contracts from service contracts, identifying as the discriminating factors of leases: identification of the

asset, right of replacement of the asset, right to receive substantially all economic benefits deriving from use of the

asset and, lastly, the right to control use of the asset underlying the contract for a period of time in exchange for a

consideration. This concept is substantially different from that of “risks and benefits” which were the focus of IAS 17

and IFRIC 4.

The standard establishes a single model for the recognition and measurement of lease contracts for the lessee, which

envisages recognition of an asset held under an operating lease or finance lease among balance sheet assets with a

balancing entry of a financial payable, also providing the option of not applying this model to contracts covering low-

value assets and short-term leases (with a duration of 12 months or less).

However, no significant changes for the lessor are envisaged in the new standard.

The Company has completed the impact assessment process associated with the introduction of the new standard at

the first-time adoption date (1 January 2019). This process was divided into different steps, including the full mapping

of contracts potentially containing a lease and their analysis, in order to understand the main clauses relevant to

application of the provisions of IFRS 16.

The approach taken in the first-time adoption phase was not retrospective, i.e. right of use equal to the financial

liability. It follows that shareholders’ equity was not amended on FTA.

The following table shows the impact of the adoption of IFRS 16 at the transition date:

Page no. 111

€/000 Impact at the transition date

ASSETS (01.01.2019)

Non-current assets

Right of use - Buildings 422

Total 422

SHAREHOLDERS’ EQUITY AND LIABILITIES

Non-current liabilities

Non-current finance lease liabilities 355

Current liabilities

Current finance lease liabilities 68

Total 422

Shareholders’ equity 0

Retained earnings 0

The adoption of IFRS 16 led to the following recognitions at 31 December 2019:

• Recognition of non-current assets for Euro 422 thousand. These assets represent the discounted value in

use of assets covered by rights of use;

• Recognition of non-current financial liabilities for Euro 355 thousand and current financial liabilities for Euro

68 thousand. These liabilities represent the financial obligation relating to the present value of cash flows

payable to the lease counterparties for contracts in place at 31 December 2018.

• Recognition of amortisation for Euro 71 thousand, financial expenses for Euro 8 thousand and the write-off

of service costs for Euro 75 thousand. The total effect on the income statement (net of deferred taxes of

Euro 1 thousand) was a decrease of Euro 2 thousand in the profit for the year.

• Recognition of a closing balance of shareholders' equity after deducting the Euro 2 thousand in reduced

profit in the income statement.

Note that the weighted average incremental borrowing rate applied to the financial liabilities recognised at 1 January

2019 was 1.82%.

On adoption of IFRS 16, the Company applied the exemption permitted by paragraph 5(a) of IFRS 16 in relation to

leases of a duration of less than 12 months for vehicle rentals.

Likewise, the Company applied the exemption offered by paragraph 5(b) of IFRS 16 regarding lease contracts for which

the underlying asset is of low value (i.e. the single asset underlying the lease contract does not exceed the value of Euro

5 thousand carried forward). Contracts for which the exemption was applied are mainly of the following types: printers

and low-value equipment.

For these contracts, the introduction of IFRS 16 did not affect the recognition of the finance lease liability and related

right of use, but the lease instalments are recognised in the income statement on a line-by-line basis for the duration of

the respective contracts.

(ix) Investments measured using the equity method

Investments in subsidiaries and associated companies are recognised at acquisition cost, then subsequently measured

using the equity method. The percentage gain or loss accrued during the year is recognised in the Income Statement,

except for effects relating to other changes in the shareholders’ equity of the investee, reflected directly in the

Statement of Comprehensive Income. The percentage loss exceeding the carrying amount is recognised in a special

provision under liabilities to the extent that the Company considers there are legal or implicit obligations it is required

to fulfil for the investee or in any event to cover losses deriving from them.

Page no. 112

(x) Financial instruments

Equity investments not covered in the previous paragraph (ix) Investments measured using the equity method are

designated at fair value through profit or loss under the item “Other non-current assets”. Shares, for which the fair

value cannot be calculated with sufficient reliability, are measured at acquisition cost. In addition, the carrying amount

recorded in the financial statements for such instruments is tested regularly for signs of potential impairment. In this

case, an impairment loss is recorded under financial expenses in the Income Statement for the period.

(xi) Impairment test

Goodwill and intangible assets with an indefinite useful life are not amortised, but instead are subject to annual

impairment tests, carried out more frequently if there are indicators suggesting any impairment.

The recoverability of tangible assets, intangible assets and rights of use is checked when events or changes in

circumstances lead to the belief that the carrying amount is not recoverable.

Any writedown is recognised for an amount equal to the difference between the carrying amount of the asset and its

recoverable value, in turn equal to the higher between the fair value of the asset, less disposal costs, and its value in

use. For impairment testing purposes, the assets are grouped on the basis of their capacity to generate cash inflows,

separately identifiable and independent of other assets or groups of assets, cash generating units (also “CGUs”)

represented by the smallest identifiable set of assets that generate cash inflows largely independent of those generated

by other assets.

CGUs are defined considering, inter alia, the methods whereby the management controls operating activities (e.g., by

lines of business) or takes decisions regarding whether to maintain in operation or dispose of the company’s assets and

properties.

The CGUs may include corporate assets, or assets that do not generate autonomous cash flows, attributable on

reasonable and consistent bases. Corporate assets that cannot be attributed to a specific CGU are allocated to a

broader aggregate consisting of multiple CGUs. With reference to goodwill, the test is performed at the level of the

smallest aggregate on the basis of which the Company Management directly or indirectly values the return of the

investment which includes the goodwill itself. The rights of use, which generally do not produce autonomous cash

flows, are allocated to the CGU to which they refer; the rights of use which cannot be specifically allocated to the CGUs

are considered corporate assets.

The recoverability is checked by comparing the carrying amount with the relative recoverable amount represented by

the higher of the fair value, net of costs to sell, and the value in use. The latter is determined by discounting the

expected cash flows deriving from the use of the CGU and, if significant and reasonably determinable, from its disposal

at the end of its useful life net of costs to sell. Expected cash flows are determined on the basis of reasonable and

supportable assumptions representing the best estimate of the future economic conditions that will be in place during

the residual useful life of the CGU, attributing major relevance to indications obtained externally.

In order to determine the value in use, the expected cash flows are subject to discounting at a rate that reflects the

current market valuations of the time value of money and the specific risks of the asset not reflected in the estimated

cash flows. In particular, the discount rate used is the Weighted Average Cost of Capital (WACC), which is differentiated

on the basis of the risk expressed by the sectors/business in which the asset is operating. Specific WACCs are defined on

the basis of a sample of comparable companies.

Value in use is determined net of the tax effect as this method generates values that are substantially equivalent to

those that may be obtained by discounting cash flows gross of taxes at a pre-tax discount rate deriving, on an iterative

basis, from the result of the post-tax valuation.

When the carrying amount of the CGU inclusive of any goodwill attributed to it, determined by taking into account any

writedowns of non-current assets which are part of the CGU, is higher than the recoverable amount, the difference is

subject to a writedown and is attributed on a priority basis to goodwill up to its entire amount; any excess writedown

over and above goodwill is attributed on a pro rata basis to the book value of the assets in the CGU, up to the

recoverable amount of the assets with a finite useful life.

When the reasons for the writedowns recognised no longer apply, the value of the assets is written back and the

Page no. 113

adjustment is recognised in the income statement; the write-back is recognised in an amount equal to the lower

between the recoverable amount and the carrying amount gross of the writedowns previously recognised and reduced

by the amortisation/depreciation that would have been recognised if there had been no writedown. Writedowns of

goodwill are not written back.

(xii) Inventory

Closing inventory of raw materials and semi-finished products is measured at the lower between the purchase cost,

determined using the weighted average cost method, and the net realisable value. The costs are allocated to the

individual inventory items based on the weighted average cost. The net realisable value is the estimated sale price in

the ordinary course of business, net of the estimated completion costs and those estimated as necessary to close the

sale.

(xiii) Trade receivables

Trade receivables are initially recognised at fair value, adjusted for directly attributable transaction costs, and

subsequently measured at amortised cost according to the effective interest rate method (i.e. the rate that, at the time

of initial recognition, equates the present value of future cash flows to the recognition value), suitably adjusted to take

into account any writedowns, by recognising a provision for bad debts. Trade receivables are classed as current assets,

except those with a contractual due date more than twelve months after the reporting date, which are instead classed

as non-current assets.

(xiv) Derecognition of financial assets and liabilities

Financial assets are derecognised when one of the following conditions is satisfied:

• the contractual right to receive cash flows from the asset has expired;

• the Company has substantially transferred all risks and benefits associated with the asset, relinquishing its right to

receive cash flows from the asset or undertaking a contractual obligation to pass through the cash flows received to

one or more beneficiaries under a contract that meets the requirements of IAS 39 (the “pass through test”);

• the Company has not substantially transferred or retained all risks and benefits associated with the financial asset,

but has transferred control.

Financial liabilities are derecognised when settled, i.e. when the contractual obligation has been fulfilled, cancelled or

expired. A swap of debt instruments with substantially different contractual terms must be recognised as settlement of

the original financial liability and the recognition of a new financial liability. Likewise, a substantial change in the

contractual terms of an existing financial liability, even partial, must be recognised as settlement of the original financial

liability and the recognition of a new financial liability.

(xv) Netting of financial assets and liabilities

The Company performs netting of financial assets and liabilities if, and only if:

• there is a legally exercisable right to net the values recognised in the financial statements;

• the intention is either to perform netting or to simultaneously sell the asset and settle the liability.

(xvi) Cash and cash equivalents

Cash and cash equivalents include cash, demand deposits and financial assets with a maturity on origination that is

equal to or less than three months, readily convertible to cash and subject to immaterial risk of a change in value. The

components of cash and cash equivalents are measured at fair value.

Collection transactions are recorded by banking transaction date. Payment transactions also take into account the order

date.

Page no. 114

Short-term bank deposits with a maturity on origination that is equal to or more than three months that do not satisfy

the requirements of IAS 7 are included in a specific item under current assets.

(xvii) Non-current assets held for sale and discontinued operations

Non-current assets (or discontinued operations) are classified as held for sale if the recognition value will be recovered

mainly through their sale (which must be highly probable), rather than through their use. These assets are recognised at

the lower between the carrying amount and the related fair value, net of costs to sell.

If the fair value is lower than the carrying amount of the asset or group of discontinued assets, a writedown is

recognised. If not, a revaluation is recognised, which can never be higher than the total writedowns previously

recognised. A revaluation (writedown) not recognised by the date of sale of the non-current asset (or disposal group) is

recognised at the date of derecognition of the assets.

Non-current assets (including those forming part of a disposal group) are not amortised whilst classified as held for sale.

Interest expense and other expenses attributable to liabilities of a group classified as held for sale continue to be

recognised.

Non-current assets classified as held for sale and assets of a disposal group are recorded separately from other assets in

the Balance Sheet. Likewise, the liabilities of a disposal group classified as held for sale are also recorded separately

from other liabilities.

(xviii) Trade and other payables

Trade and other payables are classified as current liabilities, unless payment is due more than 12 months after year end.

These are initially recognised at their fair value and subsequently measured at amortised cost using the effective

interest method. Financial liabilities are derecognised when the contractual rights to the related cash flows expire or

when the financial liability is sold with substantial transfer of all risks and benefits deriving from their ownership.

(xix) Loans

Loans are initially recognised at their fair value, net of directly attributable transaction costs, and subsequently

measured at amortised cost using the effective interest method.

Loans are classified as current liabilities unless the Company has an unconditional right to defer payment for more than

12 months after the reporting date.

(xx) Provisions for risks and charges

The provisions for risks and charges refer to costs and charges of a specified nature and of certain or probable existence

for which, at the reporting date, the amount and/or date of occurrence cannot be determined. Allocations to these

provisions are recognised when:

− it is probable that a current legal or implicit obligation exists, deriving from a past event;

− it is probable that complying with the obligation will be costly;

− the total obligation can be reliably estimated.

The allocations are recognised at the value representing the best estimate of the amount that the company could

reasonably be expected to pay to settle the obligation or transfer that obligation to third parties at the reporting date.

Provisions for risks and charges are subject to discounting if it is possible to reasonably estimate the moment that cash

outflows will be required. Discounting of the amount is at a pre-tax rate that reflects the time value of money and takes

into account the specific risk attributable to each liability. When the liability refers to tangible assets (e.g. dismantling

and site clean-up), changes in estimation of the provision are recognised as a balancing entry to the asset to which they

refer, up to the limit of the recognition value. Any surplus is recognised in the Income Statement.

Page no. 115

(xxi) Employee benefits

Short-term obligations

The short-term benefits are wages, salaries, related social security contributions, indemnities in lieu of leave and

incentives in the form of bonuses payable in the twelve months following the reporting date. These benefits are

recognised as personnel cost components in the period in which the employment service is provided.

Medium/long-term obligations

In the defined benefit plans, which also include the employee severance indemnity due to employees pursuant to art.

2120 of the Italian Civil Code (“TFR”), the total benefit payable to the employee can only be quantified after

employment has terminated, and is linked to one or more factors such as age, years of service and remuneration.

Therefore, the related charge is recognised in the Income Statement for the year based on actuarial calculations. The

liability recognised in the financial statements for defined benefit plans corresponds to the present value of the

obligation at the reporting date. The defined benefit plan obligations are determined annually by an independent

actuary using the projected unit credit method. The present value of defined benefit plans is determined by discounting

future cash flows at an interest rate equal to that of Euro bonds (high-quality corporate) which takes into account the

duration of the related pension plan. Actuarial gains and losses deriving from the aforementioned adjustments and

changes in actuarial assumptions are recognised in the Statement of Comprehensive Income.

From 1 January 2007, the 2007 Finance Act and related implementing decrees introduced changes to the employee

severance indemnity regulations, including the decision of employees regarding the allocation of their accruing

severance indemnity. In particular, an employee can opt to direct new employee severance indemnity flows into pre-

selected pension forms or for their retention within the company. In the case of allocation to external pension forms,

the company is only required to pay a defined contribution to the chosen fund, and from that date any new accruals are

defined contribution plans not subject to actuarial assessment.

(xxii) Shareholders’ equity

Ordinary shares are recognised in shareholders’ equity. If the Company purchases treasury shares, the consideration

paid, including any directly attributable incremental costs (net of income taxes) are deducted from the shareholders’

equity attributable to the Company’s shareholders until the shares are cancelled or reissued. If such ordinary shares are

later reissued, any consideration paid, net of directly attributable incremental costs of the transaction and tax effects, is

included in the shareholders’ equity attributable to the Company’s shareholders.

(xxiii) Related parties

Related parties are those sharing the same parent company as the Company, companies with direct or indirect control

over the Company, are subsidiaries of or are subject to joint control by the Company, and those in which the Company

holds an interest sufficient to be able to exercise significant influence. Also included in the definition of related parties

are the entities that manage post-employment benefit plans solely for the Company’s employees (specifically indicated

under the note “Related party transactions”), and senior managers of the Company with strategic responsibilities.

Senior managers with strategic responsibilities are those with the power and responsibility, direct or indirect, for

planning, management and control of the Company’s activities and include the related Directors.

In compliance with the provisions of paragraph 26, IAS 24 “Related party disclosures”, the Company is exempt from the

disclosure requirements of paragraph 18 (according to which the Company has to indicate the nature of relations with

the related party, in addition to providing information on associated transactions and existing balances, including

commitments, necessary to ensure financial statements users’ understanding of the potential effects of such relations

on the financial statements) if the latter and the related party, involved in the transactions, are both under the control

of the same government authority.

Page no. 116

2.3 Recently issued accounting standards

Accounting standards, amendments and interpretations in force from 1 January 2019

Adoption of the following accounting standards and amendments issued by the IASB and endorsed by the European

Union is compulsory from 1 January 2019. The adoption of these new standards or amendments had no impact on the

Company’s financial statements except for effects deriving from the first-time adoption of IFRS 16, illustrated in

paragraph 2.2.VIII.

Annual Improvements to IFRS

Standards 2015-2017 Cycle

This document, published by the IASB on 12 December 2017 as part of the annual

improvements cycle and applicable from 1 January 2019 includes amendments to IFRS

3 “Business Combinations”, IFRS 11 “Joint Arrangements”, IAS 12 “Income Taxes” and

IAS 23 “Borrowing costs”.

IFRS 16 “Leases”

IFRIC 23 “Uncertainty over

Income Tax Treatments”

On 13 January 2016, the IASB published IFRS 16, which replaces IAS 17 and the

related interpretations. The new standard provides a new definition of leases and

introduces a criterion based on right of use of an asset to distinguish lease contracts

from service contracts, identifying as the discriminating factors: identification of the

asset, right of replacement of the asset, right to receive substantially all economic

benefits deriving from use of the asset and the right to control use of the asset

underlying the contract. The standard establishes a single model for the recognition

and measurement of lease contracts for the lessee, which envisages recognition of an

asset held under an operating lease or finance lease among assets with a balancing

entry of a financial payable, also providing the option of not recognising as leases any

contracts covering assets of a minor unit value and leases with a duration of 12

months or less.

The standard applies from 1 January 2019, but early adoption is only permitted for

companies that have opted for early adoption of IFRS 15 Revenue from Contracts with

Customers.

On 7 June 2017, the IASB issued IFRIC 23 “Uncertainty over Income Tax Treatments”

containing indications on the accounting of tax assets and liabilities (current and/or

deferred) relating to taxes on income in the presence of uncertainties regarding the

application of tax regulations. In particular, the interpretation requires an entity to

analyse all uncertainties over income tax treatments (individually or as a whole,

according to their characteristics), always assuming that the tax authority examines

the tax position in question, being fully aware of all the relevant information. If the

entity considers it unlikely that the tax authority will accept the tax treatment

adopted, it is necessary to reflect the effect of the uncertainty in the estimation of

current and deferred taxes. In addition, the document contains no new reporting

obligations but emphasises that the entity must establish whether it is necessary to

provide information on management considerations relating to the uncertainty

Page no. 117

Amendment to IAS 28 “Long-

term Interests in Associates and

Joint Ventures”

Amendments to IAS 19 “Plan

Amendment, Curtailment or

Settlement”

inherent to the recognition of taxes, in accordance with the provisions of IAS 1. The

new interpretation was adopted from 1 January 2019

On 12 October 2017, the IASB issued the Amendment to IAS 28 to clarify the

application of IFRS 9 “Financial Instruments” for long-term interests in associates or

joint ventures included in investments in such entities for which the equity method

was not applied.

The provisions of the Amendment to IAS 28 enter into force from years beginning on

or after 1 January 2019.

The amendments to IAS 19, published by the IASB on 7 February 2018 and in force

from 1 January 2019, clarify the methods for calculating pension costs when there is a

change in the defined benefit plan and require entities to update their assumptions

and remeasure net assets or liabilities associated with the plan. In particular, after

such an event, the entity must use updated assumptions to measure the current

service cost and interest for the rest of the reference period after that event.




Amendments to references to

the conceptual framework in

IFRS standards

On 29 March 2018, the IASB published an amendment to “References to the

conceptual framework in IFRS standards”. The amendment will be effective for

periods starting on or after 1 January 2020, but early application is permitted. The

Conceptual Framework defines the key concepts for financial reporting and guides

the Council in the development of IFRS standards. The document helps guarantee

that the Standards are conceptually consistent and that similar transactions are

treated in the same way, so as to provide information useful to investors, lenders

and other creditors. The Conceptual Framework supports companies in the

development of accounting standards when no IFRS standard applies to a particular

transaction and, in more general terms, helps the interested parties to understand

and interpret the standards.

Amendments to IAS 1 and IAS 8

“definition of material”

On 31 October 2018, the IASB published the document “Definition of Material)

Amendments to IAS 1 and IAS 8)”. The document introduced an amendment to

the definition of “material” as referred to in the standards IAS 1 and IAS 8. This

amendment aims to make the definition of “material” more specific, and

introduced the concept of obscured information alongside the concepts of

Page no. 118

omitted or incorrect information already included in the two standards amended.

The amendment clarifies that information is obscured if described in such a way as

to have a similar effect on key financial statement users as that generated if such

information was omitted or incorrect. The amendments introduced were

approved on 29 November 2019 and apply to all transactions from 1 January 2020

onwards.




IFRS 17 “Insurance Contracts”

Amendments to IFRS 3

“Business Combinations”

On 18 May 2017, the IASB issued IFRS 17 “Insurance Contracts”, which establishes

the principles for the recognition, measurement, presentation and representation of

insurance contracts covered by the standard. The aim of IFRS 17 is to guarantee that

an entity provides relevant information that faithfully represents such contracts, in

order to form a basis for assessment by financial statement users of the effects of

these contracts on the balance sheet, income statement and cash flows of the entity.

The provisions of IFRS 17 enter into force from years beginning on or after 1 January

2021.

On 22 October 2018, the IASB published the document “Definition of a Business

(Amendments to IFRS 3)”, which provides a number of clarifications regarding the

definition of a business for the purpose of correct application of IFRS 3 and helps

companies to determine whether an acquisition refers to a business or rather to a

group of activities.

3 Estimates and assumptions

The preparation of the financial statements requires that the Directors apply accounting principles and approaches

which, in certain circumstances, are based on difficult and objective assessments and estimates based on historic

experience and on assumptions which on each occasion are considered reasonable and realistic for the related

circumstances. The application of these estimates and assumptions affects the amounts recorded in the financial

statements, the balance sheet, income statement, statement of comprehensive income, statement of cash flows and

the disclosures provided. The final results of financial statements items, for which such estimates and assumptions are

used, can differ from those indicated in the financial statements that recognise the effects of the estimated event after

it arises, due to the uncertainty characterising the assumptions and the conditions on which the estimates are based.

Page no. 119

The Financial Statements items for which the most significant use of estimates and assumptions is made relate to the

quantification of allocations to provisions for risks and charges, definition of the depreciation/amortisation rate for

tangible assets and intangible assets with a finite useful life, measurement of intangible assets with an indefinite useful

life and investments, assessment of employee benefits, quantification of deferred taxes and allocations at year end for

revenues relating to electricity, gas and water accrued for services provided between the last actual consumption

metering date and the year-end date. The estimates and assumptions are reviewed periodically and the effects of every

change are reflected in the income statement, provided it affects only that period. If the review affects both current

and future periods, the change is recognised in the period in which the review is made and in the related future

periods.

Page no. 120

Analysis of Income Statement and Balance Sheet items

Income Statement

1 Revenues

The Company presents only one line of business in its report based on information reviewed by its Operating Managers,

responsible for decisions regarding the allocation of resources and assessment of the results.

The following table provides a breakdown of revenues by type of activity:



Fee for use of plant/systems 21,853 18,640

Services to third parties 11,396 11,074

Cemetery services 4,150 3,945

Technical services 631 2,456

Revenues from services under concession 279 286

Revenues from sales and services 382 609

Other 618 907

Total 39,308 37,915

2 Other revenues and income

The breakdown of this item is as follows:



Real estate income 1,358 1,353

Compensation for damages, penalties and chargebacks 77 50

Sundry reimbursements 9 10

Other income 1,613 3,214

Operating grant income 117 69

Total 3,174 4,696

Other income in 2019 totalled Euro 1,613 thousand and refers mainly to staff seconded to the subsidiaries for Euro 858

thousand.

Operating grant income includes EU funding collected by Tea S.p.A. during the year for the “Dynamic Light” project for

Euro 117 thousand.

3 Costs for raw, ancillary and consumable materials




Purchases of electricity 390 330

Purchases of heat 107 90

Fuel and lubricants 67 54

Other raw materials and consumables 292 407

Total 856 881

Page no. 121

4 Costs for services




Repairs and maintenance 1,600 1,669

Provision of technical and administrative services 2,107 1,991

Municipal services 26 26

Sundry third-party services 115 128

Insurance 680 999

Postal charges 460 599

Sales promotion activities 734 729

Bank charges and commissions 159 284

Lease and rental costs 84 132

Cleaning, transport and porterage costs 129 121

Waste disposal 195 138

Other costs for services 2,463 3,213

Total 8,751 10,028

5 Personnel costs




Wages and salaries 6,483 6,471

Social security contributions 2,060 2,042

Allocation to Employee Severance Indemnity/TFR provision 411 415

Other personnel costs 42 48

Total 8,995 8,976

The following table summarises the number of employees for the years ending 31 December 2019 and 31 December

2018:

At 31 December

2019 2018

Senior managers 13 11

Managers 8 8

White collar workers 129 128

Blue collar workers 18 18

Total number of employees 168 165

6 Other operating costs




Sundry indemnities 874 869

Indirect and sundry taxes 313 302

Allocation to provisions for risks and charges 0 0

Allocation to the provision for bad debts 0 0

Page no. 122

Other costs 362 380

Total 1,549 1,551

7 Income (expenses) from investments measured using the equity method

Income refers to the recognition of the share of the result of investments measured using the equity method.

For details on changes in equity investments, please refer to the comments to the tables in the balance sheet.

8 Depreciation, amortisation and writedowns




Amortisation of intangible assets 1,594 1,298

Depreciation of tangible assets 7,378 6,508

Right of use amortisation 71 0

Writedown of tangible assets 0 2,785

Total 9,043 10,591

9 Net financial income (expenses)




Changes in fair value of investments 0 0

Other financial income 4,052 3,884

Total financial income 4,052 3,884

Interest expense on loans 17 6

Landfill financial expenses 691 784

Financial expenses on bonds 762 760

Financial expenses on employee severance indemnity 15 14

Other financial expenses 44 10

Total financial expenses 1,529 1,574

Total net financial income (expenses) 2,524 2,310

10 Taxes




Current taxes on income 3,854 3,405

Deferred taxes on income -195 -223

Total 3,659 3,181

The following table shows the reconciliation between the theoretical tax payable used in the Separate Financial

Statements and the effective tax payable for the year ending 31 December 2019. The effective tax payable was

Page no. 123

calculated at the rate of 24%, which corresponds to the income tax rate for companies in Italy for the year ending 31

December 2019.

Reconciliation between balance sheet tax payable and theoretical tax payable

(IRES)

(in Euro)

Description Value Taxes

Profit before taxation 23,275,500

Theoretical tax payable (%) 24.0% 5,586,120

Non-deductible expenses (art. 108) 0

Costs with deferred deductibility 690,904

Other decreases (10,156,314)

Taxable income 13,810,089

Current taxes on income for the year 3,303,989

IRAP tax is calculated on a measurement of income defined in reference regulations as the difference between

operating income and expenses, gross of financial income and expenses and, in particular, gross of personnel costs,

writedowns of receivables and interest included in lease payments. IRAP tax is then applied to taxable income at the

rate of 3.90% for the year ending 31 December 2019.

Reconciliation between balance sheet tax payable and theoretical tax payable

(IRAP)

(in Euro)

Description Value Taxes

Difference between value and cost of production 13,288,446

Costs not relevant for IRAP purposes

- personnel costs 9,074,599

- writedowns 0

22,363,045

Theoretical tax payable (%) 3.90% 872,159

Increases in value of production 0

Increases (costs for purchases) 0

Increases (costs for services) 393,617

Increases (amortisation and depreciation) (6,241)

Increases (other operating expenses) 136,672

Increases (non-deductible allocations) 0

Deductions (8,771,483)

IRAP tax payable 14,115,610

Current IRAP tax for the year 550,509

The changes in deferred tax assets and liabilities during the year, without taking any netting of balances into account,

are as follows:

Page no. 124

Changes in Deferred Tax Assets

Temporary difference Value at

31.12.2018 Increases Decreases

Value at

31.12.2019

Goodwill 30,680 -6,241 24,439

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 8,820 0 -1,498 7,322

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 975 0 -243 732

Property revaluation depreciation 464,305 464,305

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 111,433 0 0 111,433

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 18,108 0 0 18,108

Enipower Mantova assessment 62,854 62,854

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 11,460 0 0 11,460

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 1,831 0 0 1,831

Directors’ remuneration 0 14,529 14,529

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 0 3,487 3,487

Employee severance indemnity IAS 19 165,551 6,628 172,179

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 39,732 1,591 0 41,323

Total IRES tax effect 171,445 5,078 -1,498 175,025

Total IRAP tax effect 20,914 0 -243 20,670

Changes in Deferred Tax Liabilities

Temporary difference Value at

31.12.2018 Increases Decreases

Value at

31.12.2019

Allocation to landfill provisions 12,525,367 -690,904 11,834,463

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 3,006,088 0 165,817 2,840,271

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 488,489 0 26,945 461,544

Associated companies assessment 1,218,618 1,218,618

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 292,468 0 0 292,468

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 47,526 0 0 47,526

Concessions IFRIC 12 35,100 35,100

IRES tax rate 24.0% 24.0% 24.0% 24.0%

IRES tax effect 8,424 0 0 8,424

IRAP tax rate 3.9% 3.9% 3.9% 3.9%

IRAP tax effect 1,369 0 0 1,369

Total IRES tax effect 3,306,980 0 165,817 3,141,163

Total IRAP tax effect 537,384 0 26,945 510,439

Page no. 125

The deferred tax assets represent the total income taxes recoverable in future years in reference to the deductible

temporary differences and mainly relate to the property revaluation. The deferred tax liabilities represent the total

income taxes due in future years in reference to the deductible temporary differences and mainly relate to the Mariana

Mantovana landfill.

Page no. 126

Balance Sheet

1 Intangible assets


(in thousands of Euro) User licences Concessions Other intangible assets Total

Balance at 1 January 2018 1,016 2,280 895 4,191

Of which:

- historic cost 2,608 5,281 11,903 19,792

- accumulated amortisation -1,593 -3,000 -11,008 -15,601

Increases 286 818 1,104

Sundry reclassification adjustments 112

Decreases -

Amortisation -271 -269 -759 - 1,298

Balance at 31 December 2018 745 2,409 954 4,109

Of which:

- historic cost 2,608 5,678 12,720 21,007

- accumulated amortisation -1,863 - 3,270 -11,766 -16,899

Increases 279 1,485 1,764

Sundry reclassification adjustments -

Decreases -

Amortisation - 271 - 506 - 818 - 1,594

Balance at 31 December 2019 475 2,183 1,622 4,279

Of which:

- historic cost 2,608 5,958 14,206 22,772

- accumulated amortisation - 2,134 - 3,775 - 12,584 -18,493

“Concessions”, totalling Euro 2,183 thousand at 31 December 2019, consist of assets relating to cemetery services

provided through contracts with the respective public authorities. The assets involved in the provision of such services

are accounted for using the intangible assets model indicated in IFRIC 12.

The cemetery services provided include the management and maintenance of cemeteries (mainly those in the

municipalities of Mantua and Suzzara), crematorium management and vigil lighting. These services, provided as a result

of tender awards, are subject to tariffs determined by the contracting authority.

2 Right of use


(in thousands of Euro) Right of use

Balance at 1 January 2019 422

Of which:

- historic cost 422

- accumulated amortisation -

Increases

Sundry reclassification adjustments

Decreases

Amortisation - 71

Balance at 31 December 2019 352

Of which:

- historic cost 422

- accumulated amortisation - 71

Page no. 127

The rights of use refer to property lease agreements to which IFRS 16 applied from 2019.

At 31 December


Historic cost 422 0

Accumulated amortisation -71 0

Net carrying amount 352 0

3 Tangible assets

The tangible assets mainly refer to the Mariana Mantovana landfill and the networks and systems relating to

teleheating, gas, water and generic plant not accounted for in compliance with IFRIC 12.


(in thousands of Euro) Plant and machinery Land and buildings Landfill

Other tangible

assets Total

Balance at 1 January 2018 52,402 27,321 25,393 2,865 107,980

Of which:

- historic cost 134,997 37,885 55,578 11,226 239,686

- accumulated depreciation - 82,595 -10,564 -30,185 - 8,362 -131,705

Increases 1,322 444 532 410 2,708

Decreases -1 -28 - -3 -32

Asset writedowns -2,785

Sundry reclassification

adjustments 489 - - - 601

Adjustment to provision for

landfill post-closure

management - - -2,099 - -2,099

Depreciation -4,079 - 963 -913 -552 -6,508


Of which:

- historic cost 136,805 35,517 54,011 10,978 237,311

- accumulated depreciation - 86,672 -11,527 - 31,098 - 8,861 -138,159

Increases 1,886 143 370 2,399

Decreases - 6 - 12 -19

Asset writedowns -

Sundry reclassification

adjustments -

Adjustment to provision for landfill post-closure

management 1,104 1,104

Depreciation -4,052 -973 -1,880 -473 -7,378


Of which:

- historic cost 138,690 35,654 55,114 11,297 240,755

- accumulated depreciation - 90,723 -12,500 -32,978 -9,296 -145,497

The following table shows the breakdown of internal costs capitalised in 2018 and 2019, mainly relating to capital

expenditure in assets covered by service concession agreements classified under intangible assets:



Materials 0 0

Services 274 253

Personnel 6 19

Page no. 128



Total 279 272

4 Investments measured using the equity method

(in thousands of Euro) Subsidiaries

1 January 2018 38,546

Income (expenses) from investments measured using the equity method 7,238

Portion of other comprehensive income referring to investments measured using the equity

method

-394

Dividends -4,633

31-Dec-18 40,758

Income (expenses) from investments measured using the equity method 7,518

Portion of other comprehensive income referring to investments measured using the equity

method

-578

Increase in investments 7,106

Dividends -3,750

31-Dec-19 51,054

(in thousands of Euro) Associated companies

1 January 2018 6,595


Dividends -500

31-Dec-18 6,621

Income (expenses) from investments measured using the equity method -55

Dividends -450

31-Dec-19 6,116

Tea S.p.A. increased its equity investment in Tea Acque S.r.l. from 60 to 80% by purchasing from the shareholder Acque

della Concordia S.r.l. a share of 20% at the price of Euro 3,650,000, against a value of the corresponding share of equity

of 2,847,946.80. The higher value paid derives from the application of the valuation approach set forth in the tender

and reflects the amendments agreed upon between the shareholders on the company’s governance.

As part of the agreements entered into with Acque della Concordia S.r.l., Tea S.p.A. also paid an advance of Euro

2,000,000 on the option on the remaining share of 20% still owned by Acque della Concordia and defined as Euro

400,000 the remaining price to be paid for the exercise of the option.

The option right of Tea S.p.A. originally arises as per the articles of association of Tea Acque at the end of the

concession for the management of the integrated water cycle held by Tea Acque for Sub-Area2 in the Province of

Mantua. The agreements in question introduced the possibility to exercise it even if the concession is extended.

The value of the equity investment increased compared to 2018 by 7,082,042, equal to the sum of the price paid for

the 20% acquired in the course of the year (Euro 3,650,000), the advance paid (Euro 2,000,000) and the balance still

due (Euro 400,000) for the purchase of the remaining 20% to be carried out when the option on that share can be

exercised and, lastly, based on the share of the profit for the year of the investee company. For the amount of the

balance to be paid when the option is exercised, a liability was recognised in an equal amount in the item “Other non-

current liabilities”.

Page no. 129

Tea S.p.A. also increased its equity investment in Tea Rete Luce S.r.l. from 60 to 80% by purchasing from the

shareholder A3M Luce S.r.l. a share of 20% at the price of Euro 1,050,000, against a value of the corresponding share of

equity of 520,645.09. The higher value paid reflects the potential income of the company in relation to the expansion of

its geographical range of activity.

The following table shows the assets, liabilities, revenues and net profit of investments measured using the equity

method. Note that the values refer to financial statements prepared in accordance with Italian accounting standards.


Shareholders’

equity

31-Dec-19


Unitea S.r.l. 50.00% 9,190 6,468 7,615 -181 2,903

Tnet Servizi S.r.l. 25.00% 2,719 1,850 1,062 123 746

Tea Energia S.r.l. 100.00% 41,975 30,867 153,440 3,341 7,767

Mantova Ambiente S.r.l. 40.48% 48,047 37,307 74,058 828 9,912

Sei S.r.l. 100.00% 53,701 40,911 31,418 985 11,805

TEA Acque S.r.l. 80.00% 92,197 78,791 36,344 2,765 10,641

Tea Servizi Funerari S.r.l. 100.00% 2,411 2,298 3,973 13 100

TEA Reteluce S.r.l. 80.00% 19,526 17,393 10,370 747 1,386

AqA Mantova S.r.l. 100.00% 9,623 4,364 3,681 597 4,662

Depura S.r.l. (*) 60.00% 2,067 1,132 35 -65 1,000

0

31-Dec-18 0


Unitea S.r.l. 50.00% 10,610 6,807 9,372 944 2,860

Tnet Servizi S.r.l. 25.00% 3,678 2,933 927 93 653

Tea Energia S.r.l. 100.00% 41,747 29,967 141,576 3,435 8,345

Mantova Ambiente S.r.l. 40.48% 49,747 39,058 67,361 778 9,911

Sei S.r.l. 100.00% 49,432 37,628 30,405 1,110 10,694

TEA Acque S.r.l. 60.00% 85,194 73,553 34,351 2,517 9,124

Tea Servizi Funerari S.r.l. 100.00% 2,170 2,076 3,289 -148 242

TEA Reteluce S.r.l. 60.00% 11,462 10,076 8,338 331 1,055

AqA Mantova S.r.l. 100.00% 9,469 4,807 3,582 544 4,118

*Depura S.r.l. will close its first year of business at 31 December 2020. Therefore no figures are available

5 Inventory


At 31 December


Work in progress and semi-finished goods 673 584

Raw materials and consumables 77 87

Total 750 671

Inventory totalled Euro 671 thousand and Euro 750 thousand, respectively, at 31 December 2018 and 2019.

6 Trade receivables


At 31 December


Page no. 130

Trade receivables for invoices issued 8,347 6,705

Trade receivables for invoices to be issued 5,786 4,444


Total 11,551 8,568

The receivables refer primarily to invoices issued and to be issued to the subsidiaries for services provided by the

company.

The following table shows that there were no changes in the provision for bad debts.

(in thousands of Euro) Provision for bad debts

31-Dec-18 2,581

Allocations

Used

31-Dec-19 2,581

7 Current tax receivables


At 31 December


IRES and IRAP tax receivables 260 617

VAT receivables 11 29

Total 271 646

8 Other current and non-current assets


Other non-current assets

At 31 December


Non-current financial receivables from related parties 15,701 11,706

Investments in other entities 13,881 13,881

Non-current financial receivables from others 0 0

Guarantee deposits 194 195

Other non-current assets 304 307

Total 30,080 26,089

“Investments in other entities” refer mainly to the 13.5% interest in Enipower Mantova S.p.A.

The fair value of the investment in Enipower Mantova S.p.A. is measured on the basis of the best estimate of expected

future cash flows from the investment. Specifically, these refer to the expected future cash flows from the investment

in terms of dividends. Once estimated, these cash flows are discounted at the reporting date.

The WACC at 31 December 2019 reflects the increase in the underlying risk-free rate (return on 10-year BTPs), which

rose from 2.1% in 2017 to 2.5% this year, and the different D/E ratio. The increase in the WACC and expected cash

flows records a value in line with the previous year.

Given the use of benchmarks not observable on the market, the fair value is classified as “Fair value level 3”.

“Financial receivables from related parties” refer to the outstanding loan to a number of subsidiaries and to one

associated company.

Page no. 131

Other current assets

At 31 December


Advances to suppliers 40 21

Other receivables from subsidiaries 4,291 3,802

Cash pooling receivables from subsidiaries 33,830 29,348

Current financial receivables from subsidiaries 2,499 2,145

Other current financial receivables 0 0

Prepaid expenses 321 230

Other current assets 93 159

Total 41,073 35,706

9 Cash and cash equivalents


At 31 December


Cash on hand 2 6

Bank and post office accounts 20,319 25,865

Total 20,321 25,872

10 Shareholders’ equity

Share capital

At 31 December 2019, the Company’s fully subscribed and paid-up share capital amounted to Euro 73,403 thousand

(Euro 73,403 thousand at 31 December 2018) and comprises 283,408 ordinary shares in issue (including 1,532 treasury

shares) with a nominal value of Euro 259 each.

Other reserves

Other reserves include the legal reserve for Euro 5,289 thousand at 31 December 2019 (Euro 4,415 thousand at 31

December 2018).

At 31 December 2019, the actuarial reserve for employee benefits included under “Retained earnings” recorded the

following changes:

(in thousands of Euro) Actuarial reserve

At 31 December 2017 -62

Actuarial gains/(losses) for employee benefits 27

Actuarial gains/(losses) for employee benefits - tax effect -6

Other comprehensive income 20


Actuarial gains/(losses) for employee benefits -7

Actuarial gains/(losses) for employee benefits - tax effect 2

Other comprehensive income -5


Page no. 132

The following table shows the shareholders’ equity items at 31 December 2019 with breakdown by source, usage

options and distributable amount.

(in Euro)

Balance at 31

December 2019

Usage options Distributable at

31 December

2019 (A, B, C) *

Share capital 73,403

Share premium reserve 3,534 A,B

Legal reserve 5,289 B

Extraordinary reserve 21,765 A,B,C 21,765

Negative reserve for treasury shares held -416

Valuation reserve for investments measured using the equity

method 25,246 B

Revaluation reserve 185/2008 2,592 A,B,C 2,592

Other reserves 14 A,B,C 14

FTA reserve 17,778 B

Actuarial reserve -47

Retained earnings 11,998 A,B,C 11,998

Profit for the year 19,616 A,B,C 8,344

Total 180,772 44,713

* Key:

A: for share capital increase

B: as loss coverage

C: for distribution to shareholders

(1) The share premium reserve, unchanged from the previous year, includes the surplus of the issue price of shares

compared to their nominal value and cannot be distributed to shareholders until the legal reserve reaches one-

fifth of the share capital (art. 2431, Italian Civil Code). It can be used to cover losses, for share capital increases

free of charge, and to top up the legal reserve.

(2) Pursuant to art. 2430 of the Italian Civil Code, the legal reserve is available for share capital increases for the

amount exceeding the legal limit envisaged in art. 2430 of the Civil Code. In the case in question, it can be used

solely to cover losses and is not available for share capital increases or distribution to shareholders.

(3) The undistributable valuation reserve for investments derives from application of the equity method to measure

the investments in subsidiaries and associated companies. As envisaged in art. 6, paragraph 5, Italian Legislative

Decree 38/2005, this reserve is available solely to cover losses after use of the available profit reserves and legal

reserve. In this case, the aforementioned reserves must be restored by allocating profit in future years.

(4) With reference to the FTA reserve, as envisaged in art. 7, paragraph 7 of Italian Legislative Decree 38/2005 for

the case in question, this is an undistributable shareholders’ equity reserve which in future years will be released

for the part exceeding the positive differences at the reporting date. This reserve cannot be used for share

capital increases and if used to cover losses it is subject to compulsory restoration from profits in future years.

(5) The actuarial reserve is: (i) to be covered from retained earnings and (ii) not taken into consideration for the

purpose of dividend distribution.

(6) The profit for the year includes Euro 7,690 thousand relating to capital gains from application of the equity

method in reference to investments in subsidiaries and associated companies, to be recognised in an

undistributable reserve in accordance with the provisions of art. 6, paragraph 2 of Italian Legislative Decree

38/2005.

Page no. 133

11 Current and non-current loans

The following table provides a breakdown of this item at 31 December 2019 and 2018:

At 31 December


Non-current portion of bank loans 2,888 1,490

Right of use financial payables 286 0

Bonds 26,841 29,699


Current portion of bank loans 517 221

Right of use financial payables 69 0

Bonds 2,931 0

Bank overdrafts 0 3

Current loans 3,517 223

Total loans 33,532 31,413

The following tables show the breakdown of due dates of current and non-current debt at 31 December 2019 and

2018, with related changes:

Due within a year

Due in 1 to 5

years

Due after

more than 5

years Total (in thousands of Euro)

31-Dec-19

Bank loans 517 2,130 758 3,406

Right of use financial payables 69 242 44 355

Bonds 2,931 26,841 0 29,772

Bank overdrafts 0 0 0 0

31-Dec-18 Bank loans 221 993 497 1,711

Right of use financial payables 0 0 0 0

Bonds 0 17,731 11,969 29,699

Bank overdrafts 3 - - 3

Bank loans

The following table provides information on the bank loans in place at 31 December 2019 and 2018:

(in thousands of Euro) At 31 December

Financial institutions Amount disbursed Interest rate 2019 current portion 2018 current portion

Credit Agricole 4,049 6M Euribor 1,490 199 1,689 199

Banco BPM 2,000 6Y EuroIRS 1,916 319 0 0

Other 289 Fixed 0 0 22 22

Total 6,338 3,406 517 1,711 221

of which fixed interest rate 0 22

of which floating interest rate 3,406 1,689

Page no. 134

Bonds

In 2017, the Company issued a 7-year non-convertible bond for a total of Euro 30 million, listed on the regulated

market of the Irish Stock Exchange. This bond loan was measured at amortised cost and totalled Euro 29,772 thousand

at 31 December 2019.

Note that the bond loan includes contractual clauses that require compliance with financial covenants regarding

NFP/EBITDA and NFP/Equity ratios (consolidated data) calculated on the consolidated financial statements of the Tea

Group. At the reporting date, the aforementioned financial and equity ratios were fully met.

EBITDA calculation (as per BOND PROSPECTUS)



EBITDA (Financial Statements) 44,601 42,807 1,794

Allocations to provisions for risks and charges 4,771 4,043 728

EBITDA for covenants calculation 49,372 46,850 2,522

Net debt calculation (as per BOND PROSPECTUS)



Non-current financial liabilities 81,731 88,658 -6,927

Current financial liabilities 5,901 3,692 2,208

Finance lease/right of use liabilities 5,344 475 4,869

Cash and cash equivalents 22,799 28,410 -5,611

Net debt 70,177 64,416 5,761

Covenants

Contractual limit Value 2019 Value 2018

Bond - Senior Unsecured Amortising Fixed Rate Notes EUR

30 Mln

Net Debt/EBITDA < 4.6x 1.42 1.37

Net Debt/Equity < 1.5x 0.37 0.35

12 Employee benefits

Employee benefits include the employee severance indemnity (TFR) for Company employees. The following shows a

breakdown of the changes recorded in the years under review:


Employee severance

indemnity/TFR

1 January 2018 1,650

Costs for services -



Actuarial gains (losses) -27

31-Dec-18 1,410

Costs for services -



Actuarial gains (losses) 7

31-Dec-19 1,351

Page no. 135

The assumptions regarding employee invalidity are made on the basis of an actuarial calculation aligned with published

statistics and with insurance sector experience, broken down by gender and age. The assumptions regarding pension

age are based on position and the type of employment contract.

The actuarial assumptions for the calculation of defined benefit pension plans are broken down in the following table:

At 31 December

(as percentages) 2019 2018

Main assumptions

Inflation rate 0.70% 1.50%

Discount rate 0.24% 1.12%

Pay increase rate 1.18% 1.80%

Turnover rate - senior managers 7.00% 6.00%

Turnover rate - employees 7.00% 6.00%

13 Provisions for risks and charges

The changes in this item were as follows:


At 31

December

2018 Allocations Releases

Changes in

estimated cash

flows Used

At 31

December

2019

Provision for landfill post-closure management 21,194 691 1,104 -107 22,881

Risks re gas and electricity market 700 700

Risk re liquidation of Sinit 1,625 1,625

Risks for Tnet warranties 760 760

Other provisions for risks 311 24 335

Total 24,590 715 0 1,104 -107 26,302

Provision for landfill post-closure management

This provision essentially refers to future expense for the environmental clean-up of the landfill area once it is filled. The

provision therefore includes the costs for post-closure management until the site in question is fully converted to

parkland.

This item was calculated through recourse to an independent expert appraisal. The increases and decreases for the

period were made to adjust existing provisions on the basis of estimated future costs to be incurred at the reporting

date. The decreases also refer to use of the provision for expenses incurred during the period (relating to closed

sections of the landfill), and to the total expense incurred during the post-closure phase until mineralisation of the

waste is completed and the landfill has been converted to parkland.

Risks re gas and electricity market

The provision refers to the legal dispute lodged by the Shareholders of Sinergie Italiane S.r.l. in Liquidazione (4.97%

investee of Tea S.p.A.) against Tea S.p.A. and Sinergie Italiane S.r.l. in Liquidazione (SinIt), in relation to the alleged

obligation of Tea S.p.A. to recognise to SinIt a fee to cover the operating costs of the gas import contracts entered into

by SinIt.

In this dispute, the first instance decision was pronounced, only partially accepting the counterparty claim and in any

event without recognising the existence of any damages to be compensated by Tea. The plaintiff filed an appeal,

reiterating the claim for compensation of damages. During 2019, the appeal proceedings did not commence. Therefore,

in view of the persisting risk of an adverse decision against Tea, the provision was not released despite the favourable

first instance decision.

Page no. 136

Risk re liquidation of SINIT

The provision refers to possible payments that Tea S.p.A. may incur, as shareholder of SINIT, following the winding-up

of the company. SINIT liquidation activities are still in progress and, despite the break-up of certain assets, the capital

deficit position remains.

Other provisions for risks

These are allocations for minor risks and charges.

14 Other current and non-current liabilities


Trade payables

At 31 December



Payables to subsidiaries 2,394 1,658

Payables to associated companies 0 193

Payables to related parties 0 95

Total 5,975 5,296

Current tax payables

At 31 December


Tax payables - IRAP 64 81

Tax payables - IRES 1,500 451

Other tax payables 515 455

Regional waste tax 54 54

Total 2,134 1,040

Other current liabilities

At 31 December


Payables to subsidiaries 101 35

Cash pooling receivables from subsidiaries 424 3,333

Payables to employees 692 836

Payables to social security/pension institutions 696 607

Other short-term liabilities 5,319 7,635

Total 7,232 12,446

Other non-current liabilities

At 31 December


Deferred tax liabilities 3,396 3,593


Total 3,808 3,605

Page no. 137

15 Other information

(i) Remuneration due to Directors and Statutory Auditors

The annual remuneration due to Directors and members of the Board of Statutory Auditors can be broken down as

follows:


(in Euro) 2019 2018

Directors 265,109 378,461

Board of Statutory Auditors 58,576 60,840

Total 323,685 439,301

(ii) Independent Auditors’ fees

The fees due to the Independent Auditors for the year ending 31 December 2019 totalled Euro 102,500.


(in Euro) 2019 2018

Statutory audit of the annual accounts 57,500 60,518

Other audit services performed 7,000 9,300

Other non-audit services 38,000 2,000

Total 102,500 71,818

(iii) Guarantees

The breakdown of guarantees given is as follows:

At 31 December


Guarantees in favour of associated companies for medium/long-term loans 12,435 12,435

Guarantees in favour of other companies for medium/long-term loans 3,911 3,911

Total 16,346 16,346

(iv) Contingent liabilities

The note non-current “Provisions for risks and charges” provides details of allocations made to cover these instances.

(v) Related party transactions

Following the implementation of Legislative Decree 118/2011, the Municipality of Mantua – the majority shareholder of

the Tea Group – will prepare the Consolidated Financial Statements of the Group and other companies under its

control.

Given the above, details of transactions between the Company and Related Parties, identified on the basis of criteria

defined in IAS 24 “Related Party Disclosures”, at the reporting date and for the year ending 31 December 2019, are

provided below. Though related party transactions are carried out at arm’s length, there is no guarantee that, if they

were concluded between or with third parties, the latter would have negotiated and signed the related contracts, or

completed the transactions at the same conditions and in the same manner.

Page no. 138

BALANCE SHEET

Tea

Energia

S.r.l.

Mantova

Ambiente

S.r.l.


S.r.l.

Tea

Servizi

Funerari

S.r.l.

ElectroTea

S.r.l.

Tea

Reteluce

S.r.l.

AqA

Mantova

S.r.l.

Depura

S.r.l.

Trade

receivables

113,597

3,732,401

977,443

6,775,422

119,818 61,401

430,437

137,199

26,348

Financial

receivables -

12,688,696

15,226,614

6,000,000

1,058,369 1,743,541

7,604,726

2,271,761

300,000

Other

receivables

1,240,688 1,479

458,993

472,614 42,302 16

231,442

170,629

-


344,862

182,209

316,892 - 91,451 -

197,564

Financial

payables

423,618 -

- - - - - -

-

Other payables 28,746 103,083

70,358

121,632 18,983 - - -

-

BALANCE SHEET Municipality of

Mantua Aster S.r.l. Blugas Infrastrutture S.r.l.

Tnet Servizi


Trade receivables 24,321 145

412,160 107,965 50,002

Financial receivables - -

5,135,436 - -

Other receivables - -

- - -

Trade payables 48,729 -

- 310 -

Financial payables - -

- - -

Other payables 4,774,846 -

- - -

INCOME

STATEMENT

Tea

Energia

S.r.l.

Mantova

Ambiente

S.r.l.


S.r.l.

Tea

Servizi

Funerari

S.r.l.

ElectroTea

S.r.l.

Tea

Reteluce

S.r.l.

AqA

Mantova

S.r.l.

Depura

S.r.l.

Operating

revenues

3,002,596 16,956,235 6,606,824 7,167,137

622,603 25,707

801,455

465,475

-

Operating

costs

520,110 666,701 243,330 199,601

359,986 -

94,628 410

-

Financial

income and

expenses

-

6,771 192,998 376,669 - 1

12,695 60,033

159,336 48,205

322

INCOME STATEMENT Municipality of

Mantua ASTER S.r.l. ASPEF S.r.l.

Blugas Infrastrutture

S.r.l.

Tnet Servizi


Operating revenues 200,872 188,203 - 34,383 - 26,005 51,002

Operating costs 2,372 2,215 - 85,892 -

Financial income and

expenses - - - 193,228 - -

Page no. 139

16 Events after the reporting period

The Company has considered the events up to 28 May 2020, the date on which the Board of Directors met to approve

the draft financial statements.

From the last week of February 2020, Italy was affected by the spread of the COVID-19 coronavirus epidemic, which led

to the authorities’ adoption of health protection measures that had an enormous impact on Italy’s economic fabric and

on personal conduct, particularly with the closure of entire production chains and restrictions on the freedom of

movement of individuals to reduce the chances of infection.

For more details, see the “Significant events after the reporting period and business outlook” section in the Directors’

Report.

17 Allocation of profit for the year

With reference to the information required by art. 2427, paragraph 22-septies of the Italian Civil Code, it is proposed

that the Shareholders’ Meeting allocate the profit for the year of Euro 19,616,378.66 as follows:

To the valuation reserve for investments (Italian Leg. Decree 38/2005) € 7,689,507.05

Distributable profit € 11,926,871.61

5% to the legal reserve € 980,818.93

To the statutory reserve € 2,597,242.55

Retained earnings € 8,348,810.13

Dear Shareholders,

In thanking you for the trust you have placed in us, we invite you to approve the Financial Statements as

presented.

These Financial Statements, comprising the Income Statement, Statement of Comprehensive Income, Balance Sheet,

Statement of Changes in Shareholders’ Equity, Statement of Cash Flows and the Notes, present a true and fair view of

the financial position and of the result for the period and reflect the contents of the accounting records.

Mantua, 28 May 2020


Massimiliano Ghizzi

Page no. 140

Board of Statutory Auditors’ Report

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